Page Range | 27237-27553 | |
FR Document |
Page and Subject | |
---|---|
80 FR 27241 - Mother's Day, 2015 | |
80 FR 27239 - Peace Officers Memorial Day and Police Week, 2015 | |
80 FR 27237 - National Defense Transportation Day and National Transportation Week, 2015 | |
80 FR 27298 - Agency Information Collection Activities; Comment Request; Gainful Employment Recent Graduates Employment and Earning Survey Pilot Test | |
80 FR 27306 - Sunshine Act Notice | |
80 FR 27350 - Comment Request for Information Collection for OMB 1205-0009, Characteristics of the Insured Unemployed (ETA 203), Extension Without Revisions | |
80 FR 27307 - Sunshine Act Notice | |
80 FR 27408 - Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Proposed Rule To Introduce Asian Style Settlement and Cliquet Style Settlement for FLexible Exchange Broad-Based Index Options | |
80 FR 27373 - Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Related to the Nullification and Adjustment of Options Transactions Including Obvious Errors | |
80 FR 27284 - Notice of Request To Extend a Currently Approved Information Collection (Voluntary Recalls of Meat and Poultry Products) | |
80 FR 27351 - Advisory Committee on Reactor Safeguards (ACRS); Meeting of the ACRS Subcommittee on Plant Operations and Fire Protection; Notice of Meeting | |
80 FR 27341 - Announcement of Funding Awards for Fiscal Year (FY) 2014 for the Housing Choice Voucher (HCV) Program | |
80 FR 27275 - Rail Vehicles Access Advisory Committee | |
80 FR 27287 - Certain Cased Pencils From the People's Republic of China: Rescission of Antidumping Duty Administrative Review; 2013-2014 | |
80 FR 27436 - Proposed Collection; Comment Request for Regulation Project | |
80 FR 27286 - Foreign-Trade Zone (FTZ) 83-Huntsville, Alabama; Notification of Proposed Production Activity, Toyota Motor Manufacturing Alabama, Inc., (Motor Vehicle Engines and Transmissions), Huntsville, Alabama | |
80 FR 27288 - North Pacific Fishery Management Council; Public Meeting | |
80 FR 27288 - New England Fishery Management Council; Public Meeting | |
80 FR 27291 - Proposed Information Collection; Comment Request; Environmental Compliance Questionnaire for National Oceanic and Atmospheric Administration Federal Financial Assistance Applicants | |
80 FR 27436 - Low Income Taxpayer Clinic Grant Program; Availability of 2014 Grant Application Package | |
80 FR 27304 - Release of Risk and Exposure Assessment Planning Document for the Review of the Primary National Ambient Air Quality Standards for Nitrogen Dioxide | |
80 FR 27281 - Railroad Revenue Adequacy; Petition of the Western Coal Traffic League To Institute a Rulemaking Proceeding To Abolish the Use of the Multi-Stage Discounted Cash Flow Model in Determining the Railroad Industry's Cost of Equity Capital | |
80 FR 27303 - Proposed Consent Decree, Clean Air Act Citizen Suit | |
80 FR 27276 - Approval and Promulgation of Air Quality Implementation Plans; District of Columbia, Maryland, and Virginia; 2011 Base Year Emissions Inventories for the Washington, DC-MD-VA Nonattainment Area for the 2008 Ozone National Ambient Air Quality Standard | |
80 FR 27255 - Approval and Promulgation of Air Quality Implementation Plans; District of Columbia, Maryland, and Virginia; 2011 Base Year Emissions Inventories for the Washington DC-MD-VA Nonattainment Area for the 2008 Ozone National Ambient Air Quality Standard | |
80 FR 27331 - Center for Scientific Review; Notice of Closed Meetings | |
80 FR 27330 - National Institute of Diabetes and Digestive and Kidney Diseases; Notice of Closed Meetings | |
80 FR 27269 - Requirements for the Disposition of Non-Ambulatory Disabled Veal Calves | |
80 FR 27280 - Rail Transportation of Grain, Rate Regulation Review | |
80 FR 27432 - Culturally Significant Objects Imported for Exhibition Determinations: “Three Paintings by Johan Christian Dahl” Exhibition | |
80 FR 27296 - Intent To Prepare a Draft Supplemental Environmental Impact Statement (Supplement 2) for the Mississippi River Ship Channel, Gulf to Baton Rouge, Louisiana, General Reevaluation Study | |
80 FR 27432 - In the Matter of the Review of the Designation of al-Qa'ida (and Other Aliases) as a Foreign Terrorist Organization Pursuant to Section 219 of the Immigration and Nationality Act | |
80 FR 27295 - Submission for OMB Review; Comment Request | |
80 FR 27433 - Notice of Request To Release Airport Property | |
80 FR 27306 - Information Collection Being Reviewed by the Federal Communications Commission | |
80 FR 27299 - Proposed Agency Information Collection | |
80 FR 27293 - Multistakeholder Process To Develop Consumer Data Privacy Code of Conduct Concerning Facial Recognition Technology | |
80 FR 27327 - Agency Information Collection Activities: Proposed Collection: Public Comment Request | |
80 FR 27303 - Phoenix Energy Group, LLC; Supplemental Notice That Initial Market-Based Rate Filing includes Request for Blanket Section 204 Authorization | |
80 FR 27301 - SEPG Energy Marketing Services, LLC; Supplemental Notice That Initial Market-Based Rate Filing Includes Request for Blanket Section 204 Authorization | |
80 FR 27300 - U.S. Borax, Inc.; Supplemental Notice That Initial Market-Based Rate Filing Includes Request for Blanket Section 204 Authorization | |
80 FR 27302 - Combined Notice of Filings #1 | |
80 FR 27335 - Agency Information Collection Activities: Application for Withdrawal of Bonded Stores for Fishing Vessels and Certificate of Use | |
80 FR 27292 - Stakeholder Engagement on Cybersecurity in the Digital Ecosystem | |
80 FR 27319 - Investigational Enzyme Replacement Therapy Products: Nonclinical Assessment; Draft Guidance for Industry; Availability | |
80 FR 27318 - Determination of the Period Covered by a No-Tobacco-Sale Order and Compliance With an Order; Draft Guidance for Tobacco Retailers; Availability | |
80 FR 27323 - Prescription Drug User Fee Act; Public Meeting; Request for Comments | |
80 FR 27326 - Dose Finding of Small Molecule Oncology Drugs; Public Workshop | |
80 FR 27307 - Formations of, Acquisitions by, and Mergers of Bank Holding Companies | |
80 FR 27310 - Modernizing the Federal Supply Schedule Program: Standardization of Part Number Data | |
80 FR 27308 - General Services Administration Acquisition Regulation; Information Collection; Preparation, Submission, and Negotiation of Subcontracting Plans | |
80 FR 27309 - General Services Administration Acquisition Regulation; Information Collection; Contractor's Qualifications and Financial Information (GSA Form 527) | |
80 FR 27308 - Public Buildings Service; Information Collection; Application/Permit for Use of Space in Public Buildings and Grounds, GSA Form 3453 | |
80 FR 27320 - Determination That SODIUM SULAMYD (sulfacetamide sodium) Ophthalmic Solution and Ophthalmic Ointment Were Not Withdrawn From Sale for Reasons of Safety or Effectiveness | |
80 FR 27321 - Biosimilars: Additional Questions and Answers Regarding Implementation of the Biologics Price Competition and Innovation Act of 2009; Draft Guidance for Industry; Availability | |
80 FR 27322 - International Cooperation on Harmonisation of Technical Requirements for Registration of Veterinary Medicinal Products (VICH GL23(R)); Studies To Evaluate the Safety of Residues of Veterinary Drugs in Human Food: Genotoxicity Testing; Revised Guidance for Industry; Availability | |
80 FR 27321 - Agency Information Collection Activities; Announcement of Office of Management and Budget Approval; Extra Label Drug Use in Animals | |
80 FR 27310 - General Services Administration Acquisition Regulation; Information Collection; GSA Mentor-Protégé Program | |
80 FR 27349 - Draft Environmental Assessment and Draft Habitat Conservation Plan; CEMEX Balcones Quarry Northeast Area in Comal County, Texas | |
80 FR 27350 - Arts Advisory Panel Meetings | |
80 FR 27300 - Combined Notice of Filings #1 | |
80 FR 27263 - Statewide Data Indicators and National Standards for Child and Family Services Reviews | |
80 FR 27315 - Proposed Data Collection Submitted for Public Comment and Recommendations | |
80 FR 27314 - Proposed Data Collection Submitted for Public Comment and Recommendations | |
80 FR 27316 - Proposed Data Collection Submitted for Public Comment and Recommendations | |
80 FR 27311 - Proposed Data Collection Submitted for Public Comment and Recommendations | |
80 FR 27313 - Agency Forms Undergoing Paperwork Reduction Act Review | |
80 FR 27293 - Agency Information Collection Activities: Notice of Intent to Renew Collection 3038-0033, Notification of Pending Legal Proceedings | |
80 FR 27340 - Extension of Agency Information Collection Activity Under OMB Review: Baseline Assessment for Security Enhancement (BASE) Program | |
80 FR 27339 - Homeland Security Advisory Council-Task Force Name Change | |
80 FR 27339 - Chemical Facility Anti-Terrorism Standards; Guidance for the Expedited Approval Program | |
80 FR 27261 - Suspension of Community Eligibility | |
80 FR 27286 - Meeting of the United States Travel and Tourism Advisory Board | |
80 FR 27336 - Changes in Flood Hazard Determinations | |
80 FR 27335 - West Virginia; Amendment No. 1 to Notice of a Major Disaster Declaration | |
80 FR 27338 - Tennessee; Amendment No. 1 to Notice of a Major Disaster Declaration | |
80 FR 27336 - Georgia; Major Disaster and Related Determinations | |
80 FR 27294 - Partial Extension of Comment Deadline on CARD Act Request for Information | |
80 FR 27285 - Santa Fe National Forest; New Mexico; Geothermal Leasing | |
80 FR 27437 - Privacy Act of 1974 | |
80 FR 27390 - Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending the Fees for NYSE ArcaBook To Add a Late Fee in Connection With Failure To Submit the Non-Display Use Declaration | |
80 FR 27371 - Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending the Fees for NYSE Arca BBO and NYSE Arca Trades To Add a Late Fee in Connection With Failure To Submit the Non-Display Use Declaration | |
80 FR 27289 - Proposed Information Collection; Comment Request; Fishery Products Subject to Trade Restrictions Pursuant to Certification Under the High Seas Driftnet Fishing (HSDF) Moratorium Protection Act | |
80 FR 27292 - Submission for OMB Review; Comment Request | |
80 FR 27435 - Agency Information Collection Activities: Information Collection Renewal; Submission for OMB Review; Bank Activities and Operations | |
80 FR 27433 - Agency Information Collection Activities: Information Collection Renewal; Submission for OMB Review; Recordkeeping Requirements for Securities Transactions | |
80 FR 27392 - Self-Regulatory Organizations; C2 Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to the Nullification and Adjustment of Options Transactions Including Obvious Errors | |
80 FR 27354 - Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to the Nullification and Adjustment of Options Transactions Including Obvious Errors | |
80 FR 27415 - Self-Regulatory Organizations; ISE Gemini, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Related to the Nullification and Adjustment of Options Transactions Including Obvious Errors | |
80 FR 27352 - Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Billing Policies | |
80 FR 27431 - Self-Regulatory Organizations; The Options Clearing Corporation; Order Approving Proposed Rule Change To Enhance the Measurement Used To Establish Minimum Capital Requirements for Banks Approved To Issue Letters of Credit | |
80 FR 27351 - Advisory Committee for Computer and Information Science and Engineering; Notice of Meeting | |
80 FR 27352 - New Postal Product | |
80 FR 27332 - National Institute on Drug Abuse; Notice of Closed Meetings | |
80 FR 27329 - Meeting of the National Vaccine Advisory Committee | |
80 FR 27329 - Determination Concerning a Petition To Add a Class of Employees To the Special Exposure Cohort | |
80 FR 27298 - Agency Information Collection Activities; Comment Request; Federal Perkins Loan Program Master Promissory Note | |
80 FR 27330 - Office of the Director, National Institutes of Health; Notice of Meeting | |
80 FR 27333 - Center for Scientific Review; Notice of Closed Meetings | |
80 FR 27328 - Decision To Evaluate a Petition To Designate a Class of Employees From the Blockson Chemical Company in Joliet, Illinois, To Be Included in the Special Exposure Cohort | |
80 FR 27289 - Magnuson-Stevens Act Provisions; General Provisions for Domestic Fisheries; Application for Exempted Fishing Permit | |
80 FR 27245 - Marketing Order Regulating the Handling of Spearmint Oil Produced in the Far West; Salable Quantities and Allotment Percentages for the 2015-2016 Marketing Year | |
80 FR 27243 - Grapes Grown in a Designated Area of Southeastern California; Increased Assessment Rate | |
80 FR 27288 - Schedules for Atlantic Shark Identification Workshops and Protected Species Safe Handling, Release, and Identification Workshops; Correction | |
80 FR 27334 - National Cancer Institute; Notice of Meeting | |
80 FR 27334 - National Institute on Aging; Notice of Closed Meeting | |
80 FR 27332 - National Institute of Neurological Disorders and Stroke; Notice of Closed Meetings | |
80 FR 27441 - Notice of Intent To Grant an Exclusive License | |
80 FR 27301 - Combined Notice of Filings | |
80 FR 27259 - Federal Travel Regulation; Enhancement of Privately Owned Vehicle and Rental Vehicle Policy | |
80 FR 27251 - Approval and Promulgation of Implementation Plans; Texas; Revision To Control Volatile Organic Compound Emissions From Storage Tanks and Transport Vessels | |
80 FR 27275 - Approval and Promulgation of Implementation Plans; Texas; Revision to Control Volatile Organic Compound Emissions From Storage Tanks and Transport Vessels | |
80 FR 27513 - Joint Industry Plans; Order Approving the National Market System Plan To Implement a Tick Size Pilot Program by BATS Exchange, Inc., BATS Y-Exchange, Inc., Chicago Stock Exchange, Inc., EDGA Exchange, Inc., EDGX Exchange, Inc., Financial Industry Regulatory Authority, Inc., NASDAQ OMX BX, Inc., NASDAQ OMX PHLX LLC, The Nasdaq Stock Market LLC, New York Stock Exchange LLC, NYSE MKT LLC, and NYSE Arca, Inc., as Modified by the Commission, for a Two-Year Period | |
80 FR 27276 - Organization and Functions of the Chemical Safety and Hazard Investigation Board | |
80 FR 27278 - Denied Access to NASA Facilities | |
80 FR 27266 - Commerce Acquisition Regulation (CAR); Waiver of Bond Requirement for Contracts To Repair, Alter or Construct Certain Research and Survey Vessels for the National Oceanic and Atmospheric Administration | |
80 FR 27443 - Application of Certain Title VII Requirements to Security-Based Swap Transactions Connected With a Non-U.S. Person's Dealing Activity That Are Arranged, Negotiated, or Executed by Personnel Located in a U.S. Branch or Office or in a U.S. Branch or Office of an Agent |
Agricultural Marketing Service
Food Safety and Inspection Service
Forest Service
Foreign-Trade Zones Board
International Trade Administration
National Oceanic and Atmospheric Administration
National Telecommunications and Information Administration
Defense Acquisition Regulations System
Engineers Corps
Energy Information Administration
Federal Energy Regulatory Commission
Centers for Disease Control and Prevention
Children and Families Administration
Food and Drug Administration
Health Resources and Services Administration
National Institutes of Health
Federal Emergency Management Agency
Transportation Security Administration
U.S. Customs and Border Protection
Fish and Wildlife Service
Employment and Training Administration
National Endowment for the Arts
Federal Aviation Administration
Surface Transportation Board
Comptroller of the Currency
Internal Revenue Service
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Agricultural Marketing Service, USDA.
Final rule.
This rule implements a recommendation from the California Desert Grape Administrative Committee for an increase of the assessment rate established for the 2015 and subsequent fiscal periods from $0.0200 to $0.0250 per 18-pound lug of grapes handled under the marketing order. The Committee locally administers the order and is comprised of producers and handlers of grapes grown and handled in a designated area of southeastern California. Assessments upon grape handlers are used by the Committee to fund reasonable and necessary expenses of the program. The fiscal period began on January 1 and ends December 31. The assessment rate will remain in effect indefinitely unless modified, suspended, or terminated.
Kathie Notoro, Marketing Specialist, or Martin Engeler, Regional Director, California Marketing Field Office, Marketing Order and Agreement Division, Fruit and Vegetable Program, AMS, USDA; Telephone: (559) 487-5901, Fax: (559) 487-5906, or Email:
Small businesses may request information on complying with this regulation by contacting Jeffrey Smutny, Marketing Order and Agreement Division, Fruit and Vegetable Program, AMS, USDA, 1400 Independence Avenue SW., STOP 0237, Washington, DC 20250-0237; Telephone: (202) 720-2491, Fax: (202) 720-8938, or Email:
This rule is issued under Marketing Order No. 925 (7 CFR part 925), regulating the handling of grapes grown in a designated area of southeastern California, hereinafter referred to as the “order.” The order is effective under the Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-674), hereinafter referred to as the “Act.”
The Department of Agriculture (USDA) is issuing this rule in conformance with Executive Orders 12866, 13563, and 13175.
This rule has been reviewed under Executive Order 12988, Civil Justice Reform. Under the marketing order now in effect, grape handlers in a designated area of southeastern California are subject to assessments. Funds to administer the order are derived from such assessments. It is intended that the assessment rate as issued herein would be applicable to all assessable grapes beginning on January 1, 2015, and continue until amended, suspended, or terminated.
The Act provides that administrative proceedings must be exhausted before parties may file suit in court. Under section 608c(15)(A) of the Act, any handler subject to an order may file with USDA a petition stating that the order, any provision of the order, or any obligation imposed in connection with the order is not in accordance with law and request a modification of the order or to be exempted therefrom. Such handler is afforded the opportunity for a hearing on the petition. After the hearing, USDA would rule on the petition. The Act provides that the district court of the United States in any district in which the handler is an inhabitant, or has his or her principal place of business, has jurisdiction to review USDA's ruling on the petition, provided an action is filed not later than 20 days after the date of the entry of the ruling.
This rule increases the assessment rate established for the Committee for the 2015 and subsequent fiscal periods from $0.0200 to $0.0250 per 18-pound lug of grapes handled.
The grape order provides authority for the Committee, with the approval of USDA, to formulate an annual budget of expenses and collect assessments from handlers to administer the program. The members of the Committee are producers and handlers of grapes grown in a designated area of southeastern California. They are familiar with the Committee's needs and with the costs of goods and services in their local area and are thus in a position to formulate an appropriate budget and assessment rate. The assessment rate is formulated and discussed in a public meeting. Thus, all directly affected persons have an opportunity to participate and provide input.
For the 2014 and subsequent fiscal periods, the Committee recommended, and the USDA approved, an assessment rate that would continue in effect from fiscal period to fiscal period unless modified, suspended, or terminated by USDA based upon recommendation and information submitted by the Committee or other information available to USDA.
The Committee met on October 30, 2014, and unanimously recommended 2015 expenditures of $135,500, a contingency reserve fund of $9,500, and an assessment rate of $0.0250 per 18-pound lug of grapes handled. In comparison, last year's budgeted expenditures were $110,000. The Committee recommended a crop estimate of 5,800,000 18-pound lugs, which is higher than the 5,500,000 18-pound lugs handled last year. The Committee also recommended carrying over a financial reserve of $40,000, which would increase to $49,500 if the contingency fund is not expended. The assessment rate of $0.0250 per 18-pound lug of grapes handled recommended by the Committee is $0.0050 higher than the $0.0200 rate currently in effect. The higher assessment rate, applied to shipments of 5,800,000 18-pound lugs, is expected to generate $145,000 in revenue and be sufficient to cover the anticipated expenses.
The major expenditures recommended by the Committee for the 2015 fiscal period include $15,500 for research, $17,000 for general office expenses, $62,750 for management and compliance expenses, $25,000 for consultation services, and $9,500 for a contingency reserve. The $15,500 research project is a continuation of a
The assessment rate recommended by the Committee was derived by evaluating several factors, including estimated shipments for the 2015 season, budgeted expenses, and the level of available financial reserves. The Committee determined that the $0.0250 assessment rate should generate $145,000 in revenue to cover the budgeted expenses of $135,500, and a contingency reserve fund of $9,500.
Reserve funds by the end of 2015 are projected to be $40,000 if the $9,500 added to the contingency fund is expended or $49,500 if it is not expended. Both amounts are well within the amount authorized under the order. Section 925.41 of the order permits the Committee to maintain approximately one fiscal period's expenses in reserve.
The assessment rate established in this rule will continue in effect indefinitely unless modified, suspended, or terminated by USDA based upon recommendation and information submitted by the Committee or other available information.
Although this assessment rate will be in effect for an indefinite period, the Committee will continue to meet prior to or during each fiscal period to recommend a budget of expenses and consider recommendations for modification of the assessment rate. The dates and times of Committee meetings are available from the Committee or USDA. Committee meetings are open to the public and interested persons may express their views at these meetings. USDA will evaluate the Committee's recommendations and other available information to determine whether modification of the assessment rate is needed. Further rulemaking will be undertaken as necessary. The Committee's 2015 budget and those for subsequent fiscal periods will be reviewed and, as appropriate, approved by USDA.
Pursuant to requirements set forth in the Regulatory Flexibility Act (RFA) (5 U.S.C. 601-612), the Agricultural Marketing Service (AMS) has considered the economic impact of this rule on small entities. Accordingly, AMS has prepared this final regulatory flexibility analysis.
The purpose of the RFA is to fit regulatory actions to the scale of businesses subject to such actions in order that small businesses will not be unduly or disproportionately burdened. Marketing orders issued pursuant to the Act, and the rules issued thereunder, are unique in that they are brought about through group action of essentially small entities acting on their own behalf.
There are approximately 14 handlers of southeastern California grapes who are subject to regulation under the marketing order and about 41 grape producers in the production area. Small agricultural service firms are defined by the Small Business Administration (13 CFR 121.201) as those having annual receipts of less than $7,000,000, and small agricultural producers are defined as those whose annual receipts are less than $750,000. Eleven of the 14 handlers subject to regulation have annual grape sales of less than $7,000,000, according to USDA Market News Service and Committee data. In addition, information from the Committee and USDA's Market News indicates that at least 10 of 41 producers have annual receipts of less than $750,000. Thus, it may be concluded that a majority of the grape handlers regulated under the order and about 10 of the producers could be classified as small entities under the Small Business Administration's definitions.
This rule increases the assessment rate established for the Committee and collected from handlers for the 2015 and subsequent fiscal periods from $0.0200 to $0.0250 per 18-pound lug of grapes. The Committee unanimously recommended 2015 expenditures of $135,500, a contingency reserve fund of $9,500, and an assessment rate of $0.0250 per 18-pound lug of grapes handled. The assessment rate of $0.0250 is $0.0050 higher than the 2014 rate. The quantity of assessable grapes for the 2015 season is estimated at 5,800,000 18-pound lugs. Thus, the $0.0250 rate should generate $145,000 in income. In addition, reserve funds at the end of the year are projected to be $49,500, which is well within the order's limitation of approximately one fiscal period's expenses.
The major expenditures recommended by the Committee for the 2015 fiscal period include $15,500 for research, $17,000 for general office expenses, $62,750 for management and compliance expenses, $25,000 for consultation services and $9,500 for the contingency reserve. In comparison, major expenditures for the 2014 fiscal period included $15,500 for research, $22,000 for general office expenses, $62,500 for management and compliance expenses and $10,000 for the contingency reserve. Overall expenditures included an increase in management and compliance expenses, a decrease in general office expenses, and funding of a contingency reserve.
Prior to arriving at this budget and assessment rate, the Committee considered alternative expenditures and assessment rates to include not increasing the $0.0200 assessment rate. Based on a crop estimate of 5,800,000 18-pound lugs, the Committee ultimately determined that increasing the assessment rate to $0.0250 would generate sufficient funds to cover budgeted expenses. Reserve funds at the end of the 2015 fiscal period are projected to be $40,000 if the $9,500 contingency fund is expended or $49,500 if it is not expended. These amounts are well within the amount authorized under the order.
A review of historical crop and price information, as well as preliminary information pertaining to the upcoming fiscal period, indicates that the producer price for the 2014 season averaged about $22.00 per 18-pound lug of California grapes handled. If the 2015 producer price is similar to the 2014 price, estimated assessment revenue as a percentage of total estimated producer revenue would be 0.11 percent for the 2015 season ($0.0250 divided by $22.00 per 18-pound lug).
This action increases the assessment obligation imposed on handlers. While assessments impose some additional costs on handlers, the costs are minimal and uniform on all handlers. Some of the additional costs may be passed on to producers. However, these costs are offset by the benefits derived from the operation of the marketing order. In addition, the Executive Subcommittee and the Committee's meetings were widely publicized throughout the grape production area and all interested persons were invited to attend and participate in Committee deliberations on all issues. Like all Committee meetings, the October 30, 2014, meeting was a public meeting and all entities, both large and small, were able to express views on this issue.
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35), the order's information collection requirements have been previously approved by the Office of Management and Budget (OMB) and assigned OMB No. 0581-0189 Generic Fruit Crops. No changes in those
This rule imposes no additional reporting or recordkeeping requirements on either small or large California grape handlers. As with all Federal marketing order programs, reports and forms are periodically reviewed to reduce information requirements and duplication by industry and public sector agencies. As noted in the initial regulatory flexibility analysis, USDA has not identified any relevant Federal rules that duplicate, overlap, or conflict with this final rule.
AMS is committed to complying with the E-Government Act to promote the use of the internet and other information technologies to provide increased opportunities for citizen access to Government information and services, and for other purposes.
A proposed rule concerning this action was published in the
A small business guide on complying with fruit, vegetable, and specialty crop marketing agreements and orders may be viewed at:
After consideration of all relevant material presented, including the information and recommendation submitted by the Committee and other available information, it is hereby found that this rule, as hereinafter set forth, will tend to effectuate the declared policy of the Act.
Pursuant to 5 U.S.C. 553, it is also found and determined that good cause exists for not postponing the effective date of this rule until 30 days after publication in the
Grapes, Marketing agreements, Reporting and recordkeeping requirements.
For the reasons set forth in the preamble, 7 CFR part 925 is amended as follows:
7 U.S.C. 601-674.
On and after January 1, 2015, an assessment rate of $0.0250 per 18-pound lug is established for grapes grown in a designated area of southeastern California.
Agricultural Marketing Service, USDA.
Final rule.
This rule implements a recommendation from the Spearmint Oil Administrative Committee (Committee) to establish the quantity of spearmint oil produced in the Far West, by class, that handlers may purchase from, or handle on behalf of, producers during the 2015-2016 marketing year, which begins on June 1, 2015. The Committee locally administers the Far West spearmint marketing order (order) and is comprised of producers of spearmint oil operating in the Far West. The Far West includes the states of Washington, Idaho, and Oregon, and designated parts of Nevada and Utah. This rule establishes salable quantities and allotment percentages for Class 1 (Scotch) spearmint oil of 1,265,853 pounds and 60 percent, respectively, and for Class 3 (Native) spearmint oil of 1,341,269 pounds and 56 percent, respectively. The Committee recommended these quantities to help maintain stability in the spearmint oil market.
Barry Broadbent, Marketing Specialist, or Gary Olson, Regional Director, Northwest Marketing Field Office, Marketing Order and Agreement Division, Fruit and Vegetable Program, AMS, USDA; Telephone: (503) 326-2724, Fax: (503) 326-7440, or Email:
Small businesses may request information on complying with this regulation by contacting Jeffrey Smutny, Marketing Order and Agreement Division, Fruit and Vegetable Program, AMS, USDA, 1400 Independence Avenue SW., STOP 0237, Washington, DC 20250-0237; Telephone: (202) 720-2491, Fax: (202) 720-8938, or Email:
This final rule is issued under Marketing Order No. 985 (7 CFR part 985), as amended, regulating the handling of spearmint oil produced in the Far West (Washington, Idaho, Oregon, and designated parts of Nevada and Utah), hereinafter referred to as the “order.” The order is effective under the Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-674), hereinafter referred to as the “Act.”
The Department of Agriculture (USDA) is issuing this rule in conformance with Executive Orders 12866, 13175, and 13563.
This final rule has been reviewed under Executive Order 12988, Civil Justice Reform. This rule is not intended to have retroactive effect. Under the order now in effect, salable quantities and allotment percentages may be established for classes of spearmint oil produced in the Far West. This rule will establish the quantity of spearmint oil produced in the Far West, by class, which handlers may purchase from, or handle on behalf of, producers during the 2015-2016 marketing year, which begins on June 1, 2015.
The Act provides that administrative proceedings must be exhausted before
The Committee meets annually in the fall to adopt a marketing policy for the ensuing marketing year or years. In determining such marketing policy, the Committee considers a number of factors, including, but not limited to, the current and projected supply, estimated future demand, production costs, and producer prices for all classes of spearmint oil. Input from spearmint oil handlers and producers regarding prospective marketing conditions for the upcoming year is considered as well. If the Committee's marketing policy considerations indicate a need for limiting the quantity of any or all classes of spearmint oil marketed, the Committee subsequently recommends to USDA the establishment of a salable quantity and allotment percentage for such class or classes of oil for the forthcoming marketing year. Recommendations for volume control are intended to ensure that market requirements for Far West spearmint oil are satisfied and orderly marketing conditions are maintained.
The salable quantity represents the total amount of each class of spearmint oil that handlers may purchase from, or handle on behalf of, producers during the marketing year. The allotment percentage is the percentage used to calculate each producer's prorated share of the salable quantity. It is derived by dividing the salable quantity for each class of spearmint oil by the total of all producers' allotment bases for the same class of oil. Each producer's annual allotment of salable spearmint oil is calculated by multiplying their respective total allotment base by the allotment percentage for each class of spearmint oil. A producer's allotment base is their quantified share of the spearmint oil market based on a statistical representation of past spearmint oil production, with accommodation for reasonable and normal adjustments to such base as prescribed by the Committee and approved by USDA.
Salable quantities and allotment percentages are established at levels intended to fulfill market requirements and to maintain orderly marketing conditions. Committee recommendations for volume controls are made well in advance of the period in which the regulations are to be effective, thereby allowing producers the chance to adjust their production decisions accordingly.
Pursuant to authority in §§ 985.50, 985.51, and 985.52 of the order, the full eight-member Committee met on November 5, 2014, and recommended salable quantities and allotment percentages for both classes of oil for the 2015-2016 marketing year. The Committee unanimously recommended the establishment of a salable quantity and allotment percentage for Class 1 (Scotch) spearmint oil of 1,265,853 pounds and 60 percent, respectively. The Committee, also with a unanimous vote, recommended the establishment of a salable quantity and allotment percentage for Class 3 (Native) spearmint oil of 1,341,269 pounds and 56 percent, respectively.
This final rule establishes the amount of Scotch and Native spearmint oil that handlers may purchase from, or handle on behalf of, producers during the 2015-2016 marketing year, which begins on June 1, 2015. Salable quantities and allotment percentages have been placed into effect each season since the order's inception in 1980.
As noted above, the Committee unanimously recommended a salable quantity of Scotch spearmint oil of 1,265,853 pounds and an allotment percentage of 60 percent for the upcoming 2015-2016 marketing year. The Committee utilized 2015-2016 sales estimates for Scotch spearmint oil, as provided by several of the industry's handlers, as well as historical and current Scotch spearmint oil production and inventory statistics, to arrive at these recommendations.
Trade demand for Far West Scotch spearmint oil is expected to rise from 1,092,726 pounds in the 2014-2015 marketing year to 1,100,000 pounds in 2015-2016. Industry reports indicate that the increased trade demand estimate is the result of increased consumer demand for mint flavored products and low end-user inventories that need to be replenished. Information gathered from spearmint oil handlers supports this conclusion.
Production of Far West Scotch spearmint oil increased from 1,057,377 pounds in 2013 to 1,093,740 pounds in 2014. Committee members attribute the increase in production to both the low level of reserves and growing demand. Given that these factors are expected to continue in the coming 2015-2016 year, the Committee expects production to increase to as much as 1,300,000 pounds for the forthcoming marketing year.
The Committee also estimates that there will be zero carry-in of Scotch spearmint oil on June 1, 2015, the beginning of the 2015-2016 marketing year. This figure, which is the primary measure of excess supply, is down from 7,064 carried-in the previous year. This level of carry-in is below the minimum carry-in quantity that the Committee considers favorable. The demand for Scotch spearmint oil during the remainder of the 2014-2015 marketing year is expected to equal or exceed the remaining total supply, which will likely cause the zero carry-in.
The 2015-2016 salable quantity of 1,265,853 pounds recommended by the Committee represents an increase of 173,127 pounds over the total supply available during the previous marketing year. Total supply for 2014-2015 amounted to 1,092,726 pounds (7,064 carry-in, 989,643 pounds produced, and 96,019 pounds released from the reserve).
The Committee estimates 2015-2016 demand for Scotch spearmint oil at 1,100,000 pounds. When considered in conjunction with the forecast that there will be zero available carry-in of Scotch spearmint oil on June 1, 2015, the recommended salable quantity of 1,265,853 pounds is expected to satisfy market demand and yield a carry-in of 165,853 pounds available at the beginning of 2016-2017 marketing year.
The Committee's stated intent in the use of marketing order volume control regulations for Scotch spearmint oil is to keep adequate supplies available to meet market needs and maintain orderly marketing conditions. The salable quantity recommended for the upcoming marketing year is more than the salable quantity initially set for the previous year of 1,149,030. The Committee believes that the recommended salable quantity will adequately meet demand, as well as result in a larger carry-in for the following year. With that in mind, the Committee developed its recommendation for the Scotch spearmint oil salable quantity and allotment percentage for the 2015-2016 marketing year based on the information
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At the November 5, 2014, meeting, the Committee also recommended a 2015-2016 Native spearmint oil salable quantity of 1,341,269 pounds and an allotment percentage of 56 percent. The Committee utilized Native spearmint oil sales estimates for 2015-2016 marketing year, as provided by several of the industry's handlers, as well as historical and current Native spearmint oil market statistics to establish these thresholds. The recommended volume control levels represent an increase of 250,448 pounds and 10 percentage points over the previous year's initially established salable quantity and allotment percentage.
The Committee also estimates that there will be 512,745 pounds of Native spearmint oil in the reserve pool on June 1, 2015. This figure, which is the oil held in reserve by producers, is down from an industry peak of 606,942 pounds in 2011. Reserve levels of Native spearmint oil are nearing the level that the Committee believes is optimal for the industry.
Committee statistics indicate that demand for Far West Native spearmint oil has been gradually increasing since 2009. Spearmint oil handlers, who previously projected the 2014-2015 trade demand for Far West Native spearmint oil to be in the range of 1,100,000 pounds to 1,400,000 pounds (with an average of 1,300,000 pounds), have projected trade demand for the 2015-2016 marketing period to be in the range of 1,290,000 pounds to 1,400,000 pounds (with an average of 1,347,500).
Given the above, the Committee estimates that approximately 1,300,000 pounds of Native spearmint oil may be sold during the 2015-2016 marketing year. When considered in conjunction with the estimated carry-in of 117,368 pounds of Native spearmint oil on June 1, 2015, the recommended salable quantity of 1,341,269 pounds results in an estimated total available supply of 1,458,637 pounds of Native spearmint oil during the 2015-2016 marketing year. Estimated carry-in of Native spearmint oil at the beginning of the 2016-2017 marketing year is expected to be approximately 152,137 pounds. Carry-in spearmint oil is distinct from reserve pool spearmint oil and represents the amount of salable spearmint oil produced, but not marketed, in previous years and is available for sale in the current year. It is the primary measure of excess spearmint oil supply under the order. Reserve pool oil represents the amount of excess oil held by the Committee, on behalf of the producers, that is not currently available to the market.
The Committee's stated intent in the use of marketing order volume control regulations for Native spearmint oil is to keep adequate supplies available to meet market needs and maintain orderly marketing conditions. With that in mind, the Committee developed its recommendation for the Native spearmint oil salable quantity and allotment percentage for the 2015-2016 marketing year based on the information discussed above, as well as the data outlined below.
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The salable quantity is the total quantity of each class of spearmint oil that handlers may purchase from, or handle on behalf of, producers during a marketing year. Each producer is allotted a share of the salable quantity by applying the allotment percentage to the producer's allotment base for the applicable class of spearmint oil.
The Committee's recommended Scotch and Native spearmint oil salable quantities and allotment percentages of 1,265,853 pounds and 60 percent, and 1,341,269 pounds and 56 percent, respectively, are based on the goal of maintaining market stability. The Committee anticipates that this goal will be achieved by matching the available supply of each class of Spearmint oil to the estimated demand of such, thus avoiding extreme fluctuations in inventories and prices.
The salable quantities established by this rule are not expected to cause a shortage of spearmint oil supplies. Any unanticipated or additional market demand for spearmint oil which may develop during the marketing year could be satisfied by an intra-seasonal increase in the salable quantity. The order contains a provision for intra-seasonal increases to allow the Committee the flexibility to respond quickly to changing market conditions.
Under volume regulation, producers who produce more than their annual allotments during the 2015-2016 marketing year may transfer such excess spearmint oil to producers who have produced less than their annual allotment. In addition, up until December 1, 2015, producers may place excess spearmint oil production into the reserve pool to be released in the future in accordance with market needs.
This regulation is similar to regulations issued in prior seasons. The average initial allotment percentage for the five most recent marketing years for Scotch spearmint oil is 44.0 percent, while the average initial allotment percentage for the same five-year period for Native spearmint oil is 48.8 percent.
Costs to producers and handlers resulting from this rule are expected to be offset by the benefits derived from a stable market and increased returns. In conjunction with the issuance of this final rule, USDA has reviewed the Committee's marketing policy statement for the 2015-2016 marketing year. The Committee's marketing policy statement, a requirement whenever the Committee recommends volume regulation, fully meets the intent of § 985.50 of the order.
During its discussion of potential 2015-2016 salable quantities and allotment percentages, the Committee considered: (1) The estimated quantity of salable oil of each class held by producers and handlers; (2) the estimated demand for each class of oil; (3) the prospective production of each class of oil; (4) the total of allotment bases of each class of oil for the current marketing year and the estimated total of allotment bases of each class for the ensuing marketing year; (5) the quantity of reserve oil, by class, in storage; (6) producer prices of oil, including prices for each class of oil; and (7) general market conditions for each class of oil, including whether the estimated season average price to producers is likely to exceed parity. Conformity with USDA's “Guidelines for Fruit, Vegetable, and Specialty Crop Marketing Orders” has also been reviewed and confirmed.
The establishment of these salable quantities and allotment percentages will allow for anticipated market needs. In determining anticipated market needs, the Committee considered historical sales, as well as changes and trends in production and demand. This rule also provides producers with information on the amount of spearmint oil that should be produced for the 2015-2016 season in order to meet anticipated market demand.
Pursuant to requirements set forth in the Regulatory Flexibility Act (RFA) (5 U.S.C. 601-612), the Agricultural Marketing Service (AMS) has considered the economic impact of this action on small entities. Accordingly, AMS has prepared this final regulatory flexibility analysis.
The purpose of the RFA is to fit regulatory actions to the scale of businesses subject to such actions in order that small businesses will not be unduly or disproportionately burdened. Marketing orders issued pursuant to the Act, and the rules issued thereunder, are unique in that they are brought about through group action of essentially small entities acting on their own behalf.
There are eight spearmint oil handlers subject to regulation under the order, and approximately 37 producers of Scotch spearmint oil and approximately 91 producers of Native spearmint oil in the regulated production area. Small agricultural service firms are defined by the Small Business Administration (SBA) as those having annual receipts of less than $7,000,000, and small agricultural producers are defined as those having annual receipts of less than $750,000 (13 CFR 121.201).
Based on the SBA's definition of small entities, the Committee estimates that two of the eight handlers regulated by the order could be considered small entities. Most of the handlers are large corporations involved in the
The Far West spearmint oil industry is characterized by producers whose farming operations generally involve more than one commodity, and whose income from farming operations is not exclusively dependent on the production of spearmint oil. A typical spearmint oil-producing operation has enough acreage for rotation such that the total acreage required to produce the crop is about one-third spearmint and two-thirds rotational crops. Thus, the typical spearmint oil producer has to have considerably more acreage than is planted to spearmint during any given season. Crop rotation is an essential cultural practice in the production of spearmint oil for purposes of weed, insect, and disease control. To remain economically viable with the added costs associated with spearmint oil production, a majority of spearmint oil-producing farms fall into the SBA category of large businesses.
Small spearmint oil producers generally are not as extensively diversified as larger ones and, as such, are more at risk from market fluctuations. Such small producers generally need to market their entire annual production of spearmint oil and are not financially able to hold spearmint oil for sale in future years. In addition, small producers generally do not have a large assortment of other crops to cushion seasons with poor spearmint oil returns. Conversely, large diversified producers have the potential to endure one or more seasons of poor spearmint oil markets because income from alternate crops could support the operation for a period of time. Being reasonably assured of a stable price and market provides all producing entities with the ability to maintain proper cash flow and to meet annual expenses. The benefits for this rule are expected to be equally available to all producers and handlers regardless of their size.
This final rule establishes the quantity of spearmint oil produced in the Far West, by class, that handlers may purchase from, or handle on behalf of, producers during the 2015-2016 marketing year. The Committee recommended this rule to help maintain stability in the spearmint oil market by matching supply to estimated demand, thereby avoiding extreme fluctuations in supplies and prices. Establishing quantities that may be purchased or handled during the marketing year through volume regulations allows producers to coordinate their spearmint oil production with the expected market demand. Authority for this action is provided in §§ 985.50, 985.51, and 985.52 of the order.
Instability in the spearmint oil sub-sector of the mint industry is much more likely to originate on the supply side than the demand side. Fluctuations in yield and acreage planted from season-to-season tend to be larger than fluctuations in the amount purchased by handlers. Historically, demand for spearmint oil tends to change slowly from year to year.
Demand for spearmint oil at the farm level is derived from retail demand for spearmint-flavored products such as chewing gum, toothpaste, and mouthwash. The manufacturers of these products are by far the largest users of spearmint oil. However, spearmint flavoring is generally a very minor component of the products in which it is used, so changes in the raw product price have virtually no impact on retail prices for those goods.
Spearmint oil production tends to be cyclical. Years of relatively high production, with demand remaining reasonably stable, have led to periods in which large producer stocks of unsold spearmint oil have depressed producer prices for a number of years. Shortages and high prices may follow in subsequent years, as producers respond to price signals by cutting back production.
The significant variability of the spearmint oil market is illustrated by the fact that the coefficient of variation (a standard measure of variability; “CV”) of Far West spearmint oil grower prices for the period 1980-2013 (when the marketing order was in effect) is 0.23, compared to 0.36 for the decade prior to the promulgation of the order (1970-79) and 0.49 for the prior 20-year period (1960-79). This provides an indication of the price stabilizing impact of the marketing order.
Production in the shortest marketing year was about 47 percent of the 34-year average (1.92 million pounds from 1980 through 2013) and the largest crop was approximately 160 percent of the 34-year average. A key consequence is that, in years of oversupply and low prices, the season average producer price of spearmint oil is below the average cost of production (as measured by the Washington State University Cooperative Extension Service).
The wide fluctuations in supply and prices that result from this cycle, which was even more pronounced before the creation of the order, can create liquidity problems for some producers. The order was designed to reduce the price impacts of the cyclical swings in production. However, producers have been less able to weather these cycles in recent years because of the increase in production costs. While prices have been relatively steady, the cost of production has increased to the extent that plans to plant spearmint may be postponed or changed indefinitely. Producers may also be enticed by the prices of alternative crops and their lower cost of production.
In an effort to stabilize prices, the spearmint oil industry uses the volume control mechanisms authorized under the order. This authority allows the Committee to recommend a salable quantity and allotment percentage for each class of oil for the upcoming marketing year. The salable quantity for each class of oil is the total volume of oil that producers may sell during the marketing year. The allotment percentage for each class of spearmint oil is derived by dividing the salable quantity by the total allotment base.
Each producer is then issued an annual allotment certificate, in pounds, for the applicable class of oil, which is calculated by multiplying the producer's allotment base by the applicable allotment percentage. This is the amount of oil of each applicable class that the producer can market.
By December 1 of each year, the Committee identifies any oil that individual producers have produced above the volume specified on their annual allotment certificates. This excess oil is placed in a reserve pool administered by the Committee. A reserve pool is maintained for each class of oil that may not be sold during the current marketing year unless USDA approves a Committee recommendation to increase the salable quantity and allotment percentage for a class of oil and make a portion of the pool available.
Limited quantities of excess oil may be sold by one producer to another producer to fill production deficiencies in a marketing year. A deficiency occurs when on-farm production is less than a producer's allotment. When a producer has a deficiency, the producer's own reserve oil can be utilized to fill that deficiency, or excess production (production of spearmint oil in excess of the producer's annual allotment) from another producer may also be secured to fill the deficiency. All of these
In any given year, the total available supply of spearmint oil is composed of current production plus salable carryover stocks from the previous crop. The Committee seeks to maintain market stability by balancing supply and demand, and to close the marketing year with an appropriate level of salable spearmint oil to carry over into the subsequent marketing year. If the industry has production in excess of the salable quantity, then the reserve pool absorbs the surplus quantity of spearmint oil, which goes unsold during that year, unless the oil is needed for unanticipated sales.
Under its provisions, the order may attempt to stabilize prices by (1) limiting supply and establishing reserves in high production years, thus minimizing the price-depressing effect that excess producer stocks have on unsold spearmint oil, and (2) ensuring that stocks are available in short supply years when prices would otherwise increase dramatically. Reserve pool stocks, which increase in high production years, are drawn down in years where the crop is short.
An econometric model was used to assess the impact that volume control has on the prices producers receive for their commodity. Without volume control, spearmint oil markets would likely be over-supplied. This could result in low producer prices and a large volume of oil stored and carried over to the next crop year. The model estimates how much lower producer prices would likely be in the absence of volume controls.
The Committee estimated trade demand for the 2015-2016 marketing year for both classes of oil at 2,406,500 pounds, and that the expected combined salable carry-in will be 117,368 pounds. This results in a combined required salable quantity of 2,289,132 pounds. With volume control, sales by producers for the 2015-2016 marketing year will be limited to 2,607,122 pounds (the recommended salable quantity for both classes of spearmint oil).
The recommended allotment percentages, upon which 2015-2016 producer allotments are based, are 60 percent for Scotch and 56 percent for Native. Without volume controls, producers would not be limited to these allotment levels, and could produce and sell an unrestricted quantity of spearmint oil. The econometric model estimated a decline of about $1.30 in the season average producer price per pound (from both classes of spearmint oil) resulting from the higher quantities that would be produced and marketed without volume control. The surplus situation for the spearmint oil market that would exist without volume controls in 2015-2016 also would likely dampen prospects for improved producer prices in future years because of the buildup in stocks.
The use of volume control allows the industry to fully supply spearmint oil markets while avoiding the negative consequences of over-supplying these markets. The use of volume control is believed to have little or no effect on consumer prices of products containing spearmint oil and will not result in fewer retail sales of such products.
The Committee discussed alternatives to the recommendations submitted for approval for both classes of spearmint oil. The Committee discussed and rejected the idea of recommending that there not be any volume regulation for both classes of spearmint oil because of the severe price-depressing effects that would occur without volume control. The Committee also considered salable quantities and allotment percentages that were above and below the levels that were ultimately recommended.
After computing the initial 52.1 percent Scotch spearmint oil allotment percentage, the Committee considered various alternative levels of volume control for Scotch spearmint oil. Even with the moderately optimistic marketing conditions, there was consensus from the Committee that the Scotch spearmint oil allotment percentage for 2015-2016 should be more than the percentage initially established for the 2014-2015 marketing year (55 percent). After considerable discussion, the eight-member committee unanimously determined that 1,265,853 pounds and 60 percent will be the most effective Scotch spearmint oil salable quantity and allotment percentage, respectively, for the 2015-2016 marketing year.
The Committee was also able to reach a consensus regarding the level of volume control for Native spearmint oil. After first determining the computed allotment percentage at 49.6 percent, the Committee unanimously recommended 1,341,269 pounds and 56 percent for the effective Native spearmint oil salable quantity and allotment percentage, respectively, for the 2015-2016 marketing year.
As noted earlier, the Committee's recommendation to establish salable quantities and allotment percentages for both classes of spearmint oil was made after careful consideration of all available information including: (1) The estimated quantity of salable oil of each class held by producers and handlers; (2) the estimated demand for each class of oil; (3) the prospective production of each class of oil; (4) the total of allotment bases of each class of oil for the current marketing year and the estimated total of allotment bases of each class for the ensuing marketing year; (5) the quantity of reserve oil, by class, in storage; (6) producer prices of oil, including prices for each class of oil; and (7) general market conditions for each class of oil, including whether the estimated season average price to producers is likely to exceed parity.
Based on its review, the Committee believes that the salable quantities and allotment percentages established by this action achieve the objectives sought. As previously stated, annual salable quantities and allotment percentages have been issued for both classes of spearmint oil since the order's inception. The salable quantities and allotment percentages established herein are expected to facilitate the goal of maintaining orderly marketing conditions for Far West spearmint oil for the 2015-2016 and future marketing years.
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35), the order's information collection requirements have been previously approved by the Office of Management and Budget (OMB) and assigned OMB No. 0581-0178, Vegetable and Specialty Crops. No changes in those requirements as a result of this action are necessary. Should any changes become necessary, they would be submitted to OMB for approval.
This rule establishes the salable quantities and allotment percentages for Class 1 (Scotch) spearmint oil and Class 3 (Native) spearmint oil produced in the Far West during the 2015-2016 marketing year. Accordingly, this action will not impose any additional reporting or recordkeeping requirements on either small or large spearmint oil producers or handlers. As with all Federal marketing order programs, reports and forms are periodically reviewed to reduce information requirements and duplication by industry and public sector agencies.
As noted in the regulatory flexibility analysis, USDA has not identified any relevant Federal rules that duplicate, overlap or conflict with this final rule.
AMS is committed to complying with the E-Government Act to promote the use of the internet and other information technologies to provide increased opportunities for citizen access to Government information and services, and for other purposes.
The Committee's meeting was widely publicized throughout the spearmint oil industry and all interested persons were invited to attend the meeting and participate in Committee deliberations on all issues. Like all Committee meetings, the November 5, 2014, meeting was a public meeting and all entities, both large and small, were able to express views on this issue.
A proposed rule concerning this action was published in the
A small business guide on complying with fruit, vegetable, and specialty crop marketing agreements and orders may be viewed at:
After consideration of all relevant matter presented, including the information and recommendation submitted by the Committee and other available information, it is hereby found that this rule, as hereinafter set forth, will tend to effectuate the declared policy of the Act.
It is further found that good cause exists for not postponing the effective date of this rule until 30 days after publication in the
Marketing agreements, Oils and fats, Reporting and recordkeeping requirements, Spearmint oil.
For the reasons set forth in the preamble, 7 CFR part 985 is amended as follows:
7 U.S.C. 601-674.
The salable quantity and allotment percentage for each class of spearmint oil during the marketing year beginning on June 1, 2015, shall be as follows:
(a) Class 1 (Scotch) oil—a salable quantity of 1,265,853 pounds and an allotment percentage of 60 percent.
(b) Class 3 (Native) oil—a salable quantity of 1,341,269 pounds and an allotment percentage of 56 percent.
Environmental Protection Agency (EPA).
Direct final rule.
The Environmental Protection Agency (EPA) is approving a Texas State Implementation Plan (SIP) revision for control of volatile organic compound (VOC) emissions from degassing of storage tanks, transport vessels and marine vessels. The revision reformats the existing requirement to comply with current rule writing standards, adds additional control options for owner/operators to use when complying, clarifies the monitoring and testing requirements of the rule, and makes non-substantive changes to VOC control provisions that apply in the Beaumont-Port Arthur (BPA) nonattainment area (Hardin, Jefferson and Orange Counties), four counties in the Dallas-Fort Worth (DFW) nonattainment area (Collin, Dallas, Denton and Tarrant Counties), El Paso County, and the Houston-Galveston-Brazoria (HGB) nonattainment area (Brazoria, Chambers, Fort Bend, Galveston, Harris, Liberty, Montgomery and Waller Counties).
This rule is effective on
Submit your comments, identified by Docket No. EPA-R06-OAR-2011-0079, by one of the following methods:
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Mr. Robert M. Todd, (214) 665-2156,
Throughout this document wherever “we,” “us,” or “our” is used, we mean the EPA.
Section 110 of the Clean Air Act (CAA) requires states to develop and submit to EPA a SIP to ensure that state air quality meets National Ambient Air Quality Standards (NAAQS). These ambient standards currently address six criteria pollutants: carbon monoxide, nitrogen dioxide, ozone, lead, particulate matter, and sulfur dioxide. Each federally-approved SIP protects air quality primarily by addressing air pollution at its point of origin through air pollution regulations and control strategies. EPA approved SIP regulations and control strategies are federally enforceable. States revise the SIP as needed and submit revisions to EPA for approval.
Under Section 182(b)(2) of the Act, major stationary sources and sources covered by control technique guidelines are required to implement RACT in moderate and above ozone nonattainment areas.
Volatile organic compounds are an “ozone precursor,” as they react with oxygen, nitrogen oxides (NO
A SIP submission revising the rules for controlling VOC emissions from degassing of storage tanks, transport vessels and marine vessels was adopted by Texas on January 26, 2011, and submitted to us on February 18, 2011. The revisions submitted by Texas Commission on Environmental Quality (TCEQ) apply to Brazoria, Chambers, Collin, Dallas, Denton, El Paso, Fort Bend, Galveston, Hardin, Harris, Jefferson, Liberty, Montgomery, Orange, Tarrant and Waller Counties.
The revision repeals Title 30, Chapter 115 of the Texas Administrative Code (30 TAC 115) sections 115.541, 115.542 and 115.545; adds new sections 115.540-115.542 and 115.545; and amends existing sections 115.543, 115.544, 115.546, 115.547 and 115.549. The revision (1) reformats the existing rule to simplify and clarify rule requirements; (2) modifies VOC control requirements in Brazoria, Chambers, Collin, Dallas, Denton, El Paso, Fort Bend, Galveston, Hardin, Harris, Jefferson, Liberty, Montgomery, Orange, Tarrant and Waller Counties; (3) makes changes to provide additional flexibility for affected owners and operators allowing for the use of alternative control options; and (4) makes non-substantive changes to VOC control provisions that apply in Brazoria, Chambers, Collin, Dallas, Denton, El Paso, Fort Bend, Galveston, Hardin, Harris, Jefferson, Liberty, Montgomery, Orange, Tarrant and Waller Counties.
Also, the regulation continues to apply to El Paso County on a contingency basis;
This revision clarifies that degassing emissions of storage tanks and transport vessels for sources in Collin, Dallas, Denton, and Tarrant Counties are required to meet the control require-ments of the rule at this time. The requirements do not apply to storage tanks or vessels in Ellis, Johnson, Kaufman, Parker, Rockwall or Wise Counties.
For the HGB area, the rule revisions maintain the existing requirement that VOC vapors generated during degassing operations be routed to a device that maintains a control efficiency of at least 90% for the affected sources.
For DFW, HGB and BPA, the revisions add an explicit requirement that any flare used for control must be designed and operated according to 40 CFR 60.18(b)-(f) as amended through December 22, 2008, and that the flare must be lit at all times VOC vapors are routed to the device during degassing operations. The TCEQ added this requirement to clarify the intent of the rule is for both the flare flame and the
The SIP revision submitted by Texas may be accessed online at
The primary requirements pertaining to the SIP revision submitted by Texas are found in CAA sections 110(l) and 182(b)(2). CAA section 110(l) requires that a SIP revision submitted to EPA be adopted after reasonable notice and public hearing. Section 110(l) also requires that we not approve a SIP revision if the revision would interfere with any applicable requirement concerning attainment and reasonable further progress, or any other applicable requirement of the CAA. Section 182(b)(2) of the Act requires States to adopt Reasonably Available Control Technology (RACT) rules for stationary sources of VOCs in ozone nonattainment areas classified as moderate or above.
The requirements to control degassing emissions, use low-leaking tank fittings on some control options, monitor control effectiveness and report compliance from degassing operations were previously implemented in HGB and BPA (62 FR 27966, May 22, 1997). The requirements were later revised for HGB (75 FR 15348, March 29, 2010 and 78 FR 19599, April 2, 2013). For DFW, we previously approved the rules as a contingency measure to be implemented by Texas if the area failed to reach attainment under the 1-hour ozone nonattainment standards (May 22, 1997, 62 FR 27964). We later approved these same rules as contingency measures to be implemented in the four counties comprising of the 1-hour ozone nonattainment area if DFW did not reach attainment under the 8-hour ozone nonattainment standard (January 14, 2009, 74 FR 1903). Because the nine counties in the DFW 8-hour nonattainment area failed to meet the attainment date, Texas implemented the contingency measure rules for Collin, Dallas, Denton and Tarrant Counties on May 21, 2011. For the El Paso area we initially approved these rules as a contingency measure on May 22, 1997. (62 FR 27966, May 22, 1997).
Under Section 182(b)(2) of the Act, Major stationary sources and sources covered by control technique guidelines are required to implement RACT in moderate ozone and above ozone nonattainment areas. At the time these rules were adopted by TCEQ, the four subject areas were all moderate or above nonattainment for the 1 hour ozone standard.
The VOC degassing rules control emissions from three source types: Stationary storage tanks, transport vessels and marine vessels. The latter two source types are not stationary sources and are therefore not subject to RACT requirements. Storage tanks are covered by Control Technique Guidelines (CTGs). As a result, RACT must be implemented for stationary storage tanks. If there were not a CTG for storage tanks emissions, any major source storage tanks would have had to implement RACT to control its emissions including degassing emissions.
The CTGs for storage tanks provide recommendations for types of controls including the types of seals necessary to reduce emissions from tanks. The CTGs, however, do not include a recommendation that emissions during degassing of the tanks be controlled. Texas has adopted rules based on the CTG recommendations. See 30 TAC 115, Storage of Volatile Organic Compounds, sections 115.110, 115.512-117 and 115.119. These rules have previously been approved as RACT and finding has been affirmed as RACT on a number of occasions. The rules Texas has adopted to control degassing emissions are in addition to the RACT level of control recommended by the CTG. The rules were adopted by TCEQ to address rate of progress requirements in HGB and to meet contingency measure requirements in DFW and El Paso County. Therefore, it is appropriate for the degassing controls in El Paso to remain as a contingency measure and changes to the degassing rules will not interfere with whether RACT is being implemented in these areas.
Moreover, our evaluation finds that the revision to the Texas SIP improves the rules by rewording them so that their intent is unambiguous, clarifying the compliance monitoring and reporting required for affected sources, and does not result in a change in the VOC emission reductions previously approved for degassing of storage tanks, transport vessels and marine vessel in DFW, HGB, BPA and El Paso County.
In our April 2, 2013 approval of Texas's revisions to the SIP for the HGB 1997 8-Hour ozone nonattainment area (78 FR 19599), we found that the Texas SIP met the RACT requirements for CTG and major Non-CTG sources of VOC in this nonattainment area (Brazoria, Chambers, Fort Bend, Galveston, Harris, Liberty, Montgomery and Waller Counties) under the 1997 8-Hour ozone NAAQS. We are not altering this finding in this action.
We found that the Texas SIP met the RACT requirements for CTG and major Non-CTG sources of VOC in DFW in our approval of Texas VOC rules for RACT (64 FR 3841). We are not altering this finding in this rule.
Also, the Degassing or Cleaning VOC control requirements approved in the DFW and El Paso County SIPs as contingency measures, for the 8-hour Ozone attainment demonstration, are not altered in this action (January 14, 2009, 74 FR 1903). These measures were triggered in DFW in 2010 and became effective May 21, 2010 (see the Texas Register, 35 TexReg 4268, dated May 21, 2010).
For additional information please see our Technical Support Document which may be accessed online at
We are approving a Texas SIP revision for control of VOC emissions from storage tank, transport vessel and marine vessel degassing operations adopted on January 26, 2011, and submitted on February 18, 2011. Specifically, we are approving revisions to 30 TAC 115 at sections 115.540-115.547 and 115.549. The revisions (1) reformat the existing rule to simplify and clarify rule requirements; (2) modify VOC control requirements in Brazoria, Chambers, Collin, Dallas, Denton, El Paso, Fort Bend, Galveston, Hardin, Harris, Jefferson, Liberty, Montgomery, Orange, Tarrant and Waller Counties; (3) make changes to provide additional flexibility for affected owners and operators allowing for the use of alternative control options; and (4) make non-substantive changes to VOC control provisions that apply in Brazoria, Chambers, Collin, Dallas, Denton, El Paso, Fort Bend, Galveston, Hardin, Harris, Jefferson, Liberty, Montgomery, Orange, Tarrant and Waller Counties.
We are publishing this rule without prior proposal because we view this as a non-controversial amendment and anticipate no adverse comments. However, in the proposed rules section of this
In this rule, we are finalizing regulatory text that includes incorporation by reference. In accordance with the requirements of 1 CFR 51.4, we are finalizing the incorporation by reference of the revisions to the Texas regulations as described in the Final Action section above. We have 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 Act and applicable Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the 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).
The Congressional Review Act, 5 U.S.C. 801
Under section 307(b)(1) of the CAA, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by July 13, 2015. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this rule for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action may not be challenged later in proceedings to enforce its requirements. (See section 307(b)(2).)
Environmental protection, Air pollution control, Incorporation by reference, Ozone, Reporting and recordkeeping requirements, Volatile organic compounds.
40 CFR part 52 is amended as follows:
42 U.S.C. 7401
The addition and revisions read as follows:
(c) * * *
Environmental Protection Agency (EPA).
Direct final rule.
The Environmental Protection Agency (EPA) is taking direct final action to approve the 2011 base year emissions inventories submitted by the District of Columbia, State of Maryland, and Commonwealth of Virginia (collectively, the States) for the 2008 8-hour ozone national ambient air quality standard (NAAQS). The emissions inventories were submitted to meet nonattainment requirements related to the Washington, DC-MD-VA nonattainment area (the DC Area or Area) for the 2008 8-hour ozone NAAQS. EPA is approving the 2011 base year emissions inventory for the 2008 8-hour ozone NAAQS for the DC Area in accordance with the requirements of the Clean Air Act (CAA).
This rule is effective on July 13, 2015 without further notice, unless EPA receives adverse written comment by June 12, 2015. If EPA receives such comments, it will publish a timely withdrawal of the direct final rule in the
Submit your comments, identified by Docket ID Number EPA-R03-OAR-2014-0759 by one of the following methods:
A.
B.
C.
D.
Marilyn Powers, (215) 814-2308, or by email at
Ground-level ozone is formed when nitrogen oxides (NO
On July 18, 1997 (62 FR 38855), EPA promulgated a revised ozone NAAQS of 0.08 ppm, averaged over eight hours. This standard was determined to be more protective of public health than the previous 1979 1-hour ozone standard. On April 30, 2004 (69 FR 23858), EPA designated areas as attaining or not attaining the 1997 8-hour ozone NAAQS and classified the DC Area as a moderate nonattainment area with an applicable attainment date of June 15, 2010. EPA approved the States' submittals pertaining to reasonable further progress (RFP), RFP contingency measures, and Reasonably Available Control Measures (RACM), along with the Washington Area's 2002 base year inventory and 2008 transportation conformity motor vehicle emissions budgets (MVEBs) on September 20, 2011 (76 FR 58116). On February 28, 2012 (77 FR 11739), EPA determined that the DC Area had attained by its applicable attainment date.
Subsequently, EPA revised the 8-hour ozone NAAQS from 0.08 to 0.075 ppm.
On July 17, 2014, the District of Columbia Department of the Environment (DDOE) and the Virginia Department of Environmental Quality (VADEQ) submitted their 2011 base year inventories, and on August 4, 2014, the Maryland Department of the Environment (MDE) submitted its base year inventory. The 2011 base year inventories include emissions estimates that cover the general source categories of stationary point sources, stationary nonpoint sources, nonroad mobile sources and onroad mobile sources. The pollutants that comprise the inventory are NO
The CAA section 172(c)(3) emissions inventory is developed by the incorporation of data from multiple sources. States were required to develop and submit to EPA a triennial emissions inventory according to the Consolidated Emissions Reporting Rule (CERR) for all source categories (
Pursuant to section 172(c) of the CAA, EPA is approving the 2011 base year emissions inventories submitted by the District of Columbia, Maryland, and Virginia for the 2008 8-hour ozone NAAQS as revisions to the States' respective SIPs. EPA is publishing this rule without prior proposal because EPA views this as a noncontroversial amendment and anticipates no adverse comment. However, in the “Proposed Rules” section of today's
In 1995, Virginia adopted legislation that provides, subject to certain conditions, for an environmental assessment (audit) “privilege” for voluntary compliance evaluations performed by a regulated entity. The legislation further addresses the relative burden of proof for parties either asserting the privilege or seeking disclosure of documents for which the privilege is claimed. Virginia's legislation also provides, subject to certain conditions, for a penalty waiver for violations of environmental laws when a regulated entity discovers such violations pursuant to a voluntary compliance evaluation and voluntarily discloses such violations to the Commonwealth and takes prompt and appropriate measures to remedy the violations. Virginia's Voluntary Environmental Assessment Privilege Law, Va. Code Sec. 10.1-1198, provides a privilege that protects from disclosure documents and information about the content of those documents that are the product of a voluntary environmental assessment. The Privilege Law does not extend to documents or information that: (1) Are generated or developed before the commencement of a voluntary environmental assessment; (2) are prepared independently of the assessment process; (3) demonstrate a clear, imminent and substantial danger to the public health or environment; or (4) are required by law.
On January 12, 1998, the Commonwealth of Virginia Office of the Attorney General provided a legal opinion that states that the Privilege Law, Va. Code Sec. 10.1-1198, precludes granting a privilege to documents and information “required by law,” including documents and information “required by Federal law to maintain program delegation, authorization or approval,” since Virginia must “enforce Federally authorized environmental programs in a manner that is no less stringent than their Federal counterparts. . . .” The opinion concludes that “[r]egarding § 10.1-1198, therefore, documents or other information needed for civil or criminal enforcement under one of these programs could not be privileged because such documents and information are essential to pursuing enforcement in a manner required by Federal law to maintain program delegation, authorization or approval.” Virginia's Immunity law, Va. Code Sec. 10.1-1199, provides that “[t]o the extent consistent with requirements imposed by Federal law,” any person making a voluntary disclosure of information to a state agency regarding a violation of an environmental statute, regulation, permit, or administrative order is granted immunity from administrative or civil penalty. The Attorney General's January 12, 1998 opinion states that the quoted language renders this statute inapplicable to enforcement of any Federally authorized programs, since “no immunity could be afforded from administrative, civil, or criminal penalties because granting such immunity would not be consistent with Federal law, which is one of the criteria for immunity.”
Therefore, EPA has determined that Virginia's Privilege and Immunity statutes will not preclude the Commonwealth from enforcing its program consistent with the Federal requirements. In any event, because EPA has also determined that a state audit privilege and immunity law can affect only state enforcement and cannot have any impact on Federal enforcement authorities, EPA may at any time invoke its authority under the CAA, including, for example, sections 113, 167, 205, 211 or 213, to enforce the requirements or prohibitions of the state plan, independently of any state enforcement effort. In addition, citizen enforcement under section 304 of the CAA is likewise unaffected by this, or any, state audit privilege or immunity law.
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 Order 12866 (58 FR 51735, October 4, 1993);
• does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501
• is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601
• does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4);
• does not have Federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);
• is not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997);
• is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001);
• is not subject to requirements of Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the CAA; and
• does not provide EPA with the discretionary authority to address, as appropriate, disproportionate human health or environmental effects, using practicable and legally permissible methods, under Executive Order 12898 (59 FR 7629, February 16, 1994).
In addition, this rule does not have tribal implications as specified by Executive Order 13175 (65 FR 67249, November 9, 2000), because the SIP is not approved to apply in Indian country located in the state, and EPA notes that it will not impose substantial direct costs on tribal governments or preempt tribal law.
The Congressional Review Act, 5 U.S.C. 801
Under section 307(b)(1) of the CAA, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by July 13, 2015. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this action for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. Parties with objections to this direct final rule are encouraged to file a comment in response to the parallel notice of proposed rulemaking for this action published in the proposed rules section of this
Environmental protection, Air pollution control, Incorporation by reference, Nitrogen dioxide, Ozone, Reporting and recordkeeping requirements, Volatile organic compounds.
40 CFR part 52 is amended as follows:
42 U.S.C. 7401
(e) * * *
(f) EPA approves as a revision to the District of Columbia State Implementation Plan the 2011 base year emissions inventory for the District of Columbia portion of the Washington, DC-MD-VA 2008 8-hour ozone nonattainment area submitted by the District Department of the Environment on July 17, 2014. The 2011 base year emissions inventory includes emissions estimates that cover the general source categories of point sources, non-road mobile sources, area sources, on-road mobile sources, and biogenic sources. The pollutants that comprise the inventory are nitrogen oxides (NO
(e) * * *
(o) EPA approves as a revision to the Maryland State Implementation Plan the 2011 base year emissions inventory for the Maryland portion of the Washington, DC-MD-VA 2008 8-hour ozone nonattainment area submitted by the Maryland Department of Environment on August 4, 2014. The 2011 base year emissions inventory includes emissions estimates that cover the general source categories of point sources, non-road mobile sources, area sources, on-road mobile sources, and biogenic sources. The pollutants that comprise the inventory are nitrogen oxides (NO
(e) * * *
(g) EPA approves as a revision to the Virginia State Implementation Plan the 2011 base year emissions inventory for the Virginia portion of the Washington, DC-MD-VA 2008 8-hour ozone nonattainment area submitted by the Virginia Department of Environmental Quality on July 17, 2014. The 2011 base year emissions inventory includes emissions estimates that cover the general source categories of point sources, non-road mobile sources, area sources, on-road mobile sources, and biogenic sources. The pollutants that comprise the inventory are nitrogen oxides (NO
Office of Government-wide Policy (OGP), General Services Administration (GSA).
Final rule.
GSA is amending the Federal Travel Regulation (FTR) by requiring agencies to have an internal policy for determining whether to authorize a privately owned vehicle (POV), as opposed to a rental car, in conjunction with temporary duty travel (TDY). Further, this rule specifies that travelers, who have been authorized to travel via common carrier or rental car, and choose to use a POV instead, will be reimbursed at the applicable POV mileage rate. Additionally, this rule adds specific provisions addressing the type of rental vehicles travelers must use, pre-paid refueling options, and other rental car surcharges. Finally, this rule makes certain miscellaneous corrections, where applicable.
For clarification of content, contact Mr. Cy Greenidge, Program Analyst, Office of Government-wide Policy, at 202-219-2349. Contact the Regulatory Secretariat (MVCB), 1800 F Street NW., Washington, DC 20405, 202-501-4755, for information pertaining to status or publication schedules. Please cite FTR Amendment 2015-03; FTR case 2014-302.
GSA published a proposed rule in the
The public had 60 calendar days to comment on the proposed rule. GSA received a total of seven comments from three commenters, and made changes to the substance of this final rule, although changes are not considered to be significant.
Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives, and if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). E.O. 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This final rule is not a significant regulatory action, and therefore, was not subject to review under Section 6(b) of E.O. 12866, Regulatory Planning and Review, dated September 30, 1993.
This final rule would not have a significant economic impact on a substantial number of small entities within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 601,
The Paperwork Reduction Act does not apply because these changes to the FTR do not impose recordkeeping or information collection requirements, or the collection of information from offerors, contractors, or members of the public that require the approval of the Office of Management and Budget (OMB) under 44 U.S.C. 3501,
This final rule is also exempt from Congressional review prescribed under 5 U.S.C. 801. This final rule is not a major rule under 5 U.S.C. 804.
Administrative practices and procedures, Government employees, Travel and transportation expenses.
For the reasons set forth in the preamble, pursuant to 5 U.S.C. 5701-5711, GSA amends 41 CFR parts 300-3, 301-10 and 301-70 as set forth below:
5 U.S.C. 5707; 40 U.S.C. 121(c); 49 U.S.C. 40118; 5 U.S.C. 5738; 5 U.S.C. 5741-5742; 20 U.S.C. 905(a); 31 U.S.C. 1353; E.O 11609, as amended, 3 CFR, 1971-1975 Comp. p. 586, Office of Management and Budget Circular No. A-126, revised May 22, 1992.
5 U.S.C. 5707; 40 U.S.C. 121(c); 49 U.S.C. 40118; OMB Circular No. A-126, revised May 22, 1992.
(c)
(d)
You will be reimbursed the applicable POV rate on a mileage basis, plus per diem, not to exceed the total constructive cost of the authorized method of common carrier transportation plus per diem. Your agency must determine the constructive cost of transportation and per diem by common carrier under the rules in § 301-10.310.
You will be reimbursed based on a constructive mileage rate limited to the cost that would be incurred for use of a Government automobile. This rate will be published in an FTR bulletin available at
(c) Travelers must use the least expensive compact car available, unless an exception for another class of vehicle is approved. Agencies should approve these exceptions on a limited basis and must indicate on the travel authorization the reason for the exception. Your agency may authorize the use of other than a compact car if any of the following apply:
(1) When use of other than a compact car is necessary to accommodate a medical disability or other special need.
(i) A disability must be certified annually in a written statement by a competent medical authority. However, if the disability is a lifelong condition, then a one-time certification statement is required. Certification statements must include at a minimum:
(A) A written statement by a competent medical authority stating that special accommodation is necessary;
(B) An approximate duration of the special accommodation; and
(ii) A special need must be certified annually in writing according to your agency's procedures. However, if the special need is a lifelong condition, then a one-time certification statement is required;
(iii) If you are authorized under § 301-13.3(a) to have an attendant accompany you, your agency may authorize the use of other than a compact car if deemed necessary by your agency.
(2) When required because of agency mission, consistent with your agency's internal procedures pursuant to § 301-70.102(i).
(3) When the cost of other than a compact car is less than or equal to the cost of the least expensive compact car.
(4) When additional room is required to accommodate multiple employees authorized to travel together in the same rental vehicle.
(5) When travelers must carry a large amount of Government material incident to their official business, and a compact rental vehicle does not contain sufficient space.
(6) When necessary for safety reasons, such as during severe weather or having to travel on rough or difficult terrain.
(d) Travelers are not to be reimbursed for purchasing pre-paid refueling options for rental cars. Therefore, travelers should refuel prior to returning the rental vehicle to the drop-off location. However, if it is not possible to refuel completely prior to returning the vehicle because of safety issues or the location of closest fueling station, travelers will be reimbursed for vendor refueling charges.
(e) Travelers will not be reimbursed for fees associated with rental car loyalty points or the transfer of points charged by car companies.
5 U.S.C. 5707; 40 U.S.C. 121(c); Sec. 2, Pub. L. 105-264, 112 Stat. 2350 (5 U.S.C. 5701, note), OMB Circular No. A-126, revised May 22, 1992, and OMB Circular No. A-123, Appendix B, revised January 15, 2009.
(c) When travel must be performed by automobile, agencies should next consider using a Government-furnished automobile.
(d) If a Government-furnished automobile is not available, agencies should then consider using the least expensive compact rental vehicle.
(e) Agencies should lastly consider authorizing a POV only if the employee agrees to use a POV, because agencies cannot mandate employees to use their POV for official reasons.
(d) When you will consider use of a POV advantageous to the Government, such as travel to and from common carrier terminals or to the TDY location. When determining whether the use of a POV to a TDY location is the most advantageous method of transportation, agencies must consider the total cost of using a POV as compared to the total cost of using a rental vehicle, including rental costs, fuel, taxes, parking (at a common carrier terminal, etc.), and any other associated costs;
(f) Procedures for allowing the use of a special conveyance (
(i) Develop and issue internal guidance on what specific mission criteria justify approval of the use of other than coach-class transportation under §§ 301-10.123(a)(4), 301-10.123(b)(9), and 301-10.162(e), as well as on the use of other than lowest first-class under § 301-10.183(d) and the use of other than a compact rental car under § 301-10.450(c). The justification criteria shall be entered in the remarks section of the traveler's authorization.
Federal Emergency Management Agency, DHS.
Final rule.
This rule identifies communities where the sale of flood insurance has been authorized under
The effective date of each community's scheduled suspension is the third date (“Susp.”) listed in the third column of the following tables.
If you want to determine whether a particular community was suspended on the suspension date or for further information, contact Bret Gates, Federal Insurance and Mitigation Administration, Federal Emergency Management Agency, 500 C Street SW., Washington, DC 20472, (202) 646-4133.
The NFIP enables property owners to purchase Federal flood insurance that is not otherwise generally available from private insurers. In return, communities agree to adopt and administer local floodplain management measures aimed at protecting lives and new construction from future flooding. Section 1315 of the National Flood Insurance Act of 1968, as amended, 42 U.S.C. 4022, prohibits the sale of NFIP flood insurance unless an appropriate public body adopts adequate floodplain management measures with effective enforcement measures. The communities listed in this document no longer meet that statutory requirement for compliance with program regulations, 44 CFR part 59. Accordingly, the communities will be suspended on the effective date in the third column. As of that date, flood insurance will no longer be available in the community. We recognize that some of these communities may adopt and submit the required documentation of legally enforceable floodplain management measures after this rule is published but prior to the actual suspension date. These communities will not be suspended and will continue to be eligible for the sale of NFIP flood insurance. A notice withdrawing the suspension of such communities will be published in the
In addition, FEMA publishes a Flood Insurance Rate Map (FIRM) that identifies the Special Flood Hazard Areas (SFHAs) in these communities. The date of the FIRM, if one has been published, is indicated in the fourth column of the table. No direct Federal financial assistance (except assistance pursuant to the Robert T. Stafford Disaster Relief and Emergency Assistance Act not in connection with a flood) may be provided for construction or acquisition of buildings in identified SFHAs for communities not participating in the NFIP and identified for more than a year on FEMA's initial FIRM for the community as having flood-prone areas (section 202(a) of the Flood Disaster Protection Act of 1973, 42 U.S.C. 4106(a), as amended). This prohibition against certain types of Federal assistance becomes effective for the communities listed on the date shown in the last column. The Administrator finds that notice and public comment procedures under 5 U.S.C. 553(b), are impracticable and unnecessary because communities listed in this final rule have been adequately notified.
Each community receives 6-month, 90-day, and 30-day notification letters addressed to the Chief Executive Officer stating that the community will be suspended unless the required floodplain management measures are met prior to the effective suspension date. Since these notifications were made, this final rule may take effect within less than 30 days.
Flood insurance, Floodplains.
Accordingly, 44 CFR part 64 is amended as follows:
42 U.S.C. 4001
Children's Bureau (CB), Administration for Children and Families (ACF), Administration on Children, Youth and Families (ACYF), Department of Health and Human Services (HHS).
Final Notice of Statewide Data Indicators and National Standards for Child and Family Services Reviews; correction.
On October 10, 2014, the Administration of Children and Families (ACF) published a document in the
Miranda Lynch Thomas, Children's Bureau, 1250 Maryland Ave. SW., 8th Floor, Washington, DC 20024, (202) 205-8138.
CB implemented the CFSRs in 2001 in response to a mandate in the Social Security Amendments of 1994. The reviews are required for CB to determine whether such programs are in substantial conformity with title IV-B and IV-E plan requirements. The review process, as regulated at 45 CFR 1355.31-37, grew out of extensive consultation with interested groups, individuals, and experts in the field of child welfare and related areas.
We use the CFSR to assess state performance on seven outcomes and seven systemic factors. The seven outcomes focus on key items measuring safety, permanency, and well-being. The seven systemic factors focus on key state plan requirements of titles IV-B and IV-E that provide a foundation for child outcomes. If we determine that a state has not achieved substantial conformity in one or more of the areas assessed in the review, the state is required to develop and implement a program improvement plan addressing the areas of nonconformity within 2 years. CB supports the states with technical assistance and monitors implementation of their program improvement plans. If the state is unable to complete its program improvement plan successfully, a portion of the state's federal title IV-B and IV-E funds is withheld.
Most relevant to this document are the national standards for state performance on statewide data indicators CB uses to determine whether a state is in substantial conformity with certain child outcomes. We are authorized by the regulations at 45 CFR
In an April 23, 2014,
This section discusses the language errors and clarifications we are making to the original
On page 61244, we provided a description of how we calculated the permanency in 12 months for children entering foster care indicator. In part, we explained that we had applied a trial home visit adjustment to this indicator. We stated that this meant that if a child discharges from foster care during the 12-month period to reunification with parents or other caretakers after a placement setting of a trial home visit, any time in that trial home visit that exceeds 30 days is discounted from the child's length of stay in foster care. We use six 6-month Adopting and Foster Care Analysis and Reporting System (AFCARS) reporting periods of data (3 years) to calculate the numerator in this indicator. We are clarifying that the trial home visit adjustment is applied to all AFCARS reporting periods used for the indicator.
If a child discharges from foster care to reunification with parents or other caretakers after a placement setting of a trial home visit during any of the six report periods used for the indicator, any time in that trial home visit that exceeds 30 days is discounted from the length of stay in foster care. In other words, the actual date of discharge to permanency could occur at any time during the 3 years used to calculate this indicator, and the trial home visit would then be applied to see if it may result in a reduction in the length of time in foster care for the purposes of this data indicator.
On pages 61244-61245, we explained that the trial home visit adjustment was also applied to the following indicators: Permanency in 12 months for children in foster care 12 to 23 months and permanency in 12 months for children in foster care 24 months or more. However, this is not accurate. We do not apply the trial home visit adjustment to these indicators because it has no impact on the outcomes for children in care on the first day and followed for only 12 months. This is because these indicators rely on only two AFCARS report periods (one year of data) and do not look beyond the 12-month period to see whether a child has discharged to permanency.
Attachment A provided a summary of each final statewide data indicator including the numerators, denominators, risk adjustments, and data periods used to calculate the national standards.
In describing the permanency in 12-months indicator for children entering foster care, we said that we used the AFCARS periods 2011B through 2013A for calculating the national standard for this indicator. This was a typographical error. We used six AFCARS report periods for a total of 3 years of data: 2011B through 2014A.
Also, the applicable exclusions and notes were partly in error for the following indicators: Permanency in 12 months for children in foster care 12 to 23 months and permanency in 12 months for children in foster care 24 months. We carried forward the same error described in the previous section with regard to the trial home visits adjustment. We do not apply the trial home visit adjustment to these indicators.
Attachment D provided information on the data quality limits applied in determining whether to include state data for calculating the indicators.
Data quality limits are applied to avoid skewing results. There may be a number of reasons why a state's data exceeds a data quality limit, including outliers that exist in the data. Therefore, not all exclusions are necessarily the result of poor data quality. The data quality limits outlined in Attachment D are intended to be a guide to avoid misrepresenting state performance or national standards.
Two listed data quality items had typographical errors that changed their meaning. The AFCARS Within-file data quality check, “Percent of children on 1st removal,” is applied to all indicators with the exception of recurrence of maltreatment. The limit noted was less than 95 percent but it should read more than 95 percent. The NCANDS Cross File Check named “Child IDs don't match across years” should read “Child IDs match across years.” This means that the state has not met the item limit if less than 1 percent of the Child IDs match across years, as we expect them to be based on patterns of recurrence.
In addition, the term “Dropped cases” was used in the section on AFCARS Cross File Checks. This term refers to instances in which a child who is reported during one 6-month period is not reported in the next period, and there is no record that the child exited. However, this term is technically incorrect, as it is the record of the case that drops from the file. For clarity, this cross file check should instead be referred to as “Dropped records.”
For all NCANDS data quality items outlined in Attachment D, it should be noted that these data quality items were applied to victims only. This includes all NCANDS cross file and within-file checks.
With regard to the data quality items applied to the indicator of maltreatment in foster care, the table indicates that we apply the NCANDS cross file check, “Child IDs match across years, but dates of birth and sex do not match,” to this indicator. We do not apply this check to the maltreatment in foster-care indicator because it requires only 1 year of data.
Finally, for clarification, the NCANDS data quality item “Some victims have AFCARS IDs” was previously located in the “NCANDS Data—Cross File Checks” section. It should be in the “NCANDS Within file checks” section, because it requires only the NCANDS child file and does not match with AFCARS.
This section discusses the changes or clarifications in the methods of calculating the national standards and state performance that affect the national standards we provided in the original document.
We made one change to the application of data quality items that has an implication for the calculation of national standards and state performance. There was an oversight in the application of the data quality items for the measure of permanency in 12 months for children entering foster care. For this indicator, we originally applied the data quality items only to the first four data periods, but upon further investigation we determined that the data quality items should be applied to all six periods used in the calculation of this measure.
There was a slight modification made to several calculations that require the date of discharge. When calculating the length of stay in foster care, age at exit, or other variables that require the data of discharge, we previously used an imputed version of the date of discharge. An imputed date of discharge was used when the date of discharge was missing for a child in one report period, but in the subsequent 6-month period the child was reported as being in a new removal episode with a value for his or her date of discharge from the prior foster care episode. We are no longer using the date of discharge from the prior foster care episode to impute missing dates of discharge and are using only the date of discharge from foster care submitted to us by the state. If that date is missing, it is treated as a missing value and no attempt is made to impute the value using subsequent files.
In determining the national standards and the state-by-state performance outlined in the workbook, we inadvertently did not use the most recent submission for all periods of data for three states. We have re-run the analysis and national standards to incorporate these resubmissions and all data are now current as of July 10, 2014.
Due to the above noted changes, Table 1 on page 61249 should be replaced as follows:
On page 61254, we provided an overview of the number of states excluded from the national standards for each data indicator. Based on the changes noted here, these should be updated as follows:
• Permanency in 12 months for first day cohorts with 12-23 months and 2 or more years prior time in care: Three states are now excluded instead of one.
• Permanency in 12 months for children entering foster care indicator: Four states are now excluded instead of three.
• Recurrence of maltreatment: Five states are now excluded instead of four.
There was no change to the number of states excluded for the indicators of re-entry to foster care in 12 months, maltreatment in foster care, or placement stability.
The changes noted in relation to the calculation of national standards also have relevance to the calculation of each state's observed and risk-standardized performance, as well as the improvement factors used to set program improvement plan goals. Revised state-level data, including changes to results indicating the need for a program improvement plan, are reflected in the revised workbook.
The changes in the workbook regarding setting program improvement plan targets also reflect a revision to the bootstrapping process outlined in Technical Bulletin #8. We began with three observed values for 3 years of data, aggregated at the state level. From those three values, we averaged them in different combinations to get seven values. From those 7 values, a bootstrapping process was used to get 30 values. These 30 values were then resampled 1,000 times. After careful review, we have determined that we do not have justification for bootstrapping to 30 values. We have eliminated that step and are now bootstrapping the 7 values to get 1,000 resamples. This yields a grand mean and improvement factor that is very similar to the original set, but is more reflective of the true parameters.
Because of these changes, Table 2 has also been revised. In addition, upon further reflection we believe that in order to avoid confusion, it is best to use the terminology of floors and caps versus minimum and maximum amounts of improvement. Using the terms of floors and caps is also consistent with the previously issued Technical Bulletin #8. All other references to minimum and maximum levels of improvement in the original
Department of Commerce (Commerce).
Interim final rule.
We, the Department of Commerce (Commerce), issue an interim final rule to provide procedures for waiving performance and payment bonds required under U.S. law, associated with contracts for the repair, alteration and construction of the National Atmospheric and Oceanographic Administration's (NOAA) fleet of research and survey vessels operated by the Office of Marine and Aviation Operations (OMAO). The regulations implement the authority provided to the Secretary of Commerce in Section 111 of the “Department of Commerce Appropriations Act, 2015,” and comport with language in the Appropriation Committee's report instructing NOAA to promulgate regulations prior to implementing the waiver authority. This final rule amends the CAR by inserting a section and amending a part to add the contract language for the waivers.
This action is effective on May 13, 2015. However, Commerce will accept comments on this interim final rule until June 12, 2015.
The final rule is available at
You may submit comments on this interim final rule on regulations.gov, search for RIN 0605-AA37, click the “Comment Now!” icon, complete the required fields, and enter or attach your comments.
Comments sent by any other method, to any other address or individual, or received after the end of the comment period, may not be considered. All comments received are a part of the public record and will generally be posted for public viewing on
Virna Winters, 202-482-3483.
Section 111 of the “Department of Commerce Appropriations Act, 2015,” Division B, Title I of Public Law 113-235 (Dec. 16, 2014) (Appropriations Act) granted the Secretary of Commerce the authority to waive the performance and payment bond requirement under 40 U.S.C. 3131
Commerce publishes this action to amend the CAR to provide guidance for implementing the authority granted to the Secretary of Commerce in the Appropriations Act. The following is a summary of the procedures which will be in the amendment to the CAR.
NOAA ships enter into either a dry docking or dockside repair period every fiscal year, typically in the first or second quarter of the fiscal year. Each vessel is equipped with highly advanced survey instruments, state of the art electronics, computers, and navigational and communications systems, which must be kept operational to ensure the safety of the crew and the ship's schedule. It also is often necessary for emergency repairs to
The Appropriations Act gives the Secretary of Commerce the authority to waive the bonding requirement for the alteration, repair and construction of NOAA's vessels to encourage contractors, especially small shipyards, to bid on NOAA's vessel projects. In order to implement the authority in an efficient manner and consistent with the congressional mandate, this action allows NOAA to waive bond requirements for ship construction, alteration and repairs.
Contracting Officers (CO) may not issue solicitations waiving the requirements for bonds until the waiver request is approved. The CO will retain the discretion to require bonds if the complexity of the work and the level of competition in the region warrant them. All solicitations for ship construction, alteration, or repairs where bonds are not required will include a provision informing potential offerors that the failure to pay subcontractors could adversely affect their past performance and have an impact on their eligibility for award of future contracts. Contractors will provide written confirmation that all subcontractors have been properly paid prior to submission of final invoice.
Executive Orders 12866 and 13563: This interim final rule has been drafted according to the requirements of Executive Orders 12866 and 13563, and has been determined to be “not significant” under those orders.
The Department of Commerce finds good cause under 5 U.S.C. 553(b)(3) and (d) to waive the notice and comment and 30-day delay in effectiveness periods for this action. Congress granted the Secretary of Commerce the authority to waive the bonding requirements involved in this action in the Appropriations Act. That authority lasts the duration of fiscal year 2015 and carries through any years in which Congress reauthorizes the authority. Because the waiver authority may be of limited duration, it is impracticable and contrary to the public's interest to submit this rule to the ordinary notice and comment timeframe. Doing so would restrict the time limit for the authority, contrary to Congressional intent, and thereby reduce or eliminate the benefits to the public and to the Government of waiving the bonding requirements. Use of the waiver will benefit the public by allowing greater competition for shipbuilding and ship repair activities, and helps NOAA's vessels maintain working operation for more days out of the year. Because allowing public comment and delaying the effectiveness of this rule for 30 days is impracticable and contrary to the public's interest, Commerce hereby waives those requirements.
Although this interim rule will become effective upon publication in the
Regulatory Flexibility Act: Because notice and comment under 5 U.S.C. 553 are not required for this rule, the requirements of the Regulatory Flexibility Act do not apply. 5 U.S.C. 603. Accordingly, no regulatory flexibility analysis is required, and none has been prepared.
Paperwork Reduction Act (PRA): This rule does not impose any new information collections subject to review and approval by the Office of Management and Budget (OMB) under the PRA. Notwithstanding any other provision of the 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 PRA, unless that collection of information displays a currently valid OMB control number.
Government procurement, Insurance, Reporting and recordkeeping requirements, Surety bonds.
Government procurement, Matrix, Reporting and recordkeeping requirements.
For the reasons set out in the preamble, the Department of Commerce amends 48 CFR parts 1328 and 1352 as follows:
41 U.S.C. 414; 48 CFR 1.301-1.304.
(a) Pursuant to the authority vested in the Secretary of Commerce, the requirements of 40 U.S.C. 3131 through 3133 may be waived by virtue of the authority vested in him or her pursuant to the Consolidated and Further Continuing Appropriations Act, 2015, Public Law 113-235, 128 Stat. 2130, Div. B, Title I, Sec. 111 (2014), with respect to contracts for the repair, alteration, and construction of NOAA's hydrographic survey, oceanographic research, and fisheries survey vessels operated by NOAA Office of Marine and Aviation Operations in the Atlantic and Pacific regions including the Pacific Islands. The Department's policy and procedures for use of the waiver authority is set forth in CAM 1328.102.
(b) Contracting officers are required to consider any unusual circumstances that may arise in which either payment or performance bonds, or both, will be advantageous to the Government in connection with these contracts prior to issuing solicitations.
The designee authorized to approve bond waivers is set forth in CAM 1328.102.
The contracting officer shall insert the clause at 1352.228-77,
41 U.S.C. 414; 48 CFR 1.301-1.304.
As prescribed in 48 CFR 1328.102-3, insert the following clause:
(a) To protect the interests of subcontractors participating in the performance of this contract, the Government requires the assurance that all monies due to subcontractors is timely and properly made prior to the submission of the contractor's final invoice.
(b) By accepting this award, in writing or by performance, the offeror/contractor represents that—it will provide full payment to all subcontractors utilized in the performance of the resultant contract prior to the submission of its final invoice.
(c) No later than five (5) days after contract award the contractor shall provide the Contracting Officer with a list of all subcontractors to be utilized in the performance of this contract. The contractor must provide updates to the Contracting Officer throughout the contract, should changes be made.
(d) The following shall be completed and provided accordingly:
(e) Reports by subcontractors of delayed or non-payment during the performance of the contract may impact the Government's continued payment of contractor invoices on a percentage of completion basis. (CAR clause, 1352.271-71,
(f) The contractor shall include the following statement on its final invoice—“By submission of this invoice, assurance is herein provided that all monies due to any and all subcontractors used in the performance of this contract have been paid in full prior to the submission of this final invoice.”
(g) Failure to pay subcontractors could adversely affect the contractor's past performance evaluation for this contract and have a negative impact on its eligibility for future contract awards.
(h) The Government may seek any available remedies in the event the contractor fails to comply with the provisions of this clause.
Food Safety and Inspection Service, USDA.
Proposed rule.
The Food Safety and Inspection Service (FSIS) is proposing to amend its regulations on ante-mortem inspection to remove a provision that permits establishments to set apart and hold for treatment veal calves that are unable to rise from a recumbent position and walk because they are tired or cold. Under the proposed rule, non-ambulatory disabled veal calves that are offered for slaughter will be condemned and promptly euthanized. Prohibiting the slaughter of all non-ambulatory disabled veal calves will improve compliance with the Humane Methods of Slaughter Act of 1978 (HMSA) and the humane slaughter implementing regulations. It will also improve the Agency's inspection efficiency by eliminating the time that FSIS inspection program personnel (IPP) spend re-inspecting non-ambulatory disabled veal calves. FSIS is also proposing to clarify in the regulations that all non-ambulatory disabled cattle must be
Comments must be received on or before July 13, 2015.
FSIS invites interested persons to submit comments on this rule. Comments may be submitted by one of the following methods:
•
•
•
Dr. Daniel Engeljohn, Assistant Administrator, Office of Policy and Program Development; Telephone: (202) 205-0495.
Under 9 CFR 309.3(e), non-ambulatory disabled cattle that are offered for slaughter, including those that have become non-ambulatory disabled after passing ante-mortem inspection, must be condemned and disposed of properly. However, under 9 CFR 309.13(b), non-ambulatory disabled veal calves that are able to rise from a recumbent position and walk after they have been set aside and warmed or rested, and that are found to be otherwise free from disease, may be slaughtered for human food under appropriate FSIS supervision.
In 2009, FSIS amended 9 CFR 309.3(e) to remove the case-by-case disposition determination of cattle that became non-ambulatory disabled after ante-mortem inspection to ensure that animals that may be unfit for human food do not proceed to slaughter and to improve the effectiveness and efficiency of the inspection system (74 FR 11463). FSIS decided that establishments could continue to set aside veal calves that were tired or cold because these conditions could be treated before presenting the animals for slaughter.
In November 2009, the Humane Society of the United States (HSUS) submitted a petition requesting that FSIS amend its regulations to remove the provision that allows veal calves that are non-ambulatory disabled because they are tired or cold to be set aside to be warmed or rested (9 CFR 309.13(b)). The petition requested that FSIS amend its regulations to require that all non-ambulatory disabled veal calves offered for slaughter be condemned and promptly euthanized. The petition is available on the FSIS Web site at
To support the requested action, the petition referred to video footage from an HSUS undercover investigation at an official veal slaughter establishment in August 2009. The video footage documents incidents in which the establishment owner and his employees repeatedly used electric prods and physical force to attempt to get non-ambulatory disabled veal calves to rise.
After the release of the video footage, FSIS conducted its own investigation which found that the establishment repeatedly failed to handle animals humanely. FSIS immediately shut down the establishment, and Secretary of Agriculture Thomas Vilsack ordered the USDA's Office of Inspector General to conduct a criminal investigation. The establishment was only allowed to reopen under a new name and different ownership after reaching an agreement with FSIS that its facilities would be audited by an outside firm on a regular basis, and that employees would receive special training on humane handling of animals.
HSUS's petition asserted that the provision in 9 CFR 309.13(b) is inconsistent with the language and intent of the HMSA because it fails to ensure that the handling of livestock in connection with slaughter be carried out only by humane methods (see 7 U.S.C. 1902). Similarly, the petition asserted that failing to require immediate euthanasia creates a financial incentive for establishments to engage in abusive conduct because a non-ambulatory disabled calf is worthless unless it is slaughtered. The petition asserted that removing the provision from 9 CFR
On February 7, 2011, FSIS published a document in the
After carefully considering the issues raised in the petition and comments submitted in response to the
On January 23, 2014, FSIS initiated an investigation into allegations of inhumane slaughter and handling of veal calves, covertly captured on video by HSUS, at another official veal slaughter establishment. Among other things, the video footage documents incidents in which veal slaughter establishment employees use physical force to attempt to get non-ambulatory disabled veal calves to rise.
After reviewing the video footage and other evidence, FSIS found that the establishment did have a comprehensive systematic approach to its humane handling program, but that the approach was not consistently applied. As a result, FSIS withdrew its inspectors from the slaughter operations at the establishment, thereby halting slaughter operations, until the establishment provided the Agency with corrective actions and further planned preventive measures that would ensure that livestock at the establishment would be slaughtered humanely. The establishment provided the Agency with corrective and preventive actions on January 24, 2014. After a thorough review and evaluation of these materials, FSIS notified the establishment that its suspension would be held in abeyance on February 3, 2014. FSIS continues to verify that the establishment's corrective and further-planned actions are implemented and effective.
Approximately 70,000 comment letters that expressed support for the HSUS petition were submitted as part of the HSUS write-in campaign. FSIS also received over 4,000 comment letters in support of the petition from other write-in campaigns, animal welfare organizations, private citizens, and two veterinary associations. FSIS received approximately 200 comments from trade associations representing meat processors, cattle producers, dairy producers, and farm bureaus, as well as individual dairy farmers, veal processors, cattle producers, and private citizens that opposed granting the petition.
The comments in support of the petition also asserted that granting the petition would eliminate incentives for veal calf producers to send extremely weak calves to slaughter, thereby improving on-farm conditions and conditions during transportation for these animals. According to the comments, veal calves are often fed all-liquid diets that are intended to be deficient in iron, making these animals more susceptible to gastrointestinal disorders and diseases. The comments also stated that veal calves are subjected to cruel confinement practices that contribute to their weakened condition. The comments stated that veal calf producers have the means to prevent conditions that can predispose calves to collapse at slaughter, and, therefore, the regulations should encourage improvements in on-farm and transportation practices.
Many commenters in support of granting the petition asserted that rescinding the regulation that allows veal calves to be set apart and held for treatment would improve inspection efficiency and ensure the appropriate disposition of non-ambulatory disabled veal calves on ante-mortem inspection. The commenters argued that the rescission would eliminate the uncertainty inherent in determining whether these animals are non-ambulatory disabled because they are tired or cold, or because they are injured or sick.
Some commenters asserted that the Agency had not articulated the nature of the “uncertainty” in determining the disposition of non-ambulatory disabled veal calves that it seeks to avoid by granting the HSUS petition. The commenters stated that such “uncertainty” could not be attributed to bovine spongiform encephalopathy (BSE) concerns because veal calves are too young to present a BSE risk. The commenters asserted that conditions that are commonly observed in veal calves can readily be treated before these animals are presented for slaughter.
A trade association representing farmers and processors of formula-fed veal noted that the inhumane handling incident referred to in the HSUS petition took place at a bob veal calf slaughter establishment. The commenter noted that bob veal calves are a small segment of young dairy calves that have not received the individualized care that is typical at a formula-fed veal farm. The commenter stated that farmers of formula-fed veal select the highest quality and healthiest bull calves available in sale barns or directly from dairy farmers. The commenter explained that the formula-fed veal calves raised in the U.S. receive individualized and specialized care and husbandry on veal farms until they are 20-22 weeks or approximately 450-500 pounds. The commenter noted that this treatment is in contrast to how bob veal calves, which are typically younger, weaker, and lighter calves, are treated. The commenter stated that a formula-fed veal calf that has been raised to market-weight carries a significant loss of investment compared to a bob veal calf that has not received the same individual care. According to the commenter, based on market value in 2013, a typical farmer of formula-fed veal is likely to lose $800 for each otherwise healthy non-ambulatory disabled veal calf that cannot proceed to slaughter compared with the $10-25 loss for each bob veal calf.
Also, as discussed below, the Agency's analysis of the estimated costs of this rule to formula-fed and non-formula-fed veal slaughter establishments would be about $0 to $8,225.00 annually, which is insignificant compared to their annual market value of about $283 million to $366 million.
The above-mentioned incidents of inhumane handling at official veal calf slaughter establishments in 2009 and 2014 demonstrate that the provision in 9 CFR 309.13(b) may create an incentive for establishments to inhumanely force non-ambulatory disabled veal calves to rise and may provide an incentive for livestock producers and establishments to send weakened veal calves to slaughter in the hope that the veal calves are able to sufficiently recover to pass ante-mortem inspection. Sending such weakened veal calves to slaughter increases the chances that they will go down and then be subjected to conditions that are inhumane. This proposed rule will remove the incentive to send such weakened veal calves to slaughter and decrease the chances of inhumane conditions. In addition, prohibiting the slaughter of all non-ambulatory disabled veal calves will be consistent with the requirements for the other classes of non-ambulatory disabled cattle.
Therefore, after evaluating the comments, NRs, and information from the 2009 and 2014 incidents discussed above, FSIS is proposing to remove the second sentence in 9 CFR 309.13(b) that permits veal calves that are unable to rise from a recumbent position and walk because they are tired or cold to be set apart and held for treatment.
In addition, FSIS is proposing to amend 9 CFR 309.3(e) to clarify in the regulations that non-ambulatory disabled cattle that are offered for slaughter must be condemned and
Also under this proposed rule, the carcasses, parts thereof, meat, or meat food products of non-ambulatory disabled veal calves will be considered unfit for human food and thus adulterated. The reinspection of non-ambulatory disabled veal calves by IPP will be discontinued, increasing the time IPP can focus on other inspection activities.
FSIS is proposing this rule under 21 U.S.C. 621, which gives FSIS the authority to adopt regulations for the efficient administration of the FMIA. The amendment in this proposal is intended to facilitate more effective implementation of ante-mortem inspection pursuant to 21 U.S.C. 603(a) and of the humane handling requirements established pursuant to 21 U.S.C. 603(b).
Executive Orders 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This proposed rule has been designated a “significant” regulatory action under section 3(f) of Executive Order (E.O.) 12866. Accordingly, the rule has been reviewed by the Office of Management and Budget under E.O. 12866.
In calendar year (CY) 2013, federally-inspected veal calf establishments slaughtered a total of 725,020 veal calves (Table 1). Market value estimates for slaughtered veal calves based on data reported by the U.S. Department of Agriculture, Agricultural Marketing Service (AMS), were between $283 million and $366 million.
The U.S. veal industry is made up of establishments in the small and very small Hazard Analysis and Critical Control Point (HACCP)-size categories.
The expected costs of the proposed rule for the veal establishments are a result of the lost market value of the non-ambulatory disabled veal calves that the affected establishments will no longer be able to slaughter for human food. The addition of the word “promptly” to 9 CFR 309.3(e) would not have any expected costs.
To estimate the total first year cost to the veal industry, FSIS used CY 2013 PHIS data to obtain the expected minimum and maximum percent of non-ambulatory disabled calves out of the current veal calves slaughtered. Since FSIS did not have an exact count of the number of veal calves that were non-ambulatory and were re-inspected (after the calves rested and were able to move) and then sent for slaughter, the agency assumed that the number of deleted records
Using the minimum and maximum values of non-ambulatory disabled affected veal calves, FSIS estimated the expected minimum and maximum total first year cost to the veal establishments, based on CY 2013 data.
If the proposed rule is adopted, non-ambulatory disabled veal calves will not be re-inspected during ante-mortem inspection. The veal calves that are condemned during ante-mortem inspection will be euthanized. The cost of disposing of the dead calves varies across the region. We do not have adequate data to cost out the disposal fees for dead calves since we do not know how many establishments engage in this practice. Therefore, FSIS is seeking comments and any available data on this practice.
The estimated annual cost to the veal industry would range between $2369 and $161405. The bob veal category would be the most affected section of the veal industry because, as shown in table 4, both the minimum and maximum numbers of bob veal calves that are non-ambulatory disabled at ante-mortem inspection exceed the numbers of formula-fed and non-formula-fed veal calves that are non-ambulatory disabled at ante-mortem inspection. According to comments to the petition and data provided by AMS, bob veal are also the weakest and the most vulnerable category of veal calves, and have the lowest market value to the industry.
FSIS predicts that this rule would provide Agency personnel with savings in terms of inspection time. According to PHIS data, it takes an inspector around 15 minutes to re-inspect a calf. Since FSIS will not have to re-inspect the veal calves that are non-ambulatory disabled during ante-mortem inspection to determine their disposition, the Agency will save anywhere from 70.5 hours (minimum) to 428 hours (maximum) in total. This time will allow the inspector the ability to engage in other inspection activities instead.
The proposed rule will ensure the humane disposition of the non-ambulatory disabled veal calves. It will also increase the efficiency and effective implementation of inspection and humane handling requirements at official establishments. This rule would incentivize growers and transporters of cattle to improve animal welfare, both,
FSIS has made a preliminary determination that this proposed rule would not have a significant economic impact on a substantial number of small entities in the United States, as defined by the Regulatory Flexibility Act (5 U.S.C. 601
The Agency estimates that this rule would possibly affect 192 small and very small HACCP size veal slaughter establishments (as seen in table 2). Even though so many small and very small establishments are affected by this rule the volume of veal that will not be eligible for slaughter is very low. Further, the estimated total annual cost per establishment to the industry is between $12 (total minimum cost/number of establishments=2369/192) and $841 (total maximum cost/number of establishments=$161405/192).
There are no paperwork or recordkeeping requirements associated with this proposed rule under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).
FSIS and USDA are committed to achieving the purposes of the E-Government Act (44 U.S.C. 3601,
This proposed rule has been reviewed under Executive Order 12988, Civil Justice Reform. Under this proposed rule: (1) All State and local laws and regulations that are inconsistent with this rule will be preempted, (2) no retroactive effect will be given to this rule, and (3) no administrative proceedings will be required before parties may file suit in court challenging this rule.
This proposed rule has been reviewed in accordance with the requirements of Executive Order 13175, Consultation and Coordination with Indian Tribal Governments. The review reveals that this regulation will not have substantial and direct effects on Tribal governments and will not have significant Tribal implications.
No agency, officer, or employee of the USDA shall, on the grounds of race, color, national origin, religion, sex, gender identity, sexual orientation, disability, age, marital status, family/parental status, income derived from a public assistance program, or political beliefs, exclude from participation in, deny the benefits of, or subject to discrimination any person in the United States under any program or activity conducted by the USDA.
To file a complaint of discrimination, complete the USDA Program Discrimination Complaint Form, which may be accessed online at
Send your completed complaint form or letter to USDA by mail, fax, or email:
U.S. Department of Agriculture, Director, Office of Adjudication, 1400 Independence Avenue SW., Washington, DC 20250-9410.
(202) 690-7442.
Persons with disabilities who require alternative means for communication (Braille, large print, audiotape, etc.), should contact USDA's TARGET Center at (202) 720-2600 (voice and TDD).
Public awareness of all segments of rulemaking and policy development is important. Consequently, FSIS will announce this
FSIS also will make copies of this publication available through the FSIS Constituent Update, which is used to provide information regarding FSIS policies, procedures, regulations,
Animal diseases, Meat inspection, Reporting and recordkeeping requirements.
For the reasons set forth in the preamble, FSIS proposes to amend 9 CFR part 309 as follows:
21 U.S.C. 601-695; 7 CFR 2.18, 2.53.
(e) Establishment personnel must notify FSIS inspection personnel when cattle become non-ambulatory disabled after passing ante-mortem inspection. Non-ambulatory disabled cattle that are offered for slaughter must be condemned and promptly disposed of in accordance with § 309.13.
Architectural and Transportation Barriers Compliance Board.
Notice of advisory committee meeting.
On May 23, 2013, we, the Architectural and Transportation Barriers Compliance Board (Access Board), established the Rail Vehicles Access Advisory Committee (Committee) to advise us on revising and updating our accessibility guidelines issued pursuant to the Americans with Disabilities Act for transportation vehicles that operate on fixed guideway systems (
The Committee will meet on June 4, 2015, from 10:00 a.m. to 6:00 p.m. and on June 5, 2015, from 9:30 a.m. to 3:30 p.m.
The meeting will be held at the Access Board conference room, 1331 F Street NW., Suite 800, Washington, DC 20004-1111. Call-in information and a communication access real-time translation (CART) web streaming link will be posted on the Access Board's Rail Vehicles Access Advisory Committee Web site page at
Paul Beatty, Office of Technical and Information Services, Access Board, 1331 F Street NW., Suite 1000, Washington, DC 20004-1111. Telephone number (202) 272-0012 (Voice); (202) 272-0072 (TTY). Electronic mail address:
On May 23, 2013, we published a notice announcing that we were establishing a Rail Vehicles Access Advisory Committee (Committee) to make recommendations to us on matters associated with revising and updating our accessibility guidelines issued pursuant to the Americans with Disabilities Act for transportation vehicles that operate on fixed guideway systems (
The Committee will hold its seventh meeting on June 4, 2015, from 10:00 a.m. to 6:00 p.m. and on June 5, 2015, from 9:30 a.m. to 3:30 p.m. The preliminary agenda for the June meeting includes deliberation of committee member concerns pertaining to its final report on accessibility of rail vehicles and consideration of process-related matters. The preliminary meeting agenda, along with information about the Committee, is available on our Web site at
The Committee meeting will be open to the public and interested persons can attend the meetings and communicate their views. Members of the public will have opportunities to address the Committee on issues of interest to them during a public comment period scheduled each day. The meetings will be accessible to persons with disabilities. An assistive listening system, communication access real-time translation (CART), and sign language interpreters will be provided. Persons attending the meetings are requested to refrain from using perfume, cologne, and other fragrances for the comfort of other participants (see
Persons wishing to provide handouts or other written information to the Committee are requested to provide electronic formats to Paul Beatty via email at least five business days prior to the meeting so that alternate formats can be distributed to Committee members.
Environmental Protection Agency (EPA).
Proposed rule.
The Environmental Protection Agency (EPA) is proposing to approve a Texas State Implementation (SIP) revision for control of volatile organic compound (VOC) emissions from degassing of storage tanks, transport vessels and marine vessels. The revision reformats the existing requirement to comply with current rule writing standards, adds additional control options for owner/operators to use when complying, clarifies the monitoring and testing requirements of the rule, and makes non-substantive changes to VOC control provisions that apply in the Beaumont-Port Arthur nonattainment area (Hardin, Jefferson and Orange Counties), four counties in the Dallas-Fort Worth nonattainment area (Collin, Dallas, Denton and Tarrant Counties), El Paso County, and the Houston-Galveston-Brazoria nonattainment area (Brazoria, Chambers, Fort Bend, Galveston, Harris, Liberty, Montgomery and Waller Counties).
Written comments should be received on or before June 12, 2015.
Comments may be mailed to Mr. Guy Donaldson, Chief, Air Planning Section (6PD-L), Environmental Protection Agency, 1445 Ross Avenue, Suite 1200, Dallas, Texas 75202-2733. Comments may also be submitted electronically or through hand delivery/courier by following the detailed instructions in the
Robert Todd, (214) 665-2156,
In the final rules section of this
For additional information, see the direct final rule which is located in the rules section of this
Environmental Protection Agency (EPA).
Proposed rule.
The Environmental Protection Agency (EPA) proposes to approve the State Implementation Plan (SIP) revisions submitted by the District of Columbia, the State of Maryland, and the Commonwealth of Virginia (collectively, the States). The submittals are comprised of the 2011 base year emissions inventories for the Washington, DC-MD-VA nonattainment area for the 2008 8-hour ozone national ambient air quality standard (NAAQS). In the Final Rules section of this
Comments must be received in writing by June 12, 2015.
Submit your comments, identified by Docket ID Number EPA-R03-OAR-2014-0759 by one of the following methods:
A.
B.
C.
D.
Marilyn Powers, (215) 814-2308, or by email at
For further information, please see the information provided in the direct final action, with the same title, that is located in the “Rules and Regulations” section of this
Chemical Safety and Hazard Investigation Board.
Proposed rule.
This proposed rule augments 40 CFR part 1600, which governs the administration of the Chemical Safety and Hazard Investigation Board (CSB). The proposed rule adds a requirement for the chairperson to add notation votes that have been calendared for public discussion to the agenda of a public meeting within 90 days of the calendared notation vote. The proposed rule also adds a requirement for the chairperson to conduct a minimum of four public meetings per year in Washington, DC. Following publication of this proposed rule, the CSB welcomes and will consider public comment, and then proceed to a final rule.
Written comments must be received on or before June 12, 2015.
You may submit written comments concerning this proposed rule via U.S. mail or email. Written comments may be sent by U.S. mail to Kara Wenzel, Assistant General Counsel, Chemical Safety and Hazard Investigation Board, 2175 K Street NW., Suite 400, Washington, DC, 20037. You may submit electronic comments to:
Kara Wenzel, CSB Assistant General Counsel, 202-261-7625.
This proposed rule will promote increased transparency and accountability for Board activities. It aligns with the Open Government principles of transparency, participation, and collaboration, as outlined in the Memorandum on Transparency and Open Government (74 FR 4685, Jan. 26, 2009). The Board conducts some of its business through a process of notation voting. In notation voting, Board Members may vote to approve, disapprove, or calendar a notation item for discussion at a public meeting. The addition of a rule for the consideration of calendared notation votes within 90 days of the calendaring action will ensure that calendaring is used in the way it was intended. The addition will allow Board Members to use calendaring to prompt timely public discussion on a topic before they vote on it, at their discretion. It has the added effect of providing an additional opportunity for stakeholder input on Board activities.
The other portion of the new proposed rule will require the CSB chairperson to schedule at least four public meetings in Washington, DC, each year. It will permit other Board Members to add items for discussion to the agendas of such CSB public meetings. It will also ensure that these meetings consider, at a minimum, calendared notation votes, current investigations and other important mission-related activities, and quarterly agency action plan progress. This portion of the proposed rule is intended to increase the transparency of Board actions, to promote the Board's accountability to the public, and to ensure regular, relevant feedback is received from stakeholders related to the agency's mission work.
5 U.S.C. 301, 552(a)(1); 42 U.S.C. 7412(r)(6)(N).
Administrative Procedure Act: 5 U.S.C. 553(b)(3)(A), provides that when regulations involve matters of agency organization, procedure, or practice, the agency may publish regulations in final form. Because this proposed rule is intended to promote public participation and transparency for Board activities, the Board will accept and consider public comments up to 30 days before issuing a final rule.
Administrative practice and procedure.
Accordingly, for the reasons set forth in the preamble, the Chemical Safety and Hazard Investigation Board proposes to amend 40 CFR part 1600 as follows:
5 U.S.C. 301, 552(a)(1); 42 U.S.C. 7412(r)(6)(N).
(b)
(c)
(1)
(i) Consideration and vote on any notation items calendared since the date of the last public meeting;
(ii) A review by the Board of the schedule for completion of all open investigations, studies, and other important work of the Board; and
(iii) A review and discussion by the Board of the progress in meeting the CSB's Annual Action Plan.
(2)
National Aeronautics and Space Administration.
Proposed rule.
The National Aeronautics and Space Administration (NASA) is proposing to amend the NASA FAR Supplement (NFS) to delete the observance of legal holidays clause with its alternates and replace it with a new clause that prescribes conditions and procedures pertaining to the closure of NASA facilities.
Interested parties should submit comments to NASA at the address below on or before July 13, 2015 to be considered in formulation of the final rule.
Interested parties may submit comments, identified by RIN number 2700-AE14 via the Federal eRulemaking Portal:
Andrew O'Rourke, NASA Office of Procurement, Contract and Grant Policy Division, 202-358-4560, email:
NASA FAR Supplement (NFS) clause 1852.242-72, Observance of Legal Holidays, is included in Agency contracts where contractor performance is to be performed on a NASA facility. It was intended to identify dates that Government employees would not be available and provide notification to contractors of those dates considering that the absence of Government employees might impact contractor performance or contractor access to NASA facilities. Further, the same clause has two alternates, the first addresses contractors who are denied access to NASA workspaces within a NASA facility and the second addresses other instances, such as weather and safety emergencies, which could result in contractors being denied access to the entire NASA facility. Recent events, especially the Government shut-down during October 2013, have revealed a need for NASA to be more specific and to differentiate between these two conditions when contractor employees may be denied access to NASA workspaces or the entire NASA facility. The fact that Government employees may not be at a NASA facility is not an automatic reason for contractor personnel not to be required to be present at their required NASA workspace on a NASA facility. Unless a contractor is denied access to the NASA facility, contractors are expected to perform in accordance with their contractual requirements. This proposed NFS change provides clarity and information beneficial to NASA contractors that are denied access to a NASA facility when a NASA facility is closed to all personnel. Specifically, the change would delete the prescription at NFS 1842.7001, Observance of Legal Holidays, in its entirety, and clause 1852.242-72, Observance of Legal Holidays, with alternates, and replace it with the prescription at NFS 1842.7001 Denied Access to NASA Facilities and clause 1852.242-72, Denied Access to NASA Facilities. The clause would be included in solicitations and contracts where contractor personnel would be required to work onsite at a NASA facility.
Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). E.O. 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This proposed rule is not a significant regulatory action under section 3(f) of Executive Order 12866. This rule is not a major rule under 5 U.S.C. 804.
NASA does not expect this proposed rule to have a significant economic impact on a substantial number of small entities within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 601,
The proposed rule contains no information collection requirements that require the approval of the Office of
Government procurement.
Accordingly, 48 CFR parts 1842 and 1852 are proposed to be amended as follows:
42 U.S.C. 2473(c)(1).
(a) The contracting officer shall insert the clause at 1852.242-72, Denied Access to NASA Facilities, in solicitations and contracts where contractor personnel will be working onsite at a NASA facility such as: NASA Headquarters and NASA Centers, including Component Facilities and Technical and Service Support Centers. For a list of NASA facilities see NPD 1000.3 “The NASA Organization”. The contracting officer shall not insert the clause where contractor personnel will be working onsite at the Jet Propulsion Laboratory including the Deep Space Network Communication Facilities (Goldstone, CA; Canberra, Australia; and Madrid, Spain).
51 U.S.C. 20113(a) and 48 CFR chapter 1.
As prescribed in 1842.7001(a), insert the following clause:
(a)(1) The performance of this contract requires contractor employees of the prime contractor or any subcontractor, affiliate, partner, joint venture, or team member with which the contractor is associated, including consultants engaged by any of these entities, to have access to, physical entry into, and to the extent authorized, mobility within, a NASA facility.
(2) NASA may close and or deny contractor access to a NASA facility for a portion of a business day or longer due to any one of the following events—
(i) Federal public holidays for federal employees in accordance with 5 U.S.C. 6103;
(ii) Fires, floods, earthquakes, unusually severe weather to include snow storms, tornadoes and hurricanes;
(iii) Occupational safety or health hazards;
(iv) Non-appropriation of funds by Congress; or
(v) Any other reason.
(3) In such events, the contractor employees may be denied access to a NASA facility, in part or in whole, to perform work required by the contract. Contractor personnel already present at a NASA facility during such events may be required to leave the facility.
(b) In all instances where contractor employees are denied access or required to vacate a NASA facility, in part or in whole, the contractor shall be responsible to ensure contractor personnel working under the contract comply. If the circumstances permit, the contracting officer will provide direction to the contractor, which could include continuing on-site performance during the NASA facility closure period. In the absence of such direction, the contractor shall exercise sound judgment to minimize unnecessary contract costs and performance impacts by, for example, performing required work off-site if possible or reassigning personnel to other activities if appropriate.
(c) The contractor shall be responsible for monitoring the local radio, television stations, NASA Web sites, other communications channels, for example contracting officer notification, that the NASA facility is accessible. Once accessible the contractor shall resume contract performance as required by the contract.
(d) For the period that NASA facilities were not accessible to contractor employees, the contracting officer may—
(1) Adjust the contract performance or delivery schedule for a period equivalent to the period the NASA facility was not accessible;
(2) Forego the work;
(3) Reschedule the work by mutual agreement of the parties; or
(4) Consider properly documented requests for equitable adjustment, claim, or any other remedy pursuant to the terms and conditions of the contract.
(e) Notification procedures of a NASA facility closure, including contractor denial of access, as follows—
(1) The contractor shall be responsible for monitoring the local radio, television stations, NASA Web sites, and other communications channels (for example, contracting officer notification) for announcement of a NASA facility closure to include denial of access to the NASA facility. The contractor shall be responsible for notification of its employees of the NASA facility closure to include denial of access to the NASA facility. The dismissal of NASA employees in accordance with statute and regulations providing for such dismissals shall not, in itself, equate to a NASA facility closure in which contractor employees are denied access. Moreover, the leave status of NASA employees shall not be conveyed or imputed to contractor personnel. Accordingly, unless a NASA facility is closed and the contractor is denied access to the facility, the contractor shall continue performance in accordance with the contract.
(2) NASA's Emergency Notification System (ENS). ENS is a NASA-wide Emergency Notification and Accountability System that provides NASA the ability to send messages, both Agency-related and/or Center-related, in the event of an emergency or emerging situation at a NASA facility. Notification is provided via multiple communication devices,
Surface Transportation Board, DOT.
Notice of public hearing.
The Surface Transportation Board (Board) will hold a public hearing on June 10, 2015, at its offices in Washington, DC, to further examine issues related to the accessibility of rate complaint procedures for grain shippers.
The hearing will be held on June 10, 2015, beginning at 9:30 a.m., in the Hearing Room at the Board's headquarters located at 395 E Street SW., Washington, DC. June 11, 2015, will be reserved should a second day of testimony be necessary to accommodate all parties wishing to testify. The hearing will be open for public observation. Any party wishing to speak at the hearing shall file with the Board a notice of intent to participate (identifying the party, the proposed speaker, the time requested, and a summary of the key points the speaker intends to address) no later than May 29, 2015. Notices of intent to participate are not required to be served on the parties of record; they will be posted to the Board's Web site when they are filed. Parties shall file hearing exhibits, if any, by June 10, 2015.
All filings 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 submissions will be posted to the Board's Web site and will be available for viewing and self-copying in the Board's Public Docket Room, Suite 131. Copies of the submissions 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.
Valerie Quinn at (202) 245-0382. Assistance for the hearing impaired is available through the Federal Information Relay Service (FIRS) at (800) 877-8339.
Where a railroad has market dominance—
By a decision served in this proceeding on December 12, 2013, the Board invited public comment on how to ensure that the Board's rate complaint procedures are accessible to grain shippers and provide effective protection against unreasonable freight rail transportation rates. The Board sought input from interested parties on grain shippers' ability to effectively seek relief for unreasonable rates, including proposals for modifying existing procedures, or new alternative rate relief methodologies, should they be necessary.
The public comment period was intended to allow parties to consider and propose ways that the Board could make the rate reasonableness process more accessible to grain shippers. In the comments, parties have raised a number of proposals and identified a number of issues that merit further discussion. Accordingly, the Board will hold a public hearing beginning at 9:30 a.m., on June 10, 2015, at its offices in Washington, DC, to further examine issues related to the accessibility of rate complaint procedures for grain shippers and provide interested persons the opportunity to comment on the modifications to the existing procedures and the alternative rate relief methodologies proposed during the public comment period. In addition to their own proposals and responses, the parties should be prepared to discuss the following issues:
In the comments, various parties have also proposed new methodologies that could be used specifically for rate cases involving grain shipments. These approaches include adopting a “Two-Benchmark” approach for grain shipments hauled by revenue adequate carriers
Decisions and notices of the Board, including this notice, are available on the Board's Web site at “
This action will not significantly affect either the quality of the human environment or the conservation of energy resources.
1. A public hearing will be held on June 10, 2015, at 9:30 a.m., in the Board's Hearing Room, at 395 E Street SW., Washington, DC, as described above.
2. Any party wishing to speak at the hearing shall file with the Board a notice of intent to participate (identifying the party, the proposed speaker, the time requested, and a summary of the key points the speaker intends to address) no later than May 29, 2015. The notices of intent to participate need not be served on the parties of record. Parties appearing at the hearing shall file hearing exhibits, if any, by June 10, 2015.
3. This decision is effective on its service date.
By the Board, Joseph H. Dettmar, Acting Director, Office of Proceedings.
Surface Transportation Board, DOT.
Notice of public hearing.
The Surface Transportation Board (Board) will hold a public hearing on July 22-23, 2015, at its headquarters in Washington, DC, to further examine issues raised in Docket No. EP 722 related to railroad revenue adequacy, and issues raised in Docket No. EP 664 (Sub-No. 2) on how the Board calculates the railroad industry's cost of equity capital. These proceedings are not consolidated but are being addressed in the same decision for administrative convenience.
The hearing will be held on July 22-23, 2015, beginning at 9:30 a.m., in the Hearing Room at the Board's headquarters located at 395 E Street SW., Washington, DC. The hearing will be open for public observation. Any party wishing to speak at the hearing shall file with the Board by July 8, 2015, a notice of intent to participate (identifying the party, the proposed speaker, and the time requested, and summarizing the key points that the speaker intends to address). The notices of intent to participate are not required to be served on the parties of record; they will be posted to the Board's Web site when they are filed. Parties shall file hearing exhibits, if any, by July 22, 2015.
All filings 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 submissions will be posted to the Board's Web site and will
For Docket No. EP 722: Scott Zimmerman at (202) 245-0386. For Docket No. EP 664 (Sub-No. 2): Amy Ziehm at (202) 245-0391. Assistance for the hearing impaired is available through the Federal Information Relay Service (FIRS) at (800) 877-8339.
On April 2, 2014, the Board served a notice announcing that it would receive comments in Docket No. EP 722 to explore the Board's methodology for determining railroad revenue adequacy and the use of revenue adequacy in rate reasonableness cases, and in Docket No. EP 664 (Sub-No. 2)
Having reviewed the comments and replies filed in these proceedings, the Board will now hold a public hearing on July 22-23, 2015, beginning at 9:30 a.m., at its headquarters in Washington, DC, to further examine these issues. The parties have raised a number of issues for the Board to consider. In Docket No. EP 722, many of the comments focused on the revenue adequacy component of Constrained Market Pricing, by which the Board judges the reasonableness of rail freight rates. The parties should be prepared to discuss issues related to the revenue adequacy constraint, as set forth in
○ In
○ In
○ Constrained market pricing imposes constraints on the extent to which a railroad may charge differentially higher rates on captive traffic, and several comments contend that captive shippers should not be required to differentially provide returns in excess of adequate revenue levels. Should a revenue adequate railroad's ability to differentially price be limited for all captive shippers or for a subset of captive shippers that are most likely to be subject to the railroad's market power? Is there a way to identify those shippers that are most likely to be subject to the railroad's market power, such as through Revenue to Variable Cost ratios, the Revenue Shortfall Allocation Method, or something approximating the Maximum Mark-up Methodology used in the Board's rate proceedings?
Additionally, the parties should be prepared to further explore the following issues raised in the comments and replies:
○ Some comments suggest that revenue adequacy should be tied to the availability of competitive access remedies. What competitive access remedies would be appropriate (and consistent with the Board's governing statute) when a railroad is revenue adequate? Because a proposal regarding competitive access remedies is currently pending before the Board,
○ Some comments argue that any proposal that would limit the railroads' return on investment would negatively impact the railroads' ability to invest in their networks and expand capacity. Please discuss the impact of your revenue adequacy proposals on the railroads, again, in light of the recent service issues faced by the industry.
With respect to Docket No. EP 664 (Sub-No. 2), the parties should be prepared to discuss whether the method the Board uses to make its annual industry cost of equity capital determinations needs to be modified and how such modifications, if any, should be implemented. The parties are also invited to discuss the following issues raised in the comments:
○ As part of its annual cost of capital determination, the Board uses a Multi-Stage Discounted Cash Flow (Multi-Stage DCF) model. Some comments suggest that the Board's Multi-Stage DCF model is biased upward. Does such a problem exist and, if so, how is it best corrected?
○ Since 2009, the Board has relied on the Capital Asset Pricing Model (CAPM) as part of its annual cost of capital determination. Under CAPM, “beta” is used to measure the amount of non-diversifiable risk of the railroad industry. Some comments note that betas for the railroad industry have ranged above and below 1.0 since 2009. Do those changes in beta reflect actual differences in the riskiness of the railroad industry? Should the Board consider setting beta equal to 1.0 or some other figure?
○ Some comments suggest that the Board's approach for determining the “market risk premium” under CAPM is atypical. Is the Board's methodology sufficiently reliable or are there more commonly used approaches that the Board should consider adopting?
○ Certain comments note that the Board's CAPM analysis currently relies on a sample of four observations. Does this sample adequately reflect the railroad industry, or would using a broader sample, such as the S&P 500, lead to a more realistic estimate in determining the cost of equity?
○ Some comments contend that the Board should consider changes to how it determines Return on Investment. Would changes to the Return on Investment methodology require changes to the Cost of Capital methodology? Should the Board consider adjusting how it determines Return on Investment (
Decisions and notices of the Board, including this notice, are available on the Board's Web site at
This action will not significantly affect either the quality of the human environment or the conservation of energy resources.
1. A public hearing will be held on July 22-23, 2015, at 9:30 a.m., at the Board's headquarters at 395 E Street SW., Washington, DC, as described above.
2. By July 8, 2015, any party wishing to speak at the hearing shall file with the Board a notice of intent to participate (identifying the party, the proposed speaker, and the time requested, and summarizing the key points that the speaker intends to address). The notices of intent to participate need not be served on the parties of record. Parties appearing at the hearing shall file hearing exhibits, if any, by July 22, 2015.
3. This decision is effective on its service date.
By the Board, Joseph H. Dettmar, Acting Director, Office of Proceedings.
Food Safety and Inspection Service, USDA.
Notice and request for comments.
In accordance with the Paperwork Reduction Act of 1995 and Office of Management and Budget (OMB) regulations, the Food Safety and Inspection Service (FSIS) is announcing its intention to extend the approved information collection regarding voluntary recalls from commerce of meat and poultry products. FSIS is making no changes to the approved collection. The approval for this information collection will expire on August 31, 2015.
Submit comments on or before July 13, 2015.
FSIS invites interested persons to submit comments on this information collection. Comments may be submitted by one of the following methods:
•
•
•
Gina Kouba, Paperwork Reduction Act Coordinator, Food Safety and Inspection Service, USDA, 1400 Independence Avenue SW., Room 6067, South Building, Washington, DC 20250; (202) 690-6510.
FSIS is requesting an extension of an approved information collection addressing paperwork requirements regarding the Agency's voluntary recalls from commerce of meat and poultry products. The approval for this information collection will expire August 31, 2015. Although FSIS is responsible for the inspection of egg products under the Egg Products Inspection Act (EPIA) (21 U.S.C. 1031,
A firm that has produced or imported meat or poultry product that is adulterated or misbranded and has distributed it in commerce, may voluntarily recall the product in question. When there is a recall, FSIS asks that the recalling firm (
When a firm voluntarily recalls a product, FSIS conducts recall effectiveness checks. In conducting recall effectiveness checks, if the recall is to the retail or consumer level, the Agency contacts the distributors and actual retail consignees to ensure that they were notified of the recall, to verify the amount of product they received, and to confirm that they are removing the product from commerce and returning it to the recalling firm or otherwise disposing of the product.
FSIS has made the following estimates based upon an information collection assessment.
Responses to this notice will be summarized and included in the request for OMB approval. All comments will also become a matter of public record.
Public awareness of all segments of rulemaking and policy development is important. Consequently, FSIS will announce this
FSIS also will make copies of this publication available through the FSIS Constituent Update, which is used to provide information regarding FSIS policies, procedures, regulations,
No agency, officer, or employee of the USDA shall, on the grounds of race, color, national origin, religion, sex, gender identity, sexual orientation, disability, age, marital status, family/parental status, income derived from a public assistance program, or political beliefs, exclude from participation in, deny the benefits of, or subject to discrimination any person in the United States under any program or activity conducted by the USDA.
To file a complaint of discrimination, complete the USDA Program Discrimination Complaint Form, which may be accessed online at
Send your completed complaint form or letter to USDA by mail, fax, or email:
Persons with disabilities who require alternative means for communication (Braille, large print, audiotape,
Forest Service, USDA.
Notice of intent to prepare an environmental impact statement.
The Santa Fe National Forest will prepare an environmental impact statement to analyze the potential effects of geothermal development on 194,910 acres. The decision will be whether to proceed with geothermal leasing and, if so, under what stipulations.
Comments concerning the scope of the analysis must be received by June 12, 2015. The draft environmental impact statement is expected in January, 2016 and the final environmental impact statement is expected in October, 2016.
Send written comments to Geothermal EIS Project, Santa Fe National Forest, 11 Forest Lane, Santa Fe, NM 87508. Comments may also be sent via email to
Larry Gore, Forest Geologist, via email at
Individuals who use telecommunication devices for the deaf (TDD) may call the Federal Information Relay Service (FIRS) at 1-800-877-8339 between 8 a.m. and 8 p.m., Eastern Time, Monday through Friday.
The Bureau of Land Management (BLM) has received expressions of interest in leasing approximately 46,000 acres of Santa Fe National Forest (SFNF) lands for exploration and development for geothermal energy production. The SFNF must decide whether these lands are available for leasing by the BLM and, if so, under what stipulations for protection of surface resources. The U.S. Geological Survey has identified approximately 194,000 acres of SFNF lands with significant geothermal potential. While the current expressed interest is for only a portion of this area, the entire area plus an additional approximately 900 acres for power transmission will be considered in the analysis in the event of future similar interest.
Approximately 139,329 acres of the SFNF lands within the project area would be allocated as open to geothermal leasing subject to existing laws, regulations, formal orders and stipulations attached to the lease form, and the terms and conditions of the standard lease form. Stipulations proposed include: no surface occupancy; controlled surface use; and timing limitations.
The Forest Service, Santa Fe National Forest, is the lead agency and the Bureau of Land Management, New Mexico State Office, is a cooperating agency in this analysis.
The responsible official is the Forest Supervisor of the Santa Fe National Forest.
The decision will be whether to implement the action as proposed, implement an alternative which allows leasing under different stipulations or conditions, or not to implement the action. If the decision is to authorize leasing, that decision with associated stipulations and conditions will become an amendment to the Santa Fe National Forest Plan or will become a part of the Revised Forest Plan.
This notice of intent initiates the scoping process, which guides the
It is important that reviewers provide their comments at such times and in such manner that they are useful to the agency's preparation of the environmental impact statement. Therefore, comments should be provided prior to the close of the comment period and should clearly articulate the reviewer's concerns and contentions.
Comments received in response to this solicitation, including names and addresses of those who comment, will be part of the public record for this proposed action. Comments submitted anonymously will be accepted and considered, however.
Toyota Motor Manufacturing Alabama, Inc. (TMMAL), an operator of FTZ 83, submitted a notification of proposed production activity to the FTZ Board for its facilities in Huntsville, Alabama. The notification conforming to the requirements of the regulations of the FTZ Board (15 CFR 400.22) was received on April 14, 2015.
A separate request for subzone designation at the TMMAL facilities will be submitted and processed under Section 400.31 of the FTZ Board's regulations. The facilities are used for the production of spark-ignition engines, transmissions and related components for passenger motor vehicles. Pursuant to 15 CFR 400.14(b), FTZ activity would be limited to the specific foreign-status materials and components and specific finished products described in the submitted notification (as described below) and subsequently authorized by the FTZ Board.
Production under FTZ procedures could exempt TMMAL from customs duty payments on the foreign status components used in export production. On its domestic sales, TMMAL would be able to choose the duty rate during customs entry procedures that applies to passenger motor vehicle engines, transmissions and related components (2.5%) for the foreign status inputs noted below. Customs duties also could possibly be deferred or reduced on foreign status production equipment.
The components sourced from abroad include: Plastic labels; plastic oil filler caps/clamps/oil seal rings; steel fittings/plugs/screws/bolts/pins/spring washers/hose clips; drain cock assemblies; valve levers; bearings (tapered roller, thrust, races, crank); flywheel subassemblies; pulleys; sprockets; key guides; washers (crankshaft); oil pressure switches; crank position sensors; and, wiring harnesses (duty rate ranges from 2.6 to 8.5%).
Public comment is invited from interested parties. Submissions shall be addressed to the FTZ Board's Executive Secretary at the address below. The closing period for their receipt is June 22, 2015.
A copy of the notification will be available for public inspection at the Office of the Executive Secretary, Foreign-Trade Zones Board, Room 21013, U.S. Department of Commerce, 1401 Constitution Avenue NW., Washington, DC 20230-0002, and in the “Reading Room” section of the FTZ Board's Web site, which is accessible via
For further information, contact Pierre Duy at
International Trade Administration, U.S. Department of Commerce.
Notice of an open meeting.
The United States Travel and Tourism Advisory Board (Board) will hold an open meeting on Monday, June 1, 2015. The Board was re-chartered in August 2013, to advise the Secretary of Commerce on matters relating to the travel and tourism industry.
During this meeting, the Board will deliberate and potentially adopt a letter to the Secretary outlining the Board's priority recommendations. Board members will also hear an update from the working group formed to provide advice on the achievement of the national goal of improving the international arrivals and entry process for travelers to the United States. The agenda may change to accommodate Board business. The final agenda will be posted on the Department of Commerce Web site for the Board at
Monday, June 1, 2015, tentatively scheduled for 10:00 a.m.-12:00 p.m. and open for public comments. The exact start and end times may change to accommodate participants' schedules; please check the Web site for the final agenda one week in advance of the meeting.
The deadline for members of the public to register, including requests to make comments during the meetings and for auxiliary aids, or to submit written comments for dissemination prior to the meeting, is 5 p.m. EDT on May 25, 2015.
Orange County Convention Center, 9899 International Drive, Orlando, Florida 32819. Guests are requested to register one week in advance by sending an email to
Niara Phillips, the United States Travel and Tourism Advisory Board, Room 4043, 1401 Constitution Avenue NW., Washington, DC 20230, telephone: 202-482-4501, email:
There will be 15 minutes of time allotted for oral comments from members of the public joining the meeting. To accommodate as many speakers as possible, the time for public comments will be limited to three (3) minutes per person. Individuals wishing to reserve speaking time during the meeting must submit a request at the time of registration along with a brief statement of the general nature of the comments, as well as the name and address of the proposed speaker. If the number of registrants requesting to make statements is greater than can be reasonably accommodated during the meeting, the International Trade Administration may conduct a lottery to determine the speakers. Speakers are requested to bring at least 25 copies of their oral comments for distribution to the members of the Board and to the public at the meeting. In addition, any member of the public may submit pertinent written comments concerning the Board's affairs at any time before or after the meeting. Comments may be submitted to Niara Phillips at the contact information indicated above. To be considered during the meeting, comments must be received no later than 5:00 p.m. EDT on May 25, 2015, to ensure transmission to the Board prior to the meeting. Comments received after that date and time will be distributed to the members but may not be considered on the meeting. Copies of Board meeting minutes will be available within 90 days of the meeting.
Enforcement and Compliance, International Trade Administration, Department of Commerce.
The Department of Commerce (Department) is rescinding the administrative review of the antidumping duty order on certain cased pencils (pencils) from the People's Republic of China (PRC) for the period December 1, 2013, through November 30, 2014, based on the withdrawal of the review request by the one company.
Effective date: May 13, 2015.
Mary Kolberg or Sergio Balbontin at (202) 482-1785 or (202) 482-6478, respectively; AD/CVD Operations, Office I, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue NW., Washington, DC 20230.
On April 3, 2015, the Department initiated an administrative review of the antidumping duty order on pencils from the PRC for the period December 1, 2013, through November 30, 2014, based on a self-request by Orient International Holding Shanghai Foreign Trade Co., Ltd. (SFTC).
Pursuant to 19 CFR 351.213(d)(l), the Secretary will rescind an administrative review, in whole or in part, if the party that requested a review withdraws the request within 90 days of the publication of the notice of initiation of the requested review. In this case, SFTC withdrew its request within the 90-day deadline. No other party requested an administrative review of SFTC. Therefore, in accordance with 19 CFR 351.213(d)(1), we are rescinding the instant review with respect to SFTC.
Because no other parties requested a review of this order for this period, we are rescinding the administrative review of the pencils order covering the period December 1, 2013, through November 30, 2014, in its entirety.
The Department will instruct U.S. Customs and Border Protection (CBP) to assess antidumping duties on all appropriate entries. Because the Department is rescinding this administrative review in its entirety, the entries to which tis administrative review pertained shall be assessed antidumping duties at rates equal to the cash deposit of estimated antidumping duties required at the time of entry, or withdrawal from warehouse, for consumption, in accordance with 19 CFR 351.212(c)(1)(i). The Department intends to issue appropriate assessment instructions to CBP 15 days after the date of publication of this notice of rescission of administrative review.
This notice serves as a final reminder to importers of their responsibility under 19 CFR 351.402(f)(2) to file a certificate regarding the reimbursement of antidumping duties prior to liquidation of the relevant entries during this review period. Failure to comply with this requirement could result in the presumption that reimbursement of antidumping duties occurred and the subsequent assessment of double antidumping duties.
This notice also serves as a reminder to parties subject to administrative protective order (“APO”) of their responsibility concerning the disposition of proprietary information disclosed under APO in accordance with 19 CFR 351.305(a)(3). Timely written notification of the return or destruction of APO materials or conversion to judicial protective order is hereby requested. Failure to comply with the regulations and terms of an APO is a sanctionable violation.
This notice is in accordance with section 751(a)(1) and 777(i)(1) of the Tariff Act of 1930, as amended, and 19 CFR 351.213(d)(4).
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice; public meeting.
The New England Fishery Management Council (Council) is scheduling a public meeting of its Scallop Committee on to consider actions affecting New England fisheries in the exclusive economic zone (EEZ). Recommendations from this group will be brought to the full Council for formal consideration and action, if appropriate.
This meeting will be held on Thursday, May 28, 2015 at 9 a.m.
Thomas A. Nies, Executive Director, New England Fishery Management Council; telephone: (978) 465-0492.
The Committee will review progress and make recommendations related to Amendment 19, which is considering measures to address timing issues that inhibit implementation of fishery specifications at the start of the scallop fishing year (March 1). The Committee will also discuss an issue that has been raised at previous meetings related to scallop fishing space in near shore areas and issues of differential catch rates for general category and limited access vessels. The Council may have a workshop later this year to discuss these issues further as well as review a draft action plan for Framework 27 that will consider fishery specifications for 2016 and default measures for 2017. The Committee will discuss final research priority recommendations for the 2016 Scallop Research Set-Aside announcement. All recommendations will be forwarded to the Council for their June 2015 meeting.
This meeting is physically accessible to people with disabilities. Requests for sign language interpretation or other auxiliary aids should be directed to Thomas A. Nies, Executive Director, at (978) 465-0492, at least 5 days prior to the meeting date.
16 U.S.C. 1801
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice of public workshops; correction.
NMFS cancelled the Protected Species Safe Handling, Release, and Identification workshop originally scheduled for April 28, 2015, in Kenner, LA. The workshop instructors were not able to travel to the location due to intermittent power outages at the New Orleans airport. This workshop was announced in the
The Protected Species Safe Handling, Release, and Identification workshop originally scheduled for April 28, 2015, in Kenner, LA, has been rescheduled to June 10, 2015. See
The location of the rescheduled workshop has not changed. It will be held in Kenner, LA. See
Rick Pearson by phone: (727) 824-5399, or by fax: (727) 824-5398.
The workshop schedules, registration information, and a list of frequently asked questions regarding these workshops are posted on the Internet at:
In the
2. June 10, 2015, 9 a.m.-5 p.m., Hilton Inn, 901 Airline Drive, Kenner, LA 70062.
16 U.S.C. 1801
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice of a public meeting.
The North Pacific Fishery Management Council (Council) Observer Advisory Committee (OAC) will meet in Anchorage, AK.
The meeting will be held on May 29, 2015, from 8 a.m. to 5 p.m.
The meeting will be held at the Coast International Inn, 3450 Aviation Avenue, Susitna room, Anchorage, AK.
Diana Evans, Council staff; telephone: (907) 271-2809.
The agenda will be to discuss and provide recommendations on the observer program review documents (supplemental Environmental Assessment, 2014 Observer Annual Report) and observer regulatory amendment analyses. The Agenda is subject to change, and the latest version will be posted at
The meeting is physically accessible to people with disabilities. Requests for
National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice.
The Department of Commerce, 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.
Written comments must be submitted on or before July 13, 2015.
Direct all written comments to Jennifer Jessup, Departmental Paperwork Clearance Officer, Department of Commerce, Room 6616, 14th and Constitution Avenue NW, Washington, DC 20230 (or via the Internet at
Requests for additional information or copies of the information collection instrument and instructions should be directed to Kristin Rusello, Office of International Affairs and Seafood Inspection, F/IS5, 1315 East-West Highway, Silver Spring, MD 20910, (301) 427-8376, or
This request is for extension of a currently approved information collection.
Pursuant to the High Seas Driftnet Fishing Moratorium Protection Act (Moratorium Protection Act), if certain fish or fish products of a nation are subject to import prohibitions to facilitate enforcement, the National Marine Fisheries Service (NMFS) requires that other fish or fish products from that nation that are not subject to the import prohibitions must be accompanied by documentation of admissibility. A duly authorized official/agent of the applicant's Government must certify that the fish in the shipments being imported into the United States (U.S.) are of a species that are not subject to an import restriction of the U.S. If a nation is identified under the Moratorium Protection Act and fails to receive a certification decision from the Secretary of Commerce, products from that nation that are not subject to the import prohibitions must be accompanied by the documentation of admissibility.
Submissions will be accepted via email or fax.
Comments are invited on: (a) whether the proposed collection of information is 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 (including hours and cost) 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.
Comments submitted in response to this notice will be summarized and/or included in the request for OMB approval of this information collection; they also will become a matter of public record.
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice; request for comments.
The Assistant Regional Administrator for Sustainable Fisheries, Greater Atlantic Region, NMFS, has made a preliminary determination that an Exempted Fishing Permit application submitted by the Northeast Fisheries Science Center contains all of the required information and warrants further consideration.
Regulations under the Magnuson-Stevens Fishery Conservation and Management Act require publication of this notification to provide interested parties the opportunity to comment on Exempted Fishing Permit applications.
Comments must be received on or before May 28, 2015.
You may submit written comments by any of the following methods:
•
•
Liz Sullivan, Fishery Management Specialist, 978-282-8493,
The Northeast Fisheries Science Center (NEFSC) submitted a complete application for an Exempted Fishing Permit (EFP) on March 18, 2015, to enable data collection activities that the regulations on commercial fishing would otherwise restrict. The EFP would exempt 37 federally permitted commercial fishing vessels from the
The NEFSC Study Fleet Program was established in 2002 to more fully characterize commercial fishing operations and to leverage sampling opportunities to augment NMFS data collection programs. Participating vessels are contracted by NEFSC to collect tow-by-tow catch and environmental data, and to fulfill specific biological sampling needs identified by NEFSC. To collect these data, the NEFSC Study Fleet Program has obtained an EFP to secure the necessary waivers needed by the vessels to obtain fish that would otherwise be prohibited by regulations.
Crew trained by the NEFSC Study Fleet Program in methods that are consistent with the current NEFSC observer protocol, while under fishing operations, would sort, weigh, and measure fish that are to be discarded. An exemption from minimum fish size restrictions; fish possession limits; prohibited fish species, not including species protected under the Endangered Species Act; and gear-specific fish possession restrictions for at-sea sampling is required because some discarded species would be on deck slightly longer than under normal sorting procedures.
Participating vessels would also be authorized to retain and land, in limited situations for research purposes only, fish that do not comply with fishing regulations. The vessels would be authorized to retain specific amounts of particular species in whole or round weight condition, in marked totes, which would be delivered to Study Fleet Program technicians. NEFSC would require participating vessels to obtain written approval from the NEFSC Study Fleet Program prior to landing any fish to ensure that the landed fish do not exceed any of the Study Fleet Program's collection needs. None of the landed biological samples from these trips would be sold for commercial use or used for any other purpose other than scientific research.
The table below details the regulations from which the participating vessels would be exempt when retaining and landing fish for research purposes. The participating vessels would be required to comply with all other applicable requirements and restrictions specified at 50 CFR part 648, unless specifically exempted in this EFP. For vessels on a sector trip, all catch of Northeast multispecies stocks allocated to sectors would be deducted from the sector's Annual Catch Entitlement (ACE). Once a sector's ACE for a stock has been reached, vessels would no longer be allowed to fish in that stock area, unless they acquired additional ACE for the limiting stock. For non-sector vessels, all catch of Northeast multispecies stocks would be counted toward the appropriate quotas. Non-sector vessels would still be subject to applicable trimester total allowable catch (TAC) accountability measures, which state that when 90 percent of the trimester TAC for a stock is projected to be caught, the area where that stock is predominantly caught will close to vessels fishing with a specific gear type for the rest of that trimester.
As described above, biological samples would only be landed and collected by the Study Fleet Program after a formal request has been issued in writing by the Study Fleet Program. The following are the Study Fleet Program's sampling needs for retaining sublegal fish.
If approved, the applicant may request minor modifications and extensions to the EFP throughout the year. EFP modifications and extensions may be granted without further notice if they are deemed essential to facilitate completion of the proposed research and have minimal impact that do not change the scope or impact of the initially approved EFP request. Any fishing activity conducted outside the scope of the exempted fishing activity would be prohibited.
16 U.S.C. 1801
National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice.
The Department of Commerce, 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.
Written comments must be submitted on or before July 13, 2015.
Direct all written comments to Jennifer Jessup, Departmental Paperwork Clearance Officer, Department of Commerce, Room 6616, 14th and Constitution Avenue NW., Washington, DC 20230 (or via the Internet at
Requests for additional information or copies of the information collection instrument and instructions should be directed to Steve Kokkinakis, (240) 533-9021 or
This request is for a revision and extension of a currently approved information collection. The National Environmental Policy Act (“NEPA”; 42 U.S.C. §§ 4321-4370) requires federal agencies to complete an environmental analysis for all major federal actions, including funding non-federal projects through federal financial assistance awards where Federal participation in the funded activity is expected to be significant. This
The information may be submitted electronically or on paper (faxed or mailed).
Comments are invited on: (a) Whether the proposed collection of information is 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 (including hours and cost) 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.
Comments submitted in response to this notice will be summarized and/or included in the request for OMB approval of this information collection; they also will become a matter of public record.
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 regulations implementing the Act are at 50 CFR parts 216 and 300. The recordkeeping and reporting requirements at 50 CFR parts 216 and 300 form the basis for this collection of information. This collection includes permit applications, notifications, tuna tracking forms, reports, and certifications that provide information on vessel characteristics and operations in the ETP, the origin of tuna and tuna products, and certain other information necessary to implement the Act.
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
National Telecommunications and Information Administration, U.S. Department of Commerce.
Notice; Extension of comment period.
The Department of Commerce Internet Policy Task Force (IPTF) announces that the closing deadline for submitting comments responsive to the May 18, 2015 request for public comments to identify substantive cybersecurity issues to be addressed by a multistakeholder process has been extended until 5:00 p.m. Eastern Daylight Time (EDT) on Wednesday, May 27, 2015.
Comments are due on or before 5 p.m. EDT on Wednesday, May 27, 2015.
Written comments may be submitted by email to
Allan Friedman, National Telecommunications and Information Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW., Room 4725, Washington, DC 20230; Telephone: (202) 482-4281; Email:
In 2011, the Department of Commerce published a Green Paper,
National Telecommunications and Information Administration, U.S. Department of Commerce.
Notice of open meeting.
The National Telecommunications and Information Administration (NTIA) will convene a meeting of a privacy multistakeholder process concerning the commercial use of facial recognition technology on June 11, 2015.
The meeting will be held on June 11, 2015 from 1:00 p.m. to 5:00 p.m., Eastern Daylight Time. See Supplementary Information for details.
The meeting will be held in the Boardroom at the American Institute of Architects, 1735 New York Avenue NW., Washington, DC 20006.
John Verdi, National Telecommunications and Information Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW., Room 4725, Washington, DC 20230; telephone (202) 482-8238; email
Commodity Futures Trading Commission.
Notice.
The Commodity Futures Trading Commission (“CFTC” or “Commission”) is announcing an opportunity for public comment on the proposed collection of certain information by the agency. Under the Paperwork Reduction Act of 1995 (“PRA”), Federal agencies are required to publish notice in the
Comments must be submitted on or before July 13, 2015.
You may submit comments, identified by OMB Control No. 3038-0033 by any of the following methods:
• The Agency's Web site, at
•
•
Please submit your comments using only one method.
•
Please submit your comments using only one method.
Rob Schwartz, Office of General Counsel, Commodity Futures Trading Commission, 1155 21st Street NW., Washington, DC 20581; phone: (202) 418-5958; fax: (202) 418-5567; email:
Under the PRA, Federal agencies must obtain approval from the Office of Management and Budget (“OMB”) for each collection of information that they conduct or sponsor. “Collection of information” is defined in 44 U.S.C. 3502(3) and 5 CFR 1320.3(c) and includes agency requests or requirements that members of the public submit reports, keep records, or provide information to a third party. Section 3506(c)(2)(A) of the PRA, 44 U.S.C. 3506(c)(2)(A), requires Federal agencies to provide a 60-day notice in the
With respect to the following collection of information, the CFTC invites comments on:
• Whether the proposed collection of information is necessary for the proper performance of the functions of the Commission, including whether the information will have a practical use;
• The accuracy of the Commission's estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used;
• Ways to enhance the quality, usefulness, and clarity of the information to be collected; and
• Ways to minimize the burden of collection of information on those who are to respond, including through the use of appropriate automated electronic, mechanical, or other technological collection techniques or other forms of information technology;
All comments must be submitted in English, or if not, accompanied by an English translation. Comments will be posted as received to
There are no capital costs or operating and maintenance costs associated with this collection.
44 U.S.C. 3501
Bureau of Consumer Financial Protection.
Notice; extension of comment period.
Section 502(a) of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act or Act) requires the Bureau of Consumer Financial Protection (Bureau or CFPB) to conduct a review (Review) of the consumer credit card market, within the limits of its existing resources available for reporting purposes. In connection with conducting that Review, and in accordance with Section 502(b) of the CARD Act, the Bureau published a Request for Information in the
The comment period for the Request for Information Regarding Credit Card Market, published March 19, 2015, at 80 FR 14365, is extended with respect to four areas of interest. Responses on those areas of interest specifically extended must now be received on or before June 17, 2015; the deadline for responses on all other areas remains unchanged.
You may submit comments, identified by Docket No. CFPB-2015-0007, by any of the following methods:
•
•
•
All comments, including attachments and other supporting materials, will become part of the public record and subject to public disclosure. Sensitive personal information, such as account numbers or social security numbers, should not be included. Comments generally will not be edited to remove any identifying or contact information.
For general inquiries, submission process questions, or any additional information, please contact Monica Jackson, Office of the Executive Secretary, 202-435-7275.
On March 19, 2015, the Bureau published the Request for Information in the
Since publication, the Bureau has received multiple requests for extension of the comment deadline. While the Bureau believes the initial deadline should provide sufficient time for the public to comment on these matters, it wants to ensure that all interested parties are able to provide information and insight to the Bureau as it seeks greater understanding of the credit card market.
The Bureau wants to balance interested parties' desire to have additional time to consider the issues raised in the Request for Information, gather data, and prepare their responses, with the need to proceed expeditiously to consider comments. By extending the comment period for certain issues, the Bureau believes that it is effectively striking that balance. The Bureau believes that a 30-day extension on four of the twelve issues raised in the Request for Information—online disclosures, grace periods, add-on products, and debt collection—is appropriate, as these questions focus on particular areas of potential policy concern and may require additional time to respond. The comment period for those four issues will therefore close on June 17, 2015; the deadline for comments on all other areas and issues remains unchanged.
Defense Acquisition Regulations System, Department of Defense, DoD.
Notice.
The Defense Acquisition Regulations System has submitted to OMB for clearance, the following proposal for collection of information under the provisions of the Paperwork Reduction Act (44 U.S.C. chapter 35).
Consideration will be given to all comments received by June 12, 2015.
Written comments and recommendations on the proposed information collection should be sent to Ms. Seehra at the Office of Management and Budget, Desk Officer for DoD, Room 10236, New Executive Office Building, Washington, DC 20503.
You may also submit comments, identified by docket number and title, by the following method:
Written requests for copies of the information collection proposal should be sent to Mr. Licari at: Publication Collections Program, WHS/ESD Information Management Division, 4800 Mark Center Drive, 2nd Floor, East Tower, Suite 02G09, Alexandria, VA 22350-3100.
Department of the Army, U.S. Army Corps of Engineers, DoD.
Notice of Intent.
The U.S. Army Corps of Engineers (Corps), New Orleans District intends to prepare a Draft Supplemental Environmental Impact Statement (SEIS), to be integrated with a General Reevaluation Report (GRR), for the Mississippi River Ship Channel, Gulf to Baton Rouge, Louisiana Project. The GRR and SEIS will investigate deepening and maintaining the Mississippi River Ship Channel from 45 feet deep to as much as 50 feet deep.
A public scoping meeting is scheduled for Tuesday, May 26, 2015 in Belle Chasse, LA. An open house will be held at 6:00 p.m. followed by the scoping meeting at 6:30 p.m. A second public scoping meeting will be held Thursday morning, May 28, 2015 in New Orleans, LA. An open house will be held at 9 a.m. followed by the scoping meeting at 9:30 a.m. A third public scoping meeting will be held Thursday evening, May 28, 2015 in Baton Rouge, LA. An open house will be held at 6:00 p.m. followed by the scoping meeting at 6:30 p.m.
The scoping meeting and open house on Tuesday, May 26 will be held at the Belle Chasse Branch Library, 8442 Highway 23, Belle Chasse, LA 70037. The scoping meeting and open house in the morning of Thursday, May 28 will be held at Corps of Engineers District Office in the District Assembly Room, 7400 Leake Ave, New Orleans, LA 70118. The scoping meeting and open house in the evening of Thursday, May 28 will be held at Louisiana State Police Training Academy, 7901 Independence Blvd., Baton Rouge, LA 70806.
Questions about the public scoping meeting, the GRR and SEIS should be addressed to: Mr. Richard Boe or Mr. Steve Roberts, U.S. Army Corps of Engineers, Environmental Compliance Branch, P.O. Box 60267, New Orleans, LA 70160-0267, by email to
The 1981 Feasibility Study entitled “Deep-Draft Access to the Ports of New Orleans and Baton Rouge, Louisiana” (1981 Feasibility Study) was authorized by Section 2 of the Rivers and Harbors Act of 1945, (Pub. L. 79-14), which combined several existing deep-draft projects on the Mississippi River and modified them to provide new navigation channel dimensions. The 1981 Feasibility Study, which included an Environmental Impact Statement (EIS), recommended deepening the Mississippi River's navigation channel to a 55-foot depth from Baton Rouge to the Gulf of Mexico. A Chief of Engineers Report was completed in April 1983, and a Record of Decision was signed on December 23, 1986. The Mississippi River Ship Channel, Gulf to Baton Rouge, Louisiana project was authorized for construction by Section 101 of the 1985 Supplemental Appropriations Act (Pub. L. 99-88).
The authorized plan provides for a navigation channel with a 55-foot depth over a 750-foot bottom width from the Gulf of Mexico to Baton Rouge, Louisiana, and a turning basin at the head of the deepened channel in Baton Rouge. Authorization also included deepening the existing 35 feet deep by 1,500 feet wide channel at the New Orleans harbor to 40 feet, providing river training works in South Pass and Pass a Loutre, and creating wetlands and upland habitat with dredged material along Southwest Pass.
Phase I of the Mississippi River Ship Channel, Gulf to Baton Rouge, LA Project consisted of a 45-foot channel from the Gulf of Mexico to river mile 181 near Donaldsonville, Louisiana, and was completed in December 1987. Phase II consisted of the remainder of the 45 foot channel from river mile 181 to Baton Rouge, and was completed in December 1994. Phase III of the Project was identified as the deepening of the entire channel to 55 feet from the Gulf of Mexico to Baton Rouge. The Non-Federal Sponsor, the State of Louisiana, Department of Transportation and Development, has requested that an incremental phase of deepening the entire length of the channel to 50 feet be considered. A final phase of deepening the channel to 55 feet may be considered in the future. The Water Resources Reform and Development Act of 2014 amended the Water Resources and Development Act of 1986, to increase the Federal threshold for full
The General Reevaluation Report will identify the depth that creates the greatest net benefits up to a 50 foot channel in order to proceed to implementation and to phase the remaining work accordingly. A report released by the Institute of Water Resources (IWR) in June 2012 evaluated the preparedness of U.S. ports to accommodate Post-Panamax size vessels. The Panama Canal is being enlarged to accommodate vessels that draft 50 feet (Post-Panamax vessels) and the enlarged waterway is expected to be completed in 2016. The IWR report found that these vessels currently call at U.S. ports and will dominate the world fleet in the future. Post-Panamax vessels will call in increasing numbers at U.S. ports that can accommodate them. Currently, Mississippi River ports cannot accommodate these vessels. There may be economic justification in expanding port projects to accommodate post-Panamax vessels. The ports located along the lower Mississippi River, being the dominant ports for the export of grains from the U.S., will likely play a key role in meeting these future needs if they are ready with a post-Panamax sized channel.
The purpose of the GRR and SEIS is to identify the depth that creates the greatest net benefits up to a depth of 50 feet in order to implement the deepening the Mississippi River channel from the current depth of 45 feet. An evaluation of population growth trends, trade forecasts and examination of the current port capacities shows that there is very likely economic justification for deepening the channel. This GRR and SEIS will evaluate existing conditions, alternative designs, and provide environmental analysis of anticipated impacts associated with dredging and disposal alternatives. The handling of dredged material generated during construction, the engineering design of dredged material disposal areas, and several other aspects of the Project, that were evaluated in the 1981 Feasibility Report and EIS, will be updated as appropriate.
An evaluation of alternatives, including a “no action” alternative will be included. In the SEIS, the “no action” alternative will be the continued operation and maintenance of the 45 feet deep Mississippi River deep-draft navigation channel from Baton Rouge, LA to the Gulf of Mexico. Other alternatives will be determined through scoping, but are anticipated to include an alternative of a 48 feet deep channel and an alternative of a 50 feet deep channel. The plan with the highest net benefits (the difference between transportation cost savings and project costs) will be identified as the recommended plan. Previous evaluations of alternative dredging methods, dredged material handling, and disposal alternatives will also be updated and/or re-evaluated as appropriate.
The Council on Environmental Quality Regulations for implementing the procedural provisions of the National Environmental Policy Act (NEPA) relating to “Scoping” as set forth in at 40 CFR 1501.7 require an early and open process for determining the scope of the issues to be addressed in an EIS or SEIS and for identifying significant issues related to the proposed action. The public will be involved in the scoping and evaluation process through advertisements, notices, and other means. Federal, state and local agencies, and other interested groups will also be involved. Meetings to address discrete issues or parts or functions of the study may be held. All parties are invited to participate in the scoping process by identifying any additional concerns on issues, studies needed, alternatives, procedures, and other matters related to the scope of the SEIS.
A. The Corps will provide additional notification of the times and locations of the public scoping meetings through newspaper advertisements and other means (see
B.
C.
The public scoping meeting places will be physically accessible to people with disabilities. Requests for sign language interpretation or other auxiliary aids should be directed to Steve Roberts, (504) 862-2517 (voice), or email at
It is estimated that the draft SEIS will be available to the public for review and comment in December 2016. At least one public hearing will be held at that time, during which the public will be provided the opportunity to comment on the SEIS before it becomes final.
Federal Student Aid (FSA), Department of Education (ED).
Notice.
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. chapter 3501
Interested persons are invited to submit comments on or before July 13, 2015.
Comments submitted in response to this notice should be submitted electronically through the Federal eRulemaking Portal at
For specific questions related to collection activities, please contact Beth Grebeldinger, 202-377-4018.
The Department of Education (ED), in accordance with the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3506(c)(2)(A)), provides the general public and Federal agencies with an opportunity to comment on proposed, revised, and continuing collections of information. This helps the Department assess the impact of its information collection requirements and minimize the public's reporting burden. It also helps the public understand the Department's information collection requirements and provide the requested data in the desired format. ED is soliciting comments on the proposed information collection request (ICR) that is described below. The Department of Education is especially interested in public comment addressing the following issues: (1) Is this collection necessary to the proper functions of the Department; (2) will this information be processed and used in a timely manner; (3) is the estimate of burden accurate; (4) how might the Department enhance the quality, utility, and clarity of the information to be collected; and (5) how might the Department minimize the burden of this collection on the respondents, including through the use of information technology. Please note that written comments received in response to this notice will be considered public records.
Federal Student Aid (FSA), Department of Education (ED).
Notice.
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. chapter 3501
Interested persons are invited to submit comments on or before July 13, 2015.
Comments submitted in response to this notice should be submitted electronically through the Federal eRulemaking Portal at
For specific questions related to collection activities, please contact Beth Grebeldinger, 202-377-4018.
The Department of Education (ED), in accordance with the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3506(c)(2)(A)), provides the general public and Federal agencies with an opportunity to comment on proposed, revised, and continuing collections of information. This helps the Department assess the impact of its information collection requirements and minimize the public's reporting burden. It also helps the public understand the Department's information collection requirements and provide the requested data in the desired format. ED is soliciting comments on the proposed information collection request (ICR) that
U.S. Energy Information Administration (EIA), U.S. Department of Energy (DOE).
Notice and request for OMB review and comment.
EIA has submitted the Forms EIA-457A, C, D, E, F and G, “2015 Residential Energy Consumption Survey” to the Office of Management and Budget (OMB) for review and reinstatement under the provisions of the Paperwork Reduction Act of 1995. The proposed collection is a periodic series of surveys of households and their energy suppliers with the purpose of collecting and reporting energy characteristics, consumption, and expenditures data of homes in the United States.
Comments regarding this proposed information collection must be received on or before June 12, 2015. 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 DOE Desk Officer at OMB of your intention to make a submission as soon as possible. The Desk Officer may be telephoned at 202-395-4718.
Written comments should be sent to the:
Requests for additional information or copies of the forms and instructions should be directed to Mr. Berry at the contact information given above. To view the forms online please go to:
This information collection request contains:
(1) OMB No. 1905-0092.
(2)
(3)
(4)
(5)
(6)
(7)
(8)
Please refer to the supporting statement as well as the proposed forms and instructions for more information about the purpose, who must report, when to report, where to submit, the elements to be reported, detailed instructions, provisions for confidentiality, and uses (including possible nonstatistical uses) of the information. For instructions on obtaining materials, see the
Section 13(b) of the Federal Energy Administration Act of 1974, Public Law 93-275, codified at 15 U.S.C. 772(b).
This is a supplemental notice in the above-referenced proceeding, of U.S. Borax, Inc.'s application for market-based rate authority, with an accompanying rate schedule, 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 May 26, 2015.
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(s) are accessible in the Commission's eLibrary system by clicking on the appropriate link in the above list. They are also available for 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 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 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:
This is a supplemental notice in the above-referenced proceeding, of SEPG Energy Marketing Services, LLC's application for market-based rate authority, with an accompanying rate schedule, 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 May 26, 2015.
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(s) are accessible in the Commission's eLibrary system by clicking on the appropriate link in the above list. They are also available for 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 the Commission has received the following Natural Gas Pipeline Rate and Refund Report filings:
Filings Instituting Proceedings
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 exempt wholesale generator filings:
Take notice that the Commission received the following electric rate filings:
The filings are accessible in the Commission's eLibrary system 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:
This is a supplemental notice in the above-referenced proceeding, of Phoenix Energy Group, LLC's application for market-based rate authority, with an accompanying rate schedule, 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 May 26, 2015.
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(s) are accessible in the Commission's eLibrary system by clicking on the appropriate link in the above list. They are also available for 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
Environmental Protection Agency (EPA).
Notice of proposed consent decree; request for public comment.
In accordance with section 113(g) of the Clean Air Act, as amended (“CAA” or the “Act”), notice is hereby given of a proposed consent decree to address a lawsuit filed by Sierra Club:
Written comments on the proposed consent decree must be received by June 12, 2015.
Submit your comments, identified by Docket ID number EPA-HQ-OGC-2015-0312, online at
Karen Bianco, Air and Radiation Law Office (2344A), Office of General Counsel, U.S. Environmental Protection Agency, 1200 Pennsylvania Ave. NW., Washington, DC 20460; telephone: (202) 564-3298; fax number (202) 564-5603; email address:
The proposed consent decree would resolve a lawsuit filed by the Sierra Club seeking to compel the Administrator to take actions under CAA section 505(b)(2). Under the terms of the proposed consent decree, EPA would agree to sign its response granting or denying the petition filed by the Sierra Club regarding Public Service Company of New Hampshire's Schiller Station power plant located in Portsmouth, New Hampshire, pursuant to section 505(b)(2) of the CAA, on or before July 31, 2015.
Under the terms of the proposed consent decree, EPA would expeditiously deliver notice of EPA's response to the Office of the Federal Register for review and publication following signature of such response. In addition, the proposed consent decree outlines the procedure for the Plaintiffs to request costs of litigation, including attorney fees.
For a period of thirty (30) days following the date of publication of this notice, EPA will accept written comments relating to the proposed consent decree from persons who are not named as parties or intervenors to the litigation in question. EPA or the Department of Justice may withdraw or withhold consent to the proposed consent decree if the comments disclose facts or considerations that indicate that such consent is inappropriate, improper, inadequate, or inconsistent with the requirements of the Act. Unless EPA or the Department of Justice determines that consent to this consent decree should be withdrawn, the terms of the consent decree will be affirmed.
The official public docket for this action (identified by Docket ID No. EPA-HQ-OGC-2015-0312) contains a copy of the proposed consent decree. The official public docket is available
An electronic version of the public docket is available through
It is important to note that EPA's policy is that public comments, whether submitted electronically or in paper, will be made available for public viewing online at
You may submit comments as provided in the
If you submit an electronic comment, EPA recommends that you include your name, mailing address, and an email address or other contact information in the body of your comment and with any disk or CD-ROM you submit. This ensures that you can be identified as the submitter of the comment and allows EPA to contact you in case EPA cannot read your comment due to technical difficulties or needs further information on the substance of your comment. Any identifying or contact information provided in the body of a comment will be included as part of the comment that is placed in the official public docket, and made available in EPA's electronic public docket. If EPA cannot read your comment due to technical difficulties and cannot contact you for clarification, EPA may not be able to consider your comment.
Use of the
Environmental Protection Agency (EPA).
Notice of availability.
The Environmental Protection Agency (EPA) is reviewing the primary National Ambient Air Quality Standards (NAAQS) for Nitrogen Dioxide (NO
Comments should be received on or before July 3, 2015.
The
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Dr. Scott Jenkins, Office of Air Quality Planning and Standards (Mail Code C504-06), U.S. Environmental Protection Agency, Research Triangle Park, NC 27711;
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• Identify the rulemaking by docket number and other identifying information (subject heading,
• Follow directions. The agency may ask you to respond to specific questions or organize comments by reference a Code of Federal Regulations (CFR) part or section number.
• Explain why you agree or disagree; suggest alternative and substitute language for your requested changes.
• Describe any assumption and provide any technical information and/or data that you used.
• If you estimate potential costs or burdens, explain how you arrived at your estimate in sufficient detail to allow for it to be reproduced.
• Provide specific examples to illustrate your concerns and suggest alternatives.
• Explain your views as clearly as possible, avoiding the use of profanity or personal threats.
• Make sure to submit your comments by the comment period deadline identified.
Two sections of the Clean Air Act (CAA) govern the establishment and revision of the NAAQS. Section 108 (42 U.S.C. 7408) directs the Administrator to identify and list certain air pollutants and then to issue air quality criteria for those pollutants. The Administrator is to list those air pollutants that in her “judgment, cause or contribute to air pollution which may reasonably be anticipated to endanger public health or welfare;” “the presence of which in the ambient air results from numerous or diverse mobile or stationary source;” and “for which * * *. [the Administrator] plans to issue air quality criteria * * *. ” Air quality criteria are intended to “accurately reflect the latest scientific knowledge useful in indicating the kind and extent of all identifiable effects on public health or welfare which may be expected from the presence of [a] pollutant in the ambient air * * *. ” (42 U.S.C. 7408(b)). Under section 109 (42 U.S.C. 7409), the EPA establishes primary (health-based) and secondary (welfare-based) NAAQS for pollutants for which air quality criteria are issued. Section 109(d) requires periodic review and, if appropriate, revision of existing air quality criteria. The revised air quality criteria reflect advances in scientific knowledge on the effects of the pollutant on public health or welfare. The EPA is also required to periodically review and revise the NAAQS, if appropriate, based on the revised criteria. Section 109(d)(2) requires that an independent scientific review committee “shall complete a review of the criteria * * *. and the national primary and secondary ambient air quality standards * * *. and shall recommend to the Administrator any new * * *. standards and revisions of the existing criteria and standards as may be appropriate * * *. .” Since the early 1980s, this independent review function has been performed by the CASAC.
Presently, the EPA is reviewing the primary NAAQS for NO
The REA Planning Document considers the degree to which important uncertainties identified in quantitative analyses from previous reviews have been addressed by newly available scientific evidence, tools, or information, including those in the second draft ISA. Based on these considerations, the document reaches preliminary conclusions on the extent to which updated quantitative analyses of exposures or health risks are warranted in the current review. For updated analyses that are supported, this planning document presents anticipated approaches to conducting such analyses and, where appropriate, preliminary results. This document is available on the EPA's Technology Transfer Network Web site at
The REA Planning Document has been made available for review by CASAC and for public comment. Comments should be submitted to the docket, as described above. The CASAC
Equal Employment Opportunity Commission.
Wednesday, June 17, 2015, 9:30 a.m. Eastern Time.
Commission Meeting Room on the First Floor of the EEOC Office Building, 131 “M” Street NE., Washington, DC 20507.
The meeting will be open to the public.
1. Announcement of Notation Votes, and
2. Retaliation in the Workplace: Causes, Remedies, and Strategies for Prevention.
In accordance with the Sunshine Act, the meeting will be open to public observation of the Commission's deliberations and voting. Seating is limited and it is suggested that visitors arrive 30 minutes before the meeting in order to be processed through security and escorted to the meeting room. (In addition to publishing notices on EEOC Commission meetings in the
Please telephone (202) 663-7100 (voice) and (202) 663-4074 (TTY) at any time for information on these meetings. The EEOC provides sign language interpretation and Communication Access Realtime Translation (CART) services at Commission meetings for the hearing impaired. Requests for other reasonable accommodations may be made by using the voice and TTY numbers listed above.
Federal Communications Commission.
Notice and request for comments.
As part of its continuing effort to reduce paperwork burdens, and as required by the Paperwork Reduction Act (PRA) of 1995 (44 U.S.C. 3501-3520), the Federal Communications Commission (FCC or Commission) invites the general public and other Federal agencies to take this opportunity to comment on the following information collections. Comments are requested concerning: Whether the proposed collection of information is necessary for the proper performance of the functions of the Commission, including whether the information shall have practical utility; the accuracy of the Commission's burden estimate; ways to enhance the quality, utility, and clarity of the information collected; ways to minimize the burden of the collection of information on the respondents, including the use of automated collection techniques or other forms of information technology; and ways to further reduce the information collection burden on small business concerns with fewer than 25 employees.
The FCC may not conduct or sponsor a collection of information unless it displays a currently valid OMB control number. No person shall be subject to any penalty for failing to comply with a collection of information subject to the PRA that does not display a valid OMB control number.
Written PRA comments should be submitted on or before July 13, 2015. If you anticipate that you will be submitting comments, but find it difficult to do so within the period of time allowed by this notice, you should advise the contact listed below as soon as possible.
Direct all PRA comments to Cathy Williams, FCC, via email
For additional information about the information collection, contact Cathy Williams at (202) 418-2918.
FCC Form 315 and applicable exhibits/explanations are required to be filed when applying for transfer of control of an entity holding an AM, FM, LPFM or TV broadcast station construction permit or license. In addition, the applicant must notify the Commission when an approved transfer of control of a broadcast station construction permit or license has been
47 CFR 73.3580 requires local public notice in a newspaper of general circulation published in the community in which a station is located of the filing of all applications for transfer of control or assignment of the license/permit. This notice must be completed within 30 days of the tendering of the application. This notice must be published at least twice a week for two consecutive weeks in a three-week period. A copy of this notice and the application must be placed in the station's public inspection file along with the application, pursuant to Section 73.3527. Additionally, an applicant for transfer of control of a license must broadcast the same notice over the station at least once daily on four days in the second week immediately following the tendering for filing of the application.
Federal Election Commission.
Wednesday, May 6, 2015 at 2:00 p.m.
999 E Street NW., Washington, DC (Ninth Floor).
This hearing will be open to the public.
The hearing has been rescheduled for Wednesday, May 13, 2015 at 10:00 a.m.
Individuals who plan to attend and require special assistance, such as sign language interpretation or other reasonable accommodations, should contact Shawn Woodhead Werth, Secretary, at (202) 694-1040, at least 72 hours prior to the hearing date.
Judith Ingram, Press Officer, Telephone: (202) 694-1220.
10:00 a.m., Tuesday, May 26, 2015.
The Richard V. Backley Hearing Room, Room 511N, 1331 Pennsylvania Avenue NW., Washington, DC 20004 (enter from F Street entrance).
Open.
The Commission will consider and act upon the following in open session:
Any person attending this meeting who requires special accessibility features and/or auxiliary aids, such as sign language interpreters, must inform the Commission in advance of those needs. Subject to 29 CFR 2706.150(a)(3) and § 2706.160(d).
Emogene Johnson (202) 434-9935/(202) 708-9300 for TDD Relay/1-800-877-8339 for toll free.
11:00 a.m., Tuesday, May 26, 2015.
The Richard V. Backley Hearing Room, Room 511N, 1331 Pennsylvania Avenue NW., Washington, DC 20004 (enter from F Street entrance).
Open.
The Commission will consider and act upon the following in open session:
Any person attending this meeting who requires special accessibility features and/or auxiliary aids, such as sign language interpreters, must inform the Commission in advance of those needs. Subject to 29 CFR 2706.150(a)(3) and § 2706.160(d).
Emogene Johnson (202) 434-9935/(202) 708-9300 for TDD Relay/1-800-877-8339 for toll free.
The companies listed in this notice have applied to the Board for approval, pursuant to the Bank Holding Company Act of 1956 (12 U.S.C. 1841
The applications listed below, as well as other related filings required by the Board, are available for immediate inspection at the Federal Reserve Bank indicated. The applications will also be available for inspection at the offices of the Board of Governors. Interested persons may express their views in writing on the standards enumerated in the BHC Act (12 U.S.C. 1842(c)). If the proposal also involves the acquisition of a nonbanking company, the review also includes whether the acquisition of the nonbanking company complies with the standards in section 4 of the BHC Act (12 U.S.C. 1843). Unless otherwise noted, nonbanking activities will be conducted throughout the United States.
Unless otherwise noted, comments regarding each of these applications must be received at the Reserve Bank indicated or the offices of the Board of Governors not later than June 8, 2015.
A. Federal Reserve Bank of Dallas (Robert L. Triplett III, Senior Vice President) 2200 North Pearl Street, Dallas, Texas 75201-2272:
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Office of Acquisition Policy, General Services Administration (GSA).
Notice of request for comments regarding an extension to an existing OMB clearance.
Under the provisions of the Paperwork Reduction Act, the Regulatory Secretariat Division will be submitting to the Office of Management and Budget (OMB) a request to review and approve an extension of a previously approved information collection requirement regarding preparation, submission, and negotiation of subcontracting plans.
This information collection will ensure that small and small, disadvantaged business concerns are afforded the maximum practicable opportunity to participate as subcontractors in negotiated procurements. The Preparation, Submission, and Negotiation of the Subcontracting Plans provision requires for all negotiated solicitations, having an anticipated award value over $650,000 ($1,500,000 for construction), the submission of a subcontracting plan with an offeror's proposal.
Submit comments on or before: July 13, 2015.
Ms. Christina Mullins, Procurement Analyst, General Services Acquisition Policy Division, GSA, (202) 969-4066 or email
Submit comments identified by Information Collection 3090-0252, Preparation, Submission and Negotiation of Subcontracting Plans by any of the following methods:
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• Mail: General Services Administration, Regulatory Secretariat Division (MVCB), 1800 F Street NW., Washington, DC 20405. ATTN: Ms. Flowers/IC 3090-0252, Preparation, Submission and Negotiation of Subcontracting Plans.
The GSAR provision at 552.219-72 requires all offerors, other than small business concerns, responding to a negotiated solicitation to submit a subcontracting plan with their respective offers so that a plan can be negotiated concurrently with other parts of the proposal, including price and any technical and management proposals. The respondents are potential GSA contractors. The provision may be used when the contracting officer believes that the potential contract provides significant opportunities for small businesses as subcontractors. The contracting officer will use the information to evaluate whether GSA's expectation that subcontracting opportunities exist for small businesses is reasonable under the circumstances; negotiate goals consistent with statutory requirements and acquisition objectives; and expedite the award process. The provision is not applicable if an offeror submits a previously-approved commercial subcontracting plan.
Public comments are particularly invited on: Whether this collection of information is necessary and whether it will have practical utility; whether our estimate of the public burden of this collection of information is accurate, and based on valid assumptions and methodology; ways to enhance the quality, utility, and clarity of the information to be collected.
Public Buildings Service, General Services Administration (GSA).
Notice of request for comments regarding an extension to an existing OMB clearance.
Under the provisions of the Paperwork Reduction Act, the Regulatory Secretariat Division will be submitting to the Office of Management and Budget (OMB) a request to review and approve an extension of a previously approved information collection requirement regarding the Application/Permit for Use of Space in Public Buildings and Grounds, GSA Form 3453.
Submit comments on or before: July 13, 2015.
Submit comments identified by Information Collection 3090-0044, Application/Permit for Use of Space in Public Buildings and Grounds, GSA Form 3453, by any of the following methods:
• Regulations.gov:
• Mail: General Services Administration, Regulatory Secretariat Division (MVCB), 1800 F Street NW., Washington, DC 20405. ATTN: Ms. Flowers/IC 3090-0044, Application/Permit for Use of Space in Public Buildings and Grounds, GSA Form 3453.
Ms. Karen Handsfield, Public Buildings Service, at telephone 202-208-2444, or via email to
The general public uses Application/Permit for Use of Space in Public Buildings and Grounds, GSA Form 3453, to request the use of public space in Federal buildings and on Federal grounds for cultural, educational, or recreational activities. A copy, sample, or description of any material or item proposed for distribution or display must also accompany this request.
Public comments are particularly invited on: Whether this collection of information is necessary and whether it will have practical utility; whether our estimate of the public burden of this collection of information is accurate, and based on valid assumptions and methodology; ways to enhance the quality, utility, and clarity of the information to be collected.
Office of Acquisition Policy, General Services Administration (GSA).
Notice of request for comments regarding an extension to an existing OMB clearance.
Under the provisions of the Paperwork Reduction Act, the Regulatory Secretariat will be submitting to the Office of Management and Budget (OMB) a request to review and approve an extension of a previously approved information collection requirement regarding Contractor's Qualifications and Financial Information (GSA Form 527).
Submit comments on or before: July 13, 2015.
James Tsujimoto, Program Analyst, Office of Governmentwide Policy, at 202-208-3585, or via email at
Submit comments identified by Information Collection 3090-0007, Contractor's Qualifications and Financial Information, by any of the following methods:
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The General Services Administration will be requesting the Office of Management and Budget to extend information collection 3090-0007, concerning GSA Form 527, Contractor's Qualifications and Financial Information. This form is used to determine the financial capability of prospective contractors as to whether they meet the financial responsibility standards in accordance with the Federal Acquisition Regulation 9.103(a) and 9.104-1 and also the General Services Administration Acquisition Manual 509.105-1.
The estimated annual burden has decreased since GSA's 2012 submission from 8,820 burden hours to 5,292 burden hours to reflect the widespread use of the option for potential contractors to submit financial statements and balance sheets in lieu of completing the applicable fields on GSA Form 527. The alternate submission of financial statements and balance sheets significantly reduces the burden on prospective contractors, as these documents are generally readily available. As such, the average estimated hours to complete a response has been reduced from 2.5 hours per response to 1.5 hours.
Office of the Chief Acquisition Officer, General Services Administration (GSA).
Notice of request for public comments regarding an extension to an existing OMB clearance.
Under the provisions of the Paperwork Reduction Act, the Regulatory Secretariat Division will be submitting to the Office of Management and Budget (OMB) a request to review and approve a previously approved information collection concerning the GSA Mentor-Protégé Program, in the General Services Administration Acquisition Manual (GSAM).
Submit comments on or before July 13, 2015.
Submit comments identified by Information Collection 3090-0286, GSA Mentor-Protégé Program by any of the following methods:
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Ms. Christina Mullins, Procurement Analyst, General Services Acquisition Policy Division, GSA, (202) 969-4066 or email
The GSA Mentor-Protégé Program is designed to encourage GSA prime contractors to assist small businesses, small disadvantaged businesses, women-owned small businesses, veteran-owned small businesses, service-disabled veteran-owned small businesses, and HUBZone small businesses in enhancing their capabilities to perform GSA contracts and subcontracts, foster the establishment of long-term business relationships between these small business entities and GSA prime contractors, and increase the overall number of small business entities that receive GSA contract and subcontract awards.
Public comments are particularly invited on: Whether this collection of information is necessary; whether it will have practical utility; whether our estimate of the public burden of this collection of information is accurate, and based on valid assumptions and methodology; ways to enhance the quality, utility, and clarity of the information to be collected; and ways in which we can minimize the burden of the collection of information on those who are to respond, through the use of appropriate technological collection techniques or other forms of information technology.
Obtaining Copies of Proposals: Requesters may obtain a copy of the information collection documents from the General Services Administration, Regulatory Secretariat Division (MVCB), 1800 F Street NW., Washington, DC 20405, telephone 202-501-4755. Please cite OMB Control No. 3090-0286, GSA Mentor-Protégé Program, in all correspondence.
Federal Acquisition Service, General Services Administration
Notice.
The Federal Acquisition Service (FAS) of the General Services Administration (GSA) is publishing this notice in order to clarify the structured data elements required under the Federal Supply Schedule (FSS) program price list clause.
May 13, 2015.
Ms. Denise Alley, Procurement Analyst, FAS Office of Acquisition Management, at
The purpose of this notice is to clarify for existing FSS contractors that pursuant to the price list clause: (1.) Manufacturer Part Number (MPN) data is required for all awarded products, and (2.) Universal Product Code Type A (UPC-A) data is required for all awarded products for which this information is commercially available. FSS solicitation instructions have already been updated to clarify MPN and UPC-A data requirements for new offerors. This notice is solely intended to provide clarification for existing FSS contractors.
FAS plans to begin efforts to obtain this data from existing FSS contractors 45 days after publication of this notice in the
The FAS is embarking on several initiatives to improve the quality of its offerings under the FSS program. A major piece of this effort involves the standardization of part number data in order to improve the quality of the descriptive data available to customers in FSS price lists published on
The availability of MPN and UPC-A data improves overall data integrity, encouraging additional business from customers looking for the ability to quickly and accurately compare identical products. The standardization of part number data allows for greater transparency and improved business intelligence that will enable customers to make smarter, data-driven buying decisions. Collectively, these benefits will yield increased customer confidence as GSA works to make the FSS program the Government's premier acquisition vehicle.
Unaltered MPN data is required for all products, except where the manufacturer has not assigned a part number to identify the item. UPC-A data is required for all products for which this information is commercially available. The FAS performed market research to determine the Federal Supply Schedules and Special Item Numbers (SINs) under which UPC-A data is commercially available—a complete listing can be viewed at
MPN and UPC-A data is widely utilized throughout the commercial marketplace. FSS contractors are simply providing the existing MPN and UPC-A data that is used to classify their awarded FSS products. Many FSS contractors have already provided this data in their price lists. In fact, approximately 8 million MPNs and 1.3 million unique UPC-A codes are currently listed in FSS contractor price lists published on
Obtaining MPN and UPC-A data from existing FSS contractors will allow GSA to acquire baseline information across the contracts already awarded under the FSS program. A bilateral “mass modification” will be distributed by GSA to all contractors with FSS contracts that include products. FSS contractors will be required to sign the modification and provide this data in their price lists within 60 days of distribution.
FSS contractors that do not provide this data will have noncompliant products “grayed-out” (
Centers for Disease Control and Prevention (CDC), Department of Health and Human Services (HHS).
Notice with comment period.
The Centers for Disease Control and Prevention (CDC), as part of its continuing efforts to reduce public burden and maximize the utility of government information, 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. This notice invites comment on the proposed information collection entitled
Written comments must be received on or before July 13, 2015.
You may submit comments, identified by Docket No. CDC-2015-0028 by any of the following methods:
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All public comment should be submitted through the Federal eRulemaking portal (
To request more information on the proposed project or to obtain a copy of the information collection plan and instruments, contact the Information Collection Review Office, Centers for Disease Control and Prevention, 1600 Clifton Road NE., MS-D74, Atlanta, Georgia 30329; phone: 404-639-7570; Email:
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. In addition, the PRA also requires Federal agencies to provide a 60-day notice in the
Comments are invited on: (a) Whether the proposed collection of information is 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; (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; and (e) estimates of capital or start-up costs and costs of operation, maintenance, and purchase of services to provide information. Burden means the total time, effort, or financial resources expended by persons to generate, maintain, retain, disclose or provide information to or for a Federal agency. 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
Identification of Behavioral and Clinical Predictors of Early HIV Infection (Project DETECT)—New—National Center for HIV/AIDS, Viral Hepatitis, STD, and TB Prevention (NCHHSTP), Centers for Disease Control and Prevention (CDC).
The Centers for Disease Control and Prevention (CDC), National Center for HIV/AIDS, Viral Hepatitis, STD, and TB Prevention (NCHHSTP), Division of HIV/AIDS Prevention (DHAP) requests a 3-year approval for a new data collection called “Identification of Behavioral and Clinical Predictors of Early HIV Infection (Project DETECT).”
CDC provides guidelines for HIV testing and diagnosis for the United States, as well as technical guidance for its grantees. CDC will use the HIV testing data collected for this project to update these guidance documents to reflect the latest available testing technologies, their performance characteristics, and considerations regarding their use. Specifically, CDC will describe the information on behavioral and clinical characteristics of persons with early infection to help HIV test providers (including CDC grantees) choose which HIV tests to use, and target tests appropriately to persons at different levels of risk. This information will be disseminated primarily through guidance documents and articles in peer-reviewed journals.
The primary study population will be persons at high risk for or diagnosed with HIV infection, many of whom will be men who have sex with men (MSM) because the majority of new HIV infections occur each year among this population. The goals of the project are to: (1) characterize the performance of new HIV tests for detecting established and early HIV infection at the point of care, relative to each other and to currently used gold standard, non-POC tests, and (2) identify behavioral and clinical predictors of early HIV infection.
Project DETECT will enroll 1,667 persons annually at the primary study site clinic in Seattle, and an additional 200 persons will be enrolled from other clinics in the greater Seattle area. The study will be conducted in two phases.
Phase 1: After a clinic client consents to participate, he/she will be assigned a unique participant ID and will then undergo testing with the seven new HIV tests under study. While awaiting test results, participants will undergo additional specimen collections and complete the Phase 1 Enrollment Survey.
Phase 2: All Phase 1 participants whose results on the seven tests under investigation are not in agreement with one another (“discordant”) will be considered to have a potential early HIV infection. Nucleic amplification testing that detects viral nucleic acids will be conducted to confirm an HIV diagnosis and rule out false positives. Study investigators expect that each year, 50 participants with discordant test results will be invited to participate in serial follow-up specimen collections to assess the time point at which all HIV test results resolve and become concordant positive (indicating enrollment during early infection) or concordant negative (indicating one or more false-positive test results in Phase 1).
The follow-up schedule will consist of up to nine visits scheduled at regular intervals over a 70-day period. At each follow-up visit, participants will be tested with the new HIV tests and additional oral fluid and blood specimens will also be collected for storage and use in future HIV test evaluations at CDC. Participants will be followed up only to the point at which all their test results become concordant. At each time point, participants will be asked to complete the Phase 2 HIV Symptom and Care survey that collects information on symptoms associated with early HIV infection as well as access to HIV care and treatment since the last Phase 2 visit. When all tests become concordant (
All data for the proposed information collection will be collected via an electronic Computer Assisted Self-Interview (CASI) survey. Participants will complete the surveys on an encrypted computer, with the exception of the Phase 2 Symptom and Care survey, which will be administered by a research assistant and then electronically entered into the CASI system. Data to be collected via CASI include questions on socio-demographics, medical care, HIV testing, pre-exposure prophylaxis, antiretroviral treatment, sexually transmitted diseases (STD) history, symptoms of early HIV infection, substance use and sexual behavior.
Data from the surveys will be merged with HIV test results and relevant clinical data using the unique identification (ID) number. Data will be stored on a secure server managed by the University of Washington Department of Medicine Information Technology (IT) Services.
The participation of respondents is voluntary. There is no cost to the respondents other than their time. The total estimated annual burden hours for the proposed project are 2,111 hours.
The Centers for Disease Control and Prevention (CDC) has submitted the following information collection request to the Office of Management and Budget (OMB) for review and approval in accordance with the Paperwork Reduction Act of 1995. The notice for the proposed information collection is published to obtain comments from the public and affected agencies.
Written comments and suggestions from the public and affected agencies concerning the proposed collection of information are encouraged. Your comments should address any of the following: (a) 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; (b) Evaluate the accuracy of the agencies estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used; (c) Enhance the quality, utility, and clarity of the information to be collected; (d) 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,
To request additional information on the proposed project or to obtain a copy of the information collection plan and instruments, call (404) 639-7570 or send an email to
HIV Outpatient Study (HOPS)—New—National Center for HIV/AIDS, Viral Hepatitis, STD, and TB Prevention (NCHHSTP), Centers for Disease Control and Prevention (CDC).
The Centers for Disease Control and Prevention requests a three-year approval for the HIV Outpatient Study data collection activity. The HIV Outpatient Study (HOPS) is a prospective longitudinal cohort of HIV-infected outpatients at nine well-established private HIV care practices and university-based U.S. clinics. Clinical data are abstracted on ongoing basis from the medical records of adult HIV-infected HOPS study participants, who also complete an optional seven minute telephone/web-based behavioral assessment as part of their annual clinic visit.
Before enrolling in this study, all potential study participants will undergo an informed consent process (including signing of a written informed consent) which is estimated to take 15 minutes.
The core areas of HOPS research extending through the present HIV treatment era include (i) monitoring death rates and causes of death (ii) characterizing the optimal patient management strategies to reduce HIV-related morbidity and mortality (
Data will be collected through medical record abstraction by trained abstractors and by telephone or internet-based, computer-assisted interviews at nine funded study sites in six U.S. cities.
Collection of data abstracted from patient medical records provides data in five general categories: Demographics and risk behaviors for HIV infection; symptoms; diagnosed conditions (definitive and presumptive); medications prescribed (including dose, duration, and reasons for stopping); all laboratory values, including CD4+ T-lymphocyte (CD4+) cell counts, plasma HIV-RNA determinations, and genotype, phenotype, and trophile results. Data on visit frequency, AIDS, and death are acquired from the clinic chart.
Data collected using a brief Telephone Audio-Computer Assisted Self-Interview (T-ACASI) survey or an identical web-based Audio-Computer Assisted Self-Interview (ACASI) include: Age, sex at birth, use of alcohol and drugs, cigarette smoking, adherence to antiretroviral medications, types of sexual intercourse, condom use, and disclosure of HIV status to partners.
We estimate consenting 450 new participants per year across all HOPS study sites (50 participants at each of the 9 sites). The consent process takes approximately 15 minutes to complete.
Medical record abstractions will be completed on all eligible participants. All eligible participants will be offered the opportunity to participate in an optional short survey that will take approximately seven minutes.
Participation of respondents is voluntary. There is no cost to the respondents other than their time. The estimated annual burden hours are 405.
Centers for Disease Control and Prevention (CDC), Department of Health and Human Services (HHS).
Notice with comment period.
The Centers for Disease Control and Prevention (CDC), as part of its continuing efforts to reduce public burden and maximize the utility of government information, 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. This notice invites comment on a proposed information collection for a retrospective evaluation of the prevalence of acute flaccid myelitis with MRI grey matter findings among children aged ≤18 years.
Written comments must be received on or before July 13, 2015.
You may submit comments, identified by Docket No. CDC-2015-0031 by any of the following methods:
•
•
To request more information on the proposed project or to obtain a copy of the information collection plan and instruments, contact the Information Collection Review Office, Centers for Disease Control and Prevention, 1600 Clifton Road, NE., MS-D74, Atlanta, Georgia 30329; phone: 404-639-7570; Email:
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. In addition, the PRA also requires Federal agencies to provide a 60-day notice in the
Comments are invited on: (a) Whether the proposed collection of information is 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; (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; and (e) estimates of capital or start-up costs and costs of operation, maintenance, and purchase of services to provide information. Burden means the total time, effort, or financial resources expended by persons to generate, maintain, retain, disclose or provide information to or for a Federal agency. 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.
Retrospective evaluation of the prevalence of acute flaccid myelitis with MRI grey matter findings among children aged ≤18 years—NEW—National Center for Immunization and Respiratory Diseases, Centers for Disease Control and Prevention (CDC).
Acute onset limb weakness, commonly referred to as acute flaccid paralysis (AFP), is a relatively uncommon syndrome among children. From August-October 2014, several clusters of AFP among children were reported from several states within the United States (U.S.) and an epidemiologic investigation was initiated to elucidate the possible causes of these cases.
CDC originally collected data under OMB Control Numbers 0920-1011 and 0920-0009. Cases were characterized by distinctive abnormalities on spinal magnetic resonance imaging (MRI), in which pathologic changes were largely restricted to the central grey matter of the spinal cord. Due to these findings and to differentiate this illness from other forms of AFP, CDC used the term `acute flaccid myelitis' (AFM).
The main goal of this study is to obtain data in order to estimate the baseline rate of AFM that is accompanied by MRI changes confined to spinal grey matter among children ≤18 years of age that were seen at six pediatric medical centers in the United States. Data on spinal MRIs from years 2005-2014 will be collected from six sentinel medical centers. Physicians at these medical centers will examine the MRI reports and extract data on specific variables using a database developed by CDC.
Data will then be sent to CDC, where 2005-2013 data will be compared with 2014 data in order to assess if 2014 rates of AFM were higher than in previous years. Furthermore, this evaluation will provide important information regarding characteristics of patients presenting with AFM and grey matter changes, assist in determining the potential for surveillance focusing on MRI findings because AFM is not routinely conducted in the United States and identify possible risk factors.
The data will be used to estimate a baseline for the rate of AFM that occurs in the United States each year. This information has not been previously collected, since the U.S. does not collect routine surveillance for AFM/AFP.
The participation of respondents is voluntary. There is no cost to the respondents other than their time. The
Centers for Disease Control and Prevention (CDC), Department of Health and Human Services (HHS).
Notice with comment period.
The Centers for Disease Control and Prevention (CDC), as part of its continuing efforts to reduce public burden and maximize the utility of government information, 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. This notice invites comment on a proposed revision of the
Written comments must be received on or before July 13, 2015.
You may submit comments, identified by Docket No. CDC-2015-0033 by any of the following methods:
• Federal eRulemaking Portal:
• Mail: Leroy A. Richardson, Information Collection Review Office, Centers for Disease Control and Prevention, 1600 Clifton Road NE., MS-D74, Atlanta, Georgia 30329.
All public comment should be submitted through the Federal eRulemaking portal (Regulations.gov) or by U.S. mail to the address listed above.
To request more information on the proposed project or to obtain a copy of the information collection plan and instruments, contact the Information Collection Review Office, Centers for Disease Control and Prevention, 1600 Clifton Road NE., MS-D74, Atlanta, Georgia 30329; phone: 404-639-7570; Email:
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. In addition, the PRA also requires Federal agencies to provide a 60-day notice in the
Comments are invited on: (a) Whether the proposed collection of information is 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; (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; and (e) estimates of capital or start-up costs and costs of operation, maintenance, and purchase of services to provide information. Burden means the total time, effort, or financial resources expended by persons to generate, maintain, retain, disclose or provide information to or for a Federal agency. 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.
National Notifiable Diseases Surveillance System (OMB Control No. 0920-0728, Expires 01/31/2017)—Revision—Center for Surveillance, Epidemiology and Laboratory Services (CSELS), Centers for Disease Control and Prevention (CDC).
The Public Health Services Act (42 U.S.C. 241) authorizes CDC to disseminate nationally notifiable condition information. The Nationally Notifiable Diseases Surveillance System (NNDSS) is based on data collected at the state, territorial and local levels as a result of legislation and regulations in those jurisdictions that require health care providers, medical laboratories, and other entities to submit health-related data on reportable conditions to public health departments. These
CDC requests a three-year approval for a revision the NNDSS information collection. This Revision includes requests for approval to receive: (1) Case notification data for Chikungunya, Dengue-like illness, Non-HPS Hantavirus, and Acute Flaccid Myelitis; (2) new laboratory and vaccine data elements for all conditions; and (3) new disease-specific data elements for Mumps, Pertussis, and Sexually Transmitted Diseases.
Although this Revision includes case notifications that were not part of the last NNDSS Revision, the estimate of the average burden per response based on the burden tables from all of the consolidated applications has not changed. The burden on the states and cities is estimated to be 10 hours per response and the burden on the territories is estimated to be 5 hours per response. The addition of new vaccine, laboratory, and disease-specific data elements do not add any additional burden because the states, territories, and cities already collect those data elements. There will be no increase in burden for the states, territories, and cities to send those data elements to CDC. The estimated annual burden is 28,340 hours.
Centers for Disease Control and Prevention, CDC, Department of Health and Human Services, HHS.
Notice with comment period.
The Centers for Disease Control and Prevention (CDC), as part of its continuing efforts to reduce public burden and maximize the utility of government information, 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. This notice invites comment on a new information collection request entitled, “Understanding Barriers and Facilitators to HIV prevention for Men Who Have Sex with Men (MSM)” to conduct qualitative research with most at risk HIV-negative MSM. The research is intended to understand issues surrounding HIV risk for MSM, identify influences of high risk behaviors and to investigate risk management and resiliency among HIV-negative MSM.
Written comments must be received on or before July 13, 2015.
You may submit comments, identified by Docket No. CDC-2015-0032 by any of the following methods:
•
•
All public comment should be submitted through the Federal eRulemaking portal (
To request more information on the proposed project or to obtain a copy of the information collection plan and instruments, contact the Information Collection Review Office, Centers for Disease Control and Prevention, 1600 Clifton Road NE., MS-D74, Atlanta, Georgia 30329; phone: 404-639-7570; Email:
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. In addition, the PRA also requires Federal agencies to provide a 60-day notice in the
Understanding Barriers and Facilitators to HIV prevention for Men Who Have Sex with Men (MSM) (Pulse Study)—New—National Center for HIV/AIDS, Viral Hepatitis, STD, and TB Prevention (NCHHSTP), Centers for Disease Control and Prevention (CDC).
The National Center for HIV/AIDS, Viral Hepatitis, STD, and TB Prevention (NCHHSTP)/Division of HIV/AIDS Prevention (DHAP) is requesting approval for one year of a data collection entitled, “Understanding Barriers and Facilitators to HIV prevention for Men Who Have Sex with Men (MSM).” The purpose of this study is to conduct primarily qualitative research with most at risk HIV-negative MSM. There are four goals to this study: (1) Understand issues surrounding HIV risk for MSM; (2) learn more about how gay community or peer norms, and community identification influence risk behaviors; (3) understand individual HIV risk management, such as having an HIV-positive partner with suppressed viral load, barriers and facilitators for use of biomedical interventions (
The present research will be conducted in the top five Southern metropolitan areas in the United States with the highest HIV diagnoses for MSM—Atlanta, Georgia; Jackson, Mississippi; Miami, Florida; and New Orleans and Baton Rouge, Louisiana. These cities rank among those in the South with the highest prevalence and incidence of HIV and sexually transmitted infections (STIs) among black/African American and Hispanic/Latino MSM.
The study population will consist of black/African-American and Hispanic/Latino (1) male adolescents who are attracted to men and report they are HIV negative or have not been tested and (2) adult MSM who are recently tested and verified as HIV-negative.
All study participants will be 13 years of age or older. Participants will be recruited in the selected cities through referrals from Health Departments, clinics and other HIV testing centers. In addition, we will recruit via word-of-mouth referrals or flyers given out by community-based, advocacy, faith-based, and service-providing agencies.
Primarily, we will use a qualitative research design and will include a brief quantitative survey to reduce participant burden where possible (for example, when we do not need to know an in-depth answer for socio-demographics, HIV testing history, housing status, health insurance status). The first portion of the interview instrument consists of brief structured questions to characterize the respondents. The second portion of the instrument consists of open-ended in-depth qualitative questions. This research design was chosen based on the exploratory nature of our study purpose.
All data collection tools will be pre-tested and interviews conducted by trained personnel. The data collection will take place at a time and place that is convenient to the respondent. Locations will be private. Data collection may be audio-recorded and transcribed with the consent of the respondent.
We anticipate that consent forms and screener forms to take five minutes to complete each. We anticipate 50 percent of HIV-negative MSM screened will be eligible for the study. The brief structured survey (15 minutes) and in-depth interview (45 minutes) for HIV-negative MSM are expected to take a total of 60 minutes (1 hour) total. We will complete interviews for 105 black/African-American and 45 Hispanic/Latino HIV-negative MSM at greatest risk for HIV in high prevalence cities in the U.S. South. We anticipate screening 300 potential respondents. The total number of burden hours are 192.
Food and Drug Administration, HHS.
Notice.
The Food and Drug Administration (FDA) is announcing the availability of a draft guidance for tobacco retailers entitled “Determination of the Period Covered by a No-Tobacco-Sale Order and Compliance With an Order.” The draft guidance, when finalized, will represent FDA's current thinking with respect to imposing no-tobacco-sale orders (NTSOs) on retailers who have committed repeated violations of certain restrictions on the sale and distribution of tobacco products. This draft guidance discusses, among other things, the period of time covered by an NTSO and a retailer's compliance with an NTSO.
Although you can comment on any guidance at any time (see 21 CFR 10.115(g)(5)), to ensure that the Agency considers your comment on this draft guidance before it begins work on the final version of the guidance, submit either electronic or written comments on the draft guidance by June 29, 2015.
Submit written requests for single copies of this draft guidance to the Center for Tobacco Products, Food and Drug Administration, 10903 New Hampshire Ave., Document Control Center, Bldg. 71, Rm. G335, Silver Spring, MD 20993-0002. Send one self-addressed adhesive label to assist that office in processing your request or include a fax number to which the draft guidance may be sent. See the
Submit electronic comments on the draft guidance to
Colleen Maschal, Center for Tobacco Products, Food and Drug Administration, Document Control Center, Bldg. 71, Rm. G335, 10903 New Hampshire Ave., Silver Spring, MD 20993, 1-877-287-1373,
On June 22, 2009, President Obama signed the Family Smoking Prevention and Tobacco Control Act (Tobacco Control Act) (Pub. L. 111-31) into law. The Tobacco Control Act amended the Federal Food, Drug, and Cosmetic Act (the FD&C Act) to give FDA authority to regulate the manufacture, marketing, and distribution of tobacco products to protect public health generally and to reduce tobacco use by minors. Section 906(d) of the FD&C Act (21 U.S.C. 387f(d)) authorizes FDA to issue regulations that restrict the sale and distribution of tobacco products if FDA determines such regulations would be appropriate for the protection of the public health. Section 303(f)(8) of the FD&C Act (21 U.S.C. 333(f)(8)) authorizes FDA to impose an NTSO against a person found to have committed repeated violations, at a particular retail outlet, of restrictions on the sale and distribution of tobacco products issued under section 906(d) of the FD&C Act, such as FDA's “Regulations Restricting the Sale and Distribution of Cigarettes and Smokeless Tobacco to Protect Children and Adolescents” (21 CFR part 1140). The term “no-tobacco-sale order” refers to an order prohibiting the sale of tobacco products at a retail outlet indefinitely or for a specified period of time under section 303(f)(8) of the FD&C Act. A “repeated violation” means “at least 5 violations of particular requirements over a 36-month period at a particular retail outlet that constitute a repeated violation . . .” (section 103(q)(1)(A) of the Tobacco Control Act).
FDA conducts inspections of retail outlets to evaluate compliance with the requirements of the FD&C Act and implementing regulations. This draft guidance discusses the period of time to be covered by an NTSO where there is evidence of “repeated violations” at a particular retail outlet. It also discusses a retailer's compliance with an NTSO. This draft guidance is meant to supplement FDA's guidances entitled “Civil Money Penalties and No-Tobacco-Sale Orders for Tobacco Retailers” and “Civil Money Penalties for Tobacco Retailers and No-Tobacco-Sale Orders: Responses to Frequently Asked Questions.”
FDA is issuing this draft guidance consistent with FDA's good guidance practices regulation (21 CFR 10.115). The draft guidance, when finalized, will represent the Agency's current thinking with respect to the period of time to be covered by NTSOs and retailers' compliance with NTSOs. It does not create or confer any rights for or on any person and does not operate to bind FDA or the public. An alternative approach may be used if such approach satisfies the requirements of the applicable statutes and regulations.
Interested persons may submit either electronic comments regarding this document to
Received comments may be seen in the Division of Dockets Management between 9 a.m. and 4 p.m., Monday through Friday, and will be posted to the docket at
Please note that your name, contact information, and other information identifying you will be posted on
Persons with access to the Internet may obtain an electronic version of the draft guidance at either
Food and Drug Administration, HHS.
Notice.
The Food and Drug Administration (FDA or Agency) is announcing the availability of a draft guidance for industry entitled “Investigational Enzyme Replacement Therapy Products: Nonclinical Assessment.” This draft guidance is intended to advise the sponsors and individuals involved in the design and implementation of nonclinical studies on the substance and scope of nonclinical information needed to support first-in-human clinical trials, ongoing clinical development, and eventual approval of enzyme replacement therapy (ERT) products for the treatment of rare, life-threatening conditions.
Although you can comment on any guidance at any time (see 21 CFR 10.115(g)(5)), to ensure that the Agency considers your comment on this draft guidance before it begins work on the final version of the guidance, submit either electronic or written comments on the draft guidance by July 13, 2015.
Submit written requests for single copies of the draft guidance to the Division of Drug Information, Center for Drug Evaluation and Research, Food and Drug Administration, 10001 New Hampshire Ave., Hillandale Building, 4th Floor, Silver Spring, MD 20993-0002. Send one self-addressed adhesive label to assist that office in processing your requests. See the
Submit electronic comments on the draft guidance to
Sushanta Chakder, Center for Drug Evaluation and Research, Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 22, Rm. 5108, Silver Spring, MD 20993-0002, 301-796-0861.
FDA is announcing the availability of a draft guidance for industry entitled “Investigational Enzyme Replacement Therapy Products: Nonclinical Assessment.”
This draft guidance provides sponsors and individuals involved in the design and implementation of nonclinical studies with recommendations on the nonclinical information needed to support initiation of clinical trials, ongoing clinical development, and eventual licensure or approval for investigational ERT products. The recommendations in this guidance are applicable to ERT products indicated for lysosomal storage diseases or other diseases related to inborn errors of metabolism.
Because of the wide array of clinical indications, natural history of disease, and product types, no single nonclinical program can be designed to address all ERT products, and a case-by-case approach to both toxicological evaluation and clinical development is warranted to optimize and expedite drug development. Common nonclinical issues, such as the number of animal species needed for safety assessment, selection of animal models and duration of the toxicology studies needed to support first-in-human trials, and nonclinical study requirements for ultimate licensure or market approval of the ERT product, are addressed in this guidance.
This guidance is intended as an adjunct to the ICH guidances for industry entitled “M3(R2) Nonclinical Safety Studies for the Conduct of Human Clinical Trials and Marketing Authorization for Pharmaceuticals,” “M3(R2) Nonclinical Safety Studies for the Conduct of Human Clinical Trials and Marketing Authorization for Pharmaceuticals—Questions and Answers,” and “S6 Preclinical Safety Evaluation of Biotechnology-Derived Pharmaceuticals.”
This draft guidance is being issued consistent with FDA's good guidance
This guidance refers to previously approved collections of information that are subject to review by the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520). The collections of information in 21 CFR part 312 have been approved under OMB control number 0910-0014, and the information collection in the regulations on good laboratory practice for nonclinical laboratory studies (21 CFR part 58) is approved under OMB control number 0910-0119.
Interested persons may submit either electronic comments regarding this document to
Persons with access to the Internet may obtain the document at either
Food and Drug Administration, HHS.
Notice.
The Food and Drug Administration (FDA or Agency) has determined that the drug products listed in this document were not withdrawn from sale for reasons of safety or effectiveness. This determination means that FDA will not begin procedures to withdraw approval of abbreviated new drug applications (ANDAs) that refer to these drug products, and it will allow FDA to continue to approve ANDAs that refer to the products as long as they meet relevant legal and regulatory requirements.
Amy Hopkins, Center for Drug Evaluation and Research, Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 51, Rm. 6223, Silver Spring, MD 20993-0002, 301-796-5418,
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 approved 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 “listed drug,” which is a version of the drug that was previously approved. ANDA applicants do not have to repeat the extensive clinical testing otherwise necessary to gain approval of a new drug application (NDA).
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 Therapeutic Equivalence Evaluations,” which is generally known as the “Orange Book.” Under FDA regulations, a drug is removed from the list if the Agency withdraws or suspends approval of the drug's NDA or ANDA for reasons of safety or effectiveness or if FDA determines that the listed drug was withdrawn from sale for reasons of safety or effectiveness (21 CFR 314.162).
Under § 314.161(a) (21 CFR 314.161(a)), the Agency must determine whether a listed drug was withdrawn from sale for reasons of safety or effectiveness: (1) Before an ANDA that refers to that listed drug may be approved, (2) whenever a listed drug is voluntarily withdrawn from sale and ANDAs that refer to the listed drug have been approved, and (3) when a person petitions for such a determination under 21 CFR 10.25(a) and 10.30. Section 314.161(d) provides that if FDA determines that a listed drug was withdrawn from sale for safety or effectiveness reasons, the Agency will initiate proceedings that could result in the withdrawal of approval of the ANDAs that refer to the listed drug.
FDA has become aware that the drug products listed in the table in this document are no longer being marketed. (As requested by the applicant, FDA withdrew approval of NDA 005963 for SODIUM SULAMYD (sulfacetamide sodium) Ophthalmic Solution and Ophthalmic Ointment in the
FDA has reviewed its records and, under § 314.161, has determined that the drug products listed in this document were not withdrawn from sale for reasons of safety or effectiveness. Accordingly, the Agency will continue to list the drug products listed in this document in the “Discontinued Drug Product List” section of the Orange Book. The “Discontinued Drug Product List” identifies, among other items, drug products that have been discontinued from marketing for reasons other than safety or effectiveness.
Approved ANDAs that refer to the NDA listed in this document are unaffected by the discontinued marketing of the products subject to this NDA. Additional ANDAs that refer to these products may also be approved by the Agency if they comply with relevant legal and regulatory requirements. If FDA determines that labeling for these drug products 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) is announcing that a collection of information entitled, “Extra Label Drug Use in Animals” has been approved by the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1995.
FDA PRA Staff, Office of Operations, Food and Drug Administration, 8455 Colesville Rd., COLE-14526, Silver Spring, MD 20993-0002,
On February 18, 2015, the Agency submitted a proposed collection of information entitled, “Extra Label Drug Use in Animals” to OMB for review and clearance under 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 OMB control number. OMB has now approved the information collection and has assigned OMB control number 0910-0325. The approval expires on March 31, 2018. A copy of the supporting statement for this information collection is available on the Internet at
Food and Drug Administration, HHS.
Notice.
The Food and Drug Administration (FDA or Agency) is announcing the availability of a revised draft guidance for industry entitled “Biosimilars: Additional Questions and Answers Regarding Implementation of the Biologics Price Competition and Innovation Act of 2009.” This draft guidance is intended to provide answers to common questions from sponsors interested in developing proposed biosimilar products, biologics license application (BLA) holders, and other interested parties regarding FDA's interpretation of the Biologics Price Competition and Innovation Act of 2009 (BPCI Act). This guidance revises the draft guidance entitled “Biosimilars: Questions and Answers Regarding Implementation of the Biologics Price Competition and Innovation Act of 2009,” issued February 15, 2012, to provide new and revised questions and answers (Q&As).
Although you can comment on any guidance at any time (see 21 CFR 10.115(g)(5)), to ensure that the Agency considers your comment on this draft guidance before it begins work on the final version of the guidance, submit either electronic or written comments on the draft guidance by July 13, 2015.
Submit written requests for single copies of the draft guidance to the Division of Drug Information, Center for Drug Evaluation and Research, Food and Drug Administration, 10001 New Hampshire Ave., Hillandale Building, 4th Floor, Silver Spring, MD 20993-0002, or Office of Communication, Outreach and Development (HFM-40), Center for Biologics Evaluation and Research (CBER), Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 71, Rm. 3128, Silver Spring, MD 20993-0002. Send one self-addressed adhesive label to assist that office in processing your requests. See the
Submit electronic comments on the draft guidance to
Sandra Benton, Center for Drug Evaluation and Research, Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 51, Rm. 6340, Silver Spring, MD 20993-0002, 301-796-1042, or Stephen Ripley, 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.
FDA is announcing the availability of a revised draft guidance for industry entitled “Biosimilars: Additional Questions and Answers Regarding Implementation of the Biologics Price Competition and Innovation Act of 2009.” This draft guidance provides answers to common questions from sponsors interested in developing proposed biosimilar products, BLA holders, and other interested parties regarding FDA's interpretation of the BPCI Act. This guidance revises the draft guidance entitled “Biosimilars: Questions and Answers Regarding Implementation of the Biologics Price Competition and Innovation Act of 2009,” issued February 15, 2012, to provide new and revised Q&As. It also includes certain original Q&As that have not yet been finalized.
The BPCI Act, enacted as part of the Patient Protection and Affordable Care Act (Pub. L. 111-148) on March 23, 2010, created an abbreviated licensure pathway under section 351(k) of the Public Health Service Act (the PHS Act) (42 U.S.C. 262(k)) for biological products demonstrated to be biosimilar to, or interchangeable with, an FDA-licensed reference product. This draft guidance describes FDA's current interpretation of certain statutory requirements added by the BPCI Act and includes Q&As in the following categories:
• Biosimilarity or Interchangeability
• Provisions Related to Requirement to Submit a BLA for a “Biological Product”
• Exclusivity
In the
This draft guidance is being issued consistent with FDA's good guidance practices regulation (21 CFR 10.115). The draft guidance, when finalized, will represent the current thinking of FDA on this topic. It does not establish any rights for any person and is not binding on FDA or the public. You can use an alternative approach if it satisfies the requirements of the applicable statutes and regulations.
Interested persons may submit either electronic comments regarding this document to
This draft guidance refers to information collection provisions that are subject to review by the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1995 (the PRA) (44 U.S.C. 3501-3520). The submission of an investigational new drug application is covered under 21 CFR part 312 and approved under OMB Control No. 0910-0014. The submission of an NDA is covered under 21 CFR 314.50 and approved under OMB Control No. 0910-0001. The submission of a BLA under section 351(a) of the PHS Act is covered under part 601 (21 CFR part 601) and approved under OMB Control No. 0910-0338. The submission of a BLA under section 351(k) of the PHS Act is covered under part 601 and approved under OMB control number 0910-0719.
Persons with access to the Internet may obtain the document at
Food and Drug Administration, HHS.
Notice.
The Food and Drug Administration (FDA or Agency) is announcing the availability of a revised guidance for industry (GFI) #116 entitled “Studies to Evaluate the Safety of Residues of Veterinary Drugs in Human Food: Genotoxicity Testing” (VICH GL23(R)). This revised guidance has been developed for veterinary use by the International Cooperation on Harmonisation of Technical Requirements for Registration of Veterinary Medicinal Products (VICH). In this VICH guidance, the recommendation for a second test to evaluate the potential of a chemical to produce chromosomal effects is revised. The revised guidance indicates that the potential of a chemical to produce chromosomal effects can be evaluated using one of the following three tests: (1) An
Submit either electronic or written comments on Agency guidance at any time.
Submit written requests for single copies of the revised guidance to the Policy and Regulations Staff (HFV-6), Center for Veterinary Medicine, Food and Drug Administration, 7519 Standish Pl., Rockville, MD 20855. Send one self-addressed adhesive label to assist that office in processing your request. See the
Submit electronic comments on the revised guidance to
Tong Zhou, Center for Veterinary Medicine (HFV-153), Food and Drug Administration, 7500 Standish Place, Rockville, MD 20855, 240-402-0826,
In recent years, many important initiatives have been undertaken by regulatory authorities and industry associations to promote the
FDA has actively participated in the International Conference on Harmonisation of Technical Requirements for Registration of Pharmaceuticals for Human Use (ICH) for several years to develop harmonized technical requirements for the approval of human pharmaceutical and biological products among the European Union, Japan, and the United States. The VICH is a parallel initiative for veterinary medicinal products. The VICH is concerned with developing harmonized technical requirements for the approval of veterinary medicinal products in the European Union, Japan, and the United States, and includes input from both regulatory and industry representatives.
The VICH Steering Committee is composed of member representatives from the European Commission, European Medicines Evaluation Agency, European Federation of Animal Health, Committee on Veterinary Medicinal Products, FDA, the U.S. Department of Agriculture, the Animal Health Institute, the Japanese Veterinary Pharmaceutical Association, the Japanese Association of Veterinary Biologics, and the Japanese Ministry of Agriculture, Forestry, and Fisheries.
Six observers are eligible to participate in the VICH Steering Committee: One representative from the government of Australia/New Zealand, one representative from the industry in Australia/New Zealand, one representative from the government of Canada, one representative from the industry of Canada, one representative from the government of South Africa, and one representative from the industry of South Africa. The VICH Secretariat, which coordinates the preparation of documentation, is provided by the International Federation for Animal Health (IFAH). An IFAH representative also participates in the VICH Steering Committee meetings.
In the
This revised VICH guidance document recommends a second test to evaluate the potential of a chemical to produce chromosomal effects. The revised VICH guidance indicates that the potential of a chemical to produce chromosomal effects can be evaluated using one of the following three tests: (1) An
This guidance, developed under the VICH process, is being issued consistent with FDA's good guidance practices regulation (21 CFR 10.115). This guidance represents the current thinking of FDA on this topic. It does not establish any rights for any person and is not binding on FDA or the public. You can use an alternative approach if it satisfies the requirements of the applicable statutes and regulations.
This guidance refers to previously approved collections of information found in FDA regulations. These collections of information are subject to review by the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520). The collections of information in 21 CFR part 514 have been approved under OMB control number 0910-0032.
Interested persons may submit either electronic comments regarding this document to
Persons with access to the Internet may obtain the revised guidance at either
Food and Drug Administration, HHS.
Notice of public meeting; request for comments
The Food and Drug Administration (FDA or Agency) is announcing a public meeting on the reauthorization of the Prescription Drug User Fee Act (PDUFA) for fiscal years (FYs) 2018 through 2022. PDUFA authorizes FDA to collect user fees for the process for the review of human drugs. The current legislative authority for PDUFA expires in September 2017. At that time, new legislation will be required for FDA to continue collecting user fees in future fiscal years. The Federal Food, Drug, and Cosmetic Act (FD&C Act) requires that FDA begin the PDUFA reauthorization process by publishing a notice in the
The public meeting will be held on July 15, 2015, from 9 a.m. to 2 p.m. Registration to attend the meeting must be received by June 30, 2015. See section III.B for information on how to register for the meeting. Submit either electronic or written comments by August 15, 2015.
The meeting will be held at the FDA White Oak Campus, 10903 New Hampshire Ave., Bldg. 31 Conference Center, Sections B and C of the Great Room (Rm. 1503), Silver Spring, MD 20993. Entrance for the public meeting participants (non-FDA employees) is through Building 1 where routine security check procedures will be performed. For parking and security information, please refer to
Submit electronic comments to
Transcripts of the meeting will be available on the FDA Web site (
Graham Thompson, Center for Drug Evaluation and Research, Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 51, Rm. 1146, Silver Spring, MD 20993, 301-796-5003, FAX: 301-847-8443.
FDA is announcing a public meeting to begin the reauthorization process of PDUFA, the legislation that authorizes FDA to collect user fees for the process for the review of human drugs by various components in FDA including the Center for Drug Evaluation and Research, the Center for Biologics Evaluation and Research, the Office of the Commissioner, and the Office of Regulatory Affairs. The current authorization of the program (PDUFA V) expires in September 2017. Without new legislation, FDA will no longer be able to collect user fees for future fiscal years to fund the human drug review process. Section 736B(d)(2) (21 U.S.C. 379h-2(d)(2)) of the FD&C Act requires that before FDA begins negotiations with the regulated industry on PDUFA reauthorization, we do the following: (1) Publish a notice in the
• What is your assessment of the overall performance of PDUFA V thus far?
• What current features of PDUFA should be reduced or discontinued to ensure the continued efficiency and effectiveness of the human drug review process?
• What new features should FDA consider adding to the program to enhance the efficiency and effectiveness of the human drug review process?
The following information is provided to help potential meeting participants better understand the history and evolution of PDUFA and its current status.
PDUFA is a law that authorizes FDA to collect fees from drug companies that submit marketing applications for certain human drug and biological products. PDUFA was originally enacted in 1992 as the Prescription Drug User Fee Act (Pub. L. 102-571) for a period of 5 years. In 1997, Congress passed the FDA Modernization Act of 1997 (FDAMA, Pub. L. 105-115) which reauthorized the program (PDUFA II) for an additional 5 years. In 2002, Congress extended PDUFA again through FY 2007 (PDUFA III) in the Public Health Security and Bioterrorism Preparedness and Response Act of 2002 (Pub. L. 107-188). In 2007, Title I of the Food and Drug Administration Amendments Act of 2007 (FDAAA, Pub. L. 110-85) reauthorized PDUFA through FY 2012 (PDUFA IV). Most recently, PDUFA was reauthorized through FY 2017 (PDUFA V) as Title I of the Food and Drug Administration Safety and Innovation Act (FDASIA, Pub. L. 112-144).
PDUFA's intent is to provide additional revenues so that FDA can hire more staff, improve systems, and establish a better managed human drug review process to make important therapies available to patients sooner without compromising review quality or FDA's high standards for safety, efficacy, and quality. As part of FDA's agreement with industry during each reauthorization, the Agency agrees to certain performance goals. These goals apply to the process for the review of original new human drug and biological product applications, resubmissions of original applications, and supplements to approved applications. During the first few years of PDUFA I, the additional funding enabled FDA to eliminate backlogs of original applications and supplements. Phased in over the 5 years of PDUFA I, the goals were to review and act on 90 percent of priority new drug applications (NDAs), biologics license applications (BLAs), and efficacy supplements within 6 months of submission of a complete application; to review and act on 90 percent of standard original NDAs, BLAs, and efficacy supplements within 12 months, and to review and act on resubmissions and manufacturing supplements within 6 months. Over the course of PDUFA I, FDA exceeded all of these performance goals and significantly reduced median review times of both priority and standard NDAs and BLAs.
Under PDUFA II, the review performance goals were shortened and new procedural goals were added to improve FDA's interactions with industry sponsors and to help facilitate the drug development process. The procedural goals, for example, articulated timeframes for scheduling sponsor-requested meetings intended to address issues or questions regarding specific drug development programs, as well as timeframes for the timely response to industry-submitted questions on special study protocols. FDA met or exceeded nearly all of the review and procedural goals under PDUFA II. However, concerns grew that overworked review teams often had to return applications as “approvable” because they did not have the resources and sufficient staff time to work with the sponsors to resolve issues so that applications could be approved in the first review cycle.
A sound financial footing and support for limited postmarket risk management were key themes of PDUFA III. Base user fee resources were significantly increased and a mechanism to account for changes in human drug review workload was adopted. PDUFA III also
With PDUFA's reauthorization under FDAAA Title I (PDUFA IV), FDA obtained a significant increase in base fee funding and committed to full implementation of GRMPs, which includes providing a planned review timeline for premarket review, development of new guidance for industry on innovative clinical trials, modernization of postmarket safety, and elimination of the 3-year limitation on fee support for postmarket surveillance. Additional provisions in FDAAA (Titles IV, V, and IX) gave FDA additional statutory authority that increased the pre- and postmarket review process requirements, added new deadlines, and effectively increased review workload. Specifically, the new provisions expanded FDA's drug safety authorities such as the authority to require risk evaluation mitigation strategies (REMS), order safety labeling changes, and require postmarket studies.
With the current authorization of PDUFA under Title I of FDASIA, FDA implemented a new review program (“the Program”) to promote greater transparency and increase communication between the FDA review team and the applicant on the most innovative products reviewed by the Agency. The Program applies to all new molecular entity (NME) NDAs and original BLAs received by the Agency from October 1, 2012 through September 30, 2017. The Program adds new opportunities for communication between the FDA review team and the applicant during review of a marketing application, including mid-cycle communications and late-cycle meetings, while adding 60 days to the review clock to provide for this increased interaction and to address review issues for these complex applications. PDUFA V also required two assessments of the impact of the Program. The first of these, the interim assessment, is available on FDA's Web site at
In addition to continued commitment to a significant set of review, processing, and procedural goals, PDUFA V also included commitments related to enhancing regulatory science and expediting drug development, enhancing benefit-risk assessment in regulatory decisionmaking, modernizing the FDA drug safety system, and improving the efficiency of human drug review by requiring electronic submissions and standardization of electronic drug application data. The PDUFA V Commitment Letter (available at
Through this notice, FDA is announcing a public meeting to hear stakeholder views on what features the Agency should propose in the reauthorization of PDUFA for FYs 2018-2022. In general, the meeting format most likely will include presentations by FDA and a series of panels representing different stakeholder groups. We will also provide an opportunity for other stakeholders to provide public comment at the meeting. FDA policy issues are beyond the scope of these reauthorization discussions. Accordingly, the presentations should focus on process enhancements and funding issues, and not focus on policy issues.
Please consider the following questions for this meeting:
• What is your assessment of the overall performance of PDUFA V thus far?
• What new features should FDA consider adding to the program to enhance the efficiency and effectiveness of the human drug review process?
• What current features of PDUFA should be reduced or discontinued to ensure the continued efficiency and effectiveness of the human drug review process?
We will conduct the meeting on July 15, 2015, at Building 31 of the FDA White Oak Campus (see
In addition, any person may submit either electronic comments regarding this document to
Please be advised that as soon as a transcript is available, it will be accessible at
Food and Drug Administration, HHS.
Notice of public workshop.
The Food and Drug Administration (FDA), in cosponsorship with the American Association for Cancer Research (AACR), is announcing a public workshop entitled “Dose Finding of Small Molecule Oncology Drugs.” The purpose of this 2-day workshop is to provide an interdisciplinary forum to discuss the best practices of dose finding and dose selection for small molecule kinase inhibitors developed for oncology indications. The goal is to foster robust scientific discussion to promote a movement away from the conventional 3+3 dose escalation trial design and move toward innovative designs that can potentially incorporate key clinical, pharmacologic, and pharmacometric data and, when appropriate, nonclinical information to guide dose selection. Ideally, this workshop will propel a movement toward integrating dose finding into the entire life cycle of product development as opposed to confining it to the Phase 1, first-in-human trial based on short-term safety measures.
If you need special accommodations due to a disability, please contact the Washington Court Hotel no later than May 14, 2015.
To register for the public workshop, visit
Regardless of attendance at the public workshop, you may submit either electronic comments regarding this document to
Since the approval of imatinib in 2001, FDA has approved 26 small molecule kinase inhibitors for the treatment of oncology indications. For the first several small molecule kinase inhibitors in development, it was common to see multiple dose-finding trials that evaluated multiple dose levels and dosing schedules. As additional small molecule kinase inhibitors entered clinical trials and the familiarity with this class of drugs increased, the number of dose-finding trials for each compound reduced in number. Although this may appear to be a product of increased efficiency in trial design and dose finding, proper doses or dose ranges appear to not have been identified for approved products, as evident by the high prevalence of dose reductions observed in registration trials and the high frequency of postmarketing requirements to study alternative doses. In some cases, critical cross-disciplinary information does not appear to be integrated into the dose-finding process. Given the recent history of approvals based on the results of early phase trials driven by extraordinary efficacy data, the incentive for conducting rigorous dose-finding trials may not be overtly apparent. However, the increasing need for the development of combination therapy due to resistance to monotherapy and poor tolerance of approved dosing regimens underscores the need for a more efficient process of dose selection in the early stages of study design.
FDA's Center for Drug Evaluation and Research and the AACR agree to cosponsor a workshop focusing on providing a forum for discussion of best practices on dose finding of small molecule oncology drugs. The workshop will be held May 18 and 19, 2015, and is expected to include between 10 to 13
The purpose of this 2-day workshop is to provide an interdisciplinary forum to discuss the best practices of dose finding and dose selection for small molecule kinase inhibitors developed for oncology indications. The goal is to foster robust scientific discussion to promote a movement away from the conventional 3+3 dose escalation trial design and move toward adaptive designs that can potentially incorporate key clinical, pharmacologic, and pharmacometric data and, when appropriate, nonclinical information to guide dose selection. Ideally, this workshop will propel a movement toward integrating dose finding into the entire life cycle of product development as opposed to confining it to the Phase 1, first-in-human trial based on short-term safety measures.
1. To identify key best practices in the nonclinical evaluation of a compound, including, but not limited to, selectivity, pharmacology, secondary pharmacology, and toxicology.
2. To assess whether nonclinical information can be incorporated into the statistical assumptions of an adaptive dose-finding trial.
3. To discuss the best practices of integrating human pharmacokinetic and pharmacometric data, including drug interaction, when appropriate, into dose-finding studies.
4. To assess how drug exposure can be integrated into the statistical assumptions of an adaptive dose-finding trial and to assess whether evolving exposure data can be adapted into an ongoing trial.
5. To discuss barriers in moving away from 3+3 designs toward adaptive designs and to encourage creative dose-finding trial designs that can replace the conventional 3+3 dose-finding study, where appropriate.
6. To shift from conducting a large single-arm drug trial with the maximum tolerated dose based on a 28-day window to identify tolerable, biologically effective doses for confirmatory trials through prudent search of doses based on safety, efficacy, and patient tolerability.
7. To discuss potential regulatory implications of dose-finding studies, including, but not limited to, product labeling of dose ranges, dose titration, and postmarketing studies.
Health Resources and Services Administration, Administration for Children and Families, 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) and the Administration for Children and Families (ACF) announce 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 and ACF seek 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 July 13, 2015.
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.
Service Utilization Data is made up of four data categories:
(1)
(2)
(3)
(4)
Corrective Action Benchmark Data is made up of one category of data:
This information will be used to monitor and provide continued oversight for grantee performance and to target technical assistance resources to grantees.
HHS 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.
National Institute for Occupational Safety and Health (NIOSH), Centers for Disease Control and Prevention, Department of Health and Human Services.
Notice.
NIOSH gives notice of a decision to evaluate a petition to designate a class of employees from the Blockson Chemical Company in Joliet, Illinois, to be included in the Special Exposure Cohort under the Energy Employees Occupational Illness Compensation Program Act of 2000.
Stuart L. Hinnefeld, Director, Division of Compensation Analysis and Support, National Institute for Occupational Safety and Health, 1090 Tusculum Avenue, MS C-46, Cincinnati, OH 45226-1938, Telephone 877-222-7570. Information requests can also be submitted by email to
42 CFR 83.9-83.12.
Pursuant to 42 CFR 83.12, the initial proposed definition for the class being evaluated, subject to revision as warranted by the evaluation, is as follows:
National Vaccine Program Office, Office of the Assistant Secretary for Health, Office of the Secretary, Department of Health and Human Services.
Notice.
As stipulated by the Federal Advisory Committee Act, the Department of Health and Human Services (HHS) is hereby giving notice that the National Vaccine Advisory Committee (NVAC) will hold a meeting on June 9-10, 2015. The meeting is open to the public. However, pre-registration is required for both public attendance and public comment. Individuals who wish to attend the meeting and/or participate in the public comment session should register at
The meeting will be held on June 9-10, 2015. The meeting times and agenda will be posted on the NVAC Web site at
U.S. Department of Health and Human Services, Hubert H. Humphrey Building, Room 800, 200 Independence Avenue SW., Washington, DC 20201.
The meeting can also be accessed through a live webcast the day of the meeting. For more information, visit
National Vaccine Program Office, U.S. Department of Health and Human Services, Room 715-H, Hubert H. Humphrey Building, 200 Independence Avenue SW., Washington, DC 20201. Phone: (202) 690-5566; email:
Pursuant to Section 2101 of the Public Health Service Act (42 U.S.C. 300aa-1), the Secretary of Health and Human Services was mandated to establish the National Vaccine Program to achieve optimal prevention of human infectious diseases through immunization and to achieve optimal prevention against adverse reactions to vaccines. The NVAC was established to provide advice and make recommendations to the Director of the National Vaccine Program on matters related to the Program's responsibilities. The Assistant Secretary for Health serves as Director of the National Vaccine Program.
The June NVAC meeting will include the presentation of recommendations from several of the NVAC working groups for deliberation and vote. The Vaccine Confidence Working Group will present their report and recommendations for measuring and evaluating how confidence in vaccines impacts the optimal use of recommended childhood vaccines in the United States. Following an update on current efforts by national stakeholders to improve Human Papilloma Virus (HPV) vaccine uptake among adolescents, the HPV working group will also present their report and recommendations identifying existing best practices to increase the use of the HPV vaccine in young adolescents. NVAC will review analyses and proposed recommendations on how vaccines could play more prominently in efforts described in the President's National Strategy and Action Plan to Combat Antibiotic Resistant Bacteria.
An overview of the Vaccine Safety Research Agenda that was released on the NVPO Web site in February 2015 will also be provided. The Vaccine Safety Research Agenda outlines the efforts of federal agencies on vaccine safety and the ongoing and planned associated scientific activities and interagency coordination that contribute to the safety system. Informational presentations will also be provided to inform NVAC members of recent developments impacting the vaccine landscape including Congressional efforts to support the research and development of new vaccine products through the 21st Century Cures Initiative. More information on the meeting agenda will be posted prior to the meeting on the NVAC Web site:
Public attendance at the meeting is limited to the available space. Individuals who plan to attend and need special assistance, such as sign language interpretation or other reasonable accommodations, should notify the National Vaccine Program Office at the address/phone listed above at least one week prior to the meeting. For those unable to attend in person, a live webcast will be available. More information on registration and accessing the webcast can be found at
Members of the public will have the opportunity to provide comments at the NVAC meeting during the public comment periods designated on the agenda. Public comments made during the meeting will be limited to three minutes per person to ensure time is allotted for all those wishing to speak. Individuals are also welcome to submit their written comments. Written comments should not exceed three pages in length. Individuals submitting written comments should email their comments to the National Vaccine Program Office (
National Institute for Occupational Safety and Health (NIOSH), Centers for Disease Control and Prevention, Department of Health and Human Services (HHS).
Notice.
HHS gives notice of a determination concerning a petition to add a class of employees from the St. Louis Airport Storage Site (SLAPS) in St. Louis, Missouri, to the Special Exposure Cohort (SEC) under the Energy Employees Occupational Illness Compensation Program Act of 2000 (EEOICPA).
Stuart L. Hinnefeld, Director, Division of Compensation Analysis and Support, National Institute for Occupational Safety and Health (NIOSH), 1090 Tusculum Avenue, MS C-47, Cincinnati, OH 45226-1938, Telephone 1-877-222-7570. Information requests can also be submitted by email to
[42U.S.C.7384q].
On April 9, 2015, the Secretary of HHS determined that the following class of employees does not meet the statutory criteria for addition to the SEC as authorized under EEOICPA:
All employees of the U.S. Department of Energy (DOE), its predecessor agencies, and their contractors and subcontractors who worked at the St. Louis Airport Storage Site in St. Louis, Missouri, from November 3, 1971, through December 31, 1973, and from January 1, 1984,through December 31, 1998.
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(a) of the Federal Advisory Committee Act, as amended (5 U.S.C. App.), notice is hereby given of a meeting of the Recombinant DNA Advisory Committee.
The meeting will be open to the public, 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.
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:
OMB's “Mandatory Information Requirements for Federal Assistance Program Announcements” (45 FR 39592, June 11, 1980) requires a statement concerning the official government programs contained in the Catalog of Federal Domestic Assistance. Normally NIH lists in its announcements the number and title of affected individual programs for the guidance of the public. Because the guidance in this notice covers virtually every NIH and Federal research program in which DNA recombinant molecule techniques could be used, it has been determined not to be cost effective or in the public interest to attempt to list these programs. Such a list would likely require several additional pages. In addition, NIH could not be certain that every Federal program would be included as many Federal agencies, as well as private organizations, both national and international, have elected to follow the NIH Guidelines. In lieu of the individual program listing, NIH invites readers to direct questions to the information address above about whether individual programs listed in the Catalog of Federal Domestic Assistance are affected.
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.
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 materials, 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.
This notice is being published less than 15 days prior to the meeting due to the urgent need to meet timing limitations imposed by the intramural research review cycle.
Pursuant to section 10(a) of the Federal Advisory Committee Act, as amended (5 U.S.C. App.), notice is hereby given of a meeting of the National Cancer Institute Council of Research Advocates.
The meeting will be open to the public, 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.
Any interested person may file written comments with the committee by forwarding the statement to the Contact Person listed on this notice. The statement should include the name, address, telephone number and when applicable, the business or professional affiliation of the interested person.
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:
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 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.
U.S. Customs and Border Protection, Department of Homeland Security.
60-day notice and request for comments; extension of an existing collection of information.
U.S. Customs and Border Protection (CBP) of the Department of Homeland Security 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: Application for Withdrawal of Bonded Stores for Fishing Vessels and Certificate of Use (CBP Form 5125). CBP is proposing that this information collection be extended with no change to the burden hours. This document is published to obtain comments from the public and affected agencies.
Written comments should be received on or before July 13, 2015 to be assured of consideration.
Direct all written comments to U.S. Customs and Border Protection, Attn: Tracey Denning, Regulations and Rulings, Office of International Trade, 90 K Street NE., 10th Floor, Washington, DC 20229-1177.
Requests for additional information should be directed to Tracey Denning, U.S. Customs and Border Protection, Regulations and Rulings, Office of International Trade, 90 K Street NE., 10th Floor, Washington, DC 20229-1177, at 202-325-0265.
CBP invites the general public and other Federal agencies to comment on proposed and/or continuing information collections pursuant to the Paperwork Reduction Act of 1995 (Pub. L. 104-13). The comments should address: (a) Whether the collection of information is 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 estimates of the burden of the collection of information; (c) ways to enhance the quality, utility, and clarity of the information to be collected; (d) ways to minimize the burden including the use of automated collection techniques or the use of other forms of information technology; and (e) the annual cost burden to respondents or record keepers from the collection of information (total capital/startup costs and operations and maintenance costs). The comments that are submitted will be summarized and included in the CBP request for OMB approval. All comments will become a matter of public record. In this document, CBP is soliciting comments concerning the following information collection:
Federal Emergency Management Agency, DHS.
Notice.
This notice amends the notice of a major disaster declaration for the State of West Virginia (FEMA-4210-DR), dated March 31, 2015, and related determinations.
Dean Webster, Office of Response and Recovery, Federal Emergency Management Agency, 500 C Street SW., Washington, DC 20472, (202) 646-2833.
The notice of a major disaster declaration for the State of West Virginia is hereby amended to include the following areas among those areas determined to have been adversely affected by the event declared a major disaster by the President in his declaration of March 31, 2015.
Fayette, Mercer, and Tucker Counties for Public Assistance.
The following Catalog of Federal Domestic Assistance Numbers (CFDA) are to be used for reporting and drawing funds: 97.030, Community Disaster Loans; 97.031, Cora Brown Fund; 97.032, Crisis Counseling; 97.033, Disaster Legal Services; 97.034, Disaster Unemployment Assistance (DUA); 97.046, Fire Management Assistance Grant; 97.048, Disaster Housing Assistance to Individuals and Households in Presidentially
Federal Emergency Management Agency, DHS.
Notice.
This is a notice of the Presidential declaration of a major disaster for the State of Georgia (FEMA-4215-DR), dated April 20, 2015, and related determinations.
Dean Webster, Office of Response and Recovery, Federal Emergency Management Agency, 500 C Street SW., Washington, DC 20472, (202) 646-2833.
Notice is hereby given that, in a letter dated April 20, 2015, the President issued a major disaster declaration under the authority of the Robert T. Stafford Disaster Relief and Emergency Assistance Act, 42 U.S.C. 5121
I have determined that the damage in certain areas of the State of Georgia resulting from a severe winter storm during the period of February 15-17, 2015, is of sufficient severity and magnitude to warrant a major disaster declaration under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, 42 U.S.C. 5121
In order to provide Federal assistance, you are hereby authorized to allocate from funds available for these purposes such amounts as you find necessary for Federal disaster assistance and administrative expenses.
You are authorized to provide Public Assistance in the designated areas and Hazard Mitigation throughout the State. Consistent with the requirement that Federal assistance be supplemental, any Federal funds provided under the Stafford Act for Hazard Mitigation will be limited to 75 percent of the total eligible costs. Federal funds provided under the Stafford Act for Public Assistance also will be limited to 75 percent of the total eligible costs, with the exception of projects that meet the eligibility criteria for a higher Federal cost-sharing percentage under the Public Assistance Alternative Procedures Pilot Program for Debris Removal implemented pursuant to section 428 of the Stafford Act.
Further, you are authorized to make changes to this declaration for the approved assistance to the extent allowable under the Stafford Act.
The Federal Emergency Management Agency (FEMA) hereby gives notice that pursuant to the authority vested in the Administrator, under Executive Order 12148, as amended, Benigno Bern Ruiz, of FEMA is appointed to act as the Federal Coordinating Officer for this major disaster.
The following areas of the State of Georgia have been designated as adversely affected by this major disaster:
Banks, Barrow, Dawson, Elbert, Forsyth, Franklin, Habersham, Hall, Jackson, Lumpkin, Madison, Oglethorpe, Pickens, Stephens, and White Counties for Public Assistance.
All areas within the State of Georgia are eligible for assistance under the Hazard Mitigation Grant Program.
The following Catalog of Federal Domestic Assistance Numbers (CFDA) are to be used for reporting and drawing funds: 97.030, Community Disaster Loans; 97.031, Cora Brown Fund; 97.032, Crisis Counseling; 97.033, Disaster Legal Services; 97.034, Disaster Unemployment Assistance (DUA); 97.046, Fire Management Assistance Grant; 97.048, Disaster Housing Assistance to Individuals and Households in Presidentially Declared Disaster Areas; 97.049, Presidentially Declared Disaster Assistance—Disaster Housing Operations for Individuals and Households; 97.050, Presidentially Declared Disaster Assistance to Individuals and Households—Other Needs; 97.036, Disaster Grants—Public Assistance (Presidentially Declared Disasters); 97.039, Hazard Mitigation Grant.
Federal Emergency Management Agency, DHS.
Notice.
This notice lists communities where the addition or modification of Base Flood Elevations (BFEs), base flood depths, Special Flood Hazard Area (SFHA) boundaries or zone designations, or the regulatory floodway (hereinafter referred to as flood hazard determinations), as shown on the Flood Insurance Rate Maps (FIRMs), and where applicable, in the supporting Flood Insurance Study (FIS) reports, prepared by the Federal Emergency Management Agency (FEMA) for each community, is appropriate because of new scientific or technical data. The FIRM, and where applicable, portions of the FIS report, have been revised to reflect these flood hazard determinations through issuance of a Letter of Map Revision (LOMR), in accordance with Title 44, Part 65 of the Code of Federal Regulations (44 CFR part 65). The LOMR will be used by insurance agents and others to calculate appropriate flood insurance premium rates for new buildings and the contents of those buildings. For rating purposes, the currently effective community number is shown in the table below and must be used for all new policies and renewals.
These flood hazard determinations will become effective on the dates listed in the table below and revise the FIRM panels and FIS report in effect prior to this determination for the listed communities.
From the date of the second publication of notification of these changes in a newspaper of local circulation, any person has 90 days in which to request through the community that the Deputy Associate Administrator for Mitigation reconsider the changes. The flood hazard determination information may be changed during the 90-day period.
The affected communities are listed in the table below. Revised flood hazard information for each community is available for inspection at both the online location and the respective community map repository
Submit comments and/or appeals to the Chief Executive Officer of the community as listed in the table below.
Luis Rodriguez, Chief, Engineering Management Branch, Federal Insurance and Mitigation Administration, FEMA, 500 C Street SW., Washington, DC 20472, (202) 646-4064, or (email)
The specific flood hazard determinations are not described for each community in this notice. However, the online location and local community map repository address where the flood hazard determination information is available for inspection is provided.
Any request for reconsideration of flood hazard determinations must be submitted to the Chief Executive Officer of the community as listed in the table below.
The modifications are made pursuant to section 201 of the Flood Disaster Protection Act of 1973, 42 U.S.C. 4105, and are in accordance with the National Flood Insurance Act of 1968, 42 U.S.C. 4001
The FIRM and FIS report are the basis of the floodplain management measures that the community is required either to adopt or to show evidence of having in effect in order to qualify or remain qualified for participation in the National Flood Insurance Program (NFIP).
These flood hazard determinations, together with the floodplain management criteria required by 44 CFR 60.3, are the minimum that are required. They should not be construed to mean that the community must change any existing ordinances that are more stringent in their floodplain management requirements. The community may at any time enact stricter requirements of its own or pursuant to policies established by other Federal, State, or regional entities. The flood hazard determinations are in accordance with 44 CFR 65.4.
The affected communities are listed in the following table. Flood hazard determination information for each community is available for inspection at both the online location and the respective community map repository address listed in the table below. Additionally, the current effective FIRM and FIS report for each community are accessible online through the FEMA Map Service Center at
Federal Emergency Management Agency, DHS.
Notice.
This notice amends the notice of a major disaster declaration for the State of Tennessee (FEMA-4211-DR), dated April 2, 2015, and related determinations.
Dean Webster, Office of Response and Recovery, Federal Emergency Management Agency, 500 C Street SW., Washington, DC 20472, (202) 646-2833.
The notice of a major disaster declaration for the State of Tennessee is hereby amended to include the following area among those areas determined to have been adversely affected by the event declared a major disaster by the President in his declaration of April 2, 2015.
Hardin County for Public Assistance.
The following Catalog of Federal Domestic Assistance Numbers (CFDA) are to be used for reporting and drawing funds: 97.030, Community Disaster Loans; 97.031, Cora Brown Fund; 97.032, Crisis Counseling; 97.033, Disaster Legal Services; 97.034, Disaster Unemployment Assistance (DUA); 97.046, Fire Management Assistance Grant; 97.048, Disaster Housing Assistance to Individuals and Households in Presidentially Declared Disaster Areas; 97.049, Presidentially Declared Disaster Assistance—Disaster Housing Operations for Individuals and Households; 97.050, Presidentially Declared Disaster Assistance to Individuals and Households—Other Needs; 97.036, Disaster Grants—Public Assistance (Presidentially Declared Disasters); 97.039, Hazard Mitigation Grant.
The Office of Intergovernmental Affairs, DHS.
Notice of Homeland Security Advisory Council Employee Morale Task Force name change.
The Secretary of the Department of Homeland Security (DHS), Jeh Johnson tasked his Homeland Security Advisory Council (HSAC) to establish a DHS Employee Morale Task Force on Thursday, October 9, 2014. This notice informs the public of a change in name from DHS Employee Morale Task Force to DHS Employee Task Force. The underlying tasking to the Task Force from Secretary Johnson, as published in the
Erin Walls, Director, Homeland Security Advisory Council at 202-447-3135 or
The Homeland Security Advisory Council provides organizationally independent, strategic, timely, specific, and actionable advice and recommendations for the consideration of the Secretary of the Department of Homeland Security on matters related to homeland security. The Homeland Security Advisory Council is comprised of leaders of local law enforcement, first responders, state and local government, the private sector, and academia.
The underlying tasking from Secretary Johnson, as published in the
The DHS Employee Task Force's findings and recommendations will be submitted to the Homeland Security Advisory Council for their deliberation and vote during a public meeting. Once the report is approved it will be sent to the Secretary for his review and acceptance.
National Protection and Programs Directorate, DHS.
Notice of Availability.
The Department of Homeland Security (DHS or Department), National Protection and Programs Directorate (NPPD), is issuing guidance to comply with the Protecting and Securing Chemical Facilities from Terrorist Attacks Act of 2014 (the Act). The Act amended the Homeland Security Act of 2002 to require DHS to issue guidance for an Expedited Approval Program that identifies specific security measures sufficient to meet risk-based performance standards established as part of the Chemical Facility Anti-Terrorism Standards (CFATS) regulations.
The Guidance for the Expedited Approval Program is effective on June 16, 2015.
If you have questions about this notice, the Expedited Approval Program, or the guidance document for the Expedited Approval Program, call or email David Wulf, Director, DHS/NPPD/IP/ISCD at
Viewing Material. The Expedited Approval Program guidance may be found as part of docket DHS-2015-0005 by going to
On December 18, 2014, the President signed into law the Protecting and Securing Chemical Facilities from Terrorist Attacks Act of 2014 (the Act) (Pub. L. 113-254). The Act amended the Homeland Security Act of 2002 (Pub. L. 107-296) to re-codify and reauthorize the CFATS program and add new provisions to the program while preserving most of the existing CFATS regulations.
Section 2102 of the Homeland Security Act of 2002, among other actions, modifies CFATS by adding a new process by which a high-risk chemical facility, currently assigned to
Participation in the Expedited Approval Program is optional for Tier 3 and Tier 4 chemical facilities. If a Tier 3 or Tier 4 chemical facility opts not to participate in the Expedited Approval Program, it must comply with the other CFATS requirements for submission of a Site Security Plan (or an Alternative Security Program) to DHS for review, and for implementation of the submitted plan.
Section 2102(c)(4)(B)(iii)(I) of the Homeland Security Act of 2002 provides that the Secretary is exempt from the requirements of section 553 of the Administrative Procedure Act, 5 U.S.C. 553, if the Secretary issues the guidance on or before June 16, 2015. Accordingly, DHS is issuing this guidance without regard to section 553 of the Administrative Procedure Act.
Section 2102(c)(4)(B)(iii)(II) of the Homeland Security Act of 2002 provides that the Secretary is exempt from the requirements of the Paperwork Reduction Act, 44 U.S.C. Chapter 35, Subchapter I, if the Secretary issues the guidance on or before June 16, 2015. Accordingly, DHS is issuing guidance without regard to the requirements of the Paperwork Reduction Act.
Section 2102(c)(4)(B)(i) of the Homeland Security Act of 2002 directs the Department to issue prescriptive guidance for chemical facilities that choose to submit Site Security Plans as part of an Expedited Approval Program that “identifies specific security measures that are sufficient to meet the risk-based performance standards.” The Expedited Approval Program guidance may be found on
This notice is issued under authority of 5 U.S.C. 552(a) and section 2102(c)(4) of the Homeland Security Act of 2002 (6 U.S.C. 622(c)(4)).
Transportation Security Administration, DHS.
30-day notice.
This notice announces that the Transportation Security Administration (TSA) has forwarded the Information Collection Request (ICR), Office of Management and Budget (OMB) control number 1652-0062, abstracted below to OMB for review and approval of a revision to the currently approved collection under the Paperwork Reduction Act (PRA). TSA has combined two previously-approved ICRs (1652-0061 and 1652-0062) into this single request to simplify the collection, increase transparency, and reduce duplication. The ICR describes the nature of the information collection and its expected burden. TSA published a
Send your comments by June 12, 2015. A comment to OMB is most effective if OMB receives it within 30 days of publication.
Interested persons are invited to submit written comments on the proposed information collection to the Office of Information and Regulatory Affairs, OMB. Comments should be addressed to Desk Officer, Department of Homeland Security/TSA, and sent via electronic mail to
Christina A. Walsh, TSA PRA Officer, Office of Information Technology (OIT), TSA-11, Transportation Security Administration, 601 South 12th Street, Arlington, VA 20598-6011; telephone (571) 227-2062; email
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3501
(1) Evaluate whether the proposed information requirement is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility;
(2) Evaluate the accuracy of the agency's estimate of the burden;
(3) Enhance the quality, utility, and clarity of the information to be collected; and
(4) Minimize the burden of the collection of information on those who are to respond, including using appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology.
Office of the Assistant Secretary for Public and Indian Housing, HUD.
Announcement of funding awards.
In accordance with Section 102(a)(4)(C) of the Department of Housing and Urban Development Reform Act of 1989, this announcement notifies the public of funding awards made by the Department to public housing agencies (PHA) in FY 2014 under the Section 8 Housing Choice Voucher (HCV) program. This announcement lists the names, addresses, and amount of the awards to PHAs for non-competitive funding awards for housing conversion actions, public housing relocations and replacements, moderate rehabilitation replacements, and HOPE VI voucher awards.
Milan Ozdinec, Deputy Assistant Secretary, Office of Housing Voucher Programs, Office of Public and Indian Housing, Department of Housing and Urban Development, 451 Seventh Street SW., Room 4204, Washington, DC 20410-5000, telephone number 202-402-1380. Persons with hearing or speech impairments may access this number through TTY by calling the toll-free Federal Relay Service at 800-927-7589.
The regulations governing the HCV program are located at 24 CFR 982. The regulations for allocating housing assistance budget authority under Section 213(d) of the Housing and Community Development Act of 1974 are located at 24 CFR part 791, subpart D.
The purpose of the rental assistance program is to assist eligible families pay their rent for decent, safe, and sanitary housing. The FY 2014 awardees announced in this announcement were provided HCV program tenant protection vouchers (TPVs) funds on an as-needed, non-competitive basis,
Awards published under this notice were provided (1) to assist families living in HUD-owned properties that are being sold; (2) to assist families affected by the expiration or termination of their Project-based Section 8 and Moderate Rehabilitation contracts; (3) to assist families in properties where the owner has prepaid the HUD mortgage; (4) to assist families in projects where the Rental Supplement and Rental Assistance Payments contracts are expiring (Rental Assistance Demonstration (RAD—Second Component); (5) to provide relocation housing assistance in connection with the demolition of public housing; (6) to provide replacement housing assistance for single room occupancy (SRO) units that fail housing quality standards (HQS); (7) to assist families in public housing developments that are scheduled for demolition in connection with a HUD-approved HOPE VI revitalization or demolition grant, and (8) to assist families consistent with PIH Notice 2013-08
A special administrative fee of $200 per occupied unit was provided to PHAs to compensate for any extraordinary HCV program administrative costs associated with the Multifamily Housing conversion action(s).
The Department awarded total new budget authority of $115,915,271 for 14,503 housing choice vouchers to recipients under all of the above-mentioned categories. This budget authority includes $620,266 of unobligated commitments made in FY 2013. These funds were reserved by September 30, 2013, but not contracted until FY 2014, and thus have been included with obligated commitments for FY 2014.
In accordance with Section 102(a)(4)(C) of the Department of Housing and Urban Development Reform Act of 1989 (103 Stat. 1987, 42 U.S.C. 3545), the Department is publishing the names, addresses, and amounts of those awards as shown in Appendix A alphabetically by State then by PHA name.
Fish and Wildlife Service, Interior.
Notice of availability; request for public comments.
We, the U.S. Fish and Wildlife Service (Service), make available the draft Environmental Assessment (dEA) for the draft CEMEX Balcones Quarry Northeast Area Habitat Conservation Plan (CEMEX dHCP) and the CEMEX dHCP. CEMEX Construction Materials South, LLC (Applicant), has applied to the Service for an incidental take permit (ITP) under section 10(a)(1)(B) of the Endangered Species Act (Act) of 1973, as amended. The requested permit, which would be in effect for a period of 15 years, if granted, would authorize incidental take of the federally listed golden-cheeked warbler (
To ensure consideration, written comments must be received or postmarked on or before July 13, 2015.
The ITP application is available by mail from the Regional Director, U.S. Fish and Wildlife Service, P.O. Box 1306, Room 6034, Albuquerque, NM 87103.
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○ U.S. Fish and Wildlife Service, 500 Gold Avenue SW., Room 6034, Albuquerque, NM 87102.
○ U.S. Fish and Wildlife Service, 10711 Burnet Road, Suite 200, Austin, TX 78758.
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Please refer to permit number TE58612B when submitting comments. We request that you send comments by only the methods described above.
Adam Zerrenner, Field Supervisor, U.S. Fish and Wildlife Service, 10711 Burnet Road, Suite 200, Austin, TX 78758 or (512) 490-0057.
We, the U.S. Fish and Wildlife Service, make available the draft Environmental Assessment (dEA) for the CEMEX Balcones Quarry Northeast Area Habitat Conservation Plan (CEMEX dHCP) and the dHCP. In accordance with the requirements of the National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321
1. We have gathered the information necessary to determine impacts and formulate alternatives for the dEA related to potential issuance of an ITP to the Applicant; and
2. The Applicant has developed a dHCP as part of the application for an ITP, which describes the measures the Applicant has agreed to take to minimize and mitigate the effects of incidental take of GCWAs to the maximum extent practicable pursuant to section 10(a)(1)(B) of the Act.
The applicant has applied for an ITP that would be in effect for 15 years, if granted, and would authorize incidental take of the federally endangered GCWA. As described in the dHCP, the proposed incidental take would occur on 199.4 acres in Comal County, Texas, and would result from activities associated with otherwise lawful activities, including the clearing and implementation of quarrying activities (Covered Activities). The dEA considers the direct, indirect, and cumulative effects of implementation of the dHCP, including the measures that will be implemented to minimize and mitigate, to the maximum extent practicable, the impacts of the incidental take of the GCWA.
The proposed action involves the issuance of an ITP by the Service for the Covered Activities in the Permit Area, pursuant to section 10(a)(1)(B) of the Act. The ITP would cover “take” of the GCWA associated with the clearing and implementation of quarrying activities within the Permit Area.
The requested term of the permit is 15 years. To meet the requirements of a section 10(a)(1)(B) ITP, the Applicant has developed and proposes to implement its dHCP, which describes the conservation measures the Applicant has agreed to undertake to minimize and mitigate for the impacts of the proposed incidental take of the GCWA to the maximum extent practicable, and ensures that incidental take will not appreciably reduce the likelihood of the survival and recovery of the species in the wild.
The Applicant proposes to mitigate with the purchase of 147.44 acres of high-quality habitat, likely from a Service-approved conservation bank with Comal County in its service area.
The only alternative to the proposed action we are considering as part of this process is the No Action alternative, in which no ITP would be issued. Under a No Action alternative, the Service would not issue the requested ITP for the CEMEX Balcones Northeast Area Tract, and, therefore, the Applicant would not implement the conservation measures described in the dHCP.
Written comments we receive become part of the public record associated with this action. Before including your address, phone number, email address, or other personal identifying information in your comment, you should be aware that your entire comment—including your personal identifying information—may be made publicly available at any time. While you can request in your comment that we withhold your personal identifying information from public review, we cannot guarantee that we will be able to do so. We will not consider anonymous comments. All submissions from organizations or businesses, and from individuals identifying themselves as representatives or officials of organizations or businesses, will be
We provide this notice under section 10(c) of the Act and its implementing regulations (50 CFR 17.22 and 17.32) and NEPA and its implementing regulations (40 CFR 1506.6).
Employment and Training Administration (ETA), Labor.
Notice.
The Department of Labor (Department), as part of its continuing effort to reduce paperwork and respondent burden, conducts a preclearance consultation program to provide the 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 [44 U.S.C. 3506(c)(2)(A)]. This program helps 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 requirements on respondents can be properly assessed.
Currently, ETA is soliciting comments concerning the collection of data on characteristics of the insured unemployed, the current expiration date of December 31, 2015.
Submit written comments to the office listed in the addresses section below on or before July 13, 2015.
Send written comments to Thomas Stengle, Office of Unemployment Insurance, Room S-4524, Employment and Training Administration, U.S. Department of Labor, 200 Constitution Avenue NW., Washington, DC 20210. Telephone number: 202-693-2991 (this is not a toll-free number). Individuals with hearing or speech impairments may access the telephone number above via TTY by calling the toll-free Federal Information Relay Service at 1-877-889-5627 (TTY/TDD). Email:
The ETA 203, Characteristics of the Insured Unemployed, is a monthly snapshot of the demographic composition of the claimant population in the Unemployment Insurance system. It is based on those who file a claim in the week containing the 19th day of the month, which reflects unemployment during the week containing the 12th day of the month. This corresponds with the sample frame used by the Bureau of Labor Statistics for the production of labor force statistics they produce. This report serves a variety of socio-economic needs because it provides aggregate data reflecting unemployment insurance claimants' sex, race/ethnic group, age, industry, and occupation.
The Department is particularly interested in comments which:
• 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,
We will summarize and/or included in the request for OMB approval of the ICR, the comments received in response to this comments request; they will also become a matter of public record.
National Endowment for the Arts, National Foundation on the Arts and Humanities.
Notice of meeting.
Pursuant to section 10(a)(2) of the Federal Advisory Committee Act (Pub. L. 92-463), as amended, notice is hereby given that 18 meetings of the Arts Advisory Panel to the National Council on the Arts will be held by teleconference from the National Endowment for the Arts, Constitution Center, 400 7th St. SW., Washington, DC, 20506 as follows (all meetings are Eastern time and ending times are approximate):
June 3, 2015; 12:00 p.m. to 2:00 p.m.
June 4, 2015; 12:00 p.m. to 2:00 p.m.
June 4, 2015; 3:00 p.m. to 5:00 p.m.
June 4, 2015; 3:00 p.m. to 5:00 p.m.
June 5, 2015; 2:00 p.m. to 4:00 p.m.
June 5, 2015; 12:00 p.m. to 2:00 p.m.
June 5, 2015; 3:00 p.m. to 5:00 p.m.
June 11, 2015; 12:00 p.m. to 2:00 p.m.
June 11, 2015; 3:00 p.m. to 5:00 p.m.
June 12, 2015; 2:00 p.m. to 4:00 p.m.
June 15, 2015; 2:00 p.m. to 4:00 p.m.
June 16, 2015; 2:00 p.m. to 4:00 p.m.
June 17, 2015; 2:00 p.m. to 4:00 p.m.
June 18, 2015; 2:00 p.m. to 4:00 p.m.
June 19, 2015; 2:00 p.m. to 4:00 p.m.
June 23, 2015; 1:30 p.m. to 3:30 p.m.
June 30, 2015; 11:30 a.m. to 1:30 p.m.
June 30, 2015; 2:30 p.m. to 4:30 p.m.
Further information with reference to these meetings can be obtained from Ms. Kathy Plowitz-Worden, Office of Guidelines & Panel Operations, National Endowment for the Arts, Washington, DC, 20506;
The closed portions of meetings are for the purpose of Panel review, discussion, evaluation, and recommendations on financial assistance under the National Foundation on the Arts and the Humanities Act of 1965, as amended, including information given in confidence to the agency. In accordance with the determination of the Chairman of February 15, 2012, these sessions will be closed to the public pursuant to subsection (c)(6) of section 552b of title 5, United States Code.
In accordance with the Federal Advisory Committee Act (Pub. L. 92-463, as amended), the National Science Foundation (NSF) announces the following meeting:
June 11, 2015: 12:20 p.m. to 5:30 p.m.
June 12, 2015: 8:25 a.m. to 12:15 p.m.
The ACRS Subcommittee on Plant Operations and Fire Protection will hold a meeting on May 21, 2015, at the U.S. NRC Region IV Office, 1600 East Lamar Boulevard, Arlington, Texas 76011-4511.
The meeting will be open to public attendance.
The agenda for the subject meeting shall be as follows:
The Subcommittee will meet with Region IV staff to discuss items of mutual interest. The Subcommittee will hear presentations by and hold discussions with representatives of the NRC staff and other interested persons regarding this matter. The Subcommittee will gather information, analyze relevant issues and facts, and formulate proposed positions and actions, as appropriate, for deliberation by the Full Committee.
Members of the public desiring to provide oral statements and/or written comments should notify the Designated Federal Official (DFO), Michael Snodderly (Telephone 301-415-2241 or Email:
Detailed meeting agendas and meeting transcripts are available on the NRC Web site at
Postal Regulatory Commission.
Notice.
The Commission is noticing a recent Postal Service filing concerning an addition to 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 May 6, 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. CP2015-64 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 May 14, 2015. The public portions of the filing can be accessed via the Commission's Web site (
The Commission appoints Lyudmila Y. Bzhilyanskaya to serve as Public Representative in this docket.
1. The Commission establishes Docket No. CP2015-64 for consideration of the matters raised by the Postal Service's Notice.
2. Pursuant to 39 U.S.C. 505, Lyudmila Y. Bzhilyanskaya 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 May 14, 2015.
4. The Secretary shall arrange for publication of this order in the
By the Commission.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”),
The Exchange proposes to amend Exchange Rule 7007, and re-title it “Collection of Exchange Fees and Other Claims and Billing Policy,” and to require NASDAQ members to submit billing disputes within a certain time period.
While changes to the Pricing Schedule [sic] pursuant to this proposal are effective upon filing, the Exchange has designated the proposed amendment to be operative on July 1, 2015.
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 purpose of the proposed rule change is to amend Rule 7007, which was recently filed,
The sixty days limitation would apply to invoices for transactional activity occurring in July 2015 and thereafter.
Further, this proposal would provide a cost savings to the Exchange in that it would alleviate administrative burdens related to belated billing disputes, which divert staff resources away from the Exchange's regulatory and business purposes. A similar requirement with respect to initiating billing disputes is in place today for Options Participants on NASDAQ Options Market LLC (“NOM”).
In addition, the Exchange proposes to amend the title of Exchange Rule 7007 from “Collection of Exchange Fees and Other Claims” to “Collection of Exchange Fees and Other Claims and Billing Policy.” The Exchange believes that the proposed title provides a more specific description of Rule 7007.
The Exchange believes that its proposal is consistent with Section 6(b) of the Act
The Exchange believes the requirement that billing disputes for certain specified fees and rebates must be submitted to the Exchange within sixty days from receipt of the invoice will set objective standards and will be fair to members. The proposal equally applies to all NASDAQ equity members. Also, the Exchange's administrative costs would be lowered as a result of this policy.
The Exchange believes that sixty days is ample time to review an invoice and dispute any pricing related to the transactions for that time period. An identical policy applies today with respect to NOM billing.
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 billing policy would apply uniformly to all NASDAQ equity members as it does today with all NOM Participants. All NASDAQ members would be subject to this policy.
The Exchange believes that this practice will conserve Exchange resources, which are expended when untimely billing disputes require staff to research applicable fees and order information beyond two months after the invoice is issued.
No written comments were either solicited or received.
Because the foregoing proposed rule change does not: (i) significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A)(iii) of the Act
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is: (i) necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved.
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's Internet comment form (
• Send an email to
• Send paper comments in triplicate to Brent J. Fields, 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 seeks to amend Exchange rules related to the nullification and adjustment of options transactions including obvious errors. The text of the proposed rule change is available on the Exchange's Web site (
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.
For several months the Exchange has been working with other options exchanges to identify ways to improve the process related to the adjustment and nullification of erroneous options transactions. The goal of the process that the options exchanges have undertaken is to adopt harmonized rules related to the adjustment and nullification of erroneous options transactions as well as a specific provision related to coordination in connection with large-scale events involving erroneous options transactions. As described below, the Exchange believes that the changes the options exchanges and the Exchange have agreed to propose will provide transparency and finality with respect to the adjustment and nullification of erroneous options transactions. Particularly, the proposed changes seek to achieve consistent results for participants across U.S. options exchanges while maintaining a fair and orderly market, protecting investors and protecting the public interest.
The Proposed Rule is the culmination of this coordinated effort and reflects discussions by the options exchanges to universally adopt: (1) certain provisions already in place on one or more options exchanges; and (2) new provisions that the options exchanges collectively believe will improve the handling of erroneous options transactions. Thus, although the Proposed Rule is in many ways similar to and based on the Exchange's Current Rule, the Exchange is adopting various provisions to conform with existing rules of one or more options exchanges and also to adopt rules that are not currently in place on any options exchange. As noted above, in order to adopt a rule that is similar in most material respects to the rules adopted by other options exchanges, the Exchange proposes to delete the Current Rule in its entirety and to replace it with the Proposed Rule.
The Exchange notes that it has proposed additional objective standards in the Proposed Rule as compared to the Current Rule. The Exchange also notes that the Proposed Rule will ensure that the Exchange will have the same standards as all other options exchanges. However, there are still areas under the Proposed Rule where subjective determinations need to be made by Exchange personnel with respect to the calculation of Theoretical Price. The Exchange notes that the Exchange and all other options exchanges have been working to further improve the review of potentially erroneous transactions as well as their subsequent adjustment by creating an objective and universal way to determine Theoretical Price in the event a reliable NBBO is not available. For instance, the Exchange and all other options exchanges may utilize an independent third party to calculate and disseminate or make available Theoretical Price. However, this initiative requires additional exchange and industry discussion as well as additional time for development and implementation. The Exchange will continue to work with other options exchanges and the options industry towards the goal of additional objectivity and uniformity with respect to the calculation of Theoretical Price.
As additional background, the Exchange believes that the Proposed Rule supports an approach consistent with long-standing principles in the options industry under which the general policy is to adjust rather than nullify transactions. The Exchange acknowledges that adjustment of transactions is contrary to the operation of analogous rules applicable to the equities markets, where erroneous transactions are typically nullified rather than adjusted and where there is
Various general structural differences between the options and equities markets point toward the need for a different balancing of risks for options market participants and are reflected in the Proposed Rule. Option pricing is formulaic and is tied to the price of the underlying stock, the volatility of the underlying security and other factors. Because options market participants can generally create new open interest in response to trading demand, as new open interest is created, correlated trades in the underlying or related series are generally also executed to hedge a market participant's risk. This pairing of open interest with hedging interest differentiates the options market specifically (and the derivatives markets broadly) from the cash equities markets. In turn, the Exchange believes that the hedging transactions engaged in by market participants necessitates protection of transactions through adjustments rather than nullifications when possible and otherwise appropriate.
The options markets are also quote driven markets dependent on liquidity providers to an even greater extent than equities markets. In contrast to the approximately 7,000 different securities traded in the U.S. equities markets each day, there are more than 500,000 unique, regularly quoted option series. Given this breadth in options series the options markets are more dependent on liquidity providers than equities markets; such liquidity is provided most commonly by registered market makers but also by other professional traders. With the number of instruments in which registered market makers must quote and the risk attendant with quoting so many products simultaneously, the Exchange believes that those liquidity providers should be afforded a greater level of protection. In particular, the Exchange believes that liquidity providers should be allowed protection of their trades given the fact that they typically engage in hedging activity to protect them from significant financial risk to encourage continued liquidity provision and maintenance of the quote-driven options markets.
In addition to the factors described above, there are other fundamental differences between options and equities markets which lend themselves to different treatment of different classes of participants that are reflected in the Proposed Rule. For example, there is no trade reporting facility in the options markets. Thus, all transactions must occur on an options exchange. This leads to significantly greater retail customer participation directly on exchanges than in the equities markets, where a significant amount of retail customer participation never reaches the Exchange but is instead executed in off-exchange venues such as alternative trading systems, broker-dealer market making desks and internalizers. In turn, because of such direct retail customer participation, the exchanges have taken steps to afford those retail customers—generally Priority Customers—more favorable treatment in some circumstances.
The Exchange proposes to adopt various definitions that will be used in the Proposed Rule, as described below.
First, the Exchange proposes to adopt a definition of “Customer,” to make clear that this term would not include any broker-dealer, Professional Customer, or Voluntary Professional Customer.
Second, the Exchange proposes to adopt definitions for both an “erroneous sell transaction” and an “erroneous buy transaction.” As proposed, an erroneous sell transaction is one in which the price received by the person selling the option is erroneously low, and an erroneous buy transaction is one in which the price paid by the person purchasing the option is erroneously high. This provision helps to reduce the possibility that a party can intentionally submit an order hoping for the market to move in their favor while knowing that the transaction will be nullified or adjusted if the market does not. For instance, when a market participant who is buying options in a particular series sees an aggressively priced sell order posted on the Exchange, and the buyer believes that the price of the options is such that it might qualify for obvious error, the option buyer can trade with the aggressively priced order, then wait to see which direction the market moves. If the market moves in their direction, the buyer keeps the trade and if it moves against them, the buyer calls the Exchange hoping to get the trade adjusted or busted.
Third, the Exchange proposes to adopt a definition of “Official,” which would mean an Officer of the Exchange or such other employee designee of the Exchange that is trained in the application of the Proposed Rule.
Fourth, the Exchange proposes to adopt a new term, a “Size Adjustment Modifier,” which would apply to individual transactions and would modify the applicable adjustment for orders under certain circumstances, as discussed in further detail below. As proposed, the Size Adjustment Modifier will be applied to individual transactions as follows:
The Size Adjustment Modifier attempts to account for the additional risk that the parties to the trade undertake for transactions that are larger in scope. The Exchange believes that the Size Adjustment Modifier creates additional incentives to prevent more impactful Obvious Errors and it lessens the impact on the contra-party to an adjusted trade. The Exchange notes that these contra-parties may have preferred to only trade the size involved in the transaction at the price at which such trade occurred, and in trading larger size has committed a greater level of capital and bears a larger hedge risk.
When setting the proposed size adjustment modifier thresholds the Exchange has tried to correlate the size breakpoints with typical small and larger “block” execution sizes of underlying stock. For instance, SEC Rule 10b-18(a)(5)(ii) defines a “block” as a quantity of stock that is at least 5,000 shares and a purchase price of at least $50,000, among others.
Under both the Current Rule and the Proposed Rule, when reviewing a transaction as potentially erroneous, the Exchange needs to first determine the “Theoretical Price” of the option,
The Exchange also proposes to specify in the Proposed Rule that when a single order received by the Exchange is executed at multiple price levels, the last NBB and last NBO just prior to the trade in question would be the last NBB and last NBO just prior to the Exchange's receipt of the order.
The Exchange also proposes to set forth in the Proposed Rule various provisions governing specific situations where the NBB or NBO is not available or may not be reliable. Specifically, the Exchange is proposing additional detail specifying situations in which there are no quotes or no valid quotes (as defined below), when the national best bid or offer (“NBBO”) is determined to be too wide to be reliable, and at the open of trading on each trading day.
As is true under the Current Rule, pursuant to the Proposed Rule the Exchange will determine the Theoretical Price if there are no quotes or no valid quotes for comparison purposes. As proposed, quotes that are not valid are all quotes in the applicable option series published at a time where the last NBB is higher than the last NBO in such series (a “crossed market”), quotes published by the Exchange that were submitted by either party to the transaction in question, and quotes published by another options exchange against which the Exchange has declared self-help. Thus, in addition to scenarios where there are literally no quotes to be used as Theoretical Price, the Exchange will exclude quotes in certain circumstances if such quotes are not deemed valid. The Proposed Rule is consistent with the Exchange's application of the Current Rule but the descriptions of the various scenarios where the Exchange considers quotes to be invalid represent additional detail that is not included in the Current Rule.
The Exchange notes that Exchange personnel currently are required to determine Theoretical Price in certain circumstances. While the Exchange continues to pursue alternative solutions that might further enhance the objectivity and consistency of determining Theoretical Price, the Exchange believes that the discretion currently afforded to Exchange Officials is appropriate in the absence of a reliable NBBO that can be used to set the Theoretical Price. Under the Current Rule, Exchange personnel will generally consult and refer to data such as the prices of related series, especially the closest strikes in the option in question. Exchange personnel may also take into account the price of the underlying security and the volatility characteristics of the option as well as historical pricing of the option and/or similar options.
Similarly, pursuant to the Proposed Rule the Exchange will determine the Theoretical Price if the bid/ask differential of the NBB and NBO for the affected series just prior to the erroneous transaction was equal to or greater than the Minimum Amount set forth below and there was a bid/ask differential less than the Minimum Amount during the 10 seconds prior to the transaction. If there was no bid/ask differential less than the Minimum Amount during the 10 seconds prior to the transaction then the Theoretical Price of an option series is the last NBB or NBO just prior to the transaction in question. The Exchange proposes to use the following chart to determine whether a quote is too wide to be reliable:
The Exchange notes that the values set forth above generally represent a multiple of 3 times the bid/ask differential requirements of other options exchanges, with certain rounding applied (
As an example, assume an option is quoted $3.00 by $6.00 with 50 contracts posted on each side of the market for an extended period of time. If a market participant were to enter a market order to buy 20 contracts the Exchange believes that the buyer should have a reasonable expectation of paying $6.00 for the contracts which they are buying. This should be the case even if immediately after the purchase of those options, the market conditions change and the same option is then quoted at $3.75 by $4.25. Although the quote was wide according to the table above at the time immediately prior to and the time of the execution of the market order, it was also well established and well known. The Exchange believes that an execution at the then prevailing market price should not in and of itself constitute an erroneous trade.
The Exchange proposes to adopt a new definition of Theoretical Price for transactions at the open while maintaining a portion of the Current Rule for opening transactions unique to the Exchange. Except as provided in (b)(1)(A) of the Proposed Rule, for a transaction occurring as part of the Opening Process
As an example of an erroneous transaction for which the NBBO is wide at the open, assume the NBBO at the time of the opening transaction is $1.00 x $5.00 and the opening transaction takes place at $1.25. The Exchange would be responsible for determining the Theoretical Price because the NBBO was wider than the applicable minimum amount set forth in the wide quote provision as described above. The Exchange believes that it is necessary to determine Theoretical Price at the open in the event of a wide quote at the open for the same reason that the Exchange has proposed to determine Theoretical Price during the remainder of the trading day pursuant to the proposed wide quote provision, namely that a wide quote cannot be reliably used to determine Theoretical Price because the Exchange does not know which of the two quotes, the NBB or the NBO, is closer to the real value of the option.
Subparagraph (b)(1)(A) is a carryover from the Current Rule,
The Exchange proposes to adopt numerical thresholds that would qualify transactions as “Obvious Errors.” These thresholds are similar to those in place under the Current Rule.
Under the Proposed Rule, a party that believes that it participated in a transaction that was the result of an Obvious Error must notify the Exchange's Help Desk in the manner specified from time to time by the Exchange in a circular distributed to TPHs.
The Exchange also proposes to adopt notification timeframes that must be met in order for a transaction to qualify as an Obvious Error. Specifically, as proposed a filing must be received by the Exchange within thirty (30) minutes of the execution with respect to an execution of a Customer order and within fifteen (15) minutes of the execution for any other participant. The Exchange also proposes to provide additional time for trades that are routed through other options exchanges to the Exchange. Under the Proposed Rule, any other options exchange will have a total of forty-five (45) minutes for Customer orders and thirty (30) minutes for non-Customer orders, measured from the time of execution on the Exchange, to file with the Exchange for review of transactions routed to the Exchange from that options exchange and executed on the Exchange (“linkage trades”). This includes filings on behalf of another options exchange filed by a third-party routing broker if such third-party broker identifies the affected transactions as linkage trades. In order to facilitate timely reviews of linkage trades the Exchange will accept filings from either the other options exchange or, if applicable, the third-party routing broker that routed the applicable order(s). The additional fifteen (15) minutes provided with respect to linkage trades shall only apply to the extent the options exchange that originally received and routed the order to the Exchange itself received a timely filing from the entering participant (
Pursuant to the Proposed Rule, an Official may review a transaction believed to be erroneous on his/her own motion in the interest of maintaining a fair and orderly market and for the protection of investors. This proposed provision is designed to give an Official the ability to provide parties relief in those situations where they have failed to report an apparent error within the established notification period. A transaction reviewed pursuant to the proposed provision may be nullified or adjusted only if it is determined by the Official that the transaction is erroneous in accordance with the provisions of the Proposed Rule, provided that the time deadlines for filing a request for review described above shall not apply. The Proposed Rule would require the Official to act as soon as possible after becoming aware of the transaction; action by the Official would ordinarily be expected on the same day that the transaction occurred. However, because a transaction under review may have occurred near the close of trading or due to unusual circumstances, the Proposed Rule provides that the Official shall act no later than 7:30 a.m. Central Time on the next trading day following the date of the transaction in question.
The Exchange also proposes to state that a party affected by a determination to nullify or adjust a transaction after an Official's review on his or her own motion may appeal such determination in accordance with paragraph (m), which is described below, but may not seek a review by an Obvious Error Panel under paragraph (k). The Proposed Rule would make clear that a determination by an Official not to review a transaction or determination not to nullify or adjust a transaction for which a review was conducted on an Official's own motion is not appealable and further that if a transaction is reviewed and a determination is rendered pursuant to another provision of the Proposed Rule, no additional relief may be granted by an Official.
If it is determined that an Obvious Error has occurred based on the objective numeric criteria and time deadlines described above, the Exchange will adjust or nullify the transaction as described below and promptly notify both parties to the trade electronically or via telephone. The Exchange proposes different adjustment and nullification criteria for Customers and non-Customers.
As proposed, where neither party to the transaction is a Customer, the execution price of the transaction will be adjusted by the Official pursuant to the table below.
Further, as proposed any non-Customer Obvious Error exceeding 50 contracts will be subject to the Size Adjustment Modifier described above. The Exchange believes that it is appropriate to apply the Size Adjustment Modifier to non-Customer orders because the hedging cost associated with trading larger sized options orders and the market impact of larger blocks of underlying can be significant.
As an example of the application of the Size Adjustment Modifier, assume Exchange A has a quoted bid to buy 50 contracts at $2.50, Exchange B has a quoted bid to buy 100 contracts at $2.05 and there is no other options exchange quoting a bid priced higher than $2.00. Assume that the NBBO is $2.50 by $3.00. Finally, assume that all orders quoted and submitted to Exchange B in connection with this example are non-Customer orders.
• Assume Exchange A's quoted bid at $2.50 is either executed or cancelled.
• Assume Exchange B immediately thereafter receives an incoming market order to sell 100 contracts.
• The incoming order would be executed against Exchange B's resting bid at $2.05 for 100 contracts.
• Because the 100 contract execution of the incoming sell order was priced at $2.05, which is $0.45 below the Theoretical Price of $2.50, the 100 contract execution would qualify for adjustment as an Obvious Error.
• The normal adjustment process would adjust the execution of the 100 contracts to $2.35 per contract, which is the Theoretical Price minus $0.15.
• However, because the execution would qualify for the Size Adjustment Modifier of 2 times the adjustment price, the adjusted transaction would instead be to $2.20 per contract, which is the Theoretical Price minus $0.30.
By reference to the example above, the Exchange reiterates that it believes that a Size Adjustment Modifier is appropriate, as the buyer in this example was originally willing to buy 100 contracts at $2.05 and ended up paying $2.20 per contract for such execution. Without the Size Adjustment Modifier the buyer would have paid $2.35 per contract. Such buyer may be advantaged by the trade if the Theoretical Price is indeed closer to $2.50 per contract, however the buyer may not have wanted to buy so many contracts at a higher price and does incur increasing cost and risk due to the additional size of their quote. Thus, the proposed rule is attempting to strike a balance between various competing objectives, including recognition of cost and risk incurred in quoting larger size and incentivizing market participants to maintain appropriate controls to avoid errors.
In contrast to non-Customer orders, where trades will be adjusted if they qualify as Obvious Errors, pursuant the Proposed Rule a trade that qualifies as an Obvious Error will be nullified where at least one party to the Obvious Error is a Customer. The Exchange also proposes, however, that if any TPH submits requests to the Exchange for review of transactions pursuant to the Proposed Rule, and in aggregate that TPH has 200 or more Customer transactions under review concurrently and the orders resulting in such transactions were submitted during the course of 2 minutes or less, where at least one party to the Obvious Error is a non-Customer, the Exchange will apply the non-Customer adjustment criteria described above to such transactions. The Exchange based its proposal of 200 transactions on the fact that the proposed level is reasonable as it is representative of an extremely large number of orders submitted to the Exchange that are, in turn, possibly erroneous. Similarly, the Exchange based its proposal of orders received in 2 minutes or less on the fact that this is a very short amount of time under which one TPH could generate multiple erroneous transactions. In order for a participant to have more than 200 transactions under review concurrently when the orders triggering such transactions were received in 2 minutes or less, the market participant will have far exceeded the normal behavior of customers deserving protected status.
Consistent with the Current Rule, the Exchange proposes to adopt separate numerical thresholds for review of transactions for which the Exchange does not receive a filing requesting review within the Obvious Error timeframes set forth above. Based on this review these transactions may qualify as “Catastrophic Errors.” As proposed, a Catastrophic Error will be deemed to have occurred when the execution price of a transaction is higher or lower than the Theoretical Price for the series by an amount equal to at least the amount shown below:
Based on industry feedback on the Catastrophic Error thresholds set forth under the Current Rule, the thresholds proposed as set forth above are more granular and lower (
The Proposed Rule would specify that relief under the catastrophic error provision would not be granted under paragraph (d) if an Obvious Error Panel has previously rendered a decision with respect to the transaction(s) in question. In addition, if it is determined by an Official that a Catastrophic Error has not occurred, the Trading Permit Holder will be subject to a charge of $5,000. The Proposed Rule also specifies the action to be taken by the Exchange if it is determined that a Catastrophic Error has occurred, as described below, and would require the Exchange to promptly notify both parties to the trade electronically or via telephone. In the event of a Catastrophic Error, the execution price of the transaction will be adjusted by the Official pursuant to the table below.
As is true for Obvious Errors as described above, the Exchange believes that it is appropriate to adjust to prices a specified amount away from Theoretical Price rather than to adjust to Theoretical Price because even though the Exchange has determined a given trade to be erroneous in nature, the parties in question should have had some expectation of execution at the price or prices submitted. Also, it is common that by the time it is determined that a Catastrophic Error has occurred additional hedging and trading activity has already occurred based on the executions that previously happened. The Exchange is concerned that an adjustment to Theoretical Price in all cases would not appropriately incentivize market participants to maintain appropriate controls to avoid potential errors. Further, the Exchange believes it is appropriate to maintain a higher adjustment level for Catastrophic Errors than Obvious Errors given the significant additional time that can potentially pass before an adjustment is requested and applied and the amount of hedging and trading activity that can occur based on the executions at issue during such time. For the same reasons, other than honoring the limit prices established for Customer orders, the Exchange has proposed to treat all market participants the same in the context of the Catastrophic Error provision. Specifically, the Exchange believes that treating market participants the same in this context will provide additional certainty to market participants with respect to their potential exposure and hedging activities, including comfort that even if a transaction is later adjusted (
In order to improve consistency for market participants in the case of a widespread market event and in light of the interconnected nature of the options exchanges, the Exchange proposes to adopt a new provision that calls for coordination between the options exchanges in certain circumstances and provides limited flexibility in the application of other provisions of the Proposed Rule in order to promptly respond to a widespread market event.
The proposed criteria for determining a Significant Market Event are as follows:
(A) Transactions that are potentially erroneous would result in a total Worst-Case Adjustment Penalty of $30,000,000, where the Worst-Case Adjustment Penalty is computed as the sum, across all potentially erroneous trades, of: (i) $0.30 (
(B) Transactions involving 500,000 options contracts are potentially erroneous;
(C) Transactions with a notional value (
(D) 10,000 transactions are potentially erroneous.
As described above, the Exchange proposes to adopt a the Worst Case Adjustment Penalty, proposed as criterion (A), which is the only criterion that can on its own result in an event being designated as a significant market event. The Worst Case Adjustment Penalty is intended to develop an objective criterion that can be quickly determined by the Exchange in consultation with other options exchanges that approximates the total overall exposure to market participants on the negatively impacted side of each transaction that occurs during an event. If the Worst Case Adjustment criterion is equal to or exceeds $30,000,000, then an event is a Significant Market Event. As an example of the Worst Case Adjustment Penalty, assume that a single potentially erroneous transaction in an event is as follows: sale of 100 contracts of a standard option (
As described above, under the Proposed Rule if the Worst Case Adjustment Penalty does not equal or exceed $30,000,000, then a Significant Market Event has occurred if the sum of all applicable event statistics (expressed as a percentage of the relevant thresholds), is greater than or equal to 150% and 75% or more of at least one category is reached. The Proposed Rule further provides that no single category can contribute more than 100% to the sum. As an example of the application of this provision, assume that in a given event across all options exchanges that: (A) The Worst Case Adjustment Penalty is $12,000,000 (40% of $30,000,000), (B) 300,000 options contracts are potentially erroneous (60% of 500,000), (C) the notional value of potentially erroneous transactions is $30,000,000 (30% of $100,000,000), and (D) 12,000 transactions are potentially erroneous (120% of 10,000). This event would qualify as a Significant Market Event because the sum of all applicable event statistics would be 230%, far exceeding the 150% threshold. The 230% sum is reached by adding 40%, 60%, 30% and last, 100% (
As an alternative example, assume a large-scale event occurs involving low-priced options with a small number of contracts in each execution. Assume in this event across all options exchanges that: (A) The Worst Case Adjustment Penalty is $600,000 (2% of $30,000,000), (B) 20,000 options contracts are potentially erroneous (4% of 500,000), (C) the notional value of potentially erroneous transactions is $20,000,000 (20% of $100,000,000), and (D) 20,000 transactions are potentially erroneous (200% of 10,000, but rounded down to 100%). This event would not qualify as a Significant Market Event because the sum of all applicable event statistics would be 126%, below the 150% threshold. The Exchange reiterates that as proposed, even when a single category other than criterion (A) is fully met, that does not necessarily qualify an event as a Significant Market Event.
The Exchange believes that the breadth and scope of the obvious error rules are appropriate and sufficient for handling of typical and common obvious errors. Coordination between and among the exchanges should generally not be necessary even when a TPH has an error that results in executions on more than one exchange. In setting the thresholds above the Exchange believes that the requirements will be met only when truly widespread and significant errors happen and the benefits of coordination and information sharing far outweigh the costs of the logistics of additional intra-exchange coordination. The Exchange notes that in addition to its belief that the proposed thresholds are sufficiently high, the Exchange has proposed the requirement that either criterion (A) is met or the sum of applicable event statistics for proposed (A) through (D) equals or exceeds 150% in order to ensure that an event is sufficiently large but also to avoid situations where an event is extremely large but just misses potential qualifying thresholds. For instance, the proposal is designed to help avoid a situation where the Worst Case Adjustment Penalty is $15,000,000, so the event does not qualify based on criterion (A) alone, but there are transactions in 490,000 options contracts that are potentially erroneous (missing criterion (B) by 10,000 contracts), there transactions with a notional value of $99,000,000 (missing criterion (C) by $1,000,000), and there are 9,000 potentially erroneous transactions overall (missing criterion (D) by 1,000 transactions). The Exchange believes that the proposed formula, while slightly more complicated than simply requiring a certain threshold to be met in each category, may help to avoid inapplicability of the proposed provisions in the context of an event that would be deemed significant by most subjective measures but that barely misses each of the objective criteria proposed by the Exchange.
To ensure consistent application across options exchanges, in the event of a suspected Significant Market Event, the Exchange shall initiate a coordinated review of potentially erroneous transactions with all other affected options exchanges to determine the full scope of the event. Under the Proposed Rule, the Exchange will promptly coordinate with the other options exchanges to determine the appropriate review period as well as select one or more specific points in time prior to the transactions in question and use one or more specific points in time to determine Theoretical Price. Other than the selected points in time, if applicable, the Exchange will determine Theoretical Price as described above. For example, around the start of a SME that is triggered by a large and aggressively priced buy order, three exchanges have multiple orders on the offer side of the market: Exchange A has offers priced at $2.20, $2.25, $2.30 and several other price levels to $3.00, Exchange B has offers at $2.45, $2.30 and several other price levels to $3.00, Exchange C has offers at price levels between $2.50 and $3.00. Assume an
If it is determined that a Significant Market Event has occurred then, using the parameters agreed with respect to the times from which Theoretical Price will be calculated, if applicable, an Official will determine whether any or all transactions under review qualify as Obvious Errors. The Proposed Rule would require the Exchange to use the criteria in Proposed Rule 6.25(c), as described above, to determine whether an Obvious Error has occurred for each transaction that was part of the Significant Market Event. Upon taking any final action, the Exchange would be required to promptly notify both parties to the trade electronically or via telephone.
The execution price of each affected transaction will be adjusted by an Official to the price provided below, unless both parties agree to adjust the transaction to a different price or agree to bust the trade.
Another significant distinction between the proposed Obvious Error provision and the proposed Significant Market Event provision is that if the Exchange, in consultation with other options exchanges, determines that timely adjustment is not feasible due to the extraordinary nature of the situation, then the Exchange will nullify some or all transactions arising out of the Significant Market Event during the review period selected by the Exchange and other options exchanges. To the extent the Exchange, in consultation with other options exchanges, determines to nullify less than all transactions arising out of the Significant Market Event, those transactions subject to nullification will be selected based upon objective criteria with a view toward maintaining a fair and orderly market and the protection of investors and the public interest. For example, assume a Significant Market Event causes 25,000 potentially erroneous transactions and impacts 51 options classes. Of the 25,000 transactions, 24,000 of them are concentrated in a single options class. The exchanges may decide the most appropriate solution because it will provide the most certainty to participants and allow for the prompt resumption of regular trading is to bust all trades in the most heavily affected class between two specific points in time, while the other 1,000 trades across the other 50 classes are reviewed and adjusted as appropriate. A similar situation might arise directionally where a Customer submits both erroneous buy and sell orders and the number of errors that happened that were erroneously low priced (
With respect to rulings made pursuant to the proposed Significant Market Event provision the Exchange believes that the number of affected transactions is such that immediate finality is necessary to maintain a fair and orderly market and to protect investors and the public interest. Accordingly, rulings by the Exchange pursuant to the Significant Market Event provision would be non-appealable pursuant to the Proposed Rule.
In addition to the objective criteria described above, the Proposed Rule also proposes to make clear that the determination as to whether a trade was executed at an erroneous price may be made by mutual agreement of the affected parties to a particular transaction. The Proposed Rule would state that an electronic or open outcry trade may be nullified or adjusted on the terms that all parties to a particular transaction agree, provided, however, that such agreement to nullify or adjust must be conveyed to the Exchange in a manner prescribed by the Exchange prior to 7:30 a.m. Central Time on the first trading day following the execution.
The Exchange also proposes to explicitly state that it is considered conduct inconsistent with just and equitable principles of trade for any TPH to use the mutual adjustment process to circumvent any applicable Exchange rule, the Act or any of the rules and regulations thereunder. Thus,
Exchange Rule 6.3 describes the Exchange's authority to declare trading halts in one or more options traded on the Exchange. The Exchange proposes to make clear in the Proposed Rule that it will nullify any transaction that occurs during a trading halt in the affected option on the Exchange pursuant to Rule 6.3. If any trades occur notwithstanding a trading halt then the Exchange believes it appropriate to nullify such transactions. While the Exchange may halt options trading for various reasons, such a scenario almost certainly is due to extraordinary circumstances and is potentially the result of market-wide coordination to halt options trading or trading generally. Accordingly, the Exchange does not believe it is appropriate to allow trades to stand if such trades should not have occurred in the first place.
The Exchange proposes to add Interpretation and Policy .07 to Rule 6.3. The interpretation and Policy will state that the Exchange shall nullify any transaction that occurs: (a) during a trading halt in the affected option on the Exchange; or (b) with respect to equity options (including options overlying ETFs), during a regulatory halt as declared by the primary listing market for the underlying security.
Market participants on the Exchange likely base the pricing of their orders submitted to the Exchange on the price of the underlying security for the option. Thus, the Exchange believes it is appropriate to adopt provisions that allow adjustment or nullification of transactions based on erroneous prints or erroneous quotes in the underlying security.
The Exchange proposes to adopt language in the Proposed Rule stating that a trade resulting from an erroneous print(s) disseminated by the underlying market that is later nullified by that underlying market shall be adjusted or busted as set forth in the Obvious Error provisions of the Proposed Rule, provided a party notifies the Exchange's Help Desk in a timely manner, as further described below. The Exchange proposes to define a trade resulting from an erroneous print(s) as any options trade executed during a period of time for which one or more executions in the underlying security are nullified and for one second thereafter. The Exchange believes that one second is an appropriate amount of time in which an options trade would be directly based on executions in the underlying equity security. The Exchange also proposes to require that if a party believes that it participated in an erroneous transaction resulting from an erroneous print(s) pursuant to the proposed erroneous print provision it must notify the Exchange's Help Desk within the timeframes set forth in the Obvious Error provision described above. The Exchange has also proposed to state that the allowed notification timeframe commences at the time of notification by the underlying market(s) of nullification of transactions in the underlying security. Further, the Exchange proposes that if multiple underlying markets nullify trades in the underlying security, the allowed notification timeframe will commence at the time of the first market's notification.
As an example of a situation in which a trade results from an erroneous print disseminated by the underlying market that is later nullified by the underlying market, assume that a given underlying is trading in the $49.00-$50.00 price range then has an erroneous print at $5.00. Given that there is the potential perception that the underlying has gone through a dramatic price revaluation, numerous options trades could promptly trigger based off of this new price. However, because the price that triggered them was not a valid price it would be appropriate to review said option trades when the underlying print that triggered them is removed.
The Exchange also proposes to add a provision stating that a trade resulting from an erroneous quote(s) in the underlying security shall be adjusted or busted as set forth in the Obvious Error provisions of the Proposed Rule, provided a party notifies the Exchange's Help Desk in a timely manner, as further described below. Pursuant to the Proposed Rule, an erroneous quote occurs when the underlying security has a width of at least $1.00 and has a width at least five times greater than the average quote width for such underlying security during the time period encompassing two minutes before and after the dissemination of such quote. For purposes of the Proposed Rule, the average quote width will be determined by adding the quote widths of sample quotations at regular 15-second intervals during the four-minute time period referenced above (excluding the quote(s) in question) and dividing by the number of quotes during such time period (excluding the quote(s) in question).
As an example of a situation in which a trade results from an erroneous quote in the underlying security, assume again that a given underlying is quoting and trading in the $49.00-$50.00 price range then a liquidity gap occurs, with bidders not representing quotes in the market place and an offer quoted at $5.00. Quoting may quickly return to normal, again in the $49.00-$50.00 price range, but due to the potential perception that the underlying has gone through a dramatic price revaluation, numerous options trades could trigger based off of this new quoted price in the interim. Because the price that triggered such trades was not a valid price it would be appropriate to review said option trades.
Additionally, consistent with the Current Rule, the Exchange proposes to designate and announce the
The Exchange notes that certain market participants and their customers enter stop or stop limit orders that are triggered based on executions in the marketplace. As proposed, transactions resulting from the triggering of a stop or stop-limit order by an erroneous trade in an option contract shall be nullified by the Exchange, provided a party notifies the Exchange's Help Desk in a timely manner as set forth below. The Exchange believes it is appropriate to nullify executions of stop or stop-limit orders that were wrongly triggered because such transactions should not have occurred. If a party believes that it participated in an erroneous transaction pursuant to the Proposed Rule it must notify the Exchange's Help Desk within the timeframes set forth in the Obvious Error Rule above, with the allowed notification timeframe commencing at the time of notification of the nullification of transaction(s) that triggered the stop or stop-limit order.
The Exchange also proposes to adopt language that clearly provides the Exchange with authority to take necessary actions when another options exchange nullifies or adjusts a transaction pursuant to its respective rules and the transaction resulted from an order that has passed through the Exchange and been routed on to another options exchange on behalf of the Exchange. Specifically, if the Exchange routes an order pursuant to the Intermarket Options Linkage Plan
The Exchange proposes to maintain its current appeals process in connection with obvious errors. Specifically, if a party affected by a determination made under paragraph (c) so requests within the time permitted in paragraph (k)(3) below, an Obvious Error Panel will review decisions made under this Rule, including whether an obvious error occurred, whether the correct Theoretical Price was used, and whether the correct adjustment was made at the correct price. A party may also request that the Obvious Error Panel provide relief as required in this Rule in cases where the party failed to provide the notification required in paragraph (c)(2) and an extension was not granted, but unusual circumstances must merit special consideration. A party cannot request review by an Obvious Error Panel of determinations by a CBOE Official made pursuant to paragraph (c)(3) of this Rule.
The Obvious Error Panel will be comprised of at least one (1) member of the Exchange's staff designated to perform Obvious Error Panel functions and four (4) Trading Permit Holders. Fifty percent of the number of Trading Permit Holders on the Obvious Error Panel must be directly engaged in market making activity and fifty percent of the number of Trading Permit Holders on the Obvious Error Panel must act in the capacity of a non-DPM floor broker.
Under Proposed Rule (k)(3) a request for review must be made in writing within thirty (30) minutes after a party receives notification of the determination being appealed, except that if notification is made after 2:30 p.m. Central Time (“CT”), either party has until 8:30 a.m. CT the next trading day to request review. The Obvious Error Panel shall review the facts and render a decision on the day of the transaction, or the next trade day in the case where a request is properly made the next trade day.
The Obvious Error Panel may overturn or modify an action taken under this Rule upon agreement by a majority of the Panel representatives. All determinations by the Obvious Error Panel may be appealed in accordance with paragraph (m) of this Rule.
The Exchange proposes to modify the procedure and function of the Catastrophic Error Panel in the Current Rule to conform the appeals process for catastrophic errors to the appeals process for obvious errors. Under the Current Rule, the Catastrophic Error Panel does not review initial determinations regarding catastrophic errors; rather, the Catastrophic Error Panel makes initial determinations with regards to whether a catastrophic error has occurred. In order to conform to the Proposed Rule, which provides that initial determinations regarding potential catastrophic errors are made by CBOE Officials, the Exchange is proposing to adopt procedures similar to the Obvious Error Panel for the proposed Catastrophic Error Panel. Specifically, if a party affected by a determination made under paragraph (d) so requests within the time permitted in paragraph (l)(3), a Catastrophic Error Panel will review decisions made under this Rule, including whether a catastrophic error occurred, whether the correct Theoretical Price was used, and whether the correct adjustment was made at the correct price. The composition of the Catastrophic Error Panel will be the same as the Obvious Error Panel.
Additionally, under paragraph (l)(3), a request for review must be made in writing within thirty (30) minutes after a party receives notification of a determination under paragraph (d), except that if notification is made after 2:30 p.m. Central Time (“CT”), either party has until 8:30 a.m. CT the next trading day to request review. The Catastrophic Error Panel shall review the facts and render a decision on the day of the transaction, or the next trade day in the case where a request is properly made the next trade day.
Finally, as with the Obvious Error Panel, the Catastrophic Error Panel may overturn or modify an action taken under this Rule upon agreement by a majority of the Panel representatives. All determinations by the Catastrophic Error Panel may be appealed in accordance with paragraph (m) of this Rule.
Determinations made by an Obvious Error Panel or Catastrophic Error Panel can be appealed in accordance with paragraph (m) of the Proposed Rule. Paragraph (m) provides that, subject to the limitations contained in (c)(3),
The Exchange is proposing to adopt Interpretation and Policy .01 to the Proposed Rule to provide for how the Exchange will treat Obvious and Catastrophic Errors in response to the Regulation NMS Plan to Address Extraordinary Market Volatility Pursuant to Rule 608 of Regulation NMS under the Act (the “Limit Up-Limit Down Plan” or the “Plan),
During a Limit or Straddle State, options prices may deviate substantially from those available immediately prior to or following such States. Thus, determining a Theoretical Price in such situations would often be very subjective, creating unnecessary uncertainty and confusion for investors. Because of this uncertainty, and consistent with the Current Rule, the Exchange proposes to provide that the Exchange will not review transactions as Obvious Errors or Catastrophic Errors when the underlying security is in a Limit or Straddle State.
The Exchange represents that it will conduct its own analysis concerning the elimination of the Obvious Error and Catastrophic Error provisions during Limit and Straddle States and agrees to provide the Commission with relevant data to assess the impact of this proposed rule change. As part of its analysis, the Exchange will evaluate (1) the options market quality during Limit and Straddle States, (2) assess the character of incoming order flow and transactions during Limit and Straddle States, and (3) review any complaints from TPHs and their customers concerning executions during Limit and Straddle States. The Exchange also agrees to provide to the Commission data requested to evaluate the impact of the inapplicability of the Obvious Error and Catastrophic Error provisions, including data relevant to assessing the various analyses noted above.
In connection with this proposal, the Exchange will provide to the Commission and the public a dataset containing the data for each Straddle State and Limit State in NMS Stocks underlying options traded on the Exchange beginning in the month during which the proposal is approved, limited to those option classes that have at least one (1) trade on the Exchange during a Straddle State or Limit State. For each of those option classes affected, each data record will contain the following information:
• Stock symbol, option symbol, time at the start of the Straddle or Limit State, an indicator for whether it is a Straddle or Limit State.
• For activity on the Exchange:
○ Executed volume, time-weighted quoted bid-ask spread, time- weighted average quoted depth at the bid, time-weighted average quoted depth at the offer;
○ high execution price, low execution price;
○ number of trades for which a request for review for error was received during Straddle and Limit States;
○ an indicator variable for whether those options outlined above have a price change exceeding 30% during the underlying stock's Limit or Straddle State compared to the last available option price as reported by OPRA before the start of the Limit or Straddle State (1 if observe 30% and 0 otherwise). Another indicator variable for whether the option price within five minutes of the underlying stock leaving the Limit or Straddle state (or halt if applicable) is 30% away from the price before the start of the Limit or Straddle State.
In addition, by May 29, 2015, the Exchange shall provide to the Commission and the public assessments relating to the impact of the operation of the Obvious Error rules during Limit and Straddle States as follows: (1) Evaluate the statistical and economic impact of Limit and Straddle States on liquidity and market quality in the options markets; and (2) Assess whether the lack of Obvious Error rules in effect during the Straddle and Limit States are problematic. The timing of this submission would coordinate with Participants' proposed time frame to submit to the Commission assessments as required under Appendix B of the Plan. The Exchange notes that the pilot program is intended to run concurrent with the pilot period of the Plan, which has been extended to October 23, 2015. The Exchange proposes to reflect this date in the Proposed Rule.
The Exchange also proposes to include Interpretation and Policy .02 to the Proposed Rule, which would make clear that to the extent the provisions of the proposed Rule would result in the Exchange applying an adjustment of an erroneous sell transaction to a price lower than the execution price or an erroneous buy transaction to a price higher than the execution price, the Exchange will not adjust or nullify the transaction, but rather, the execution price will stand.
The Exchange also proposes to adopt Interpretation and Policy .03 to the Proposed Rule, which will permit the nullification of opening transactions in “restricted series” that do not satisfy the requirements of Rule 5.4.
Additionally, consistent with the Current Rule,
Additionally, consistent with the Current Rule,
Additionally, the Exchange proposes to adopt Interpretation and Policy .06, which provides that any determination made by an Official, an Obvious Error Panel, or a Catastrophic Error Panel under Proposed Rule shall be rendered without prejudice as to the rights of the parties to the transaction to submit a dispute to arbitration.
Finally, the Exchange proposes to make conforming changes to Current Rule 29.15, which governs the nullification and adjustment of credit options transactions.
In order to ensure that other options exchanges are able to adopt rules consistent with this proposal and to coordinate the effectiveness of such harmonized rules, the Exchange proposes to delay the operative date of this proposal to May 8, 2015.
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.
As described above, the Exchange and other options exchanges are seeking to adopt harmonized rules related to the adjustment and nullification of erroneous options transactions. The Exchange believes that the Proposed Rule will provide greater transparency and clarity with respect to the adjustment and nullification of erroneous options transactions. Particularly, the proposed changes seek to achieve consistent results for participants across U.S. options exchanges while maintaining a fair and orderly market, protecting investors and protecting the public interest. Based on the foregoing, the Exchange believes that the proposal is consistent with Section 6(b)(5) of the Act
The Exchange believes the various provisions allowing or dictating
The Exchange does not believe that the proposal is unfairly discriminatory, even though it differentiates in many places between Customers and non-Customers. The rules of the options exchanges, including the Exchange's existing Obvious Error provision, often treat Customers differently, often affording them preferential treatment. This treatment is appropriate in light of the fact that Customers are not necessarily immersed in the day-to-day trading of the markets, are less likely to be watching trading activity in a particular option throughout the day, and may have limited funds in their trading accounts. At the same time, the Exchange reiterates that in the U.S. options markets generally there is significant retail customer participation that occurs directly on (and only on) options exchanges such as the Exchange. Accordingly, differentiating among market participants with respect to the adjustment and nullification of erroneous options transactions is not unfairly discriminatory because it is reasonable and fair to provide Customers with additional protections as compared to non-Customers.
The Exchange believes that its proposal with respect to the allowance of mutual agreed upon adjustments or nullifications is appropriate and consistent with the Act, as such proposal removes impediments to and perfects the mechanism of a free and open market and a national market system, allowing participants to mutually agree to correct an erroneous transactions without the Exchange mandating the outcome. The Exchange also believes that its proposal with respect to mutual adjustments is consistent with the Act because it is designed to prevent fraudulent and manipulative acts and practices by explicitly stating that it is considered conduct inconsistent with just and equitable principles of trade for any TPH to use the mutual adjustment process to circumvent any applicable Exchange rule, the Act or any of the rules and regulations thereunder.
The Exchange believes its proposal to provide within the Proposed Rule definitions of Customer, erroneous sell transaction and erroneous buy transaction, and Official is consistent with Section 6(b)(5) of the Act because such terms will provide more certainty to market participants as to the meaning of the Proposed Rule and reduce the possibility that a party can intentionally submit an order hoping for the market to move in their favor in reliance on the Rule as a safety mechanism, thereby promoting just and fair principles of trade. Similarly, the Exchange believes that proposed Interpretation and Policy .02 is consistent with the Act as it would make clear that the Exchange will not adjust or nullify a transaction, but rather, the execution price will stand when the applicable adjustment criteria would actually adjust the price of the transaction to a worse price (
As set forth below, the Exchange believes it is consistent with Section 6(b)(5) of the Act for the Exchange to determine Theoretical Price when the NBBO cannot reasonably be relied upon because the alternative could result in transactions that cannot be adjusted or nullified even when they are otherwise clearly at a price that is significantly away from the appropriate market for the option. Similarly, reliance on an NBBO that is not reliable could result in adjustment to prices that are still significantly away from the appropriate market for the option.
The Exchange believes that its proposal with respect to determining Theoretical Price is consistent with the Act in that it has retained the standard of the current rule, which is to rely on the NBBO to determine Theoretical Price if such NBBO can reasonably be relied upon. Because, however, there is not always an NBBO that can or should be used in order to administer the rule, the Exchange has proposed various provisions that provide the Exchange with the authority to determine a Theoretical Price. The Exchange believes that the Proposed Rule is transparent with respect to the circumstances under which the Exchange will determine Theoretical Price, and has sought to limit such circumstances as much as possible. The Exchange notes that Exchange personnel currently are required to determine Theoretical Price in certain circumstances. While the Exchange continues to pursue alternative solutions that might further enhance the objectivity and consistency of determining Theoretical Price, the Exchange believes that the discretion currently afforded to Exchange Officials is appropriate in the absence of a reliable NBBO that can be used to set the Theoretical Price.
With respect to the specific proposed provisions for determining Theoretical Price for transactions that occur as part of the Exchange's Opening Process and in situations where there is a wide quote, the Exchange believes both provisions are consistent with the Act because they provide objective criteria that will determine Theoretical Price with limited exceptions for situations where the Exchange does not believe the NBBO is a reasonable benchmark or there is no NBBO. The Exchange notes in particular with respect to the wide quote provision that the Proposed Rule will result in the Exchange determining Theoretical Price less frequently than it would pursuant to wide quote provisions that have previously been approved. The Exchange believes that it is appropriate and consistent with the Act to afford protections to market participants by not relying on the NBBO to determine Theoretical Price when the quote is extremely wide but had been, in the prior 10 seconds, at much more reasonable width. The Exchange also believes it is appropriate and consistent with the Act to use the NBBO to determine Theoretical Price when the quote has been wider than the applicable amount for more than 10 seconds, as the Exchange does not believe it is necessary to apply any other criteria in such a circumstance. The Exchange believes that market participants can easily use or adopt safeguards to prevent errors when such market conditions exist. When entering an order into a market with a persistently wide quote, the Exchange does not believe that the entering party should reasonably expect anything other than the quoted price of an option.
The Exchange believes that its proposal to adopt clear but disparate standards with respect to the deadline for submitting a request for review of Customer and non-Customer transactions is consistent with the Act, particularly in that it creates a greater level of protection for Customers. As noted above, the Exchange believes that this is appropriate and not unfairly discriminatory in light of the fact that Customers are not necessarily immersed in the day-to-day trading of the markets and are less likely to be watching trading activity in a particular option throughout the day. Thus, TPHs representing Customer orders reasonably may need additional time to submit a request for review. The
In relation to the aspect of the proposal giving Officials the ability to review transactions for obvious errors on their own motion, the Exchange notes that an Official can adjust or nullify a transaction under the authority granted by this provision only if the transaction meets the specific and objective criteria for an Obvious Error under the Proposed Rule. As noted above, this is designed to give an Official the ability to provide parties relief in those situations where they have failed to report an apparent error within the established notification period. However, the Exchange will only grant relief if the transaction meets the requirements for an Obvious Error as described in the Proposed Rule.
The Exchange believes that its proposal to adjust non-Customer transactions and to nullify Customer transactions that qualify as Obvious Errors is appropriate for reasons consistent with those described above. In particular, Customers are not necessarily immersed in the day-to-day trading of the markets, are less likely to be watching trading activity in a particular option throughout the day, and may have limited funds in their trading accounts.
The Exchange acknowledges that the proposal contains some uncertainty regarding whether a trade will be adjusted or nullified, depending on whether one of the parties is a Customer, because a party may not know whether the other party to a transaction was a Customer at the time of entering into the transaction. However, the Exchange believes that the proposal nevertheless promotes just and equitable principles of trade and protects investors as well as the public interest because it eliminates the possibility that a Customer's order will be adjusted to a significantly different price. As noted above, the Exchange believes it is consistent with the Act to afford Customers greater protections under the Proposed Rule than are afforded to non-Customers. Thus, the Exchange believes that its proposal is consistent with the Act in that it protects investors and the public interest by providing additional protections to those that are less informed and potentially less able to afford an adjustment of a transaction that was executed in error. Customers are also less likely to have engaged in significant hedging or other trading activity based on earlier transactions, and thus, are less in need of maintaining a position at an adjusted price than non-Customers.
If any TPH submits requests to the Exchange for review of transactions pursuant to the Proposed Rule, and in aggregate that TPH has 200 or more Customer transactions under review concurrently and the orders resulting in such transactions were submitted during the course of 2 minutes or less, the Exchange believes it is appropriate for the Exchange apply the non-Customer adjustment criteria described above to such transactions. The Exchange believes that the proposed aggregation is reasonable as it is representative of an extremely large number of orders submitted to the Exchange over a relatively short period of time that are, in turn, possibly erroneous (and within a time frame significantly less than an entire day), and thus is most likely to occur because of a systems issue experienced by a TPH representing Customer orders or a systems issue coupled with the erroneous marking of orders. The Exchange does not believe it is possible at a level of 200 Customer orders over a 2 minute period that are under review at one time that multiple, separate Customers were responsible for the errors in the ordinary course of trading. In the event of a large-scale issue caused by a TPH that has submitted orders over a 2 minute period marked as Customer that resulted in more than 200 transactions under review, the Exchange does not believe it is appropriate to nullify all such transactions because of the negative impact that nullification could have on the market participants on the contra-side of such transactions, who might have engaged in hedging and trading activity following such transactions. In order for a participant to have more than 200 transactions under review concurrently when the orders triggering such transactions were received in 2 minutes or less, the Exchange believes that a market participant will have far exceeded the normal behavior of customers deserving protected status. While the Exchange continues to believe that it is appropriate to nullify transactions in such a circumstance if both participants to a transaction are Customers, the Exchange does not believe it is appropriate to place the overall risk of a significant number of trade breaks on non-Customers that in the normal course of business may have engaged in additional hedging activity or trading activity based on such transactions. Thus, the Exchange believes it is necessary and appropriate to protect non-Customers in such a circumstance by applying the non-Customer adjustment criteria, and thus adjusting transactions as set forth above, in the event a TPH has more than 200 transactions under review concurrently. In summary, due to the extreme level at which the proposal is set, the Exchange believes that the proposal is consistent with Section 6(b)(5) of the Act in that it promotes just and equitable principles of trade by encouraging market participants to retain appropriate controls over their systems to avoid submitting a large number of erroneous orders in a short period of time.
Similarly, the Exchange believes that the proposed Size Adjustment Modifier, which would increase the adjustment amount for non-Customer transactions, is appropriate because it attempts to account for the additional risk that the parties to the trade undertake for transactions that are larger in scope. The Exchange believes that the Size Adjustment Modifier creates additional incentives to prevent more impactful Obvious Errors and it lessens the impact on the contra-party to an adjusted trade. The Exchange notes that these contra-parties may have preferred to only trade the size involved in the transaction at the price at which such trade occurred, and in trading larger size has committed a greater level of capital and bears a larger hedge risk.
The Exchange similarly believes that its Proposed Rule with respect to Catastrophic Errors is consistent with the Act as it affords additional time for market participants to file for review of erroneous transactions that were further away from the Theoretical Price. At the same time, the Exchange believes that the Proposed Rule is consistent with the Act in that it generally would adjust transactions, including Customer transactions, because this will protect against hedge risk, particularly for transactions that may have occurred several hours earlier and thus, which all parties to the transaction might presume are protected from further modification. Similarly, by providing larger adjustment amounts away from Theoretical Price than are set forth under the Obvious Error provision, the
The Exchange believes that proposed rule change to adopt the Significant Market Event provision is consistent with Section 6(b)(5) of the Act in that it will foster cooperation and coordination with persons engaged in regulating the options markets. In particular, the Exchange believes it is important for options exchanges to coordinate when there is a widespread and significant event, as commonly, multiple options exchanges are impacted in such an event. Further, while the Exchange recognizes that the Proposed Rule will not guarantee a consistent result for all market participants on every market, the Exchange does believe that it will assist in that outcome. For instance, if options exchanges are able to agree as to the time from which Theoretical Price should be determined and the period of time that should be reviewed, the likely disparity between the Theoretical Prices used by such exchanges should be very slight and, in turn, with otherwise consistent rules, the results should be similar. The Exchange also believes that the Proposed Rule is consistent with the Act in that it generally would adjust transactions, including Customer transactions, because this will protect against hedge risk, particularly for liquidity providers that might have been quoting in thousands or tens of thousands of different series and might have affected executions throughout such quoted series. The Exchange believes that when weighing the competing interests between preferring a nullification for a Customer transaction and an adjustment for a transaction of a market professional, while nullification is appropriate in a typical one-off situation that it is necessary to protect liquidity providers in a widespread market event because, presumably, they will be the most affected by such an event (in contrast to a Customer who, by virtue of their status as such, likely would not have more than a small number of affected transactions). The Exchange believes that the protection of liquidity providers by favoring adjustments in the context of Significant Market Events can also benefit Customers indirectly by better enabling liquidity providers, which provides a cumulative benefit to the market. Also, as stated above with respect to Catastrophic Errors, the Exchange believes it is reasonable to specifically protect Customers from adjustments through their limit prices for the reasons stated above, including that Customers are less likely to be watching trading throughout the day and that they may have less capital to afford an adjustment price. The Exchange believes that the proposal provides a fair process that will ensure that Customers are not forced to accept a trade that was executed in violation of their limit order price. In contrast, market professionals are more likely to have engaged in hedging or other trading activity based on earlier trading activity, and thus, are more likely to be willing to accept an adjustment rather than a nullification to preserve their positions even if such adjustment is to a price through their limit price. In addition, the Exchange believes it is important to have the ability to nullify some or all transactions arising out of a Significant Market Event in the event timely adjustment is not feasible due to the extraordinary nature of the situation. In particular, although the Exchange has worked to limit the circumstances in which it has to determine Theoretical Price, in a widespread event it is possible that hundreds if not thousands of series would require an Exchange determination of Theoretical Price. In turn, if there are hundreds or thousands of trades in such series, it may not be practicable for the Exchange to determine the adjustment levels for all non-Customer transactions in a timely fashion, and in turn, it would be in the public interest to instead more promptly deliver a simple, consistent result of nullification.
The Exchange believes that proposed rule change related to review, nullification and/or adjustment of erroneous transactions during a trading halt, an erroneous print in the underlying security, an erroneous quote in the underlying security, or an erroneous transaction in the option with respect to stop and stop limit orders is likewise consistent with Section 6(b)(5) of the Act because the proposal provides for the adjustment or nullification of trades executed at erroneous prices through no fault on the part of the trading participants. Allowing for Exchange review in such situations will promote just and fair principles of trade by protecting investors from harm that is not of their own making. Specifically with respect to the proposed provisions governing erroneous prints and quotes in the underlying security, the Exchange notes that market participants on the Exchange base the value of their quotes and orders on the price of the underlying security. The provisions regarding errors in prints and quotes in the underlying security cover instances where the information market participants use to price options is erroneous through no fault of their own. In these instances, market participants have little, if any, chance of pricing options accurately. Thus, these provisions are designed to provide relief to market participants harmed by such errors in the prints or quotes of the underlying security.
The Exchange believes that the proposed provision related to Linkage Trades is consistent with the Act because it adds additional transparency to the Proposed Rule and makes clear that when a Linkage Trade is adjusted or nullified by another options exchange, the Exchange will take necessary actions to complete the nullification or adjustment of the Linkage Trade.
The Exchange believes that retaining the same appeals process for obvious errors as the Exchange maintains under the Current Rule is consistent with the Act because such process provides TPHs with due process in connection with decisions made by Exchange Officials under the Proposed Rule. The Exchange believes that this process provides fair representation of TPHs by ensuring multiple TPHs are members of any Obvious Error Review Panel, which is consistent with Sections 6(b)(3) and 6(b)(7) of the Act. The Exchange believes adopting a similar appeals process for catastrophic errors is consistent with the Act for the same reasons noted above.
With regard to the portion of the Exchange's proposal related to the applicability of the Obvious Error Rule when the underlying security is in a Limit or Straddle State, the Exchange believes that the proposed rule change is consistent with Section 6(b)(5) of the Act because it will provide certainty
The Exchange believes the application of the Proposed Rule without the proposed provision would be impracticable given the lack of reliable NBBO in the options market during Limit and Straddle States, and that the resulting actions (
Moreover, given the fact that options prices during brief Limit or Straddle States may deviate substantially from those available shortly following the Limit or Straddle State, the Exchange believes giving market participants time to re-evaluate a transaction would create an unreasonable adverse selection opportunity that would discourage participants from providing liquidity during Limit or Straddle States. In this respect, the Exchange notes that only those orders with a limit price will be executed during a Limit or Straddle State. Therefore, on balance, the Exchange believes that removing the potential inequity of nullifying or adjusting executions occurring during Limit or Straddle States outweighs any potential benefits from applying certain provisions during such unusual market conditions. Additionally, as discussed above, there are additional pre-trade protections in place outside of the Obvious and Catastrophic Error Rule that will continue to safeguard customers.
The Exchange notes that under certain limited circumstances the Proposed Rule will permit the Exchange to review transactions in options that overlay a security that is in a Limit or Straddle State. Specifically, an Official will have authority to review a transaction on his or her own motion in the interest of maintaining a fair and orderly market and for the protection of investors. Furthermore, the Exchange will have the authority to adjust or nullify transactions in the event of a Significant Market Event, a trading halt in the affected option, an erroneous print or quote in the underlying security, or with respect to stop and stop limit orders that have been triggered based on erroneous trades. The Exchange believes that the safeguards described above will protect market participants and will provide the Exchange with the flexibility to act when necessary and appropriate to nullify or adjust a transaction, while also providing market participants with certainty that, under normal circumstances, the trades they effect with quotes and/or orders having limit prices will stand irrespective of subsequent moves in the underlying security. The right to review those transactions that occur during a Limit or Straddle State would allow the Exchange to account for unforeseen circumstances that result in Obvious or Catastrophic Errors for which a nullification or adjustment may be necessary in the interest of maintaining a fair and orderly market and for the protection of investors. Similarly, the ability to nullify or adjust transactions that occur during a Significant Market Event or trading halt, erroneous print or quote in the underlying security, or erroneous trade in the option (
Similarly, the portion of the Exchange's proposal related to allowing opening transactions to be nullified if the transactions do not satisfy the requirements of Rule 5.4 is consistent with Section 6(b)(5) of the Act because the provision allows the Exchange to more efficiently address scenarios where an opening transaction that does not satisfy the requirements of Rule 5.4 may have occurred inadvertently.
Finally, the portions of the Exchange's proposal related to Binary Options and Credit options are also consistent with Section 6(b)(5) of the Act because the provisions help protect investors and the public interest by applying the Obvious Error rule in a manner that is appropriate for the unique nature of Binary and Credit Options.
CBOE 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. Importantly, the Exchange believes the proposal will not impose a burden on intermarket competition but will rather alleviate any burden on competition because it is the result of a collaborative effort by all options exchanges to harmonize and improve the process related to the adjustment and nullification of erroneous options transactions. The Exchange does not believe that the rules applicable to such process is an area where options exchanges should compete, but rather, that all options exchanges should have consistent rules to the extent possible. Particularly where a market participant trades on several different exchanges and an erroneous trade may occur on multiple markets nearly simultaneously, the Exchange believes that a participant should have a consistent experience with respect to the nullification or adjustment of transactions. The Exchange understands that all other options exchanges intend to file proposals that are substantially similar to this proposal.
The Exchange does not believe that the proposed rule change imposes a burden on intramarket competition because the provisions apply to all market participants equally within each participant category (
The Exchange neither solicited nor received 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 if consistent with the protection of investors and the public interest, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act
The Exchange has asked the Commission to waive the 30-day operative delay so that the proposal may become operative immediately upon filing. The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest, as it will enable the Exchange to meet its proposed implementation date of May 8, 2015, which will help facilitate the implementation of harmonized rules related to the adjustment and nullification of erroneous options transactions across the options exchanges. For this reason, the Commission designates the proposed rule change to be operative upon filing.
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 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 Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to Section 19(b)(1)
The Exchange proposes to amend the fees for NYSE Arca BBO and NYSE Arca Trades to add a late fee in connection with failure to submit the non-display use declaration, operative on May 1, 2015. The text of the proposed rule change is available on the Exchange's Web site at
In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text
The Exchange proposes to amend the fees for NYSE Arca BBO and NYSE Arca Trades, as set forth on the NYSE Arca Equities Proprietary Market Data Fee Schedule (“Fee Schedule”), to add a late fee in connection with failure to submit an updated non-display use declaration. The proposed change to the Fee Schedule would be operative on May 1, 2015.
The Exchange established the current fees for non-display services for NYSE Arca BBO and NYSE Arca Trades in April 2013 and amended those fees in September 2014.
The Exchange notes that if a data recipient does not timely submit a Non-Display Use Declaration, the Exchange does not have up-to-date information about the data recipient's data use and therefore may not be charging the correct fees to the data recipient. In order to correctly assess fees for the non-display use of NYSE Arca BBO and NYSE Arca Trades, the Exchange needs to have current and accurate information about the use of NYSE Arca BBO and NYSE Arca Trades. The failure of data recipients to submit the Non-Display Use Declaration on time leads to potentially incorrect billing and administrative burdens, including tracking and obtaining late Non-Display Use Declarations and correcting customer records in connection with late Non-Display Use Declarations. The purpose of the proposed late fee is to incent data recipients to submit the Non-Display Use Declaration promptly to avoid the administrative burdens associated with the late submission of Non-Display Use Declarations.
The Exchange proposes to establish a Non-Display Declaration Late Fee of $1,000 per month. The proposed fee would be charged to any data recipient that pays an Access Fee for NYSE Arca BBO and NYSE Arca Trades that has failed to timely complete and submit a Non-Display Use Declaration.
With respect to the Non-Display Use Declaration that was due by September 1, 2014, the Non-Display Declaration Late Fee would apply to NYSE Arca BBO and NYSE Arca Trades data recipients that have not submitted the Non-Display Use Declaration by June 30, 2015, and would apply beginning July 1, 2015 and for each month thereafter until the data recipient has completed and submitted the Non-Display Use Declaration. With respect to the annual Non-Display Use Declaration due by January 31st of each year beginning in 2016, the Non-Display Declaration Late Fee would apply to data recipients that fail to complete and submit the annual Non-Display Use Declaration by the January 31st due date, and would apply beginning February 1st and for each month thereafter until the data recipient has completed and submitted the annual Non-Display Use Declaration.
In addition to adding the Non-Display Declaration Late Fee for NYSE Arca BBO and NYSE Arca Trades to the Fee Schedule, the Exchange proposes to add an endnote to the Fee Schedule that would specify the effective dates for the Non-Display Declaration Late Fee as described above, and to change the numbering for the existing endnotes as needed.
The Exchange believes that the proposed rule change is consistent with the provisions of Section 6 of the Act,
The Exchange believes that it is reasonable to impose a late fee in connection with the submission of the Non-Display Use Declaration. In order to correctly assess fees for the non-display use of NYSE Arca BBO and NYSE Arca Trades, the Exchange needs to have current and accurate information about the use of NYSE Arca BBO and NYSE Arca Trades. The failure of data recipients to submit the Non-Display Use Declaration on time leads to potentially incorrect billing and administrative burdens, including tracking and obtaining late Non-Display Use Declarations and correcting and following up on payments owed in connection with late Non-Display Use Declarations. The purpose of the late fee is to incent data recipients to submit the Non-Display Use Declaration promptly to avoid the administrative burdens associated with the late submission of Non-Display Use Declarations. The Non-Display Declaration Late Fee is equitable and not unfairly discriminatory because it will apply to all data recipients that choose to subscribe to the NYSE Arca BBO and NYSE Arca Trades feed.
The Non-Display Declaration Late Fee is also consistent with similar pricing adopted in 2013 by the Consolidated Tape Association (“CTA”).
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. An exchange's ability to price its proprietary market data feed products is constrained by actual competition for the sale of proprietary market data products, the joint product nature of exchange platforms, and the existence of alternatives to the Exchange's proprietary data. In addition to being able to choose which proprietary data products (if any) to use and how to use them, a user can avoid the late fees that are the subject of this filing entirely by simply complying with the requisite deadlines.
In setting 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 fierce competition to sell proprietary data products and for order flow, as well as numerous alternatives to the Exchange's products, including proprietary data from other sources, ensures that the Exchange cannot set unreasonable fees, or fees that are unreasonably discriminatory, when vendors and subscribers can elect these alternatives or choose not to purchase a specific proprietary data product if the attendant fees are not justified by the returns that any particular vendor or data recipient would achieve through the purchase (the returns on use being a particularly important aspect of non-display uses of proprietary data).
No written comments were solicited or received with respect to the proposed rule change.
The foregoing rule change is effective upon filing pursuant to Section 19(b)(3)(A)
At any time within 60 days of the filing of such 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 under Section 19(b)(2)(B)
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.
To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site (
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 ISE proposes to amend current Rule 720 (“Current Rule”), and rename it “Nullification and Adjustment of Options Transactions including Obvious
In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The self-regulatory organization has prepared summaries, set forth in sections A, B and C below, of the most significant aspects of such statements.
For several months the Exchange has been working with other options exchanges to identify ways to improve the process related to the adjustment and nullification of erroneous options transactions. The goal of the process that the options exchanges have undertaken is to adopt harmonized rules related to the adjustment and nullification of erroneous options transactions as well as a specific provision related to coordination in connection with large-scale events involving erroneous options transactions. As described below, the Exchange believes that the changes the options exchanges and the Exchange have agreed to propose will provide transparency and finality with respect to the adjustment and nullification of erroneous options transactions. Particularly, the proposed changes seek to achieve consistent results for participants across U.S. options exchanges while maintaining a fair and orderly market, protecting investors and protecting the public interest.
The Proposed Rule is the culmination of this coordinated effort and reflects discussions by the options exchanges to universally adopt: (1) Certain provisions already in place on one or more options exchanges; and (2) new provisions that the options exchanges collectively believe will improve the handling of erroneous options transactions. Thus, although the Proposed Rule is in many ways similar to and based on the Exchange's Current Rule, the Exchange is adopting various provisions to conform with existing rules of one or more options exchanges and also to adopt rules that are not currently in place on any options exchange. As noted above, in order to adopt a rule that is similar in most material respects to the rules adopted by other options exchanges, the Exchange proposes to delete the Current Rule in its entirety, with two exceptions,
The Exchange also proposes to keep language in Supplementary Material .01 to Rule 720 that authorizes the Exchange to disclose the identity of parties to a trade to each other when the Market Control determines that an Obvious or Catastrophic Error has occurred. The Exchange believes that this provision is important to encourage conflict resolution between two parties to a trade.
With the remaining text in the Supplementary Material to Rule 720 now being deleted, the Exchange proposes to renumber Supplementary Material .01 and .06.
The Exchange notes that it has proposed additional objective standards in the Proposed Rule as compared to the Current Rule. The Exchange also notes that the Proposed Rule will ensure that the Exchange will have the same standards as all other options exchanges. However, there are still areas under the Proposed Rule where subjective determinations need to be made by Exchange personnel with respect to the calculation of Theoretical Price. The Exchange notes that the Exchange and all other options exchanges have been working to further improve the review of potentially erroneous transactions as well as their subsequent adjustment by creating an objective and universal way to determine Theoretical Price in the event a reliable NBBO is not available. For instance, the Exchange and all other options exchanges may utilize an independent third party to calculate and disseminate or make available Theoretical Price. However, this initiative requires additional exchange and industry discussion as well as additional time for development and implementation. The Exchange will continue to work with other options exchanges and the options industry towards the goal of additional objectivity and uniformity with respect to the calculation of Theoretical Price.
As additional background, the Exchange believes that the Proposed Rule supports an approach consistent with long-standing principles in the options industry under which the general policy is to adjust rather than nullify transactions. The Exchange acknowledges that adjustment of transactions is contrary to the operation of analogous rules applicable to the equities markets, where erroneous transactions are typically nullified rather than adjusted and where there is no distinction between the types of market participants involved in a transaction. For the reasons set forth below, the Exchange believes that the distinctions in market structure between equities and options markets continue to support these distinctions between the rules for handling obvious errors in the equities and options markets. The Exchange also believes that the Proposed Rule properly balances several competing concerns based on the structure of the options markets.
Various general structural differences between the options and equities markets point toward the need for a different balancing of risks for options market participants and are reflected in the Proposed Rule. Option pricing is formulaic and is tied to the price of the underlying stock, the volatility of the underlying security and other factors. Because options market participants can generally create new open interest in response to trading demand, as new open interest is created, correlated trades in the underlying or related series are generally also executed to hedge a market participant's risk. This pairing of open interest with hedging interest differentiates the options market specifically (and the derivatives markets broadly) from the cash equities markets. In turn, the Exchange believes that the hedging transactions engaged in by market participants necessitates protection of transactions through adjustments rather than nullifications when possible and otherwise appropriate.
The options markets are also quote driven markets dependent on liquidity providers to an even greater extent than equities markets. In contrast to the approximately 7,000 different securities traded in the U.S. equities markets each day, there are more than 500,000 unique, regularly quoted option series. Given this breadth in options series the options markets are more dependent on liquidity providers than equities markets; such liquidity is provided most
In addition to the factors described above, there are other fundamental differences between options and equities markets which lend themselves to different treatment of different classes of participants that are reflected in the Proposed Rule. For example, there is no trade reporting facility in the options markets. Thus, all transactions must occur on an options exchange. This leads to significantly greater retail customer participation directly on exchanges than in the equities markets, where a significant amount of retail customer participation never reaches the Exchange but is instead executed in off-exchange venues such as alternative trading systems, broker-dealer market making desks and internalizers. In turn, because of such direct retail customer participation, the exchanges have taken steps to afford those retail customers—generally Customers—more favorable treatment in some circumstances.
The Exchange proposes to adopt various definitions that will be used in the Proposed Rule, as described below.
First, the Exchange proposes to adopt a definition of “Customer,” to make clear that this term has the same definition as Priority Customer in Rule 100(a)(37A). Although other portions of the Exchange's rules address the capacity of market participants, including customers, the proposed definition is consistent with such rules and the Exchange believes it is important for all options exchanges to have the same definition of Customer in the context of nullifying and adjusting trades in order to have harmonized rules. As set forth in detail below, orders on behalf of a Customer are in many cases treated differently than non-Customer orders in light of the fact that Customers are not necessarily immersed in the day-to-day trading of the markets, are less likely to be watching trading activity in a particular option throughout the day, and may have limited funds in their trading accounts.
Second, the Exchange proposes to adopt definitions for both an “erroneous sell transaction” and an “erroneous buy transaction.” As proposed, an erroneous sell transaction is one in which the price received by the person selling the option is erroneously low, and an erroneous buy transaction is one in which the price paid by the person purchasing the option is erroneously high. This provision helps to reduce the possibility that a party can intentionally submit an order hoping for the market to move in their favor while knowing that the transaction will be nullified or adjusted if the market does not. For instance, when a market participant who is buying options in a particular series sees an aggressively priced sell order posted on the Exchange, and the buyer believes that the price of the options is such that it might qualify for obvious error, the option buyer can trade with the aggressively priced order, then wait to see which direction the market moves. If the market moves in their direction, the buyer keeps the trade and if it moves against them, the buyer calls the Exchange hoping to get the trade adjusted or busted.
Third, the Exchange proposes to adopt a definition of “Official,” which would mean an Officer of the Exchange or such other employee designee of the Exchange that is trained in the application of the Proposed Rule.
Fourth, the Exchange proposes to adopt a new term, a “Size Adjustment Modifier,” which would apply to individual transactions and would modify the applicable adjustment for orders under certain circumstances, as discussed in further detail below. As proposed, the Size Adjustment Modifier will be applied to individual transactions as follows:
The Size Adjustment Modifier attempts to account for the additional risk that the parties to the trade undertake for transactions that are larger in scope. The Exchange believes that the Size Adjustment Modifier creates additional incentives to prevent more impactful Obvious Errors and it lessens the impact on the contra-party to an adjusted trade. The Exchange notes that these contra-parties may have preferred to only trade the size involved in the transaction at the price at which such trade occurred, and in trading larger size has committed a greater level of capital and bears a larger hedge risk.
When setting the proposed size adjustment modifier thresholds the Exchange has tried to correlate the size breakpoints with typical small and larger “block” execution sizes of underlying stock. For instance, SEC Rule 10b-18(a)(5)(ii) defines a “block” as a quantity of stock that is at least 5,000 shares and a purchase price of at least $50,000, among others.
Under both the Current Rule and the Proposed Rule, when reviewing a transaction as potentially erroneous, the Exchange needs to first determine the “Theoretical Price” of the option,
The Exchange also proposes to specify in the Proposed Rule that when a single order received by the Exchange is executed at multiple price levels, the last NBB and last NBO just prior to the trade in question would be the last NBB and last NBO just prior to the Exchange's receipt of the order.
The Exchange also proposes to set forth in the Proposed Rule various provisions governing specific situations where the NBB or NBO is not available or may not be reliable. Specifically, the Exchange is proposing additional detail specifying situations in which there are no quotes or no valid quotes (as defined below), when the national best bid or offer (“NBBO”) is determined to be too wide to be reliable, and at the open of trading on each trading day.
As is true under the Current Rule, pursuant to the Proposed Rule the Exchange will determine the Theoretical Price if there are no quotes or no valid quotes for comparison purposes. As proposed, quotes that are not valid are all quotes in the applicable option series published at a time where the last NBB is higher than the last NBO in such series (a “crossed market”), quotes published by the Exchange that were submitted by either party to the transaction in question, and quotes published by another options exchange against which the Exchange has declared self-help. Thus, in addition to scenarios where there are literally no quotes to be used as Theoretical Price, the Exchange will exclude quotes in certain circumstances if such quotes are not deemed valid. The Proposed Rule is consistent with the Exchange's application of the Current Rule but the descriptions of the various scenarios where the Exchange considers quotes to be invalid represent additional detail that is not included in the Current Rule.
The Exchange notes that Exchange personnel currently are required to determine Theoretical Price in certain circumstances. While the Exchange continues to pursue alternative solutions that might further enhance the objectivity and consistency of determining Theoretical Price, the Exchange believes that the discretion currently afforded to Exchange Officials is appropriate in the absence of a reliable NBBO that can be used to set the Theoretical Price. Under the current Rule, Exchange personnel will generally consult and refer to data such as the prices of related series, especially the closest strikes in the option in question. Exchange personnel may also take into account the price of the underlying security and the volatility characteristics of the option as well as historical pricing of the option and/or similar options.
Similarly, pursuant to the Proposed Rule the Exchange will determine the Theoretical Price if the bid/ask differential of the NBB and NBO for the affected series just prior to the erroneous transaction was equal to or greater than the Minimum Amount set forth below and there was a bid/ask differential less than the Minimum Amount during the 10 seconds prior to the transaction. If there was no bid/ask differential less than the Minimum Amount during the 10 seconds prior to the transaction then the Theoretical Price of an option series is the last NBB or NBO just prior to the transaction in question. The Exchange proposes to use the following chart to determine whether a quote is too wide to be reliable:
The Exchange notes that the values set forth above generally represent a multiple of 3 times the bid/ask differential requirements of other options exchanges, with certain rounding applied (
As an example, assume an option is quoted $3.00 by $6.00 with 50 contracts posted on each side of the market for an extended period of time. If a market participant were to enter a market order to buy 20 contracts the Exchange believes that the buyer should have a reasonable expectation of paying $6.00 for the contracts which they are buying. This should be the case even if immediately after the purchase of those options, the market conditions change and the same option is then quoted at $3.75 by $4.25. Although the quote was wide according to the table above at the time immediately prior to and the time of the execution of the market order, it was also well established and well known. The Exchange believes that an execution at the then prevailing market price should not in and of itself constitute an erroneous trade.
Under the Proposed Rule, for a transaction occurring during the
As an example of an erroneous transaction for which the NBBO is wide at the open, assume the NBBO at the time of the opening transaction is $1.00 x $5.00 and the opening transaction takes place at $1.25. The Exchange would be responsible for determining the Theoretical Price because the NBBO was wider than the applicable minimum amount set forth in the wide quote provision as described above. The Exchange believes that it is necessary to determine theoretical price at the open in the event of a wide quote at the open for the same reason that the Exchange has proposed to determine theoretical price during the remainder of the trading day pursuant to the proposed wide quote provision, namely that a wide quote cannot be reliably used to determine Theoretical Price because the Exchange does not know which of the two quotes, the NBB or the NBO, is closer to the real value of the option.
The Exchange proposes to adopt numerical thresholds that would qualify transactions as “Obvious Errors.” These thresholds are similar to those in place under the Current Rule. As proposed, a transaction will qualify as an Obvious Error if the Exchange receives a properly submitted filing and the execution price of a transaction is higher or lower than the Theoretical Price for the series by an amount equal to at least the amount shown below:
Applying the Theoretical Price, as described above, to determine the applicable threshold and comparing the Theoretical Price to the actual execution price provides the Exchange with an objective methodology to determine whether an Obvious Error occurred. The Exchange believes that the proposed amounts are reasonable as they are generally consistent with the standards of the Current Rule and reflect a significant disparity from Theoretical Price. The Exchange notes that the Minimum Amounts in the Proposed Rule and as set forth above are identical to the Current Rule except for the last two categories, for options where the Theoretical Price is above $50.00 to $100.00 and above $100.00. The Exchange believes that this additional granularity is reasonable because given the proliferation of additional strikes that have been created in the past several years there are many more high-priced options that are trading with open interest for extended periods. The Exchange believes that it is appropriate to account for these high-priced options with additional Minimum Amount levels for options with Theoretical Prices above $50.00.
Under the Proposed Rule, a party that believes that it participated in a transaction that was the result of an Obvious Error must notify the Exchange's Market Control
The Exchange also proposes to adopt notification timeframes that must be met in order for a transaction to qualify as an Obvious Error. Specifically, as proposed a filing must be received by the Exchange within thirty (30) minutes of the execution with respect to an execution of a Customer order and within fifteen (15) minutes of the execution for any other participant. The Exchange also proposes to provide additional time for trades that are routed through other options exchanges to the Exchange. Under the Proposed Rule, any other options exchange will have a total of forty-five (45) minutes for Customer orders and thirty (30) minutes for non-Customer orders, measured from the time of execution on the Exchange, to file with the Exchange for review of transactions routed to the Exchange from that options exchange and executed on the Exchange (“linkage trades”). This includes filings on behalf of another options exchange filed by a third-party routing broker if such third-party broker identifies the affected transactions as linkage trades. In order to facilitate timely reviews of linkage trades the Exchange will accept filings from either the other options exchange or, if applicable, the third-party routing broker that routed the applicable order(s). The additional fifteen (15) minutes provided with respect to linkage trades shall only apply to the extent the options exchange that originally received and routed the order to the Exchange itself received a timely filing from the entering participant (
Pursuant to the Proposed Rule, an Official may review a transaction believed to be erroneous on his/her own motion in the interest of maintaining a fair and orderly market and for the protection of investors. This proposed provision is designed to give an Official the ability to provide parties relief in those situations where they have failed to report an apparent error within the
The Exchange also proposes to state that a party affected by a determination to nullify or adjust a transaction after an Official's review on his or her own motion may appeal such determination in accordance with paragraph (k), which is described below. The Proposed Rule would make clear that a determination by an Official not to review a transaction or determination not to nullify or adjust a transaction for which a review was conducted on an Official's own motion is not appealable and further that if a transaction is reviewed and a determination is rendered pursuant to another provision of the Proposed Rule, no additional relief may be granted by an Official.
If it is determined that an Obvious Error has occurred based on the objective numeric criteria and time deadlines described above, the Exchange will adjust or nullify the transaction as described below and promptly notify both parties to the trade electronically or via telephone. The Exchange proposes different adjustment and nullification criteria for Customers and non-Customers.
As proposed, where neither party to the transaction is a Customer, the execution price of the transaction will be adjusted by the Official pursuant to the table below.
The Exchange believes that it is appropriate to adjust to prices a specified amount away from Theoretical Price rather than to adjust to Theoretical Price because even though the Exchange has determined a given trade to be erroneous in nature, the parties in question should have had some expectation of execution at the price or prices submitted. Also, it is common that by the time it is determined that an obvious error has occurred additional hedging and trading activity has already occurred based on the executions that previously happened. The Exchange is concerned that an adjustment to Theoretical Price in all cases would not appropriately incentivize market participants to maintain appropriate controls to avoid potential errors.
Further, as proposed any non-Customer Obvious Error exceeding 50 contracts will be subject to the Size Adjustment Modifier described above. The Exchange believes that it is appropriate to apply the Size Adjustment Modifier to non-Customer orders because the hedging cost associated with trading larger sized options orders and the market impact of larger blocks of underlying can be significant.
As an example of the application of the Size Adjustment Modifier, assume Exchange A has a quoted bid to buy 50 contracts at $2.50, Exchange B has a quoted bid to buy 100 contracts at $2.05 and there is no other options exchange quoting a bid priced higher than $2.00. Assume that the NBBO is $2.50 by $3.00. Finally, assume that all orders quoted and submitted to Exchange B in connection with this example are non-Customer orders.
• Assume Exchange A's quoted bid at $2.50 is either executed or cancelled.
• Assume Exchange B immediately thereafter receives an incoming market order to sell 100 contracts.
• The incoming order would be executed against Exchange B's resting bid at $2.05 for 100 contracts.
• Because the 100 contract execution of the incoming sell order was priced at $2.05, which is $0.45 below the Theoretical Price of $2.50, the 100 contract execution would qualify for adjustment as an Obvious Error.
• The normal adjustment process would adjust the execution of the 100 contracts to $2.35 per contract, which is the Theoretical Price minus $0.15.
• However, because the execution would qualify for the Size Adjustment Modifier of 2 times the adjustment price, the adjusted transaction would instead be to $2.20 per contract, which is the Theoretical Price minus $0.30.
By reference to the example above, the Exchange reiterates that it believes that a Size Adjustment Modifier is appropriate, as the buyer in this example was originally willing to buy 100 contracts at $2.05 and ended up paying $2.20 per contract for such execution. Without the Size Adjustment Modifier the buyer would have paid $2.35 per contract. Such buyer may be advantaged by the trade if the Theoretical Price is indeed closer to $2.50 per contract, however the buyer may not have wanted to buy so many contracts at a higher price and does incur increasing cost and risk due to the additional size of their quote. Thus, the proposed rule is attempting to strike a balance between various competing objectives, including recognition of cost and risk incurred in quoting larger size and incentivizing market participants to maintain appropriate controls to avoid errors.
In contrast to non-Customer orders, where trades will be adjusted if they qualify as Obvious Errors, pursuant the Proposed Rule a trade that qualifies as an Obvious Error will be nullified where at least one party to the Obvious Error is a Customer. The Exchange also proposes, however, that if any Member submits requests to the Exchange for review of transactions pursuant to the Proposed Rule, and in aggregate that Member has 200 or more Customer transactions under review concurrently and the orders resulting in such transactions were submitted during the course of 2 minutes or less, where at least one party to the Obvious Error is a non-Customer, the Exchange will apply the non-Customer adjustment criteria described above to such transactions. The Exchange based its proposal of 200 transactions on the fact that the proposed level is reasonable as it is representative of an extremely large number of orders submitted to the Exchange that are, in turn, possibly erroneous. Similarly, the Exchange based its proposal of orders received in 2 minutes or less on the fact that this is
Consistent with the Current Rule, the Exchange proposes to adopt separate numerical thresholds for review of transactions for which the Exchange does not receive a filing requesting review within the Obvious Error timeframes set forth above. Based on this review these transactions may qualify as “Catastrophic Errors.” As proposed, a Catastrophic Error will be deemed to have occurred when the execution price of a transaction is higher or lower than the Theoretical Price for the series by an amount equal to at least the amount shown below:
Based on industry feedback on the Catastrophic Error thresholds set forth under the Current Rule, the thresholds proposed as set forth above are more granular and lower (
The Proposed Rule would specify the action to be taken by the Exchange if it is determined that a Catastrophic Error has occurred, as described below, and would require the Exchange to promptly notify both parties to the trade electronically or via telephone. In the event of a Catastrophic Error, the execution price of the transaction will be adjusted by the Official pursuant to the table below.
Although Customer orders would be adjusted in the same manner as non-Customer orders, any Customer order that qualifies as a Catastrophic Error will be nullified if the adjustment would result in an execution price higher (for buy transactions) or lower (for sell transactions) than the Customer's limit price. Based on industry feedback, the levels proposed above with respect to adjustment amounts are the same levels as the thresholds at which a transaction may be deemed a Catastrophic Error pursuant to the chart set forth above.
As is true for Obvious Errors as described above, the Exchange believes that it is appropriate to adjust to prices a specified amount away from Theoretical Price rather than to adjust to Theoretical Price because even though the Exchange has determined a given trade to be erroneous in nature, the parties in question should have had some expectation of execution at the price or prices submitted. Also, it is common that by the time it is determined that a Catastrophic Error has occurred additional hedging and trading activity has already occurred based on the executions that previously happened. The Exchange is concerned that an adjustment to Theoretical Price in all cases would not appropriately incentivize market participants to maintain appropriate controls to avoid potential errors. Further, the Exchange believes it is appropriate to maintain a higher adjustment level for Catastrophic
In order to improve consistency for market participants in the case of a widespread market event and in light of the interconnected nature of the options exchanges, the Exchange proposes to adopt a new provision that calls for coordination between the options exchanges in certain circumstances and provides limited flexibility in the application of other provisions of the Proposed Rule in order to promptly respond to a widespread market event.
The proposed criteria for determining a Significant Market Event are as follows:
(A) Transactions that are potentially erroneous would result in a total Worst-Case Adjustment Penalty of $30,000,000, where the Worst-Case Adjustment Penalty is computed as the sum, across all potentially erroneous trades, of: (i) $0.30 (
(B) Transactions involving 500,000 options contracts are potentially erroneous;
(C) Transactions with a notional value (
(D) 10,000 transactions are potentially erroneous.
As described above, the Exchange proposes to adopt a Worst Case Adjustment Penalty, proposed as criterion (A), which is the only criterion that can on its own result in an event being designated as a significant market event. The Worst Case Adjustment Penalty is intended to develop an objective criterion that can be quickly determined by the Exchange in consultation with other options exchanges that approximates the total overall exposure to market participants on the negatively impacted side of each transaction that occurs during an event. If the Worst Case Adjustment criterion is equal to or exceeds $30,000,000, then an event is a Significant Market Event. As an example of the Worst Case Adjustment Penalty, assume that a single potentially erroneous transaction in an event is as follows: sale of 100 contracts of a standard option (
As described above, under the Proposed Rule if the Worst Case Adjustment Penalty does not equal or exceed $30,000,000, then a Significant Market Event has occurred if the sum of all applicable event statistics (expressed as a percentage of the relevant thresholds), is greater than or equal to 150% and 75% or more of at least one category is reached. The Proposed Rule further provides that no single category can contribute more than 100% to the sum. As an example of the application of this provision, assume that in a given event across all options exchanges that: (A) the Worst Case Adjustment Penalty is $12,000,000 (40% of $30,000,000), (B) 300,000 options contracts are potentially erroneous (60% of 500,000), (C) the notional value of potentially erroneous transactions is $30,000,000 (30% of $100,000,000), and (D) 12,000 transactions are potentially erroneous (120% of 10,000). This event would qualify as a Significant Market Event because the sum of all applicable event statistics would be 230%, far exceeding the 150% threshold. The 230% sum is reached by adding 40%, 60%, 30% and last, 100% (
As an alternative example, assume a large-scale event occurs involving low-priced options with a small number of contracts in each execution. Assume in this event across all options exchanges that: (A) the Worst Case Adjustment Penalty is $600,000 (2% of $30,000,000), (B) 20,000 options contracts are potentially erroneous (4% of 500,000), (C) the notional value of potentially erroneous transactions is $20,000,000 (20% of $100,000,000), and (D) 20,000 transactions are potentially erroneous (200% of 10,000, but rounded
The Exchange believes that the breadth and scope of the obvious error rules are appropriate and sufficient for handling of typical and common obvious errors. Coordination between and among the exchanges should generally not be necessary even when a member has an error that results in executions on more than one exchange. In setting the thresholds above the Exchange believes that the requirements will be met only when truly widespread and significant errors happen and the benefits of coordination and information sharing far outweigh the costs of the logistics of additional intra-exchange coordination. The Exchange notes that in addition to its belief that the proposed thresholds are sufficiently high, the Exchange has proposed the requirement that either criterion (A) is met or exceeded or the sum of applicable event statistics for proposed (A) through (D) equals or exceeds 150% in order to ensure that an event is sufficiently large but also to avoid situations where an event is extremely large but just misses potential qualifying thresholds. For instance, the proposal is designed to help avoid a situation where the Worst Case Adjustment Penalty is $15,000,000, so the event does not qualify based on criterion (A) alone, but there are transactions in 490,000 options contracts that are potentially erroneous (missing criterion (B) by 10,000 contracts), there are transactions with a notional value of $99,000,000 (missing criterion (C) by $1,000,000), and there are 9,000 potentially erroneous transactions overall (missing criterion (D) by 1,000 transactions). The Exchange believes that the proposed formula, while slightly more complicated than simply requiring a certain threshold to be met in each category, may help to avoid inapplicability of the proposed provisions in the context of an event that would be deemed significant by most subjective measures but that barely misses each of the objective criteria proposed by the Exchange.
To ensure consistent application across options exchanges, in the event of a suspected Significant Market Event, the Exchange shall initiate a coordinated review of potentially erroneous transactions with all other affected options exchanges to determine the full scope of the event. Under the Proposed Rule, the Exchange will promptly coordinate with the other options exchanges to determine the appropriate review period as well as select one or more specific points in time prior to the transactions in question and use one or more specific points in time to determine Theoretical Price. Other than the selected points in time, if applicable, the Exchange will determine Theoretical Price as described above. For example, around the start of a SME that is triggered by a large and aggressively priced buy order, three exchanges have multiple orders on the offer side of the market: Exchange A has offers priced at $2.20, $2.25, $2.30 and several other price levels to $3.00, Exchange B has offers at $2.45, $2.30 and several other price levels to $3.00, Exchange C has offers at price levels between $2.50 and $3.00. Assume an event occurs starting at 10:05:25 a.m. ET and in this particular series the executions begin on Exchange A and subsequently begin to occur on Exchanges B and C. Without coordination and information sharing between the exchanges, Exchange B and Exchange C cannot know with certainty that whether or not the execution at Exchange A that happened at $2.20 immediately prior to their executions at $2.45 and $2.50 is part of the same erroneous event or not. With proper coordination, the exchanges can determine that in this series, the proper point in time from which the event should be analyzed is 10:05:25 a.m. ET, and thus, the NBO of $2.20 should be used as the Theoretical Price for purposes of all buy transactions in such options series that occurred during the event.
If it is determined that a Significant Market Event has occurred then, using the parameters agreed with respect to the times from which Theoretical Price will be calculated, if applicable, an Official will determine whether any or all transactions under review qualify as Obvious Errors. The Proposed Rule would require the Exchange to use the criteria in Proposed Rule 720(c), as described above, to determine whether an Obvious Error has occurred for each transaction that was part of the Significant Market Event. Upon taking any final action, the Exchange would be required to promptly notify both parties to the trade electronically or via telephone.
The execution price of each affected transaction will be adjusted by an Official to the price provided below, unless both parties agree to adjust the transaction to a different price or agree to bust the trade.
Thus, the proposed adjustment criteria for Significant Market Events are identical to the proposed adjustment levels for Obvious Errors generally. In addition, in the context of a Significant Market Event, any error exceeding 50 contracts will be subject to the Size Adjustment Modifier described above. Also, the adjustment criteria would apply equally to all market participants (
Another significant distinction between the proposed Obvious Error provision and the proposed Significant Market Event provision is that if the Exchange, in consultation with other
With respect to rulings made pursuant to the proposed Significant Market Event provision the Exchange believes that the number of affected transactions is such that immediate finality is necessary to maintain a fair and orderly market and to protect investors and the public interest. Accordingly, rulings by the Exchange pursuant to the Significant Market Event provision would be non-appealable pursuant to the Proposed Rule.
In addition to the objective criteria described above, the Proposed Rule also proposes to make clear that the determination as to whether a trade was executed at an erroneous price may be made by mutual agreement of the affected parties to a particular transaction. The Proposed Rule would state that a trade may be nullified or adjusted on the terms that all parties to a particular transaction agree, provided, however, that such agreement to nullify or adjust must be conveyed to the Exchange in a manner prescribed by the Exchange prior to 8:30 a.m. Eastern Time on the first trading day following the execution.
The Exchange also proposes to explicitly state that it is considered conduct inconsistent with just and equitable principles of trade for any Member to use the mutual adjustment process to circumvent any applicable Exchange rule, the Act or any of the rules and regulations thereunder. Thus, for instance, a Member is precluded from seeking to avoid applicable trade-through rules by executing a transaction and then adjusting such transaction to a price at which the Exchange would not have allowed it to execute at the time of the execution because it traded through the quotation of another options exchange. The Exchange notes that in connection with its obligations as a self-regulatory organization, the Exchange's Surveillance Department reviews adjustments to transactions to detect potential violations of Exchange rules or the Act and the rules and regulations thereunder.
Exchange Rule 702 describes the Exchange's authority to declare trading halts in one or more options traded on the Exchange. The Exchange proposes to make clear in the Proposed Rule that it will nullify any transaction that occurs during a trading halt in the affected option on the Exchange pursuant to Rule 702, or with respect to equity options (including options overlying ETFs), during a regulatory halt as declared by the primary listing market for the underlying security.
The Exchange currently does not have a rule that permits the nullification of transactions that occur during a trading halt of an option class on the Exchange, or with respect to equity options (including options overlying ETFs), during a regulatory halt as declared by the primary listing market for the underlying security. As part of the harmonization effort, the Exchange proposes to adopt rule text to permit the Exchange to nullify transactions, as described above. The Exchange's ability to nullify the affected transactions will ensure consistency with the trading halt provision of the Proposed Rule.
Market participants on the Exchange likely base the pricing of their orders submitted to the Exchange on the price of the underlying security for the option. Thus, the Exchange believes it is appropriate to adopt provisions that allow adjustment or nullification of transactions based on erroneous prints or erroneous quotes in the underlying security.
The Exchange proposes to adopt language in the Proposed Rule stating that a trade resulting from an erroneous print(s) disseminated by the underlying market that is later nullified by that underlying market shall be adjusted or busted as set forth in the Obvious Error provisions of the Proposed Rule, provided a party notifies the Exchange's Market Control in a timely manner, as further described below. The Exchange proposes to define a trade resulting from an erroneous print(s) as any options trade executed during a period of time for which one or more executions in the underlying security are nullified and for one second thereafter. The Exchange believes that one second is an appropriate amount of time in which an options trade would be directly based on executions in the underlying equity security. The Exchange also proposes to require that if a party believes that it participated in an erroneous transaction resulting from an erroneous print(s) pursuant to the proposed erroneous print provision it must notify the Exchange's Market Control within the timeframes set forth in the Obvious Error provision described above. The
As an example of a situation in which a trade results from an erroneous print disseminated by the underlying market that is later nullified by the underlying market, assume that a given underlying is trading in the $49.00-$50.00 price range then has an erroneous print at $5.00. Given that there is the potential perception that the underlying has gone through a dramatic price revaluation, numerous options trades could promptly trigger based off of this new price. However, because the price that triggered them was not a valid price it would be appropriate to review said option trades when the underlying print that triggered them is removed.
The Exchange also proposes to add a provision stating that a trade resulting from an erroneous quote(s) in the underlying security shall be adjusted or busted as set forth in the Obvious Error provisions of the Proposed Rule, provided a party notifies the Exchange's Market Control in a timely manner, as further described below. Pursuant to the Proposed Rule, an erroneous quote occurs when the underlying security has a width of at least $1.00 and has a width at least five times greater than the average quote width for such underlying security during the time period encompassing two minutes before and after the dissemination of such quote. For purposes of the Proposed Rule, the average quote width will be determined by adding the quote widths of sample quotations at regular 15-second intervals during the four-minute time period referenced above (excluding the quote(s) in question) and dividing by the number of quotes during such time period (excluding the quote(s) in question).
As an example of a situation in which a trade results from an erroneous quote in the underlying security, assume again that a given underlying is quoting and trading in the $49.00-$50.00 price range then a liquidity gap occurs, with bidders not representing quotes in the market place and an offer quoted at $5.00. Quoting may quickly return to normal, again in the $49.00-$50.00 price range, but due to the potential perception that the underlying has gone through a dramatic price revaluation, numerous options trades could trigger based off of this new quoted price in the interim. Because the price that triggered such trades was not a valid price it would be appropriate to review said option trades.
The Exchange notes that certain market participants and their customers enter stop or stop limit orders that are triggered based on executions in the marketplace. As proposed, transactions resulting from the triggering of a stop or stop-limit order by an erroneous trade in an option contract shall be nullified by the Exchange, provided a party notifies the Exchange's Market Control in a timely manner as set forth below. The Exchange believes it is appropriate to nullify executions of stop or stop-limit orders that were wrongly triggered because such transactions should not have occurred. If a party believes that it participated in an erroneous transaction pursuant to the Proposed Rule it must notify the Exchange's Market Control within the timeframes set forth in the Obvious Error Rule above, with the allowed notification timeframe commencing at the time of notification of the nullification of transaction(s) that triggered the stop or stop-limit order.
The Exchange also proposes to adopt language that clearly provides the Exchange with authority to take necessary actions when another options exchange nullifies or adjusts a transaction pursuant to its respective rules and the transaction resulted from an order that has passed through the Exchange and been routed on to another options exchange on behalf of the Exchange. Specifically, if the Exchange routes an order pursuant to the Options Order Protection and Locked/Crossed Market Plan
The Exchange proposes to generally maintain its current appeals process in connection with the Proposed Rule with minor adjustments to accommodate a harmonized rule. Specifically, if a Member affected by a determination made under the Proposed Rule requests within the time permitted below, the Obvious Error Panel (“Obvious Error Panel”) will review decisions made by the Exchange Official, including whether an obvious error occurred and whether the correct determination was made.
In order to maintain a diverse group of participants, the Obvious Error Panel will be comprised of representatives from four (4) Members. Two (2) of the representatives must be directly engaged in market making (any such representative, a “MM Representative”) and the other two (2) representatives must be employed by an Electronic Access Member (any such representative, a “Non-MM
In order to further assure a diverse group of potential participants on an Obvious Error Panel, the Exchange shall designate at least ten (10) MM Representatives and at least ten (10) Non-MM Representatives to be called upon to serve on the Obvious Error Panel as needed. To assure fairness, in no case shall an Obvious Error Panel include a person affiliated with a party to the trade in question. Also, to the extent reasonably possible, the Exchange shall call upon the designated representatives to participate on an Obvious Error Panel on an equally frequent basis.
Under the Proposed Rule a request for review on appeal must be made in writing via email or other electronic means specified from time to time by the Exchange in a circular distributed to Members within thirty (30) minutes after the party making the appeal is given notification of the initial determination being appealed. The Obvious Error Panel shall review the facts and render a decision as soon as practicable, but generally on the same trading day as the execution(s) under review. On requests for appeal received after 3:00 p.m. Eastern Time, a decision will be rendered as soon as practicable, but in no case later than the trading day following the date of the execution under review.
The Obvious Error Panel may overturn or modify an action taken by the Exchange Official under this Rule. All determinations by the Obvious Error Panel shall constitute final action by the Exchange on the matter at issue. The Exchange believes that this is necessary given the purpose of the appeal is finality.
In order to deter frivolous appeals, if the Obvious Error Panel votes to uphold the decision made pursuant to the Proposed Rule, the Exchange will assess a $5,000.00 fee against the Member(s) who initiated the request for appeal. In addition, in instances where the Exchange, on behalf of a Member, requests a determination by another market center that a transaction is clearly erroneous, the Exchange will pass any resulting charges through to the relevant Member.
Any determination by an Official or by the Obvious Error Panel shall be rendered without prejudice as to the rights of the parties to the transaction to submit their dispute to arbitration.
The Exchange is proposing to adopt Supplementary Material .01 to the Proposed Rule to provide for how the Exchange will treat Obvious and Catastrophic Errors in response to the Regulation NMS Plan to Address Extraordinary Market Volatility Pursuant to Rule 608 of Regulation NMS under the Act (the “Limit Up-Limit Down Plan” or the “Plan),
During a Limit or Straddle State, options prices may deviate substantially from those available immediately prior to or following such States. Thus, determining a Theoretical Price in such situations would often be very subjective, creating unnecessary uncertainty and confusion for investors. Because of this uncertainty, the Exchange is proposing to amend Rule 720 to provide that the Exchange will not review transactions as Obvious Errors or Catastrophic Errors when the underlying security is in a Limit or Straddle State.
The Exchange notes that there are additional protections in place outside of the Obvious and Catastrophic Error Rule that will continue to safeguard customers. First, the Exchange rejects all un-priced options orders received by the Exchange (
The Exchange represents that it will conduct its own analysis concerning the elimination of the Obvious Error and Catastrophic Error provisions during Limit and Straddle States and agrees to provide the Commission with relevant data to assess the impact of this proposed rule change. As part of its analysis, the Exchange will evaluate (1) the options market quality during Limit and Straddle States, (2) assess the character of incoming order flow and transactions during Limit and Straddle States, and (3) review any complaints from Members and their customers concerning executions during Limit and Straddle States. The Exchange also agrees to provide to the Commission data requested to evaluate the impact of the inapplicability of the Obvious Error and Catastrophic Error provisions, including data relevant to assessing the various analyses noted above.
In connection with this proposal, the Exchange will provide to the Commission and the public a dataset containing the data for each Straddle State and Limit State in NMS Stocks underlying options traded on the Exchange beginning in the month during which the proposal is approved, limited to those option classes that have at least one (1) trade on the Exchange during a Straddle State or Limit State. For each of those option classes affected, each data record will contain the following information:
• Stock symbol, option symbol, time at the start of the Straddle or Limit State, an indicator for whether it is a Straddle or Limit State.
• For activity on the Exchange:
○ Executed volume, time-weighted quoted bid-ask spread, time-weighted average quoted depth at the bid, time-weighted average quoted depth at the offer;
○ high execution price, low execution price;
○ number of trades for which a request for review for error was received during Straddle and Limit States;
○ an indicator variable for whether those options outlined above have a price change exceeding 30% during the underlying stock's Limit or Straddle State compared to the last available option price as reported by OPRA before the start of the Limit or Straddle State (1 if observe 30% and 0 otherwise). Another indicator variable for whether the option price within five minutes of the underlying stock leaving the Limit or Straddle State (or halt if applicable) is 30% away from the price before the start of the Limit or Straddle State.
In addition, by May 29, 2015, the Exchange shall provide to the Commission and the public assessments relating to the impact of the operation of the Obvious Error rules during Limit and Straddle States as follows: (1) Evaluate the statistical and economic impact of Limit and Straddle States on liquidity and market quality in the options markets; and (2) Assess whether the lack of Obvious Error rules in effect during the Straddle and Limit States are problematic. The timing of this submission would coordinate with Participants' proposed time frame to submit to the Commission assessments as required under Appendix B of the Plan. The Exchange notes that the pilot program is intended to run concurrent with the pilot period of the Plan, which has been extended to October 23, 2015. The Exchange proposes to reflect this date in the Proposed Rule.
Finally, the Exchange proposes to include Supplementary Material .02 to the Proposed Rule, which would make clear that to the extent the provisions of the proposed Rule would result in the Exchange applying an adjustment of an erroneous sell transaction to a price lower than the execution price or an erroneous buy transaction to a price higher than the execution price, the Exchange will not adjust or nullify the transaction, but rather, the execution price will stand.
In order to ensure that other options exchanges are able to adopt rules consistent with this proposal and to coordinate the effectiveness of such harmonized rules, the Exchange proposes to delay the operative date of this proposal to May 8, 2015.
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.
As described above, the Exchange and other options exchanges are seeking to adopt harmonized rules related to the adjustment and nullification of erroneous options transactions. The Exchange believes that the Proposed Rule will provide greater transparency and clarity with respect to the adjustment and nullification of erroneous options transactions. Particularly, the proposed changes seek to achieve consistent results for participants across U.S. options exchanges while maintaining a fair and orderly market, protecting investors and protecting the public interest. Based on the foregoing, the Exchange believes that the proposal is consistent with section 6(b)(5) of the Act
The Exchange believes the various provisions allowing or dictating adjustment rather than nullification of a trade are necessary given the benefits of adjusting a trade price rather than nullifying the trade completely. Because options trades are used to hedge, or are hedged by, transactions in other markets, including securities and futures, many Members, and their customers, would rather adjust prices of executions rather than nullify the transactions and, thus, lose a hedge altogether. As such, the Exchange believes it is in the best interest of investors to allow for price adjustments as well as nullifications. The Exchange further discusses specific aspects of the Proposed Rule below.
The Exchange does not believe that the proposal is unfairly discriminatory, even though it differentiates in many places between Customers and non-Customers. The rules of the options exchanges, including the Exchange's existing Obvious Error provision, often treat Customers differently, often affording them preferential treatment. This treatment is appropriate in light of the fact that Customers are not necessarily immersed in the day-to-day trading of the markets, are less likely to be watching trading activity in a particular option throughout the day, and may have limited funds in their trading accounts. At the same time, the Exchange reiterates that in the U.S. options markets generally there is significant retail customer participation that occurs directly on (and only on) options exchanges such as the Exchange. Accordingly, differentiating among market participants with respect to the adjustment and nullification of erroneous options transactions is not unfairly discriminatory because it is reasonable and fair to provide Customers with additional protections as compared to non-Customers.
The Exchange believes that its proposal with respect to the allowance of mutual agreed upon adjustments or nullifications is appropriate and consistent with the Act, as such proposal removes impediments to and perfects the mechanism of a free and open market and a national market system, allowing participants to mutually agree to correct an erroneous transactions without the Exchange mandating the outcome. The Exchange also believes that its proposal with respect to mutual adjustments is consistent with the Act because it is designed to prevent fraudulent and manipulative acts and practices by explicitly stating that it is considered conduct inconsistent with just and equitable principles of trade for any
The Exchange believes its proposal to provide within the Proposed Rule definitions of Customer, erroneous sell transaction and erroneous buy transaction, and Official is consistent with section 6(b)(5) of the Act because such terms will provide more certainty to market participants as to the meaning of the Proposed Rule and reduce the possibility that a party can intentionally submit an order hoping for the market to move in their favor in reliance on the Rule as a safety mechanism, thereby promoting just and fair principles of trade. Similarly, the Exchange believes that proposed Supplementary Material .02 is consistent with the Act as it would make clear that the Exchange will not adjust or nullify a transaction, but rather, the execution price will stand when the applicable adjustment criteria would actually adjust the price of the transaction to a worse price (
As set forth below, the Exchange believes it is consistent with section 6(b)(5) of the Act for the Exchange to determine Theoretical Price when the NBBO cannot reasonably be relied upon because the alternative could result in transactions that cannot be adjusted or nullified even when they are otherwise clearly at a price that is significantly away from the appropriate market for the option. Similarly, reliance on an NBBO that is not reliable could result in adjustment to prices that are still significantly away from the appropriate market for the option.
The Exchange believes that its proposal with respect to determining Theoretical Price is consistent with the Act in that it has retained the standard of the current rule, which is to rely on the NBBO to determine Theoretical Price if such NBBO can reasonably be relied upon. Because, however, there is not always an NBBO that can or should be used in order to administer the rule, the Exchange has proposed various provisions that provide the Exchange with the authority to determine a Theoretical Price. The Exchange believes that the Proposed Rule is transparent with respect to the circumstances under which the Exchange will determine Theoretical Price, and has sought to limit such circumstances as much as possible. The Exchange notes that Exchange personnel currently are required to determine Theoretical Price in certain circumstances. While the Exchange continues to pursue alternative solutions that might further enhance the objectivity and consistency of determining Theoretical Price, the Exchange believes that the discretion currently afforded to Exchange Officials is appropriate in the absence of a reliable NBBO that can be used to set the Theoretical Price.
With respect to the specific proposed provisions for determining Theoretical Price for transactions that occur during the opening rotation and in situations where there is a wide quote, the Exchange believes both provisions are consistent with the Act because they provide objective criteria that will determine Theoretical Price with limited exceptions for situations where the Exchange does not believe the NBBO is a reasonable benchmark or there is no NBBO. The Exchange notes in particular with respect to the wide quote provision that the Proposed Rule will result in the Exchange determining Theoretical Price less frequently than it would pursuant to wide quote provisions that have previously been approved. The Exchange believes that it is appropriate and consistent with the Act to afford protections to market participants by not relying on the NBBO to determine Theoretical Price when the quote is extremely wide but had been, in the prior 10 seconds, at much more reasonable width. The Exchange also believes it is appropriate and consistent with the Act to use the NBBO to determine Theoretical Price when the quote has been wider than the applicable amount for more than 10 seconds, as the Exchange does not believe it is necessary to apply any other criteria in such a circumstance. The Exchange believes that market participants can easily use or adopt safeguards to prevent errors when such market conditions exist. When entering an order into a market with a persistently wide quote, the Exchange does not believe that the entering party should reasonably expect anything other than the quoted price of an option.
The Exchange believes that its proposal to adopt clear but disparate standards with respect to the deadline for submitting a request for review of Customer and non-Customer transactions is consistent with the Act, particularly in that it creates a greater level of protection for Customers. As noted above, the Exchange believes that this is appropriate and not unfairly discriminatory in light of the fact that Customers are not necessarily immersed in the day-to-day trading of the markets and are less likely to be watching trading activity in a particular option throughout the day. Thus, Members representing Customer orders reasonably may need additional time to submit a request for review. The Exchange also believes that its proposal to provide additional time for submission of requests for review of linkage trades is reasonable and consistent with the protection of investors and the public interest due to the time that it might take an options exchange or third-party routing broker to file a request for review with the Exchange if the initial notification of an error is received by the originating options exchange near the end of such options exchange's filing deadline. Without this additional time, there could be disparate results based purely on the existence of intermediaries and an interconnected market structure.
In relation to the aspect of the proposal giving Officials the ability to review transactions for obvious errors on their own motion, the Exchange notes that an Official can adjust or nullify a transaction under the authority granted by this provision only if the transaction meets the specific and objective criteria for an Obvious Error under the Proposed Rule. As noted above, this is designed to give an Official the ability to provide parties relief in those situations where they have failed to report an apparent error within the established notification period. However, the Exchange will only grant relief if the transaction meets the requirements for an Obvious Error as described in the Proposed Rule.
The Exchange believes that its proposal to adjust non-Customer transactions and to nullify Customer transactions that qualify as Obvious Errors is appropriate for reasons consistent with those described above. In particular, Customers are not necessarily immersed in the day-to-day trading of the markets, are less likely to be watching trading activity in a particular option throughout the day, and may have limited funds in their trading accounts.
The Exchange acknowledges that the proposal contains some uncertainty regarding whether a trade will be adjusted or nullified, depending on whether one of the parties is a Customer, because a party may not know whether the other party to a transaction was a Customer at the time of entering into the transaction. However, the Exchange believes that the proposal nevertheless promotes just and equitable principles of trade and protects investors as well as the public interest because it eliminates the possibility that a Customer's order will be adjusted to a significantly different price. As noted above, the Exchange believes it is consistent with the Act to
If any Member submits requests to the Exchange for review of transactions pursuant to the Proposed Rule, and in aggregate that Member has 200 or more Customer transactions under review concurrently and the orders resulting in such transactions were submitted during the course of 2 minutes or less, the Exchange believes it is appropriate for the Exchange apply the non-Customer adjustment criteria described above to such transactions. The Exchange believes that the proposed aggregation is reasonable as it is representative of an extremely large number of orders submitted to the Exchange over a relatively short period of time that are, in turn, possibly erroneous (and within a time frame significantly less than an entire day), and thus is most likely to occur because of a systems issue experienced by a Member representing Customer orders or a systems issue coupled with the erroneous marking of orders. The Exchange does not believe it is possible at a level of 200 Customer orders over a 2 minute period that are under review at one time that multiple, separate Customers were responsible for the errors in the ordinary course of trading. In the event of a large-scale issue caused by a Member that has submitted orders over a 2 minute period marked as Customer that resulted in more than 200 transactions under review, the Exchange does not believe it is appropriate to nullify all such transactions because of the negative impact that nullification could have on the market participants on the contra-side of such transactions, who might have engaged in hedging and trading activity following such transactions. In order for a participant to have more than 200 transactions under review concurrently when the orders triggering such transactions were received in 2 minutes or less, the Exchange believes that a market participant will have far exceeded the normal behavior of customers deserving protected status. While the Exchange continues to believe that it is appropriate to nullify transactions in such a circumstance if both participants to a transaction are Customers, the Exchange does not believe it is appropriate to place the overall risk of a significant number of trade breaks on non-Customers that in the normal course of business may have engaged in additional hedging activity or trading activity based on such transactions. Thus, the Exchange believes it is necessary and appropriate to protect non-Customers in such a circumstance by applying the non-Customer adjustment criteria, and thus adjusting transactions as set forth above, in the event a Member has more than 200 transactions under review concurrently. In summary, due to the extreme level at which the proposal is set, the Exchange believes that the proposal is consistent with Section 6(b)(5) of the Act in that it promotes just and equitable principles of trade by encouraging market participants to retain appropriate controls over their systems to avoid submitting a large number of erroneous orders in a short period of time.
Similarly, the Exchange believes that the proposed Size Adjustment Modifier, which would increase the adjustment amount for non-Customer transactions, is appropriate because it attempts to account for the additional risk that the parties to the trade undertake for transactions that are larger in scope. The Exchange believes that the Size Adjustment Modifier creates additional incentives to prevent more impactful Obvious Errors and it lessens the impact on the contra-party to an adjusted trade. The Exchange notes that these contra-parties may have preferred to only trade the size involved in the transaction at the price at which such trade occurred, and in trading larger size has committed a greater level of capital and bears a larger hedge risk.
The Exchange similarly believes that its Proposed Rule with respect to Catastrophic Errors is consistent with the Act as it affords additional time for market participants to file for review of erroneous transactions that were further away from the Theoretical Price. At the same time, the Exchange believes that the Proposed Rule is consistent with the Act in that it generally would adjust transactions, including Customer transactions, because this will protect against hedge risk, particularly for transactions that may have occurred several hours earlier and thus, which all parties to the transaction might presume are protected from further modification. Similarly, by providing larger adjustment amounts away from Theoretical Price than are set forth under the Obvious Error provision, the Catastrophic Error provision also takes into account the possibility that the party that was advantaged by the erroneous transaction has already taken actions based on the assumption that the transaction would stand. The Exchange believes it is reasonable to specifically protect Customers from adjustments through their limit prices for the reasons stated above, including that Customers are less likely to be watching trading throughout the day and that they may have less capital to afford an adjustment price. The Exchange believes that the proposal provides a fair process that will ensure that Customers are not forced to accept a trade that was executed in violation of their limit order price. In contrast, market professionals are more likely to have engaged in hedging or other trading activity based on earlier trading activity, and thus, are more likely to be willing to accept an adjustment rather than a nullification to preserve their positions even if such adjustment is to a price through their limit price.
The Exchange believes that proposed rule change to adopt the Significant Market Event provision is consistent with section 6(b)(5) of the Act in that it will foster cooperation and coordination with persons engaged in regulating the options markets. In particular, the Exchange believes it is important for options exchanges to coordinate when there is a widespread and significant event, as commonly, multiple options exchanges are impacted in such an event. Further, while the Exchange recognizes that the Proposed Rule will not guarantee a consistent result for all market participants on every market, the Exchange does believe that it will assist in that outcome. For instance, if options exchanges are able to agree as to the time from which Theoretical Price should be determined and the period of time that should be reviewed, the likely disparity between the Theoretical Prices used by such exchanges should be very slight and, in turn, with otherwise consistent rules, the results should be similar. The Exchange also believes that the Proposed Rule is consistent with the Act in that it generally would adjust transactions, including Customer transactions, because this will protect against hedge risk, particularly for liquidity providers that might have been quoting in thousands or tens of thousands of different series and might have affected executions throughout such quoted series. The Exchange believes that when weighing the competing interests between preferring
The Exchange believes that proposed rule change related to review, nullification and/or adjustment of erroneous transactions during a trading halt (including the proposed modification to Rule 702), an erroneous print in the underlying security, an erroneous quote in the underlying security, or an erroneous transaction in the option with respect to stop and stop limit orders is likewise consistent with section 6(b)(5) of the Act because the proposal provides for the adjustment or nullification of trades executed at erroneous prices through no fault on the part of the trading participants. Allowing for Exchange review in such situations will promote just and fair principles of trade by protecting investors from harm that is not of their own making. Specifically with respect to the proposed provisions governing erroneous prints and quotes in the underlying security, the Exchange notes that market participants on the Exchange base the value of their quotes and orders on the price of the underlying security. The provisions regarding errors in prints and quotes in the underlying security cover instances where the information market participants use to price options is erroneous through no fault of their own. In these instances, market participants have little, if any, chance of pricing options accurately. Thus, these provisions are designed to provide relief to market participants harmed by such errors in the prints or quotes of the underlying security.
The Exchange believes that the proposed provision related to Linkage Trades is consistent with the Act because it adds additional transparency to the Proposed Rule and makes clear that when a Linkage Trade is adjusted or nullified by another options exchange, the Exchange will take necessary actions to complete the nullification or adjustment of the Linkage Trade.
The Exchange believes that retaining the same appeals process as the Exchange maintains under the Current Rule is consistent with the Act because such process provides Members with due process in connection with decisions made by Exchange Officials under the Proposed Rule. The Exchange believes that this process provides fair representation of Members by ensuring diversity amongst the members of any Obvious Error Review Panel, which is consistent with sections 6(b)(3) and 6(b)(7) of the Act. The Exchange also believes that the proposed appeals process is appropriate with respect to financial penalties for appeals that result in a decision of the Exchange being upheld because it discourages frivolous appeals, thereby reducing the possibility of overusing Exchange resources that can instead be focused on other, more productive activities. The fees with respect to such financial penalties are the same as under the Current Rule, and are equitable and not unfairly discriminatory because they will be applied uniformly to all Members and are designed to reduce administrative burden on the Exchange as well as market participants that volunteer to participate on Obvious Error Review Panels.
With regard to the portion of the Exchange's proposal related to the applicability of the Obvious Error Rule when the underlying security is in a Limit or Straddle State, the Exchange believes that the proposed rule change is consistent with section 6(b)(5) of the Act because it will provide certainty about how errors involving options orders and trades will be handled during periods of extraordinary volatility in the underlying security. Further, the Exchange believes that it is necessary and appropriate in the interest of promoting fair and orderly markets to exclude from Rule 720 those transactions executed during a Limit or Straddle State.
The Exchange believes the application of the Proposed Rule without the proposed provision would be impracticable given the lack of reliable NBBO in the options market during Limit and Straddle States, and that the resulting actions (
Moreover, given the fact that options prices during brief Limit or Straddle States may deviate substantially from those available shortly following the Limit or Straddle State, the Exchange believes giving market participants time to re-evaluate a transaction would create an unreasonable adverse selection opportunity that would discourage participants from providing liquidity during Limit or Straddle States. In this respect, the Exchange notes that only those orders with a limit price will be executed during a Limit or Straddle State. Therefore, on balance, the Exchange believes that removing the potential inequity of nullifying or adjusting executions occurring during Limit or Straddle States outweighs any potential benefits from applying certain provisions during such unusual market conditions. Additionally, as discussed
The Exchange notes that under certain limited circumstances the Proposed Rule will permit the Exchange to review transactions in options that overlay a security that is in a Limit or Straddle State. Specifically, an Official will have authority to review a transaction on his or her own motion in the interest of maintaining a fair and orderly market and for the protection of investors. Furthermore, the Exchange will have the authority to adjust or nullify transactions in the event of a Significant Market Event, a trading halt in the affected option, an erroneous print or quote in the underlying security, or with respect to stop and stop limit orders that have been triggered based on erroneous trades. The Exchange believes that the safeguards described above will protect market participants and will provide the Exchange with the flexibility to act when necessary and appropriate to nullify or adjust a transaction, while also providing market participants with certainty that, under normal circumstances, the trades they effect with quotes and/or orders having limit prices will stand irrespective of subsequent moves in the underlying security. The right to review those transactions that occur during a Limit or Straddle State would allow the Exchange to account for unforeseen circumstances that result in Obvious or Catastrophic Errors for which a nullification or adjustment may be necessary in the interest of maintaining a fair and orderly market and for the protection of investors. Similarly, the ability to nullify or adjust transactions that occur during a Significant Market Event or trading halt, erroneous print or quote in the underlying security, or erroneous trade in the option (
ISE believes the entire proposal is consistent with section 6(b)(8) of the Act
Importantly, the Exchange believes the proposal will not impose a burden on intermarket competition but will rather alleviate any burden on competition because it is the result of a collaborative effort by all options exchanges to harmonize and improve the process related to the adjustment and nullification of erroneous options transactions. The Exchange does not believe that the rules applicable to such process is an area where options exchanges should compete, but rather, that all options exchanges should have consistent rules to the extent possible. Particularly where a market participant trades on several different exchanges and an erroneous trade may occur on multiple markets nearly simultaneously, the Exchange believes that a participant should have a consistent experience with respect to the nullification or adjustment of transactions. The Exchange understands that all other options exchanges intend to file proposals that are substantially similar to this proposal.
The Exchange does not believe that the proposed rule change imposes a burden on intramarket competition because the provisions apply to all market participants equally within each participant category (
The Exchange has not solicited, and does not intend to solicit, comments on this proposed rule change. The Exchange has not received any unsolicited written comments from members or other interested parties.
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 if consistent with the protection of investors and the public interest, the proposed rule change has become effective pursuant to section 19(b)(3)(A) of the Act
The Exchange has asked the Commission to waive the 30-day operative delay so that the proposal may become operative immediately upon filing. The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest, as it will enable the Exchange to meet its proposed implementation date of May 8, 2015, which will help facilitate the implementation of harmonized rules related to the adjustment and nullification of erroneous options transactions across the options exchanges. For this reason, the Commission designates the proposed rule change to be operative upon filing.
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
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 20549-1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to Section 19(b)(1)
The Exchange proposes to amend the fees for NYSE ArcaBook to add a late fee in connection with failure to submit the non-display use declaration, operative on May 1, 2015. The text of the proposed rule change is available on the Exchange's Web site at
In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements.
The Exchange proposes to amend the fees for NYSE ArcaBook, as set forth on the NYSE Arca Equities Proprietary Market Data Fee Schedule (“Fee Schedule”), to add a late fee in connection with failure to submit an updated non-display use declaration. The proposed change to the Fee Schedule would be operative on May 1, 2015.
The Exchange established the current fees for non-display services for NYSE ArcaBook in April 2013 and amended those fees in September 2014.
The Exchange notes that if a data recipient does not timely submit a Non-Display Use Declaration, the Exchange does not have up-to-date information about the data recipient's data use and therefore may not be charging the correct fees to the data recipient. In order to correctly assess fees for the non-display use of NYSE ArcaBook, the Exchange needs to have current and accurate information about the use of NYSE ArcaBook. The failure of data recipients to submit the Non-Display Use Declaration on time leads to potentially incorrect billing and administrative burdens, including tracking and obtaining late Non-Display Use Declarations and correcting customer records in connection with late Non-Display Use Declarations. The purpose of the proposed late fee is to incent data recipients to submit the Non-Display Use Declaration promptly to avoid the administrative burdens associated with the late submission of Non-Display Use Declarations.
The Exchange proposes to establish a Non-Display Declaration Late Fee of $1,000 per month. The proposed fee would be charged to any data recipient that pays an Access Fee for NYSE ArcaBook that has failed to timely complete and submit a Non-Display Use Declaration.
With respect to the Non-Display Use Declaration that was due by September 1, 2014, the Non-Display Declaration Late Fee would apply to NYSE ArcaBook data recipients that have not submitted the Non-Display Use Declaration by June 30, 2015, and would apply beginning July 1, 2015 and for each month thereafter until the data recipient has completed and submitted the Non-Display Use Declaration. With respect to the annual Non-Display Use Declaration due by January 31st of each year beginning in 2016, the Non-Display Declaration Late Fee would apply to data recipients that fail to complete and submit the annual Non-Display Use Declaration by the January 31st due date, and would apply beginning February 1st and for each month thereafter until the data recipient has completed and submitted the annual Non-Display Use Declaration.
The Exchange believes that the proposed rule change is consistent with the provisions of Section 6 of the Act,
The Exchange believes that it is reasonable to impose a late fee in connection with the submission of the Non-Display Use Declaration. In order to correctly assess fees for the non-display use of NYSE ArcaBook, the Exchange needs to have current and accurate information about the use of NYSE ArcaBook. The failure of data recipients to submit the Non-Display Use Declaration on time leads to potentially incorrect billing and administrative burdens, including tracking and obtaining late Non-Display Use Declarations and correcting and following up on payments owed in connection with late Non-Display Use Declarations. The purpose of the late fee is to incent data recipients to submit the Non-Display Use Declaration promptly to avoid the administrative burdens associated with the late submission of Non-Display Use Declarations. The Non-Display Declaration Late Fee is equitable and not unfairly discriminatory because it will apply to all data recipients that choose to subscribe to the NYSE ArcaBook feed.
The Non-Display Declaration Late Fee is also consistent with similar pricing adopted in 2013 by the Consolidated Tape Association (“CTA”).
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. An exchange's ability to price its proprietary market data feed products is constrained by actual competition for the sale of proprietary market data products, the joint product nature of exchange platforms, and the existence of alternatives to the Exchange's proprietary data. In addition to being able to choose which proprietary data products (if any) to use and how to use them, a user can avoid the late fees that are the subject of this filing entirely by simply complying with the requisite deadlines.
In setting 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 fierce competition to sell proprietary data products and for order flow, as well as numerous alternatives to the Exchange's products, including proprietary data from other sources, ensures that the Exchange cannot set unreasonable fees, or fees that are unreasonably discriminatory, when vendors and subscribers can elect these alternatives or choose not to purchase a specific proprietary data product if the attendant fees are not justified by the returns that any particular vendor or data recipient would achieve through the purchase (the returns on use being a particularly important aspect of non-display uses of proprietary data).
No written comments were solicited or received with respect to the proposed rule change.
The foregoing rule change is effective upon filing pursuant to Section 19(b)(3)(A)
At any time within 60 days of the filing of such 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
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.
To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site (
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 seeks to amend Exchange rules related to the nullification and adjustment of options transactions including obvious errors. The text of the proposed rule change is available on the Exchange's Web site (
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.
For several months the Exchange has been working with other options exchanges to identify ways to improve the process related to the adjustment and nullification of erroneous options transactions. The goal of the process that the options exchanges have undertaken is to adopt harmonized rules related to the adjustment and nullification of erroneous options transactions as well as a specific provision related to coordination in connection with large-scale events involving erroneous options transactions. As described below, the Exchange believes that the changes the options exchanges and the Exchange have agreed to propose will provide transparency and finality with respect to the adjustment and nullification of erroneous options transactions. Particularly, the proposed changes seek to achieve consistent results for participants across U.S. options exchanges while maintaining a fair and orderly market, protecting investors and protecting the public interest.
The Proposed Rule is the culmination of this coordinated effort and reflects discussions by the options exchanges to universally adopt: (1) Certain provisions already in place on one or more options exchanges; and (2) new provisions that the options exchanges collectively believe will improve the handling of erroneous options transactions. Thus, although the Proposed Rule is in many ways similar to and based on the Exchange's Current Rule, the Exchange is adopting various provisions to conform with existing rules of one or more options exchanges and also to adopt rules that are not currently in place on any options exchange. As noted above, in order to adopt a rule that is similar in most material respects to the rules adopted by other options exchanges, the Exchange proposes to delete the Current Rule in its entirety and to replace it with the Proposed Rule.
The Exchange notes that it has proposed additional objective standards
As additional background, the Exchange believes that the Proposed Rule supports an approach consistent with long-standing principles in the options industry under which the general policy is to adjust rather than nullify transactions. The Exchange acknowledges that adjustment of transactions is contrary to the operation of analogous rules applicable to the equities markets, where erroneous transactions are typically nullified rather than adjusted and where there is no distinction between the types of market participants involved in a transaction. For the reasons set forth below, the Exchange believes that the distinctions in market structure between equities and options markets continue to support these distinctions between the rules for handling obvious errors in the equities and options markets. The Exchange also believes that the Proposed Rule properly balances several competing concerns based on the structure of the options markets.
Various general structural differences between the options and equities markets point toward the need for a different balancing of risks for options market participants and are reflected in the Proposed Rule. Option pricing is formulaic and is tied to the price of the underlying stock, the volatility of the underlying security and other factors. Because options market participants can generally create new open interest in response to trading demand, as new open interest is created, correlated trades in the underlying or related series are generally also executed to hedge a market participant's risk. This pairing of open interest with hedging interest differentiates the options market specifically (and the derivatives markets broadly) from the cash equities markets. In turn, the Exchange believes that the hedging transactions engaged in by market participants necessitates protection of transactions through adjustments rather than nullifications when possible and otherwise appropriate.
The options markets are also quote driven markets dependent on liquidity providers to an even greater extent than equities markets. In contrast to the approximately 7,000 different securities traded in the U.S. equities markets each day, there are more than 500,000 unique, regularly quoted option series. Given this breadth in options series the options markets are more dependent on liquidity providers than equities markets; such liquidity is provided most commonly by registered market makers but also by other professional traders. With the number of instruments in which registered market makers must quote and the risk attendant with quoting so many products simultaneously, the Exchange believes that those liquidity providers should be afforded a greater level of protection. In particular, the Exchange believes that liquidity providers should be allowed protection of their trades given the fact that they typically engage in hedging activity to protect them from significant financial risk to encourage continued liquidity provision and maintenance of the quote-driven options markets.
In addition to the factors described above, there are other fundamental differences between options and equities markets which lend themselves to different treatment of different classes of participants that are reflected in the Proposed Rule. For example, there is no trade reporting facility in the options markets. Thus, all transactions must occur on an options exchange. This leads to significantly greater retail customer participation directly on exchanges than in the equities markets, where a significant amount of retail customer participation never reaches the Exchange but is instead executed in off-exchange venues such as alternative trading systems, broker-dealer market making desks and internalizers. In turn, because of such direct retail customer participation, the exchanges have taken steps to afford those retail customers—generally Priority Customers—more favorable treatment in some circumstances.
The Exchange proposes to adopt various definitions that will be used in the Proposed Rule, as described below.
First, the Exchange proposes to adopt a definition of “Customer,” to make clear that this term would not include any broker-dealer, Professional Customer, or Voluntary Professional Customer.
Second, the Exchange proposes to adopt definitions for both an “erroneous sell transaction” and an “erroneous buy transaction.” As proposed, an erroneous sell transaction is one in which the price received by the person selling the option is erroneously low, and an erroneous buy transaction is one in which the price paid by the person purchasing the option is erroneously high. This provision helps to reduce the possibility that a party can intentionally submit an order hoping for the market to move in their favor while knowing that the transaction will be nullified or adjusted if the market does not. For instance, when a market participant who is buying options in a particular series sees an aggressively priced sell order posted on the Exchange, and the buyer believes that the price of the options is such that it might qualify for obvious error, the option buyer can trade with the aggressively priced order, then wait to see which direction the market moves. If the market moves in their direction, the buyer keeps the trade and if it moves against them, the
Third, the Exchange proposes to adopt a definition of “Official,” which would mean an Officer of the Exchange or such other employee designee of the Exchange that is trained in the application of the Proposed Rule.
Fourth, the Exchange proposes to adopt a new term, a “Size Adjustment Modifier,” which would apply to individual transactions and would modify the applicable adjustment for orders under certain circumstances, as discussed in further detail below. As proposed, the Size Adjustment Modifier will be applied to individual transactions as follows:
The Size Adjustment Modifier attempts to account for the additional risk that the parties to the trade undertake for transactions that are larger in scope. The Exchange believes that the Size Adjustment Modifier creates additional incentives to prevent more impactful Obvious Errors and it lessens the impact on the contra-party to an adjusted trade. The Exchange notes that these contra-parties may have preferred to only trade the size involved in the transaction at the price at which such trade occurred, and in trading larger size has committed a greater level of capital and bears a larger hedge risk.
When setting the proposed size adjustment modifier thresholds the Exchange has tried to correlate the size breakpoints with typical small and larger “block” execution sizes of underlying stock. For instance, SEC Rule 10b-18(a)(5)(ii) defines a “block” as a quantity of stock that is at least 5,000 shares and a purchase price of at least $50,000, among others.
Under both the Current Rule and the Proposed Rule, when reviewing a transaction as potentially erroneous, the Exchange needs to first determine the “Theoretical Price” of the option,
The Exchange also proposes to specify in the Proposed Rule that when a single order received by the Exchange is executed at multiple price levels, the last NBB and last NBO just prior to the trade in question would be the last NBB and last NBO just prior to the Exchange's receipt of the order.
The Exchange also proposes to set forth in the Proposed Rule various provisions governing specific situations where the NBB or NBO is not available or may not be reliable. Specifically, the Exchange is proposing additional detail specifying situations in which there are no quotes or no valid quotes (as defined below), when the national best bid or offer (“NBBO”) is determined to be too wide to be reliable, and at the open of trading on each trading day.
As is true under the Current Rule, pursuant to the Proposed Rule the Exchange will determine the Theoretical Price if there are no quotes or no valid quotes for comparison purposes. As proposed, quotes that are not valid are all quotes in the applicable option series published at a time where the last NBB is higher than the last NBO in such series (a “crossed market”), quotes published by the Exchange that were submitted by either party to the transaction in question, and quotes published by another options exchange against which the Exchange has declared self-help. Thus, in addition to scenarios where there are literally no quotes to be used as Theoretical Price, the Exchange will exclude quotes in certain circumstances if such quotes are not deemed valid. The Proposed Rule is consistent with the Exchange's application of the Current Rule but the descriptions of the various scenarios where the Exchange considers quotes to be invalid represent additional detail that is not included in the Current Rule.
The Exchange notes that Exchange personnel currently are required to determine Theoretical Price in certain circumstances. While the Exchange continues to pursue alternative solutions that might further enhance the objectivity and consistency of determining Theoretical Price, the Exchange believes that the discretion currently afforded to Exchange Officials is appropriate in the absence of a reliable NBBO that can be used to set the Theoretical Price. Under the Current Rule, Exchange personnel will generally consult and refer to data such as the prices of related series, especially the closest strikes in the option in question. Exchange personnel may also take into account the price of the underlying security and the volatility characteristics of the option as well as historical pricing of the option and/or similar options.
Similarly, pursuant to the Proposed Rule the Exchange will determine the Theoretical Price if the bid/ask differential of the NBB and NBO for the affected series just prior to the erroneous transaction was equal to or greater than the Minimum Amount set forth below and there was a bid/ask differential less than the Minimum Amount during the 10 seconds prior to the transaction. If there was no bid/ask differential less than the Minimum Amount during the 10 seconds prior to
The Exchange notes that the values set forth above generally represent a multiple of 3 times the bid/ask differential requirements of other options exchanges, with certain rounding applied (
As an example, assume an option is quoted $3.00 by $6.00 with 50 contracts posted on each side of the market for an extended period of time. If a market participant were to enter a market order to buy 20 contracts the Exchange believes that the buyer should have a reasonable expectation of paying $6.00 for the contracts which they are buying. This should be the case even if immediately after the purchase of those options, the market conditions change and the same option is then quoted at $3.75 by $4.25. Although the quote was wide according to the table above at the time immediately prior to and the time of the execution of the market order, it was also well established and well known. The Exchange believes that an execution at the then prevailing market price should not in and of itself constitute an erroneous trade.
Under the Proposed Rule, for a transaction occurring as part of the Opening Process
As an example of an erroneous transaction for which the NBBO is wide at the open, assume the NBBO at the time of the opening transaction is $1.00 × $5.00 and the opening transaction takes place at $1.25. The Exchange would be responsible for determining the Theoretical Price because the NBBO was wider than the applicable minimum amount set forth in the wide quote provision as described above. The Exchange believes that it is necessary to determine Theoretical Price at the open in the event of a wide quote at the open for the same reason that the Exchange has proposed to determine Theoretical Price during the remainder of the trading day pursuant to the proposed wide quote provision, namely that a wide quote cannot be reliably used to determine Theoretical Price because the Exchange does not know which of the two quotes, the NBB or the NBO, is closer to the real value of the option.
The Exchange proposes to adopt numerical thresholds that would qualify transactions as “Obvious Errors.” These thresholds are similar to those in place under the Current Rule. As proposed, a transaction will qualify as an Obvious Error if the Exchange receives a properly submitted filing and the execution price of a transaction is higher or lower than the Theoretical Price for the series by an amount equal to at least the amount shown below:
Under the Proposed Rule, a party that believes that it participated in a transaction that was the result of an Obvious Error must notify the Exchange's Help Desk in the manner
The Exchange also proposes to adopt notification timeframes that must be met in order for a transaction to qualify as an Obvious Error. Specifically, as proposed a filing must be received by the Exchange within thirty (30) minutes of the execution with respect to an execution of a Customer order and within fifteen (15) minutes of the execution for any other participant. The Exchange also proposes to provide additional time for trades that are routed through other options exchanges to the Exchange. Under the Proposed Rule, any other options exchange will have a total of forty-five (45) minutes for Customer orders and thirty (30) minutes for non-Customer orders, measured from the time of execution on the Exchange, to file with the Exchange for review of transactions routed to the Exchange from that options exchange and executed on the Exchange (“linkage trades”). This includes filings on behalf of another options exchange filed by a third-party routing broker if such third-party broker identifies the affected transactions as linkage trades. In order to facilitate timely reviews of linkage trades the Exchange will accept filings from either the other options exchange or, if applicable, the third-party routing broker that routed the applicable order(s). The additional fifteen (15) minutes provided with respect to linkage trades shall only apply to the extent the options exchange that originally received and routed the order to the Exchange itself received a timely filing from the entering participant (
Pursuant to the Proposed Rule, an Official may review a transaction believed to be erroneous on his/her own motion in the interest of maintaining a fair and orderly market and for the protection of investors. This proposed provision is designed to give an Official the ability to provide parties relief in those situations where they have failed to report an apparent error within the established notification period. A transaction reviewed pursuant to the proposed provision may be nullified or adjusted only if it is determined by the Official that the transaction is erroneous in accordance with the provisions of the Proposed Rule, provided that the time deadlines for filing a request for review described above shall not apply. The Proposed Rule would require the Official to act as soon as possible after becoming aware of the transaction; action by the Official would ordinarily be expected on the same day that the transaction occurred. However, because a transaction under review may have occurred near the close of trading or due to unusual circumstances, the Proposed Rule provides that the Official shall act no later than 7:30 a.m. Central Time on the next trading day following the date of the transaction in question.
The Exchange also proposes to state that a party affected by a determination to nullify or adjust a transaction after an Official's review on his or her own motion may appeal such determination in accordance with paragraph (m), which is described below, but may not seek a review by an Obvious Error Panel under paragraph (k). The Proposed Rule would make clear that a determination by an Official not to review a transaction or determination not to nullify or adjust a transaction for which a review was conducted on an Official's own motion is not appealable and further that if a transaction is reviewed and a determination is rendered pursuant to another provision of the Proposed Rule, no additional relief may be granted by an Official.
If it is determined that an Obvious Error has occurred based on the objective numeric criteria and time deadlines described above, the Exchange will adjust or nullify the transaction as described below and promptly notify both parties to the trade electronically or via telephone. The Exchange proposes different adjustment and nullification criteria for Customers and non-Customers.
As proposed, where neither party to the transaction is a Customer, the execution price of the transaction will be adjusted by the Official pursuant to the table below.
The Exchange believes that it is appropriate to adjust to prices a specified amount away from Theoretical Price rather than to adjust to Theoretical Price because even though the Exchange has determined a given trade to be erroneous in nature, the parties in question should have had some expectation of execution at the price or prices submitted. Also, it is common that by the time it is determined that an obvious error has occurred additional hedging and trading activity has already occurred based on the executions that previously happened. The Exchange is concerned that an adjustment to Theoretical Price in all cases would not appropriately incentivize market participants to maintain appropriate controls to avoid potential errors.
Further, as proposed any non-Customer Obvious Error exceeding 50 contracts will be subject to the Size Adjustment Modifier described above. The Exchange believes that it is appropriate to apply the Size Adjustment Modifier to non-Customer orders because the hedging cost associated with trading larger sized options orders and the market impact of larger blocks of underlying can be significant.
As an example of the application of the Size Adjustment Modifier, assume Exchange A has a quoted bid to buy 50 contracts at $2.50, Exchange B has a quoted bid to buy 100 contracts at $2.05 and there is no other options exchange quoting a bid priced higher than $2.00. Assume that the NBBO is $2.50 by $3.00. Finally, assume that all orders quoted and submitted to Exchange B in connection with this example are non-Customer orders.
• Assume Exchange A's quoted bid at $2.50 is either executed or cancelled.
• Assume Exchange B immediately thereafter receives an incoming market order to sell 100 contracts.
• The incoming order would be executed against Exchange B's resting bid at $2.05 for 100 contracts.
• Because the 100 contract execution of the incoming sell order was priced at $2.05, which is $0.45 below the Theoretical Price of $2.50, the 100 contract execution would qualify for adjustment as an Obvious Error.
• The normal adjustment process would adjust the execution of the 100 contracts to $2.35 per contract, which is the Theoretical Price minus $0.15.
• However, because the execution would qualify for the Size Adjustment Modifier of 2 times the adjustment price, the adjusted transaction would instead be to $2.20 per contract, which is the Theoretical Price minus $0.30.
By reference to the example above, the Exchange reiterates that it believes that a Size Adjustment Modifier is appropriate, as the buyer in this example was originally willing to buy 100 contracts at $2.05 and ended up paying $2.20 per contract for such execution. Without the Size Adjustment Modifier the buyer would have paid $2.35 per contract. Such buyer may be advantaged by the trade if the Theoretical Price is indeed closer to $2.50 per contract, however the buyer may not have wanted to buy so many contracts at a higher price and does incur increasing cost and risk due to the additional size of their quote. Thus, the proposed rule is attempting to strike a balance between various competing objectives, including recognition of cost and risk incurred in quoting larger size and incentivizing market participants to maintain appropriate controls to avoid errors.
In contrast to non-Customer orders, where trades will be adjusted if they qualify as Obvious Errors, pursuant the Proposed Rule a trade that qualifies as an Obvious Error will be nullified where at least one party to the Obvious Error is a Customer. The Exchange also proposes, however, that if any Participant submits requests to the Exchange for review of transactions pursuant to the Proposed Rule, and in aggregate that Participant has 200 or more Customer transactions under review concurrently and the orders resulting in such transactions were submitted during the course of 2 minutes or less, where at least one party to the Obvious Error is a non-Customer, the Exchange will apply the non-Customer adjustment criteria described above to such transactions. The Exchange based its proposal of 200 transactions on the fact that the proposed level is reasonable as it is representative of an extremely large number of orders submitted to the Exchange that are, in turn, possibly erroneous. Similarly, the Exchange based its proposal of orders received in 2 minutes or less on the fact that this is a very short amount of time under which one Participant could generate multiple erroneous transactions. In order for a participant to have more than 200 transactions under review concurrently when the orders triggering such transactions were received in 2 minutes or less, the market participant will have far exceeded the normal behavior of customers deserving protected status.
Consistent with the Current Rule, the Exchange proposes to adopt separate numerical thresholds for review of transactions for which the Exchange does not receive a filing requesting review within the Obvious Error timeframes set forth above. Based on this review these transactions may qualify as “Catastrophic Errors.” As proposed, a Catastrophic Error will be deemed to have occurred when the execution price of a transaction is higher or lower than the Theoretical Price for the series by an amount equal to at least the amount shown below:
Based on industry feedback on the Catastrophic Error thresholds set forth under the Current Rule, the thresholds proposed as set forth above are more granular and lower (
The Proposed Rule would specify that relief under the catastrophic error provision would not be granted under paragraph (d) if an Obvious Error Panel has previously rendered a decision with respect to the transaction(s) in question. In addition, if it is determined that a Catastrophic Error has not occurred, the
Although Customer orders would be adjusted in the same manner as non-Customer orders, any Customer order that qualifies as a Catastrophic Error will be nullified if the adjustment would result in an execution price higher (for buy transactions) or lower (for sell transactions) than the Customer's limit price. Based on industry feedback, the levels proposed above with respect to adjustment amounts are the same levels as the thresholds at which a transaction may be deemed a Catastrophic Error pursuant to the chart set forth above.
As is true for Obvious Errors as described above, the Exchange believes that it is appropriate to adjust to prices a specified amount away from Theoretical Price rather than to adjust to Theoretical Price because even though the Exchange has determined a given trade to be erroneous in nature, the parties in question should have had some expectation of execution at the price or prices submitted. Also, it is common that by the time it is determined that a Catastrophic Error has occurred additional hedging and trading activity has already occurred based on the executions that previously happened. The Exchange is concerned that an adjustment to Theoretical Price in all cases would not appropriately incentivize market participants to maintain appropriate controls to avoid potential errors. Further, the Exchange believes it is appropriate to maintain a higher adjustment level for Catastrophic Errors than Obvious Errors given the significant additional time that can potentially pass before an adjustment is requested and applied and the amount of hedging and trading activity that can occur based on the executions at issue during such time. For the same reasons, other than honoring the limit prices established for Customer orders, the Exchange has proposed to treat all market participants the same in the context of the Catastrophic Error provision. Specifically, the Exchange believes that treating market participants the same in this context will provide additional certainty to market participants with respect to their potential exposure and hedging activities, including comfort that even if a transaction is later adjusted (
In order to improve consistency for market participants in the case of a widespread market event and in light of the interconnected nature of the options exchanges, the Exchange proposes to adopt a new provision that calls for coordination between the options exchanges in certain circumstances and provides limited flexibility in the application of other provisions of the Proposed Rule in order to promptly respond to a widespread market event.
The proposed criteria for determining a Significant Market Event are as follows:
(A) Transactions that are potentially erroneous would result in a total Worst-Case Adjustment Penalty of $30,000,000, where the Worst-Case Adjustment Penalty is computed as the sum, across all potentially erroneous trades, of: (i) $0.30 (
(B) Transactions involving 500,000 options contracts are potentially erroneous;
(C) Transactions with a notional value (
(D) 10,000 transactions are potentially erroneous.
As described above, the Exchange proposes to adopt a the Worst Case Adjustment Penalty, proposed as criterion (A), which is the only criterion that can on its own result in an event being designated as a significant market event. The Worst Case Adjustment Penalty is intended to develop an objective criterion that can be quickly determined by the Exchange in consultation with other options exchanges that approximates the total overall exposure to market participants on the negatively impacted side of each transaction that occurs during an event. If the Worst Case Adjustment criterion is equal to or exceeds $30,000,000, then an event is a Significant Market Event. As an example of the Worst Case Adjustment Penalty, assume that a single potentially erroneous transaction in an event is as follows: sale of 100 contracts of a standard option (
As described above, under the Proposed Rule if the Worst Case Adjustment Penalty does not equal or exceed $30,000,000, then a Significant Market Event has occurred if the sum of all applicable event statistics (expressed as a percentage of the relevant thresholds), is greater than or equal to 150% and 75% or more of at least one category is reached. The Proposed Rule further provides that no single category can contribute more than 100% to the sum. As an example of the application of this provision, assume that in a given event across all options exchanges that: (A) The Worst Case Adjustment Penalty is $12,000,000 (40% of $30,000,000), (B) 300,000 options contracts are potentially erroneous (60% of 500,000), (C) the notional value of potentially erroneous transactions is $30,000,000 (30% of $100,000,000), and (D) 12,000 transactions are potentially erroneous (120% of 10,000). This event would qualify as a Significant Market Event because the sum of all applicable event statistics would be 230%, far exceeding the 150% threshold. The 230% sum is reached by adding 40%, 60%, 30% and last, 100% (
As an alternative example, assume a large-scale event occurs involving low-priced options with a small number of contracts in each execution. Assume in this event across all options exchanges that: (A) The Worst Case Adjustment Penalty is $600,000 (2% of $30,000,000), (B) 20,000 options contracts are potentially erroneous (4% of 500,000), (C) the notional value of potentially erroneous transactions is $20,000,000 (20% of $100,000,000), and (D) 20,000 transactions are potentially erroneous (200% of 10,000, but rounded down to 100%). This event would not qualify as a Significant Market Event because the sum of all applicable event statistics would be 126%, below the 150% threshold. The Exchange reiterates that as proposed, even when a single category other than criterion (A) is fully met, that does not necessarily qualify an event as a Significant Market Event.
The Exchange believes that the breadth and scope of the obvious error rules are appropriate and sufficient for handling of typical and common obvious errors. Coordination between and among the exchanges should generally not be necessary even when a Participant has an error that results in executions on more than one exchange. In setting the thresholds above the Exchange believes that the requirements will be met only when truly widespread and significant errors happen and the benefits of coordination and information sharing far outweigh the costs of the logistics of additional intra-exchange coordination. The Exchange notes that in addition to its belief that the proposed thresholds are sufficiently high, the Exchange has proposed the requirement that either criterion (A) is met or the sum of applicable event statistics for proposed (A) through (D) equals or exceeds 150% in order to ensure that an event is sufficiently large but also to avoid situations where an event is extremely large but just misses potential qualifying thresholds. For instance, the proposal is designed to help avoid a situation where the Worst Case Adjustment Penalty is $15,000,000, so the event does not qualify based on criterion (A) alone, but there are transactions in 490,000 options contracts that are potentially erroneous (missing criterion (B) by 10,000 contracts), there transactions with a notional value of $99,000,000 (missing criterion (C) by $1,000,000), and there are 9,000 potentially erroneous transactions overall (missing criterion (D) by 1,000 transactions). The Exchange believes that the proposed formula, while slightly more complicated than simply requiring a certain threshold to be met in each category, may help to avoid inapplicability of the proposed provisions in the context of an event that would be deemed significant by most subjective measures but that barely misses each of the objective criteria proposed by the Exchange.
To ensure consistent application across options exchanges, in the event of a suspected Significant Market Event, the Exchange shall initiate a coordinated review of potentially erroneous transactions with all other affected options exchanges to determine the full scope of the event. Under the Proposed Rule, the Exchange will promptly coordinate with the other options exchanges to determine the appropriate review period as well as select one or more specific points in time prior to the transactions in question and use one or more specific points in time to determine Theoretical Price. Other than the selected points in time, if applicable, the Exchange will determine Theoretical Price as described above. For example, around the start of a SME that is triggered by a large and aggressively priced buy order, three exchanges have multiple orders on the offer side of the market: Exchange A has offers priced at $2.20, $2.25, $2.30 and several other price levels to $3.00, Exchange B has offers at $2.45, $2.30 and several other price levels to $3.00, Exchange C has offers at price levels between $2.50 and $3.00. Assume an event occurs starting at 9:05:25 a.m. CT and in this particular series the executions begin on Exchange A and subsequently begin to occur on Exchanges B and C. Without coordination and information sharing between the exchanges, Exchange B and Exchange C cannot know with certainty that whether or not the execution at Exchange A that happened at $2.20 immediately prior to their executions at $2.45 and $2.50 is part of the same erroneous event or not. With proper coordination, the exchanges can determine that in this series, the proper point in time from which the event should be analyzed is 9:05:25 a.m. CT, and thus, the NBO of $2.20 should be used as the Theoretical Price for purposes of all buy transactions in such
If it is determined that a Significant Market Event has occurred then, using the parameters agreed with respect to the times from which Theoretical Price will be calculated, if applicable, an Official will determine whether any or all transactions under review qualify as Obvious Errors. The Proposed Rule would require the Exchange to use the criteria in Proposed Rule 6.15(c), as described above, to determine whether an Obvious Error has occurred for each transaction that was part of the Significant Market Event. Upon taking any final action, the Exchange would be required to promptly notify both parties to the trade electronically or via telephone.
The execution price of each affected transaction will be adjusted by an Official to the price provided below, unless both parties agree to adjust the transaction to a different price or agree to bust the trade.
Thus, the proposed adjustment criteria for Significant Market Events are identical to the proposed adjustment levels for Obvious Errors generally. In addition, in the context of a Significant Market Event, any error exceeding 50 contracts will be subject to the Size Adjustment Modifier described above. Also, the adjustment criteria would apply equally to all market participants (
Another significant distinction between the proposed Obvious Error provision and the proposed Significant Market Event provision is that if the Exchange, in consultation with other options exchanges, determines that timely adjustment is not feasible due to the extraordinary nature of the situation, then the Exchange will nullify some or all transactions arising out of the Significant Market Event during the review period selected by the Exchange and other options exchanges. To the extent the Exchange, in consultation with other options exchanges, determines to nullify less than all transactions arising out of the Significant Market Event, those transactions subject to nullification will be selected based upon objective criteria with a view toward maintaining a fair and orderly market and the protection of investors and the public interest. For example, assume a Significant Market Event causes 25,000 potentially erroneous transactions and impacts 51 options classes. Of the 25,000 transactions, 24,000 of them are concentrated in a single options class. The exchanges may decide the most appropriate solution because it will provide the most certainty to participants and allow for the prompt resumption of regular trading is to bust all trades in the most heavily affected class between two specific points in time, while the other 1,000 trades across the other 50 classes are reviewed and adjusted as appropriate. A similar situation might arise directionally where a Customer submits both erroneous buy and sell orders and the number of errors that happened that were erroneously low priced (
With respect to rulings made pursuant to the proposed Significant Market Event provision the Exchange believes that the number of affected transactions is such that immediate finality is necessary to maintain a fair and orderly market and to protect investors and the public interest. Accordingly, rulings by the Exchange pursuant to the Significant Market Event provision would be non-appealable pursuant to the Proposed Rule.
In addition to the objective criteria described above, the Proposed Rule also proposes to make clear that the determination as to whether a trade was executed at an erroneous price may be made by mutual agreement of the affected parties to a particular transaction. The Proposed Rule would state that a trade may be nullified or adjusted on the terms that all parties to a particular transaction agree, provided, however, that such agreement to nullify or adjust must be conveyed to the Exchange in a manner prescribed by the Exchange prior to 7:30 a.m. Central Time on the first trading day following the execution.
The Exchange also proposes to explicitly state that it is considered conduct inconsistent with just and equitable principles of trade for any Participant to use the mutual adjustment process to circumvent any applicable Exchange rule, the Act or any of the rules and regulations thereunder. Thus, for instance, a Participant is precluded from seeking to avoid applicable trade-through rules by executing a transaction and then adjusting such transaction to a price at which the Exchange would not have allowed it to execute at the time of the execution because it traded through the quotation of another options exchange. The Exchange notes that in connection with its obligations as a self-regulatory organization, the Exchange's Regulatory Department reviews adjustments to transactions to detect potential violations of Exchange rules or the Act and the rules and regulations thereunder.
Exchange Rule 6.32 describes the Exchange's authority to declare trading
The Exchange proposes to add Interpretation and Policy .05 to Rule 6.32. The Interpretation and Policy will also state that the Exchange shall nullify any transaction that occurs: (a) During a trading halt in the affected option on the Exchange; or (b) with respect to equity options (including options overlying ETFs), during a regulatory halt as declared by the primary listing market for the underlying security.
Market participants on the Exchange likely base the pricing of their orders submitted to the Exchange on the price of the underlying security for the option. Thus, the Exchange believes it is appropriate to adopt provisions that allow adjustment or nullification of transactions based on erroneous prints or erroneous quotes in the underlying security.
The Exchange proposes to adopt language in the Proposed Rule stating that a trade resulting from an erroneous print(s) disseminated by the underlying market that is later nullified by that underlying market shall be adjusted or busted as set forth in the Obvious Error provisions of the Proposed Rule, provided a party notifies the Exchange's Help Desk in a timely manner, as further described below. The Exchange proposes to define a trade resulting from an erroneous print(s) as any options trade executed during a period of time for which one or more executions in the underlying security are nullified and for one second thereafter. The Exchange believes that one second is an appropriate amount of time in which an options trade would be directly based on executions in the underlying equity security. The Exchange also proposes to require that if a party believes that it participated in an erroneous transaction resulting from an erroneous print(s) pursuant to the proposed erroneous print provision it must notify the Exchange's Help Desk within the timeframes set forth in the Obvious Error provision described above. The Exchange has also proposed to state that the allowed notification timeframe commences at the time of notification by the underlying market(s) of nullification of transactions in the underlying security. Further, the Exchange proposes that if multiple underlying markets nullify trades in the underlying security, the allowed notification timeframe will commence at the time of the first market's notification.
As an example of a situation in which a trade results from an erroneous print disseminated by the underlying market that is later nullified by the underlying market, assume that a given underlying is trading in the $49.00-$50.00 price range then has an erroneous print at $5.00. Given that there is the potential perception that the underlying has gone through a dramatic price revaluation, numerous options trades could promptly trigger based off of this new price. However, because the price that triggered them was not a valid price it would be appropriate to review said option trades when the underlying print that triggered them is removed.
The Exchange also proposes to add a provision stating that a trade resulting from an erroneous quote(s) in the underlying security shall be adjusted or busted as set forth in the Obvious Error provisions of the Proposed Rule, provided a party notifies the Exchange's Help Desk in a timely manner, as further described below. Pursuant to the Proposed Rule, an erroneous quote occurs when the underlying security has a width of at least $1.00 and has a width at least five times greater than the average quote width for such underlying security during the time period encompassing two minutes before and after the dissemination of such quote. For purposes of the Proposed Rule, the average quote width will be determined by adding the quote widths of sample quotations at regular 15-second intervals during the four-minute time period referenced above (excluding the quote(s) in question) and dividing by the number of quotes during such time period (excluding the quote(s) in question).
As an example of a situation in which a trade results from an erroneous quote in the underlying security, assume again that a given underlying is quoting and trading in the $49.00-$50.00 price range then a liquidity gap occurs, with bidders not representing quotes in the market place and an offer quoted at $5.00. Quoting may quickly return to normal, again in the $49.00-$50.00 price range, but due to the potential perception that the underlying has gone through a dramatic price revaluation, numerous options trades could trigger based off of this new quoted price in the interim. Because the price that triggered such trades was not a valid price it would be appropriate to review said option trades.
The Exchange notes that certain market participants and their customers enter stop or stop limit orders that are triggered based on executions in the marketplace. As proposed, transactions resulting from the triggering of a stop or stop-limit order by an erroneous trade in an option contract shall be nullified by the Exchange, provided a party notifies the Exchange's Help Desk in a timely manner as set forth below. The Exchange believes it is appropriate to nullify executions of stop or stop-limit orders that were wrongly triggered because such transactions should not have occurred. If a party believes that it participated in an erroneous transaction
The Exchange also proposes to adopt language that clearly provides the Exchange with authority to take necessary actions when another options exchange nullifies or adjusts a transaction pursuant to its respective rules and the transaction resulted from an order that has passed through the Exchange and been routed on to another options exchange on behalf of the Exchange. Specifically, if the Exchange routes an order pursuant to the Intermarket Options Linkage Plan
The Exchange proposes to maintain its current appeals process in connection with obvious errors. Specifically, if a party affected by a determination made under paragraph (c) so requests within the time permitted in paragraph (k)(3) below, an Obvious Error Panel will review decisions made under this Rule, including whether an obvious error occurred, whether the correct Theoretical Price was used, and whether the correct adjustment was made at the correct price. A party may also request that the Obvious Error Panel provide relief as required in this Rule in cases where the party failed to provide the notification required in paragraph (c)(2) and an extension was not granted, but unusual circumstances must merit special consideration. A party cannot request review by an Obvious Error Panel of determinations by a C2 Official made pursuant to paragraph (c)(3) of this Rule.
The Obvious Error Panel will be comprised of representatives from four (4) Participants. Two (2) of the representatives must be directly engaged in market making activity and two (2) of the representatives must be employed by non-Market-Maker Participants.
Under Proposed Rule (k)(3) a request for review must be made in writing within thirty (30) minutes after a party receives notification of the determination being appealed, except that if notification is made after 2:30 p.m. Central Time (“CT”), either party has until 8:30 a.m. CT the next trading day to request review. The Obvious Error Panel shall review the facts and render a decision on the day of the transaction, or the next trade day in the case where a request is properly made the next trade day.
The Obvious Error Panel may overturn or modify an action taken under this Rule upon agreement by a majority of the Panel representatives. All determinations by the Obvious Error Panel may be appealed in accordance with paragraph (m) of this Rule.
The Exchange proposes to modify the procedure and function of the Catastrophic Error Panel in the Current Rule to conform the appeals process for catastrophic errors to the appeals process for obvious errors. Under the Current Rule, the Catastrophic Error Panel does not review initial determinations regarding catastrophic errors; rather, the Catastrophic Error Panel makes initial determinations with regards to whether a catastrophic error has occurred. In order to conform to the Proposed Rule, which provides that initial determinations regarding potential catastrophic errors are made by C2 Officials, the Exchange is proposing to adopt procedures similar to the Obvious Error Panel for the proposed Catastrophic Error Panel. Specifically, if a party affected by a determination made under paragraph (d) so requests within the time permitted in paragraph (l)(3), a Catastrophic Error Panel will review decisions made under this Rule, including whether a catastrophic error occurred, whether the correct Theoretical Price was used, and whether the correct adjustment was made at the correct price. The composition of the Catastrophic Error Panel will be the same as the Obvious Error Panel.
Additionally, under paragraph (l)(3), a request for review must be made in writing within thirty (30) minutes after a party receives notification of a determination under paragraph (d), except that if notification is made after 2:30 p.m. Central Time (“CT”), either party has until 8:30 a.m. CT the next trading day to request review. The Catastrophic Error Panel shall review the facts and render a decision on the day of the transaction, or the next trade day in the case where a request is properly made the next trade day.
Finally, as with the Obvious Error Panel, the Catastrophic Error Panel may overturn or modify an action taken under this Rule upon agreement by a majority of the Panel representatives. All determinations by the Catastrophic Error Panel may be appealed in accordance with paragraph (m) of this Rule.
Determinations made by an Obvious Error Panel or Catastrophic Error Panel can be appealed in accordance with paragraph (m) of the Proposed Rule. Paragraph (m) provides that, subject to the limitations contained in (c)(3),
The Exchange is proposing to adopt Interpretation and Policy .01 to the Proposed Rule to provide for how the Exchange will treat Obvious and Catastrophic Errors in response to the Regulation NMS Plan to Address Extraordinary Market Volatility Pursuant to Rule 608 of Regulation NMS under the Act (the “Limit Up-Limit
During a Limit or Straddle State, options prices may deviate substantially from those available immediately prior to or following such States. Thus, determining a Theoretical Price in such situations would often be very subjective, creating unnecessary uncertainty and confusion for investors. Because of this uncertainty, and consistent with the Current Rule, the Exchange proposes to provide that the Exchange will not review transactions as Obvious Errors or Catastrophic Errors when the underlying security is in a Limit or Straddle State.
The Exchange represents that it will conduct its own analysis concerning the elimination of the Obvious Error and Catastrophic Error provisions during Limit and Straddle States and agrees to provide the Commission with relevant data to assess the impact of this proposed rule change. As part of its analysis, the Exchange will evaluate (1) the options market quality during Limit and Straddle States, (2) assess the character of incoming order flow and transactions during Limit and Straddle States, and (3) review any complaints from Participants and their customers concerning executions during Limit and Straddle States. The Exchange also agrees to provide to the Commission data requested to evaluate the impact of the inapplicability of the Obvious Error and Catastrophic Error provisions, including data relevant to assessing the various analyses noted above.
In connection with this proposal, the Exchange will provide to the Commission and the public a dataset containing the data for each Straddle State and Limit State in NMS Stocks underlying options traded on the Exchange beginning in the month during which the proposal is approved, limited to those option classes that have at least one (1) trade on the Exchange during a Straddle State or Limit State. For each of those option classes affected, each data record will contain the following information:
• Stock symbol, option symbol, time at the start of the Straddle or Limit State, an indicator for whether it is a Straddle or Limit State.
• For activity on the Exchange:
○ executed volume, time-weighted quoted bid-ask spread, time-weighted average quoted depth at the bid, time-weighted average quoted depth at the offer;
○ high execution price, low execution price;
○ number of trades for which a request for review for error was received during Straddle and Limit States;
○ an indicator variable for whether those options outlined above have a price change exceeding 30% during the underlying stock's Limit or Straddle State compared to the last available option price as reported by OPRA before the start of the Limit or Straddle State (1 if observe 30% and 0 otherwise). Another indicator variable for whether the option price within five minutes of the underlying stock leaving the Limit or Straddle state (or halt if applicable) is 30% away from the price before the start of the Limit or Straddle State.
In addition, by May 29, 2015, the Exchange shall provide to the Commission and the public assessments relating to the impact of the operation of the Obvious Error rules during Limit and Straddle States as follows: (1) Evaluate the statistical and economic impact of Limit and Straddle States on liquidity and market quality in the options markets; and (2) Assess whether the lack of Obvious Error rules in effect during the Straddle and Limit States are problematic. The timing of this submission would coordinate with Participants' proposed time frame to submit to the Commission assessments as required under Appendix B of the Plan. The Exchange notes that the pilot program is intended to run concurrent with the pilot period of the Plan, which has been extended to October 23, 2015. The Exchange proposes to reflect this date in the Proposed Rule.
The Exchange also proposes to include Interpretation and Policy .02 to the Proposed Rule, which would make clear that to the extent the provisions of the proposed Rule would result in the Exchange applying an adjustment of an erroneous sell transaction to a price lower than the execution price or an erroneous buy transaction to a price higher than the execution price, the Exchange will not adjust or nullify the transaction, but rather, the execution price will stand.
Additionally, the Exchange proposes to adopt Interpretation and Policy .05, which provides that any determination made by an Official, an Obvious Error Panel, or a Catastrophic Error Panel under Proposed Rule shall be rendered without prejudice as to the rights of the parties to the transaction to submit a dispute to arbitration.
In order to ensure that other options exchanges are able to adopt rules consistent with this proposal and to coordinate the effectiveness of such harmonized rules, the Exchange proposes to delay the operative date of this proposal to May 8, 2015.
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.
As described above, the Exchange and other options exchanges are seeking to adopt harmonized rules related to the adjustment and nullification of
The Exchange believes the various provisions allowing or dictating adjustment rather than nullification of a trade are necessary given the benefits of adjusting a trade price rather than nullifying the trade completely. Because options trades are used to hedge, or are hedged by, transactions in other markets, including securities and futures, many Participants, and their customers, would rather adjust prices of executions rather than nullify the transactions and, thus, lose a hedge altogether. As such, the Exchange believes it is in the best interest of investors to allow for price adjustments as well as nullifications. The Exchange further discusses specific aspects of the Proposed Rule below.
The Exchange does not believe that the proposal is unfairly discriminatory, even though it differentiates in many places between Customers and non-Customers. The rules of the options exchanges, including the Exchange's existing Obvious Error provision, often treat Customers differently, often affording them preferential treatment. This treatment is appropriate in light of the fact that Customers are not necessarily immersed in the day-to-day trading of the markets, are less likely to be watching trading activity in a particular option throughout the day, and may have limited funds in their trading accounts. At the same time, the Exchange reiterates that in the U.S. options markets generally there is significant retail customer participation that occurs directly on (and only on) options exchanges such as the Exchange. Accordingly, differentiating among market participants with respect to the adjustment and nullification of erroneous options transactions is not unfairly discriminatory because it is reasonable and fair to provide Customers with additional protections as compared to non-Customers.
The Exchange believes that its proposal with respect to the allowance of mutual agreed upon adjustments or nullifications is appropriate and consistent with the Act, as such proposal removes impediments to and perfects the mechanism of a free and open market and a national market system, allowing participants to mutually agree to correct an erroneous transactions without the Exchange mandating the outcome. The Exchange also believes that its proposal with respect to mutual adjustments is consistent with the Act because it is designed to prevent fraudulent and manipulative acts and practices by explicitly stating that it is considered conduct inconsistent with just and equitable principles of trade for any Participant to use the mutual adjustment process to circumvent any applicable Exchange rule, the Act or any of the rules and regulations thereunder.
The Exchange believes its proposal to provide within the Proposed Rule definitions of Customer, erroneous sell transaction and erroneous buy transaction, and Official is consistent with section 6(b)(5) of the Act because such terms will provide more certainty to market participants as to the meaning of the Proposed Rule and reduce the possibility that a party can intentionally submit an order hoping for the market to move in their favor in reliance on the Rule as a safety mechanism, thereby promoting just and fair principles of trade. Similarly, the Exchange believes that proposed Interpretation and Policy .02 is consistent with the Act as it would make clear that the Exchange will not adjust or nullify a transaction, but rather, the execution price will stand when the applicable adjustment criteria would actually adjust the price of the transaction to a worse price (
As set forth below, the Exchange believes it is consistent with section 6(b)(5) of the Act for the Exchange to determine Theoretical Price when the NBBO cannot reasonably be relied upon because the alternative could result in transactions that cannot be adjusted or nullified even when they are otherwise clearly at a price that is significantly away from the appropriate market for the option. Similarly, reliance on an NBBO that is not reliable could result in adjustment to prices that are still significantly away from the appropriate market for the option.
The Exchange believes that its proposal with respect to determining Theoretical Price is consistent with the Act in that it has retained the standard of the current rule, which is to rely on the NBBO to determine Theoretical Price if such NBBO can reasonably be relied upon. Because, however, there is not always an NBBO that can or should be used in order to administer the rule, the Exchange has proposed various provisions that provide the Exchange with the authority to determine a Theoretical Price. The Exchange believes that the Proposed Rule is transparent with respect to the circumstances under which the Exchange will determine Theoretical Price, and has sought to limit such circumstances as much as possible. The Exchange notes that Exchange personnel currently are required to determine Theoretical Price in certain circumstances. While the Exchange continues to pursue alternative solutions that might further enhance the objectivity and consistency of determining Theoretical Price, the Exchange believes that the discretion currently afforded to Exchange Officials is appropriate in the absence of a reliable NBBO that can be used to set the Theoretical Price.
With respect to the specific proposed provisions for determining Theoretical Price for transactions that occur as part of the Exchange's Opening Process and in situations where there is a wide quote, the Exchange believes both provisions are consistent with the Act because they provide objective criteria that will determine Theoretical Price with limited exceptions for situations where the Exchange does not believe the NBBO is a reasonable benchmark or there is no NBBO. The Exchange notes in particular with respect to the wide quote provision that the Proposed Rule will result in the Exchange determining Theoretical Price less frequently than it would pursuant to wide quote provisions that have previously been approved. The Exchange believes that it is appropriate and consistent with the Act to afford protections to market participants by not relying on the NBBO to determine Theoretical Price when the quote is extremely wide but had been, in the prior 10 seconds, at much more reasonable width. The Exchange also believes it is appropriate and consistent with the Act to use the NBBO to determine Theoretical Price when the quote has been wider than the applicable amount for more than 10 seconds, as the Exchange does not believe it is necessary to apply any other criteria in such a circumstance. The Exchange believes that market participants can easily use or adopt safeguards to prevent errors when such
The Exchange believes that its proposal to adopt clear but disparate standards with respect to the deadline for submitting a request for review of Customer and non-Customer transactions is consistent with the Act, particularly in that it creates a greater level of protection for Customers. As noted above, the Exchange believes that this is appropriate and not unfairly discriminatory in light of the fact that Customers are not necessarily immersed in the day-to-day trading of the markets and are less likely to be watching trading activity in a particular option throughout the day. Thus, Participants representing Customer orders reasonably may need additional time to submit a request for review. The Exchange also believes that its proposal to provide additional time for submission of requests for review of linkage trades is reasonable and consistent with the protection of investors and the public interest due to the time that it might take an options exchange or third-party routing broker to file a request for review with the Exchange if the initial notification of an error is received by the originating options exchange near the end of such options exchange's filing deadline. Without this additional time, there could be disparate results based purely on the existence of intermediaries and an interconnected market structure.
In relation to the aspect of the proposal giving Officials the ability to review transactions for obvious errors on their own motion, the Exchange notes that an Official can adjust or nullify a transaction under the authority granted by this provision only if the transaction meets the specific and objective criteria for an Obvious Error under the Proposed Rule. As noted above, this is designed to give an Official the ability to provide parties relief in those situations where they have failed to report an apparent error within the established notification period. However, the Exchange will only grant relief if the transaction meets the requirements for an Obvious Error as described in the Proposed Rule.
The Exchange believes that its proposal to adjust non-Customer transactions and to nullify Customer transactions that qualify as Obvious Errors is appropriate for reasons consistent with those described above. In particular, Customers are not necessarily immersed in the day-to-day trading of the markets, are less likely to be watching trading activity in a particular option throughout the day, and may have limited funds in their trading accounts.
The Exchange acknowledges that the proposal contains some uncertainty regarding whether a trade will be adjusted or nullified, depending on whether one of the parties is a Customer, because a party may not know whether the other party to a transaction was a Customer at the time of entering into the transaction. However, the Exchange believes that the proposal nevertheless promotes just and equitable principles of trade and protects investors as well as the public interest because it eliminates the possibility that a Customer's order will be adjusted to a significantly different price. As noted above, the Exchange believes it is consistent with the Act to afford Customers greater protections under the Proposed Rule than are afforded to non-Customers. Thus, the Exchange believes that its proposal is consistent with the Act in that it protects investors and the public interest by providing additional protections to those that are less informed and potentially less able to afford an adjustment of a transaction that was executed in error. Customers are also less likely to have engaged in significant hedging or other trading activity based on earlier transactions, and thus, are less in need of maintaining a position at an adjusted price than non-Customers.
If any Participant submits requests to the Exchange for review of transactions pursuant to the Proposed Rule, and in aggregate that Participant has 200 or more Customer transactions under review concurrently and the orders resulting in such transactions were submitted during the course of 2 minutes or less, the Exchange believes it is appropriate for the Exchange apply the non-Customer adjustment criteria described above to such transactions. The Exchange believes that the proposed aggregation is reasonable as it is representative of an extremely large number of orders submitted to the Exchange over a relatively short period of time that are, in turn, possibly erroneous (and within a time frame significantly less than an entire day), and thus is most likely to occur because of a systems issue experienced by a Participant representing Customer orders or a systems issue coupled with the erroneous marking of orders. The Exchange does not believe it is possible at a level of 200 Customer orders over a 2 minute period that are under review at one time that multiple, separate Customers were responsible for the errors in the ordinary course of trading. In the event of a large-scale issue caused by a Participant that has submitted orders over a 2 minute period marked as Customer that resulted in more than 200 transactions under review, the Exchange does not believe it is appropriate to nullify all such transactions because of the negative impact that nullification could have on the market participants on the contra-side of such transactions, who might have engaged in hedging and trading activity following such transactions. In order for a participant to have more than 200 transactions under review concurrently when the orders triggering such transactions were received in 2 minutes or less, the Exchange believes that a market participant will have far exceeded the normal behavior of customers deserving protected status. While the Exchange continues to believe that it is appropriate to nullify transactions in such a circumstance if both participants to a transaction are Customers, the Exchange does not believe it is appropriate to place the overall risk of a significant number of trade breaks on non-Customers that in the normal course of business may have engaged in additional hedging activity or trading activity based on such transactions. Thus, the Exchange believes it is necessary and appropriate to protect non-Customers in such a circumstance by applying the non-Customer adjustment criteria, and thus adjusting transactions as set forth above, in the event a Participant has more than 200 transactions under review concurrently. In summary, due to the extreme level at which the proposal is set, the Exchange believes that the proposal is consistent with section 6(b)(5) of the Act in that it promotes just and equitable principles of trade by encouraging market participants to retain appropriate controls over their systems to avoid submitting a large number of erroneous orders in a short period of time.
Similarly, the Exchange believes that the proposed Size Adjustment Modifier, which would increase the adjustment amount for non-Customer transactions, is appropriate because it attempts to account for the additional risk that the parties to the trade undertake for transactions that are larger in scope. The Exchange believes that the Size Adjustment Modifier creates additional incentives to prevent more impactful Obvious Errors and it lessens the impact on the contra-party to an adjusted trade. The Exchange notes that these contra-parties may have preferred to only trade the size involved in the transaction at
The Exchange similarly believes that its Proposed Rule with respect to Catastrophic Errors is consistent with the Act as it affords additional time for market participants to file for review of erroneous transactions that were further away from the Theoretical Price. At the same time, the Exchange believes that the Proposed Rule is consistent with the Act in that it generally would adjust transactions, including Customer transactions, because this will protect against hedge risk, particularly for transactions that may have occurred several hours earlier and thus, which all parties to the transaction might presume are protected from further modification. Similarly, by providing larger adjustment amounts away from Theoretical Price than are set forth under the Obvious Error provision, the Catastrophic Error provision also takes into account the possibility that the party that was advantaged by the erroneous transaction has already taken actions based on the assumption that the transaction would stand. The Exchange believes it is reasonable to specifically protect Customers from adjustments through their limit prices for the reasons stated above, including that Customers are less likely to be watching trading throughout the day and that they may have less capital to afford an adjustment price. The Exchange believes that the proposal provides a fair process that will ensure that Customers are not forced to accept a trade that was executed in violation of their limit order price. In contrast, market professionals are more likely to have engaged in hedging or other trading activity based on earlier trading activity, and thus, are more likely to be willing to accept an adjustment rather than a nullification to preserve their positions even if such adjustment is to a price through their limit price.
The Exchange believes that proposed rule change to adopt the Significant Market Event provision is consistent with section 6(b)(5) of the Act in that it will foster cooperation and coordination with persons engaged in regulating the options markets. In particular, the Exchange believes it is important for options exchanges to coordinate when there is a widespread and significant event, as commonly, multiple options exchanges are impacted in such an event. Further, while the Exchange recognizes that the Proposed Rule will not guarantee a consistent result for all market participants on every market, the Exchange does believe that it will assist in that outcome. For instance, if options exchanges are able to agree as to the time from which Theoretical Price should be determined and the period of time that should be reviewed, the likely disparity between the Theoretical Prices used by such exchanges should be very slight and, in turn, with otherwise consistent rules, the results should be similar. The Exchange also believes that the Proposed Rule is consistent with the Act in that it generally would adjust transactions, including Customer transactions, because this will protect against hedge risk, particularly for liquidity providers that might have been quoting in thousands or tens of thousands of different series and might have affected executions throughout such quoted series. The Exchange believes that when weighing the competing interests between preferring a nullification for a Customer transaction and an adjustment for a transaction of a market professional, while nullification is appropriate in a typical one-off situation that it is necessary to protect liquidity providers in a widespread market event because, presumably, they will be the most affected by such an event (in contrast to a Customer who, by virtue of their status as such, likely would not have more than a small number of affected transactions). The Exchange believes that the protection of liquidity providers by favoring adjustments in the context of Significant Market Events can also benefit Customers indirectly by better enabling liquidity providers, which provides a cumulative benefit to the market. Also, as stated above with respect to Catastrophic Errors, the Exchange believes it is reasonable to specifically protect Customers from adjustments through their limit prices for the reasons stated above, including that Customers are less likely to be watching trading throughout the day and that they may have less capital to afford an adjustment price. The Exchange believes that the proposal provides a fair process that will ensure that Customers are not forced to accept a trade that was executed in violation of their limit order price. In contrast, market professionals are more likely to have engaged in hedging or other trading activity based on earlier trading activity, and thus, are more likely to be willing to accept an adjustment rather than a nullification to preserve their positions even if such adjustment is to a price through their limit price. In addition, the Exchange believes it is important to have the ability to nullify some or all transactions arising out of a Significant Market Event in the event timely adjustment is not feasible due to the extraordinary nature of the situation. In particular, although the Exchange has worked to limit the circumstances in which it has to determine Theoretical Price, in a widespread event it is possible that hundreds if not thousands of series would require an Exchange determination of Theoretical Price. In turn, if there are hundreds or thousands of trades in such series, it may not be practicable for the Exchange to determine the adjustment levels for all non-Customer transactions in a timely fashion, and in turn, it would be in the public interest to instead more promptly deliver a simple, consistent result of nullification.
The Exchange believes that proposed rule change related to review, nullification and/or adjustment of erroneous transactions during a trading halt, an erroneous print in the underlying security, an erroneous quote in the underlying security, or an erroneous transaction in the option with respect to stop and stop limit orders is likewise consistent with section 6(b)(5) of the Act because the proposal provides for the adjustment or nullification of trades executed at erroneous prices through no fault on the part of the trading participants. Allowing for Exchange review in such situations will promote just and fair principles of trade by protecting investors from harm that is not of their own making. Specifically with respect to the proposed provisions governing erroneous prints and quotes in the underlying security, the Exchange notes that market participants on the Exchange base the value of their quotes and orders on the price of the underlying security. The provisions regarding errors in prints and quotes in the underlying security cover instances where the information market participants use to price options is erroneous through no fault of their own. In these instances, market participants have little, if any, chance of pricing options accurately. Thus, these provisions are designed to provide relief to market participants harmed by such errors in the prints or quotes of the underlying security.
The Exchange believes that the proposed provision related to Linkage Trades is consistent with the Act because it adds additional transparency to the Proposed Rule and makes clear that when a Linkage Trade is adjusted or nullified by another options exchange, the Exchange will take necessary actions to complete the nullification or adjustment of the Linkage Trade.
The Exchange believes that retaining the same appeals process for obvious
With regard to the portion of the Exchange's proposal related to the applicability of the Obvious Error Rule when the underlying security is in a Limit or Straddle State, the Exchange believes that the proposed rule change is consistent with section 6(b)(5) of the Act because it will provide certainty about how errors involving options orders and trades will be handled during periods of extraordinary volatility in the underlying security. Further, the Exchange believes that it is necessary and appropriate in the interest of promoting fair and orderly markets to exclude from Rule 6.15 those transactions executed during a Limit or Straddle State.
The Exchange believes the application of the Proposed Rule without the proposed provision would be impracticable given the lack of reliable NBBO in the options market during Limit and Straddle States, and that the resulting actions (
Moreover, given the fact that options prices during brief Limit or Straddle States may deviate substantially from those available shortly following the Limit or Straddle State, the Exchange believes giving market participants time to re-evaluate a transaction would create an unreasonable adverse selection opportunity that would discourage participants from providing liquidity during Limit or Straddle States. In this respect, the Exchange notes that only those orders with a limit price will be executed during a Limit or Straddle State. Therefore, on balance, the Exchange believes that removing the potential inequity of nullifying or adjusting executions occurring during Limit or Straddle States outweighs any potential benefits from applying certain provisions during such unusual market conditions. Additionally, as discussed above, there are additional pre-trade protections in place outside of the Obvious and Catastrophic Error Rule that will continue to safeguard customers.
The Exchange notes that under certain limited circumstances the Proposed Rule will permit the Exchange to review transactions in options that overlay a security that is in a Limit or Straddle State. Specifically, an Official will have authority to review a transaction on his or her own motion in the interest of maintaining a fair and orderly market and for the protection of investors. Furthermore, the Exchange will have the authority to adjust or nullify transactions in the event of a Significant Market Event, a trading halt in the affected option, an erroneous print or quote in the underlying security, or with respect to stop and stop limit orders that have been triggered based on erroneous trades. The Exchange believes that the safeguards described above will protect market participants and will provide the Exchange with the flexibility to act when necessary and appropriate to nullify or adjust a transaction, while also providing market participants with certainty that, under normal circumstances, the trades they effect with quotes and/or orders having limit prices will stand irrespective of subsequent moves in the underlying security. The right to review those transactions that occur during a Limit or Straddle State would allow the Exchange to account for unforeseen circumstances that result in Obvious or Catastrophic Errors for which a nullification or adjustment may be necessary in the interest of maintaining a fair and orderly market and for the protection of investors. Similarly, the ability to nullify or adjust transactions that occur during a Significant Market Event or trading halt, erroneous print or quote in the underlying security, or erroneous trade in the option (
C2 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. Importantly, the Exchange believes the proposal will not impose a burden on intermarket competition but will rather alleviate any burden on competition because it is the result of a collaborative effort by all options exchanges to harmonize and improve the process related to the adjustment and nullification of erroneous options transactions. The Exchange does not believe that the rules applicable to such process is an area where options exchanges should compete, but rather, that all options exchanges should have consistent rules to the extent possible. Particularly where a market participant trades on several different exchanges and an erroneous trade may occur on multiple markets nearly simultaneously, the Exchange believes that a participant should have a consistent experience with respect to the nullification or adjustment of transactions. The Exchange understands that all other options exchanges intend to file proposals that are substantially similar to this proposal.
The Exchange does not believe that the proposed rule change imposes a burden on intramarket competition because the provisions apply to all market participants equally within each participant category (
The Exchange neither solicited nor received 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 if consistent with the protection of investors and the public interest, the proposed rule change has become effective pursuant to section 19(b)(3)(A) of the Act
The Exchange has asked the Commission to waive the 30-day operative delay so that the proposal may become operative immediately upon filing. The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest, as it will enable the Exchange to meet its proposed implementation date of May 8, 2015, which will help facilitate the implementation of harmonized rules related to the adjustment and nullification of erroneous options transactions across the options exchanges. For this reason, the Commission designates the proposed rule change to be operative upon filing.
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 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 Brent J. Fields, 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”),
Chicago Board Options Exchange, Incorporated (“CBOE” or “Exchange”) proposes to introduce Asian style settlement and Cliquet style settlement for FLexible Exchange (“FLEX”) Broad-Based Index options. The proposed rule change would not amend the text of Rule 12.4 (Portfolio Margin); however, the Exchange believes that it would be appropriate to include the proposed options in portfolio margining. The text of the proposed rule change is available on the Exchange's Web site (
In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements.
The purpose of this proposed rule change is to permit the Exchange to introduce Asian style settlement and Cliquet style settlement for FLexible Exchange (“FLEX”) Broad-Based Index options. In general, Asian style settlement provides for payout based on the average of prices of a broad-based index on pre-determined dates over a specified time period and Cliquet style settlement provides for a payout that is the greater of $0 or the (positive) sum of “capped” monthly returns of a broad-based index on pre-determined dates over a specified period of time.
FLEX Broad-Based Index options provide users with the ability to customize key contract terms, like exercise prices, exercise styles, expiration dates and exercise settlement values. After surveying potential FLEX Broad-Based index options users, the Exchange learned that indexed annuity writers (insurance companies) extensively use over-the-counter (“OTC) options with Asian and Cliquet style settlement as a crediting method.
For background, an indexed annuity is an insurance contract that is typically tied to a financial market index,
One type of annuity contract is an Asian contract (sometimes referred to as an averaging contract) because the settlement value is based on an average of selected closing prices of an index over a year. The contract holder of this type of contract is typically entitled to receive a credit on the anniversary date in an amount equal to the greater of $0 and the difference between the average price of an index and the level of the index from the date of inception or the previous anniversary date.
Another type of annuity contract is a Cliquet contract (sometimes referred to as a contract with a monthly return cap with a global floor) because its payoff is the greater of zero or the sum of monthly capped returns of an index over a year. The contract holder of this type of contract is typically entitled to receive a credit on the anniversary date in an amount based on the sum of monthly returns (subject to a monthly cap) if the sum of monthly returns is greater than 0. If the sum of the monthly capped returns is 0 or less, the holder would not realize a loss (other than the premium paid) because the sum of monthly capped returns has a global floor of 0.
Insurance companies that write indexed annuity contracts, therefore, seek financial tools to manage and hedge the embedded exotic option risk in these contracts. Historically, these insurers have traded exclusively in the OTC market by entering into bilateral contracts tailored to the terms of indexed annuity contracts. CBOE proposes to introduce two new kinds of settlement styles for FLEX Broad-Based Index options that would provide insurers with alternative hedging tools to OTC products, coupled with traditional exchange-traded benefits like price discovery, transparency and centralized clearing.
FLEX Broad-Based Index options with Asian style settlement would be cash-settled call
The parties to an Asian option contract would designate a set of monthly observation dates and an expiration date for each contract. The monthly observation date would the date each month on which the price of the underlying broad-based index would be observed for the purpose of calculating the exercise settlement value for Asian options. Each Asian option would have 12 consecutive monthly observation dates (which includes an observation on the expiration date) and each observation would be based on the closing price of the underlying broad-based index. The specific monthly observation dates would be determined by working backward from the farthest out observation date prior to the expiration date. If a given monthly observation date falls on a non CBOE business day (
Asian options would have European-style exercise and may not be exercised prior to the expiration date. The exercise settlement value for Asian options would be the arithmetic average of the closing values of the underlying broad-based index on the 12 consecutive monthly observation dates, which include the expiration date of the option. Mathematically this is expressed as:
Where
The exercise settlement amount for Asian options would be calculated similarly to other options,
An example of an Asian FLEX call option expiring in-the-money follows. On January 21, 2015, an investor hedging the value of the S&P 500 Index over a year purchases a call option expiring on January 22, 2016 with a strike price of 2000 and a contract multiplier of $100. The option has monthly observation dates occurring on the 23rd of each month.
The exercise settlement amount for this 2000 Asian FLEX call option would be equal to $5,098. This amount would be determined by adding the 12 observed closing values for the S&P 500 Index and dividing that amount by 12 (24,611.75/12), which is equal to 2050.98 (when rounded). As a result, this 2000 call option would be $5,098 in-the-money (50.98 × $100).
If, in the above example, the strike price for the Asian FLEX call option was 2060, that contract would have expired out-of-the-money. This is because the exercise settlement value for this 2060 call option is equal to 2050.98 (when rounded). Since the strike price of 2060 is more than the 2050.98 exercise settlement value, this option would not be exercised and would expire worthless.
FLEX Broad-Based Index options with Cliquet style settlement would be cash-settled call
The parties to a Cliquet option would designate a set of monthly observation dates for each contract and an expiration date for each contract. The monthly observation date would be the date each month on which the price of the underlying broad-based index would be observed for the purpose of calculating the exercise settlement value for Cliquet FLEX options. Each Cliquet FLEX option would have 12 consecutive monthly observation dates (which includes an observation on the expiration date) and each observation would be based on the closing price of the underlying broad-based index. The specific monthly observation dates would be determined working backward from the farther out observation date prior to the expiration date. If a given monthly observation date fell on a non CBOE business day (
The parties to a Cliquet option would designate a capped monthly return (percent change in the closing values of the underlying broad-based index from one month to the next month) for the contract, which would be the maximum monthly return that would be included in the calculation of the exercise settlement value for the contract. On each monthly observation date, the Exchange would determine the actual monthly return (the percent change of the underlying broad-based index) using the closing value of the broad-based index on the current monthly observation date and the closing value of the broad-based index on the previous monthly observation date. The Exchange would then compare the actual monthly return to the capped monthly return. The value to be included as the monthly return for a Cliquet option would be the lesser of the actual monthly return or the capped monthly return.
For example, if the actual monthly return of the underlying broad-based index was 1.75% and the designated capped monthly return for a Cliquet option was 2%, the 1.75% value would be included (and not the 2%) as the value for the observation date to determine the exercise settlement value. Using this same example, if the actual monthly return of the underlying broad-based index was 3.30%, the 2% value would be included (and not the 3.30%) as the value of the observation date to determine the exercise settlement value. This latter example illustrates that, Cliquet options have a capped upside. Cliquet options do not, however, have a capped downside for the monthly return that would be included in determining the exercise settlement value. Drawing on this same example, if the actual monthly return of the underlying broad-based index was −4.07%, the −4.07% value would be included as the value for the observation date to determine the exercise settlement value. There would be, however, be a global floor for Cliquet options so that if the sum of the monthly returns is negative, a Cliquet option would expire worthless.
Unlike other options, Cliquet options would not have a traditional exercise (strike) price. Rather, the exercise (strike) price field for a Cliquet option would represent the designated capped monthly return for the contract and would be expressed in dollars and cents. For example, a capped monthly return of 2.25% would be represented by the dollar amount of $2.25. The “strike” price for a Cliquet option may only be expressed in a dollar and cents amount and the “strike” price for a Cliquet option may only span a range
The first “monthly” return for a Cliquet option would be based on the initial reference value, which would be the closing value of the underlying broad-based index on the date a new Cliquet option is listed. The time period measured for the first “monthly” return would be between the initial listing date and the first monthly observation date. For example, if a Cliquet option was opened on January 1 and the parties designated the 31st of each month as the monthly observation date, the measurement period for the first monthly return would span the time period from January 1 to January 31. The time period measured for the second monthly return, and all subsequent monthly returns, would run from the 31st of one month to the 31st of the next month (or the last CBOE business day of each month depending on the actual number of calendar days in each month covered by the contract).
Cliquet options would have European-style exercise and may not be exercised prior to the expiration date. The exercise settlement value for Cliquet options would be equal to the initial reference price of the underlying broad-based index multiplied by the sum of the monthly returns (with the cap applied) on the 12 consecutive monthly observation dates, which include the expiration date of the option, provided that the sum is greater than 0. If the sum of the monthly returns (with the applied cap) is 0 or a less, the option would expire worthless.
An example of a Cliquet option follows. On January 21, 2015, an investor hedging the value of the S&P 500 Index over a year purchases a Cliquet FLEX call option expiring on January 22, 2016 with a capped monthly return of 2% and a contract multiplier of $100. The initial reference price of the S&P 500 Index (closing value) on January 21, 2015 is 2000. The option has monthly observation dates occurring on the 23rd of each month.
The exercise settlement amount for this January 22, 2016 Cliquet option, with a capped monthly 2% return (“strike price”) and a contract multiplier of $100 would be equal to $8,360. This value would be calculated by summing the monthly capped returns (equal to 4.08%) and multiplying that amount by the initial reference price (equal to 2000), which equals 81.60. The “strike price” (2%) amount would then be added to that amount (81.60) to arrive at an exercise settlement value of 83.60. Because the “strike price” field for a Cliquet option would be the manner in which the designated capped monthly return would be identified for the contract and because the designated monthly return for the contract would have been already substantively applied to determine the exercise settlement value, the “strike price” of 2.0 would be subtracted from the exercise settlement value before the contract multiplier ($100) would be applied [(83.60 − 2) * 100]. Accordingly, resulting payout for this contract would be $8,160.
If the sum of the monthly capped returns had been negative, this option would have expired worthless.
To expressly permit Asian style settlement and Cliquet style settlement for FLEX Broad-Based Index options, CBOE is proposing to amend Rules 24A.1 (Definitions), 24A.4 (Terms of FLEX Options), 24B.1 (Definitions) and 24B.4 (Terms of FLEX Options).
The term “Asian style settlement” is a settlement style that may be designated for FLEX Broad-Based Index Options and results in the contract settling to an exercise settlement value that is based on an arithmetic average of the specified closing prices of an underlying broad-based index taken on 12 predetermined monthly observation dates (including on the expiration date). FLEX Broad-Based Index Options with Asian style settlement have “preceding business day convention,” meaning that if a monthly observation date falls on a non CBOE business day (
The term “Cliquet style settlement” is a settlement style that may be designated for FLEX Broad-Based Index Options and results in the contract settling to an exercise settlement value that is equal to the greater of $0 or the sum of capped monthly returns (
Second, the CBOE proposes to amend Rules 24A.4(b)
Asian style settlement. The parties to FLEX Broad-Based Index Options may designate Asian style settlement. FLEX Broad-Based Index Options with Asian style settlement shall be call options (no puts) and designated by: (i) The duration of the contract which may range from 350 to 371 days (which is approximately 50 to 53 calendar weeks) from the date of listing; (ii) the strike price; (iii) the expiration date which must be a CBOE business day; and (iv) a set of monthly observation dates.
Cliquet style settlement. The parties to FLEX Broad-Based Index Options may designate Cliquet style settlement. FLEX Broad-Based Index Options with Cliquet style settlement shall be call options (no puts) and be designated by: (i) The duration of the contract which may range from 350 to 371 days (which is approximately 50 to 53 calendar weeks) from the date of listing; (ii) the capped monthly return that must be expressed in dollars and cents and in increments not less than $0.05 and must be a value between $0.05 and $25.95; (iii) the expiration date which must be a CBOE business day; and (iv) a set of monthly observation dates. The capped monthly return will serve as the “exercise (strike) price” for a FLEX Broad-Based Index Option with Cliquet style settlement.
Exhibit 3 presents contract specifications for Asian style settlement and Cliquet style settlement for FLEX Broad-Based Index options.
In CBOE's experience, successful and popular products have often originated in the OTC marketplace. When such products lend themselves to more standardized terms, there is a natural migration to exchange trading which benefits the users of exchange listed products. CBOE believes that market participants can benefit from being able to trade these customized options in an exchange environment in several ways, including, but not limited to the following: (1) Enhanced efficiency in initiating and closing out positions; (2) increased market transparency; and (3) heightened contra-party creditworthiness due to the role of The Options Clearing Corporation (“OCC”) as issuer and guarantor of FLEX Broad-Based Index options.
CBOE believes that expressly permitting Asian and Cliquet FLEX Broad-Based Index options is important and necessary to the Exchange's efforts to create a market that provides individuals interested in FLEX-type options with an improved but comparable alternative to the OTC market in customized options, which can take on contract characteristics similar to FLEX Options but are not subject to the same restrictions. By making these changes, market participants would now have greater flexibility in determining whether to execute their customized options in an exchange environment or in the OTC market.
CBOE proposes a strategy-based margin requirement in Rule 12.3 (Margin Requirements) for short Asian options that would incrementally decrease over time. Settlement of Asian options would be based on the arithmetic average of closing values (on specified observation dates) of the underlying broad-based index. Volatility would be generally lowered due to the averaging effect. A cumulative average develops as observation dates pass, and subsequent observation date broad-based index values have gradually less influence on the average. Because of the averaging effect, CBOE believes that a margin requirement that incrementally decreases over time is warranted.
For an Asian option having an underlying index that is broad-based, CBOE proposes that the same margin requirement currently applicable to a standard broad-based index call option be applied to an Asian option during the first quartile of its life, which ends with the third observation date. The current initial and maintenance margin requirement for a standard broad-based index call option carried short is the option premium received (or current market value), plus 15% of the underlying broad-based index value less any out-of-the-money amount, to a minimum of the option premium received (or current market value), plus 10% of the underlying broad-based index value. CBOE proposes to decrease the 15% basic and 10% minimum to 8% and 6%, respectively, after the third observation date; to 6% and 4% after the sixth observation date; and lastly, to 5% and 3% after the ninth observation date.
CBOE believes it is appropriate to include Asian options in portfolio margining.
CBOE proposes a strategy-based margin requirement in Rule 12.3 for short Cliquet options that, with one exception, would also incrementally decrease over time. Settlement of Cliquet options would be based on the sum of the returns for 12 consecutive time periods of approximately 30 days in length, each ending on an observation date. In the case of Cliquet options with capped monthly returns, volatility would be generally lowered because of the capping effect. In addition, the lower the capped monthly return, the lower the sensitivity to moves in the underlying broad-based index.
Also, the sum of returns for 12 consecutive time periods, based on historical analysis, is expected to be less than the return on the underlying broad-based index from beginning to end of the same 12 consecutive month time period, except in the case of a negative return. However, with a Cliquet option, a negative sum of returns would be excluded as a possibility because a floor of zero would be set for the sum of returns. Additionally, a cumulative return develops as observation dates pass, and as subsequent observation date returns compile, the likelihood of the sum of returns increasing or decreasing significantly would gradually be lowered. Because of these influences, CBOE believes that a margin requirement that incrementally decreases over time is warranted.
Because Cliquet options would not have a traditional exercise (strike) price, no out-of-the-money amount deduction would be calculated for margin purposes. Therefore, no minimum percentage margin requirement would be necessary in that, without an out-of-the-money calculation, the margin requirement calculated using the basic margin requirement percentage would never be reduced.
For Cliquet options, three separate categories, based on a time frame within the life of a Cliquet option, would be established for margin requirement purposes. The three categories proposed are: (1) The time period starting with the trade through the 10th observation date; (2) the time period starting after the 10th observation date through the 11th observation date; and (3) the time period starting after the 11th observation date through the 12th (final) observation date.
During the time period starting with a Cliquet option's trade date through its 10th observation date, in the case of an index that is broad-based, CBOE proposes a margin requirement of 100% of the current market value of the option plus the percentage of the current “underlying component value.” The percentage required would be the lesser of: the cap percentage multiplied by three (3) or 15%.
CBOE proposes to decrease the percentage requirement to the lesser of: The cap percentage multiplied by two (2) or 15% beginning after the 10th observation date through the 11th observation date, and to further decrease the percentage requirement to the lesser of: the cap percentage or 15% beginning after the 11th observation date through the 12th (final) observation date.
CBOE believes it is appropriate to include Cliquet options in portfolio margining.
Except as modified herein, the rules in Chapters I through XIX, XXIV, XXIVA and XXIVB would equally apply to Asian and Cliquet options. For example, per Rule 6.1A (Extended Trading Hours), Asian and Cliquet options would not be eligible for trading during Extended Trading Hours. Also, for example, Rules 24A.7 and 24A.8 set forth the position limits and reporting requirements applicable to FLEX Broad-Based Index options and Rules 24A.7 and 24B.7 set forth the exercise limits applicable to FLEX Broad-Based Index options. Respecting positions and exercise limits, these provisions set forth general rules and carve-outs for certain broad-based FLEX Broad-Based Index options, which would apply with equal force to Asian and Cliquet options.
The Exchange would use the same surveillance procedures currently utilized for the Exchange's other FLEX Broad-Based Index options to monitor trading in Asian and Cliquet options. The Exchange further represents that these surveillance procedures shall be adequate to monitor trading in options on these option products. For surveillance purposes, the Exchange will have complete access to information regarding trading activity in the pertinent underlying securities.
The Exchange believes the proposed rule change is consistent with the Act and the rules and regulations thereunder applicable to the Exchange and, in particular, the requirements of Section 6(b) of the Act.
The Exchange believes that the proposed rule change is designed to promote just and equitable principles of trade in that the availability of Asian and Cliquet FLEX Broad-Based Index options would give market participants greater flexibility in determining where they will execute their customized options. By trading a product in an exchange traded environment (that is currently being used extensively in the OTC market) would also enable the Exchange to compete more effectively with the OTC market.
The Exchange believes that the proposed rule change is designed to prevent fraudulent and manipulative acts and practices in that it would hopefully lead to the migration of options currently trading in the OTC market to trading to the Exchange and the development of more standardized products. Also, any migration to the Exchange would result in increased market transparency.
Additionally, the Exchange believes that the proposed rule change is designed to remove impediments to and to perfect the mechanism for a free and open market and a national market system, and, in general, to protect investors and the public interest in that it should create greater trading and hedging opportunities and flexibility. The proposed rule change should also result in enhanced efficiency in initiating and closing out positions and heightened contra-party creditworthiness due to the role of OCC as issuer and guarantor of FLEX Broad-Based Index options. Further, the proposal would result in increased competition by permitting the Exchange to offer products that are currently used extensively in the OTC market.
The Exchange believes that the proposed strategy-based margin requirements for Asian and Cliquet options are consistent with the Act because they are designed to protect investors and the public interest by setting margin levels at appropriate levels for these instruments. First, the proposed options are limited to broad-based indexes and the index on which the Exchange expects the most interest is the S&P 500 Index, which has deep and liquid markets. Second, the short option margin levels proposed to be established would apply to retail customers, whom the Exchange does not believe to be the primary sellers (
CBOE 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. Specifically, CBOE believes that the introduction of new settlement types (Asian and Cliquet) for FLEX Broad-Based Index options would enhance competition among market participants and would also enable the Exchange to compete more effectively with the OTC market by offering a product that is currently use extensively in the OTC market.
No written comments were solicited or received with respect to the proposed rule change.
Within 45 days of the date of publication of this notice in the
A. By order approve or disapprove such proposed rule change, or
B. institute proceedings to determine whether the proposed rule change should be 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”),
ISE Gemini proposes to amend current Rule 720 (“Current Rule”), and rename it “Nullification and Adjustment of Options Transactions including Obvious Errors” (“Proposed Rule”). Rule 720 relates to the adjustment and nullification of options transactions executed on the Exchange (“ISE Gemini Options”). The text of the proposed rule change is available on the Exchange's Web site (
In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The self-regulatory organization has prepared summaries, set forth in sections A, B and C below, of the most significant aspects of such statements.
For several months the Exchange has been working with other options exchanges to identify ways to improve the process related to the adjustment and nullification of erroneous options transactions. The goal of the process that the options exchanges have undertaken is to adopt harmonized rules related to the adjustment and nullification of erroneous options transactions as well as a specific provision related to coordination in connection with large-scale events involving erroneous options transactions. As described below, the Exchange believes that the changes the options exchanges and the Exchange have agreed to propose will provide transparency and finality with respect to the adjustment and nullification of erroneous options transactions. Particularly, the proposed changes seek to achieve consistent results for participants across U.S. options exchanges while maintaining a fair and orderly market, protecting investors and protecting the public interest.
The Proposed Rule is the culmination of this coordinated effort and reflects discussions by the options exchanges to universally adopt: (1) Certain provisions already in place on one or more options exchanges; and (2) new provisions that the options exchanges collectively believe will improve the handling of erroneous options transactions. Thus, although the Proposed Rule is in many ways similar to and based on the Exchange's Current Rule, the Exchange is adopting various provisions to conform with existing rules of one or more options exchanges and also to adopt rules that are not currently in place on any options exchange. As noted above, in order to adopt a rule that is similar in most material respects to the rules adopted by other options exchanges, the Exchange proposes to delete the Current Rule in its entirety, with one exception,
With the remaining text in the Supplementary Material to Rule 720 now being deleted, the Exchange proposes to renumber Supplementary Material .01.
The Exchange notes that it has proposed additional objective standards in the Proposed Rule as compared to the Current Rule. The Exchange also notes that the Proposed Rule will ensure that the Exchange will have the same standards as all other options exchanges. However, there are still areas under the Proposed Rule where subjective determinations need to be made by Exchange personnel with respect to the calculation of Theoretical Price. The Exchange notes that the Exchange and all other options exchanges have been working to further improve the review of potentially erroneous transactions as well as their subsequent adjustment by creating an objective and universal way to determine Theoretical Price in the event a reliable NBBO is not available. For instance, the Exchange and all other options exchanges may utilize an independent third party to calculate and disseminate or make available Theoretical Price. However, this initiative requires additional exchange and industry discussion as well as additional time for development and implementation. The Exchange will continue to work with other options exchanges and the options industry towards the goal of additional objectivity and uniformity with respect to the calculation of Theoretical Price.
As additional background, the Exchange believes that the Proposed Rule supports an approach consistent with long-standing principles in the options industry under which the general policy is to adjust rather than nullify transactions. The Exchange acknowledges that adjustment of transactions is contrary to the operation of analogous rules applicable to the equities markets, where erroneous transactions are typically nullified rather than adjusted and where there is no distinction between the types of market participants involved in a transaction. For the reasons set forth below, the Exchange believes that the distinctions in market structure between equities and options markets continue to support these distinctions between the rules for handling obvious errors in the equities and options markets. The Exchange also believes that the Proposed Rule properly balances several
Various general structural differences between the options and equities markets point toward the need for a different balancing of risks for options market participants and are reflected in the Proposed Rule. Option pricing is formulaic and is tied to the price of the underlying stock, the volatility of the underlying security and other factors. Because options market participants can generally create new open interest in response to trading demand, as new open interest is created, correlated trades in the underlying or related series are generally also executed to hedge a market participant's risk. This pairing of open interest with hedging interest differentiates the options market specifically (and the derivatives markets broadly) from the cash equities markets. In turn, the Exchange believes that the hedging transactions engaged in by market participants necessitates protection of transactions through adjustments rather than nullifications when possible and otherwise appropriate.
The options markets are also quote driven markets dependent on liquidity providers to an even greater extent than equities markets. In contrast to the approximately 7,000 different securities traded in the U.S. equities markets each day, there are more than 500,000 unique, regularly quoted option series. Given this breadth in options series the options markets are more dependent on liquidity providers than equities markets; such liquidity is provided most commonly by registered market makers but also by other professional traders. With the number of instruments in which registered market makers must quote and the risk attendant with quoting so many products simultaneously, the Exchange believes that those liquidity providers should be afforded a greater level of protection. In particular, the Exchange believes that liquidity providers should be allowed protection of their trades given the fact that they typically engage in hedging activity to protect them from significant financial risk to encourage continued liquidity provision and maintenance of the quote-driven options markets.
In addition to the factors described above, there are other fundamental differences between options and equities markets which lend themselves to different treatment of different classes of participants that are reflected in the Proposed Rule. For example, there is no trade reporting facility in the options markets. Thus, all transactions must occur on an options exchange. This leads to significantly greater retail customer participation directly on exchanges than in the equities markets, where a significant amount of retail customer participation never reaches the Exchange but is instead executed in off-exchange venues such as alternative trading systems, broker-dealer market making desks and internalizers. In turn, because of such direct retail customer participation, the exchanges have taken steps to afford those retail customers—generally Customers—more favorable treatment in some circumstances.
The Exchange proposes to adopt various definitions that will be used in the Proposed Rule, as described below.
First, the Exchange proposes to adopt a definition of “Customer,” to make clear that this term has the same definition as Priority Customer in Rule 100(a)(37A). Although other portions of the Exchange's rules address the capacity of market participants, including customers, the proposed definition is consistent with such rules and the Exchange believes it is important for all options exchanges to have the same definition of Customer in the context of nullifying and adjusting trades in order to have harmonized rules. As set forth in detail below, orders on behalf of a Customer are in many cases treated differently than non-Customer orders in light of the fact that Customers are not necessarily immersed in the day-to-day trading of the markets, are less likely to be watching trading activity in a particular option throughout the day, and may have limited funds in their trading accounts.
Second, the Exchange proposes to adopt definitions for both an “erroneous sell transaction” and an “erroneous buy transaction.” As proposed, an erroneous sell transaction is one in which the price received by the person selling the option is erroneously low, and an erroneous buy transaction is one in which the price paid by the person purchasing the option is erroneously high. This provision helps to reduce the possibility that a party can intentionally submit an order hoping for the market to move in their favor while knowing that the transaction will be nullified or adjusted if the market does not. For instance, when a market participant who is buying options in a particular series sees an aggressively priced sell order posted on the Exchange, and the buyer believes that the price of the options is such that it might qualify for obvious error, the option buyer can trade with the aggressively priced order, then wait to see which direction the market moves. If the market moves in their direction, the buyer keeps the trade and if it moves against them, the buyer calls the Exchange hoping to get the trade adjusted or busted.
Third, the Exchange proposes to adopt a definition of “Official,” which would mean an Officer of the Exchange or such other employee designee of the Exchange that is trained in the application of the Proposed Rule.
Fourth, the Exchange proposes to adopt a new term, a “Size Adjustment Modifier,” which would apply to individual transactions and would modify the applicable adjustment for orders under certain circumstances, as discussed in further detail below. As proposed, the Size Adjustment Modifier will be applied to individual transactions as follows:
The Size Adjustment Modifier attempts to account for the additional risk that the parties to the trade undertake for transactions that are larger in scope. The Exchange believes that the Size Adjustment Modifier creates additional incentives to prevent more impactful Obvious Errors and it lessens the impact on the contra-party to an adjusted trade. The Exchange notes that these contra-parties may have preferred to only trade the size involved in the transaction at the price at which such trade occurred, and in trading larger size has committed a greater level of capital and bears a larger hedge risk.
When setting the proposed size adjustment modifier thresholds the Exchange has tried to correlate the size breakpoints with typical small and larger “block” execution sizes of underlying stock. For instance, SEC Rule 10b-18(a)(5)(ii) defines a “block” as a quantity of stock that is at least 5,000 shares and a purchase price of at least $50,000, among others.
Under both the Current Rule and the Proposed Rule, when reviewing a transaction as potentially erroneous, the Exchange needs to first determine the “Theoretical Price” of the option,
The Exchange also proposes to specify in the Proposed Rule that when a single order received by the Exchange is executed at multiple price levels, the last NBB and last NBO just prior to the trade in question would be the last NBB and last NBO just prior to the Exchange's receipt of the order.
The Exchange also proposes to set forth in the Proposed Rule various provisions governing specific situations where the NBB or NBO is not available or may not be reliable. Specifically, the Exchange is proposing additional detail specifying situations in which there are no quotes or no valid quotes (as defined below), when the national best bid or offer (“NBBO”) is determined to be too wide to be reliable, and at the open of trading on each trading day.
As is true under the Current Rule, pursuant to the Proposed Rule the Exchange will determine the Theoretical Price if there are no quotes or no valid quotes for comparison purposes. As proposed, quotes that are not valid are all quotes in the applicable option series published at a time where the last NBB is higher than the last NBO in such series (a “crossed market”), quotes published by the Exchange that were submitted by either party to the transaction in question, and quotes published by another options exchange against which the Exchange has declared self-help. Thus, in addition to scenarios where there are literally no quotes to be used as Theoretical Price, the Exchange will exclude quotes in certain circumstances if such quotes are not deemed valid. The Proposed Rule is consistent with the Exchange's application of the Current Rule but the descriptions of the various scenarios where the Exchange considers quotes to be invalid represent additional detail that is not included in the Current Rule.
The Exchange notes that Exchange personnel currently are required to determine Theoretical Price in certain circumstances. While the Exchange continues to pursue alternative solutions that might further enhance the objectivity and consistency of determining Theoretical Price, the Exchange believes that the discretion currently afforded to Exchange Officials is appropriate in the absence of a reliable NBBO that can be used to set the Theoretical Price. Under the current Rule, Exchange personnel will generally consult and refer to data such as the prices of related series, especially the closest strikes in the option in question. Exchange personnel may also take into account the price of the underlying security and the volatility characteristics of the option as well as historical pricing of the option and/or similar options.
Similarly, pursuant to the Proposed Rule the Exchange will determine the Theoretical Price if the bid/ask differential of the NBB and NBO for the affected series just prior to the erroneous transaction was equal to or greater than the Minimum Amount set forth below and there was a bid/ask differential less than the Minimum Amount during the 10 seconds prior to the transaction. If there was no bid/ask differential less than the Minimum Amount during the 10 seconds prior to the transaction then the Theoretical Price of an option series is the last NBB or NBO just prior to the transaction in question. The Exchange proposes to use the following chart to determine whether a quote is too wide to be reliable:
The Exchange notes that the values set forth above generally represent a multiple of 3 times the bid/ask differential requirements of other options exchanges, with certain rounding applied (
As an example, assume an option is quoted $3.00 by $6.00 with 50 contracts posted on each side of the market for an extended period of time. If a market participant were to enter a market order to buy 20 contracts the Exchange believes that the buyer should have a reasonable expectation of paying $6.00 for the contracts which they are buying. This should be the case even if immediately after the purchase of those options, the market conditions change and the same option is then quoted at $3.75 by $4.25. Although the quote was wide according to the table above at the time immediately prior to and the time of the execution of the market order, it was also well established and well known. The Exchange believes that an execution at the then prevailing market price should not in and of itself constitute an erroneous trade.
Under the Proposed Rule, for a transaction occurring during the opening rotation the Exchange will determine the Theoretical Price where there is no NBB or NBO for the affected series just prior to the erroneous transaction or if the bid/ask differential of the NBBO just prior to the erroneous transaction is equal to or greater than the Minimum Amount set forth in the chart proposed for the wide quote provision described above. The Exchange believes that this discretion is necessary because it is consistent with other scenarios in which the Exchange will determine the Theoretical Price if there are no quotes or no valid quotes for comparison purposes, including the wide quote provision proposed by the Exchange as described above. If, however, there are valid quotes and the bid/ask differential of the NBBO is less than the Minimum Amount set forth in the chart proposed for the wide quote provision described above, then the Exchange will use the NBB or NBO just prior to the transaction as it would in any other normal review scenario.
As an example of an erroneous transaction for which the NBBO is wide at the open, assume the NBBO at the time of the opening transaction is $1.00 × $5.00 and the opening transaction takes place at $1.25. The Exchange would be responsible for determining the Theoretical Price because the NBBO was wider than the applicable minimum amount set forth in the wide quote provision as described above. The Exchange believes that it is necessary to determine theoretical price at the open in the event of a wide quote at the open for the same reason that the Exchange has proposed to determine theoretical price during the remainder of the trading day pursuant to the proposed wide quote provision, namely that a wide quote cannot be reliably used to determine Theoretical Price because the Exchange does not know which of the two quotes, the NBB or the NBO, is closer to the real value of the option.
The Exchange proposes to adopt numerical thresholds that would qualify transactions as “Obvious Errors.” These thresholds are similar to those in place under the Current Rule. As proposed, a transaction will qualify as an Obvious Error if the Exchange receives a properly submitted filing and the execution price of a transaction is higher or lower than the Theoretical Price for the series by an amount equal to at least the amount shown below:
Applying the Theoretical Price, as described above, to determine the applicable threshold and comparing the Theoretical Price to the actual execution price provides the Exchange with an objective methodology to determine whether an Obvious Error occurred. The Exchange believes that the proposed amounts are reasonable as they are generally consistent with the standards of the Current Rule and reflect a significant disparity from Theoretical Price. The Exchange notes that the Minimum Amounts in the Proposed Rule and as set forth above are identical to the Current Rule except for the last two categories, for options where the Theoretical Price is above $50.00 to $100.00 and above $100.00. The Exchange believes that this additional granularity is reasonable because given the proliferation of additional strikes that have been created in the past several years there are many more high-priced options that are trading with open interest for extended periods. The Exchange believes that it is appropriate to account for these high-priced options with additional Minimum Amount levels for options with Theoretical Prices above $50.00.
Under the Proposed Rule, a party that believes that it participated in a transaction that was the result of an Obvious Error must notify the Exchange's Market Control
The Exchange also proposes to adopt notification timeframes that must be met in order for a transaction to qualify as an Obvious Error. Specifically, as proposed a filing must be received by the Exchange within thirty (30) minutes of the execution with respect to an execution of a Customer order and within fifteen (15) minutes of the execution for any other participant. The Exchange also proposes to provide additional time for trades that are routed through other options exchanges to the Exchange. Under the Proposed Rule, any other options exchange will have a total of forty-five (45) minutes for Customer orders and thirty (30) minutes for non-Customer orders, measured from the time of execution on the Exchange, to file with the Exchange for review of transactions routed to the Exchange from that options exchange and executed on the Exchange (“linkage trades”). This includes filings on behalf of another options exchange filed by a third-party routing broker if such third-party broker identifies the affected transactions as linkage trades. In order to facilitate timely reviews of linkage trades the Exchange will accept filings from either the other options exchange or, if applicable, the third-party routing broker that routed the applicable order(s). The additional fifteen (15) minutes provided with respect to linkage trades shall only apply to the extent the options exchange that originally received and routed the order to the Exchange itself received a timely filing from the entering participant (
Pursuant to the Proposed Rule, an Official may review a transaction believed to be erroneous on his/her own motion in the interest of maintaining a fair and orderly market and for the protection of investors. This proposed provision is designed to give an Official the ability to provide parties relief in those situations where they have failed to report an apparent error within the established notification period. A transaction reviewed pursuant to the proposed provision may be nullified or adjusted only if it is determined by the Official that the transaction is erroneous in accordance with the provisions of the Proposed Rule, provided that the time deadlines for filing a request for review described above shall not apply. The Proposed Rule would require the Official to act as soon as possible after becoming aware of the transaction; action by the Official would ordinarily be expected on the same day that the transaction occurred. However, because a transaction under review may have occurred near the close of trading or due to unusual circumstances, the Proposed Rule provides that the Official shall act no later than 8:30 a.m. Eastern Time on the next trading day following the date of the transaction in question.
The Exchange also proposes to state that a party affected by a determination to nullify or adjust a transaction after an Official's review on his or her own motion may appeal such determination in accordance with paragraph (k), which is described below. The Proposed Rule would make clear that a determination by an Official not to review a transaction or determination not to nullify or adjust a transaction for which a review was conducted on an Official's own motion is not appealable and further that if a transaction is reviewed and a determination is rendered pursuant to another provision of the Proposed Rule, no additional relief may be granted by an Official.
If it is determined that an Obvious Error has occurred based on the objective numeric criteria and time deadlines described above, the Exchange will adjust or nullify the transaction as described below and promptly notify both parties to the trade electronically or via telephone. The Exchange proposes different adjustment and nullification criteria for Customers and non-Customers.
As proposed, where neither party to the transaction is a Customer, the execution price of the transaction will be adjusted by the Official pursuant to the table below.
The Exchange believes that it is appropriate to adjust to prices a specified amount away from Theoretical Price rather than to adjust to Theoretical Price because even though the Exchange has determined a given trade to be erroneous in nature, the parties in question should have had some expectation of execution at the price or prices submitted. Also, it is common that by the time it is determined that an obvious error has occurred additional hedging and trading activity has already occurred based on the executions that previously happened. The Exchange is concerned that an adjustment to Theoretical Price in all cases would not appropriately incentivize market participants to maintain appropriate controls to avoid potential errors.
Further, as proposed any non-Customer Obvious Error exceeding 50 contracts will be subject to the Size Adjustment Modifier described above. The Exchange believes that it is appropriate to apply the Size Adjustment Modifier to non-Customer orders because the hedging cost associated with trading larger sized options orders and the market impact of larger blocks of underlying can be significant.
As an example of the application of the Size Adjustment Modifier, assume Exchange A has a quoted bid to buy 50 contracts at $2.50, Exchange B has a quoted bid to buy 100 contracts at $2.05 and there is no other options exchange quoting a bid priced higher than $2.00. Assume that the NBBO is $2.50 by $3.00. Finally, assume that all orders quoted and submitted to Exchange B in connection with this example are non-Customer orders.
• Assume Exchange A's quoted bid at $2.50 is either executed or cancelled.
• Assume Exchange B immediately thereafter receives an incoming market order to sell 100 contracts.
• The incoming order would be executed against Exchange B's resting bid at $2.05 for 100 contracts.
• Because the 100 contract execution of the incoming sell order was priced at $2.05, which is $0.45 below the Theoretical Price of $2.50, the 100 contract execution would qualify for adjustment as an Obvious Error.
• The normal adjustment process would adjust the execution of the 100 contracts to $2.35 per contract, which is the Theoretical Price minus $0.15.
• However, because the execution would qualify for the Size Adjustment Modifier of 2 times the adjustment price, the adjusted transaction would instead be to $2.20 per contract, which is the Theoretical Price minus $0.30.
By reference to the example above, the Exchange reiterates that it believes that a Size Adjustment Modifier is appropriate, as the buyer in this example was originally willing to buy 100 contracts at $2.05 and ended up paying $2.20 per contract for such execution. Without the Size Adjustment Modifier the buyer would have paid $2.35 per contract. Such buyer may be advantaged by the trade if the Theoretical Price is indeed closer to $2.50 per contract, however the buyer may not have wanted to buy so many contracts at a higher price and does incur increasing cost and risk due to the additional size of their quote. Thus, the proposed rule is attempting to strike a balance between various competing
In contrast to non-Customer orders, where trades will be adjusted if they qualify as Obvious Errors, pursuant the Proposed Rule a trade that qualifies as an Obvious Error will be nullified where at least one party to the Obvious Error is a Customer. The Exchange also proposes, however, that if any Member submits requests to the Exchange for review of transactions pursuant to the Proposed Rule, and in aggregate that Member has 200 or more Customer transactions under review concurrently and the orders resulting in such transactions were submitted during the course of 2 minutes or less, where at least one party to the Obvious Error is a non-Customer, the Exchange will apply the non-Customer adjustment criteria described above to such transactions. The Exchange based its proposal of 200 transactions on the fact that the proposed level is reasonable as it is representative of an extremely large number of orders submitted to the Exchange that are, in turn, possibly erroneous. Similarly, the Exchange based its proposal of orders received in 2 minutes or less on the fact that this is a very short amount of time under which one Member could generate multiple erroneous transactions. In order for a participant to have more than 200 transactions under review concurrently when the orders triggering such transactions were received in 2 minutes or less, the market participant will have far exceeded the normal behavior of customers deserving protected status.
Consistent with the Current Rule, the Exchange proposes to adopt separate numerical thresholds for review of transactions for which the Exchange does not receive a filing requesting review within the Obvious Error timeframes set forth above. Based on this review these transactions may qualify as “Catastrophic Errors.” As proposed, a Catastrophic Error will be deemed to have occurred when the execution price of a transaction is higher or lower than the Theoretical Price for the series by an amount equal to at least the amount shown below:
Based on industry feedback on the Catastrophic Error thresholds set forth under the Current Rule, the thresholds proposed as set forth above are more granular and lower (
The Proposed Rule would specify the action to be taken by the Exchange if it is determined that a Catastrophic Error has occurred, as described below, and would require the Exchange to promptly notify both parties to the trade electronically or via telephone. In the event of a Catastrophic Error, the execution price of the transaction will be adjusted by the Official pursuant to the table below.
Although Customer orders would be adjusted in the same manner as non-Customer orders, any Customer order that qualifies as a Catastrophic Error will be nullified if the adjustment would result in an execution price
As is true for Obvious Errors as described above, the Exchange believes that it is appropriate to adjust to prices a specified amount away from Theoretical Price rather than to adjust to Theoretical Price because even though the Exchange has determined a given trade to be erroneous in nature, the parties in question should have had some expectation of execution at the price or prices submitted. Also, it is common that by the time it is determined that a Catastrophic Error has occurred additional hedging and trading activity has already occurred based on the executions that previously happened. The Exchange is concerned that an adjustment to Theoretical Price in all cases would not appropriately incentivize market participants to maintain appropriate controls to avoid potential errors. Further, the Exchange believes it is appropriate to maintain a higher adjustment level for Catastrophic Errors than Obvious Errors given the significant additional time that can potentially pass before an adjustment is requested and applied and the amount of hedging and trading activity that can occur based on the executions at issue during such time. For the same reasons, other than honoring the limit prices established for Customer orders, the Exchange has proposed to treat all market participants the same in the context of the Catastrophic Error provision. Specifically, the Exchange believes that treating market participants the same in this context will provide additional certainty to market participants with respect to their potential exposure and hedging activities, including comfort that even if a transaction is later adjusted (
In order to improve consistency for market participants in the case of a widespread market event and in light of the interconnected nature of the options exchanges, the Exchange proposes to adopt a new provision that calls for coordination between the options exchanges in certain circumstances and provides limited flexibility in the application of other provisions of the Proposed Rule in order to promptly respond to a widespread market event.
The proposed criteria for determining a Significant Market Event are as follows:
(A) Transactions that are potentially erroneous would result in a total Worst-Case Adjustment Penalty of $30,000,000, where the Worst-Case Adjustment Penalty is computed as the sum, across all potentially erroneous trades, of: (i) $0.30 (
(B) Transactions involving 500,000 options contracts are potentially erroneous;
(C) Transactions with a notional value (
(D) 10,000 transactions are potentially erroneous.
As described above, the Exchange proposes to adopt a Worst Case Adjustment Penalty, proposed as criterion (A), which is the only criterion that can on its own result in an event being designated as a significant market event. The Worst Case Adjustment Penalty is intended to develop an objective criterion that can be quickly determined by the Exchange in consultation with other options exchanges that approximates the total overall exposure to market participants on the negatively impacted side of each transaction that occurs during an event. If the Worst Case Adjustment criterion is equal to or exceeds $30,000,000, then an event is a Significant Market Event. As an example of the Worst Case Adjustment Penalty, assume that a single potentially erroneous transaction in an event is as follows: Sale of 100 contracts of a standard option (
As described above, under the Proposed Rule if the Worst Case Adjustment Penalty does not equal or exceed $30,000,000, then a Significant Market Event has occurred if the sum of all applicable event statistics (expressed as a percentage of the relevant thresholds), is greater than or equal to 150% and 75% or more of at least one category is reached. The Proposed Rule further provides that no single category can contribute more than 100% to the sum. As an example of the application of this provision, assume that in a given event across all options exchanges that: (A) The Worst Case Adjustment Penalty
As an alternative example, assume a large-scale event occurs involving low-priced options with a small number of contracts in each execution. Assume in this event across all options exchanges that: (A) The Worst Case Adjustment Penalty is $600,000 (2% of $30,000,000), (B) 20,000 options contracts are potentially erroneous (4% of 500,000), (C) the notional value of potentially erroneous transactions is $20,000,000 (20% of $100,000,000), and (D) 20,000 transactions are potentially erroneous (200% of 10,000, but rounded down to 100%). This event would not qualify as a Significant Market Event because the sum of all applicable event statistics would be 126%, below the 150% threshold. The Exchange reiterates that as proposed, even when a single category other than criterion (A) is fully met, that does not necessarily qualify an event as a Significant Market Event.
The Exchange believes that the breadth and scope of the obvious error rules are appropriate and sufficient for handling of typical and common obvious errors. Coordination between and among the exchanges should generally not be necessary even when a member has an error that results in executions on more than one exchange. In setting the thresholds above the Exchange believes that the requirements will be met only when truly widespread and significant errors happen and the benefits of coordination and information sharing far outweigh the costs of the logistics of additional intra-exchange coordination. The Exchange notes that in addition to its belief that the proposed thresholds are sufficiently high, the Exchange has proposed the requirement that either criterion (A) is met or exceeded or the sum of applicable event statistics for proposed (A) through (D) equals or exceeds 150% in order to ensure that an event is sufficiently large but also to avoid situations where an event is extremely large but just misses potential qualifying thresholds. For instance, the proposal is designed to help avoid a situation where the Worst Case Adjustment Penalty is $15,000,000, so the event does not qualify based on criterion (A) alone, but there are transactions in 490,000 options contracts that are potentially erroneous (missing criterion (B) by 10,000 contracts), there are transactions with a notional value of $99,000,000 (missing criterion (C) by $1,000,000), and there are 9,000 potentially erroneous transactions overall (missing criterion (D) by 1,000 transactions). The Exchange believes that the proposed formula, while slightly more complicated than simply requiring a certain threshold to be met in each category, may help to avoid inapplicability of the proposed provisions in the context of an event that would be deemed significant by most subjective measures but that barely misses each of the objective criteria proposed by the Exchange.
To ensure consistent application across options exchanges, in the event of a suspected Significant Market Event, the Exchange shall initiate a coordinated review of potentially erroneous transactions with all other affected options exchanges to determine the full scope of the event. Under the Proposed Rule, the Exchange will promptly coordinate with the other options exchanges to determine the appropriate review period as well as select one or more specific points in time prior to the transactions in question and use one or more specific points in time to determine Theoretical Price. Other than the selected points in time, if applicable, the Exchange will determine Theoretical Price as described above. For example, around the start of a SME that is triggered by a large and aggressively priced buy order, three exchanges have multiple orders on the offer side of the market: Exchange A has offers priced at $2.20, $2.25, $2.30 and several other price levels to $3.00, Exchange B has offers at $2.45, $2.30 and several other price levels to $3.00, Exchange C has offers at price levels between $2.50 and $3.00. Assume an event occurs starting at 10:05:25 a.m. ET and in this particular series the executions begin on Exchange A and subsequently begin to occur on Exchanges B and C. Without coordination and information sharing between the exchanges, Exchange B and Exchange C cannot know with certainty that whether or not the execution at Exchange A that happened at $2.20 immediately prior to their executions at $2.45 and $2.50 is part of the same erroneous event or not. With proper coordination, the exchanges can determine that in this series, the proper point in time from which the event should be analyzed is 10:05:25 a.m. ET, and thus, the NBO of $2.20 should be used as the Theoretical Price for purposes of all buy transactions in such options series that occurred during the event.
If it is determined that a Significant Market Event has occurred then, using the parameters agreed with respect to the times from which Theoretical Price will be calculated, if applicable, an Official will determine whether any or all transactions under review qualify as Obvious Errors. The Proposed Rule would require the Exchange to use the criteria in Proposed Rule 720(c), as described above, to determine whether an Obvious Error has occurred for each transaction that was part of the Significant Market Event. Upon taking any final action, the Exchange would be required to promptly notify both parties to the trade electronically or via telephone.
The execution price of each affected transaction will be adjusted by an Official to the price provided below, unless both parties agree to adjust the transaction to a different price or agree to bust the trade.
Thus, the proposed adjustment criteria for Significant Market Events are identical to the proposed adjustment levels for Obvious Errors generally. In addition, in the context of a Significant Market Event, any error exceeding 50
Another significant distinction between the proposed Obvious Error provision and the proposed Significant Market Event provision is that if the Exchange, in consultation with other options exchanges, determines that timely adjustment is not feasible due to the extraordinary nature of the situation, then the Exchange will nullify some or all transactions arising out of the Significant Market Event during the review period selected by the Exchange and other options exchanges. To the extent the Exchange, in consultation with other options exchanges, determines to nullify less than all transactions arising out of the Significant Market Event, those transactions subject to nullification will be selected based upon objective criteria with a view toward maintaining a fair and orderly market and the protection of investors and the public interest. For example, assume a Significant Market Event causes 25,000 potentially erroneous transactions and impacts 51 options classes. Of the 25,000 transactions, 24,000 of them are concentrated in a single options class. The exchanges may decide the most appropriate solution because it will provide the most certainty to participants and allow for the prompt resumption of regular trading is to bust all trades in the most heavily affected class between two specific points in time, while the other 1,000 trades across the other 50 classes are reviewed and adjusted as appropriate. A similar situation might arise directionally where a Customer submits both erroneous buy and sell orders and the number of errors that happened that were erroneously low priced (
With respect to rulings made pursuant to the proposed Significant Market Event provision the Exchange believes that the number of affected transactions is such that immediate finality is necessary to maintain a fair and orderly market and to protect investors and the public interest. Accordingly, rulings by the Exchange pursuant to the Significant Market Event provision would be non-appealable pursuant to the Proposed Rule.
In addition to the objective criteria described above, the Proposed Rule also proposes to make clear that the determination as to whether a trade was executed at an erroneous price may be made by mutual agreement of the affected parties to a particular transaction. The Proposed Rule would state that a trade may be nullified or adjusted on the terms that all parties to a particular transaction agree, provided, however, that such agreement to nullify or adjust must be conveyed to the Exchange in a manner prescribed by the Exchange prior to 8:30 a.m. Eastern Time on the first trading day following the execution.
The Exchange also proposes to explicitly state that it is considered conduct inconsistent with just and equitable principles of trade for any Member to use the mutual adjustment process to circumvent any applicable Exchange rule, the Act or any of the rules and regulations thereunder. Thus, for instance, a Member is precluded from seeking to avoid applicable trade-through rules by executing a transaction and then adjusting such transaction to a price at which the Exchange would not have allowed it to execute at the time of the execution because it traded through the quotation of another options exchange. The Exchange notes that in connection with its obligations as a self-regulatory organization, the Exchange's Surveillance Department reviews adjustments to transactions to detect potential violations of Exchange rules or the Act and the rules and regulations thereunder.
Exchange Rule 702 describes the Exchange's authority to declare trading halts in one or more options traded on the Exchange. The Exchange proposes to make clear in the Proposed Rule that it will nullify any transaction that occurs during a trading halt in the affected option on the Exchange pursuant to Rule 702, or with respect to equity options (including options overlying ETFs), during a regulatory halt as declared by the primary listing market for the underlying security.
The Exchange currently does not have a rule that permits the nullification of transactions that occur during a trading halt of an option class on the Exchange, or with respect to equity options (including options overlying ETFs), during a regulatory halt as declared by the primary listing market for the underlying security. As part of the harmonization effort, the Exchange proposes to adopt rule text to permit the Exchange to nullify transactions, as described above. The Exchange's ability to nullify the affected transactions will ensure consistency with the trading halt provision of the Proposed Rule.
Market participants on the Exchange likely base the pricing of their orders submitted to the Exchange on the price of the underlying security for the option. Thus, the Exchange believes it is appropriate to adopt provisions that allow adjustment or nullification of transactions based on erroneous prints or erroneous quotes in the underlying security.
The Exchange proposes to adopt language in the Proposed Rule stating that a trade resulting from an erroneous print(s) disseminated by the underlying market that is later nullified by that underlying market shall be adjusted or busted as set forth in the Obvious Error provisions of the Proposed Rule, provided a party notifies the Exchange's Market Control in a timely manner, as further described below. The Exchange proposes to define a trade resulting from an erroneous print(s) as any options trade executed during a period of time for which one or more executions in the underlying security are nullified and for one second thereafter. The Exchange believes that one second is an appropriate amount of time in which an options trade would be directly based on executions in the underlying equity security. The Exchange also proposes to require that if a party believes that it participated in an erroneous transaction resulting from an erroneous print(s) pursuant to the proposed erroneous print provision it must notify the Exchange's Market Control within the timeframes set forth in the Obvious Error provision described above. The Exchange has also proposed to state that the allowed notification timeframe commences at the time of notification by the underlying market(s) of nullification of transactions in the underlying security. Further, the Exchange proposes that if multiple underlying markets nullify trades in the underlying security, the allowed notification timeframe will commence at the time of the first market's notification.
As an example of a situation in which a trade results from an erroneous print disseminated by the underlying market that is later nullified by the underlying market, assume that a given underlying is trading in the $49.00-$50.00 price range then has an erroneous print at $5.00. Given that there is the potential perception that the underlying has gone through a dramatic price revaluation, numerous options trades could promptly trigger based off of this new price. However, because the price that triggered them was not a valid price it would be appropriate to review said option trades when the underlying print that triggered them is removed.
The Exchange also proposes to add a provision stating that a trade resulting from an erroneous quote(s) in the underlying security shall be adjusted or busted as set forth in the Obvious Error provisions of the Proposed Rule, provided a party notifies the Exchange's Market Control in a timely manner, as further described below. Pursuant to the Proposed Rule, an erroneous quote occurs when the underlying security has a width of at least $1.00 and has a width at least five times greater than the average quote width for such underlying security during the time period encompassing two minutes before and after the dissemination of such quote. For purposes of the Proposed Rule, the average quote width will be determined by adding the quote widths of sample quotations at regular 15-second intervals during the four-minute time period referenced above (excluding the quote(s) in question) and dividing by the number of quotes during such time period (excluding the quote(s) in question).
As an example of a situation in which a trade results from an erroneous quote in the underlying security, assume again that a given underlying is quoting and trading in the $49.00-$50.00 price range then a liquidity gap occurs, with bidders not representing quotes in the market place and an offer quoted at $5.00. Quoting may quickly return to normal, again in the $49.00-$50.00 price range, but due to the potential perception that the underlying has gone through a dramatic price revaluation, numerous options trades could trigger based off of this new quoted price in the interim. Because the price that triggered such trades was not a valid price it would be appropriate to review said option trades.
The Exchange notes that certain market participants and their customers enter stop or stop limit orders that are triggered based on executions in the marketplace. As proposed, transactions resulting from the triggering of a stop or stop-limit order by an erroneous trade in an option contract shall be nullified by the Exchange, provided a party notifies the Exchange's Market Control in a timely manner as set forth below. The Exchange believes it is appropriate to nullify executions of stop or stop-limit orders that were wrongly triggered because such transactions should not have occurred. If a party believes that it participated in an erroneous transaction pursuant to the Proposed Rule it must notify the Exchange's Market Control within the timeframes set forth in the Obvious Error Rule above, with the allowed notification timeframe commencing at the time of notification of the nullification of transaction(s) that triggered the stop or stop-limit order.
The Exchange also proposes to adopt language that clearly provides the Exchange with authority to take necessary actions when another options exchange nullifies or adjusts a transaction pursuant to its respective rules and the transaction resulted from an order that has passed through the Exchange and been routed on to another options exchange on behalf of the Exchange. Specifically, if the Exchange routes an order pursuant to the Options Order Protection and Locked/Crossed Market Plan
The Exchange proposes to generally maintain its current appeals process in connection with the Proposed Rule with minor adjustments to accommodate a harmonized rule. Specifically, if a Member affected by a determination made under the Proposed Rule requests within the time permitted below, the Obvious Error Panel (“Obvious Error Panel”) will review decisions made by the Exchange Official, including whether an obvious error occurred and whether the correct determination was made.
In order to maintain a diverse group of participants, the Obvious Error Panel will be comprised of representatives from four (4) Members. Two (2) of the representatives must be directly engaged in market making (any such representative, a “MM Representative”) and the other two (2) representatives must be employed by an Electronic Access Member (any such representative, a “Non-MM Representative”).
In order to further assure a diverse group of potential participants on an Obvious Error Panel, the Exchange shall designate at least ten (10) MM Representatives and at least ten (10) Non-MM Representatives to be called upon to serve on the Obvious Error Panel as needed. To assure fairness, in no case shall an Obvious Error Panel include a person affiliated with a party to the trade in question. Also, to the extent reasonably possible, the Exchange shall call upon the designated representatives to participate on an Obvious Error Panel on an equally frequent basis.
Under the Proposed Rule a request for review on appeal must be made in writing via email or other electronic means specified from time to time by the Exchange in a circular distributed to Members within thirty (30) minutes after the party making the appeal is given notification of the initial determination being appealed. The Obvious Error Panel shall review the facts and render a decision as soon as practicable, but generally on the same trading day as the execution(s) under review. On requests for appeal received after 3:00 p.m. Eastern Time, a decision will be rendered as soon as practicable, but in no case later than the trading day following the date of the execution under review.
The Obvious Error Panel may overturn or modify an action taken by the Exchange Official under this Rule. All determinations by the Obvious Error Panel shall constitute final action by the Exchange on the matter at issue. The Exchange believes that this is necessary given the purpose of the appeal is finality.
In order to deter frivolous appeals, if the Obvious Error Panel votes to uphold the decision made pursuant to the Proposed Rule, the Exchange will assess a $5,000.00 fee against the Member(s) who initiated the request for appeal. In addition, in instances where the Exchange, on behalf of a Member, requests a determination by another market center that a transaction is clearly erroneous, the Exchange will pass any resulting charges through to the relevant Member.
Any determination by an Official or by the Obvious Error Panel shall be rendered without prejudice as to the rights of the parties to the transaction to submit their dispute to arbitration.
The Exchange is proposing to adopt Supplementary Material .01 to the Proposed Rule to provide for how the Exchange will treat Obvious and Catastrophic Errors in response to the Regulation NMS Plan to Address Extraordinary Market Volatility Pursuant to Rule 608 of Regulation NMS under the Act (the “Limit Up-Limit Down Plan” or the “Plan),
During a Limit or Straddle State, options prices may deviate substantially from those available immediately prior to or following such States. Thus, determining a Theoretical Price in such situations would often be very subjective, creating unnecessary uncertainty and confusion for investors. Because of this uncertainty, the Exchange is proposing to amend Rule 720 to provide that the Exchange will not review transactions as Obvious Errors or Catastrophic Errors when the underlying security is in a Limit or Straddle State.
The Exchange notes that there are additional protections in place outside of the Obvious and Catastrophic Error Rule that will continue to safeguard customers. First, the Exchange rejects all un-priced options orders received by the Exchange (
The Exchange represents that it will conduct its own analysis concerning the elimination of the Obvious Error and Catastrophic Error provisions during Limit and Straddle States and agrees to provide the Commission with relevant data to assess the impact of this proposed rule change. As part of its analysis, the Exchange will evaluate (1) the options market quality during Limit and Straddle States, (2) assess the character of incoming order flow and transactions during Limit and Straddle States, and (3) review any complaints from Members and their customers concerning executions during Limit and Straddle States. The Exchange also agrees to provide to the Commission data requested to evaluate the impact of the inapplicability of the Obvious Error and Catastrophic Error provisions, including data relevant to assessing the various analyses noted above.
In connection with this proposal, the Exchange will provide to the Commission and the public a dataset containing the data for each Straddle State and Limit State in NMS Stocks underlying options traded on the Exchange beginning in the month during which the proposal is approved, limited to those option classes that have at least one (1) trade on the Exchange during a Straddle State or Limit State. For each of those option classes affected, each data record will contain the following information:
• Stock symbol, option symbol, time at the start of the Straddle or Limit State, an indicator for whether it is a Straddle or Limit State.
• For activity on the Exchange:
○ Executed volume, time-weighted quoted bid-ask spread, time-weighted average quoted depth at the bid, time-weighted average quoted depth at the offer;
○ high execution price, low execution price;
○ number of trades for which a request for review for error was received during Straddle and Limit States;
○ an indicator variable for whether those options outlined above have a price change exceeding 30% during the underlying stock's Limit or Straddle State compared to the last available option price as reported by OPRA before the start of the Limit or Straddle State (1 if observe 30% and 0 otherwise). Another indicator variable for whether the option price within five minutes of the underlying stock leaving the Limit or Straddle state (or halt if applicable) is 30% away from the price before the start of the Limit or Straddle State.
In addition, by May 29, 2015, the Exchange shall provide to the Commission and the public assessments relating to the impact of the operation of the Obvious Error rules during Limit and Straddle States as follows: (1) Evaluate the statistical and economic impact of Limit and Straddle States on liquidity and market quality in the options markets; and (2) Assess whether the lack of Obvious Error rules in effect during the Straddle and Limit States are problematic. The timing of this submission would coordinate with Participants' proposed time frame to submit to the Commission assessments as required under Appendix B of the Plan. The Exchange notes that the pilot program is intended to run concurrent with the pilot period of the Plan, which has been extended to October 23, 2015. The Exchange proposes to reflect this date in the Proposed Rule.
Finally, the Exchange proposes to include Supplementary Material .02 to the Proposed Rule, which would make clear that to the extent the provisions of the proposed Rule would result in the Exchange applying an adjustment of an erroneous sell transaction to a price lower than the execution price or an erroneous buy transaction to a price higher than the execution price, the Exchange will not adjust or nullify the transaction, but rather, the execution price will stand.
In order to ensure that other options exchanges are able to adopt rules consistent with this proposal and to coordinate the effectiveness of such harmonized rules, the Exchange proposes to delay the operative date of this proposal to May 8, 2015.
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.
As described above, the Exchange and other options exchanges are seeking to adopt harmonized rules related to the adjustment and nullification of erroneous options transactions. The Exchange believes that the Proposed Rule will provide greater transparency and clarity with respect to the adjustment and nullification of erroneous options transactions. Particularly, the proposed changes seek to achieve consistent results for participants across U.S. options exchanges while maintaining a fair and orderly market, protecting investors and protecting the public interest. Based on the foregoing, the Exchange believes that the proposal is consistent with section 6(b)(5) of the Act
The Exchange believes the various provisions allowing or dictating adjustment rather than nullification of a trade are necessary given the benefits of adjusting a trade price rather than nullifying the trade completely. Because options trades are used to hedge, or are hedged by, transactions in other markets, including securities and futures, many Members, and their customers, would rather adjust prices of executions rather than nullify the transactions and, thus, lose a hedge altogether. As such, the Exchange believes it is in the best interest of investors to allow for price adjustments as well as nullifications. The Exchange further discusses specific aspects of the Proposed Rule below.
The Exchange does not believe that the proposal is unfairly discriminatory, even though it differentiates in many places between Customers and non-Customers. The rules of the options exchanges, including the Exchange's existing Obvious Error provision, often treat Customers differently, often affording them preferential treatment. This treatment is appropriate in light of the fact that Customers are not necessarily immersed in the day-to-day trading of the markets, are less likely to be watching trading activity in a particular option throughout the day, and may have limited funds in their trading accounts. At the same time, the Exchange reiterates that in the U.S. options markets generally there is significant retail customer participation that occurs directly on (and only on) options exchanges such as the Exchange. Accordingly, differentiating
The Exchange believes that its proposal with respect to the allowance of mutual agreed upon adjustments or nullifications is appropriate and consistent with the Act, as such proposal removes impediments to and perfects the mechanism of a free and open market and a national market system, allowing participants to mutually agree to correct an erroneous transactions without the Exchange mandating the outcome. The Exchange also believes that its proposal with respect to mutual adjustments is consistent with the Act because it is designed to prevent fraudulent and manipulative acts and practices by explicitly stating that it is considered conduct inconsistent with just and equitable principles of trade for any Member to use the mutual adjustment process to circumvent any applicable Exchange rule, the Act or any of the rules and regulations thereunder.
The Exchange believes its proposal to provide within the Proposed Rule definitions of Customer, erroneous sell transaction and erroneous buy transaction, and Official is consistent with section 6(b)(5) of the Act because such terms will provide more certainty to market participants as to the meaning of the Proposed Rule and reduce the possibility that a party can intentionally submit an order hoping for the market to move in their favor in reliance on the Rule as a safety mechanism, thereby promoting just and fair principles of trade. Similarly, the Exchange believes that proposed Supplementary Material .02 is consistent with the Act as it would make clear that the Exchange will not adjust or nullify a transaction, but rather, the execution price will stand when the applicable adjustment criteria would actually adjust the price of the transaction to a worse price (
As set forth below, the Exchange believes it is consistent with section 6(b)(5) of the Act for the Exchange to determine Theoretical Price when the NBBO cannot reasonably be relied upon because the alternative could result in transactions that cannot be adjusted or nullified even when they are otherwise clearly at a price that is significantly away from the appropriate market for the option. Similarly, reliance on an NBBO that is not reliable could result in adjustment to prices that are still significantly away from the appropriate market for the option.
The Exchange believes that its proposal with respect to determining Theoretical Price is consistent with the Act in that it has retained the standard of the current rule, which is to rely on the NBBO to determine Theoretical Price if such NBBO can reasonably be relied upon. Because, however, there is not always an NBBO that can or should be used in order to administer the rule, the Exchange has proposed various provisions that provide the Exchange with the authority to determine a Theoretical Price. The Exchange believes that the Proposed Rule is transparent with respect to the circumstances under which the Exchange will determine Theoretical Price, and has sought to limit such circumstances as much as possible. The Exchange notes that Exchange personnel currently are required to determine Theoretical Price in certain circumstances. While the Exchange continues to pursue alternative solutions that might further enhance the objectivity and consistency of determining Theoretical Price, the Exchange believes that the discretion currently afforded to Exchange Officials is appropriate in the absence of a reliable NBBO that can be used to set the Theoretical Price.
With respect to the specific proposed provisions for determining Theoretical Price for transactions that occur during the opening rotation and in situations where there is a wide quote, the Exchange believes both provisions are consistent with the Act because they provide objective criteria that will determine Theoretical Price with limited exceptions for situations where the Exchange does not believe the NBBO is a reasonable benchmark or there is no NBBO. The Exchange notes in particular with respect to the wide quote provision that the Proposed Rule will result in the Exchange determining Theoretical Price less frequently than it would pursuant to wide quote provisions that have previously been approved. The Exchange believes that it is appropriate and consistent with the Act to afford protections to market participants by not relying on the NBBO to determine Theoretical Price when the quote is extremely wide but had been, in the prior 10 seconds, at much more reasonable width. The Exchange also believes it is appropriate and consistent with the Act to use the NBBO to determine Theoretical Price when the quote has been wider than the applicable amount for more than 10 seconds, as the Exchange does not believe it is necessary to apply any other criteria in such a circumstance. The Exchange believes that market participants can easily use or adopt safeguards to prevent errors when such market conditions exist. When entering an order into a market with a persistently wide quote, the Exchange does not believe that the entering party should reasonably expect anything other than the quoted price of an option.
The Exchange believes that its proposal to adopt clear but disparate standards with respect to the deadline for submitting a request for review of Customer and non-Customer transactions is consistent with the Act, particularly in that it creates a greater level of protection for Customers. As noted above, the Exchange believes that this is appropriate and not unfairly discriminatory in light of the fact that Customers are not necessarily immersed in the day-to-day trading of the markets and are less likely to be watching trading activity in a particular option throughout the day. Thus, Members representing Customer orders reasonably may need additional time to submit a request for review. The Exchange also believes that its proposal to provide additional time for submission of requests for review of linkage trades is reasonable and consistent with the protection of investors and the public interest due to the time that it might take an options exchange or third-party routing broker to file a request for review with the Exchange if the initial notification of an error is received by the originating options exchange near the end of such options exchange's filing deadline. Without this additional time, there could be disparate results based purely on the existence of intermediaries and an interconnected market structure.
In relation to the aspect of the proposal giving Officials the ability to review transactions for obvious errors on their own motion, the Exchange notes that an Official can adjust or nullify a transaction under the authority granted by this provision only if the transaction meets the specific and objective criteria for an Obvious Error under the Proposed Rule. As noted above, this is designed to give an Official the ability to provide parties relief in those situations where they have failed to report an apparent error within the established notification period. However, the Exchange will only grant relief if the transaction meets the requirements for an Obvious Error as described in the Proposed Rule.
The Exchange believes that its proposal to adjust non-Customer transactions and to nullify Customer transactions that qualify as Obvious
The Exchange acknowledges that the proposal contains some uncertainty regarding whether a trade will be adjusted or nullified, depending on whether one of the parties is a Customer, because a party may not know whether the other party to a transaction was a Customer at the time of entering into the transaction. However, the Exchange believes that the proposal nevertheless promotes just and equitable principles of trade and protects investors as well as the public interest because it eliminates the possibility that a Customer's order will be adjusted to a significantly different price. As noted above, the Exchange believes it is consistent with the Act to afford Customers greater protections under the Proposed Rule than are afforded to non-Customers. Thus, the Exchange believes that its proposal is consistent with the Act in that it protects investors and the public interest by providing additional protections to those that are less informed and potentially less able to afford an adjustment of a transaction that was executed in error. Customers are also less likely to have engaged in significant hedging or other trading activity based on earlier transactions, and thus, are less in need of maintaining a position at an adjusted price than non-Customers.
If any Member submits requests to the Exchange for review of transactions pursuant to the Proposed Rule, and in aggregate that Member has 200 or more Customer transactions under review concurrently and the orders resulting in such transactions were submitted during the course of 2 minutes or less, the Exchange believes it is appropriate for the Exchange apply the non-Customer adjustment criteria described above to such transactions. The Exchange believes that the proposed aggregation is reasonable as it is representative of an extremely large number of orders submitted to the Exchange over a relatively short period of time that are, in turn, possibly erroneous (and within a time frame significantly less than an entire day), and thus is most likely to occur because of a systems issue experienced by a Member representing Customer orders or a systems issue coupled with the erroneous marking of orders. The Exchange does not believe it is possible at a level of 200 Customer orders over a 2 minute period that are under review at one time that multiple, separate Customers were responsible for the errors in the ordinary course of trading. In the event of a large-scale issue caused by a Member that has submitted orders over a 2 minute period marked as Customer that resulted in more than 200 transactions under review, the Exchange does not believe it is appropriate to nullify all such transactions because of the negative impact that nullification could have on the market participants on the contra-side of such transactions, who might have engaged in hedging and trading activity following such transactions. In order for a participant to have more than 200 transactions under review concurrently when the orders triggering such transactions were received in 2 minutes or less, the Exchange believes that a market participant will have far exceeded the normal behavior of customers deserving protected status. While the Exchange continues to believe that it is appropriate to nullify transactions in such a circumstance if both participants to a transaction are Customers, the Exchange does not believe it is appropriate to place the overall risk of a significant number of trade breaks on non-Customers that in the normal course of business may have engaged in additional hedging activity or trading activity based on such transactions. Thus, the Exchange believes it is necessary and appropriate to protect non-Customers in such a circumstance by applying the non-Customer adjustment criteria, and thus adjusting transactions as set forth above, in the event a Member has more than 200 transactions under review concurrently. In summary, due to the extreme level at which the proposal is set, the Exchange believes that the proposal is consistent with section 6(b)(5) of the Act in that it promotes just and equitable principles of trade by encouraging market participants to retain appropriate controls over their systems to avoid submitting a large number of erroneous orders in a short period of time.
Similarly, the Exchange believes that the proposed Size Adjustment Modifier, which would increase the adjustment amount for non-Customer transactions, is appropriate because it attempts to account for the additional risk that the parties to the trade undertake for transactions that are larger in scope. The Exchange believes that the Size Adjustment Modifier creates additional incentives to prevent more impactful Obvious Errors and it lessens the impact on the contra-party to an adjusted trade. The Exchange notes that these contra-parties may have preferred to only trade the size involved in the transaction at the price at which such trade occurred, and in trading larger size has committed a greater level of capital and bears a larger hedge risk.
The Exchange similarly believes that its Proposed Rule with respect to Catastrophic Errors is consistent with the Act as it affords additional time for market participants to file for review of erroneous transactions that were further away from the Theoretical Price. At the same time, the Exchange believes that the Proposed Rule is consistent with the Act in that it generally would adjust transactions, including Customer transactions, because this will protect against hedge risk, particularly for transactions that may have occurred several hours earlier and thus, which all parties to the transaction might presume are protected from further modification. Similarly, by providing larger adjustment amounts away from Theoretical Price than are set forth under the Obvious Error provision, the Catastrophic Error provision also takes into account the possibility that the party that was advantaged by the erroneous transaction has already taken actions based on the assumption that the transaction would stand. The Exchange believes it is reasonable to specifically protect Customers from adjustments through their limit prices for the reasons stated above, including that Customers are less likely to be watching trading throughout the day and that they may have less capital to afford an adjustment price. The Exchange believes that the proposal provides a fair process that will ensure that Customers are not forced to accept a trade that was executed in violation of their limit order price. In contrast, market professionals are more likely to have engaged in hedging or other trading activity based on earlier trading activity, and thus, are more likely to be willing to accept an adjustment rather than a nullification to preserve their positions even if such adjustment is to a price through their limit price.
The Exchange believes that proposed rule change to adopt the Significant Market Event provision is consistent with section 6(b)(5) of the Act in that it will foster cooperation and coordination with persons engaged in regulating the options markets. In particular, the Exchange believes it is important for options exchanges to coordinate when there is a widespread and significant event, as commonly, multiple options exchanges are impacted in such an event. Further, while the Exchange
The Exchange believes that proposed rule change related to review, nullification and/or adjustment of erroneous transactions during a trading halt (including the proposed modification to Rule 702), an erroneous print in the underlying security, an erroneous quote in the underlying security, or an erroneous transaction in the option with respect to stop and stop limit orders is likewise consistent with section 6(b)(5) of the Act because the proposal provides for the adjustment or nullification of trades executed at erroneous prices through no fault on the part of the trading participants. Allowing for Exchange review in such situations will promote just and fair principles of trade by protecting investors from harm that is not of their own making. Specifically with respect to the proposed provisions governing erroneous prints and quotes in the underlying security, the Exchange notes that market participants on the Exchange base the value of their quotes and orders on the price of the underlying security. The provisions regarding errors in prints and quotes in the underlying security cover instances where the information market participants use to price options is erroneous through no fault of their own. In these instances, market participants have little, if any, chance of pricing options accurately. Thus, these provisions are designed to provide relief to market participants harmed by such errors in the prints or quotes of the underlying security.
The Exchange believes that the proposed provision related to Linkage Trades is consistent with the Act because it adds additional transparency to the Proposed Rule and makes clear that when a Linkage Trade is adjusted or nullified by another options exchange, the Exchange will take necessary actions to complete the nullification or adjustment of the Linkage Trade.
The Exchange believes that retaining the same appeals process as the Exchange maintains under the Current Rule is consistent with the Act because such process provides Members with due process in connection with decisions made by Exchange Officials under the Proposed Rule. The Exchange believes that this process provides fair representation of Members by ensuring diversity amongst the members of any Obvious Error Review Panel, which is consistent with sections 6(b)(3) and 6(b)(7) of the Act. The Exchange also believes that the proposed appeals process is appropriate with respect to financial penalties for appeals that result in a decision of the Exchange being upheld because it discourages frivolous appeals, thereby reducing the possibility of overusing Exchange resources that can instead be focused on other, more productive activities. The fees with respect to such financial penalties are the same as under the Current Rule, and are equitable and not unfairly discriminatory because they will be applied uniformly to all Members and are designed to reduce administrative burden on the Exchange as well as market participants that volunteer to participate on Obvious Error Review Panels.
With regard to the portion of the Exchange's proposal related to the applicability of the Obvious Error Rule when the underlying security is in a Limit or Straddle State, the Exchange believes that the proposed rule change is consistent with section 6(b)(5) of the Act because it will provide certainty about how errors involving options orders and trades will be handled during periods of extraordinary volatility in the underlying security. Further, the Exchange believes that it is necessary and appropriate in the interest of promoting fair and orderly markets to exclude from Rule 720 those transactions executed during a Limit or Straddle State.
The Exchange believes the application of the Proposed Rule without the proposed provision would be impracticable given the lack of reliable NBBO in the options market during Limit and Straddle States, and that the resulting actions (
Moreover, given the fact that options prices during brief Limit or Straddle States may deviate substantially from those available shortly following the Limit or Straddle State, the Exchange believes giving market participants time to re-evaluate a transaction would create an unreasonable adverse selection opportunity that would discourage participants from providing liquidity during Limit or Straddle States. In this respect, the Exchange notes that only those orders with a limit price will be executed during a Limit or Straddle State. Therefore, on balance, the Exchange believes that removing the potential inequity of nullifying or adjusting executions occurring during Limit or Straddle States outweighs any potential benefits from applying certain provisions during such unusual market conditions. Additionally, as discussed above, there are additional pre-trade protections in place outside of the Obvious and Catastrophic Error Rule that will continue to safeguard customers.
The Exchange notes that under certain limited circumstances the Proposed Rule will permit the Exchange to review transactions in options that overlay a security that is in a Limit or Straddle State. Specifically, an Official will have authority to review a transaction on his or her own motion in the interest of maintaining a fair and orderly market and for the protection of investors. Furthermore, the Exchange will have the authority to adjust or nullify transactions in the event of a Significant Market Event, a trading halt in the affected option, an erroneous print or quote in the underlying security, or with respect to stop and stop limit orders that have been triggered based on erroneous trades. The Exchange believes that the safeguards described above will protect market participants and will provide the Exchange with the flexibility to act when necessary and appropriate to nullify or adjust a transaction, while also providing market participants with certainty that, under normal circumstances, the trades they effect with quotes and/or orders having limit prices will stand irrespective of subsequent moves in the underlying security. The right to review those transactions that occur during a Limit or Straddle State would allow the Exchange to account for unforeseen circumstances that result in Obvious or Catastrophic Errors for which a nullification or adjustment may be necessary in the interest of maintaining a fair and orderly market and for the protection of investors. Similarly, the ability to nullify or adjust transactions that occur during a Significant Market Event or trading halt, erroneous print or quote in the underlying security, or erroneous trade in the option (
ISE Gemini believes the entire proposal is consistent with section 6(b)(8) of the Act
Importantly, the Exchange believes the proposal will not impose a burden on intermarket competition but will rather alleviate any burden on competition because it is the result of a collaborative effort by all options exchanges to harmonize and improve the process related to the adjustment and nullification of erroneous options transactions. The Exchange does not believe that the rules applicable to such process is an area where options exchanges should compete, but rather, that all options exchanges should have consistent rules to the extent possible. Particularly where a market participant trades on several different exchanges and an erroneous trade may occur on multiple markets nearly simultaneously, the Exchange believes that a participant should have a consistent experience with respect to the nullification or adjustment of transactions. The Exchange understands that all other options exchanges intend to file proposals that are substantially similar to this proposal.
The Exchange does not believe that the proposed rule change imposes a burden on intramarket competition because the provisions apply to all market participants equally within each participant category (
The Exchange has not solicited, and does not intend to solicit, comments on this proposed rule change. The Exchange has not received any unsolicited written comments from members or other interested parties.
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 if consistent with the protection of investors and the public interest, the proposed rule change has become effective pursuant to section 19(b)(3)(A) of the Act
The Exchange has asked the Commission to waive the 30-day operative delay so that the proposal may become operative immediately upon filing. The Commission believes that waiving the 30-day operative delay is
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 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 Brent J. Fields, 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 March 6, 2015, The Options Clearing Corporation (“OCC”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change SR-OCC-2015-007 pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”)
OCC is amending its by-laws and rules in order to enhance the measurement used to establish minimum capital requirements for banks approved to issue letters of credit that may be deposited by clearing members as a form of margin asset. Currently, OCC's Rule 604, Interpretation and Policy .01, requires U.S. banks to have $100,000,000 or more in shareholders' equity, and non-U.S. banks to have $200,000,000 or more in shareholders' equity, in order to be approved as an issuer of letters of credit that may be deposited by clearing members to meet their margin obligations at OCC. The purpose of these minimum capital requirements is to ensure that issuers of letters of credit whose letters of credit are deposited at OCC as a margin asset by clearing members have the ability to honor a demand for payment by OCC under such letters of credit should a need to do so arise, such as in the case of a clearing member default.
The financial requirements set forth in OCC's Rule 604 concerning issuers of letters of credit have been in place for many years.
OCC believes that by measuring a bank's financial health based on Tier 1 Capital, instead of shareholders' equity, OCC will reduce its credit risk to banks issuing letters of credit deposited by clearing members as a form of margin asset. As stated above, Tier 1 Capital is a more conservative measure of a bank's
In light of the more universal acceptance of Tier 1 Capital for bank financial reporting standards and the potential to reduce the credit risk associated with the issuance of letters of credit, OCC is amending Rule 604, Interpretation and Policy .01, to substitute Tier 1 Capital for shareholders' equity. Pursuant to the rule change, as approved, OCC is also adding paragraph “c” to Interpretation and Policy .01 under Rule 604 to adopt a definition of Tier 1 Capital that leverages the definition of Tier 1 Capital used by a bank's regulatory agency. OCC believes that such a definition is appropriate given that OCC accepts letters of credit from banks regulated by different regulatory authorities.
Section 19(b)(2)(C) of the Act
The Commission finds that the proposed rule change is consistent with Section 17A(b)(3)(F) of the Act, which requires, among other things, that the rules of a clearing agency are designed to assure the safeguarding of securities and funds which are in the custody and control of the clearing agency or for which it is responsible.
On the basis of the foregoing, the Commission finds that the proposal is consistent with the requirements of the Act, and in particular, with the requirements of Section 17A of the Act
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Notice is hereby given of the following Determinations: Pursuant to the authority vested in me by the Act of October 19, 1965 (79 Stat. 985; 22 U.S.C. 2459), Executive Order 12047 of March 27, 1978, the Foreign Affairs Reform and Restructuring Act of 1998 (112 Stat. 2681,
For further information, including a list of the exhibit objects, contact the Office of Public Diplomacy and Public Affairs in the Office of the Legal Adviser, U.S. Department of State (telephone: 202-632-6471; email:
Based upon a review of the Administrative Record assembled in this matter pursuant to Section 219(a)(4)(C) and (b) of the Immigration and Nationality Act, as amended (8 U.S.C. 1189(a)(4)(C), (b)) (“INA”), and in consultation with the Attorney General and the Secretary of the Treasury, the Secretary of State concludes that the circumstances that were the basis for the 2009 decision to maintain the designation of the aforementioned
Therefore, the Secretary of State hereby determines that the designation of the aforementioned organization as a Foreign Terrorist Organization, pursuant to Section 219 of the INA (8 U.S.C. 1189), shall be maintained.
This determination shall be published in the
Federal Aviation Administration (FAA), DOT.
Notice of intent to rule on request to release airport property at the Sikeston Memorial Municipal Airport (SIK), Sikeston, Missouri.
The FAA proposes to rule and invites public comment on the release of land at the Sikeston Memorial Municipal Airport (SIK), Sikeston, Missouri, under the provisions of 49 U.S.C. 47107(h)(2).
Comments must be received on or before June 12, 2015.
Comments on this application may be mailed or delivered to the FAA at the following address: Lynn D. Martin, Airports Compliance Specialist, Federal Aviation Administration, Airports Division, ACE-610C, 901 Locust Room 364, Kansas City, MO 64106.
In addition, one copy of any comments submitted to the FAA must be mailed or delivered to: Charles Leible, City Attorney, City Counselor's Office; P.O. Box 905 Sikeston, Missouri 63801, (573-471-7007).
Lynn D. Martin, Airports Compliance Specialist, Federal Aviation Administration, Airports Division, ACE-610C, 901 Locust Room 364, Kansas City, MO 64106, (816) 329-2644,
The request to release property may be reviewed, by appointment, in person at this same location.
The FAA invites public comment on the request to release approximately 69.89± acres of airport property at the Sikeston Memorial Municipal Airport (SIK) under the provisions of 49 U.S. C. 47107(h)(2). On February 23, 2015, the City Attorney of Sikeston, MO requested from the FAA that approximately 69.89± acres of property be released for sale to Pebble Beach, LLC for the purpose of the back nine of a golf course. On April 1, 2015, the FAA determined that the request to release property at the Sikeston Memorial Municipal Airport (SIK) submitted by the Sponsor meets the procedural requirements of the Federal Aviation Administration and the release of the property does not and will not impact future aviation needs at the airport. The FAA may approve the request, in whole or in part, no sooner than thirty days after the publication of this Notice.
The following is a brief overview of the request:
Sikeston Memorial Municipal Airport (SIK) is proposing the release of a parcel, totaling 69.89± acres. The release of land is necessary to comply with Federal Aviation Administration Grant Assurances that do not allow federally acquired airport property to be used for non-aviation purposes. The sale of the subject property will result in the land at the Sikeston Memorial Municipal Airport (SIK) being changed from aeronautical to nonaeronautical use and release the surface lands from the conditions of the AIP Grant Agreement Grant Assurances. In accordance with 49 U.S.C. § 47107(c)(2)(B)(i) and (iii), the airport will receive fair market value for the property.
Any person may inspect, by appointment, the request in person at the FAA office listed above under
Office of the Comptroller of the Currency (OCC), Treasury.
ACTION: Notice and request for comment.
The OCC, 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 a continuing information collection, as required by the Paperwork Reduction Act of 1995 (PRA).
In accordance with the requirements of the PRA, the OCC may not conduct or sponsor, and the respondent is not required to respond to, an information collection unless it displays a currently valid Office of Management and Budget (OMB) control number.
The OCC is soliciting comment concerning its information collection titled, “Recordkeeping Requirements for Securities Transactions.” The OCC also is giving notice that it has sent the collection to OMB for review.
You should submit comments by June 12, 2015.
Because paper mail in the Washington, DC area and at the OCC is subject to delay, commenters are encouraged to submit comments by email, if possible. Comments may be sent to: Legislative and Regulatory Activities Division, Office of the Comptroller of the Currency, Attention: 1557-0142, 400 7th Street SW., Suite 3E-218, Mail Stop 9W-11, Washington, DC 20219. In addition, comments may be sent by fax to (571) 465-4326 or by electronic mail to
All comments received, including attachments and other supporting materials, are part of the public record and subject to public disclosure. Do not enclose any information in your
Additionally, please send a copy of your comments by mail to: OCC Desk Officer, 1557-0142, U.S. Office of Management and Budget, 725 17th Street NW., #10235, Washington, DC 20503, or by email to:
Shaquita D. Merritt, OCC Clearance Officer, (202) 649-5490, for persons who are deaf or hard of hearing, TTY, (202) 649-5597, Legislative and Regulatory Activities Division, Office of the Comptroller of the Currency, 400 7th Street SW., Suite 3E-218, Mail Stop 9W-11, Washington, DC 20219.
The OCC is proposing to extend OMB approval of the following information collection:
The information collection requirements contained in 12 CFR parts 12 and 151 are as follows:
• 12 CFR 12.3 requires a national bank effecting securities transactions for customers to maintain records for at least three years. The records required by this section must clearly and accurately reflect the information required and provide an adequate basis for the audit of the information.
• 12 CFR 151.50 requires a Federal savings association effecting securities transactions for customers to maintain records for at least three years. 12 CFR 151.60 provides that the records required by 12 CFR 151.50 must clearly and accurately reflect the information required and provide an adequate basis for audit of the information.
• 12 CFR 12.4 requires a national bank to give or send to the customer a written notification of the transaction or a copy of the registered broker/dealer confirmation relating to the transaction at or before completion of the securities transaction and establishes minimum disclosures needed for a customer's securities transactions.
• 12 CFR 151.70, 151.80 and 151.90 establish the minimum disclosures required for a Federal savings association's confirmation of a customer's securities transactions.
• 12 CFR 151.90 requires a Federal savings association to provide its customers with a written notice of each securities transaction, which it must give or send to the customer at or before the completion of the securities transaction.
• 12 CFR 12.5(a), (b), (c), and (e) describe notification procedures that a national bank may elect to use, as an alternative to complying with § 12.4, to notify customers of transactions in which the bank does not exercise investment discretion, trust transactions, agency transactions, and certain periodic plan transactions.
• 12 CFR 151.100 describes notification procedures that a Federal savings association may use, as an alternative to complying with 12 CFR 151.70, 151.80 or 151.90, for an account in which the savings association does not exercise investment discretion, trust transactions, agency transactions, certain periodic plan transactions, collective investment fund transactions, and money market funds.
• 12 CFR 12.7(a)(1) through (a)(3) require national banks to maintain and adhere to policies and procedures that assign responsibility for supervision of employees who perform securities trading functions, provide for the fair and equitable allocation of securities and prices to accounts, and provide for crossing of buy and sell orders on a fair and equitable basis.
• 12 CFR 151.140 requires Federal savings associations to adopt written policies and procedures dealing with the functions involved in effecting securities transactions on behalf of customers. These policies and procedures must assign responsibility for the supervision of employees who perform securities trading functions, provide for the fair and equitable allocation of securities prices to accounts, and provide for crossing of buy and sell orders on a fair and equitable basis.
• 12 CFR 12.7(a)(4) requires certain national bank officers and employees involved in the securities trading process to report to the bank all personal transactions in securities made by them or on their behalf in which they have a beneficial interest.
• 12 CFR 151.150 requires certain Federal savings association officers and employees to report personal transactions they make or that are made on their behalf in which they have a beneficial interest.
• 12 CFR 12.8 requires a national bank seeking a waiver of one or more of the requirements of §§ 12.2 through 12.7 to file a written request for waiver with the OCC.
The OCC issued a notice for 60 days of comment concerning the collection on March 6, 2015 (80 FR 12261). No comments were received. Comments continue to be invited on:
(a) Whether the collection of information is necessary for the proper performance of the functions of the OCC, including whether the information has practical utility;
(b) The accuracy of the OCC's estimate of the burden of the collection of information;
(c) Ways to enhance the quality, utility, and clarity of the information to be collected;
(d) Ways to minimize the burden of the collection on respondents, including through the use of automated collection techniques or other forms of information technology; and
(e) Estimates of capital or start-up costs and costs of operation, maintenance, and purchase of services to provide information.
Office of the Comptroller of the Currency (OCC), Treasury.
Notice and request for comment.
The OCC, 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 a continuing information collection, as required by the Paperwork Reduction Act of 1995 (PRA).
In accordance with the requirements of the PRA, the OCC may not conduct or sponsor, and the respondent is not required to respond to, an information collection unless it displays a currently valid Office of Management and Budget (OMB) control number.
The OCC is soliciting comment concerning its information collection titled, “Bank Activities and Operations.” It also is giving notice that the information collection has been submitted to OMB for review.
You should submit written comments by: June 12, 2015.
Because paper mail in the Washington, DC area and at the OCC is subject to delay, commenters are encouraged to submit comments by email, if possible. Comments may be sent to: Legislative and Regulatory Activities Division, Office of the Comptroller of the Currency, Attention: 1557-0204, 400 7th Street SW., Suite 3E-218, Mail Stop 9W-11, Washington, DC 20219. In addition, comments may be sent by fax to (571) 465-4326 or by email to
All comments received, including attachments and other supporting materials, are part of the public record and subject to public disclosure. Do not include any information in your comment or supporting materials that you consider confidential or inappropriate for public disclosure.
Additionally, please send a copy of your comments by mail to: OCC Desk Officer, 1557-0204, U.S. Office of Management and Budget, 725 17th Street NW., #10235, Washington, DC 20503, or by email to:
Shaquita Merritt, OCC Clearance Officer, (202) 649-5490, for persons who are deaf or hard of hearing, TTY, (202) 649-5597, Legislative and Regulatory Activities Division, Office of the Comptroller of the Currency, 400 7th Street SW., Washington, DC 20219.
The OCC is proposing to extend OMB approval, without change, of the following information collection:
The information collection requirements ensure that national banks conduct their operations in a safe and sound manner and in accordance with applicable Federal banking statutes and regulations. The information is necessary for regulatory and examination purposes.
The information collection requirements in part 7 are as follows:
• 12 CFR 7.1000(d)(1) (National bank ownership of property—Lease financing of public facilities). National bank lease agreements must provide that the lessee will become the owner of the building or facility upon the expiration of the lease.
• 12 CFR 7.1014 (Sale of money orders at nonbanking outlets). A national bank may designate bonded agents to sell the bank's money orders at nonbanking outlets. The responsibility of both the bank and its agent should be defined in a written agreement setting forth the duties of both parties and providing for remuneration of the agent.
• 12 CFR 7.2000(b) (Corporate governance procedures—Other sources of guidance). A national bank shall designate in its bylaws the body of law selected for its corporate governance procedures.
• 12 CFR 7.2004 (Honorary directors or advisory boards). Any listing of a national bank's honorary or advisory directors must distinguish between them and the bank's board of directors or indicate their advisory status.
• 12 CFR 7.2014(b) (Indemnification of institution-affiliated parties—Administrative proceeding or civil actions not initiated by a Federal agency). A national bank shall designate in its bylaws the body of law selected for making indemnification payments.
• 12 CFR 7.2024(a) (Staggered terms for national bank directors). Any national bank may adopt bylaws that provide for staggering the terms of its directors. National banks shall provide the OCC with copies of any bylaws so amended.
• 12 CFR 7.2024(c) (Size of bank board). A national bank seeking to increase the number of its directors must notify the OCC any time the proposed size would exceed 25 directors.
The OCC published a notice concerning the collection for 60 days of comment on February 5, 2015 (80 FR 6569). No comments were received. Comments continue to be invited on:
(a) Whether the collection of information is necessary for the proper performance of the functions of the OCC, including whether the information has practical utility;
(b) The accuracy of the OCC's estimate of the burden of the collection of information;
(c) Ways to enhance the quality, utility, and clarity of the information to be collected;
(d) Ways to minimize the burden of the collection on respondents, including through the use of automated collection techniques or other forms of information technology; and
(e) Estimates of capital or start-up costs and costs of operation, maintenance, and purchase of services to provide information.
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)). The IRS is soliciting comments concerning information collection requirements related to information with respect to certain foreign-owned corporations.
Written comments should be received on or before July 13, 2015 to be assured of consideration.
Direct all written comments to Christie Preston, Internal Revenue Service, Room 6129, 1111 Constitution Avenue NW., Washington, DC 20224.
Requests for additional information or copies of the regulations should be directed to Sara Covington at 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.
This document contains a notice that the IRS has made available the
The IRS will award a total of up to $6,000,000 (unless otherwise provided by specific Congressional appropriation) to qualifying organizations, subject to the limitations of Internal Revenue Code section 7526. For fiscal year 2015, Congress appropriated a total of $10,000,000 in federal funds for LITC grants. A qualifying organization may receive a matching grant of up to $100,000 per year for up to a three-year project period. Qualifying organizations that provide representation to low income taxpayers involved in a tax controversy with the IRS or educate individuals for whom English is a second language (ESL) of their taxpayer rights and responsibilities under the Internal Revenue Code are eligible for a grant. Beginning in grant year 2016, the LITC Program will award grants only to qualifying organizations that provide both services. An LITC must provide services for free or for no more than a nominal fee.
Examples of qualifying organizations include: (1) A clinical program at an accredited law, business or accounting school whose students represent low income taxpayers in tax controversies with the IRS, and (2) an organization exempt from tax under I.R.C. § 501(a) whose employees and volunteers represent low income taxpayers in tax controversies with the IRS.
In determining whether to award a grant, the IRS will consider a variety of factors, including: (1) The number of taxpayers who will be assisted by the organization, including the number of ESL taxpayers in that geographic area; (2) the existence of other LITCs assisting the same population of low income and ESL taxpayers; (3) the quality of the program offered by the organization, including the qualifications of its administrators and qualified representatives, and its record, if any, in providing assistance to low income taxpayers; and (4) alternative funding sources available to the organization, including amounts received from other grants and contributions, and the endowment and resources of the institution sponsoring the organization.
The IRS is authorized to award a multi-year grant not to exceed three years. For an organization not currently receiving a grant for 2015, or an organization whose multi-year grant ends in 2015, the organization must submit the application electronically at
The LITC Program Office is located at: Internal Revenue Service, Taxpayer Advocate Service, LITC Grant Program Administration Office, TA:LITC, 1111 Constitution Avenue NW., Room 1034, Washington, DC 20224. Copies of the
The LITC Program Office at (202) 317-4700 (not a toll-free number) or by email at
Section 7526 of the Internal Revenue Code authorizes the IRS, subject to the availability of appropriated funds, to award qualified organizations matching grants of up to $100,000 per year for the development, expansion, or continuation of qualified low income taxpayer clinics. A qualified organization is one that represents low income taxpayers in controversies with the IRS or informs individuals for whom English is a second language of their taxpayer rights and responsibilities, and does not charge more than a nominal fee for its services (except for reimbursement of actual costs incurred). The IRS may award grants to qualified organizations to fund one-year, two-year, or three-year project periods. Grant funds may be awarded for start-up expenditures incurred by new clinics during the grant year.
Low Income Taxpayer Clinics ensure the fairness and integrity of the tax system by educating low income taxpayers about their rights and responsibilities, by providing
Applications that pass the eligibility screening process will undergo a two-tier evaluation process. Applications will be subject to both a technical evaluation and a Program Office evaluation. The final funding decision is made by the National Taxpayer Advocate, unless recused. The costs of preparing and submitting an application (or a request for continued funding) are the responsibility of each applicant. Each application and request for continued funding will be given due consideration and the LITC Program Office will notify each applicant once funding decisions have been made.
Department of Veteran Affairs
Notice of establishment of a new system of records.
The Privacy Act of 1974, (5 U.S.C. 552a(e)(4)) requires that all agencies publish in the
Comments on this new system of records must be received no later than June 12, 2015. If no public comment is received, the new system will become effective June 12, 2015.
Written comments concerning the proposed new system of records may be submitted through
Ms. Diane Huber, Director, Enterprise Web Application Support (EWAS) 005Q3, Service Delivery and Engineering (SDE). Office Location: 1100 1st St. NE., Rm. 513, Washington, DC 20002-4221, telephone (202) 632-7955 (This is not a toll free number).
The Department of Veterans Affairs (VA) receives and responds to questions, suggestions, compliments, complaints, requests for the status of claims and other information, collectively referred to as inquiries, received from veterans, their representatives and individuals and entities doing business with VA via a Web-based communications system known as the Inquiry Routing & Information System (IRIS). This system is also used by VA call center staff to enter inquiries on behalf of veterans and others doing business with the Department.
The IRIS is accessed by clicking on the “Contact Us” link that appears on VA Internet Web sites. Thousands of messages are received each month from VA beneficiaries and other veterans, veterans' family members and/or their representatives, health care professionals, clinicians, employees and managers of small businesses, vendors, funeral directors, mortgage companies, realtors, home buyers, researchers, small business owners, veterans' service organizations, other Federal agencies, State and local government employees, teachers, and other demographic groups representing every segment of the population both at home and abroad. Messages are routed throughout VA based on type of issue and topic as selected by the inquirer and also on the physical location of the inquirer, if provided. Messages go to designated mailgroups in Veterans Benefits Administration, Veterans Health Administration, National Cemetery Administration, and other VA program offices.
In November 2002, VA purchased and implemented a heavily customized version of a Web-based, commercial contact management product for use on VA's Internet Web site at
The use of the IRIS by VA Web site visitors and callers to VA call centers illustrates its utility for communications with VA. VA staff will search the IRIS database by personal identifier to provide a thorough response to the inquirer. The expansion of the search capability in the IRIS database enables VA to provide better service, associate communications from a single individual and provide more thorough responses to their inquiries. The new system of records will cover anyone who chooses to submit an inquiry in person, by calling a VA call center, or by submitting an electronic message directly to VA.
Information requested to process the request may include name, address, telephone number, email address, branch of service and service or claim number and Social Security number if provided by the inquirer. Inquirers are not required to provide personal or contact information; however, in some instances VA may need this information in order to respond to specific inquiries. The authority to maintain these records is title 38, United States Code, section 501.
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The Office of Management of Budget (OMB) recommended the inclusion of a routine use in all Privacy Act systems of records to allow for the appropriate mitigation of data breaches.
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Individuals sometimes request the help of a Member of Congress in resolving some issues relating to a matter before VA. The Member of Congress then writes VA, and VA must be able to give sufficient information to be responsive to the inquiry. That response may include communications to VA from an individual that was received through the IRIS.
8.
NARA is responsible for archiving records no longer actively used, but which may be appropriate for preservation. NARA is responsible, in general, for the physical maintenance of the Federal government's records. VA must be able to turn records over to this Agency in order to determine the proper disposition of such records.
9.
The Privacy Act permits disclosure of information about individuals without their consent for a routine use when the information will be used for a purpose that is compatible with the purpose for which the information is collected. In all of the routine use disclosures described above, either the recipient of the information will use the information in connection with a matter relating to one of VA's programs; to provide a benefit to VA; or because disclosure is required by law.
The Report of Intent to Publish a New System of Records Notice and an advance copy of the system notice has been sent to the appropriate Congressional committees and to the Director of the Office of Management and Budget (OMB) as required by 5 U.S.C. 552a(r) (Privacy Act), as amended, and guidelines issued by OMB (65 FR 77677), December 12, 2000.
The Secretary of Veterans Affairs, or designee, approved this document and authorized the undersigned to sign and submit the document to the Office of the Federal Register for publication electronically as an official document of the Department of Veterans Affairs. Jose D. Riojas, Chief of Staff, approved this document on April 24, 2015, for publication.
Inquiry Routing & Information System (IRIS)-VA
The system of records is located at Oracle's secure government cloud facility at Equnix Datacenter, 1905 Lunt Avenue, Elk Grove, Illinois 60007.
Individuals who contact VA via the VA Web site at
The records include questions, complaints, suggestions, compliments, and/or requests for the status of claims and may also include name, address, phone number, email address, service or claim number, Social Security number, date of birth; branch of service; entered on active duty date and released from active duty date,
Title 38, United States Code, Sections 501 and 7304.
The purpose of this system of records is to receive and respond to questions, complaints, suggestions, compliments, and requests for the status of claims and other information by gathering sufficient information from the senders of inquiries to provide thorough, accurate and timely responses. The IRIS gives VA the ability to track inquiry traffic, measure the quality and timeliness of responses, and develop and post Frequently Asked Questions (FAQs) based on the analysis of messages received. VA management also uses the information to quantify contacts, analyze issues pertaining to veterans and VA's mission, and to measure staff performance regarding the quality and timeliness of responses.
To the extent that records contained in the system include information protected by 45 CFR parts 160 and 164,
1. Disclosure may be made to individuals, organizations, private or public agencies, or other entities or individuals with whom VA has a contract or agreement to perform such services as VA may deem practicable for the purposes of laws administered by VA, in order for the contractor, subcontractor, public or private agency, or other entity or individual with whom VA has an agreement or contract to perform the services of the contract or agreement. This routine use includes disclosures by the individual or entity performing the service for VA to any secondary entity or individual to perform an activity that is necessary for individuals, organizations, private or public agencies, or other entities or individuals with whom VA has a contract or agreement the to provide the service to VA.
2. To disclose information to the Equal Employment Opportunity Commission when requested in connection with investigations of alleged or possible discriminatory practices, examination of Federal affirmative employment programs, or for other functions of the Commission as authorized by law or regulation.
3. To disclose information to officials of the Merit Systems Protection Board, or the Office of the Special Counsel,
4. VA may disclose on its own initiative any information in this system, except the names and home addresses of veterans and their dependents, which is relevant to a suspected or reasonably imminent violation of law, whether civil, criminal or regulatory in nature and whether arising by general or program statute or by regulation, rule or order issued pursuant thereto, to a Federal, State, local, tribal, or foreign agency charged with the responsibility of investigating or prosecuting such violation, or charged with enforcing or implementing the statute, regulation, rule or order. On its own initiative, VA may also disclose the names and addresses of veterans and their dependents to a Federal agency charged with the responsibility of investigating or prosecuting civil, criminal or regulatory violations of law, or charged with enforcing or implementing the statute, regulation, rule or order issued pursuant thereto.
5. VA may, on its own initiative, disclose any information or records to appropriate agencies, entities, and persons when (1) VA suspects or has confirmed that the integrity or confidentiality of information in the system of records has been compromised; (2) the Department has determined that as a result of the suspected or confirmed compromise there is a risk of embarrassment or harm to the reputations of the record subjects, harm to economic or property interests, identity theft or fraud, or harm to the security, confidentiality, or integrity of this system or other systems or programs (whether maintained by the Department or another agency or entity) that rely upon the potentially compromised information; and (3) the disclosure is to agencies, entities, or persons whom VA determines are reasonably necessary to assist or carry out the Department's efforts to respond to the suspected or confirmed compromise and prevent, minimize, or remedy such harm. This routine use permits disclosures by the Department to respond to a suspected or confirmed data breach, including the conduct of any risk analysis or provision of credit protection services as provided in 38 U.S.C. 5724, as the terms are defined in 38 U.S.C. 5727.
6. VA may disclose information in this system of records to the Department of Justice (DoJ), either on VA's initiative or in response to DoJ's request for the information, after either VA or DoJ determines that such information is relevant to DoJ's representation of the United States or any of its components in legal proceedings before a court or adjudicative body, provided that, in each case, the agency also determines prior to disclosure that disclosure of the records to the Department of Justice is a use of the information contained in the records that is compatible with the purpose for which VA collected the records. VA, on its own initiative, may disclose records in this system of records in legal proceedings before a court or administrative body after determining that the disclosure of the records to the court or administrative body is a use of the information contained in the records that is compatible with the purpose for which VA collected the records.
7. VA may disclose information to a member of Congress or a congressional staff member in response to an inquiry from the congressional office made at the request of that individual.
8. Disclosure may be made to National Archives and Records Administration (NARA) in records management activities and inspections conducted under authority of title 44 United States Code.
9. Disclosure may be made to other Federal agencies to assist such agencies in preventing and detecting possible fraud or abuse by individuals in their operations and programs.
The IRIS stores electronic and archived messages on the secure IRIS server at the Oracle's FedRamp-approved hosting facility in Elk Grove, Illinois.
All records in the IRIS are electronic only and are retrieved by system inquiry number, and/or name, and/or zip code, and/or email address, and/or Social Security number, and/or claim and/or service number.
The IRIS runs on a Secure Socket Layer (SSL) and on Transport Layer Security (TLS) and can only be accessed by authorized persons employed by and/or contracted to VA with the use of unique usernames and passwords, consistent with VA security policy.
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Records are maintained and disposed of with records disposition authority approved by the Archivist of the United States.
The IRIS system falls under the jurisdiction of the Director, Enterprise Web Applications Support (EWAS) 005Q3, Service Delivery and Engineering (SDE), Office of Information & Technology (OI&T) OI Field Office, 1100 1st St. NE., Room 513, Washington, DC 20002-4221.
A person who wishes to determine whether a record is being maintained in this system under his or her name or other personal identifier or wishes to determine the contents of such records should submit a written request or apply in person to Enterprise Web Applications Support (EWAS) 005Q3, Service Delivery and Engineering (SDE), Office of Information & Technology (OI&T),OI Field Office, 1100 1st St. NE., Room 513, Washington, DC 20002-4221. Requests should contain full name, address and phone number of the person making this request.
Individuals seeking information regarding access to and amendment of records in this system may write, call or visit Enterprise Web Applications Support (EWAS)005Q3, Service Delivery and Engineering (SDE), Office of Information & Technology (OI&T), OI Field Office, 1100 1st St. NE., Room 513, Washington, DC 20002-4221. Requests should contain full name, address and phone number of the person making this request.
(See Record Access Procedure above)
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Office of Research and Development, Department of Veterans Affairs.
Notice of intent.
Notice is hereby given that the Department of Veterans Affairs, Office of Research and Development, intends to grant to Proactive Assistive Technology, LLC, 8606 Leighton Dr., Tampa, FL 33614, USA, an exclusive license to practice the following: U.S. Patent Application No. 14/022,532 and U.S. Patent Application No. 14/022,477 which claimed priority of U.S. Provisional Patent Application No. 61/744,353, “Transfer Assist Standbar,” filed September 25, 2012. Copies of the published patent applications may be obtained from the U.S. Patent and Trademark Office at
Comments must be received within 15 days from the date of this published Notice.
Written comments may be submitted through
Director of Technology Transfer Program, Office of Research and Development (10P9TT), Department of Veterans Affairs, 810 Vermont Avenue NW., Washington, DC 20420, (202) 443-5640 (this is not a toll-free number).
It is in the public interest to license this invention to Proactive Assistive Technology, to facilitate the development and commercialization of a device for an individual that has restricted or limited mobility, to assist the individual while in a standing or sitting position, or switching between sitting and standing positions. The prospective exclusive license will be royalty-bearing, and will comply with the terms and conditions of 35 U.S.C. 209 and 37 CFR 404.7. The prospective exclusive license may be granted, unless VA ORD receives written evidence and argument within 15 days from the date of this published Notice, which establishes that the grant of the license would not be consistent with the requirements of 35 U.S.C. 209 and 37 CFR 404.7.
Securities and Exchange Commission.
Proposed rules.
The Securities and Exchange Commission (“SEC” or “Commission”) is publishing for comment proposed amendments and a re-proposed rule to address the application of certain provisions of the Securities Exchange Act of 1934 (“Exchange Act”) that were added by Subtitle B of Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) to cross-border security-based swap activities. The Commission is proposing amendments to Exchange Act rules 3a71-3 and 3a71-5 that would address the application of the
Comments should be received on or before July 13, 2015.
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 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 SEC's Web site. To ensure direct electronic receipt of such notifications, sign up through the “Stay Connected” option at
Carol McGee, Assistant Director, Richard Gabbert, Senior Special Counsel, or Margaret Rubin, Special Counsel, Office of Derivatives Policy, at 202-551-5870, Division of Trading and Markets, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-7010.
The Commission is proposing the following rules under the Exchange Act regarding the application of Subtitle B of Title VII of the Dodd-Frank Act to cross-border activities.
The Commission is proposing to amend the following rules under the Exchange Act: Rule 3a71-3 (addressing the cross-border implementation of the
The Commission is proposing to amend certain rules and is re-proposing a rule regarding the application of Title VII of the Dodd-Frank Act
Each of these issues was considered in our May 23, 2013 proposal, in which we proposed rules regarding the application of Title VII in the cross-border context more generally.
In this release, we propose amendments to Exchange Act rules 3a71-3 and 3a71-5 that reflect a modified approach to this element of the initial proposal and solicit comment on the proposed amendments and re-proposed rule. The proposed amendments would address the activity of a non-U.S. person in the United States in a way that more closely focuses on where personnel of the non-U.S. person engaged in dealing activity (or on where personnel of its agent) are arranging, negotiating, or executing a security-based swap. The proposed amendments would not require a non-U.S. person engaging in dealing activity to consider the location of its non-U.S.-person counterparty or the counterparty's agent in determining whether the transaction needs to be included in its own
We also are re-proposing rules regarding the application of the external business conduct requirements to the foreign business of registered security-based swap dealers, and we are proposing to amend Regulation SBSR to address the reporting and public dissemination requirements applicable to security-based swap transactions involving non-U.S. persons that engage in relevant activity in the United States and to transactions effected by or through a registered broker-dealer, along with certain related issues.
Title VII of the Dodd-Frank Act provides for a comprehensive new regulatory framework for swaps and security-based swaps. Under this framework, the Commodity Futures Trading Commission (“CFTC”) regulates “swaps” while the Commission regulates “security-based swaps,” and the Commission and CFTC jointly regulate “mixed swaps.” The new framework encompasses the registration and comprehensive regulation of security-based swap dealers and major security-based swap participants, as well as requirements related to clearing, trade execution, regulatory reporting, and public dissemination.
The Dodd-Frank Act further provides that the SEC and CFTC jointly should further define certain terms, including “security-based swap dealer” and “major security-based swap participant.”
In developing this proposal, we have consulted and coordinated with the CFTC, the prudential regulators,
In addition, section 752(a) of the Dodd-Frank Act provides in part that “[i]n order to promote effective and consistent global regulation of swaps and security-based swaps, the Commodity Futures Trading Commission, the Securities and Exchange Commission, and the prudential regulators . . . as appropriate, shall consult and coordinate with foreign regulatory authorities on the establishment of consistent international standards with respect to the regulation (including fees) of swaps.”
Our prior proposals and final rules regarding the application of Title VII to security-based swap activity carried out in the cross-border context (including to persons engaged in such activities) reflect the global nature of the security-based swap market and its development prior to the enactment of the Dodd-Frank Act.
The Cross-Border Proposing Release also included proposed rules regarding the application of the clearing, trade execution, regulatory reporting, and public dissemination requirements. Under the rules proposed in that release, the clearing requirement and the trade execution requirement also would have applied to a “transaction conducted within the United States,” a transaction having a U.S.-person counterparty, or a transaction having a counterparty that is a non-U.S. person whose counterparty has a right of recourse against a U.S. person,
In November 2013, the CFTC's Division of Swap Dealer and Intermediary Oversight issued a Staff Advisory (“CFTC Staff Advisory”) addressing the applicability of the CFTC's transaction-level requirements to certain activity by non-U.S. registered swap dealers arranged, negotiated, or executed by personnel or agents of the non-U.S. swap dealer located in the United States.
In the Interpretive Guidance and Policy Statement Regarding Compliance with Certain Swap Regulations (July 17, 2013), 78 FR 45292 (July 26, 2013) (“CFTC Cross-Border Guidance”), the CFTC defined transaction-level requirements to include the following: (i) Required clearing and swap processing; (ii) margining (and segregation) for uncleared swaps; (iii) mandatory trade execution; (iv) swap trading relationship documentation; (v) portfolio reconciliation and compression; (vi) real-time public reporting; (vii) trade confirmation; (viii) daily trading records; and (ix) external business conduct standards.
A number of commenters on our Cross-Border Proposing Release addressed the definition of “transaction conducted within the United States.” Although two commenters supported our proposed use of this defined term,
These proposed amendments and re-proposed rule would determine when a non-U.S. person whose obligations under a security-based swap are not guaranteed by a U.S. person and that is not a conduit affiliate is required to include in its dealer
This analysis considers the effects of the proposed rules on security-based swap market participants and transactions that, as a result of these proposed rules, would be subject to rules that we have already adopted, or that we have proposed but not yet adopted, pursuant to Title VII. In particular, we consider the potential adverse effect on market participants of a security-based swap market that may remain opaque to regulators and market participants and that may lack robust customer protections.
Title VII provides a statutory framework for the OTC derivatives market and divides authority to regulate that market between the CFTC (which regulates swaps) and the Commission (which regulates security-based swaps). The Title VII framework requires certain market participants to register with the Commission as security-based swap dealers or major security-based swap participants and subjects such entities to certain requirements. The Title VII framework mandates that we establish rules that apply to certain security-based swap transactions, including mandatory clearing, mandatory trade execution, regulatory reporting, and public dissemination.
These proposed amendments and re-proposed rule, together with our previously adopted rules defining “security-based swap dealer” and “major security-based swap participant” and applying those definitions in the cross-border context, would define the scope of entities and transactions that are subject to the requirements of Title VII. Although these proposed amendments and re-proposed rule do not define the specific substantive requirements, the scope of application that they define will play a central role in determining the overall costs and benefits of particular regulatory requirements, and of the Title VII regulatory framework as a whole.
Several broad economic considerations have informed our proposed approach to identify transactions between two non-U.S. persons that should be subject to certain Title VII requirements. First, to the extent that a financial group carries out security-based swap business in the United States, our ability to monitor dealers for market manipulation or other abusive practices may be limited, even with respect to a registered security-based swap dealer's security-based swaps with U.S. persons. For example, permitting a financial group to carry out a dealing business with U.S. persons through a registered security-based swap dealer and to hedge transactions arising out of that business in the inter-dealer market using the same personnel operating out of the same branch or office in the United States, but acting on behalf of an unregistered non-U.S.-person affiliate, would limit our ability to obtain records that would facilitate our ability to identify potentially abusive conduct in connection with the U.S. person's transactions with U.S.-person counterparties both within the security-based swap market as well as in markets for related underlying assets, such as corporate bonds. Moreover, a non-U.S. person engaged in dealing activity with non-U.S. persons in the United States but not subject to Regulation SBSR would not be required to report its trades, which could make it more difficult for the Commission to monitor that activity for compliance with the federal securities laws and could reduce the transparency of prices in the security-based swap market in the United States. The proposed rules thus reflect our assessment of the impact that the scope of security-based swap transactions and security-based swap dealers subject to regulatory reporting and relevant security-based swap dealer requirements (such as external business conduct standards and recordkeeping and reporting requirements) may have on our ability to detect abusive and manipulative practices in the security-based swap market.
Second, in formulating these proposed rules, we have taken into account the potential impact that rules adopted as part of the Intermediary Definitions Adopting Release and the Cross-Border Adopting Release might have on competition between U.S. persons and non-U.S. persons when they engage in security-based swap transactions with non-U.S. persons, and the implications of these competitive frictions for market integrity. As noted in prior Commission releases, although the Dodd-Frank Act, including Title VII, seeks to achieve a number of benefits,
Under Exchange Act rule 3a71-3, non-U.S. persons may be able to subsidize their transactions with U.S. persons with profits from transactions with non-U.S. persons, allowing them to gain a competitive advantage with respect to transactions with U.S. persons from other dealing activity that is not subject to Title VII, even though it is carried out using personnel located in a U.S. branch or office. In the absence of the rules being proposed in this release, these competitive effects of disparate regulatory treatment may create an incentive for U.S. persons to use non-U.S.-person affiliates or non-U.S.-person agents that are located in the United States to engage in dealing activity with non-U.S.-person counterparties, because these non-U.S. persons could continue to deal with non-U.S.-person counterparties without being required to comply with any Title VII requirements.
Moreover, differences in the application of the Title VII regulatory requirements may impose differing direct costs on different counterparties. For example, a non-U.S. person seeking to trade in a security-based swap on a U.S. reference entity may prefer to enter into the transaction with a non-U.S.-person dealer rather than a U.S.-person dealer. Even though both dealers are likely to arrange, negotiate, or execute a transaction on a U.S. reference entity using personnel located in a U.S. branch or office, the non-U.S.-person dealer may be more attractive because, for example, a transaction with that dealer may not involve a requirement to post collateral consistent with Title VII margin requirements or to comply with Regulation SBSR. The prospect of directly incurring the costs associated with compliance with Title VII requirements may cause these non-U.S. persons to prefer dealing with unregistered non-U.S.-person dealers, particularly if they can obtain the benefits associated with arranging, negotiating, or executing such a transaction using personnel located in a U.S. branch or office. The rules being proposed in this release are designed to mitigate this outcome.
Regulatory frictions arising from a difference in the treatment of dealing activity occurring in the United States could fragment security-based swap liquidity into two pools, one for U.S. persons and non-U.S. persons whose obligations under a security-based swap are guaranteed by a U.S. person, and the other for non-U.S. persons. Non-U.S. persons that arrange, negotiate, or execute transactions in connection with their dealing activity using personnel located in a U.S. branch or office may, under current Exchange Act rule 3a71-3(b), seek to limit dealing activity with U.S. persons (for example, by quoting larger spreads to compensate for the expected costs of entity-level requirements) or may entirely refuse to supply liquidity to U.S. persons. This disparity in treatment may provide further incentives for U.S. persons to restructure their business to permit them to carry out their business with non-U.S. persons on similar terms.
To the extent that the large inter-dealer market
Different treatment of transactions depending on whether they are arranged, negotiated, or executed by personnel located in a U.S. branch or office may create similar fragmentation among agents that may seek to provide services to foreign dealers. To the extent that using agents with personnel located in the United States results in substantial regulatory costs to foreign dealers, such foreign dealers may prefer and primarily use agents located outside the United States, while U.S. dealers may continue to use agents located in the United States. This fragmentation of dealer and agent relationships, as in the case of liquidity fragmentation discussed earlier, may adversely affect the efficiency of risk sharing by security-based swap market participants.
To assess the economic impact of the proposed amendments and rule described in this release, we are using as our baseline the security-based swap market as it exists at the time of this release, including applicable rules we have already adopted but excluding rules that we have proposed but have not yet finalized.
Our analysis of the state of the current security-based swap market is based on data obtained from the DTCC Derivatives Repository Limited Trade Information Warehouse (“TIW”), especially data regarding the activity of market participants in the single-name credit default swap (“CDS”) market during the period from 2008 to 2014. According to data published by the Bank for International Settlements (“BIS”), the global notional amount outstanding in equity forwards and swaps as of June 2014 was $2.43 trillion. The notional amount outstanding in single-name CDS was approximately $10.85 trillion, in multi-name index CDS was approximately $7.94 trillion, and in multi-name, non-index CDS was approximately $678 billion.
Also consistent with our approach in that release, with the exception of the analysis regarding the degree of overlap between participation in the single-name CDS market and the index CDS market (cross-market activity), our analysis below does not include data regarding index CDS as we do not currently have sufficient information to identify the relative volumes of index CDS that are swaps or security-based swaps.
We preliminarily believe that the data underlying our analysis here provide reasonably comprehensive information regarding single-name CDS transactions and the composition of the single-name CDS market participants. We note that the data available to us from TIW do not encompass those CDS transactions that both: (i) Do not involve U.S. counterparties;
Dealers occupy a central role in the security based swap market and security-based swap dealers use a variety of business models and legal structures to engage in dealing activity with counterparties in jurisdictions all around the world.
Bank and non-bank holding companies may use subsidiaries to deal with counterparties. A U.S.-based holding company may engage in dealing activity through a foreign subsidiary that faces both U.S. and foreign counterparties, and foreign dealers may choose to deal with U.S. and foreign counterparties through U.S. subsidiaries. Similarly, a non-dealer user of security-based swaps may participate in the market using an agent in its home country or abroad. An investment adviser located in one jurisdiction may transact in security-based swaps on behalf of beneficial owners that reside in another.
In some situations, an entity's performance under security-based swaps may be supported by a guarantee provided by an affiliate. Such a guarantee may take the form of a blanket guarantee of an affiliate's performance on all security-based swap contracts, or a guarantee may apply only to a specified transaction or counterparty. Guarantees may give counterparties to a dealer direct recourse to the holding company or another affiliate for its dealer-affiliate's obligations under security-based swaps for which that dealer-affiliate acts as counterparty.
As depicted
Participants in the security-based swap market may bear the financial risk of a security-based swap transaction in a location different from the location where the transaction is arranged, negotiated, or executed or the location where economic decisions are made by managers on behalf of beneficial owners. Similarly, a participant in the security-based swap market may be exposed to counterparty risk from a jurisdiction that is different from the market center or centers in which it primarily operates. These participants appear to be active in market centers across the globe.
The TIW transaction records include, in many cases, information on particular branches involved in transactions, which may provide limited insight as to where security-based swap activity is actually being carried out.
In the Regulation SBSR Adopting Release, we estimated, based on an analysis of TIW data, that out of more than 4,000 entities engaged in single-name CDS activity worldwide in 2013, 170 entities engaged in single-name CDS activity at a sufficiently high level that they would be expected to incur assessment costs to determine whether they meet the “security-based swap dealer” definition.
Updated analysis of 2014 data leaves many of these estimates largely unchanged. We estimate that approximately 170 entities engaged in single-name CDS activity at a sufficiently high level that they would be expected to incur assessment costs to determine whether they meet the “security-based swap dealer” definition. Approximately 56 of these entities are non-U.S. persons. Of the approximately 50 entities that we estimate may potentially register as security-based swap dealers, we preliminarily believe it is reasonable to expect 22 to be non-U.S. persons.
Single-name CDS contracts make up the vast majority of security-based swaps, and most are written on corporate issuers, corporate securities, sovereign countries, or sovereign debt (reference entities or securities). Figure 2 below describes the percentage of global, notional transaction volume in North American corporate single-name CDS reported to the TIW between January 2008 and December 2013, separated by whether transactions are between two ISDA-recognized dealers (inter-dealer transactions) or whether a transaction has at least one non-dealer counterparty.
Annual trading activity with respect to North American corporate single-name CDS in terms of notional volume has declined from more than $6 trillion in 2008 to less than $3 trillion in 2014.
The high level of inter-dealer trading activity reflects the central position of a small number of dealers, each of which intermediates trades between many hundreds of counterparties. While we are unable to quantify the current level of trading costs for single-name CDS, those dealers appear to enjoy market power as a result of their small number and the large proportion of order flow they privately observe. This market power in turn appears to be a key determinant of trading costs in this market.
Against this backdrop of declining North American corporate single-name CDS activity, about half of the trading activity in North American corporate single-name CDS reflected in the set of data that we analyzed was between counterparties domiciled in the United States and counterparties domiciled abroad. Basing counterparty domicile on the self-reported registered office location of the TIW accounts, we estimate that only 12% of the global transaction volume by notional volume between 2008 and 2014 was between two U.S.-domiciled counterparties, compared to 48% entered into between one U.S.-domiciled counterparty and a foreign-domiciled counterparty and 40% entered into between two foreign-domiciled counterparties (see Figure 3).
When the domicile of TIW accounts is instead defined according to the domicile of an account's ultimate parents, headquarters, or home office (
Differences in classifications across different definitions of domicile illustrate the effect of participant structures that operate across jurisdictions. Notably, the proportion of activity between two foreign-domiciled counterparties drops from 40% to 17% when domicile is defined as the ultimate parent's domicile. As noted earlier, foreign subsidiaries of U.S. parent companies and foreign branches of U.S. banks, and U.S. subsidiaries of foreign parent companies and U.S. branches of foreign banks may transact with U.S. and foreign counterparties. However, this change in respective shares based on different classifications suggests that the activity of foreign subsidiaries of U.S. firms and foreign branches of U.S. banks is generally higher than the activity of U.S. subsidiaries of foreign firms and U.S. branches of foreign banks.
We have adopted final rules implementing regulatory reporting requirements for security-based swap transactions, although compliance with most aspects of this regime is not yet required.
Clearing of security-based swaps, which is currently voluntary in the United States, is currently limited to CDS products, and a substantial proportion of single-name CDS accepted for clearing are already being cleared. Prior to the Dodd-Frank Act, ICE Clear Credit and ICE Clear Europe engaged in CDS clearing activities pursuant to exemptive orders issued by the Commission.
ICE Clear Credit (then known as ICE US Trust LLC) began clearing index CDS in March 2009.
In addition to clearing single-name CDS on North American corporate reference entities, ICE Clear Credit also clears CDS on certain non-U.S. sovereign entities, and on certain indices based on North American reference entities.
Staff analysis of trade activity from July 2012 to December 2013 indicate that, out of $938 billion of notional traded in North American corporate single-name CDS contracts that have reference entities that are accepted for clearing during the 18 months ending December 2013, approximately 71%, or $666 billion, had characteristics making them suitable for clearing by ICE Clear Credit and represented trades between two ICE Clear Credit clearing members.
Figure 4 shows the proportion of new trades and assign-entries defined as clearable at ICE Clear Credit that were ultimately cleared.
Evidence from the TIW data suggests that even single-name CDS written on reference entities that were initially accepted for clearing by ICE Clear Credit were traded infrequently. Figure 5 plots of the daily mean number of transactions per trading day for each of the 538 North American single-name corporate reference entities with at least one transaction per month on average during the period from January 2011 to December 2013.
ICE Clear Europe began clearing CDS on single-name corporate reference entities in December 2009,
ICE Clear Europe commenced clearing index CDS in July 2009.
Aside from clearing single-name CDS on European corporate reference entities, ICE Clear Europe also clears CDS on indices based on European reference entities, as well as futures and instruments on OTC energy and emissions markets.
Staff analysis of new trade activity from July 2012 to December 2013 indicate that out of €531 billion of notional traded in European corporate single-name CDS contracts that have reference entities that are accepted for clearing during the 18 months ending December 2013, approximately 70%, or €372 billion had characteristics making them suitable for clearing by ICE Clear Europe and represented trades between two ICE Clear Europe clearing members. Approximately 51% of this notional value, or €191 billion was cleared through ICE Clear Europe, representing 36% of the total volume of new trade activity.
Unlike the
An “assign-entry” involves the substitution of one of the contract counterparties in an existing instrument for a new counterparty in exchange for cash consideration. It is economically equivalent to a termination of the initial contract between the “old” counterparty and the “static” counterparty and a new trade between the “replacement” counterparty and the “static” counterparty.
We have proposed, but have not yet adopted, rules establishing a registration regime and core principles for security-based swap execution facilities (“SB SEFs”). We have not proposed to implement the mandatory trade execution requirement contained in section 3C(h) of the Exchange Act. Currently, there are no SB SEFs registered with the Commission, and as a result, there is no registered SB SEF trading activity to report. There are, however, currently 25 trading platforms that either are temporarily registered with the CFTC as SEFs or have SEF temporary registration applications pending with the CFTC and currently are exempt from registration with the Commission.
Efforts to regulate the swaps market are underway not only in the United States but also abroad, and these efforts have received significant attention in international fora. For example, in 2009, leaders of the G20—whose membership includes the United States, 18 other countries, and the EU—addressed global improvements in the functioning, transparency, and regulatory oversight of OTC derivatives markets. They expressed their view on a variety of issues relating to OTC derivatives contracts, including trading on exchanges or electronic trading platforms, clearing through CCPs, and reporting to trade repositories.
Jurisdictions with major OTC derivatives markets have taken steps toward substantive regulation of these markets, though the pace of regulation varies. Accordingly, many foreign participants likely will be required to comply with substantive regulation of their security-based swap activities apart from regulations that may apply to them pursuant to Title VII. The concerns foreign jurisdictions seek to address with their regulations may overlap or be similar to those addressed by the Title VII regulatory framework.
Foreign legislative and regulatory efforts have focused on five general areas: Requiring post-trade reporting of transactions data for regulatory purposes, moving OTC derivatives onto organized trading platforms, requiring central clearing of OTC derivatives, establishing or enhancing capital requirements, and establishing or enhancing margin requirements for OTC derivatives transactions. The first two areas of regulation should help improve transparency in OTC derivatives markets, both to regulators and market participants. Regulatory transaction reporting requirements are mandated in a number of jurisdictions including the
Regulation of derivatives central clearing, capital requirements, and margin requirements aims, among other things, to improve management of financial risks in these markets.
Persons registered as security-based swap dealers or major security-based swap participants are likely also to engage in swap activity, which is subject to regulation by the CFTC. In the release proposing registration requirements for security-based swap dealers and major security-based swap participants, we estimated, based on our experience and understanding of the swap and security-based swap markets that of the 55 firms that might register as security-based swap dealers or major security-based swap participants, approximately 35 would also register with the CFTC as swap dealers or major swap participants.
This overlap reflects the relationship between single-name CDS contracts, which are security-based swaps, and index CDS contracts, which may be swaps or security-based swaps. A single-name CDS contract covers default events for a single reference entity or reference security. Index CDS contracts and related products make payouts that are contingent on the default of index components and allow participants in these instruments to gain exposure to the credit risk of the basket of reference entities that comprise the index, which is a function of the credit risk of the index components. A default event for a reference entity that is an index component will result in payoffs on both single-name CDS written on the reference entity and index CDS written on indices that contain the reference entity. Because of this relationship between the payoffs of single-name CDS and index CDS contracts, prices of these products depend upon one another,
These hedging opportunities mean that participants that are active in one market are likely to be active in the other. Commission staff analysis of approximately 4,500 TIW accounts that participated in the market for single-name CDS in 2014 revealed that approximately 2,500 of those accounts, or 56%, also participated in the market for index CDS. Of the accounts that participated in both markets, data regarding transactions in 2014 suggest that, conditional on an account transacting in notional volume of index CDS in the top third of accounts, the probability of the same account landing in the top third of accounts in terms of single-name CDS notional volume is approximately 60%; by contrast, the probability of the same account landing in the bottom third of accounts in terms of single-name CDS notional volume is only 11%.
As discussed in more detail below,
The proposed amendments and proposed rule may, to the extent that they are not in conflict with the approach taken in the CFTC Cross-Border Guidance, permit non-U.S. persons to use infrastructures developed to be consistent with the CFTC's approach, to comply with Commission requirements as well. Among those entities that participate in both markets, entities that are able to apply to security-based swap activity capabilities that are consistent with the CFTC Cross-Border Guidance may experience lower costs associated with assessing which
The Exchange Act excepts from designation as a “security-based swap dealer” an entity that engages in a “
The Cross-Border Adopting Release finalized rules specifying, among other things, when a non-U.S. person is required to include transactions arising from its dealing activity in its
In light of those comments and further consideration of the concerns raised by such transactions and subsequent regulatory and market developments, the statutory objectives, and the practicability of our initially proposed approach, we have determined to propose an amendment to Exchange Act rules 3a71-3 and 3a71-5 that more closely focuses on certain dealing activity carried out, at least in part, by personnel located in the United States.
As described in more detail below, we preliminarily believe that this proposed approach would mitigate many of the concerns raised by commenters in response to our initial proposal, while requiring persons that engage in dealing activity at levels that may raise the types of concerns that Title VII addresses to register as security-based swap dealers and comply with appropriate regulation. We also note that this approach would be generally consistent with the approach that we have followed with respect to the registration of brokers and dealers under the Exchange Act, which among other things requires that a broker-dealer physically operating in the United States register with the Commission and comply with relevant regulatory requirements, even if it directs its activities solely toward non-U.S. persons outside the United States.
As we noted in the Cross-Border Proposing Release, dealing activity carried out by a non-U.S. person through a U.S. branch, office, or affiliate or by a non-U.S. person that otherwise engages in security-based swap dealing activity in the United States, particularly at levels exceeding the relevant
Our initially proposed definition of “transaction conducted within the United States” and our proposed use of that term to trigger various Title VII requirements generated a significant volume of comment addressing a wide range of issues. Although two commenters supported our proposal,
Several commenters took issue with the scope of the initially proposed defined term. Some commenters argued that the initially proposed definition was inappropriate in the context of Title VII because it would capture transactions between two non-U.S. persons that happened to involve conduct within the United States, even though such transactions are unlikely to create risk to the U.S. financial system.
Two of these commenters suggested that the initially proposed approach exceeded the Commission's authority under section 30(c) of the Exchange Act.
One commenter recognized the concerns that the initially proposed definition of “transaction conducted within the United States” was intended to address but expressed doubt as to whether funds would be able to monitor and confirm whether their dealing counterparties were engaging in dealing activity within the United States.
Some commenters stated that applying Title VII to transactions merely because they involve conduct within the United States could not be justified from a cost-benefit perspective. Some contended that the CFTC had not taken such an approach and that divergence from the CFTC on the treatment of such conduct would impose a significant additional cost on market participants.
Some commenters expressed concern that focusing on “transactions conducted within the United States” would put brokers and investment managers located in the United States at a competitive disadvantage to their foreign counterparts, on the grounds that foreign clients would avoid doing business with them to avoid having their transactions become subject to Commission regulations.
A few commenters, including some who expressed the concerns outlined above, sought clarification or made suggestions related to limiting the scope of the initially proposed defined term.
As already noted, in November 2013, subsequent to the close of the comment period for our Cross-Border Proposing Release, CFTC staff issued the CFTC Staff Advisory, which addressed activity by registered swap dealers occurring within the United States.
As noted above, on January 8, 2014, the CFTC published the CFTC Request for Comment on various aspects of the CFTC Staff Advisory, including whether the CFTC “should adopt the Staff Advisory as Commission policy, in whole or in part.”
A few commenters supported the CFTC Staff Advisory. One commenter urged the CFTC to formally adopt the approach in the CFTC Staff Advisory, arguing that any weakening of it would permit “nominally foreign entities” to do business within the United States in compliance with foreign laws and regulations, or potentially subject to no legal requirements, rather than with U.S. law.
Most commenters, however, opposed the approach taken in the CFTC Staff Advisory. These commenters expressed several concerns that may also be relevant to our own proposal to impose certain Title VII requirements on security-based swap activity that is carried out from a U.S. location, including the following: (1) the scope of the activity that would trigger application of Title VII, (2) the workability and costs of complying with such a test and resulting effects on competition and comity, and (3) the CFTC's transaction-level requirements that should be triggered by such a test. We will discuss the first two sets of concerns here and the third in Section V below.
Several commenters argued that the scope and types of activity by non-U.S. swap dealers captured by the CFTC Staff Advisory were unclear. The CFTC Staff Advisory notes that “persons regularly arranging, negotiating, or executing swaps for or on behalf of [a swap dealer] are performing core, front-office activities of that [swap dealer's] dealing business.”
Some commenters encouraged the CFTC to address these concerns by providing “detailed definitions” of the relevant terms or to focus only on execution or other discrete activities related to the transaction.
Some commenters expressed concern that the CFTC Staff Advisory reflected a significant departure from the approach that these commenters understood to be the focus of the CFTC Cross-Border Guidance.
One commenter criticized the CFTC Staff Advisory's focus on whether a registered non-U.S. swap dealer is arranging, negotiating, or executing a swap using personnel or agents in the United States as providing insufficient guidance to market participants, arguing that these activities do not reflect current business practices among swap dealers.
Several commenters argued that the costs and impracticability of the approach taken in the CFTC Staff Advisory would have competitive effects, although they disagreed whether it would enhance or degrade competition. One commenter supported the CFTC Staff Advisory in its current form, noting that without it, U.S. firms would be at a competitive disadvantage compared to non-U.S. firms operating in the United States.
Some commenters also suggested that, if adopted by the CFTC, the approach taken in the CFTC Staff Advisory could present difficulties for, and impose costs on, non-U.S.-person counterparties of dealers, as such counterparties may not currently have systems in place for complying with certain CFTC requirements, particularly if they are imposed only because the swap dealer (and not the counterparty) happens to have carried out certain activities using personnel or agents located in the United States.
Commenters suggested that pressure from non-U.S.-person counterparties that do not want their transactions to be subject to Title VII would lead at least some non-U.S.-person dealers to exit the United States.
We have carefully considered the views of commenters, as discussed above, that dealing activity carried out in the United States by a non-U.S. person with a counterparty that is also a non-U.S. person lacks a significant nexus to the United States and does not raise any significant regulatory concerns in the United States because the ongoing obligations associated with such transactions do not reside in the United States.
As we noted in our Cross-Border Proposing Release, financial groups engaged in security-based swap dealing activity use a variety of business models and legal structures to carry out such activity with counterparties around the world. Most such financial groups operate in multiple jurisdictions, and they will typically have one or more dealer affiliates in one or more jurisdictions that book the security-based swap transactions related to their security-based swap dealing business. An affiliate that initially books a transaction may retain the risk associated with that transaction, or it may lay off that risk to another affiliate via a back-to-back transaction or an assignment of the security-based swap.
The structure of the group's market-facing activities that generate the transactions booked in these affiliates often reflects different considerations. A dealing affiliate established in one jurisdiction may operate offices (which may serve sales or trading functions) in one or more other jurisdictions to deal with counterparties in that jurisdiction or in a specific geographic region, or to ensure that it is able to provide liquidity to counterparties in other jurisdictions, even when a counterparty's home financial markets are closed. A dealer also may choose to manage its trading book in particular reference entities or securities primarily from a trading desk that can take advantage of local expertise in such products or to gain access to better liquidity, which may permit it to more efficiently price such products or to otherwise compete more effectively in the security-based swap market. We understand that a financial group that engages in a dealing business may have business lines that are carried out in a number of affiliates located in different jurisdictions, and that personnel of an affiliate may operate under the direction of, or in some cases, report to personnel of another affiliate within the group; in some cases, such personnel work on behalf of, or under the supervision of, more than one affiliate in the group.
Moreover, a dealer may carry out these market-facing activities, whether in its home jurisdiction or in a foreign jurisdiction, using either its own personnel or the personnel of an affiliated or unaffiliated agent. For example, the dealer may determine that another affiliate in the financial group employs personnel who possess expertise in relevant products or that have established sales relationships with key counterparties in a foreign jurisdiction, making it more efficient to use the personnel of the affiliate to engage in security-based swap dealing activity on its behalf in that jurisdiction.
Alternatively, the dealer may in some circumstances determine to engage the services of an unaffiliated agent through which it can engage in dealing activity. For example, a dealer may determine that using an inter-dealer broker may provide an efficient means of participating in the inter-dealer market in its own, or in another, jurisdiction, particularly if it is seeking to do so anonymously or to take a position in products that trade relatively infrequently.
We understand that dealers established in foreign jurisdictions (whether affiliated with U.S.-based financial groups or not) may use any of these structures to engage in dealing activity in the United States, and that they may seek to engage in dealing activity in the United States to transact with both U.S. and non-U.S.-person counterparties. In transactions with non-U.S.-person counterparties, a foreign dealer may affirmatively seek to engage in dealing activity in the United States because the sales personnel of the foreign dealer (or of its agent) in the United States have existing relationships with counterparties in other locations (such as Canada or Latin America) or because the trading personnel of the foreign dealer (or of its agent) in the United States have the expertise to manage the trading books for security-based swaps on U.S. reference securities or entities. And we understand that some foreign dealers engage in dealing activity in the United States through their personnel (or personnel of their affiliates) in part to ensure that they are able to provide their own counterparties, or those of financial group affiliates in other jurisdictions, with access to liquidity (often in non-U.S. reference entities) during U.S. business hours, permitting them to meet client demand even when the home markets are closed. In some cases, such as when seeking to transact with other dealers through an inter-dealer broker, a foreign dealer may act, in a dealing capacity, in the United States through an unaffiliated, third-party agent.
As discussed above, some commenters have suggested that the Title VII statutory framework does not extend to transactions between two non-U.S. persons, even if security-based swap activity occurs in the United States, and have argued that section 30(c) of the Exchange Act limits our authority to reach this conduct.
In the Cross-Border Adopting release, we described how this approach applies in the specific context of the definition of “security-based swap dealer.” We rejected the view that “the location of risk alone should . . . determine the scope of an appropriate territorial application of every Title VII requirement,” including the application of the “security-based swap dealer” definition.
Instead, the statute identifies specific activities that bring a person within the definition of “security-based swap dealer”: (1) Holding oneself out as a dealer in security-based swaps, (2) making a market in security-based swaps; (3) regularly entering into security-based swaps with counterparties as an ordinary course of business for one's own account; or (4) engaging in any activity causing oneself to be commonly known in the trade as a dealer in security-based swaps.
Accordingly, the fact that the counterparty credit risk from a transaction between two non-U.S. persons, where neither counterparty has a right of recourse against a U.S. person under the security-based swap, exists largely outside the United States is not determinative under our territorial analysis. The appropriate analysis, in our view, is whether a non-U.S. person in such a transaction is engaged, in the United States, in any of the activities set forth in the statutory definition or in our further definition of “security-based swap dealer.” If it is so engaged, in our view, it is appropriate under a territorial approach to require the non-U.S. person to include such transaction in its security-based swap dealer
This analysis applies regardless of whether the non-U.S. person engages in dealing activity (as described in the statutory definition and in our further definition of “security-based swap dealers”) in the United States using its own personnel or using the personnel of an agent acting on its behalf. As described above, persons engaged in security-based swap dealing activity routinely do so both directly and through their agents. Indeed, our further definition of “security-based swap dealer” specifically identifies the use of inter-dealer brokers as one of several indicia of security-based swap dealing activity,
Finally, in light of the foregoing analysis, we note that the statutory prohibition on application of Title VII requirements to persons that “transact[] a business in security-based swaps without the jurisdiction of the United States” has no bearing on these proposed rules.
Moreover, we preliminarily believe that requiring these transactions to be included in a non-U.S. person's dealer
Such a reaction could result in a significant amount of security-based swap dealing activity continuing to be engaged in by personnel located in a U.S. branch or office,
Although such transactions may not give rise to counterparty-credit risk within the United States, they do raise other regulatory concerns, particularly when a firm is engaged in such activity at levels above the dealer
Moreover, these dealers could continue to trade—using U.S. sales and trading desks, and potentially the same sales and trading desks used by their registered security-based swap dealer affiliates—in the inter-dealer market in a manner that may be opaque to regulators and non-dealers alike. This risk, in our preliminary view, is particularly high given that, as we have noted, inter-dealer activity accounts for a significant proportion of all security-based swap activity. This activity, to the extent it is carried out by personnel located in the United States, should be subject to relevant regulatory requirements. Subjecting such transactions to Regulation SBSR and potentially requiring firms engaged in such activity to register as security-based swap dealers should bring additional transparency to what is likely to be a significant proportion of the security-based swap activity that occurs in the United States and provide market participants more confidence in the integrity of the market.
In light of these concerns, we preliminarily believe that it is appropriate to propose rules that would impose certain Title VII requirements on dealers using personnel located in the United States to engage in security-based swap dealing activity.
We have carefully considered the proposed application of the dealer
Unlike the initial proposal, which included the defined term “transaction conducted within the United States,” the proposed amendment would not include a separate defined term identifying such activity. Rather, we propose to amend Exchange Act rule 3a71-3(b)(1)(iii) to require a non-U.S. person engaged in security-based swap dealing activity to include in its
This proposed amendment reflects our reconsideration of the issues raised by security-based swap dealing activity involving two non-U.S. persons in which one or both parties, or the agents of one or both parties, using personnel located in the United States, engage in some dealing activity.
At the same time, this proposed approach is intended to avoid unnecessary costs and complexity that may make it difficult for market participants to comply with such requirements. We recognize commenters' concerns that our initially proposed approach to “transactions conducted within the United States” potentially could have imposed significant costs on, and presented compliance challenges to, market participants. As some commenters noted, the initially proposed definition of “transaction conducted within the United States” was sufficiently broad that it might have encompassed conduct within the United States by either counterparty to the transaction that could be characterized as “incidental.”
In the following subsections, we describe key elements of the proposed amendment to Exchange Act rule 3a71-3(b)(1)(iii), and address comments of particular relevance with respect to each element.
Proposed rule 3a71-3(b)(1)(iii)(C) would apply only to transactions connected with a non-U.S. person's security-based swap dealing activity that its personnel (or the personnel of an agent) located in the United States
Consistent with our explanation for initially proposing the term “transaction conducted within the United States,” we intend, for purposes of the proposed rule, “arrange” and “negotiate” to indicate market-facing activity of sales or trading personnel in connection with a particular transaction, including interactions with counterparties or their agents.
Consistent with the approach taken to the final definition of “transaction conducted through a foreign branch” adopted in the Cross-Border Adopting Release, the proposed amendment includes “arrange” instead of “solicit” in recognition of the fact that a dealer, by virtue of being commonly known in the trade as a dealer, may respond to requests by counterparties to enter into dealing transactions, in addition to actively seeking out such counterparties.
We recognize that several commenters expressed concern about the terms used in our proposed definition of “transaction conducted within the United States”
We also are not proposing to include either submitting a transaction for clearing in the United States or reporting a transaction to an SDR in the United States as activity that would cause a transaction to be arranged, negotiated, or executed by personnel located in the United States under the proposed rule, nor are we proposing to treat activities related to collateral management (
We preliminarily believe that our proposed amendment should considerably mitigate concerns raised by commenters regarding the scope and workability of an activity-based test for application of Title VII requirements.
Some commenters urged that an activity-based test, if implemented, should look only to where the relevant transaction was executed, or where the dealer's personnel committed the dealer to the trade.
Proposed rule 3a71-3(b)(1)(iii)(C) would apply only to transactions connected with a non-U.S. person's security-based swap dealing activity that are arranged, negotiated, or executed by personnel
The proposed amendment would, however, not exclude security-based swap transactions that the non-U.S. person, in connection with its dealing activity, arranges, negotiates, or executes, using personnel located in a U.S. branch or office to respond to inquiries from a non-U.S.-person counterparty outside business hours in the counterparty's jurisdiction. We preliminarily believe that a non-U.S. person that uses sales or trading personnel located in a U.S. branch or office to engage in market-facing activity in connection with its dealing activity is likely to raise Title VII concerns, regardless of either counterparty's motivations for entering into the transaction.
We preliminarily believe that this element of the proposed amendment also should mitigate the burdens associated with determining whether a particular transaction needs to be included in a non-U.S. person's
Proposed rule 3a71-3(b)(1)(iii)(C) would apply to transactions connected with a non-U.S. person's security-based swap dealing activity that are arranged, negotiated, or executed by personnel located in a U.S. branch or office,
As noted above, a non-U.S. person engaged in security-based swap dealing activity with other non-U.S. persons, if it wishes to avail itself of the expertise of sales, trading, and other personnel located in the United States, may carry out that activity using its own personnel located in a U.S. branch or office, or using the personnel of its agent, located in a U.S. branch or office.
However, under the proposed approach a non-U.S. person that uses a broker as its agent to arrange, negotiate, or execute security-based swap transactions in connection with that non-U.S. person's dealing activity would be required to include those transactions in its own
We considered the view of at least one commenter that our existing broker-dealer regime would be sufficient to address any concerns raised by personnel of its agent in the United States acting on behalf of a non-U.S. person engaged in security-based swap dealing activity.
After careful consideration of this alternative approach, we have preliminarily concluded that broker-dealer regulation would not, on its own, adequately address the concerns raised by agents located in the United States acting on behalf of non-U.S. persons to facilitate the security-based swap dealing activity of such non-U.S. persons. Given the range of regulatory concerns such activity raises,
First, as that commenter acknowledged, an agent using personnel located in a U.S. branch or office would not be required to register as a broker-dealer if it could avail itself of certain exceptions under the Exchange Act and the rules or regulations thereunder.
Second, even absent the bank exception to the definition of “broker,” we are not persuaded that broker-dealer regulation of the agent operating in the United States would address the concerns raised by this security-based swap dealing activity. For example, although regulation of the agent acting as a broker would provide the Commission with access to the books and records of the
As noted above, access to books and records is the primary tool for oversight of the financial entity and for conducting market surveillance. But the broker's books and records are likely to be insufficient for this purpose, given that foreign dealers may allocate different duties in connection with a particular security-based swap to their own personnel and other functions to their agents, both in and outside the United States. The records of the agents would not be sufficient to document other market-facing activity of the foreign dealer that is not carried out through the agent, but that may be relevant to identifying activity in the United States both within the security-based swap market as well as in markets for related underlying assets, such as corporate bonds, that, in light of the other security-based swap activity of the foreign dealer, may be abusive or manipulative. We would have access to these books and records necessary to identify fraudulent or abusive conduct on the part of the foreign dealer only if the foreign dealer is required to register as a security-based swap dealer. In addition, identifying certain manipulative or abusive market practices may require information about security-based swap transactions of the non-U.S.-person dealer that are not arranged, negotiated, or executed in the United States. To effectively monitor for fraud and manipulation in a market where a significant proportion of transactions are likely to be carried out by (and between) dealers using these types of business structures, we preliminarily believe that the non-U.S.-person dealers that are the counterparties to these transactions should be required to include these transactions in their
Some commenters expressed concern that an activity-based approach to the
We recognize that some non-U.S. persons that may be required to register as security-based swap dealers as a result of proposed Exchange Act rule 3a71-3(b)(1)(iii)(C) may already be subject to regulation similar to our security-based swap dealer regulatory framework in other jurisdictions. At the same time, we preliminarily believe that it is appropriate to regulate dealing activity that occurs within the United States, including by subjecting to security-based swap dealer registration non-U.S. persons that exceed the relevant
At least one commenter specifically requested that we retain the provision in the proposal permitting reliance on a representation concerning whether a counterparty was engaging in activity within the United States.
We request comment on all aspects of the discussion and analysis above, including the following:
• Is our understanding of the global nature of the security-based swap market accurate? If not, why not?
• Is our understanding of the dealing structures used by U.S. and non-U.S. persons accurate? If not, why not? Are there other dealing structures used by market participants?
• Is our understanding of the use of affiliated or unaffiliated persons, such as registered broker-dealers in the United States (including inter-dealer brokers) accurate? If not, why not?
• Should a non-U.S. person that engages in dealing activity with other non-U.S. persons be required to consider, for purposes of counting a transaction towards its
• Does proposed rule 3a71-3(b)(1)(iii)(C), which would apply only to transactions connected with a non-U.S. person's security-based swap dealing activity that it (or its agent) arranges, negotiates, or executes using personnel located in a U.S. branch or office, appropriately focus on activity that is likely to raise the types of concern addressed by Title VII? Is it appropriate to generally focus on market-facing activities? Is the scope of activities too narrow or too broad? Why? Will the approach be workable for market participants? Why or why not?
• Is the use of the terms “arrange,” “negotiate,” and “execute” in the release and rule text sufficiently clear? How could the terms be further clarified if necessary?
• Is the focus on market-facing activities of the sales and trading desks appropriate in identifying transactions between two non-U.S. persons that should be subject to Title VII requirements?
• Does the change to proposed rule 3a71-3(b)(1)(iii)(C) that would require transactions to be included in a person's
• Should the proposed amendment incorporate an exception from security-based swap dealer regulation for a non-U.S. person that arranges, negotiates, or executes transactions using personnel of its agent located in a U.S. branch or office to the extent that the agent is a registered broker-dealer? If so, how should this dealing activity be regulated? Specifically, to the extent that security-based swap brokering activity is carried out by personnel of the non-U.S. person engaged in dealing activity who are located in a U.S. branch or office, how should we address it? To the extent that security-based swap brokering activity is carried out by a bank, how should we regulate it? How would we obtain access to the books and records for transactions outside the United States of an unregistered dealer also doing business in the United States through a broker to monitor for market manipulation or other abusive practices?
• Do you agree with proposed rule 3a71-3(b)(1)(iii)(C), which requires a non-U.S. person to include in its
• Do you agree with proposed rule 3a71-3(b)(1)(iii)(C), which requires a non-U.S. person to include in its
• What types of controls would be necessary to ensure that a non-U.S. person engaged in dealing activity counts transactions that it is required to include in its dealer
• Is this proposed approach to applying Title VII to transactions connected with a non-U.S. person's security-based swap dealing activity that it (or its agent) arranges, negotiates, or executed using personnel located in a U.S. office workable in light of the approach set forth in the CFTC Staff Advisory? Why or why not?
Under Exchange Act rule 3a71-5, a non-U.S. person, other than a conduit affiliate, is not required to include in its
We are proposing to amend rule 3a71-5 by adding new paragraph (c) to make this exception unavailable to transactions that non-U.S. persons would be required to count under proposed Exchange Act rule 3a71-3(b)(1)(iii)(C). We preliminarily believe that excepting such transactions would be inconsistent with the purposes underlying the requirement that a non-U.S. person include transactions arranged, negotiated, or executed by personnel located in a U.S. branch or office in connection with its dealing activity in its
We request comment on all aspects of the proposed amendment regarding availability of the exception for cleared, anonymous transactions with respect to identifying security-based swap transactions that do not need to be included in the
• With respect to transactions that a non-U.S. person would be required to count under proposed rule 3a71-3(b)(1)(iii)(C), should there be an exception from counting such transactions if they are entered into anonymously on an SB SEF or national securities exchange and are cleared through a clearing agency? Why or why not?
• Do security-based swap transactions entered into anonymously on an SB SEF or national securities exchange and cleared through a clearing agency mitigate the risk of fraud or market abuse or other concerns with respect to transactions between two non-U.S. persons that are arranged, negotiated, or executed by personnel located in a U.S. branch or office? Why or why not?
In the Cross-Border Proposing Release, we proposed an approach to the application of the security-based swap dealer requirements set forth in section 15F of the Exchange Act that would classify each of these requirements either as entity-level requirements, which apply to the dealing entity as a whole, or as transaction-level requirements, which apply to specific transactions. In this taxonomy, entity-level requirements include requirements relating to capital and margin, risk management procedures, recordkeeping and reporting, supervision, and designation of a chief compliance officer.
We proposed generally to apply all requirements in section 15F of the Exchange Act, and the rules and regulations thereunder, to both registered U.S. and foreign security-based swap dealers.
We are re-proposing this exception, which, as originally proposed, incorporated the term “transaction conducted within the United States,” to reflect the re-proposed approach to identifying relevant security-based swap activity of registered foreign security-based swap dealers that they carry out using personnel located in the United States. We continue to believe that the foreign business of registered security-based swap dealers should be excepted from the external business conduct requirements of Title VII. We also preliminarily believe that it is desirable that the types of activities in the United States that trigger application of the external business conduct requirements to transactions of a registered foreign security-based swap dealer with another non-U.S. person should be identical to those that require a transaction to be included in a non-U.S. person's
Section 15F(h) of the Exchange Act requires the Commission to adopt rules specifying external business conduct standards for registered security-based swap dealers in their dealings with counterparties,
These standards, as described in section 15F(h)(3) of the Exchange Act, must require security-based swap dealers to: (i) Verify that a counterparty meets the eligibility standards for an eligible contract participant; (ii) disclose to the counterparty material information about the security-based swap, including material risks and characteristics of the security-based swap, and material incentives and conflicts of interest of the security-based swap dealer in connection with the security-based swap; and (iii) provide the counterparty with information concerning the daily mark for the security-based swap. Section 15F(h)(3) also directs the Commission to establish a duty for security-based swap dealers to communicate information in a fair and balanced manner based on principles of fair dealing and good faith and to establish other standards as the Commission determines are in furtherance of the purposes of the Exchange Act.
In addition, section 15F(h)(4) of the Exchange Act requires that a security-based swap dealer that “acts as an advisor to a special entity” must act in the “best interests” of the special entity and undertake “reasonable efforts to obtain such information as is necessary to make a reasonable determination” that a recommended security-based swap is in the best interests of the special entity.
We have proposed rules 15Fh-1 through 15Fh-6 under the Exchange Act to implement the business conduct requirements described above.
In the Cross-Border Proposing Release, we proposed a rule that would have provided that a registered foreign security-based swap dealer and a foreign branch of a registered U.S. security-based swap dealer, with respect to their foreign business, shall not be subject to the requirements relating to external business conduct standards described in section 15F(h) of the Exchange Act,
As described more fully in the Cross-Border Proposing Release, the proposed rule would have defined “U.S. business” and “foreign business” with respect to both foreign and U.S. security-based swap dealers. For a foreign security-based swap dealer, “U.S. business” would have been defined to mean (i) any transaction entered into, or offered to be entered into, by or on behalf of such foreign security-based swap dealer, with a U.S. person (other than with a foreign branch), or (ii) any transaction conducted within the United States.
We received relatively few comments specifically addressing our initially proposed approach to application of the external business conduct requirements to security-based swap dealers. One commenter disagreed with our proposed approach with respect to U.S. security-based swap dealers, arguing that all transactions of such persons must always be subject to external business conduct standards, including those conducted through their foreign branches with non-U.S. persons and foreign branches of U.S. banks.
Two commenters generally agreed with the initially proposed approach but suggested certain modifications to address specific concerns. One commenter generally agreed with the proposed approach that would not have imposed external business conduct
Another commenter argued that the definition of “U.S. business” should be limited to transactions with counterparties that are U.S. persons, and that this definition should apply to the business of U.S. and foreign security-based swap dealers.
We are re-proposing Exchange Act rule 3a71-3(c) regarding application of the external business conduct requirements, and proposing amendments to Exchange Act rule 3a71-3(a) to define certain terms to conform to the proposed amendments to Exchange Act rule 3a71-3(b)(1)(iii)(C), which identifies relevant security-based swap activity of registered foreign security-based swap dealers in which they engage using personnel located in the United States for purposes of the
This proposed approach to external business conduct standards would not except registered security-based swap dealers from the rules and requirements prescribed by the Commission pursuant to section 15F(h)(1)(B) of the Exchange Act with respect to their foreign business. As already noted, section 15F(h)(1)(B) requires registered security-based swap dealers to conform with such business conduct standards relating to diligent supervision as the Commission shall prescribe.
Specifically, our re-proposed amendment to Exchange Act rule 3a71-3(a) would modify the initially proposed definition of “U.S. business” with respect to foreign security-based swap dealers to refer to any security-based swap transaction arranged, negotiated, or executed by personnel of the foreign security-based swap dealer located in a U.S. branch or office, or by personnel of its agent located in a U.S. branch or office.
These changes are intended to clarify that the counterparty's activity in each such transaction must meet the definition of “transaction conducted through a foreign branch” set forth in Exchange Act rule 3a71-3(a)(3). These proposed changes are consistent with Exchange Act rule 3a71-3(b)(1)(iii)(A), which permits non-U.S. persons to exclude from the de minimis calculation transactions with U.S. persons, to the extent that such U.S. persons are engaging in transactions conducted through a foreign branch.
We continue to believe that a registered security-based swap dealer should be required to comply with the external business conduct requirements with respect to its U.S. business. The proposed external business conduct standards are intended to bring professional standards of conduct to, and increase transparency in, the security-based swap market and to require registered security-based swap dealers to treat parties to these transactions fairly. As noted above, the proposed rules would require, among other things, that registered security-based swap dealers communicate in a fair and balanced manner with potential counterparties and that they disclose conflicts of interest and material incentives to potential counterparties.
We recognize that, depending on the particular structure used by a registered foreign security-based swap dealer to do business in the United States, its personnel (or personnel of its agent acting on its behalf) in the United States may be subject to other business conduct requirements under U.S. law (such as broker-dealer regulation) that govern the professional interactions of such personnel or agents with counterparties to a security-based swap.
We note that, in Title VII, Congress has established a comprehensive framework of business conduct standards that applies to registered security-based swap dealers, and we preliminarily believe that this framework should govern their transactions with counterparties when such transactions raise transparency and market integrity concerns that are addressed by these requirements. Although other business conduct frameworks (such as broker-dealer regulation) may achieve similar regulatory goals, the availability of exceptions may mean that alternative frameworks may not apply to certain business structures used by registered security-based swap dealers to carry out their business in the United States.
We also note that imposing these external business conduct requirements on a registered foreign security-based swap dealer when it uses personnel located in a U.S. branch or office to arrange, negotiate, or execute security-based swaps with another non-U.S. person should mitigate competitive disparities between different categories of security-based swap dealers operating in the United States.
We have considered the views of the commenters that opposed imposing external business conduct requirements on transactions between a registered foreign security-based swap dealer and a non-U.S.-person counterparty,
We also disagree with the commenter that suggested that such transactions have an insufficient nexus to the United States to warrant application of the external business conduct requirements and that the external business conduct requirement should apply only to transactions with U.S.-person counterparties.
As noted above, we do not believe that our proposed approach applies Title VII to persons that are “transact[ing] a business in security-based swaps without the jurisdiction of the United States,” within the meaning of section 30(c) of the Exchange Act. An approach that did not treat security-based swaps that a registered foreign security-based swap dealer has arranged, negotiated, or executed using its personnel or personnel of its agent located in the United States as the “U.S. business” of that dealer for purposes of proposed Exchange Act rule 3a71-3(c) would, in our view, reflect an understanding of what it means to conduct a security-based swaps business within the jurisdiction of the United States that is divorced both from Title VII's statutory objectives and from the various structures that non-U.S. persons use to engage in security-based swap dealing activity. But in any event we also preliminarily believe that this proposed rule is necessary or appropriate as a prophylactic measure to help prevent the evasion of the provisions of the Exchange Act that were added by the Dodd-Frank Act, and thus help prevent the relevant purposes of the Dodd-Frank Act from being undermined.
Our re-proposed rule maintains our initially proposed approach to the foreign business of registered U.S. security-based swap dealers. We recognize that at least one commenter suggested that all transactions of a registered U.S. security-based swap dealer should be subject to the external business conduct requirements of Exchange Act section 15F,
We request comment on all aspects of the re-proposed rule regarding application of the external business conduct requirements to registered security-based swap dealers, including the following:
• The re-proposed rule would apply the external business conduct standards to transactions that a registered foreign security-based swap dealer arranges, negotiates, or executes using personnel located in a U.S. branch or office, even if the counterparty is also a non-U.S. person. Are the external business conduct rules appropriately applied in this release? Should the external business conduct rules be expanded to cover other transactions discussed in this release? Should some or all of the external business conduct standards not apply to these activities? Why or why not? Please be specific in identifying why the concerns addressed by the external business conduct requirements do not arise in this context.
• The re-proposed rule would not apply the external business conduct standards to the foreign business of any registered security-based swap dealer. Should some or all of the external business conduct standards apply to the foreign business of these registered entities? Why or why not? Please be specific as to what policy objectives would be advanced by subjecting transactions resulting from the foreign business of a registered security-based swap dealer to the external business conduct requirement.
• The re-proposed rule would not apply the external business conduct standards to a transaction of a registered U.S. security-based swap dealer that is a transaction conducted through a foreign branch (assuming that the counterparty is a non-U.S. person or is a U.S. person for whom the transaction is also a transaction conducted through a foreign branch). Should some or all of the external business conduct standards apply to these transactions? Why or why not?
• What types of controls would be necessary to identify foreign business and U.S. business and ensure that the registered security-based swap dealer complies with the external business conduct standards with respect to its U.S. business? How would this work as an operational matter? Should U.S. business be generally defined with reference to the type of activity that, if performed in a dealing capacity, triggers the registration requirement?
• Should some or all of the external business conduct rules apply in transactions between a registered foreign security-based swap dealer and a foreign branch of a U.S. bank? Why or why not?
• Should some or all of the external business conduct rules apply in transactions between a registered non-U.S. security-based swap dealer and a non-U.S. person whose obligations under a security-based swap are guaranteed by a U.S. person that is conducted outside the United States? Why or why not?
• What would be the market impact of the re-proposed approach to application of the customer protection requirements? Would non-U.S. persons that engage in dealing activities seek to relocate to locations outside the United States personnel who currently arrange, negotiate, and execute transactions from locations within the United States? Would the potential benefits of applying external business conduct requirements to transactions that are arranged, negotiated, or executed by a registered foreign security-based swap dealer in the United States reduce any incentives to relocate to locations outside the United States? What are the costs of such relocation? What factors would weigh against relocation in spite of those costs?
• How would the proposed application of the requirements affect the competitiveness of U.S. entities in the global marketplace (both in the United States as well as in foreign jurisdictions)? Would the proposed approach place any market participants at a competitive disadvantage or advantage? Why or why not? What other measures should we consider to implement the transaction-level requirements?
In light of our proposed amendment to Exchange Act rule 3a71-3(b), which would apply the
In the Cross-Border Proposing Release, we proposed to impose both mandatory clearing and trade execution on “transactions conducted within the United States,” subject to certain exceptions. Proposed rules 3Ca-3 and 3Ch-1 would have subjected such transactions to mandatory clearing (provided that we had issued a mandatory clearing determination with respect to the security-based swap) and mandatory trade execution (provided that the transaction had been made available to trade) if a person engaged in a security-based swap transaction that is a “transaction conducted within the United States,” as defined in initially proposed Exchange Act rule 3a71-3(a)(5).
In the Cross-Border Proposing Release, we re-proposed the entirety of Regulation SBSR, including rule 908(a) thereof, which, among other things, would have specified when a security-based swap was subject to the regulatory reporting and public dissemination requirements of Regulation SBSR.
We recently adopted rule 908(a)(1), which requires regulatory reporting and public dissemination of security-based swap transactions that (i) have a direct or indirect counterparty
We also previously proposed rule 908(b), which would have provided that, notwithstanding any other provision of Regulation SBSR, a person would not incur any obligation under Regulation SBSR unless the person is:
(1) a U.S. person;
(2) a security-based swap dealer or major security-based swap participant; or
(3) a counterparty to a transaction conducted within the United States.
Finally, in the Cross-Border Proposing Release, we re-proposed rule 901(a), which set forth a reporting hierarchy for identifying which side has a duty to report in a variety of transactions. This rule would have provided, among other things, that, in a transaction in which neither side included a security-based swap dealer or major security-based swap participant, if one side included a U.S. person while the other side did not, the side with the U.S. person would have been the reporting side; if both sides in such transaction included a U.S. person or neither side included a U.S. person, the sides would have been required to select the reporting side.
One commenter generally supported our proposed territorial approach to applying these requirements, noting that the requirements “would encompass any transaction with a U.S. person or within the U.S.”
At the same time, other commenters raised concerns about our proposed approach.
Market participants expressed a range of views regarding the application of mandatory clearing and mandatory trade execution to transactions of non-U.S. persons conducted within the United States. One commenter supported our proposed definition of “transaction conducted within the United States” together with our proposal to impose the clearing requirement on such transactions because this approach would help ensure that the security-based swap activity of offshore funds managed by U.S.-based investment managers is subject to our clearing requirements.
Other commenters opposed an activity-based application of mandatory clearing or trade execution. One market participant argued that conduct in the United States should not trigger the application of the clearing requirement because the test “is impractical, cannot be justified by cost-benefit analysis and exceeds the Commission's SBS authority under the Exchange Act.”
Commenters expressed divergent views regarding application of Regulation SBSR to transactions
As noted above, in response to the solicitation of comment on the CFTC Staff Advisory, commenters raised concerns specifically with respect to the application of the approach in that document to the CFTC's transaction-level requirements.
Some commenters suggested that only those CFTC transaction-level requirements directly relevant to the specific activities that the swap dealer carries out from a U.S. location should apply to the transaction, generally taking the view that the CFTC's regulatory interest extends only to counterparty-facing activities and not, for example, to the risk-mitigation aspects of Title VII.
Commenters also noted that a non-U.S.-person swap dealer using personnel or agents located in the United States to arrange, negotiate, or execute swap transactions generally would already be subject to regulation in its home jurisdiction.
Some commenters suggested that adoption of the CFTC Staff Advisory could present difficulties for, and impose costs on, non-U.S.-person counterparties of dealers, as such counterparties may not currently have systems in place for complying with certain CFTC requirements, particularly if they are imposed only because the swap dealer (and not the counterparty) happens to have carried out certain activities using personnel or agents
Some commenters indicated that adoption of the CFTC Staff Advisory would also disadvantage non-dealing counterparties. For example, one commenter argued that, were the CFTC Staff Advisory adopted, end users that trade with non-U.S. swap dealers might face competitive disadvantages.
After careful consideration of concerns raised by commenters and our further consideration of policy concerns relevant to the security-based swap market, we are not proposing to subject transactions between two non-U.S. persons to the clearing requirement (and, by extension, to the trade execution requirement
As we noted in the Cross-Border Proposing Release, because the financial risks of such a transaction reside outside the United States, “it is not necessary to apply the mandatory clearing requirement to a transaction between two non-U.S. persons solely” because the transaction involves activity in the United States.
On further consideration, however, we now preliminarily believe that we should not impose the clearing requirement on a security-based swap transaction between two non-U.S. persons where neither counterparty's obligations under the security-based swap are guaranteed by a U.S. person, even if the transaction involves one or more registered foreign security-based swap dealers. In our view, a key objective of the clearing requirement is to mitigate systemic and operational risk in the United States, but the counterparty credit risk and operational risk of such transactions reside primarily outside the United States.
We recognize that another commenter suggested that our initially proposed approach, which would have required a “transaction conducted within the United States” to be cleared, subject to certain exceptions, would help ensure that transactions of non-U.S.-person funds that are managed by U.S.-based investment managers are subject to the Title VII clearing requirement.
We recognize that, to the extent that a non-U.S. person using personnel located in a U.S. branch or office to arrange, negotiate, or execute security-based swap transactions in connection with its dealing activity is affiliated with a U.S. financial firm, the non-U.S. person's security-based swap exposures may pose risk to its U.S. affiliates in the United States, as U.S. entities that are affiliated with non-U.S. persons may determine for reputational reasons that they must support their non-U.S. affiliates at times of crisis.
We also preliminarily believe that requiring such security-based swap transactions to be cleared (and executed on a platform) would impose a significant burden on certain market participants. Some non-U.S. person counterparties may not currently have a direct or indirect relationship with a U.S.-registered clearing agency, and the burdens of establishing such a relationship may deter these non-U.S. persons—particularly those not engaged in dealing activity—from entering into security-based swap transactions with non-U.S. persons that, in connection with their dealing activity arrange, negotiate, or execute such transactions using personnel located in a U.S. branch or office.
Because such security-based swap transactions would not be subject to the clearing requirement, under our proposed approach they would also not be subject to mandatory trade execution. While we acknowledge that trading between two non-U.S. persons in the OTC market may indirectly affect liquidity available to market participants subject to mandatory trade execution,
We are proposing amendments to Regulation SBSR to address the application of the regulatory reporting and public dissemination requirements to certain transactions not addressed in the Regulation SBSR Adopting Release or the Regulation SBSR Proposed Amendments Release.
Section 13A(a)(1) of the Exchange Act
Section 13(m)(1)(B) of the Exchange Act
In the Regulation SBSR Adopting Release, we interpreted the regulatory reporting and public dissemination requirements to apply to security-based swaps that “exist, at least in part, within the United States”
We propose to amend rule 908(a)(1) of Regulation SBSR to include a provision that would require any security-based swap transaction connected with a person's security-based swap dealing activity that is arranged, negotiated, or executed by personnel of such non-U.S. person located in a U.S. branch or office—or by personnel of its agent located in a U.S. branch or office—to be reported to a registered SDR and publicly disseminated pursuant to Regulation SBSR.
We recognize that some commenters suggested that certain Title VII requirements, including the regulatory reporting and public dissemination requirements implemented by Regulation SBSR, should not apply to transactions between two non-U.S. persons even if they involve activity in the United States because of operational complications or potential regulatory overlap or duplication.
Requiring these transactions to be reported to a registered SDR should enhance our ability to oversee relevant activity related to security-based swap dealing occurring within the United States as well as to monitor market participants for compliance with specific Title VII requirements (including the requirement that a person register with the Commission as a security-based swap dealer if it exceeds the
Subjecting these transactions to the public dissemination requirements of Regulation SBSR should enhance the level of transparency in the U.S. security-based swap market, potentially reducing implicit transaction costs
We also are proposing to amend rule 908(a)(1) of Regulation SBSR by adding a provision that would require any security-based swap transaction that is executed on a platform
As noted above, our proposed amendments to Regulation SBSR focus on transactions that a non-U.S. person, in connection with its dealing activity, arranges, negotiates, or executes using personnel located in a U.S. branch or office rather than on the broader range of activity reflected in our proposed definition of “transaction conducted in the United States.” We preliminarily continue to believe, however, that a transaction executed on a platform that has its principal place of business in the United States also should be subject to Regulation SBSR, even when the transaction involves two non-U.S. persons that are not engaged in dealing activity in connection with the transaction. Transactions executed on a platform having its principal place of business in the United States are consummated within the United States and therefore exist, at least in part, in the United States.
Requiring these transactions to be reported should enable registered SDRs to have a complete record of all security-based swaps that are executed on platforms that have their principal place of business in the United States, which should enhance our ability to monitor these platforms, and activity in the security-based swap market more generally, for manipulation and other abusive practices.
We are also proposing to amend rule 901(a) of Regulation SBSR by adding a provision that would require the reporting and public dissemination of any security-based swap transaction that is effected by or through a registered broker-dealer (including a registered SB SEF).
To the extent that a registered broker-dealer intermediates a security-based swap transaction, we preliminarily believe that the transaction should be both reported to a registered SDR and publicly disseminated. Registered broker-dealers play a key role as intermediaries in the U.S. financial markets. To improve integrity and transparency in those markets, we believe that it is important that the Commission, and other relevant authorities, have ready access to detailed information about the security-based swap transactions that such persons intermediate. Furthermore, we preliminarily believe that public dissemination of such transactions will have value to participants in the U.S. security-based swap market, who are likely to trade the same or similar products.
In the Regulation SBSR Adopting Release, we adopted rule 908(a)(1)(i), which requires, among other things, public dissemination of all security-based swap transactions having a U.S.-person guarantor, including transactions in which the other side includes no counterparty that is a U.S. person, registered security-based swap dealer, or registered major security-based swap participant (a “covered cross-border transaction”).
In light of our determination to require all security-based swap transactions of U.S. persons, including all transactions conducted through a foreign branch, to be publicly disseminated, we preliminarily do not think that it would be appropriate to exempt covered cross-border transactions from the public dissemination requirement. As we have noted elsewhere, the transactions of a guaranteed non-U.S. person exist, at least in part, within the United States, and the economic reality of these transactions is substantially identical to transactions entered into directly by a U.S. person (including through a foreign branch).
Rule 908(b) of Regulation SBSR provides that, notwithstanding any other provision of Regulation SBSR, a person shall not incur any obligation under Regulation SBSR unless it is a U.S. person, a registered security-based swap dealer, or a registered major security-based swap participant.
Consistent with the proposed amendments described above, and so that at least one counterparty to a transaction that is subject to Regulation SBSR has an obligation to report the transaction to a registered SDR, we are proposing to add subparagraph (5) to rule 908(b) to include a non-U.S. person that, in connection with such person's security-based swap dealing activity, arranged, negotiated, or executed the security-based swap using its personnel located in a U.S. branch or office, or using personnel of its agent located in a U.S. branch or office.
Rule 901(a)(2)(ii) of Regulation SBSR establishes a reporting hierarchy that specifies the side that has the duty to report a security-based swap, taking into account the types of entities present on each side of the transaction.
Rule 901(a)(2) of Regulation SBSR does not assign reporting obligations for certain transactions having only unregistered entities on both sides of the transaction. In the Regulation SBSR Adopting Release, we specifically noted that we anticipated soliciting further comment regarding the duty to report a security-based swap where neither side includes a registered security-based swap dealer or a registered major security-based swap participant and neither side includes a U.S. person or only one side includes a U.S. person.
As noted above, and as discussed in the Regulation SBSR Adopting Release, one commenter raised concerns about burdens that the previously re-proposed reporting hierarchy might place on U.S. persons in transactions with certain non-U.S.-person counterparties.
Proposed rule 901(a)(2)(ii)(E)(2) is intended in part to address this concern when the non-U.S. person is engaged in dealing activity using personnel located in the United States. Under the proposed rule, in a transaction between such a non-U.S. person and a U.S. person, where neither side includes a registered security-based swap dealer or a registered major security-based swap participant, the sides would be permitted to select which side has the duty to report the transaction.
For similar reasons, proposed rule 901(a)(2)(ii)(E)(2) also provides that, in a transaction between two non-U.S. persons in which both sides include a non-U.S. person that is carrying out relevant security-based swap dealing activity using personnel located in a U.S. branch or office, as described in proposed rule 908(b)(5), the sides would be permitted to select which side has the duty to report the transaction. We preliminarily believe that, because both sides of such a transaction are engaging in dealing activity in the United States but both fall beneath the
With respect to transactions in which one side includes only unregistered non-U.S. persons that do not fall within proposed rule 908(b)(5) and the other side includes at least one unregistered non-U.S. person that does fall within proposed rule 908(b)(5) or one unregistered U.S. person, we preliminarily believe that it is appropriate to place the reporting duty on the side that includes the unregistered non-U.S. person that falls within proposed rule 908(b)(5) or the unregistered U.S. person.
Finally, we are proposing a rule that would provide that a registered broker-dealer (including a registered SB SEF) shall report the information required by rules 901(c) and 901(d) for any transaction in which neither side includes a U.S. person and neither side includes a non-U.S. person that falls within proposed rule 908(b)(5) but the security-based swap is effected by or through the registered broker-dealer (including a registered SB SEF).
Rule 900(u) defines a “participant” of a registered SDR as “a counterparty, that meets the criteria of [rule 908(b) of Regulation SBSR], of a security-based swap that is reported to that [registered SDR] to satisfy an obligation under [rule 901(a) of Regulation SBSR].” In the Regulation SBSR Proposed Amendments Release, we proposed to expand the definition of “participant” to include registered clearing agencies and platforms.
If we ultimately adopt both this amendment to rule 900(u) and the amendment proposed in the Regulation SBSR Proposed Amendments Release, “participant” would mean: “with respect to a registered security-based swap data repository, [ ] (1) A counterparty, that meets the criteria of § 242.908(b), of a security-based swap that is reported to that registered security-based swap data repository to satisfy an obligation under § 242.901(a); (2) a platform that reports a security-based swap to that registered security-based swap data repository to satisfy an obligation under § 242.901(a); (3) a registered clearing agency that is required to report to that registered security-based swap data repository whether or not it has accepted a security-based swap for clearing pursuant to § 242.901(e)(1)(ii); or (4) a registered broker-dealer (including a registered security-based swap execution facility) that is required to report a security-based swap to that registered security-based swap data repository by § 242.901(a).”
In the Regulation SBSR Adopting Release, we noted the importance of identifying whether a broker is involved in the execution of a security-based swap. Identifying the broker for a security-based swap will provide regulators with a more complete understanding of the transaction and could provide useful information for market surveillance purposes.
As described above, proposed rule 901(a)(2)(ii)(E)(4) would require a registered broker-dealer to report the information in rules 901(c) and 901(d) for any transaction between two unregistered non-U.S. persons that do not fall within rule 908(b)(5) where the transaction is effected by or through the registered broker-dealer. Because a security-based swap reported under rule 901(a)(2)(ii)(E)(4) will not have a reporting side, no one would have the obligation to report the information required by existing rule 901(d)(2). We preliminarily believe, however, that being able to identify any registered broker-dealer that effects a security-based swap transaction in the manner described in rule 901(a)(2)(ii)(E)(4) would enhance our understanding of the security-based swap market and would improve our ability, and the ability of other relevant authorities, to conduct surveillance of security-based swap market activities. We therefore propose to amend rule 901(d)(9) to assure that the identity of any such registered broker-dealer is included in the report of a security-based swap transaction reported pursuant to rule 901(a)(2)(ii)(E)(4). As proposed to be amended, rule 901(d)(9) would require reporting of “[t]he platform ID, if applicable, or if a registered broker-dealer (including a registered security-based swap execution facility) is required to report the security based swap by § 242.901(a)(2)(ii)(E)(4), the broker ID of that registered broker-dealer (including a registered security-based swap execution facility).”
Under the proposed amendment to rule 900(u) described above,
We propose to make a similar amendment to rule 907(a)(6). In the Regulation SBSR Proposed Amendments Release, we proposed to amend this rule to require a registered SDR to have policies and “[f]or periodically obtaining from each participant other than a platform or a registered clearing agency information that identifies the participant's ultimate parent(s) and any participant(s) with which the participant is affiliated, using ultimate parent IDs and counterparty IDs.”
Rule 906(c) requires certain participants of a registered SDR to establish, maintain, and enforce written policies and procedures that are reasonably designed to ensure that the participant complies with any obligations to report information to a registered SDR in a manner consistent with Regulation SBSR. Rule 906(c) also requires participants covered by the rule to review and update their policies and procedures at least annually. In the Regulation SBSR Adopting Release, we stated that the policies and procedures required by rule 906(c) are intended to promote complete and accurate reporting of security-based swap information by SDR participants that are registered security-based swap dealers or registered major security-based swap participants.
In the Regulation SBSR Proposed Amendments Release, we proposed to amend rule 906(c) by extending the requirement to have such policies and procedures to platforms and registered clearing agencies.
We preliminarily believe that the proposed amendment to rule 906(c) should result in greater accuracy and completeness of the security-based swap transaction data reported to registered SDRs. Without written policies and procedures, compliance with reporting obligations of such a registered broker-dealer might depend too heavily on key individuals or unreliable processes. For example, if knowledge of the reporting function was not reflected in written policies and procedures but existed solely in the memories of one or a few individuals, compliance with applicable reporting requirements by the firm might suffer if these key individuals depart the firm. We preliminarily believe, therefore, that requiring participants that are registered broker-dealers that incur reporting obligations solely because they effect a transaction between two non-U.S. persons that do not fall within proposed rule 908(b)(5) to establish, maintain, and enforce written policies and procedures should promote clear, reliable reporting that can continue independent of any specific individuals. We further believe that requiring such a participant to establish, maintain, and enforce written policies and procedures relevant to its reporting responsibilities, as would be required by the proposed amendment to rule 906(c), would help to improve the degree and quality of overall compliance with the reporting requirements of Regulation SBSR.
Rule 908(c)(1) of Regulation SBSR describes the security-based swap transactions that potentially would be eligible for substituted compliance with respect to regulatory reporting and public dissemination of security-based swap transactions. Accordingly, substituted compliance would potentially be available for transactions that would become subject to Regulation SBSR pursuant to the proposed amendments described above, as the location of relevant dealing activity or of execution of the transaction would continue to be irrelevant for purposes of rule 908(c).
Rule 908(c)(1) does not condition substituted compliance eligibility on where a particular transaction was arranged, negotiated, or executed.
In adopting rule 908(c)(1), we noted that the final rule was consistent with our decision to solicit additional comments regarding whether to impose reporting or public dissemination requirements based solely on whether a transaction is conducted within the United States.
This approach would subject transactions that are arranged, negotiated, or executed by personnel located in a U.S. branch or office, in connection with a non-U.S. person's dealing activity, to regulatory reporting and public dissemination requirements in a manner consistent with Title VII, while mitigating the potential to duplicate compliance burdens. The proposed approach is also consistent with the determination in our final rule that certain transactions involving U.S.-person counterparties are eligible for substituted compliance (
We invite comment regarding all aspects of the proposed approach to clearing, trade execution, regulatory reporting, and public dissemination described here, as well as potential alternative approaches. Data and comment from market participants and other interested parties regarding the likely effect of the proposed approach and of potential alternative approaches will be particularly useful to us in evaluating potential modifications to the re-proposal.
In addition, we specifically request comment with respect to each of the requirements discussed above, as follows.
We seek comment on the re-proposed rule regarding application of mandatory clearing and trade execution in all aspects, including the following:
• Is it appropriate not to apply the clearing and trade execution requirements to transactions that a non-U.S. person, in connection with its dealing activity, arranges, negotiates, or executes using personnel located in a U.S. branch or office? Why or why not?
• What would be the likely market impact of our proposal not to subject such transactions to the clearing and trade execution requirements? How would this proposed approach affect the competitiveness of U.S. persons and other market participants in the global marketplace (both in the United States as well as in foreign jurisdictions)? How do you believe any competitive disparity that may result under our proposed approach should be addressed by our rules?
• Would there be any potential effect from our proposal on U.S. financial stability? If so, how should any such effect be addressed?
• Would there be any potential effect from our proposal on the liquidity available on any SB SEFs? If so, how should any such effect be addressed?
• To what extent do non-U.S. persons that are not engaged in security-based swap dealing but do enter into security-based swaps with dealers that use personnel located in the United States already have clearing relationships with clearing agencies located in the United States or with entities that may qualify for a substituted compliance determination? For such persons that do not already have such relationships, what costs and other burdens would be involved with establishing such relationships? To what extent would permitting substituted compliance as proposed in the Cross-Border Proposing Release address these concerns?
We request comment on all aspects of the proposed amendments to Regulation SBSR, including the following:
• Do you agree with the approach taken in the proposed amendments to rule 908(a) that a security-based swap should be subject to regulatory reporting and public dissemination regardless of the nationality or place of domicile of the counterparties if it is a transaction connected with a person's security-based swap dealing activity that is arranged, negotiated, or executed by personnel located in the United States? Why or why not?
• Do you agree with the approach taken in the proposed amendments to rule 908(a) that a security-based swap executed on a platform having its principal place of business in the United States should be subject to the regulatory reporting and public dissemination requirements? Why or why not?
• Do you agree with the approach taken in the proposed amendments to rule 908(a) that would subject a security-based swap effected by or through a registered broker-dealer (including a registered security-based swap execution facility) to the regulatory reporting and public dissemination requirements? Why or why not? Should transactions that would be required to be reported under the proposed amendments to rule 908(a) solely because they were effected by or through a registered broker-dealer (including a registered security-based swap execution facility) be required to be reported by a counterparty to the transaction, rather than by a registered broker-dealer (including a registered security-based swap execution facility), as proposed?
• Do you agree with the proposed amendment to the hierarchy of reporting obligations in rule 901(a)? Why or why
• Should we provide an exemption from Regulation SBSR's public dissemination requirement for transactions having a U.S. person guarantor in which the other side includes no counterparty (direct or indirect) that is a U.S. person, registered security-based swap dealer, or registered major security-based swap participant? Why or why not?
• What types of controls would be necessary to identify transactions required to be reported under rule 908(a)(1)(v)? How would this work as an operational matter? What are the costs and benefits associated with developing and maintaining such controls?
• As noted above, given the limitation on reporting duties set forth in rule 908(b) and in the proposed amendments to that rule, we expect that most, if not all, registered broker-dealers required to report under this proposed amendment would be U.S. persons intermediating security-based swap transactions between non-U.S. person counterparties and that such persons would be effecting transactions in security-based swaps from their offices in the United States. Is this expectation consistent with market practices by registered broker-dealers?
• Should a registered broker-dealer that is required to report transactions pursuant to rule 901(a)(2)(ii)(E)(4) be a participant of the registered SDRs to which they report? If not, how would a registered SDR ensure that such persons provide data in a format required by the registered SDR? Would a registered broker-dealer likely be required to be a participant of a registered SDR under existing rule 901(d) by virtue of its other security-based swap activity?
• Do you agree that the Commission should require reporting of the identity of any registered broker-dealer that effects a security-based swap for two non-U.S. person that do not fall within rule 908(b)(5)? Why or why not? If so, do you believe that the proposed amendment to rule 901(d)(9) is the appropriate way to accomplish that goal? Why or why not?
• Do you agree with the Commission's proposal to exclude registered broker-dealers that incur reporting obligations solely because they effect a transaction between two non-U.S. persons that do not fall within proposed rule 908(b)(5) from rule 906(b)? Why or why not?
• Do you believe that rule 906(c) should be expanded to include registered broker-dealers that incur reporting obligations solely because they effect a transaction between two non-U.S. persons that do not fall within proposed rule 908(b)(5)? Why or why not?
• What would be the costs to registered broker-dealers that would be subject to rule 901(a)(2)(ii)(E)(4) for establishing and maintaining policies and procedures under rule 906(c) to support compliance with Regulation SBSR? Are these registered broker-dealers likely to have affiliates that will become registered security-based swap dealers, which are already subject to rule 906(c)? If so, would these registered broker-dealers be able to reduce implementation burdens under rule 906(c) by adapting the policies and procedures of their affiliates for their own usage?
The proposed amendments and proposed rule would determine when a non-U.S. person whose obligations under a security-based swap are not guaranteed by a U.S. person and that is not a conduit affiliate is required to include in its dealer
We are sensitive to the economic consequences and effects, including costs and benefits, of our 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 rules being proposed today. These costs and benefits are discussed below and have informed the policy choices described throughout this release. Because of the attributes of the security-based swap market, the market's global nature, the concentration of dealing activity, and the ease with which dealers can relocate their operations to different jurisdictions, we preliminarily believe that the territorial approach to transactions proposed in these rules is consistent with the statutory focus of the Title VII framework for security-based swaps. Below, we discuss the likely economic effects of the proposed rules, including the assessment and programmatic costs and benefits. We also discuss the potential economic effects of certain alternatives to the approach taken by the proposed rules.
Under the proposed rules we preliminarily believe that non-U.S. persons would incur costs to assess whether their activities must be counted against
Because the proposed amendment would expand the scope of security-based swap transactions that non-U.S. persons would need to include in their
Estimating the number of additional non-U.S. persons that we expect to incur assessment costs as a result of the proposed amendment would require adding transactions arranged, negotiated, or executed by personnel located in the United States, including cleared anonymous transactions subject to proposed rule 3a71-5(c), to the set of transactions that these non-U.S. persons are currently required to count as a result of rule 3a71-3(b)(1)(iii) and computing the total notional value of these transactions. We cannot determine, based on the TIW transactions data, whether particular transactions were arranged, negotiated, or executed by personnel located in the United States. If we assume that all observable transactions of non-U.S.
The additional 15 non-U.S. persons that are likely to incur assessment costs associated with
Although foreign security-based swap dealers that are required to register under existing Exchange Act rule 3a71-3 would not be likely to incur assessment costs as a result of 3a71-3(b)(1)(iii), as this proposed rule would not affect their need to register as security-based swap dealers, they are included in our total estimate of 142 entities above. We have included them because they likely would incur identical assessment costs in order to identify transactions subject to those requirements under proposed Exchange Act rule 3a71-5(c), which imposes external business conduct requirements on the U.S. business of registered security-based swap dealers, and the proposed amendments to Regulation SBSR.
As noted above, we preliminarily believe that, as a result of the proposed rules, non-U.S. persons would incur costs to identify transaction activity that is relevant for
First, non-U.S. persons may perform assessments on a per-transaction basis, which some commenters have suggested could lead market participants to incur significant costs.
Accordingly, based on staff understanding regarding the development and modification of information technology (IT) systems that track the location of firm inputs, we preliminarily estimate the start-up costs associated with developing and modifying these systems to track the location of persons with dealing activity will be $410,000 for the average non-U.S. entity. To the extent that non-U.S. persons already employ such systems, the costs of modifying such IT systems may be lower than our estimate.
In addition to the development or modification of IT systems, we preliminarily believe that entities would incur the cost of $6500 per year on an ongoing basis for training, compliance, and verification costs.
Second, non-U.S. firms might additionally restrict personnel located in the United States from arranging, negotiating, or executing security-based swaps in connection with the non-U.S. firm's dealing activity with non-U.S.-person counterparties. Such restrictions on communication and staffing for the purposes of avoiding certain Title VII requirements would reduce the costs of assessing the territorial status of each trade, and may entirely remove the need for a system that assesses the location of personnel on a trade-by-trade basis. However, this reduction in assessment costs may be offset by the additional costs of duplicating personnel in foreign and U.S. locations.
While we do not currently have data necessary to precisely estimate these costs in total, we can estimate the costs of establishing policies and procedures to restrict communication between personnel located in the United States employed by non-U.S. persons (or their agents,) and other personnel involved in dealing activity. Based on staff experience, we preliminarily estimate that establishing policies would take a non-U.S. person approximately 100 hours and would cost approximately $28,300 for each entity that chooses this approach.
The costs of policies and procedures are based on burden estimates in the recent Nationally Recognized Statistical Rating Organizations; Final Rule, Exchange Act Release No. 72936 (August 27, 2014), 79 FR 55078 (September 15, 2015) (“NRSRO Adopting Release”). Specifically, we assume that the policies and procedures required to restrict communication between U.S. and non-U.S. personnel are similar to policies and procedures required to eliminate conflicts of interest under Rule 17g-5(c)(8).
We preliminarily believe that non-U.S. persons that primarily trade with non-U.S. persons on non-U.S. reference entities may be most likely to undertake this approach. However, because our access to TIW transactions data is limited to transactions in which at least one counterparty is U.S.-domiciled or the reference entity is a U.S. entity, we cannot at this time estimate the size of this set of participants.
Third, a dealer may choose to comply with applicable Title VII requirements, regardless of whether they in fact apply, to avoid assessing the locations of personnel involved with each transaction. This strategy may be preferred by a non-U.S. person engaged in dealing activity that expects few transactions involving other non-U.S. persons to be arranged, negotiated, and executed by personnel located outside the United States, such as a non-U.S. person that primarily trades in U.S. reference entities and generally relies on personnel located in the United States to perform market-facing activities. For these participants, the savings from not following policies and procedures developed for Title VII compliance purposes for the few transactions that do not involve dealing activity by personnel from a location in the United States might be less costly than the costs of implementing a system to track the locations of personnel on a trade-by-trade basis. Similarly, registered foreign security-based swap dealers may also prefer this approach, as they would only be required to comply with Title VII external business conduct requirements, and their security-based swap transactions, which would already be required to be reported under Regulation SBSR, also would be publicly disseminated.
We preliminarily believe that the same principles apply to non-U.S. persons that rely on agents to arrange, negotiate, or execute security-based swaps on their behalf. We anticipate that these agents of non-U.S. persons may employ any of the strategies above to comply with the proposed rules. Non-U.S. persons may rely on representations from their agents about whether transactions conducted on its behalf contained dealing activity by personnel from a location in the United States. This may occur on a transaction-by-transaction basis, or, if the agent complies with Title VII requirements by default, via a representation about the entirety of the agent's business.
We preliminarily believe that all the methods described above are likely to involve an initial one-time review of security-based swap business lines to help each entity determine which of the business structures outlined above is optimal. This review would encompass both employees of potential registrants as well as employees of agents used by potential registrants and would identify whether these personnel are involved in arranging, negotiating, or executing security-based swaps. The information gathered as a result of this review would allow a foreign security-based swap dealer to assess the revenues it expects to flow from transaction activity performed by personnel located in the United States. This information would also help these market participants form preliminary estimates about the costs associated with various alternative structures, including the trade-by-trade analysis outlined below. This initial review may be followed with reassessment at regular intervals or subsequent to major changes in the market participant's security-based swap business, such as acquisition or divestiture of business units. We preliminarily believe that this type of review of business lines would be similar in nature to the analysis needed to produce financial statements for a large financial institution. However, we acknowledge that evaluating alternative structures to determine costs associated with assessment and compliance may require additional legal analysis. We preliminarily estimate that the per-entity initial costs of a review of business lines would be approximately $102,000.
Additionally, we preliminarily believe that our proposed approach may impose certain costs on U.S. security-based swap dealers conducting business through a foreign branch, and registered broker-dealers (including registered SB SEFs) that intermediate trade in the security-based swap market. First, under the proposed approach, U.S. security-based swap dealers conducting business through a foreign branch will also need to classify their counterparties and transactions in order to determine what activity constitutes their foreign business. Based on analysis of 2014 TIW transactions data, we continue to estimate that no more than five security-based swap dealers will conduct dealing activity through foreign branches. Assuming that all such entities elect to establish a system to identify their foreign business, we preliminarily estimate the total assessment costs associated with the proposed approach to be approximately $75,000, with ongoing, annual costs of approximately $84,000.
Second, registered broker-dealers (including registered SB SEFs) may incur assessment costs in connection with proposed rule 901(a)(2)(ii)(E)(4). Under the proposed rule, these entities would be required to report security-based swap transactions that they intermediate if neither side includes a U.S. person; a registered security-based swap dealer or major security-based swap participant; or a non-U.S. person that arranged, negotiated, or executed the security-based swap using its personnel, or using personnel of its agent, in a U.S. branch or office. As a result, we preliminarily believe that these entities would be required to assess the nature of transactions they intermediate.
We preliminarily believe that assessment by registered broker-dealers (including registered SB SEFs) would require an analysis of their clients (in the case of registered-broker dealers that are not registered SB SEFs) and members (in the case of registered SB SEFs). We preliminarily believe that registered broker-dealers and SB SEFs are likely to collect information about the counterparties they serve and maintain these records as part of their existing business. On the basis of these existing data, registered broker-dealers and SB SEFs would be able to determine the U.S. person status, registration status, and the location of personnel of their clients and members (or the personnel of agents of their clients and members) that submit orders.
Further, we preliminarily believe that registered broker-dealers and SB SEFs may be able to determine, on the basis of their own business models or on the basis of activity they support, whether
As a result, we preliminarily believe that the assessment costs incurred by registered broker-dealer (including registered SB SEFs) are likely limited to an analysis of clients and members to identify the subset of clients and members whose trades they are obligated to report under the proposed rules, supported by systems that would record and maintain this information over time. We preliminarily believe that these costs are similar in nature to legal costs related to systems and analysis, as well as the direct costs of systems and analysis, discussed in the Cross-Border Proposing Release. We estimate that, as a result of the proposed rules imposing reporting obligations on registered broker-dealers (including SB SEFs), each of these entities would incur upfront costs of $45,304,
Finally, we preliminarily believe that this proposed approach mitigates the concerns of some commenters regarding the costs associated with the use of the defined term “transactions conducted within the United States” as originally proposed in the Cross-Border Proposing Release.
We request comment on all aspects of the re-proposed rule regarding its economic analysis of the application of the
• We have preliminarily estimated assessment costs associated with determining whether transaction activity is arranged, negotiated, or executed using personnel, or the personnel of agents, located in a U.S. branch or office on a transaction-by-transaction basis, by identifying market-facing personnel involved in each transaction. Are these estimates reasonable with respect to both the use of a non-U.S. person's personnel and of its agent's personnel? Please provide data that would assist us in making more accurate estimates of these assessment costs.
• We have preliminarily suggested that some non-U.S. persons might comply with Title VII by default to reduce assessment costs. Is this suggestion reasonable? Please provide data that would assist us in making more accurate estimates of the assessment costs in these situations.
• We have preliminarily suggested that non-U.S. market participants would review business lines to determine which compliance and assessment program is optimal. Are non-U.S. market participants likely to carry out such reviews under the proposed rules? Please provide data that would assist us in computing estimates of the costs of these reviews on an ongoing basis.
• Are there alternative methods that market participants may use to comply with the proposed rules other than those described above? If so, please describe the method and the costs of such method.
• Under the proposed rules, registered brokers-dealers (including registered SB SEFs) would be required to report certain transactions to a registered SDR. Please provide any additional information or data that would assist us in estimating the assessment costs such registered broker-dealers (including registered SB SEFs) may incur in determining their obligation to report.
• We have preliminarily suggested that registered broker-dealers (including registered SB SEFs) would require an analysis of their clients (in the case of registered broker-dealers) and members (in the case of registered SB SEFs), for purposes of reporting transactions pursuant to proposed rule 901(a)(2)(ii)(E)(4). We stated that we preliminarily believe that registered broker-dealers and SB SEFs are likely to collect information about the counterparties they serve and maintain these records as part of their existing business and that registered broker-dealers and SB SEFs would be able to determine the U.S.-person status, registration status, and the location of personnel of their clients and members (or the personnel of agents of their clients and members) that submit orders. Please provide comments as to whether registered broker-dealers and SB SEFs will be able to determine the U.S.-person status, registration status, and location of personnel of their clients and members (or the personnel of agents of their clients and members) that submit orders. Please explain why or why not.
• We have stated that we preliminarily believe that registered broker-dealers and SB SEFs may be able to determine, on the basis of their own business models or on the basis of activity they support, whether their unregistered non-U.S. clients' and members' transactions are a result of dealing activity, enabling them to identify which transactions of unregistered non-U.S. persons are connected with that non-U.S. person's dealing activity and should be reported. Please provide comments as to whether registered broker-dealers and SB SEFs may be able to make this determination. Please explain why or why not.
Programmatic costs and benefits arise from applying substantive regulation to those transactions and entities that fall within the scope of the Title VII regulatory regime.
Under our proposed amendment, a non-U.S. person that, in connection
Because the set of market participants that are subject to dealer regulation, including entity-level requirements under Title VII, will determine the allocation and flow of programmatic costs and benefits arising from these Title VII requirements, the inclusion of these transactions would affect the ultimate costs and benefits of our transaction-level and entity-level rules. At this time, we are unable to precisely estimate the number of potential new dealers that would be required to register because we cannot observe in the data the location of entities' dealing activity. If we assume that all security-based swap dealing activity takes place in the United States, then we currently estimate that no additional entities would be required to register as a result of this proposed rule.
If these proposed rules regarding the
Furthermore, status as a security-based swap dealer brings with it specific responsibilities that are categorized as programmatic costs with respect to certain other Title VII requirements. For example, Regulation SBSR places registered security-based swap dealers at the top of the reporting hierarchy for uncleared transactions.
Finally, certain elements of the Title VII regulatory regime may apply to the existing business of entities that are regulated as security-based swap dealers because they apply not only to transaction activity that cause an entity to meet the definition of a security-based swap dealer, but also to other transaction activity in which the entity participates. Entities that are required to register as security-based swap dealers under rule 3a71-3(b) incur, for example, not only the programmatic costs of external business conduct requirements for their transactions arranged, negotiated, or executed by personnel located in the United States in connection with their dealing activity, but would also be required to comply with external business conduct requirements with respect to all transactions that would be “U.S. business” under the proposed rules. As a result, they may need to develop systems or personnel, such as the designation of a chief compliance officer or the development of recordkeeping and reporting systems, for compliance purposes with respect to their U.S. business.
Registered security-based swap dealers must comply with external business conduct requirements. Proposed rule 3a71-3(c) would limit application of these external business conduct requirements to the U.S. business both of registered foreign security-based swap dealers and of registered U.S. security-based swap dealers, rather than applying the requirements to all transactions of such dealers.
Requiring registered security-based swap dealers to comply with external business conduct requirements with respect to their U.S. business would have two major benefits. First, this requirement would apply to all transactions that constitute U.S. business, as defined under the proposed amendment, requirements that would reduce information asymmetries
Second, requiring registered foreign security-based swap dealers to comply with external business conduct requirements with respect to their U.S. business should facilitate more uniform regulatory treatment of the security-based swap activity of registered security-based swap dealers operating in the United States.
We recognize that adjusting the scope of transactions subject to external business conduct requirements may affect the programmatic costs incurred by participants in the security-based swap market. For entities already required to register as security-based swap dealers under current rules, the proposed rules adjust the set of transactions and counterparties to which they must apply external business conduct requirements. To the extent that the proposed rules add counterparties and their transactions to this set, registered security-based swap dealers will incur additional costs for each additional transaction.
Proposed amendments to Regulation SBSR would require certain transactions in connection with a person's dealing activity, where that person arranged, negotiated, or executed the transaction using personnel located in a U.S. branch or office, to be reported to a registered SDR and publicly disseminated. The proposed amendments would also assign reporting duties in certain transactions and further delineate limitations on reporting obligations of non-registered persons engaged in security-based swaps subject to Regulation SBSR. Additionally, the proposed amendments add provisions that would require any security-based swap transaction that is either executed on a platform having its principal place of business in the United States or effected by or through a registered broker-dealer both to be reported to a registered SDR and to be publicly disseminated pursuant to Regulation SBSR.
Public dissemination of security-based swap transaction data may result in several programmatic benefits for the security-based swap market, such as improvements to liquidity and risk allocation by reducing the information asymmetries in a security-based swap market where activity is concentrated among a small number of dealers.
Regulatory reporting of transaction data to registered SDRs should enable us to gain a better understanding of the security-based swap market, including the size and scope of that market. This data should enable us to identify exposure to risks undertaken by individual market participants or at various levels of aggregation, as well as credit exposures that arise between counterparties. Additionally, regulatory reporting will help the Commission in the valuation of security-based swaps. Taken together, regulatory data will enable us to conduct robust monitoring of the security-based swap market for potential risks to financial stability.
Regulatory reporting of security-based swap transactions should also improve our ability to oversee the security-based swap market and to detect and deter market abuse. We will be able, for example, to observe trading activity at the level of both trading desk and individual trader, using trading desk IDs and trader IDs, respectively. This ability to aggregate the information contained in registered SDRs using Unique Identification Codes facilitates our ability to examine for noncompliance and pursue enforcement actions as appropriate.
On the other hand, as discussed in the Regulation SBSR Adopting Release, other jurisdictions continue to develop rules related to post-trade transparency of security-based swaps at a different pace, and we are aware that the rules of these other regimes may result in increasing incentives for non-U.S. market participants to avoid contact with U.S. counterparties to avoid effecting transactions by or through
Application of regulatory reporting requirements under the proposed amendments to rules 901 and 908 would likely impose costs on non-U.S. persons while providing benefits to the security-based swap market more generally. We preliminarily believe that the approach proposed in this release is responsive to the views of commenters.
Nevertheless, we acknowledge that under the proposed rules and amendments, non-U.S. persons would bear costs of reporting insofar as they are allocated reporting responsibilities within the hierarchy laid out in proposed rule 901(a)(2)(ii)(E), and if they fall within the set of non-U.S. persons whose transactions are required to be reported under rule 908(a). Additionally, registered broker-dealers would incur reporting costs when they are involved in transactions between non-U.S. persons that do not fall within proposed rule 908(b)(5). In the Regulation SBSR Adopting Release, we estimated that 300 parties would incur costs associated with reporting transactions to registered SDRs.
As noted above, we currently lack data necessary to estimate with precision the number of non-U.S. persons that, in connection with their dealing activity, arrange, negotiate, or execute security-based swaps using personnel located in the United States or execute security-based swaps on a platform with its principal place of business in the United States, or the number of registered broker-dealers that intermediate security-based swap transactions, and, as a result, cannot precisely estimate the number of additional non-U.S. persons that might incur reporting obligations under this proposal. However, assuming that all observable transaction activity is arranged, negotiated, or executed using personnel located in the United States, we estimate that 90 persons would become subject to regulatory reporting requirements under the proposed rules, involving approximately 2,700 transactions and $18.5 billion in notional value.
Further, we preliminarily believe it is reasonable to increase our estimates of transaction counts and notional volume by a factor of 1.6 to account for data limitations. First, our access to single-name CDS data is limited to activity involving one U.S. counterparty or involving CDS written on U.S. reference entities. We estimated that this limitation prevents us from observing approximately 23% of transactions.
Further we assume that 20% of these transactions would be reported by registered-broker dealers pursuant to 901(a)(2)(ii)(E)(4) and so no reporting of life-cycle events would be required. We use data in the Regulation SBSR Adopting Release to develop our estimate of the number of events that are not life-cycle events.
We preliminarily believe that regulatory reporting of transactions that are arranged, negotiated, or executed using personnel located in a U.S. branch or office or effected through a registered broker-dealer would have benefits for the security-based swap market. Increasing the scope of security-based swap transactions subject to regulatory reporting would likely extend the programmatic benefits of regulatory reporting discussed in the Regulation SBSR Adopting Release by giving us a more complete view of transactions activity within the United States.
Regulatory reporting and public dissemination of transaction data may entail two types of costs for security-based swap market participants. First, as detailed below, requiring non-U.S. persons with dealing activity in the United States to comply with the Title VII reporting requirements even if they are not registered security-based swap dealers may entail additional costs for recordkeeping, supervision, and compliance. As some portion of these costs may be fixed, security-based swap market participants with smaller volume may be more adversely affected than larger ones. A second type of cost may fall on non-U.S. persons, including registered foreign security-based swap dealers, that wish to execute large orders or execute orders in particularly illiquid contracts. Public dissemination of these types of transactions, either because they involve security-based swap dealing activity in the United States or because they are effected through a registered broker-dealer, may increase the costs of hedging the inventory risk generated by such transactions because it may signal the direction of future order flow to potential counterparties to hedging transactions. As we noted in the Regulation SBSR Adopting Release, staff analysis of recent transactions in single-name CDS suggests that the impact of public dissemination on large transactions may be limited in light of the interim approach to public dissemination that allows up to a 24-hour delay before transactions data is made public.
The proposed amendments to Rule 901 would assign reporting duties in certain transactions and we preliminarily believe that these duties would result in costs for U.S. and non-U.S. persons and registered broker-dealers (including registered SB SEFs) that incur a duty to report. We estimated the costs of reporting on a per-entity basis in the Regulation SBSR Adopting Release and we preliminarily believe that these proposed rules would not affect these costs. We preliminarily believe that additional persons required to report by the proposed amendments would incur costs associated with establishing internal order management systems of approximately $102,000. These entities with reporting duties would also have to establish and maintain connectivity to a registered SDR at a cost (initial and ongoing) of approximately $200,000. We preliminarily believe that these persons would incur costs associated with establishing a reporting mechanism for security-based swaps of approximately $49,000. We preliminarily estimate that the ongoing costs of internal order management would be $77,000 per year, per reporting side, and the annual and ongoing costs of storage of $1,000 per year, per reporting side. The Commission preliminarily believes that under the proposed amendments, entities with reporting duties would incur costs of approximately $54,000 per reporting side to establish an appropriate compliance and support program for regulatory reporting. We further estimate that such a program would require approximately $38,500 per year in annual spending by each reporting side. In aggregate, the costs of rule 901 for persons required to report under the proposed amendments in the first year would be approximately $521,500 and the annual ongoing costs would be approximately $316,500.
As discussed in the Regulation SBSR Adopting Release, we preliminarily estimated and continue to believe that the burden of reporting additional transactions once a respondent's reporting infrastructure and compliance systems are in place would be minimal when compared to the costs of putting those systems in place and maintaining them over time.
Besides incurring costs in connection with reporting responsibilities under rule 901, we preliminarily believe that the proposed rules would also require certain non-U.S. persons and registered broker-dealers to incur costs associated with error reporting under rule 905. As we noted in the Regulation SBSR Adopting Release, requiring participants to promptly correct erroneous transaction information should help ensure that the Commission and other relevant authorities have an accurate view of the risks in the security-based swap market. We preliminarily believe that non-U.S. persons that incur reporting obligations under the proposed amendments would incur an initial cost of $11,825 per reporting side and an ongoing cost of $4,000 per reporting side.
These figures suggest aggregate initial costs of $1,419,000 and ongoing costs of $480,000.
We preliminarily believe that, in addition, the 540 additional transactions effected by or through registered broker-dealers may impose costs on participants that are associated with notifying registered broker-dealers after discovery of an error as required under rule 905(a)(1). We preliminarily estimate an annual cost associated with this obligation of approximately $17,280, which corresponds to roughly $576 per participant.
Finally, the proposed amendments to rule 906 may impose costs on registered broker-dealers that must report transactions to satisfy an obligation under proposed rule 901(a)(2)(ii)(E)(4). Under proposed amendments to rule 906(c), these registered broker-dealers would be required to establish, maintain, and enforce policies and procedures that are reasonably designed to ensure that it complies with any obligations to report information to a registered SDR in a manner consistent with Regulation SBSR. Further, these registered broker-dealers would be required to review these policies and procedures at least annually. We preliminarily estimate that the cost associated with establishing such policies and procedures would be approximately $58,000 and the cost associated with annual updates would be approximately $34,000, for each registered broker-dealer that incurs an obligation to report transactions under our proposed approach.
Our analysis of the proposed rules' potential impacts on efficiency, competition, and capital formation begins by considering the effects the proposed rules may have on the scope of participants subject to dealer requirements under Title VII. Following this discussion, we examine potential effects of the proposed rules related to their effect on the application of Regulation SBSR.
We note that the proposed rules and amendments would, if adopted, affect the security-based swap market in a number of ways, many of which are difficult to quantify, if not unquantifiable. In particular, a number of the potential effects that we discuss below are related to price efficiency, liquidity and risk sharing. These effects are difficult to quantify for a number of reasons. First, in many cases the effects are contingent upon strategic responses of market participants. For instance, we note in Section VI.B.4(b)i,
Not only can some of these effects be difficult to quantify, but there are many cases where a rule will have two opposing effects, making it difficult to estimate a net impact on efficiency, competition, or capital formation. For example, in our discussion of the net effect of the proposed application of Regulation SBSR requirements on efficiency, we expect that post-trade transparency may have a positive effect on price efficiency, while it may negatively affect liquidity by providing incentives for non-U.S. persons to avoid contact with U.S. persons. The magnitude of these two opposing effects will depend on factors such as the sensitivity of traders to information about order flow, the impact of public dissemination of transaction information on the execution costs of large orders, and the ease with which non-U.S. persons can find substitutes that avoid contact with U.S. personnel. Each of these factors is difficult to quantify individually, which makes the net impact on efficiency equally difficult to quantify.
The proposed rules and amendments related to the treatment of transactions arranged, negotiated, or executed by personnel located in the United States for the purposes of
The proposed rules and amendments may directly affect efficiency, competition, and capital formation because the requirement that non-U.S. persons include in their
These costs may represent barriers to entry for non-U.S. persons that contemplate engaging in dealing activity using their own personnel or personnel of their agents located in a U.S. branch or office or provide incentives for non-U.S. persons that currently engage in relevant activity using personnel located in a U.S. branch or office to restructure their business and move operations abroad or use agents with personnel outside of the U.S.
We acknowledge that, to the extent that it occurs solely for the purposes of avoiding Title VII regulation, reduced market entry or restructuring by non-U.S. persons responding to our proposed approach, or by agents unable to compete for business from non-U.S. persons, may be inefficient, raise costs to market participants and reduce the level of participation by personnel of non-U.S. persons located in the United States, or personnel of their agents located in the United States.
We also preliminarily believe that the proposed rules and amendments would affect competition among security-based swap dealers. Under proposed Exchange Act rule 3a71-3(b)(iii)(C), U.S. persons would have to count their dealing activity towards their
As with the proposed amendment that would require non-U.S. persons to count transactions arranged, negotiated, or executed by personnel located in a U.S. branch or office towards
Alternatively, the proposed rule may result in inefficient restructuring to move the arrangement, negotiation, and execution of cleared, anonymous transactions abroad, in order to avoid activities that would require counting towards
The proposed rules regarding the regulatory reporting, public dissemination and external business conduct requirements for transactions arranged, negotiated, or executed by personnel located in a U.S. branch or office would have several effects on efficiency, competition, and capital formation in the U.S. financial market. These effects implicate common economic themes and warrant a consolidated discussion.
The application of public dissemination as set forth in the proposed rule may improve the efficiency of the price discovery process and improve the liquidity of traded security-based swaps. Market participants with more information about the history of prices due to enhanced post-trade transparency will be better able to price security-based swaps, and as a result make better trading decisions. Market observers will be able to incorporate information from the security-based swap market to derive valuations for other assets that are more accurate.
We preliminarily believe that the magnitude of these efficiency improvements is related to the number of transactions subject to public dissemination. Data from more transactions may allow market participants and observers to derive more precise estimates of fundamental value. As a result, to the extent that the proposed rules increase the scope of security-based swap transactions subject to public dissemination, they may result in more efficient pricing and valuation within and without the security-based swap market.
At the same time, we recognize that particular Title VII requirements may affect efficiency through their effects on the ability of security-based swap
However, we also acknowledge that the proposed rules may provide incentives for non-U.S. persons to move their operations and personnel abroad to avoid external business conduct, regulatory reporting, and public dissemination requirements. If, under the proposed rules, non-U.S. security-based swap market participants relocate their sales forces and trading desks to other jurisdictions, less liquidity may be available within the United States, reducing the efficiency of prices and risk sharing. U.S. counterparties may find it difficult to take desired positions in security-based swaps if their access to non-U.S. liquidity providers is limited or more costly. For example, if U.S. persons seeking to hedge risk using security-based swaps have difficulty obtaining liquidity solely from U.S. providers, they may reduce their hedging activity in the security-based swap market, seek substitutes in other asset markets, or assume an inefficient amount of risk.
As an alternative to relocating personnel, we acknowledge that participants may implement or adapt existing controls or conventions that restrict communication between non-U.S. trading personnel and persons located in the United States to avoid triggering certain Title VII requirements. For example, firms may adopt policies restricting personnel located outside the United States from communicating with personnel located in the United States when engaging in dealing activity with non-U.S.-person counterparties. Non-U.S. firms might additionally restrict personnel located in the United States from arranging, negotiating, or executing security-based swaps in connection with the non-U.S. firm's dealing activity with non-U.S.-person counterparties.
Although non-U.S. persons may voluntarily impose internal conventions and controls on their own personnel to avoid triggering certain Title VII requirements, these conventions and controls may result in inefficient duplication of personnel or expertise in foreign and U.S. locations. Non-U.S. persons may choose to impose controls on personnel if the costs of duplication are below the costs of applying Title VII to relevant activity,
Similarly, we preliminarily believe that our proposed approach more consistently applies regulatory reporting and public dissemination requirements to transactions effected by or through trading platforms and registered broker-dealers, including registered SB SEFs. Both trading platforms and registered broker-dealers may intermediate transactions in the security-based swap market. By ensuring that both types of intermediation are subject to regulatory reporting and public dissemination requirements, the proposed approach reduces the risk that, as a result of disparate treatment, liquidity migrates from trading platforms to registered broker-dealers or from registered broker-dealers to trading platforms. However, at the same time, we acknowledge the risk that, in response to the proposed rules and amendments, trading platforms may choose to move their principal place of business offshore and registered broker-dealers may move their security-based swap businesses into unregistered entities to avoid regulatory reporting requirements.
Attempts to restructure by counterparties, trading platforms and registered broker-dealers could have an adverse effect on the efficiency of the security-based swap market by fragmenting liquidity between a U.S. security-based swap market, occupied by U.S. persons and non-U.S. persons willing to participate within the Title VII regulatory framework, with intermediation services provided by registered broker-dealers and U.S.-based trading platforms, and an offshore market whose participants seek to avoid any activity that could trigger application of Title VII to their security-based swap activity.
We preliminarily believe that our proposed approach would have implications for competition among market participants that intermediate transactions in security-based swaps as well as counterparties to security-based swaps. First, the proposed rules and amendments to rules 901 and 908 would apply consistent regulatory reporting and public dissemination requirements to transactions between non-U.S. persons that are platform-
Applying external business conduct requirements and Regulation SBSR to transactions in connection with a non-U.S. person's dealing activity that the non-U.S. person arranges, negotiates, or executes using personnel located in the United States would mitigate competitive frictions between U.S. and non-U.S. persons
We are not proposing, however, to apply the clearing and trade execution requirements to security-based swap transactions that a non-U.S. person, in connection with its dealing activity, arranges, negotiates, or executes using personnel located in a U.S. branch or office. This aspect of our proposal may contribute to a disparity in the regulatory treatment of U.S. persons and non-U.S. persons in the security-based swap market, as non-U.S. persons that engage in dealing activity using personnel located in the United States would only be subject to Title VII dealer regulation and Regulation SBSR, while U.S. persons would also be required to comply with the clearing and trade execution requirements. If clearing and trade execution requirements comprise a large portion of the Title VII compliance costs, then a competitive disparity between U.S. and non-U.S. participants in the security-based swap market may remain, even with the addition of the proposed rules. However, to the extent that U.S. persons and non-U.S. persons whose obligations under a security-based swap are guaranteed by U.S. persons must increase the price of the liquidity they supply in response to this disparity in regulatory treatment, we preliminarily believe that these higher prices reflect an efficient allocation of the costs their activity may impose on the U.S. financial system, given that the counterparty credit risk of such security-based swap transactions resides primarily in the United States.
The proposed rules may affect capital formation in the security-based swap and securities market by affecting the transparency, liquidity, and stability of the market. Requiring transactions by non-U.S. persons, in connection with their dealing activity, with relevant activity in the United States to be reported and publicly disseminated should facilitate monitoring of the security-based swap market and improve the price discovery process and the liquidity of security-based swaps.
We recognize that the effects of the proposed rule on market fragmentation may affect capital formation. If the proposed rules reduce the likelihood of fragmentation of the security-based swap market, then they may promote capital formation. Under a regulatory environment that facilitates U.S. persons' access to the global security-based swap market, U.S. market participants will be able to more efficiently hedge financial and commercial risks, reducing the level of precautionary savings they choose to hold and instead investing resources in more productive assets. However, if the proposed rules cause non-U.S. persons to move personnel and operations abroad or use agents operating outside the United States, the costs of the move represent resources that could have been invested in productive assets. Furthermore, to the extent that such restructuring results in a fragmented market with reduced liquidity for security-based swaps and related assets within the United States, the result could be less risk sharing and impaired capital formation.
The Commission requests comment on all aspects of our discussion and analysis concerning programmatic costs and benefits, and potential impacts, of the proposed rule on efficiency, competition, and capital formation, including the following:
• Does our discussion above accurately characterize, qualitatively and quantitatively, the incentives for entities to restructure in the absence of, or as a result of, the proposed rules? Please explain and provide information that would be helpful in performing further analysis.
• Does our discussion above accurately characterize, qualitatively and quantitatively, the benefits and
• Our proposal does not retain an exception for cleared, anonymous transactions that would exclude these from the
• Does our discussion above accurately characterize, qualitatively and quantitatively, the benefits and costs of application of Title VII requirements to transactions between two non-U.S. persons in which at least one of the non-U.S. persons, in connection with its security-based swap dealer activity, arranges, negotiates, or executes the security-based swap using personnel located in the United States? Please explain and provide information that would be helpful in performing further analysis.
In developing these proposed rules and amendments we considered a number of alternative approaches. This section outlines these alternatives and discusses the potential economic effects of each.
In the Cross-Border Proposing Release, we originally proposed the definition “transaction conducted within the United States” and used it to identify (i) transactions that should be included in an entity's
We have determined to propose a different approach in part because we preliminarily agree with commenters that the initial approach likely would have increased assessment costs significantly.
We also considered not requiring a non-U.S. person to include a transaction in its
Although the Cross-Border Adopting Release stated that we contemplated considering whether to subject certain security-based swap transactions involving activity in the United States to certain Title VII requirements, one alternative to the proposed rules would be not to require any transactions other than those required in rule 3a71-3 to be counted toward a person's dealer
The absence of an activity-based test may also adversely affect competition between U.S. and non-U.S. persons. Under current rules, the disparity in regulatory treatment means U.S. and non-U.S. persons will face disparate regulatory costs even if both engage in dealing activity using personnel located in a U.S. office. Non-U.S. persons or their agents transacting with other non-U.S. persons or their agents in the United States would potentially be able to provide liquidity at lower cost than U.S. persons because of differing regulatory treatment in other jurisdictions. As a result, non-U.S. persons could prefer to transact with non-U.S. persons or their agents, and a substantial portion of liquidity from non-U.S. persons may become unavailable to U.S. persons.
As we discuss above in Section V.D, we are not proposing to require
However, we preliminarily believe that this policy choice would adversely affect efficiency and increase the risk of market fragmentation. We preliminarily believe that imposing the clearing and execution requirements may impose unnecessary costs on certain non-U.S. market participants in relation to the risks posed by their activity to the United States. For example, these requirements may require non-U.S. persons and their agents to form new relationships with clearing agencies and trading platforms in the United States. Given that the risk to the U.S. financial system in the security-based swap transactions at issue in this release resides with non-U.S. persons with no recourse guarantee against U.S. persons, we preliminarily believe that any potential risk posed to the U.S. financial system does not warrant imposing clearing and trade execution requirements on these security-based swap transactions. In particular, we preliminarily believe that the margin requirements for foreign security-based swap dealers, which we have proposed to apply on an entity-level basis, would be sufficient to address the risk to the U.S. from non-U.S. persons with no recourse guarantee against U.S. persons and that the costs of the margin requirement would be commensurate to the risks involved.
Certain provisions of our proposal contain “collection of information”
We are proposing amendments to previously adopted Regulation SBSR, which contained 12 collections of information.
The hours and costs associated with complying with Regulation SBSR constitute reporting and cost burdens imposed by each collection of information. We preliminarily believe that the methodology used for calculating the paperwork burdens set forth in the Regulation SBSR Adopting Release is appropriate for calculating the paperwork burdens associated with the amendments proposed here.
The proposed amendments containing these specific collections of information are discussed further below.
Rule 901 sets forth various requirements relating to the reporting of covered transactions. The title of this collection is “Rule 901—Reporting Obligations.”
Title VII of the Dodd-Frank Act amended the Exchange Act to require the reporting of security-based swap transactions. Accordingly, we adopted rule 901 of Regulation SBSR under the Exchange Act to implement this requirement. Rule 901 specifies, with respect to each reportable event pertaining to covered transactions, who is required to report, what data must be reported, when it must be reported, where it must be reported, and how it must be reported. Rule 901(a), as adopted, established a “reporting hierarchy” that specifies the side that has the duty to report a security-based swap that is a covered transaction.
Rule 901(e) requires the reporting of life cycle events, and adjustments due to life cycle events, within 24 hours of the time of occurrence, to the entity to which the original transaction was reported. Reports of life cycle events must contain the transaction ID of the original transaction.
In addition to assigning reporting duties, rule 901 also imposes certain duties on a registered SDR that receives security-based swap transaction data. Rule 901(f) requires a registered SDR to timestamp, to the second, any information submitted to it pursuant to rule 901, and rule 901(g) requires a registered SDR to assign a transaction ID to each security-based swap, or establish or endorse a methodology for transaction IDs to be assigned by third parties. Rule 901(h) requires that all information required by rule 901 be transmitted electronically in a format required by the registered SDR.
Rule 901(i) requires reporting of pre-enactment security-based swaps and transitional security-based swaps to the extent that information about such transactions is available.
The security-based swap transaction information required to be reported pursuant to rule 901 will be used by registered SDRs, market participants, the Commission, and other relevant authorities. The information reported pursuant to rule 901 will be used by registered SDRs to publicly disseminate reports of security-based swap transactions, as well as to offer a resource for us and other relevant authorities to obtain detailed information about the security-based swap market. Market participants will use the public market data feed, among other things, to assess the current market for security-based swaps and to assist in the valuation of their own positions. We and other relevant authorities will use information about security-based swap transactions reported to and held by registered SDRs to monitor and assess systemic risks, as well as for market surveillance purposes.
Rule 901(a) assigns reporting duties for covered transactions. In the Regulation SBSR Adopting Release we maintained our preliminary estimate of 300 respondents.
Pursuant to rule 901, covered transactions must be reported to a registered SDR or to the Commission. Together, sections (a), (b), (c), (d), (e), (h), and (j) of rule 901 set forth the parameters that govern how covered transactions are reported. Rule 901(i) addresses the reporting of pre-enactment and transitional security-based swaps. These reporting requirements impose initial and ongoing burdens on respondents. We preliminarily believe that these burdens would be a function of, among other things, the number of reportable events and the data elements required to be reported for each such event. Rule 901(f) requires a registered SDR to time stamp, to the second, all reported information, and rule 901(g) requires a registered SDR to assign a transaction ID to each security-based swap, or establish or endorse a methodology for transaction IDs to be assigned by third parties. These requirements impose initial and ongoing burdens on registered SDRs. We preliminarily believe that the proposed amendments addressed in this release would not impact the cost burdens resulting from rules 901(f) and 901(g) on registered SDRs because the number of respondents does not impact our calculation of these costs.
Respondents that fall under the reporting hierarchy in rule 901(a)(2)(ii) incur certain burdens as a result thereof with respect to their reporting of covered transactions. As stated above, we preliminarily believe that an estimate of 120 additional respondents that would incur the duty to report under Regulation SBSR is reasonable for estimating collection of information burdens. This estimate includes all persons that would incur a reporting duty under proposed amendments to Regulation SBSR, that are not already subject to burdens under current rule 901.
In the Regulation SBSR Adopting Release, we estimated that there were likely to be approximately 3 million reportable events per year under rule 901.
Based on our assessment of the effect of the proposed amendments to Regulation SBSR, we estimate that they would result in approximately 2,700 additional reportable events per year under rule 901. Taking a similar approach to the Regulation SBSR Adopting Release but also accounting for security-based swaps that would be reported by a registered broker-dealer, we estimate that, of the 2,700 new reportable events, 1,512 would involve the reporting of new security-based swap transactions, and approximately 1,188 would involve the reporting of life cycle events under rule 901(e).
Based on the foregoing and applying the same calculation methods used in the Regulation SBSR Adopting Release, we estimate that rule 901, as proposed in this release, would impose an estimated total first-year burden of approximately 1,361 hours
Rule 905, as adopted, establishes procedures for correcting errors in reported and disseminated security-based swap information. The title of this collection is “Rule 905—Correction of Errors in Security-Based Swap Information.”
Rule 905 establishes duties for security-based swap counterparties and registered SDRs to correct errors in information that previously has been reported.
The security-based swap transaction information required to be reported pursuant to rule 905 will be used by registered SDRs, participants of those SDRs, the Commission, and other relevant authorities. Participants will be able to use such information to evaluate and manage their own risk positions and satisfy their duties to report corrected information to a registered SDR. A registered SDR will need the required information to correct security-based swap transaction records, in order to maintain an accurate record of a participant's positions as well as to disseminate corrected information. The Commission and other relevant authorities will need the corrected information to have an accurate understanding of the market for surveillance and oversight purposes.
Rule 905 applies to all participants of registered SDRs. As noted above, we estimated that there would be approximately 300 respondents that
The duty to promptly submit amended transaction reports to the appropriate registered SDR after discovery of an error, as required under rule 905(a)(2), will impose burdens on respondents. The duty to promptly notify the relevant respondent after discovery of an error, as required under rule 905(a)(1), will impose burdens on non-reporting participants.
With respect to respondents, we preliminarily believe that rule 905(a) will impose an initial, one-time burden associated with designing and building the respondent's reporting system to be capable of submitting amended security-based swap transactions to a registered SDR. We continue to believe that designing and building appropriate reporting system functionality to comply with rule 905(a)(2) would be a component of, and represent an incremental “add-on” to, the cost to build a reporting system and develop a compliance function as required under existing rule 901. Based on discussions with industry participants, we previously estimated this incremental burden to be equal to 5% of the one-time and annual burdens associated with designing and building a reporting system that is in compliance with rule 901, plus 10% of the corresponding one-time and annual burdens associated with developing the respondent's overall compliance program required under rule 901.
We preliminarily believe that the actual submission of amended transaction reports required under rule 905(a)(2) would not result in a material burden because this would be done electronically though the reporting system that the respondent must develop and maintain to comply with rule 901. The overall burdens associated with such a reporting system are addressed in our analysis of rule 901.
The proposed amendments to rule 906(c) would require each participant that is a registered broker-dealer that becomes a participant solely as a result of making a report to satisfy an obligation under proposed rule 901(a)(2)(ii)(E)(4) to establish, maintain, and enforce written policies and procedures that are reasonably designed to ensure compliance with applicable security-based swap transaction reporting obligations. Each such participant also would be required to review and update its policies and procedures at least annually.
The policies and procedures required under the proposed amendments to rule 906(c) would be used by participants to aid in their compliance with Regulation SBSR, and also used by the Commission as part of its ongoing efforts to monitor and enforce compliance with the federal securities laws, including Regulation SBSR, through, among other things, examinations and inspections.
The proposed amendments to rule 906(c) would result in the rule applying to registered broker-dealers that are likely to become participants solely as a result of making a report to satisfy an obligation under proposed rule 901(a)(2)(ii)(E)(4). The Commission estimates that there would be 30 such registered broker-dealers.
The proposed amendment to rule 906(c) would require each registered broker-dealer that is likely to become a participant solely as a result of making a report to satisfy an obligation under proposed rule 901(a)(2)(ii)(E)(4) to establish, maintain, and enforce written policies and procedures that are reasonably designed to ensure compliance with applicable security-based swap transaction reporting obligations. The proposed amendment to rule 906(c) also would require each such registered broker-dealer to review and update such policies and procedures at least annually. We estimate that the one-time, initial burden for each such registered broker-dealer to adopt written policies and procedures as required under the proposed amendments to rule 906(c) would be similar to the rule 906(c) burdens discussed in the Regulation SBSR Adopting Release for covered participants, and would be approximately 216 burden hours per registered broker-dealer.
Each collection of information discussed above is mandatory.
Information collected pursuant to rule 905 would be widely available to the extent that it corrects information previously reported pursuant to rule 901(c) and incorporated into security-based swap transaction reports that are publicly disseminated by a registered SDR pursuant to rule 902. Most of the information required under rule 902 would be widely available to the public to the extent it is incorporated into security-based swap transaction reports that are publicly disseminated by a registered SDR pursuant to rule 902. However, rule 902(c) prohibits public dissemination of certain kinds of transactions and certain kinds of transaction information. An SDR, pursuant to section 13(n)(5) of the Exchange Act and rules 13n-4(b)(8) and 13n-9 thereunder is required to maintain the privacy of this security-based swap information. To the extent that we receive confidential information pursuant to this collection of information, we anticipate that we will keep such information confidential, subject to the provisions of applicable law. The proposed amendments to rule 906(c) would require certain registered broker-dealers to establish, maintain, and enforce certain written policies and procedures. The collection of information required by rule 906(c) would not be widely available. To the extent that the Commission receives confidential information pursuant to this collection of information, we anticipate that we would keep such information confidential, subject to applicable law.
Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission solicits comment to:
• Evaluate whether the proposed collection of information is necessary for the proper performance of our functions, including whether the information shall have practical utility;
• Evaluate the accuracy of our estimate of the burden of the proposed collection of information;
Determine whether there are ways to enhance the quality, utility, and clarity of the information to be collected; and
• 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.
Persons submitting comments on the collection of information requirements 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 also send a copy of their comments to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090, with reference to File Number S7-06-15. Requests for materials submitted to OMB by the Commission with regard to this collection of information should be in writing, with reference to File Number S7-06-15 and be submitted to the Securities and Exchange Commission, Office of FOIA/PA Services, 100 F Street NE., Washington, DC 20549-2736. As OMB is required to make a decision concerning the collections of information between 30 and 60 days after publication, a comment to OMB is best assured of having its full effect if OMB receives it within 30 days of publication.
For purposes of the Small Business Regulatory Enforcement Fairness Act of 1996 (“SBREFA”)
Section 3(a) of the Regulatory Flexibility Act of 1980 (“RFA”)
For purposes of Commission rulemaking in connection with the RFA,
As we stated in the Cross-Border Adopting Release, we continue to believe that the types of entities that would engage in more than a
For the foregoing reasons, the Commission certifies that the proposed rule and amendments to Exchange Act 3a71-3 and 3a71-5 would not have a significant economic impact on a substantial number of small entities for purposes of the RFA. We encourage written comments regarding this certification. We request that commenters describe the nature of any impact on small entities and provide empirical data to illustrate the extent of the impact.
The Commission has prepared this Initial Regulatory Flexibility Act Analysis in accordance with 5 U.S.C. 603. This initial Regulatory Flexibility Act Analysis relates to the proposed amendments to Regulation SBSR under the Exchange Act, specifically rules 900, 901, 906, 907, and 908 under the Exchange Act.
The primary reason for, and objective of, the proposed amendments to Regulation SBSR is to address the application of the regulatory reporting and public dissemination requirements to certain transactions not addressed in the Regulation SBSR Adopting Release or the Regulation SBSR Proposed Amendments Release and to incorporate our revised approach to transactions of non-U.S. persons who are engaged in dealing activity from a location in the United States into Regulation SBSR. Pursuant to Exchange Act sections 13A(a)(1), 13(m)(1)(G), 13(m)(1)(B)-(D), and 13(n)(5)(D)(ii), the Commission is proposing amendments to Regulation SBSR regarding the reporting and public dissemination of certain security-based swap transactions.
Proposed rule 908(a)(1)(v) would require a security-based swap transaction connected with a non-U.S. person's security-based swap dealing activity that is arranged, negotiated, or executed by personnel of such non-U.S. person located in a U.S. branch or office, or by personnel of such non-U.S. person's agent located in a U.S. branch or office, to be reported to a registered SDR and publicly disseminated. Requiring these transactions to be reported to a registered SDR should enhance our ability to oversee relevant activity related to security-based swap dealing occurring within the United States as well as our ability to monitor market participants for compliance with specific Title VII requirements.
Proposed rule 908(a)(1)(iii) would require a security-based swap transaction that is executed on a platform having its principal place of business in the United States to be reported to a registered SDR and publicly disseminated pursuant to Regulation SBSR. Requiring these security-based swaps to be reported to a registered SDR would permit the Commission and other relevant authorities to observe, in a registered SDR, all transactions executed on such a platform and to carry out oversight of such security-based swaps. Furthermore, we preliminarily believe that public dissemination of such transactions would have value to participants in the U.S. security-based swap market, who are likely to trade the same or similar products, as these products would have been listed by a platform having its principal place of business in the United States.
Proposed rule 908(a)(1)(iv) would require a security-based swap transaction that is effected by or through a registered broker-dealer (including a registered SB SEF) to be reported to a registered SDR and publicly disseminated pursuant to Regulation SBSR. Under proposed rule 908(a)(2)(ii)(E)(4), the registered broker-dealer would be required to report the transaction if neither side includes a U.S. person, a registered security-based swap dealer, a registered major security-based swap participant, or a non-U.S. person who arranged, negotiated, or executed the security-based swap from a location in the United States. Registered broker-dealers play a key role
For purposes of Commission rulemaking in connection with the RFA, a small entity includes: (1) When used with reference to an “issuer” or a “person,” other than an investment company, an “issuer” or “person” that, on the last day of its most recent fiscal year, had total assets of $5 million or less;
As noted in the Regulation SBSR Proposed Amendments Release, we believe, based on input from security-based swap market participants, that the majority of security-based swap transactions have at least one counterparty that is either a security-based swap dealer or major security-based swap participant, and that these entities—whether registered broker-dealers or not—would exceed the thresholds defining “small entities” set out above.
As discussed above, the proposed amendments to Regulation SBSR would require a security-based swap transaction that is effected by or through a registered broker-dealer (including a registered SB SEF) to be reported to a registered SDR by the registered broker-dealer if neither side of the security-based swap transaction includes a U.S. person, a registered security-based swap dealer, a registered major security-based swap participant, or a non-U.S. person who arranged, negotiated, or executed the security-based swap from a location in the United States. We preliminarily believe, as discussed above, that registered broker-dealers (including registered SB SEFs) would incur certain assessment costs associated with performing an analysis of their clients (in the case of registered-broker dealers) and members (in the case of registered SB SEFs)
Additionally, under the proposed amendments to rule 906(c), these registered broker-dealers would be required to establish, maintain, and enforce policies and procedures that are reasonably designed to ensure that the registered broker-dealer complies with any obligations to report information to a registered security-based swap data repository in a manner consistent with Regulation SBSR. Further, these registered broker-dealers would be required to review these policies and procedures at least annually.
The Commission believes there are no rules that duplicate, overlap, or conflict with the proposed amendments.
Pursuant to section 3(a) of the Regulatory Flexibility Act,
We are proposing to require registered broker-dealers (including registered SB SEFs) to report security-based swap transactions that are effected by or through it if neither side of the security-based swap transaction includes a U.S. person, a registered security-based swap dealer, a registered major security-based swap participant, or a non-U.S. person who arranged, negotiated, or executed the security-based swap from a location in the United States. The proposed amendments would enable the Commission to gain a better understanding of the security-based swap market, including the size and
We are soliciting comments regarding this analysis. We request comment on the number of small entities that would be subject to the amendments and whether the proposed amendments would have any effects that have not been discussed. We request that commenters describe the nature of any effects on small entities subject to the amendments and provide empirical data to support the nature and extent of the effects.
Pursuant to the Exchange Act, 15 U.S.C. 78a
Brokers, Confidential business information, Fraud, Reporting and recordkeeping requirements, Securities.
Brokers, Fraud, Reporting and recordkeeping requirements, Securities.
For the reasons stated in the preamble, the SEC is proposing to amend Title 17, Chapter II of the Code of the Federal Regulations 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
Sections 3a71-3 and 3a71-5 are also issued under Pub. L. 111-203, sections 712, 761(b), 124 Stat. 1754 (2010), and 15 U.S.C. 78dd(c).
The additions read as follows:
(a) * * *
(6)
(7)
(8)
(i) With respect to a foreign security-based swap dealer:
(A) Any security-based swap transaction entered into, or offered to be entered into, by or on behalf of such foreign security-based swap dealer, with a U.S. person (other than a transaction conducted through a foreign branch of that person); or
(B) Any security-based swap transaction arranged, negotiated, or executed by personnel of the foreign security-based swap dealer located in a U.S. branch or office, or by personnel of an agent of the foreign security-based swap dealer located in a U.S. branch or office; and
(ii) With respect to a U.S. security-based swap dealer, any transaction by or on behalf of such U.S. security-based swap dealer, wherever entered into or offered to be entered into, other than a transaction conducted through a foreign branch with a non-U.S. person or with a U.S.-person counterparty that constitutes a transaction conducted through a foreign branch of the counterparty.
(9)
(b) * * *
(1) * * *
(iii) * * *
(C) Security-based swap transactions connected with such person's security-based swap dealing activity that are arranged, negotiated, or executed by personnel of such non-U.S. person located in a U.S. branch or office, or by personnel of an agent of such non-U.S. person located in a U.S. branch or office; and
(c)
(c) The exceptions in paragraphs (a) and (b) of this section shall not apply to any security-based swap transactions of a non-U.S. person connected with its security-based swap dealing activity that are arranged, negotiated, or executed by personnel of such non-U.S. person located in a U.S. branch or office, or by personnel of an agent of such non-U.S. person located in a U.S. branch or office.
15 U.S.C. 77g, 77q(a), 77s(a), 78b, 78c, 78g(c)(2), 78i(a), 78j, 78k-l(c), 78
(u) * * *
(4) A registered broker-dealer (including a registered security-based swap execution facility) that is required to report a security-based swap to that registered security-based swap data repository by § 242.901(a).
The additions and revision read as follows:
(a) * * *
(2) * * *
(ii) * * *
(E) * * *
(
(
(
(d) * * *
(9) The platform ID, if applicable, or if a registered broker-dealer (including a registered security-based swap execution facility) is required to report the security-based swap by § 242.901(a)(2)(ii)(E)(
(a) * * *
(b)
(c)
(a) * * *
(6) For periodically obtaining from each participant other than a platform, a registered clearing agency, or a registered broker-dealer (including a registered security-based swap execution facility) that becomes a participant solely as a result of making a report to satisfy an obligation under § 242.901(a)(2)(ii)(E)(
(a) * * *
(1) * * *
(iii) The security-based swap is executed on a platform having its principal place of business in the United States;
(iv) The security-based swap is effected by or through a registered broker-dealer (including a registered security-based swap execution facility); or
(v) The transaction is connected with a non-U.S. person's security-based swap dealing activity and is arranged, negotiated, or executed by personnel of such non-U.S. person located in a U.S. branch or office, or by personnel of an agent of such non-U.S. person located in a U.S. branch or office.
(b) * * *
(5) A non-U.S. person that, in connection with such person's security-based swap dealing activity, arranged, negotiated, or executed the security-based swap using its personnel located in a U.S. branch or office, or using
By the Commission.
On August 25, 2014, NYSE Group, Inc., on behalf of BATS Exchange, Inc., BATS Y-Exchange, Inc., Chicago Stock Exchange, Inc., EDGA Exchange, Inc., EDGX Exchange, Inc., Financial Industry Regulatory Authority, Inc. (“FINRA”), NASDAQ OMX BX, Inc., NASDAQ OMX PHLX LLC, the Nasdaq Stock Market LLC, New York Stock Exchange LLC, NYSE MKT LLC, and NYSE Arca, Inc., (collectively “SROs” or “Participants”), filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 11A of the Securities Exchange Act of 1934 (“Act”),
Since the inception of decimalization
In 2012, the Jumpstart Our Business Startups Act (“JOBS Act”)
The Commission submitted the staff study to Congress in July 2012 (“Decimalization Report”).
The Commission staff convened a Decimalization Roundtable, in February 2013, with broad participation from market participants, academics and others, including an issuer representative. Many panelists believed that factors other than decimalization were more significant contributors to the decline of IPOs in recent years. Although participants offered diverging views on the likely outcome of any increase in the minimum tick size, there was broad support among the panelists for the Commission to conduct a pilot program to gather further information, particularly with respect to the impact of wider tick sizes on liquidity in the securities of small capitalization companies. Some panelists, however, expressed concern about the potential costs to investors of wider minimum tick sizes.
In June 2014, the Commission issued the June 2014 Order, pursuant to Section 11A(a)(3)(B) of the Act,
As discussed in detail throughout this order, the Commission believes that the Tick Size Pilot, as reflected in the proposed NMS plan, and subject to the modifications prescribed by the Commission, should support further examination and analysis on the impact of tick sizes on the trading and liquidity of the securities of small capitalization companies. The Commission believes that altering tick sizes could result in significant market-wide benefits and improvements to liquidity and capital formation. Yet, as discussed in detail below, these changes could also impose costs, including on investors resulting from larger spreads. Because of the potential significance of the benefits and costs, as well as the uncertainty that currently exists about the likely outcome of changing tick sizes, the Commission believes it is appropriate to test these important issues in a way that can produce robust results that informs future policy making. The Tick Size Pilot is therefore, by design, an objective, data-driven test that is designed to evaluate how a wider tick size would impact trading, liquidity, and market quality of securities of smaller capitalization companies. The Commission believes that the Tick Size Pilot, as now constructed, is necessary to provide for a test that can produce robust results that will allow the Commission to effectively test the potential benefits and costs of permanently changing tick sizes for smaller capitalization stocks.
The Commission believes that the potential magnitude of the benefits that would be revealed by the Tick Size Pilot justify the costs of running these tests. The effect of wider tick sizes for small capitalization stocks on trading, liquidity, and market quality is not clear and the Tick Size Pilot will provide data to analyze any such effects. A wider tick size for small capitalization stocks may change the composition of market participants for these stocks as well as the behavior of market participants. The wider tick size may incentivize market makers to increase their market making activities in these stocks. This, in turn, may attract more investors and with increased interest in those stocks, trading activity may increase, which may also improve liquidity and market quality. There are many interconnected dimensions to trading, liquidity, and market quality. If a wider tick size leads to more active market making and attracts more investors to small capitalization stocks, we may observe positive effects on trading, liquidity, and market quality as measured by metrics such as trading volume, displayed depth, effective spreads, or execution costs for small and large trades.
Improved liquidity and market quality would be desirable for any stock, but would be particularly beneficial for small capitalization stocks because these stocks tend to be difficult and/or expensive to trade, which may discourage investment. Were there to be improved liquidity, investors and issuers would benefit. Investors would benefit because it would be easier and less expensive for them to trade in these stocks. Issuers would benefit from improved liquidity and market quality in two ways. First, more trading activity and investor attention may make an issuer's stock more attractive, which may reduce the company's cost of capital as well as increase their opportunities to raise capital. Second, improved liquidity may reduce an issuer's cost of capital because stocks with higher liquidity tend to have lower cost of capital. Consequently, improved liquidity may reduce liquidity risk and translate into lower cost of capital.
The Commission, however, recognizes that these benefits may not manifest in the manner or to the extent anticipated. And, as noted above, we cannot know in advance the full effects, whether they be positive or negative, of a wider tick size on the market behavior of market participants in response to the Tick Size Pilot. As discussed in detail below, the Commission has seriously considered the concerns about costs that implementation of the Tick Size Pilot would create for market participants and the complexity of the Tick Size Pilot, and has tried to mitigate both where possible without undermining the objectives of the Tick Size Pilot. The Commission nevertheless believes that incurring the costs of the Tick Size Pilot is appropriate in these circumstances. The Tick Size Pilot will provide the Commission and interested parties with real-world data regarding the effect of wider tick sizes on trading, liquidity and market quality for small-capitalization companies, and this empirical data will inform analyses and potential future regulatory actions to, among other things, capture any benefits from wider tick sizes on a permanent basis.
Therefore, the Commission finds that the NMS plan is necessary or appropriate in the public interest, for the protection of investors and the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanism of, a national market system, or otherwise in furtherance of the purposes of the Act.
The NMS plan filed by the Participants contained provisions to implement the Tick Size Pilot,
Section V of the NMS plan sets forth five criteria for selection of NMS common stocks
As proposed in the NMS plan, the Tick Size Pilot would consist of three Test Groups, with each Test Group consisting of 400 Pilot Securities. The Pilot Securities that are not placed in the Test Groups would be placed in the Control Group.
The Operating Committee
After the categories are finalized, the Pilot Securities would then be randomly selected from each category to be included in the three Test Groups, based on the percentage of Pilot Securities in such category. Each category would be represented in all three Test Groups based on the category's relative proportion to the population of Pilot Securities. Similarly, a primary listing exchange's securities would be selected from each category and included in the three Test Groups.
Each primary listing exchange would, free of charge, make publicly available on its Web site the list of Pilot Securities that are listed on such exchange and that are included in the Control Group and Test Groups. Appendix A to the NMS plan provides the specific details about the data that each exchange would make available on its Web site to identify the Pilot Securities.
As noted above, the Tick Size Pilot would contain a Control Group and three Test Groups, each of which has incrementally different quoting and trading requirements.
Pilot Securities in the Control Group would continue to be quoted and traded at any price increment currently permitted.
Pilot Securities in Test Group One would have a quoting increment of $0.05 but could continue to trade at any currently permitted price increment. The Participants would be required to adopt rules that would prohibit the Participants or any member of a Participant from displaying, ranking, or accepting from any person any displayable or non-displayable bids or offers, orders, or indications of interest in increments other than $0.05. Orders priced to execute based on the midpoint and orders entered in a Participant-operated retail liquidity program
Pilot Securities in Test Group Two would have the same quoting increment as Test Group One ($0.05) along with the applicable quoting exceptions, but could only be traded in $0.05 minimum increments. The Participants would be required to adopt rules that prohibit trading centers operated by the Participants and members of the Participants from executing orders in any Pilot Security in Test Group Two in price increments other than $0.05. The $0.05 trading increment would apply to all trades, including brokered cross trades, absent an exception.
Three exceptions to the $0.05 trading increment would be applicable. First, trading could occur at the midpoint of the National Best Bid (“NBB”) and the National Best Offer (“NBO” and together with NBB, “NBBO”),
Pilot Securities in Test Group Three would be subject to the same quoting and trading increments as those in Test Group Two as well as the same exceptions. However, the trading of these securities would also be subject to a trade-at prohibition.
The NMS plan contains thirteen exceptions to the Trade-At Prohibition. These exceptions describe when a trading center would be permitted to execute an order for a Pilot Security at a price equal to a protected bid or protected offer. The first exception would be for when an order is executed by a trading center that is displaying a quotation, via either a processor or an SRO quotation feed, at a price equal to the traded-at protected quotation, but only up to the trading center's full displayed size (“Size Limitation”). A further condition to this exception proposed by the Participants would limit trading centers' ability to execute an incoming order by requiring that executions occur on the venue where the protected quote was displayed. Specifically, the Participants proposed that where the quotation is displayed through a national securities exchange, the execution at the size of the order must occur against the displayed size on such national securities exchange (“Exchange Venue Limitation”). Where the quotation is displayed through the Alternative Display Facility (“ADF”) or another facility approved by the Commission that does not provide execution functionality, the execution of the order must occur against the displayed size in accordance with the rules of the ADF or such approved facility (“ADF Venue Limitation” together with Exchange Venue Limitation, “Venue Limitation”).
In addition, the NMS plan provides that Block Size orders
The next exceptions (numbers 4 through 12) are based on the exceptions that are found in Rule 611 of Regulation NMS.
Lastly, the NMS plan contains an exception for an order of a fractional share of a Pilot Security, provided that such fractional share order was not the result of breaking an order for one or more whole shares of a Pilot Security into orders for fractional shares or was not otherwise effected to evade the requirements of the Trade-At Prohibition or any other provisions of the Tick Size Pilot.
The Participants would be responsible for collecting data specified in Appendix B of the NMS plan, which generally includes daily market quality statistics, data on specific orders, and data on market makers
On a monthly basis, the Participants and the DEA for each member of a
Each Participant that is the DEA of a market maker would require such market maker to provide the DEA the data specified in Appendix C of the NMS plan regarding daily market maker trading profits with respect to the Pilot Securities on a monthly basis (“Market Maker Profitability Data”). Each market maker would also be required to provide to its DEA the Market Maker Profitability Data for dates starting six months prior to the Pilot Period through six months after the end of the Pilot Period. Moreover, on a monthly basis, the DEA would aggregate the Market Maker Profitability Data and make the aggregated data publicly available via the DEA's Web site for free, and report such data to the Commission. The publicly available data would not identify the market makers that generated the data.
The Participants proposed to provide to the Commission, and make publicly available, a joint assessment of the impact of the Tick Size Pilot, no later than six months after the end of the Pilot Period.
• whether any market capitalization, daily trading volume, or other thresholds can differentiate the results of the above assessment across stocks;
• the statistical and economic impact of the above assessments for the incremental impact of the trading increment and for the joint effect of an increase in both the quoting increment and the trading increment;
• the statistical and economic impact of the above assessments for the incremental impact of a Trade-At Prohibition and for the joint effect of an increase in the quoting increment, an increase in the trading increment, and a Trade-At Prohibition; and
• any other economic issues that Participants believe the Commission should consider in any rulemaking that may follow. The Participants may also individually submit to the Commission, and make publicly available, an additional supplemental assessment of the impact of the Tick Size Pilot.
Pursuant to the NMS plan, the Participants and members of Participants would be required to establish, maintain, and enforce written policies and procedures that are reasonably designed to comply with the quoting and trading increments for the Pilot Securities. Each Participant would develop appropriate policies and procedures that provide for collecting and reporting to the Commission the Trading Center Data. Each Participant that is the DEA of a member of a Participant operating a trading center would require such member to develop appropriate policies and procedures for collecting and reporting the Trading Center Data to the DEA. Each Participant that is the DEA of a member of a Participant operating a trading center would develop appropriate policies and procedures for collecting and reporting the Trading Center Data to the Commission.
Further, each Participant that is the DEA of a market maker would require such market maker to develop policies and procedures for collecting the Market Maker Profitability Data and report it to the DEA. Each Participant that is the DEA of a market maker would develop appropriate policies and procedures that provide for collecting and reporting such data to the Commission on an aggregated basis.
In addition to setting forth the details of the Tick Size Pilot, the NMS plan contains operational details including provisions related to the admission of new participants, amendments, the composition and responsibilities of the Operating Committee, and withdrawal from the NMS plan.
As noted above, the Commission received 77 comment letters on the Tick Size Pilot contained in the proposed NMS plan.
Conversely, twenty commenters generally opposed the Tick Size Pilot.
Generally, commenters opposing the Tick Size Pilot were concerned about its costs to investors and the complexity of its design.
Additionally, Tick Size Pilot opponents indicated that the underlying goals of the Tick Size Pilot were not properly defined and tenuous.
Seventeen commenters, while providing substantive analysis and opinion, did not specifically express support for, or, opposition to, the Tick Size Pilot.
Several commenters supported the Commission's use of “data-driven” research to formulate market structure changes.
Several commenters expressed concerns related to the costs and complexity of the Tick Size Pilot.
Other commenters were concerned with the costs associated with the complexity of the Tick Size Pilot. Some commenters thought that the three Test Group design of the Tick Size Pilot would drive costs upward,
Certain commenters believed that the Tick Size Pilot should be subject to a cost benefit analysis pursuant to the Commission rulemaking process.
Twenty-three commenters discussed whether the Pilot Period should be extended, remain as proposed, or implemented on a provisional basis.
Some commenters also indicated that the relatively short Pilot Period could have a negative impact on participation. Several commenters indicated that due to, among other things, the complexity and cost relative to the short duration of the Pilot Period, some market participants would avoid trading Pilot Securities during the Tick Size Pilot.
The recommended duration for the Tick Size Pilot varied among commenters advocating for a longer Pilot Period. Four commenters stated that the Pilot Period should be extended to five-years,
Six commenters stated that the Pilot Period of the Tick Size Pilot should be one-year as proposed.
Among the commenters advocating for a one-year Pilot Period, there was variance on whether the Tick Size Pilot should be cut off immediately after one-year
The Commission received many comments with respect to the selection criteria for Pilot Securities. The commenters raised concerns about the proposed selection criteria, especially the market capitalization threshold, and suggested other criteria to be considered.
Sixteen commenters argued that a $5 billion market capitalization threshold is too high.
Some commenters stated that the current volume threshold of CADV of one million shares should be altered. For example, one commenter suggested that the volume threshold should range from 300,000 shares to 500,000 shares for illiquid securities.
A number of commenters recommended that additional selection criteria should be required and recommended additional thresholds for the selection of Pilot Securities. Nine commenters opined that an average weighted daily spread of five cents or greater should be a qualifying factor to avoid artificially widening the spread and increasing transaction costs for
Two commenters raised the possibility of regulatory arbitrage and asserted that cross-listed securities from Canada should not be eligible for the Tick Size Pilot.
A number of commenters discussed the design of the Tick Size Pilot. Two commenters opined that there were too many Pilot Securities included in each Test Group.
Commenters suggested testing tick sizes other than the proposed $0.05 increment. Some commenters suggested that various tick size increments, both larger
One commenter asserted that, in order to avoid logistical and operational problems of rejecting non-conforming orders for brokers and customers, the Tick Size Pilot should permit orders that are received but not priced in $0.05 increments to be re-priced for display purposes to a permissible $0.05 increment.
One commenter suggested that Test Group One should be eliminated in order to reduce the Tick Size Pilot's complexity.
The comments on Test Group Two were mainly directed at the exception for Retail Investor Orders, which is also applicable to Test Group Three. Two commenters argued that the definition of Retail Investor Order should be broadened so that it would be less burdensome to implement and applicable to more individuals.
Other commenters requested clarification of the Retail Investor Order definition.
Other commenters supported the Tick Size Pilot's proposed exception for Retail Investor Orders.
Seven commenters opposed the Retail Investor Order exception because the minimum price improvement required by the exception was not large enough.
Some commenters opposed the exception for Retail Investor Orders for other reasons.
The Commission received many comments on Test Group Three, and in particular, on the Trade-At Prohibition. Twenty-seven commenters opposed the Trade-At Prohibition.
Ten commenters that opposed the Trade-At Prohibition nevertheless recommended modifications related to the provision should the Commission approve the Tick Size Pilot with the Trade-At Prohibition.
Fourteen commenters supported testing the Trade-At Prohibition.
Several commenters discussed the use of the protected quotation standard rather than the NBBO for the Trade-At Prohibition. Some commenters were concerned that using the protected quotation standard would protect less competitive prices and undermine price competition
One commenter supported the use of an SRO Quotation Feed to post and execute trades at the protected quote.
Several commenters discussed the Tick Size Pilot's Size Limitation.
Commenters generally opposed the Venue Limitation because it would restrict market makers' execution of incoming orders to lit exchanges.
Several commenters suggested that the Block Size definition be altered to more accurately reflect block size transactions of small capitalization securities.
Seven commenters, while supporting the Trade-At Prohibition, recommended that its exceptions be modified.
Finally, several commenters made suggestions regarding odd lots. One commenter suggested that odd lots should be subject to the Trade-At Prohibition because current trading practices create a large number of odd lot trades that would circumvent the Tick Size Pilot.
Several commenters stated that the Tick Size Pilot should leverage existing reporting requirements to ease the implementation burden.
Several commenters supported the public availability of data for potential analysis by academics and other interested parties.
Thirteen commenters discussed whether the Market Maker Profitability Data should be collected.
Additionally, two commenters stated that Market Maker Profitability Data is difficult to calculate and attribute to a specific activity.
Three commenters supported the collection of the Market Maker Profitability Data.
One commenter stated the collection of the Market Maker Profitability Data should only be done if it is absolutely necessary for the Tick Size Pilot and, if so, then it should also be collected from ATSs and exchanges.
Two commenters expressed concerns related to the confidentiality of Market Maker Profitability Data because of the potential for such data to be reverse engineered and attributed to specific market participants after becoming publicly available.
Many commenters stated that the NMS plan should clearly define what would constitute a successful Tick Size Pilot and warrant implementation on a permanent basis.
Other commenters suggested specific data that would indicate the Tick Size Pilot's success or failure.
Three commenters stated that the Tick Size Pilot data should be analyzed on a more frequent periodic basis until the final assessment is conducted.
Fourteen commenters indicated that the Tick Size Pilot should not be the subject of an NMS plan, but instead should be presented as, and adhere to the procedural requirements of, a formal Commission rulemaking that includes additional cost-benefit analysis.
A few commenters suggested that Pilot Security issuers should have discretion to set their own minimum increments.
Three commenters favored allowing issuers of Pilot Securities to opt-out of participating in the Tick Size Pilot.
Several commenters offered suggestions on how the Tick Size Pilot should be implemented. Two commenters suggested that the implementation period should be at least one-year, but could be reduced if the Tick Size Pilot was simplified.
In 1975, Congress directed the Commission, through the enactment of Section 11A of the Act,
While the Commission has reviewed certain aspects of decimalization and tick sizes over the years, the Commission has not tested whether a wider tick size for small capitalization stocks improves the market quality for these stocks.
The Commission believes that the Tick Size Pilot set forth in the NMS plan is reasonably designed to provide measurable data that should facilitate the ability of the Commission, the public, and market participants to review and analyze the effect of tick size on the trading, liquidity, and market quality of securities of smaller capitalization companies. The Tick Size Pilot should provide a data-driven approach to evaluate whether certain changes to the market structure for Pilot Securities would be consistent with the Commission's mission to protect investors, maintain fair, orderly and efficient markets and facilitate capital formation.
As described in detail below, the Commission, consistent with Rule 608, is modifying certain aspects of the NMS plan and the Tick Size Pilot. Specifically, the Commission is making the following changes to the NMS plan: (1) Extending the Pilot Period to two years; (2) lowering the market capitalization threshold criteria for identifying Pilot Securities to $3 billion or less; (3) modifying the Trade-At Prohibition by: (i) Amending the definition of trade-at to clarify that the provision would only be operative during Regular Trading Hours; (ii) removing the Venue Limitation, and (iii) lowering the thresholds in the Block Size definition; (4) modifying the data elements related to Market Maker Profitability Data by: (i) Removing the data element that would have required realized trading profits to be calculated net of fees and rebates, and (ii) requiring further aggregation of the Market Maker Profitability Data made publically available; (5) requiring Participants to provide an assessment on the impact of the Tick Size Pilot on market maker profitability; and (6) modifying the time when Participants must submit their assessments to the Commission.
The Commission received comments on market structure issues other than the Tick Size Pilot, such as maker-taker fee structures, access fees, payment for order flow, high frequency trading, and subpenny quoting.
The Commission received numerous comments related to the costs and complexity of implementing and complying with the Tick Size Pilot in general, and Test Group Three in particular.
With respect to market participants, such as trading centers and routing brokers, commenters believed that those market participants would incur substantial costs to reprogram and/or implement and operate as brand new, their trading, order routing, compliance, and other systems to implement the Tick Size Pilot. Such reprogramming or new implementation of systems would also include additional testing and compliance costs. Concerns were particularly pronounced with respect to the costs and complexity of implementing Test Group Three and its Trade-At Prohibition and, as noted above, some commenters believed market participants might cease trading Test Group Three securities for the proposed one-year duration of the Tick Size Pilot rather than incur those implementation costs.
The Tick Size Pilot, by design, is an objective, data-driven test intended to evaluate how a wider tick size would impact trading, liquidity, and market quality of securities of smaller capitalization companies. As noted above, the Commission cannot know in advance the full effects, whether positive or negative, of a wider tick size on the behavior of market participants in response to the Tick Size Pilot. While the effects of wider tick sizes for small capitalization stocks on trading, liquidity, and market quality are not clear, the Commission believes that the Tick Size Pilot will generate data to help
The Commission acknowledges that implementation of the Tick Size Pilot would create costs for market participants and potential operational risks. The Commission has taken seriously the concerns about costs, complexity, and operational risks, and has tried to carefully balance those concerns with the objectives and goals of the Tick Size Pilot. As a result, in response to comments, the Commission has decided to exercise its authority under Rule 608(b)(2)
Trading centers (
As noted above, many commenters expressed concerns about the costs and complexity of implementing and complying with Test Group Three, and the Commission acknowledges the particular complexity of implementing and complying with the Trade-At Prohibition.
The Commission also acknowledges that trading centers would be required to produce specified data in connection with the Tick Size Pilot and there would
The Commission recognizes that trading centers and market makers would be required to incur some additional costs to produce the specific data called for by the Tick Size Pilot. In particular, the Commission recognizes that trading centers and market makers would need to make changes to their systems to compile the data and that transmitting the data would entail costs as well. However, as discussed below, the Trading Center Data and Market Maker Profitability Data are necessary to examine specific components of the Tick Size Pilot. As such, the Tick Size Pilot will provide the Commission and interested parties with real-world data regarding the effects of wider tick sizes on trading, liquidity, and market quality for securities of small capitalization companies, and this empirical data will inform analyses and potential future regulatory actions to, among other things, capture any benefits from wider tick sizes on a permanent basis.
As discussed below in Section V.E.2, the Commission is modifying certain aspects of the Tick Size Pilot to reduce the data production burdens and related concerns about the confidentiality thereof (
Finally, the Commission acknowledges the concerns expressed by commenters about the potential increased costs that might be incurred by investors and issuers as a result of the wider minimum tick size mandated by the Tick Size Pilot.
The Commission notes that the central purpose of the Tick Size Pilot is to assess the market quality impact of an increase in the tick size for the securities of smaller capitalization companies, which is comparable to assessing the impact of the Tick Size Pilot on investors. Notwithstanding the opinions of the commenters, whether an increased tick size would improve market quality, or increase or reduce execution costs for some or all investors, in some or all Pilot Securities, is not known at this time. As further discussed in Section V.C.1, the number of potential Pilot Securities that currently trade with a spread of greater than $0.05, and less than $0.05, is approximately equal. For Pilot Securities that currently trade with less than $0.05 spread, the costs for investors to trade smaller orders, typically placed by retail investors, at the quote may increase while the costs for investors to trade small orders in general may or may not increase, depending on the degree to which trades execute between the bid and the offer. The impact on larger orders, typically placed by institutional investors, however, is not clear. The impact on Pilot Securities that currently trade with a spread of greater than $0.05 similarly is not clear, as spreads in these securities may change as well depending on the impact of an increase in the tick size on market making incentives. The Commission notes that the exception for Retail Investor Orders was proposed by the Participants as a means to reduce the risk of the Tick Size Pilot having a detrimental impact on retail investor execution quality, and further, the Commission has made modifications to the proposal submitted by the Participants (
With respect to the specific cost estimates, the Commission appreciates the efforts of commenters to quantify costs and has carefully assessed the estimates. These estimates rely on historical trading data and reasonable assumptions on how retail execution quality may change with wider tick sizes. The Commission cannot know, however, the full impact of wider tick sizes on investors, before the Tick Size Pilot is underway. With the exception of the modifications and consideration for retail investors in the original design of the Tick Size Pilot, the Commission does not believe it can further reduce these costs without sacrificing the utility of the Tick Size Pilot. Specifically, the Commission would need to focus the Tick Size Pilot exclusively on stocks with higher transaction costs, which are determined by spreads. As noted in Section V.C.3. below, if the tick size mechanically affects a criterion for inclusion, then the Tick Size Pilot would be severely limited in its ability to inform any future rulemaking by the Commission. While the effects of wider tick sizes for small capitalization stocks on trading, liquidity, and market quality are not clear, the Commission believes that the Tick Size Pilot will generate data to help inform whether the significant benefits, such as improved liquidity and market quality, could be realized by investors, issuers, and other market participants. The Tick Size Pilot will provide the Commission and interested parties with real-world data regarding the effect of wider tick sizes on trading, liquidity, and market quality for small-capitalization companies and this empirical data will inform analyses and potential future regulatory actions to, among other things, capture any benefits from wider tick sizes on a permanent basis. The Commission, therefore, believes that the potential magnitude of the benefits that would be revealed by the Tick Size Pilot justify the costs of the Tick Size Pilot.
Similarly, while the Commission recognizes the potential connection between tick size, liquidity, and cost of capital, the impact of an increased tick size on the costs and ability of issuers to raise capital, if any, is not known at this time. As noted above, the Commission believes that altering tick sizes could result in significant market-wide benefits and improvements to capital formation. In particular, if a wider tick size leads to more active market making and attracts more investors to small capitalization stocks, positive effects on trading, liquidity, and market quality as measured by metrics such as trading volume, displayed depth, effective spreads, or execution costs for small and large trades could be observed. Indeed, some advocates for a tick size pilot argue that a wider tick size would benefit issuer's capital formation and cost of capital.
Some commenters expressed the view that the Tick Size Pilot should have been implemented through Commission rulemaking that includes a cost-benefit analysis or that the Commission should have conducted a cost-benefit analysis as part of the NMS plan process. The Commission reasonably concluded that proceeding with the Tick Size Pilot through an NMS plan was an appropriate way to gather information necessary to assess whether changes should ultimately be made through rulemaking or otherwise. As discussed in detail in the June 2014 Order, and noted above, consideration of issues related to minimum tick sizes has been ongoing for years.
The Commission's approval of the NMS plan is designed and intended to produce measurable data to study the impact of a wider tick size on the liquidity and trading in the securities of smaller capitalization companies, which should support an objective data-driven review of this important policy issue. Legitimate questions have been raised about the impact of decimalization on the market for small capitalization securities.
In addition, the Commission emphasizes that it welcomes the submission of additional comments and empirical evidence during the Pilot Period with respect to, among other things, the operation of the Tick Size Pilot, in particular the three Test Groups, and the costs associated therewith. The Commission would take such comments into account in its consideration of related future regulatory actions.
As proposed, consistent with the June 2014 Order, the Pilot Period would be for one year. In the June 2014 Order, the Commission noted that it preliminarily believed that a one-year Pilot Period would be sufficient to generate data to reliably analyze the effects and impact of wider tick sizes. Several commenters argued that the Pilot Period should be longer than one-year.
The Commission recognizes that there would be start-up costs and other investments associated with participating in the Tick Size Pilot, and does not want the Pilot Period to be a disincentive to participate. The Commission believes that extending the Pilot Period to two years would help address some of those concerns in part by having those costs spread out over a longer period. The Commission expects that a longer Pilot Period should encourage wider participation (or remove incentives to opt-out of participation) and therefore help make the data more reliable, richer, and useful.
The Commission does not think it is necessary to extend the Tick Size Pilot beyond two years. As noted above, several commenters suggested a Pilot Period longer than two years.
The Commission received comments on whether the Tick Size Pilot should cease at the end of the Pilot Period or continue to operate while the data are assessed.
The Commission, however, is only approving a Pilot Period of two years in this order. Any proposal to extend the Tick Size Pilot beyond the two-year term would be considered and evaluated at a later date. Therefore, the modification to the Pilot Period of the Tick Size Pilot, extending its duration to two-years, is appropriate.
The Tick Size Pilot sets forth five criteria for determining which NMS common stocks would be included: (1) Market capitalization of $5 billion or less; (2) Closing Price of at least $2.00 on the last day of the Measurement Period; (3) Closing Price of at least $1.50 on every trading day during the Measurement Period; (4) CADV of one million shares or less; and (5) VWAP of at least $2.00.
Many commenters noted that the market capitalization threshold was too high and recommended that the threshold be lowered.
Overall, Table 1 provides evidence that the selection of a market capitalization threshold involves trading-off potential sample size, which affects statistical power,
Therefore, the Commission believes that it is necessary and appropriate to change the NMS plan by lowering the market capitalization threshold to $3 billion or less. The Commission notes that this change would result in fewer securities eligible to be included in the Tick Size Pilot, but this reduction should not materially impact the Tick Size Pilot's goal of generating useful data. Further, the lowered threshold should lessen the impact of the Tick Size Pilot on the overall market, in that stocks included in the Test Groups would be smaller and less liquid; and their combined trading volume as a proportion of the overall market volume would also be lowered.
Many commenters recommended lowering the market capitalization threshold to $1 billion or less (or to an even lower threshold).
The Commission received a few comments on the other proposed selection criteria.
Other commenters suggested that the CADV be lowered or that it should be based on the dollar trading value or that it should be based relative to public float. The Commission has considered these comments but does not believe it is necessary to modify the Tick Size Pilot any further in response. In particular, it is widely known that these volume measures are highly correlated with each other and therefore would most likely produce similar samples of Pilot Securities. Further, share volume is less correlated with market capitalization than other volume measures, so it would add the most as a separate criterion.
Commenters also suggested additional criteria for selecting the Pilot Securities.
The Commission does not believe that a spread criterion should be included. Tick size mechanically affects alternative criteria such as bid-ask spreads and effective spreads, such that
The Tick Size Pilot, as proposed, excludes securities that have had an IPO within six months of the start of the Pilot Period. Commenters expressed views on other securities that should be excluded from the Tick Size Pilot, including securities that are cross-listed in Canada and securities that trade below $1.00 per share during the Pilot Period. The Commission notes that securities that are cross-listed in Canada are included in other NMS provisions and plans; accordingly the Commission believes that such securities should also be included in the Tick Size Pilot. The Commission also notes that researchers may choose not to include all securities in the Test Groups when they undertake their analyses. In particular, researchers may choose not to include securities that are cross-listed with Canada if they think the results of their analyses may be significantly affected.
The Commission believes that the exclusion of securities that have participated in a recent IPO is necessary because such stocks would not have a full data set prior the start of the Tick Size Pilot, which would limit the ability of the Commission and the public to analyze the effects of the Tick Size Pilot against a sufficient baseline.
One commenter suggested that the NMS plan specifically eliminate Pilot Securities that trade at $1.00 or less during the Pilot Period. The Commission notes that the Participants proposed additional selection criteria to minimize the likelihood that securities that trade with a share price of $1.00 or less would be included in the Tick Size Pilot. Specifically, there are three criteria that seek to evaluate the share price of potential Pilot Securities: (1) a closing price of at least $2.00 on the last day of the Measurement Period; (2) a closing price on every U.S. trading day during the Measurement Period that is not less than $1.50; and (3) a Measurement Period VWAP of at least $2.00 per share. The Participants stated that these criteria were designed to avoid having securities priced $1.00 or less selected as Pilot Securities but the Participants state that Pilot Securities would not be excluded from the Tick Size Pilot if their share price falls to $1.00 or less during the Pilot Period. The commenter has not suggested that these criteria are not sufficient for this purpose but states that it is “reasonable to expect a small number of Pilot Securities to trade below $1.00 during the Pilot.” The Commission believes that once established, the universe of Pilot Securities should stay as consistent as possible so that the analysis and data can be accurate throughout the Pilot Period.
Finally, the Commission received a few comments supporting the exclusion of ETFs from the Tick Size Pilot. The Commission agrees that these securities should be excluded because their pricing is derivative of the value of their component securities.
The NMS plan contains procedures for stratified random sampling in which the Participants would assign the Pilot Securities into 27 categories, and then randomly assign Pilot Securities into the Tick Size Pilot groups (Control Group and three Test Groups), based on the percentages of Pilot Securities in each category. The Commission did not receive comments with respect to this aspect of the NMS plan.
In the June 2014 Order, the Commission stated that the assignment of Pilot Securities into each test group should involve stratified sampling by market capitalization and price. The Participants proposed to add the CADV to the market capitalization and price. The Commission believes that the addition of CADV should ensure that each test group contains a representative of the total universe of Pilot Securities. Specifically, this should help ensure that the four groups of securities are comparable to each other in terms of stock characteristics and therefore should provide an ideal experimental setting for robust analysis of the Tick Size Pilot.
The Tick Size Pilot would have a Control Group and three Test Groups, comprised of 400 Pilot Securities per test group. Test Group One Pilot Securities would quote in $0.05 per share increments and would trade at any currently permitted increments. Test Group Two Pilot Securities would quote in $0.05 per share increments like those in Test Group One, but would only be permitted to trade in $0.05 per share increments, subject to three exceptions. Finally, Test Group Three Pilot Securities would quote in $0.05 per share increments and trade at $0.05 per share increments consistent with Test Group Two, and be subject to the Trade-At Prohibition. Pilot Securities in the Control Group would continue to quote and trade at the pricing increments that are currently permitted.
Several commenters opined about the design of the Tick Size Pilot. For example, some commenters suggested that the Tick Size Pilot should be narrower, with only one or two test groups which would lessen the cost and complexity of the Tick Size Pilot.
The Commission notes that the NMS plan has been designed to incrementally assess potential changes to the Tick Size Pilot, such that Test Group One would only add a wider quoting increment, while Test Group Two would also add a wider trading increment, and finally Test Group Three would add the Trade-At Prohibition. The Commission believes that constructing the Tick Size Pilot in this manner should generate the most meaningful and measurable data that should allow the Commission and other interested parties to conduct studies.
Commenters also expressed their views that other tick sizes, both larger and smaller than the proposed $0.05 tick size increment, should be included and tested concurrently within the Tick Size Pilot.
In the NMS plan, the Participants proposed 400 Pilot Securities per Test Group positing that the increased size of each Test Group would help to ensure a sufficient data yield for the completion of required assessments even in the event of the removal or exclusion of Pilot Securities. The Commission received three comments on this aspect of the Tick Size Pilot, two of which said the Test Groups should be smaller and one who thought 400 was appropriate.
The Commission received a few other comments related to the operation of the Tick Size Pilot. Specifically, two commenters offered differing opinions with respect to whether the Tick Size Pilot should operate during opening and closing auctions.
In addition, two commenters requested clarification on how to handle orders that do not conform to the quoting increments.
The Pilot Securities in the Control Group would be quoted and traded in any increment currently permitted. Any Pilot Securities that are not selected to be included in a test group would be placed in the Control Group. The Commission believes that the Control Group should provide a baseline for the analysis of the effect of the Tick Size Pilot on liquidity and market quality data.
As discussed above, Pilot Securities in Test Group One would have a quoting increment restriction of $0.05 but could continue to trade at any currently permitted price increment. The Participants would be required to adopt rules that would prohibit the Participants or any member of a Participant from displaying, ranking, or accepting from any person any displayable or non-displayable bids or offers, orders, or indications of interest in increments other than $0.05. Orders priced to execute pegged to the midpoint of the NBBO and orders entered in a Participant's retail liquidity program could be quoted at less than the $0.05 increment. The Commission notes that Test Group One would be different from the Control Group in only one manner—the quoting increment would be widened.
Several commenters argued that Test Group One should be eliminated because trading for Test Group One Pilot Securities would migrate to non-displaying trading centers.
The Commission, however, believes, as noted above, that Test Group One is necessary as an initial incremental change to test the impact of the Tick Size Pilot on market quality and liquidity of this market segment. The Commission believes that Test Group One is reasonably designed to generate data on how trading characteristics and liquidity would change if the quoting increment alone is widened. One commenter suggested that exchanges and agency ATSs would be at a competitive disadvantage vis-à-vis broker-owned proprietary execution systems which can execute orders at any increment without accepting or ranking an order at an impermissible increment. This commenter recommended that market participants be permitted to accept and rank, but not display, orders in one penny increments for Test Group
While commenters have raised counterpoints, the Commission believes that it is necessary to initially test this incremental change to generate data to analyze the impact, if any, on market quality for the Pilot Securities in Test Group One. The Commission notes that Test Group One would only test how a wider quoting increment implemented using the current regulatory framework, reflected in Rule 612, could impact the liquidity and trading of smaller capitalization securities. Test Group One is not designed to favor one group of market participants over other groups of market participants any more than the existing regulatory framework. In particular, including Test Group One would allow the Tick Size Pilot to examine each change incrementally to identify the changes that are economically most important. Further, the Commission recognizes that the design of the Test Groups create differing incentives for the display and execution of orders which may result in the migration of order flow,
Specifically, Test Group One should enhance the ability of the Tick Size Pilot to generate data on the effects of wider ticks and any resulting order flow migration on liquidity, execution quality, volatility, market maker profitability, competition, and transparency.
Pilot Securities in Test Group Two would be required to be quoted in a $0.05 increment, like Test Group One, but trading would be limited to the $0.05 increment subject to three exceptions. Specifically, executions could occur at a price other than a $0.05 increment in the following circumstances: (1) midpoint executions at the NBBO or best protected bid and best protected offer; (2) retail price improvement of at least $0.005 better than the best protected bid or offer; and (3) Negotiated Trades.
After carefully weighing comments, the Commission believes that Test Group Two and the exceptions, including the exception for retail price improvement, are reasonably designed to generate data on how trading characteristics and liquidity would incrementally change relative to Test Group One if the trading increment is widened. The Commission believes it is important to measure the incremental impact of a trading increment on market quality for small capitalization stocks and it would be useful to compare the data generated by this Test Group against the data in Test Group One. As the Commission noted in the June 2014 Order, if the minimum quoting increment is changed without corresponding changes to the minimum trading increment, market participants may be hesitant to display liquidity in larger $0.05 increments if other market participants could easily trade ahead of them in smaller increments.
As noted above, commenters raised concerns with respect to the retail price improvement exception.
By allowing Retail Investor Orders to trade at certain prices other than the $0.05 trading increment and receive price improvement, the Commission believes that some of concerns related to costs for retail investors could be minimized. As noted earlier in Section V.A., retail investors may incur costs due to the Tick Size Pilot in the form of wider bid-ask spreads, which imply less favorable prices and high transaction costs if retail investors were required to trade only at the displayed quotation. As noted above, many potential Pilot Securities would have bid-ask spreads of greater than $0.05, although an equal number may have spreads less than $0.05. Therefore, the Tick Size Pilot could potentially widen bid-ask spreads of some Pilot Securities, which could increase costs for retail investors. The ability to receive price improvement, therefore, should reduce some retail investor costs. Further, the Commission does not believe that the exception for Retail Investor Orders would undermine the Tick Size Pilot and believes it is appropriate to provide this exception for retail investors.
The Commission, however, does not believe that it is necessary or appropriate to expand the price improvement exception to all orders. The Commission believes that such a modification could undermine the purpose of Test Group Two, which is to assess the impact of a trading increment on trading and liquidity. As noted above, this exception was designed to mitigate cost concerns for retail investors that typically receive price improvement under current trading conditions.
Commenters stated that the attestation should not be required because it would be unwieldy for trading centers to conduct surveillance to ensure that only bona fide retail orders qualify.
The Commission acknowledges that there are potential downsides to widening the quoting and trade increment to $0.05 but believes that the Tick Size Pilot is designed to reasonably balance the need to generate data and the potential higher costs for investors. The Commission also recognizes that the $0.05 quoting and trading increment for Test Group Two could have an effect on competition between exchanges and non-exchange trading centers, including the potential migration of order flow. The extent of any such potential order flow migration or other competitive impact is not known at this time. The Commission believes that the data analysis from the results of Test Group Two should provide information on the potential competitive impact and the incremental economic effects of a wider trading increment, including any incremental effects on the incentives for the display and execution of orders that may result in the migration of order flow relative to the other Test Groups and the Control Group. This should better inform the Commission and interested parties of the impact of a wider tick increment.
Pilot Securities in Test Group Three would be quoted and traded in $0.05 increment like Test Group Two and provided with the same trading exceptions. In addition, Test Group Three would introduce another incremental change—the Trade-At Prohibition. In the June 2014 Order, the Commission described a trade-at prohibition as requiring a trading center that was not displaying at the NBBO at the time the trading center received an incoming marketable order to either: (1) execute the order with significant price improvement ($0.05 or the midpoint of the NBBO); (2) execute the order at the NBBO if the size of the incoming order is of block size; or (3) route intermarket sweep orders to execute against the full displayed size of the protected quotations at the NBBO and the execute the balance of the order at the NBBO price. In the Notice, the Commission noted that, in the context of the Tick Size Pilot, an important purpose of a trade-at requirement would be to test whether, in a wider tick environment, the ability of market participants to match displayed quotes, without quoting, would negatively affect market makers' quoting practices. The Commission further noted that if quoting practices were affected negatively, then it could undermine one of the central purposes of the Tick Size Pilot, namely to determine whether wider tick sizes positively affect market maker participation and pre-trade transparency. For example, if the results of Test Groups One and Two were to show an improvement in liquidity with wider tick increments but a loss to transparency because of an order flow migration to the OTC market, perhaps Test Group Three would show similar improvements to liquidity but without the loss to transparency.
The Participants proposed to define “trade-at” in the NMS plan as “the execution by a trading center of a sell order for a Pilot Security at the price of a protected bid or the execution of a buy order for a Pilot Security at the price of a protected offer.”
Under the proposed Trade-At Prohibition, trading centers that are not quoting cannot match protected quotations and a trading center quoting at the protected quotation can execute orders but only up to the size of its displayed quotation. The Tick Size Pilot included thirteen exceptions to the Trade-At Prohibition, when trading centers may trade at a protected quotation or price match.
The Commission received several comments that opposed the inclusion of the Trade-At Prohibition.
Several commenters, however, supported the inclusion of the Trade-At Prohibition.
The data generated by this test group should inform the Commission, the public, and market participants on the incremental impact of the Trade-At Prohibition on trading characteristics and liquidity of Pilot Securities when the quoting and trading increments are widened. The Trade-At Prohibition should test whether market participants are incentivized to display more liquidity in a wider tick environment. Therefore, the Commission believes that the inclusion of the Trade-At Prohibition should enhance the utility of the Tick Size Pilot. Further, the data generated by Test Group Three would
However, the Commission acknowledges commenters' concerns about the cost and complexity of the Trade-At Prohibition. The Commission is therefore modifying the Trade-At Prohibition, as described below, to mitigate and address some of these concerns. The Commission believes that the modifications to the Trade-At Prohibition should reduce the complexity of the provision while maintaining its utility in the Tick Size Pilot. The modified Trade-At Prohibition, as well as the modification to extend the Tick Size Pilot's duration, should work in tandem to ensure that there is wider participation in the Tick Size Pilot.
The Commission recognizes that the Trade-At Prohibition may have some effect on competition between exchanges and non-exchange trading centers. However, the Commission does not believe that this modified Trade-At Prohibition should have significant effects on this competition. Non-exchange trading centers should continue to be able to compete with exchanges for order flow, albeit either in a displayed manner or by providing price improvement. Further, the Commission believes that the exceptions to the modified Trade-At Prohibition, such as the exception for Retail Investor Orders and Block Size orders, should exclude the types of transactions that occur primarily off-exchange.
The Participants proposed deviations from, or additions to, the trade-at prohibition set forth in the June 2014 Order, as follows: (1) the proposed Trade-At Prohibition would apply to any protected bid or protected offer, rather than just the NBBO; (2) trading centers displaying a quote at the price of a protected quote on an SRO proprietary quote feed could execute an incoming order at that displayed price; (3) a trading center could only execute up to its displayed size (
The Participants proposed to use a protected quotation standard rather than the NBBO for the Trade-At Prohibition. As described in the Notice, the protected quotation standard would give broader protection to aggressively displayed quotes because the protected quotation standard encompasses the aggregate of the most aggressively priced displayed liquidity on all trading centers, while the NBBO standard is limited to the single best order in the market.
A few commenters opposed expanding the Trade-At Prohibition to protected quotations. One commenter suggested that protecting less competitive prices than the NBBO would undermine price competition and increase complexity,
After careful consideration, the Commission believes that using protected quotations as the basis for the Trade-At Prohibition is appropriate. The protected quotations standard should further enhance displayed liquidity by providing incentives for market participants and trading centers to display additional liquidity. The Commission does not believe that using protected quotations for the Trade-At Prohibition would necessarily result in less price competition. The Commission expects that market participants would continue to compete to provide liquidity via the best priced orders under the Tick Size Pilot.
The Participants proposed to allow price matching by trading centers that have displayed a quote at the price of a protected quote through an SRO proprietary data feed. One commenter stated this feature would assist a trading center that cannot publish its own protected quotation.
The Participants proposed to limit the price matching by trading centers that have displayed a protected quote with the Size Limitation. Under the Size Limitation, displaying trading centers would only be permitted to execute an incoming order up to the size of its protected quotation, and executions against undisplayed interest at that price level could not occur unless other protected quotations at that price are satisfied. Several commenters opposed the Size Limitation.
While the June 2014 Order did not specify the Size Limitation, the Commission believes that it supports one of the reasons for testing trade-at in the Tick Size Pilot—to determine its impact on displayed liquidity and market quality in a wider tick environment. As one commenter noted, the Size Limitation should create a strong incentive to display liquidity.
The Commission also notes that the modification to the Block Size definition should mitigate and address some commenter concerns related to execution certainty and information leakage that some commenters believe could occur as a result of the Size Limitation. The reduced threshold for Block Size orders should lower the risk of market exposure for investors trading with size. The liberalized Block Size definition should permit more orders to trade without being restricted by the Trade-At Prohibition.
The Participants proposed the Venue Limitation that would restrict where a trading center that is displaying a quotation at the price of a protected quotation could execute incoming orders. Commenters stated that the inclusion of the Venue Limitation would protect displayed quotations, strengthen incentives for market making and gauge the impact of tick size increments.
After carefully considering the comments, the Commission is modifying the Trade-At Prohibition to remove the Venue Limitation. The Commission notes that the Venue Limitation was not prescribed in the June 2014 Order. The Commission believes that the Venue Limitation would have unnecessarily restricted the ability of off-exchange market participants to execute orders in the Pilot Securities of Test Group Three.
Further, the Commission believes that removing the Venue Limitation should mitigate commenter concerns about the complexity and cost of implementing the Trade-At Prohibition by reducing the need for off-exchange trading centers to route orders to the exchanges. Therefore, the Commission deems it appropriate to change the NMS plan by removing the Venue Limitation.
The Trade-At Prohibition proposed by the Participants included a Block Size order exception whereby the price matching of orders of a “block size” would be permitted. The Participants, consistent with the June 2014 Order, proposed to use the “block size” definition set forth in Regulation NMS, which is an order (1) of at least 10,000 shares or (2) with a market value of at least $200,000.
In light of the views expressed by the commenters and after supplemental staff analysis, the Commission deems it is appropriate to modify the definition of “block size,” for purposes of the Tick Size Pilot. Specifically, an order (1) of at least 5,000 shares or (2) with a market value of at least $100,000 will be considered a block size for purposes of the Tick Size Pilot. This block size adjustment aligns with commenters' request for a smaller block size to reflect trading characteristics for potential Pilot Securities, and is consistent with the Commission staff analysis which indicates that, based on the modified selection criteria, the potential Pilot Securities, on average, trade at comparatively smaller sizes than securities with larger market capitalization. The following table reflects staff analysis:
In particular,
The Commission received one comment suggesting that Block Size orders should be able to execute in subpenny increments in a manner similar to Retail Investor Orders that receive price improvement.
The Commission also notes that the modified Block Size definition should ease some of the burden related to the Trade-At Prohibition. Specifically, the modified Block Size definition should mitigate any potential disruption to the institutional trading of Pilot Securities by allowing more of such orders to match protected quotes. Therefore, the Commission deems it appropriate to modify the definition of Block Size to lower the thresholds.
The Participants proposed nine exceptions (numbers 4 through 12) to the Trade-At Prohibition that were not specified in the June 2014 Order. These exceptions were based on the exceptions to Rule 611.
The Commission believes that these exceptions are appropriate. The Commission notes that market participants currently have rules, procedures, and systems in place to comply with Rule 611. Therefore, the Commission believes that the consistency with Rule 611 should alleviate concerns regarding the costs and burdens of implementing the Tick Size Pilot because market participants should be able to leverage existing systems.
The Commission recognizes the concerns related to modeling the Trade-At Prohibition exceptions on the Rule 611 exceptions. Specifically, the Commission notes that two commenters argued that the rationale for the Rule 611 exceptions should not be necessarily applied to the Trade-At Prohibition.
The Participants also proposed an exception to the Trade-At Prohibition for fractional shares where fractional shares do not the result from dividing an order for one or more whole shares. One commenter supported this exception.
The Commission notes that several commenters requested clarification on how odd lot orders would be treated under the Trade-At Prohibition.
The Participants proposed Trading Center Data and Market Maker Profitability Data elements that were consistent with the June 2014 Order. Several commenters suggested that the data elements should be based solely on currently available data, such as the data reported to the processors, SRO proprietary data feeds, or under Rule 605, which would ease reporting burdens and costs.
The Tick Size Pilot would require the Participants to collect market quality statistics, data on specific orders, and data on market makers. The data would be publicly available on a monthly basis. Some commenters suggested that the Commission should rely on currently available data as this would reduce the implementation costs while still providing sufficient information to study the effects of the Tick Size Pilot.
In particular, the market quality statistics in the Trading Center Data expand in several important ways on the data reported under Rule 605. For example, compared to Rule 605 data, the market structure statistics are daily instead of monthly and will be publicly available more centrally, contain a broader set of orders, contain additional information on cancelations and hidden orders, and contain additional categories on order size and time to execution. As described in more detail below, the Trading Center Data are intended to build on an infrastructure that already exists for the collection of Rule 605 data and tailors the data from that infrastructure to the purposes of the Tick Size Pilot.
Requiring daily data and making it available more centrally should improve the feasibility of studying the Tick Size Pilot. Many liquidity and execution quality statistics using SIP data can be calculated, but these statistics are imperfect because they focus on trades instead of orders. For the purposes of assessing the Tick Size Pilot, execution quality of orders is more relevant. Rule 605 data, on the other hand, focuses on orders, but are available on a monthly aggregated basis and are from each of hundreds of trading centers. The daily frequency of the market quality statistics should allow for the study of the time series of metrics in a manner that provides a greater ability to statistically detect changes in market quality resulting from the Tick Size Pilot because it allows for the analysis of effects on a daily basis.
Including additional orders and reducing duplication could help to tailor the market quality statistics to the purposes of the Tick Size Pilot. The market quality statistics include a broader set of orders than Rule 605 statistics, with reduced double counting. In particular, the Tick Size Pilot requires producing market quality statistics on all orders regardless of inclusion in Rule 605 statistics, but includes only statistics on orders that the execution venue executes in part or full. The market quality statistics categorize some of the orders not included in Rule 605 data. In particular, the market quality statistics include categories for resting intermarket sweep orders, retail liquidity providing orders and midpoint passive liquidity orders and separates statistics by whether the statistics are for orders included in Rule 605 data or not. In addition, the market quality statistics include an order size category to capture orders of 10,000 shares or more, which are excluded from Rule 605. Because the purpose of Rule 605 differs from that of the Tick Size Pilot, studies of the Tick Size Pilot necessarily benefit from the inclusion of all orders that could be impacted by wider tick sizes. The Trading Center Data does not include the Rule 605 data on orders that are routed away in their entirety. The Rule 605 data for a particular trading center includes orders that a trading center routed away in their entirety. If this data was aggregated, it would produce double counting of these orders. Because Commission staff intends to aggregate the Trading Center Data across the trading centers, the Commission has decided to not require this information to prevent the likely double counting that could occur when such orders are routed in their entirety.
Including additional data elements and categories in market quality statistics compared to Rule 605 allows for the study of key issues and helps to supplement other existing public data such as the data on the Commission's Market Structure Web site.
The Trading Center Data on specific orders provides disaggregated execution, cancellation and routing statistics for individual market and marketable limit orders. This type of information is not available from any public source or from any raw data source that, as a practical matter, is available in an easily and publicly accessible manner to meet the needs of the Tick Size Pilot. As noted above, order information is more relevant for studies of the Tick Size Pilot than SIP data because order information can consider the full order size. The data on specific orders improves on the market quality statistics by allowing researchers to more directly test hypotheses on the effect of the Tick Size Pilot on quote competition and transparency, for example. Researchers can also supplement statistics they derive from this data with statistics on limit orders from the Commission's Market Structure Web site.
Finally, the Trading Center Data includes daily statistics on registration and participation of market makers. Information on market maker registration and participation is necessary to test the hypothesis that widening the tick size could encourage market making in such a way to improve the liquidity and trading of small capitalization stocks, which could potentially allow such issuers to raise capital more easily. Such data is not available publicly, except from a few exchanges.
Because of these enhancements, the Commission believes that collections of Trading Center Data should facilitate a significantly richer analysis than the public data of the effects of the Tick Size Pilot on liquidity (
The Tick Size Pilot would require market makers to produce the Market Maker Profitability Data, which relates to daily trading profits on the Pilot Securities. Several commenters opposed the collection of Market Maker Profitability Data.
The Commission notes that one of the premises behind the Tick Size Pilot is that a widened tick increment could increase market maker profits and that the increased profits could foster a more robust secondary market for small capitalization stocks (and ultimately a more robust primary market) by, for example, increasing liquidity, enhancing the attractiveness of acting as a market maker, and possibly increasing the provision of sell-side research. Without the Market Maker Profitability Data, the Commission and the public would not be able to test this hypothesis. In light of the comments on the costs of producing the Market Maker Profitability Data and the confidentiality of the data, however, the Commission deems it necessary to modify this data-collection requirement in two ways.
First, the Commission is eliminating the data element which required realized trading profits net of fees and rebates from the list of the required market maker profitability statistics and the data element that would have required the DEA to calculate the volume-weighted average of market maker realized traded profits net of fees and rebates. Some commenters expressed concern that because fees and rebates are charged monthly and in an aggregate form, the fees and rebates could be difficult to assign to daily trades in specific securities. As a result, data on market maker realized trading profits net of fees and rebates could be difficult to produce accurately and in a cost effective manner.
After carefully considering these comments, the Commission is eliminating these data elements from the list of the required Market Maker Profitability Data because of the difficulties in calculating the data and the concerns about the costs related to the calculation. Eliminating this data element should ease the implementation burdens and costs to produce the data. Further, the Commission recognizes that changes in raw realized trading profits may be more relevant for the economic relation the Tick Size Pilot is addressing. The Commission believes that the data on realized raw trading profits and unrealized raw trading profits should be sufficient to support robust analysis.
Second, to address confidentiality concerns the Commission is modifying the NMS plan to require further aggregation of all Market Maker Profitability Data for public dissemination. Some commenters expressed concern about dissemination of Market Maker Profitability Data (even in aggregate form for each security) and opined that some designated market makers could deregister from Pilot Securities to avoid providing profitability data. The Commission recognizes that some Pilot Securities may have a relatively small number of designated market makers, and that in these cases aggregating profitability data across market makers may be insufficient to fully protect the confidentiality of profits of individual
Some commenters suggested that the disclosure of Market Maker Profitability Data to DEAs may be anti-competitive, as market makers would essentially have to disclose sensitive, proprietary information to their exchange competitors. In response to these comments, the Commission notes that many market makers are already required to provide profitability information to their DEAs as part of their registration requirements and by virtue of their membership with a national securities exchange or association. Thus, the Commission believes that the additional impact of the disclosing Market Maker Data is not likely to be significant. Moreover, the Commission emphasizes that the Participants are expected to collect and use Tick Size Pilot data, including Market Maker Profitability Data, for legitimate regulatory purposes, and not for inappropriate, anti-competitive purposes.
The Tick Size Pilot would require the Participants to provide a joint assessment on the impact of the Tick Size Pilot, no later than six months after the end of the Pilot Period. In the June 2014 Order, the Commission identified certain assessments that the Participants were to conduct and to submit to the Commission. However, the Participants did not include the assessment related to the impact of quoting and trading increments on the profitability of market makers in the proposed Tick Size Pilot because, in their view, the market makers would be better positioned, compared to the Participants, to analyze such data.
As previously noted, the impact of a wider tick size on market maker profitability is an important assessment to be conducted. In addition, the Commission has modified the Market Maker Profitability Data to require further aggregation of publically released data. While the public will still be able to study this aggregated profitability data, the public is limited in its ability to conduct an independent assessment based on the more granular profitability data available to the Participants and the Commission. Therefore, the Commission is modifying the NMS plan to reflect that the Participants are required to conduct and submit this assessment. The Commission deems it appropriate to modify the NMS plan to require this assessment.
The Commission is also modifying the timing when the impact assessments should be prepared by the Participants and submitted to the Commission. In particular, the Commission is modifying the NMS plan to require the Participants to submit their assessments 18-months after the Tick Size Pilot begins based on data generated during the first year of the Tick Size Pilot or a subset of which that represents the impact of the Tick Size Pilot. The Commission notes that the timing for when the assessments are due to the Commission has not changed. As proposed, the Participants would have submitted their assessment six months after the end of the Pilot Period (which would have been 18-months after the Tick Size Pilot was implemented). This modification has been made in relation to the modified Pilot Period. As a result, the Commission will receive the impact assessment of the Tick Size Pilot six months prior to its completion. The Commission is not modifying the NMS plan to require the Participants to conduct more frequent periodic impact assessments as some commenters' suggested
Commenters also stated that the Commission should define success metrics for the Tick Size Pilot and what would warrant it being adopted on a permanent basis.
Certain commenters suggested that the Tick Size Pilot should be implemented via Commission rulemaking, rather than through the NMS plan process.
As discussed above, the Commission has reasons to proceed with the Tick Size Pilot as an NMS plan.
Certain commenters raised concerns related to the role of the Participants, and of potential conflicts of interest, in the development of the Tick Size Pilot. The Commission recognizes that most of the Participants are for-profit exchanges that compete in various respects with their broker-dealer members. However, the Participants also are self-regulatory organizations, with specified regulatory obligations under the Act and Commission rules. Among other things, Section 11A(a)(3) of the Act, and Rule 608 thereunder, contemplate that SROs may act jointly in furtherance of their regulatory obligations by developing and filing proposed NMS plans with the Commission and, if approved, operating them subject to the Commission's oversight and authority.
Commenters suggested that issuers should have the ability to opt-in or opt-out of the Tick Size Pilot,
Commenters noted that a one-year implementation period could be appropriate if the Tick Size Pilot was simplified, by among other things, removing the Trade-At Prohibition.
Accordingly, the Commission believes that he Tick Size Pilot should be implemented within one year after the publication of this order. The Commission believes that the one year period for implementation should provide adequate time for the development and testing of applicable trading and compliance systems, the filing and approval of SRO rules related to the Tick Size Pilot's quoting and trading requirements, and the development and implementation of the written policies and procedures by Participants and their members that are reasonably designed to comply with the applicable quoting and trading increments.
Certain commenters requested that the Commission, or the Participants, release detailed frequently-asked-questions (“FAQs”) to assist implementation of the Tick Size Pilot.
One commenter requested that the list of securities be finalized prior to determining the implementation schedule.
For the reasons discussed above, the Commission finds that the NMS
By the Commission.
Pursuant to Section 11A(a)(3)(B) of the Exchange Act, which authorizes the SEC to require by order self-regulatory organizations to act jointly with respect to matters as to which they share authority in planning, developing, operating, or regulating a national market system, the SEC issued an order directing the Participants to submit a Tick Size Pilot Plan as a national market system plan pursuant to Rule 608(a)(3) of Regulation NMS under the Exchange Act. In response, the Participants submit this Plan to implement a Tick Size Pilot Program that will allow the Commission, market participants, and the public to study and assess the impact of increment conventions on the liquidity and trading of the common stocks of small capitalization companies. To do so, the Plan provides for the widening of quoting and trading increments for a group of Pilot Securities. As detailed herein, the Pilot Securities will be subdivided into three Test Groups and a Control Group, each with its own requirements and exceptions relating to quoting and trading increments to facilitate the referenced analysis.
(A) “Average effective spread” has the meaning provided in Rule 600(b)(5) of Regulation NMS under the Exchange Act.
(B) “Average realized spread” has the meaning provided in Rule 600(b)(6) of Regulation NMS under the Exchange Act.
(C) “Benchmark trade” means the execution of an order at a price that was not based, directly or indirectly, on the quoted price of a Pilot Security at the time of execution and for which the material terms were not reasonably determinable at the time the commitment to execute the order was made.
(D) “Best protected bid” means the highest priced protected bid.
(E) “Best protected offer” means the lowest priced protected offer.
(F) “Block Size”
(G) “Brokered cross trade” means a trade that a broker-dealer that is a member of a Participant executes directly by matching simultaneous buy and sell orders for a Pilot Security.
(H) “Closing Price” means the closing auction price on the primary listing exchange, or if not available, then the last regular-way trade reported by the processor prior to 4:00 p.m. ET.
(I) “Designated Examining Authority” means, with respect to a member of two or more self-regulatory organizations, the self-regulatory organization responsible for (i) examining such member for compliance with the financial responsibility requirements imposed by the Exchange Act, or by Commission or self-regulatory organization rules, (ii) receiving regulatory reports from such member, (iii) examining such member for compliance with, and enforcing compliance with, specified provisions of the Exchange Act, the rules and regulations thereunder, and self-regulatory organization rules, and (iv) carrying out any other specified regulatory functions with respect to such member.
(J) “Exchange Act” means the Securities Exchange Act of 1934, as amended.
(K) “Inside-the-quote limit order,” “at-the-quote limit order,” and “near-the-quote limit order” mean non-marketable buy orders that are ranked at a price, respectively, higher than, equal to, and lower by $0.10 or less than the National Best Bid at the time of order receipt, and non-marketable sell orders that are ranked at a price, respectively, lower than, equal to, and higher by
(L) “Market Maker” means a dealer registered with any self-regulatory organization, in accordance with the rules thereof, as (i) a market maker or (ii) a liquidity provider with an obligation to maintain continuous, two-sided trading interest.
(M) “Marketable limit order” means any buy order with a limit price equal to or greater than the National Best Offer at the time of order receipt, or any sell order with a limit price equal to or less than the National Best Bid at the time of order receipt. For price sliding, pegged, discretionary, or similar order types where the ranked price is different from the limit price, the ranked price will determine marketability.
(N) “Measurement Period” means the U.S. trading days during the three-calendar- month period ending at least 30 days prior to the effective date of the Pilot Period.
(O) “National Best Bid” and “National Best Offer” have the meanings provided in Rule 600(b)(42) of Regulation NMS under the Exchange Act.
(P) “Negotiated Trade” means (i) a Benchmark trade, including, but not limited to, a Volume-Weighted Average Price trade or a Time-Weighted Average Price trade, provided that, if such a trade is composed of two or more component trades, each component trade complies with the quoting and trading increment requirements of the Plan, or with an exception to such requirements, or (ii) a Pilot Qualified Contingent Trade.
(Q) “NMS common stock” means an NMS stock that is common stock of an operating company.
(R) “NMS stock” has the meaning provided in Rule 600(b)(47) of Regulation NMS under the Exchange Act.
(S) “Operating Committee” has the meaning provided in Section III(C) of the Plan.
(T) “Participant” means a party to the Plan.
(U) “Pilot Period” means the operative period of the Tick Size Pilot Program, lasting [one]
(V) “Pilot Qualified Contingent Trade” means a transaction consisting of two or more component orders, executed as agent or principal, where: (1) at least one component order is in an NMS common stock; (2) all components are effected with a product or price contingency that either has been agreed to by the respective counterparties or arranged for by a broker-dealer as principal or agent; (3) the execution of one component is contingent upon the execution of all other components at or near the same time; (4) the specific relationship between the component orders
(W) “Pilot Securities” means those securities that satisfy the criteria established in Section V.
(X) “Plan” means the plan set forth in this instrument, as amended from time to time in accordance with its provisions.
(Y) “Processor” means the single plan processor responsible for the consolidation of information for an NMS stock pursuant to Rule 603(b) of Regulation NMS under the Exchange Act.
(Z) “Protected bid” and “protected offer” have the meanings provided in Rule 600(b)(57) of Regulation NMS under the Exchange Act.
(AA) “Protected quotation” has the meaning provided in Rule 600(b)(58) of Regulation NMS under the Exchange Act.
(BB) “Quotation” has the meaning provided in Rule 600(b)(62) of Regulation NMS under the Exchange Act.
(CC) “Regular Trading Hours” has the meaning provided in Rule 600(b)(64) of Regulation NMS under the Exchange Act. For purposes of the Plan, Regular Trading Hours can end earlier than 4:00p.m. ET in the case of an early scheduled close.
(DD) “Retail Investor Order” means an agency order or a riskless principal order originating from a natural person, provided that, prior to submission, no change is made to the terms of the order with respect to price or side of market and the order does not originate from a trading algorithm or any other computerized methodology. The Participant that is the Designated Examining Authority of a member of a Participant operating a trading center executing a Retail Investor Order will require such trading center to sign an attestation that substantially all orders to be executed as Retail Investor Orders will qualify as such under the Plan.
(EE) “Retail liquidity providing order” means an order entered into a Participant-operated retail liquidity program to execute against Retail Investor Orders.
(FF) “SEC” means the United States Securities and Exchange Commission.
(GG) “SRO quotation feed” means any market data feed disseminated by a self-regulatory organization.
(HH) “Tick Size Pilot Program” means the program established by this Plan and by the corresponding rules of the Participants.
(II) “Time of order execution” means the time (to the second, or to such smaller increments as are available) that an order was executed at any venue.
(JJ) “Time of order receipt” means the time (to the second, or to such smaller increments as are available) that an order was received by a trading center for execution.
(KK) “Time-Weighted Average Price” means the price calculated as the average price of a security over a specified period of time.
(LL) “Trade-at” means the execution by a trading center of a sell order for a Pilot Security at the price of a protected bid or the execution of a buy order for a Pilot Security at the price of a protected offer
(MM) “Trade-at Intermarket Sweep Order” means a limit order for a Pilot Security that meets the following requirements:
(1) When routed to a trading center, the limit order is identified as an Intermarket Sweep Order; and
(2) Simultaneously with the routing of the limit order identified as an Intermarket Sweep Order, one or more additional limit orders, as necessary, are routed to execute against the full displayed size of any protected bid, in the case of a limit order to sell, or the full displayed size of any protected offer, in the case of a limit order to buy, for the Pilot Security with a price that is equal to the limit price of the limit order identified as an Intermarket Sweep Order. These additional routed orders also must be marked as Intermarket Sweep Orders.
(NN) “Trading center” has the meaning provided in Rule 600(b)(78) of Regulation NMS under the Exchange Act.
(OO) “Volume-Weighted Average Price” means the price calculated by summing up the products of the number of single-counted shares traded and the respective share price, and dividing by the total number of single-counted shares traded.
The parties to the Plan are as follows:
By subscribing to and submitting the Plan for approval by the SEC, each Participant agrees to comply with, and to enforce compliance by its members, as applicable, with the provisions of the Plan as required by Rule 608(c) of Regulation NMS under the Exchange Act. To this end, each Participant will adopt rules requiring compliance by its members with the provisions of the Plan, as applicable, and adopt such other rules as are needed for such compliance.
The Participants agree that any entity registered as a national securities exchange or national securities association under the Exchange Act may become a Participant by: (1) executing a copy of the Plan, as then in effect; (2) providing each then-current Participant with a copy of such executed Plan; and (3) effecting an amendment to the Plan as specified in Section III(B) of the Plan.
Except with respect to the addition of new Participants to the Plan, any proposed change in, addition to, or deletion from the Plan will be effected by means of a written amendment to the Plan that: (1) sets forth the change, addition, or deletion; (2) is executed on behalf of each Participant; and (3) is approved by the SEC pursuant to Rule 608 of Regulation NMS under the Exchange Act, or otherwise becomes effective under Rule 608 of Regulation NMS under the Exchange Act.
With respect to new Participants, an amendment to the Plan may be effected by the new national securities exchange or national securities association executing a copy of the Plan, as then in effect (with the only changes being the addition of the new Participant's name in Section II(A) of the Plan) and submitting such executed Plan to the SEC for approval. The amendment will be effective when it is approved by the SEC in accordance with Rule 608 of Regulation NMS under the Exchange Act, or otherwise becomes effective pursuant to Rule 608 of Regulation NMS under the Exchange Act.
(1) Each Participant will select from its staff one individual to represent the Participant as a member of an Operating Committee, together with a substitute for such individual. The substitute may participate in deliberations of the Operating Committee and will be considered a voting member thereof only in the absence of the primary representative. Each Participant will have one vote on all matters considered by the Operating Committee. No later than the initial date of Plan operations, the Operating Committee will designate one member of the Operating Committee to act as the Chair of the Operating Committee.
(2) The Operating Committee will monitor the procedures established pursuant to this Plan and advise the Participants with respect to any deficiencies, problems, or recommendations as the Operating Committee may deem appropriate. The Operating Committee will establish specifications and procedures for the implementation and operation of the Plan that are consistent with the provisions of this Plan. With respect to matters in this paragraph, Operating Committee decisions must be approved by a simple majority vote.
(3) Any recommendation for an amendment to the Plan from the Operating Committee that receives an affirmative vote of at least two-thirds of the Participants, but is less than unanimous, will be submitted to the SEC as a request for an amendment to the Plan initiated by the Commission under Rule 608 of Regulation NMS.
Consistent with the compliance undertakings set out in Section II(B), all Participants and members of Participants will be required to establish, maintain, and enforce written policies and procedures that are reasonably designed to comply with applicable quoting and trading requirements specified in Section VI for the Pilot Securities.
Each Participant, as applicable, will develop appropriate policies and procedures that provide for collecting and reporting to the SEC the data described in Appendix B. In addition, each Participant that is the Designated Examining Authority of a member of a Participant operating a trading center will require such member to develop appropriate policies and procedures for collecting and reporting the data described in Items I and II of Appendix B, as applicable, to the Designated Examining Authority. Each Participant that is the Designated Examining Authority of a member of a Participant operating a trading center will develop appropriate policies and procedures, as applicable, that provide for collecting and reporting such data to the SEC. The data collection and reporting obligations are described below in Section VII.
Each Participant that is the Designated Examining Authority of a Market Maker will require such Market Maker to develop policies and procedures for collecting the data set out in Appendix C and reporting it to the Designated Examining Authority. Each Participant that is the Designated Examining Authority of a Market Maker will develop appropriate policies and procedures that provide for collecting and reporting such data to the SEC on an aggregated basis. The Designated Examining Authority will also develop policies and procedures reasonably designed to ensure the confidentiality of the non-aggregated data it receives from Market Makers. The data collection and reporting obligations are described below in Section VII.
Pilot Securities will consist of those NMS common stocks that satisfy the following criteria:
(1) A market capitalization of $[5]
(2) A Closing Price of at least $2.00 on the last day of the Measurement Period;
(3) A Closing Price on every U.S. trading day during the Measurement Period that is not less than $1.50;
(4) A Consolidated Average Daily Volume (“CADV”) during the Measurement Period of one million shares or less, where the CADV is calculated by adding the single-counted share volume of all reported transactions in the Pilot Security during the Measurement Period and dividing by the total number of U.S. trading days during the Measurement Period; and
(5) A Measurement Period Volume-Weighted Average Price (“Measurement Period VWAP”) of at least $2.00, where the Measurement Period VWAP is determined by calculating the VWAP for each U.S. trading day during the Measurement Period, summing the daily VWAP across the Measurement Period, and dividing by the total number of U.S. trading days during the Measurement Period.
For purposes of the CADV and Measurement Period VWAP calculations described in Sections V(A)(4) and V(A)(5), U.S. trading days during the Measurement Period with early closes will be excluded. An NMS common stock that had its initial public offering within six months of the start of the Pilot Period will not be eligible to be a Pilot Security.
The Operating Committee will oversee the Pilot Security grouping process in accordance with the methodology and criteria set out in this subsection. Once the population of Pilot Securities has been determined based on the criteria in Section V(A), the Operating Committee will select the Pilot Securities to be placed into three Test Groups by means of a stratified random sampling process. To effect this sampling, each of the Pilot Securities will be categorized as having (1) a low, medium, or high share price based on the Measurement Period VWAP, (2) low, medium, or high market capitalization based on the last day of the Measurement Period, and (3) low, medium, or high trading volume based on the CADV during the Measurement Period, yielding 27 possible categories. Low, medium, and high subcategories will be established by dividing the categories into three parts, each containing a third of the population.
Pilot Securities will be randomly selected from each of the 27 categories for inclusion into the Test Groups. If, however, a single category of Pilot Securities contains fewer than 10 securities, it will be combined with another of the 27 categories that contains at least 10 securities. If two or more categories of Pilot Securities contain fewer than 10 securities, those categories will be combined, provided the combined category contains at least 10 securities. If the combined category contains fewer than 10 securities, then the category will be combined with another of the 27 categories that contains at least 10 securities.
Pilot Securities will be randomly selected from each category for inclusion in the three Test Groups based on the percentage of Pilot Securities comprised of that category. As a result, each category will be represented in the three Test Groups based on its relative proportion to the population of Pilot Securities. Further, a primary listing market's securities will be selected from each category and included in the three Test Groups in the same proportion as that primary listing market's securities comprise each category of Pilot Securities. Each Test Group will consist of 400 Pilot Securities. Those Pilot Securities not placed into the three Test Groups will constitute the Control Group.
Each primary listing exchange will make publicly available for free on its Web site a list of those Pilot Securities listed on that exchange and included in the Control Group and each Test Group, adjusting for ticker symbol changes and relevant corporate actions. The list of Pilot Securities will contain the data specified in Appendix A.
As described in Section V(B), the Pilot Securities will be divided into four groups: a Control Group and three Test Groups. Each Test Group will consist of 400 Pilot Securities. The Control Group will consist of the Pilot Securities not placed into a Test Group.
Pilot Securities in the Control Group may be quoted and traded at any price increment that is currently permitted.
Pilot Securities in Test Group One will be quoted in $0.05 minimum increments, but may continue to trade at any price increment that is currently permitted. Participants will adopt rules prohibiting Participants or any member of a Participant from displaying, ranking, or accepting from any person any displayable or non-displayable bids or offers, orders, or indications of interest in any Pilot Security in Test Group One in price increments other than $0.05. However, orders priced to execute at the midpoint and orders entered in a Participant-operated retail liquidity program may be ranked and accepted in increments of less than $0.05.
Pilot Securities in Test Group Two will be subject to the same quoting requirements as Test Group One, along with the applicable quoting exceptions. In addition, Pilot Securities in Test Group Two may only be traded in $0.05 minimum increments. Participants will adopt rules prohibiting trading centers operated by Participants and members of Participants from executing orders in any Pilot Security in Test Group Two in price increments other than $0.05. The $0.05 minimum trading increment applies to brokered cross trades. Pilot Securities in Test Group Two may trade in increments less than $0.05, however, under the following circumstances:
(1) Trading may occur at the midpoint between the National Best Bid and the National Best Offer or the midpoint between the best protected bid and the best protected offer;
(2) Retail Investor Orders may be provided with price improvement that is at least $0.005 better than the best protected bid or the best protected offer; and
(3) Negotiated Trades may trade in increments less than $0.05.
Pilot Securities in Test Group Three will be subject to the same quoting and trading requirements as Test Group Two, along with the applicable quoting and trading exceptions. In addition, Pilot Securities in Test Group Three will be subject to a trade-at prohibition.
Trade-at Prohibition. Under the trade-at prohibition, the Plan will (1) prevent a trading center that was not quoting from price-matching protected quotations and (2) permit a trading center that was quoting at a protected quotation to execute orders at that level, but only up to the amount of its displayed size.
In accordance with the trade-at prohibition, Participants will adopt rules prohibiting trading centers operated by Participants and members of Participants from executing a sell order for a Pilot Security at the price of a protected bid or from executing a buy order for a Pilot Security at the price of a protected offer unless such executions fall within an exception set forth below.
Trade-at Prohibition Exceptions. Trading centers will be permitted to execute an order for a Pilot Security at a price equal to a protected bid or
(1) The order is executed by a trading center that is displaying a quotation, via either a processor or an SRO quotation feed, at a price equal to the traded-at protected quotation but only up to the trading center's full displayed size [. Where the quotation is displayed through a national securities exchange, the execution at the size of the order must occur against the displayed size on that national securities exchange. Where the quotation is displayed through the Alternative Display Facility or another facility approved by the Commission that does not provide execution functionality, the execution at the size of the order must occur against the displayed size in accordance with the rules of the Alternative Display Facility or such approved facility];
(2) The order is of Block Size;
(3) The order is a Retail Investor Order executed with at least $0.005 price improvement;
(4) The order is executed when the trading center displaying the protected quotation that was traded at was experiencing a failure, material delay, or malfunction of its systems or equipment;
(5) The order is executed as part of a transaction that was not a “regular way” contract;
(6) The order is executed as part of a single-priced opening, reopening, or closing transaction by the trading center;
(7) The order is executed when a protected bid was priced higher than a protected offer in the Pilot Security;
(8) The order is identified as an Intermarket Sweep Order;
(9) The order is executed by a trading center that simultaneously routed Trade-at Intermarket Sweep Orders to execute against the full displayed size of the protected quotation that was traded at;
(10) The order is executed as part of a Negotiated Trade;
(11) The order is executed when the trading center displaying the protected quotation that was traded at had displayed, within one second prior to execution of the transaction that constituted the trade-at, a best bid or best offer, as applicable, for the Pilot Security with a price that was inferior to the price of the trade-at transaction.
(12) The order is executed by a trading center which, at the time of order receipt, the trading center had guaranteed an execution at no worse than a specified price (a “stopped order”), where:
a. The stopped order was for the account of a customer;
b. The customer agreed to the specified price on an order-by-order basis; and
c. The price of the trade-at transaction was, for a stopped buy order, equal to the national best bid in the Pilot Security at the time of execution or, for a stopped sell order, equal to the national best offer in the Pilot Security at the time of execution; or
(13) The order is for a fractional share of a Pilot Security, provided that such fractional share order was not the result of breaking an order for one or more whole shares of a Pilot Security into orders for fractional shares or was not otherwise effected to evade the requirements of the trade-at prohibition or any other provisions of the Plan.
The following examples illustrate the basic operation of the trade-at prohibition:
The NBBO for Pilot Security ABC is $20.00 × $20.10. Trading Center 1 is displaying a 100-share protected bid at $20.00. Trading Center 2 is displaying a 100-share protected bid at $19.95. There are no other protected bids. Trading Center 3 is not displaying any shares in Pilot Security ABC but has 100 shares hidden at $20.00 and has 100 shares hidden at $19.95. Trading Center 3 receives an incoming order to sell for 400 shares. To execute the 100 shares hidden at $20.00, Trading Center 3 must respect the protected bid on Trading Center 1 at $20.00. Trading Center 3 must route a Trade-at Intermarket Sweep Order to Trading Center 1 to execute against the full displayed size of the protected bid, at which point Trading Center 3 is permitted to execute against the 100 shares hidden at $20.00. To execute the 100 shares hidden at $19.95, Trading Center 3 must respect the protected bid on Trading Center 2 at $19.95. Trading Center 3 must route a Trade-at Intermarket Sweep Order to Trading Center 2 to execute against the full displayed size of the protected bid, at which point Trading Center 3 is permitted to execute against the 100 shares hidden at $19.95.
The NBBO for Pilot Security ABC is $20.00 × $20.10. Trading Center 1 is displaying a 100-share protected bid at $20.00. Trading Center 2 is displaying a 100-share protected bid at $20.00. Trading Center 2 also has 300 shares hidden at $20.00 and has 300 shares hidden at $19.95. Trading Center 3 is displaying a 100-share protected bid at $19.95. There are no other protected bids. Trading Center 2 receives an incoming order to sell for 900 shares. Trading Center 2 may execute 100 shares against its full displayed size at the protected bid at $20.00. To execute the 300 shares hidden at $20.00, Trading Center 2 must respect the protected bid on Trading Center 1 at $20.00. Trading Center 2 must route a Trade-at Intermarket Sweep Order to Trading Center 1 to execute against the full displayed size of Trading Center 1's protected bid, at which point Trading Center 2 is permitted to execute against the 300 shares hidden at $20.00. To execute the 300 shares hidden at $19.95, Trading Center 2 must respect the protected bid on Trading Center 3 at $19.95. Trading Center 2 must route a Trade-at Intermarket Sweep Order to Trading Center 3 to execute against the full displayed size of Trading Center 3's protected bid, at which point Trading Center 2 is permitted to execute against the 300 shares hidden at $19.95.
The NBBO for Pilot Security ABC is $20.00 × $20.10. Trading Center 1 is displaying a 100-share protected bid at $20.00. Trading Center 1 is also displaying 300 shares at $19.90 on an SRO quotation feed. Trading Center 2 is displaying a 100-share protected bid at $19.95. Trading Center 2 is also displaying 200 shares at $19.90 on an SRO quotation feed and has 200 shares hidden at $19.90. Trading Center 3 is displaying a 100-share protected bid at $19.90. There are no other protected bids. Trading Center 2 receives an incoming order to sell for 700 shares. To execute against its protected bid at $19.95, Trading Center 2 must comply with the trade-through restrictions in Rule 611 of Regulation NMS and route an intermarket sweep order to Trading Center 1 to execute against the full displayed size of Trading Center 1's protected bid at $20.00. Trading Center 2 is then permitted to execute against its 100-share protected bid at $19.95. Trading Center 2 may then execute 200 shares against its full displayed size at the price of Trading Center 3's protected bid. To execute the 200 shares hidden at $19.90, Trading Center 2 must respect the protected bid on Trading Center 3 at $19.90. Trading Center 2 must route a Trade-at Intermarket Sweep Order to Trading Center 3 to execute against the full displayed size of Trading Center 3's protected bid, at which point Trading Center 2 is permitted to execute against the 200 shares hidden at $19.90. Trading Center 2 does not have to respect Trading Center 1's displayed size at $19.90 for trade-at purposes because it is not a protected quotation.
Throughout the Pilot Period, the Participants will collect the following data with respect to Pilot Securities (as set forth in Appendix B):
(1) Daily market quality statistics of orders by security, order type, original order size (as observed by the trading center), hidden status (as applicable), and coverage under Rule 605 of Regulation NMS;
(2) Specified data regarding market orders and marketable limit orders;
(3) Daily number of registered Market Makers; and
(4) Daily Market Maker participation statistics. Each Participant that is the Designated Examining Authority of a member of a Participant operating a trading center will require such member to collect and provide to the Designated Examining Authority the data described in subparagraphs (1) and (2) above, as applicable, subject to the terms and conditions in Appendix B. The Participants and each member of a Participant operating a trading center will also be required to collect such data for dates starting six months prior to the Pilot Period through six months after the end of the Pilot Period. Each Participant will make available to other Participants a list of members designated as Market Makers on that Participant's trading center.
On a monthly basis, the Participants and the Designated Examining Authority for each member of a Participant operating a trading center will make the data in the applicable subparagraphs specified above publicly available on their Web sites for free and will report such data to the SEC on a disaggregated basis by trading center. The data made publicly available will not identify the trading center that generated the data.
Each Participant that is the Designated Examining Authority of a Market Maker will require such Market Maker to provide to the Designated Examining Authority the data specified in Appendix C regarding daily Market Maker trading profits with respect to Pilot Securities on a monthly basis. Each Market Maker will also be required to provide to its Designated Examining Authority such daily data for dates starting six months prior to the Pilot Period through six months after the end of the Pilot Period. On a monthly basis, the Designated Examining Authority will aggregate such data related to Market Makers
No later than [six]
(1) An assessment of the statistical and economic impact of an increase in the quoting increment on market quality;
(2) An assessment of the statistical and economic impact of an increase in the quoting increment on the number of Market Makers;
(3) An assessment of the statistical and economic impact of an increase in the quoting increment on Market Maker participation;
([4]
([5]
([6]
([7]
(8) An assessment of any other economic issues that the Participants believe the SEC should consider in any rulemaking that may follow the Pilot. Participants may individually submit to the SEC and make publicly available additional supplemental assessments of the impact of the Pilot.
The Tick Size Pilot Program will be implemented on a [one]
If a Participant obtains SEC approval to withdraw from the Plan, such Participant may withdraw from the Plan at any time on not less than 30 days' prior written notice to each of the other Participants. At such time, the withdrawing Participant will have no further rights or obligations under the Plan.
The Plan may be executed in any number of counterparts, no one of which need contain all signatures of all Participants, and as many of such counterparts as will together contain all such signatures will constitute one and the same instrument.
IN WITNESS THEREOF, this Plan has been executed as of the _day of _[2014]
The following data will be made publicly available in a pipe delimited format regarding the list of Pilot Securities included in the Control Group and each Test Group. Each primary listing exchange will be responsible for making publicly available for free on its Web site the following data with respect to the Pilot Securities listed on that exchange and included in the Control Group and each Test Group.
Each Participant, as applicable, will collect and transmit the data described in Items I-IV with respect to Pilot Securities to the SEC in a pipe delimited format on a monthly basis. In addition, each Participant that is the Designated Examining Authority of a member of a Participant operating a trading center will require such member, as applicable, to collect and transmit the data described in Items I and II with respect to Pilot Securities to the Designated Examining Authority in a pipe delimited format on a monthly basis. Each Designated Examining Authority will transmit the data on a disaggregated basis to the SEC,
I. Market Quality Statistics—Daily market quality statistics categorized by security, order type, original order size, hidden status, and coverage under Rule 605, including the following columns of information:
a. For regular hours orders which are market orders (10), marketable limit orders (11), inside-the-quote resting limit orders (12), at-the-quote resting limit orders (13), near-the-quote resting limit orders (within .10 from the NBBO) (14), resting intermarket sweep orders (15), retail liquidity providing orders (16), and midpoint passive liquidity orders (17) executed on the trading center:
(1) Exchange code or trading center identifier;
(2) Ticker Symbol;
(3) Order Type, as defined in the Plan or in I.a of this Appendix;
(4) Original Order size with the following modified categories from Rule 605 reports:
a. Less than 100 shares;
b. 100 to 499 shares;
c. 500 to 1999 shares;
d. 2000 to 4999 shares;
e. 5000 to 9999 shares; and
f. 10000 or more shares;
(5) Hidden Status Category—indicates whether the orders fall into the following categories:
a. Entirely Displayable;
b. Partially Displayable; and
c. Not Displayable;
(6) Rule 605 Coverage—indicates whether the orders are covered in Rule 605 (Y/N);
(7) The cumulative number of orders;
(8) The cumulative number of shares of orders;
(9) The cumulative number of shares of orders canceled;
(10) The cumulative number of shares of orders executed on the receiving trading center;
(11) The cumulative number of orders with special handling instructions (for example, slide, discretion, eligible counterparty, minimum quantity) excluded from price improvement and effective spread statistics;
(12) The cumulative number of shares of orders with special handling instructions (for example slide, discretion, eligible counterparty, minimum quantity) excluded from price improvement and effective spread statistics;
(13) The cumulative number of shares of orders executed at any other trading center;
(14) The cumulative number of shares of orders executed from 0 to less than 100 microseconds after the time of order receipt;
(15) The cumulative number of shares of orders executed from 100 microseconds to less than 100 milliseconds after the time of order receipt;
(16) The cumulative number of shares of orders executed from 100 milliseconds to less than 1 second after the time of order receipt;
(17) The cumulative number of shares of orders executed from 1 second to less than 30 seconds after the time of order receipt;
(18) The cumulative number of shares of orders executed from 30 seconds to less than 60 seconds after the time of order receipt;
(19) The cumulative number of shares of orders executed from 60 seconds to less than 5 minutes after the time of order receipt;
(20) The cumulative number of shares of orders executed from 5 minutes to 30 minutes after the time of order receipt;
(21) The cumulative number of shares of orders canceled from 0 to less than 100 microseconds after the time of order receipt;
(22) The cumulative number of shares of orders canceled from 100 microseconds to less than 100 milliseconds after the time of order receipt;
(23) The cumulative number of shares of orders canceled from 100 milliseconds to less than 1 second after the time of order receipt;
(24) The cumulative number of shares of orders canceled from 1 second to less than 30 seconds after the time of order receipt;
(25) The cumulative number of shares of orders canceled from 30 seconds to less than 60 seconds after the time of order receipt;
(26) The cumulative number of shares of orders canceled from 60 seconds to less than 5 minutes after the time of order receipt;
(27) The cumulative number of shares of orders canceled from 5 minutes to 30 minutes;
(28) The share-weighted average realized spread for executions of orders;
(29) Original Percentage Hidden—the received share-weighted average percentage of shares not displayable as of order receipt;
(30) Final Percentage Hidden—the received share-weighted average percentage of shares not displayed prior to final order execution or cancellation;
(31) Quoted Size at the National Best Bid and National Best Offer -the share weighted average of the consolidated quoted size at the inside price at the time of order execution;
(32) Share-weighted average NBBO Spread at the time of order execution; and
(33) Share-weighted average BBO Spread of reporting exchange at the time of order execution.
b. For market orders and marketable limit orders, except those noted as excluded:
(1) The share-weighted average effective spread for executions of orders;
(2) The cumulative number of shares of orders executed with price improvement;
(3) For shares executed with price improvement, the share-weighted average amount per share that prices were improved;
(4) For shares executed with price improvement, the share-weighted average period from the time of order receipt to the time of order execution;
(5) The cumulative number of shares of orders executed at the quote;
(6) For shares executed at the quote, the share-weighted average period from the time of order receipt to the time of order execution;
(7) The cumulative number of shares of orders executed outside the quote;
(8) For shares executed outside the quote, the share-weighted average amount per share that prices were outside the quote; and
(9) For shares executed outside the quote, the share-weighted average period from the time of order receipt to the time of order execution.
II. Market and Marketable Limit Order Data—The following columns of information with respect to Market Orders and non-booked portions of Marketable Limit Orders:
a. Exchange code or trading center identifier;
b. Ticker Symbol;
c. Date;
d. Time of order receipt;
e. Order Type;
f. Order Size in Shares;
g. Order side- “B”, “S” (including sell short exempt), “SS”;
h. Order price (if marketable limit);
i. NBBO quoted price;
j. NBBO quoted depth in lots;
k. Receiving market offer for buy or bid for sell (as applicable);
l. Receiving market depth (offer for buy and bid for sell) (as applicable);
m. ISO flag (Y/N);
n. Retail Investor Order flag (Y/N);
o. Routable flag (Y/N);
p. IOC (Y/N);
q. Indicator for quote leader- “1” if the receiving market is the first market to post the NBB for a sell or NBO for a buy (as applicable);
r. Average execution price-share-weighted average that includes only executions on the receiving market;
s. Average execution time-share-weighted average period that includes only executions on the receiving market;
t. Executed shares-the number of shares in the order that are executed;
u. Canceled shares—the number of shares in the order that are canceled;
v. Routed shares-the number of shares in the order that are routed to another exchange or market;
w. Routed average execution price-share-weighted average that includes only shares routed away from the receiving market;
x. Average routed execution time-share-weighted average period that includes only executions on the routed markets; and
y. Indicator for special handling instructions (for example, slide, discretion, eligible counterparty, minimum quantity)- identifies orders that contain instructions that could result in delayed execution or an execution price other than the quote.
III. Daily Market Maker Registration Statistics—Each Participant that is a National Securities Exchange will collect daily Market Maker registration statistics categorized by security, including the following columns of information:
a. Ticker Symbol;
b. SRO;
c. Number of registered market makers; and
d. Number of other registered liquidity suppliers.
IV. Daily Market Maker Participation Statistics—Each Participant will collect daily Market Maker participation statistics with respect to each Market Maker engaging in trading activity on the trading center operated by the Participant. With respect to each Market Maker, the Participant will collect such statistics irrespective of whether the Market Maker is registered with the Participant. The participation statistics will be categorized by security, including the columns of information listed below, except that a Participant that is a national securities association will not be required to collect such statistics unless a Market Maker registers with its Alternative Display Facility prior to or during the Pilot Period:
a. Ticker Symbol;
b. Share participation—the number of shares purchased or sold by Market Makers in a principal trade, not including riskless principal. When aggregating across Market Makers, share participation will be an executed share-weighted average per Market Maker;
c. Trade participation—the number of purchases and sales by Market Makers in a principal trade, not including riskless principal. When aggregating across Market Makers, trade participation will be a trade-weighted average per Market Maker;
d. Cross-quote share (trade) participation-the number of shares purchased (the number of purchases) at or above the NBO and the number of shares sold (the number of sales) at or below the NBB at the time of the trade;
e. Inside-the-quote share (trade) participation-the number of shares purchased (the number of purchases) and the number of shares sold (the number of sales) between the NBBO at the time of the trade;
f. At-the-quote share (trade) participation-the number of shares purchased (the number of purchases) that are equal to the National Best Bid price and the number of shares sold (the number of sales) that are equal to the National Best Offer price at the time of or immediately before the trade. In the case of a downward moving National Best Bid or Offer, the National Best Bid or National Best Offer price immediately before the trade will be used; and
g. Outside-the-quote share (trade) participation-the number of shares purchased (the number of purchases) that are less than the National Best Bid price and the number of shares sold (the number of sales) that are greater than the National Best Offer price at the time of or immediately before the trade. In the case of a downward moving National Best Bid or Offer, the National Best Bid or National Best Offer price immediately before the trade will be used.
Each Participant that is the Designated Examining Authority of a Market Maker will require such Market Maker to collect the data described in Item I with respect to orders and executions in Pilot Securities on any trading center and to transmit such data in a pipe delimited format to the Designated Examining Authority on a monthly basis, to be provided within 30 calendar days following month end. Data will only be collected with respect to those orders and executions occurring during Regular Trading Hours. The data will be provided for dates starting six months prior to the Pilot Period through six months after the end of the Pilot Period. Each Designated Examining Authority will be responsible for aggregating the data provided by the Market Makers under Item I and providing the data described in Item II in a pipe delimited format to the SEC.
I. Market Maker Profitability—Daily Market Maker profitability statistics categorized by security, including the following columns of information:
a. Total number of shares of orders executed by the Market Maker;
b. Raw Market Maker realized trading profits—the difference between the market value of Market Maker sales (shares sold x price) and the market value of Market Maker purchases (shares purchased x price). A LIFO-like method will be used for determining which share prices to use in the calculation; and
c. [Market Maker realized trading profits net of fees and rebates—realized trading profits plus rebates the Market Maker collects from trading on that day minus access fees the Market Maker pays for trading on that day (if estimated before allocation of rebates and fees, use expected rebates and fees); and]
[d.] Raw Market Maker unrealized trading profits—the difference between the purchase or sale price of the end-of-day inventory position of the Market Maker and the Closing Price. In case of a short position, the Closing Price from the sale will be subtracted. In the case of a long position, the purchase price will be subtracted from the Closing Price.
II. Aggregated Market Maker Profitability—Total Daily Market Maker profitability statistics categorized by security
a. Total Raw Market Maker realized trading profits—the difference between the market value of Market Maker sales (shares sold x price) and the market value of Market Maker purchases (shares purchased x price). A LIFO-like method will be used for determining which share prices to use in the calculation;
b. Volume-weighted average of Raw Market Maker realized trading profits;
[c. Total Market Maker realized trading profits net of fees and rebates—realized trading profits plus rebates the Market Maker collects from trading on that day minus access fees the Market Maker pays for trading on that day (if estimated before allocation of rebates and fees, use expected rebates and fees);
d. Volume-weighted average of Market Maker realized trading profits net of fees and rebates;]
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 |