Page Range | 80635-81154 | |
FR Document |
Page and Subject | |
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80 FR 80686 - Fisheries of the Caribbean, Gulf of Mexico, and South Atlantic; Coastal Migratory Pelagic Resources in the Gulf of Mexico and Atlantic Region; Framework Amendment 3 | |
80 FR 80854 - In the Matter of Yayi International, Inc.,; Order of Suspension of Trading | |
80 FR 80745 - Revised Sunshine Act Meeting Notice | |
80 FR 80787 - Collection of Information Under Review by Office of Management and Budget; OMB Control Number: 1625-0061 | |
80 FR 80789 - Collection of Information Under Review by Office of Management and Budget; OMB Control Number: 1625-0108 | |
80 FR 80788 - Information Collection Request to Office of Management and Budget; OMB Control Number: 1625-0038 | |
80 FR 80785 - Collection of Information Under Review by Office of Management and Budget; OMB Control Number: 1625-0003 | |
80 FR 80651 - Safety Zone; New Year's Eve Firework Displays, Chicago River, Chicago, IL | |
80 FR 80770 - Wireless Telecommunications Bureau Extends Period To File Comments and Reply Comments in Response to a Public Notice on an Appropriate Method for Determining the Protected Contours for Grandfathered 3650-3700 MHz Band Licensees | |
80 FR 80746 - Authorization of Production Activity; Foreign-Trade Zone 84; Bauer Manufacturing Inc.; (Stationary Oil/Gas Drilling Rigs) Conroe, Texas | |
80 FR 80751 - Melamine From the People's Republic of China: Antidumping Duty and Countervailing Duty Orders | |
80 FR 80749 - Heavy Walled Rectangular Welded Carbon Steel Pipes and Tubes From the Republic of Turkey: Preliminary Affirmative Countervailing Duty Determination and Alignment of Final Determination With Final Antidumping Duty Determination | |
80 FR 80746 - Crystalline Silicon Photovoltaic Cells, Whether or Not Assembled Into Modules, From the People's Republic of China: Preliminary Results of Antidumping Duty Administrative Review and Preliminary Determination of No Shipments; 2013-2014 | |
80 FR 80799 - United States, et al. v. AMC Entertainment Holdings, Inc., et al.; Proposed Final Judgment and Competitive Impact Statement | |
80 FR 80881 - Research Advisory Committee on Gulf War Veterans' Illnesses; Notice of Meeting | |
80 FR 80811 - Notice Pursuant to the National Cooperative Research and Production Act of 1993-ASSE International Chapter of IAPMO, LLC | |
80 FR 80816 - Agency Information Collection Activities; Submission for OMB Review; Comment Request; Overpayment Recovery Questionnaire | |
80 FR 80814 - Agency Information Collection Activities; Submission for OMB Review; Comment Request; Institutional Analysis of American Job Centers Study | |
80 FR 80812 - Agency Information Collection Activities; Submission for OMB Review; Comment Request; OSHA Strategic Partnership Program for Worker Safety and Health | |
80 FR 80816 - Agency Information Collection Activities; Submission for OMB Review; Comment Request; National Guard Youth ChalleNGe Job ChalleNGe Evaluation | |
80 FR 80815 - Agency Information Collection Activities; Submission for OMB Review; Comment Request; Employment and Training Administration Financial Reporting, Form ETA-9130 | |
80 FR 80810 - Notice Pursuant to the National Cooperative Research and Production Act of 1993-UHD Alliance, Inc. | |
80 FR 80813 - Advisory Committee on Veterans' Employment, Training and Employer Outreach (ACVETEO): Meeting | |
80 FR 80755 - Proposed Information Collection; Comment Request | |
80 FR 80876 - Agency Request for Emergency Processing of Collection of Information by the Office of Management and Budget | |
80 FR 80877 - R.J. Corman Railroad Company/Carolina Lines, LLC-Modified Certificate of Public Convenience and Necessity-Horry County, S.C. | |
80 FR 80766 - Information Collection Request Submitted to OMB for Review and Approval; Comment Request; Safe Drinking Water Act State Revolving Fund Program | |
80 FR 80768 - Information Collection Request Submitted to OMB for Review and Approval; Comment Request; Establishing No-Discharge Zones (NDZs) Under Clean Water Act Section 312 (Renewal) | |
80 FR 80769 - Information Collection Request Submitted to OMB for Review and Approval; Comment Request; BEACH Act Grants (Renewal) | |
80 FR 80767 - Information Collection Request Submitted to OMB for Review and Approval; Comment Request; Cooling Water Intake Structures New Facility Final Rule (Renewal) | |
80 FR 80765 - Information Collection Request Submitted to OMB for Review and Approval; Comment Request; National Pollutant Discharge Elimination System (NPDES) Program (Renewal) | |
80 FR 80767 - Information Collection Request Submitted to OMB for Review and Approval; Comment Request; National Pretreatment Program (Renewal) | |
80 FR 80794 - Announcement of Scientific Earthquake Studies Advisory Committee Meeting | |
80 FR 80643 - Russian Sanctions: Addition of Certain Persons to the Entity List | |
80 FR 80710 - Guidance on Charging and Penalty Determinations in Settlement of Administrative Enforcement Cases, Revision of Supplement No. 1 to Part 766 of the Export Administration Regulations | |
80 FR 80772 - Submission for OMB Review; Comment Request | |
80 FR 80790 - Notice of Proposed Information Collection for Public Comment on the: Evaluation of the Jobs Plus Pilot Program | |
80 FR 80791 - 60-Day Notice of Proposed Information Collection: Public Housing Mortgage Program and Section 30 | |
80 FR 80872 - Notice of Surrender of License of Small Business Investment Company | |
80 FR 80709 - Regulatory Improvements for Decommissioning Power Reactors | |
80 FR 80793 - Wildlife and Hunting Heritage Conservation Council; Public Meeting | |
80 FR 80795 - Certain Three-Dimensional Cinema Systems and Components Thereof; Notice of Request for Statements on the Public Interest | |
80 FR 80811 - Change of Address for the Office of Foreign Labor Certification National Office | |
80 FR 80796 - Notice of Receipt of Complaint; Solicitation of Comments Relating to the Public Interest | |
80 FR 80754 - Agency Information Collection Activities; Submission for OMB Review; Comment Request-Safety Standard for Infant Swings | |
80 FR 80795 - Notice of Public Meeting, Idaho Falls District Resource Advisory Council Meeting | |
80 FR 80759 - Agency Information Collection Extension | |
80 FR 80758 - Agency Information Collection Extension | |
80 FR 80875 - Finding Regarding Foreign Social Insurance or Pension System-Australia | |
80 FR 80784 - Agency Information Collection Activities: Submission for OMB Review; Comment Request | |
80 FR 80872 - Community Advantage Pilot Program | |
80 FR 80741 - International Fisheries; Pacific Tuna Fisheries; Fishing Restrictions for the Area of Overlap Between the Convention Areas of the Inter-American Tropical Tuna Commission and the Western and Central Pacific Fisheries Commission | |
80 FR 80773 - Submission for OMB Review; Comment Request | |
80 FR 80857 - Self Storage Group, Inc.; Notice of Application | |
80 FR 80834 - Recon Capital Series Trust, et al.; Notice of Application | |
80 FR 80695 - Fisheries of the Exclusive Economic Zone Off Alaska; Revise Maximum Retainable Amounts for Skates in the Gulf of Alaska | |
80 FR 80760 - Shelby County Energy Center, LLC; Supplemental Notice That Initial Market-Based Rate Filing Includes Request for Blanket Section 204 Authorization | |
80 FR 80762 - Independent Power Producers of New York, Inc. v. New York Independent System Operator, Inc.; Notice of Compliance Filing | |
80 FR 80760 - Columbia Gas Transmission, LLC; | |
80 FR 80764 - Transcontinental Gas Pipe Line Company, LLC; UGI Mt. Bethel Pipeline Company, LLC; Notice of Applications | |
80 FR 80762 - Combined Notice of Filings | |
80 FR 80761 - Combined Notice of Filings #2 | |
80 FR 80763 - Combined Notice of Filings #1 | |
80 FR 80765 - Combined Notice of Filings | |
80 FR 80878 - Northwest Tennessee Regional Port Authority-Construction and Operation Exemption-in Lake County, TN | |
80 FR 80689 - Fisheries of the Northeastern United States; Summer Flounder, Scup, and Black Sea Bass Fisheries; 2016-2018 Summer Flounder, Scup, and Black Sea Bass Specifications | |
80 FR 80783 - Agency Information Collection Activities: Proposed Collection; Comment Request | |
80 FR 80781 - Agency Information Collection Activities: Proposed Collection; Comment Request | |
80 FR 80756 - Privacy Act of 1974; System of Records | |
80 FR 80686 - Fisheries of the Caribbean, Gulf of Mexico, and South Atlantic; Dolphin and Wahoo Fishery Off the Atlantic States and Snapper-Grouper Fishery of the South Atlantic Region; Amendments 7/33 | |
80 FR 80811 - Agency Information Collection Activities; Proposed eCollection eComments Requested; Annuity Broker Qualification Declaration Form | |
80 FR 80818 - Agency Information Collection Activities; Submission for OMB Review; Comment Request; Main Fan Operation and Inspection (I-A, II-A, III, and V-A Mines) | |
80 FR 80778 - Agency Information Collection Activities; Submission to OMB for Review and Approval; Public Comment Request | |
80 FR 80779 - Agency Information Collection Activities; Proposed Collection; Public Comment Request | |
80 FR 80777 - Agency Information Collection Activities: Proposed Collection: Public Comment Request | |
80 FR 80792 - Proposed Renewal of Information Collection; Declaration for Importation or Exportation of Fish or Wildlife | |
80 FR 80683 - Monetary Threshold for Reporting Rail Equipment Accidents/Incidents for Calendar Year 2016 | |
80 FR 80682 - Alcohol and Drug Testing: Determination of Minimum Random Testing Rates for 2016 | |
80 FR 80753 - Submission for OMB Review; Comment Request | |
80 FR 80754 - Submission for OMB Review; Comment Request | |
80 FR 80867 - Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Related to Fees for Use of EDGX Exchange, Inc. | |
80 FR 80851 - Self-Regulatory Organizations; EDGA Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Rule 11.6(n)(1), Routing/Posting Instructions, To Amend the Aggressive Instruction | |
80 FR 80854 - Self-Regulatory Organizations; EDGA Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Related to Fees for Use of EDGA Exchange, Inc. | |
80 FR 80823 - Self-Regulatory Organizations; BOX Options Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Fee Schedule To Update Certain Fees Assessed Under Section V (Connectivity Fees) | |
80 FR 80827 - Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Related to Fees for Use of BATS Exchange, Inc. | |
80 FR 80832 - Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Related to Fees for EDGX Options | |
80 FR 80870 - Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Related to Fees for BZX Options | |
80 FR 80844 - Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Related to Fees for BZX Options | |
80 FR 80797 - Certain Windshield Wipers and Components Thereof; Commission Determination To Review in Part and, on Review, To Reverse in Part and To Vacate in Part a Final Initial Determination Finding a Violation of Section 337, and To Remand the Investigation in Part to the Administrative Law Judge | |
80 FR 80820 - New Postal Product | |
80 FR 80821 - New Postal Product | |
80 FR 80819 - New Postal Product | |
80 FR 80859 - Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Amendment Nos. 3, 4, 5, and 6 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment Nos. 1, 3, 4, 5 and 6, To List and Trade of Shares of the Guggenheim Total Return Bond ETF Under NYSE Arca Equities Rule 8.600 | |
80 FR 80847 - Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order Approving a Proposed Rule Change To Amend Rule 4758 | |
80 FR 80849 - Self-Regulatory Organizations; Miami International Securities Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fee Schedule | |
80 FR 80830 - Self-Regulatory Organizations; Miami International Securities Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fee Schedule | |
80 FR 80865 - Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Rule 21.8, Order Display and Book Processing | |
80 FR 80825 - Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Rule 11.6(n)(1), Routing/Posting Instructions, To Amend the Aggressive Instruction | |
80 FR 80719 - Air Plan Approval; Indiana; Temporary Alternate Opacity Limits for American Electric Power, Rockport | |
80 FR 80758 - Defense Business Board; Notice of Federal Advisory Committee Meeting | |
80 FR 80798 - Certain Chassis Parts Incorporating Movable Sockets and Components Thereof; Institution of Investigation | |
80 FR 80822 - Product Change-First-Class Package Service Negotiated Service Agreement | |
80 FR 80822 - International Product Change-Global Expedited Package Services-Non-Published Rates | |
80 FR 80822 - Product Change-Priority Mail Express and Priority Mail Negotiated Service Agreement | |
80 FR 80775 - Determination That KYTRIL (Granisetron Hydrochloride) Tablets, Equivalent 1 Milligram and 2 Milligram Base, Were Not Withdrawn From Sale for Reasons of Safety or Effectiveness | |
80 FR 80781 - Center for Scientific Review; Notice of Closed Meetings | |
80 FR 80781 - National Institute of Dental & Craniofacial Research; Notice of Meeting | |
80 FR 80780 - National Institute of Allergy and Infectious Diseases; Notice of Closed Meetings | |
80 FR 80753 - Mid-Atlantic Fishery Management Council (MAFMC); Public Meeting | |
80 FR 80822 - Product Change-Priority Mail and First-Class Package Service Negotiated Service Agreement | |
80 FR 80880 - Open Meeting of the Taxpayer Advocacy Panel's Tax Forms and Publications Project Committee | |
80 FR 80878 - Open Meeting of the Taxpayer Advocacy Panel's Special Projects Committee | |
80 FR 80879 - Open Meeting of the Taxpayer Advocacy Panel's Toll-Free Phone Line Project Committee | |
80 FR 80880 - Open Meeting of the Taxpayer Advocacy Panel Taxpayer Assistance Center Project Committee | |
80 FR 80879 - Open Meeting of the Taxpayer Advocacy Panel's Notices and Correspondence Project Committee | |
80 FR 80879 - Open Meeting of the Taxpayer Advocacy Panel Taxpayer Communications Project Committee | |
80 FR 80881 - Open Meeting of the Taxpayer Advocacy Panel Joint Committee | |
80 FR 80650 - Hepatitis C Virus “Lookback” Requirements Based on Review of Historical Testing Records; Technical Amendment | |
80 FR 80776 - Externally-Led Patient-Focused Drug Development Meetings | |
80 FR 80774 - Determination of Regulatory Review Period for Purposes of Patent Extension; KADCYLA | |
80 FR 80718 - Use of the Term “Natural” in the Labeling of Human Food Products; Request for Information and Comments; Extension of Comment Period | |
80 FR 80771 - Agency Information Collection Activities: Submission for OMB Review; Comment Request | |
80 FR 80878 - Policy Statement on Implementing Intercity Passenger Train On-Time Performance and Preference Provisions of 49 U.S.C. 24308(c) and (f) | |
80 FR 80737 - On-Time Performance Under Section 213 of the Passenger Rail Investment and Improvement Act of 2008 | |
80 FR 80799 - Meeting of the Advisory Committee; Meeting | |
80 FR 80879 - Proposed Collection; Comment Request for Forms 2210 and 2210-F | |
80 FR 80653 - Pesticides; Revisions to Minimum Risk Exemption | |
80 FR 80875 - Request for Public Comments on Review of Employment Impact of the Trans-Pacific Partnership | |
80 FR 80819 - Notice of Availability of Partnerships for Commercial Optical Communication Systems | |
80 FR 80745 - Submission for OMB Review; Comment Request | |
80 FR 80665 - Spinosad; Pesticide Tolerances | |
80 FR 80635 - Pass-Through Share Insurance for Interest on Lawyers Trust Accounts | |
80 FR 80672 - Texas: Final Authorization of State-Initiated Changes and Incorporation by Reference of State Hazardous Waste Management Program | |
80 FR 80722 - Texas: Final Authorization of State-initiated Changes and Incorporation by Reference of State Hazardous Waste Management Program | |
80 FR 80884 - Use of Derivatives by Registered Investment Companies and Business Development Companies | |
80 FR 80722 - Hearing Aid Compatibility Standards | |
80 FR 80998 - Regulation of NMS Stock Alternative Trading Systems |
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National Credit Union Administration (NCUA).
Final rule.
The NCUA Board (Board) is amending its share insurance regulations to implement statutory amendments to the Federal Credit Union Act (FCU Act or the Act) resulting from the recent enactment of the Credit Union Share Insurance Fund Parity Act (Insurance Parity Act). The statutory amendments require NCUA to provide enhanced, pass-through share insurance for interest on lawyers trust accounts (IOLTA) and other similar escrow accounts. As its name implies, the Insurance Parity Act ensures that NCUA and the Federal Deposit Insurance Corporation (FDIC) insure IOLTAs and other similar escrow accounts in an equivalent manner.
This rule is effective January 27, 2016.
Frank Kressman, Associate General Counsel, Office of General Counsel, at the above address or telephone (703) 518-6540.
According to the National Association of IOLTA Programs (NAIP),
Under an IOLTA program, an attorney or law firm may establish an account at one or more financial institutions to hold their clients' funds to pay for legal services or for other purposes. An attorney or a law firm would deposit clients' funds in one or more IOLTAs and hold these funds in trust until needed. Typically, the interest or dividends on IOLTAs are donated to charities or other 501(c)(3) tax exempt organizations pursuant to state law. Generally, the donated funds are used to subsidize legal aid services or for other charitable purposes.
On December 18, 2014, President Obama signed into law the Insurance Parity Act.
The Insurance Parity Act defines an IOLTA as “a system in which lawyers place certain client funds in interest-bearing or dividend-bearing accounts, with the interest or dividends then used to fund programs such as legal service organizations who provide services to clients in need.”
The FDIC's deposit insurance regulations
Prior to the enactment of the Insurance Parity Act, NCUA's position with respect to the insurability of IOLTAs was very similar to FDIC's, except that NCUA's coverage was limited only to those clients of the attorney who were also members of the insured credit union in which the IOLTA was kept. This was due to the FCU Act's general limitation to insure only member accounts, with some exceptions not applicable to this rulemaking.
Many federally insured credit unions maintained that NCUA's position on this issue placed them at a competitive disadvantage. The Insurance Parity Act removed any such disadvantage, however. Specifically, provided the lawyer administering the IOLTA or the escrow agent administering a similar escrow account is a member of the insured credit union in which such account is maintained, then the interests of each client or principal, on whose behalf funds are being held in such accounts by the lawyer or escrow agent, will be insured on a pass-through basis in accordance with the limits in part 745 of NCUA's regulations, regardless of the membership status of the client or principal. In an IOLTA and other similar escrow accounts, the true owners of the funds are the clients and principals. The lawyers or law firms and the escrow agents are only agents holding the funds on the clients' and principals' behalf.
In April 2015, the Board issued a proposed rule amending its share insurance regulations to implement statutory amendments to the FCU Act resulting from the enactment of the Insurance Parity Act.
The Insurance Parity Act clearly states that NCUA shall provide pass-through share insurance for IOLTAs, and it defines an IOLTA. Accordingly, share insurance coverage for IOLTAs took effect with the enactment of the Insurance Parity Act, even without any regulatory action on NCUA's part. No implementing regulations were required to effect this aspect of the legislation. However, the proposed rule addressed other aspects of the legislation that did require NCUA to take regulatory action.
Additionally, some of the language in the Insurance Parity Act is ambiguous and left certain questions unanswered. For example, these questions included:
• What escrow accounts should be included in the category “other similar escrow accounts” as that phrase is used in the Insurance Parity Act?
• Should prepaid card programs, such as payroll cards, be considered IOLTAs or other similar escrow accounts for share insurance purposes?
• What recordkeeping requirements must be satisfied to receive share insurance on IOLTAs and other similar escrow accounts?
• Does the enhanced share insurance coverage provided by the Insurance Parity Act affect the Bank Secrecy Act (BSA) requirements for insured credit unions?
• Should nonmember funds kept in a federal credit union as a result of the enhanced share insurance coverage provided by the Insurance Parity Act count towards a federal credit union's limit on the receipt of payments on shares from nonmembers pursuant to § 701.32 of NCUA's regulations?
As discussed below, NCUA analyzed the above questions and proposed how each should be addressed. However, NCUA requested public comment on alternative interpretations of the Insurance Parity Act and alternative regulatory approaches that commenters believe are appropriate and beneficial.
As noted above, the Insurance Parity Act defines “pass-through share insurance,” with respect to IOLTAs and other similar escrow accounts, as “insurance coverage based on the interest of each person on whose behalf funds are held in such accounts by the attorney administering the IOLTA or the escrow agent administering a similar escrow account, in accordance with regulations issued by [NCUA].”
The Insurance Parity Act provides that, for share insurance purposes, IOLTAs are treated as escrow accounts. It also provides that pass-through insurance coverage is available for other kinds of escrow accounts that are similar to IOLTAs. However, the Insurance Parity Act does not define or further describe what constitutes an escrow account that is “similar” to an IOLTA.
The Insurance Parity Act defines an IOLTA as “a system in which lawyers place certain client funds in interest-bearing or dividend-bearing accounts, with the interest or dividends then used to fund programs such as legal service organizations who provide services to clients in need.” NCUA is tasked with defining the kinds of escrow accounts that are similar enough to IOLTAs to be eligible for pass-through share insurance as discussed above. In the proposed rule, the Board acknowledged the challenge to describe with precision the circumstances under which such coverage should be provided. There are many different kinds of escrow accounts in use, with varying forms and structures. Also, the Board noted in the proposed rule that “similar” is a relative term that may necessitate NCUA reviewing escrow accounts with varying structures on a case-by-case basis to determine which are similar enough to IOLTAs to receive pass-through insurance coverage.
Despite the amorphous nature of escrow accounts, the Board noted in the proposed rule the importance of providing insured credit unions with as much regulatory clarity and certainty as possible about which escrow accounts are considered similar enough to IOLTAs to receive pass-through insurance coverage. NCUA seeks to avoid, to the greatest extent possible, the need to make case-by-case analyses of escrow accounts, as that process is labor intensive and inefficient and it creates uncertainty for insured credit unions.
There are some escrow accounts whose nature and structure are immediately recognizable as similar to an IOLTA. For example, the Board noted in the proposed rule that typical real estate escrow accounts and prepaid funeral accounts have attributes that, while not identical to IOLTAs, are similar to IOLTAs and should be entitled to pass-through share insurance coverage. One of the signature characteristics common to typical real estate escrow accounts, prepaid funeral
The Board proposed, at a minimum, to extend pass-through share insurance coverage to escrow accounts with these characteristics, up to the limits provided for in part 745 of NCUA's regulations. However, the Board encouraged commenters to identify and discuss other kinds of escrow accounts, in addition to real estate and prepaid funeral accounts, which also have characteristics similar enough to IOLTAs to warrant pass-through insurance coverage.
Specifically, the Board requested comment on the following: (1) what kinds of escrow accounts should qualify for pass-through share insurance coverage and why; (2) what specific attributes these escrow accounts need to possess to obtain coverage; (3) how NCUA can define these accounts to capture their essence and minimize the need for case-by-case analyses of their characteristics; and (4) any other aspect of this topic. In addition, the Board specifically invited comment on whether it is appropriate to limit the pool of other similar escrow accounts to those where a recognizable fiduciary duty is owed by the escrow agent to the principal.
In the proposed rule, the Board welcomed comments on NCUA's proposed treatment of prepaid card programs. To put this issue in context and provide background information about such programs, the Board included the following excerpt on prepaid cards from the Federal Financial Institutions Examination Council's Web site.
The market for prepaid cards, sometimes called stored-value cards, is one of the fastest-growing segments of the retail financial services industry. While the terms prepaid cards and stored-value cards are frequently used interchangeably, differences exist between the two products.
Prepaid cards are generally issued to persons who deposit funds into an account of the issuer. During the funds deposit process, most issuers establish an account and obtain identifying data from the purchaser (
Stored-value cards do not typically involve a deposit of funds as the value is prepaid and stored directly on the cards. Because its business model requires cardholders to pay in advance, it substantially eliminates the nonpayment risk for the issuing financial institution. The functionality of this product is leading to a wide range of card programs that operate in either closed or open-loop systems, and program innovation has resulted in the development of systems that operate in both structures. Closed-loop systems are generally retailer/issuer business models, while general-purpose cards issued by financial institutions tend to operate in open-loop systems. Open-loop system prepaid cards are processed using the same systems as the branded network cards (MasterCard, Visa, American Express, and Discover) and offer the same functionality.
In the past, prepaid cards were mostly issued by nonfinancial businesses in limited deployment environments such as mass transit systems and universities. In recent years, prepaid cards have grown significantly as financial institutions and nonbank organizations target under-banked markets and overseas remittances. Technological innovations in the way information is stored (
There are several types of prepaid cards, including gift, payroll, travel, and teen cards. Either the consumer or an issuer funds the account for the card. When a consumer uses the card to make a purchase, the merchant deducts the amount of the purchase from the card. Transaction authorization can take place through an existing network, a chip stored on the card, or information coded on the magnetic strip. Once the stored value in the card is exhausted, customers may either replenish the value or acquire a new card.
In addition to cards, stored-value payment devices are emerging in a variety of other physical forms, most notably key fobs. With the recent introduction of contactless payment technologies, use of chips (smart cards), radio frequency identification (RFID), and near-field communication (NFC) payment devices are becoming more innovative. Initiatives are underway to introduce mobile phones with integrated microchips that can initiate a payment when waved over a specially-equipped reader. The integrated chip can store value, authenticate a consumer, or contain consumer preferences and loyalty program information that can be used for marketing purposes.
Prepaid cards may be subject to legal and regulatory risks. For example, the Federal Reserve Board's final rule on Regulation E, issued August 30, 2006, extended its applicability to prepaid cards used for consumers' payroll. The Federal Reserve Board noted that it will monitor the development of other card products and may reconsider Regulation E coverage as these products continue to develop. State laws vary widely with regard to fees. Additionally, financial institutions should ensure that prepaid card product programs comply with the Bank Secrecy Act and anti-money laundering guidance.
The proposed rule articulated NCUA's general position that prepaid card programs, including payroll cards, should not be considered escrow accounts similar to IOLTAs for share insurance purposes because the characteristics that define an attorney's relationship with, and the fiduciary duties owed to, the attorney's clients are typically not present in the prepaid card scenario. An IOLTA and a prepaid card program serve very different purposes and typically have significantly different structures. For this and other reasons, a prepaid card program is not sufficiently similar to an IOLTA, for purposes of the Insurance Parity Act, to qualify for pass-through share insurance coverage as an escrow account similar to an IOLTA. However, the Board encouraged comments and requested information about prepaid card programs that commenters thought may be sufficiently similar to IOLTAs for share insurance purposes.
The Board explained in the proposed rule that, under certain circumstances, some prepaid card programs currently may be entitled to pass-through share insurance coverage under other aspects of part 745 unrelated to IOLTAs and the Insurance Parity Act. For example, if funds in a prepaid card program deposited in a federally insured credit union qualify as a share account that can be traced back to a specific owner in a specific dollar amount and the owner is a member of the credit union where the funds are kept, then those funds would be entitled to share insurance pursuant to the current terms and limits of part 745.
As noted in the proposed rule, FDIC's deposit insurance regulations provide that the FDIC will recognize a claim for insurance coverage based on a fiduciary relationship (such as an IOLTA or escrow account) only if the relationship is expressly disclosed, by way of specific references, in the deposit account records of the insured depository institution.
Similarly, NCUA's current share insurance regulations provide that the account records of an insured credit union shall be conclusive as to the existence of any relationship pursuant to which the funds in the account are deposited and on which a claim for insurance coverage is founded. Examples of such relationships include those involving trustees, agents, and custodians.
IOLTAs and other similar escrow accounts exemplify the kinds of accounts in which a relationship exists upon which a claim for insurance coverage could be founded. They are among the kinds of accounts that NCUA's regulations are intended to cover. Accordingly, based on NCUA's current share insurance regulations, for IOLTAs and other similar escrow accounts to receive the share insurance coverage to which they are entitled, the recordkeeping provisions of NCUA's share insurance regulations must be satisfied. No additional recordkeeping requirements are imposed by the Insurance Parity Act. Therefore, the Board did not propose any regulatory changes or additions in this regard, but nonetheless welcomed comments on this topic.
The proposed rule did not intend to discuss in detail an insured credit union's BSA requirements. Rather, NCUA intended it to remind insured credit unions of their continued BSA responsibilities with respect to IOLTAs and other similar escrow accounts. This is especially true given that IOLTAs and other similar escrow accounts will begin to contain funds for nonmembers which are likely not known by the credit unions in which the accounts are kept. The Board did not propose to make any regulatory changes in this regard, but nonetheless welcomed comments.
The Insurance Parity Act provides that IOLTAs and other similar escrow accounts are considered member accounts if the attorney administering the IOLTA or the escrow agent administering the escrow account is a member of the insured credit union in which the funds are held. In the proposed rule, the Board stated that if an IOLTA or other similar escrow account satisfies the above requirement and, therefore, is treated by the Insurance Parity Act as a member account, then the IOLTA or other similar escrow account also should be considered a member account for purposes of § 701.32 of NCUA's regulations. Therefore, funds in those member accounts do not count towards a federal credit union's limit on the receipt of payments on shares from nonmembers pursuant to § 701.32 of NCUA's regulations.
NCUA received eighteen comment letters on the proposed rule: four from credit unions; three from national trade associations; nine from credit union leagues; one from an attorney; and one from a credit card company. Below is a summary of those comments.
Generally, all of the commenters supported the proposed rule. However, as explained in more detail below, several commenters offered suggestions for additional types of escrow accounts that they believed should be afforded enhanced pass-through share insurance coverage. In addition, most commenters advocated for pass-through share insurance coverage on prepaid cards but did not provide legal analysis to support such expanded coverage.
All of the commenters that addressed this definition supported the proposed use of the statutory definition of “pass-through share insurance.” Accordingly, this final rule adopts the proposed definition without change.
As a preface to the following discussion of the commenters' positions on escrow accounts and prepaid cards, a reminder of how NCUA currently insures those accounts and how that might change as a result of the Insurance Parity Act will provide additional clarity. In the written comments received and in other forms of communications NCUA has had with various stakeholders on this topic, there appears to be some degree of misunderstanding.
Accordingly, the Board reiterates and emphasizes that, even in the absence of the Insurance Parity Act, it currently insures certain escrow accounts and prepaid cards under current share insurance provisions. The Insurance Parity Act amends the membership requirements associated with covering those kinds of accounts, but it does not organically create or authorize such coverage as though such authority did not previously exist.
The membership requirements in the Insurance Parity Act shift the focus from the membership status of the principals, the actual owners of the funds, to the membership status of: (1) The attorney administering the IOLTA; (2) the escrow agent administering the escrow account; and (3) if prepaid cards are deemed “other similar escrow accounts,” then the party associated with a prepaid card that is acting in a similar capacity as the attorney or escrow agent. As discussed more fully below, in many instances, the shift in whose membership status matters will make it logistically easier for certain kinds of accounts to obtain enhanced pass-through coverage, for example IOLTAs. However, for some kinds of accounts including certain prepaid cards if they are determined to qualify, this shift in focus could actually make it significantly more difficult to obtain enhanced pass-through coverage.
Further, any increase in an insured credit union's total amount of insured shares as a result of the enhanced coverage provided by the Insurance Parity Act will require that credit union to increase proportionally the 1%
Several commenters suggested other types of accounts that they believed satisfies the definition of “other similar escrow accounts” and, therefore, should be afforded pass-through share insurance coverage in the same manner as an IOLTA, specifically meaning that the membership status of the principal, the owner of the funds, is irrelevant provided the escrow agent is a member of the credit union in which the founds are held. Those suggestions included: (1) Agent-trust fiduciary accounts such as vacation rental security accounts and cemetery trust accounts; (2) any escrow account used to facilitate a purchase transaction such as the purchase of boats, commercial vessels, and planes; (3) any account established by a licensed or registered escrow agent; (4) landlord/tenant accounts; and (5) public adjuster accounts and education disbursement accounts.
As indicated in the proposed rule, there are many escrow accounts currently in use that are similar to IOLTAs and entitled to the enhanced pass-through insurance contemplated by the Insurance Parity Act. The Board supports providing enhanced insurance coverage for those accounts. In the proposal, the Board requested that commenters specifically identify the attributes of those accounts they believe should receive enhanced pass-through coverage and to define the essence of those accounts. Such a detailed description would help NCUA identify certain accounts as similar to IOLTAs without the need for a case-by-case analysis of escrow accounts. Unfortunately, while commenters identified broad and general categories of escrow accounts, they did not provide specifics in a way that allows NCUA to eliminate the need for case-by-case review. This is not surprising as there is a lack of universally accepted titles to describe certain kinds of escrow accounts. Further, there are many kinds of escrow accounts that are similar to each other but which are not structurally or functionally identical which further hampers precise labeling.
It is this lack of uniformity in language, function, and organizational structure that makes it difficult for NCUA to promulgate regulations that identify by name the escrow accounts eligible for enhanced share insurance coverage. Despite this obstacle, NCUA will provide enhanced share insurance coverage to certain escrow accounts, in addition to real estate escrow accounts and prepaid funeral accounts as proposed, on a case-by-case basis, provided such escrow accounts satisfy the definition of “other similar escrow account” as defined in both the proposed rule and this final rule.
Two commenters advocated a less restrictive definition of “other similar escrow account” that would consider the existence of a fiduciary relationship as an indicia of evidence of an “other similar escrow account,” but would not make it a determinative factor. These commenters stated that a less restrictive definition would allow for inclusion of accounts that, while not rising to the level of a fiduciary relationship, exhibit trust and confidence and involve the holding of funds on behalf of another. The commenters offered landlord/tenant accounts as examples of accounts that would fall into that broader definition. However, several other commenters disagreed with having a broader definition of “other similar escrow account.” Instead, these commenters preferred NCUA's proposed requirement that an actual fiduciary relationship exist. The Board agrees with those commenters supporting the proposed definition that makes a fiduciary relationship a required component for enhanced share insurance. Congress made it clear that only escrow accounts that are similar to IOLTAs are to be provided with enhanced pass-through coverage. The lawyer-client relationship is largely characterized by the fiduciary duty lawyers owe their clients. Accordingly, requiring the fiduciary component to be present with respect to providing enhanced pass-through insurance coverage for “other similar escrow accounts” comports with congressional intent.
Two commenters stated that NCUA should clarify that real estate escrow accounts and prepaid funeral accounts qualify as “other similar escrow accounts” that are eligible for enhanced insurance coverage, but that the universe of “other similar escrow accounts” is not limited to those two named accounts. The Board made this clear in the proposed rule, but, as discussed above, the Board reiterates it here nonetheless.
One commenter argued that enhanced pass-through coverage should be expanded to include accounts held and administered by entities, such as law firms, real estate agencies, and funeral homes. This commenter stated that, as written, the proposed rule could be read as only permitting pass-through share insurance for accounts opened and held by individuals such as a lawyer or real estate agent, but not by their firms or brokerages. The Board agrees with the commenter that coverage should not be limited to accounts held and administered only by individual professionals but not their firms, and confirms the proposed rule did not have that effect. However, accounts opened by a law firm instead of an individual attorney, for example, will still need to satisfy the fiduciary relationship requirement. Accordingly, law firms and other entities administering the accounts must comply with all relevant law to maintain that relationship, which may or may not require an individual lawyer or escrow agent to also be named on the account.
Further, the Insurance Parity Act did not eliminate the membership requirement to obtain share insurance. Rather, it shifted the membership requirement from the owner of funds to the administrator of the IOLTA or escrow account. That means, for example, that a law firm that wishes to open an escrow account at a credit union must meet the credit union's field of membership criteria. NCUA recognizes, however, that a law firm, as an entity, may have difficulty meeting the membership criteria of the credit union of its choosing. Accordingly, if the firm itself does not qualify for membership in a particular credit union, but one of its lawyers does, then the firm may maintain an IOLTA in that credit union if the eligible lawyer joins the credit union. This is consistent with congressional intent to place credit
Generally, all of the commenters that addressed prepaid cards believed NCUA should include them as “other similar escrow accounts.” However, the commenters did not provide sufficient legal analysis to support their positon. Rather, these commenters generally suggested that NCUA should offer the same insurance coverage as FDIC on prepaid cards and that failure to do so would place credit unions at a competitive disadvantage. In this regard, no commenters acknowledged that NCUA currently insures some prepaid cards held by members and that, except for the membership requirement, NCUA's analysis for calculating this coverage is essentially the same as the FDIC's analysis.
One commenter provided a detailed analysis of the prepaid card industry and suggested ways in which NCUA could offer pass-through share insurance coverage on these accounts. This commenter divided prepaid cards into two categories: general-purpose reloadable cards (GPRs) and cards that allow for the disbursement of funds. The commenter stated that GPRs function like checking or share draft accounts, without checks or drafts, and allow a member to add or load additional funds onto the card. Cards for the disbursement of funds are used by employers and governments to distribute salaries and other benefits. The commenter did not specifically explain why these mechanisms for accessing funds are escrow accounts or how the distributors of such products would obtain the required credit union membership under the Insurance Parity Act.
This commenter went on to state that prepaid account funds are typically, but not always, deposited in omnibus accounts in a bank or a credit union in a master account held in the name of the prepaid card program for the benefit of the individual accountholders in the program. Individual cardholder funds are typically, but not always, tracked on a subaccount basis and recorded by the prepaid card issuer, processor, or prepaid program manager. The commenter acknowledged that while an attorney-client fiduciary relationship is not present, the Electronic Fund Transfer Act
One commenter stated that pass-through coverage should be provided on cards where the owners of those cards are members of the credit union where the funds are held. As noted above, NCUA currently does this under appropriate circumstances.
Several commenters argued that NCUA currently, and irrespective of the Insurance Parity Act, has the authority to permit prepaid cards to be considered member accounts. These commenters stated that the FCU Act provides the Board with broad latitude in defining a member account and that NCUA regulations and legal opinions have created a precedent for allowing insurance coverage to nonmembers in certain instances. We agree that these statements are true but only in certain instances as discussed above.
These commenters further reasoned that any account opened at a credit union is a “member account,” thereby allowing the Board to authorize insurance coverage for payroll cards or other accounts established by credit union members that hold nonmember accounts. The Board does not agree that this statement is legally accurate.
One commenter stated that NCUA should provide pass-through share insurance coverage on prepaid cards where a fiduciary relationship can be clearly established and the fiduciary is a member of the credit union. Another commenter stated that NCUA should provide pass-through share insurance coverage only on those prepaid card accounts that have the characteristics of “other similar escrow accounts.” This commenter suggested that NCUA could stipulate that a qualifying prepaid card account must meet the proposed record keeping requirements for escrow accounts, thereby eliminating those prepaid card accounts that lack the characteristics of escrow accounts because the record keeping requirements are not part of the business model of these types of products. Conversely, the commenter reasoned that prepaid card accounts that meet the record keeping requirements would present similar characteristics of escrow accounts. Because “other similar escrow accounts,” as that term is defined in this rule, are entitled to enhanced pass-through insurance under the Insurance Parity Act, a prepaid card satisfying that definition would be entitled to such treatment. However, prepaid cards currently do not satisfy that definition.
Two other commenters also advocated pass-through share insurance on prepaid card accounts that establish a similar relationship as escrow accounts and have similar characteristics, including payroll cards and prepaid gift cards. These commenters, however, did not elaborate on how to assess those characteristics or the level of similarity.
Finally, one commenter suggested that NCUA should simply stipulate that credit unions can exercise the same powers authorized for banks under 12 CFR part 300 or allow credit unions to request to have all of the same trust powers that are exercised by banks. This would exceed NCUA's authority under the FCU Act and the Insurance Parity Act.
For many years, the credit union industry has requested that NCUA and Congress enable the NCUSIF to insure IOLTAs on a pass-through basis without regard to the membership status of the lawyer's clients. The essential purpose of the Insurance Parity Act is to provide that relief with respect to IOLTAs. Further, the Insurance Parity Act granted additional enhanced coverage for escrow accounts similar to IOLTAs, which is relief the credit union industry historically has not requested.
The Insurance Parity Act limits enhanced coverage to a narrow universe of accounts. The Insurance Parity Act is not intended to eliminate every distinction between banks and credit unions or alter how every kind of credit union account may be created, structured, and insured. The fact that credit unions, generally speaking, must only serve their members is a critical distinction between banks and credit unions. While there are some statutory exemptions from the membership requirements applicable to accounts the NCUSIF may insure, the general principle of share insurance coverage is that coverage is member-based. Accordingly, in interpreting whether prepaid cards are to be considered
NCUA's research on prepaid cards has yielded results similar to those of the Federal Financial Institutions Examination Council and the FDIC, although those two entities may use different terminology to discuss prepaid cards. Prepaid cards are an ever expanding vehicle in the financial services marketplace, and they seem to be constantly evolving into new shapes and forms. They come in many varieties and are structured in many different ways. This variety and continuous evolution makes it difficult to devise a single, universal, and useful definition that applies to all prepaid cards.
In its General Counsel's Opinion No. 8, the FDIC discussed prepaid products, in relevant part as follows:
Stored value products, or “prepaid products,” may be divided into two broad categories: (1) Merchant products; and (2) bank products.
A merchant card (also referred to as a “closed-loop” card) enables the cardholder to collect goods or services from a specific merchant or cluster of merchants. Generally, the cards are sold to the public by the merchant in the same manner as gift certificates. Examples are single-purpose cards such as cards sold by book stores or coffee shops. Another example is a prepaid telephone card.
Merchant cards do not provide access to money at a depository institution. When a cardholder uses the card, the merchant is not paid through a depository institution. On the contrary, the merchant has been prepaid through the sale of the card. In the absence of money at a depository institution, no insured “deposit” will exist under section 3(l) of the FDI Act.
Bank cards are different. Bank cards (also referred to as “open-loop” cards) provide access to money at a depository institution. In some cases, the cards are distributed to the public by the depository institution itself. In many cases, the cards are distributed to the public by a third party. For example, in the case of “payroll cards,” the cards often are distributed by an employer to employees. In the case of multi-purpose “general spending cards” or “gift cards,” the cards may be sold by retail stores to customers.
A bank card usually enables the cardholder to effect transfers of funds to merchants through point-of-sale terminals. A bank card also may enable the cardholder to make withdrawals through automated teller machines (“ATM's”). In other words, a bank card provides access to money at a depository institution. The money is placed at the depository institution by the card distributor (or other company in association with the card distributor), but is transferred or withdrawn by the cardholders. In some cases, the card is “reloadable” in that additional funds may be placed at the depository institution for the use of the cardholder.
This General Counsel's opinion does not address merchant cards because such cards do not involve the placement of funds at insured depository institutions. The applicability of this General Counsel's opinion is limited to bank cards and other nontraditional access mechanisms, such as computers, that provide access to funds at insured depository institutions.
Merchant cards, as discussed above, do not involve a deposit of funds at a financial institution by the card holder as the value is prepaid and stored directly on the cards. Accordingly, this kind of vehicle is clearly not insurable under the Insurance Parity Act as there is no account held at a federally insured credit union.
Because open loop cards, which FDIC refers to as bank cards, provide access to money at an insured depository institution such as a federally insured credit union, NCUA has examined these instruments carefully to determine if they should be insured as escrow accounts similar to IOLTAs. The Board noted in the proposed rule that open loop cards are currently insured by the NCUSIF under certain circumstances, which include the requirement that the cardholder be a member of the federally insured credit union in which the funds are held. The Board also noted in the proposed rule that prepaid card programs, including open loop cards such as payroll cards, should not be considered escrow accounts similar to IOLTAs for share insurance purposes because, among other reasons, the characteristics that define an attorney's relationship with, and the fiduciary duties owed to, the attorney's clients are typically absent in the open loop prepaid card scenario. Commenters argued that there is some element of a trust relationship in the prepaid card scenario but generally acknowledged that it does not rise to the level of an attorney-client relationship. NCUA's ongoing research of prepaid cards supports the position NCUA took in the proposed rule that an IOLTA and a prepaid card program serve very different purposes for the client and card holder and have drastically different structures.
In addition to the structural and functional dissimilarities between open loop cards and IOLTAs, open loop cards are not escrow accounts as that term is commonly understood and contemplated in the Insurance Parity Act. Further, in evaluating prepaid card products, the FDIC has determined that while not all prepaid card programs are structured the same, it generally views companies that sell or distribute general purpose prepaid cards as deposit brokers and the funds they deposit as brokered deposits. While this does not directly address whether open loop cards are escrow accounts similar to IOLTAs, FDIC's position on open loop cards supports NCUA's determination in this regard. More specifically, a deposit broker serves a drastically different purpose than an attorney representing a client, and a brokered deposit placed in a depository institution to obtain a high investment yield also is drastically different from funds a client places in trust with its lawyer as part of their legal relationship. The fact that the characteristics and purposes of an IOLTA and a brokered deposit are so dissimilar supports NCUA's conclusion that open loop cards are not escrow accounts similar to IOLTAs for purposes of the Insurance Parity Act and, therefore, not entitled to pass-through coverage unless the cardholder is a member of the federally insured credit union in which the funds are deposited and satisfies other criteria discussed above.
In conducting this analysis, NCUA paid particular attention to payroll cards as many in the credit union industry seemed particularly interested in those accounts. NCUA's research shows that there are several different kinds of payroll card products, including some that while called a “payroll card” may actually be a debit card product sponsored by a third party vendor that is not the cardholder's employer. NCUA's analysis revealed that many of the same barriers to enhanced pass-through coverage that exists for other types of prepaid cards also apply to payroll cards. More specifically, the structure and characteristics of a payroll card are not that of an escrow account that is similar to an IOLTA. The Board notes, however, that even without the special membership treatment provided by the Insurance Parity Act, the NCUSIF currently insures on a pass-through basis those payroll cards that satisfy NCUA's regular account and membership requirements as discussed above.
In conclusion, NCUA will expand its insurance coverage pursuant to the Insurance Parity Act for IOLTAs and other accounts that satisfy the definition of “other similar escrow account,” as defined herein. NCUA also will continue to insure on a pass-through
Only two commenters addressed this topic. One commenter fully supported the proposed language, while one commenter recommended that specific fields be included on the 5300 Call Report to capture the value of negotiable instruments, IOLTAs, and prepaid cards. This commenter believed that the additional fields would assist in accurate reporting of balances covered by federal insurance. This final rule maintains the recordkeeping requirements as proposed.
The Regulatory Flexibility Act (RFA) requires NCUA to prepare an analysis to describe any significant economic impact a regulation may have on a substantial number of small entities.
The Paperwork Reduction Act of 1995 (PRA) applies to rulemakings in which an agency by rule creates a new paperwork burden on regulated entities or modifies an existing burden.
Executive Order 13132 encourages independent regulatory agencies to consider the impact of their actions on state and local interests. In adherence to fundamental federalism principles, NCUA, an independent regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies with the executive order. This rule will not have a substantial direct effect on the states, on the connection between the national government and the states, or on the distribution of power and responsibilities among the various levels of government. NCUA has determined this rule does not constitute a policy that has federalism implications for purposes of the executive order.
NCUA has determined that this rule will not affect family well-being within the meaning of Section 654 of the Treasury and General Government Appropriations Act, 1999.
Credit, Credit unions, Share insurance.
By the National Credit Union Administration Board on December 17, 2015.
For the reasons stated above, NCUA amends 12 CFR part 745 as follows:
12 U.S.C. 1752(5), 1757, 1765, 1766, 1781, 1782, 1787, 1789; title V, Pub. L. 109-351; 120 Stat. 1966.
(a)(1)
(2) Pass-through coverage will only be available if the recordkeeping requirements of § 745.2(c)(1) of this part and the relationship disclosure requirements of § 745.2(c)(2) of this part are satisfied. In the event those requirements are satisfied, funds attributable to each client and principal will be insured on a pass-through basis in whatever right and capacity the client or principal owns the funds. For example, an IOLTA or other similar escrow account must be titled as such and the underlying account records of the insured credit union must sufficiently indicate the existence of the relationship on which a claim for insurance is founded. The details of the relationship between the attorney or escrow agent and their clients and principals must be ascertainable from the records of the insured credit union or from records maintained, in good faith and in the regular course of business, by the attorney or the escrow agent administering the account. NCUA will determine, in its sole discretion, the sufficiency of these records for an IOLTA or other similar escrow account.
(b)
(c)
(i)
(ii)
(iii)
(2) The terms “interest on lawyers trust account”, “IOLTA”, and “pass-through share insurance” are given the same meaning in this section as in 12 U.S.C. 1787(k)(5).
Bureau of Industry and Security, Commerce.
Final rule.
The Bureau of Industry and Security (BIS) amends the Export Administration Regulations (EAR) by adding sixteen persons under seventeen entries to the Entity List. The sixteen persons who are added to the Entity List have been determined by the U.S. Government to be acting contrary to the national security or foreign policy interests of the United States. BIS is taking this action to ensure the efficacy of existing sanctions on the Russian Federation (Russia) for violating international law and fueling the conflict in eastern Ukraine. These persons will be listed on the Entity List under the destinations of the Crimea region of Ukraine, Cyprus, Luxembourg, Panama, Russia, Switzerland, and the United Kingdom. Lastly, this final rule includes a clarification for how entries that include references to § 746.5 on the Entity List are to be interpreted.
This rule is effective December 28, 2015.
Chair, End-User Review Committee, Office of the Assistant Secretary, Export Administration, Bureau of Industry and Security, Department of Commerce, Phone: (202) 482-5991, Fax: (202) 482-3911, Email:
The Entity List (Supplement No. 4 to Part 744 of the EAR) identifies entities and other persons reasonably believed to be involved in, or that pose a significant risk of being or becoming involved in, activities that are contrary to the national security or foreign policy of the United States. The EAR imposes additional licensing requirements on, and limits the availability of most license exceptions for, exports, reexports, and transfers (in-country) to those persons or entities listed on the Entity List. The license review policy for each listed entity is identified in the License Review Policy column on the Entity List and the impact on the availability of license exceptions is described in the
The End-user Review Committee (ERC) is composed of representatives of the Departments of Commerce (Chair), State, Defense, Energy, and where appropriate, the Treasury. The ERC makes decisions to add an entry to the Entity List by majority vote and to remove or modify an entry by unanimous vote. The Departments represented on the ERC have approved these changes to the Entity List.
This rule implements the decision of the ERC to add sixteen persons under seventeen entries to the Entity List. These sixteen persons are being added on the basis of § 744.11 (License requirements that apply to entities acting contrary to the national security or foreign policy interests of the United States) of the EAR. The seventeen entries to the Entity List are located in the Crimea region of Ukraine (seven entries), Cyprus (one entry), Luxembourg (one entry), Panama (one entry), Russia (four entries), Switzerland (one entry), and the United Kingdom (two entries). There are seventeen entries for the sixteen persons because one person is listed in two locations, resulting in one additional entry.
Under § 744.11(b) (Criteria for revising the Entity List) of the EAR, persons for whom there is reasonable cause to believe, based on specific and articulable facts, have been involved, are involved, or pose a significant risk of being or becoming involved in, activities that are contrary to the national security or foreign policy interests of the United States and those acting on behalf of such persons may be added to the Entity List. The persons being added to the Entity List in this rule have been determined to be involved in activities that are contrary to the national security or foreign policy interests of the United States. Specifically, in this rule, BIS adds persons to the Entity List for violating international law and fueling the conflict in eastern Ukraine. These additions ensure the efficacy of existing sanctions on Russia. The particular additions to the Entity List and related authorities are as follows:
Eight entities are added based on activities that are described in Executive Order 13661 (79 FR 15533),
Executive Order 13661 includes a directive that all property and interests in property that are in the United States, that hereafter come within the United States, or that are or thereafter come within the possession or control of any United States person (including any foreign branch) of the following persons are blocked and may not be transferred, paid, exported, withdrawn, or otherwise dealt in: Persons determined by the Secretary of the Treasury, in consultation with the Secretary of State to have either materially assisted, sponsored or provided financial, material or technological support for, or goods and services to or in support of a senior official of the Russian government or operate in the defense or related materiel sector in Russia. Under Section 8 of the Order, all agencies of the United States Government are directed to take all appropriate measures within their authority to carry out the provisions of the Order.
The Department of the Treasury's Office of Foreign Assets Control, pursuant to Executive Order 13661, on behalf of the Secretary of the Treasury, and in consultation with the Secretary
In conjunction with those designations, the Department of Commerce adds the eight entities to the Entity List under this rule, and imposes a license requirement for exports, reexports, or transfers (in-country) to these persons. This license requirement implements an appropriate measure within the authority of the EAR to carry out the provisions of Executive Order 13661.
Eight entities are added based on activities that are described in Executive Order 13685 (79 FR 77357),
The Department of the Treasury's Office of Foreign Assets Control, pursuant to Executive Order 13685 on behalf of the Secretary of the Treasury and in consultation with the Secretary of State, has designated the following eight persons as operating in the Crimea region of Ukraine: Aktsionernoe Obschestvo `Yaltinskaya Kinodstudiya,' Crimean Enterprise Azov Distillery Plant, Otkrytoe Aktsionernoe Obshchestvo Vneshneekonomicheskoe Obedinenie Tekhnopromeksport, Resort Nizhnyaya Oreanda, State Concern National Production and Agricultural Association Massandra, State Enterprise Factory of Sparkling Wine Novy Svet, State Enterprise Magarach of The National Institute of Wine, and State Enterprise Universal-Avia.
In conjunction with that designation, the Department of Commerce adds the eight entities to the Entity List under this rule and imposes a license requirement for exports, reexports, or transfers (in-country) to these persons. This license requirement implements an appropriate measure within the authority of the EAR to carry out the provisions of Executive Order 13685.
For the sixteen persons under seventeen entries added to the Entity List on the basis of activities described in Executive Orders 13661 or 13685, BIS imposes a license requirement for all items subject to the EAR and a license review policy of presumption of denial. The license requirements apply to any transaction in which items are to be exported, reexported, or transferred (in-country) to any of the persons or in which such persons act as purchaser, intermediate consignee, ultimate consignee, or end-user. In addition, no license exceptions are available for exports, reexports, or transfers (in-country) to the persons being added to the Entity List in this rule. The acronyms “a.k.a.” (also known as) and “f.k.a.” (formerly known as) are used in entries on the Entity List to help exporters, reexporters and transferors to better identify listed persons on the Entity List.
This final rule adds the following sixteen persons under seventeen entries to the Entity List:
(1)
Ulitsa Mukhina, Building 3, Yalta, Crimea 298063, Ukraine;
(2)
Bud. 40 vul. Zaliznychna, Smt Azovske, Dzhankoisky R-N, Crimea 96178, Ukraine;
(3)
Pgt Oreanda, Dom 12, Yalta, Crimea 298658, Ukraine;
(4)
6, str. Mira, Massandra, Yalta 98600, Ukraine;
(5)
1 Shaliapin Street, Novy Svet Village, Sudak, Crimea 98032, Ukraine;
(6)
Bud. 9 vul. Chapaeva, S.Viline, Bakhchysaraisky R-N, Crimea 98433, Ukraine;
(7)
5, Aeroflotskaya Street, Simferopol, Crimea 95024, Ukraine.
(1)
(1)
(1)
(1)
Aeroport Sheremetyevo, Khimki, Moscovskaya Oblast 141400, Russia;
(2)
45 Ulitsa Elektrolesovskaya, Volgograd, Volgogradskaya Oblast 400011, Russia;
(3)
d. 15 str. 2 ul. Novy Arbat, Moscow 119019, Russia;
(4)
35 Prospekt Gubkina, Omsk, Omskaya Oblast 664035, Russia.
(1)
(1)
(2)
This final rule includes a clarification for how entries that include references to § 746.5 on the Entity List are to be interpreted. There are twenty entities on the Entity List that reference § 746.5 (Russian Industry Sector Sanctions). Nineteen of these entries advise an exporter, reexporter or transferor to review § 746.5 to make a determination whether an export, reexport or transfer (in-country) to any of the nineteen entities is destined to one of the three prohibited end uses in Russia specified in § 746.5. The entries further advise that if the contemplated export, reexport, or transfer (in-country) is destined for one of the prohibited end uses, a license is required for all items subject to the EAR. The entries for these nineteen entities specify under the License Requirements column that a license is required “for all items subject to the EAR when used in projects specified in § 746.5 of the EAR.”
The twentieth entry, for Yuzhno-Kirinskoye Field, in the Sea of Okhotsk, also includes a reference to § 746.5, but uses different text to reference § 746.5, which was intentional by BIS. Specifically, this entry uses the parenthetical phrase “(See § 746.5 of the EAR)” in the License Requirements column for this entity. As was noted in the August 7, 2015 final rule (80 FR 47402), exports, reexports, and transfers (in-country) of all items subject to the EAR to this entity by any person without first obtaining a BIS license has been determined by the U.S. Government to present an unacceptable risk of use in, or diversion to, the activities specified in paragraph (a)(1) of § 746.5, namely exploration for, or production of, oil or gas in Russian deepwater (greater than 500 feet) locations. Therefore, a license requirement for all items subject to the EAR is warranted. This means unlike the other nineteen entries that reference § 746.5 where the license requirement only applies if the item is destined for one of the three prohibited end uses specified in § 746.5, in the case of this one entry, Yuzhno-Kirinskoye Field, in the Sea of Okhotsk, any export, reexport or transfer (in-country) is presumptively within the scope of § 746.5, meaning a license is required for any item subject to the EAR without regard to the item's end use. BIS also intends to include a new Russia FAQ on the BIS Web site to provide additional regulatory guidance on this issue of application, but the agency also determined it is helpful to include regulatory guidance on this issue in the preamble of this Entity List rule to assist the public's understanding of these existing Entity List provisions. The scope of this entry is not changing, thus, this final rule does not make any changes to this entry.
Although the Export Administration Act expired on August 20, 2001, the President, through Executive Order 13222 of August 17, 2001, 3 CFR, 2001 Comp., p. 783 (2002), as amended by Executive Order 13637 of March 8, 2013, 78 FR 16129 (March 13, 2013) and as extended by the Notice of August 7,
1. Executive Orders 13563 and 12866 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This rule has been determined to be not significant for purposes of Executive Order 12866.
2. Notwithstanding any other provision of law, no person is required to respond to nor be subject to a penalty for failure to comply with a collection of information, subject to the requirements of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501
3. This rule does not contain policies with Federalism implications as that term is defined in Executive Order 13132.
4. The provisions of the Administrative Procedure Act (5 U.S.C. 553) requiring notice of proposed rulemaking, the opportunity for public comment and a delay in effective date are inapplicable because this regulation involves a military or foreign affairs function of the United States. (
Exports, Reporting and recordkeeping requirements, Terrorism.
For the reasons stated in the preamble, the Bureau of Industry and Security amends part 744 of the Export Administration Regulations (15 CFR parts 730-774) as follows:
50 U.S.C. app. 2401
The additions read as follows:
Food and Drug Administration, HHS.
Final rule; technical amendment.
The Food and Drug Administration (FDA) is amending the biologics regulations by removing the Hepatitis C Virus (HCV) “lookback” requirements regarding review of historical testing records. FDA is taking this action because the HCV “lookback” regulations based on review of historical testing records expired on August 24, 2015, due to the sunset provision provided under the regulation.
This rule is December 28, 2015.
Gretchen Opper, Center for Biologics Evaluation and Research, Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 71, Rm. 7301, Silver Spring, MD 20993-0002, 240-402-7911.
In the
FDA is also making conforming changes to other biologics regulations where § 610.48 is referenced.
FDA is revising the biologics regulations as follows:
• Removing and reserving § 610.48.
• Revising § 606.100(b)(19) (21 CFR 606.100(b)(19)) by removing the reference to § 610.48.
• Revising § 606.160(b)(1)(viii) by removing the reference to § 610.48.
Publication of this document constitutes final action under the Administrative Procedure Act (5 U.S.C. 553). FDA has determined that notice and public comments are unnecessary because the amendments to the regulations provide only technical changes to remove and update information and are nonsubstantive.
Blood, Labeling, Laboratories, Reporting and recordkeeping requirements.
Biologics, Labeling, Reporting and recordkeeping requirements.
Therefore, under the Federal Food, Drug, and Cosmetic Act and the Public Health Service Act, and under authority delegated to the Commissioner of Food and Drugs, 21 CFR parts 606 and 610 are amended as follows:
21 U.S.C. 321, 331, 351, 352, 355, 360, 360j, 371, 374; 42 U.S.C. 216, 262, 263a, 264.
21 U.S.C. 321, 331, 351, 352, 353, 355, 360, 360c, 360d, 360h, 360i, 371, 372, 374, 381; 42 U.S.C. 216, 262, 263, 263a, 264.
Coast Guard, DHS.
Temporary final rule.
The Coast Guard is establishing a temporary safety zone that encompasses all waters of the Main Branch of the Chicago River between the Michigan Avenue Highway Bridge and the west entrance to the Chicago Harbor Lock. The safety zone is intended to restrict vessels from a portion of the Main Branch of the Chicago River from 11:30 p.m. on December 31, 2015 to 12:15 a.m. on January 1, 2016. This temporary safety zone is necessary to protect the surrounding public and vessels from the hazards associated with multiple barge based firework displays for Chicago's New Year's Eve Celebration.
This rule will be effective from 11:30 p.m. on December 31, 2015 to 12:15 a.m. on January 1, 2016.
To view documents mentioned in this preamble as being available in the docket, go to
If you have questions on this rule, call or email LT Lindsay Cook, Marine Safety Unit Chicago, U.S. Coast Guard; telephone (630) 986-2155, email
The Coast Guard is issuing this temporary rule without prior notice and opportunity to comment pursuant to authority under section 4(a) of the Administrative Procedure Act (APA) (5 U.S.C. 553(b)). This provision authorizes an agency to issue a rule without prior notice and opportunity to comment when the agency for good cause finds that those procedures are “impracticable, unnecessary, or contrary to public interest.” Under 5 U.S.C. 553(b)(B), the Coast Guard finds that good cause exists for not publishing a notice of proposed rulemaking (NPRM) with respect to this rule because doing so would be impracticable. The final details for this event were not known to the Coast Guard until there was insufficient time remaining before the event to publish a NPRM. Thus, delaying the effective date of this rule to wait for a comment period to run would be impracticable because it would inhibit the Coast Guard's ability to protect the public and vessels from the hazards associated with multiple barge based firework displays on the Main Branch of the Chicago River.
We are issuing this rule, and under 5 U.S.C. 553(d)(3), the Coast Guard finds that good cause exists for making this temporary rule effective less than 30 days after publication in the
The legal basis for the rule is the Coast Guard's authority to establish safety zones: 33 U.S.C. 1231; 33 CFR 1.05-1, 160.5; Department of Homeland Security Delegation No. 0170.1.
December 31, 2015 and January 1, 2016 Chicago's New Year's Eve firework displays will take place from multiple barge based launch sites on the Main
With the aforementioned hazards in mind, the Captain of the Port, Lake Michigan has determined that a temporary safety zone is necessary to ensure the safety of the public and the participants during Chicago's New Year's Eve Fireworks Display on the Main Branch of the Chicago River. This safety zone will be effective from 11:30 p.m. on December 31, 2015 to 12:15 a.m. on January 1, 2016. The safety zone will encompass all waters of the Main Branch of the Chicago River between the Michigan Avenue Highway Bridge and west entrance of the Chicago Harbor Lock. Entry into, transiting, or anchoring within the safety zone is prohibited unless authorized by the Captain of the Port, Lake Michigan, or a designated on-scene representative. The Captain of the Port or a designated on-scene representative may be contacted via VHF Channel 16.
We developed this rule after considering numerous statutes and executive orders (E.O.s) related to rulemaking. Below we summarize our analyses based on a number of these statutes and E.O.s, and we discuss First Amendment rights of protestors.
E.O.s 12866 and 13563 direct agencies to assess the costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits. E.O. 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This rule has not been designated a “significant regulatory action,” under E.O. 12866. Accordingly, it has not been reviewed by the Office of Management and Budget.
We conclude that this rule is not a significant regulatory action because we anticipate that it will have minimal impact on the economy, will not interfere with other agencies, will not adversely alter the budget of any grant or loan recipients, and will not raise any novel legal or policy issues. The safety zone created by this rule will be relatively small and effective for less than a one hour period on December 31, 2015 and January 1, 2016. Under certain conditions, moreover, vessels may still transit through the safety zone when permitted by the Captain of the Port.
The Regulatory Flexibility Act of 1980, 5 U.S.C. 601-612, as amended, requires Federal agencies to consider the potential impact of regulations on small entities during rulemaking. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000. The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities.
Under the Regulatory Flexibility Act (5 U.S.C. 601-612), we have considered the impact of this temporary rule on small entities. This rule will affect the following entities, some of which might be small entities: the owners or operators of vessels intending to transit on a portion of the Main Branch of the Chicago River on December 31, 2015 and January 1, 2016.
The safety zone will not have a significant economic impact on a substantial number of small entities for the reasons cited in the
Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we want to assist small entities in understanding this rule. If the rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please contact the person listed in the
Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR (1-888-734-3247). The Coast Guard will not retaliate against small entities that question or complain about this rule or any policy or action of the Coast Guard.
This rule will not call for a new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).
A rule has implications for federalism under E.O. 13132, Federalism, if it has a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. We have analyzed this rule under that Order and have determined that it is consistent with the fundamental federalism principles and preemption requirements described in E.O. 13132.
Also, this rule does not have tribal implications under E.O. 13175, Consultation and Coordination with Indian Tribal Governments, because it does not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes. If you believe this rule has implications for federalism or Indian tribes, please contact the person listed in the
The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 (adjusted for inflation) or more in any one year. Though this rule will not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble.
We have analyzed this rule under Department of Homeland Security Management Directive 023-01 and Commandant Instruction M16475.lD, which guide the Coast Guard in complying with the National Environmental Policy Act of 1969(42 U.S.C. 4321-4370f), and have determined that this action is one of a category of actions that do not
The Coast Guard respects the First Amendment rights of protesters. Protesters are asked to contact the person listed in the
Harbors, Marine safety, Navigation (water), Reporting and recordkeeping requirements, Security measures, Waterways.
For the reasons discussed in the preamble, the Coast Guard amends 33 CFR part 165 as follows:
33 U.S.C. 1231; 50 U.S.C. 191; 33 CFR 1.05-1, 6.04-1, 6.04-6, and 160.5; Department of Homeland Security Delegation No. 0170.1.
(a)
(b)
(c)
(2) This safety zone is closed to all vessel traffic, except as may be permitted by the Captain of the Port, Lake Michigan or a designated on-scene representative.
(3) The “on-scene representative” of the Captain of the Port, Lake Michigan is any Coast Guard commissioned, warrant or petty officer who has been designated by the Captain of the Port, Lake Michigan to act on his or her behalf.
(4) Vessel operators desiring to enter or operate within the safety zone shall contact the Captain of the Port, Lake Michigan or an on-scene representative to obtain permission to do so. The Captain of the Port, Lake Michigan or an on-scene representative may be contacted via VHF Channel 16. Vessel operators given permission to enter or operate in the safety zone must comply with all directions given to them by the Captain of the Port, Lake Michigan, or an on-scene representative.
Environmental Protection Agency (EPA).
Final rule.
EPA is revising its regulations to more clearly describe the active and inert ingredients that are permitted in products eligible for the minimum risk pesticide exemption. EPA is improving the clarity and transparency of the minimum risk exemption by codifying the inert ingredients list and by adding specific chemical identifiers, where available, for all eligible active and inert ingredients. These specific identifiers will make it easier for manufacturers, the public, and Federal, state, and tribal inspectors to determine the specific chemical substances that are permitted in minimum risk pesticide products. EPA is also modifying the labeling requirements in the exemption to require products to list ingredients on the label with a designated label display name and to provide the producer's contact information on the product's label. These changes will provide more consistent information for consumers and clearer regulations for producers, and will simplify compliance determination by states, tribes, and EPA.
This final rule is effective February 26, 2016. The compliance date for the requirements to label ingredients with a label display name and to provide company contact information on the label is February 26, 2019.
The docket for this action, identified by docket identification (ID) number EPA-HQ-OPP-2010-0305, is available at
Ryne Yarger, Field and External Affairs Divisions (7506P), Office of Pesticide Programs, Environmental Protection Agency, 1200 Pennsylvania Ave. NW., Washington, DC 20460-0001; telephone number: (703) 605-1193; fax number: (703) 305-5884; email address:
You may be affected by this action if you manufacture, distribute, sell, or use minimum risk pesticide products. Minimum risk pesticide products are exempt from registration and other requirements under the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA), and are described in 40 CFR 152.25(f). The following list of North American Industrial Classification System (NAICS) codes is not intended to be exhaustive, but rather provides a guide to help readers determine whether this document applies to them. Potentially affected entities may include:
• Manufacturers of these products, which includes pesticide and other agricultural chemical manufacturers (NAICS codes 325320 and 325311), as well as other manufacturers in similar industries such as animal feed (NAICS
• Manufacturers who may also be distributors of these products, which includes farm supplies merchant wholesalers (NAICS code 424910), drug and druggists merchant wholesalers (NAICS code 424210), and motor vehicle supplies and new parts merchant wholesalers (NAICS code 423120).
• Retailers of minimum risk pesticide products (some of which may also be manufacturers), which includes nursery, garden center, and farm supply stores (NAICS code 444220), outdoor power equipment stores (NAICS code 444210), and supermarkets (NAICS code 445110).
• Users of minimum risk pesticide products, including the public in general, as well as exterminating and pest control services (NAICS code 561710), landscaping services (NAICS code 561730), sports and recreation institutions (NAICS code 611620), and child daycare services (NAICS code 624410). Many of these companies also manufacture minimum risk pesticide products.
EPA is revising its regulations to more clearly describe the active and inert ingredients permitted in products eligible for the minimum risk pesticide exemption (40 CFR 152.25(f)). EPA is doing this by codifying the inert ingredients list and reformatting the active and inert ingredients lists, adding specific chemical identifiers, where available, for each eligible active and inert ingredient. These identifiers, through the use of Chemical Abstracts Service Registry Numbers (CAS Nos.), will make it easier for manufacturers, the public, and Federal, state, and tribal inspectors to determine the specific chemical substances that are permitted in minimum risk pesticide products. EPA is also modifying the labeling requirements in the exemption to require the use of a designated label display name for each ingredient in the lists of ingredients on minimum risk pesticide product labels, and to require producers to provide contact information on their products' labels. EPA is finalizing most of the regulatory text that was proposed in the
This action is issued under the authority of the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA), 7 U.S.C. 136
EPA has determined that the total cost for industry to comply with the labeling requirements of this rulemaking is approximately $800,000 under a 3-year implementation period as described in the Cost Analysis for this rulemaking (Ref. 2). EPA proposed a 2-year implementation period, but instead determined to use a 3-year implementation period based on public comments since 3 years would be the most sensitive to the smallest firms. The costs for industry to comply with this rulemaking are a result of meeting the new labeling requirements to list ingredients using a designated label display name and to list the company's contact information on the product's label. Since most companies update their labels every 3 years, EPA has determined that a rule implementation period of 3 years will allow most companies to meet the labeling requirements of the rule as part of their normal labeling practices and will therefore keep industry costs to a minimum.
Benefits of the rule include the improved clarity of the ingredient lists and the improved clarity and transparency of how minimum risk products are labeled. By providing specific chemical identifiers, such as the CAS Nos. for active and inert ingredients, manufacturers and Federal, state, and tribal inspectors will be able to easily determine whether a chemical substance can be used in a minimum risk product,
EPA published a notice of proposed rulemaking (NPRM) in the
EPA evaluated all comments received and developed a Response to Comments document, which is available in the docket at
In response, for the final regulation, EPA has removed the USP specification for all of the active ingredients except for castor oil. EPA recognizes that the addition of USP specifications for the active ingredients identified would result in the removal of technical grade active ingredients that are currently eligible for the minimum risk exemption. Since this rulemaking is to
In response, EPA believes that the bracketed information provides important clarifying and safety information for manufacturers to meet the requirements of the exemption and for those states who review and register minimum risk pesticide products. This information ranges from safety limitations on certain inert ingredients such as vinegar (maximum 8% acetic acid in solution) to chemical formulas for inert ingredients such as calcite (Ca(CO
In response, the deletion of sodium chloride and ground sesame plant from the exemption were inadvertent omissions in the proposed regulatory text. EPA did not intend for these ingredients to be removed from the exemption. EPA is restoring sodium chloride (CAS No. 7647-14-5) into the table of active ingredients, and is placing “includes ground sesame plant” into the specifications column for “sesame” in the final regulatory text.
In response, during the development of the proposal, EPA considered the historical use of the terms “mint” and “mint oil.” “Mint” is a broad term for the genus
EPA agrees with the commenters that spearmint oil has traditionally been accepted under the definition of “mint oil” and has been regarded as a minimum risk active ingredient by the Agency. Therefore, in addition to cornmint oil, EPA is including the CAS No. for spearmint oil (CAS No. 8008-79-5) in the active ingredients list. Additionally, since no other ingredients were intended to be included under “mint and mint oil” when the minimum risk exemption was written, EPA is also revising how cornmint, cornmint oil, spearmint, and spearmint oil are listed in the table. Instead of being identified under the general terms “mint” and “mint oil,” which has caused confusion in the past, these terms are being removed from the active ingredients list and are being replaced with separate listings for “cornmint,” “cornmint oil,” “spearmint,” and “spearmint oil.” EPA believes that this change will improve the clarity and transparency of the listings for these mints and mint oils, while also being more consistent with how the Agency lists these specific substances in other databases.
Since the purpose of this rulemaking is to clarify those ingredients that were intended to be exempt under the original exemption and not to add or remove ingredients, EPA is not reassessing the appropriateness of whether or not other mints or mint oils should be included under this rulemaking. If stakeholders have information that they believe supports the inclusion of other mints or mint oils, they can provide such information to EPA in a petition for evaluation. EPA will consider and respond to all such petitions.
The commenter recommended that EPA add the Consumer Specialty Products Association's Consumer Product Ingredients Dictionary (CSPA Dictionary) to the list of reference sources because the CSPA Dictionary Nomenclature Committee addresses the issues identified above. The commenter stated that the CSPA Dictionary
In response, EPA has consistently provided the chemical names, as determined by the Chemical Abstracts Service, and CAS Nos., when available, for each of the eligible ingredients on the minimum risk inert ingredients list that has been provided on the Agency's Web site. EPA's experience with providing this information on the publicly-available inerts list has not shown to be problematic in the past. CAS Index Names and CAS Nos. are generally recognized as universal identifiers for chemicals, which helps to reduce confusion and improves clarity for the permitted ingredients. In fact, the use of these chemical names and CAS Nos. have benefitted state reviewers and formulators by providing the specific chemical identifiers needed to determine whether an inert ingredient is or is not permitted in minimum risk pesticide products. CAS Nos. are also required on Material Safety Data Sheets, which makes the CAS No. a useful tool for enforcement purposes. EPA believes that continuing this practice for the inert ingredient list and providing similar information in the active ingredients list will provide the specificity needed to help with compliance and enforcement of the exemption while maintaining consistency with Agency practices.
Regarding the use of the CSPA Dictionary as a reference option, the CSPA Dictionary is not a publicly-available information source, and individuals would have to purchase the dictionary in order to reference the information provided in it. Therefore, EPA believes that referencing the CSPA Dictionary would reduce transparency. While a Web page does offer access to publicly-available indices associated with the CSPA Dictionary, EPA does not believe that these indices alone offer improved transparency and clarity. EPA's intent in proposing the use of a label display name was to provide a chemical name more understandable to many consumers, thus increasing transparency and consistency. Additionally, a standardized label display name provides the opportunity for state inspectors to become familiar with the name, thus decreasing label review timeframes. EPA believes that the CAS approach provides the most consistent and transparent way to provide information since this information is universally recognized and consistent with how the Agency has been identifying chemicals in the past.
In response, for the final regulation, EPA believes that codifying the inert ingredient list in 40 CFR 152.25(f)(2) provides immediate benefits to all parties. An inert ingredient list directly in the regulations offers much needed clarity to Federal, state, and tribal inspectors and manufacturers. Having all of the ingredients codified also improves the efficiency of inspections because inspectors will not have to look through multiple sources to find the information they need.
EPA understands that stakeholders may want to add or remove ingredients from the ingredient lists for various reasons. EPA has been examining ways to make the process of adding or removing an ingredient from the exemption as streamlined as possible while meeting the requirements of notice and comment rulemaking. For example, EPA is considering developing guidance that would describe the process and types of information EPA may need for a stakeholder to request the addition or removal of an ingredient from the lists. Any guidance that EPA may develop in the future for minimum risk pesticides would be available on EPA's Web site at
EPA believes that codifying the inert ingredient list and revising both the active and inert ingredient lists as soon as possible via this final rule, even if the guidance is not yet available, is appropriate to provide the immediate benefits previously described. Companies may at any time petition the Agency to add or remove an ingredient from the active or inert ingredient lists under the Administrative Procedure Act, even in the absence of guidance. EPA cannot predict in advance what the response will be to any particular petition to amend the list of ingredients eligible for the exemption. If the Agency were to grant such a petition, the changes to the ingredient lists would be subject to notice and comment rulemaking.
In response, EPA has decided to use a 3-year compliance period instead of the proposed 2-year compliance period. EPA's Cost Analysis document (Ref. 2) indicated that the costs to change labels over a 2-year compliance period would cost the average small business $14,634, or 0.5% of their gross revenue. However, a 3-year compliance period would be the most sensitive to the smallest firms, costing the average small business $3,857, or 0.1% of their gross revenue. Based on estimates described in the Cost Analysis, companies typically change labels every 3 years, so costs to comply with the changes made in this rulemaking would be reduced by almost 75% when using a 3-year compliance period instead of a 2-year timeframe.
Another state commenter stated that better clarification is needed regarding allowed ingredients that do not have tolerance exemptions for residues that may end up on food or feed. The commenter stated that the current minimum risk exemption language makes no mention that exemption of a product is conditional on limitations on food use sites for products containing active and/or inert ingredients without tolerance exemptions. With the language provided in the proposed rule, the commenter stated that if EPA's intent is that minimum risk products must restrict labeled use sites based on the status of tolerance or tolerance exemptions of the ingredients, then the Agency should clearly state that as a requirement of the exemption. The commenter did not believe that referring minimum risk pesticide manufacturers to guidance with the suggestion that they consult tolerance information would be sufficient.
The commenter also stated that even if EPA amended the exemption to add label restrictions for food crop use sites as a condition of the exemption, this still would not be enough. The commenter argued that since these products are exempt from FIFRA, the prohibition in FIFRA on use of pesticides inconsistent with label directions would not apply. The commenter stated that while some states such as theirs are able to enforce minimum risk pesticide labels, EPA and the states cannot require the user to adhere to directions on labels for exempted products. The commenter also stated that the general reference to section 408 of the Federal Food, Drug, and Cosmetic Act (FFDCA) in the proposal is not sufficient authority for their state to deny registration applications or stop the distribution of a minimum risk exempt product that has food use sites but no tolerance exemption for one or more ingredients, and that the same is true for the guidance referenced in the proposed regulatory text. The commenter indicated that their state does not have the authority to enforce FFDCA. As a result, the commenter encouraged EPA to not include ingredients as allowable active ingredients in minimum risk pesticides exempted from FIFRA if EPA does not have enough information to issue a broad tolerance exemption for use on food crops.
In response, this rule does not attempt to address when a tolerance or tolerance exemption may be required or to list existing tolerances or exemptions applicable to minimum risk pesticides. EPA understands that there can be confusion regarding whether a minimum risk pesticide ingredient is included in a pesticide tolerance or tolerance exemption, and regarding when a tolerance or tolerance exemption is necessary for use of a minimum risk pesticide product on food or feed. As noted in the NPRM, EPA proposed to address some of these issues by directing manufacturers to 40 CFR part 180 to find information about tolerance requirements. EPA is finalizing this change as proposed.
On its Web site, at
EPA is not attempting to enforce adherence to the labels of minimum risk pesticides, which as noted cannot be done for pesticides subject to 40 CFR 152.25(f). Rather, the Agency is assisting minimum risk pesticide producers in ensuring that the use directions on the product do not cause the label to be false or misleading. An exemption from FIFRA requirements under section 25(b) of the statute, including the minimum risk exemption at 40 CFR 152.25(f), cannot exempt pesticides from the requirements of a tolerance or tolerance exemption under FFDCA. Under FFDCA, any pesticide chemical residue to be used in or on foods in commerce in the United States must have either an established tolerance or tolerance exemption. When a minimum risk product explicitly states on its label that it can be used in or on food or food-use sites in commerce, but one or more of the ingredients does not have an established tolerance or tolerance exemption, the label is indicating that the product may be used in a way that would violate Federal law. Such a label is therefore false or misleading. One of the requirements for the exemption, contained in § 152.25(f)(3)(iii), is that the product must not include any false and misleading labeling statements. A product bearing a label that is false and misleading would therefore not be eligible for the minimum risk exemption, and sale or distribution of that product would require FIFRA registration, including any needed label changes. If state law requires a pesticide to be compliant with FIFRA, the state can insist that the label not allow a food use without the necessary tolerance or tolerance exemption. This will help ensure that products labeled for food-uses are properly labeled, thus reducing the potential for improper use of the product.
In the regulatory text of the proposal, EPA stated in § 152.25(f)(1) that “all listed active ingredients may be used in non-food use products,” but products intended to be used “on food and animal feed can only include active ingredients with applicable tolerances or tolerance exemptions in part 180” to comply with FFDCA. During development of the proposal, EPA considered adding tolerance information into the reformatted ingredients tables in 40 CFR 152.25(f) for reference purposes. However, EPA did not include this information because tolerances or tolerance exemptions can change frequently, meaning that any tolerance information in § 152.25(f) would also have to be revised via rulemaking, possibly leading to errors in the regulation.
To improve the clarity of the information about tolerances in the regulatory text, EPA is revising the explanatory text about tolerances in § 152.25(f)(1) for active ingredients, and is adding similar explanatory text for inert ingredients in § 152.25(f)(2). As specified in the final regulatory text, EPA is using its Web site to provide additional guidance on where tolerance information can be found. As needed, information on the Web site can be easily changed and can direct people where to find the tolerance information they need to comply with FFDCA. EPA believes that these approaches will make it clearer that manufacturers should review the tolerance information in 40 CFR part 180 before labeling their product for food uses to prevent their labels from potentially being false or misleading.
While responding to the comments regarding mint oil, EPA realized that additional clarity would be helpful for the descriptions of cedar oil in the active ingredients table. “Cedar oil” is a non-specific term, and the proposal
• CAS No. 85085-29-6 will have the chemical name, “Cedarwood oil (China).”
• CAS No. 68990-83-0 will have the chemical name, “Cedarwood oil (Texas).”
• CAS No. 8000-27-9 will have the chemical name, “Cedarwood oil (Virginia).”
Additionally, EPA determined to finalize only the first sentence of proposed § 152.25(f)(3)(v). EPA believes that a description of the information available on EPA's Web site is not needed in regulatory text. Since this is not a condition of the exemption, EPA is finalizing the first sentence of proposed § 152.25(f)(3)(v) in a new § 152.25(f)(4) to be entitled “Providing guidance.”
Because these changes do not modify the list of eligible ingredients for the exemption or otherwise affect the scope of the exemption, EPA has determined that notice and comment are unnecessary in accordance with the good cause exemption contained in 5 U.S.C. 553(b)(B) of the Administrative Procedure Act.
With the exception of the modifications discussed in Unit II.B. and II.C., EPA is finalizing the rule in essentially the same form as the proposed rule. The final rule continues to do the following:
• Redesign the format of the active ingredients list,
• Codify the list of permitted inert ingredients,
• Provide specific chemical identifiers, through the use of CAS Nos., for each eligible active and inert ingredient when available,
• Require that a common “label display name” for each ingredient be used when listing ingredients on a product's label, and
• Require company name and contact information on product labels.
EPA recently updated its guidance on minimum risk pesticides online at
As indicated under
1. U.S. EPA. Pesticides; Revisions to Minimum Risk Exemption; Proposed Rule.
2. U.S. EPA. Office of Pesticide Programs (OPP). Cost and Small Business Analysis of Revisions to Minimum Risk Exemption (2014).
3. U.S. EPA, (OPP). Response to Public Comments on the Proposed Rule: “Pesticides; Revisions to Minimum Risk Exemption.” (2014).
4. U.S. EPA, (OPP). Decision Memorandum: Mint Oil (2008).
5. U.S. EPA, (OPP). Supporting Statement for an Information Collection Request (ICR): Labeling Change for Certain Minimum Risk Pesticides under FIFRA Section 25(b). EPA ICR No. 2475.02; OMB Control No. 2070-0187 (2015).
In accordance with FIFRA sections 21 and 25(a), the Agency submitted a draft of this final rule to the appropriate Congressional Committees, the Secretary of the Department of Agriculture (USDA), and the Secretary of the Department of Health and Human Services (HHS). HHS waived its review of this rule on June 19, 2015. On June 18, 2015, USDA reviewed this rule, and did not have any comments related to policy. USDA provided a technical comment, which EPA has reviewed and accepted.
Under FIFRA section 25(d), EPA also submitted a draft of this final rule to the FIFRA Scientific Advisory Panel (SAP). The SAP waived its scientific review of the final rule on June 24, 2015, because the final rule does not contain scientific issues that warrant review by the Panel.
This action is not a significant regulatory action and was therefore not submitted to the Office of Management and Budget (OMB) for review under Executive Orders 12866, October 4, 1993 (58 FR 51735) and 13563, January 21, 2011 (76 FR 3821).
The information collection activities in this rule have been submitted to OMB for approval under the PRA, 44 U.S.C. 3501
The information collection activities in this rule consist of changes to existing requirements that involve the one-time relabeling of products currently exempt under 40 CFR 152.25(f) in order to list chemical names in the format required by EPA and to include the producer's contact information. The ICR accounts for the burden for a one time label change which provides important regulatory information for the Federal, state, and tribal authorities that regulate minimum risk pesticide products.
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 OMB control numbers for EPA regulations in 40 CFR
I certify that this action will not have a significant economic impact on a substantial number of small entities under the RFA, 5 U.S.C. 601
The selection of the 3-year compliance period was based on information obtained in 2009 from a group of small manufacturers of minimum risk insect repellent products, as well as comments received during the public comment period for the proposed rule. EPA initially proposed a 2-year compliance period for companies to relabel their products since the companies indicated they needed at least 2 years in order to avoid significant costs (Ref. 2). This would allow most companies to incorporate the changes into their regularly planned label updates, and sell any products with older labels, thus reducing the cost and burden of the changes to the exemption. During the public comment period for the proposed rule, EPA received comments that expressed support for both the proposed 2-year compliance period and the longer 3-year compliance period. While several commenters felt that the 2-year period would provide sufficient time to comply with the new labeling requirements, some commenters felt that a 3-year compliance period would benefit the smallest companies to incorporate the changes into regularly planned updates and to sell their existing stock, thus minimizing their costs and burden to comply with the new requirements. EPA is aware that most companies make regularly planned label updates every 3 years (Ref. 2). By going with a 3-year compliance period instead of the originally proposed 2-year timeframe, costs on industry would be reduced by almost 75% from the 2-year implementation period, thereby being more sensitive to the smallest of small firms.
This action does not contain an unfunded mandate of $100 million or more as described in UMRA, 2 U.S.C. 1531-1538, and does not significantly or uniquely affect small governments. EPA has determined that this action imposes no enforceable duty on any state, local, or tribal governments because there are no known instances where such governments currently produce any pesticides such that they would be subject to this rulemaking. In addition, the potential costs for the private sector do not qualify as an unfunded mandate under UMRA.
This action does not have federalism implications, as specified in Executive Order 13132, August 10, 1999 (64 FR 43255). It will not have substantial direct effects on the states, on the relationship between the national government and the states, or on the distribution of power and responsibilities among the various levels of government.
This action does not have tribal implications as specified in Executive Order 13175, November 9, 2000 (65 FR 67249). There are no known instances where a tribal government is the producer of a minimum risk pesticide currently exempt from regulation. Thus, Executive Order 13175 does not apply to this action.
The EPA interprets Executive Order 13045, April 23, 1997 (62 FR 19885) as applying only to those regulatory actions that concern environmental health or safety risks that the EPA has reason to believe may disproportionately affect children, per the definition of “covered regulatory action” in section 2-202 of the Executive Order. This action is not subject to Executive Order 13045 because it does not concern an environmental health risk or safety risk.
This action is not subject to Executive Order 13211, May 22, 2001 (66 FR 28355) because it is not a significant regulatory action under Executive Order 12866.
This rulemaking does not involve technical standards that would require the consideration of voluntary consensus standards pursuant to NTTAA section 12(d), 12(d) (15 U.S.C. 272 note).
This action does not involve special consideration of environmental justice related issues as specified in Executive Order 12898, February 16, 1994 (59 FR 7629). EPA believes the human health or environmental risk addressed by this action will not have potential disproportionately high and adverse human health or environmental effects on minority, low-income, or indigenous populations because it does not affect the level of protection provided to human health or the environment. To the contrary, this action will increase the level of environmental protection for all affected populations without having disproportionately high and adverse human health or environmental effects on any population, including any minority or low-income population. This action only involves minimum risk pesticide products, and may have positive impacts for all communities, since the rule provides increased information for consumers considering the use of pesticides. This action, which will improve clarity on product labels, will enable all users regardless of economic status to become more informed about the pesticide substances they may be interested in using.
This action is subject to the CRA, 5 U.S.C. 801
Environmental protection, Administrative practice and procedure, Agricultural commodities, Pesticides and pests, Reporting and recordkeeping requirements.
Therefore, 40 CFR chapter I is amended as follows:
7 U.S.C. 136-136y; subpart U is also issued under 31 U.S.C. 9701.
(f)
(2)
(i)
(ii)
(iii)
(iv)
(3)
(i) Each product containing the substance must bear a label identifying the label display name and percentage (by weight) of each active ingredient as listed in table 1 in paragraph (f)(1) of this section. Each product must also list all inert ingredients by the label display name listed in table 2 in paragraph (f)(2)(iv) of this section.
(ii) The product must not bear claims either to control or mitigate microorganisms that pose a threat to human health, including but not limited to disease transmitting bacteria or viruses, or claims to control insects or rodents carrying specific diseases, including, but not limited to ticks that carry Lyme disease.
(iii) Company name and contact information.
(A) The name of the producer or the company for whom the product was produced must appear on the product label. If the company whose name appears on the label in accordance with this paragraph is not the producer, the company name must be qualified by appropriate wording such as “Packed for [insert name],” “Distributed by [insert name], or “Sold by [insert name]” to show that the name is not that of the producer.
(B) Contact information for the company specified in accordance with paragraph (f)(3)(iii)(A) of this section must appear on the product label including the street address plus ZIP code and the telephone phone number of the location at which the company may be reached.
(C) The company name and contact information must be displayed prominently on the product label.
(iv) The product must not include any false and misleading labeling statements, including those listed in 40 CFR 156.10(a)(5)(i) through (viii).
(4)
Environmental Protection Agency (EPA).
Final rule.
This regulation establishes tolerances for residues of spinosad in or on multiple commodities that are identified and discussed later in this document. In addition, this regulation removes a number of existing tolerances for residues of spinosad that are superseded by tolerances being established in this action. Interregional Research Project #4 (IR-4) requested these tolerances under the Federal Food, Drug, and Cosmetic Act (FFDCA).
This regulation is effective December 28, 2015. Objections and requests for hearings must be received on or before February 26, 2016, and must be filed in accordance with the instructions provided in 40 CFR part 178 (see also Unit I.C. of the
The docket for this action, identified by docket identification (ID) number EPA-HQ-OPP-2013-0727, is available at
Susan Lewis, Registration Division (7505P), Office of Pesticide Programs, Environmental Protection Agency, 1200 Pennsylvania Ave., NW., Washington, DC 20460-0001; main telephone number: (703) 305-7090; email address:
You may be potentially affected by this action if you are an agricultural producer, food manufacturer, or pesticide manufacturer. The following list of North American Industrial Classification System (NAICS) codes is not intended to be exhaustive, but rather provides a guide to help readers determine whether this document applies to them. Potentially affected entities may include:
• Crop production (NAICS code 111).
• Animal production (NAICS code 112).
• Food manufacturing (NAICS code 311).
• Pesticide manufacturing (NAICS code 32532).
You may access a frequently updated electronic version of EPA's tolerance regulations at 40 CFR part 180 through the Government Printing Office's e-CFR site at
Under FFDCA section 408(g), 21 U.S.C. 346a, any person may file an objection to any aspect of this regulation and may also request a hearing on those objections. You must file your objection or request a hearing on this regulation in accordance with the instructions provided in 40 CFR part 178. To ensure proper receipt by EPA, you must identify docket ID number EPA-HQ-OPP-2013-0727 in the subject line on the first page of your submission. All objections and requests for a hearing must be in writing, and must be received by the Hearing Clerk on or before February 26, 2016. Addresses for mail and hand delivery of objections and hearing requests are provided in 40 CFR 178.25(b).
In addition to filing an objection or hearing request with the Hearing Clerk as described in 40 CFR part 178, please submit a copy of the filing (excluding any Confidential Business Information (CBI)) for inclusion in the public docket. Information not marked confidential pursuant to 40 CFR part 2 may be disclosed publicly by EPA without prior notice. Submit the non-CBI copy of your objection or hearing request, identified by docket ID number EPA-HQ-OPP-2013-0727, by one of the following methods:
•
•
•
Additional instructions on commenting or visiting the docket, along with more information about dockets generally, is available at
In the
Based upon review of the data supporting the petition, EPA has made certain modifications to the petitioned-for tolerances. The reasons for these changes are explained in Unit IV.C.
Section 408(b)(2)(A)(i) of FFDCA allows EPA to establish a tolerance (the legal limit for a pesticide chemical residue in or on a food) only if EPA determines that the tolerance is “safe.” Section 408(b)(2)(A)(ii) of FFDCA defines “safe” to mean that “there is a reasonable certainty that no harm will result from aggregate exposure to the pesticide chemical residue, including all anticipated dietary exposures and all other exposures for which there is reliable information.” This includes exposure through drinking water and in residential settings, but does not include occupational exposure. Section 408(b)(2)(C) of FFDCA requires EPA to give special consideration to exposure of infants and children to the pesticide chemical residue in establishing a tolerance and to “ensure that there is a reasonable certainty that no harm will result to infants and children from aggregate exposure to the pesticide chemical residue. . . . ”
Consistent with FFDCA section 408(b)(2)(D), and the factors specified in FFDCA section 408(b)(2)(D), EPA has reviewed the available scientific data and other relevant information in support of this action. EPA has sufficient data to assess the hazards of and to make a determination on aggregate exposure for spinosad including exposure resulting from the tolerances established by this action. EPA's assessment of exposures and risks associated with spinosad follows.
EPA has evaluated the available toxicity data and considered their validity, completeness, and reliability as well as the relationship of the results of the studies to human risk. EPA has also considered available information concerning the variability of the
Spinosad and spinetoram are considered by EPA to be toxicologically identical for human health risk assessment based on their very similar chemical structures and similarity of the toxicological databases for currently available studies. The primary toxic effect observed from exposure to spinosad or spinetoram was histopathological changes in multiple organs (specific target organs were not identified). Vacuolization of cells and/or macrophages was the most common histopathological finding noted across both toxicological databases with the dog being the most sensitive species. In addition to the numerous organs observed with histopathological changes, anemia was noted in several studies.
There was no evidence of increased quantitative or qualitative susceptibility from spinosad or spinetoram exposure. In developmental studies, no maternal or developmental effects were seen in rats or rabbits. In the rat reproduction toxicity studies, offspring toxicity was seen in the presence of parental toxicity at approximately the same dose for both chemicals (75-100 mg/kg/day). Parental toxicity was evidenced by increased organ weights, mortality, and histopathological findings in several organs. Offspring effects included decreased litter size, survival, and body weights with spinosad while an increased incidence of late resorptions and post-implantation loss was seen with spinetoram. Dystocia and/or other parturition abnormalities were observed with both chemicals.
Spinosad and spinetoram are classified as having low acute toxicity via the oral, dermal, and inhalation routes of exposure. Neither chemical is an eye or dermal irritant. Spinetoram was found to be a dermal sensitizer. No hazard was identified for dermal exposure; therefore a quantitative dermal assessment is not needed. In acute and subchronic neurotoxicity studies, there was no evidence of neurotoxicity from exposure to spinosad or spinetoram. In an immunotoxicity study with spinosad, systemic effects (decreased body weights, increased liver weights, and abnormal hematology results) were seen at the highest dose tested (141 mg/kg/day); however, there was no evidence of immunotoxicity.
Spinosad and spinetoram are classified as “not likely to be carcinogenic to humans” based on lack of evidence of carcinogenicity in mice and rats and negative findings in mutagenicity assays.
Specific information on the studies received and the nature of the adverse effects caused by spinetoram as well as the no-observed-adverse-effect-level (NOAEL) and the lowest-observed-adverse-effect-level (LOAEL) from the toxicity studies can be found at
Once a pesticide's toxicological profile is determined, EPA identifies toxicological points of departure (POD) and levels of concern to use in evaluating the risk posed by human exposure to the pesticide. For hazards that have a threshold below which there is no appreciable risk, the toxicological POD is used as the basis for derivation of reference values for risk assessment. PODs are developed based on a careful analysis of the doses in each toxicological study to determine the dose at which no adverse effects are observed (the NOAEL) and the lowest dose at which adverse effects of concern are identified (the LOAEL). Uncertainty/safety factors are used in conjunction with the POD to calculate a safe exposure level—generally referred to as a population-adjusted dose (PAD) or a reference dose (RfD)—and a safe margin of exposure (MOE). For non-threshold risks, the Agency assumes that any amount of exposure will lead to some degree of risk. Thus, the Agency estimates risk in terms of the probability of an occurrence of the adverse effect expected in a lifetime. For more information on the general principles EPA uses in risk characterization and a complete description of the risk assessment process, see
Spinosad and spinetoram should be considered toxicologically identical in the same manner that metabolites are generally considered toxicologically identical to the parent. Although, as stated above, the doses and endpoints for spinosad and spinetoram are similar, they are not identical due to variations in dosing levels used in the spinetoram and spinosad toxicological studies. EPA compared the spinosad and spinetoram doses and endpoints for each exposure scenario and selected the lower of the two doses for use in human risk assessment.
A summary of the toxicological endpoints for spinosad/spinetoram used for human risk assessment is shown in Table 1 of this unit.
1.
i.
No such effects were identified in the toxicological studies for spinosad or spinetoram; therefore, a quantitative acute dietary exposure assessment is unnecessary.
ii.
In conducting the chronic dietary exposure assessment for spinetoram, EPA used the Dietary Exposure Evaluation Model—Food Consumption Intake Database (DEEM-FCID, ver. 3.16) which incorporates food consumption data from the United States Department of Agriculture (USDA) National Health and Nutrition Examination Survey, What We Eat in America (NHANES/WWEIA; 2003-2008). The chronic analysis assumed 100 percent crop treated (PCT), average field-trial residues or tolerance-level residues for crop commodities, average residues from the livestock feeding studies, residue estimates for fish/shellfish, experimental processing factors when available, and modeled drinking water estimates.
iii.
iv.
2.
Based on the Surface Water Concentration Calculator (SWCC) and Screening Concentration in Ground Water (SCIGROW) models, the estimated drinking water concentrations (EDWCs) of spinosad for acute exposures are estimated to be 25.0 ppb for surface water and 1.1 ppb for ground water. For chronic exposures for non-cancer assessments, EDWCs of spinosad are estimated to be 21.7 ppb for surface water and 1.1 ppb for ground water. EDWCs of spinetoram for acute exposures are estimated to be 8.6 parts per billion (ppb) for surface water and 0.072 ppb for ground water. For chronic exposures for non-cancer assessments, EDWCs of spinetoram are estimated to be 5.9 ppb for surface water and 0.072 ppb for ground water.
Modeled estimates of drinking water concentrations were directly entered into the dietary exposure model. For chronic dietary risk assessment, the water concentration of value 21.7 ppb was used to assess the contribution to drinking water.
3.
Spinosad and spinetoram are currently registered for uses that could result in residential exposures including lawns, gardens, turfgrass, ornamentals, fire ant mounds, and spot-on pet applications. There is potential for residential handler and post-application exposures to both spinosad and spinetoram. Since spinosad and spinetoram control the same pests, EPA concludes that these products will not be used for the same uses in combination with each other and thus combining spinosad and spinetoram residential exposures would overstate exposure. EPA assessed residential exposure for both spinosad and spinetoram using the most conservative residential exposure scenarios for either chemical.
EPA assessed residential exposure using the following assumptions: Residential handler (short-term inhalation exposures) and post-application (short-term incidental oral) exposures are expected as a result of the following registered uses: (1) application of spinosad to gardens, turfgrass, ornamentals and fire ant mounds; (2) application of spinetoram to lawns, gardens, and ornamentals; and (3) spot-on application of spinetoram to cats and kittens. The Agency determined the “worst-case” scenarios for handler and post-application exposures as: (1) adult residential handler inhalation exposure from mixing/loading/applying liquid formulations to turf via backpack sprayer, and (2) child (1-<2 years) residential post-application incidental oral (hand-to-mouth) exposure from liquid formulation on turf/home gardens/ornamentals. These worst-case exposure estimates were used in the aggregate assessment of residential exposure to spinosad and spinetoram.
Aggregating exposure resulting from the turf and pet uses was not conducted as the products control different pests and, therefore, application on the same day is unlikely. Use survey data indicate that concurrent use of separate pesticide products that contain the same active ingredient to treat the same or different pests does not typically occur. Furthermore, a number of issues are considered when combining residential exposure scenarios, including whether aggregating additional uses is appropriate in light of the already conservative assumptions inherent in the assessment. When assessing individual short-term residential postapplication exposure scenarios, EPA assumes exposure occurs to zero-day residues (
Current EPA policy requires assessment for residential post-application exposures of short- (1 to 30 days), intermediate- (1 to 6 months), and long-term (greater than 6 months) exposures from spot-on products due to the preventative nature of these products and the potential for extended usage in more temperate parts of the country. However, for spinetoram, there is no progression of toxicity with time; therefore, the short-term assessment is protective of intermediate- and long-term exposure.
Available turf transferable residue (TTR) data on spinosad in support of the turf uses and spinetoram data on dislodgeable residues from petting after topical administration to cats were incorporated into the exposure assessment. Spinosad and spinetoram dislodgeable-foliar residue (DFR) studies are unnecessary at this time as there is no hazard via the dermal route of exposure.
Further information regarding EPA standard assumptions and generic inputs for residential exposures may be found at
4.
EPA has not found spinosad or spinetoram to share a common mechanism of toxicity with any other substances, and neither spinosad nor spinetoram appear to produce a toxic metabolite produced by other substances. For the purposes of this tolerance action, therefore, EPA has assumed that spinosad and spinetoram do not have a common mechanism of toxicity with other substances. For information regarding EPA's efforts to determine which chemicals have a common mechanism of toxicity and to evaluate the cumulative effects of such chemicals, see EPA's Web site at
1.
2.
3.
i. The toxicity database for spinosad and spinetoram is complete. There is no evidence of neurotoxicity, developmental/reproductive toxicity, immunotoxicity, mutagenicity, or carcinogenicity from spinetoram or spinosad exposure. Therefore, no additional database uncertainty factor (UF) is needed.
ii. There is no indication of spinosad or spinetoram neurotoxicity from available acute and subchronic
iii. There is no evidence that spinosad or spinetoram results in increased susceptibility in
iv. There are no residual uncertainties identified in the spinosad and spinetoram exposure databases. The dietary exposure assessment is conservative as it assumes 100 PCT and residue estimates are based on field trial data and fish nature of the residue studies. Moreover, EPA made conservative (protective) assumptions in the ground and surface water modeling used to assess exposure to spinosad and spinetoram in drinking water. EPA used similarly conservative assumptions to assess post-application exposure of children as well as incidental oral exposure of toddlers. These assessments will not underestimate the exposure and risks posed by spinosad and spinetoram.
EPA determines whether acute and chronic dietary pesticide exposures are safe by comparing aggregate exposure estimates to the acute PAD (aPAD) and chronic PAD (cPAD). For linear cancer risks, EPA calculates the lifetime probability of acquiring cancer given the estimated aggregate exposure. Short-, intermediate-, and chronic-term risks are evaluated by comparing the estimated aggregate food, water, and residential exposure to the appropriate PODs to ensure that an adequate MOE exists.
1.
2.
3.
Spinosad and spinetoram are currently registered for uses that could result in short-term residential exposure, and the Agency has determined that it is appropriate to aggregate chronic exposure through food and water with short-term residential exposures to spinosad and spinetoram.
Using the exposure assumptions described in this unit for short-term exposures, EPA has concluded the combined short-term food, water, and residential exposures result in aggregate MOEs of 220 for children 1-2 years old and 1,000 for adults 20-49 years old. Because EPA's level of concern for spinosad and spinetoram is a MOE of 100 or below, these MOEs are not of concern.
EPA has concluded that the combined intermediate-term and long-term food, water, and residential exposures result in aggregate MOEs that will not fall below the short-term aggregate MOEs since there is no progression of spinetoram toxicity with time. Because EPA's level of concern for spinetoram and spinosad is a MOE of 100 or below, these MOEs are not of concern.
4.
5.
Adequate enforcement methodology (Method RES 94025 (GRM 94.02) is a high-performance liquid chromatography method with ultraviolet detection (HPLC/UV)) is available to enforce the tolerance expression. Additional methods have also been determined to be adequate for tolerance enforcement purposes.
The method may be requested from: Chief, Analytical Chemistry Branch, Environmental Science Center, 701 Mapes Rd., Ft. Meade, MD 20755-5350; telephone number: (410) 305-2905; email address:
In making its tolerance decisions, EPA seeks to harmonize U.S. tolerances with international standards whenever possible, consistent with U.S. food safety standards and agricultural practices. EPA considers the international maximum residue limits (MRLs) established by the Codex Alimentarius Commission (Codex), as required by FFDCA section 408(b)(4). The Codex Alimentarius is a joint United Nations Food and Agriculture Organization/World Health Organization food standards program, and it is recognized as an international food safety standards-setting organization in trade agreements to which the United States is a party. EPA may establish a tolerance that is different from a Codex MRL; however, FFDCA section 408(b)(4) requires that EPA explain the reasons for departing from the Codex level.
Codex maximum residue limits (MRLs) for spinosad are currently established in or on several of the relevant crops or crop groups or subgroups affected by this action. EPA harmonizes with existing Codex MRLs whenever feasible. The recommended fruit, small, vine climbing, except fuzzy kiwifruit, subgroup 13-07F and raisin tolerances and the Codex MRLs are harmonized. But harmonization with the Codex MRLs for the following tolerances is inappropriate as doing so may result in exceedances of the tolerances when the pesticide is applied using the labeled instructions: Fruit, pome, group 11-10; nut, tree, group 14-12; and cottonseed, subgroup 20C. Harmonization with the currently established vegetable, fruiting, group 8-10 Codex MRL is inappropriate as the Codex MRL is too high to allow for enforcement of the labeled instructions.
In response to the notice of filing, EPA received two (2) comments on December 4, 2015. One comment was received from a private citizen in support of EPA's regulatory initiatives to control potentially harmful substances in order to protect human health and the environment.
The other comment was from the Center for Biological Diversity and concerned endangered species, specifically stating that EPA cannot approve these new uses prior to completion of consultations with the U.S. Fish and Wildlife Service and the National Marine Fisheries Service (“the Services”). This comment is not relevant to the Agency's evaluation of the safety of the spinosad tolerances;
Based on the available field-trial and processing data and the OECD tolerance calculation procedure, EPA: (1) concludes that proposed tolerances in or on coffee processed commodities are unnecessary; (2) made revisions to proposed tolerance values in order to harmonize with Canada and/or Codex MRLs where supporting data allowed; (3) made revisions to the commodity definitions to conform with current Agency practices, and (4) is reducing the requested tolerance for coffee, green bean from 0.2 ppm to 0.04 ppm. Also, although a spinosad tolerance in/on quinoa, grain was requested at 1.0 ppm for the purpose of harmonizing with the Codex cereal grain MRL, EPA is establishing a tolerance at 0.02 ppm. EPA considered the fact that the Codex MRL is based on post-harvest treatment and, therefore, is not reflective of the proposed foliar-only quinoa application scenario. Based on the available wheat grain data and adjusting these data for the proposed application rate, EPA concluded that a 0.02-ppm spinosad tolerance in/on quinoa grain is appropriate.
In addition, the Agency is updating the tolerance expression for spinosad as follows to reflect current EPA policies: Tolerances are established for residues of the insecticide spinosad, including its metabolites and degradates, in or on the commodities in the table below. Compliance with the tolerance levels specified below is to be determined by measuring only the sum of
Therefore, EPA is establishing tolerances for residues of the insecticide spinosad, including its metabolites and degradates, in or on the following commodities. Compliance with the tolerance levels specified below is to be determined by measuring only the sum of
This action establishes tolerances under FFDCA section 408(d) in response to a petition submitted to the Agency. The Office of Management and Budget (OMB) has exempted these types of actions from review under Executive Order 12866, entitled “Regulatory Planning and Review” (58 FR 51735, October 4, 1993). Because this action has been exempted from review under Executive Order 12866, this action is not subject to Executive Order 13211, entitled “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355, May 22, 2001) or Executive Order 13045, entitled “Protection of Children from Environmental Health Risks and Safety Risks” (62 FR 19885, April 23, 1997). This action does not contain any information collections subject to OMB approval under the Paperwork Reduction Act (PRA) (44 U.S.C. 3501
Since tolerances and exemptions that are established on the basis of a petition under FFDCA section 408(d), such as the tolerances in this final rule, do not require the issuance of a proposed rule, the requirements of the Regulatory Flexibility Act (RFA) (5 U.S.C. 601
This action directly regulates growers, food processors, food handlers, and food retailers, not States or tribes, nor does this action alter the relationships or distribution of power and responsibilities established by Congress in the preemption provisions of FFDCA section 408(n)(4). As such, the Agency has determined that this action will not have a substantial direct effect on States or tribal governments, on the relationship between the national government and the States or tribal governments, or on the distribution of power and responsibilities among the various levels of government or between the Federal Government and Indian tribes. Thus, the Agency has determined that Executive Order 13132, entitled “Federalism” (64 FR 43255, August 10, 1999) and Executive Order 13175, entitled “Consultation and Coordination with Indian Tribal Governments” (65 FR 67249, November 9, 2000) do not apply to this action. In addition, this action does not impose any enforceable duty or contain any unfunded mandate as described under Title II of the Unfunded Mandates Reform Act (UMRA) (2 U.S.C. 1501
This action does not involve any technical standards that would require
Pursuant to the Congressional Review Act (5 U.S.C. 801
Environmental protection, Administrative practice and procedure, Agricultural commodities, Pesticides and pests, Reporting and recordkeeping requirements.
Therefore, 40 CFR chapter I is amended as follows:
21 U.S.C. 321(q), 346a and 371.
The additions and revision read as follows:
(a)
Environmental Protection Agency (EPA).
Direct final rule.
During a review of Texas' regulations, the Environmental Protection Agency (EPA) identified a variety of State-initiated changes to its hazardous waste program under the Resource Conservation and Recovery Act (RCRA). We have determined that these changes are minor and satisfy all requirements needed to qualify for Final authorization and are authorizing the State-initiated changes through this direct Final action. In addition, this document corrects technical errors made in the September 3, 2014,
The Solid Waste Disposal Act, as amended, commonly referred to as the Resource Conservation and Recovery Act (RCRA), allows the Environmental Protection Agency (EPA) to authorize States to operate their hazardous waste management programs in lieu of the Federal program. The EPA uses the regulations entitled “Approved State Hazardous Waste Management Programs” to provide notice of the authorization status of State programs and to incorporate by reference those provisions of the State statutes and regulations that will be subject to the EPA's inspection and enforcement. The rule codifies in the regulations the prior approval of Texas' hazardous waste management program and incorporates by reference authorized provisions of the State's statutes and regulations.
This regulation is effective February 26, 2016, unless the EPA receives adverse written comment on this regulation by the close of business January 27, 2016. If the EPA receives such comments, it will publish a timely
Submit your comments by one of the following methods:
1.
2
3.
4.
You can view and copy the documents that form the basis for this authorization and codification and associated publicly available materials from 8:30 a.m. to 4 p.m., Monday through Friday, at the following location: EPA, Region 6, 1445 Ross Avenue, Dallas, Texas 75202-2733, phone number: (214) 665-8533 or (214) 665-8178. Interested persons wanting to examine these documents should make an appointment with the office at least two weeks in advance.
Alima Patterson, Region 6 Regional Authorization Coordinator, or Julia Banks, Codification Coordinator, State/Tribal Oversight Section (6PD-O), Multimedia Planning and Permitting Division, EPA Region 6, 1445 Ross Avenue, Dallas, Texas 75202-2733, Phone number: (214) 665-8533 or (214) 665-8178, and Email address:
States which have received Final authorization from the EPA under RCRA section 3006(b), 42 U.S.C. 6926(b), must maintain a hazardous waste program that is equivalent to, consistent with, and no less stringent than the Federal hazardous waste program. As the Federal program changes, the States must change their programs and ask the EPA to authorize the changes. Changes to State hazardous waste programs may be necessary when Federal or State statutory or regulatory authority is modified or when certain other changes occur. Most commonly, States must change their programs because of changes to the EPA's regulations in 40 Code of Federal Regulations (CFR) parts 124, 260 through 268, 270, 273 and 279. States can also initiate their own changes to their hazardous waste program and these changes must then be authorized.
We conclude that Texas' revisions to its authorized program meet all of the statutory and regulatory requirements established by RCRA. We found that the State-initiated changes make Texas' rules more clear or conform more closely to the Federal equivalents, and are so minor in nature that a formal application is unnecessary. Therefore, we grant Texas final authorization to operate its hazardous waste program with the changes described in the table at Section G below. Texas has responsibility for permitting Treatment, Storage, and Disposal Facilities (TSDFs) within its borders (except in Indian Country) and for carrying out all authorized aspects of the RCRA program, subject to the limitations of the Hazardous and Solid Waste Amendments of 1984 (HSWA). New Federal requirements and prohibitions imposed by Federal regulations that EPA promulgates under the authority of HSWA take effect in authorized States before they are authorized for the requirements. Thus, the EPA will implement those requirements and prohibitions in Texas, including issuing permits, until the State is granted authorization to do so.
The effect of this decision is that a facility in Texas, subject to RCRA, will now have to comply with the authorized State requirements, instead of the equivalent Federal requirements, in order to comply with RCRA. Texas has enforcement responsibilities under its State hazardous waste program for violations of such program, but the EPA retains its authority under RCRA sections 3007, 3008, 3013, and 7003, which include, among others, authority to:
• Do inspections, and require monitoring, tests, analyses, or reports;
• Enforce RCRA requirements and suspend or revoke permits; and
• Take enforcement actions, regardless of whether the State has taken its own actions.
This action does not impose additional requirements on the regulated community because the statutes and regulations for which Texas is being authorized by this direct action are already effective and are not changed by this action.
The EPA did not publish a proposal before this rule because we view this as a routine program change and do not expect comments that oppose this approval. We are providing an opportunity for public comment now. In addition to this rule, in the Proposed Rules section of this
If the EPA receives comments that oppose the authorization of the State-initiated changes in this codification document, we will withdraw this rule by publishing a timely document in the
The purpose of this
Texas initially received final authorization on December 26, 1984 (49 FR 48300), to implement its Base Hazardous Waste Management Program. This authorization was clarified in a notice published March 26, 1985 (50 FR 11858). Texas received authorization for revisions to its program, effective October 4, 1985 (51 FR 3952), February 17, 1987 (51 FR 45320), March 15, 1990 (55 FR 7318), July 23, 1990 (55 FR 21383), October 21, 1991 (56 FR 41626), December 4, 1992 (57 FR 45719), June 27, 1994 (59 FR 16987), June 27, 1994 (59 FR 17273), November 26, 1997 (62 FR 47947), December 3, 1997 (62 FR 49163), October 18, 1999 (64 FR 44836), November 15, 1999 (64 FR 49673), September 11, 2000 (65 FR 43246), June 14, 2005 (70 FR 34371), December 29, 2008, (73 FR 64252), July 13, 2009 (74 FR 22469), May 6, 2011 (76 FR 12283), May 7, 2012 (77 FR 13200), January 9, 2013 (77 FR 71344) and November 3, 2014 (79 FR 52220).
The State has made amendments to the provisions listed in the table which follows. These amendments clarify the State's regulations, and make the State's regulations more internally consistent. The State's laws and regulations, as amended by these provisions, provide authority which remains equivalent to, no less stringent than, and not broader in scope than the Federal laws and regulations. These State-initiated changes satisfy the requirements of 40 CFR 271.21(a). We are granting Texas final authorization to carry out the following provisions of the State's program, in lieu of the Federal program. These provisions are analogous to the indicated RCRA regulations found at 40 CFR, as of July 1, 2010. The Texas provisions are from the Texas Administrative Code (TAC), Title 30, amended to be effective February 21, 2013 (except as noted below).
This authorization does not affect the status of State permits and those permits issued by the EPA, because no new substantive requirements are a part of these revisions.
Texas is not authorized to carry out its Hazardous Waste Program in Indian Country within the State. This authority remains with EPA. Therefore, this action has no effect in Indian Country.
The following technical corrections are made to the September 3, 2014, Texas authorization
1. For all the checklist entries, the word “Chapter” is corrected to read “Section”.
2. For Checklist 203, the following corrections should be made:
a. The citation “224.1” is corrected to read “324.1”.
b. The citation “324.3” is corrected to read “334.3 (except 324.3(5))”.
3. For Checklist 207, the following corrections should be made:
a. The citation “335.41(f)(2)(iii)” is corrected to read “335.41(f)(2)(A)(iii)”.
b. The citations “335.69” and 335.67” are removed.
4. For Checklist 208, the following corrections should be made:
a. The text “4 as amended” is removed.
b. The citations “335.152(a)(17)(c)”, “335.152(a)(21)”, “335.152(a)(9)” and “335.152(19)” are removed.
c. Add citation “335.112(a)(9)” before “335.125(d)”.
d. Add citation “335.112(a)(19)—(a)(21)” before “335.221(a)(1)”.
e. Add citation “324.3 (except 324.3(5))” before “324.11”.
f. The citation “305.172(2)(a)(iii)—(iv)” is corrected to read “305.172(2)(A)(iii)—(iv)”.
g. The language “amended and effective February 21, 2013” is corrected to read “as amended January 29, 2013 and effective February 21, 2013”.
5. For Checklist 220, the following corrections should be made:
a. The language “335.61(i)” and “335.79, 335.61(i)(1)-(2), 335.61(i)(2)” is removed.
6. For Checklist 222, the following corrections should be made:
a. The citation “335.11(e)” is removed.
b. The citations “335.76(a), 335.76(f), 335.76(h)” are removed.
c. Add citation “335.251(a) and 335.251(c)” after “335.112(a)(1)”.
d. The citation “335.71(d)” is removed.
e. The citation “335.112(a)(4)” is corrected to read “335.12”.
f. Add the following text to the end of the Checklist 222 entry: “Note: While Texas has adopted the Federal changes addressed by this January 8, 2010 final rule, the State has appropriately left the authority with the EPA for the non-delegable export functions and is not being authorized to enforce these requirements in lieu of the EPA.”
7. For Checklist 223, the following corrections should be made:
a. The citation “335.1(138(D)(iv)” is corrected to read “335.1(138)(D)(iv) Table 1”.
b. Add citation “335.71” after “335.69(f)(4)(C)”.
c. The citation “335.69(f)(4)(C)” is corrected to read “335.69(f)(4)(D)”.
d. The citations “335.10(a)” and “335.2(o)” are removed.
e. The citation “324.94” is corrected to read “335.94(a)”.
f. The citations “335.12(e)” and “335.12(c)” are removed.
g. The duplicate citation “335.211(b)” after “335.112(a)(3)” is removed.
h. The citation “335.222(e)(1)(E)” is corrected to read “335.222(c)(1)(E)”.
8. For Checklist 226, the following correction should be made:
a. Insert “30” before “Texas Administrative Code”.
9. Add the following new entry to the Table:
Codification is the process of placing a State's statutes and regulations that comprise the State's authorized hazardous waste management program into the Code of Federal Regulations (CFR). Section 3006(b) of RCRA, as amended, allows the Environmental Protection Agency (EPA) to authorize State hazardous waste management programs to operate in lieu of the Federal hazardous waste management regulatory program. The EPA codifies its authorization of State programs in 40 CFR part 272, and incorporates by reference State statutes and regulations that the EPA will enforce under sections 3007 and 3008 of RCRA and any other applicable statutory provisions.
The incorporation by reference of State authorized programs in the CFR should substantially enhance the public's ability to discern the current status of the authorized State program and State requirements that can be Federally enforced. This effort provides clear notice to the public of the scope of the authorized program in each State.
The EPA incorporated by reference Texas' then authorized hazardous waste program effective December 3, 1997 (62 FR 49163), November 15, 1999 (64 FR 49673), December 29, 2008 (73 FR 64252), May 6, 2011 (76 FR 12283), and January 9, 2013 (77 FR 71344). In this document, EPA is revising Subpart SS of 40 CFR part 272 to include the recent authorization revision actions effective November 3, 2014 (79 FR 52220).
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 the Texas rules described in the amendments to 40 CFR part 272 set forth below. The EPA has made, and will continue to make, these documents available electronically through
The purpose of this
The EPA is incorporating by reference the Texas authorized hazardous waste program in subpart SS of 40 CFR part 272. Section 272.2201 incorporates by reference Texas' authorized hazardous waste statutes and regulations. Section 272.2201 also references the statutory provisions (including procedural and enforcement provisions), which provide the legal basis for the State's implementation of the hazardous waste management program, the Memorandum of Agreement, the Attorney General's Statements and the Program Description, which are approved as part of the hazardous waste management program under Subtitle C of RCRA.
The EPA retains its authority under statutory provisions, including but not limited to, RCRA sections 3007, 3008, 3013, and 7003, and other applicable statutory and regulatory provisions to undertake inspections and enforcement actions, and to issue orders in authorized States. With respect to these actions, the EPA will rely on Federal sanctions, Federal inspection authorities, and Federal procedures, rather than any authorized State analogues to these provisions. Therefore, the EPA is not incorporating by reference such particular, approved Texas procedural and enforcement authorities. Section 272.2201(c)(2) of 40 CFR lists the statutory and regulatory provisions which provide the legal basis for the State's implementation of the hazardous waste management program, as well as, those procedural and enforcement authorities that are part of the States approved program, but these are not incorporated by reference.
The public needs to be aware that some provisions of Texas' hazardous waste management program are not part of the Federally authorized State program. These non-authorized provisions include:
(1) Provisions that are not part of the RCRA Subtitle C program because they are “broader in scope” than RCRA Subtitle C (see 40 CFR 271.1(i));
(2) Federal rules for which Texas is not authorized, but which have been incorporated into the State regulations because of the way the State adopted Federal regulations by reference:
(3) Unauthorized amendments to authorized State provisions;
(4) New unauthorized State requirements; and
(5) Federal rules for which Texas is authorized, but which were vacated by the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Cir. No. 98-1379 and 98-1379; June 27, 2014).
State provisions that are “broader in scope” than the Federal program are not part of the RCRA authorized program, and the EPA will not enforce them. Therefore, they are not incorporated by reference in 40 CFR part 272. For reference and clarity, 40 CFR 272.2201(c)(3) lists the Texas regulatory provisions which are “broader in scope” than the Federal program and which are not part of the authorized program being incorporated by reference. “Broader in scope” provisions cannot be enforced by the EPA; the State, however, may enforce such provisions under State law.
Additionally, Texas' hazardous waste regulations include amendments which have not been authorized by the EPA. Since the EPA cannot enforce a State's requirements which have not been reviewed and authorized in accordance with RCRA section 3006 and 40 CFR part 271, it is important to be precise in delineating the scope of a State's authorized hazardous waste program. Regulatory provisions that have not been authorized by the EPA include amendments to previously authorized State regulations, as well as, certain Federal rules and new State requirements.
Texas has adopted but is not authorized for the following Federal rules published in the
Texas has adopted and was authorized for the following Federal rules, which have since been vacated by the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Cir. No. 98-1379 and 08-1144, respectively, June 27, 2014): (1) the Comparable Fuels Exclusion at 40 CFR 261.4(a)(16) and 261.38 published in the
In those instances where Texas has made unauthorized amendments to previously authorized sections of State code, the EPA is identifying in 40 CFR 272.2201(c)(4)(i) any regulations which, while adopted by the State and incorporated by reference, include language not authorized by the EPA. Those unauthorized portions of the State regulations are not Federally enforceable. Thus, notwithstanding the language in Texas hazardous waste regulations incorporated by reference at 40 CFR 272.2201(c)(1), the EPA will only enforce those portions of the State regulations that are actually authorized by the EPA. For the convenience of the regulated community, the actual State regulatory text authorized by the EPA for the citations listed at § 272.2201(c)(4) (
State regulations that are not incorporated by reference in this rule at 40 CFR 272.2201(c)(1), or that are not listed in 40 CFR 272.2201(c)(2) (“legal basis for the State's implementation of the hazardous waste management program”), 40 CFR 272.2201(c)(3) (“broader in scope”) or 40 CFR 272.2201(c)(4) (“unauthorized State amendments”), are considered new unauthorized State requirements. These requirements are not Federally enforceable.
With respect to any requirement pursuant to the Hazardous and Solid Waste Amendments of 1984 (HSWA) for which the State has not yet been authorized, the EPA will continue to enforce the Federal HSWA standards until the State is authorized for these provisions.
The EPA is not amending 40 CFR part 272 to include HSWA requirements and
Instead of amending the 40 CFR part 272 every time a new HSWA provision takes effect under the authority of RCRA section 3006(g), the EPA will wait until the State receives authorization for its analog to the new HSWA provision before amending the State's 40 CFR part 272 incorporation by reference. Until then, persons wanting to know whether a HSWA requirement or prohibition is in effect should refer to 40 CFR 271.1(j), as amended, which lists each such provision.
Some existing State requirements may be similar to the HSWA requirement implemented by the EPA. However, until the EPA authorizes those State requirements, the EPA can only enforce the HSWA requirements and not the State analogs. The EPA will not codify those State requirements until the State receives authorization for those requirements.
The Office of Management and Budget (OMB) has exempted this action from the requirements of Executive Order 12866 (58 FR 51735, October 4, 1993), and therefore, this action is not subject to review by OMB. This rule incorporated by reference Texas' authorized hazardous waste management regulations, and imposes no additional requirements beyond those imposed by State law. Accordingly, I certify that this action will not have a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601
This action will not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132 (64 FR 43255, August 10, 1999), because it merely incorporates by reference existing State hazardous waste management program requirements without altering the relationship or the distribution of power and responsibilities established by RCRA. This action also does not have Tribal implications within the meaning of Executive Order 13175 (65 FR 67249, November 6, 2000).
This action also is not subject to Executive Order 13045 (62 FR 19885, April 23, 1997), because it is not economically significant, and it does not make decisions based on environmental health or safety risks. This action is not subject to Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply Distribution or Use” (66 FR 28344, May 22, 2001) because it is not a significant regulatory action under Executive Order 12866.
The requirements being codified are the result of Texas' voluntary participation in the EPA's State program authorization process under RCRA Subtitle C. As required by section 3 of Executive Order 12988 (61 FR 4729, February 7, 1996), in issuing this rule, the EPA has taken the necessary steps to eliminate drafting errors and ambiguity, minimize potential litigation, and provide a clear legal standard for affected conduct. The EPA has complied with Executive Order 12630 (53 FR 8859, March 15, 1988), by examining the takings implications of the rule in accordance with the “Attorney General's Supplemental Guidelines for the Evaluation of Risk and Avoidance of Unanticipated Takings” issued under the executive order. This rule does not impose an information collection burden under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501
The Congressional Review Act, 5 U.S.C. 801
Environmental protection, Administrative practice and procedure, Confidential business information, Hazardous waste, Hazardous waste transportation, Indian lands, Intergovernmental relations, Penalties, Reporting and recordkeeping requirements.
Hazardous materials transportation, Hazardous waste, Incorporation by reference, Intergovernmental relations, Water pollution control, Water supply.
This document is issued under the authority of Sections 2002(a), 3006 and 7004(b) of the Solid Waste Disposal Act as amended 42 U.S.C. 6912(a), 6926, 6974(b).
For the reasons set forth in the preamble, under the authority at 42 U.S.C. 6912(a), 6926, and 6974(b), the EPA is granting final authorization under part 271 to the State of Texas for revisions to its hazardous waste program under the Resource Conservation and Recovery Act and is amending 40 CFR part 272 as follows:
Sections 2002(a), 3006, and 7004(b) of the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976, as amended, 42 U.S.C. 6912(a), 6926, and 6974(b).
(a) Pursuant to section 3006(b) of RCRA, 42 U.S.C. 6926(b), the EPA granted Texas final authorization for the following elements, as submitted to EPA in Texas' Base program application for final authorization which was approved
(b) The State of Texas has primary responsibility for enforcing its hazardous waste management program. However, EPA retains the authority to exercise its inspection and enforcement authorities in accordance with sections 3007, 3008, 3013, 7003 of RCRA, 42 U.S.C. 6927, 6928, 6934, 6973, and any other applicable statutory and regulatory provisions, regardless of whether the State has taken its own actions, as well as in accordance with other statutory and regulatory provisions.
(c)
(i) The Binder entitled “EPA-Approved Texas Statutory and Regulatory Requirements Applicable to the Hazardous Waste Management Program”, dated November 2014.
(ii) [Reserved]
(2) The following provisions provide the legal basis for the State's implementation of the hazardous waste management program, but they are not being incorporated by reference and do not replace Federal authorities:
(i) Texas Health and Safety Code (THSC) Annotated, (Vernon, 2010, as amended by the 2012 Cumulative Annual Pocket Part, effective September 1, 2011); Chapter 361, The Texas Solid Waste Disposal Act, sections 361.002, 361.016, 361.017, 361.018, 361.0215(b)(2) and (b)(3), 361.023, 361.024, 361.029, 361.032, 361.033, 361.035, 361.036, 361.037(a), 361.061, 361.063, 361.0635, 361.064, 361.0641, 361.066(b) and (c), 361.0666, 361.067, 361.068, 361.069, 361.078, 361.079, 361.0791, 361.080, 361.081, 361.082 (except 361.082(a) and (f)), 361.083, 361.0833, 361.084, 361.085, 361.0861(c), 361.0871(b), 361.088, 361.0885, 361.089 (except 361.089(a), (e), and (f)), 361.089(a), (e), and (f) (2012 Cumulative Annual Pocket Part), 361.090, 361.095(b)-(f), 361.096, 361.097, 361.098, 361.099(a), 361.100, 361.101, 361.102 through 361.109, 361.113, 361.114, 361.116, 361.271 (2012 Cumulative Annual Pocket Part), 361.272 through 361.275, 361.278, 361.301, 361.321(a) and (b), 361.321(c) (except the phrase “Except as provided by Section 361.322(a)”), 361.321(d), 361.321(e) (except the phrase “Except as provided by Section 361.322(e)”), 361.451, 361.501 through 361.506, and 361.509(a) introductory paragraph, (a)(11), (b), (c) introductory paragraph, and (c)(2); Chapter 371, Texas Oil Collection, Management, and Recycling Act, sections 371.0025(b) and (c), 371.024(a), (c), and (d), 371.026(a) and (b), and 371.028.
(ii) Texas Water Code (TWC), Texas Codes Annotated, as amended effective September 1, 2011: Chapter 5, sections 5.102 through 5.105, 5.112, 5.177, 5.351, 5.501 through 5.505, 5.509 through 5.512, 5.515, and 5.551 through 5.557; Chapter 7, sections 7.031, 7.032, 7.051(a), 7.052(a), 7.052(c) and (d), 7.053 through 7.062, 7.064 through 7.069, 7.075, 7.101, 7.102, 7.104, 7.105, 7.107, 7.110, 7.162, 7.163, 7.176, 7.187(a), 7.189, 7.190, 7.252(1), 7.351, 7.353; Chapter 26, sections 26.001(13), 26.011, 26.020 through 26.022, 26.039, and 26.341 through 26.367; and Chapter 27, sections 27.003, 27.017(a), 27.018(a)-(d), and 27.019.
(iii) Texas Government Code as amended effective September 1, 2011, section 311.027.
(iv) Texas Rules of Civil Procedure, as amended effective September 1, 2011, Rule 60.
(v) Texas Administrative Code (TAC), Title 30, Environmental Quality, 2013, as amended, effective through December 31, 2012: Chapter 10; Chapter 39, sections 39.5(g) and (h), 39.11, 39.13 (except (10)), 39.103 (except (f) and (h)), 39.105, 39.107, 39.109, 39.403(b)(1), 39.405(f)(1), 39.411 (except (b)(4)(B), (b)(10), (b)(11), and (b)(13)), 39.413 (except (10)), 39.420 (except (c) and (d)), 39.503 (except the reference to 39.405(h) in (d) introductory paragraph and (g)), and 39.801 through 39.810; Chapter 50, sections 50.13, 50.19, 50.39, 50.113 (except (d)), 50.117(f), 50.119, 50.133, and 50.139; Chapter 55, sections 55.25(a) and (b), 55.27 (except (b)), 55.152(a)(3), 55.152(b), 55.154, 55.156 (except (d) through (g)), 55.201 (except as applicable to contested case hearings), and 55.211 (except as applicable to contested case hearings); Chapter 70, section 70.10; Chapter 281, sections 281.1 (except the clause “except as provided by . . . Prioritization Process)”), 281.2 introductory paragraph and (4), 281.3(a) and (b), 281.5 (except the clause “Except as provided by . . . Discharge Permits)”, the phrase “radioactive material”, and the phrase “subsurface area drip dispersal systems”), 281.17(d) (except the references to radioactive material licenses), 281.17(e) and (f), 281.18(a) (except for the sentence “For applications for radioactive . . . within 30 days.”, 281.19(a) (except the last sentence), 281.19(b) (except the phrase “Except as provided in subsection (c) of this section,”), 281.20, 281.21(a) (except the phrase “and the Texas Radiation Control Act . . . Chapter 401.”, the acronym “TRCA”, and the phrase “subsurface area drip dispersal systems”), 281.21(b), 281.21(c) (except the phrase “radioactive materials,” in 281.21(c)(2)), 281.21(d), 281.22(a) (except the phrase “For applications for radioactive . . . to deny the license.”), 281.22(b) (except the phrase “or an injection well,” in the first sentence and the phrase “For underground injection wells . . . the same facility or activity.”), 281.23(a), and 281.24; Chapter 305, sections, 305.29, 305.30, 305.64(d) and (f), 305.66(c), 305.66(e) (except for the last sentence), 305.66(f) through (l), 305.123 (except the phrases “and 401 . . . regulation)” and “and 32”), 305.125(1) and (3), 305.125(20), 305.127(1)(B)(i), 305.127(4)(A) and (C), and (6), 305.401 (except the text “§ 55.21 of this title (relating to Requests for Contested Case Hearings, Public Comment)” at (b), and 305.401(c)); and Chapter 335, sections 335.2(b), 335.43(b), 335.206, 335.391 through 335.393.
(3) The following statutory and regulatory provisions are broader in scope than the Federal program, are not part of the authorized program, and are not incorporated by reference:
(i) Texas Health and Safety Code (THSC) Annotated, (Vernon, 2010): Chapter 361, The Texas Solid Waste Disposal Act, sections 361.131 through 361.140; Chapter 371, Texas Oil Collection, Management, and Recycling
(ii) Texas Administrative Code (TAC), Title 30, Environmental Quality, 2013, as amended, effective through December 31, 2012: Chapter 305, sections 305.53, 305.64(b)(4), and 305.69(b)(1)(A) (as it relates to the Application Fee); Chapter 335, sections 335.321 through 335.332, Appendices I and II, and 335.401 through 335.412.
(4)
(ii) Texas has partially or fully adopted, but is not authorized to implement, the Federal rules that are listed in the table in this paragraph (c)(4)(ii). The EPA will continue to implement the Federal HSWA requirements for which Texas is not authorized until the State receives specific authorization for those requirements. The EPA will not enforce the non-HSWA Federal rules although they may be enforceable under State law. For those Federal rules that contain both HSWA and non-HSWA requirements, the EPA will enforce only the HSWA portions of the rules.
(iii) The Federal rules listed in the table in this paragraph (c)(4)(iii) are not delegable to States. Texas has adopted these provisions and left the authority to the EPA for implementation and enforcement.
(iv) Texas has chosen not to adopt, and is not authorized to implement, the following optional Federal rules:
(5)
(6)
(7)
(8)
The statutory provisions include:
Texas Health and Safety Code (THSC) Annotated, (Vernon, 2010): Chapter 361, The Texas Solid Waste Disposal Act, sections 361.003 (except (3), (4), (19), (27), (35), and (39)), 361.019(a), 361.0235, 361.066(a), 361.082(a) and (f), 361.086, 361.087, 361.0871(a), 361.094, 361.095(a), 361.099(b),
Copies of the Texas statutes that are incorporated by reference are available from West Group Publishing, 610 Opperman Drive, Eagan, 55123, ATTENTION: Order Entry; Phone: 1-800-328-9352; Web site:
The regulatory provisions include:
Texas Administrative Code (TAC), Title 30, Environmental Quality, 2013, as amended, effective through December 31, 2012, and where indicated, amendments effective February 21, 2013, as published in the Texas Register on February 15, 2013 (38 TexReg 970; based on the proposed rule published October 5, 2012, 37 TexReg 7871). Please note that for some provisions, the authorized versions are found in the TAC, Title 30, Environmental Quality, as amended effective January 1, 1994, January 1, 1997, December 31, 1999, or December 31, 2001. Texas made subsequent changes to these provisions but these changes have not been authorized by EPA. Where the provisions are taken from regulations other than those dated December 31, 2012, notations are made below.
Chapter 3, Section 3.2(25) “Person”; Chapter 20, Section 20.15; Chapter 35, Section 35.402(e); Chapter 37, Sections 37.1, 37.11 through 37.81, 37.100 through 37.161, 37.200 through 37.281, 37.301 through 37.381, 37.400 through 37.411, 37.501 through 37.551, 36.601 through 37.671, and 37.6001 through 37.6041; Chapter 281, Section 281.3(c);
Chapter 305, Subchapter A—General Provisions, Sections 305.1(a) (except the reference to Chapter 401, relative to Radioactive Materials); 305.2 introductory paragraph (except the references to Chapter 401, relative to Radioactive Materials and the reference to TWC 32.002); 305.2(1), (6), (11), (12), (14), (15), (19), (20), (24), (26), (27), (28), (31), and (40)—(42); 305.3;
Chapter 305, Subchapter C—Application for Permit, Sections 305.41 (except the reference to Chapter 401, relative to Radioactive Materials and the reference to TWC Chapter 32); 305.42(a), (b), (d), and (f); 305.43(b); 305.44 (except (d)); 305.45 (except (a)(7)(I) and (J)); 305.47; 305.50(a) introductory paragraph—(a)(8) (except the last two sentences in 305.50(a)(2)); 305.50(a)(13); 305.50(a)(14) (38 TexReg 970, effective February 21, 2013); 305.50(a)(15) and (16); 305.50(b); 305.51;
Chapter 305, Subchapter D—Amendments, Modifications, Renewals, Transfers, Corrections, Revocations, and Suspension of Permits, Sections 305.61; 305.62(a) (except the phrase in the first sentence “§ 305.70 of this title . . . Solid Waste Class I Modifications” and the phrase in the fifth sentence “If the permittee requests a modification of a municipal solid waste permit . . . § 305.70 of this title.”); 305.62(b); 305.62(c) introductory paragraph (except the phrase “other than . . . subsection (i) of this section”); 305.62(c)(1); 305.62(c)(2) introductory paragraph; 305.62(c)(2)(A) (except the phrase “except for Texas Pollutant Discharge Elimination System (TPDES) permits, ”); 305.62(c)(2)(B) (except the phrase “except for TPDES permits, ”); 305.62(d) (except (d)(6)); 305.62(e)-(h); 305.63(a) (except the last sentence of (a)(3) and (a)(7)); 305.64(a); 305.64(b) (except (b)(4) and (b)(5)); 305.64(c); 305.64(e); 305.64(g) (38 TexReg 970, effective February 21, 2013); 305.65; 305.66(a) (except (a)(7)-(a)(9)); 305.66(d); 305.67(a) and (b); 305.69(a); 305.69(b) (except for “Additional Contents of Application for an Injection Well Permit” and “Waste Containing Radioactive Materials; and Application Fee” at (b)(1)(A)); 305.69(c); 305.69(d) (except (d)(2)(A)); 305.69(d)(2)(A) (38 TexReg 970, effective February 21, 2013); 305.69(e)-(j); 305.69(k) (except (k) A.8-A.10) (38 TexReg 970, effective February 21, 2013);
Chapter 305, Subchapter F—Permit Characteristics and Conditions, Sections 305.121 (except the phrases “radioactive material disposal” and “subsurface area drip dispersal systems”); 305.122(a); 305.122(b)-(d) (38 TexReg 970, effective February 21, 2013); 305.124; 305.125 introductory paragraph; 305.125(2) and (4); 305.125(5) (except the last two sentences); 305.125(6)-(8); 305.125(9) (except (9)(C)); 305.125(10) (except the phrase “and 32”); 305.125(11) (except the phrase “as otherwise required by Chapter 336 of this title” relative to Radioactive Substances in (11)(B)); 305.125(12)-(19), and (21); 305.127 introductory paragraph; 305.127(1)(B)(iii); 305.127(1)(E) and (F); 305.127(2); 305.127(3)(A) (except the last two sentences); 305.127(3)(B) and (C); 305.127(4)(B); 305.127(5)(C); 305.128;
Chapter 305, Subchapter G—Additional Conditions for Hazardous and Industrial Solid Waste Storage, Processing, or Disposal Permits, Sections 305.141 through 305.145; 305.150;
Chapter 305, Subchapter I—Hazardous Waste Incinerator Permits, Sections 305.171 through 305.175; 305.176 (38 TexReg 970, effective February 21, 2013);
Chapter 305, Subchapter J -Permits for Land Treatment Demonstrations Using Field Tests or Laboratory Analyses, Sections 305.181 through 305.184;
Chapter 305, Subchapter K—Research, Development and Demonstration Permits, Sections 305.191 through 305.194;
Chapter 305, Subchapter L—Groundwater Compliance Plan, Section 305.401(c);
Chapter 305, Subchapter Q—Permits for Boilers and Industrial Furnaces Burning Hazardous Waste, Sections 305.571 through 305.573;
Chapter 305, Subchapter R—Resource Conservation And Recovery Act Standard Permits For Storage And Treatment Units, Sections 305.650 through 305.661;
Chapter 324—Used Oil, Sections 324.1 (38 TexReg 970, effective February 21, 2013), 324.2(except 324.2(2)) (38 TexReg 970, effective February 21, 2013); 324.3 (except 324.3(5)) (38 TexReg 970, effective February 21, 2013); 324.4 (38 TexReg 970, effective February 21, 2013); 324.6 and 324.7 (38 TexReg 970, effective February 21, 2013); 324.11 through 324.16 (38 TexReg 970, effective February 21, 2013); 324.21; 324.22(d)(3);
Chapter 335, Subchapter A—Industrial Solid Waste and Municipal Hazardous Waste in General, Sections 335.1 introductory paragraph; 335.1(1)-(4), (6)-(12), (16)-(18), (22), (23), (25)-(29), (32), (34)-(37); 335.1(39) “Designated facility” (38 TexReg 970, effective February 21, 2013); 335.1(40)-(46), (47) (except for the phrase “or is used for neutralizing the pH of non-hazardous industrial solid waste”), (48)-(50), (52)-(57), (59) (38 TexReg 970, effective February 21, 2013), (60)-(63), (65), (66), (69)-(78), (80)-(87), (88)-(91) (except the phrase “solid waste or” in each subsection), (92), (93)-(94) (except the phrase “solid waste or” in both subsections); 335.1(95) “Manifest” and (96) “Manifest document number” (38 TexReg 970, effective February 21, 2013); 335.1(97), (98), (99) (except the phrase “solid waste or”), (100)-(113), (115) (except the phrase “solid waste or”), (116), (117), (121), (122) (except the phrase “solid waste or”), (123)-(126), (128), (130)-(134), (136), (137), (138)(A) introductory paragraph through (138)(A)(iii), (138)(A)(iv) introductory paragraph (except the last sentence) (38 TexReg 970, effective February 21, 2013), (138)(B), (138)(C), (138)(D) (except the phrase “Except for materials described in subparagraph (H) of this paragraph.” at (138)(D) introductory paragraph; and (D)(iv) Table 1), (138)(D)(iv) Table 1 (38 TexReg 970, effective February 21, 2013), (138)(E), (138)(F), and (138)(G) (except the phrase “Except for materials described in subparagraph (H) of this paragraph.” at (138)(G) introductory paragraph), (138)(I) and (J), (139), (141), (142) (38 TexReg 970, effective February 21, 2013), (143), (144)-(151) (except the phrase “solid waste or” at (144), (147) and (149)), (152) (except the phrase “or industrial solid”), (153)-(156) (except the phrase “or industrial solid” at (155) and (156), (158)-(160), (161) (except the phrase “solid waste or”), (162)-(167), (168) (except the phrase “or industrial solid”), (169), (170), and (171) (except the phrase “solid waste or”); 335.2(a) and (c); 335.2(e) and (f); 335.2(g) (38 TexReg 970, effective February 21, 2013); 335.2(i), (j), (l), (m), and (o); 335.4; 335.5 (except (d)); 335.6(a); 335.6(b) (January 1, 1997); 335.6(c); 335.6(d) (except the last sentence) (January 1, 1994); 335.6(e) (January 1, 1994); 335.6(f)-(j); 335.7; 335.8(a)(1) and (2); 335.9(a) (except (a)(2) and (3)); 335.9(a)(2) and (3) (January 1, 1997); 335.9(b) (January 1, 1994); 335.10(a) and (b) (38 TexReg 970, effective February 21, 2013); 335.11(a) (38 TexReg 970, effective February 21, 2013); 335.12(a) (38 TexReg 970, effective February 21, 2013); 335.13(a) (January 1, 1997); 335.13(c) and (d) (January 1, 1994); 335.13(e) and (f) (January 1, 1997); 335.13(g) (January 1, 1994); 335.13(k); 335.14; 335.15 introductory paragraph (January 1, 1994); 335.15(1); 335.15(3); 335.17(a); 335.18(a); 335.19 (except 335.19(d)) (38 TexReg 970, effective February 21, 2013); 335.20 through 335.22; 335.23 (except (2)); 335.23(2) (January 1, 1994); 335.24(a) and (b) introductory paragraph; 335.24(b)(1)-(4) (38 TexReg 970, effective February 21, 2013); 335.24(c) (except (c)(1)(A)); 335.24(c)(1)(A) (38 TexReg 970, effective February 21, 2013); 335.24(d) (38 TexReg 970, effective February 21, 2013); 335.24(e); 335.24(f) (38 TexReg 970, effective February 21, 2013); 335.24(m) and (n); 335.29 through 335.31;
Chapter 335, Subchapter B—Hazardous Waste Management General Provisions, Sections 335.41(a)-(c); 335.41(d) (except (d)(1) and (d)(5)-(8)); 335.41(d)(1) (December 31, 2001); 335.41(e)-(j); 335.43(a); 335.44; 335.45; 335.47 (except 335.47(b) and the second sentence in (c)(3)); 335.47(b) (December 31, 1999);
Chapter 335, Subchapter C—Standards Applicable to Generators of Hazardous Waste, Sections 335.61(a) and (b) (38 TexReg 970, effective February 21, 2013); 335.61(c); 335.61(d) (38 TexReg 970, effective February 21, 2013); 335.61(e), (g), and (h); 335.61(i) (38 TexReg 970, effective February 21, 2013); 335.62 (38 TexReg 970, effective February 21, 2013); 335.63; 335.65 through 335.68; 335.69(a) (except “and (n)” in the introductory paragraph; (a)(4)(B) and (a)(4)(C)); 335.69(a)(4)(B) and (C) (38 TexReg 970, effective February 21, 2013); 335.69(b) (38 TexReg 970, effective February 21, 2013); 335.69(c), 335.69(d) and (e) (38 TexReg 970, effective February 21, 2013); 335.69(f) (except (f)(4)(C)); 335.69(f)(4)(C) and (D) (38 TexReg 970, effective February 21, 2013); 335.69(g), (h), and (j)-(l); 335.69(m) (38 TexReg 970, effective February 21, 2013); 335.70; 335.71; 335.73 through 335.75; 335.76(a) (38 TexReg 970, effective February 21, 2013); 335.76(b); 335.76(c) and (d) (38 TexReg 970, effective February 21, 2013); 335.76(e); 335.76(f) (38 TexReg 970, effective February 21, 2013); 335.76(g); 335.77; 335.78(a); 335.78(b) (January 1, 1997); 335.78(c) (38 TexReg 970, effective February 21, 2013); 335.78(d) (except (d)(2)); 335.78(e) introductory paragraph (January 1, 1997); 335.78(e)(1) and (2); 335.78(f) introductory paragraph and (f)(1) (38 TexReg 970, effective February 21, 2013); 335.78(f)(2) (January 1, 1997); 335.78(f)(3) (except 335.78(f)(3)(A)); 335.78(f)(3)(A) (38 TexReg 970, effective February 21, 2013); 335.78(g) (except (g)(2)); 335.78(g)(2) (January 1, 1997); 335.78(h) and (i); 335.78(j) (38 TexReg 970, effective February 21, 2013); 335.79 (38 TexReg 970, effective February 21, 2013);
Chapter 335, Subchapter D—Standards Applicable to Transporters of Hazardous Waste, Sections 335.91 (except (e)); 335.92; 335.93 (except (e)); 335.93(e) (December 31, 1999); 335.94 (except the phrase “owned or operated by a registered transporter” in (a) introductory paragraph);
Chapter 335, Subchapter E—Interim Standards for Owners and Operators of Hazardous Waste Storage, Processing, or Disposal Facilities, Sections 335.111(a) and (b) (38 TexReg 970, effective February 21, 2013), 335.111(c)-(e); 335.112(a) introductory paragraph; 335.112(a)(1) (38 TexReg 970, effective February 21, 2013); 335.112(a)(2); 335.112(a)(3) and (4) (38 TexReg 970, effective February 21, 2013); 335.112(a)(5)-(12); 335.112(a)(13) and (14) (38 TexReg 970, effective February 21, 2013); 335.112(a)(15) and (16); 335.112(a)(18)-(24); 335.112(b) (except (b)(4)(K) and (b)(7)); 335.112(b)(4)(K) and (b)(7) (38 TexReg 970, effective February 21, 2013); 335.112(c); 335.113; 335.115 through 335.128;
Chapter 335, Subchapter F—Permitting Standards for Owners and Operators of Hazardous Waste Storage, Processing, or Disposal Facilities, Sections 335.151(a) (38 TexReg 970, effective February 21, 2013); 335.151(b); 335.151(c) (38 TexReg 970, effective February 21, 2013); 335.151(d); 335.151(e) (38 TexReg 970, effective February 21, 2013); 335.151(f); 335.152(a) introductory paragraph; 335.152(a)(1) (38 TexReg 970, effective February 21, 2013); 335.152(a)(2); 335.152(a)(3) and (4) (38 TexReg 970, effective February 21, 2013); 335.152(a)(5)-(8); 335.152(a)(9) (38 TexReg 970, effective February 21, 2013); 335.152(a)(10) and (11); 335.152(a)(12) (38 TexReg 970, effective February 21, 2013); 335.152(a)(13); 335.152(a)(14) (38 TexReg 970, effective February 21, 2013); 335.152(a)(15)-(22); 335.152(b); 335.152(c) (except (c)(7)); 335.152(c)(7) (38 TexReg 970, effective February 21, 2013); 335.152(d); 335.153; 335.155 introductory paragraph (38 TexReg 970, effective February 21, 2013); 335.155(1) and (2); 335.155(3) (38 TexReg 970, effective February 21, 2013); 335.156 through 335.167; 335.168 (except (c)); 335.168(c) (38 TexReg 970, effective February 21, 2013); 335.169; 335.170 (except (c)); 335.170(c) (38 TexReg 970, effective February 21, 2013); 335.171 through 335.179;
Chapter 335, Subchapter G—Location Standards for Hazardous Waste Storage, Processing, or Disposal, Sections 335.201(a) (except (a)(3)); 335.201(c); 335.202 introductory paragraph; 335.202(2), (4), (9)-(11), (13), (15)-(18); 335.203; 335.204(a) introductory paragraph-(a)(5); 335.204(b)(1)-(6); 335.204(c)(1)-(5); 335.204(d)(1)-(5); 335.204(e) introductory paragraph; 335.204(e)(1) introductory paragraph (except the phrase “Except as . . . (B) of this paragraph,” and the word “event” at the end of the paragraph); 335.204(e)(2)-(7); 335.204(f); 335.205(a) introductory paragraph—(a)(2) and (e);
Chapter 335, Subchapter H—Standards for the Management of Specific Wastes and Specific Types of Facilities, Sections 335.211; 335.212; 335.213 (38 TexReg 970, effective February 21, 2013); 335.214; 335.221; 335.222(except (c)(1)); 335.222(c)(1) (38 TexReg 970, effective February 21, 2013); 335.223 through 335.225; 335.241(except (b)(4)); 335.251 (38 TexReg 970, effective February 21, 2013); 335.261 (except (e)); 335.271; 335.272;
Chapter 335, Subchapter O—Land Disposal Restrictions, Section 335.431 (except (c)(1)); 335.431(c)(1) (38 TexReg 970, effective February 21, 2013);
Chapter 335, Subchapter R—Waste Classification, Sections 335.504 introductory paragraph; 335.504(1)-(3) (38 TexReg 970, effective February 21, 2013);
Subchapter U, Standards For Owners And Operators Of Hazardous Waste Facilities Operating Under A Standard Permit, Sections 601 and 602.
Copies of the Texas regulations that are incorporated by reference are available from West Group Publishing, 610 Opperman Drive, Eagan, 55123, ATTENTION: Order Entry; Phone: 1-800-328-9352; Web site:
Federal Railroad Administration (FRA), Department of Transportation (DOT).
Notice of determination.
This notice of determination provides the FRA Administrator's minimum annual random drug and alcohol testing rates for calendar year 2016.
This notice of determination is effective December 28, 2015.
Jerry Powers, FRA Drug and Alcohol Program Manager, W33-310, Federal Railroad Administration, 1200 New Jersey Avenue SE., Washington, DC 20590, (telephone 202-493-6313); or Sam Noe, FRA Drug and Alcohol Program Specialist, (telephone 615-719-2951).
FRA determines the minimum annual random drug testing rate and minimum random alcohol testing rate for the next calendar year based on railroad industry data available for two previous calendar years (for this Notice, calendar years 2013 and 2014). Railroad industry data submitted to FRA's Management Information System shows the rail industry's random drug testing positive rate remained below 1.0 percent for the applicable two calendar years. FRA's Administrator has therefore determined the minimum annual random drug testing rate for the period January 1, 2016, through December 31, 2016, will remain at 25 percent of covered railroad employees under 49 CFR 219.602. In addition, because the industry-wide random alcohol testing violation rate remained below 0.5 percent for the applicable two calendar years, the Administrator has determined the minimum random alcohol testing rate will remain at 10 percent of covered railroad employees for the period January 1, 2016, through December 31, 2016 under 49 CFR 219.608. Because these rates represent minimums, railroads may conduct FRA random testing at higher rates.
Federal Railroad Administration (FRA), Department of Transportation (DOT).
Final rule.
This rule maintains the rail equipment accident/incident monetary reporting threshold at $10,500 for railroad accidents/incidents involving property damage that occur during calendar year (CY) 2016 that FRA's accident/incident reporting regulations require to be reported to the agency. FRA is maintaining the reporting threshold at the same level it did in CY 2015, and CY 2014, because, in part, the wage and equipment data for the second-quarter of 2015 (
This final rule is effective January 1, 2016.
Kebo Chen, Staff Director, U.S. Department of Transportation, Federal Railroad Administration, Office of Safety Analysis, RRS-22, Mail Stop 25, West Building 3rd Floor, Room W33-314, 1200 New Jersey Ave. SE., Washington, DC 20590 (telephone 202-493-6079); or Sara Mahmoud-Davis, Trial Attorney, U.S. Department of Transportation, Federal Railroad Administration, Office of Chief Counsel, RCC-10, Mail Stop 10, West Building 3rd Floor, Room W33-435, 1200 New Jersey Ave. SE., Washington, DC 20590 (telephone 202-366-1118).
A “rail equipment accident/incident” is a collision, derailment, fire, explosion, act of God, or other event involving the operation of railroad on-track equipment (standing or moving) that results in damages to railroad on-track equipment, signals, tracks, track structures, or roadbed, including labor costs and the costs for acquiring new equipment and material, greater than the reporting threshold for the year in which the event occurs. 49 CFR 225.19(c). Each rail equipment accident/incident must be reported to FRA using the Rail Equipment Accident/Incident Report (Form FRA F 6180.54).
In this rule, FRA is keeping the monetary threshold for CY 2016, at $10,500, the same as the monetary threshold for CY 2014 and CY 2015. FRA is maintaining the reporting threshold at the same level as CY 2015 because, in part, the wage and equipment data for the second-quarter of 2015 (
In addition to periodically reviewing and adjusting the annual threshold under Appendix B, FRA periodically amends its method for calculating the threshold. In 49 U.S.C. 20901(b), Congress requires that FRA base the threshold on publicly available information obtained from the Bureau of Labor Statistics (BLS), other objective government source, or be subject to notice and comment. In 1996, FRA adopted a new method for calculating the monetary reporting threshold for accidents/incidents.
Approximately one year has passed since FRA reviewed the rail equipment accident/incident reporting threshold.
In reviewing the threshold, FRA gathered wage and equipment data from the STB and BLS respectively. Under the procedure in Appendix B, FRA averaged the wages for Group No. 300 (Maintenance of Way and Structures) and Group No. 400 (Maintenance of Equipment and Stores employees). FRA averaged the monthly equipment indices from the Producer Price Index (PPI) to produce a quarterly average. Consistent with Appendix B, FRA utilized data from the second-quarter of 2014 to the second-quarter of 2015.
To determine the changes in wages and prices over this time period, FRA calculated the quarter-to-quarter changes (
Considering the wage input to the threshold first, the average quarter-to-quarter change in wages is 0 percent, although individual quarter-to-quarter changes ranged from negative 3 percent to 5 percent. The quarter-over-quarter change in wages is negative 0.1 percent (rounded to 0 percent in the table). Based on no overall change in wages, the reporting threshold would not change for 2016.
Examining the change in equipment PPI over the same time period shows an average quarter-to-quarter increase of 0.5 percent. The quarter-over-quarter change is about 2 percent. The 2 percent change, when applied to the current $10,500 reporting threshold, would indicate an increase of about $200. However, the formula for calculating the
In this rule, FRA is maintaining the current monetary reporting threshold for the reasons explained above, and, under the final rule published December 20, 2005.
As appropriate, FRA regularly recalculates the monetary reporting threshold using the formula published in Appendix B near the end of each calendar year. FRA attempts to use the most recent data available to calculate the updated reporting threshold prior to the next calendar year. FRA believes that issuing this rule no later than December of each calendar year and making the rule effective on January 1, of the next year, allows FRA to use the most up-to-date data to calculate the reporting threshold and to compile data that accurately reflects rising wages and equipment costs. As such, FRA finds that it has good cause to make this final rule effective January 1, 2016.
FRA evaluated this rule under existing policies and procedures, and determined it to be non-significant under both Executive Orders 12866 and 13563 in addition to DOT policies and procedures.
The Regulatory Flexibility Act of 1980 (5 U.S.C. 601-612) requires a review of proposed and final rules to assess their impact on small entities, unless the Secretary certifies that the rule will not have a significant economic impact on a substantial number of small entities. Pursuant to Section 312 of the Small Business Regulatory Enforcement Fairness Act of 1996 (Public Law 104-121), FRA issued a final policy statement that formally establishes “small entities” are railroads that meet the line-haulage revenue requirements of a Class III railroad. 49 CFR part 209, app. C. For other entities, the same dollar limit in revenues governs whether a railroad, contractor, or other respondent is a small entity.
FRA considers about 730 of the approximately 779 railroads in the United States small entities. FRA certifies this final rule will have no significant economic impact on a substantial number of small entities. To the extent that this rule has any impact on small entities, the impact will be neutral or insignificant. The frequency of rail equipment accidents/incidents and required reporting, is generally proportional to the size of the railroad. A railroad that employs thousands of employees and operates trains millions of miles is exposed to greater risks than one whose operation is substantially smaller. Small railroads may go for months at a time without having a reportable occurrence of any type, and even longer without having a rail equipment accident/incident. For example, current FRA data indicate that railroads reported 1,902 rail equipment accidents/incidents in 2010, with small railroads reporting 303 of them. Data for 2011 show that railroads reported 2,022 rail equipment accidents/incidents, with small railroads reporting 307 of them. In 2012, railroads reported 1,760 rail equipment accidents/incidents, with small railroads reporting 292 of them. In 2013, railroads reported 1,824 rail equipment accidents/incidents, with small railroads reporting 299 of them. In 2014, railroads reported 1,758 rail equipment accidents/incidents, with small railroads reporting 247 of them. On average over those five calendar years, small railroads reported about 16 percent of the total number of rail equipment accidents/incidents,
This rulemaking maintains the monetary reporting threshold at the CY 2014 and CY 2015 level of $10,500. Increasing the reporting threshold would have potentially slightly decreased the reporting burden for railroads in 2016. However, only accidents/incidents with reportable damages near the reporting threshold will be affected. In any case, railroads still maintain records of accountable accidents/incidents that are below the reporting threshold, thus minimizing any potential additional burden to report these accidents to FRA caused by keeping the threshold the same in CY 2016. Railroads would potentially incur a small reporting burden, but not the burden to gather this accident/incident information. Also, overall wage rates have not increased, and equipment costs have increased only about 1 percent from the second-quarter of CY 2015 compared to the second-quarter of CY 2014, according to the average PPI Series WPU144 for group transportation equipment and item railroad equipment the BLS published for April, May, and June 2015. Therefore, the overall effect of this rule likely will be neutral or minimal. Any change in recordkeeping burden will not be significant and will affect the large railroads more than the small entities, due to the higher proportion of reportable rail equipment accidents/incidents experienced by large entities.
There are no new or additional information collection requirements associated with this final rule. FRA's collection of accident/incident reporting and recordkeeping information is currently approved under OMB No. 2130-0500. Therefore, FRA is not required to provide an estimate of a public reporting burden in this document.
Executive Order 13132, entitled, “Federalism,” signed on August 4, 1999, requires that each agency
FRA analyzed this final rule under the principles and criteria in Executive Order 13132. This rule will not have a substantial direct effect on States, on the relationship between the National Government and the States, or on the distribution of power and the responsibilities among the various levels of government, as specified in the Executive Order 13132. Accordingly, FRA determined this rule will not have sufficient federalism implications to warrant consultation with State and local officials or the preparation of a federalism assessment. Therefore, FRA did not prepare a federalism assessment.
FRA evaluated this rule under its “Procedures for Considering Environmental Impacts” (FRA's Procedures) (64 FR 28545, May 26, 1999) as the National Environmental Policy Act (42 U.S.C. 4321
Under Section 201 of the Unfunded Mandates Reform Act of 1995 (Public Law 104-4, 2 U.S.C. 1531), each Federal agency “shall, unless otherwise prohibited by law, assess the effects of Federal regulatory actions on State, local, and tribal governments, and the private sector (other than to the extent that such regulations incorporate requirements specifically set forth in law).” Section 202 of the Act (2 U.S.C. 1532) further requires that “before promulgating any general notice of proposed rulemaking that is likely to result in the promulgation of any rule that includes any Federal mandate that may result in expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100,000,000 or more (adjusted annually for inflation) in any 1 year, and before promulgating any final rule for which a general notice of proposed rulemaking was published, the agency shall prepare a written statement” detailing the effect on State, local, and tribal governments and the private sector. When adjusted for inflation using BLS' Consumer Price Index for All Urban Consumers, the equivalent value of $100,000,000 in year 2014 dollars is $155,000,000.
Executive Order 13211 requires Federal agencies to prepare a Statement of Energy Effects for any “significant energy action.” 66 FR 28355, May 22, 2001. Under the Executive Order, a “significant energy action” is defined as
FRA has evaluated this final rule under Executive Order 13211. FRA has determined that this final rule is not likely to have a significant adverse effect on the supply, distribution, or use of energy. Consequently, FRA has determined that this regulatory action is not a “significant energy action” within the meaning of Executive Order 13211.
Under 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
Investigations, Penalties, Railroad safety, Reporting and recordkeeping requirements.
In consideration of the foregoing, FRA amends part 225 of chapter II, subtitle B of title 49, Code of Federal Regulations, as follows:
49 U.S.C. 103, 322(a), 20103, 20107, 20901-02, 21301, 21302, 21311; 28 U.S.C. 2461, note; and 49 CFR 1.89.
(c)
(e) The reporting threshold is $6,700 for calendar years 2002 through 2005, $7,700 for calendar year 2006, $8,200 for calendar year 2007, $8,500 for calendar year 2008, $8,900 for calendar year 2009, $9,200 for calendar year 2010, $9,400 for calendar year 2011, $9,500 for calendar year 2012, $9,900 for calendar year 2013, $10,500 for calendar year 2014, $10,500 for calendar year 2015, and $10,500 for calendar year 2016. The procedure for determining the reporting threshold for calendar years 2006 and beyond appears as paragraphs 1-8 of appendix B to part 225.
In notice document 2015-31708 beginning on page 78670 in the issue of Thursday, December 17, 2015, make the following corrections:
1. On page 78671, in the third column, in the eleventh line, “February 16, 2015” should read “February 16, 2016”.
2. On page 78675, in the first column, in the eighth line, “February 16, 2015” should read “February 16, 2016”.
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Final rule.
NMFS issues regulations to implement Amendment 7 to the Fishery Management Plan (FMP) for the Dolphin and Wahoo Fishery off the Atlantic States (Dolphin and Wahoo FMP) and Amendment 33 to the FMP for the Snapper-Grouper Fishery of the South Atlantic Region (Snapper-Grouper FMP) (Amendments 7/33), as prepared and submitted by the South Atlantic Fishery Management Council (Council). This final rule revises the landing fish intact provisions for vessels that lawfully harvest dolphin, wahoo, or snapper-grouper in or from Bahamian waters and return to the U.S exclusive economic zone (EEZ). The U.S. EEZ as described in this final rule refers to the Atlantic EEZ for dolphin and wahoo and the South Atlantic EEZ for snapper-grouper species. The purpose of this final rule is to improve the consistency and enforceability of Federal regulations with regards to landing fish intact provisions for vessels transiting from Bahamian waters through the U.S. EEZ and to increase the social and economic benefits related to the recreational harvest of these species.
This final rule is effective January 27, 2016.
Electronic copies of Amendments 7/33, which includes an environmental assessment, regulatory impact review, and Regulatory Flexibility Act analysis, may be obtained from the Southeast Regional Office Web site at
Nikhil Mehta, telephone: 727-824-5305, or email:
The dolphin and wahoo fishery is managed under the Dolphin and Wahoo FMP and the snapper-grouper fishery is managed under the Snapper-Grouper FMP. The FMPs were prepared by the Council and are implemented through regulations at 50 CFR part 622 under the authority of the Magnuson-Stevens Fishery Conservation and Management Act (Magnuson-Stevens Act).
On September 17, 2015, NMFS published a notice of availability for Amendments 7/33 and requested public comment (80 FR 55819). On October 7, 2015, NMFS published a proposed rule for Amendments 7/33 and requested public comment (80 FR 60601). The proposed rule and Amendments 7/33 outline the rationale for the actions contained in this final rule. A summary of the actions implemented by Amendments 7/33 and this final rule is provided below.
Current Federal regulations require that dolphin or wahoo or snapper-grouper species onboard a vessel traveling through the U.S. EEZ be maintained with the heads and fins intact and not be in fillet form. However, as implemented through Amendment 8 to the Snapper-Grouper FMP, an exemption applies to snapper-grouper species that are lawfully harvested in Bahamian waters and are
The Bahamas does not allow for the commercial harvest of dolphin, wahoo, or snapper-grouper by U.S. vessels in Bahamian waters. Therefore, the measures in this final rule only apply to the recreational harvest of these species by vessels returning from The Bahamas to the U.S. EEZ. This final rule will not change potential liability under the Lacey Act, which makes it unlawful to import, export, sell, receive, acquire, or purchase fish that are taken, possessed, transported or sold in violation of any foreign law.
This final rule revises the landing fish intact provisions for vessels that lawfully harvest dolphin, wahoo, or snapper-grouper in Bahamian waters and return to the U.S. EEZ. This final rule allows for dolphin and wahoo fillets to enter the U.S. EEZ after lawful harvest in The Bahamas; specifies the condition of any dolphin, wahoo, and snapper-grouper fillets; describes how the recreational bag limit is determined for any fillets; explicitly prohibits the sale or purchase of any dolphin, wahoo, or snapper-grouper recreationally harvested in The Bahamas; specifies the required documentation to be onboard any vessels that have these fillets, and specifies transit and stowage provisions for any vessels with fillets.
Currently, all dolphin or wahoo in or from Atlantic EEZ are required to be maintained with head and fins intact. This final rule allows for dolphin or wahoo lawfully harvested in Bahamian waters to be exempt from this provision when returning through the Atlantic EEZ under certain circumstances. Allowing these vessels to be exempt from the landing fish intact regulations increases the social and economic benefits for recreational fishers returning to the U.S. EEZ from Bahamian waters. This final rule also provides increased consistency between the dolphin and wahoo and snapper-grouper regulations for vessels possessing fillets of these species and transiting from Bahamian waters through the U.S. EEZ.
Snapper-grouper possessed in the South Atlantic EEZ are currently exempt from the landing fish intact requirement under certain conditions if the vessel lawfully harvested the snapper-grouper in The Bahamas. Amendments 7/33 and this final rule retain this exemption and revise it to include additional requirements.
The Council and NMFS note that this exemption only applies to the landing fish intact provisions for fish in the U.S. EEZ, and does not exempt fishers from any other Federal fishing regulations such as fishing seasons, recreational bag limits, and size limits.
To better allow for identification of the species of any fillets in the U.S. EEZ, this final rule requires that the skin be left intact on the entire fillet of any dolphin, wahoo, or snapper-grouper carcass on a vessel in transit from Bahamian waters through the U.S. EEZ. This requirement is intended to assist law enforcement in identifying fillets to determine whether they are the species lawfully exempted by this final rule.
Currently, all dolphin, wahoo, and snapper-grouper species harvested or possessed in or from the U.S. EEZ are required to adhere to the U.S. bag and possession limits. This final rule does not revise the bag and possession limits, but specifies how fillets are counted with respect to determining the number of fish onboard a vessel in transit from Bahamian waters through the U.S. EEZ and ensuring compliance with U.S. bag and possession limits. This final rule specifies that for any dolphin, wahoo, or snapper-grouper species lawfully harvested in Bahamian waters and onboard a vessel in the U.S. EEZ in fillet form, two fillets of the respective species of fish, regardless of the length of each fillet, are equivalent to one fish. This measure will assist law enforcement in enforcing the relevant U.S. bag and possession limits.
This final rule explicitly prohibits the sale or purchase of any dolphin, wahoo, or snapper-grouper species recreationally harvested in Bahamian waters and returned to the U.S. through the U.S. EEZ. The Council determined that establishing a specific prohibition on the sale or purchase of any of these species from The Bahamas was necessary to ensure consistency with the current Federal regulations that prohibit recreational bag limit sales of these species.
This final rule revises the documentation requirements for snapper-grouper species and implements documentation requirements for dolphin and wahoo harvested in Bahamian waters and onboard a vessel in transit through the U.S. EEZ. For dolphin, wahoo, or snapper-grouper fillets lawfully harvested in Bahamian waters and on a vessel transiting through the U.S. EEZ, this final rule requires that valid Bahamian fishing and cruising permits are onboard and additionally requires that all vessel passengers have valid government passports with current stamps and dates. Requiring valid Bahamian fishing and cruising permits on the vessel and requiring each vessel passenger to have a valid government passport with current stamps and dates from The Bahamas increases the likelihood that the vessel and passengers were lawfully fishing in The Bahamas, and thereby increases the likelihood that any dolphin, wahoo, or snapper-grouper fillets on the vessel were lawfully harvested in Bahamian waters and not in the U.S. EEZ.
This final rule revises the snapper-grouper transit provisions, applies the transit provisions to vessels operating under the exemption for dolphin and wahoo, and requires fishing gear to be appropriately stowed on a vessel transiting through the U.S. EEZ with fillets of these species. The definition for “fishing gear appropriately stowed” means that “terminal gear (
A total of three comment submissions were received on Amendments 7/33 and the proposed rule from individuals and a state agency. The state agency stated that it strongly supported the actions in
The Regional Administrator, Southeast Region, NMFS, has determined that this final rule is necessary for the conservation and management of South Atlantic snapper-grouper and Atlantic dolphin and wahoo and is consistent with the Amendments 7/33, the FMPs, the Magnuson-Stevens Act, and other applicable law.
This final rule has been determined to be not significant for purposes of Executive Order 12866.
The Chief Counsel for Regulation of the Department of Commerce certified to the Chief Counsel for Advocacy of the Small Business Administration during the proposed rule stage that this rule would not have a significant economic impact on a substantial number of small entities. The factual basis for this determination was published in the proposed rule and is not repeated here. No comments were received regarding the certification and NMFS has not received any new information that would affect its determination. As a result, a final regulatory flexibility analysis was not required and none was prepared.
Atlantic, Dolphin, Fillets, Fisheries, Fishing, Snapper-Grouper, Wahoo.
For the reasons set out in the preamble, 50 CFR part 622 is amended as follows:
16 U.S.C. 1801
(b) In the South Atlantic EEZ, snapper-grouper lawfully harvested in Bahamian waters are exempt from the requirement that they be maintained with head and fins intact, provided that the skin remains intact on the entire fillet of any snapper-grouper carcasses, valid Bahamian fishing and cruising permits are on board the vessel, each person on the vessel has a valid government passport with current stamps and dates from The Bahamas, and the vessel is in transit through the South Atlantic EEZ with fishing gear appropriately stowed. For the purpose of this paragraph, a vessel is in transit through the South Atlantic EEZ when it is on a direct and continuous course through the South Atlantic EEZ and no one aboard the vessel fishes in the EEZ. For the purpose of this paragraph, fishing gear appropriately stowed means that terminal gear (
(a) * * *
(3) In the South Atlantic EEZ, a vessel that lawfully harvests snapper-grouper in Bahamian waters, as per § 622.186 (b), must comply with the bag and possession limits specified in this section. For determining how many
(k) Snapper-grouper possessed pursuant to the bag and possession limits specified in § 622.187(a)(3) may not be sold or purchased.
(a) Dolphin or wahoo in or from the Atlantic EEZ must be maintained with head and fins intact, except as specified in paragraph (b) of this section. Such fish may be eviscerated, gilled, and scaled, but must otherwise be maintained in a whole condition. The operator of a vessel that fishes in the EEZ is responsible for ensuring that fish on that vessel in the EEZ are maintained intact and, if taken from the EEZ, are maintained intact through offloading ashore, as specified in this section.
(b) In the Atlantic EEZ, dolphin or wahoo lawfully harvested in Bahamian waters are exempt from the requirement that they be maintained with head and fins intact, provided that the skin remains intact on the entire fillet of any dolphin or wahoo carcasses, valid Bahamian fishing and cruising permits are on board the vessel, each person on the vessel has a valid government passport with current stamps and dates from The Bahamas, and the vessel is in transit through the Atlantic EEZ with fishing gear appropriately stowed. For the purpose of this paragraph, a vessel is in transit through the Atlantic EEZ when it is on a direct and continuous course through the Atlantic EEZ and no one aboard the vessel fishes in the EEZ. For the purpose of this paragraph, fishing gear appropriately stowed means that terminal gear (
(a) * * *
(1)
(ii) In the Atlantic EEZ and lawfully harvested in Bahamian waters (as per § 622.276(b))—10, not to exceed 60 per vessel, whichever is less, except on board a headboat, 10 per paying passenger. For the purposes of this paragraph, for determining how many dolphin are on board a vessel in fillet form when harvested lawfully in Bahamian waters, two fillets of dolphin, regardless of the length of each fillet, is equivalent to one dolphin. The skin must remain intact on the entire fillet of any dolphin carcass.
(2)
(ii) In the Atlantic EEZ and lawfully harvested in Bahamian waters (as per § 622.276(b))—2. For the purposes of this paragraph, for determining how many wahoo are on board a vessel in fillet form when harvested lawfully in Bahamian waters, two fillets of wahoo, regardless of the length of each fillet, is equivalent to one wahoo. The skin must remain intact on the entire fillet of any wahoo carcass.
(d) Dolphin or wahoo possessed pursuant to the bag and possession limits specified in § 622.277(a)(1)(ii) and (a)(2)(ii) may not be sold or purchased.
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Final rule.
NMFS issues final specifications for the 2016-2018 summer flounder and scup fisheries, and the 2016 and 2017 black sea bass fishery. This final rule specifies allowed harvest limits for both commercial and recreational fisheries. This action prohibits federally permitted commercial fishing vessels from landing summer flounder in Delaware in 2016 due to continued quota repayment from previous years' overages. This action also reduces the 2016 black sea bass commercial quota to account for a catch overage in 2014. These actions are necessary to comply with regulations implementing the Summer Flounder, Scup, and Black Sea Bass Fishery Management Plan, and to ensure compliance with the Magnuson-Stevens Fishery Conservation and Management Act. The intent of this action is to establish harvest levels and other management measures to ensure that these species are not overfished or subject to overfishing in 2016-2018.
Effective January 1, 2016, through December 31, 2018.
Copies of the specifications document, consisting of an Environmental Assessment (EA), Initial Regulatory Flexibility Analysis (IRFA), and other supporting documents used by the Summer Flounder, Scup, and Black Sea Bass Monitoring Committees and Scientific and Statistical Committee (SSC), are available from Dr. Christopher Moore, Executive Director, Mid-Atlantic Fishery Management Council, Suite 201, 800 North State Street, Dover, DE 19901. The specifications document is also accessible via the Internet at
Moira Kelly, Fishery Policy Analyst, (978) 281-9218.
The Mid-Atlantic Fishery Management Council and the Atlantic States Marine Fisheries Commission cooperatively manage the summer flounder, scup, and black sea bass fisheries under the Summer Flounder, Scup, and Black Sea Bass Fishery Management Plan (FMP). Fishery
The management units specified in the FMP include summer flounder (
NMFS will establish the 2016 recreational management measures (
This action establishes the following specifications:
The process describing the calculation of the commercial and recreational ACLs, commercial quotas, and recreational harvest limits was presented in the November 9, 2015, proposed rule, and is not repeated here. The specific discard values projected for each fishery and sector are described in more detail below.
This rule implements the Council's ABC recommendation and the commercial and recreational catch limits associated with that ABC for fishing years 2016-2018.
As described in the proposed rule, these specifications are based on a deviation from the Council's normal procedures. Had the standard Risk Policy been followed, the drastic reduction in available catch could have had substantial economic impacts. The 2016 and 2017 ABCs have a higher risk of overfishing than would be allowed under the Council's Risk Policy, but the 2018 ABC has a lower risk of overfishing than the Risk Policy requires. Each of the ABCs established in this rule have a less than 50-percent probability of resulting in overfishing. Further, the projected biomass is the same under either the standard Risk Policy or the deviation from the Risk Policy used in these specifications. Because the OFLs are projected to increase modestly over the next three years, the specifications established in this rule are relatively stable. The SSC has requested a stock assessment update for next summer and intends to evaluate the available information to determine if the 2017 and 2018 ABCs remain appropriate. Fishing under these catch limits for 2016 through 2018 is not expected to compromise the summer flounder stock, nor will fishing at this level present an unacceptably high likelihood of overfishing.
This action makes no other changes to the Federal commercial summer flounder management measures.
Table 3 presents the 2016 summer flounder allocations for each state. Consistent with the quota-setting procedures for the FMP, summer flounder overages are determined based upon landings for the period January-October 2015, plus any previously unaccounted for overages. Table 3 summarizes the commercial summer flounder percent shares as outlined in § 648.102 (c)(1)(i), the resultant 2016 commercial quotas, the quota overages as described above, and the final adjusted 2016 commercial quotas. The 2015 quota overage is determined by comparing landings for January through October 2015, plus any landings in 2014 in excess of the 2014 quota, that were not previously addressed in the 2015 specifications, for each state. For Delaware, this includes continued repayment of overharvest from previous years. Table 4 presents the initial 2017 and 2018 allocations by state. The 2017 and 2018 state quota allocations are preliminary and are subject to change if there are overages of states' quotas carried over from a previous fishing year. Notice of any commercial quota adjustments to account for overages will be published in the
Table 3 shows that, for Delaware, the amount of overharvest from previous years is greater than the amount of commercial quota allocated to Delaware for 2016. As a result, there is no quota available for 2016 in Delaware. The regulations at § 648.4(b) provide that Federal permit holders, as a condition of
This rule implements the Council's ABC recommendation and the commercial and recreational catch limits associated with that ABC for fishing years 2016-2018. The scup management measures specify that the ABC is equal to the sum of the commercial and recreational sector ACLs. As described in the proposed rule, the ACLs and ACTs are set equal to each other for both sectors, sector-specific projected discards are removed, and the specifications for 2016-2018 are as shown in Table 5.
If there is a commercial overage applicable to the scup commercial quota, notice will be published prior to the start of the each fishing year. No commercial quota overage is applicable to 2016; therefore, no adjustment to the 2016 quota is necessary.
The scup commercial quota is divided into three commercial fishery quota periods. The period quotas are detailed in Table 6.
The quota period possession limits are shown in Table 7. The Winter I possession limit will drop to 1,000 lb (454 kg) upon attainment of 80 percent of that period's allocation. If the Winter I quota is not fully harvested, the remaining quota is transferred to Winter II. The Winter II possession limit may be adjusted (in association with a transfer of unused Winter I quota to the Winter II period) via notification in the
This rule implements the Council's revised ABC recommendation and the commercial and recreational catch limits associated with that ABC for fishing years 2016 and 2017. As described in the proposed rule for this action, the Council's SSC revised its recommendation for the 2016 and 2017 black sea bass ABC in September 2015 based on additional analysis that relies more on measures of current abundance than the prior constant catch approach. The Council and the Commission's Black Sea Bass Board have also revised their recommendations for 2016 and 2017, as outlined in the proposed rule to this action. Specifications for 2018 will be made following the completion of a new stock assessment in late 2016.
A commercial quota overage from fishing year 2014 is applicable to the 2016 black sea bass commercial quota. As a result, the regulations at 684.143(a)(2) require that the exact amount of the overage, in pounds, be deducted from a subsequent single year's commercial quota. The 2016 commercial quota is reduced by 8,896 lb (4,035 kg) from 2,711,686 lb (1,230 mt) to 2,702,867 lb (1,226 mt). The 2016 commercial quota values in Table 9 include this deduction. Should a commercial quota or ACL accountability measure be necessary in 2017, notification will be published in the
On November 9, 2015, NMFS published proposed specifications for Summer Flounder, Scup and Sea Bass for public notice and comment, and four comments were received. Generally, the four comments each stated that the proposed specifications were overly conservative for all three species, particularly for black sea bass and scup. One commenter asserted that the SSC's scup recommendation should not be considered the best available scientific information because it is based on a scientific uncertainty buffer that is double what the Stock Assessment Working Group recommended. Two other commenters noted that the increase in the black sea bass population in southern New England is negatively impacting the lobster fishery and that the quotas should be increased or measures should be set so that the recreational season can last longer into the fall. A recreational fishing group commented that NMFS should set the summer flounder ABC equal to the OFL in each year, despite the SSC's recommendation, because precaution is applied “excessively” throughout the stock assessment and SSC process. The group also stated that there should be no quota reductions for summer flounder until a sex-specific stock assessment can be conducted. This comment also asserted that the scup catch limits are overly conservative, but spoke in support of the revised black sea bass ABC recommendation.
No changes to the proposed specifications were made as a result of these comments. The specifications are based on the SSC's advice and the best available scientific information. The Council applied its Risk Policy to derive the scup and black sea bass specifications. The summer flounder specifications deviate from that Risk Policy, but are less conservative than the Risk Policy and closer to the commenter's request than had the Council used the Policy. However, as stated previously, the summer flounder specifications will not result in an unacceptably high likelihood of overfishing. For scup, the SSC deliberated on the stock assessment working group's advice, but determined additional scientific uncertainty had not been adequately incorporated, as is their purview. NMFS does not disagree with the SSC's recommendation and we are implementing the specifications as recommended by the Council.
The Administrator, Greater Atlantic Region, NMFS, determined that this final rule is necessary for the conservation and management of the summer flounder, scup, and black sea bass fisheries and that it is consistent with the Magnuson-Stevens Act and other applicable laws.
The Assistant Administrator for Fisheries, NOAA, finds good cause under 5 U.S.C. 553(d)(3) to waive the 30-day delay of effectiveness period for this rule, to ensure that the final specifications are in place on January 1, 2016. This action establishes specifications (
This rule is being issued at the earliest possible date. Preparation of the proposed rule was dependent on the submission of the EA/IRFA in support of the specifications that is developed by the Council. A complete document was received by NMFS in early October 2015. Documentation in support of the Council's recommended specifications is required for NMFS to provide the public with information from the environmental and economic analyses as required in rulemaking. The proposed rule published on November 9, 2015, with a 15-day comment period ending November 24, 2015. Publication of the adjusted summer flounder quota at the start of the fishing year that begins January 1, 2015, is required by the order of Judge Robert Doumar in
If the 30-day delay in effectiveness is not waived, there will be no quota specifications for the affected fisheries on January 1, 2016, which would significantly confuse the public and substantially complicate the cooperative management regime governing these fisheries. The summer flounder, scup, and black sea bass fisheries are all expected, based on historic participation and harvest patterns, to be very active at the start of the fishing season in 2016. Without these specifications in place on January 1, 2016, individual states will be unable to set commercial possession and/or trip limits, which apportion the catch over the entirety of the calendar year. NMFS will be unable to control harvest in any way, as there will be no quotas in place for any of the three species until the regulations are effective. NMFS will be unable to control harvest or close the fishery, should landings exceed the quotas. All of these factors could result in a race for fish, wherein uncontrolled landings could occur. Disproportionately large harvest occurring within the first weeks of 2016 could have distributional effects on other quota periods, and would disadvantage some gear sectors or owners and operators of smaller vessels that typically fish later in the fishing season. There is no historic precedent by which to gauge the magnitude of harvest that might occur, should quotas for these three species not be in place during the first weeks of 2016. It is reasonable to conclude that the commercial fishing fleet possesses sufficient capacity to exceed the established quotas for these three species before the regulations would become effective, should quotas not be in place on January 1, 2016. Should this occur, the fishing mortality objectives for all three species would be compromised, thus undermining the intent of the rule.
For these reasons, a 30-day delay in effectiveness would be contrary to the public interest, and NMFS is waiving the requirement.
These specifications are exempt from the procedures of Executive Order 12866.
This final rule does not duplicate, conflict, or overlap with any existing Federal rules.
A FRFA was prepared pursuant to 5 U.S.C. 604(a), and incorporates the IRFA, a summary of the significant issues raised by the public comments in response to the IRFA, NMFS's responses to those comments, and a summary of the analyses completed to support the action. A copy of the EA//IRFA is available from the Council (see
The preamble to the proposed rule included a detailed summary of the analyses contained in the IRFA, and that discussion is not repeated here.
No changes to the proposed rule were required to be made as a result of public comments. None of the comments received raised specific issues regarding the economic analyses summarized in the IRFA or the economic impacts of the rule more generally. A summary of the comments received, and our responses, can be found above in the “Comments and Responses” section of this rule's preamble.
The Small Business Administration defines a small business in the commercial harvesting sector as a firm with receipts (gross revenues) of up to $5.5 and $20.5 million for shellfish and for finfish business, respectively. A small business in the recreational fishery is a firm with receipts of up to $7.5 million. The categories of small entities likely to be affected by this action include commercial and charter/party vessel owners holding an active Federal permit for summer flounder, scup, or black sea bass, as well as owners of vessels that fish for any of these species in state waters. The Council estimates that the 2016-2018 specifications could affect 952 small entities and 8 large entities, assuming average revenues for the 2012-2014 period.
No additional reporting, recordkeeping, or other compliance requirements are included in this final rule.
Specification of commercial quotas and possession limits is constrained by the conservation objectives set forth in the FMP and implemented at 50 CFR part 648 under the authority of the Magnuson-Stevens Act. Economic impacts of changes in year-to-year quota specifications may be offset by adjustments to such measures as commercial fish sizes, changes to mesh sizes, gear restrictions, or possession and trip limits that may increase efficiency or value of the fishery. The Council recommended no such measures, and so none are implemented in this final rule. Therefore, the economic impact analysis of the action is evaluated on the different levels of quota specified in the alternatives. The ability of NMFS to minimize economic impacts for this action is constrained by quota levels that provide the maximum availability of fish while still ensuring that the required objectives and directives of the FMP, its implementing regulations, and the Magnuson-Stevens Act are met. In particular, the Council's SSC has made recommendations for the 2016-2017 ABC level for all three stocks, and the 2018 ABC level for scup
The economic analysis for the 2016-2018 specifications assessed the impacts for quota alternatives that achieve the aforementioned objectives. The Council analyzed four sets of combined catch limit alternatives for the 2016-2018 summer flounder, scup, and black sea bass fisheries. Please see the EA and IRFA for a detailed discussion on each alternative.
Through this final rule, NMFS implements Alternative 1 (the Council's preferred alternative), as modified by the Council's revised recommendation for black sea bass. This alternative consists of the quota levels that pair the lowest economic impacts to small entities and meet the required objectives of the FMP and the Magnuson-Stevens Act. The respective specifications contained in this final rule for all three species were selected because they satisfy NMFS' obligation to implement specifications that are consistent with the goals, objectives, and requirements of the FMP, its implementing regulations, and the Magnuson-Stevens Act. The fishing mortality rates associated with the catch limits for all three species all have acceptable likelihoods of preventing overfishing in any of the next three years.
Alternative 3 for each species, contained the most restrictive options (
Alternative 4 contained the least restrictive catch limits for each fishery and would have the lowest economic impacts on small entities. This alternative is not consistent with the goals and objectives of the FMP and the Magnuson-Stevens Act because it would implement catch limits much higher than the recommendations of the Council's SSC. This could result in overfishing of the resources and substantially compromise the mortality and/or stock rebuilding objectives for each species, contrary to laws and regulations.
Alternative 2 (status quo), would maintain the current 2015 ABCs for each fishery, and would, in the short-term, have negligible economic impacts on small entities. For summer flounder and scup, this alternative is not consistent with the goals and objectives of the FMP and the Magnuson-Stevens Act because it would leave in place ABCs higher than the recommendations of the Council's SSC. This could result in overfishing of the resources and substantially compromise the mortality and/or stock rebuilding objectives for each species, contrary to laws and regulations. For black sea bass, this alternative is more restrictive than is necessary and would have unnecessary negative economic impacts.
Likewise, a “true” no action alternative, wherein no quotas are established for the coming fishing year, was excluded from analysis because it is not consistent with the goals and objectives of the FMP and the Magnuson-Stevens Act.
Section 212 of the Small Business Regulatory Enforcement Fairness Act of 1996 states that, for each rule or group of related rules for which an agency is required to prepare a FRFA, the agency shall publish one or more guides to assist small entities in complying with the rule, and shall designate such publications as “small entity compliance guides.” The agency shall explain the actions a small entity is required to take to comply with a rule or group of rules. As part of this rulemaking process, a small entity compliance guide will be sent to all holders of Federal permits issued for the summer flounder, scup, and black sea bass fisheries. In addition, copies of this final rule and guide (
16 U.S.C. 1801
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Final rule.
NMFS issues regulations to reduce the maximum retainable amount (MRA) of skates using groundfish and halibut as basis species in the Gulf of Alaska (GOA) from 20 percent to 5 percent. Reducing skate MRAs is necessary to decrease the incentive for fishermen to target skates and slow the catch rate of skates in these fisheries. This final rule will enhance conservation and management of skates and minimize skate discards in GOA groundfish and halibut fisheries. This final rule is intended to promote the goals and objectives of the Magnuson-Stevens Fishery Conservation and Management Act (Magnuson-Stevens Act), the Fishery Management Plan for Groundfish of the Gulf of Alaska (FMP), and other applicable laws.
Effective January 27, 2016.
Electronic copies of the following documents may be obtained from
• The Environmental Assessment/Regulatory Impact Review/Initial Regulatory Flexibility Analysis (EA/RIR/IRFA) prepared for this action (collectively referred to as the “Analysis”);
• The Alaska Groundfish Harvest Specifications Final Environmental Impact Statement (Harvest Specifications EIS);
• The Harvest Specifications Supplementary Information Report (SIR) prepared for the final 2015 and 2016 harvest specifications; and
• The IRFA for the Gulf of Alaska Groundfish Harvest Specifications for 2015 and 2016 (Harvest Specifications IRFA).
Peggy Murphy, 907-586-7228.
NMFS published a proposed rule in the
This final rule amends regulations that specify the MRA for skates in the GOA. This final rule also implements several minor clarifications to MRA regulations applicable to the Central GOA Rockfish Program, makes minor corrections to incorrect cross references, and adds skate species inadvertently removed by a previous rule making. This final rule preamble provides a brief description of skate management in the GOA, the purpose of this rule, the affected fisheries, and the regulations implemented by this rule.
A detailed review of the management of GOA skates, the affected fisheries, the rationale for these regulations, and the proposed regulations are provided in the preamble to the proposed rule (80 FR 39734, July 10, 2015) and are not repeated here. The proposed rule is available from the NMFS Alaska Region Web site (see
NMFS manages skates (
GOA skate catches are managed subject to annual limits on the amounts of each species of skate, or group of skate species, that may be taken. The overfishing limits (OFLs), acceptable biological catch (ABCs), and total allowable catch (TACs) for skates are defined in the FMP and specified through the annual “harvest specification process.” A detailed description of the annual harvest specification process is provided in the Final EIS, the SIR, and the final 2015 and 2016 harvest specifications for groundfish of the GOA (80 FR 10250, February 25, 2015). Section 3.2 of the FMP specifies that the ABC is set below the OFL and the TAC must be set lower than or equal to the ABC. NMFS ensures that OFLs, ABCs, and TACs are not exceeded by requiring vessel operators participating in groundfish fisheries in the GOA to comply with a range of restrictions, such as area, time, gear, and operation-specific fishery closures.
The harvest specification process sets annual skate catch limits in the GOA by area. Big skate and longnose skate have OFLs and ABCs defined for the GOA management area. Section 3.2 of the FMP clarifies that TACs can be apportioned by regulatory area. There are three regulatory areas specified in the GOA management area: Western GOA, Central GOA, and Eastern GOA. Accordingly, the ABCs for big skate and longnose skate are apportioned to each of the regulatory areas in the GOA management area based on the proportion of the biomass estimated in each regulatory area. NMFS specifies TACs for big skate and longnose skate for the Western GOA, Central GOA, and Eastern GOA equal to the ABC for each of these regulatory areas. The other skates species group has an OFL, ABC, and TAC specified for the GOA management area (
NMFS, through the annual harvest specification process, implements regulations at § 679.20(d) to establish a directed fishing allowance (DFA) for a species or species group when any fishery allocation or apportionment of that species or species group will be reached and the fishery closed. Once the fishery is closed, these species are referred to as incidental catch species. When establishing a DFA, NMFS must consider the amount of a species or species group closed to directed fishing that will be taken as incidental catch in directed fishing for other species. NMFS accounts for this amount by subtracting the estimated amount of incidental catch of a species or species group taken in directed fishing for other species from the TAC of that species or species group. If an insufficient amount of TAC is available for a directed fishery for that species or species group, NMFS establishes the DFA for that species or species group as zero metric tons (mt) and prohibits directed fishing for that species or species group.
Directed fishing for groundfish in the GOA is defined at § 679.2 as any fishing activity that results in the retention of an amount of a species or species group onboard a vessel that is greater than the MRA for that species or species group. Therefore, when directed fishing for a species or species group is prohibited, retention of the species or species group is limited to an MRA. NMFS established MRAs to allow vessel operators fishing for species or species groups open to directed fishing to retain a specified amount of incidental catch species.
An MRA is the maximum amount of a species closed to directed fishing (
MRAs assist in limiting catch of a species within its annual TAC. NMFS closes a species to directed fishing before the entire TAC is taken to leave sufficient amounts of the TAC available for incidental catch. The amount of the TAC remaining available for incidental catch is typically managed by a species-specific MRA. An MRA applies at all times and to all areas for the duration of a fishing trip (see § 679.20(e)(3)). Vessel operators may retain incidental catch species while directed fishing for groundfish species up to the MRA percentage of the basis species retained catch until the TAC for the incidental catch species is met.
Regulations at § 679.20(d)(2) and § 679.21(b) specify that if the TAC for a species is reached, then retention of that species becomes prohibited and all catch of that species must be discarded with a minimum of injury, regardless of its condition, for the remainder of the year. Therefore, when NMFS prohibits retention of an incidental catch species, such as skates, vessel operators must discard all catch of that species. Discards that are required by regulation are known as regulatory discards. The primary purpose of requiring discards is to remove any incentive for vessel operators to increase incidental catch of the species as a portion of other fisheries and to minimize the catch of that species.
MRAs are a management tool to slow down the rate of harvest and reduce the incentive for targeting a species closed to directed fishing. Although MRAs limit the incentive to target on an incidental catch species, fishermen can “top off” their retained groundfish and halibut catch with incidental catch species up to the maximum permitted
NMFS has determined that the TACs specified for all skate species in the GOA are needed to support incidental catch of skates in directed fisheries for other groundfish and halibut (
The skate MRA is specified by basis species in Table 10 and Table 30 to 50 CFR part 679. The skate MRA is not specified by skate species. Instead, the skate MRA is based on the combined round weight of all skate species retained onboard a vessel. A single MRA for all skates was established because it was determined that fishermen and processors could have difficulty identifying skate species and may not be able to easily determine if they have reached an MRA for a specific skate species. Therefore, a separate MRA for each species would be difficult to manage and enforce. Additional detail on the designation of a single skate MRA is provided in Section 1.2 of the Analysis.
Currently, the skate MRA for all basis species in the GOA is 20 percent of the basis species round weight retained onboard a vessel. This means the maximum amount of skates (
The incidental catch of skates varies by species and by fishing gear. NMFS data show that from 2008 through 2014, skates were caught in the GOA primarily by vessels directed fishing for groundfish with non-pelagic trawl gear and by vessels directed fishing for groundfish and halibut with hook-and-line gear. Very limited amounts of skates were also caught by vessels using pelagic trawl, pot, and jig gear. Big skate catch occurs primarily in the Central GOA. Less than one tenth of the catch comes from the Western GOA or the Eastern GOA. NMFS' catch accounting data show the proportion of big skate catch by vessels using non-pelagic trawl is slightly higher than the proportion caught by vessels using hook-and-line gear. Longnose skate are caught predominantly in the Central GOA, with more limited catch in the Eastern GOA, and the least amount of catch in the Western GOA. NMFS data show that in recent years the proportion of longnose skate catch by vessels using hook-and-line gear is greater than the proportion caught by vessels using non-pelagic trawl gear. Other skates species are caught primarily in the Central GOA. NMFS data show the proportion of other skates species catch by vessels using hook-and-line gear is much greater than the proportion caught by vessels using non-pelagic trawl gear.
In December 2013, the Council received public testimony that the current MRA for skates in the GOA allows fishermen to deliberately target skates while ostensibly directed fishing for other groundfish or halibut. NMFS observed this top-off fishing behavior based on information from recent years of incidental skate catch of skate species in directed groundfish and halibut fisheries. Some fishermen maximize their retention of skates and retain skates up to the MRA limit of 20 percent of the basis species onboard a vessel early in the year by deliberately targeting them while directed fishing for other species. This top-off fishing pattern has increased the harvest rate of skates. Over a period of years, skate catch has exceeded the TAC in some areas. The estimated catch of big skate exceeded the TAC in the Central GOA in 2010, 2011, 2012, and 2013, and the estimated catch of longnose skate exceeded the TAC in the Western GOA in 2009, 2010, and 2013. The catch of other skates species has not exceeded the TACs established for the GOA management area; however, in 2013 and 2014, the catch of other skates species was estimated at 93 percent and 98 percent of the 2013 and 2014 TACs, respectively.
When fishery managers estimated the big or longnose skate TACs in a regulatory area would be exceeded, NMFS prohibited retention of big or longnose skates in the directed fisheries for groundfish and halibut and required discard of all big or longnose skate catch in the regulatory area for the remainder of the calendar year. The earlier in the year that NMFS prohibits the retention of big or longnose skates in the directed fisheries for groundfish and halibut, the greater the total amount of regulatory discards of skates, because skates are caught in other groundfish and halibut fisheries throughout the entire year.
This final rule reduces the MRA for skates in the GOA from 20 percent to 5 percent. By reducing the MRA, this final rule further limits the amount of skates that could be retained while directed fishing for other groundfish and halibut. Under this final rule, the round weight of a retained skate species could be no more than 5 percent of the round weight of the basis species. Reducing the skate MRA decreases the incentive for fishermen to engage in top-off fishing for skates so that the catch rate of skates more accurately reflects the rate of incidental catch of skates in the directed groundfish and halibut fisheries in the GOA. The reduction in the MRA will slow accrual of skate catch against the TAC and enhance NMFS' ability to limit the catch of skates to the skate TACs. This final rule is expected to minimize discards of skates by reducing the likelihood that NMFS would need to prohibit retention of a skate species in a GOA management area during the year to maintain skate catch at or below its TAC. This final rule will help NMFS to ensure that skate catch in the future does not exceed a TAC, ABC, or OFL.
This final rule makes five amendments to regulations. First, this final rule revises skate MRAs in Table 10 to 50 CFR part 679, Gulf of Alaska Retainable Percentages, and in Table 30 to 50 CFR part 679, Rockfish Program Retainable Percentages. Table 10 establishes the MRAs applicable to vessels fishing groundfish in the GOA, except for vessels fishing under the authority of the Central GOA Rockfish Program. Table 30 establishes MRAs that are applicable to vessels participating in the Central GOA Rockfish Program. NMFS reduces the incidental catch species MRAs for skates for each basis species listed in both Tables 10 and 30 from 20 percent to 5 percent. NMFS notes the basis species termed “Aggregated amount of non-groundfish species” includes all legally retained IFQ halibut as explained in footnote 12 to Table 10. The skate MRAs will be set equal to 5 percent in Tables 10 and 30 on the effective date of this final rule (see
Second, this final rule corrects two regulatory cross-reference errors. These
Third, this final rule modifies regulatory text to clarify that a vessel fishing under a Rockfish Program cooperative quota (CQ) permit may harvest groundfish species not allocated as CQ up to the MRA for that species as established in Table 30 to 50 CFR part 679. This final rule removes the last sentence in regulations at § 679.20(f)(2), because the sentence makes an incorrect statement. The last sentence in 679.20(f)(2) states that “only primary rockfish species harvested under the Rockfish Program may be used to calculate retainable amounts of other species, as provided in Table 30 to this part.” The heading in the last column in Table 30 correctly states that the MRA for vessels fishing under the Rockfish Program is calculated as “a percentage of total retained rockfish primary species and rockfish secondary species.” NMFS corrects this discrepancy by removing the inaccurate last sentence of § 679.20(f)(2) that refers only to rockfish primary species. The current regulations at § 679.81(h)(4)(i) and (h)(5) use the term “incidental catch species” in the calculation of an MRA to refer to “groundfish species not allocated as cooperative quota (CQ).” This final rule adds the referenced text to § 679.81(h)(4)(i) and (h)(5) to ensure consistent use of terminology in the regulations.
Fourth, this final rule revises Table 2a to 50 CFR part 679 to add Alaska, Aleutian, and whiteblotched skates, as well as the scientific names for individual skate species. Adding these individual skate species and the scientific names facilitates the reporting of individual skate species taken during groundfish harvest and provides more detailed information regarding skate harvests for stock assessments and fisheries management. This revision supports managing skates as a target species group or as individual target species. These skate species and scientific names were added to Table 2a in final regulations implementing changes to groundfish management in the BSAI and GOA on October 6, 2010 (75 FR 61639). Subsequent regulations published on July 11, 2011 (76 FR 40628), amended Table 2a to 50 CFR part 679 and that revision inadvertently removed the skate species codes implemented on October 6, 2010. The addition of these skate species and scientific names corrects this error. The addition of species codes does not change the management of skates or the other provisions of this final rule.
Fifth, this final rule makes several clarifications and corrections to Table 10 and Table 30 to part 679. These clarifications are:
• In Table 10 to part 679, the genus name, common name, and numeric species codes for Alaska skate, Aleutian skate, and whiteblotched skate are added;
• In Table 10 to part 679, the basis species, pelagic shelf rockfish, is replaced with dusky rockfish to be consistent with the appropriate species designation in regulation;
• In Table 10 to part 679, the genus name, common name, and species codes in the table and in the notes to the table are updated for consistency;
• In Note 4 to Table 10 to part 679, the references to “slope rockfish” are removed and replaced with the correct term “other rockfish”; and widow rockfish and yellowtail rockfish are added to the 17 species that form the “other rockfish” group to correctly categorize these species;
• Note 5 to Table 10 to part 679 is removed because it is no longer applicable, and Notes 6 through 13 are renumbered as Notes 5 through 12, respectively.
• In Note 6 to Table 10 to part 679, the erroneous regulatory reference to § 679.7(b)(4) is deleted and the regulatory reference, § 679.20(j), is clarified so as to provide for full retention of demersal shelf rockfish by catcher vessels in the Southeast Outside District;
• In Note 8 to Table 10 to part 679, the regulatory reference, § 679.2, is clarified to exclude the species listed;
• In Table 30 to part 679, grenadier species is added as an incidental catch species for the fishery category “Rockfish Cooperative vessels fishing under a Rockfish CQ permit for rockfish non-allocated species” and an MRA of 8 percent is added. This change from the proposed rule would correct an oversight from the recently published regulations that implemented an MRA for grenadiers for the groundfish fisheries in the GOA (80 FR 11897, March 5, 2015). That rule added the grenadier MRA of 8 percent to Table 10 to part 679, which does not apply to vessels when fishing in the Central GOA Rockfish Program. However, it is clear from the preamble to the proposed rule (79 FR 27557, May 14, 2014) and the final rule (80 FR 11897, March 5, 2015) that the intent was to apply the MRA to all groundfish fishing in the GOA. Adding a grenadier MRA to Table 30 to part 679 will achieve this intent by applying the grenadier MRA to vessels when fishing in the Central GOA Rockfish Program; and
• In Table 30 to part 679, a footnote is added to explain that the descriptions of different incidental catch species groups listed in this table can be found in the notes to Table 10 to part 679.
The proposed rule for this action was published in the
First, this final rule adds a suite of corrections to Table 10 and Table 30 to part 679 in response to comment 10 on the proposed rule (see Comment and Response). These technical corrections are described in the previous section of this preamble as the fifth amendment made to the regulations and in comment 10 and are not repeated here.
Second, this final rule reorders the listing of the skate species and the corresponding species codes added to Table 2a to part 679 and the listing of skate species and corresponding species codes in Table 10 to part 679 to follow the formatting convention that lists the species description alphabetically. This is not a substantive change.
Third, this final rule replaces the references to “numerical percentage” with “MRA” in Note 1 and Note 7 to Table 10 to part 679, replaces “retainable percentage” with “MRA” in Note 1 to Table 10 to part 679, and replaces “category” with “species group” in Note 7 to Table 10 to part 679. These changes clarify that the percentages are the MRAs established in Table 10, and that DSR and SR/RE represent separate species groups. This is not a substantive change.
Fourth, this final rule revises Note 2 to Table 10 to part 679, to add Kamchatka flounder and its species code to the list of species that comprise the deep-water flatfish species group to be consistent with current harvest specifications. This is not a substantive change.
Fifth, this final rule revises Table 30 to part 679, to clarify that the Rockfish Entry Level Fishery using longline gear, the fishery for opt-out vessels, and the fishery for Rockfish Cooperative Vessels not fishing under a CQ permit referred to in Table 30 to part 679 are to “use” Table 10 to part 679 rather than “see” Table 10 to part 679. This is not a substantive change.
During the public comment period, NMFS received two comment letters generally expressing support for the proposed rule. The letters contain 10 unique comments on the proposed rule. A summary of the comments received and NMFS' responses follow.
• In Table 10 to part 679, add the proper genus name, common name, and numeric species codes for Alaska skate, Aleutian skate, and whiteblotched skate;
• In Table 10 to part 679, replace the basis species, pelagic shelf rockfish, with dusky rockfish to be consistent with the appropriate species designation in regulation:
• In Table 10 to part 679, consistently use the genus name, common name, and species codes in the table and in the notes to the table;
• In Note 4 to Table 10 to part 679, remove the reference to slope rockfish and replace it with “rockfish” so that it is clear that this provision applies to all rockfish species except demersal shelf rockfish (DSR) and shortraker/rougheye rockfish (SR/RE); and add widow rockfish and yellowtail rockfish to the 15 species that form the new “rockfish” group;
• Delete Note 5 to Table 10 to part 679 because it is no longer applicable;
• In Note 6 to Table 10 to part 679, clarify the regulatory reference;
• In Note 8 to Table 10 to part 679, replace the reference to § 679.2 and instead refer to the list of species already contained in the notes to the table;
• In Table 30 to part 679, add grenadier species as an incidental catch species for the fishery category for Rockfish Cooperative vessels fishing under Rockfish CQ permit for rockfish non-allocated species and add an MRA of 8 percent to be consistent with MRAs for grenadiers that are applicable in Table 10; and
• In Table 30 to part 679, add a footnote to Table 30 to explain that the descriptions of different incidental catch species groups listed in this table can be found in the notes to Table 10 to part 679.
The changes suggested by the commenter are minor clarifications and do not have a substantive effect on the calculation or applicability of MRAs. Each of the comments and the rationale for accepting the comment follows.
The change to add Alaska, Aleutian, and whiteblotched skate to Table 10 is consistent with NMFS' recommendation in the proposed rule to add these species to Table 2a of CFR part 679.
The change in Table 10 to part 679, to replace “pelagic shelf rockfish” with “dusky rockfish” is consistent with NMFS' intent in the final rule implementing the Central GOA Rockfish Program that published December 27, 2011 (76 FR 81248). This change corrects the species designation to be consistent with existing regulations.
The change to consistently use the genus name, common name, and species codes in Table 10 to part 679 is a minor clerical correction.
The change to Note 4 to Table 10 to part 679, to remove references for “slope rockfish” and replace them with “rockfish”, where rockfish means all rockfish species except DSR and SR/RE, was clarified by NMFS. Specifically, NMFS determined stated that references to “slope rockfish” should be replaced with “other rockfish” because other rockfish in the Western regulatory area, Central regulatory area, and West Yakutat district means other rockfish and DSR. Therefore, explaining the meaning of “other rockfish” by using “rockfish means all rockfish species except DSR and SR/RE”, as recommended by the commenter, would incorrectly include the universe of rockfish species and inaccurately exclude DSR from the Western, Central
The change to delete Note 5 to Table 10 to part 679 provides consistency with regulations because Note 5 is no longer applicable.
The change to Note 6 to Table 10 to part 679, clarifies the regulatory reference to § 679.20(j), provides for full retention of demersal shelf rockfish by catcher vessels in the Southeast Outside District.
The change to Note 8 to Table 10 to part 679, should provide clarity to the reader by explaining the species included and excluded in the species group and listed in the regulatory reference at § 679.2.
The changes to Table 30 to part 679, to add grenadier species as an incidental catch species for the fishery category for Rockfish Cooperative vessels fishing under a Rockfish CQ permit for rockfish non-allocated species and add an MRA of 8 percent would be consistent with recently implemented regulations that established an MRA for grenadiers (80 FR 11897, March 5, 2015). This change from the proposed rule would correct an oversight in the publication of regulations that established an MRA for grenadiers. Currently, the MRA is only described in Table 10 to part 679. However, it is clear from the preamble to the proposed rule (79 FR 27557, May 14, 2014) and the final rule (80 FR 11897, March 5, 2015) that the intent was to apply the MRA to all groundfish fishing, and not to specifically exclude vessels when fishing under the Central GOA Rockfish Program. This change would correct that oversight to be consistent with MRAs for grenadiers that are applicable in Table 10.
The last change to Table 30 to part 679 adds a footnote to Table 30 to explain that the descriptions of different incidental catch species groups listed in Table 30 can be found in the notes to Table 10 to part 679. This change provides a clarification to the reader and does not change existing management.
The Administrator, Alaska Region, NMFS, determined that this final rule is necessary for the conservation and management of the GOA groundfish fishery and that it is consistent with the FMP, the Magnuson-Stevens Act, and other applicable laws.
Section 212 of the Small Business Regulatory Enforcement Fairness Act of 1996 states that, for each rule or group of related rules for which an agency is required to prepare a final regulatory flexibility analysis (FRFA), the agency shall publish one or more guides to assist small entities in complying with the rule, and shall designate such publications as “small entity compliance guides.” The agency shall explain the actions a small entity is required to take to comply with a rule or group of rules. The preamble to the proposed rule and this final rule serve as the small entity compliance guide. This action does not require any additional compliance from small entities that is not described in the preambles. Copies of the proposed and final rules are available from NMFS at the following Web site:
This rule has been determined to be not significant for purposes of Executive Order 12866.
Section 604 of the Regulatory Flexibility Act (RFA) requires that, when an agency promulgates a final rule under section 553 of Title 5 of the U.S. Code, after being required by that section, or any other law, to publish a general notice of proposed rulemaking, the agency shall prepare a final regulatory flexibility analysis.
Section 604 describes the contents of a FRFA: (1) A statement of the need for, and objectives of, the rule; (2) a statement of the significant issues raised by the public comments in response to the initial regulatory flexibility analysis, a statement of the assessment of the agency of such issues, and a statement of any changes made in the proposed rule as a result of such comments; (3) the response of the agency to any comments filed by the Chief Counsel for Advocacy of the Small Business Administration in response to the proposed rule, and a detailed statement of any change made to the proposed rule in the final rule as a result of the comments; (4) a description of and an estimate of the number of small entities to which the rule will apply or an explanation of why no such estimate is available; (5) a description of the projected reporting, recordkeeping and other compliance requirements of the rule, including an estimate of the classes of small entities which will be subject to the requirement and the type of professional skills necessary for preparation of the report or record; and (6) a description of the steps the agency has taken to minimize the significant economic impact on small entities consistent with the stated objectives of applicable statutes, including a statement of the factual, policy, and legal reasons for selecting the alternative adopted in the final rule and why each one of the other significant alternatives to the rule considered by the agency which affect the impact on small entities was rejected.
A statement of the need for, and objectives of, the rule is contained in the preamble to this final rule (see the “
NMFS published a proposed rule on July 10, 2015 (80 FR 39734). An initial regulatory flexibility analysis (IRFA) was prepared and summarized in the “Classification” section of the preamble to the proposed rule. The comment period closed on August 10, 2015. NMFS received two letters of public comment on the proposed rule containing 10 unique comments. No comments were received on the IRFA or the economic impacts of the rule on small entities. The Chief Counsel for Advocacy of the SBA did not file any comments on the proposed rule.
The Small Business Administration (SBA) establishes the size standards for all major industry sectors in the U.S., including commercial finfish harvesters (79 FR 33647, June 12, 2014). A business primarily involved in finfish harvesting is classified as a small business if it is independently owned and operated, is not dominant in its field of operation (including its affiliates), and has combined annual gross receipts not in excess of $20.5 million, for all its affiliated operations worldwide. For purposes of this FRFA, the effects of the final rule fall primarily on the distinct segment of the fishery industry characterized as commercial finfish harvesters.
The entities that can reasonably be expected to be directly regulated by the final rule include all catcher vessels and catcher/processors directed fishing for groundfish and halibut in the GOA that may harvest any species of skate. Based on data from 2013 (the most recent year of complete data), this action is estimated to directly regulate 1,153 small entities: 1,073 small catcher vessels fishing with hook-and-line gear (including jig gear), 116 small catcher vessels fishing with pot gear, and 32 small catcher vessels fishing with trawl
The annual revenue at risk for all catcher vessels and catcher/processors that could be affected by this final rule is estimated at $2.4 million. However, the impact relative to each vessel that retains skates in the GOA is quite small. Reducing the skate MRA primarily affects those vessels whose operators have retained big skate at an amount greater than 5 percent of their basis species in the Central GOA. In general, vessels that catch and retain skates show relatively little dependence on GOA skates for their gross revenues. The actual impact on gross revenue for a specific vessel may vary from year to year depending on the total abundance of skates, total catch of skates, market conditions, and ex-vessel price.
FRFA also requires a description of the steps the agency has taken to minimize the significant impact on directly regulated small entities consistent with the stated objectives of applicable statutes, including a statement of the factual, policy, and legal reasons for selecting the alternative (Alternative 4) adopted in the final rule and why each of the other significant alternatives to the rule considered by the agency that affect the economic impact on small entities was rejected. NMFS and the Council considered four alternative MRAs to reduce the incentive for fishermen to pursue top-off fishing for skates and slow the catch rate of skates in the GOA groundfish and halibut fisheries. In addition to the status quo of an MRA of 20 percent, the Council and NMFS evaluated alternatives to reduce skate MRAs to 15, 10, and 5 percent.
The analysis examined the rate of big skate catch relative to groundfish catch by directed fishery before and after big skate retention was prohibited in 2013 and 2014 (Section 4.5.1.1 of the Analysis). Comparison of changes in catch rates after retention was prohibited show the harvest rate for big skate dropped from as much as 8.6 percent of the total groundfish and halibut catch to a harvest rate that ranged from 6.3 percent to 0.1 percent of the total groundfish and halibut catch depending on the year, gear type, and target fishery. These data indicate that participants in various target fisheries could avoid the incidental catch of big skate when there was not an incentive to retain big skates.
Further analysis used a model to compare the retained skate catch of all skate species, in all areas and by vessels using all gear types under the alternative percentages of the basis species (Section 4.5.1.4 of the Analysis). The model indicates that reducing the skate MRA below 10 percent is expected to reduce the incentive for vessel operators to engage in top-off fishing and overall skate catch as fishermen avoid areas where skates are encountered. The model indicates that a 5 percent MRA best ensures that NMFS will not have to prohibit the retention of skates and that skate TACs will not be exceeded.
The Analysis did not identify any other alternatives that more effectively meet the RFA criteria to minimize adverse economic impacts on directly regulated small entities.
This action implements Alternative 4, a 5 percent skate MRA. As discussed in Section 4.7 and 4.8 of the Analysis, the preferred alternative is the only alternative of the alternatives considered that is expected to adequately reduce the incentive for fishermen to target skates that may be retained as incidental catch species. A 5 percent MRA accomplishes the objectives of this final rule to slow the catch rate of skates in the GOA groundfish and halibut fisheries to ensure that the TACs for skate species are not exceeded.
This action does not impose any additional reporting requirements on the participants of the GOA groundfish and halibut fisheries.
NMFS has not identified other Federal rules that may duplicate, overlap, or conflict with this final rule.
Alaska, Fisheries.
For the reasons set out in the preamble, NMFS amends 50 CFR part 679 as follows:
16 U.S.C. 773
(a) * * *
(18)
(f) * * *
(2)
(f) * * *
(6) * * *
(i) You operate a vessel in any reporting area (see definitions at § 679.2) off Alaska while any fishery requiring VMS, for which the vessel has a species and gear endorsement on its Federal Fisheries Permit under § 679.4(b), is open.
(h) * * *
(4) * * *
(i) The MRA for groundfish species not allocated as CQ (incidental catch species) for vessels fishing under the authority of a CQ permit is calculated as a proportion of the total allocated rockfish primary species and rockfish secondary species on board the vessel in round weight equivalents using the retainable percentage in Table 30 to this part; except that—
(5)
Nuclear Regulatory Commission.
Advance notice of proposed rulemaking; extension of comment period.
On November 19, 2015, the U.S. Nuclear Regulatory Commission (NRC) requested comments on an advance notice of proposed rulemaking (ANPR) on regulatory improvements for decommissioning power reactors. The public comment period was originally scheduled to close on January 4, 2016. The NRC has decided to extend the public comment period to allow more time for members of the public to develop and submit their comments.
The due date of comments requested in the document published on November 19, 2015, (80 FR 72358) is extended. Comments should be filed no later than March 18, 2016, providing a comment period of 120 days.
You may submit comments by any of the following methods (unless this document describes a different method for submitting comments on a specific subject):
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For additional direction on obtaining information and submitting comments, see “Obtaining Information and Submitting Comments” in the
Jason B. Carneal, Office of Nuclear Reactor Regulation, U. S. Nuclear Regulatory Commission, Washington, DC 20555-0001; telephone: 301-415-1451; email:
Please refer to Docket ID NRC-2015-0070 when contacting the NRC about the availability of information for this action. You may obtain publicly-available information related to this action by any of the following methods:
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Please include Docket ID NRC-2015-0070 in your comment submission.
The NRC cautions you not to include identifying or contact information that you do not want to be publicly disclosed in your comment submission. The NRC will post all comment submissions at
If you are requesting or aggregating comments from other persons for submission to the NRC, then you should inform those persons not to include identifying or contact information that they do not want to be publicly disclosed in their comment submission. Your request should state that the NRC does not routinely edit comment submissions to remove such information before making the comment submissions available to the public or entering the comment into ADAMS.
On November 19, 2015, the NRC requested comments on an ANPR on regulatory improvements for decommissioning power reactors. The NRC is specifically seeking input from stakeholders for the development of a draft regulatory basis. The draft regulatory basis will explore the NRC's options for addressing various regulatory issues involved with the decommissioning of nuclear power reactors. The ANPR's public comment period was originally scheduled to close on January 4, 2016. In response to several requests to extend the public comment period, the NRC has decided to extend the public comment period on the ANPR to March 18, 2016, providing a comment period of 120 days from the date of publication, in order to allow more time for members of the public to submit their comments. As stated in the November 19, 2015, publication of the ANPR, the NRC does not intend to provide detailed responses to comments on this ANPR.
For the Nuclear Regulatory Commission.
Bureau of Industry and Security, Commerce.
Proposed rule.
This proposed rule would revise Bureau of Industry and Security's (BIS) guidance regarding administrative enforcement cases based on violations of the Export Administration Regulations (EAR). The rule would rewrite Supplement No. 1 to part 766 of the EAR, setting forth the factors BIS considers when setting penalties in settlements of administrative enforcement cases and when deciding whether to pursue administrative charges or settle allegations of EAR violations. This proposed rule would not apply to alleged violations of part 760—Restrictive Trade Practices and Boycotts, which would continue to be subject to Supplement No. 2 to part 766. BIS is proposing these changes to make administrative penalties more predictable to the public and aligned with those promulgated by the Department of the Treasury, Office of Foreign Assets Control (OFAC).
Comments must be received no later than February 26, 2016.
You may submit comments by any of the following methods:
By mail or delivery to Regulatory Policy Division, Bureau of Industry and Security, U.S. Department of Commerce, Room 2099B, 14th Street and Pennsylvania Avenue NW., Washington, DC 20230. Refer to RIN 0694-AG73.
Norma Curtis, Assistant Director, Office of Export Enforcement, Bureau of Industry and Security. Tel: (202) 482-5036, or by email at
The mission of the Office of Export Enforcement (OEE) at BIS is to enforce the provisions of the Export Administration Regulations (EAR), secure America's trade, and preserve America's technological advantage by detecting, investigating, preventing, and deterring the unauthorized export and reexport of U.S.-origin items to parties involved with: (1) Weapons of mass destruction programs; (2) threats to national security or regional stability; (3) terrorism; or (4) human rights abuses. Export Enforcement at BIS is the only federal law enforcement agency exclusively dedicated to the enforcement of export control laws and the only agency constituted to do so with both administrative and criminal export enforcement authorities. OEE's criminal investigators and analysts leverage their subject-matter expertise, unique and complementary administrative enforcement tools, and relationships with other federal agencies and industry to protect our national security and promote our foreign policy interests. OEE protects legitimate exporters from being put at a competitive disadvantage by those who do not comply with the law. It works to educate parties to export transactions on how to improve export compliance practices, supporting American companies' efforts to be reliable trading partners and reputable stewards of U.S. national and economic security. BIS also discourages, and in some circumstances prohibits, U.S. companies from furthering or supporting any unsanctioned foreign boycott (including the Arab League boycott of Israel).
OEE at BIS may refer violators of export control laws to the U.S. Department of Justice for criminal prosecution, and/or to BIS's Office of Chief Counsel for administrative prosecution. In cases where there has been a willful violation of the EAR, violators may be subject to both criminal fines and administrative penalties. Administrative penalties may also be imposed when there is no willful intent, allowing administrative cases to be brought in a much wider variety of circumstances than criminal cases. BIS has a unique combination of administrative enforcement authorities including both civil penalties and denials of export privileges. BIS may also place individuals and entities on lists that restrict or prohibit their involvement in exports, reexports, and transfers (in-country).
In this rule, BIS is proposing to amend the EAR to update its Guidance on Charging and Penalty Determinations in Settlement of Administrative Enforcement Cases (the “Guidelines”) found in Supplement No. 1 to part 766 of the EAR in order to make civil penalty determinations more predictable and transparent to the public and aligned with those promulgated by the Treasury Department's Office of Foreign Assets Control (OFAC). OFAC administers most of its sanctions programs under the International Emergency Economic Powers Act (IEEPA), the same statutory authority by which BIS implements the EAR. OFAC uses the transaction value as the starting point for determining civil penalties pursuant to its Economic Sanctions Enforcement Guidelines. Under IEEPA, criminal penalties can reach 20 years imprisonment and $1 million per violation, and administrative monetary penalties can reach $250,000 or twice the value of the transaction, whichever is greater. Both agencies coordinate and cooperate on investigations involving violations of export controls that each agency enforces, including programs relating to weapons of mass destruction, terrorism, Iran, Sudan, Specially Designated Nationals and Specially Designated Global Terrorists. This guidance would not apply to civil administrative enforcement cases for violations under part 760 of the EAR—Restrictive Trade Practices and Boycotts. Supplement No. 2 to Part 766 continues to apply to enforcement cases involving part 760 violations.
The Guidelines would provide factors by which violations could be characterized as either egregious or non-egregious and describe the difference in the base penalty amount likely to apply in an enforcement case. The base penalty would depend on whether the violation is egregious or non-egregious and whether or not the case resulted from a voluntary self-disclosure that satisfies all the requirements of § 764.5 of the EAR. Base penalty amounts would be described in terms of the applicable statutory maximum, the transaction value, or the applicable schedule amount. The terms “transaction value” and “applicable schedule amount” would be defined in the Guidelines. The “statutory maximum” would be the maximum permitted by § 764.3(a)(1) of the EAR
Once the base penalty amount has been determined, Factors set forth in these Guidelines would be applied to determine whether the base penalty amount should be adjusted downward or, subject to the statutory maximum, upward. Factors set forth in the current Guidelines would be reorganized into the following categories: (1) Aggravating Factors (
Willfulness, recklessness and concealment would be set forth as Aggravating Factor A—
Under this proposed rule, General Factors could either be mitigating or aggravating depending upon the circumstances. Two General Factors would be set forth in the revised Guidelines: General Factor D, involving an assessment of the individual characteristics of a Respondent; and General Factor E, assessing the presence and adequacy of a compliance program. General Factor D—
Mitigating Factor G—
Transactions that would likely have received a license had one been sought, as set forth in Mitigating Factor H—
Finally, proposed Factors I-M pertain to factors that may be relevant in certain circumstances and considered on a case-by-case basis. Factor I—
Factor L—
Consideration of these Factors would not dictate a particular outcome in any particular case, but rather is intended to identify those Factors most relevant to BIS's decision and to guide the agency's exercise of its discretion. The Guidelines would provide sufficient flexibility to allow for the consideration of the Factors most relevant to a particular case. Penalties for settlements reached after the initiation of an enforcement proceeding and litigation through the filing of a charging letter will usually be higher than those described by these Guidelines.
In accordance with OEE's existing posture that enhanced maximum civil penalties authorized by the International Emergency Economic Powers Enhancement Act (Enhancement Act) (Pub. L. 110-96, 50 U.S.C. 1701,
The Guidelines define the “transaction value” to mean the dollar value of a subject transaction. Where the dollar value cannot be determined with certainty, the Guidelines would provide sufficient flexibility to allow for the determination of an appropriate transaction value in a wide variety of circumstances. The applicable schedule amounts, which would provide for a graduated series of penalties based on the underlying transaction values, reflect appropriate starting points for penalty calculations in non-egregious cases not involving VSDs. The base penalty amount for a non-egregious case involving a VSD would equal one-half of the transaction value, capped at $125,000, for an apparent violation of the EAR. Such calculation would ensure that the base penalty for a VSD case will not be more than one-half of the base penalty for a similar case that is not voluntarily self-disclosed. This difference is intended to serve as an additional incentive for the submission of VSDs. In the interest of providing greater transparency and predictability to BIS administrative enforcement actions, BIS would also allot penalty reductions—all from the base penalty amount—of between 25 and 40 percent for exceptional cooperation, and up to an additional 25 percent for first offenses and for transactions where a license was likely to be approved.
BIS encourages the submission of VSDs by persons who believe they may have violated the EAR. The purpose of an enforcement action includes raising awareness, increasing compliance, and deterring future violations, not merely punishing past conduct. VSDs are a compelling indicator of a person's present intent and future commitment to comply with U.S. export control requirements. The purpose of mitigating the enforcement response in voluntary self-disclosure cases is to encourage the notification to OEE of apparent violations about which OEE would not otherwise have learned. OEE's longstanding policy of encouraging the submission of VSDs involving apparent violations is reflected by the fact that, over the past several years, on average only three percent of VSDs submitted have resulted in a civil penalty. The majority of cases brought to the attention of OEE through VSDs result in the issuance of warning letters, containing a finding that a violation may have taken place. With respect to VSDs generally, OEE will issue warning letters in cases involving inadvertent violations and cases involving minor or isolated compliance deficiencies, absent the presence of aggravating factors.
Finally, in appropriate cases in the context of settlement negotiations, BIS may suspend or defer payment of a civil penalty, taking into account whether the Respondent has demonstrated a limited ability to pay, whether the matter is part of a global settlement with other U.S. government agencies, and/or whether the Respondent will apply a portion or all of the funds suspended or deferred for purposes of improving its internal compliance program.
Cases will continue to be processed in accordance with the enforcement guidelines and precedents currently in existence until the new Guidelines are issued in final form after review of public comments.
1. Executive Orders 13563 and 12866 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distribute impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This rule has been designated a “significant regulatory action,” although not economically significant, under section 3(f) of Executive Order 12866. Accordingly, the rule has been reviewed by the Office of Management and Budget (OMB).
2. Notwithstanding any other provision of law, no person is required to respond to, nor shall any person be subject to a penalty for failure to comply with a collection of information, subject to the requirements of the Paperwork Reduction Act (PRA), unless that collection of information displays a currently valid OMB Control Number. This rule does not contain any collections of information.
3. This rule does not contain policies with Federalism implications as that term is defined in Executive Order 13132.
4. The Regulatory Flexibility Act (RFA), as amended by the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA), 5 U.S.C. 601
Under the Regulatory Flexibility Act, the term “small entities” encompasses small businesses, small (not for profit) organizations and small governmental jurisdictions. The Bureau of Industry and Security (BIS) does not collect data on the size of entities that apply for and are issued export licenses pursuant to the Export Administration Regulations (EAR). However, in this instance, no small entities would be impacted by this rule because this rule would not require any person to change its behavior, nor would it alter any rights that any person has pursuant to the EAR. Only BIS would be directly affected by this proposed rule and BIS is not a small entity for purposes of the Regulatory Flexibility Act.
This proposed rule would revise Bureau of Industry and Security's guidance regarding administrative enforcement cases based on violations of the EAR. The rule would set forth the factors BIS would consider when setting penalties in the settlement of administrative enforcement cases, when deciding whether to pursue administrative charges or settle allegations of EAR violations, and when
Although the Export Administration Act expired on August 20, 2001, the President, through Executive Order 13222 of August 17, 2001, 3 CFR, 2001 Comp., p. 783 (2002), as amended by Executive Order 13637 of March 8, 2013, 78 FR 16129 (March 13, 2013), and as extended by the Notice of August 7, 2015, (80 FR 48233 (Aug. 11, 2015)), has continued the Export Administration Regulations in effect under the International Emergency Economic Powers Act. BIS continues to carry out the provisions of the Export Administration Act, as appropriate and to the extent permitted by law, pursuant to Executive Order 13222 as amended by Executive Order 13637.
Administrative practice and procedure, Confidential business information, Exports, Law Enforcement, Penalties.
Accordingly, this proposed rule proposes to amend part 766 of the Export Administration Regulations (15 CFR parts 730-774) (EAR) as follows:
50 U.S.C. app. 2401
This Supplement describes how the Bureau of Industry and Security (BIS) responds to apparent violations of the Export Administration Regulations (EAR) and, specifically, how BIS makes penalty determinations in the settlement of civil administrative enforcement cases under part 764 of the EAR. This guidance does not apply to enforcement cases for violations under part 760 of the EAR—Restrictive Trade Practices or Boycotts. Supplement No. 2 to Part 766 continues to apply to civil administrative enforcement cases involving part 760 violations.
Because many administrative enforcement cases are resolved through settlement, the process of settling such cases is integral to the enforcement program. BIS carefully considers each settlement offer in light of the facts and circumstances of the case, relevant precedent, and BIS's objective to achieve in each case an appropriate penalty and deterrent effect. In settlement negotiations, BIS encourages parties to provide, and will give serious consideration to, information and evidence that parties believe are relevant to the application of this guidance to their cases, to whether a violation has in fact occurred, or to whether they have an affirmative defense to potential charges.
This guidance does not confer any right or impose any obligation regarding what penalties BIS may seek in litigating a case or what posture BIS may take toward settling a case. Parties do not have a right to a settlement offer or particular settlement terms from BIS, regardless of settlement positions BIS has taken in other cases.
See also: Definitions contained in § 766.2 of the EAR.
1. $1,000 with respect to a transaction valued at less than $1,000;
2. $10,000 with respect to a transaction valued at $1,000 or more but less than $10,000;
3. $25,000 with respect to a transaction valued at $10,000 or more but less than $25,000;
4. $50,000 with respect to a transaction valued at $25,000 or more but less than $50,000;
5. $100,000 with respect to a transaction valued at $50,000 or more but less than $100,000;
6. $170,000 with respect to a transaction valued at $100,000 or more but less than $170,000;
7. $250,000 with respect to a transaction valued at $170,000 or more.
OEE, among other responsibilities, investigates apparent violations of the EAR, or any order, license or authorization issued thereunder. When it appears that such a violation has occurred, OEE investigations may lead to a warning letter or an administrative enforcement proceeding. A violation may also be referred to the Department of Justice for criminal prosecution. The type of enforcement action initiated by OEE will depend primarily on the nature of the violation. Depending on the facts and circumstances of a particular case, an OEE investigation may lead to one or more of the following actions:
A.
B.
C.
D.
E.
F.
G.
Many apparent violations are isolated occurrences, the result of a good-faith misinterpretation, or involve no more than simple negligence or carelessness. In such instances, absent the presence of aggravating factors, the matter frequently may be addressed with a warning letter. If the violations are of such a nature and extent that a monetary fine alone represents an insufficient penalty, a denial or exclusion order may also be imposed to prevent future violations of the EAR.
While some violations of the EAR have a degree of knowledge or intent as an element of the offense, OEE may regard a violation of any provision of the EAR as knowing or willful if the facts and circumstances of the case support that conclusion. For example, evidence that a corporate entity had knowledge at a senior management level may mean that a higher penalty may be appropriate. OEE will also consider, in accordance with Supplement No. 3 to part 732 of the EAR, the presence of any red flags that should have alerted the Respondent that a violation was likely to occur. The aggravating factors identified in the Guidelines do not alter or amend § 764.2(e) or the definition of “knowledge” in § 772.1, or other provisions of parts 764 and 772 of the EAR.
As a general matter, BIS will consider some or all of the following Factors in determining the appropriate sanctions in administrative cases, including the appropriate amount of a civil monetary penalty where such a penalty is sought and is imposed as part of a settlement agreement and order. These factors describe circumstances that, in BIS's experience, are commonly relevant to penalty determinations in settled cases. Factors that are considered exclusively aggravating, such as willfulness, or exclusively mitigating, such as situations where remedial measures were taken, are set forth below. This guidance also identifies General Factors—which can be either mitigating or aggravating—such as the presence or absence of an internal compliance program at the time the apparent violations occurred. Other relevant Factors may also be considered at the agency's discretion.
A.
1.
2.
3.
Failure to voluntarily disclose an apparent violation to OEE does not constitute concealment.
4.
5.
6.
B.
1.
2.
3.
C.
1.
2.
D.
1.
2.
3.
4.
5.
6.
Where necessary to effective enforcement, the prior involvement in export violation(s) of a Respondent's owners, directors, officers, partners, or other related persons may be imputed to a Respondent in determining whether these criteria are satisfied.
E.
F.
1. The steps taken by the Respondent upon learning of the apparent violation. Did the Respondent immediately stop the conduct at issue?
2. In the case of an entity, the processes followed to resolve issues related to the apparent violation. Did the Respondent discover necessary information to ascertain the causes and extent of the apparent violation, fully and expeditiously? Was senior management fully informed? If so, when?
3. In the case of an entity, whether it adopted new and more effective internal controls and procedures to prevent the occurrence of similar apparent violations. If the entity did not have a BIS compliance program in place at the time of the apparent violation, did it implement one upon discovery of the apparent violation? If it did have a BIS compliance program, did it take appropriate steps to enhance the program to prevent the recurrence of similar violations? Did the entity provide the individual(s) and/or managers responsible for the apparent violation with additional training, and/or take other appropriate action, to ensure that similar violations do not occur in the future?
4. Where applicable, whether the Respondent undertook a thorough review to identify other possible violations.
G.
1. Did the Respondent provide OEE with all relevant information regarding the apparent violation at issue in a timely, comprehensive and responsive manner (whether or not voluntarily self-disclosed), including, if applicable, overseas records?
2. Did the Respondent research and disclose to OEE relevant information regarding any other apparent violations caused by the same course of conduct?
3. Did the Respondent provide substantial assistance in another OEE investigation of another person who may have violated the EAR?
4. Did the Respondent enter into a statute of limitations tolling agreement, if requested by OEE (particularly in situations where the apparent violations were not immediately disclosed or discovered by OEE, in particularly complex cases, and in cases in which the Respondent has requested and received additional time to respond to a request for information from OEE)? If so, the Respondent's entering into a tolling agreement will be deemed a mitigating factor.
A Respondent's refusal to enter into a tolling agreement will not be considered by BIS as an aggravating factor in assessing a Respondent's cooperation or otherwise under the Guidelines.
H.
I.
J.
K.
L.
M.
OEE will review the facts and circumstances surrounding an apparent violation and apply the Factors Affecting Administrative Sanctions in Section III above in determining the appropriate sanction or sanctions in an administrative case, including the appropriate amount of a civil monetary penalty where such a penalty is sought and imposed. Penalties for settlements reached after the initiation of litigation will usually be higher than those described by these guidelines.
1.
2.
i. In a non-egregious case, if the apparent violation is disclosed through a voluntary self-disclosure, the base amount shall be one-half of the transaction value, capped at a maximum base amount of $125,000 per violation.
ii. In a non-egregious case, if the apparent violation comes to OEE's attention by means other than a voluntary self-disclosure, the base amount shall be the “applicable schedule amount,” as defined above
iii. In an egregious case, if the apparent violation is disclosed through a voluntary self-disclosure, the base amount shall be one-half of the statutory maximum penalty applicable to the violation.
iv. In an egregious case, if the apparent violation comes to OEE's attention by means other than a voluntary self-disclosure, the base amount shall be the statutory maximum penalty applicable to the violation.
The following matrix represents the base amount of the civil monetary penalty for each category of violation:
The base amount of the civil monetary penalty may be adjusted to reflect applicable Factors for Administrative Action set forth in Section III of these Guidelines. A Factor may result in a lower or higher penalty amount depending upon whether it is aggravating or mitigating or otherwise relevant to the circumstances at hand. Mitigating factors may be combined for a greater reduction in penalty, but mitigation will generally not exceed 75 percent of the base penalty. Subject to this limitation, as a general matter, in those cases where the following Mitigating Factors are present, BIS will adjust the base penalty amount in the following manner:
In cases involving exceptional cooperation with OEE as set forth in Mitigating Factor G, but no voluntary self-disclosure as defined in § 764.5 of the EAR, the base penalty amount generally will be reduced between 25 and 40 percent. Exceptional cooperation in cases involving voluntary self-disclosure may also be considered as a further mitigating factor.
In cases involving a Respondent's first violation, the base penalty amount generally will be reduced by up to 25 percent. An apparent violation generally will be considered a “first violation” if the Respondent has not been convicted of an export-related criminal violation or been subject to a BIS final order in five years, or a warning letter in three years, preceding the date of the transaction giving rise to the apparent violation. A group of substantially similar apparent violations addressed in a single Charging Letter shall be considered as a single violation for purposes of this subsection. In those cases where a prior Charging Letter or warning letter within the preceding five years involved conduct of a substantially different nature from the apparent violation at issue, OEE may consider the apparent violation at issue a “first violation.” In determining the extent of any mitigation for a first violation, OEE may consider any prior enforcement action taken with respect to the Respondent, including any warning letters issued, or any civil monetary settlements entered into with BIS. When an acquiring firm takes reasonable steps to uncover, correct, and disclose or cause to be disclosed to OEE conduct that gave rise to violations by an acquired business before the acquisition, OEE typically will not take such violations into account as an aggravating factor in settling other violations by the acquiring firm.
iii. In cases involving charges pertaining to transactions where a license would likely have been approved had one been sought as set forth in Mitigating Factor H, the base penalty amount generally will be reduced by up to 25 percent.
In all cases, the penalty amount will not exceed the applicable statutory maximum. Similarly, while mitigating factors may be combined for a greater reduction in penalty, mitigation will generally not exceed 75 percent of the base penalty.
The procedures relating to the settlement of administrative enforcement cases are set forth in § 766.18 of the EAR.
Food and Drug Administration, HHS.
Notice; extension of comment period.
The Food and Drug Administration (FDA or we) is extending the comment period for a docket to receive information and comments on the use of the term “natural” in the labeling of human food products, including foods that are genetically engineered or contain ingredients produced through the use of genetic engineering. A notice requesting comments on this topic appeared in the
FDA is extending the comment period for a docket to receive information and comments on the use of the term “natural” in the labeling of human food products. We established the docket in a notice published on November 12, 2015 (80 FR 69905). Submit either electronic or written comments to the docket by May 10, 2016.
You may submit comments by any of the following methods:
Submit electronic comments in the following way:
• Federal eRulemaking Portal:
• 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:
• Mail/Hand delivery/Courier (for written/paper submissions): Division of Dockets Management (HFA-305), Food and Drug Administration, 5630 Fishers Lane, Rm. 1061, Rockville, MD 20852.
• For written/paper comments submitted to the Division of Dockets Management, 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.”
Instructions: All submissions received must include the Docket No. FDA-2014-N-1207 for “Use of the Term ‘Natural' in the Labeling of Human Food Products; Request for Information and Comments.” Received comments will be placed in the docket and, except for those submitted as “Confidential Submissions,” publicly viewable at
• 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
Docket: For access to the docket to read background documents or the electronic and written/paper comments received, go to
Margaret-Hannah Emerick, Center for Food Safety and Applied Nutrition (HFS-820), Food and Drug Administration, 5100 Paint Branch Pkwy., College Park, MD 20740, 240-402-2371.
In the
We received requests for a 90-day extension of the comment period. The requests conveyed concern that the current 90-day comment period does not allow sufficient time to develop meaningful or thoughtful comments to the questions and issues we presented in the notice.
FDA has considered the requests and is extending the comment period for 90 days, until May 10, 2016. We believe that a 90-day extension allows adequate time for interested persons to submit comments.
Environmental Protection Agency (EPA).
Proposed rule.
The Environmental Protection Agency (EPA) is proposing to approve a revision to the Indiana State Implementation Plan (SIP), authorizing temporary alternate opacity limits (TAOLs) at the American Electric Power, Rockport (AEP Rockport) facility during periods of unit startup and shutdown. This action is consistent with the Clean Air Act (CAA) and EPA policy regarding emissions during periods of startup and shutdown. Indiana has provided an air quality analysis demonstrating that this revision will continue to protect the applicable National Ambient Air Quality Standards (NAAQS) for fine particulate matter (PM
Comments must be received on or before January 27, 2016.
Submit your comments, identified by Docket ID No. EPA-R05-OAR-2015-0074, by one of the following methods:
1.
2.
3.
4.
5.
Matt Rau, Environmental Engineer, Control Strategies Section, Air Programs Branch (AR-18J), Environmental Protection Agency, Region 5, 77 West Jackson Boulevard, Chicago, Illinois 60604, (312) 886-6524,
Throughout this document whenever “we,” “us,” or “our” is used, we mean EPA. This supplementary information section is arranged as follows:
When submitting comments, remember to:
1. Identify the rulemaking by docket number and other identifying information (subject heading,
2. Follow directions—EPA may ask you to respond to specific questions or organize comments by referencing a Code of Federal Regulations (CFR) part or section number.
3. Explain why you agree or disagree; suggest alternatives and substitute language for your requested changes.
4. Describe any assumptions and provide any technical information and/or data that you used.
5. If you estimate potential costs or burdens, explain how you arrived at your estimate in sufficient detail to allow for it to be reproduced.
6. Provide specific examples to illustrate your concerns, and suggest alternatives.
7. Explain your views as clearly as possible, avoiding the use of profanity or personal threats.
8. Make sure to submit your comments by the comment period deadline identified.
On July 16, 2002 (67 FR 46589), EPA approved a revision to Indiana's SIP to include 326 Indiana Administrative Code (IAC) 5-1-3, which provides a mechanism to establish TAOLs. The rule is consistent with the criteria contained in EPA's September 20, 1999, “State Implementation Plans: Policy Regarding Excess Emissions During Malfunctions, Startup, and Shutdown” memorandum. The criteria requires that: The frequency and duration of operation in startup or shutdown mode must be minimized to the extent possible; and the state must analyze the potential worst-case emissions that could occur during startup and shutdown to ensure that the NAAQS are protected. Indiana initially submitted TAOLs for 22 power plants with coal-fired boilers that use electrostatic precipitators (ESPs).
326 IAC 5-1-3(d) provides for a TAOL, upon EPA approval, if the following criteria are met: (1) The source burns any combination of coal, wood, fuel oil, tire-derived fuel, or petroleum coke, (2) the source demonstrates that the TAOL is needed during periods of startup and shutdown and a demonstration is made that the TAOL will not interfere with the NAAQS, (3) Indiana determines that acceptable operating and maintenance procedures are being used, be based on information provided to the commissioner, (4) the commissioner may require the source to install a continuous opacity monitor (COM), (5) the TAOL shall be reviewed by the commissioner after two years of monitoring, (6) the commissioner may deny a request for a TAOL limit if economically and technically feasible
On January 13, 2015, Indiana requested a SIP revision to add 326 IAC 5-1-8, which provides a mechanism to establish site-specific TAOLs. This provision was used to establish AEP Rockport Units #1 and #2 a TAOL during unit startup and shutdown. These two coal-fired boilers are each controlled by an ESP.
The TAOL for unit startup is only allowed until the exhaust temperature reaches 250 °F at the ESP inlet, up to a maximum of two hours (20 six-minute averaging periods). The TAOL for unit shutdown is only allowed when the exhaust temperature declines below 250 °F at the ESP inlet, up to a maximum of one and one-half (1.5) hours (15 six-minute averaging periods).
To support the SIP revision request, Indiana evaluated COMs data for Units #1 and #2, and air dispersion modeling. Air dispersion modeling was conducted using the AERMOD regulatory dispersion model with five years of meteorological data. The analysis included conservative suppositions for stack temperature and flow rate. Indiana used worst-case emission rates to predict the highest hourly emissions during a cold startup. The modeling results yielded an eighth high 24-hour PM
EPA has reviewed the COMs data provided in Indiana's submission on AEP Rockport's startups and shutdowns from 2001 until the first quarter of 2004. The AEP Rockport TAOLs appear to be set at appropriate levels, minimizing the TAOL duration. The startup TAOL for AEP Rockport is limited to two hours. The shutdown TAOL is limited to one hour, 30 minutes. Both are less than the three-hour TAOL periods allowed under 326 IAC 5-1-3(e)(2). Indiana has provided the facility's operation and maintenance procedures for its ESPs, which support the expectation that AEP Rockport will operate in a manner that will minimize emissions with well operating emission control. In addition, because the ESP exhaust must be warm enough for it to be safely operated, it is impractical to require operating the ESPs during startup and shutdown periods.
Further, EPA reviewed the AEP Rockport COMs data from 2009 to 2013, which shows that it was in compliance with the opacity standards 99.81 percent of the time. This indicates that the facility is generally in compliance with the opacity rule, even during the startup and shutdown periods covered by the TAOLs.
EPA has determined the AEP Rockport TAOL meets the criteria contained in 326 IAC 5-1-3(d) as follows: (1) The AEP Rockport facility burns coal, (2) AEP Rockport has demonstrated that the TAOL is needed during periods of startup and shutdown, and that the TAOL will not interfere with the maintenance of the national ambient air quality standards, (3) Indiana has determined that acceptable operating and maintenance procedures are being used, based on information AEP Rockport provided, (4) AEP Rockport currently operates a COM for each boiler, (5) Indiana has determined that no economically and technically feasible controls are available to meet a more stringent limit, and (6) the TAOLs were submitted to EPA.
EPA is proposing to approve the addition of 326 IAC 5-1-8 to the Indiana SIP. The rule provides AEP Rockport Units #1 and Unit #2 with TAOLs during unit startup and shutdown periods. This action is consistent with the Clean Air Act (CAA) and EPA policy regarding emissions during periods of startup and shutdown. Indiana has provided an air quality analysis demonstrating that this revision will continue to protect the applicable National Ambient Air Quality Standards (NAAQS) for PM
In this rule, EPA is proposing to include in a final EPA rule regulatory text that includes incorporation by reference. In accordance with requirements of 1 CFR 51.5, EPA is proposing to incorporate by reference Indiana Regulation 326 IAC 5-1-8 entitled “Site-specific temporary alternative opacity limitations”, effective December 6, 2014. EPA has made, and will continue to make, these documents generally available electronically through
Under the CAA, the Administrator is required to approve a SIP submission that complies with the provisions of the CAA and applicable Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the CAA. Accordingly, this action merely approves state law as meeting Federal requirements and does not impose additional requirements beyond those imposed by state law. For that reason, this action:
• Is not a significant regulatory action subject to review by the Office of Management and Budget under Executive Orders 12866 (58 FR 51735, October 4, 1993) and 13563 (76 FR 3821, January 21, 2011);
• Does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501
• Is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601
• Does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4);
• Does not have Federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);
• Is not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997);
• Is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001);
• Is not subject to requirements of Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the CAA; and
• Does not provide EPA with the discretionary authority to address, as appropriate, disproportionate human health or environmental effects, using practicable and legally permissible methods, under Executive Order 12898 (59 FR 7629, February 16, 1994).
In addition, 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
Environmental protection, Air pollution control, Incorporation by reference, Intergovernmental relations, Particulate matter, Reporting and recordkeeping requirements.
Environmental Protection Agency (EPA).
Proposed rule.
During a review of Texas' regulations, the Environmental Protection Agency (EPA) identified a variety of State-initiated changes to Texas' hazardous waste program under the Resource Conservation and Recovery Act, as amended (RCRA), for which the State had not previously sought authorization. The EPA proposes to authorize the State for the program changes. In addition, the EPA proposes to codify in the regulations entitled “Approved State Hazardous Waste Management Programs, “Texas' authorized hazardous waste program”. The EPA will incorporate by reference into the Code of Federal Regulations (CFR) those provisions of the State regulations that are authorized and that the EPA will enforce under RCRA.
Send your written comments by January 27, 2016.
Submit any comments identified by Docket ID No. EPA-R06-RCRA-2015-0110 by one of the following methods:
1. Federal eRulemaking Portal:
2. Email:
3. Mail: Alima Patterson, Region 6, Regional Authorization Coordinator, State/Tribal Oversight Section (6PD-O), Multimedia Planning and Permitting Division, EPA Region 6, 1445 Ross Avenue, Dallas, Texas 75202-2733.
4. Hand Delivery or Courier. Deliver your comments to Alima Patterson, Region 6, Regional Authorization Coordinator, State/Tribal Oversight Section (6PD-O), Multimedia Planning and Permitting Division, EPA Region 6, 1445 Ross Avenue, Dallas, Texas 75202-2733.
Alima Patterson at (214) 665-8533 or Julia Banks at (214) 665-8178, State/Tribal Oversight Section (6PD-O), Multimedia Planning and Permitting Division, EPA Region 6, 1445 Ross Avenue, Dallas, Texas 75202-2733, (214) 665-8533) and Email address
In the “Rules and Regulations” section of this
The purpose of this
This document incorporates by reference Texas' hazardous waste statutes and regulations and clarifies which of these provisions are included in the authorized and federally enforceable program. By codifying Texas' authorized program and by amending the Code of Federal Regulations, the public will be more easily able to discern the status of federally approved requirements of the Texas hazardous waste management program.
Federal Communications Commission.
Proposed rule.
In this document, the Commission proposes to amend its hearing aid compatibility (HAC) rules to enhance equal access to the national
Comments are due February 26, 2016 and Reply Comments are due March 28, 2016.
You may submit comments, identified by CG Docket Nos. 12-32 and 13-46 and WT Docket Nos. 07-250 and 10-254, by any of the following methods:
• Electronic Filers: Comments may be filed electronically using the Internet by accessing the Commission's Electronic Comment Filing System (ECFS), through the Commission's Web site
• Paper Filers: Parties who choose to file by paper must file an original and one copy of each filing. Filings can be sent by hand or messenger delivery, by commercial overnight courier, or by first-class or overnight U.S. Postal Service mail (although the Commission continues to experience delays in receiving U.S. Postal Service mail). All filings must be addressed to the Commission's Secretary, Office of the Secretary, Federal Communications Commission.
Robert Aldrich, Consumer and Governmental Affairs Bureau, Disability Rights Office, at 202-418-0996 or email
Pursuant to 47 CFR 1.415, 1.419, interested parties may file comments and reply comments on or before the dates indicated on the first page of this document. Comments may be filed using the Commission's Electronic Comment Filing System (ECFS).
• All hand-delivered or messenger-delivered paper filings for the Commission's Secretary must be delivered to FCC Headquarters at 445 12th Street SW., Room TW-A325, Washington, DC 20554. All hand deliveries must be held together with rubber bands or fasteners. Any envelopes must be disposed of before entering the building.
• Commercial Mail sent by overnight mail (other than U.S. Postal Service Express Mail and Priority Mail) must be sent to 9300 East Hampton Drive, Capitol Heights, MD 20743.
• U.S. Postal Service first-class, Express, and Priority mail should be addressed to 445 12th Street SW., Washington, DC 20554.
To request materials in accessible formats for people with disabilities (Braille, large print, electronic files, audio format), send an email to
Document FCC 15-144 seeks comment on proposed rule amendments that may result in modified information collection requirements. If the Commission adopts any modified information collection requirements, the Commission will publish another notice in the
1. Pursuant to section 710 of the Communications Act of 1934, as amended (Act), all wireline telephones manufactured or imported for use in the
2. TIA notes that the 2012 ANSI Wireline Volume Control Standard modifies in two ways the manner in which amplification is measured for wireline phones. First, the standard discontinues the use of an IEC-318 coupler, which must form a seal with the telephone handset, as the physical set-up for measuring the amplification of wireline phones. Instead, the standard specifies the Head and Torso Simulator (HATS) method, which uses a mannequin that includes a human pinna (outer ear) simulator and which TIA states is appropriate for all types of handsets. Second, the 2012 ANSI Wireline Volume Control Standard replaces the Receive Objective Loudness Rating (ROLR) method of calibrating amplification, used in previous standards, with a new method called Conversational Gain. Under the ROLR method, gain is determined relative to the normal unamplified, or nominal, sound level for the particular equipment that is being measured, which can vary depending upon the equipment being used. By contrast, TIA explains, under the Conversational Gain method, the starting point—0 decibels (dB) Conversational Gain—is an absolute, not a relative, value, equivalent to 64 dB sound pressure level in each ear, which is the volume of a face-to-face conversation where participants are 1 meter apart.
3. The Commission proposes to amend 47 CFR 68.317 to incorporate the 2012 ANSI Wireline Volume Control Standard and believes that doing so will make its rules more effective in ensuring that people with hearing loss have “equal access to the national telecommunications network” (Pub. L. 100-394, sec. 2 (1)) and that telephones provide “an internal means for effective use with hearing aids” (47 U.S.C. 610(b)). To ensure that its rules incorporate the most recent Congressional statement of purpose regarding HAC, the Commission also proposes to amend the statement of purpose in 47 CFR 68.1 to replace the previous statement of purpose, which was derived from the language of the 1982 amendment to the Communications Act, with the more recent language of Public Law 100-394.
4. Based on the TIA petition and the comments filed in response, the Commission's proposal to incorporate the 2012 ANSI Wireline Volume Control Standard into its rules is likely to make ordinary telephones more usable for consumers who need telephone amplification. As noted by the American Speech-Language Hearing Association (ASHA) and TIA, the new standard's HATS method for testing equipment appears to be “more representative of the user experience” because it reflects the actual manner in which phones are held to the ear, and the new measurement criterion, Conversational Gain, appears to provide “a more realistic metric for measuring speech through a phone” and has the potential to close a “loophole” in the current rule that appears to have resulted in a less than consistent means of measuring speech amplification across manufacturers. The Commission seeks comment on these assumptions and generally on the extent to which the new approaches embodied in the standard will improve the usability of telephones by consumers with hearing loss. In addition, the Commission seeks comment on whether incorporating the 2012 ANSI Wireline Volume Control Standard into its rules will improve the ability of the segment of the population that has hearing loss to communicate effectively with emergency services.
5. TIA research confirms that some vendors of high amplification phones have made claims about the amount of amplification offered that could not be verified when tested against the industry standard. The new ANSI/TIA standard's Conversational Gain method seems to address this problem because, according to ASHA, it will “allow consumers with hearing loss (and audiologists assisting them) to readily compare the sound levels of various digital and hardwire phones to determine which devices best meet their amplification needs.” The Commission notes that in addition to the 2012 ANSI Wireline Volume Control Standard, TIA has developed another voluntary standard employing Conversational Gain, ANSI/TIA-4953, which specifies measurement procedures and performance requirements for specialty high gain telephones. ANSI/TIA-4953 also addresses tone control, acoustic ringer level and tone, noise, distortion, stability, transmit levels, send quality, and volume for such high gain equipment and provides standardized labels to designate an amplified telephone as suitable for consumers with specified levels of hearing loss (HL), as follows: “Mild” (20 dB to 40 dB HL); “Moderate” (40 dB to 70 dB HL); and “Severe” (70 dB to 90 dB HL). The Commission seeks comment on the experience of industry and consumers with implementation of the HATS method and the Conversational Gain method for this purpose and others, and whether Commission incorporation of the new ANSI/TIA wireline volume control standard in its rules will lead to further improvement of a consumer's ability to find devices that meet his or her communication needs, and in particular, a consumer's ability to determine the need for high amplification telephones. The Commission also seeks information concerning the findings of any consumer tests or trials that may have been conducted to determine whether devices having the same conversational gain rating demonstrate comparable amplification as perceived by device users.
6. In addition, the Commission seeks comment on whether the standard promotes both market certainty and a level playing field for companies that manufacture terminal equipment and whether compliance with the standard poses any impediments for equipment that is marketed internationally. Pursuant to 47 U.S.C. 610(e), the Commission also seeks comment on the costs and benefits of the proposed rule amendment to persons with and without hearing loss. In particular, the Commission seeks comment on the likely impact of implementing the new standard on the cost of a telephone and whether incorporation of the new standard will encourage the use of currently available technology and will
7. The Commission proposes to require a minimum of 18 dB in amplification gain because, according to TIA, under the 2012 ANSI Wireline Volume Control Standard, 18 dB of Conversational Gain would be equivalent to the current measurement of 12 dB above the normal unamplified level of a traditional telephone. Similarly, because under the new standard 24 dB of gain is the equivalent of a current measurement of 18 dB of gain, TIA recommends revising 47 CFR part 68 to require an automatic reset if Conversational Gain is greater than 24 dB, rather than the gain of 18 dB that currently triggers a reset requirement. The Commission seeks comment on these proposed rule changes and specifically, whether these proposed rules will provide an appropriate degree of assurance that people with hearing loss can make effective use of telephones and that consumers generally will be protected from accidental injury due to increased volume settings. The Commission seeks comment generally on what other changes to the Commission's rules may be necessary or appropriate if the Commission incorporates the 2012 ANSI Wireline Volume Control Standard into § 68.317 of its rules.
8. The Commission proposes to allow a transition period of two years after the effective date of the rules for manufacturers to come into compliance. The Commission seeks comment on this proposal and on whether two years is necessary to allow sufficient time for the design, engineering, and marketing needs of manufacturers that will be subject to the new standard. The Commission also proposes to amend 47 CFR 68.112 to allow the existing inventory and installed base of telephones that comply with the current version of § 68.317 of its rules to remain in place until retired and to clarify that such phones need not be replaced in the future as a result of minor changes to 47 CFR 68.316 or 68.317, and seeks comment on these proposals.
9. Consistent with the intent of the CVAA to involve consumer representatives more directly in the standards development process, the Commission proposes to adopt a requirement that wireline telephone manufacturers engage in consultation with such consumers and their representative organizations for the purpose of assessing the effectiveness of the revised standard. The Commission proposes that an initial consultation should occur one year after the effective date of the revised standard, with follow-up every three years thereafter to assess the impact of technological changes. The Commission seeks comment on this proposal and whether the Commission should define in more detail the specifics of the required consultation. For example, should this consultation be subject to the same parameters that the Commission proposes pursuant to 47 U.S.C. 610(c) regarding consultation with designated consumer representatives? The Commission also seeks comment on whether, as an alternative, the Commission should consult with the consumer stakeholder(s) to be designated pursuant to 47 U.S.C. 610(c) regarding the effectiveness of the revised standard.
10. The Commission proposes that manufacturers subject to the volume control rule be required to test a sample of products claiming to be compliant with the revised standard, to assess whether these products are providing a uniform and appropriate range of volume to meet the telephone needs of people with hearing loss. The Commission seeks comment on whether these or other steps could provide useful data to ensure effective communication by this population and on the costs of such testing. The Commission agrees with consumer commenters that, to the extent that measurements are referred to in marketing materials and user manuals, it would be helpful to consumers for the materials to explain, for example, that “1 meter apart” is equivalent to “approximately 1 yard” in describing how the standard utilizes a conversation between individuals as a benchmark. The Commission seeks comment on whether manufacturers currently reference such measurements in marketing and informational materials, and if so, whether the Commission has the authority to require conversion to non-metric equivalents and whether the Commission should do so. What are the costs and benefits associated with such a requirement?
11. The CVAA amended section 710(b) of the Act to provide that the requirement for “customer premises equipment” to “provide internal means for effective use with hearing aids” applies not only to “telephones” used over the public switched telephone network (PSTN) but also to “[a]ll customer premises equipment used with advanced communications services that is designed to provide 2-way voice communication via a built-in speaker intended to be held to the ear in a manner functionally equivalent to a telephone, subject to the regulations prescribed by the Commission under subsection (e).” 47 U.S.C. 610(b)(1)(C). The Act, as amended by the CVAA, defines “advanced communications services” (ACS) as including interconnected and non-interconnected Voice over Internet Protocol (VoIP) service. 47 U.S.C. 153(1). According to recent market research, the United States has almost 35.3 million fixed VoIP subscribers, and the number of subscribers is expected to grow at an annual rate of 11.6 percent. The CVAA mandates that people with hearing loss have access to this expanding market of VoIP phones. Public Law 111-260, sec. 716(a).
12. Accordingly, the Commission proposes to amend 47 CFR part 68 so that customer premises equipment (CPE) used with interconnected and/or non-interconnected VoIP services (other than secure telephones and mobile handsets used with such services) would be covered by 47 U.S.C. 610(b)(1)(C) if the CPE “is designed to provide 2-way voice communication via a built-in speaker intended to be held to the ear in a manner functionally equivalent to a telephone.” The Commission further proposes that CPE covered by 47 U.S.C. 610(b)(1)(C) be subject to the existing inductive coupling and volume control requirements. 47 CFR 68.4, 68.6. The Commission also proposes that complaint procedures, labeling, and certification requirements shall be applicable to such equipment with respect to HAC compliance, in accordance with the relevant part 68 rules regarding complaint handling, labeling, certifications, and suppliers' declarations of conformity.
13. The Commission seeks comment on this proposal, including the costs and benefits and technical impacts of covering customer premises equipment used with a VoIP service under the inductive coupling and volume control requirements of 47 CFR part 68. In particular, the Commission seeks comment on:
• The appropriate timetables or benchmarks that may be necessary for ensuring that such equipment is hearing aid compatible and provides volume control in accordance with part 68
• Whether volume control parameters for such equipment can be effectively measured under the 2012 ANSI Wireline Volume Control Standard, and if not, how such standard should be modified to permit effective measurement;
• whether inductive coupling compliance for such telephones can be effectively measured under the currently applicable inductive coupling standard (47 CFR 68.316), and if not, how such standard should be modified to permit effective measurement;
• whether any different treatment of VoIP CPE is appropriate under the part 68 rules addressing complaint handling, labeling, certifications, and suppliers' declarations of conformity; and
• whether it would be appropriate to require registration of VoIP CPE in a public database, such as the database of terminal equipment that the Administrative Council for Terminal Attachments (ACTA) administers (
14. While the Commission's HAC requirements for wireless handsets (47 CFR 20.19) currently address inductive coupling capability and the prevention of radio frequency (RF) interference with hearing aids, they do not require the provision of volume control in wireless handsets. The Commission adopted volume control requirements for wireline telephones in 1996, but to date it has not adopted such requirements for wireless handsets. The Commission proposes to adopt a rule requiring wireless handsets to have a specified level of volume control. The Commission further proposes that the volume control rule have the same scope of application as our radio frequency interference reduction and inductive coupling rules for wireless handsets. 47 CFR 20.19(c), (d). The Commission also seeks comment on whether a volume control rule should apply to all wireless handsets or to just a subset of such handsets.
15. In addition, the Commission seeks further comment on volume control and acoustic coupling issues on which the Wireless Telecommunications Bureau (WTB) sought comment in 2010 and 2012, including (1) whether volume control rules and standards are necessary to ensure that wireless phones will operate at appropriate volumes to achieve acoustic coupling compatibility, (2) whether there is a need for Commission action to ensure adequate information is available to consumers and hearing aid manufacturers regarding wireless phones' volume settings and sound quality, (3) whether the Commission should take action to ensure that the magnetic fields emitted by wireless handsets are of sufficient strength to activate special acoustic coupling modes in hearing aids that are designed for telephone use, and (4) the relevance and benefits of TIA's new and revised standards relating to volume control for wireline phones (including digital cordless phones) in the wireless context.
16. Surveys conducted by the Hearing Loss Association of America (HLAA) indicate that the available volume controls for wireless handsets do not consistently allow sufficient amplification to enable effective acoustic coupling between the handset and a user's hearing aid or cochlear implant. The Commission invites additional comment on the experiences that consumers with hearing loss are having when they attempt to locate wireless handsets with sufficient amplification capability to use with their hearing aids or cochlear implants. In general, the Commission invites parties to update the record of these proceedings with respect to the need for volume control requirements for wireless handsets, including information on facts or circumstances that have changed since the Commission last addressed this issue. What are the costs and benefits of adopting a volume control requirement for wireless handsets—for manufacturers, service providers, and consumers? If there are specific burdens associated with requiring handsets to achieve a specified amplification level for manufacturers and service providers, what are they? If a volume control requirement is adopted, should it apply to all wireless handsets or to a subset of total handset sales or models, as with the current HAC rule? Would such a fragmented implementation approach cause confusion for consumers?
17. Are there currently any plans for ANSI ASC C63®-EMC to initiate or explore development of such a standard, and if so, what is the likely timeline for the completion of such a standard? Further, in light of the suggestions that hearing aid manufacturers need to participate more fully in addressing HAC issues, would ANSI ASC C63®-EMC be the appropriate forum for the development of a volume control standard, or should all stakeholders form a new working group to address this issue? The Commission invites additional comment on other relevant standards development activities that may be useful in establishing volume control requirements for wireless handsets. Given the absence of a readily available ANSI standard for volume control in wireless handsets, the Commission invites parties to submit other studies and information that may be relevant to the adoption of appropriate standards for volume control in these devices. The Commission seeks comment on the time needed for development and adoption of a volume control standard for wireless handsets. Would 18 months be sufficient for development and adoption of such a standard? If no standards development body begins work on a wireless handset volume control standard, or if no specific time frame for development and adoption of such a standard is specified, the Commission also seeks comment on whether the Commission should adopt a volume control standard for wireless handsets based on the best currently available information, subject to modification based on subsequent development of an ANSI standard, in order to ensure equal telephone access for people with hearing loss. The Commission invites additional comment on the extent to which the 2012 ANSI Wireline Volume Control Standard is adaptable to wireless and the nature of any differences between wireline and wireless handsets that affect the applicability of TIA's new methods and/or its standard. The Commission invites comment on the potential relevance and benefits of the new TIA procedures and metrics in the wireless context, despite such differences.
18. The Commission also invites comment on the types of information consumers need regarding amplification levels and acoustic coupling capabilities in order to make informed purchasing decisions. For example, the voluntary performance standard for wireline telephones with enhanced
19. For testing and rating the HAC performance of wireless handsets, the Commission's rules currently reference the 2007 and 2011 revisions of ANSI technical standard ANSI C63.19 (the 2007 ANSI Wireless HAC Standard and the 2011 ANSI Wireless HAC Standard), developed by ANSI ASC C63®-EMC. 47 CFR 20.19(b)(1), (2). A handset is considered hearing aid compatible for preventing RF interference with hearing aids and cochlear implants if it meets a rating of at least M3 under the 2007 ANSI Wireless HAC Standard or 2011 ANSI Wireless HAC Standard. A handset is considered hearing aid compatible for inductive coupling with hearing aids and cochlear implants if it meets a rating of at least T3. The 2011 Wireless HAC Standard, added to the rule in 2012, expanded the range of frequencies over which HAC can be tested to frequencies between 698 MHz and 6 GHz and established a direct method for measuring the RF interference level of wireless devices to hearing aids, thereby enabling testing procedures to be applied to operations over any RF air interface or protocol.
20. The Commission proposes to require manufacturers to use the 2011 ANSI Wireless HAC Standard, subject to modifications, exclusively to certify future handsets as compliant with the RF interference reduction and inductive coupling rules. The 2011 ANSI Wireless HAC Standard is the most recent of the ANSI standards for testing and rating wireless handsets' HAC and provides the most accurate available RF interference reduction and inductive coupling ratings for such handsets. The Commission believes there will be relatively little burden in requiring manufacturers and service providers to use the 2011 ANSI Wireless HAC Standard exclusively, and the Commission notes that since July 2013, manufacturers appear to have been using the 2011 ANSI Wireless HAC Standard to test the vast majority of their new handsets. The Commission seeks comment on this approach. The Commission asks commenters to include data or other specific information demonstrating whether and how the 2011 ANSI Wireless HAC Standard imposes lesser or greater burdens than the 2007 ANSI Wireless HAC Standard, as well as the advantages or disadvantages of using the 2011 ANSI Wireless HAC Standard exclusively for testing and rating wireless handsets' compliance with the RF interference reduction and inductive coupling rules.
21. The Commission further proposes to transition manufacturers and service providers, over a period of six months, to using the 2011 ANSI Wireless HAC Standard on an exclusive basis. The Commission seeks comment on whether sufficient time has passed since Commission adoption of this standard to enable it to be used on an exclusive basis, or whether additional transition time is necessary to avoid disruption. If more time is needed, what would be the appropriate timeframe to adopt the 2011 ANSI Wireless HAC Standard exclusively? In connection with this implementation timeline, the Commission proposes that handsets already certified under the 2007 ANSI Wireless HAC Standard or any previous standard would be grandfathered, and thus, there would be no need to retest or recertify this equipment. The Commission seeks comment on this proposal, its costs and benefits, and its advantages or disadvantages.
22. The wireless HAC rule provides an exception to the general requirement that, for purposes of determining HAC, handsets must be tested using their maximum output power. 47 CFR 20.19(e)(1)(ii). This limited power-down exception applies solely to manufacturers and service providers that offer only one or two Global System for Mobile Communications (GSM) handset models, but are required, because they employ a certain number of individuals, to meet the HAC standards for one model. The Commission proposes to eliminate the power-down exception for handsets certified on or after the date that the 2011 ANSI Wireless HAC Standard becomes the exclusive standard. The Commission requires handsets to be tested at full power to ensure that Americans with hearing loss have equal access to all of the service quality and performance that a given wireless handset provides. 47 CFR 20.19(e)(1)(iii). The Commission believes that eliminating the power-down exception will advance this purpose and will ensure that consumers do not experience the drop-off in function that can otherwise occur with handsets certified under the power-down option. The Commission further proposes to grandfather GSM handsets that operate in the 1900 MHz band and that were previously certified under the exception. Even if the Commission eliminates the exception going forward, the Commission tentatively concludes that there will be no need to recertify these handsets and that the Commission should continue to treat them as certified hearing aid compatible handsets. The Commission seeks comment on this tentative conclusion. When addressing our proposal to eliminate the power-down exception, commenters should discuss the advantages or disadvantages and quantify the costs and benefits of eliminating the exception and of any proposed alternative approaches they recommend.
23. Section 710(c) of the Act requires the Commission “to establish or approve such technical standards as are required to enforce [the HAC provisions].” 47 U.S.C. 610(c). The CVAA retained the mandate for the Commission to establish or approve such technical standards but amended section 710(c) of the Act to provide a mechanism for HAC technical standards to become effective without a Commission rulemaking, subject to Commission approval or rejection of such standards. As amended by the CVAA, section 710(c) of the Act reads as follows:
The Commission shall establish or approve such technical standards as are required to enforce this section. A telephone or other customer premises equipment that is compliant with relevant technical standards developed through a public participation process and in consultation with interested consumer stakeholders (designated by the Commission for the purposes of this section) will be considered hearing aid compatible for purposes of this section, until such time as the Commission may determine otherwise. The Commission shall consult with the public, including people with hearing loss, in establishing or approving such technical standards. The Commission may delegate this authority to an employee pursuant to section 155(c) of this title. The Commission
24. The Commission proposes to adopt rules implementing each of the provisions of section 710(c) of the Act added by the CVAA. In particular, the Commission proposes to adopt a streamlined procedure whereby a wireline telephone or other customer premises equipment or a wireless handset may be considered hearing aid compatible if it “is compliant with relevant technical standards developed through a public participation process and in consultation with interested consumer stakeholders . . . until such time as the Commission may determine otherwise.” The Commission further proposes changes to our rules to ensure consultation “with the public, including people with hearing loss, in establishing or approving such technical standards,” and that the Commission “remain[s] the final arbiter as to whether the standards meet the requirements of this section.” The Commission invites comment generally on whether our proposals below are consistent with section 710 of the Act and whether they will effectively advance the Congressional objective to ensure that “to the fullest extent made possible by technology and medical science, [people who are deaf and hard of hearing] should have equal access to the national telecommunications network.” Public Law 100-394, sec. 2(1).
25. To implement section 710(c) of the Act, the Commission proposes that for compliance purposes, companies be permitted to rely on a HAC standard prior to that standard being adopted through a formal rulemaking process so long as it is developed through a voluntary and consensus-driven public participation process reflecting consultation with interested consumer stakeholders. The Commission notes, however, that it may also, in its discretion, establish or approve HAC standards through traditional rulemaking procedures, including, where appropriate, standards for mobile handsets through existing delegations of rulemaking authority under 47 CFR 20.19(k), independently of the alternative process added by the CVAA. More specifically, the Commission proposes that the standards development process must (1) be open to participation by all relevant stakeholders who have legitimate and meaningful interests in the process, (2) allow all interested parties, including consumers and groups representing them, to comment on a proposed standard prior to adoption and to have their comments considered by the working groups that develop the standards, and (3) provide an appeal mechanism that allows interested parties to seek review of standards-setting decisions.
26. The Commission believes that the current ANSI process meets such criteria. Accordingly, the Commission proposes that a wireline telephone or other CPE or a wireless handset will be considered hearing aid compatible for purposes of section 710 of the Act, if it complies with a relevant technical standard adopted by ANSI using a process compliant with the requirements of section 710(c) of the Act, and further proposes that this include standards that cover equipment, services, or frequency bands not presently covered by the existing ANSI standards. The Commission seeks comment on whether it would be in the public interest for parties to be permitted to rely on technical standards developed under the ANSI process for purposes of assessing their equipment's compliance with our HAC rules. The Commission also seeks comment on whether and how the ANSI standards development process can achieve Congress's objective to ensure that the views of the public, including people with hearing loss, are considered in the establishment and approval of HAC technical standards. The Commission seeks comment on the extent to which this process is appropriate for consumer groups representing the interests of people with hearing loss to provide input into the development of HAC standards. Before a new standard is adopted, according to ANSI documents, all interested parties have a chance to comment on the revision and to have their comments considered by the working group. Will this process afford such individuals the opportunity to comment on proposed new or revised standards prior to their adoption even if such individuals are not ANSI members? Have consumer groups or individuals representing hearing loss interests participated in such standards-setting efforts in the past, and if so, what has been their experience with this process? What would be the most effective role for consumer groups and individual consumers in the process of setting standards for HAC that are based on complex engineering issues? The process also includes an appeal mechanism. Does ANSI's appeal mechanism adequately protect consumer interests? To what extent do interested parties believe that the ANSI process will be capable of ensuring that revisions to HAC technical standards will meet the needs of all interested stakeholders? The Commission also invites comment on whether there are other relevant standards development organizations following processes that could meet the requirements of section 710(c) of the Act. Commenters who recommend that the Commission recognize a particular alternative standards development organization or process should explain why such an organization or process qualifies as a “public participation process” for purposes of section 710(c) of the Act and why it is an appropriate process for development of a standard for assessing HAC compliance.
27. Section 710(c) of the Act further requires that standards be developed in consultation with “interested consumer stakeholders” who are “designated by the Commission.” The Commission proposes to direct the Commission's newly formed Disability Advisory Committee (DAC) to provide recommendations on who should be designated as “interested consumer stakeholders” for purposes of section 710(c) of the Act and further proposes that the Consumer and Governmental Affairs Bureau (CGB) consider such recommendations in making these final designations. Additionally, the Commission proposes that the DAC be directed to consult with nationally recognized consumer organizations, both appointed to and outside of the DAC, that have expertise on HAC and related telecommunications issues. Further, the Commission proposes that, to qualify for designation as “interested consumer stakeholders,” individuals or organizations should have technical expertise in the field of hearing loss and a high level of knowledge about the communication needs of people who are deaf and hard of hearing. The Commission seeks comment on these proposed criteria and any other applicable criteria for designation of consumer stakeholders. Finally, the Commission proposes that each consumer representative or organization receiving a designation as an “interested consumer stakeholder” maintain such designation for a period of two years, with the process described above being repeated at the end of each two-year period. The Commission believes that taking this approach will provide the expertise and stability needed for effective participation in the standards-setting process. The Commission seeks comment on these proposals, as well as how many consumer stakeholders to designate.
28. The Commission proposes to define “in consultation with interested consumer stakeholders” as signifying a
29. The Commission emphasizes that section 710(c) of the Act, as amended, does not mandate that any standards-setting organization change its procedures to provide for consultation with interested consumer stakeholders designated by the Commission. In the event that a standards-setting organization were to conclude that consultation with consumer stakeholders, as defined by the rules adopted in this proceeding, is not practicable or is inconsistent with the needs of the organization, the only legal consequence would be that, as is currently the case, standards developed by that organization would need to be formally adopted in a Commission rulemaking before they could be relied upon for hearing aid compatibility compliance purposes. Alternatively, a standard could be developed by another organization through a process that complies with section 710(c) of the Act and the Commission's implementing rules. The Commission invites comment on whether, in the event that ANSI chooses not to incorporate a consumer consultation process into its standards-setting procedures, the Commission should recognize another organization for purposes of section 710(c) of the Act, and invites commenters supporting recognition of another standards-setting body to propose other bodies for consideration.
30. In order to fully implement section 710(c) of the Act, as amended, it appears necessary to provide for Commission review of HAC standards after they have been developed, while allowing industry to rely on such standards for HAC compliance purposes “until such time as the Commission may determine otherwise.” The Commission proposes that, upon publication by ANSI of a new or revised HAC standard, the relevant Bureaus and Offices shall issue a public notice describing such standard, specifying the effective date set by ANSI and the equipment and services to which the standard applies, and indicating where the standard and related information can be obtained. The Commission proposes that in such public notice, the relevant Bureaus and Offices shall initiate a review of the standard by seeking public comment on (1) whether the public participation and consumer consultation processes specified by section 710(c) of the Act and by the rules adopted in this proceeding were followed in developing the new or revised standard, and (2) whether the use of the standard to determine whether wireline telephones, other customer premises equipment, or wireless handsets are hearing aid compatible meets the substantive requirements of section 710 of the Act. The Commission seeks comment on this proposal generally, its costs and benefits, and the following matters in particular.
31. The Commission invites comment on whether ANSI should be permitted to seek Commission review of a draft standard that has been approved by a subcommittee before it is formally approved by the parent committee, or before it is adopted through a public review process. Would the benefit of earlier Commission approval that could be gained by initiating review at an intermediate stage justify the potential for administrative waste if a draft standard is subsequently revised prior to its final adoption by the standards-setting organization? What other advantages or disadvantages are there for allowing such intermediate review?
32. The Commission proposes that the Commission's review be conducted by the relevant Bureau—CGB in the case of wireline standards and WTB in the case of wireless standards—in conjunction with the Office of Engineering and Technology (OET), and that such review be completed, and a determination issued by the relevant bureau approving or disapproving such standards, no later than 180 days after the review period begins. The Commission seeks comment on whether this timetable will be sufficient to ensure that the Commission addresses its responsibilities under section 710(c) of the Act. The Commission also seeks comment on what consequences should ensue in the event that the timetable is not met. Should the standard be deemed approved? Or should the proceeding remain open, so that a decision approving or disapproving the standard could still be made based on the record compiled, despite the expiration of the timetable? The Commission invites commenters to suggest alternative processes, such as, for Commercial Mobile Radio Service (CMRS) handsets, modification of the existing delegations of authority under § 20.19(k) of its rules, that they believe will more effectively or appropriately address the Commission's section 710(c) of the Act responsibilities.
33. The Commission seeks comment on the necessity of, and the appropriate procedure for, amending the Commission's rules to reflect Commission approval of a standard developed by ANSI in accordance with the manner described above. The Commission proposes that, where a technical standard has been approved for HAC compliance purposes pursuant to the Commission review process described above, such approval shall be codified in the Commission's rules. The Commission seeks comment on this proposal. The Commission also seeks comment on the appropriate procedure for phasing out reliance on a standard when it has been superseded by a revised version,
34. The Commission seeks comment on whether the various processes set forth above for implementation of section 710(c) of the Act are consistent with section 559 of the Administrative Procedure Act (APA), which states that a “[s]ubsequent statute may not be held to supersede or modify [the APA] . . . except to the extent that it does so expressly.” 5 U.S.C. 559. The District of Columbia Circuit has held that a statute may be found to authorize an administrative agency to adopt rules outside of an APA procedure if “Congress has established procedures so clearly different from those required by the APA that it must have intended to displace the norm.” Asiana Airlines v. FAA, 134 F.3d 393, 397 (D.C. Cir. 1998). Specifically, the Commission seeks comment on the extent to which commenters believe that any components of the above processes differ from processes required by the APA, and whether § 710(c) of the Act nevertheless authorizes the Commission to implement such processes.
35. The Office of Federal Register (OFR) recently revised the regulations to require that agencies must discuss in the preamble of a proposed rule ways that the materials the agency proposes to incorporate by reference are reasonably available to interested parties or how it worked to make those materials reasonably available to interested parties. In addition, the preamble of the proposed rule must summarize the material. 1 CFR 51.5(a). In accordance with OFR's requirements, the discussion in this section summarizes the 2012 ANSI Wireline Volume Control Standard. The following document is available from the American National Standards Institute (ANSI), Sales Department, 11 West 42nd Street, 13th Floor, New York, NY 10036, (212) 642-4900, or at
36. As required by the Regulatory Flexibility Act, the Commission has prepared this Initial Regulatory Flexibility Analysis (IRFA) of the possible significant economic impact on a substantial number of small entities by the policies and rules proposed in document FCC 15-144. Written public comments are requested on this IRFA. Comments must be identified as responses to the IRFA and must be filed by the applicable deadline for comments as indicated in the
37. The Commission proposes to amend the HAC rules with the goal of ensuring that Americans with hearing loss are able to access wireline and wireless communications services through a wide array of phones, including VoIP telephones.
38. Regarding wireline equipment, the Commission seeks comment on a Commission proposal to incorporate into the rules a revised industry volume control standard—ANSI/TIA-4965-2012 (2012 ANSI Wireline Volume Control Standard)—that appears likely to improve the ability of people with hearing loss to select wireline telephones with sufficient volume control to meet their communication needs and provide greater regulatory certainty for the industry. The revised standard modifies the physical set-up for measuring amplification for wireline phones, by discontinuing the use of an IEC-318 coupler, which must form a seal with the telephone handset, and specifying instead the HATS method, which uses a mannequin with a human pinna (outer ear) simulator. In addition, the new standard replaces the ROLR method of calibrating amplification with a new method called Conversational Gain. According to TIA, the new standard will provide a more consistent experience of amplified gain level, enabling consumers with hearing loss to better assess and compare the merits of various models of terminal equipment. The Commission believes that incorporating the 2012 ANSI Wireline Volume Control Standard into the wireline volume control rule will make the rule more effective in ensuring that people with hearing loss have “equal access to the national telecommunications network” (Public Law 100-394, sec. 2(1)) and that telephones provide “an internal means for effective use with hearing aids” (47 U.S.C. 610(b)).
39. The Commission also proposes to apply the Commission's wireline telephone volume control and other HAC requirements to handsets used with VoIP services.
40. Regarding wireless equipment, the Commission seeks comment on a Commission proposal to adopt a volume control rule and standard for wireless handsets. In light of the greatly expanded role of wireless voice communications in our society, the Commission believes that adopting a specific volume control requirement for wireless handsets is necessary to achieve effective acoustic coupling and improve communication for people with hearing loss. The Commission seeks comment on the costs and benefits of adopting a volume control requirement for wireless handsets, what specific burdens, if any, are associated with requiring handsets to achieve a specified amplification level, and whether a volume control requirement should apply to all wireless handsets or to a subset of total handset sales or models, as with the current HAC rule. Finally, the Commission seeks comment on the appropriate standard for volume control in wireless phones and on whether to address, via standards or through other means, factors other than
41. In addition, the Commission seeks comment on its proposals to require manufacturers to use exclusively the 2011 ANSI Wireless HAC Standard for certifying future handsets as hearing aid compatible and to eliminate the power-down exception to the existing wireless HAC rule. 47 CFR 20.19(e)(1)(iii). Since July 2013, manufacturers appear to have been using the 2011 ANSI Wireless HAC Standard to test the vast majority of their new handsets. In order to facilitate meeting the 2007 version of the standard, certain handsets were allowed to be tested using less than maximum output power, but that exception appears to be unnecessary for purposes of meeting the 2011 standard.
42. Regarding all equipment subject to HAC requirements, the Commission seeks comment on a proposed streamlined process for allowing manufacturers and service providers to rely on a new or revised technical standard as sufficient for assessing compliance with relevant HAC requirements, without a prior Commission rulemaking, if the standard is developed by an ANSI-accredited standards development organization in accordance with an appropriate public participation process and in consultation with consumer stakeholders designated by the Commission, as required by the CVAA. Public Law 111-260, sec. 102(b); 47 U.S.C. 610(c). In particular, the Commission seeks comment on its proposals to recognize the ANSI process as a “public participation process” for purposes of 47 U.S.C. 610(c), to require that for a standard to qualify for accelerated incorporation into the HAC rule, consumer stakeholders designated by the Commission must be allowed to participate throughout the standards development process, and to provide for streamlined Commission post-effectiveness review of standards to ensure consistency with statutory requirements.
43. The authority for this proposed rulemaking is contained in sections 4(i) and 710 of the Act. 47 U.S.C. 154(i), 610.
44. The RFA directs agencies to provide a description of, and where feasible, an estimate of the number of small entities that may be affected by the proposed rules and policies, if adopted. The RFA generally defines the term “small entity” as having the same meaning as the terms “small business,” “small organization,” and “small governmental jurisdiction.” In addition, the term “small business” has the same meaning as the term “small business concern” under the Small Business Act. Pursuant to 5 U.S.C. 601(3), the statutory definition of a small business applies “unless an agency, after consultation with the Office of Advocacy of the Small Business Administration and after opportunity for public comment, establishes one or more definitions of such term which are appropriate to the activities of the agency and publishes such definition(s) in the
45.
46.
47. Satellite Telecommunications. According to the U.S. Census Bureau, the category of “Satellite Telecommunications” comprises firms “primarily engaged in providing telecommunications services to other establishments in the telecommunications and broadcasting industries by forwarding and receiving communications signals via a system of satellites or reselling satellite telecommunications.” The category has a small business size standard of $32.5 million or less in average annual receipts, under SBA rules. For this category, Census Bureau data for 2007 show that there were a total of 512 firms that operated for the entire year. Of this total, 482 firms had annual receipts of less than $25 million. Consequently, the Commission estimates that the majority of satellite telecommunications providers are small entities that might be affected by its action.
48.
49.
50.
51.
52.
53.
54. Certain rule changes proposed, if adopted by the Commission, would modify rules or add requirements governing reporting, recordkeeping, and other compliance obligations.
55. If the Commission were to incorporate the 2012 ANSI Wireline Volume Control Standard into the wireline volume control rules and eliminate the currently applicable standard after a transition period, such action would alter the compliance obligations of wireline telephone apparatus manufacturers, including small entities, by requiring them to use a different method for testing and evaluating compliance with the volume control requirement.
56. If the Commission were to explicitly apply some or all of the Commission's wireline telephone volume control and other HAC rules, which include related labeling, certification, complaint processing, and registration requirements, to handsets used with VoIP services, such action
57. If the Commission were to adopt a rule and standard for wireless handsets to address volume control and other acoustic coupling issues, such action would impose new compliance obligations and may impose additional reporting and recordkeeping obligations on wireless telecommunications carriers, satellite telecommunications providers, and wireless communications equipment manufacturers, including small entities.
58. If the Commission were to modify the 2011 ANSI Wireless HAC Standard to achieve more effective coupling between handsets and hearing aids or cochlear implants, such action would alter the compliance obligations of wireless telecommunications carriers, satellite telecommunications providers, and wireless communications equipment manufacturers, including small entities. However, such changes would not result in new regulatory burdens.
59. If the Commission were to require manufacturers to use exclusively the 2011 ANSI Wireless HAC Standard (with any modifications adopted in this rulemaking) to certify future handsets as hearing aid compatible and eliminate the power-down exception to the existing wireless HAC rule, such action would alter the compliance obligations of wireless telecommunications carriers, satellite telecommunications providers, and wireless communications equipment manufacturers, including small entities. However, such changes would not result in new regulatory burdens.
60. If the Commission were to adopt a rule providing that, pursuant to section 710(c) of the Act, equipment may be considered to be in compliance with HAC rules if it complies with relevant ANSI technical standards, such action could affect the compliance obligations of wireless telecommunications carriers, satellite telecommunications providers, and wireless communications equipment manufacturers, including small entities.
61. The RFA requires an agency to describe any significant alternatives that it has considered in reaching its proposed approach, which may include the following four alternatives (among others): (1) The establishment of differing compliance or reporting requirements or timetables that take into account the resources available to small entities; (2) the clarification, consolidation, or simplification of compliance or reporting requirements under the rule for small entities; (3) the use of performance, rather than design, standards; and (4) an exemption from coverage of the rule, or any part thereof, for small entities. 5 U.S.C. 603(b).
62. Regarding the Commission's proposal to incorporate the 2012 ANSI Wireline Volume Control Standard into the wireline volume control rules, the Commission notes that 2012 ANSI Wireline Volume Control Standard is a performance standard, not a design standard, and therefore implements alternative (3) above. Further, to minimize the difficulty of adjusting to the revised standard, the Commission proposes to allow a phase-in period during which manufacturers may comply with either the existing standard or the 2012 ANSI Wireline Volume Control Standard. Finally, to limit any potential burdens regarding the impact of the proposed rule change and future rule changes on previously manufactured telephones, the Commission proposes to amend its rules to allow the existing inventory and installed base of telephones that comply with the existing volume control standard to remain in place until retired and to clarify that future minor changes to the HAC and volume control standards will not result in a requirement to modify existing inventories or installed telephones. Each of these possible approaches, if adopted, could help minimize the impact of the revised standard on small entities. Further, if this revised standard more accurately measures the amplification achievable by wireline telephone products, incorporation of this standard could lighten regulatory burdens by increasing market certainty, promoting a level playing field, and reducing the number of complaints made to manufacturers by consumers of their products.
63. Regarding the Commission's proposal to amend 47 CFR part 68 to explicitly provide that customer premises equipment used with a VoIP service is subject to the wireline HAC and volume control requirements, the Commission notes that the standards provided in the rules are performance standards, not design standards. Further, the proposed rule amendment could increase regulatory certainty and market fairness regarding the application of the wireline HAC rules. In addition, the Commission seeks comment on the appropriate timetables or benchmarks that may be necessary in order to take account of technical feasibility or to ensure the marketability or availability of new technologies to users. Such timetables or benchmarks could help minimize the impact of the revised standard on small entities.
64. Regarding the Commission's proposals (1) to adopt a rule and standard for wireless handsets to address volume control, (2) to require manufacturers to use the 2011 ANSI Wireless HAC Standard exclusively and (3) to eliminate the power-down exception to the existing wireless HAC rule, the Commission notes that the 2011 ANSI Wireless HAC Standard is a performance standard, not a design standard. In addition, the existing HAC rule limits the number of models that must comply with the rule, especially for smaller carriers and manufacturers, and the Commission seeks comment on whether a volume control requirement, if adopted, should utilize the same approach, which could help minimize the impact on small entities.
65. Regarding the Commission's proposal to permit industry to rely on HAC standards developed pursuant to section 710(c) of the Act, in advance of a Commission rulemaking, such action would not result in new or increased regulatory burdens and may decrease regulatory burdens on small entities.
66. None.
Incorporation by reference, Individuals with disabilities, Telecommunications, Telephones.
For the reasons discussed in the preamble, the Federal Communications Commission proposes to amend title 47 of the Code Federal Regulations as follows:
47 U.S.C. 151, 152(a), 154(i), 157, 160, 201, 214, 222, 251(e), 301, 302, 303, 303(b), 303(r), 307, 307(a), 309, 309(j)(3), 316, 316(a), 332, 615, 615a, 615b, 615c.
The revisions and additions read as follows:
(b)
(ii)
(2)
(e) * * *
(1) * * *
(iii) * * *
(D) The handset was certified as meeting the requirements of paragraph (b)(1) of this section with the power reduction prior to [SIX MONTHS AFTER THE EFFECTIVE DATE OF THE FINAL RULE].
(k) * * *
(3)
(ii)
(A) Be open to participation by all relevant stakeholders who have legitimate and meaningful interests in the process;
(B) Allow all interested parties, including consumers and groups representing them, to comment on a proposed standard prior to adoption and to have their comments considered by the working groups that develop the standards; and
(C) Provide an appeal mechanism that allows interested parties to seek review of standards-setting decisions.
(iii)
(l) The standards listed in this section are incorporated by reference into this section with the approval of the Director of the Federal Register under 5 U.S.C. 552(a) and 1 CFR part 51. All material associated with the standards listed in this paragraph (l) is available for inspection at the Federal Communications Commission (FCC), 445 12th St. SW., Reference Information Center, Room CY-A257, Washington, DC 20554 and is available from the sources indicated below. It is also available for inspection at the National Archives and Records Administration (NARA). For information on the availability of this material at NARA, call 202-741-6030 or go to
These standards may also be viewed on the “ANSI Incorporated by Reference (IBR) Portal” at
47 U.S.C. 154, 303.
The purpose of the rules and regulations in this part is to provide for uniform standards for the protection of the telephone network from harms caused by the connection of terminal equipment and associated wiring thereto, for the compatibility of hearing aids and telephones, and the compatibility of hearing aids and customer premises equipment used to access advanced communications services, so as to ensure that, to the fullest extent made possible by technology and medical science, people who are deaf and hard of hearing have equal access to the national telecommunications network.
(a) Except as provided in paragraphs (b) and (c) of this section, the rules and
Terminal equipment may not be connected to the public switched network unless it has either been certified by a Telecommunications Certification Body or the responsible party has followed all the procedures in this subpart for Supplier's Declaration of Conformity. ACS telephonic equipment must be certified by a Telecommunications Certification Body or the responsible party has followed all the procedures in this subpart for Supplier's Declaration of Conformity.
(d)
(a) In acquiring approval for terminal equipment to be connected to the public switched telephone network or for ACS telephonic equipment, the responsible party warrants that each unit of equipment marketed under such authorization will comply with all applicable rules and regulations of this part and with any applicable technical criteria of the Administrative Council for Terminal Attachments (
(b) In the case of terminal equipment that is directly connected to the public switched telephone network, the responsible party or its agent shall provide the user of the approved terminal equipment the following:
(1) Consumer instructions required to be included with approved terminal equipment by the Administrative Council for Terminal Attachments (
(2) For a telephone that is not hearing aid-compatible, as defined in § 68.316 of these rules:
(i) Notice that FCC rules prohibit the use of that handset in certain locations; and
(ii) A list of such locations (
(c) When approval is revoked for any item of equipment, the responsible party must take all reasonable steps to ensure that purchasers and users of such equipment are notified to discontinue use of such equipment.
(a) Terminal equipment approved as set out in this part must be labeled in accordance with any applicable requirements published by the Administrative Council for Terminal Attachments (
(a)
(b)
(1) Be open to participation by all relevant stakeholders who have legitimate and meaningful interests in the process;
(2) Allow all interested parties, including consumers and groups representing them, to comment on a proposed standard prior to adoption and to have their comments considered by the working groups that develop the standards; and
(3) Provide an appeal mechanism that allows interested parties to seek review of standards-setting decisions.
(c)
A telephone handset is hearing aid compatible for the purposes of this section if it complies with a standard meeting the requirements of § 68.315 or with the following standard, published by the Telecommunications Industry Association, copyright 1983, and reproduced by permission of the Telecommunications Industry Association:
(a)(1) For telephones manufactured in the United States or imported for use in the United States prior to [TWO YEARS AFTER PUBLICATION OF THE FINAL RULE], such a telephone complies with the volume control requirements of this section if it complies with:
(i) The applicable provisions of paragraphs (b) through (g) of this section;
(ii) Paragraphs (h) and (i) of this section; or
(iii) A standard meeting the requirements of § 68.315.
(2) For telephones manufactured in the United States or imported for use in the United States on or after [TWO YEARS AFTER PUBLICATION OF THE FINAL RULE], such a telephone complies with the volume control requirements of this section if it complies with:
(i) Paragraphs (h) and (i) of this section; or
(ii) A standard meeting the requirements of § 68.315.
(b) An analog telephone complies with the Commission's volume control requirements if the telephone is equipped with a receive volume control that provides, through the receiver in the handset or headset of the telephone, 12 dB of gain minimum and up to 18 dB of gain maximum, when measured in terms of Receive Objective Loudness Rating (ROLR), as defined in paragraph 4.1.2 of ANSI/EIA-470-A-1987 (Telephone Instruments With Loop Signaling). The 12 dB of gain minimum must be achieved without significant clipping of the test signal. The telephone also shall comply with the upper and lower limits for ROLR given in table 4.4 of ANSI/EIA-470-A-1987 when the receive volume control is set to its normal unamplified level.
Note to paragraph (b): Paragraph 4.1.2 of ANSI/EIA-470-A-1987 identifies several characteristics related to the receive response of a telephone. It is only the normal unamplified ROLR level and the change in ROLR as a function of the volume control setting that are relevant to the specification of volume control as required by this section.
(c) The ROLR of an analog telephone shall be determined over the frequency range from 300 to 3300 HZ for short, average, and long loop conditions represented by 0, 2.7, and 4.6 km of 26 AWG nonloaded cable, respectively. The specified length of cable will be simulated by a complex impedance. (
(d) A digital telephone complies with the Commission's volume control requirements if the telephone is equipped with a receive volume control that provides, through the receiver of the handset or headset of the telephone, 12 dB of gain minimum and up to 18 dB of gain maximum, when measured in terms of Receive Objective Loudness Rating (ROLR), as defined in paragraph 4.3.2 of ANSI/EIA/TIA-579-1991 (Acoustic-To-Digital and Digital-To-Acoustic Transmission Requirements for ISDN Terminals). The 12 dB of gain minimum must be achieved without significant clipping of the test signal. The telephone also shall comply with the limits on the range for ROLR given in paragraph 4.3.2.2 of ANSI/EIA/TIA-579-1991 when the receive volume control is set to its normal unamplified level.
(e) The ROLR of a digital telephone shall be determined over the frequency range from 300 to 3300 Hz using the
(f) The ROLR for either an analog or digital telephone shall first be determined with the receive volume control at its normal unamplified level. The minimum volume control setting shall be used for this measurement unless the manufacturer identifies a different setting for the nominal volume level. The ROLR shall then be determined with the receive volume control at its maximum volume setting. Since ROLR is a loudness rating value expressed in dB of loss, more positive values of ROLR represent lower receive levels. Therefore, the ROLR value determined for the maximum volume control setting should be subtracted from that determined for the nominal volume control setting to determine compliance with the gain requirement.
(g) The 18 dB of receive gain may be exceeded provided that the amplified receive capability automatically resets to nominal gain when the telephone is caused to pass through a proper on-hook transition in order to minimize the likelihood of damage to individuals with normal hearing.
(h) A telephone complies with the Commission's volume control requirements if it is equipped with a receive volume control that provides, through the receiver in the handset or headset of the telephone, 18 dB of Conversational Gain minimum and up to 24 dB of Conversational Gain maximum when measured as described in ANSI/TIA-4965-2012 (Telecommunications—Telephone Terminal Equipment—Receive Volume Control Requirements for Digital and Analog Wireline Telephones). The 18 dB of Conversational Gain minimum must be achieved without significant clipping of the speech signal used for testing.
(i) The 24 dB of Conversational Gain maximum may be exceeded provided the amplified receive capability automatically resets to a level less than 18 dB of Conversational Gain when the telephone is caused to pass through a proper on-hook transition in order to minimize the likelihood of damage to individuals with normal hearing.
(j) These incorporations by reference of paragraph 4.1.2 (including table 4.4) of American National Standards Institute (ANSI) Standard ANSI/EIA-470-A-1987, paragraph 4.3.2 of ANSI/EIA/TIA-579-1991, and ANSI/TIA-4965-2012 were approved by the Director of the Federal Register in accordance with 5 U.S.C. 552(a) and 1 CFR part 51. Copies of these publications may be purchased from the American National Standards Institute (ANSI), Sales Department, 11 West 42nd Street, 13th Floor, New York, NY 10036, (212) 642-4900, or
(k) Manufacturers and other responsible parties of telephones subject to this rule shall engage in consultation with people with hearing loss and their representative organizations for the purpose of assessing the effectiveness of the standard adopted pursuant to paragraph (j) of this section. Such consultation shall include testing a sample of products certified to be compliant with the revised standard to evaluate whether products compliant with such standard are providing a uniform and appropriate range of volume to meet the telephone needs of consumers. Such consultation and testing shall occur by [ONE YEAR AFTER THE EFFECTIVE DATE OF THE FINAL RULE], pursuant to paragraph (j) of this section, with follow-up every three years thereafter to assess the impact of these technological changes.
(e) No person shall use or make reference to a Supplier's Declaration of Conformity in a deceptive or misleading manner or to convey the impression that such a Supplier's Declaration of Conformity reflects more than a determination by the responsible party that the device or product has been shown to be capable of complying with the applicable technical.
(e) For terminal equipment that is directly connected to the public switched telephone network:
(g) For ACS telephonic CPE subject to a Supplier's Declaration of Conformity, the responsible party shall make a copy of the Supplier's Declaration of Conformity freely available to the general public on its company Web site.
Surface Transportation Board.
Notice of proposed rulemaking.
The Surface Transportation Board (Board) is proposing a definition of “on-time performance” for purposes of Section 213 of the Passenger Rail Investment and Improvement Act of 2008 (PRIIA).
Comments are due by February 8, 2016. Reply comments are due by February 29, 2016.
Comments and replies may be submitted either via the Board's e-filing format or in the traditional paper format. Any person using e-filing should attach a document and otherwise comply with the instructions at the “E-FILING” link on the Board's Web site, at “
Copies of written comments and replies will be posted to the Board's Web site and will be available for viewing and self-copying at the Board's Public Docket Room, Room 131. Copies will also be available (for a fee) by contacting the Board's Chief Records Officer at (202) 245-0238 or 395 E Street SW., Washington, DC 20423-0001.
Scott M. Zimmerman at (202) 245-0386. Assistance for the hearing impaired is available through the Federal Information Relay Service (FIRS) at (800) 877-8339.
By decision served on May 15, 2015, the
In 2008, Congress enacted PRIIA to address, among other things, issues related to the performance of passenger rail service, including the concern that one cause of Amtrak's inability to achieve reliable on-time performance was the failure of host freight railroads to honor Amtrak's right to preference.
Under Section 213(a) of PRIIA, if the on-time performance of any intercity passenger train averages less than 80% for any two consecutive calendar quarters, the Board may initiate an investigation, or Amtrak and other eligible complainants may file a complaint with the Board requesting that the Board initiate an investigation. The purpose of such an investigation is to determine whether and to what extent delays are due to causes that could reasonably be addressed by the passenger rail operator or the host railroad. Following the investigation, should the Board determine that Amtrak's substandard performance is “attributable to” the rail carrier's “failure to provide preference to Amtrak over freight transportation as required” by 49 U.S.C. 24308(c), the Board may choose to “award damages” or other appropriate relief from a host railroad to Amtrak. 49 U.S.C. 24308(f )(2). If the Board finds it appropriate to award damages to Amtrak, Amtrak must use the award “for capital or operating expenditures on the routes over which delays” were the result of the host railroad's failure to grant the statutorily required preference to passenger transportation. 49 U.S.C. 24308(f )(4).
On August 19, 2011, AAR filed a lawsuit in the United States District Court for the District of Columbia challenging the constitutionality of Section 207 of PRIIA.
Meanwhile, on May 31, 2012, the District Court upheld the constitutionality of Section 207.
While review was pending before the Supreme Court, on August 29, 2014, Amtrak filed a motion to amend its complaint against CN in Docket No. 42134 (the “Illini/Saluki” case). Specifically, Amtrak sought to narrow the focus of the complaint to the performance of Amtrak's Illini/Saluki service rather than all of the Amtrak services on lines owned by CN addressed in the original complaint. In addition, on November 17, 2014, Amtrak filed a new complaint under Section 213 of PRIIA in Docket No. NOR 42141, alleging “substandard performance of Amtrak's Capitol Limited service between Chicago, IL and Washington, D.C.” on rail lines owned by CSX Transportation, Inc. and Norfolk Southern Railway Company (the “Capitol Limited” case).
On December 19, 2014, while the Supreme Court case was still pending, the Board issued a decision in the Illini/Saluki case (December 2014 Decision) (1) granting Amtrak's motion to amend its complaint against CN, and (2) concluding that the pending court litigation involving the constitutionality of Section 207 did not preclude Amtrak's complaint before the Board from moving forward. The Board also directed the parties to provide arguments and replies addressing how to construe the term “on-time performance” as the term is used in Section 213. In dissent, Commissioner Begeman stated that the Board would best fulfill its obligations under the law by initiating a rulemaking to establish clear standards by which on-time
CN filed a petition for reconsideration in the Illini/Saluki case on January 7, 2015. AAR also submitted a conditional petition for rulemaking in this docket on January 15, 2015. In response, the Board, on January 16, 2015, served a decision postponing the filing deadlines in the Illini/Saluki case established by the December 2014 Decision, pending further order of the Board. In the Capitol Limited case, the Board served a decision on April 7, 2015, directing the parties to engage in mediation. The mediation period concluded on August 14, 2015, without success.
On March 9, 2015, the Supreme Court reversed the D.C. Circuit's decision, finding that Amtrak is a governmental entity for purposes of analyzing the constitutional issues surrounding the delegation of authority in Section 207.
As noted, on May 15, 2015, the Board instituted this rulemaking proceeding in response to a petition filed by AAR. In that decision, the Board stated that it intended to issue a notice of proposed rulemaking and a procedural schedule in a subsequent decision. The Board found persuasive the arguments regarding the advantages of rulemaking in this situation: There are multiple on-time performance cases pending in which the Board's definition could apply; it would be efficient to obtain the full range of stakeholder perspectives in one docket, rather than piecemeal on a case-by-case basis; and defining on-time performance by rulemaking would provide clarity regarding the trigger for potential adjudications and would avoid the potential relitigation of the issue in each case, thereby conserving party and agency resources.
The ICC's on-time performance regulations (former 49 CFR 1124.6) provided that an intercity passenger train “shall arrive at its final terminus no later than 5 minutes after scheduled arrival time per 100 miles of operation, or 30 minutes after scheduled arrival time, whichever is the less.” The ICC explained that “[t]he public should be able to rely on the established train schedule so that plans can be made with a modicum of certainty and trains may once again be attractive to travelers for whom on-time performance is imperative.”
Under Section 1040.2 of the proposed rule,
As set forth in the table, a train operating up to 100 miles would be “on time” if it arrives at its final terminus no more than five minutes after its scheduled arrival time. Likewise, a train operating over 100 miles but no more than 200 miles would be considered “on time” if it arrives at its final terminus no more than 10 minutes after its scheduled arrival time, and a train operating a distance over 500 miles would be considered “on time” if it arrives at its final terminus no more than 30 minutes after its scheduled arrival time.
The proposed rule also provides a framework for calculating quarterly on-time performance for purposes of filing or initiating a complaint. As proposed in Section 1040.4,
The Board proposes to adopt the ICC's definition because relying on a comparison between Amtrak's scheduled arrival time and the time an Amtrak train actually arrives at its final destination would be clear and relatively easy to apply. In particular, adoption of this definition would simplify the record-keeping and production of evidence that may otherwise be necessary for Amtrak and the host carriers if on-time performance were defined using a number of additional factors, such as the amount of delay at intermediate stops or construction on the host carrier's line.
The Board seeks comments from all interested persons on the proposed rule. Importantly, the Board encourages interested persons to propose and discuss potential modifications or alternatives to the proposed rule. Examples of such alternatives might include, but are not limited to: Factoring into the calculation of on-time performance a train's punctuality at intermediate stops, rather than the final terminus only; implementing alternative tables of maximum allowances with respect to either the distance-variables or the maximum allowance of minutes for each distance-variable band; or calculating the “on-time” thresholds under an entirely different methodology, such as approaches that Amtrak or other public agencies and host carriers have implemented. The
The Board will allow six weeks for parties to file opening comments in response to this notice of proposed rulemaking and three weeks for parties to file reply comments. Given the significance of the issue at hand, the Board finds that the 30-day comment period requested by Amtrak would provide insufficient time for parties to provide comments on the proposed rule. A procedural schedule allowing reply comments is appropriate because the Board here invites comments on not only the proposed rule, but potential modifications or alternatives (on which the Board may take further comment if appropriate). This approach is intended to balance the need to provide sufficient opportunity for public comments, as urged in part by AAR, with the need to complete this proceeding as expeditiously as possible.
The proposed regulation would not create a significant impact on a substantial number of small entities. As noted above, host carriers have been required to allow Amtrak to operate over their rail lines since the 1970s. Moreover, an investigation concerning delays to intercity passenger traffic is a function of Section 213 of PRIIA rather than this rulemaking. The proposed rule seeks only to define “on-time performance” for the purpose of implementing the rights and obligations already established in Section 213 of PRIIA. Thus, the proposed rule does not place any additional burden on small entities, but rather clarifies an existing obligation.
Even assuming for the sake of argument that the proposed regulation were to create an impact on small entities, which it does not, the number of small entities so affected would not be substantial. The proposed definition of on-time performance would apply in proceedings involving Amtrak, currently the only provider of intercity passenger rail transportation subject to PRIIA, and its host railroads. For almost all of its operations, Amtrak's host carriers are Class I rail carriers,
This proposal would not significantly affect either the quality of the human environment or the conservation of energy resources.
On-time performance of intercity passenger rail service.
1. Comments are due by February 8, 2016. Reply comments are due by February 29, 2016.
2. A copy of this decision will be served upon the Chief Counsel for Advocacy, Office of Advocacy, U.S. Small Business Administration.
3. Notice of this decision will be published in the
4. This decision is effective on its service date.
Decided: December 16, 2015.
By the Board, Chairman Elliott, Vice Chairman Begeman, and Commissioner Miller.
For the reasons set forth in the preamble, the Surface Transportation Board proposes to amend title 49, chapter X, subchapter A, of the Code of Federal Regulations by adding part 1040 as follows:
49 U.S.C. 721 and 24308(f).
This section defines “on-time performance” for the purpose of implementing Section 213 of the Passenger Rail Investment and Improvement Act of 2008, 49 U.S.C. 24308(f).
A train is “on time” if it arrives at its final terminus no more than five minutes after its scheduled arrival time per 100 miles of operation, or 30 minutes after its scheduled arrival time, whichever is less. This definition shall be implemented in accordance with the table provided in § 1040.3.
The following table sets forth the maximum number of minutes after the scheduled arrival time that a train may arrive at its final terminus and be considered on time for the purpose of implementing 49 U.S.C. 24308(f).
In any given calendar quarter, on-time performance shall be calculated as a percentage using the following formula:
(a) The denominator shall be the number of trains that operated during that calendar quarter, excluding any train not operating from its scheduled origin to its scheduled destination; and
(b) The numerator shall be the number of trains included in the denominator that also satisfy the definition of “on-time performance,” as set forth in §§ 1040.2 and 1040.3.
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Proposed rule; request for comments.
NMFS hereby proposes regulations under the Tuna Conventions Act to implement Recommendation C-12-11 of the Inter-American Tropical Tuna Commission (IATTC). Recommendation C-12-11 revises the management regime for the area of overlapping jurisdiction between the IATTC and the Commission for the Conservation and Management of Highly Migratory Fish Stocks in the Western and Central Pacific Ocean (WCPFC). These proposed regulations provide that the management measures of the IATTC would no longer apply in the area of overlapping jurisdiction, with the exception of regulations governing the IATTC Regional Vessel Register. This action is necessary for the United States to satisfy its obligations as a member of the IATTC.
Comments on the proposed rule and supporting documents must be submitted in writing by January 27, 2016.
You may submit comments on this document, identified by NOAA-NMFS-2015-0158, by any of the following methods:
•
•
Copies of the draft Regulatory Impact Review and other supporting documents are available via the Federal eRulemaking Portal:
Rachael Wadsworth, NMFS, West Coast Region, 562-980-4036.
The United States is a member of the IATTC, which was established under the 1949 Convention for the Establishment of an Inter-American Tropical Tuna Commission. The full text of the 1949 Convention is available at:
The IATTC consists of 21 member nations and four cooperating non-member nations and facilitates scientific research into, as well as the conservation and management of, highly migratory species of fish in the IATTC Convention Area. The IATTC Convention Area is defined as waters of the eastern Pacific Ocean (EPO) within the area bounded by the west coast of the Americas and by 50° N. latitude, 150° W. longitude, and 50° S. latitude. The IATTC has maintained a scientific research and fishery monitoring program for many years, and regularly assesses the status of tuna and billfish stocks in the EPO to determine appropriate catch limits and other measures deemed necessary to promote sustainable fisheries and prevent the overexploitation of these stocks.
As a Contracting Party to the 1949 Convention and a member of the IATTC, the United States is legally bound to implement decisions of the IATTC. The Tuna Conventions Act (16 U.S.C. 951-962), as amended on November 5, 2015, by Title II of Public Law 114-81, provides that the Secretary of Commerce, in consultation with the Secretary of State and, with respect to enforcement measures, the Secretary of the Department of Homeland Security, may promulgate such regulations as may be necessary to carry out the United States international obligations under the Convention, including recommendations and decisions adopted by the IATTC. The Secretary's authority to promulgate such regulations has been delegated to NMFS.
In 2004, the Convention on the Conservation and Management of Highly Migratory Fish Stocks in the Western and Central Pacific Ocean entered into force. The Convention's area of application (WCPFC Convention Area) overlaps with the IATTC Convention Area. The two convention areas overlap in the Pacific Ocean waters within a rectangular area bounded by 50° S. latitude, 150° W.
The IATTC and WCPFC recognized the need to clarify the management measures in the Area of Overlap, and the IATTC adopted Recommendation C-12-11 (
As stated above, the United States is a member of the IATTC. The United States is also a member of the WCPFC, and implements WCPFC decisions under the authority of the Western and Central Pacific Fisheries Convention Implementation Act (WCPFC Implementation Act; 16 U.S.C. 6901
NMFS proposes that the decisions of the WCPFC, rather than those of the IATTC, apply in the Area of Overlap because the U.S. fisheries impacted by this rulemaking occur mostly in the WCPFC Convention Area. In other words, the impacted fisheries are subject to regulations that implement the decisions of the WCPFC at 50 CFR part 300, subpart O, in most of their fishing grounds. Being subject to only this set of regulations when fishing inside the Area of Overlap—rather than being subject to only the IATTC-related regulations in that area—would provide more uniform regulations for these fisheries. Alternatively, NMFS also welcomes public input on alternatives to this rule,
U.S. vessels do not fish in the Area of Overlap often, but the two gear types that have fished in the Area of Overlap since 2008 are troll vessels that harvest South Pacific albacore and purse seine vessels that harvest tropical tuna. The majority of the South Pacific albacore troll fishery occurs in the WCPFC Convention Area outside the Area of Overlap (
This proposed rule would implement Recommendation C-12-11 and establish that, in the Area of Overlap, the
The NMFS Assistant Administrator has determined that this proposed rule is consistent with the Tuna Conventions Act and other applicable laws.
This proposed rule has been determined to be not significant for purposes of Executive Order 12866.
Additionally, although there are no new collection-of-information requirements associated with this action that are subject to the Paperwork Reduction Act, existing collection-of-information requirements still apply under the following Control Numbers: (1) 0648-0596, Vessel Monitoring System (VMS) Requirements under the WCPFC; (2) 0648-0595, WCPFC Vessel Information Family of Forms; (3) 0648-0649, Transshipment Requirements under the WPCFC; and (4) 0648-0204, West Coast Region Family of Forms. Notwithstanding any other provision of the law, no person is required to respond to, and no person shall be subject to penalty for failure to comply with, a collection-of-information subject to the requirements of the PRA, unless that collection-of-information displays a currently valid OMB control number.
Pursuant to the Regulatory Flexibility Act, 5 U.S.C. 605(b), the Chief Counsel for Regulation of the Department of Commerce certified to the Chief Counsel for Advocacy of the Small Business Administration that this proposed rule, if adopted, would not have a significant economic impact on a substantial number of small entities. The rationale for the certification is provided in the following paragraphs.
As described in the
The failure to promulgate the proposed action would continue to require the decisions of both the IATTC and WCPFC to apply in the Area of Overlap. Alternatively, the implementation of Recommendation C-12-11 would establish the application of the measures of only one organization (
On June 12, 2014, the Small Business Administration (SBA) issued an interim final rule revising the small business size standards for several industries effective July 14, 2014 (79 FR 33467). The rule increased the size standard for Finfish Fishing from $19.0 million to $20.5 million, Shellfish Fishing from $5.0 million to $5.5 million, and Other Marine Fishing from $7.0 million to $7.5 million. The National Marine Fisheries Service (NMFS) conducted its analysis for this action in light of the new size standards.
NMFS considers all entities subject to this action to be small entities as defined by both the former, lower size standards and the revised size standards. The small entities that would be affected by the proposed action are all U.S. vessels that may fish for tuna or tuna-like species in the Area of Overlap; however, U.S. vessels do not fish for tuna or tuna-like species in the Area of Overlap often. Since 2008, no U.S. fishing vessel with pelagic longline gear has fished in the Area of Overlap. Two gear types that have fished in the Area of Overlap since 2008 are troll vessels that harvest South Pacific albacore and purse seine vessels that harvest tropical tunas.
There are two components to the U.S. tuna purse seine fishery in the EPO: (1) purse seine vessels with at least 363 mt fish hold volume (class size 6 vessels) that are typically based in the western and central Pacific Ocean (WCPO), and (2) coastal purse seine vessels with smaller fish hold volume that are based on the U.S. West Coast. Because the coastal purse seine vessels do not typically fish south of the equator or on the high seas, this rule would likely only affect the size class 6 purse seine vessels.
In recent years, most of the yellowfin, skipjack, and bigeye tuna catch in the EPO have been landed by size class 6 purse seine vessels. Estimates of ex-vessel revenues in this purse seine fishery in the IATTC Convention Area since 2005 are confidential and may not be publicly disclosed because of the small number of vessels in the fishery. In the Area of Overlap, no purse seine vessels fished from 2008 to 2010, fewer than three purse seine vessels fished in 2011 and 2012 (therefore, their landings and revenue are confidential), and no purse seine vessels fished in 2013 or 2014.
As of November 2015, there are 22 size class 6 purse seine vessels on the IATTC Regional Vessel Register and 40 size class 6 purse seine vessels on the WCPFC Record of Fishing Vessels. For the purse seine fishery based in the WCPO, NMFS estimates that the average annual receipts over 2010 to 2012 for each purse seine vessel were less than the $20.5 million threshold for finfish harvesting businesses (the greatest was about $19 million) based on the catches of each vessel in the purse seine fleet during that period and indicative regional cannery prices developed by the Pacific Islands Forum Fisheries Agency (available online:
U.S. vessels that fish with troll gear in the Pacific Ocean can be described as part of the North Pacific albacore troll fishery and the South Pacific albacore troll fishery. As of November 2, 2015, there are 1,394 vessels with active Pacific Highly Migratory Species permits authorized to use troll gear. An average of 640 West Coast albacore trollers participated in the fishery from 2008 to 2014, with an average ex-vessel revenue of approximately $53,829 per vessel. The North Pacific albacore troll fishery occurs mostly in the IATTC Convention Area from April through November, while the South Pacific albacore troll fishery occurs almost exclusively in the WCPFC Convention Area from November through April.
From 2008 to 2012, and in 2014, fewer than three U.S. West Coast trollers participated in the South Pacific albacore fishery and landed on the West Coast. In 2013, four West Coast trollers
This action will not increase the economic or record keeping and reporting burden on U.S. vessel owners and operators; but rather, the rule is expected to reduce the burden because affected vessels will only be required to follow the measures of one organization (
In addition, this action is not expected to change the typical fishing practices of impacted vessels because the U.S. fisheries affected by this rulemaking occur mostly in the WCPFC Convention Area. In other words, the impacted fisheries are subject to regulations that implement the decisions of the WCPFC at 50 CFR part 300, subpart O, in most of their fishing grounds. Imposing only this set of regulations to vessels fishing inside the Area of Overlap would provide more uniform regulations for these fisheries.
Pursuant to the Regulatory Flexibility Act and the SBA's June 20, 2013, and June 14, 2014, final rules (78 FR 37398 and 79 FR 33647, respectively), this certification was developed for this action using the SBA's revised size standards. NMFS considers all entities subject to this action to be small entities as defined by both the former, lower size standards and the revised size standards. Because each affected vessel is a small business, this proposed action is considered to equally affect all of these small entities in the same manner. Based on the disproportionality and profitability analysis above, the proposed action, if adopted, will not have adverse or disproportional economic impact on these small business entities. Therefore, the proposed action would not have a significant economic impact on a substantial number of small entities. As a result, an Initial Regulatory Flexibility Analysis is not required, and was not prepared for this proposed rule.
Fish, Fisheries, Fishing, Fishing vessels, International organizations, Marine resources, Reporting and recordkeeping requirements, Treaties.
For the reasons set out in the preamble, 50 CFR part 300 is proposed to be amended as follows:
16 U.S.C. 951
(1) for the purpose of section 300.22(b) of this subpart, all waters of the Pacific Ocean within the area bounded by the west coast of the Americas and by 50° N. latitude from the coast of North America to its intersection with 150° W. longitude, then 150° W. longitude to its intersection with 50° S. latitude, and then 50° S. latitude to its intersection with the coast of South America; and
(2) for the purpose of all other sections and paragraphs of this subpart, all waters of the Pacific Ocean within the area bounded by the west coast of the Americas and by 50° N. latitude from the coast of North America to its intersection with 150° W. longitude, then 150° W. longitude to its intersection with 4° S. latitude, then 4° S. to its intersection with 130° W. longitude, then 130° W. longitude to its intersection with 50° S. latitude, and then 50° S. latitude to its intersection with the coast of South America.
The Department of Agriculture has submitted the following information collection requirement(s) to OMB for review and clearance under the Paperwork Reduction Act of 1995, Public Law 104-13. Comments regarding (a) whether the collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility; (b) the accuracy of the agency's estimate of burden including the validity of the methodology and assumptions used; (c) ways to enhance the quality, utility and clarity of the information to be collected; (d) ways to minimize the burden of the 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 should be addressed to: Desk Officer for Agriculture, Office of Information and Regulatory Affairs, Office of Management and Budget (OMB),
Comments regarding these information collections are best assured of having their full affect if received within January 27, 2016. Copies of the submission(s) may be obtained by calling (202) 720-8681.
An agency may not conduct or sponsor a collection of information unless the collection of information displays a currently valid OMB control number and the agency informs potential persons who are to respond to the collection of information that such persons are not required to respond to the collection of information unless it displays a currently valid OMB control number.
United States Commission on Civil Rights.
Notice of Commission Telephonic Business Meeting.
Monday, December 28, 2015, at 10 a.m. EST.
Telephonic Business Meeting.
Mauro Morales, Staff Director at (202) 376-7700.
This business meeting is open to the public by telephone only. The public may listen on the following toll-free number: 1-888-278-8476 with conference ID number 8154942.
On August 19, 2015, the City of Conroe, Texas, grantee of FTZ 84, submitted a notification of proposed production activity to the Foreign-Trade Zones (FTZ) Board on behalf of Bauer Manufacturing Inc., within FTZ 84, in Houston, Texas.
The notification was processed in accordance with the regulations of the FTZ Board (15 CFR part 400), including notice in the
Enforcement and Compliance, International Trade Administration, Department of Commerce.
The Department of Commerce (“the Department”) is conducting an administrative review of the antidumping duty order on crystalline silicon photovoltaic cells, whether or not assembled into modules (“solar cells”), from the People's Republic of China (“PRC”). The period of review (“POR”) is December 1, 2013 through November 30, 2014. The administrative review covers two mandatory respondents, (1) Yingli Energy (China) Company Limited (“Yingli”), and (2) Changzhou Trina Solar Energy Co., Ltd. and Trina Solar (Changzhou) Science & Technology Co., Ltd. (“Trina”). The Department preliminarily finds that both mandatory respondents sold subject merchandise in the United States at prices below normal value (“NV”) during the POR. Interested parties are invited to comment on these preliminary results.
Effective date: December 28, 2015.
Jeff Pedersen and Thomas Martin, AD/CVD Operations, Office IV, Enforcement & Compliance, International Trade Administration, Department of Commerce, 14th Street and Constitution Avenue NW., Washington, DC 20230; telephone: (202) 482-2769 or (202) 482-3936, respectively.
The merchandise covered by the order is crystalline silicon photovoltaic cells, and modules, laminates, and panels, consisting of crystalline silicon photovoltaic cells, whether or not partially or fully assembled into other products, including, but not limited to, modules, laminates, panels and building integrated materials.
Based on an analysis of U.S. Customs and Border Protection (“CBP”) information, and comments provided by a number of companies, the Department preliminarily determines that Jiangsu Sunlink PV Technology Co., Ltd. and Shanghai JA Solar Technology Co., Ltd. each had no shipments during the POR. For additional information regarding this determination,
Consistent with an announced refinement to its assessment practice in non-market economy (“NME”) cases, the Department is not rescinding this review, in part, but intends to complete the review with respect to the companies for which it has preliminarily found no shipments and issue appropriate instructions to CBP based on the final results of the review.
Based on record evidence, the Department preliminarily finds that the mandatory respondent Yingli is affiliated with the following eight companies pursuant to section 771(33)(F) of the Tariff Act of 1930, as amended (“the Act”): (1) Baoding Tianwei Yingli New Energy Resources Co., Ltd.; (2) Tianjin Yingli New Energy Resources Co., Ltd.; (3) Hengshui Yingli New Energy Resources Co., Ltd.; (4) Lixian Yingli New Energy Resources Co., Ltd.; (5) Baoding Jiasheng Photovoltaic Technology Co., Ltd.; (6) Beijing Tianneng Yingli New Energy Resources Co., Ltd.; (7) Hainan Yingli New Energy Resources Co., Ltd.; (8) Shenzhen Yingli New Energy Resources Co., Ltd. Furthermore, the Department preliminarily finds that the mandatory respondent Trina is affiliated with the following four companies pursuant to section 771(33)(F) of the Act: (1) Yancheng Trina Solar Energy Technology Co., Ltd.; (2) Changzhou Trina Solar Yabang Energy Co., Ltd.; (3) Turpan Trina Solar Energy Co., Ltd.; (4) Hubei Trina Solar Energy Co., Ltd. In addition, based on the information presented in this review, we preliminarily find that each of the mandatory respondents and their affiliates should be treated, respectively, as a single entity for the purposes of this review pursuant to 19 CFR 351.401(f). For additional information,
Section 776(a) of the Act provides that the Department shall apply FA if (1) necessary information is not on the record, or (2) an interested party or any other person (A) withholds information that has been requested, (B) fails to provide information within the deadlines established, or in the form and manner requested by the Department, subject to subsections (c)(1) and (e) of section 782 of the Act, (C) significantly impedes a proceeding, or (D) provides information that cannot be verified as provided by section 782(i) of the Act.
Section 776(b) of the Act further provides that the Department may use an adverse inference in applying FA (
Yingli was unable to obtain factor of production (“FOP”) data from its unaffiliated processors and its unaffiliated suppliers of solar cells. Pursuant to section 776(a) of the Act, the Department finds that it is appropriate to use FA in valuing the missing FOP data. For details regarding these determinations,
Trina was also unable to obtain FOPs from all but one of its unaffiliated toll processors and its unaffiliated suppliers of solar cells. Because the unreported FOPs for solar cells represented a significant quantity of missing information, the Department subsequently issued a questionnaire to the largest five of Trina's suppliers of solar cells, by quantity. In response, these suppliers stated that they would not respond to the Department's questionnaire. Because necessary information is not available on the record, and in accordance with section 776(a)(1) of the Act, the Department is applying FA with respect to the FOPs from the unaffiliated tollers. However, we have determined that it is appropriate to apply AFA, pursuant to section 776(b) of the Act, to the unreported FOPs for purchased solar cells. For details regarding this determination,
The Department preliminarily determines that information placed on the record by the mandatory respondents Trina and Yingli, as well as by 15 other separate rate applicants, demonstrates that these companies are entitled to separate rate status. For additional information, see the Preliminary Decision Memorandum.
The statute and the Department's regulations do not address the establishment of a rate to be applied to respondents not selected for individual examination when the Department limits its examination in an administrative review pursuant to section 777A(c)(2)(B) of the Act. Generally, the Department looks to section 735(c)(5) of the Act, which provides instructions for calculating the all-others rate in an investigation, for guidance when calculating the rate for respondents which we did not individually examine in an administrative review. Section 735(c)(5)(A) of the Act articulates a preference that we not calculate an all-others rate using rates which are zero,
The Department's change in policy regarding conditional review of the PRC-wide entity applies to this administrative review.
The Department conducted this review in accordance with section 751(a)(1)(B) of the Act. The Department calculated constructed export prices in
For a full description of the methodology underlying the preliminary results of this review,
The Department preliminarily determines that the following weighted-average dumping margins exist for the POR:
The Department intends to disclose to parties the calculations performed for these preliminary results of review within five days of the date of publication of this notice in the
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, within 30 days after the date of publication of this notice.
All submissions, with limited exceptions, must be filed electronically using ACCESS.
Unless otherwise extended, the Department 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, pursuant to section 751(a)(3)(A) of the Act.
Upon issuance of the final results of this review, the Department will determine, and CBP shall assess, antidumping duties on all appropriate entries covered by this review.
On October 24, 2011, the Department announced a refinement to its assessment practice in NME antidumping duty proceedings.
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, where applicable.
The Department will instruct CBP to require a cash deposit for antidumping duties equal to the weighted-average amount by which the normal value exceeds U.S. price. 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 the PRC entered, or withdrawn from warehouse, for consumption on or after the publication date of this notice, as provided by section 751(a)(2)(C) of the Act: (1) For the exporters listed above, the cash deposit rate will be equal to the weighted-average dumping margin established in the final results of this review (except, if the 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 and/or countervailing duties prior to liquidation of the relevant entries during this POR. Failure to comply with this requirement could result in the Department's presumption that reimbursement of antidumping duties and/or countervailing duties has occurred, and the subsequent assessment of double antidumping duties and/or increase 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 351.213 and 351.221(b)(4).
Enforcement and Compliance, International Trade Administration, Department of Commerce
The Department of Commerce (the Department) preliminarily determines that countervailable subsidies are being provided to producers and exporters of heavy walled rectangular welded carbon steel pipes and tubes (HWR pipes and tubes) from the Republic of Turkey (Turkey). The period of investigation is January 1, 2014, through December 31, 2014. Interested parties are invited to comment on this preliminary determination.
Effective Date: December 28, 2015.
Brian Smith or Reza Karamloo, Office II, AD/CVD Operations, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue NW., Washington, DC 20230; telephone: (202) 482-1766 or (202) 482-4470, respectively.
On the same day the Department initiated this CVD investigation, the Department also initiated AD investigations of HWR pipes and tubes from the Republic of Korea, Mexico, and Turkey.
The products covered by this investigation are HWR pipes and tubes from Turkey. For a full description of the scope of this investigation,
We did not receive any comments concerning the scope of this investigation.
The Department is conducting this CVD investigation in accordance with section 701 of the Act. For each of the subsidy programs found countervailable, we preliminarily determine that there is a subsidy (
The Preliminary Decision Memorandum is a public document and is on file electronically via Enforcement and Compliance's Antidumping and Countervailing Duty Centralized Electronic Service System (ACCESS). ACCESS is available to registered users at
In accordance with section 703(d)(1)(A)(i) of the Act, we calculated a CVD rate for each individually-investigated producer/exporter of the subject merchandise. For companies not individually investigated, we calculated an “all-others” rate as described below. We preliminarily determine the countervailable subsidy rates to be:
In accordance with sections 703(d)(1)(B) and (2) of the Act, we are directing U.S. Customs and Border Protection to suspend liquidation of all entries of HWR pipes and tubes from Turkey that are entered, or withdrawn from warehouse, for consumption on or after the date of the publication of this notice in the
In accordance with sections 703(d) and 705(c)(5)(A) of the Act, for companies not investigated, we apply an “all-others” rate, which is normally calculated by weighting the subsidy rates of the individual companies selected as respondents by those companies' exports of the subject merchandise to the United States.
As provided in section 782(i)(1) of the Act, we intend to verify the information submitted by the respondents prior to making our final determination.
In accordance with section 703(f) of the Act, we will notify the U.S. International Trade Commission (ITC) of our determination. In addition, we are making available to the ITC all non-privileged and non-proprietary information relating to this investigation. We will allow the ITC access to all privileged and business proprietary information in our files, provided the ITC confirms that it will not disclose such information, either publicly or under an administrative protective order, without the written consent of the Assistant Secretary for Enforcement and Compliance.
In accordance with section 705(b)(2) of the Act, if our final determination is affirmative, the ITC will make its final determination within 45 days after the Department makes its final determination.
The Department intends to disclose to interested parties the calculations performed in connection with this preliminary determination within five days of its public announcement.
This determination is issued and published pursuant to sections 703(f) and 777(i) of the Act and 19 CFR 351.205(c).
The products covered by this investigation are certain heavy walled rectangular welded steel pipes and tubes of rectangular (including square) cross section, having a nominal wall thickness of not less than 4 mm. The merchandise includes, but is not limited to, the American Society for Testing and Materials (ASTM) A-500, grade B specifications, or comparable domestic or foreign specifications.
Included products are those in which: (1) Iron predominates, by weight, over each of the other contained elements; (2) the carbon content is 2 percent or less, by weight; and (3) none of the elements below exceeds the quantity, by weight, respectively indicated:
• 2.50 percent of manganese, or
• 3.30 percent of silicon, or
• 1.50 percent of copper, or
• 1.50 percent of aluminum, or
• 1.25 percent of chromium, or
• 0.30 percent of cobalt, or
• 0.40 percent of lead, or
• 2.0 percent of nickel, or
• 0.30 percent of tungsten, or
• 0.80 percent of molybdenum, or
• 0.10 percent of niobium (also called columbium), or
• 0.30 percent of vanadium, or
• 0.30 percent of zirconium.
The subject merchandise is currently provided for in item 7306.61.1000 of the Harmonized Tariff Schedule of the United States (HTSUS). Subject merchandise may also enter under HTSUS 7306.61.3000. While the HTSUS subheadings and ASTM specification are provided for convenience and customs purposes, the written description of the scope of this investigation is dispositive.
Enforcement and Compliance, International Trade Administration, Department of Commerce
Based on affirmative final determinations by the Department of Commerce (“Department”) and the International Trade Commission (“ITC”), the Department is issuing antidumping duty (“AD”) and countervailing duty (“CVD”) orders on melamine from the People's Republic of China (“PRC”).
James Terpstra at (202) 482-3965 or Brendan Quinn at (202) 482-5848, AD/CVD Operations, Office III, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue NW., Washington, DC 20230.
On November 6, 2015, the Department published its final affirmative determination of sales at less than fair value (“LTFV”) and its final affirmative determination that countervailable subsidies are being provided to producers and exporters of melamine from the PRC.
The merchandise subject to these orders is melamine (Chemical Abstracts Service (“CAS”) registry number 108-78-01, molecular formula C
The subject merchandise is provided for in subheading 2933.61.0000 of the Harmonized Tariff Schedule of the United States (“HTSUS”). Although the HTSUS subheading and CAS registry number are provided for convenience and customs purposes, the written description of the scope is dispositive.
In accordance with sections 735(b)(1)(A)(i) and 735(d) of the Act, the ITC has notified the Department of its final determination in this investigation, in which it found that imports of melamine from the PRC are materially injuring a U.S. industry. Therefore, in accordance with section 735(c)(2) of the Act, we are publishing this antidumping duty order.
As a result of the ITC's final determination, in accordance with section 736(a)(1) of the Act, the Department will direct U.S. Customs and Border Protection (“CBP”) to assess, upon further instruction by the Department, antidumping duties equal to the amount by which the normal value of the merchandise exceeds the export price (or constructed export price) of the merchandise, for all relevant entries of melamine from the PRC. These antidumping duties will be assessed on unliquidated entries from the PRC entered, or withdrawn from warehouse, for consumption on or after June 18, 2015, the date on which the Department published the
In accordance with section 735(c)(1)(B) of the Act, we will instruct CBP to continue to suspend liquidation on entries of subject merchandise from the PRC. We will also instruct CBP to require cash deposits equal to the estimated amount by which the normal value exceeds the U.S. price as indicated in the chart below, adjusted where appropriate for export subsidies.
Accordingly, effective on the date of publication of the ITC's final affirmative injury determination, CBP will require, at the same time as importers would normally deposit estimated duties on this subject merchandise, a cash deposit equal to the estimated weighted-average antidumping duty margins, adjusted where appropriate for export subsidies, as discussed above.
Section 733(d) of the Act states that instructions issued pursuant to an affirmative preliminary determination may not remain in effect for more than four months except where exporters representing a significant proportion of exports of the subject merchandise request the Department to extend that four-month period to no more than six months. At the request of exporters that accounted for a significant proportion of exports of melamine from the PRC, we extended the four-month period to no more than six months.
Therefore, in accordance with section 733(d) of the Act and our practice, we will instruct CBP to terminate the suspension of liquidation and to liquidate, without regard to antidumping duties, unliquidated entries of melamine from the PRC entered, or withdrawn from warehouse, for consumption on or after December 15, 2015, the date the provisional measures expired, until and through the day preceding the date of publication of the ITC's final injury determination in the
The Department determines that the estimated final weighted-average dumping margin is as follows:
In accordance
Pursuant to section 706(a) of the Act, the Department will direct CBP to assess, upon further instruction by the Department, countervailing duties on unliquidated entries of melamine entered, or withdrawn from warehouse, for consumption on or after April 20, 2015, the date on which the Department published its affirmative preliminary countervailing duty determination in the
In accordance with Section 703(d) of the Act, the provisional measures period for the countervailing duty investigation ended on August 18, 2015, and CBP was instructed to terminate the suspension of liquidation and to liquidate, without regard to countervailing duties, unliquidated entries of melamine from the PRC, entered, or withdrawn from warehouse, for consumption on or after August 18, 2015, the date the provisional measures expired, until and through the day preceding the date of publication of the ITC's final injury determination in the
In accordance with section 706 of the Act, the Department will direct CBP to reinstitute suspension of liquidation, effective on the date of publication of the ITC's notice of final determination in the
This notice constitutes the AD and CVD orders with respect to melamine from the PRC pursuant to sections 736(a) and 706(a) of the Act. Interested parties can find an updated list of orders currently in effect by either visiting
These orders are published in accordance with sections 706(a), 736(a), and 777(i) of the Act, and 19 CFR 351.211(b).
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice; public meeting.
The Mid-Atlantic Fishery Management Council's (MAFMC) Ecosystem and Ocean Planning Advisory Panel (AP) will hold a public webinar meeting.
The meeting will be held on Monday, January 11, 2016 from 1 p.m. to 5 p.m. For agenda details, see
The meeting will be held via webinar with a with a telephone-only connection option. Connection details are available at:
Christopher M. Moore, Ph.D., Executive Director, Mid-Atlantic Fishery Management Council; telephone: (302) 526-5255.
The MAFMC's Ecosystem and Ocean Planning AP will meet to provide input on the development of the Council's Unmanaged Forage Omnibus Amendment. This amendment will prohibit the development of new, or expansion of existing, directed fisheries on unmanaged forage species in Mid-Atlantic Federal waters until adequate scientific information is available to promote ecosystem sustainability. The webinar will include a discussion of development of the amendment to date. The AP will then be asked to provide input on preliminary management alternatives, a draft list of unmanaged forage species to be addressed in the amendment, and other aspects of the amendment.
The meeting is physically accessible to people with disabilities. Requests for sign language interpretation or other auxiliary aid should be directed to M. Jan Saunders, (302) 526-5251, at least 5 days prior to the meeting date.
The Department of Commerce will submit to the Office of Management and Budget (OMB) for clearance the following proposal for collection of information under the provisions of the Paperwork Reduction Act (44 U.S.C. Chapter 35).
Amendment 80 to the Fishery Management Plan for Groundfish of the Bering Sea and Aleutian Islands Management Area allocates several Bering Sea and Aleutian Islands Management Area non-pollock trawl groundfish fisheries among fishing sectors, established a limited access privilege program, and facilitated the formation of harvesting cooperatives in the non-American Fisheries Act (non-AFA) trawl catcher/processor sector. The Amendment 80 Fishery Management Plan applies retention standards on an aggregate basis to all activities of a cooperative, allowing participants within the cooperative to coordinate fishing and retention practices across the cooperative to meet the retention requirements.
This information collection request may be viewed at reginfo.gov. Follow the instructions to view Department of Commerce collections currently under review by OMB.
Written comments and recommendations for the proposed information collection should be sent within 30 days of publication of this notice to
The Department of Commerce will submit to the Office of Management and Budget (OMB) for clearance the following proposal for collection of information under the provisions of the Paperwork Reduction Act (44 U.S.C. Chapter 35).
The International Billfish Angler Survey began in 1969 and is an integral part of the Billfish Research Program at the National Oceanic and Atmospheric Administration's (NOAA) Southwest Fisheries Science Center (SWFSC). The survey tracks recreational angler fishing catch and effort for billfish in the Pacific and Indian Oceans in support of the Pacific and Western Pacific Fishery Management Councils, authorized under the Magnuson-Stevens Fishery Conservation and Management and Act (MSA). The data are used by scientists and fishery managers to assist with assessing the status of billfish stocks. The survey is intended for anglers cooperating in the Billfish Program and is entirely voluntary. This survey is specific to recreational anglers fishing for Istiophorid and Xiphiid billfish in the Pacific and Indian Oceans; as such it provides the only estimates of catch per unit of effort for recreational billfish fishing in those areas.
This information collection request may be viewed at reginfo.gov. Follow the instructions to view Department of Commerce collections currently under review by OMB.
Written comments and recommendations for the proposed information collection should be sent within 30 days of publication of this notice to
Consumer Product Safety Commission.
Notice.
In accordance with the requirements of the Paperwork Reduction Act (“PRA”) of 1995 (44 U.S.C. chapter 35), the Consumer Product Safety Commission (“Commission” or “CPSC”) announces that the Commission has submitted to the Office of Management and Budget (“OMB”) a request for extension of approval of a collection of information associated with the CPSC's Safety Standard for Infants Swings (OMB No. 3041-0155). In the
Written comments on this request for extension of approval of information collection requirements should be submitted by January 27, 2016.
Submit comments about this request by email:
For further information contact: Robert H. Squibb, Consumer Product Safety Commission, 4330 East West Highway, Bethesda, MD 20814; (301) 504-7815, or by email to:
CPSC has submitted the following currently approved collection of information to OMB for extension:
Corporation for National and Community Service.
Notice.
The Corporation for National and Community Service (CNCS), as part of its continuing effort to reduce paperwork and respondent burden, conducts a pre-clearance consultation program to provide the general public and federal agencies with an opportunity to comment on proposed and/or continuing collections of information in accordance with the Paperwork Reduction Act of 1995 (PRA95) (44 U.S.C. Sec. 3506(c)(2)(A)). This program helps to ensure that requested data can be provided in the desired format, reporting burden (time and financial resources) is minimized, collection instruments are clearly understood, and the impact of collection requirement on respondents can be properly assessed.
Currently, CNCS is soliciting comments concerning its proposed renewal of the AmeriCorps National Civilian Community Corps (NCCC) Project Sponsor Application. The AmeriCorps NCCC Project Sponsor Application is completed by organizations interested in sponsoring an AmeriCorps NCCC team. The NCCC is a full-time, residential, national service program whose mission is to strengthen communities and develop leaders through team-based national and community service.
A copy of the information collection request can be obtained by contacting the office listed in the
Written comments must be submitted to the individual and office listed in the
You may submit comments, identified by the title of the information collection activity, by any of the following methods:
(1) By mail sent to: Corporation for National and Community Service, National Civilian Community Corps; Attention Barbara Lane, Director of Projects and Partnerships; 1201 New York Avenue NW., Washington, DC 20525.
(2) By hand delivery or by courier to the CNCS mailroom, Room 8100, at the mail address given in paragraph (1) above, between 9:00 a.m. and 4:00 p.m. Eastern Time, Monday through Friday, except Federal holidays.
(3) By fax to: (202) 606-6867, Attention: Barbara Lane, Director of Projects and Partnerships.
(4) Electronically through
Barbara Lane, (202) 606-6867, or by email at
CNCS is particularly interested in comments that:
• Evaluate whether the proposed collection of information is necessary for the proper performance of the functions of CNCS, including whether the information will have practical utility;
• 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;
• Enhance the quality, utility, and clarity of the information to be collected; and
• Minimize the burden of the collection of information on those who are expected to respond, including the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology (
The AmeriCorps NCCC Project Sponsor Application is completed by organizations interested in sponsoring an AmeriCorps NCCC team. Each year, AmeriCorps NCCC engages teams of members in projects in communities across the United States. Service projects, which typically last from six to eight weeks, address critical needs in natural and other disasters, infrastructure improvement, environmental stewardship and conservation, energy conservation, and urban and rural development. Members construct and rehabilitate low-income housing, respond to natural disasters, clean up streams, help communities develop emergency plans, and address other local needs.
CNCS seeks to renew and revise the current application.
The application will be used in the same manner as the existing application. CNCS additionally seeks to continue using the current application until the revised application is approved by OMB. The current application is due to expire on March 31, 2016.
Comments submitted in response to this notice will be summarized and/or included in the request for Office of Management and Budget approval of the information collection request; they will also become a matter of public record.
Corporation for National and Community Service.
Notice.
The Corporation for National and Community Service (hereinafter the “Corporation”), as part of its continuing effort to reduce paperwork and respondent burden, conducts a pre-clearance consultation program to provide the general public and federal agencies with an opportunity to comment on proposed and/or continuing collections of information in accordance with the Paperwork Reduction Act of 1995 (PRA95) (44 U.S.C. 3506(c)(2)(A)). This program helps to ensure that requested data can be provided in the desired format, reporting burden (time and financial resources) is minimized, collection instruments are clearly understood, and the impact of collection requirement on respondents can be properly assessed.
Currently, the Corporation is soliciting comments concerning its
Copies of the information collection request can be obtained by contacting the office listed in the addresses section of this notice.
Written comments must be submitted to the individual and office listed in the
You may submit comments, identified by the title of the information collection activity, by any of the following methods:
(1) By mail sent to: Corporation for National and Community Service National Civilian Community Corps; Attention Barbara Lane, Director Projects and Partnerships, Room 9805; 1201 New York Avenue NW., Washington, DC 20525.
(2) By hand delivery or by courier to the Corporation's mailroom at Room 8100 at the mail address given in paragraph (1) above, between 9:00 a.m. and 4:00 p.m. Monday through Friday, except Federal holidays.
(3) By fax to: (202) 606-3462, Attention: Barbara Lane, Director Projects and Partnerships.
(4) Electronically through
Barbara Lane, (202) 606-6867, or by email at
The Corporation is particularly interested in comments that:
• Evaluate whether the proposed collection of information is necessary for the proper performance of the functions of the Corporation, including whether the information will have practical utility;
• 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;
• Enhance the quality, utility, and clarity of the information to be collected; and
• Minimize the burden of the collection of information on those who are expected to respond, including the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology (
This National Civilian Community Corps Sponsor Survey originally developed this Sponsor Survey to evaluate the program's performance impact on sponsoring organizations and communities. This measurement instrument works to capture outputs and outcomes of the NCCC program on the organizations and communities it serves. This information collection serves as part of an overall AmeriCorps NCCC logic model to help measure the degree to which the program is addressing the statuary areas of national and community needs in a way that strengthens communities and builds leaders. The survey will be administered electronically to all project sponsors after each project is completed.
This is a revision of the information collection request. The NCCC Sponsor Survey consists of between 34 and 37 questions, depending on which responses the respondents specify. All sponsors will receive their survey as a single instrument. For each team on each project, the organization that partnered with AmeriCorps NCCC will receive an individual survey.
Comments submitted in response to this notice will be summarized and/or included in the request for Office of Management and Budget approval of the information collection request; they will also become a matter of public record.
National Guard Bureau, DoD.
Notice to add a new System of Records.
The National Guard Bureau proposes to add a new system of records INGB 013, entitled “LeaveLog”, matches information for each user to that user's military pay account. Once validated, the information collected is used to automate the submission of leave requests, approval and/or disapproval of leave, and submission of leave transactions to military pay systems.
Comments will be accepted on or before January 27, 2016. This proposed action will be effective the day following the end of the comment period unless comments are received which result in a contrary determination.
You may submit comments, identified by docket number and title, by any of the following methods:
* Federal Rulemaking Portal:
* Mail: Department of Defense, Office of the Deputy Chief Management Officer, Directorate of Oversight and Compliance, Regulatory and Audit
Instructions: All submissions received must include the agency name and docket number for this
Ms. Jennifer Nikolaisen, 111 South George Mason Drive, AH2, Arlington, VA 22204-1373 or telephone: (703) 601-6884.
The National Guard Bureau notices for systems of records subject to the Privacy Act of 1974 (5 U.S.C. 552a), as amended, have been published in the
LeaveLog
National Guard Bureau, Human Resources Manpower, 111 South George Mason Drive, Arlington, Virginia, 22204-1382.
National Guard Service Members in an active duty status based on an individual order for active duty status. This includes Army National Guard and Air National Guard service members.
Full name, military rank, organization, type of leave, leave start and stop dates, address while on leave, phone number while on leave, leave balance, email address, and Social Security Number (SSN).
10 U.S.C. 10502, Chief, National Guard Bureau; Army Regulation 600-8-10, Leaves and Passes; Air Force Instruction 36-3003, Military Leave Program; and E.O. 9397 (SSN), as amended.
The system matches information for each user to access their military pay account. Once validated, the information collected is used to automate the submission of leave requests, approval and/or disapproval of leave, and submission of leave transactions to military pay systems.
In addition to those disclosures generally permitted under 5 U.S.C. 552a(b) of the Privacy Act of 1974, as amended, the records contained therein may specifically be disclosed outside the DoD as a routine use pursuant to 5 U.S.C. 552a(b)(3) as follows:
The DoD Blanket Routine Uses set forth at the beginning of the National Guard Bureau's compilation of systems of records notices may apply to this system. The complete list of DoD blanket routine uses can be found online at:
All records are electronic and are stored in a database with encryption for data at rest.
Records are retrieved using the SSN, first and last name of the individual, or the organization to which the individual belongs.
Records are protected from unauthorized disclosure by storage in areas accessible only to authorized personnel within buildings secured by locks or guards. Access to data by the users is restricted by the Web application itself and limited by user identification or authentication. User roles define user privileges and functions within the application. In order to access the system, users must have a DoD Common Access Card (CAC) which contains a digital certificate and validates their identity.
Disposition pending (treat records as permanent until the National Archives and Records Administration has approved the retention and disposition schedule.
National Guard Bureau, Human Resources Manpower, 111 South George Mason Drive (2 East), Arlington, VA 22204-1382.
Individuals seeking to determine whether information about themselves is contained in this system can write to the National Guard Bureau, Human Capital Management Office, 111 South George Mason Drive (2 East), Arlington, VA 22204-1382.
Written requests must include his or her full name, period of duty, and full mailing address in order to receive a response.
In addition, the requester must provide a notarized statement or an unsworn declaration made in accordance with 28 U.S.C. 1746, in the following format:
If executed outside the United States: `I declare (or certify, verify, or state) under penalty of perjury under the laws of the United States of America that the foregoing is true and correct. Executed on (date). (Signature)'.
If executed within the United States, its territories, possessions, or commonwealths: `I declare (or certify, verify, or state) under penalty of perjury that the foregoing is true and correct. Executed on (date). (Signature)'.
Individuals seeking access to records about themselves contained in this system can write to the National Guard Bureau, Human Capital Management Office, 111 South George Mason Drive (2 East), Arlington, VA 22204-1382.
Written requests must include his or her full name, period of duty, and full mailing address in order to receive a response.
In addition, the requester must provide a notarized statement or an unsworn declaration made in accordance with 28 U.S.C. 1746, in the following format:
If executed outside the United States: `I declare (or certify, verify, or state) under penalty of perjury under the laws of the United States of America that the
If executed within the United States, its territories, possessions, or commonwealths: `I declare (or certify, verify, or state) under penalty of perjury that the foregoing is true and correct. Executed on (date). (Signature)'.
The National Guard Bureau rules for accessing records, for contesting contents, and appealing initial agency determinations are published at 32 CFR part 329 or may be obtained from the system manager.
Information is obtained from the individual, the Defense Joint Military Pay System—Active Component (DJMS-AC), and the Defense Joint Military Pay System—Reserve Component (DJMS-RC).
None.
DoD.
Meeting notice.
The Department of Defense is publishing this notice to announce the following Federal advisory committee meeting of the Defense Business Board. This meeting is open to the public.
The public meeting of the Defense Business Board (“the Board”) will be held on Thursday, January 21, 2016. The meeting will begin at 9:30 a.m. and end at 11:00 a.m. (Escort required; see guidance in the
Room 3E863 in the Pentagon, Washington, DC (Escort required; see guidance in the
The Board's Designated Federal Officer (DFO) is Ms. Roma Laster, Defense Business Board, 1155 Defense Pentagon, Room 5B1088A, Washington, DC 20301-1155,
This meeting is being held under the provisions of the Federal Advisory Committee Act (FACA) of 1972 (5 U.S.C., Appendix, as amended), the Government in the Sunshine Act of 1976 (5 U.S.C. 552b, as amended), and 41 CFR 102-3.140.
Purpose of the Meeting: The Board will review the findings and recommendations from the Task Groups on
The mission of the Board is to examine and advise the Secretary of Defense on overall DoD management and governance. The Board provides independent advice which reflects an outside private sector perspective on proven and effective best business practices that can be applied to the DoD.
Availability of Materials for the Meeting: A copy of the agenda and the terms of reference for each Task Group study may be obtained from the Board's Web site at
Written public comments are strongly encouraged.
Public's Accessibility to the Meeting: Pursuant to FACA and 41 CFR 102-3.140, this meeting is open to the public. Seating is limited and is on a first-come basis. All members of the public who wish to attend the public meeting must contact Mr. Steven Cruddas at the number listed in the
Special Accommodations: Individuals requiring special accommodations to access the public meeting should contact Mr. Cruddas at least five (5) business days prior to the meeting so that appropriate arrangements can be made.
Pursuant to 41 CFR 102-3.105(j) and 102-3.140, and section 10(a)(3) of FACA, the public or interested organizations may submit written comments to the Board about its mission and topics pertaining to this public meeting.
Written comments should be received by the DFO at least five (5) business days prior to the meeting date so that the comments may be made available to the Board for their consideration prior to the meeting. Written comments should be submitted via email to the email address for public comments given in the
U.S. Department of Energy.
Notice and Request for Comments
The Department of Energy (DOE), pursuant to the Paperwork Reduction Act of 1995, intends to extend for three years, an information collection request with the Office of
Comments regarding this proposed information collection must be received on or before February 26, 2016. If you anticipate difficulty in submitting comments within that period, contact the person listed below as soon as possible.
Written comments may be sent to Regina Cano U.S. Department of Energy, Office of Corporate Security Strategy, Analysis and Special Operations (AU-1.2), 1000 Independence Ave SW., Washington, DC 20585, telephone at (202) 586-7079, by fax at (202) 586-3333, or by email at
Requests for additional information or copies of the information collection instrument and instructions should be directed to the person listed above in
This information collection request contains: (1) OMB No. 1910-5122; (2) Information Collection Request Title: Human Reliability Program; (3) Type of Review: renewal; (4) Purpose: This collection provides for DOE management to ensure that individuals who occupy HRP positions meet program standards of reliability and physical and mental suitability; (5) Annual Estimated Number of Respondents: 43,960; (6) Annual Estimated Number of Total Responses: 43,999; (7) Annual Estimated Number of Burden Hours: 3,819; (8) Annual Estimated Reporting and Recordkeeping Cost Burden; $332,253 (9) Response Obligation: Mandatory.
42 U.S.C. 2165; 42 U.S.C. 2201; 42 U.S.C. 5814-5815; 42 U.S.C. 7101
U.S. Department of Energy.
Submission of Office of Management and Budget (OMB) review; comment request.
The Department of Energy (DOE) has submitted an information collection request to the OMB for an extension under the provisions of the Paperwork Reduction Act of 1995. The information collection requests a three-year extension of its Environment, Safety and Health reporting requirements, OMB Control Number 1910-0300. This information collection request covers information necessary for the DOE to exercise management oversight and control over Management and Operating (M&O) contractors of the DOE's Government-Owned Contractor-Operated (GOCO) facilities, and offsite contractors. The contractor management oversight and control function concerns the ways in which the DOE's contractors provide goods and services for DOE organizations and activities in accordance with the terms of their contract(s); the applicable statutory, regulatory and mission support requirements of the DOE; and regulations in the functional area covered in this request.
Comments regarding this collection must be received on or before January 27, 2016. 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, please advise the OMB Desk Officer of your intention to make a submission as soon as possible. The Desk Officer may be telephoned at 202-395-4650.
Written comments should be sent to the DOE Desk Officer, Office of Information and Regulatory Affairs, Office of Management and Budget, New Executive Office Building, Room 10102, 735 17th Street, NW., Washington, DC 20503 and to Sandra Dentinger, AU-70, Germantown Building, U.S. Department of Energy, 1000 Independence Ave., SW., Washington, DC 20585-1290, by fax at 301-903-2194 or by email at
Requests for additional information or copies of the information collection instrument and instructions should be directed at the addresses listed above in
The information collection request contains the following: (1) OMB No: 1910-0300; (2) Information Collection Request Title: Environment, Safety and Health; (3) Type of Review: renewal; (4) Purpose: The collections are used by DOE to exercise management oversight and control over its contractors in the ways in which the DOE's contractors provide goods and services for DOE organizations and activities in accordance with the terms of their contract(s); the applicable statutory, regulatory and mission support requirements of the Department. The collections are: Computerized Accident/Incident Reporting System (CAIRS); Occurrence Reporting and Processing System (ORPS); Noncompliance Tracking System (NTS); Radiation Exposure Monitoring System (REMS); Annual Fire Protection Summary Application; Safety Basis Information System; and Lessons Learned System;
Section 641 of the Department of Energy Organization Act, codified at 42 U.S.C. 7251, and the following additional authorities:
Computerized Accident/Incident Reporting System (CAIRS): DOE Order 231.1B (June 27, 2011).
Occurrence Reporting and Processing System (ORPS): DOE Order 232.2 (August 30, 2011).
Noncompliance Tracking System (NTS): 10 CFR part 820; 10 CFR part 851.
Radiation Exposure Monitoring System (REMS): 10 CFR part 835; DOE Order 231.1B (June 27, 2011).
Annual Fire Protection Summary Application: DOE Order 231.1B (June 27, 2011).
Safety Basis Information System: 10 CFR part 830; DOE O 231.1B (June 27, 2011).
Lessons Learned System: DOE Order 210.2A (April 8, 2011).
This is a supplemental notice in the above-referenced proceeding Shelby County Energy Center, LLC's application for market-based rate authority, with an accompanying rate tariff, noting that such application includes a request for blanket authorization, under 18 CFR part 34, of future issuances of securities and assumptions of liability.
Any person desiring to intervene or to protest should file with the Federal Energy Regulatory Commission, 888 First Street NE., Washington, DC 20426, in accordance with Rules 211 and 214 of the Commission's Rules of Practice and Procedure (18 CFR 385.211 and 385.214). Anyone filing a motion to intervene or protest must serve a copy of that document on the Applicant.
Notice is hereby given that the deadline for filing protests with regard to the applicant's request for blanket authorization, under 18 CFR part 34, of future issuances of securities and assumptions of liability, is January 11, 2016.
The Commission encourages electronic submission of protests and interventions in lieu of paper, using the FERC Online links at
Persons unable to file electronically should submit an original and 5 copies of the intervention or protest to the Federal Energy Regulatory Commission, 888 First Street NE., Washington, DC 20426.
The filings in the above-referenced proceeding are accessible in the Commission's eLibrary system by clicking on the appropriate link in the above list. They are also available for electronic review in the Commission's Public Reference Room in Washington, DC. There is an eSubscription link on the Web site that enables subscribers to receive email notification when a document is added to a subscribed docket(s). For assistance with any FERC Online service, please email
Take notice that on December 10, 2015 Columbia Gas Transmission, LLC (Columbia Gas), 5151 San Felipe, Suite 2500, Houston, Texas 77056 filed a prior notice request pursuant to sections 157.205 and 157.210 of the Commission's regulations under the Natural Gas Act for authorization to convert existing compressor units from base load to standby mode at the Cleveland Compressor Station, located in Upshur County, WV and the Files Creek Compressor Station, located in Randolph County, WV. Columbia Gas states that there will be no impact on Columbia's overall capacity and certified horsepower, all as more fully set forth in the application which is on file with the Commission and open to public inspection. The filing may also be viewed on the web at
Any questions regarding this Application should be directed to Tyler R. Brown, Senior Counsel, Columbia Gas Transmission, LLC, 5151 San Felipe, Suite 2500, Houston, Texas 77056, by calling (713) 386-3797, or by email at
Any person may, within 60 days after the issuance of the instant notice by the Commission, file pursuant to Rule 214 of the Commission's Procedural Rules (18 CFR 385.214) a motion to intervene or notice of intervention. Any person filing to intervene or the Commission's staff may, pursuant to section 157.205 of the Commission's Regulations under the NGA (18 CFR 157.205) file a protest to the request. If no protest is filed within the time allowed therefore, the proposed activity shall be deemed to be authorized effective the day after the time allowed for protest. If a protest is filed and not withdrawn within 30 days after the time allowed for filing a protest, the instant request shall be treated as an application for authorization pursuant to section 7 of the NGA.
Pursuant to section 157.9 of the Commission's rules, 18 CFR 157.9, within 90 days of this Notice the Commission staff will either: complete its environmental assessment (EA) and place it into the Commission's public record (eLibrary) for this proceeding; or issue a Notice of Schedule for Environmental Review. If a Notice of Schedule for Environmental Review is issued, it will indicate, among other milestones, the anticipated date for the Commission staff's issuance of the final environmental impact statement (FEIS) or EA for this proposal. The filing of the EA in the Commission's public record
Persons who wish to comment only on the environmental review of this project should submit an original and two copies of their comments to the Secretary of the Commission. Environmental commenter's will be placed on the Commission's environmental mailing list, will receive copies of the environmental documents, and will be notified of meetings associated with the Commission's environmental review process. Environmental commenter's will not be required to serve copies of filed documents on all other parties. However, the non-party commentary, will not receive copies of all documents filed by other parties or issued by the Commission (except for the mailing of environmental documents issued by the Commission) and will not have the right to seek court review of the Commission's final order.
The Commission strongly encourages electronic filings of comments, protests, and interventions via the internet in lieu of paper. See 18 CFR 385.2001(a) (1) (iii) and the instructions on the Commission's Web site (
Take notice that the Commission received the following electric rate filings:
The filings are accessible in the Commission's eLibrary system by clicking on the links or querying the docket number.
Any person desiring to intervene or protest in any of the above proceedings must file in accordance with Rules 211 and 214 of the Commission's Regulations (18 CFR 385.211 and § 385.214) 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:
Take notice that on December 16, 2015, New York Independent System Operator, Inc. submits a compliance filing in response to the November 16, 2015 Data Request.
Any person desiring to intervene or to protest this filing must file in accordance with Rules 211 and 214 of the Commission's Rules of Practice and Procedure (18 CFR 385.211, 385.214). Protests will be considered by the Commission in determining the appropriate action to be taken, but will not serve to make protestants parties to the proceeding. Any person wishing to become a party must file a notice of intervention or motion to intervene, as appropriate. Such notices, motions, or protests must be filed on or before the comment date. On or before the comment date, it is not necessary to serve motions to intervene or protests on persons other than the Applicant.
The Commission encourages electronic submission of protests and interventions in lieu of paper using the “eFiling” link at
This filing is accessible on-line at
Comment Date: 5:00 p.m. Eastern Time on January 11, 2016.
Take notice that the Commission has received the following Natural Gas Pipeline Rate and Refund Report filings:
The filings are accessible in the Commission's eLibrary system by clicking on the links or querying the docket number.
Any person desiring to intervene or protest in any of the above proceedings must file in accordance with Rules 211 and 214 of the Commission's Regulations (18 CFR 385.211 and § 385.214) 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:
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 by
Any person desiring to intervene or protest in any of the above proceedings must file in accordance with Rules 211 and 214 of the Commission's Regulations (18 CFR 385.211 and § 385.214) 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:
Take notice that on December 9, 2015, Transcontinental Gas Pipe Line Company, LLC (Transco), P.O. Box 1396, Houston, Texas 7725, filed an application pursuant to section 7(b) of the Natural Gas Act (NGA) requesting an order authorizing the abandonment by sale to UGI Mt. Bethel Pipeline Company, LLC of the Allentown Lateral, a 12.5 miles 12-inch-diameter pipeline and related appurtenances located in Northampton County, Pennsylvania.
Additionally, on December 9, 2015, UGI Mt. Bethel Pipeline Company, LLC (UGI), 5665 Leesport Ave, Reading, Pennsylvania 19605, filed an application pursuant to Section 7(c) of the NGA requesting a certificates of public convenience and necessity authorizing UGI to acquire and operate the Allentown Lateral, located in Northampton County, Pennsylvania, which are currently operated by Transco, and to provide open-access transportation services, with pre-granted abandonment approval. UGI's will continue to operate the facilities under open access certificates. UGI is also requesting approval for its proposed initial recourse rates for transportation service and for its pro forma tariff, which includes the authority to enter into negotiated rate agreements, all as more fully set forth in the application which is on file with the Commission and open to public inspection. The filing may also be viewed on the Web at
Any questions concerning this application may be directed to Ingrid Germany, Regulatory Analyst Lead, Transco Rates & Regulatory, P.O. Box 1396, Houston, Texas 77251 at (713) 215-4015, and/or to Frank H. Markle, Senior Counsel, UGI Corporation, 460 North Gulph Road, King of Prussia, PA 19482 at (610) 768-3625.
Pursuant to section 157.9 of the Commission's rules, 18 CFR 157.9, within 90 days of this Notice the Commission staff will either complete its environmental assessment (EA) and place it into the Commission's public record (eLibrary) for this proceeding; or issue a Notice of Schedule for Environmental Review. If a Notice of Schedule for Environmental Review is issued, it will indicate, among other milestones, the anticipated date for the Commission staff's issuance of the final environmental impact statement (FEIS) or EA for this proposal. The filing of the EA in the Commission's public record for this proceeding or the issuance of a Notice of Schedule for Environmental Review will serve to notify federal and state agencies of the timing for the completion of all necessary reviews, and the subsequent need to complete all federal authorizations within 90 days of the date of issuance of the Commission staff's FEIS or EA.
There are two ways to become involved in the Commission's review of this project. First, any person wishing to obtain legal status by becoming a party to the proceedings for this project should, on or before the comment date stated below, file with the Federal Energy Regulatory Commission, 888 First Street NE., Washington, DC 20426, a motion to intervene in accordance with the requirements of the Commission's Rules of Practice and Procedure (18 CFR 385.214 or 385.211) and the Regulations under the NGA (18 CFR 157.10). A person obtaining party status will be placed on the service list maintained by the Secretary of the Commission and will receive copies of all documents filed by the applicant and by all other parties. A party must submit original and 7 copies of filings made with the Commission and must mail a copy to the applicant and to every other party in the proceeding. Only parties to the proceeding can ask for court review of Commission orders in the proceeding.
However, a person does not have to intervene in order to have comments considered. The second way to participate is by filing with the Secretary of the Commission, as soon as possible, an original and two copies of comments in support of or in opposition to this project. The Commission will consider these comments in determining the appropriate action to be taken, but the filing of a comment alone will not serve to make the filer a party to the proceeding. The Commission's rules require that persons filing comments in opposition to the project provide copies of their protests only to the party or parties directly involved in the protest.
Persons who wish to comment only on the environmental review of this project should submit an original and two copies of their comments to the Secretary of the Commission. Environmental commentors will be placed on the Commission's environmental mailing list, will receive copies of the environmental documents, and will be notified of meetings associated with the Commission's environmental review process. Environmental commentors will not be required to serve copies of filed documents on all other parties. However, the non-party commentors will not receive copies of all documents filed by other parties or issued by the Commission (except for the mailing of environmental documents issued by the Commission) and will not have the right to seek court review of the Commission's final order.
The Commission strongly encourages electronic filings of comments, protests and interventions in lieu of paper using the “eFiling” link at
This filing is accessible on-line at
Comment Date: 5:00 p.m. Eastern Time on January 11, 2016.
Take notice that the Commission has received the following Natural Gas Pipeline Rate and Refund Report filings:
The filings are accessible in the Commission's eLibrary system by clicking on the links or querying the docket number.
Any person desiring to intervene or protest in any of the above proceedings must file in accordance with Rules 211 and 214 of the Commission's Regulations (18 CFR 385.211 and § 385.214) 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:
Environmental Protection Agency (EPA).
Notice.
The Environmental Protection Agency has submitted an information collection request (ICR), “National Pollutant Discharge Elimination System (NPDES) Program (Renewal)” (EPA ICR No. 0229.21, OMB Control No. 2040-0004) to the Office of Management and Budget (OMB) for review and approval in accordance with the Paperwork Reduction Act (44 U.S.C. 3501
Additional comments may be submitted on or before January 27, 2016.
Submit your comments, referencing Docket ID Number EPA-HQ-OW-2008-0719, to (1) EPA online using
EPA's policy is that all comments received will be included in the public docket without change including any personal information provided, unless the comment includes profanity, threats, information claimed to be Confidential Business Information (CBI) or other information whose disclosure is restricted by statute.
Amelia Letnes, Office of Wastewater Management, Mail Code 4203M, Environmental Protection Agency, 1200 Pennsylvania Ave. NW., Washington, DC 20460; telephone number: 202-564-5627; email address:
Supporting documents which explain in detail the information that the EPA will be collecting are available in the public docket for this ICR. The docket can be viewed online at
Environmental Protection Agency (EPA).
Notice.
The U.S. Environmental Protection Agency (EPA) has submitted an information collection request (ICR), “Safe Drinking Water Act State Revolving Fund Program” (EPA ICR No. 1803.07, OMB Control No. 2040-0185) to the Office of Management and Budget (OMB) for review and approval in accordance with the Paperwork Reduction Act (PRA, 44 U.S.C. 3501
Additional comments may be submitted on or before January 27, 2016.
Submit your comments, referencing Docket ID Number EPA-HQ-OW-2002-0059, to (1) EPA online using
EPA's policy is that all comments received will be included in the public docket without change including any personal information provided, unless the comment includes profanity, threats, information claimed to be Confidential Business Information (CBI) or other information whose disclosure is restricted by statute.
Nick Chamberlain, Drinking Water Protection Division, Office of Ground Water and Drinking Water, 4606M, Environmental Protection Agency, 1200 Pennsylvania Ave. NW., Washington, DC 20460; telephone number: 202-564-1871; email address:
Supporting documents which explain in detail the information that the EPA will be collecting are available in the public docket for this ICR. The docket can be viewed online at
Environmental Protection Agency (EPA).
Notice.
The Environmental Protection Agency has submitted an information collection request (ICR), “Cooling Water Intake Structures New Facility Final Rule (Renewal)” (EPA ICR No. 1973.06, OMB Control No. 2040-0241) to the Office of Management and Budget (OMB) for review and approval in accordance with the Paperwork Reduction Act (44 U.S.C. 3501
Additional comments may be submitted on or before January 27, 2016.
Submit your comments, referencing Docket ID Number EPA-HQ-OW-2008-0719, to (1) EPA online using
EPA's policy is that all comments received will be included in the public docket without change including any personal information provided, unless the comment includes profanity, threats, information claimed to be Confidential Business Information (CBI) or other information whose disclosure is restricted by statute.
Amelia Letnes, Office of Wastewater Management, Mail Code 4203M, Environmental Protection Agency, 1200 Pennsylvania Ave. NW., Washington, DC 20460; telephone number: 202-564-5627; email address:
Supporting documents which explain in detail the information that the EPA will be collecting are available in the public docket for this ICR. The docket can be viewed online at
The section 316(b) New Facility Rule (66 FR 65256; December 18, 2001) and minor amendments (68 FR 36749; June 19, 2003) implement section 316(b) of the CWA as it applies to new facilities that use cooling water intake structures (CWISs). The rule requires new facilities to submit several distinct types of information as part of their National Pollutant Discharge Elimination System (NPDES) permit application. In addition, the rule requires new facilities to maintain monitoring and reporting data as outlined by the Director in their NPDES permits. The information requirements in this Information Collection Request (ICR) are necessary to ensure that new facilities are complying with the rule's provisions, and thereby minimizing adverse environmental impact resulting from impingement and entrainment losses due to the withdrawal of cooling water.
Environmental Protection Agency (EPA).
Notice.
The Environmental Protection Agency has submitted an information collection request (ICR), “National Pretreatment Program” (EPA ICR No. 0002.16, OMB Control No. 2040-0009) to the Office of Management and Budget (OMB) for review and approval in accordance with the Paperwork Reduction Act (44 U.S.C. 3501
Additional comments may be submitted on or before January 27, 2016.
Submit your comments, referencing Docket ID Number EPA-HQ-OW-2008-0719, to (1) EPA online using
EPA's policy is that all comments received will be included in the public docket without change including any personal information provided, unless the comment includes profanity, threats, information claimed to be Confidential Business Information (CBI) or other information whose disclosure is restricted by statute.
Amelia Letnes, Office of Wastewater Management, Mail Code 4203M, Environmental Protection Agency, 1200 Pennsylvania Ave. NW., Washington, DC 20460; telephone number: 202-564-5627; email address:
Supporting documents which explain in detail the information that the EPA will be collecting are available in the public docket for this ICR. The docket can be viewed online at
Environmental Protection Agency (EPA).
Notice.
The Environmental Protection Agency has submitted an information collection request (ICR), “Establishing No-Discharge Zones (NDZs) Under Clean Water Act § 312 (Renewal)” (EPA ICR No. 1791.07, OMB Control No. 2040-0187) to the Office of Management and Budget (OMB) for review and approval in accordance with the Paperwork Reduction Act (44 U.S.C. 3501
Additional comments may be submitted on or before January 27, 2016.
Submit your comments, referencing Docket ID Number EPA-HQ-OW-2008-0150, to (1) EPA online using
EPA's policy is that all comments received will be included in the public docket without change including any personal information provided, unless the comment includes profanity, threats, information claimed to be Confidential Business Information (CBI) or other information whose disclosure is restricted by statute.
Virginia Fox-Norse, Oceans and Coastal Protection Division, Office of Wetlands, Oceans and Watersheds, (4504T), Environmental Protection Agency, 1200 Pennsylvania Ave. NW., Washington, DC 20460; telephone number: 202-566-1266; email address:
Supporting documents which explain in detail the information that the EPA will be collecting are available in the public docket for this ICR. The docket can be viewed online at
(A) Sewage No-discharge Zones: The need for EPA to obtain information for, or to support, the establishment of no-discharge zones (NDZs) for vessel sewage in state waters stems from CWA sections 312(f)(3), (f)(4)(A), and (f)(4)(B), and implementing regulations at 40 CFR 140.4. No-discharge zones are established to provide greater environmental protection of specified state waters from treated and untreated vessel sewage. This ICR addresses the information requirements associated with the establishment of NDZs for vessel sewage.
(B) UNDS No-discharge Zones: Under section 312(n) of the Clean Water Act (“Uniform National Discharge Standards
Environmental Protection Agency (EPA).
Notice.
The Environmental Protection Agency has submitted an information collection request (ICR), “BEACH Act Grants (Renewal)” (EPA ICR No. 2048.05, OMB Control No. 2040-0244) to the Office of Management and Budget (OMB) for review and approval in accordance with the Paperwork Reduction Act (44 U.S.C. 3501
Additional comments must be submitted on or before January 27, 2016.
Submit your comments, referencing Docket ID Number EPA-HQ-OW-2015-0614, to (1) EPA online using
EPA's policy is that all comments received will be included in the public docket without change including any personal information provided, unless the comment includes profanity, threats, information claimed to be Confidential Business Information (CBI) or other information whose disclosure is restricted by statute.
Tracy Bone, OW, 4305T, Environmental Protection Agency, 1200 Pennsylvania Ave. NW., Washington, DC 20460; telephone number: 202-564-5257; email address:
Supporting documents which explain in detail the information that the EPA will be collecting are available in the public docket for this ICR. The docket can be viewed online at
Federal Communications Commission.
Notice.
In this document, the Wireless Telecommunications Bureau (Bureau) extends the deadline for an October 23, 2015 public notice seeking comment on the appropriate methodology for determining the contours for protecting existing 3650-3700 MHz wireless broadband licensees from Citizens Broadband Radio Service users during a fixed transition period (
Comments are due on or before December 28, 2015. Reply comments are due on or before January 12, 2016.
All filings in response to the notice must refer to WT Docket No. 12-354. The Wireless Telecommunications Bureau strongly encourages parties to file comments electronically. Comments may be submitted electronically by the following methods:
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Paul Powell, Mobility Division, Wireless Telecommunications Bureau at (202) 418-1613 or via email at
This is a summary of public notice (DA 15-1398) released on December 9, 2015. The complete text of the public notice is available for viewing via the Commission's ECFS Web site by entering the docket number, WT Docket No. 12-354. The complete text of the public notice is also available for public inspection and copying from 8:00 a.m. to 4:30 p.m. Eastern Time (ET) Monday through Thursday or from 8:00 a.m. to 11:30 a.m. ET on Fridays in the FCC Reference Information Center, 445 12th Street SW., Room CY-B402, Washington, DC 20554, telephone 202-488-5300, fax 202-488-5563, or you may contact BCPI at its Web site:
In the notice, the Bureau extends the comment deadline for a public notice seeking comment on the appropriate methodology for determining the protected interference contours for existing 3650-3700 MHz wireless broadband licensees during a fixed transition period. Interested parties will now have until December 28, 2015 to file comments and until January 12, 2016 to file reply comments.
On December 7, 2015, the Wireless Innovation Forum (WinnForum) filed a request to extend the comment and reply comment deadline for the
As set forth in section 1.46(a) of the Commission's rules, “it is the policy of the Commission that extensions of time shall not be routinely granted.” However, in this case, we believe it is in the public interest to grant an extension to promote industry consensus and allow all interested to include their comments on the record at the comment deadline, as the WinnForum represents future Part 96 users and representatives of existing 3650-3700 MHz licensees. This will ensure that Commission has a complete record and all parties can fully address the complicated issues raised in the
This proceeding has been designated as a “permit-but-disclose” proceeding in accordance with the Commission's
Federal Communications Commission.
Notice.
The Centers for Medicare & Medicaid Services (CMS) is announcing an opportunity for the public to comment on CMS' intention to collect information from the public. Under the Paperwork Reduction Act of 1995 (PRA), federal agencies are required to publish notice in the
Comments on the collection(s) of information must be received by the OMB desk officer by January 27, 2016.
When commenting on the proposed information collections, please reference the document identifier or OMB control number. To be assured consideration, comments and recommendations must be received by the OMB desk officer via one of the following transmissions:
To obtain copies of a supporting statement and any related forms for the proposed collection(s) summarized in this notice, you may make your request using one of following:
1. Access CMS' Web site address at
2. Email your request, including your address, phone number, OMB number, and CMS document identifier, to
3. Call the Reports Clearance Office at (410) 786-1326.
Reports Clearance Office at (410) 786-1326.
Under the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501-3520), federal agencies must obtain approval from the Office of Management and Budget (OMB) for each collection of information they conduct or sponsor. The term “collection of information” is defined in 44 U.S.C. 3502(3) and 5 CFR 1320.3(c) and includes agency requests or requirements that members of the public submit reports, keep records, or provide information to a third party. Section 3506(c)(2)(A) of the PRA (44 U.S.C. 3506(c)(2)(A)) requires federal agencies to publish a 30-day notice in the
1.
2.
The Office of Head Start published a final rule on eligibility under the authority granted to the Secretary of Health and Human Services under the Head Start Act (Act) at sections 644(c), 645(a)(1)(A), and 645A(c). The final rule clarifies Head Start's eligibility procedures and enrollment requirements, and reinforces Head Start's overall mission to support low-income families and early learning. A program must maintain records as specified in sections 1305.4(d)(2), 1305.4(l), and 1305.4(h) through (j) of the final rule.
Copies of the proposed collection may be obtained by writing to the Administration for Children and Families, Office of Planning, Research and Evaluation, 370 L'Enfant Promenade SW., Washington, DC 20447, Attn: ACF Reports Clearance Officer. All requests should be identified by the title of the information collection. Email address:
OMB is required to make a decision concerning the collection of information between 30 and 60 days after publication of this document in the
Attn: Desk Officer for the Administration for Children and Families.
Estimated Total Annual Burden Hours: (180 hours × $30 per hour) $4,500 per year.
• Currently, there are twenty two grantees (respondents) in the program and the semi-annual progress, which includes the data and information required, is submitted twice per year.
• The request covers one form (Form I. attached) which includes eight data points. Based on experience (the information was provided by technical assistance service provider in the past), it takes about two hours per respondent per six months (
• No survey will be undertaken since the collection of this data (information) is part of the implementation process of the project and its collection and reporting does not constitute a separate and additional cost to the grantees (respondents). The cost is covered by the grant the grantee receives. The grantees have Down Home database which captures and stores the data required for reporting. The grantee uploads the semi-annual report in Grant Solution where it is stored. ORR derives the data it requires for reporting and management decision from Grant Solution.
• Currently, there are twenty three grantees (respondents) in the program and the semi-annual progress.
• The request covers one form (Form II. attached) which includes seven data points. It takes about two hours per respondent per six months (
• The collection of this data (information) is part of the process and its collection and reporting does not include separate and additional cost to the grantees (respondents). The cost is covered by the grant the grantee receives. The grantees have database which captures and stores the data required for reporting. The grantee uploads the data required in Grant Solution where it is stored. ORR derives the data it requires for reporting and management decision from Grant Solution.
Copies of the proposed collection may be obtained by writing to the Administration for Children and Families, Office of Planning, Research and Evaluation, 370 L'Enfant Promenade SW., Washington, DC 20447, Attn: ACF Reports Clearance Officer. All requests should be identified by the title of the information collection. Email address:
OMB is required to make a decision concerning the collection of information between 30 and 60 days after publication of this document in the
Food and Drug Administration, HHS.
Notice.
The Food and Drug Administration (FDA) has determined the regulatory review period for KADCYLA and is publishing this notice of that determination as required by law. FDA has made the determination because of the submission of an application to the Director of the U.S. Patent and Trademark Office (USPTO), Department of Commerce, for the extension of a patent which claims that human biological product.
Anyone with knowledge that any of the dates as published (see the
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”).
•
• For written/paper comments submitted to the Division of Dockets Management, 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.”
Received comments will be placed in the docket and, except for those submitted as “Confidential Submissions”, publicly viewable at
• 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
Beverly Friedman, Office of Regulatory Policy, Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 51, Rm. 6250, Silver Spring, MD 20993, 301-796-3600.
The Drug Price Competition and Patent Term Restoration Act of 1984 (Pub. L. 98-417) and the Generic Animal Drug and Patent Term Restoration Act (Pub. L. 100-670) generally provide that a patent may be extended for a period of up to 5 years
A regulatory review period consists of two periods of time: A testing phase and an approval phase. For human biological products, the testing phase begins when the exemption to permit the clinical investigations of the biological becomes effective and runs until the approval phase begins. The approval phase starts with the initial submission of an application to market the human biological product and continues until FDA grants permission to market the biological product. Although only a portion of a regulatory review period may count toward the actual amount of extension that the Director of USPTO may award (for example, half the testing phase must be subtracted as well as any time that may have occurred before the patent was issued), FDA's determination of the length of a regulatory review period for a human biological product will include all of the testing phase and approval phase as specified in 35 U.S.C. 156(g)(1)(B).
FDA has approved for marketing the human biologic product KADCYLA (ado-trastuzumab emtansine). KADCYLA is indicated as a single agent, for the treatment of patients with HER2-positive metastatic breast cancer who previously received trastuzumab and a taxane, separately or in combination. Subsequent to this approval, the USPTO received patent term restoration applications for KADCYLA (U.S. Patent Nos. 7,097,840 and 8,337,856) from Genentech, Inc., and the USPTO requested FDA's assistance in determining these patents' eligibility for patent term restoration. In a letter dated May 23, 2014, FDA advised the USPTO that this human biological product had undergone a regulatory review period and that the approval of KADCYLA represented the first permitted commercial marketing or use of the product. Thereafter, the USPTO requested that FDA determine the product's regulatory review period.
FDA has determined that the applicable regulatory review period for KADCYLA is 2,594 days. Of this time, 2,414 days occurred during the testing phase of the regulatory review period, while 180 days occurred during the approval phase. These periods of time were derived from the following dates:
1.
2.
3.
This determination of the regulatory review period establishes the maximum potential length of a patent extension. However, the USPTO applies several statutory limitations in its calculations of the actual period for patent extension. In its applications for patent extension, this applicant seeks 1,277 or 60 days of patent term extension.
Anyone with knowledge that any of the dates as published are incorrect may submit either electronic or written comments and ask for a redetermination (see
Submit petitions electronically to
Food and Drug Administration, HHS.
Notice.
The Food and Drug Administration (FDA or Agency) has determined that KYTRIL (granisetron hydrochloride) tablets, equivalent (EQ) 1 milligram (mg) and 2 mg base, were not withdrawn from sale for reasons of safety or effectiveness. This determination will allow FDA to approve abbreviated new drug applications (ANDAs) for KYTRIL (granisetron hydrochloride) tablets, EQ 1 mg and 2 mg base, if all other legal and regulatory requirements are met.
Daniel Orr, Center for Drug Evaluation and Research, Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 51, Rm. 6246, Silver Spring, MD 20993-0002, 240-402-0979.
In 1984, Congress enacted the Drug Price Competition and Patent Term Restoration Act of 1984 (Pub. L. 98-417) (the 1984 amendments), which authorized the approval of duplicate versions of drug products under an ANDA procedure. ANDA applicants must, with certain exceptions, show that the drug for which they are seeking approval contains the same active ingredient in the same strength and dosage form as the
The 1984 amendments include what is now section 505(j)(7) of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 355(j)(7)), which requires FDA to publish a list of all approved drugs. FDA publishes this list as part of the “Approved Drug Products With
A person may petition the Agency to determine, or the Agency may determine on its own initiative, whether a listed drug was withdrawn from sale for reasons of safety or effectiveness. This determination may be made at any time after the drug has been withdrawn from sale, but must be made prior to approving an ANDA that refers to the listed drug (§ 314.161 (21 CFR 314.161)). FDA may not approve an ANDA that does not refer to a listed drug.
KYTRIL (granisetron hydrochloride) tablets, EQ 1 mg and 2 mg base, are the subject of NDA 020305, held by Hoffmann-La Roche, Inc., and initially approved on March 16, 1995. KYTRIL is indicated for the prevention of nausea and/or vomiting associated with initial and repeat courses of emetogenic cancer therapy, including high-dose cisplatin, and for the prevention and treatment of postoperative nausea and vomiting in adults.
On April 30, 2012, Hoffman-La Roche notified FDA that KYTRIL (granisteron hydrochloride) tablets, EQ 1 mg and 2 mg base, were being discontinued, and FDA moved the drug products to the “Discontinued Drug Product List” section of the Orange Book.
Kurt R. Karst, on behalf of Hyman, Phelps & McNamara, P.C., submitted a citizen petition dated May 27, 2015 (Docket No. FDA-2015-P-1898), under 21 CFR 10.30, requesting that the Agency determine whether KYTRIL (granisteron hydrochloride) tablets, EQ 1 mg and 2 mg base, were withdrawn from sale for reasons of safety or effectiveness.
After considering the citizen petition and reviewing Agency records and based on the information we have at this time, FDA has determined under § 314.161 that KYTRIL (granisteron hydrochloride) tablets, EQ 1 mg and 2 mg base, were not withdrawn for reasons of safety or effectiveness. The petitioner has identified no data or other information suggesting that KYTRIL (granisteron hydrochloride) tablets, EQ 1 mg and 2 mg base, were withdrawn for reasons of safety or effectiveness We have carefully reviewed our files for records concerning the withdrawal of KYTRIL (granisteron hydrochloride) tablets, EQ 1 mg and 2 mg base, from sale. We have also independently evaluated relevant literature and data for possible postmarketing adverse events. We have reviewed the available evidence and determined that the products were not withdrawn from sale for reasons of safety or effectiveness.
Accordingly, the Agency will continue to list KYTRIL (granisteron hydrochloride) tablets, EQ 1 mg and 2 mg base, in the “Discontinued Drug Product List” section of the Orange Book. The “Discontinued Drug Product List” delineates, among other items, drug products that have been discontinued from marketing for reasons other than safety or effectiveness. ANDAs that refer to KYTRIL (granisteron hydrochloride) tablets, EQ 1 mg and 2 mg base, may be approved by the Agency as long as they meet all other legal and regulatory requirements for the approval of ANDAs. If FDA determines that labeling for this drug product should be revised to meet current standards, the Agency will advise ANDA applicants to submit such labeling.
Food and Drug Administration, HHS.
Notice.
The Food and Drug Administration (FDA or Agency) is announcing the opportunity for externally-led patient-focused drug development meetings. The Patient-Focused Drug Development (PFDD) initiative is part of FDA's commitments under the fifth authorization of the Prescription Drug User Fee Act (PDUFA V). The PFDD initiative aims to more systematically obtain the patient perspective on specific diseases and their treatments. FDA recognizes that there are many more disease areas than can be addressed in the planned FDA meetings under PDUFA V. To help expand the benefits of FDA's PFDD initiative, FDA welcomes patient organizations to identify and organize patient-focused collaborations to generate public input on other disease areas, using the process established through Patient-Focused Drug Development as a model.
FDA recommends that patient organizations who are interested in conducting an externally-led PFDD meeting initially engage with FDA by submitting a letter of intent (LOI) to
Pujita Vaidya, Center for Drug Evaluation and Research, Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 51, rm. 1144, Silver Spring, MD 20993-0002, 301-796-0684.
As part of its commitments under the Prescription Drug User Fee Act reauthorization of 2012, FDA has taken several steps to inform the benefit-risk assessments that inform CDER's regulatory decisions concerning new drugs. Among these efforts is the PFDD initiative that aims to more systematically obtain the patient perspective on specific diseases and their treatments. FDA has committed to obtaining the patient perspective on at least 20 disease areas during the course of PDUFA V. PFDD meetings give FDA an important opportunity to hear directly from patients, patient advocates, and caretakers about the symptoms that matter most to them; the impact the disease has on patients' daily lives; and patients' experiences with currently available treatments. The patient perspective is critical in helping FDA understand the context in which regulatory decisions are made for new drugs. This patient input can inform FDA's decisions and oversight both during drug development and during our review of a marketing application.
The Agency recognizes that there has been growing external interest in expanding efforts to gather patient input in support of drug development and evaluation. To help expand the benefits of FDA's PFDD initiative, FDA welcomes patient organizations to identify and organize patient-focused collaborations to generate public input on other disease areas, using the process established through Patient-Focused Drug Development as a model. An externally-led PFDD meeting and any resulting products (
FDA recommends that patient organizations who are interested in conducting an externally-led PFDD meeting submit an LOI that communicates (1) the value of the proposed meeting in the context of drug development for a particular disease area, and (2) important details regarding the meeting plan. Guidelines for developing a letter of intent are provided here:
Health Resources and Services Administration, HHS.
Notice.
In compliance with the requirement for opportunity for public comment on proposed data collection projects (Section 3506(c)(2)(A) of the Paperwork Reduction Act of 1995), the Health Resources and Services Administration (HRSA) announces plans to submit an Information Collection Request (ICR), described below, to the Office of Management and Budget (OMB). Prior to submitting the ICR to OMB, HRSA seeks comments from the public regarding the burden estimate, below, or any other aspect of the ICR.
Comments on this Information Collection Request must be received no later than February 26, 2016.
Submit your comments to
To request more information on the proposed project or to obtain a copy of the data collection plans and draft instruments, email
When submitting comments or requesting information, please include the information request collection title for reference.
Information Collection Request Title: Sickle Cell Disease Treatment Demonstration Program—Quality Improvement Data Collection.
OMB No. 0915-xxxx-New
Abstract: In response to the growing need for resources devoted to sickle cell disease and other hemoglobinopathies, the United States Congress, under Section 712 of the American Jobs Creation Act of 2004 (Pub. L. 108-357) (42 U.S.C. 300b-1 note), authorized a demonstration program for the prevention and treatment of sickle cell disease (SCD) to be administered by the Maternal and Child Health Bureau (MCHB) of the Health Resources and Services Administration (HRSA) in the U.S. Department of Health and Human Services. The program is known as the
To achieve the goals and objectives of the program, the SCDTDP uses quality improvement (QI) methods in a collective impact model which supports cross-sector collaboration for achieving measurable effects on major social issues. The collective impact model requires shared measurement which facilitates tracking progress in a standardized method in order to promote learning and enhance continuous improvement.
Need and Proposed Use of the Information: The purpose of the proposed data collection strategy is to implement a system to monitor the progress of MCHB-funded activities in improving care and health outcomes for individuals living with sickle cell disease/trait and meeting the goals of the SCDTDP. Each regional grantee site will be asked to report on a core set of evidence-based measures related to healthcare utilization among individuals with sickle cell disease and the quality of care of the SCD population.
The data collected for the Sickle Cell Disease Treatment Demonstration Program will consist of administrative medical claims data collected from State Medicaid Programs and Medicaid Managed Care Organizations that administer Medicaid on behalf of states. The data is collected either for or by State Medicaid offices for delivery of services subject to Medicaid reimbursement.
The data collection strategy will provide an effective and efficient mechanism to do the following: (1) Assess the improvements in access to care for sickle cell patients provided by activities in the SCDTDP; (2) collect, coordinate, and distribute data, best practices, and findings from regional grantee sites to drive improvement on quality measures; (3) refine a common model protocol regarding the prevention and treatment of sickle cell disease; (4) examine/address barriers that individuals and families living with sickle cell disease face when accessing quality health care and health education; (5) evaluate the grantees' performance in meeting the objectives of the SCDTDP; and (6) provide HRSA and Congress with information on the overall progress of the program.
Likely Respondents: Four regional grantee sites funded by HRSA under the SCDTDP will be the respondents for this data collection activity and submit responses gathered from State Medicaid
Burden Statement: Burden in this context means the time expended by persons to generate, maintain, retain, disclose or provide the information requested. This includes the time needed to review instructions; to develop, acquire, install and utilize technology and systems for the purpose of collecting, validating and verifying information, processing and maintaining information, and disclosing and providing information; to train personnel and to be able to respond to a collection of information; to search data sources; to complete and review the collection of information; and to transmit or otherwise disclose the information. The total annual burden hours estimated for this Information Collection Request are summarized in the table below.
HRSA specifically requests comments on (1) The necessity and utility of the proposed information collection for the proper performance of the agency's functions, (2) the accuracy of the estimated burden, (3) ways to enhance the quality, utility, and clarity of the information to be collected, and (4) the use of automated collection techniques or other forms of information technology to minimize the information collection burden.
Office of the Secretary, HHS.
Notice.
In compliance with section 3507(a)(1)(D) of the Paperwork Reduction Act of 1995, the Office of the Secretary (OS), Department of Health and Human Services, has submitted an Information Collection Request (ICR), described below, to the Office of Management and Budget (OMB) for review and approval. The ICR is for renewal of the approved information collection assigned OMB control number 0945-0002, scheduled to expire on December 31, 2015. Comments submitted during the first public review of this ICR will be provided to OMB. OMB will accept further comments from the public on this ICR during the review and approval period.
Comments on the ICR must be received on or before January 27, 2016.
Submit your comments to
Information Collection Clearance staff,
When submitting comments or requesting information, please include the OMB control number 0945-0002 for reference.
Office of the Secretary, HHS.
Notice.
In compliance with section 3506(c)(2)(A) of the Paperwork Reduction Act of 1995, the Office of the Secretary (OS), Department of Health and Human Services, announces plans to submit an Information Collection Request (ICR), described below, to the Office of Management and Budget (OMB). The ICR is for extending the use of the approved information collection assigned OMB control number 0990-0406, which expires on April 30, 2016. Prior to submitting the ICR to OMB, OS seeks comments from the public regarding the burden estimate, below, or any other aspect of the ICR.
Comments on the ICR must be received on or before February 26, 2016.
Submit your comments to
Information Collection Clearance staff,
When submitting comments or requesting information, please include the document identifier HHS-OS-0990-0406-60D for reference.
OMH proposes to continue to conduct the evaluation of the NPA. The evaluation's goal is to determine the extent to which the NPA has contributed to the elimination of health disparities and attainment of health equity in our nation. The evaluation will accomplish this goal by addressing the following questions: (1) To what extent has a multi-level structure been established to support actions that will contribute to the elimination of health disparities?; (2) How are leaders in the public, private, nonprofit, and community sectors engaged in collaborative, efficient, and equitable working partnerships to eliminate health disparities?; (3) How many and what types of identifiable actions are being implemented at the community, state, tribal, regional, and national levels that relate directly to the five goals and 20 strategies in the
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. App.), 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 contract proposals and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the contract proposals, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
This notice is being published less than 15 days prior to the meeting due to the timing limitations imposed by the review and funding cycle.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. App.), notice is hereby given of the following meetings.
The meetings will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. App.), notice is hereby given of the following meetings.
The meetings will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. App.), notice is hereby given of the following meetings.
The meetings will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. App.), notice is hereby given of a meeting of the National Advisory Dental and Craniofacial Research Council.
The meeting will be open to the public as indicated below, with attendance limited to space available. Individuals who plan to attend and need special assistance, such as sign language interpretation or other reasonable accommodations, should notify the Contact Person listed below in advance of the 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.
In the interest of security, NIH has instituted stringent procedures for entrance onto the NIH campus. All visitor vehicles, including taxicabs, hotel, and airport shuttles will be inspected before being allowed on campus. Visitors will be asked to show one form of identification (for example, a government-issued photo ID, driver's license, or passport) and to state the purpose of their visit.
Information is also available on the Institute's/Center's home page:
In compliance with Section 3506(c)(2)(A) of the Paperwork Reduction Act of 1995 concerning opportunity for public comment on proposed collections of information, the Substance Abuse and Mental Health Services Administration (SAMHSA) will publish periodic summaries of proposed projects. To request more information on the proposed projects or to obtain a copy of the information collection plans, call the SAMHSA Reports Clearance Officer on (240) 276-1243.
Comments are invited on: (a) Whether the proposed collections of information are necessary for the proper performance of the functions of the agency, including whether the information shall have practical utility; (b) the accuracy of the agency's estimate of the burden of the proposed collection of information; (c) ways to enhance the quality, utility, and clarity of the information to be collected; and (d) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology.
Section 1926 of the Public Health Service Act [42 U.S.C. 300x-26] stipulates that funding Substance Abuse Prevention and Treatment Block Grant (SABG) agreements for alcohol and drug abuse programs for fiscal year 1994 and subsequent fiscal years require states to have in effect a law providing that it is unlawful for any manufacturer, retailer, or distributor of tobacco products to sell or distribute any such product to any individual under the age of 18. This section further requires that states conduct annual, random, unannounced inspections to ensure compliance with the law; that the state submit annually a report describing the results of the inspections, the activities carried out by the state to enforce the required law, the success the state has achieved in reducing the availability of tobacco products to individuals under the age of 18, and the strategies to be utilized by the state for enforcing such law during the fiscal year for which the grant is sought.
Before making an award to a State under the SABG, the Secretary must make a determination that the state has maintained compliance with these requirements. If a determination is made that the state is not in compliance, penalties shall be applied. Penalties ranged from 10 percent of the Block Grant in applicable year 1 (FFY 1997 SABG Applications) to 40 percent in applicable year 4 (FFY 2000 SABG Applications) and subsequent years. Respondents include the 50 states, the District of Columbia, the Commonwealth of Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, the Commonwealth of the Northern Mariana Islands, Palau, Micronesia, and the Marshall Islands.
Regulations that implement this legislation are at 45 CFR 96.130, are approved by OMB under control number 0930-0163, and require that each state submit an annual Synar report to the Secretary describing their progress in complying with section 1926 of the PHS Act. The Synar report, due December 31 following the fiscal year for which the state is reporting, describes the results of the inspections and the activities carried out by the state to enforce the required law; the success the state has achieved in reducing the availability of tobacco products to individuals under the age of 18; and the strategies to be utilized by the state for enforcing such law during the fiscal year for which the grant is sought. SAMHSA's Center for Substance Abuse Prevention will request OMB approval of revisions to the current report format associated with Section 1926 (42 U.S.C. 300x-26). The report format is not changing significantly. Any changes in either formatting or content are being made to simplify the reporting process for the states and to clarify the information as the states report it; both outcomes will facilitate consistent, credible, and efficient monitoring of Synar compliance across the states. All of the information required in the new report format is already being collected by the states. Specific changes are listed below:
To decrease the need for supp
In Section I (Compliance Progress), the following clarification changes are being made with respect to the Annual Synar Report:
In Section II (Intended Use), the following clarification change is being made:
In Appendix C (Synar Survey Inspection Protocol Summary), the following change is being made:
Questions 5a and b—The previous question 5 has been separated into two sections to provide ensure states are
The content of the Synar Report has changed little. The content changes that have been made address the need to (1) clarify the intent of information requested via the addition of clarifying questions, (2) reduce the need for State Project Officers to ask additional questions to supplement the originally submitted Report. These additions and changes are essential to SAMHSA's ability to adequately assess state and jurisdictional compliance with the Synar regulation.
In Section I (Compliance Progress), the following changes are being made with respect to the Annual Synar Report:
In Appendix B (Synar Survey Sampling Methodology), the following changes are being made:
There are no changes to Forms 1-5 or Appendix D.
In compliance with Section 3506(c)(2)(A) of the Paperwork Reduction Act of 1995 concerning opportunity for public comment on proposed collections of information, the Substance Abuse and Mental Health Services Administration (SAMHSA) will publish periodic summaries of proposed projects. To request more information on the proposed projects or to obtain a copy of the information collection plans, call the SAMHSA Reports Clearance Officer on (240) 276-1243.
Comments are invited on: (a) Whether the proposed collections of information are necessary for the proper performance of the functions of the agency, including whether the information shall have practical utility; (b) the accuracy of the agency's estimate of the burden of the proposed collection of information; (c) ways to enhance the quality, utility, and clarity of the information to be collected; and (d) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology.
SAMHSA is conducting a national evaluation of the Now is the Time (NITT) initiative, which includes separate programs—the Minority Fellowship Program-Youth (MFP-Y), the Minority Fellowship Program-Addiction Counselors (MFP-AC), Project AWARE (Advancing Wellness and Resilience in Education)-State Educational Agency, and Healthy Transitions. These programs are united by their focus on capacity building, system change, and workforce development.
The NITT-MFP (Youth and Addiction Counselors) programs, which are the focus of this data collection, represent a response to the fourth component of President Obama's NITT Initiative: increasing access to mental health/behavioral health services. The purpose of the NITT-MFP programs is to improve behavioral health care outcomes for underserved racially and ethnically diverse populations by
The NITT-MFP evaluation is designed to assess the level of success of the grantees in meeting the programs' goals and identify the factors that contribute to differences among grantees in levels of success. The evaluation includes both process and outcome evaluation components and will be supported by the data collection efforts described below. The information to be collected is necessary to (a) assess the effectiveness of the grantees' program recruitment strategies, (b) describe the services that the programs offer, and (c) assess whether NITT-MFP is meeting its goal of increasing the skilled workforce by increasing the number of behavioral health providers and addiction counselors providing services to underserved children, adolescents, and transition-age youth, particularly among racially/ethnically diverse populations.
About 4 to 5 months after completion of their fellowship, a subset of fellow alumni will be asked to participate in the
Periodically, the Substance Abuse and Mental Health Services Administration (SAMHSA) will publish a summary of information collection requests under OMB review, in compliance with the Paperwork Reduction Act (44 U.S.C. Chapter 35). To request a copy of these documents, call the SAMHSA Reports Clearance Officer on (240) 276-1243.
This data collection is to study the intersection of intimate partner violence (IPV) and trauma for women with HIV, at risk for HIV, and at risk for substance use disorders (SUDs) VITEL provides supplemental funding to existing SAMHSA Targeted Capacity Expansion: Substance Abuse Treatment for Racial/Ethnic Minority Women at High Risk for HIV/AIDS (TCE-HIV: Minority Women) grantees. These activities will be conducted with five grantees and include: (1) Administration of baseline, discharge and 6-month post-baseline surveys of clients receiving IPV screening and referral services, (2) focus groups with clients receiving IPV and SUD services, (3) documentation of IPV service and other referral service(s) engagement, and (4) semi-structured interviews with VITEL program staff and partner/collaborating staff supporting IPV services.
The goals of the VITEL program are (1) reduce IPV through screening and referrals, (2) reduce risky behaviors that lead to new HIV infections and SUDs, (3) increase access to care and improve health outcomes for people living with HIV and AIDS, (4) reduce HIV-related health disparities resultant from IPV screening tool implementation, and (5) determine the feasibility of integrating IPV screening in behavioral health settings. A multi-stage approach has been used to develop the appropriate theoretical framework, conceptual model, evaluation design and protocols, and data collection instrumentation. Process and outcome measures have been developed to fully capture community and contextual conditions, the scope of the VITEL program implementation and activities, and client outcomes. A mixed-method approach (
The data collection for this program will be conducted quarterly (during this one year supplemental period) and the client outcome data collection will be ongoing throughout the program and will be collected at baseline, discharge and 6-months post baseline for all treatment clients. The respondents are clinic-based social workers, counselors, administrators, and clinic-based clients.
Written comments and recommendations concerning the proposed information collection should be sent by January 27, 2016 to the SAMHSA Desk Officer at the Office of Information and Regulatory Affairs, Office of Management and Budget (OMB). To ensure timely receipt of comments, and to avoid potential delays in OMB's receipt and processing of mail sent through the U.S. Postal Service, commenters are encouraged to submit their comments to OMB via email to:
Coast Guard, DHS.
Thirty-day notice requesting comments.
In compliance with the Paperwork Reduction Act of 1995 the U.S. Coast Guard is forwarding an Information Collection Request (ICR), abstracted below, to the Office of Management and Budget (OMB), Office of Information and Regulatory Affairs (OIRA), requesting an extension of its approval for the following collection of information: 1625-0003, Boating Accident Report. Our ICR describe the information we seek to collect from the public. Review and comments by OIRA ensure we only impose paperwork burdens commensurate with our performance of duties.
Comments must reach the Coast Guard and OIRA on or before January 27, 2016.
You may submit comments identified by Coast Guard docket number [USCG-2015-0629] to the Coast Guard using the Federal eRulemaking Portal at
(1)
(2)
(3)
A copy of the ICR is available through the docket on the Internet at
Mr. Anthony Smith, Office of Information Management, telephone 202-475-3532, or fax 202-372-8405, for questions on these documents.
This Notice relies on the authority of the Paperwork Reduction Act of 1995; 44 U.S.C. Chapter 35, as amended. An ICR is an application to OIRA seeking the approval, extension, or renewal of a Coast Guard collection of information (Collection). The ICR contains information describing the Collection's purpose, the Collection's likely burden on the affected public, an explanation of the necessity of the Collection, and other important information describing the Collection. There is one ICR for each Collection. The Coast Guard invites comments on whether this ICR should be granted based on the Collection being necessary for the proper performance of Departmental functions. In particular, the Coast Guard would appreciate comments addressing: (1) The practical utility of the Collection; (2) the accuracy of the estimated burden of the Collection; (3) ways to enhance the quality, utility, and clarity of information subject to the Collection; and (4) ways to minimize the burden of
We encourage you to respond to this request by submitting comments and related materials. Comments to Coast Guard or OIRA must contain the OMB Control Number of the ICR. They must also contain the docket number of this request, [USCG-2015-0629], and must be received by January 27, 2016.
We encourage you to submit comments through the Federal eRulemaking Portal at
We accept anonymous comments. All comments received will be posted without change to
OIRA posts its decisions on ICRs online at
This request provides a 30-day comment period required by OIRA. The Coast Guard has published the 60-day notice (80 FR 45670, July 31, 2015) required by 44 U.S.C. 3506(c)(2). That Notice elicited five comments.
Comment #1: Mark Brown: Mr. Brown is the Boating Law Administrator in Oklahoma. He suggests that before the Boating Accident Report (BAR) is updated, items incorporated in the proposed rulemaking on Accident Reporting be included. The BAR form is approved by OMB on a triennial basis, and that approval expires soon. We are seeking to renew the approval of the BAR form based on the current accident reporting requirements. The proposed rulemaking to which the commenter refers will likely change the requirements for accident reporting if it is adopted. However, since the proposed rulemaking on Accident Reporting is still being developed and no final resolution has been determined, we cannot use any potential changes that the accident reporting rulemaking may propose. Therefore the BAR will remain as is. If the accident reporting rulemaking proposes changes to accident reporting requirements that will necessitate changes to the BAR form, those changes will be incorporated in the rulemaking and will be submitted to OMB for its approval.
Comment #2: Clifford Inn: Mr. Inn represents a State and enters data into the Boating Accident Report Database (BARD). He's suggesting adding an additional field under the existing ACCIDENT DETAILS to allow a field for the registration number of another vessel (the 2nd in an accident involving two vessels). Although, a good suggestion, it is our feeling that the BAR need not be changed at this time as there are other means when inserting into BARD to do what Mr. Inn suggests.
Comments #3: National Association of State Boating Law Administrators (NASBLA): NASBLA represents the recreational boating law officials in the 50 states and six territories. They claim that at this time, two factors limit their ability to respond to this Notice in a more comprehensive and meaningful way. Firstly, they claim that terminology may change depending on the results of a notice of proposed rulemaking on Accident Reporting. However, until the notice of proposed rulemaking is published and finalized, no changes will be made to the BAR as explained under COMMENT #1. The next iteration of the BAR may need changes if the rulemaking, when finalized, makes it appropriate. Secondly, they refer to another
Comment #4. Connecticut Department of Energy & Environmental Protection: Connecticut supports an extension of the currently approved collection: 1625-0003, Boating Accident Report. However, they also feel the forms may need to be updated to ensure conformity with terminology and other changes to the casualty report content authorized in the final rule and consistent with COMDINST M16782.1. However, as stated in the response to NASBLA, the BAR will not be changed at this time.
Comment #5. Ohio Department of Natural Resources: Ohio's comments are consistent with those of the National Association of State Boating Law Administrators (ID: USCG-2015-0629-0004) and as such the comments above relative to NASBLA's submission apply to Ohio.
After considering all the above comments, no changes have been made to the collection for the reasons explained in the responses to the comments.
1.
States are required to forward copies of the reports or electronically transmit accident report data to the Coast Guard within 30 days of their receipt of the report as prescribed by 33 CFR 174.121 (Forwarding of casualty or accident reports). The accident report data and statistical information obtained from the reports submitted by the state reporting authorities are used by the Coast Guard
(1) A person dies; or
(2) A person is injured and requires medical treatment beyond first aid; or
(3) Damage to the vessel and other property total $2,000 or more, or there is a complete loss of the vessel; or
(4) A person disappears from the vessel under circumstances that indicate death or injury.
The Paperwork Reduction Act of 1995; 44 U.S.C. Chapter 35, as amended.
Coast Guard, DHS.
Thirty-day notice requesting comments.
In compliance with the Paperwork Reduction Act of 1995 the U.S. Coast Guard is forwarding an Information Collection Request (ICR), abstracted below, to the Office of Management and Budget (OMB), Office of Information and Regulatory Affairs (OIRA), requesting approval of a revision to the following collection of information: 1625-0061, Commercial Fishing Industry Vessel Safety Regulations. Our ICR describes the information we seek to collect from the public. Review and comments by OIRA ensure we only impose paperwork burdens commensurate with our performance of duties.
Comments must reach the Coast Guard and OIRA on or before January 27, 2016.
You may submit comments identified by Coast Guard docket number [USCG-2015-0695] to the Coast Guard using the Federal eRulemaking Portal at
(1)
(2)
(3)
A copy of the ICR is available through the docket on the Internet at
Mr. Anthony Smith, Office of Information Management, telephone 202-475-3532, or fax 202-372-8405, for questions on these documents.
This Notice relies on the authority of the Paperwork Reduction Act of 1995; 44 U.S.C. chapter 35, as amended. An ICR is an application to OIRA seeking the approval, extension, or renewal of a Coast Guard collection of information (Collection). The ICR contains information describing the Collection's purpose, the Collection's likely burden on the affected public, an explanation of the necessity of the Collection, and other important information describing the Collection. There is one ICR for each Collection.
The Coast Guard invites comments on whether this ICR should be granted based on the Collection being necessary for the proper performance of Departmental functions. In particular, the Coast Guard would appreciate comments addressing: (1) The practical utility of the Collection; (2) the accuracy of the estimated burden of the Collection; (3) ways to enhance the quality, utility, and clarity of information subject to the Collection; and (4) ways to minimize the burden of the Collection on respondents, including the use of automated collection techniques or other forms of information technology. These comments will help OIRA determine whether to approve the ICR referred to in this Notice.
We encourage you to respond to this request by submitting comments and related materials. Comments to Coast Guard or OIRA must contain the OMB Control Number of the ICR. They must also contain the docket number of this request, [USCG-2015-0695], and must be received by January 27, 2016.
We encourage you to submit comments through the Federal eRulemaking Portal at
We accept anonymous comments. All comments received will be posted without change to
OIRA posts its decisions on ICRs online at
This request provides a 30-day comment period required by OIRA. The Coast Guard published the 60-day notice (80 FR 51290, August 24, 2015) required by 44 U.S.C. 3506(c)(2). That Notice elicited one comment. The comment was not related to the periodic renewal of this information collection. The comment was about the need to correct outdated organizational addresses and standards of certain materials incorporated by reference in the title 46 CFR part 28 Requirements for Commercial Fishing Industry Vessels. The Coast Guard will consider this comment in an ongoing rulemaking that will revise commercial fishing industry vessel standards. Accordingly,
1.
The Paperwork Reduction Act of 1995; 44 U.S.C. chapter 35, as amended.
Coast Guard, DHS.
Sixty-day notice requesting comments.
In compliance with the Paperwork Reduction Act of 1995, the U.S. Coast Guard intends to submit an Information Collection Request (ICR) to the Office of Management and Budget (OMB), Office of Information and Regulatory Affairs (OIRA), requesting approval of revisions to the following collection of information: 1625-0038, Plan Approval & Records for Tank, Passenger, Cargo & Miscellaneous Vessels, Mobile Offshore Drilling Units, Nautical Schools Vessels & Oceanographic Research Vessels. Our ICR describes the information we seek to collect from the public. Before submitting this ICR to OIRA, the Coast Guard is inviting comments as described below.
Comments must reach the Coast Guard on or before February 26, 2016.
You may submit comments identified by Coast Guard docket number [USCG-2015-0915] to the Coast Guard using the Federal eRulemaking Portal at
A copy of the ICR is available through the docket on the Internet at
Mr. Anthony Smith, Office of Information Management, telephone 202-475-3532, or fax 202-372-8405, for questions on these documents.
This Notice relies on the authority of the Paperwork Reduction Act of 1995; 44 U.S.C. chapter 35, as amended. An ICR is an application to OIRA seeking the approval, extension, or renewal of a Coast Guard collection of information (Collection). The ICR contains information describing the Collection's purpose, the Collection's likely burden on the affected public, an explanation of the necessity of the Collection, and other important information describing the Collection. There is one ICR for each Collection.
The Coast Guard invites comments on whether this ICR should be granted based on the Collection being necessary for the proper performance of Departmental functions. In particular, the Coast Guard would appreciate comments addressing: (1) The practical utility of the Collection; (2) the accuracy of the estimated burden of the Collection; (3) ways to enhance the quality, utility, and clarity of information subject to the Collection; and (4) ways to minimize the burden of the Collection on respondents, including the use of automated collection techniques or other forms of information technology. In response to your comments, we may revise this ICR or decide not to seek approval of revisions of the Collection. We will consider all comments and material received during the comment period.
We encourage you to respond to this request by submitting comments and related materials. Comments must contain the OMB Control Number of the ICR and the docket number of this request, [USCG-2015-0915], and must be received by February 26, 2016.
We encourage you to submit comments through the Federal eRulemaking Portal at
We accept anonymous comments. All comments received will be posted without change to
1.
The Paperwork Reduction Act of 1995; 44 U.S.C. chapter 35, as amended.
Coast Guard, DHS.
Thirty-day notice requesting comments.
In compliance with the Paperwork Reduction Act of 1995 the U.S. Coast Guard is forwarding an Information Collection Request (ICR), abstracted below, to the Office of Management and Budget (OMB), Office of Information and Regulatory Affairs (OIRA), requesting approval of a revision to the following collection of information: 1625-0108, Standard Numbering System for Undocumented Vessels. Our ICR describes the information we seek to collect from the public. Review and comments by OIRA ensure we only impose paperwork burdens commensurate with our performance of duties.
Comments must reach the Coast Guard and OIRA on or before January 27, 2016.
You may submit comments identified by Coast Guard docket number [USCG-2015-0637] to the Coast Guard using the Federal eRulemaking Portal at
(1) Email:
(2) Mail: OIRA, 725 17th Street NW., Washington, DC 20503, attention Desk Officer for the Coast Guard.
(3) Fax: 202-395-6566. To ensure your comments are received in a timely manner, mark the fax, attention Desk Officer for the Coast Guard.
A copy of the ICR is available through the docket on the Internet at
Mr. Anthony Smith, Office of Information Management, telephone 202-475-3532, or fax 202-372-8405, for questions on these documents.
This Notice relies on the authority of the Paperwork Reduction Act of 1995; 44 U.S.C. chapter 35, as amended. An ICR is an application to OIRA seeking the approval, extension, or renewal of a Coast Guard collection of information (Collection). The ICR contains information describing the Collection's purpose, the Collection's likely burden on the affected public, an explanation of the necessity of the Collection, and other important information describing the Collection. There is one ICR for each Collection. The Coast Guard invites comments on whether this ICR should be granted based on the Collection being necessary for the proper performance of Departmental functions. In particular, the Coast Guard would appreciate comments addressing: (1) The practical utility of the Collection; (2) the accuracy of the estimated burden of the Collection; (3) ways to enhance the quality, utility, and clarity of information subject to the Collection; and (4) ways to minimize the burden of the Collection on respondents, including the use of automated collection techniques or other forms of information technology. These comments will help OIRA determine whether to approve the ICR referred to in this Notice.
We encourage you to respond to this request by submitting comments and related materials. Comments to Coast Guard or OIRA must contain the OMB Control Number of the ICR. They must also contain the docket number of this request, [USCG-2015-0637], and must be received by January 27, 2016.
We encourage you to submit comments through the Federal eRulemaking Portal at
We accept anonymous comments. All comments received will be posted without change to
OIRA posts its decisions on ICRs online at
This request provides a 30-day comment period required by OIRA. The Coast Guard published the 60-day notice (80 FR 62080, October 15, 2015) required by 44 U.S.C. 3506(c)(2). That Notice elicited no comments. Accordingly, no changes have been made to the Collections.
1.
In States that do not have an approved system, the Federal Government (U.S. Coast Guard) must administer the vessel numbering system. Currently, all 56 States and Territories have approved numbering systems. The approximate number of undocumented vessels registered by the States in 2014 was nearly 12 million.
The SNS collects information on undocumented vessels and vessel owners. States submit reports annually to the Coast Guard on the number, size, construction, etc., of vessels they have numbered. That information is used by the Coast Guard in (1) publication of an annual “Boating Statistics” report required by 46 U.S.C. 6102(b), and (2) for allocation of Federal funds to assist States in carrying out the Recreational Boating Safety (RBS) Program established by 46 U.S.C. chapter 131.
On a daily basis or as warranted, Federal, State, and local law enforcement personnel use SNS information from the States' numbering system for enforcement of boating laws or theft and fraud investigations. In addition, when encountering a vessel suspected of illegal activity, information from the SNS increases officer safety by assisting boarding officers in determining how best to approach a vessel. Since, the September 11, 2001 terrorist attacks on the United States, the need has increased for identification of undocumented vessels and their owners for port security and other missions to safeguard the homeland, although the statutory requirement for numbering of vessels dates back to 1918.
The Paperwork Reduction Act of 1995; 44 U.S.C. chapter 35, as amended.
Office of Policy Development and Research, HUD.
Notice of proposed information collection.
HUD is seeking approval from the Office of Management and Budget (OMB) for the information collection described below. In accordance with the Paperwork Reduction Act, HUD is requesting comment from all interested parties on the proposed collection of information. The purpose of this notice is to allow for 60 days of public comment.
Interested persons are invited to submit comments regarding this proposal. Comments should refer to the proposal by name and/or OMB Control Number and should be sent to: Colette Pollard, Reports Management Officer, QDAM, Department of Housing and Urban Development, 451 7th Street SW., Room 4176, Washington, DC 20410-5000; telephone 202-402-3400 (this is not a toll-free number) or email at
Colette Pollard, Reports Management Officer, QDAM, Department of Housing and Urban Development, 451 7th Street SW., Washington, DC 20410; email Colette Pollard at
Copies of available documents submitted to OMB may be obtained from Ms. Pollard.
This notice informs the public that HUD is seeking approval from OMB for the information collection described in Section A.
This notice is soliciting comments from members of the public and affected parties concerning the collection of information described in Section A on the following:
(1) 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) The accuracy of the agency'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 those who are to respond, including through the use of appropriate automated collection techniques or other forms of information technology,
HUD encourages interested parties to submit comment in response to these questions.
Section 3507 of the Paperwork Reduction Act of 1995, 44 U.S.C. Chapter 35.
Office of the Assistant Secretary for Public and Indian Housing, PIH, HUD.
Notice.
HUD is seeking approval from the Office of Management and Budget (OMB) for the information collection described below. In accordance with the Paperwork Reduction Act, HUD is requesting comment from all interested parties on the proposed collection of information. The purpose of this notice is to allow for 60 days of public comment.
Interested persons are invited to submit comments regarding this proposal. Comments should refer to the proposal by name and/or OMB Control Number and should be sent to: Colette Pollard, Reports Management Officer, QDAM, Department of Housing and Urban Development, 451 7th Street SW., Room 4176, Washington, DC 20410-5000; telephone 202-402-3400 (this is not a toll-free number) or email at
Arlette Mussington, Office of Policy, Programs and Legislative Initiatives, PIH, Department of Housing and Urban Development, 451 7th Street SW., (L'Enfant Plaza, Room 2206), Washington, DC 20410; telephone 202-402-4109, (this is not a toll-free number). Persons with hearing or speech impairments may access this number via TTY by calling the Federal Information Relay Service at (800) 877-8339. Copies of available documents submitted to OMB may be obtained from Ms. Mussington.
This notice informs the public that HUD is seeking approval from OMB for the information collection described in Section A.
This notice is soliciting comments from members of the public and affected parties concerning the collection of information described in Section A on the following:
(1) 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) The accuracy of the agency'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 those who are to respond; including through the use of appropriate automated collection techniques or other forms of information technology,
HUD encourages interested parties to submit comment in response to these questions.
Section 3507 of the Paperwork Reduction Act of 1995, 44 U.S.C. Chapter 35.
Fish and Wildlife Service, Interior.
Notice; request for comments.
We (U.S. Fish and Wildlife Service, Service) will ask the Office of Management and Budget (OMB) to approve the information collection (IC) described below. As required by the Paperwork Reduction Act of 1995 and as part of our continuing efforts to reduce paperwork and respondent burden, we invite the general public and other Federal agencies to take this opportunity to comment on this IC. This IC is scheduled to expire on April 30, 2016. We 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.
To ensure that we are able to consider your comments on this IC, we must receive them by February 26, 2016.
Send your comments on the IC to the Information Collection Clearance Officer, U.S. Fish and Wildlife Service, MS BPHC, 5275 Leesburg Pike, Falls Church, VA 22041-3803 (mail); or
To request additional information about this IC, contact Hope Grey at
The Endangered Species Act (16 U.S.C. 1531
The information that we collect is unique to each wildlife shipment and enables us to:
• Accurately inspect the contents of the shipment;
• Enforce any regulations that pertain to the fish, wildlife, or wildlife products contained in the shipment; and
• Maintain records of the importation and exportation of these commodities.
Businesses or individuals must file FWS Forms 3-177 and 3-177a with us at the time and port where they request clearance of the import or export of wildlife or wildlife products. Our regulations allow for certain species of wildlife to be imported or exported between the United States and Canada or Mexico at U.S. Customs and Border Protection ports, even though our wildlife inspectors may not be present.
In these instances, importers and exporters may file the forms with U.S. Customs and Border Protection. We collect the following information:
(1) Name of the importer or exporter and broker.
(2) Scientific and common name of the fish or wildlife.
(3) Permit numbers (if permits are required).
(4) Description, quantity, and value of the fish or wildlife.
(5) Natural country of origin of the fish or wildlife.
In addition, certain information, such as the airway bill or bill of lading number, the location of the shipment containing the fish or wildlife for inspection, and the number of cartons containing fish or wildlife, assists our wildlife inspectors if a physical
In 2009, we implemented a new user fee system intended to recover the costs of the compliance portion of the wildlife inspection program. Since that time, we have been made aware that we may have placed an undue economic burden on businesses that exclusively trade in small volumes of low-value, non-federally protected wildlife parts and products. To address this issue, we implemented a program that exempts certain businesses from the designated port base inspection fees as an interim measure while we reassess the current user fee system. Businesses that possess a valid Service import/export license may request to participate in the fee exemption program through our electronic filing system (eDecs). Qualified licensees must create an eDecs filer account as an importer or exporter, if they do not already have one, and file their required documents electronically. To be an approved participating business in the program and receive an exemption from the designated port base inspection fee, the licensed business must certify that it will exclusively import or export nonliving wildlife that is not listed as injurious under 50 CFR part 16 and does not require a permit or certificate under 50 CFR parts 15 (Wild Bird Conservation Act), 17 (Endangered Species Act), 18 (Marine Mammal Protection Act), 20 and 21 (Migratory Bird Treaty Act), 22 (Bald and Golden Eagle Protection Act), or 23 (the Convention on International Trade in Endangered Species of Wild Fauna and Flora). The requesting business also must certify that it will exclusively import or export the above types of wildlife shipments where the quantity in each shipment of wildlife parts or products is 25 or fewer and the total value of each wildlife shipment is $5,000 or less. Any licensed business that has more than two wildlife shipments that were refused clearance in the 5 years prior to its request is not eligible for the program. In addition, any licensees that have been assessed a civil penalty, issued a Notice of Violation, or convicted of a misdemeanor or felony violation involving wildlife import or export will not be eligible to participate in the program.
We invite comments concerning this information collection on:
• Whether or not the collection of information is necessary, including whether or not the information will have practical utility;
• The accuracy of our estimate of the burden for this collection of information;
• Ways to enhance the quality, utility, and clarity of the information to be collected; and
• Ways to minimize the burden of the collection of information on respondents.
Comments that you submit in response to this notice are a matter of public record. We will include or summarize each comment in our request to OMB to approve this IC. 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.
Fish and Wildlife Service, Interior.
Notice of meeting.
We, the U.S. Fish and Wildlife Service, announce a public meeting of the Wildlife and Hunting Heritage Conservation Council (Council). The Council provides advice about wildlife and habitat conservation endeavors that benefit wildlife resources; encourage partnership among the public, the sporting conservation organizations, the States, Native American tribes, and the Federal Government; and benefit recreational hunting.
The meeting will be held at the National Wild Turkey Federation Visitor Center, 770 Augusta Road, Edgefield, South Carolina, 29824.
Joshua Winchell, Council Designated Federal Officer, U.S. Fish and Wildlife Service, National Wildlife Refuge System, 5275 Leesburg Pike, Falls
In accordance with the requirements of the Federal Advisory Committee Act, 5 U.S.C. App., we announce that Wildlife and Hunting Heritage Conservation Council will hold a meeting.
Formed in February 2010, the Council provides advice about wildlife and habitat conservation endeavors that:
1. Benefit wildlife resources;
2. Encourage partnership among the public, the sporting conservation organizations, the states, Native American tribes, and the Federal Government; and
3. Benefit recreational hunting.
The Council advises the Secretary of the Interior and the Secretary of Agriculture, reporting through the Director, U.S. Fish and Wildlife Service (Service), in consultation with the Director, Bureau of Land Management (BLM); Director, National Park Service (NPS); Chief, Forest Service (USFS); Chief, Natural Resources Conservation Service (NRCS); and Administrator, Farm Services Agency (FSA). The Council's duties are strictly advisory and consist of, but are not limited to, providing recommendations for:
1. Implementing the Recreational Hunting and Wildlife Resource Conservation Plan—A Ten-Year Plan for Implementation;
2. Increasing public awareness of and support for the Wildlife Restoration Program;
3. Fostering wildlife and habitat conservation and ethics in hunting and shooting sports recreation;
4. Stimulating sportsmen and women's participation in conservation and management of wildlife and habitat resources through outreach and education;
5. Fostering communication and coordination among State, tribal, and Federal governments; industry; hunting and shooting sportsmen and women; wildlife and habitat conservation and management organizations; and the public;
6. Providing appropriate access to Federal lands for recreational shooting and hunting;
7. Providing recommendations to improve implementation of Federal conservation programs that benefit wildlife, hunting, and outdoor recreation on private lands; and
8. When requested by the Designated Federal Officer in consultation with the Council Chairperson, performing a variety of assessments or reviews of policies, programs, and efforts through the Council's designated subcommittees or workgroups.
Background information on the Council is available at
The Council will convene to consider issues including:
1. Wildlife habitat and health;
2. Funding for public lands and wildlife management;
3. Endangered Species Act; and
4. Other Council business.
The final agenda will be posted on the Internet at
To attend this meeting, register by close of business on the dates listed in “Public Input” under
Interested members of the public may submit relevant information or questions for the Council to consider during the public meeting. Written statements must be received by the date above, so that the information may be made available to the Council for their consideration prior to this meeting. Written statements must be supplied to the Council Coordinator in both of the following formats: One hard copy with original signature, and one electronic copy via email (acceptable file formats are Adobe Acrobat PDF, MS Word, MS PowerPoint, or rich text file).
Individuals or groups requesting to make an oral presentation at the meeting will be limited to two minutes per speaker, with no more than a total of 30 minutes for all speakers. Interested parties should contact the Council Coordinator, in writing (preferably via email; see
Summary minutes of the conference will be maintained by the Council Coordinator (see
U.S. Geological Survey, Department of the Interior.
Notice of meeting
Pursuant to Public Law 106-503, the Scientific Earthquake Studies Advisory Committee (SESAC) will hold its next meeting in the Utah Department of Natural Resources Auditorium at the Utah Department of Natural Resources at 1594 West North Temple in Salt Lake City, Utah. The Committee is comprised of members from academia, industry, and State government. The Committee shall advise the Director of the U.S. Geological Survey (USGS) on matters relating to the USGS's participation in the National Earthquake Hazards Reduction Program.
The Committee will receive reports on the status of activities of the Program and progress toward Program goals and objectives. The Committee will assess this information and provide guidance on the future undertakings and direction of the Earthquake Hazards Program. Focus topics for this meeting include a program review and strategic planning for 2016-2018.
The meeting will be held from 9:00 a.m. to 5:00 p.m. on February 4 and 5, 2016.
Dr. William Leith, U.S. Geological Survey, MS 905, 12201 Sunrise Valley Drive, Reston, Virginia 20192, (703) 648-6786,
Meetings of the Scientific Earthquake Studies Advisory Committee are open to the public.
Bureau of Land Management, Interior.
Notice of Public Meetings.
In accordance with the Federal Land Policy and Management Act (FLPMA) and the Federal Advisory Committee Act of 1972 (FACA), the U.S. Department of the Interior, Bureau of Land Management (BLM) Idaho Falls District Resource Advisory Council (RAC), will meet as indicated below.
The RAC will next meet in Idaho Falls, Idaho, January 26-27, 2016. The first day will begin at 1:00 p.m. at the BLM Idaho Falls Office, 1405 Hollipark Drive, Idaho Falls, Idaho, with elections of a new chairman, vice chairman and secretary. The second day will be at the same location starting at 9:00 a.m. and adjourning at 12:30 p.m. Members of the public are invited to attend. A comment period will be held January 26, following introductions from 1:00-1:30. Other meeting topics includes, law enforcement efforts, travel management planning, district and field office updates, sage-grouse updates and resource management plan strategies. Additional topics will be scheduled as appropriate. All meetings are open to the public.
The 15-member Council advises the Secretary of the Interior, through the Bureau of Land Management, on a variety of planning and management issues associated with public land management in the BLM Idaho Falls District (IFD), which covers eastern Idaho.
All meetings are open to the public. The public may present written comments to the Council. Each formal Council meeting will also have time allocated for hearing public comments. Depending on the number of persons wishing to comment and time available, the time for individual oral comments may be limited. Individuals who plan to attend and need special assistance, such as sign language interpretation, tour transportation or other reasonable accommodations, should contact the BLM as provided below.
Sarah Wheeler, RAC Coordinator, Idaho Falls District, 1405 Hollipark Dr., Idaho Falls, ID 83401. Telephone: (208) 524-7550. Email:
U.S. International Trade Commission.
Notice.
Notice is hereby given that the presiding administrative law judge has issued a final initial determination and recommended determination on remedy and bonding in the above-captioned investigation. The Commission is soliciting comments on public interest issues raised by the recommended relief, specifically a limited exclusion order against certain three-dimensional cinema systems and components thereof imported by respondents MasterImage 3D, Inc. of Sherman Oaks, California, and MasterImage 3D Asia, LLC of Seoul, Republic of Korea, and a cease and desist order against the domestic respondent. This notice is soliciting public interest comments from the public only. Parties are to file public interest submissions pursuant to 19 CFR 210.50(a)(4).
Lucy Grace D. Noyola, Office of the General Counsel, U.S. International Trade Commission, 500 E Street SW., Washington, DC 20436, telephone (202) 205-3438. The public version of the complaint can be accessed on the Commission's electronic docket (EDIS) at
Section 337 of the Tariff Act of 1930 provides that if the Commission finds a violation it shall exclude the articles concerned from the United States:
The Commission is interested in further development of the record on the public interest in this investigation. Accordingly, members of the public are invited to file submissions of no more than five pages, inclusive of attachments, concerning the public interest in light of the administrative law judge's recommended determination on remedy and bonding issued in this investigation on December 16, 2015. Comments should address whether issuance of a limited exclusion order and cease and desist order in this investigation would affect the public health and welfare in the United States, competitive conditions in the United States economy, the production of like or directly competitive articles in the United States, or United States consumers.
In particular, the Commission is interested in comments that:
(i) explain how the articles potentially subject to the recommended orders are used in the United States;
(ii) identify any public health, safety, or welfare concerns in the United States relating to the recommended orders;
(iii) identify like or directly competitive articles that complainant,
(iv) indicate whether complainant, complainant's licensees, and/or third party suppliers have the capacity to replace the volume of articles potentially subject to the recommended exclusion order and/or a cease and desist order within a commercially reasonable time; and
(v) explain how the limited exclusion order and cease and desist order would impact consumers in the United States.
Written submissions must be filed no later than by close of business on January 21, 2016. Persons filing written submissions must file the original document electronically on or before the deadlines stated above and submit eight true paper copies to the Office of the Secretary by noon the next day pursuant to section 210.4(f) of the Commission's Rules of Practice and Procedure (19 CFR 210.4(f)). Submissions should refer to the investigation number (Inv. No. 337-TA-939) in a prominent place on the cover page, the first page, or both. (
Any person desiring to submit a document to the Commission in confidence must request confidential treatment. All such requests should be directed to the Secretary to the Commission and must include a full statement of the reasons why the Commission should grant such treatment.
This action is taken under the authority of section 337 of the Tariff Act of 1930, as amended (19 U.S.C. 1337), and of sections 201.10 and 210.50 of the Commission's Rules of Practice and Procedure (19 CFR 201.10, 210.50).
By order of the Commission.
U.S. International Trade Commission.
Notice.
Notice is hereby given that the U.S. International Trade Commission has received a complaint entitled
Lisa R. Barton, Secretary to the Commission, U.S. International Trade Commission, 500 E Street SW., Washington, DC 20436, telephone (202) 205-2000. The public version of the complaint can be accessed on the Commission's Electronic Document Information System (EDIS) at EDIS,
General information concerning the Commission may also be obtained by accessing its Internet server at United States International Trade Commission (USITC) at USITC.
The Commission has received a complaint and a submission pursuant to section 210.8(b) of the Commission's Rules of Practice and Procedure filed on behalf of Energetiq Technology, Inc. on December 15, 2015. The complaint alleges violations of section 337 of the Tariff Act of 1930 (19 U.S.C. 1337) in the importation into the United States, the sale for importation, and the sale within the United States after importation of certain laser-driven light sources, subsystems containing laser-driven light sources, and products containing same. The complaint names as respondents ASML Netherlands B.V. of the Netherlands; ASML US, Inc. of Chandler, AZ; and Oioptiq Photonics GmbH & Co. KG of Germany. The complainant requests that the Commission issue a limited exclusion order, cease and desist orders, and impose a bond upon respondents' alleged infringing articles during the 60-day Presidential review period pursuant to 19 U.S.C. 1337(j).
Proposed respondents, other interested parties, and members of the public are invited to file comments, not to exceed five (5) pages in length, inclusive of attachments, on any public interest issues raised by the complaint or section 210.8(b) filing. Comments should address whether issuance of the relief specifically requested by the complainant in this investigation would affect the public health and welfare in the United States, competitive conditions in the United States economy, the production of like or directly competitive articles in the United States, or United States consumers.
In particular, the Commission is interested in comments that:
(i) explain how the articles potentially subject to the requested remedial orders are used in the United States;
(ii) identify any public health, safety, or welfare concerns in the United States relating to the requested remedial orders;
(iii) identify like or directly competitive articles that complainant, its licensees, or third parties make in the United States which could replace the subject articles if they were to be excluded;
(iv) indicate whether complainant, complainant's licensees, and/or third party suppliers have the capacity to replace the volume of articles potentially subject to the requested exclusion order and/or a cease and desist order within a commercially reasonable time; and
(v) explain how the requested remedial orders would impact United States consumers.
Written submissions must be filed no later than by close of business, eight calendar days after the date of publication of this notice in the
Persons filing written submissions must file the original document electronically on or before the deadlines stated above and submit 8 true paper copies to the Office of the Secretary by noon the next day pursuant to section 210.4(f) of the Commission's Rules of Practice and Procedure (19 CFR 210.4(f)). Submissions should refer to the docket number (“Docket No. 3107”) in a prominent place on the cover page and/or the first page. (
Any person desiring to submit a document to the Commission in confidence must request confidential treatment. All such requests should be directed to the Secretary to the Commission and must include a full statement of the reasons why the Commission should grant such treatment.
This action is taken under the authority of section 337 of the Tariff Act of 1930, as amended (19 U.S.C. 1337), and of sections 201.10 and 210.8(c) of the Commission's Rules of Practice and Procedure (19 CFR 201.10, 210.8(c)).
By order of the Commission.
U.S. International Trade Commission.
Notice.
Notice is hereby given that the U.S. International Trade Commission (“the Commission”) has determined to review in part and, on review, to reverse in part and to vacate in part the final initial determination (“ID”) issued by the presiding administrative law judge (“ALJ”) on October 22, 2015. The Commission has also determined to remand the investigation in part to the ALJ.
Michael Liberman, Esq., Office of the General Counsel, U.S. International Trade Commission, 500 E Street SW., Washington, DC 20436, telephone (202) 205-3115. Copies of non-confidential documents filed in connection with this investigation are or will be available for inspection during official business hours (8:45 a.m. to 5:15 p.m.) in the Office of the Secretary, U.S. International Trade Commission, 500 E Street SW., Washington, DC 20436, telephone (202) 205-2000. General information concerning the Commission may also be obtained by accessing its Internet server at
The Commission instituted Investigation No. 337-TA-928,
On November 21, 2014, the Commission instituted Investigation No. 337-TA-937,
On December 9, 2014, the ALJ consolidated investigations Nos. 337-TA-928 and 337-TA-937.
On May 19, 2015, Valeo and Federal-Mogul reached a settlement agreement and filed a joint motion to terminate the Federal-Mogul Respondents from the consolidated investigations, which was granted on June 5, 2015.
The evidentiary hearing on the question of violation of section 337 was held in July of 2015. The final ID on violation was issued on October 22, 2015. The ALJ issued his recommended determination on remedy, the public interest and bonding on the same day. The ALJ found that a violation of section 337 has occurred in the importation into the United States, the sale for importation, or the sale within the United States after importation of certain windshield wipers and components thereof by reason of infringement of certain claims of the `798 patent. The ALJ recommended that the Commission issue a limited exclusion order directed to Trico's accused products that infringe the `798 patent. The ALJ did not recommend that the Commission issue a cease and desist order in this investigation. Both parties to this investigation filed timely petitions for review of various portions of the final ID, as well as timely responses to the petitions.
Having examined the record in this investigation, including the ALJ's final ID, the petitions for review, and the responses thereto, the Commission has determined to review the ID in part and, on review, to take certain actions. In particular, the Commission has determined as follows:
(1) To review the ALJ's determination in Order No. 36 (Jul. 16, 2015) precluding arguments and evidence relating to Trico's 618 and 596 connectors on the basis that they are obsolete and are irrelevant to the present investigation,
(2) To review the ALJ's finding that Valeo's indirect infringement claims are moot and, on review, to vacate it. The Commission finds it unnecessary to reach the issue of whether Trico induced infringement of the `798 patent with respect to the accused products considered by the ALJ because the Commission has determined not to review the ALJ's finding that Trico directly infringes the `798 patent.
(3) To review the ALJ's finding that Valeo established quantitatively and qualitatively significant investment in plant and equipment and thus satisfies economic prong of the domestic industry requirement under subsection (A) of section 337(a)(3) and, on review, to take no position with respect to this finding.
(4) To review the final ID with respect to footnote 7 on page 17 and, on review, to modify the subject footnote by striking its second sentence.
The Commission has determined not to review the remainder of the final ID. The Commission does not seek further briefing at this time.
In light of the remand, the ALJ shall set a new target date within thirty days of the date of this notice consistent with the Remand Order. The current target date for this investigation is February 23, 2016.
Any briefing on reviewed and remanded issues, and on remedy, bonding, and the public interest will follow Commission consideration of the remand ID.
The authority for the Commission's determination is contained in section 337 of the Tariff Act of 1930, as amended (19 U.S.C. 1337), and in Part 210 of the Commission's Rules of Practice and Procedure (19 CFR part 210).
By order of the Commission.
U.S. International Trade Commission.
Notice.
Notice is hereby given that a complaint was filed with the U.S. International Trade Commission on November 19, 2015, under section 337 of the Tariff Act of 1930, as amended, 19 U.S.C. 1337, on behalf of Federal-Mogul Motorparts Corporation of Southfield, Michigan. The complaint 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 chassis parts incorporating movable sockets and components thereof by reason of infringement of certain claims of U.S. Patent No. 6,202,280 (“the '280 patent”). The complaint further alleges that an industry in the United States exists as required by subsection (a)(2) of section 337.
The complainant requests that the Commission institute an investigation and, after the investigation, issue a general exclusion order, or in the alternative a limited exclusion order, and a cease and desist order.
The complaint, except for any confidential information contained therein, is available for inspection during official business hours (8:45 a.m. to 5:15 p.m.) in the Office of the Secretary, U.S. International Trade Commission, 500 E Street SW., Room 112, Washington, DC 20436, telephone (202) 205-2000. Hearing impaired individuals are advised that information on this matter can be obtained by contacting the Commission's TDD terminal on (202) 205-1810. Persons with mobility impairments who will need special assistance in gaining access to the Commission should contact the Office of the Secretary at (202) 205-2000. General information concerning the Commission may also be obtained by accessing its Internet server at
The Office of Unfair Import Investigations, U.S. International Trade Commission, telephone (202) 205-2560.
Scope of Investigation: Having considered the complaint, the U.S. International Trade Commission, on December 21, 2015,
(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 chassis parts incorporating movable sockets and components thereof by reason of infringement of one or more of claims 1-5 of the '280 patent, and whether an industry in the United States exists as required by subsection (a)(2) of section 337;
(2) 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) The complainant is: Federal-Mogul Motorparts Corporation, 27300 West 11 Mile Road, Southfield, MI 48034.
(b) The respondent is the following entity alleged to be in violation of section 337, and is the party upon which the complaint is to be served: Mevotech, L.P., 240 Bridgeland Avenue, Toronto, ON, Canada M6A 1Z4.
(c) The Office of Unfair Import Investigations, U.S. International Trade Commission, 500 E Street SW., Suite 401, Washington, DC 20436; and
(3) For the investigation so instituted, the Chief Administrative Law Judge, U.S. International Trade Commission, shall designate the presiding Administrative Law Judge.
Responses to the complaint and the notice of investigation must be submitted by the named respondent 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), such responses will be considered by the Commission if received not later than 20 days after the date of service by the Commission 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 the 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
By order of the Commission.
Joint Board for the Enrollment of Actuaries
Notice of Federal Advisory Committee meeting.
The Executive Director of the Joint Board for the Enrollment of Actuaries gives notice of a teleconference meeting of the Advisory Committee on Actuarial Examinations (a portion of which will be open to the public) on January 11-12, 2016.
Monday, January 11, 2016, from 9:00 a.m. to 5:00 p.m. (EST), and Tuesday, January 12, 2016, from 8:30 a.m. to 5:00 p.m. (EST).
The meeting will be held by teleconference.
Patrick W. McDonough, Executive Director of the Joint Board for the Enrollment of Actuaries, 703-414-2173.
Notice is hereby given that the Advisory Committee on Actuarial Examinations will hold a teleconference meeting on Monday, January 11, 2016, from 9:00 a.m. to 5:00 p.m. (EST), and Tuesday, January 12, 2016, from 8:30 a.m. to 5:00 p.m. (EST).
The purpose of the meeting is to discuss topics and questions that may be recommended for inclusion on future Joint Board examinations in actuarial mathematics and methodology referred to in 29 U.S.C. 1242(a)(1)(B) and to review the November 2015 Pension (EA-2F) Examination in order to make recommendations relative thereto, including the minimum acceptable pass score. Topics for inclusion on the syllabus for the Joint Board's examination program for the May 2016 Basic (EA-1) Examination and the May 2016 Pension (EA-2L) Examination will be discussed.
A determination has been made as required by section 10(d) of the Federal Advisory Committee Act, 5 U.S.C. App., that the portions of the meeting dealing with the discussion of questions that may appear on the Joint Board's examinations and the review of the November 2015 Pension (EA-2F) Examination fall within the exceptions to the open meeting requirement set forth in 5 U.S.C. 552b(c)(9)(B), and that the public interest requires that such portions be closed to public participation.
The portion of the meeting dealing with the discussion of the other topics will commence at 1:00 p.m. (EST) on January 11, 2016, and will continue for as long as necessary to complete the discussion, but not beyond 3:00 p.m. (EST). Time permitting, after the close of this discussion by Committee members, interested persons may make statements germane to this subject. Persons wishing to make oral statements should contact the Executive Director at
Notice is hereby given pursuant to the Antitrust Procedures and Penalties Act, 15 U.S.C. 16(b)-(h), that a proposed Final Judgment, Hold Separate Stipulation and Order, and Competitive Impact Statement have been filed with the United States District Court for the District of Columbia in
Copies of the Complaint, proposed Final Judgment, Hold Separate Stipulation and Order, and Competitive Impact Statement are available for inspection on the Antitrust Division's Web site at
Public comment is invited within 60 days of the date of this notice. Such comments, including the name of the submitter, and responses thereto, will be posted on the Antitrust Division's Web site, filed with the Court, and, under certain circumstances, published in the
The United States of America, acting under the direction of the Attorney General of the United States, and the State of Connecticut, acting by and through its Office of the Attorney General, bring this civil antitrust action to prevent the proposed acquisition by AMC Entertainment Holdings, Inc.
1. AMC is a significant competitor to Starplex Cinemas in the exhibition of first-run, commercial movies in the area in and around East Windsor, New Jersey and in the area in and around Berlin, Connecticut. If AMC's acquisition of Starplex Cinemas is permitted to proceed, it would give AMC direct control of its most significant competitor in these markets. The acquisition likely would substantially lessen competition in the exhibition of first-run, commercial movies in each of these markets in violation of Section 7 of the Clayton Act, 15 U.S.C. § 18.
2. This action is filed by the United States pursuant to Section 15 of the Clayton Act, as amended, 15 U.S.C. § 25, to obtain equitable relief and to prevent a violation of Section 7 of the Clayton Act, as amended, 15 U.S.C. § 18.
3. The State of Connecticut brings this action under Section 16 of the Clayton Act, 15 U.S.C. § 26, to prevent the defendants from violating Section 7 of the Clayton Act, as amended, 15 U.S.C. § 18. The State of Connecticut, by and through its Office of the Attorney General, brings this action as
4. The distribution and theatrical exhibition of first-run, commercial films is a commercial activity that substantially affects, and is in the flow of, interstate trade and commerce. Defendants' activities in purchasing equipment, services, and supplies as well as licensing films for exhibition substantially affect interstate commerce. The Court has jurisdiction over the subject matter of this action pursuant to 15 U.S.C. § 25 and 28 U.S.C. §§ 1331, 1337(a), and 1345.
5. Defendants consent to personal jurisdiction and venue in this district. Therefore, this Court has personal jurisdiction over each Defendant and venue is proper under 28 U.S.C. § 1391(b) and (c). In addition, venue is proper under 15 U.S.C. § 22 because one defendant operates theatres in this District; the other transacts business by attracting patrons from and advertising in this District.
6. Defendant AMC is a Delaware corporation with its headquarters in Leawood, Kansas. AMC operates 349 theatres and 4,975 screens in locations throughout the United States. Measured by number of screens and box office revenue, AMC is the second-largest theatre circuit in the United States.
7. Defendant Starplex Cinemas is a Texas corporation with its headquarters in Dallas, Texas. Starplex operates 33 movie theatres with a total of 346 screens in the United States, primarily located in small to midsize markets.
8. On July 13, 2015, AMC and Starplex Cinemas executed a stock purchase agreement. Under the agreement, AMC will acquire all outstanding voting securities of Starplex Cinemas for approximately $172 million.
9. Viewing movies in the theatre is a popular pastime. Over one billion movie tickets were sold in the United States in 2014, with total box office revenue reaching approximately $10 billion.
10. Companies that operate movie theatres are called “exhibitors.” Some exhibitors own a single theatre, whereas others own a circuit of theatres within one or more regions of the United States. AMC and Starplex Cinemas are exhibitors in the United States.
11. Exhibitors set ticket prices for a theatre based on a number of factors, including the age and condition of the theatre, the number and type of amenities the theatre offers (such as the range of snacks, food and beverages offered, the size of its screens and quality of its sound systems, and whether it provides stadium and/or reserved seating), competitive pressures facing the theatre (such as the price of tickets at nearby theatres, the age and condition of those theatres, and the number and type of amenities they offer), and the population demographics and density surrounding the theatre.
12. Movies are a unique form of entertainment. The experience of viewing a movie in a theatre is an inherently different experience from live entertainment (
13. Reflecting the significant differences of viewing a movie in a theatre, ticket prices for movies generally differ from prices for other forms of entertainment. For example, live entertainment is typically significantly more expensive than a movie ticket, whereas home viewing through streaming video, a DVD rental, or pay-per-view is usually significantly less expensive than viewing a movie in a theatre.
14. Viewing a movie at home typically lacks several characteristics of viewing a movie in a theatre, including the size of the screen, the sophistication of the sound system, and the social experience of viewing a movie with other patrons. In addition, the most popular newly released or “first-run” movies are not available for home viewing at the time they come out in theatres.
15. Movies are considered to be in their “first-run” during the four to five weeks following initial release in a given locality. If successful, a movie may be exhibited at other theatres after the first-run as part of a second or subsequent run (often called a “sub-run” or “second-run”). Moviegoers generally do not regard sub-run movies as an adequate substitute for first-run movies. Reflecting the significant difference between viewing a newly released, first-run movie and an older sub-run movie, tickets at theatres exhibiting first-run movies usually cost significantly more than tickets at sub-run theatres.
16. Art movies and foreign-language movies are also not reasonable substitutes for commercial, first-run movies. Art movies, which include documentaries, are sometimes referred to as independent films. Although art and foreign-language movies appeal to some viewers of commercial movies, art and foreign-language movies tend to have more narrow appeal and typically attract an older audience than commercial movies. Exhibitors consider the operation of theatres that exhibit art and foreign-language movies to be distinct from the operation of theatres that exhibit commercial movies.
17. The relevant product market within which to assess the competitive effects of this acquisition is the exhibition of first-run, commercial movies. A hypothetical monopolist controlling the exhibition of all first-run, commercial movies would profitably impose at least a small but significant and non-transitory increase in ticket prices.
18. Moviegoers typically are not willing to travel very far from their home to attend a movie. As a result, geographic markets for the exhibition of first-run, commercial movies are relatively local.
19. AMC and Starplex Cinemas account for the majority of the first-run, commercial movie tickets sold in and around East Windsor, New Jersey (“East Windsor”). The only theatres that predominantly show first-run commercial movies in the East Windsor area are the Starplex Town Center Plaza 10, the AMC MarketFair 10, and the AMC Hamilton 24. The Starplex theatre is located approximately 10 miles from each of the AMC theatres.
20. Moviegoers who reside in East Windsor are unlikely to travel significant distances out of that area to attend a first-run, commercial movie. A small but significant increase in the price of tickets by a hypothetical monopolist of first-run, commercial movie theatres in East Windsor would likely not cause a sufficient number of moviegoers to travel out of that area to make the increase unprofitable. East Windsor constitutes a relevant geographic market in which to assess the competitive effects of this acquisition.
21. AMC and Starplex Cinemas account for the majority of the first-run, commercial movie tickets sold in and around Berlin, Connecticut (“Berlin”). Within the Berlin area are the Starplex Berlin 12 and the AMC Plainville 20. These two theatres are located approximately 8 miles apart. Only three other theatres in the Berlin area also show first-run, commercial movies.
22. Moviegoers who reside in Berlin are unlikely to travel significant distances out of that area to attend a first-run, commercial movie. A small but significant increase in the price of tickets by a hypothetical monopolist of first-run, commercial movie theatres in Berlin would likely not cause a sufficient number of moviegoers to travel out of that area to make the increase unprofitable. Berlin constitutes a relevant geographic market in which to assess the competitive effects of this acquisition.
23. Exhibitors compete to attract moviegoers to their theatres over the theatres of their rivals. They do that by competing on price, knowing that if they charge too much (or do not offer sufficient discounted tickets for matinees, seniors, students, or children) moviegoers will begin to frequent their rivals. Exhibitors also compete by seeking to license the first-run movies that are likely to attract the largest numbers of moviegoers. In addition, they compete over the quality of the viewing experience by offering moviegoers the most sophisticated sound systems, largest screens, best picture clarity, best seating (including stadium and reserved seating), and the broadest variety and highest quality snacks, food, and drinks at concession stands or cafés in the lobby or served to moviegoers at their seats.
24. AMC and Starplex Cinemas currently compete for moviegoers in the East Windsor and Berlin markets. These markets are concentrated, and in each market, AMC and Starplex Cinemas are the other's most significant competitor, given their close proximity. Their rivalry spurs each to improve the quality of its theatres and keeps ticket prices in check. Theatres operated by other exhibitors offer less attractive options for visitors to defendants' theatres because those theatres are located farther away or are smaller in size or poorer in quality.
25. In the relevant markets at issue, the acquisition of Starplex Cinemas likely will result in a substantial lessening of competition. In the East Windsor and Berlin markets, the transaction will lead to significant increases in concentration and eliminate existing competition between AMC and Starplex Cinemas.
26. Market concentration is often a useful indicator of the level of competitive vigor in a market and the likely competitive effects of a merger. The more concentrated a market, and the more a transaction would increase that concentration, the more likely it is that the transaction would result in reduced competition, harming consumers. Market concentration commonly is measured by the Herfindahl-Hirschman Index (“HHI”), as discussed in Appendix A. Markets in which the HHI exceeds 2,500 points are considered highly concentrated, and transactions that increase the HHI by more than 200 points in highly concentrated markets are presumed likely to enhance market power.
27. In East Windsor, the proposed acquisition would give AMC control of all of the first-run, commercial movie theatres, with 34 out of 34 total screens and a 100% share of the $13 million annual box office revenues. The acquisition would yield a post-acquisition HHI of 10,000, representing an increase of roughly 2,300 points.
28. In Berlin, the proposed acquisition would give AMC control of three of the six first-run, commercial movie theatres, with 44 out of 79 total screens and an approximate 68% share of the $11 million annual box office revenues. The acquisition would yield a post-acquisition HHI of approximately 5,260, representing an increase of roughly 2,280 points.
29. Today, were one of defendants' theatres to unilaterally increase ticket prices in East Windsor or Berlin, the exhibitor that increased price would likely suffer financially as a substantial number of its customers would patronize the other exhibitor. The acquisition would eliminate this pricing constraint. Thus, the acquisition is likely to lead to higher ticket prices for moviegoers, which could take the form of a higher adult evening ticket price or reduced discounting for matinees, children, seniors, or students.
30. The proposed acquisition likely would also reduce competition between AMC and Starplex Cinemas over the quality of the viewing experience at their East Windsor or Berlin theatres. If no longer motivated to compete, AMC and Starplex Cinemas would have reduced incentives to maintain, upgrade, and renovate their theatres, to improve the theatres' amenities and services, or to license the most popular movies, thus reducing the quality of the viewing experience for moviegoers in East Windsor and Berlin.
31. Sufficient, timely entry that would deter or counteract the anticompetitive effects alleged above is unlikely. Exhibitors are reluctant to locate new first-run, commercial theatres near existing first-run, commercial theatres unless the population density, demographics, or the quality of existing theatres makes new entry viable. Over the next two years, entry of new first-run, commercial movie theatres in East Windsor or Berlin would be unlikely to defeat a price increase by the merged firm.
32. Plaintiffs hereby reincorporate paragraphs 1 through 28.
33. The likely effect of the proposed transaction would be to substantially lessen competition in the relevant product and geographic markets in violation of Section 7 of the Clayton Act, 15 U.S.C. 18.
34. The transaction would likely have the following effects, among others: (a) the prices of tickets at first-run, commercial movie theatres in East Windsor and Berlin would likely increase to levels above those that would prevail absent the acquisition; and (b) the quality of first-run, commercial theatres and the viewing experience at those theatres would
35. Plaintiffs request: (a) adjudication that the proposed acquisition would violate Section 7 of the Clayton Act; (b) permanent injunctive relief to prevent the consummation of the proposed acquisition; (c) an award to each Plaintiff of its costs in this action; and (d) such other relief as is proper.
The term “HHI” means the Herfindahl-Hirschman Index, a commonly accepted measure of market concentration. The HHI is calculated by squaring the market share of each firm competing in the relevant market and then summing the resulting numbers. For example, for a market consisting of four firms with shares of 30, 30, 20, and 20 percent, the HHI is 2,600 (30
Markets in which the HHI is between 1,500 and 2,500 points are considered to be moderately concentrated, and markets in which the HHI is in excess of 2,500 points are considered to be highly concentrated.
Plaintiff, United States of America, pursuant to Section 2(b) of the Antitrust Procedures and Penalties Act (“APPA” or “Tunney Act”), 15 U.S.C.§ 16(b)-(h), files this Competitive Impact Statement relating to the proposed Final Judgment submitted for entry in this civil antitrust proceeding.
On July 13, 2015, Defendant AMC Entertainment Holdings, Inc. (“AMC”) agreed to acquire all of the outstanding voting securities of SMH Theatres, Inc. (“Starplex Cinemas”). AMC and Starplex Cinemas are significant competitors in the exhibition of first-run, commercial movies in parts of New Jersey and Connecticut. Plaintiffs filed a civil antitrust complaint on December 15, 2015, seeking to enjoin the proposed acquisition and to obtain equitable relief. The Complaint alleges that the acquisition, if permitted to proceed, would give AMC direct control of its most significant competitor in the area in and around East Windsor, New Jersey and in the area in and around Berlin, Connecticut. The likely effect of this acquisition would be to substantially lessen competition in the exhibition of first-run, commercial movies in violation of Section 7 of the Clayton Act, 15 U.S.C. § 18.
At the same time the Complaint was filed, Plaintiffs also filed a Hold Separate Stipulation and Order (“Hold Separate”) and a proposed Final Judgment, which are designed to eliminate the anticompetitive effects of the acquisition. Under the proposed Final Judgment, which is explained more fully below, AMC and Starplex Cinemas are required to divest one theatre located in New Jersey and one theatre located in Connecticut to acquirer(s) acceptable to the United States, in consultation with the State of Connecticut.
Under the terms of the Hold Separate, Defendants will take all steps necessary to ensure that the two theatres to be divested are operated as competitively independent, economically viable, and ongoing business concerns, and that competition is maintained and not diminished during the pendency of the ordered divestitures.
Plaintiffs and Defendants have stipulated that the proposed Final Judgment may be entered after compliance with the APPA. Entry of the proposed Final Judgment would terminate this action, except that the Court would retain jurisdiction to construe, modify, or enforce the provisions of the proposed Final Judgment and to punish violations thereof.
Defendant Starplex Cinemas is a Texas corporation with its headquarters in Dallas, Texas. Starplex operates 33 movie theatres with a total of 346 screens in 12 states throughout the United States, primarily located in small to midsize markets. Starplex earned domestic box office revenue of approximately $57 million in 2014.
AMC is a Delaware corporation with its headquarters in Leawood, Kansas. It operates 349 theatres and 4,975 screens in locations primarily throughout the United States. Measured by number of screens and box office revenue, AMC is the second-largest theatre exhibitor in the United States and earned domestic box office revenues of approximately $1.8 billion in 2014.
On July 13, 2015, AMC and Starplex Cinemas executed a stock purchase agreement under which AMC will acquire, for approximately $172 million, all of the outstanding voting securities of Starplex Cinemas.
The proposed transaction, as initially agreed to by AMC and Starplex Cinemas
The exhibition of first-run, commercial movies is a relevant product market under Section 7 of the Clayton Act. The experience of viewing a film in a theatre is an inherently different experience from live entertainment (e.g., a stage production or attending a sporting event), or viewing a movie in the home (e.g., through streaming video, on a DVD, or via pay-per-view).
Reflecting the significant differences between viewing a movie in a theatre and other forms of entertainment, ticket prices for movies are generally very different from prices for other forms of entertainment. Live entertainment is typically significantly more expensive than a movie ticket, whereas renting a DVD or ordering a pay-per view movie for home viewing is usually significantly cheaper than viewing a movie in a theatre.
Moviegoers generally do not regard theatres showing “sub-run” movies, art movies, or foreign language movies as adequate substitutes for commercial, first-run movies.
The transaction substantially lessens competition in two relevant geographic markets: the area in and around East Windsor, New Jersey (“East Windsor”) and the area in and around Berlin, Connecticut (“Berlin”).
The only theatres that predominantly show first-run commercial movies in the East Windsor area are the Starplex Town Center Plaza 10, the AMC MarketFair 10, and the AMC Hamilton 24. No other non-party theatres in this area predominantly show first-run, commercial movies.
Within the Berlin area are the Starplex Berlin 12 and the AMC Plainville 20. These two theatres are located approximately 8 miles apart. Three non-party theatres in this area also show first-run, commercial movies.
The relevant markets in which to assess the competitive effects of this transaction are the first-run, commercial theatres in East Windsor and Berlin. A hypothetical monopolist controlling the exhibition of first-run, commercial movies in East Windsor and Berlin would profitably impose at least a small but significant and non-transitory increase in ticket prices.
Exhibitors that operate first-run, commercial theatres compete on multiple dimensions. Exhibitors compete on price, knowing that if they charge too much (or do not offer sufficient discounted tickets for matinees, seniors, students, or children), moviegoers will begin to frequent their rivals. Exhibitors also compete by seeking to license the first-run movies that are likely to attract the largest numbers of moviegoers. In addition, they compete over the quality of the viewing experience. They compete to offer the most sophisticated sound systems, largest screens, best picture clarity, best seating (including stadium and reserved seating), and the broadest range and highest quality snacks, food, and drinks at concession stands or cafés in the lobby or served to moviegoers at their seats.
AMC and Starplex Cinemas currently compete for moviegoers in East Windsor and Berlin. Each of these markets is concentrated, and AMC and Starplex Cinemas are each other's most significant competitor, given their close proximity. Their rivalry spurs each to improve the quality of its theatres and keeps ticket prices in check.
In East Windsor and Berlin, the acquisition by AMC of Starplex Cinemas' theatres likely will result in a substantial lessening of competition. The transaction will lead to significant increases in concentration and eliminate existing competition between AMC and Starplex Cinemas.
In East Windsor, the proposed acquisition would give the newly merged entity control of all of the first-run, commercial theatres, with 34 out of 34 total screens and a 100% share of annual box office revenues totaling approximately $13 million. Using a measure of market concentration called the Herfindahl-Hirschman Index (“HHI”), as discussed in Appendix A of the Complaint, the acquisition would yield a post-acquisition HHI of 10,000, representing an increase of roughly 2,300 points.
In Berlin, the proposed acquisition would give the newly-merged entity control of three of the six first-run, commercial theatres, with 44 out of 79 total screens and an approximate 68% share of annual box office revenues totaling approximately $11 million. The acquisition would yield a post-acquisition HHI of approximately 5,260, representing an increase of roughly 2,280 points.
In East Windsor and Berlin today, were one of Defendants' theatres to increase ticket prices unilaterally, the exhibitor that increased price would likely suffer financially as a substantial number of its customers would patronize the other exhibitor's theatre. Other theatres are smaller than and/or farther from the parties' theatres and unlikely to offer enough of a competitive constraint to prevent such a price increase. After the acquisition, AMC would recapture such losses, making price increases more profitable than they would have been pre-acquisition. The acquisition is, therefore, likely to lead to higher ticket prices for moviegoers, which could take the form of a higher adult evening ticket price or reduced discounting for matinees, children, seniors, and students.
Likewise, the proposed transaction would eliminate competition between AMC and Starplex Cinemas over the quality of the viewing experience at their theatres in East Windsor and Berlin. If no longer required to compete, AMC and Starplex Cinemas would have a reduced incentive to maintain, upgrade, and renovate their theatres, to improve the theatres' amenities and services, and to license the most popular movies, thus reducing the quality of the viewing experience for a moviegoer.
The entry of a first-run, commercial theatre sufficient to deter or counteract an increase in movie ticket prices or a decline in theatre quality is unlikely in either East Windsor or Berlin. Exhibitors are reluctant to locate new first-run, commercial theatres near existing first-run, commercial theatres, unless the population density, demographics, or the quality of existing theatres makes new entry viable. Over the next two years, entry of any new first-run, commercial movie theatres in East Windsor and Berlin would be unlikely to defeat a price increase by the merged firm.
For all of these reasons, the proposed transaction would lessen competition substantially in the exhibition of first-run, commercial movies in the East Windsor and Berlin markets, eliminate actual and potential competition between AMC and Starplex Cinemas, and likely result in increased ticket prices and lower quality theatres in those markets. The proposed transaction therefore violates Section 7 of the Clayton Act.
The divestiture requirement of the proposed Final Judgment will eliminate the anticompetitive effects of the acquisitions in each relevant geographic market, establishing new, independent, and economically viable competitors. The proposed Final Judgment requires Defendants within thirty (30) calendar days after the filing of the Complaint, or five (5) days after the notice of the entry of the Final Judgment by the Court, whichever is later, to divest as viable, ongoing businesses one theatre in each of the relevant markets.
The theatres must be divested in such a way as to satisfy Plaintiffs that they can and will be operated by the purchaser as viable, ongoing businesses that can compete effectively as first-run, commercial theatres. To that end, the proposed Final Judgment provides the acquirer(s) of the theatres with an option to enter into a transitional supply agreement with Defendants of up to 120 days in length, with the possibility of one or more extensions not to exceed six months in total, for the supply of any goods, services, support, including software service and support, and reasonable use of the name AMC, the name Starplex, and any registered service marks of AMC or Starplex, for use in operating those theatres during the period of transition. This ensures the acquirer(s) of the theatres can operate without interruption while long-term supply agreements are arranged and the theatres rebranded. Without the option to enter into a transitional supply agreement, the acquirer(s) might find itself temporarily without provisions, including concessions, necessary to operate the theatres.
Until the divestitures take place, AMC and Starplex Cinemas must maintain the sales and marketing of the theatres, and maintain the theatres in operable condition at current capacity configurations. In addition, AMC and Starplex Cinemas must not transfer or reassign to other areas within the company their employees with primary responsibility for the operation of the theatres, except for transfer bids initiated by employees pursuant to Defendants' regular, established job-posting policies. In the event that Defendants do not accomplish the divestitures within the periods prescribed in the proposed Final Judgment, the Final Judgment provides that the Court will appoint a trustee selected by the United States to effect the divestitures.
If Defendants are unable to effect any of the divestitures required herein due to its inability to obtain the consent of the landlord from whom a theatre is leased, Section VI.A of the proposed Final Judgment requires them to divest alternative theatre assets that compete effectively with the theatres for which the landlord consent was not obtained. These provisions will insure that any failure by Defendants to obtain landlord consent does not thwart the relief obtained in the proposed Final Judgment.
The proposed Final Judgment also prohibits Defendants, without providing at least thirty (30) days notice to the United States Department of Justice, from acquiring any other theatres in the following counties: Hartford County, Connecticut and Mercer County, New Jersey. These counties correspond to the relevant geographic markets in this case. Such acquisitions could raise competitive concerns but might be too small to be reported under the Hart-Scott-Rodino (“HSR”) premerger notification statute.
The divestiture provisions of the proposed Final Judgment will eliminate the anticompetitive effects of AMC's acquisition of Starplex Cinemas.
Section 4 of the Clayton Act, 15 U.S.C. § 15, provides that any person who has been injured as a result of conduct prohibited by the antitrust laws may bring suit in federal court to recover three times the damages the person has suffered, as well as costs and reasonable attorneys' fees. Entry of the proposed Final Judgment will neither impair nor assist the bringing of any private antitrust damage action. Under the provisions of Section 5(a) of the Clayton Act, 15 U.S.C. § 16(a), the proposed Final Judgment has no prima facie effect in any subsequent private lawsuit that may be brought against Defendants.
Plaintiffs and Defendants have stipulated that the proposed Final Judgment may be entered by the Court after compliance with the provisions of the APPA, provided that the United States has not withdrawn its consent. The APPA conditions entry upon the Court's determination that the proposed Final Judgment is in the public interest.
The APPA provides a period of at least sixty (60) days preceding the effective date of the proposed Final Judgment within which any person may submit to the United States written comments regarding the proposed Final Judgment. Any person who wishes to comment should do so within sixty (60) days of the date of publication of this Competitive Impact Statement in the
Written comments should be submitted to: David C. Kully, Chief, Litigation III, Antitrust Division, United States Department of Justice, 450 5th Street NW., Suite 4000, Washington, DC 20530.
Plaintiffs considered, as an alternative to the proposed Final Judgment, a full trial on the merits against Defendants. Plaintiffs could have continued the litigation and sought preliminary and permanent injunctions against AMC's acquisition of Starplex Cinemas. Plaintiffs are satisfied, however, that the divestiture of assets described in the proposed Final Judgment will preserve competition for the exhibition of first-run, commercial movies in East Windsor and Berlin. Thus, the proposed Final Judgment would achieve all or substantially all of the relief Plaintiffs would have obtained through litigation, but avoids the time, expense, and uncertainty of a full trial on the merits of the Complaint.
The Clayton Act, as amended by the APPA, requires that proposed consent judgments in antitrust cases brought by the United States be subject to a sixty-day comment period, after which the Court shall determine whether entry of the proposed Final Judgment “is in the public interest.” 15 U.S.C. § 16(e)(1). In
(A) the competitive impact of such judgment, including termination of alleged violations, provisions for enforcement and modification, duration of relief sought, anticipated effects of alternative remedies actually considered, whether its terms are ambiguous, and any other competitive considerations bearing upon the adequacy of such judgment that the court deems necessary to a determination of whether the consent judgment is in the public interest; and
(B) the impact of entry of such judgment upon competition in the relevant market or markets, upon the public generally and individuals alleging specific injury from the violations set forth in the complaint including consideration of the public benefit, if any, to be derived from a determination of the issues at trial.
As the United States Court of Appeals for the District of Columbia Circuit has held, under the APPA a court considers, among other things, the relationship between the remedy secured and the specific allegations set forth in the government's complaint, whether the decree is sufficiently clear, whether enforcement mechanisms are sufficient, and whether the decree may positively harm third parties.
Courts have greater flexibility in approving proposed consent decrees than in crafting their own decrees following a finding of liability in a litigated matter. “[A] proposed decree must be approved even if it falls short of the remedy the court would impose on its own, as long as it falls within the range of acceptability or is `within the reaches of public interest.'”
Moreover, the Court's role under the APPA is limited to reviewing the remedy in relationship to the violations that the United States has alleged in its Complaint, and does not authorize the Court to “construct [its] own hypothetical case and then evaluate the decree against that case.”
In its 2004 amendments, Congress made clear its intent to preserve the practical benefits of utilizing consent decrees in antitrust enforcement, adding the unambiguous instruction that “[n]othing in this section shall be construed to require the court to conduct an evidentiary hearing or to require the court to permit anyone to intervene.” 15 U.S.C. § 16(e)(2);
There are no determinative materials or documents within the meaning of the APPA that were considered by the United States in formulating the proposed Final Judgment.
WHEREAS, Plaintiffs United States of America and the State of Connecticut filed their Complaint on December 15, 2015, the Plaintiffs and Defendants, AMC Entertainment Holdings, Inc. (“AMC”), and SMH Theatres, Inc., (“Starplex Cinemas”), by their respective attorneys, have consented to the entry of this Final Judgment without trial or adjudication of any issue of fact or law, and without this Final Judgment constituting any evidence against or admission by any party regarding any issue of fact or law;
AND WHEREAS, Defendants agree to be bound by the provisions of this Final Judgment pending its approval by the Court;
AND WHEREAS, the essence of this Final Judgment is the prompt and certain divestiture of certain rights or assets by the Defendants to assure that competition is not substantially lessened;
AND WHEREAS, Plaintiffs require Defendants to make certain divestitures for the purpose of remedying the loss of competition alleged in the Complaint;
AND WHEREAS, Defendants have represented to Plaintiffs that the divestitures required below can and will be made and that Defendants will later raise no claim of hardship or difficulty as grounds for asking the Court to modify any of the divestiture provisions contained below;
NOW THEREFORE, before any testimony is taken, without trial or adjudication of any issue of fact or law, and upon consent of the parties, it is ORDERED, ADJUDGED AND DECREED:
This Court has jurisdiction over the subject matter of and each of the parties to this action. The Complaint states a claim upon which relief may be granted against Defendants under Section 7 of the Clayton Act, as amended, 15 U.S.C. 18.
As used in this Final Judgment:
A. “Acquirer” or “Acquirers” means the entity or entities to which Defendants divest the Divestiture Assets.
B. “AMC” means AMC Entertainment Holdings, Inc., a Delaware corporation with its headquarters in Leawood, Kansas, its successors and assigns, and its subsidiaries, divisions, groups, affiliates, partnerships and joint ventures, and their directors, officers, managers, agents, and employees.
C. “Starplex Cinemas” means Starplex Cinemas, Inc., a Texas Corporation with its headquarters in Dallas, Texas, its successors and assigns, and its subsidiaries, divisions, groups, affiliates, partnerships and joint ventures, and their directors, officers, managers, agents, and employees.
D. “Divestiture Assets” means the following theatre assets:
The term “Divestiture Assets” also includes:
1. All tangible assets that comprise the business of operating theatres that exhibit first-run, commercial movies, including, but not limited to real property and improvements, research and development activities, all equipment, fixed assets, and fixtures, personal property, inventory, office furniture, materials, supplies, and other tangible property and all assets used in connection with the Divestiture Assets; all licenses, permits, and authorizations issued by any governmental organization relating to the Divestiture Assets; all contracts (including management contracts), teaming
2. All intangible assets relating to the operation of the Divestiture Assets, including, but not limited to all patents, licenses and sublicenses, intellectual property, copyrights, trademarks, trade names, service marks, service names, (provided however, that the name Starplex, and any registered service marks of Starplex may be excluded from the Divestiture Assets, subject to the transitional agreement provisions specified in Section IV(E)), technical information, computer software and related documentation (provided however, that Defendants' proprietary software may be excluded from the Divestiture Assets, subject to the transitional agreement provisions specified in Section IV(E)), know-how and trade secrets, drawings, blueprints, designs, design protocols, specifications for materials, specifications for parts and devices, safety procedures for the handling of materials and substances, all research data concerning historic and current research and development, quality assurance and control procedures, design tools and simulation capability, all manuals and technical information Starplex Cinemas provides to their own employees, customers, suppliers, agents, or licensees (except for the employee manuals that Starplex provides to all its employees), and all research data concerning historic and current research and development.
E. “Landlord Consent” means any contractual approval or consent that the landlord or owner of one or more of the Divestiture Assets, or of the property on which one or more of the Divestiture Assets is situated, must grant prior to the transfer of one of the Divestiture Assets to an Acquirer.
A. This Final Judgment applies to AMC and Starplex Cinemas, as defined above, and all other persons in active concert or participation with any of them who receive actual notice of this Final Judgment by personal service or otherwise.
B. If, prior to complying with Sections IV and V of this Final Judgment, Defendants sell or otherwise dispose of all or substantially all of their assets or of lesser business units that include the Divestiture Assets, they shall require the purchaser to be bound by the provisions of this Final Judgment. Defendants need not obtain such an agreement from the Acquirer(s) of the assets divested pursuant to this Final Judgment.
A. Defendants are ordered and directed, within thirty (30) calendar days after the filing of the Complaint in this matter to divest the Divestiture Assets in a manner consistent with this Final Judgment to one or more Acquirer(s) acceptable to the United States in its sole discretion (after consultation with the State of Connecticut, as appropriate). The United States, in its sole discretion, may agree to one or more extensions of this time period, not to exceed thirty (30) calendar days in total, and shall notify the Court in such circumstances. Defendants agree to use their best efforts to divest the Divestiture Assets as expeditiously as possible.
B. In accomplishing the divestitures ordered by this Final Judgment, Defendants promptly shall make known, by usual and customary means, the availability of the Divestiture Assets. Defendants shall inform any person making an inquiry regarding a possible purchase of the Divestiture Assets that they are being divested pursuant to this Final Judgment and provide that person with a copy of this Final Judgment. Defendants shall offer to furnish to all prospective Acquirers, subject to customary confidentiality assurances, all information and documents relating to the Divestiture Assets customarily provided in a due diligence process except such information or documents subject to the attorney-client privilege or work-product doctrine. Defendants shall make available such information to the Plaintiffs at the same time that such information is made available to any other person.
C. Defendants shall provide the Acquirer(s) and the United States information relating to the personnel involved in the operation and management of the applicable Divestiture Assets to enable the Acquirer(s) to make offers of employment. Defendants shall not interfere with any negotiations by the Acquirer(s) to employ or contract with any employee of any Defendant whose primary responsibility relates to the operation or management of the applicable Divestiture Assets being sold by the Acquirer(s).
D. Defendants shall permit prospective Acquirer(s) of the Divestiture Assets to have reasonable access to personnel and to make inspections of the physical facilities of the Divestiture Assets; access to any and all environmental, zoning, and other permit documents and information; and access to any and all financial, operational, or other documents and information customarily provided as part of a due diligence process.
E. In connection with the divestiture of the Divestiture Assets pursuant to Section IV, or by a trustee appointed pursuant to Section V, of this Final Judgment, at the option of the Acquirer(s), Defendants shall enter into a transitional supply, service, support, and use agreement (“transitional agreement”), of up to 120 days in length, for the supply of any goods, services, support, including software service and support, and reasonable use of the name AMC, the name Starplex, and any registered service marks of AMC or Starplex, that the Acquirer(s) request for the operation of the Divestiture Assets during the period covered by the transitional agreement. At the request of the Acquirer(s), the United States in its sole discretion (after consultation with the State of Connecticut, as appropriate), may agree to one or more extensions of this time period not to exceed six (6) months in total. The terms and conditions of the transitional agreement must be acceptable to the United States in its sole discretion (after consultation with the State of Connecticut, as appropriate). The transitional agreement shall be deemed incorporated into this Final Judgment and a failure by Defendants to comply with any of the terms or conditions of the transitional agreement shall constitute a failure to comply with this Final Judgment.
F. Defendants shall warrant to the Acquirer(s) of the Divestiture Assets that each asset will be operational on the date of sale.
G. Defendants shall not take any action that will impede in any way the permitting, operation, or divestitures of the Divestiture Assets.
H. Defendants shall warrant to the Acquirer(s) that there are no material defects in the environmental, zoning, or other permits pertaining to the operation of the Divestiture Assets. Following the sale of the Divestiture Assets, Defendants will not undertake, directly or indirectly, any challenges to the environmental, zoning, or other
I. Unless the United States otherwise consents in writing, the divestitures made pursuant to Section IV, and/or by a trustee appointed pursuant to Section V of this Final Judgment, shall include the entire Divestiture Assets and shall be accomplished in such a way as to satisfy the United States, in its sole discretion (after consultation with the State of Connecticut, as appropriate) that the Divestiture Assets can and will be used by the Acquirer(s) as part of a viable, ongoing business of operating theatres that exhibit first-run, commercial movies. Divestiture of the Divestiture Assets may be made to one or more Acquirers, provided that in each instance it is demonstrated to the sole satisfaction of the United States (after consultation with the State of Connecticut, as appropriate) that the Divestiture Assets will remain viable and the divestiture of such assets will remedy the competitive harm alleged in the Complaint. The divestitures, whether pursuant to Section IV or Section V of this Final Judgment,
(1) shall be made to Acquirers that, in the United States' sole judgment (after consultation with the State of Connecticut, as appropriate) have the intent and capability (including the necessary managerial, operational, technical, and financial capability) of competing effectively in the business of theatres exhibiting first-run, commercial movies; and
(2) shall be accomplished so as to satisfy the United States, in its sole discretion (after consultation with the State of Connecticut, as appropriate) that none of the terms of any agreement between Acquirers and Defendants gives Defendants the ability unreasonably to raise the Acquirers' costs, to lower the Acquirers' efficiency, or otherwise to interfere in the ability of any Acquirer to compete effectively.
A. If Defendants have not divested the Divestiture Assets within the time period specified in Section IV(A), Defendants shall notify the United States of that fact in writing, specifically identifying the Divestiture Assets that have not been divested. Upon application of the United States, the Court shall appoint a trustee selected by the United States and approved by the Court to effect the divestitures of the Divestiture Assets.
B. After the appointment of a trustee becomes effective, only the trustee shall have the right to sell the Divestiture Assets. The trustee shall have the power and authority to accomplish the divestitures to Acquirer(s) acceptable to the United States (after consultation with the State of Connecticut, as appropriate) at such price and on such terms as are then obtainable upon reasonable effort by the trustee, subject to the provisions of Sections IV, V, VI, and VII of this Final Judgment, and shall have such other powers as this Court deems appropriate. Subject to Section V(D) of this Final Judgment, the trustee may hire at the cost and expense of Defendants any investment bankers, attorneys, or other agents, who shall be solely accountable to the trustee and reasonably necessary in the trustee's judgment to assist in the divestiture(s). Any such investment bankers, attorneys, or other agents shall serve on such terms and conditions as the United States approves, including confidentiality requirements and conflict of interest certifications.
C. Defendants shall not object to a sale by the trustee on any ground other than the trustee's malfeasance. Any such objections by Defendants must be conveyed in writing to the United States and the trustee within ten (10) calendar days after the trustee has provided the notice required under Section VII.
D. The trustee shall serve at the cost and expense of Defendants pursuant to a written agreement, on such terms and conditions as the United States approves, including confidentiality requirements and conflict of interest certifications. The trustee shall account for all monies derived from the sale of the applicable Divestiture Assets and all costs and expenses so incurred. After approval by the Court of the trustee's accounting, including fees for its services yet unpaid and those of any professionals and agents retained by the trustee, all remaining money shall be paid to Defendants and the trust shall then be terminated. The compensation of the trustee and any professionals and agents retained by the trustee shall be reasonable in light of the value of the Divestiture Assets subject to sale by the trustee and based on a fee arrangement providing the trustee with an incentive based on the price and terms of the divestitures and the speed with which they are accomplished, but timeliness is paramount. If the trustee and Defendants are unable to reach agreement on the trustee's or any agents' or consultants' compensation or other terms and conditions of engagement within 14 calendar days of appointment of the trustee, the United States may, in its sole discretion (after consultation with the State of Connecticut, as appropriate), take appropriate action, including making a recommendation to the Court. The trustee shall, within three (3) business days of hiring any other professionals or agents, provide written notice of such hiring and the rate of compensation to Defendants and the United States.
E. Defendants shall use their best efforts to assist the trustee in accomplishing the required divestitures. The trustee and any consultants, accountants, attorneys, and other persons retained by the trustee shall have full and complete access to the personnel, books, records, and facilities of the assets and business to be divested, and Defendants shall develop financial and other information relevant to such assets and business as the trustee may reasonably request, subject to reasonable protection for trade secret or other confidential research, development, or commercial information or any applicable privileges. Defendants shall take no action to interfere with or to impede the trustee's accomplishment of the divestitures.
F. After its appointment, the trustee shall file monthly reports with the parties and the Court setting forth the trustee's efforts to accomplish the divestitures ordered under this Final Judgment. To the extent such reports contain information that the trustee deems confidential, such reports shall not be filed in the public docket of the Court. Such reports shall include the name, address, and telephone number of each person who, during the preceding month, made an offer to acquire, expressed an interest in acquiring, entered into negotiations to acquire, or was contacted or made an inquiry about acquiring, any interest in the Divestiture Assets, and shall describe in detail each contact with any such person. The trustee shall maintain full records of all efforts made to divest the Divestiture Assets.
G. If the trustee has not accomplished the divestitures ordered under this Final Judgment within six (6) months after its appointment, the trustee shall promptly file with the Court a report setting forth (1) the trustee's efforts to accomplish the required divestitures, (2) the reasons, in the trustee's judgment, why the required divestitures have not been accomplished, and (3) the trustee's recommendations. To the extent such reports contain information that the trustee deems confidential, such reports shall not be filed in the public docket of the Court. The trustee shall at the same time furnish such report to the United States, which shall have the right to make additional recommendations consistent with the purpose of the trust. The Court thereafter shall enter such orders as it
H. If the United States determines that the trustee has ceased to act or failed to act diligently or in a reasonably cost-effective manner, it may recommend the Court appoint a substitute trustee.
A. If Defendants are unable to effect any of the divestitures required herein due to the inability to obtain the Landlord Consent for any of the Divestiture Assets, Defendants shall divest alternative theatre assets that compete effectively with the theatre or theatres for which the Landlord Consent was not obtained. The United States shall, in its sole discretion (after consultation with the State of Connecticut, as appropriate) determine whether such theatre assets compete effectively with the theatres for which Landlord Consent was not obtained.
B. Within five (5) business days following a determination that Landlord Consent cannot be obtained for any of the Divestiture Assets, Defendants shall notify the United States, and Defendants shall propose an alternative divestiture pursuant to Section VI(A). The United States (after consultation with the State of Connecticut, as appropriate) shall have then ten (10) business days in which to determine whether such theatre assets are a suitable alternative pursuant to Section VI(A). If Defendants' selection is deemed not to be a suitable alternative, the United States shall in its sole discretion (after consultation with the State of Connecticut, as appropriate) select alternative theatre assets to be divested from among those theatre(s) that the United States has determined, in its sole discretion, compete effectively with the theatre(s) for which Landlord Consent was not obtained.
C. If a trustee is responsible for effecting divestiture of the Divestiture Assets, it shall notify the United States and Defendants within five (5) business days following a determination that Landlord Consent cannot be obtained for one or more of the Divestiture Assets. Defendants shall thereafter have five (5) business days to propose an alternative divestiture pursuant to Section VI(A). The United States (after consultation with the State of Connecticut, as appropriate) shall then have ten (10) business days to determine whether the proposed theatre assets are a suitable competitive alternative pursuant to Section VI(A). If Defendants' selection is deemed not to be a suitable competitive alternative, the United States shall in its sole discretion (after consultation with the State of Connecticut, as appropriate) select alternative theatre assets to be divested from among those theatre(s) that the United States has determined, in its sole discretion, compete effectively with the theatre(s) for which Landlord Consent was not obtained.
A. Within two (2) business days following execution of a definitive divestiture agreement, Defendants or the trustee, whoever is then responsible for effecting the divestitures required herein, shall notify the United States and, as appropriate, the State of Connecticut, of any proposed divestitures required by Sections IV, V, or VI of this Final Judgment. If the trustee is responsible, it shall similarly notify Defendants. The notice shall set forth the details of the proposed divestitures and list the name, address, and telephone number of each person not previously identified who offered or expressed an interest in or desire to acquire any ownership interest in the Divestiture Assets, together with full details of the same.
B. Within fifteen (15) calendar days of receipt by the United States of such notice, the United States, in its sole discretion (after consultation with the State of Connecticut, as appropriate) may request from Defendants, the proposed Acquirer(s), any other third party, or the trustee, if applicable, additional information concerning the proposed divestitures, the proposed Acquirer(s), and any other potential Acquirer(s). Defendants and the trustee shall furnish any additional information requested to the United States within fifteen (15) calendar days of receipt of the request, unless the parties otherwise agree.
C. Within thirty (30) calendar days after receipt of the notice or within twenty (20) calendar days after the United States has been provided the additional information requested from Defendants, the proposed Acquirer(s), any third party, and the trustee, whichever is later, the United States shall provide written notice to Defendants, and the trustee, if there is one, stating whether it objects to the proposed divestitures. If the United States provides written notice that it does not object, the divestitures may be consummated, subject only to the Defendants' limited right to object to the sale under Section V(C) of this Final Judgment.
Absent written notice that the United States does not object to the proposed Acquirer(s) or upon objection by the United States, a divestiture proposed under Section IV or Section V shall not be consummated. Upon objection by Defendants under Section V(C), a divestiture proposed under Section V shall not be consummated unless approved by the Court.
Defendants shall not finance all or any part of any purchase made pursuant to Section IV or V of this Final Judgment.
Until the divestitures required by this Final Judgment have been accomplished, Defendants shall take all steps necessary to comply with the Hold Separate Stipulation and Order entered by this Court. Defendants shall take no action that would jeopardize the divestitures ordered by this Court.
A. Within twenty (20) calendar days of the filing of the Complaint in this matter, and every thirty (30) calendar days thereafter until the divestitures have been completed under Sections IV, V, or VI, Defendants shall deliver to the United States an affidavit as to the fact and manner of its compliance with Sections IV, V, or VI of this Final Judgment. Each such affidavit shall include the name, address, and telephone number of each person who, during the preceding thirty (30) calendar days, made an offer to acquire, expressed an interest in acquiring, entered into negotiations to acquire, or was contacted or made an inquiry about acquiring, any interest in the Divestiture Assets, and shall describe in detail each contact with any such person during that period. Each such affidavit shall also include a description of the efforts Defendants have taken to solicit buyers for and complete the sale of the Divestiture Assets, and to provide required information to prospective Acquirers, including the limitations, if any, on such information. Assuming the information set forth in the affidavit is true and complete, any objection by the United States to information provided by Defendants, including limitations on information, shall be made within fourteen (14) calendar days of receipt of each such affidavit.
B. Within twenty (20) calendar days of the filing of the Complaint in this matter, Defendants shall deliver to the United States an affidavit that describes in reasonable detail all actions taken and all steps implemented on an
C. Defendants shall keep all records of all efforts made to preserve and divest the Divestiture Assets until one year after such divestitures have been completed.
A. For the purposes of determining or securing compliance with this Final Judgment or of any related orders such as any Hold Separate Stipulation and Order, or of determining whether the Final Judgment should be modified or vacated, and subject to any legally recognized privilege, from time to time authorized representatives of the United States Department of Justice, including consultants and other persons retained by the United States, shall, upon written request of an authorized representative of the Assistant Attorney General in charge of the Antitrust Division, and on reasonable notice to Defendants, be permitted:
(1) access during Defendants' office hours to inspect and copy, or at the option of the United States, to require Defendants to provide hard copy or electronic copies of, all books, ledgers, accounts, records, data, and documents in the possession, custody, or control of Defendants, relating to any matters contained in this Final Judgment; and
(2) to interview, either informally or on the record, Defendants' officers, employees, or agents, who may have their individual counsel present, regarding such matters. The interviews shall be subject to the reasonable convenience of the interviewee and without restraint or interference by Defendants.
B. Upon the written request of an authorized representative of the Assistant Attorney General in charge of the Antitrust Division, Defendants shall submit written reports or responses to written interrogatories, under oath if requested, relating to any of the matters contained in this Final Judgment as may be requested.
C. No information or documents obtained by the means provided in this section shall be divulged by the United States to any person other than an authorized representative of the executive branch of the United States, or an authorized representative of the State of Connecticut, as appropriate, except in the course of legal proceedings to which the United States is a party (including grand jury proceedings), or for the purpose of securing compliance with this Final Judgment, or as otherwise required by law.
D. If at the time information or documents are furnished by Defendants to the United States, Defendants represent and identify in writing the material in any such information or documents to which a claim of protection may be asserted under Rule 26(c)(1)(G) of the Federal Rules of Civil Procedure, and Defendants mark each pertinent page of such material, “Subject to claim of protection under Rule 26(c)(1)(G) of the Federal Rules of Civil Procedure,” then the United States shall give Defendants ten (10) calendar days notice prior to divulging such material in any legal proceeding (other than a grand jury proceeding).
Defendants may not reacquire any part of the Divestiture Assets during the term of this Final Judgment.
This Court retains jurisdiction to enable any party to this Final Judgment to apply to this Court at any time for further orders and directions as may be necessary or appropriate to carry out or construe this Final Judgment, to modify any of its provisions, to enforce compliance, and to punish violations of its provisions.
Unless this Court grants an extension, this Final Judgment shall expire ten (10) years from the date of its entry.
Entry of this Final Judgment is in the public interest. The parties have complied with the requirements of the Antitrust Procedures and Penalties Act, 15 U.S.C. 16, including making copies available to the public of this Final Judgment, the Competitive Impact Statement, and any comments thereon and the United States' responses to comments. Based upon the record before the Court, which includes the Competitive Impact Statement and any comments and response to comments filed with the Court, entry of this Final Judgment is in the public interest.
Notice is hereby given that, on November 27, 2015, pursuant to Section 6(a) of the National Cooperative Research and Production Act of 1993, 15 U.S.C. 4301
Also, MediaTek Inc., Hsinchu, TAIWAN, was mistakenly reported as a member of UHD Alliance on the initial filing.
No other changes have been made in either the membership or planned activity of the group research project. Membership in this group research project remains open, and UHD Alliance intends to file additional written notifications disclosing all changes in membership.
On June 17, 2015, UHD Alliance filed its original notification pursuant to Section 6(a) of the Act. The Department of Justice published a notice in the
The last notification was filed with the Department on September 10, 2015. A notice was published in the
Notice is hereby given that, on December 7, 2015, pursuant to Section 6(a) of the National Cooperative Research and Production Act of 1993, 15 U.S.C. 4301
Pursuant to Section 6(b) of the Act, the name and principal place of business of the standards development organization is: ASSE International Chapter of IAPMO, LLC, Mokena, IL. The nature and scope of ASSE's standards development activities are: The creation, promotion, and issuance of standards with respect to plumbing, water supply, sewage disposal, water purification, drainage, fire protection, and medical gases.
Civil Division, Department of Justice.
30-day notice.
The Department of Justice (DOJ), Civil Division, will be submitting the following information collection request to the Office of Management and Budget (OMB) for review and approval in accordance with the Paperwork Reduction Act of 1995. This proposed information collection was previously published in the
Comments are encouraged and will be accepted for an additional 30 days until January 27, 2016.
If you have additional comments especially on the estimated public burden or associated response time, suggestions, or need a copy of the proposed information collection instrument with instructions or additional information, please contact James G. Touhey, Jr., Director, Torts Branch (FTCA), Civil Division, P.O. Box 888, Benjamin Franklin Station, Washington, DC 20044 (phone: 202-616-4400). Written comments and/or suggestions can also be directed to the Office of Management and Budget, Office of Information and Regulatory Affairs, Attention Department of Justice Desk Officer, Washington, DC 20503 or sent to
Written comments and suggestions from the public and affected agencies concerning the proposed collection of information are encouraged. Your comments should address one or more of the following four points:
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Primary: Individuals.
Abstract: This declaration is to be submitted annually to determine whether a broker meets the qualifications to be listed as an annuity broker pursuant to Section 11015(b) of Public Law 107-273.
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If additional information is required contact: Jerri Murray, Department Clearance Officer, United States Department of Justice, Justice Management Division, Policy and Planning Staff, Two Constitution Square, 145 N Street NE., Room 3E.405B, Washington, DC 20530.
Employment and Training Administration, Department of Labor.
Notice.
The Department of Labor (Department) is providing notice that the Office of Foreign Labor Certification (OFLC) National Office has relocated within Washington, DC effective November 23, 2015.
William W. Thompson, II, Acting Administrator, Office of Foreign Labor Certification, U.S. Department of Labor, 200 Constitution Avenue NW., Box 12-200, Washington, DC 20210-0001; Telephone: (202) 513-7350 (this is not a toll-free number).
The Immigration and Nationality Act (INA) assigns specific responsibilities to
Employers seeking to hire foreign workers in the D-1, E-3, H-1B, H-1B1, H-2A, H-2B, or the permanent/“green card” visa programs must first apply to the Secretary of Labor to obtain a labor certification or for the approval of a labor condition application, or a labor attestation. The Secretary has delegated the responsibilities for the administration of these programs to the Employment and Training Administration's (ETA) Office of Foreign Labor Certification (OFLC). The OFLC National Office is responsible for overall program management, policy and operational coordination, as well as budget, performance, and all other administrative functions supporting the organization.
The purpose of this Notice is to inform the public that the OFLC National Office has relocated within Washington, DC and to provide the new physical and mailing address for the OFLC National Office.
These changes of address became effective November 23, 2015. Affected stakeholders should direct any mailed correspondence addressed to the OFLC National Office to the new mailing address beginning immediately. Any correspondence addressed to the old address has and will continue to be forwarded to the proper location by the Department of Labor's mailroom.
Notice.
The Department of Labor (DOL) is submitting the Occupational Safety and Health Administration (OSHA) sponsored information collection request (ICR) titled, “OSHA Strategic Partnership Program (OSPP) for Worker Safety and Health,” to the Office of Management and Budget (OMB) for review and approval for continued use, without change, in accordance with the Paperwork Reduction Act of 1995 (PRA), 44 U.S.C. 3501
The OMB will consider all written comments that agency receives on or before January 27, 2016.
A copy of this ICR with applicable supporting documentation; including a description of the likely respondents, proposed frequency of response, and estimated total burden may be obtained free of charge from the RegInfo.gov Web site at
Submit comments about this request by mail or courier to the Office of Information and Regulatory Affairs, Attn: OMB Desk Officer for DOL-OSHA, Office of Management and Budget, Room 10235, 725 17th Street NW., Washington, DC 20503; by Fax: 202-395-5806 (this is not a toll-free number); or by email:
Contact Seleda Perryman by telephone at 202-693-4131, TTY 202-693-8064, (these are not toll-free numbers) or by email at
44 U.S.C. 3507(a)(1)(D).
This ICR seeks to extend PRA authority for the OSHA Strategic Partnership Program (OSPP) for Worker Safety and Health information collection. Employers who voluntarily participate in the OSPP for Worker Safety and Health are required to monitor and to assess the impact of partnership. An OSHA strategic partnership aims to have a measurable positive impact on workplace safety and health that goes beyond what historically has been achievable through traditional enforcement method and focuses on individual work sites. Occupational Safety and Health Act section 2 authorizes this information collection.
This information collection is subject to the PRA. A Federal agency generally cannot conduct or sponsor a collection of information, and the public is generally not required to respond to an information collection, unless it is approved by the OMB under the PRA and displays a currently valid OMB Control Number. In addition, notwithstanding any other provisions of law, no person shall generally be subject to penalty for failing to comply with a collection of information that does not display a valid Control Number.
OMB authorization for an ICR cannot be for more than three (3) years without renewal, and the current approval for this collection is scheduled to expire on December 31, 2015. The DOL seeks to extend PRA authorization for this information collection for three (3) more years, without any change to existing requirements. The DOL notes that existing information collection requirements submitted to the OMB receive a month-to-month extension while they undergo review. For additional substantive information about this ICR, see the related notice published in the
Interested parties are encouraged to send comments to the OMB, Office of Information and Regulatory Affairs at the address shown in the
• 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;
• 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;
• Enhance the quality, utility, and clarity of the information to be collected; and
• 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,
Veterans' Employment and Training Service (VETS), Department of Labor.
Notice of open meeting.
This notice sets forth the schedule and proposed agenda of a forthcoming meeting of the ACVETEO. The ACVETEO will discuss the DOL core programs and services that assist veterans seeking employment and raise employer awareness as to the advantages of hiring veterans. There will be an opportunity for individuals or organizations to address the committee. Any individual or organization that wishes to do so should contact Mr. Gregory Green at 202-693-4734.
Individuals who will need accommodations for a disability in order to attend the meeting (
The meeting will take place at the U.S. Department of Labor, Frances Perkins Building, 200 Constitution Avenue NW., Washington, DC 20210, C-5320 Conference Room Six. Members of the public are encouraged to arrive early to allow for security clearance into the Frances Perkins Building.
Meeting participants should use the visitors' entrance to access the Frances Perkins Building, one block north of Constitution Avenue at 3rd and C Streets, NW. For security purposes meeting participants must:
1. Present a valid photo ID to receive a visitor badge.
2. Know the name of the event being attended: the meeting event is the Advisory Committee on Veterans' Employment, Training and Employer Outreach (ACVETEO).
3. Visitor badges are issued by the security officer at the Visitor Entrance located at 3rd and C Streets NW. When receiving a visitor badge, the security officer will retain the visitor's photo ID until the visitor badge is returned to the security desk.
4. Laptops and other electronic devices may be inspected and logged for identification purposes.
5. Due to limited parking options, Metro's Judiciary Square station is the easiest way to access the Frances Perkins Building.
Mr. Gregory Green, Assistant Designated Federal Official for the ACVETEO, (202) 693-4734.
The ACVETEO is a Congressionally mandated advisory committee authorized under Title 38, U.S. Code, Section 4110 and subject to the Federal Advisory Committee Act, 5 U.S.C. App. 2, as amended. The ACVETEO is responsible for: assessing employment and training needs of veterans; determining the extent to which the programs and activities of the U.S. Department of Labor meet these needs; assisting to conduct outreach to employers seeking to hire veterans; making recommendations to the Secretary, through the Assistant Secretary for VETS, with respect to outreach activities and employment and training needs of Veterans; and carrying out such other activities necessary to make required reports and recommendations. The ACVETEO meets at least quarterly.
Notice.
The Department of Labor (DOL) is submitting the information collection request (ICR) proposal titled, “Institutional Analysis of American Job Centers,” to the Office of Management and Budget (OMB) for review and approval for use in accordance with the Paperwork Reduction Act (PRA) of 1995 (44 U.S.C. 3501
The OMB will consider all written comments that agency receives on or before January 27, 2016.
A copy of this ICR with applicable supporting documentation; including a description of the likely respondents, proposed frequency of response, and estimated total burden may be obtained free of charge from the RegInfo.gov Web site at
Submit comments about this request by mail or courier to the Office of Information and Regulatory Affairs, Attn: OMB Desk Officer for DOL-DM, Office of Management and Budget, Room 10235, 725 17th Street NW., Washington, DC 20503; by Fax: 202-395-5806 (this is not a toll-free number); or by email:
Contact Seleda Perryman by telephone at 202-693-4131 (this is not a toll-free number) or by email at
44 U.S.C. 3507(a)(1)(D).
This ICR seeks PRA authority for the Institutional Analysis of American Job Centers (AJCs) Study information collection. The DOL, Office of the Assistant Secretary for Policy is sponsoring a comprehensive study to better understand the spectrum of institutional features that shape AJC day-to-day operations and customer experiences in order systematically to document key institutional characteristics of AJCs; present a comprehensive description of AJC funding, organization, administration and management, and service delivery structures and processes; and develop typologies of AJCs that capture the institutional variations documented. To achieve these goals, an in-depth institutional analysis will be conducted that documents AJC operations across 10 research domains: (1) Administrative structure; (2) partnerships; (3) performance and strategic management; (4) staffing; (5) physical environment; (6) Management Information System capacity and the use of technology— including electronic tools and resources; (7) service delivery structure and linkages; (8) the program and service mix provided; (9) outreach; and (10) funding. In addition, the study will consider external factors that are particularly important for understanding AJC structure, operations, policies, and processes. These include LWIBs and state-level workforce agencies that have administrative and oversight responsibilities over AJCs.
This ICR seeks clearance for (1) site visits to AJCs; (2) telephone interviews with state workforce administrators in states where site visits are conducted; and (3) a network analysis survey of selected study AJC partner organizations. To select AJCs for site visits, the study team will employ a two-stage sampling approach that will yield a purposive sample of AJCs. This approach aims to capture geographic diversity and variation in the types of administrative entities that operate AJCs. In the first stage of site selection, the study team will randomly select 80 comprehensive AJCs. In the second stage, the study team will select AJCs using purposive sampling based on variation in the types of administrative entities that manage AJC operations, geographic location, and urbanity.
This proposed information collection is subject to the PRA. A Federal agency generally cannot conduct or sponsor a collection of information, and the public is generally not required to respond to an information collection, unless it is approved by the OMB under the PRA and displays a currently valid OMB Control Number. In addition, notwithstanding any other provisions of law, no person shall generally be subject to penalty for failing to comply with a collection of information if the collection of information does not display a valid Control Number.
Interested parties are encouraged to send comments to the OMB, Office of Information and Regulatory Affairs at the address shown in the
• 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;
• 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;
• Enhance the quality, utility, and clarity of the information to be collected; and
• 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,
Notice.
The Department of Labor (DOL) is submitting the Employment and Training Administration (ETA) sponsored information collection request (ICR) revision titled, “Employment and Training Administration Financial Reporting, Form ETA-9130,” to the Office of Management and Budget (OMB) for review and approval for use in accordance with the Paperwork Reduction Act (PRA) of 1995 (44 U.S.C. 3501
The OMB will consider all written comments that agency receives on or before January 27, 2016.
A copy of this ICR with applicable supporting documentation; including a description of the likely respondents, proposed frequency of response, and estimated total burden may be obtained free of charge from the RegInfo.gov Web site at
Submit comments about this request by mail or courier to the Office of Information and Regulatory Affairs, Attn: OMB Desk Officer for DOL-ETA, Office of Management and Budget, Room 10235, 725 17th Street, NW., Washington, DC 20503; by Fax: 202-395-5806 (this is not a toll-free number); or by email:
Seleda Perryman by telephone at 202-693-4131, TTY 202-693-8064, (these are not toll-free numbers) or sending an email to
44 U.S.C. 3507(a)(1)(D).
This ICR seeks approval under the PRA for revisions to the Employment and Training Administration Financial Reporting, Form ETA-9130, information collection. The ETA awards approximately $8 billion in formula and discretionary grants each year to an average of 1,000 recipients. Financial reports for each of these grants must be submitted quarterly on the financial report form ETA-9130. Recipients include but are not limited to: State Employment Security Agencies, which are comprised of three components: Wagner Peyser Employment Service, Unemployment Insurance program, and Trade Program Grant Agreements; and grantees under the following programs: Workforce Innovation and Opportunity Act (WIOA) Youth, Adult, and Dislocated Worker programs; National Dislocated Worker Grants; National Farmworker Jobs Program; Indian and Native American programs; Senior Community Service Employment Program; WIOA discretionary grants; and H-1B Job Training Grants.
This information collection has been classified as a revision, because OMB prescribed financial reporting requirements for Federal programs have changed with the implementation of Uniform Guidance that went into effect on December 26, 2014, replacing numerous previously applicable Circulars. These changes affect Form ETA-9130 and its instructions by updating certain key terms and definitions.
In addition, WIOA enactment brings new statutory requirements affecting financial reporting, including but not limited to, new and/or revised limitations and baselines that require the addition of new and modification of existing reporting line items on ETA-9130 Financial. Other reporting line items have been added and removed in an effort to streamline Federal financial reporting and make form ETA-9130 more closely resemble Form SF-425 (cleared under OMB Control Number 0348-0061), which is the standard financial reporting form for Federal grant recipients.
This information collection is subject to the PRA. A Federal agency generally cannot conduct or sponsor a collection of information, and the public is generally not required to respond to an information collection, unless it is approved by the OMB under the PRA and displays a currently valid OMB Control Number. In addition, notwithstanding any other provisions of law, no person shall generally be subject to penalty for failing to comply with a collection of information that does not display a valid Control Number.
Interested parties are encouraged to send comments to the OMB, Office of Information and Regulatory Affairs at the address shown in the
• 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;
• 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;
• Enhance the quality, utility, and clarity of the information to be collected; and
• 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,
Notice.
The Department of Labor (DOL) is submitting the Office of Workers' Compensation Programs (OWCP) sponsored information collection request (ICR) titled, “Overpayment Recovery Questionnaire,” to the Office of Management and Budget (OMB) for review and approval for use, without change, in accordance with the Paperwork Reduction Act (PRA) of 1995 (44 U.S.C. 3501
The OMB will consider all written comments that agency receives on or before January 27, 2016.
A copy of this ICR with applicable supporting documentation; including a description of the likely respondents, proposed frequency of response, and estimated total burden may be obtained from the RegInfo.gov Web site at
Submit comments about this request to the Office of Information and Regulatory Affairs, Attn: OMB Desk Officer for DOL-OWCP, Office of Management and Budget, Room 10235, 725 17th Street NW., Washington, DC 20503, Fax: 202-395-6881 (this is not a toll-free number), email:
Seleda Perryman by telephone at 202-693-4131 (this is not a toll-free number) or by email at
44 U.S.C. 3507(a)(1)(D).
This ICR seeks to extend PRA authority for the Overpayment Recovery Questionnaire, Form OWCP-20, which is necessary to determine whether the recovery of any Black Lung, Energy Employees Occupational Illness Compensation Program Act or Federal Employees' Compensation overpayment may be waived, compromised, terminated, or collected in full.
This information collection is subject to the PRA. A Federal agency generally cannot conduct or sponsor a collection of information, and the public is generally not required to respond to an information collection, unless it is approved by the OMB under the PRA and displays a currently valid OMB Control Number. In addition, notwithstanding any other provisions of law, no person shall generally be subject to penalty for failing to comply with a collection of information if the collection of information does not display a valid Control Number.
Interested parties are encouraged to send comments to the OMB, Office of Information and Regulatory Affairs at the address shown in the
• 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;
• 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;
• Enhance the quality, utility, and clarity of the information to be collected; and
• 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,
Notice.
The Department of Labor (DOL) is submitting the information collection request (ICR) proposal titled, “the National Guard Youth ChalleNGe Job ChalleNGe Evaluation” to the Office of Management and Budget (OMB) for review and approval for use in accordance with the Paperwork Reduction Act (PRA) of 1995 (44 U.S.C. 3501
The OMB will consider all written comments that agency receives on or before January 27, 2016.
A copy of this ICR with applicable supporting documentation; including a description of the likely respondents, proposed frequency of response, and estimated total burden may be obtained free of charge from the RegInfo.gov Web site at
Submit comments about this request by mail or courier to the Office of Information and Regulatory Affairs, Attn: OMB Desk Officer for DOL-OASP, Office of Management and Budget, Room 10235, 725 17th Street NW., Washington, DC 20503; by Fax: 202-395-5806 (this is not a toll-free number); or by email:
Contact Seleda Perryman by telephone at 202-693-4131 (this is not a toll-free number) or by email at
44 U.S.C. 3507(a)(1)(D).
This ICR seeks PRA authority for the National Guard Youth ChalleNGe Job ChalleNGe Evaluation information collection. The National Guard Youth ChalleNGe program is one of a handful of interventions that have demonstrated positive, sustained impacts on the educational attainment and labor market outcomes of youth who are not in school or the labor force. The goal of Youth ChalleNGe, a residential program, is to build confidence and maturity, teach practical life skills, and help youth obtain a high school diploma or GED. The program's numerous activities address its eight core pillars: leadership/followership, responsible citizenship, service to community, life-coping skills, physical fitness, health and hygiene, job skills, and academic excellence. To build on the success of Youth ChalleNGe, the Employment and Training Administration issued $12 million in grants in early 2015 for three Youth ChalleNGe programs to: (1) expand the program's target population to include youth who have been involved with the courts and (2) add an occupational training component, known as Job ChalleNGe. The addition of the Job ChalleNGe component will expand the residential time by five months and offer the following activities: (1) Occupation skills training, (2) individualized career and academic counseling, (3) work-based learning opportunities, and (4) leadership development activities.
The National Guard Youth ChalleNGe Job ChalleNGe Evaluation will help policymakers and program administrators determine the impacts of expanding Youth ChalleNGe to court-involved youth and adding the Job ChalleNGe component to the existing Youth ChalleNGe model. The study will evaluate how these program enhancements are implemented and how effective they are, both for youth overall and for court-involved youth in particular. The study will address four research questions: (1) How were the programs implemented?, (2) What impacts did Youth ChalleNGe and Job ChalleNGe have on the outcomes of participants?, (3) To what extent did participation in Job ChalleNGe change the overall impact of Youth ChalleNGe on program participants?, and (4) To what extent did impacts vary for selected subpopulations of participants? The first research question will be addressed through an implementation study of the three grantee demonstrations. The remaining three questions will be addressed through an impact study of the Youth ChalleNGe and Job ChalleNGe programs. For the impact study, the feasibility of using randomized controlled trials to estimate program effectiveness will be assessed; if needed, a comparison group of youth from Youth ChalleNGe sites that did not receive grants will be included in the study. Only youth who agree to participate in the study will be allowed to participate in the Youth ChalleNGe and Job ChalleNGe programs at the grantees included in the study; active consent will be obtained from youth 18 years of age or older and from a parent or guardian of youth under the age of 18.
This ICR consists of two types of proposed data collection instruments to be used in the National Guard Youth ChalleNGe Job ChalleNGe evaluation. The first is a Baseline Information Form that will be included in the Youth ChalleNGe application packet and completed by youth. The form will collect demographic information as well as baseline measures of major outcome variables, including: current employment, past delinquency, expectations about future education, work experience and other topics, and detailed contact information. The second is a set of site visit protocols. Site visits will occur twice. The first will occur early in the study period and will collect information about grantees' plans and procedures, the backgrounds and experiences of youth served, the nature of employers' involvement in the programs, and other topics. The second visit will occur later in the grant and evaluation periods and will collect information on whether and how plans and activities for the Youth ChalleNGe and Job ChalleNGe programs have changed since the first visit. Workforce Investment Act section 171(c)(2) authorizes this information collection. See 29 U.S.C. 2916(c)(2). A future ICR will include an 18-month follow up survey of youth in the Job ChalleNGe treatment and control or comparison groups.
This proposed information collection is subject to the PRA. A Federal agency generally cannot conduct or sponsor a collection of information, and the public is generally not required to respond to an information collection, unless it is approved by the OMB under the PRA and displays a currently valid OMB Control Number. In addition, notwithstanding any other provisions of law, no person shall generally be subject to penalty for failing to comply with a collection of information if the collection of information does not display a valid Control Number.
Interested parties are encouraged to send comments to the OMB, Office of Information and Regulatory Affairs at the address shown in the
• 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;
• 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;
• Enhance the quality, utility, and clarity of the information to be collected; and
• 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,
Notice.
The Department of Labor (DOL) is submitting the Mine Safety and Health Administration (MSHA) sponsored information collection request (ICR) titled, “Main Fan Operation and Inspection (I-A, II-A, III, and V-A Mines),” to the Office of Management and Budget (OMB) for review and approval for continued use, without change, in accordance with the Paperwork Reduction Act of 1995 (PRA), 44 U.S.C. 3501
The OMB will consider all written comments that agency receives on or before January 27, 2016.
A copy of this ICR with applicable supporting documentation; including a description of the likely respondents, proposed frequency of response, and estimated total burden may be obtained free of charge from the RegInfo.gov Web site at
Submit comments about this request by mail or courier to the Office of Information and Regulatory Affairs, Attn: OMB Desk Officer for DOL-MSHA, Office of Management and Budget, Room 10235, 725 17th Street NW., Washington, DC 20503; by Fax: 202-395-5806 (this is not a toll-free number); or by email:
Contact Seleda Perryman by telephone at 202-693-4131, TTY 202-693-8064, (these are not toll-free numbers) or by email at
44 U.S.C. 3507(a)(1)(D).
This ICR seeks to extend PRA authority for the Main Fan Operation and Inspection (I-A, II-A, III, and V-A Mines) information collection. Potentially gassy (explosive) conditions underground are largely controlled by main fans. When accumulations of explosive gases, such as methane, are not swept from the mine by the main fans, they may reasonably be expected to contact an ignition source. The results of such contacts are usually disastrous, and multiple fatalities may be reasonably expected to occur. The Main Fan Operation and Inspection standard contains significantly more stringent requirements for main fans in gassy mines than for main fans in other mines. Regulations 30 CFR 57.22204, which only applies to gassy metal and nonmetal underground mines, requires main fans to have pressure-recording systems. The standard also requires main fans to be inspected daily while operating if persons are underground and certification made of such inspections by signature and date. Certifications and pressure recordings must be retained for one year and made available to authorized representatives of the Secretary. Federal Mine Safety and Health Act of 1977 sections 101(a) and 103(h) authorize this information collection.
This information collection is subject to the PRA. A Federal agency generally cannot conduct or sponsor a collection of information, and the public is generally not required to respond to an information collection, unless it is approved by the OMB under the PRA and displays a currently valid OMB Control Number. In addition, notwithstanding any other provisions of law, no person shall generally be subject to penalty for failing to comply with a collection of information that does not display a valid Control Number.
OMB authorization for an ICR cannot be for more than three (3) years without renewal, and the current approval for this collection is scheduled to expire on December 31, 2015. The DOL seeks to extend PRA authorization for this information collection for three (3) more years, without any change to existing requirements. The DOL notes that existing information collection requirements submitted to the OMB receive a month-to-month extension while they undergo review. For additional substantive information about this ICR, see the related notice published in the
Interested parties are encouraged to send comments to the OMB, Office of Information and Regulatory Affairs at the address shown in the
• 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;
• 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;
• Enhance the quality, utility, and clarity of the information to be collected; and
• Minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated,
National Aeronautics and Space Administration.
Notice of Announcement for Partnerships for Commercial Optical Communication Systems.
This notice is issued in accordance with the Federal Technology Transfer Act (FTTA), 15 U.S.C. 3710a, to enter into Cooperative Research and Development Agreements. These CRADAs will serve as a mechanism for NASA and its partners to agree to a series of mutually beneficial activities, which are expected to be consistent with NASA's 2014 Strategic Plan. There must be specific, identifiable alignment with one or more elements of Strategic Goal 2, Objective 2.3 to optimize Agency technology investments, foster open innovation, and facilitate technology infusion, ensuring the greatest national benefit. This effort also aligns with the Presidential Memorandum of October 28, 2011, on Accelerating Technology Transfer and Commercialization of Federal Research in Support of High Growth Businesses.
Proposal Executive Summaries are due January 22, 2016, 5:00 p.m. EST.
Requests for more information should be directed to Enidia Santiago-Arce, (301) 286-5810,
NASA is in the early stages of developing new and innovative technologies in the area of optical communications. This new initiative is a collaboration activity to provide an opportunity to partner with NASA and is not intended to preclude ongoing or future partnerships discussions directly with NASA Centers or Mission Directorates for use of NASA personnel services or facilities. Entities with existing Agreements with NASA Centers or Mission Directorates are not required to respond to this Announcement to retain those Agreements. Participation in one initiative does not preclude participation in any of the others. Companies are free to interact with NASA in any or all of the initiatives that support their organization's goals. A copy of this Announcement of Partnerships (AFP) could be obtained at
NASA is soliciting executive summaries for proposals from all interested U.S. private sector enterprises that wish to enter into a Reimbursable Cooperative Research and Development Agreements (CRADA) for Partnerships for Commercial Optical Communication Systems (PCOCS). The purpose of these agreements is to advance commercial space-related efforts by facilitating access to NASA's spaceflight resources including technical expertise, assessments, lessons learned, and data. With this activity, NASA intends to focus on facilitating the development of integrated optical communications space capabilities. Examples of these capabilities include, but are not limited to, ground station management; flight and ground optical systems; ground network deployment; and space and ground terminal facilities operations.
Postal Regulatory Commission.
Notice.
The Commission is noticing a recent Postal Service filing concerning the addition of Priority Mail & First-Class Package Service Contract 9 negotiated service agreement to the competitive product list. This notice informs the public of the filing, invites public comment, and takes other administrative steps.
Submit comments electronically via the Commission's Filing Online system at
David A. Trissell, General Counsel, at 202-789-6820.
In accordance with 39 U.S.C. 3642 and 39 CFR 3020.30
The Postal Service contemporaneously filed a redacted contract related to the proposed new product under 39 U.S.C. 3632(b)(3) and 39 CFR 3015.5. Request, Attachment B.
To support its Request, the Postal Service filed a copy of the contract, a copy of the Governors' Decision authorizing the product, proposed changes to the Mail Classification Schedule, a Statement of Supporting Justification, a certification of compliance with 39 U.S.C. 3633(a), and an application for non-public treatment of certain materials. It also filed supporting financial workpapers.
The Commission establishes Docket Nos. MC2016-44 and CP2016-59 to consider the Request pertaining to the proposed Priority Mail & First-Class Package Service Contract 9 product and the related contract, respectively.
The Commission invites comments on whether the Postal Service's filings in the captioned dockets are consistent with the policies of 39 U.S.C. 3632, 3633, or 3642, 39 CFR part 3015, and 39 CFR part 3020, subpart B. Comments are due no later than December 29, 2015. The public portions of these filings can be accessed via the Commission's Web site (
The Commission appoints Kenneth R. Moeller to serve as Public Representative in these dockets.
1. The Commission establishes Docket Nos. MC2016-44 and CP2016-59 to consider the matters raised in each docket.
2. Pursuant to 39 U.S.C. 505, Kenneth R. Moeller is appointed to serve as an officer of the Commission to represent the interests of the general public in these proceedings (Public Representative).
3. Comments are due no later than December 29, 2015.
4. The Secretary shall arrange for publication of this order in the
By the Commission.
Postal Regulatory Commission.
Notice.
The Commission is noticing a recent Postal Service filing concerning the addition of Global Expedited Package Services—Non-Published Rates Contract 9 to the competitive product list. This notice informs the public of the filing, invites public comment, and takes other administrative steps.
Submit comments electronically via the Commission's Filing Online system at
David A. Trissell, General Counsel, at 202-789-6820.
In accordance with 39 U.S.C. 3642 and 39 CFR 3020.30
To support its Request, the Postal Service filed the following attachments:
• Attachment 1, an application for non-public treatment of materials filed under seal;
• Attachment 2A, a redacted version of Governors' Decision No. 11-6;
• Attachment 2B, a revised version of the Mail Classification Schedule section 2510.8 GEPS—NPR;
• Attachment 2C, a redacted version of GEPS—NPR 9 Management Analysis;
• Attachment 2D, Maximum and Minimum Prices for Global Express Guaranteed (GXG), Priority Express Mail International (PMEI), Priority Mail International (PMI), and First-Class Package International (FCPIS) under GEPS—NPR 9 Contracts;
• Attachment 2E, the certified statement concerning the prices for applicable negotiated service agreements under GEPS—NPR 9, required by 39 CFR 3015.5(c)(2);
• Attachment 3, a Statement of Supporting Justification, which is filed pursuant to 39 CFR 3020.32; and
• Attachment 4, a redacted version of the GEPS—NPR 9 model contract.
In the Statement of Supporting Justification, Giselle Valera, Managing Director and Vice President, Global Business, asserts the product is designed to increase efficiency of the Postal Service's processes, as well as enhance its ability to compete in the marketplace. Request, Attachment 3 at 1. She contends GEPS—NPR 9 belongs on the competitive product list as it is part of a market over which the Postal Service does not exercise market dominance,
The Postal Service included a redacted version of the GEPS—NPR 9 model contract with the Request.
The Postal Service represents it will notify each GEPS—NPR 9 customer of the contract's effective date no later than 30 days after receiving the signed agreement from the customer.
The Postal Service filed much of the supporting materials, including an unredacted model contract, under seal. Request at 8. It maintains that the
The Commission establishes Docket Nos. MC2016-46 and CP2016-61 to consider the Request pertaining to the proposed GEPS—NPR 9 product and the related model contract, respectively.
The Commission invites comments on whether the Postal Service's filings in the captioned dockets are consistent with the policies of 39 U.S.C. 3632, 3633, or 3642, 39 CFR part 3015, and 39 CFR part 3020, subpart B. Comments are due no later than December 29, 2015. The public portions of these filings can be accessed via the Commission's Web site (
The Commission appoints Curtis E. Kidd to serve as Public Representative in these dockets.
1. The Commission establishes Docket Nos. MC2016-46 and CP2016-61 to consider the matters raised in each docket.
2. Pursuant to 39 U.S.C. 505, Curtis E. Kidd is appointed to serve as an officer of the Commission to represent the interests of the general public in these proceedings (Public Representative).
3. Comments are due no later than December 29, 2015.
4. The Secretary shall arrange for publication of this order in the
By the Commission.
Postal Regulatory Commission.
Notice.
The Commission is noticing a recent Postal Service filing concerning the addition of Priority Mail Express & Priority Mail Contract 25 to the competitive product list. This notice informs the public of the filing, invites public comment, and takes other administrative steps.
Submit comments electronically via the Commission's Filing Online system at
David A. Trissell, General Counsel, at 202-789-6820.
In accordance with 39 U.S.C. 3642 and 39 CFR 3020.30
The Postal Service contemporaneously filed a redacted contract related to the proposed new product under 39 U.S.C. 3632(b)(3) and 39 CFR 3015.5. Request, Attachment B.
To support its Request, the Postal Service filed a copy of the contract, a copy of the Governors' Decision authorizing the product, proposed changes to the Mail Classification Schedule, a Statement of Supporting Justification, a certification of compliance with 39 U.S.C. 3633(a), and an application for non-public treatment of certain materials. It also filed supporting financial workpapers.
The Commission establishes Docket Nos. MC2016-45 and CP2016-60 to consider the Request pertaining to the proposed Priority Mail Express & Priority Mail Contract 25 product and the related contract, respectively.
The Commission invites comments on whether the Postal Service's filings in the captioned dockets are consistent with the policies of 39 U.S.C. 3632, 3633, or 3642, 39 CFR part 3015, and 39 CFR part 3020, subpart B. Comments are due no later than December 29, 2015. The public portions of these filings can be accessed via the Commission's Web site (
The Commission appoints Kenneth R. Moeller to serve as Public Representative in these dockets.
1. The Commission establishes Docket Nos. MC2016-45 and CP2016-60 to consider the matters raised in each docket.
2. Pursuant to 39 U.S.C. 505, Kenneth R. Moeller is appointed to serve as an officer of the Commission to represent the interests of the general public in these proceedings (Public Representative).
3. Comments are due no later than December 29, 2015.
4. The Secretary shall arrange for publication of this order in the
By the Commission.
Postal Regulatory Commission.
Notice.
The Commission is noticing a recent Postal Service filing concerning an additional Global Expedited Package Services 3 negotiated service agreement. This notice informs the public of the filing, invites public comment, and takes other administrative steps.
Submit comments electronically via the Commission's Filing Online system at
David A. Trissell, General Counsel, at 202-789-6820.
On December 18, 2015, the Postal Service filed notice that it has entered into an additional Global Expedited Package Services 3 (GEPS 3) negotiated service agreement (Agreement).
To support its Notice, the Postal Service filed a copy of the Agreement, a copy of the Governors' Decision authorizing the product, a certification of compliance with 39 U.S.C. 3633(a), and an application for non-public treatment of certain materials. It also filed supporting financial workpapers.
The Commission establishes Docket No. CP2016-58 for consideration of matters raised by the Notice.
The Commission invites comments on whether the Postal Service's filing is consistent with 39 U.S.C. 3632, 3633, or 3642, 39 CFR part 3015, and 39 CFR part 3020, subpart B. Comments are due no later than December 29, 2015. The public portions of the filing can be accessed via the Commission's Web site (
The Commission appoints Curtis E. Kidd to serve as Public Representative in this docket.
1. The Commission establishes Docket No. CP2016-58 for consideration of the matters raised by the Postal Service's Notice.
2. Pursuant to 39 U.S.C. 505, Curtis E. Kidd is appointed to serve as an officer of the Commission to represent the interests of the general public in this proceeding (Public Representative).
3. Comments are due no later than December 29, 2015.
4. The Secretary shall arrange for publication of this order in the
By the Commission.
Postal Service
Notice.
The Postal Service gives notice of filing a request with the Postal Regulatory Commission to add a domestic shipping services contract to the list of Negotiated Service Agreements in the Mail Classification Schedule's Competitive Products List.
Elizabeth A. Reed, 202-268-3179.
The United States Postal Service® hereby gives notice that, pursuant to 39 U.S.C. 3642 and 3632(b)(3), on December 18, 2015, it filed with the Postal Regulatory Commission a
Postal Service
Notice.
The Postal Service gives notice of filing a request with the Postal Regulatory Commission to add Global Expedited Package Services—Non-Published Rates 9 (GEPS—NPR 9) to the Competitive Products List.
Christopher C. Meyerson, 202-268-7820.
The United States Postal Service® hereby gives notice that, pursuant to 39 U.S.C. 3642, on December 18, 2015, it filed with the Postal Regulatory Commission a
Postal Service
Notice.
The Postal Service gives notice of filing a request with the Postal Regulatory Commission to add a domestic shipping services contract to the list of Negotiated Service Agreements in the Mail Classification Schedule's Competitive Products List.
Elizabeth A. Reed, 202-268-3179.
The United States Postal Service® hereby gives notice that, pursuant to 39 U.S.C. 3642 and 3632(b)(3), on December 18, 2015, it filed with the Postal Regulatory Commission a
Postal Service
Notice.
The Postal Service gives notice of filing a request with the Postal Regulatory Commission to add a domestic shipping services contract to the list of Negotiated Service Agreements in the Mail Classification Schedule's Competitive Products List.
Maria W. Votsch, 202-268-6525.
The United States Postal Service® hereby gives notice that, pursuant to 39 U.S.C. 3642 and 3632(b)(3), on December 22, 2015, it filed with the Postal Regulatory Commission a
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the “Act”),
The Exchange is filing with the Securities and Exchange Commission (“Commission”) a proposed rule change to amend the Fee Schedule to update certain fees assessed under Section V (Connectivity Fees) on the BOX Market LLC (“BOX”) options facility. Changes to the fee schedule pursuant to this proposal will be effective upon filing. The text of the proposed rule change is available from the principal office of the Exchange, at the Commission's Public Reference Room and also on the Exchange's Internet Web site at
In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements.
The Exchange proposes to amend the Fee Schedule for trading on BOX to update the connectivity fees that are assessed on market participants.
Section V.A. of the BOX Fee Schedule “Connectivity Fees”, was created to detail the fees applicable to market participants who connect to the BOX market network at Point of Presence (“PoP”) sites.
The Exchange proposes to update the fees applicable for the datacenters where market participants may connect to the BOX network: NY4, owned and operated by Equinix; and 65 Broadway, owned and operated by 365 Main; and the connectivity fees applicable, depending upon connection type. Market participants are currently assessed the following fees when connecting to the BOX network:
The Exchange proposes to add the Intra-Customer Cross Connect Connection Type for NY4 datacenter and to update the applicable fees as follows:
The Exchange believes that the proposal is consistent with the requirements of Section 6(b) of the Act, in general, and Section 6(b)(4) and 6(b)(5)of the Act,
The Exchange believes it is reasonable, equitable and not unfairly discriminatory to state that connectivity fees are assessed on all market participants that establish connections to BOX through a third-party and that these fees will be billed directly to the market participant. The Exchange believes that the proposed amendments to Section V.A. of the Fee Schedule are reasonable as they simply reflect the fee changes made by the datacenters, changes which the Exchange has no control over.
Further, the Exchange believes that the proposed Connectivity Fees constitute an equitable allocation of fees, and are not unfairly discriminatory, as all similarly situated market participants are charged the same amount depending on the services they receive.
The Exchange does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. The Exchange believes that the proposed amendments to the Fee Schedule will not impose a burden on competition among various Exchange Participants. The proposed change is designed to provide greater specificity and clarity within the Fee Schedule and does not place any Participants at a disadvantage compared to other Participants. Further, the Exchange does not believe this rule change will have an impact on intermarket competition.
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) of the Securities Exchange Act of 1934 (the “Act”),
The Exchange filed a proposal to amend the Aggressive instruction under Exchange Rule 11.6(n)(1) to route such orders where that order has been locked or crossed by other Trading Centers. The proposed rule change is based on recently filed proposed rule changes by BATS Exchange, Inc. (“BZX”) and BATS Y-Exchange, Inc. (“BYX”).
The text of the proposed rule change is available at the Exchange's Web site 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 parts of such statements.
In early 2014, the Exchange and its affiliate, EDGA Exchange, Inc. (“EDGA”) received approval to effect a merger (the “Merger”) of the Exchange's parent company, Direct Edge Holdings LLC, with BATS Global Markets, Inc., the parent of BZX and BYX (together with BZX, EDGA and EDGX, the “BGM Affiliated Exchanges”).
Users
The Aggressive instruction subjects an order to the routing process after being posted to the EDGX Book only if the order is subsequently crossed by another Trading Center (rather than if the order is locked or crossed). Further, a routable Limit Order with a Non-Displayed
The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act
Consistent with Section 6(b)(5) of the Act,
The Exchange does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange believes that proposed amendment to the Aggressive functionality encourages competition by increasing the likelihood of executions of orders that have been posted to the Exchange. The increased likelihood of an execution where the order is locked by a quotation on a Trading Center should attract additional order flow to the Exchange.
The Exchange has neither solicited nor received written comments on the proposed rule change.
Because the proposed rule change does not (i) significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act
A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the Act
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule change should be approved or disapproved.
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's Internet comment form (
• Send an email to
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the “Act”),
The Exchange filed a proposal to amend the Market Data section of its fee schedule to: (i) Adopt definitions for the terms “Non-Display Usage” and “Trading Platforms”; and (ii) amend the fees for TCP Depth and Multicast Depth data products,
The text of the proposed rule change is available at the Exchange's Web site 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 parts of such statements.
The Exchange proposes to amend the Market Data section of its fee schedule to: (i) adopt definitions for the terms “Non-Display Usage” and “Trading Platforms”; and (ii) amend the fees for BZX Depth to increase the Internal Distributor fee and adopt a new fee for Non-Display Usage.
The Exchange proposes to adopt definitions for the terms “Non-Display Usage” and “Trading Platforms”. The proposed definitions are designed to provide greater transparency with regard to how the Exchange assesses fees for market data. Non-Display Usage would be defined as “any method of accessing a Market Data product that involves access or use by a machine or automated device without access or use of a display by a natural person or persons.”
BZX Depth is an uncompressed market data feed that provides depth-of-book quotations and execution information based on equity orders entered into the System.
The Exchange proposes to implement the proposed changes to its fee schedule on January 4, 2016.
The Exchange believes that the proposed rule change is consistent with the objectives of Section 6 of the Act,
The Exchange also believes that the proposed rule change is consistent with Section 11(A) of the Act
In addition, the proposed fees would not permit unfair discrimination because all of the Exchange's subscribers will be subject to the proposed fees on an equivalent basis. BZX Depth is distributed and purchased on a voluntary basis, in that neither the Exchange nor market data distributors are required by any rule or regulation to make this data available. Accordingly, Distributors and Users can discontinue use at any time and for any reason, including due to an assessment of the reasonableness of fees charged. Firms have a wide variety of alternative market data products from which to choose, such as similar proprietary data products offered by other exchanges and consolidated data. Moreover, the Exchange is not required to make any proprietary data products available or to offer any specific pricing alternatives to any customers.
In addition, the fees that are the subject of this rule filing are constrained by competition. As explained below in the Exchange's Statement on Burden on Competition, the existence of alternatives to BZX Depth further ensures that the Exchange cannot set unreasonable fees, or fees that are unreasonably discriminatory, when subscribers can elect such alternatives. That is, the Exchange competes with other exchanges (and their affiliates) that provide similar market data products. If another exchange (or its affiliate) were to charge less to consolidate and distribute its similar product than the Exchange charges to consolidate and distribute BZX Depth, prospective Users likely would not subscribe to, or would cease subscribing to, BZX Depth.
The Exchange notes that the Commission is not required to undertake a cost-of-service or rate-making approach. The Exchange believes that, even if it were possible as a matter of economic theory, cost-based pricing for non-core market data would be so complicated that it could not be done practically.
The proposed amendment to the Internal Distributor fee for BZX Depth is also equitable and reasonable as, despite the increase, the fee proposed continues to be less than similar fees currently charged by Nasdaq and NYSE for their depth-of-book data products.
The Trading Platform fee is also equitable and reasonable in that it ensures that heavy users of the BZX Depth pay an equitable share of the total fees. Currently, External Distributors pay higher fees than Internal Distributors based upon their assumed higher usage levels. The Exchange believes that Trading Platforms are generally high users of the data, using it to power a matching engine for millions or even billions of trading messages per day.
Lastly, the Exchange believes that the proposed definitions are reasonable because they are designed to provide greater transparency to Members with regard to how the Exchange would assess the proposed fee for Non-Display Usage of BZX Depth by Trading Platforms. The Exchange believes that Members would benefit from clear guidance in its fee schedule describing the manner in which is assess fees. These definitions are intended to make the fee schedule clearer and less confusing for investors and eliminate potential investor confusion, thereby removing impediments to and perfecting the mechanism of a free and open market and a national market system, and, in general, protecting investors and the public interest. Lastly, the proposed definitions are based on existing rules of Nasdaq.
The Exchange does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act, as amended. The Exchange's ability to price BZX Depth is constrained by: (i) competition among exchanges, other trading platforms, and Trade Reporting Facilities (“TRF”) that compete with each other in a variety of dimensions; (ii) the existence of inexpensive real-time consolidated data and market-specific data and free delayed data; and (iii) the inherent contestability of the market for proprietary data.
The Exchange and its market data products are subject to significant competitive forces and the proposed fees represent responses to that competition. To start, the Exchange competes intensely for order flow. It competes with the other national securities exchanges that currently trade equities, with electronic communication networks, with quotes posted in FINRA's Alternative Display Facility, with alternative trading systems, and with securities firms that primarily trade as principal with their customer order flow.
In addition, BZX Depth competes with a number of alternative products. For instance, BZX Depth does not provide a complete picture of all trading activity in a security. Rather, the other national securities exchanges, the several TRFs of FINRA, and ECNs that produce proprietary data all produce trades and trade reports. Each is currently permitted to produce depth-of-book information products, and many currently do, including Nasdaq and NYSE.
In sum, the availability of a variety of alternative sources of information imposes significant competitive pressures on Exchange data products and the Exchange's compelling need to attract order flow imposes significant competitive pressure on the Exchange to act equitably, fairly, and reasonably in setting the proposed data product fees. The proposed data product fees are, in part, responses to that pressure. The Exchange believes that the proposed fees would reflect an equitable allocation of its overall costs to users of its facilities.
In addition, when establishing the proposed fees, the Exchange considered the competitiveness of the market for proprietary data and all of the implications of that competition. The Exchange believes that it has considered all relevant factors and has not considered irrelevant factors in order to establish fair, reasonable, and not unreasonably discriminatory fees and an equitable allocation of fees among all Users. The existence of alternatives to BZX Depth, including existing similar feeds by other exchanges, consolidated data, and proprietary data from other sources, ensures that the Exchange cannot set unreasonable fees, or fees that are unreasonably discriminatory, when subscribers can elect these alternatives or choose not to purchase a specific proprietary data product if its cost to purchase is not justified by the returns any particular vendor or subscriber would achieve through the purchase.
The Exchange believes the proposed increase to the Internal Distributor fee and adoption of the fee for Non-Display Usage by Trading Platforms for BZX Depth would increase competition amongst the exchanges that offer depth-of-book products. The Exchange notes that, despite the proposed increase, the Internal Distribution fee for BZX Depth continues to be less than similar fees currently charged by Nasdaq and NYSE for its depth-of-book data.
Lastly, the proposed definitions will not result in any burden on competition. The Exchange believes that Members would benefit from clear guidance in its fee schedule describing the manner in which is assess fees. These definitions are intended to make the fee schedule clearer and less confusing for investors and are not designed to have a competitive impact.
The Exchange has 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) of the Act
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
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to the provisions of Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”)
The Exchange is filing a proposal to amend the MIAX Options Fee Schedule (the “Fee Schedule”).
The text of the proposed rule change is available on the Exchange's Web site at
In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements.
The Exchange proposes to amend its Fee Schedule to: (i) Reduce the transaction fee for options overlying EEM, GLD, IWM, QQQ, and SPY executed by non-MIAX Market Makers; and (ii) modify the transaction fee for options overlying EEM, GLD, IWM, QQQ and SPY assessed to non-MIAX Market Makers that achieve certain Priority Customer Rebate Program
The Exchange proposes to decrease the per contract transaction fee for non-MIAX Market Makers for options overlying EEM, GLD, IWM, QQQ, and SPY from $0.55 to $0.50. The Exchange notes that the transaction fees for non-MIAX Market Makers in all other options classes will not change and thus will continue to be charged the same amount for non-Penny Pilot options classes and Penny Pilot options classes as they do today.
The Exchange proposes to continue to offer non-MIAX Market Makers the opportunity to reduce transaction fees by $0.02 per contract in standard options in EEM, GLD, IWM, QQQ, and SPY. Specifically, any Member or its affiliates of at least 75% common ownership between the firms as reflected on each firm's Form BD, Schedule A, that qualifies for Priority Customer Rebate Program volume tiers 3 or 4 and is a non-MIAX Market Maker will be assessed a reduced transaction fee of $0.48 per contract for standard options in EEM, GLD, IWM, QQQ, and SPY. The Exchange believes that these incentives will encourage non-MIAX Market Makers to transact a greater number of orders on the Exchange.
The Exchange believes that the proposed fee reduction for non-MIAX Market Makers in EEM, GLD, IWM, QQQ, and SPY will benefit these market participants and encourage them to send greater order flow to the Exchange.
The proposed changes to the Fee Schedule will be operative as of January 1, 2016.
The Exchange believes that its proposal to amend its Fee Schedule is consistent with Section 6(b) of the Act
The Exchange's proposed decrease in transaction fees for non-MIAX Market Makers in EEM, GLD, IWM, QQQ and SPY is reasonable because the lower fees should encourage these market participants to send additional order flow to the Exchange and the additional order flow should benefit all market participants. The instant proposal is equitable and not unfairly discriminatory because the fee applies equally to all non-MIAX Market Makers. The Exchange's continued higher transaction fee for non-MIAX Market Makers compared to that for MIAX Market Markers is equitable and not unfairly discriminatory because MIAX Market Markers have enhanced quoting obligations measured in both quantity
The Exchange's proposal to continue to offer non-MIAX Market Makers the opportunity to reduce transaction fees by $0.02 per contract in standard options in EEM, GLD, IWM, QQQ, and SPY, provided certain criteria are met, is reasonable because the Exchange desires to offer all such market participants an opportunity to lower their transaction fees. This proposal is equitable and not unfairly discriminatory because the Exchange will offer this opportunity to all non-MIAX Market Makers in EEM, GLD, IWM, QQQ, and SPY.
The Exchange believes that establishing different pricing for EEM, GLD, IWM, and SPY options is reasonable, equitable, and not unfairly discriminatory because EEM, GLD, IWM, QQQ, and SPY options are more liquid options as compared to others and the Exchange wants to encourage market participants to become members and register as MIAX Market Makers.
The Exchange does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange believes the proposal is consistent with robust competition by increasing the intermarket competition for order flow from market participants. The Exchange believes that charging non-members higher transaction fees is appropriate and is a common practice amongst exchanges, because Members are subject to other fees and dues associated with their Exchange that do not apply to non-members. The proposed differentiation as between non-MIAX Market Makers and MIAX Market Makers recognizes the differing contributions made to the liquidity and trading environment on the Exchange by these market participants. Maintaining a lower transaction fee for MIAX Market Makers should encourage market participants and market makers on other exchanges to register as MIAX Market Makers, which will enhance the quality of quoting and increase the volume of contracts traded in options listed on MIAX. Enhanced market quality and increased transaction volume that results from the anticipated increase in order flow submitted to the Exchange will benefit all market participants and improve competition on the Exchange. The Exchange notes that it operates in a highly competitive market in which market participants can readily favor competing venues if they deem fee levels at a particular venue to be excessive. In such an environment, the Exchange must continually adjust its fees to remain competitive with other exchanges and to attract order flow. The Exchange believes that the proposal reflects this competitive environment.
Written comments were neither solicited nor received.
The foregoing rule change has become effective pursuant to Section 19(b)(3)(A)(ii) of the Act,
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 Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the “Act”),
The Exchange filed a proposal to amend the fee schedule applicable to Members
The text of the proposed rule change is available at the Exchange's Web site 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 parts of such statements.
The Exchange proposes to modify the “Options Pricing” section of its fee schedule effective immediately, to modify pricing for orders routed away from the Exchange and executed at various away options exchanges. The Exchange currently charges the following rates for orders routed to certain other options exchanges: (i) Non-Customer
In an effort to continue to offer routing services to its Members at prices that approximate the cost to the Exchange, the Exchange is proposing to amend those rates as follows: (i) the fee for Customer orders routed to ISE in non-Penny Pilot Securities and any Customer orders routed to MIAX, BOX or NYSE MKT (fee codes ID, MC, OC and XC, respectively) would be increased to $0.15 per contract; (ii) the fee for Non-Customer Orders in non-Penny Pilot Securities routed to Arca would be increased to $1.15 per contract (fee code AG); (iii) the fee for ISOs directed to NOM, Arca, or ISE Gemini would be increased to $1.25 per contract for Non-Penny Pilot Securities (fee code D1); (iv) the fee for ISOs directed to other options exchanges would be increased to $0.75 per contract (fee code D4);
As noted previously and as set forth above, the Exchange's current approach to routing fees is to set forth in a simple manner certain sub-categories of fees that approximate the cost of routing to other options exchanges based on the cost of transaction fees assessed by each venue as well as costs to the Exchange for routing (
The Exchange proposes to implement these amendments to its fee schedule immediately.
The Exchange believes that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder that are applicable to a national securities exchange, and, in particular, with the requirements of Section 6 of the Act.
As explained above, the Exchange generally attempts to approximate the cost of routing to other options exchanges, including other applicable costs to the Exchange for routing. The Exchange believes that a pricing model based on approximate Routing Costs is a reasonable, fair and equitable approach to pricing. Specifically, the Exchange believes that its proposal to modify fees is fair, equitable and reasonable because the fees are generally an approximation of the cost to the Exchange for routing orders to such exchanges. Absent the proposed changes, the Exchange has concluded that certain orders that it was routing to other options exchanges would cost more than its current fees. Accordingly, the Exchange believes that the proposed increases are fair, equitable and reasonable because they will help the Exchange to avoid subsidizing routing to away options exchanges and to continue providing quality routing services. The Exchange believes that its fee structure for orders routed to various venues is a fair and equitable approach to pricing, as it provides certainty with respect to execution fees at away options exchanges. Under its straightforward fee structure, taking all costs to the Exchange into account, the Exchange may operate at a slight gain or slight loss for orders routed to and executed at away options exchanges. As a general matter, the Exchange believes that the proposed fees will allow it to recoup and cover its costs of providing routing services to such exchanges. The Exchange notes that routing through the Exchange is voluntary. The Exchange also believes that the proposed fee structure for orders routed to and executed at these away options exchanges is fair and equitable and not unreasonably discriminatory in that it applies equally to all Members.
The Exchange reiterates that it operates in a highly competitive market in which market participants can readily direct order flow to competing venues if they deem fee levels to be excessive or providers of routing services if they deem fee levels to be excessive. Finally, the Exchange notes that it constantly evaluates its routing fees, including profit and loss attributable to routing, as applicable, in connection with the operation of a flat fee routing service, and would consider future adjustments to the proposed pricing structure to the extent it was recouping a significant profit or loss from routing to away options exchanges.
The Exchange does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. As it relates to the proposed changes to routing fees, the proposed changes will assist the Exchange in recouping costs for routing orders to other options exchanges on behalf of its participants in a manner that is a better approximation of actual costs than is currently in place and that reflects pricing changes by various options exchanges as well as increases to other Routing Costs incurred by the Exchange. The Exchange also notes that Members may choose to mark their orders as ineligible for routing to avoid incurring routing fees.
The Exchange has not solicited, and does not intend to solicit, comments on this proposed rule change. The Exchange has not received any written comments from members or other interested parties.
The foregoing rule change has become effective pursuant to Section 19(b)(3)(A) of the Act
Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposal is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's Internet comment form (
• Send an email to
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Securities and Exchange Commission (“Commission”).
Notice of an application for an order under section 6(c) of the Investment Company Act of 1940 (the “Act”) for an exemption from sections 2(a)(32), 5(a)(1), 22(d), and 22(e) of the Act and rule 22c-1 under the Act, under sections 6(c) and 17(b) of the Act for an exemption from sections 17(a)(1) and 17(a)(2) of the Act, and under section 12(d)(1)(J) for an exemption from sections 12(d)(1)(A) and 12(d)(1)(B) of the Act.
Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090; Applicants: the Trust, the Current Adviser, and Recon Capital Advisors, LLC, 145 Mason Street, 2nd Floor, Greenwich, CT 08830; and the Current Distributor, Three Canal Plaza, Suite 100, Portland, ME 04101.
Christine Y. Greenlees, Senior Counsel, at (202) 551-6879, or David P. Bartels, Branch Chief, at (202) 551-6821 (Division of Investment Management, Chief Counsel's Office).
The following is a summary of the application. The complete application may be obtained via the Commission's Web site by searching for the file number, or for an applicant using the Company name box, at
1. The Trust is a Delaware statutory trust that has registered under the Act as an open-end management investment company with multiple series. The Trust currently offers a number of exchange traded funds, each of which has a distinct investment objective, tracks a particular index and utilizes either a replication or representative sampling strategy (the “Current Funds”). Each Fund (as defined below) will operate as an exchange traded fund (“ETF”).
2. The Current Adviser is the investment adviser to the Current Funds and an Adviser (as defined below) will be the investment adviser to the Funds. The Current Adviser is, and any other Adviser will be, registered as an investment adviser under the Investment Advisers Act of 1940 (“Advisers Act”). The Current Adviser is a wholly owned subsidiary of Recon Capital Partners, LLC, which is also registered as an investment adviser under the Advisers Act. The Adviser may enter into sub-advisory agreements with one or more investment advisers to act as sub-advisers (each, a “Sub-Adviser”) to particular Funds, or their respective Master Fund (as defined below). Any Sub-Adviser will either be registered under the Advisers Act or will not be required to register thereunder.
3. The Current Distributor serves as the principal underwriter and distributor for the Current Funds. Applicants request that the order also apply to any future distributor of Shares (“Future Distributor” and, together with the Current Distributor, the “Distributor”), provided that any such Future Distributor complies with the terms and conditions of the application. The Distributor may be an affiliated person or an affiliated person of an affiliated person of that Fund's Adviser and/or Sub-Advisers.
4. Applicants request that the order apply to the Current Funds and any additional series of the Trust and any
5. Applicants state that a Fund may operate as a Feeder Fund in a master-feeder structure. Applicants request that the order permit a Feeder Fund to acquire shares of a Master Fund, which will be another registered investment company in the same group of investment companies having substantially the same investment objectives as the Feeder Fund, beyond the limitations in section 12(d)(1)(A) of the Act and permit the Master Fund, and any principal underwriter for the Master Fund, to sell shares of the Master Fund to the Feeder Fund beyond the limitations in section 12(d)(1)(B) of the Act (“Master-Feeder Relief”). Applicants may structure certain Feeder Funds to generate economies of scale and incur lower overhead costs.
6. Each Fund, or its respective Master Fund, will hold certain securities, assets or other positions (“Portfolio Holdings”) selected to correspond generally to the performance of its Underlying Index. Certain Funds will be based on Underlying Indexes comprised solely of equity and/or fixed income securities issued by one or more of the following categories of issuers: (i) domestic issuers and (ii) non-domestic issuers meeting the requirements for trading in U.S. markets. Other Funds will be based on Underlying Indexes that will be comprised solely of foreign and domestic, or solely foreign, equity and/or fixed income securities (“Foreign Funds”).
7. Applicants represent that each Fund, or its respective Master Fund, will invest at least 80% of its assets (excluding securities lending collateral) in the component securities of its respective Underlying Index (“Component Securities”), or, in the case of Fixed Income Funds,
8. The Trust may issue Funds that seek to track Underlying Indexes constructed using 130/30 investment strategies (“130/30 Funds”) or other long/short investment strategies (“Long/Short Funds”). Each Long/Short Fund will establish (i) exposures equal to approximately 100% of the long positions specified by the Long/Short Index
9. A Fund will utilize either a replication or representative sampling strategy to track its Underlying Index. A Fund using a replication strategy will invest in the Component Securities of its Underlying Index in the same approximate proportions as in such Underlying Index. A Fund using a representative sampling strategy will hold some, but not necessarily all of the Component Securities of its Underlying Index. Applicants state that a Fund using a representative sampling strategy will not be expected to track the performance of its Underlying Index with the same degree of accuracy as would an investment vehicle that invested in every Component Security of the Underlying Index with the same
10. The Current Funds are, and any Future Fund will be, entitled to use its Underlying Index pursuant to either a licensing agreement with the entity that compiles, creates, sponsors or maintains the Underlying Index (each, an “Index Provider”) or a sub-licensing arrangement with the Adviser, which will have a licensing agreement with such Index Provider.
11. Applicants recognize that Self-Indexing Funds could raise concerns regarding the ability of the Affiliated Index Provider to manipulate the Underlying Index to the benefit or detriment of the Self-Indexing Fund. Applicants further recognize the potential for conflicts that may arise with respect to the personal trading activity of personnel of the Affiliated Index Provider who have knowledge of changes to an Underlying Index prior to the time that information is publicly disseminated.
12. Applicants propose that each day that the Trust, the NYSE and the national securities exchange (as defined in section 2(a)(26) of the Act) (an “Exchange”) on which the Fund's Shares are primarily listed (“Listing Exchange”) are open for business, including any day that a Fund is required to be open under section 22(e) of the Act (a “Business Day”), each Self-Indexing Fund will post on its Web site, before commencement of trading of Shares on the Listing Exchange, the identities and quantities of the Portfolio Holdings held by the Fund, or its respective Master Fund, that will form the basis for the Fund's calculation of its NAV at the end of the Business Day.
13. In addition, applicants do not believe the potential for conflicts of interest raised by the Adviser's use of the Underlying Indexes in connection with the management of the Self-Indexing Funds and the Affiliated Accounts will be substantially different from the potential conflicts presented by an adviser managing two or more registered funds. Both the Act and the Advisers Act contain various protections to address conflicts of interest where an adviser is managing two or more registered funds and these protections will also help address these conflicts with respect to the Self-Indexing Funds.
14. Each Adviser and any Sub-Adviser has adopted or will adopt, pursuant to Rule 206(4)-7 under the Advisers Act, written policies and procedures reasonably designed to prevent violations of the Advisers Act and the rules thereunder. These include policies and procedures designed to minimize potential conflicts of interest among the Self-Indexing Funds and the Affiliated Accounts, such as cross trading policies, as well as those designed to ensure the equitable allocation of portfolio transactions and brokerage commissions. In addition, the Current Adviser has adopted policies and procedures as required under section 204A of the Advisers Act, which are reasonably designed in light of the nature of its business to prevent the misuse, in violation of the Advisers Act or the Exchange Act or the rules thereunder, of material non-public information by the Current Adviser or an associated person (“Inside Information Policy”). Any other Adviser or Sub-Adviser will be required to adopt and maintain a similar Inside Information Policy. In accordance with the Code of Ethics
15. To the extent the Self-Indexing Funds transact with an affiliated person of the Adviser or Sub-Adviser, such transactions will comply with the Act, the rules thereunder and the terms and conditions of the requested order. In this regard, each Self-Indexing Fund's board of directors or trustees (“Board”) will periodically review the Self-Indexing Fund's use of an Affiliated Index Provider. Subject to the approval of the Self-Indexing Fund's Board, an Adviser, affiliated persons of the Adviser (“Adviser Affiliates”) and affiliated persons of any Sub-Adviser
16. The Shares of each Fund will be purchased and redeemed in Creation Units and generally on an in-kind basis. Except where the purchase or redemption will include cash under the limited circumstances specified below, purchasers will be required to purchase Creation Units by making an in-kind deposit of specified instruments (“Deposit Instruments”), and shareholders redeeming their Shares will receive an in-kind transfer of specified instruments (“Redemption Instruments”).
17. Purchases and redemptions of Creation Units may be made in whole or in part on a cash basis, rather than in kind, solely under the following circumstances: (a) To the extent there is a Cash Amount; (b) if, on a given Business Day, the Fund announces before the open of trading that all purchases, all redemptions or all purchases and redemptions on that day will be made entirely in cash; (c) if, upon receiving a purchase or redemption order from an Authorized Participant (as defined below), the Fund determines to require the purchase or redemption, as applicable, to be made entirely in cash;
18. Creation Units will consist of specified large aggregations of Shares (
19. Each Business Day, before the open of trading on the Listing Exchange, each Fund will cause to be published
20. Transaction expenses, including operational processing and brokerage costs, will be incurred by a Fund when investors purchase or redeem Creation Units in-kind and such costs have the potential to dilute the interests of the Fund's existing shareholders. Each Fund will impose purchase or redemption transaction fees (“Transaction Fees”) in connection with effecting such purchases or redemptions of Creation Units. With respect to Feeder Funds, the Transaction Fee would be paid indirectly to the Master Fund.
21. Shares of each Fund will be listed and traded individually on an Exchange. It is expected that one or more member firms of an Exchange will be designated to act as a market maker (each, a “Market Maker”) and maintain a market for Shares trading on the Exchange. Prices of Shares trading on an Exchange will be based on the current bid/offer market. Transactions involving the sale of Shares on an Exchange will be subject to customary brokerage commissions and charges.
22. Applicants expect that purchasers of Creation Units will include institutional investors and arbitrageurs. Market Makers, acting in their roles to provide a fair and orderly secondary market for the Shares, may from time to time find it appropriate to purchase or redeem Creation Units. Applicants expect that secondary market purchasers of Shares will include both institutional and retail investors.
23. Shares will not be individually redeemable, and owners of Shares may acquire those Shares from the Fund, or tender such Shares for redemption to the Fund, in Creation Units only. To redeem, an investor must accumulate enough Shares to constitute a Creation Unit. Redemption requests must be placed through an Authorized Participant. A redeeming investor may pay a Transaction Fee, calculated in the same manner as a Transaction Fee payable in connection with purchases of Creation Units.
24. Neither the Trust nor any Fund will be advertised or marketed or otherwise held out as a traditional open-end investment company or a “mutual fund.” Instead, each such Fund will be marketed as an “ETF.” All marketing materials that describe the features or method of obtaining, buying or selling Creation Units, or Shares traded on an Exchange, or refer to redeemability, will prominently disclose that Shares are not individually redeemable and will disclose that the owners of Shares may acquire those Shares from the Fund or tender such Shares for redemption to the Fund in Creation Units only. The Funds will provide copies of their annual and semi-annual shareholder reports to DTC Participants for distribution to beneficial owners of Shares.
1. Applicants request an order under section 6(c) of the Act for an exemption from sections 2(a)(32), 5(a)(1), 22(d), and 22(e) of the Act and rule 22c-1 under the Act, under sections 6(c) and 17(b) of the Act for an exemption from sections 17(a)(1) and 17(a)(2) of the Act, and under section 12(d)(1)(J) of the Act for an exemption from sections 12(d)(1)(A) and (B) of the Act.
2. Section 6(c) of the Act provides that the Commission may exempt any person, security or transaction, or any class of persons, securities or transactions, from any provision of the Act, if and to the extent that such exemption is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act. Section 17(b) of the Act authorizes the Commission to exempt a proposed transaction from section 17(a) of the Act if evidence establishes that the terms of the transaction, including the consideration to be paid or received, are reasonable and fair and do not involve overreaching on the part of any person concerned, and the proposed transaction is consistent with the policies of the registered investment company and the general provisions of the Act. Section 12(d)(1)(J) of the Act provides that the Commission may exempt any person, security, or transaction, or any class or classes of persons, securities or transactions, from any provisions of section 12(d)(1) if the exemption is consistent with the public interest and the protection of investors.
3. Section 5(a)(1) of the Act defines an “open-end company” as a management investment company that is offering for sale or has outstanding any redeemable security of which it is the issuer. Section 2(a)(32) of the Act defines a redeemable security as any security, other than short-term paper, under the terms of which the owner, upon its presentation to the issuer, is entitled to receive approximately a proportionate share of the issuer's current net assets, or the cash equivalent. Because Shares will not be individually redeemable,
4. Section 22(d) of the Act, among other things, prohibits a dealer from selling a redeemable security that is currently being offered to the public by or through an underwriter, except at a current public offering price described in the prospectus. Rule 22c-1 under the Act generally requires that a dealer selling, redeeming or repurchasing a redeemable security do so only at a price based on its NAV. Applicants state that secondary market trading in Shares will take place at negotiated prices, not at a current offering price described in a Fund's prospectus, and not at a price based on NAV. Thus, purchases and sales of Shares in the secondary market will not comply with section 22(d) of the Act and rule 22c-1 under the Act. Applicants request an exemption under section 6(c) from these provisions.
5. Applicants assert that the concerns sought to be addressed by section 22(d) of the Act and rule 22c-1 under the Act with respect to pricing are equally satisfied by the proposed method of pricing Shares. Applicants maintain that while there is little legislative history regarding section 22(d), its provisions, as well as those of rule 22c-1, appear to have been designed to (a) prevent dilution caused by certain riskless-trading schemes by principal underwriters and contract dealers, (b) prevent unjust discrimination or preferential treatment among buyers, and (c) ensure an orderly distribution of investment company shares by eliminating price competition from dealers offering shares at less than the published sales price and repurchasing shares at more than the published redemption price.
6. Applicants believe that none of these purposes will be thwarted by permitting Shares to trade in the secondary market at negotiated prices. Applicants state that (a) secondary market trading in Shares does not involve a Fund as a party and will not result in dilution of an investment in Shares, and (b) to the extent different prices exist during a given trading day, or from day to day, such variances occur as a result of third-party market forces, such as supply and demand. Therefore, applicants assert that secondary market transactions in Shares will not lead to discrimination or preferential treatment among purchasers. Finally, applicants contend that the price at which Shares trade will be disciplined by arbitrage opportunities created by the option continually to purchase or redeem Shares in Creation Units, which should help prevent Shares from trading at a material discount or premium in relation to their NAV.
7. Section 22(e) of the Act generally prohibits a registered investment company from suspending the right of redemption or postponing the date of payment of redemption proceeds for more than seven days after the tender of a security for redemption. Applicants state that settlement of redemptions for Foreign Funds will be contingent not only on the settlement cycle of the United States market, but also on current delivery cycles in local markets for underlying foreign Portfolio Holdings held by a Foreign Fund. Applicants state that the delivery cycles currently practicable for transferring Redemption Instruments to redeeming investors, coupled with local market holiday schedules, may require a delivery process of up to fifteen (15) calendar days. Accordingly, with respect to Foreign Funds only, applicants hereby request relief under section 6(c) from the requirement imposed by section 22(e) to allow Foreign Funds to pay redemption proceeds within fifteen calendar days following the tender of Creation Units for redemption.
8. Applicants believe that Congress adopted section 22(e) to prevent unreasonable, undisclosed or unforeseen delays in the actual payment of redemption proceeds. Applicants propose that allowing redemption payments for Creation Units of a Foreign Fund to be made within fifteen calendar days would not be inconsistent with the spirit and intent of section 22(e).
9. Applicants are not seeking relief from section 22(e) with respect to Foreign Funds that do not effect creations and redemptions of Creation Units in-kind.
10. Section 12(d)(1)(A) of the Act prohibits a registered investment company from acquiring securities of an investment company if such securities represent more than 3% of the total outstanding voting stock of the acquired company, more than 5% of the total assets of the acquiring company, or, together with the securities of any other investment companies, more than 10% of the total assets of the acquiring company. Section 12(d)(1)(B) of the Act prohibits a registered open-end investment company, its principal underwriter and any other broker-dealer from knowingly selling the investment company's shares to another investment company if the sale will cause the acquiring company to own more than 3% of the acquired company's voting stock, or if the sale will cause more than 10% of the acquired company's voting stock to be owned by investment companies generally.
11. Applicants request an exemption to permit registered management investment companies and unit investment trusts (“UITs”) that are not advised or sponsored by the Adviser, and not part of the same “group of investment companies,” as defined in section 12(d)(1)(G)(ii) of the Act as the Funds (such management investment companies are referred to as “Investing Management Companies,” such UITs are referred to as “Investing Trusts,” and Investing Management Companies and Investing Trusts are collectively referred to as “Funds of Funds”), to acquire Shares beyond the limits of section 12(d)(1)(A) of the Act; and the Funds, and any principal underwriter for the Funds, and/or any Broker registered under the Exchange Act, to sell Shares to Funds of Funds beyond the limits of section 12(d)(1)(B) of the Act.
12. Each Investing Management Company will be advised by an
13. Applicants submit that the proposed conditions to the requested relief adequately address the concerns underlying the limits in sections 12(d)(1)(A) and (B), which include concerns about undue influence by a fund of funds over underlying funds, excessive layering of fees and overly complex fund structures. Applicants believe that the requested exemption is consistent with the public interest and the protection of investors.
14. Applicants believe that neither a Fund of Funds nor a Fund of Funds Affiliate would be able to exert undue influence over a Fund.
15. Applicants propose other conditions to limit the potential for undue influence over the Funds, or their respective Master Funds, including that no Fund of Funds or Fund of Funds Affiliate (except to the extent it is acting in its capacity as an investment adviser to a Fund) will cause a Fund, or its respective Master Fund, to purchase a security in an offering of securities during the existence of an underwriting or selling syndicate of which a principal underwriter is an Underwriting Affiliate (“Affiliated Underwriting”). An “Underwriting Affiliate” is a principal underwriter in any underwriting or selling syndicate that is an officer, director, member of an advisory board, Fund of Funds Adviser, Fund of Funds Sub-Adviser, employee or Sponsor of the Fund of Funds, or a person of which any such officer, director, member of an advisory board, Fund of Funds Adviser or Fund of Funds Sub-Adviser, employee or Sponsor is an affiliated person (except that any person whose relationship to the Fund is covered by section 10(f) of the Act is not an Underwriting Affiliate).
16. Applicants do not believe that the proposed arrangement will involve excessive layering of fees. The board of directors or trustees of any Investing Management Company, including a majority of the directors or trustees who are not “interested persons” within the meaning of section 2(a)(19) of the Act (“disinterested directors or trustees”), will find that the advisory fees charged under the contract are based on services provided that will be in addition to, rather than duplicative of, services provided under the advisory contract of any Fund, or its respective Master Fund, in which the Investing Management Company may invest. In addition, under condition B.5., a Fund of Funds Adviser, or a Fund of Funds' trustee or Sponsor, as applicable, will waive fees otherwise payable to it by the Fund of Funds in an amount at least equal to any compensation (including fees received pursuant to any plan adopted by a Fund, or its respective Master Fund, under rule 12b-1 under the Act) received from a Fund by the Fund of Funds Adviser, trustee or Sponsor or an affiliated person of the Fund of Funds Adviser, trustee or Sponsor, other than any advisory fees paid to the Fund of Funds Adviser, trustee or Sponsor or its affiliated person by a Fund, in connection with the investment by the Fund of Funds in the Fund. Applicants state that any sales charges and/or service fees charged with respect to shares of a Fund of Funds will not exceed the limits applicable to a fund of funds as set forth in NASD Conduct Rule 2830.
17. Applicants submit that the proposed arrangement will not create an overly complex fund structure. Applicants note that no Fund, nor its respective Master Fund, will acquire securities of any investment company or company relying on section 3(c)(1) or 3(c)(7) of the Act in excess of the limits contained in section 12(d)(1)(A) of the Act, other than a Wholly-Owned Subsidiary,
18. Applicants also note that a Fund may choose to reject a direct purchase of Shares in Creation Units by a Fund of Funds. To the extent that a Fund of Funds purchases Shares in the secondary market, a Fund would still retain its ability to reject any initial investment by a Fund of Funds in excess of the limits of section 12(d)(1)(A) by declining to enter into a FOF Participation Agreement with the Fund of Funds.
19. Applicants also are seeking the Master-Feeder Relief to permit the Feeder Funds to perform creations and redemptions of Shares in-kind in a master-feeder structure. Applicants assert that this structure is substantially identical to traditional master-feeder structures permitted pursuant to the
20. Sections 17(a)(1) and (2) of the Act generally prohibit an affiliated person of a registered investment company, or an affiliated person of such a person, from selling any security to or purchasing any security from the company. Section 2(a)(3) of the Act defines “affiliated person” of another person to include (a) any person directly or indirectly owning, controlling or holding with power to vote 5% or more of the outstanding voting securities of the other person, (b) any person 5% or more of whose outstanding voting securities are directly or indirectly owned, controlled or held with the power to vote by the other person, and (c) any person directly or indirectly controlling, controlled by or under common control with the other person. Section 2(a)(9) of the Act defines “control” as the power to exercise a controlling influence over the management or policies of a company, and provides that a control relationship will be presumed where one person owns more than 25% of a company's voting securities. The Funds may be deemed to be controlled by the Adviser or an entity controlling, controlled by or under common control with the Adviser and hence affiliated persons of each other. In addition, the Funds may be deemed to be under common control with any other registered investment company (or series thereof) advised by an Adviser or an entity controlling, controlled by or under common control with an Adviser (an “Affiliated Fund”). Any investor, including Market Makers, owning 5% or holding in excess of 25% of the Trust or such Funds, may be deemed affiliated persons of the Trust or such Funds. In addition, an investor could own 5% or more, or in excess of 25% of the outstanding shares of one or more Affiliated Funds making that investor an affiliated person of an affiliated person of the Funds.
21. Applicants request an exemption from sections 17(a)(1) and 17(a)(2) of the Act pursuant to sections 6(c) and 17(b) of the Act to permit persons that are affiliated persons of the Funds, or an affiliated person of such affiliated person of the Funds, solely by virtue of one or more of the following: (a) holding 5% or more, or in excess of 25%, of the outstanding Shares of one or more Funds; (b) an affiliation with a person with an ownership interest described in (a); or (c) holding 5% or more, or more than 25%, of the shares of one or more Affiliated Funds, to effectuate purchases and redemptions “in-kind.”
22. Applicants assert that no useful purpose would be served by prohibiting such affiliated persons from making “in-kind” purchases or “in-kind” redemptions of Shares of a Fund in Creation Units. Both the deposit procedures for “in-kind” purchases of Creation Units and the redemption procedures for “in-kind” redemptions of Creation Units will be effected in exactly the same manner for all purchases and redemptions, regardless of size or number. There will be no discrimination between purchasers or redeemers. Deposit Instruments and Redemption Instruments for each Fund will be valued in the identical manner as those Portfolio Holdings currently held by such Fund, or its respective Master Fund, and the valuation of the Deposit Instruments and Redemption Instruments will be made in an identical manner regardless of the identity of the purchaser or redeemer. Applicants do not believe that “in-kind” purchases and redemptions will result in abusive self-dealing or overreaching, but rather assert that such procedures will be implemented consistently with each Fund's objectives and with the general purposes of the Act. Applicants believe that “in-kind” purchases and redemptions will be made on terms reasonable to Applicants and any affiliated persons because they will be valued pursuant to verifiable objective standards. The method of valuing Portfolio Holdings held by a Fund is identical to that used for calculating “in-kind” purchase or redemption values and therefore creates no opportunity for affiliated persons or affiliated persons of affiliated persons of applicants to effect a transaction detrimental to the other holders of Shares of that Fund. Similarly, applicants submit that, by using the same standards for valuing Portfolio Holdings held by a Fund as are used for calculating “in-kind” redemptions or purchases, the Fund will ensure that its NAV will not be adversely affected by such securities transactions. Applicants also note that the ability to take deposits and make redemptions “in-kind” will help each Fund to track closely its Underlying Index and therefore aid in achieving the Fund's objectives.
23. Applicants also seek relief under sections 6(c) and 17(b) from section 17(a) to permit a Fund that is an affiliated person, or an affiliated person of an affiliated person, of a Fund of Funds to sell its Shares to and redeem its Shares from a Fund of Funds, and to engage in the accompanying in-kind transactions with the Fund of Funds.
24. To the extent that a Fund operates in a master-feeder structure, applicants also request relief permitting the Feeder Funds to engage in in-kind creations and redemptions with the applicable Master Fund. Applicants state that the customary section 17(a)(1) and 17(a)(2) relief would not be sufficient to permit such transactions because the Feeder Funds and the applicable Master Fund could also be affiliated by virtue of having the same investment adviser. However, applicants believe that in-kind creations and redemptions between a Feeder Fund and a Master Fund advised by the same investment adviser do not involve “overreaching” by an affiliated person. Such transactions will occur only at the Feeder Fund's proportionate share of the Master Fund's net assets, and the distributed securities will be valued in the same manner as they are valued for the purposes of calculating the applicable Master Fund's NAV. Further, all such transactions will be effected with respect to pre-determined securities and on the same terms with respect to all investors. Finally, such transaction would only occur as a result of, and to effectuate, a creation or redemption transaction between the Feeder Fund and a third-party investor. Applicants believe that the terms of the proposed transactions are reasonable and fair and do not involve overreaching on the part of any person concerned, the proposed transactions are consistent with the policy of each Fund and will be consistent with the investment objectives and policies of each Fund of Funds, and the proposed transactions are consistent with the general purposes of the Act.
Applicants agree that any order of the Commission granting the requested relief will be subject to the following conditions:
1. The requested relief to permit ETF operations, other than the Master-Feeder Relief, will expire on the effective date of any Commission rule under the Act that provides relief permitting the operation of index-based ETFs.
2. As long as a Fund operates in reliance on the requested order, the Shares of such Fund will be listed on an Exchange.
3. Neither the Trust nor any Fund will be advertised or marketed as an open-end investment company or a mutual fund. Any advertising material that describes the purchase or sale of Creation Units or refers to redeemability will prominently disclose that Shares are not individually redeemable and that owners of Shares may acquire those Shares from the Fund and tender those Shares for redemption to a Fund in Creation Units only.
4. The Web site, which is and will be publicly accessible at no charge, will contain, on a per Share basis for each Fund, the prior Business Day's NAV and the market closing price or the midpoint of the bid/ask spread at the time of the calculation of such NAV (“Bid/Ask Price”), and a calculation of the premium or discount of the market closing price or Bid/Ask Price against such NAV.
5. Each Self-Indexing Fund, Long/Short Fund and 130/30 Fund will post on the Web site on each Business Day, before commencement of trading of Shares on the Exchange, the Fund's, or its respective Master Fund's, Portfolio Holdings.
6. No Adviser or any Sub-Adviser to a Self-Indexing Fund, directly or indirectly, will cause any Authorized Participant (or any investor on whose behalf an Authorized Participant may transact with the Self-Indexing Fund) to acquire any Deposit Instrument for the Self-Indexing Fund, or its respective Master Fund, through a transaction in which the Self-Indexing Fund, or its respective Master Fund, could not engage directly.
1. The members of a Fund of Funds' Advisory Group will not control (individually or in the aggregate) a Fund, or its respective Master Fund, within the meaning of section 2(a)(9) of the Act. The members of a Fund of Funds' Sub-Advisory Group will not control (individually or in the aggregate) a Fund, or its respective Master Fund, within the meaning of section 2(a)(9) of the Act. If, as a result of a decrease in the outstanding voting securities of a Fund, the Fund of Funds' Advisory Group or the Fund of Funds' Sub-Advisory Group, each in the aggregate, becomes a holder of more than 25 percent of the outstanding voting securities of a Fund, it will vote its Shares of the Fund in the same proportion as the vote of all other holders of the Fund's Shares. This condition does not apply to the Fund of Funds' Sub-Advisory Group with respect to a Fund, or its respective Master Fund, for which the Fund of Funds' Sub-Adviser or a person controlling, controlled by or under common control with the Fund of Funds' Sub-Adviser acts as the investment adviser within the meaning of section 2(a)(20)(A) of the Act.
2. No Fund of Funds or Fund of Funds Affiliate will cause any existing or potential investment by the Fund of Funds in a Fund to influence the terms of any services or transactions between the Fund of Funds or Fund of Funds Affiliate and the Fund, or its respective Master Fund, or a Fund Affiliate.
3. The board of directors or trustees of an Investing Management Company, including a majority of the disinterested directors or trustees, will adopt procedures reasonably designed to ensure that the Fund of Funds Adviser and Fund of Funds Sub-Adviser are conducting the investment program of the Investing Management Company without taking into account any consideration received by the Investing Management Company or a Fund of Funds Affiliate from a Fund, or its respective Master Fund, or Fund Affiliate in connection with any services or transactions.
4. Once an investment by a Fund of Funds in the securities of a Fund exceeds the limits in section 12(d)(1)(A)(i) of the Act, the Board of the Fund, or its respective Master Fund, including a majority of the directors or trustees who are not “interested persons” within the meaning of section 2(a)(19) of the Act (“non-interested Board members”), will determine that any consideration paid by the Fund, or its respective Master Fund, to the Fund of Funds or a Fund of Funds Affiliate in connection with any services or transactions: (i) is fair and reasonable in relation to the nature and quality of the services and benefits received by the Fund, or its respective Master Fund; (ii) is within the range of consideration that the Fund would be required to pay to another unaffiliated entity in connection with the same services or transactions; and (iii) does not involve overreaching on the part of any person concerned. This condition does not apply with respect to any services or transactions between a Fund, or its respective Master Fund, and its investment adviser(s), or any person controlling, controlled by or under common control with such investment adviser(s).
5. The Fund of Funds Adviser, or trustee or Sponsor of an Investing Trust, as applicable, will waive fees otherwise payable to it by the Fund of Funds in an amount at least equal to any compensation (including fees received pursuant to any plan adopted by a Fund, or its respective Master Fund, under rule 12b-l under the Act) received from a Fund, or its respective Master Fund, by the Fund of Funds Adviser, or
6. No Fund of Funds or Fund of Funds Affiliate (except to the extent it is acting in its capacity as an investment adviser to a Fund) will cause a Fund, or its respective Master Fund, to purchase a security in any Affiliated Underwriting.
7. The Board of a Fund, or its respective Master Fund, including a majority of the non-interested Board members, will adopt procedures reasonably designed to monitor any purchases of securities by the Fund, or its respective Master Fund, in an Affiliated Underwriting, once an investment by a Fund of Funds in the securities of the Fund exceeds the limit of section 12(d)(1)(A)(i) of the Act, including any purchases made directly from an Underwriting Affiliate. The Board will review these purchases periodically, but no less frequently than annually, to determine whether the purchases were influenced by the investment by the Fund of Funds in the Fund. The Board will consider, among other things: (i) whether the purchases were consistent with the investment objectives and policies of the Fund, or its respective Master Fund; (ii) how the performance of securities purchased in an Affiliated Underwriting compares to the performance of comparable securities purchased during a comparable period of time in underwritings other than Affiliated Underwritings or to a benchmark such as a comparable market index; and (iii) whether the amount of securities purchased by the Fund, or its respective Master Fund, in Affiliated Underwritings and the amount purchased directly from an Underwriting Affiliate have changed significantly from prior years. The Board will take any appropriate actions based on its review, including, if appropriate, the institution of procedures designed to ensure that purchases of securities in Affiliated Underwritings are in the best interest of shareholders of the Fund.
8. Each Fund, or its respective Master Fund, will maintain and preserve permanently in an easily accessible place a written copy of the procedures described in the preceding condition, and any modifications to such procedures, and will maintain and preserve for a period of not less than six years from the end of the fiscal year in which any purchase in an Affiliated Underwriting occurred, the first two years in an easily accessible place, a written record of each purchase of securities in Affiliated Underwritings once an investment by a Fund of Funds in the securities of the Fund exceeds the limit of section 12(d)(1)(A)(i) of the Act, setting forth from whom the securities were acquired, the identity of the underwriting syndicate's members, the terms of the purchase, and the information or materials upon which the Board's determinations were made.
9. Before investing in a Fund in excess of the limit in section 12(d)(1)(A), a Fund of Funds and the Trust will execute a FOF Participation Agreement stating, without limitation, that their respective boards of directors or trustees and their investment advisers, or trustee and Sponsor, as applicable, understand the terms and conditions of the order, and agree to fulfill their responsibilities under the order. At the time of its investment in Shares of a Fund in excess of the limit in section 12(d)(1)(A)(i), a Fund of Funds will notify the Fund of the investment. At such time, the Fund of Funds will also transmit to the Fund a list of the names of each Fund of Funds Affiliate and Underwriting Affiliate. The Fund of Funds will notify the Fund of any changes to the list of the names as soon as reasonably practicable after a change occurs. The Fund and the Fund of Funds will maintain and preserve a copy of the order, the FOF Participation Agreement, and the list with any updated information for the duration of the investment and for a period of not less than six years thereafter, the first two years in an easily accessible place.
10. Before approving any advisory contract under section 15 of the Act, the board of directors or trustees of each Investing Management Company including a majority of the disinterested directors or trustees, will find that the advisory fees charged under such contract are based on services provided that will be in addition to, rather than duplicative of, the services provided under the advisory contract(s) of any Fund, or its respective Master Fund, in which the Investing Management Company may invest. These findings and their basis will be fully recorded in the minute books of the appropriate Investing Management Company.
11. Any sales charges and/or service fees charged with respect to shares of a Fund of Funds will not exceed the limits applicable to a fund of funds as set forth in NASD Conduct Rule 2830.
12. No Fund, or its respective Master Fund, will acquire securities of an investment company or company relying on section 3(c)(1) or 3(c)(7) of the Act in excess of the limits contained in section 12(d)(1)(A) of the Act, except to the extent (i) the Fund, or its respective Master Fund, acquires securities of another investment company pursuant to exemptive relief from the Commission permitting the Fund, or its respective Master Fund, to acquire securities of one or more investment companies for short-term cash management purposes, (ii) the Fund acquires securities of the Master Fund pursuant to the Master-Feeder Relief, or (iii) the Fund invests in a Wholly-Owned Subsidiary that is a wholly-owned and controlled subsidiary of the Fund (or its respective Master Fund) as described in the application. Further, no Wholly-Owned Subsidiary will acquire securities of any other investment company or company relying on section 3(c)(1) or 3(c)(7) of the Act other than money market funds that comply with rule 2a-7 for short-term cash management purposes.
For the Commission, by the Division of Investment Management, under delegated authority.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the “Act”),
The Exchange filed a proposal to amend the fee schedule applicable to Members
The text of the proposed rule change is available at the Exchange's Web site 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 parts of such statements.
The Exchange proposes to modify its fee schedule applicable to the Exchange's options platform to: (i) Bifurcate Market Maker
The Exchange proposes to bifurcate Market Maker and Non-BATS Market Maker pricing within the fee schedule. To do so, the Exchange proposes to amend: (i) The Standard Rates table; (ii) the Fee Codes and Associated Fees table to (A) modify fee codes NM and PM; and (B) add new fee codes NN and PN; (iii) the NBBO Setter tiers under footnote 4 to reference fee codes NN and PN; (iv) footnote 6 to remove references to Non-BATS Market Maker pricing and copy Tier 1 and relocate Tier 3 and the Step-Up Tier to new footnote 10; and (v) footnote 7 to remove references to Non-BATS Market Maker Pricing and copy Tiers 1 and 2 to new footnote 11. The Exchange notes, other than as proposed herein, pricing for Non-BATS Market Maker transactions are the same as Market Maker transactions. The proposed rule change generally bifurcates the existing pricing for Market Makers and Non-BATS Market Makers.
First, the Exchange proposes to amend the Fee Codes and Associated Fee table to amend fee codes NM and PM to remove references to Non-BATS Market Maker Pricing. Pricing for Non-BATS Market Makers would be set forth under new fee codes NN and PN. Under current fee code NM, Market Makers and Non-BATS Market Makers that add liquidity in non-Penny Pilot Securities
Under current fee code PM, Market Makers and Non-BATS Market Makers that add liquidity in Penny Pilot Securities receive a rebate of $0.35 per contract. Under proposed fee code PN, Non-BATS Market Makers that add liquidity in Penny Pilot Securities would receive a rebate of $0.30 per contract. Fee code PN would also include references to footnotes 4 and 10, discussed below.
Second, the Exchange proposes to amend the Standard Rates table to add a row to delineate pricing for Non-BATS Market Makers. Non-BATS Market Maker orders that yield new fee code PN would receive a rebate of $0.30 per contract if they do not qualify for an enhanced rebates under the Exchange's tiered pricing structure. The Exchange does not proposes to amend the enhanced rebates, which are either $0.40, $0.43, or $0.46 per contract depending on the tier that the Non-BATS Market Maker qualifies for. Likewise, Non-BATS Market Maker orders that yield new fee code NN would receive a rebate of $0.36 per contract if they do not qualify for an enhanced rebates under the Exchange's tiered pricing structure. The Exchange does not propose to amend the enhanced rebates, which are either $0.45 or $0.52 per contract depending on the tier that the Non-BATS Market Maker qualifies for.
The Exchange believes it is reasonable to provide Market Makers with improved rates than Non-BATS Market Makers as the proposed differentiation recognizes the differing contributions made to the liquidity and trading environment on the Exchange by these market participants.
The Exchange proposes to amend the NBBO Setter tiers under footnote 4 to reference fee codes NN and PN. In addition to fee codes PA, PF, PM, NA, NF, and NM, the Exchange proposes to state that NBBO Setter Tiers 1, 2, and 3 are applicable to fee codes PN and NN.
The Exchange proposes to bifurcate the Market Maker and Non-Market Maker pricing in Penny Pilot Securities under footnote 6 by removing references to Non-BATS Market Maker pricing and copy Tier 1 and relocate Tier 3 and the Step-Up Tier to new footnote 10. Footnote 6 would be amended to remove references to Non-BATS Market Makers as the tiers under footnote 6 would only apply to Market Maker activity in Penny Pilot Securities. The criteria for Tier 2 under footnote 6 would continue to reference Non-BATS Market Makers as liquidity a Market Maker adds in a non-market making capacity would continue to be applied towards the tier's requirements.
Tiers applicable to Non-BATS Market Maker activity in Penny Pilot Securities would be set forth under new footnote 10. Fee code PN would be applicable to the tiers listed under footnote 10. Under Tier 1, a Non-BATS Market Maker would receive a rebate of $0.40 per contract where they have an ADV
The Exchange proposes to bifurcate the Market Maker and Non-Market Maker pricing in non-Penny Pilot Securities under footnote 7 by removing references to Non-BATS Market Maker pricing and coping Tiers 1 and 2 to new footnote 11. Footnote 7 would be amended to remove references to Non-BATS Market Makers as the tiers under footnote 7 would only apply to Market Maker activity in non-Penny Pilot Securities.
Tiers applicable to Non-BATS Market Maker activity in non-Penny Pilot Securities would be set forth under new footnote 11. Tiers 1 and 2 under footnote 7 would be replicated under new footnote 11 without change. Under Tier 1, a Non-BATS Market Maker would continue to receive a rebate of $0.45 per contract where they have an ADV equal to or greater than 0.30% of average TCV. Under Tier 2, a Non-BATS Market Maker would continue to receive a rebate of $0.52 per contract where they have an ADV equal to or greater than 1.00% of average TCV. Fee code NN would be applicable to the tiers listed under footnote 11.
The Exchange currently offers a total of eight Customer
The Exchange currently offers a total of three Non-Customer
The Exchange proposes to implement these amendments to its fee schedule immediately.
The Exchange believes that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder that are applicable to a national securities exchange, and, in particular, with the requirements of Section 6 of the Act.
The Exchange also believes it is equitable, reasonable and not unfairly discriminatory to bifurcate Market Maker and Non-BATS Market Maker pricing within the fee schedule. The Exchange notes, other than as proposed herein, pricing for Non-BATS Market Maker transactions are the same as Market Maker transactions. The proposed rule change generally bifurcates the existing pricing for Market Makers and Non-BATS Market Makers. The proposed rule change would serve to clearly delineate within the fee schedule the fees, rebates and tiers available to Market Makers and Non-BATS Market Makers; thereby, avoiding Members confusion regarding the applicable fees and rebates.
The Exchange also believes it is equitable, reasonable and not unfairly discriminatory to provide Market Makers with improved rates than Non-BATS Market Makers. The proposed
Volume-based rebates and fees such as the ones currently maintained on the Exchange have been widely adopted by equities and options exchanges and are equitable because they are open to all Members on an equal basis and provide additional benefits or discounts that are reasonably related to the value to an exchange's market quality associated with higher levels of market activity, such as higher levels of liquidity provision and/or growth patterns, and introduction of higher volumes of orders into the price and volume discovery processes. Easing the criteria for the Customer Penny Pilot Add Volume Tier 6 and Non-Customer Penny Pilot Take Volume Tier 3 are intended to incentivize Members to send additional orders to the Exchange in an effort to qualify for the enhanced rebate or discounted fee available by the respective tier.
The Exchange believes that these changes are reasonable, fair and equitable and non-discriminatory, for the reasons set forth with respect to volume-based pricing generally and because such changes will either incentivize participants to further contribute to market quality on the Exchange or will allow the Exchange to earn additional revenue that can be used to offset the addition of new pricing incentives. The Exchange also believes that the proposed fees and rebates remain consistent with pricing previously offered by the Exchange as well as competitors of the Exchange and do not represent a significant departure from the Exchange's general pricing structure.
The Exchange believes the proposed amendments to its fee schedule would not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange does not believe that the proposed change represents a significant departure from previous pricing offered by the Exchange or pricing offered by the Exchange's competitors. Additionally, Members may opt to disfavor the Exchange's pricing if they believe that alternatives offer them better value. Accordingly, the Exchange does not believe that the proposed change will impair the ability of Members or competing venues to maintain their competitive standing in the financial markets. The Exchange does not believes its bifurcation of Market Maker and Non-BATS Market Maker pricing would burden competition as they are intended to simply clearly delineate within the fee schedule the fees, rebates and tiers available to Market Makers and Non-BATS Market Makers; thereby, avoiding Members confusion regarding the applicable fees and rebates. The Exchange also does not believe that providing Market Makers with improved rates than Non-BATS Market Makers would burden competition as the proposed differentiation recognizes the differing contributions made to the liquidity and trading environment on the Exchange by these market participants.
The Exchange also does not believe that any of the proposed changes to the Exchange's tiered pricing structure burden competition, but instead, that they enhance competition as they are intended to increase the competitiveness of the Exchange by easing the criteria necessary to qualify for certain tiers. Also, the Exchange believes that the decrease to these thresholds necessary to meet the respective tiers contributes to, rather than burdens competition, as such changes are intended to incentivize participants to increase their participation on the Exchange.
The Exchange has not solicited, and does not intend to solicit, comments on this proposed rule change. The Exchange has not received any written comments from members or other interested parties.
The foregoing rule change has become effective pursuant to Section 19(b)(3)(A) of the Act
Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposal is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's Internet comment form (
• Send an email to
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
On September 21, 2015, The NASDAQ Stock Market LLC (“NASDAQ” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”)
NASDAQ is proposing to amend Rule 4758 to add a new order routing option—RTFY—for Designated Retail Orders (“DROs”).
Under the proposal, a DRO that is marketable upon receipt by NASDAQ and that elects to follow the RTFY routing option will be routed to destinations in the System routing table instead of immediately removing liquidity from the Exchange order book—unless explicitly instructed by the entering party to check the Exchange order book first.
According to NASDAQ, the destinations in the System routing table for RTFY will include OTC market makers,
As proposed, an order using the RTFY routing option will be sent to the primary listing exchange for opening, reopening, and closing auctions.
In its proposal, NASDAQ notes that the RTFY routing option is similar to the existing TFTY routing option.
NASDAQ notes that there are several alternatives to using an Exchange routing strategy.
NASDAQ states that the RTFY routing table will be monitored and approved by a best execution committee (“Committee”).
NASDAQ states that neither the Exchange, nor any of its affiliates, will accept payment for order flow from any OTC market maker to which an RTFY order is sent.
After careful review, the Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.
The Commission received two comment letters opposing the proposal, as well as a response and a supplemental response from NASDAQ.
The commenters express concern that RFTY is designed to allow leakage of order flow information.
The commenters also express concerns related to best execution. Specifically, one commenter questions whether retail investors will forgo their marketable orders interacting with the NBBO at NASDAQ for “meaningless” price improvement at OTC market makers.
In response, NASDAQ states its belief that providing additional price improvement opportunities for retail investors is a “critical component of its best execution obligations.”
The Commission notes that, with respect to commenters' concerns regarding the RTFY routing table and the Committee, NASDAQ states that—as with all other routing options, other than Directed Orders—the RTFY routing table will be monitored and approved by the Committee.
destinations will compete aggressively with each other in order to receive RTFY orders.
Based on the foregoing, the Commission believes that the proposed rule change is consistent with the Act.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to the provisions of Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”)
The Exchange is filing a proposal to amend the MIAX Options Fee Schedule (the “Fee Schedule”).
The text of the proposed rule change is available on the Exchange's Web site at
In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements.
The Exchange proposes to amend the Fee Schedule to modify the transaction fees for Members that participate in the price improvement auction (“PRIME Auction” or “PRIME”) pursuant to Rule 515A.
Currently, the Exchange assesses PRIME AOC Responses $0.49 per contract for standard options in Penny Pilot classes and $0.94 per contract in non-Penny Pilot classes. The Exchange now proposes to modify these fees that apply to PRIME AOC Responses. Specifically, the Exchange proposes to: (i) Increase the fee for a PRIME AOC Response from $0.49 per contract to $0.50 per contract for standard options in Penny Pilot classes; and (ii) increase the fee for a PRIME AOC Response from $0.94 per contract to $0.99 per contract for standard options in non-Penny Pilot classes. The Exchange will continue to assess the standard transaction fees to a PRIME AOC Response if they execute against unrelated orders.
The Exchange currently offers Members that submit PRIME AOC Responses the opportunity to reduce transaction fees by $0.04 per contract in standard options if the Member or its affiliates of at least 75% common ownership between the firms as reflected on each firm's Form BD, Schedule A, qualifies in a given month for Priority Customer Rebate Program volume tiers 3 or 4 in the Fee Schedule.
Currently, any Member or its affiliates of at least 75% common ownership between the firms as reflected on each firm's Form BD, Schedule A, that qualifies for Priority Customer Rebate Program volume tiers 3 or 4 are assessed a PRIME AOC Response fee of $0.45 per contract for standard options in Penny Pilot classes. In addition, any Member or its affiliates of at least 75% common ownership between the firms as reflected on each firm's Form BD, Schedule A, that qualifies for Priority Customer Rebate Program volume tiers 3 or 4 are assessed a PRIME AOC Response fee of $0.90 per contract for standard options in non-Penny Pilot classes.
In order to continue to offer Members or their affiliates of at least 75% common ownership between the firms as reflected on each firm's Form BD, Schedule A, that qualifies for Priority Customer Rebate Program volume tiers 3 or 4 (“qualifying Members”) the opportunity to reduce transaction fees by $0.04 per contract in standard options, the Exchange is proposing to modify the reduced fees to $0.46 per contract for standard options in Penny Pilot classes, and to $.0.95 per contract for standard options in non-Penny Pilot classes for such qualifying Members.
The Exchange believes that these incentives will continue to encourage Members to transact a greater number of contracts on the Exchange. The Exchange notes that these incentives will operate identically to the Priority Customer Rebate Program incentives that apply to any Member or its affiliates of at least 75% common ownership between the firms as reflected on each firm's Form BD, Schedule A that qualifies for Priority Customer Rebate Program volume tiers 3 or 4 in other types of transaction fees.
The Exchange is also proposing technical clarifying amendments to the Fee Schedule. Specifically, the headings in the table in Section 1) a) iv) of the Fee Schedule will be amended from: (i) “PRIME Order” to “PRIME Order Fee,” (ii) “Responder to PRIME Auction” to “Responder to PRIME Auction Fee,” and (iii) “PRIME Break-up” to “PRIME Break-up Credit.” These changes are intended to clarify and more specifically label the various columns in the table for investors using it.
The Exchange believes that its proposal to amend its Fee Schedule is consistent with Section 6(b) of the Act
The Exchange's proposal to increase the transaction fees for certain participants that submit PRIME AOC Responses is reasonable because the Exchange's fees will remain competitive with fees at other options exchanges.
The Exchange's proposal to offer qualifying PRIME Auction participants the opportunity to reduce transaction fees by $0.04 per contract in standard options, provided certain criteria are met, is reasonable because the Exchange desires to offer all such market participants an opportunity to lower their transaction fees. The Exchange's proposal to offer qualifying PRIME Auction participants the opportunity to reduce transaction fees by $0.04 per contract in standard options, provided certain criteria are met, is equitable and not unfairly discriminatory because the Exchange will offer all market participants a means to reduce transaction fees by qualifying for volume tiers in the Priority Customer Rebate Program. The Exchange believes that continuing to offer all such market participants the opportunity to lower transaction fees by transacting Priority Customer order flow in turn benefits all market participants. To the extent that there are higher transaction fees assessed on market participants without Priority Customer order flow, the Exchange believes that this is appropriate because the proposal creates incentives for Members to direct additional order flow to the Exchange and thus provide additional liquidity that enhances the quality of its markets and increases the volume of contracts traded on MIAX. To the extent that this purpose is achieved, all the Exchange's market participants should benefit from the improved market liquidity. Enhanced market quality and increased transaction volume that results from the anticipated increase in order flow directed to the Exchange will benefit all market participants and improve competition on the Exchange.
The Exchange believes that the proposal to allow the aggregation of trading activity of separate Members or its affiliates for purposes of the fee reduction is fair, equitable and not unreasonably discriminatory. The Exchange believes the proposed rule change is reasonable because it would allow aggregation of the trading activity of separate Members or its affiliates for purposes of the fee reduction only in very narrow circumstances, namely, where the firm is an affiliate, as defined herein. The Exchange believes that all such market participants should have the opportunity to lower transaction fees by transacting additional Priority Customer order flow, which in turn benefits all market participants.
The Exchange believes that the technical clarifying amendments to the
The Exchange does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange believes that the proposed change will enhance the competiveness of the Exchange relative to other exchanges that offer their own electronic price improvement mechanism.
The Exchange believes that the proposed fees do not impact intra-market competition notwithstanding that the proposed per contract fees assessed to participants in the PRIME Auction that respond to an Agency Order (for purposes of this discussion, “responders”) are greater than the per contract fees assessed to participants that begin the auction process by submitting an Agency Order (for purposes of this discussion, “initiators”). Initiators guarantee execution of the entire Agency Order in full, either at a single price or at multiple prices using the “auto-match” option.
The Exchange notes that it operates in a highly competitive market in which market participants can readily favor competing venues if they deem fee levels at a particular venue to be excessive. In such an environment, the Exchange must continually adjust its fees to remain competitive with other exchanges and to attract order flow to the Exchange. The Exchange believes that the proposed rule change reflects this competitive environment because it establishes a fee structure in a manner that encourages market participants to submit their order flow, to provide liquidity, and to attract additional transaction volume to the Exchange.
Written comments were neither solicited nor received.
The foregoing rule change has become effective pursuant to Section 19(b)(3)(A)(ii) of the Act,
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.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the “Act”),
The Exchange filed a proposal to amend the Aggressive instruction under Exchange Rule 11.6(n)(1) to route such orders where that order has been locked or crossed by other Trading Centers. The proposed rule change is based on recently filed proposed rule changes by BATS Exchange, Inc. (“BZX”) and BATS Y-Exchange, Inc. (“BYX”).
The text of the proposed rule change is available at the Exchange's Web site 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 parts of such statements.
In early 2014, the Exchange and its affiliate, EDGX Exchange, Inc. (“EDGX”) received approval to effect a merger (the “Merger”) of the Exchange's parent company, Direct Edge Holdings LLC, with BATS Global Markets, Inc., the parent of BZX and BYX (together with BZX, EDGA and EDGX, the “BGM Affiliated Exchanges”).
Users
The Aggressive instruction subjects an order to the routing process after being posted to the EDGA Book only if the order is subsequently crossed by another Trading Center (rather than if the order is locked or crossed). Further, a routable Limit Order with a Non-Displayed
The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act
Consistent with Section 6(b)(5) of the Act,
The Exchange does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange believes that proposed amendment to the Aggressive functionality encourages competition by increasing the likelihood of executions of orders that have been posted to the Exchange. The increased likelihood of an execution where the order is locked by a quotation on a Trading Center should attract additional order flow to the Exchange
The Exchange has neither solicited nor received written comments on the proposed rule change.
Because the proposed rule change does not (i) significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act
A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the Act
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule change should be approved or disapproved.
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's Internet comment form (
• Send an email to
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
It appears to the Securities and Exchange Commission (“Commission”) that there is a lack of current and accurate information concerning the securities of Yayi International, Inc. (“YYINE”)
The Commission is of the opinion that the public interest and the protection of investors require a suspension of trading in the securities of the above-listed company. Therefore, it is ordered, pursuant to Section 12(k) of the Securities Exchange Act of 1934, that trading in the securities of the above-listed company is suspended for the period from 9:30 a.m. EST on December 23, 2015, through 11:59 p.m. EST on January 7, 2016.
By the Commission.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the “Act”),
The Exchange filed a proposal to amend the Market Data section of its fee schedule to: (i) Adopt definitions for the terms “Non-Display Usage” and “Trading Platforms”; and (ii) amend the fees for EDGA Depth, to increase the Internal Distributor fee and adopt a new fee for Non-Display Usage.
The text of the proposed rule change is available at the Exchange's Web site 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 parts of such statements.
The Exchange proposes to amend the Market Data section of its fee schedule to: (i) Adopt definitions for the terms “Non-Display Usage” and “Trading Platforms”; and (ii) amend the fees for EDGA Depth to increase the Internal Distributor fee and adopt a new fee for Non-Display Usage.
The Exchange proposes to adopt definitions for the terms “Non-Display Usage” and “Trading Platforms”. The proposed definitions are designed to provide greater transparency with regard to how the Exchange assesses fees for market data. Non-Display Usage would be defined as “any method of accessing a Market Data product that involves access or use by a machine or automated device without access or use of a display by a natural person or persons.”
EDGA Depth is an uncompressed market data feed that provides depth-of-book quotations and execution information based on equity orders entered into the System.
The Exchange proposes to implement the proposed changes to its fee schedule on January 4, 2016.
The Exchange believes that the proposed rule change is consistent with the objectives of Section 6 of the Act,
The Exchange also believes that the proposed rule change is consistent with Section 11(A) of the Act
In addition, the proposed fees would not permit unfair discrimination because all of the Exchange's subscribers will be subject to the proposed fees on an equivalent basis. EDGA Depth is distributed and purchased on a voluntary basis, in that neither the Exchange nor market data distributors are required by any rule or regulation to make this data available. Accordingly, Distributors and Users can discontinue use at any time and for any reason, including due to an assessment of the reasonableness of fees charged. Firms have a wide variety of alternative market data products from which to choose, such as similar proprietary data products offered by other exchanges and consolidated data. Moreover, the Exchange is not required to make any proprietary data products available or to offer any specific pricing alternatives to any customers.
In addition, the fees that are the subject of this rule filing are constrained by competition. As explained below in the Exchange's Statement on Burden on Competition, the existence of alternatives to EDGA Depth further ensures that the Exchange cannot set unreasonable fees, or fees that are unreasonably discriminatory, when subscribers can elect such alternatives. That is, the Exchange competes with other exchanges (and their affiliates) that provide similar market data products. If another exchange (or its affiliate) were to charge less to consolidate and distribute its similar product than the Exchange charges to consolidate and distribute EDGA Depth, prospective Users likely would not subscribe to, or would cease subscribing to, EDGA Depth.
The Exchange notes that the Commission is not required to undertake a cost-of-service or rate-making approach. The Exchange believes that, even if it were possible as a matter of economic theory, cost-based pricing for non-core market data would be so complicated that it could not be done practically.
The proposed amendment to the Internal Distributor fee for EDGA Depth is also equitable and reasonable as, despite the increase, the fee proposed continues to be less than similar fees currently charged by Nasdaq and NYSE for their depth-of-book data products.
The Trading Platform fee is also equitable and reasonable in that it ensures that heavy users of the EDGA Depth pay an equitable share of the total fees. Currently, External Distributors pay higher fees than Internal Distributors based upon their assumed higher usage levels. The Exchange believes that Trading Platforms are generally high users of the data, using it to power a matching engine for millions or even billions of trading messages per day.
Lastly, the Exchange believes that the proposed definitions are reasonable because they are designed to provide greater transparency to Members with regard to how the Exchange would assess the proposed fee for Non-Display Usage of EDGA Depth by Trading Platforms. The Exchange believes that Members would benefit from clear guidance in its fee schedule describing the manner in which is assess fees. These definitions are intended to make the fee schedule clearer and less confusing for investors and eliminate potential investor confusion, thereby removing impediments to and perfecting the mechanism of a free and open market and a national market system, and, in general, protecting investors and the public interest. Lastly, the proposed definitions are based on existing rules of Nasdaq.
The Exchange does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act, as amended. The Exchange's ability to price EDGA Depth is constrained by: (i) Competition among exchanges, other trading platforms, and Trade Reporting Facilities (“TRF”) that compete with each other in a variety of dimensions; (ii) the existence of inexpensive real-time consolidated data and market-specific data and free delayed data; and (iii) the inherent contestability of the market for proprietary data.
The Exchange and its market data products are subject to significant competitive forces and the proposed fees represent responses to that competition. To start, the Exchange competes intensely for order flow. It competes with the other national securities exchanges that currently trade equities, with electronic communication networks, with quotes posted in FINRA's Alternative Display Facility, with alternative trading systems, and with securities firms that primarily trade as principal with their customer order flow.
In addition, EDGA Depth competes with a number of alternative products. For instance, EDGA Depth does not provide a complete picture of all trading activity in a security. Rather, the other national securities exchanges, the several TRFs of FINRA, and ECNs that produce proprietary data all produce trades and trade reports. Each is currently permitted to produce depth-of-book information products, and many currently do, including Nasdaq and NYSE.
In sum, the availability of a variety of alternative sources of information imposes significant competitive pressures on Exchange data products and the Exchange's compelling need to attract order flow imposes significant competitive pressure on the Exchange to act equitably, fairly, and reasonably in setting the proposed data product fees. The proposed data product fees are, in part, responses to that pressure. The Exchange believes that the proposed fees would reflect an equitable allocation of its overall costs to users of its facilities.
In addition, when establishing the proposed fees, the Exchange considered the competitiveness of the market for proprietary data and all of the implications of that competition. The Exchange believes that it has considered all relevant factors and has not considered irrelevant factors in order to establish fair, reasonable, and not unreasonably discriminatory fees and an equitable allocation of fees among all Users. The existence of alternatives to EDGA Depth, including existing similar feeds by other exchanges, consolidated data, and proprietary data from other sources, ensures that the Exchange cannot set unreasonable fees, or fees that are unreasonably discriminatory, when subscribers can elect these alternatives or choose not to purchase a specific proprietary data product if its cost to purchase is not justified by the returns any particular vendor or subscriber would achieve through the purchase.
The Exchange believes the proposed increase to the Internal Distributor fee and adoption of the fee for Non-Display Usage by Trading Platforms for EDGA Depth would increase competition amongst the exchanges that offer depth-of-book products. The Exchange notes that, despite the proposed increase, the Internal Distribution fee for EDGA Depth continues to be less than similar fees currently charged by Nasdaq and NYSE for its depth-of-book data.
Lastly, the proposed definitions will not result in any burden on competition. The Exchange believes that Members would benefit from clear guidance in its fee schedule describing the manner in which is assess fees. These definitions are intended to make the fee schedule clearer and less confusing for investors and are not designed to have a competitive impact.
The Exchange has 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) of the Act
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's Internet comment form (
• Send an email to
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Securities and Exchange Commission (“Commission”).
Notice of application for deregistration under section 8(f) of the Investment Company Act of 1940 (the “Act”).
Self Storage Group, Inc. requests an order declaring that it has ceased to be an investment company.
Self Storage Group, Inc.
The application was filed on March 28, 2014, and amended on September 19, 2014, and September 25, 2015.
An order granting the request will be issued unless the Commission orders a hearing. Interested persons may request a hearing by writing to the Commission's Secretary and serving applicant with a copy of the request, personally or by mail. Hearing requests should be received by the Commission by 5:30 p.m. on January 15, 2016, and should be accompanied by proof of service on applicant, in the form of an affidavit or, for lawyers, a certificate of service. Pursuant to rule 0-5 under the Act, hearing requests should state the nature of the writer's interest, any facts bearing upon the desirability of a hearing on the matter, the reason for the request, and the issues contested. Persons who wish to be notified of a hearing may request notification by writing to the Commission's Secretary.
The Commission: Secretary, U.S. Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090. Applicant: 11 Hanover Square, 12th Floor, New York, NY 10005.
Christine Y. Greenlees, Senior Counsel, at (202) 551-6879, or David P. Bartels, Branch Chief, at (202) 551-6821 (Division of Investment Management, Chief Counsel's Office).
The following is a summary of the application. The complete application may be obtained via the Commission's Web site by searching for the file number, or for an applicant using the Company name box, at
1. From 1983 through 1996, applicant operated as a diversified series of shares of Bull & Bear Incorporated, an open-end management investment company. Applicant became separately incorporated under the laws of the State of Maryland in December 1996 and registered under the Act as a closed-end management investment company in January 1997. Applicant, formerly known as Global Income Fund, Inc., changed its name to Self Storage Group, Inc., effective November 2013.
2. On February 29, 2012, applicant's stockholders approved a proposal to change the nature of applicant's business so as to cease to be an investment company and to become an operating company that would own, operate, manage, acquire, develop and redevelop professionally managed self storage facilities and would seek to qualify as a real estate investment trust (“REIT”) for federal tax purposes (the “Business Proposal”).
3. Applicant states that, following stockholder approval, it has taken steps to implement the Business Proposal. In particular, on June 15, 2012, applicant's board of directors (the “Board”) approved the termination of applicant's management contract with an outside investment adviser and applicant became internally managed by its officers and employees. In addition, applicant's management commenced seeking acquisition opportunities in real property self storage facilities. Applicant states that those efforts have resulted in its assets being concentrated in several wholly owned subsidiaries, all of which own and operate real property self storage facilities. Applicant represents that none of these subsidiaries is an investment company as defined in section 3(a) of the Act or is relying on the exception from the definition of investment company in section 3(c)(1) or section 3(c)(7) of the Act.
4. Applicant states that, as of December 31, 2014, and June 30, 2015, applicant's wholly owned subsidiaries represented approximately 81% and 82%, respectively, of its total assets measured at fair value on an unconsolidated basis (exclusive of Government securities and cash items), and each of applicant's wholly owned subsidiaries held at least 90% of its assets in direct investments in real property self storage facilities. Applicant further states that, as of December 31, 2014, and June 30, 2015, its holdings of investment securities (as defined in section 3(a) of the Act) (“Investment Securities”) represented approximately 9% and 10%, respectively, and cash items represented approximately 10% and 9% of its total assets on an unconsolidated basis.
5. Applicant states that, for the six months ended June 30, 2015, on a consolidated basis, it derived approximately 69% of its gross income from its operation of self storage facilities, approximately 29% from realized gains from divestment of its holdings of Investment Securities, approximately 3% from dividends paid by its holdings of Investment Securities, and less than 1% from its cash items.
6. Applicant expects to continue to earn a majority of its gross income from its self storage facility operations and expects its income from Investment Securities and a time deposit to continue to decrease as it continues to divest its holdings of Investment Securities.
7. Applicant represents that, since stockholders approved the Business Proposal, it has consistently represented to the public that it is primarily engaged in the business of owning, operating, managing, acquiring, developing, and redeveloping professionally managed self storage facilities. In addition, applicant asserts that its president and other officers spend substantially all of the time that they devote to applicant's business on (a) overseeing and guiding the management of its wholly owned subsidiaries' self storage facilities and (b) conducting strategic review of applicant's lines of business in order to determine if these units are appropriately structured to implement applicant's objectives. Applicant states that its president and other officers spend no time engaged in investing and reinvesting applicant's assets in Investment Securities other than to continue to divest applicant's holdings of Investment Securities. Likewise, applicant asserts that its Board has shifted its focus from oversight of a company engaged in the business of investing and reinvesting in securities to oversight of a company engaged in the business of owning and operating real property self storage facilities.
8. Applicant states that it is not currently a party to any litigation or administrative proceeding and has timely complied with its obligations to file annual and other reports with the Commission.
9. Applicant represents that, if the requested order is granted, it will seek to list its common stock on NASDAQ and will be subject to the reporting and other requirements of the Exchange Act.
1. Section 8(f) of the Act provides that whenever the Commission, upon application or its own motion, finds that a registered investment company has ceased to be an investment company, the Commission shall so declare by order and upon the taking effect of such order, the registration of such company shall cease to be in effect.
2. Section 3(a)(1)(A) of the Act defines an “investment company” as any issuer that “is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting, or trading in securities.” Section 3(a)(1)(C) of the Act defines an “investment company” as any issuer that “is engaged or proposes to engage in the business of investing, reinvesting, owning, holding, or trading in securities, and owns or proposes to acquire investment securities having a value exceeding 40 per centum of the value of such issuer's total assets (exclusive of Government securities and cash items) on an unconsolidated basis.”
3. Section 3(b)(1) of the Act provides that “[n]otwithstanding paragraph (1)(C) of subsection (a), none of the following persons is an investment company within the meaning of this title: (1) Any issuer primarily engaged, directly or through a wholly owned subsidiary or subsidiaries, in a business or businesses other than that of investing, reinvesting, owning, holding, or trading in securities.” Rule 3a-1 under the Act states that “[n]otwithstanding section 3(a)(1)(C) of the Act, an issuer will be deemed not to be an investment company under the Act, provided, that: (a) no more than 45 percent of the value (as defined in section 2(a)(41) of the Act) of such issuer's total assets (exclusive of Government securities and cash items) consists of, and no more than 45 percent of such issuer's net income after taxes (for the last four fiscal quarters combined) is derived from, securities other than: (1) Government securities; (2) securities issued by employees' securities companies; (3) securities issued by majority-owned subsidiaries of the issuer (other than subsidiaries relying on the exclusion from the definition of investment company in section 3(b)(3) or (c)(1) of the Act) which are not
4. Applicant states that it is no longer an investment company as defined in section 3(a)(1)(A) or section 3(a)(1)(C). As noted above, applicant states that, for the last four fiscal quarters combined, no more than 45 percent of its consolidated net income after taxes was derived from securities (other than securities issued by companies (i) that are wholly owned by applicant, (ii) through which applicant engages in a business other than that of investing, reinvesting, owning, holding or trading in securities and (iii) that are not investment companies). Applicant asserts that it is primarily engaged in the business of owning, operating, managing, acquiring, developing, and redeveloping professionally managed self storage facilities through its wholly owned subsidiaries. Applicant argues that its historical development, its public representations, the activities of its directors and officers, the nature of its present assets and the sources of its present income support this assertion. Applicant states that it is thus qualified for an order of the Commission pursuant to section 8(f) of the Act.
For the Commission, by the Division of Investment Management, under delegated authority.
On September 1, 2015, NYSE Arca, Inc. (“Exchange”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act” or “Exchange Act”)
The Exchange proposes to list and trade the Shares under NYSE Arca Equities Rule 8.600, which governs the listing and trading of Managed Fund Shares on the Exchange.
The Exchange states that the Fund's investment objective is to seek maximum total return, comprised of income and capital appreciation. According to the Exchange, the Fund will normally
The Fixed Income Instruments
With respect to Fixed Income Instrument investments, the Fund may invest in restricted securities (Rule 144A securities), which are subject to legal restrictions on their sale. In addition, with respect to Fixed Income Instrument investments, the Fund may, without limitation, seek to obtain market exposure to the securities in which it primarily invests by entering into a series of purchase and sale contracts or by using other investment techniques (such as buy backs or dollar rolls).
The Fund may also use leverage to the extent permitted under the 1940 Act by entering into reverse repurchase agreements and borrowing transactions (principally lines of credit) for investment purposes. The Fund's exposure to reverse repurchase agreements will be covered by securities having a value equal to or greater than such commitments. The Exchange represents that, under the 1940 Act, reverse repurchase agreements are considered borrowings. Although there is no limit on the percentage of Fund assets that can be used in connection with reverse repurchase agreements, the Portfolio does not expect to engage, under normal circumstances, in reverse repurchase agreements with respect to more than 33 1/3% of its assets.
While the Fund normally will invest at least 80% of its assets in the securities and financial instruments described above, the Fund may invest its remaining assets in exchange-traded and OTC hybrid instruments, which combine a traditional stock, bond, or commodity with an option or forward contract. Generally, the principal amount, amount payable upon maturity or redemption, or interest rate of a hybrid is tied (positively or negatively) to the price of some commodity, currency or securities index or another interest rate or some other economic factor (“underlying benchmark”).
The Fund may invest up to 20% of its total assets in the aggregate in MBS and ABS that are privately issued, non-agency, and non-government sponsored entity (“Private MBS/ABS”), and in
The Fund may invest up to 20% of its total assets in the aggregate in participations in and assignments of bank loans or corporate loans, which loans include syndicated bank loans, junior loans, bridge loans, unfunded commitments, revolvers and participation interests (but specifically do not include senior loans), in structured notes, in credit-linked notes, in risk-linked securities, in OTC REITs, and in OTC hybrid instruments. Such holdings would be subject to the respective limitations on the Fund's investments in illiquid assets and high yield securities. The liquidity of such securities will be a substantial factor in the Fund's security selection process.
The Fund may invest in debt securities and instruments that are economically tied to emerging market countries and may invest without limitation in securities denominated in foreign currencies and in U.S. dollar-denominated securities of foreign issuers.
The Fund will be considered non-diversified and can invest a greater portion of assets in securities of individual issuers than a diversified fund. However, the Fund may not invest more than 25% of the value of its net assets in securities of issuers in any one industry or group of industries. This restriction does not apply to obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
The Fund's investments, including investments in derivative instruments, are subject to all of the restrictions under the 1940 Act, including restrictions with respect to illiquid assets. The Fund may hold up to an aggregate amount of 15% of its net assets in illiquid assets (calculated at the time of investment), including Rule 144A securities, Private MBS/ABS, master notes, loans and loan commitments deemed illiquid by the Adviser,
The Fund's investments will be consistent with the Fund's investment objective and will not be used to enhance leverage. That is, while the Fund will be permitted to borrow as permitted under the 1940 Act, the Fund's investments will not be used to seek performance that is the multiple or inverse multiple (
According to the Exchange, the Fund proposes to seek certain exposures through derivative transactions. The Fund may invest in the following derivative instruments: Foreign exchange forward contracts; exchange-traded futures on securities, indices, currencies and other investments; exchange-traded and OTC options; exchange-traded and OTC options on futures contracts; exchange-traded and OTC interest rate swaps, cross-currency swaps, total return swaps, inflation swaps and credit default swaps; and options on such swaps (“swaptions”).
The Exchange states that investments in derivative instruments will be made in accordance with the 1940 Act and consistent with the Fund's investment objective and policies. To limit the potential risk associated with such transactions, the Fund will segregate or “earmark” assets determined to be liquid by the Adviser in accordance with procedures established by the Trust's Board of Trustees (“Board”) and in accordance with the 1940 Act (or, as permitted by applicable regulation, enter into certain offsetting positions) to cover its obligations under derivative instruments. In addition, the Fund will include appropriate risk disclosure in its offering documents, including leveraging risk.
In addition to the Fund's use of derivatives in connection with its 80% Policy, under the proposal the Exchange states that the Fund will seek to invest in derivative instruments not based on Fixed-Income Instruments, consistent with the Fund's investment restrictions relating to exposure to those asset classes.
After careful review, the Commission finds that the Exchange's proposal to list and trade the Shares is consistent with the Exchange Act and the rules and
According to the Exchange, quotation and last sale information will be available via the Consolidated Tape Association (“CTA”) high-speed line for the Shares and for the following U.S. exchange-traded securities: Common stocks, hybrid instruments, convertible securities, preferred securities, REITs, CEFs, ETFs, ETPs, and ETNs. Intra-day price information for foreign exchange-traded stocks will be available from the applicable foreign exchange and from major market data vendors. Intra-day price information for exchange-traded derivative instruments will be available from the applicable exchange and from major market data vendors. Intra-day price information for OTC REITs, OTC common stocks, OTC CEFs, OTC options, money market instruments, forwards, structured notes, RLS, OTC derivative instruments, and OTC hybrid instruments will be available from major market data vendors. Intraday and closing price information for exchange-traded options and futures will be available from the applicable exchange and from major market data vendors. In addition, intra-day price information for U.S. exchange-traded options is available from the Options Price Reporting Authority. Intra-day and closing price information from brokers and dealers or independent pricing services will be available for Fixed Income Instruments.
In addition, the Portfolio Indicative Value, as defined in NYSE Arca Equities Rule 8.600 (c)(3), will be widely disseminated by one or more major market data vendors at least every 15 seconds during the Core Trading Session.
The NAV for the Shares will be calculated after 4:00 p.m. Eastern Time each trading day. A basket composition file, which will include the security names and share quantities required to be delivered in exchange for the Shares, together with estimates and actual cash components, will be publicly disseminated daily prior to the opening of the New York Stock Exchange via the National Securities Clearing Corporation. Information regarding market price and trading volume for the Shares will be continually available on a real-time basis throughout the day on brokers' computer screens and other electronic services. Information regarding the previous day's closing price and trading volume information for the Shares will be published daily in the financial section of newspapers. The Web site for the Fund will include a form of the prospectus for the Fund and additional data relating to NAV and other applicable quantitative information.
The Commission further believes that the proposal to list and trade the Shares is reasonably designed to promote fair disclosure of information that may be necessary to price the Shares appropriately and to prevent trading when a reasonable degree of transparency cannot be assured. The Commission notes that the Exchange will obtain a representation from the issuer of the Shares that the NAV per Share will be calculated daily and that the NAV and the Disclosed Portfolio will be made available to all market participants at the same time.
Prior to the commencement of trading, the Exchange will inform its Equity Trading Permit Holders (“ETP Holders”) in an Information Bulletin (“Bulletin”) of the special characteristics and risks associated with trading the Shares. The Exchange represents that trading in the Shares will be subject to the existing trading surveillances, administered by regulatory staff of the Exchange, or the Financial Industry Regulatory Authority (“FINRA”) on behalf of the Exchange, which are designed to detect violations
The Exchange represents that it deems the Shares to be equity securities, thus rendering trading in the Shares subject to the Exchange's existing rules governing the trading of equity securities. In support of this proposal, the Exchange has also made the following representations:
(1) The Shares will conform to the initial and continued listing criteria under NYSE Arca Equities Rule 8.600.
(2) The Exchange has appropriate rules to facilitate transactions in the Shares during all trading sessions.
(3) Trading in the Shares will be subject to the existing trading surveillances, administered by regulatory staff of the Exchange, or FINRA on behalf of the Exchange, which are designed to detect violations of Exchange rules and applicable federal securities laws, and these procedures are adequate to properly monitor Exchange trading of the Shares in all trading sessions and to deter and detect violations of Exchange rules and federal securities laws applicable to trading on the Exchange.
(4) FINRA, on behalf of the Exchange, or the regulatory staff of the Exchange, will communicate as needed regarding trading in the Shares, certain exchange-traded options and futures, certain exchange-traded equities (including ETFs, ETPs. ETNs, CEFs, certain common stocks, and certain REITs) with other markets or other entities that are members of the Intermarket Surveillance Group (“ISG”), and FINRA or regulatory staff of the Exchange may obtain trading information regarding trading in the Shares, certain exchange-traded options and futures, certain exchange-traded equities (including ETFs, ETPs, ETNs, CEFs, certain common stocks and certain REITs) from such markets or entities. In addition, the Exchange may obtain information regarding trading in the Shares, certain exchange-traded options and futures, certain exchange-traded equities (including ETFs, ETPs, ETNs, CEFs, certain common stocks, and certain REITs) from markets or other entities that are members of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement. FINRA, on behalf of the Exchange, is able to access, as needed, trade information for certain fixed income securities held by the Fund reported to FINRA's Trade Reporting and Compliance Engine.
(5) Prior to the commencement of trading of the Shares, the Exchange will inform its ETP Holders in a Bulletin of the special characteristics and risks associated with trading the Shares. The Bulletin will discuss the following: (a) The procedures for purchases and redemptions of Shares in creation units (and that Shares are not individually redeemable); (b) NYSE Arca Equities Rule 9.2(a), which imposes a duty of due diligence on its ETP Holders to learn the essential facts relating to every customer prior to trading the Shares; (c) the risks involved in trading the Shares during the Opening and Late Trading Sessions when an updated Portfolio Indicative Value will not be calculated or publicly disseminated; (d) how information regarding the Portfolio Indicative Value and the Disclosed Portfolio is disseminated; (e) the requirement that ETP Holders deliver a prospectus to investors purchasing newly issued Shares prior to or concurrently with the confirmation of a transaction; and (f) trading information.
(6) For initial and continued listing, the Fund will be in compliance with Rule 10A-3 under the Exchange Act,
(7) A minimum of 100,000 Shares for the Fund will be outstanding at the commencement of trading on the Exchange.
(8) While the Fund may invest in inverse ETFs, the Fund will not invest in leveraged (
(9) Not more than 10% of the net assets of the Fund in the aggregate invested in equity securities (other than non-exchange-traded investment company securities) will consist of equity securities whose principal market is not a member of the ISG or is a market with which the Exchange does not have a comprehensive surveillance sharing agreement. In addition, not more than 10% of the net assets of the Fund in the aggregate invested in futures contracts or exchange-traded options contracts will consist of futures contracts or exchange-traded options contracts whose principal market is not a member of ISG or is a market with which the Exchange does not have a comprehensive surveillance sharing agreement.
(10) Normally the Fund will seek to invest at least 75% of its corporate debt securities assets in issuances that have at least $100,000,000 par amount outstanding in developed countries or at least $200,000,000 par amount outstanding in emerging market countries.
(11) The Fund normally will invest at least 75% of its bank loan or corporate loan assets, which includes senior loans, syndicated bank loans, junior loans, bridge loans, unfunded commitments, revolvers and participation interests, in issuances that have at least $100 million par amount outstanding.
(12) The Fund may invest up to 20% of its total assets in the aggregate in Private MBS/ABS and in asset-backed commercial paper. Such holdings would be subject to the respective limitations on the Fund's investments in illiquid assets and high yield securities. The liquidity of such securities, especially in the case of Private MBS/ABS, will be a substantial factor in the Fund's security selection process.
(13) The Fund may invest up to 20% of its total assets in the aggregate in participations in and assignments of bank loans or corporate loans, which loans include syndicated bank loans, junior loans, bridge loans, unfunded commitments, revolvers and participation interests (but specifically do not include senior loans), in structured notes, in credit-linked notes, in risk-linked securities, in OTC REITs, and in OTC hybrid instruments. Such holdings would be subject to the respective limitations on the Fund's investments in illiquid assets and high yield securities. The liquidity of such securities will be a substantial factor in the Fund's security selection process.
(14) Not more than 33 1/3% of the Fund's total assets will be in junk bonds.
(15) The Fund may hold up to an aggregate amount of 15% of its net assets in illiquid assets (calculated at the time of investment), including Rule 144A securities, Private MBS/ABS, master notes, loans, and loan commitments deemed illiquid by the Adviser, consistent with Commission guidance.
(16) The Fund's investments will be consistent with the Fund's investment objective and will not be used to enhance leverage. That is, while the Fund will be permitted to borrow as permitted under the 1940 Act, the Fund's investments will not be used to seek performance that is the multiple or inverse multiple (
(17) Investments in derivative instruments will be made in accordance with the 1940 Act and consistent with the Fund's investment objective and
This approval order is based on all of the Exchange's representations, including those set forth above and in the Notice. The Commission notes that the Fund and the Shares must comply with the requirements of NYSE Arca Equities Rule 8.600 to be initially and continuously listed and traded on the Exchange.
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether Amendment Nos. 3, 4, 5, and 6 to the proposed rule change are 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.
The Commission finds good cause to approve the proposed rule change, as modified by Amendment Nos. 1, 3, 4, 5 and 6, prior to the 30th day after the date of publication of notice of Amendment Nos. 3, 4, 5, and 6 in the
Amendment Nos. 3, 4, 5, and 6 supplement the proposed rule change by, among other things, clarifying the scope of the Fund's permitted investments and investment restrictions and providing additional information about the availability of pricing information for the Fund's underlying assets. They also help the Commission evaluate whether the listing and trading of the Shares of the Fund would be consistent with the protection of investors and the public interest.
Accordingly, the Commission finds good cause, pursuant to Section 19(b)(2) of the Act,
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the “Act”),
The Exchange filed a proposal to authorize the Exchange's equity options platform (“EDGX Options”) to make a modification to Rule 21.8 (Order Display and Book Processing).
The text of the proposed rule change is available at the Exchange's Web site 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 parts of such statements.
The Exchange is proposing to modify Rule 21.8, Order Display and Book Processing, which sets forth the priority rules applicable to EDGX Options as well as the Exchange's program for accepting Directed Orders. Specifically, Rule 21.8 describes the general priority rules for EDGX Options, including that quotes and orders are prioritized by price and then on a pro-rata basis according to size. Rule 21.8 also describes additional priority overlays, including special priority provisions for Customer orders, Directed Market Makers and Primary Market Makers. The purpose of this rule filing is to make a minor modification to the Directed Order program, as described below.
Pursuant to Rule 21.8(f), an Options Member may designate a Market Maker (“Directed Market Maker”) on orders it enters into the Exchange's system (“Directed Orders”). A Directed Market Maker receives certain participation entitlements described in Rule 21.8 subject to certain conditions, which conditions are also set forth in the Rule. For instance, the Directed Market Maker must be registered with the Exchange as a Market Maker in the relevant option class at the time of receipt of the Directed Order to be eligible to receive the Directed Market Maker participation entitlement. One current limitation on the Directed Market Maker priority overlay is that only Customer Orders are eligible to be directed by an Options Member to a Directed Market Maker. The Exchange proposes to eliminate this limitation to align more closely with the directed order rules applicable to options trading on the options trading platform of NASDAQ OMX BX, Inc. (“BX Options”)
The Exchange believes that its proposal is consistent with the requirements of the Act and the rules and regulations thereunder that are applicable to a national securities exchange, and, in particular, with the requirements of Section 6(b) of the Act.
The proposed rule change will allow the Exchange to accept Directed Orders on the EDGX Options platform without restricting such orders to Customer Orders. The Exchange believes that the change is appropriate and consistent with the Act because it recognizes that orders of other participants, not just Customers, could potentially be directed to a Directed Market Maker. As noted above, other options exchanges operate with similar directed order programs.
The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposed rule change is not designed to address any competitive issues but rather to make a modification to the Exchange's Directed Order program. As noted above, the change would make the Exchange's rule similar to that of other options exchanges.
The Exchange has not solicited, and does not intend to solicit, comments on this proposed rule change. The Exchange has not received any written comments from members or other interested parties.
Because the foregoing proposed rule change does not: (A) Significantly affect the protection of investors or the public interest; (B) impose any significant burden on competition; and (C) by its terms, become operative for 30 days from the date on which it was filed or such shorter time as the Commission may designate it has become effective pursuant to Section 19(b)(3)(A) of the Act
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is: (1) Necessary or appropriate in the public interest; (2) for the protection of investors; or (3) otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved.
Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposal is consistent with the Act. Comments may
• Use the Commission's Internet comment form (
• Send an email to
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the “Act”),
The Exchange filed a proposal to amend the Market Data section of its fee schedule to: (i) Adopt definitions for the terms “Non-Display Usage” and “Trading Platforms”; and (ii) amend the fees for EDGX Depth, to increase the Internal Distributor fee and adopt a new fee for Non-Display Usage.
The text of the proposed rule change is available at the Exchange's Web site 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 parts of such statements.
The Exchange proposes to amend the Market Data section of its fee schedule to: (i) Adopt definitions for the terms “Non-Display Usage” and “Trading Platforms”; and (ii) amend the fees for EDGX Depth to increase the Internal Distributor fee and adopt a new fee for Non-Display Usage.
The Exchange proposes to adopt definitions for the terms “Non-Display Usage” and “Trading Platforms”. The proposed definitions are designed to provide greater transparency with regard to how the Exchange assesses fees for market data. Non-Display Usage would be defined as “any method of accessing a Market Data product that involves access or use by a machine or automated device without access or use of a display by a natural person or persons.”
EDGX Depth is an uncompressed market data feed that provides depth-of-book quotations and execution information based on equity orders entered into the System.
The Exchange proposes to implement the proposed changes to its fee schedule on January 4, 2016.
The Exchange believes that the proposed rule change is consistent with the objectives of Section 6 of the Act,
The Exchange also believes that the proposed rule change is consistent with Section 11(A) of the Act
In addition, the proposed fees would not permit unfair discrimination because all of the Exchange's subscribers will be subject to the proposed fees on an equivalent basis. EDGX Depth is distributed and purchased on a voluntary basis, in that neither the Exchange nor market data distributors are required by any rule or regulation to make this data available. Accordingly, Distributors and Users can discontinue use at any time and for any reason, including due to an assessment of the reasonableness of fees charged. Firms have a wide variety of alternative market data products from which to choose, such as similar proprietary data products offered by other exchanges and consolidated data. Moreover, the Exchange is not required to make any proprietary data products available or to offer any specific pricing alternatives to any customers.
In addition, the fees that are the subject of this rule filing are constrained by competition. As explained below in the Exchange's Statement on Burden on Competition, the existence of alternatives to EDGX Depth further ensures that the Exchange cannot set unreasonable fees, or fees that are unreasonably discriminatory, when subscribers can elect such alternatives. That is, the Exchange competes with other exchanges (and their affiliates) that provide similar market data products. If another exchange (or its affiliate) were to charge less to consolidate and distribute its similar product than the Exchange charges to consolidate and distribute EDGX Depth, prospective Users likely would not subscribe to, or would cease subscribing to, EDGX Depth.
The Exchange notes that the Commission is not required to undertake a cost-of-service or rate-making approach. The Exchange believes that, even if it were possible as a matter of economic theory, cost-based pricing for non-core market data would be so complicated that it could not be done practically.
The proposed amendment to the Internal Distributor fee for EDGX Depth is also equitable and reasonable as, despite the increase, the fee proposed continues to be less than similar fees currently charged by Nasdaq and NYSE for their depth-of-book data products.
The Trading Platform fee is also equitable and reasonable in that it ensures that heavy users of the EDGX Depth pay an equitable share of the total fees. Currently, External Distributors pay higher fees than Internal Distributors based upon their assumed higher usage levels. The Exchange believes that Trading Platforms are generally high users of the data, using it to power a matching engine for millions or even billions of trading messages per day.
Lastly, the Exchange believes that the proposed definitions are reasonable because they are designed to provide greater transparency to Members with regard to how the Exchange would assess the proposed fee for Non-Display Usage of EDGX Depth by Trading Platforms. The Exchange believes that Members would benefit from clear guidance in its fee schedule describing the manner in which is assess fees. These definitions are intended to make the fee schedule clearer and less confusing for investors and eliminate potential investor confusion, thereby removing impediments to and perfecting the mechanism of a free and open market and a national market system, and, in general, protecting investors and the public interest. Lastly, the proposed definitions are based on existing rules of Nasdaq.
The Exchange does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act, as amended. The Exchange's ability to price EDGX Depth is constrained by: (i) Competition among exchanges, other trading platforms, and Trade Reporting Facilities (“TRF”) that compete with each other in a variety of dimensions; (ii) the existence of inexpensive real-time consolidated data and market-specific data and free delayed data; and (iii) the inherent contestability of the market for proprietary data.
The Exchange and its market data products are subject to significant competitive forces and the proposed fees represent responses to that competition. To start, the Exchange competes intensely for order flow. It competes with the other national securities exchanges that currently trade equities, with electronic communication networks, with quotes posted in FINRA's Alternative Display Facility, with alternative trading systems, and with securities firms that primarily trade as principal with their customer order flow.
In addition, EDGX Depth competes with a number of alternative products. For instance, EDGX Depth does not provide a complete picture of all trading activity in a security. Rather, the other national securities exchanges, the several TRFs of FINRA, and ECNs that produce proprietary data all produce trades and trade reports. Each is currently permitted to produce depth-of-book information products, and many currently do, including Nasdaq and NYSE.
In sum, the availability of a variety of alternative sources of information imposes significant competitive pressures on Exchange data products and the Exchange's compelling need to attract order flow imposes significant competitive pressure on the Exchange to act equitably, fairly, and reasonably in setting the proposed data product fees. The proposed data product fees are, in part, responses to that pressure. The Exchange believes that the proposed fees would reflect an equitable allocation of its overall costs to users of its facilities.
In addition, when establishing the proposed fees, the Exchange considered the competitiveness of the market for proprietary data and all of the implications of that competition. The Exchange believes that it has considered all relevant factors and has not considered irrelevant factors in order to establish fair, reasonable, and not unreasonably discriminatory fees and an equitable allocation of fees among all Users. The existence of alternatives to EDGX Depth, including existing similar feeds by other exchanges, consolidated data, and proprietary data from other sources, ensures that the Exchange cannot set unreasonable fees, or fees that are unreasonably discriminatory, when subscribers can elect these alternatives or choose not to purchase a specific proprietary data product if its cost to purchase is not justified by the returns any particular vendor or subscriber would achieve through the purchase.
The Exchange believes the proposed increase to the Internal Distributor fee and adoption of the fee for Non-Display Usage by Trading Platforms for EDGX Depth would increase competition amongst the exchanges that offer depth-of-book products. The Exchange notes that, despite the proposed increase, the Internal Distribution fee for EDGX Depth continues to be less than similar fees currently charged by Nasdaq and NYSE for its depth-of-book data.
Lastly, the proposed definitions will not result in any burden on competition. The Exchange believes that Members would benefit from clear guidance in its fee schedule describing the manner in which is assess fees. These definitions are intended to make the fee schedule clearer and less confusing for investors and are not designed to have a competitive impact.
The Exchange has 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) of the Act
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's Internet comment form (
• Send an email to
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the “Act”),
The Exchange filed a proposal to amend the fee schedule applicable to Members
The text of the proposed rule change is available at the Exchange's Web site 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 parts of such statements.
The Exchange proposes to modify the “Options Pricing” section of its fee schedule effective immediately, to modify pricing for orders routed away from the Exchange and executed at various away options exchanges. The Exchange currently charges the following rates for orders routed to certain other options exchanges: (i) Non-Customer
In an effort to continue to offer routing services to its Members at prices that approximate the cost to the Exchange, the Exchange is proposing to amend those rates as follows: (i) The fee for Customer orders routed to ISE in non-Penny Pilot Securities and any Customer orders routed to MIAX, BOX or NYSE MKT (fee codes ID, MC, OC and XC, respectively) would be increased to $0.15 per contract; (ii) the fee for Non-Customer Orders in non-Penny Pilot Securities routed to Arca would be increased to $1.15 per contract (fee code AG); (iii) the fee for ISOs directed to NOM, Arca, or ISE Gemini would be increased to $1.25 per contract for Non-Penny Pilot Securities (fee code D1); (iv) the fee for ISOs directed to other options exchanges would be increased to $0.75 per contract (fee code D4);
As noted previously and as set forth above, the Exchange's current approach to routing fees is to set forth in a simple manner certain sub-categories of fees that approximate the cost of routing to other options exchanges based on the cost of transaction fees assessed by each venue as well as costs to the Exchange for routing (
The Exchange proposes to implement these amendments to its fee schedule immediately.
The Exchange believes that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder that are applicable to a national securities exchange, and, in particular, with the requirements of Section 6 of the Act.
As explained above, the Exchange generally attempts to approximate the cost of routing to other options exchanges, including other applicable costs to the Exchange for routing. The Exchange believes that a pricing model based on approximate Routing Costs is a reasonable, fair and equitable approach to pricing. Specifically, the Exchange believes that its proposal to modify fees is fair, equitable and reasonable because the fees are generally an approximation of the cost to the Exchange for routing orders to such exchanges. Absent the proposed changes, the Exchange has concluded that certain orders that it was routing to other options exchanges would cost more than its current fees. Accordingly, the Exchange believes that the proposed increases are fair, equitable and reasonable because they will help the Exchange to avoid subsidizing routing to away options exchanges and to continue providing quality routing services. The Exchange believes that its fee structure for orders routed to various venues is a fair and equitable approach to pricing, as it provides certainty with respect to execution fees at away options exchanges. Under its straightforward fee structure, taking all costs to the Exchange into account, the Exchange may operate at a slight gain or slight loss for orders routed to and executed at away options exchanges. As a general matter, the Exchange believes that the proposed fees will allow it to recoup and cover its costs of providing routing services to such exchanges. The Exchange notes that routing through the Exchange is voluntary. The Exchange also believes that the proposed fee structure for orders routed to and executed at these away options exchanges is fair and equitable and not unreasonably discriminatory in that it applies equally to all Members.
The Exchange reiterates that it operates in a highly competitive market in which market participants can readily direct order flow to competing venues if they deem fee levels to be excessive or providers of routing services if they deem fee levels to be excessive. Finally, the Exchange notes that it constantly evaluates its routing fees, including profit and loss attributable to routing, as applicable, in connection with the operation of a flat fee routing service, and would consider future adjustments to the proposed pricing structure to the extent it was recouping a significant profit or loss from routing to away options exchanges.
The Exchange does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. As it relates to the proposed changes to routing fees, the proposed changes will assist the Exchange in recouping costs for routing orders to other options exchanges on behalf of its participants in a manner that is a better approximation of actual costs than is currently in place and that reflects pricing changes by various options exchanges as well as increases to other Routing Costs incurred by the Exchange. The Exchange also notes that Members may choose to mark their orders as ineligible for routing to avoid incurring routing fees.
The Exchange has not solicited, and does not intend to solicit, comments on this proposed rule change. The Exchange has not received any written comments from members or other interested parties.
The foregoing rule change has become effective pursuant to Section 19(b)(3)(A) of the Act
Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposal is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's Internet comment form (
• Send an email to
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to the authority granted to the United States Small Business Administration (“SBA”) under Section 309 of the Small Business Investment Act of 1958, as amended, and Section 107.1900 of the Small Business Administration Rules and Regulations, SBA by this notice declares null and void the license to function as a small business investment company under the Small Business Investment Company License No. 03/03-0238 issued to Merion Investment Partners, L.P.
U.S. Small Business Administration.
Notice of extension of and changes to Community Advantage Pilot Program and request for comments.
The Community Advantage (“CA”) Pilot Program is a pilot program to increase SBA-guaranteed loans to small businesses in underserved areas. The Small Business Administration (“SBA”) continues to refine and improve the design of the Community Advantage Pilot Program. To support SBA's commitment to expanding access to capital for small businesses and entrepreneurs in underserved markets, SBA is issuing this Notice to extend the term of the CA Pilot Program and lay out a plan for its evaluation regarding whether it should be made permanent, improve the effectiveness of the program, expand program eligibility to new organizations, and to revise other program requirements, including certain regulatory waivers.
You may submit comments, identified by SBA docket number SBA-2015-0013 by any of the following methods:
• Federal eRulemaking Portal:
• Mail: Community Advantage Pilot Program Comments—Office of Economic Opportunity, U.S. Small Business Administration, 409 Third
• Hand Delivery/Courier: Grady B. Hedgespeth, Director, Office of Economic Opportunity, U.S. Small Business Administration, 409 Third Street SW., Washington, DC 20416.
SBA will post all comments on
Grady B. Hedgespeth, Director, Office of Economic Opportunity, U.S. Small Business Administration, 409 Third Street SW., Washington, DC 20416; (202) 205-7562;
On February 18, 2011, SBA issued a notice and request for comments introducing the CA Pilot Program (76 FR 9626). The CA Pilot Program was introduced to increase the number of SBA-guaranteed loans made to small businesses in underserved markets. The February 18, 2011 notice provided an overview of the CA Pilot Program requirements and, pursuant to the authority provided to SBA under 13 CFR 120.3 to suspend, modify or waive certain regulations in establishing and testing pilot loan initiatives, SBA modified or waived as appropriate certain regulations which otherwise apply to 7(a) loans for the CA Pilot Program.
Subsequent notices have made changes to the CA Pilot Program to improve the program experience for participants, improve their ability to deliver capital to underserved markets, and appropriately manage risk to the Agency. These notices were issued on the following dates: September 12, 2011 (76 FR 56262), February 8, 2012 (77 FR 6619), and November 9, 2012 (77 FR 67433). To further support SBA's commitment to expanding access to capital for small businesses and entrepreneurs in underserved markets, SBA is issuing this notice to further revise program requirements as described more fully below.
The CA Pilot Program is currently set to expire March 15, 2017. With this notice, SBA is extending the pilot program until March 31, 2020. This extension will allow for additional time to evaluate the pilot, and if warranted, begin the process for it to be made permanent. SBA will evaluate the pilot in accordance with criteria that would be applicable to 7(a) pilot programs generally, including whether: the pilot is achieving its objective(s), the costs (including losses) of the pilot are within an acceptable range, sufficient numbers and types of lenders are using the pilot, and there is a continuing need for the pilot. SBA also will evaluate the CA Pilot Program to assess its effect along the following additional indices among others: success in reaching the CA underserved markets, impact on job creation and retention, portfolio performance based on initial projections and as it relates to other 7(a) programs, and impact on business creation and/or business expansion. Based on the findings of the evaluation, SBA will refine the program and undergo rulemaking to make the program permanent, if appropriate.
Although the changes to the CA Pilot Program will be effective December 28, 2015, comments are solicited from interested members of the public on all aspects of the CA Pilot Program, including whether the pilot program should be made permanent. Comments must be submitted on or before the deadline for comments listed in the
The Community Advantage Participant Guide is being updated to reflect the changes below and will be available on SBA's Web site at
On October 10, 2014, SBA issued Policy Notice 5000-1324, Streamlining CA Pilot Program. The Notice included: the adoption of the SBA 7(a) Small Loan credit standards that includes the use of a credit score upon submission of the application to SBA; the adoption of 7(a) Small Loan procedures when closing and disbursing CA loans; and the revision of the procedures to request delegated authority that more closely aligns with the procedures for 7(a) lenders to acquire Preferred Lenders Program (PLP) authority. The Notice also provided that CA Lenders could be authorized to begin processing applications under their delegated authority after making an initial disbursement on at least five CA loans. These policy changes are being incorporated into a revised Community Advantage Participant Guide (version 4.0), which will be issued upon publication of this
The original February 18, 2011, Notice (76 FR 9626) introducing the CA Pilot Program limited program eligibility to three types of entities: SBA Microloan Intermediaries, SBA Certified Development Companies (“CDCs”) and non-federally regulated Community Development Financial Institutions (“CDFIs”) certified by the U.S. Treasury. SBA is expanding the eligible organizations to include SBA Intermediary Lending Pilot (ILP) Program Intermediaries authorized under Section 7(l) of the Small Business Act (15 U.S.C. 636(l)).
The February 18, 2011 Notice (76 FR 9626) introducing the CA Pilot Program prohibited CA Lenders from including CA loans in certain participant lender financings such as loan participations and securitizations. In order to implement this prohibition, SBA waived the regulations at 13 CFR 120.420 through 120.435.
In a subsequent
SBA will now allow CA Lenders to sell entire CA loans or an entire CA loan portfolio under limited circumstances. Therefore, SBA is no longer waiving 13 CFR 120.430, 120.431, 120.432(a), and 120.433 (only with respect to the sale of an entire CA loan). SBA will continue to waive 13 CFR 120.432(b) & (c), and therefore, CA Lenders may not sell, or sell a participating interest in, a part of a CA loan. CA Lenders must follow the same regulations and SOP requirements as 7(a) lenders with respect to loan sales with the following important
All debt refinancing in the CA Pilot Program must meet the requirements for refinancing set forth in SOP 50 10 5(H), Subpart B, Chapter 2, Paragraph IV.E., with two modifications discussed below.
1. Under SOP 50 10 5(H), Subpart B, Chapter 2, Paragraph IV. E. 3, in order to refinance certain debts, the lender must demonstrate that the new loan will result in a 10 percent improvement in the Small Business Applicant's cash flow. For CA loans, however, the lender must demonstrate either:
(a) a 10 percent improvement in cash flow; or
(b) that the CA loan exceeds the amount being refinanced by at least $5,000 or 25 percent, whichever is greater.
2. Under SOP 50 10 5(H), Subpart B, Chapter 2, Paragraph IV. E. 5, when a lender seeks to use SBA-guaranteed loan proceeds to refinance non-SBA guaranteed, same institution debt, it must include a transcript showing the due dates and when payments were received as part of its analysis and recommendation for the prior 36 months, or the life of the loan, whichever is less. In addition, the lender must explain in writing any late payments and late charges that have occurred during the last 36 months. However, for CA loans refinancing non-SBA guaranteed, same institution debt, the lender must instead include a transcript showing due dates and six months of timely payments for the most recent six month period. If there are any late payments in the most recent six month period, the debt may not be refinanced with a CA loan. Late payments are defined as any payment made beyond 29 days of the due date.
SBA is revising the oversight strategy for CA Lenders to better align with the PARRiS analytical review protocol introduced in SBA Policy Notice 5000-1332 on December 29, 2014. Components of PARRiS include Portfolio performance, Asset management, Regulatory compliance, Risk management, and Special items. SBA's reviews for CA Lenders include quarterly compliance reviews, lender profile assessments, analytical reviews, targeted reviews and/or full reviews. SBA conducts reviews and examinations of CA Lenders in accordance with 13 CFR 120.1025 through 120.1060 and SOPs 50 53(A), 51 00, and 50 10 5(H), as revised from time to time. The type of review or whether a safety and soundness examination is performed may depend on the risk associated with the CA Lender and its SBA portfolio.
Currently, all SBA Supervised Lenders are required by 13 CFR 120.464(a)(1) to submit an annual report with audited financial statements within 90 days of the end of the fiscal year. SBA is revising this reporting deadline for CA Lenders and requiring that this report instead be submitted within 120 days after the end of the CA Lender's fiscal year. In order to accomplish this change, SBA is modifying 13 CFR 120.464(a)(1), but only with respect to timing, to require submission of the annual report within 120 days after the end of the CA Lender's fiscal year.
The original February 18, 2011, Notice (76 FR 9626) introducing the CA Pilot Program defined underserved markets to include: Low-to-moderate income communities; Empowerment Zones and Enterprise Communities; HUBZones; New businesses; Businesses eligible for Patriot Express, including Veteran-owned businesses; and Firms where more than 50% of their full time workforce is low-income or resides in LMI census tracts. SBA is revising this program definition to include designated Promise Zones
In addition, the original February 18, 2011 Notice (79 FR 9626) identified businesses eligible for SBA's Patriot Express Pilot Loan Initiative as an eligible underserved market. The Patriot Express Pilot Loan Initiative expired December 31, 2013; therefore, the applicable language in the revised Community Advantage Participant Guide has been changed to read “businesses eligible for SBA Veterans Advantage.” (For information on SBA Veteran's Advantage, see SBA's Web site at
The original February 18, 2011 Notice (76 FR 9626) included a waiver of 13 CFR 120.852(a). That regulation, which prohibits a CDC from investing in or being an affiliate of a lender participating in the 7(a) loan program, was moved to 13 CFR 120.820(c) effective April 21, 2014 (79 FR 15641). Therefore, in order to continue allowing CDCs or their affiliates to participate in the CA Pilot Program, SBA is waiving 13 CFR 120.820(c).
The original Notice required that CA Lenders utilize the application forms required of the Small/Rural Lenders Advantage (S/RLA) process, as set forth in SOP 50 10 5(C). As of October 1, 2013, that process ceased to exist. CA lenders now utilize the forms used for all SBA 7(a) lending processing methods: SBA Form 1919 (“Borrower Information Form”) and SBA Form 1920 (“Lender's Application for Guaranty for All 7(a) Programs”). In addition, CA Lenders must also submit the CA Addendum (SBA Form 2449) with all CA loan applications.
The changes in this notice are limited to the CA Pilot Program only. All other SBA guidelines and regulatory waivers related to the CA Pilot Program remain unchanged.
SBA has provided more detailed guidance in the form of a Participant Guide which is being updated and is available on SBA's Web site at
15 U.S.C. 636(a)(25) and 13 CFR 120.3.
Social Security Administration (SSA).
Notice of Finding Regarding Foreign Social Insurance or Pension System—Australia.
Section 202(t)(2) of the Social Security Act provides that, subject to certain residency requirements of Section 202(t)(11), the prohibition against payment shall not apply to any individual who is a citizen of a country which the Commissioner of Social Security finds has in effect a social insurance or pension system which is of general application in such country and which:
(a) Pays periodic benefits, or the actuarial equivalent thereof, on account of old age, retirement, or death; and
(b) permits individuals who are United States citizens but not citizens of that country and who qualify for such benefits to receive those benefits, or the actuarial equivalent thereof, while outside the foreign country regardless of the duration of the absence.
The Commissioner of Social Security has delegated the authority to make such a finding to the Associate Commissioner of the Office of International Programs. Under that authority, the Associate Commissioner of the Office of International Programs has approved a finding that Australia, beginning September 27, 2001, has a social insurance system of general application which:
(a) Pays periodic benefits, or the actuarial equivalent thereof, on account of old age, retirement, or death; and
(b) permits United States citizens who are not citizens of Australia to receive such benefits, or their actuarial equivalent, at the full rate without qualification or restriction while outside Australia.
Accordingly, it is hereby determined and found that Australia has in effect, beginning September 27, 2001, a social insurance system which meets the requirements of section 202(t)(2) of the Social Security Act (42 U.S.C. 402(t)(2).
In 1968, we determined that Australia's national pensions system did not meet the requirements of 202(t)(2)(A) of the Social Security Act (Act). However, under the provisions of section 202(t)(4) of the Act, citizens of Australia were afforded the limited exceptions to the alien nonpayment provision under section 202(t)(1) if the worker had 10 years of U.S. residence or 40 quarters of U.S. coverage. We published notice of our determination in the
In 1992, Australia enacted a new national coverage scheme system called the Superannuation Guarantee (SG). The SG is a contribution system of mandatory individual accounts intended to supplement Australia's national residence based pension system as a second tier. The SG provides benefits at retirement age based on the accumulated value of invested contributions in the worker's account. Upon review, the SG was found to meet all of the requirements of the section 202(t)(2) provision. This review required a new determination under section 202(t)(2) for Australian citizens.
Donna L. Powers, 3700 Robert Ball Building, 6401 Security Boulevard, Baltimore, MD 21235-6401, (410) 965-3558.
Office of the United States Trade Representative.
Notice of intent to conduct an employment impact review of the Trans-Pacific Partnership and request for comments.
The Office of the United States Trade Representative (USTR) and the Department of Labor (DOL), through the Trade Policy Staff Committee (TPSC), are initiating an employment impact review of the Trans-Pacific Partnership (TPP) Agreement. USTR is seeking public comments on the impact of the TPP Agreement on U.S. employment, including labor markets.
Written comments are due by Wednesday, January 13, 2016.
Written comments should be submitted electronically via the Internet at
For procedural questions concerning written comments, contact Yvonne Jamison at (202) 395-3475. All other questions should be directed to Greg Schoepfle, Director, Office of Economic and Labor Research, Bureau of International Labor Affairs, U.S. Department of Labor, 200 Constitution Avenue NW., Washington, DC 20210, telephone (202) 693-4887 or Lewis Karesh, Assistant United States Trade Representative for Labor, Office of the United States Trade Representative, 600 17th Street NW., Washington, DC 20508, telephone (202) 395-3330.
On November 5, 2015, consistent with Trade Promotion Authority (Title I of the Bipartisan Congressional Trade Priorities and Accountability Act of 2015, Pub. L. 114-26) (19 U.S.C. 4201
Section 105(d)(2) of the Act directs the President to “(A) review the impact of future trade agreements on United States employment, including labor markets, modeled after Executive Order No. 13141 (64 FR 63169) to the extent appropriate in establishing procedures and criteria; and (B) submit a report on such reviews to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate at the time the President submits to Congress a copy of the final legal text of an agreement pursuant to section 106(a)(1)(E).” USTR and DOL are conducting the employment impact review through the TPSC.
Comments may be submitted on potentially significant sectoral or regional employment impacts in the United States as well as other likely labor market impacts of the TPP Agreement. Persons submitting comments should provide as much detail as possible in support of their submissions.
Persons submitting written comments must do so in English and must identify (on the first page of the submission) “TPP Employment Impact Review.”
In order to ensure the timely receipt and consideration of comments, USTR strongly encourages commenters to make on-line submissions, using the
The
For any comments submitted electronically containing business confidential information, the file name of the business confidential version should begin with the characters “BC.” Any page containing business confidential information must be clearly marked “BUSINESS CONFIDENTIAL” on the top of that page. Filers of submissions containing business confidential information must also submit a public version of their comments. The file name of the public version should begin with the character “P.” The “BC” and “P” should be followed by the name of the person or entity submitting the comments. Filers submitting comments containing no business confidential information should name their file using the name of the person or entity submitting the comments.
Please do not attach separate cover letters to electronic submissions; rather, include any information that might appear in a cover letter in the comments themselves. Similarly, to the extent possible, please include any exhibits, annexes, or other attachments in the same file as the submission itself, not as separate files.
As noted above, USTR strongly urges submitters to file comments through
Comments will be placed in the docket and open to public inspection, except business confidential information. Comments may be viewed on the
Federal Railroad Administration (FRA), United States Department of Transportation (USDOT).
Notice.
FRA hereby gives notice that it is submitting the following Information Collection request (ICR) to the Office of Management and Budget (OMB) for Emergency Processing under the Paperwork Reduction Act of 1995. FRA requests that OMB authorize the collection of information identified below seven days after publication of this Notice for a period of 180 days.
A copy of this individual ICR, with applicable supporting documentation, may be obtained by telephoning FRA's Office of Safety Information Collection Clearance Officer, Robert Brogan (tel. (202) 493-6292), or FRA's Office of Administration Clearance Information Collection Officer, Kimberly Toone (tel. (202) 493-6132); these numbers are not toll-free; or by contacting Mr. Brogan via facsimile at (202) 493-6216 or Ms. Toone via facsimile at (202) 493-6497, or via email by contacting Mr. Brogan at
The recently enacted Positive Train Control Enforcement and Implementation (PTCEI) Act and The Fixing America's Surface Transportation (FAST) Act (collectively, the “Acts”) amend certain portions of 49 U.S.C. 20157 relating to positive train control (PTC) system implementation. Most notably, the provisions within these Acts extend the implementation deadline originally established by the Rail Safety Improvement Act of 2008 (RSIA) and require covered railroads to each submit a revised PTC Implementation Plan (PTCIP) with additional information to meet its new deadline.
The Federal Railroad Administration (FRA) is proposing to provide a revised PTCIP template to assist each railroad pursuant to the new law. More specifically, each railroad may
FRA believes that providing a template will serve as guidance to railroads by reducing confusion as to the necessarily level of detail required. Further, the template will help to expedite the conveyance of this information, and FRA's review for statutory and regulatory compliance, particularly for those railroads that may not have been tracking these details previously. FRA intends to provide the template on its Web site for use by all interested parties.
As provided under 49 CFR 1320.13, FRA is requesting Emergency processing for this new collection of information as specified in the Paperwork Reduction Act of 1995 and its implementing regulations. FRA cannot reasonably comply with normal clearance procedures since they would be reasonably likely to disrupt the collection of information. Each railroad is required to submit its revised PTCIP by January 27, 2016. FRA cannot wait the typical 90-day period for public comment. Therefore, FRA is requesting OMB approval as soon as possible (
The associated collection of information is summarized below.
Pursuant to 44 U.S.C. 3507(a) and 5 CFR 320.5(b), 1320.8(b)(3)(vi), FRA informs all interested parties that it may not conduct or sponsor, and a respondent is not required to respond to, a collection of information unless it displays a currently valid OMB control number.
44 U.S.C. 3501-3520.
On November 25, 2015, R.J. Corman Railroad Company/Carolina Lines, LLC (RJCS), a Class III rail carrier, filed a notice for a modified certificate of public convenience and necessity, pursuant to 49 CFR pt. 1150 subpart C—
The Line was authorized for abandonment by the Board's predecessor, the Interstate Commerce Commission, in
Pursuant to a Lease Agreement entered into between R.J. Corman Railroad Company, LLC (R.J. Corman), and Horry County, dated September 16, 2015, R.J. Corman will lease and maintain the Line for an initial term of 15 years with the option to renew the agreement for up to an additional 15 years. The Lease Agreement grants Horry County the right to cancel the lease upon 180-days written notice.
In a Lease Addendum and Assignment Agreement, dated November 6, 2015, R.J. Corman assigned its rights and obligations under the Lease Agreement to RJCS, with the written consent of Horry County. According to RJCS, under the terms of the agreement, RJCS has the exclusive right and responsibility to provide common carrier rail freight service on the Line to both existing and prospective customers that have facilities served by sidetracks or other connections to the Line. RJCS states that it must rehabilitate the Line before it can safely provide service and hopes that rehabilitation of the Line will be completed in January of 2016.
The Line qualifies for a modified certificate of public convenience and necessity.
This notice will be served on the Association of American Railroads (Car Service Division) as agent for all railroads subscribing to the car-service
Board decisions and notices are available on our Web site at “
By the Board, Rachel D. Campbell, Director, Office of Proceedings.
Surface Transportation Board.
Issuance of Draft Environmental Assessment; Request for Comments.
The Surface Transportation Board's (Board) Office of Environmental Analysis (OEA) has prepared an Environmental Assessment (EA) in response to a petition for exemption filed on June 27, 2014 by the Northwest Tennessee Regional Port Authority (NWTRPA) to construct and operate an approximately 5.5 mile line of railroad in Lake County, Tennessee. The proposed rail line would connect the Port of Cates Landing, a river port located on the Mississippi River, with an existing line of railroad operated by the Tennken Railroad at a connection near Tiptonville, Tennessee. The proposed rail line would provide rail service to customers at the Port of Cates Landing and at the Lake County Industrial Park, a proposed industrial park located adjacent to the Port of Cates Landing.
The EA evaluates the potential environmental impacts of three alternative rail alignments, as well as the No Action Alternative and preliminarily concludes that construction of the proposed rail line connection would have no significant environmental impacts if the Board imposes and NWTRPA implements the recommended mitigation measures set forth in the EA. The entire EA is available on the Board's Web site (
The EA is available for public review and comment. Comments must be postmarked by January 27, 2016. OEA will consider and respond to comments received on the Draft EA in the Final EA. The Board will issue a final decision on the proposed transaction after issuance of the Final EA.
Filing Environmental Comments: Comments submitted by mail should be addressed to: Josh Wayland, Surface Transportation Board, 395 E Street SW., Washington, DC 20423. Comments on the Draft EA may also be filed electronically on the Board's Web site,
Josh Wayland by mail at the address above, by telephone at 202-245-0330, or by email at
By the Board, Victoria Rutson, Director, Office of Environmental Analysis.
Surface Transportation Board, DOT.
Notice of Proposed Statement of Board Policy.
The Surface Transportation Board (Board) is issuing a proposed Policy Statement to provide guidance to the public regarding complaint proceedings under 49 U.S.C. 24308(f) and related issues under 49 U.S.C. 24308(c). The Board seeks public comment on the proposed Policy Statement, and may revise it, as appropriate, after consideration of the comments received.
Comments on the proposed Policy Statement are due February 22, 2016. Reply comments are due March 14, 2016.
Scott M. Zimmerman, (202) 245-0386. [Assistance for the hearing impaired is available through the Federal Information Relay Service (FIRS) at 1-800-877-8339.]
Additional information is contained in the Board's decision. Board decisions and notices are available on our Web site at
By the Board, Chairman Elliott, Vice Chairman Begeman, and Commissioner Miller.
Internal Revenue Service (IRS), Treasury.
Notice of meeting.
An open meeting of the Taxpayer Advocacy Panel's Special Projects Committee will be conducted. The Taxpayer Advocacy Panel is soliciting public comments, ideas and suggestions on improving customer service at the Internal Revenue Service.
The meeting will be held Thursday, January 14, 2016 and Friday, January 15, 2016.
Kim Vinci at 1-888-912-1227 or 916-974-5086.
Notice is hereby given pursuant to Section 10(a)(2) of the Federal Advisory Committee Act, 5 U.S.C. App. (1988) that an open meeting of the Taxpayer Advocacy Panel's Special Projects Committee will be held Thursday, January 14, 2016, from 8:00 a.m. to 4:30 p.m. Mountain Time and Friday, January 15, 2016, from 8:00 a.m. until 12:00 p.m. Mountain Time at the IRS Office, 5338 Montgomery Blvd. Albuquerque, New Mexico 87109-1338. The public is invited to make oral comments or submit written statements for consideration. Due to limited time and structure of meeting, notification of intent to participate must be made with Kim Vinci. For more information please contact Kim Vinci at 1-888-912-1227 or 916-974-5086, or write TAP Office, 4330 Watt Ave. Sacramento, CA 95821-7012 or contact us at the Web site:
Internal Revenue Service (IRS), Treasury.
Notice of meeting.
An open meeting of the Taxpayer Advocacy Panel's Taxpayer Communications Project Committee will be conducted. The Taxpayer Advocacy Panel is soliciting public comments, ideas and suggestions on improving customer service at the Internal Revenue Service.
The meeting will be held Thursday, January 14, 2016 and Friday, January 15, 2016.
Antoinette Ross at 1-888-912-1227 or 202-317-4110.
Notice is hereby given pursuant to Section 10(a)(2) of the Federal Advisory Committee Act, 5 U.S.C. App. (1988) that an open meeting of the Taxpayer Advocacy Panel's Taxpayer Communications Project Committee will be held Thursday, January 14, 2016, from 8:00 a.m. to 4:30 p.m. Eastern Time and Friday, January 15, 2016, from 8:00 a.m. until 12:00 p.m. Eastern Time at the Charles Bennett Federal Building, 400 West Bay Street, Jacksonville, FL 32202. The public is invited to make oral comments or submit written statements for consideration. Due to limited time and structure of meeting, notification of intent to participate must be made with Antoinette Ross. For more information please contact Antoinette Ross at 1-888-912-1227 or 202-317-4110, or write TAP Office, 1111 Constitution Ave. NW., Room 1509, Washington, DC 20224 or contact us at the Web site:
Internal Revenue Service (IRS), Treasury.
Notice of meeting.
An open meeting of the Taxpayer Advocacy Panel's Notices and Correspondence Project Committee will be conducted. The Taxpayer Advocacy Panel is soliciting public comments, ideas, and suggestions on improving customer service at the Internal Revenue Service.
The meeting will be held Monday, January 11, 2016 and Tuesday, January 12, 2016.
Theresa Singleton at 1-888-912-1227 or 202-317-3329.
Notice is hereby given pursuant to Section 10(a)(2) of the Federal Advisory Committee Act, 5 U.S.C. App. (1988) that a meeting of the Taxpayer Advocacy Panel Notices and Correspondence Project Committee will be held Monday, January 11, 2016, from 1:00 p.m. to 4:30 p.m. and Tuesday, January 12, 2016, from 8:00 a.m. until 4:30 p.m. Eastern Time at the Charles Bennett Federal Building, 400 West Bay Street, Jacksonville, FL 32202. The public is invited to make oral comments or submit written statements for consideration. Due to limited time and structure of meeting, notification of intent to participate must be made with Theresa Singleton. For more information please contact Theresa Singleton at 1-888-912-1227 or 202-317-3329, or write TAP Office, 1111 Constitution Ave. NW., Room 1509, Washington, DC 20224 or contact us at the Web site:
Internal Revenue Service (IRS), Treasury.
Notice of meeting.
An open meeting of the Taxpayer Advocacy Panel's Toll-Free Phone Line Project Committee will be conducted. The Taxpayer Advocacy Panel is soliciting public comments, ideas and suggestions on improving customer service at the Internal Revenue Service.
The meeting will be held Monday, January 11, 2016 and Tuesday, January 12, 2016.
Linda Rivera at 1-888-912-1227 or 202-317-3337.
Notice is hereby given pursuant to Section 10(a)(2) of the Federal Advisory Committee Act, 5 U.S.C. App. (1988) that an open meeting of the Taxpayer Advocacy Panel Toll-Free Phone Line Project Committee will be held Monday, January 11, 2016, from 1:00 p.m. to 4:30 p.m. Central Time and Tuesday, January 12, 2016, from 8:15 a.m. until 4:30 p.m. Central Time at the IRS Office, 55 North Robinson Avenue, Oklahoma City, OK 73102. The public is invited to make oral comments or submit written statements for consideration. Due to limited time and structure of meeting, notification of intent to participate must be made with Marianne Dominguez. For more information please contact Linda Rivera at 1-888-912-1227 or 202-317-3337, or write TAP Office, 1111 Constitution Ave. NW., Room 1509, Washington, DC 20224 or contact us at the Web site:
Internal Revenue Service (IRS), Treasury.
Notice and request for comments.
The Department of the Treasury, as part of its continuing effort to reduce paperwork and respondent burden, invites the general public and other Federal agencies to take this opportunity to comment on proposed and/or continuing information collections, as required by the Paperwork Reduction Act of 1995, Public Law 104-13 (44 U.S.C. 3506(c)(2)(A)). Currently, the IRS is soliciting comments concerning Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts, and Form 2210-F, Underpayment of Estimated Tax by Farmers and Fishermen.
Written comments should be received on or before February 26, 2016 to be assured of consideration.
Direct all written comments to Michel A. Joplin, Internal Revenue Service, Room 6129, 1111 Constitution Avenue NW., Washington, DC 20224.
Requests for additional information or copies of the forms and instructions should be directed to Martha R. Brinson, Internal Revenue Service, Room 6129, 1111 Constitution Avenue NW., Washington, DC 20224, or through the Internet at
The following paragraph applies to all of the collections of information covered by this notice:
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 OMB control number. Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by 26 U.S.C. 6103.
Internal Revenue Service (IRS) Treasury
Notice of meeting.
An open meeting of the Taxpayer Advocacy Panel's Tax Forms and Publications Project Committee will be conducted. The Taxpayer Advocacy Panel is soliciting public comments, ideas, and suggestions on improving customer service at the Internal Revenue Service.
The meeting will be held Monday, January 11, 2016 and Tuesday, January 12, 2016.
Donna Powers at 1-888-912-1227 or 954-423-7977.
Notice is hereby given pursuant to Section 10(a)(2) of the Federal Advisory Committee Act, 5 U.S.C. App. (1988) that a meeting of the Taxpayer Advocacy Panel's Tax Forms and Publications Project Committee will be held Monday, January 11, 2016, from 1:00 p.m. to 4:30 p.m. Mountain time and Tuesday, January 12, 2016, from 8:00 a.m. until 4:30 p.m. Mountain Time at the 5338 Montgomery Blvd. Albuquerque, New Mexico 87109-1338. The public is invited to make oral comments or submit written statements for consideration. Due to limited time and structure of meeting, notification of intent to participate must be made with Donna Powers. For more information please contact Donna Powers at 1-888-912-1227 or 954-423-7977, or write TAP Office, 1000 South Pine Island Road, Suite 340, Plantation, FL 33324 or contact us at the Web site:
Internal Revenue Service (IRS), Treasury.
Notice of meeting.
An open meeting of the Taxpayer Advocacy Panel's Taxpayer Assistance Center Project Committee will be conducted. The Taxpayer Advocacy Panel is soliciting public comments, ideas and suggestions on improving customer service at the Internal Revenue Service.
The meeting will be held Thursday, January 14, 2016 and Friday, January 15, 2016.
Otis Simpson at 1-888-912-1227 or 202-317-3332.
Notice is hereby given pursuant to Section 10(a)(2) of the Federal Advisory Committee Act, 5 U.S.C. App. (1988) that an open meeting of the Taxpayer Advocacy Panel's Taxpayer Assistance
Internal Revenue Service (IRS), Treasury.
Notice of meeting.
An open meeting of the Taxpayer Advocacy Panel Joint Committee will be conducted. The Taxpayer Advocacy Panel is soliciting public comments, ideas, and suggestions on improving customer service at the Internal Revenue Service.
The meeting will be held Wednesday, January 27, 2016.
Kim Vinci at 1-888-912-1227 or 916-974-5086.
Notice is hereby given pursuant to Section 10(a)(2) of the Federal Advisory Committee Act, 5 U.S.C. App. (1988) that an open meeting of the Taxpayer Advocacy Panel Joint Committee will be held Wednesday, January 27, 2016, at 1:00 p.m. Eastern Time via teleconference. The public is invited to make oral comments or submit written statements for consideration. For more information please contact: Kim Vinci at 1-888-912-1227 or 916-974-5086, TAP Office, 4330 Watt Ave., Sacramento, CA 95821, or contact us at the Web site:
The agenda will include various committee issues for submission to the IRS and other TAP related topics. Public input is welcomed.
The Department of Veterans Affairs (VA) gives notice under the Federal Advisory Committee Act, 5 U.S.C., App. 2, that the Research Advisory Committee on Gulf War Veterans' Illnesses will meet on January 26, 2016, at 810 Vermont Avenue NW., Washington, DC, Room C-7, from 9:00 a.m. until 5:30 p.m. All sessions will be open to the public, and for interested parties who cannot attend in person, there is a toll-free telephone number (800) 767-1750; access code 56978#.
The purpose of the Committee is to provide advice and make recommendations to the Secretary of Veterans Affairs on proposed research studies, research plans, and research strategies relating to the health consequences of military service in the Southwest Asia Theater of Operations during the Gulf War in 1990-1991.
The Committee will review VA program activities related to Gulf War Veterans' illnesses, and updates on relevant scientific research published since the last Committee meeting. Presentations will include updates on the VA and DoD Gulf War research programs, along with research presentations describing neurological problems in Gulf War Veterans. There will also be a discussion of Committee business and activities.
The meeting will include time reserved for public comments in the afternoon. A sign-up sheet for 5-minute comments will be available at the meeting. Individuals who wish to address the Committee may submit a 1-2 page summary of their comments for inclusion in the official meeting record. Members of the public may also submit written statements for the Committee's review to Dr. Victor Kalasinsky via email at
Because the meeting is being held in a government building, a photo I.D. must be presented as part of the clearance process. Therefore, any person attending should allow an additional 15 minutes before the meeting begins. Any member of the public seeking additional information should contact Dr. Victor Kalasinsky, Designated Federal Officer, at (202) 443-5682.
Securities and Exchange Commission.
Proposed rule.
The Securities and Exchange Commission (the “Commission” or “SEC”) is proposing rule 18f-4, a new exemptive rule under the Investment Company Act of 1940 (the “Investment Company Act” or “Act”) designed to address the investor protection purposes and concerns underlying section 18 of the Act and to provide an updated and more comprehensive approach to the regulation of funds' use of derivatives. The proposed rule would permit mutual funds, exchange-traded funds (“ETFs”), closed-end funds, and companies that have elected to be treated as business development companies (“BDCs”) under the Act (collectively, “funds”) to enter into derivatives transactions and financial commitment transactions (as those terms are defined in the proposed rule) notwithstanding the prohibitions and restrictions on the issuance of senior securities under section 18 of the Act, provided that the funds comply with the conditions of the proposed rule. A fund that relies on the proposed rule in order to enter into derivatives transactions would be required to: comply with one of two alternative portfolio limitations designed to impose a limit on the amount of leverage the fund may obtain through derivatives transactions and other senior securities transactions; manage the risks associated with the fund's derivatives transactions by maintaining an amount of certain assets, defined in the proposed rule as “qualifying coverage assets,” designed to enable the fund to meet its obligations under its derivatives transactions; and, depending on the extent of its derivatives usage, establish a formalized derivatives risk management program. A fund that relies on the proposed rule in order to enter into financial commitment transactions would be required to maintain qualifying coverage assets equal in value to the fund's full obligations under those transactions. The Commission also is proposing amendments to proposed Form N-PORT and proposed Form N-CEN that would require reporting and disclosure of certain information regarding a fund's derivatives usage.
Comments should be received on or before March 28, 2016.
Comments may be submitted by any of the following methods:
• Use the Commission's Internet comment form (
• Send an email to
• Use the Federal eRulemaking Portal (
• Send paper comments to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
Studies, memoranda or other substantive items may be added by the Commission or staff to the comment file during this rulemaking. A notification of the inclusion in the comment file of any such materials will be made available on the Commission's Web site. To ensure direct electronic receipt of such notifications, sign up through the “Stay Connected” option at
With respect to proposed rule 18f-4, Adam Bolter, Jamie Lynn Walter, or Erin C. Loomis, Senior Counsels; Thoreau A. Bartmann, Branch Chief; Brian McLaughlin Johnson, Senior Special Counsel; or Aaron Schlaphoff or Danforth Townley, Attorney Fellows; and with respect to the proposed amendments to Form N-PORT and Form N-CEN, Jacob D. Krawitz, Senior Counsel, or Sara Cortes, Senior Special Counsel, at (202)-551-6792, Investment Company Rulemaking Office, Division of Investment Management, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-8549.
The Commission is proposing rule 18f-4 [17 CFR 270.18f-4] under the Investment Company Act of 1940 [15 U.S.C. 80a] and amendments to proposed Form N-PORT and proposed Form N-CEN.
The activities and capital structures of funds are regulated extensively under the Investment Company Act,
Derivatives may be broadly described as instruments or contracts whose value is based upon, or derived from, some other asset or metric (referred to as the “reference asset,” “underlying asset” or “underlier”).
We are committed, as the primary regulator of funds, to designing regulatory programs that respond to the risks associated with the increasingly complex portfolio composition and operations of the asset management industry. The dramatic growth in the volume and complexity of the derivatives markets over the past two decades, and the increased use of derivatives by certain funds,
Today, we are proposing new rule 18f-4, which is designed to address the investor protection purposes and concerns underlying section 18 and to provide an updated and more comprehensive approach to the regulation of funds' use of derivatives transactions and other transactions that implicate section 18 in light of the dramatic growth in the volume and complexity of the derivatives markets over the past two decades and the increased use of derivatives by certain funds. As discussed in more detail below, the proposed rule would permit a fund to enter into derivatives and financial commitment transactions, notwithstanding the prohibitions and restrictions on the issuance of senior securities under section 18 of the Act, provided that the fund complies with the conditions of the proposed rule. The proposed rule's conditions are designed both to impose a limit on the leverage a fund may obtain through the use of derivatives and financial commitment transactions and other senior securities transactions, and to require the fund to have assets available to meet its obligations arising from those transactions, both of which are central
As noted above, derivatives may be broadly described as instruments or contracts whose value is based upon, or derived from, some reference asset. Reference assets can include, for example, stocks, bonds, commodities, currencies, interest rates, market indices, currency exchange rates, or other assets or interests.
Derivatives are often characterized as either exchange-traded or OTC.
While funds use derivatives for a variety of purposes, a common characteristic of most derivatives is that they involve leverage or the potential for leverage.
Funds use derivatives both to obtain investment exposures as part of their investment strategies and to manage risk.
At the same time and as noted above, funds' use of derivatives may entail risks relating to, for example, leverage, illiquidity (particularly with respect to complex OTC derivatives), and counterparty risk, among others.
Section 18 of the Act imposes various limitations on the capital structure of funds, including, in part, by restricting the ability of funds to issue “senior securities.” The protection of investors against the potentially adverse effects of a fund's issuance of senior securities is a core purpose of the Investment Company Act.
Congress' concerns underlying the limitations in section 18 were focused on: (1) Excessive borrowing and the issuance of excessive amounts of senior securities by funds which increased unduly the speculative character of their junior securities;
In Investment Company Act Release 10666, issued in 1979, we considered the application of section 18's restrictions on senior securities to the following transactions: reverse repurchase agreements, firm commitment agreements, and standby commitment agreements.
We concluded that such agreements, while not securities for all purposes under the federal securities laws,
We recognized, however, that although reverse repurchase agreements, firm commitment agreements, and standby commitment agreements may involve the issuance of senior securities and thus generally would be prohibited for open-end funds by section 18(f) (and limited by the 300% asset coverage requirement for closed-end funds), these and similar arrangements nonetheless could appropriately be used by funds subject to the constraints we described in Release 10666. We analogized to short sales of securities by funds, as to which our staff had previously provided guidance that the issue of section 18 compliance would not be raised if funds “cover” senior securities by maintaining “segregated accounts.”
We concluded that the use of segregated accounts “if properly created and maintained, would limit the investment company's risk of loss.”
We did not specifically address derivatives in Release 10666.
In the years following the issuance of Release 10666, our staff issued more than thirty no-action letters to funds concerning the maintenance of segregated accounts or otherwise “covering” their obligations in connection with various transactions that implicate section 18.
With respect to the amount of assets that funds have segregated, two general practices have developed:
• For some derivatives, funds generally segregate an amount equal to the full amount of the fund's potential obligation under the contract, where that amount is known at the outset of the transaction, or the full market value of the underlying reference asset for the derivative (collectively, “notional amount segregation”).
• For certain derivatives that are required by their terms to be net cash settled, and thus do not involve physical settlement, funds often segregate an amount equal to the fund's daily mark-to-market liability, if any (“mark-to-market segregation”).
As noted above, in Release 10666, we stated that the assets eligible to be included in segregated accounts should be “liquid assets,” such as cash, U.S. government securities, or other appropriate high-grade debt obligations. In a 1996 staff no-action letter, the staff took the position that a fund could cover its senior securities-related obligations by depositing any liquid asset, including equity securities and non-investment grade debt securities, in a segregated account.
As this discussion reflects, funds and their counsel, in light of the guidance we provided in Release 10666 and that provided by our staff through no-action letters and otherwise, have applied the segregated account approach to, or otherwise sought to cover, many types of transactions other than those specifically addressed in Release 10666, including various derivatives and other transactions that implicate section 18. These transactions include, for example, futures, written options, and swaps (both swaps and security-based swaps).
As we stated in Release 10666, we view the transactions described in that release as falling within the functional meaning of the term “evidence of indebtedness,” for purposes of section 18.
We apply the same analysis to derivatives transactions under which the fund is or may be required to make any payment or deliver cash or other assets during the life of the instrument or at maturity or early termination, whether as a margin or settlement payment or otherwise (a “future payment obligation”). As was the case with respect to the trading practices we described in Release 10666, where the fund has entered into a derivatives transaction and has a future payment obligation—a conditional or unconditional contractual obligation to
This interpretation is supported by the express scope of section 18, which defines the term senior security broadly to include instruments and transactions that might not otherwise be considered securities under other provisions of the federal securities laws.
This view also is consistent with the fundamental statutory policy and purposes underlying the Act, as expressed in section 1(b) of the Act. Section 1(b) provides that the provisions of the Act shall be interpreted to mitigate and “so far as is feasible” to eliminate the conditions and concerns enumerated in that section. These include the conditions and concerns enumerated in sections 1(b)(7) and 1(b)(8) which declare, respectively, that “the national public interest and the interest of investors are adversely affected” when funds “by excessive borrowing and the issuance of excessive amounts of senior securities increase unduly the speculative character” of securities issued to common shareholders and when funds “operate without adequate assets or reserves.” Funds' obligations under derivative transactions can implicate each of these concerns.
As we stated in Release 10666, leveraging an investment company's portfolio through the issuance of senior securities “magnifies the potential for gain or loss on monies invested and therefore results in an increase in the speculative character of the investment company's outstanding securities” and “leveraging without any significant limitation” was identified “as one of the major abuses of investment companies prior to the passage of the Act by Congress.” We emphasized in Release 10666, and we continue to believe today, that the prohibitions and restrictions under the senior security provisions of section 18 should “function as a practical limit on the amount of leverage which the investment company may undertake and on the potential increase in the speculative character of its outstanding common stock” and that funds should not “operate without adequate assets or reserves.”
First, with respect to the undue speculation concern expressed in section 1(b)(7), we noted above and in the Concept Release that a common characteristic of most derivatives is that they involve leverage or the potential for leverage because they typically enable the fund to participate in gains and losses on an amount that substantially exceeds the fund's investment while imposing a conditional or unconditional obligation on the fund to make a payment or deliver assets to a counterparty. For example, a fund can enter into a total return swap referencing an equity or debt security and, in exchange for a contractual obligation to make payments in respect of changes in the value of the referenced security and the delivery of a limited amount of collateral, obtain exposure to the full notional value of the referenced security.
As discussed in more detail in sections II.D and III.B.1.c, our staff's evaluation of the use of derivatives by funds also indicates that some funds make extensive use of derivatives to obtain notional investment exposures far in excess of the funds' respective net asset values.
We noted in Release 10666 that, given the potential for reverse repurchase agreements to be used for leveraging and their ability to magnify the risk of investing in a fund, “one of the important policies underlying section 18 would be rendered substantially nugatory” if funds' use of reverse repurchase agreements were not subject to limitation. We similarly believe that if funds' use of derivatives that impose a future payment obligation on the fund were not viewed as involving senior securities subject to appropriate limitations under section 18, the concerns underlying section 18, including the undue speculation concern expressed in section 1(b)(7) as discussed above, would be frustrated.
Second, a fund's use of derivatives under which the fund has a future payment obligation also raises concerns with respect to a fund's ability to meet its obligations, implicating the asset sufficiency concern expressed in section 1(b)(8) of the Act. Many derivatives investments entered into by a fund, such as futures contracts, swaps, and written options, pose a risk of loss that can result in payment obligations owed to the fund's counterparties.
Losses on a fund's derivatives transactions, and the resulting payment obligation imposed on the fund, can force a fund's adviser to sell the fund's investments to generate liquid assets in order for the fund to meet its obligations. The use of derivatives for leveraging purposes can exacerbate this risk and make it more likely that a fund would be forced to sell assets, potentially generating losses for the fund.
We recognize, however, that not every derivative will involve the issuance of a senior security because not every derivative imposes a future payment obligation on the fund. A fund that purchases an option, for example, generally will make a non-refundable premium payment to obtain the right to acquire (or sell) securities under the option but generally will not have any subsequent obligation to deliver cash or assets to the counterparty unless the fund chooses to exercise the option. A derivative that does not impose a future payment obligation on a fund in this respect generally resembles non-derivative securities investments in that these investments may lose value but will not require the fund to make any
As we explained in the Concept Release, we now seek to take an updated and more comprehensive approach to the regulation of funds' use of derivatives.
In considering these and other issues, our staff has engaged in a range of activities to inform our policymaking relating to the use of derivatives by funds. These include reviewing funds' derivatives holdings and other sources of information concerning funds' use of derivatives; examining advisers to funds that make use of derivatives; discussing funds' use of derivatives with market participants; and considering other relevant information provided to the Commission concerning funds' use of derivatives, including comment letters submitted in response to the Concept Release. This review has also included an evaluation of the comment letters submitted in response to a notice issued by the Financial Stability Oversight Council (“FSOC”) requesting comment on aspects of the asset management industry.
The staff's review of funds' use of derivatives includes, as discussed below, a review of the derivatives and other holdings of a random sample of funds, as reported by those funds in their annual reports to shareholders. As part of this effort, the staff reviewed and compiled information concerning the holdings of randomly selected mutual funds (including a focused review and separate sampling of alternative strategy funds
We have determined to propose a new approach to funds' use of derivatives in order to address the investor protection purposes and concerns underlying section 18 of the Act and to provide an updated and more comprehensive approach to the regulation of funds' use of derivatives transactions in light of the dramatic growth in the volume and complexity of the derivatives markets over the past two decades and the increased use of derivatives by certain funds. In Release 10666, we took the position that funds might engage in the transactions described in that release using the segregated account approach, notwithstanding the limitations in section 18.
We continue to believe that these are relevant considerations and that it may be appropriate for a fund to enter into transactions that create fund indebtedness, notwithstanding the prohibitions in section 18, if such transactions are subject both to a limit on leverage to prevent undue speculation and to measures designed to require the fund to have sufficient assets to meet its obligations.
The segregated account approach described in Release 10666 required a fund engaging in the transactions described in that release to segregate liquid assets, such as cash, U.S. government securities, or other appropriate high-grade debt obligations, equal in value to the full amount of the obligations incurred by the fund.
Today, in contrast, many funds apply the mark-to-market segregation approach to certain net cash-settled derivatives, and some funds use this form of asset segregation extensively.
The amount of assets that a fund would segregate under the mark-to-market approach is substantially less than under the approach contemplated in Release 10666. The mark-to-market approach therefore allows a fund to obtain greater exposures through derivatives transactions than the fund could obtain using the approach we contemplated in Release 10666 with respect to the trading practices described in that release, and also may result in a fund segregating an amount of assets that may not be sufficient to enable the fund to meet its potential obligations under the derivatives transactions, as discussed below.
In addition to the smaller amount of segregated assets under the mark-to-market approach, funds now segregate various types of liquid assets, rather than the more narrow range of high-quality assets described in Release 10666, in reliance on a no-action letter issued by our staff.
Together, funds' use of the mark-to-market segregation approach with respect to various types of derivatives, plus the segregation of any liquid asset, enables funds to obtain leverage to a greater extent than was contemplated in Release 10666. Segregating only a fund's daily mark-to-market liability—and using any liquid asset—enables the fund, using derivatives, to obtain exposures substantially in excess of the fund's net assets.
To evaluate the extent of funds' derivatives exposure, our staff reviewed funds' holdings and compared the amount of exposure under the funds' derivatives, based on the derivatives' notional amounts, with the fund's net assets.
Funds are able to obtain such high levels of derivatives exposures relative to the funds' net assets primarily because of their use of the mark-to-market approach with respect to various types of derivatives, as discussed above.
Funds' current practices also may not “assure the availability of adequate [assets] to meet the obligations arising from [funds' derivatives transactions],” as we contemplated in Release 10666, and thus may implicate the asset sufficiency concern expressed in section 1(b)(8) of the Act. In Release 10666, we stated a fund should segregate liquid assets equal in value to the fund's full obligation under the transactions described in that release from the outset of the transaction.
A fund using the mark-to-market approach, however, segregates assets the fund deems liquid in an amount equal to the fund's daily mark-to-market liability on the derivative, if any. This approach looks only to losses, and corresponding potential payment obligations under the derivative, that the fund already has incurred. A fund that follows this approach is not necessarily segregating assets in anticipation of possible future losses and any corresponding payment obligations, and the fund's segregation of assets equal to its mark-to-market liability on any particular day provides no assurances that future losses will not exceed the amount of assets the fund has segregated or would otherwise have available to meet the payment obligations resulting from such losses. A fund's mark-to-market liability on any particular day could be substantially smaller than the fund's ultimate obligations under a derivative.
Where a fund segregates any liquid asset, rather than the more narrow range of high-quality assets we described in Release 10666, the segregated assets may be more likely to decline in value at the same time as the fund experiences losses on its derivatives than if the fund had segregated the types of liquid assets we described in Release 10666.
Some commenters on the Concept Release appear to have recognized that segregation of a fund's daily mark-to-market liability alone may not be sufficient in at least some cases. As discussed in more detail below in section III.C of this Release, some commenters have suggested that we impose asset segregation requirements under which a fund would include in its segregated account for a derivative an amount determined by the fund, in addition to the daily mark-to-market liability, designed to address future losses.
For all of these reasons, funds' current practices, based on their application of Commission and staff guidance, may in some cases fail to impose an effective limit on the amount of leverage that funds can obtain through derivatives or necessarily require that funds have adequate assets to meet their obligations arising under the derivatives transactions.
Three relatively recent settled enforcement actions provide examples of situations in which funds' use of derivatives caused significant losses and
The first action involved two mutual funds that suffered losses driven primarily by their exposure to certain commercial mortgage-backed securities (“CMBS”), obtained mainly through TRS.
In late 2008, CMBS spreads widened to unprecedented levels, triggering substantial payment obligations for the funds under the TRS contracts while market values for the funds' portfolio securities also fell, further driving down the funds' net asset value per share. Amidst this declining market the funds also were required to sell portfolio securities to raise cash to meet their obligations under the TRS contracts. In addition, the adviser provided sponsor support to one of the funds by investing $150 million in the fund in November 2008 to provide the fund with liquidity after its anticipated TRS payments for that month totaled approximately one-third of the fund's net assets and almost twice its available cash. Both of the funds experienced losses far greater than those suffered by their peer funds. One fund's share price declined nearly 80% (compared to an average decline of approximately 26% among its peers), far more than any sector in which the fund invested. This occurred because the fund was substantially leveraged as a result of its derivatives, particularly TRS contracts. The other fund's share price declined approximately 36% (compared to an average decline of approximately 4% among its peers).
The second action
The third action
Examples of the use of derivatives by investment funds that are not subject to the limitations under the Investment Company Act, including private funds, such as hedge funds, that are excluded from regulation under the Investment Company Act by section 3(c)(1) or 3(c)(7) of the Act also may be relevant in considering registered funds' use of derivatives.
As one example, a private fund with approximately $10.2 billion of net assets lost $4.9 billion in natural gas futures positions in a period of a few weeks in August and September 2006 and was forced to liquidate its entire portfolio and close.
This example demonstrates the challenges in assessing whether ostensibly hedged or covered positions will perform as intended (for example, whether a position intended to hedge another exposure may fail to have a hedging effect and instead result in additional, speculative exposure). In the example above, the private fund's adviser may have expected that the fund's long and short positions would
We now propose to take an updated and more comprehensive approach to the regulation of funds' use of derivatives and the application of the senior security restrictions in section 18. The current approach has developed over the years since we issued Release 10666 as funds and our staff sought to apply our statements in Release 10666 to various types of derivatives and other transactions on an instrument-by-instrument basis. We understand that, in determining how they will comply with section 18, funds consider various no-action letters issued by our staff. These letters were issued in the 1970s, 1980s, and 1990s, and addressed particular questions presented to the staff concerning the application of the approach enunciated in Release 10666 to various types of derivatives on an instrument-by-instrument basis.
The current approach's development on an instrument-by-instrument basis, together with the dramatic growth in the volume and complexity of the derivatives markets over the past two decades, has resulted in situations for which there is no specific guidance from us or our staff with respect to various types of derivatives.
Under the current approach, different funds may treat the same kind of derivative differently, based on their own application of our staff's guidance and observation of industry practice, which at least one commenter noted “may unfairly disadvantage some funds.”
A fund's use of derivatives may involve counterparty, liquidity, leverage, market, and operational risks, as noted above. As we observed in the Concept Release, “[a] fund's use of derivatives presents challenges for its investment adviser and board of directors to ensure that the derivatives are employed in a manner consistent with the fund's investment objectives, policies, and restrictions, its risk profile, and relevant regulatory requirements, including those under federal securities laws.”
As noted above, the dramatic growth in the volume and complexity of the derivatives markets over the past two decades, and the increased use of derivatives by certain funds, led us to initiate a review of funds' use of derivatives under the Investment Company Act. Based on that review, including the considerations we discussed in section II.D above and throughout this Release, we are today proposing rule 18f-4, an exemptive rule designed to address the investor protection purposes and concerns underlying section 18 and to provide an updated and more comprehensive approach to the regulation of funds' use of derivatives transactions and financial commitment transactions. This proposal is part of a broader set of initiatives designed to address the increasingly complex portfolio composition and operations of the asset management industry.
Proposed rule 18f-4 would permit a fund to enter into derivatives transactions, as defined in the rule, provided that the fund complies with three primary sets of conditions of the rule designed to address the purposes and concerns underlying section 18.
Second, the fund would be required to manage the risks associated with the fund's derivatives transactions by maintaining an amount of certain assets, defined in the proposed rule as “qualifying coverage assets,” designed to enable the fund to meet its obligations under its derivatives transactions. To satisfy this requirement the fund would be required to maintain qualifying coverage assets to cover the fund's mark-to-market obligations under a derivatives transaction, as well as an additional amount, determined in accordance with policies and procedures approved by the fund's board, designed to address potential future losses and resulting payment obligations under the derivatives transaction. The fund's qualifying coverage assets for its derivatives transactions generally would be required to consist of cash and cash equivalents.
Third, except with respect to funds that engage in only a limited amount of derivatives transactions and that do not use certain complex derivatives transactions as defined in the proposed rule, the fund would be required to establish a formalized derivatives risk management program administered by a designated derivatives risk manager. The derivatives risk management program requirement is designed to complement the proposed rule's portfolio limitations and asset segregation requirements applicable to every fund that engages in derivatives transactions by requiring funds subject to the requirement to adopt and implement a derivatives risk management program that addresses the program elements specified in the rule, including the assessment and management of the risks associated with the fund's derivatives transactions. The program would be administered by a derivatives risk manager designated by the fund and approved by the fund's board of directors.
The proposed rule also would permit a fund to enter into financial commitment transactions, which include the trading practices we described in Release 10666 and short sale borrowings, provided that the fund complies with conditions requiring the fund to maintain qualifying coverage assets equal in value to the fund's full obligations under its financial commitment transactions. Because in many cases the timing of the fund's payment obligations may be specified under the terms of a financial commitment transaction or the fund may otherwise have a reasonable expectation regarding the timing of the fund's payment obligations with respect to its financial commitment transactions, a fund relying on the proposed rule would be able to maintain as qualifying coverage assets for a financial commitment transaction assets that are convertible to cash or that generate cash prior to the date on which the fund expects to be required to pay its obligations under the transaction, determined in accordance with policies and procedures approved by the fund's board of directors.
The proposed rule would supersede the guidance we provided in Release 10666, as well as the guidance provided by our staff concerning funds' use of derivatives and financial commitment transactions, which we would rescind if we adopt the proposed rule.
Proposed rule 18f-4, as summarized above, is designed both to impose a limit on the leverage a fund relying on the rule may obtain through derivatives transactions and financial commitment transactions, and to require the fund to have qualifying coverage assets to meet its obligations under those transactions, in order to address the undue speculation concern expressed in
As discussed in more detail in the sections that follow, in order to rely on the exemption provided by proposed rule 18f-4 to enter into derivatives transactions, a fund would be required to comply with one of two alternative portfolio limitations and, separately, to maintain qualifying coverage assets designed to enable the fund to meet its obligations under those transactions and to require the fund to manage the risks associated with those transactions. The proposed rule's portfolio limitations are designed primarily to address concerns about a fund's ability to obtain leverage through derivatives transactions, whereas the proposed rule's requirements to maintain qualifying coverage assets are designed primarily to address concerns about a fund's ability to meet its obligations. We believe that this approach for derivatives transactions—providing separate portfolio limitations and asset segregation requirements—would be more effective than an approach focusing only on asset segregation, particularly when it is coupled with a formalized risk management program for funds that engage in more than a limited amount of derivatives transactions or that use certain complex derivatives transactions, as we are proposing today.
We have determined to propose portfolio limitation and risk management requirements for derivatives transactions, in addition to an asset segregation requirement, because as discussed in section II.D above, asset segregation alone in some cases may not provide a sufficient limit on the amount of leverage a fund can obtain through derivatives or sufficient assurances that a fund would have adequate assets to meet its obligations arising under derivatives transactions. The asset segregation approach described in Release 10666 achieved both of these goals—limiting leverage and addressing availability of assets—because that release contemplated that funds would segregate high-quality liquid assets equal in value to the fund's full obligations. A fund that segregated liquid assets equal to the purchase price in a standby commitment agreement, for example, would be limited in its ability to enter into standby commitment agreements because the fund could not incur obligations under those agreements in excess of the fund's available liquid assets; by segregating liquid assets equal to the purchase price of the standby commitment agreement, the fund would have assets available to meet its obligations under the agreement.
Although this approach appears to have addressed the concerns underlying section 18 for the particular instruments described in Release 10666 and is similar to the approach we are proposing today for financial commitment transactions, applying it to derivatives transactions by requiring funds to segregate the kinds of liquid assets we described in Release 10666 equal in value to the full notional amount of each derivative could in some cases require funds to hold more liquid assets than may be necessary to address the investor protection purposes and concerns underlying section 18. The notional amount of a derivatives transaction does not necessarily equal, and often will exceed, the amount of cash or other assets that a fund ultimately would likely be required to pay or deliver under the derivatives transaction. By addressing concerns related to a fund's ability to obtain leverage through derivatives transactions primarily through the proposed portfolio limitations and separately addressing concerns related to a fund's ability to meets its derivatives obligations primarily through the proposed requirements to maintain qualifying coverage assets, the proposed rule is designed to address each concern more directly, while still providing a flexible framework that can be applied by funds to various types of derivatives as they are developed in the marketplace.
These requirements also would be complemented by the proposed rule's risk management requirements, which would require funds that engage in more than a limited amount of derivatives transactions or that use certain complex derivatives transactions, as defined in the proposed rule, to develop formalized risk management programs reasonably designed to assess and manage the risk associated with those transactions based on the fund's own facts and circumstances. This requirement should serve to establish a standardized level of risk management for funds that engage in more than a limited amount of derivatives transactions or that use complex derivatives transactions.
The proposed rule defines the term “derivatives transaction” to mean any swap, security-based swap, futures contract, forward contract, option, any combination of the foregoing, or any similar instrument (“derivatives instrument”) under which a fund is or may be required to make any payment or delivery of cash or other assets during the life of the instrument or at maturity or early termination.
The proposed rule's definition of “derivatives transaction” incorporates a list of derivatives instruments. We believe this list of derivatives instruments, together with the proposed rule's inclusion of “similar instruments,” covers the types of derivatives that funds currently use and that involve fund obligations that implicate section 18, and that this list is sufficiently comprehensive to include derivatives that may be developed in the future.
The proposed rule would define a “financial commitment transaction” as any reverse repurchase agreement, short sale borrowing, or any firm or standby commitment agreement or similar agreement.
The proposed rule's definition of financial commitment transactions includes firm and standby commitment agreements, which we addressed in Release 10666,
The fund would be exposed to risks as a result of these transactions in that the fund may be required to liquidate other assets of the fund to obtain the cash needed by the fund to satisfy its obligations, and if the fund is unable to meet its obligations, the fund would be subject to default remedies available to its counterparty. For example, if a fund fails to fulfill its commitments to invest in a private fund when called to do so, the fund could be subject to the remedies specified in the limited partnership agreement (or similar document) relating to that private fund, which can include, for example, a forfeiture of some or all of the fund's investment in the private fund.
The rule's definitions of the terms “derivatives transactions” and “financial commitment transactions,” discussed above, would specify the types of transactions in which a fund would be permitted to engage under the rule, subject to its conditions. Other senior securities transactions that do not fall within either of these definitions, such as borrowings from a bank by mutual funds or the issuance of other debt securities or preferred equity by closed-end funds or BDCs, could only be done pursuant to the requirements of section 18 (or section 61 in the case of BDCs) or in accordance with some other exemption, rather than proposed rule 18f-4.
We request comment on all aspects of the proposed rule's definitions of the terms “derivatives transaction” and “financial commitment transaction.”
• Is the definition of “derivatives transaction” sufficiently clear? Are there additional types of derivatives instruments that we should include or any that we should exclude?
• The proposed rule's definition of the term derivatives transactions is designed to describe those derivatives transactions that would involve the issuance of a senior security. Do commenters agree that this is an appropriate approach? Does the rule effectively describe all of the types of derivatives transactions that would involve the issuance of a senior security? The proposed rule's definition of “derivatives transaction” incorporates a list of derivatives instruments, rather than a conceptual definition such as an instrument or contract whose value is based upon, or derived from, some other asset or metric, because we believe that the definition's list of derivatives instruments would more clearly describe the types of derivatives that implicate section 18 than a conceptual definition. Do commenters agree? Why or why not?
• The proposed rule would define a “financial commitment transaction” as any reverse repurchase agreement, short sale borrowing, or any firm or standby commitment agreement or similar agreement. The proposed rule includes, as a similar agreement, an agreement under which a fund has obligated itself, conditionally or unconditionally, to make a loan to a company or to invest equity in a company, including by making a capital commitment to a private fund that can be drawn at the discretion of the private fund's general partner. Do commenters agree with the scope of this definition? Are these terms sufficiently clear? Do commenters agree that it is appropriate to include these transactions?
• Are there additional types of transactions that we should include in the definition of a “financial commitment transaction”? Adding additional transactions to the definition would permit the fund to engage in those transactions by complying with the proposed rule, rather than section 18 or 61. Are there transactions that we should exclude from the definition and for which a fund should be required to comply with the requirements of section 18 (to the extent permitted under section 18), rather than the proposed rule's conditions?
• Our staff has expressed the view that a fund's loan of portfolio securities may involve the issuance of a senior security in light of the fund's obligation to return the collateral upon termination of the loan and has expressed the view that “a mutual fund should not have on loan at any given time securities representing more than one-third of its total asset value.”
• The proposed rule would permit a fund to enter into a derivatives transaction or financial commitment transaction, notwithstanding the requirements of section 18 or 61 of the Act, if the fund complies with the rule's conditions. Are there other rules or forms we should consider modifying if
• Should any final rule address, or should we provide guidance concerning, funds' compliance with other aspects of section 18 in connection with funds' use of derivatives transactions or financial commitment transactions? For example, because the proposed rule would permit a fund to enter into derivatives transactions and financial commitment transactions notwithstanding section 18(a)(1) and section 18(f)(1), a fund relying on the proposed rule would not be required to comply with section 18's 300% asset coverage requirement (or section 61's 200% asset coverage requirement) with respect to such transactions.
• Is there any guidance we should provide concerning funds' compliance with other provisions of the Investment Company Act in connection with funds' use of derivatives transactions or financial commitment transactions in reliance on the proposed rule?
The proposed rule would require a fund that engages in derivatives transactions in reliance on the rule to comply with one of two alternative portfolio limitations.
The first portfolio limit would be based on the fund's overall exposure to: (1) Derivatives transactions, (2) financial commitment transactions, and (3) other transactions involving a senior security entered into by the fund pursuant to section 18 or 61 of the Act without regard to the exemption that would be provided by the proposed rule (
The exposure-based portfolio limit is designed to impose an overall limit on the amount of exposure, and thus the amount of potential leverage, that a fund would be able to obtain through derivatives and other senior securities transactions. We discuss and seek comment below on the exposure-based portfolio limit, including the proposed rule's method of calculating a fund's exposure and the rule's limitation of exposure to 150% of the fund's net assets.
The proposed rule would define a fund's “exposure” as the sum of: (1) The aggregate notional amounts of the fund's derivatives transactions, subject to certain adjustments discussed below; (2) the aggregate obligations of the fund under its financial commitment transactions; and (3) the aggregate indebtedness (and with respect to any closed-end fund or business development company, involuntary liquidation preference) with respect to any other senior securities transactions entered into by the fund pursuant to section 18 or 61 of the Investment Company Act.
Under the proposed rule, a fund's exposure would include the aggregate notional amounts of its derivatives transactions.
We believe that, although derivatives vary widely in terms of structure, asset class, risks and potential uses, for most types of derivatives the notional amount generally serves as a measure of the fund's economic exposure to the underlying reference asset or metric.
Table 1 below sets forth a list of different types of derivatives transactions that are commonly used by funds, together with the method by which we understand a fund, for risk management, reporting or other purposes, typically would calculate the transaction's notional amount. We believe that the proposed rule's definition of notional amount generally would allow a fund to use the calculation methods below to determine the notional amounts of such derivatives transactions (before applying any of the adjustments discussed below) for purposes of calculating the fund's exposure under the proposed rule.
Although we believe that the notional amount generally serves as a measure of the fund's exposure to the underlying reference asset or metric,
The proposed rule would allow a fund operating under the exposure-based portfolio limit to have exposure of up to 150% of the fund's net assets (
We believe that, for purposes of the exposure-based portfolio limit, a test that focuses on the notional amounts of funds' derivatives transactions, coupled with an appropriate exposure limit, will better accommodate the broad diversity of registered funds and the ways in which they use derivatives than a test that would require consideration of the manner in which a fund uses derivatives in its portfolio (
Although we believe that an exposure test that focuses on limiting the aggregate notional amounts of funds' derivatives transactions is an appropriate means of limiting leverage, in some cases, the notional amount for a derivatives transaction may not produce a measure of exposure that we believe would be appropriate for purposes of the proposed rule's exposure limitations. The proposed rule therefore includes three provisions relating to the calculation of exposure in respect of certain types of derivatives transactions for which we believe that an adjusted notional amount would better serve as a measure of a fund's investment exposure for purposes of the rule.
First, for derivatives that provide a return based on the leveraged performance of an underlying reference asset, the rule would require the notional amount to be multiplied by the applicable leverage factor.
Second, the proposed rule includes a “look-through” for calculating the notional amount in respect of derivatives transactions for which the underlying reference asset is a managed account or entity formed or operated primarily for the purpose of investing in or trading derivatives transactions, or an index that reflects the performance of such a managed account or entity.
Third, the proposed rule contains specific provisions for calculating the notional amount for certain defined complex derivatives transactions. As explained further below, the proposed rule includes these provisions because, for complex derivatives transactions, the notional amounts of such transactions determined without regard to these specific provisions may not serve as an appropriate measure of the underlying market exposure obtained by a fund.
The proposed rule would define a complex derivatives transaction as any derivatives transaction for which the amount payable by either party upon settlement date, maturity or exercise: (1) Is dependent on the value of the underlying reference asset at multiple points in time during the term of the transaction; or (2) is a non-linear function of the value of the underlying reference asset, other than due to optionality arising from a single strike price.
The first type of complex derivatives transaction is a derivatives transaction for which the amount payable by either party upon settlement date, maturity or exercise is dependent on the value of the underlying reference asset at multiple points in time during the term of the transaction.
The second type of complex derivatives transaction is a derivatives transaction for which the amount
This second provision of the definition of complex derivatives transaction includes a carve-out that would exclude derivatives for which payout upon settlement date, maturity or exercise is non-linear due to optionality arising from a single strike price. This exception is designed to exclude standard put or call options from the complex derivatives transaction definition, which would otherwise be captured because their payout is non-linear. For example, the payout for a standard cash-settled written call option is either equal to zero (if the price of the underlying asset at maturity is less than or equal to the strike price) or equal to the difference between the value of the underlying asset and the strike price (if the price of the underlying asset at maturity is greater than the strike price), and is therefore non-linear. We believe that it is unnecessary to treat standard put and call options as complex derivatives transactions because the method for determining the notional amount for such derivatives,
The proposed rule would include a special provision for calculating the notional amount of complex derivatives transactions for purposes of determining a fund's exposure.
The proposed rule seeks to address these concerns by specifying an alternative approach for determining the notional amount for a complex derivatives transaction. Under this approach, the notional amount of a complex derivatives transaction would be equal to the aggregate notional amount(s) of other derivatives instruments, excluding other complex derivatives transactions (together, “substituted instruments”), reasonably estimated to offset substantially all of the market risk of the complex derivatives transaction at the time the fund enters into the transaction.
The proposed rule includes a netting provision that would permit a fund, in determining its aggregate notional exposure, to net any directly offsetting derivatives transactions that are the same type of instrument and have the same underlying reference asset, maturity and other material terms.
With respect to transactions that are directly offsetting but involve different counterparties, we note that, although a fund would remain exposed to counterparty risk, such offsetting transactions could reasonably be expected to eliminate market risk associated with the offsetting transactions if they are the same type of instrument and have the same underlying reference asset, maturity and other material terms. Accordingly, we believe that such transactions are an appropriate means to eliminate or reduce market exposure under derivatives transactions even if entered into with different counterparties for purposes of the rule's exposure limits, which are designed to limit the extent of the fund's exposure.
By contrast, the netting provision would not apply to transactions that may have certain offsetting risk characteristics but do not have the same underlying reference asset, maturity and other material terms or involve different types of derivatives instruments. For example, while a long position in a March 2016 copper futures contract could directly offset a short position in the same March 2016 copper futures contract, it would not directly offset a short position with respect to copper options or April 2016 copper futures. Similarly, a purchased option would not offset a written option that has a different maturity date or a different underlying reference asset. With respect to transactions that do not have the same underlying reference asset, maturity and other material terms, we are concerned that these transactions may not merely have the effect of eliminating or reducing market exposure. For example, they might instead be used as paired “collar” or “spread” investment positions that could raise potential risks associated with strategies that seek to capture small changes in the value of such paired investments. We also believe that it would be difficult to develop standards for determining circumstances under which such transactions should be considered to have eliminated the market and leverage risks associated with the positions in a manner that would appropriately limit the potential for funds to incur excessive leverage or unduly speculative exposures.
A fund also would be required to include, in calculating its exposure: (1) The amount of cash or other assets that the fund is conditionally or unconditionally obligated to pay or deliver under any financial commitment transactions (“financial commitment obligations”);
Under the proposed rule, a fund would be required to include its exposure under these types of transactions in determining its compliance with the 150% exposure limit because, although we have determined to propose an exemption from the requirements of section 18 and 61 to permit funds to enter into derivatives and financial commitment transactions, we believe that, in order to address the investor protection purposes and concerns underlying section 18, a fund relying on the exemption should be subject to an overall limit on leverage. As discussed in more detail below in section III.B.1.b.2, we have proposed to set this limit at 150% of net assets (and at 300% of net assets for a fund operating under the risk-based portfolio limit) because we believe that is an appropriate limit on a fund's exposure from derivatives, financial commitment transactions, and other senior securities transactions.
If the proposed rule did not require exposure from all senior securities transactions to be included for purposes of calculating a fund's exposure, a fund relying on the exemption the rule would provide could obtain aggregate exposure in excess of the proposed rule's exposure limits. For example, a fund having net assets of $100 that complies with the exposure-based portfolio limit might otherwise, in theory, obtain $150 of leveraged exposure through
We request comment on all aspects of the exposure determinations for derivatives transactions.
• Is the proposed rule's use of notional amounts as the basis for calculating a fund's exposure under a derivatives transaction appropriate? Does the notional amount of a derivatives transaction generally serve as an appropriate means of measuring a fund's exposure to the applicable reference asset or metric? Are there particular types of derivatives transactions or reference assets for which the notional amount would or would not be effective in this regard? For such derivatives, what alternative measures might be used and why would they be more appropriate? Would such alternative measures be easier for funds and compliance staff to administer?
• For derivatives transactions that provide a return based on the leveraged performance of an underlying reference asset, the rule would require the notional amount to be multiplied by the applicable leverage factor. Do commenters agree that this is appropriate?
• The proposed rule includes a “look-through” for calculating the notional amount in respect of derivatives transactions for which the underlying reference asset is a managed account or entity formed or operated primarily for the purpose of investing in or trading derivatives transactions, or an index that reflects the performance of such a managed account or entity. Do commenters agree that this is appropriate? Is this requirement sufficiently clear? Would the look-through provision capture swaps or other derivatives on reference entities or assets that should not be covered by this provision? Why or why not? Would a fund that uses these types of transactions be able to obtain information from its counterparty regarding the fund's
• To what extent do funds enter into derivatives transactions for which pooled investment vehicles (
• Do commenters agree with the proposed definition of “complex derivatives transaction”? Are there derivatives transactions that may be considered complex derivatives transactions under the proposed definition but should not be, or vice versa? Does the method for calculating exposure for complex derivatives transactions create the potential for transactions to be structured to avoid this aspect of the rule? If so, how might that be avoided (
• The proposed rule would require a fund to calculate the notional amount for a complex derivatives transaction by using the notional amount(s) of one or more instruments, excluding other complex derivatives transactions (collectively, “substituted instruments,” as noted above), that could reasonably be expected to offset substantially all of the market risk of the complex derivatives transaction Do commenters agree with this method for calculating exposure in respect of complex derivatives transactions? Should the rule specify a particular test or tests that a fund could elect to use, or be required to use, in order to establish that the notional amount it uses for a complex derivatives transaction meets this requirement? For example, should the rule provide that a group of substituted instruments will be deemed to reasonably be expected to offset substantially all of the market risk associated with a complex derivatives transaction if the fund can demonstrate, using a VaR model that meets the requirements of paragraph (c)(11)(ii)
• Are there complex derivatives transactions for which substantially all of the market risk cannot be offset using substituted instruments, and for which the fund would not be able to determine a notional amount under the proposed rule? What kinds of transactions, and do funds use such transactions? To the extent there are complex derivatives transactions for which a fund would not be able to offset substantially all of the market risks using substituted instruments, would the fund's inability to offset substantially all of the market risks using substituted instruments indicate that the fund would be unable
• We note that, under the CESR Global Guidelines, if the exposure for a non-standard derivative cannot be determined based on the market value of an equivalent position in underlying reference assets and such derivatives represent more than a negligible portion of the UCITS portfolio, a UCITS fund cannot use the commitment approach.
• Is the netting provision for calculating a fund's exposure appropriate? Are there other circumstances under which netting should be permitted? Are there transactions that the provision would permit to be netted but should not be?
• Are there other adjustments pertaining to the use of notional amounts for purposes of determining a fund's exposure appropriate that we should consider, either with respect to certain types of derivatives transactions or in general? For example, we understand that the notional amounts for Euribor and Eurodollar futures are often referenced by market participants by dividing the amount of the contract by four in order to reflect the three-month length of the interest rate transaction, and our staff took this approach in evaluating funds' notional exposures, as discussed in the DERA White Paper. For these very short-term derivatives transactions, calculating notional amounts without dividing by four would reflect a notional amount that could be viewed as overstating the magnitude of the fund's investment exposure. Should the proposed rule permit or require this practice? Why or why not? Would a derivative's notional amount adjusted in this way serve as a better measure of the fund's exposure than the derivative's unadjusted notional amount? Are there other futures contracts (or other standardized derivatives) for which an analogous adjustment should be permitted? Why or why not?
• Should we consider permitting or requiring that the notional amounts for interest rate futures and swaps be adjusted so that they are calculated in terms of 10-year bond equivalents or make other duration adjustments to reflect the average duration of a fund that invests primarily in debt securities? Would this result in a better assessment of a fund's exposure to interest rate risk? Why or why not?
• Could derivatives transactions be restructured so that they provide a level of exposure to an underlying reference asset or metric that exceeds the notional amount as defined in our proposed rule, while nonetheless complying with the rule's conditions? If so, what modifications should we make to address this?
• Should the calculation of exposure be broadened to include not only derivatives that involve the issuance of senior securities (because they involve a payment obligation) but also derivatives that would not generally be considered to involve senior securities, such as purchased options, structured notes, or other derivatives that provide economic leverage, given that such instruments can increase the volatility of a fund's portfolio and thus cause an investment in a fund to be more speculative than if the fund's portfolio did not include such instruments?
• Should the proposed rule require a fund to include the exposure associated with certain so-called “basket option” transactions, which are derivatives instruments that may nominally be documented in the form of an option contract but are economically similar to a swap transaction? We understand that these types of basket option transactions often involve a deposit by an investor of a cash “premium” that functions as collateral for the transaction, and all or a portion of which may be returned to the investor depending on the performance of the basket of reference assets.
• Do commenters agree that it is appropriate to include exposure associated with a fund's financial commitment transactions and other senior securities transactions in the calculation of the fund's exposure for purposes of the 150% exposure limit in the exposure-based portfolio limit (and the 300% limit under the risk-based portfolio limit), as proposed, so that the exposure limit would include the fund's exposure from all senior securities transactions? Should we, instead, include only exposure associated with a fund's derivatives transactions but reduce the exposure limits so that a fund that would rely on the exemption provided by the proposed rule would be subject to a limit on leverage or potential leverage from all senior securities transactions? If we were to take this approach should we, for example, reduce the exposure limits to 50% in the case of the exposure-based portfolio limit and 100% in the case of the risk-based limit?
As noted above, a fund that elects to comply with the exposure-based portfolio limit under the proposed rule would be required to limit its derivatives transactions, financial commitment transactions and obligations under other senior securities transactions, such that the fund's aggregate exposure under these transactions, immediately after entering into any senior securities transaction, does not exceed 150% of the fund's net assets.
The exposure-based portfolio limit is designed to impose a limit on the amount of leverage a fund may obtain through senior securities transactions while also providing flexibility for funds to use derivatives transactions for a variety of purposes.
In determining to propose a 150% exposure limitation, we evaluated a range of considerations. First, we considered the extent to which a fund could borrow in compliance with the requirements of section 18. As discussed in more detail in section II, funds generally can incur indebtedness through senior securities under section 18 subject to the asset coverage requirement specified in that section, which effectively permits a fund to incur indebtedness of up to 50% of the fund's net assets.
We have not proposed these lower exposure limits of 50% or 100% of net assets primarily due to our consideration of the point made by numerous commenters that funds use derivatives for a range of purposes that may not, or may not be expected to, result in additional leverage for the fund.
As described in greater detail below in section III.B.1.d, we considered whether to reflect the different ways in which funds might use derivatives by excluding from that calculation any exposure associated with derivatives transactions that may arguably be used to hedge or cover other transactions. This would be similar to the guidelines that apply to UCITS funds, which generally are subject to an exposure limit of 100% of net assets, but are not required to include exposure relating to certain hedging transactions. For the reasons discussed in section III.B.1.d, however, we have determined not to propose to permit a fund to reduce its exposure for purposes of the rule's portfolio limitations for particular derivatives transactions that may be entered into for hedging (or risk-mitigating) purposes or that may be “cover transactions.” As discussed in more detail in that section of this Release, we believe it would be difficult to develop a suitably objective standard for these transactions, and that confirming compliance with any such standard would be difficult, both for fund compliance personnel and for our staff. In addition, many hedges are imperfect, making it difficult to distinguish purported hedges from leveraged or speculative exposures or to provide criteria for this purpose in the proposed rule that would be appropriate for the diversity of funds subject to the proposed rule and the diversity of strategies and derivatives they use or may use in the future.
In addition to these considerations, we also note that, as discussed in section III.B.1.b.i, while an exposure-based test based on notional amounts could be viewed as a relatively blunt measurement, we believe that, on balance, a notional amount limitation would be more administrable, and thus more effective, as a means of limiting potential leverage from derivatives for purposes of the proposed rule than a limitation which seeks to define, and
We also considered whether higher exposure limitations might be appropriate, such as exposure levels ranging from 200% to 250% of net assets. We are concerned, however, that exposure levels in excess of 150% of net assets, if not tempered by the risk mitigating aspects of the VaR test as we have proposed under the risk-based limit, could be used to take on additional speculative investment exposures that go beyond what would be expected to allow for hedging arrangements, and thus could implicate the undue speculation and asset sufficiency concerns expressed in sections 1(b)(7) and 1(b)(8) of the Act.
Second, we considered the extent to which different exposure limits would affect funds' ability to pursue their strategies. In this regard we considered the extent to which different potential exposure limitations would affect funds and their investors, as well as section 18's strict limitations on senior securities transactions and the concerns we discuss above regarding funds' ability to obtain leverage through derivatives and other senior securities transactions. We also considered the extent to which different types of funds, and funds collectively, use senior securities transactions today. Given that, as discussed below, most funds use relatively low notional amounts of derivatives transactions (or do not use any derivatives), we have proposed an exposure limitation at a level that we believe would appropriately constrain funds that use derivatives to obtain highly leveraged exposures.
Third, we recognize and have considered that funds using any derivatives transactions can experience derivatives-related losses, including funds with exposures below the limits we are proposing today as well as the other limits that we discuss above. In this regard, we recognize that the information available in the administrative orders described in section II.D.1.d indicates that some of the losses described as resulting from derivatives in those matters occurred at exposure levels below the exposure limits that we are proposing today.
Based on these considerations, we have determined to propose an exposure-based portfolio limit set at 150% of net assets, rather than a lower limit, including the 50% and 100% limits discussed above. We believe that a 150% exposure limit would account for the variety of purposes for which funds may use derivatives, including to hedge risks in the fund's portfolio and to make investments where derivatives may be a more efficient means to obtain exposure. As discussed in more detail below, we have determined not to permit funds to reduce their exposure for potentially hedging or cover transactions and, instead, have proposed an exposure limit that we believe would be high enough to provide funds sufficient flexibility to engage in these kinds of transactions.
We also believe that a 150% exposure limitation would appropriately balance the proposed rule's effects on funds and their investors, on the one hand, with concerns related to funds' ability to obtain leverage through derivatives and other senior securities transactions, on the other. We understand based on the DERA analysis that, although most funds would be able to comply with an exposure-based portfolio limit of 150% of net assets, the limit would constrain the use of derivatives by the small percentage of funds that use derivatives to a much greater extent than funds generally. The analysis also indicates that funds and their advisers generally would be able to continue to operate and to pursue a variety of investment strategies, including alternative strategies.
As discussed in more detail in the DERA White Paper, DERA staff reviewed the portfolio holdings of a random sample of mutual funds (including a separate category of alternative strategy funds, which includes index-based alternative strategy funds
This analysis showed that, for mutual funds other than alternative strategy funds (which we discuss separately below), more than 70% of the sampled mutual funds did not identify
The sampled alternative strategy funds in DERA's analysis tended to be more significant users of derivatives.
We believe the proposed 150% exposure limitation appropriately balances the proposed rule's effects on funds and their investors, on the one hand, with the concerns we discuss above concerning funds' ability to obtain leverage and incur obligations through derivatives transactions (and other senior securities transactions), on the other. The information provided in the DERA staff analysis indicates, as discussed above, that most funds in the DERA random sample would be able to comply with a 150% exposure limit without modifying their portfolios. The analysis also indicates that alternative strategy funds, the heaviest users of derivatives in the DERA random sample, generally would be able to continue to operate and to pursue a variety of alternative strategies. As noted above, approximately 73% of the sampled alternative strategy funds had less than 150% exposure and included funds in every alternative mutual fund category.
We recognize, however, that particular funds, including particular alternative strategy funds and certain leveraged ETFs, would need to modify their portfolios to reduce their use of derivatives in order to comply with a 150% exposure limitation, and that these funds may view it to be disadvantageous or less efficient to reduce their use of derivatives and the potential returns that they may seek to obtain from such derivatives.
We believe it is appropriate, and consistent with the investor protection concerns underlying section 18, for funds that engage in derivatives securities transactions in reliance on the exemption that would be provided by proposed rule 18f-4 to be subject to an exposure limit, given that exposures resulting from borrowings and other senior securities are also subject to a limit under section 18. Funds with exposure in excess of the proposed 150% limit thus would have to reduce their exposure in order to rely on the rule. We recognize that a very small percentage of funds may find it difficult to modify their portfolios in order to comply with the proposed 150% exposure limit while pursuing their current strategies.
Some managed futures funds and currency funds, for example, pursue their strategies almost exclusively through derivatives transactions, with the funds' assets generally consisting of cash and cash equivalents. For example, four funds in DERA's sample had exposures in excess of 500% of net assets, and three of them were managed futures funds, with exposures ranging up to approximately 950% of net assets. These funds may find it impractical to reduce their exposures below the
Certain ETFs and mutual funds expressly use derivatives to achieve performance results, over a specified period of time, that are a multiple of or inverse multiple of the performance of an index or benchmark. Certain of these funds have derivatives exposures exceeding 150% of net assets (
Initially only certain mutual funds pursued these strategies. Today, most of these funds are ETFs operating pursuant to exemptive orders granted by the Commission that provide relief from certain provisions of the Act other than section 18.
The Commission and the staff have continued to consider funds' use of derivatives, including the use of derivatives by ETFs and leveraged ETFs. In August 2009, the staff of our Office of Investor Education and Advocacy and FINRA jointly issued an Investor Alert regarding leveraged ETFs, expressing certain concerns regarding such ETFs.
Funds that do not wish to rely on the proposed rule may wish to consider deregistering under the Investment Company Act, with the fund's sponsor offering the fund's strategy as a private fund or as a public (or private) commodity pool, which do not have statutory limitations on the use of leverage.
We request comment on all aspects of the proposed exposure-based portfolio limit of 150% of a fund's net assets.
• Is 150% an appropriate exposure limit? If not, should it be higher or lower, for example 200% or 100%? Does the 150% exposure limit, together with the rule's other limitations, achieve an appropriate balance between providing flexibility and limiting the amount of leverage a fund could obtain (and thus the potential risks associated with leverage)? Does the 150% exposure limit effectively address the varying ways in which funds use derivatives, including for hedging purposes?
• Are certain types of funds likely to use the 150% exposure limit exclusively for leveraging purposes? If so, do commenters believe that such a level of exposure would be inappropriate? Should any concerns about a fund using
• Do commenters agree that the proposed 150% exposure limitation appropriately balances concerns regarding, on the one hand, the extent to which the exposure limit would affect funds' investment strategies and, on the other hand, section 18's limitations on the issuance of senior securities and the concerns we discuss above concerning funds' ability to obtain leverage through derivatives transactions and other senior securities transactions?
• As discussed above, our staff's analysis indicates that certain funds, including certain alternative funds, today have exposures exceeding 150% of their net assets. What types of modifications would these funds be required to make and how would the modifications affect their investors? Would they be able to make such modifications? Are there other types of funds that also would expect to have exposure exceeding 150%? If so, what kinds of funds and what types of modifications would they be required to make and how would the modifications affect their investors? What types of costs would funds that need to modify their investment strategies in order to comply with the 150% limit be likely to incur? Would funds that would be required to make modifications to comply with a 150% exposure limit generally be able to follow the same investment strategy as they do today after making any modifications? How would such modifications likely affect such funds?
• What types of funds would be unable to modify their investment program in order to comply with the 150% exposure limit? Would these funds be likely to continue their investment programs as private funds or public (or private) commodity pools? What would be the effects, positive and negative, on the funds' investors in these cases?
• The 150% exposure limit (and the 300% exposure limit in the risk-based portfolio limit) would apply to all funds without regard to the type of fund or the fund's strategy. Are there certain types of funds for which a higher or lower exposure limit would be appropriate?
○ Should we consider a higher limit for ETFs (or other funds) that seek to replicate the leveraged or inverse performance of an index? Would a higher exposure limit be appropriate for these funds because they may operate as trading tools that seek to provide a specific level of leveraged exposure to a market index over a fixed period of time, and because the amount of leverage is an integral part of their strategy? Conversely, do those same considerations suggest that these funds—which are not restricted to sophisticated investors—should be subject to the same exposure limitations as other types of funds? Some of these funds are ETFs that operate pursuant to exemptive orders granted by the Commission. Would it be more appropriate to consider these funds' use of derivatives transactions in the exemptive application context, based on the funds' particular facts and circumstances, rather than in rule 18f-4, which would apply to funds generally? Would the exemptive application process be a more appropriate way to evaluate these funds in order to consider their use of leverage together with other features of these products (such as their objective of seeking daily returns) that are not shared by funds generally?
○ As discussed in more detail above, some managed futures funds and currency funds pursue their strategies almost exclusively through derivatives transactions, with the funds' other assets generally consisting of cash and cash equivalents. Managed futures and currency funds with derivatives exposures substantially in excess of the funds' net assets may find it impractical to reduce their exposures below the proposed limit of 150%. Do commenters agree that it may be feasible, for the reasons discussed above, for funds that do not wish to rely on the proposed rule to deregister under the Investment Company Act and for the fund's sponsor to offer the fund's strategy as a private fund (which can be offered solely to a limited range of investors) or as a public or private commodity pool? Are these alternatives, which do not have statutory limitations on the use of leverage, feasible vehicles for these types of strategies? Conversely, should we permit managed futures or currency funds (or other specified fund categories) to obtain exposure in excess of 150% of the funds' net assets under the exposure-based portfolio limit? If so, what limit and what other restrictions or limitations on their use of derivatives would be appropriate? Are there ways that we could permit such funds to obtain additional exposure while still addressing the undue speculation concern expressed in section 1(b)(7) and the asset sufficiency concern expressed in section 1(b)(8)? How could we permit such funds to obtain additional exposure while also imposing an effective limit on leverage and on the speculative nature of such funds?
○ Section 61 permits a BDC to issue senior securities to a greater extent than other types of funds in that BDCs are subject to a lower asset coverage requirement of 200% (as opposed to the 300% asset coverage requirement that applies to other types of funds).
○ Are there other types of funds for which, or circumstances under which, we should provide higher or lower exposure limits? What kinds of funds or circumstances and why? Should we provide for differing exposure limits based on characteristics of the fund's derivatives? Which characteristics and how should they affect the level of exposure the fund should be permitted to obtain?
○ Should we grandfather funds that are operating in excess of the proposed rule's portfolio limits as of a specified date? If we were to grandfather funds, which funds should we grandfather and why? Should we apply any grandfathering to funds that are operating on the date of this proposal, for example? Alternatively, should we, for example, grandfather leveraged ETFs on the basis that they operate pursuant to the terms and conditions of exemptive orders granted by the Commission? If we were to grandfather funds, should the grandfathering be subject to conditions? Should any
We believe that the 150% exposure-based portfolio limit would permit funds to engage in derivatives transactions to an extent that we believe is appropriate when done in compliance with the proposed rule's other conditions, and would permit a fund relying on the rule to use derivatives for a variety of purposes under the proposed rule, including to seek to hedge or mitigate risks. We have not separately included any provision in the proposed rule to permit a fund to reduce its exposure for purposes of the rule's portfolio limitations for particular derivatives transactions that may be entered into for hedging (or risk-mitigating) purposes or that may be “cover transactions” as described below.
One substantial concern regarding any hedging or cover transaction exception is that we believe it would be difficult to develop a suitably objective standard for these transactions, and that confirming compliance with any such standard would be difficult, both for fund compliance personnel and for our staff.
The Concept Release sought comment on the “cover transaction” alternative to liquid asset segregation first addressed by our staff in the Dreyfus Letter as a means of limiting a fund's leverage and risk of loss from derivatives.
One commenter noted that, although entering into cover transactions “can mitigate the potential for loss and thus the effect of indebtedness leverage,” the determination of which transactions actually offset others can be “very complicated.”
Some commenters endorsed a “principles-based approach” to these questions, broadly advocating that we allow funds to determine which transactions should be deemed to cover the exposure of another derivatives transaction.
For all of these reasons, we believe it would be more effective to provide for a 150% exposure-based portfolio limit that we believe would provide funds sufficient flexibility to use derivatives for a variety of purposes, including to hedge or mitigate risks as discussed above, rather than proposing a lower exposure limit that includes exceptions for potentially hedging or cover transactions.
We request comment on our determination not to provide for exclusions for hedging and offsetting transactions in the proposed rule.
• As discussed above, the proposed rule generally would not permit a fund to reduce its exposure for purposes of the rule's portfolio limitations for particular types of potentially hedging, risk-mitigating or cover transactions, and instead would seek to provide funds sufficient flexibility to engage in these transactions by permitting a fund to have exposure of up to 150% of net assets (or 300% under the risk-based limit discussed below). Do commenters agree that this is an appropriate approach?
• Should we, instead, reduce the amount of aggregate exposure a fund would be permitted to obtain but permit funds to reduce their exposure for particular derivatives transactions that are entered into for hedging or risk-mitigating purposes or that are cover transactions? If we were to take this approach, what would be an appropriate exposure limit? Should we, for example, limit a fund's exposure under this approach to 100% of the fund's net assets? Would it be possible to provide comprehensive guidance or prescribe in a rule the types of transactions that appropriately should be permitted to reduce a fund's exposure without requiring the kinds of instrument-by-instrument determinations required under the current approach? If so, how?
As an alternative to the exposure-based portfolio limit, the proposed rule includes a risk-based portfolio limit that would permit a fund to enter into derivatives transactions, and obtain exposure in excess of that permitted under the exposure-based portfolio limit, if the fund complies with the VaR-based test described below (the “VaR test”). The risk-based portfolio limit, including the VaR test, is designed to provide an indication of whether a fund's derivatives transactions, in aggregate, have the effect of reducing the fund's exposure to market risk, as measured by the VaR test. A fund that elects the risk-based portfolio limitation under the proposed rule would also be subject to an exposure limit, but would be permitted to obtain exposure under its derivatives transactions and other senior securities transactions of up to 300% of the fund's net assets.
As discussed in section II.B above, the concerns underlying section 18 include the undue speculation concern expressed in section 1(b)(7) of the Act that “excessive borrowing and the issuance of excessive amounts of senior securities” may “increase unduly the speculative character” of a fund's common stock.
The risk-based alternative under the proposed rule therefore is designed to provide an alternative portfolio limitation that focuses primarily on a risk assessment of a fund's use of derivatives, in contrast to the exposure-based portfolio limit, which focuses solely on the level of a fund's exposure.
To satisfy the VaR test under the risk-based portfolio limit, a fund's full portfolio VaR would have to be less than the fund's securities VaR immediately after the fund enters into any senior securities transaction.
The proposed rule defines VaR as “an estimate of potential losses on an instrument or portfolio, expressed as a positive amount in U.S. dollars, over a specified time horizon and at a given confidence level,” which we believe is generally consistent with definitions of VaR that are used in other regulatory regimes as well as in academic literature.
First, VaR generally enables risk to be measured in a comparable and consistent manner across diverse types of instruments that may be included in a fund's portfolio, and provides a means of integrating the market risk associated with different instruments into a single number that provides an overall indication of market risk.
Second, VaR can be used to assess the effect of the addition of a position, or group of positions, on the overall market risk of a portfolio. If the addition of a position to a portfolio increases VaR, the position can generally be viewed as adding to a fund's exposure to market risk, while if the addition of a position decreases VaR, it can be viewed as reducing the fund's exposure to market risk.
We believe that these characteristics allow the VaR test to be used as a means of evaluating whether a fund uses derivatives in a manner that would be less likely to implicate the concerns underlying section 18. Section 18 does not restrict a fund's ability to invest in securities and other investments that would be included in a fund's securities VaR, but rather, restricts the ability of a fund to leverage its exposure to such investments by borrowing, or issuing debt or preferred equity, through senior securities. This reflects the concern that the addition of leverage generally will cause a fund to become more speculative and expose investors to potentially greater risk of loss due to market movements than if the fund were unlevered. As discussed above, a fund's use of derivatives transactions may cause a fund to become more speculative or expose investors to greater risk of loss, but may also be used to mitigate risks in the fund's portfolio.
Whether a fund's use of derivatives exposes the fund to greater risk or less risk than if the fund did not use derivatives requires consideration of the risk characteristics of a fund's non-derivatives investments and its derivatives transactions, and the interaction of the risk characteristics of these investments and transactions with each other. The VaR test provides a means for making such an assessment, by providing an indication of whether the market risk associated with a fund's portfolio of securities and other investments exclusive of derivatives (as measured by the fund's securities VaR), is greater than or less than the market risk associated with the fund's portfolio as a whole (as measured by the fund's full portfolio VaR), inclusive of derivatives transactions and taking into account the offsetting risk characteristics of different instruments in a fund's portfolio. If a fund's full portfolio VaR is less than its securities VaR—
We also believe permitting a fund to use derivatives transactions in these circumstances, and subject to the other requirements in the proposed rule, is broadly consistent with the policies and provisions of the Investment Company Act, which seeks to prevent funds from becoming unduly speculative by means of leveraging their assets through the issuance of senior securities, but generally does not impose limitations on a fund's ability to invest in risky or volatile securities instruments.
An additional benefit of using VaR in the risk-based portfolio limit is that, based on outreach conducted by our staff, we understand that VaR calculation tools are widely available and that many advisers already use risk management or portfolio management platforms that include VaR capability.
The following example demonstrates how the VaR test would be used under the proposed rule to assess whether a fund's derivatives, in aggregate, result in an investment portfolio that is subject to more or less market risk than if the fund did not use such derivatives. Suppose that a fund has a net asset value of $100 million and holds a portfolio of non-U.S. debt securities, and that the fund calculates the VaR of such securities, using a VaR model that meets the requirements of the proposed rule, to be $3 million. Suppose further that the fund wishes to hedge some of its credit risk by purchasing CDS, adjust its duration by entering into interest rate swaps, and enter into currency forwards both to obtain exposure to certain foreign currencies and to hedge some of
The VaR test under the risk-based portfolio limit is similar in certain ways to the “relative VaR” approach used by some UCITS funds. Under the relative VaR approach, the VaR of the UCITS fund's portfolio cannot be greater than twice the VaR of an unleveraged benchmark securities index (referred to as a “reference portfolio”).
First, we believe that the VaR test under the proposed rule is more consistent with the policies and provisions of the Investment Company Act, which restricts in section 18 a fund's ability to issue senior securities but otherwise generally does not impose limitations on a fund's ability to invest in risky or volatile securities investments, provided that such investments are consistent with the investment strategy described to investors. Using the fund's own portfolio as the baseline for the VaR test under the proposed rule—and thus providing a risk assessment of the fund's use of derivatives in the context of the fund's investment strategy disclosed to investors, which may include risky or volatile securities—would be more consistent with the Act. A relative VaR test, by contrast, could be viewed as a limitation on risk or volatility generally—as opposed to a limitation on the issuance of senior securities—because it would measure the VaR of a fund's portfolio, including non-senior securities investments, against a hypothetical reference portfolio, and such non-senior securities investments could cause the fund to fail a relative VaR test.
While we believe that there are significant benefits to using VaR in the risk-based portfolio limit, we also recognize that significant attention has been given (especially since the 2007-2009 financial crisis) to the limitations of VaR and the risks of overreliance on VaR as a risk management tool.
More recently, the BCBS has proposed the use of “stressed expected shortfall”. Expected shortfall is similar to VaR but differs from VaR in that it accounts for tail risk by taking the average or expected losses beyond the specified confidence level; “stressed” expected shortfall refers to expected shortfall calculated using a model that is calibrated to a period of significant financial stress. The BCBS has recognized that, while it believes that a shift to stressed expected shortfall would “account[] for the tail risk in a more comprehensive manner, considering both the size and likelihood of losses above a certain threshold”, it also presents challenges, including the difficulty of identifying a stress period using a full set of risk factors for which historical data is available and potentially greater sensitivity of expected shortfall to extreme outlier losses.
Under the proposed rule, however, VaR would be used to focus primarily on the relationship between a fund's securities VaR and its full portfolio VaR, rather than on the absolute magnitude of the potential loss of any particular investment or the fund's portfolio as a whole. We believe that this use of VaR—to assess whether a fund's derivatives as a whole directionally increase or mitigate risk, rather than to precisely estimate potential losses—mitigates some of the concerns that have been
We also recognize that funds may use measures other than VaR in order to assess the risks posed by a fund's derivatives and other investments.
We request comment immediately below on the proposed rule's inclusion of a risk-based portfolio limitation based on VaR and, in section III.B.2.b below, we request comment on the proposed rule's requirements regarding funds' use of particular VaR models in connection with the VaR test and the proposed rule's requirements for any VaR model chosen by the fund.
• Do commenters agree that the proposed rule should include, in addition to the exposure-based portfolio limit, an alternative portfolio limitation that focuses primarily on a risk assessment of a fund's use of derivatives? Do commenters agree that, where a fund's derivatives transactions, in the aggregate, result in an investment portfolio that is subject to less market risk than if the fund did not use such derivatives, it would be appropriate to permit the fund to engage in derivatives transactions to a greater extent than would be permitted under any exposure-based portfolio limit?
• As noted above, we are proposing to include the risk-based portfolio limit in the proposed rule because we recognize that, because derivatives transactions may be used for a variety of purposes, some funds may make use of derivatives that in the aggregate result in relatively high notional amounts, but which are not used to leverage the fund's assets in a manner that increases the fund's exposure to market risk. What types of funds have or could have exposure in excess of the limit provided in the exposure-based portfolio limit (150% of net assets) but use derivatives transactions that, in the aggregate, result in an investment portfolio that is subject to less market risk than if the fund did not use such derivatives? Are there funds that today use derivatives in amounts greater than the exposure-based portfolio limit but could comply with the risk-based portfolio limit? If so, what kinds of funds? If funds would have to restructure their portfolios to comply with the risk-based portfolio limit, how would they do so? Would they be able to pursue strategies or obtain investment exposures similar to their current strategies and exposures? If not, what types of strategies or investment exposures would not be possible?
• The proposed rule would use the VaR test to determine if a fund's derivatives transactions, in aggregate, result in an overall portfolio that is subject to less market risk than if the fund did not use such derivatives. Do commenters agree that VaR, as used in the VaR test, is an effective approach for this purpose? Are there other measures we should permit a fund to use, either in lieu of or in addition to VaR, to assess whether the fund's derivatives transactions, in the aggregate, have the effect of mitigating the fund's exposure to market risk? For example, would absolute risk measures (such as standard deviation, risk of loss or shortfall risk), relative risk measures (such as excess return, tracking error, Sharpe ratio, information ratio, beta or Treynor ratio), or stress testing/scenario generation, better address the purposes that the VaR test is intended to fulfill?
• As discussed above, we believe that the manner in which VaR would be used under the proposed rule, which focuses on the relationship between a fund's securities VaR and its full portfolio VaR, would mitigate some of the concerns that have been expressed regarding the risks and limitations of relying on VaR as a risk measure. Do commenters agree? If not, what alternative measures could be implemented to address these concerns? For example, would these concerns be addressed by requiring funds to comply with a test that is similar to the VaR test, but that uses expected shortfall instead of VaR (
• The risk-based portfolio limit would require a fund's full portfolio VaR to be less than its securities VaR. Should the test be more restrictive or less restrictive? For example, should we permit a fund's full portfolio VaR to exceed its securities VaR up to a specified limit (
• For purposes of the risk-based portfolio limit, should the proposed rule use an approach such as (or similar to) the relative VaR or absolute VaR approach for UCITS funds, instead of or as an alternative to the proposed VaR test? Why or why not? Would it be more efficient to allow funds to use such an approach—
• A fund's securities VaR would be the VaR of the fund's investments other than derivatives transactions which, as defined in the proposed rule, would include derivatives transactions that involve the issuance of a senior security. The VaR associated with derivatives that do not involve the issuance of a senior security, such as a typical purchased option, would be included in the fund's securities VaR. Although section 18 does not limit a fund's ability to acquire such derivatives, they could be volatile and thus could generate a securities VaR that would provide the fund additional latitude to engage in derivatives transactions under the risk-based portfolio limit. Should we, therefore, require the fund to exclude the VaR associated with
• Should we place other limitations on a fund's ability to use borrowings or other financial commitment transactions to obtain leveraged exposures if the fund elects to use derivatives at the higher level permitted under the risk-based portfolio limit? Should we, for example, further restrict a fund's ability to use financial commitment transactions or other borrowings, the proceeds of which could be used by the fund to purchase securities investments that would increase the fund's securities VaR?
• Are there certain types of securities, derivatives or other instruments that would be difficult to model using VaR (taking into account the requirements for a fund's VaR model, discussed in section III.B.2.b below)? For example, would it be difficult for a fund to model an investment in a private fund, or in other types of illiquid investments that lack frequent valuations or transparency? Are there ways that we should modify the VaR test to allow a fund that invests in instruments that are difficult to model using VaR to demonstrate in some other way that its derivatives, in aggregate, are risk mitigating?
The proposed rule defines VaR as “an estimate of potential losses on an instrument or portfolio, expressed as a positive amount in U.S. dollars, over a specified time horizon and at a given confidence interval.”
First, the proposed rule would require a fund's VaR model to take into account and incorporate all significant, identifiable market risk factors associated with a fund's investments.
We understand that VaR models are often categorized into three methods—historical simulation,
As discussed below in section III.D, the proposed rule would require funds that are subject to the requirement to have a formalized derivatives risk management program under the proposed rule to periodically review and update any VaR calculation models used by the fund, in order to evaluate their effectiveness and reflect changes in risks over time.
The proposed rule would require a fund using historical VaR to have at least three years of historical market data.
The proposed rule would also require a fund to use a 99% confidence level for its VaR test.
The proposed rule also would require a fund to calculate VaR using a time horizon of at least 10 trading days but not more than 20 trading days.
First, we understand that very short time horizons (
Second, we considered that the VaR test is designed to provide an indication, through a fund's comparison of its securities VaR to its full portfolio VaR, that the fund's derivatives transactions, in aggregate, have the effect of reducing the fund's exposure to market risk. This means that the VaR test requires a portfolio-level calculation, and for such purposes the fund would need to select a single time horizon, even if the fund expected to hold different instruments in its portfolio for different lengths of time.
Third, we considered the time horizons in other regulatory regimes that use VaR. In this regard, we noted that the most commonly used time horizons appear to be either 10 days or 20 days. For example, the 1996 Market Risk Amendment to the Basel II Capital Accord, which contemplated banks' use of internal models for measuring market risk, incorporated a 10-day time horizon.
In light of these considerations, including balancing concerns about a time horizon potentially being too long or too short with the benefit of providing some level of flexibility for funds to select a time horizon in light of their particular characteristics, we believe the proposed rule's requirement that the time horizon for the VaR model used by a fund that complies with the risk-based portfolio limit is appropriate.
Finally, regardless of which VaR model the fund chooses, the fund must apply its VaR model consistently when calculating the fund's securities VaR and the fund's full portfolio VaR. This requirement is designed to prevent a fund from using different models to manipulate the results of the VaR test—for example, by overestimating the fund's securities VaR using one VaR model and underestimating its full portfolio VaR using a different model in order to take on riskier derivatives positions. In addition, because the VaR test would be used to focus on the relationship between the fund's securities VaR and its full portfolio VaR as discussed above, requiring the fund to use the same VaR model for purposes of the VaR test would help to ensure that the test generates comparable estimates of the fund's securities VaR and full portfolio VaR.
We request comment on the proposed rule's minimum requirements concerning the VaR model used by the fund.
• Do funds today use VaR models for risk management purposes or otherwise that would meet the proposed rule's minimum requirements? If funds use VaR models that would not meet these requirements, how do they differ?
• Should the proposed rule specify a particular VaR model(s) that funds must use (
• A fund would only be permitted to use a historical VaR methodology if at least three years of historical data is available. Do commenters agree that this is an appropriate requirement? Would requiring three years of historical data make it difficult to model some instruments? Should we require that a fund have additional historical return data in order to use a historical VaR methodology? Conversely, would less than three years of historical return data be sufficient?
• The proposed rule would require that the VaR model used by the fund (whether based on the historical
• The proposed rule would provide a non-exclusive list of risk factors that may be relevant in light of a fund's strategy and investments, including equity price risk, interest rate risk, credit spread risk, foreign currency risk and commodity price risk, all material risks arising from the nonlinear price characteristics of options, and positions with embedded optionality, and the sensitivity of the market value of the fund's derivatives to changes in volatility or other material market risk factors. Do commenters agree that these are appropriate risk factors? Are there others we should include? Rather than include a non-exclusive list of risk factors that funds must consider, should we specify in any final rule the particular risk factors that must be included in specified circumstances? Would it be possible to do so in a way that would address the diversity of funds and their strategies?
• The proposed rule would require a fund to use a 99% confidence level for its VaR test. Do commenters agree that this is an appropriate confidence level? In particular, should we permit funds to use a lower confidence interval? Why or why not?
• The proposed rule would require a fund to calculate VaR using a time horizon of at least 10 trading days, but not more than 20 trading days. Do commenters agree that it is appropriate to provide a range of trading days, to give funds some flexibility in selecting a time horizon based on the fund's own particular characteristics? Do commenters agree that a range of 10 to 20 trading days would be appropriate? Should the number of trading days be lower than 10, or higher than 20? Should the number of trading days be a specific number, instead of a range? Why or why not? If so, which specific number would be appropriate? Should we, for example, specify 10 or 20 trading days?
• Regardless of which VaR model the fund chooses, the proposed rule would require the fund to apply its VaR model consistently when calculating the fund's securities VaR and the fund's full portfolio VaR. Do commenters agree that this requirement is appropriate? If not, how could we otherwise prevent the VaR test from being easily manipulated?
• We believe that the proposed rule affords appropriate flexibility for funds to tailor the VaR test in light of a fund's strategy, investments and other relevant factors. Does this flexibility increase the risk that funds will be able to game or manipulate the test in order to obtain riskier investment exposures? If so, should the rule impose more specific requirements on a fund's VaR model or its parameters, and how?
• Should the proposed rule place restrictions on a fund's ability to change its VaR model? For example, should changes be permitted only with the approval of the fund's derivatives risk manager, or subject to other approval or oversight requirements?
A fund that relies on the risk-based portfolio limit would be required to limit its exposure to not more than 300% of the fund's net assets, rather than 150% (as would be required under the exposure-based portfolio limit). While we believe that the VaR test generally would indicate that the fund's derivatives transactions do not, in the aggregate, result in an increase in the speculative character of the fund as discussed above, we also believe it is appropriate for the risk-based portfolio limit to include an outside limit on exposure as discussed in this section.
If the risk-based portfolio limit did not include an outside limit on exposure, a fund might be able to use strategies that may not produce significant measurable amounts of VaR during normal market periods, but which employ derivatives exposures at a level that could subject a fund to a significant speculative risk of loss if markets become stressed. For example, some funds use strategies that entail large long and short notional exposures, with the expectation that the risk of the fund's long positions is largely offset by the fund's short positions during normal market conditions, and this may result in the fund having a low full portfolio VaR. During periods of market stress, however, correlations across different positions may break down, leading to the possibility of significant losses and payment obligations with respect to the fund's derivatives transactions.
We believe that the proposed rule's outside exposure limit of 300% is important to address possible concerns regarding the effectiveness of the VaR test in all possible circumstances and market conditions while also preserving the utility of the risk-based portfolio limit for funds that use derivatives, in aggregate, to result in an investment portfolio that is subject to less market risk than if the fund did not use such derivatives. In determining to propose a 300% exposure limit as part of the risk-based portfolio limit we considered, as discussed above in connection with the exposure-based portfolio limit, that the vast majority of funds would be able to comply with a 150% exposure limit without modifying their portfolios. In considering the extent to which the risk-based portfolio limit should permit a fund to obtain additional exposure, in light of the derivatives' aggregate reduction in the fund's exposure to market risk, we also considered the extent to which funds included in the DERA sample with exposures exceeding 150% of net assets would appear to be able to satisfy the VaR test (including by modifying their portfolios to a certain extent in order to do so). Although the information disclosed by the sampled funds and otherwise available to our staff was not sufficient to allow our staff to calculate the funds' securities VaRs and full portfolio VaRs,
As discussed above, most of the funds included in the analysis conducted by DERA staff with the highest exposures were alternative strategy funds, with
Alternative strategy funds with exposures exceeding 150% that potentially could choose to use derivatives in a manner that would satisfy the VaR test had lower exposures. Funds in this group with lower exposures included those with unconstrained bond and multi-alternative strategies; the exposures of funds within these strategies that were in excess of 150% ranged from around 175% to just under 350% of net assets. These funds, and particularly unconstrained bond funds, may have securities investments that involve market risks that could be reduced by derivatives transactions, and thus could consider electing to comply with the risk-based portfolio limit (including by modifying their portfolios to a certain extent in order to do so). We believe that including a 300% exposure limit as part of the risk-based portfolio limit thus would appear to provide a limit that may be appropriate for the kinds of funds that could seek to operate under the risk-based portfolio limit. We note that the 300% exposure limit is only expected to serve as an adjunct limitation on a fund given the primary importance of the VaR test with respect to the risk-based portfolio limit. While we are seeking comment regarding the sufficiency of this exposure limit, we note that setting the exposure limit higher than 300% of net assets—in addition to potentially raising concerns about a fund operating with exposures at that level—would not appear to further the purposes of the risk-based portfolio limit. This is because funds in the DERA sample that have exposures substantially in excess of 300% of net assets would not appear to be able to satisfy the VaR test in any event, as discussed above. Accordingly, we believe that the 300% exposure limit is appropriate as a meaningfully higher limit than the 150% portfolio limit while providing an upper bound that does not appear to unduly constrain funds that may use derivatives on balance for risk-mitigating purposes.
We believe, based on these considerations and those discussed above in section III.B.1, that the proposed rule's outside exposure limit of 300% would address the concerns that led us to propose an exposure limit as part of the risk-based portfolio limit, while also preserving the utility of the risk-based portfolio limit for funds that use derivatives, in aggregate, to result in an investment portfolio that is subject to less market risk than if the fund did not use such derivatives.
We request comment on all aspects of the proposed risk-based portfolio limitation's inclusion of an outside limit of 300% of net assets.
• Do commenters agree that an outside limit on exposure can mitigate the concerns we discuss above concerning fund's use of strategies that could be considered hedged or balanced but that might experience speculative losses under certain circumstances? Why or why not? Are there other means to address these concerns that we should consider either in addition to or in lieu of an outside limit on the fund's exposure?
• Do commenters agree that the proposed 300% outer limit on exposure is appropriate? Do commenters agree that a 300% exposure limit would address the concerns we discuss above while also preserving the utility of the risk-based portfolio limit for funds that use derivatives, in aggregate, to result in an investment portfolio that is subject to less market risk than if the fund did not use such derivatives? Should we make it higher or lower, for example 250% or 350%, and how would a different limit address the concerns we discuss above?
The proposed rule would require, to the extent that a fund elects to rely on the rule, the fund's board of directors, including a majority of the directors who are not interested persons of the fund, to approve which of the two alternative portfolio limitations will apply to the fund.
A fund relying on the rule would be required to comply with the applicable portfolio limitation after entering into any senior securities transaction, that is, any derivatives transaction or financial commitment transaction entered into by the fund pursuant to the proposed rule, or any other senior security transaction entered into by the fund pursuant to section 18 or 61 of the Act.
We request comment on all aspects of the operation of the proposed portfolio limitations.
• Does requiring a fund to comply with the proposed rule's portfolio limitations immediately after entering into any senior securities transaction pose any operational challenges, for example, in determining the notional amount of the transaction, the fund's net assets, or the fund's securities VaR or full portfolio VaR (if applicable)?
• The proposed rule would not require a fund to terminate a derivatives transaction if the fund complied with the applicable portfolio limitation immediately after entering into the transaction, even if, for example, the fund's net assets later declined with the result that the fund's exposure at that later time exceeded the relevant exposure limit. Do commenters agree that this is appropriate? Conversely, should we instead require a maintenance test for notional amounts such that funds would be required to adjust their derivatives transactions if the exposure exceeds 150% of net assets for longer than a certain period of time, even if the fund has not entered into any senior securities transactions? If so, should we consider including a cushion amount—for example, by only requiring a fund to adjust its positions if its exposure reaches a higher level, such as 175%? Should we limit the time period (
• If a fund's exposure were to exceed the applicable exposure limit, should the proposed rule permit the fund to engage in a series of derivatives transactions where those transactions ultimately would reduce the fund's exposure below the applicable exposure limit, even if the fund's exposure were not below the applicable limit immediately after entering into certain of these transactions, in order to make it easier for funds to reduce their exposure under multiple derivatives transactions on a
In addition to requiring funds to comply with one of two alternative portfolio limitations designed to impose a limit on the amount of leverage a fund could obtain through derivatives transactions and other senior securities transactions as described in section III.B.1.c above, the proposed rule would require a fund that enters into derivatives transactions in reliance on the rule to manage the risks associated with its derivatives transactions by maintaining an amount of certain assets (defined in the proposed rule as “qualifying coverage assets”) designed to enable the fund to meet its obligations arising from such transactions.
To rely on the proposed rule, a fund would be required to manage the risks associated with its derivatives transactions by maintaining a certain amount of qualifying coverage assets for each derivatives transaction, determined pursuant to policies and procedures approved by the fund's board of directors.
Qualifying coverage assets for derivatives transactions would need to be identified on the books and records of the fund at least once each business day.
The proposed rule's approach to asset segregation is designed to provide a flexible framework that would allow funds to apply the requirements of the proposed rule to particular derivatives transactions used by funds at this time as well as those that may be developed in the future as financial instruments and investment strategies change over time. As discussed in more detail below, the proposed rule's approach to asset segregation is designed to provide this flexibility by requiring funds to determine the amount of qualifying coverage assets in a way that can be applied by funds to various types of transactions and by permitting these amounts to be determined in accordance with board-approved policies and procedures. The proposed rule's approach to asset segregation also is consistent with the views expressed by many commenters on the Concept Release, as discussed below.
We believe that requiring the fund's board to approve the policies and procedures for asset segregation, including a majority of the fund's independent directors, appropriately would focus the board's attention on the fund's management of its obligations under derivatives transactions and the fund's use of the exemption provided by the proposed rule. We believe that requiring the fund's board to approve these policies and procedures, in conjunction with the board's oversight of the fund's investment adviser more generally, would be an appropriate role for the board.
Under the proposed rule, a fund would be required to manage the risks associated with its derivatives transactions by maintaining qualifying coverage assets for each derivatives transaction in an amount equal to the sum of (1) the amount that would be payable by the fund if the fund were to exit the derivatives transaction at the time of determination (the “mark-to-market coverage amount”), and (2) a reasonable estimate of the potential amount payable by the fund if the fund were to exit the derivatives transaction under stressed conditions (the “risk-based coverage amount”).
The proposed rule's asset coverage requirements for derivatives transactions also are consistent in many respects with the approach suggested by many commenters to the Concept Release.
Under the proposed rule, the “mark-to-market coverage amount” for a particular derivatives transaction, at any time of determination, would be equal to the amount that would be payable by the fund if the fund were to exit the derivatives transaction at such time.
For example, if a fund has a swap position that has moved against the fund (
As another example, if a fund has written an option, it will generally have received a premium payment that would represent the option's fair value at that time. The amount of the premium initially received by the fund for writing the option thus would represent the fund's mark-to-market coverage amount at the inception of the transaction because it would represent the amount that would be payable by the fund at that time if the fund were to exit the transaction (in this case, by purchasing an offsetting option).
Under the proposed rule, if a fund has entered into a netting agreement that allows the fund to net its payment obligations with respect to multiple derivatives transactions, the mark-to-market coverage amount for all derivatives transactions covered by the netting agreement could be calculated on a net basis, to the extent such calculation is consistent with the terms of the netting agreement.
The proposed rule would also allow a fund to reduce the mark-to-market coverage amount for a derivatives transaction by the value of any assets that represent variation margin or collateral to cover the fund's mark-to-market loss with respect to the transaction.
In order to reduce the mark-to-market coverage amount, the assets must represent variation margin or collateral to cover the mark-to-market exposure of the transaction. Thus, initial margin (sometimes referred to as an “independent amount” with respect to certain OTC derivatives transactions) would not reduce the fund's mark-to-market coverage amount with respect to the derivatives transaction because initial margin represents a security guarantee to cover potential future amounts payable by the fund and is not used to settle or cover the fund's mark-to-market exposure.
We expect that funds will be readily able to determine their mark-to-market coverage amounts because they are already engaging in similar calculations on a daily basis. For example, as described in more detail in section II.D.1 above, funds today are determining their current mark-to-market losses, if any, each business day with respect to the derivatives for which they currently segregate assets on a mark-to-market basis.
We request comment on all aspects of the proposed rule's requirements concerning the mark-to-market coverage amount.
• Is the definition of “mark-to-market coverage amount” sufficiently clear? Are there any derivatives transactions for which the definition of mark-to-market coverage amount would not provide an appropriate calculation of the amounts payable by the fund if the fund were to exit the transaction? Are there types of derivatives transactions for which funds may not be able to determine a mark-to-market coverage amount at least once each business day as proposed?
• Although we have not incorporated accounting standards with respect to the determination of mark-to-market coverage amount in the proposed rule, the mark-to-market coverage amount generally would be consistent with a fund's valuation of a derivatives transaction, as noted above. Should we instead define a fund's mark-to-market coverage amount based on accounting standards? Should we, for example, define the term mark-to-market coverage amount to mean the amount of the fund's liability under the derivatives transaction? Would this approach result in mark-to-market coverage amounts that would differ from mark-to-market coverage amounts determined as proposed? If so, how would they differ? If we were to define a fund's mark-to-market coverage amount based on accounting standards, are there adjustments to these accounting standards that we should make for purposes of the proposed rule?
• The proposed rule would allow a fund to determine its net mark-to-market coverage amount for multiple derivatives transactions if a fund has entered into a netting agreement that allows the fund to net its payment obligations for the transactions. Is this appropriate? Should we impose further limitations on a fund's ability to net transactions, including, for example, prohibiting netting across asset classes or across different types of derivatives? Should we, in contrast, permit netting more extensively? Are there other situations in which funds today net their obligations with derivatives counterparties that would not be permitted under the proposed rule and for which funds believe netting would be appropriate? Should we include specific parameters in the rule regarding the enforceability of the agreement in a bankruptcy or similar proceeding?
• The proposed rule would allow a fund to reduce its mark-to-market coverage amount by the value of assets that represent variation margin or collateral. Is this appropriate? Should we instead restrict this provision to variation margin or collateral that meets certain minimum requirements (
• Should we permit a fund to reduce its mark-to-market coverage amount in circumstances not involving netting or posting of margin or collateral? Should we, for example, permit funds to reduce their mark-to-market coverage amount for a derivatives transaction to reflect gains in other transactions that the fund believes would mitigate such losses? If we were to permit a fund to reduce its mark-to-market coverage amount in these circumstances, what limitations should we impose to assure that a fund would have liquid assets to meet its obligations under a particular derivatives transaction if a counterparty to a potentially mitigating transaction were to default on its obligation to the fund or that transaction did not perform in a way that would mitigate such losses?
• As noted above, we believe that many funds will be readily able to determine their mark-to-market coverage amounts because they today are determining their liability, if any, each business day with respect to the derivatives for which they apply mark-to-market segregation or for other purposes. Should the mark-to-market coverage amount be determined more than once per day? Is once per day too frequent? Should we require funds to make this determination at the same time they determine their NAV? Should closed-end funds or BDCs or both be subject to different requirements? If we were to permit closed-end funds or BDCs or any other fund to determine
As discussed above, the mark-to-market coverage amount generally represents the amount that would be payable by the fund if the fund were to exit the derivatives transaction at such time. The fund's payment obligations under a derivatives transaction could vary significantly over time, however, potentially resulting in a significant gap between the mark-to-market coverage amount, if any, and the fund's future payment obligations under the derivatives transaction.
Because the fund's mark-to-market coverage amount for a derivatives transaction would not reflect the potential amounts payable by the fund in the future under the derivatives transaction, the proposed rule would require a fund to segregate an additional amount called the “risk-based coverage amount” that would represent a reasonable estimate of the potential amount payable by the fund if the fund were to exit the derivatives transaction under stressed conditions.
This risk-based coverage requirement in the proposed rule is consistent with the views expressed by several commenters to the Concept Release that funds should segregate, not only their current liability under the contract, but also an additional amount meant to cover future losses.
Under the proposed rule, the risk-based coverage amount for each derivatives transaction would be determined in accordance with policies and procedures approved by the fund's board of directors.
We believe an approach to asset segregation that is based, in part, on a fund's assessment of its own particular facts and circumstances would be more appropriate than a requirement to segregate only a fund's mark-to-market liability, on one hand, or the full notional amount, on the other. As we noted in the Concept Release, “both notional amount and a mark-to-market amount have their limitations.”
Under the proposed rule, a fund's policies and procedures for determining the risk-based coverage amount for each derivatives transaction would be required to take into account, as relevant, the structure, terms and characteristics of the derivatives transaction and the underlying reference asset.
The requirements that we are proposing with respect to a fund's determination of the risk-based coverage amount are intended to permit a fund to tailor its procedures for determining the risk-based coverage amount to respond to the particular risks and circumstances associated with a fund's derivatives transactions. In developing policies and procedures to determine the risk-based coverage amount, a fund could use one or more financial models to determine the risk-based coverage amount, provided that the calculation reflects a reasonable estimate of the potential amount payable by the fund if the fund were to exit the derivatives transaction under stressed conditions and takes into account, as relevant, the structure, terms and characteristics of the derivatives transaction and the underlying reference asset, as required by the proposed rule. These tools may be useful in estimating the potential amounts payable by the fund under certain derivatives transactions, and may be an efficient way for a fund to determine the risk-based coverage amount for its derivatives, particularly for those funds that already use such methods for other purposes.
For example, as discussed in section III.D.2 below, a fund's policies and procedures under its derivatives risk management program could include stress testing. A fund that uses stress testing could consider using this approach to estimate the potential amount payable by the fund to exit a derivatives transaction by estimating the effects of various adverse events. Alternatively, a fund's policies and procedures could provide that, for a particular type of derivatives transaction, the fund's adviser would use a stressed VaR model to estimate the potential loss the fund could incur, at a given confidence level, under stressed conditions.
As noted above, a fund's policies and procedures for determining its risk-based coverage amount would be required to take into account, as relevant, the structure, terms and characteristics of the derivatives transaction and the underlying reference asset. In calculating its risk-based coverage amount, a fund may take into account considerations in addition to these factors. For example, if a fund elects to conduct stress testing for other purposes and such stress tests incorporate factors other than those specified under the proposed rule, the fund should consider incorporating the results of this stress testing into the determination of its risk-based coverage amount.
As with the calculation of mark-to-market coverage amounts, if the fund has entered into a netting agreement that allows the fund to net its payment obligations with respect to multiple derivatives transactions, the proposed rule would allow a fund to calculate its risk-based coverage amount on a net basis for all derivatives transactions covered by the netting agreement, in accordance with the terms of the netting agreement.
The proposed rule would also allow a fund to reduce the risk-based coverage amount for a derivatives transaction by the value of any assets that represent initial margin or collateral in respect of such derivatives transaction.
The proposed rule therefore would give a fund credit for initial margin by not requiring the fund to maintain risk-based coverage assets in respect of future amounts payable that could be satisfied by the fund's initial margin. We believe that giving a fund credit for initial margin in this way is more appropriate than an approach suggested by at least one commenter under which we would provide that a fund's “cushion” would be equal to the required initial margin for a particular transaction.
A fund could, however, consider any applicable initial margin requirements when determining its risk-based coverage amount for a derivatives transaction. But if a fund determines that its risk-based coverage amount—that is, a reasonable estimate of the potential amount payable by the fund if the fund were to exit the derivatives transaction under stressed conditions—is greater than the initial margin the fund would be required to post, the fund would need to maintain qualifying coverage assets equal to such greater amount in order to comply with the proposed rule.
We request comment on all aspects of the proposed rule's requirement that a fund manage the risks associated with its derivatives transactions by maintaining qualifying coverage assets equal to the fund's aggregate risk-based coverage amounts for its derivatives transactions.
• Is the definition of risk-based coverage amount sufficiently clear to allow a fund to develop policies and procedures to determine a risk-based coverage amount for all derivatives transactions?
• Rather than determining the risk-based coverage amount in accordance with policies and procedures approved by the board, should we prescribe risk-based coverage amounts in the proposed rule? Should we, for example, provide that the risk-based coverage amount must be determined based on a specific financial model (
• Should we retain the proposed rule's approach that the risk-based coverage amount be determined in accordance with board-approved policies and procedures, but also provide funds the option to use certain prescribed standards for the calculation of the risk-based coverage amount? In other words, should the proposed rule prescribe a specific financial model or amount of the derivative's notional amount that could be used by funds to determine the risk-based coverage amount without the need for additional policies and procedures? If so, which models or notional amounts should we specify? Should we provide, for example, that a fund may use as its risk-based coverage amount for a particular derivatives transactions the VaR calculated using a VaR model that meets the minimum criteria for a VaR model under the proposed rule and that provides stressed VaR estimates?
• Are there additional items that a fund should be required to consider when preparing policies and procedures in respect of the risk-based coverage amount?
• The risk-based coverage amount as proposed would be a reasonable estimate of the potential amount payable by the fund if the fund were to exit the derivatives transaction under stressed conditions. Is the term “stressed conditions” clear? If not, how could the term “stressed conditions” be made more clear? Is “stressed conditions” an appropriate standard? Is there an alternative standard that would be more appropriate? Should it be an estimate that does not involve stressed conditions?
• The proposed rule would allow a fund to net derivatives transactions for purposes of determining the risk-based coverage amount if a fund has a netting agreement in effect that would allow the fund to net its payment obligations for such transactions. Is this appropriate? Should we impose further limitations on a fund's ability to net transactions, including, for example, prohibiting netting across asset classes or different types of derivatives? Should we, in contrast, permit netting more extensively? Are there situations in which initial margin for funds is calculated on a net basis that would not be permitted under the proposed rule and for which funds believe netting would be appropriate? Are there other situations in which funds today net their obligations with derivatives counterparties that would not be permitted under the proposed rule and for which funds believe netting would be appropriate? Should we include specific parameters in the rule regarding the enforceability of the agreement in a bankruptcy or similar proceeding?
• In situations not involving a netting agreement, should we allow a fund to reduce its risk-based coverage amount for a derivatives transaction to reflect anticipated or actual gains in other transactions that the fund believes are likely to produce gains for the fund at the same time as other derivatives experience losses? If so, what parameters or guidelines should we prescribe to address market risk, counterparty risk or other payment risks if netting is permitted under the proposed rule for these separate transactions?
• The proposed rule would allow a fund to reduce its risk-based coverage amount by the value of assets that represent initial margin or collateral. Is this appropriate? Should we instead
• Should we require the risk-based coverage amount to be calculated based expressly on initial margin requirements, rather than requiring funds to determine these amounts in accordance with policies and procedures, as proposed, which could be informed by margin requirements? Should we require the risk-based coverage amount to be no less than the initial margin requirement, without regard to minimum transfer amounts or limits that would apply to a particular fund?
• Should we require any type of stress testing or back-testing with respect to the calculation of the risk-based coverage amount?
• Should the risk-based coverage amount be determined more than once per day? Is once per day too frequent?
• The risk-based coverage amount as proposed would generally be determined on an instrument-by-instrument basis (but would permit the fund to determine risk-based coverage amounts on a net basis in certain circumstances as discussed above). Should we, instead, permit or require funds to determine the risk-based coverage amount on a fund's entire portfolio? Alternatively, should we permit the risk-based coverage amount to be determined on a net basis with respect to particular subsets of the portfolio? For example, should we allow a fund to calculate separate risk-based coverage amounts for instruments that fall within different broad risk categories, such as equity, credit, foreign exchange, interest rate, and commodity risk? If so, how should funds calculate such risk-based coverage amounts? Would either of these approaches be more or less effective at assuring funds will have liquid assets to meet their obligations under their derivatives transactions? Would either of these approaches be more or less cost efficient for funds?
As described above, the proposed rule would require a fund to manage the risks associated with its derivatives transactions by maintaining qualifying coverage assets, identified on the books and records of the fund and determined at least once each business day, in respect of each derivatives transaction. Under the proposed rule, “qualifying coverage assets” in respect of a derivatives transaction would be fund assets that are either: (1) Cash and cash equivalents; or (2) with respect to any derivatives transaction under which the fund may satisfy its obligations under the transaction by delivering a particular asset, that particular asset. The total amount of a fund's qualifying coverage assets could not exceed the fund's net assets.
Under the proposed rule, a fund would generally be required to segregate cash and cash equivalents as qualifying coverage assets in respect of its coverage obligations for its derivatives transactions.
We believe that cash and cash equivalents are appropriate qualifying coverage assets for derivatives transactions because these assets are extremely liquid because they are cash or could be easily and nearly immediately converted to known amounts of cash without a loss in value.
We note that some commenters on the Concept Release opposed a more restrictive requirement for asset segregation, such as the one we are proposing today, stating that a more restrictive approach could limit certain funds' ability to use derivatives.
With respect to any derivatives transaction under which a fund may satisfy its obligations under the transaction by delivering a particular asset, the proposed rule would allow the fund to segregate that particular asset as a qualifying coverage asset.
Under the proposed rule, the
We recognize that commenters to the Concept Release generally advocated for retaining the flexibility offered by the cover transaction approach.
Under the proposed rule, the total amount of a fund's qualifying coverage assets could not exceed the fund's net assets.
We request comment on all aspects of the proposed rule's definition of qualifying coverage assets.
• For derivatives transactions, the proposed rule contains the same
• Under the proposed rule, a fund would generally be required to segregate cash and cash equivalents. Is the range of assets that would be included as cash and cash equivalents sufficiently clear? Are there other types of assets that commenters believe are cash equivalents that we should identify by way of example? Should we instead define “cash equivalents” in the proposed rule? If so, how should we define “cash equivalents”?
• Should we allow funds to segregate other types of assets in addition to cash and cash equivalents? If so, what other types of assets should we allow? For example, should we permit funds to segregate any U.S. government security (
• If we were to allow funds to segregate other assets as qualifying coverage assets (whether for all purposes or only the fund's risk-based coverage amount), what additional measures, if any, should we require funds to undertake in order to protect against potential changes in the value and/or liquidity of such assets? For example, should we impose haircuts on such assets? If so, how should we determine the appropriate haircut? For example, should we incorporate the haircuts described in the SEC's proposed margin requirements for security-based swap dealers and major security-based swap participants?
• If we were to allow funds to segregate other assets as qualifying coverage assets (whether for all purposes or only the fund's risk-based coverage amount), should we impose additional restrictions if the assets are closely correlated with the exposure created by the derivatives transaction? What types of requirements should we impose for assessing these correlations?
• Under the proposed rule, qualifying coverage assets for derivatives transactions generally would not include a derivative that provides an offsetting exposure. Is this appropriate? Why or why not?
• Some commenters to the Concept Release stated that requiring funds to segregate cash and other high-quality debt obligations could make it difficult for certain funds to use derivatives.
• Under the proposed rule, the total amount of a fund's qualifying coverage assets could not exceed the fund's net assets. Do commenters agree that this is appropriate? Should we, instead, specify that qualifying coverage assets must not be “otherwise encumbered”? Is there a different approach we should take to prevent a fund from using assets to cover multiple different obligations or potential obligations?
• The proposed rule's asset segregation requirements for derivatives transactions, although designed primarily to enable the fund to meet its obligations arising from its derivatives transactions, also could serve to limit a fund's ability to obtain leverage through derivatives transactions to the extent that a fund limits its derivatives usage in order to comply with the asset segregation requirements. As noted above, a fund might limit its derivatives transactions in order to avoid having to maintain qualifying coverage assets for the transactions, and the asset segregation requirements may limit a fund's ability to enter into a derivatives transaction if the fund does not have, and cannot acquire, sufficient qualifying coverage assets to engage in additional derivatives transactions. To what extent do commenters believe that the proposed rule's asset segregation requirements would impose a practical limit on the amount of leverage a fund could obtain?
The use of derivatives can pose a variety of risks to funds and their investors, although the extent of the risk may vary depending on how a fund uses derivatives as part of the fund's investment strategy. As discussed previously, these risks can include the risk that a fund may operate with excessive leverage or without adequate assets and reserves, which are both core concerns of the Act.
The proposed rule's portfolio limitations and asset coverage requirements are intended to help limit the extent of the fund's exposure to many of these risks. These requirements are designed both to impose a limit on the amount of leverage a fund may obtain from derivatives and to require the fund to manage its risks by having qualifying coverage assets to meet its obligations while providing funds with flexibility to engage in a wide variety of derivatives transactions and investment strategies. These restrictions on funds' use of derivatives are generally intended to provide limits on the magnitude of funds' derivatives exposures, and in the case of a fund operating under the risk-
We have observed that fund investments in derivatives can pose risk management challenges, and poor risk management may cause significant harm to funds and their investors.
Fund advisers that today engage in active risk management of their derivatives may use a variety of tools. Depending on the fund and its derivatives use, these tools might include a formalized derivatives risk management program led by a dedicated risk manager or risk committee, the use of other checks and balances put in place by a fund's portfolio management team, or other tools.
The proposed measures will help enhance derivatives risk management by requiring that any fund that engages in more than a limited amount of derivatives transactions pursuant to the proposed rule, or that uses complex derivatives transactions, adopt and implement a formalized derivatives risk management program (a “program”).
• Assess the risks associated with the fund's derivatives transactions, including an evaluation of potential leverage, market, counterparty, liquidity, and operational risks, as applicable, and any other risks considered relevant;
• Manage the risks of the fund's derivatives transactions, including by monitoring the fund's use of derivatives transactions and informing portfolio management of the fund or the fund's board of directors, as appropriate, regarding material risks arising from the fund's derivatives transactions;
• Reasonably segregate the functions associated with the program from the portfolio management of the fund; and
• Periodically (but at least annually) review and update the program.
The program, which would be administered by a designated derivatives risk manager, would require funds, at a minimum, to adopt policies and procedures reasonably designed to implement certain specified elements, and would include administration and oversight requirements. The program is expected to be tailored by each fund and its adviser to the particular types of derivatives used by the fund and the manner in which those derivatives relate to the fund's investment portfolio and strategy. Funds that make only limited use of derivatives would not be subject to the proposed condition requiring the adoption of a formalized derivatives risk management program under the proposed rule.
Proposed rule 18f-4 would include board oversight provisions related to the derivatives risk management program requirement. Specifically, a fund's board would be required to approve the fund's derivatives risk management program, any material changes to the program, and the fund's designation of the fund's derivatives risk manager (who cannot be a portfolio manager of the fund).
The proposed derivatives risk management program would serve as an important complement to the other conditions of proposed rule 18f-4. We expect that the rule's portfolio limitations and asset coverage requirements would provide “guard rails” designed to impose a limit on leverage and to require funds to have qualifying coverage assets to meet their obligations, which should help to limit funds' exposure to some of the risks associated with the use of derivatives. Nonetheless, for funds that engage in more than a limited amount of
While we recognize that many funds already engage in significant risk management of their derivatives transactions, we have observed that the quality and extent of such practices vary among funds in that some funds have carefully structured risk management programs with clearly allocated functions and reporting responsibilities while others are left largely to the discretion of the portfolio manager. In light of the dramatic growth in the volume and complexity of the derivatives markets over the past two decades, and the increased use of derivatives by certain funds, we believe that in connection with providing exemptive relief from section 18, it is appropriate to require certain funds to have a formalized risk management program focused on the particular risks of these transactions. We believe that requiring a risk management program that meets the requirements in the proposed rule should serve to establish a standardized level of risk management for funds that engage in more than a limited amount of derivatives use or that use complex derivatives, and thus should provide valuable additional protections for the shareholders of such funds.
We are proposing that funds that exceed a 50% threshold of notional derivatives exposure would be subject to the specific risk management program condition discussed here. Under section 18, open- and closed-end funds are permitted to engage in certain senior securities transactions, as discussed above, subject to a 300% asset coverage requirement or a 200% coverage requirement for closed-end fund issuance of preferred equity. A mutual fund therefore can borrow from a bank (and a closed-end fund can issue other senior securities) under section 18 provided that the amount of such borrowings (or other senior securities) does not exceed one-third of the fund's total assets, or 50% of the fund's net assets.
As discussed previously, for a number of reasons we have determined to propose to permit a fund to engage in derivatives transactions provided it complies with all of the conditions in proposed rule 18f-4. Under the proposal, if a fund exceeds a threshold of 50% notional amount of derivatives transactions, that fund must adopt and implement a formalized risk management program.
While we are proposing that a formalized risk management program would be a requirement only for those funds that exceed the 50% threshold or that use complex derivatives transactions, all funds that enter into derivatives transactions in reliance on the proposed rule would also be required to manage risks relating to their derivatives transactions through compliance with various other requirements of the proposed rule and other rules under the Act. For example, under our proposal, a fund that engages in even a
In addition, a fund that is not required to establish a formalized risk management program must comply, and monitor its compliance, with the portfolio limitation under which the fund may not permit its derivatives exposure to exceed 50% of the fund's net assets immediately after entering into any derivatives transactions and may not enter into any complex derivatives transactions.
The risks and potential impact of derivatives transactions on a fund's portfolio generally increase as the fund's level of derivatives usage increases.
Accordingly, proposed rule 18f-4 would not require that a fund adopt a formalized derivatives risk management program if the fund's board determines that the fund will comply, and monitor its compliance, with a portfolio limitation under which the fund limits its aggregate exposure to derivatives transactions to no more than 50% of its NAV and does not use complex derivatives transactions as defined in the rule.
To identify the number of funds that would need to adopt a program under this condition we evaluated the DERA White Paper data and evaluated which funds would be likely to be subject to this proposed condition. Based on this analysis, approximately 10% of the sampled open-end funds (representing about 10% of such funds' assets under management (“AUM”)) and approximately 9% of the sampled closed-end funds (representing about 13% of their AUM) would be required to adopt a program.
This 50% exposure condition would include exposures from derivatives transactions entered into by a fund in reliance on the proposed rule, but would not include exposure from financial commitment transactions or other senior securities transactions entered into by the fund pursuant to section 18 or 61 of the Act. We are proposing to focus this exposure threshold on exposures from derivatives transactions for several reasons. Derivatives transactions generally can pose different kinds of risks than many other kinds of senior securities transactions, in that the amount of a fund's market exposure and payment obligations under many derivatives transactions often will be more uncertain than for other types of senior securities transactions. In contrast, the fund's payment obligation may be largely known and fixed at the time the fund enters into many financial commitment transactions, such as reverse repurchase agreements or firm commitment agreements. In addition, the proposed rule would require a fund that engages in financial commitment transactions in reliance on the rule to maintain qualifying coverage assets equal in value to the fund's conditional and unconditional obligations under its financial commitment transactions.
We also are proposing to require a fund that engages in
We request comment on our proposed approach for identifying funds that must comply with the program requirement for funds that engage in a limited amount of derivatives transactions.
• Should the formalized derivatives risk management program apply not just to derivatives transactions, but to all senior securities transactions? Should it apply to just derivatives and financial commitment transactions? Do commenters agree that derivatives transactions generally can pose different kinds of risks than many other kinds of senior securities transactions, and that requiring a fund to maintain qualifying coverage assets sufficient to cover its full obligations under a financial commitment transaction may effectively address many of the risks that otherwise would be managed through a risk management program?
• As we are proposing, should we exclude from the formalized program requirement funds that engage in a limited amount of derivatives transactions? Are the risks associated with derivatives use significant enough (or significantly different from securities investments) that a fund should be required to adopt a program if it engages in any derivatives transactions? Should we instead require any fund that engages in derivatives transactions to any extent be subject to the program requirement?
• Should we require a formalized risk management program for funds that engage in even lower levels of derivatives use than under the proposed condition if they rely on the proposed rule? Should this condition not be based on the statutory threshold but instead on a different threshold? For example, are the risks of derivatives use significant enough that we should require a fund to have a program at a lower threshold, for example at 0%, 10%, 25%, or 33% of net assets? On the other hand, are the risks of derivatives use manageable enough that we should increase the threshold to avoid requiring funds to incur costs associated with a derivatives risk management program unless they make more extensive use of derivatives? For example, should the threshold for exposure instead be 66% or 75% of net assets? If we were to use a higher threshold, would that permit funds to obtain levels of derivative exposure that could pose more substantial risks to the fund before the fund would be required to establish a formalized derivatives risk management program?
• The 50% exposure condition only includes exposure from a fund's derivatives transactions but not its financial commitment transactions or other senior securities transactions. Do commenters agree that it is appropriate to exclude exposures from other senior securities transactions in determining whether to require a formalized derivatives risk management program? Should we treat particular types of derivatives transactions or financial commitment transactions differently for purposes of the 50% exposure condition? Should we, for example, require a fund to include the exposure associated with financial commitment transactions other than reverse repurchase agreements, which may be more similar to bank borrowings and thus may not involve some of the risks and uncertainties associated with other senior securities transactions?
• Should we vary the condition based on fund characteristics or the types of derivatives transactions? For example, should we provide tiered thresholds based on a fund's assets under management, requiring funds of a larger size to be subject to a lower threshold? Would such a tiered threshold provide material protections for investors at a reasonable cost? Would it create disparate competitive effects on different sized funds? Is the size of the fund an appropriate metric to scale requirements designed to manage the risk of derivatives use? Should we provide for higher thresholds if a fund engages only in certain kinds of derivatives transactions? If so, then what types of derivatives transactions would be expected to present less risk?
• Should we use some test other than an exposure threshold for excluding funds that make a limited use of derivatives from the program requirement? For example, should we use a risk-based test? If so, should we specify what kind of test (
• As we are proposing, should we require that all funds that engage in any complex derivatives transactions implement a program? Why or why not? Should we instead permit funds to obtain a limited amount of exposure through complex derivatives transactions (
As discussed above, a risk management program should be tailored to the scale of the fund's usage of derivatives, as well as the particular
• We request comment on whether we should further tailor or scale the program depending on the fund's use of derivatives. For example, should we have multiple tiered thresholds, with differing program requirements tailored to each level of use? If so, which thresholds should we use and which program elements should be included at each level? Should we otherwise tier or scale the program such as, for example, by requiring certain additional program elements for funds that engage in specific types of derivatives? If so, how should we tailor such a requirement? For example, should we require funds that only engage in certain simple types of derivatives not to have a derivatives risk manager?
• If we were to eliminate the proposed 50% threshold and require funds that engage in any amount of derivatives transactions to comply with the risk management program condition, should we provide a more streamlined or simpler program that does not include all of the elements of the full program we are proposing today? If so, which elements should we not include in such a more limited program? If we were to provide for a more limited program for such funds, should we continue to require all of the proposed program elements for funds that use derivatives above the proposed 50% threshold?
Under the proposal, a derivatives risk management program must include, at a minimum, four specified elements, discussed in detail below.
The first proposed element of the program would be to require funds subject to the condition to have policies and procedures reasonably designed to assess the risks associated with the fund's derivatives transactions, including an evaluation of potential leverage, market, counterparty, liquidity, and operational risks, as applicable, and any other risks considered relevant.
This program element would require policies and procedures for evaluating certain identified potential risks that are common to most derivatives transactions, as appropriate.
While the proposed exposure limitations included in each of the portfolio limitations are designed to provide a limit on the amount of leverage a fund may obtain by placing an outside limit on the overall amount of market exposures that a fund can achieve through derivatives transactions, the exposure limitations are not designed to be used as a precise measure of the leverage used by funds. A fund, in assessing the leverage risk associated with its derivatives, could consider using metrics for measuring the extent of its leverage, and which metrics to use, in light of these and other relevant factors.
The second risk that the fund would be required to have policies and procedures reasonably designed to evaluate is the market risk associated with its derivatives transactions. Market risk includes the risk related to the potential that markets may move in an adverse direction in relation to the fund's derivatives positions and so adversely impact fund returns and the fund's obligations and exposure.
The third risk the fund would be required to have policies and procedures reasonably designed to evaluate is counterparty risk. This might include, for example, an evaluation of the risk that the counterparty on a derivatives transaction may not be willing or able to perform its obligations under the derivatives contract, and the related risks of having a concentration of transactions with any one such counterparty. Assessing counterparty risk could involve reviewing the creditworthiness or financial position of significant derivatives counterparties, understanding the level of counterparty concentration in the fund, and evaluating contractual protections, such as collateral or margin requirements, netting agreements and termination rights.
The fourth risk the fund would be required to have policies and procedures reasonably designed to evaluate is liquidity risk. Under this program element, a fund should assess the potential liquidity of the fund's derivatives positions, an evaluation which might include both normal and stressed scenarios.
In addition to the liquidity of the derivatives positions themselves, assessing liquidity risk generally should include an evaluation of the potential liquidity demands that may be imposed on the fund in connection with its use of derivatives. As discussed in more detail above in section III.C, each fund would be required under the proposed rule to manage the risks associated with its derivatives transactions by maintaining qualifying coverage assets to cover the funds' mark-to-market coverage amount and risk-based coverage amount with respect to the fund's derivatives transactions. In addition, counterparties or applicable regulations generally require funds to post variation margin when derivatives positions move against the fund, and the coverage amounts required under the proposed rule can be expected to increase during periods of increased market stress or volatility. A risk management program, as part of the assessment of liquidity risk, generally should consider how the fund would address potential liquidity demands during reasonably foreseeable stressed market periods.
Finally, the fund would be required to have policies and procedures reasonably designed to assess the operational risks associated with the fund's derivatives transactions. Operational risk encompasses a wide variety of possible events, including risks related to potential documentation issues, settlement issues, systems failures, inadequate controls, and human error.
These five identified potential categories of risk discussed above are common to many derivatives transactions. However, this proposed element would not limit this assessment to an examination of only those identified risks. This element should also generally include evaluation of other applicable risks associated with derivatives transactions. For example, some derivatives transactions could pose certain idiosyncratic risks, such as the legal risk associated with the potential that a bespoke OTC contract
We request comment on all aspects of this proposed element of the program.
• Should we require policies and procedures to include an assessment of particular risks based on an evaluation of certain identified risk categories as proposed? If not, why?
• Are the categories of risks that we have identified in the proposed rule appropriate? Should we remove any of the identified risk categories? Should we provide further guidance regarding the assessment of any of these risks?
• Should we add any other categories of required risks that would be required for each fund to have policies and procedures reasonably designed to evaluate as part of its program? If so what additional categories and why?
• Should we require policies and procedures for any additional evaluation of derivatives positions that are used by a fund to provide a hedge for, or otherwise reduce risks with respect to, other investments by the fund, to evaluate the effectiveness of the hedging or risk reduction?
The second proposed element of the program would be a requirement that the fund have policies and procedures reasonably designed to manage the risks of its derivatives transactions, including by monitoring whether those risks continue to be consistent with any investment guidelines established by the fund or the fund's investment adviser, the fund's portfolio limitation established under the proposed rule, and relevant disclosure to investors, and informing portfolio management of the fund or the fund's board of directors, as appropriate, regarding material risks arising from the fund's derivatives transactions.
Under this element, a fund would be required to have policies and procedures reasonably designed to manage the risks of derivatives transactions, but this element would not require a fund to impose particular risk limits.
Funds may use a variety of approaches in developing policies and procedures to manage the risks associated with the fund's derivatives transactions.
In managing and monitoring the relevant risks, a fund might consider establishing written guidelines describing the scope and objectives of the fund's use of derivatives. A fund could also consider establishing an “approved list” of specific derivative instruments or strategies that may be used, as well as a list of persons authorized to engage in the transactions on behalf of the fund.
Managing derivatives transaction risk could also involve reviewing existing, and potentially establishing new, contingency plans and tools in case of adverse market or system events. This could include establishing committed
The element also would require policies and procedures for informing the portfolio manager or board of risks associated with the fund's derivatives transactions.
The potential risk management and monitoring mechanisms discussed above are just examples of the techniques funds might consider including in their policies and procedures to manage the risks of their derivatives transactions under this proposed element. To effectively manage its own particular risks, a fund generally should carefully review its current and planned use of derivatives well as any relevant limitations (including internal limitations established by the fund's adviser), and develop risk management tools and processes effectively tailored to its own circumstances.
We request comment on the proposed element of the program requiring funds to have policies and procedures reasonably designed to manage the risks of the derivatives transactions.
• Should we establish any additional risk management requirements within the program element itself, or should we keep it generally principles based as we are proposing? For example, should we specifically require the creation of approved transactions lists or derivative size controls? Should we require that funds use specific risk management tools such as stress testing? If so, what tools should we require?
• Should we require that a fund institute specific investment guidelines regarding its use of derivatives transactions? If so what would those guidelines be?
• Should we require the derivatives risk manager to provide material risk information to portfolio management or the board as appropriate, or would this be generally included in the quarterly reports provided by the officer to the board? If we did not include such an information requirement, would risk information potentially become stale and not be acted upon in a timely manner?
We are also proposing to require, as an element of the program, that a fund have policies and procedures reasonably designed to reasonably segregate the functions associated with the program from the portfolio management of the fund.
However, this segregation of functions is not meant to indicate that the derivatives risk manager and portfolio management should be subject to a communications “firewall.”
We request comment on the proposed element requiring funds to maintain controls reasonably segregating the program functions from portfolio management.
• Do commenters agree that segregation of risk management functions from portfolio management would enhance the protections provided by the proposed derivatives risk management program requirement?
• Would this element pose difficulties for particular entities, for example, funds managed by small advisers? Should we provide any additional clarification of what it means to have reasonable segregation of
• Are there other ways to incentivize objective and independent risk assessment of portfolio strategies that we should consider?
The fourth element of the proposed program is that a fund would need to have policies and procedures reasonably designed to periodically (but at least annually) review and update the program, including any models (including any VaR calculation models used during the covered period), measurement tools, or policies and procedures that are part of, or used in, the program to evaluate their effectiveness and reflect changes in risks over time.
We believe that the periodic review of a fund's derivatives risk management program is necessary to determine whether, in light of current circumstances, these risks are appropriately being addressed. The proposed program review requirement would require each fund to develop and adopt procedures to annually review and update the fund's derivatives risk management program. This review and update would need to include any models (including any VaR calculation models used during the covered period),
We are also proposing that this periodic review take place at least annually. We believe that the program should be reviewed and updated on at least an annual basis because the risks of derivatives transactions and tools available change and evolve rapidly. An annual review is a minimum requirement, but a fund should consider whether more frequent reviews are appropriate depending on the circumstances. We expect that such a review and update should take place frequently enough to take into account the particular risks that may be presented by the fund's use of derivatives, including the potential for rapid or significant increases in risks in changing market conditions.
We request comment on the proposed element requiring funds to periodically review and update the program.
• Do commenters agree that the rule should specifically require that a fund periodically review and update the program and any tools that are used as part of the program as proposed?
• As proposed, should we require this review to take place at least annually, or should we require a more frequent review, such as quarterly (to coincide with proposed reporting to the fund's board discussed below)? Should we instead not prescribe a minimum frequency for the periodic review and update?
• Are there certain review procedures that the Commission should require and/or on which the Commission should provide guidance? Should the Commission expand its guidance on regulatory, market-wide, and fund-specific developments that a fund's review procedures might cover?
Proposed rule 18f-4 would expressly require a fund to designate an employee or officer of the fund or the fund's investment adviser (who may not be a portfolio manager of the fund) responsible for administering the policies and procedures of the derivatives risk management program, whose designation must be approved by the fund's board of directors, including a majority of the directors who are not interested persons of the fund.
For the same reasons discussed above regarding the maintenance of controls that segregate functions of the program from portfolio management, we believe that independence of the derivatives risk manager is important for a well-functioning program.
Unlike the chief compliance officer under rule 38a-1, proposed rule 18f-4
We request comment on the proposed requirement that a program be administered by a derivatives risk manager.
• Under the proposed rule, the derivatives risk manager may not act as a portfolio manager of the fund. Do commenters agree that this is appropriate and would improve the effectiveness of the program? If not, why?
• Under the proposed rule, a specific person who is an employee or officer of the fund or its adviser would be designated as the risk manager. Is this appropriate? Should we instead allow the fund to designate the adviser as a whole or a group of people (such as a risk committee) as the program's risk manager?
• Is it appropriate to specify that the derivatives risk manager may not be a portfolio manager for the fund and must be an employee or officer of the fund or its adviser? Would any small fund complexes have difficulty meeting the proposed requirement?
• Rule 38a-1(c) prohibits officers, directors, and employees of the fund and its adviser from, among other things, coercing or unduly influencing a fund's CCO in the performance of their duties. Should we include such a prohibition on unduly influencing a fund's derivatives risk officer in the proposed risk management condition? Why, or why not? Should the Commission prohibit any officers, directors, or employees of a fund and its adviser from, directly or indirectly, taking any action to coerce, manipulate, mislead, or fraudulently influence the derivatives risk officer in the performance of his or her responsibilities?
• This requirement would effectively bar funds from outsourcing the administration of the derivatives risk manager to third parties. Is this appropriate, or should we instead allow third parties to administer the program as some funds and investment advisers do with respect to their chief compliance officer? Would allowing third parties to act as risk managers enhance the program by allowing specialized personnel to administer the program or detract from it by allowing for a risk manager who may not be as focused on the specific risks of the particular fund and its program?
• If we were not to require the independence between the derivatives risk manager and the fund's portfolio managers, how could we ensure that the program management is not unduly influenced by portfolio management personnel who may have conflicting incentives?
• Do commenters agree that it would be appropriate to require a fund to designate the fund's derivatives risk manager, subject to board approval?
• Should we require the derivatives risk manager to be removable only by the fund's board and the manager's compensation to be approved by the board as is the case with the chief compliance officer of a fund? If so why? Would such a requirement pose significant burdens on fund boards?
• Should we include any other administration requirements? For example, should we include a requirement for training staff responsible for day-to-day management of the program, or for portfolio managers, senior management, and any personnel whose functions may include engaging in, or managing the risk of, derivatives transactions? If we require such training, should that involve setting minimum qualifications for staff responsible for carrying out the requirements of the program? Should training and education be required with respect to any new derivatives instruments that a fund may trade?
Under the proposed rule, the fund's derivatives risk management program would be administered by the derivatives risk manager, with oversight provided by the board. Requiring the derivatives risk manager to be responsible for the day-to-day administration of the fund's derivatives risk management program, subject to board oversight, is consistent with the way we believe many funds currently manage derivatives risk.
We believe that boards should understand the derivatives risk management program and the risks it is designed to manage.
In considering whether to approve the program or any material changes to it, boards generally should consider the types of derivatives transactions in which the fund engages or plans to engage, their particular risks, and whether the program sufficiently addresses the fund's compliance with its investment guidelines, any applicable portfolio limitation, and relevant disclosure. Boards generally should consider the adequacy of the program from time to time in light of past experience (both by the fund in particular and with market derivatives use in general) and recent compliance experiences. Boards may also wish to consider best practices used by other fund complexes, or consult with other experts familiar with derivatives risk management by similar funds or market participants. Directors may satisfy their obligations with respect to this initial approval by reviewing summaries of the derivatives risk management program prepared by the fund's derivatives risk manager, legal counsel, or other persons familiar with the derivatives risk management program. The summaries might familiarize directors with the salient features of the program and provide them with an understanding of how the derivatives risk management program addresses the fund's use of derivatives. In considering whether to approve a fund's derivatives risk management program, the board may
Proposed rule 18f-4 also would require each fund to obtain approval of any material changes to the fund's derivatives risk management program from the fund's board of directors, including a majority of independent directors. As with the initial approval of a fund's derivatives risk management program, the requirement to obtain approval of any material changes to the fund's derivatives risk management program from the board is designed to facilitate independent scrutiny of material changes to the derivatives risk management program by the board of directors.
The fund's board would be required under the proposed rule to review a written report from the fund's derivatives risk manager, provided no less frequently than quarterly, that reviews the adequacy of the fund's derivatives risk management program and the effectiveness of its implementation.
We request comment on the proposed board approval and oversight requirements.
• Should the board be required to approve the program and any material changes as proposed? If not, why? In the absence of such board approval, would a board be able to effectively oversee the adequacy of a program?
• Should we require reporting to the board about the effectiveness of the program as proposed? Should we require a frequency other than quarterly? If so, how frequent and why? Should we not require a frequency but instead require periodic reporting as appropriate?
• Instead of requiring boards to review the report, should we instead take an approach similar to rule 38a-1 and require reports to be submitted to the board?
The proposed rule also would address and limit funds' use of financial commitment transactions. The proposed rule would define a “financial commitment transaction” as any reverse repurchase agreement, short sale borrowing, or any firm or standby commitment agreement or similar agreement.
The proposed rule would require a fund that engages in financial commitment transactions in reliance on the rule to maintain qualifying coverage assets equal in value to the amount of cash or other assets that the fund is conditionally or unconditionally obligated to pay or deliver under each of its financial commitment transactions.
By requiring the fund to maintain qualifying coverage assets to cover the fund's full potential obligation under its financial commitment transactions, the proposed rule generally would take the same approach to these transactions that we applied in Release 10666, with some modifications. As we discussed above in section III.A, requiring a fund to segregate assets equal in value to the fund's full obligations under financial commitment transactions may be an effective way both to impose a limit on the amount of leverage a fund could obtain through those transactions, and to require the fund to have adequate assets to meet its obligations. The asset segregation requirement in the proposed rule is designed to limit the amount of leverage the fund could obtain through financial commitment transactions because the fund could not incur obligations under those transactions in excess of the fund's qualifying coverage assets. This would limit a fund's ability to incur obligations under financial commitment transactions to an amount not greater than the fund's net assets. This approach also is designed to help the fund to have adequate assets to meet its obligations under financial commitment transactions by requiring the fund to have qualifying coverage assets equal in value to those obligations.
Under the proposed rule, the fund's board of directors (including a majority of the directors who are not interested persons of the fund) would be required to approve policies and procedures reasonably designed to provide for the fund's maintenance of qualifying coverage assets. We believe that requiring the fund's board to approve the policies and procedures, including a majority of the fund's independent directors, appropriately would focus the board's attention on the fund's management of its obligations under financial commitment transactions and the fund's use of the exemption provided by the proposed rule. We
Under the proposed rule, a fund would be required to maintain qualifying coverage assets for each financial commitment transaction with a value equal to at least the amount of the financial commitment obligation associated with the transaction.
In addition, where the fund is conditionally or unconditionally obligated to deliver a particular asset, the financial commitment obligation under the proposed rule would equal the value of the asset, determined at least once each business day.
The proposed rule would require the fund to maintain qualifying coverage assets to cover the full amount of the fund's obligations under its financial commitment transactions, rather than a mark-to-market and risk-based coverage amount as proposed for derivatives transactions, because a fund may in many cases be required to fulfill its full obligation under a financial commitment transaction as compared to a derivatives transaction. For example, if a fund enters into a firm commitment agreement under which it is obligated to purchase a security in the future, the fund is required under the agreement, and must be prepared, to have sufficient assets to complete the transaction. Similarly, if a fund borrows a security from a broker as part of a short sale borrowing, the fund is obligated to return the security to the broker at the termination of the transaction and must be prepared to meet this obligation, either by owning the security or having assets available to purchase it in the market. By contrast, under many types of derivatives transactions, a fund would generally not expect to make payments or deliver assets equal to the full notional amount.
We recognize that certain financial commitment transactions, such as standby commitment agreements, are contingent in nature and may not always require a fund to fulfill its full potential obligation under the transaction. We also recognize that certain derivatives transactions, such as written options, could result in a fund having to fulfill its full potential obligation under the contract. On balance, however, we believe it would be appropriate to require a fund to maintain qualifying coverage assets to cover its financial commitment obligations, as proposed, to require the fund to have assets to meet its financial commitment obligations. We also note that, as discussed in more detail below, the proposed rule would permit a fund to use assets other than cash and cash equivalents as qualifying coverage assets for financial commitment transactions. In this way the proposed rule is designed both to require a fund to have assets to meet its financial commitment obligations and to address concerns that might be raised if the fund were required to maintain cash and cash equivalents for the fund's longer-term financial commitment obligations. We also believe that this approach would be consistent with funds' current practices in that we understand that funds that rely on Release 10666 when entering into financial commitment transactions generally segregate assets to cover the funds' full potential obligations under these transactions.
In addition, by requiring the fund to maintain qualifying coverage assets equal in value to the fund's aggregate financial commitment obligations, the proposed rule also would impose a limit on the amount of leverage a fund could obtain through financial commitment transactions. This is because a fund relying on the rule would not be permitted to incur obligations under financial commitment transactions in excess of the fund's qualifying coverage assets. As noted in section III.C.2.c, the total amount of a fund's qualifying coverage assets could not exceed the fund's net assets.
We have proposed to limit the total amount of fund assets available for use as qualifying coverage assets because, absent this provision, the proposed rule would not impose an effective limit on the amount of leverage a fund could obtain through financial commitment transactions. This is because, in addition to creating a liability for the fund, some financial commitment transactions also generate proceeds that increase the total assets of the fund. If the total amount of a fund's qualifying coverage assets was not reduced to reflect the fund's liability from these transactions, the requirement to maintain qualifying coverage assets would not provide an effective limit on the fund's ability to enter into those transactions because a financial commitment transaction can generate fund assets that could otherwise be used as qualifying coverage assets.
Take, for example, a fund that has $100 in assets and no liabilities or senior securities outstanding. The fund then borrows a security from a broker and sells it short, generating $10 on the sale. The fund would then have $110 in total assets and a corresponding liability of $10. If the fund were not required to reduce the total amount of its qualifying coverage assets by the amount of the liability from this transaction, the fund would have $110 in total assets that potentially could be used as qualifying coverage assets if they otherwise met the rule's requirements for qualifying coverage assets; the fund's selling a security short could be viewed as increasing the fund's ability to engage in
Finally, as noted above, a fund's qualifying coverage assets for its financial commitment transactions, like the qualifying coverage assets for the fund's derivatives transactions, would be required to be identified on the fund's books and records and determined at least once each business day.
We request comment on all aspect of the proposed rule's requirement that a fund maintain assets in respect of the financial commitment obligation for its financial commitment transactions and the requirement that the fund's qualifying coverage assets be identified on the fund's books and records and determined at least once each business day.
• The proposed rule's approach to financial commitment transactions, as discussed above, is based on the approach we took in Release 10666 for financial commitment transactions and is designed to impose a limit on the amount of leverage a fund could obtain through those transactions, and to require the fund to have adequate assets to meet its obligations. Do commenters agree with the proposed rule's approach to financial commitment transactions? Do commenters believe that it would be effective in addressing concerns about leverage and adequacy of assets in connection with a fund's use of financial commitment transactions?
• Is the definition of financial commitment transaction obligation sufficiently clear to allow a fund to determine the amount of assets necessary to comply with the rule? Does the definition adequately capture all of a fund's potential obligations under a financial commitment transaction?
• Should we continue to require funds to segregate their full potential obligation under financial commitment transactions, consistent with Release 10666? Or, should we instead treat financial commitment transactions similar to derivatives transactions and require funds to segregate the mark-to-market coverage amount and a risk-based coverage amount for each financial commitment transaction? If we were to take this approach, are there types of financial commitment transactions for which it may be difficult to determine a mark-to-market coverage amount because, for example, there are not market prices available for the transactions?
• Under the proposed rule, all financial commitment transactions would be subject to the same asset segregation requirement, regardless of whether the fund's obligation under the transaction is conditional or whether the amount of the financial commitment obligation could fluctuate over time. Should we treat conditional financial commitment transactions, such as standby commitment agreements, differently than financial commitment transactions where the obligations are not conditional? If so, how should the asset segregation requirement differ? Should these conditional financial commitment transactions be treated like derivatives transactions? Should we treat short sales, which have a financial commitment obligation that can vary over time, differently than other financial commitment transactions that have a fixed financial commitment obligation amount? If so, how should the asset segregation requirement differ? Should short sales be treated like derivatives transactions and require a risk-based coverage amount or some other amount designed to address future losses?
• The asset segregation requirement in the proposed rule would effectively impose a limit on the fund's ability to enter into financial commitment transactions by limiting the total amount of a fund's qualifying coverage assets and providing that qualifying coverage assets shall not exceed the fund's net assets. Does the proposed rule appropriately limit the extent to which funds should be permitted to enter into financial commitment transactions? Should the proposed rule include a separate portfolio limitation, similar to the 150% portfolio limitation on derivatives transactions in the exposure-based portfolio limit, rather than limiting the extent to which a fund could incur obligations under financial commitment transactions indirectly through the asset segregation requirement? If so, should that limit be 100% of the fund's net assets (consistent with the proposed rule's limit on the total amount of qualifying coverage assets)? Should it be lower, such as 50% of the fund's net assets, or higher, such as the 150% limitation applicable to derivatives transactions under the exposure-based portfolio limit? Are there other limits, higher or lower, that would be appropriate?
• The proposed rule would require a fund to identify and determine its qualifying coverage assets for its financial commitment obligations at least once each business day. Should the proposed rule instead require the fund to identify and determine these qualifying coverage assets more or less frequently?
Under the proposed rule, “qualifying coverage assets” in respect of a financial commitment transaction would be fund assets that are: (1) Cash and cash equivalents; (2) with respect to any financial commitment transaction under which the fund may satisfy its obligations under the transaction by delivering a particular asset, that particular asset; or (3) assets that are convertible to cash or that will generate cash, equal in amount to the financial commitment obligation, prior to the date on which the fund can be expected to be required to pay such obligation or that have been pledged with respect to the financial commitment obligation and can be expected to satisfy such obligation, determined in accordance with policies and procedures approved by the fund's board of directors.
For financial commitment transactions, the proposed rule would permit a fund to maintain assets in addition to cash and cash equivalents, as proposed for derivatives transactions, as qualifying coverage assets for the fund's financial commitment transactions.
The proposed rule therefore would permit a fund to maintain assets that are convertible to cash or that will generate cash, equal in amount to the financial commitment obligation, prior to the date on which the fund can be expected to be required to pay its financial commitment obligation or that have been pledged with respect to a financial commitment obligation and can be expected to satisfy such obligation, determined in accordance with policies and procedures approved by the fund's board of directors.
In this example, if the purchase price of the firm commitment is $100 and the transaction will be completed on a fixed date, the fund, if consistent with its policies and procedures relating to qualifying coverage assets, could segregate a fixed-income security with a value of $100 or more that would pay $100 or more upon maturity and would mature in time for the fund to use the principal payment to complete the firm commitment transaction. As another example, the fund could, if consistent with its policies and procedures relating to qualifying coverage assets, segregate a fixed-income security with a value of $100 or more that would generate $100 or more in interest payments that the fund could use to complete the firm commitment agreement.
Qualifying coverage assets under the proposed rule include assets that are convertible to cash or able to generate cash, equal in amount to the financial commitment obligation, prior to the date on which the fund can be expected to be required to pay such obligation.
The proposed rule would require that an asset's convertibility to cash or the ability to generate cash, and the date on which the fund can be expected to be required to pay the financial commitment obligation, be determined in accordance with policies and procedures approved by the fund's board of directors.
We note that, if we adopt proposed rule 22e-4, funds subject to that rule already would be considering their assets' convertibility to cash in order to comply with rule 22e-4, as explained in more detail in the Liquidity Release.
Although not every fund that would be subject to proposed rule 18f-4 would be subject to proposed rule 22e-4, to the extent that fund advisers and third-party service providers develop methodologies or other tools for assessing positions' convertibility to cash in a manner consistent with proposed rule 22e-4, we anticipate that such tools could be used by all funds subject to proposed rule 18f-4 in assessing convertibility to cash for purposes of rule 18f-4. Thus, closed-end funds and BDCs, which are not within the scope of proposed rule 22e-4 but which may enter into financial commitment transactions, could nevertheless employ tools that were developed in response to proposed rule 22e-4 in determining whether an asset is a qualifying coverage asset.
The proposed rule would also allow a fund to use, as qualifying coverage assets, assets that have been pledged with respect to a financial commitment obligation and can be expected to satisfy such obligation.
We request comment on all aspects of the proposed rule's requirements for qualifying coverage assets for financial commitment transactions.
• Do commenters agree that it is appropriate to permit a fund to maintain assets in addition to cash and cash equivalents as qualifying coverage assets for the fund's financial commitment transactions? Should we, instead, require funds to use cash and cash equivalents, as proposed for derivatives transactions, or otherwise specify the types or liquidity profiles of assets that may be used? Should we specify that certain types of assets should not be included as qualifying coverage assets?
• Do commenters agree that, in many cases, the timing of the fund's payment obligations may be specified under the terms of the financial commitment or the fund may otherwise have a reasonable expectation regarding the timing of the fund's payment obligations with respect to its financial commitment transactions? If so, do commenters agree that the proposed rule appropriately recognizes this aspect of many types of financial commitment transactions by permitting a fund to segregate assets that are convertible to cash or that will generate cash prior to the date on which the fund can be expected to be required to pay its financial commitment obligations, determined in accordance with board-approved policies and procedures?
• Under the proposed rule, qualifying coverage assets in respect of a financial commitment transaction would include fund assets that have been pledged by the fund with respect to the financial commitment obligation and can be expected to satisfy such obligation. Do commenters agree that such assets should be considered qualifying coverage assets? Does the proposed rule appropriately describe such assets? Are there additional requirements that we should impose on the use of such assets as qualifying coverage assets?
• The proposed rule would require that an asset's convertibility to cash or the ability to generate cash, and the date on which the fund can be expected to be required pay the financial commitment obligation, be determined in accordance with policies and procedures approved by the fund's board of directors. Do commenters agree that it is appropriate to allow funds to assess and determine when they can be expected to be required to pay financial commitment obligations and their assets' convertibility to cash or ability to generate cash based on the funds' specific financial commitment transactions and investment strategies?
• The proposed rule would not specify the particular factors that must be included in a fund's policies and procedures for purposes of determining an asset's convertibility to cash or the ability to generate cash, and the date on which the fund can be expected to be required to pay the financial commitment obligation. Are there particular factors we should specify in any final rule? We noted above that, in developing these policies and procedures, a fund could consider the factors specified in proposed rule 22e-4. Should we specifically require that a fund's policies and procedures include the factors specified in rule 22e-4 if we adopt that rule? If so, should only those funds subject to the requirements of proposed rule 22e-4 be required to include those factors? Should we specify additional factors? If so, what factors should be specified?
• The proposed rule would allow a fund to segregate as qualifying coverage assets any assets that are convertible to cash or that will generate cash equal in amount equal to the financial commitment obligation prior to the date on which the fund can be expected to be required to pay such obligation. Should we instead allow a fund to segregate specific types of assets subject to a haircut? If so, how should we determine the appropriate haircut? For example, should we incorporate the haircuts described in the SEC's proposed rule on Capital, Margin, and Segregation Requirements for Security-Based Swap Dealers and Major Security-Based Swap Participants and Capital Requirements for Broker-Dealers?
Proposed rule 18f-4 also would include certain recordkeeping requirements relating to the fund's selection of a portfolio limitation; its compliance with the other requirements of the proposed rule; and if the fund is required to implement a formalized derivatives risk management program, records of the program's policies and procedures, and any materials provided to the board of directors related to its operation.
First, the proposed rule would require a fund to maintain a record of each determination made by the fund's board that the fund will comply with one of the portfolio limitations under the proposed rule, which would include the fund's initial determination as well as a record of any determination made by the fund's board to change the portfolio limitation.
Second, the proposed rule would require the fund to maintain certain records so that the fund's ongoing compliance with the conditions of the proposed rule can be evaluated by our examiners or the fund's board or compliance personnel. Specifically, the fund would be required to maintain a written copy of the policies and procedures approved by the board regarding the fund's maintenance of qualifying coverage assets, as required under the proposed rule.
The fund also would be required to maintain written records reflecting the fund's mark-to-market and risk-based coverage amounts and the fund's financial commitment obligations, and identifying the qualifying coverage assets maintained by the fund to cover these amounts.
Finally, the proposed rule would require a fund to maintain records relating to the derivatives risk management program, if the fund is required to adopt and implement a derivatives risk management program.
We request comment on the proposed rule's recordkeeping requirements.
• Should we require such recordkeeping provisions? Are there any other records relating to a fund's senior securities transactions that a fund should be required to maintain?
• The proposed rule's recordkeeping requirements generally are designed to allow our examiners or the fund's board or compliance personnel to evaluate the fund's ongoing compliance with the proposed rule's conditions. Do commenters believe that the proposed rule's recordkeeping requirements
• We specifically request comment on any alternatives to the proposed recordkeeping requirements that would minimize recordkeeping burdens on funds, on the utility and necessity of the proposed recordkeeping requirements in relation to the associated costs and in view of the public benefits derived, and on the effects that additional recordkeeping requirements would have on funds' internal compliance policies and procedures. Are the record retention time periods that we have selected appropriate? Should we require records to be maintained for a longer or shorter period? If so for how long?
On May 20, 2015, in an effort to modernize and enhance the reporting and disclosure of information by investment companies, we issued a series of proposals, including proposals for two new reporting forms. First, our proposal would require registered management investment companies and ETFs organized as unit investment trusts, other than registered money market funds or small business investment companies, to electronically file with the Commission monthly portfolio investment information on proposed Form N-PORT.
Among other things, proposed Form N-PORT would require funds to disclose certain risk metrics—specifically, the delta for derivatives instruments with optionality,
Second, all registered investment companies, including money market funds but excluding face amount certificate companies, would be required to file annual reports on proposed Form N-CEN.
In the Investment Company Reporting Modernization Release, we requested comment on our proposal to require funds to report on Form N-PORT certain portfolio- and position-level risk metrics. We also requested comment on additional risk metrics such as gamma, which enables more precise position-level estimation of sensitivity to underlying price movements, and vega, which provides position-level sensitivity to volatility. The proposal requested comment on whether gamma and vega would enhance the utility of the derivatives information reported in Form N-PORT and the costs and burdens to funds and benefits to investors and other potential users of requiring funds to report such risk metrics.
We received several comment letters relating to our proposal to require funds to report certain portfolio- and position-level risk metrics. Some commenters reflected positively on our proposal, noting that risk metrics could allow the Commission to better understand the risks associated with investments in derivatives.
We recognize that collecting and reporting alternative risk metrics, such as vega and gamma, could be more burdensome than reporting delta only. However, we believe that requiring funds to report information about the fund's exposures with metrics such as vega and gamma would assist the Commission in better assessing the risk in a fund's portfolio. In consideration of the additional burdens of reporting selected risk metrics to the Commission and the benefits of more complete disclosure of a fund's risks, we are proposing to limit the reporting of vega and gamma to only those funds that are required to implement a formalized derivatives risk management program as required by proposed rule 18f-4(a)(3).
Part C of proposed Form N-PORT would require a fund and its consolidated subsidiaries to disclose its schedule of investments and certain information about the fund's portfolio of investments. We propose to add Item C.11.c.viii to Part C of proposed Form N-PORT, which would require funds that are required to implement a formalized risk management program under proposed rule 18f-4(a)(3) to provide the gamma and vega for options and warrants, including options on a derivative, such as swaptions.
As discussed above, gamma measures the sensitivity of delta
Vega, which measures the amount that an option contract's price changes in relation to a one percent change in the volatility of an underlying asset, would assist the Commission and others with measuring an investment's volatility. This would permit the Commission and others to, among other things, estimate changes in a portfolio based on changes in market volatility, as opposed to changes in asset prices. Vega would accordingly give the Commission and others the tools necessary to construct more comprehensive risk analyses as appropriate.
We anticipate that the enhanced reporting proposed in these amendments would help our staff better monitor price and volatility trends and various funds' risk profiles. Risk metrics data reported on Form N-PORT that is made publicly available also would inform investors and assist users in assessing funds' relative price and volatility risks and the overall price and volatility risks of the fund industry—particularly for those funds that use investments in derivatives as an important part of their trading strategy. For example, third-party data analyzers could use the reported information to produce useful metrics for investors about the relative price and volatility risks of different funds with similar strategies. Moreover, gamma, vega, and delta would help the Commission, investors, and others determine the source of a fund's risk and return. We recognize that determining certain of the inputs that go into computing gamma and vega inherently involve some level of judgment and that some commenters expressed concern that this type of information could be confusing to investors.
As discussed above, proposed rule 18f-4 would require funds that engage in derivatives transactions to comply with one of two alternative portfolio limitations: The exposure-based portfolio limit under proposed rule 18f-4(a)(1)(i) or the risk-based portfolio limit under proposed rule 18f-4(a)(1)(ii).
We seek comment on each of the Commission's proposed amendments to proposed Form N-PORT and proposed Form N-CEN.
• How, if at all, should we modify the scope of the proposed requirements to report gamma or vega? For example, as we discussed above, in the Investment Company Modernization Release, we requested comment on whether we should require all funds to report gamma and vega. Our current proposal would limit the reporting of gamma and vega to funds that are required to implement a derivatives risk management program. Is this appropriate, or should we require all funds that invest in derivatives with optionality to report these metrics? Alternatively, should we require reporting of these risk metrics for funds with a higher or lower exposure than 50%? Additionally, should we require funds that are required to have a risk management program by virtue of the complexity of the derivatives they invest in, as proposed, to report such metrics, even if their exposure falls below 50%?
• We are also proposing to limit the reporting of gamma and vega to options and warrants, including options on a derivative, such as swaptions. Are there other investment products for which we should require disclosure of gamma and vega? If so, which products and why?
• Are there additional or alternative metrics that we should consider requiring to be reported? Would the disclosure of risk metrics such as theta—the change in value of an option with changes in time to expiration—enhance the utility of the derivatives information reported in Form N-PORT? What would be the costs and burdens to funds and benefits to investors and other potential users of requiring funds to report such additional or alternative metrics? How would the comparability of information reported by different funds be affected if funds used different inputs and assumptions in their methodologies, such as different assumptions regarding the values of the funds' portfolios?
• We believe that funds that would be required to implement a derivatives risk management program already track certain derivative risk metrics, such as gamma and vega. Is our assumption correct? To the extent this is correct, what would be the incremental cost and burden of reporting such information to the Commission? As discussed above, in the Investment Company Reporting Modernization Release, we proposed that portfolio-level risk metrics and the delta for relevant investments be disclosed on each report on Form N-PORT that is made public (
• As discussed above, proposed rule 18f-4 would require funds that engage in derivatives transactions to comply with one of two alternative portfolio limitations: The exposure-based portfolio limit or the risk-based portfolio limit. While we are proposing to require that funds maintain certain records relating to their compliance with the applicable portfolio limitation, we are not proposing that they report to the public or the Commission the funds' aggregate exposure or, for funds that operate under the risk-based portfolio limit, the results of the funds' VaR tests. Would there be a benefit to publicly reporting this information? Should we require funds to report on proposed Form N-CEN or Form N-PORT either or both of the funds' aggregate exposures or their securities' VaRs and full portfolio VaRs (if applicable)? Additionally, as proposed, the derivative risk management program would apply to funds with an aggregate exposure to derivatives transactions that exceeds 50% of net assets. Should funds be required to report on proposed Form N-CEN or Form N-PORT their aggregate exposure to derivatives transactions?
• Form N-PORT also requires funds to report their notional amounts for certain derivatives transactions. Should we define “notional amount” for purposes of Form N-PORT with the same definition as proposed by rule 18f-4?
• Our proposal would require funds to identify in reports on Form N-CEN whether they relied upon the proposed rule by identifying the portfolio limitation(s) on which the fund relied during the reporting period. Do commenters agree that this is appropriate? Should we instead require a fund to only identify if it relied upon rule 18f-4 during the reporting period, rather than requiring the fund to identify the specific portfolio limitation(s) on which the fund relied? Are there other mediums, such as the Statement of Additional Information, that would be more appropriate to report such information?
• Should we provide a compliance period for the proposed amendments to Forms N-PORT and N-CEN? If so, what factors should we consider, if any, when setting the compliance dates for the proposed amendments to Forms N-PORT and N-CEN? How long of a compliance period would be appropriate for the proposed amendments? If we provide a compliance period for the proposed amendments, should we provide a tiered compliance date for entities based on their size?
We request and encourage any interested person to submit comments regarding the proposed rule and the proposed amendments to Form N-PORT and Form N-CEN, specific issues discussed in this Release, and other matters that may have an effect on the proposed rule and the proposed changes to Form N-PORT and Form N-CEN. With regard to any comments, we note that such comments are of particular assistance to our rulemaking initiative if accompanied by supporting data and analysis of the issues addressed in those comments.
If we adopt proposed rule 18f-4, we would rescind Release 10666 and our staff's no-action letters addressing derivatives and financial commitment transactions. Funds would only be permitted to enter into derivatives transactions and financial commitment transactions to the extent permitted by, and consistent with the requirements of, rule 18f-4 or section 18 or 61. At this time, however, we are not rescinding Release 10666 or any no-action letters issued by our staff, and funds may continue to rely on Release 10666, our staff no-action letters, and other guidance from our staff.
A fund would be able to rely on the rule after its effective date as soon as the fund could comply with the rule's conditions. We would, in addition, expect to provide a transition period during which we would permit funds to continue to rely on Release 10666, our staff no-action letters, and other guidance from our staff, including with respect to derivatives transactions and financial commitment transactions entered into by a fund after the rule's effective date but before the end of any transition period.
We request comment on any transition period:
• Do commenters agree that a transition period would be appropriate?
• What would be an appropriate amount of time for us to provide before rescinding Release 10666 and our staff's no-action letters?
• In recently proposed rule 22e-4, we proposed tiered compliance dates for funds that would be required to establish liquidity risk management programs under that rule, generally proposing to provide a compliance period of 18 months for larger entities and an extra 12 (or 30 total months) for smaller entities.
• Would it be appropriate, for purposes of a transition period (rather than setting a compliance date), to provide different periods of time for larger and smaller entities? Would it be appropriate to instead require all funds that engage or seek to engage in derivatives or financial commitment transactions to do so in reliance on proposed rule 18f-4 after a period of time that would be the same for all affected funds, for example 18 months after any adoption of proposed rule 18f-4?
• Should we provide a longer transition period for particular types of funds? If so, which kinds of funds and how much time should we provide? Should we, for example, provide a longer transition period for leveraged ETFs on the basis that they operate pursuant to the terms and conditions of exemptive orders granted by the Commission? In section III.B.1.c, we requested comment as to whether it would be more appropriate to consider these funds' use of derivatives transactions in the exemptive application context, based on the funds' particular facts and circumstances, rather than in rule 18f-4. If commenters believe this would be appropriate, would a longer transition period for these funds also be appropriate in order to provide time for these funds to prepare, and for the Commission to consider, any exemptive applications?
The Commission is sensitive to the economic effects that could result from proposed rule 18f-4 and the proposed amendments to proposed Forms N-PORT and N-CEN. The economic effects of proposed rule 18f-4 include the benefits and costs of the proposed rule, as well as effects on efficiency, competition, and capital formation. The economic effects of the proposed rule are discussed below in the context of the primary goals of the proposed regulation. We discuss the benefits, costs, and economic effects associated with our proposed amendments to proposed Forms N-PORT and N-CEN in sections IV.D.6 and IV.D.7, below.
In summary, and as discussed in greater detail throughout this Release, the proposed rule would require a fund that enters into derivatives transactions in reliance on the rule to:
• Comply with one of two alternative portfolio limitations designed to impose a limit on the amount of leverage the fund may obtain through derivatives transactions and other senior securities transactions;
• Manage the risks associated with its derivatives transactions by maintaining qualifying coverage assets in an amount designed to enable the fund to meet its obligations under its derivatives transactions; and
• Establish a formalized derivatives risk management program (unless otherwise exempt based on the extent of its derivatives usage).
The proposed rule would also require a fund that enters into financial commitment transactions in reliance on the rule to maintain qualifying coverage assets equal in value to the fund's full obligations under those transactions.
As discussed above in section II.D.1.a, we have determined to propose a new approach to funds' use of derivatives in order to address the investor protection purposes and concerns underlying section 18 of the Act and to provide an updated and more comprehensive approach to the regulation of funds' use of derivatives transactions. The investor protection purposes and concerns include the concern that leveraging an investment company's portfolio through the issuance of senior securities magnifies the potential for gain or loss and therefore results in an increase in the speculative character of the investment company's outstanding securities. In Release 10666, we permitted funds to engage in the transactions described in that release using the segregated account approach, notwithstanding the limitations in section 18, because we believed that the segregated account approach would address the investor protection purposes and concerns underlying section 18 by imposing a practical limit on the amount of leverage a fund may undertake and assuring the availability of adequate assets to meet the fund's obligations arising from such transactions.
As we discussed above, the current regulatory framework, including application of the segregated account approach enunciated in Release 10666 to derivatives transactions, has developed over the years since we issued Release 10666 as funds and our staff sought to apply our statements in Release 10666 to various types of derivatives and other transactions on an instrument-by-instrument basis. One significant result of this process has been funds' expanded use of the mark-to-market segregation approach with respect to various types of derivatives, together with the segregation of a variety of liquid assets. Funds' use of the mark-to-market segregation approach with respect to various types of derivatives, plus the segregation of any liquid asset, enables funds to obtain leverage in amounts that may not be consistent with the concerns underlying section 18 of the Act. As we noted above, segregating only a fund's daily mark-to-market liability—and using any liquid asset—enables the fund, using derivatives, to obtain exposures substantially in excess of the fund's net assets. In addition, a fund's segregation of any asset that the fund deems sufficiently liquid to cover a derivative's daily mark-to-market liability may not effectively result in the fund having sufficient liquid assets to meet its future obligations under the derivative.
The proposed rule is designed to address the investor protection purposes and concerns underlying section 18 and to provide an updated and more comprehensive approach to the regulation of funds' use of derivatives transactions in light of the dramatic growth in the volume and complexity of the derivatives markets over the past two decades and the increased use of derivatives by certain funds. Under the proposed rule, funds would be permitted to enter into derivatives transactions and financial commitment transactions in reliance on the rule, subject to its conditions.
The proposed rule provides both for an outside limit on the magnitude of funds' derivatives exposures designed primarily to address concerns about excessive leverage and undue speculation and a requirement to manage risks associated with its derivatives transactions by maintaining qualifying coverage assets that is designed primarily to address concerns about a fund's ability to meet its obligations in connection with its derivatives and financial commitment transactions. The proposed rule also seeks to provide a balanced and flexible approach by permitting funds to obtain additional derivatives exposure (under the risk-based portfolio limit) where the fund's derivatives, in the aggregate, have a risk-mitigating effect on the fund's overall portfolio.
As noted above, the proposed rule includes asset segregation requirements for both derivatives transactions and financial commitment transactions. With regard to derivatives, a fund would
Finally, except for funds that engage in only a limited amount of derivatives transactions and that do not use certain complex derivatives transactions, the fund would be required to establish a derivatives risk management program, including the appointment of a derivatives risk manager. The derivatives risk management program requirement is designed to complement the portfolio limitations and asset coverage requirements by requiring a fund subject to the requirement to assess and manage the particular risks presented by the fund's use of derivatives.
The proposed rule would affect funds and their investors, investment advisers, and market participants engaged in the issuance, trading, and servicing of derivatives, financial commitment transactions, and securities. Market participants include fund counterparties and other third-party service providers such as fund custodians and administrators.
The economic baseline of the proposed rule is the current industry practice established in light of Commission and staff positions that funds rely upon when determining whether they are permitted under the Act to engage in derivatives transactions and financial commitment transactions. As discussed above in section II.B.3, funds that engage in these types of transactions typically segregate “liquid” assets using one of two general practices: Notional amount segregation or mark-to-market segregation. The current approach has developed over the years since we issued Release 10666 as funds and our staff sought to apply our statements in Release 10666 to various types of derivatives and other transactions. We understand that, in determining how they will comply with section 18, funds consider various no-action letters issued by our staff. These staff letters, issued primarily in the 1970s through 1990s, addressed particular questions presented to the staff concerning the application of the approach enunciated in Release 10666 to various types of derivatives on an instrument-by-instrument basis. We understand that funds also consider, in addition to these letters, other guidance they may have received from our staff and the practices that other funds disclose in their registration statements. The current approach's development on an instrument-by-instrument basis, together with the dramatic growth in the volume and complexity of the derivatives markets over the past two decades, has resulted in situations for which there is no specific guidance from us or our staff with respect to various types of derivatives.
Our staff economists have analyzed recent industry-wide trends and certain funds' portfolio holdings in order to provide information about funds' use of derivatives and to inform our consideration of the proposed rule and assess its economic effects.
According to Morningstar, at the end of June 2015, there were 9,707 registered open-end funds, 560 closed-end funds, and 1,706 ETFs (11,973 total funds) with a total reported AUM of $17.9 trillion.
Although not large in terms of industry AUM (less than 3% as of June 2015
DERA staff manually collected data regarding derivatives, financial commitment transactions, and other senior security transactions from the then-latest fund annual reports of a 10% random sample of all registered management investment companies as well as business development companies as of June, 2015.
In the resulting sample of 1,188 funds, 68% (53% in AUM) had zero exposure to derivatives and approximately 89% (90% in AUM) had less than 50% exposure as a percentage of NAV.
DERA examined the detailed holdings for every fund in its sample and found that alternative strategy funds hold the most derivatives and have the highest exposure (expressed as aggregate notional amounts relative to fund net asset value). Among alternative strategy funds, 73% had at least some exposure to derivatives and 52% had greater than 50% exposure to derivatives.
As noted above, as of June 2015, there were 560 closed-end funds with total AUM of $250 billion. In DERA's random sample of the funds, 47% of closed-end funds had some exposure to derivatives.
Also as noted above, as of June 2015, there were 1,706 ETFs and 88 BDCs with total AUM of $1.8 trillion and $52.3 billion, respectively. In DERA's random sample of the funds, 29% of ETFs and zero BDCs had some exposure to derivatives.
Our staff also analyzed, through a review of recent N-SAR filings, the extent to which funds are permitted (as stated in fund disclosure documents) to use certain derivatives as part of their investment objective or strategy.
Under the current regulatory framework, funds that invest in derivatives and other senior securities generally segregate certain assets with respect to those transactions. While our staff has observed that some funds have interpreted the guidance differently in certain cases, we assume for purposes of establishing the baseline that funds generally segregate sufficient assets to cover at least any mark-to-market liabilities on the funds' derivatives transactions, with some funds segregating more assets for certain types of derivatives and transactions (sufficient to cover the full notional amount of the transaction or an amount in between the transaction's full notional amount and any mark-to-market liability).
There is currently no requirement for funds that invest in derivatives to have a risk management program with respect to their derivatives transactions, although we understand that the advisers to many funds whose investment strategies could entail derivatives already assess and manage the risks associated with derivatives transactions. Funds' current risk management practices may not meet the proposed rule's specific risk-management program requirements, however, and therefore we believe that the baseline for the derivatives risk management program requirement would be that all funds that would be subject to the requirement would need to establish such a program or conform their current practices to satisfy the requirements in the proposed rule.
Below, we discuss anticipated economic impacts, including effects on efficiency, competition, and capital formation that may result from our proposals. Where possible, we have attempted to quantify the costs, benefits, and effects of the proposed rule and amendments to Forms N-PORT and N-CEN. In many cases, however, we are unable to quantify the economic effects because we lack the information necessary to provide a reasonable estimate.
As discussed above, there is substantial diversity in the types and strategies of funds and how and to what extent funds use derivatives. Moreover, for those funds that do use derivatives, there is substantial variability in how they comply with current Commission positions and staff guidance on compliance with section 18 (including asset segregation). There is also substantial variability in how any given fund may react to the proposed rule, if adopted, and how the market may react in turn. A fund that uses a moderate amount of derivatives may increase or decrease its derivative usage, or shift within types of derivatives (
We believe that the proposed rule is likely to strengthen investor protection. First, the proposed rule would limit the amount of leverage that a fund may obtain through derivatives transactions and other senior securities transactions. Under the proposed rule, a fund that seeks to comply with the exposure-based portfolio limit would be required to limit its aggregate exposure to 150% of the fund's net assets, and a fund that seeks to comply with the risk-based portfolio limit would be required to demonstrate, through a value-at-risk-based test,
As we have discussed above, leverage magnifies losses that may result from adverse market movements. As a result, a fund that obtains leverage through derivatives and other senior securities transactions may suffer those magnified losses and, because losses on a fund's derivatives transactions can create payment obligations for the fund, the losses can force a fund's adviser to sell the fund's investments to generate liquid assets in order for the fund to meet its obligations. This could force the fund to enter into forced sales in stressed market conditions, resulting in
The proposed rule may reduce costs and promote efficiency with respect to certain uses of derivatives by replacing the current regulatory framework that depends upon interpretation of Commission and staff guidance with a more transparent and comprehensive regulatory framework that addresses more effectively the purposes underlying section 18. The proposed rule would eliminate disparities under the current regulatory framework, where funds segregate the full notional amount for certain derivatives and segregate only the mark-to-market liability for other types of derivatives. For example, current staff guidance generally calls for a fund to segregate liquid assets equal in value to the full notional amount of a physically settled futures contract. A fund that wishes to avoid encumbering a large portion of its liquid assets might be incentivized to instead enter into a cash settled OTC swap on the same futures contract and segregate only its mark-to-market liability (if any) under the swap, even if the swap entails higher transaction costs, is less liquid, and/or poses greater counterparty risk. The risk may be compounded further because the mark-to-market segregation approach potentially enables the fund to obtain a level of leverage that is many times greater than its net assets. By contrast, under the proposed rule's portfolio limitations, a physically settled futures contract and a cash-settled swap on the futures contract, both of which have the same notional amount, would be subject to the same treatment. This approach should serve to reduce the likelihood that a fund would choose a less efficient instrument to obtain its investment exposures and also reduce the uncertainty that exists regarding treatment of new products that are not addressed specifically in existing Commission or staff guidance. By providing consistency in how funds treat different derivatives transactions, we believe that the proposed rule should reduce opportunities for regulatory arbitrage where a fund prefers “cheap-to-cover” derivatives—those for which a fund applies the mark-to-market segregation approach—and therefore promote a more efficient use of derivatives instruments by funds when implementing their portfolio strategies.
As discussed above in section III.C.1, the proposed rule would require that a fund maintain qualifying coverage assets, for each derivatives transaction, in an amount equal to the sum of (1) the amount that would be payable by the fund if the fund were to exit the derivatives transaction at the time of the determination (the “mark-to-market coverage amount”), and (2) an amount that represents an estimate of the potential amount payable by the fund if the fund were to exit the derivatives transaction under stressed conditions (the “risk-based coverage amount”). The proposed rule is designed to be flexible enough to allow a fund to determine these amounts both for existing types of derivatives transactions and for new derivatives instruments that are created in the future. For example, the proposed rule provides that a derivatives transaction's risk-based coverage amount would be an amount that represents an estimate of the potential amount payable by the fund if the fund were to exit the derivatives transaction under stressed conditions, determined in accordance with policies and procedures that address certain considerations specified in the rule. The proposed rule thus does not prescribe the particular methodology that a fund must use to calculate its risk-based coverage amount when segregating assets on its derivatives transactions. Instead, the proposed rule permits a fund to make such determinations in accordance with policies and procedures approved by the fund's board, based on a fund's particular facts and circumstances. We believe that this flexible approach would permit, and may promote, appropriate innovation in the development and use of new derivative instruments that may be beneficial for funds and investors. We also believe that this may increase investor protection by requiring that funds assess the risk of their derivatives transactions and segregate assets to cover an amount in addition to the mark-to-market liability.
Many of the impacts of the proposed rule will depend on how funds react to the conditions it imposes. As an initial matter, based on the DERA staff analysis, which shows that a substantial majority of funds in the DERA sample did not use derivatives or used derivatives to a limited extent, the portfolio limits under the proposed rule are not expected to affect the investment activities of a majority of funds.
Some funds will not be compelled by the proposed rule to modify their derivatives exposure, but they might nonetheless respond to the proposed rule's treatment of derivatives by modifying their derivatives holdings. For example, because funds today apply the notional amount segregation approach to certain derivatives, such as physically settled Treasury futures or CDS, there exists, as discussed above, an incentive for funds to invest in derivatives for which funds apply the mark-to-market segregation approach. Because the proposed rule would remove the disparate treatment for different derivatives with the same notional amounts, it is possible that the proposed rule may result in greater use of the types of derivatives that funds today may use less extensively because of the need to apply the notional amount segregation approach. By contrast, funds that today only segregate the mark-to-market liability for their derivatives would need to segregate a greater quantity of assets and, if the fund had not been segregating cash and cash equivalents, would generally be required to segregate assets that are more liquid. Such a fund could determine to reduce its derivatives exposure to avoid segregating a greater quantity of assets that are cash and cash equivalents. Similarly, funds that use
Because we do not know to what extent the current regulatory framework for derivatives may have been influencing funds' use of derivatives—for example, the extent to which differences in the two approaches to asset segregation may have been distorting funds' choices of products in the current market—we do not know to what extent funds would change existing positions, or would enter into different positions going forward, under the proposed rule. Accordingly, we cannot quantify this potential effect. We discuss the potential effects of each directional option (decreasing derivatives use, shifting portfolio composition, or increasing derivatives use) below.
A fund may incur costs to reduce derivatives use if it pays a penalty or other amount to a counterparty to unwind a position, or if the fund sells its position to a third party (or the fund enters into a directly offsetting position to make use of the netting provision in the proposed rule.) To the extent that a fund uses derivatives for directional exposure, reducing the use of derivatives could reduce returns to the fund's shareholders. This could potentially make the fund (1) less attractive to existing shareholders who desire greater market exposure; or (2) more attractive to new shareholders who prefer lower levels of exposure (or encourage current shareholders to increase their investment in the fund because of the lower derivatives exposure). To the extent that a fund uses derivatives for hedging, reducing derivatives use could change the risk profile of the fund's portfolio, depending on the derivative position that the fund determines to close as well as other related changes the fund determines to make to its portfolio.
A fund that determines to shift the composition of derivatives used, for example toward physically-settled derivatives, would incur transaction costs in modifying the portfolio—the costs to exit prior positions and to enter into new ones. But the benefits to the fund of holding a more “optimal” (from its perspective) composition of derivatives—
A fund that determines to increase its use of derivatives would incur transaction costs to enter into the new positions and, if those new positions were to cause the fund's exposure to exceed 50% of net asset value, the fund would be required to adopt and implement a formalized derivatives risk management program under the proposed rule and incur the associated costs. The impacts to the funds' investors would be different from those experienced by investors in funds that determine to reduce derivatives exposure. If the derivatives are used for directional exposure, the increase in leverage increases the potential for increased returns but also increases risk of loss, which some investors might prefer and others might not. If the derivatives are used for hedging, the increase in derivatives could increase or decrease the level of risk (and thus potential return) that the fund assumes, depending on the particular derivatives entered into.
With respect to each of the possibilities listed above, and for several additional options discussed in greater detail below, we describe the existence of transaction costs for the fund to terminate or transfer existing obligations, and to enter into new ones. These costs include fees, and operational and administrative costs, as well as the spread paid to intermediaries and the market impact on prices, if any. The degree of mark-ups and market impact can turn on the transparency and liquidity of the market, as well as the size of other market participants (
Some types of funds use derivatives more extensively. Alternative strategy funds, in particular, have experienced significant growth and have been shown to be heavier users of derivatives. Four managed futures funds in DERA's sample, for example, exhibited aggregate notional exposures ranging from approximately 500% to 950% of net assets, far greater than the exposure limits we are proposing today. Some ETFs (or other funds) expressly use derivatives to obtain a leveraged multiple of two or three times the daily performance (or inverse performance) of an index. Some of these funds had derivatives exposures exceeding 150% of net assets.
Some funds within this category of heavier derivatives users might be limited under the proposed rule from achieving high leverage through derivatives, and they might choose to modify their investment activities or portfolio composition in order to comply with the proposed rule. They could do so in three principal ways. First, a fund could react to the proposed rule's conditions (
Second, a fund that is limited by the proposed rule from achieving high leverage through derivatives might modify its investment activities by engaging in transactions that might involve leverage but not the issuance of a senior security that would be restricted by section 18 (
Third, a fund that is limited by the proposed rule from achieving high leverage through derivatives might modify its investment activities and reduce its use of derivatives by purchasing the securities underlying a derivative instrument (
In addition to the direct effects on the fund of transacting in the derivatives rather than in the underlying assets, there are indirect effects. A fund that reduces its use of derivatives or replaces them with underlying assets may affect the fund's liquidity. We recognize that certain derivatives can be more liquid than their underlying reference assets. For example, it is cheaper to trade certain CDS contracts than to trade the underlying bonds.
These three approaches all involve a fund changing its investment strategy in order to comply with the rule and are likely to have similar impacts on capital formation. A fund might seek to reduce its aggregate exposure by replacing a derivative with the underlying security. As a result, the overall demand for the underlying securities may increase and therefore promote capital formation, assuming that those underlying securities would not themselves have been held by the counterparty to the fund's derivative contract to hedge that exposure.
Other funds that use derivatives extensively, including the types of funds discussed above (as those most likely to be impacted by the proposed rule), may be unable to scale down their aggregate exposures or otherwise de-lever their funds in a way that allows the fund to maintain its investment objectives or provide a product that has sufficient investor demand. Such a fund may choose to deregister under the Act and liquidate, and/or the fund's sponsor may choose to offer the fund's strategy as a private fund or (public or private) commodity pool.
For example, a fund that must reduce its aggregate exposure may not be able to offer the returns (and risks) that some investors demand. ETFs (or other funds) that use derivatives to obtain a leveraged multiple of the performance (or inverse performance) of an index and that require exposures in excess of 150% of net assets could not operate in their current form under the proposed rule, and may not have sufficient demand at lower exposure levels. Some of these funds therefore may be liquidated or merged into other funds.
As discussed above, however, alternative strategy funds and certain leveraged ETFs (the types of fund most likely to be particularly affected by the proposed rule) represent a very small percentage of fund assets under management—approximately 3% of all fund assets.
In the event that a fund is unable to operate under the proposed rule's aggregate exposure limit, the fund's sponsor and/or investment adviser may choose to: (1) Offer the fund as a private fund or (public or private) commodity pool; (2) liquidate the fund's assets and deregister the fund under the Act; or (3) merge the fund into another fund. We estimate that the average cost associated with such actions would range from $30,000 to $150,000, per fund, depending on the particular actions taken by the fund (or its sponsor or investment adviser).
The proposed rule's aggregate exposure limits may, in certain situations, constrain a fund's ability to use derivatives as a hedge in connection with its investment strategies. Although the analysis conducted by DERA staff indicates that most funds do not today have aggregate exposure in excess of the proposed rule's 150% and 300% exposure limitations, it is possible that a fund that uses a substantial amount of
For example, it is possible that a fund that complies with the risk-based portfolio limit's VaR test could be precluded from entering into additional derivatives to protect against a particular risk if the fund had reached the risk-based portfolio limit's 300% limit on aggregate exposure. Such a limitation would appear to apply only if the fund engages in extensive use of derivatives. For example, a bond fund could seek to protect its portfolio against 100% of its interest rate risk and currency risk through derivatives transactions and also seek to hedge a substantial amount of its credit risk while still having room under the 300% limit to seek to hedge other risks such as inflation risk.
Proposed rule 18f-4 would also require a fund that engages in financial commitment transactions in reliance on the rule to maintain qualifying coverage assets equal in value to the fund's full obligations under those transactions. The proposed rule generally would take the same approach to financial commitment transactions that we applied in Release 10666, with some modifications discussed above in III.E. The proposed rule's requirements for financial commitment transactions, similar to the approach we applied in Release 10666, would limit the extent to which a fund could engage in financial commitment transactions, in that the fund could not incur obligations under those transactions in excess of the fund's qualifying coverage assets. This would limit a fund's ability to incur obligations under financial commitment transactions to 100% of the fund's net assets, as discussed above in III.E. We believe that the proposed rule is not likely to impose any significant additional limitation on the extent to which a fund can incur obligations under financial commitment transactions (as compared with the current economic baseline) because, as noted above, funds that enter into these transactions today do so in reliance on Release 10666, which generally would limit the fund's obligations under these transactions to the fund's net assets.
We also note that the proposed asset segregation requirements, to the extent that a fund is required to increase its holdings of cash and cash equivalents (for derivatives transactions) or assets convertible to cash or that can generate cash (for financial commitment transactions), may adversely affect efficiency, competition, and capital formation. For example, holding higher levels of these assets may reduce efficiency by requiring a fund's investment adviser to invest the fund's assets in cash and cash equivalents or assets convertible to cash or that can generate cash to a greater extent than the adviser otherwise would invest the fund's assets, given the fund's investment strategy and investor base. This, in turn, could adversely affect investors by reducing a fund's investment returns, and reduce competition by decreasing a fund's investment opportunities to generate higher returns. In addition, a fund that holds greater amounts of cash and cash equivalents (all other things, such as fund flows, being equal) necessarily holds a smaller amount of securities in its portfolio, which may adversely affect capital formation. As discussed in Section III.C.2 above, however, we understand that cash and cash equivalents are commonly used for posting collateral or margin for derivatives transactions.
Finally, we note that the size of a fund, or the complex of funds to which a fund belongs, could have certain competitive effects with respect to a fund's compliance with proposed rule 18f-4, including the implementation of its derivatives risk management program, where applicable. For example, if there are economies of scale in creating and administering multiple derivatives risk management programs, a fund that is part of a large fund complex would have a competitive advantage. A fund in a smaller complex, on the other hand, may use a greater portion of its resources to create and administer a derivatives risk management program, which may increase barriers to entry in the fund industry, and lead to an adverse effect on competition. The size of a fund complex also could produce competitive advantages or disadvantages with respect to a fund's use of products developed by third parties to assist a fund in calculating
We have discussed above a number of general benefits and costs, including effects on efficiency, competition, and capital formation that we believe would generally result from the proposed rule. Taking into account the goals of the proposed rule and the economic baseline, as discussed above, this section explores specific benefits and quantified costs, in the context of each core element of the proposed rule.
We note that the following analyses and estimates are made on a per fund basis, and are not made on a fund complex basis. We have made these estimates on a per fund basis because the DERA sample analysis upon which we rely in our economic analysis was performed at a fund level. In addition, we believe that the extent of derivatives use varies widely between funds. Accordingly, we believe that estimating costs on a per fund basis is likely to provide more meaningful estimates, consistent with the approach taken in the DERA sample. We recognize, however, that many funds are part of a fund complex, and thus may realize economies of scale in complying with the proposed rule.
As discussed above in section III.B.1, the proposed rule would require that a fund that engages in derivatives transactions in reliance on the rule comply with one of two alternative portfolio limitations. The first portfolio limitation—the exposure-based portfolio limit—would place an overall limit on the amount of exposure to underlying reference assets, and potential leverage, that a fund would be able to obtain from derivatives transactions covered by the proposed rule by limiting the fund's exposure under these derivatives transactions and other senior securities transactions to 150% of the fund's net assets.
The 150% aggregate exposure limit in the exposure-based portfolio limit (as well as the 300% exposure limit in the risk-based portfolio limit discussed below) is designed primarily to impose an overall limit on the amount of exposure to underlying reference assets, and potential leverage, that a fund would be able to obtain through derivatives subject to the rule and other senior securities transactions, while also providing flexibility for a fund to use derivatives for a variety of purposes.
The proposed rule's definition of exposure for derivatives transactions would require that a fund aggregate the notional amounts of those derivatives (with certain adjustments specified in the proposed rule).
Funds that elect to rely on the rule would incur one-time and ongoing operational costs to establish and implement a 150% exposure-based portfolio limitation.
The extent to which a fund currently engages in derivatives transactions may affect the costs the fund would incur. For example, funds that today use derivatives more extensively may already have systems that can be used to determine a fund's exposure or that could more readily be updated to include that functionality. Proposed Form N-PORT would require funds to report the notional amounts of certain derivatives on the form and, if we adopt Form N-PORT, the systems or enhancements put in place by funds in connection with Form N-PORT's reporting requirements may provide an efficient means to calculate notional amounts for proposed rule 18f-4. Conversely, a fund that uses derivatives only modestly may not have existing systems that can be as readily used to determine a fund's exposure, but a fund that uses derivatives modestly may be able to determine its exposure without the need to establish the kinds of more extensive systems that might be required or desired by funds that use derivatives more extensively.
The types of derivatives a fund uses also may affect the costs the fund would incur. Funds that enter into complex derivatives transactions, as defined in the proposed rule, would be required to determine the notional amounts of those transactions using the alternative approach specified in the proposed rule for complex derivatives transactions. Under this approach, the notional amount of a complex derivatives transaction would be equal to the aggregate notional amount(s) of derivatives instruments, excluding other complex derivatives transactions, reasonably estimated to offset substantially all of the market risk of the complex derivatives transaction at the time the fund enters into the transaction.
Our staff estimates that the one-time operational costs necessary to establish and implement an exposure-based portfolio limitation would range from $20,000 to $150,000
Our staff estimates that a fund that is part of a fund complex will likely benefit from economies of scale and incur costs closer to the low-end of the estimated range of costs, while a standalone fund is more likely to incur costs closer to the higher-end of the
Staff also estimates that each fund would incur ongoing costs related to implementing a 150% exposure-based portfolio limitation under proposed rule 18f-4. Staff estimates that such costs would range from 20% to 30% of the one-time costs discussed above.
In the DERA staff analysis, 68% of all of the sampled funds did not have any exposure to derivatives transactions.
As discussed above, we have not aggregated the estimated range of costs across the entire fund industry. We note, however, that the vast majority of funds operate as part of a fund complex, and therefore we expect that many funds would achieve economies of scale in implementing the proposed rule. Accordingly, we believe that the lower-end of the estimated range of costs ($20,000 in one-time costs; $4,000 in annual costs) better reflects the total costs likely to be incurred by many funds.
As noted above, based on the DERA sample, 68% of all sampled funds (8,142 funds'
As discussed above in section III.B.2, the proposed rule would require that a fund that engages in derivatives transactions in reliance on the rule comply with one of two alternative portfolio limitations. The second portfolio limitation is the risk-based portfolio limit, which would focus primarily on a risk assessment of the fund's use of derivatives, and would permit a fund to obtain exposure in excess of that permitted under the first portfolio limitation where the fund's derivatives transactions, in the aggregate, result in an investment portfolio that is subject to less market risk than if the fund did not use such derivatives, evaluated using a VaR-based test.
The principal benefit of the risk-based portfolio limit is that it recognizes that funds may use derivatives to not only seek higher returns through increased investment exposures, but importantly, also as a low-cost and efficient means to reduce and/or mitigate risks associated with the fund's portfolio. Some funds may have or develop investment strategies that include the use of derivatives that, in the aggregate, have relatively high notional amounts, but that are used in a manner that could be expected to reduce the fund's exposure to market risk rather than to increase exposure to market risk through the use of leverage. We expect that investors, and the markets in general, would benefit from an alternative portfolio limitation that focuses primarily on a risk assessment of a fund's use of derivatives, in contrast to the exposure-based portfolio limit, which focuses solely on the level of a fund's exposure. We also expect that funds should benefit from having the flexibility to select a VaR model that best addresses the funds' particular investment strategy and the nature of its portfolio investments, while also specifying certain minimum requirements in the proposed rule.
In addition to the VaR test, the risk-based portfolio limit also includes an outer limit on aggregate exposure. Investors should also benefit from a flexible approach that allows for greater aggregate exposure (as compared with the 150% exposure-based portfolio limitation), and thus may promote the use of derivatives when, in aggregate, the result is an investment portfolio that is subject to less market risk than if the fund did not use such derivatives. Including an outer exposure limit, in addition to the VaR test, should provide benefits similar to those discussed above in section IV.D.1. Those benefits include improved investor protection, increased market stability through explicit limitations on potential leverage, and an exposure calculation that uses notional amounts that are widely available and adaptable to the varied types of derivatives instruments used by funds. We also believe that increasing the aggregate exposure limit from 150% (under the exposure-based portfolio limitation) to 300% of net assets when a fund's use of derivatives, in aggregate, has the effect of reducing the fund's exposure to market risk, should benefit investors by permitting funds to engage in increased use of derivatives to mitigate risks in the fund's portfolio.
As with the quantified costs we discuss above regarding the exposure-based portfolio limit (section IV.D.1), we expect that funds would incur one-time and ongoing operational costs to establish and implement a risk-based exposure limit, including the VaR test. We expect that a fund that seeks to comply with the 300% aggregate exposure limit would incur the same costs as those that we estimated above in order to establish and implement the 150% exposure-based portfolio limit.
Our staff estimates that the one-time operational costs necessary to establish and implement a VaR test would range from $60,000 to $180,000
Our staff estimates that a fund that is part of a fund complex would likely benefit from economies of scale and incur costs closer to the low-end of the estimated range of costs, while a standalone fund is more likely to incur costs closer to the higher-end of the estimated range of costs. Our staff also estimates that a standalone fund that is a light or moderate user of derivatives may choose to comply with the proposed rule by implementing a less automated system, and thus be more likely to incur costs closer to the low-end of the estimated range of costs. We anticipate that if there is demand to develop systems and tools related to the risk-based portfolio limitation, market participants (or other third parties) may develop programs and applications that a fund could purchase at a cost likely less than our estimated cost to develop the programs and applications internally.
Staff also estimates that each fund would incur ongoing costs related to implementing a VaR test under proposed rule 18f-4. Staff estimates that such costs would range from 20% to 30% of the one-time costs discussed above.
DERA staff analysis shows that approximately 4% of all funds sampled had aggregate exposure of 150% or more of net assets.
As discussed above in section III.C, the proposed rule would require a fund that seeks to enter into derivatives transactions to manage the risks associated with its derivatives transactions by maintaining an amount of certain assets, defined in the proposed rule as “qualifying coverage assets,” designed to enable the fund to meet its obligations under such transactions. To satisfy this requirement the fund would be required to maintain qualifying coverage assets to cover the fund's mark-to-market obligations under a derivatives transaction (the “mark-to-market coverage amount,” as noted above), as well as an additional amount, determined in accordance with policies and procedures approved by the fund's board, designed to address potential future losses and resulting payment obligations under the derivatives transaction (the “risk-based coverage amount,” as noted above).
The proposed asset segregation will likely improve a fund's ability to meet its obligations under its derivatives transactions. The proposed rule's requirement that the fund maintain qualifying coverage assets with a value equal to the fund's mark-to-market coverage amount is designed to require the fund to have assets sufficient to meet its obligations under the derivatives transaction, which may include margin or similar payments demanded by the fund's counterparty as a result of mark-to-market losses, or payments that the fund may make in order to exit the transaction. The proposed rule's requirement that the fund maintain qualifying coverage assets with a value equal to the fund's risk-based coverage amount is designed to require the fund to have qualifying coverage assets to cover future losses and any resulting future payment obligations.
By requiring a fund to determine its risk-based coverage amounts in accordance with board-approved policies and procedures, the proposed rule's approach to asset segregation is designed to provide a flexible framework that would allow funds to apply the requirements of the proposed rule to particular derivatives transactions used by funds at this time as well as those that may be developed in the future as financial instruments and investment strategies change over time.
In addition, the proposed asset segregation requirements may benefit investors by eliminating the existing practice by some funds (under existing staff guidance) to segregate for certain derivatives transactions (
The proposed rule generally would require a fund to segregate cash and cash equivalents as qualifying coverage assets in respect of its coverage obligations for its derivatives transactions. To the extent that a fund currently posts collateral to counterparties for derivatives transactions,
For all of these reasons, we believe that the proposed asset segregation requirements should more effectively result in a fund having sufficient assets to meet its obligations under its derivatives transactions. By requiring the fund to maintain qualifying coverage assets—generally cash equivalents—sufficient to cover the fund's current mark-to-market obligation and an additional amount designed to address future losses, the proposed rule is designed to reduce the risk that the fund would be required to sell portfolio assets in order to generate assets to satisfy the fund's derivatives payment obligations, particularly in an environment where those assets may have experienced a temporary decline in value, thereby magnifying the fund's losses on the forced sale. In addition to the benefit to investors, as discussed above, counterparties to the derivatives transactions may benefit from an
As with the quantified costs we discuss above regarding the exposure-based and risk-based portfolio limits (section III.B.1), we expect that funds would incur one-time and ongoing operational costs to establish and implement systems in order to comply with the proposed asset segregation requirements. As discussed above, and pursuant to existing Commission statements and staff guidance, two general practices have developed: the notional amount segregation approach and the mark-to-market segregation approach. Also as discussed above, funds today are determining their current mark-to-market losses, if any, each business day with respect to the derivatives for which they currently segregate assets on a mark-to-market basis, and funds also already calculate their liability under derivatives transactions on a daily basis for various other purposes, including to satisfy variation margin requirements and to determine the fund's NAV. We believe that funds that currently calculate their liability under their derivatives transactions on a daily basis would likely calculate the proposed mark-to-market coverage amount in the same manner, and therefore would not likely incur significant new costs when calculating the fund's mark-to-market coverage amount under the proposed rule.
The risk-based coverage amount would be determined in accordance with policies and procedures approved by the fund's board that are required to take into account certain factors specified in the proposed rule. By requiring funds to establish appropriate policies and procedures, rather than prescribing specific segregation amounts or methodologies, the proposed rule is designed to allow funds to assess and determine risk-based coverage amounts based on their specific derivatives transactions, investment strategies and associated risks. As a result, we expect that, for funds that are significant users of derivatives, these funds may already use VaR or other risk-management tools to manage associated risks, and may be able to reduce costs by using these tools to calculate the risk-based coverage amount. We therefore anticipate that the relative costs to a particular fund are likely to vary, depending on the extent to which a fund enters into derivatives transactions and the level of sophistication of a fund's risk management processes surrounding its use of derivatives. These costs will directly impact funds (and may indirectly impact fund investors if a fund's adviser incurs costs and passes along its costs to investors through increased fees).
Our staff estimates that the one-time operational costs necessary to establish and implement the proposed asset segregation requirements would range from $25,000 to $75,000
As we discussed above, a fund that is part of a fund complex would likely benefit from economies of scale and incur costs closer to the low-end of the estimated range of costs, while a standalone fund is more likely to incur costs closer to the higher-end of the estimated range of costs. Our staff also estimates that a standalone fund that is a light or moderate user of derivatives may choose to comply with the proposed rule by implementing a less automated system, and thus be more likely to incur costs closer to the low-end of the estimated range of costs. We anticipate that if there is demand to develop systems and tools related to the asset segregation requirements, market participants (or other third parties) may develop programs and applications that a fund could purchase at a cost likely less than our estimated cost to develop the programs and applications internally.
Staff also estimates that each fund would incur ongoing costs related to implementing the asset segregation requirements under proposed rule 18f-4. Staff estimates that such costs would range from 65% to 75% of the one-time costs discussed above.
As discussed above in section IV.D.1, in the DERA staff analysis, 68% of all of the sampled funds did not have any exposure to derivatives transactions. These funds thus do not appear to use derivatives transactions or, if they do use them, do not appear to do so to a material extent. Staff estimates that the remaining 32% of funds (3,831 funds
The proposed asset segregation requirements may also impose indirect costs, such as the potential reduction in fund returns that could result if funds are required to segregate cash and cash equivalents, rather than potentially higher-yielding liquid assets (such as equities, as permitted under existing staff guidance). We are unable to quantify this cost because we do not have sufficient data with respect to the nature and extent to which funds segregate assets under existing staff
As discussed above in section III.D, a fund that seeks to enter into derivatives transactions and rely on proposed rule 18f-4, except with respect to funds that engage in only a limited amount of derivatives transactions and that do not enter into certain complex derivatives transactions, would be required to establish a formalized derivatives risk management program, including the appointment of a derivatives risk manager.
The proposed derivatives risk management program is designed to complement the proposed rule's portfolio limitations and asset segregation requirements by requiring that a fund subject to the requirement assess and manage the particular risks presented by the fund's use of derivatives. The derivatives risk management program would not apply, however, to funds that make only limited use of derivatives and do not use complex derivatives because we expect that the risks and potential impact of these funds' derivatives transactions may not be as significant in comparison to the risks of the funds' overall investment portfolios and may be appropriately addressed by the proposed rule's other requirements, including the requirement to determine risk-based coverage amounts. The proposed rule, therefore, provides a tailored approach that we expect would benefit funds and investors by requiring funds that use derivatives more substantially to establish derivatives risk management programs while allowing certain funds to continue using derivatives (as deemed appropriate by a fund) to help implement the fund's strategy without first having to establish a derivatives risk management program under the proposed rule, provided such use is limited.
The proposed derivatives risk management program requirement aims to promote a minimum baseline in the fund industry with regard to the use of derivatives transactions, and should improve funds' management of the risks related to a fund's use of derivatives as well as the awareness of, and oversight by, the fund's board (through the proposed rule's derivatives risk manager's reporting). In this regard we recognize that the benefits a particular fund and its investors would enjoy and the costs that it would incur in establishing a derivatives risk management program would vary depending on the particular fund's current practices. We believe that the proposed rule's promotion of a standardized level of risk management in the fund industry, however, would promote investor protection by elevating the overall quality of derivatives risk management across the fund industry. Improved quality of risk management related to funds' use of derivatives, may, for example, reduce the possibility of fund losses attributable to leverage and other risks related to the use of derivatives.
Investors should have increased confidence, for example, that a fund that states that it uses derivatives as part of achieving its investment strategy does so in ways that comply with regulatory requirements, and are consistent with the fund's own stated investment objectives, policies, and risk profile. Monitoring of the risks related to derivatives may also help protect investors from losses stemming from derivatives. To the extent that the derivatives risk management program results in more robust monitoring of the risks related to derivatives (including leverage risks that may magnify losses resulting from negative market movements), the derivatives risk management program may reduce the risk of a fund suffering unexpected losses. This, in turn, may reduce adverse repercussions for other market participants, including fund counterparties, and reduce the risk of potential forced sales which can create or exacerbate stress on other market participants. We also expect that the derivatives risk management program (including its recordkeeping requirements) should also improve the ability of the Commission, through its examination program, to evaluate the risks incurred by funds with respect to their derivatives transactions and how funds manage those risks.
In addition to the costs discussed above regarding the exposure-based and risk-based portfolio limitations and asset segregation requirements, certain funds would also incur one-time costs to establish and implement a derivatives risk management program in compliance with proposed rule 18f-4, as well as ongoing program-related costs. As discussed above, funds today employ a range of different practices, with varying levels of comprehensiveness and sophistication, for managing the risks associated with their use of derivatives. Certain elements of the derivatives risk management program may entail variability in related compliance costs, depending on a fund's particular circumstances, including the fund's investment strategy, and nature and type of derivatives transactions used by a fund.
As discussed in section II.D, we understand that the advisers to many funds whose investment strategies entail the use of derivatives already assess and manage the risks associated with their derivatives transactions. Funds whose current practices closely align with the proposed derivatives risk management program would incur relatively lower costs to comply with proposed rule 18f-4. Funds whose practices regarding derivatives risk management are less comprehensive or not closely aligned
Our staff estimates that the one-time costs necessary to establish and implement a derivatives risk management program would range from $65,000 to $500,000
Staff estimates that each fund would incur ongoing program-related costs, as a result of proposed rule 18f-4, that range from 65% to 75% of the one-time costs necessary to establish and implement a derivatives risk management program.
Under the proposed rule, a fund that limits its derivatives exposure to 50% or less of net assets (and does not enter into complex derivatives transactions) would not be required to establish a derivatives risk management program.
As discussed above in section III.E, the proposed rule would require a fund that enters into financial commitment transactions in reliance on the rule to maintain qualifying coverage assets, identified on the books and records of the fund and determined at least once each business day, with a value equal to the fund's aggregate financial commitment obligations, which generally are the amounts of cash or other assets that the fund is conditionally or unconditionally obligated to pay or deliver under its financial commitment transactions. The proposed rule would permit a fund to maintain as qualifying assets for a financial commitment transaction assets that are convertible to cash or that will generate cash, equal in amount to the financial commitment obligation, prior to the date on which the fund can be expected to be required to pay such obligation or that have been pledged with respect to the financial commitment obligation and can be expected to satisfy such obligation, determined in accordance with policies and procedures approved by the fund's board of directors.
By requiring the fund to maintain qualifying coverage assets to cover the fund's full potential obligation under its financial commitment transactions, the proposed rule generally would take the same approach to these transactions that we applied in Release 10666, with some modifications (primarily to the types of segregated assets that would be permitted under the proposed rule). The proposed rule would limit a fund's obligations under financial commitment transactions, in that the fund could not incur obligations under those transactions in excess of the fund's qualifying coverage assets. This would limit a fund's ability to incur obligations under financial commitment transactions to 100% of the fund's net
We estimate above in section IV.D.3 the potential costs of the asset segregation requirement for funds that enter into derivatives transactions. We estimated that the potential costs would include: (1) Developing and implementing policies and procedures to comply with the proposed rule's requirement that the fund maintains the required qualifying coverage assets, identified on the books and records of the fund and determined at least once each business day; (2) planning, coding, testing, and installing any system modifications relating to the asset segregation requirements; and (3) preparing training materials and administering training sessions for staff in affected areas. A fund that enters solely into financial commitment transactions would similarly have an asset segregation requirement.
Although, as discussed above in section III.E, the amount and nature of “qualifying coverage assets” required differ with regard to derivatives transactions and financial commitment transactions, we believe that the operational costs to implement the asset segregation requirements would be the same. For both derivatives transactions and financial commitment transactions, funds would be required to establish policies and procedures regarding qualifying coverage assets, and in both cases funds would be required to assess their obligations under the transactions. For financial commitment transactions, a fund would be required to maintain assets that are convertible to cash or that will generate cash, equal in amount to the financial commitment obligation, prior to the date on which the fund can be expected to be required to pay its financial commitment obligation or that have been pledged with respect to the financial commitment obligation and can be expected to satisfy such obligation, determined in accordance with policies and procedures approved by the fund's board of directors. For derivatives transactions, funds would be required to determine, in addition to a mark-to-market coverage amount, the transaction's risk-based coverage amount, which would represent an estimate of the potential amount payable by the fund if the fund were to exit the derivatives transaction under stressed conditions, determined in accordance with policies and procedures approved by the fund's board. Although the required assessments would differ for derivatives transactions and financial commitment transactions, we expect that there would be no material difference in the activities involved (
Accordingly, we estimate that the one-time operational costs necessary to establish and implement the proposed asset segregation requirements would range from $25,000 to $75,000 per fund.
As discussed above in section III.G.2, proposed Form N-PORT would require funds that are required to implement a derivatives risk management program to disclose vega and gamma, risk metrics information that is not currently required by the Commission. As we previously stated, we believe that requiring certain funds to report vega and gamma would assist the Commission in better assessing the risk in a fund's portfolio. In consideration of the burdens of reporting selected risk metrics to the Commission and the benefits of more complete disclosure of a fund's risks, we are proposing to limit the reporting of vega and gamma to only those funds that are required to implement a derivatives risk management program.
The current set of requirements under which registered management investment companies (other than money market funds and SBICs) and ETFs organized as UITs publicly report complete portfolio investment information to the Commission on a quarterly basis, as well as the current practice of some investment companies to voluntarily disclose portfolio investment information, is the baseline from which we will discuss the economic effects of vega and gamma disclosure. The baseline is the same baseline from which we discussed the economic effects of Form N-PORT in the Investment Company Reporting Modernization Release.
The benefits of requiring certain funds to report vega and gamma on Form N-PORT are largely the same benefits as those identified in the Investment Company Reporting Modernization Release.
The benefits of requiring certain funds to report vega and gamma on Form N-PORT would also benefit investors, to the extent that they use the information, to better differentiate investment companies based on their investment strategies. In general, we expect that institutional investors and other market participants would directly use the information from Form N-PORT more so than individual investors. Individual investors, however, could indirectly benefit from the information in FormN-PORT to the extent that third-party information providers and other interested parties are able to report on the information and other entities utilize the information to help investors make more informed investment decisions. An increase in the ability of investors to differentiate investment companies would allow investors to efficiently allocate capital across reporting funds more in line with their risk preferences, increase the competition among funds for investor capital, and could promote capital formation.
As we discussed in the Investment Company Reporting Modernization Release, to the extent that risk metrics are not currently contained in fund accounting or financial reporting systems, funds would bear one-time costs to update systems to adhere to the new filing requirements.
Similar to our proposal in the Investment Company Modernization Release,
As with our proposed liquidity disclosures, we cannot currently predict the extent to which the proposed enhancements to funds' disclosures on Form N-PORT relating to risk metrics would give rise to front-running, predatory trading, and other activities that could be detrimental to a fund and its investors, and thus we are unable to quantify potential costs related to these activities. The costs that relate to the additional risk-sensitivity measures are also intertwined with the overall costs to funds and market participants that could result from the increased disclosure of currently non-public information associated with FormN-PORT in its entirety.
The potential costs associated with the increased disclosure of currently non-public information on Form N-PORT are discussed in detail in our recent proposal to modernize investment company reporting,
As further discussed below
As discussed above in section III.G.3, our amendments to proposed FormN-CEN would require funds to identify the portfolio limitation(s) on which a fund relied during the reporting period. As we stated above, this information would allow the Commission and others to monitor reliance on the exemptions under proposed rule 18f-4.
The current set of requirements—management companies must file reports on Form N-SAR semi-annually
The benefits of requiring funds to report reliance on certain exemptive rules, including proposed rule 18f-4, on Form N-CEN are largely the same benefits as those identified in the Investment Company Reporting Modernization Release.
As we discussed above, to the extent that reliance on certain exemptive rules is not currently contained in fund accounting or financial reporting systems, funds would bear one-time costs to update systems to adhere to the new filing requirements.
As further discussed below
In the Investment Company Modernization Reporting Release, the staff estimated that the Commission would receive an average of 3,146 reports per year, based on the number of existing Form N-SAR filers, including 2,419 funds.
As part of this burden, funds would be required to identify if they relied upon ten different rules under the Act.
In formulating our proposal, we have considered various alternatives to the individual elements of proposed rule 18f-4. Those alternatives are outlined above in the sections discussing the proposed rule elements, and we have requested comment on these alternatives.
In the Concept Release we discussed an alternative approach to funds' current asset segregation approaches—generally, notional amount and mark-to-market segregation as discussed above—that was originally proposed in the 2010 ABA Derivatives Report. This alternative approach would allow individual funds to establish their own asset segregation standards for derivatives transactions but would not impose any additional requirements or overall limits on a fund's use of derivatives. Under this alternative, a fund would be required to adopt policies and procedures that would include, among other things, minimum asset segregation requirements for each type of derivatives instrument, taking into account relevant factors such as the type of derivative, the specific transaction, and the nature of the assets segregated (“Risk Adjusted Segregation Amounts”). In developing these standards, fund investment advisers might take into account a variety of risk measures, including VaR and other quantitative measures of portfolio risk, and would not be limited to the notional amount or mark-to-market standards.
Certain commenters on the Concept Release suggested that segregation of a fund's daily mark-to-market liability alone may not be effective in at least some cases, and suggested that we impose asset segregation requirements under which a fund would include in its segregated account for a derivative an amount designed to address future losses (a “cushion amount”) in addition to the daily mark-to-market liability for the derivative.
As discussed above in section IV.D.3, the rule we are proposing today would require a fund that enters into derivatives transactions and financial commitment transactions in reliance on the proposed rule to maintain an appropriate amount of qualifying coverage assets. For derivatives transactions, a fund would be required to maintain qualifying coverage assets with a value equal to at least the sum of the fund's aggregate mark-to-market coverage amounts and risk-based coverage amounts.
The proposed rule's asset segregation requirement would in many ways be consistent with the approaches recommended by the 2010 ABA Derivatives Report and by commenters in that it would require funds to maintain amounts intended to cover the fund's current mark-to-market amount to cover the amount that would be payable by the fund if the fund were to exit the derivatives transaction at such time, plus an additional amount that represents a reasonable estimate of the potential amount payable by the fund if the fund were to exit the derivatives transaction under stressed conditions.
However, the proposed rule would differ significantly from the approach recommended in the 2010 ABA Derivatives Report and by some commenters in that the proposed rule would impose portfolio limitations, as discussed in section III.B.1.c, designed to impose a limit on the amount of leverage a fund may obtain through derivatives and other senior securities transactions. The 2010 ABA Derivatives Report alternative, in contrast, focused on asset segregation without any other limitation on a fund's use of senior securities transactions. The proposed rule's inclusion of both portfolio limitations and asset coverage requirements would be consistent with the recommendation of one commenter, which supported a principles-based approach to asset segregation but also recognized that we might “wish to consider adopting an overall leverage limit that funds would be required to comply with, notwithstanding that they have segregated liquid assets to back their obligations.”
The 2010 ABA Derivatives Report also recommended an asset segregation approach that would give discretion to boards to determine the segregation amount for each instrument and thus the amount of derivatives exposures that the fund could obtain. The proposed asset coverage requirements, by contrast, would be based in part on procedures approved by the fund's board, but would also impose specific requirements on the fund's asset coverage practices, including by generally requiring the fund to segregate short-term, highly liquid assets.
As noted in section III.A, we believe that the proposed rule's approach for derivatives transactions—providing separate portfolio limitations and asset segregation requirements—would be more effective than an approach focusing on asset segregation alone, particularly when it is coupled with a risk management program for funds that engage in more than a limited amount of derivatives transactions or that use certain complex derivatives transactions, as we are proposing today. Moreover, the approach recommended in the 2010 ABA Derivatives Report and similar suggestions by some commenters would provide discretion to funds to determine their derivatives-related requirements, and as a result, the extent of their use of senior securities transactions. We believe that this alternative approach under the 2010 ABA Derivatives Report, without more, may not result in a meaningful limitation on funds' use of derivatives, and thus would not address the undue speculation concern expressed in section 1(b)(7) or the asset sufficiency concern expressed in section 1(b)(8), as discussed above in section II. We believe that relying solely on the discretion of funds and their boards of directors for limitations on the use of derivatives would not be a sufficient basis for an exemption from section 18, which imposes a limit on the extent to which funds may issue senior securities.
Another alternative approach we considered was to apply the approach in Release 10666 to all types of derivatives, thereby requiring that a fund engaging in any derivatives transaction segregate liquid assets of the types we specified in Release 10666 equal in value to the full amount of the conditional and unconditional obligations incurred by the fund (also referred to as notional amount segregation).
Although the approach in Release 10666 appears to have addressed the concerns reflected in sections 1(b)(7) and 1(b)(8) for the trading practices described in that release, applying it to derivatives by requiring funds to segregate the types of liquid assets we described in Release 10666 equal in value to the full notional amount of each derivative may require funds to hold more liquid assets than may be necessary to address the purposes and concerns underlying section 18, as discussed above in section III.A. Furthermore, as discussed above in section III.B.1.c., given the contingent nature of funds' derivatives obligations and the various ways in which funds use derivatives—both for investment purposes to increase returns but also to mitigate risks—we believe it is appropriate to provide funds some additional flexibility to use derivatives, subject to the limitations set forth in the proposed rule.
In developing proposed rule 18f-4, we considered the current guidelines that apply to UCITS funds. As discussed below, while our proposed rule is similar in some respects to the guidelines that cover UCITS funds, our proposed rule also differs in other respects. We also considered the current guidelines that apply to AIFs. We discuss further below how our proposed rule generally differs from the guidelines that govern AIFs.
The Committee of European Securities Regulators (“CESR”) (which, as of January 1, 2011, became the European Securities and Markets Authority, or “ESMA”), conducted an extensive review and consultation concerning exposure measures for derivatives used by UCITS funds. CESR's Guidelines on Risk Measurement and the Calculation of Global Exposure and Counterparty Risk for UCITS (“Global Exposure Guidelines”)
Under the commitment approach, a UCITS fund's net exposures from derivatives may not exceed 100% of the fund's net asset value.
Although the CESR commitment approach is similar with respect to our proposed method of calculating derivatives exposure, the commitment approach differs from our proposed exposure-based alternative in several ways. First, the commitment approach permits exposures of up to only 100% of the fund's net assets rather than our proposed rule's exposure-based portfolio limit of 150%. Second, the commitment approach permits UCITS funds to reduce their calculated derivatives exposure for certain netting and hedging transactions. With respect to netting, CESR's Global Exposure Guidelines allow netting of derivatives transactions regardless of the derivatives' due dates, provided that the trades are “concluded with the sole aim of eliminating the risks linked to the positions.”
As discussed above in section III.B, given the flexibility provided by our proposed 150% exposure limit (and the requirements provided under our proposed risk-based portfolio limit discussed above), the proposed rule does not permit a fund to reduce its exposure for purposes of the rule's portfolio limitations for particular types of hedging, risk-mitigating or offsetting transactions. For all of the reasons discussed in that section, we believe that it would be more appropriate, in lieu of a reduction for hedging on a transaction-by-transaction basis, to provide funds with the flexibility to enter into derivatives transactions for a variety of purposes, including those that are partially or primarily for hedging, through a 150% exposure limitation.
Similar to our proposed rule, the UCITS guidelines also provide an alternative risk-based approach. This alternate method for UCITS compliance is the VaR (or other advanced risk measurement) approach, designed to measure potential losses due to market risk rather than measure leverage exposures.
While our proposed rule also uses a VaR ratio comparison as a risk measurement method to limit the use of derivatives, we have determined not to propose the use of an absolute VaR method that would limit the fund's VaR amount to a specified percentage of net assets, or a relative VaR that would measure a fund's VaR as compared to a reference benchmark. As discussed above in the section III.B.2.b, our concern with respect to an absolute VaR method is that the calculation of VaR on a historical basis is highly dependent on the historical trading conditions during the measurement period and can change dramatically both from year to year and from periods of benign trading conditions to periods of stressed market conditions. As discussed above in section III.B.1.c, we believe that our exposure-based portfolio limit of 150% and our risk-based portfolio limit of 300% are appropriately designed to impose a limit on the amount of leverage a fund may obtain through certain derivatives and other senior securities transactions while also providing flexibility for funds to use derivatives transactions for a variety of purposes. However, a limitation based on an absolute VaR method could potentially allow a fund to obtain very substantial amounts of leveraged exposures that the fund could then be required to unwind during stressed market conditions, which could adversely affect the fund and its investors. In addition, our staff has noted that some UCITS funds relying on the absolute VaR method disclose gross notional amounts for their portfolios that are substantially in excess of our proposed portfolio limitations that we believe are appropriate for funds subject to section 18 of the Act as discussed above in section III.B.1.c.
The relative VaR method for UCITS funds, under which a fund would compare its total portfolio VaR to an unleveraged reference portfolio or benchmark, allows a UCITS fund to use derivatives in its portfolio so long as the VaR of the UCITS fund is not greater than two times the VaR of the reference portfolio or benchmark. As discussed above in section III.B.2.a, we have not proposed this particular approach for several reasons, including concerns regarding difficulties in determining whether a reference index or benchmark is itself leveraged. Our staff has also noted that a number of UCITS funds do not use the relative VaR method and many alternative funds use a benchmark that is a money market rate (such as LIBOR), oftentimes because an analogous investment benchmark is not available for the fund strategy, which suggests that a VaR comparison to a benchmark would not provide a suitable method for many fund strategies.
In addition to the two alternative exposure limitations, CESR's Global Exposure Guidelines also subject UCITS funds to “cover rules” for investments in financial derivatives.
ESMA has also more recently adopted guidelines to assess the leverage used by AIFs marketed to professional investors in the European Union.
AIF managers are required to calculate leverage used by AIFs both under a gross method and a commitment method. As described by ESMA, “[t]he gross method gives the overall exposure of the AIF whereas the commitment method gives insight in the hedging and netting techniques used by the manager.”
For reasons discussed above, we have decided not to propose a rule that would allow fund managers to set their own exposure limitation for each fund. In addition, as discussed above, we believe it would be difficult to develop standards for determining circumstances under which transactions are offsetting other transactions, and thus we have chosen not to incorporate a hedging reduction into the proposed exposure limitations. Accordingly, and as discussed above in section III.B.1.c, we believe that a test that focuses on the notional amounts of funds' derivatives transactions, coupled with an appropriate exposure limit, will better accommodate the broad diversity of registered funds and the ways in which they use derivatives. We also believe that, to the extent fund managers may wish to include more specific risk metrics with respect to their funds, they may do so by including such metrics within the proposed derivatives risk management program.
We considered whether enhancements to funds' disclosure obligations with respect to a fund's use of derivatives would be a reasonable alternative to the proposed rule.
Although disclosure is an important mechanism through which funds inform existing and prospective shareholders of the fund's use of derivatives, we do not believe that an approach that focuses on
We do, however, believe that disclosure is an important aspect of the existing regulatory framework and that effective derivatives-related disclosure would complement the limitations on derivatives use in the proposed rule. Indeed, in May 2015, we proposed enhanced reporting and disclosure requirements for investment companies that include new reporting requirements for derivatives transactions, including, for most funds, more detailed reporting of the terms and conditions of each derivatives contract in a fund's portfolio on a monthly basis in a structured format.
As discussed in the Investment Company Reporting Modernization Release, these proposed requirements would, among other things, help the Commission and investors better understand the exposures that the derivatives create or hedge, which can be important to understanding a fund's investment strategy, use of leverage, and potential for risk of loss.
The Commission is also proposing to require additional position level risk-sensitivity measures on Form N-PORT, vega and gamma, for funds that are required to implement a derivatives risk management program by proposed rule 18f-4(a)(3). These measures would improve the ability of Commission staff to efficiently understand and approximate the risk exposures of reporting funds.
A reasonable alternative is to require portfolio- and position-level risk-sensitivity measures in addition to vega and gamma that would provide Commission staff a more precise approximation of the risk exposures of reporting funds. For example, Form N-PORT could require the risk-sensitivity measures theta and rho at the position-level; and at the portfolio level measures that describe the sensitivity of a reporting fund to a 50 or 100 basis point change in interest rates and credit spreads or a measure of convexity. These measures could improve the ability of Commission staff to monitor the fund industry in connection with other risks and more sizable changes in prices and rates. While potentially valuable, requiring these additional measures could increase the burden on funds, and the additional precision might not significantly improve the ability of Commission staff to monitor the fund industry in most market environments. Another reasonable alternative is to not require any additional risk-sensitivity measures. Although the burden to investment companies to provide the information would be less if fewer or no risk-sensitivity measures were required by the Commission, we believe that the benefits from requiring the measures, including the ability to efficiently identify and size specific investment risks, justify the costs to investment companies to provide the measures.
Our proposal would require only those funds that are required to implement a derivatives risk management program to report vega and gamma on proposed Form N-PORT. As an alternative, we could require funds with lower exposures than those funds would be required to implement a derivatives risk management program to also report vega and gamma. Alternatively, we could redefine the basis for funds to implement a derivatives risk management program and therefore require a different set of funds to report the additional risk-sensitivity measures. However, as we discussed above, we believe that the current requirements will capture most of the funds that use derivatives as a significant factor of their returns, while not imposing burdens on funds that do not generally rely on derivatives as an
The Commission requests comment on all aspects of this initial economic analysis, including whether the analysis has: (1) Identified all benefits and costs, including all effects on efficiency, competition, and capital formation; (2) given due consideration to each benefit and cost, including each effect on efficiency, competition, and capital formation; and (3) identified and considered reasonable alternatives to the proposed new rule and rule amendments. We request and encourage any interested person to submit comments regarding the proposed rule, our analysis of the potential effects of the proposed rule and proposed amendments, and other matters that may have an effect on the proposed rule. We request that commenters identify sources of data and information as well as provide data and information to assist us in analyzing the economic consequences of the proposed rule and proposed amendments. We also are interested in comments on the qualitative benefits and costs we have identified and any benefits and costs we may have overlooked.
In addition to our general request for comment on the economic analysis associated with the proposed rule and proposed amendments, we request specific comment on certain aspects of the proposal:
• What factors, taking into account a fund's particular risks and circumstances, would cause particular variance in funds' compliance costs related to the proposed rule?
• We request comment on our estimates of the one-time and ongoing costs associated with proposed rule 18f-4, including the exposure-based and risk-based portfolio limits, asset segregation requirement, and risk management program requirement. Do commenters agree with our cost estimates? If not, how should our estimates be revised, and what changes, if any, should be made to the assumptions forming the basis for our estimates? Are there any significant costs that have not been identified within our estimates that warrant consideration? To what degree would economies of scale affect compliance costs for funds?
• We request comment on our estimate of the number of funds that would seek to comply with the exposure-based and risk-based portfolio limits, asset segregation requirements, and the derivatives risk management program requirement. Do commenters agree that a fund that belongs to a fund complex is likely to achieve economies of scale that make it more likely that a fund will incur costs closer to the low-end of the range of estimated costs?
• Do commenters agree with our belief that the benefits and costs associated with the asset segregation requirement for a fund that invests solely in financial commitment transactions would be the same as those we estimate for the asset segregation requirements that would apply to a fund that also enters into derivatives transactions? Why or why not?
• To what extent do commenters anticipate that proposed rule 18f-4 could lead funds to modify their investment strategies or decrease their use of derivatives?
• To what extent do funds' current practices regarding derivatives risk management, if applicable, currently align with the proposed derivatives risk management program, and what operational and other costs would funds incur in modifying their current practices to comply with the proposed requirements?
Proposed rule 18f-4 contains several “collections of information” within the meaning of the Paperwork Reduction Act of 1995 (“PRA”).
The Commission is submitting these collections of information to the OMB for review in accordance with 44 U.S.C. 3507(d) and 5 CFR 1320.11. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid control number.
The Commission is proposing new rule 18f-4 and is proposing to amend proposed Form N-PORT and Form N-CEN. The proposed rule and amendments are designed to address the investor protection purposes and concerns underlying section 18 of the Act and to provide an updated and more comprehensive approach to the regulation of funds' use of derivatives transactions in light of the dramatic growth in the volume and complexity of the derivatives markets over the past two decades and the increased use of derivatives by certain funds. We discuss below the collection of information burdens associated with these reforms.
Proposed rule 18f-4 would require a fund that relies on the rule in order to enter into derivatives transactions to: (1) Comply with one of two alternative portfolio limitations designed to impose a limit on the amount of leverage the fund may obtain through derivatives transactions and other senior securities transactions; (2) manage the risks associated with its derivatives transactions by maintaining an amount of certain assets, defined in the rule as “qualifying coverage assets,” designed to enable the fund to meet its obligations under its derivatives transactions; and (3) depending on the extent of its derivatives usage, establish a derivatives risk management program. A fund that relies on the proposed rule in order to enter into financial commitment transactions would be required to maintain qualifying coverage assets equal in value to the fund's full obligations under those transactions. As discussed in greater detail below, a number of the proposed requirements are collections of information under the PRA. The respondents to proposed rule 18f-4 would be certain registered open- and closed-end management investment companies and BDCs. Compliance with proposed rule 18f-4 would be mandatory for all funds that seek to
Proposed rule 18f-4 would require a fund that engages in derivatives transactions in reliance on the rule to comply with one of two alternative portfolio limitations.
As discussed above in section IV.D.1 and IV.D.2, in the DERA staff analysis, 68% of all of the sampled funds did not have any exposure to derivatives transactions, and these funds thus do not appear to use derivatives transactions or, if they do use them, do not appear to do so to a material extent.
The proposed rule would require a fund's board of directors, including a majority of the directors who are not interested persons of the fund, to approve (a) the fund's determination to comply with either the exposure-based portfolio limit or the risk-based portfolio limit under the proposed rule, and (b) if applicable, the fund's determination to limit its aggregate exposure under derivatives transactions to not more than 50% of its NAV and not to use complex derivatives transactions.
The proposed rule would require a fund to maintain a record of each determination made by the fund's board that the fund will comply with one of the portfolio limitations under the proposed rule, which would include the fund's initial determination as well as a record of any determination made by the fund's board to change the portfolio limitation.
In addition, a fund that relies on the proposed rule also would be subject to an ongoing requirement to maintain a written record demonstrating that immediately after the fund entered into any senior securities transaction, the fund complied with its applicable portfolio limit, with such record reflecting the fund's aggregate exposure, the value of its net assets and, if applicable, the fund's full portfolio VaR and its securities VaR.
Accordingly, we estimate that, for recordkeeping associated with a fund's portfolio limitations, including maintenance of a record of a board's initial determination of the fund's portfolio limit and maintenance of written records demonstrating the fund's ongoing compliance with applicable portfolio limits, the time burden per fund would be 50.6 hours and the time cost per fund would be $3,638.
Amortized over a three-year time period, the hour burdens and time costs for collections of information associated with portfolio limitations under proposed rule 18f-4, including the burdens associated with (a) board review and approval of funds' initial portfolio limitations, (b) maintenance of records of initial board determinations of funds' portfolio limits, and (c) maintenance of written records demonstrating funds' compliance with applicable portfolio limits, are estimated to result in an aggregate average annual hour burden of 196,147 hours and aggregate time cost of $20,386,028.
Proposed rule 18f-4 would require a fund that enters into derivatives transactions
As discussed above in section IV.D.3, DERA staff analysis shows that 68% of all sampled funds do not appear to use derivatives transactions (or if they do, do not appear to use them to a material extent). Staff estimates that the remaining 32% of funds (3,831 funds) and no BDCs will seek to rely on this aspect of proposed rule 18f-4, and therefore comply with the asset segregation requirements. These funds would be subject to the collections of information described below with respect to asset segregation requirements.
The qualifying coverage assets requirement would subject funds to a collection of information insofar as they are required to make a daily identification on a fund's books and records of its maintenance of qualifying coverage assets, including determinations of the mark-to-market and risk-based coverage amounts. Although we expect that these activities would generally be automated and/or routine, our estimates below include estimates for anticipated time costs by a fund's staff to make manual adjustments to these determinations (
We do not expect that this aspect of the proposed rule will impose any initial, one-time “collection of information” burdens on funds. We do estimate, however, that each fund would incur an average annual burden of 110 hours associated with the identification of qualifying coverage assets. We therefore estimate that the total annual burden for the identification of qualifying coverage assets would be 421,410 hours.
Proposed rule 18f-4 would require funds to have written policies and procedures reasonably designed to provide for the fund's maintenance of qualifying coverage assets. For purposes of this PRA analysis, we estimate that a fund would incur a one-time average burden of 15 hours associated with documenting its policies and procedures. The proposed rule would also require that the fund's board approve such policies and procedures and we estimate a one-time burden of 1 hour per fund associated with fund boards' review and approval of its policies and procedures. Amortized over a three-year period, this would be an annual burden per fund of approximately 5.3 hours. We estimate that the total one-time burden for the initial documentation, and board approval of, written policies and procedures to provide for a fund's maintenance of qualifying coverage assets would be 61,296 hours.
The proposed rule would require a fund to maintain a written copy of the policies and procedures approved by the fund's board of directors that are in effect, or at any time within the past five years were in effect, in an easily accessible place. We estimate a one-time burden (and no ongoing annual burden) of 1 hour per fund associated with maintaining a written copy of the fund's board-approved policies and procedures or, amortized over a three-year period, a burden of approximately 0.3 hours annually per fund. We therefore estimate that the total one-time burden for maintaining this record would be 3,831 hours.
In addition, a fund that relies on the proposed rule also would be subject to an ongoing requirement to maintain a written record reflecting the mark-to-market coverage amount and risk-based coverage amount for each derivatives transaction entered into by the fund and identifying the associated qualifying coverage assets, as determined by the fund at least once each business day, for a period of not less than five years (the first two years in an easily accessible place).
Amortized over a three-year time period, the hour burdens and time costs for collections of information associated with the asset segregation requirement for derivatives transactions under proposed rule 18f-4, including the burdens associated with (a) identifying qualifying coverage assets; (b) documenting board-approved policies and procedures; and (c) maintaining required records, are estimated to result in an aggregate average annual hour burden of 634,669 hours and aggregate time costs of $70,900,317.
Proposed rule 18f-4 would require a fund that enters into financial commitment transactions in reliance on the rule to similarly maintain qualifying coverage assets designed to enable the fund to meet its obligations arising from such transactions. A fund would be required to identify on the books and records of the fund, at least once each business day, qualifying coverage assets with a value equal to at least the fund's aggregate financial commitment obligations.
As discussed above in section IV.D.5, DERA staff analysis shows that approximately 3% of all sampled funds enter into at least some financial commitment transactions, but do not use derivatives transactions. Staff estimates, therefore, that 3% of funds (359 funds) would comply with the asset segregation requirements in proposed rule 18f-4 applicable to financial commitment transactions and would not also be complying with the asset segregation and other requirements applicable to derivatives transactions. In addition, staff estimates that 537 money market funds and 88 BDCs may engage in certain types of financial commitment transactions. In sum, staff estimates that 984 funds would comply with the asset segregation requirements applicable to financial commitment transactions and incur the same costs we estimate above (with regard to funds that engage in derivatives transactions). These funds would be subject to the collections of information described below.
Similar to the requirement applicable to a fund that enters into derivatives transactions (discussed above), a fund that enters solely into financial commitment transactions would, under the proposed rule, incur operational costs to establish and implement systems in order to comply with the proposed asset segregation requirements, including the proposed requirement that a fund maintain qualifying coverage assets, identified on the books and records of the fund, at least once each business day. We believe that the activities related to these requirements are largely the same, whether applicable to a fund that enters into derivatives transactions, or financial commitment transactions. Accordingly, we estimate the same costs to a fund that enters solely into financial commitment transactions as the asset segregation costs we estimate above for funds that enter into derivatives transactions.
We estimate that each fund would incur an average annual burden of 110 hours (and no initial one-time burdens) associated with the identification of qualifying coverage assets. We therefore estimate that the total annual burden for the identification of qualifying coverage assets would be 108,240 hours.
A fund that enters solely into financial commitment transactions, like a fund that enters into derivatives transactions, would be required under the proposed rule to have board-approved policies and procedures regarding the maintenance of qualifying coverage assets. Accordingly, we estimate that a fund would incur a one-time average burden of 15 hours associated with documenting its policies and procedures. The proposed rule would also require that the fund's board approve such policies and procedures and we estimate a one-time burden of 1 hour per fund associated with fund boards' review and approval of its policies and procedures. Amortized over a three-year period, this would be an annual burden per fund of approximately 5.3 hours. We estimate that the total one-time burden for the initial documentation, and board approval of, written policies and procedures to provide for a fund's maintenance of qualifying coverage assets would be 15,744 hours.
A fund that enters solely into financial commitment transactions would also be required under the proposed rule to retain a written copy of the fund's board-approved policies and procedures regarding the maintenance of qualifying coverage assets. This requirement also applies to funds that enter into derivatives transactions. Accordingly, as discussed above for the recordkeeping burdens associated with asset segregation for derivatives transactions, we estimate a one-time burden (and no annual burden) of 1 hour per fund associated with maintaining a written copy of the fund's board-approved policies and procedures or, amortized over a three-year period, a burden of approximately 0.3 hours annually per fund. We therefore estimate that the total one-time burden for maintaining this record would be 984 hours.
In addition, a fund that relies on the proposed rule also would be subject to an ongoing requirement to maintain a written record reflecting the amount of each financial commitment obligation associated with each financial commitment transaction entered into by the fund and identifying the associated qualifying coverage assets, as determined by the fund at least once each business day, for a period of not less than five years (the first two years in an easily accessible place).
Amortized over a three-year time period, the hour burdens and time costs for collections of information associated with the asset segregation requirement for financial commitment transactions under proposed rule 18f-4, including the burdens associated with (a) identifying qualifying coverage assets; (b) documenting board-approved policies and procedures; and (c) maintaining required records, are estimated to result in an aggregate average annual hour burden of 163,016 hours and aggregate time costs of $18,210,888.
Proposed rule 18f-4 would require that a fund that engages in more than a limited amount of derivatives transactions, or that uses complex derivatives transactions (as defined in the proposed rule), to adopt and implement a derivatives risk management program.
As discussed above in section IV.D.4, DERA staff analysis shows that approximately 10% of all sampled funds had aggregate exposure from derivatives transactions high enough (
As discussed above in section IV.D.4, we estimated that each fund would incur one-time costs to establish and implement a derivatives risk management program in compliance with proposed rule 18f-4, as well as ongoing program-related costs. For purposes of the PRA analysis, we estimate that each fund would incur an average initial burden of 30 hours associated with establishing a derivatives risk management program, including (1) adopting and implementing (including documenting) policies and procedures reasonably designed to assess and manage the risks of the fund's derivatives transactions and designating a derivatives risk manager (24 hours); and (2) obtaining initial board approval of the derivatives risk management program and the designation of the fund's derivatives risk manager (6 hours). Amortized over a three-year period, this would be an annual burden per fund of 10 hours. Accordingly, we estimate that the total average annual initial burden for establishing a derivatives risk management program would be 50,280 hours.
In addition to the initial burden, we estimate that each fund would incur an average annual burden of 38 hours associated with its derivatives risk management program, including that: (1) The fund review and update its risk management program at least annually (8 hours); (2) the derivatives risk
Proposed rule 18f-4 would require a fund that adopts and implements a derivatives risk management program to maintain: (1) A written copy of the policies and procedures adopted by the fund (as required in proposed rule 18f-4(a)(3)) that are in effect, or any time within the past five years were in effect, in an easily accessible place; (2) copies of any materials provided to the board of directors in connection with its approval of the derivatives risk management program, including any material changes to the program, and any written reports provided to the board relating to the derivatives risk management program, for at least five years after the end of the fiscal year in which the documents were provided (the first two years in an easily accessible place); and (3) records documenting the periodic reviews and updates required under proposed rule 18f-4(a)(3)(i)(D), for a period of not less than five years (the first two years in an easily accessible place) following each review or update.
We estimate that each fund would incur an annual average burden of 4 hours to retain these records.
Amortized over a three-year time period, the hour burdens and time costs for collections of information associated with the derivatives risk management program under proposed rule 18f-4, including the burdens associated with (a) establishing a derivatives risk management program; and (b) maintaining required records, are estimated to result in an aggregate average annual hour burden of 65,923 hours and aggregate time costs of $61,644,397.
Amortized over a three-year time period, the hour burdens and time costs for collections of information associated with proposed rule 18f-4, including the burdens associated with (a) portfolio limitations for derivatives transactions; (b) asset segregation for derivatives transactions; (c) asset segregation for financial commitment transactions; and (d) derivatives risk management program, are estimated to result in an aggregate average annual hour burden of 1,059,755 hours and aggregate time costs of $171,141,630.
On May 20, 2015, the Commission proposed Form N-PORT, which would require funds to report information within thirty days after the end of each month about their monthly portfolio holdings to the Commission in a structured data format. Preparing a report on Form N-PORT is mandatory and a collection of information under the PRA, and the information required by Form N-PORT would be data-tagged in XML format. Responses to the reporting requirements would be kept confidential for reports filed with respect to the first two months of each quarter; the third month of the quarter would not be kept confidential, but made public sixty days after the quarter end.
In the Investment Company Reporting Modernization Release, we estimated that, for the 35% of funds that would file reports on proposed Form N-PORT in house, the per fund aggregate average annual hour burden was estimated to be 178 hours per fund, and the average cost to license a third-party software solution would be $4,805 per fund per year.
We are proposing amendments to Form N-PORT that would require each fund that is required to implement a derivatives risk management program as required by proposed rule 18f-4(a)(3) to report for options and warrants, including options on a derivative, such as swaptions.
We estimate that 14% of funds (1,676 funds)
We estimate that 65% of funds (1,075 funds) would retain the services of a third party to provide data aggregation, validation and/or filing services as part of the preparation and filing of reports on proposed Form N-PORT on the fund's behalf. For these funds, we estimate that each fund would require an average of approximately 3 hours to compile and review the information with the service provider prior to electronically filing the monthly report for the first time and an average of .5 burden hours for each subsequent monthly filing. Therefore, we estimate the per fund average annual hour burden associated with the incremental changes to proposed Form N-PORT as a result of the proposed amendments for these funds would be an additional 8.5 hours for the first year
In sum, we estimate that the proposed amendments to Form N-PORT would impose an average total annual hour burden of an additional 14,667 hours on applicable funds,
On May 20, 2015, we proposed to amend rule 30a-1 to require all funds to file reports with certain census-type information on proposed Form N-CEN with the Commission on an annual basis. Proposed Form N-CEN would be a collection of information under the PRA, and is designed to facilitate the Commission's oversight of funds and its ability to monitor trends and risks. The collection of information under Form N-CEN would be mandatory for all funds, and responses would not be kept confidential.
In the Investment Company Reporting Modernization Release, the staff estimated that the Commission would receive an average of 3,146 reports per year, based on the number of existing Form N-SAR filers, including responses from 2,419 management companies.
We are proposing amendments to Form N-CEN to identify whether the fund relied upon proposed rule 18f-4. Specifically, the proposed amendments to Form N-CEN would require a fund to identify the portfolio limitation(s) on which the fund relied during the reporting period.
As discussed above, as part of the Investment Company Modernization Release proposal, funds would be required to identify if they relied upon ten different rules under the Act during the reporting period.
In sum, we estimate that the proposed amendments to Form N-CEN would impose an average total annual hour burden of an additional 363 hours on applicable funds,
We request comment on whether our estimates for burden hours and any external costs as described above are reasonable. Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission solicits comments in order to: (1) Evaluate whether the proposed collections of information are necessary for the proper performance of the functions of the Commission, including whether the information will have practical utility; (2) evaluate the accuracy of the Commission's estimate of the burden of the proposed collections of information; (3) determine whether there are ways to enhance the quality, utility, and clarity of the information to be collected; and (4) determine whether there are ways to minimize the burden of the collections of information on those who are to respond, including through the use of automated collection techniques or other forms of information technology.
The agency has submitted the proposed collection of information to OMB for approval. Persons wishing to submit comments on the collection of information requirements of the proposed amendments should direct them to the Office of Management and Budget, Attention Desk Officer for the Securities and Exchange Commission, Office of Information and Regulatory Affairs, Washington, DC 20503, and should send a copy to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090, with reference to File No. S7-24-15. OMB is required to make a decision concerning the collections of information between 30 and 60 days after publication of this Release; therefore, a comment to OMB is best assured of having its full effect if OMB receives it within 30 days after publication of this Release. Requests for materials submitted to OMB by the Commission with regard to these collections of information should be in writing, refer to File No. S7-24-15, and be submitted to the Securities and Exchange Commission, Office of FOIA Services, 100 F Street NE., Washington, DC 20549-2736.
This Initial Regulatory Flexibility Analysis has been prepared in accordance with section 3 of the Regulatory Flexibility Act (“RFA”).
The use of derivatives by funds implicates certain requirements under the Investment Company Act, including section 18 of that Act.
The Commission is proposing a new exemptive rule and amendments to Form N-PORT and Form N-CEN that are designed to provide an updated and more comprehensive approach to the regulation of funds' use of derivatives, as well as certain other transactions that implicate section 18 of the Act, and to more effectively address the purposes and concerns underlying section 18.
The Commission is proposing new rule 18f-4 under the authority set forth in sections 6(c), 12(a), 31(a), and 38(a) of the Investment Company Act of 1940 [15 U.S.C. 80a-6(c), 80a-12(a), 80a-31(a), and 80a-38(a)]. The Commission is proposing amendments to proposed Form N-PORT and Form N-CEN under the authority set forth in sections 8, 30, and 38 of the Investment Company Act of 1940 [15 U.S.C. 80a-8, 80a-30, 80a-38].
An investment company is a small entity if, together with other investment companies in the same group of related investment companies, it has net assets of $50 million or less as of the end of its most recent fiscal year.
Proposed rule 18f-4 would require a fund that engages in derivatives transactions in reliance on the rule, including any small entities that rely on the rule, to comply with one of two alternative portfolio limitations.
The proposed rule would require that for a fund relying on the rule, a fund's board of directors, including a majority of the directors who are not interested persons of the fund, approve which of the two alternative portfolio limitations will apply to the fund.
As discussed above in section IV, our staff estimates that the one-time operational costs necessary to establish and implement an exposure-based portfolio limitation would range from $20,000 to $150,000 per fund, depending on the particular facts and circumstances and current derivatives risk management practices of the fund.
As discussed above in section IV.D.1, in the DERA staff analysis, 68% of all of the sampled funds did not have any exposure to derivatives transactions. These funds thus do not appear to use derivatives transactions or, if they do use them, do not appear to do so to a material extent. We estimate that approximately 32% of funds—the percentage of funds that did have derivatives exposure in the DERA sample—are more likely to enter into derivatives transactions and therefore are more likely to incur costs associated with either the exposure-based portfolio limit or the risk-based portfolio limit. Excluding approximately 4% of all funds (corresponding to the percentage of sampled funds that had aggregate exposure of 150% or more of net assets and for which we have estimated costs for the risk-based limit), we estimate that 28% of funds would incur the costs associated with the exposure-based portfolio limit. Staff also estimates that 28% of small funds (approximately 31 small funds) enter into at least some derivatives transactions, and would therefore incur the costs associated with the exposure-based portfolio limit.
As with the costs discussed above regarding the exposure-based portfolio limit, we expect that funds would incur one-time and ongoing operational costs to establish and implement a risk-based exposure limit, including the VaR test. We expect that a fund that seeks to comply with the 300% aggregate exposure limit would incur the same costs as those that we estimated above in order to establish and implement the 150% exposure-based portfolio limit. Accordingly, we estimate below the costs we believe a fund would incur to comply with the VaR test. Our staff estimates that the one-time operational costs necessary to establish and implement a VaR test would range from $60,000 to $180,000 per fund, depending on the particular facts and circumstances and current derivatives risk management practices of the fund. Staff also estimates that each fund would incur ongoing costs related to implementing a VaR test under proposed rule 18f-4. Staff estimates that such costs would range from 20% to 30% of the one-time costs discussed above. Thus, staff estimates that a fund would incur ongoing annual costs associated with the VaR test aspect of the risk-based exposure limit that would range from $12,000 to $54,000. DERA staff estimates that approximately 4% of all funds sampled had aggregate exposure of 150% (or greater) of net assets. We estimate therefore, that 4% of funds would rely on the proposed rule, and comply with the risk-based portfolio limit. Staff also estimates that 4% of small funds (approximately 4 small funds) would rely on the proposed rule, and comply with the risk-based portfolio limit.
Under proposed rule 18f-4, a fund, including a fund that is a small entity, that enters into derivatives transactions in reliance on the rule would be required to manage the risks associated with its derivatives transactions by maintaining an amount of qualifying coverage assets designed to enable the fund to meet its obligations arising from such transactions.
Our staff estimates that the one-time operational costs necessary to establish and implement the proposed asset segregation requirements would range from $25,000 to $75,000 per fund, depending on the particular facts and circumstances and current derivatives risk management practices of the funds comprising the fund. Staff also estimates that each fund would incur ongoing costs related to implementing the asset segregation requirements under proposed rule 18f-4. Staff estimates that such costs would range from 65% to 75% of the one-time costs discussed above. Thus, staff estimates that a fund would incur ongoing annual costs associated with the asset segregation requirements that would range from $16,250 to $56,250. As discussed above in section IV.D.1, in the DERA staff analysis, 68% of all of the sampled funds did not have any exposure to derivatives transactions. These funds thus do not appear to use derivatives transactions or, if they do use them, do not appear to do so to a material extent. Staff estimates that the remaining 32% of funds will seek to rely on the proposed rule 18f-4, as noted above, and therefore comply with the asset segregation requirements. Staff also estimates that 32% of small funds (approximately 35 small funds) will seek to rely on proposed rule 18f&4, and therefore comply with the asset segregation requirements.
We are proposing measures under rule 18f-4 that will help enhance derivatives risk management by requiring that any fund, including a small entity, that engages in more than a limited amount of derivatives transactions pursuant to the proposed rule, or that uses complex derivatives transactions, adopt and implement a derivatives risk management program.
Under the proposed rule, a fund's board of directors (including a majority of the directors who are not interested persons of the fund) must approve the fund's derivatives risk management program, including any material changes to the program, if applicable.
A fund that is required to have a derivatives risk management program under the proposed rule would be required to maintain a written copy of the fund's risk management program and any associated policies and procedures that are in effect, or at any time within the past five years, were in effect in an easily accessible place.
As discussed in the Economic Analysis section, our staff estimates that the one-time costs necessary to establish and implement a derivatives risk management program would range from $65,000 to $500,000 per fund, depending on the particular facts and circumstances and current derivatives risk management practices of the fund. Staff estimates that each fund would incur ongoing program-related costs, as a result of proposed rule 18f-4, that range from 65% to 75% of the one-time costs necessary to establish and implement a derivatives risk management program. Thus, staff estimates that a fund would incur ongoing annual costs associated with proposed rule 18f-4 that would range from $42,250 to $375,000. Under the proposed rule, a fund that has no greater than 50% aggregate exposure associated with its derivatives transactions would not be required to establish a derivatives risk management program. DERA staff analysis shows that approximately 10% of all sampled funds had aggregate exposure from derivatives transactions high enough (
Under our proposed rule, a fund may also enter into financial commitment transactions, notwithstanding the requirements of section 18(a)(1), section 18(f)(1) and section 61 of the Investment Company Act provided that the fund maintains qualifying coverage assets, identified on the books and records of the fund and determined at least once each business day, with a value equal to at least the fund's aggregate financial commitment obligations.
Our staff estimates that the one-time operational costs necessary to establish and implement the proposed asset segregation requirements would range from $25,000 to $75,000 per fund. Staff also estimates that each fund would incur ongoing costs related to implementing the asset segregation requirements under proposed rule 18f-4. Staff estimates that such costs would range from 65% to 75% of the one-time costs discussed above. Thus, staff estimates that a fund would incur ongoing annual costs associated with the asset segregation requirements that would range from $16,250 to $56,250. DERA staff analysis shows that approximately 3% of all sampled funds enter into at least some financial commitment transactions, but do not use derivatives transactions (or other senior securities transactions). Staff estimates, therefore, that 3% of funds would comply with the asset segregation requirements in proposed rule 18f-4 applicable to financial commitment transactions.
We are proposing amendments to proposed Form N-PORT to require the reporting of certain risk metrics (vega and gamma) but only by those funds that engage in more than a limited amount of derivatives transactions, by virtue of meeting the threshold requiring them to implement a derivatives risk management program as required by proposed rule18f-4(a)(3).
All funds that would be required to implement a derivatives risk management program as required by proposed rule 18f-4(a)(3) would be subject to the proposed amendments to Form N-PORT, including funds that are small entities. For smaller funds and fund groups
We estimate that 1,676 funds would be required to file, on a monthly basis, additional information on Form N-PORT as a result of the proposed amendments.
We are proposing amendments to Form N-CEN to require a fund to identify whether the fund relied upon proposed rule 18f-4. Specifically, the proposed amendments to Form N-CEN would require a fund to identify the portfolio limitation(s) under which the fund relied during the reporting period. As we discussed above, while the costs associated with collecting and documenting the requirements under proposed rule 18f-4 are discussed above,
We estimate that 2,419 funds would incur initial costs of $80 per fund,
As noted above, we estimate that approximately 110 open and closed-end funds are small entities that would be required to identify the portfolio limitation(s) on which they relied on reports on Form N-CEN during the reporting period.
Commission staff has not identified any federal rules that duplicate, overlap, or conflict with proposed rule 18f-4 or the proposed amendments to Form N-PORT and Form N-CEN.
The RFA directs the Commission to consider significant alternatives that would accomplish our stated objectives, while minimizing any significant economic impact on small entities. We considered the following alternatives for small entities in relation to our proposal: (1) Exempting funds that are small entities from proposed rule 18f-4, or any part thereof, and/or establishing different requirements under proposed rule 18f-4 to account for resources available to small entities; (2) exempting funds that are small entities from the proposed amendments to Form N-PORT, or establishing different disclosure and reporting requirements, or different reporting frequency, to account for resources available to small entities; (3) the clarification, consolidation, or simplification of compliance requirements under proposed rule 18f-4 for small entities; and (4) the use of performance rather than design standards.
We do not believe that exempting any subset of funds, including funds that are small entities, from the provisions in proposed rule 18f-4 would permit us to achieve our stated objectives. We also do not believe that it would be desirable to establish different requirements applicable to funds of different sizes under proposed rule 18f-4 to account for resources available to small entities
The undue speculation concern expressed in section 1(b)(7) of the Act and the asset sufficiency concern reflected in section 1(b)(8) of the Act that the proposed rule is designed to address applies to both small as well as large funds. As discussed throughout this Release, we believe that the proposed rule would result in multiple investor protection benefits, and these benefits should apply to investors in smaller funds as well as investors in larger funds. We therefore do not believe it would be appropriate to exempt funds that are small entities from the portfolio limitation provisions or the asset segregation provisions of proposed rule 18f-4 or establish different requirements applicable to funds of different sizes under these provisions to account for resources available to small entities. Further, we believe that all of the proposed elements of rule 18f-4 should work together to produce the anticipated investor protection benefits, and therefore do not believe it is appropriate to except or modify the requirements for smaller funds because we believe this would limit the benefits to investors in such funds.
We also do not believe it would be appropriate to exempt funds that are small entities from the derivatives risk management requirements of proposed rule 18f-4 or establish different requirements applicable to funds of different sizes. We believe that all of the proposed program elements would be necessary for a fund to effectively assess and manage its derivatives risk, and we anticipate that all of the proposed program elements would work together to produce the anticipated investor protection benefits. We do note that the costs associated with proposed rule 18f-4 would vary depending on the fund's particular circumstances, and thus the proposed rule could result in different burdens on funds' resources. In particular, we expect that a fund that pursues an investment strategy that involves greater derivatives risk may have greater costs associated with its derivatives risk management program. However, we believe that it is appropriate to correlate the costs associated with the proposed rule with the level of derivatives risk facing a fund, and not necessarily with the fund's size. Thus, to the extent a fund that is a small entity faces relatively little derivatives risk, it would incur relatively low costs to comply with proposed rule 18f-4. And, to the extent that a fund that is a small entity that engages in a limited amount of derivatives transactions pursuant to the proposed rule, and does not use complex derivatives transactions, such small entity would not be required to adopt and implement a derivatives risk management program.
Similarly, we do not believe that the interests of investors would be served by exempting funds that are small entities from the proposed disclosure and reporting requirements, or subjecting these funds to different disclosure and reporting requirements than larger funds. We believe that all fund investors, including investors in funds that are small entities, would benefit from disclosure and reporting requirements that would permit them to make investment choices that better match their risk tolerances. We also believe that all fund investors would benefit from enhanced Commission monitoring and oversight of the fund industry, which we anticipate would result from the proposed disclosure and reporting requirements.
The Commission requests comments regarding this analysis. We request comment on the number of small entities that would be subject to our proposal and whether our proposal would have any effects that have not been discussed. We request that commenters describe the nature of any effects on small entities subject to our proposal and provide empirical data to support the nature and extent of such effects. We also request comment on the estimated compliance burdens of our proposal and how they would affect small entities.
For purposes of the Small Business Regulatory Enforcement Fairness Act of 1996 (“SBREFA”), the Commission must advise OMB whether a proposed regulation constitutes a “major” rule. Under SBREFA, a rule is considered “major” where, if adopted, it results in or is likely to result in:
• An annual effect on the economy of $100 million or more;
• A major increase in costs or prices for consumers or individual industries; or
• Significant adverse effects on competition, investment, or innovation.
We request comment on whether our proposal would be a “major rule” for purposes of SBREFA. We solicit comment and empirical data on:
• The potential effect on the U.S. economy on an annual basis;
• Any potential increase in costs or prices for consumers or individual industries; and
• Any potential effect on competition, investment, or innovation.
Commenters are requested to provide empirical data and other factual support for their views to the extent possible.
The Commission is proposing new rule 18f-4 under the authority set forth in sections 6(c), 12(a), 31(a), and 38(a) of the Investment Company Act of 1940 [15 U.S.C. 80a-6(c), 80a-31(a), 80a-12(a), and 80a-38(a)]. The Commission is proposing amendments to proposed Form N-PORT and Form N-CEN under the authority set forth in sections 8, 30, and 38 of the Investment Company Act of 1940 [15 U.S.C. 80a-8, 80a-30, 80a-38].
Investment companies, Reporting and recordkeeping requirements, Securities.
For the reasons set out in the preamble, title 17, chapter II of the Code of Federal Regulations is proposed to be amended as follows:
15 U.S.C. 80a-1
(a) A registered open-end or closed-end company or business development company (each, including any separate series thereof, a “fund”) may enter into derivatives transactions, notwithstanding the requirements of
(1) The fund complies with one of the following portfolio limitations such that, immediately after entering into any senior securities transaction:
(i) The aggregate exposure of the fund does not exceed 150% of the value of the fund's net assets; or
(ii) The fund's full portfolio VaR is less than the fund's securities VaR and the aggregate exposure of the fund does not exceed 300% of the value of the fund's net assets.
(2) The fund manages the risks associated with its derivatives transactions by maintaining qualifying coverage assets, identified on the books and records of the fund as specified in paragraph (a)(6)(v) of this section and determined at least once each business day, with a value equal to at least the sum of the fund's aggregate mark-to-market coverage amounts and risk-based coverage amounts.
(3) Except as provided in paragraph (a)(4) of this section, the fund adopts and implements a written derivatives risk management program (“program”) that is reasonably designed to assess and manage the risks associated with the fund's derivatives transactions.
(i)
(A) Assess the risks associated with the fund's derivatives transactions, including an evaluation of potential leverage, market, counterparty, liquidity, and operational risks, as applicable, and any other risks considered relevant;
(B) Manage the risks associated with the fund's derivatives transactions (including the risks identified in paragraph (a)(3)(i)(A) of this section, as applicable), including by:
(
(
(C) Reasonably segregate the functions associated with the program from the portfolio management of the fund; and
(D) Periodically review and update the program at least annually, including any models (including any VaR calculation models used by the fund during the period covered by the review), measurement tools, or policies and procedures that are part of, or used in, the program to evaluate their effectiveness and reflect changes in risks over time.
(ii)
(B) The fund's board of directors, including a majority of directors who are not interested persons of the fund, shall review, no less frequently than quarterly, a written report prepared by the person designated under paragraph (a)(3)(ii)(C) of this section that describes the adequacy of the fund's program and the effectiveness of its implementation; and
(C) The fund shall designate an employee or officer of the fund or the fund's investment adviser (who may not be a portfolio manager of the fund) responsible for administering the policies and procedures incorporating the elements of paragraphs (a)(3)(i)(A) through (D) of this section, whose designation must be approved by the fund's board of directors, including a majority of the directors who are not interested persons of the fund.
(4) A derivatives risk management program shall not be required if the fund complies, and monitors its compliance, with a portfolio limitation under which:
(i) Immediately after entering into any derivatives transaction the aggregate exposure associated with the fund's derivatives transactions does not exceed 50% of the value of the fund's net assets; and
(ii) The fund does not enter into complex derivatives transactions.
(5) The fund's board of directors (including a majority of the directors who are not interested persons of the fund) has:
(i) Approved the particular portfolio limitation under which the fund will operate pursuant to paragraph (a)(1) of this section and, if applicable, paragraph (a)(4) of this section;
(ii) Approved policies and procedures reasonably designed to provide for the fund's maintenance of qualifying coverage assets, as required under paragraph (a)(2) of this section; and
(iii) If the fund is required to adopt and implement a derivatives risk management program, taken the actions specified in paragraph (a)(3)(ii) of this section.
(6) The fund maintains:
(i) A written record of each determination made by the fund's board of directors under paragraph (a)(5)(i) of this section with respect to the portfolio limitation applicable to the fund for a period of not less than five years (the first two years in an easily accessible place) following each determination;
(ii) A written copy of the policies and procedures approved by the board of directors under paragraph (a)(5)(ii) of this section that are in effect, or at any time within the past five years were in effect, in an easily accessible place; and
(iii) If the fund is required to adopt and implement a derivatives risk management program:
(A) A written copy of the policies and procedures adopted by the fund under paragraph (a)(3) of this section that are in effect, or at any time within the past five years were in effect, in an easily accessible place;
(B) Copies of any materials provided to the board of directors in connection with its approval of the derivatives risk management program, including any material changes to the program, and any written reports provided to the board of directors relating to the program, for at least five years after the end of the fiscal year in which the documents were provided, the first two years in an easily accessible place; and
(C) Records documenting the periodic reviews and updates conducted in accordance with paragraph (a)(3)(i)(D) of this section (including any updates to any VaR calculation models used by the fund and the basis for any material changes thereto), for a period of not less than five years (the first two years in an easily accessible place) following each review or update.
(iv) A written record demonstrating that immediately after the fund entered into any senior securities transaction, the fund complied with the portfolio limitation applicable to the fund immediately after entering into the senior securities transaction, reflecting the fund's aggregate exposure, the value of the fund's net assets and, if applicable, the fund's full portfolio VaR and its securities VaR, for a period of not less than five years (the first two years in an easily accessible place) following each senior securities transaction entered into by the fund.
(v) A written record reflecting the mark-to-market coverage amount and the risk-based coverage amount for each derivatives transaction entered into by the fund and identifying the qualifying coverage assets maintained by the fund with respect to the fund's aggregate
(b) A fund may enter into financial commitment transactions, notwithstanding the requirements of section 18(a)(1) (15 U.S.C. 80a-18(a)(1)), section 18(c) (15 U.S.C. 80a-18(c)), section 18(f)(1) (15 U.S.C. 80a-18(f)(1)) and section 61 (15 U.S.C. 80a-61) of the Investment Company Act; provided that:
(1) The fund maintains qualifying coverage assets, identified on the books and records of the fund as specified in paragraph (b)(3)(ii) of this section and determined at least once each business day, with a value equal to at least the fund's aggregate financial commitment obligations.
(2) The fund's board of directors (including a majority of the directors who are not interested persons of the fund) has approved policies and procedures reasonably designed to provide for the fund's maintenance of qualifying coverage assets, as required under paragraph (b)(1) of this section.
(3) The fund maintains:
(i) A written copy of the policies and procedures approved by the board of directors under paragraph (b)(2) of this section that are in effect, or at any time within the past five years were in effect, in an easily accessible place; and
(ii) A written record reflecting the amount of each financial commitment obligation associated with each financial commitment transaction entered into by the fund and identifying the qualifying coverage assets maintained by the fund with respect to each financial commitment obligation, as determined by the fund at least once each business day, for a period of not less than five years (the first two years in an easily accessible place).
(c)
(i) Is dependent on the value of the underlying reference asset at multiple points in time during the term of the transaction; or
(ii) Is a non-linear function of the value of the underlying reference asset, other than due to optionality arising from a single strike price.
(2)
(3)
(i) The aggregate notional amounts of the fund's derivatives transactions, provided that a fund may net any directly offsetting derivatives transactions that are the same type of instrument and have the same underlying reference asset, maturity and other material terms;
(ii) The aggregate financial commitment obligations of the fund; and
(iii) The aggregate indebtedness (and with respect to any closed-end fund or business development company, involuntary liquidation preference) with respect to any senior securities transaction entered into by the fund pursuant to section 18 (15 U.S.C. 80a-18) or 61 (15 U.S.C. 80a-61) of the Investment Company Act without regard to the exemption provided by this section.
(4)
(5)
(6)
(i) If the fund has entered into a netting agreement that allows the fund to net its payment obligations with respect to multiple derivatives transactions, the mark-to-market coverage amount for those derivatives transactions may be calculated as the net amount that would be payable by the fund, if any, with respect to all derivatives transactions covered by the netting agreement; and
(ii) The fund's mark-to-market coverage amount for a derivatives transaction may be reduced by the value of assets that represent variation margin or collateral for the amounts payable referred to in paragraph (c)(6) of this section with respect to the derivatives transaction.
(7)
(i) The market value of an equivalent position in the underlying reference asset for the derivatives transaction (expressed as a positive amount for both long and short positions); or
(ii) The principal amount on which payment obligations under the derivatives transaction are calculated; and
(iii) Notwithstanding paragraphs (c)(7)(i) and (ii) of this section:
(A) For any derivatives transaction that provides a return based on the leveraged performance of a reference asset, the notional amount shall be multiplied by the leverage factor;
(B) For any derivatives transaction for which the reference asset is a managed account or entity formed or operated primarily for the purpose of investing in or trading derivatives transactions, or an index that reflects the performance of such a managed account or entity, the notional amount shall be determined by reference to the fund's pro rata share of the notional amounts of the derivatives transactions of such account or entity; and
(C) For any complex derivatives transaction, the notional amount shall be an amount equal to the aggregate notional amount of derivatives instruments, excluding other complex derivatives transactions, reasonably estimated to offset substantially all of the market risk of the complex derivatives transaction.
(8)
(i) Cash and cash equivalents;
(ii) With respect to any derivatives transaction or financial commitment transaction under which the fund may satisfy its obligations under the
(iii) With respect to any financial commitment obligation, assets that are convertible to cash or that will generate cash, equal in amount to the financial commitment obligation, prior to the date on which the fund can be expected to be required to pay such obligation or that have been pledged with respect to the financial commitment obligation and can be expected to satisfy such obligation, determined in accordance with policies and procedures approved by the fund's board of directors as provided in paragraph (b)(2) of this section.
(9)
(i) The risk-based coverage amount may be determined on a net basis for derivatives transactions that are covered by a netting agreement that allows the fund to net its payment obligations with respect to multiple derivatives transactions, in accordance with the terms of the netting agreement; and
(ii) The fund's risk-based coverage amount for a derivatives transaction may be reduced by the value of assets that represent initial margin or collateral for the potential amounts payable referred to in paragraph (c)(9) of this section with respect to the derivatives transaction.
(10)
(11)
(i) For purposes of the portfolio limitation described in (a)(1)(ii) of this section:
(A) A fund's “
(B) A fund's
(C) A fund must apply its VaR model consistently when calculating the fund's securities VaR and the fund's full portfolio VaR.
(ii) Any VaR model used by a fund for purposes of determining the fund's securities VaR and full portfolio VaR must:
(A) Take into account and incorporate all significant, identifiable market risk factors associated with a fund's investments, including, as applicable:
(
(
(
(B) Use a 99% confidence level and a time horizon of not less than 10 and not more than 20 trading days; and
(C) If using historical simulation, include at least three years of historical market data.
15 U.S.C. 77f, 77g, 77h, 77j, 77s, 78c(b), 78
Item 31. * * *
k. Rule 18f-4(a)(1)(i) (17 CFR 270.18f-4(a)(1)(i)): __
l. Rule 18f-4(a)(1)(ii) (17 CFR 270. 18f-4(a)(1)(ii)): __
The revision and addition read as follows:
c. * * *
viii. For funds that are required to implement a risk management program under rule 18f-4(a)(3) under the Investment Company Act, provide:
1. Gamma.
2. Vega.
ix. Unrealized appreciation or depreciation.
By the Commission.
Securities and Exchange Commission.
Proposed rule.
The Securities and Exchange Commission is proposing to amend the regulatory requirements in Regulation ATS under the Securities Exchange Act of 1934 (“Exchange Act”) applicable to alternative trading systems (“ATSs”) that transact in National Market System (“NMS”) stocks (hereinafter referred to as (“NMS Stock ATSs”), including so called “dark pools.” First, the Commission is proposing to amend Regulation ATS to adopt Form ATS-N to provide information about the broker-dealer that operates the NMS Stock ATS (“broker-dealer operator”) and the activities of the broker-dealer operator and its affiliates in connection with the NMS Stock ATS, and to provide detailed information about the manner of operations of the ATS. Second, the Commission is proposing to make filings on Form ATS-N public by posting certain Form ATS-N filings on the Commission's internet Web site and requiring each NMS Stock ATS that has a Web site to post on the NMS Stock ATS's Web site a direct URL hyperlink to the Commission's Web site that contains the required documents. Third, the Commission is proposing to amend Regulation ATS to provide a process for the Commission to determine whether an entity qualifies for the exemption from the definition of “exchange” under Exchange Act Rule 3a1-1(a)(2) with regard to NMS stocks and declare an NMS Stock ATS's Form ATS-N either effective or, after notice and opportunity for hearing, ineffective. Fourth, under the proposal, the Commission could suspend, limit, or revoke the exemption from the definition of “exchange” after providing notice and opportunity for hearing. Fifth, the Commission is proposing to require that an ATS's safeguards and procedures to protect subscribers' confidential trading information be written. The Commission is also proposing to make conforming changes to Regulation ATS and Exchange Act Rule 3a1-1(a). Additionally, the Commission is requesting comment about, among other things, changing the requirements of the exemption from the definition of “exchange” pursuant to Exchange Act Rule 3a1-1(a) for ATSs that facilitate transactions in securities other than NMS stocks. Lastly, the Commission is also requesting comment regarding its consideration to amend Exchange Act Rules 600 and 606 to improve transparency around the handling and routing of institutional customer orders by broker-dealers.
Comments should be received on or before February 26, 2016.
Comments may be submitted by any of the following methods:
• Use the Commission's Internet comment form (
• Send an email to
• Use the Federal eRulemaking Portal (
• Send paper comments to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
Studies, memoranda, or other substantive items may be added by the Commission or staff to the comment file during this rulemaking. A notification of the inclusion in the comment file of any such materials will be made available on the Commission's Web site. To ensure direct electronic receipt of such notifications, sign up through the “Stay Connected” option at
Tyler Raimo, Senior Special Counsel, at (202) 551-6227; Matthew Cursio, Special Counsel, at (202) 551-5748; Marsha Dixon, Special Counsel, at (202) 551-5782; Jennifer Dodd, Special Counsel, at (202) 551-5653; David Garcia, Special Counsel, at (202) 551-5681; or Derek James, Special Counsel, at (202) 551-5792; Office of Market Supervision, Division of Trading and Markets, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-7010.
The Commission is proposing: (1) New Form ATS-N under the Exchange Act provided by Rule 3a1-1(a) of the Exchange Act [17 CFR 240.3a1-1(a)], which NMS Stock ATSs would rely on to qualify for the exemption from the definition of “exchange”; (2) to amend Regulation ATS under the Exchange Act [17 CFR 242.300 through 242.303] to add new Rule 304 to provide new conditions for NMS Stock ATSs seeking to rely on the exemption from the definition of “exchange”; and (3) related amendments to Rule 300, 301, and 303 of Regulation ATS and Rule 3a1-1(a) under the Exchange Act [17 CFR 242.300; 17 CFR 242.301, 17 CFR 242.303; and 17 CFR 240.3a1-1]. The Commission is also proposing amendments to Rules 301(b)(10) and 303 of Regulation ATS under the Exchange Act [17 CFR 242.301(b)(10) and 17 CFR 242.303] to require all ATSs to make and keep written safeguards and written procedures to protect subscribers' confidential trading information.
Section 11A(a)(2) of the Exchange Act,
In December 1998, the Commission adopted Regulation ATS to advance the goals of the national market system and establish a regulatory framework for ATSs.
In response to the substantial changes in the way securities were traded at the time, and the regulatory disparity between registered national securities exchanges and non-exchange markets, the Commission adopted a new regulatory framework that the Commission believed would encourage market innovation, while ensuring basic investor protections,
In the seventeen years since the Commission adopted Regulation ATS, the equity markets have evolved significantly, resulting in an increased number of trading centers and a reduced concentration of trading activity in NMS stocks.
When adopting Regulation ATS, the Commission noted that the 20% volume threshold was based on current market conditions, and that if such conditions changed, or if the Commission believed that alternative trading systems with less than 20% of the trading volume were engaging in inappropriate exclusionary practices or in anticompetitive conduct, the Commission could revisit the fair access thresholds.
Although ATSs and registered national securities exchanges generally operate in a similar manner and compete as trading centers for order flow in NMS stocks, each of these types of trading centers is subject to a separate regulatory regime with a different mix of benefits and obligations, including with respect to their obligations to disclose information about their trading operations. Unlike ATSs, national securities exchanges must register with the Commission pursuant to Section 6 of the Exchange Act,
Although falling within the statutory definition of “exchange,” an ATS is exempt from that definition if it complies with Regulation ATS. Regulation ATS includes the requirement that, as an alternative to registering as a national securities exchange, an ATS must register as a broker-dealer with the Commission, which entails becoming a member of an SRO, such as the Financial Industry Regulatory Authority (“FINRA”).
The Commission is concerned that the current regulatory requirements relating to operational transparency for ATSs, particularly those that execute trades in NMS stocks, may no longer fully meet the goals of furthering the public interest and protecting investors. Today, ATSs account for approximately 15.4% of the total dollar volume in NMS stocks
The Commission is also concerned about the current lack of transparency around potential conflicts of interest that arise from the activities of the broker-dealer operator of the NMS Stock ATS and its affiliates
Transparency is a hallmark of the U.S. securities markets and a primary tool by which investors protect their own interests, and the Commission is concerned that the current lack of transparency around potential conflicts of interest of the broker-dealer operator may impede market participants from adequately protecting their interests when doing business on the NMS Stock ATS. The Commission preliminarily believes that if market participants have more information about the operations of NMS Stock ATSs and the activities of the broker-dealer operators and the broker-dealer operators' affiliates, they could better evaluate whether to do business with an ATS and make more informed decisions about where to route their orders.
The Commission has long recognized that effective competition requires transparency and access across the national market system.
The Commission preliminarily believes that a wide range of market participants would benefit from the operational transparency that would result from the proposal. For example, many brokers subscribe to NMS Stock ATSs and route their orders, and those of their customers, to NMS Stock ATSs for execution. The Commission preliminarily believes that improved transparency about the operations of NMS Stock ATSs could aid brokers with meeting their best execution obligations to their customers, as they can better assess the trading venues to which they route orders.
In addition, the Commission preliminarily believes that the proposal could also help customers of broker-dealers, whose orders are routed to an NMS Stock ATS for possible execution in the ATS, evaluate whether their broker-dealer fulfilled its duty of best-execution. The Commission preliminarily believes that institutional investors, who may subscribe to an NMS Stock ATS or whose orders may be routed to an NMS Stock ATS by their brokers, should have more information about how NMS Stock ATSs operate, including how the ATS may match and execute customer orders.
This proposal is primarily designed to provide market participants with greater transparency around the operations of
The Commission also preliminarily believes that proposing a process for the Commission to determine whether an NMS Stock ATS qualifies for the exemption from the Exchange Act definition of “exchange” would facilitate better Commission oversight of NMS Stock ATSs and thus, better protection of investors.
In this light, the Commission is proposing to amend Regulation ATS, including as follows: (1) Define in proposed Rule 300(k) of Regulation ATS the term NMS Stock ATS, amend the definition of “control” under current Rule 300(f) of Regulation ATS to specify that control means to direct the management or policies of the broker-dealer of an ATS, and amend the exemption from the definition of “exchange” in Rule 3a1-1(a) to require NMS Stock ATSs to comply with proposed Rule 304 (in addition to the other requirements of Regulation ATS) as a condition of the exemption; (2) amend Rule 301(b)(2) to require NMS Stock ATSs to file the reports and amendments mandated by proposed Rule 304, which would include filing proposed Form ATS-N, in lieu of current Form ATS, to provide detailed disclosures about an NMS Stock ATS's operations and the activities of its broker-dealer operator and its affiliates and amend Rule 301(b)(2) to require an ATS that effects transactions in both NMS stocks and non-NMS stocks to file the reports and amendments mandated by proposed Rule 304 for its NMS stock trading activity and the reports and amendments required under current Rule 301(b)(2) of Regulation ATS for its non-NMS stock trading activity; (3) amend Rule 301(b)(9) to require an ATS that trades both NMS stocks and non-NMS stocks to separately report its transactions in NMS stocks on one Form ATS-R, and its transactions in securities other than NMS stocks on another Form ATS-R; (4) provide a process for the Commission, pursuant to proposed Rule 304(a)(1), to declare a Form ATS-N effective or, after notice and opportunity for hearing, ineffective; (5) establish the requirements for amending Form ATS-N pursuant to proposed Rule 304(a)(2); (6) provide, pursuant to proposed Rule 304(a)(3), that a notice of cessation shall cause the Form ATS-N to be ineffective on the date designated by the NMS Stock ATS; (7) provide a process for the Commission, pursuant to proposed Rule 304(a)(4), to suspend, limit, or revoke the exemption of an NMS Stock ATS's Form ATS-N upon notice and after opportunity for hearing; (8) provide that the Commission, pursuant to proposed Rule 304(b), will publicly post on its Web site: each effective Form ATS-N, each properly filed Form ATS-N Amendment, and each properly filed Form ATS-N notice of cessation, as well as each order of effectiveness or ineffectiveness of a Form ATS-N, order of ineffectiveness of a Form ATS-N Amendment, and order suspending, limiting, or revoking an NMS Stock ATS's exemption, issued by the Commission; and also require each NMS Stock ATS that has a Web site to post on the NMS Stock ATS's Web site a
A fundamental component of the current ATS regulatory framework adopted by the Commission in 1998 is Exchange Act Rule 3b-16.
The Commission adopted Exchange Act Rule 3b-16(b) to explicitly exclude certain systems that the Commission believed did not meet the exchange definition.
For those systems that meet the criteria of Rule 3b-16(a) and are not excluded under Rule 3b-16(b) of the Exchange Act,
To satisfy the requirements of the Rule 3a1-1(a)(2) exemption, a system that otherwise meets the definition of an “exchange” must comply with Regulation ATS. An ATS that fails to comply with the requirements of Regulation ATS would no longer qualify for the exemption from the definition of an “exchange” provided under Exchange Act Rule 3a1-1(a)(2), and thus, risks operating as an unregistered exchange in violation of Section 5 of the Exchange Act.
Rule 300(a) of Regulation ATS defines an ATS as: “any organization, association, person, group of persons, or system: (1) [t]hat constitutes, maintains, or provides a market place or facilities for bringing together purchasers and sellers of securities or for otherwise performing with respect to securities the functions commonly performed by a stock exchange within the meaning of [Rule 3b-16]; and (2) [t]hat does not: (i) [s]et rules governing the conduct of subscribers other than the conduct of such subscribers' trading on such organization, association, person, group of persons, or system; or (ii) [d]iscipline subscribers other than by exclusion
Rule 301(b)(1) of Regulation ATS requires that every ATS that is subject to Regulation ATS, pursuant to paragraph (a) of Rule 301,
In addition, Rule 301(b)(2) of Regulation ATS requires an ATS to file an initial operation report with the Commission on Form ATS
Form ATS requires, among other things, that an ATS provide information about: Classes of subscribers and differences in access to the services offered by the ATS to different groups or classes of subscribers; securities the ATS expects to trade; any entity other than the ATS involved in its operations; the manner in which the system operates; how subscribers access the trading system; procedures governing order entry and execution; and trade reporting, clearance and settlement of trades on the ATS. Regulation ATS states that information filed by an ATS on Form ATS is “deemed confidential when filed.”
In addition to providing notice of its initial operation, an ATS must notify the Commission of any changes in its operations by filing an amendment to its initial operation report. There are three types of amendments to an initial operation report.
Rule 301(b)(9) of Regulation ATS also requires ATSs to periodically report certain information about transactions on the ATS and information about certain activities on Form ATS-R within 30 calendar days after the end of each calendar quarter in which the market has operated.
In addition to the reporting requirements under Rules 301(b)(2) and 301(b)(9) of Regulation ATS, an ATS's exemption from national securities exchange registration is conditioned on the ATS complying with the other requirements under Regulation ATS. Under Rule 301(b)(3), an ATS that (1) displays subscriber orders in an NMS stock to any person (other than an employee of the ATS) and (2) during at least four of the preceding six calendar months, had an average daily trading volume of 5% or more of the aggregate average daily share volume for that NMS stock, as reported by an effective transaction reporting plan, must:
• Pursuant to Rule 301(b)(3)(ii),
• pursuant to Rule 301(b)(3)(iii),
○ equivalent to the ability of such broker-dealer to effect a transaction with other orders displayed on the exchange or by the association; and
○ at the price of the highest priced buy order or lowest priced sell order displayed for the lesser of the cumulative size of such priced orders entered therein at such price, or the size of the execution sought by such broker-dealer.
Under Rule 301(b)(4), an ATS must not charge any fee to broker-dealers that access the ATS through a national securities exchange or national securities association that is inconsistent with the equivalent access to the ATS that is required under Rule 301(b)(3)(iii).
Under Rule 301(b)(5)—and even if the ATS does not display subscribers' orders to any person (other than an ATS employee)—an ATS with 5% or more of the average daily volume in an NMS stock during at least four of the preceding six calendar months, as reported by an effective transaction reporting plan, must:
• Establish written standards for granting access to trading on its system;
• not unreasonably prohibit or limit any person in respect to access to services offered by such ATS by applying the above standards in an unfair or discriminatory manner;
• make and keep records of:
○ all grants of access including, for all subscribers, the reasons for granting such access; and
○ all denials or limitations of access and reasons, for each applicant, for denying or limiting access; and
• report the information required in Exhibit C of Form ATS-R regarding grants, denials, and limitations of access.
Additionally, under Rule 301(b)(6), an ATS that trades only municipal securities or corporate fixed income debt with 20% or more of the average daily volume traded in the U.S. during at least four of the preceding six calendar months, must do the following with respect to those systems that support order entry, order routing, order execution, transaction reporting, and trade comparison:
• Establish reasonable current and future capacity estimates;
• conduct periodic capacity stress tests of critical systems to determine such system's ability to process transactions in an accurate, timely, and efficient manner;
• develop and implement reasonable procedures to review and keep current its system development and testing methodology;
• review the vulnerability of its systems and data center computer operations to internal and external threats, physical hazards, and natural disasters;
• establish adequate contingency and disaster recovery plans;
• on an annual basis, perform an independent review, in accordance with
• promptly notify the Commission and its staff of material systems outages and significant systems changes.
Specifically, Regulation SCI, with regard to SCI entities (as defined in Regulation SCI;
Rule 301(b)(7)
Under Rule 301(b)(10), all ATSs must establish adequate safeguards and procedures to protect subscribers' confidential trading information, which must include the following:
• Limiting access to the confidential trading information of subscribers to those employees of the ATS who are operating the system or responsible for its compliance with these or any other applicable rules; and
• implementing standards controlling employees of the ATS trading for their own accounts.
Furthermore, all ATSs must adopt and implement adequate oversight procedures to ensure that the above safeguards and procedures are followed.
Finally, Rule 301(b)(11)
The equity market structure in 1998 was starkly different than it is today. At the time Regulation ATS was proposed, there were only 8 registered national
Competitors for listed-equity (NMS) trading services also include several hundred OTC market makers and broker-dealers.
The market share percentages were calculated by Commission staff using market volume statistics reported by BATS and FINRA ATS data collected from ATSs pursuant to FINRA Rule 4552.
FINRA recently adopted a rule that requires NMS Stock ATSs to report aggregate weekly volume information and number of trades to FINRA in certain equity securities, including NMS stocks, some of which FINRA makes publicly available. Reporting is on a security-by-security basis for transactions occurring within the ATS. Each ATS is also required to use a unique MPID in its reporting to FINRA, such that its volume reporting is distinguishable from other transaction volume reported by the broker-dealer operator of the ATS, including volume reported for other ATSs operated by the same broker-dealer.
FINRA publishes on its Web site the trading information (volume and number of trades) reported for each equity security, with appropriate disclosures that the information is based on ATS-submitted reports and not on reports produced or validated by FINRA.
Another significant aspect of the increased role of NMS Stock ATSs in equity market structure is the proliferation of ATSs that trade NMS stocks but do not publicly display quotations in the consolidated quotation data, commonly referred to as “dark pools.”
Some trading centers, such as OTC market makers, also offer dark liquidity, primarily in a principal capacity, and do not operate as ATSs. For purposes of this release, these trading centers are not defined as dark pools because they are not ATSs. These trading centers may, however, offer electronic dark liquidity services that are analogous to those offered by dark pools.
Most dark pools today, however, primarily execute trades with small sizes that are more comparable to the average size of trades on registered national securities exchanges, which is 181 shares.
In recent years, as the number of NMS Stock ATSs has increased, so has the number of dark pools. The number of active dark pools trading NMS stocks has increased from approximately 10 in 2002,
In contrast to dark pools, an ATS could be an Electronic Communication Network (“ECN”). ECNs are ATSs that provide their best-priced orders for inclusion in the consolidated quotation data, whether voluntarily or as required by Rule 301(b)(3) of Regulation ATS.
Since Regulation ATS was adopted, ATSs have gained market share in NMS stocks and have also evolved to become more complex and sophisticated trading centers. In addition, ATSs that transact in NMS stocks increasingly are operated by multi-service broker-dealers that engage in significant brokerage and dealing activities in addition to their operation of their ATSs, and the operations of NMS Stock ATSs have become increasingly intertwined with operations of their broker-dealer operator, adding to the complexity of the manner in which those ATSs operate.
Since Regulation ATS was adopted, ATSs that effect transactions in NMS stocks have grown increasingly complex in terms of the services and functionalities that they offer subscribers. Over the past 16 years, these ATSs, like registered national securities exchanges, have used advances in technology to improve the speed, capacity, and efficiency of their trading functionalities to bring together the orders in NMS stocks of multiple buyers and sellers using established, non-discretionary methods under which such orders interact and trade. Before Regulation ATS was adopted, ATSs primarily operated as ECNs, as dark pools were not prevalent during that period. Today, the vast majority of NMS Stock ATSs operate as dark pools. Furthermore, based on Commission experience, ATSs that traded NMS stocks prior to the adoption of Regulation ATS did not offer the same services and functionalities as they do today. Today, most NMS Stock ATSs, like most registered national securities exchanges, are fully-electronic, automated systems that provide a myriad of trading services to facilitate order interaction among various types of users on the NMS Stock ATS. For example, NMS Stock ATSs offer a wide range of order types, which are a primary means by which subscribers communicate their instructions for the handling of their orders on the ATS. Based on Commission experience, some NMS Stock ATSs allow subscribers to submit indications of interests, conditional orders, and various types of pegged orders, often with time-in-force, or other specifications, which are similar to those offered by exchanges, such as all or none, minimum execution quantity, immediate or cancel, good till cancelled, and day. Unlike registered national securities exchanges, however, most NMS Stock ATSs have adopted a dark trading model, and do not display any quotations in the consolidated quotation data.
Additionally, at the time Regulation ATS was adopted, SORs were not a primary point of access to ATSs that trade NMS stocks. Today, however, brokers compete to offer sophisticated technology tools to monitor liquidity at many different venues and to implement order routing strategies.
In today's highly automated trading environment, NMS Stock ATSs offer various matching systems to bring together orders and counterparties in NMS stocks. These automated matching systems, including limit order books, crossing systems, and various types of auctions, are generally pre-programmed to execute orders pursuant to established non-discretionary methods. These established non-discretionary methods dictate the terms of trading among multiple buyers and sellers entering orders into the NMS Stock ATS and generally include priority and allocation procedures. Based on Commission experience, some NMS Stock ATSs offer price-time priority, while others offer midpoint only matching with time priority, or time priority at other prices derived from the NBBO. Some NMS Stock ATSs may also offer priority mechanisms with additional overlays. For example, amongst orders at a given price, priority may be given to a certain type of order (
Some NMS Stock ATSs also offer subscribers the ability to further customize trading parameters, or the broker-dealer operator may set parameters around the interaction of various order flow. Based on Commission experience with information disclosed on Form ATS, some NMS Stock ATSs may enable subscribers to select the types of, or
The Commission also preliminarily believes that, since Regulation ATS was adopted, the operations of NMS Stock ATSs have become increasingly intertwined with operations of the broker-dealer operator, providing additional complexity to the manner in which NMS Stock ATSs operate. Given this close relationship, the Commission preliminarily believes that conflicts of interest can arise between the broker-dealer operator's interest in its NMS Stock ATS and its interest in its other non-ATS businesses. As discussed further below, at the time Regulation ATS was adopted, the Commission recognized that broker-dealer operators may perform additional functions other than the operation of their ATS, such as other trading services, and adopted Rule 301(b)(10), which requires that ATSs have safeguards and procedures to protect confidential subscriber trading information.
As discussed further below, the Commission preliminarily believes that details about the operations and trading services of ATSs, such as those described above, are useful to market participants' understanding of the terms and conditions under which their orders will be handled and executed on a given ATS.
The Commission believes that one of the most important functions it can perform for investors is to ensure that they have access to the information they need to protect and further their own interests.
Under current rules, a Form ATS is “deemed confidential when filed.”
By comparison, national securities exchanges, with which NMS Stock ATSs directly compete, are subject to comprehensive registration and rule filing requirements under Section 19(b) of the Exchange Act.
The Commission preliminarily believes that the increased complexity of NMS Stock ATS operations and the business structures of their broker-dealer operators, combined with a lack of transparency around the operation of NMS Stock ATSs and the activities of their broker-dealer operators, could inhibit a market participant's ability to assess an NMS Stock ATS as a potential trading venue. Further, the Commission recognizes that Form ATS was designed before NMS Stock ATSs operated at the level of complexity that they do today, and the equity market structure has substantially changed since Regulation ATS was adopted.
The Commission is proposing to amend Regulation ATS to adopt Form ATS-N, which would require an NMS Stock ATS to publicly disclose detailed information about its operations and the activities of the broker-dealer operator and its affiliates. The Commission is also proposing to modify the regulatory requirements that apply to NMS Stock ATSs and qualify NMS Stock ATSs for the exemption from the definition of “exchange” under Exchange Act Rule 3a1-1(a)(2) by declaring the Form ATS-N effective or ineffective.
In 2009, the Commission proposed to amend the regulatory requirements of the Exchange Act that apply to non-public trading interest in NMS stocks, including dark pools.
Three commenters expressed the view that the Commission should address the regulatory disparity between national securities exchanges and ATSs. Senator Edward E. Kaufman expressed the view that “as trading continues to become faster and more dispersed, it is that much more difficult for regulators to perform their vital oversight and surveillance functions,” and that “the Commission should consider strengthening the regulatory requirements for becoming an Alternative Trading System or starting a new trading platform for existing market centers.”
Liquidnet expressed the view that the Commission should require institutional brokers, including institutional ATSs, to disclose to their customers specific order handling practices and that Regulation ATS should be amended to enhance the review process of new ATSs and material changes to ATSs' business operations.
In 2010, the Commission issued a Concept Release that, among other things, solicited comment on whether trading centers offering undisplayed liquidity are subject to appropriate regulatory requirements for the type of business they conduct.
• Do investors have sufficient information about dark pools to make informed decisions about whether in fact they should seek access to dark pools? Should dark pools be required to provide improved transparency on their trading services and the nature of their participants? If so, what disclosures should be required and in what manner should ATSs provide such disclosures?
• Are there any other aspects of ATS regulation that should be enhanced for dark pools or for all ATSs, including ECNs?
• Are there any ways in which Regulation ATS should be modified or supplemented to appropriately reflect the significant role of ATSs in the current market structure?
The Commission received 20 comment letters that addressed these questions as they relate to the proposal.
Five commenters expressed support for Commission action to address the regulatory disparity between national securities exchanges and ATSs, particularly where such trading venues perform similar functions. Security Traders Association of New York noted that it has “called for the harmonization of regulatory oversight and the need for similar rules across venues, including exchanges, ATSs and other liquidity sources that are connected through the
However, three commenters expressed the view that in order to rectify the regulatory disparity, the Commission should lessen regulatory burdens on exchanges, rather than enhance its regulation of ATSs. Goldman Sachs urged the Commission to “consider expanding the types of rule changes that exchanges . . . can propose on an immediately effective basis,” which “would help to level the playing field between exchanges and ATSs.”
Ten commenters expressed the view that ATSs and broker-dealers should be required to provide more enhanced disclosures regarding their operations, and described specific disclosures that the Commission should require of ATSs. SIFMA stated that the Commission “should require broker-dealers to publish on their Web sites, on a monthly basis, a standardized disclosure report that provides an overview of key macro issues that are of interest to clients,” including, among other things, “order types supported on the broker-dealer's ATS (if applicable).”
Bloomberg Tradebook LLC noted that buy-side representatives with whom it met at a workshop for members of equity trading desks of asset managers stated that although they periodically send questionnaires to their brokers regarding order handling and internalization (dark pool) matching protocols, because the buy-side representatives might not be customers of all ATSs, they could not assess order interaction that occurs across the market structure.
Goldman Sachs recommended an enhanced disclosure regime for exchanges and ATSs consisting of four components. First, exchanges and ATSs would be required to “provide descriptions of the types of functionalities that they provide, such as types of orders (
Lime Brokerage, LLC recommended that the Commission should require “transparency around pricing, access criteria and membership of dark pools.”
Southeastern Asset Management, Inc. commented that brokers and trading venues should disclose to investors information such as payments, rebates, and fees related to execution venues, venue rankings by routing brokers and routing venues, and the inputs that create the routing rankings, and the transparency of customer specific order routing and execution available to the specific customer.
In addition to the ten commenters that provided specific Form ATS disclosure recommendations, one commenter provided some examples of customer questions and requests specific to dark pools that it received. Such questions and requests related to, among other things, whether the commenter's dark pool is truly dark, categorization or tagging of order flow, whether participants may opt out of or into interaction with certain flow, proprietary orders interaction with the dark pool, priority rules, requests to exclude certain types of venues for routing of orders, maintenance of confidential trading information, use of direct market data feeds by the dark pool's servers and algorithmic strategies, and co-location of servers and algorithmic strategies to exchange and ATS servers.
In response to the questions the Commission raised in the Equity Market Structure Release, one commenter raised questions relating to the transparency of ATSs' operations. The commenter asked, among other things, whether:
• Form ATS filings provide the Commission with complete and timely information about the operation of ATSs, and whether such filings are sufficiently frequent and detailed to allow the Commission to understand planned system changes by ATSs;
• the Commission has adequate tools to respond to concerns about the operations of ATSs;
• the Commission has adequate information about the relationships between ATSs and their subscribers, including how “toxicity” ratings are assigned to subscribers, and their impact on individual subscriber's access and fees, and whether it is acceptable that ATS subscribers can assign such ratings to counterparties within and outside the ATS without disclosing objective criteria;
• the Commission has adequate information about ATS pricing, noting that but for the Rule 3a1-1 exemption from exchange registration, ATSs would be required to charge fees that are fair and not unreasonably discriminatory; and
• the Commission receives enough information from ATSs about their access policies to make comprehensive assessment about competitive dynamics at work in the market.
The commenter stated its belief that responding to the Commission's questions in the Equity Market Structure Release with the commenter's own responsive questions was “entirely appropriate” because the “public cannot comment on the adequacy of Form ATS filings,” and therefore, “the Commission and its staff are uniquely qualified to assess whether the requirements of the Form and the content of actual submitted filings provide adequate and timely information.”
One commenter discussed a May 2009 Opinion Research Corporation survey of 284 executives from NYSE-listed companies, noting that only 17% of the executives were satisfied with the transparency of trading in their company's stock, and that 69% of the executives “indicated there is inadequate regulatory oversight of non-exchange trading venues, including dark pools.”
Five commenters expressed the view that Form ATS filings should be made publicly available. SIFMA opined that “[t]o enhance transparency and confidence, all ATSs should publish the Form ATS and make their forms available on their Web sites.”
Three commenters expressed their opposition to enhanced regulation of ATSs. Scottrade, Inc. stated it believed that ATSs had “brought innovation and better execution quality to the equity markets,” and that it “would not be in favor of additional regulation that would reduce competition, raise barriers to entry for ATSs or force orders to be routed to specific destinations.”
The Commission received two comment letters on its Market Structure Web site relevant to the Commission's proposal to amend Regulation ATS.
Blackrock submitted the same comment letter to the Market Structure Web site that it submitted with respect to the 2010 Equity Market Structure Release.
The Commission has considered these comments, and, for the reasons set forth throughout this release, is proposing the amendments to Regulation ATS and Exchange Act Rule 3a1-1 as described herein.
The Commission is proposing to amend Rule 300 of Regulation ATS to provide for the definition of “NMS Stock ATS” in a new paragraph (k). The purpose of proposed Rule 300(k) is to specify the type of ATS that would be subject to the heightened conditions under Exchange Act Rule 3a1-1, as described further below. Proposed Rule 300(k) would define “NMS Stock ATS” to mean an “an alternative trading system, as defined in Exchange Act Rule 300(a), that facilitates transactions in NMS stocks, as defined in Exchange Act Rule 300(g).”
These plans are filed with, and approved by, the Commission in accordance with the requirements of Rule 608 of Regulation NMS, and pursuant to Rule 601 of Regulation NMS, which requires every national securities exchange to “file a transaction reporting plan regarding transactions in listed equity and Nasdaq securities executed through its facilities” and every national securities association to “file a transaction reporting plan regarding transactions in listed equity and Nasdaq securities executed by its members otherwise than on a national securities exchange.”
As it did in the Regulation ATS Adopting Release, the Commission notes that whether the actual execution of the order takes place on the system is not a determining factor of whether a system falls under Rule 3b-6. A trading system that falls within the Commission's functional definition of “exchange” pursuant to Rule 3b-6 will still be an “exchange,” even if it matches two trades and routes them to another system or exchange for execution.
The Commission requests comment on the proposed definition of NMS Stock ATS. In particular, the Commission solicits comment on the following:
1. Do you believe the Commission should adopt a more limited or expansive definition of NMS Stock ATS? Why or why not? Please support your arguments.
2. Should the Commission create the NMS Stock ATS category? Why or why not? Please support your arguments.
3. Should the Commission modify its proposed definition in any way? If so, in what way and why? If not, why not? Please support your arguments.
Exchange Act Rule 3a1-1(a) exempts from the definition of “exchange”: (1) Any alternative trading system operated by a national securities association,
As discussed in more detail below, the Commission is now proposing to expand the conditions with which NMS Stock ATSs would be required to comply in order to use the exemption from the definition of “exchange.” To provide for these new conditions, the Commission is proposing to amend Rules 3a1-1(a)(2) and (3) to include proposed Rule 304 within the scope of Regulation ATS.
The Commission preliminarily believes that amending the conditions to the Rule 3a1-1(a) exemption would more appropriately calibrate the level of operational transparency between registered national securities exchanges and NMS Stock ATSs, which in many regards, are functionally similar trading centers, while maintaining the regulatory framework that permits NMS Stock ATSs to decide whether to register and be regulated as broker-dealers or as national securities exchanges.
The Commission has considered the alternative of requiring different levels of disclosure among NMS Stock ATSs based on volume.
The Commission requests comment on the scope of the proposed amendments to Rules 3a1-1(a)(2) and (3), which would apply the proposed new conditions of Rule 304 to all NMS Stock ATSs. In particular, the Commission solicits comment on the following:
4. Do you believe that the current conditions to the exemption from the definition of “exchange” for NMS Stock ATSs are appropriate in light of market developments since Regulation ATS was adopted in 1998? Why or why not? Please support your arguments.
5. Do you believe there is sufficient transparency with respect to the operations of NMS Stock ATSs? If not, what information do you believe should be disclosed regarding the operations of an NMS Stock ATS, how frequently should it be disclosed, and why? Does the need for, and availability of, information about the operations of NMS Stock ATSs vary among market participants? If so, how? Please explain in detail.
6. Do you believe there is sufficient transparency with respect to the activities of the broker-dealer operator and its affiliates in connection with NMS Stock ATSs? If not, what information do you believe should be disclosed regarding the activities of the broker-dealer operator and its affiliates and why? Does the need for, and availability of, information about the activities of the broker-dealer operator and its affiliates vary among market participants? If so, how? Please explain in detail.
7. Should the Commission adopt the proposal to apply the requirements of proposed Rule 304 to all NMS Stock ATSs? Why or why not? Please support your arguments.
8. Do you believe that the Commission should provide any exceptions to the application of proposed Rule 304 to NMS Stock ATSs seeking to operate pursuant to the Rule 3a1-1(a)(2) exemption? Why or why not? For example, should the requirements to comply with proposed Rule 304, including the disclosure requirements of proposed Form ATS-N, only be applicable to NMS Stock ATSs that meet certain thresholds (such dollar volume, trading volume, or number of subscribers)? If so, what should the threshold be, and why? If not, why not? Please support your arguments.
9. Do you believe that the Commission should require different levels of disclosure for any proposed Form ATS-N items based on the NMS Stock ATS's volume? If so, why, what should the different thresholds be, and which items on proposed Form ATS-N should depend on an NMS Stock ATS's volume? If not, why not? Please support your arguments.
At this time, the Commission preliminarily believes that the above operational transparency conditions to the exemption to Exchange Act Rule 3a1-1(a) should only apply to NMS Stock ATSs. The Commission, however, requests comment and data on whether its preliminary view is warranted for each category of non-NMS stock ATS.
First, approximately 27 ATSs that currently have a Forms ATS on file with the Commission disclose that they exclusively trade fixed income securities, such as corporate or municipal bonds, and approximately 2 ATSs effect transactions in both fixed income securities and other securities, including NMS stocks.
Furthermore, market participants trading fixed income securities are typically not comparing transparent trading venues against non-transparent trading venues in the same manner as market participants seeking to execute NMS stock orders. Although two affiliated national securities exchanges operate electronic systems for receiving, processing, executing, and reporting bids, offers and executions in fixed income debt securities,
The Commission recognizes, however, that trading on fixed income ATSs continues to evolve as fixed income securities are increasingly being traded on ATSs and that trading is occurring in an automated manner. Furthermore, while the specific conflicts of interest that might arise on NMS Stock ATSs operated by multiservice broker dealers may not be identical to the potential conflicts of interest that might arise on
10. Do you believe that market participants have sufficient information about the operations of fixed income ATSs to evaluate such ATSs as potential trading venues? Why or why not? Please support your arguments.
11. Do you believe that the Commission should apply proposed Rule 304, in whole or in part, to fixed income ATSs, or some subset of fixed income ATSs? Why or why not? If proposed Rule 304 should be applied only in part to fixed income ATSs, which parts should be applied and why? What, if any, specific modifications or additions to proposed Rule 304 should be made in any application of it to fixed income ATSs? Please support your arguments.
12. Do you believe that fixed income ATSs raise the same or similar operational transparency concerns that the Commission preliminarily believes to exist for NMS Stock ATSs? Why or why not? Please support your arguments. If not, do you believe that fixed income ATSs raise other operational transparency concerns that warrant inclusion of fixed income ATSs within the scope of proposed Rule 304? Why or why not? Please support your arguments.
13. Do you believe that there are potential conflicts of interest for broker-dealer operators of fixed income ATSs, or their affiliates, that may warrant inclusion of fixed income ATSs within the scope of proposed Rule 304? Why or why not? Please support your arguments. If yes, what are those potential conflicts of interest and how do those potential conflicts of interest differ from or resemble the potential conflicts of interest for broker-dealer operators of NMS Stock ATSs and their affiliates? Please be specific.
14. Do you believe that the current conditions to the exemption from the definition of “exchange” are appropriate for fixed income ATSs? Why or why not? Please support your arguments.
15. Do you believe that applying proposed Rule 304 to fixed income ATSs would place them at a competitive disadvantage with respect to non-ATS trading venues that trade fixed income securities and would not be subject to such disclosure requirements? Why or why not? Please support your arguments.
16. Should the Commission adopt a new form that is designed specifically to solicit information about the operations of fixed income ATSs or the operations of certain types of fixed income ATSs? If so, please explain, in detail, the information the new form should require. If not, why not? Please support your arguments. Do you believe that part or all of any new form designed specifically for fixed income ATSs should be made available to the public? Why or why not? Please support your arguments.
As noted above, the Commission recognizes that fixed income securities markets continue to evolve as fixed income securities are increasingly being traded on ATSs in an automated manner. Thus, under the current regulatory requirements, market participants generally do not have information about how fixed income ATSs operate as ATSs are not otherwise required to publicly disclose such information
As such, the Commission is seeking public comment on whether it should make public current Forms ATS filed by fixed income ATSs. Though the solicitations on current Form ATS are not specifically tailored to fixed income ATSs like proposed Form ATS-N would be tailored to NMS Stock ATSs, market participants could use the information to assess and compare fixed income ATSs when deciding where to trade fixed income securities. The Commission is cognizant, however, that fixed income ATSs currently file Form ATS with the understanding that the Form ATS is deemed confidential and thus, a fixed income ATS may not have chosen to operate as an alternative trading system if its Form ATS filing was originally intended to be made public. In response to any change in the regulatory requirements, a fixed income ATS may change its business model and choose to curtail its activities or cease operating as an ATS.
Accordingly, the Commission seeks comment on the following:
17. Do you believe that the current Forms ATS initial operation report, or parts thereof, filed by fixed income ATSs should be made available to the public? Why or why not? Please support your arguments.
18. Do you believe that amendments to Form ATS initial operation reports, or parts thereof, filed by fixed income ATSs should be made available to the public? Why or why not? Please support your arguments.
19. Do you believe that current Form ATS is sufficient to elicit useful information about the operations of fixed income ATSs? If so, why? If not, in what ways should Form ATS be modified to better inform the Commission about the operations of fixed income ATSs? Please explain in detail the manner in which Form ATS should be modified for fixed income ATSs.
20. Do you believe that fixed income ATSs may curtail or cease operations if the Commission rescinded the confidential treatment of Form ATS and made Forms ATS filed by fixed income ATSs public? Why or why not? Please support your arguments.
21. Do you believe that if fixed income ATSs curtail or cease operations in response to the Commission rescinding the confidentiality of the Form ATS, the limitation or exit of those ATSs from the fixed income market would impact the quality of the fixed income markets in any way? Why or why not? Please support your arguments.
The questions above relate to all fixed income securities, but the Commission is also interested in learning commenters' specific views about whether ATSs that effect transactions in fixed income securities that are government securities, as defined under the Exchange Act,
Pursuant to the Exchange Act (particularly the provisions of the Government Securities Act of 1986, as amended
The October 15 Staff Report also provides an overview of the market structure, liquidity, and applicable regulations of the U.S. Treasury market, as well as the broad changes to the structure of the U.S. Treasury market that have occurred over the past two decades.
The October 15 Staff Report notes that the growth in high-speed electronic trading has contributed to the growing presence of Principal trading firms (“PTFs”) in the Treasury market, with these firms accounting for the majority of trading and providing the vast majority of market depth.
The October 15 Staff Report also notes that increased trading speed due to automated trading in the U.S. Treasury market has challenged the traditional risk management protocols for market participants, trading platforms, and clearing firms.
As indicated in the October 15 Staff Report, the staff of the U.S. Treasury Department, the Board of Governors of the Federal Reserve System, the Federal Reserve Bank of New York, the Commission, and the U.S. Commodity Futures Trading Commission plan to continue to analyze the events of October 15, 2014 and examine changes to the U.S. Treasury market structure. The October 15 Staff Report identified four areas for further work. One of the four areas includes the continued monitoring of trading and risk management practices across the U.S. Treasury market and a review of the current regulatory requirements applicable to the government securities market and its participants.
Based on the rapid and continued evolution of the market for government securities, the Commission is seeking comment on whether as part of its continued cooperation and coordination with other regulators, it should include ATSs whose trading activity is solely in government securities within the scope of current Regulation ATS and amend Regulation ATS to provide for enhanced operational transparency for ATSs that trade government securities.
22. Do you that believe market participants have sufficient information about the operations of ATSs that effect transactions in government securities in order to evaluate such ATSs as potential trading venues? Why or why not? Please support your arguments.
23. Do you believe that the Commission should adopt amendments to Regulation ATS to remove the exemption under Rule 301(a)(4)(ii)(A) of Regulation ATS for ATSs whose trading activity is solely in government securities? Why or why not? Please support your arguments. If so, do you believe that the Commission should make public Form ATS filings or otherwise increase the transparency requirements under Regulation ATS for ATSs whose sole trading activity is in government securities? Why or why not? Please support your arguments.
24. Do you believe that the Commission should adopt amendments to Regulation ATS to enhance the transparency requirements applicable to ATSs that effect transactions in both government securities and non-government securities? Why or why not? If so, how? Please support your arguments.
25. Do you believe that ATSs that effect transactions in government securities raise the same operational transparency concerns that the Commission preliminarily believes to exist for NMS Stock ATSs? Why or why not? Please support your arguments. If not, do you believe that ATSs that effect transactions in government securities raise other operational transparency concerns that warrant expanding the scope of Regulation ATS to encompass ATSs whose sole trading activity is in government securities or increasing the transparency requirements for ATSs that effect transactions in both government securities and non-government securities? Why or why not? Please support your arguments.
26. Do you believe that there are potential conflicts of interest for broker-dealer operators of ATSs, or their affiliates, that effect transactions in government securities that may justify greater operational transparency for ATSs that effect transactions in government securities? Why or why not? Please support your arguments. If yes, what are those potential conflicts of interest and how do those potential conflicts of interest differ from or resemble the potential conflicts of interest for broker-dealer operators of NMS Stock ATSs and their affiliates? Please be specific.
27. Do you believe that current Form ATS is sufficient to elicit information about the operations of ATSs that effect transactions in government securities? If not, in what ways should Form ATS be modified to better inform the Commission about the operations of ATSs that effect transactions in government securities? Please explain in detail the manner in which Form ATS should be modified. Do you believe that the current Forms ATS, or parts thereof, for ATSs that effect transactions in government securities and non-government securities should be made available to the public? Why or why not? Please support your arguments.
28. Do you believe that the Commission should adopt amendments to existing rules under Regulation ATS, including, Rules 301(b)(3) (order display and execution access), 301(b)(5) (fair access), and 301(b)(6) (capacity, integrity, and security of automated systems), to make those rules applicable to trading in government securities on ATSs? Why or why not? If so, how? Please provide support for your arguments. Should the Commission adopt amendments to Rule 301(b)(3) of Regulation ATS to require ATSs that trade government securities to report quotes and/or trade information for public dissemination after crossing certain volume thresholds in a government security? Should such information be reported only after a delay? Why or why not? Please support your arguments.
29. Do you believe that the Commission should apply proposed Rule 304, in whole or in part, to ATSs that effect transactions in government securities? Why or why not? Please support your arguments.
30. Do you believe that the Commission should adopt a new form that is specifically designed to solicit information about the operations of ATSs that effect transactions in government securities? If so, please explain, in detail, the information the new form should require from ATSs that effect transactions in government securities. If not, why not? Please support your arguments. Do you believe that any new form designed specifically for ATSs that effect transactions in government securities should be made available to the public? Why or why not? Please support your arguments.
31. Do you believe that broker-dealers that effect transactions in government securities may modify their business models in order to need not comply with Regulation ATS in response to enhanced regulatory or operational transparency requirements for ATSs that effect transactions in government securities? Why or why not? Please support your arguments.
There are also ATSs whose activity is solely the facilitation of trading in OTC Equity Securities.
32. Do you believe that market participants have sufficient information about the operations of OTC Equity Securities ATSs to evaluate such ATSs as potential trading venues? Why or why not? Please support your arguments.
33. Do you believe that OTC Equity Securities ATSs raise the same operational transparency concerns that the Commission preliminarily believes to exist for NMS Stock ATSs? Why or why not? Please support your arguments. If not, do you believe that OTC Equity Securities ATSs raise other operational transparency concerns that warrant inclusion of OTC Equity
34. Do you believe that there are potential conflicts of interest for broker-dealer operators of ATSs, and their affiliates, that facilitate transactions in OTC Equity Securities that may justify greater operational transparency for OTC Equity Securities ATSs? Why or why not? Please support your arguments. If yes, what are those potential conflicts of interest and how do those potential conflicts of interest differ from or resemble the potential conflicts of interest for broker-dealer operators of NMS Stock ATSs and their affiliates? Please be specific.
35. Do you believe that the Commission should apply proposed Rule 304, in whole or in part, to OTC Equity Securities ATSs? Why or why not? Please support your arguments.
36. Do you believe that applying proposed Rule 304 to OTC Equity Securities ATSs would place them at a competitive disadvantage with respect to other trading venues that facilitate transactions in OTC Equity Securities in the bilateral market, which would not be subject to such disclosure requirements? Why or why not? Please support your arguments.
37. Do you believe that current Form ATS is sufficient to elicit relevant information about the operations of OTC Equity Securities ATSs? If so, why? If not, in what ways should Form ATS be modified to better inform the Commission about the operations of OTC Equity Securities ATSs? Please explain in detail the manner in which Form ATS could be modified. Do you believe that the current filed Forms ATS, or parts thereof, for OTC Equity Securities ATSs should be made available to the public? Why or why not? Please support your arguments.
38. Do you believe that the Commission should adopt a new form that is designed specifically for OTC Equity Securities ATSs to promote operational transparency of such ATSs? If so, please explain, in detail, the information the new form should require. If not, why not? Please support your arguments. Do you believe that any new form designed specifically for OTC Equity Securities ATSs should be made available to the public? Why or why not? Please support your arguments.
Additionally, the Commission notes that there are active ATSs that trade in securities other than NMS stocks, fixed income securities, or OTC Equity Securities.
39. Do you believe that market participants have sufficient information about the operations of ATSs that effect or facilitate transactions in securities other than NMS stocks, fixed income securities, or OTC Equity Securities as potential trading venues? Why or why not? Please support your arguments.
40. Do you believe that ATSs that effect or facilitate transactions in securities other than NMS stocks, fixed income securities, or OTC Equity Securities raise the same operational transparency concerns that the Commission preliminarily believes to exist for NMS Stock ATSs? Why or why not? Please support your arguments.
41. Do you believe that there are potential conflicts of interest for broker-dealer operators of ATSs, and their affiliates, that effect or facilitate transactions in securities other than NMS stocks, fixed income securities, or OTC Equity Securities that may justify greater operational transparency for ATSs that effect or facilitate transactions in securities other than NMS stocks, fixed income securities, or OTC Equity Securities? Why or why not? Please support your arguments. If yes, what are those potential conflicts of interest and how do those potential conflicts of interest differ from or resemble the potential conflicts of interest for broker-dealer operators of NMS Stock ATSs and their affiliates? Please be specific.
42. Do you believe that the Commission should apply proposed Rule 304, in whole or in part, to ATSs that effect or facilitate transactions in securities other than NMS stocks, fixed income securities, or OTC Equity Securities? Why or why not? Please support your arguments. If so, please explain the types of ATSs to which proposed Rule 304 should apply and why. If not, why not? Please support your arguments.
43. Do you believe that Form ATS is sufficient to elicit useful information about the operations of ATSs that effect or facilitate transactions in securities other than NMS stocks, fixed income securities, or OTC Equity Securities? If so, why? If not, in what ways should Form ATS be modified to better inform the Commission about the operations of ATSs that effect or facilitate transactions in securities other than NMS stocks, fixed income securities, or OTC Equity Securities? Please explain in detail the manner in which Form ATS could be modified. Do you believe that current filed Forms ATS, or parts thereof, for ATSs that effect or facilitate transactions in securities other than NMS stocks, fixed income securities, or OTC Equity Securities should be made available to the public? Why or why not? Please support your arguments.
44. Do you believe that the Commission should adopt a new form specifically designed for ATSs that effect or facilitate transactions in securities other than NMS stocks, fixed income securities, or OTC Equity Securities in order to promote operational transparency of such ATSs? If so, please explain, in detail, the information the new form should elicit from ATSs that effect or facilitate transactions in such securities. If not, why not? Please support your arguments. Do you believe that any new form designed specifically for ATSs that effect or facilitate transactions in securities other than NMS stocks, fixed income securities, or OTC Equity Securities should be made available to the public? Why or why not? Please support your arguments.
Proposed Rule 304(a) would require that, unless not required to comply with Regulation ATS pursuant to Rule 301(a) of Regulation ATS, an NMS Stock ATS must comply with Rules 300 through 304 of Regulation ATS (except Rule 301(b)(2), as discussed in Section IV.C.2 below) to be exempt from the definition of an exchange pursuant to Rule 3a1-1(a)(2).
The Commission also notes that the requirements of Rule 301(b) (except Rule 301(b)(2)) of Regulation ATS
The Commission requests comment generally on all aspects of proposed Rule 304(a).
The Commission is proposing Rule 301(b)(2)(viii) to provide that an NMS Stock ATS shall file the reports and amendments required by proposed Rule 304 and would not be subject to the requirements of Rule 301(b)(2). Existing Rule 301(b)(2) requires an ATS to file with the Commission a Form ATS initial operation report, amendments to the Form ATS initial operation report, and cessation of operations reports on Form ATS, all of which are “deemed confidential when filed.”
Proposed Rule 301(b)(2)(viii) would also provide that an ATS that effects transactions in both NMS stocks and non-NMS stocks would be subject to the requirements of proposed Rule 304 with respect to NMS stocks and Rule 301(b)(2) with respect to non-NMS stocks. The Commission recognizes that some existing ATSs that would meet the definition of NMS Stock ATS also transact in securities other than NMS stocks. For these ATSs to be eligible for the exemption under Rule 3a1-1(a)(2), the Commission preliminarily believes that it is not necessary to mandate compliance with the heightened transparency requirements under proposed Rule 304 with respect to their non-NMS stock operations. Based on Commission experience, these ATSs are designed so that the platform on which non-NMS stock order flow interacts and executes differs from the platform on which NMS stock order flow interacts and executes. Furthermore, as explained above, the Commission preliminarily believes that the operational transparency concerns for NMS Stock ATSs do not apply equally to the markets for non-NMS stocks.
The Commission also proposes to amend Rule 301(b)(9),
The Commission requests comment on the proposed amendments to Rules 301(b)(2) and 301(b)(9). In particular, the Commission solicits comment on the following:
45. Should the Commission require ATSs that trade both NMS stocks and non-NMS stocks to make filings on both proposed Form ATS-N, with respect to its NMS stock operations, and Form ATS, with respect to its non-NMS stock operations? Why or why not? Please support your arguments.
46. Should the Commission require ATSs that trade both NMS stocks and non-NMS stocks to file a Form ATS-R with respect to their NMS stock operations and a separate Form ATS-R with respect to their non-NMS stock operations? Why or why not? Please support your arguments.
47. Do you believe that ATSs that trade both NMS stocks and non-NMS stocks should be subject to proposed Rule 304, in whole or in part, for both their NMS stock operations and non-NMS stock operations? Why or why not? Please support your arguments.
Do you believe that ATSs that trade both NMS stocks and non-NMS stocks should be required to disclose their NMS stock and non-NMS stock operations solely on proposed Form ATS-N? If so, why, and what additional disclosures should be required on proposed Form ATS-N to reflect non-NMS stock operations? If not, why not? Please support your arguments.
Proposed Rule 304(a)(1)(i) would provide that no exemption from the definition of “exchange” is available to an NMS Stock ATS pursuant to Exchange Act Rule 3a1-1(a)(2) unless the NMS Stock ATS files with the Commission a Form ATS-N and the Commission declares the Form ATS-N effective. The Commission preliminarily believes that an NMS Stock ATS that is not operating on the effective date of proposed Rule 304 should not be permitted to commence operations until the Commission has had the opportunity to assess whether the NMS Stock ATS qualifies for the Rule 3a1-1(a)(2) exemption. As discussed above,
Proposed Rule 304(a)(1)(i) is also designed as a transition for currently operating ATSs that meet the proposed definition of NMS Stock ATS. Proposed Rule 304(a)(1)(i) would require an existing ATS that facilitates transactions in NMS stocks and that operates pursuant to a previously filed initial operation report on Form ATS as of the effective date of proposed Rule 304 (
The Commission considered the alternative of allowing an existing ATS that engages in Rule 3b-16 activity in NMS stocks to retain its exemption from the definition of “exchange” by virtue of its existing Form ATS, and to require only a new NMS Stock ATS to file Form ATS-N. However, the Commission preliminarily believes that this alternative would not be appropriate as it would create a significant competitive disparity between a “new” and “legacy” NMS Stock ATS, with the latter benefitting from substantially lighter disclosure requirements. More importantly, it would perpetuate the problem of limited information being available to market participants. Nevertheless, the Commission preliminarily believes that it would be appropriate to provide existing ATSs that engage in Rule 3b-16 activity with regard to NMS stocks an adjustment period after the effective date of proposed Rule 304 to file a Form ATS-N. The Commission preliminarily believes that 120 calendar days is sufficient time for a legacy NMS Stock ATS to respond to the disclosure requirements on the new Form ATS-N because an ATS that is currently operating should be knowledgeable about the operations of its system and the activities of its broker-dealer operator and its affiliates.
Proposed Rule 304(a)(1)(ii)(A) would provide that the Commission declare a Form ATS-N filed by an NMS Stock ATS operating as of the effective date of proposed Rule 304 effective or ineffective no later than 120 calendar days from filing with the Commission. Similarly, Proposed Rule 304(a)(1)(ii)(B) would provide that the Commission declare a Form ATS-N filed by an NMS Stock ATS that was not operating as of the effective date of proposed Rule 304 effective or ineffective no later than 120 calendar days from filing with the Commission. The disclosures required by proposed Form ATS-N are more comprehensive than those required on current Form ATS, particularly in terms of volume, complexity, and detail. Based on its experience over the past seventeen years of receiving and reviewing notices on Form ATS, the Commission preliminarily believes that it would receive a large amount of information provided in Form ATS-N filings. The Commission preliminarily believes that 120 calendar days would provide the Commission adequate time to carry out its oversight functions with respect to its review of Forms ATS-N
Proposed Rule 304(a)(1)(ii)(A) would further provide a process for the Commission to extend the review period for Forms ATS-N filed by NMS Stock ATSs operating as of the effective date of proposed Rule 304: (1) An additional 120 calendar days, if the Form ATS-N is unusually lengthy or raises novel or complex issues that require additional time for review, in which case the Commission will notify the NMS Stock ATS in writing within the initial 120-day review period and will briefly describe the reason for the determination that additional time for review is required; or (2) any extended review period to which the NMS Stock ATS agrees in writing. Proposed Rule 304(a)(1)(ii)(B) would include a similar provision for NMS Stock ATSs not operating as of the effective date of proposed Rule 304, except that the Commission could extend its review period up to 90 calendar days. The proposed disclosure requirements require more detailed disclosures regarding the operations of an NMS Stock ATS than do the current requirements; thereby increasing the amount of information for the Commission to review. The Commission preliminarily believes that the additional time provided by the proposed rule is appropriate because it would allow Commission and its staff to conduct a thorough review of certain lengthy, novel, or complex Form ATS-N filings and provide sufficient opportunity to discuss the filing with the NMS Stock ATS if necessary.
48. Do you believe the Commission should adopt a rule in which it is required to declare a Form ATS-N filed by an NMS Stock ATS effective or ineffective within 120 calendar days of filing? Do you believe this is an appropriate time frame in light of the amount and nature of information to be submitted on Form ATS-N? Why or why not? Does any experience with Exchange Act Rule 19b-4 filings by self-regulatory organizations, either in draft or in formal submission, inform the appropriate time frame?
49. Should the Commission adopt a process to further extend the period of review under certain circumstances? If so, what circumstances and why? Please support your arguments.
50. If the Commission does not declare a Form ATS-N filing effective or ineffective within 120 calendar days from filing with the Commission, or any extension of the 120-day period pursuant to proposed Rule 304(a)(1)(ii), do you believe the Form ATS-N should be automatically deemed effective? Why or why not? Please support your arguments.
51. If the Commission does not declare a Form ATS-N filing effective or ineffective within 120 calendar days from filing with the Commission, or any extension of the 120-day period pursuant to proposed Rule 304(a)(1)(ii), do you believe the Form ATS-N should be automatically deemed ineffective? Why or why not? Please support your arguments.
Proposed Rule 304(a)(1)(iii) would provide that the Commission will declare effective a Form ATS-N if the NMS Stock ATS qualifies for the Rule 3a1-1(a)(2) exemption. Proposed Rule 304(a)(1)(iii) would also provide that the Commission will declare ineffective a Form ATS-N if it finds, after notice and opportunity for hearing, that such action is necessary or appropriate in the public interest, and is consistent with the protection of investors.
Under the proposal, the Commission would use Form ATS-N to evaluate whether an entity qualifies for an exemption under Rule 3a1-1(a)(2).
Under Exchange Act Rule 3b-16, an organization, association, or group of persons shall be considered to constitute, maintain, or provide “a marketplace or facilities for bringing together purchasers and sellers of securities or for otherwise performing with respect to securities the functions commonly performed by a stock exchange,” if such organization, association, or group of persons: (1) Brings together the orders for securities of multiple buyers and sellers; and (2) uses established, non-discretionary methods (whether by providing a trading facility or by setting rules) under which such orders interact with each other, and the buyers and sellers entering such orders agree to the terms of a trade.
The entity would not fall within the definition of an “exchange” under Section 3(a)(1) of the Exchange Act and the exemption provided in Exchange Act Rule 3a1-1 would not be applicable.
The Commission also preliminarily believes that it would be necessary or appropriate in the public interest, and consistent with the protection of investors, to declare ineffective a Form ATS-N if it finds, after notice and opportunity for hearing, that one or more disclosures on Form ATS-N are materially deficient with respect to their accuracy, currency, or completeness. The requirements of proposed Form ATS-N are set forth in proposed Rule 304(c)(1), which provides that an NMS Stock ATS must respond to each item on Form ATS-N, as applicable, in detail and disclose information that is accurate, current, and complete. The Commission preliminarily believes that market participants would use information disclosed on Form ATS-N to evaluate whether a particular NMS Stock ATS would be a desirable venue to which to route their orders. In addition, the Commission intends to use the information disclosed on the Form ATS-N to exercise oversight over and monitor developments of NMS Stock ATSs. Given these potential uses, the Commission preliminarily believes that it is important that Form ATS-N contain detailed disclosures that are accurate, current, and complete.
The following non-exhaustive examples are provided to illustrate various applications of proposed Rule 304(a)(1)(iii) that could cause the Commission to declare a Form ATS-N ineffective because it contains one or more disclosures that appear to be materially deficient.
The Commission preliminarily believes that it would be necessary or appropriate in the public interest, and consistent with the protection of investors, to declare ineffective a Form ATS-N if it finds, after notice and opportunity for hearing, that one or more disclosures reveals non-compliance with federal securities laws, or the rules or regulations thereunder, including Regulation ATS. The Commission notes that the responsibility for accurate, current, and complete disclosures on Form ATS-N lies with the NMS Stock ATS.
During its review, the Commission and its staff may provide comments to the entity, and may request that the entity supplement information in the Form ATS-N or revise its disclosures on Form ATS-N.
52. Should Form ATS-N be deemed immediately effective without Commission action? Why or why not? Please support your arguments.
53. Should Form ATS-N be considered ineffective on filing with the Commission until the Commission affirmatively declares the Form ATS-N ineffective? Why or why not? Please support your arguments.
54. Should the process for making a Form ATS-N effective for a legacy NMS Stock ATS be different from the process for making a Form ATS-N effective for an NMS Stock ATS that files a Form ATS-N after the effective date of the proposed rule? Why or why not? Please support your arguments. If so, how should the processes for the two categories of NMS Stock ATSs differ?
55. Do you believe that the proposed 120 calendar days after the effective date of proposed Rule 304 is a reasonable amount of time for legacy NMS Stock ATSs to complete and file a Form ATS-N? If so, why? If not, why not, and what amount of time would be reasonable? Please support your arguments.
56. Do you believe that new NMS Stock ATSs would be at a competitive disadvantage if existing NMS Stock ATSs were not required to file a Form ATS-N? Why or why not? Please support your arguments.
57. Do you believe that the proposed 120 calendar day period from filing with the Commission is a reasonable amount of time for the Commission to declare a Form ATS-N filed by an NMS Stock ATS that was not operating as of the effective date of proposed Rule 304 effective or ineffective? Do you believe the review period would place an undue burden on the NMS Stock ATS that filed the Form ATS-N? If yes, what amount of time would be reasonable? Please support your arguments.
58. Should the Commission adopt the proposal to allow a legacy NMS Stock ATS to continue operations pursuant to an existing filed initial operation report on Form ATS pending the Commission's review of its Form ATS-N? Why or why not? Please support your arguments.
59. Do you believe that if a legacy NMS Stock ATS is allowed to continue operations during the Commission's review of its Form ATS-N the Commission should make such NMS Stock ATS's Form ATS-N publicly available upon filing? Why or why not? Please support your arguments.
60. Should the Commission permit existing NMS Stock ATSs to be exempt from the definition of “exchange” by virtue of the NMS Stock ATS's current Form ATS on file with the Commission and require only new NMS Stock ATSs to file Form ATS-N? Why or why not? Would this raise competitive concerns with respect to disparate regulatory treatment of “new” and “legacy” NMS Stock ATSs? Why or why not? Please support your arguments.
61. Do you believe that the proposed 90 calendar days for the Commission to extend the Form ATS-N review period for new NMS Stock ATSs where the Form ATS-N is unusually lengthy or raises novel or complex issues is reasonable? Do you believe it would place an undue burden on the NMS Stock ATS? If so, why, and what amount of time would be reasonable? Do you believe that the proposed 90 calendar day extension period disproportionately affects new NMS Stock ATSs? Please support your arguments.
62. Should the Commission adopt the proposal to declare ineffective a Form ATS-N if it finds, after notice and opportunity for hearing, that such action is necessary or appropriate in the public interest, and is consistent with the protection of investors? Please support your arguments.
63. Do you believe that the Commission's examples of reasons that the Commission might declare a proposed Form ATS-N ineffective are appropriate? If yes, why? If not, why not? Please support your arguments.
64. Do you believe that the Commission should consider any other factors in determining whether a Form ATS-N should be declared effective or ineffective? If so, what are they and why? If not, why not? Please support your arguments.
65. Should the Commission require public notice and comment before declaring a Form ATS-N effective or ineffective? Why or why not? Please support your arguments.
Proposed Rule 304(a)(1)(iv) would provide that the Commission will issue an order to declare a Form ATS-N effective or ineffective. Proposed Rule 304(a)(1)(iv) would also provide that upon the effectiveness of the Form ATS-N, the NMS Stock ATS may operate pursuant to the conditions in proposed Rule 304. Proposed Rule 304(a)(1)(iv) would also provide that if the Commission declares a Form ATS-N ineffective, the NMS Stock ATS shall be prohibited from operating as an NMS Stock ATS. Proposed Rule 304(a)(1)(iv) would provide that a Form ATS-N declared ineffective would not prevent the NMS Stock ATS from subsequently filing a new Form ATS-N.
Proposed Rule 304(a)(1)(iv) is designed to provide notice to the public that the NMS Stock ATS that filed a Form ATS-N qualifies for the exemption provided under Exchange Act Rule 3a1-1(a)(2) and may commence operations, or if the NMS
Under Proposed Rule 304(a)(1)(iv), an entity that had filed a Form ATS-N that had been declared ineffective by the Commission would be able to subsequently file a new Form ATS-N. This would allow an entity an opportunity to attempt to address any disclosure deficiencies or compliance issues that caused the first Form ATS-N to be declared ineffective.
66. Do you believe that a Commission order declaring a Form ATS-N ineffective would have an unduly prejudicial effect on an entity when it refiles Form ATS-N, even where the Commission declares effective the refiled Form ATS-N? Why or why not? Please support your arguments.
The Commission is proposing Rule 304(a)(2) to provide the requirements for filing a Form ATS-N Amendment, which would be a public document that would provide information about the operations of the NMS Stock ATS and the activities of its broker-dealer operator and its affiliates. The information required to be filed on proposed Form ATS-N is designed to enable market participants to make more informed decisions about routing their orders to the NMS Stock ATS. The Commission's proposal to require such public disclosure is designed, in part, to bring operational transparency of NMS Stock ATSs more in line with the operational transparency of national securities exchanges.
The Commission is proposing Rule 304(a)(2)(i) to require an NMS Stock ATS to amend an effective Form ATS-N in accordance with the instructions therein: (A) At least 30 calendar days prior to the date of implementation of a material change to the operations of the NMS Stock ATS or to the activities of the broker-dealer operator or its affiliates that are subject to disclosure on Form ATS-N; (B) within 30 calendar days after the end of each calendar quarter to correct any other information that has become inaccurate for any reason and has not been previously reported to the Commission as a Form ATS-N Amendment; or (C) promptly, to correct information in any previous disclosure on Form ATS-N, after discovery that any information filed under Rule 304(a)(1)(i) or (a)(2)(i)(A) or (B) was inaccurate or incomplete when filed.
Proposed Rule 304(a)(2)(ii) would provide that the Commission will, by order, if it finds that such action is necessary or appropriate in the public interest, and is consistent with the protection of investors, declare ineffective any Form ATS-N Amendment filed pursuant to Rule 304(a)(2)(i)(A) through (C) no later than 30 calendar days from filing with the Commission. If the Commission declares a Form ATS-N Amendment ineffective, the NMS Stock ATS shall be prohibited from operating pursuant to the ineffective Form ATS-N Amendment. The NMS Stock ATS could, however, continue to operate pursuant to a Form ATS-N that was previously declared effective. A Form ATS-N Amendment declared ineffective would not prevent the NMS Stock ATS from subsequently filing a new Form ATS-N Amendment that resolves the disclosure deficiency that resulted in the declaration of ineffectiveness.
Proposed Rule 304(a)(2)(i)(A) would, in part, require an NMS Stock ATS to amend an effective Form ATS-N in accordance with the instructions therein at least 30 calendar days prior to the date of implementation of a material change to the operations of the NMS Stock ATS or to the activities of the broker-dealer operator or its affiliates that are subject to disclosure on Form ATS-N. Proposed Rule 304(a)(2)(i)(A) is designed to provide advance notice to the Commission and market participants of a material change to the operations of the NMS Stock ATS and the disclosures regarding the activities of the broker-dealer operator or its affiliates. The Commission notes that under current Rule 301(b)(2)(ii) of Regulation ATS, ATSs are required to file an amendment on Form ATS at least 20 calendar days prior to implementing a material change to the operation of the ATS.
The Commission preliminarily believes that a change to the operations of an NMS Stock ATS, or the disclosures regarding the activities of the broker-dealer operator and its affiliates, would be material if there is a substantial likelihood that a reasonable market participant would consider the change important when evaluating the NMS Stock ATS as a potential trading venue. When the Commission adopted Regulation ATS in 1998, it noted that ATSs “implicitly make materiality decisions in determining when to notify their subscribers of changes.”
To determine whether a change is material, and thus subject to the 30-day advance notice requirement, an NMS Stock ATS would need to consider all the relevant facts and circumstances, including the reason for the change and how it might impact the NMS Stock ATS and its subscribers, as well as market participants that may be evaluating the NMS Stock ATS as a potential trading venue. Scenarios that are particularly likely to implicate a material change are (1) a broker-dealer operator or its affiliates beginning to trade on the NMS Stock ATS; (2) a change to the broker-dealer operator's policies and procedures governing the written safeguards and written procedures to protect the confidential trading information of subscribers pursuant to Rule 301(b)(10)(i) of Regulation ATS; (3) a change to the types of participants on the NMS Stock ATS; (4) the introduction or removal of a new order type on the NMS Stock ATS; (5) a change to the order interaction and priority procedures; (6) a change to the segmentation of orders and participants; (7) a change to the manner in which the NMS Stock ATS displays orders or quotes; and (8) a change of a service provider to the operations of the NMS Stock ATS that has access to subscriber confidential subscriber trading information. This list, however, is not intended to be exhaustive, and the Commission does not mean to imply that other changes to the operations of the NMS Stock ATS or to the activities of the broker-dealer operator or its affiliates could not constitute a material change. Rather an NMS Stock ATS should be expected to consider the facts and circumstances of every change to determine whether advance notice is required.
67. Do you believe that the Commission's proposal to require an NMS Stock ATS to file a Form ATS-N Amendment at least 30 calendar days before implementing a material change is reasonable? Why or why not? Please support your arguments. Do you believe that the advance notice period for material change on Form ATS-N should be shorter (
68. Are the enumerated scenarios each particularly likely to constitute a material change, such that the Commission and the public should be provided with 30 calendar days advance notice pursuant to proposed Rule 304(a)(2)(i)(A)? If yes, why? If not, why not? Are there any other scenarios generally likely to constitute a material change? If so, why, and what are those scenarios? Please support your arguments.
69. Do you believe that the Commission should propose separate tiers of material changes (
70. Do you believe that any types of material changes to an NMS Stock ATS should be eligible to be implemented immediately upon filing? If so, what are such scenarios (regardless of facts and circumstances)? Please support your arguments.
71. Do you believe that certain changes to the operations of the NMS Stock ATS or to the activities of the broker-dealer operator or its affiliates that would be subject to disclosure on Form ATS-N should always be considered material changes? Why or why not? If so, please explain in detail those changes to the operations of the NMS Stock ATS or to the activities of the broker-dealer operator or its affiliates that would be subject to disclosure on Form ATS-N that should always be considered material changes.
72. Do you believe that certain changes to the operations of the NMS Stock ATS or to the activities of the broker-dealer operator or its affiliates on Form ATS-N, such as order types, should be subject to Commission approval? Why or why not? If so, please identify such changes and support your argument.
73. Should the Commission require public notice and comment for determinations of ineffectiveness of Form ATS Amendments? Why or why not? Please support your arguments.
74. Do you believe that the Commission should make public on its Web site upon filing a Form ATS-N Amendment for a material change, as proposed? Why or why not? Please support your arguments. Do you believe that there should be a delay in when the Form ATS-N Amendment for a material change is made public? Why or why not? Please support your arguments.
75. Do you believe that making an NMS Stock ATS's Form ATS-N Amendment public upon filing would affect competition? Why or why not? Please support your arguments. If so, how?
Proposed Rule 304(a)(2)(i)(B) would require an NMS Stock ATS to amend an effective Form ATS-N within 30 calendar days after the end of each calendar quarter to correct any other information that has become inaccurate for any reason and has not been previously reported to the Commission as a Form ATS-N Amendment.
76. Should the Commission require NMS Stock ATSs to file a Form ATS-N Amendment for periodic changes at the end of each calendar quarter? Why or why not? Please support your arguments.
77. Do you believe that the Commission should require an NMS Stock ATS to file a Form ATS-N Amendment before implementing a periodic change? Why or why not? If so, what period of time should an NMS Stock ATS be required to wait before implementing a periodic change? Please explain in detail.
78. Do you believe that 30 calendar days after the end of each calendar quarter is a reasonable amount of time for NMS Stock ATSs to correct information that does not constitute a material change? If so, why? If not, why not, and what amount of time would be reasonable? Please support your arguments. Do you believe there are any processes the Commission should consider for correcting information on a Form ATS-N that does not constitute a material change? If so, what are such processes? Please explain in detail.
79. Do you believe that certain changes to the operations of the NMS Stock ATS or to the activities of the broker-dealer operator or its affiliates that would be subject to disclosure on Form ATS-N should always be considered periodic changes? Why or why not? If so, please explain in detail those changes to the operations of the NMS Stock ATS or to the activities of the broker-dealer operator or its affiliates that should always be considered periodic changes.
Do you believe that the Commission should make public on its Web site upon filing a Form ATS-N Amendment for a periodic change? Why or why not? Please support your arguments. Do you believe that there should be a delay in when the Form ATS-N Amendment for a periodic change is made public? Why or why not? Please support your arguments.
Proposed Rule 304(a)(2)(i)(C) would require an NMS Stock ATS to amend an effective Form ATS-N promptly to correct information in any previous disclosure on Form ATS-N after discovery that any information filed in a Form ATS-N or Form ATS-N Amendment was inaccurate or incomplete when filed.
80. Do you believe that making amendments “promptly” is a reasonable requirement for NMS Stock ATSs to correct information that was inaccurate or incomplete when filed? If so, why? If not, why not, and what amount of time would be reasonable? Please support your arguments.
81. Do you believe there are any other processes the Commission should consider for correcting information on Form ATS-N that was inaccurate at the time it was filed? If so, what are such processes? Please explain in detail.
82. Do you believe that the Commission's proposal to provide an NMS Stock ATS the opportunity to correct information that was inaccurate or incomplete when filed creates an unreasonable risk to market participants that an NMS Stock ATS might fail to provide accurate, current, and complete information on Form ATS-N when filing the form? Why or why not? Please support your arguments.
The Commission is proposing Rule 304(a)(2)(ii) to provide that the Commission will, by order, if it finds that such action is necessary or appropriate in the public interest, and is consistent with the protection of investors, declare ineffective any Form ATS-N Amendment filed pursuant to Rule 304(a)(2)(i)(A) through (C) no later than 30 calendar days from filing with the Commission.
The Commission could also declare ineffective a Form ATS-N Amendment if it finds that such action is necessary or appropriate in the public interest, and is consistent with the protection of investors, because the amendment describes a change that, under a “red flag” review, would not comply with the federal securities laws or the rules or regulations thereunder, including Regulation ATS. The Commission preliminarily believes that it would be hindered in protecting investors and maintaining fair and orderly markets if an NMS Stock ATS were allowed to implement or continue the use of a service, functionality, or procedure that does not comply with the federal securities laws or the rules or regulations thereunder, including Regulation ATS.
Under proposed Rule 304(a)(2)(ii), the Commission could declare a Form ATS-N Amendment ineffective within 30 calendar days from filing with the Commission. During its review of a Form ATS-N Amendment, the Commission and its staff may provide comments to the NMS Stock ATS, and may request that the NMS Stock ATS supplement information in the Form ATS-N Amendment or revise its disclosures on the Form ATS-N Amendment. Like the Commission's review of a Form ATS-N initially filed by an entity with the Commission,
Under proposed Rule 304(a)(2)(ii), if the Commission declares a Form ATS-N Amendment ineffective, the NMS Stock ATS would be prohibited from operating pursuant to the ineffective Form ATS-N Amendment. As discussed above, under proposed Rule 304(a)(2)(i), an NMS Stock ATS must amend its Form ATS-N at least 30 days before implementing a material change to the operations of the NMS Stock ATS or to the activities of the broker-dealer operator or its affiliates that are subject to disclosure on Form ATS-N, or within 30 calendar days after the end of each calendar quarter to correct any other information that has become inaccurate for any reason and has not been previously reported to the Commission as a Form ATS-N Amendment. The Commission preliminarily believes the proposed rule strikes a proper balance between, on the one hand, providing an NMS Stock ATS with the flexibility to implement a change to its operations without unnecessary delay, and on the other hand, giving the Commission time to adequately review Form ATS-N Amendments and carry out its oversight functions and responsibilities.
Under proposed Rule 304(a)(1)(iv), an NMS Stock ATS that had filed a Form ATS-N Amendment that has been declared ineffective would be able to subsequently file a new Form ATS-N Amendment. This would allow an NMS Stock ATS to attempt to address any disclosure deficiencies or compliance issues that caused a Form ATS-N Amendment to be declared ineffective.
83. Should the Commission adopt the proposal to declare ineffective any Form ATS-N Amendment if it finds that such action is necessary or appropriate in the public interest, and is consistent with the protection of investors? Why or why not? Please support your arguments.
84. Do you believe that the Commission should affirmatively declare material amendments to Form ATS-N effective? Why or why not? If so, do you believe the Commission should declare material changes to Form ATS-N effective before the NMS Stock ATS implements the material change? Why or why not? Please support your arguments.
85. Do you believe that the Commission should provide a longer time period for the Commission to review material amendments to Form ATS-N (
86. Do you believe that a Form ATS-N Amendment should become effective by operation of rule if the Commission does not affirmatively declare it ineffective? Why or why not? Please support your arguments.
87. Do you believe that the proposed 30 calendar days from filing with the Commission is a reasonable time period for the Commission to declare a Form ATS-N Amendment ineffective? Do you believe it would place an undue burden on the NMS Stock ATS that filed the Form ATS-N Amendment? If so, why, and what would be a reasonable amount of time? Please support your arguments. Do you believe that a longer period of time (
88. Do you believe the Commission should adopt a process to extend its review period for a Form ATS-N Amendment similar to the processes being proposed under proposed Rule 304(a)(1)(ii) for initial Form ATS-N filings? Why or why not? Please support your arguments. If so, how long should the extension of the review period be (
89. Should the Commission adopt the proposal that a Form ATS-N Amendment should become effective without the Commission issuing an order declaring effective the relevant Form ATS-N Amendment? Do you believe that the lack of a Commission order declaring a Form ATS-N Amendment ineffective within 30 calendar days from filing would provide an NMS Stock ATS sufficient notice that a Form ATS-N Amendment has become effective? Why or why not? Please support your arguments.
90. Do you believe that a determination of ineffectiveness of a Form ATS-N Amendment should be subject to notice and hearing, as is the case with initial determinations about Form ATS-N? Why or why not? Please support your arguments.
Proposed Rule 304(a)(3) would require an NMS Stock ATS to notice its cessation of operations on Form ATS-N at least 10 business days before the date the NMS Stock ATS ceases to operate as an NMS Stock ATS.
91. Should the Commission require an NMS Stock ATS to give notice that it intends to cease operations 10 business days or more before ceasing operations as an NMS Stock ATS? If so, why and how much advance notice is appropriate? If not, why not? Please support your arguments.
92. Should the Commission allow an NMS Stock ATS to notice its cessation of operations after it has ceased operations, as is currently the requirement under Regulation ATS, or at the same time that it ceases operations? If so, why and how long after the NMS Stock ATS has ceased operations? If not, why not? Please support your arguments.
93. Should the Commission create a process to revoke the exemption from Rule 3a1-1(a)(2) if the NMS Stock ATS reports no volume for two consecutive quarters, four consecutive quarters, eight consecutive quarters, or over some other time period? Why or why not? Are there any other circumstances under which the Commission should revoke the exemption if the NMS Stock ATS appears to be inactive? Please support your arguments.
To rely on an exemption from the Exchange Act or the rules and regulations thereunder granted by the Commission, the person seeking the exemption must comply with the conditions to the exemption established by the Commission. A person that fails to comply with those conditions would therefore fall outside of the scope of the exemption.
The Commission is proposing to amend Regulation ATS to include proposed Rule 304(a)(4), to provide a process for the Commission to suspend for a period not exceeding twelve months,
The Commission preliminarily believes that it is appropriate to provide a process by which the Commission may, by order, suspend, limit, or revoke an NMS Stock ATS's exemption from the definition of “exchange” if the NMS Stock ATS is operating in a manner such that the exemption from the definition of “exchange” for the NMS Stock ATS is not necessary or appropriate in the public interest, or consistent with the protection of investors. For example, in making a determination as to whether suspension, limitation, or revocation of an NMS Stock ATS's exemption is necessary or appropriate in the public interest, and is consistent with the protection of investors, the Commission would take into account whether the entity no longer meets the definition of NMS Stock ATS under Rule 300(a)(k), does not comply with the conditions to the exemption (in that it fails to comply with any part of Regulation ATS, including proposed Rule 304), or otherwise violates any provision of federal securities laws.
The Commission preliminarily believes, for example, that it would be appropriate to provide for the suspension, limitation, or revocation of an NMS Stock ATS's exemption from the definition of “exchange” pursuant to Rule 3a1-1(a)(2) if the Commission finds that an NMS Stock ATS no longer meets the definition of “NMS Stock ATS.”
The Commission also preliminarily believes that it would be appropriate to provide for the suspension, limitation, or revocation of an NMS Stock ATS's exemption from the definition of exchange pursuant to Rule 3a1-1(a)(2) if, for example, the Commission finds that an NMS Stock ATS fails to comply with any part of Regulation ATS, including proposed Rule 304. As discussed in the Regulation ATS Adopting Release, instead of imposing requirements applicable to national securities exchanges, the Commission adopted enhanced regulation for ATSs that would provide more protections for investors who used the systems.
Additionally, the Commission preliminarily believes that it would be appropriate to provide for the suspension, limitation, or revocation of an NMS Stock ATS's exemption from the definition of exchange pursuant to Rule 3a1-1(a)(2) if, for example, the Commission finds, after notice and opportunity for hearing, that such action is necessary or appropriate in the public interest, and is consistent with the protection of investors, because that NMS Stock ATS has violated or is violating any provision of the federal securities laws. The Commission is concerned that market participants may be harmed by an NMS Stock ATS that is, for example, providing false or misleading information to market participants, and preliminarily believes that such an NMS Stock ATS should not be able to continue to operate pursuant to an exemption provided by the Commission.
Pursuant to proposed Rule 304(a)(4)(ii), an NMS Stock ATS whose exemption had been suspended or revoked would be prohibited from operating pursuant to the Rule 3a1-1(a)(2) exemption; and if an NMS Stock ATS were to continue to engage in Rule 3b-16 activity in NMS stocks without the exemption, it would be an
An NMS Stock ATS that has had its exemption suspended or limited may, depending on the facts and circumstances, be able to file a Form ATS-N Amendment or revise its operations to come into compliance with the conditions of the exemption or the provision of any other federal securities law that may have been the basis of the Commission's findings.
The Commission also preliminarily believes that providing a process by which the Commission can determine to suspend, limit, or revoke an NMS Stock ATS's exemption from the definition of “exchange” would provide appropriate flexibility to address the specific facts and circumstances of an NMS Stock ATS's failure to comply with Regulation ATS or the nature of the violation of federal securities laws, and the possible harm to investors as a result of the non-compliance or violation. For example, the Commission preliminarily believes that providing a process by which the Commission could limit the exemption provided in Rule 3a1-1(a)(2) would provide flexibility to address specific disclosures or activities that are the cause of the non-compliance with Regulation ATS or that violate federal securities laws. For illustration, if the Commission found that an NMS Stock ATS implemented a material change to its operations, but failed to disclose the material change on its Form ATS-N, the Commission could determine to allow the NMS Stock ATS to continue to operate as disclosed on its Form ATS-N, but prohibit the NMS Stock ATS from engaging in the undisclosed activity until the NMS Stock ATS properly amends its Form ATS-N in accordance with proposed Rule 304(a)(2). If the Commission found that an NMS Stock ATS offered an order type that resulted in violations of the Commission's rules restricting the acceptance and ranking of orders in impermissible sub-penny increments, the Commission could allow the NMS Stock ATS to continue to operate but prohibit the NMS Stock ATS from offering the order type, if it found that doing so was necessary or appropriate in the public interest, and consistent with the protection of investors. The Commission preliminarily believes that, depending on the facts and circumstances, it may be more appropriate in the public interest, and consistent with the protection of investors, to limit the scope of an NMS Stock ATS's exemption, instead of revoking or suspending the exemption and causing the NMS Stock ATS to cease operations. In comparison, the Commission preliminarily believes it would be more appropriate to revoke the exemption of an NMS Stock ATS that no longer meets the definition of NMS Stock ATS or is no longer a registered broker-dealer, as these conditions are fundamental to the exemption. Additionally, the Commission preliminarily believes that it would be necessary or appropriate in the public interest, and consistent with the protection of investors, to revoke the exemption of an NMS Stock ATS if, for example, the ATS is found to be violating the antifraud provisions of the federal securities laws. Nonetheless, the entry of an order revoking an NMS Stock ATS's exemption would not prohibit the broker-dealer operator of the NMS Stock ATS from continuing its other broker-dealer operations.
The Commission is also proposing that prior to issuing an order suspending, limiting, or revoking an NMS Stock ATS's exemption pursuant to proposed Rule 304(a)(4)(i), the Commission would provide notice and opportunity for hearing to the NMS Stock ATS, and make the findings specified in proposed Rule 304(a)(4)(i) described above, that, in the Commission's opinion, the suspension, limitation or revocation is necessary or appropriate in the public interest, and is consistent with the protection of investors. The Commission preliminarily believes that the proposed process of providing an NMS Stock ATS with notice and opportunity for hearing provides the NMS Stock ATS with adequate opportunity to respond before the Commission determines that the NMS Stock ATS's exemption from the definition of “exchange” is no longer appropriate in the public interest or consistent with the protection of investors. The Commission also preliminarily believes that the possibility that the Commission may suspend, limit, or revoke an NMS Stock ATS's exemption from the definition of “exchange” would not be unduly burdensome because an NMS Stock ATS would be given advance notice and have an opportunity to respond, and, depending on the facts and circumstances, revise its operations or disclosures on Form ATS-N to bring its operations or disclosures into compliance with Regulation ATS or federal securities laws. The Commission preliminarily believes that proposed Rule 304(a)(4) would provide the Commission with an appropriate tool, which is subject to notice and hearing safeguards, to protect the investing public and the public interest from an NMS Stock ATS that fails to comply with Regulation ATS or otherwise violates any provision of the federal securities laws.
94. Do you believe the proposed process for the Commission to suspend, limit, or revoke an NMS Stock ATS's exemption from the definition of “exchange” is necessary or appropriate to protect investors and other market participants and maintain fair and orderly markets? Why or why not? Please support your arguments.
95. What criteria should the Commission use in deciding whether to suspend, limit, or revoke an NMS Stock ATS's exemption as proposed? Are there alternative actions or processes the Commission should consider for suspending, limiting, or revoking the exemption? Please support your arguments and provide details.
96. Should the Commission adopt the proposal to provide flexibility as to whether to suspend, limit, or revoke an NMS Stock ATS's exemption depending on the facts and circumstances and possible harm to investors? If so, why? If not, what other criteria, if any, should
97. Do you believe there should be a maximum time frame following notice and opportunity for hearing within which the Commission should be required to act? If so, why, and what would be the appropriate time frame? If not, why not? Please support your arguments.
98. Do you believe that 12 months is the appropriate limit on the amount of time by which the Commission could suspend an NMS Stock ATS's exemption? If so, why? If not, why not, and what would be the appropriate time frame? Please support your arguments.
99. Do you believe that the Commission's proposal to declare ineffective a Form ATS-N Amendment if it finds that such action is necessary or appropriate in the public interest, and is consistent with the protection of investors, is appropriate as a supplement to the proposal that the Commission suspend, limit, or revoke an NMS Stock ATS's exemption from the definition of “exchange” under proposed Rule 304(a)(4)? Why or why not? Please support your arguments.
100. Do you believe there are other processes by which the Commission should enforce the conditions to the Rule 3a1-1(a)(2) exemption? If so, what are they and why would they be preferable to the proposed process?
The Commission is proposing to make public certain Form ATS-N reports filed by NMS Stock ATSs.
First, the Commission is proposing Rule 304(b)(1) to provide that every Form ATS-N filed pursuant to Rule 304 shall constitute a “report” within the meaning of Sections 11A, 17(a), 18(a), and 32(a) and any other applicable provisions of the Exchange Act. Because proposed Form ATS-N is a report that is required to be filed under the Exchange Act, it would be unlawful for any person to willfully or knowingly make, or cause to be made, a false or misleading statement with respect to any material fact in Form ATS-N.
Under proposed Rule 304(b)(2), the Commission would make public via posting on the Commission's Web site, each: (i) Order of effectiveness of a Form ATS-N; (ii) order of ineffectiveness of a Form ATS-N; (iii) effective Form ATS-N; (iv) filed Form ATS-N Amendment; (v) order of ineffectiveness of a Form ATS-N Amendment; (vi) notice of cessation; and (vii) order suspending, limiting, or revoking the exemption from the definition of an “exchange” pursuant to Exchange Act Rule 3a1-1(a)(2). Proposed Rule 304(b)(3) would require each NMS Stock ATS to make public via posting on its Web site a direct URL hyperlink to the Commission's Web site that contains the documents enumerated in proposed Rule 304(b)(2).
Once the Commission has declared a Form ATS-N effective, the Commission preliminarily believes that making Form ATS-N public would provide market participants with important information about the operations of the NMS Stock ATS and its broker-dealer operator and the broker-dealer operator's affiliates. As discussed further below, proposed Form ATS-N would provide information about the broker-dealer operator and the activities of the broker-dealer operator and its affiliates in connection with the NMS Stock ATS, including: Their operation of trading centers and other NMS Stock ATSs; products and services offered to subscribers; arrangements with unaffiliated trading centers; trading activities on the NMS Stock ATS; smart order router (or similar functionality) and algorithms used to send or receive orders or other trading interest to or from the ATS; personnel and third parties used to operate the NMS Stock ATS; differences in the availability of ATS services, functionalities, or procedures; and safeguards and procedures to protect subscribers' confidential trading information.
The Commission would not post on its Web site a filed Form ATS-N before the Commission declares that Form ATS-N effective. Under the proposal, an NMS Stock ATS that was not in
The proposal to make public each Form ATS-N Amendment upon filing with the Commission is to provide market participants with immediate transparency into the operations of an NMS Stock ATS, which would be operational and to which market participants might currently enter—or consider entering—orders for execution. The Commission preliminarily believes that making public Form ATS-N Amendments would benefit market participants by allowing them to obtain current information regarding changes to the operation of an NMS Stock ATS and its relationship with its broker-dealer operator and the broker-dealer operator's affiliates; if it would benefit their investment or trading strategies, market participants would also be able to continually evaluate that NMS Stock ATS as a potential destination to route their orders. The Commission preliminarily believes that, while Form ATS-N Amendments would be publicly posted before the Commission has completed its review, it would be useful to market participants to have immediate access to the disclosures contained in an amendment so market participants may, for example, assess and prepare for upcoming material changes on an NMS Stock ATS or more quickly understand any operational changes that have occurred over the previous quarter on the NMS Stock ATS. The Commission also proposes to make the public aware of which Form ATS-N Amendments filed by NMS Stock ATSs posted on the Commission's Web site are pending Commission review and could still be declared ineffective. The Commission believes that publicly posting filed Form ATS-N Amendments would strike the right balance of enabling market participants to better understand upcoming or recent changes to an operational NMS Stock ATS in a timely manner, while informing market participants that the Form ATS-N Amendment is pending Commission review and could still be declared ineffective.
The Commission also preliminarily believes that making public each properly filed Form ATS-N notice of cessation would provide the public with notice that the NMS Stock ATS will cease operations and that the organization, association, or group of persons no longer operates pursuant to the exemption provided under Exchange Act Rule 3a1-1(a)(2). The notice of cessation would provide market participants with the date that the NMS Stock ATS will cease operations, as designated by the NMS Stock ATS. Market participants would be able to use this information to make arrangements to select alternative routing destinations for their orders.
Furthermore, the Commission understands that many broker-dealer operators maintain Web sites for their NMS Stock ATSs. The Commission preliminarily believes that market participants would find it helpful for an NMS Stock ATS to make market participants aware that certain of the NMS Stock ATS's Form ATS-N filings are publicly posted on the Commission's Web site. Therefore, to the extent that an NMS Stock ATS has a public Web site, the Commission is proposing that Rule 304(b)(3) require each NMS Stock ATS that has a Web site to post on the NMS Stock ATS's Web site a direct URL hyperlink to the Commission's Web site that contains the documents enumerated in proposed Rule 304(b)(2), which includes the NMS Stock ATS's Form ATS-N filings. The Commission preliminarily believes that this requirement would make it easier for market participants to review an NMS Stock ATS's Form ATS-N filings by providing an additional means for market participants to locate Form ATS-N filings that are posted on the Commission's Web site.
The Commission preliminarily believes that publicly posting Form ATS-N filings on the timelines described above is important because most market participants do not have access to information that permits them to adequately compare and contrast how some NMS Stock ATSs would handle their orders against how a given national securities exchange or other NMS Stock ATS would handle their orders. Currently, a Form ATS filed with the Commission by an NMS Stock ATS is “deemed confidential when filed” under Rule 301(b)(2)(vii) of Regulation ATS,
Additionally, the Commission preliminarily believes that, given changes with respect to NMS Stock ATSs since the adoption of Regulation ATS,
Second, when the Commission adopted Regulation ATS, it sought to “encourage candid and complete filings in order to make informed decisions and track market changes,” and believed that keeping the reports filed on Form ATS confidential would “provide[] respondents with the necessary comfort to make full and complete filings.”
101. Do you believe market participants currently have access to information about the operations of NMS Stock ATSs and the activities of their broker-dealer operators and the broker-dealer operators' affiliates, either through private disclosures from NMS Stock ATSs, from NMS Stock ATSs that voluntarily make their Forms ATS public, or from NMS Stock ATSs that issue frequently asked questions about their operations, including changes to their operations, that is sufficient to help market participants select the markets to which to route and execute their orders? Why or why not? Please support your arguments.
102. Do you believe the Commission should adopt the proposal to make public certain Form ATS-N filings by NMS Stock ATSs? Why or why not? Please support your arguments.
103. Do you believe the Commission should adopt the proposal to require an NMS Stock ATS to post on the NMS Stock ATS's Web site a direct URL hyperlink to the Commission's Web site that contains the documents enumerated in proposed Rule 304(b)(2)? Why or why not? Please support your arguments.
104. Do you believe the Commission should require each NMS Stock ATS to directly post its Form ATS-N filings on the NMS Stock ATS's Web site? If so, why, and which Form ATS-N filings? If not, why not? Please support your arguments.
105. Do you believe the Commission should require each NMS Stock ATS to directly post Commission orders related to the effectiveness or ineffectiveness of the NMS Stock ATS's Form ATS-N, Form ATS-N Amendments, or both on the Web site of the NMS Stock ATS? If so, why, and which orders should NMS Stock ATSs be required to post? If not, why not? Please support your arguments.
106. Do you believe that the Commission should make public on its Web site the Form ATS-N of an NMS Stock ATS that was not in operation as of the effective date of proposed Rule 304 during the Commission's review period and prior to declaring the Form ATS-N effective of ineffective? Why or why not? Please support your arguments.
107. Do you believe that the Commission should make public on its Web site a Form ATS-N that it has declared ineffective? Why or why not? Please support your arguments.
108. Do you believe that the Commission should make public on its Web site a Form ATS-N filed by a legacy NMS Stock ATS during the Commission's review period and prior to its declaring the Form ATS-N effective or ineffective? Why or why not? Please support your arguments?
109. Do you believe that the Commission should adopt the proposal to make public on its Web site all Form ATS-N Amendments during the Commission's review period and prior to its determination as to whether a Form ATS-N Amendment should be declared ineffective? If so, why? If not, why not? Please support your arguments.
110. Do you believe that the Commission should adopt the proposal whereby the Commission would continue to make public on its Web site a Form ATS-N Amendment that it has declared ineffective? Why or why not? Please support your arguments.
111. Do you believe the Commission's current practice of making publicly available a list of ATSs with a Form ATS on file with the Commission puts market participants on sufficient notice of the regulatory status of NMS Stock ATSs with which they may do business? Why or why not? Please support your arguments.
112. Does the Commission's current practice of making publicly available a list of ATSs with a Form ATS on file with the Commission create the potential for market participants to misunderstand the operations of the market? If so, how? If not, why not? Please support your arguments.
113. Do you believe that market participants currently have sufficient information regarding the activities of an NMS Stock ATS's broker-dealer operator and its affiliates as they relate to the ATS, including changes to such activities, to evaluate conflicts of interest that may arise out of the position that the broker-dealer occupies as the operating entity of the NMS Stock ATS? Why or why not? Please support your arguments.
114. Do you believe the Commission's proposal to make public certain Form ATS-N filings would better enable market participants to evaluate conflicts of interest that may arise out of the position that the broker-dealer occupies as the operating entity of the NMS Stock ATS? Why or why not? Please support your arguments.
115. Do you believe that making public Form ATS-N filings would place NMS Stock ATSs at a competitive disadvantage with respect to other trading centers, including national securities exchanges? Why or why not? Please support your arguments.
116. Do you believe that making public Form ATS-N filings would incentivize NMS Stock ATSs to make more accurate, current, and complete disclosures? Why or why not? Please support your arguments.
117. Do you believe the Commission should continue to make public a Form ATS-N or Form ATS-N Amendments where the Commission has suspended, revoked, or limited the NMS Stock ATS's exemption pursuant to Rule 304(a)(4)? Why or why not? Please support your arguments.
118. Do you believe that responding to questions on proposed Form ATS-N would require an NMS Stock ATS to disclose proprietary information that could place the NMS Stock ATS or its broker-dealer operator's other business activities at a competitive disadvantage? If so, please identify the question on the Form ATS-N and specify what information in response to that question would result in the disclosure of proprietary information and describe why the disclosure could create a competitive disadvantage for the NMS Stock ATS or its broker-dealer operator's other business activities.
119. In light of the information that national securities exchanges, which compete with NMS Stock ATSs, are required to disclose regarding their operations, should NMS Stock ATSs continue to be eligible for the exemption from the definition of exchange without having to disclose such information? Why or why not? Please explain in detail.
Proposed Rule 304(c)(1) would require NMS Stock ATSs to respond to each item on Form ATS-N, as applicable, in detail and disclose information that is accurate, current, and complete. The Commission preliminarily believes that market participants would use information disclosed on proposed Form ATS-N to evaluate whether a particular NMS Stock ATS would be a desirable venue to which to route their orders. In addition, the Commission intends to use the information disclosed on the Form ATS-N to exercise oversight over and monitor developments of NMS Stock ATSs. Given these potential uses, the Commission preliminarily believes that it is important that the Form ATS-N contain detailed disclosures that are accurate, current, and complete.
The Commission notes that Regulation ATS requires NMS Stock ATSs to be registered as broker-dealers with the Commission, which entails becoming a member of FINRA and fully complying with the broker-dealer regulatory regime. FINRA Rule 3130 requires each member to designate and specifically identify to FINRA one or more principals to serve as a chief compliance officer and each member to have its chief executive officer certify annually that the member has in place processes to establish, maintain, review, test and modify written compliance policies and written supervisory procedures reasonably designed to achieve compliance with applicable FINRA rules, MSRB rules and federal securities laws and regulations, and that the chief executive officer(s) has conducted one or more meetings with the chief compliance officer(s) in the preceding 12 months to discuss such processes.
The certification shall state the following:
The undersigned is/are the chief executive officer(s) (or equivalent officer(s)) of (name of member corporation/partnership/sole proprietorship) (the “Member”). As required by FINRA Rule 3130(b), the undersigned make(s) the following certification:
1. The Member has in place processes to:
(A) establish, maintain and review policies and procedures reasonably designed to achieve compliance with applicable FINRA rules, MSRB rules and federal securities laws and regulations;
(B) modify such policies and procedures as business, regulatory and legislative changes and events dictate; and
(C) test the effectiveness of such policies and procedures on a periodic basis, the timing and extent of which is reasonably designed to ensure continuing compliance with FINRA rules, MSRB rules and federal securities laws and regulations.
2. The undersigned chief executive officer(s) (or equivalent officer(s)) has/have conducted one or more meetings with the chief compliance officer(s) in the preceding 12 months, the subject of which satisfy the obligations set forth in FINRA Rule 3130.
3. The Member's processes, with respect to paragraph 1 above, are evidenced in a report reviewed by the chief executive officer(s) (or equivalent officer(s)), chief compliance officer(s), and such other officers as the Member may deem necessary to make this certification. The final report has been submitted to the Member's board of directors and audit committee or will be submitted to the Member's board of directors and audit committee (or equivalent bodies) at the earlier of their next scheduled meetings or within 45 days of the date of execution of this certification.
4. The undersigned chief executive officer(s) (or equivalent officer(s)) has/have consulted with the chief compliance officer(s) and other officers as applicable (referenced in paragraph 3 above) and such other employees, outside consultants, lawyers and accountants, to the extent deemed appropriate, in order to attest to the statements made in this certification.
120. Do you believe that the certification required under FINRA Rule 3130 will help ensure an NMS Stock ATS's compliance with proposed Rule 304, including the requirement that disclosures on Form ATS-N are accurate, current, and complete? Why or why not? Please support your arguments.
Proposed Rule 304(c)(2) would provide that any report required to be filed with the Commission under proposed Rule 304 of Regulation ATS must be filed electronically on Form ATS-N, and include all information as prescribed in proposed Form ATS-N and the instructions thereto. The Commission's proposal contemplates the use of the electronic form filing system (“EFFS”) to file a completed Form ATS-N. Based on the widespread use and availability of the Internet, the Commission preliminarily believes that filing Form ATS-N in an electronic format would be less burdensome and a more efficient filing process for NMS Stock ATSs and the Commission, as it is likely to be less expensive and cumbersome than mailing paper forms to the Commission. The proposed Form ATS-N would require an electronic signature to help ensure the authenticity of the filing. The Commission preliminarily believes these proposed requirements would expedite communications between the Commission and its staff and the broker-dealer operator concerning the NMS Stock ATS and help to ensure that only personnel authorized by the NMS Stock ATS are filing required materials. This proposed requirement is intended to provide a uniform manner in which the Commission would receive—and the broker-dealer operator would file—the Form ATS-N made pursuant to proposed Rule 304 of Regulation ATS. Also, NMS Stock ATSs would be able to review how other filers that were allowed to become effective responded to the same questions on Form ATS-N for guidance on how to respond. Additionally, the consistent framework would make it easier and more efficient for the Commission and market participants reviewing the disclosures to promptly review, analyze, and respond, as necessary, to the information proposed to be provided.
Further, the Commission also is proposing that documents filed through the EFFS system must be in a text-searchable format without the use of optical character recognition. The Commission believes that proposing to require documents to be filed in a text-searchable format would allow the Commission and its staff and market
The Commission is proposing that proposed Form ATS-N be filed with the Commission in a structured format. The Commission preliminarily believes that proposing Form ATS-N to be filed with the Commission in a structured format could allow the Commission and market participants to better search and analyze information about NMS Stock ATSs. The Commission is proposing that Parts I (Name) and II (Broker-Dealer Operator Registration and Contact Information) of proposed Form ATS-N would be provided as fillable forms on the Commission's EFFS system. The Commission is proposing that Part III (Activities of the Broker-Dealer Operator and Affiliates) of proposed Form ATS-N would be filed in a structured format whereby the filer would provide checkbox responses to certain questions and narrative responses that are block-text tagged by Item. The Commission is proposing that Part IV (The NMS Stock ATS Manner of Operations) of proposed Form ATS-N would also be filed in a structured format in that the filer would block-text tag narrative responses by Item. The Commission is proposing that Part V (Contact Information, Signature Block, and Consent to Service) of proposed Form ATS-N would be provided as fillable forms on the Commission's EFFS system.
The Commission notes that there are a variety of methods by which information can be collected and structured for review and analysis. For example, some or all of the information provided on Form ATS-N could be structured according to a particular standard that already exists, or a new taxonomy that the Commission creates, or as a single machine-readable PDF. Given the Commission's proposal that information on Form ATS-N be filed in a structured format, the Commission seeks comment on the manner in which proposed Form ATS-N could be structured to better enable the Commission and market participants to collect and analyze the data.
121. Do you believe that the electronic filing requirement of proposed Rule 304(c)(2) is appropriate? Do you believe that the electronic filing of Form ATS-N would be less burdensome and/or a more efficient filing process for NMS Stock ATSs compared to delivering the Form ATS-N by mail on paper? Alternatively, would the submission of proposed Form ATS-N via electronic mail to one or more Commission email addresses be a more appropriate way for NMS Stock ATSs to file Form ATS-N with the Commission? Are there other alternative methods that would be preferable? If so, please describe. Is the proposal to require an electronic signature appropriate? If not, why not? Please support your arguments.
122. Should the Commission adopt the proposal that proposed Form ATS-N should be filed with the Commission in a structured format? Why or why not? If so, what standards of structuring should be used for information to be provided on proposed Form ATS-N? Please explain. If not, what format should proposed Form ATS-N take? Please identify the format and explain.
123. Are there any specific aspects of proposed Form ATS-N that should or should not be provided in a structured format? Please identify those aspects of proposed Form ATS-N that should or should not be provided in a structured format and explain why those aspects of the form should or should not be structured.
124. Should the Commission adopt the proposal to require documents to be filed in a text-searchable format on proposed Form ATS-N? Why or why not? Please support your arguments.
Proposed Form ATS-N would require that an entity identify the type of filing by marking the appropriate checkbox. The Form ATS-N filing may either be a Form ATS-N, a Form ATS-N Amendment, or a notice of cessation. In addition, proposed Form ATS-N would require the NMS Stock ATS to indicate whether a Form ATS-N Amendment is being submitted as a material amendment, periodic amendment, or correcting amendment. The Commission is also proposing that, for an Form ATS-N Amendment, the NMS Stock ATS provide a brief narrative description of the amendment so market participants can quickly understand the nature of the Form ATS-N Amendment.
Part I of proposed Form ATS-N would require the name of the broker-dealer operator and the NMS Stock ATS. Rule 301(b)(1) requires that an ATS, including an NMS Stock ATS, register as a broker-dealer under Section 15 of the Exchange Act.
125. Do you believe that Part I of proposed Form ATS-N is sufficiently clear with respect to the disclosures that would be required? If not, how should Part I of proposed Form ATS-N be revised to provide additional clarity? Please explain in detail and support your arguments.
126. Do you believe there is other information that market participants might find relevant or useful with regard to the disclosures in Part I? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS-N. Please support your arguments.
127. Do you believe that the broker-dealer operator should be required to identify the type of Form ATS-N filing (
128. Do you believe that the broker-dealer operator should be required to provide a brief summary of a Form ATS-N Amendment? Why or why not? Please support your arguments.
129. Do you believe that a broker-dealer operator should be allowed to withdraw a previously filed Form ATS-N? Why or why not? Please support your arguments. If so, when should a broker-dealer operator be permitted to withdraw a previously filed Form ATS-N? Please explain.
130. Do you believe that the broker-dealer operator should be required to disclose the date on which it commenced, or intends to commence, operation of the NMS Stock ATS in Part I of Form ATS-N? Why or why not? Please support your arguments.
131. Do you believe that the Commission should require the MPID of the NMS Stock ATS as a required disclosure on proposed Form ATS-N? Why or why not? Please support your arguments.
132. What are the potential costs and benefits of disclosing the information required by Part I of proposed Form ATS-N? Would the proposed disclosures in Part I of proposed Form ATS-N require an NMS Stock ATS to reveal too much (or not enough) information? Why or why not? Please support your arguments.
Part II of proposed Form ATS-N would require certain general information regarding the broker-dealer operator and the NMS Stock ATS. With respect to the broker-dealer operator, Part II of proposed Form ATS-N would require registration information including: its SEC File Number, Central Registration Depository (“CRD”) Number, effective date of the broker-dealer operator's registration with the Commission, the name of the national securities association with which it is a member, and the effective date of broker-dealer operator's membership with the national securities association (
Additionally, Part II of proposed Form ATS-N would require certain information regarding the legal status of the broker-dealer operator. Specifically, proposed Form ATS-N would require that the broker-dealer operator provide its legal status (
Proposed Form ATS-N would also require the address of the physical location of the NMS Stock ATS matching system and, if it is different from the physical location, the mailing address of the NMS Stock ATS. If the broker-dealer operator is a sole proprietorship and an address of the NMS Stock ATS is a private residence, the Commission would not make that information available on the Commission's Web site due to concerns about the confidentiality of personally identifiable information. Furthermore, Part II would require the NMS Stock ATS to provide a URL address for the Web site of the NMS Stock ATS, and in the signature block in Part V of proposed Form ATS-N, the representative of the broker-dealer operator would also be required to provide his or her business contact information, including the person's name and title, telephone number, and email address.
Consistent with the requirements of proposed Form ATS-N, the signature block in Part V would also require the NMS Stock ATS to consent that service of any civil action brought by, or notice of any proceeding before, the Commission or a SRO in connection with the ATS's activities may be given by registered or certified mail or email to the contact employee at the primary street address or email address, or mailing address if different, given in Part I. The signatory would further represent that the information and statements contained on the submitted Form ATS-N, including exhibits, schedules, attached documents, and any other information filed, are current, true, and complete.
Part II of proposed Form ATS-N would also require an NMS Stock ATS to attach, as Exhibit 1, a copy of any materials currently provided to subscribers or other persons, related to the operations of the NMS Stock ATS or the disclosures on Form ATS-N.
Proposed Form ATS-N also would require that the broker-dealer operator attach, as Exhibits 2A and 2B (or provide a link to the relevant URL address where the required documents can be found), a copy of the most recently filed Schedule A of the broker-dealer operator's Form BD disclosing information related to direct owners and executive officers, and a copy of the most recently filed Schedule B of the broker-dealer operator's Form BD disclosing information related to indirect owners, respectively. The proposed Form ATS-N would require information from the broker-dealer operator's Schedule A and Schedule B of Form BD to help market participants understand the persons and entities that directly and indirectly own the broker-dealer operator. The Commission is requiring that NMS Stock ATSs provide names of the direct and indirect owners of the broker-dealer operator on Form ATS-N, even though the same information is provided on Form BD, because information about the ownership of the broker-dealer operator will enable market participants to understand better any potential conflicts of interest that may arise therefrom, which is one of the central purposes of proposed Form ATS-N. Also, providing this information on Form ATS-N would facilitate the Commission's, as well as market participants', analysis of the ownership and any potential for conflicts arising therefrom by providing this information all on one form. Moreover, the Commission preliminarily believes it is appropriate for NMS Stock ATSs to provide this information using a URL address for these documents in lieu of attaching the actual documents to their Form ATS-N filings.
133. Do you believe that Part II of proposed Form ATS-N is sufficiently clear with respect to the disclosures that would be required? If not, how should Part II of proposed Form ATS-N be revised to provide additional clarity? Please explain in detail.
134. Do you believe there is other information that market participants might find relevant or useful with regard to the disclosures in Part II? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS-N. Please support your arguments.
135. Do you believe that the Commission should require the effective date of broker-dealer registration with the Commission as a required disclosure on proposed Form ATS-N? Why or why not? Please support your arguments.
136. Do you believe that the Commission should require the SEC File number of the broker-dealer operator as a required disclosure on proposed Form ATS-N? Why or why not? Please support your arguments.
137. Do you believe that the Commission should require the CRD number of the broker-dealer operator as a required disclosure on proposed Form ATS-N? Why or why not? Please support your arguments.
138. Do you believe that the Commission should require the address of the physical location of the NMS Stock ATS's matching system as a required disclosure on proposed Form ATS-N? Why or why not? Please support your arguments.
139. Do you believe that the Commission should require the mailing address of the NMS Stock ATS as a required disclosure on proposed Form ATS-N? Why or why not? Please support your arguments.
140. Do you believe that the Commission should require the Web site URL of the NMS Stock ATS as a required disclosure on proposed Form ATS-N? Why or why not? Please support your arguments.
141. Do you believe that the Commission should require NMS Stock ATSs to disclose materials provided to subscribers or other persons related to the operations of the NMS Stock ATS on proposed Form ATS-N? Why or why not? Please support your arguments. Do you believe such materials should be provided to the Commission as an Exhibit? Why or why not? Please support your arguments. Do you believe that the NMS Stock ATS should be able to provide a URL where these documents can be found in lieu of providing the documents as an Exhibit? Why or why not? Please support your arguments.
142. Do you believe it is appropriate for the Commission to not make public the address of the NMS Stock ATS that is a sole proprietorship? Why or why not? Please support your arguments.
143. Do you believe it is appropriate for the Commission to not make public the contact information of the broker-dealer operator's representative? Why or why not? Please support your arguments.
144. Do you believe that there is any information, that would be required to be disclosed in Part II of proposed Form ATS-N that the Commission should not require to be disclosed due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? If so, what information and why? Please support your arguments.
145. What are the potential costs and benefits of disclosing the information required by Part II of proposed Form ATS-N? Would the proposed disclosures in Part II of proposed Form ATS-N require an NMS Stock ATS to reveal too much (or not enough) information? Why or why not? Please support your arguments.
146. Do you believe there are there certain types of materials provided to subscribers that would be responsive to Exhibit 1 that should or should not be disclosed on Form ATS-N? If so, what types of materials and why? Do you believe an NMS Stock ATS should provide in response to Exhibit 1 the materials the NMS Stock ATS provides to subscribers such as FIX protocol procedures, rules of engagement/user manuals, frequently asked questions, or marketing materials? Why or why not? Please support your arguments.
147. Do you believe the Commission should require NMS Stock ATSs to provide on Form ATS-N information on Exhibits 2A and 2B, in light of the fact that the information is already provided on Form BD?
148. Do you believe the Commission should require the NMS Stock ATS to provide disclosure about its governance structure and compliance programs and controls to comply with Regulation ATS? Why or why not? If so, what aspects of the NMS Stock ATSs' governance structure and compliance programs and controls to comply with Regulation ATS should the NMS Stock ATS be required to disclose? Please support your arguments.
The Commission preliminarily believes that to understand the operations of an NMS Stock ATS, it is necessary to understand the relationship and interactions between the NMS Stock ATS and its registered broker-dealer operator as well as the relationship and interactions between the NMS Stock ATS and the affiliates of its broker-dealer operator. As previously noted, Rule 301(b)(1) of Regulation ATS requires that an ATS, including an NMS Stock ATS, register as broker-dealer under Section 15 of the Exchange Act (the “broker dealer operator”).
The Commission is also aware that most ATSs that currently transact in NMS stocks are operated by broker-dealers that engage in significant brokerage and dealing activities in addition to their operation of an ATS(s).
Due to the frequent overlap between the operations of the broker-dealer operator or its affiliates outlined above and the operations of ATSs that trade NMS stocks, the Commission preliminarily believes that the interests of the broker-dealer operator or its affiliates sometimes compete with the interests of an ATS's subscribers, or customers of the ATS's subscribers, for executions on the ATS. Accordingly, the Commission preliminarily believes that these competing interests, at times, may give rise to potential conflicts of interest for broker-dealer operators of NMS Stock ATSs or their affiliates. Furthermore, the Commission preliminarily believes that the frequent overlap between the operation of ATSs that trade NMS stocks and the other operations of broker-dealer operators or their affiliates gives rise to the potential for information leakage of subscribers' confidential trading information to other
When evaluating an NMS Stock ATS as a possible trading venue, a market participant would likely want to know about the various activities in which a broker-dealer operator and its affiliates engage that may give rise to conflicts of interests. For example, as noted above, the broker-dealer operator of an NMS Stock ATS may operate multiple trading centers, which operate as competing trading venues for the execution of trades in NMS stocks. Many broker-dealer operators or their affiliates trade proprietarily on the NMS Stock ATS. If a broker-dealer operator that operates an NMS Stock ATS is also able to trade on that NMS Stock ATS, there may be an incentive for the broker-dealer operator to operate its NMS Stock ATS in a manner that favors the trading activity of the broker-dealer operator's business units or affiliates. A broker-dealer operator of an NMS Stock ATS may provide its other business units or affiliates, who may be subscribers to the NMS Stock ATS, with access to certain services of the NMS Stock ATS that are not provided to other subscribers, which may result in trading advantages to those business units or affiliates.
Concerns regarding potential conflicts of interests involving trading venues that execute securities transactions are not novel.
In the context of a national securities exchange's affiliation with one of its members, the Commission's concerns stem from, among other things, the potential for unfair competitive advantages that the affiliated member could have by virtue of informational or operational advantages or the ability to receive preferential treatment.
Finally, due to the overlap between the operation of NMS Stock ATSs and the other operations of broker-dealer operators, the Commission is concerned that market participants have limited information about how the operations of the broker-dealer operator's business units or its affiliates may give rise to information leakage of subscribers' confidential trading information among those business units or affiliates. For instance, if a proprietary trading desk of the broker-dealer operator is able to enter orders or other trading interest to the NMS Stock ATS, that trading desk may have means to see the incoming order flow of unaffiliated subscribers to the NMS Stock ATS. Furthermore, as demonstrated by several enforcement actions, a broker-dealer operator may at times provide some subscribers—including its business units or those of its affiliates—access to certain trading information that it does not provide to others.
Part III of proposed Form ATS-N would require that broker-dealer operators of NMS Stock ATSs include, as applicable, disclosures that pertain to the broker-dealer operator and its affiliates of an NMS Stock ATS. The Commission preliminarily believes that these proposed disclosure requirements would help ensure that market participants and the Commission are adequately informed about: (1) The operation of the NMS Stock ATS—regardless of the corporate structure of the NMS Stock ATS and that of its broker-dealer operator, or any arrangements the broker-dealer operator may have made, whether contractual or otherwise, pertaining to the operation of its NMS Stock ATS; and (2) any potential conflicts of interest the broker-dealer operator may have with respect to the operation of its NMS Stock ATS.
The Commission has also considered other alternatives to address the potential conflicts of interest between NMS Stock ATSs and their broker-dealer operators.
The Commission preliminarily believes that the above alternatives could be significantly more intrusive and substantially affect or limit the current operations of ATSs that trade NMS stocks relative to requiring additional disclosures about the operations of the broker-dealer operator and its affiliates, and therefore is not proposing such alternatives at this time. The Commission is instead proposing that NMS Stock ATSs and their broker-dealer operators provide additional disclosures, both to the Commission and the public, about how they interact.
149. Do you believe that it is necessary to have some understanding of the broader activities of the broker-dealer operator and its affiliates in order to understand and evaluate the operation of an NMS Stock ATS? Why or why not? Please support your arguments.
150. Do you believe that conflicts of interest could arise from a broker-dealer's operation of an NMS Stock ATS? Why or why not? If so, please explain what these conflicts of interest are. Do you believe that potential conflicts of interest should be disclosed to the public? Why or why not? Please support your arguments.
151. Do you believe that certain conflicts of interest arising out of the broker-dealer's operation of the NMS Stock ATS should be prohibited? Why or why not? Please support your arguments.
152. Do you believe that the Commission should adopt an alternative approach, either those described above or any other alternative, such as a prohibition, regarding potential conflicts of interest arising from a broker-dealer's operation of an NMS Stock ATS? Why or why not? Please support your arguments. If so, what approach should the Commission adopt? Please be specific.
153. Do you believe that the Commission should require information barriers between the ATS and non-ATS business units of the broker-dealer operator? Why or why not? Please support your arguments.
154. Do you believe that the Commission should require an NMS Stock ATS to operate as a “stand-alone” entity and have no affiliation with any broker-dealer that seeks to execute proprietary or agency orders in the ATS? Why or why not? Please support your arguments. Do you believe that the proposed disclosures on Form ATS-N would help broker-dealers better assess whether the routing of their customers' orders to a particular NMS Stock ATS fulfills the broker-dealer's duty of best
155. Do you believe that the proposed disclosures on Form ATS-N would help customers of broker-dealers to better evaluate whether their broker-dealer is fulfilling its duty of best-execution with respect to orders routed to NMS Stock ATSs? Why or why not? Please support your arguments.
For the purposes of the proposed disclosures regarding affiliates of the broker-dealer operator, the Commission is proposing to define the term “affiliate” to mean “with respect to a specified person, any person that directly, or indirectly, controls, is under common control with, or is controlled by, the specified person.”
The Commission also proposes to amend the existing definition of the term “control” under Regulation ATS to add the phrase “the broker-dealer of” before the two instances of the phrase “an alternative trading system” and before the phrase “the alternative trading system” in subsections (2) and (3) of the definition.
The proposed disclosures of affiliate activities under Part III of proposed Form ATS-N are designed to provide market participants and the Commission with a comprehensive understanding of the potential conflicts of interest that may arise from the broker-dealer operator's other business activities and its operation of the NMS Stock ATS. Under the proposed definition of “affiliate” and amended definition of “control,” any affiliate of the broker-dealer operator of the NMS Stock ATS would be an affiliate of the NMS Stock ATS.
156. Should the Commission adopt the proposal to define “affiliate” for purposes of proposed Form ATS-N as, with respect to a specified person, any person that, directly or indirectly, controls, is under common control with, or is controlled by, the specified person? Why or why not? Please support your arguments. Do you believe that the Commission should adopt a more limited or expansive definition of an “affiliate”? Why or why not? Please support your arguments. What advantages or disadvantages might result from a more limited or expansive definition of an affiliate? Please support your arguments.
157. Do you believe that the Commission should use the definition of an “affiliated person” as defined in the Exchange Act for purposes of proposed Rule 304?
158. Do you believe that the proposed amendments to the definition of “control” under Regulation ATS are appropriate in this context? Do you believe the Commission should adopt a more limited or expansive definition of “control”? Why or why not? Please support your arguments.
159. Do you believe the voting interest or partnership interest thresholds for “control” of an entity (
160. Do you believe that the definition of “control” should deem an affiliate of the broker-dealer of the NMS Stock ATS to be an affiliate of the NMS Stock ATS, such that the ATS would be subject to all of the proposed disclosures relating these entities? Should the definition of “control” be amended? If so, how should it be amended? Please support your arguments.
161. Do you believe that the information required to be filed on proposed Form ATS-N about affiliates of the NMS Stock ATS would provide useful information to market participants? Why or why not? Please support your arguments.
162. Do you believe that the Commission should require that the MPID and/or CRD number for affiliates and business units of the broker-dealer operator be disclosed on proposed Form ATS-N? Would such disclosure help market participants identify the broker-dealer operator's affiliates and business units? Why or why not? Please support your arguments.
Part III, Item 1 of proposed Form ATS-N would require an NMS Stock ATS to disclose whether the broker-dealer operator or any of its affiliates operate or control any non-ATS trading center(s)
The Commission is aware that many broker-dealer operators of ATSs that currently trade NMS stocks facilitate the execution of NMS stock outside of their ATSs.
Furthermore, the Commission preliminarily believes that subscribers to NMS Stock ATSs currently have limited information about the various non-ATS trading centers operated by an NMS Stock ATS broker-dealer operator, or its affiliates, and the extent to which the operations of these non-ATS trading centers may interact with subscriber orders or other trading interest sent to the NMS Stock ATS. Orders or other trading interest sent by subscribers to the NMS Stock ATS may pass through the broker-dealer operator's systems or functionality before being entered into the NMS Stock ATS. Such systems and functionalities, which could include a common gateway function, algorithm, or smart order router, may be used to support the broker-dealer operator's other business units, including any non-ATS trading centers. The broker-dealer operator typically controls the logic contained in these systems or functionality that determines where an order that the broker-dealer receives will be handled or sent. The Commission preliminarily believes that it would be helpful for NMS Stock ATS subscribers to know the extent to which subscriber orders received by the broker-dealer operator may interact, or be handled in any coordinated manner, with a non-ATS trading center of that broker-dealer operator or its affiliates.
The disclosures in Part III, Item 1 of proposed Form ATS-N are designed to reduce information asymmetries between subscribers and the broker-dealer operator regarding the operation of the NMS Stock ATS and competing venues for the execution of NMS stock transactions (
163. Do you believe the Commission should require the disclosure of the information on Part III, Item 1 of Form ATS-N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
164. Do you believe Part III, Item 1 of proposed Form ATS-N captures the information regarding non-ATS trading centers operated or controlled by the broker-dealer operator or any of its affiliates that is most relevant to understanding the operations of the NMS Stock ATS? Why or why not? Please support your arguments.
165. Do you believe there is other information that market participants might find relevant or useful regarding non-ATS trading centers operated or controlled by the broker-dealer operator or any of its affiliates? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS-N. Please support your arguments.
166. Do you believe that Part III, Item 1 of proposed Form ATS-N is sufficiently clear with respect to the disclosures that would be required? If not, how should Part III, Item 1 of proposed Form ATS-N be revised to provide additional clarity? Please explain in detail.
167. Do you believe that the non-ATS trading centers operated by the broker-dealer operator or its affiliates could raise potential conflicts of interest? Why or why not? If so, do you believe that such potential conflicts of interest should be disclosed? Please support your arguments.
168. Part III, Item 1 of proposed Form ATS-N would require disclosure about the non-ATS trading center activities of affiliates of the broker-dealer operator. Do you believe that disclosure about the activities of the broker-dealer operator's affiliates in this context is necessary? Why or why not? Should disclosure of non-ATS trading center activities extend to more remote affiliates under a revised definition of “affiliate”?
169. What are the potential costs and benefits of disclosing the information required by Part III, Item 1 of proposed Form ATS-N? Do you believe the proposed disclosures in Part III, Item 1 have the potential to impact innovation? Why or why not? Do you believe that the proposed disclosures in Part III, Item 1 of proposed Form ATS-N would require broker-dealer operators of NMS Stock ATSs to reveal too much (or not enough) information about their structure and operations? Why or why not? Please support your arguments.
170. Do you believe there is other information that market participants might find relevant or useful regarding the disclosure of non-ATS trading centers operated by the broker-dealer operator or its affiliates? If so, describe such information and explain whether or not such information should be required to be provided under proposed Form ATS-N. Please support your arguments.
171. Do you believe there is any information regarding the non-ATS trading centers of the broker-dealer operator or its affiliates that should not be required to be disclosed on proposed Form ATS-N due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? If so, what information and why? Please support your arguments.
172. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part III, Item 1 of proposed Form ATS-N other than through disclosure on proposed Form ATS-N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part III, Item 1?
Part III, Item 2 of proposed Form ATS-N would require an NMS Stock ATS to state whether the broker-dealer operator, or any of its affiliates, operates one or more NMS Stock ATSs other than the NMS Stock ATS named on the Form ATS-N, and, if so, to (1) Identify the NMS Stock ATS(s) and provide its MPID(s); and (2) describe any interaction or coordination between the identified NMS Stock ATS(s) and the NMS Stock ATS named on the Form ATS-N including: (i) The circumstances under which subscriber orders or other trading interest received by the broker-dealer operator or its affiliates to be sent to the NMS Stock ATS named on the Form ATS-N may be sent to any identified NMS Stock ATS(s); (ii) circumstances under which subscriber orders or other trading interest to be sent to the NMS Stock ATS named on the Form ATS-N are displayed or otherwise made known in any other identified NMS Stock ATS(s); and (iii) the circumstances under which subscriber orders or other trading interest received by the NMS Stock ATS named on the Form ATS-N may be removed and sent to any other identified NMS Stock ATS(s).
The Commission is aware that some broker-dealer operators operate multiple ATSs that trade NMS stocks and that subscriber orders or other trading interest received by such broker-dealer operators could be routed between those NMS Stock ATSs. The Commission preliminarily believes that—similar to the potential conflicts of interest that may arise or information leakage that may occur when a broker-dealer operator, or its affiliate, operates or controls a non-ATS trading center—circumstances might arise whereby a broker-dealer that operates multiple NMS Stock ATSs may place its interests ahead of the interests of subscribers of
Therefore, under Part III, Item 2 of proposed Form ATS-N, a broker-dealer operator that operates multiple NMS Stock ATSs would be required to disclose how these trading venues interact with one another, if at all. To the extent that a broker-dealer operator could allocate subscriber orders it receives among the various NMS Stock ATSs that it or its affiliates operate, the broker-dealer operator would be required to describe how it determines such allocation in response to Item 2. For example, a broker-dealer operator may send all subscriber orders that it receives first to one of its NMS Stock ATSs, and if there is no execution after a certain period of time, the orders may then be routed directly to a second NMS Stock ATS operated by the broker-dealer operator or its affiliates, or may be returned to the broker-dealer operator (or its SOR or similar functionality), and may then be routed to a non-affiliated NMS Stock ATS for execution. Similarly, an NMS Stock ATS would be required to describe the circumstances under which subscriber orders on the NMS Stock ATS might be removed from the NMS Stock ATS and routed to another NMS Stock ATS that is operated by that broker-dealer operator or its affiliates.
The Commission preliminarily believes that subscribers to NMS Stock ATSs currently have limited information about the extent to which the operations of other ATSs operated by the same broker-dealer operator, or its affiliates, may interact with their orders sent to the NMS Stock ATS. Specifically, because subscriber orders received by a broker-dealer operator could be sent to multiple NMS Stock ATSs operated by that broker-dealer operator, the Commission preliminarily believes that subscribers should be provided with a better understanding of how their orders may interact, if at all, with multiple NMS Stock ATSs operated by the same broker-dealer operator or its affiliates. The proposed disclosures in Part III, Item 2 of proposed Form ATS-N are designed to help subscribers evaluate potential conflicts of interest for the broker-dealer operator or the potential for information leakage in connection with multiple NMS Stock ATSs that the broker-dealer operator, or its affiliates, operates.
173. Do you believe the Commission should require the disclosure of the information on Part III, Item 2 of Form ATS-N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
174. Do you believe Part III, Item 2 of proposed Form ATS-N captures the information that is most relevant to understanding the operations of the NMS Stock ATS regarding any other NMS Stock ATSs (other than the one named on the Form ATS-N) operated or controlled by the broker-dealer operator or any of its affiliates? Why or why not? Please support your arguments.
175. Do you believe that Part III, Item 2 of proposed Form ATS-N is sufficiently clear with respect to the disclosures that would be required? If not, how should Part III, Item 2 of proposed Form ATS-N be revised to provide additional clarity? Please explain.
176. Do you believe that the operation of multiple NMS Stock ATSs by the broker-dealer operator or its affiliates could raise potential conflicts of interest? Why or why not? If so, do you believe that such potential conflicts of interest should be disclosed? Please support your arguments.
177. Do you believe that the information that would be solicited by Part III, Item 2 of proposed Form ATS-N would be useful to market participants in deciding whether the participate on an NMS Stock ATS? Why or why not? Please support your arguments.
178. Part III, Item 2 of proposed Form ATS-N would require disclosure of whether the affiliates of the broker-dealer operator operate an NMS Stock ATS (other than the NMS Stock ATS filing the Form ATS-N). Do you believe that disclosure about affiliates of the broker-dealer operator in this context is necessary? Why or why not? Should disclosure of affiliates that operate another NMS Stock ATS be extended to more remote affiliates under a revised definition of “affiliate”?
179. What are the potential costs and benefits of disclosing the information required by Part III, Item 2 of proposed Form ATS-N? Do you believe the disclosures in Part III, Item 2 of proposed Form ATS-N would have the potential to impact innovation? Why or why not? Would the proposed disclosures in Part III, Item 2 of proposed Form ATS-N require broker-dealer operators of NMS Stock ATSs to reveal too much (or not enough) information about their structure and operations? Why or why not? Please support your arguments.
180. Do you believe there is other information that market participants might find relevant or useful regarding the operation of multiple NMS Stock ATSs by a broker-dealer operator or its affiliate? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS-N. Please support your arguments.
181. Do you believe that the Commission should require NMS Stock ATSs to disclose the names of any non-NMS stock ATSs that are operated by its broker-dealer operator or one of its broker-dealer operator's affiliates? Why or why not? If so, what information should the NMS Stock ATS be required to disclose about such non-NMS stock ATSs? Please support your arguments.
182. Do you believe there is any information regarding the multiple NMS Stock ATS operations of a broker-dealer operator that the NMS Stock ATS
183. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part III, Item 2 of proposed Form ATS-N other than through disclosure on proposed Form ATS-N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part III, Item 2?
Part III, Item 3 of proposed Form ATS-N would require an NMS Stock ATS to disclose whether the broker-dealer operator, or any of its affiliates, offer subscribers of the NMS Stock ATS any products or services used in connection with trading on the NMS Stock ATS (
Based on the Commission's experience, broker-dealer operators of NMS Stock ATSs may, directly or indirectly through an affiliate, offer products or services to subscribers in addition to the trading services of the NMS Stock ATS. For example, a broker-dealer operator may offer subscribers the use of an order management system to allow them to connect to or send orders or other trading interest to the NMS Stock ATS. Some broker-dealer operators may also offer subscribers the use of algorithmic trading strategies, which are computer assisted trading tools that, for instance, may be used by or on behalf of institutional investors to execute orders that are typically too large to be executed all at once without excessive price impact, and divide the orders into many small orders that are fed into the marketplace over time.
184. Do you believe the Commission should require the disclosure of the information on Part III, Item 3 of Form ATS-N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
185. Do you believe Part III, Item 3 of proposed Form ATS-N captures the information that is most relevant to understanding the operations of the NMS Stock ATS regarding other products or services offered to subscribers used in connection with trading on the NMS Stock ATS by the broker-dealer operator or any of its affiliates? Why or why not? Please support your arguments.
186. Do you believe that Part III, Item 3 of proposed Form ATS-N is sufficiently clear with respect to the disclosures that would be required? If not, how should Part III, Item 3 of proposed Form ATS-N be revised to provide additional clarity? Please explain in detail.
187. Do you believe there is other information that market participants might find relevant or useful regarding other products and services offered to subscribers by broker-dealer operators or their affiliates? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS-N. Please support your arguments.
188. Do you believe that the Commission should expand the proposed disclosures in Part III, Item 3 of proposed Form ATS-N to products or services offered by the broker-dealer operator or its affiliates that are offered to subscribers, but not necessarily offered in connection with transacting on the NMS Stock ATS? Why or why not? Please explain. Do you believe there is other information that market participants might find useful regarding the products or services offered to subscribers by the broker-dealer operator or its affiliates? If so, what information should be added to the disclosure requirements? Please explain.
189. What are the potential costs and benefits of disclosing the information required by Part III, Item 3 of proposed Form ATS-N? Do you believe the disclosures in Part III, Item 3 of proposed Form ATS-N would have the potential to impact innovation? Why or why not? Would the proposed disclosures in Part III, Item 3 of proposed Form ATS-N require broker-dealer operators of NMS Stock ATSs to reveal too much (or not enough) information about their structure and operations? Why or why not? Please support your arguments.
190. Do you believe there is any information regarding the products or services offered to subscribers by the broker-dealer operator that the NMS Stock ATS should not be required to disclose on proposed Form ATS-N due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? If so, what information and why? Please support your arguments.
191. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part III, Item 3 of proposed Form ATS-N other than through disclosure on proposed Form ATS-N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part III, Item 3?
Part III, Item 4 of proposed Form ATS-N would require an NMS Stock ATS to disclose whether the broker-dealer operator or any of its affiliates have any formal or informal arrangement with an unaffiliated person(s), or affiliate(s) of such person, that operates a trading center
Part III, Item 4 of proposed Form ATS-N is designed to inform subscribers and the Commission about arrangements that may impact a subscriber's experience on the NMS Stock ATS and allow market participants to evaluate potential conflicts of interest of the broker-dealer operator. For example, Part III, Item 4 of proposed Form ATS-N would require an NMS Stock ATS to disclose whether its broker-dealer operator has any arrangement with another unaffiliated NMS Stock ATS pursuant to which the NMS Stock ATS would route orders or other trading interest to the unaffiliated NMS Stock ATS for possible execution prior to routing to any other destination. Similarly, Part III, Item 4 of proposed Form ATS-N would require disclosure of an arrangement pursuant to which any subscriber orders routed out of the unaffiliated NMS Stock ATS would be routed first to the NMS Stock ATS before any other trading center, and would also require disclosure of the terms of the arrangement, for example, whether the NMS Stock ATS was providing monetary compensation or some other brokerage service to the unaffiliated NMS Stock ATS in exchange for the order flow.
The Commission preliminarily believes that market participants would consider information about any arrangements between a broker-dealer operator of an NMS Stock ATS and other trading centers relevant to their evaluation of an NMS Stock ATS as a potential trading venue. The disclosure of such arrangements could reveal potential conflicts of interest of the broker-dealer operator or could identify potential sources of information leakage. For example, a potential conflict of interest could arise where an NMS Stock ATS has a preferred routing arrangement with an unaffiliated non-ATS trading center that provides that all orders sent to the NMS Stock ATS would first be routed to the unaffiliated non-ATS trading center before entering the NMS Stock ATS in exchange for monetary compensation. Such an arrangement could also pose a risk of information leakage in that the non-ATS trading center would know that those orders that it does not execute would be routed to the NMS Stock ATS.
The Commission notes that an NMS Stock ATS would not be prohibited from establishing arrangements with other trading centers, provided that such arrangements comply with other applicable laws and rules, including applicable federal securities laws and Regulation ATS. However, the Commission preliminarily believes that market participants could benefit from disclosures about such arrangements and would use such information when determining whether to subscribe, or route orders, to a particular NMS Stock ATS. Additionally, the Commission preliminarily believes that disclosure of such arrangements would help the Commission perform its oversight functions by enabling it to better evaluate an NMS Stock ATS's compliance with the requirements of Regulation ATS, such as Rule 301(b)(10).
192. Do you believe the Commission should require the disclosure of the information on Part III, Item 4 of Form ATS-N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
193. Do you believe Part III, Item 4 of proposed Form ATS-N captures the information that is most relevant to understanding the operations of the NMS Stock ATS regarding any formal or informal arrangement by the broker-dealer operator or any of its affiliates with an unaffiliated person(s), or affiliate(s) of such person, that operates a trading center
194. Do you believe that Part III, Item 4 of proposed Form ATS-N is sufficiently clear with respect to the disclosures that would be required relating to access arrangements and preferred routing arrangements with other unaffiliated trading centers? If not, how should Part III, Item 4 of proposed Form ATS-N be revised to provide additional clarity? Please explain.
195. What are the potential costs and benefits of disclosing the information required by Part III, Item 4 of proposed Form ATS-N? Do you believe the disclosures in Part III, Item 4 of proposed Form ATS-N would have the potential to impact innovation? Why or why not? Would the proposed disclosures in Part III, Item 4 of proposed Form ATS-N require broker-dealer operators of NMS Stock ATSs to reveal too much (or not enough) information about their structure and operations? Why or why not? Please support your arguments.
196. Do you believe that the Commission should include access arrangements of affiliates of the broker-dealer operator in Part III, Item 4 of proposed Form ATS-N? Why or why not? Please support your arguments. Conversely, should disclosures of arrangements with other trading centers by affiliates be extended to more remote affiliates under a revised definition of “affiliate”?
197. Do you believe that the Commission should expand the proposed disclosure requirements to other arrangements beyond access and preferred routing that the broker-dealer operator or its affiliates might have with other trading centers? If so, what other arrangements do you believe should be disclosed? Please explain in detail.
198. Do you believe that the Commission should limit or expand in any way the proposed disclosure requirements to require disclosure of arrangements regarding access by the broker-dealer operator or its affiliates to both other trading centers and affiliates of those other trading centers? Why or why not? Please support your arguments.
199. Do you believe there is other information that market participants might find relevant or useful regarding the broker-dealer operator or its affiliates' arrangements with other trading centers? If so, describe such information and explain whether, and if so why, such information should be
200. Do you believe there is any information regarding the broker-dealer operator or its affiliates' arrangements with other trading centers that the NMS Stock ATS should not be required to disclose on proposed Form ATS-N due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? If so, what information and why? Please support your arguments.
201. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part III, Item 4 of proposed Form ATS-N other than through disclosure on proposed Form ATS-N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part III, Item 4?
Part III, Item 5 of proposed Form ATS-N would require certain disclosures related to the trading activity of the broker-dealer operator or its affiliates on the NMS Stock ATS. Specifically, Part III, Item 5 of proposed Form ATS-N would require the NMS Stock ATS to disclose whether the broker-dealer operator, or any of its affiliates, enters orders or other trading interest on the NMS Stock ATS. If so, the NMS Stock ATS would be required to: (1) Identify each affiliate and business unit of the broker-dealer operator that may enter orders or other trading interest on the NMS Stock ATS; (2) describe the circumstances and capacity (
As noted above, Part III, Item 5(a) of proposed Form ATS-N would require the NMS Stock ATS to identify each affiliate and business unit (
Part III, Item 5(b) of proposed Form ATS-N would require an NMS Stock ATS to disclose the circumstances and capacity in which the broker-dealer operator's business units or affiliates may trade on the NMS Stock ATS, such as whether they are trading on a proprietary basis (
Part III, Item 5(c) of proposed Form ATS-N would require an NMS Stock ATS to describe the means by which the business units of the broker-dealer operator and its affiliates enter orders or other trading interest into the NMS Stock ATS. Item 5(d) would require a description of any means by which a subscriber can be excluded from interacting or trading with orders or other trading interest of the broker-dealer operator or its affiliates. Some NMS Stock ATSs that currently transact in NMS stocks may provide both direct and indirect means for subscribers to enter orders or other trading interest to the ATS. Based on its experience, the Commission understands that subscribers to some NMS Stock ATSs may enter orders or other trading interest directly to the ATS using, for example, a direct FIX connection,
Overall, the Commission preliminarily believes that the disclosures required under Part III, Item 5 of proposed Form ATS-N would be useful to many market participants. The Commission notes that market participants may vary widely in their decision making process in selecting a particular trading center to effect their trades or route their orders, and therefore, the Commission preliminarily believes that some market participants may not be concerned with the potential conflicts of interest posed by the trading activity of the broker dealer operator or its affiliates on the NMS Stock ATS. However, absent disclosure of this trading activity of the broker-dealer operator or its affiliates, subscribers and potential subscribers that take such information into account when executing their trading or investment strategies likely would neither be aware of such potential conflicts nor able to assess whether the conflicts might impact those strategies. Consequently, the Commission preliminary believes that it would be useful to market participants for an NMS Stock ATS to be required to disclose the information required in Part III, Item 5 of proposed Form ATS-N.
202. Do you believe the Commission should require the disclosure of the information on Part III, Item 5 of Form ATS-N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
203. Do you believe Part III, Item 5 of proposed Form ATS-N captures the information that is most relevant to understanding the operations of the NMS Stock ATS related to the trading activity of the broker-dealer operator or its affiliates on the NMS Stock ATS? Why or why not? Please support your arguments.
204. Do you believe that Part III, Item 5 of proposed Form ATS-N is sufficiently clear with respect to the disclosures that would be required relating to the broker-dealer operator and its affiliates trading on the NMS Stock ATS? If not, how should Part III, Item 5 of proposed Form ATS-N be revised to provide additional clarity? Please explain.
205. Do you believe proposed disclosures in Part III, Item 5 of proposed Form ATS-N should be applied to the trading activity on the NMS Stock ATS of affiliates of the broker-dealer operator? Why or why not? Should disclosures of affiliates trading on the NMS Stock ATS be extended to more remote affiliates under a revised definition of “affiliate”?
206. Do you believe that the Commission should enhance measures to prevent potential conflicts of interest posed by the broker-dealer operator or its affiliates trading on its own NMS Stock ATS, such as prohibiting proprietary trading by the broker-dealer operator or its affiliates on the NMS Stock ATS? If no, why? If yes, what measures should the Commission consider? Please explain in detail.
207. What are the potential costs and benefits of disclosing the information required by Part III, Item 5 of proposed Form ATS-N? Do you believe the disclosures in Part III, Item 5 of proposed Form ATS-N would have the potential to impact innovation or discourage broker-dealer operators or their affiliates from trading on their own NMS Stock ATS? Why or why not? Would the proposed disclosures in Part III, Item 5 of proposed Form ATS-N require broker-dealer operators of NMS Stock ATSs to reveal too much (or not enough) information about their structure and operations? Why or why not? Please support your arguments.
208. Do you believe there is other information that market participants might find relevant or useful regarding the trading activity on the NMS Stock ATS by the broker-dealer operator or its affiliates? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS-N. Please support your arguments.
209. Do you believe there is any information regarding the trading activity on the NMS Stock ATS by the broker-dealer operator or its affiliates that the NMS Stock ATS should not be required to disclose on Form ATS-N due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? If so, what information and why? Please support your arguments.
210. Should the Commission require separate disclosures for different types of trading conducted by the broker-dealer operator on the NMS Stock ATS, such as trading by the broker-dealer operator for the purpose of correcting error trades executed on the ATS, as compared to other types of proprietary trading? Why or why not? Please support your arguments. If so, what types of proprietary trading should be addressed separately and why? What disclosures should the Commission require about these types of proprietary trading and why? Please explain in detail.
211. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part III, Item 5 of proposed Form ATS-N other than through disclosure on proposed Form ATS-N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part III, Item 5?
Part III, Item 6 of proposed Form ATS-N would require the NMS Stock ATS to disclose whether the broker-dealer operator, or any of its affiliates, use a SOR(s) (or similar functionality), an algorithm(s), or both to send or receive subscriber orders or other trading interest to or from the NMS Stock ATS, and if so, to: (1) Identify the SOR(s) (or similar functionality) or algorithm(s) and identify the person(s) that operates the SOR(s) (or similar functionality) or algorithm(s), if other than the broker-dealer operator;
Today, most broker-dealers that operate an NMS Stock ATS use some form of SOR (or similar functionality) in connection with the NMS Stock ATS. A SOR (or similar functionality) can generally be understood as an automated system used to route orders or other trading interest among trading centers, including proprietary non-ATS trading centers operated by the broker-dealer operator, to carry out particular trading instructions or strategies of a broker-dealer. Smart order routers (or similar functionalities) have become an integral part of the business of many multi-service broker-dealers, given the increase in the speed of trading in today's equity markets and the large number of trading centers, including national securities exchanges, ATSs, and non-ATS trading centers, that have emerged since the adoption of Regulation ATS. In addition to the SOR (or similar functionality), orders or other trading interest may be entered on an NMS Stock ATS through the use of a trading algorithm, which is a computer assisted trading tool that, for instance, may be used by or on behalf of institutional investors to execute orders that are typically too large to be executed all at once without excessive price impact, and divide the orders into many small orders that are fed into the marketplace over time.
Broker-dealer operators of NMS Stock ATSs or their affiliates may use SORs (or similar functionality) or algorithms in a variety of ways.
The Commission preliminarily believes that the high likelihood that a SOR (or similar functionality) or algorithm could access subscribers' confidential trading information necessitates disclosure of certain information to subscribers about the use of a SOR (or similar functionality) or algorithm by the broker-dealer operator or its affiliates to route subscriber orders to or out of the NMS Stock ATS. The Commission preliminarily believes that subscribers and the Commission would benefit from increased disclosures about the use of a SOR(s) (or similar functionality) or algorithm(s) by the broker-dealer operator or its affiliates in connection with the NMS Stock ATS because of the potential for information leakage. Existing Form ATS does not specifically inquire about the use of a SOR (or similar functionality) or algorithms in connection with an ATS and based on Commission experience, the Commission is concerned that there is limited information available to subscribers about the interaction between SORs (or similar functionalities) or algorithms and affiliated ATSs that trade NMS stocks, despite the importance of SORs (or similar functionality) or algorithms to the functions and operations of such ATSs. The Commission preliminarily believes that information provided on Form ATS-N would allow market participants to better understand the operation of an NMS Stock ATS and the circumstances that may give rise to potential conflicts of interest and information leakage.
Part III, Item 6(a) of proposed Form ATS-N would require an NMS Stock ATS to identify the SOR(s) (or similar functionality) or algorithm(s) and identify the person(s) that operates the SOR (or similar functionality) and algorithm(s). Part III, Item 6(a) of proposed Form ATS-N is designed to provide subscribers with information about who operates the SOR(s) (or similar functionality) or algorithm(s) used in connection with the NMS Stock ATS, which would thereby inform subscribers about who may have access to their confidential trading information or control over the entry and removal of orders or other trading interest to and
Part III, Item 6(b) of proposed Form ATS-N would require an NMS Stock ATS to describe the interaction or coordination between the identified SOR(s) (or similar functionality) or algorithm(s) and the NMS Stock ATS, including any information or messages about orders or other trading interest (
The interaction or coordination of the SOR(s) (or similar functionality) or algorithm(s) with the NMS Stock ATS likely varies across NMS Stock ATSs. For instance, a SOR (or similar functionality) or algorithm may check for potential contra-side interest in a particular symbol on the NMS Stock ATS prior to sending the subscriber order or other trading interest into the NMS Stock ATS. Such protocol carried out by the SOR (or similar functionality) or algorithm may send only information about the symbol and side (
The Commission notes that an ATS may consist of various functionalities or mechanisms that operate collectively as a Rule 3b-16 system to bring together the orders for securities of multiple buyers and sellers using non-discretionary methods.
212. Do you believe the Commission should require the disclosure of the information on Part III, Item 6 of Form ATS-N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
213. Do you believe Part III, Item 6 of proposed Form ATS-N captures the information that is most relevant to understanding the operations of the NMS Stock ATS regarding the use of a SOR or algorithm by the broker-dealer operators, or any of its affiliates, to send or receive subscriber orders or other trading interest to or from the NMS Stock ATS? Why or why not? Please support your arguments.
214. Do you believe that Part III, Item 6 of proposed Form ATS-N is sufficiently clear with respect to the disclosures that would be required relating to the broker-dealer operator and its affiliates' use of SORs (or similar functionality) and algorithms in connection with the NMS Stock ATS? If not, how should Part III, Item 6 of proposed Form ATS-N be revised to provide additional clarity? Please explain in detail.
215. Do you believe it is appropriate for the Commission to require disclosure about the use of SORs (or similar functionalities) and algorithms by the broker-dealer operator, or its affiliates, to send or receive orders or other trading interest to or from the NMS Stock ATS? Why or why not? Please support your arguments. If so, what level of detail should be disclosed about how SORs (or similar functionalities) and algorithms determine whether to send or receive
216. What are the potential costs and benefits of disclosing the information required by Part III, Item 6 of proposed Form ATS-N? Do you believe the disclosures in Part III, Item 6 of proposed Form ATS-N would have the potential to impact innovation? Why or why not? Would the proposed disclosures in Part III, Item 6 of proposed Form ATS-N require broker-dealer operators of NMS Stock ATSs to reveal too much (or not enough) about their structure and operations? Why or why not? Please support your arguments.
217. Do you believe the proposed disclosures in Part III, Item 6 of proposed Form ATS-N related to the use of SORs (or similar functionality) and algorithms should be applied to affiliates of the broker-dealer operator? Why or why not? Please support your arguments.
218. Do you believe there is other information that market participants might find relevant or useful regarding broker-dealer operators or their affiliates' SORs (or similar functionalities) and algorithms? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS-N. Please support your arguments.
219. Do you believe there is any information regarding broker-dealer operators or their affiliates' SORs (or similar functionality) and algorithms that the NMS Stock ATS should not be required to disclose on proposed Form ATS-N due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? If so, what information and why? Please support your arguments.
220. Do you believe that most subscribers to ATSs that transact in NMS stock access the ATSs through the SOR (or similar functionality) or algorithm of the broker-dealer operator (or its affiliates), or do they connect directly to the ATS through some other means, or both? Please explain in detail.
221. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part III, Item 6 of proposed Form ATS-N other than through disclosure on proposed Form ATS-N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part III, Item 6?
Part III, Item 7 of proposed Form ATS-N would require an NMS Stock ATS to state whether any employee of the broker-dealer operator that services the operations of the NMS Stock ATS also services any other business unit(s) of the broker-dealer operator or any affiliate(s) of the broker-dealer operator (“shared employee”) and, if so, to (1) identify the business unit(s) and/or the affiliate(s) of the broker-dealer operator to which the shared employee(s) provides services and identify the position(s) or title(s) that the shared employee(s) holds in the business unit(s) and/or affiliate(s) of the broker-dealer operator; and (2) describe the roles and responsibilities of the shared employee(s) at the NMS Stock ATS and the business unit(s) and/or affiliate(s) of the broker-dealer operator.
Part III, Item 7 of proposed Form ATS-N is designed to provide information to market participants and the Commission about circumstances that might give rise to a potential conflict of interest and potential information leakage involving shared employees of the broker-dealer operator. Responses to Part III, Item 7 of proposed Form ATS-N would require an NMS Stock ATS to describe the roles and responsibilities of the shared employees with the NMS Stock ATS and the other business units of the broker-dealer operator or affiliates. Responses to Part III, Item 7 of proposed Form ATS-N would be required to be sufficiently detailed to provide a comprehensive understanding of the full range of the shared employee's responsibilities with the NMS Stock ATS and each relevant entity, and include disclosure of responsibilities that could enable the employee to view subscribers' confidential trading information. The Commission preliminarily believes that market participants would find information about the multiple roles or functions of shared employees disclosed in Part III, Item 7 of proposed Form ATS-N important in evaluating whether to route orders to a particular ATS. For example, to identify and understand potential sources of information leakage, market participants would likely want to know if an employee of the broker-dealer operator that is responsible for the operations of a system supporting the NMS Stock ATS is also responsible for the proprietary trading activity of an affiliate of the broker-dealer operator that trades on the NMS Stock ATS. In this example, market participants might also be interested in understanding conflicts of interest that may result from the shared employee performing multiple roles, as the shared employee could have an incentive to alter the operations of the NMS Stock ATS to benefit the broker-dealer operator or an affiliate of the NMS Stock ATS.
The Commission would preliminarily view any personnel that service the trading functions of the NMS Stock ATS, such as those performing information technology, programming, testing, or system design functions as employees that “service the operations of the NMS Stock ATS.” Other employees of the NMS Stock ATS that are otherwise necessary for the trading functions of the NMS Stock ATS would also be included in the disclosure requirement of Part III, Item 7 of proposed Form ATS-N. Clerical employees or those performing solely administrative duties such as the payroll functions for the employees of the NMS Stock ATS would preliminarily not be included within the proposed disclosure.
222. Do you believe the Commission should require the disclosure of the information on Part III, Item 7 of Form ATS-N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
223. Do you believe Part III, Item 7 of proposed Form ATS-N captures the information that is most relevant to understanding the operations of the NMS Stock ATS related to “shared employees”? Why or why not? Please support your arguments.
224. Do you believe that Part III, Item 7 of proposed Form ATS-N is sufficiently clear with respect to the disclosures that would be required relating to shared employees of the broker-dealer operator? If not, how should Part III, Item 7 of proposed Form ATS-N be revised to provide additional clarity? Please explain.
225. Do you believe that it is sufficiently clear who would be considered a “shared employee” under Part III, Item 7 of proposed Form ATS-N? Why or why not? Is the scope of “shared employees” provided under Part III, Item 7 reasonable? Why or why not? Please explain.
226. Do you believe there is any information contained in the proposed disclosures in Part III, Item 7 of proposed Form ATS-N regarding shared employees of the broker-dealer operator that the NMS Stock ATS should not be required to disclose on proposed Form ATS-N due to concerns regarding confidentiality, business reasons, trade
227. What are the potential costs and benefits of disclosing the information required by Part III, Item 7 of proposed Form ATS-N? Do you believe the disclosures in Part III, Item 7 of proposed Form ATS-N would have the potential to impact innovation or the manner in which NMS Stock ATSs and broker-dealer operators use their employees? Why or why not? Would the proposed disclosures in Part III, Item 7 of proposed Form ATS-N require broker-dealer operators of NMS Stock ATSs to reveal too much (or not enough) information about their structure and operations? Why or why not? Please support your arguments.
228. Do you believe there is other information that market participants might find relevant or useful regarding shared employees of the broker-dealer operator? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS-N. Please support your arguments.
229. Do you believe that the Commission should expand the proposed disclosures in Part III, Item 7 of proposed Form ATS-N to other employees, personnel, or independent contractors of the broker-dealer operator? Why or why not? If so, which employees, personnel, or independent contractors should be included and what information about such persons should be solicited? Please explain.
230. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part III, Item 7 of proposed Form ATS-N other than through disclosure on proposed Form ATS-N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part III, Item 7?
Part III, Item 8 of proposed Form ATS-N would require an NMS Stock ATS to disclose whether any operation, service, or function of the NMS Stock ATS is performed by any person(s) other than the broker-dealer operator of the NMS Stock ATS, and if so to: (1) Identify the person(s) (in the case of a natural person, to identify only the position or title) performing the operation, service, or function and note whether this service provider(s) is an affiliate of the broker-dealer, if applicable; (2) describe the operation, service, or function that the identified person(s) provides and describe the role and responsibilities of that person(s); and (3) state whether the identified person(s), or any of its affiliates, may enter orders or other trading interest on the NMS Stock ATS and, if so, describe the circumstances and means by which such orders or other trading interest are entered on the NMS Stock ATS.
The Commission notes that Part III, Item 8 of proposed Form ATS-N expands on the disclosure requirements of Exhibit E on current Form ATS, which requires ATSs to disclose the name of any entity other than the ATS that will be involved in the operation of the ATS, including the execution, trading, clearing and settling of transactions on behalf of the ATS; and to provide a description of the role and responsibilities of each entity.
Under Part III, Item 8(a) of proposed Form ATS-N, the NMS Stock-ATS must identify any entity that performs any operation, service, or function for the NMS Stock ATS.
The Commission intends that the proposed disclosure requirements of Items 8(a) and (b) of Part III of proposed Form ATS-N would apply to any operation, service, or function performed by any person outside of the NMS Stock ATS entity, including affiliates of the broker-dealer operator.
Items 8(a) and (b) of Part III of proposed Form ATS-N are designed to provide market participants and the Commission with information about how the NMS Stock ATS operates, potential conflicts of interest, and the potential for information leakage. In particular, the Commission preliminarily believes that this information would inform market participants, as well as the Commission, about what aspects of the NMS Stock ATS's operations are performed by third-parties that may or may not be under the control of the broker-dealer operator. For example, an NMS Stock ATS whose trading system is operated or supported by a third-party service provider may have business interests that are aligned with those of the service provider. Additionally, depending on the role and responsibilities of the third-party service provider, market participants may want to evaluate the robustness of the NMS Stock ATS's safeguards and procedures to protect confidential subscriber information.
Lastly, Part III, Item 8(c) of proposed Form ATS-N would require an NMS Stock ATS to state whether any person identified in Part III, Item 8(a) of proposed Form ATS-N or any of its affiliates may enter orders or other trading interest on the NMS Stock ATS and if so, to describe the circumstances and means by which such orders or other trading interests are entered on the NMS Stock ATS. The purpose of these disclosures is to provide market participants and the Commission with information about the potential for conflicts of interest that may result from a service provider, or its affiliates, trading on the NMS Stock ATS and the potential for information leakage. For example, the Commission preliminarily believes that a subscriber or potential subscriber likely would want to know whether a person that is not an employee of the broker-dealer operator, but is contracted to service the trading platform that contains the NMS Stock ATS's book of orders, could enter orders or other trading interest on the NMS Stock ATS. Similarly, the Commission preliminarily believes that a subscriber or a potential subscriber would also want to know whether an affiliate of the service provider could enter orders or other trading interest on the NMS Stock ATS as well and whether its means of access differ from other subscribers. Under both of these scenarios, a potential conflict of interest could result if the service provider has business interests that compete with the trading interests of other subscribers to the NMS Stock ATS.
231. Do you believe the Commission should require the disclosure of the information on Part III, Item 8 of Form ATS-N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
232. Do you believe Part III, Item 8 of proposed Form ATS-N captures the information that is most relevant to understanding the operations of the NMS Stock ATS regarding any operation, service, or function of the NMS Stock ATS performed by any person other than the broker-dealer operator? Why or why not? Please support your arguments.
233. Do you believe that Part III, Item 8 of proposed Form ATS-N is sufficiently clear with respect to the disclosures that would be required relating to service providers of the NMS Stock ATS? If not, how should Part III, Item 8 of proposed Form ATS-N be revised to provide additional clarity? Please explain.
234. What are the potential costs and benefits of disclosing the information required by Part III, Item 8 of proposed Form ATS-N? Do you believe the disclosures in Part III, Item 8 of proposed Form ATS-N would have the potential to impact innovation or discourage arrangements with other service providers? Why or why not? Would the proposed disclosures in Part III, Item 8 of proposed Form ATS-N require broker-dealer operators of NMS Stock ATSs to reveal too much (or not enough) information about their structure and operations? Why or why not? Please support your arguments.
235. Do you believe that any of the information in the proposed disclosure requirements of Part III, Item 8 of proposed Form ATS-N regarding service providers to the NMS Stock ATS should not be required to be disclosed on proposed Form ATS-N due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? If so, what information and why? Please support your arguments.
236. Do you believe the Commission should adopt a more limited or expansive definition of “affiliate” for purposes of this disclosure item? Why or why not? Please support your arguments.
237. Do you believe there is other information that market participants might find relevant or useful regarding any operation, service, or function of the NMS Stock ATS performed by any person other than the broker-dealer operator? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS-N. Please support your arguments.
238. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part III, Item 8 of proposed Form ATS-N other than through disclosure on proposed Form ATS-N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part III, Item 8?
Part III, Item 9 of proposed Form ATS-N would require an NMS Stock ATS to identify and describe any service, functionality, or procedure of the NMS Stock ATS that is available or applies to the broker-dealer operator or its affiliates, that is not available or does not apply to a subscriber(s) to the NMS Stock ATS. The purpose of this disclosure is to alert market participants to the existence of system, functionality, or trading features that the broker-dealer operator or its affiliates may have that
The Commission notes that a significant difference between national securities exchanges and NMS Stock ATSs is the extent to which each trading center allows access to its services by its users. Section 6(b)(2) of the Exchange Act generally requires registered national securities exchanges to allow any qualified and registered broker-dealer to become a member of the exchange—a key element in assuring fair access to national securities exchange services.
While the Commission is not proposing to change the fair access requirements applicable to NMS Stock ATSs in this proposal, the Commission is proposing to require, among other things, disclosures on Form ATS-N that identify and describe differences among subscribers (or other persons) in the services, procedures or functionalities that an NMS Stock ATS provides, as well as disclosures that identify and describe any services, functionalities, or procedures of an NMS Stock ATS that are available to the broker-dealer operator's affiliates, but are not available to subscribers. The Commission preliminarily believes that the disclosure of these differences would allow market participants to evaluate whether such differences might put them at a disadvantage when trading on a particular NMS Stock ATS and thus, better enable market participants to decide whether submitting order flow to that NMS Stock ATS aligns with their trading or investment objectives.
The Commission notes that ATSs may treat subscribers differently with respect to the services offered by the ATS unless prohibited by applicable federal securities laws or the rules and regulations thereunder. For example, an ATS with at least 5% of the average daily volume for any covered security during four of the preceding six months is required to comply with fair access requirements under Rule 301(b)(5) of Regulation ATS,
239. Do you believe the Commission should require the disclosure of the information on Part III, Item 9 of Form ATS-N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
240. Do you believe Part III, Item 9 of proposed Form ATS-N captures the information that is most relevant to understanding the operations of the NMS Stock ATS related to any service, functionality, or procedure of the NMS Stock ATS that is available or applies to the broker-dealer operator or its affiliates, that is not available or does not apply to a subscriber(s) to the NMS Stock ATS? Why or why not? Please support your arguments.
241. Do you believe there is other information that market participants might find relevant or useful regarding any service, functionality, or procedure of the NMS Stock ATS that is available or applies to the broker-dealer operator or its affiliates, that is not available or does not apply to a subscriber(s) to the NMS Stock ATS? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS-N. Please support your arguments.
242. Do you believe that Part III, Item 9 of proposed Form ATS-N is sufficiently clear with respect to the disclosures that would be required relating to the differences in services provided to the broker-dealer operator or its affiliates trading on the NMS Stock ATS? If not, how should Part III, Item 9 of proposed Form ATS-N be revised to provide additional clarity? Please explain.
243. Do you believe that the proposed disclosures in Part III, Item 9 of proposed Form ATS-N that are intended to cover differences in services, functionalities, or procedures should be applied to affiliates of the broker-dealer operator? Why or why not? Conversely, should such disclosures be extended to more remote affiliates under a revised definition of “affiliate”?
244. What are the potential costs and benefits of disclosing the information required by Part III, Item 9 of proposed Form ATS-N? Do you believe the disclosures in Part III, Item 9 of proposed Form ATS-N would have the potential to impact innovation? Why or why not? Would the proposed disclosures in Part III, Item 9 of proposed Form ATS-N require broker-dealer operators of NMS Stock ATSs to
245. Do you believe there is any information regarding differences in services, functionalities, or procedures of the NMS Stock ATS that are available to the broker-dealer operator or its affiliates and not other subscribers that should not be required disclosures on Form ATS-N due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? If so, what information and why? Please support your arguments.
246. Do you believe that the Commission should propose amendments to Rule 301(b)(5) of Regulation ATS to lower the trading volume threshold in Regulation ATS that triggers the fair access requirement from its current 5%? If so, what is the appropriate threshold? Please support your arguments.
247. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part III, Item 9 of proposed Form ATS-N other than through disclosure on proposed Form ATS-N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part III, Item 9?
Part III, Item 10 of proposed Form ATS-N is based on the requirements of Rule 301(b)(10) of Regulation ATS,
As previously noted,
The protection of subscribers' confidential trading information remains a bedrock component of the regulation of ATSs, including those that trade NMS stocks, and is essential to ensuring the integrity of ATSs as execution venues. To the extent that subscribers cannot be assured that their confidential trading information will be protected by an ATS, many of the advantages or purposes for which a subscriber may choose to send its orders to an ATS (
Part III, Item 10(a) of proposed Form ATS-N would require the NMS Stock ATS to describe the means by which a subscriber can consent or withdraw consent to the disclosure of confidential trading information to any persons (including the broker-dealer operator and any of its affiliates). Disclosing the means by which a subscriber can consent or withdraw consent from the sharing of such information would allow subscribers and potential subscribers to understand what information about their orders or other trading interest will be kept confidential and how they can specify the means by which they choose to share confidential information. As the Commission noted in the adoption of Regulation ATS, subscribers should be able to give consent if they so choose to share their confidential trading information.
Part III, Item 10(b) of proposed Form ATS-N, which would require that ATSs identify any person that has access to confidential trading information, the type of information, and the circumstances under which they may access such information, is meant to provide transparency into the potential sources from which confidential trading information might be compromised. As noted above, Regulation ATS requires that access to confidential subscriber information be available only to those employees of the ATS that operate the system or are responsible for the ATS's compliance with applicable rules.
Part III, Item 10(b) of proposed Form ATS-N would also require the NMS Stock ATS to describe the confidential trading information that may be accessed by permitted persons. For example, employees that operate the NMS Stock ATS may be able to see the size, side, and symbol of an order but not the identity of the subscriber that submitted the order. The Commission preliminarily believes that subscribers and potential subscribers to the NMS Stock ATS likely would find it useful to know the range of confidential trading information that a person may have access to. Item 10(b) would also require the disclosure of the circumstances under which confidential trading information may be accessed by permitted persons. This disclosure requirement is designed to encompass the reasons for which confidential subscriber information might be accessed. For example, an NMS Stock ATS may only permit its designated employees access to confidential subscriber information when it is necessary to break certain trades or to perform system maintenance or repairs. Disclosures in Item 10(b) generally should describe whether the information is available in real-time (
Part III, Items 10(c) and (d) of proposed Form ATS-N closely track the existing requirements of Regulation ATS encompassed in Rule 301(b)(10)(i)(B) and (b)(10)(ii) respectively. The Commission preliminarily believes that market participants and the Commission would benefit from a description of the NMS Stock ATS's standards in ensuring that employees of the NMS Stock ATS cannot trade for their own account using confidential trading information and the procedures adopted by the NMS Stock ATS to ensure its safeguards and procedures are followed. The Commission notes that, pursuant to existing Rule 301(b)(10), the Commission requires ATSs to have in place such standards, policies, and procedures. As discussed in greater detail below, the Commission is proposing to amend Regulation ATS to provide that these standards, policies, and procedures be written.
248. Do you believe the Commission should require the disclosure of the information on Part III, Item 10 of Form ATS-N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
249. Do you believe Part III, Item 10 of proposed Form ATS-N captures the information that is most relevant to understanding the operations of the NMS Stock ATS related to the written safeguards and written procedures to protect the confidential trading information of subscribers to the NMS Stock ATS? Why or why not? Please support your arguments.
250. Do you believe that Part III, Item 10 of proposed Form ATS-N is sufficiently clear with respect to the disclosures that would be required relating to the NMS Stock ATS's obligations under Rule 301(b)(10) of Regulation ATS, including a description of the safeguards and procedures of the NMS Stock ATS to protect the confidential trading information of subscribers? If not, how should Part III, Item 10 of proposed Form ATS-N be revised to provide additional clarity? Please explain.
251. Do you believe that any of information in the proposed disclosure requirements of Part III, Item 10 of proposed Form ATS-N, including a description of the NMS Stock ATS's safeguards and procedures to protect the confidential trading information of subscribers, should not be required to be disclosed on proposed Form ATS-N due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? If so, what information and why? Please support your arguments.
252. Do you believe that the proposed disclosures in Part III, Item 10(a) of proposed Form ATS-N requiring an NMS Stock ATS to describe the means by which a subscriber can consent or withdraw consent to the disclosure of confidential trading information should be disclosed? Do ATSs that currently transact in NMS stock inform subscribers as to what trading information is considered confidential and/or provide a means for subscribers to give or withdraw consent to the disclosure of such trading information? Please explain.
253. Do you believe that the proposed disclosures in Part III, Item 10(b) of proposed Form ATS-N requiring an NMS Stock ATS to identify the positions or titles of any persons that have access to the confidential trading information of subscribers, what information they may obtain, and the circumstances under which such persons may obtain that information should be disclosed? Why or why not? Please support your arguments.
254. Do you believe there is other information that market participants might find relevant or useful regarding NMS Stock ATSs obligations under Rule 301(b)(10) and the protection of the confidential trading information of subscribers that has not been proposed in Part III, Item 10 of proposed Form ATS-N? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS-N. Please support your arguments.
255. What are the potential costs and benefits of disclosing the information required by Part III, Item 10 of proposed Form ATS-N? Would the proposed
256. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part III, Item 10 of proposed Form ATS-N other than through disclosure on proposed Form ATS-N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part III, Item 10?
Given the dispersal of trading volume in NMS stocks among an increasing number of trading centers,
Part IV of proposed Form ATS-N would require that the NMS Stock ATS include as Exhibit 4 information about the operations of an NMS Stock ATS. Specifically, Part IV of proposed Form ATS-N would require detailed information about the operations of NMS Stock ATSs, including the following, which are discussed in more detail below: Subscribers; hours of operations; order types; connectivity and order entry; segmentation of order flow; display of orders and trading interest; trading services; procedures governing suspension of trading and trading during system disruptions and malfunctions; opening, reopening, closing and after-hours trading procedures; outbound routing from the NMS Stock ATS; use of market data by the NMS Stock ATS; fees; trade reporting, clearance and settlement procedures; order display and execution access; and fair access standards. The proposed disclosure requirements are designed to assist market participants in assessing an NMS Stock ATS as a trading venue. The Commission preliminarily believes that the information that would be required to be disclosed on proposed Form ATS-N would allow market participants to compare and evaluate NMS Stock ATSs, as well as compare NMS Stock ATSs with national securities exchanges, as the type and level of information required by Part IV of proposed Form ATS-N would be generally similar to the information disclosed by national securities exchanges about their operations. For example, the rules of national securities exchanges, which are publicly available,
Part IV, Item 1 of proposed Form ATS-N would require an NMS Stock ATS to disclose information regarding any eligibility requirements to access the NMS Stock ATS, terms and conditions of use, types of subscribers, arrangements with liquidity providers, and any procedures or standards to limit or deny access to the NMS Stock ATS.
Part IV, Item 1(a) of proposed Form ATS-N would require an NMS Stock ATS to describe any eligibility requirements to gain access to the services of the NMS Stock ATS. If the eligibility requirements are not the same for all subscribers and persons, an NMS Stock ATS would be required to describe any differences. This item is designed to provide potential subscribers with information about any conditions they would need to satisfy prior to accessing the NMS Stock ATS. Based on Commission experience, the eligibility process and requirements to access an NMS Stock ATS vary, and the requirements may differ depending on whether a potential subscriber is a customer of the broker-dealer operator of the NMS Stock ATS. For instance, some NMS Stock ATSs require that a potential subscriber be a broker-dealer to enter orders on the NMS Stock ATS, while other NMS Stock ATSs do not. Some NMS Stock ATSs may require potential subscribers to submit financial information as a pre-requisite to subscribing to, or maintaining their subscriber status on, the NMS Stock ATS.
257. Do you believe the Commission should require the disclosure of the information on Part IV, Item 1(a) of Form ATS-N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
258. Do you believe Part IV, Item 1(a) of proposed Form ATS-N captures the information that is most relevant to understanding the operations of the NMS Stock ATS related to eligibility requirements to gain access to the services of the NMS Stock ATS? Why or why not? Please support your arguments.
259. Is it sufficiently clear what information would be required by Part IV, Item 1(a) of proposed Form ATS-N? Should the item be refined in any way? If so, how? Please be specific.
260. Do you believe there is other information that market participants might find relevant or useful regarding the eligibility process or requirements to gain access to the services of the NMS Stock ATS? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS-N. Please support your arguments.
261. Do you believe there is any information that would be required by Part IV, Item 1(a) of proposed Form ATS-N that an NMS Stock ATS should not be required to disclose due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? If so, what information and why? Please support your arguments.
262. Do you believe that subscribers and potential subscribers would benefit from knowing the eligibility requirements of the NMS Stock ATS? Why or why not? Please support your arguments.
263. What are the potential costs and benefits of disclosing the information required by Part IV, Item 1(a) of proposed Form ATS-N? Would the proposed disclosures in Part IV, Item 1(a) of proposed Form ATS-N require an NMS Stock ATS to reveal too much (or not enough) information about its structure and operations? Why or why not? Please support your arguments.
264. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part IV, Item 1(a) of proposed Form ATS-N other than through disclosure on proposed Form ATS-N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part IV, Item 1(a)?
Part IV, Item 1(b) of proposed Form ATS-N would require an NMS Stock ATS to describe the terms and conditions of any contractual agreements for granting access to the NMS Stock ATS for the purpose of effecting transactions in securities or for submitting, disseminating, or displaying orders on the NMS Stock ATS, and to state whether these contractual agreements are written. Furthermore, if the terms and conditions of any contractual agreements are not the same for all subscribers and persons, the NMS Stock ATS would be required to describe any differences. Based on Commission experience, these contractual agreements may or may not be in writing, and the terms and conditions therein can vary among subscribers to the NMS Stock ATSs.
The Commission preliminarily believes that it would be important for all subscribers to have access to all relevant information regarding the terms and conditions for accessing the trading services of the NMS Stock ATS, which today may not always be available to all subscribers. This item would allow subscribers to understand their rights and obligations in connection with their use of the NMS Stock ATS, and allow subscribers and potential subscribers to assess whether other market participants may have access arrangements more favorable than their own. This information is designed to help market participants when evaluating which trading centers they could or would like to access, and on which terms they could seek executions on those trading centers. The Commission preliminarily believes that having such information publicly available would provide efficiencies as market participants could more easily source information about the terms and conditions under which they could trade across NMS Stock ATSs, as well as compare those terms and conditions to those of national securities exchanges. The Commission understands that some NMS Stock ATSs communicate the terms and conditions to access the NMS Stock ATS orally to subscribers, often as part of an onboarding process, and do not provide written contractual agreements. The Commission preliminarily believes that market participants would benefit from knowing whether a written contractual agreement exists that sets forth the terms and conditions for accessing and trading on the NMS Stock ATS. Furthermore, the Commission preliminarily believes that the disclosures that would be required under Item 1(b) would better inform potential subscribers about whether additional inquiry is necessary to fully understand the terms and conditions for trading on the NMS Stock ATS.
265. Do you believe the Commission should require the disclosure of the information on Part IV, Item 1(b) of Form ATS-N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
266. Do you believe Part IV, Item 1(b) of proposed Form ATS-N captures the information that is most relevant to understanding the operations of the NMS Stock ATS related to the terms and conditions of any contractual agreements for granting access to the NMS Stock ATS? Why or why not? Please support your arguments.
267. Is it sufficiently clear what information would be required by Part IV, Item 1(b) of proposed Form ATS-N? Should the item be refined in any way? If so, how? Please be specific.
268. Do you believe there is other information that market participants might find relevant or useful regarding the terms and conditions of any contractual agreements by which access is granted to the services of the NMS Stock ATS? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS-N. Please support your arguments.
269. Do you believe there is any information that would be required by Part IV, Item 1(b) of proposed Form ATS-N that an NMS Stock ATS should not be required to disclose due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? If so, what information and why? Please support your arguments.
270. Do you believe that NMS Stock ATSs commonly have written contractual agreements for granting access to the NMS Stock ATS? Why or why not, and what is the basis for such belief? If not, how is access granted? How are the terms and conditions of trading on the NMS Stock ATS communicated to subscribers? Is there commonly an onboarding process for new subscribers? What does such onboarding process entail? Please explain in detail.
271. Do you believe there are agreements between subscribers and an NMS Stock ATS that are not written? If so, what is the basis for your belief,
272. What are the potential costs and benefits of disclosing the information required by Part IV, Item 1(b) of proposed Form ATS-N? Would the proposed disclosures in Part IV, Item 1(b) of proposed Form ATS-N require an NMS Stock ATS to reveal too much (or not enough) information about its structure and operations? Why or why not? Please support your arguments.
273. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part IV, Item 1(b) of proposed Form ATS-N other than through disclosure on proposed Form ATS-N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part IV, Item 1(b)?
Part IV, Item 1(c) of proposed Form ATS-N would require an NMS Stock ATS to describe the types of subscribers and other persons that use the services of the NMS Stock ATS (
This item would provide information about the types of subscribers to the NMS Stock ATS, or other persons that can enter orders onto the NMS Stock ATS, so that market participants and the Commission would be better informed about the type of order flow that may be present on the NMS Stock ATS. Moreover, this item would, in conjunction with the other disclosure requirements of proposed Form ATS-N regarding differences in access to services or functionality of the NMS Stock ATS, inform market participants of any privileges or restrictions that attach to different categories of subscribers so that subscribers could evaluate which privileges or restrictions might apply to them or the counterparties against which they would be trading.
274. Do you believe the Commission should require the disclosure of the information on Part IV, Item 1(c) of Form ATS-N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
275. Do you believe Part IV, Item 1(c) of proposed Form ATS-N captures the information that is most relevant to understanding the operations of the NMS Stock ATS related to the types of subscribers and other persons that use the services of the NMS Stock ATS? Why or why not? Please support your arguments.
276. Is it sufficiently clear what information would be required by Part IV, Item 1(c) of proposed Form ATS-N? Should the item be refined in any way? If so, how? Please be specific.
277. Do you believe there is other information that market participants might find relevant or useful regarding distinctions made by the NMS Stock ATS among subscribers? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS-N. Please support your arguments.
278. Do you believe there is any information that would be required by Part IV, Item 1(c) of proposed Form ATS-N that an NMS Stock ATS should not be required to disclose due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? If so, what information and why? Please support your arguments.
279. Do you believe that the information that would be required by Part IV, Item 1(c) of proposed Form ATS-N would aid subscribers in evaluating the order flow on the NMS Stock ATS and determining whether they wish to send their orders there for execution? Why or why not? Please support your arguments.
280. What are the potential costs and benefits of disclosing the information required by Part IV, Item 1(c) of proposed Form ATS-N? Would the proposed disclosures in Part IV, Item 1(c) of proposed Form ATS-N require an NMS Stock ATS to reveal too much (or not enough) information about its structure and operations? Why or why not? Please support your arguments.
281. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part IV, Item 1(c) of proposed Form ATS-N other than through disclosure on proposed Form ATS-N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part IV, Item 1(c)?
Part IV, Item 1(d) of proposed Form ATS-N would require an NMS Stock ATS to describe any formal or informal arrangement the NMS Stock ATS has with a subscriber(s) or person(s) to provide liquidity to the NMS Stock ATS (
An NMS Stock ATS may want to ensure that there is sufficient liquidity in a particular NMS stock to incentivize subscribers to send order flow in that NMS stock to the NMS Stock ATS; market participants may believe they are more likely to get an execution because of such liquidity. The Commission understands that some ATSs that trade
Part IV, Item 1(d) of proposed Form ATS-N would also require an NMS Stock ATS to identify any liquidity providers that are affiliates of the broker-dealer operator. The Commission preliminarily believes that market participants would find it useful to know whether the broker-dealer operator itself, or its affiliates, have an arrangement to provide liquidity to the NMS Stock ATS. The Commission preliminarily believes that such information could reveal potential conflicts of interest, if, for example, an NMS Stock ATS were to only permit affiliates to act as liquidity providers and provided significant benefits for performing that function.
282. Do you believe the Commission should require the disclosure of the information on Part IV, Item 1(d) of Form ATS-N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
283. Do you believe Part IV, Item 1(d) of proposed Form ATS-N captures the information that is most relevant to understanding the operations of the NMS Stock ATS related to any formal or informal arrangement the NMS Stock ATS has with a subscriber(s) or person(s) to provide liquidity to the NMS Stock ATS? Why or why not? Please support your arguments.
284. Is it sufficiently clear what information would be required by Part IV, Item 1(d) of proposed Form ATS-N? Should the item be refined in any way? If so, how? Please be specific.
285. Do you believe there is other information that market participants might find relevant or useful regarding arrangements with subscribers or other persons to provide liquidity to the NMS Stock ATS? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS-N. Please support your arguments.
286. Do you believe there is any information that would be required by Part IV, Item 1(d) of proposed Form ATS-N that an NMS Stock ATS should not be required to disclose due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? If so, what information and why? Please support your arguments.
287. Do you believe that the information that would be required by Part IV, Item 1(d) of proposed Form ATS-N would aid subscribers in evaluating the order flow on the NMS Stock ATS and determining whether they wish to send their orders there for execution? Why or why not? Please support your arguments.
288. Do you believe that the proposed requirement in Part IV, Item 1(d) of proposed Form ATS-N that the NMS Stock ATS identify any liquidity providers that are affiliates of the broker-dealer operator would aid subscribers in evaluating potential conflicts of interest of the broker-dealer operator, the order flow on the NMS Stock ATS, and determining whether they wish to send their orders there for execution? Why or why not? Please support your arguments.
289. What are the potential costs and benefits of disclosing the information required by Part IV, Item 1(d) of proposed Form ATS-N? Would the proposed disclosures in Part IV, Item 1(d) of proposed Form ATS-N require an NMS Stock ATS to reveal too much (or not enough) information about its structure and operations? Why or why not? Please support your arguments.
290. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part IV, Item 1(d) of proposed Form ATS-N other than through disclosure on proposed Form ATS-N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part IV, Item 1(d)?
Part IV, Item 1(e) of proposed Form ATS-N would require an NMS Stock ATS to describe the circumstances by which access to the NMS Stock ATS for a subscriber or other person may be limited or denied, and describe any procedures or standards that are used to determine such action. If these circumstances, procedures, or standards are not applicable to all subscribers and persons, the NMS Stock ATS would be required to describe any differences. As an ATS, an NMS Stock ATS cannot exercise SRO powers and may not discipline subscribers other than by excluding them from trading.
291. Do you believe the Commission should require the disclosure of the information on Part IV, Item 1(e) of Form ATS-N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
292. Do you believe Part IV, Item 1(e) of proposed Form ATS-N captures the information that is most relevant to understanding the operations of the NMS Stock ATS related to the circumstances by which access to the NMS Stock ATS for a subscriber or other person may be limited or denied? Please explain.
293. Is it sufficiently clear what information would be required by Part IV, Item 1(e) of proposed Form ATS-N? Should the item be refined in any way? If so, how? Please be specific.
294. Do you believe there is other information that market participants might find relevant or useful regarding the process by which access to an NMS Stock ATS for a subscriber may be limited or denied? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS-N. Please support your arguments.
295. Do you believe there is any information that would be required by Part IV, Item 1(e) of proposed Form ATS-N that an NMS Stock ATS should not be required to disclose due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? If so, what information and why? Please support your arguments.
296. What are the potential costs and benefits of disclosing the information required by Part IV, Item 1(e) of proposed Form ATS-N? Would the proposed disclosures in Part IV, Item 1(e) of proposed Form ATS-N require an NMS Stock ATS to reveal too much (or not enough) information about its structure and operations? Why or why not? Please support your arguments.
297. Do you believe there are circumstances under which NMS Stock ATSs currently limit the functionality available to subscribers due to an action or inaction on the part of a subscriber? If so, what is the basis for your belief, what are those circumstances, and what functionality is typically limited? Is it common for an NMS Stock ATS to deny access to subscribers as opposed to limiting access? Why or why not, and under what circumstances? Please be specific.
298. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part IV, Item 1(e) of proposed Form ATS-N other than through disclosure on proposed Form ATS-N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part IV, Items 1(e)?
Part IV, Item 2(a) of proposed Form ATS-N would require an NMS Stock ATS to provide the days and hours of operation of the NMS Stock ATS, including the times when orders or other trading interest are entered on the NMS Stock ATS and the time when pre-opening or after-hours trading occur. Also, if the times when orders or other trading interest are entered on the NMS Stock are not the same for all subscribers and persons, Part IV, Item 2(b) would require the NMS Stock ATS to describe any differences.
The Commission preliminarily believes that it is important for subscribers and the Commission to have information regarding when NMS Stock ATSs are operating and when orders can be entered on those trading centers, including when an NMS Stock ATS will accept orders outside of standard operating hours. The Commission notes that national securities exchanges' rulebooks, which are publicly available, include such information.
299. Do you believe the Commission should require the disclosure of the information on Part IV, Item 2 of Form ATS-N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
300. Do you believe Part IV, Item 2 of proposed Form ATS-N captures the information that is most relevant to understanding the operations of the NMS Stock ATS related to the days and hours of operation of the NMS Stock ATS? Why or why not? Please support your arguments.
301. Do you believe there is other information that market participants might find relevant or useful regarding the hours of operation of an NMS Stock ATS? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS-N. Please support your arguments.
302. Do you believe that Part IV, Item 2 of proposed Form ATS-N is sufficiently clear with respect to the disclosures that would be required? If not, how should Part IV, Item 2 of proposed Form ATS-N be revised to provide additional clarity? Please explain in detail.
303. Do you believe there is any information that would be required by Part IV, Item 2 of proposed Form ATS-N that an NMS Stock ATS should not be required to disclose due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? If so, what information and why? Please support your arguments.
304. What are the potential costs and benefits of disclosing the information required by Part IV, Item 2 of proposed Form ATS-N? Would the proposed disclosures in Part IV, Item 2 of proposed Form ATS-N require an NMS Stock ATS to reveal too much (or not enough) information about its structure and operations? Why or why not? Please support your arguments.
305. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part IV, Item 2 of proposed Form ATS-N other than through disclosure on proposed Form ATS-N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part IV, Item 2?
Part IV, Item 3(a) of proposed Form ATS-N would require an NMS Stock ATS to describe any types of orders that are entered on the NMS Stock ATS, their characteristics, operations, and how they are handled on the NMS Stock ATS, including: (i) Priority for each order type; (ii) conditions for each order
As discussed above, NMS Stock ATSs offer a wide range of order types and modifiers and offer different minimum order size requirements.
Subsection (ii) of Item 3(a) would require that the NMS Stock ATS describe any conditions for each order type. Such conditions would include: any price conditions, including how the order type is ranked and how price conditions affect the rank and price at which it can be executed; conditions on the display or non-display of an order; or conditions on the execution or routing of orders.
Subsection (iii) of Item 3(a) would require that the NMS Stock ATS describe order types designed not to remove liquidity (
Subsection (iv) of Item 3(a) would require that the NMS Stock ATS describe order types that adjust their price as changes to the order book occur (
Subsection (v) of Item 3(a) would require the NMS Stock ATS to describe the time-in-force instructions that can be used or not used with each order type.
Subsection (vi) of Item 3(a) would require a description of the availability of order types across all forms of connectivity to the NMS Stock ATS and differences, if any, between the availability of order types across those forms of connectivity. For example, if an NMS Stock ATS offers certain order types to persons who connect through the broker-dealer operator, such as through use of a SOR (or similar functionality) or algorithm, as opposed to persons who connect directly through a FIX connection, that difference in availability would need to be described in response to this subsection.
Subsection (vii) of Item 3(a) would require a description of whether the order type is eligible for routing to other trading centers. The response required by this item would be required to include, if it is routable, whether an order type can be used with any routing services offered.
Subsection (viii) of Item 3(a) would require the NMS Stock ATS to describe the circumstances under which order types submitted to the NMS Stock ATS may be combined with a time-in-force or another order type, modified, replaced, canceled, rejected, or removed from the NMS Stock ATS. If an NMS Stock ATS allows a subscriber to combine separate order types, or combine an order type with a time-in-force restriction, both of those instances would be responsive to subsection (viii) of Item 3(a).
Part IV, Item 3(b) of proposed Form ATS-N would require the NMS Stock ATS to describe any differences if the availability of its orders types and their terms and conditions are not the same for all subscribers and persons.
Part IV, Item 3(c) of proposed Form ATS-N would require an NMS Stock ATS to describe any requirements and handling procedures for minimum order sizes, odd-lot orders, or mixed-lot orders. If the requirements and handling procedures for minimum order sizes, odd-lot orders, or mixed-lot orders are not the same for all subscribers and persons, the NMS Stock ATS would also be required to describe any differences. These would include, for example, any order size requirements that may differ based on factors such as the type of subscriber or person that uses the services of the NMS Stock ATS, or the type of order (
The Commission preliminarily believes that a detailed description of the characteristics of the order types of an NMS Stock ATS would assist subscribers in better understanding how their orders would function and interact with other orders on the NMS Stock ATS.
The Commission also preliminarily believes that the disclosures about the characteristics and functions of order types would allow the Commission to better oversee NMS Stock ATSs, and alert the Commission as to whether the function of a particular order type may violate the federal securities laws or the rules or regulations thereunder, such as the requirement under Rule 611 of Regulation NMS that a trading center have policies and procedures reasonably designed to prevent trade-throughs of protected quotations in NMS stocks.
The Commission preliminarily believes this information would also advance the Commission's interest in the protection of investors by allowing subscribers to clearly see the types of orders available to them, as well as potential counterparties, and any differences between the order types, available among participants on the NMS Stock ATS.
As noted above, Part IV, Item 3(b) would require the NMS Stock ATS to describe any differences if the availability of its order types and their terms and conditions are not the same for all subscribers and persons. The Commission preliminarily believes that this information would be important for a market participant to better assess whether other participants on the NMS Stock ATS may receive advantageous or disadvantageous treatment as a result of the ATS's various order types and how that treatment may affect that market participant's trading interest. Information about any disparate treatment of investors also would be important for the Commission as it monitors developments in the national market system.
Part IV, Item 3(c) of proposed Form ATS-N would require an NMS Stock ATS to describe any requirements and handling procedures for minimum order sizes, odd-lot orders, or mixed-lot orders. The NMS Stock ATS would also be required to explain any differences if the requirements and handling procedures for minimum order sizes, odd-lot orders, or mixed-lot orders are not the same for all subscribers and persons. The information that would be required by Item 3(c) is designed to facilitate the entry of orders by subscribers by providing information on minimum order sizes, odd-lot orders, and mixed-lot orders. An explanation of how an NMS Stock ATS's requirements and conditions for minimum order sizes, odd-lot orders, and mixed-lot orders differ among subscribers and persons would also provide a market participant with information regarding how its trading interest would be handled vis-à-vis other market participants. The information that would be required by Item 3(c) would also be useful to the Commission's monitoring of developments in market structure.
306. Do you believe the Commission should require the disclosure of the information on Part IV, Items 3(a) through 3(c) of Form ATS-N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
307. Do you believe Part IV, Items 3(a) through 3(c) of proposed Form ATS-N captures the information that is most relevant to understanding the operations of the NMS Stock ATS related to the types of orders that are entered to the NMS Stock ATS, their characteristics, operations, and how they are handled on the NMS Stock ATS? Please explain.
308. Is it sufficiently clear what information would be required by Part IV, Items 3(a) through 3(c) of proposed Form ATS-N? Should the items be refined in any way? If so, how? Please be specific.
309. Do you believe the proposed requirement to disclose the information that would be required by Part IV, Item 3(a) of proposed Form ATS-N could impact innovation on NMS Stock ATSs? Why or why not? Please support your arguments.
310. Do you believe there is other information that market participants might find relevant or useful regarding the types of orders that are entered to the NMS Stock ATS, their characteristics, operations, and how they are handled on the NMS Stock ATS? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS-N. Please support your arguments.
311. Do you believe there is any information that would be required by Part IV, Items 3(a) through 3(c) of proposed Form ATS-N that an NMS Stock ATS should not be required to disclose due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? If so, what information and why? Please support your arguments.
312. Do you believe there are any other aspects of order types that an NMS Stock ATS should be required to disclose in a subpart to Part IV, Item 3(a) of proposed Form ATS-N that have not been identified? If so, what? Do you believe there are other order types about which the Commission should ask specifically? If so, what order types? Please explain in detail.
313. Should the Commission require greater specificity regarding the operation of order types? If so, why and how? If not, why not? Please support your arguments.
314. Do you believe that information relating to available order types would help market participants in determining the best trading venue for their orders? Why or why not? Please support your arguments.
315. Do you believe that Items 3(a) through 3(c) of Part IV of proposed Form ATS-N would advance the Commission's interest in the protection of investors by allowing market participants to consider the types of orders available to them, as well as potential counterparties, and any differences between the order types, modifiers, and size requirements
316. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part IV, Items 3(a) through 3(c) of proposed Form ATS-N other than through disclosure on proposed Form ATS-N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part IV, Items 3(a) through 3(c)?
317. What are the potential costs and benefits of disclosing the information required by Part IV, Items 3(a) through 3(c) of proposed Form ATS-N? Would the proposed disclosures in Part IV, Items 3(a) through 3(c) of proposed Form ATS-N require an NMS Stock ATS to reveal too much (or not enough) information about its structure and operations? Why or why not? Please support your arguments.
318. Do you believe that Part IV, Item 3(a) of proposed Form ATS-N should require a description of priority for each order type? Why or why not? Please support your answer.
319. Do you believe that Part IV, Item 3(a) of proposed Form ATS-N should require a description of any conditions for each order type? Why or why not? Please support your answer.
320. Do you believe that Part IV, Item 3(a) of proposed Form ATS-N should require a description of order types designed not to remove liquidity? Why or why not? Please support your answer.
321. Do you believe that Part IV, Item 3(a) of proposed Form ATS-N should require a description of order types that adjust their price as changes to the order book occur or have a discretionary range? Why or why not? Please support your answer.
322. Do you believe that Part IV, Item 3(a) of proposed Form ATS-N should require a description of the time-in-force instructions for each order type? Why or why not? Please support your answer.
323. Do you believe that Part IV, Item 3(a) of proposed Form ATS-N should require a description of the availability of order types across all forms of connectivity to the NMS Stock ATS? Why or why not? Please support your answer.
324. Do you believe that Part IV, Item 3(a) of proposed Form ATS-N should require a description of whether order types are eligible for routing to other trading centers? Why or why not? Please support your answer.
325. Do you believe that Part IV, Item 3(a) of proposed Form ATS-N should require a description of the circumstances under which order types may be combined with a time-in-force or another order type, modified, replaced, canceled, rejected, or removed from the NMS Stock ATS? Why or why not? Please support your answer.
Part IV, Item 3(d) of proposed Form ATS-N would require an NMS Stock ATS to describe any messages sent to or received by the NMS Stock ATS indicating trading interest (
This item is designed to provide specific information about the use of IOIs, actionable IOIs, conditional orders, and similar functionalities on the NMS Stock ATS. Based on the Commission's experience, IOIs are used by NMS Stock ATSs to convey trading interest available on those trading centers. Some NMS Stock ATSs also transmit “actionable” IOIs to selected market participants for the purpose of attracting contra-side order flow to the ATS. In general, an actionable IOI is an IOI containing enough information to effectively alert the recipient about the details of the NMS Stock ATS's trading interest in a security. While an actionable IOI may not explicitly specify the price and/or size of the trading interest, the practical context in which it is submitted alerts the recipient about the side (buy or sell), size (minimum of a round lot of trading interest), and price (at or better than the NBBO, depending on the side of the order).
Conditional orders are also messages indicating a trading interest on a trading venue, and conditional orders generally function in a similar manner to IOIs. A conditional order may contain the same attributes as other order types when a subscriber enters it onto the trading venue (
The Commission preliminarily believes that understanding the manner in which NMS Stock ATSs use IOIs, actionable IOIs, conditional orders, and similar functionalities could be useful to market participants because it could impact the potential execution of a subscriber's trading interest. Also, because an actionable IOI conveys substantial information, the potential for information leakage could be a concern to NMS Stock ATS subscribers using IOIs, particularly when they are seeking to execute large-sized orders. In the Commission's experience, NMS Stock ATSs generally send IOIs and other conditional orders only to certain market participants. Accordingly, the disclosures that would be required by Item 3(d) are designed to help market participants better evaluate whether messages indicating trading interest (including IOIs, actionable IOIs, and conditional orders) are equally available to them as compared to other market participants and would be appropriate tools to accomplish their investing or trading objectives.
326. Do you believe the Commission should require the disclosure of the information on Part IV, Item 3(d) of Form ATS-N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
327. Do you believe Part IV, Item 3(d) of proposed Form ATS-N captures the information that is most relevant to understanding the operations of the NMS Stock ATS related to any messages sent to or received by the NMS Stock ATS indicating trading interest? Please explain.
328. Is it sufficiently clear what information would be required by Part IV, Item 3(d) of proposed Form ATS-N? Should the item be refined in any way? If so, how? Please be specific.
329. Do you believe there is other information that market participants might find relevant or useful regarding messages indicating trading interest (
330. Do you believe there are other types of messages that communicate
331. Do you believe there is any information that would be required by Part IV, Item 3(d) of proposed Form ATS-N that an NMS Stock ATS should not be required to disclose due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? If so, what information and why? Please support your arguments.
332. Do you believe that there is potential concern for information leakage from the use of IOIs, particularly actionable IOIs on NMS Stock ATSs? If so, would disclosure about their operation on proposed Form ATS-N be an appropriate manner in which to mitigate any concern? If not, why not? Please support your arguments.
333. What are the potential costs and benefits of disclosing the information required by Part IV, Item 3(d) of proposed Form ATS-N? Would the proposed disclosures in Part IV, Item 3(d) of proposed Form ATS-N require an NMS Stock ATS to reveal too much (or not enough) information about its structure and operations? Why or why not? Please support your arguments.
334. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part IV, Item 3(d) of proposed Form ATS-N other than through disclosure on proposed Form ATS-N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part IV, Item 3(d)?
Part IV Item 4(a) of proposed Form ATS-N would require the NMS Stock ATS to describe the means by which subscribers or other persons connect to the NMS Stock ATS and enter orders or other trading interest on the NMS Stock ATS (
Based on Commission experience reviewing Forms ATS, subscribers send orders or other trading interest to the NMS Stock ATS both directly and indirectly. A direct method of sending orders or other trading interest to an ATS that trades NMS stocks, for example, may include the use of the FIX Protocol. The FIX Protocol allows subscribers to enter orders or other trading interest into the ATS without an intermediary. To the extent that a subscriber connects to the NMS Stock ATS by way of a FIX connection and an order sent by that subscriber passes through an intermediate application or functionality on its way to the NMS Stock ATS, the NMS Stock ATS should identify the application or functionality and provide a description of its purpose.
The disclosures regarding the direct or indirect means of order entry could be important to subscribers because they would provide information about the possible methods to reach the NMS Stock ATS and applicable system requirements necessary to send orders or other trading interest to the NMS Stock ATS. This information would also alert subscribers to the NMS Stock ATS as to whether trading interest can be entered on the NMS Stock ATS through the broker-dealer operator, which would allow subscribers to assess any potential advantages that orders sent through the broker-dealer operator may have with respect to other subscribers on the NMS Stock ATS.
The disclosure of the information required for order entry on the NMS Stock ATS, such as limit price, size, and/or side of the market, would inform all subscribers to the NMS Stock ATS about how to transmit orders or other trading interest to the NMS Stock ATS. The Commission preliminarily believes that understanding this information may expedite the order entry process of subscribers. The Commission, as part of its monitoring of developments in market structure, also could use this disclosure to better understand what information allows for the interaction of trading interest.
The Commission preliminarily believes that requiring NMS Stock ATSs to disclose any differences if the terms and conditions for connecting and entering orders or other trading interest on the NMS Stock ATS are not the same for all subscribers and persons would allow market participants to source the various order entry procedures offered by NMS Stock ATSs as part of evaluating an NMS Stock ATS as a potential destination for them to route their orders for execution.
335. Do you believe the Commission should require the disclosure of the information on Part IV, Item 4(a) of Form ATS-N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
336. Do you believe Part IV, Item 4(a) of proposed Form ATS-N captures the information that is most relevant to understanding the operations of the NMS Stock ATS related to the means by which subscribers or other persons connect to the NMS Stock ATS and enter orders or other trading interest on the NMS Stock ATS? Please explain.
337. Is it sufficiently clear what information would be required by Part IV, Item 4(a) of proposed Form ATS-N? Should the item be refined in any way? If so, how? Please be specific.
338. What are the direct and indirect means through which subscribers and other persons can send orders or other trading interest to the NMS Stock ATS? Do you believe there any means for which the Commission should specifically request information in Part IV, Item 4(a) of proposed Form ATS-N? If so, please explain how those means to send orders or other trading interest are used by subscribers and other persons.
339. Do you believe there are any methods of sending orders or other trading interest to NMS Stock ATSs that are more advantageous than others? If so, please explain how such methods provide advantages to subscribers or other persons who use them. Should those advantages, if any, be specifically disclosed?
340. Do you believe there is other information that market participants might find relevant or useful regarding the means by which subscribers can send orders or other trading interest to the NMS Stock ATS? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS-N. Please support your arguments.
341. Do you believe there is any information that would be required by Part IV, Item 4(a) of Proposed Form ATS-N that an NMS Stock ATS should not be required to disclose due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? Why or why not? Please support your arguments.
342. Do you believe that the information that would be required by Part IV, Item 4(a) of proposed Form ATS-N could be important to market participants in assessing any potential advantages that orders sent through the broker-dealer operator may have over other market participants on the NMS Stock ATS? Why or why not? Please support your arguments.
343. Do you believe that the information that would be required by Part IV, Item 4(a) of proposed Form ATS-N would be important to market participants when deciding whether to trade on an NMS Stock ATS and would assist them in devising appropriate trading strategies to help accomplish their investing or trading objectives? Why or why not? Please support your arguments.
344. What are the potential costs and benefits of disclosing the information required by Part IV, Item 4(a) of proposed Form ATS-N? Would the proposed disclosures in Part IV, Item 4(a) of proposed Form ATS-N require an NMS Stock ATS to reveal too much (or not enough) information about its structure and operations? Why or why not? Please support your arguments.
345. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part IV, Item 4(a) of proposed Form ATS-N other than through disclosure on proposed Form ATS-N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part IV, Item 4(a)?
Part IV Item 4(b) of proposed Form ATS-N would require that the NMS Stock ATS describe any co-location services or any other means by which any subscriber or other persons may enhance the speed by which to send or receive orders, trading interest, or messages to or from the NMS Stock ATS and the terms and conditions of co-location services. If the terms and conditions of the co-location services are not the same for all subscribers and persons, Part IV, Item 4(b) would require the NMS Stock ATS to describe any differences. Co-location is the placement of a user's systems in close physical proximity to the trading and execution system of a trading venue to reduce latency and enhance speed. The description of co-location services that could enhance the speed of orders and messages and the terms and conditions thereof would allow subscribers to evaluate these services and determine whether they would like to subscribe to such services if available. Moreover, subscribers and potential subscribers would know that others can use a co-location service even if they determine not to use it themselves, which would assist them in devising appropriate trading strategies if they choose to participate.
The proposed requirement that the NMS Stock ATS describe any differences in the terms and conditions of an NMS Stock ATS's co-location services among subscribers or other persons also could help inform the trading strategies chosen by subscribers. Information on such connectivity and co-location options would further the Commission's understanding of the dynamics of the markets and overall market structure for NMS stocks. In addition, this information would allow the Commission to evaluate whether the NMS Stock ATS is unreasonably prohibiting or limiting any person with respect to the access to services offered by the NMS Stock ATS in contravention of Rule 301(b)(5) of Regulation ATS for those NMS Stock ATSs that have surpassed the applicable trading volume thresholds.
346. Do you believe the Commission should require the disclosure of the information on Part IV, Item 4(b) of Form ATS-N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
347. Do you believe Part IV, Item 4(b) of proposed Form ATS-N captures the information that is most relevant to understanding the operations of the NMS Stock ATS related to co-location services or any other means by which any subscriber or other persons may enhance the speed by which to send or receive orders, trading interest, or messages to or from the NMS Stock ATS? Please explain.
348. Is it sufficiently clear what information would be required by Part IV, Item 4(b) of proposed Form ATS-N? Should the item be refined in any way? If so, how? Please be specific.
349. Do you believe there is other information that market participants might find relevant or useful regarding co-location services by which a subscriber may enhance the speed that it may submit orders or send and receive messages? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS-N. Please support your arguments.
350. Do you believe there is any information that would be required by Part IV, Item 4(b) of proposed Form ATS-N that an NMS Stock ATS should not be required to disclose due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? Why or why not? Please support your arguments.
351. Do believe that the information that would be required by Part IV, Item 4(b) of proposed Form ATS-N would be useful to market participants when deciding whether to trade on an NMS Stock ATS and would assist them in devising appropriate trading strategies to help accomplish their investing or trading objectives? Why or why not? Please support your arguments.
352. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part IV, Item 4(b) of proposed Form ATS-N other than through disclosure on proposed Form ATS-N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part IV, Item 4(b)?
353. What are the potential costs and benefits of disclosing the information required by Part IV, Item 4(b) of proposed Form ATS-N? Would the proposed disclosures in Part IV, Item 4(b) of proposed Form ATS-N require an NMS Stock ATS to reveal too much (or not enough) information about its structure and operations? Why or why not? Please support your arguments.
Part IV, Item 5(a) of proposed Form ATS-N would require an NMS Stock ATS to describe any segmentation of orders or other trading interest on the NMS Stock ATS (
Based on Commission experience, some NMS Stock ATSs segment order flow entered on the NMS Stock ATS according to various categories and allow subscribers to select the type of persons or order flow they want to trade or not trade against. An NMS Stock ATS may segment trading interest by type of participant (
This item would require that an NMS Stock ATS disclose the segmented categories, the criteria used to segment these categories, and procedures for determining, evaluating, and changing segmented categories. This would include, for example, any modification or overriding of an existing segmented category and a description of how existing subscribers in the segmented category would be handled and notified. This item would provide market participants with an understanding of the categories of order flow or types of market participants with which they may interact and allow them to both assess the consistency of a segmented group and determine whether the manner in which the trading interest is segmented comports with its views of how certain trading interest should be categorized. Disclosure of the procedures and criteria used to segment categories would allow a market participant to determine whether its view of what constitutes certain trading interest it wants to seek or avoid is classified in the same way by the NMS Stock ATS. For example, a subscriber may find it useful to understand the metrics or criteria an NMS Stock ATS uses to categorize high frequency trading firms so that it can compare the criteria used by the NMS Stock ATS with its view of what constitutes a high frequency trading firm, and thus be able to successfully trade against or avoid such trading interest. Similarly, information regarding the procedures applicable to trading among segmented categories would allow market participants to evaluate whether they can successfully trade against or avoid the segments of trading interest they desire.
In addition, disclosure of any differences in the segmentation among participants would allow subscribers to more clearly note if certain persons are, for instance, not subject to segmentation in the same way as other persons, or not subject to segmentation at all and able to trade against all order flow. All participants would have access to the same information as to how the NMS Stock ATS segments order flow, and whether the segmentation criteria are applied by the NMS Stock ATS uniformly.
354. Do you believe the Commission should require the disclosure of the information on Part IV, Item 5(a) of Form ATS-N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
355. Do you believe Part IV, Item 5(a) of proposed Form ATS-N captures the information that is most relevant to understanding the operations of the NMS Stock ATS related to segmentation of orders or other trading interest on the NMS Stock ATS? Please explain.
356. Is it sufficiently clear what information would be required by Part IV, Item 5(a) of proposed Form ATS-N? Should the item be refined in any way? If so, how? Please be specific.
357. Do you believe there is other information that market participants might find relevant or useful regarding segmentation of order flow on the NMS Stock ATS? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS-N. Please support your arguments.
358. Do you believe there is any information that would be required by Part IV, Item 5(a) of proposed Form ATS-N that an NMS Stock ATS should not be required to disclose due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? Why or why not? Please support your arguments.
359. Do you believe there are any forms or types of order segmentation that would not be captured by Part IV, Item 5(a) of proposed Form ATS-N or should be addressed separately? If so, please provide a detailed explanation of how orders are segmented under such functionalities on NMS Stock ATSs.
360. What are the potential costs and benefits of disclosing the information required by Part IV, Item 5(a) of proposed Form ATS-N? Would the proposed disclosures in Part IV, Item 5(a) of proposed Form ATS-N require an NMS Stock ATS to reveal too much (or not enough) information about its structure and operations? Why or why not? Please support your arguments.
361. Do you believe there are other ways to obtain the same information as
Part IV, Item 5(b) of proposed Form ATS-N would require the NMS Stock ATS to state whether the NMS Stock ATS informs subscribers or persons about the segmentation category that a subscriber or a person is assigned and to describe any notice provided to subscribers or persons about the segmentation category that they are assigned and the segmentation identified in Part IV, Item 5(a), including the content of any notice and the means by which any notice is communicated. Also, an NMS Stock ATS would be required to describe any differences if the notice is not the same for all subscribers and persons. As discussed above, an NMS Stock ATS can elect to segment its order flow entered on the NMS Stock ATS according to various categories and allow subscribers and other persons to select the type of persons or order flow they want to trade or not trade against. Based on the experience of the Commission and its staff, ATSs provide subscribers with limited information about how they segment order flow and do not always inform subscribers about the categories into which they are segmented. A market participant that is unaware of its segmented category may not know about the order flow it is trading against, and therefore, the Commission preliminarily believes that market participants trading on an NMS Stock ATS would want to know about their assigned segmented categories and understand how those categories were determined.
362. Do you believe the Commission should require the disclosure of the information on Part IV, Item 5(b) of Form ATS-N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
363. Do you believe Part IV, Item 5(b) of proposed Form ATS-N captures the information that is most relevant to understanding the operations of the NMS Stock ATS related to informing subscribers or persons about the segmentation category that a subscriber or a person is assigned? Please explain.
364. Is it sufficiently clear what information would be required by Part IV, Item 5(b) of proposed Form ATS-N? Should the item be refined in any way? If so, how? Please be specific.
365. Do you believe there is any information that would be required by Part IV, Item 5(b) of proposed Form ATS-N that an NMS Stock ATS should not be required to disclose due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? Why or why not? Please support your arguments.
366. Do you believe there is any specific information that the Commission should require NMS Stock ATSs to disclose to each subscriber with regard to how it segments each subscriber's orders? If so, explain what information and why. Please support your arguments.
367. Do you believe transparency with respect to how an NMS Stock ATS notifies subscribers regarding how those subscribers' trading interests are segmented is useful to market participants when deciding whether to trade on the NMS Stock ATS and would assist them in devising appropriate trading strategies to help accomplish their investing or trading objectives? If not, why? Please support your arguments.
368. What are the potential costs and benefits of disclosing the information required by Part IV, Item 5(b) of proposed Form ATS-N? Would the proposed disclosures in Part IV, Item 5(b) of proposed Form ATS-N require an NMS Stock ATS to reveal too much (or not enough) information about its structure and operations? Why or why not? Please support your arguments.
369. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part IV, Item 5(b) of proposed Form ATS-N other than through disclosure on proposed Form ATS-N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part IV, Item 5(b)?
Part IV, Item 5(c) of proposed Form ATS-N would require an NMS Stock ATS to describe any means and the circumstances by which a subscriber, the broker-dealer operator, or any of its affiliates may designate an order or trading interest submitted to the NMS Stock ATS to interact or not to interact with specific orders, trading interest, or persons on the NMS Stock ATS (
The Commission preliminarily believes that it is important for market participants to understand whether—and how—they may designate their orders or other trading interest to avoid interacting with specific orders, trading interest, or persons on an NMS Stock ATS. The Commission preliminarily believes that this understanding would help market participants better evaluate the NMS Stock ATS as a potential trading venue. For instance, if a market participant seeks to avoid interacting with an order type that is commonly employed as part of certain trading strategies, the Commission preliminarily believes that the disclosures required under Item 5(c) would better enable that market participant to determine whether submitting order flow to a particular NMS Stock ATS would allow it to carry out its own trading strategy. Similarly, if a market participant would find it desirable to be able to designate an order submitted to the NMS Stock ATS to interact with specific orders resting
370. Do you believe the Commission should require the disclosure of the information on Part IV, Item 5(c) of Form ATS-N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
371. Do you believe Part IV, Item 5(c) of proposed Form ATS-N captures the information that is most relevant to understanding the operations of the NMS Stock ATS related to the means and the circumstances by which a subscriber, the broker-dealer operator, or any of its affiliates may designate an order or trading interest submitted to the NMS Stock ATS to interact or not to interact with specific orders, trading interest, or persons on the NMS Stock ATS? Please explain.
372. Do you believe there is other information that market participants might find relevant or useful regarding the means and the circumstances by which a subscriber, the broker-dealer operator, or any of its affiliates may designate an order or trading interest submitted to the NMS Stock ATS to interact or not to interact with specific orders, trading interest, or persons on the NMS Stock ATS? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS-N. Please support your arguments.
373. Is it sufficiently clear what information would be required by Part IV, Item 5(c) of proposed Form ATS-N? Should the item be refined in any way? If so, how? Please be specific.
374. Do you believe there is any information that would be required by Part IV, Item 5(c) of proposed Form ATS-N that an NMS Stock ATS should not be required to disclose due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? Why or why not? Please support your arguments.
375. Should the requirement to describe the means by which persons, orders, or trading interest may be sought or avoided on an NMS Stock ATS be refined in any way? Please be specific.
376. Does the process for seeking or avoiding specific orders, persons, or trading interest raise any other market structure issues or concerns that the Commission should consider? Please be specific.
377. What are the potential costs and benefits of disclosing the information required by Part IV, Item 5(c) of proposed Form ATS-N? Would the proposed disclosures in Part IV, Item 5(c) of proposed Form ATS-N require an NMS Stock ATS to reveal too much (or not enough) information about its structure and operations? Why or why not? Please support your arguments.
378. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part IV, Item 5(c) of proposed Form ATS-N other than through disclosure on proposed Form ATS-N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part IV, Item 5(c)?
Part IV, Item 6(a) of proposed Form ATS-N would require that an NMS Stock ATS describe any means and circumstances by which orders or other trading interest on the NMS Stock ATS are displayed or made known outside the NMS Stock ATS and the information about the orders and trading interest that are displayed. Also, if the display of orders or other trading interest is not the same for all subscribers and persons, the NMS Stock ATS would be required to describe any differences. Part IV, Item 6(b) of proposed Form ATS-N would also require the NMS Stock ATS to identify the subscriber(s) or person(s) (in the case of a natural person, to identify only the position or title) to whom the orders and trading interest are displayed or otherwise made known.
As discussed more fully above,
The Commission preliminarily believes that when an NMS Stock ATS sends electronic messages outside of the NMS Stock ATS that expose the presence of orders or other trading interest on the NMS Stock ATS, it is displaying or making known orders or other trading interest on the NMS Stock ATS. For instance, an NMS Stock ATS may send to subscribers or other persons a direct data feed from the NMS Stock ATS that contains real-time information about current quotes, orders or other trading interest on the NMS Stock ATS. Accordingly, it would be responsive to this item for the NMS Stock ATS to disclose the circumstances under which the NMS Stock ATS would send these messages, the persons that received them, and the information contained in the messages, including the symbol or any other information relating to trading interest on the NMS Stock ATS. The NMS Stock ATS would need to disclose the information required by this item, including the exact content of the information, such as symbol, price, size, attribution, or any other information made known. The Commission preliminarily believes that disclosures in response to this item are important because the information disclosed would provide market participants with advance notice of the potential display of their orders or other trading interest outside of the NMS Stock ATS.
379. Do you believe the Commission should require the disclosure of the information on Part IV, Item 6 of Form ATS-N? Why or why not? If so, what level of detail should be disclosed? Please be specific
380. Do you believe Part IV, Item 6 of proposed Form ATS-N captures the information that is most relevant to understanding the operations of the NMS Stock ATS related to the means and circumstances by which orders or other trading interest on the NMS Stock ATS are displayed or made known outside the NMS Stock ATS and the information about the orders and trading interest that are displayed? Please explain.
381. What are the means through which NMS Stock ATSs currently display or make known trading interest? Do you believe any of these means raise any concerns? If so, why? Please support your arguments. Do you believe that Part IV, Item 6 of proposed Form ATS-N would mitigate any of those concerns through the disclosure of responsive information? Why or why not? Please support your arguments.
382. Is it sufficiently clear what information would be required by Part IV, Item 6 of proposed Form ATS-N? Should the item be refined in any way? If so, how? Please be specific.
383. Do you believe there is other information that market participants might find relevant or useful regarding orders or other trading interest on the NMS Stock ATS that are displayed or otherwise made known outside the NMS Stock ATS? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS-N. Please support your arguments.
384. Do you believe there is any information that would be required by Part IV, Item 6 of proposed Form ATS-N that an NMS Stock ATS should not be required to disclose due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? Why or why not? Please support your arguments.
385. What are the potential costs and benefits of disclosing the information required by Part IV, Item 6 of proposed Form ATS-N? Would the proposed disclosures in Part IV, Item 6 of proposed Form ATS-N require an NMS Stock ATS to reveal too much (or not enough) information about its structure and operations? Why or why not? Please support your arguments.
386. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part IV, Item 6 of proposed Form ATS-N other than through disclosure on proposed Form ATS-N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part IV, Item 6?
Part IV, Item 7(a) of proposed Form ATS-N would require an NMS Stock ATS to describe the means or facilities used by the NMS Stock ATS to bring together the orders of multiple buyers and sellers, including the structure of the market (
This item is primarily designed to inform market participants and the Commission about an NMS Stock ATS's market and the facilities and mechanisms that it uses to match counterparties. Part IV, Item 7(a) of proposed Form ATS-N would require a description, with specificity, of the facilities and mechanisms into which subscribers enter orders and how orders entered into these facilities and mechanisms would interact. The Commission has previously explained that a trading center brings together orders when orders entered into the system for a given security have the opportunity to interact with other orders entered into the system for the same security.
Based on Commission experience, ATSs that trade NMS stocks use various types of trading mechanisms. For example, many ATSs bring together multiple buyers and sellers using limit order matching systems. Other ATSs use crossing mechanisms that allow participants to enter unpriced orders to buy and sell securities, with the ATS's system crossing orders at specified times at a price derived from another market.
The Commission preliminarily believes that the disclosures required under Part IV, Item 7(a) would be useful to market participants when evaluating whether or not to route orders to a particular NMS Stock ATS. At times, market participants may route orders to a trading venue with certain characteristics to accomplish a particular trading strategy. For instance, a market participant aiming to execute a block transaction may seek out a trading platform that operates a block crossing network with specialized size discovery mechanisms and controls for information leakage. At the same time, a different market participant may seek to use an NMS Stock ATS's auction
387. Do you believe the Commission should require the disclosure of the information on Part IV, Item 7(a) of Form ATS-N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
388. Do you believe Part IV, Item 7(a) of proposed Form ATS-N captures the information that is most relevant to understanding the operations of the NMS Stock ATS related to the means or facilities used by the NMS Stock ATS to bring together the orders of multiple buyers and sellers, including the structure of the market? Please explain.
389. Is it sufficiently clear what information would be required by Part IV, Item 7(a) of proposed Form ATS-N? Should the item be refined in any way? If so, how? Please be specific.
390. Do you believe there is other information that market participants might find relevant or useful regarding the means or facilities used by the NMS Stock ATS to bring together the orders of multiple buyers and sellers? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS-N. Please support your arguments.
391. Do you believe there is any information that would be required by Part IV, Item 7(a) of proposed Form ATS-N that an NMS Stock ATS should not be required to disclose due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? Why or why not? Please support your arguments.
392. Are there particular means or facilities for bringing together the orders of multiple buyers and sellers on which the Commission should request information specifically that is not included as a component under Part IV, item 7(a) of proposed Form ATS-N?
393. What are the potential costs and benefits of disclosing the information required by Part IV, Item 7(a) of proposed Form ATS-N? Would the proposed disclosures in Part IV, Item 7(a) of proposed Form ATS-N require an NMS Stock ATS to reveal too much (or not enough) information about its structure and operations? Why or why not? Please support your arguments.
394. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part IV, Item 7(a) of proposed Form ATS-N other than through disclosure on proposed Form ATS-N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part IV, Item 7(a)?
Part IV, Item 7(b) of Form ATS-N would require an NMS Stock ATS to describe the established, non-discretionary methods that dictate the terms of trading among multiple buyers and sellers on the facilities of the NMS Stock ATS, including rules and procedures governing the priority, pricing methodologies, allocation, matching, and execution of orders and other trading interest. If these rules and procedures are not the same for all subscribers and persons, the NMS Stock ATS would be required to describe any differences.
Part IV, Item 7(b) of proposed Form ATS-N is primarily designed to inform market participants about how orders interact on an NMS Stock ATS upon being entered into the system. Item 7(b) would require a description, with specificity, of all rules and procedures relevant to order interaction and execution, such as those addressing order priority, pricing methodologies, allocation, matching, and execution of orders and other trading interest. The Commission previously explained in the Regulation ATS Adopting Release that use of established, non-discretionary methods could include operation of a trading facility or the setting of rules governing the trading of subscribers.
Based on Commission experience, NMS Stocks ATSs employ various terms and conditions under which orders interact and match. As noted above, some NMS Stock ATSs may offer price-time priority to determine how to match orders (potentially with various exceptions), while other NMS Stock ATSs may offer midpoint-only matching with time priority.
Part IV, Item 7(c) of proposed Form ATS-N would require an NMS Stock ATS to describe any trading procedures related to price protection mechanisms, short sales, locked-crossed markets, the handling of execution errors, time-stamping of orders and executions, or price improvement functionality. If the trading procedures are not the same for all subscribers and persons, the NMS Stock ATS would also be required to describe any differences. Some ATSs that trade NMS stocks apply various methods to determine an execution price based on the circumstances of the match. For example, an ATS may price an execution of a midpoint pegged order with a limit or market order at the midpoint of the NBBO. An ATS executing a match of two limit orders, or a limit and market order, might price the execution at or within the NBBO, with the possibility of offering the limit order(s) price improvement. On the other hand, an ATS that operates a block crossing network, with specialized size discovery mechanisms, might calculate a volume-weighted average price after the final size of the execution has been determined.
In the Commission's experience, NMS Stock ATSs have also adopted other trading procedures governing the execution of orders, which the NMS Stock ATS would be required to explain under Part IV, Item 7(c) of proposed
Furthermore, under Part IV, Item 7(c) of proposed Form ATS-N, an NMS Stock ATS would also be required to describe any protocols for time-stamping orders and executions to ensure compliance with the Exchange Act and the rules and regulations thereunder and any execution procedures related to price improvement. For example, if an NMS Stock ATS has procedures to reprice orders under its price protection mechanisms, to reprice short sale orders to ensure compliance with Regulation SHO, or to reprice orders due to price-sliding order types (such as certain pegged order types), it would be required to explain when it creates new timestamps for such re-priced orders.
The Commission preliminarily believes that information about how an NMS Stock ATS prices and matches orders is useful to market participants' and the Commission's understanding of that trading center's operation. The Commission preliminarily believes that the information required under Part IV, Items 7(b) and 7(c) of proposed Form ATS-N would allow market participants to evaluate the terms and conditions under which their orders will interact and execute on an NMS Stock ATS, and would thus provide them with a better opportunity to determine whether that NMS Stock ATS is the appropriate trading destination for their orders. For example, a market participant whose order would be given a higher priority on an NMS Stock ATS based on its subscriber class may choose to first route its order to that venue, whereas a market participant seeking to enter a conditional order may choose to route an order based on an NMS Stock ATS's specific priority rules governing conditional orders. Likewise, market participants likely would want to know whether an NMS Stock ATS applies price protection mechanisms, or other standards, that could re-price an order or prevent it from executing under certain conditions. In addition, the Commission preliminarily believes that the information provided in response to Items 7(a), 7(b), and 7(c) would allow the Commission to more easily evaluate whether the entity that filed the proposed Form ATS-N meets the criteria of Rule 3b-16 and the definition of an NMS Stock ATS.
395. Do you believe the Commission should require the disclosure of the information on Part IV, Items 7(b) and 7(c) of Form ATS-N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
396. Do you believe Part IV, Item 7(b) of proposed Form ATS-N captures the information that is most relevant to understanding the operations of the NMS Stock ATS related to the established, non-discretionary methods that dictate the terms of trading among multiple buyers and sellers on the facilities of the NMS Stock ATS, including rules and procedures governing the priority, pricing methodologies, allocation, matching, and execution of orders and other trading interest? Please explain.
397. Do you believe Part IV, Item 7(c) of proposed Form ATS-N captures the information that is most relevant to understanding the operations of the NMS Stock ATS regarding the trading procedures related to price protection mechanisms, short sales, locked-crossed markets, the handling of execution errors, time-stamping of orders and executions, or price improvement functionality? Please explain.
398. Is it sufficiently clear what information would be required by Part IV, Items 7(b) and 7(c) of proposed Form ATS-N? Should these items be refined in any way? If so, how? Please be specific.
399. Do you believe there is other information that market participants might find relevant or useful regarding the established non-discretionary methods that dictate the terms of trading among multiple buyers and sellers on the market or facilities of an NMS Stock ATS? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS-N. Please support your arguments.
400. Do you believe there is other information that market participants might find relevant or useful regarding trading procedures related to price protection mechanisms, short sales, locked-crossed markets, the handling of execution errors, time-stamping of orders and executions, or price improvement functionality on an NMS Stock ATS? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS-N. Please support your arguments.
401. Do you believe there is any information that would be required by Part IV, Items 7(b) and 7(c) of proposed Form ATS-N that an NMS Stock ATS should not be required to disclose due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? Why or why not? Please support your arguments.
402. Are there any aspects of the non-discretionary methods that dictate the terms of trading among buyers and sellers on which the Commission should specifically require information that is not included as a component under Part IV, Item 7(b) of proposed Form ATS-N?
403. What are the potential costs and benefits of disclosing the information required by Part IV, Items 7(b) and 7(c) of proposed Form ATS-N? Would the proposed disclosures in Part IV, Items 7(b) and 7(c) of proposed Form ATS-N require an NMS Stock ATS to reveal too much (or not enough) information about its structure and operations? Why or why not? Please support your arguments.
404. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part IV, Items 7(b) and 7(c) of proposed Form ATS-N other than through disclosure on proposed Form
Part IV, Item 8 of proposed Form ATS-N would require an NMS Stock ATS to describe any procedures governing trading in the event the NMS Stock ATS suspends trading or experiences a system disruption or malfunction. In addition, if the procedures governing trading during a suspension or system disruption or malfunction are not the same for all subscribers and persons, the NMS Stock ATS would be required to describe any differences. This item is designed to inform market participants of whether, among other things, an NMS Stock ATS will continue to accept orders after suspension or system malfunction or disruption occurs, whether the NMS Stock ATS routes, holds, or continues to execute orders resting in the system prior to the disruption, and the type of notice the NMS Stock ATS provides to subscribers and other market participants during a suspension or system disruption or malfunction. Examples of system disruptions would include, but are not limited to, internal software problems that prevent the NMS Stock ATS's system from opening or continuing trading,
The Commission preliminarily believes that information regarding an NMS Stock ATS's procedures on how orders may be handled during a suspension of trading or system disruption or malfunction would be useful to market participants because such an event might preclude the NMS Stock ATS from accepting and/or executing time sensitive orders and could impact the price the subscriber receives. The information about how an NMS Stock ATS would handle orders under such circumstances would better inform a subscriber's trading decisions at the time of such an event and thus help that subscriber accomplish its investing or trading objectives.
Information regarding the procedures for how an NMS Stock ATS would handle orders during a suspension of trading or system disruption or malfunction would also help the Commission better monitor the securities markets. The Commission has recently noted that given the speed and interconnected nature of the U.S. securities markets, a seemingly minor systems problem at a single entity can quickly create losses and liability for market participants, and spread rapidly across the national market system, potentially creating widespread damage and harm to market participants and investors.
405. Do you believe the Commission should require the disclosure of the information on Part IV, Item 8 of Form ATS-N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
406. Do you believe Part IV, Item 8 of proposed Form ATS-N captures the information that is most relevant to understanding the operations of the NMS Stock ATS regarding any procedures governing trading in the event the NMS Stock ATS suspends trading or experiences a system disruption or malfunction? Please explain.
407. Is it sufficiently clear what information would be required by Part IV, Item 8 of proposed Form ATS-N? Should the item be refined in any way? If so, how? Please be specific.
408. Do you believe there is other information that market participants might find relevant or useful regarding procedures governing trading in the event an NMS Stock ATS suspends trading or experiences a system disruption or malfunction? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS-N. Please support your arguments.
409. Do you believe there is any information that would be required by Part IV, Item 8 of proposed Form ATS-N that an NMS Stock ATS should not be required to disclose due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? Why or why not? Please support your arguments.
410. What are the potential costs and benefits of disclosing the information required by Part IV, Item 8 of proposed Form ATS-N? Would the proposed disclosures in Part IV, Item 8 of proposed Form ATS-N require an NMS Stock ATS to reveal too much (or not enough) information about its structure and operations? Why or why not? Please support your arguments.
411. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part IV, Item 8 of proposed Form ATS-N other than through disclosure on proposed Form ATS-N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part IV, Item 8?
Part IV, Item 9 of proposed Form ATS-N would require an NMS Stock ATS to describe its opening, reopening, and closing processes, if any, and any after-hours trading procedures. Part IV, Item 9(a) of proposed Form ATS-N would require an NMS Stock ATS to describe any opening and reopening processes, including how orders or other trading interest are matched and executed prior to the start of regular trading hours or following a stoppage of trading in a security during regular trading hours and how unexecuted orders or other trading interest are
Part IV, Item 9 of proposed Form ATS-N is designed to inform market participants about whether an NMS Stock ATS uses any special procedures to match orders outside of regular trading hours and/or processes to set a single opening, reopening, or closing price to, for example, maximize liquidity and accurately reflect market conditions at the opening, reopening, or close of trading. The Commission notes that it is standard practice for national securities exchanges to conduct opening, reopening, and closing auctions, or similar procedures, to start and conclude the trading day, or reopen trading in a security during the trading day.
Market participants would likely want to know about any special opening, reopening, or closing processes, and after-hours trading procedures, employed by an NMS Stock ATS. In particular, the Commission preliminarily believes that market participants would want to know which, if any, order types participate in an NMS Stock ATS's opening, reopening, and/or closing processes, and after-hours trading. The Commission preliminarily believes that such information would help market participants assess whether participating in an NMS Stock ATS's opening, reopening, or closing processes, or after-hours trading on the NMS Stock ATS, would help accomplish their investing or trading objectives and thus, cause them to route orders to the NMS Stock ATS.
The disclosures required under Part IV, Item 9 of proposed Form ATS-N are also designed to help the Commission to better oversee NMS Stock ATSs and alert the Commission about any potential regulatory issues arising from an NMS Stock ATS's opening, reopening, or closing processes, or after-hours trading procedures. For example, under Rule 611(b)(3) of Regulation NMS,
412. Do you believe the Commission should require the disclosure of the information on Part IV, Item 9 of Form ATS-N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
413. Do you believe Part IV, Item 9 of proposed Form ATS-N captures the information that is most relevant to understanding the operations of the NMS Stock ATS regarding its opening, reopening, or closing processes, if any, and any after-hours trading procedures? Please explain.
414. Do you believe there is other information that market participants might find relevant or useful regarding the opening or reopening processes, closing process, or after-hours trading procedures on the NMS Stock ATS? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS-N. Please support your arguments.
415. Is it sufficiently clear what information would be required by Part IV, Item 9 of proposed Form ATS-N? Should the item be refined in any way? If so, how? Please be specific.
416. Do you believe there is any information that would be required by Part IV, Item 9 of proposed Form ATS-N that an NMS Stock ATS should not be required to disclose due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? Why or why not? Please support your arguments.
417. Do you believe the information that would be required by Part IV, Item 9 of proposed Form ATS-N would be useful to market participants when deciding whether to trade on the NMS Stock ATS and would assist them in devising appropriate trading strategies to help accomplish their investing or trading objectives? Why or why not? Please support your arguments.
418. What are the potential costs and benefits of disclosing the information required by Part IV, Item 9 of proposed Form ATS-N? Would the proposed disclosures in Part IV, Item 9 of proposed Form ATS-N require an NMS Stock ATS to reveal too much (or not enough) information about its structure and operations? Why or why not? Please support your arguments.
419. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part IV, Item 9 of proposed Form ATS-N other than through disclosure on proposed Form ATS-N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part IV, Item 9?
Part IV, Item 10(a) of Proposed Form ATS-N would require an NMS Stock ATS to describe the circumstances under which orders or other trading interest are routed from the NMS Stock ATS to another trading center, including whether outbound routing occurs at the
Based on Commission experience, some NMS Stock ATSs, by way of their broker-dealer operator, provide outbound routing services whereby a subscriber's order or trading interest could be routed to another trading center.
The descriptions in response to Part IV, Item 10 of proposed Form ATS-N would be required to include who determines routing destinations, whether the subscriber, the broker-dealer operator, or both. This information is meant to illuminate when subscribers would have control over potential routing destinations and when the broker-dealer operator would have discretion to route away. The Commission preliminarily believes that subscribers would find it useful to be aware of any instance in which the broker-dealer operator has discretion to route trading interest so that a subscriber could better protect its interests and monitor any such routing. Item 10 of proposed Form ATS-N would also require a description of the means by which the routing is performed. Examples of the means of outbound routing could include a third-party router, an order management system or SOR (or similar functionality) or algorithm of the broker-dealer operator or any of its affiliates, or any other functionality used to outbound route trading interest.
The Commission preliminarily believes that it is important for subscribers and potential subscribers to know at whose discretion any outbound routing occurs and who would be performing the routing. The Commission preliminarily believes that such disclosures concerning outbound routing would provide subscribers and potential subscribers with the ability to gauge how their orders would be handled if they are not executed on the NMS Stock ATS. Subscribers and potential subscribers might, for example, have concerns about the leakage of confidential trading information when their orders are routed to other trading centers. Part IV, Item 10 of proposed Form ATS-N is designed to provide subscribers and potential subscribers with relevant information to evaluate the potential for leakage of their confidential trading information. In addition, subscribers and potential subscribers could have concerns about the treatment of their confidential trading information should their orders be routed by a third party or the SOR (or similar functionality) or algorithm of the broker-dealer operator. Overall, the Commission preliminarily believes that information about routing would likely be useful to market participants when deciding whether to subscribe or otherwise submit orders to an NMS Stock ATS that might be eligible for routing.
The Commission also preliminarily believes that the disclosures required by Part IV, Item 10 of proposed Form ATS-N would aid it in evaluating whether an NMS Stock ATS is in compliance with Rule 301(b)(10) of Regulation ATS.
420. Do you believe the Commission should require the disclosure of the information on Part IV, Item 10 of Form ATS-N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
421. Do you believe Part IV, Item 10 of proposed Form ATS-N captures the information that is most relevant to understanding the operations of the NMS Stock ATS regarding the circumstances under which orders or other trading interest are routed from the NMS Stock ATS to another trading center? Please explain.
422. Is it sufficiently clear what information would be required by Part IV, Item 10 of proposed Form ATS-N? Should the item be refined in any way? If so, how? Please be specific.
423. What mechanisms are available for NMS Stock ATSs to perform outbound routing? Do you believe there is any additional information that the Commission should require NMS Stock ATSs to disclose with regard to outbound routing? If so, explain what information and why. Please support your arguments.
424. Do you believe there is any information that would be required by Part IV, Item 10 of proposed Form ATS-N that an NMS Stock ATS should not be required to disclose due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? Why or why not? Please support your arguments.
425. Do you believe that the disclosures required under Part IV, Item 10 of proposed Form ATS-N would provide market participants with relevant information to evaluate the potential for leakage of their confidential trading information? Why or why not? Please be specific.
426. Do you believe transparency in how an NMS Stock ATS routes orders to other trading centers is useful to market participants when deciding whether to trade on the NMS Stock ATS and would assist them in devising appropriate trading strategies to help accomplish their investing or trading objectives? Why or why not?
427. Do you believe there is other information that market participants might find relevant or useful regarding the circumstances under which orders or other trading interest are routed from the NMS Stock ATS to another trading center? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS-N. Please support your arguments.
428. What are the potential costs and benefits of disclosing the information
429. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part IV, Item 10 of proposed Form ATS-N other than through disclosure on proposed Form ATS-N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part IV, Item 10?
Part IV, Item 11 of proposed Form ATS-N would require an NMS Stock ATS to disclose its sources and use of market data. Part IV, Item 11(a) of proposed Form ATS-N would require a description of the market data used by the NMS Stock ATS and the source of that market data (
The Commission preliminarily believes that market participants would likely find it useful to know the source and specific purpose for which market data is used by an NMS Stock ATS. For instance, the market data received by an NMS Stock ATS might affect the price at which orders are executed on the NMS Stock ATS.
430. Do you believe the Commission should require the disclosure of the information on Part IV, Item 11 of Form ATS-N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
431. Do you believe Part IV, Item 11 of proposed Form ATS-N captures the information that is most relevant to understanding the operations of the NMS Stock ATS regarding the sources and use of market data? Please explain.
432. Is it sufficiently clear what information would be required by Part IV, Item 11 of proposed Form ATS-N? Should the item be refined in any way? If so, how? Please be specific.
433. Do you believe there is other information that market participants might find relevant or useful regarding the sources and use of market data? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS-N. Please support your arguments.
434. Do you believe there is any information that would be required by Part IV, Item 11 of proposed Form ATS-N that an NMS Stock ATS should not be required to disclose due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? Why or why not? Please support your arguments.
435. Are there any other applications for which NMS Stock ATSs use market data that the Commission should specifically identify and/or discuss under Part IV, Item 11 of Proposed Form ATS-N?
436. Do you believe that transparency regarding what market data an NMS Stock ATS uses and how the NMS Stock ATS uses that market data is useful to market participants when deciding whether to trade on the NMS Stock ATS and would assist them in devising appropriate trading strategies to help accomplish their investing or trading objectives? Why or why not?
437. Do you believe that the disclosures required under Part IV, Item 11 of Proposed Form ATS-N would assist the Commission to understand the procedures employed by an NMS Stock ATS for complying with Regulation NMS and to understand how orders are priced, handled, and routed by the NMS Stock ATS? Why or why not?
438. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part IV, Item 11 of proposed Form ATS-N other than through disclosure on proposed Form ATS-N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part IV, Item 11?
439. What are the potential costs and benefits of disclosing the information required by Part IV, Item 11 of proposed Form ATS-N? Would the proposed disclosures in Part IV, Item 11 of proposed Form ATS-N require an NMS Stock ATS to reveal too much (or not enough) information about its structure and operations? Why or why not? Please support your arguments.
Part IV, Item 12 of proposed Form ATS-N would require the NMS Stock ATS to disclose and describe its fee and rebate structure. Part IV, Item 12(a) of proposed Form ATS-N would require an NMS Stock ATS to describe any fees, rebates, or other charges of the NMS Stock ATS (
The Commission preliminarily believes that by requiring a description of an NMS Stock ATS's fees, rebates, and other charges, market participants would be able to review and evaluate the fee structure of each NMS Stock ATS. If an NMS Stock ATS has a recognized fee structure, such as a maker-taker pricing model,
The Commission also is proposing to require that NMS Stock ATSs describe any differences in their fees, rebates, or other charges among differing types of subscribers or other persons. The Commission preliminarily believes that this information would further illuminate the types of subscribers and/or trading interest that the NMS Stock ATS may be trying to attract.
Part IV, Item 12 of proposed Form ATS-N also would require that the NMS Stock ATS provide the range (
Item 12, however, does not require NMS Stock ATSs to disclose a complete schedule of their fees. In some cases, the fee schedules employed by NMS Stock ATSs are highly bespoke, and it may not be practical or desirable to require an NMS Stock ATS to disclose the fee schedule applicable to each subscriber to the NMS Stock ATS. The Commission, therefore, is proposing that the NMS Stock ATS disclose only the range of fees for each service. These disclosures are designed to give market participants an awareness of the fees charged by the NMS Stock ATS and allow market participants to understand and compare fees across NMS Stock ATSs, which could reduce the search costs of market participants in deciding where to send their orders and trading interest. The Commission preliminarily believes that the disclosures required by Part IV, Item 12 of proposed Form ATS-N would also assist the Commission in better understanding the fee structures of NMS Stock ATSs and trends in the market as part of the Commission's overall review of market structure.
440. Do you believe the Commission should require the disclosure of the information on Part IV, Item 12 of Form ATS-N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
441. Do you believe Part IV, Item 12 of proposed Form ATS-N captures the information that is most relevant to understanding the operations of the NMS Stock ATS regarding its fee and rebate structure? Please explain.
442. Is it sufficiently clear what information would be required by Part IV, Item 12 of proposed Form ATS-N? Should the item be refined in any way? If so, how? Please be specific.
443. Do you believe the Commission should require NMS Stock ATSs to publicly disclose their fees, charges, and rebates on proposed Form ATS-N? Why or why not?
444. Do you believe the Commission should require NMS Stock ATSs to disclose their complete fee schedules? Are there other ways that NMS Stock ATSs earn revenue about which the Commission should require disclosure?
445. Do you believe there is other information that market participants might find relevant or useful regarding fees, rebates and other charges? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS-N. Please support your arguments.
446. Do you believe there is any information that would be required by Part IV, Item 12 of proposed Form ATS-N that an NMS Stock ATS should not be required to disclose due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? Why or why not? Please support your arguments.
447. Do you believe that the information required by Part IV, Item 12 of proposed Form ATS-N would assist market participants and the Commission in comparing fees across NMS Stock ATSs? Why or why not? Please support your arguments.
448. Do you believe that the information required by Part IV, Item 12 of proposed Form ATS-N would allow the Commission to gather further information and analyze trends in the market, including how the prevalence of different fee structures may impact different categories of market participants? Would this information assist the Commission in evaluating the potential incentives and disincentives created by different fee structures in the market for NMS stocks? Why or why not? Please support your arguments.
449. What are the potential costs and benefits of disclosing the information required by Part IV, Item 12 of proposed Form ATS-N? Would the proposed disclosures in Part IV, Item 12 of proposed Form ATS-N require an NMS Stock ATS to reveal too much (or not enough) information about its structure and operations? Why or why not? Please support your arguments.
450. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part IV, Item 12 of proposed Form ATS-N other than through disclosure on proposed Form ATS-N? If
Part IV, Item 13 would require an NMS Stock ATS to describe its arrangements or procedures for trade reporting, clearance, and settlement of transactions. Part IV, Item 13(a) of proposed Form ATS-N would require an NMS Stock ATS to describe any arrangements or procedures for reporting transactions on the NMS Stock ATS and if the trade reporting procedures are not the same for all subscribers and persons, the NMS Stock ATS would be required to describe any differences. Part IV, Item 13(b) of proposed Form ATS-N would require an NMS Stock ATS to describe any arrangements or procedures undertaken by the NMS Stock ATS to facilitate the clearance and settlement of transactions on the NMS Stock ATS. If the clearance and settlement procedures are not the same for all subscribers and persons, the NMS Stock ATS would be required to describe any differences. The Commission notes that Item 13 of proposed Form ATS-N would solicit similar information that is solicited pursuant to Exhibit F, subsection (d) of Form ATS, which currently requires ATSs to provide their procedures governing execution, reporting, clearance, and settlement of transactions effected through the ATS.
Trade reporting furthers the transparent, efficient, and fair operation of the securities markets.
Part IV, Item 13(b) of proposed Form ATS-N would require that an NMS Stock ATS describe any arrangements or procedures undertaken by the NMS Stock ATS to facilitate the clearance and settlement of transactions on the NMS Stock ATS. The Commission has previously stated that the integrity of the trading markets depends on the prompt and accurate clearance and settlement of securities transactions.
451. Do you believe the Commission should require the disclosure of the information on Part IV, Item 13 of Form ATS-N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
452. Do you believe Part IV, Item 13 of proposed Form ATS-N captures the information that is most relevant to understanding the operations of the NMS Stock ATS regarding its arrangements or procedures for trade reporting, clearance, and settlement of transactions? Please explain.
453. Do you believe there is other information that market participants might find relevant or useful regarding procedures for trade reporting, clearance, and settlement of transactions on the NMS Stock ATSs? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS-N. Please support your arguments.
454. Is it sufficiently clear what information would be required by Part IV, Item 13 of proposed Form ATS-N? Should the item be refined in any way? If so, how? Please be specific
455. Do you believe there is any information that would be required by Part IV, Item 13 of proposed Form ATS-N that an NMS Stock ATS should not be required to disclose due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? Why or why not? Please support your arguments.
456. Do you believe that the information required by Part IV, Item 13 of proposed Form ATS-N will assist market participants in the manner described above? Why or why not? Please support your arguments.
457. What are the potential costs and benefits of disclosing the information required by Part IV, Item 13 of proposed Form ATS-N? Would the proposed disclosures in Part IV, Item 13 of proposed Form ATS-N require an NMS Stock ATS to reveal too much (or not enough) information about its structure and operations? Why or why not? Please support your arguments.
458. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part IV, Item 13 of proposed Form ATS-N other than through disclosure on proposed Form ATS-N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part IV, Item 13?
Part IV, Item 14 of proposed Form ATS-N would require an NMS Stock ATS to provide the following information if the NMS Stock ATS displays orders in an NMS stock to any person other than employees of the NMS Stock ATS and executed 5% or more of the average daily trading
The information elicited in Part IV, Item 14 relates to an NMS Stock ATS's obligations under current Rule 301(b)(3) of Regulation ATS, which applies if an ATS displays a subscriber order in an NMS stock to any person other than ATS employees, and during at least 4 of the preceding 6 calendar months, executed 5% or more of the average daily trading volume in that NMS Stock as reported by an effective transaction reporting plan. Rule 301(b)(3)(ii) and (iii) requires qualifying ATSs to report their highest bid and lowest offer for the relevant NMS stock for inclusion in the quotation data made available by the national securities exchange or national securities association to which it reports and provide equivalent access to effect a transaction with other orders displayed on the exchange or by the association.
The information required by Part IV, Item 14 of proposed Form ATS-N is designed to elicit information about how the NMS Stock ATS complies with the requirements of Rule 301(b)(3) of Regulation ATS when applicable. The Commission preliminarily believes that the disclosure of the information required by Item 14 of proposed Form ATS-N would facilitate the Commission's oversight of NMS Stock ATSs and their compliance with Rule 301(b)(3) and help the Commission discover a potential violation of the federal securities laws and rules or regulations thereunder in a more expeditious manner than if the disclosures were not required. In part, because the thresholds required for display and access are counted for each NMS stock individually, an NMS Stock ATS would be required to disclose the ticker symbol for the relevant NMS stock to aid the Commission in evaluating its compliance. The Commission also preliminarily believes that these disclosures would help ensure that market participants and the Commission are aware when an NMS Stock ATS has become a significant source of liquidity in an NMS stock. Further, the Commission preliminarily believes that market participants would find the information disclosed in this item useful to understand how they can access applicable quotations.
459. Do you believe the Commission should require the disclosure of the information on Part IV, Item 14 of Form ATS-N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
460. Do you believe Part IV, Item 14 of proposed Form ATS-N captures the information that is most relevant to understanding the operations of the NMS Stock ATS regarding the NMS Stock ATS's obligations under current Rule 301(b)(3) of Regulation ATS? Please explain.
461. Do you believe there is other information that market participants might find relevant or useful regarding the NMS Stock ATS's obligations under current Rule 301(b)(3) of Regulation ATS? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS-N. Please support your arguments.
462. Is it sufficiently clear what information would be required by Part IV, Item 14 of proposed Form ATS-N? Should the item be refined in any way? If so, how? Please be specific.
463. Do you believe there is any information that would be required by Part IV, Item 14 of proposed Form ATS-N that an NMS Stock ATS should not be required to disclose due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? Why or why not? Please support your arguments.
464. Do you believe that the information required by Part IV, Item 14 of proposed Form ATS-N will assist market participants in accessing applicable quotations and ensuring they receive equivalent access on the NMS Stock ATS? Why or why not? Please support your arguments.
465. Do you believe that the imposition of the requirements of Rule 301(b)(3) on an NMS Stock ATS crossing the relevant volume thresholds of Rule 301(b)(3)(i) and meeting the display requirement of the rule, should constitute a material change in the operations of the NMS Stock ATS such that it should be reported to the Commission in advance? Why or why not?
466. What are the potential costs and benefits of disclosing the information required by Part IV, Item 14 of proposed Form ATS-N? Would the proposed disclosures in Part IV, Item 14 of proposed Form ATS-N require an NMS Stock ATS to reveal too much (or not enough) information about its structure and operations? Why or why not? Please support your arguments.
467. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part IV, Item 14 of proposed Form ATS-N other than through disclosure on proposed Form ATS-N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part IV, Item 14?
In 2009, the Commission published a proposal to address certain practices with respect to undisplayed liquidity, which is trading interest that is available for execution at a trading center, but is not included in the consolidated quotation data that is widely disseminated to the public.
468. Do you believe that the Commission should lower the 5% trading volume threshold in Rule 301(b)(3) of Regulation ATS that triggers the public display requirement for ATSs? Why or why not? If so, what is the appropriate threshold level? Please support your arguments.
469. Do you believe that the Commission should define actionable indications of interest in the definition of “bid” and “offer” in Regulation NMS? Why or why not? Please support your arguments.
Part IV, Item 15 of proposed Form ATS-N would require an NMS Stock ATS to provide the following information if the NMS Stock ATS executes 5% or more of the average daily trading volume in an NMS stock as reported by an effective transaction reporting plan for four of the preceding six calendar months: (a) The ticker symbol for each NMS stock for each of the last 6 calendar months; and (b) a description of the written standards for granting access to trading on the NMS Stock ATS.
The Commission preliminarily believes that the disclosure of the information requested by Part IV, Item 15 of proposed Form ATS-N would facilitate the Commission's oversight of NMS Stock ATSs and their compliance with Rule 301(b)(5). Because the volume thresholds required for fair access are counted for each NMS stock individually, an NMS Stock ATS would be required to disclose the ticker symbol for the relevant NMS stock to aid the Commission in evaluating the NMS Stock ATS's compliance. The Commission also preliminarily believes that it is important for market participants to be aware of whether an NMS Stock ATS is a significant source of liquidity for an NMS stocks and therefore, must provide fair access. Although Exhibit C of Form ATS-R requires an ATS to notify the Commission when it has crossed a fair access threshold in a particular calendar quarter,
470. Do you believe the Commission should require the disclosure of the information on Part IV, Item 15 of Form ATS-N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
471. Do you believe Part IV, Item 15 of proposed Form ATS-N captures the information that is most relevant to understanding the operations of the NMS Stock ATS regarding the written standards for granting access to trading on its system when it crosses the fair access thresholds of Rule 301(b)(5)(i) (and does not meet the exception set forth in Rule 301(b)(5)(iii))? Please explain.
472. Do you believe there is other information that market participants might find relevant or useful regarding the written standards for granting access to trading on its system when it crosses the fair access thresholds of Rule 301(b)(5)(i) (and does not meet the exception set forth in Rule 301(b)(5)(iii))? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS-N. Please support your arguments.
473. Do you believe there is any information that would be required by Part IV, Item 15 of proposed Form ATS-N that an NMS Stock ATS should not be required to disclose due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? Why or why not? Please support your arguments.
474. Is it sufficiently clear what information would be required by Part IV, Item 15 of proposed Form ATS-N? Should the item be refined in any way? If so, how? Please be specific.
475. Do you believe that the disclosures under Part IV, Item 15 of proposed Form ATS-N would help market participants better evaluate trading opportunities and where to route orders in order to reach their investment objectives? Why or why not? Please support your arguments.
476. Do you believe that the imposition of the requirements of Rule
477. What are the potential costs and benefits of disclosing the information required by Part IV, Item 15 of proposed Form ATS-N? Would the proposed disclosures in Part IV, Item 15 of proposed Form ATS-N require an NMS Stock ATS to reveal too much (or not enough) information about its structure and operations? Why or why not? Please support your arguments.
478. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part IV, Item 15 of proposed Form ATS-N other than through disclosure on proposed Form ATS-N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part IV, Item 15?
Part IV, Item 16 of proposed Form ATS-N would require an NMS Stock ATS to explain and provide certain aggregate platform-wide market quality statistics that it publishes or provides to one or more subscribers regarding the NMS Stock ATS.
The Commission preliminarily believes that some NMS Stock ATSs voluntarily publish or otherwise provide to subscribers aggregate platform-wide order flow and execution statistics that do not fall under the statistical information that is required to be disclosed under Exchange Act Rule 605,
Under Part IV, Item 16, an NMS Stock ATS would be required to explain and provide any aggregate platform-wide order flow or execution statistic that is not otherwise a required disclosure under Exchange Act Rule 605 and published or provided to one or more subscribers by the NMS Stock ATS. An example of a type of statistic that would be a required disclosure under Item 16 would be statistics related to the percentage of midpoint executions on the NMS Stock ATS that the NMS Stock ATS publishes or otherwise provides to subscribers. The NMS Stock ATS would be required to list that category under Part IV, Item 16(a) and explain how the NMS Stock ATS calculates that statistic under Item 16(b). Within 30 calendar days after the end of each calendar quarter, the NMS Stock ATS would be required to attach an Exhibit 5 containing the most recent percentage it disseminated during the previous quarter. The Commission preliminarily believes that requiring the NMS Stock ATS to provide the statistic on Form ATS-N on a quarterly basis would allow market participants to obtain insight into the nature of trading on the NMS Stock ATS on a sufficiently frequent basis while minimizing the reporting burden for the NMS Stock ATS.
The Commission preliminarily believes that an NMS Stock ATS may choose to create and publish or provide to one or more subscribers information concerning order flow and execution quality for different reasons. For example, the NMS Stock ATS may have concluded that publication of certain statistics may highlight certain characteristics of the NMS Stock ATS that would attract certain order flow. Or a subscriber may have requested that the NMS Stock ATS provide certain aggregated information concerning order flow and execution quality that the subscriber needed to assess the ATS's operations. The Commission notes that certain performance metrics and statistics may be important factors for investors and subscribers in comparing and selecting an ATS that is most appropriate for their investment objectives.
The Commission also solicits comment on whether other standardized statistical disclosures should be required from NMS Stock ATSs and the nature and extent of any such metrics or statistics that commenters believe should be disclosed.
479. Do you believe the Commission should require the disclosure of the information on Part IV, Item 16 of Form ATS-N? Why or why not? If so, what
480. Do you believe that the statistics required on Part IV, Item 16 of Form ATS-N should be provided on a more or less frequent basis? Why or why not? If so, how often should the statistics be provided (
481. Is it sufficiently clear what information would be required by Part IV, Item 16 of proposed Form ATS-N? Should the item be refined in any way? If so, how? Please be specific.
482. Do you believe that the disclosures under Part IV, Item 16 of proposed Form ATS-N would help market participants better evaluate trading opportunities and where to route orders in order to reach their investment objectives? Why or why not? Please support your arguments.
483. Do you believe that the Commission should require standardized public disclosures of performance metrics or statistics for each NMS Stock ATS? Why or why not? Please support your arguments. If so, what metrics or statistics should NMS Stock ATSs be required to disclose publicly? Please be specific.
484. What percentage of NMS Stock ATSs publish or provide market quality statistics not otherwise required under Exchange Act Rule 605? Please explain how you have calculated this number.
485. Do you believe that there are other statistics or data that an NMS Stock ATS should be required to provide on proposed Form ATS-N that would be useful to market participants that either subscribe to or are considering subscribing to the NMS Stock ATS? If so, please identify those metrics and explain how they would be useful to market participants. Please support your arguments.
486. Should the Commission require NMS Stock ATSs to disclose on Form ATS-N, statistics regarding the extent of trading by the broker-dealer operator and its affiliates on the NMS Stock ATS? Why or why not? If so, what statistics should be required to be disclosed? Please support your arguments. If you believe that an NMS Stock ATS should disclose statistics about the extent of its broker-dealer operator's and its affiliates' trading activity on the NMS Stock ATS, how often should these statistics be disclosed (
487. Do you believe there is any information that would be required by Part IV, Item 16 of proposed Form ATS-N that an NMS Stock ATS should not be required to disclose due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? Why or why not? Please support your arguments.
The Commission also notes that some industry participants have previously requested public statistics about the quality of these markets. In the 2010 Equity Market Structure Release, the Commission solicited public comment about, among other things, market structure performance and order execution quality, and how transparency could be improved in these areas.
In response, some commenters stated their concern about the lack of market quality information available to the public about ATSs and other trading centers. For example, one commenter expressed support for national securities exchanges and ATSs to disclose how often a functionality is used and more market quality statistics, such as quote-per-execution ratios, duration of quotes and number of times orders are routed out without getting filled so that investors and other market participants could better gauge execution quality.
This commenter also provided a template for disclosure of order routing and execution quality information that institutional investors could request from their broker-dealers, which included, among other things: The number of total shares routed as actionable IOIs; the percent of shares routed to the venue by the broker that resulted in executions at that venue); the average length of time (measured in milliseconds) that orders (other than IOCs) were posted to a venue before being filled or cancelled; the average size, by number of shares, of each order actually executed on the venue; the aggregate number of shares executed at the venue that were priced at or near the mid-point between the bid and the offer; and the percentage of total shares executed that were executed at or near the midpoint between the bid and the offer.
With regard to the comment that the execution quality statistics currently made public under Rules 605 and 606 are inadequate, the Commission notes that it is considering proposing to amend Rules 600 and 606 to standardize and improve transparency around how broker-dealers handle and route institutional customer orders. These
488. Do you believe that there is information that the Commission should require NMS Stock ATSs to disclose other than the information that is currently available to market participants from order execution reports pursuant to Exchange Act Rule 605? Why or why not? Please support your arguments. If so, what information should be disclosed and how would the information be useful to market participants? Please explain. Do you believe that there is information that the Commission should require a broker-dealer operator of the NMS Stock ATS to disclose other than the information that is currently available to market participants from order routing reports pursuant to Exchange Act Rules 606? Why or why not? Please support your arguments.
489. Do you believe that there are other means by which market quality metrics should be required to be made available by NMS Stock ATSs to market participants, other than as disclosures on proposed Form ATS-N? Why or why not? Please support your arguments. If so, please identify by what means and why? Please support your arguments.
490. Do you believe that an NMS Stock ATS should be required to disclose information about orders entered into its system and the ultimate disposition of such orders? Why or why not? Please support your arguments. For example, should NMS Stock ATSs disclose information regarding the average order size, average execution size, and percentage of orders marked immediate or cancel? Why or why not? Please support your arguments.
491. Do you believe that NMS Stock ATSs should be required to disclose whether the NMS Stock ATS provided order flow and execution statistics to some subscribers and not others? Why or why not? Please support your arguments.
492. Do you believe that NMS Stock ATSs should be required to disclose execution information such as the total number and percentage of shares executed at the midpoint, total number and percentage of shares executed at the national best bid, total number and percentage of shares executed at the national best offer, total number and percentage of shares executed between the national best bid and the midpoint, and total number and percentage of shares executed between the midpoint and the national best offer? Why or why not? Please support your arguments. If so, do you believe such information should be disclosed publicly on an aggregated basis or should the information be disclosed to each subscriber based on its own orders? Please support your arguments.
493. Do you believe that the joint-industry plan should be amended for publicly disseminating consolidated trade data to require real-time disclosure of the identity of NMS Stock ATSs on reports of their executed trades? Why or why not? Please support your arguments. Alternatively, should executions on NMS Stock ATSs be publicly disseminated on a delayed basis?
494. Do you believe that there are other data elements that should be provided by NMS Stock ATSs in the consolidated trade data? What are they and why should they be required? Please be specific.
Current Rule 301(b)(10) of Regulation ATS
Rule 301(b)(10), however, does not currently require that the safeguards and procedures mandated under Rule 301(b)(10) be memorialized in writing. The Commission is now proposing to amend Rule 301(b)(10) to require that such safeguards and procedures be reduced to writing.
The Commission continues to believe that safeguards and procedures to ensure the confidential treatment of ATS subscribers' trading information are important, and that the potential for misuse of such information continues to exist. The Commission preliminarily believes that requiring an ATS to reduce to writing those safeguards and procedures, as well as its oversight procedures to ensure that such safeguards and procedures are followed, would strengthen the effectiveness of the ATS's safeguards and procedures and would better enable the ATS to protect confidential subscriber trading information and implement and monitor the adequacy of, and the ATS's compliance with, its safeguards and procedures. For example, if an ATS were required to reduce its safeguards and procedures to writing, it could self-audit—or if it chose to do so, undergo a third-party audit—for compliance with those safeguards and procedures, and also assess their adequacy. In addition, the Commission preliminarily believes that reducing ATSs' safeguards and procedures under Rule 301(b)(10) to writing will help the Commission and its staff, and the staff of the SRO of which an ATS's broker-dealer operator is a member, evaluate whether an ATS has established such procedures and safeguards, whether the ATS has implemented and is abiding by them, and whether they comply with the requirements of Rule 301(b)(10). This should enable the Commission, and the applicable SRO(s), to exercise more effective oversight of ATSs regarding the ATSs' compliance with Rule 301(b)(10) and other federal securities laws, rules, and regulations. The Commission also preliminary believes that its proposal would benefit market participants because they would be able to better evaluate the implementation of such safeguards and procedures, due to the proposed rule to reduce those safeguards and procedures to writing.
495. Do you believe the Commission should require ATSs to reduce to writing their safeguards and procedures as described above? Why or why not? Should the requirement apply to all ATSs or only a subset such as NMS Stock ATSs? Please support your arguments.
496. Do you believe that requiring ATSs to reduce to writing their safeguards and procedures, as proposed, would help to ensure that subscribers' confidential trading information is protected and not misused? If not, why not? Please support your arguments.
497. Are there other conditions that the Commission should implement to achieve the goal of protecting subscribers' confidential trading information? If so, what are they and why would they be preferable? Please be specific.
498. Currently, how common is it for ATSs to reduce to writing their safeguards and procedures to protect subscribers' confidential trading information and/or their oversight procedures to ensure that those safeguards and procedures are followed? For ATSs that have not reduced their safeguards and procedures to protect subscribers' confidential trading information to writing, how do they currently ensure their compliance with the requirements of Rule 301(b)(10)? Please be specific.
499. For ATSs that have not reduced to writing their safeguards and procedures to protect subscribers' confidential trading information and/or their oversight procedures to ensure that those safeguards and procedures are followed, how long would it take to do so? Please explain.
The Commission is proposing to amend Rules 303(a)(1) and 303(a)(2) of Regulation ATS to reflect its proposed amendments to Rule 301(b)(2)
Currently, unless not required to comply with Regulation ATS pursuant to Rule 301(a)
Rule 303(a)(1) requires an ATS to preserve certain records for at least three years, the first two years in an easily accessible place.
The Commission is proposing to amend the record preservation requirements of Rule 303 to incorporate the preservation of records that would be created pursuant to the proposed requirements that NMS Stock ATSs file Forms ATS-N, Form ATS-N Amendments, and notices of cessation instead of Form ATS. Specifically, the Commission is proposing to amend Rule 303(a)(2)(ii) to require that an ATS shall preserve, for the life of the enterprise and of any successor enterprise, copies of reports filed pursuant to Rule 301(b)(2) or—in the case of an NMS
The Commission is also proposing amendments to the record preservation requirements of Rule 303(a)(1) to incorporate the Commission's proposed amendments to Rule 301(b)(10),
Finally, the Commission proposes to make a minor technical amendment to Rule 303(a). Currently, Rule 303(a) references “paragraph (b)(9) of § 242.301” when setting forth the record preservation requirements for ATSs. The Commission is proposing to change the above reference to “paragraph (b)(8) of § 242.301” because Rule 301(b)(8) sets forth the recordkeeping requirements for ATSs.
500. Do you believe the Commission should amend the recordkeeping requirements for ATSs as proposed? Why or why not?
501. Do you believe that there are any other requirements of Rule 303 that should be amended to satisfy the objectives of this proposal? If so, what are they and why?
502. Do you believe that the proposed amendments to the record preservation requirements of Rule 303 are reasonable? If not, why? Please support your arguments.
The Commission is requesting comments from all members of the public. The Commission particularly requests comment from the point of view of persons who operate ATSs that would meet the proposed definition of NMS Stock ATS, subscribers to those systems, investors, and registered national securities exchanges. The Commission seeks comment on all aspects of the proposed rule amendments and proposed form, particularly the specific questions posed above. Commenters should, when possible, provide the Commission with data to support their views. Commenters suggesting alternative approaches should provide comprehensive proposals, including any conditions or limitations that they believe should apply, the reasons for their suggested approaches, and their analysis regarding why their suggested approaches would satisfy the objectives of the proposed amendments. The Commission will carefully consider the comments it receives.
503. Do you believe that there is other information about the nature or extent of the operations of an NMS Stock ATS that should be disclosed on proposed Form ATS-N? Are there specific topics about which the Commission should request more information? If so, what information should be disclosed and why?
504. Do you believe that there are activities of an NMS Stock ATS broker-dealer operator and its affiliates that may give rise to potential conflicts of interest, other than those described, that should be disclosed on Form ATS-N? If so, what information should be disclosed and why? If so, what are they and why?
505. Is there other information or data that would be useful for a market participant to consider when evaluating an NMS Stock ATS as a potential trading center for its orders? If so, what are they and why?
Certain provisions of the proposal contain “collection of information” requirements within the meaning of the Paperwork Reduction Act of 1995 (“PRA”).
• Requirements for Alternative Trading Systems That Are Not National Securities Exchanges—Rule 301, Form ATS and Form ATS-R, 17 CFR 242.301 (OMB Control No. 3235-0509);
• Rule 303 (17 CFR 242.303) Record Preservation Requirements for Alternative Trading Systems (OMB Control No. 3235-0505).
• Rule 304 and Form ATS-N (a proposed new collection of information).
We are submitting these requirements to the Office of Management and Budget (“OMB”) for review and approval in accordance with the PRA and its implementing regulations.
The proposed amendments to Regulation ATS include two new categories of obligations that would require a collection of information within the meaning of the PRA. The first category relates to Rule 301(b)(10) of Regulation ATS
Under Rule 301(b)(10) of Regulation ATS, all ATSs are currently required to: (1) Establish adequate safeguards and procedures to protect subscribers'
In addition, the Commission proposes to amend Rule 303(a)(1)
As described above, the Commission proposes that any ATS that meets the definition of an NMS Stock ATS would be required to complete Form ATS-N and file it with the Commission in a structured format.
Proposed Form ATS-N consists of five parts. First, the entity submitting the filing would indicate whether it is submitting or withdrawing an initial filing. The entity would also indicate the type of filing—whether the filing is a Form ATS-N, a Form ATS-N Amendment (whether a material amendment, periodic amendment, or correcting amendment), or a notice of cessation, and if it is a notice of cessation, the date the NMS Stock ATS will cease to operate. If the filing is a Form ATS-N Amendment, the NMS Stock ATS would also be required to provide a brief narrative description of the amendment and a redline(s) showing changes to Part III and/or Part IV of proposed Form ATS-N. Part I would require that entity to state the name of the Registered Broker Dealer of the NMS Stock ATS (
Part III of proposed Form ATS-N would require an NMS Stock ATS to provide certain disclosures related to the activities of the broker-dealer operator and its affiliates in connection with the NMS Stock ATS. Part III consists of ten items, which are summarized here, and explained in greater detail below in the discussion of the estimated burdens related to each disclosure requirement. Part III of proposed Form ATS-N would include disclosures relating to: (1) Whether the broker-dealer operator, or any of its affiliates, operate or control any non-ATS trading centers and how such non-ATS trading centers coordinate or interact with the NMS Stock ATS, if at all; (2) whether the broker-dealer operator, or any of its affiliates, operates another NMS Stock ATS and how such other NMS Stock ATS coordinates or interacts with the NMS Stock ATS completing the Form ATS-N, if at all; (3) the products and services offered by the broker-dealer operator, or any of its affiliates, to subscribers in connection with their use of the NMS Stock ATS; (4) whether the broker-dealer operator, or any of its affiliates, has any formal or informal arrangement with an unaffiliated person(s), or affiliate(s) of such person(s), that operates a trading center regarding access to the NMS Stock ATS, including preferential routing arrangements; (5) whether the broker-dealer operator or any of its affiliates enter orders or other trading interest on the NMS Stock ATS and the manner in which such trading is done; (6) whether the broker-dealer operator or any of its affiliates use a SOR(s) (or similar functionality), an algorithm(s), or both to send or receive orders or other trading interest to or from the NMS Stock ATS, and the interaction or coordination between the SOR(s) (or similar functionality) or algorithm(s) and the NMS Stock ATS; (7) whether there are any employees of the broker-dealer operator that service the operations of the NMS Stock ATS that also service any other business unit(s) of the broker-dealer operator or any affiliate(s) other than the NMS Stock ATS, and the roles and responsibilities of such shared employees; (8) whether any operation, service, or function of the NMS Stock ATS is performed by any
Part IV of proposed Form ATS-N would require an NMS Stock ATS to provide certain disclosures related to the manner of operations of the NMS Stock ATS. Part IV consists of 15 items, which are summarized here, and explained in greater detail below in the discussion of the estimated burdens related to each disclosure requirement. Part IV of proposed Form ATS-N would include disclosures relating to: (1) Subscribers to the NMS Stock ATS, including any eligibility requirements to gain access to the services of the ATS, the terms or conditions of any contractual agreement for access, the types of subscribers and other persons that use the services of the ATS, any formal or informal arrangement the NMS Stock ATS may have with a subscriber or person to provide liquidity to the ATS (including the terms and conditions of each arrangement and the identity of any liquidity provider that is an affiliate of the broker-dealer operator), the circumstances by which a subscriber or other person may be limited or denied access to the NMS Stock ATS, and any differences in the treatment of different subscribers and persons with respect to eligibility, terms and conditions of use, criteria for distinguishing among subscribers or other persons, and limitations and denials of access; (2) the days and hours of operation of the NMS Stock ATS, including the times when orders or other trading interest are entered and the time when pre-opening or after-hours trading occur, and whether there are any differences in when orders or other trading interest may be entered by different subscribers or persons; (3) the order types and modifiers entered on the NMS Stock ATS, including their characteristics, operations, how they are ranked and executed on the ATS (such as priority vis-à-vis other orders), eligibility and conditions for routing to other trading centers, the available time-in-force instructions for each order type, whether the availability and terms and conditions of each order type is the same for all subscribers and persons, any requirements and handling procedures for minimum order sizes, odd-lot orders or mixed-lot orders, including whether such requirements and procedures are the same for all subscribers and persons, and any messages sent to or received by the NMS Stock ATS indicating trading interest, including any differences in the terms and conditions for such messages for different subscribers and persons; (4) the means by which subscribers and other persons connect to the NMS Stock ATS and enter orders or other trading interest on the NMS Stock ATS (
Part V of proposed Form ATS-N would require an NMS Stock ATS to provide certain basic information about the point of contact for the NMS Stock ATS, such as the point of contact's name, title, telephone number and email
The Commission proposes that Form ATS-N would be filed electronically and require an electronic signature. Consequently, the proposed amendments to Regulation ATS would require that every NMS Stock ATS have the ability to file forms electronically with an electronic signature. The Commission preliminarily believes that most, if not all, ATSs that transact in NMS stock currently have the ability to access and submit an electronic form such that the requirement to file Form ATS-N electronically with an electronic signature would not impose new implementation costs. The burdens related to electronic submission and providing an electronic signature are included in the burden hour estimates provided below.
In addition, the Commission proposes to amend Rule 303(a)(2)(ii)
Furthermore, under this proposal, an ATS that effects transactions in both NMS stocks and non-NMS stocks would be required to file both a Form ATS-N with respect to its trading of NMS stocks and a revised Form ATS that removes discussion of those aspects of the ATS related to the trading of NMS stocks. The ATS would also be required to file two Forms ATS-R—one to report its trading volume in NMS stocks and another to report its trading volume in non-NMS stocks.
As noted above, the proposed amendments to Rule 301(b)(10) of Regulation ATS would require all ATSs to have in place written safeguards and written procedures to protect subscribers' confidential trading information. Proposed Rule 303(a)(1)(v) of Regulation ATS would require all ATSs to preserve at least one copy of those written safeguards and written procedures.
The Commission preliminarily believes that both the Commission and the SRO of which the ATS's broker dealer-operator is a member will use these written safeguards and written procedures in order to better understand how each ATS protects subscribers' confidential trading information from unauthorized disclosure and access. The Commission preliminarily believes that the information contained in the records required to be preserved by proposed Rule 303(a)(1)(v) would be used by examiners and other representatives of the Commission, state securities regulatory authorities, and SROs to evaluate whether ATSs are in compliance with Regulation ATS as well as other applicable rules and regulations. The Commission also preliminarily believes that the proposed requirements to memorialize in writing the safeguards and procedures to protect subscribers' confidential trading information would assist ATSs in more effectively complying with their existing legal requirements under Regulation ATS; in particular, the requirements to protect the confidentiality of subscribers' trading information under Rule 301(b)(10) of Regulation ATS.
Proposed Rules 301(b)(2)(viii) and 304 of Regulation ATS would require each NMS Stock ATS to file a Form ATS-N, Form ATS-N Amendments, and a notice of cessation on proposed Form ATS-N.
The Commission preliminarily believes that market participants would use the information publicly disclosed on proposed Form ATS-N to source, evaluate, and compare and contrast information about different NMS Stock ATSs, including information relating to the broker-dealer operator and any potential conflicts of interests it may have with respect to its operation of the NMS Stock ATS. The Commission also preliminarily believes that market participants would use the information publicly disclosed on proposed Form ATS-N to source, evaluate, and compare and contrast information about, among other things, an NMS Stock ATS's eligibility requirements, trading hours, order types, connection and order entry functionalities, segmentation of order flow, display of orders and other trading interests, trading platform functionality, procedures governing trading during a suspension of trading, system disruption, or system malfunction, opening, closing, and after-hours trading processes or procedures, routing procedures, market data usages and sources, fees, trade reporting, clearing, and settlement, order display and execution access standards, fair access standards, and market quality statistics published or provided to one or more subscribers. Accordingly, the Commission preliminarily believes that market participants would use the information disclosed on proposed Form ATS-N to better evaluate to which trading venue they may want to subscribe and/or route orders for execution in order to accomplish their investing or trading objectives.
The Commission preliminarily believes it will use the information
The Commission also proposes to amend Rule 303(a)(2)(ii) of Regulation ATS to provide that all ATSs must preserve copies of all reports filed pursuant to proposed Rule 304 for the life of the enterprise and any successor enterprise. The Commission preliminarily believes that the information contained in the records required to be preserved by the proposed amendment to Rule 303(a)(2)(ii) would be used by examiners and other representatives of the Commission, state securities regulatory authorities, and SROs to evaluate whether ATSs are in compliance with Regulation ATS as well as other applicable rules and regulations.
The “collection of information” requirements under the proposed amendments to Regulation ATS relating to Rule 301(b)(10) and proposed Rule 303(a)(1)(v), as described above, would apply to all ATSs, including NMS Stock ATSs. The “collection of information” requirements under the proposed amendments to Regulation ATS relating to proposed Rule 304, Form ATS-N, and the proposed amendments to Rule 303(a)(2)(ii), as described above, would apply only to NMS Stock ATSs, and the “collection of information” requirements under the proposed amendments to Rule 301(b)(9), as described above, would apply to NMS Stock ATSs that also effect trades in both NMS stocks and non-NMS stocks.
Currently, there are 84 ATSs that have filed Form ATS with the Commission. Of these 84 ATSs, 46 would meet the definition of an NMS Stock ATS.
In addition, the Commission notes that there are currently 11 ATSs that trade, or have indicated in Exhibit B to their Form ATS that they expect to trade, both NMS stocks and non-NMS stocks on the ATS.
With respect to proposed Form ATS-N, the Commission recognizes there may be entities that might file a Form ATS-N to operate an NMS Stock ATS in the future. From 2012 through the first half of 2015, there has been an average of 2 new ATSs per year that disclose that they trade or expect to trade NMS stocks on their initial operation reports, which would therefore fall within the proposed definition of an NMS Stock ATS. Similarly, some ATSs that currently trade NMS stocks may choose to cease operations rather than comply with the proposed amendments requiring them to file proposed Form ATS-N. Other ATSs may choose to cease operations in the normal course of business. From 2012 through the first half of 2015, there has been an average of 6 ATSs that trade NMS stocks that have ceased operations each year.
The Commission preliminarily believes that most ATSs that currently trade NMS stocks would continue to operate notwithstanding the proposed amendments to Regulation ATS. For the purposes of this analysis of the paperwork burden associated with the proposed amendments to Regulation ATS, the Commission assumes that there will be 46 respondents. The Commission preliminarily believes that this number is reasonable, as it assumes that most ATSs that currently trade NMS stocks would file a Form ATS-N with the Commission, and acknowledges that there may be some ATSs that cease operations altogether and other entities that may choose to commence operations as an NMS Stock ATS. Based on the number of initial filings and cessation of operations reports on current Form ATS for ATSs that trade NMS stocks described above, the Commission estimates that, 2 to 3 new entities will file to become an NMS Stock ATS and 4 to 6 NMS Stock ATSs will cease operations in each of the next three years.
Under current Rule 301(b)(10) of Regulation ATS,
For ATSs that currently have and preserve in written format the safeguards and procedures to protect subscribers' confidential trading information under Rule 301(b)(10) of Regulation ATS, the Commission preliminarily estimates that the average annual burden they voluntarily undertake to update and preserve those written safeguards and written procedures is 4 hours.
The Commission recognizes that proposed Rules 301(b)(10) and 303(a)(1)(v) of Regulation ATS would impose certain burdens on respondents. For ATSs that currently have and preserve in written format the safeguards and procedures to protect subscribers' confidential trading information and written oversight procedures to ensure such safeguards and procedures are followed, the Commission preliminarily believes that there will be no increased burden under the proposed amendments to Rules 301(b)(10) and 303(a)(1)(v) of Regulation ATS. The Commission preliminarily believes that the current practices of those ATSs would already be in compliance with the proposed rules. Therefore, the proposed amendments should not require those ATSs to take any measures or actions in addition to those currently undertaken.
For ATSs that have not recorded in writing their safeguards and procedures to protect subscribers' confidential trading information and oversight procedures to ensure such safeguards and procedures are followed, there will be an initial, one-time burden to memorialize them in a written document(s). The Commission preliminarily estimates that an ATS's initial, one-time burden to put in writing its safeguards and procedures to protect subscribers' confidential trading information and the oversight procedures to ensure such safeguards and procedures are followed would be approximately 8 hours,
As explained above, the Commission preliminarily estimates that the average annual, ongoing burden per ATS to update and preserve written safeguards and written procedures to protect subscribers' confidential trading information, as well as to update and preserve the written standards controlling employees of the ATS trading for their own account and the written oversight procedures, would be 4 hours.
Currently, Rule 301(b)(2)(i) of Regulation ATS
The Commission's currently approved estimate for an initial operation report on current Form ATS is 20 hours to gather the necessary information, provide the required disclosures in Exhibits A through I, and submit the Form ATS to the Commission.
The Commission recognizes that proposed Rules 301(b)(2)(viii) and 304 of Regulation ATS, including proposed Form ATS-N, would impose certain burdens on respondents.
Parts I and II of proposed Form ATS-N would require disclosure of certain general information regarding the broker-dealer operator and the NMS Stock ATS. Part I of proposed Form ATS-N would require the NMS Stock ATS to state the name of its broker-dealer operator, the name under which the NMS Stock ATS conducts business, if any, the MPID of the NMS Stock ATS, and whether it is an NMS Stock ATS operating pursuant to a previously filed initial operation report on Form ATS. Part II of proposed Form ATS-N would require the address of the physical location of the NMS Stock ATS matching system and the NMS Stock ATS's mailing address. Part II of proposed Form ATS-N would also require registration information of the broker-dealer operator, including its SEC File Number, the effective date of the broker-dealer operator's registration with the Commission, its CRD Number, the name of its national securities association, and the effective date of the broker-dealer operator's membership with the national securities association. In addition, Part II of proposed Form ATS-N would require disclosure of certain information regarding the legal status of the broker-dealer operator and would require the NMS Stock ATS to provide a URL address to its Web site. Finally, Part II would require the NMS Stock ATS to attach Exhibit 1 (a copy of any materials provided to subscribers or any other persons related to the operations of the NMS Stock ATS or the disclosures on Form ATS-N), Exhibit 2A (a copy of the most recently filed or amended Schedule A of the broker-dealer operator's Form BD disclosing information related to direct owners and executive officers), and Exhibit 2B (a copy of the most recently filed or amended Schedule B of the broker-dealer operator's Form BD disclosing information related to indirect owners). In lieu of attaching those exhibits to Form ATS-N, the NMS Stock ATSs would be able to provide a URL address to where the required documents can be found.
Under current Form ATS, an ATS is required to provide all of the information that would be required under Parts I and II of proposed Form ATS-N with the exception of: (1) Its Web site address; (2) the effective date of the broker-dealer operator's registration with the Commission; (3) the name of the national securities association and effective date of the broker-dealer operator's membership with the national securities association;
Part III, Item 1 of proposed Form ATS-N would require an NMS Stock ATS to disclose whether or not the broker-dealer operator or any of its affiliates operate or control any non-ATS trading center(s), and if so, to (1) identify the non-ATS trading center(s); and (2) describe any interaction or coordination between the identified non-ATS trading center(s) and the NMS Stock ATS including: (i) Circumstances under which subscriber orders or other trading interest sent to the NMS Stock ATS are displayed or otherwise made known to the identified non-ATS trading center(s) before entering the NMS Stock ATS; (ii) circumstances under which subscriber orders or other trading interest received by the broker-dealer operator or its affiliates may execute, in whole or in part, in the identified non-ATS trading center(s) before entering the NMS Stock ATS; and (iii) circumstances under which orders or other trading interest are removed from the NMS Stock ATS and sent to the identified non-ATS trading center(s). Under Proposed Form ATS-N, affiliates of the broker-dealer operator would only include any person that, directly or indirectly, controls, is under common control with, or is controlled by, the broker-dealer operator. The affiliates of the broker-dealer operator that might operate non-ATS trading centers under this proposal would thus be “control affiliates” that are either controlled by the broker-dealer operator or under common control with another entity. Consequently, because the broker-dealer operator would control all affiliates or would be under common control with those affiliates, the broker-dealer operator should be aware of whether its affiliates operate a non-ATS trading center or in most instances, should otherwise be able to readily obtain such information from its affiliates.
To the extent the operation of a non-ATS trading center operated or controlled by the broker-dealer operator or any of its affiliates does not interact with the NMS Stock ATS (
The Commission understands that most, but not all, broker-dealer operators of NMS Stock ATSs currently, either by themselves or through their affiliates, operate or control a non-ATS trading center. The Commission preliminarily estimates that, on average, preparing Part III, Item 1 for a Form ATS-N would add 10 hours to the current baseline for an initial operation report on current Form ATS. This would result in an aggregate initial burden of 460 hours above the baseline for all NMS Stock ATSs to complete Part III, Item 1 of proposed Form ATS-N.
Part III, Item 2 of proposed Form ATS-N would require an NMS Stock ATS to state whether the broker-dealer operator, or any of its affiliates, operates one or more NMS Stock ATSs other than the NMS Stock ATS named on the Form ATS-N, and, if so, to (1) identify the NMS Stock ATS(s) and provide its MPID(s); and (2) describe any interaction or coordination between the NMS Stock ATS(s) identified and the NMS Stock ATS named on the Form ATS-N including: (i) The circumstances under which subscriber orders or other trading interest received by the broker-dealer operator or any of its affiliates to be sent to the NMS Stock ATS named in the Form ATS-N may be sent to any identified NMS Stock ATS(s); (ii) circumstances under which subscriber orders or other trading interest to be sent to the NMS Stock ATS named on the Form ATS-N are displayed or otherwise made known in any other identified NMS Stock ATS(s); and (iii) the circumstances under which a subscriber order received by the NMS Stock ATS named on the Form ATS-N may be removed and sent to any other identified NMS Stock ATS(s). Broker-dealer operators of multiple NMS Stock ATSs would already be aware of how their NMS Stock ATSs may interact with one another and those of its affiliates by, for example, sharing order flow between each other.
Based on the currently filed Forms ATS reviewed by the Commission during the third quarter of 2015, the Commission estimates that there are 6 broker-dealer operators that operate, by themselves or through an affiliate, multiple ATSs that trade NMS stocks. The Commission notes that broker-dealer operators operating multiple NMS Stock ATSs, by themselves or with their affiliates, would be required to complete Part III, Item 2 of proposed Form ATS-N for each NMS Stock ATS. The Commission preliminarily believes that it would not be a significant burden for a broker-dealer operator to identify all of the NMS Stock ATSs operated by
Part III, Item 3 of proposed Form ATS-N would require an NMS Stock ATS to disclose whether or not the broker-dealer operator or any of its affiliates offer subscribers of the NMS Stock ATS any products or services used in connection with trading on the NMS Stock ATS (
Part III, Item 4 of proposed Form ATS-N would require an NMS Stock ATS to disclose whether or not the broker-dealer operator or any of its affiliates have any formal or informal arrangement with an unaffiliated person(s), or affiliate(s) of such person, that operates a trading center regarding access to the NMS Stock ATS, including preferential routing arrangements, and, if so, to identify the person(s) and the trading center(s) and describe the terms of the arrangement(s). The Commission understands from discussions with ATSs that some ATSs that currently trade NMS stock have arrangements with other ATSs to provide mutual access to the each other's respective ATSs. The Commission recognizes that an NMS Stock ATS could also have arrangements with other trading centers such as a non-ATS trading center or a national securities exchange. In addition, there may be NMS Stock ATSs that have no arrangements with any other trading center. As the broker-dealer operator controls all aspects of the operation of the NMS Stock ATS, the broker-dealer operator should already be aware of any such arrangements providing for mutual access or preferential routing that it has with other trading centers. Accordingly, the Commission preliminarily estimates that, on average, preparing Part III, Item 4 for a Form ATS-N would add 4 hours to the current baseline for an initial operation report on current Form ATS. This would result in an aggregate initial burden of 184 hours above the current baseline for all NMS Stock ATSs to complete Part III, Item 4 of proposed Form ATS-N.
Part III, Item 5 of proposed Form ATS-N would require certain disclosures related to the trading activity of the broker-dealer operator or its affiliates on the NMS Stock ATS. Specifically, Part III, Item 5 would require the NMS Stock ATS to disclose whether or not the broker-dealer operator or any of its affiliates enters orders or other trading interest on the NMS Stock ATS, and, if so, to provide detailed disclosures describing such trading activity.
Part III, Item 6 of proposed Form ATS-N would require an NMS Stock ATS to disclose whether the broker-dealer operator, or any of its affiliates, use a SOR(s) (or similar functionality), an algorithm(s), or both to send or receive subscriber orders or other trading interest to or from the NMS Stock ATS.
For example, in responding to Part III, Item 6(b), which would require an NMS Stock ATS to describe, among other things, any information or messages about orders or other trading interest that the SOR(s) (or similar functionality) and algorithm(s) send or receive to or from the NMS Stock ATS, an NMS Stock ATS that uses IOIs to facilitate trades on the NMS Stock ATS and that uses its SOR(s) (or similar functionality) and/or algorithm(s) to facilitate the sending of those IOIs to relevant persons would likely have a substantially greater burden in responding to Item 6(b) due to the number of messages that may be associated with an IOI and the subsequent responses to that IOI than an NMS Stock ATS that does not use IOIs. Accordingly, the Commission preliminarily estimates that, on average, preparing Part III, Item 6 for a Form ATS-N would add 10 hours to the current baseline for an initial operation report on current Form ATS. This would result in an aggregate initial burden of 460 hours above the current baseline for all NMS Stock ATSs to complete Part III, Item 6 of proposed Form ATS-N.
Part III, Item 7 of proposed Form ATS-N would require an NMS Stock ATS to disclose whether it has any shared employees,
Part III, Item 8 of proposed Form ATS-N would require an NMS Stock ATS to disclose whether any operation, service, or function of the NMS Stock ATS is performed by any person(s) other than the broker-dealer operator of the NMS Stock ATS, and if so to: (1) Identify the person(s) (in the case of a natural person, to identify only the person's position or title) performing the operation, service, or function and note whether this service provider(s) is an affiliate of the broker-dealer, if applicable; (2) describe the operation, service, or function that the identified person(s) provides and describe the role and responsibilities of that person(s); and (3) state whether the identified person(s), or any of its affiliates, may enter orders or other trading interest on the NMS Stock ATS and, if so, describe the circumstances and means by which such orders or other trading interest are entered on the NMS Stock ATS. The Commission notes that this proposed disclosure requirement is similar to the Exhibit E disclosure requirement under the current Form ATS.
Part III, Item 9 of proposed Form ATS-N would require an NMS Stock ATS to identify and describe any service, functionality, or procedure of the NMS Stock ATS available to the broker-dealer operator or its affiliates that is not available or does not apply to a subscriber(s) to the NMS Stock ATS. The Commission is not currently aware of any NMS Stock ATS that provides services, functionalities, or procedures to itself or its affiliates and not to subscribers, although the Commission recognizes that an NMS Stock ATS could do so. To the extent that the services, functionalities, or procedures of the NMS Stock ATS provided to the broker-dealer operator or its affiliates on the NMS Stock ATS differ from those provided to non-affiliated subscribers, the NMS Stock ATS would have to describe all such differences in Item 9. Depending on the extent of such differences, the hourly burden for providing these disclosures would vary. Conversely, if there are no differences between the services, functionalities, or procedures of the NMS Stock ATS that are provided to the broker-dealer operator or its affiliates relative to subscribers, Part III, Item 9 would only require the NMS Stock ATS to note this fact. Accordingly, the Commission preliminarily estimates that, on average, preparing Part III, Item 9 for a Form ATS-N would add 2 hours to the current baseline for an initial operation report on current Form ATS. This would result in an aggregate initial burden of 92 hours above the current baseline for all NMS Stock ATSs to complete Part III, Item 9 of proposed Form ATS-N.
Part III, Item 10 of proposed Form ATS-N would require certain disclosures related to the NMS Stock ATS's written safeguards and written procedures to protect the confidential trading information of subscribers pursuant to Rule 301(b)(10) of Regulation ATS.
Part IV, Item 1 of proposed Form ATS-N would require an NMS Stock ATS to disclose, among other things, information regarding: (1) Any eligibility requirements to access the NMS Stock ATS; (2) the terms and conditions of any contractual agreements for granting access to the NMS Stock ATS for the purpose of effecting transactions in securities or for submitting, disseminating, or displaying orders on the NMS Stock ATS; (3) the types of subscribers and other persons that use the services of the NMS Stock ATS; (4) any formal or informal arrangement the NMS Stock ATS has with liquidity providers; and (5) any circumstances by which access to the NMS Stock ATS can be limited or denied and the procedures or standards that are used to determine such action. For each disclosure, the NMS Stock ATS would also be required to explain whether there are any differences in how these requirements, terms, conditions, criteria, procedures, and/or standards are applied among subscribers and persons.
The Commission notes that the proposed disclosure requirements of Part IV, Item 1 of proposed Form ATS-N are, in large part, already required under current Form ATS. Exhibit A of current Form ATS requires an ATS to describe its classes of subscribers (
Depending on the complexity of the NMS Stock ATS, the different types of subscribers, and, most significantly, the extent to which the terms and conditions vary among subscribers, the disclosure burden related to Part IV, Item I of proposed Form ATS-N would likely vary. For example, an NMS Stock ATS with two classes of subscribers with identical terms and conditions of use, eligibility criteria, and the same circumstances and process regarding limiting and denying services of the NMS Stock ATS would likely have less of a burden than an NMS Stock ATS with five groups of subscribers with varying terms and conditions of use, eligibility criteria, and differing circumstances and processes for which they may be limited or denied the services of the NMS Stock ATS. Accordingly, the Commission preliminary estimates that, on average, preparing Part IV, Item 1 of a Form ATS-N would add 6 hours to the current baseline for an initial operation report on current Form ATS to respond to the more detailed questions regarding subscribers to the NMS Stock ATS. This would result in an aggregate initial burden of 276 hours above the current baseline for all NMS Stock ATSs to complete Part IV, Item 1 of proposed Form ATS-N.
Part IV, Item 2 of proposed Form ATS-N would require an NMS Stock ATS to provide the days and hours of operation of the NMS Stock ATS, including the times when orders or other trading interest are entered on to the NMS Stock ATS and the time when pre-opening or after-hours trading may occur. It would also require the NMS Stock ATS to explain differences, if any, among subscribers and persons in the times when orders or other trading interest are entered on the NMS Stock ATS. Current Form ATS does not specify similar disclosures, so the Commission preliminarily estimates that respondents would incur additional burdens above the current baseline when preparing the disclosures required under Part IV, Item 2 of proposed Form ATS-N. The NMS Stock ATS should already be aware of the hours during which it operates and whether and when it permits pre-opening or after-hours trading. Based on the experience of the Commission and its staff reviewing Form ATS and ATS-R filings, the Commission preliminarily believes that most ATSs that currently trade NMS stocks do not provide for after-hours or pre-opening trading of NMS stock. For NMS Stock ATSs for which the times when orders or other trading interest may be sent to the NMS Stock ATS are not the same for all subscribers and persons, the disclosure burden related to Part IV, Item 2 would likely increase. Accordingly, the Commission preliminarily estimates that, on average, preparing Part IV, Item 2 for a Form ATS-N would add 0.5 hours to the current baseline for an initial operation report on current Form ATS. This would result in an aggregate initial burden of 23 hours above the current baseline for all NMS Stock ATSs to complete Part IV, Item 2 of proposed Form ATS-N.
Part IV, Item 3 of proposed Form ATS would require an NMS Stock ATS to provide a detailed disclosure of the order types available on the NMS Stock ATS. Part IV Item 3(a) would require an NMS Stock ATS to describe any types of orders that are entered to the NMS Stock ATS, their characteristics, operations, and how they are handled on the NMS Stock ATS.
The Commission notes that some of the proposed disclosure requirements of Part IV, Item 3 of proposed Form ATS-N are already required under current Form ATS. Exhibit F of current Form ATS requires an ATS to describe, among other things, the manner of operation and the procedures governing order entry and execution of the ATS. Part IV, Item 3 of proposed Form ATS-N would require significantly more detail, and a greater number of disclosures, in regard to types of orders than Exhibit F of current Form ATS. ATSs that trade NMS stocks currently vary in the extent of their disclosures relating to order types as provided in Exhibit F. Some provide a relatively fulsome discussion of different order types and to whom they are made available, while other ATSs that trade NMS stocks do not provide substantial detail in this area. Depending on the extent to which an ATS that trades NMS stocks already discloses most of the information regarding order types and trading interest on Exhibit F of its Form ATS, as well as the variety and complexity of different order types available, the proposed disclosure burden of Part IV, Item 3 of proposed Form ATS-N will likely vary among NMS Stock ATSs. For example, those NMS Stock ATSs that send and receive actionable IOIs and/or conditional orders would be required to draft a detailed explanation regarding those order types for Part IV, Item 3(d), whereas NMS Stock ATSs without such order types would simply state that they do not send and receive IOIs and conditional orders. Accordingly, the Commission preliminarily estimates that, on average, preparing Part IV, Item 3 of a Form ATS-N would add 6 hours to the current baseline for an initial operation report on current Form ATS, depending on such factors as described above. This would result in an aggregate initial burden of 276 hours above the current baseline for an initial operation report on current Form ATS for all NMS
Part IV, Item 4 of proposed Form ATS-N would require an NMS Stock ATS to disclose the means by which subscribers or other persons connect and send orders to the NMS Stock ATS. Part IV, Item 4(a) would require the NMS Stock ATS to describe the means by which subscribers or other persons connect to the NMS Stock ATS and enter orders or other trading interest on the NMS Stock ATS (
The Commission notes that some of the proposed disclosure requirements of Part IV, Item 4 of proposed Form ATS-N are already required under current Form ATS. Exhibit F of current Form ATS requires an ATS to describe, among other things, the means of access to the ATS. Part IV, Item 4 of proposed Form ATS-N would expressly require significantly more detail, and a greater number of disclosures, in regard to order entry, connectivity, and co-location services than Exhibit F of current Form ATS. ATSs that currently trade NMS stocks vary in the depth of their disclosures related to order entry. Currently, most ATSs that trade NMS stocks do not provide much or any detail regarding the extent to which they provide co-location services or other speed advantages to subscribers or persons trading on the ATS. Accordingly, the Commission preliminarily estimates that respondents would incur an additional burden above the current baseline when preparing the disclosures required under Part IV, Item 4 of proposed Form ATS-N. The Commission preliminarily estimates that, on average, preparing Part IV, Item 4 for a Form ATS-N would add 5 hours to the current baseline for an initial operation report on current Form ATS to provide a more detailed description of the connection and order entry procedures, a description of any co-location or speed-advantage services, as well as any differences among subscribers and other persons with respect to these disclosures. This would result in an aggregate initial burden of 230 hours above the current baseline for all NMS Stock ATSs to complete Item 4 of Part IV of proposed Form ATS-N.
Part IV, Item 5 of proposed Form ATS-N would require an NMS Stock ATS to explain if and how it segments order flow, the type of notice about such segmentation that it provides to subscribers, and whether subscribers, the broker-dealer operator, or its affiliates may submit order preferencing instructions. Part IV, Item 5(a) would require an NMS Stock ATS to describe any segmentation of orders or other trading interest on the NMS Stock ATS (
The Commission notes that some of the proposed disclosure requirements of Part IV, Item 5 of proposed Form ATS-N are already required under current Form ATS. Exhibit F of current Form ATS requires an ATS to describe, among other things, the manner of operation and the procedures governing order entry and execution of the ATS. However, Exhibit F of current Form ATS does not expressly enumerate the level of detail that an ATS must provide in regard to its segmentation of order flow and does not expressly ask for an ATS to describe any notice to subscribers regarding segmentation or explain any means and circumstances for order preferencing, whereas Part IV, Item 5 of proposed Form ATS-N would require detailed disclosures in regard to these subjects.
Part IV, Item 6(a) of proposed Form ATS-N would require an NMS Stock ATS to describe any means and circumstances by which orders or other trading interest on the NMS Stock ATS are displayed or made known outside the NMS Stock ATS and the information about the orders and trading interest that are displayed. If the display of orders or other trading interest is not the same for all subscribers and persons, the NMS Stock ATS would be required to describe any differences. Part IV, Item 6(b) of proposed Form ATS-N would require the NMS Stock ATS to identify the subscriber(s) or person(s) (in the case of a natural person, the NMS Stock ATS would only identify the person's position or title) to whom the orders and trading interest are displayed or otherwise made known. Although Exhibit F of current Form ATS requires an ATS to describe, among other things, the manner of operation and the procedures governing order entry and execution of the ATS, Exhibit F does not expressly state that an ATS must explain if and how order information is displayed or otherwise made known outside the NMS Stock ATS. The Commission understands from its review of Forms ATS filings that a majority of ATSs that trade NMS stocks provide some form of IOI or conditional order that would likely need to be described in Part IV, Item 6 of proposed Form ATS-N.
Part IV, Item 7 of proposed Form ATS-N would require an NMS Stock ATS to describe its trading services in detail. Part IV, Items 7(a) and 7(b) of proposed Form ATS-N would require an NMS Stock ATS to disclose the means or facilities used by the NMS Stock ATS to bring together the orders of multiple buyers and sellers, as well as the established, non-discretionary methods that dictate the terms of trading among multiple buyers and sellers on the facilities of the NMS Stock ATS, including rules and procedures governing the priority, pricing methodologies, allocation, matching, and execution of orders and other trading interest. Part IV, Item 7(c) would require the NMS Stock ATS to describe any trading procedures related to price protection mechanisms, short sales, locked-crossed markets, the handling of execution errors, time-stamping of orders and executions, or price improvement functionality. For all disclosures required under Item 7, the NMS Stock ATS would also be required to describe any differences in the availability of a functionality regarding its trading services among subscribers and persons.
The Commission notes that some of the proposed disclosure requirements of Part IV, Item 7 of proposed Form ATS-N are already required under current Form ATS. Exhibit F of current Form ATS requires an ATS to describe, among other things, the manner of operation and the procedures governing order entry and execution of the ATS. These required disclosures in Exhibit F of Form ATS are similar to those set forth in Item 7 of proposed Form ATS-N, which would require disclosures relating to matching methodology, order interaction rules, and execution procedures of the NMS Stock ATS. Consequently, the Commission preliminarily believes that NMS Stock ATSs already have some experience completing Exhibit F that would lessen the burden related to responding to the more detailed disclosures in Items 7(a), (b), and (c) of Part IV of proposed Form ATS-N.
Furthermore, Part IV, Item 7 of proposed Form ATS-N would require an NMS Stock ATS to describe how the NMS Stock ATS meets the two prongs necessary to meet the Exchange Act's definition of “exchange” pursuant to Rule 3b-16(a) under the Exchange Act in Items 7(a) and (b).
Accordingly, the Commission preliminarily estimates that respondents would incur an additional burden above the current baseline when preparing the disclosures required under Part IV, Item 7 of proposed Form ATS-N. The Commission preliminarily estimates that, on average, preparing Part IV, Item 7 for a Form ATS-N would add 6 hours to the current baseline for an initial operation report on current Form ATS to provide a description of the NMS Stock ATS's trading services. This would result in an aggregate initial burden of 276 hours above the current baseline for all NMS Stock ATSs to complete Part IV, Item 7 of proposed Form ATS-N.
Part IV, Item 8 of proposed Form ATS-N would require an NMS Stock ATS to describe any procedures governing trading in the event the NMS Stock ATS suspends trading or experiences a system disruption or system malfunction. If the procedures governing trading during a suspension or system disruption or malfunction are not the same for all subscribers and persons, the NMS Stock ATS would be required to describe any differences.
Exhibit G of Form ATS requires ATSs to describe the ATS's procedures for reviewing system capacity, security, and contingency planning procedures. The Commission preliminarily believes that the proposed disclosures in Part IV, Item 8 of proposed Form ATS-N relating to system disruptions, malfunctions, or other suspensions relate, in part, to the Exhibit G disclosures on current Form ATS. The Commission notes that some ATSs that trade NMS stocks currently provide
Accordingly, the Commission preliminarily estimates that respondents would incur an additional burden above the current baseline when preparing the disclosures required under Part IV, Item 8 of proposed Form ATS-N. The Commission preliminarily estimates that, on average, preparing Part IV, Item 8 for a Form ATS-N would add 2.5 hours to the current baseline for an initial operation report on current Form ATS to provide a detailed description of the NMS Stock ATS's procedures for system disruptions, malfunctions, or other suspensions. This would result in an aggregate initial burden of 115 hours above the current baseline for all NMS Stock ATSs to complete Part IV, Item 8 of proposed Form ATS-N.
Part IV, Item 9 of proposed Form ATS-N would require an NMS Stock ATS to describe any opening, reopening and closing processes, and any procedures for after-hours trading. Part IV, Item 9(a) of proposed Form ATS-N would require an NMS Stock ATS to describe any opening and reopening processes, including how orders or other trading interest are matched and executed prior to the start of regular trading hours or following a stoppage of trading in a security during regular trading hours and how unexecuted orders or other trading interest are handled at the time the NMS Stock ATS begins regular trading at the start of regular trading hours or following a stoppage of trading in a security during regular trading hours. The NMS Stock ATS would also be required to describe any differences between pre-opening executions, executions following a stoppage of trading in a security during regular trading hours, and executions during regular trading hours. Part IV, Items 9(b) and (c) would require an NMS Stock ATS to describe any closing process and after-hours trading procedures, respectively, the manner in which unexecuted orders or other trading interest are handled at the close of regular trading, and how orders and trading interest are matched and executed during after-hours trading. The NMS Stock ATS would also be required to describe any differences between the closing and after-hours executions versus executions during regular trading hours.
The Commission notes that some of the proposed disclosure requirements of Part IV, Item 9 of proposed Form ATS-N are incorporated by some ATSs that trade NMS stocks into Exhibit F of their current Forms ATS, which requires an ATS to describe, among other things, the manner of operation and the procedures governing order entry and execution of the ATS. Currently, ATSs that trade NMS stocks vary in the depth of their disclosures relating to opening, reopening, or closing processes, and after-hours trading procedures. The Commission notes that these opening, reopening, or closing processes, and after-hours trading procedures, may vary widely across different NMS Stock ATSs, with some, for example, allowing for pre-opening executions and routing and after-hours trading and routing, while others may not have an opening process and simply commence with regular trading without any option for after-hours trading. In any case, NMS Stock ATSs should already be aware of any opening, reopening or closing processes, and after-hours trading procedures, they may have as well as any differences in trading and execution during the opening, reopening, or closing processes, and during after-hours trading. Accordingly, the Commission preliminarily believes that preparing Part IV, Item 9 of proposed Form ATS-N for a Form ATS-N would not impose a significant additional burden above the current baseline for an initial operation report on current Form ATS. The Commission preliminarily estimates that, on average, preparing Part IV, Item 9 for a Form ATS-N would add 3 hours to the current baseline for an initial operation report on current Form ATS to describe its opening, reopening, or closing processes, and after-hours trading procedures. This would result in an aggregate initial burden of 138 hours above the current baseline for all NMS Stock ATSs to complete Part IV, Item 9 of proposed Form ATS-N.
Part IV, Item 10 of proposed Form ATS-N would require an NMS Stock ATS to describe its outbound routing functions. Part IV, Item 10(a) of proposed Form ATS-N would require an NMS Stock ATS to describe the circumstances under which orders or other trading interest are routed from the NMS Stock ATS to another trading center, including whether outbound routing occurs at the affirmative instruction of the subscriber or at the discretion of the broker-dealer operator, and the means by which routing is performed (
Part IV, Item 11 of proposed Form ATS would require an NMS Stock ATS to describe its sources and uses of market data. Part IV, Item 11(a) would require an NMS Stock ATS to describe the market data used by the NMS Stock ATS and the source of that market data (
Part IV, Item 12 of proposed Form ATS-N would require an NMS Stock ATS to make certain disclosures regarding its fees, rebates, and other charges. Part IV, Item 12(a) of proposed Form ATS-N would require an NMS Stock ATS to describe any fees, rebates, or other charges of the NMS Stock ATS (
Part IV, Item 13 of proposed Form ATS would require an NMS Stock ATS to describe any arrangements or procedures for trade reporting, clearance, and settlement on the NMS Stock ATS. Part IV, Item 13(a) of proposed Form ATS-N would require an NMS Stock ATS to describe any arrangements or procedures for reporting transactions on the NMS Stock ATS and if the trade reporting procedures are not the same for all subscribers and persons, the NMS Stock ATS would be required to describe any differences. Part IV, Item 13(b) of proposed Form ATS-N would require an NMS Stock ATS to describe any arrangements or procedures undertaken by the NMS Stock ATS to facilitate the clearance and settlement of transactions on the NMS Stock ATS (
Part IV, Item 14 of proposed Form ATS-N would require an NMS Stock ATS to provide the following information if the NMS Stock ATS displays orders in an NMS stock to any person other than employees of the NMS Stock ATS and executed 5% or more of the average daily trading volume in that NMS stock as reported by an effective transaction reporting plan for four of the preceding six calendar months: (a) The ticker symbol for each NMS stock for each of the last 6 calendar months; (b) a description of the manner in which the NMS Stock ATS displays such orders on a national securities exchange or through a national securities association; and (c) a description of how the NMS Stock ATS provides access to such orders displayed in the national market system equivalent to the access to other orders displayed on that exchange or association. Part IV, Item 15 of proposed Form ATS-N would require an NMS Stock ATS to provide the following
If, however, an NMS Stock ATS were to cross these 5% thresholds, a disclosure burden related to amending a Form ATS-N to complete Part IV, Items 14 and 15 of proposed Form ATS-N would result. Because Items 14 and 15 of Part IV are tied to existing obligations that arise from crossing the 5% thresholds pursuant to Rule 301(b)(3) and Rule 301(b)(5)(ii)(A) of Regulation ATS, respectively, the Commission preliminarily believes that NMS Stock ATSs should already be generally aware of the procedures they would follow if the 5% thresholds were crossed, which should reduce the burden associated with the disclosures that would be required under Items 14 and 15. The Commission notes that an NMS Stock ATS would only have to respond to Part IV, Items 14 or 15 of a Form ATS-N if the NMS Stock ATS previously operated as an ATS and triggered the applicable 5% thresholds. The Commission further notes that NMS Stock ATSs would be less likely to have to complete Item 14 as compared to Item 15 because Item 14 requires as an additional precondition that the NMS Stock ATS displays orders in an NMS stock to a person other than employees of the NMS Stock ATS. For new NMS Stock ATSs (
As explained above, the Commission notes that triggering the 5% threshold, a precondition necessary to require completion of Part IV, Items 14 and 15 of proposed Form ATS-N, currently occurs, and the Commission preliminarily estimates would continue to occur, very infrequently. Based on the review of Form ATS and Form ATS-R disclosures by the Commission and its staff, the Commission preliminarily estimates that 1 NMS Stock ATS would have to complete Item 14 and 2 NMS Stock ATSs would have to complete Item 15 in any given year. Accordingly, the Commission preliminarily estimates that the disclosures that would be required under Part IV, Items 14 and 15 of proposed Form ATS-N would result in an aggregate initial burden of 15 hours above the current baseline.
Part IV, Item 16 of proposed Form ATS-N would require an NMS Stock ATS to explain and provide certain aggregate platform-wide market quality statistics that it publishes or otherwise provides to subscribers regarding the NMS Stock ATS. Under Item 16, if the NMS Stock ATS publishes or otherwise provides to one or more subscribers aggregate platform-wide order flow and execution statistics of the NMS Stock ATS that are not otherwise required disclosures under Exchange Act Rule 605 of Regulation NMS, it would be required to: (i) List and describe the categories of the aggregate platform-wide order flow and execution statistics published or provided; (ii) describe the metrics and methodology used to calculate the aggregate platform-wide order flow and execution statistics; and (iii) attach as Exhibit 5 the most recent disclosure of the aggregate platform-wide order flow and execution statistics published or provided to one or more subscribers for each category or metric as of the end of the calendar quarter. An NMS Stock ATS would not be required to develop or publish any new statistics for purposes of making the required disclosures under Item 16; it would only be required to make the disclosures for statistics it already otherwise collects and publishes in the course of its operations. Thus, NMS Stock ATSs that do not publish or otherwise provide aggregate platform-wide market quality statistics would not incur any additional burden due to the proposed disclosure requirements of Item 16. For NMS Stock ATSs that do provide such statistics, Item 16 would impose an additional burden above the baseline because current Form ATS does not require the disclosure of market quality statistics. The Commission preliminarily estimates that preparing Part IV, Item 16 for a Form ATS-N would add 7 hours to the current baseline for an initial operation report on current Form ATS. This would result in an aggregate initial burden of 322 hours above the current baseline for all NMS Stock ATSs to complete Part IV, Item 16 of proposed Form ATS-N.
Based on the above analysis of the estimated additional burden for a proposed Form ATS-N, the Commission preliminarily estimates that a proposed Form ATS-N will, on average, require an estimated 121.3 burden hours above the current baseline for an initial operation report on current Form ATS. This results in an estimated 141.3 hours in total, including the current baseline.
This preliminary estimated burden for a Form ATS-N includes the hour burden associated with completing Part III, Item 2 and Part IV, Items 14 and 15 of proposed Form ATS-N. As explained above, however, the Commission preliminarily believes that the majority of NMS Stock ATSs would not be required to complete those items of the proposed form.
As previously noted, the Commission currently estimates that ATSs that trade NMS stocks submit 2 amendments, on average, each year.
As noted above, the Commission currently estimates that the hourly burden related to an amendment to Form ATS is 6 hours.
As previously noted, from 2012 through the first half of 2015, there have been an average of 6 ATSs that trade NMS stocks that cease operations each year.
Under proposed Rule 301(b)(2)(viii) of Regulation ATS, an ATS that effects trades in both NMS stocks and non-NMS stocks would have to submit a Form ATS-N with respect to its trading of NMS stocks and a revised Form ATS that removes discussion of those aspects of the ATS related to the trading of NMS stocks. Under the proposed amendments to Rule 301(b)(9), an ATS that effects trades in both NMS stocks and non-NMS stocks would also be required to file separate Forms ATS-R—one disclosing trading volume in NMS stocks and one disclosing trading volume in non-NMS stocks. Therefore, ATSs that are subject to these proposed requirements would incur: (1) the above baseline burdens related to filing a Form ATS-N and Form ATS-N Amendments;
Accordingly, the Commission estimates that the total hourly burden for an ATS to separately file a Form ATS for its non-NMS stock trading
The Commission estimates that the total burden for completing and filing two Form ATS-R would be 4.5 hours, which is 0.5 hours
The Commission proposes that Form ATS-N would be submitted electronically in a structured format and require an electronic signature.
To access EFFS, an NMS Stock ATS would have to submit to the Commission an External Account User Application (“EAUA”) to register each individual at the NMS Stock ATS who would access the EFFS system on behalf of the NMS Stock ATS. The Commission is including in its burden estimates the burden for completing the EAUA for each individual at an NMS Stock ATS who would request access to EFFS. The Commission estimates that initially, on average, two individuals at each NMS Stock ATS would request access to EFFS through the EAUA, and each EAUA would take 0.15 hours to complete and submit. Therefore, each NMS Stock ATS would require a total of 0.3 hours to complete the requisite EAUAs,
In addition, the Commission estimates that each NMS Stock ATS will designate 2 individuals to sign Form ATS-N each year. An individual signing a Form ATS-N must obtain a digital ID, at the cost of approximately $25 each year. Therefore, each NMS Stock ATS would pay approximately $50 annually to obtain digital IDs for the individuals with access to EFFS for purposes of signing Form ATS-N,
Proposed Rule 304(b)(3) would require each NMS Stock ATS to make public via posting on the NMS Stock ATS's Web site a direct URL hyperlink to the Commission's Web site that contains the documents enumerated in proposed Rule 304(b)(2). The Commission preliminarily estimates that each NMS Stock ATS would incur an initial, one-time burden to program and configure its Web site in order to post the required direct URL hyperlink pursuant to proposed Rule 304(b)(3). The Commission preliminarily estimates that this initial, one-time burden would be approximately 2 hours.
As noted above, the Commission proposes to amend Rule 303(a)(2)(ii)
Rule 303(a)(ii) currently requires an ATS to preserve copies of reports filed pursuant to Rule 301(b)(2), which include all Form ATS filings, for the life of the enterprise and any successor enterprise. Because NMS Stock ATSs that solely trade NMS stocks would be filing Form ATS-N in lieu of Form ATS under this proposal, the Commission believes that the proposed amendment to Rule 303(a)(ii) would not result in any burden for those ATSs that is not already accounted for under the current baseline burden estimate for Rule 303.
All collections of information pursuant to the proposed rules would be mandatory for entities that meet the definition of NMS Stock ATS.
With respect to the proposed amendments to Rules 301(b)(2)(viii) and 304 of Regulation ATS, including proposed Form ATS-N, the Commission would make publicly available on its Web site all Forms ATS-N upon being declared effective. The Commission would also make publicly available on its Web site all properly filed Form ATS-N Amendments, and notices of cessation on Form ATS-N. The Commission would not make publicly available on its Web site Forms ATS-N that the Commission has declared ineffective, but these forms would be available for examination by the Commission and its staff, state securities authorities, and self-regulatory organizations. The proposed Form ATS amendments would also require each NMS Stock ATS that has a Web site to post on the NMS Stock ATS's Web site a direct URL hyperlink to the Commission's Web site that contains the documents enumerated in proposed Rule 304(b)(2). The collection of information required by the proposed amendments to Rules 301(b)(10), 303(a)(1)(v), 301(b)(9), and 303(a)(2)(ii) would not be made public, but would be used for regulatory purposes by the Commission and the SRO(s) of which the ATS's broker-dealer operator is a member. In Part III, Item 10 of Form ATS-N, however, NMS Stock ATSs would be required to describe the written safeguards and written procedures to ensure confidential treatment of trading information that would be required under the proposed amendment to Rule 301(b)(10); as explained above, the Commission would make certain Form ATS-N filings publicly available. To the extent that the Commission receives confidential information pursuant to this collection of information, such information would be kept confidential, subject to the provisions of applicable law.
All reports required to be made under proposed Rules 301(b)(2)(viii), 301(b)(9), and 304 of Regulation ATS, including Proposed Form ATS-N, would be required to be preserved during the life of the enterprise and any successor enterprise, pursuant to the proposed amendment to Rule 303(a)(2) of Regulation ATS.
ATSs would be required to preserve a copy of their written safeguards and written procedures to protect subscribers' confidential trading information under proposed Rule 301(b)(10) of Regulation ATS for not less than 3 years, the first 2 years in an easily accessible place, pursuant to proposed Rule 303(a)(1)(v) of Regulation ATS.
Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission solicits comment to:
1. Evaluate whether the proposed collection of information is necessary for the proper performance of our functions, including whether the information shall have practical utility;
2. Evaluate the accuracy of our estimate of the burden of the proposed collection of information;
3. Determine whether there are ways to enhance the quality, utility, and clarity of the information to be collected; and
4. Evaluate whether there are ways to minimize the burden of collection of information on those who are to respond, including through the use of automated collection techniques or other forms of information technology.
The Commission is concerned that the current regulatory requirements relating to operational transparency for NMS Stock ATSs may no longer fully meet the goals of furthering the public interest and protecting investors. The market for NMS stock execution services consists of registered national securities exchanges, NMS Stock ATSs, and non-ATS broker-dealers that effect OTC transactions. As of the second quarter of 2015, NMS Stock ATSs account for approximately 15.4% of the total dollar volume in NMS stocks and compete with, and operate similar to, registered national securities exchanges.
Currently, NMS Stock ATSs provide the Commission with notice of their initial operations and changes to their operations on Form ATS. Although some NMS Stock ATSs voluntarily make their Form ATS publicly available on their Web site, they are not required to do so, as Form ATS is “deemed confidential when filed.”
The Commission is concerned that the current market for NMS stock execution services does not address the problems described above. Rather, when demanding services that are typically offered by NMS Stock ATSs—particularly, dark pools—some market participants trade off the less stringent transparency requirements applicable to NMS Stock ATSs, as compared to national securities exchanges, in exchange for obtaining some perceived advantages of trading on these venues, such as keeping their orders dark prior to execution.
The Commission is proposing to amend Regulation ATS to adopt new Rule 304, which would provide a process for the Commission to determine if an NMS Stock ATS qualifies for the exemption from the definition of “exchange” pursuant to Rule 3a1-1(a)(2) and declare an NMS Stock ATS's Forms ATS-N either effective or ineffective. The proposal would also provide a process for the Commission to suspend, limit, or revoke an NMS Stock ATS's exemption from the definition of “exchange” under certain circumstances. The Commission is also proposing to amend Regulation ATS to require NMS Stock ATSs to file Form ATS-N, which would require NMS Stock ATSs to provide detailed disclosures about their trading operations and the activities of their broker-dealer operators and their affiliates. The Commission is proposing to make certain Form ATS-N filings public by posting them on the Commission's Web site and requiring each NMS Stock ATS that has a Web site to post on the NMS Stock ATS's Web site a direct URL hyperlink to the Commission's Web site that contains the documents enumerated in proposed Rule 304(b)(2). The Commission is also proposing to amend Rule 301(b)(10) of Regulation ATS to require that all ATSs have their procedures and safeguards to protect subscribers' confidential trading information in writing. The proposed amendments seek to improve and make more consistent the information available to market participants regarding different NMS Stock ATSs' operations and the activities of their broker-dealer operators and their affiliates. The proposed amendments also aim to make the level and type of disclosures more consistent between NMS Stock ATSs. The Commission preliminarily believes that making publicly available a more consistent level of information to all market participants would help them to better evaluate NMS Stock ATSs as potential routing destinations for their orders.
The Commission is sensitive to the economic consequences and effects, including the costs and benefits, of its rules. The following economic analysis identifies and considers the costs and benefits—including the effects on efficiency, competition, and capital formation—that may result from the amendments to Regulation ATS being proposed. These costs and benefits are discussed below and have informed the policy choices described throughout this release.
The enhanced transparency and oversight of NMS Stock ATSs that the Commission preliminarily believes would result from the proposed amendments to Regulation ATS would increase the amount of information and improve the quality of information available to all market participants about the operations of NMS Stock ATSs and the activities of their broker-dealer operators and their affiliates. As a result, this information should better inform market participants making decisions about which trading venue to route their orders to. The proposed amendments would also affect the
The baseline against which economic costs and benefits, as well as the impact of the proposed amendments on efficiency, competition, and capital formation, are measured is the current market and regulatory framework for trading NMS stocks. The baseline, discussed in further detail below, includes statistics on the number of NMS Stock ATSs; current reporting requirements for NMS Stock ATSs; the lack of public disclosure of NMS Stock ATSs' operations, as well as disparate levels of information available to market participants about NMS Stock ATSs' operations and the activities of their broker-dealer operators and their affiliates; and the competitive environment between registered national securities exchanges and NMS Stock ATSs, among NMS Stock ATSs, and between broker-dealers that operate NMS Stock ATSs and broker-dealers that do not operate NMS Stock ATSs.
In a concept release on equity market structure in 2010, the Commission stated that in the third quarter of 2009 there were 37 dark pools and ECNs that traded NMS stocks, and that they accounted for 18.7% of total NMS share volume.
Even though ATSs directly compete for order flow in NMS stocks with national securities exchanges, ATSs are exempt from the definition of “exchange” and therefore are not required to register as national securities exchanges with the Commission. An ATS qualifies for an exemption from the definition of “exchange” provided by Exchange Act Rule 3a1-1(a)(2) on the condition that it complies with Regulation ATS, including registering as a broker-dealer, which includes joining a self-regulatory organization, such as FINRA. Thus, ATSs can collect and execute orders in securities electronically without registering as a national securities exchanges under Section 6 of the Exchange Act.
A broker-dealer can become an ATS by filing an initial operation report on Form ATS at least 20 days before commencing operations. Form ATS requires, among other things, that the ATS provide information about: classes of subscribers and differences in access to the services offered by the ATS to different groups or classes of subscribers; the securities the ATS expects to trade; any entity other than the ATS involved in its operations; the manner in which the system operates; how subscribers access the trading system; procedures governing order entry and execution; and trade reporting and clearance and settlement of trades on the ATS. Form ATS is not approved by the Commission;
An ATS must notify the Commission of any changes in its operations by filing an amendment to its Form ATS initial operation report under three circumstances. First, an ATS must amend Form ATS at least 20 days prior to implementing any material change to the operation of the ATS.
All ATSs are currently members of FINRA and must therefore comply with all FINRA rules applicable to broker-dealers. FINRA rules require ATSs to report transaction volume. For instance, FINRA Rule 4552 requires each ATS to report to FINRA aggregate weekly trading volume on a security-by-security basis.
Regulation ATS states that information on Form ATS is “deemed confidential when filed.”
Although the Commission does not require information provided on Form ATS to be made publicly available, the Commission has observed that some NMS Stock ATSs voluntarily make publicly available their Forms ATS.
Furthermore, different information is made available to different market participants regarding the operations of NMS Stock ATSs and the activities of NMS Stock ATSs' broker-dealer operators and their affiliates. NMS Stock ATSs that either voluntarily make their Form ATS publicly available, or publish summary information of their operations, may provide to market participants more information about their operations than NMS Stock ATSs that do not make their Forms ATS or information about their operations publicly available. Furthermore, subscribers to an NMS Stock ATS may have greater access to information about the NMS Stock ATS than other market participants, including the NMS Stock ATS's subscriber manual and access to other subscriber quotes.
NMS Stock ATSs also disclose some execution quality metrics. Exchange Act Rule 605(a) requires every market center, including ATSs, to make publicly available for each calendar month a report containing standardized data on the covered orders in NMS stocks that it receives for execution from any market participant.
The differences in information that certain subscribers have about an NMS Stock ATS's operations may be manifested through channels other than having differential access to Form ATS, an NMS Stock ATS's subscriber manual, or being granted access to certain market quality statistics as provided by an NMS Stock ATS in addition to what is
Even if having greater access to the services of an NMS Stock ATS yields additional information about the operations of the NMS Stock ATS to certain subscribers, it is possible that subscribers that do not have full access to services of the NMS Stock ATS, and the resulting additional information, may still want to trade on NMS Stock ATSs in spite of their relative informational disadvantage. It is possible that had these subscribers possessed more detailed information about the operations of the NMS Stock ATS, they may have been able to make more informed—and therefore potentially different—decisions about where to route their orders for execution.
Under current Rule 301(b)(10) of Regulation ATS,
In the market for NMS stock execution services, NMS Stock ATSs not only compete with other NMS Stock ATSs, but they also compete with registered national securities exchanges. As noted previously, while registered national securities exchanges compete with NMS Stock ATSs for order flow, NMS Stock ATSs and registered national securities exchanges are subject to different regulatory regimes, including different obligations to disclose information about their trading operations and activities.
While national securities exchanges have more regulatory burdens than NMS Stock ATSs, they also enjoy certain unique benefits that are not afforded to NMS Stock ATSs. While national securities exchanges are SROs, and are thus subject to surveillance and oversight by the Commission, they can still establish norms regarding conduct, trading, and fee structures for external access. ATSs on the other hand are regulated as broker-dealers, and must comply with the rules of FINRA, which is the SRO to which all ATSs currently belong. Trading venues that elect to register as national securities exchanges may gain added prestige by establishing
Since the adoption of Regulation NMS in 2005, the market for NMS stock execution services has become more and more fragmented and competitive. Currently there are 11 registered national securities exchanges that effect transactions in NMS stocks, namely, NYSE MKT LLC (formerly NYSE AMEX and the American Stock Exchange), BATS Exchange, Inc. (“BATS-Z Exchange”), BATS Y- Exchange, Inc. (“BATS-Y Exchange”) (“BATS-Z Exchange and BATS-Y Exchange, collectively “the BATS Exchanges”), NASDAQ OMX BX, Inc. (formerly the Boston Stock Exchange), Chicago Stock Exchange, Inc., EDGA Exchange, Inc. (“EDGA”), EDGX Exchange, Inc. (“EDGX”), The Nasdaq Stock Market LLC (“Nasdaq”), New York Stock Exchange LLC (“NYSE”), NYSE Arca, Inc. (“NYSE Arca”), and NASDAQ OMX PHLX, Inc. (formerly Philadelphia Stock Exchange).
Several of these national securities exchanges (NYSE Arca, Nasdaq, BATS Z-Exchange, EDGA and EDGX) previously operated as ECNs or acquired ECNs as part of their trading platforms.
Over the past decade, with the increase in fragmentation in the market for execution services, there has been a shift in the market share of trading volume in NMS stocks across trading venues. For example, there has been a decline in market share of trading volume for exchange-listed stocks of the two traditionally dominant trading venues, NYSE and Nasdaq. The market share of the NYSE in NYSE-listed stocks fell dramatically from approximately 80% in 2005 to 20% in 2013, and for Nasdaq-listed stocks, Nasdaq's market share fell by approximately half, from 50% in 2005 to 25% in 2013.
As discussed above, NMS Stock ATSs face lower regulatory burdens than national securities exchanges. Because national securities exchanges are SROs, they are subject to certain regulatory obligations, such as enforcing their own rules and the federal securities laws with respect to their members. NMS Stock ATSs do not have such oversight and enforcement responsibilities.
NMS Stock ATSs also compete amongst each other in a niche in the market for NMS stock execution services. The rise in the number of NMS Stock ATSs has not only affected competition between national securities exchanges and ATSs for order flow of NMS stocks, it has also impacted competition among NMS Stock ATSs. Table 1 depicts the market share of total dollar volume for NMS stocks, and the total share volume for NMS stocks for individual ATSs, based on data collected from ATSs pursuant to FINRA Rule 4552 for 13 weeks of trading from late March 2015 to late June 2015. Even though there are many NMS Stock ATSs, much of the NMS stock dollar volume on ATSs is transacted by only a handful of venues. Table 1 shows that the top eight NMS Stock ATSs ranked by dollar volume accounted for 61.1% of total dollar volume transacted on ATSs and 58.9% of total share volume transacted on ATSs from late March 2015 to late June 2015.
This table shows the 38 ATSs that effected transactions in NMS stocks from March 30, 2015 to June 26, 2015, ranked in descending order by dollar volume transacted. ATS data is reported weekly, and these dates approximately correspond to the second quarter of 2015. Dollar volume transacted on an ATS is calculated by multiplying the share volume for a given NMS stock on the ATS in a given week by the average trade price for that week. Dollar volume for each NMS stock is then aggregated across all NMS stocks that traded on the given ATS in that week. Also reported in this table is the number of trades, share volume, each NMS Stock ATS's market share of all NMS Stock ATS dollar volume and NMS Stock ATS share volume in that quarter.
Table 2, which is based on data collected from NMS Stock ATSs pursuant to FINRA Rule 4552 for 13 weeks of trading from late March 2015 to late June 2015, shows the average trade size, which is share volume divided by the number of trades on each of the NMS Stock ATSs. The table reveals marked differences in the average trade size of transactions executed on the various NMS Stock ATSs. Six NMS Stock ATSs had average trade sizes in excess of 10,000 shares. This suggests that some NMS Stock ATSs may receive large block orders and execute large trades.
While these NMS Stock ATSs on average execute large size trades, the combined market share of these NMS Stock ATSs is only 7.8% when measured in dollar volume, and 3.7% when measured in share volume. The vast majority of NMS Stock ATSs have average trade sizes between 150 and 450 shares. The two NMS Stock ATSs with the highest market shares (measured either in dollar volume or share volume) have average trade sizes of 181 and 157 shares, respectively.
Though NMS Stock ATSs compete with each other in a niche in the market for NMS stock execution services, the trade sizes in Table 2 actually suggest that this niche market may not be very different from the market as a whole. The average trade size on NMS Stock ATSs is 214 shares, which is not significantly different from the average trade size of 181 shares on registered national securities exchanges.
This table shows 38 ATSs that effected transactions in NMS stocks from March 30, 2015 to June 26, 2015, ranked in descending order by average trade size. ATS data is reported weekly, and these dates correspond approximately to the second quarter of 2015. Also reported in this table is the raw number of trades, share volume, dollar volume, and each NMS Stock ATS's market share of all NMS Stock ATS dollar volume and NMS Stock ATS share volume. Dollar volume transacted on an ATS is calculated by multiplying the share volume for a given NMS stock on the ATS in a given week by the average trade price for that week. Dollar volume for each NMS stock is then aggregated across all NMS stocks that traded on the given ATS in that week.
While many NMS Stock ATSs operating today are similar with respect to the limited transparency they provide with respect to their trading model, the Commission understands that the services offered vary significantly across NMS Stock ATSs. Some NMS Stock ATSs offer mid-point matching services exclusively while others may have more complex matching algorithms. Some other NMS Stock ATSs offer preferential treatment in execution priority to some groups of subscribers, but not others, and some NMS Stock ATSs may allow subscribers to avoid trading with specific counterparties. Additionally, order types and their characteristics can also vary significantly across NMS Stock ATSs, including with respect to how particular order types interact with other order types, which could affect execution priorities. Even though an NMS Stock ATS might not be privy to detailed information about the operations of other NMS Stock ATSs, it may be able to garner general information about the differential services offered by its competitors through Web sites and forums,
Competition for NMS stock order flow not only exists between national securities exchanges and NMS Stock ATSs and among NMS Stock ATSs, but also exists between the broker-dealers that operate NMS Stock ATSs and those broker-dealer operators that do not operate NMS Stock ATSs. As discussed above, most ATSs that currently transact in NMS stocks are operated by multi-service broker-dealers that engage in significant brokerage and dealing activities in addition to their ATS operations.
The current competitive environment in which NMS Stock ATSs operate suggests that broker-dealers who operate their own NMS Stock ATS(s) may have certain trading advantages relative to broker-dealers that do not operate their own NMS Stock ATS. Broker-dealer owned NMS Stock ATSs may provide their business units or affiliates, that are also subscribers to the NMS Stock ATS, access to certain services, which may result in trading advantages, such as providing faster access to the ATS or priority in executions over other subscribers, such as broker-dealers that do not have their own ATS platform and may route their orders to these ATSs.
As discussed above, the current market for NMS stock execution services consists of competition for order flow among national securities exchanges, NMS Stock ATSs, and broker-dealers who operate or control non-ATS trading centers.
Since the adoption of Regulation ATS in 1998 and the implementation of Regulation NMS in 2005, trading costs have, on average, declined significantly in the U.S. Institutional trading costs—particularly for large capitalization stocks—are amongst the lowest in the world.
NMS Stock ATSs provide an environment whereby certain market participants can trade at low costs relative to national securities exchanges. For instance, if market participants submit to a national securities exchange a block order or a large “parent” order shredded into smaller “child” orders, they may experience “price impact” when others observe their trading and infer the presence of a large order. That is, the price at which these child orders execute may get subsequently worse from the time of the initial order submission to the time of the final execution of the order. Thus, when working these child orders, the order originator may seek to keep their executions “quiet” to minimize adverse price moves that may otherwise occur as other market participants infer that order originator is an institutional
The current market for NMS stock execution services—which includes NMS Stock ATSs—provides value to market participants. If all NMS Stock ATSs were to cease operations, market participants may incur costs associated with not being able to find an adequate trading venue that offers benefits similar to those that NMS Stock ATSs provide. For example, certain market participants may be unable to find a trading center that adequately minimizes the revelation of their trading interest. Therefore, some of the trades by these market participants, which would have been executed on NMS Stock ATSs, may no longer be executed at all if NMS Stock ATSs cease operations. Even though NMS Stock ATSs provide value to some market participants by allowing them to trade on a venue that mitigates the signaling of information regarding their trading interest while keeping their trading costs at a low level, NMS Stock ATSs are characterized by a lack of transparency regarding their operations and the activities of their broker-dealer operators and the broker-dealer operator's affiliates. Currently, disclosures on Form ATS are not required to be made public, and even when an NMS Stock ATS voluntarily discloses its Form ATS, the information provided tends to be limited. The Commission has also observed that NMS Stock ATSs vary with respect to the depth and extent of their disclosures on Form ATS, including basic aspects of their operations. This heterogeneity in terms of the level of disclosure pertaining to NMS Stock ATS operations has resulted in certain costs for market participants, in that currently a market participant has to expend some effort searching for a trading venue that would serve its investing or trading objectives. A by-product of these search costs for some market participants is uncertainty pertaining to how their orders will be handled. Because there is no current requirement for NMS Stock ATSs to disclose information about their operations to the public, some subscribers to NMS Stock ATSs—particularly subscribers to those NMS Stock ATSs that have not made their Form ATS public—may not fully know how their orders are handled. Furthermore, for a specific NMS Stock ATS, some subscribers may have been provided more information regarding how their orders will interact, match, and execute on the NMS Stock ATS, exacerbating this uncertainty.
The current market for NMS stock execution services has resulted in the fragmentation of trading volume. While this fragmentation—which has in part been due to the rise in NMS Stock ATSs—has been a factor in currently providing low trading costs for market participants,
Some academic studies have also suggested that the coexistence of national securities exchanges and NMS Stock ATSs has led to market segmentation,
The theory that market segmentation of market participants leads to price discovery relies on the assumption that because trade executions on some NMS Stock ATSs are determined by matching orders, orders of informed market participants are more likely to cluster on one side of the market (either the buy-side or the sell-side).
Several academic studies suggest that the presence of NMS Stock ATSs in the current trading environment deteriorates price discovery
Another element that may affect market quality is order internalization by broker-dealers. Academic literature has previously proposed theoretical models where broker-dealer operators have an incentive to internalize uninformed orders, by trading as principal against such orders or crossing orders as agent in a riskless principal capacity, before routing the orders to their respective ATSs.
Currently, the coexistence of national securities exchanges and NMS Stock ATSs seems to have beneficial effects on market efficiency. One academic study suggests that while not all trades that execute on NMS Stock ATSs are large block trades, those that are have been seen to be beneficial to market efficiency.
The Commission has considered the economic effects of the proposed amendments to Rule 3a1-1(a) and Regulation ATS. This section provides an overview of the broad economic considerations relevant to the proposed amendments to Rule 3a1-1(a) and Regulation ATS, and the economic effects, including the costs, benefits, and the effects on efficiency, competition, and capital formation. Additional economic effects, including benefits and costs related to specific requirements of the proposed amendments to Rule 3a1-1(a) and Regulation ATS, are also discussed.
The proposed amendments to Rule 3a1-1(a) and Regulation ATS
The Commission further understands that the proposed amendments to Regulation ATS may generate some uncertainty for NMS Stock ATSs in that, under the proposal, the Commission would declare a Form ATS-N effective or ineffective (which is not currently the case with respect to Form ATS), and this may act as a potential deterrent for ATSs wishing to transact NMS stocks, or legacy NMS Stock ATSs that would be required to file Form ATS-N. Moreover, the proposed amendments to Rule 3a1-1(a) and Regulation ATS could be costly, because NMS Stock ATSs would have to disclose detailed information about their operations and the activities of their broker-dealer operators and their affiliates. Together, these could harm the competitive dynamics in the market for NMS stock execution services, which includes competition between national securities exchanges and NMS Stock ATSs, among NMS Stock ATSs themselves, and between broker-dealers that operate NMS Stock ATSs and those that do not.
Moreover, the Commission notes that increased transparency regarding the operations of NMS Stock ATSs may impact competition between broker-dealers that operate NMS Stock ATSs and broker-dealers who trade NMS stocks but do not operate an NMS Stock ATS. Because broker-dealers who transact in NMS stocks but do not operate ATSs are not subject to the proposed operational transparency requirements, these broker-dealers may be at a competitive advantage and attract and internalize order flow that would otherwise be entered and executed on NMS Stock ATSs. Furthermore, greater operational transparency of NMS Stock ATSs could also impact competition between NMS Stock ATSs and national securities exchanges, resulting in a larger amount of order flow being executed on national securities exchanges.
Further, the Commission preliminarily believes that the proposed amendments to Rule 301(b)(10) and 303(a)(1) that would require ATSs to establish and preserve written safeguards and written procedures to protect subscribers' confidential trading information, as well as the oversight procedures to ensure such safeguards and procedures are followed should strengthen the effectiveness of those safeguards and procedures and better enable an NMS Stock ATS to protect confidential subscriber trading information and implement and monitor the adequacy of, and the ATS's compliance with, its safeguards and procedures.
The Commission has attempted, where possible, to quantify the benefits and costs anticipated by the proposed amendments to Rule 3a1-1(a) and Regulation ATS. The Commission notes, however, that many of the costs and benefits of the proposed amendments are difficult to quantify with any degree of certainty. For instance, it is unclear how many NMS Stock ATSs might cease operations (or, less likely, switch to trading in a different class of securities) if they are required to publicly disclose information about their operations on proposed Form ATS-N. It is also unclear how many NMS Stock ATSs may decide to register as national securities exchanges, as some ECNs have in previous years, as a result of the proposed amendments to Rule 3a1-1(a) and Regulation ATS.
As discussed above, the Commission is proposing to amend Rule 3a1-1(a) and Regulation ATS to require ATSs that effect transactions in NMS stocks comply with the requirements of
As noted above, an NMS Stock ATS may provide some subscribers access to certain trading information or services that it does not provide to others.
Proposed Rule 304 would also provide a process by which the Commission would declare Form ATS-N filings effective or ineffective, and a process by which the Commission would review Form ATS-N Amendments and declare ineffective a Form ATS-N Amendment if it finds that such action is necessary or appropriate in the public interest, and is consistent with the protection of investors. The Commission is also proposing a process by which the Commission could suspend, limit, or revoke an NMS Stock ATS's exemption from the definition of an “exchange” under Rule 3a1-1(a)(2).
The Commission preliminarily believes that the proposed amendments to Rule 3a1-1(a) and Regulation ATS would result in better regulatory oversight of NMS Stock ATSs and increased investor protection. Form ATS discloses only limited aspects of an ATS's operations as compared to the information that would be provided on Form ATS-N by NMS Stock ATSs. Form ATS requires, for example, that an ATS provide information about: classes of subscribers and differences in access to the services offered by the ATS to different groups or classes of subscribers; securities the ATS expects to trade; any entity other than the ATS involved in its operations; the manner in which the system operates; how subscribers access the trading system; procedures governing order entry and execution; and trade reporting, clearance and settlement of trades on the ATS. On the other hand, Form ATS-N would require an NMS Stock ATS to disclose information about the manner of operations of the ATS, including: subscribers; hours of operation; types of orders; connectivity, order entry, and co-location procedures; segmentation of order flow and notice about segmentation; display of order and other trading interest; trading services, including matching methodologies, order interaction rules, and order handling and execution procedures; procedures governing suspension of trading or trading during a system disruption or malfunction; opening, closing, and after hours procedures; outbound routing services; fees; market data; trade reporting; clearance and settlement; order display and execution access (if applicable); fair access (if applicable); and market quality statistics published or provided to one or more subscribers.
In addition, current Form ATS does not require an ATS to disclose information about the activities of the broker-dealer operator and the broker-dealer operator's affiliates in connection with the ATS whereas the enhanced disclosure requirements under proposed Form ATS-N would require an NMS Stock ATS to disclose information about the activities of its broker-dealer operator and the broker-dealer operator's affiliates that may give rise to potential conflicts of interest, including: their operation of non-ATS trading centers and other NMS Stock ATSs; products and services offered to subscribers; arrangements with unaffiliated trading centers; trading activities on the NMS Stock ATS; smart order router (or similar functionality) and algorithms used to send or receive orders or other trading interest to or from the ATS; personnel and third parties used to operate the NMS Stock ATS; differences in the availability of services, functionalities, or procedures; and safeguards and procedures to protect subscribers' confidential trading information. Accordingly, the Commission preliminarily believes that the enhanced disclosure requirements under proposed Form ATS-N would result in better regulatory oversight of NMS Stock ATSs and increased investor protection by providing the Commission, relevant SROs, and market participants with significantly more information with which to analyze and evaluate how orders are handled and executed on NMS Stock ATSs.
The Commission is proposing that Form ATS-N and Form ATS-N Amendments be filed electronically in a text-searchable format. The Commission preliminarily believes that requiring Form ATS-N and Form ATS-N Amendments to be filed in a text-searchable format, coupled with the enhanced disclosure requirements under the proposal, will facilitate a more effective and thorough review and analysis of NMS Stock ATSs by regulators, which should yield greater insights into the operations of NMS Stock ATSs and the activities of their broker-dealer operators and their affiliates. For example, under the proposal, examiners at the Commission and the SRO of which an NMS Stock ATS is a member would be able to run automated processes to review information disclosed on filed Forms ATS-N and Form ATS-N Amendments in order to select NMS Stock ATSs for examination based on certain criteria for the examination. Additionally, examiners would be better able to assemble and review a larger pool of data regarding NMS Stock ATSs to better inform their examinations. Both such benefits could increase investor protection by improving the effectiveness and efficiency of the examination process.
Furthermore, the Commission preliminarily believes that the proposed process of declaring a Form ATS-N effective or ineffective and the process to review and declare, if necessary, Form ATS-N Amendments ineffective would improve the quality of the information regulators receive from NMS Stock ATSs and increase the
The Commission would make Form ATS-N Amendments public upon filing. As a result, a publicly disclosed Form ATS-N Amendment could contain potentially inaccurate or incomplete disclosures at the time it is posted on the Commission's Web page. Prior to the conclusion of its review of a Form ATS-N Amendment, the Commission would make the public aware of the fact that, though the amendment is posted on the Commission's Web site, it is still pending Commission review and could still be declared ineffective. The Commission preliminarily believes that this process would provide transparency to market participants about the operations of these ATSs and also provide market participants with information about forthcoming changes to the NMS Stock ATS while the Commission's review is pending.
The Commission preliminarily believes that the proposed review and public disclosure process for a Form ATS-N and Form ATS-N Amendments would allow the Commission to better protect investors from potentially inaccurate or incomplete disclosures that could misinform market participants about the operations of an NMS Stock ATS or the activities of its broker-dealer operator, including how their orders may be handled and executed, and thereby impact market participants' decisions about where they should route their orders.
If the Commission declares ineffective a Form ATS-N or Form ATS-N Amendment of an entity, that entity would have the opportunity to address deficiencies in the previously filed form by filing a new Form ATS-N or Form ATS-N Amendment. However, the Commission recognizes that an ineffectiveness declaration could impose costs on that entity—such as costs from having to cease operations, roll back a change in operations, or delay the start of operations—and could impose costs on the overall market for NMS stock execution services resulting from a potential reduction in competition or the removal of a sole provider of a niche service within the market. Furthermore, the removal of a sole provider of a niche service from the market could also impose costs on individual market participants, as they may have to subscribe to another NMS Stock ATS, or they may have to incur the cost of making changes to their SOR (or similar functionality) or algorithm in order to submit their orders for execution. However, NMS Stock ATSs and market participants would not incur these costs unless the Commission declares a Form ATS-N or a Form ATS-N Amendment ineffective. The Commission preliminarily believes that NMS Stock ATSs would be incentivized to comply with the requirements of Form ATS-N, as well as federal securities laws, including the other requirements of Regulation ATS, to avoid an ineffectiveness declaration, which produces benefits to the market. Therefore, the Commission preliminarily believes that there would be no undue burden imposed in connection with resubmitting Form ATS-N for these entities or from an ineffective declaration in general.
The Commission understands that both new and existing NMS Stock ATSs would incur implementation costs in order to comply with the proposed amendments to Regulation ATS. Regardless of their size and transaction volume, all NMS Stock ATSs would need to ensure that their disclosures meet the requirements of proposed Form ATS-N and that they correctly file their Form ATS-N. NMS Stock ATSs may develop internal processes to ensure correct and complete reporting on Form ATS-N, which can be viewed as a fixed setup cost, which NMS Stock ATSs may have to incur, regardless of the amount of trading activity that takes place on them. As a result, these implementation costs may fall disproportionately on lower-dollar volume NMS Stock ATSs (as opposed to ATSs transacting greater dollar volume), since all ATSs would likely incur these fixed implementation costs. However, smaller NMS Stock ATSs that are not operated by multi-service broker-dealer operators and do not engage in other brokerage or dealing activities in addition to their NMS Stock ATSs would likely incur lower implementation costs because certain sections of proposed Form ATS-N (such as several items of Part III) would not be applicable to these NMS Stock ATSs.
Relative to the baseline, the proposed amendments to Regulation ATS would also impose implementation costs for all NMS Stock ATSs, including legacy ATSs, in that they would require NMS Stock ATSs to adhere to heightened disclosure and reporting requirements regarding their operations. Existing NMS Stock ATSs should already comply with the current requirements of Regulation ATS. Therefore, the compliance costs of the proposed amendments should be incremental relative to the costs associated with the existing requirements. Specifically, the Commission preliminarily believes that the incremental costs would consist largely of providing new disclosures and updating records and retention policies necessary to comply with the proposed amendments. Based on the analysis for purposes of the PRA, the Commission preliminarily estimates that the proposed amendments to Regulation ATS relating to Rules 301(b)(2)(viii) and 304 of Regulation ATS, including Proposed Form ATS-N, could result in a one-time burden of 141.3 hours for each NMS Stock ATS,
Furthermore, the Commission preliminarily believes that there would be implementation costs for ATSs that have not reduced to writing their safeguards and procedures to protect subscribers' confidential trading information and their oversight procedures to ensure that those safeguards and procedures are followed, which are required under Rule 301(b)(10) of Regulation ATS.
In addition to the implementation costs mentioned above, there are also expected ongoing costs for NMS Stock ATSs to comply with the proposed amendments to Rule 3a1-1(a) and Regulation ATS. For instance, NMS Stock ATSs would incur ongoing costs associated with amending their Forms ATS-N prior to material changes in their operations, or to correct any information that has become inaccurate. Regardless of the reason for filing a Form ATS-N Amendment, the Commission preliminarily estimates for the purposes of the PRA that it could take an NMS Stock ATS approximately 28.5 hours annually
Furthermore, the proposed amendments to Rules 301(b)(10) and 303(a)(1)(v) relating to written safeguards and written procedures to protect subscribers' confidential trading information would impose ongoing costs for all ATSs. For the purposes of the PRA, the Commission preliminarily estimates it could take approximately 4 hours annually for each ATS to update and maintain these safeguards and procedures,
Some existing NMS Stock ATSs that also transact in non-NMS stocks might incur additional costs due to the proposed amendments. As discussed above,
Currently, ATSs that transact in NMS stocks do not have the ability to access and file the Form ATS electronically. The Commission proposes that proposed Form ATS-N would be filed electronically in a structured format and would require an electronic signature. These proposed amendments to Regulation ATS would require that every NMS Stock ATS have the ability to file forms electronically with an electronic signature. The Commission's proposal contemplates the use of an online filing system, the EFFS. Based on the widespread use and availability of the Internet, the Commission preliminarily believes that filing Form ATS-N in an electronic format would be less burdensome and a more efficient filing process than the current paper process for NMS Stock ATSs and the Commission, as it is likely to be less expensive and cumbersome than mailing and filing paper forms to the Commission.
To access EFFS, an NMS Stock ATS would need to submit to the Commission an EAUA to register each individual at the NMS Stock ATS who will access the EFFS system on behalf of the NMS Stock ATS. The
In addition, the Commission preliminarily estimates that each NMS Stock ATS will designate two individuals to sign Form ATS-N each year. An individual signing a Form ATS-N must obtain a digital ID, at the cost of approximately $25.00 each year. Therefore, each NMS Stock ATS would require approximately $50.00 annually to obtain digital IDs for the individuals with access to EFFS for purposes of signing Form ATS-N,
The Commission also preliminarily estimates that NMS Stock ATSs would incur a one-time cost to make public via posting on their Web sites a direct URL hyperlink to the Commission's Web site that contains their Form ATS-N filings.
The Commission is proposing Rule 304(b) to mandate greater public disclosure of NMS Stock ATS operations by making Form ATS-N and Form ATS-N Amendments publicly available on the Commission's Web site, requiring each NMS Stock ATS that has a Web site to post a direct URL hyperlink to the Commission's Web site that contains the documents enumerated in proposed Rule 304(b)(2), and providing for the posting of Commission orders related to the effectiveness of Form ATS-N on the Commission's Web site.
As mentioned above, the proposed amendments to Regulation ATS would make Form ATS-N publicly available, thereby improving the information available to market participants and making that information consistent. The Commission is proposing to amend Regulation ATS to require NMS Stock ATSs to file proposed Form ATS-N in lieu of Form ATS.
Despite NMS Stock ATSs' increasing operational complexities and importance as a source of liquidity for NMS stocks, the Commission preliminarily believes that many market participants have limited information about NMS Stock ATSs' order handling and execution practices. As noted above, while the current disclosures on Form ATS are “deemed confidential when filed,” some ATSs voluntarily disclose their Form ATS filings.
The Commission preliminarily believes that the public disclosure of Form ATS-N would produce economic benefits for market participants. Specifically, the Commission preliminarily believes that requiring detailed, public disclosures about the operations of NMS Stock ATSs would, among other things, better standardize the type of information market participants receive about those operations. As a result, search costs for market participants would be lower relative to the baseline, as homogenous disclosure requirements for all NMS Stock ATSs as part of the proposed amendments to Regulation ATS should facilitate market participants' comparison of NMS Stock ATSs when deciding which venue most suits their trading purposes. Accordingly, the Commission preliminarily believes the enhanced operational transparency resulting from the public disclosures on Form ATS-N should aid market participants when evaluating potential trading venues.
The market for NMS stock execution services has also evolved such that national securities exchanges and NMS Stock ATSs have increasingly become direct competitors. However, as explained above, Form ATS filings continue to be “deemed confidential when filed,” while national securities exchanges must publicly file proposed rule changes and publicly disclose their entire rulebooks.
The Commission preliminarily believes that the proposed amendments would appropriately calibrate the level of transparency between NMS Stock ATSs and national securities exchanges, fostering even greater competition for order flow of NMS stocks between those trading platforms. As noted above, the Commission also preliminarily believes that the proposed enhanced disclosure requirements for NMS Stock ATSs would calibrate the level of transparency among different NMS Stock ATSs. Moreover, requiring Form ATS-N to be made public upon being declared effective should lead to additional scrutiny of NMS Stock ATSs by market participants. Therefore, the Commission preliminarily believes that the proposal could foster even greater competition for order flow of NMS stocks among NMS Stock ATSs and between NMS Stock ATSs and national securities exchanges, which could lead to lower spreads and thereby foster greater capital formation and increased market liquidity relative to the baseline. This in turn could enhance execution quality and lower information opaqueness surrounding an NMS Stock ATS's operations.
The Commission also preliminarily believes that the proposed requirement for NMS Stock ATSs to disclose whether and how they segment their order flow, any criteria used to assign order flow, and their fee structures should provide market participants with a better understanding of the operating environment for NMS Stock ATSs. Search costs to identify which NMS Stock ATSs better serve a market participant's trading interests should be reduced relative to the baseline, as market participants may be more able to predict how their orders will be executed. Broker-dealers might also make better routing decisions for their particular interests, and the interests of their customers, which might therefore lead to better execution quality. Also, the proposed enhanced disclosure requirements for NMS Stock ATSs could better enable market participants to review trading decisions made by their broker-dealers. This in turn could lower the level of uncertainty that was present in the baseline regarding how orders would be executed on NMS Stock ATSs. As such, the Commission preliminarily believes that the proposed amendments to Regulation ATS could help market participants understand how their orders will be executed on an NMS Stock ATS and evaluate any potential conflicts of interest involving the broker-dealer operator and its affiliates when handling such orders.
At the same time, the proposed enhanced disclosure requirements for NMS Stock ATSs could benefit certain ATSs or national securities exchanges. For example, market participants would be aware of which NMS Stock ATSs may offer better execution services or better protection against the dissemination of their non-public trading information, and as a result, these ATSs might attract even more order flow. By attracting greater order flow, NMS Stock ATSs might, in turn, provide benefits to market participants by offering them a trading platform that is more liquid and, possibly, has lower trading costs.
In the adopting release for Regulation ATS, the Commission explained that it believed that the regulatory framework established by Regulation ATS would
The proposed requirement under Part IV, Item 16 of proposed Form ATS-N to explain and provide aggregate platform-wide order flow and execution statistics regarding the NMS Stock ATS, which are not otherwise required disclosures under Exchange Act Rule 605 of Regulation NMS but still published or otherwise provided to one or more subscribers by the NMS Stock ATS, could have several potential economic effects. The economic effects would depend not only on the extent to which ATSs currently provide or publish such information and the content of the information which the Commission currently does not have (such as what order flow and execution statistics NMS Stock ATSs produce, how they are calculated and whether they are standardized across ATSs, and which subscribers currently receive these statistics),
Furthermore, NMS Stock ATSs that currently provide these aggregate platform-wide order flow and execution statistics to one or more subscribers could continue to provide its subscribers with these market quality statistics, in which case, under the proposal, the NMS Stock ATS would publicly disclose these statistics and how they are calculated in proposed Form ATS-N. Another possibility is that these NMS Stock ATSs may choose to stop providing market quality statistics to subscribers so as not to have to publicly disclose information about those statistics and/or the statistics themselves in Form ATS-N. To the extent that an NMS Stock ATS continues to provide aggregate platform-wide order flow and execution statistics to subscribers only, it would publicly disclose and describe how those statistics are calculated in Form ATS-N, and all market participants, not just subscribers would have access to the information, which the Commission preliminarily believes would improve the opportunity for more market participants to benefit from this information. In addition, to the extent that subscribers that receive those market quality statistics currently do not know how the NMS Stock ATS calculates the market quality statistics, the proposal would help these subscribers better understand the statistics, and such information may be useful when evaluating an NMS Stock ATS as a possible venue to which to route orders in order to accomplish their investing or trading objectives.
However, NMS Stock ATSs that choose to publicly disclose aggregate platform-wide order flow and execution statistics regarding the NMS Stock ATS, which are not otherwise required disclosures under Exchange Act Rule 605 of Regulation NMS but still published or otherwise provided to one or more subscribers by the NMS Stock ATS would incur costs to do so. Therefore, some NMS Stock ATSs may choose to comply with the proposal by ceasing to disclose these market quality statistics to subscribers. As a result, the proposal could reduce transparency to the detriment of the subscribers who currently benefit from the receipt of certain market quality statistics regarding an NMS Stock ATS, which could in turn result in spill-over effects on the market. Furthermore, the decision of whether to continue to disclose such statistics could depend, in part, on how favorable the statistics make the ATS appear. As such, if some NMS Stock ATSs choose to stop disclosing order flow and execution statistics due to the proposed requirements of Item 16 while others decide to make those statistics public through their Form ATS-N filings, market participants may perceive the latter group of NMS Stock ATSs as having better execution quality, and these trading venues may therefore benefit by attracting even more order flow as a result of such perceptions.
As most NMS Stock ATSs are operated by broker-dealers that also engage in other brokerage and dealing activities, a broker-dealer operator of an NMS Stock ATS, or its affiliates, may have business interests that compete with the ATS's subscribers, or customers of its subscribers, which in turn may give rise to potential conflicts of interest.
In addition to the possible conflicts of interest that may arise from internalization, broker-dealer operators that control and operate multiple NMS Stock ATSs may also face conflicts of interest. This is because such broker-dealers might operate competing trading venues for the execution of orders in NMS stocks without having fully separated the functions of these competing trading centers. As a result of these overlapping functionalities, broker-dealers operating multiple NMS Stock ATSs may provide subscribers of one ATS—which could include business units of the broker-dealer or its affiliates—with access to services or information about the other ATS that it does not provide to other subscribers. The Commission preliminarily believes that the proposed enhanced disclosure requirements should provide market
The Commission is proposing that proposed Form ATS-N be filed electronically through the EFFS system in a structured data format. The Commission is proposing to make public on the Commission's Web site, among other things, an effective Form ATS-N, and each properly filed Form ATS-N Amendment upon filing with the Commission. The Commission would post the Form ATS-N or Form ATS-N Amendment in the same format that the Commission received the data.
The Commission preliminarily believes that by having NMS Stock ATSs file the proposed Form ATS-N in a structured data format, the information's usability for market participants would be enhanced. Once the data is structured, it is not only human-readable, but also becomes machine-readable such that market participants could download the information directly into databases and analyze it using various software. With structured data, what was static, text-based information that had to be manually and individually reviewed, can be searched and analyzed, facilitating the comparison and aggregation across NMS Stock ATSs.
The Commission understands that there are varying costs associated with varying degrees of structuring. The Commission preliminarily believes that its proposed structuring of proposed Form ATS-N has minimal costs and enhanced benefits for market participants' use of proposed Form ATS-N information. The Commission is proposing that Parts I (Name) and II (Broker-Dealer Operator Registration and Contact Information) of proposed Form ATS-N would be provided as fillable forms on the Commission's EFFS system. The Commission is proposing that Part III (Activities of the Broker-Dealer Operator and Affiliates) of proposed Form ATS-N would be filed in a structured format whereby the filer would provide checkbox responses to certain questions and narrative responses that are block-text tagged by Item. The Commission is proposing that Part IV (The NMS Stock ATS Manner of Operations) of proposed Form ATS-N would also be filed in a structured format in that the filer would block-text tag narrative responses by Item. The Commission is proposing that Part V (Contact Information, Signature Block, and Consent to Service) of proposed Form ATS-N would be provided as fillable forms on the Commission's EFFS system. The Commission also preliminarily believes that requiring NMS Stock ATSs to file proposed Form ATS-N in a structured format could allow market participants to avoid additional costs associated with third party sources who might otherwise extract and structure all the narrative disclosures, and then charge for access to that structured data. The Commission notes that the structuring of Form ATS-N can be in a variety of manners. For example, some or all of the information provided on Form ATS-N could be structured according to a particular standard that already exists, or a new taxonomy that the Commission creates, or as a single machine-readable PDF. The Commission seeks comment on the manner in which proposed Form ATS-N could be structured to enable the Commission and market participants to better collect and analyze the data.
From an NMS Stock ATS's perspective, the proposed amendments to Regulation ATS may beget uncertainty as to whether its proposed Form ATS-N will be deemed effective or ineffective. Greater uncertainty surrounding this proposed process may act as a deterrent for potential ATSs wishing to effect transactions in NMS stocks. The disclosures required by proposed Form ATS-N would be more comprehensive and require significantly more detail than those required on current Form ATS, which in turn could delay the start of operations for new NMS Stock ATSs. Therefore, the proposed amendments could raise the entry barrier for new entrants to the market for NMS stock execution services.
The Commission is proposing that a legacy NMS Stock ATS would be able to continue its operations pursuant to a previously filed initial operation report on Form ATS pending the Commission's review of its initial Form ATS-N. However, if after notice and opportunity for hearing, the Commission declares the Form ATS-N filed by a legacy NMS Stock ATS ineffective, the ATS would be required to cease operations. The NMS Stock ATS would then have the opportunity to address deficiencies in the previously filed form by filing a new Form ATS-N.
As explained above, NMS Stock ATSs would incur both implementation and ongoing costs to meet the regulatory requirements under proposed Rule 304. In particular, the proposed rules would require an NMS Stock ATS to file amendments on proposed Form ATS-N to notice a material change to its operations at least 30 days prior to implementing that material change. Under the proposal, if the Commission declares a material amendment ineffective after this advance notice period has expired, the NMS Stock ATS would be required to unwind the material change if it has already been implemented on the ATS or be precluded from proceeding to implement the change if it was not already implemented. This uncertainty regarding an NMS Stock ATS's ability to implement material changes may also result in some NMS Stock ATSs exiting the market.
Once an NMS Stock ATS's initial Form ATS-N is declared effective by the Commission, the information disclosed on Form ATS-N would be made available to the broader investing public. Proposed Form ATS-N Amendments would be made public upon filing, and in the case the amendments are not declared ineffective by the Commission, the Commission would no longer indicate that the Form ATS-N Amendment is under Commission review.
While the information elicited on proposed Form ATS-N would be similar to the information that national securities exchanges are required to publicly disclose, the Commission preliminarily believes that the disclosure of this previously non-public information could have some impact on the direction of order flow in the market. For instance, to the extent that an NMS Stock ATS's competitive advantage in the market is driven by its matching methodology, other operational characteristics that are currently confidential, or the non-public disclosure of certain aggregate platform-wide market quality statistics provided to subscribers, the disclosure of this information could result in other NMS Stock ATSs implementing similar methodologies, which might cause market participants to direct more order flow to those other NMS Stock ATSs. In addition, some order flow may be directed away from NMS Stock ATSs and towards national securities exchanges or broker-dealers that operate non-ATS trading centers if market participants discover that their orders could receive lower execution quality on an NMS Stock ATS relative to these other trading centers. As such, the proposal may result in lower revenues for some NMS Stock ATSs, and those ATSs may then find it unprofitable to stay in the market. The Commission preliminarily believes that fewer trading venues in the market will affect competition between existing NMS Stock ATSs and national securities exchanges as well as among existing NMS Stock ATSs, which would in turn affect market participants.
Not only could an NMS Stock ATS's competitive advantage be driven by its current matching methodology or other operational characteristics, it could also be driven by the NMS Stock ATS's ability to improve these methodologies through technological innovation or enhancements. Under the proposal, the Commission preliminarily believes that the disclosure of an NMS Stock ATS's innovations in proposed Form ATS-N Amendments could potentially result in certain NMS Stock ATSs losing their technological advantage. If NMS Stock ATSs cannot innovate fast enough to regain their competitive advantage in the market, orders may also flow away from those NMS Stock ATSs, and as a result, these trading venues may choose to exit the market if operating the ATS becomes unprofitable for the broker-dealer operator.
Both large and small NMS Stock ATSs may be affected by the detailed disclosures required under proposed Rule 304 and Form ATS-N, though, the proposal may affect the ability of each type of ATS to stay in the market differently. As noted above, to the extent that an ATS's dominance in the market—in terms of being able to attract substantial NMS stock trading volume—is driven by its matching methodology or other operational characteristics that are currently confidential, the public disclosure of this information may result in lower revenue for the NMS Stock ATS. If this is the case for a small NMS Stock ATS, or a large ATS without a substantial profit margin, the broker-dealer operator may no longer view the ATS as being profitable and may potentially exit the market altogether. Alternatively, if this is the case for a large NMS Stock ATS or a smaller NMS Stock ATS with large profit margins, while the NMS Stock ATS may not exit the market, such an ATS may need to engage in costly research in order to develop new matching methodologies to stay profitable in the market. Further, if revenue and earnings margins for operating an NMS Stock ATS are below the average for the entire market, the NMS Stock ATS risks being squeezed out by its competitors and would potentially exit the market.
The Commission expects that the implementation and ongoing costs associated with filing proposed Form ATS-N could also affect the nature of competition. As Table 1 shows, there is a significant degree of difference in the size of NMS Stock ATSs, when measured by dollar or share volume. If the costs associated with filing proposed Form ATS-N become disproportionately greater for smaller volume NMS Stock ATSs, some of these legacy NMS Stock ATSs might cease operations, and exit the market for NMS stock execution services. As explained above, based on analysis for purposes of the PRA, the Commission has calculated preliminary estimates of the implementation and ongoing costs for the proposed amendments to Regulation ATS. The Commission preliminarily believes that the estimated implementation cost is a fixed cost that would be roughly similar across NMS Stock ATSs, regardless of their dollar volume size; this implies that implementation costs will represent a larger fraction of revenue generated on a small NMS Stock ATS relative to that percentage on a large NMS Stock ATS, which could cause some smaller NMS Stock ATSs to exit the market. However, it could be the case that if the NMS Stock ATSs that decide to exit due to this fixed implementation cost only transact small dollar (or share) volume, the Commission may not expect to see a large impact on the overall competitive structure of the NMS Stock ATSs that would remain in the market. More so, the order flow that was being traded on these small NMS Stock ATSs might in fact be absorbed and redistributed amongst these larger surviving NMS Stock ATSs.
Another effect that the proposal could have on competition is that the greater disclosure requirements of NMS Stock ATSs, particular the disclosures related to the other business activities of the broker-dealer operator and its affiliates, may influence a broker-dealer operator's decisions with respect to its operations of the NMS Stock ATS. Given the proposed disclosure requirements regarding the activities of broker-dealer operators and their affiliates, a multi-service broker-dealer operator of an NMS Stock ATS may cease operating its NMS Stock ATS and send its order flow, which would have gone to the broker-dealer operator's NMS Stock ATS, to other trading centers. For example, a multi-service broker-dealer operator could internalize the order flow that it would typically send to its ATS or send that order flow to a broker-dealer that, does not operate an NMS Stock ATS, to internalize. Alternatively, the broker-dealer operator might send the order flow to a non-affiliated NMS Stock ATS that is operated by a non-multi-service broker-dealer, who would likely not encounter the same potential conflicts of interest as a multi-service broker-dealer that operates an NMS Stock ATS. Finally, the broker-dealer operator could also send its order flow to national securities exchanges for execution.
Overall, the Commission preliminarily believes that the possible exit of NMS Stock ATSs from the market, or the reduced entry of new NMS Stock ATSs, due to the requirements under proposed Rule 304 and Form ATS-N might be potentially harmful to competition in the market for NMS stock execution services. The potential exit by existing NMS Stock ATSs and the reduced entry into the market by prospective NMS Stock ATSs may impact market participants by reducing the number of NMS stock trading venues and thus, reducing a market participant's opportunities to minimize its trading costs by sending orders to different trading platforms. As such, the possible exit of NMS Stock ATSs from the market for NMS stock execution services and lower rate of entry for new NMS Stock ATSs may result in greater costs relative to the baseline cost savings that NMS Stock ATSs currently afford market participants.
As discussed above, the proposed heightened disclosure requirements for NMS Stock ATSs might cause some NMS Stock ATSs to cease operations, which could result in reduced competition among and between NMS Stock ATSs. If it is the case that the NMS Stock ATSs that face the highest cost of disclosure are the ones that have worse execution quality, the surviving NMS Stock ATSs might enhance execution quality and may allow market participants to transact at lower prices. If order flow is directed towards these surviving NMS Stock ATSs after the trading venues that face the highest cost of disclosure cease operations, then a smaller number of surviving trading venues might mean that there would be a higher likelihood that the orders of buyers and sellers on an NMS Stock ATS would interact and execute, which could improve liquidity. Even if some of the order flow from NMS Stock ATSs that cease operations does not migrate to the surviving NMS Stock ATSs, but migrates towards national securities exchanges, greater order interaction between buyers and sellers on a national securities exchange might be fostered, thereby improving price discovery. Moreover, because some NMS Stock ATSs operate as crossing networks and derive their prices from national securities exchanges, greater price discovery on a national securities exchange could spill over to affect the execution prices on the surviving NMS Stock ATSs and thereby potentially reduce market participants' trading costs. Additionally, given the fairly standardized set of information that would be publicly disclosed on proposed Form ATS-N and that trading in the market by NMS Stock ATSs may in fact be concentrated on fewer NMS Stock ATSs as a result of this proposal, market participants may process, and react more quickly to, information pertaining to changes in an NMS Stock ATS's operations when evaluating potential trading venues. As such, the proposed amendments to Regulation ATS might improve market efficiency.
Alternatively, heightened disclosure requirements pertaining to the public disclosure of proposed Form ATS-N could have a contrary effect, by increasing market participants' trading costs relative to the baseline. Institutional investors may use NMS Stock ATSs in an attempt to minimize the price impact of their trades. Even though the size of the average order on NMS Stock ATSs has been shown to be roughly equivalent to that on national securities exchanges, smaller orders on NMS Stock ATSs can be the result of shredding larger orders.
The price impact cost institutional investors face on a national securities exchange is related to the depth of the market, and the depth of the market is often related to the market capitalization of a stock and its liquidity.
The Commission is also proposing to amend existing Rules 301(b)(10)
Under Rule 301(b)(10), all ATSs must establish adequate safeguards and procedures to protect subscribers' confidential trading information and adequate oversight procedures to ensure that the safeguards and procedures established to protect such trading information are followed. However, neither Rule 301(b)(10) nor the recordkeeping requirements under Rule 303(a)(1) of Regulation ATS require that an ATS have and preserve those safeguards and procedures in writing. As explained above, the Commission preliminarily believes that the proposal to require written safeguards and written procedures would better enable ATSs—in particular, those ATSs that do not currently maintain written safeguards and procedures—to protect confidential subscriber trading information and implement and monitor the adequacy of, and the ATS's compliance with, its safeguards and procedures.
The Commission is also proposing to amend the recordkeeping rules relevant to the proposed amendments to Rule 301 and proposed Rule 304. The Commission is proposing that NMS Stock ATSs shall preserve Form ATS-N, Form ATS-N Amendments, and a Form ATS-N notice of cessation for the life of the enterprise and any successor enterprise pursuant to Rule 303(a)(2)
One alternative would be to allow NMS Stock ATSs to continue to describe their operations on current Form ATS, but either make Form ATS public by posting on the Commission's Web site or require NMS Stock ATSs to publicly disclose their initial operation reports, amendments, and cessation of operations on Form ATS. Non-NMS Stock ATSs' Form ATS filings would continue to remain confidential.
Use of current Form ATS would lower the cost of compliance for current and future NMS Stock ATSs compared to compliance costs under the proposal. However, because the content of Form ATS would not change under this alternative, market participants would continue to receive limited information regarding how orders interact, match, and execute on NMS Stock ATSs and the activities of NMS Stock ATSs' broker-dealer operators and their affiliates. Relative to the proposal, market participants' search costs in identifying which NMS Stock ATS may better serve their trading interests would increase. As a result, their trading costs may increase and the execution quality related to their orders may be reduced. The Commission expects public disclosure of Form ATS could have some harmful effects on the competitive dynamics of NMS Stock ATSs and result in some exiting the market. However, such effects would likely be smaller than those expected under the proposal because, under this alternative, Form ATS would require disclosure of less information about the operations of NMS Stock ATSs than the more expansive and granular information that NMS Stock ATSs would be required to disclose in Form ATS-N.
Requiring NMS Stock ATSs to publicly disclose initial operation reports, amendments, and cessation of operations on Form ATS would place NMS Stock ATSs under greater public scrutiny, which could improve the quality of the filings compared to the
Another alternative would be to require NMS Stock ATSs to file proposed Form ATS-N with the Commission but not make Form ATS-N publicly available. Proposed Form ATS-N would include detailed disclosures about the NMS Stock ATS's operations and the activities of its broker-dealer operator and its affiliates, and the Commission would declare filings on Form ATS-N either effective or ineffective.
This alternative would improve the quality of NMS Stock ATSs' disclosures to the Commission because proposed Form ATS-N would require more information about the operations of NMS Stock ATSs than is currently solicited on Form ATS. In addition, proposed Form ATS-N would require information about the activities of the broker-dealer operator and its affiliates, whereas current Form ATS does not require such information. This alternative, which would include a process for the Commission to determine whether an NMS Stock ATS qualifies for the exemption from the definition of “exchange,” and declare a proposed Form ATS-N effective or ineffective, would strengthen the Commission's oversight of NMS Stock ATSs.
However, this alternative would not make NMS Stock ATSs' operations more transparent for market participants. The lack of public disclosure of the means of order interaction, display and routing practices by NMS Stock ATSs could result in market participants making less informed decisions regarding where to route their orders and therefore result in lower execution quality than they would obtain under the proposal. Additionally, this alternative would not reduce the search costs for subscribers to identify potential routing destinations for their orders. Because proposed Form ATS-N would not be publicly disclosed under this alternative, the level of competition between NMS Stock ATSs would stay the same, and the lack of transparency about an NMS Stock ATS's operations and activities of the broker-dealer operator and its affiliates would be expected to persist.
Under this alternative, the Commission would require NMS Stock ATSs to file proposed Form ATS-N and would make it public, but the Commission would continue to use the current notice regime instead of declaring Form ATS-N effective or ineffective. The Commission would not determine whether an NMS Stock ATS qualifies for the exemption from the definition of “exchange,” and would not declare proposed Form ATS-N filings effective or ineffective.
Benefits of maintaining the current notice regime would include a lower demand for Commission and its staff resources to determine whether an NMS Stock ATS qualifies for the exemption from the definition of “exchange” and whether the Commission should declare a proposed Form ATS-N effective or ineffective, and to assess whether the Commission should suspend, limit, or revoke the effectiveness of an NMS Stock ATS's Form ATS-N. In addition, maintaining the current notice regime as opposed to declaring the proposed Form ATS-N effective or ineffective could be cost-effective to NMS Stock ATSs and could lower the barriers to entry for new NMS Stock ATSs compared to such barriers under the proposal.
Without a process to declare proposed Form ATS-N effective or ineffective, there would be less assurance that disclosures by NMS Stock ATSs would be accurate, current, and complete. Under this alternative, it would be more difficult for the Commission to exercise its oversight responsibilities with respect to the accuracy, currency, completeness and fair presentation of disclosures on proposed Form ATS-N than under the proposal, which would provide a process for the Commission to declare a proposed Form ATS-N effective or ineffective. Moreover, continued use of a notice regime could lessen the benefit of enhanced transparency relative to such benefit under the proposal and as a result, this alternative might not provide the same level of protection to market participants as the proposal.
Under this alternative, the Commission would require different levels of disclosure among NMS Stock ATSs based on dollar trading volume. For instance, NMS Stock ATSs with lower transaction volumes would be subject to lower levels of disclosure on proposed Form ATS-N. As a result, their compliance costs would be lower, which could lower their entry barriers relative to such barriers under the proposal. Because these small NMS Stock ATSs would not have to disclose as much information pertaining to their operations, they could have more time to innovate without disclosing such innovation to competitors. This could allow these small NMS Stock ATSs to better compete with more established NMS Stock ATSs, national securities exchanges, and broker-dealers and put more competitive pressure on the market. Furthermore, reduced regulatory burdens for small NMS Stock ATSs may result in greater innovation relative to the proposal because these small NMS Stock ATSs would not have to be concerned about disclosing proprietary information. Greater innovation for small NMS Stock ATSs could give them a greater competitive advantage in attracting order flow relative to large NMS Stock ATSs. This competitive advantage for small NMS Stock ATSs could spill over to market participants who execute on these ATSs, by increasing the execution quality of their trades.
However, under this alternative, broker-dealer operators of NMS Stock ATSs could seek to allocate order flow to multiple NMS Stock ATSs operated by either the broker-dealer or its affiliates to avoid reaching threshold volumes that would trigger additional disclosure requirements. This could create some information opaqueness in the market, which could lead to lower execution quality for market participants relative to that under the proposal. The Commission notes, however, that although Regulation ATS currently has volume thresholds for fair access and quote transparency requirements, the Commission has not observed any ATSs using such tactics to avoid crossing thresholds.
Under this alternative, the Commission would eliminate the exemption from the definition of “exchange” for NMS Stock ATSs under Exchange Act Rule 3a1-1(a) so that an NMS Stock ATS would be required to register as a national securities exchange and become an SRO. This alternative would provide market participants with the same protections that accompany the regulatory regime that applies to national securities exchanges. Without the benefit of the exemption from the definition of “exchange,” an NMS Stock
While NMS Stock ATSs would no longer need to register as broker-dealers or comply with Regulation ATS, registration as national securities exchanges would create high startup costs and high ongoing operational costs compared to what they would incur under the proposal.
Another alternative would be to amend Regulation ATS so that NMS Stock ATSs would no longer be required to file quarterly volume reports on Form ATS-R because, as noted above, FINRA rules currently require ATSs that transact in NMS stocks to report aggregate weekly volume information and the number of trades to FINRA in certain equity securities, including NMS stocks.
Instead, NMS Stock ATSs would be required to disclose, in quarterly amendments to Form ATS-N, the information that is currently captured by Form ATS-R that is not captured by FINRA reporting requirements. The Commission notes that, in addition to requiring unit volume of transactions, Form ATS-R, which is “deemed confidential when filed,”
The benefit of this alternative would be that NMS Stock ATSs would no longer be required to report quarterly on Form ATS-R information that is otherwise available. In addition, information that is currently deemed confidential on Form ATS-R would be made publicly available in quarterly amendments to Form ATS-N. NMS Stock ATSs would, however, be required to submit such quarterly amendments, which an NMS Stock ATS would not otherwise be required to do if the NMS Stock ATS did not have any other material changes to report during the quarter.
The Commission does not believe that this alternative would create significant new costs in preparing a quarterly Form ATS-N because the costs would be comparable to the costs of preparing Form ATS-R. However, as a result of the effective merging of proposed Form ATS-N and current Form ATS-R under this alternative, some of the information that would be made public on proposed Form ATS-N, such as the ATS's subscriber list and the list of persons granted, denied, or limited access during the reporting period (which is not being solicited under the proposed Form ATS-N) could be proprietary. Making such information public could harm the NMS Stock ATS as well as persons denied access.
Another alternative would be to amend Regulation ATS to require an NMS Stock ATS to operate as a “stand-alone” entity, which would exist only to operate the ATS and have no affiliation with any broker-dealer that seeks to execute proprietary or agency orders on the NMS Stock ATS. Under this alternative, NMS Stock ATSs would be required to publicly disclose proposed Form ATS-N, proposed Form ATS-N Amendments, and notices of cessation on proposed Form ATS-N, and would be limited purpose entities that could not engage in any activities other than operation of the ATS. This alternative would prohibit the broker-dealer operator of the NMS Stock ATS from engaging in any other broker-dealer activity, and would consequently prohibit the operation of an NMS Stock ATS by a multi-service broker-dealer.
The benefit of this alternative would be to eliminate potential conflicts of interest by requiring a broker-dealer that operates an NMS Stock ATS to have only a single business function, namely, operating the ATS. The broker-dealer would be required to eliminate any other functions, such as trading on a proprietary basis or routing customer orders.
However, this alternative may discourage broker-dealers from creating and operating innovative NMS Stock ATS platforms, and instead drive them to execute their own proprietary trades internally on their other broker-dealer systems. In addition, if they were no longer able to trade on a proprietary basis or route customer orders to their own NMS Stock ATS, many broker-dealers may choose to file a cessation of operations report and shut down the operations of their NMS Stock ATS.
As discussed above, NMS Stock ATSs are not required to provide fair access to the services of the NMS Stock ATS unless the ATS reaches the 5% trading volume threshold in a stock under Rule 301(b)(5) of Regulation ATS.
One of the principal aims of this proposed rulemaking is to provide market participants with more information about the activities of the broker-dealer operator, its affiliates, and the operations of the NMS Stock ATS, so they may better assess NMS Stock ATSs as potential trading venue for their orders. For example, as discussed above, the Commission is concerned that market participants have limited or different levels of information about how the NMS Stock ATSs operate, and the activities of broker-dealer operators and their affiliates.
The Commission preliminarily believes that lowering the fair access threshold for NMS Stock ATSs would require the Commission to consider lowering the fair access threshold to zero, or to some threshold between zero and 5%. If the fair access threshold remained at a threshold above zero, the benefit of this approach, as compared to the proposed disclosure requirements that would apply to all NMS Stock ATSs, could be further limited by the fact that the fair access requirements would apply only to the NMS stocks for which the NMS Stock ATS had crossed the fair access threshold. The Commission could address that situation by proposing further amendments to the fair access requirements that would extend an ATS's fair access duties to all NMS stocks once the fair access threshold had been crossed by an ATS in a certain number of NMS stocks, to revise the duties incurred when the threshold is crossed, or to simply lower the threshold to zero, which would have the effect of requiring all NMS Stock ATSs to immediately comply with the fair access requirements for all NMS stocks. However, the Commission preliminarily believes that the disclosures that would be required by proposed Form ATS-N requirements would be a cost effective and simpler approach than proposing fundamental revisions to the fair access requirements that would achieve the aim of providing market participants with information to better assess NMS Stock ATSs as potential trading venues.
Another alternative would be to amend Regulation ATS to require ATSs that trade fixed income securities and ATSs that solely trade government securities to also report information about their operations and activities of the broker-dealer operator and affiliates on Form ATS-N. Under this alternative, NMS Stock ATSs, as well as ATSs that trade fixed income securities and ATSs that solely trade government securities, would be required to publicly disclose proposed Form ATS-N, proposed Form ATS-N Amendments, and notices of cessation on proposed Form ATS-N.
The benefit of this alternative is that it may provide market participants with clearer transparency regarding the operations and activities of all types of ATSs, not just NMS stock ATSs. To the extent that there may be market participants who predominately trade orders of NMS stock, fixed income securities, and government securities on ATSs, these market participants would benefit from the added transparency regarding how these venues operate and the activities of their broker-dealer operators and affiliates.
ATSs that effect trades in fixed income securities primarily compete against other trading venues with limited or no operational transparency requirements or standards. This is not the case with NMS Stock ATSs, which provide limited information to market participants about their operations and compete directly with national securities exchanges, which are required to publicly disclose information about their operations in the form of proposed rule changes and a public rule book.
The Commission is sensitive to the potential economic effects, including the costs and benefits, of the proposed amendments to Regulation ATS. The Commission has identified above certain costs and benefits associated with the proposal and requests comment on all aspects of its preliminary economic analysis. The Commission encourages commenters to identify, discuss, analyze, and supply relevant data, information, or statistics regarding any such costs or benefits. In particular, the Commission seeks comment on the following:
506. Do you believe the Commission's analysis of the potential effects of the proposed amendments to Regulation ATS is reasonable? Why or why not? Please explain in detail.
507. Do you believe the Commission's assessment of the baseline for the economic analysis is reasonable? Why or why not? Please explain in detail.
508. Do you believe that the proposing release provides a fair representation of current practices and how those current practices would change under the proposed amendments to Regulation ATS? Why or why not? Please explain in detail.
509. Do you believe that the Commission has reasonably described how the competitive landscape for the market for NMS stock execution services would be affected under the proposed amendments to Regulation ATS? Why or why not? Please explain in detail. Does the release discuss all relevant forms of competition and whether the proposal could alter them? If not, which additional forms of competition could the proposal impact and how? Please explain in detail.
510. Do you believe that the Commission has reasonably identified all market participants that would be affected by the proposed amendments to Regulation ATS? If so, why? If not, why not, and which market participants do you believe are not reasonably excluded or would be affected by the proposed amendments? Please explain in detail.
511. Do you believe that the Commission has reasonably described how market participants would be affected by the proposed amendments to Regulation ATS? Why or why not? Please explain in detail.
512. Do you believe that the Commission has reasonably described the information market participants currently receive? If so, why? If not, why not? Please explain in detail.
513. Do you believe that the Commission has reasonably described the benefits market participants would receive from the information that would be required to be disclosed by the proposed amendments to Regulation ATS? Why or why not? Please explain in detail.
514. Do you believe that market participants currently have all relevant information concerning the activities of the broker-dealer operator of the NMS Stock ATS and its affiliates as such activities relate to the NMS Stock ATS? Why or why not? Do you believe there is information that is not required in the proposed amendments to Regulation ATS that would be beneficial to market participants? If so, please describe that information and its benefits in detail. If not, why not? Please support your arguments.
515. Do you believe that market participants currently have all relevant information concerning the subscribers to the NMS Stock ATS where their orders are executed? Why or why not? Do you believe there is information that is not required in the proposed amendments to Regulation ATS that would be beneficial to market participants? If so, please describe that information and its benefits in detail. If not, why not? Please support your arguments.
516. Do you believe that market participants currently have all relevant information concerning the trading operations of the NMS Stock ATS where their orders are executed? Why or why not? Do you believe there is information that is not required in the proposed amendments to Regulation ATS that would be beneficial to market participants? If so, please describe that information and its benefits in detail. If not, why not? Please support your arguments.
517. Do you believe that market participants currently have all relevant information concerning the services offered by the NMS Stock ATS where their orders are executed and their fee structures? Why or why not? Do you believe there is information that is not required in the proposed amendments to Regulation ATS that would be beneficial to market participants? If so, please describe that information and its benefits in detail. If not, why not? Please support your arguments.
518. Do you believe that market participants currently have all relevant information concerning the safeguards and procedures that NMS Stock ATSs have instituted to protect their confidential trading information? Why or why not? Is there information that is not required in the proposed amendments to Regulation ATS that would be beneficial to market participants? If so, please describe that information and its benefits in detail. If not, why not? Please support your arguments.
519. Do you believe that the Commission has reasonably described its analysis of the costs and benefits of each proposed amendment to Regulation ATS? Why or why not? Please explain in detail.
520. Do you believe that there are additional benefits or costs that could be quantified or otherwise monetized? Why or why not? If so, please identify these categories and, if possible, provide specific estimates or data.
521. Do you believe there are there any additional benefits that may arise from the proposed amendments to Regulation ATS? If so, what are such benefits? Please explain in detail.
522. Do you believe there are benefits described above that would not likely result from the proposed amendments to Regulation ATS? If so, please explain these benefits or lack of benefits in detail.
523. Do you believe there are any additional costs that may arise from the proposed amendments to Regulation ATS? If so, do you believe there are methods by which the Commission could reduce the costs imposed by the proposed amendments to Regulation ATS while still achieving the goals? Please explain in detail.
524. Do you believe there are any potential unintended consequences of the proposed amendments to Regulation ATS? If so, what are they? If not, why not?
525. Do you believe there are costs described above that would not likely result from the proposed amendments to Regulation ATS? Why or why not? Please support your arguments.
526. Do you believe that the proposing release appropriately describes the potential effects of the proposed amendments to Regulation
527. Do you believe that there are alternative mechanisms for achieving the Commission's goal of improving transparency of NMS Stock ATS's trading operations and regulatory oversight while promoting competition and capital formation? If so, what are such mechanisms? Please explain in detail.
528. Do you believe that market participants would change their behavior in response to the proposed amendments to Regulation ATS in any way? Why or why not? If so, which market participants would change their behavior and how? If not, why not? What would be the benefits and costs of these changes? How would these changes affect efficiency, competition, and capital formation? How would these changes affect market quality and market efficiency? Please support your arguments.
529. Do you believe there are benefits that may arise if the Commission were to apply proposed Rule 304, in whole or in part, to fixed income ATSs? If so, what are such benefits? Please explain in detail.
530. Do you believe there are costs that may arise if the Commission were to apply proposed Rule 304, in whole or in part, to fixed income ATSs? If so, what are such costs? Please explain in detail.
531. Do you believe that the proposed amendments could result in NMS Stock ATSs selecting to trade fixed income securities instead of NMS stocks, because, under the proposed amendments, Rule 304 would not apply to fixed income securities? Please explain in detail.
532. Do you believe that if the Commission were to apply proposed Rule 304 to fixed income ATSs, this could alter the nature of competition in the market for order execution services for fixed income securities? Why or why not? Please support your arguments.
533. Do you believe that if the Commission were to apply proposed Rule 304 to fixed income ATSs, this could promote greater efficiency, competition, and capital formation relative to the current proposal? If so, please explain in detail.
534. Do you believe there are benefits that may arise if the Commission should adopt amendments to Regulation ATS to remove the exemption under Rule 301(a)(4)(ii)(A) of Regulation ATS for ATSs whose trading activity is solely in government securities? If so, what are such benefits? Please explain in detail.
535. Do you believe that there are benefits that may arise if the Commission enhances the transparency requirements applicable to ATSs that effect transactions solely in government securities? If so, what are such benefits? Please explain in detail.
536. Do you believe there are costs that may arise if the Commission adopted amendments to Regulation ATS to remove the exemption under Rule 301(a)(4)(ii)(A) of Regulation ATS for ATSs whose trading activity is solely in government securities? If so, what are such costs? Please explain in detail.
537. Do you believe that there are costs that may arise if the Commission were to apply Rule 304 to ATSs that effect transactions solely in government securities? If so, what are such costs? Please explain in detail.
538. Do you believe that the proposed amendments could result in ATSs selecting to solely trade government securities instead of NMS stocks, because, under the proposal, Rule 304 would not apply to government securities? Please explain in detail.
539. Do you believe that if the Commission were to apply Rule 304 to ATSs that solely trade government securities, this could alter the nature of competition in the market for order execution services for government securities? Why or why not? Please support your arguments.
540. Do you believe that if the Commission were to apply proposed Rule 304 to ATSs that solely trade government securities, this could promote greater efficiency, competition, and capital formation relative to the current proposal? If so, please explain in detail.
541. Do you believe that requiring NMS Stock ATSs to do something more to ensure compliance with proposed Rule 304 than the certification required under FINRA Rule 3130 would have effects on regulatory oversight and investor protection? If so, please explain in detail.
542. Do some NMS Stock ATSs currently disclose aggregate platform-wide order flow and execution statistics regarding the NMS Stock ATS that are not otherwise required disclosures under Exchange Act Rule 605 of Regulation NMS to one or more subscribers by the NMS Stock ATS? If so, what order flow and execution statistics are provided? How widely disseminated is the information? To what extent do the NMS Stock ATSs disclose how they calculate the statistics? Please explain in detail.
543. Do you believe that there are benefits to market participants from having NMS Stock ATSs publicly disclose aggregate platform-wide order flow and execution statistics regarding the NMS Stock ATS that are not otherwise required disclosures under Exchange Act Rule 605 of Regulation NMS but still published or otherwise provided to one or more subscribers by the NMS Stock ATS, and from having NMS Stock ATSs describe how those statistics are calculated? If so, please explain in detail. Do you believe that there are costs to NMS Stock ATSs from having them publicly disclose those market quality statistics and describe how those statistics are calculated? If so, please explain in detail.
544. Do you believe that there are benefits to market participants if the Commission were to require NMS Stock ATSs to provide disclosure about their governance structure, compliance programs and controls to comply with Regulation ATS? If so, please explain in detail.
545. Do you believe that there are costs to NMS Stock ATSs if the Commission were to require them to provide disclosure about their governance structure, compliance programs and controls to comply with Regulation ATS? If so, please explain in detail.
546. Should proposed Form ATS-N be submitted or made publicly available on EDGAR instead of through the EFFS system and the Commission's Web site? What would be the advantages to the public or to NMS Stock ATSs of access through EDGAR instead of the Commission's proposed process?
547. Should some or all of the information in proposed Form ATS-N be submitted in a particular financial reporting language such as the FIX Protocol, eXtensible Business Reporting Language (XBRL), or some other open standard that is widely available to the public and at no cost? Should the Commission create a new taxonomy for submitting the information in proposed Form ATS-N?
548. Should the Commission require that some or all of the information in proposed Form ATS-N be tagged using standard electronic definitions of a particular taxonomy, and what would be the additional compliance costs associated with tagging the information?
549. Would requiring any of the information in the narrative responses to be submitted in a tagged format enhance the public's use of the data beyond the Commission's proposal? If so, how?
550. Could a format other than the one proposed to be accepted by the EFFS system reduce the burden on NMS Stock ATSs in filing the required disclosures with the Commission? For example, could a single machine-readable PDF reduce the filing burden on NMS Stock ATSs? If so, please identify the alternative format and the reduced filing burdens associated with it.
551. Should proposed Form ATS-N be structured in a more granular detail, and if so, how? In addition, how would the more granular detail enhance the public's use of the data beyond the Commission's proposal? What would be the costs of providing more granular detail?
552. Would the public's usability of the data be enhanced if it were structured in another format? If so, please identify the other format and describe how the public's use of the data would be enhanced by the other format. If possible, discuss factors about the other format such as how commonly available it is, whether it is viewer-independent, whether it is an open standard, how it has been adopted internationally and in other regulatory contexts, and how it supports document attachments or references as well as narrative and numeric data.
553. Do you believe that the Commission articulated all reasonable alternatives for the proposed amendments to Regulation ATS? If not, please provide additional alternatives and how their costs and benefits, as well as their potential impacts on the promotion of efficiency, competition, and capital formation, would compare to the proposed amendments.
554. Do you believe that the Commission has reasonably described the costs and benefits for the alternatives described above? If not, please provide more accurate descriptions of costs and benefits, including any data or statistics that support those costs and benefits.
555. Do you believe that the Commission has reasonably described the potential impacts on the promotion of efficiency, competition, and capital formation of the alternatives described above relative to the proposed amendments? If not, please explain in detail which impacts for which alternatives the Commission has not reasonably described, and support your arguments with any applicable data or statistics.
556. The Commission generally requests comment on the competitive or anticompetitive effects, as well as the efficiency and capital formation effects, of the proposed amendments to Regulation ATS on market participants if the proposed rules are adopted as proposed. Commenters should provide analysis and empirical data to support their views on the competitive or anticompetitive effects, as well as the efficiency and capital formation effects, of the proposed amendments to Regulation ATS.
557. The Commission generally requests comment on whether the benefits of the proposed amendments to Regulation ATS justify the costs. Please be specific and provide details. Commenters should provide analysis and empirical data to support their views on the benefits and costs of the proposed amendments to Regulation ATS.
558. Do you believe that the Commission has solicited the right set of information on proposed Form ATS-N, which will be made available to the public? Is there any other information the Commission should ask NMS Stock ATSs to provide on Form ATS-N? If so, please provide details.
For purposes of the Small Business Regulatory Enforcement Fairness Act of 1996,
Section 3(a) of the Regulatory Flexibility Act of 1980
All ATSs, including NMS Stock ATSs, would continue to have to register as broker-dealers.
The Commission encourages written comments regarding this certification. The Commission solicits comment as to whether the proposed amendments could have impacts on small entities that have not been considered. The Commission requests that commenters describe the nature of any impacts on small entities and provide empirical data to support the extent of such effect. Such comments will be placed in the same public file as comments on the proposed amendments to Regulation ATS. Persons wishing to submit written comments should refer to the instructions for submitting comments in the front of this release.
Pursuant to Exchange Act, 15 U.S.C. 78a
Brokers, Confidential business information, Fraud, Reporting and recordkeeping requirements, Securities.
For the reasons stated in the preamble, title 17, chapter II of the Code of Federal Regulations is proposed to be amended as follows:
15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f, 78g, 78i, 78j, 78j-1, 78k, 78k-1, 78
15 U.S.C. 77g, 77q(a), 77s(a), 78b, 78c, 78g(c)(2), 78i(a), 78j, 78k-1(c), 78
(k) NMS Stock ATS means an alternative trading system, as defined in § 242.300(a), that facilitates transactions in NMS stocks, as defined in § 242.300(g).
The addition reads as follows:
(b) * * *
(2) * * *
(viii) An alternative trading system that is an NMS Stock ATS shall file the reports and amendments required by § 242.304, and shall not be subject to the requirements of paragraph (b)(2) of this section. An alternative trading system that effects transactions in both NMS stocks and non-NMS stocks shall be subject to the requirements of § 242.304 of this chapter with respect to NMS stocks and paragraph (b)(2) of this section with respect to non-NMS stocks.
The addition reads as follows:
(a) * * *
(1) * * *
(v) At least one copy of the written safeguards and written procedures to protect subscribers' confidential trading information and the written oversight procedures created in the course of complying with paragraph (b)(10) of § 242.301.
(a)
(1)
(ii)
(
(
(B) The Commission will declare a Form ATS-N filed by an NMS Stock ATS that was not operating as of [effective date of the final rule] effective or ineffective no later than 120 calendar days from filing with the Commission. The Commission may extend the Form ATS-N review period for:
(
(
(iii)
(iv)
(2)
(A) At least 30 calendar days prior to the date of implementation of a material change to the operations of the NMS Stock ATS or to the activities of the broker-dealer operator or its affiliates that are subject to disclosure on Form ATS-N;
(B) Within 30 calendar days after the end of each calendar quarter to correct any other information that has become inaccurate for any reason and has not been previously reported to the Commission as a Form ATS-N Amendment; or
(C) Promptly, to correct information in any previous disclosure on Form ATS-N, after discovery that any information filed under paragraphs (a)(1)(i) or (a)(2)(i)(A) or (B) of this section was inaccurate or incomplete when filed.
(ii)
(3)
(4)
(ii) If an NMS Stock ATS's exemption is suspended or revoked pursuant to paragraph (a)(4)(i) of this section, the NMS Stock ATS shall be prohibited from operating pursuant to the exemption from the definition an “exchange” pursuant to § 240.3a1-1(a)(2) of this chapter. If an NMS Stock ATS's exemption is limited pursuant to paragraph (a)(4)(i) of this section, the NMS Stock ATS shall be prohibited from operating in a manner otherwise inconsistent with the terms and conditions of the Commission order.
(b)
(2) The Commission would make public via posting on the Commission's Web site, each:
(i) Order of effectiveness of a Form ATS-N;
(ii) Order of ineffectiveness of a Form ATS-N;
(iii) Effective Form ATS-N;
(iv) Filed Form ATS-N Amendment;
(v) Order of ineffectiveness of a Form ATS-N Amendment;
(vi) Notice of cessation; and
(vii) Order suspending, limiting, or revoking the exemption from the definition of an “exchange” pursuant to § 240.3a1-1(a)(2) of this chapter.
(3) Each NMS Stock ATS shall make public via posting on its Web site a direct URL hyperlink to the Commission's Web site that contains the documents enumerated in paragraph (b)(2) of this section.
(c)
(2) Any report required to be filed with the Commission under this section shall be filed electronically on Form ATS-N, and include all information as prescribed in Form ATS-N and the instructions thereto and contain an electronic signature. The signatory to an electronically filed Form ATS-N shall manually sign a signature page or document, in the manner prescribed by Form ATS-N, authenticating, acknowledging, or otherwise adopting his or her signature that appears in typed form within the electronic filing. Such document shall be executed before or at the time Form ATS-N is electronically filed and shall be retained by the NMS Stock ATS in accordance with § 242.303.
15 U.S.C. 78a
This form shall be used by every NMS Stock ATS to file required reports under § 242.304(a) of this chapter.
The text of Form ATS-N will not appear in the Code of Federal Regulations.
• Form ATS-N is a public reporting form that is designed to provide the public and the Commission with information about the operations of the NMS Stock ATS and the activities of its broker-dealer operator and its affiliates. Form ATS-N is to be used by an NMS Stock ATS to qualify for the exemption from the definition of an “exchange” pursuant to Exchange Act Rule 3a1-1(a)(2), for which no other form is authorized or prescribed.
• An NMS Stock ATS must respond to each item, as applicable, in detail and disclose information that is accurate, current, and complete. An NMS Stock ATS must provide all the information required by the form, including the exhibits, and must present the information in a clear and comprehensible manner. A filing that is incomplete or similarly deficient may be returned to the NMS Stock ATS. Any filing so returned shall for all purposes be deemed not to have been filed with the Commission.
• A separate Form ATS-N is required for each NMS Stock ATS operated by the same broker-dealer operator.
• Form ATS-N: Prior to commencing operations, an NMS Stock ATS shall file a Form ATS-N and the Form ATS-N must be declared effective by the Commission. If the NMS Stock ATS is operating pursuant to a previously filed initial operation report on Form ATS as of the effective date of proposed Rule 304, such NMS Stock ATS shall file with the Commission a Form ATS-N no later than 120 calendar days after such effective date.
• Form ATS-N Amendment: An NMS Stock ATS shall amend an effective Form ATS-N: (1) at least 30 calendar days prior to the date of implementation of a material change to the operations of the NMS Stock ATS or to the activities of the broker-dealer operator or its affiliates that are subject to disclosure on Form ATS-N; (2) within 30 calendar days after the end of each calendar quarter to correct any other information that has become inaccurate for any reason and has not been previously reported to the Commission as a Form ATS-N Amendment; or (3) promptly, to correct information in any previous disclosure on Form ATS-N, after discovery that any information filed under paragraphs (a)(1)(i) or (a)(2)(i)(A) or (B) of proposed Rule 304 was inaccurate or incomplete when filed.
• Notice of Cessation: An NMS Stock ATS shall notice its cessation of operations on Form ATS-N at least 10 business days before the date the NMS Stock ATS will cease to operate as an NMS Stock ATS.
• Withdrawal: If an NMS Stock ATS determines to withdraw a Form ATS-N, it must select the appropriate check box and provide the correct file number to withdraw the submission.
• Any report required to be submitted pursuant to Rule 304 of Regulation ATS shall be filed in an electronic format through the electronic form filing system (“EFFS”), a secure Web site operated by the Securities and Exchange Commission (“Commission”). Documents filed through the EFFS system must be in a text-searchable format without the use of optical character recognition.
• A duly authorized individual of the NMS Stock ATS shall electronically sign the completed Form ATS-N. In addition, a duly authorized individual of the NMS Stock ATS shall manually sign one copy of the completed Form ATS-N, and the manually signed signature page shall be preserved pursuant to the requirements of proposed Rule 303 of Regulation ATS.
• The individual listed on the NMS Stock ATS's response to Part V of Form ATS-N as the contact representative must be authorized to receive all incoming communications and be responsible for disseminating that information, as necessary, within the NMS Stock ATS.
• A copy of this Form ATS-N must be retained by the NMS Stock ATS and made available for inspection upon request of the SEC.
• Form ATS-N requires an NMS Stock ATS to provide the Commission with certain information regarding: (1) the operation of the NMS Stock ATS and the activities of the broker-dealer operator and its affiliates; (2) material and other changes to the operation of the NMS Stock ATS; and (3) notice upon ceasing operation of the alternative trading system. Form ATS-N is intended to provide the public with information about the operations of the NMS Stock ATS and the activities of the broker-dealer operator and its affiliates so that they may make an informed decision as to whether to participate on the NMS Stock ATS. In addition, the Form ATS-N is intended to provide the Commission with information to permit it to carry out its market oversight and investor protection functions.
• The information provided on Form ATS-N will help enable the Commission to determine whether an NMS Stock ATS is in compliance with the federal securities laws and the rules or regulations thereunder, including Regulation ATS. An NMS Stock ATS must: (1) file Form ATS-N prior to commencing operations; (2) file a Form ATS-N Amendment at least 30 calendar days prior to the date of implementation of a material change to the operations of the NMS Stock ATS or to the activities of the broker-dealer operator or its affiliates that are subject to disclosure on Form ATS-N; (3) file a Form ATS-N Amendment within 30 calendar days after the end of each calendar quarter to correct any other information that has become inaccurate for any reason and has not been previously reported to the Commission on Form ATS-N; (4) file a Form ATS-N Amendment promptly to correct information in any previous disclosure on a Form ATS-N or a Form ATS-N Amendment after discovery that any information filed was inaccurate or incomplete when filed; and (5) notice its cessation of operations at least 10 business days before the date the NMS Stock ATS ceases to operate as an NMS Stock ATS.
• This collection of information will be reviewed by the Office of Management and Budget in accordance with the clearance requirements of 44 U.S.C. 3507. 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 Commission estimates that that an NMS Stock ATS will spend approximately 141.3 hours completing the Form ATS-N, approximately 9.5 hours preparing each amendment to Form ATS-N, and approximately 2 hours preparing a notice of cessation on Form ATS-N. Any member of the public may direct to the Commission any comments concerning the accuracy of this burden estimate and any suggestions for reducing this burden.
The following terms are defined for purposes of Form ATS-N.
• AFFILIATE: Shall mean, with respect to a specified person, any person that, directly or indirectly, controls, is under common control with, or is controlled by, the specified person.
• ALTERNATIVE TRADING SYSTEM: Shall mean any organization,
• BROKER-DEALER OPERATOR: Shall mean the registered broker-dealer of the NMS Stock ATS pursuant to 17 CFR 242.301(b)(1).
• CONTROL: Shall mean the power, directly or indirectly, to direct the management or policies of the broker-dealer of an alternative trading system, whether through ownership of securities, by contract, or otherwise. A person is presumed to control the broker-dealer of an alternative trading system if that person: (1) is a director, general partner, or officer exercising executive responsibility (or having similar status or performing similar functions); (2) directly or indirectly has the right to vote 25 percent or more of a class of voting securities or has the power to sell or direct the sale of 25 percent or more of a class of voting securities of the broker-dealer of the alternative trading system; or (3) in the case of a partnership, has contributed, or has the right to receive upon dissolution, 25 percent or more of the capital of the broker-dealer of the alternative trading system.
• NMS SECURITY: Shall mean any security or class of securities for which transaction reports are collected, processed, and made available pursuant to an effective transaction reporting plan, or an effective national market system plan for reporting transactions in listed options. 17 CFR 242.600(b)(46).
• NMS STOCK: Shall mean any NMS security other than an option. 17 CFR 242.600(b)(47).
• NMS STOCK ATS: Shall mean an alternative trading system, as defined in Rule 300(a) under the Exchange Act, that facilitates transactions in NMS stocks, as defined in Rule 300(g) under the Exchange Act. [Proposed] 17 CFR 242.300(k).
• ORDER: Shall mean any firm indication of a willingness to buy or sell a security as either principal or agent, including any bid or offer quotation, market order, limit order or other priced order. 17 CFR 242.300(e).
• PERSON: Shall mean a natural person or a company. 15 U.S.C. 80a-2(a)(28).
• SUBSCRIBER: Shall mean any person that has entered into a contractual agreement with an alternative trading system to access an alternative trading system for the purpose of effecting transactions in securities, or for submitting, disseminating or displaying orders on such alternative trading system, including a customer, member, user, or participant in an alternative trading system. A subscriber, however, shall not include a national securities exchange or association. 17 CFR 242.300(b).
By the Commission.
Category | Regulatory Information | |
Collection | Federal Register | |
sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
Publisher | Office of the Federal Register, National Archives and Records Administration |