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Agricultural Marketing Service
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Employment and Training Administration
Federal Aviation Administration
National Highway Traffic Safety Administration
Pipeline and Hazardous Materials Safety Administration
Alcohol and Tobacco Tax and Trade Bureau
Internal Revenue Service
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Nuclear Regulatory Commission.
Petition for rulemaking; denial.
The U.S. Nuclear Regulatory Commission (NRC) is denying a petition for rulemaking (PRM or the petition), PRM-50-108, submitted by Mr. Mark Edward Leyse (the petitioner). The petitioner requested that the NRC require power reactor licensees to perform evaluations to determine the potential consequences of various postulated spent fuel pool (SFP) accident scenarios. The evaluations would be required to be submitted to the NRC for informational purposes. The NRC is denying the petition because the NRC does not believe the information is needed for effective NRC regulatory decisionmaking with respect to SFPs or for public safety, environmental protection, or common defense and security.
The docket for the petition, PRM-50-108, is closed on May 13, 2016.
Please refer to Docket ID NRC-2014-0171 when contacting the NRC about the availability of information for this petition. You may obtain publicly-available information related to this petition by any of the following methods:
•
•
•
Daniel Doyle, Office of Nuclear Reactor Regulation; U.S. Nuclear Regulatory Commission, Washington, DC 20555-0001; telephone: 301-415-3748; email:
Section 2.802 of title 10 of the
The petitioner requested that the NRC develop new regulations requiring that: (1) SFP accident evaluation models use data from multi-rod bundle (assembly) severe accident experiments for calculating the rates of energy release, hydrogen generation, and fuel cladding oxidation from the zirconium-steam reaction; (2) SFP accident evaluation models use data from multi-rod bundle (assembly) severe accident experiments conducted with pre-oxidized fuel cladding for calculating the rates of energy release (from both fuel cladding oxidation and fuel cladding nitriding), fuel cladding oxidation, and fuel cladding nitriding from the zirconium-air reaction; (3) SFP accident evaluation models be required to conservatively model nitrogen-induced breakaway oxidation behavior; and (4) licensees be required to use conservative SFP accident evaluation models to perform annual SFP safety evaluations of: postulated complete loss-of-coolant accident (LOCA) scenarios, postulated partial LOCA scenarios, and postulated boil-off accident scenarios.
The petitioner referenced recent NRC post-Fukushima MELCOR simulations of boiling-water reactor Mark I SFP accident/fire scenarios. The petitioner stated that the conclusions from the NRC's MELCOR simulations are non-conservative and misleading because their conclusions underestimate the probabilities of large radiological releases from SFP accidents.
The petitioner asserted that in actual SFP fires, there would be quicker fuel-cladding temperature escalations, releasing more heat, and quicker axial and radial propagation of zirconium (Zr) fires than MELCOR simulations predict. The petitioner stated that the NRC's philosophy of defense-in-depth requires the application of conservative models, and, therefore, it is necessary to improve the performance of MELCOR and any other computer safety models that are intended to accurately simulate SFP accident/fire scenarios.
The petitioner stated that the new regulations would help improve public and plant-worker safety. The petitioner asserted that the first three requested regulations, regarding zirconium fuel cladding oxidation and nitriding, as
The NRC staff reviewed the petition and, based on its understanding of the overall argument in the petition, identified and evaluated the following three issues:
• Issue 1: The requested regulations pertaining to SFP accident evaluation models are needed because the probability of the type of events that could lead to SFP accidents is relatively high.
• Issue 2: Annual licensee SFP safety evaluations and submission of results to the NRC is necessary so that the NRC is aware of potential consequences of postulated SFP accident/fire scenarios as fuel assemblies are added, removed, or reconfigured in licensees' SFPs.
• Issue 3: MELCOR is not currently sufficient to provide a conservative evaluation of postulated SFP accident/fire scenarios for use in the PRM-proposed annual SFP evaluations.
Detailed NRC responses to the three issues are provided in Section II, “Reasons for Denial,” of this document.
The NRC is denying the petition because the petitioner failed to present any significant information or arguments that would warrant the requested regulations. The first three requested regulations would establish requirements for how the detailed annual evaluations that would be required by the fourth requested regulation would be performed. It is not necessary to require detailed annual evaluations of the progression of SFP severe accidents because the risk of an SFP severe accident is low. The NRC defines risk as the product of the probability and the consequences of an accident. The requested annual evaluations are not needed for regulatory decisionmaking, and the evaluations would not prevent or mitigate an SFP accident. The petitioner described multiple ways that an extended loss of offsite electrical power could occur and how this could lead to an SFP fire. In order for an SFP fire to occur, all SFP systems, backup systems, and operator actions that are intended to prevent the spent fuel in the pool from being uncovered would have to fail. The NRC does not agree that more detailed accident evaluation models need to be developed for this purpose, as requested by the petitioner, because the requested annual evaluations are not needed for regulatory decisionmaking. The NRC recognizes that the consequences of an SFP fire could be large and that is why there are numerous requirements in place to prevent a situation where the spent fuel is uncovered.
This section provides detailed NRC responses to the three issues identified in the petition.
The petitioner stated that the requested regulations pertaining to SFP accident evaluation models are needed because the probability of the type of events that could lead to SFP accidents is relatively high. The petitioner stated that an SFP accident could happen as a result of a leak (rapid drain down) or boil-off scenario. Furthermore, the petitioner notes that in the event of a long-term station blackout, emergency diesel generators could run out of fuel and SFP cooling would be lost, resulting in a boil-off of SFP water inventory and a subsequent release of radioactive materials from the spent fuel. The petitioner also provided several examples of events that could lead to a long-term station blackout and, ultimately, an SFP accident, such as a strong geomagnetic disturbance, a nuclear device detonated in the earth's atmosphere, a pandemic, or a cyber or physical attack.
Spent nuclear fuel offloaded from a reactor is initially stored in an SFP. The SFPs at all nuclear plants in the United States are robust structures constructed with thick, reinforced, concrete walls and welded stainless-steel liners. They are designed to safely contain the spent fuel discharged from a nuclear reactor under a variety of normal, off-normal, and hypothetical accident conditions (
Studies conducted over the last four decades have consistently shown the risk of an accident causing a zirconium fire in an SFP to be low. The risk of an SFP accident was examined in the 1980s as Generic Issue 82, “Beyond Design Basis Accidents in Spent Fuel Pools,” in light of increased use of high-density storage racks and laboratory studies that indicated the possibility of zirconium fire propagation between assemblies in an air-cooled environment (Section 3 of NUREG-0933, “Resolution of Generic Safety Issues,”
The risk of an SFP accident was re-assessed in the late 1990s to support a risk-informed rulemaking for permanently shutdown, or decommissioned, nuclear power plants in the United States. The study, NUREG-1738, “Technical Study of Spent Fuel Pool Accident Risk at Decommissioning Nuclear Power Plants” (ADAMS Accession No. ML010430066), conservatively assumed that if the water level in the SFP dropped below the top of the spent fuel, an SFP zirconium fire involving all of the spent fuel would occur, and thereby bounded those conditions associated with air cooling of the fuel (including partial-drain down scenarios) and fire propagation. Even with this conservative assumption, the study
Additional mechanisms to mitigate the potential loss of SFP water inventory were implemented following the terrorist attacks of September 11, 2001, which have enhanced spent fuel coolability and the potential to recover SFP water level and cooling prior to a potential SFP zirconium fire (73 FR 76204; August 8, 2008). Based on the implementation of these additional strategies, the probability and, accordingly, the risk of an SFP zirconium fire initiation has decreased and is expected to be less than previously analyzed in NUREG-1738 and previous studies.
Following the 2011 accident at Fukushima Dai-ichi, the NRC took extensive actions to ensure that portable equipment is available to mitigate a loss of cooling water in the SFP. On March 12, 2012, the NRC issued Order EA-12-049, “Order Modifying Licenses with Regard to Requirements for Mitigation Strategies for Beyond-Design-Basis External Events” (ADAMS Accession No. ML12054A735). This order required licensees to develop, implement, and maintain guidance and strategies to maintain or restore core cooling, containment, and SFP cooling capabilities following a beyond-design-basis external event. The NRC endorsed the Nuclear Energy Institute (NEI) guidance to meet the requirements of this order.
Also, in 2014, the NRC documented a regulatory analysis in COMSECY-13-0030, “Staff Evaluation and Recommendation for Japan Lessons Learned Tier 3 Issue on Expedited Transfer of Spent Fuel” (ADAMS Accession No. ML13329A918), which considered a broad history of the NRC's oversight of spent fuel storage, SFP operating experience (domestic and international), as well as information compiled in NUREG-2161, “Consequence Study of a Beyond-Design-Basis Earthquake Affecting the Spent Fuel Pool for a U.S. Mark I Boiling Water Reactor” (ADAMS Accession No. ML14255A365). In COMSECY-13-0030, the NRC staff concluded that SFPs are robust structures with large safety margins and recommended to the Commission that assessments of possible regulatory actions to require the expedited transfer of spent fuel from SFPs to dry cask storage were not warranted. The Commission subsequently approved the staff's recommendation in the Staff Requirements Memorandum to COMSECY-13-0030 (ADAMS Accession No. ML14143A360).
As supported by numerous evaluations referenced in this document, the NRC has determined that the risk of an SFP severe accident is low. While the risk of a severe accident in an SFP is not negligible, the NRC believes that the risk is low because of the conservative design of SFPs; operational criteria to control spent fuel movement, monitor pertinent parameters, and maintain cooling capability; mitigation measures in place if there is loss of cooling capability or water; and emergency preparedness measures to protect the public. The information proposed to be provided to the NRC is not needed for the effectiveness of NRC's approach for ensuring SFP safety. The NRC notes that the issue of long-term cooling of SFPs is the subject of PRM-50-96, which was accepted for consideration in the rulemaking process (77 FR 74788; December 18, 2012) and is being addressed by the NRC's rulemaking regarding mitigation of beyond design-basis events (RIN 3150-AJ49; NRC-2014-0240).
The petitioner stated that the purpose of the proposed requirement is to keep the NRC informed of the potential consequences of postulated SFP accident/fire scenarios as fuel assemblies are added, removed, or reconfigured in licensees' SFPs.
The NRC does not agree that this is necessary because the NRC already evaluates SFP systems and structures during initial licensing and license amendment reviews. In addition, baseline NRC inspections provide ongoing oversight to ensure adequate protection. There are not sufficient benefits that would justify the new requirement proposed in the petition for SFP accident evaluations. The proposed new requirement for licensees to perform SFP evaluations would not prevent or mitigate an SFP accident or provide information that is necessary for regulatory decisionmaking. The annual licensee SFP safety evaluations and their results proposed to be provided to the NRC are not needed for the effectiveness of the NRC's approach to ensuring SFP safety.
The NRC issues licenses after reviewing and approving the design and licensing bases contained in the plant's safety analysis report. Licensees are required to operate the plant, including performing operations and surveillances related to spent fuel, in accordance with technical specifications and established practices and procedures for that plant. Any licensee changes to design, operational or surveillance practices, or approved spent fuel inventory limits or configuration changes must be evaluated using the criteria in 10 CFR 50.59, documented and retained for the duration of the operating license, and, if warranted, submitted to the NRC for prior approval.
The general design criteria (GDC) in appendix A to 10 CFR part 50 establish general expectations that licensees must meet through compliance with their plant-specific licensing basis. Several GDC apply to SFPs:
• Protecting against natural phenomena and equipment failures (GDC 2 and GDC 4);
• Preventing a substantial loss-of-coolant inventory under accident conditions (
• Preventing criticality of the spent fuel (GDC 62); and
• Adequately monitoring the SFP conditions for loss of decay heat removal and radiation (GDC 63).
Additionally, emergency procedures and mitigating strategies are in place to address unexpected challenges to spent fuel safety. Multiple requirements in 10 CFR part 50, as well as recent NRC orders following the Fukushima Dai-ichi accident, require redundant equipment and strategies to address loss of cooling to SFPs and protective actions for plant personnel and the public to limit exposure to radioactive materials.
The NRC provides oversight of the licensee's overall plant operations and the SFP in several ways. The NRC inspectors ensure that spent fuel is stored safely by regularly inspecting reactor and equipment vendors; inspecting the design, construction, and
In accordance with 10 CFR part 21, the NRC is informed of defects and noncompliances associated with basic components, which include SFPs and associated drain pipes and safety-related systems, structures, and components for makeup water. This information allows the NRC to take additional regulatory action as necessary with respect to defects and noncompliances. The NRC is also informed of events and conditions at nuclear power plants, as set forth in §§ 50.72 and 50.73. Depending upon the nature of the event or condition, a nuclear power plant licensee must inform the NRC within a specified period of time of the licensee's corrective action taken or planned to be taken. These reports also facilitate effective and timely NRC regulatory oversight. Finally, information identified by a nuclear power plant applicant or licensee as having a significant implication for public health and safety or common defense and security must be reported to the NRC within 2 days of the applicant's or licensee's identification of the information.
The annual evaluations requested in the petition would not provide information that is necessary for regulatory decisionmaking. The evaluations requested in the petition would postulate scenarios in which the normal cooling systems, the backup cooling methods, and the mitigation strategies have all failed to cool the stored fuel and would require the calculation of the time it would take for the stored fuel to ignite and how much of it would ignite. Due to the robustness of this equipment, the NRC views this sequence of events as extremely unlikely to occur. Since the current regulations require that the pool be designed to prevent the loss-of-coolant and subsequent uncovering of the fuel, the information that would be obtained from the proposed requirement in the petition would not impact the current design basis. Moreover, as discussed previously, the NRC's current regulatory infrastructure relevant to SFPs at nuclear power plants in the United States already contains information collection and reporting requirements that support effective NRC regulatory oversight of SFPs.
The NRC does not agree that it is necessary to impose a new requirement for licensees to perform annual evaluations of their SFPs because existing requirements and oversight are sufficient to ensure adequate protection of public health and safety.
The petitioner requested that the NRC establish requirements for SFP accident evaluation computer models to be used in the annual SFP evaluations requested in Issue 2. The petitioner stated that there are serious flaws with MELCOR, which has been used by the NRC to model severe accident progression in SFPs, and, therefore, MELCOR is not sufficient.
The NRC does not agree that it is necessary to establish requirements for SFP accident evaluation computer models because the annual SFP evaluations requested in Issue 2 are not necessary for regulatory decisionmaking. Therefore, it is not necessary for the NRC to establish requirements for how such an evaluation should be conducted. Furthermore, the NRC disagrees with the petitioner's statements that MELCOR is flawed.
There are inherent uncertainties in the progression of severe accidents. There are many interrelated phenomena that need to be properly understood; otherwise, conservatism in one area may lead to overall non-conservative results. Conservatism can be meaningfully introduced into the relevant analysis after the best estimate analysis is done and uncertainties are properly taken into account.
The important question for a severe accident analysis is whether the uncertainties are appropriately considered in the analysis results. For example, Section 9 of the SFP study (NUREG-2161) is devoted to discussing the major uncertainties that can affect the radiological releases (
The MELCOR computer code is the NRC's best estimate tool for severe accident analysis. It has been validated against experimental data, and it represents the current state of the art in severe accident analysis. In NUREG-2161, the NRC stated that “MELCOR has been developed through the NRC and international research performed since the accident at Three Mile Island in 1979. MELCOR is a fully integrated, engineering-level computer code and includes a broad spectrum of severe accident phenomena with capabilities to model core heatup and degradation, fission product release and transport within the primary system and containment, core relocation to the vessel lower head, and ex-vessel core concrete interaction.” Furthermore, MELCOR has been benchmarked against many experiments, including separate and integral effects tests for a wide range of phenomena. Therefore, the NRC has determined that MELCOR is acceptable for its intended use.
Additional information about the capabilities of the MELCOR code to model SFP accidents can be found in the NRC response to stakeholder comments in Appendix E to NUREG-2161. The NRC also addressed questions regarding MELCOR in Appendix D to NUREG-2157, Volume 2, “Generic Environmental Impact Statement for Continued Storage of Spent Nuclear Fuel” (ADAMS Accession No. ML14196A107).
For the reasons described in Section II, “Reasons for Denial,” of this document, the NRC is denying the petition under 10 CFR 2.803. The petitioner failed to present any information or arguments that would warrant the requested amendments. The NRC does not believe that the information that would be reported to the NRC as requested by the petitioner is necessary for effective NRC regulatory decisionmaking with respect to SFPs. The NRC continues to conclude that the current design and licensing requirements for SFPs provide adequate protection of public health and safety.
The documents identified in the following table are available to interested persons as indicated. For more information on accessing ADAMS, see the
For the Nuclear Regulatory Commission.
Pension Benefit Guaranty Corporation.
Interim final rule.
The Pension Benefit Guaranty Corporation is amending its regulations to adjust the penalties provided for in sections 4071 and 4302 of the Employee Retirement Income Security Act of 1974. This action is being taken in accordance with the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 and Office of Management and Budget memorandum M-16-06. The regulations being amended are those on Penalties for Failure to Provide Certain Notices or Other Material Information (29 CFR part 4071) and Penalties for Failure to Provide Certain Multiemployer Plan Notices (29 CFR part 4302). Conforming amendments are also being made to the regulations on Annual Financial and Actuarial Information Reporting (29 CFR part 4010) and Termination of Single-Employer Plans (29 CFR part 4041).
The amendments are effective August 1, 2016. Also see Applicability, below.
Deborah C. Murphy, Deputy Assistant General Counsel for Regulatory Affairs (
This rule is needed to carry out the requirements of the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015. The rule adjusts the maximum civil penalties that PBGC may assess for failure to provide certain notices or other material information.
PBGC's legal authority for this action comes from the Federal Civil Penalties Inflation Adjustment Act of 1990 as amended by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 and from sections 4002(b)(3), 4071, and 4302 of the Employee Retirement Income Security Act of 1974.
This rule adjusts the maximum civil penalties that PBGC may assess under sections 4071 and 4302 of ERISA. The new maximum amounts are $2,063 for section 4071 penalties and $275 for section 4302 penalties.
The Pension Benefit Guaranty Corporation (PBGC) administers title IV of the Employee Retirement Income Security Act of 1974 (ERISA). Title IV has two provisions that authorize PBGC to assess civil monetary penalties.
The Federal Civil Penalties Inflation Adjustment Act of 1990 called for reports by the President to Congress about the effect of inflation on civil penalties and the adjustment of civil penalties for inflation. The Debt Collection Improvement Act of 1996 amended the 1990 act to require agencies to make inflation adjustments of civil monetary penalties by regulation in accordance with principles in the 1990 act. On July 10, 1997 (at 62 FR 36993), PBGC published a final rule to implement the 1996 act. That final rule added to PBGC's regulations parts 4071 and 4302, which provided that the maximum penalty amounts under sections 4071 and 4302 were $1,100 a day for section 4071 and $110 a day for section 4302.
Several of PBGC's regulations note that section 4071 penalties may be assessed for failure to provide notices or other material information required under those regulations, but only two mention the adjusted maximum amount. The two regulations that do so are those on Annual Financial and Actuarial Information Reporting (29 CFR part 4010) and Termination of Single-Employer Plans (29 CFR part 4041).
On November 2, 2015, the President signed into law the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015,
On February 24, 2016, the Office of Management and Budget issued memorandum M-16-06 on implementation of the 2015 act.
Given the prospect of annual adjustments of the maximum section 4071 penalty, PBGC is simply removing the references in its other regulations to the maximum amount of section 4071 penalties. Removal of these references has no substantive effect, since the operative provision for the maximum amount is in part 4071; and removal avoids the need for annual amendments to these other regulations to track adjustments in the maximum penalty level.
The increases in the civil monetary penalties under sections 4071 and 4302 provided for in this rule apply on and after August 1, 2016.
PBGC has determined, in consultation with the Office of Management and Budget, that this rule is not a “significant regulatory action” under Executive Order 12866.
PBGC has determined that notice and public comment on this interim final rule are unnecessary because the adjustment of civil penalties implemented in the rule is required by law. See 5 U.S.C. 553(b).
Because no general notice of proposed rulemaking is required for this rule, the Regulatory Flexibility Act of 1980 does not apply. See 5 U.S.C. 601(2).
Penalties, Pension insurance, Pensions, Reporting and recordkeeping requirements.
Penalties, Pension insurance, Pensions, Reporting and recordkeeping requirements.
Penalties.
Penalties.
In consideration of the foregoing, PBGC amends 29 CFR parts 4010, 4043, 4071, and 4302 as follows:
29 U.S.C. 1302(b)(3), 1310.
29 U.S.C. 1302(b)(3), 1341, 1344, 1350.
28 U.S.C. 2461 note, as amended by sec. 701, Pub. L. 114-74, 129 Stat. 599-601; 29 U.S.C. 1302(b)(3), 1371.
28 U.S.C. 2461 note, as amended by sec. 701, Pub. L. 114-74, 129 Stat. 599-601; 29 U.S.C. 1302(b)(3), 1452.
Pension Benefit Guaranty Corporation.
Final rule.
This final rule amends the Pension Benefit Guaranty Corporation's regulation on Benefits Payable in Terminated Single-Employer Plans to prescribe interest assumptions under the regulation for valuation dates in June 2016. The interest assumptions are used for paying benefits under terminating single-employer plans covered by the pension insurance system administered by PBGC.
Effective June 1, 2016.
Deborah C. Murphy (
PBGC's regulation on Benefits Payable in Terminated Single-Employer Plans (29 CFR part 4022) prescribes actuarial assumptions—including interest assumptions—for paying plan benefits under terminating single-employer plans covered by title IV of the Employee Retirement Income Security Act of 1974. The interest assumptions in the regulation are also published on PBGC's Web site (
PBGC uses the interest assumptions in Appendix B to Part 4022 to determine whether a benefit is payable as a lump sum and to determine the amount to pay. Appendix C to Part 4022 contains interest assumptions for private-sector pension practitioners to refer to if they wish to use lump-sum interest rates determined using PBGC's historical methodology. Currently, the rates in Appendices B and C of the benefit payment regulation are the same.
The interest assumptions are intended to reflect current conditions in the financial and annuity markets. Assumptions under the benefit payments regulation are updated monthly. This final rule updates the benefit payments interest assumptions for June 2016.
The June 2016 interest assumptions under the benefit payments regulation will be 0.75 percent for the period during which a benefit is in pay status and 4.00 percent during any years preceding the benefit's placement in pay status. In comparison with the interest assumptions in effect for May 2016, these interest assumptions represent a decrease of 0.25 percent in the immediate annuity rate and are otherwise unchanged.
PBGC has determined that notice and public comment on this amendment are impracticable and contrary to the public interest. This finding is based on the need to determine and issue new interest assumptions promptly so that the assumptions can reflect current market conditions as accurately as possible.
Because of the need to provide immediate guidance for the payment of benefits under plans with valuation dates during June 2016, PBGC finds that good cause exists for making the assumptions set forth in this amendment effective less than 30 days after publication.
PBGC has determined that this action is not a “significant regulatory action” under the criteria set forth in Executive Order 12866.
Because no general notice of proposed rulemaking is required for this amendment, the Regulatory Flexibility Act of 1980 does not apply. See 5 U.S.C. 601(2).
Employee benefit plans, Pension insurance, Pensions, Reporting and recordkeeping requirements.
In consideration of the foregoing, 29 CFR part 4022 is amended as follows:
29 U.S.C. 1302, 1322, 1322b, 1341(c)(3)(D), and 1344.
Coast Guard, DHS.
Temporary final rule.
The Coast Guard is establishing a special local regulation for certain waters of the Lake of the Ozarks. This action is necessary to provide for the safety of life on these navigable waters near Lakeside, MO, during a powerboat race on June 4, 2016. This regulation designates prohibited areas for the race course and associated safety buffer, spectator areas, and location for vessels to transit during the race at no wake speeds. Deviation from the established special local regulation must be authorized by the Captain of the Port Upper Mississippi River or a designated representative.
This rule is effective from 9 a.m. to 6 p.m. on June 4, 2016.
To view documents mentioned in this preamble as being available in the docket, go to
If you have questions on this rule, call or email LCDR Sean Peterson, Chief of Prevention, U.S. Coast Guard; telephone 314-269-2332, email
On March 16, 2016, the Lake Race Steering Committee notified the Coast Guard that it will be hosting a powerboat race from 9 a.m. until 6 p.m. on June 4, 2016. In response, on April 20, 2016, the Coast Guard published a notice of proposed rulemaking (NPRM) titled Special Local Regulation; Lake of the Ozarks, Lakeside, MO (81 FR 23223). There we stated why we issued the NPRM, and invited comments on our proposed regulatory action related to this powerboat race. During the comment period that ended May 5, 2016, we received no comments.
We are issuing this rule, and under 5 U.S.C. 553(d)(3), the Coast Guard finds that good cause exists for making it effective less than 30 days after publication in the
The Coast Guard is issuing this rule under authority in 33 U.S.C. 1233. The Captain of the Port (COTP) Upper Mississippi River has determined that potential hazards associated with the powerboat race are a safety concern. The purpose of this rule is to ensure safety of vessels and the navigable waters in the special local regulation before, during, and after the scheduled event.
As noted above, we received no comments on our NPRM published April 20, 2016. There are no changes in the regulatory text of this rule from the proposed rule in the NPRM. This rule establishes a special local regulation from 9 a.m. until 6 p.m. on June 4, 2016, designating the race course and location of spectator areas. Vessels transiting near the course will be restricted to transiting at the slowest safe speed. This special local regulation covers navigable waters on the Lake of the Ozarks Osage Branch between miles 0 and 4. The Coast Guard has also posted a map depicting the location and restricted areas for this special local regulation in the docket. Six anchorage areas for spectators are designated and are also shown on the map and labeled as A through F. This map may be viewed as indicated under the
We developed this rule after considering numerous statutes and Executive Orders related to rulemaking. Below we summarize our analyses based on a number of these statutes and Executive Orders, and we discuss First Amendment rights of protestors.
Executive Orders 12866 and 13563 direct agencies to assess the costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits. Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This rule has not been designated a “significant regulatory action,” under Executive Order 12866. Accordingly, it has not been reviewed
This regulatory action determination is based on the size, location, and duration of the special local regulation. Vessel traffic will be able to safely transit around the race course and spectators will have designated locations to view the race. Moreover, the Coast Guard is including event information in the Local Notice to Mariners, and the rule allows vessels to seek permission to deviate from the regulation.
The Regulatory Flexibility Act of 1980, 5 U.S.C. 601-612, as amended, requires Federal agencies to consider the potential impact of regulations on small entities during rulemaking. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000. The Coast Guard received no comments from the Small Business Administration on this rulemaking. The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities.
While some owners or operators of vessels intending to transit the safety zone may be small entities, for the reasons stated in section V.A. above, this rule will not have a significant economic impact on any vessel owner or operator.
Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we want to assist small entities in understanding this rule. If the rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please contact the person listed in the
Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR (1-888-734-3247). The Coast Guard will not retaliate against small entities that question or complain about this rule or any policy or action of the Coast Guard.
This rule will not call for a new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).
A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. We have analyzed this rule under that Order and have determined that it is consistent with the fundamental federalism principles and preemption requirements described in Executive Order 13132.
Also, this rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it does not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes. If you believe this rule has implications for federalism or Indian tribes, please contact the person listed in the
The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 (adjusted for inflation) or more in any one year. Though this rule will not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble.
We have analyzed this rule under Department of Homeland Security Management Directive 023-01 and Commandant Instruction M16475.lD, which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (42 U.S.C. 4321-4370f), and have determined that this action is one of a category of actions that do not individually or cumulatively have a significant effect on the human environment. This rule involves a special local regulation designating the race course, location of spectator areas, and location for vessels to transit during the race at slowest safe speed. It is categorically excluded from further review under paragraph 34(h) of Figure 2-1 of the Commandant Instruction. An environmental analysis checklist supporting this determination and a Categorical Exclusion Determination are available in the docket where indicated under
The Coast Guard respects the First Amendment rights of protesters. Protesters are asked to contact the person listed in the
Marine safety, Navigation (water), Reporting and recordkeeping requirements, Waterways.
For the reasons discussed in the preamble, the Coast Guard amends 33 CFR part 100 as follows:
33 U.S.C. 1233.
(a)
(1) Lake of the Ozarks Osage Branch between miles 0 and 4; the Bagnell Dam and Birdsong Hollow Cove, covering the entire width of the branch. Access to the race course and associated safety buffer area will be prohibited to authorized vessels only. The safety buffer area for the course will be marked with blue buoy markers. Vessels transiting outside of the safety buffer area shall proceed at no wake speed. See attached map for additional information on location.
(2) Six designated areas will be available for spectators for the duration of the races. The designated anchorage areas will be marked with blue and yellow buoy marker. They are labeled A-F on the attached map. The anchorage areas are located a minimum of 100 feet outside the race course safety buffer area marked with blue buoy
(b)
(c)
(2) To seek permission to deviate from the regulation, contact the COTP or the COTP's designated representative via VHF-FM ch 16 or by calling Sector Upper Mississippi River at 314-269-2332.
(d)
Coast Guard, DHS.
Notice of deviation from drawbridge regulation.
The Coast Guard has issued a temporary deviation from the operating schedule that governs the Grassy Sound Channel Bridge (West Ocean Drive/CR619) across the Grassy Sound Channel, mile 1.0, at Middle Township, NJ. This deviation is necessary to provide for the safety of runners during “The Wild Half” annual half marathon. This deviation allows the bridge to remain in the closed-to-navigation position.
This deviation is effective from 7:30 a.m. to 11 a.m. on May 15, 2016.
The docket for this deviation, [USCG-2016-0384] is available at
If you have questions on this temporary deviation, call or email Mr. Hal R. Pitts, Bridge Administration Branch Fifth District, Coast Guard, telephone 757-398-6222, email
The Cape May County, Department of Public Works, that owns and operates the Grassy Sound Channel Bridge, has requested a temporary deviation from the current operating regulations to provide for the safety of runners during “The Wild Half” annual half marathon event. The bridge is a bascule draw bridge and has a vertical clearance in the closed position of 15 feet above mean high water.
The current operating schedule is set out in 33 CFR 117.721. Under this temporary deviation, the bridge will remain in the closed-to-navigation position from 7:30 a.m. to 11 a.m. on May 15, 2016. The Coast Guard has carefully considered the nature and volume of vessel traffic on the waterway in publishing this temporary deviation.
Vessels able to safely pass through the bridge in the closed position may do so at any time. The bridge will be able to open for emergencies and the New Jersey Intracoastal Waterway is an alternate route for vessels transiting the area. The Coast Guard will also inform the users of the waterways through our Local and Broadcast Notices to Mariners of the change in operating schedule for the bridge so that vessel operators can arrange their transit to minimize any impact caused by the temporary deviation.
In accordance with 33 CFR 117.35(e), the drawbridge must return to its regular operating schedule immediately at the end of the effective period of this temporary deviation. This deviation from the operating regulations is authorized under 33 CFR 117.35.
Coast Guard, DHS.
Temporary final rule.
The Coast Guard is establishing a temporary security zone around the Tall-Ship CUAUHTEMOC during its transit through the Long Island Sound Captain of the Port (COTP) Zone, and for the duration of its mooring on the Thames River in New London Harbor, New London, CT. This temporary final rule creates a 250-yard radius security zone encompassing all navigable waters around the Tall-Ship CUAUHTEMOC while in transit through Sector Long Island Sound's Captain of the Port (COTP) Zone, and a 100-yard radius temporary security zone while the vessel is anchored or moored in the Thames River in New London Harbor, New London, CT. This zone is needed to protect the Tall-Ship CUAUHTEMOC and its crew from destruction, loss, or injury from sabotage, subversive acts, or other malicious acts of a similar nature. Persons or vessels may not enter the security zone without permission of the COTP or a COTP designated representative.
This rule is effective without actual notice from May 13, 2016 until May 14, 2016. For the purposes of enforcement, actual notice will be used from May 1, 2016 until May 13, 2016.
To view documents mentioned in this preamble as being available in the docket, go to
If you have questions on this rule, call or email Petty Officer Jay TerVeen, Prevention Department, Coast Guard Sector Long Island Sound; telephone (203) 468-4446, email
The Coast Guard is issuing this temporary final rule without prior notice and opportunity to comment pursuant to authority under section 4(a) of the Administrative Procedure Act (APA) (5 U.S.C. 553(b)). This provision authorizes an agency to issue a rule without prior notice and opportunity to comment when the agency for good cause finds that those procedures are “impracticable, unnecessary, or contrary to the public interest.” Under 5 U.S.C. 553(b)(B), the Coast Guard finds that good cause exists for not publishing a notice of proposed rulemaking (NPRM) with respect to this rule because an NPRM would be impracticable and contrary to the public interest. Consequently, the Coast Guard did not have enough time to draft, publish, and receive public comment on this rulemaking via an NPRM and still publish a final rule before the event was scheduled to take place. Delaying this rulemaking by waiting for a comment period to run would also reduce the Coast Guard's ability to fulfill its statutory missions to protect and secure the ports and waterways of the United States.
Under 5 U.S.C. 553(d)(3), and for the same reasons as stated above, the Coast Guard finds that good cause exists for making this rule effective less than 30 days after publication in the
The Coast Guard is issuing this rule under the authority in 33 U.S.C. 1231. The Captain of the Port Long of Island Sound (COTP) has determined that vessels, within a 250-yard radius of the Tall-Ship CUAUHTEMOC while it is transiting and a 100-yard radius while it is moored, pose a potential security risk.
This rule establishes a security zone from May 1, 2016 through May 14, 2016 for the Tall-Ship CUAUHTEMOC. This zone is needed to protect the Tall-Ship CUAUHTEMOC and its crew from destruction, loss, or injury from sabotage, subversive acts, or other malicious acts of a similar nature.
This rule prevents vessels from entering, transiting, mooring, or anchoring within the security zone unless authorized by the COTP or designated representative. The Coast Guard has determined that this security zone will not have a significant impact on vessel traffic due to its temporary nature, limited size, and the fact that vessels are allowed to transit the navigable waters outside of the security zone.
The Coast Guard will notify the public and local mariners of this safety zone through appropriate means, which may include, but are not limited to, publication in the
We developed this rule after considering numerous statutes and Executive orders related to rulemaking. Below we summarize our analyses based on these statutes and Executive Order and we discuss First Amendment rights of protestors.
Executive Orders 12866 and 13563 direct agencies to assess the costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits. Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This rule has not been designated a “significant regulatory action,” under Executive Orders 12866. Accordingly, it has not been reviewed by the Office of Management and Budget.
The Coast Guard determined that this rulemaking is not a significant regulatory action for the following reasons: (1) The enforcement of this security zone will be relatively short in duration; (2) persons or vessels desiring to enter the security zone may do so with permission from the COTP Sector LIS or a designated representative; (3) this security zone is designed in a way to limit impacts on vessel traffic, permitting vessels to navigate in other portions of the waterway not designated as a security zone; and (4) the Coast Guard will notify the public of the enforcement of this rule via appropriate means, such as via Local Notice to Mariners and Broadcast Notice to Mariners to increase public awareness of this security zone.
The Regulatory Flexibility Act of 1980, 5 U.S.C. 601-612, as amended, requires Federal agencies to consider the potential impact of regulations on small entities during rulemaking. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000. The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities.
While some owners or operators of vessels intending to transit the safety zone may be small entities, for the reasons stated in section V.A above, this rule will not have a significant economic impact on any vessel owner or operator.
Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we want to assist small entities in understanding this rule. If the rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please contact the person listed in the
Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR (1-888-734-3247). The Coast Guard will not retaliate against small entities that question or complain about this proposed rule or any policy or action of the Coast Guard.
This rule will not call for a new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).
A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. We have analyzed this rule under that Order and have determined that it is consistent with the fundamental federalism
Also, this rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it does not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes. If you believe this rule has implications for federalism or Indian tribes, please contact the person listed in the
The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 (adjusted for inflation) or more in any one year. Though this rule will not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble.
We have analyzed this rule under Department of Homeland Security (DHS) Management Directive 023-01 and Commandant Instruction Manual (CIM) M16475.lD, which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321-4370f), and have concluded that this action is one of a category of actions that do not individually or cumulatively have a significant effect on the human environment. This rule involves the establishment of a temporary security zone and is categorically excluded from further review under, paragraph 34(g) of figure 2-1 of the Commandant Instruction. An environmental analysis checklist and a categorical exclusion determination will be available in the docket where indicated under
The Coast Guard respects the First Amendment rights of protesters. Protesters are asked to contact the person listed in the
Harbors, Marine safety, Navigation (water), Reporting and recordkeeping requirements, Security measures, Waterways.
For the reasons discussed in the preamble, the Coast Guard amends 33 CFR part 165 as follows:
33 U.S.C. 1231; 50 U.S.C. 191; 33 CFR 1.05-1, 6.04-1, 6.04-6, and 160.5; Department of Homeland Security Delegation No. 0170.1.
(a)
(1) All navigable waters within the Sector Long Island Sound Captain of the Port (COTP) Zone, extending from the surface to the bottom, within a 250-yard radius of the Tall-Ship CUAUHTEMOC.
(2) All navigable waters within the Thames River in New London Harbor, New London, CT, extending from the surface to the riverbed within a 100-yard radius of the Tall-Ship CUAUHTEMOC while it moored or anchored in the Thames River in New London Harbor, New London, CT.
(b)
(c)
(2) Vessel operators given permission to enter or operate in the temporary security zone must comply with all directions given to them by the COTP or the designated representatives. Those vessels may be required to be at anchor or moored to a waterfront facility.
(3) The “designated representative” is any Coast Guard commissioned, warrant, or petty officer who has been designated by the COTP to act on his behalf. The on-scene representative may be on a Coast Guard vessel, or onboard a federal, state, or local agency vessel that is authorized to act in support of the Coast Guard.
(4) Vessel operators desiring to enter or operate within the temporary security zone shall telephone the COTP at (203) 468-4401, or his designated representative via VHF channel 16 to obtain permission to do so.
Coast Guard, DHS.
Temporary final rule.
The Coast Guard is establishing a temporary safety zone for underwater detonation operations in the waters of Apra Outer Harbor and Piti, Guam. The Coast Guard believes this safety zone regulation is necessary to protect all persons and vessels that would otherwise transit or be within the affected areas from possible safety hazards associated with underwater detonation operations. Entry of vessels or persons into these zones is prohibited unless specifically authorized by the Captain of the Port Guam.
This rule is effective without actual notice from May 13, 2016 until May 16, 2016. For the purposes of enforcement, actual notice will be used from May 10, 2016, until May 13, 2016.
To view documents mentioned in this preamble as being available in the docket, go to
If you have questions on this rule, call or email Chief Kristina Gauthier, Sector Guam, U.S. Coast Guard; (671) 355-4866,
The Coast Guard is issuing this temporary rule without prior notice and opportunity to comment pursuant to authority under section 4(a) of the Administrative Procedure Act (APA) (5 U.S.C. 553(b)). This provision authorizes an agency to issue a rule without prior notice and opportunity to comment when the agency for good cause finds that those procedures are “impracticable, unnecessary, or contrary to the public interest.” Under 5 U.S.C. 553(b)(B), the Coast Guard finds that good cause exists for not publishing a notice of proposed rulemaking (NPRM) with respect to this rule because doing so would be impracticable and contrary to public interest. The Coast Guard received notice of this operation on March 10, 2015, only 62 days before the operation is scheduled. As a result, the Coast Guard did not have time to issue a notice of proposed rulemaking. Thus, delaying the effective date of this rule to wait for a comment period to run would be impracticable because it would inhibit the Coast Guard's ability to protect vessels and waterway users from the hazards associated with this operation.
We are issuing this rule, and under 5 U.S.C. 553(d)(3), the Coast Guard finds that good cause exists for making it effective less than 30 days after publication in the
The Coast Guard is issuing this rule under authority in 33 U.S.C. 1231. The Captain of the Port Guam (COTP) has determined that potential hazards associated with the U.S. Navy training exercise, which include detonation of underwater explosives on May 10th through 13th and 16th, 2016, will be a safety concern for anyone within a 700-yard radius on the surface and 1400-yard radius underwater of the operation. This rule is needed to protect personnel, vessels, and the marine environment in the navigable waters within the safety zone during the exercise. Mariners and divers approaching too close to such exercises could potentially expose the mariner to flying debris or other hazardous conditions.
This rule establishes safety zones from 8 a.m. through 4 p.m. on May 10th through 13th and 16th, 2016. The safety zones will cover all navigable waters within 700 yards on the surface and 1400 yards underwater of vessels and machinery being used by Navy. The duration of the zone is intended to protect personnel, vessels, and the marine environment in these navigable waters during the underwater detonation exercise. No vessel or person will be permitted to enter the safety zones without obtaining permission from the COTP or a designated representative.
We developed this rule after considering numerous statutes and executive orders (E.O.s) related to rulemaking. Below we summarize our analyses based on a number of these statutes and E.O.s, and we discuss First Amendment rights of protestors.
E.O.s 12866 and 13563 direct agencies to assess the costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits. E.O. 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This rule has not been designated a “significant regulatory action,” under E.O. 12866. Accordingly, it has not been reviewed by the Office of Management and Budget.
This regulatory action determination is based on the size, location, and duration of the safety zone. Vessel traffic will be able to safely transit around this safety zone which will impact a small designated area of in waters off of Piti Guam, for 8 hours for 3 days and in Apra Outer Harbor for 8 hours for 3 days. Moreover, the Coast Guard will issue Broadcast Notice to Mariners via VHF-FM marine channel 16 about the zone and the rule allows vessels to seek permission to enter the zone.
The Regulatory Flexibility Act of 1980, 5 U.S.C. 601-612, as amended, requires Federal agencies to consider the potential impact of regulations on small entities during rulemaking. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000. The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities. While some owners or operators of vessels intending to transit the safety zone may be small entities, for the reasons stated in section A above, this rule will not have a significant economic impact on any vessel owner or operator.
Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we want to assist small entities in understanding this rule. If the rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please contact the person listed in the
Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR (1-888-734-3247). The Coast Guard will not retaliate against small entities that question or complain about this rule or any policy or action of the Coast Guard.
This rule will not call for a new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).
A rule has implications for federalism under E.O. 13132, Federalism, if it has a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. We have analyzed this rule under that Order and have determined that it is consistent with the fundamental federalism principles and preemption requirements described in E.O. 13132.
Also, this rule does not have tribal implications under E.O. 13175, Consultation and Coordination with Indian Tribal Governments, because it does not have a substantial direct effect on one or more Indian tribes, on the
The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 (adjusted for inflation) or more in any one year. Though this rule will not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble.
We have analyzed this rule under Department of Homeland Security Management Directive 023-01 and Commandant Instruction M16475.lD, which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (42 U.S.C. 4321-4370f), and have determined that this action is one of a category of actions that do not individually or cumulatively have a significant effect on the human environment. This rule involves a safety zone lasting 8 hours a day for 5 days that will prohibit entry within 700 yards on the surface and 1400 underwater of vessels and machinery being used by Navy personnel. It is categorically excluded from further review under paragraph 34(g) of Figure 2-1 of the Commandant Instruction. An environmental analysis checklist supporting this determination and a Categorical Exclusion Determination are available in the docket where indicated under
The Coast Guard respects the First Amendment rights of protesters. Protesters are asked to contact the person listed in the
Harbors, Marine safety, Navigation (water), Reporting and record-keeping requirements, Security measures, Waterways.
For the reasons discussed in the preamble, the Coast Guard amends 33 CFR part 165 as follows:
33 U.S.C. 1231; 50 U.S.C. 191, 195; 33 CFR 1.05-1(g), 6.04-1, 6.04-6, and 160.5; Department of Homeland Security Delegation No. 0170.1.
(a)
(1)
(2)
(b)
(c)
(d)
(e)
(f)
Coast Guard, DHS.
Temporary final rule.
The Coast Guard is establishing a temporary safety zone on the Niagara River, Buffalo, NY. This safety zone is intended to restrict vessels from a portion of the Niagara River during the removal of international power lines spanning the Niagara River. This temporary safety zone is necessary to protect mariners and vessels from the navigational hazards associated with the removal of overhead power lines.
This rule is effective from 7:45 a.m. on May 16, 2016, through 6:15 p.m. on May 18, 2016.
To view documents mentioned in this preamble as being available in the docket, go to
If you have questions on this rule, call or email LTJG Amanda Garcia, Chief of Waterways Management, Sector Buffalo, U.S. Coast Guard; telephone 716-843-9343, email
The Coast Guard is issuing this temporary rule without prior notice and opportunity to comment pursuant to authority under section 4(a) of the Administrative Procedure Act (APA) (5 U.S.C. 553(b)). This provision authorizes an agency to issue a rule without prior notice and opportunity to comment when the agency for good cause finds that those procedures are “impracticable, unnecessary, or contrary to the public interest.” Under 5 U.S.C. 553(b)(B), the Coast Guard finds that good cause exists for not publishing a notice of proposed rulemaking (NPRM) with respect to this rule because doing so would be impracticable. The final details of this event were not known to the Coast Guard until there was insufficient time remaining before the event to publish an NPRM. Thus, delaying the effective date of this rule to wait for a comment period to run would be impracticable because it would inhibit the Coast Guard's ability to protect mariners and vessels from the hazards associated with the removal of international power lines. Therefore, under 5 U.S.C. 553(d)(3), the Coast Guard finds that good cause exists for making this temporary rule effective less than 30 days after publication in the
The Coast Guard is issuing this rule under authority in 33 U.S.C. 1231. The Captain of the Port Buffalo (COTP) has determined that potential hazards associated with the removal of international power lines spanning the Niagara River starting May 16, 2016 will be a safety concern for anyone within the zone of the overhead power lines. This rule is needed to protect personnel, vessels, and the marine environment in the navigable waters within the safety zone while overhead power lines are removed.
This rule establishes a safety zone from 7:45 a.m. on May 16, 2016, through 6:15 p.m. on May 18, 2016, to be enforced only when power line removal operations are taking place. The safety zone will encompass all waters of the Niagara River; Lewiston, NY starting at position 43° 8′44.8692″ N., and 079° 2′32.8842″ W. then extending approximately 3,300 feet north along the international maritime border ending at position 43° 9′9.9648″ N., and 079° 2′39.681″ W. inward to the shoreline (NAD 83).
Entry into, transiting, or anchoring within the safety zone is prohibited unless authorized by the Captain of the Port Buffalo or his designated on-scene representative. The Captain of the Port or his designated on-scene representative may be contacted via VHF Channel 16.
We developed this rule after considering numerous statutes and executive orders (E.O.s) related to rulemaking. Below we summarize our analyses based on a number of these statutes and E.O.s, and we discuss First Amendment rights of protestors.
E.O.s 12866 and 13563 direct agencies to assess the costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits. E.O. 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This rule has not been designated a “significant regulatory action,” under E.O. 12866. Accordingly, it has not been reviewed by the Office of Management and Budget.
We conclude that this rule is not a significant regulatory action because we anticipate that it will have minimal impact on the economy, will not interfere with other agencies, will not adversely alter the budget of any grant or loan recipients, and will not raise any novel legal or policy issues. The safety zone created by this rule will be relatively small and enforced for a relatively short time only during the lowering and crossing of international power lines. Also, the safety zone is designed to minimize its impact on navigable waters. Furthermore, the safety zone has been designed to allow vessels to transit around it. Thus, restrictions on vessel movement within that particular area are expected to be minimal. Under certain conditions, moreover, vessels may still transit through the safety zone when permitted by the Captain of the Port.
The Regulatory Flexibility Act of 1980, 5 U.S.C. 601-612, as amended, requires Federal agencies to consider the potential impact of regulations on small entities during rulemaking. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000. The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities.
This safety zone will not have a significant economic impact on a substantial number of small entities for the following reasons: This safety zone would be effective, and thus subject to enforcement only during operations involving the lowering and passing of international power lines across the Niagara River. Traffic may be allowed to pass through the zone with the permission of the Captain of the Port. The Captain of the Port can be reached via VHF channel 16. Before the enforcement of the zone, we would issue local Broadcast Notice to Mariners.
Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we want to assist small entities in understanding this rule. If the rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please contact the person listed in the
Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR (1-888-734-3247). The Coast Guard will not retaliate against small entities that question or complain about this rule or any policy or action of the Coast Guard.
This rule will not call for a new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).
A rule has implications for federalism under E.O. 13132, Federalism, if it has
Also, this rule does not have tribal implications under E.O. 13175, Consultation and Coordination with Indian Tribal Governments, because it does not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes. If you believe this rule has implications for federalism or Indian tribes, please contact the person listed in the
The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 (adjusted for inflation) or more in any one year. Though this rule will not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble.
We have analyzed this rule under Department of Homeland Security Management Directive 023-01 and Commandant Instruction M16475.lD, which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (42 U.S.C. 4321-4370f), and have determined that this action is one of a category of actions that do not individually or cumulatively have a significant effect on the human environment. This rule involves the establishment of a safety zone and, therefore it is categorically excluded from further review under paragraph 34(g) of Figure 2-1 of the Commandant Instruction. An environmental analysis checklist supporting this determination and a Categorical Exclusion Determination are available in the docket where indicated under
The Coast Guard respects the First Amendment rights of protesters. Protesters are asked to contact the person listed in the
Harbors, Marine safety, Navigation (water), Reporting and record keeping requirements, Security measures, Waterways.
For the reasons discussed in the preamble, the Coast Guard amends 33 CFR part 165 as follows:
33 U.S.C. 1231; 50 U.S.C. 191; 33 CFR 1.05-1, 6.04-1, 6.04-6, and 160.5; Department of Homeland Security Delegation No. 0170.1.
(a)
(b)
(c)
(2) This safety zone is closed to all vessel traffic, except as may be permitted by the Captain of the Port Buffalo or his designated on-scene representative.
(3) The “on-scene representative” of the Captain of the Port Buffalo is any Coast Guard commissioned, warrant or petty officer who has been designated by the Captain of the Port Buffalo to act on his behalf.
(4) Vessel operators desiring to enter or operate within the safety zone must contact the Captain of the Port Buffalo or his on-scene representative to obtain permission to do so. The Captain of the Port Buffalo or his on-scene representative may be contacted via VHF Channel 16. Vessel operators given permission to enter or operate in the safety zone must comply with all directions given to them by the Captain of the Port Buffalo, or his on-scene representative.
Office of the Secretary, Interior.
Final rule.
This rule provides clarity in how the Department of the Interior administers certain provisions of the Hawaiian Homes Commission Act and the Hawaiian Home Lands Recovery Act. It facilitates the goal of the rehabilitation of the Native Hawaiian community, including the return of native Hawaiians to the land, consistent with the Hawaiian Homes Commission Act, the State of Hawai'i Admission Act, and the Hawaiian Home Lands Recovery Act. The rule clarifies the land exchange process for Hawaiian home lands, the documents required for land exchanges, and the respective responsibilities of the Department of the Interior, the Department of Hawaiian Home Lands, the Hawaiian Homes Commission, and other entities engaged in land exchanges of Hawaiian home lands. It also identifies the documentation requirements and the responsibilities of the Secretary of the Interior in the approval process for State of Hawai'i proposed amendments to the Hawaiian Homes Commission Act, 1920.
This rule is effective July 12, 2016.
The final rule is available on the internet at:
Ka`i`ini Kimo Kaloi, Director, Office of Native Hawaiian Relations, telephone (202) 208-7462.
In 1921, Congress enacted the Hawaiian Homes Commission Act, 1920 (HHCA), 42 Stat. 108, to provide a homesteading program for native Hawaiians by placing approximately 200,000 acres of land (known as Hawaiian home lands) into the Hawaiian Home Lands Trust. The day-to-day administration of Hawaiian Home Lands Trust is by the Department of Hawaiian Home Lands (DHHL), an agency of the State of Hawai'i, headed by an executive board known as the Hawaiian Homes Commission (HHC). The HHCA provides the Chairman of the HHC the authority to propose to the Secretary of the Interior (Secretary) the exchange of Hawaiian home lands for land privately or publicly owned in furtherance of the purposes of the HHCA.
The HHCA also created a series of funds (the Hawaiian Home Lands Trust Funds, or “trust funds”)
In 1959, Congress enacted the Hawai'i Admission Act, 73 Stat. 4 (Admission Act), to admit the Territory of Hawai'i (Hawai'i or State) into the United States as a state. In compliance with the Admission Act, and as a compact between the State and the United States relating to the management and disposition of the Hawaiian home lands, the State adopted the HHCA, as amended, as a law of the State through Article XII of its Constitution.
In section 223 of the HHCA, Congress reserved to itself the right to alter, amend, or repeal the HHCA. Consistent with this provision, section 4 of the Admission Act provides limitations on the State's administration of the Hawaiian Home Lands Trust and the Hawaiian Home Lands Trust Funds (hereafter referred to together as the Trust) and also provides that the HHCA is subject to amendment or repeal by the State only with the consent of the United States. Recognizing, however, that it was vesting the State with day-to-day administrative authority, Congress in section 4 of the Admission Act also provided exceptions within which the State could amend certain administrative provisions of the HHCA without the consent of the United States. The HHCA is a cooperative federalism statute, a compound of interdependent Federal and State law that establishes a Federal law framework but also provides for implementation through State law.
Consistent with the provisions of the HHCA and the Admission Act, Congress enacted the Hawaiian Home Lands Recovery Act in 1995 (HHLRA), 109 Stat. 357, which provides that the Secretary shall determine whether a State-proposed amendment to the HHCA requires the consent of the United States under section 4 of the Admission Act. It is appropriately the function of the United States to ensure conformance with the limitations in the Admissions Act and protect the integrity of this statutory framework.
The HHLRA also clarified the Secretary's role in the oversight of the Hawaiian Home Lands Trust. Section 204(a)(3) of the HHCA, in conjunction with Section 205 of the HHLRA, requires the approval or disapproval of the Secretary for the exchange of Hawaiian home lands. The HHLRA details the Secretary's responsibilities to ensure that Hawaiian home lands are administered in a manner that advances the interests of the beneficiaries.
While the Secretary has broad responsibilities under the HHCA and the Admissions Act, the HHLRA clarifies the scope of the continuing responsibilities of the Federal Government with regard to the HHCA. Two of these responsibilities are addressed in the final rule. First, it clarifies the role of the Secretary in land exchanges and, second, clarifies the process for the Secretary's review of State-proposed amendments to the HHCA. As to HHC Chairman-proposed land exchanges, the HHLRA provides that the HHC Chairman submit a report to the Secretary, including identification of the benefits to the parties of the proposed exchange. The Secretary shall approve or disapprove the proposed exchange depending on whether it advances the interests of the beneficiaries. As to State-proposed amendments to the HHCA, the HHLRA requires the State to notify the Secretary of any amendment it proposes to the HHCA and then requires the Secretary to determine whether it impacts Federal responsibilities under the HHCA or infringes on Federal interests or those of the HHCA beneficiaries. If the Secretary determines the State's proposed amendment of the HHCA impacts the Federal responsibilities or infringes on either the Federal or beneficiaries' interests, the Secretary must submit the amendment to Congress for approval.
Since Hawai'i's admission to the Union, both Secretarial reviews occurred on an
On May 12, 2015, the Secretary issued a Notice of Proposed Rulemaking (NPRM), entitled “Land Exchange Procedures and Procedures to Amend the Hawaiian Homes Commission Act.” 80 FR 27134-27141 (May 12, 2015). The NPRM sought input from leaders and members of the Native Hawaiian community, HHCA beneficiaries, and the public about how the Secretary reviews land exchanges involving Hawaiian home lands proposed by the HHC Chairman and State-proposed amendments to the HHCA.
The NPRM set an initial 60-day comment period that ended on July 13, 2015. In response to requests from commenters, including the HHC on behalf of itself and HHCA beneficiaries, the Secretary extended the comment deadline another 30 days, ending on August 12, 2015. 80 FR 39991 (July 13, 2015).
The Secretary received over 500 written comments by the August 12, 2015 deadline. All comments received on the NPRM are available in the NPRM docket at
After careful review and analysis of the comments on the NPRM, the Department concludes that it is appropriate to publish a final rule that would set forth the administrative procedures for the review of land exchanges involving Hawaiian home lands proposed by the HHC Chairman and amendments to the HHCA proposed by the State.
The Department received comments from the Native Hawaiian community, the State, HHCA beneficiaries, and others. One fundamental question raised in the comments was whether the rule expands the Secretary's authority beyond the HHCA, Admission Act, and HHLRA. We conclude that the rule is within the Secretary's authority and consistent with long-standing practice under the HHCA, Admission Act, and HHLRA.
In 1893, a United States officer, acting without authorization of the U.S. government, conspired with residents of Hawai'i to overthrow the Kingdom of Hawaii. In the years following the 1893 overthrow, Congress annexed the Territory of Hawai'i and established a government for the Territory of Hawai'i.
The Apology Resolution, however, did not effectuate any changes to existing law.
Furthermore, consistent with the provisions of the HHCA and the Admission Act, the HHLRA provides that the Secretary shall determine whether a proposed amendment to the HHCA requires the consent of the United States under section 4 of the Admission Act. It is appropriately the function of the United States to ensure conformance with the limitations in the Admission Act and protect the integrity of this statutory framework.
The HHLRA also clarified the role of the Secretary in the oversight of the Hawaiian Home Lands Trust. Section 204(a)(3) of the HHCA, in conjunction with section 205 of the HHLRA, requires the approval or disapproval of the Secretary for the exchange of Hawaiian home lands. The HHLRA details the Secretary's responsibilities to ensure that the administration of Hawaiian Home Lands Trust advances the interests of the beneficiaries.
The HHLRA thus confirms the continuing role of the Secretary in implementing the HHCA and defines the scope of the continuing responsibilities of the Federal Government related to approval of land exchanges of Hawaiian home lands and state-proposed amendments to the HHCA.
The Secretary's interpretation of the term “rehabilitation” to include political, cultural, and social reorganization is consistent with both the statutory text and legislative history of HHCA. The term “rehabilitation” was added to the HHCA through the 1978 amendments to the Hawaiian Constitution. Section 213(i) of the HHCA, as amended, creates a “rehabilitation fund” that can be used for “the rehabilitation of native Hawaiians” including “educational, economic, political, social, and cultural processes.” Congress consented to this language through a joint resolution approved October 27, 1986, thereby amending the HHCA. 100 Stat. 3143. The purposes and goals of the rehabilitation fund are congressionally identified as some of the purposes and goals of the HHCA.
Furthermore, the legislative history of the HHCA indicates that the bill's purpose was to protect the welfare of the Native Hawaiian people.
In 1982 the Secretary and the Governor of Hawai'i created a task force whose purpose was to consider how to better effectuate the purposes of the HHCA. Federal-State Task Force on the Hawaiian Homes Commission Act Report to the Secretary of the Interior and the Governor of the State of Hawai'i, Honolulu, Hawai'i, August 1983, pp. 4, 8. That task force found that the term “rehabilitation” “implies that traditional and cultural practices of native beneficiaries, to the extent not precluded by law, should be respected and acknowledged by the DHHL in order to enable native beneficiaries to return to their lands and to provide for their self-sufficiency and initiative and for the preservation of their culture.”
The funds Congress provided for in the HHCA represent factors that Congress identified as some of the purposes and goals of the HHCA. These purposes and goals guide the Secretary's review in determining whether a proposal advances the interests of the beneficiaries. Section 48.25 has been modified in response to these comments.
As discussed above, the statutory framework of the HHCA, the Admission Act, and the HHLRA result in a compound of interdependent Federal and State law. Those laws undoubtedly have federalism implications. This rule, however, does not. In accordance with E.O. 13132, rules or policies have federalism implications if they “have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.” Parts 47 and 48 have none of those effects. The rule merely formalizes the process the Secretary will use in reviewing and approving land exchanges and in reviewing proposed amendments to the HHCA under existing law, and clarifies the documentation that the HHC Chairman, an officer of the State of Hawai'i, must submit to implement existing law. The relationship between the State and the Secretary is unchanged by this rule. We expect the HHC Chairman will continue to submit proposed land exchanges and proposed amendments to the Secretary as it has since passage of the HHRLA. The distribution of power and responsibilities remains unchanged; the respective decision making authority of the Secretary and State are limited by section 4 of the Admission Act and sections 205 and 206 of the HHLRA. The only “direct effect” imposed on the State by this rule is the requirement to submit some additional documentation, which, given the level of documentation required and the frequency of submissions, does not rise to a “substantial direct effect.” We therefore conclude that no federalism analysis is necessary.
Once the Department determines that Congress must approve a proposed amendment to the HHCA and the Department transmits the proposed amendment to Congress, there is no requirement that the Administration monitor or advocate its passage. The Administration may oppose an amendment that does not advance the interests of the HHCA beneficiaries.
Section 204(c)(1) also requires the Secretary to submit to Congress a draft joint resolution approving the proposed amendment. Section 397, Joint Resolutions, of Jefferson's Manual of the House of Representatives of the United States Congress, provides, with the exception of joint resolutions proposing amendments to the Constitution, all resolutions are sent to the President for approval and have the full force of law.
One commenter suggested requiring face-to-face consultations with beneficiaries and lessees who live within a 50-mile radius of the existing Hawaiian home lands to be exchanged or received into the Trust. While the rationale for not requiring face-to-face consultations presented in the previous paragraph still holds true, the Secretary encourages the State to engage in face-to-face consultations, at a minimum, within a 50-mile radius. The beneficiaries who live within a 50-mile radius of a proposed exchange will likely have a great deal of information important in making a decision about an exchange that would assist the Department in its review.
The final rule modified the definition of consultation in response to these comments.
Upon consideration of the comments, language similar to that in § 47.65(b) was inserted into § 48.20.
Moreover, in order for the exchange to be approved, the purpose of the land exchange must be well documented and demonstrate how the land exchange advances the interests of the beneficiaries. For instance, it would be insufficient under the rule for the party proposing the exchange to make only a conclusory statement that the exchange advances the interests of the beneficiaries without further explanation. Sections 47.20 and 47.30 provide the necessary information for the Secretary to make a reasoned decision to approve or disapprove a proposed land exchange.
It is important to note that there are other factors the Secretary must find to approve a proposed land exchange in addition to finding that the proposed exchange advances the interest of the beneficiaries.
The rule incorporates consultation with the HHCA beneficiaries and consideration of the interests of the HHCA beneficiaries as provided by Congress in the HHLRA during the proposal and review processes. Such provisions address HHCA beneficiary concerns that they are often the last to be informed about proposed actions affecting their interests and are often informed after-the-fact when decisions have already been made. Such consultation should result in better-informed decision-making and lessen the need of beneficiaries to seek recourse after decisions have already been made.
The information delineated in this rule provides clarity in the Department's decisions regarding land exchanges involving Hawaiian home lands and amendments to the HHCA proposed by the State. While the Secretary will give weight to the State in its findings and analysis, the rule seeks to make certain the information gathered is substantive and reasonably verifiable in order to ensure the Hawaiian Home Lands Trust statutes are administered in a way that advances the interests of the beneficiaries as required by section 206 of the HHLRA.
By following the provisions of sections 47.50-47.60, the HHC
If the HHC Chairman chooses not to seek the assistance of the Secretary in developing an exchange proposal, the HHC Chairman may merely submit the documentation listed in § 47.60. In accordance with section 205 of the HHLRA, the Secretary will approve or disapprove the proposed exchange not later than 120 days after receiving the information required in § 47.60.
It is possible certain proposed exchanges will present situations where certain factors listed in § 47.20 may conflict with each other. In those circumstances the Department will be required to exercise expertise and judgment within these limits in weighing the factors in order to determine whether a proposed land exchange advances the interests of the beneficiaries. If the factors listed in § 47.20 conflict with § 47.30 (a) and (c),
Executive Order 12866 provides that the Office of Information and Regulatory Affairs will review all significant rules. The Office of Information and Regulatory Affairs determined that this rule is not significant.
Executive Order 13563 reaffirms the principles of E.O. 12866 while calling for improvements in the nation's regulatory system to promote predictability, to reduce uncertainty, and to use the best, most innovative, and least burdensome tools for achieving regulatory ends. The executive order directs agencies to consider regulatory approaches that reduce burdens and maintain flexibility and freedom of choice for the public where these approaches are relevant, feasible, and consistent with regulatory objectives. E.O. 13563 emphasizes further that rules must be based on the best available science and that the rulemaking process must allow for public participation and an open exchange of ideas. This final rule is consistent with these requirements.
The Department of the Interior certifies that this final rule will not have a significant economic effect on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601
This is not a major rule under 5 U.S.C. 804(2), the Small Business Regulatory Enforcement Fairness Act. This final rule:
(a) Does not have an annual effect on the economy of $100 million or more.
(b) Will not cause a major increase in costs or prices for consumers, individual industries, Federal, State, or local government agencies, or geographic regions.
(c) Does not have significant adverse effects on competition, employment, investment, productivity, innovation, or the ability of U.S.-based enterprises to compete with foreign-based enterprises.
This final rule does not impose an unfunded mandate on State, local, or tribal governments or the private sector of more than $100 million per year. The final rule does not have a significant or unique effect on State, local or tribal governments or the private sector. A statement containing the information required by the Unfunded Mandates Reform Act (2 U.S.C. 1531
This rule does not affect a taking of private property or otherwise have taking implications under Executive Order 12630 as the taking of private property is not a subject covered or even contemplated under this rule. A takings implication assessment is not required.
In accordance with Executive Order 13132, the final rule does not have sufficient federalism implications to warrant the preparation of a federalism summary impact statement. Based on research and the deliberations outlined in the response to questions number 8, the final rule does not substantially and directly affect the relationship between the Federal and state governments. The Secretary of the Department of the Interior has oversight to ensure that land under the HHCA is administered in a manner that advances the interests of the beneficiaries. A federalism assessment is not required.
This rule complies with the requirements of Executive Order 12988. Specifically, this rule:
(a) Meets the criteria of section 3(a) requiring that all rules be reviewed to eliminate errors and ambiguity and be written to minimize litigation; and
(b) Meets the criteria of section 3(b)(2) requiring that all rules be written in clear language and contain clear legal standards.
The Department of the Interior strives to strengthen its government-to-government relationship with Indian tribes through a commitment to consultation with Indian tribes and recognition of their right to self-governance and tribal sovereignty. We evaluated this rule under the Secretary's consultation policy and under the criteria in Executive Order 13175 and determined that it has no substantial direct effects on federally recognized Indian tribes and that consultation under the Secretary's tribal consultation policy is not required.
This rule does not contain information collection requirements subject to the Paperwork Reduction Act and therefore a submission to the Office of Management and Budget under the Paperwork Reduction Act (44 U.S.C. 3501
This final rule does not constitute a major Federal action significantly affecting the quality of the human environment. A detailed statement under the National Environmental Policy Act, 1969 (NEPA) is not required. Under Departmental Manual 516 DM 2.3A(2), Section 1.10 of 516 DM 2, Appendix 1 excludes from documentation in an environmental assessment or impact statement “policies, directives, regulations and guidelines of an administrative, financial, legal, technical or procedural nature; or the environmental effects of which are too broad, speculative or conjectural to lend themselves to meaningful analysis and will be subject later to the NEPA process, either collectively or case-by-case.” We have also determined that the rule does not involve any of the extraordinary circumstances listed in 43 CFR 46.215 that would require further analysis under NEPA.
This final rule is not a significant energy action under the definition in Executive Order 13211. A Statement of Energy Effects is not required.
The Secretary is required by Executive Orders 12866 (section 1(b)(12)), 12988 (section 3(b)(1)(B)), and 13563 (section 1(a)), and by the Presidential Memorandum of June 1, 1998, to write all rules in plain language. This rule meets the requirements that each rule the Secretary publishes must:
(a) Be logically organized;
(b) Use the active voice to address readers directly;
(c) Use clear language rather than jargon;
(d) Be divided into short sections and sentences; and
(e) Use lists and tables wherever possible.
Hawaii, Intergovernmental Programs, Land, State-Federal Relations.
For the reasons stated in the preamble, the Department of the Interior amends title 43 of the Code of Federal Regulations by adding new parts 47 and 48 as set forth below:
State of Hawai'i Admission Act, 73 Stat. 4, approved March 18, 1959; Hawaiian Homes Commission Act, 1920, as amended, Act of July 9, 1921, 42 Stat. 108; Hawaiian Home Lands Recovery Act, 1995, 109 Stat. 537, 5 U.S.C. 301; 25 U.S.C. 2 and 9; 43 U.S.C. 1457; 112 Departmental Manual 28.
This part sets forth the procedures for conducting land exchanges of Hawaiian home lands authorized by the Hawaiian Homes Commission Act, 1920 (HHCA).
As used in this part, the following terms have the meanings given in this section.
(a) The Chairman may only exchange land under the authority of the HHCA in conformity with the HHLRA.
(b) When the Chairman makes any land exchange, the following laws and regulations constitute a partial list of applicable laws and regulations:
The Secretary may approve an exchange only after making a determination that the exchange will advance the interests of the beneficiaries. In considering whether a land exchange will advance the interests of the beneficiaries, the Secretary will evaluate the extent to which it will:
(a) Achieve better management of Hawaiian home lands;
(b) Meet the needs of HHCA beneficiaries and their economic circumstances by promoting:
(1) Homesteading opportunities,
(2) economic self-sufficiency, and,
(3) social well-being;
(c) Promote development of Hawaiian home lands for residential, agricultural, and pastoral use;
(d) Protect cultural resources and watersheds;
(e) Consolidate lands or interests in lands, such as agricultural and timber interests, for more logical and efficient management and development;
(f) Expand homestead communities;
(g) Accommodate land use authorizations;
(h) Address HHCA beneficiary needs; and
(i) Advance other identifiable interests of the beneficiaries consistent with the HHCA.
A determination that an exchange advances the interests of the beneficiaries must find that:
(a) The exchange supports perpetuation of the Hawaiian Home Lands Trust;
(b) The interests of the beneficiaries in obtaining non-Hawaiian home lands exceeds the interests of the beneficiaries in retaining the Hawaiian home lands proposed for the exchange, based on an evaluation of the factors in § 47.20; and
(c) The intended use of the conveyed Hawaiian home lands will not significantly conflict with the beneficiaries' interests in adjacent Hawaiian home lands.
Hawaiian home lands to be exchanged must be of equal or lesser value than the lands to be received in the exchange, as determined by the appraisal. Once the market value is established by an approved appraisal, an administrative determination as to the equity of the exchange can be made based on the market value reflected in the approved appraisal.
The description of properties involved in a land exchange must be either:
(a) Based upon a survey completed in accordance with the Public Land Survey System laws and standards of the United States; or
(b) If Public Land Survey System laws and standards cannot be applied, based upon a survey that both:
(1) Uses other means prescribed or allowed by applicable law; and
(2) Clearly describes the property and allows it to be easily located.
(a) The Secretary recommends the parties prepare a land exchange proposal in accordance with § 47.50. The Secretary also recommends the Chairman and the non-Chairman party in the exchange meet with the Secretary before finalizing a land exchange proposal and signing an agreement to initiate the land exchange to informally discuss:
(1) The review and processing procedures for Hawaiian home lands exchanges;
(2) Potential issues involved that may require more consideration; or
(3) Any other matter that may make the proposal more complete before submission.
(b) Whether or not a land exchange proposal is completed, the Chairman initiates the exchange by preparing the documentation, conducting appropriate studies, and submitting them to the Secretary in accordance with § 47.60.
(c) Upon completing the review of the final land exchange packet under § 47.60, the Secretary will issue a Notice of Decision announcing the approval or disapproval of the exchange.
(d) If the Secretary approves an exchange, title will transfer in accordance with State law.
(a) A land exchange proposal should include the following documentation:
(b) When the parties to the exchange agree to proceed with the land exchange proposal, they may sign an agreement that the Chairman will initiate the exchange.
(a) The following table shows the steps in the appraisal process.
(b) To be qualified to appraise land for exchange under paragraph (a)(2) of this section, an appraiser must:
(1) Be competent, reputable, impartial, and experienced in appraising property similar to the properties involved in the appraisal assignment; and
(2) Be approved by the OVS, if required by the Department of the Interior's Office of Native Hawaiian Relations.
(3) Be licensed to perform appraisals in the State of Hawai'i unless a Federal employee whose position requires the performance of appraisal duties. Federal employees only need to be licensed in one State or territory to perform real estate appraisal duties as Federal employees in all States and territories.
(c) Appraisal reports for the exchange must:
(1) Be completed in accordance with the current edition of the Uniform Standards of Professional Appraisal Practice (USPAP) and the Uniform Appraisal Standards for Federal Land Acquisition (UASFLA); and
(2) Include the estimated market value of Hawaiian home lands and non-Hawaiian home lands properties involved in the exchange.
The documents in the exchange packet submitted to us for approval must include the following:
On receipt of the complete land exchange packet from the Commission, the Secretary will approve or disapprove the exchange within 120 calendar days.
(a) Before approving or disapproving the exchange, the Secretary will review all environmental analyses, appraisals, and all other supporting studies and requirements to determine whether the proposed exchange complies with applicable law and advances the interests of the beneficiaries.
(b) The Secretary may consult with the beneficiaries when making a determination if a land exchange advances the interests of the beneficiaries.
(c) After approving or disapproving an exchange, the Secretary will notify DHHL, the Commission, and other officials as required by section 205(b)(2) of the HHLRA. The Secretary will post notice of the determination on the DOI Web site and give email notice of the posting to all those on the notification list maintained by the Office of Native Hawaiian Relations requesting notice of actions by the Secretary.
(a) The Chairman completes the exchange in accordance with the requirements of State law.
(b) The Chairman shall provide a title report to the Secretary as evidence of the completed exchange.
State of Hawai'i Admission Act, 73 Stat. 4, approved March 18, 1959; Hawaiian Homes Commission Act, 1920, 42 Stat. 108
(a) This part sets forth the policies and procedures for:
(1) Review by the Secretary of amendments to the Hawaiian Homes Commission Act proposed by the State of Hawai'i; and
(2) Determination by the Secretary whether the proposed amendment requires congressional approval.
(b) This part implements requirements of the Hawaiian Homes Commission Act, the State of Hawai'i Admission Act, 1959, and the Hawaiian Home Lands Recovery Act, 1995.
As used in this part, the following terms have the meanings given in this section.
(1) Beneficiary who has been awarded a lease under section 207(a) of the Hawaiian Homes Commission Act;
(2) Person to whom land has been transferred under section 208(5) of the Hawaiian Homes Commission Act; or
(3) Successor lessee under section 209 of the Hawaiian Homes Commission Act.
(a) The Secretary must review proposed amendments to the Hawaiian Homes Commission Act (HHCA) by the State of Hawai'i to determine whether the proposed amendment requires approval of Congress.
(b) The Secretary will notify the Chairman and Congress of this determination, and if approval is required, submit to Congress the documents required by § 48.35(b).
(a) Not later than 120 days after the State approves a proposed amendment to the HHCA, the Chairman must submit to the Secretary a clear and complete:
(1) Copy of the proposed amendment;
(2) Description of the nature of the change proposed by the proposed amendment; and,
(3) Opinion explaining whether the proposed amendment requires the approval of Congress.
(b) The following information must also be submitted:
(1) A description of the proposed amendment, including how the proposed amendment advances the interests of the beneficiaries;
(2) All testimony and correspondence from the Director of the Department of Hawaiian Home Lands, Hawaiian Homes Commissioners, Homestead Associations, HHCA Beneficiary Associations, and beneficiaries providing views on the proposed amendment;
(3) An analysis of the law and policy of the proposed amendment by the Department of Hawaiian Home Lands and the Hawaiian Homes Commission;
(4) Documentation of the dates and number of hearings held on the measure, and a copy of all testimony provided or submitted at each hearing;
(5) Copies of all committee reports and other legislative history, including prior versions of the proposed amendment;
(6) Final vote totals by the Commission and the legislature on the proposed amendment;
(7) Summaries of all consultations conducted with the beneficiaries regarding the proposed amendment; and
(8) Other additional information that the State believes may assist in the review of the proposed amendment.
(a) The Secretary will determine that Congressional approval is required if the proposed amendment, or any other legislative action that directly or indirectly has the effect of:
(1) Decreasing the benefits to the beneficiaries of the Trust;
(2) Reducing or impairing the Hawaiian Home Land Trust Funds;
(3) Allowing for additional encumbrances to be placed on Hawaiian home lands by officers other than those charged with the administration of the HHCA;
(4) Changing the qualifications of who may be a lessee;
(5) Allowing the use of proceeds and income from the Hawaiian home lands for purposes other than carrying out the provisions of the HHCA; or
(6) Amending a section other than sections 202, 213, 219, 220, 222, 224, or 225, or other provisions relating to administration, or paragraph (2) of section 204, section 206, or 212 or other provisions relating to the powers and duties of officers other than those charged with the administration of the HHCA.
(b) The Secretary may consult with the beneficiaries when making a determination.
(a) In determining benefits to the beneficiaries, the Secretary will consider the goals and purposes of the Trust, including, but not limited to, the following:
(1) The provision of homesteads to beneficiaries;
(2) The rehabilitation of beneficiaries and their families and Hawaiian homestead communities;
(3) The educational, economic, political, social, and cultural processes by which the general welfare and conditions of beneficiaries are improved and perpetuated;
(4) The construction of replacement homes, repairs or additions;
(5) The development of farm, ranch or aquaculture, including soil and water conservation;
(6) The enhanced construction, reconstruction, operation and maintenance of revenue-producing improvements intended to benefit occupants of Hawaiian home lands;
(7) The making of investments in water and other utilities, supplies, equipment, and goods, as well as professional services needed to plan, implement, develop or operate such projects that will improve the value of Hawaiian home lands for their current and future occupants; and,
(8) The establishment and maintenance of an account to serve as a reserve for loans issued or backed by the Federal Government.
(b) The Secretary will determine if the proposed amendment or any other legislative action decreases the above-described or similar benefits to the beneficiaries, now or in the future, by weighing the answers to the following questions:
(1) How would the proposed amendment impact the benefits to current lessees of Hawaiian home lands?
(2) How would the proposed amendment impact the benefits to beneficiaries currently on a waiting list for a Hawaiian home lands lease?
(3) How would the proposed amendment impact the benefits to beneficiaries who have not yet applied for a Hawaiian home lands lease?
(4) If the interests of the beneficiaries who have not been awarded a Hawaiian home lands lease and the lessees differ, how does the proposed amendment weigh the interests of beneficiaries who have not been awarded a Hawaiian home lands lease with the interests of Hawaiian home lands lessees?
(5) If the interests of the beneficiaries who have not been awarded a Hawaiian home lands lease and the lessees differ, do the benefits to the lessees outweigh any detriment to the beneficiaries who have not been awarded a Hawaiian home lands lease?
(6) If the interests of the beneficiaries differ from the interests of the lessees, do the benefits to the beneficiaries outweigh any detriment to the lessees?
The Secretary will determine that Congressional approval is unnecessary if the proposed amendment meets none of the criteria in § 48.20.
The Secretary will review the documents submitted by the Chairman, and if they meet the requirements of § 48.15, the Secretary will determine within 60 days after receiving them if the proposed amendment requires Congressional approval.
(a) If the Secretary determines that Congressional approval of the proposed amendment is unnecessary, the Secretary will:
(1) Notify the Chairmen of the Senate Committee on Energy and Natural Resources and of the House Committee on Natural Resources, the Governor, Speaker of the House of Representatives and President of the Senate of the State of Hawai'i, and the Chairman of the Hawaiian Homes Commission; and
(2) Include, if appropriate, an opinion on whether the proposed amendment advances the interests of the beneficiaries.
(b) If the Secretary determines that Congressional approval of the proposed amendment is required, the Secretary will notify the Chairmen of the Senate Committee on Energy and Natural Resources and of the House Committee on Natural Resources, the Governor, Speaker of the House of Representatives and President of the Senate of the State of Hawai'i, and the Chairman of the Hawaiian Homes Commission. The Secretary will also submit to the Committees the following:
(1) A draft joint resolution approving the proposed amendment;
(2) A description of the change made by the proposed amendment and an explanation of how the proposed amendment advances the interests of the beneficiaries;
(3) A comparison of the existing law with the proposed amendment;
(4) A recommendation on the advisability of approving the proposed amendment;
(5) All documentation concerning the proposed amendment received from the Chairman; and
(6) All documentation concerning the proposed amendment received from the beneficiaries.
(c) The Secretary will post notice of the determination on the Department of the Interior's Web site.
(a) If the Secretary determines that a proposed amendment meets none of the criteria in § 48.20, the effective date of the proposed amendment is the date of the notification letter to the Congressional Committee Chairmen.
(b) If the Secretary determines that the proposed amendment requires congressional approval then the effective date of the proposed amendment is the date that Congress's approval becomes law.
The Secretary must review all proposed amendments to the Hawaiian Homes Commission Act. Any proposed amendments to any terms or provisions of the Hawaiian Homes Commission Act by the State must also specifically state that the proposed amendment proposes to amend the Hawaiian Homes Commission Act. Any state enactment that impacts any of the criteria in § 48.20 shall have no effect on the provisions of the HHCA or administration of the Trust, except pursuant to this part.
Environmental Protection Agency (EPA).
Direct final rule.
The Environmental Protection Agency (EPA) is issuing a final rule to remove outdated information and make administrative changes to the Environmental Protection Agency Acquisition Regulation (EPAAR). EPA does not anticipate any adverse comments.
This rule is effective on July 12, 2016 without further action, unless EPA receives adverse comment by June 13, 2016. If EPA receives adverse comment, a timely withdrawal will be published in the
Submit your comments, identified by Docket ID No. EPA-HQ-OARM-2015-0550, at
Julianne Odend'hal, Policy, Training, and Oversight Division, Acquisition Policy and Training Service Center (3802R), Environmental Protection Agency, 1200 Pennsylvania Avenue NW., Washington, DC 20460; telephone number: (202) 564-5218; email address:
EPA is publishing this rule without a prior proposed rule because EPA views this as a noncontroversial action and anticipates no adverse comments. EPAAR Parts 1519 and 1552 are being amended to remove outdated information and to make administrative changes. If EPA receives adverse comment, a timely withdrawal will be published in the
The EPAAR applies to contractors who have a contract with the EPA.
A.
B.
• 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 referencing a Code of Federal Regulations (CFR) part or section number.
• Explain why you agree or disagree, suggest alternatives, and substitute language for your requested changes.
• Describe any assumptions and provide any technical informationand/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.
EPAAR Parts 1519 and 1552 are being amended to remove outdated information and to make administrative changes.
This direct final rule makes the following changes: (1) Updates outdated terms throughout EPAAR Parts 1519 and 1552 by removing “Office of Small and Disadvantaged Business Utilization (OSDBU)” and adding “Office of Small Business Programs (OSBP)” in its place, removing “Small and Disadvantaged Business Utilization Specialists” and adding “Small Business Specialists” in its place, removing “Subcontracting with Small Business and Small Disadvantaged Business Concerns” and adding “Small Business Subcontracting Program” in its place; (2) amends section 1519.201 by removing the words “and the local” and adding the words “(CCO)s or Regional Acquisitions Managers (RAMs), the assigned” in its place; (3) amends section 1519.201-72, paragraph (a), by removing the words “for each contracting office”, and adding the words “The appointing authorities for regional SBS are the RAMs. The SBSs for EPA headquarters, Research Triangle Park (RTP), and Cincinnati shall be appointed by the OSBP Director.”, and removing the words “The appointing authorities are the Chiefs of the Contracting Offices.”; (4) Amends Section 1519.201-72, paragraph (c), by removing subparagraph (6) and re-numbering subparagraphs (7) through (10) to read (6) through (9), and amends re-numbered subparagraph (9) to read “Act as liaison with the appropriate SBA office or representative in connection with matters concerning the small business programs including set-asides.”; (5) amends section 1519.202-5,
This action is not a significant regulatory action and was therefore not submitted to the Office of Management and Budget (OMB) for review.
This action does not impose an information collection burden under the PRA because it does not contain any information collection activities.
I certify that this action will not have a significant economic impact on a substantial number of small entities under the RFA. In making this determination, the impact of concern is any significant adverse economic impact on small entities. An agency may certify that a rule will not have a significant economic impact on a substantial number of small entities if the rule relieves regulatory burden, has no net burden or otherwise has a positive economic effect on the small entities subject to the rule. This action amends EPAAR parts 1519 and 1552 to remove outdated information and to make administrative changes. We have therefore concluded that this action will have no net regulatory burden for all directly regulated small entities.
This action does not contain an unfunded mandate of $100 million or more as described in UMRA, 2 U.S.C. 1531-1538, and does not significantly or uniquely affect small governments. The action imposes no enforceable duty on any state, local or tribal governments or the private sector.
This action does not have federalism implications. It will not have substantial direct effects on the states, on the relationship between the national government and the states, or on the distribution of power and responsibilities among the various levels of government.
This action does not have tribal implications, as specified in Executive Order 13175 (65 FR 67249, November 9, 2000). Thus, Executive Order 13175 does not apply to this action. In the spirit of Executive Order 13175, and consistent with EPA policy to promote communication between EPA and Tribal governments, EPA specifically solicits additional comment on this rule from Tribal officials.
EPA interprets Executive Order 13045 (62 FR 19885, April 23, 1997) as applying only to those regulatory actions that concern health or safety risks, such that the analysis required under section 5-501 of the Executive Order has the potential to influence the regulation. This action is not subject to Executive Order 13045 because it does not establish an environmental standard intended to mitigate health or safety risks.
This action is not subject to Executive Order 13211 (66 FR 28355 (May 22, 2001)), because it is not a significant regulatory action under Executive Order 12866.
This rulemaking does not involve technical standards.
Executive Order 12898 (59 FR 7629 (February 16, 1994)) establishes federal executive policy on environmental justice. Its main provision directs federal agencies, to the greatest extent practicable and permitted by law, to make environmental justice part of their mission by identifying and addressing, as appropriate, disproportionately high and adverse human health or environmental effects of their programs, policies, and activities on minority populations and low-income populations in the United States. EPA has determined that this final rule will not have disproportionately high and adverse human health or environmental effects on minority or low-income populations because it does not affect the level of protection provided to human health or the environment.
The Congressional Review Act, 5 U.S.C. 801
Government procurement.
For the reasons stated in the preamble, 48 CFR parts 1519 and 1552 are amended as set forth below:
Sec. 205(c), 63 Stat. 390, as amended, 40 U.S.C. 486(c).
Each program's Assistant or Associate Administrator shall be responsible for developing its socioeconomic goals on a fiscal year basis. The goals shall be developed in collaboration with the supporting Chiefs of Contracting Offices (CCOs) or Regional Acquisition Managers (RAMs), the assigned Small Business Specialist (SBS), and the Office of Small Business Programs (OSBP). The goals will be based on advance procurement plans and past performance. The goals shall be submitted to the Director of OSBP, at least thirty (30) days prior to the start of the fiscal year.
The Director of the Office of Small Business Programs (OSBP) provides guidance and advice, as appropriate, to
(a) Small Business Specialists (SBSs) shall be appointed in writing. Regional SBSs will normally be appointed from members of staffs of the appointing authority. The appointing authorities for regional SBSs are the RAMs. The SBSs for EPA headquarters, Research Triangle Park (RTP), and Cincinnati shall be appointed by the OSBP Director. The SBS is administratively responsible directly to the appointing authority and, on matters relating to small business programs activities, receives technical guidance from the OSBP Director.
(b) A copy of each appointment and termination of all SBSs shall be forwarded to the OSBP Director. In addition to performing the duties outlined in paragraph (c) of this section that are normally performed in the activity to which assigned, the SBS shall perform such additional functions as may be prescribed from time to time in furtherance of overall small business programs goals. The SBS may be appointed on either a full- or part-time basis; however, when appointed on a part-time basis, small business duties shall take precedence over collateral responsibilities.
(c) The SBS appointed pursuant to paragraph (a) of this section shall perform the following duties as appropriate:
(1) Maintain a program designed to locate capable small business sources for current and future acquisitions;
(2) Coordinate inquiries and requests for advice from small business concerns on acquisition matters;
(3) Review all proposed solicitations in excess of the simplified acquisition threshold, assure that small business concerns will be afforded an equitable opportunity to compete, and, as appropriate, initiate recommendations for small business set-asides, or offers of requirements to the Small Business Administration (SBA) for the 8(a) program, and complete EPA Form 1900-37, “Record of Procurement Request Review,” as appropriate;
(4) Take action to assure the availability of adequate specifications and drawings, when necessary, to obtain small business participation in an acquisition. When small business concerns cannot be given an opportunity on a current acquisition, initiate action, in writing, with appropriate technical and contracting personnel to ensure that necessary specifications and/or drawings for future acquisitions are available;
(5) Review proposed contracts for possible breakout of items or services suitable for acquisition from small business concerns;
(6) Participate in the evaluation of a prime contractor's small business subcontracting programs;
(7) Assure that adequate records are maintained, and accurate reports prepared, concerning small business participation in acquisition programs;
(8) Make available to SBA copies of solicitations when so requested;
(9) Act as liaison with the appropriate SBA office or representative in connection with matters concerning the small business programs including set-asides.
(a) The contracting officer shall insert the clause at 1552.219-70,
(b) The contracting officer shall insert the provision at 1552.219-71,
(a) If no Small Business Administration (SBA) representative is available, the Small Business Specialist (SBS) shall initiate recommendations to the contracting officer for small business set-asides with respect to individual acquisitions or classes of acquisitions or portions thereof.
(b) When the SBS has recommended that all, or a portion, of an individual acquisition or class of acquisitions be set aside for small business, the contracting officer shall:
(1) Promptly concur in the recommendation; or
(2) Promptly disapprove the recommendation, stating in writing the reasons for disapproval. If the contracting officer disapproves the recommendation of the SBS, the SBS may appeal to the appropriate appointing authority, whose decision shall be final.
(a) Each proposed acquisition for construction estimated to cost between $10,000 and $1,000,000 shall be set-aside for exclusive small business participation. Such set-asides shall be considered to be unilateral small business set-asides, and shall be withdrawn in accordance with the procedure of FAR 19.506 only if found not to serve the best interest of the Government.
(b) Small business set-aside preferences for construction acquisitions in excess of $1,000,000 shall be considered on a case-by-case basis.
One copy of the determination required by FAR 19.705-2(c) shall be placed in the contract file and one copy provided to the Director of the Office of Small Business Programs.
In determining the acceptability of a proposed subcontracting plan, the contracting officer shall obtain advice and recommendations from the Office of Small Business Programs, which shall in turn coordinate review by the Small Business Administration Procurement Center Representative (if any).
The synopsis of contract award, where applicable, shall include a statement identifying the contract as one containing Public Law 95-507 subcontracting plans and goals.
5 U.S.C 301; Sec. 205(c), 63 Stat. 390, as amended, 40 U.S.C. 486(c); and 41 U.S.C. 418b.
As prescribed in 1519.203(a), insert the following clause:
(a) The Contractor has been approved to participate in the EPA Mentor-Protégé Program. The purpose of the Program is to increase the participation of small disadvantaged businesses (SDBs) as subcontractors, suppliers, and ultimately as prime contractors; establish a mutually beneficial relationship with SDBs and EPA's large business prime contractors (although small businesses may participate as Mentors); develop the technical and corporate administrative expertise of SDBs which will ultimately lead to greater success in competition for contract opportunities; promote the economic stability of SDBs; and aid in the achievement of goals for the use of SDBs in subcontracting activities under EPA contracts.
(b) The Contractor shall submit an executed Mentor-Protégé agreement to the Contracting Officer, with a copy to the Office of Small Business Programs (OSBP) or the Small Business Specialist, within thirty (30) calendar days after the effective date of the contract. The Contracting Officer will notify the Contractor within thirty (30) calendar days from its submission if the agreement is not accepted.
(c) The Contractor as a Mentor under the Program agrees to fulfill the terms of its agreement(s) with the Protégé firm(s).
(d) If the Contractor or Protégé firm is suspended or debarred while performing under an approved Mentor-Protégé agreement, the Contractor shall promptly give notice of the suspension or debarment to the OSBP and the Contracting Officer.
(e) Costs incurred by the Contractor in fulfilling their agreement(s) with the Protégé firm(s) are not reimbursable on a direct basis under this contract.
(f) In an attachment to Individual Subcontract Reports (ISR), the Contractor shall report on the progress made under their Mentor-Protégé agreement(s), providing:
(1) The number of agreements in effect; and
(2) The progress in achieving the developmental assistance objectives under each agreement, including whether the objectives of the agreement have been met, problem areas encountered, and any other appropriate information.
As prescribed in 1519.203(b), insert the following provision:
(a) This provision sets forth the procedures for participation in the EPA Mentor-Protégé Program (hereafter referred to as the Program). The purpose of the Program is to increase the participation of concerns owned and/or controlled by socially and economically disadvantaged individuals as subcontractors, suppliers, and ultimately as prime contractors; to establish a mutually beneficial relationship between these concerns and EPA's large business prime contractors (although small businesses may participate as Mentors); to develop the technical and corporate administrative expertise of these concerns, which will ultimately lead to greater success in competition for contract opportunities; to promote the economic stability of these concerns; and to aid in the achievement of goals for the use of these concerns in subcontracting activities under EPA contracts. If the successful offeror is accepted into the Program they shall serve as a Mentor to a Protégé firm(s), providing developmental assistance in accordance with an agreement with the Protégé firm(s).
(b) To participate as a Mentor, the offeror must receive approval in accordance with paragraph (h) of this section.
(c) A Protégé must be a concern owned and/or controlled by socially and economically disadvantaged individuals within the meaning of section 8(a)(5) and (6) of the Small Business Act (15 U.S.C. 637(a)(5) and (6)), including historically black colleges and universities. Further, in accordance with Public Law 102-389 (the 1993 Appropriation Act), for EPA's contracting purposes, economically and socially disadvantaged individuals shall be deemed to include women.
(d) Where there may be a concern regarding the Protégé firm's eligibility to participate in the program, the protégé's eligibility will be determined by the contracting officer after the SBA has completed any formal determinations.
(e) The offeror shall submit an application in accordance with paragraph (k) of this section as part of its proposal which shall include as a minimum the following information.
(1) A statement and supporting documentation that the offeror is currently performing under at least one active Federal contract with an approved subcontracting plan and is eligible for the award of Federal contracts;
(2) A summary of the offeror's historical and recent activities and accomplishments under any disadvantaged subcontracting programs. The offeror is encouraged to include any initiatives or outreach information believed pertinent to approval as a Mentor firm;
(3) The total dollar amount (including the value of all option periods or quantities) of EPA contracts and subcontracts received by the offeror during its two preceding fiscal years. (Show prime contracts and subcontracts separately per year);
(4) The total dollar amount and percentage of subcontract awards made to all concerns owned and/or controlled by disadvantaged individuals under EPA contracts during its two preceding fiscal years.
(5) The number and total dollar amount of subcontract awards made to the identified Protégé firm(s) during the two preceding fiscal years (if any).
(f) In addition to the information required by paragraph (e) of this section, the offeror shall submit as a part of the application the following information for each proposed Mentor-Protégé relationship:
(1) Information on the offeror's ability to provide developmental assistance to the identified Protégé firm and how the assistance will potentially increase contracting and subcontracting opportunities for the Protégé firm.
(2) A letter of intent indicating that both the Mentor firm and the Protégé firm intend to enter into a contractual relationship under which the Protégé will perform as a subcontractor under the contract resulting from this solicitation and that the firms will negotiate a Mentor-Protégé agreement. The letter of intent must be signed by both parties and contain the following information:
(i) The name, address and phone number of both parties;
(ii) The Protégé firm's business classification, based upon the NAICS code(s) which represents the contemplated supplies or services to be provided by the Protégé firm to the Mentor firm;
(iii) A statement that the Protégé firm meets the eligibility criteria;
(iv) A preliminary assessment of the developmental needs of the Protégé firm and the proposed developmental assistance the Mentor firm envisions providing the Protégé. The offeror shall address those needs and how their assistance will enhance the Protégé. The offeror shall develop a schedule to assess the needs of the Protégé and establish criteria to evaluate the success in the Program;
(v) A statement that if the offeror or Protégé firm is suspended or debarred while performing under an approved Mentor-Protégé agreement the offeror shall promptly give notice of the suspension or debarment to the EPA Office of Small Business Programs (OSBP) and the Contracting Officer. The statement shall require the Protégé firm to notify the Contractor if it is suspended or debarred.
(g) The application will be evaluated on the extent to which the offeror's proposal addresses the items listed in paragraphs (e) and (f) of this section. To the maximum extent possible, the application should be limited to not more than 10 single pages, double spaced. The offeror may identify more than one Protégé in its application.
(h) If the offeror is determined to be in the competitive range, or is awarded a contract without discussions, the offeror will be advised by the Contracting Officer whether their application is approved or rejected. The Contracting Officer, if necessary, may request additional information in connection with the offeror's submission of its revised or best and final offer. If the successful offeror has submitted an approved application, they shall comply with the clause titled “Mentor-Protégé Program.”
(i) Subcontracts of $1,000,000 or less awarded to firms approved as Protégés under the Program are exempt from the requirements for competition set forth in FAR 44.202-2(a)(5), and 52.244-5(b). However, price reasonableness must still be determined and the requirements in FAR 44.202-2(a)(8) for cost and price analysis continue to apply.
(j) Costs incurred by the offeror in fulfilling their agreement(s) with a Protégé firm(s) are not reimbursable as a direct cost under the contract. Unless EPA is the responsible audit agency under FAR 42.703-1, offerors are
(k)
National Protection and Programs Directorate, DHS.
Notice of public meeting.
The Department of Homeland Security (DHS) invites public comment on the Advanced Notice of Proposed Rulemaking (ANPRM) to update its regulation “Procedures for Handling Critical Infrastructure Information”. These comments may be used for potential revisions to the current regulation to strengthen and align the language to support the evolving needs of the critical infrastructure community and the cyber landscape.
A series of listening sessions will be held on:
Written comments must be submitted on or before Wednesday, July 20, 2016.
The listening sessions will be held at:
• 1310 North Courthouse Road, 6th Floor, Arlington, VA 22201.
You may submit comments, identified by docket number DHS-2016-0032. To avoid duplication, please use only one of the following methods:
•
•
•
Emily R. Hickey, Deputy Progra.m. Manager, by phone at (703) 235-9522 or by mail at Protected Critical Infrastructure Information Program, Office of Infrastructure Protection, Infrastructure Information Collection Division, 245 Murray Lane SW., Mail Stop 0602, Washington, DC 20528-0602.
DHS receives sensitive information about the nation's critical infrastructure through its congressionally-mandated PCII Program. The PCII Program provides a secure environment for the private sector, government analysts, and other subject matter experts to share information that is vital to addressing concerns across all critical infrastructure sectors. The Critical Infrastructure Information Act of 2002 (Secs. 211-215, Title II, Subtitle B of the Homeland Security Act of 2002, Pub. L. 107-296) (CII Act of 2002) established the PCII Program, which assures owners and operators that the information they voluntarily submit is protected from public disclosure. In accordance with the CII Act of 2002, on September 1, 2006, DHS issued the PCII Program Final Rule (71 FR 52271, codified at 6 CFR part 29). This rule established procedures that govern the receipt, validation, handling, storage, marking, and use of critical infrastructure information voluntarily submitted to DHS. The procedures are applicable to all Federal, State, local, tribal, and territorial government agencies and contractors that have access to, handle, use, or store critical infrastructure information that enjoy protection under the CII Act of 2002. After 10 years of operation, changes are needed to transition the managing of submissions, access, use, dissemination and safeguarding of PCII to state of the art technology that operates within an electronic environment.
DHS is interested in obtaining recommendations for program modifications, particularly in subject matter areas that have developed significantly since the issuance of the initial rule; however, DHS has particular interest in hearing comments regarding: (1) Automated submissions and an expansion of categorical inclusions, (2) marking PCII, (3) sharing PCII with foreign governments, (4) regulatory access, (5) safeguarding, (6) oversight and compliance, (7) alignment with other information protection programs, and (8) the administration of PCII at the State, local, tribal, and territorial level.
Additionally, DHS seeks comment on the economic impact of transitioning the PCII Program to a preferred electronic environment that: (1) Enhances the submission and validation process for critical infrastructure information, (2) uses state of the art technology for an automated interface for quicker access and dissemination of PCII, (3) modifies requirements for the express and certification statements; (4) expands the use of categorical inclusions; (5) requires portion marking of PCII; and (6) implements specific methods to capture and deliver metadata to the PCII Program.
DHS invites all interested persons, even those who are unable to attend the listening sessions, to submit written comments, data, or views on how the current PCII Program regulations, codified at 6 CFR part 29, “Procedures for Handling Critical Infrastructure Information,” might be improved. Comments that would be most helpful to DHS include the questions and answers identified in Part II of this document. Please explain the reason for any comments with available data, and include other information or authority that supports such comments. DHS encourages interested parties to provide specific data that documents the potential costs of modifying the existing
Written comments may be submitted electronically or by mail, as explained previously in the
Except as provided below, all comments received, as well as pertinent background documents, will be posted without change to
Interested parties are encouraged to submit comments in a manner that avoids discussion of trade secrets, confidential commercial or financial information, CII or PCII, or any other category of sensitive information that should not be disclosed to the general public. If it is not possible to avoid such discussion, however, please specifically identify any confidential or sensitive information contained in the comments with appropriate warning language (
DHS will not place any confidential or sensitive comments in the public docket; rather, DHS will handle them in accordance with applicable safeguards and restrictions on access.
DHS will hold listening sessions on how the current PCII Program regulations, codified at 6 CFR part 29, “Procedures for Handling Critical Infrastructure Information,” might be improved.
These meetings are open to the public. The listening sessions will be made available online via webinar and can be accessed through the following link,
The listening sessions are intended for technical experts, who have a cyber, security, regulatory or other background to discuss the proposed topics regarding updates to the PCII Program at an expert level. However, individuals who are not technical experts (or who do not meet the other criteria) may still attend and participate in the meeting. The listening sessions are intended to afford the public an opportunity to provide comments to DHS concerning the PCII Program and updating its current regulation. For the listening sessions, comments are requested not to exceed four minutes at a time to enable all interested attendees an opportunity to provide comment. Should time permit, commenters who need additional time may be invited to complete their comments. The listening sessions may adjourn early if all commenters present have had the opportunity to speak prior to the scheduled conclusion of the session. Participants who speak will be asked to provide their name, title, company and stakeholder segment. The listening sessions will be recorded to support the note-taking effort. Notes from the listening sessions, including the webinar materials, will be posted at
Federal Aviation Administration (FAA), DOT.
Notice of proposed rulemaking (NPRM).
We propose to adopt a new airworthiness directive (AD) for all Fokker Services B.V. Model F28 Mark 0070 and 0100 airplanes. This proposed AD was prompted by an aileron-wing flutter analysis finding that when a hydraulic aileron actuator is not powered, while at least one aileron flutter damper is inoperative (latent failure), the maximum speed currently defined in the airplane flight manual (AFM) is insufficient to meet the required safety margin. This proposed AD would require revising the AFM to include procedures to follow in the event of a hydraulic system failure and abnormal flight control behavior. We are proposing this AD to ensure that the flightcrew has procedures to follow in the event of a hydraulic system failure and abnormal flight control behavior. If not corrected, this condition could lead to aileron flutter and possible reduced control of the airplane.
We must receive comments on this proposed AD by June 27, 2016.
You may send comments, using the procedures found in 14 CFR 11.43 and 11.45, by any of the following methods:
•
•
•
•
For service information identified in this NPRM, contact Fokker Services B.V., Technical Services Dept., P.O. Box 1357, 2130 EL Hoofddorp, the Netherlands; telephone +31 (0)88-6280-350; fax +31 (0)88-6280-111; email
You may examine the AD docket on the Internet at
Tom Rodriguez, Aerospace Engineer, International Branch, ANM-116, Transport Airplane Directorate, FAA, 1601 Lind Avenue SW., Renton, WA 98057-3356; telephone 253-227-1137; fax 253-227-1149.
We invite you to send any written relevant data, views, or arguments about this proposed AD. Send your comments to an address listed under the
We will post all comments we receive, without change, to
The European Aviation Safety Agency (EASA), which is the Technical Agent for the Member States of the European Union, has issued EASA Airworthiness Directive 2015-0078, dated May 6, 2015 (referred to after this as the Mandatory Continuing Airworthiness Information, or “the MCAI”), to correct an unsafe condition for all Fokker Services B.V. Model F28 Mark 0070 and 0100 airplanes. The MCAI states:
In the frame of a complementary aileron-wing flutter analysis performed by Fokker Services, it has been found that in case a hydraulic aileron actuator is not powered, while at least one aileron flutter damper is inoperative (latent failure), the maximum speed currently defined in the Airplane Flight Manual (AFM) is insufficient to meet the required safety margin.
This condition, if not corrected, could lead to aileron flutter, possibly resulting in reduced control of the aeroplane.
To address this potential unsafe condition, Fokker Services published an AFM change through Manual Change Notification—Operational (MCNO) F100-066 which introduces an additional step in the Abnormal Procedures for [a] hydraulic [system] failure and for abnormal flight control behaviour. This new step consists in a speed reduction to Vra (IAS 250kt/M 0.65) to restore a sufficient margin to the flutter speed.
For the reasons described above, this [EASA] AD requires incorporation of the amended abnormal procedures into the applicable AFM.
You may examine the MCAI in the AD docket on the Internet at
Fokker Services B.V. has issued Fokker 70/100 Manual Change Notification—Operational Documentation MCNO F100-066, dated December 1, 2014. The service information contains amendments to applicable AFMs that introduce an additional step in the abnormal procedures for a hydraulic system failure and abnormal flight control behavior. This service information is reasonably available because the interested parties have access to it through their normal course of business or by the means identified in the
This product has been approved by the aviation authority of another country, and is approved for operation in the United States. Pursuant to our bilateral agreement with the State of Design Authority, we have been notified of the unsafe condition described in the MCAI and service information referenced above. We are proposing this AD because we evaluated all pertinent information and determined an unsafe condition exists and is likely to exist or develop on other products of these same type designs.
We estimate that this proposed AD affects 8 airplanes of U.S. registry.
We also estimate that it would take about 1 work-hour per product to comply with the basic requirements of this proposed AD. The average labor rate is $85 per work-hour. Based on these figures, we estimate the cost of this proposed AD on U.S. operators to be $680, or $85 per product.
Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. “Subtitle VII: Aviation Programs,” describes in more detail the scope of the Agency's authority.
We are issuing this rulemaking under the authority described in “Subtitle VII, Part A, Subpart III, Section 44701: General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.
We determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government.
For the reasons discussed above, I certify this proposed regulation:
1. Is not a “significant regulatory action” under Executive Order 12866;
2. Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979);
3. Will not affect intrastate aviation in Alaska; and
4. Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.
Air transportation, Aircraft, Aviation safety, Incorporation by reference, Safety.
Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows:
49 U.S.C. 106(g), 40113, 44701.
We must receive comments by June 27, 2016.
None.
This AD applies to all Fokker Services B.V. Model F28 Mark 0070 and 0100 airplanes, certificated in any category, all serial numbers.
Air Transport Association (ATA) of America Code 27, Flight Controls.
This AD was prompted by an aileron-wing flutter analysis finding that when a hydraulic aileron actuator is not powered, while at least one aileron flutter damper is inoperative (latent failure), the maximum speed currently defined in the airplane flight manual (AFM) is insufficient to meet the required safety margin. We are proposing this AD to ensure that the flightcrew has procedures to follow in the event of a hydraulic system failure and abnormal flight control behavior. If not corrected, this condition could lead to aileron flutter and possible reduced control of the airplane.
Comply with this AD within the compliance times specified, unless already done.
Within 12 months after the effective date of this AD, revise the Abnormal Procedures and Limitations sections of the applicable AFM to include the information in Fokker 70/100 Manual Change Notification—Operational Documentation MCNO F100-066, dated December 1, 2014. This may be accomplished by inserting a copy of Fokker 70/100 Manual Change Notification—Operational Documentation MCNO F100-066, dated December 1, 2014, into the applicable AFM. Fokker 70/100 Manual Change Notification—Operational Documentation MCNO F100-066, dated December 1, 2014, introduces procedures for the flightcrew to follow in the event of a hydraulic system failure and abnormal flight control behavior. When the information in Fokker 70/100 Manual Change Notification—Operational Documentation MCNO F100-066, dated December 1, 2014, is included in the general revisions of the AFM, the general revisions may be inserted in the AFM, and Fokker Manual Change Notification—Operational Documentation MCNO F100-066, dated December 1, 2014, may be removed.
The following provisions also apply to this AD:
(1)
(2)
(1) Refer to Mandatory Continuing Airworthiness Information (MCAI) EASA Airworthiness Directive 2015-0078, dated May 6, 2015, for related information. This MCAI may be found in the AD docket on the Internet at
(2) For service information identified in this AD, contact Fokker Services B.V., Technical Services Dept., P.O. Box 1357, 2130 EL Hoofddorp, the Netherlands; telephone +31 (0)88-6280-350; fax +31 (0)88-6280-111; email
Federal Aviation Administration (FAA), DOT.
Notice of proposed rulemaking (NPRM).
We propose to supersede Airworthiness Directive (AD) 2009-21-01, which applies to certain Boeing Model 737-300 and 737-400 series airplanes. AD 2009-21-01 currently requires repetitive inspections to detect cracking of the aft fuselage skin, and related investigative and corrective actions if necessary. Since we issued AD 2009-21-01, an evaluation by the design approval holder (DAH) indicates that the aft fuselage skin is subject to widespread fatigue damage (WFD). This proposed AD would add new aft fuselage skin inspections for cracking, inspections to detect missing or loose fasteners and any disbonding or cracking of bonded doublers, permanent repairs of time-limited repairs, related investigative and corrective actions if necessary, and skin panel replacement. The proposed AD also removes Model 737-400 series airplanes from the applicability. We are proposing this AD to detect and correct cracking in the aft fuselage skin along the longitudinal edges of the bonded skin doubler, which could result in possible rapid decompression and reduced structural integrity of the airplane.
We must receive comments on this proposed AD by June 27, 2016.
You may send comments, using the procedures found in 14 CFR 11.43 and 11.45, by any of the following methods:
•
•
•
•
For service information identified in this NPRM, contact Boeing Commercial Airplanes, Attention: Data & Services Management, P.O. Box 3707, MC 2H-65, Seattle, WA 98124-2207; telephone: 206-544-5000, extension 1; fax: 206-766-5680; Internet:
You may examine the AD docket on the Internet at
Wade Sullivan, Aerospace Engineer, Airframe Branch, ANM-120S, FAA, Seattle Aircraft Certification Office (ACO), 1601 Lind Avenue SW., Renton, WA 98057-3356; phone: 425-917-6430; fax: 425-917-6590; email:
We invite you to send any written relevant data, views, or arguments about this proposed AD. Send your comments to an address listed under the
We will post all comments we receive, without change, to
Fatigue damage can occur locally, in small areas or structural design details, or globally, in widespread areas. Multiple-site damage is widespread damage that occurs in a large structural element such as a single rivet line of a lap splice joining two large skin panels. Widespread damage can also occur in multiple elements such as adjacent frames or stringers. Multiple-site damage and multiple-element damage cracks are typically too small initially to be reliably detected with normal inspection methods. Without intervention, these cracks will grow, and eventually compromise the structural integrity of the airplane. This condition is known as widespread fatigue damage. It is associated with general degradation of large areas of structure with similar structural details and stress levels. As an airplane ages, WFD will likely occur, and will certainly occur if the airplane is operated long enough without any intervention.
The FAA's WFD final rule (75 FR 69746, November 15, 2010) became effective on January 14, 2011. The WFD rule requires certain actions to prevent structural failure due to WFD throughout the operational life of certain existing transport category airplanes and all of these airplanes that will be certificated in the future. For existing and future airplanes subject to the WFD rule, the rule requires that DAHs establish a limit of validity (LOV) of the engineering data that support the structural maintenance program. Operators affected by the WFD rule may not fly an airplane beyond its LOV, unless an extended LOV is approved.
The WFD rule (75 FR 69746, November 15, 2010) does not require identifying and developing maintenance actions if the DAHs can show that such actions are not necessary to prevent WFD before the airplane reaches the LOV. Many LOVs, however, do depend on accomplishment of future maintenance actions. As stated in the WFD rule, any maintenance actions necessary to reach the LOV will be mandated by airworthiness directives through separate rulemaking actions.
In the context of WFD, this action is necessary to enable DAHs to propose LOVs that allow operators the longest operational lives for their airplanes, and still ensure that WFD will not occur. This approach allows for an implementation strategy that provides flexibility to DAHs in determining the timing of service information development (with FAA approval), while providing operators with certainty regarding the LOV applicable to their airplanes.
On September 25, 2009, we issued AD 2009-21-01, Amendment 39-16038 (74 FR 52395, October 13, 2009) (“AD 2009-21-01”), for certain Boeing Model 737-300 and 737-400 series airplanes. AD 2009-21-01 requires repetitive inspections to detect cracking of the aft fuselage skin, and related investigative and corrective actions if necessary. AD 2009-21-01 resulted from reports of cracks in the aft fuselage skin on both sides of the airplane. We issued AD 2009-21-01 to detect and correct cracking in the aft fuselage skin along the longitudinal edges of the bonded skin doubler, which could result in reduced structural integrity of the airplane.
Since we issued AD 2009-21-01, additional cracks have been found on airplanes in the skin panels from station 727 to station 1016 and from stringer S-14 to stringer S-25 on the left and right sides of the airplanes. Cracks at fastener holes in the bonded doubler have also been reported on several airplanes in the area above stringer S-17 on the left and right side of the airplanes.
An evaluation by the DAH indicates that the aft fuselage skin is subject to WFD. On the existing skin panel assemblies, the doubler is chemically milled to create pockets of various depths. At these skin panel locations on the airplane, the loads could cause a condition where cracks could form along the longitudinal edges of the doubler.
AD 2009-21-01 applies to certain Boeing Model 737-300 and 737-400 series airplanes. This proposed AD is applicable to certain Model 737-300 series airplanes. We are considering issuing additional rulemaking that will apply to Model 737-400 series airplanes. We have determined that, in
We reviewed Boeing Special Attention Service Bulletin 737-53-1168, Revision 4, dated June 3, 2015. The service information describes procedures for doing inspections of the fuselage skin, repairs, and skin panel replacement. This service information is reasonably available because the interested parties have access to it through their normal course of business or by the means identified in the
We are proposing this AD because we evaluated all the relevant information and determined the unsafe condition described previously is likely to exist or develop in other products of the same type design.
Although this proposed AD does not explicitly restate the requirements of AD 2009-21-01, this proposed AD would retain all of the requirements of AD 2009-21-01 for Model 737-300 series airplanes, except the skin panel replacement is terminating action only if the skin panel replacement is done with a production skin panel after 53,000 total flight cycles. Those requirements are referenced in the service information identified previously, which, in turn, is referenced in paragraphs (g) and (h) of this proposed AD. This proposed AD would require accomplishing the actions specified in the service information described previously, except as discussed under “Differences Between this Proposed AD and the Service Information.” For information on the procedures and compliance times, see this service information at
The phrase “related investigative actions” is used in this proposed AD. “Related investigative actions” are follow-on actions that (1) are related to the primary action, and (2) further investigate the nature of any condition found. Related investigative actions in an AD could include, for example, inspections.
The phrase “corrective actions” is used in this proposed AD. “Corrective actions” are actions that correct or address any condition found. Corrective actions in an AD could include, for example, repairs.
Boeing Special Attention Service Bulletin 737-53-1168, Revision 4, dated June 3, 2015, specifies to contact the manufacturer for instructions on how to repair certain conditions and also to obtain certain work instructions, but this proposed AD would require repairing those conditions and also to obtain those work instructions in one of the following ways:
• In accordance with a method that we approve; or
• Using data that meet the certification basis of the airplane, and that have been approved by the Boeing Commercial Airplanes Organization Designation Authorization (ODA) whom we have authorized to make those findings.
Table 6 of paragraph 1.E., “Compliance,” of Boeing Special Attention Service Bulletin 737-53-1168, Revision 4, dated June 3, 2015, specifies post-repair airworthiness limitation inspections in compliance with 14 CFR 25.571(a)(3) at the repaired locations, which support compliance with 14 CFR 121.1109(c)(2) or 129.109(b)(2). As airworthiness limitations, these inspections are required by maintenance and operational rules. It is therefore unnecessary to mandate them in this AD. Deviations from these inspections require FAA approval, but do not require an alternative method of compliance. This difference has been coordinated with Boeing.
The compliance time for the modification specified in this proposed AD for addressing WFD was established to ensure that discrepant structure is modified before WFD develops in airplanes. Standard inspection techniques cannot be relied on to detect WFD before it becomes a hazard to flight. We will not grant any extensions of the compliance time to complete any AD-mandated service bulletin related to WFD without extensive new data that would substantiate and clearly warrant such an extension.
We estimate that this proposed AD affects 168 airplanes of U.S. registry.
We estimate the following costs to comply with this proposed AD:
We estimate the following costs to do any necessary repairs that would be required based on the results of the proposed inspections. We have no way of determining the number of aircraft that might need these repairs:
We estimate the following costs to do any necessary post-repair inspections that would be required. We have no way of determining the number of aircraft that might need these inspections:
Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, Section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the Agency's authority.
We are issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701, “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.
We have determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government.
For the reasons discussed above, I certify that the proposed regulation:
(1) Is not a “significant regulatory action” under Executive Order 12866,
(2) Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979),
(3) Will not affect intrastate aviation in Alaska, and
(4) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.
Air transportation, Aircraft, Aviation safety, Incorporation by reference, Safety.
Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows:
49 U.S.C. 106(g), 40113, 44701.
The FAA must receive comments on this AD action by June 27, 2016.
This AD replaces AD 2009-21-01, Amendment 39-16038 (74 FR 52395, October 13, 2009) (“AD 2009-21-01”).
This AD applies to Boeing Model 737-300 series airplanes, certificated in any category, as identified in Boeing Special Attention Service Bulletin 737-53-1168, Revision 4, dated June 3, 2015.
Air Transport Association (ATA) of America Code 53, Fuselage.
This AD was prompted by an evaluation by the design approval holder (DAH) indicates that the aft fuselage skin is subject to widespread fatigue damage (WFD). We are issuing this AD to detect and correct cracking in the aft fuselage skin along the longitudinal edges of the bonded skin doubler, which could result in possible rapid decompression and reduced structural integrity of the airplane.
Comply with this AD within the compliance times specified, unless already done.
At the applicable times specified in tables 1 and 2 of paragraph 1.E., “Compliance,” of Boeing Special Attention Service Bulletin 737-53-1168, Revision 4, dated June 3, 2015, except as required by paragraph (h)(1) and (h)(2) of this AD: Do the applicable inspections to detect cracks in the aft fuselage skin panels; and do all applicable related investigative and corrective actions; in accordance with the Accomplishment Instructions of Boeing Special Attention Service Bulletin 737-53-1168, Revision 4, dated June 3, 2015, except as required by paragraphs (h)(3) and (h)(4) of this AD. Do all applicable related investigative and corrective actions before further flight. Repeat the applicable inspections thereafter at the applicable intervals specified in tables 1 and 2 of paragraph 1.E., “Compliance,” of Boeing Special Attention Service Bulletin 737-53-1168, Revision 4, dated June 3, 2015. Accomplishment of a repair in accordance with “Part 4: Repair” of the Accomplishment Instructions of Boeing Special Attention Service Bulletin 737-53-1168, Revision 4, dated June 3, 2015, except as required by paragraph (h)(3) of this AD, is terminating action for the repetitive inspections required by this paragraph at the repaired locations only.
(1) Where Boeing Special Attention Service Bulletin 737-53-1168, Revision 4, dated June 3, 2015, specifies compliance times “after the Revision 4 date of this service bulletin,” this AD requires compliance within the specified compliance times after the effective date of this AD.
(2) The Condition column of Paragraph 1.E., “Compliance,” of Boeing Special Attention Service Bulletin 737-53-1168, Revision 4, dated June 3, 2015, refers to airplanes in certain configurations as of the “issue date of Revision 4 of this service bulletin.” However, this AD applies to airplanes in the specified configurations “as of the effective date of this AD.”
(3) Where Boeing Special Attention Service Bulletin 737-53-1168, Revision 4, dated June 3, 2015, specifies contacting Boeing for repair instructions or work instructions, before further flight, repair or perform the work instructions using a method approved in accordance with the procedures specified in paragraph (n) of this AD, except as required by paragraph (h)(4) of this AD.
(4) For airplanes on which an operator has a record that a skin panel was replaced with a production skin panel before 53,000 total flight cycles: At the applicable time for the next inspection as specified in tables 1 and 2 of paragraph 1.E., “Compliance,” Boeing Special Attention Service Bulletin 737-53-1168, Revision 4, dated June 3, 2015, except as provided by paragraph (h)(1) and (h)(2) of this AD: Perform inspections and applicable corrective actions using a method approved in accordance with the procedures specified in paragraph (n) of this AD.
(1) For airplanes with a time limited repair installed as specified in Boeing Service Bulletin 737-53-1168, Revision 3, dated November 28, 2006: At the applicable times specified in table 3 of paragraph 1.E., “Compliance,” of Boeing Special Attention
(i) Do the applicable inspections to detect missing or loose fasteners and any disbonding or cracking of bonded doublers; and do all applicable related investigative and corrective actions; in accordance with the Accomplishment Instructions of Boeing Special Attention Service Bulletin 737-53-1168, Revision 4, dated June 3, 2015, except as required by paragraph (h)(3) of this AD. Do all applicable related investigative and corrective actions before further flight. Repeat the applicable inspections thereafter at the applicable intervals specified Boeing Special Attention Service Bulletin 737-53-1168, Revision 4, dated June 3, 2015.
(ii) Make the time limited repair permanent; and do all applicable related investigative and corrective actions; in accordance with the Accomplishment Instructions of Boeing Special Attention Service Bulletin 737-53-1168, Revision 4, dated June 3, 2015, except as required by paragraph (h)(3) of this AD. Do all applicable related investigative and corrective actions before further flight. Accomplishing the permanent repair required by this paragraph terminates the inspections required by paragraph (i)(1)(i) of this AD for the permanently repaired area only.
(2) For airplanes with a time limited repair installed as specified in Boeing Special Attention Service Bulletin 737-53-1168, Revision 4, dated June 3, 2015: At the applicable times specified in table 4 of paragraph 1.E., “Compliance,” of Boeing Special Attention Service Bulletin 737-53-1168, Revision 4, dated June 3, 2015: Do the actions specified in paragraphs (i)(2)(i) and (i)(2)(ii) of this AD.
(i) Do the applicable inspections to detect missing or loose fasteners and any disbonding or cracking of bonded doublers; and do all applicable related investigative and corrective actions; in accordance with the Accomplishment Instructions of Boeing Special Attention Service Bulletin 737-53-1168, Revision 4, dated June 3, 2015, except as required by paragraph (h)(3) of this AD. Do all applicable related investigative and corrective actions before further flight. Repeat the applicable inspections thereafter at the applicable intervals specified in table 4 of paragraph 1.E., “Compliance,” of Boeing Special Attention Service Bulletin 737-53-1168, Revision 4, dated June 3, 2015.
(ii) Make the time limited repair permanent; and do all applicable related investigative and corrective actions; in accordance with the Accomplishment Instructions of Boeing Special Attention Service Bulletin 737-53-1168, Revision 4, dated June 3, 2015, except as required by paragraph (h)(3) of this AD. Do all applicable related investigative and corrective actions before further flight. Accomplishing the permanent repair required by this paragraph terminates the inspections required by paragraph (i)(2)(i) of this AD for the permanently repaired area only.
For airplanes with an existing time limited repair that was made permanent as specified in Boeing Service Bulletin 737-53-1168, Revision 3, dated November 28, 2006: At the applicable times specified in table 5 of paragraph 1.E., “Compliance,” of Boeing Special Attention Service Bulletin 737-53-1168, Revision 4, dated June 3, 2015, except as provided by paragraphs (h)(1) of this AD: Modify the existing permanent repair; and do all applicable related investigative and corrective actions; in accordance with the Accomplishment Instructions of Boeing Special Attention Service Bulletin 737-53-1168, Revision 4, dated June 3, 2015, except as required by paragraph (h)(3) of this AD. Do all applicable related investigative and corrective actions before further flight.
Table 6 of paragraph 1.E., “Compliance,” of Boeing Service Bulletin Special Attention Service Bulletin 737-53-1168, Revision 4, dated June 3, 2015, specifies post-repair airworthiness limitation inspections in compliance with 14 CFR 25.571(a)(3) at the repaired locations, which support compliance with 14 CFR 121.1109(c)(2) or 129.109(b)(2). As airworthiness limitations, these inspections are required by maintenance and operational rules. It is therefore unnecessary to mandate them in this AD. Deviations from these inspections require FAA approval, but do not require an alternative method of compliance.
At the later of the times specified in paragraphs (l)(1) and (1)(2) of this AD: Replace the applicable skin panels, and do all applicable related investigative and corrective actions, in accordance with the Accomplishment Instructions of Boeing Special Attention Service Bulletin 737-53-1168, Revision 4, dated June 3, 2015. Do all applicable related investigative and corrective actions before further flight. Doing the skin panel replacement required by this paragraph terminates the inspection requirements of paragraphs (g), (i), and (j) of this AD for that skin panel only, provided the skin panel replacement was done with a production skin panel after 53,000 total flight cycles.
(1) Before 60,000 total flight cycles, but not before 53,000 total flight cycles.
(2) Within 6,000 flight cycles after the effective date of this AD, but not before 53,000 total flight cycles.
(1) This paragraph provides credit for the actions required by paragraph (g) of this AD, if those actions were performed before the effective date of this AD using Boeing Service Bulletin 737-53-1168, Revision 3, dated November 28, 2006, except as required by paragraph (h)(4) of this AD. Boeing Service Bulletin 737-53-1168, Revision 3, dated November 28, 2006, was incorporated by reference in AD 2009-21-01.
(2) This paragraph provides credit for the actions required by paragraph (l) of this AD, if those actions were performed before the effective date of this AD using Boeing Service Bulletin 737-53-1168, Revision 3, dated November 28, 2006, except as required by paragraph (h)(4) of this AD; provided the skin panel replacement was done with a production skin panel after 53,000 total flight cycles. Boeing Service Bulletin 737-53-1168, Revision 3, dated November 28, 2006, was incorporated by reference in AD 2009-21-01.
(3) This paragraph provides credit for the actions required by paragraph (l) of this AD, if those actions were performed before November 17, 2009 (the effective date of AD 2009-21-01), using any service information specified in paragraphs (m)(3)(i), (m)(3)(ii), and (m)(3)(iii) of this AD, except as required by paragraph (h)(4) of this AD; provided the skin panel replacement was done with a production skin panel after 53,000 total flight cycles. The service information specified in paragraphs (m)(3)(i), (m)(3)(ii), and (m)(3)(iii) of this AD are not incorporated by reference in this AD.
(i) Part 3 of the Accomplishment Instructions of Boeing Service Bulletin 737-53-1168, dated March 16, 1995.
(ii) Part 3 of the Accomplishment Instructions of Boeing Service Bulletin 737-53-1168, Revision 1, dated August 17, 1995.
(iii) Part 3 of the Accomplishment Instructions of Boeing Service Bulletin 737-53-1168, Revision 2, dated November 27, 1996.
(1) The Manager, Seattle Aircraft Certification Office (ACO), FAA, has the authority to approve AMOCs for this AD, if requested using the procedures found in 14 CFR 39.19. In accordance with 14 CFR 39.19, send your request to your principal inspector or local Flight Standards District Office, as appropriate. If sending information directly to the manager of the ACO, send it to the attention of the person identified in paragraph (o)(1) of this AD. Information may be emailed to:
(2) Before using any approved AMOC, notify your appropriate principal inspector, or lacking a principal inspector, the manager of the local flight standards district office/certificate holding district office.
(3) An AMOC that provides an acceptable level of safety may be used for any repair, modification, or alteration required by this AD if it is approved by the Boeing Commercial Airplanes Organization Designation Authorization (ODA) that has been authorized by the Manager, Seattle ACO, to make those findings. To be approved, the repair method, modification deviation, or alteration deviation must meet the certification basis of the airplane and the approval must specifically refer to this AD.
(4) AMOCs approved previously for repairs for AD 2009-21-01 are approved as AMOCs for the corresponding provisions of paragraph (g) of this AD.
(5) AMOCs approved for previous modifications done as optional terminating action for AD 2009-21-01 are approved as AMOCs for the modification required by paragraph (l) of this AD provided the previous modification was done after the
(1) For more information about this AD, contact Wade Sullivan, Aerospace Engineer, Airframe Branch, ANM-120S, FAA, Seattle ACO, 1601 Lind Avenue SW., Renton, WA 98057-3356; phone: 425-917-6430; fax: 425-917-6590; email:
(2) For service information identified in this AD, contact Boeing Commercial Airplanes, Attention: Data & Services Management, P.O. Box 3707, MC 2H-65, Seattle, WA 98124-2207; telephone: 206-544-5000, extension 1; fax: 206-766-5680; Internet:
Federal Aviation Administration (FAA), DOT.
Notice of proposed rulemaking (NPRM).
We propose to adopt a new airworthiness directive (AD) for certain Saab AB, Saab Aeronautics Model SAAB 2000 airplanes. This proposed AD was prompted by a report that on some airplanes, during the paint removal process for repainting the airplane, the basic corrosion protection (anodizing and primer) coating was sanded down to bare metal on the aluminum skin panels and the bare metal might not have been treated correctly for corrosion prevention. This proposed AD would require an inspection of structural components of the airplane for any damaged protective coating; inspections of those areas for pitting corrosion, if necessary; a thickness measurement to determine if there is reduced skin thickness, if necessary; and repair, if necessary. We are proposing this AD to detect and correct damaged protective coatings. This condition could result in pitting corrosion damage; and reduced metal thickness, which could result in reduced static and fatigue strength of the airplane's structural parts.
We must receive comments on this proposed AD by June 27, 2016.
You may send comments, using the procedures found in 14 CFR 11.43 and 11.45, by any of the following methods:
•
•
•
•
For service information identified in this NPRM, contact Saab AB, Saab Aeronautics, SE-581 88, Linköping, Sweden; telephone +46 13 18 5591; fax +46 13 18 4874; email
You may examine the AD docket on the Internet at
Shahram Daneshmandi, Aerospace Engineer, International Branch, ANM-116, Transport Airplane Directorate, FAA, 1601 Lind Avenue SW., Renton, WA 98057-3356; telephone 425-227-1112; fax 425-227-1149.
We invite you to send any written relevant data, views, or arguments about this proposed AD. Send your comments to an address listed under the
We will post all comments we receive, without change, to
The European Aviation Safety Agency (EASA), which is the Technical Agent for the Member States of the European Union, has issued EASA Airworthiness Directive 2014-0160, dated July 9, 2014 (Correction: July 9, 2014) (referred to after this as the Mandatory Continuing Airworthiness Information, or “the MCAI”), to correct an unsafe condition for certain Saab AB, Saab Aeronautics Model SAAB 2000 airplanes. The MCAI states:
SAAB received evidence that on a number of SAAB 2000 aeroplanes, during paint removal before repainting, the basic corrosion protection anodizing and primer were removed. In these cases, the basic corrosion protection coating was sanded down to bare metal on the aluminium [aluminum] skin panel in spite of existing instruction(s) contained in the Structural Repair Manual (SRM) which prohibit(s) exposing the aluminium bare metal. Due to the fact that the skin panels are manufactured from aluminium without a protective covering (unclad), the anodizing and primer is the corner stone of the aeroplane corrosion protection system. If the anodizing and primer is removed and the aluminium surface is not correctly treated, pitting corrosion may occur. In addition, sanding to bare metal can inadvertently lead to metal removal and subsequently reduce the static and fatigue strength of the aeroplane structural parts.
This condition, if not detected and corrected, could result in corrosion damage and/or reduced structural strength of the aeroplane structure.
To address this potential unsafe condition, SAAB issued SB 2000-51-002 to provide inspection instructions.
For the reasons described above, this [EASA] AD requires a one-time [detailed] inspection [for damage] * * * of required anticorrosion protective coating [
This [EASA] AD is re-issued to correct typographical error of the effective date.
You may examine the MCAI in the AD docket on the Internet at
Saab has issued Service Bulletin 2000-51-002, Revision 01, dated May 23, 2014. This service information describes procedures for an inspection of structural components of the airplane for any damaged protective coating; inspections of those areas for pitting corrosion; a thickness measurement to determine if there is reduced skin thickness; and repair. This service information is reasonably available because the interested parties have access to it through their normal course of business or by the means identified in the
This product has been approved by the aviation authority of another country, and is approved for operation in the United States. Pursuant to our bilateral agreement with the State of Design Authority, we have been notified of the unsafe condition described in the MCAI and service information referenced above. We are proposing this AD because we evaluated all pertinent information and determined an unsafe condition exists and is likely to exist or develop on other products of the same type design.
We estimate that this proposed AD affects 8 airplanes of U.S. registry.
We also estimate that it would take about 20 work-hours per product to comply with the basic requirements of this proposed AD. The average labor rate is $85 per work-hour. Based on these figures, we estimate the cost of this proposed AD on U.S. operators to be $13,600, or $1,700 per product.
In addition, we estimate that any necessary follow-on actions would take about 45 work-hours, for a cost of $3,825 per product. We have no way of determining the number of aircraft that might need these actions. We have received no definitive data that would enable us to provide cost estimates for the parts cost of the follow-on actions specified in this proposed AD.
Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. “Subtitle VII: Aviation Programs,” describes in more detail the scope of the Agency's authority.
We are issuing this rulemaking under the authority described in “Subtitle VII, Part A, Subpart III, Section 44701: General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.
We determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government.
For the reasons discussed above, I certify this proposed regulation:
1. Is not a “significant regulatory action” under Executive Order 12866;
2. Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979);
3. Will not affect intrastate aviation in Alaska; and
4. Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.
Air transportation, Aircraft, Aviation safety, Incorporation by reference, Safety.
Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows:
49 U.S.C. 106(g), 40113, 44701.
We must receive comments by June 27, 2016.
None.
This AD applies to Saab AB, Saab Aeronautics (Type Certificate previously held by Saab AB, Saab Aerosystems) Model SAAB 2000 airplanes, certificated in any category, all manufacturer serial numbers, except as specified in paragraphs (c)(1) and (c)(2) of this AD.
(1) Those airplanes identified in Table 1 of Saab Service Bulletin 2000-51-002, Revision 01, dated May 23, 2014, on which an applicable “Related Statement” identified in Table 1 was accomplished.
(2) Those airplanes that either have retained the original paint or have been repainted by Saab AB, Saab Aeronautics.
Air Transport Association (ATA) of America Code 51, Standard Practices/Structures.
This AD was prompted by a report that on some airplanes, during the paint removal process for repainting the airplane, the basic corrosion protection (anodizing and primer) coating was sanded down to bare metal on the aluminum skin panels and the bare metal might not have been treated correctly for corrosion prevention. We are issuing this AD to detect and correct damaged protective coatings. This condition could result in pitting corrosion damage; and reduced metal thickness, which could result in reduced static and fatigue strength of the airplane's structural parts.
Comply with this AD within the compliance times specified, unless already done.
(1) Within 2,000 flight hours or 12 months, whichever occurs first after the effective date of this AD, do a detailed inspection of the airplane structural parts to detect damaged protective coating (
(2) If, during any inspection required by paragraph (g)(1) of this AD, any damage (such as pitting corrosion or damaged primer) or reduced skin thickness is detected, as defined in Saab Service Bulletin 2000-51-002, Revision 01, dated May 23, 2014, before further flight, contact the Manager, International Branch, ANM-116, Transport Airplane Directorate, FAA; or the European Aviation Safety Agency (EASA); or Saab AB, Saab Aeronautics' EASA Design Organization Approval (DOA) for a repair method, and do the repair within the compliance time indicated in those instructions.
This paragraph provides credit for actions required by paragraph (g) of this AD, if those actions were performed before the effective date of this AD using Saab Service Bulletin 2000-51-002, dated April 9, 2014, which is not incorporated by reference in this AD.
The following provisions also apply to this AD:
(1)
(2)
(1) Refer to Mandatory Continuing Airworthiness Information (MCAI) EASA Airworthiness Directive 2014-0160, dated July 9, 2014 (Correction: July 9, 2014), for related information. This MCAI may be found in the AD docket on the Internet at
(2) For service information identified in this AD, contact Saab AB, Saab Aeronautics, SE-581 88, Linköping, Sweden; telephone +46 13 18 5591; fax +46 13 18 4874; email
Federal Aviation Administration (FAA), DOT.
Notice of proposed rulemaking (NPRM).
We propose to adopt a new airworthiness directive (AD) for certain Boeing Model 737-400 series airplanes. This proposed AD was prompted by an evaluation by the design approval holder (DAH) which indicates that the aft fuselage skin is subject to widespread fatigue damage (WFD) and reports of aft fuselage skin cracking. This proposed AD would require repetitive inspections to detect cracking of the aft fuselage skin, inspections to detect missing or loose fasteners and any disbonding or cracking of bonded doublers, permanent repairs of time-limited repairs, related investigative and corrective actions if necessary, and skin panel replacement. We are proposing this AD to detect and correct cracking in the aft fuselage skin along the longitudinal edges of the bonded skin doubler, which could result in possible rapid decompression and reduced structural integrity of the airplane.
We must receive comments on this proposed AD by June 27, 2016.
You may send comments, using the procedures found in 14 CFR 11.43 and 11.45, by any of the following methods:
•
•
•
•
For service information identified in this proposed AD, contact Boeing Commercial Airplanes, Attention: Data & Services Management, P.O. Box 3707, MC 2H-65, Seattle, WA 98124-2207; telephone: 206-544-5000, extension 1; fax: 206-766-5680; Internet:
You may examine the AD docket on the Internet at
Wade Sullivan, Aerospace Engineer, Airframe Branch, ANM-120S, FAA, Seattle Aircraft Certification Office (ACO), 1601 Lind Avenue SW., Renton, WA 98057-3356; phone: 425-917-6430; fax: 425-917-6590; email:
We invite you to send any written relevant data, views, or arguments about this proposal. Send your comments to an address listed under the
We will post all comments we receive, without change, to
Fatigue damage can occur locally, in small areas or structural design details, or globally, in widespread areas. Multiple-site damage is widespread damage that occurs in a large structural element such as a single rivet line of a lap splice joining two large skin panels. Widespread damage can also occur in multiple elements such as adjacent frames or stringers. Multiple-site damage and multiple-element damage cracks are typically too small initially to be reliably detected with normal inspection methods. Without intervention, these cracks will grow, and eventually compromise the structural integrity of the airplane. This condition is known as widespread fatigue damage. It is associated with general degradation of large areas of structure with similar structural details and stress levels. As an airplane ages, WFD will likely occur, and will certainly occur if the airplane is operated long enough without any intervention.
The FAA's WFD final rule (75 FR 69746, November 15, 2010) became effective on January 14, 2011. The WFD rule requires certain actions to prevent structural failure due to WFD throughout the operational life of certain existing transport category airplanes and all of these airplanes that will be certificated in the future. For existing and future airplanes subject to the WFD rule, the rule requires that DAHs establish a limit of validity (LOV) of the engineering data that support the structural maintenance program. Operators affected by the WFD rule may not fly an airplane beyond its LOV, unless an extended LOV is approved.
The WFD rule (75 FR 69746, November 15, 2010) does not require identifying and developing maintenance actions if the DAHs can show that such actions are not necessary to prevent WFD before the airplane reaches the LOV. Many LOVs, however, do depend on accomplishment of future maintenance actions. As stated in the WFD rule, any maintenance actions necessary to reach the LOV will be mandated by airworthiness directives through separate rulemaking actions.
In the context of WFD, this action is necessary to enable DAHs to propose LOVs that allow operators the longest operational lives for their airplanes, and still ensure that WFD will not occur. This approach allows for an implementation strategy that provides flexibility to DAHs in determining the timing of service information development (with FAA approval), while providing operators with certainty regarding the LOV applicable to their airplanes.
We have received reports of 29 airplanes with skin panel cracking. Cracks were found on airplanes with between 22,500 and 44,600 total airplane cycles. The cracks were found on both the left and the right hand sides of the airplanes between station 727 and station 947 in the skin panels between stringer S-20 and S-25. The cracks ranged in lengths from between 0.25 inches to 5.5 inches.
During certain inspections, additional chem-mill step cracks have been discovered. On the existing skin panel assemblies, the doubler is chemically milled to create pockets of various depths. At these skin panel locations on the airplane, the loads could cause a condition where skin cracks form along the longitudinal edges of the doubler. If not corrected, skin cracks could extend to multiple bays and result in possible rapid decompression and loss of structural integrity of the airplane.
On September 25, 2009, we issued AD 2009-21-01, Amendment 39-16038 (74 FR 52395, October 13, 2009) (“AD 2009-21-01”), for certain Boeing Model 737-300 and 737-400 series airplanes. AD 2009-21-01 requires repetitive inspections to detect cracking of the aft fuselage skin, and related investigative/corrective actions if necessary.
We have determined that, in this case, a less burdensome approach is to issue separate ADs applicable only to each model type. Therefore, this proposed AD is applicable to certain Model 737-400 series airplanes. We are considering issuing additional rulemaking that will supersede AD 2009-21-01 and apply to Model 737-300 series airplanes.
Although this proposed AD does not supersede AD 2009-21-01, this proposed AD would retain all of the requirements of AD 2009-21-01 for Model 737-400 series airplanes, except the skin panel replacement is terminating action only if the skin panel replacement is done with a production skin panel after 53,000 total flight cycles. Those requirements are referenced in Special Attention Service Bulletin 737-53-1187, Revision 3, dated July 10, 2015, which, in turn, is referenced in paragraph (g) of this proposed AD.
We reviewed Boeing Special Attention Service Bulletin 737-53-1187, Revision 3, dated July 10, 2015. The service information describes procedures for doing inspections of the fuselage skin, repairs, and skin panel replacement. This service information is reasonably available because the interested parties have access to it through their normal course of business or by the means identified in the
We are proposing this AD because we evaluated all the relevant information and determined the unsafe condition described previously is likely to exist or develop in other products of the same type design.
This proposed AD would require accomplishing the actions specified in the service information described previously, except as discussed under “Differences Between this Proposed AD and the Service Information.” For information on the procedures and compliance times, see this service information at
The phrase “related investigative actions” is used in this proposed AD. “Related investigative actions” are follow-on actions that (1) are related to the primary action, and (2) further investigate the nature of any condition found. Related investigative actions in an AD could include, for example, inspections.
The phrase “corrective actions” is used in this proposed AD. “Corrective actions” are actions that correct or address any condition found. Corrective actions in an AD could include, for example, repairs.
Boeing Special Attention Service Bulletin 737-53-1187, Revision 3, dated July 10, 2015, specifies to contact the manufacturer for instructions on how to repair certain conditions and also to obtain certain work instructions, but this proposed AD would require repairing those conditions and also to
• In accordance with a method that we approve; or
• Using data that meet the certification basis of the airplane, and that have been approved by the Boeing Commercial Airplanes Organization Designation Authorization (ODA) whom we have authorized to make those findings.
Table 7 of paragraph 1.E., “Compliance,” of Boeing Special Attention Service Bulletin 737-53-1187, Revision 3, dated July 10, 2015, specifies post-repair airworthiness limitation inspections in compliance with 14 CFR 25.571(a)(3) at the repaired locations, which support compliance with 14 CFR 121.1109(c)(2) or 129.109(b)(2). As airworthiness limitations, these inspections are required by maintenance and operational rules. It is therefore unnecessary to mandate them in this AD. Deviations from these inspections require FAA approval, but do not require an alternative method of compliance. This difference has been coordinated with Boeing.
The compliance time for the modification specified in this proposed AD for addressing WFD was established to ensure that discrepant structure is modified before WFD develops in airplanes. Standard inspection techniques cannot be relied on to detect WFD before it becomes a hazard to flight. We will not grant any extensions of the compliance time to complete any AD-mandated service bulletin related to WFD without extensive new data that would substantiate and clearly warrant such an extension.
We estimate that this proposed AD affects 84 airplanes of U.S. registry.
We estimate the following costs to comply with this proposed AD:
We estimate the following costs to do any necessary repairs that would be required based on the results of the proposed inspections. We have no way of determining the number of aircraft that might need these repairs:
We estimate the following costs to do any necessary post-repair inspections that would be required. We have no way of determining the number of aircraft that might need these inspections:
Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII: Aviation Programs, describes in more detail the scope of the Agency's authority.
We are issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701: “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.
We determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government.
For the reasons discussed above, I certify this proposed regulation:
(1) Is not a “significant regulatory action” under Executive Order 12866,
(2) Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979),
(3) Will not affect intrastate aviation in Alaska, and
(4) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.
Air transportation, Aircraft, Aviation safety, Incorporation by reference, Safety.
Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows:
49 U.S.C. 106(g), 40113, 44701.
We must receive comments by June 27, 2016.
None.
This AD applies to Boeing Model 737-400 series airplanes, certificated in any category, as identified in Boeing Special Attention Service Bulletin 737-53-1187, Revision 3, dated July 10, 2015.
Air Transport Association (ATA) of America Code 53, Fuselage.
This AD was prompted by an evaluation by the design approval holder (DAH) which indicates that the aft fuselage skin is subject to widespread fatigue damage (WFD) and reports of aft fuselage skin cracking. We are issuing this AD to detect and correct cracking in the aft fuselage skin along the longitudinal edges of the bonded skin doubler, which could result in possible rapid decompression and reduced structural integrity of the airplane.
Comply with this AD within the compliance times specified, unless already done.
At the applicable times specified in tables 1, 2, and 3 of paragraph 1.E., “Compliance,” of Boeing Special Attention Service Bulletin 737-53-1187, Revision 3, dated July 10, 2015, except as provided by paragraph (h)(1) and (h)(2) of this AD: Do the applicable inspections to detect cracks in the aft fuselage skin panels; and do all applicable related investigative and corrective actions; in accordance with the Accomplishment Instructions of Boeing Special Attention Service Bulletin 737-53-1187, Revision 3, dated July 10, 2015, except as required by paragraphs (h)(3) and (h)(4) of this AD. Do all applicable related investigative and corrective actions before further flight. Repeat the applicable inspections thereafter at the applicable intervals specified in tables 1, 2, and 3 of paragraph 1.E., “Compliance,” of Boeing Special Attention Service Bulletin 737-53-1187, Revision 3, dated July 10, 2015. Accomplishment of a repair in accordance with “Part 4: Repair” of the Accomplishment Instructions of Boeing Special Attention Service Bulletin 737-53-1187, Revision 3, dated July 10, 2015, except as required by paragraph (h)(3) of this AD, is terminating action for the repetitive inspections required by this paragraph at the repaired locations only.
(1) Where Boeing Special Attention Service Bulletin 737-53-1187, Revision 3, dated July 10, 2015, specifies compliance times “after the Revision 3 date of this service bulletin,” this AD requires compliance within the specified compliance times after the effective date of this AD.
(2) The Condition column of Paragraph 1.E., “Compliance,” of Boeing Special Attention Service Bulletin 737-53-1187, Revision 3, dated July 10, 2015, refers to airplanes in certain configurations as of the “issue date of Revision 3 of this service bulletin.” However, this AD applies to airplanes in the specified configurations “as of the effective date of this AD.”
(3) Where Boeing Special Attention Service Bulletin 737-53-1187, Revision 3, dated July 10, 2015, specifies contacting Boeing for repair instructions or work instructions, before further flight, repair or perform the work instructions using a method approved in accordance with the procedures specified in paragraph (n) of this AD, except as required by paragraph (h)(4) of this AD.
(4) For airplanes on which an operator has a record that a skin panel was replaced with a production skin panel before 53,000 total flight cycles: At the applicable time for the next inspection as specified in tables 1, 2, and 3 of paragraph 1.E., “Compliance,” of Boeing Special Attention Service Bulletin 737-53-1187, Revision 3, dated July 10, 2015, except as provided by paragraph (h)(1) and (h)(2) of this AD: Perform inspections and applicable corrective actions using a method approved in accordance with the procedures specified in paragraph (n) of this AD.
(1) For airplanes with a time limited repair installed as specified in Boeing Service Bulletin 737-53-1187, Revision 2, dated May 9, 2007: At the applicable times specified in table 4 of paragraph 1.E., “Compliance,” of Boeing Special Attention Service Bulletin 737-53-1187, Revision 3, dated July 10, 2015, except as provided by paragraphs (h)(1) and (h)(2) of this AD: Do the actions specified in paragraphs (i)(1)(i) and (i)(1)(ii) of this AD.
(i) Do the applicable inspections to detect missing or loose fasteners and any disbonding or cracking of bonded doublers; and do all applicable related investigative and corrective actions; in accordance with the Accomplishment Instructions of Boeing Special Attention Service Bulletin 737-53-1187, Revision 3, dated July 10, 2015, except as required by paragraph (h)(3) of this AD. Do all applicable related investigative and corrective actions before further flight. Repeat the applicable inspections thereafter at the applicable intervals specified in table 4 of paragraph 1.E., “Compliance,” of Boeing Special Attention Service Bulletin 737-53-1187, Revision 3, dated July 10, 2015.
(ii) Make the time limited repair permanent; and do all applicable related investigative and corrective actions; in accordance the Accomplishment Instructions of Boeing Special Attention Service Bulletin 737-53-1187, Revision 3, dated July 10, 2015, except as required by paragraph (h)(3) of this AD. Do all applicable related investigative and corrective actions before further flight. Accomplishing the permanent repair required by this paragraph terminates the inspections required by paragraph (i)(1)(i) of this AD for the permanently repaired area only.
(2) For airplanes with a time limited repair installed as specified in Boeing Special Attention Service Bulletin 737-53-1187, Revision 3, dated July 10, 2015: At the applicable times specified in table 5 of paragraph 1.E., “Compliance,” of Boeing Special Attention Service Bulletin 737-53-1187, Revision 3, dated July 10, 2015, except as provided by paragraph (h)(2) of this AD: Do the actions specified in paragraphs (i)(2)(i) and (i)(2)(ii) of this AD.
(i) Do the applicable inspections to detect missing or loose fasteners and any disbonding or cracking of bonded doublers; and do all applicable corrective actions; in accordance with the Accomplishment Instructions of Boeing Special Attention Service Bulletin 737-53-1187, Revision 3, dated July 10, 2015, except as required by paragraph (h)(3) of this AD. Do all applicable corrective actions before further flight. Repeat the applicable inspections thereafter at the applicable intervals specified in table 5 of paragraph 1.E., “Compliance,” of Boeing Special Attention Service Bulletin 737-53-1187, Revision 3, dated July 10, 2015.
(ii) Make the time limited repair permanent; and do all applicable related investigative and corrective actions; in accordance the Accomplishment Instructions of Boeing Special Attention Service Bulletin 737-53-1187, Revision 3, dated July 10, 2015, except as required by paragraph (h)(3) of this AD. Do all applicable related investigative and corrective actions before further flight. Accomplishing the permanent repair required by this paragraph terminates the inspections required by paragraph (i)(2)(i) of this AD for the permanently repaired area only.
For airplanes with an existing time limited repair that was made permanent as specified in Boeing Service Bulletin 737-53-1187,
Table 7 of paragraph 1.E., “Compliance,” of Boeing Special Attention Service Bulletin 737-53-1187, Revision 3, dated July 10, 2015, specifies post-repair airworthiness limitation inspections in compliance with 14 CFR 25.571(a)(3) at the repaired locations, which support compliance with 14 CFR 121.1109(c)(2) or 129.109(b)(2). As airworthiness limitations, these inspections are required by maintenance and operational rules. It is therefore unnecessary to mandate them in this AD. Deviations from these inspections require FAA approval, but do not require an alternative method of compliance.
At the later of the times specified in paragraphs (l)(1) and (l)(2) of this AD: Replace the applicable skin panels, and do all applicable related investigative and corrective actions, in accordance with the Accomplishment Instructions of Boeing Special Attention Service Bulletin 737-53-1187, Revision 3, dated July 10, 2015. Do all applicable related investigative and corrective actions before further flight. Doing the skin panel replacement required by this paragraph terminates the inspection requirements of paragraphs (g), (i), and (j) of this AD for that skin panel only, provided the skin panel replacement was done with a production skin panel after 53,000 total flight cycles.
(1) Before 60,000 total flight cycles, but not before 53,000 total flight cycles.
(2) Within 6,000 flight cycles after the effective date of this AD, but not before 53,000 total flight cycles.
(1) This paragraph provides credit for the actions required by paragraph (g) of this AD, if those actions were performed before the effective date of this AD using Boeing Service Bulletin 737-53-1187, Revision 2, dated May 9, 2007, except as required by paragraph (h)(4) of this AD. Boeing Service Bulletin 737-53-1187, Revision 2, dated May 9, 2007, was incorporated by reference in AD 2009-21-01, Amendment 39-16038 (74 FR 52395, October 13, 2009) (“AD 2009-21-01”).
(2) This paragraph provides credit for the actions required by paragraph (l) of this AD, if those actions were performed before the effective date of this AD using Boeing Service Bulletin 737-53-1187, Revision 2, dated May 9, 2007, except as required by paragraph (h)(4) of this AD; provided the skin panel replacement was done with a production skin panel after 53,000 total flight cycles. Boeing Service Bulletin 737-53-1187, Revision 2, dated May 9, 2007, was incorporated by reference in AD 2009-21-01.
(3) This paragraph provides credit for the actions required by paragraph (l) of this AD, if those actions were performed before November 17, 2009 (the effective date of AD 2009-21-01) using Part III of the Accomplishment Instructions of Boeing Service Bulletin 737-53-1187, dated November 2, 1995; or Part III of the Accomplishment Instructions of Boeing Service Bulletin 737-53-1187, Revision 1, dated January 16, 1997, except as required by paragraph (h)(4) of this AD; provided the skin panel replacement was done with a production skin panel after 53,000 total flight cycles. Boeing Service Bulletin 737-53-1187, dated November 2, 1995; and Boeing Service Bulletin 737-53-1187, Revision 1, dated January 16, 1997; are not incorporated by reference in this AD.
(1) The Manager, Seattle Aircraft Certification Office (ACO), FAA, has the authority to approve AMOCs for this AD, if requested using the procedures found in 14 CFR 39.19. In accordance with 14 CFR 39.19, send your request to your principal inspector or local Flight Standards District Office, as appropriate. If sending information directly to the manager of the ACO, send it to the attention of the person identified in paragraph (o)(1) of this AD. Information may be emailed to:
(2) Before using any approved AMOC, notify your appropriate principal inspector, or lacking a principal inspector, the manager of the local flight standards district office/certificate holding district office.
(3) An AMOC that provides an acceptable level of safety may be used for any repair, modification, or alteration required by this AD if it is approved by the Boeing Commercial Airplanes Organization Designation Authorization (ODA) that has been authorized by the Manager, Seattle ACO, to make those findings. To be approved, the repair method, modification deviation, or alteration deviation must meet the certification basis of the airplane and the approval must specifically refer to this AD.
(4) AMOCs approved for repairs for AD 2009-21-01 are approved as AMOCs for the corresponding provisions of paragraph (g) of this AD.
(5) AMOCs approved for previous modifications done as optional terminating action for AD 2009-21-01 are approved as AMOCs for the modification required by paragraph (l) of this AD provided the previous modification was done after the airplane had accumulated 53,000 total flight cycles or more.
(1) For more information about this AD, contact Wade Sullivan, Aerospace Engineer, Airframe Branch, ANM-120S, FAA, Seattle ACO, 1601 Lind Avenue SW., Renton, WA 98057-3356; phone: 425-917-6430; fax: 425-917-6590; email:
(2) For service information identified in this AD, contact Boeing Commercial Airplanes, Attention: Data & Services Management, P.O. Box 3707, MC 2H-65, Seattle, WA 98124-2207; telephone: 206-544-5000, extension 1; fax: 206-766-5680; Internet:
Federal Aviation Administration (FAA), DOT.
Notice of proposed rulemaking (NPRM).
We propose to supersede Airworthiness Directive (AD) 2012-16-07, which applies to certain Boeing Model 737-500 series airplanes. AD 2012-16-07 currently requires inspections of the fuselage skin at the chem-milled steps, and repair if necessary. Since we issued AD 2012-16-07, an evaluation by the design approval holder (DAH) indicates that the fuselage skin is subject to widespread fatigue damage (WFD), and we have received reports of cracks at the chem-milled steps in the fuselage skin. This proposed AD would add new fuselage skin inspections for cracking, inspections to detect missing or loose fasteners and any disbonding or cracking of bonded doublers, permanent repairs of time-limited repairs, related investigative and corrective actions if necessary, and skin panel replacement. We are proposing this AD to detect and correct cracking on the aft lower lobe fuselage skins, which could result in rapid decompression of the airplane.
We must receive comments on this proposed AD by June 27, 2016.
You may send comments, using the procedures found in 14 CFR 11.43 and 11.45, by any of the following methods:
•
•
•
•
For service information identified in this NPRM, contact Boeing Commercial Airplanes, Attention: Data & Services Management, P.O. Box 3707, MC 2H-65, Seattle, WA 98124-2207; telephone 206-544-5000, extension 1; fax 206-766-5680; Internet
You may examine the AD docket on the Internet at
Wade Sullivan, Aerospace Engineer, Airframe Branch, ANM-120S, FAA, Seattle Aircraft Certification Office (ACO), 1601 Lind Avenue SW., Renton, WA 98057-3356; phone: 425-917-6430; fax: 425-917-6590; email:
We invite you to send any written relevant data, views, or arguments about this proposed AD. Send your comments to an address listed under the
We will post all comments we receive, without change, to
Fatigue damage can occur locally, in small areas or structural design details, or globally, in widespread areas. Multiple-site damage is widespread damage that occurs in a large structural element such as a single rivet line of a lap splice joining two large skin panels. Widespread damage can also occur in multiple elements such as adjacent frames or stringers. Multiple-site damage and multiple-element damage cracks are typically too small initially to be reliably detected with normal inspection methods. Without intervention, these cracks will grow, and eventually compromise the structural integrity of the airplane. This condition is known as widespread fatigue damage. It is associated with general degradation of large areas of structure with similar structural details and stress levels. As an airplane ages, WFD will likely occur, and will certainly occur if the airplane is operated long enough without any intervention.
The FAA's WFD final rule (75 FR 69746, November 15, 2010) became effective on January 14, 2011. The WFD rule requires certain actions to prevent structural failure due to WFD throughout the operational life of certain existing transport category airplanes and all of these airplanes that will be certificated in the future. For existing and future airplanes subject to the WFD rule, the rule requires that DAHs establish a limit of validity (LOV) of the engineering data that support the structural maintenance program. Operators affected by the WFD rule may not fly an airplane beyond its LOV, unless an extended LOV is approved.
The WFD rule (75 FR 69746, November 15, 2010) does not require identifying and developing maintenance actions if the DAHs can show that such actions are not necessary to prevent WFD before the airplane reaches the LOV. Many LOVs, however, do depend on accomplishment of future maintenance actions. As stated in the WFD rule, any maintenance actions necessary to reach the LOV will be mandated by airworthiness directives through separate rulemaking actions.
In the context of WFD, this action is necessary to enable DAHs to propose LOVs that allow operators the longest operational lives for their airplanes, and still ensure that WFD will not occur. This approach allows for an implementation strategy that provides flexibility to DAHs in determining the timing of service information development (with FAA approval), while providing operators with certainty regarding the LOV applicable to their airplanes.
On July 31, 2012, we issued AD 2012-16-07, Amendment 39-17154 (77 FR 48423, August 14, 2012) (“AD 2012-16-07”), for certain The Boeing Company Model 737-500 series airplanes. AD 2012-16-07 requires inspections of the fuselage skin at the chem-milled steps, and repair if necessary. AD 2012-16-07 resulted from reports of chem-milled steps cracking on the aft lower lobe fuselage skins. We issued AD 2012-16-07 to detect and correct cracking on the aft lower lobe fuselage skins, which could result in rapid decompression of the airplane.
Since we issued AD 2012-16-07, an evaluation by the DAH indicates that the lower lobe skin panels are subject to WFD, and we have received reports of cracks at the chem-milled steps in the fuselage skin.
We reviewed Boeing Special Attention Service Bulletin 737-53-1315, Revision 1, dated June 30, 2015. The service information describes procedures for inspection and repair of the fuselage skin panels between station 727 and station 1016, and between stringers S-14 and S-25; and also describes procedures for skin panel replacement. This service information is reasonably available because the interested parties have access to it through their normal course of business or by the means identified in the
We are proposing this AD because we evaluated all the relevant information and determined the unsafe condition described previously is likely to exist or develop in other products of the same type designs.
Although this proposed AD does not explicitly restate the requirements of AD 2012-16-07, this proposed AD would retain all of the requirements of AD 2012-16-07. Those requirements are referenced in the service information identified previously, which, in turn, is referenced in paragraphs (g) and (h) of this proposed AD.
This proposed AD would also require accomplishing the actions specified in the service information described previously, except as discussed under “Differences Between This Proposed AD and the Service Information.”
For information on the procedures and compliance times, see this service information at
The phrase “related investigative actions” is used in this proposed AD. “Related investigative actions” are follow-on actions that (1) are related to the primary actions, and (2) further investigate the nature of any condition found. Related investigative actions in an AD could include, for example, inspections.
The phrase “corrective actions” is used in this proposed AD. “Corrective actions” are actions that correct or address any condition found. Corrective actions in an AD could include, for example, repairs.
Boeing Special Attention Service Bulletin 737-53-1315, Revision 1, dated June 30, 2015, specifies to contact the manufacturer for instructions on how to repair certain conditions and also to obtain certain work instructions, but this proposed AD would require repairing those conditions and also to obtain those work instructions in one of the following ways:
• In accordance with a method that we approve; or
• Using data that meet the certification basis of the airplane, and that have been approved by the Boeing Commercial Airplanes Organization Designation Authorization (ODA) whom we have authorized to make those findings.
The compliance time for the replacement specified in this proposed AD for addressing WFD was established to ensure that discrepant structure is replaced before WFD develops in airplanes. Standard inspection techniques cannot be relied on to detect WFD before it becomes a hazard to flight. We will not grant any extensions of the compliance time to complete any AD-mandated service bulletin related to WFD without extensive new data that would substantiate and clearly warrant such an extension.
We estimate that this proposed AD affects 33 airplanes of U.S. registry.
We estimate the following costs to comply with this proposed AD:
We estimate the following costs to do any necessary repairs that would be required based on the results of the proposed inspection. We have no way of determining the number of aircraft that might need these repairs:
Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, Section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the Agency's authority.
We are issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701, “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.
We have determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government.
For the reasons discussed above, I certify that the proposed regulation:
(1) Is not a “significant regulatory action” under Executive Order 12866,
(2) Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979),
(3) Will not affect intrastate aviation in Alaska, and
(4) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.
Air transportation, Aircraft, Aviation safety, Incorporation by reference, Safety.
Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows:
49 U.S.C. 106(g), 40113, 44701.
The FAA must receive comments on this AD action by June 27, 2016.
This AD replaces AD 2012-16-07, Amendment 39-17154 (77 FR 48423, August 14, 2012) (“AD 2012-16-07”).
This AD applies to all The Boeing Company Model 737-500 series airplanes, certificated in any category.
Air Transport Association (ATA) of America Code 53, Fuselage.
This AD was prompted by an evaluation by the design approval holder (DAH) that indicates that the fuselage skin is subject to widespread fatigue damage (WFD), and reports of cracks at the chem-milled steps in the fuselage skin. We are issuing this AD to detect and correct cracking on the aft lower lobe fuselage skins, which could result in rapid decompression of the airplane.
Comply with this AD within the compliance times specified, unless already done.
At the applicable times specified in table 1 of paragraph 1.E., “Compliance,” of Boeing Special Attention Service Bulletin 737-53-1315, Revision 1, dated June 30, 2015, except as required by paragraphs (h)(1) and (h)(2) of this AD: Do the applicable inspections to detect cracks in the fuselage skin panels; and do all applicable related investigative and corrective actions; in accordance with the Accomplishment Instructions of Boeing Special Attention Service Bulletin 737-53-1315, Revision 1, dated June 30, 2015, except as required by paragraphs (h)(3), (h)(4), and (h)(5) of this AD. Do all applicable related investigative and corrective actions before further flight. Repeat the applicable inspections thereafter at the applicable intervals specified Boeing Special Attention Service Bulletin 737-53-1315, Revision 1, dated June 30, 2015. Accomplishment of a repair in accordance with “Part 3: Repair” of the Accomplishment Instructions of Boeing Special Attention Service Bulletin 737-53-1315, Revision 1, dated June 30, 2015, except as required by paragraph (h)(3) of this AD, is terminating action for the repetitive inspections required by this paragraph at the repaired locations only.
(1) Where Boeing Special Attention Service Bulletin 737-53-1315, Revision 1, dated June 30, 2015, specifies compliance times “after the Revision 1 date of this service bulletin,” this AD requires compliance within the specified compliance times after the effective date of this AD.
(2) The Condition column of table 1 of Paragraph 1.E., “Compliance,” of Boeing Special Attention Service Bulletin 737-53-1315, Revision 1, dated June 30, 2015, refers to airplanes in certain configurations as of the “issue date of Revision 1 of this service bulletin.” However, this AD applies to airplanes in the specified configurations “as of the effective date of this AD.”
(3) Where Boeing Special Attention Service Bulletin 737-53-1315, Revision 1, dated June 30, 2015, specifies contacting Boeing for repair instructions or work instructions, before further flight, repair or perform the work instructions using a method approved in accordance with the procedures specified in paragraph (m) of this AD, except as required by paragraph (h)(4) of this AD.
(4) For airplanes on which an operator has a record that a skin panel was replaced with a production skin panel at or before 53,000 total flight cycles: At the applicable time for the next inspection as specified in table 1 of paragraph 1.E., “Compliance,” Boeing Special Attention Service Bulletin 737-53-1315, Revision 1, dated June 30, 2015, except as provided by paragraphs (h)(1) and (h)(2) of this AD: Perform inspections and applicable corrective actions using a method approved in accordance with the procedures specified in paragraph (m) of this AD.
(5) The Condition column of table 2 of Paragraph 1.E., “Compliance,” of Boeing Special Attention Service Bulletin 737-53-1315, Revision 1, dated June 30, 2015, refers to airplanes in certain configurations as of the “issue date of Revision 1 of this service bulletin.” However, this AD applies to airplanes in the specified configurations regardless of when the time limited repair is installed.
For airplanes with a time limited repair installed as specified in Boeing Special Attention Service Bulletin 737-53-1315, dated July 29, 2011; or Boeing Special Attention Service Bulletin, Revision 1, dated June 30, 2015: At the applicable times specified in table 2 of paragraph 1.E., “Compliance,” of Boeing Special Attention Service Bulletin 737-53-1315, Revision 1, dated June 30, 2015, except as provided by paragraphs (h)(1) and (h)(5) of this AD: Do the actions specified in paragraphs (i)(1) and (i)(2) of this AD.
(1) Do the applicable inspections to detect missing or loose fasteners and any disbonding or cracking of bonded doublers; and do all applicable related investigative and corrective actions; in accordance with the Accomplishment Instructions of Boeing Special Attention Service Bulletin 737-53-1315, Revision 1, dated June 30, 2015, except as required by paragraph (h)(3) of this AD. Do all applicable related investigative and corrective actions before further flight. Repeat the applicable inspections thereafter at the applicable intervals specified Boeing Special Attention Service Bulletin 737-53-1315, Revision 1, dated June 30, 2015.
(2) Make the time limited repair permanent; and do all applicable related investigative and corrective actions; in accordance the Accomplishment Instructions of Boeing Special Attention Service Bulletin 737-53-1315, Revision 1, dated June 30, 2015, except as required by paragraph (h)(3) of this AD. Do all applicable related investigative and corrective actions before further flight. Accomplishing the permanent repair required by this paragraph terminates the inspections required by paragraph (i)(1) of this AD for the permanently repaired area only.
For airplanes with a permanent repair installed as specified in Boeing Special Attention Services Bulletin 737-53-1315, Revision 1, dated June 30, 2015: At the applicable time specified in table 3 of paragraph 1.E., “Compliance,” of Boeing Special Attention Service Bulletin 737-53-1315, Revision 1, dated June 30, 2015, except as provided by paragraph (h)(1) of this AD: Do an external low frequency eddy current (LFEC) inspection for cracking of the skin at the critical fastener row of the repair doubler; and do all applicable corrective actions; in accordance the Accomplishment Instructions of Boeing Special Attention Service Bulletin 737-53-1315, Revision 1, dated June 30, 2015, except as required by paragraph (h)(3) of this AD. Do all applicable corrective actions before further flight. Repeat the LFEC
At the later of the times specified in paragraphs (k)(1) and (k)(2) of this AD: Replace the applicable skin panels, and do all applicable related investigative and corrective actions, in accordance with the Accomplishment Instructions of Boeing Special Attention Service Bulletin 737-53-1315, Revision 1, dated June 30, 2015. Do all applicable related investigative and corrective actions before further flight. Doing the skin panel replacement required by this paragraph terminates the inspection requirements of paragraph (g) of this AD for that skin panel only, provided the skin panel replacement was done with a production skin panel after 53,000 total flight cycles.
(1) Before 60,000 total flight cycles, but not at or before 53,000 total flight cycles.
(2) Within 6,000 flight cycles after the effective date of this AD, but not at or before 53,000 total flight cycles.
This paragraph provides credit for the zone 1 actions required by paragraph (g) of this AD, as described in Boeing Special Attention Service Bulletin 737-53-1315, Revision 1, dated June 30, 2015, if the zone 1, 2, and 3 actions, as described in Boeing Special Attention Service Bulletin 737-53-1315, dated July 29, 2011, were performed before the effective date of this AD using Boeing Special Attention Service Bulletin 737-53-1315, dated July 29, 2011, except as required by paragraph (h)(4) of this AD. Boeing Special Attention Bulletin 737-53-1315, dated July 29, 2011, was incorporated by reference in AD 2012-16-07.
(1) The Manager, Seattle Aircraft Certification Office (ACO), FAA, has the authority to approve AMOCs for this AD, if requested using the procedures found in 14 CFR 39.19. In accordance with 14 CFR 39.19, send your request to your principal inspector or local Flight Standards District Office, as appropriate. If sending information directly to the manager of the ACO, send it to the attention of the person identified in paragraph (n)(1) of this AD. Information may be emailed to:
(2) Before using any approved AMOC, notify your appropriate principal inspector, or lacking a principal inspector, the manager of the local flight standards district office/certificate holding district office.
(3) An AMOC that provides an acceptable level of safety may be used for any repair, modification, or alteration required by this AD if it is approved by the Boeing Commercial Airplanes Organization Designation Authorization (ODA) that has been authorized by the Manager, Seattle ACO, to make those findings. To be approved, the repair method, modification deviation, or alteration deviation must meet the certification basis of the airplane, and the approval must specifically refer to this AD.
(4) AMOCs approved previously for AD 2012-16-07 are approved as AMOCs for the corresponding provisions of paragraph (g) of this AD.
(1) For more information about this AD, contact Wade Sullivan, Aerospace Engineer, Airframe Branch, ANM-120S, FAA, Seattle Aircraft Certification Office (ACO), 1601 Lind Avenue SW., Renton, WA 98057-3356; phone: 425-917-6430; fax: 425-917-6590; email:
(2) For service information identified in this AD, contact Boeing Commercial Airplanes, Attention: Data & Services Management, P.O. Box 3707, MC 2H-65, Seattle, WA 98124-2207; telephone 206-544-5000, extension 1; fax 206-766-5680; Internet
Federal Aviation Administration (FAA), DOT.
Notice of proposed rulemaking (NPRM).
We propose to adopt a new airworthiness directive (AD) for Sikorsky Aircraft Corporation (Sikorsky) Model S-92A helicopters. This proposed AD would require altering the fire bottle inertia switch wiring and performing a cartridge functional test of the fire extinguishing system. This proposed AD is prompted by the inadvertent tripping of inertia-switches that has led to unintentional discharging of the fire bottles, leaving the helicopter's auxiliary power unit and engines without fire protection. The proposed actions are intended to prevent unintentional and undetected fire bottle discharges and subsequent unavailability of fire suppression in case of a fire.
We must receive comments on this proposed AD by July 12, 2016.
You may send comments by any of the following methods:
•
•
•
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You may examine the AD docket on the Internet at
For service information identified in this proposed rule, contact Sikorsky Aircraft Corporation, Customer Service Engineering, 124 Quarry Road, Trumbull, CT 06611; telephone 1-800-Winged-S or 203-416-4299; email
Kris Greer, Aviation Safety Engineer, Boston Aircraft Certification Office, Engine & Propeller Directorate, 1200 District Avenue, Burlington, Massachusetts 01803; telephone (781) 238-7799; email
We invite you to participate in this rulemaking by submitting written comments, data, or views. We also invite comments relating to the economic, environmental, energy, or federalism impacts that might result from adopting the proposals in this document. The most helpful comments reference a specific portion of the proposal, explain the reason for any recommended change, and include
We will file in the docket all comments that we receive, as well as a report summarizing each substantive public contact with FAA personnel concerning this proposed rulemaking. Before acting on this proposal, we will consider all comments we receive on or before the closing date for comments. We will consider comments filed after the comment period has closed if it is possible to do so without incurring expense or delay. We may change this proposal in light of the comments we receive.
We propose to adopt a new AD for certain serial-numbered Sikorsky Model S-92A helicopters. Sikorsky has informed us that the inadvertent tripping of inertia switches has caused several engine and auxiliary power unit fire bottle discharges during taxi, flight, and landing operations. Because these discharges are undetected, the fire bottles remain unavailable in the event of a fire.
This proposed AD would require altering the fire bottle inertia switch wiring to disable the automatic feature of the fire extinguishing system. This proposed AD would also require performing a cartridge functional test. The proposed actions are intended to prevent an unintentional and undetected fire bottle discharge and subsequent unavailability of fire suppression in the event of a fire.
We are proposing this AD because we evaluated all known relevant information and determined that an unsafe condition exists and is likely to exist or develop on other products of the same type design.
We reviewed Sikorsky Alert Service Bulletin 92-26-005A, Revision A, dated June 27, 2014 (ASB 92-26-005A). ASB 92-26-005A specifies performing a one-time alteration of the fire bottle inertia switch wiring to disable the automatic actuation feature of the fire extinguishing system. ASB 92-26-005A includes figures that depict the wiring and electrical connector pin changes.
This service information is reasonably available because the interested parties have access to it through their normal course of business or by the means identified in the
We also reviewed Sikorsky Alert Service Bulletin 92-26-005, Basic Issue, dated June 18, 2014 (ASB 92-26-005). ASB 92-26-005 contains the same procedures as ASB 92-26-005A. However, ASB 92-26-005A contains an additional figure.
This proposed AD would require, within 90 days, altering the fire bottle inertia switch wiring to disable the automatic discharge of fire bottles and performing a post-alteration cartridge functional test.
This proposed AD has a compliance date within 90 days, and the service information has a calendar date, which has already passed. This proposed AD does not require performing a cartridge functional test prior to alteration. The service information does specify performing a cartridge functional test prior to alteration.
We estimate that this proposed AD would affect 80 helicopters of U.S. Registry. Labor costs are estimated at $85 per work-hour. Altering the fire bottle switch and performing a cartridge functional test would take about 2 work-hours. No parts would be needed for an estimated cost of $170 per helicopter and $13,600 for the U.S. fleet.
Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. “Subtitle VII: Aviation Programs,” describes in more detail the scope of the Agency's authority.
We are issuing this rulemaking under the authority described in “Subtitle VII, Part A, Subpart III, Section 44701: General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.
We determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government.
For the reasons discussed, I certify this proposed regulation:
1. Is not a “significant regulatory action” under Executive Order 12866;
2. Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979);
3. Will not affect intrastate aviation in Alaska to the extent that it justifies making a regulatory distinction; and
4. Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.
We prepared an economic evaluation of the estimated costs to comply with this proposed AD and placed it in the AD docket.
Air transportation, Aircraft, Aviation safety, Incorporation by Reference, Safety.
Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows:
49 U.S.C. 106(g), 40113, 44701.
This AD applies to Model S-92A helicopters, serial number 920006 through 920250, certificated in any category.
This AD defines the unsafe condition as inadvertent tripping of a fire bottle inertia-switch. This condition results in an unintentional and undetected fire bottle discharge and subsequent unavailability of fire suppression in the event of a fire.
We must receive comments by July 12, 2016.
You are responsible for performing each action required by this AD within the specified compliance time unless it has already been accomplished prior to that time.
Within 90 days:
(1) Alter each fire bottle inertia switch by following the Accomplishment Instructions, paragraph 3.B., of Sikorsky Alert Service Bulletin 92-26-005A, Revision A, dated June 27, 2014.
(2) Perform a cartridge functional test.
Compliance with Sikorsky Alert Service Bulletin ASB 92-26-005, Basic Issue, dated June 18, 2014, before the effective date of this AD is considered acceptable for compliance with the actions specified in paragraph (e) of this AD.
(1) The Manager, Boston Aircraft Certification Office, FAA, may approve AMOCs for this AD. Send your proposal to: Kris Greer, Aviation Safety Engineer, Boston Aircraft Certification Office, Engine & Propeller Directorate,1200 District Avenue, Burlington, Massachusetts 01803; telephone (781) 238-7799; email
(2) For operations conducted under a 14 CFR part 119 operating certificate or under 14 CFR part 91, subpart K, we suggest that you notify your principal inspector, or lacking a principal inspector, the manager of the local flight standards district office or certificate holding district office before operating any aircraft complying with this AD through an AMOC.
Sikorsky Alert Service Bulletin 92-26-005, Basic Issue, dated June 18, 2014, which is not incorporated by reference, contains additional information about the subject of this proposed rule. For service information identified in this proposed rule, contact Sikorsky Aircraft Corporation, Customer Service Engineering, 124 Quarry Road, Trumbull, CT 06611; telephone 1-800-Winged-S or 203-416-4299; email
Joint Aircraft Service Component (JASC) Code: 2621 Fire Bottle, Fixed.
Coast Guard, DHS.
Notice of proposed rulemaking.
The Coast Guard proposes to establish a temporary safety zone for all navigable waters of the Allegheny River mile 12.0 to mile 12.5. The safety zone is needed to protect personnel, vessels, and the marine environment from potential hazards created from a land based firework display. Entry of vessels or persons into this zone is prohibited unless specifically authorized by the Captain of the Pittsburgh or a designated representative. We invite your comments on this proposed rulemaking.
Comments and related material must be received by the Coast Guard on or before June 13, 2016.
You may submit comments identified by docket number USCG-2016-0287 using the Federal eRulemaking Portal at
If you have questions about this proposed rulemaking, call or email MST1 Jennifer Haggins, Marine Safety Unit Pittsburgh, U.S. Coast Guard; telephone 412-221-0807, email
On March 10, 2016, the Oakmont Yacht Club notified the Coast Guard that it will be conducting a fireworks display from 9:00 p.m. to 11:00 p.m. on July 16, 2016. The fireworks will be launched from land in the vicinity of Allegheny River mile 12.0-12.5. Hazards from firework displays include accidental discharge of fireworks, dangerous projectiles, and falling hot embers or other debris.
The purpose of this rulemaking is to ensure the safety of vessels and the navigable waters before, during, and after the scheduled event. The Coast Guard proposes this rulemaking under authority in 33 U.S.C. 1231.
The COTP proposes to establish a safety zone from 9 p.m. to 11 p.m. on July 16, 2016. The safety zone would cover all navigable waters of the Allegheny River mile 12.0 to mile 12.5. The duration of the zone is intended to ensure the safety of vessels and these navigable waters before, during, and after the scheduled fireworks display. No vessel or person would be permitted to enter the safety zone without obtaining permission from the COTP or a designated representative. The regulatory text we are proposing appears at the end of this document.
We developed this proposed rule after considering numerous statutes and Executive orders related to rulemaking. Below we summarize our analyses based on a number of these statutes and Executive orders and we discuss First Amendment rights of protestors.
Executive Orders 12866 and 13563 direct agencies to assess the costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits. Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This NPRM has not been designated a “significant regulatory action,” under Executive Order 12866. Accordingly, the NPRM has not been reviewed by the Office of Management and Budget.
This regulatory action determination is based on the size, location, duration, and time-of-day of the safety zone. The safety zone will close a small section of the Allegheny River for only 2 hours. Moreover, the Coast Guard would issue a Broadcast Notice to Mariners via VHF-FM marine channel 16 about the zone, and the rule would allow vessels to seek permission to enter the zone.
The Regulatory Flexibility Act of 1980, 5 U.S.C. 601-612, as amended, requires Federal agencies to consider the potential impact of regulations on
While some owners or operators of vessels intending to transit the safety zone may be small entities, for the reasons stated in section IV. A. above this proposed rule would not have a significant economic impact on any vessel owner or operator.
If you think that your business, organization, or governmental jurisdiction qualifies as a small entity and that this rule would have a significant economic impact on it, please submit a comment (see
Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we want to assist small entities in understanding this proposed rule. If the rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please contact the person listed in the
This proposed rule would not call for a new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).
A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. We have analyzed this proposed rule under that Order and have determined that it is consistent with the fundamental federalism principles and preemption requirements described in Executive Order 13132.
Also, this proposed rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it would not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes. If you believe this proposed rule has implications for federalism or Indian tribes, please contact the person listed in the
The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 (adjusted for inflation) or more in any one year. Though this proposed rule would not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble.
We have analyzed this proposed rule under Department of Homeland Security Management Directive 023-01 and Commandant Instruction M16475.lD, which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (42 U.S.C. 4321-4370f), and have made a preliminary determination that this action is one of a category of actions that do not individually or cumulatively have a significant effect on the human environment. This proposed rule involves a safety zone lasting less than two hours that would prohibit entry into the safety zone. Normally such actions are categorically excluded from further review under paragraph 34(x) of Figure 2-1 of Commandant Instruction M16475.lD. A preliminary environmental analysis checklist and Categorical Exclusion Determination are available in the docket where indicated under
The Coast Guard respects the First Amendment rights of protesters. Protesters are asked to contact the person listed in the
We view public participation as essential to effective rulemaking, and will consider all comments and material received during the comment period. Your comment can help shape the outcome of this rulemaking. If you submit a comment, please include the docket number for this rulemaking, indicate the specific section of this document to which each comment applies, and provide a reason for each suggestion or recommendation.
We encourage you to submit comments through the Federal eRulemaking Portal at
We accept anonymous comments. All comments received will be posted without change to
Documents mentioned in this NPRM as being available in the docket, and all public comments, will be in our online docket at
Harbors, Marine safety, Navigation (water), Reporting and recordkeeping requirements, Security measures, Waterways.
For the reasons discussed in the preamble, the Coast Guard proposes to amend 33 CFR part 165 as follows:
33 U.S.C. 1231; 50 U.S.C. 191; 33 CFR 1.05-1, 6.04-1, 6.04-6, and 160.5; Department of Homeland Security Delegation No. 0170.1.
(a)
(b)
(c)
(2) To seek permission to enter, contact the COTP or the COTP's representative at 412-221-0807. Those in the safety zone must comply with all lawful orders or directions given to them by the COTP or the COTP's designated representative.
(d)
Environmental Protection Agency (EPA).
Proposed rule; notice of reconsideration of final rule; request for public comment.
This action proposes to amend the National Emission Standards for Hazardous Air Pollutants (NESHAP): Site Remediation (Site Remediation Rule) by removing exemptions from the rule for site remediation activities performed under authority of the Comprehensive Environmental Response and Compensation Liability Act (CERCLA) and for site remediation activities performed under a Resource Conservation and Recovery Act (RCRA) corrective action or other required RCRA order. The Environmental Protection Agency (EPA) is also proposing to remove the applicability requirement that site remediations be co-located with at least one other stationary source regulated by another NESHAP. The EPA is seeking comment on these issues, but is not requesting comment on any other issues or provisions of the final Site Remediation Rule at this time.
A red-line version of the regulatory language that incorporates the proposed changes in this action is available in the docket for this action (Docket ID No. EPA-HQ-OAR-2002-0021).
Additionally, requests to speak will be taken the day of the hearing at the hearing registration desk, although preferences on speaking times may not be able to be fulfilled. If you require the service of a translator or special accommodations such as audio description, please let us know at the time of registration. If you require an accommodation, we ask that you pre-register for the hearing, as we may not be able to arrange such accommodations without advance notice.
If no one contacts the EPA requesting a public hearing to be held concerning this proposed rule by May 18, 2016, a public hearing will not take place. If a hearing is held, it will provide interested parties the opportunity to present data, views, or arguments concerning the proposed action. The EPA will make every effort to accommodate all speakers who arrive and register. Because the hearing will be held at a U.S. governmental facility, individuals planning to attend the hearing should be prepared to show valid picture identification to the security staff in order to gain access to the meeting room. Please note that the REAL ID Act, passed by Congress in 2005, established new requirements for entering federal facilities. If your driver's license is issued by Alaska, American Samoa, Arizona, Kentucky, Louisiana, Maine, Massachusetts, Minnesota, Montana, New York, Oklahoma, or the state of Washington, you must present an additional form of identification to enter the federal building. Acceptable alternative forms of identification include: Federal employee badges, passports, enhanced driver's licenses, and military identification cards. In addition, you will need to obtain a property pass for any personal belongings you bring with you. Upon leaving the building, you will be required to return this property pass to the security desk. No large signs will be allowed in the building, cameras may only be used outside of the building, and demonstrations will not be allowed on federal property for security reasons.
The EPA may ask clarifying questions during the oral presentations, but will not respond to the presentations at that time. Written statements and supporting information submitted during the comment period will be considered with the same weight as oral comments and supporting information presented at the public hearing. Commenters should notify Ms. Hunt if they will need specific equipment, or if there are other special needs related to providing comments at the hearing. Verbatim transcripts of the hearings and written statements will be included in the docket for the rulemaking. The EPA will make every effort to follow the schedule as closely as possible on the day of the hearing; however, please plan for the hearing to run either ahead of schedule or behind schedule. Again, a hearing will not be held unless requested.
For questions about this proposed action, contact Ms. Paula Hirtz, Refining and Chemicals Group, Sector Policies and Programs Division (E143-01), Environmental Protection Agency, Research Triangle Park, NC 27711; telephone number: (919) 541-2618; fax number: (919) 541-0246; email address:
The statutory authority for this action is provided by sections 112 and 307(d)(7)(B) of the Clean Air Act (CAA) as amended (42 U.S.C. 7412 and 7607(d)(7)(B)).
The table below lists the industry categories and entities potentially regulated by this action and is not intended to be exhaustive, but rather provides a guide for readers regarding the entities that this proposed action is likely to affect. Parties potentially affected by this action include major sources, as defined in 40 CFR 63.2, that conduct one or more site remediations under the authority of CERCLA or under a RCRA corrective action or other required RCRA order; and any other site remediation that is a major source of hazardous air pollutants (HAP) itself and is not co-located with another facility regulated under 40 CFR 63. As defined under the “Waste Treatment and Disposal” industry sector in the “Initial List of Categories of Sources Under Section 112(c)(1) of the Clean Air Act Amendments of 1990” (see 57 FR 31576, July 16, 1992), the Site Remediation source category includes any facility taking action to remove, store, treat, and/or dispose of hazardous substances that have been released into the environment (
In addition to being available in the docket, an electronic copy of this action is available on the Internet through the EPA's Technology Transfer Network (TTN) Web site, a forum for information and technology exchange in various areas of air pollution control. Following signature by the EPA Administrator, the EPA will post a copy of this proposed action at
Do not submit information containing CBI to the EPA through
The EPA finalized the Site Remediation Rule on October 8, 2003 (68 FR 58172). The rule exempted site remediations performed under the authority of CERCLA and those conducted under a RCRA corrective action or other required RCRA order. The final rule also did not regulate metal or other inorganic HAP due to the low potential of emissions of these chemicals from site remediation activities. On December 8, 2003, pursuant to section 307(d)(7)(B) of the CAA, the EPA received a petition for reconsideration from Sierra Club, the Blue Ridge Environmental Defense League, and Concerned Citizens for Nuclear Safety. The reconsideration petition stated that (1) the EPA lacked the statutory authority to exempt site remediation activities conducted under the authority of CERCLA or RCRA from NESHAP requirements, and (2) the EPA had a duty to set standards for each listed HAP emitted from a source category.
Petitioners also filed a petition for judicial review of the Site Remediation Rule on December 5, 2003, in the United States Court of Appeals for the District of Columbia Circuit (D.C. Circuit or Court) under CAA section 307(b)(1). In response to the plaintiffs' and EPA's joint motion, the D.C. Circuit held this action in abeyance by order dated January 22, 2004, so that settlement discussions could take place to assess whether the case could be resolved without the Court.
On November 29, 2006, the EPA promulgated amendments to the Site Remediation Rule (71 FR 69011), but did not resolve, address, or respond to the issues in the petition for reconsideration. On October 14, 2014, the D.C. Circuit ordered the parties to show cause why the case should not be administratively terminated, and on November 13, 2014, the parties filed a joint response informing the Court that they were actively exploring a new approach. On March 25, 2015, the EPA issued a letter to the petitioners granting reconsideration on the issues raised in the petition and indicated that the agency would issue a
The EPA now requests comment on the first of the two issues raised in the December 8, 2003, petition for reconsideration: The exemption for site remediations performed under the authority of CERCLA or RCRA. We are not addressing the second issue, whether the EPA has a duty to set standards for heavy metal HAP emissions from site remediation activities, in this action. Since evaluation of this second issue fits most naturally into the residual risk and technology review (RTR) process, the EPA will initiate reconsideration of the issue of regulating heavy metal HAP when it issues a proposed rule presenting the RTR for the Site Remediation source category. The EPA is not seeking comments on this issue until such a proposal is made.
The October 8, 2003, NESHAP exempts site remediations performed under the authority of CERCLA and those conducted under a RCRA corrective action or other required RCRA order. The EPA now proposes to remove this exemption and establish requirements and compliance dates for site remediation activities conducted under the authority of CERCLA or RCRA that would be affected by the proposed rule changes.
On October 8, 2003, the EPA finalized the July 2002 proposal to exempt site remediations performed under the authority of CERCLA and those performed under RCRA corrective action or other orders authorized under RCRA (
The EPA then received the December 8, 2003, petition asserting that the public lacked an opportunity to comment on this new rationale presented in the final rule. The EPA granted reconsideration on this issue in response to the December 8, 2003, petition. Upon further consideration and re-evaluation of petitioners' arguments, we now propose to remove the exemptions for activities conducted under the authority of CERCLA or RCRA from the Site Remediation Rule.
In listing Site Remediation as a source category under CAA section 112(c)(1) in 1992, we defined it to include the cleanup of sites that possess contaminated media, including National Priorities List Sites and Corrective Action Sites. See the document titled
Specifically, we are proposing to amend the rule by removing 40 CFR 63.7881(b)(2) and (3), the provisions that expressly exempt site remediations conducted under CERCLA or RCRA from the Site Remediation Rule's requirements. With the removal of this exemption, site remediations conducted under the authority of CERCLA or RCRA will become subject to all applicable requirements of the Site Remediation Rule. These requirements include emission limitations and work practice standards for HAP emitted from site remediation activities. The Rule also establishes requirements to demonstrate initial and continuous compliance with the emission limitations and work practice standards. The Rule applies to sites that clean up remediation material containing 1 megagram per year or more organic HAP listed in Table 1 of the Site Remediation Rule. It specifically requires emissions controls and/or work practice requirements for three groups of emission points: Process vents, remediation material management units (tanks, containers, surface impoundments, oil/water separators, organic/water separators, drain systems), and equipment leaks. In addition, the rule contains monitoring, recordkeeping, and reporting requirements.
In order to make the rule applicable to CERCLA and RCRA site remediations, we are further proposing to remove the requirement in 40 CFR 63.7881(a)(2) that an affected site remediation be co-located with a facility that is regulated by other NESHAP (
We are soliciting comment on these proposed rule amendments. The EPA is accepting comment only on the proposed removal of the exemptions for site remediations conducted under the authority of CERCLA or RCRA. The analyses presented in this notice and in supporting documents in the docket do not affect or alter other aspects of the Site Remediation Rule.
We are proposing to make the recordkeeping and reporting requirements specified in 40 CFR 63.7950-7953 and 63.7955 applicable to new and existing affected sources conducting site remediations under CERCLA or RCRA on the effective date of the final amendment removing the RCRA/CERCLA exemption. The effective date is the date of publication of the final rule in the
The proposed compliance dates for the rule's substantive requirements differ according to whether a site remediation is an existing or new affected source. For the purpose of this proposed rule revision, you are an existing affected source if you commenced construction or reconstruction of the affected source before the date of publication of this proposed rule in the
You are a new affected source if you commenced construction or reconstruction of the affected source after the date of publication of this proposed rule in the
We estimate 69 major source facilities will become subject to the Site Remediation Rule as a result of the proposed removal of the RCRA/CERCLA exemption. Based on available information from the RCRA and CERCLA programs, 24 of these facilities are expected to be subject to a limited set of the rule requirements under 40 CFR 63.7881(c)(1) due to the low annual quantity of HAP contained in the remediation material excavated, extracted, pumped, or otherwise removed during the site remediations conducted at the facilities. These facilities will only be required to prepare and maintain written documentation to support the determination that the total annual quantity of the HAP contained in the remediation material excavated, extracted, pumped, or otherwise removed at the facility is less than 1 megagram per year. They are not subject to any other emissions limits, work practices, monitoring, reporting, or recordkeeping requirements. For the remaining 45 facilities, we anticipate each facility will have an annual quantity of HAP in the removed remediation material of 1 megagram or more. For these facilities, we expect that either the facilities already meet the emission control and work practice requirements of the Site Remediation Rule or no emission control requirements or work practice standards will apply because the waste is shipped offsite for treatment and no controls or work practice requirements would be applicable prior to treatment (
The potential scope of this action's impacts on affected entities is discussed in greater depth in the memorandum,
We do not anticipate any HAP emission reductions from the proposed removal of the RCRA/CERCLA exemption. We expect that facilities newly becoming subject to the rule will either be subject to a limited set of the emissions control requirements of the rule due to the low amount of HAP contained in the remediation material handled, will already meet the emissions control requirements of the rule, or will not have any applicable emissions control requirements for the specific remediation activities and material handled.
None of the 69 affected facilities are anticipated to implement additional emissions control to meet the requirements of the Site Remediation Rule and, therefore, we estimate no capital costs associated with the proposed removal of the RCRA/CERCLA exemption. We have estimated the nationwide costs for compliance with the reporting and recordkeeping requirements to be approximately $2.16 million.
Both the magnitude of control costs needed to comply with a regulation and the distribution of these costs among affected facilities can have a role in determining how the market will change in response to that regulation. We estimate an annualized cost of $13,000 per affected facility for the facilities with remediation waste containing HAP below the rule annual threshold of 1 megagram and $41,000 per affected facility for the facilities with remediation waste containing the rule threshold amount of 1 megagram or more HAP annually. We, therefore, estimate the average annualized cost per affected facility to be about $31,000 and the total annualized costs for the proposed amendments are estimated to be about $2.16 million. Without detailed industry data, it is not possible to conduct a complete quantitative analysis of economic impacts. However, prior economic impact screening analyses suggest the impacts of the proposed amendment will be minimal. In the economic analysis for this action,
The proposed standards will ensure existing air emissions controls implemented at facilities that become subject to the rule with the removal of the RCRA/CERCLA exemption will continue to reduce emissions to at least the required levels of the rule. In addition, any future remediation activities at these facilities or facilities constructed in the future will include the required levels of HAP emissions control. We have not quantified the monetary benefits associated with the amendment; however, any future avoided emissions will result in improvements in air quality and reduce negative health effects associated with exposure to such air pollution.
The EPA seeks full public participation in arriving at its final decisions. The EPA requests public comment on the issues under reconsideration addressed in this notice: (1) The proposed removal of the RCRA and CERCLA exemptions and (2) the proposed removal of the applicability requirement that a site remediation activity be co-located with other source categories subject to other NESHAP. At this time, the EPA is seeking comment only on the amendments described above. The EPA will not respond to any comments addressing any other issues or any other provisions of the final rule or any other rule.
Additional information about these statutes and Executive Orders can be found at
This action is not a significant regulatory action and was, therefore, not submitted to the OMB for review.
The information collection activities in this proposed rule have been submitted for approval to the OMB under the PRA. The Information Collection Request (ICR) document that the EPA prepared has been assigned EPA ICR number 2062.06. You can find a copy of the ICR in the docket for this rule, and it is briefly summarized here.
The information requirements in this rulemaking are based on the notification, recordkeeping, and reporting requirements in the NESHAP General Provisions (40 CFR part 63, subpart A), which are mandatory for all operators subject to national emission standards. These notifications, reports, and records are essential in determining compliance, and are specifically authorized by CAA section 114 (42 U.S.C. 7414). All information submitted to the EPA pursuant to the recordkeeping and reporting requirements for which a claim of confidentiality is made is safeguarded according to agency policies set forth in 40 CFR part 2, subpart B.
An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number. The OMB control numbers for the EPA's regulations in 40 CFR are listed in 40 CFR part 9.
Submit your comments on the Agency's need for this information, the accuracy of the provided burden estimates and any suggested methods for minimizing respondent burden to the EPA using the docket identified at the beginning of this rule. You may also send your ICR-related comments to OMB's Office of Information and Regulatory Affairs via email to
I certify that this action will not have a significant economic impact on a substantial number of small entities under the RFA. This action will not impose any requirements on small entities. There are no small entities subject to the requirements of this action. The proposed amendments to the Site Remediation Rule are estimated to affect 69 facilities. Of these 69 facilities, 13 are owned by the federal government, which is not a small entity. The remaining 56 facilities are owned by 46 firms, and the Agency has determined that none of these can be classified as small entities using the Small Business Administration size standards for their respective industries. Details of this analysis are presented in the memorandum,
This action does not contain an unfunded mandate of $100 million or more as described in UMRA, 2 U.S.C. 1531-1538, and does not significantly or uniquely affect small governments. The action imposes no enforceable duty on any state, local, or tribal governments or the private sector.
This action does not have federalism implications. It will not have substantial direct effects on the states, on the relationship between the national government and the states, or on the distribution of power and responsibilities among the various levels of government.
This action does not have tribal implications as specified in Executive Order 13175. There are no site remediations at facilities that would be affected by the proposed amendments that are owned or operated by tribal governments. Thus, Executive Order 13175 does not apply to this action.
The EPA interprets Executive Order 13045 as applying only to those regulatory actions that concern environmental health or safety risks that the EPA has reason to believe may disproportionately affect children, per the definition of “covered regulatory action” in section 2-202 of the Executive Order. This action is not subject to Executive Order 13045 because it does not concern an environmental health risk or safety risk.
This action is not subject to Executive Order 13211 because it is not a significant regulatory action under Executive Order 12866.
This rulemaking does not involve technical standards.
The EPA believes the human health or environmental risk addressed by this action will not have potential disproportionately high and adverse human health or environmental effects on minority, low-income, or indigenous populations. The proposed amendments increase the level of protection provided to human health or the environment by regulating site remediations previously exempt from the rule.
Environmental protection, Administrative practice and procedure, Air pollution control, Hazardous substances, Intergovernmental relations, Reporting and recordkeeping requirements.
For the reasons stated in the preamble, the Environmental Protection Agency (EPA) proposes to amend Title 40, chapter I, of the Code of Federal Regulations (CFR) as follows:
42 U.S.C. 7401
The revisions read as follows:
(a) * * *
(2) Your site remediation satisfies either paragraph (a)(2)(i) or (ii) of this section.
(i) Your site remediation is co-located at your facility with one or more other stationary sources that emit HAP and meet an affected source definition specified for a source category that is regulated by another subpart under 40 CFR part 63. This condition applies regardless whether or not the affected stationary source(s) at your facility is subject to the standards under the applicable subpart(s).
(ii) Your site remediation is not co-located with one or more other stationary sources.
(3) Your site remediation, either alone or when aggregated with a co-located facility, is a major source of HAP as defined in § 63.2, except as specified in paragraph (a)(3)(i) or (ii) of this section. A major source emits or has the potential to emit any single HAP at the rate of 10 tons (9.07 megagrams) or more per year or any combination of HAP at a rate of 25 tons (22.68 megagrams) or more per year.
(b) You are not subject to this subpart if your site remediation qualifies for any of one of the exemptions listed in paragraphs (b)(1) through (4) of this section.
The revision reads as follows:
(b)
(1) Your affected source is an existing source if you commenced construction or reconstruction of the affected source before July 30, 2002, and you are not conducting the site remediation under the authority specified in either paragraph (b)(5)(i) or (ii) of this section.
(2) Your affected source is an existing source if you commenced construction or reconstruction of the affected source before May 13, 2016 and you are conducting the site remediation under the authority specified in either paragraph (b)(5)(i) or (ii) of this section.
(3) Your affected source is a new source if you commenced construction or reconstruction of the affected source on or after July 30, 2002, and you are not conducting the site remediation under the authority specified in either paragraph (b)(5)(i) or (ii) of this section. An affected source is reconstructed if it meets the definition of reconstruction in § 63.2.
(4) Your affected source is a new source if you commenced construction or reconstruction of the affected source on or after May 13, 2016, and you are conducting the site remediation under the authority specified in either paragraph (b)(5)(i) or (ii) of this section.
(5) Your site remediation conducted under the authority specified in paragraphs (b)(5)(i) or (ii) is existing or new as specified in paragraphs (b)(1) through (4) of this section.
(i) Your site remediation is performed under the authority of the Comprehensive Environmental Response and Compensation Liability Act (CERCLA) as a remedial action or a non time-critical removal action.
(ii) Your site remediation is performed under a Resource Conservation and Recovery Act (RCRA) corrective action conducted at a treatment, storage and disposal facility (TSDF) that is either required by your permit issued by either the U.S. Environmental Protection Agency (EPA) or a State program authorized by the EPA under RCRA section 3006; required by orders authorized under RCRA; or
(a) If you have an existing affected source, you must comply with each emission limitation, work practice standard, and operation and maintenance requirement in this subpart as specified in paragraph (a)(1) or (a)(2), as applicable to your affected source.
(1) If the affected source meets the conditions specified in § 63.7882(b)(1), you must comply no later than October 9, 2006.
(2) If the affected source meets the conditions specified in § 63.7882(b)(2), you must comply no later than [insert date 18 months after date of final rule publication in the
(b) If you have a new affected source that manages remediation material other than a radioactive mixed waste as defined in § 63.7957, then you must meet the compliance date specified in one of paragraphs (b)(1) through (4) of this section, as applicable to your affected source.
(1) If the affected source meets the conditions specified in § 63.7882(b)(3) and the affected source's initial startup date is on or before October 8, 2003, you must comply with each emission limitation, work practice standard, and operation and maintenance requirement in this subpart that applies to you by October 8, 2003.
(2) If the affected source meets the conditions specified in § 63.7882(b)(3) and the affected source's initial startup date is after October 8, 2003, you must comply with each emission limitation, work practice standard, and operation and maintenance requirement in this subpart that applies to you upon initial startup.
(3) If the affected source meets the conditions specified in § 63.7882(b)(4) and the affected source's initial startup date is on or before [insert date of final rule publication in the
(4) If the affected source meets the conditions specified in § 63.7882(b)(4) and the affected source's initial startup date is after [insert date of final rule publication in the
(c) If you have a new affected source that manages remediation material that is a radioactive mixed waste as defined in § 63.7957, then you must meet the compliance date specified in one of paragraphs (c)(1) through (4) of this section, as applicable to your affected source.
(1) If the affected source meets the conditions specified in § 63.7882(b)(3) and the affected source's initial startup date is on or before October 8, 2003, you must comply with each emission limitation, work practice standard, and operation and maintenance requirement in this subpart that applies to you no later than October 9, 2006.
(2) If the affected source meets the conditions specified in § 63.7882(b)(3) and the affected source's initial startup date is after October 8, 2003, you must comply with each emission limitation, work practice standard, and operation and maintenance requirement in this subpart that applies to you upon initial startup.
(3) If the affected source meets the conditions specified in § 63.7882(b)(4) and the affected source's initial startup date is on or before [insert date of final rule publication in the
(4) If the affected source meets the conditions specified in § 63.7882(b)(4) and the affected source's initial startup date is after [insert date of final rule publication in the
(b)(1) As specified in § 63.9(b)(2), if you start up your affected source before October 8, 2003 and you are not conducting the site remediation under the authority specified in either § 63.7882(b)(5)(i) or (ii), you must submit an Initial Notification not later than 120 calendar days after October 8, 2003.
(2) As specified in § 63.9(b)(2), if you start up your affected source before May 13, 2016 and you are conducting the site remediation under the authority specified in either § 63.7882(b)(5)(i) or (ii), you must submit an Initial Notification not later than 120 calendar days after [insert date of final rule publication in the
(c) As specified in § 63.9(b)(3), if your affected source is new or reconstructed as specified in § 63.7882 (b)(3) or (4) and you start your new or reconstructed affected source on or after the respective effective date, you must submit an Initial Notification no later than 120 calendar days after initial startup.
Federal Communications Commission.
Proposed rule; extension of comment and reply comment deadlines.
In this document, the Public Safety and Homeland Security Bureau (Bureau) extends the deadline for filing comments and reply comments on its Emergency Alert System (EAS) and Wireless Emergency Alerts (WEA) Notice of Proposed Rulemaking (Emergency Alerting NPRM), which sought comment on proposed changes in four areas: Improving alerting organization at the state and local levels; building effective community-based public safety exercises; ensuring that alerting mechanisms are able to leverage advancements in technology, including IP-based technologies; and securing the EAS against accidental misuse and malicious intrusion.
The comment period for the proposed rule published at 81 FR 15792, March 24, 2016 is extended. Comments are due on or before June 8, 2016, and reply comments are due on or before July 8, 2016.
You may submit comments to the Emergency Alerting NPRM, identified by PS Docket Nos. 15-94 and 15-91, by any of the following methods:
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• Paper Filers: Parties that choose to file by paper must file an original and one copy of each filing. If more than one docket or rulemaking number appears in the caption of this proceeding, filers must submit two additional copies for each additional docket or rulemaking number. Filings can be sent by hand or messenger delivery, by commercial overnight courier, or by first-class or overnight U.S. Postal Service mail. All filings must be addressed to the Commission's Secretary, Office of the Secretary, Federal Communications Commission. All hand-delivered or messenger-delivered paper filings for the Commission's Secretary must be delivered to FCC Headquarters at 445 12th St. SW., Room TW-A325, Washington, DC 20554. The filing hours are 8:00 a.m. to 7:00 p.m. All hand deliveries must be held together with rubber bands or fasteners. Any envelopes and boxes must be disposed of before entering the building. Commercial overnight mail (other than U.S. Postal Service Express Mail and Priority Mail) must be sent to 9300 East Hampton Drive, Capitol Heights, MD 20743. U.S. Postal Service first-class, Express, and Priority mail must be addressed to 445 12th St. SW., Washington, DC 20554.
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Lisa Fowlkes, Deputy Bureau Chief, Public Safety and Homeland Security Bureau, at (202) 418-7452, or by email at
This is a summary of the Bureau's Order in PS Docket Nos. 15-94 and 15-91, DA 16-482, adopted and released on May 5, 2016, and pertaining to the proposed rules published March 24, 2016 (81 FR 15792). The complete text of this document is available for public inspection and copying from 8 a.m. to 4:30 p.m. ET Monday through Thursday or from 8 a.m. to 11:30 a.m. ET on Fridays in the FCC Reference Information Center, 445 12th Street SW., Room CY-A257, Washington, DC 20554. The complete text is also available on the Commission's Web site at
The Bureau released an Order on May 5, 2016, which extends the comment and reply comment filing deadlines for the Emergency Alerting NPRM, 81 FR 15792, March 24, 2016. The Order responds to requests from Monroe Electronics, Inc., the National Alliance of State Broadcasters Associations, the Broadcast Warning Working Group, and the Washington State SECC seeking an extension of the comment period. Pursuant to Sections 4(i) of the Communications Act of 1934, as amended, 47 U.S.C. 154(i), and Sections 0.191, 0.392, and 1.46 of the Commission's rules, 47 CFR 0.191, 0.392, and 1.46, the Bureau extends the deadline for filing comments until June 8, 2016, and extends the deadline for filing reply comments until July 8, 2016.
Federal Communications Commission.
Proposed rule.
This document seeks comment on the ex parte proposal made by AT&T, Sprint, T-Mobile, US Cellular, and Verizon, together with CTIA (collectively, “the carriers”), in which they announce a “Wireless Resiliency Cooperative Framework” described as “a voluntary initiative that will enhance coordination and communication to advance wireless service continuity and information sharing during and after emergencies and disasters.”
Comments are due on or before May 31, 2016.
See the
Renee Roland, Special Counsel, Public Safety and Homeland Security Bureau, at (202) 418-2352, or Lauren Kravetz, Chief of Staff, Public Safety and Homeland Security Bureau, at (202) 418-7944.
This is a summary of the Commission's document, DA 16-463, released on April 28, 2016. The document is available for download at
1. On April 27, 2016, the carriers filed an ex parte letter detailing a five prong approach to enhance industry coordination to “facilitate greater network resiliency and faster restoration of service” which they assert will “obviate the need for legislative action or inflexible rules that could have unintended consequences.” Specifically, the five prongs include: (1) Providing for reasonable roaming under disaster arrangements when technically feasible; (2) fostering mutual aid during emergencies; (3) enhancing municipal preparedness and restoration; (4) increasing consumer readiness and preparation; and (5) improving public awareness and stakeholder communications on service and restoration status. Under each prong, the carriers provide specific actions that they will undertake designed to “enhance coordination among wireless carriers and all key stakeholders, improving information sharing and making wireless network resiliency more robust.”
2. In its 2013 Notice of Proposed Rulemaking in this docket (Resiliency Notice), the Commission sought comment on, inter alia, the means to enable greater resiliency and consumer transparency with respect to the performance of wireless communications networks during disasters, including seeking comment on mandatory disclosures or the use of voluntary industry measures. 78 FR 69018, November 18, 2013. In addition, since the Resiliency Notice was issued and the record compiled, the Commission's Public Safety and
3. Interested parties may file comments until fifteen days after the publication of this document in the
4. Comments may be filed using the Commission's Electronic Comment Filing System (ECFS). See Electronic Filing of Documents in Rulemaking Proceedings, 63 FR 24121 (1998).
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5. Filings can be sent by hand or messenger delivery, by commercial overnight courier, or by first-class or overnight U.S. Postal Service mail. All filings must be addressed to the Commission's Secretary, Office of the Secretary, Federal Communications Commission.
• All hand-delivered or messenger-delivered paper filings for the Commission's Secretary must be delivered to FCC Headquarters at 445 12th St. SW., Room TW-A325, Washington, DC 20554. The filing hours are 8:00 a.m. to 7:00 p.m. All hand deliveries must be held together with rubber bands or fasteners. Any envelopes and boxes must be disposed of
• Commercial overnight mail (other than U.S. Postal Service Express Mail and Priority Mail) must be sent to 9300 East Hampton Drive, Capitol Heights, MD 20743.
• U.S. Postal Service first-class, Express, and Priority mail must be addressed to 445 12th Street SW., Washington, DC 20554.
6. To request materials in accessible formats for people with disabilities (Braille, large print, electronic files, audio format), send an email to
7. For further information, contact: Renee Roland, Special Counsel, Public Safety and Homeland Security Bureau, at (202) 418-2352,
Pipeline and Hazardous Materials Safety Administration (PHMSA), DOT.
Proposed rule; extension of comment period.
On April 8, 2016, (81 FR 20722) PHMSA published in the
The closing date for filing comments is extended from June 7, 2016, to July 7, 2016.
Comments should reference Docket No. PHMSA-2011-0023 and may be submitted in the following ways:
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Comments are posted without changes or edits to
For further information contact Mike Israni at 202-366-4571 or by email at
On April 8, 2016, PHMSA issued a NPRM that would make amendments to the pipeline safety regulations for gas transmission and gathering pipelines. Since the issuance of the NPRM, PHMSA has received comment extension requests from the following entities:
PHMSA believes that extension of the comment period is warranted based on the information provided in these requests. Therefore, PHMSA has extended the comment period from June 7, 2016, to July 7, 2016.
Agricultural Marketing Service, USDA.
Notice and request for comments.
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35), this notice announces the Agricultural Marketing Service's (AMS) intention to request an extension and revision to the approved forms and generic information collection for marketing orders covering fruit crops.
Comments on this notice are due by July 12, 2016 to be assured of consideration.
Interested persons are invited to submit written comments concerning this notice. Comments must be sent to the Docket Clerk, Marketing Order and Agreement Division, Specialty Crops Program, AMS, USDA, 1400 Independence Avenue SW., STOP 0237, Washington, DC 20250-0237; Fax: (202) 720-8938; or Internet:
Andrew Hatch, Marketing Order and Agreement Division, Specialty Crops Program, AMS, USDA, 1400 Independence Avenue SW., STOP 0237, Room 1406-S, Washington, DC 20250-0237; Telephone: (202) 720-6862; Fax: (202) 720-8938; or Email:
Small businesses may request information on this notice by contacting Antoinette Carter, Marketing Order and Agreement Division, Specialty Crops Program, AMS, USDA, 1400 Independence Avenue SW., STOP 0237, Room 1406-S, Washington, DC 20250-0237; Telephone (202) 720-2491; Fax: (202) 720-8938; or Email:
The information collection requirements in this request are essential to carry out the intent of the Act, to provide the respondents the type of service they request, and to administer the marketing orders. Under the Act, marketing orders may authorize: Production and marketing research, including paid advertising; volume regulations; reserves, including pools and producer allotments; container regulations; and quality control. Assessments are levied on handlers regulated under the marketing orders.
USDA requires several forms to be filed to enable the administration of each marketing order. These include forms covering the selection process for industry members to serve on a marketing order's committee or board and ballots used in referenda to amend or continue marketing orders.
Under Federal marketing orders, producers and handlers are nominated by their peers to serve as representatives on a committee or board which administers each program. Nominees must provide information on their qualifications to serve on the committee or board. Qualified nominees are then appointed by the Secretary. Formal rulemaking amendments must be approved in referenda conducted by USDA and the Secretary. For the purposes of this action, ballots are considered information collections and are subject to the Paperwork Reduction Act. If a marketing order is amended, handlers are asked to sign an agreement indicating their willingness to abide by the provisions of the amended marketing order.
Some forms are required to be filed with the committee or board. The marketing orders and their rules and regulations authorize the respective commodities' committees and boards, the agencies responsible for local administration of the marketing orders, to require handlers and producers to submit certain information. Much of the information is compiled in aggregate and provided to the respective industries to assist in marketing decisions. The committees and boards have developed forms as a means for persons to file required information relating to supplies, shipments, and dispositions of their respective commodities, and other information needed to effectively carry out the purpose of the Act and their respective orders, and these forms are utilized accordingly.
The forms covered under this information collection require
The information collected is used only by authorized employees of the committees and authorized representatives of the USDA, including AMS, Specialty Crops Program's regional and headquarters' staff. Authorized committee or board employees are the primary users of the information and AMS is the secondary user.
Comments should reference OMB No. 0581-0189 Generic OMB Fruit Crops, and be sent to the USDA in care of the Docket Clerk at the address above. All comments received will be available for public inspection during regular business hours at the same address.
All 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.
AMS is committed to compliance 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 60-day comment period is provided to allow interested persons to respond to the notice.
Agricultural Marketing Service, USDA.
Notice and request for comments.
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35), this notice announces the Agricultural Marketing Service's (AMS) intention to request approval from the Office of Management and Budget (OMB) for an extension of and revision to the currently approved information collection “Livestock, Poultry, Meat, and Grain Market News Reports” (0186-0033), which AMS is proposing to retitle as the “Livestock, Poultry, and Grain Market News.”
Comments received by July 12, 2016.
LPGMN reporters communicate with buyers and sellers of livestock, poultry, meat, eggs, grain, local products, and their respective commodities on a daily basis to accomplish LPGMN's mission. This communication and information gathering is accomplished through the use of telephone conversations, facsimile transmissions, face-to-face meetings, and email messages. The information provided by respondents initiates LPGMN reporting, which must be timely, accurate, unbiased, and continuous if it is to be meaningful to the industry. AMS collects information on price, supply, demand, trends, movement, and other information of livestock, poultry, meat, grain, eggs, local products, and their respective commodities. LPGMN uses one OMB approved form, PY-90: “Monthly Dried Egg Solids Stocks Report,” to collect inventory information from commercially dried egg product plants throughout the U.S. Cooperating firms voluntarily submit this form to LPGMN primarily via email and facsimile transmissions.
This collection was previously titled “Livestock, Poultry, Meat, and Grain Market News Reports” (0186-0033), and AMS is proposing to retitle the collection as “Livestock, Poultry, and Grain Market News” collection.
Comments are invited on: (1) Whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility; (2) the accuracy of the agency's estimate of the burden of the proposed collection of information including the validity of the methodology and assumptions used; (3) ways to enhance the quality, utility, and clarity of the information to be collected; and (4) ways to minimize the burden of the collection of information on those who are to respond, including the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology.
All responses to this notice will be summarized and included in the request for OMB approval. All comments will become a matter of public record.
Animal and Plant Health Inspection Service, USDA.
Notice; correction.
We are correcting an error in a notice announcing that the Secretary of Agriculture is soliciting nominations for the election of members and alternates to the General Conference Committee of the National Poultry Improvement Plan. The notice was published in the
Dr. Denise L. Brinson, Senior Coordinator, National Poultry Improvement Plan, VS, APHIS, 1506 Klondike Road, Suite 101, Conyers, GA 30094-5173; phone (770) 922-3496; fax (770) 922-3498; email
In a notice
In the notice, we stated that the terms will expire for three of the current regional members of the Committee as well as the member-at-large in July 2016. However, the term for the member-at-large does not expire until July 2018. The membership solicitation should have omitted the member-at-large.
Animal and Plant Health Inspection Service, USDA.
Notice of availability.
We are advising the public that we are proposing to recognize the Republic of Malta as being free of swine vesicular disease, African swine fever, foot-and-mouth disease, and rinderpest subject to conditions in the regulations governing the importation of certain animals and animal products into the United States. We are also proposing adding the Republic of Malta to the APHIS-defined European classical swine fever region that is subject to conditions described in the regulations. We are proposing these actions based on a risk evaluation we have prepared in connection with this action, which we are making available for review and comment.
We will consider all comments that we receive on or before July 12, 2016.
You may submit comments by either of the following methods:
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Supporting documents and any comments we receive on this docket may be viewed at
Dr. Chip Wells, Senior Staff Veterinarian, Regionalization Evaluation Services, National Import Export Services, VS, APHIS, USDA, 4700 River Road Unit 38, Riverdale, MD 20737-1231;
The regulations in 9 CFR part 94 (referred to below as the regulations) govern the importation of certain animals and animal products into the United States to prevent the introduction of various animal diseases, including African swine fever (ASF), classical swine fever (CSF), foot-and-mouth disease (FMD), swine vesicular disease (SVD), and rinderpest.
Within part 94, § 94.1 contains requirements governing the importation of ruminants and swine from regions
Section 94.8 contains requirements governing the importation of pork and pork products from regions where ASF exists or is reasonably believed to exist.
Section 94.9 contains requirements governing the importation of pork and pork products from regions where CSF exists. Section 94.10 contains importation requirements for swine from regions where CSF is considered to exist and designates the Animal and Plant Health Inspection Service (APHIS)-defined European CSF region as a single region of low-risk for CSF. Section 94.31 contains requirements governing the importation of pork, pork products, and swine from the APHIS-defined European CSF region. We consider CSF to exist in all regions of the world except those listed in accordance with paragraph (a) of § 94.9
Section 94.11 of the regulations contains requirements governing the importation of meat of any ruminants or swine from regions that have been determined to be free of rinderpest and FMD, but that are subject to certain restrictions because of their proximity to or trading relationships with rinderpest- or FMD-affected regions. Such regions are listed in accordance with paragraph (a) of that section.
Section 94.12 of the regulations contains requirements governing the importation of pork or pork products from regions where SVD exists. We consider SVD to exist in all regions of the world except those listed in accordance with paragraph (a) of that section as free of SVD.
Section 94.13 contains importation requirements governing the importation of pork or pork products from regions that have been declared free of SVD as provided in § 94.12(a) but supplement their national pork supply by the importation of fresh (chilled or frozen) meat of animals from regions where SVD is considered to exist, or have a common border with such regions, or have trade practices that are less restrictive than are acceptable to the United States. Such regions are listed in accordance with paragraph (a) of § 94.13.
Section 94.14 states that no swine which are moved from or transit any region in which SVD is known to exist may be imported into the United States except wild swine imported in accordance with § 94.14(b).
Section 94.17 sets forth restrictions for importation of dry-cured pork products from regions where ASF, CSF, SVD, FMD, or rinderpest exists.
The regulations in 9 CFR part 92, § 92.2, contain requirements for requesting the recognition of the animal health status of a region (as well as for the approval of the export of a particular type of animal or animal product to the United States from a foreign region). If, after review and evaluation of the information submitted in support of the request, APHIS believes the request can be safely granted, APHIS will make its evaluation available for public comment through a document published in the
Under the current regulations, Malta is considered to be a region affected with CSF, SVD, ASF, FMD, and rinderpest. As such, APHIS restricts the importation of susceptible species and products derived from susceptible species from Malta.
In July 2006, the Government of the Republic of Malta requested that APHIS evaluate its CSF, SVD, ASF, FMD, and rinderpest status. In response to this request, we conducted a qualitative risk evaluation to evaluate Malta with respect to these diseases. This evaluation included site visits to farms and processing facilities in Malta, as well as examinations of Malta's capabilities with respect to veterinary control and oversight, disease history and vaccination, livestock demographics and traceability, epidemiological separation from potential sources of infection, disease surveillance, diagnostic laboratory capabilities, and emergency preparedness and response. Malta also provided additional information requested by APHIS in order to complete the evaluation in 2008 and 2014.
Based on the results of our evaluation, APHIS recognizes Malta to be free of SVD, ASF, FMD, and rinderpest, and low risk for CSF. APHIS has also determined that the surveillance, prevention, and control measures implemented by the European Union (EU) and Malta, an EU Member State since 2004, are sufficient to minimize the likelihood of introducing CSF, SVD, ASF, FMD, and rinderpest into the United States via imports of species or products susceptible to these diseases. Additionally, our determinations support adding Malta to the Web-based list of regions comprising the APHIS-defined European CSF region, which APHIS considers to be low risk for CSF, and to the respective Web-based lists of regions APHIS considers free of SVD, ASF, FMD, and rinderpest. Accordingly, we consider the risk of infected live swine and ruminants, or commodities derived from these species, entering the United States from Malta under mitigated conditions and exposing U.S. livestock to disease to be very low.
Therefore, in accordance with § 92.2(e), we are announcing the availability of our risk evaluation of the CSF, SVD, ASF, FMD, and rinderpest status of Malta for public review and comment. We are also announcing the availability of an environmental assessment (EA) and a finding of no significant impact (FONSI)
Information submitted in support of Malta's request is available by contacting the person listed under
After reviewing any comments we receive, we will announce our decision regarding the disease status of Malta under consideration with respect to CSF, SVD, ASF, FMD, and rinderpest
7 U.S.C. 450, 7701-7772, 7781-7786, and 8301-8317; 21 U.S.C. 136 and 136a; 31 U.S.C. 9701; 7 CFR 2.22, 2.80, and 371.4.
United States Commission on Civil Rights.
Notice of Commission briefing.
Friday, May 20, 2016, at 9 a.m. EDT.
Gerson Gomez, Media Advisor at telephone: (202) 376-8371, TTY: (202) 376-8116 or email:
This briefing and business meeting are open to the public. The public may listen on the following toll-free number: 1-888-572-7034. Please provide the operator with conference ID number 7822144.
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 Statement of Administrative Action accompanying the Act provides that the Committee for the Implementation of Textile Agreements (CITA) will issue procedures for requesting such safeguard measures, for making its determinations under section 322(a) of the Act, and for providing relief under section 322(b) of the Act.
In Proclamation No. 8332 (73 FR 80289, December 31, 2008), the President delegated to CITA his authority under Subtitle B of Title III of the Act with respect to textile and apparel safeguard measures.
CITA must collect information in order to determine whether a domestic textile or apparel industry is being adversely impacted by imports of these products from Oman, thereby allowing CITA to take corrective action to protect the viability of the domestic textile or apparel industry, subject to section 322(b) of the Act.
This information collection request may be viewed at
Written comments and recommendations for the proposed information collection should be sent within 30 days of publication of this notice to OIRA
First Responder Network Authority, National Telecommunications and Information Administration, U.S. Department of Commerce.
Notice announcing availability of a draft programmatic environmental impact statement and of public meetings; correction.
The First Responder Network Authority (“FirstNet”) published a notice in the
Submit comments on the Draft PEIS for the East Region on or before July 6, 2016. FirstNet will also hold public meetings in each of the 13 states and the District of Columbia. See
At any time during the public comment period, members of the public, public agencies, and other interested parties are encouraged to submit written comments, questions, and concerns about the project for FirstNet's consideration or to attend any of the public meetings. Written comments may be submitted electronically via
For more information on the Draft PEIS, contact Amanda Goebel Pereira, NEPA Coordinator, First Responder Network Authority, National Telecommunications and Information Administration, U.S. Department of Commerce, 12201 Sunrise Valley Drive, M/S 243, Reston, VA 20192.
In the
• New York City, NY, May 24, 2016, from 4 p.m. to 8 p.m., New York Marriott Marquis, 1535 Broadway, New York, NY 10036
The Middle Class Tax Relief and Job Creation Act of 2012 (Pub. L. 112-96, Title VI, 126 Stat. 156 (codified at 47 U.S.C. 1401
The National Environmental Policy Act of 1969 (42 U.S.C. 4321-4347) (“NEPA”) requires federal agencies to undertake an assessment of environmental effects of their proposed actions prior to making a final decision and implementing the action. NEPA requirements apply to any federal project, decision, or action that may have a significant impact on the quality of the human environment. NEPA also establishes the Council on Environmental Quality (“CEQ”), which issued regulations implementing the procedural provisions of NEPA (see 40 CFR parts 1500-1508). Among other considerations, CEQ regulations at 40 CFR 1508.28 recommend the use of
Due to the geographic scope of FirstNet (all 50 states, the District of Columbia, and five territories) and the diversity of ecosystems potentially traversed by the project, FirstNet has elected to prepare five regional PEISs. The five PEISs will be divided into the East, Central, West, South, and Non-Contiguous Regions. The East Region consists of Connecticut, Delaware, the District of Columbia, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont, Virginia, and West Virginia. The Draft PEIS analyzes potential impacts of the deployment and operation of the NPSBN on the natural and human environment in the East Region, in accordance with FirstNet's responsibilities under NEPA.
An application has been submitted to the Foreign-Trade Zones (FTZ) Board by the Virginia Port Authority, grantee of Foreign-Trade Zone 20, requesting authority to reorganize the zone to expand its service area under the alternative site framework (ASF) adopted by the FTZ Board (15 CFR Sec. 400.2(c)). The ASF is an option for grantees for the establishment or reorganization of zones and can permit significantly greater flexibility in the designation of new subzones or “usage-driven” FTZ sites for operators/users located within a grantee's “service area” in the context of the FTZ Board's standard 2,000-acre activation limit for a zone. The application was submitted pursuant to the Foreign-Trade Zones Act, as amended (19 U.S.C. 81a-81u), and the regulations of the FTZ Board (15 CFR part 400). It was formally docketed on May 9, 2016.
FTZ 20 was approved by the Board on April 15, 1975 (Board Order 105, 40 FR 17884, April 23, 1975) and reorganized under the ASF on February 28, 2014 (Board Order 1933, 79 FR 14214-14215, March 13, 2014). The zone currently has a service area that includes the Counties of Accomack (partial), Gloucester, Isle of Wight, James City, Mathews, Northampton, Southampton, Sussex, Surry and York, Virginia, and the Cities of Chesapeake, Franklin, Hampton, Newport News, Norfolk, Poquoson, Portsmouth, Suffolk, Virginia Beach and Williamsburg, Virginia, within and adjacent to the Norfolk-Newport News Customs and Border Protection port of entry.
The applicant is now requesting authority to expand the service area of the zone to include Elizabeth City, North Carolina, and the Counties of Camden, Chowan, Currituck, Gates, Hertford, Pasquotank and Perquimans, North Carolina, as described in the application. If approved, the grantee would be able to serve sites throughout the expanded service area based on companies' needs for FTZ designation. The application indicates that the proposed expanded service area is adjacent to the Norfolk-Newport News Customs and Border Protection port of entry.
In accordance with the FTZ Board's regulations, Kathleen Boyce of the FTZ Staff is designated examiner to evaluate and analyze the facts and information presented in the application and case record and to report findings and recommendations to the FTZ Board.
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 July 12, 2016. Rebuttal comments in response to material submitted during the foregoing period may be submitted during the subsequent 15-day period to July 27, 2016.
A copy of the application 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
Enforcement and Compliance, International Trade Administration, Department of Commerce.
The Department of Commerce (the Department) is conducting an administrative review of the antidumping duty order on solid fertilizer grade ammonium nitrate (ammonium nitrate) from the Russian Federation. The review covers two producer/exporters of the subject merchandise, JSC Acron and its affiliate JSC Dorogobuzh (collectively, Acron) and MCC EuroChem and its affiliates OJSC NAK Azot and OJSC Nevinnomyssky Azot (collectively, EuroChem). The period of review (POR) is April 1, 2014, through March 31, 2015. We preliminarily determine that sales of subject merchandise to the United States have not been made at prices below normal value (NV). The Department preliminarily finds that EuroChem made no shipments of subject merchandise during the POR. We invite all interested parties to comment on these preliminary results.
Elizabeth Eastwood or David Crespo, AD/CVD Operations, Office II, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue NW., Washington, DC 20230; telephone: (202) 482-3874, or (202) 482-3693, respectively.
As explained in the memorandum from the Acting Assistant Secretary for Enforcement and Compliance, the Department has exercised its discretion to toll all administrative deadlines due to the recent closure of the Federal Government. All deadlines in this segment of the proceeding have been extended by four business days. The revised deadline for the preliminary results of this review is now May 5, 2016.
The merchandise subject to this order is solid, fertilizer grade ammonium nitrate products. The merchandise subject to this order is classified in the Harmonized Tariff Schedule of the United States (HTSUS) at subheadings 3102.30.00.00 and 3102.290000. Although the HTSUS subheadings are provided for convenience and customs purposes, the written description of the merchandise within the scope is dispositive.
The Department is conducting this review in accordance with section 751(a)(2) of the Tariff Act of 1930, as amended (the Act). Constructed export price is calculated in accordance with section 772 of the Act. NV is calculated in accordance with section 773 of the Act.
For a full description of the methodology underlying our conclusions, see the Preliminary Decision Memorandum. A list of the topics included in the Preliminary Decision Memorandum is attached as an Appendix to this notice. The Preliminary Decision Memorandum is a public document and is on file electronically via Enforcement and Compliance's Antidumping and Countervailing Duty Centralized Electronic Service System (ACCESS). ACCESS is available to registered users at
On June 25, 2015, EuroChem properly filed a statement reporting that it made no shipments of subject merchandise to the United States during the POR. Additionally, our inquiry to U.S. Customs and Border Protection (CBP) did not identify any POR entries of EuroChem's subject merchandise. Based on the foregoing, the Department preliminarily determines that EuroChem did not have any reviewable transactions during the POR. For additional information regarding this determination, see the Preliminary Decision Memorandum. Consistent with our practice, we are not preliminarily rescinding the review with respect to EuroChem but, rather, we will complete the review with respect to this company and issue appropriate instructions to CBP based on the final results of this review.
The Department preliminarily determines that the following weighted-average dumping margin exists:
The Department intends to disclose the calculations performed in connection with these preliminary results to interested parties within five days after the date of publication of this notice.
Pursuant to 19 CFR 351.310(c), interested parties who wish to request a hearing must submit a written request to the Assistant Secretary for Enforcement
The Department intends to issue the final results of this administrative review, including the results of its analysis of the issues raised in any written briefs, not later than 120 days after the date of publication of this notice, pursuant to section 751(a)(3)(A) of the Act and 19 CFR 351.213(h), unless this deadline is extended.
Upon issuance of the final results, the Department shall determine, and CBP shall assess, antidumping duties on all appropriate entries covered by this review.
The Department clarified its “automatic assessment” regulation on May 6, 2003.
We intend to issue instructions to CBP 15 days after publication of the final results of this review.
The following deposit requirements will be effective upon publication of the notice of final results of administrative review for all shipments of the subject merchandise entered, or withdrawn from warehouse, for consumption on or after the date of publication as provided by section 751(a)(2)(C) of the Act: (1) The cash deposit rate for Acron will be equal to the weighted-average dumping margins established in the final results of this administrative review, except if the rate is less than 0.50 percent and, therefore,
This notice also serves as a preliminary reminder to importers of their responsibility under 19 CFR 351.402(f) to file a certificate regarding the reimbursement of antidumping duties prior to liquidation of the relevant entries during this review period. Failure to comply with this requirement could result in the Secretary's presumption that reimbursement of antidumping duties occurred and the subsequent assessment of double antidumping duties.
We are issuing and publishing these results in accordance with sections 751(a)(1) and 777(i)(1) of the Act.
Enforcement and Compliance, International Trade Administration, Department of Commerce.
In response to a request from Hyundai Steel, a producer/exporter of circular welded non-alloy steel pipe (CWP) from the Republic of Korea, and pursuant to section 751(b) of the Tariff Act of 1930, as amended (the Act), and 19 CFR 351.216 and 351.221(c)(3)(ii), the Department is initiating a changed circumstances review and issuing this notice of preliminary results. We preliminarily determine that Hyundai Steel is the successor-in-interest to Hyundai HYSCO (HYSCO).
Joseph Shuler, 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; telephone: (202) 482-1293.
On November 2, 1992, the Department published the antidumping duty order for circular welded non-alloy steel pipe from the Republic of Korea.
On February 24, 2016, Hyundai Steel informed the Department that effective July 1, 2015, it had merged with
The merchandise subject to the order is circular welded non-alloy steel pipe and tube, of circular cross-section, not more than 406.4 millimeters (16 inches) in outside diameter, regardless of wall thickness, surface finish (black, galvanized, or painted), or end finish (plain end, beveled end, threaded, or threaded and coupled). These pipes and tubes are generally known as standard pipes and tubes and are intended for the low-pressure conveyance of water, steam, natural gas, air, and other liquids and gases in plumbing and heating systems, air-conditioning units, automatic sprinkler systems, and other related uses. Standard pipe may also be used for light load-bearing applications, such as for fence tubing, and as structural pipe tubing used for framing and as support members for reconstruction or load-bearing purposes in the construction, shipbuilding, trucking, farm equipment, and other related industries. Unfinished conduit pipe is also included in the order.
All carbon-steel pipes and tubes within the physical description outlined above are included within the scope of the order except line pipe, oil-country tubular goods, boiler tubing, mechanical tubing, pipe and tube hollows for redraws, finished scaffolding, and finished conduit.
Imports of these products are currently classifiable under the following Harmonized Tariff Schedule of the United States (HTSUS) numbers: 7306.30.1000, 7306.30.5025, 7306.30.5032, 7306.30.5040, 7306.30.5055, 7306.30.5085, and 7306.30.5090. Although the HTSUS numbers are provided for convenience and customs purposes, our written description of the scope of the order is dispositive.
All carbon-steel pipes and tubes within the physical description outlined above are included within the scope of the order except line pipe, oil-country tubular goods, boiler tubing, mechanical tubing, pipe and tube hollows for redraws, finished scaffolding, and finished conduit.
Imports of these products are currently classifiable under the following Harmonized Tariff Schedule of the United States (HTSUS) numbers: 7306.30.1000, 7306.30.5025, 7306.30.5032, 7306.30.5040, 7306.30.5055, 7306.30.5085, and 7306.30.5090. Although the HTSUS numbers are provided for convenience and customs purposes, our written description of the scope of the order is dispositive.
Pursuant to section 751(b)(1) of the Act, the Department will conduct a changed circumstances review upon receipt of a request from an interested party or receipt of information concerning an antidumping duty order which demonstrates changed circumstances sufficient to warrant a review of the order. As noted above in the “Background” section, we received information indicating that on July 1, 2015, Hyundai Steel merged with HYSCO. The information further indicates that at that time, Hyundai Steel assumed all of HYSCO's operations for the production and sale of subject merchandise. This constitutes changed circumstances warranting a review of this order.
Section 351.221(c)(3)(ii) of the Department's regulations permits the Department to combine the notice of initiation of a changed circumstances review and the preliminary results of review if the Department concludes that expedited action is warranted. In this instance, we find that expedited action is warranted, and are issuing a combined notice of initiation and preliminary results based on the information placed on the record by Hyundai Steel.
In making a successor-in-interest determination, the Department examines several factors including, but not limited to, whether there were changes in: (1) Management; (2) production facilities; (3) supplier relationships; and (4) customer base.
In its submission, Hyundai Steel explained that it merged with HYSCO effective July 1, 2015. Hyundai Steel stated that the merger was approved by shareholders of both companies, but procedurally, the merger took the form of an “absorption” through which Hyundai Steel “absorbed” HYSCO, which no longer exists as a corporate entity.
With respect to management, Hyundai Steel retained its board of directors and discharged the board of directors of HYSCO, with the exception of Mr. Heon-seok Lee, who was a board member and executive (Chief Director of Pipe Factory Manufacturing Support Group) of HYSCO and who remains with Hyundai Steel as a member of the board of directors and an executive (Chief Director of Pipe Factory and Head of Automotive Parts Production Office).
Hyundai Steel further explained that its current organizational structure is substantially similar to that of HYSCO; the only difference is that the management team of the former company is now integrated into the larger management structure of Hyundai Steel.
Based on this information, and in particular, based on the fact that Hyundai Steel's management team continues to include the majority of the former HYSCO managers, we preliminarily find that the reorganization resulting from the merger of the two companies did not result in management that was materially dissimilar with respect to the subject merchandise.
With respect to production facilities, Hyundai Steel reported that there have been no changes.
With respect to suppliers and customers, Hyundai Steel provided information that demonstrates that there are only marginal differences to its supplier relationships. Specifically, prior to the merger, Hyundai Steel was HYSCO's largest supplier of hot-rolled coil; after the merger, Hyundai Steel continues to be the largest supplier of this input to the production of the subject merchandise. Although other suppliers of hot-rolled coil to HYSCO prior to the merger are no longer providing hot-rolled coil, Hyundai Steel explained that these suppliers provided only a small portion of the input to HYSCO before the merger.
Based on our consideration of the totality of the evidence provided by Hyundai Steel, we preliminarily determine that Hyundai Steel is the successor-in-interest to HYSCO, for purposes of the application of the antidumping duty order. Specifically, with respect to the production and sale of the subject merchandise, we find that the merger of these two companies resulted in no significant changes to management or production facilities. Additionally, the minor changes in supplier relationships and customers that Hyundai Steel identified indicate that there had been no material change in suppliers of inputs or services related to the production, sale and distribution of the subject merchandise, and thus do not weigh against finding that Hyundai Steel is the successor-in-interest to HYSCO. Thus, Hyundai Steel operates as the same business entity as HYSCO with respect to the subject merchandise. If the Department upholds this preliminary determination in the final results, Hyundai Steel will retain the antidumping duty deposit rate currently assigned to HYSCO with respect to the subject merchandise (
Interested parties may submit case briefs and/or written comments not later than 14 days after the date of publication of this notice. Rebuttal briefs and rebuttals to written comments, which must be limited to issues raised in such briefs or comments, may be filed not later than 21 days after the date of publication of this notice.
Any interested party may request a hearing within 14 days of publication of this notice.
Consistent with 19 CFR 351.216(e), we will issue the final results of this changed circumstances review no later than 270 days after the date on which this review was initiated, or within 45 days if all parties agree to our preliminary finding. This initiation and preliminary results of review notice is published in accordance with sections 751(b)(l) and 777(i)(l) of the Act and 19 CFR 351.216, 19 CFR 351.221(b)(l), (4), and 19 CFR 351.222(g).
International Trade Administration, U.S. Department of Commerce.
Notice of an open meeting by teleconference.
The President's Export Council (Council) will hold an open call to present observations from a recent trip to Cuba by the Council's Chair and Vice Chair and to deliberate a recommendation related to Cuba. The final agenda will be posted at least one week in advance of the meeting on the
June 8, 2016 at 10:00 a.m. EDT. The deadline for members of the public to register, including requests for auxiliary aids, or to submit written comments for dissemination prior to the meeting, is 5:00 p.m. EDT on June 6, 2016.
Via teleconference. The call-in number and passcode will be provided by email to registrants. Requests to register (including for auxiliary aids) and any written comments should be submitted to Tricia Van Orden, Executive Secretary, President's Export Council, electronically via email to
Tricia Van Orden, Executive Secretary, President's Export Council, Room 4043, 1401 Constitution Avenue NW., Washington, DC 20230, telephone: 202-482-5876, email:
Submit statements electronically to Tricia Van Orden, Executive Secretary, President's Export Council, via email:
Send paper statements to Tricia Van Orden, Executive Secretary, President's Export Council, Room 4043, 1401 Constitution Avenue NW., Washington, DC 20230.
Statements will be provided to the members in advance of the meeting for consideration and will be posted on the President's Export Council Web site (
Enforcement and Compliance, International Trade Administration, Department of Commerce.
The Department of Commerce (the “Department”) is conducting the sixth administrative review of the antidumping duty order on certain steel threaded rod (“STR”) from the People's Republic of China (“PRC”),
Jerry Huang or Andrew Devine, AD/CVD Operations, Office V, Enforcement and Compliance, International Trade Administration, Department of Commerce, 14th Street and Constitution Avenue NW., Washington, DC 20230; telephone: (202) 482-4047 or (202) 482-0238, respectively.
The merchandise covered by the order includes steel threaded rod. The subject merchandise is currently classifiable under subheading 7318.15.5051, 7318.15.5056, 7318.15.5090, and 7318.15.2095 of the United States Harmonized Tariff Schedule (“HTSUS”). Although the HTSUS subheading is provided for convenience and customs purposes, the written description of the merchandise is dispositive.
On April 1, 2015, the Department published in the
Pursuant to 19 CFR 351.213(d)(1), the Secretary will rescind an administrative review, in whole or in part, if a party who requested the review withdraws the request within 90 days of the date of publication of notice of initiation of the requested review. Petitioner timely withdrew its request for an administrative review of the 83 companies listed in the Appendix I. Petitioner was the only party to request a review of these companies. Accordingly, the Department is rescinding this review, in part, with respect to these entities, in accordance with 19 CFR 351.213(d)(1).
Of the eight companies for which requests for review remain, two are the mandatory respondents New Oriental and the RMB/IFI Group which have demonstrated eligibility for separate rate. The remaining six companies are not eligible for separate rate status or rescission, as they did not submit completed separate rate applications or certifications.
The Department's change in policy regarding conditional review of the PRC-wide entity applies to this administrative review.
The Department is conducting this review in accordance with section 751(a)(1)(B) of the Tariff Act of 1930, as amended (the “Act”). Export prices have been calculated in accordance with section 772 of the Act. Because the PRC is a non-market economy (“NME”) within the meaning of section 771(18) of the Act, NV has been calculated in accordance with section 773(c) of the Act.
For a full description of the methodology underlying our conclusions,
The Department preliminarily determines that the following weighted-average dumping margins exist for the period April 1, 2014, through March 31, 2015:
The Department will disclose the calculations used in our analysis to parties in this review within five days of the date of publication of this notice in accordance with 19 CFR 351.224(b).
Interested parties may submit case briefs within 30 days after the date of publication of these preliminary results of review.
Any interested party may request a hearing within 30 days of publication of this notice.
The Department intends to issue the final results of this administrative review, which will include the results of our analysis of all issues raised in the case briefs, within 120 days of publication of these preliminary results in the
Upon issuance of the final results, the Department will determine, and CBP shall assess, antidumping duties on all appropriate entries covered by this
For any individually examined respondent whose weighted average dumping margin is above
Pursuant to the Department's assessment practice in NME cases, for entries that were not reported in the U.S. sales databases submitted by companies individually examined during the administrative review, the Department will instruct CBP to liquidate such entries at the PRC-wide rate. Additionally, if the Department determines that an exporter had no shipments of the subject merchandise, any suspended entries that entered under that exporter's case number (
The following cash deposit requirements will be effective upon publication of the final results of this review for shipments of the subject merchandise from the PRC entered, or withdrawn from warehouse, for consumption on or after the publication date, as provided by sections 751(a)(2)(C) of the Act: (1) For the companies listed above that have a separate rate, the cash deposit rate will be that established in the final results of this review (except, if the rate is zero or
These deposit requirements, when imposed, shall remain in effect until further notice.
This notice also serves as a preliminary reminder to importers of their responsibility under 19 CFR 351.402(f)(2) to file a certificate regarding the reimbursement of antidumping duties prior to liquidation of the relevant entries during the POR. Failure to comply with this requirement could result in the Department's presumption that reimbursement of antidumping duties occurred and the subsequent assessment of double antidumping duties.
These preliminary results are issued and published in accordance with sections 751(a)(1) and 777(i)(1) of the Act and 19 CFR 351.221(b)(4).
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice; receipt of application.
Notice is hereby given that Living Planet Productions/Silverback Films, 1 St. Augustines Yard, Gaunts Lane, Bristol, BS1 5DE, United Kingdom, has applied in due form for a permit to conduct commercial or educational photography on bottlenose dolphins (
Written, telefaxed, or email comments must be received on or before June 13, 2016.
The application and related documents are available for review by selecting “Records Open for Public Comment” from the “Features” box on the Applications and Permits for Protected Species (APPS) home page,
These documents are also available upon written request or by appointment in the Permits and Conservation Division, Office of Protected Resources, NMFS, 1315 East-West Highway, Room 13705, Silver Spring, MD 20910; phone (301) 427-8401; fax (301) 713-0376.
Written comments on this application should be submitted to the Chief, Permits and Conservation Division, at the address listed above. Comments may also be submitted by facsimile to (301) 713-0376, or by email to
Those individuals requesting a public hearing should submit a written request to the Chief, Permits and Conservation Division at the address listed above. The request should set forth the specific reasons why a hearing on this application would be appropriate.
Jennifer Skidmore or Amy Hapeman, (301) 427-8401.
The subject permit is requested under the authority of the Marine Mammal Protection Act of 1972, as amended (MMPA; 16 U.S.C. 1361
The applicant proposes to film and photograph the Florida Bay stock of bottlenose dolphins for purposes of a documentary film. The applicant is requesting up to 140 takes of these animals by Level B harassment via aircraft (helicopter) and up to 828 takes by Level B harassment from a small 20 ft. vessel. Filming would take place for approximately 30 filming days. Obtained footage will be part of a documentary film series and featured in the episode describing shallow seas. The permit is requested for a 2 year period.
In compliance with the National Environmental Policy Act of 1969 (42 U.S.C. 4321
Concurrent with the publication of this notice in the
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice; receipt of application.
Notice is hereby given that Paul Ponganis, Ph.D., University of California at San Diego, La Jolla, CA 92093, has applied in due form for a permit to conduct research on California sea lions (
Written, telefaxed, or email comments must be received on or before June 13, 2016.
The application and related documents are available for review by selecting “Records Open for Public Comment” from the “Features” box on the Applications and Permits for Protected Species (APPS) home page,
These documents are also available upon written request or by appointment in the Permits and Conservation Division, Office of Protected Resources, NMFS, 1315 East-West Highway, Room 13705, Silver Spring, MD 20910; phone (301) 427-8401; fax (301) 713-0376.
Written comments on this application should be submitted to the Chief, Permits and Conservation Division, at the address listed above. Comments may also be submitted by facsimile to (301) 713-0376, or by email to
Those individuals requesting a public hearing should submit a written request to the Chief, Permits and Conservation Division at the address listed above. The request should set forth the specific reasons why a hearing on this application would be appropriate.
Sara Young or Amy Sloan, (301) 427-8401.
The subject permit is requested under the authority of the Marine Mammal Protection Act of 1972, as amended (MMPA; 16 U.S.C. 1361
The purpose of this research is to determine the role of blood oxygen store depletion in the dive behavior and foraging ecology of California sea lions. This research would help determine the ability of these animals to adapt to environmental change. Over the course of five years, up to 70 lactating females would be captured, flipper tagged, anesthetized, and equipped with a venous or arterial blood oxygen recorder, a velocity-acceleration-depth recorder, kinematic recorders, intravascular lactate sensor, or intravascular thermistor probe during foraging trips to sea. Animals would be recaptured after the foraging trip to remove the recorders. The pups of the females would also be captured and marked for ID purposes. Research would occur on San Nicolas Island off the coast of California. Annually, up to 4,000 California sea lions, 100 harbor seals (
In compliance with the National Environmental Policy Act of 1969 (42 U.S.C. 4321
Concurrent with the publication of this notice in the
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice; receipt of application.
Notice is hereby given that the NOAA Office of Science and Technology (Ned Cyr, Responsible Party), 1315 East-West Highway, Silver Spring, MD 20910, has applied in due form for a permit to conduct research on sixteen species of marine mammals in the Pacific Ocean.
Written, telefaxed, or email comments must be received on or before June 13, 2016.
The application is available for review by selecting “Records Open for Public Comment” from the “Features” box on the Applications and Permits for Protected Species (APPS) home page,
These documents are also available upon written request or by appointment in the Permits and Conservation Division, Office of Protected Resources, NMFS, 1315 East-West Highway, Room 13705, Silver Spring, MD 20910; phone (301) 427-8401; fax (301) 713-0376.
Written comments on this application should be submitted to the Chief, Permits and Conservation Division, at the address listed above. Comments may also be submitted by facsimile to (301) 713-0376, or by email to
Those individuals requesting a public hearing should submit a written request to the Chief, Permits and Conservation Division at the address listed above. The request should set forth the specific reasons why a hearing on this application would be appropriate.
Sara Young or Carrie Hubard, (301) 427-8401.
The subject permit is requested under the authority of the Marine Mammal Protection Act of 1972, as amended (MMPA; 16 U.S.C. 1361
The applicant requests a five-year permit to conduct a research program involving studies of sound production, diving and other behavior, and responses to sound of marine mammals, including endangered species. The results would be integrated with related studies and directly contribute to conservation management for sound producers and regulatory agencies by identifying characteristics of target species that are critical for passive monitoring, detection, and/or density estimation; and, by demonstrating how specific sounds, including simulated military sonar, may evoke behavioral responses in marine mammals. The experimental design involves temporarily attaching individual recording tags to measure vocalization, behavior, and physiological parameters as well as sound exposure. Behavior will be measured before, during, and after carefully controlled exposures of sound in conventional playback experiments. Tagged subjects will be exposed to received sound levels up to 180 dB re: 1μPa. This study will involve various activities that could take animals by harassment, including close approaches, attachment of tags, and sound exposure. Small fragments of sloughed skin, which often remain attached to retrieved tags, would be used for genetic analyses. Target species include beaked whales and other odontocetes, key baleen whales, and pinniped species for whom such data have not been previously obtained; other marine species may be incidentally impacted. Please refer to the tables in the application for the numbers of marine mammals, by species and stock, proposed for this permit. The research will be focused in the waters within the U.S. Navy's Southern California Range Complex, and primarily near the vicinity of San Clemente Island northward to Monterey Bay.
NMFS prepared a draft environmental assessment (EA) under the National Environmental Policy Act of 1969 (42 U.S.C. 4321
Concurrent with the publication of this notice in the
Committee for Purchase From People Who Are Blind or Severely Disabled.
Proposed additions to and deletions from the Procurement List.
The Committee is proposing to add services to the Procurement List that will be furnished by nonprofit agencies employing persons who are blind or have other severe disabilities, and deletes products and a service previously furnished by such agencies.
Committee for Purchase From People Who Are Blind or Severely Disabled, 1401 S. Clark Street, Suite 715, Arlington, Virginia, 22202-4149.
Barry S. Lineback, Telephone: (703) 603-7740, Fax: (703) 603-0655, or email
This notice is published pursuant to 41 U.S.C. 8503 (a)(2) and 41 CFR 51-2.3. Its purpose is to provide interested persons an opportunity to submit comments on the proposed actions.
If the Committee approves the proposed additions, the entities of the Federal Government identified in this notice will be required to procure the services listed below from nonprofit agencies employing persons who are blind or have other severe disabilities.
The following services are proposed for addition to the Procurement List for production by the nonprofit agencies listed:
The following products and service are proposed for deletion from the Procurement List:
Committee for Purchase from People Who Are Blind or Severely Disabled.
Additions to and deletions from the procurement list.
This action adds services to the Procurement List that will be provided by nonprofit agencies employing persons who are blind or have other severe disabilities, and deletes products and services from the Procurement List previously furnished by such agencies.
Effective 6/12/2016.
Committee for Purchase From People Who Are Blind or Severely Disabled, 1401 S. Clark Street, Suite 715, Arlington, Virginia 22202-4149.
Barry S. Lineback, Telephone: (703) 603-7740, Fax: (703) 603-0655, or email
On 4/1/2016 (81 FR 18839-18840), the Committee for Purchase from People Who Are Blind or Severely Disabled published notice of proposed additions to the Procurement List.
After consideration of the material presented to it concerning capability of qualified nonprofit agencies to provide the services and impact of the additions on the current or most recent contractors, the Committee has determined that the services listed below are suitable for procurement by the Federal Government under 41 U.S.C. 8501-8506 and 41 CFR 51-2.4.
I certify that the following action will not have a significant impact on a substantial number of small entities.
The major factors considered for this certification were:
1. The action will not result in any additional reporting, recordkeeping or other compliance requirements for small entities other than the small organizations that will provide the services to the Government.
2. The action will result in authorizing small entities to provide the services to the Government.
3. There are no known regulatory alternatives which would accomplish the objectives of the Javits-Wagner-O'Day Act (41 U.S.C. 8501-8506) in connection with the services proposed for addition to the Procurement List.
Accordingly, the following services are added to the Procurement List:
On 4/8/2016 (81 FR 20624-20625), the Committee for Purchase from People Who Are Blind or Severely Disabled published notice of proposed deletions from the Procurement List.
After consideration of the relevant matter presented, the Committee has determined that the products and services listed below are no longer suitable for procurement by the Federal Government under 41 U.S.C. 8501-8506 and 41 CFR 51-2.4.
I certify that the following action will not have a significant impact on a substantial number of small entities.
The major factors considered for this certification were:
1. The action will not result in additional reporting, recordkeeping or other compliance requirements for small entities.
2. The action may result in authorizing small entities to furnish the products and services to the Government.
3. There are no known regulatory alternatives which would accomplish the objectives of the Javits-Wagner-O'Day Act (41 U.S.C. 8501-8506) in connection with the products and services deleted from the Procurement List.
Accordingly, the following products and services are deleted from the Procurement List:
10:00 a.m., Friday, May 20, 2016.
Three Lafayette Centre, 1155 21st Street NW., Washington, DC, 9th Floor Commission Conference Room.
Closed.
Surveillance, enforcement, and examinations matters. In the event that the time, date, or location of this meeting changes, an announcement of the change, along with the new time, date, and/or place of the meeting will be posted on the Commission's Web site at
Christopher Kirkpatrick, 202-418-5964.
Department of the Army, DoD.
Notice of availability.
The Department of the Army announces the availability of the Final Programmatic Environmental Impact Statement (PEIS) for proposed training mission and mission support activities at Fort Campbell, KY. Pursuant to the National Environmental Policy Act of 1969 (NEPA), the Final PEIS analyzes the potential impacts of training and mission support activities on the environmental resources of Fort Campbell and the surrounding region. The Final PEIS assesses the No Action Alternative, four action alternatives, and a fifth alternative that would implement all of the separate action alternatives. The Proposed Action would meet the Senior Commander's Soldier training requirements, support the Range Complex Master Plan, and streamline the NEPA analysis process for routine range and training land actions occurring at Fort Campbell.
No decision will be made until at least 30 days after publication of the Notice of Availability in the
Please send written comments to Mr. Gene Zirkle, NEPA/Wildlife Program Manager, Environmental Division, Building 2159 13th Street, Fort Campbell, KY 42223; or by email to
Please contact Mr. Gene Zirkle, NEPA/Wildlife Program Manager, Environmental Division, 270-798-9854, during normal working business hours Monday through Friday, 7:30 a.m. to 4:00 p.m. CST; or by email to
The Final PEIS has been prepared to meet the requirements of NEPA to evaluate the environmental and socioeconomic impacts, as well as cumulative impacts, of implementing the proposed actions at Fort Campbell. The Final PEIS takes into consideration comments received on the Draft PEIS. No substantial changes were made to the Final PEIS based on comments received during the Draft EIS comment period. The Final information includes impacts to, and mitigation for the Northern Long Eared Bat, which was listed as threatened after the Draft EIS was released. The resource areas evaluated include air quality, airspace, biological resources, cultural resources, energy, facilities, land use, hazardous materials/waste, noise, socioeconomics, soils, traffic and transportation, water resources, and wetland resources. There would be no significant impacts; however, moderate
Fort Campbell covers 105,068 acres in Kentucky and Tennessee. Fort Campbell is home to the 101st Airborne Division (Air Assault), the 5th Special Forces Group, 160th Special Operations Aviation Regiment, and other tenant units. The mission of Fort Campbell is primarily to support and train the units stationed on the installation in preparation for a variety of assigned combat and combat related missions.
The purpose of the Proposed Action is to provide the forces that train on Fort Campbell with state-of-the-art training facilities and ranges. The action would also implement site-specific range modernization needs contained within the Range Complex Master Plan. The Final PEIS will also support future decisions regarding routine range and training land actions occurring at Fort Campbell that are not covered under an existing NEPA analysis.
The Final PEIS analyzes the potential environmental impacts of the No Action Alternative—continuing existing training missions and environmental programs, and maintaining existing environmental conditions through current operational controls. The PEIS analyzes four alternatives and one alternative implementing all of these alternatives:
• Alternative 1—Construct and Operate Site-Specific Projects in Support of Soldier Training.
• Alternative 2—Create Adaptable Use Zones (AUZs) to Facilitate Future Modernization and Range Facility Construction.
• Alternative 3—Implement Routine Range and Training Land Actions and Environmental Stewardship Practices.
• Alternative 4—Evaluate the Reactivation of Installation Controlled Airspace.
• Alternative 5—Implement Action Alternatives 1-4.
The preferred alternative is Alternative 5.
The U.S. Army plans to issue a Record of Decision no earlier than 30 days after the date of the U.S. Environmental Protection Agency's Notice of Availability. The Final PEIS is available at
Defense Acquisition Regulations System, Department of Defense (DoD).
Notice and request for comments regarding a proposed revision of an approved information collection requirement.
In compliance with section 3506(c)(2)(A) of the Paperwork Reduction Act of 1995 (44 U.S.C. chapter 35), DoD announces the proposed revision of a public information collection requirement and seeks public comment on the provisions thereof.
DoD will consider all comments received by July 12, 2016.
You may submit comments, identified by OMB Control Number 0704-0441, using any of the following methods:
Comments received generally will be posted without change to
Ms. Jo Ann Reilly, at 571-372-6098. The information collection requirements addressed in this notice are available on the World Wide Web at:
This information collection includes requirements relating to DFARS part 246, Quality Assurance. The information collections under OMB Control Number 0704-0441 are expanded to pertain to all information that offerors or contractors must submit related to DFARS part 246 contract quality assurance programs. Therefore, this justification supports a request for renewal of OMB Control Number 0704-0441 to include the incorporation of the burden currently cleared under OMB Control Number 0704-0481, which expires June 30, 2017. Upon the renewal of OMB Control Number 0704-0441, OMB Control Number 0704-0481 and its associated burden will be discontinued.
a. 252.246-7003, Notification of Potential Safety Issues, requires contractors to provide notification of (1) all nonconformances for parts identified as critical safety items acquired by the Government under the contract, and (2) all nonconformances or deficiencies that may result in a safety impact for systems, or subsystems, assemblies, subassemblies, or parts integral to a system acquired by or serviced for the Government under the contract.
b. 252.246-7005, Notice of Warranty Tracking of Serialized Items, requires an offeror to provide with its offer, for each contract line item number, warranty tracking information for each warranted item.
c. 252.246-7006, Warranty Tracking of Serialized Items, requires contractors, for warranted items, to provide (1) the unique item identifier, and (2) the warranty repair source information and instructions.
Defense Acquisition Regulations System, Department of Defense (DoD).
Notice and request for comments regarding a proposed extension of an approved information collection requirement.
In compliance with Section 3506(c)(2)(A) of the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35), DoD announces the proposed extension of a public information collection requirement and seeks public comment on the provisions thereof.
DoD will consider all comments received by July 12, 2016.
You may submit comments, identified by OMB Control Number 0704-0434, using any of the following methods:
Comments received generally will be posted without change to
Mr. Dustin Pitsch, 571-372-6090. The information collection requirements addressed in this notice are available on the World Wide Web at:
The clause at DFARS 252.211-7006, Passive Radio Frequency Identification, requires the contractor to ensure that the data on each passive RFID tag are unique and conform to the requirements that they are readable and affixed to the appropriate location on the specific level of packaging in accordance with MIL-STD-129 tag placement specifications. The contractor shall encode an approved RFID tag using the appropriate instructions at the time of contract award. Regardless of the selected encoding scheme, the contractor is responsible for ensuring that each tag contains a globally unique identifier. The contractor shall electronically submit advance shipment notices with the RFID tag identification in advance of the shipment in accordance with the procedures at
Office of the Under Secretary of Defense for Personnel and Readiness, DoD.
Notice.
In compliance with the
Consideration will be given to all comments received by July 12, 2016.
You may submit comments, identified by docket number and title, by any of the following methods:
•
•
Any associated form(s) for this collection may be located within this same electronic docket and downloaded for review/testing. Follow the instructions at
To request more information on this proposed information collection or to obtain a copy of the proposal and associated collection instruments, please write to the Office of the Assistant Secretary of Defense for Readiness, Force Education and Training, Voluntary Education, ATTN: Ms. Dawn Bilodeau, Pentagon, Room 2E573, Washington, DC 20301-1500 or send email to project officer at:
President Barack Obama signed Executive Order 13607 on April 27, 2012 to address the problem of aggressive and deceptive targeting of Service members, veterans, and their families by some educational institutions. Section 4 of the Executive Order specifically calls for the creation of a robust, centralized complaint process for students receiving Federal military and veterans' educational benefits.
DoD, along with the participating Federal agencies identified in the Executive Order have determined that this complaint process, in addition to taking in complaints about abusive or deceptive practices by schools, must create an opportunity for schools to resolve those complaints, and must ensure that complaint data is accessible both to the relevant components at the Departments of Defense, Veterans Affairs, and Education that review schools for compliance and program eligibility, as well as the relevant law enforcement agencies that will prosecute any illegal practices. Beyond creation of this complaint process, the agencies seek to prevent abusive, deceptive, and fraudulent marketing practices through the following mechanisms: establishment of risk-based program reviews; limits on access to military installations by educational institutions; and the use of intellectual property and other legal protections to ensure Web sites and programs are not deceptively suggesting military affiliation or endorsement. The centralized complaint system will provide a resource for students receiving military and veteran educational benefits to effectively submit complaints against institutions they feel have acted deceptively or fraudulently. The first step is to make it easier for prospective and current military students and spouse-students to raise these concerns.
Respondents are military spouses who submit complaints via the Department of Defense (DoD) Postsecondary Education Complaint Intake form. The PECS Intake form is used to record complaints concerning educational institutions that military spouses feel have acted deceptively, aggressively or fraudulently towards them. The Intake form documents information such as the level of study of the student, the educational institution the student is attending, the type of education benefits being used, the branch of the military service the spouses' sponsor, the content of the complaint, and the preferred contact information for the person making the contact. Complaint Case Managers use information from the Intake form to track and manage cases and to coordinate a resolution with educational institutions, and to provide feedback to the respondent throughout the process and once a resolution has been reached.
Department of Defense.
Renewal of Federal Advisory Committee.
The Department of Defense (DoD) is publishing this notice to announce that it is renewing the charter for the U.S. Air Force Scientific Advisory Board (“the Board”).
Jim Freeman, Advisory Committee Management Officer for the Department of Defense, 703-692-5952.
This committee's charter is being renewed in accordance with the Federal Advisory Committee Act (FACA) of 1972 (5 U.S.C., Appendix, as amended) and 41 CFR 102-3.50(d). The charter and contact information for the Board's Designated Federal Officer (DFO) can be obtained at
The Board provides the Secretary of Defense and the Deputy Secretary of Defense, through the Secretary of the Air Force, independent advice and recommendations on matters relating to the Department of the Air Force's scientific, technical, manufacturing, acquisition, logistics, and business management functions, as well as other Department of the Air Force related
Department of Defense (DoD).
Notice of Federal Advisory Committee meeting.
The Department of Defense is publishing this notice to announce that the following Federal Advisory Committee meeting of the Defense Health Board will take place.
Defense Health Headquarters (DHHQ), Pavilion Salons B-C, 7700 Arlington Blvd., Falls Church, Virginia 22042 (escort required; see guidance in
The Executive Director of the Defense Health Board is Ms. Christine Bader, 7700 Arlington Boulevard, Suite 5101, Falls Church, Virginia 22042, (703) 681-6653, Fax: (703) 681-9539,
This meeting is being held under the provisions of the Federal Advisory Committee Act of 1972 (5 U.S.C., Appendix, as amended), the Government in the Sunshine Act of 1976 (5 U.S.C. 552b, as amended), and 41 CFR 102-3.150.
Additional information, including the agenda and electronic registration, is available at the DHB Web site,
The purpose of the meeting is to provide progress updates on specific taskings before the DHB. In addition, the DHB will receive information briefings on current issues or lessons learned related to military medicine, health policy, health research, disease/injury prevention, health promotion, and healthcare delivery.
Pursuant to 5 U.S.C. 552b and 41 CFR 102-3.155, in the interest of national security, the DoD has determined that the first presentation in the morning of June 2, 2016 will be closed to the public. The topic is a presentation on the mission and functions of the National Center for Medical Intelligence. The Assistant Secretary of Defense (Health Affairs), in consultation with the Office of the DoD General Counsel, has determined in writing that the public interest requires that the first presentation in the morning session on June 2, 2016 be closed to the public because it will concern matters listed in section 552b(c)(1) of title 5, United States Code. The classified materials are so inextricably intertwined with the unclassified material that they cannot be reasonably segregated into separate discussions without disclosing SECRET material. Specifically, the information presented meets criteria established by an Executive Order to be kept secret in the interest of national defense and foreign policy.
Pursuant to 5 U.S.C. 552b and 41 CFR 102-3.140 through 102-3.165 and subject to availability of space, the DHB meeting is open to the public from 10:15 a.m. to 11:45 a.m. on June 2, 2016, and from 12:45 p.m. to 5:00 p.m. The DHB will receive a progress update from the Health Care Delivery Subcommittee on the pediatric clinical preventive services review and an update from the Public Health Subcommittee on their review of improving Defense Health Program medical research processes. In addition, the DHB anticipates receiving information briefings on Defense Advanced Research Projects Agency medical research, the Army Study to Assess Risk and Resilience in Servicemembers (STARRS), the Infectious Disease Clinical Research Program, and Advances in the Use of Whole Blood for Combat Trauma Resuscitation. Any changes to the agenda can be found at the link provided in this
Pursuant to 5 U.S.C. 552b, and 41 CFR 102-3.140 through 102-3.165 and subject to availability of space, this meeting is open to the public. Seating is limited and is on a first-come basis. All
Individuals requiring special accommodations to access the public meeting should contact Ms. Kendal Brown at least five (5) business days prior to the meeting so that appropriate arrangements can be made.
Any member of the public wishing to provide comments to the DHB may do so in accordance with section 10(a)(3) of the Federal Advisory Committee Act, 41 CFR 102-3.105(j) and 102-3.140, and the procedures described in this notice.
Individuals desiring to provide comments to the DHB may do so by submitting a written statement to the DHB Designated Federal Officer (DFO) (see
If the written statement is not received at least five (5) business days prior to the meeting, the DFO may choose to postpone consideration of the statement until the next open meeting.
The DFO will review all timely submissions with the DHB President and ensure they are provided to members of the DHB before the meeting that is subject to this notice. After reviewing the written comments, the President and the DFO may choose to invite the submitter to orally present their issue during an open portion of this meeting or at a future meeting. The DFO, in consultation with the DHB President, may allot time for members of the public to present their issues for review and discussion by the Defense Health Board.
Department of Education (ED), Office of Elementary and Secondary Education (OESE).
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 June 13, 2016.
To access and review all the documents related to the information collection listed in this notice, please use
For specific questions related to collection activities, please contact Kimberly Smith, 202-453-6469.
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.
Environmental Protection Agency (EPA).
Notice.
EPA has authorized its contractor, Abt Associates of Bethesda, MD, to access information which has been submitted to EPA under all sections of the Toxic Substances Control Act (TSCA). Some of the information may be claimed or determined to be Confidential Business Information (CBI).
Access to the confidential data occurred on April 27, 2016.
This action is directed to the public in general. This action may, however, be of interest to all who manufacture, process, or distribute industrial chemicals. Since other entities may also be interested, the Agency has not attempted to describe all the specific entities that may be affected by this action.
The docket for this action, identified by docket identification (ID) number EPA-HQ-OPPT-2003-0004, is available at
Under EPA contract number EP-W-16-009, contractor Abt Associates of 4800 Montgomery Lane, Bethesda, MD and 55 Wheeler Street, Cambridge, MA is assisting the Office of Pollution Prevention and Toxics (OPPT) in the development of economic assessments; surveys; and non-regulatory activities that will require access to data and other confidential business information. The contractor is also assisting in evaluating the potential risks of new chemical substances including microorganisms and evaluating existing chemicals for risk and for the need to develop data bearing on such risks.
In accordance with 40 CFR 2.306(j), EPA has determined that under EPA contract number EP-W-16-009, Abt Associates required access to CBI submitted to EPA under all section(s) of TSCA to perform successfully the duties specified under the contract. Abt Associates personnel were given access to information submitted to EPA under all section(s) of TSCA. Some of the information may be claimed or determined to be CBI.
EPA is issuing this notice to inform all submitters of information under all sections of TSCA that EPA has provided Abt Associates access to these CBI materials on a need-to-know basis only. All access to TSCA CBI under this contract is taking place at EPA Headquarters and Abt Associates' sites located in Bethesda, MD and Cambridge, MA, in accordance with EPA's
Access to TSCA data, including CBI, will continue until March 30, 2021. If the contract is extended, this access will also continue for the duration of the extended contract without further notice.
Abt Associates personnel have signed nondisclosure agreements and were briefed on appropriate security procedures before they were permitted access to TSCA CBI.
15 U.S.C. 2601
Section 309(a) of the Clean Air Act requires that EPA make public its comments on EISs issued by other Federal agencies. EPA's comment letters on EISs are available at:
Revision to FR Notice Published 02/19/2016; U.S. Fish and Wildlife Service and the U.S. National Marine Fisheries Service jointly are reopening the comment period to end 06/08/2016.
Environmental Protection Agency (EPA).
Notice.
The Environmental Protection Agency has submitted an information collection request (ICR), “Title I of the Marine Protection, Research, and Sanctuaries Act” (EPA ICR No. 0824.06, OMB Control No. 2040-0008) to the Office of Management and Budget (OMB) for review and approval in accordance with the Paperwork Reduction Act (44 U.S.C. 3501
Additional comments may be submitted on or before June 13, 2016.
Submit your comments, referencing Docket ID No. EPA-HQ-OW-2015-0613, online using
EPA's policy is that all comments received will be included in the public docket without change including any personal information provided, unless the comment includes profanity, threats, information claimed to be Confidential Business Information (CBI) or other information whose disclosure is restricted by statute.
David Redford, Oceans and Coastal Protection Division, Environmental Protection Agency, 4504T 1200 Pennsylvania Avenue NW., Washington, DC 20460; telephone 202-566-1288; email address:
Supporting documents which explain in detail the information that the EPA will be collecting are available in the public docket for this ICR. The docket can be viewed online at
Environmental Protection Agency (EPA).
Notice.
The Environmental Protection Agency has submitted an information collection request (ICR), “Brownfields Program—Accomplishment Reporting (Renewal)” (EPA ICR No. 2104.06, OMB Control No. 2050-0192) to the Office of Management and Budget (OMB) for review and approval in accordance with the Paperwork Reduction Act (44 U.S.C. 3501
Additional comments may be submitted on or before June 13, 2016.
Submit your comments, referencing Docket ID Number EPA-HQ-SFUND-2012-0104, to (1) EPA online using
EPA's policy is that all comments received will be included in the public docket without change including any personal information provided, unless the comment includes profanity, threats, information claimed to be Confidential Business Information (CBI) or other information whose disclosure is restricted by statute.
Kelly Gorini, Office of Brownfields and Land Revitalization, (5105T), Environmental Protection Agency, 1200 Pennsylvania Ave. NW., Washington, DC 20460; telephone number: (202)-566-1702; fax number: (202)-566-1476; email address:
Supporting documents which explain in detail the information that the EPA will be collecting are available in the public docket for this ICR. The docket can be viewed online at
Under CERCLA 104(k), states, tribes, local governments, and other eligible entities may receive assessment cooperative agreements to inventory, characterize, assess, and conduct planning and community involvement related to brownfields properties; cleanup cooperative agreements to carry out cleanup activities at brownfields properties; cooperative agreements to capitalize revolving loan funds and provide subawards for cleanup activities; area-wide planning cooperative agreements to develop revitalization plans for brownfields; and environmental workforce and development job training and placement programs. Under CERCLA 128(a), states and tribes may receive cooperative agreements to establish and enhance their response programs.
Cooperative agreement recipients (“recipients”) have general reporting and record keeping requirements as a condition of their cooperative agreement that result in burden. A portion of this reporting and record keeping burden is authorized under 2 CFR 200.328, 200.333 and 200.335 and identified in the EPA's general grants ICR (OMB Control Number 2030-0020). However, EPA also requires Brownfields program recipients to maintain and report additional information to EPA on the uses and accomplishments associated with funded brownfields activities. EPA uses several forms to assist recipients in reporting the information and to ensure consistency of the information collected. EPA uses this information to meet Federal stewardship responsibilities to manage and track how program funds are being spent, to evaluate the performance of the Brownfields Cleanup and Land Revitalization Program, to meet the Agency's reporting requirements under the Government Performance Results Act, and to report to Congress and other program stakeholders on the status and accomplishments of the program.
Environmental Protection Agency (EPA).
Notice.
The Environmental Protection Agency has submitted an information collection request (ICR), “Solid Waste Disposal Facility Criteria (Renewal)” (EPA ICR No. 1381.11, OMB Control No. 2050-0122) to the Office of Management and Budget (OMB) for review and approval in accordance with the Paperwork Reduction Act (44 U.S.C. 3501
Additional comments may be submitted on or before June 13, 2016.
Submit your comments, referencing Docket ID Number EPA-HQ-RCRA-2016-0071, to (1) EPA online using
EPA's policy is that all comments received will be included in the public docket without change including any personal information provided, unless the comment includes profanity, threats, information claimed to be Confidential Business Information (CBI) or other information whose disclosure is restricted by statute.
Craig Dufficy, Materials Recovery and Waste Management Division, Office of Resource Conservation and Recovery, Mail Code 5304P, Environmental Protection Agency, 1200 Pennsylvania Ave. NW., Washington, DC 20460; telephone number: 703-308-9037; fax number: 703-308-0514; email address:
Supporting documents which explain in detail the information that the EPA will be collecting are available in the public docket for this ICR. The docket can be viewed online at
Export-Import Bank of the United States.
Submission for OMB review and comments request.
The Export-Import Bank of the United States (Ex-Im Bank), as part of its continuing effort to reduce paperwork and respondent burden, invites the general public and other Federal Agencies to comment on the proposed information collection, as required by the Paperwork Reduction Act of 1995.
Financial institutions interested in becoming an Approved Finance Provider (AFP) with EXIM Bank must complete this application in order to obtain approval to make loans under EXIM Bank insurance policies and/or enter into one or more Master Guarantee Agreements (MGA) with EXIM Bank. An AFP may participate in the Medium-Term Insurance, Bank Letter of Credit, and Financial Institution Buyer Credit programs as an insured lender, while AFPs approved for an MGA may apply for multiple loan or lease transactions to be guaranteed by EXIM Bank.
EXIM Bank uses the information provided in the form and the supplemental information required to be submitted with the form to determine whether the lender qualifies to participate in its lender insurance and guarantee programs. The details are necessary to evaluate whether the lender has the capital to fund potential transactions, proper due diligence procedures, and the monitoring capacity to carry out transactions.
The information collection tool can be reviewed at:
Comments must be received on or before June 13, 2016 to be assured of consideration.
Comments may be submitted electronically on
This form affects entities involved in the export of U.S. goods and services.
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 12, 2016. If you anticipate that you will be submitting comments, but find it difficult to do so within the period of time allowed by this notice, 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.
Based upon the foregoing, the Receiver has determined that the continued existence of the receivership will serve no useful purpose. Consequently, notice is given that the receivership shall be terminated, to be effective no sooner than thirty days after the date of this Notice. If any person wishes to comment concerning the termination of the receivership, such comment must be made in writing and sent within thirty days of the date of this Notice to: Federal Deposit Insurance Corporation, Division of Resolutions and Receiverships, Attention: Receivership Oversight Department 34.1, 1601 Bryan Street, Dallas, TX 75201.
No comments concerning the termination of this receivership will be considered which are not sent within this time frame.
Federal Deposit Insurance Corporation.
Update Listing of Financial Institutions in Liquidation.
Notice is hereby given that the Federal Deposit Insurance Corporation (Corporation) has been appointed the sole receiver for the following financial institutions effective as of the Date Closed as indicated in the listing. This list (as updated from time to time in the
Based upon the foregoing, the Receiver has determined that the continued existence of the receivership will serve no useful purpose. Consequently, notice is given that the receivership shall be terminated, to be effective no sooner than thirty days after the date of this Notice. If any person wishes to comment concerning the termination of the receivership, such comment must be made in writing and sent within thirty days of the date of this Notice to: Federal Deposit Insurance Corporation, Division of Resolutions and Receiverships, Attention: Receivership Oversight Department 32.1, 1601 Bryan Street, Dallas, TX 75201.
No comments concerning the termination of this receivership will be considered which are not sent within this time frame.
The Federal Deposit Insurance Corporation (FDIC), as Receiver for 10292 The Peoples Bank, Winder, Georgia (Receiver) has been authorized to take all actions necessary to terminate the receivership estate of The Peoples Bank (Receivership Estate); the Receiver has made all dividend distributions required by law.
The Receiver has further irrevocably authorized and appointed FDIC-Corporate as its attorney-in-fact to execute and file any and all documents that may be required to be executed by the Receiver which FDIC-Corporate, in its sole discretion, deems necessary; including but not limited to releases, discharges, satisfactions, endorsements, assignments and deeds.
Effective May 1, 2016, the Receivership Estate has been terminated, the Receiver discharged, and the Receivership Estate has ceased to exist as a legal entity.
Federal Election Commission.
Policy statement.
The Federal Election Commission (“Commission”) adopted a program on August 1, 2011, providing for a means by which persons and entities may have a legal question considered by the Commission earlier in both the report review process and the audit process. On October 23, 2013, the Commission revised this policy to provide an alternative electronic means to file a request with the Commission. This new policy is identical to the October 23, 2013 program, except that it makes two modifications: (1) To clarify that requests for consideration be submitted to the Commission Secretary to ensure that such request are processed in timely manner, and (2) to build five business days into the program to allow time for informal resolution of matters.
Effective May 13, 2016.
Mr. Lorenzo Holloway, Assistant General Counsel, or Margaret Forman, Attorney, 999 E Street NW., Washington, DC 20463, (202) 694-1650 or (800) 424-9530.
On August 1, 2011, the Commission adopted a program providing for a means by which persons and entities may have a legal question considered by the Commission earlier in both the report review process and the audit process. Specifically, when the Office of Compliance (“OC”) (which includes the Reports Analysis Division and the Audit Division) requests that a person or entity take corrective action during the report review or audit process, if the person or entity disagrees with the request based upon a material dispute on a question of law, the person or entity may seek Commission consideration of the issue pursuant to this procedure. This Commission is now revising this program. The October 23, 2013 revision of the program was identical to that August 1, 2011 program, except that it provided alternative means to file a request with the Commission. This change was made to address and clarify timeliness issues due to delays in the processing and receipt of requests mailed to the Commission, by encouraging requests to be filed electronically by email. Processing delays can result in an untimely submission of a request under the program. Persons and entities making such a request may not be aware that these processing delays can occur when documents are sent via first class mail to a federal government agency. As currently revised, the program is identical to the October 23, 2013 program, except that it makes two modifications: (1) To clarify that requests for consideration be submitted to the Commission Secretary to ensure that such request are processed in timely manner, and (2) to build five business days into the program to allow time for informal resolution of matters. The first change was made to address and clarify that these requests must be sent to the attention of the Commission Secretary, either through the dedicated email address,
Within 15 business days of a determination by the Reports Analysis Division or Audit Division that a person or entity remains obligated to take corrective action to resolve an issue that has arisen during the report review or audit process, the person or entity may seek Commission consideration if a material dispute on a question of law exists with respect to the recommended corrective action.
Any request for consideration by a Committee during the report review process or the audit process shall be limited to questions of law on material issues, when: (1) The legal issue is novel, complex, or pertains to an unsettled question of law; (2) there has been intervening legislation, rulemaking, or litigation since the Commission last considered the issue; or (3) the request to take corrective action is contrary to or otherwise inconsistent with prior Commission matters dealing with the same issue. The request must specify the question of law at issue and why it is subject to Commission consideration. It should discuss, when appropriate, prior Commission matters raising the same issue, relevant court decisions, and any other analysis of the issue that may assist the Commission in its decision making. The Commission will not consider factual disputes under this procedure, and any requests for consideration other than on questions of law on material issues will not be granted.
All requests, including any extension requests, must be received by the Commission within 15 business days of the determination of corrective action. All requests must be directed to the attention of the Commission Secretary. Requestors may submit requests electronically via email. If a Requestor chooses to submit a request electronically via email, the email must be sent to
Any request for an extension of time to file will be considered on a case-by-case basis and will only be granted if good cause is shown, and the Commission approves the extension request by four affirmative votes within five business days of receipt of the extension request. Within five business days of notification to the Commissioners of a request for consideration of a legal question, if two or more Commissioners agree that the Commission should consider the request, OGC may, at that time, attempt to resolve the matter informally over the course of five business days. Within 15 business days from the date upon which OC and OGC conclude that the matter cannot be resolved informally, or from the expiration of the five business day period, whichever occurs first, OGC will prepare and circulate a recommendation in accordance with all applicable Commission Directives. If the matter is resolved informally, OC and OGC will notify the Commission that the matter has been resolved, and notify the Requestor in writing of the notification to the Commission. Informal resolution of a matter does not prevent the Requestor from seeking Commission consideration, in an additional or subsequent determination, subject to the requirements of this program.
After the recommendation is circulated for a Commission vote, in the event of an objection, the matter shall be automatically placed on the next meeting agenda consistent with the Sunshine Act, 5 U.S.C. 552b(g), and applicable Commission regulations, 11 CFR part 2. However, if within 60 business days of the filing of a request for consideration, the Commission has not resolved the issue or provided guidance on how to proceed with the matter by the affirmative vote of four or more Commissioners, the OC may proceed with the matter. After the 60 business days has elapsed, any requestor will be provided a copy of OGC's recommendation memorandum and an accompanying vote certification, or if no such certification exists, a cover page stating the disposition of the memoranda. Confidential information will be redacted as necessary.
After the request review process has concluded, or a Final Audit Report has been approved, a copy of the request for consideration, as well as the recommendation memorandum and accompanying vote certification or disposition memorandum, will be placed with the Committee's filings or audit documents on the Commission's Web site within 30 days. These materials will also be placed on the Commission's Web page dedicated to legal questions considered by the Commission under this program.
This procedure is not intended to circumvent or supplant the Advisory Opinion process provided under 52 U.S.C. 30108 and 11 CFR part 112. Accordingly, any legal issues that qualify for consideration under the Advisory Opinion process are not appropriate for consideration under this new procedure. Additionally, this policy statement does not supersede the procedures regarding eligibility and entitlement to public funds set forth in Commission Directive 24 and 11 CFR 9005.1, 9033.4, 9033.6 or 9033.10.
No later than July 1 of each year, the OC and OGC shall jointly prepare and distribute to the Commission a written report containing a summary of the requests made under the program over the previous year and a summary of the Commission's consideration of those requests and any action taken thereon. The annual report shall also include the Chief Compliance Officer's and the General Counsel's assessment of whether, and to what extent, the program has promoted efficiency and fairness in both the Commission's report review process and in the audit process, as well as their recommendations, if any, for modifications to the program.
The Commission may terminate or modify this program through additional policy statements at any time by an affirmative vote of four of its members.
On behalf of the Commission.
10:00 a.m., Thursday, May 26, 2016.
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.
10:00 a.m., Wednesday, May 25, 2016.
The Richard V. Backley Hearing Room, Room 511N, 1331 Pennsylvania Avenue NW., Washington, DC 20004 (enter from F Street entrance).
Open.
The Commission will hear oral argument in the matter
Any person attending this oral argument 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)
The notificants listed below have applied under the Change in Bank Control Act (12 U.S.C. 1817(j)) and § 225.41 of the Board's Regulation Y (12 CFR 225.41) to acquire shares of a bank or bank holding company. The factors that are considered in acting on the notices are set forth in paragraph 7 of the Act (12 U.S.C. 1817(j)(7)).
The notices are available for immediate inspection at the Federal Reserve Bank indicated. The notices also will be available for inspection at the offices of the Board of Governors. Interested persons may express their views in writing to the Reserve Bank indicated for that notice or to the offices of the Board of Governors. Comments must be received not later than June 3, 2016.
A. Federal Reserve Bank of St. Louis (Yvonne Sparks, Community Development Officer) P.O. Box 442, St. Louis, Missouri 63166-2034:
1.
Centers for Medicare & Medicaid Services (CMS), HHS.
Notice.
This notice announces a public meeting to receive comments and recommendations (including accompanying data on which recommendations are based) from the public on the appropriate basis for establishing payment amounts for new or substantially revised Healthcare Common Procedure Coding System (HCPCS) codes being considered for Medicare payment under the clinical laboratory fee schedule (CLFS) for calendar year (CY) 2017. This meeting also provides a forum for those who submitted certain reconsideration requests regarding final determinations made last year on new test codes and for the public to provide comment on the requests.
The public meeting will be held in the main auditorium of the Centers for Medicare & Medicaid Services (CMS), Central Building, 7500 Security Boulevard, Baltimore, Maryland 21244-1850.
Glenn McGuirk, (410) 786-5723.
Section 531(b) of the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA) (Pub. L. 106-554) requires the Secretary of the Department of Health and Human Services (the Secretary) to establish procedures for coding and payment determinations for new clinical diagnostic laboratory tests under Part B of title XVIII of the Social Security Act (the Act) that permit public consultation in a manner consistent with the procedures established for implementing coding modifications for International Classification of Diseases (ICD-9-CM). The procedures and public meeting announced in this notice for new tests are in accordance with the procedures published on November 23, 2001 in the
Section 942(b) of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) (Pub. L. 108-173) added section 1833(h)(8) of the Act. Section 1833(h)(8)(A) of the Act requires the Secretary to establish by regulation procedures for determining the basis for, and amount of, payment for any clinical diagnostic laboratory test with respect to which a new or substantially revised Healthcare Common Procedure Coding System (HCPCS) code is assigned on or after January 1, 2005 (hereinafter referred to as “new tests”). A code is considered to be substantially revised if there is a substantive change to the definition of the test or procedure to which the code applies (such as, a new analyte or a new methodology for measuring an existing analyte-specific test). (See section 1833(h)(8)(E)(ii) of the Act.)
Section 1833(h)(8)(B) of the Act sets forth the process for determining the basis for, and the amount of, payment for new tests. Pertinent to this notice, section 1833(h)(8)(B)(i) and (ii) of the Act requires the Secretary to make available to the public a list that includes any such test for which
Two bases of payment are used to establish payment amounts for new tests. The first basis, called “crosswalking,” is used when a new test code is determined to be comparable to an existing test code, multiple existing test codes, or a portion of an existing test code. The new test code is assigned the local fee schedule amounts and the national limitation amount of the existing test. Payment for the new test is made at the lesser of the billed amount, the local fee schedule amount, or the national limitation amount. (See § 414.508(a).)
The second basis called “gapfilling,” is used when no comparable existing test is available. When using this method, instructions are provided to each Part A and Part B Medicare Administrative Contractor (MAC) to determine a payment amount for its Part B geographic area) for use in the first year. The contractor-specific amounts are established for the new test code using the following sources of information, if available: (1) Charges for the test and routine discounts to charges; (2) resources required to perform the test; (3) payment amounts determined by other payers; and (4) charges, payment amounts, and resources required for other tests that may be comparable or otherwise relevant. (See § 414.508(b) and § 414.509 for more information regarding the gapfilling process.)
Under section 1833(h)(8)(B)(iv) of the Act, the Secretary, taking into account the comments and recommendations (and accompanying data) received at the public meeting, develops and makes available to the public a list of proposed determinations with respect to the appropriate basis for establishing a payment amount for each code, an explanation of the reasons for each determination, the data on which the determinations are based, and a request for public written comments on the proposed determinations. Under section 1833(h)(8)(B)(v) of the Act, taking into account the comments received on the proposed determinations during the public comment period, the Secretary then develops and makes available to the public a list of final determinations of final payment amounts for new test codes along with the rationale for each determination, the data on which the determinations are based, and responses to comments and suggestions received from the public.
After the final determinations have been posted on the CMS Web site, the public may request reconsideration of the basis and amount of payment for a new test as set forth in § 414.509. Pertinent to this notice, those requesting that CMS reconsider the basis for payment or, for crosswalking, reconsider the payment amount as set forth in § 414.509(a) and (b)(1) may present their reconsideration requests at the following year's public meeting provided that the requestor made the request to present at the public meeting in the written reconsideration request. For purposes of this notice, we refer to these codes as the “reconsidered codes.” The public may comment on the reconsideration requests. (See the November 27, 2007 CY 2008 Physician Fee Schedule final rule with comment period (72 FR 66275 through 66280) for more information on these procedures.)
We are following our usual process, including an annual public meeting to determine the appropriate basis and payment amount for new and reconsidered test codes under the CLFS for CY 2017.
This meeting is open to the public. The on-site check-in for visitors will be held from 8:30 a.m. to 9:00 a.m., followed by opening remarks. Registered persons from the public may discuss and make recommendations for specific new and reconsidered test codes for the CY 2017 CLFS.
We note that the July 2016 Clinical Diagnostic Laboratory Tests (CDLT) Advisory Panel meeting and the laboratory public meeting will be a joint meeting this year, on July 18, 2016. The announcement for the CDLT Advisory Panel meeting will be included in a separate
Because of time constraints, presentations must be brief, lasting no longer than 10 minutes, and must be accompanied by three written copies. In addition, presenters should make copies available for approximately 50 meeting participants, since CMS will not be providing additional copies. Written presentations must be electronically submitted to CMS on or before July 1, 2016. Presentation slots will be assigned on a first-come, first-served basis. In the event that there is not enough time for presentations by everyone who is interested in presenting, CMS will gladly accept written presentations from those who were unable to present due to time constraints. Presentations should be sent via email to Glenn McGuirk, at
(1) Reconsidered or new test codes and descriptor.
(2) Test purpose and method.
(3) Costs.
(4) Charges.
(5) Recommendation with rationale for one of the two bases (crosswalking or gapfilling) for determining payment for reconsidered and new tests.
Additionally, the presenters should provide the data on which their recommendations are based. Written presentations from the public meeting will be available upon request, via email to Glenn McGuirk at
Taking into account the comments and recommendations (and accompanying data) received at the public meeting, we intend to post our proposed determinations with respect to the appropriate basis for establishing a payment amount for each new test code and our preliminary determinations with respect to the reconsidered codes along with an explanation of the reasons for each determination, the data on which the determinations are based, and a request for public written comments on these determinations on the CMS Web site by early September 2016. This Web site can be accessed at
The Division of Ambulatory Services in the CMS Center for Medicare is coordinating the public meeting registration. Beginning June 6, 2016, registration may be completed on-line at the following Web site:
• Name.
• Company name.
• Address.
• Telephone numbers.
• Email addresses.
When registering, individuals who want to make a presentation must also specify, which new test codes they will be presenting comments. A confirmation will be sent upon receipt of the registration. Individuals must register by the date specified in the
The meeting will be held in a Federal government building; therefore, Federal security measures are applicable. In planning your arrival time, we recommend allowing additional time to clear security. It is suggested that you arrive at the CMS facility between 8:15 a.m. and 8:30 a.m., so that you will be able to arrive promptly at the meeting by 9:00 a.m. Individuals who are not registered in advance will not be permitted to enter the building and will be unable to attend the meeting. The public may not enter the building earlier than 8:15 a.m. (45 minutes before the convening of the meeting).
Security measures include the following:
• Presentation of government-issued photographic identification to the Federal Protective Service or Guard Service personnel. Persons without proper identification may be denied access to the building.
• Interior and exterior inspection of vehicles (this includes engine and trunk inspection) at the entrance to the grounds. Parking permits and instructions will be issued after the vehicle inspection.
• Passing through a metal detector and inspection of items brought into the building. We note that all items brought to CMS, whether personal or for the purpose of demonstration or to support a demonstration, are subject to inspection. We cannot assume responsibility for coordinating the receipt, transfer, transport, storage, set-up, safety, or timely arrival of any personal belongings or items used for demonstration or to support a demonstration.
Individuals attending the meeting who are hearing or visually impaired and have special requirements, or a condition that requires special assistance, should provide that information upon registering for the meeting. The deadline for registration is listed in the
In compliance with the requirements of Section 506(c)(2)(A) of the Paperwork Reduction Act of 1995, the Administration for Children and Families is soliciting public comment on the specific aspects of the information collection described above. Copies of the proposed collection of information can be obtained and comments may be forwarded by writing
The Department specifically requests comments 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) 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. Consideration will be given to comments and suggestions submitted within 60 days of this publication.
Food and Drug Administration, HHS.
Notice of availability.
The Food and Drug Administration (FDA or we) is announcing the availability of a guidance for industry entitled “Frequently Asked Questions About Medical Foods; Second Edition.” FDA published earlier versions of the guidance in May 1997 and May 2007. The second edition of the guidance provides responses to additional questions regarding the definition and labeling of medical foods and updates some prior responses.
Submit either electronic or written comments on FDA guidances at any time.
You may submit comments as follows:
Submit electronic comments in the following way:
• Federal eRulemaking Portal:
• If you want to submit a comment with confidential information that you do not wish to be made available to the public, submit the comment as a written/paper submission and in the manner detailed (see “Written/Paper Submissions” and “Instructions”).
Submit written/paper submissions as follows:
• Mail/Hand delivery/Courier (for written/paper submissions): Division of Dockets Management (HFA-305), Food and Drug Administration, 5630 Fishers Lane, Rm. 1061, Rockville, MD 20852.
• For written/paper comments submitted to the Division of Dockets Management, FDA will post your comment, as well as any attachments, except for information submitted, marked and identified, as confidential, if submitted as detailed in “Instructions.”
• Confidential Submissions—To submit a comment with confidential information that you do not wish to be made publicly available, submit your comments only as a written/paper submission. You should submit two copies total. One copy will include the information you claim to be confidential with a heading or cover note that states “THIS DOCUMENT CONTAINS CONFIDENTIAL INFORMATION.” The Agency will review this copy, including the claimed confidential information, in its consideration of comments. The second copy, which will have the claimed confidential information redacted/blacked out, will be available for public viewing and posted on
Submit written requests for single copies of the guidance to Office of Nutrition and Food Labeling, Center for Food Safety and Applied Nutrition (HFS-850), Food and Drug Administration, 5100 Paint Branch Pkwy., College Park, MD 20740. Send two self-addressed adhesive labels to assist that office in processing your request. See the
Shawne Suggs-Anderson, Center for Food Safety and Applied Nutrition (HFS-850), Food and Drug Administration, 5100 Paint Branch Pkwy., College Park, MD 20740, 240-402-1451.
We are announcing the availability of a guidance for industry, entitled “Frequently Asked Questions About Medical Foods; Second Edition.” We are issuing this guidance consistent with our good guidance practices regulation
In the
This guidance is intended to provide industry with a convenient place to find answers to frequently asked questions about medical foods. FDA published earlier versions of the guidance in May 1997 and May 2007. This guidance is a second edition of the May 2007 guidance entitled “Guidance for Industry: Frequently Asked Questions About Medical Foods.” The second edition of the guidance provides responses to additional questions regarding the definition and labeling of medical foods and updates some of the prior responses. The second edition also provides FDA's thinking relating to the labeling of medical foods to be used under supervision by a physician, whether medical foods can be labeled with “Rx Only,” and types of diseases and conditions that a medical food could be used to manage.
We received numerous comments on the draft guidance and have modified the final guidance where appropriate. In addition, we made editorial changes to improve clarity. The guidance announced in this notice finalizes the draft guidance dated August 2013.
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 101.3, 101.4, 101.5, 101.15, and 101.105 have been approved under OMB control number 0910-0381. The collection of information under 21 CFR 1, part 1 subpart H has been approved under OMB control number 0910-0502. The collections of information in 21 CFR 113.100 and 114.100 (a) through (d) have been approved under OMB control number 0910-0037.
Persons with access to the Internet may obtain the guidance at either
Food and Drug Administration, HHS.
Notice.
The Food and Drug Administration (FDA) is announcing that a proposed collection of information has been submitted to the Office of Management and Budget (OMB) for review and clearance under the Paperwork Reduction Act of 1995 (the PRA).
Fax written comments on the collection of information by June 13, 2016.
To ensure that comments on the information collection are received, OMB recommends that written comments be faxed to the Office of Information and Regulatory Affairs, OMB, Attn: FDA Desk Officer, FAX: 202-395-7285, or emailed to
FDA PRA Staff, Office of Operations, Food and Drug Administration, 8455 Colesville Rd., COLE-14526, Silver Spring, MD 20993-0002,
In compliance with 44 U.S.C. 3507, FDA has submitted the following proposed collection of information to OMB for review and clearance.
Section 403(r)(6) of the FD&C Act (21 U.S.C. 343(r)(6)) and its implementing regulation, 21 CFR 101.93, require that we be notified by the manufacturer, packer, or distributor of a dietary supplement that it is marketing a dietary supplement product that bears on its label or in its labeling a statement provided for in section 403(r)(6) of the FD&C Act. These provisions require that we be notified, with a submission about such statements, no later than 30 days after the first marketing of the dietary supplement. Information that is required in the submission includes: (1) The name and address of the manufacturer, packer, or distributor of the dietary supplement product; (2) the text of the statement that is being made; (3) the name of the dietary ingredient or supplement that is the subject of the statement; (4) the name of the dietary supplement (including the brand name); and (5) the signature of a responsible individual or the person who can certify the accuracy of the information presented, and who must certify that the information contained in the notice is complete and accurate, and that the notifying firm has substantiation that the statement is truthful and not misleading.
We have developed an electronic form (Form FDA 3955) that interested persons will be able to use to electronically submit their notifications to us via FDA's Unified Registration and Listing System (FURLS). Firms that prefer to submit a paper notification in a format of their own choosing will still have the option to do so, however. Form FDA 3955 prompts a respondent to include certain elements in their structure/function claim notification (SFCN) described in § 101.93 in a standard format electronically and helps the respondent organize their SFCN to include only the information needed for our review of the claim. Note that the SFCN, whether electronic or paper, is used for all claims made pursuant to section 403(r)(6) of the FD&C Act, including nutrient deficiency claims and general well-being claims in addition to structure/function claims. The electronic form, and any optional elements that would be prepared as attachments to the form (
In the
We estimate the burden of this collection of information as follows:
We believe that there will be minimal burden on the industry to generate information to meet the notification requirements of section 403(r)(6) of the FD&C Act by submitting information regarding section 403(r)(6) of the FD&C Act statements on labels or in labeling of dietary supplements. We also believe that submission via FURLS will not affect the burden estimates. We are requesting only information that is immediately available to the manufacturer, packer, or distributor of the dietary supplement that bears such a statement on its label or in its labeling. We estimate that, each year, approximately 2,200 firms will submit the information required by section 403(r)(6) of the FD&C Act. This estimate is based on the average number of notification submissions received by us in the preceding 3 years. We estimate that a firm will require 0.75 hours to gather the information needed and prepare a communication to us, for a total of 1,650 hours (2,200 × 0.75).
Food and Drug Administration, HHS.
Notice; renewal of advisory committee.
The Food and Drug Administration (FDA) is announcing the renewal of the Pulmonary-Allergy Drugs Advisory Committee by the Commissioner of Food and Drugs (the Commissioner). The Commissioner has determined that it is in the public interest to renew the Pulmonary-Allergy Drugs Advisory Committee for an additional 2 years beyond the charter expiration date. The new charter will be in effect until May 30, 2018.
Authority for the Pulmonary-Allergy Drugs Advisory Committee will expire on May 30, 2016, unless the Commissioner formally determines that renewal is in the public interest.
Cindy Hong, Center for Drug Evaluation and Research, Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 31, Rm. 2417, Silver Spring, MD 20993-0002, 301-796-9001,
Issued in 41 CFR 102-3.65 and approval by the Department of Health and Human Services issued in 45 CFR part 11 and by the General Services Administration, FDA is announcing the renewal of the Pulmonary-Allergy Drugs Advisory Committee. The committee is a discretionary Federal advisory committee established to provide advice to the Commissioner. The Pulmonary-Allergy Drugs Advisory Committee advises the Commissioner or designee in discharging responsibilities as they relate to helping to ensure safe and effective drugs for human use and, as required, any other product for which the Food and Drug Administration has regulatory responsibility. The Committee reviews and evaluates available data concerning the safety and effectiveness of marketed and investigational human drug products for use in the treatment of pulmonary disease and diseases with allergic and/or immunologic mechanisms and makes appropriate recommendations to the Commissioner of Food and Drugs.
The Committee shall consist of a core of 11 voting members including the Chair. Members and the Chair are selected by the Commissioner or designee from among authorities knowledgeable in the fields of pulmonary medicine, allergy, clinical immunology, and epidemiology or statistics. Members will be invited to serve for overlapping terms of up to four years. Almost all non-Federal members of this committee serve as Special Government Employees. The core of voting members may include one technically qualified member, selected by the Commissioner or designee, who is identified with consumer interests and is recommended by either a consortium of consumer-oriented organizations or other interested persons. In addition to the voting members, the Committee may include one non-voting member who is identified with industry interests.
Further information regarding the most recent charter and other information can be found at
This document is issued under the Federal Advisory Committee Act (5 U.S.C. app.). For general information related to FDA advisory committees, please visit us at
Food and Drug Administration, HHS.
Notice.
The Food and Drug Administration (FDA) is announcing the availability of a draft guidance entitled “Infectious Disease Next Generation Sequencing Based Diagnostic Devices: Microbial Identification and Detection of Antimicrobial Resistance and Virulence Markers.” This draft guidance provides recommendations to assist industry in designing studies to establish the analytical and clinical performance characteristics of infectious disease next generation sequencing- based diagnostic devices for microbial identification and detection of antimicrobial resistance and virulence markers. This draft guidance is neither final nor is it in effect at this time.
Although you can comment on any guidance at any time (
You may submit comments as follows:
Submit electronic comments in the following way:
•
• If you want to submit a comment with confidential information that you do not wish to be made available to the public submit the comment as a written/paper submission and in the manner detailed (see “Written/Paper Submissions” and “Instructions”).
Submit written/paper submissions as follows:
•
• For written/paper comments submitted to the Division of Dockets Management, FDA will post your comment, as well as any attachments, except for information submitted, marked and identified, as confidential, if submitted as detailed in “Instructions.”
• Confidential Submissions—To submit a comment with confidential information that you do not wish to be made publicly available submit your comments only as a written/paper submission. You should submit two copies total. One copy will include the information you claim to be confidential with a heading or cover note that states “THIS DOCUMENT CONTAINS CONFIDENTIAL INFORMATION”. The Agency will review this copy, including the claimed confidential information, in its consideration of comments. The second copy, which will have the claimed confidential information redacted/blacked out, will be available for public viewing and posted on
Submit written requests for single copies of the guidance to the Office of the Center Director, Guidance and Policy Development, Center for Devices and Radiological Health, Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 66, rm. 5431, Silver Spring, MD 20993-0002. Send one self-addressed adhesive label to assist that office in processing your requests. See the
Heike Sichtig, Center for Devices and Radiological Health, Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 66, rm. 4526, Silver Spring, MD 20993-0002, 301-796-4574.
This draft guidance provides recommendations to assist industry in designing studies to establish the analytical and clinical performance characteristics of “Infectious Disease Next Generation Sequencing Based Diagnostic Devices” for microbial identification and detection of antimicrobial resistance and virulence markers (hereinafter referred to as “Infectious Disease NGS Dx devices”). Infectious Disease NGS Dx devices are intended for use as an aid in the diagnosis of microbial infection and in selecting appropriate therapies for
In contrast to human sequencing diagnostics, infectious disease sequencing diagnostics carry an absolute need for immediate and actionable results, sometimes within hours, as incorrect initial diagnoses potentially leads to fatalities. Furthermore, the broad range of specimen types (
This draft guidance, when finalized, provides detailed information on the types of studies the FDA recommends to support a premarket application for these devices. This draft guidance specifically addresses Infectious Disease NGS devices that employ targeted or agnostic (metagenomic) sequencing, to identify the presence or absence of infectious disease organisms, and/or to detect the presence or absence of antimicrobial resistance and virulence markers. This draft guidance is not intended to address devices that utilize detection mechanisms other than nucleic acid based approaches. Further, this draft guidance does not apply to devices that are intended to screen donors of blood and blood components as well as donors of human cells, tissues, and cellular and tissue-based products for communicable diseases.
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 Agency's current thinking on “Infectious Disease Next Generation Sequencing Based Diagnostic Devices: Microbial Identification and Detection of Antimicrobial Resistance and Virulence Markers.” It neither creates nor confers any rights for or on any person and is not binding on FDA or the public. An alternative approach may be used if such approach satisfies the requirements of the applicable statutes and regulations.
Persons interested in obtaining a copy of the draft guidance may do so by downloading an electronic copy from the Internet. A search capability for all Center for Devices and Radiological Health guidance documents is available at
This draft 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 parts 801 and 809 have been approved under OMB control number 0910-0485; the collections of information in 21 CFR part 807, subpart E, have been approved under OMB control number 0910-0120; the collections of information in 21 CFR part 812 have been approved under OMB control number 0910-0078; and the collections of information in 21 CFR part 814 have been approved under OMB control number 0910-0231.
Health Resources and Services Administration, HHS.
Notice of Class Deviations from the Requirements for Competition and Application Period for the Health Center Program.
In accordance with the Grants Policy and Administration Manual (GPAM) Part F: Chapter 2.b.34 and Part F: Chapter 3.b.16, the Bureau of Primary Health Care (BPHC) has been granted class deviations from the requirements for competition contained in the GPAM Part F: Chapter 2.a.1 and the requirements for application period contained in the GPAM Part F: Chapter 3.b.3 to expeditiously award funds to new health centers to improve access to services and clinical outcomes for the nation's most vulnerable populations through the patient centered medical home model.
Section 330 of the Public Health Service Act, as amended (42 U.S.C. 254b, as amended).
The FY 2016 Health Center Program Patient Centered Medical Home Supplement is a one-time supplemental funding opportunity that supports the upfront costs new Health Center Program award recipients face to become patient centered medical homes. Organizational transformation to achieve initial and more advanced levels of patient centered medical home recognition is costly. As of September 2015, data show that among the health centers eligible for this award only approximately 20 percent have achieved patient centered medical home recognition compared to 65 percent across all health centers. The
Olivia Shockey, Expansion Division Director, Office of Policy and Program Development, Bureau of Primary Health Care, Health Resources and Services Administration at 301-443-9282 or
Office of the Secretary, HHS.
Notice.
Notice is hereby given that the Office of Research Integrity (ORI) has taken final action in the following case:
ORI found that Respondent engaged in research misconduct by intentionally falsifying and/or fabricating data reported in the following eight (8) published papers, one (1) unpublished manuscript, and one (1) NIH grant application:
Specifically, ORI found that Respondent duplicated images, or trimmed and/or manipulated blot images from unrelated sources to obscure their origin, and relabeled them to represent different experimental results in:
Dr. Pastorino has entered into a Voluntary Exclusion Agreement (Agreement) and has voluntarily agreed for a period of five (5) years, beginning on April 27, 2016:
(1) To exclude himself from any contracting or subcontracting with any agency of the United States Government and from eligibility or involvement in nonprocurement programs of the United States Government referred to as “covered transactions” pursuant to HHS' Implementation (2 CFR part 376
(2) that he will neither apply for nor permit his name to be used on any application, proposal, or other request for funds to the United States Government or any of its agencies, as defined in the Debarment Regulations; Respondent will further ensure that during the period of the voluntary exclusion, he will neither receive nor be supported by funds of the United States Government and its agencies made available through grants, subgrants, cooperative agreements, contracts, or subcontracts, as discussed in the Debarment Regulations; and
(3) to exclude himself from serving in any advisory capacity to the U.S. Public Health Service (PHS) including, but not limited to, service on any PHS advisory committee, board, and/or peer review committee, or as a consultant.
Director, Office of Research Integrity, 1101 Wootton Parkway, Suite 750, Rockville, MD 20852, (240) 453-8200.
This Request for Information (RFI) describes ways in which the cancer research community and public can provide new ideas and comment on proceedings of the National Cancer Advisory Board (NCAB) Blue Ribbon Panel under the umbrella of the National Cancer Moonshot Initiative.
Responses should be submitted to the National Cancer Institute (NCI), National Institutes of Health (NIH) on or before 5:00 p.m. EST on July 1, 2016.
Electronic responses are preferred and should be addressed or submitted to either: (1) The online platform, Cancer Research Ideas, at
Questions about this request for information should be directed to Kelli Marciel, National Cancer Institute, 9609 Medical Center Drive, Bethesda, MD 20892-9760,
During his State of the Union address on January 12, 2016, President Barack Obama announced the establishment of a new National Cancer Moonshot Initiative to accelerate cancer research. The initiative, led by Vice President Joe Biden, aims to make more therapies available to more patients, while also improving our ability to prevent cancer and detect it at an early stage. Additional details of the National Cancer Moonshot Initiative are available at
The White House and Vice President Biden have named a Task Force of 13 heads of federal agencies and offices who will advise the administration on research priorities. To ensure that the National Cancer Moonshot Initiative's goals and approaches are grounded in the best science, President Obama directed the Moonshot Task Force to consult with external experts, including the presidentially appointed National Cancer Advisory Board (NCAB). A Blue Ribbon Panel of experts has been established as a working group of the NCAB that will assist the board in providing this advice.
The Blue Ribbon Panel is composed of leading experts from a broad range of scientific areas, including biology, immunology, genomics, diagnostics, bioinformatics, and cancer prevention and treatment. Members also include investigators with expertise in clinical trials and cancer health disparities. In addition to researchers, the panel membership also includes clinicians and nurses, and representatives of cancer advocacy organizations and the pharmaceutical and biotechnology industries.
The Blue Ribbon Panel will focus on identifying scientific opportunities in cancer research that could produce major advances with additional emphasis and funding, and propose ways to overcome barriers to pursuing these opportunities.
Community input is critical to the success of the National Cancer Moonshot Initiative. Indeed, the success of the initiative will depend on breaking down silos and encouraging everyone with an interest in fighting cancer to work together, share information, and collaborate on solutions. To enable the Blue Ribbon Panel to consider a wide range of input from researchers, scientists, physicians, advocates, students, data scientists, and members of the public, anyone with a scientific idea or suggestion for addressing cancer research challenges can contribute by visiting
Input is sought in the following areas:
This RFI is for planning purposes only and should not be construed as a solicitation for applications or proposals, or as an obligation in any way on the part of the United States Federal government. The Federal government will not pay for the preparation of any information submitted or for the government's use. Additionally, the government cannot guarantee the confidentiality of the information provided.
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.
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 open to the public as indicated below, with attendance limited to space available. Individuals who plan to attend and need special assistance, such as sign language interpretation or other reasonable accommodations, should notify the Contact Person listed below in advance of the meeting.
The 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
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,
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.
In compliance with the requirement of section 3506(c)(2)(A) of the Paperwork Reduction Act of 1995, for opportunity for public comment on proposed data collection projects, the National Cancer Institute, the National Institutes of Health (NIH) will publish periodic summaries of proposed projects to be submitted to the Office of Management and Budget (OMB) for review and approval.
Written comments and/or suggestions from the public and affected agencies are invited to address one or more of the following points: (1) Whether the proposed collection of information is necessary for the proper performance of the function of the agency, including whether the information will have practical utility; (2) The accuracy of the agency's estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used; (3) Ways to enhance the quality, utility, and clarity of the information to be collected; and (4) Ways to minimize the burden of the collection of information on those who are to respond, including the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology.
This data collection is needed to accomplish the overall Trinity Study goals, which are to: (1) Estimate external and internal radiation dose to the four primary organs/tissues of interest (thyroid, stomach, colon, and red bone marrow) from primary radionuclides in nuclear testing fallout in each county of New Mexico as a result of the Trinity test, stratified by age, gender, ethnicity, and conditions of exposure (low, medium, high); (2) in each county, estimate the number of excess cancer cases to organs of interest per 1,000 (hypothetical) persons stratified by age, gender, ethnicity, and conditions of exposure (low, medium, high).
The study data will be collected via focus group and individual interview. Between 10 and 15 focus groups with up to 8 participants are planned. These participants will be 70 years old and older, living in New Mexico, who were alive at the time of the Trinity nuclear test and living in any of 19 Native American pueblos/tribes or Hispanic/Latino and non-Hispanic white communities in or near the fallout region in New Mexico. Additionally, up to 30 individual interviews are planned with key informants chosen to represent a variety of experiences and expertise. Individuals who prefer not to take part in a focus group will be interviewed individually as key informants. The investigators will collaborate with community representatives who will recommend potential participants for either the focus groups or interviews.
The objective of the focus groups and interviews is to collect information directly from community members who were alive at the time of the Trinity test, or with direct knowledge of specific life circumstances, cultural patterns, and dietary practices of Native Americans, Hispanics/Latinos, or non-Hispanic whites living in New Mexico at this time. In this study, two interviewers, including one with extensive experience working with tribal communities, will moderate the focus groups and conduct in-depth interviews. Translators and interpreters with experience in the study populations will be presented when needed. Each focus group and interview will be scheduled for no more than two hours and will take place in office settings, community facilities, or municipal facilities.
OMB approval is requested for 3 years. There are no costs to respondents other than their time. The total estimated annualized burden hours are 395.
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 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.
In compliance with the requirement of Section 3506(c)(2)(A) of the Paperwork Reduction Act of 1995, for opportunity for public comment on proposed data collection projects, the National Institute of Diabetes and Digestive and Kidney Diseases (NIDDK), National Institutes of Health (NIH) will publish periodic summaries of proposed projects to be submitted to the Office of Management and Budget (OMB) for review and approval.
Written comments and/or suggestions from the public and affected agencies are invited to address one or more of the following points: (1) Whether the proposed collection of information is necessary for the proper performance of the function of the agency, including whether the information will have practical utility; (2) The accuracy of the agency's estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used; (3) Ways to enhance the quality, utility, and clarity of the information to be collected; and (4) Ways to minimize the burden of the collection of information on those who are to respond, including the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology.
In 2000, the National Institute of Diabetes and Digestive and Kidney Diseases (NIDDK) of the National Institutes of Health (NIH) established the Office of Minority Health Research Coordination (OMHRC) to address the burden of diseases and disorders that disproportionately impact the health of minority populations. One of the major goals of the office is to build and sustain a pipeline of researchers from underrepresented populations in the biomedical, behavioral, clinical, and social sciences, with a focus on NIDDK mission areas. The office accomplishes this goal by administering a variety of programs and initiatives to recruit high school through post-doctoral educational level individuals into OMHRC research training and mentor programs: The Short-Term Research Experience for Underrepresented Persons (STEP-UP), the Diversity Summer Research Training Program (DSRTP) for Undergraduate Students, the NIH/NMA Program on Careers in Academic Medicine and the Network of Minority Health Research Investigators (NMRI). Identification of participants to matriculate into the program and initiatives comes from applications and related forms hosted through the NIDDK Web site. The proposed information collection activity is necessary in order to determine the eligibility and quality of potential awardees for traineeship in these programs.
OMB approval is requested for 3 years. There are no costs to respondents other than their time. The total estimated annualized burden hours are 3,922.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. App.), notice is hereby given of the following meetings.
The meetings will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The contract proposals and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the contract proposals, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Pursuant to Public Law 92-463, notice is hereby given that the Substance Abuse and Mental Health Services Administration's (SAMHSA) Center for Mental Health Services (CMHS) National Advisory Council will meet June 1, 2016, 10:00 a.m. to 12:00 p.m.
The meeting will include discussion and evaluation of grant applications reviewed by Initial Review Groups, an examination of confidential financial, business and personal information concerning the applicants and discussion of grant award proposals. Therefore, the meeting will be closed to the public, as determined by the SAMHSA Administrator, in accordance with title 5 U.S.C. 552b(c)(4) and (6) and (c)(9)(B) and 5 U.S.C. App. 2, section 10(d).
The meeting will be held virtually. Meeting information and a roster of Council members may be obtained either by accessing the SAMHSA Council Web site at:
Pursuant to Public Law 92-463, notice is hereby given that the Substance Abuse and Mental Health Services Administration's (SAMHSA) Center for Mental Health Services (CMHS) National Advisory Council will meet June 21, 11:00 a.m. to 12:00 p.m.
The meeting will include discussion and evaluation of grant applications reviewed by Initial Review Groups, an examination of confidential financial, business and personal information concerning the applicants, and discussion of grant award proposals. Therefore, the meeting will be closed to the public, as determined by the SAMHSA Administrator, in accordance with title 5 U.S.C. 552b(c)(4) and (6) and (c)(9)(B) and 5 U.S.C. App. 2, section 10(d).
The meeting will be held virtually. Meeting information and a roster of Council members may be obtained either by accessing the SAMHSA Council Web site at:
U.S. Customs and Border Protection, Department of Homeland Security.
General notice.
This notice advises the public that the quarterly Internal Revenue Service interest rates used to calculate interest on overdue accounts (underpayments) and refunds (overpayments) of customs duties will increase 1 percent from the previous quarter. For the calendar quarter beginning April 1, 2016, the interest rates for overpayments will be 3 percent for corporations and 4 percent for non-corporations, and the interest rate for underpayments will be 4 percent for both corporations and non-corporations. This notice is published for the convenience of the importing public and U.S. Customs and Border Protection personnel.
Michael P. Dean, Revenue Division, Collection and Refunds Branch, 6650 Telecom Drive, Suite #100, Indianapolis, Indiana 46278; telephone (317) 614-4882.
Pursuant to 19 U.S.C. 1505 and Treasury Decision 85-93, published in the
The interest rates are based on the Federal short-term rate and determined by the Internal Revenue Service (IRS) on behalf of the Secretary of the Treasury on a quarterly basis. The rates effective for a quarter are determined during the first-month period of the previous quarter.
In Revenue Ruling 2016-06, the IRS determined the rates of interest for the calendar quarter beginning April 1, 2016, and ending on June 30, 2016. The interest rate paid to the Treasury for underpayments will be the Federal short-term rate (1%) plus three percentage points (3%) for a total of four percent (4%) for both corporations and non-corporations. For corporate overpayments, the rate is the Federal short-term rate (1%) plus two percentage points (2%) for a total of three percent (3%). For overpayments made by non-corporations, the rate is the Federal short-term rate (1%) plus three percentage points (3%) for a total of four percent (4%). These interest rates are subject to change for the calendar quarter beginning July 1, 2016, and ending September 30, 2016.
For the convenience of the importing public and U.S. Customs and Border Protection personnel the following list of IRS interest rates used, covering the period from before July of 1974 to date, to calculate interest on overdue accounts and refunds of customs duties, is published in summary format.
U.S. Customs and Border Protection, Department of Homeland Security.
30-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 to Establish a Centralized Examination Station. This is a proposed extension of an information collection that was previously approved. CBP is proposing that this information collection be extended with no change to the burden hours or to the information collected. This document is published to obtain comments from the public and affected agencies.
Written comments should be received on or before June 13, 2016 to be assured of consideration.
Interested persons are invited to submit written comments on this proposed information collection to the Office of Information and Regulatory Affairs, Office of Management and Budget. Comments should be addressed to the OMB Desk Officer for Customs and Border Protection, Department of Homeland Security, and sent via electronic mail to
Requests for additional information should be directed to Tracey Denning, U.S. Customs and Border Protection, Regulations and Rulings, Office of Trade, 90 K Street, NE., 10th Floor, Washington, DC 20229-1177, at 202-325-0265.
This proposed information collection was previously published in the
The Office of Partnership and Engagement, DHS.
Notice of partially closed Federal Advisory Committee meeting.
The Homeland Security Advisory Council (“Council”) will meet in person on June 2, 2016. Members of the public may participate in person. The meeting will be partially closed to the public.
The Council will meet Thursday, June 2, 2016, from 10:05 a.m. to 5:15 p.m. EDT. The meeting will be open to the public from 1:50 p.m. to 4:25 p.m. EDT. Please note the meeting may close early if the Council has completed its business. The meeting will be closed to the public from 10:05 a.m. to 11:20 a.m. EDT, 1:00 p.m. to 1:40 p.m. EDT, and 4:30 p.m. to 5:15 p.m. EDT.
The meeting will be held at the Woodrow Wilson International Center for Scholars (“Wilson Center”), located at 1300 Pennsylvania Avenue NW., Washington, DC 20004. All visitors will be processed through the lobby of the Wilson Center. Written public comments prior to the meeting must be received by 5:00 p.m. EDT on Monday, May 30, 2016, and must be identified by Docket No. DHS-2016-0022. Written public comments after the meeting must be identified by Docket No. DHS-2016-0022 and may be submitted by
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Mike Miron at
Notice of this meeting is given under Sec. 10(a) of the Federal Advisory Committee Act (FACA), Public Law 92-463 (5 U.S.C. appendix), which requires each FACA committee meeting to be open to the public.
The Council provides organizationally independent, strategic, timely, specific, actionable advice, and recommendations to the Secretary of the Department of Homeland Security (DHS) on matters related to homeland security. The Council is comprised of leaders of local law enforcement, first responders, Federal, State, and local government, the private sector, and academia.
The Council will meet in an open session between 1:50 p.m. and 4:25 p.m. EDT. The Council will receive reports and recommendations from the Cybersecurity Subcommittee and the Countering Violent Extremism Subcommittee.
The Council will meet in a closed session from 10:05 a.m. to 11:20 a.m. EDT, 1:00 p.m. to 1:40 p.m. EDT, and 4:30 p.m. to 5:15 p.m. EDT to receive sensitive operational counterterrorism information from senior DHS officials, information on current threats, and a southern border security update.
The Council will receive closed session briefings from senior DHS officials. These briefings will concern matters sensitive to homeland security within the meaning of 5 U.S.C. 552b(c)(7)(E) and 552b(c)(9)(B). The Council will receive operational counterterrorism updates on the current threat environment and security measures associated with countering such threats, including those related to aviation security programs, and southwest border security updates. The session is closed under 5 U.S.C. 552b(c)(7)(E) because disclosure of that information could reveal investigative techniques and procedures not generally available to the public, allowing terrorists and those with interests against the United States to circumvent the law and thwart the Department's strategic initiatives. In addition, the session is closed pursuant to 5 U.S.C. 552b(c)(9)(B) because disclosure of these techniques and procedures could frustrate the successful implementation of protective measures designed to keep our country safe.
Office of Community Planning and Development, HUD.
Notice.
HUD is seeking approval from the Office of Management and Budget (OMB) for the information collection described below. In accordance with the Paperwork Reduction Act, HUD is requesting comment from all interested parties on the proposed collection of information. The purpose of this notice is to allow for 60 days of public comment.
Interested persons are invited to submit comments regarding this proposal. Comments should refer to the proposal by name and/or OMB Control Number and should be sent to: Colette Pollard, Reports Management Officer, QDAM, Department of Housing and Urban Development, 451 7th Street SW., Room 4176, Washington, DC 20410-5000; telephone (202) 402-3400 (this is not a toll-free number) or email at
Norm Suchar, Director, Office of Special Needs Assistance Programs, Office of Community Planning and Development, Department of Housing and Urban Development, 451 7th Street SW., Room 7262, Washington, DC 20410; telephone (202) 708-5015 (this is not a toll-free number). Persons with hearing or speech impairments may access this number through TTY by calling the toll-free Federal Relay Service at (800) 877-8339.
Copies of available documents submitted to OMB may be obtained from Ms. Pollard.
This notice informs the public that HUD is seeking approval from OMB for the information collection described in section A.
This notice is soliciting comments from members of the public and affected parties concerning the collection of information described in section A on the following:
(1) Whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility;
(2) The accuracy of the agency's estimate of the burden of the proposed collection of information;
(3) Ways to enhance the quality, utility, and clarity of the information to be collected; and
(4) Ways to minimize the burden of the collection of information on those who are to respond; including through the use of appropriate automated collection techniques or other forms of information technology,
HUD encourages interested parties to submit comment in response to these questions.
Section 3507 of the Paperwork Reduction Act of 1995, 44 U.S.C. chapter 35.
Office of the President of the Government National Mortgage Association, HUD.
Notice of delegation of authority.
In this Notice, the President of the Government National Mortgage Association (Ginnie Mae) retains authority and redelegates authority granted to Ginnie Mae to the Executive Vice President and other subordinate employees.
Office of the Senior Vice President and Chief Risk Officer, Government National Mortgage Association, Department of Housing and Urban Development, Potomac Center South, 550 12th Street SW., 3rd Floor, Washington, DC 20024; telephone number (202) 475-4918. (This is not a toll-free number). Persons with hearing- or speech-impairments may access this number though TTY by calling the toll-free Federal Relay Service at 1-800-877-8339.
By a notice published in the
The President of Ginnie Mae hereby retains and redelegates to the Executive Vice President concurrent authority with the President. The Executive Vice President is authorized to perform all duties of the President of Ginnie Mae in place of the President. The Executive Vice President is also authorized to perform the functions delegated by the Secretary to the President of Ginnie Mae, except the authority to waive HUD regulations. The authority to waive regulations is reserved for the President of Ginnie Mae pursuant to the Department of Housing and Urban Development Act (42 U.S.C. 3535(q)). If the President is absent from office, the person authorized to act in the President's absence may exercise the waiver authority of the President consistent with HUD's policies and procedures (73 FR 76674 and 66 FR 13944).
The Executive Vice President of Ginnie Mae hereby retains and redelegates to the Senior Vice Presidents the authority to perform the below enumerated functions.
1. The Senior Vice President of the Office of Enterprise Risk is hereby delegated to handle matters related to Operational, Counterparty, Market and Credit Risk which includes, but is not limited to, the authority:
a. To establish, oversee and maintain all appropriate risk management policies, activities, and controls for Ginnie Mae, including analyzing the risk profile of business units, carrying out risk management and evaluation functions, and performing risk assessments.
b. To approve pool transfers, non-streamlined commitment authority, subservicing arrangements, and acceptance of corporate guaranty.
c. To approve waivers of net worth, liquidity requirements, and errors and omissions fidelity insurance.
d. To negotiate and approve asset dispositions.
2. The Senior Vice President of the Office of Issuer and Portfolio Management is hereby delegated to handle matters related to the Mortgage-Backed Securities (MBS) Program, which includes, but is not limited to, the authority:
a. To oversee the activities and performance of issuers participating in the MBS Program.
b. To determine the manner of issuers' participation in the MBS Program.
c. To approve the ability of institutions to participate as issuers in the MBS Program.
d. To render decisions concerning the compliance of issuers with MBS Program requirements.
e. To make determinations related to the servicing of loans contained in defaulted portfolios.
f. To approve subservicing arrangements and asset disposition.
g. To initiate and impose civil money penalties.
h. To establish and maintain policies and procedures for claims collection and coordinate claims collection activities.
3. The Senior Vice President of the Office of Capital Markets is hereby delegated to handle matters related to the Multiclass Securities Program, which includes, but is not limited to, the authority:
a. To oversee the operation and management of the Multiclass Securities Program.
b. To execute documents necessary to the administration of the Multiclass Securities Program.
c. To execute the Transaction Initiation Letter, Sponsor Agreement, and Guaranty Agreement.
4. The Senior Vice President of the Office of Chief Financial Officer is hereby delegated to handle finance matters related to Ginnie Mae, which includes, but is not limited to, the authority:
a. To develop and maintain a financial management system to administer and coordinate the financial and accounting functions for Ginnie Mae.
b. To be responsible for the financial management needs of Ginnie Mae, to report to the Congress and to external agencies on financial management performance, Ginnie Mae financial statements, and other information requests required by law and regulation.
c. To establish and maintain policies and procedures for claims collection and coordinate claims collection activities.
d. To appoint Disbursement and Certifying Officers to approve the disbursal of Ginnie Mae funds.
e. To certify funds are available for commitments of contracts.
f. To execute Secure Payment System-Financial Management Services designating individuals as certifying officers.
g. To certify vouchers for payments.
h. To designate, delegate, and revoke authority of designated staff members to use the U.S. Treasury's Secure Payment System.
5. The Senior Vice President of the Office of Securities Operations is hereby delegated to handle matters related to Ginnie Mae Program Operations, which includes, but is not limited to, the authority:
a. To conduct the issuance of single class securities and follow on bond administration functions,
b. To approve any enhancement to Ginnie Mae's business applications used to administer Ginnie Mae's Mortgage-Backed Securities program.
c. To approve the early termination of a Ginnie Mae pool.
d. To assign mortgages.
6. The Senior Vice President of the Office of Enterprise Data and Technology Solutions is hereby delegated to handle matters related to the information, technology, and security management of all Ginnie Mae systems, which includes, but is not limited to, the authority:
a. To certify and accredit Ginnie Mae business applications;
b. To ensure security of Ginnie Mae business applications;
c. To handle matters related to the procurement of hardware, software, and licensing.
d. To manage Ginnie Mae's infrastructure and security operations.
e. To handle matters of interagency security agreements for data exchange.
7. The Senior Vice President of the Office of Management Operations is hereby delegated to handle matters related to Administrative Management, Procurement, and Communications, which includes, but is not limited to, the authority:
a. To coordinate administrative functions, policies, and programs related to Human Resources management and administration.
b. To provide oversight of contract activities including reviews of quality and internal controls.
c. To direct and coordinate all media outreach for Ginnie Mae.
The Senior Vice President of Office of Enterprise Risk retains and redelegates the authority to Directors and staff to handle matters related to Operational, Counterparty, Market and Credit Risk:
1. To establish, oversee, and maintain all appropriate risk management policies, activities, and controls for Ginnie Mae, including analyzing the risk profile of business units, carrying out risk management and evaluation functions, and performing risk assessments.
2. To approve new issuer applications.
The Senior Vice President of the Office of Issuer Portfolio Management hereby retains and redelegates the authority to Directors and staff:
1. To oversee the activities and performance of issuers participating in the MBS Program.
2. To determine the manner of issuers' participation in the MBS Program.
3. To approve the ability of institutions to participate as issuers in the MBS Program.
4. To render decisions concerning the compliance of issuers with MBS Program requirements.
5. To make determinations about the servicing of loans contained in defaulted portfolios.
6. To approve subservicing arrangements and asset disposition.
7. To establish and maintain policies and procedures for claims collection and coordinate claims collection activities.
The Senior Vice President of the Office of Capital Markets retains and redelegates the authority to the Deputies, Directors, and securities market specialists:
1. To oversee the operation and management of the Multiclass Securities Program.
2. To execute documents necessary to the administration of the Multiclass Securities Program.
3. To execute the Transaction Initiation Letter, Sponsor Agreement, and Guaranty Agreement.
The Senior Vice President of the Office of Chief Financial Officer retains and redelegates the authority to Directors and specifically designated staff members:
1. To develop and maintain a financial management system to administer and coordinate the financial and accounting functions for Ginnie Mae.
2. To be responsible for the financial management needs of Ginnie Mae, to report to the Congress and to external agencies on financial management performance, Ginnie Mae financial statements, and other information requests required by law and regulation.
3. To establish and maintain policies and procedures for claims collection and coordinate claims collection activities.
4. To certify on funds available for commitments of contracts.
5. To certify vouchers for payments.
6. To execute Secure Payment System-Financial Management Services.
The Senior Vice President of Office of Securities Operations retains and redelegates the authority to directors and staff:
1. To conduct the issuance of single class securities and follow on bond administration functions,
2. To approve any enhancements to Ginnie Mae business applications used to administer Ginnie Mae's MBS program.
3. To approve the early termination of a Ginnie Mae pool.
4. To assign mortgages.
The Senior Vice President of Office of Enterprise Data and Technology Solutions retains and redelegates the authority to Directors and staff:
1. To certify and accredit Ginnie Mae business applications.
2. To ensure security of Ginnie Mae business applications.
3. To handle matters related to the procurement of hardware, software, and licensing.
4. To manage Ginnie Mae's infrastructure and security operations.
5. To handle matters of interagency security agreements for data exchange.
The Senior Vice President of the Office of Management Operations retains and redelegates the authority to the Directors and staff:
1. To coordinate Ginnie Mae's administrative functions, policies, and programs related to Human Resources management and administration.
2. To provide oversight of contract activities including reviews of quality and internal controls.
3. To direct and coordinate all media outreach for Ginnie Mae.
Certain authority redelegated by the President of Ginnie Mae to the Executive Vice President and Senior Vice Presidents in this notice is non-delegable. The non-delegable authorities include, but are not limited to: (1) Authority to issue All Participants Memoranda; (2) Authority to approve the reservation of funds request; and (3) Authority to approve the request for contract services for all contract work. Duties that are delegable have been redelegated by the Senior Vice Presidents in Part II Sections A-G above. Duties that are non-delegable are retained by the President, Executive Vice President, and Senior Vice Presidents.
This redelegation of authority supersedes all previous redelegations of authority from the President, Executive Vice President and Senior Vice Presidents of Ginnie Mae. The President, Executive Vice President and Senior Vice Presidents of Ginnie Mae may revoke the authority authorized herein, in whole or part, at any time.
Section 7(d), Department of Housing and Urban Development Act (42 U.S.C. 3535(d)). Section 3.05, Bylaws of the Government National Mortgage Association, Ginnie Mae.gov. 24 CFR part 310.
Office of the Assistant Secretary for Community Planning and Development, HUD.
Notice.
This Notice identifies unutilized, underutilized, excess, and surplus Federal property reviewed by HUD for suitability for use to assist the homeless.
Juanita Perry, Department of Housing and Urban Development, 451 Seventh Street SW., Room 7266, Washington, DC 20410; telephone (202) 402-3970; TTY number for the hearing- and speech-impaired (202) 708-2565 (these telephone numbers are not toll-free), or call the toll-free title V information line at 800-927-7588.
In accordance with 24 CFR part 581 and section 501 of the Stewart B. McKinney Homeless Assistance Act (42 U.S.C. 11411), as amended, HUD is publishing this Notice to identify Federal buildings and other real property that HUD has reviewed for suitability for use to assist the homeless. The properties were reviewed using information provided to HUD by Federal landholding agencies regarding unutilized and underutilized buildings and real property controlled by such agencies or by GSA regarding its inventory of excess or surplus Federal property. This Notice is also published in order to comply with the December 12, 1988 Court Order in
Properties reviewed are listed in this Notice according to the following categories: Suitable/available, suitable/unavailable, and suitable/to be excess, and unsuitable. The properties listed in the three suitable categories have been reviewed by the landholding agencies, and each agency has transmitted to HUD: (1) Its intention to make the property available for use to assist the homeless, (2) its intention to declare the property excess to the agency's needs, or (3) a statement of the reasons that the property cannot be declared excess or made available for use as facilities to assist the homeless.
Properties listed as suitable/available will be available exclusively for homeless use for a period of 60 days from the date of this Notice. Where property is described as for “off-site use only” recipients of the property will be required to relocate the building to their own site at their own expense. Homeless assistance providers interested in any such property should send a written expression of interest to HHS, addressed to: Ms. Theresa M. Ritta, Chief Real Property Branch, the Department of Health and Human Services, Room 5B-17, Parklawn Building, 5600 Fishers Lane, Rockville, MD 20857, (301) 443-2265 (This is not a toll-free number.) HHS will mail to the interested provider an application packet, which will include instructions for completing the application. In order to maximize the opportunity to utilize a suitable property, providers should submit their written expressions of interest as soon as possible. For complete details concerning the processing of applications, the reader is encouraged to refer to the interim rule governing this program, 24 CFR part 581.
For properties listed as suitable/to be excess, that property may, if subsequently accepted as excess by GSA, be made available for use by the homeless in accordance with applicable law, subject to screening for other Federal use. At the appropriate time, HUD will publish the property in a Notice showing it as either suitable/available or suitable/unavailable.
For properties listed as suitable/unavailable, the landholding agency has decided that the property cannot be declared excess or made available for use to assist the homeless, and the property will not be available.
Properties listed as unsuitable will not be made available for any other purpose for 20 days from the date of this Notice. Homeless assistance providers interested in a review by HUD of the determination of unsuitability should call the toll free information line at 1-800-927-7588 for detailed instructions or write a letter to Ann Marie Oliva at the address listed at the beginning of this Notice. Included in the request for review should be the property address (including zip code), the date of publication in the
For more information regarding particular properties identified in this Notice (
Office of the President of the Government National Mortgage Association, HUD.
Notice of order of succession.
In this Notice, the President of the Government National Mortgage Association (Ginnie Mae) designates the Order of Succession for Ginnie Mae. This Order of Succession supersedes all prior Orders of Succession for Ginnie Mae.
Office of the Senior Vice President and Chief Risk Officer, Government National Mortgage Association, Department of Housing and Urban Development, Potomac Center South, 550 12th Street
The President of the Ginnie Mae hereby issues this Order of Succession pursuant to the Bylaws of Ginnie Mae which authorizes the President of Ginnie Mae to designate the sequence in which other officers of Ginnie Mae shall act. The officers designated below shall perform the duties and exercise the power and authority of the President, when the President is absent or unable to act, or when there is a vacancy in the Office of the President of Ginnie Mae. This Order of Succession is subject to the provisions of the Federal Vacancies Reform Act of 1998 (5 U.S.C. 3345-3349d) and the Bylaws of the Government National Mortgage Association, as published at
Subject to the provisions of the Federal Vacancies Reform Act of 1998 and the Bylaws of Ginnie Mae, during any period when, by reason of absence, disability, or vacancy in office, the President of Ginnie Mae is not available to exercise the powers or perform the duties of the President, the following officials within Ginnie Mae are hereby designated to exercise the powers and perform the duties of the Office:
(1) Executive Vice President;
(2) Senior Vice President, Office of Enterprise Risk;
(3) Senior Vice President, Office of Issuer and Portfolio Management;
(4) Senior Vice President, Office of Capital Markets;
(5) Senior Vice President, Office of Securities Operations;
(6) Senior Vice President, Office of Chief Financial Officer;
(7) Senior Vice President, Office of Enterprise Data and Technology Solutions;
(8) Senior Vice President, Office of Management Operations.
These officials shall perform the functions and duties of the Office in the order specified herein, and no official shall serve unless all the other officials, whose position titles precede his/hers in this order, are unable to act by reason of absence, disability, or vacancy in office.
This Order of Succession supersedes the prior Orders of Succession for the President of Ginnie Mae.
Section 7(d), Department of Housing and Urban Development Act (42 U.S.C. 3535(d)). Section 3.05, Bylaws of the Government National Mortgage Association, as published in the Bylaws published at
Fish and Wildlife Service, Interior.
Notice of receipt of applications for permit.
We, the U.S. Fish and Wildlife Service, invite the public to comment on the following applications to conduct certain activities with endangered species, marine mammals, or both. With some exceptions, the Endangered Species Act (ESA) and Marine Mammal Protection Act (MMPA) prohibit activities with listed species unless Federal authorization is acquired that allows such activities.
We must receive comments or requests for documents on or before June 13, 2016. We must receive requests for marine mammal permit public hearings, in writing, at the address shown in the
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When submitting comments, please indicate the name of the applicant and the PRT# you are commenting on. We will post all comments on
Brenda Tapia, (703) 358-2104 (telephone); (703) 358-2281 (fax);
Send your request for copies of applications or comments and materials concerning any of the applications to the contact listed under
Please make your requests or comments as specific as possible. Please confine your comments to issues for which we seek comments in this notice, and explain the basis for your comments. Include sufficient information with your comments to allow us to authenticate any scientific or commercial data you include.
The comments and recommendations that will be most useful and likely to influence agency decisions are: (1) Those supported by quantitative information or studies; and (2) Those that include citations to, and analyses of, the applicable laws and regulations. We will not consider or include in our administrative record comments we receive after the close of the comment period (see
Comments, including names and street addresses of respondents, will be available for public review at the street address listed under
To help us carry out our conservation responsibilities for affected species, and in consideration of section 10(a)(1)(A) of the Endangered Species Act of 1973, as amended (16 U.S.C. 1531
The applicant requests a permit to import one male captive born Siberian tiger (
The applicant requests a re-issuance of their permit for the interstate commerce of one male and two female captive-born cheetahs (
The applicant requests a permit to export three male banteng (
The applicant requests a permit to import a sport-hunted trophy of one male bontebok (
The applicant requests a permit to photograph southern sea otters (
The applicant requests a permit to study northern sea otters (
Concurrent with publishing this notice in the
Fish and Wildlife Service, Interior.
Notice of receipt of application and proposed incidental harassment authorization; availability of draft environmental assessment; request for comments.
We, the U.S. Fish and Wildlife Service (Service), in response to a request under the Marine Mammal Protection Act of 1972 (MMPA), as amended, from BlueCrest Alaska Operating LLC (BlueCrest), propose to authorize the incidental taking by harassment of small numbers of northern sea otters from the Southcentral stock in Cook Inlet, Alaska, from date of issuance—October 31, 2016. BlueCrest has requested this authorization for their planned oil and gas exploration activities. We anticipate no take by injury or death and include none in this proposed authorization, which would be for take by harassment only.
We will consider comments we receive on or before June 13, 2016.
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Please indicate to which document, the proposed incidental harassment authorization, or the draft environmental assessment, your
To request copies of the application, the list of references used in the notice, and other supporting materials, contact Kimberly Klein, by mail at Marine Mammals Management, U.S. Fish and Wildlife Service, MS 341, 1011 East Tudor Road, Anchorage, AK 99503; by email at
In response to a request under section 101(a)(5)(D) of the Marine Mammal Protection Act of 1972 (MMPA), as amended, from BlueCrest, we propose to authorize the incidental taking by harassment of small numbers of northern sea otters from the Southcentral stock in Cook Inlet, Alaska, from date of issuance—October 31, 2016. BlueCrest has requested this authorization for their planned oil and gas exploration activities. We anticipate no take by injury or death and include none in this proposed authorization, which would be for take by harassment only.
In November 2015, the Service was petitioned by BlueCrest to provide authorization for the incidental take by harassment of northern sea otters (
The MMPA allows, upon request, the incidental take of small numbers of marine mammals as part of a specified activity within a specified geographic region. In this case, the activity is related to oil and gas development. As part of this authorization, the Service may authorize incidental take to BlueCrest if we find that the taking would:
• Be of small numbers;
• Have no more than a “negligible impact” on northern sea otters; and
• Not have an “unmitigable adverse impact” on the availability of the species or stock for “subsistence” uses.
The Service may stipulate the permissible methods of taking and require mitigation, monitoring, and reporting of such takings, which are meant to reduce or minimize negative impacts to the northern sea otters.
We intend that any final action resulting from this proposal will be as accurate and as effective as possible. Therefore, we request comments or suggestions on this proposed authorization. We particularly seek comments concerning:
(1) Will the proposed authorization including the proposed activities have a negligible impact on the Southcentral stock of the northern sea otter?
(2) Will the proposed authorization ensure that an unmitigable adverse impact on the availability of northern sea otters for subsistence taking does not occur? and,
(3) Are there any additional provisions we may wish to consider to ensure the conservation of the Southcentral stock of the northern sea otter?
You may submit your comments and materials concerning this proposed authorization by one of the methods listed in the
If you submit a comment via
Section 101(a)(5)(D) of the MMPA, as amended (16 U.S.C. 1371(a)(5)(D)), authorizes the Secretary of the Interior to allow, upon request of a citizen, for periods of not more than 1 year and subject to such conditions as the Secretary may specify, the incidental but not intentional taking by harassment of small numbers of marine mammals of a species or population stock, by such citizens, while engaging in that activity within that region if the Secretary finds that such harassment during each period concerned:
(1) Will have a negligible impact on such species or stock, and
(2) Will not have an unmitigable adverse impact on the availability of such species or stock for taking for subsistence.
As part of the authorization process, we prescribe permissible methods of taking, and other means of effecting the least practicable impact on the species or stock and its habitat, and requirements pertaining to the monitoring and reporting of such takings.
The term “take,” as defined by the MMPA, means to harass, hunt, capture, or kill, or to attempt to harass, hunt, capture, or kill any marine mammal. Harassment, as defined by the MMPA, means “any act of pursuit, torment, or annoyance which (i) has the potential to injure a marine mammal or marine mammal stock in the wild (the MMPA calls this Level A harassment), or (ii) has the potential to disturb a marine mammal or marine mammal stock in the wild by causing disruption of behavioral patterns, including, but not limited to, migration, breathing, nursing, breeding, feeding, or sheltering (the MMPA calls this Level B harassment).”
The terms “small numbers,” “negligible impact,” and “unmitigable adverse impact” are defined in 50 CFR 18.27, the Service's regulations governing take of small numbers of marine mammals incidental to specified activities. “Small numbers” is defined as “a portion of a marine mammal species or stock whose taking would have a negligible impact on that species or stock.” However, we do not rely on that definition here, as it conflates the terms “small numbers” and “negligible impact,” which we recognize as two separate and distinct requirements. Instead, in our small numbers determination, we evaluate whether the number of marine mammals likely to be taken is small relative to the size of the overall population. “Negligible impact” is defined as “an impact resulting from the specified activity that cannot be reasonably expected to, and is not reasonably likely to, adversely affect the species or stock through effects on annual rates of recruitment or survival.” “Unmitigable adverse impact” is defined as “an impact resulting from the specified activity (1) that is likely to reduce the availability of the species to a level insufficient for a harvest to meet subsistence needs by (i) causing the marine mammals to abandon or avoid
Section 101(a)(5)(D) of the MMPA establishes an expedited process by which citizens of the United States can apply for an authorization to incidentally take small numbers of marine mammals where the take will be limited to harassment. Section 101(a)(5)(D)(iii) establishes a 45-day time limit for Service review of an application, followed by a 30-day public notice and comment period on any proposed authorizations for the incidental harassment of marine mammals. Within 45 days of the close of the comment period, we must either issue or deny issuance of the authorization. We refer to these authorizations as IHAs.
The Service has issued IHAs for sea otters in the past, including the following:
Northern sea otters: IHAs incidental to airport construction on Akun Island and hovercraft operation between Akun Island and Akutan, Alaska (August 27, 2008 (73 FR 50634); June 8, 2010 (75 FR 32497); and April 1, 2011 (76 FR 18232)); and an IHA to cover the incidental take of northern sea otters due to previous oil and gas exploration activities in Cook Inlet, Alaska (August 29, 2014 (79 FR 51584)). None of these IHAs remain in effect.
Southern sea otters (
On November 12, 2015, the Service received a request from BlueCrest for the nonlethal taking, by harassment, of northern sea otters (hereafter “otters”) from the Southcentral stock incidental to plans to conduct an oil and gas production drilling program in lower Cook Inlet on State of Alaska Oil and Gas Lease 384403 under the program name of Cosmopolitan State. The program includes drilling up to three wells with the total operation time of about 135 days. The exact timing of the project will be dependent upon rig availability, but will occur in the summer operating season between April 15 and October 31, 2016.
In 2013, BlueCrest conducted exploratory oil and gas drilling at a well site in the lower Cook Inlet. Beginning in spring 2016, BlueCrest proposes to drill two more wells to tap these identified gas layers for production and a third well to collect geological information. The proposed BlueCrest drilling operations could harass local sea otters via its impulsive acoustics from the periods of conductor pipe driving (CPD) and vertical seismic profiling (VSP) activities. Harassment is a form of take as defined under the MMPA.
BlueCrest is requesting incidental take authorization for Level B noise harassment (noise exceeding 160 decibels (dB, all dB levels given herein are re: 1 µPa RMS) associated with the oil and gas drilling activities. Actual Level B “takes” will depend upon the number of sea otters occurring within the 160 dB zone of influence (ZOI) at the time of seismic activity. BlueCrest does not believe any Level A injury “takes” (noise exceeding 190 dB) are expected with proposed mitigation measures in place.
A complete copy of BlueCrest's request and supporting documents may be obtained as specified above in
Prior to issuing an IHA in response to this request, the Service must evaluate the level of industrial activities described in the application, their associated potential impacts to sea otters, and their potential effects on the availability of this species for subsistence use. The information provided by the applicant indicates that oil and gas activities projected over the next year will encompass offshore exploration activities. The Service is tasked with analyzing the impact that lawful industrial activities will have on sea otters during normal operating procedures.
In 2013, BlueCrest, then in partnership with Buccaneer Energy, conducted exploratory oil and gas drilling at the Cosmopolitan State #A-1 well site (then called Cosmopolitan State #1). The well encountered multiple oil and gas zones, including gas zones capable of production in paying quantities. Beginning in spring 2016, BlueCrest proposes to drill two more wells (Cosmopolitan State #A-2 and #A-3) to tap these identified gas layers for production. These directionally drilled wells have top holes located a few meters from the original Cosmopolitan State #A-1, and together could feed to a future single offshore platform. Both #A-2 and #A-3 may involve test drilling into oil layers. A third well, #B-1, will be located approximately 1.7 kilometer (km) (1 mile (mi)) southeast of the other three wells. This well will be drilled into oil formations to collect geological information. After testing, the oil horizons will be plugged and abandoned, while the gas zones will be suspended pending platform construction. Refer to Table 1 and Figure 1 for further location details.
Whenever practicable, BlueCrest will use existing infrastructure and resources found on the Kenai Peninsula and south-central Alaska. These resources include barge landings, private staging areas, airstrips, landfills, water supplies, heavy equipment, and personnel. Most on-shore activity will base from either Kenai or Homer.
BlueCrest proposes to conduct its production and exploratory drilling using the
• A 5,000-, 10,000-, or 15,000-pounds per square inch (psi) blowout preventer (BOP) stack—for drilling in higher pressure formations found at greater depths in Cook Inlet;
• Sufficient variable deck load to accommodate the increased drilling loads and tubular for deeper drilling;
• Reduced draft characteristics to enable the rig to easily access shallow water locations;
• Riser tensioning system to adequately deal with the extreme tides/currents in up to 91-m (300-ft) water depth;
• Steel hull designed to withstand −10 degrees Celsius to eliminate the risk of steel failure during operations in Cook Inlet (
• Ability to cantilever over existing platforms for working on development wells or during plug and abandonment.
The
While under tow to the Cosmopolitan well sites, rig operations will be monitored by BlueCrest and the drilling contractor management. Very high frequency radio, satellite, and cellular phone communication systems will be used while the rig is under tow. Helicopter transport will also be available. A certified marine surveyor will be monitoring during rig moves.
The rig will be stocked with most of the drilling supplies required to complete a full summer program. Deliveries of remaining items, including crew transfers, will be performed by support vessels and helicopters.
BlueCrest proposes to use helicopters for project operations. This may include transportation for personnel, groceries, and supplies. Helicopter support will
Helicopter flights to and from the rig are expected to average two per day. Flight routes will follow a direct route to and from the rig location, and flight heights will be maintained 300 to 450 m (1,000 to 1,500 ft) above ground level to avoid acoustical harassment of marine mammals (Richardson
Major supplies will be staged on-shore at Kenai. Required supplies and equipment will be moved from the staging area by contracted supply vessels and loaded aboard the rig when the rig is established on a drilling location and will include fuel, drilling water, mud materials, cement, casing, and well service equipment. Supply vessels will be outfitted with fire-fighting systems as part of fire prevention and control as required by Cook Inlet Spill Prevention and Response, Inc. (CISPRI).
Rig equipment will use diesel fuel or electricity from generators. Personnel associated with fuel delivery, transfer, and handling will be knowledgeable of Best Management Practices (BMP) of Industry (Collectively, the entities, personnel, and companies involved in the following activities: Oil and gas exploration, development, and production; oil and gas support services; and associated activities such as research). BMPs are related to fuel transfer and handling, drum labeling, secondary containment guidelines, and the use of liners/drip trays.
When planned and permitted operations are completed, the well will be suspended according to Alaska Oil and Gas Conservation Commission regulations. Drilling wastes include drilling fluids, known as mud, rock cuttings, and formation waters and will be discharged to the Cook Inlet under an approved Alaska Pollution Discharge Elimination System (APDES) general permit or sent to an approved waste disposal facility. Drilling wastes (hydrocarbon) will be delivered to an onshore permitted location for disposal. BlueCrest will follow BMPs and all stipulations of the applicable permits for this activity. Fluids and cutting management does not produce any noise signature to the marine environment that is not already included in other activities provided herein.
The project components with a potential for harassment of marine mammals include:
1. Towing of the jack-up drill rig to and between the Cosmopolitan well sites;
2. Impact hammering of the drive pipe at the well prior to drilling; and
3. The VSP operations that may occur at the completion of drilling.
For these activities the primary impact of concern is the effect the noise generated by these operations could have on local marine mammals. Underwater noise associated with drilling and rig operation has already been determined by the National Marine Fisheries Service (NMFS) of the National Oceanic and Atmospheric Administration (NOAA) and the Service in prior consultations to have little effect on marine mammals (based on Marine Acoustics, Inc.'s (2011) acoustical testing of the
The request for incidental harassment authorization is for the 2016 drilling season at BlueCrest's Cosmopolitan State unit in lower Cook Inlet. Exploratory drilling will be conducted within a 165-day operating timeframe and completed by October 31, 2016. It is expected that the program will take 135 days to complete.
Based on the proposed activity area, this IHA addresses potential impacts of BlueCrest's exploration activities on the portion of the Southcentral Alaska stock of the northern sea otter that inhabits the eastern shoreline of lower Cook Inlet. The Southcentral stock is classified as “non-strategic” because the level of direct human-caused mortality does not exceed the Potential Biological Removal (PBR), and it is neither listed as “depleted” under MMPA, nor as “threatened” or “endangered” under the Endangered Species Act of 1973, as amended (ESA).
Sea otter populations found along the western shoreline of lower Cook Inlet, including Kamishak Bay, are part of the Southwest Alaska stock, which is listed as threatened under the ESA, but it is assumed that no Southwest Alaska stock sea otters will be impacted by the proposed project and are thus not analyzed as part of this IHA.
Based on the Service's 2014 Stock Assessment Report, the estimated abundance of the Southcentral sea otter stock (stock being analyzed as part of this IHA) is approximately 18,000 sea otters (USFWS 2014a). Aerial surveys in Kachemak Bay in 2002, 2007, and 2008, indicated that the sea otter population is increasing. The rate of increase for the Cook Inlet portion of the population is unknown because surveys have not been repeated; however, it is assumed to be similar to that in Kachemak Bay between 2002 and 2014. The 2002 estimate of sea otter population size for Cook Inlet was, therefore, adjusted to allow for population growth at the same rate as Kachemak Bay, which predicted an annual population growth of 495 animals and an estimated population size of 6,904 animals for Cook Inlet (USFWS 2014b). The relative abundance of otters in Cook Inlet is highest in the southern end of lower Cook Inlet in Kachemak and Kamishak bays. Upper Cook Inlet does not offer suitable habitat and is virtually devoid of sea otters. The northern portion of lower Cook Inlet, including the project area, is likely to have lower density of sea otters than Kachemak and Kamishak bays, but may have periods of high seasonal use.
There are no published sea otter estimates for the specified project area. Surveys suggest for most of the year, few sea otters inhabit waters north of Anchor Point (Rugh
Recent (2013) marine mammal monitoring (for the Cosmopolitan State exploratory drilling program) conducted 5 km (3 mi) offshore of Cape Starichkof revealed that during August, up to 481 sea otters (median of 72 sea otters) were found riding the tides between Anchor Point and some point well north of Cape Starichkof (Owl Ridge 2014). It is likely that this late summer phenomenon is a result of seasonal weather conditions that allow sea otters to safely ride the daily tides to foraging grounds outside Kachemak Bay. Since none of the previous surveys were conducted during the fall, it is unknown how late into fall large numbers of sea otters are found north of Anchor Point. Doroff and Badajos (2010) could not locate 10 of the radio-tagged sea otters in August 2009 but these were subsequently found in September 2009. It is possible that these sea otters had moved north of Anchor Point (outside the study area) during August, only to return to Kachemak Bay in September.
Thus, the primary concern with sea otters is where planned exploration activities and support activities might overlap with seasonal sea otter use north of Anchor Point in August. Sea otter use past October 31 is not relevant to this IHA as the activities will not be taking place. Survey activities will be conducted in the intertidal areas when those areas contain residual water (
Biological information for the Southcentral stock of northern sea otters can be found in the Service's Stock Assessment Report for the Southcentral Stock of Northern Sea Otters (Service 2014) (
Understanding the effects of sound from oil and gas exploration on sea otters is important for the health of sea otters and the development of parameters by which sea otter takes can be established and monitored. The proposed actions from BlueCrest have the potential to disturb sea otters, particularly in protected waters in nearshore habitats, which are used for resting, pup rearing, and foraging.
The proposed BlueCrest drilling operations that could impact local sea otters are impulsive acoustical harassment from the brief periods of CPD and VSP activities. Disruptions are not likely to be significant enough to rise to the level of a take unless the sound source displaces a sea otter from an important feeding or breeding area for a prolonged period, and this project is unlikely to do so. The continuous underwater noise generated by BlueCrest's proposed drilling operations would expose diving sea otters for only a couple of minutes at most.
The airborne sound sources include rig towing, noise generated from routine rig activities, and periodic air traffic. Routine boat traffic noise produced by all operators will also generate airborne sound. The Service believes that airborne sound sources will not exceed 160 dB (Level B harassment) and will not affect sea otters (Richardson 1995). Adherence to specified operating conditions for vessels and aircraft will ensure that these airborne sound sources do not take sea otters.
When disturbed by noise, sea otters may respond behaviorally (
Despite the importance of understanding the effects of sound on sea otters, very few controlled experiments or field observations have been conducted to address this topic. Those studies that have been conducted conclude that sea otters are generally quite resistant to the effects of sound, and that change to presence, distribution, or behavior resulting from acoustic stimuli is rare (Ghoul
The primary potential impact of the proposed BlueCrest drilling operations to local sea otters is from rig towing, noise generated from routine rig activities, periodic air traffic, and impulsive acoustical harassment from the brief periods of conductor pipe driving and VSP activities. Although the number of individual sea otters that might be exposed to harassment level noise represents a small portion of the total estimated stock population, what is known about the sea otter's behavioral responses to noise stimuli is addressed below. Disruptions are not likely to be significant enough to rise to the level of a take unless the sound source displaces a marine mammal from an important feeding or breeding area for a prolonged period, and this project is unlikely to do so.
Sea otters generally show a high degree of tolerance and habituation to shoreline activities and vessel traffic, but disturbance may cause animals to disperse from the local area. Populations of sea otters in Alaska have been known to avoid areas with heavy boat traffic but return to those same areas during seasons with less traffic (Garshelis and Garshelis 1984). Sea otters in Alaska have shown signs of disturbance (escape behaviors) in response to the presence and approach of survey vessels, including: Diving and/or actively swimming away from a boat; hauled-out sea otters entering the water; and groups of sea otters disbanding and swimming in multiple different directions (Udevitz
Sea otter collisions with vessels associated with the proposed project are unlikely. Tugs and barges are slow moving and pose little risk of colliding with sea otters. No fast boat use is proposed, and it is unlikely that housing and crew transfer vessels will impact sea otters. Vessels proposed for use to transfer housing and crew can produce noises exceeding 190 dB when traveling at higher speeds. However, the influence of this sound is limited to a distance of 2 to 4 m (6.6 to 13.1 ft) from the vessel. Adherence to operating conditions will ensure that these vessels do not take sea otters.
Effects of noise on marine mammals are highly variable and can be categorized as: Tolerance; masking of natural sounds; behavioral disturbance; temporary or permanent hearing impairment; and non-auditory effects, such as female-pup separations (Richardson
Information regarding the northern sea otter's hearing abilities is limited; however, the closely related southern sea otter has some information showing this subspecies' range of hearing. Reichmuth and Ghoul (2012) tested the aerial (from airborne sound sources) hearing capabilities of one male southern sea otter believed to have typical hearing. The study revealed an upper frequency hearing limit extending to at least 32 kHz and a low-frequency limit below 0.125 kHz. These results are generally consistent with comparable data for other carnivores, including terrestrial mustelids. This range is also similar to that of harbor seals (
Additionally, sea otters and harbor seals both exhibit amphibious hearing and spend a considerable amount of time above water, where they are not disturbed by airborne sound sources; southern sea otters spend about 80 percent of their time at the sea surface, whereas harbor seals may spend up to 60 percent of their time hauled out of the water (Frost
Riedman (1983) examined changes in the behavior, density, and distribution of southern sea otters at Soberanes Point, California, that were exposed to recorded noises associated with oil and gas activity. The underwater sound sources were played at a level of 110 dB
In another controlled study using prerecorded sounds, Davis
Previous work suggests that sea otters may be less responsive to marine seismic pulses than some other marine mammals. Riedman (1983, 1984) monitored the behavior of sea otters along the California coast while they were exposed to a single 100-in
Noise thresholds have been developed by NMFS to measure injury for pinnipeds (
The noise thresholds established by NMFS for preventing injury to pinnipeds were developed as precautionary estimates of exposures below which physical injury would not occur. There is no empirical evidence that exposure to pulses of airgun sound can cause PTS in any marine mammal, even with large arrays of airguns (Southall
Single or occasional occurrences of mild TTS are not indicative of permanent auditory damage, but repeated or (in some cases) single exposures to a level well above that causing TTS onset might elicit PTS. By means of preventing the onset of TTS, it is highly unlikely that marine mammals could receive sounds strong enough (and over a sufficient duration) to cause permanent hearing impairment. Until specific sea otter thresholds are developed for both Level A and Level B harassment and injury, the use of NMFS thresholds for pinnipeds as a surrogate for sea otters remains the best available information. NMFS's thresholds are further described and justified in NOAA (2005), NOAA (2006), NOAA (2008), and Southall
A sea otter could experience a TTS as a result of BlueCrest's proposed operations, but there is no information on TTS impacts to sea otters, an animal that spends much time at the surface. The average dive time of a northern sea otter, is only 85 sec (Bodkin
A PTS occurs when continuous noise exposure causes hairs within the inner ear system to die. This can occur due to moderate durations of very loud noise levels, or long-term continuous exposure of moderate noise levels. However, PTS is also not an issue with sea otters and impulsive seismic noise. Sea otter exposure to underwater noises generated by vessels (propellers) would be of very short duration because the average dive time of a northern sea otter is only 85 sec (Bodkin
In conclusion, using information available for other marine mammals as a surrogate, and taking into consideration what is known about sea otters, the Service has set the received sound level under water of 160 dB as a threshold for Level B take by disturbance for sea otters for this proposed IHA (Ghoul and Reichmuth 2012a and b, McShane
Air gun arrays typically produce most noise energy in the 10 to 120 Hertz (Hz) range, with some energy extending to 1,000 Hz (Richardson
Masking occurs when louder noises interfere with marine mammal vocalizations or their ability to hear natural sounds in their environment (Richardson
The seismic airguns that will be used during BlueCrest's Cook Inlet operation have the potential to acoustically injure marine mammals at close proximity. As no sound levels have been effectively measured to establish the threshold where injury caused by an acoustic source exists, the 190-dB criterion for seals applies most closely to sea otters given their more similar natural history than compared to cetaceans.
BlueCrest intends to conduct VSP operations at the end of drilling each well using an array of airguns with total volumes of between 600 and 880 cubic inches (in3). The VSP operation is expected to last less than two days at each well site. Illingworth & Rodkin (2014) measured noise levels associated with VSP (using a 750 in
Seismic operations could also cause behavioral effects on sea otters. For example, severe disturbance from seismic noise or activities could cause female-pup separations, male territory abandonment, male territory shifts and conflicts between territories, breakup of rafts of nonbreeding males, and/or movement by individual sea otters out of nearshore areas into deeper water. These types of displacement events, if they occurred, could have repercussions on breeding success and/or survival due to increased risk of predation or other adverse conditions. However, because sea otters spend relatively large amounts of time above the water surface compared to other marine mammals, sea otters' potential exposure to the underwater acoustic stimuli, such as those associated with seismic surveys (Greene and Richardson 1988), may be lower than that of other marine mammal species (Richardson et al. 2011). As previously stated, studies have not shown these kinds of dramatic responses when sea otters were exposed to seismic operations. Therefore, we have no reason to believe that sea otters will exhibit any of these reactions during these activities.
To date, there is no evidence that serious injury, death, or stranding of sea otters can occur from exposure to airgun pulses, even in the case of large airgun arrays. As a result, the Service does not expect any sea otters to incur serious injury (Level A harassment) or mortality in Cook Inlet or strand as a result of the proposed activities.
For BlueCrest's drilling operation, two project components have the potential to disturb sea otters: Driving the conductor pipe at each well prior to drilling, and VSP operations that may occur at the completion of each well drilling. As described in BlueCrest's petition, the CPD and VSP are impulsive noise activities. Here the Level B disturbance exposure to sound levels greater than 160 dB applies, and take is addressed relative to noise levels exceeding 160 dB, above which disturbance can occur until 190 dB, after which potential injury and Level A disturbance can occur.
A conductor pipe is a relatively short, large-diameter pipe driven into the sediment prior to the drilling of oil wells. Conductor pipes are usually installed using drilling, pile driving, or a combination of these techniques. BlueCrest proposes to drive approximately 90 m (300 ft) of 76.2-cm (30-in) conductor pipe at Cosmopolitan #2 (and any associated delineation wells) prior to drilling using a Delmar D62-22 impact hammer. This hammer has impact weight of 6,200 kg (13,640 pounds) and reaches maximum impact energy of 224 kilonewton-m (165,215 foot-pounds) at a drop height of 3.6 m (12 ft).
Blackwell (2005) measured the noise produced by a Delmar D62-22 driving 91.4-cm (36-inch) steel pipe in Cook Inlet and found sound pressure levels to exceed 190 dB at about 60 m (200 ft), 180 dB at about 250 m (820 ft), and 160 dB at just less than 1.9 km (1.2 mi). Each CPD event is expected to last 1 to 3 days, although actual noise generation (pounding) would occur only intermittently during this period. It is anticipated that sea otters will move away from any sound disturbance caused by the pipe driving or become habituated.
Once a well is drilled, accurate followup seismic data can be collected by placing a receiver at known depths in the borehole and shooting a seismic airgun at the surface near the borehole. This gathered data provides not only high-resolution images of the geological layers penetrated by the borehole, called VSP, but it can also be used to accurately correlate (or correct) the original surface seismic data.
BlueCrest intends to conduct VSP operations at the end of drilling each well using an array of airguns with total volumes of between 9.83 and 14.42 liters (600 and 880 in3). Each VSP operation is expected to last less than 1 or 2 days. Assuming a 1-m source level of 227 dB for a 14.42-liter (880-cubic-inch) array and using Collins et al.'s (2007) transmission loss model for the Cook Inlet (18.4 Log(R)−0.00188R), the 190-dB radius (Level A take threshold for pinnipeds and surrogate for sea otters) from source was estimated at 100 m (330 ft), and the 160-dB radius (Level B disturbance take threshold for all sea otters) at 2.46 km (1.53 mi). These were the initial injury and safety zones established for monitoring during a VSP operation conducted by Buccaneer at Cosmopolitan State #1 during July 2013. Illingworth and Rodkin (2013) measured the underwater noise levels associated with the July 2013 VSP operation using an 11.8-liter (720 in3) array and found the noise exceeding 160 dB extended out 2.47 km (1.56 mi) or virtually identical to the modeled distance. The measured radius to the 190-dB level was 75 m (246 ft). The best fit model for the empirical data was 227−19.75
The jack-up drilling rig,
For this IHA analysis, acoustical injury to sea otters can occur if received noise levels exceed 190 dB. This is classified as a Level A take (injury), which is not authorized by IHAs. The towing, drilling, and pump operations to be used during BlueCrest's program do not have the potential to acoustically injure marine mammals. Therefore, no shutdown safety zones will be established for these activities. However, the conductor pipe driving and VSP operations do generate impulsive noises exceeding 190 dB. Based on the estimated distances to the 190-dB isopleth addressed above, a 60-m (200-ft) shutdown safety zone will be established and monitored during conductor pipe driving (at least until the noise levels are empirically verified), while a 75-m (246-ft) shutdown safety zone will be monitored during VSP operations. Northern sea otters may be disturbed at noise levels between 160 dB to 190 dB, where disturbance can occur (Level B harassment) out to approximately 0.75 km (2.5 mi). If these takes occur, they are likely to result in nothing more than short-term changes in behavior.
As described earlier, the Service anticipates that incidental take will occur during Cook Inlet oil and gas activities conducted by BlueCrest. In the sections below, we estimate take by harassment of the numbers of sea otters from the Southcentral stock that are likely to be affected during the proposed activities. The proposed BlueCrest activities, previously discussed in detail, will primarily occur in a limited area around the drilling rigs at the Cosmopolitan #A-2, #A-3, and #B-1 sites.
The jack-up rig would be towed to the Cosmopolitan State well site coming from either Port Graham, a travel distance of about 50 km (31 mi), or from upper Cook Inlet approximately 100 km (62 mi) north of Cosmopolitan State (Figure 6-1, Owl Ridge 2015, page 14). After drilling is complete, the rig will be released and moved away from the well sites to a location of the owner's discretion. The jack-up rig could be towed multiple times during 2016, but only the tow from Port Graham or upper Cook Inlet to Cosmopolitan State #2, and between Cosmopolitan State #2 and #1, are addressed in this IHA petition. It is estimated that the longer tows (to and from the Cosmopolitan State leases) will take 2 days to complete, while tows between Cosmopolitan well sites will take but a few hours. The rig will be wet-towed by two or three ocean-going tugs licensed to operate in Cook Inlet. Tugs generate their loudest sounds while towing due to propeller cavitation. These continuous sounds have been measured at up to 171 dB at source (broadband), and are generally emitted at dominant frequencies of less than 5 kHz (Miles
The dominant noise frequencies from propeller cavitation are significantly less than the dominant hearing frequencies for pinnipeds (10 to 30 kHz) and toothed whales (12 to >100 kHz), but within the hearing range of sea otters in general (Wartzok and Ketten 1999). Also, because it is currently unknown which tug or tugs will be used to tow the rig, and there are few sound signatures for tugs in general, the potential area that could be ensonified by disturbance level noise is calculated based on an assumed 171 dB source. Using Collins
The Delmar D62-22 diesel impact hammer proposed to be used by BlueCrest to drive the 76.2-cm (30-in) conductor pipe was previously acoustically measured by Illingworth & Rodkin (2014) during drilling operations at Cosmopolitan State #A-1. They found that sound exceeding Level A noise limits for pinnipeds (and presumably for sea otters) to extend to about 55 m (180 ft). Level B disturbance levels extended to just less than 1.63 km (1.0 mi). The associated ZOI (area ensonified by noise greater than 160 dB) is 8.3 km
Illingworth & Rodkin (2014) measured noise levels associated with VSP (using a 750 in
There are no published sea otter density estimates for the nearshore area
For purposes of this analysis, “potential exposure” was defined as a sea otter occurring within an active ZOI of a specific noise-generating activity. As discussed below, this potential exposure does not necessarily constitute a Level B take, especially if the sea otter remains above water and is not directly exposed to underwater noise. Thus, the calculated exposure values represent the number of sea otters that are in a position (within an active ZOI) of receiving harassment take noise levels should they dive during the encounter.
The estimated potential exposures of sea otters by BlueCrest's planned exploratory drilling project was determined using density estimates derived from Larned (2006) above as adjusted for missed animals (2.38/km
As mentioned above, an acoustical harassment take of a sea otter does not occur should the animal remain at the surface during the period it is found within the ZOI. During the 2013 drilling activities at Cosmopolitan State #1, only 52 of 356 recorded sea otters, or about 15 percent, actually dove underwater while within 260 m (853 ft) of the drill rig (most sea otters simply drifted past, and were often asleep). Thus, the exposure estimate of 388 found in Table 2 is conservative because it does not take into account that most sea otters are not expected to dive while drifting past the rig operations.
The potential exposures for the 2016 drilling period, based on sea otter density, is estimated to be 388 sea otters (Table 2), or about 2.1 percent of the stock. Taking into account the 15 percent of the sea otters that are likely to dive while in the vicinity of the drill rig, the estimated number of exposures reduces to 58, or about 0.4 percent of the stock. However, because sea otter behavior is difficult to predict, the more conservative 388 sea otters potentially exposed is the requested authorization.
The Service determined that the BlueCrest activities most likely to result in the take of sea otters, as defined under the MMPA, are CPD and VSP. These activities will generate noise levels in the water that may cause short-term, temporary, nonlethal, but biologically significant changes in behavior to sea otters that the Service considers to be Level B take by disturbance under the MMPA. Other proposed activities, such as rig towing, noise generated from routine rig activities, routine boat traffic, and periodic air traffic were considered to have a limited potential for disturbance leading to Level B take. Adherence to specified operating conditions will ensure that take is minimized. The Service made these determinations, in part, based on information provided in the petition materials provided by BlueCrest, including the Marine Mammal Monitoring and Mitigation Plan (4MP).
As described previously, the primary potential impacts to sea otters are associated with high-energy impulsive sound levels. However, other potential impacts are also possible to the surrounding habitat from physical disturbance, discharges, or an oil spill.
Since sea otters typically inhabit nearshore marine areas, shoreline length is a readily available metric that can be used to quantify sea otter habitat. The total length of shoreline within the range of the Southcentral Alaska stock of northern sea otters is approximately 2,575 km (1,600 mi), of which 540 km (335.5 mi) are located within Cook Inlet. Of that, the total length of shoreline for the proposed activities is a small percentage of the total shoreline habitat available to the Southcentral sea otter stock.
In addition to the disturbances outlined above to sea otter habitat from noise, seismic activities could affect sea otter habitat in the form of impacts to prey species. The primary prey species for sea otters are sea urchins, abalone, clams, mussels, crabs, and squid (Tinker and Estes 1999). When preferential prey are scarce, sea otters will also eat kelp, crabs, clams, turban snails, octopuses, barnacles, sea stars, scallops, rock oysters, fat innkeeper worms, and chitons (Riedman and Estes 1990).
Little research has been conducted on the effects of seismic operations on invertebrates (Normandeau Associates, Inc. 2012). Christian et al. (2003) concluded that there were no obvious effects from seismic signals on crab behavior and no significant effects on the health of adult crabs. Pearson et al. (1994) had previously found no effects
The potential direct habitat impact by the BlueCrest drilling operation is limited to the actual drill-rig footprint defined as the area occupied and enclosed by the drill-rig legs. The jack-up rig will temporarily disturb up to three offshore locations in upper Cook Inlet, where the wells are proposed to be drilled. Bottom disturbance would occur in the area where the three legs of the rig would be set down and where the actual well would be drilled.
The Cosmopolitan State #B-1 well site is located in lower Cook Inlet. Cook Inlet is a large subarctic estuary roughly 300 km (186 mi) in length and averaging 96 km (60 mi) in width. It extends from the city of Anchorage at its northern end and flows into the Gulf of Alaska at its southernmost. For descriptive purposes, Cook Inlet is separated into unique upper and lower sections, divided at the East and West Forelands, where the opposing peninsulas create a natural waistline in the length of the waterway, measuring approximately 16 km (10 mi) across (Mulherin
The potential direct habitat impact by the BlueCrest drilling operation is limited to the actual drill-rig footprint defined as the area occupied and enclosed by the drill rig legs. This area was calculated as 0.22 hectares (ha) (0.54 acres) during the land use permitting process. The collective 0.8-ha (2-ac) footprint of the well represents a very small fraction of the 18,950-km
The drill rigs will operate under an APDES general permit for wastewater discharges. This permit authorizes discharges from oil and gas extraction facilities engaged in exploration under the Offshore and Coastal Subcategories of the Oil and Gas Extraction Point Source Category (40 CFR part 435). Twelve effluents are authorized for discharge into Cook Inlet once discharge limits set by the Alaska Department of Environmental Conservation have been met. The authorized discharges include drilling fluids and drill cuttings, deck drainage, sanitary waste, domestic waste, blowout preventer fluid, boiler blowdown, fire control system test water, uncontaminated ballast water, bilge water, excess cement slurry, mud cuttings cement at sea floor, and completion fluids. The drill rig will also be authorized under the Environmental Protection Agency's (EPA's) Vessel General Permit for deck washdown and runoff, gray water, and gray water mixed with sewage discharges. Drilling wastes include drilling fluids, known as mud, rock cuttings, and formation waters. Drilling wastes (non-hydrocarbon) will be discharged to the Cook Inlet under the approved APDES general permit.
Drilling wastes (hydrocarbon) will be delivered to an onshore permitted location for disposal. BlueCrest will conduct an Environmental Monitoring Study of relevant hydrographic, sediment hydrocarbon, and heavy metal data from surveys conducted before and during drilling mud disposal and at least 1 year after drilling operations cease in accordance with the APDES general permit for discharges of drilling muds and cuttings.
Non-drilling wastewater includes deck drainage, sanitary waste, domestic waste, blowout preventer fluid, boiler blowdown, fire control test water, bilge water, noncontact cooling water, and uncontaminated ballast water. Non-drilling wastewater will be discharged into Cook Inlet under the approved APDES general permit or delivered to an onshore permitted location for disposal. Mud cuttings will be constantly tested. Hydrocarbon-contaminated muds will be hauled offsite. Solid waste (
Discharging drill cuttings or other liquid waste streams generated by the drilling rig—even in permitted amounts—could potentially affect marine mammal habitat. Toxins could persist in the water column, which could have an impact on marine mammal prey species. However, despite a considerable amount of investment in research on exposures of marine mammals to organochlorines or other toxins, no marine mammal deaths in the wild can be conclusively linked to the direct exposure to such substances (O'Shea 1999).
Drilling muds and cuttings discharged to the seafloor can lead to localized increased turbidity and increase in background concentrations of barium and occasionally other metals in sediments and may affect lower trophic organisms. Drilling muds are composed primarily of bentonite (clay), and the toxicity is, therefore, low. Heavy metals in the mud may be absorbed by benthic organisms, but studies have shown that heavy metals do not bio-magnify in marine food webs (Neff
The probability of an oil spill from the proposed activities is low. Potential sources would be a release from a vessel. An oil spill or unpermitted discharge is an illegal act; IHAs do not authorize takes of sea otters caused by illegal or unpermitted activities.
If an oil spill did occur, the most likely impact upon sea otters would be mortality due to exposure to and ingestion of spilled oil. Also,
Based on the preceding discussion of potential types and likelihood of impacts to sea otters, their prey, and habitat, the Service anticipates that the proposed activities are not likely to cause more than negligible, short-term, and temporary impacts to a small number of sea otters and to a small fraction of sea otter habitat.
The MMPA allows for Alaska Natives to harvest sea otters for subsistence purposes or for the purposes of creating authentic Native articles of handicrafts and clothing, provided this is accomplished in a non-wasteful manner.
Data from the Service's Marine Mammal Marking, Tagging, and Reporting Program (MTRP) indicates that between 1989 and 2015 (27 years), Alaska Natives harvested a total of 715 sea otters hunting from the community of Homer, while Port Graham reported 215, Seldovia 122, Nanwalek 39, Kenai 31, and Ninilchik 16 sea otters harvested (USFWS MTRP unpublished data); the mean reported annual subsistence take from 2009 through 2015 from Homer, Port Graham, Seldovia, Nanwalek, Kenai, and Ninilchik of sea otters in or near the proposed project areas was 239 animals (USFWS MTRP unpublished. data).
BlueCrest has reached out and coordinated with local communities, including Kenai, Homer, and Ninilchik, as well as Kenai Peninsula Borough and Cook Inlet Region, Inc. Any observed sea otter interactions with the BlueCrest operations deemed potentially harmful will be immediately reported to the Service by BlueCrest or their representative.
The impact of drilling operations is unlikely to affect any sea otter sufficient to render it unavailable for subsistence harvest in the future. Oil spill trajectory scenarios indicate that potential spills would travel south through the central channel of the inlet away from shoreline subsistence harvest areas. For these reasons, we conclude that these activities will not impact the availability of sea otters for subsistence harvest in Cook Inlet.
Holders of an IHA must use methods and conduct activities in a manner that minimizes to the greatest extent practicable adverse impacts on sea otters, their habitat, and on the availability of sea otters for subsistence uses. Adaptive management approaches, such as temporal or spatial limitations in response to the presence of sea otters in a particular place or time or the occurrence of sea otters engaged in a particularly sensitive activity (such as feeding), must be used to avoid or minimize interactions with sea otters, and subsistence users of these resources. BlueCrest has developed a 4MP for proposed Cook Inlet drilling activities. This 4MP is designed to monitor and mitigate for all marine mammals regardless of status or agency jurisdiction. The primary concern is the harassing levels of underwater noise produced by the drilling program operations.
Compared to non-jack-up drill rigs, the use of the jack-up drilling rig
Shutdown safety zones will be established and monitored during pipe driving and VSP activities. Shutdowns will be implemented to avoid injury take to all marine mammals including sea otters.
In the unlikely event of an oil spill, BlueCrest will be working with CISPRI, which is certified as a U.S. Coast Guard oil spill removal organization and State of Alaska Primary Response Action Contractor serving the Cook Inlet region of Alaska. BlueCrest will follow the procedures as outlined in CISPRI's Technical Manual, Wildlife Tactics. Most procedures discussed in the CISPRI Technical Manual are associated with responses for either waterfowl or marine mammals. The CISPRI will dedicate personnel and equipment as appropriate in support of wildlife during a spill. The Planning Chief will work to implement a Wildlife Plan addressing those species anticipated to be at risk and needing protection. The protocols are described in further detail in the Oil Discharge Prevention and Contingency Plan.
Under this Authorization, BlueCrest will be required to use the following mitigation measures to ensure no Level A and no more than authorized Level B takes of sea otters occur. These include conditions for operational and support vessels, aircraft, offshore seismic surveys, safety zones, ramp-up procedures, power down and shutdown, emergency shutdown, Drill Rig Tows, Drive Pipe Driving, Rig Operation, VSP Operations, and Sea Otter Observers. BlueCrest will also be required to have sufficient and continual sound monitoring equipment to ensure that following mitigation measures can be applied. BlueCrest's 4MP and the following mitigation measures will ensure that the numbers of Southcentral stock of sea otters likely to be encountered during project operations will ensure that Level B take will be minimal and below the prescribed take allowance.
• Operational and support vessels must be staffed with trained and qualified observers to alert crew of the presence of sea otters and initiate adaptive mitigation responses.
• Vessel operators must take every precaution to avoid harassment to sea otters when a vessel is operating near these animals.
• Vessels must reduce speed and maintain a distance of 100 m (328 ft) from all sea otters when practicable.
• Vessels may not be operated in such a way as to separate members of a group of sea otters from other members of the group.
• When weather conditions require, such as when visibility drops, vessels should adjust speed accordingly to avoid the likelihood of injury to sea otters.
• All vessels must avoid areas of active or anticipated subsistence hunting for sea otters as determined through community consultations.
• We may require a monitor on site of the activity or onboard drillships, drill rigs, support vessels, aircraft, or vehicles to monitor the impacts of an activity on sea otters.
• Operators of support aircraft must, at all times, conduct their activities at the maximum distance possible from sea otters.
• Fixed-wing aircraft must operate at an altitude no lower than 91 m (300 ft) in the vicinity of sea otters.
• Rotary winged aircraft (helicopters) must operate at an altitude no lower than 305 m (1,000 ft) in the vicinity of sea otters.
• When weather conditions do not safely allow the required minimum altitudes stipulated above, such as
• When aircraft are operated at altitudes below the required minimum altitudes, the operator must avoid known sea otter locations and should take precautions to avoid flying directly over these areas.
• Aircraft routes must be planned to minimize any potential conflict with active or anticipated sea otter subsistence hunting activity as determined through community consultations.
Any offshore exploration activity expected to include the production of pulsed underwater sounds with sound source levels ≥160 dB will be required to establish and monitor acoustic safety zones and implement adaptive mitigation measures as follows:
Establish and monitor with trained and qualified observers an acoustically verified disturbance zone surrounding seismic source arrays where the received level will be ≥160 dB and an acoustically verified safety zone surrounding seismic source arrays where the received level will be ≥190 dB.
For all seismic surveys, including airgun testing, use the following ramp-up procedures to allow marine mammals to depart the disturbance zone before seismic surveying begins.
• Visually monitor the disturbance zone and adjacent waters for sea otters for at least 30 minutes before initiating ramp-up procedures. If no sea otters are detected, you may initiate ramp-up procedures. Do not initiate ramp-up procedures at night or when you cannot visually monitor the disturbance zone for marine mammals.
• Initiate ramp-up procedures by firing a single airgun. The preferred airgun to begin with should be the smallest airgun, in terms of energy output (dB) and volume (cubic inches).
• Continue Ramp-up by gradually activating additional airguns over a period of at least 20 minutes, but no longer than 40 minutes, until the desired operating level of the airgun array is obtained.
Immediately power down or shutdown the seismic source array and/or other acoustic sources whenever one or more sea otters are sighted close to or within the area delineated by the 190 dB disturbance zone. If the power down operation cannot reduce the received sound pressure level to 160 dB or less, the operator must immediately shut down the seismic airgun array and/or other acoustic sources.
If observations are made or credible reports are received that one or more sea otters are within the area of the seismic survey and are indicating acute distress, such as any injury due to seismic noise, the seismic airgun array will be immediately shutdown and the Service contacted. The airgun array will not be restarted until review and approval by the Service.
Because the ocean tugs will be under tow while they are generating noises of concern they will be traveling at very slow speeds (1 to 5 knots), providing sufficient time for marine mammals to move from the vicinity and avoid any possible injury take due to collision or noises exceeding injury thresholds. Altering courses or speeds to avoid harassment takes will be conducted when feasible, but completely shutting engines down would represent a major (and perhaps illegal) safety concern given the inherent hazards of towing at sea. Thus, while marine mammals will be monitored, no safety shutdowns will occur; however, marine mammal monitoring will occur during all tow events.
Soon after the drill rig is positioned on the well head, the conductor pipe will be driven as the first stage of the drilling operation. At least two marine mammal observers (one operating at a time) will be stationed aboard the rig during this 2 to 3 day operation monitoring a 1.6-km (1-mi) shutdown safety zone. The impact hammer operator will be notified to shutdown hammering operations at the approach of a marine mammal to the safety zone. Also, a ramp up of the hammering will begin at the start of each hammering session. The ramp up procedure involves initially starting with three soft strikes, 30 seconds apart. This delayed-strike start alerts marine mammals of the pending hammering activity and provides them time to vacate the area. Monitoring will occur during all hammering sessions.
Hydroacoustic tests were conducted by MAI (2011) on the
As with the CPD, marine mammal observers will be redeployed during the VSP operations to monitor a shutdown safety zone. Illingworth & Rodkin (2014) measured noise levels during VSP operations associated with BlueCrest post-drilling operations at the Cosmopolitan State #B-1 site during July 2013. The results indicated that the 720-in
The initial rig tow from Port Graham to Cosmopolitan #B-1 is expected to last less than 12 hours. A single observer will monitor for sea otters during the tow. If the rig is towed from an upper Cook Inlet location, and is expected to last more than 12 hours (which it is), then two observers, working alternate shifts, will be used.
Pipe driving is expected to take 2 to 3 days to complete. Two sea otter observers, working alternate shifts, will be stationed aboard the drill rig during all pipe driving activities at the well. The observers will operate from a station as close to the well head as safely possible.
As with the pipe driving, two observers will monitor all VSP activities. Monitoring during zero-offset VSP will be conducted by two sea otter observers operating from the drill rig. During walk-away VSP operations, an additional two sea otter observers will monitor from the seismic source vessel.
Only trained sea otter observers will be used during this project. All observers will either have previous experience monitoring for sea otters, or will go through a sea otter (marine mammal) monitoring training course. Less-experienced observers will be paired with veterans. Observers will
In the unexpected event that the specified activity clearly causes the take of a sea otter in a manner not authorized by the IHA (if issued), such as a serious injury or mortality (
• Time, date, and location (latitude/longitude) of the incident;
• Name and type of vessel involved;
• Vessel's speed during and leading up to the incident;
• Description of the incident;
• Status of all sound source use in the 24 hours preceding the incident;
• Water depth;
• Environmental conditions (
• Description of all sea otter observations in the 24 hours preceding the incident;
• Species identification or description of the animal(s) involved;
• Fate of the animal(s); and
• Photographs or video footage of the animal(s) (if equipment is available).
In the event that BlueCrest discovers an injured or dead sea otter, and the lead PSO determines that the injury or death is not associated with or related to the activities authorized in the IHA (
Acoustical injury to sea otters can occur if received noise levels exceed 190 dB. BlueCrest is not requesting authorization of these takes, termed Level A injury takes, but instead will implement mitigation measures to avoid these takes, including shutdown safety zones. However, the rig towing procedures to be used during BlueCrest's operation do not have the potential to acoustically injure sea otters. Therefore, no shutdown safety zones will be established for this activity. The pipe driving and VSP operations do generate impulsive noises exceeding 190 dB. Based on the estimated distances to the 190 dB isopleth addressed above, a 170-m (560-ft) shutdown safety zone will be established and monitored during pipe driving, while a 240-m (787-ft) shutdown safety zone will be monitored during VSP operations. These safety zones are conservative for sea otters given that injury take is not expected until noise levels reach 190 dB.
We require holders of an IHA to cooperate with the Service and other designated Federal, State, and local agencies to monitor the impacts of oil and gas exploration activities on sea otters. In this case, BlueCrest coordinated with NMFS, Bureau of Safety and Environmental Enforcement, and the Army Corps of Engineers. BlueCrest reached out to the communities of Homer, Port Graham, Kenai, Seldovia, Soldotna, and Ninilchik, as well as Kenai Peninsula Borough, Cook Inlet Region, Inc., Cook Inlet Keeper, United Cook Inlet Drift Association, and the Chugach Alaska Services.
BlueCrest must submit a final report to the Service within 90 days after the end of the project. The report must describe the operations that were conducted and the marine mammals that were observed. The report must include documentation of methods, results, and interpretation pertaining to all monitoring. The 90-day report must summarize the dates and locations of seismic operations, and all sea otter sightings (dates, times, locations, activities, associated seismic survey activities, sea otter behavior, and any observed behavioral changes). All observations of sea otters, including any observed reactions to the seismic operations, will be recorded and reported to the Service.
Holders of an IHA will be required to:
• Maintain trained and qualified onsite observers to carry out monitoring programs for sea otters necessary for initiating adaptive mitigation responses.
• Place trained and qualified observers on board all operational and support vessels to alert crew of the presence of sea otters to initiate adaptive mitigation responses and to carry out specified monitoring activities identified in the monitoring and mitigation plan necessary to evaluate the impact of authorized activities on sea otters and the subsistence use of sea otters.
• Cooperate with the Service and other designated Federal, State, and local agencies to monitor the impacts of oil and gas exploration activities on sea otters.
The wet-tow will most likely occur during the summer when Alaska days are long. However, because there are no injury-take concerns with the wet-tows, and only a very low potential for acoustical harassment, no special considerations will be made to monitor during poor visibility conditions. The CPD and VSP activities will be limited to daylight hours, and when sea conditions are light, therefore, when marine mammal observation conditions will be generally good.
Standard marine mammal observing field equipment will be used including reticule binoculars (10 × 42), big-eye binoculars (30×), inclinometers, and range-finders. Because rig-towing, CPD, and VSP will be limited to daylight hours, no special equipment such as night scopes or FLIRS (forward looking infra-red thermal imagery system) will be needed.
All location, weather, and marine mammal observation data will be recorded onto a standard field form. Global positioning system and weather data will be collected at the beginning and end of a marine mammal monitoring period and at every half-hour in between. Position data will also be recorded at the change of an observer or the sighting of a marine mammal. Enough position data will be collected to eventually map an accurate charting of any vessel travel. Recorded marine mammal data will also include species, group size, behavior, and any apparent reactions to the project activities. Any behavior that could be construed as a take will also be recorded in the notes.
Holders of an IHA must keep the Service informed on the progress of authorized activities by:
• Notifying the Service at least 48 hours prior to the onset of activities.
• Providing weekly progress reports of authorized activities, noting any significant changes in operating state and or location.
• Notifying the Service within 48 hours of ending activity.
Holders of an IHA must report, on a weekly basis, observations of sea otters during project activities. Information within the observation report will include, but is not limited to:
• Date, time, and location of each sighting.
• Number, sex, and age (if determinable).
• Observer name, company name, vessel name or aircraft number, letter of authorization number, and contact information.
• Weather, visibility, and sea conditions at the time of observation.
• Estimated distance from the animal or group when initially sighted, at closest approach, and end of the encounter.
• Industry activity at time of sighting and throughout the encounter. If a seismic survey, record the estimated ensonification zone where animals are observed.
• Behavior of animals at initial sighting, any change in behavior during the observation period, and distance from Industry activity associated with those behavioral changes.
• Detailed description of the encounter.
• Duration of the encounter.
• Duration of any behavioral response (
• Mitigation actions taken.
Activity reports will be submitted to the Service within 72 hours of completing each of the three activities (rig tow, pipe driving, and VSP).
The monthly report will contain and summarize the following information pertaining to sea otters as appropriate:
• Dates, times, locations, heading, speed, weather, sea conditions (including Beaufort Sea state and wind force), and associated activities during all seismic operations and marine mammal sightings.
• Species, number, location, distance from the vessel, and behavior of any sighted marine mammals, as well as associated seismic activity (number of power-downs and shutdowns), observed throughout all monitoring activities.
• A description of the implementation and effectiveness of the mitigation measures of the IHA.
The results of monitoring efforts identified in the 4MP must be submitted to the Service for review within 90 days of the expiration date of the IHA.
The report must include, but is not limited to, the following information:
• A summary of monitoring effort including: Total hours, areas/distances, and distribution of sea otters through the project area of each rig, vessel, and aircraft.
• Analysis of factors affecting the visibility and detectability of sea otters by specified monitoring.
• Analysis of the distribution, abundance, and behavior of sea otter sightings in relation to date, location, sea conditions, and operational state.
• Estimates of take based on the number of animals encountered/km of vessel and aircraft operations by behavioral response (no response, moved away, dove, etc.), and animals encountered per day by behavioral response for stationary drilling operations.
• Raw data in electronic format (
• Sighting rates of sea otters during periods with and without airgun activities (and other variables that could affect detectability).
• Initial sighting distances versus airgun activity state (firing, powered down, or shut-down).
• Closest point of approach versus airgun activity state.
• Observed behaviors and types of movements versus airgun activity state.
• Numbers of sightings/individuals seen versus airgun activity state.
The Service proposes the following findings regarding this action:
For small take analysis, the statute and legislative history do not expressly require a specific type of numerical analysis, leaving the determination of “small” to the agency's discretion. Factors considered in our small numbers determination include the following:
(1)
(2)
(3)
The mitigation measures outlined above are intended to minimize the number of sea otters that may be disturbed by the proposed activity. Any impacts on individuals are expected to be limited to Level B harassment and to be of short-term duration. No take by injury or death is anticipated or authorized. Should the Service determine, based on the monitoring and reporting to be conducted throughout the survey activities, that the effects are greater than anticipated, the authorization may be modified, suspended, or revoked.
The Service finds that any incidental “take by harassment” that may result from this proposed seismic survey cannot be reasonably expected to, and is not reasonably likely to, adversely affect the species or stock through effects on annual rates of recruitment or survival, and would, therefore, have no more than a negligible impact on the stock. In making this finding, we considered the
Limited evidence (Riedman 1983, 1984) suggests that sea otters are not particularly sensitive to or adversely affected by sound. Responses of sea otters to disturbance would most likely be diving and/or swimming away from the sound source, which may entail the temporary, but not sustained, interruption of foraging, breeding, resting, or other natural behaviors. Thus, although 388 sea otters (around 2 percent of the population) are estimated to be potentially taken (
Our finding of negligible impact applies to incidental take associated with the proposed activities as mitigated through this authorization process. This authorization establishes monitoring and reporting requirements to evaluate the potential impacts of the proposed activities, as well as mitigation measures designed to minimize interactions with, and impacts to, sea otters.
We find that the anticipated harassment caused by the proposed activities would not have an unmitigable adverse impact on the availability of sea otters for taking for subsistence uses. In making this finding, we considered the timing and location of the proposed activities and the timing and location of subsistence harvest activities and patterns, as reported through the MTRP, in the proposed project area, as well as the applicants' consultation with potentially affected subsistence communities. More information can be found on our Web site at
The Service finds that the proposed activities will have a negligible impact on small numbers of sea otters in Southcentral Alaska and will not have an unmitigable adverse impact on the availability of the stock for subsistence uses. Further, we have prescribed permissible methods of take, means to have the least practicable impact on the stock and its habitat, and monitoring requirements.
We have prepared a draft Environmental Assessment (EA) (see Public Comments above) in accordance with the NEPA (42 U.S.C. 4321
Oil and gas exploration in U.S. waters is authorized by The Bureau of Ocean Energy Management, Regulation and Enforcement. All Federal agencies are required to ensure the actions they authorize are not likely to jeopardize the continued existence of any threatened or endangered species or result in destruction or adverse modification of critical habitat. The proposed oil and gas activities will occur entirely within the range of the Southcentral Alaska stock of the northern sea otter, which is not listed as threatened or endangered under the ESA. Though it is not a focal species subject to the issuance of this IHA, it is worth noting that the federally listed threatened Steller's eiders (
In accordance with the President's memorandum of April 29, 1994, “Government to Government Relations with Native American Tribal Governments” (59 FR 22951), Executive Order 13175, Department of the Interior Secretarial Order 3225 of January 19, 2001 (Endangered Species Act and Subsistence Uses in Alaska (Supplement to Secretarial Order 3206)), Department of the Interior Secretarial Order 3317 of December 1, 2011 (Tribal Consultation and Policy), Department of the Interior Memorandum of January 18, 2001 (Alaska Government-to-Government Policy), the Department of the Interior's manual at 512 DM 2, and the Native American Policy of the U.S. Fish and Wildlife Service, January 20, 2016, we readily acknowledge our responsibility to communicate and work directly on a Government-to-Government basis with federally recognized Alaska Natives Tribes in developing programs for healthy ecosystems, to seek their full and meaningful participation in evaluating and addressing conservation concerns for listed species, to remain sensitive to Alaska Native culture, and to make information available to Alaska Natives.
Furthermore, and in accordance with Department of the Interior Policy on Consultation with Alaska Native Claims Settlement Act of 1971 (ANCSA) Corporations, August 10, 2012, we likewise acknowledge our responsibility to communicate and work directly with ANCSA Corporations in evaluating and addressing conservation concerns for listed species, to remain sensitive to Alaska Native culture, and to make information available to ANSCA Corporations. We have evaluated possible effects on federally recognized Alaska Native Tribes. Through the IHA process identified in the MMPA, Industry presents a communication process, culminating in a Plan of Cooperation (POC), if warranted, with the Native communities most likely to be affected and engages these communities in numerous informational meetings.
Through various interactions and partnerships, we have determined that the issuance of this IHA is appropriate. We are open to discussing ways to continually improve our coordination and information exchange, including through the IHA/POC process, as may be requested by Tribes or other Native groups.
The Service proposes to issue BlueCrest an IHA for the nonlethal, incidental, unintentional take by Level B harassment of small numbers of northern sea otters (
The final IHA will also incorporate the mitigation, monitoring, and reporting requirements described in this proposal. The applicant will be expected and required to implement and fully comply with those requirements. The IHA will not authorize the intentional take of northern sea otters, nor take by injury or death.
If the nature or level of activity changes or exceeds that described in this proposal and in the IHA petition, or the nature or level of take exceeds that projected in this proposal, the Service will reevaluate its findings. The Secretary may modify, suspend, or revoke this authorization if the findings are not accurate or the mitigation, monitoring, and reporting requirements described herein are not being met.
Fish and Wildlife Service, Interior.
Notice of availability.
We, the U.S. Fish and Wildlife Service (Service), announce the availability of the final environmental impact statement (EIS) and related draft record of decision (ROD) for the Pima County Multi-Species Conservation Plan (MSCP). The final EIS was updated to address the comments received on the 2012 draft EIS and considers the environmental effects of issuing an incidental take permit (ITP) for covered activities on the covered species. The ITP will be in effect for a period of 30 years. Pima County has prepared the final Pima County MSCP to describe and implement a conservation plan that will minimize and mitigate environmental effects associated with the incidental take of seven animal species and impacts to two plant species currently listed under the Endangered Species Act of 1973, as amended (Act), as well as impacts to 35 species that may become listed under the Act. The incidental take and other impacts would occur in Pima County and the adjacent counties of Cochise, Santa Cruz, and Pinal, Arizona, as a result of specific actions conducted under the authority of Pima County (covered activities).
The Record of Decision will become effective no sooner than 30 days after the publication date of this notice of availability for the final EIS.
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Scott Richardson, by U.S. mail at the Arizona Ecological Services Office, Tucson Sub-Office, 201 North Bonita Avenue, Suite 141, Tucson, AZ 85745; by telephone at 520-670-6150 extension 242; or by email at
Under NEPA, we advise the public of the following:
1. We have gathered the information necessary to determine the impacts and to formulate the alternatives for the final EIS related to the issuance of an ITP to Pima County; and
2. Pima County has developed a final habitat conservation plan—the Pima County MSCP—which describes the measures Pima County has agreed to implement to minimize and mitigate the effects of the proposed incidental take of federally listed species and unlisted covered species, to the maximum extent practicable, pursuant to Section 10(a)(1)(B) of the Endangered Species Act (16 U.S.C. 1531
The 30-year ITP authorizes the incidental take of 40 animal species. Among the 40 animal species are 7 species currently listed under the Act:
• Lesser long-nosed bat (
• Southwestern willow flycatcher (
• Yellow-billed cuckoo (
• Northern Mexican gartersnake (
• Chiricahua leopard frog (
• Gila topminnow (
• Gila chub (
The 40 animal species also include 33 species not currently listed under the Act:
• Mexican long-tongued bat (
• Western red bat (
• Western yellow bat (
• California leaf-nosed bat (
• Pale Townsend's big-eared bat (
• Merriam's mouse (
• Western Burrowing owl (
• Cactus ferruginous pygmy-owl (
• Rufous-winged sparrow (
• Swainson's hawk (
• Abert's towhee (
• Arizona Bell's vireo (
• Sonoran desert tortoise (
• Desert box turtle (
• Tucson shovel-nosed snake (
• Groundsnake (valley form) (
• Giant spotted whiptail (
• Lowland leopard frog (
• Longfin dace (
• Desert sucker (
• Sonora sucker (
• San Xavier talussnail (
• Black Mountain/Papago talussnail (
• Total Wreck talussnail (
• Empire Mountain talussnail (
• Sonoran talussnail (
• Pungent talussnail (
• Santa Rita talussnail (
• Posta Quemada talussnail (
• Santa Catalina talussnail subspecies (
• Santa Catalina talussnail subspecies (
• Las Guijas talussnail (
• Tortolita talussnail (
Although take of listed plant species is not prohibited under the Act, plant species may be included in a habitat conservation plan to formally document the conservation benefits provided to them through that process. Pima County proposes four plant species for coverage under their MSCP, including two listed species:
• Huachuca water umbel (
• Pima pineapple cactus (
And the two following unlisted species:
• Needle-spined pineapple cactus (
• Tumamoc globeberry (
The proposed incidental take would primarily occur within Pima County, Arizona, although some Pima County actions may also occur in adjacent counties as a result of impacts from actions occurring under the authority of the applicants. The applicants have completed a final habitat conservation plan as part of the application package, as required by the Act.
The final EIS considers the direct, indirect, and cumulative effects of the proposed action of permit issuance, including the measures that will be implemented to minimize and mitigate such impacts.
Over the past 50 years, Pima County, Arizona, has had one of the fastest growing human populations of any county in the United States (an increase of just under 500 percent), as a result of a sunny climate, natural beauty, and economic opportunities. Urban growth has resulted in significant development, which is expected to continue in the foreseeable future. A significant proportion of the predicted future development in unincorporated Pima County is anticipated to occur in the undeveloped or underdeveloped areas, particularly in the eastern portion of the county.
The presence of threatened and endangered species in the areas of potential land development creates regulatory concerns in Pima County. Interest in conservation and its potential related costs is found across many segments of the community, ranging from environmental advocates promoting strengthened protections to members of the business community, the development industry, and real estate profession, all of whom may be concerned about potential economic impacts. Landowners and private property interests are concerned about how their land-use decisions potentially can be affected by the presence of federally listed threatened and endangered species.
A long-term solution to ensure compliance with the Act, particularly in areas such as Pima County where there is a large number of listed and unlisted species, is to develop a habitat conservation plan, such as the MSCP, under section 10(a)(1)(B) of the Act. The Pima County MSCP proposes a combination of long-term and short-term actions and long-range planning to protect and enhance some areas of the natural environment within Pima County. The Pima County MSCP would help guide public investments in both infrastructure and conservation, as well as establish Pima County's preferences for the expenditure of funds to preserve and reduce the threats posed by urbanization to species and their habitats, using tools such as ranch conservation and open space programs. Through the MSCP and the ITP, Pima County commits to a series of measures that will avoid, minimize, and mitigate impacts of covered activities on the covered species.
The objective of the Pima County MSCP is to achieve a balance between:
• Long-term conservation of the diversity of natural vegetation communities and native species of plants and animals that make up an important part of the natural heritage and allure of Pima County; and
• The orderly use of land to promote a sustainable economy, health, well-being, customs, and culture of the growing population of Pima County.
In addition, the Pima County MSCP has been designed to:
• Avoid, minimize, and mitigate for the impacts of activities that would result in take of threatened and endangered species and provide long-term management and monitoring programs to help ensure program effectiveness;
• Meet the requirements for the applicants to receive an ITP— pursuant to section 10(a)(1)(B) of the Act— that would allow for the incidental take of threatened and endangered species while engaging in otherwise lawful activities;
• Provide conservation benefits to species and ecosystems in Pima County that would not otherwise occur without the MSCP;
• Maximize flexibility and available options in developing mitigation and conservation programs;
• Minimize uncoordinated decision making, which can result in incremental habitat loss and inefficient project review;
• Provide a decision-making framework that minimizes habitat loss and maximizes the efficiency of public-sector projects;
• Provide the applicants and their community stakeholders (participants) with long-term planning assurances;
• Cover an appropriate range of activities under the permit;
• Reduce the regulatory burden of compliance with the Act for the applicants and all affected participants; and
• Designate the funding that would be available to implement the Pima County MSCP over the entirety of its proposed term.
The Service prepared the final EIS to respond to Pima County's request for an ITP for the proposed covered species related to activities that have the potential to result in incidental take. The need for this action is based on the potential for activities proposed by the applicants on lands under their jurisdiction to result in incidental take of covered species, thus requiring an ITP because section 9 of the Act prohibits the “taking” of threatened and endangered species. We are authorized, however, under limited circumstances, to issue permits to take federally listed species, when such a taking is incidental to, and not the purpose of, otherwise lawful activities. Regulations governing permits for endangered and threatened species are in the Code of Federal Regulations at 50 CFR 17.22 and 17.32, respectively.
To identify the scope and content of the draft EIS for the MSCP, the Service formally initiated the scoping process on September 7, 2000, with the publication in the
A notice of availability and notice of public meetings for the draft MSCP and EIS were posted in the
During the public comment period, including the six public meetings as described above, 20 letters and written comments were received. Of the comments received during the draft MSCP/draft EIS public comment review period, the topics of primary concern were the planning and decision making process, natural resources management, social and economic concerns, cumulative effects, and MSCP-specific issues. Detailed information concerning public involvement and a record of comments received during scoping and public comment periods, and Service responses, are provided in Chapter 6 of the final EIS.
Revisions were made to the draft MSCP and draft EIS based on public comments. The Service has afforded government agencies, tribes, and the public extensive opportunity to participate in the preparation of the EIS. We have requested data, comments, new information, and suggestions from the public, other concerned governmental agencies, the scientific community, Tribes, industry, or any other interested party regarding the draft EIS and draft MSCP. We have considered these comments in completing the final EIS, working with Pima County to finalize the MSCP, and developing the ITP.
We provide this notice under Section 10(c) of the Act (16 U.S.C. 1531
Fish and Wildlife Service, Interior.
Notice of availability; request for public comments.
Under the Endangered Species Act, as amended (Act), we, the U.S. Fish and Wildlife Service, invite the public to comment on incidental take permit applications for take of the federally listed American burying beetle resulting from activities associated with the geophysical exploration (seismic) and construction, maintenance, operation, repair, and decommissioning of oil and gas well field infrastructure within Oklahoma. If approved, the permits would be issued under the approved
To ensure consideration, written comments must be received on or before June 13, 2016.
You may obtain copies of all documents and submit comments on the applicant's ITP application by one of the following methods. Please refer to the permit number when requesting documents or submitting comments.
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Marty Tuegel, Branch Chief, by U.S. mail at: U.S. Fish and Wildlife Service, Environmental Review Division, P.O. Box 1306, Room 6034, Albuquerque, NM 87103; or by telephone at 505-248-6651.
Under the Endangered Species Act, as amended (16 U.S.C. 1531
We invite local, State, Tribal, and Federal agencies, and the public to comment on the following application under the ICP, for incidental take of the federally listed ABB. Please refer to the appropriate permit number (
Applicant requests an amended permit for oil and gas upstream and midstream production, including geophysical exploration (seismic) and construction, maintenance, operation, repair, and decommissioning of oil and gas well field infrastructure, as well as construction, maintenance, operation, repair, decommissioning, and reclamation of oil and gas gathering, transmission, and distribution pipeline infrastructure within Oklahoma.
Applicant requests an amended permit for oil and gas upstream and midstream production, including geophysical exploration (seismic) and construction, maintenance, operation, repair, and decommissioning of oil and gas well field infrastructure, as well as construction, maintenance, operation, repair, decommissioning, and reclamation of oil and gas gathering, transmission, and distribution pipeline infrastructure within Oklahoma.
Applicant requests an amended permit for oil and gas upstream and midstream production, including geophysical exploration (seismic) and construction, maintenance, operation, repair, and decommissioning of oil and gas well field infrastructure, as well as construction, maintenance, operation, repair, decommissioning, and reclamation of oil and gas gathering, transmission, and distribution pipeline infrastructure within Oklahoma.
Applicant requests an amended permit for oil and gas upstream and midstream production, including geophysical exploration (seismic) and construction, maintenance, operation, repair, and decommissioning of oil and gas well field infrastructure, as well as construction, maintenance, operation, repair, decommissioning, and reclamation of oil and gas gathering, transmission, and distribution pipeline infrastructure within Oklahoma.
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 made available for public disclosure in their entirety.
We provide this notice under section 10(c) of the Act (16 U.S.C. 1531
Bureau of Indian Affairs, Interior.
Notice of tribal consultation.
This notice announces that the Department of the Interior (Department) is hosting a tribal consultation session regarding lien removal and Acquisition Fund disposition under the Indian Land Consolidation Program (ILCP).
The tribal consultation session will be held Thursday, June 9, 2016, from 9 a.m. to 12 p.m. Written comments must be received by June 17, 2016.
The tribal consultation session will be held in the Little Crow Room at Mystic Lake Casino-Hotel, 2400 Mystic Lake Blvd. NW., Prior Lake, MN 55372. Please address written comments to
Ms. Elizabeth K. Appel, Office of Regulatory Affairs & Collaborative Action, (202) 273-4680,
Several tribes own interests in trust land that are subject to a lien held by the Department under the Indian Land Consolidation Act (Act). These tribes had participated in the ILCP to acquire individually owned interests and consolidate them into tribal ownership. The ILCP is no longer in operation, but the liens remain, and the revenue proceeds continue accruing to the Acquisition Fund. Likewise, funds remain in Acquisition Fund depository accounts. The Department seeks to consult with those Tribes that have ILCP liens and requests their input on its proposal to: (1) Remove existing liens on revenue accruing from land interests that tribes have purchased under the ILCP, and (2) dispose of the proceeds on deposit remaining in the Acquisition Fund by transferring the funds (segregated by tribe) to each impacted tribe's trust account, to be used by the tribe to purchase additional on-reservation fractionated interests in parcels.
Bureau of Indian Affairs, Interior.
Notice of proposed finding.
The Department of the Interior (Department) gives notice that the Acting Assistant Secretary—Indian Affairs (AS-IA) proposes to determine that the petitioner known as the Georgia Tribe of Eastern Cherokee, Inc. is not an Indian tribe within the meaning of Federal law. This notice is based on a determination that the petitioner has not submitted sufficient evidence to satisfy all seven of the criteria set forth in the applicable regulations and, therefore, does not meet the requirements for a government-to-government relationship with the United States.
Comments on this proposed finding (PF) are due on or before November 9, 2016.
Comments and requests for a copy of the summary evaluation of the evidence should be addressed to the Office of the Assistant Secretary—Indian Affairs, Attention: Office of Federal Acknowledgment, 1951 Constitution Avenue NW., Mail Stop 34B-SIB, Washington, DC 20240. Interested or informed parties who make submissions to the AS-IA must also provide copies of their comments to the petitioner at Georgia Tribe of Eastern Cherokee c/o Thomas Mote, P.O. Box 1411, Dahlonega, Georgia 30533.
Ms. Alycon T. Pierce, Acting Director, Office of Federal Acknowledgment, (202) 513-7650.
Pursuant to 25 CFR 83.10(h), the Department gives notice that the AS-IA proposes to determine that the Georgia Tribe of Eastern Cherokee (GTEC, Petitioner #41), c/o Thomas Mote, P.O. Box 1411, Dahlonega, Georgia 30533, is not an Indian tribe within the meaning of Federal law. This notice is based on a determination that the petitioner does not satisfy all seven criteria in Part 83 of Title 25 of the Code of Federal Regulations (25 CFR part 83), specifically criteria 83.7(a), 83.7(b), and 83.7(c). Therefore, it does not meet the requirements for a government-to-government relationship with the United States.
The Department publishes this notice in the exercise of authority that the Secretary of the Interior delegated to the AS-IA by 209 DM 8. The Principal Deputy AS-IA assumed these duties as acting AS-IA on January 1, 2016.
On December 3, 1978, Chairman Thomas B. Mote, and nine board members of the “Georgia Tribe of Cherokees, Inc.” signed resolution “No. 2-78” to apply for Federal acknowledgment. The Department received it on January 1, 1979, and designated GTEC as Petitioner #41. The petitioner submitted petition materials on February 5, 1980. The Department conducted an initial review of the petition on August 22, 1980, and issued a letter providing technical assistance (TA).
The petitioner claims to have evolved from the pre-Removal Cherokee Nation and to represent a specific Cherokee family that did not remove westward with the Tribe in the 19th century. The vast majority of the petitioner's members identify descent from Rachel Martin, a Cherokee woman, her husband Daniel Davis, and primarily their three children who remained near Dahlonega, Georgia, after the Cherokee Nation removed to Indian Territory in the 1830s. The petitioner also stated that the Cherokee who remained near Dahlonega “clustered around the Davis Plantation” and that the “Davis family played a central leadership role in the tribe.” The petitioner claims to connect historically to the Cherokee Nation in Oklahoma more than to the Eastern Band of Cherokee Indians in North Carolina. The GTEC's petition narrative maintains that its ancestors were part of the Cherokee Nation into the early 20th century.
On August 10, 1998, Thomas B. Mote and other leaders of GTEC delivered the petitioner's response to the Department's 1980 letter and asked the Department to review the petition under the 1994 regulations. On January 19, 1999, the Department issued a TA review letter. The GTEC provided additional materials to the Department on February 14, 2002, September 11, 2006, and October 3, 2006, including a new membership list certified and dated September 1, 2006. On October 23, 2006, the Department placed GTEC (Petitioner #41) on the “Ready, Waiting for Active Consideration” list.
On May 31, 2013, the Department offered “ready” petitioners the option of suspending evaluation of their petitions as the Department was proposing to revise the acknowledgment regulations. On June 21, 2013, GTEC waived its option to suspend evaluation and elected “to proceed under the current standards and criteria.”
In July 2014, the Office of Federal Acknowledgment (OFA) notified GTEC that its sampling of birth or similar records submitted in 2013 was insufficient for analysis, gave GTEC an additional 180 days to submit the necessary documentation, and noted that the evaluation team was diverted to another petition and litigation. As a result, the AS-IA found good cause to suspend active consideration under § 83.10(g) for 180 days to January 27, 2015, and extend active consideration under § 83.10(h) for up to 180 additional days, or until July 27, 2015. The OFA provided GTEC a list of members and ancestors lacking evidence demonstrating the child-to-parent link and a list of individuals with missing or incomplete addresses. Review of the GTEC petition was extended further until January 22, 2016, allowing the research team to make visits to the GTEC offices to review records and conduct interviews.
In response to a letter under § 83.7(b) of the current regulations, effective July 31, 2015, all members of GTEC's governing body requested evaluation of its petition under the 1994 regulations, declining the option to be evaluated under the current regulations. The projected January 22, 2016, date for issuing the proposed finding was subsequently extended to May 6, 2016. This evaluation is under the 1994 regulations as requested by the petitioner.
The evidence submitted by the GTEC petitioner and evidence Department staff obtained through its research does not meet three of the seven mandatory criteria for Federal acknowledgment: Criteria 83.7(a), 83.7(b), and 83.7(c). The petitioner has submitted evidence sufficient to meet: Criteria 83.7(d), 83.7(e), 83.7(f), and 83.7(g). In accordance with the regulations 25 CFR part 83, the failure to provide evidence sufficient to meet all seven criteria requires a proposed finding that the petitioning group is not an Indian tribe within the meaning of Federal law. An explanation of the Department's evaluation of each criterion follows below.
Criterion (a) requires that external observers have identified the petitioner as an American Indian entity on a substantially continuous basis since 1900. The records show the petitioner is a recently organized group almost entirely composed of descendants of the Davis family. There are no contemporary identifications of an Indian entity in Lumpkin County, although a few records identify individuals as Indian. Many of the documents submitted relate the Cherokee Nation's history leading up to and through the Removal Era in the 1830s and identify Cherokee individuals on various historical lists. There are few original, contemporary documents for 1900 to the present. This PF finds insufficient evidence of substantially continuous identifications of the GTEC petitioner from 1900 to the present. Therefore, the GTEC petitioner does not meet the requirements of criterion 83.7(a).
Criterion (b) requires that a predominant portion of the petitioning group comprise a distinct community from historical times to the present. The evidence demonstrates that petitioner's ancestors were active participants in Cherokee society before 1838. There is no evidence, however, that after the Cherokee Removal the petitioner's ancestors established a separate and distinct community of other Cherokee who did not remove, but remained in Georgia, and there is no evidence that they continued to participate in Cherokee society in Indian Territory. The Davises and their non-Indian neighbors lived together in a rural
Criterion (c) requires that the petitioner has maintained political influence or authority over its members as an autonomous entity from historical times until the present. The petitioner's ancestors were from a politically influential Cherokee family and part of a political network that advanced interests within the Cherokee Nation when it was in Georgia. After the Removal, the petitioner's ancestors—the Davis family in Georgia—did not establish an autonomous political organization composed of Cherokee who remained in Georgia, nor did they continue to participate in Cherokee political activities in Indian Territory. The petitioner submitted evidence dating between the 1880s and 1925 about the neighborhood church and school, but these institutions were not Indian institutions. Rather, they served Davis descendants and non-Indians, and do not provide evidence of political influence or authority within the petitioner. Although the petitioner named specific individuals as leaders between 1870 and 1950, it did not support these claims with documentation showing political processes within an Indian group. Between 1838 and 1976—138 years— the petitioner has not provided any evidence that the petitioner's ancestors maintained formal or informal political relationships that advanced issues of interest to a distinct group of Cherokee descendants. From 1976 to the present, the petitioner submitted almost no evidence showing how the petitioner organized activities, dealt with conflict and threats to Indian descendants, or represented the interests of its members other than by seeking acknowledgment and protecting GTEC's name in court. Therefore, the petitioner does not meet criterion 83.7(c).
Criterion (d) requires a copy of the group's present governing document, including its membership criteria. The petitioner provided two versions of its 2002 constitution and bylaws, which describe how the group determines its membership and how it governs itself. The GTEC petitioner provided evidence that satisfies the requirements of criterion 83.7(d).
Criterion (e) requires that the petitioner's membership consist of individuals who descend from a historical Indian tribe or from historical Indian tribes, which combined and functioned as a single autonomous political entity. The current membership list, dated August 10, 2013, which the governing body separately certified, has the required elements. The petitioner has demonstrated that about 90 percent of its members (413 of 458) descend from the historical Cherokee Nation as it existed before the 1838 Removal. Therefore, the GTEC petitioner satisfies the requirements of criterion 83.7(e).
Criterion (f) requires that the membership of the petitioner be composed principally of persons who are not members of any acknowledged North American Indian tribe. The OFA found no members of GTEC enrolled with the Eastern Band of Cherokee Indians, a federally recognized Indian tribe. The OFA found that 13 members of GTEC are enrolled with the Cherokee Nation, a federally recognized Indian tribe. The membership of the GTEC petitioner is composed principally of persons who are not members of any North American Indian tribe. Thus, the GTEC petitioner satisfies the requirements of criterion 83.7(f).
Criterion (g) requires that neither the petitioner nor its members are the subject of congressional legislation that has expressly terminated or forbidden the Federal relationship. No evidence has been found to indicate that the petitioner was subject of congressional legislation to terminate or prohibit a Federal relationship as an Indian tribe. Therefore, the petitioner meets the requirements of criterion 83.7(g).
Based on this preliminary factual determination, the Department proposes to decline to acknowledge the GTEC petitioner as an Indian tribe within the meaning of Federal law.
A report summarizing the evidence, reasoning, and analyses for the PF will be provided to the petitioner and interested parties. The PF is available to other parties upon written request as provided by 25 CFR 83.10(h) or available on the Department of the Interior's Web site at
Publication of this notice of the PF in the
The regulations, 25 CFR 83.10(k), provide the petitioner a minimum of 60 days to respond to any submissions on the PF received from interested and informed parties during the comment period. After the expiration of the comment and response periods described above, the Department will consult with the petitioner concerning establishment of a schedule for preparation of the FD. The AS-IA will publish the FD of the petitioner's status in the
Bureau of Land Management, Interior.
Notice of availability.
In accordance with the National Environmental Policy Act of 1969, as amended (NEPA), and the Federal Land Policy and Management Act of 1976, as amended (FLPMA), the Bureau of Land Management (BLM) and the United States Forest Service (Forest Service) announce the availability of the Final Environmental Impact Statement (EIS) for the Energy Gateway South Transmission Project (Project) and proposed land-use plan amendments (LUPAs). The Final EIS analyzes the potential environmental consequences of granting a right-of-way (ROW) to PacifiCorp (doing business as Rocky Mountain Power) to construct and operate an extra-high voltage (EHV) alternating-current (AC) transmission system.
BLM planning regulations (43 CFR 1610.5-2) state that any person who meets the conditions as described in the regulations may protest the BLM's Final EIS/Proposed LUPAs. A person who meets the conditions and files a
Copies of the Final EIS and proposed LUPAs have been sent to Federal, State, and local governments; public libraries in the area potentially affected by the proposed Project; and to interested parties that previously requested a copy. The Final EIS/Proposed LUPAs and supporting documents will be available electronically on the following BLM Web site:
Tamara Gertsch, Project Manager, Bureau of Land Management, Wyoming State Office, P.O. Box 21150, Cheyenne, WY 82003; by telephone at (307) 775-6115; or email to
For information about the Forest Service's involvement, contact Kenton Call, Forest Service Project Lead by telephone at (435) 691-0768; or email to
PacifiCorp (doing business as Rocky Mountain Power) filed a ROW application with the BLM to construct and operate a 500kilovolt (kV), overhead, single-circuit, alternating-current, transmission line beginning near Medicine Bow, Carbon County, Wyoming, at the Aeolus Substation, and extending south and west to the planned Clover Substation near Mona, Juab County, Utah, an approximate distance of between 400 and 540 miles (depending on the route selected). The proposed Project also would include rebuilding two existing 345kV transmission lines between the Clover and Mona Substations (in the existing right-of-way approximately 2-miles in length), rerouting the Mona to Huntington 345kV transmission line through the Clover Substation, constructing communication regeneration stations, two series compensation stations at points between Aeolus and Clover substations to improve transport capacity and efficiency of the transmission line and, depending on the route selected, relocating approximately 2 miles of the existing Bears Ears to Bonanza 345kV transmission line to parallel the proposed line, off the Raven Ridge Area of Critical Environmental Concern (ACEC), thereby eliminating multiple crossings of transmission lines within a short distance. Equipment to accommodate the 500kV transmission line would be installed at the Aeolus and Clover substations. The requested ROW width would be 250 feet for the 500kV portion of the proposed Project and 150 feet for the 345kV portion of the proposed Project. If the Project is approved, construction is projected to start in 2018.
The proposed Project is designed to provide up to 1,500 megawatts of capacity to meet current and forecasted needs of Rocky Mountain Power's customers. The transmission line would transmit power from both renewable and thermal energy sources. Alternative routes considered in the Final EIS cross Federal, State, tribal, and private lands. Under Federal law, the BLM is responsible for responding to applications for ROW on BLM-administered lands. Similarly, under Federal law, the Forest Service is responsible for responding to applications for special-use authorizations on lands administered by the Forest Service. The BLM is the designated lead Federal agency for preparing the EIS as defined at 40 Code of Federal Regulations (CFR) Part 1501.5. The Forest Service is a cooperating agency in the proposed Project based on its potential Federal action to issue a special use permit across Forest Service lands. Additional cooperating agencies include Federal, State, tribal and local agencies.
In accordance with NEPA, the BLM prepared a Draft EIS in response to the ROW application for the proposed Project using an interdisciplinary approach in order to consider a variety of resource issues and concerns identified during internal, interagency and public scoping. An NOA for the Draft EIS for the Project was published by the EPA for the Forest Service in the
• Mitigation;
• Opposition to, or support for, specific route alignments; and
• Impacts on sensitive biological resources, including sage-grouse and special status plant species.
Comments received on the Draft EIS were incorporated, where appropriate, to clarify the analysis presented and are included in the Final EIS. Based on comments received on the Draft EIS, revisions were made to the alignment of the Agency Preferred Alternative, including reduced separation distance from existing transmission to reflect updated Western Electricity Coordinating Council guidance. In addition, the BLM developed a series of route variations to compare local routing options for segments of the Agency Preferred Alternative route.
The Final EIS considers 12 alternative routes totaling 1,425 miles in detail and a No Action Alternative. Also, a series of route variations to compare local routing options for segments of the Agency Preferred Alternative route were analyzed. Under the No Action Alternative, the BLM ROW and the Forest Service special-use authorization for the proposed Project to cross Federal lands would not be granted and the transmission line and ancillary facilities would not be constructed.
Approximately 51 miles (12 percent) of the Agency Preferred Alternative route is located within designated utility corridors. The Agency Preferred
In Wyoming, the Agency Preferred Alternative route exits the Aeolus Substation in the utility corridor designated by Wyoming Executive Order 2011-5 for the protection of sage-grouse, continuing to the southwest where it crosses Interstate 80 approximately 10 miles east of Sinclair, Wyoming. The Agency Preferred Alternative route continues west on the southern side of Interstate 80 (approximately 3 to 5 miles south) for approximately 57 miles. The Agency Preferred Alternative route then parallels Wamsutter Road (on the east side of the road) south for approximately 15 miles. At that point, the Agency Preferred Alternative route continues southwest crossing Flat Top Mountain and continues toward the Wyoming and Colorado border, approximately 22 miles west of Baggs, Wyoming.
The Agency Preferred Alternative route continues south/southwest into Colorado and through the Sevenmile Ridge area, where it crosses the Little Snake River, the western edge of the Godiva Rim, and Colorado State Highway 318 in an area approximately 10 miles northwest of Maybell, Colorado. The Agency Preferred Alternative route continues south crossing the Yampa River 5 miles northeast of Cross Mountain Gorge to a point near U.S. Highway 40 approximately 12 miles southwest of Maybell. At that point, the Agency Preferred Alternative parallels U.S. Highway 40 for approximately 3 miles before continuing west to avoid crossing the Tuttle Ranch Conservation Easement and to minimize crossing of the Cross Mountain Ranch Conservation Easement. The route crosses the Deerlodge Road entrance to the Dinosaur National Monument on a State of Colorado parcel before continuing roughly south to parallel the Bonanza to Bears Ears 345kV and the Hayden to Artesia 138kV transmission lines south of U.S. Highway 40. The route terminates at a point approximately 22 miles east of Dinosaur, Colorado, and crosses 1.8 miles of the Cross Mountain Ranch Conservation Easement. From this point, the Agency Preferred Alternative route continues to parallel the Bears Ears to Bonanza 345kV and the Hayden to Artesia 138kV transmission lines to the west toward the Colorado/Utah border. The Agency Preferred Alternative route continues to follow the Bears Ears to Bonanza 345kV transmission line southwest toward the Bonanza Power Plant. The Agency Preferred Alternative route then continues west/southwest following an underground pipeline through an area where the Uinta Basin hookless cactus and clay reed-mustard occurs (Federally listed plant species) and crossing the Green River approximately 8 miles north of Sand Wash boat launch, continuing west toward the western end of the Tavaputs Plateau. In the plateau, the Agency Preferred Alternative route traverses through Argyle Ridge for approximately 12 miles dropping southwest toward U.S. Highway 191, following the highway through Indian Canyon for approximately 2 miles; it then crosses the highway heading west/northwest into the Emma Park area (approximately 11 miles north of Helper, Utah) toward Soldier Summit for a distance of approximately 21 miles avoiding sage-grouse leks/habitat to the south and the Reservation Ridge Scenic Backway (designated by the Forest Service) to the north. The Agency Preferred Alternative route continues west toward U.S. Highway 6 and parallels the Spanish Fork to Carbon 138kV transmission line northwest for approximately 25 miles. The Agency Preferred Alternative route continues paralleling the Bonanza to Mona 345kV transmission line toward Thistle, Utah, turning south and crosses U.S. Highway 89 near Birdseye, Utah, continuing south/southwest to a point approximately 5 miles north of Fountain Green, Utah. The Agency Preferred Alternative route continues to parallel the Bonanza to Mona 345kV transmission line west through Salt Creek Canyon, south of Mount Nebo, toward Nephi, Utah, and the Clover Substation.
The Agency Preferred Alternative route was identified by the BLM in coordination with the Forest Service and other cooperating agencies using criteria based key resource concerns and issues, regulation and policy, and Council of Environmental Quality regulations for determining significance. The criteria used include the following:
• Maximizes use of existing designated utility corridors by locating within the corridors or paralleling existing linear utility ROWs.
• Avoids or minimizes impacts on resources that are regulated by law, after consideration of proposed Project design features and agency best management practices. This includes impacts on greater sage-grouse.
• Avoids potential impacts and minimizes unavoidable impacts on resources that may not be regulated by law.
• Reduces the need for plan amendments through conformance to land-use plans.
• Avoids or minimizes proximity to private residences and residential areas, thereby addressing concerns with public health and safety, aesthetics, property values, visual effects, and other concerns.
• Minimizes use of private lands, assuming natural resource impacts are more or less similar.
Copies of the Final EIS are available for public review during normal business hours at the following locations:
• BLM, Wyoming State Office, Public Reading Room, 5353 Yellowstone Road, Cheyenne, Wyoming 82009;
• BLM, Rawlins Field Office, 1300 North Third Street, Rawlins, Wyoming 82301;
• BLM Colorado State Office, Public Reading Room, 2850 Youngfield Street, Lakewood, Colorado 80215-7093;
• BLM, Grand Junction Field Office, 2815 H Road, Grand Junction, Colorado 81506;
• BLM, Little Snake Field Office, 455 Emerson Street, Craig, Colorado 81625;
• BLM, White River Field Office, 220 East Market Street, Meeker, Colorado 81641;
• BLM Utah State Office, Public Reading Room, 440 West 200 South, Suite 500, Salt Lake City, Utah 84101-1345;
• BLM, Fillmore Field Office, 35 East 500 North, Fillmore, Utah 84631;
• BLM, Moab Field Office, 82 East Dogwood, Moab, Utah 84532;
• BLM, Price Field Office, 125 South 600 West, Price, Utah 84501;
• BLM, Salt Lake Field Office, 2370 South Decker Lake Boulevard, West Valley City, Utah 84119;
• BLM, Richfield Field Office, 150 East 900 North, Richfield, Utah 84701;
• BLM, Vernal Field Office,170 South 500 East, Vernal, Utah 84078; and
• Forest Service (Lead Forest Office), Ashley National Forest Supervisor's Office, 355 North Vernal Avenue, Vernal, Utah 84078.
Agency Decisions on the Proposed Project: Based on the environmental analysis in the Final EIS, the BLM Wyoming State Director will render a decision for the portion of the project which affect public land. The Forest Service will issue a separate decision specific to National Forest System land.
As the lead agency, the BLM has coordinated and utilized the NEPA comment process to satisfy the public
BLM Land-use Plan Amendments and the Protest Process: Depending on the route alternative, potential LUPAs proposed by the BLM are needed for the portions of the proposed Project crossing public land that do not conform to the respective land use plan. These include the following:
• Converting utility corridors from underground use only to allow aboveground utilities;
• Modifying BLM visual resource management classifications; and
• Widening portions of a utility corridor designated in a land-use plan to include the Project ROW.
The BLM is proposing seven LUPAs where the Agency Preferred Alternative route is not in conformance with the existing land-use plans.
All proposed LUPAs would comply with applicable Federal laws and regulations and can apply only to Federal lands and mineral estate administered by the BLM.
Instructions for filing a protest with the BLM Director regarding the proposed land-use plan amendments may be found in the “Dear Reader” letter of the Final EIS and at 43 CFR 1610.5-2. All protests must be in writing and mailed to the appropriate address, as set forth in the
Before including your phone number, email address, or other personal identifying information in your protest, you should be aware that your entire protest—including personal identifying information—may be made publicly available at any time. While you may ask the BLM in your protest to withhold your personal identifying information from public review, we cannot guarantee that we will be able to do so.
40 CFR 1506.6, 40 CFR 1506.10, 43 CFR 1610.2.
Bureau of Land Management, Interior.
Notice.
In accordance with the National Environmental Policy Act of 1969, as amended, and the Federal Land Policy and Management Act of 1976, as amended, the Bureau of Land Management (BLM) has prepared a Final Environmental Impact Statement (EIS) for the Coeur Rochester Mine Plan of Operations Amendment 10 and Closure Plan and by this notice is announcing its availability.
The BLM will not issue a final decision on the proposal for a minimum of 30 days after the date that the Environmental Protection Agency publishes its Notice of Availability in the
Copies of the Coeur Rochester Mine Plan of Operations Amendment 10 and Closure Plan EIS are available for public inspection at the Winnemucca District BLM, 5100 E. Winnemucca Blvd., Winnemucca, NV. Interested persons may also review the Final EIS on the Internet at
Kathleen Rehberg, Project Lead, telephone 775-623-1500; address BLM Winnemucca District, Humboldt River Field Office, 5100 E. Winnemucca Blvd., Winnemucca, NV 89445; email
The applicant, Coeur Rochester, Inc. (CRI), has requested an expansion of its operations at the existing Coeur Rochester Mine, which is located approximately 18 miles northeast of Lovelock, Nevada, in the Humboldt Range, Pershing County. The mine is currently authorized to disturb up to 1,939 acres (approximately 187 acres of private land and 1,752 acres of public land), which was permitted under a series of Environmental Assessments (EA N26-86-002P, February 1986; EA NV-020-99-12, February 1999; EA NV-020-01-06, December 2000; EA NV-020-01-06, February 2002; EA NV-020-03-13, August 2003; DOI-BLM-NV-W010-2010-0010-EA, October 2010).
The Draft EIS analyzed the potential environmental impacts associated with the proposed changes to CRI's current operations presented under this Plan of Operations (Plan) modification, which includes a total of 254.5 acres of new disturbance proposed on public land, and a reduction of approved disturbance acres of 23.3 acres on private land.
The Draft EIS analyzed three alternatives: (1) The Proposed Action; (2) Permanent Management of Potentially Acid Generating (PAG) Material Outside of the Rochester Pit Alternative; and (3) The No Action Alternative. The Proposed Action would include a change to the Plan boundary designed to include existing claims and newly acquired private lands within the boundary. However, all of the proposed disturbance to public land would be within the existing approved Plan boundary. The project includes the following:
• An approximately 67-acre expansion to the existing Stage IV Heap Leach Pad (HLP);
• An increase of the allowable maximum Stage IV HLP stacking height from 330 feet to 400 feet;
• Construction of a 124-acre Stage V HLP with associated ponds and tank;
• Relocation of a portion of the American Canyon public access road and establishment of an associated right-of-way (ROW);
• Relocation of a portion of the paved Rochester main access road ROW;
• Realignment of the Stage IV haul road and construction of secondary access roads;
• Relocation of existing power lines consistent with the proposed ROW realignments and HLP construction;
• Relocation of the electrical building, core shed, and production well PW-2a;
• Excavation of new borrow areas and construction of one new growth medium stockpile;
• Installation of the Stage IV HLP conveyor system, associated load out points, ore stockpiles, maintenance road, and utility corridor, including process solutions and fresh water supply pipelines; and
• Changes to closure activities for existing facilities including: altering the open pit safety berm sizes; HLP interim fluid management plans; HLP cover designs; the installation of evaporation cells; and long-term draindown management.
Under the Permanent Management of PAG Material Outside of the Rochester Pit Alternative, which is the BLM preferred alternative, the proposed activities listed in the Proposed Action would be the same, with the exception of the permanent location of the PAG material. In this alternative the material would be permanently relocated outside of the existing pit.
Under the No-Action Alternative, the BLM would not approve the proposed Plan modification and there would be no expansion. CRI would continue mining activities under its previously approved plan of operation.
Three other alternatives were considered, but eliminated: (1) Pit Backfill Elevation Alternative; (2) Alternate Location for Stage V HLP Alternative; and (3) Close a Portion of American Canyon Road to Public Access Alternative.
A Notice of Availability of the Draft EIS for the Proposed Coeur Rochester Mine Plan of Operations Amendment 10 and Closure Plan was published in the
On September 21, 2015, during the public scoping of this Draft EIS, the
Comments on the Draft EIS received from the public and internal BLM review were considered and incorporated as appropriate into the Final EIS. Public comments resulted in the addition of clarifying text, but did not significantly change the analysis. Following a 30-day availability and review period, a Record of Decision (ROD) will be issued. The decision reached in the ROD is subject to appeal to the Interior Board of Land Appeals. The 30-day appeal period begins with the issuance of the ROD.
40 CFR 1506.6, 40 CFR 1506.10.
National Park Service, Interior.
Cancellation of meeting.
Notice is hereby given in accordance with the Federal Advisory Committee Act, (5 U.S.C. Appendix 1-16), that the June 1, 2016, meeting of the Wekiva River System Advisory Management Committee previously announced in the
Jaime Doubek-Racine, Community Planner and Designated Federal Official, Rivers, Trails, and Conservation Assistance Program, Florida Field Office, Southeast Region, 5342 Clark Road, PMB #123, Sarasota, Florida 34233, or via telephone (941) 685-5912.
The Wekiva River System Advisory Management Committee was established by Public Law 106-299 to assist in the development of the comprehensive management plan for the Wekiva River System and provide advice to the Secretary of the Interior in carrying out management responsibilities of the Secretary under the Wild and Scenic Rivers Act (16 U.S.C. 1274).
National Park Service, Interior.
Request for nominations.
The National Park Service (NPS), U.S. Department of the Interior, proposes to appoint new members to the Paterson Great Falls National Historical Park Advisory Commission (Commission). The NPS is requesting nominations for qualified persons to serve as members of the Commission.
Darren Boch, Superintendent and Designated Federal Officer, Paterson Great Falls National Historical Park, 72 McBride Avenue, Paterson, New Jersey 07501, (973) 523-2630 or email
Darren Boch, Superintendent and Designated Federal Officer, Paterson Great Falls National Historical Park, 72 McBride Avenue, Paterson, New Jersey 07501, (973) 523-2630 or email
The Paterson Great Falls National Historical Park Advisory Commission was established by 16 U.S.C. 410
The Commission is composed of 9 members, to be appointed by the Secretary of the Interior, of whom: (i) 4 members shall be appointed after consideration of recommendations submitted by the Governor of the State of New Jersey; (ii) 4 members shall be appointed after consideration of recommendations submitted by the City Council of Paterson, New Jersey; (iii) 1 member shall be appointed after consideration of recommendations submitted by the Board of Chosen Freeholders of Passaic County, New Jersey, and (iv) 2 members shall have experience with national parks and historic preservation.
We are currently requesting nominations for the last of these categories.
Members may be appointed for a term of 3 years. A member may be reappointed for not more than 1 additional term.
Nominations should be typed and should include a resume providing an adequate description of the nominee's qualifications, including information that would enable the Department of the Interior to make an informed decision regarding meeting the membership requirements of the Commission and permit the Department of the Interior to contact a potential member.
Members of the Commission serve without compensation. However, while away from their homes or regular places of business in the performance of services for the Commission as approved by the Designated Federal Officer, members may be allowed travel expenses, including per diem in lieu of subsistence, in the same manner as persons employed intermittently in Government service are allowed such expenses under 5 U.S.C. 5703.
Individuals who are Federally registered lobbyists are ineligible to serve on all Federal Advisory Committee Act (FACA) and non-FACA boards, committees, or councils in an individual capacity. The term “individual capacity” refers to individuals who are appointed to exercise their own individual best judgment on behalf of the government, such as when they are designated Special Government Employees, rather than being appointed to represent a particular interest.
All nominations must be compiled and submitted in one complete package. Incomplete submissions (missing one or more of the items described above) will not be considered.
National Park Service, Interior.
Request for nominations.
The National Park Service (NPS), U.S. Department of the Interior, proposes to appoint new members to the Cape Cod National Seashore Advisory Commission (Commission). The NPS is requesting nominations for qualified persons to serve as members of the Commission.
Written nominations must be received by June 13, 2016.
Nominations or request for further information should be sent to George E. Price, Jr., Superintendent, Cape Cod National Seashore, 99 Marconi Site, Wellfleet, Massachusetts 02667, or via telephone at (508) 771-2144.
Further information may be obtained from George E. Price, Jr., Superintendent, Cape Cod National Seashore, 99 Marconi Site, Wellfleet, Massachusetts 02667, or via telephone at (508) 771-2144.
The Cape Cod National Seashore was established June 1, 1966, in accordance with 16 U.S.C. 459b-2
The Commission is composed of 10 members appointed by the Secretary of the Interior for 2-year terms, as follows: (a) Six members from recommendations made by the boards of selectmen of the towns of Chatham, Eastham, Orleans, Provincetown, Truro and Wellfleet, in the Commonwealth of Massachusetts, one member from the recommendations made by each such board; (b) one member from recommendations of the county commissioners of Barnstable County, Commonwealth of Massachusetts; (c) two members from recommendations of the Governor of the Commonwealth of Massachusetts; and (d) one member appointed at the discretion of the Secretary.
We are currently requesting nominations for the last of these categories.
Nominations should be typed and should include a resume providing an adequate description of the nominee's qualifications, including information that would enable the Department of the Interior to make an informed decision regarding meeting the membership requirements of the Commission and permit the Department of the Interior to contact a potential member.
Members of the Commission serve without compensation. However, while away from their homes or regular places of business in the performance of services for the Commission as approved by the Designated Federal Officer, members may be allowed travel expenses, including per diem in lieu of subsistence, in the same manner as
Individuals who are Federally registered lobbyists are ineligible to serve on all Federal Advisory Committee Act (FACA) and non-FACA boards, committees, or councils in an individual capacity. The term “individual capacity” refers to individuals who are appointed to exercise their own individual best judgment on behalf of the government, such as when they are designated Special Government Employees, rather than being appointed to represent a particular interest.
All nominations must be compiled and submitted in one complete package. Incomplete submissions (missing one or more of the items described above) will not be considered.
National Park Service, Interior.
Notice of renewal.
The Secretary of the Interior is giving notice of renewal of the Gateway National Recreation Area Fort Hancock 21st Century Advisory Committee. The Committee provides advice on the development of a specific reuse plan and on matters relating to the future uses of the Fort Hancock Historic Landmark District within the Sandy Hook Unit of Gateway National Recreation Area.
John H. Warren, Acting Public Affairs Specialist, National Parks of New York Harbor, External Affairs Office, Sandy Hook Unit, Gateway National Recreation Area, (917) 829-0425.
In accordance with the provisions of the Federal Advisory Committee Act (FACA), as amended (5 U.S.C. Appendix 1-16) and with the concurrence of the General Services Administration, the Department of the Interior is announcing the renewal of an advisory committee for the Gateway National Recreation Area Fort Hancock Historic Landmark District. The Committee is a discretionary advisory committee established under the authority of the Secretary of the Interior.
The Committee has been established to provide guidance to the National Park Service in developing a plan for reuse of more than 30 historic buildings that the NPS has determined are excess to its needs and eligible for lease under 54 U.S.C. 100101(a)
The Committee will include representatives from, but not limited to, the following interest groups: The natural resource community, the business community, the cultural resource community, the real estate community, the recreation community, the education community, the scientific community, and hospitality organizations. The Committee will also consist of representatives from the following municipalities: The Borough of Highlands, the Borough of Sea Bright, the Borough of Rumson, Middletown Township, and Monmouth County Freeholders.
National Park Service, Interior.
Request for nominations.
The National Park Service (NPS), U.S. Department of the Interior, proposes to appoint new members to the Cedar Creek and Belle Grove National Historical Park Advisory Commission (Commission). The NPS is requesting nominations for qualified persons to serve as members of the Commission.
Written nominations must be received by June 13, 2016.
Nominations or requests for further information should be sent to Karen Beck-Herzog, Acting Site Manager, Cedar Creek and Belle Grove National Historical Park, 8693 Valley Pike, P.O. Box 700, Middletown, Virginia 22645, telephone (540) 868-9176.
Karen Beck-Herzog, Acting Site Manager, Cedar Creek and Belle Grove National Historical Park, 8693 Valley Pike, P.O. Box 700, Middletown, Virginia 22645, telephone (540) 868-9176, email
The Cedar Creek and Belle Grove National Historical Park Advisory Commission was established in accordance with the Cedar Creek and Belle Grove National Historical Park Act of 2002 (16 U.S.C. 410iii-7). The Commission was designated by Congress to provide advice to the Secretary of the Interior on the preparation and implementation of the park's general management plan and to advise on land protection.
The Commission consists of 15 members appointed by the Secretary, as follows: (a) 1 representative from the Commonwealth of Virginia; (b) 1 representative each from the local governments of Strasburg, Middletown, Frederick County, Shenandoah County, and Warren County; (c) 2 representatives of private landowners within the Park; (d) 1 representative from a citizen interest group; (e) 1 representative from the Cedar Creek Battlefield Foundation; (f) 1 representative from the Belle Grove, Incorporated; (g) 1 representative from the National Trust for Historic Preservation; (h) 1 representative from the Shenandoah Valley Battlefields Foundation; (i) 1 ex-officio representative from the National Park Service; and (j) 1 ex-officio representative from the United States Forest Service.
Each member shall be appointed for a term of three years and may be reappointed for not more than two successive terms. A member may serve after the expiration of that member's term until a successor has taken office. The Chairperson of the Commission shall be elected by the members to serve a term of one year renewable for one additional year.
We are currently seeking members to represent the Commonwealth of
Nominations should be typed and should include a resume providing an adequate description of the nominee's qualifications, including information that would enable the Department of the Interior to make an informed decision regarding meeting the membership requirements of the Commission and permit the Department of the Interior to contact a potential member.
Members of the Commission serve without compensation. However, while away from their homes or regular places of business in the performance of services for the Commission as approved by the Designated Federal Officer, members may be allowed travel expenses, including per diem in lieu of subsistence, in the same manner as persons employed intermittently in Government service are allowed such expenses under Section 5703 of Title 5 of the United States Code.
Individuals who are Federally registered lobbyists are ineligible to serve on all Federal Advisory Committee Act (FACA) and non-FACA boards, committees, or councils in an individual capacity. The term “individual capacity” refers to individuals who are appointed to exercise their own individual best judgment on behalf of the government, such as when they are designated Special Government Employees, rather than being appointed to represent a particular interest.
All nominations must be compiled and submitted in one complete package. Incomplete submissions (missing one or more of the items described above) will not be considered.
United States International Trade Commission.
May 20, 2016 at 1:00 p.m.
Room 101, 500 E Street SW., Washington, DC 20436, Telephone: (202) 205-2000.
Open to the public.
1. Agendas for future meetings: None.
2. Minutes.
3. Ratification List.
4. Vote in Inv. Nos. 701-TA-559-561 and 731-TA-1317-1328 (Preliminary) (Certain Carbon and Alloy Steel Cut-to-Length Plate from Austria, Belgium, Brazil, China, France, Germany, Italy, Japan, Korea, South Africa, Taiwan, and Turkey). The Commission is currently scheduled to complete and file its determinations on May 23, 2016; views of the Commission are currently scheduled to be completed and filed on May 31, 2016.
5. Outstanding action jackets: None.
In accordance with Commission policy, subject matter listed above, not disposed of at the scheduled meeting, may be carried over to the agenda of the following meeting.
By order of the Commission:
Executive Office for Immigration Review, Department of Justice
30-Day notice.
The Department of Justice (DOJ), Executive Office for Immigration Review, will be submitting the following information collection request to the Office of Management and Budget (OMB) for review and approval in accordance with the Paperwork Reduction Act of 1995. This proposed information collection was previously published in the
Comments are encouraged and will be accepted for an additional days until June 13, 2016.
If you have additional comments especially on the estimated public burden or associated response time, suggestions, or need a copy of the proposed information collection instrument with instructions or additional information, please contact Jean King, General Counsel, Executive Office for Immigration Review, U.S. Department of Justice, Suite 2600, 5107 Leesburg Pike, Falls Church, Virginia 22041; telephone: (703) 305-0470. Written comments and/or suggestions can also be directed to the Office of Management and Budget, Office of Information and Regulatory Affairs, Attention Department of Justice Desk Officer, Washington, DC 20503 or sent to
Written comments and suggestions from the public and affected agencies concerning the proposed collection of information are encouraged. Your comments should address one or more of the following four points:
1.
2.
3.
4.
5.
6.
If additional information is required contact: Jerri Murray, Department Clearance Officer, United States Department of Justice, Justice Management Division, Policy and Planning Staff, Two Constitution Square, 145 N Street NE., 3E.405B, Washington, DC 20530.
Criminal Division, Department of Justice.
30-Day notice.
Department of Justice (DOJ), Criminal Division will be submitting the following information collection request to the Office of Management and Budget (OMB) for review and approval in accordance with the Paperwork Reduction Act of 1995. This proposed information collection was previously published in the
Comments are encourages and will be accepted for an additional 30 day until June 13, 2016.
Written comments and/or suggestions regarding the items contained in this notice, especially the estimated public burden and associated response time, should be directed to U.S. Department of Justice, Criminal Division, Office of Enforcement Operations, JCK Building, Room 1210, Washington, DC 20530-0001. Written comments and/or suggestions can also be sent to the Office of Management and Budget, Office of Information and Regulatory Affairs, Attention Department of Justice Desk Officer, Washington, DC 20503 or sent to
Written comments and suggestions from the public and affected agencies concerning the proposed collection of information are encouraged. Your comments should address one or more of the following four points:
(1)
(2)
(3)
(4)
(5)
(6)
If additional information is required contact: Jerri Murray, Department Clearance Officer, United States Department of Justice, Justice Management Division, Policy and Planning Staff, Two Constitution Square, 145 N Street NE., Suite 3E.405B, Washington, DC 20530.
Office of Attorney Recruitment and Management, Department of Justice.
30-Day notice.
The Department of Justice (DOJ), Justice Management Division, Office of Attorney Recruitment and Management (OARM), will be submitting the following information collection request to the Office of Management and Budget (OMB) for review and approval in accordance with the Paperwork Reduction Act of 1995. This proposed information collection was previously published in the
Comments are encouraged and will be accepted for an additional 30 days until June 13, 2016.
Written comments and/or suggestions regarding the item(s) contained in this notice, especially regarding the estimated public burden and associated response time, should be directed to the U.S. Department of Justice, Office of Attorney Recruitment and Management, 450 5th Street NW., Suite 10200, Attn: Deana Willis, Washington, DC 20530. Written comments and/or suggestions can also be directed to the Office of Management and Budget, Office of Information and Regulatory Affairs, Attention Department of Justice Desk Officer, Washington, DC 20530 or sent to
Written comments and suggestions from the public and affected agencies concerning the proposed collection of information are encouraged. Your comments should address one or more of the following four points:
(1)
(2)
(3)
(4)
(5)
(6)
If additional information is required contact: Jerri Murray, Department Clearance Officer, United States Department of Justice, Justice Management Division, Policy and Planning Staff, Two Constitution Square, 145 N Street NE., 3E.405B, Washington, DC 20530.
Employment and Training Administration (ETA), Labor.
Notice of a public meeting.
Pursuant to Section 10 of the Federal Advisory Committee Act (FACA) (5 U.S.C. App. 2 § 10), notice is hereby given to announce an open meeting of the Advisory Committee on Apprenticeship (ACA) on Wednesday, June 15, 2016 and Thursday, June 16, 2016. The ACA is a discretionary committee established by the Secretary of Labor, in accordance with FACA, as amended in 5 U.S.C. App. 2, and its implementing regulations (41 CFR 101-6 and 102-3). All meetings of the ACA are open to the public.
The meeting will begin at approximately 1:00 p.m. Eastern Standard Time on Wednesday, June 15, 2016, at the U.S. Department of Labor, Frances Perkins Building, 200 Constitution Avenue NW., Washington, DC 20210, and will continue until approximately 4:30 p.m. The meeting will reconvene on Thursday, June 16, 2016, at approximately 8:30 a.m. Eastern Standard Time at the U.S. Department of Labor, Frances Perkins Building, 200 Constitution Avenue NW., Washington, DC 20210 and adjourn at approximately 4:30 p.m. Any updates to the agenda and meeting logistics will be posted on the Office of Apprenticeship's homepage:
The Designated Federal Official, Mr. John V. Ladd, Administrator, Office of Apprenticeship, Employment and Training Administration, U.S. Department of Labor, 200 Constitution Avenue NW., Room C-5321, Washington, DC 20210, Telephone: (202) 693-2796 (this is not a toll-free number).
In order to promote openness, and increase public participation, webinar and audio conference technology will be used throughout the meeting. Webinar and audio instructions will be posted prominently on the Office of Apprenticeship homepage:
Meeting participants should use the visitor's entrance to access the Frances Perkins Building, one block north of Constitution Avenue on 3rd and C Streets NW. For security purposes meeting participants must:
1. Present valid photo identification (ID) to receive a visitor badge.
2. Know the name of the event you are attending: The meeting event is the Advisory Committee on Apprenticeship meeting.
3. Visitor badges are issued by the security officer at the Visitor Entrance located at 3rd and C Streets NW., as described above.
4. Laptops and other electronic devices may be inspected and logged for identification purposes.
5. Due to limited parking options, Metro rail is the easiest way to travel to the Frances Perkins Building. For individuals wishing to take Metro rail, the closest Metro stop to the building is Judiciary Square on the Red Line.
All meeting participants are being asked to submit a notice of intent to attend by Monday, June 6, 2016, via email to Mr. John V. Ladd at:
1. If individuals have special needs and/or disabilities that will require special accommodations, please contact Kenya Huckaby on (202) 693-3795 or via email at
2. Any member of the public who wishes to file written data or comments pertaining to the agenda may do so by sending the data or comments to Mr. John V. Ladd via email at
3. See below regarding members of the public wishing to speak at the ACA meeting.
The purpose of the meeting is to focus on apprenticeship expansion and diversity, and current industry engagement efforts in order to seek advice from the ACA on industry specific issues and how best to increase Registered Apprenticeships across the country and beyond.
The agenda and meeting logistics may be updated should priority items come before the ACA between the time of this publication and the scheduled date of the ACA meeting. All meeting updates will be posted to the Office of Apprenticeship's homepage:
The Legal Services Corporation's Board of Directors will meet telephonically on May 24, 2016. The meeting will commence at 5:00 p.m., EDT, and will continue until the conclusion of the Committee's agenda.
John N. Erlenborn Conference Room, Legal Services Corporation Headquarters, 3333 K Street NW., Washington, DC 20007.
Members of the public who are unable to attend in person but wish to listen to the public proceedings may do so by following the telephone call-in directions provided below.
• Call toll-free number: 1-866-451-4981;
• When prompted, enter the following numeric pass code: 5907707348.
• When connected to the call, please immediately “MUTE” your telephone.
Members of the public are asked to keep their telephones muted to eliminate background noises. To avoid disrupting the meeting, please refrain from placing the call on hold if doing so will trigger recorded music or other sound. From time to time, the Chair may solicit comments from the public.
Open.
Katherine Ward, Executive Assistant to the Vice President & General Counsel, at (202) 295-1500. Questions may be sent by electronic mail to
LSC complies with the Americans with Disabilities Act and Section 504 of the 1973 Rehabilitation Act. Upon request, meeting notices and materials will be made available in alternative formats to accommodate individuals with disabilities. Individuals needing other accommodations due to disability in order to attend the meeting in person or telephonically should contact Katherine Ward, at (202) 295-1500 or
National Credit Union Administration (NCUA).
Notice.
The National Credit Union Administration (NCUA) will submit the following information collection request to the Office of Management and Budget (OMB) for review and clearance in accordance with the Paperwork Reduction Act of 1995, Public Law 104-13, on or after the date of publication of this notice.
Comments should be received on or before June 13, 2016 to be assured of consideration.
Send comments regarding the burden estimate, or any other aspect of the information collection, including suggestions for reducing the burden, to (1) Office of Information and Regulatory Affairs, Office of Management and Budget, Attention: Desk Officer for NCUA, New Executive Office Building, Room 10235, Washington, DC 20503, or email at
Copies of the submission may be obtained by emailing
Nuclear Regulatory Commission.
Supplement to environmental impact statement; issuance.
The U.S. Nuclear Regulatory Commission (NRC) has issued the final “Supplement to the U.S. Department of Energy's Environmental Impact Statement for a Geologic Repository for the Disposal of Spent Nuclear Fuel and High-Level Radioactive Waste at Yucca Mountain, Nye County, Nevada,” NUREG-2184. This supplements the U.S. Department of Energy's (DOE) 2002 Environmental Impact Statement (EIS) and its 2008 Supplemental EIS for the proposed repository at Yucca Mountain in accordance with the findings and scope outlined in the NRC staff's 2008 Adoption Determination Report (ADR) for DOE's EISs. The scope of this supplement is limited to the potential environmental impacts from the proposed repository on groundwater and from surface discharges of groundwater.
May 13, 2016.
Please refer to Docket ID NRC-2015-0051 when contacting the NRC about the availability of information regarding this document. You may obtain publicly-available information related to this document using any of the following methods:
•
•
•
Christine Pineda, Office of Nuclear Material Safety and Safeguards, U.S. Nuclear Regulatory Commission, Washington DC 20555-0001; telephone: 301-415-6789.
This supplement evaluates the potential environmental impacts on groundwater and impacts associated with the discharge of any contaminated groundwater to the ground surface due to potential releases from a geologic repository for spent nuclear fuel and high-level radioactive waste at Yucca Mountain, Nye County, Nevada. This supplements DOE's 2002 “Final Environmental Impact Statement for a Geologic Repository for the Disposal of Spent Nuclear Fuel and High-Level Radioactive Waste at Yucca Mountain, Nye County, Nevada” and its 2008 “Final Supplemental Environmental Impact Statement for a Geologic Repository for the Disposal of Spent Nuclear Fuel and High-Level Radioactive Waste at Yucca Mountain, Nye County, Nevada,” in accordance with the findings and scope outlined in the NRC staff's 2008 “Adoption Determination Report for the U.S. Department of Energy's Environmental Impact Statements for the Proposed Geologic Repository at Yucca Mountain.” The ADR provided the NRC staff's conclusion as to whether it is practicable for the NRC to adopt DOE's EISs under the Nuclear Waste Policy Act of 1982, as amended. The NRC's decision on adoption of the EISs will occur after completion of the adjudication under part 2, subpart J of title 10 of the
The scope of this supplement is limited to those areas identified for supplementation in the ADR, specifically, the potential environmental impacts from the proposed repository on groundwater and from surface discharges of groundwater. In the ADR, the NRC staff found that the analysis in DOE's EISs does not provide adequate discussion of the radiological and nonradiological contaminants that may enter the groundwater over time and
Using groundwater modeling, the NRC staff finds that contaminants from the repository would be captured by groundwater withdrawal along the flow path, such as the current pumping in the Amargosa Farms area, or would continue to Death Valley if there is no or reduced pumping. Therefore, this supplement provides a description of the flow path from the postclosure regulatory compliance location to Death Valley, the locations of current groundwater withdrawal, and locations of potential natural discharge along the groundwater flow path. The supplement evaluates the potential radiological and nonradiological environmental impacts to groundwater and at surface discharge locations over a 1-million-year period following repository closure. The analysis considers the potential impacts on the aquifer environment, soils, ecology, public health, and the potential for disproportionate impacts on minority and low-income populations. In addition, this supplement assesses the potential for cumulative impacts that may be associated with other past, present, or reasonably foreseeable future actions. The NRC staff finds that all of the impacts on the resources evaluated in this supplement would be SMALL.
The draft supplement notice of availability and public meetings was published in the
The documents identified in the following table are available to interested persons through ADAMS.
For the Nuclear Regulatory Commission.
U.S. Office of Personnel Management.
Council meeting.
The Hispanic Council on Federal Employment (Council) meeting will be held on Wednesday, June 29th at the location shown below from 10:00 a.m. to 11:30 a.m.
The Council is an advisory committee composed of representatives from Hispanic organizations and senior government officials. Along with its other responsibilities, the Council shall advise the Director of the Office of Personnel Management on matters involving the recruitment, hiring, and advancement of Hispanics in the Federal workforce. The Council is co-chaired by the Director of the Office of Personnel Management and the Chair of the National Hispanic Leadership Agenda (NHLA).
The meeting is open to the public. Please contact the Office of Personnel Management at the address shown below if you wish to present material to the Council at any of the meetings. The manner and time prescribed for presentations may be limited, depending upon the number of parties that express interest in presenting information.
U.S. Office of Personnel Management, 1900 E St. NW., Executive Conference Room, 5th Floor, Washington, DC 20415.
Sharon Wong, Acting Director, Office of Diversity and Inclusion, Office of Personnel Management, 1900 E St. NW., Suite 5H35, Washington, DC 20415. Phone (202) 606-0020 FAX (202) 606-6012 or email at
It appears to the Securities and Exchange Commission that there is a lack of current and accurate information concerning the securities of Li-ion Motors Corp. (a/k/a Terra Inventions Corp.) (CIK No. 1141263), a dissolved Nevada corporation with its principal place of business listed as Las Vegas, Nevada with stock quoted on OTC Link (previously, “Pink Sheets”) operated by OTC Markets Group, Inc. (“OTC Link”) under the ticker symbol TERX, because it has not filed any periodic reports since the period ended July 31, 2013.
It appears to the Securities and Exchange Commission that there is a lack of current and accurate information concerning the securities of PetroHunter Energy Corp. (CIK No. 1298824), a Maryland corporation with its principal place of business listed as Denver, Colorado with stock quoted on OTC Link under the ticker symbol PHUN, because it has not filed any periodic reports since the period ended June 30, 2013. On December 1, 2013, a delinquency letter was sent by the Division of Corporation Finance to PetroHunter Energy Corp. requesting compliance with its periodic filing obligations, and PetroHunter Energy Corp. received the delinquency letter on December 10, 2013, but failed to cure its delinquencies.
It appears to the Securities and Exchange Commission that there is a lack of current and accurate information concerning the securities of Shrink Nanotechnologies, Inc. (CIK No. 1355242), a void Delaware corporation with its principal place of business listed as Las Vegas, Nevada with stock quoted on OTC Link under the ticker symbol INKN, because it has not filed any periodic reports since the period ended March 31, 2013. On August 19, 2015, a delinquency letter was sent by the Division of Corporation Finance to Shrink Nanotechnologies, Inc. requesting compliance with its periodic filing obligations, but Shrink Nanotechnologies, Inc. did not receive the delinquency letter due to its failure to maintain a valid address on file with the Commission as required by Commission rules (Rule 301 of Regulation S-T, 17 CFR 232.301 and Section 5.4 of EDGAR Filer Manual).
The Commission is of the opinion that the public interest and the protection of investors require a suspension of trading in the securities of the above-listed companies.
Therefore, it is ordered, pursuant to Section 12(k) of the Securities Exchange Act of 1934, that trading in the securities of the above-listed companies is suspended for the period from 9:30 a.m. EDT on May 11, 2016, through 11:59 p.m. EDT on May 24, 2016.
By the Commission.
81 FR 29314, May 11, 2016.
Friday, May 13, 2016 at 10:30 a.m.
The Closed Meeting scheduled for Friday, May 13, 2016 at 10:30 a.m., has been cancelled.
For further information and to ascertain what, if any, matters have been added, deleted or postponed, please contact Brent J. Fields of the Office of the Secretary at (202) 551-5400.
On January 29, 2016, the Public Company Accounting Oversight Board (the “Board” or the “PCAOB”) filed with the Securities and Exchange Commission (the “Commission”), pursuant to Section 107(b)
On December 15, 2015, the Board adopted two new rules (“Rules 3210 and 3211”) and Form AP to provide investors and other financial statement users with information about engagement partners and accounting firms that participate in audits of issuers.
Under the Proposed Rules, for each audit report it issues for an issuer, a registered public accounting firm must file with the Board a report on Form AP that includes the following:
• The name of the engagement partner and Partner ID;
• For other accounting firms
○ 5% or greater participation: The name, city and state (or, if outside the United States, the city and country) of the headquarters' office, and, when applicable, the Firm ID, and the percentage of total audit hours attributable to each other accounting firm whose participation in the audit was at least 5% of total audit hours;
○ Less than 5% participation: The number of other accounting firms that participated in the audit whose individual participation was less than 5% of total audit hours, and the aggregate percentage of total audit hours of such firms; and
• For other accounting firms participating in the audit for which the responsibility for the audit is divided:
○ The name, and when applicable, the Firm ID; city and state (or if outside the United States, the city and country) of the office of the other accounting firm that issued the other auditor's report; and the magnitude of the portion of the financial statements audited by the other accounting firm.
Form AP has a basic filing deadline of 35 days after the date the auditor's report is first included in a document filed with the Commission, with a shorter deadline of 10 days after the auditor's report is first included in a registration statement under the Securities Act of 1933 (the “Securities Act”) filed with the Commission, such as for an initial public offering. Firms will file Form AP through the PCAOB's existing web-based Registration, Annual, and Special Reporting system.
In addition to disclosing the required information on Form AP, the Proposed Rules allow an audit firm to voluntarily provide information about the engagement partner, other accounting firms, or both in the auditor's report. As a result, the Proposed Rules include amendments to PCAOB auditing standards AS 3101 (currently AU sec. 508),
The PCAOB has proposed application of the Proposed Rules to audits of all issuers, including audits of emerging growth companies (“EGCs”),
(a) Disclosure of the engagement partner: auditors' reports issued on or after January 31, 2017; and
(b) Disclosure of other accounting firms: auditors' reports issued on or after June 30, 2017.
As noted above, the Commission received four comment letters concerning the Proposed Rules. Two commenters expressed support for the Proposed Rules.
In addition, one commenter raised concerns that it had previously raised in comment letters to the Board that: (a) The Proposed Rules were not liability neutral; and b) the substance of the economic analysis was insufficient to justify applying the Proposed Rules to audits of EGCs.
In the release accompanying the Proposed Rules (“Final Rule Release”), the Board noted that this commenter asserted that the Board should not pursue disclosure requirements for the engagement partner and other participants in the audit unless it can be done in a “liability neutral” way.
Since the Concept Release, the Board has sought and considered commenters' views on the liability effect of its proposed amendments, has taken steps with the intent not to increase auditors' liability risk, and has tried to mitigate this possibility to the extent it would be consistent with its policy objectives. In the Reproposal, the Board included a detailed discussion on potential liability considerations of its proposed amendments, including liability under Section 11 of the Securities Act of 1933 (“Securities Act”) and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The Board has also indicated that it takes seriously commenters' concerns about the potential effects on auditor liability, has engaged in its own review of the relevant statutory provisions and case law and has kept the Commission staff advised of its thoughts on these issues, as commenters suggested.
The Board has specifically tailored the Proposed Rules to address, in part,
In the Final Rule Release, the Board further acknowledged commenters' concerns that public identification of key audit participants, particularly in the auditor's report, could impact the potential liability or litigation risks of those identified. In particular, the Board noted that it sought comment throughout the rulemaking process on various means of disclosure—from an engagement partner's signature on the auditor's report, to disclosure in the auditor's report, to disclosure on Form AP—in part to respond to those concerns. The Board stated that it believes the final rules accomplish its disclosure goals while appropriately addressing concerns raised by commenters about liability. The Board also observed that disclosure on Form AP should not raise potential liability concerns under Section 11 of the Securities Act or trigger the consent requirements of Section 7 of the Act because the engagement partner and other accounting firms would not be named in a registration statement or in any document incorporated by reference into one.
The Commission believes that the Board has provided sufficient notice of potential liability consequences of the Proposed Rules, has provided sufficient opportunity for public comment on these issues, and has reasonably responded to such concerns. Specifically, the Commission believes the Board has appropriately considered concerns related to liability neutrality as part of the Final Rule Release and taken reasonable steps to address the comments raised with respect to liability considerations in the Proposed Rules.
The Chamber Letter also suggested that the Board's economic analysis was insufficient to justify applying the Proposed Rules to audits of EGCs. This commenter, however, did not indicate why the economic analysis was insufficient, other than to say that the analysis and the application of the Proposed Rules to EGCs are “contrary to the intent of Congress [in passing the Jumpstart Our Business Startups Act].” The Board presented, and sought comment on, an economic analysis in the Reproposal. Further, in response to comments on the economic analysis provided in connection with the Reproposal, the Board revised its analysis, and sought comment on, an economic analysis as presented in the Supplemental Request. The economic analysis in the Supplemental Request set forth: (1) A description of the need for the standard-setting and how the Proposed Rules address that need; (2) the baseline to consider the economic impacts of the Proposed Rules; (3) the economic impacts of the Proposed Rules including benefits, costs, effects on different categories of audit firms and smaller companies, and responses to comments received on the economic analysis included with the Reproposal; and (4) economic considerations pertaining to audits of EGCs, including efficiency, competition and capital formation. In its Final Rule Release, the Board further discussed the economic considerations of the Proposed Rules and included a separate discussion within the economic analysis devoted to potential liability consequences.
The Commission notes that the Board provided a qualitative analysis that took into account the views of commenters. As the Board explained, there was limited research and data available regarding economic costs and benefits of the Proposed Rules for U.S. companies, making reliable quantification difficult. As the Board further explained, as part of its rulemaking process through the issuance of the Proposed Rules, the Board requested input from commenters. While commenters provided views on issues pertinent to economic considerations, including potential benefits and costs, they did not provide empirical data. The Commission believes that the Board's economic analysis reasonably addresses the comments raised and, as further discussed below, is sufficient to make a determination to apply the Proposed Rules to the audits of EGCs.
The Chamber Letter also noted that the Board added the 10-digit partner identifying number as part of the Final Rule Release without subjecting it to notice and comment. The Board added the 10-digit partner identifying number to the Proposed Rules in response to suggestions made by two commenters on the Supplemental Request.
Finally, the Chamber Letter also suggested that the Proposed Rules
Section 103(a)(3)(C) of the Sarbanes-Oxley Act requires that any rules of the Board “requiring mandatory audit firm rotation or a supplement to the auditor's report in which the auditor would be required to provide additional information about the audit and the financial statements (auditor discussion and analysis)” shall not apply to an audit of an EGC. The Board's Proposed Rules do not fall into this category of rules.
In proposing application of the Proposed Rules to audits of all issuers, including EGCs, the PCAOB requested that the Commission make the determination required by Section 103(a)(3)(C). To assist the Commission in making its determination, the PCAOB prepared and submitted to the Commission its own EGC analysis. The PCAOB's EGC analysis includes discussions of characteristics of self-identified EGCs and economic considerations pertaining to audits of EGCs, including efficiency, competition, and capital formation.
In its analysis, the Board states, with support from commenters, that requiring the same disclosures for audits of EGCs as for all issuers would provide the same general benefits to investors in EGCs as would be applicable to investors in non-EGCs. On the cost side, the Board does not believe that compliance costs for auditors will be significant. Rather, based on the overall characteristics of EGCs, the Board believes it is unlikely that the cost of collecting data to comply with the Proposed Rules will be disproportionately high for EGCs as a group. Further, the Board's analysis notes that commenters generally indicated they were not aware of any significant costs that would be specific to audits of EGCs when compared to the costs of non-EGC audits.
The PCAOB's EGC analysis was included in the Commission's public notice soliciting comment on the Proposed Rules. Based on the analysis submitted, we believe the information in the record is sufficient for the Commission to make the requested EGC determination in relation to the Proposed Rules. The Commission also takes note, in particular, of the PCAOB's approach to the Proposed Rules, which are not intended to substantively change auditor performance requirements; should reduce investors' search costs since the information will be provided in one place in a searchable database; and have been developed in a way to mitigate potential increases in auditor liability. In addition, the auditor's requirements under the new standard are focused on communicating the characteristics of the auditor, of which the auditor is already aware or can readily obtain.
The Commission has carefully reviewed and considered the Proposed Rules and the information submitted therewith by the PCAOB, including the PCAOB's EGC analysis, and the comment letters received. In connection with the PCAOB's filing and the Commission's review,
A. The Commission finds that the Proposed Rules are consistent with the requirements of the Sarbanes-Oxley Act and the securities laws and are necessary or appropriate in the public interest or for the protection of investors; and
B. Separately, the Commission finds that the application of the Proposed Rules to EGC audits is necessary or appropriate in the public interest, after considering the protection of investors and whether the action will promote efficiency, competition, and capital formation.
By the Commission.
It appears to the Securities and Exchange Commission that there is a lack of current and accurate information concerning the securities of GroveWare Technologies Ltd. (CIK No. 1484931), a revoked Nevada corporation with its principal place of business listed as Toronto, Ontario, Canada with stock quoted on OTC Link (previously, “Pink Sheets”) operated by OTC Markets Group, Inc. (“OTC Link”) under the ticker symbol GROV, because it has not filed any periodic reports since the period ended March 31, 2013. On August 18, 2015, a delinquency letter was sent by the Division of Corporation Finance to GroveWare Technologies Ltd. requesting compliance with its periodic filing obligations, but GroveWare Technologies Ltd. did not receive the delinquency letter due to its
It appears to the Securities and Exchange Commission that there is a lack of current and accurate information concerning the securities of Luve Sports, Inc. (CIK No. 1497421), a revoked Nevada corporation with its principal place of business listed as Zapopan, Jalisco, Mexico with stock quoted on OTC Link (previously, “Pink Sheets”) operated by OTC Markets Group, Inc. (“OTC Link”) under the ticker symbol LUVE, because it has not filed any periodic reports since the period ended June 30, 2013. On August 18, 2015, a delinquency letter was sent by the Division of Corporation Finance to Luve Sports, Inc. requesting compliance with its periodic filing obligations, but Luve Sports, Inc. did not receive the delinquency letter due to its failure to maintain a valid address on file with the Commission as required by Commission rules (Rule 301 of Regulation S-T, 17 CFR 232.301 and Section 5.4 of EDGAR Filer Manual).
It appears to the Securities and Exchange Commission that there is a lack of current and accurate information concerning the securities of Northcore Technologies, Inc. (CIK No. 1079171), an Ontario corporation with its principal place of business listed as Toronto, Ontario, Canada with stock quoted on OTC Link under the ticker symbol NTLNF, because it has not filed any periodic reports since the period ended December 31, 2012. On August 18, 2015, a delinquency letter was sent by the Division of Corporation Finance to Northcore Technologies, Inc. requesting compliance with its periodic filing obligations, but Northcore Technologies, Inc. did not receive the delinquency letter due to its failure to maintain a valid address on file with the Commission as required by Commission rules (Rule 301 of Regulation S-T, 17 CFR 232.301 and Section 5.4 of EDGAR Filer Manual).
The Commission is of the opinion that the public interest and the protection of investors require a suspension of trading in the securities of the above-listed companies.
Therefore, it is ordered, pursuant to Section 12(k) of the Securities Exchange Act of 1934, that trading in the securities of the above-listed companies is suspended for the period from 9:30 a.m. EDT on May 11, 2016, through 11:59 p.m. EDT on May 24, 2016.
By the Commission.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”)
FINRA is proposing to amend the By-Laws of FINRA's regulatory subsidiary, FINRA Regulation, Inc. (“FINRA Regulation”), to expand the size of the National Adjudicatory Council (“NAC”) to 15 members, with the number of non-industry members exceeding the number of industry members; lengthen the terms of office of future NAC members to four years; and update the process used for sending and counting ballots in the event of a contested nomination and election to fill certain NAC industry member seats.
The text of the proposed rule change is available on FINRA's Web site at
In its filing with the Commission, FINRA 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. FINRA has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements.
In 2007, as part of the consolidation of the member firm regulatory functions of National Association of Securities Dealers, Inc. (“NASD”) and NYSE Regulation, Inc. into a combined organization, FINRA, the SEC approved changes to the NASD By-Laws that, among other things, included a governance structure that apportioned public and industry representation on the FINRA Board of Governors (“FINRA Board”) and designated seven governor seats to represent member firms of various sizes based on the criteria of firm size.
The FINRA Board consists currently of 24 governors, including 13 Public Governors, 10 Industry Governors and FINRA's chief executive officer.
The NAC acts on behalf of FINRA in several capacities and its powers are authorized by the By-Laws of FINRA
The FINRA Regulation By-Laws establish the composition of the NAC, the terms of its members, and the process by which members are selected. The NAC is composed currently of 14 members.
The FINRA Board appoints the NAC and its members.
The proposed rule change would amend the FINRA Regulation By-Laws in three principal ways. First, the proposed rule change would make a limited modification to the NAC's composition and align it more closely with that of the FINRA Board. Second, the proposed rule change would lengthen the terms of future NAC members to encourage consistency and continuity in NAC decision making. Finally, the proposed rule change would modernize the selection process used in the event of a contested nomination and election for certain industry member NAC seats by permitting new balloting methods and streamlining the process by which ballots are counted.
The proposed rule change would amend Section 5.2 of the FINRA Regulation By-Laws to expand the size of the NAC to 15 members and apply the requirement that the NAC have more Non-Industry Members, including three Public Members, than Industry Members, thus following closely the requirement that exists in the FINRA By-Laws that the number of Public Governors on the FINRA Board exceed the number of Industry Governors.
Under the proposed rule change, the NAC would consist of 15 members, including eight Non-Industry Members and seven Industry Members. FINRA would thus achieve the objective of a majority non-industry NAC by adding one Non-Industry Member seat to the current 14-member committee. Requiring that the number of Non-Industry Members exceed the number of Industry Members will enhance overall the independence of the NAC and reinforce the integrity of the NAC as an impartial and fair adjudicatory body.
The proposed rule change would also lengthen the terms of office of future NAC members. NAC members are divided currently into three classes, with members serving three-year terms of office that commence and expire on a staggered, annual basis.
The proposed rule change would amend Section 5.6 of the FINRA Regulation By-Laws to extend by one year, to four total years, the terms of new NAC members.
Finally, the proposed rule change would make limited, procedural and administrative modifications to the NAC selection process. The proposed changes would make the NAC election process streamlined, accessible and align it with the process used currently for elections involving the FINRA District Committees.
The FINRA Regulation By-Laws, as currently written, require that the Nominating Committee prepare and deliver by mail, in the event of a contested election for a Small Firm, Mid-Size Firm or Large Firm NAC Member seat, a ballot with the names of the candidates standing for election, and a FINRA member eligible to vote based on their firm size must return the ballot envelope by mail with a postmark bearing a date on or before the return date specified on the ballot.
The proposed rule change would also amend Section 6.10 of the FINRA Regulation By-Laws to simplify the tabulation of ballots by the Independent Agent. The proposed rule change would eliminate the provision in Section 6.10 of the FINRA Regulation By-Laws that permits NAC candidates and their representatives to observe the Independent Agent's accounting of ballots in contested NAC elections. The proposed rule change would align the ballot counting process used in NAC elections with the process used in FINRA District Committee elections, which does not provide candidates the ability to be present while the Independent Agent opens and counts the ballots.
If the Commission approves the proposed rule change, FINRA will announce the effective date of the proposed rule change in a
FINRA believes that the proposed rule change is consistent with the provisions of Section 15A(b)(8) of the Act,
FINRA believes further that the proposed rule change is consistent with the provisions of Section 15A(b)(6) of the Act,
FINRA believes also that the proposed rule change is consistent with the provisions of Section 15A(b)(4) of the Act,
FINRA does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposed rule change is intended solely to enhance impartiality and integrity in FINRA's process for reviewing appeals of disciplinary and other decisions concerning member firms and their associated persons, and will lead to efficiencies in the process by which some NAC members are elected to the NAC by allowing contemporary balloting methods and expediting the process by which ballots are counted. FINRA does not believe that there are any material economic impacts associated with the proposed rule change.
Written comments were neither solicited nor received.
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 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 filed a proposal to amend the fee schedule applicable to Members
The text of the proposed rule change is available at the Exchange's Web site at
In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in Sections A, B, and C below, of the most significant parts of such statements.
The Exchange proposes to modify its fee schedule applicable to the Exchange's equity options platform (“BZX Options”) to: (1) Modify the standard fee for Non-Customer
The Exchange is proposing to modify the standard fee for Non-Customer orders that remove liquidity in Non-Penny Pilot Securities. Such orders when executed on the Exchange currently yield fee code NP and are assessed a standard fee of $0.94 per contract. The Exchange is proposing to increase the standard fee for Non-Customer orders that remove liquidity in Non-Penny Pilot Securities under fee code NP from $0.94 to $0.99 per contract.
In addition, the Exchange proposes to adopt a new tier that would apply to Non-Customer orders that remove liquidity in Non-Penny Pilot Securities that result in a reduced fee for Members that meet the qualifications of the tier. Specifically, the Exchange is proposing to create a new footnote 13 entitled “Non-Customer Non-Penny Pilot Take Volume Tier,” which would apply to orders that receive fee code NP. Under the proposed new tier, Non-Customer orders that remove liquidity in Non-Penny Pilot Securities would be assessed a reduced fee of $0.95 per contract where the Member has: (1) an ADAV
In addition to the modification to the Fee Codes and Associated Fees table and the addition of footnote 13 described above, the Exchange proposes to update the Standard Rates table of the fee schedule to reflect these changes.
The Exchange currently offers three QIP tiers that provide an additional rebate per contract for an order that adds liquidity to the BZX Options Book
Under QIP Tier 3, a Market Maker receives an additional rebate of $0.06 per contract where that Market Maker has an ADV equal to or greater than 2.5% of average TCV. The Exchange proposes to decrease the rebate provided pursuant to QIP Tier 3 from an additional rebate of $0.06 per contract to an additional rebate of $0.05 per contract. The Exchange does not propose to amend the qualifying criteria for QIP Tier 3.
In addition, the Exchange proposes to adopt new QIP Tier 4. Under proposed QIP Tier 4, a Market Maker will receive an additional rebate of $0.06 per contract where the Member has an ADV equal to or greater than 3.5% of average TCV. Thus, QIP Tier 4 will provide the same rebate as is provided under current QIP Tier 3.
The Exchange proposes to modify the fees charged for orders routed away from the Exchange and executed at various away options exchanges. The Exchange currently has specific rates and associated fee codes for each away options exchange.
With respect to Non-Customer orders, the Exchange proposes to adopt two fee codes: (1) Fee code RN, which would result in a fee of $0.85 per contract and would apply to all Non-Customer orders in Penny Pilot Securities; and (2) fee code RO, which would result in a fee of $1.20 per contract and would apply to all Non-Customer orders in Non-Penny Pilot Securities. The Exchange notes that the current range of fees applicable to Non-Customer orders routed to other options exchanges is from $0.56 per contract (fee code RF, applicable to Non-Customer orders in Penny Pilot Securities executed at EDGX Options) to $1.25 per contract (fee code QG, applicable to Non-Customer orders executed at NOM in Non-Penny Pilot Securities).
With respect to Customer orders, the Exchange proposes to adopt three fee codes: (1) Fee code RP, which would result in a fee of $0.25 per contract and would apply to all Customer orders routed to and executed at AMEX, BOX, BX Options, CBOE, EDGX Options, ISE Mercury, MIAX or PHLX; (2) fee code RQ, which would result in a fee of $0.70 per contract and would apply to all Customer orders in Penny Pilot Securities routed to and executed at ARCA, C2, ISE, ISE Gemini or NOM; and (3) fee code RR, which would result in a fee of $0.90 per contract and would apply to all Customer orders in Non-Penny Pilot Securities routed to and executed at ARCA, C2, ISE, ISE Gemini or NOM. The Exchange notes that the current range of fees applicable to Customer orders routed to other options exchanges is from no charge per contract (fee codes BD, applicable to Customer orders in Non-Penny Pilot Securities executed at BX Options, and fee codes RC and RD, applicable to Customer orders in Penny Pilot Securities and Non-Penny Pilot Securities, respectively, executed at EDGX Options) to $0.90 per contract (fee codes AD, GD and QD, applicable to Customer orders executed at ARCA, ISE Gemini, and NOM, respectively, in Non-Penny Pilot Securities).
As a general matter, the groupings described above in most instances attempt to differentiate between the Routing Costs applicable to either executions of orders in Penny Pilot Securities versus those in Non-Penny Pilot Securities or between fee ranges typical of exchanges that operate primarily a maker/taker or price/time market model (generally imposing higher fees, including for Customer orders) versus exchanges that operate primarily a pro rata or customer priority market model (generally imposing lower fees, especially for Customer orders).
As set forth above, the Exchange's proposed approach to routing fees is to set forth in a simple manner certain flat fees that approximate the cost of routing to other options exchanges. The Exchange will then monitor the fees charged as compared to the costs of its routing services, as well as monitoring for specific fee changes by other options exchanges, and intends to adjust its flat routing fees and/or groupings to ensure that the Exchange's fees do indeed result in a rough approximation of overall Routing Costs, and are not significantly higher or lower in any area. Although there may be instances where the Exchanges fee to a particular options exchange is indeed significantly higher than the fee charged by such options exchange, the Exchange believes that this is appropriate for several reasons discussed in further detail below, including the simplicity that it will provide Users of the Exchange's routing services.
The Exchange proposes to implement these amendments to its fee schedule immediately.
The Exchange believes that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder that are applicable to a national securities exchange, and, in particular, with the requirements of section 6 of the Act.
Volume-based rebates such as those currently maintained on the Exchange have been widely adopted by options exchanges, including the Exchange, and are equitable because they are open to all Members on an equal basis and provide additional benefits or discounts that are reasonably related to the value to an exchange's market quality associated with higher levels of market activity, such as higher levels of liquidity provision and/or growth patterns, and introduction of higher volumes of orders into the price and volume discovery processes.
The Exchange believes that its proposal to change the standard fee charged for Non-Customer orders that remove liquidity in Non-Penny Pilot Securities under fee code NP from $0.94 to $0.99 per contract is reasonable, fair and equitable and non-discriminatory, because the change will apply equally to all participants, and because, while the change marks an increase in fees for orders in Non-Penny Pilot Securities, such proposed fees remain consistent with pricing previously offered by the Exchange as well as competitors of the Exchange and does not represent a significant departure from the Exchange's general pricing structure and will allow the Exchange to earn additional revenue that can be used to offset the addition of new pricing incentives, including those introduced as part of this proposal. The Exchange also believes that its proposal to adopt a tiered pricing structure that will result in a reduced fee for all Members qualifying for the tier mitigates the increased fee. The tier is itself reasonable, fair and equitable and non-discriminatory for the reasons set forth above with respect to volume-based pricing generally, and also because the change will apply equally to all participants, the proposed fee under the tier remains consistent with pricing previously offered by the Exchange as well as competitors of the Exchange and does not represent a significant departure from the Exchange's general pricing structure.
The Exchange believes that its proposal to amend QIP Tier 3 and add a new QIP Tier 4 under footnote 5 is reasonable, fair and equitable and non-discriminatory, for the reasons set forth above with respect to volume-based
With respect to the proposed routing structure, the Exchange again notes that it operates in a highly competitive market in which market participants can readily direct order flow to competing venues or providers of routing services if they deem fee levels to be excessive. As explained above, the Exchange proposes to approximate the cost of routing to other options exchanges, including other applicable costs to the Exchange for routing, in order to provide a simplified and easy to understand pricing model. The Exchange believes that a pricing model based on approximate Routing Costs is a reasonable, fair and equitable approach to pricing. Specifically, the Exchange believes that its proposal to modify fees is fair, equitable and reasonable because the fees are generally an approximation of the cost to the Exchange for routing orders to such exchanges. The Exchange believes that its flat fee structure for orders routed to various venues is a fair and equitable approach to pricing, as it will provide certainty with respect to execution fees at groups of away options exchanges. In order to achieve its flat fee structure, taking all costs to the Exchange into account, the Exchange will necessarily charge a higher premium to route to certain options exchanges than to others. As a general matter, the Exchange believes that the proposed fees will allow it to recoup and cover its costs of providing routing services to such exchanges and to make some additional profit in exchange for the services it provides. The Exchange also believes that the proposed fee structure for orders routed to and executed at these away options exchanges is fair and equitable and not unreasonably discriminatory in that it applies equally to all Members. Finally, the Exchange notes that it intends to consistently evaluate its routing fees, including profit and loss attributable to routing, as applicable, in connection with the operation of a flat fee routing service, and would consider future adjustments to the proposed pricing structure to the extent it was recouping a significant profit or loss from routing to away options exchanges.
The Exchange believes the proposed amendments to its fee schedule would not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. Rather, the proposal is a competitive proposal that is seeking to further the growth of the Exchange and to simplify the Exchange's fees for routing orders to away options exchanges. With respect to the tiered pricing changes, the Exchange has structured the proposed fees and rebates to attract additional volume to the Exchange based on pricing that is competitive with that offered by other options exchanges. In particular, by offering tiered pricing the Exchange is incentivizing Members to maintain and/or increase the liquidity provided to the Exchange, which is representative of the competitive nature of the options markets. With respect to the proposed routing fee structure, the Exchange believes that the proposed fees are competitive in that they will provide a simple approach to routing pricing that some Members may favor. Additionally, Members may opt to disfavor the Exchange's pricing, including pricing for transactions on the Exchange as well as routing fees, if they believe that alternatives offer them better value. In particular, with respect to routing services, such services are available to Members from other broker-dealers as well as other options exchanges. The Exchange also notes that Members may choose to mark their orders as ineligible for routing to avoid incurring routing fees.
The Exchange has not solicited, and does not intend to solicit, comments on this proposed rule change. The Exchange has not received any written comments from members or other interested parties.
The foregoing rule change has become effective pursuant to section 19(b)(3)(A) of the Act
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the 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 (“Act”)
CHX proposes to amend its Schedule of Fees and Assessments (the “Fee Schedule”) to modify and clarify certain fees applicable to CHX Institutional Brokers. The text of this proposed rule change is available on the Exchange's Web site at (
In its filing with the Commission, the CHX included statements concerning the purpose of and basis for the proposed rule changes 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 CHX has prepared summaries, set forth in sections A, B and C below, of the most significant aspects of such statements.
The Exchange proposes to amend the Fee Schedule to modify and clarify certain fees applicable to CHX Institutional Brokers (“Institutional Brokers”).
Currently, pursuant to Section E.3(a), the Exchange assesses a fee of $0.0030/share capped at $100 per side
Identifying the side to a Section E.3(a) execution resulting from a single-sided order is simple because there will always be only one Trading Account associated with the single-sided order.
• Trading Account A is allocated 40,000 shares on the buy side and 20,000 shares on the sell side.
• Trading Account B is allocated 40,000 shares on the buy side.
• Trading Account C is allocated 20,000 shares on the buy side.
• Trading Accounts D and E are each allocated 20,000 shares on the sell side.
• Trading Account F is allocated 40,000 shares on the sell side.
Assume also that the execution results in the following five clearing submissions:
Pursuant to current Section E.3(a), Participants would be allocated fees as follows:
• Trading Account A would be attributed two sides, one on each side of the execution. Thus, the Participant associated with Trading Account A would be assessed a $100 fee on the buy side (
• Trading Account B would be attributed one side. Thus, the Participant associated with Trading Account B would be assessed a $100 fee (
• Trading Accounts C, D and E would be attributed one side each. Thus, each Participant associated with each Trading Account would be assessed a $60 fee (
• Trading Account F would be attributed one side. Thus, the Participant associated with Trading Account F would be assessed a $100 fee (
As shown under Example 1, a single Trading Account would be assessed a single capped fee for each side of the Section E.3(a) execution, regardless of the number of subaccounts under the Trading Account allocated positions to the Section E.3(a) execution. The Exchange believes that the Section E.3(a) fee can be more equitably applied by applying the fee cap
Initially, the Exchange proposes to capitalize the term “executions” in the title of current Section E.3(a) to be consistent with the capitalized “Executions” in the title of current Section E.3(b).
Also, the Exchange proposes to replace the first full paragraph of current Section E.3 with proposed paragraphs (a)(1) and (a)(2), which largely restate and clarify the current provisions, while omitting certain outdated or inaccurate language, as described below. Specifically, proposed paragraph (a)(1) provides that amended Section E.3(a) shall apply to all executions within the Matching System resulting from single-sided or cross orders submitted as at least a Round Lot
Thus, the Odd Lot fee only applies to executions resulting from -1- Odd Lot single-sided orders submitted by any Participant and -2- Odd Lot agency cross orders submitted by Institutional Brokers.
Moreover, so as to implement a more intuitive and equitable application of the Section E.3(a) fee cap, the Exchange propose to adopt proposed paragraph (a)(3), which adopts the term “Clearing Side,” which means the buy or sell side of an individual clearing submission that is related to a Section E.3(a) or Section E.7 execution;
In light of the proposed definition of “Clearing Side,” the Exchange also proposes to delete the last paragraph of current Section E.3 as obviated and redundant of amended Section E.3(a).
Currently, a Trading Account may be represented on two or more clearing submissions on the same side of the Section E.3(a) execution if the portion of the execution allocated to that Trading Account is larger than allocations to two or more contra-side Trading Accounts.
The following Example 2 illustrates the application of amended Section E.3(a):
• Trading Account A would be attributed three Clearing Sides, two on the buy side representing subaccounts a and b, respectively, and one on the sell side. Thus, the Participant associated with Trading Account A would be assessed a $120 fee on the buy side (
• Trading Account B would be attributed two Clearing Sides. However, pursuant to proposed Section E.3(a)(3), all Clearing Sides attributed to a single subaccount would be aggregated for fee cap purposes. Thus, the Participant associated with Trading Account B would be assessed a $100 fee (
• Trading Accounts C, D and E would each continue to be attributed one Clearing Side. Thus, each Participant associated with each Trading Account would be assessed a $60 fee (
• Trading Account F would be attributed two Clearing Sides. However, because the Participant associated with Trading Account F did not designate any subaccounts, the Participant would be assessed $120 fee (
Current Section E.7 provides a fee that is virtually identical to Section E.3(a), except that it applies to non-CHX executed trades for which clearing information is entered by an Institutional Broker into the Exchange's systems and submitted to a Qualified Clearing Agency pursuant to Article 21, Rule 6(a) (“Section E.7 execution”). Given that the application of the Section E.7 fee is virtually identical to the application of the Section E.3(a) fee, the Exchange proposes to adopt amendments under Section E.7 that are similar to the proposed amendments to Section E.3(a).
Specifically, the Exchange proposes to designate the first sentence of the last paragraph under current Section E.7 as proposed paragraph (a) and add language referring to the execution subject to the Section E.7 fee as “Section E.7 execution.” The Exchange further proposes to delete the second sentence of the last paragraph under current Section E.7, which the Exchange believes is redundant of the Section E.7 fee cap, which is already stated previously under Section E.7 and obviated by the definition of Clearing Side, under proposed Section E.3(a)(3).
The Exchange also proposes to adopt proposed paragraph (b), which provides that Section E.7 fees shall be charged to each Clearing Participant allocated position(s) to a Section E.7 execution. Proposed paragraph (b) is virtually identical to proposed Section E.3(a)(2), except that proposed paragraph (b) omits reference to the billing of executions resulting from single-sided orders, as Section E.7 does not apply to single-sided orders submitted to the Matching System.
The proposed rule change is effective upon filing, but will be operative on June 1, 2016.
The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act
Moreover, the Exchange believes that the proposed rule change is consistent with Section 6(b)(1) of the Act
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 Exchange operates in a highly competitive market in which market participants can readily direct order flow to competing venues if they deem fee levels set by the Exchange to be excessive. The Exchange believes that the proposed rule change modifies the application of the fee cap to be more equitable and intuitive. Thus, the Exchange believes that the proposed rule change will further encourage market participants to submit orders to the Exchange through Institutional Brokers, which will enhance competition in the national market system.
No written comments were either solicited or received.
The foregoing rule change is effective upon filing pursuant to Section
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 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.
U.S. Small Business Administration.
Notice.
This is a notice of an Administrative declaration of a disaster for the State of LOUISIANA dated 05/05/2016.
Submit completed loan applications to: U.S. Small Business Administration, Processing and Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155.
A. Escobar, Office of Disaster Assistance, U.S. Small Business Administration, 409 3rd Street SW., Suite 6050, Washington, DC 20416.
Notice is hereby given that as a result of the Administrator's disaster declaration, applications for disaster loans may be filed at the address listed above or other locally announced locations.
The following areas have been determined to be adversely affected by the disaster:
The Interest Rates are:
The number assigned to this disaster for physical damage is 14713 B and for economic injury is 14714 0.
The States which received an EIDL Declaration # are Louisiana.
U.S. Small Business Administration.
Notice.
This is a Notice of the Presidential declaration of a major disaster for Public Assistance Only for the State of Arkansas (FEMA-4270-DR), dated 05/06/2016.
Submit completed loan applications to: U.S. Small Business
A. Escobar, Office of Disaster Assistance, U.S. Small Business Administration, 409 3rd Street SW., Suite 6050, Washington, DC 20416.
Notice is hereby given that as a result of the President's major disaster declaration on 05/06/2016, Private Non-Profit organizations that provide essential services of governmental nature may file disaster loan applications at the address listed above or other locally announced locations.
The following areas have been determined to be adversely affected by the disaster:
The Interest Rates are:
The number assigned to this disaster for physical damage is 14717B and for economic injury is 14718B.
U.S. Small Business Administration.
Amendment 7.
This is an amendment of the Presidential declaration of a major disaster for the State of Louisiana (FEMA-4263-DR), dated 03/13/2016.
Submit completed loan applications to: U.S. Small Business Administration, Processing and Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155.
A. Escobar, Office of Disaster Assistance, U.S. Small Business Administration, 409 3rd Street SW., Suite 6050, Washington, DC 20416.
The notice of the President's major disaster declaration for the State of Louisiana, dated 03/13/2016 is hereby amended to extend the deadline for filing applications for physical damages as a result of this disaster to 06/13/2016.
All other information in the original declaration remains unchanged.
Department of State.
Notice.
Delegates from the United States and Mexican governments, the states of California, Arizona, Texas, and New Mexico, and the Mexican states of Baja California, Sonora, Chihuahua, Coahuila, Nuevo Leon, and Tamaulipas, will participate in a Plenary Meeting of the U.S.-Mexico Binational Bridges and Border Crossings Group on Wednesday, May 18, 2016 in Mexico City, Mexico. The purpose of this meeting is to discuss operational matters involving existing and proposed international bridges and border crossings and their related infrastructure, and to exchange views on policy as well as technical information. This meeting will include a public session on Wednesday, May 18, 2016, from 8:45 a.m. until 11:30 a.m. This session will allow proponents of proposed bridges and border crossings and related projects to make presentations to the delegations and members of the public.
For further information on the meeting and to attend the public session, please contact the Mexico Desk's Border Affairs Unit, via email at
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), E.O. 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 imported 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:
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), E.O. 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 imported 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:
National Highway Traffic Safety Administration (NHTSA), Department of Transportation (DOT).
Denial of Petition.
Van Hool N.V. (Van Hool), has determined that certain model year (MY) 2015-2016 Van Hool Double Deck buses do not fully comply with paragraph S5.3.4 of Federal Motor Vehicle Safety Standard (FMVSS) No. 121,
For further information on this decision contact James Jones, Office of Vehicle Safety Compliance, the National Highway Traffic Safety Administration (NHTSA), telephone (202) 366-5294, facsimile (202) 366-5930.
Pursuant to 49 U.S.C. 30118(d) and 30120(h) (see implementing rule at 49 CFR part 556), Van Hool submitted a petition for an exemption from the notification and remedy requirements of 49 U.S.C. Chapter 301 on the basis that this noncompliance is inconsequential to motor vehicle safety.
Notice of receipt of Van Hool's petition was published, with a 30-day public comment period, on January 22, 2016 in the
Affected are approximately 48 MY 2015-2016 Van Hool Double Deck buses that were manufactured between December 13, 2014 and October 22, 2015.
Van Hool explains that the noncompliance is that brake release times slightly exceed the requirements as specified in paragraph S5.3.4 of FMVSS No. 121.
Paragraph S5.3.4 of FMVSS No. 121 requires in pertinent part:
S5.3.4
S5.3.4.1(a) With an initial service brake chamber air pressure of 95 psi, the air pressure in each brake chamber shall, when measured from the first movement of the service brake control, fall to 5 psi in not more than 0.55 second in the case of trucks and buses; 1.00 second in the case of trailers, other than trailer converter dollies, designed to tow another vehicle equipped with air brakes; 1.10 seconds in the case of trailer converter dollies; and 1.20 seconds in the case of trailers other than trailers designed to tow another vehicle equipped with air brakes. A vehicle designated to tow another vehicle equipped with air brakes shall meet the above release time requirement with a 50-cubic-inch test reservoir connected to the control line output coupling . . . .
Van Hool described the subject noncompliance and stated its belief that the noncompliance is inconsequential to motor vehicle safety based on the following reasoning:
(1) Based on the results of testing that Van Hool conducted on some of the affected buses, it determined that the brake release times, on average, exceeded the FMVSS No. 121 requirement by only 0.03 of a second on the front axle, by 0.05 of as second on the tag axle, and by 0.10 of a second on the drive axle.
(2) Van Hool determined that this noncompliance may be due to the change of fitting for this type of vehicle. These new fittings for the Double Deck buses were introduced in production in September 2014. The classic brass couplings were replaced with push-in tube connections made of composite material to remedy certain complaints of air loss. The effect of minimal loss of internal air flow was misjudged, which caused the brake release time to exceed the requirements.
However, Van Hool believes that there is no safety issue, nor unnecessary brake drag during acceleration after brake release due to the reaction time of the driver (moving foot from brake pedal to throttle pedal) and the reaction time of the complete driveline being longer than the brake release time.
(3) Van Hool stated its belief that because the brake actuation time on the
(4) Van Hool made reference to previous inconsequential noncompliance petitions that it believes are similar to its petition and that were granted by NHTSA.
Van Hool additionally informed NHTSA that the noncompliance has been corrected on vehicles in subsequent production and that all future vehicles will be in full compliance with FMVSS No. 121.
In summation, Van Hool believes that the described noncompliances are inconsequential to motor vehicle safety, and that its petition, to exempt Van Hool from providing recall notification of noncompliances as required by 49 U.S.C. 30118 and remedying the recall noncompliance as required by 49 U.S.C. 30120 should be granted.
Poor pneumatic timing could affect brake performance. For example, if a vehicle's wheels lock as the driver is attempting to stop, the vehicle will skid. If the driver is to regain control of the vehicle, immediate release of the brakes is necessary.
Van Hool produced buses that, on average, exceeded the FMVSS No. 121 requirement by 0.03s on the front axle, by 0.05s on the tag axle, and by 0.10s on the drive axle.
In response, Van Hool provided data to demonstrate the performance of
Van Hool claimed that the noncompliance will not show significant differences in dynamic brake test [performance] and that dynamic testing on affected buses was not repeated for the following reasons:
(1) The
(2) Dynamic brake tests on
Van Hool also claimed that “testing according to FMVSS No. 121 wouldn't show a difference in heat build-up between a compliant and noncompliant bus.”
Lastly, Van Hool stated that brake release timing has been the subject of previous petitions that it believes are similar to its petition and were granted by NHTSA. Thus, this petition should be granted.
NHTSA has concluded that Van Hool's claims are unsupported by any data or engineering analyses persuasive to grant the petition.
Certification test data Van Hool submitted in response to the letter indicated that brake release times for compliant buses were at the maximum limit of the safety standard's requirement of 0.55s in 3 of 5 tests of the front axles (
In previous petitions concerning brake release timing, NHTSA emphasized that only the failure of the subject vehicles was at issue. NHTSA concluded that, “
49 U.S.C. 30118, 30120: delegations of authority at 49 CFR 1.95 and 501.8.
Pipeline and Hazardous Materials Safety Administration (PHMSA), DOT.
Notice and request for comments.
In accordance with the Paperwork Reduction Act of 1995, PHMSA invites comments on proposed revisions to the following incident and accident report forms and associated instructions currently under OMB Control No. 2137-0522:
• PHMSA F 7100.1 Incident Report—Gas Distribution System.
• PHMSA F 7100.2 Incident Report—Natural and Other Gas Transmission and Gathering Pipeline Systems.
• PHMSA F 7100.3 Incident Report—Liquefied Natural Gas (LNG) Facilities.
PHMSA also intends to request a new Office of Management and Budget (OMB) Control Number to cover the collection of these forms.
PHMSA also proposes revisions be made to the following form currently under OMB Control No. 2137-0047; Accident Report—Hazardous Liquid Pipeline Systems.
Interested persons are invited to submit comments on or before July 12, 2016.
Comments may be submitted in the following ways:
Angela Dow by telephone at 202-366-1246, by email at
Section 1320.8(d), Title 5, Code of Federal Regulations, requires PHMSA to provide interested members of the public and affected entities an opportunity to comment on information collection and recordkeeping requests. This notice identifies proposed changes to information collections that PHMSA will submit to OMB for approval. In order to streamline and improve the data collection processes, PHMSA is revising the incident report forms for both hazardous liquid and natural gas operators.
OMB Control Number 2137-0047, which covers the collection of hazardous liquid incident data, expires on December 31, 2016. OMB Control Number 2137-0522, which currently covers the collection of both annual report and incident data for natural gas operators, expires on October 31, 2017. To simplify the renewal process of these data collections in the future, PHMSA proposes collecting incident and annual reports under separate OMB control numbers. To achieve this, PHMSA plans to request a new OMB control number for the three gas incident forms currently under OMB Control No. 2137-0522. The remaining reports under this information collection, the Gas Transmission, LNG, and Mechanical Fitting Failure annual reports will remain under their current OMB control number.
PHMSA proposes to reorganize the existing questions and add more detailed questions about incident response, incident consequences, operating conditions, cause, and contributing factors.
PHMSA proposes adding the time zone and daylight savings status at the location and time of the incident. This data would help PHMSA correlate our incident investigation findings with the form.
PHMSA proposes removing the question which prompts operators to characterize an incident as an unintentional release, intentional release, or no release. The data we collect on the form is sufficient to answer this question. This change would reduce redundancies on the form.
PHMSA proposes dividing reports of volume released into categories of “unintentional” and “intentional”. During incident response, operators often intentionally release gas from the pipeline system to reduce the pressure remaining within the pipeline. This change would allow stakeholders to understand the volume released both before and after the operator begins responding to the incident.
PHMSA proposes reorganizing the existing questions to reflect the sequence of operator actions and events that take place during an incident response. For example, the manner in which an operator first learns of a pipeline failure is currently collected in Part E. PHMSA proposes to move this item to Part A. PHMSA also proposes to add new data fields to help build a
The vast majority of pipeline incidents have only one National Response Center (NRC) report. However, during a response to protracted incidents, pipeline operators may submit multiple reports to the NRC. In these rare instances, PHMSA proposes to collect each NRC report number. This change would help PHMSA ensure that our incident report data correlates with our incident investigation findings.
PHMSA proposes removing questions about a pipeline shutdown and adding a question about methods of flow control. Gas distribution systems are typically the only source of gas to customers. Rather than shutting down gas distribution systems, pipeline operators typically control the flow of gas in the smallest possible portion of the system. This change would allow stakeholders to understand the actions taken by the operator to control the flow of gas during incident response.
PHMSA proposes adding “exposed due to loss of cover” as an option to describe the area of an incident when “underground” is selected. For pipelines installed underground and eventually exposed, the current form is not clear about whether “underground” or “above ground” should be selected. Adding “exposed due to loss of cover” as an underground option will clarify how to report the incident. This change would improve the consistency of reports.
PHMSA proposes adding a question to determine whether other underground facilities are found within twelve inches of the failure location. We know from experience that other underground facilities can damage pipeline systems. The most common cause of this damage is electrical arcing from electric facilities to gas systems. Generally, twelve inches of underground separation is considered adequate to prevent damage from non-pipeline facilities. This change would allow stakeholders to verify if twelve inches of separation is adequate.
PHMSA proposes to collect additional data regarding water crossings. This data would help stakeholders understand the failure location along the crossing.
PHMSA proposes to modify the selections used to describe the part of the system responsible for a pipeline failure. These modifications would reduce the number of times “other” is selected and allow a more meaningful analysis of the data.
PHMSA also proposes collecting both the date of manufacture and the date of installation for the failed item. This would allow stakeholders to understand both the age of the failed item and how long it had been in service.
PHMSA proposes adding questions about Excess Flow Valves (EFV) and shut-off valves when the failure occurs on the service line. Our regulations require EFVs in certain circumstances and shut-off valves on all service lines. The collection of this data would help PHMSA address the requirements in Section 22 of the Pipeline Safety, Regulatory Certainty, and Job Creation Act of 2011 (Pub. L. 112-90) which requires EFVs on service lines serving a single-family residence. It would also help to implement the National Transportation Safety Board's (NTSB) recommendation P-01-2 which urges the installation of EFVs on branch services, multi-family facility services, and small commercial facility services. The proposed change would help stakeholders determine if EFV requirements are adequate and effective.
PHMSA proposes to collect the cost of gas per million standard cubic feet (mcf) in order to calculate the cost of gas released. Currently, the form collects the volume of gas released and the cost of the gas released. The cost per mcf in our current incident data ranges from cents to hundreds of dollars. By providing the gas cost per mcf, operators will achieve greater accuracy when converting the per mcf gas cost to released gas costs.
Our departmental guidelines for determining the benefit of proposed regulations (
We are proposing to collect the volume of product consumed by fire. We already collect data about the volume of product released and whether ignition occurred. However, we cannot identify the volume of product burned. This data would allow us to more accurately determine the social cost of carbon and benefit of proposed regulations.
We are proposing to collect the number of buildings affected by the incident. On the current forms, the property damage values do not include any details about the type of property damaged. This data would provide more details about the consequences of the incident and enable a more thorough determination of the benefit of proposed regulations.
We propose collecting data about the length of building evacuations. On the current form, we collect the number of persons evacuated from buildings. To implement DOT guidelines (
We propose adding the method used by the operator to establish the maximum pressure for the pipeline system. We also propose adding the date the maximum pressure was established. This data would help stakeholders determine the maximum pressure methods posing a greater risk and if the risk changes over time.
We propose adding questions about the odorization of the gas. This change would help PHMSA correlate our incident investigation findings with the form.
We propose collecting additional details when stray current is the cause of external corrosion. We have also clarified the conditions under which external corrosion cathodic protection is expected. This data would help
We propose adding snow/ice and tree root damage as sub-causes in the natural force damage cause category. This addition would reduce the number of incidents reported with a cause of “other.”
In the current form, when a third party causes the excavation damage, we collect details about the excavation work. We propose collecting details about the excavation work when the cause of the damage is first, second, or third party. When pipeline operator employees are excavating and damage their own pipeline, the damage is considered first party. When an excavator is working under contract for the pipeline operator and damages the operator's pipeline, they are considered a second party. First and second party excavation details would allow stakeholders to understand the type of excavation work being performed by any party causing the excavation damage.
We propose adding data about exemptions from state damage prevention laws when the cause of the incident is excavation damage. This data would help stakeholders determine states in which damage prevention law exemptions may be leading to more frequent excavation damage of pipelines.
We propose adding “erosion of support due to other utilities” as a sub-cause in the other outside force damage cause category. This addition would reduce the number of incidents reported with a cause of “other.”
We propose collecting details about driver performance and protection from damage when the cause is identified as “damage by car, truck, or other motorized vehicle/equipment not engaged in excavation.” These questions will not include personally identifiable information or anything that violates the privacy of the driver. PHMSA will request information such as whether the driver violated state or local driving laws, whether they were in control of the vehicle at the time of the collision, and the estimated speed at time of collision. “Unknown” will be allowed for all driver performance questions.
Often times, the narrative section of these incident reports mentions reckless or intoxicated drivers. By adding questions about driver performance and protective barriers, stakeholders can discern incidents that could have been prevented by the operator and incidents where the driver's performance may have been a factor.
We propose combining “mechanical fitting” and “compression fitting” sub-causes into a single sub-cause and collecting additional details. We are combining the sub-causes because compression fittings are a type of mechanical fitting. When a mechanical fitting fails and causes a hazardous leak, operators are required submit form PHMSA F 7100.1-2—MECHANICAL FITTING FAILURE REPORT FORM FOR CALENDAR YEAR 20___ FOR DISTRIBUTION OPERATORS. We modified the incident report to collect the same data collected for hazardous leaks on PHMSA F 7100.1-2. This change would ensure consistency between data for hazardous leaks and incidents when a joint formed by a mechanical fitting fails.
We propose adding a question for the valve material when a valve is the sub-cause. This change would allow stakeholders to assess the risk posed by various valve materials.
Pipeline operators currently select only one cause on the form. Factors contributing to, but not causing an incident are often relevant to preventing future incidents. We propose collecting data about contributing factors. The proposal is similar to a recommendation made by the NTSB in their January 2015 safety study report “Integrity Management of Gas Transmission Pipelines in High Consequence Areas” (
PHMSA proposes to reorganize existing questions and add more detailed questions about gas transmission pipeline incident response, incident consequences, operating conditions, cause, and contributing factors. Many of these changes are similar to those proposed for gas distribution pipelines in section A above.
We propose shortening the name of the form to “Incident Report—Gas Transmission and Gathering Systems”. This change would remove extraneous words from the form name.
We propose adding the time zone and daylight savings status at the location and time of the incident. This data would help PHMSA correlate our incident investigation findings with the form.
We propose removing the question characterizing the incident as unintentional release, intentional release, or no release. We collect adequate data on the form to answer this question. This change would eliminate a redundant question from the form.
We propose collecting the operational status of the pipeline system at the time the operator identified the failure. On the current form, there is an assumption that the pipeline was in service at the time the operator identified the failure, but this is often not true. This change would help stakeholders understand the status of the pipeline and clarify the shutdown data.
We reorganized existing questions to display the sequence of operator actions and interactions as the incident proceeds. For example, how the operator first learned of the pipeline failure is currently collected in Part E. PHMSA proposes to move this item to Part A. New items being added to build a complete timeline include interactions with emergency responders and details about ignition. This data would help stakeholders develop a more thorough understanding of the incident.
The vast majority of pipeline incidents have only one NRC report.
We propose adding questions about initial actions the operator took to control the flow of product to the failure location. When valves are used, we propose collecting the date and time of the valve closure. This change implements a GAO recommendation from GAO-13-168, “Pipeline Safety: Better Data and Guidance Needed to Improve Pipeline Operator Incident Response.” This change would allow stakeholders to understand the actions taken by the operator to control the flow of gas during incident response and collect data about the elapsed time to valve closure.
We propose adding “exposed due to loss of cover” as a selection for the area of incident when underground is selected. For pipelines installed underground and eventually exposed, the current form is not clear about whether underground or above ground should be selected. Adding “exposed due to loss of cover” as an underground option clarifies how to report the incident. This change would improve the consistency of reports.
We propose adding a question for whether other underground facilities are found within 12 inches of the failure location. We know from experience that other underground facilities can damage pipeline systems. The most common cause is electrical arcing from electric facilities to gas systems. Generally, 12 inches of underground separation is considered adequate to prevent damage from non-pipeline facilities. This change would allow stakeholders to verify if 12 inches of separation is adequate.
We propose collecting the Outer Continental Shelf (OCS) region when an incident occurs on the OCS. This change would provide stakeholders with a more precise location of the incident.
We propose modifying the selections for the item that failed. We also propose collecting data about plastic pipe, which is quite common in gas gathering systems. These modifications would reduce the number of times “other” is selected and allow a more meaningful analysis of the data.
We propose collecting both the date of manufacture and the date of installation for the failed item. This would allow stakeholders to understand both the age of the failed item and how long it had been in service.
We propose adding a description of the cause of fatality or injury outside of the Potential Impact Radius (PIR) and impacts to wildlife when ignition occurs. Harm to people outside of a PIR is an important safety issue, and the new question will collect a text description of the cause. The cause of fatality or injury outside the PIR could help stakeholders determine if the PIR concept is suitable for continued use. The value of burnt wildlife habitat is important in calculating the benefit of proposed regulations.
We propose collecting the cost of gas per mcf and calculating the cost of gas released. Currently, the form collects the volume of gas released and the cost of the gas released. The cost per mcf in our current incident data ranges from cents to hundreds of dollars. By providing the gas cost per mcf, operators will achieve greater accuracy when converting the per mcf gas cost to released gas costs.
Our departmental guidelines for determining the benefit of proposed regulations (
We are proposing to collect the volume of product consumed by fire. We already collect data about the volume of product released and whether ignition occurred. However, we cannot identify the volume of product burned. This data would allow us to more accurately determine the social cost of carbon and benefit of proposed regulations.
We are proposing to collect the number of buildings affected by the incident. On the current forms, the property damage values do not include any details about the type of property damaged. This data would provide more details about the consequences of the incident and enable a more thorough determination of the benefit of proposed regulations.
We propose collecting data about the length of building evacuations. On the current form, we collect the number of person evacuated from buildings. To implement DOT guidelines (
We propose adding the gas flow rate at the point and time of the incident. This change would help stakeholders better understand the operating conditions at the time of the failure.
We propose adding the date the operator established the maximum pressure for the pipeline system. We also propose adding a question about flow reversals. This data would help stakeholders have a better understanding of the maximum pressure determination method and whether a flow reversal may have invalidated the maximum pressure.
We propose adding a question about whether the gas was odorized. This change would help stakeholders understand if people near the failure location should have been able to smell the escaping gas.
We propose modifying the question about the length of pipeline isolated during incident response. In the current form, an assumption is made that valve closures will always be used to initially control flow to the failure location. This change would clarify the length to be reported when valves are not used to initially control flow to the failure location.
If a gas transmission failure occurs on a pipeline within a storage field, the current instructions are to select “storage gathering” as the function. Since this question first appeared in
We propose collecting additional details when stray current is the cause of external corrosion. We have also clarified the conditions under which external corrosion cathodic protection is expected. This data would help stakeholders better understand the cause of external corrosion.
We propose adding tree root damage as a sub-cause in the natural force damage cause category. This addition would reduce the number of incidents reported with a cause of “other.”
In the current form, when a third party causes the excavation damage, we collect details about the excavation work. We propose collecting details about the excavation work when the cause of the damage is first, second, or third party. When pipeline operator employees are excavating and damage their own pipeline, the damage is considered first party. When an excavator is working under contract for the pipeline operator and damages the operator's pipeline, they are considered a second party. First and second party excavation details would allow stakeholders to understand the type of excavation work being performed by any party causing the excavation damage.
We propose adding data about exemptions from state damage prevention laws when the cause of the incident is excavation damage. This data would help stakeholders determine states in which damage prevention law exemptions may be leading to more frequent excavation damage of pipelines.
We propose collecting details about driver performance and protection from damage when the cause is identified as “damage by car, truck, or other motorized vehicle/equipment not engaged in excavation.” These questions will not include personally identifiable information or anything that violates the privacy of the driver. PHMSA will request information such as whether the driver violated state or local driving laws, whether they were in control of the vehicle at the time of the collision, and the estimated speed at time of collision. “Unknown” will be allowed for all driver performance questions.
Often times, the narrative section of these incident reports mention reckless or intoxicated drivers. By adding questions about driver performance and protective barriers, stakeholders can discern incidents that could have been prevented by the operator and incidents where the driver's performance may have been a factor.
When material failure of pipe or weld causes the incident, a sub-cause must be chosen. Errors in the design of pipeline facilities cause some incidents, but design is not included in any sub-cause. We propose adding a design to the “Construction-, Installation-, or Fabrication-related” sub-cause. This change would reduce the number of reports with cause of “other.”
We propose adding another environmental cracking option, “hard spot.” This is another type of environmental cracking that should be available for selection. This change would reduce the number of reports with cause of “other.”
We propose adding a question to collect the post-construction pressure test value. When the pipe or a weld fails, the value of the post-construction pressure test is important to determining if the cause of the failure might have been present since original construction. This change would provide additional data to diagnose the cause of the pipe or weld failure.
In the current form, the same set of integrity inspection questions appear in four different cause sections. Only one cause can be selected so three sets of these questions are redundant. We propose having the questions appear once. For each report submitted since January 1, 2010, PHMSA would modify the database to have the questions appear only once. This change would simplify the form by reducing the number of distinct data fields.
We propose collecting two sets of in-line inspection results. Under PHMSA regulations, operators are conducting a second round of integrity inspections. This change would provide a history of in-line inspections rather than just the most recent. The additional inspection data may provide insights about the effectiveness of the various types of in-line inspections.
We propose collecting the type of direct assessment when this inspection method has been implemented. The additional inspection data may provide insights about the effectiveness of the various types of direct assessments.
Pipeline operators currently select only one cause on the form. Factors contributing to, but not causing an incident are often relevant to preventing future incidents. We propose collecting data about contributing factors. The proposal is similar to a recommendation made by NTSB in their January 2015 safety study report. NTSB recommended revising the Gas Transmission/Gas Gathering Form to collect multiple root causes. We are proposing to collect contributing factors in addition to the apparent cause on all four forms. This data would help stakeholders develop a more thorough understanding of the incident and ways to prevent future incidents.
PHMSA proposes to add more detailed questions about LNG incidents and their consequences.
The vast majority of pipeline incidents have only one NRC report. During response to protracted incidents, pipeline operators may submit multiple reports to the NRC. In these rare instances, we are proposing to collect each NRC report number. This change would help PHMSA correlate our incident investigation findings with the form.
Our departmental guidelines for determining the benefit of proposed regulations (
We are proposing to collect the volume of product consumed by fire. We already collect data about the volume of product released and whether ignition occurred. However, we cannot identify the volume of product burned. This data would allow us to more accurately determine the social cost of carbon and benefit of proposed regulations.
We are proposing to collect the number of buildings affected by the incident. On the current forms, the property damage values do not include any details about the type of property damaged. This data would provide more details about the consequences of the incident and enable a more thorough determination of the benefit of proposed regulations.
We propose collecting data about the length of building evacuations. On the current form, we collect the number of persons evacuated from buildings. To implement DOT guidelines (
Pipeline operators currently select only one cause on the form. Factors contributing to, but not causing an incident are often relevant to preventing future incidents. We propose collecting data about contributing factors. The proposal is similar to a recommendation made by NTSB in their January 2015 safety study report. The NTSB recommended revising the GT/GG Form to collect multiple root causes. We are proposing to collect contributing factors in addition to the apparent cause on all four forms. This data would help stakeholders develop a more thorough understanding of the incident and ways to prevent future incidents.
PHMSA proposes to reorganize existing questions and add more detailed questions about incident response, incident consequences, operating conditions, cause, and contributing factors.
We propose changing the name of the form to “Accident Report—Hazardous Liquid and Carbon Dioxide Systems.” This change more accurately describes the types of pipelines using the form.
We propose adding the time zone and daylight savings status at the location and time of the incident. This data would help PHMSA correlate our incident investigation findings with the form.
We propose collecting the operational status of the pipeline system at the time the operator identified the failure. On the current form, there is an assumption that the pipeline was in service at the time the operator identified the failure, but this is often not true. This change would help stakeholders understand the status of the pipeline and clarify the shutdown data.
We reorganized existing questions to display the sequence of operator actions and interactions as the incident proceeds. For example, how the operator first learned of the pipeline failure is currently collected in Part E. PHMSA proposes to move this item to Part A. New items being added to build a complete timeline include interactions with emergency responders, spill response resources, and details about ignition. This data would help stakeholders develop a more thorough understanding of the incident.
The vast majority of pipeline incidents have only one NRC report. During response to protracted incidents, pipeline operators may submit multiple reports to the NRC. In these rare instances, we are proposing to collect each NRC report number. This change would help PHMSA correlate our incident investigation findings with the form.
We propose adding questions about initial actions the operator took to control the flow of product to the failure location. When valves are used, we propose collecting the date and time of the valve closure. This change implements a GAO recommendation from GAO-13-168 “Pipeline Safety: Better Data and Guidance needed to Improve Pipeline Operator Incident Response.” This change would allow stakeholders to understand the actions taken by the operator to control the flow of gas during incident response and collect data about the elapsed time to valve closure.
We propose adding “exposed due to loss of cover” as a selection for the area of incident when underground is selected. For pipelines installed underground and eventually exposed, the current form is not clear about whether underground or above ground should be selected. Adding “exposed due to loss of cover” as an underground option clarifies how to report the incident. This change would improve the consistency of reports.
We propose adding a question to collect the date of the most recent evaluation of the water crossing. These evaluations can provide information critical to protecting the integrity of water crossings. This change would provide stakeholders with this critical information.
We propose collecting the OCS region when an incident occurs on the OCS. This change would provide stakeholders with a more precise location of the incident.
We propose modifying the selections for the item that failed. These modifications would reduce the number of times “other” is selected and allow a more meaningful analysis of the data.
We propose collecting both the date of manufacture and the date of installation for the failed item. This would allow stakeholders to understand both the age of the failed item and how long it had been in service.
We propose adding a question for the volume of contaminated soil. The amount of soil contaminated provides an indication of the spread of the liquid product.
Our departmental guidelines for determining the benefit of proposed regulations (
We are proposing to collect the volume of product consumed by fire. We already collect data about the volume of product released and whether ignition occurred. However, we cannot identify the volume of product burned. This data would allow us to more accurately determine the social cost of carbon and benefit of proposed regulations.
We are proposing to collect the number of buildings affected by the incident. On the current forms, the property damage values do not include any details about the type of property damaged. This data would provide more details about the consequences of the incident and enable a more thorough determination of the benefit of proposed regulations.
We propose collecting data about the length of building evacuations. On the current form, we collect the number of persons evacuated from buildings. To implement DOT guidelines (
We propose adding the method used by the operator to establish the maximum pressure for the pipeline system. We also propose adding the date the maximum pressure was established. This data would help stakeholders determine the maximum pressure methods posing a greater risk and if the risk changes over time.
We also propose adding a question about flow reversals. This data would help stakeholders have a better understanding of whether a flow reversal may have invalidated the maximum pressure.
We propose modifying the question about the length of pipeline isolated during incident response. In the current form, an assumption is made that valve closures will always be used to initially control flow to the failure location. This change would clarify the length to be reported when valves are not used to initially control flow to the failure location.
We propose collecting additional details when stray current is the cause of external corrosion. We have also clarified the conditions under which external corrosion cathodic protection is expected. This data would help stakeholders better understand the cause of external corrosion.
We propose adding tree root damage as a sub-cause in the natural force damage cause category. This addition would reduce the number of incidents reported with a cause of “other.”
In the current form, when a third party causes the excavation damage, we collect details about the excavation work. We propose collecting details about the excavation work when the cause of the damage is first, second, or third party. When pipeline operator employees are excavating and damage their own pipeline, the damage is considered first party. When an excavator is working under contract for the pipeline operator and damages the operator's pipeline, they are considered a second party. First and second party excavation details would allow stakeholders to understand the type of excavation work being performed by any party causing the excavation damage.
We propose adding data about exemptions from state damage prevention laws when the cause of the incident is excavation damage. This data would help stakeholders determine states in which damage prevention law exemptions may be leading to more frequent excavation damage of pipelines.
When material failure of pipe or weld causes the incident, a sub-cause must be chosen. Errors in the design of pipeline facilities cause some incidents, but design is not included in any sub-cause. We propose adding a design to the “Construction-, Installation-, or Fabrication-related” sub-cause. This change would reduce the number of reports with cause of “other.”
We propose adding another environmental cracking option, “hard spot”. This is another type of environmental cracking that should be available for selection. This change would reduce the number of reports with cause of “other.”
We propose adding a question to collect the post-construction pressure test value. When the pipe or a weld fails, the value is the post-construction pressure test is important in determining if the cause of the failure might have been present since original construction. This change would provide additional data to diagnose the cause of the pipe or weld failure.
We propose collecting details about driver performance and protection from damage when the cause is identified as “damage by car, truck, or other motorized vehicle/equipment not engaged in excavation.” These questions will not include personally identifiable information or anything that violates the privacy of the driver. PHMSA will request information such as whether the driver violated state or local driving laws, whether they were in control of the vehicle at the time of the collision, and the estimated speed at time of collision. “Unknown” will be allowed for all driver performance questions.
Often times, the narrative section of these incident reports mention reckless or intoxicated drivers. By adding questions about driver performance and protective barriers, stakeholders can discern incidents that could have been prevented by the operator and incidents where the driver's performance may have been a factor.
In the current form, the same set of integrity inspection questions appear in four different cause sections. Only one cause can be selected, so three sets of these questions are redundant. We propose having the questions appear once. For each report submitted since January 1, 2010, PHMSA would modify the database to have the questions appear only once. This change would simplify the form by reducing the number of distinct data fields.
We propose collecting two sets of in-line inspection results. Under PHMSA regulations, operators are conducting a second round of integrity inspections. This change would provide a history of in-line inspections rather than just the most recent. The additional inspection data may provide insights about the effectiveness of the various types of inline inspections.
We propose collecting the type of direct assessment when this inspection method has been implemented. The additional inspection data may provide
Pipeline operators currently select only one cause on the form. Factors contributing to, but not causing an incident are often relevant to preventing future incidents. We propose collecting data about contributing factors. The proposal is similar to a recommendation made by NTSB in their January 2015 safety study report. The NTSB recommended revising the GT/GG Form to collect multiple root causes. We are proposing to collect contributing factors in addition to the apparent cause on all four forms. This data would help stakeholders develop a more thorough understanding of the incident and ways to prevent future incidents.
Section 1320.8(d), Title 5, Code of Federal Regulations, requires PHMSA to provide interested members of the public and affected agencies an opportunity to comment on information collection and recordkeeping requests. This notice identifies several information collection requests that PHMSA will submit to OMB for renewal. PHMSA expects many of the new data elements are already known by the operator and no report requires the completion of all fields on the forms. PHMSA has estimated the burdens below by adding 20% to the previous burdens—12 hours instead of 10.
The following information is provided for each information collection: (1) Title of the information collection; (2) OMB control number; (3) Current expiration date; (4) Type of request; (5) Abstract of the information collection activity; (6) Description of affected public; (7) Estimate of total annual reporting and recordkeeping burden; and (8) Frequency of collection. PHMSA will request a three-year term of approval for each information collection activity. PHMSA requests comments on the following information collections:
Comments are invited on:
(a) The need for the renewal and revision of these collections of information for the proper performance of the functions of the agency, including whether the information will have practical utility;
(b) The accuracy of the agency's estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used;
(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 those who are to respond, including the use of appropriate automated, electronic, mechanical, or other technological collection techniques.
The Paperwork Reduction Act of 1995; 44 U.S.C. Chapter 35, as amended; and 49 CFR 1.48.
Alcohol and Tobacco Tax and Trade Bureau (TTB); Treasury.
Notice and request for comments.
As part of our continuing effort to reduce paperwork and respondent burden, and as required by the Paperwork Reduction Act of 1995, we invite comments on the proposed or continuing information collections listed below in this notice.
We must receive your written comments on or before July 12, 2016.
As described below, you may send comments on the information collections listed in this document using the “Regulations.gov” online comment form for this document, or you may send written comments via U.S. mail or hand delivery. TTB no longer accepts public comments via email or fax.
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•
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Please submit separate comments for each specific information collection listed in this document. You must reference the information collection's title, form or recordkeeping requirement number, and OMB number (if any) in your comment.
You may view copies of this document, the information collections listed in it and any associated instructions, and all comments received in response to this document within Docket No. TTB-2016-0001 at
Michael Hoover, Alcohol and Tobacco Tax and Trade Bureau, 1310 G Street NW., Box 12, Washington, DC 20005; telephone 202-453-1039, ext. 135; or email
The Department of the Treasury and its Alcohol and Tobacco Tax and Trade Bureau (TTB), as part of their continuing effort to reduce paperwork and respondent burden, invite the general public and other Federal agencies to comment on the proposed or continuing information collections listed below in this notice, as required by the Paperwork Reduction Act of 1995 (44 U.S.C. 3501
Comments submitted in response to this notice will be included or summarized in our request for Office of Management and Budget (OMB) approval of the relevant information collection. All comments are part of the public record and subject to disclosure. Please do not include any confidential or inappropriate material in your comments.
For each information collection listed below, we invite comments on:
(a) Whether the information collection is necessary for the proper performance of the agency's functions, including whether the information has practical utility;
(b) the accuracy of the agency's estimate of the information collection's burden;
(c) ways to enhance the quality, utility, and clarity of the information collected;
(d) ways to minimize the information collection's burden 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 the requested information.
Currently, we are seeking comments on the following information collections (forms, recordkeeping requirements, or questionnaires):
The Automated Commercial Environment (ACE) provides a “single window” that allows importers and exporters to enter one set of data for each shipment of imported or exported goods. The TTB Partner Government Agency (PGA) Message Set defines the TTB-specific information that importers may submit electronically through ACE to meet TTB requirements.
With regard to imports, TTB intends to issue an alternate method to allow importers to submit the TTB PGA Message Set electronically, in lieu of submitting paper documents to U.S. Customs and Border Protection (CBP) at importation. This information collection covers the data that would be submitted electronically through ACE under that alternate method. Most of the information that the alternate method will require importers to submit through ACE is already required by TTB's regulations. However, there are some additional requirements. For example, importers who are required to have a TTB permit number will submit their TTB permit number when filing electronically in ACE. In general, importers of TTB-regulated commodities are required to obtain a permit from TTB, but they have not previously been required by regulation to file that number with CBP. The information collected under this information collection appears in the “ACE Filing Instructions for TTB-Regulated Commodities” available at
Internal Revenue Service (IRS), Treasury.
Notice and request for comments.
The Department of the Treasury, as part of its continuing effort to reduce paperwork and respondent burden, invites the general public and other Federal agencies to take this opportunity to comment on proposed and/or continuing information collections, as required by the Paperwork Reduction Act of 1995, Public Law 104-13 (44 U.S.C. 3506(c)(2)(A)). Currently, the IRS is soliciting comments concerning Form 2063, U.S. Departing Alien Income Tax Statement.
Written comments should be received on or before July 12, 2016 to be assured of consideration.
Direct all written comments to Tuawana Pinkston, Internal Revenue Service, Room 6526, 1111 Constitution Avenue NW., Washington, DC 20224.
Requests for additional information or copies of the form and instructions should be directed to Allan Hopkins 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 and request for comments.
The Department of the Treasury, as part of its continuing effort to reduce paperwork and respondent burden, invites the general public and other Federal agencies to take this opportunity to comment on proposed and/or continuing information collections, as required by the Paperwork Reduction Act of 1995, Public Law 104-13 (44 U.S.C. 3506(c)(2)(A)). Currently, the IRS is soliciting comments concerning dividend equivalents from sources within the United States, Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding, and Form 1042-T, Annual Summary and Transmittal of Forms 1042-S.
Written comments should be received on or before July 12, 2016 to be assured of consideration.
Direct all written comments to Tuawana Pinkston, Internal Revenue Service, Room 6526, 1111 Constitution Avenue NW., Washington, DC 20224.
Requests for additional information or copies of the form and instructions should be directed to Kerry Dennis, Internal Revenue Service, room 6526, 1111 Constitution Avenue NW., Washington, DC 20224, or through the internet at
The burden estimate is as follows:
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 and request for comments.
The Department of the Treasury, as part of its continuing effort to reduce paperwork and respondent burden, invites the general public and other Federal agencies to take this opportunity to comment on proposed and/or continuing information collections, as required by the Paperwork Reduction Act of 1995, Public Law 104-13 (44 U.S.C. 3506(c)(2)(A)). Currently, the IRS is soliciting comments concerning debt
Written comments should be received on or before July 12, 2016 to be assured of consideration.
Direct all written comments to Tuawana Pinkston, Internal Revenue Service, Room 6526, 1111 Constitution Avenue NW., Washington, DC 20224.
Requests for additional information or copies of the regulation should be directed to Kerry Dennis, Internal Revenue Service, Room 6526, 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 and request for comments.
The Department of the Treasury, as part of its continuing effort to reduce paperwork and respondent burden, invites the general public and other Federal agencies to take this opportunity to comment on proposed and/or continuing information collections, as required by the Paperwork Reduction Act of 1995, Public Law 104-13 (44 U.S.C. 3506(c)(2)(A)). Currently, the IRS is soliciting comments concerning definition of private activity bonds.
Written comments should be received on or before July 12, 2016 to be assured of consideration.
Direct all written comments to Tuawana Pinkston, Internal Revenue Service, Room 6526, 1111 Constitution Avenue NW., Washington, DC 20224.
Requests for additional information or copies of the regulations should be directed to Allan Hopkins 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 and request for comments.
The Department of the Treasury, as part of its continuing effort to reduce paperwork and respondent burden, invites the general public and other Federal agencies to take this opportunity to comment on proposed and/or continuing information collections, as required by the Paperwork Reduction Act of 1995, Public Law 104-13 (44 U.S.C. 3506(c)(2)(A)). Currently, the IRS is soliciting comments concerning Notice 2009-83, Credit for Carbon Dioxide Sequestration under Section 45Q.
Written comments should be received on or before July 12, 2016 to be assured of consideration.
Direct all written comments to Tuawana Pinkston, Internal Revenue Service, Room 6526, 1111 Constitution Avenue NW., Washington, DC 20224.
Requests for additional information or copies of notice should be directed to Allan Hopkins, 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 and request for comments.
The Department of the Treasury, as part of its continuing effort to reduce paperwork and respondent burden, invites the general public and other Federal agencies to take this opportunity to comment on proposed and/or continuing information collections, as required by the Paperwork Reduction Act of 1995, Public Law 104-13 (44 U.S.C. 3506(c)(2)(A)). Currently, the IRS is soliciting comments concerning Form 5434, Application for Enrollment, and Form 5434-A, Application for Renewal of Enrollment.
Written comments should be received on or before July 12, 2016 to be assured of consideration.
Direct all written comments to Tuawana Pinkston, Internal Revenue Service, Room 6526, 1111 Constitution Avenue NW., Washington, DC 20224.
Requests for additional information or copies of the form and instructions should be directed to Allan Hopkins 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 and request for comments.
The Department of the Treasury, as part of its continuing effort to reduce paperwork and respondent burden, invites the general public and other Federal agencies to take this opportunity to comment on proposed and/or continuing information collections, as required by the Paperwork Reduction Act of 1995, Public Law 104-13 (44 U.S.C. 3506(c)(2)(A)). Currently, the IRS is soliciting comments concerning special rules under section 417(a)(7) for written explanation provided by qualified retirement plan after annuity starting dates.
Written comments should be received on or before July 12, 2016 to be assured of consideration.
Direct all written comments to Tuawana Pinkston, Internal Revenue Service, Room 6526, 1111 Constitution Avenue NW., Washington, DC 20224.
Requests for additional information or copies of the regulations should be directed to Allan Hopkins 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 and request for comments.
The Department of the Treasury, as part of its continuing effort to reduce paperwork and respondent burden, invites the general public and other Federal agencies to take this opportunity to comment on proposed and/or continuing information collections, as required by the Paperwork Reduction Act of 1995, Public Law 104-13(44 U.S.C. 3506(c)(2)(A)). Currently, the IRS is soliciting comments concerning related group election with respect to qualified investments in foreign base company shipping operations.
Written comments should be received on or before July 12, 2016 to be assured of consideration.
Direct all written comments to Tuawana Pinkston, Internal Revenue Service, Room 6526, 1111 Constitution Avenue NW., Washington, DC 20224.
Requests for additional information or copies of the regulations should be directed to Kerry Dennis at Internal Revenue Service, Room 6526, 1111 Constitution Avenue NW., Washington, DC 20224, or through the internet at
The following paragraph applies to all 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.
Securities and Exchange Commission.
Final rule.
In accordance with Section 764 of Title VII (“Title VII”) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), the Securities and Exchange Commission (“SEC” or “Commission”) is adopting new rules under the Securities Exchange Act of 1934 (“Exchange Act”) that are intended to implement provisions of Title VII relating to business conduct standards and the designation of a chief compliance officer for security-based swap dealers and major security-based swap participants. The final rules also address the cross-border application of the rules and the availability of substituted compliance.
Lourdes Gonzalez, Assistant Chief Counsel—Sales Practices, Joanne Rutkowski, Senior Special Counsel, Cindy Oh, Special Counsel, Lindsay Kidwell, Special Counsel, Stacy Puente, Special Counsel, Devin Ryan, Special Counsel, Office of Chief Counsel, Division of Trading and Markets, at (202) 551-5550, at the Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549. For further information on cross-border application of the rules, contact: Carol McGee, Assistant Director, Richard Gabbert, Senior Special Counsel, Joshua Kans, Senior Special Counsel, and Margaret Rubin, Special Counsel, Office of Derivatives Policy, Division of Trading and Markets, at (202) 551-5550, at the Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549.
The Commission is adopting Rules 15Fh-1 through 15Fh-6 and Rule 15Fk-1 to implement the business conduct standards and chief compliance officer (“CCO”) requirements for security-based swap dealers (“SBS Dealers”) and major security-based swap participants (“Major SBS Participants” and, together with SBS
The Dodd-Frank Act was enacted, among other reasons, to promote the financial stability of the United States by improving accountability and transparency in the financial system.
The Commission initially proposed Rules 15Fh-1 through 15Fh-6 and Rule 15Fk-1 in June 2011.
The Commission received 40 comments on the Proposing Release, of which 9 were comments submitted in response to the Reopening Release.
The SEC Chair and Commissioners were copied on a comment letter to the CFTC in connection with the CFTC's own cross-border initiative.
The Commission is now adopting Rules 15Fh-1 through 15Fh-6 and Rule 15Fk-1, with certain revisions suggested by commenters or designed to clarify the rules and conform them to the rules adopted by the CFTC. The principal aspects of the rules are briefly described immediately below. A detailed discussion of each rule follows in Sections II.A.-II.J, below.
Rule 15Fh-1, as adopted, defines the scope of Rules 15Fh-1 through 15Fh-6 and Rule 15Fk-1, and provides that an SBS Entity can rely on the written representations of a counterparty or its representative to satisfy its due diligence requirements under the rules, unless it has information that would cause a reasonable person to question the accuracy of the representation.
Rule 15Fh-2, as adopted, sets forth the definitions used throughout Rules 15Fh-1 through 15Fh-6. The defined terms are discussed in connection with the rules in which they appear.
Rule 15Fh-3, as adopted, defines the business conduct requirements generally applicable to SBS Entities with respect to: (1) Verification of counterparty status as an eligible contract participant (“ECP”) or special entity; (2) disclosure to the counterparty of material information about the security-based swap, including material risks, characteristics, incentives, and conflicts of interest; (3) disclosure of information concerning the daily mark of the security-based swap; (4) disclosure regarding the ability of the counterparty to require clearing of the security-based swap; (5) communication with counterparties in a fair and balanced manner based on principles of fair dealing and good faith; and (6) the establishment of a supervisory and compliance infrastructure. Rule 15Fh-3, as adopted, additionally requires an SBS Dealer to: (1) Establish, maintain and enforce written policies and procedures reasonably designed to obtain and retain a record of the essential facts concerning each known counterparty that are necessary to conduct business with that counterparty; and (2) comply with certain suitability obligations when recommending a security-based swap, or trading strategy involving a security-based swap, to a counterparty.
Rule 15Fh-4(a), as adopted, provides that it shall be unlawful for an SBS Entity to: (i) Employ any device, scheme, or artifice to defraud any special entity or prospective customer who is a special entity; (ii) engage in any transaction, practice, or course of business that operates as a fraud or deceit on any special entity or prospective customer who is a special entity; or (iii) to engage in any act, practice, or course of business that is fraudulent, deceptive, or manipulative.
Rule 15Fh-4(b), as adopted, sets forth particular requirements for SBS Dealers acting as advisors to special entities.
Rule 15Fh-5, as adopted, sets forth particular requirements for SBS Entities acting as counterparties to special entities. Under the rule, those SBS Entities must have a reasonable basis to believe that the counterparty has a qualified representative who: (1) Has sufficient knowledge to evaluate the transaction and risks; (2) is not subject to a statutory disqualification; (3) is independent of the SBS Entity; (4) undertakes a duty to act in the best interests of the special entity; (5) makes appropriate and timely disclosures to the special entity of material information concerning the security-based swap; and (6) provides written representations regarding fair pricing and the appropriateness of the security-based swap. If the special entity is an employee benefit plan that is subject to regulation under Title I of ERISA (“ERISA plan”), these requirements are satisfied if the independent representative is a “fiduciary” under ERISA. In addition, the independent representative must be subject to pay-to-play regulation if the special entity is a “municipal entity” or a “governmental plan” as defined in Section 3 of ERISA.
Rule 15Fh-6, as adopted, imposes certain pay-to-play restrictions on SBS Dealers. The rule generally prohibits an SBS Dealer from engaging in security-
Rule 15k-1, as adopted, requires an SBS Entity to designate a CCO and imposes certain duties and responsibilities on that CCO.
Rule 3a71-3(c) and related amendments to Rule 3a71-3(a), as adopted, define the scope of application of the business conduct standards described in Section 15F(h) of the Exchange Act, and the rules and regulations thereunder (other than the rules and regulations prescribed by the Commission pursuant to Section 15F(h)(1)(B)) to SBS Dealers. As adopted, these rules require a registered U.S. SBS Dealer to comply with transaction-level business conduct requirements with respect to all of its transactions, except for certain transactions conducted through such dealer's foreign branch. The rules further require a registered foreign SBS Dealer to comply with transaction-level business conduct requirements with respect to any transaction with a U.S. person (except for a transaction conducted through a foreign branch of the U.S. person) and any transaction that the SBS Dealer arranges, negotiates, or executes using personnel located in the United States.
Rule 3a67-10(d) and related amendments to Rule 3a67-10(a), as adopted, define the scope of application of the business conduct standards described in Section 15F(h) of the Exchange Act, and the rules and regulations thereunder (other than the rules and regulations prescribed by the Commission pursuant to Section 15F(h)(1)(B)) to registered Major SBS Participants. As adopted, these rules, like those applicable to registered SBS Dealers, require a registered U.S. Major SBS Participant to comply with transaction-level business conduct requirements with respect to all of its transactions, except for certain transactions conducted through such participant's foreign branch. The rules further require a registered foreign Major SBS Participant to comply with transaction-level business conduct requirements with respect to any transaction with a U.S. person (except for a transaction conducted through a foreign branch of the U.S. person) but not any transaction with a non-U.S. person.
Finally, Rule 3a71-6, as adopted, provides a framework under which foreign SBS Dealers and foreign Major SBS Participants may seek to satisfy certain business conduct requirements under Title VII by means of substituted compliance.
In developing these final rules, including their cross-border application, we have consulted and coordinated with the CFTC and the prudential regulators
The Commission and CFTC staffs, prior to the proposal of rules by their respective agency, held approximately 30 joint meetings with interested parties regarding the agencies' respective business conduct rules to solicit a variety of views.
In May 2013, in the Reopening Release, the Commission sought comment on certain specific issues, including: (1) The relationship of the proposed rules to any parallel requirements of other authorities, including the CFTC and relevant foreign regulatory authorities; and (2) with respect to the CFTC rules, whether and to what extent the Commission, in adopting its own rules, should emphasize consistency with the CFTC rules versus adopting rules that are more tailored to the security-based swap market, including any specific examples where consistency or tailoring of a particular rule or rule set is more critically important.
The Commission received numerous comments regarding consistency with the CFTC's external business conduct rules both before and after the CFTC adopted its final rules.
Before the CFTC adopted its final external business conduct rules, commenters were divided as to whether they preferred the Commission's
Commenters also urged, with respect to supervision and CCO obligations (“internal” business conduct standards), that our final rules be informed by industry experience complying with the analogous Financial Industry Regulatory Authority, Inc. (“FINRA”) supervision and CCO rules, as well as the CFTC internal business conduct standards.
Section 15F(h)(2)(C) of the Exchange Act defines the term “special entity” to include “an employee benefit plan, as defined in section 3 of the Employee Retirement Income Security Act of 1974.”
Prior to proposing the business conduct standards rules, the Commission received submissions from commenters concerning the interaction with ERISA, DOL's proposed fiduciary rule, and current regulation regarding the definition of ERISA fiduciaries.
The Commission received numerous comments concerning the interaction of ERISA and existing fiduciary regulation with the business conduct standards under the Exchange Act and the Commission's proposed rules.
Commenters were primarily concerned that compliance with the business conduct standards under the Exchange Act or the Commission's proposed rules would cause an SBS Entity to be an ERISA fiduciary to an ERISA plan and thus, subject to ERISA's prohibited transaction provisions.
DOL staff reviewed the CFTC's final business conduct standards rules for Swap Entities and provided the CFTC with the following statement:
The Department of Labor has reviewed these final business conduct standards and concluded that they do not require swap dealers or major swap participants to engage in activities that would make them fiduciaries under the Department of Labor's current five-part test defining fiduciary advice 29 CFR 2510.3-21(c). In the Department's view, the CFTC's final business conduct standards neither conflict with the Department's existing regulations, nor compel swap dealers or major swap participants to engage in fiduciary conduct. Moreover, the Department states that it is fully committed to ensuring that any changes to the current ERISA fiduciary advice regulation are carefully harmonized with the final business conduct standards, as adopted by the CFTC and the SEC, so that there are no unintended consequences for swap dealers and major swap participants who comply with these business conduct standards.
Thereafter, in April 2015, the DOL reproposed a change to the definition of fiduciary under ERISA.
On April 6, 2016, DOL issued its final rule.
The Department has provided assurances to the CFTC and the SEC that the Department is fully committed to ensuring that any changes to the current ERISA fiduciary advice regulation are carefully harmonized with the final business conduct standards, as adopted by the CFTC and the SEC, so that there are no unintended consequences for swap and security-based swap dealers and major swap and security-based swap participants who comply with the business conduct standards.
Furthermore, DOL's final rule establishes a “swap and security-based swap transactions” exclusion
The Commission staff has continued to coordinate with DOL staff to ensure that the final business conduct standards rules are appropriately harmonized with ERISA and DOL regulations. DOL staff has provided the Commission with a statement that:
It is the Department's view that the draft final business conduct standards do not require security-based swap dealers or major security-based swap participants to engage in activities that would make them fiduciaries under the Department's current five-part test defining fiduciary investment advice. 29 CFR 2510.3-21(c). The standards neither conflict with the Department's existing regulations, nor compel security-based swap dealers or major security-based swap participants to engage in fiduciary conduct. Moreover, the Department's recently published final rule amending ERISA's fiduciary investment advice regulation was carefully harmonized with the SEC's business conduct standards so that there are no unintended consequences for security-based swap dealers and major security-based swap participants who comply with the business conduct standards. As explained in the preamble to the Department's final rule, the disclosures required under the SEC's business conduct rules do not, in the Department's view, compel counterparties to ERISA-covered employee benefit plans to make investment advice recommendations within the meaning of the Department's final rule or otherwise compel them to act as ERISA fiduciaries in
Finally, the Commission has modified its proposed treatment of special entities to take into account the comprehensive regulatory scheme established under ERISA. In particular, as discussed more fully in Section II.H below, if the special entity is an ERISA plan, our rules deem certain requirements satisfied if the plan has an independent representative that is a fiduciary under ERISA.
In addition to questions about ERISA fiduciary status, commenters also questioned whether compliance with the business conduct standards might cause an SBS Entity to be deemed an investment adviser or, when transacting with a special entity that meets the definition of municipal entity, a municipal advisor.
As we noted in the Proposing Release, the duties imposed on an SBS Dealer (or Major SBS Participant) under the business conduct rules are specific to this context, and are in addition to any duties that may be imposed under other applicable law.
As discussed in Section I.F,
We further stated in the Proposing Release that an SBS Dealer that acts as an advisor to a municipal entity also may be a “municipal advisor” under Section 15B(e) of the Exchange Act.
Under the framework established in the Dodd-Frank Act, SBS Entities are not required to be members of self-regulatory organizations (“SROs”). Some commenters have, however, urged us to harmonize Title VII business conduct requirements applicable to SBS Entities with relevant SRO requirements applicable to the SRO's members to avoid unnecessary differences, which they argue could create duplication and conflicts when an SBS Entity is also registered as a broker-dealer, or when an SBS Entity uses a registered broker-dealer to intermediate its transactions.
The rules we proposed were designed to implement the business conduct requirements enacted by Congress regarding security-based swap activity of SBS Entities. At the same time, in proposing these rules, we were mindful that an SBS Entity also may engage in activity that will require it to register as a broker-dealer, and thus become subject to SRO rules applicable to registered broker-dealers that may impose similar business conduct requirements.
We recognize, as the commenters noted, that the security-based swap and other securities activities of certain entities may require them to register both as broker-dealers and as SBS Dealers or Major SBS Participants.
On July 1, 2011, the Commission issued a separate order granting temporary exemptive relief (the “Temporary Exemptions”) from compliance with certain provisions of the Exchange Act in connection with the revision, pursuant to Title VII of the Dodd-Frank Act, of the Exchange Act definition of “security” to encompass security-based swaps.
In its Exemptive Release, the Commission noted that the relief is targeted and does not include, for instance, relief from the Exchange Act's antifraud and anti-manipulation provisions. FINRA has noted that FINRA Rule 0180 is similarly targeted. For instance, paragraph (a) of FINRA Rule 0180 provides that FINRA rules shall not apply to members' activities and positions with respect to security-based swaps, except for FINRA Rules 2010 (Standards of Commercial Honor and Principles of Trade), 2020 (Use of Manipulative, Deceptive or Other Fraudulent Devices), 3310 (Anti-Money Laundering Compliance Program) and 4240 (Margin Requirements for Credit Default Swaps).
The Commission, noting the need to avoid a potential unnecessary disruption to the security-based swap market in the absence of an extension of the Temporary Exemptions, and the need for additional time to consider the potential impact of the revision of the Exchange Act definition of “security” in light of recent Commission rulemaking efforts under Title VII of the Dodd-Frank Act, issued an order that extended and refined the applicable expiration dates of the previously granted Temporary Exemptions.
In establishing Rule 0180, and in extending the rule's expiration date,
Proposed Rule 15Fh-1 would provide that Rules 15Fh-1 through 15Fh-6 (governing business conduct) and Rule 15Fk-1 (requiring designation of a CCO) are not intended to limit, or restrict, the applicability of other provisions of the federal securities laws, including but not limited to Section 17(a) of the Securities Act, Sections 9 and 10(b) of the Exchange Act, and the rules and regulations thereunder. Additionally, it would provide that Rules 15Fh-1 through 15Fh-6 and Rule 15Fk-1 would not only apply in connection with entering into security-based swaps but also would continue to apply, as appropriate, over the term of executed security-based swaps.
In the Proposing Release, the Commission solicited comment on the scope of the business conduct rules, including whether the rules should apply to transactions between an SBS Entity and its affiliates, whether any of the rules should apply to security-based swaps that were entered into prior to the effective date of the rules, and to the extent that any of the rules were intended to provide additional protections for a particular counterparty, whether the counterparty should be able to opt out of those protections.
Eleven commenters addressed the general scope of the proposed business conduct standards.
Seven commenters addressed the application of the rules to security-based swaps that were entered into prior to the compliance date of the rules, and all seven recommended that the rules not apply to such transactions.
One commenter argued that amendments to existing transactions typically do not alter the risk and other characteristics of a transaction sufficiently to merit application of the rules and that application of the rules in these cases may frustrate their purpose.
Three commenters discussed the application of the rules to inter-affiliate transactions.
Nine commenters addressed whether to permit counterparties to opt out of certain protections provided by the
Three commenters suggested that the Commission permit institutional or “sophisticated investors” to opt out of provisions intended to protect counterparties.
Three other commenters suggested an opt out for specific types of counterparties.
Three commenters opposed allowing counterparties to opt out of the special protections in the rules.
After considering the comments, the Commission is adopting Rule 15Fh-1, predesignated as Rule 15Fh-1(a), with certain modifications.
The Commission is adopting, as proposed, the provision in final Rule 15Fh-1(a) specifying that Rules 15Fh-1 through 15Fh-6 and Rule 15Fk-1 apply “in connection with entering into security-based swaps” and also will continue to apply, as appropriate, over the term of executed security-based swaps. Many of the rules impose obligations on an SBS Entity with respect to its “counterparty” that must be satisfied before the SBS Entity has actually entered into a security-based swap with that counterparty (
To address concerns raised by commenters,
In response to commenters' concerns about applying the business conduct rules to amendments to and other lifecycle events of a security-based swap entered into before the compliance date of these rules,
In response to concerns raised by a commenter, the Commission also is clarifying that the rules generally will not apply to either a partial or full termination of a pre-existing security-based swap.
As requested by a commenter,
We believe it appropriate to apply the rules in this manner to help to ensure that counterparties receive the benefits of the rules in circumstances where they are warranted, while providing firms adequate time to review the business conduct rules being adopted today and make appropriate changes to their operations before they have to begin complying with those rules.
The Commission emphasizes that the above clarifications relate to the business conduct rules that by their terms apply when an SBS Entity offers to enter into or enters into a security-based swap, such as verification of status (Rule 15Fh-3(a)), certain disclosures (Rule 15Fh-3(b) and (d)), requirements for special entities as counterparties (Rule 15Fh-5), and pay-to-play (Rule 15Fh-6)). Other rules being adopted today are broader in their application, such as those relating to know your counterparty (Rule 15Fh-3(e)), recommendations of security-based swaps or trading strategies (Rule 15Fh-3(f)), fair and balanced communications (Rule 15Fh-3(g)), supervision (Rule 15Fh-3(h)), antifraud (Rule 15Fh-4(a)), requirements when an SBS Dealer is acting as an advisor to a special entity (Rule 15Fh-4(b)), and the CCO (Rule 15Fk-1). Thus, if an SBS Entity takes an action after the compliance date that independently implicates one of the business conduct rules, it will need to comply with the applicable requirements. For example, if an SBS Dealer makes a recommendation of a trading strategy that involves termination of a pre-existing security-based swap, the SBS Dealer would need to comply with the suitability requirements of Rule 15Fh-3(f) regarding such recommendation. In addition, an SBS Entity will need to comply with “entity level” rules relating to supervision and CCO after the compliance date of those rules for all of its security-based swap business.
The Commission agrees with the concerns raised by commenters regarding the treatment of inter-affiliate transactions.
We are not, however, extending the exception to transactions with all affiliates, as requested by some commenters.
The transaction-specific obligations outlined above and included in Rule 15Fh-1(a) generally are designed to provide an SBS Entity counterparty with certain information in connection with the security-based swap transaction that would help reduce potential information asymmetries, and to help ensure that the SBS Entity knows its counterparty and acts in a fair manner towards that counterparty, even in the face of potential conflicts of interest. The Commission does not believe that these objectives and
Further, consistent with the commenter's request, we are not granting an exception for transactions with affiliates with respect to the antifraud requirements of Rule 15Fh-4(a) or the requirements of Rule 15Fh-3(g) (fair and balanced communications).
The Commission has considered the concerns raised by commenters
While we are not adopting a general opt-out provision, as discussed below in connection with the relevant rules, the Commission has determined to permit means of compliance with the final rules that should promote efficiency and reduce costs (
Section 15F(h)(7) of the Exchange Act provides a statutory exception “from the requirements of this subsection” for security-based swap transactions that are: “(A) initiated by a special entity on an exchange or security-based swaps execution facility; and (B) the security-based swap dealer or major security-based swap participant does not know the identity of the counterparty to the transaction.”
Noting that there may be circumstances in which it may be unclear which party “initiated” the communications that resulted in the parties entering into a security-based swap transaction on a registered SEF or registered national securities exchange, the Commission proposed to interpret Section 15F(h)(7) to apply to any transaction with a special entity on a registered SEF or registered national securities exchange, where the SBS Entity does not know the identity of its counterparty at any time up to and including execution of a transaction.
The Commission further proposed to interpret Section 15F(h)(7) to apply with respect to requirements specific to dealings with special entities. Proposed Rule 15Fh-4(b)(3) would provide an exception from the special requirements for SBS Dealers acting as advisors to special entities, including the requirement that an SBS Dealer act in the best interests of a special entity for whom it acts as an advisor, if the transaction is executed on a registered exchange or SEF and the SBS Dealer does not know the identity of the counterparty at any time up to and including execution of the transaction. Under the same circumstances, proposed Rule 15Fh-5(c) would similarly provide an exception from the special requirements for SBS Entities acting as counterparties to special entities, including the qualified independent representative and disclosure requirements of proposed Rule 15Fh-5.
Consistent with Section 15F(h)(7), we also proposed to limit the application of certain other requirements to situations in which the identity of a counterparty (whether a special entity or not) is known to the SBS Entity. The rules as proposed would limit the verification of counterparty status obligations (proposed Rule 15Fh-3(a)),
The Commission received five comment letters that addressed the exception for anonymous, exchange or SEF-traded security-based swaps in the context of special entity-specific requirements,
Two commenters asserted that, where a security-based swap is cleared (through registered clearing organizations) and SEF or exchange-traded, the transaction should not be subject to the requirements of the proposed rules—regardless of whether the identity of the counterparty is known at the time of execution.
However, one of the commenters acknowledged that some security-based swaps executed on a SEF or exchange might be bilaterally negotiated, and the SEF or exchange subsequently used to process the trade, in which case it might be appropriate to apply the business conduct standards.
After adoption of the CFTC's business conduct standards, one commenter urged the Commission to adopt an exception for exchange-traded security-based swaps that are intended to be cleared if: (1)(a) The transaction is executed on a registered or exempt SEF or registered national securities exchange; and (b) is of a type that is, as of the date of execution, required to be cleared pursuant to Section 3C of the Exchange Act; or (2) the SBS Entity does not know the identity of the counterparty, at any time up to and including execution of the transaction.
After considering the comments, the Commission has determined to adopt two sets of exceptions from the business conduct requirements. As discussed in Sections II.H.8 and II.H.9,
In addition to the special entity exceptions, the Commission is adopting a second set of exceptions that are not limited to transactions with special entities, under which certain of the business conduct standards rules will apply only where the SBS Entity knows the identity of the counterparty at a reasonably sufficient time prior to execution of the transaction to permit the SBS Entity to comply with the obligations of the rule.
We are not, however, accepting the commenter's suggestion that we revise our exceptions to provide an exception for transactions intended to be cleared so long as the transaction is either executed on a registered national securities exchange or registered or exempt SEF and required to be cleared pursuant to Section 3C of the Exchange Act, regardless of whether or not the transaction is anonymous.
As noted in the Proposing Release, in general, where the Dodd-Frank Act imposes a business conduct requirement on both SBS Dealers and Major SBS Participants, we proposed rules that would apply to SBS Dealers and Major SBS Participants.
Three commenters addressed the general application of the rules to SBS Dealers and Major SBS Participants.
In contrast, another commenter urged the Commission to consider separate regulatory regimes for SBS Dealers and Major SBS Participants, arguing that they are different, and there are “different reasons why the Dodd-Frank Act requires additional oversight of each.”
A third commenter generally supported our proposed approach in not applying certain business conduct requirements to Major SBS Participants where the Dodd-Frank Act does not expressly impose such standards.
After considering the comments, the Commission has determined to apply the rules to SBS Dealers and Major SBS Participants as proposed. To that end, as discussed below, where a statutory provision encompasses both SBS Dealers and Major SBS Participants,
Where, however, a business conduct requirement is not expressly addressed by the Dodd-Frank Act or we read the statute to apply a requirement only to SBS Dealers,
In determining whether or not to apply certain requirements to Major SBS Participants, as explained in the Proposing Release, we have considered how the differences between the definitions of SBS Dealer and Major SBS Participant may be relevant in formulating the business conduct standards applicable to these entities. The Dodd-Frank Act and our rules define “security-based swap dealer” in a functional manner, by reference to the way a person holds itself out in the market and the nature of the conduct engaged in by that person, and how the market perceives the person's activities.
We are mindful, as noted by a commenter, that there are “different reasons why the Dodd-Frank Act requires additional oversight of each.”
The external business conduct requirements promulgated under Section 15F(h) are intended to provide certain protections for counterparties, and we believe the rules we are adopting today appropriately apply those requirements to SBS Dealers and Major SBS Participants so that counterparties receive the benefit of those protections. At the same time, mindful of the different role to be played by Major SBS Participants (which, by definition, are not SBS Dealers), we have not sought to impose the full range of business conduct requirements on Major SBS Participants. We note that our approach in this regard largely mirrors that of the CFTC, under whose rules Swap Dealers and Major Swap Participants have operated for some time. We believe that this consistency will result in efficiencies for entities that have already established infrastructure to comply with the CFTC standard.
We proposed and are adopting limited exceptions (as discussed in connection with the applicable rules) from the disclosure requirements in Rules 15Fh-3(b), 15Fh-3(c) and 15Fh-3(d) for transactions with an SBS Entity or a Swap Entity.
The Proposing Release solicited input on whether the rules adopted by the Commission should include a standard addressing the circumstances in which an SBS Entity may rely on representations to establish compliance with the business conduct rules.
Twelve commenters generally addressed the proposed standards for reliance on counterparty representations.
In 2011, seven commenters supported the actual knowledge standard.
One commenter, writing after the CFTC rules were adopted, asked the Commission to adopt a “reasonable person standard” that is “consistent with the parallel CFTC EBC Rules,” which generally permit a Swap Entity to rely on written representations to satisfy its due diligence obligations unless it has information that would cause a reasonable person to question the accuracy of the representations.
Some commenters suggested that the Commission require detailed representations.
More generally, another commenter recommended allowing representations to be contained in counterparty relationship documentation if agreed to by the counterparties, and requiring counterparties to undertake to update such representations with any material changes.
The Commission is adopting new Rule 15Fh-1(b), which provides that an SBS Entity may rely on written representations to satisfy its due diligence requirements under the business conduct rules unless it has information that would cause a reasonable person to question the accuracy of the representation. Under this standard, if an SBS Entity has in its possession information that would cause a reasonable person to question the accuracy of the representation, it will need to make further reasonable inquiry to verify the accuracy of the representation.
We understand that this is a market in which parties rely heavily on representations both with respect to relationship documentation and the transactions themselves. While both standards we proposed for comment could be workable in this context, we recognize that neither provides the absolute certainty sought by some commenters. As we explained in the Proposing Release, under either approach an SBS Entity could not ignore information in its possession as a result of which the SBS Entity would know that a representation is inaccurate.
Further, this standard also is consistent with the standard adopted by the CFTC under which a Swap Entity cannot rely on a representation if the Swap Entity has information that would cause a reasonable person to question the accuracy of the representation.
The rule as adopted would permit an SBS Entity to reasonably rely on the representations of a counterparty or its representative to satisfy its due diligence obligations under the business conduct rules, including Rules 15Fh-2(a) and (d), 15Fh-3(a), (e) and (f), 15Fh-4 and 15Fh-5. We are not requiring a specified level of detail for these representations but note that they should be detailed enough to permit the SBS Entity to form a reasonable basis for believing that the applicable requirement is satisfied.
Nothing in our rules would prohibit an arrangement under which the parties agree that representations will be provided in counterparty relationship documentation, and that they will update such representations with any material changes, as suggested by commenters.
We are not accepting the commenter's suggestion that we provide that in every instance an SBS Entity that is also registered with the CFTC as a Swap Entity will be permitted to rely on a counterparty's pre-existing written representations with respect to the CFTC's business conduct rules to satisfy its due diligence requirements under the Commission's business conduct rules, provided that the SBS Entity provides notice of such reliance to the counterparty and the counterparty does not object.
We are not adopting the suggestion of one commenter that “the knowledge test should be applied only to individuals with knowledge of the SBS transaction.”
The Commission solicited comment on whether an SBS Entity should be deemed to have complied with a requirement under the proposed rules if it has: (1) Established and maintained written policies and procedures, and a documented system for applying those policies and procedures, that are reasonably designed to achieve compliance with the requirement; and (2) reasonably discharged the duties and obligations required by the written policies and procedures and documented system, and did not have a reasonable basis to believe that the written policies and procedures and documented system were not being followed.
One commenter addressed the policies and procedures alternative.
After taking into consideration the comment, the Commission is not adopting a general policies and procedures safe harbor. The Commission acknowledges the importance of policies and procedures as a tool to achieving compliance with applicable regulatory and other requirements but agrees with the commenter that a general policies and procedures safe harbor could have the unintended effect of rewarding the process towards achieving compliance more than the result of actually achieving compliance.
As discussed more fully herein, Rule 15Fh-3(h) requires that an SBS Entity establish, maintain and enforce written policies and procedures that are reasonably designed to prevent violations of applicable securities laws, and rules and regulations thereunder. Rule 15Fh-3(h) also provides an affirmative defense to a charge of failure to supervise diligently based, in part, on the establishment and maintenance of these policies and procedures, where the entity has reasonably discharged the duties and obligations required by the written policies and procedures and documented system, and did not have a reasonable basis to believe that the written policies and procedures and documented system were not being followed. In addition, consistent with the approach of the CFTC, we are providing targeted representations-based safe harbors,
Proposed Rules 15Fh-2(a), (c), (e) and (f), which would define “act as an advisor to a special entity,” “independent representative of a special entity,” “special entity,” and “subject to a statutory disqualification,” respectively are discussed in Section II.H below in the context of the special entity requirements.
Proposed Rule 15Fh-2(b) would define “eligible contract participant” to mean any person defined in Section 3(a)(66) of the Exchange Act.
Proposed Rule 15Fh-2(d) would provide that “security-based swap dealer or major security-based swap participant” would include, where relevant, an associated person of the SBS Dealer or Major SBS Participant.
Comments on paragraphs (a), (c), (e) and (f) of proposed Rule 15Fh-2 defining “act as an advisor,” “independent representative of a special entity,” “special entity” and “subject to a statutory disqualification,” respectively are addressed below in Section II.H.
One commenter addressed proposed Rule 15Fh-2(b) defining “eligible contract participant.”
Three commenters addressed proposed Rule 15Fh-2(d) defining SBS Dealer or Major SBS Participant.
A third commenter recommended that the Commission clarify that associated persons of an SBS Entity should only be directly responsible for complying with the disclosure rules and rules involving interactions with counterparties, and should not be responsible for complying with internal business conduct standards, such as the rules relating to supervision and requiring designation of a CCO.
The Commission is moving the definition of “independent representative of a special entity” from Rule 15Fh-2 to Rule 15Fh-5 and accordingly, re-designating paragraphs (d) through (f) of Rule 15Fh-2 as paragraphs (c) through (e). The definition of “independent representative of a special entity” and paragraphs (a), (d) and (e) of Rule 15Fh-2 (defining “act as an advisor,” “special entity” and “subject to a statutory disqualification,” respectively) are addressed below in Section II.H.
The Commission is adopting Rule 15Fh-2(b) with two modifications. In response to a suggestion from a commenter,
After considering the comments, the Commission is adopting Rule 15Fh-2(d) as proposed, re-designated as Rule 15Fh-2(c). The statute defines the term “associated person of a security-based swap dealer or major security-based swap participant” to include “any person directly or indirectly controlling, controlled by, or under common control with” an SBS Dealer or Major SBS Participant.
The Commission declines to modify the definition, as requested by some commenters, to apply to persons acting on behalf of the SBS Entity.
In response to the commenter that raised concerns that associated persons should not be responsible for complying with “internal” business conduct standards,
Section 15F(h)(3)(A) of the Exchange Act directs that business conduct requirements adopted by the Commission shall establish a duty for an SBS Entity to verify that any counterparty meets the eligibility standards for an ECP.
Proposed Rule 15Fh-3(a)(1) would require an SBS Entity to verify that a counterparty whose identity is known to an SBS Entity prior to the execution of the transaction meets the eligibility standards for an ECP, before entering into a security-based swap with that counterparty other than on a registered national securities exchange or SEF.
Three commenters addressed proposed Rule 15Fh-3(a).
Two commenters recommended that the exception for transactions on a registered exchange or SEF be broadened to apply to the verification of special entity status in addition to the verification of ECP status.
The other commenter also recommended further narrowing the application of the rule by excluding transactions in which the identity of the counterparty is known just prior to execution, arguing that an SBS Entity would have insufficient time to exchange representations with the counterparty or otherwise verify the counterparty's status in those situations.
After considering the comments, the Commission is adopting Rule 15Fh-3(a) with certain modifications.
Rule 15Fh-3(a)(1), as adopted, requires an SBS Entity to verify the ECP status of a counterparty before entering into a security-based swap with that counterparty other than a transaction executed on a registered national securities exchange. We are not adopting the further provision of the proposed rule that would have limited the application of the verification requirement to a counterparty “whose identity is known to the SBS Entity prior to the execution of the transaction.” We also are not adopting the provision of the proposed rule that would have provided that the verification requirement does not apply to transactions executed on a SEF. These changes reflect the Commission's further consideration of the regulatory framework provided by the Dodd-Frank Act.
In particular, Section 6(l) of the Exchange Act makes it unlawful to effect a transaction in a security-based swap with or for a person that is not an ECP, unless the transaction is effected on a registered national securities exchange.
As noted in the Proposing Release, an SBS Entity that has complied with the requirements of Rule 15Fh-3(a)(1) concerning a counterparty's eligibility to enter into a particular security-based swap fulfills its obligations under the rule for that security-based swap, even if the counterparty subsequently ceases to meet the eligibility standards for an ECP during the term of that security-based swap.
Rule 15Fh-3(a)(2), as adopted, requires an SBS Entity to verify whether a counterparty is a special entity before entering into a security-based swap transaction with that counterparty, unless the transaction is executed on a registered or exempt SEF or registered national securities exchange and the SBS Entity does not know the identity of the counterparty at a reasonably sufficient time prior to execution of the transaction to permit the SBS Entity to comply with the obligations of the rule. The rule as proposed would have limited the verification of special entity status to counterparties whose identity is known to the SBS Entity prior to the execution of the security-based swap transaction. Because the question of special entity status figures most significantly in connection with the application of the special entity rules (Rules 15Fh-4, 15Fh-5 and 15Fh-6), we have modified the special entity verification rule to track the exceptions to those rules.
An SBS Entity that has complied with the requirements of Rule 15Fh-3(a)(2) concerning verification whether a counterparty is a special entity before entering into a particular security-based swap with that counterparty fulfills its obligations under the rule for that security-based swap.
Additionally, the Commission is adding a new paragraph (a)(3), special entity election, which requires an SBS Entity, in verifying the special entity status of a counterparty pursuant to Rule 15Fh-3(a)(2), to verify whether a counterparty is eligible to elect not to be a special entity as provided for in the adopted special entity definition in Rule 15Fh-2(d)(4), and if so, notify such counterparty. This change is intended to provide the greatest protections to the broadest categories of special entities, while still allowing them the flexibility to elect not to avail themselves of special entity protections.
Although the Dodd-Frank Act does not specifically require an SBS Entity to verify whether a counterparty is a special entity or is eligible to elect not to be a special entity, the Commission believes that such verification will help to ensure the proper application of the business conduct rules that apply to SBS Entities dealing with special entities.
The Commission is not revising the rule, as suggested by a commenter,
The Commission is not specifying the manner of documentation or procedures required for compliance with Rule 15Fh-3(a).
Section 15F(h)(3)(B) of the Exchange Act broadly requires that business conduct requirements adopted by the Commission require disclosures by SBS Entities to counterparties of information related to “material risks and characteristics” of the security-based swap, “material incentives or conflicts of interest” that an SBS Entity may have in connection with the security-based swap, and the “daily mark” of a security-based swap.
Section 15F(h)(3)(B) provides that disclosures under that section are not required when the counterparty is “a security-based swap dealer, major security-based swap participant, security-based swap dealer, or major security-based swap participant.”
Two commenters submitted comments on the application of the disclosure requirements when the counterparty is an SBS Entity or Swap Entity.
Additionally, as discussed in Section II.B, a commenter advocated for adding exceptions to the disclosure requirements in Rules 15Fh-3(b) and (d) to cover security-based swaps that are intended to be cleared and that are either (1) executed on a registered national securities exchange or registered or exempt SEF and required to be cleared pursuant to Section 3C of the Exchange Act, or (2) anonymous.
After considering the comments, the Commission is adopting, as proposed, the exceptions from the disclosure requirements under Rule 15Fh-3(b) (information about material risks and characteristics, and material incentives or conflicts of interests), Rule 15Fh-3(c) (the daily mark), and Rule 15Fh-3(d) (clearing rights) for transactions in which the counterparty is an SBS Entity or Swap Entity. We are not adopting the suggestion that disclosure requirements apply even when the counterparty is an SBS Entity or Swap Entity. We believe that an SBS Entity would be well-positioned to negotiate with another SBS Entity, and nothing in our rules precludes an SBS Entity from requesting such disclosures.
In addition, the exceptions under the rules as adopted parallel the exceptions in the analogous CFTC rules. This consistency will result in efficiencies for entities that have already established infrastructure to comply with the CFTC standard.
For the reasons discussed in Section II.B, we are not providing additional exceptions for transactions that are intended to be cleared.
Proposed Rule 15Fh-3(b) would require that disclosures regarding material risks and characteristics and material incentives or conflicts of interest be made to potential counterparties before entering into a security-based swap, but would not mandate the specific manner in which those disclosures are made as long as they are made “in a manner reasonably designed to allow the counterparty to assess” the information being provided.
Five commenters addressed the timing and manner of required disclosures.
Alternatively, if the Commission requires disclosure beyond the master agreement and trade acknowledgment, the first commenter encouraged the Commission to permit the use of standardized disclosures.
In contrast, two commenters advocated for more specific requirements with respect to the timing and manner of disclosure.
Another commenter also recommended that disclosure regarding material risks and characteristics and material incentives or conflicts of interest be required at a “reasonably sufficient time” prior to the execution of the transaction to harmonize with the CFTC's disclosure requirements.
One commenter addressed the written record requirements in proposed Rules 15Fh-3(b)(3) and 15Fh-3(d)(3).
If the Commission requires disclosure beyond the master agreement and trade acknowledgment, one commenter encouraged the Commission to exclude from such requirements counterparties that are regulated entities such as banks, broker-dealers, and investment advisers.
After considering the comments, the Commission is adopting the rules substantially as proposed, with certain modifications. In response to commenters' concerns, the Commission is requiring that an SBS Entity make the disclosures required by Rule 15Fh-3(b) regarding material risks and characteristics and material incentives or conflicts of interest at a reasonably sufficient time prior to entering into a security-based swap to allow the counterparty to assess the disclosures. This will also be consistent with the CFTC's timing requirement for its parallel disclosures rules, resulting in efficiencies for entities that have already established infrastructure to comply with the CFTC standard.
With respect to the manner of disclosure, we are not adopting the commenters' suggestion that we impose more specific requirements with respect to the timing and manner of disclosure.
After considering the comments, the Commission is also adopting as proposed the requirements in Rules 15Fh-3(b)(3) and 15Fh-3(d)(3) that an SBS Entity make a written record of any non-written disclosures made pursuant to Rules15Fh-3(b) and 15Fh-3(d), respectively, and provide a written version of these disclosures to the counterparty in a timely manner, but in any case no later than the delivery of the trade acknowledgement
We do believe, however, that is it is important that the required disclosures be made at a reasonably sufficient time before the execution of the transaction to allow the counterparty to assess the disclosures. While this time may vary depending on the product and the counterparty, we do not believe, as suggested by some commenters, that SBS Entities should be able to rely on trade acknowledgements alone to satisfy certain disclosure requirements.
As discussed in Section II.B above, the Commission is limiting the disclosure requirements in Rules 15Fh-3(b) and (d) to circumstances where the identity of the counterparty is known to the SBS Entity at a reasonably sufficient time prior to execution of the transaction to permit the SBS Entity to comply with the obligations of the rule. The disclosure requirements in Rules 15Fh-3(b) and (d) will not apply where the identity of the counterparty is not discovered until after the execution of the transaction, or where the SBS Entity learns the identity of the counterparty
Finally, we are not adopting the suggestion of one commenter that the Commission exclude from the disclosure requirements transactions with counterparties that are regulated entities such as banks, broker-dealers, and investment advisers.
Proposed Rule 15Fh-3(b)(1) would require an SBS Entity to disclose the material risks and characteristics of the particular security-based swap, including, but not limited to, the material factors that influence the day-to-day changes in valuation, the factors or events that might lead to significant losses, the sensitivities of the security-based swap to those factors and conditions, and the approximate magnitude of the gains or losses the security-based swap would experience under specified circumstances. In the Proposing Release, the Commission also solicited comment regarding whether SBS Entities should be specifically required to provide scenario analysis disclosure.
Seven commenters addressed the disclosure of material risks and characteristics of security-based swaps.
Two commenters argued that the Commission should adopt different or modified disclosure requirements.
Three commenters argued for additional or modified requirements.
Another commenter, writing after the CFTC adopted its final rules, recommended that the Commission harmonize with the CFTC's requirement to disclose material risks and characteristics.
We sought comment on whether we should require scenario analysis and, if so, what standards should apply. Eight commenters addressed the disclosure of scenario analysis.
Four commenters opposed requiring disclosure of scenario analysis.
A third commenter, writing after the CFTC adopted final rules,
A fourth commenter recommended that, to the extent a Major SBS Participant is transacting with an ECP at arm's-length, the Commission should explicitly exclude scenario analysis from the information that the Major SBS Participant is required to disclose pursuant to Rule 15Fh-3(b).
After considering the comments, the Commission is adopting Rule 15Fh-3(b)(1) with some modifications requested by commenters to more closely align the requirements of our rules with those of the CFTC.
We have revised the descriptions in Rule 15Fh-3(b)(1) of the required disclosures of material risks and characteristics of a security-based swap to harmonize with the descriptions in the parallel CFTC disclosure requirement. As adopted, Rule 15Fh-3(b)(1) requires an SBS Entity to disclose material information in a manner reasonably designed to allow the counterparty to assess the material risks and characteristics of the particular security-based swap, which may include (1) market risk,
The rule as adopted requires disclosure of “material” information regarding material risks and characteristics and material incentives or conflicts of interests. We believe that this modification will provide for an appropriate level of disclosure by requiring disclosure of “material” information, that is, the information most relevant to a counterparty's assessment of whether and under what terms to enter into a security-based swap. In addition, it will harmonize with the CFTC approach, promoting regulatory consistency across the swap and security-based swap markets, particularly among entities that transact in both markets and have already established infrastructure to comply with existing CFTC regulations. In response to comment, the Commission believes that for purposes of evaluating the material risks and characteristics of the particular security-based swap, including its economic terms, material information about the referenced security, index, asset or issuer should be disclosed.
The Commission anticipates that SBS Entities may provide these disclosures through various means, including by providing a scenario analysis, as noted in the Proposing Release.
As noted in the Proposing Release, these disclosures are intended to pertain to the material risks and characteristics of the security-based swap, and not the material risks and characteristics of the security-based swap with respect to a particular counterparty.
Proposed Rule 15Fh-3(b)(2) would require the SBS Entity to disclose any material incentives or conflicts of interest that it may have in connection with the security-based swap, including any compensation or other incentives from any source other than the counterparty in connection with the security-based swap to be entered into with the counterparty.
Seven commenters addressed the disclosure of material incentives or conflicts of interest.
One commenter objected to any requirement that an SBS Entity disclose its anticipated profit for the security-based swap.
After considering the comments, the Commission is adopting Rule 15Fh-3(b)(2) as proposed.
As noted in the Proposing Release, the Commission believes that the term “incentives”—which is used in Section 15F(h)(3)(b)(ii) of the Dodd-Frank Act—refers not to any profit or return that the SBS Entity would expect to earn from the security-based swap itself, or from any related hedging or trading activities of the SBS Entity, but rather to any other financial arrangements pursuant to which an SBS Entity may have an incentive to encourage the counterparty to enter into the transaction.
As discussed above, whether a conflict or incentive is material depends on the facts and circumstances of the particular matter. Although we are not expressly requiring disclosure of differential compensation as requested by the commenter, the difference in compensation an SBS Entity may receive for selling a security-based swap versus another product with similar economic terms may create a material incentive or conflict of interest that would need to be disclosed under the framework discussed above. Similarly, an SBS Entity would need to disclose material information concerning affiliations or material business relationships it may have with any provider of security-based swap valuation providers if those relationships create a material incentive or conflict of interest. Regarding the commenter's concern that the conflict of interest prohibitions in Sections 619 and 621 of the Dodd-Frank Act might be circumvented through application of the business conduct disclosure requirements,
Exchange Act Section 15F(h)(3)(B)(iii) directs that business conduct requirements adopted by the Commission require an SBS Entity to disclose to a counterparty (other than to another SBS Entity or Swap Entity): (i) For cleared security-based swaps, upon request of the counterparty, the daily mark from the appropriate derivatives clearing organization;
Proposed Rule 15Fh-3(c) would require an SBS Entity to disclose to its counterparty (other than to another SBS Entity or Swap Entity): (1) For a cleared security-based swap, upon the request of the counterparty, the daily end-of-day settlement price that the SBS Entity receives from the appropriate clearing agency, and (2) for an uncleared security-based swap, the midpoint between the bid and offer, or the calculated equivalent thereof, as of the close of business, unless the parties agree in writing to a different time, on each business day during the term of the security-based swap. Proposed Rule 15Fh-3(c)(2) would specify that the daily mark for an uncleared security-based swap may be based on market quotations for comparable security-based swaps, mathematical models or a combination thereof. Proposed Rule 15Fh-3(c)(2) also would require disclosure of the data sources and a description of the methodology and assumptions used to prepare the daily mark for an uncleared security-based swap, as well as any material changes to such data sources, methodology or assumptions during the term of the security-based swap.
Ten comment letters addressed the requirement for SBS Entities to provide a daily mark.
One commenter suggested modifications to the daily mark requirement to harmonize with the CFTC's parallel requirement.
One commenter asserted that requiring SBS Entities to provide daily marks would not further the goal of providing helpful transparency because in most transactions marks are typically either based on internal models or derived from indices with which the transactions are not perfectly matched.
One commenter suggested that the data sources, methodology and assumptions used to prepare the daily mark should be required to constitute a complete and independently verifiable methodology for valuing each security-based swap entered into between the parties, noting that this would promote objectivity and transparency, and aid in the resolution of disputes.
A third commenter recommended requiring disclosure as to how the daily mark is calculated, including such information as whether the daily mark was calculated based on inputs related to actual trade activity, using mathematical models, quotes and prices of other comparable securities, and whether those inputs came from third-party valuation service providers.
This commenter also recommended that an SBS Entity should disclose additional information concerning its daily mark to ensure a fair and balanced communication, including that: (1) The daily mark may not necessarily be a price at which the SBS Entity or counterparty would agree to replace or terminate the security-based swap; (2) calls for margin may be based on considerations other than the daily mark; and (3) the daily mark may not necessarily be the value of the security-based swap that is marked on the books of the SBS Entity.
One commenter noted that Major SBS Participants, unlike SBS Dealers, will not always have access to sufficient market information to provide a daily mark, particularly if the security-based swap is not actively traded or if there are no current bid and offer quotes.
Several commenters raised potential conflicts of interest concerns in connection with providing the daily mark for uncleared security-based swaps. Two commenters recommended requiring SBS Entities to use third-party quotations whenever possible to calculate the daily mark for uncleared security-based swaps.
Two commenters addressed the communication of daily marks, supporting the use of web-based methods of communication.
After considering the comments, the Commission is adopting Rule 15Fh-3(c) as proposed, with modifications.
In response to concerns raised by a commenter,
In response to comments, the Commission is clarifying that to fulfill its obligation to provide the daily mark upon request, the SBS Entity may agree with the clearing agency, a clearing member or another agent, for such clearing agency, clearing member or other agent to provide the daily mark directly to the counterparty.
Rule 15Fh-3(c)(1), as adopted, also requires that the SBS Entity provide the daily mark (as opposed to the end-of-day settlement price) upon request to the counterparty to allow clearing agencies the flexibility to provide a different calculation of the mark in the future. As noted above, we understand that current market practice is for the clearing agency to provide an end-of-day settlement price as its mark. In addition, this change will conform our rule more closely to the parallel CFTC rule described above.
The Commission is adopting Rule 15Fh-3(c)(2) as proposed. The Commission agrees with commenters
As noted in the Proposing Release, though the daily mark may be used as an input to compute the variation margin between an SBS Entity and its counterparty, it is not necessarily the sole determinant of how such margin is computed. Differences between the daily mark and computations for variation margin may result from adjustments for position size, position direction, credit reserve, hedging, funding, liquidity, counterparty credit quality, portfolio concentration, bid-ask spreads, or other costs. Moreover, we understand that the actual computations may be highly negotiated between the parties. Therefore, we decline to implement the commenter's suggestion that the basis for margining uncleared security-based swaps would satisfy the daily mark disclosure obligations.
For uncleared security-based swaps, Rule 15Fh-3(c)(2) as adopted defines the daily mark as the midpoint between the bid and offer prices for a particular uncleared security-based swap, or the calculated equivalent thereof, as of the close of business unless the parties otherwise agree in writing to a different time.
As noted in the Proposing Release, for actively traded security-based swaps that have sufficient liquidity, computing a daily mark as the midpoint between the bid and offer prices for a particular security-based swap, known as a “midmarket value,” would be consistent with Rule 15Fh-3(c)(2).
A commenter suggested that the daily mark disclosures would assist in resolving valuation disputes during the term of the security-based swap.
Two commenters suggested that Major SBS Participants should not be required to provide the daily mark for uncleared security-based swaps.
The Commission has considered the rationale raised by commenters and decided not to allow counterparties, even “sophisticated counterparties,” to opt-out of the protections afforded by the daily mark disclosures. It is our understanding that counterparties have a range of sophistication and some are unlikely to have their own modeling capabilities or access to relevant data to calculate a daily mark themselves. We think it is appropriate to apply the rule so that counterparties receive the benefits of the daily mark and related disclosures, and do not think it appropriate to permit parties to “opt out” of the benefits of those provisions.
A commenter suggested modifying the rule text for uncleared security-based swaps to require that the SBS Entity disclose additional information concerning the daily mark to ensure a fair and balanced communication, including, as appropriate, that: (A) The daily mark may not necessarily be a price at which either the counterparty or the SBS Entity would agree to replace or terminate the security-based swap; (B) depending upon the agreement of the parties, calls for margin may be based on considerations other than the daily mark provided to the counterparty; and (C) the daily mark may not necessarily be the value of the security-based swap that is marked on the books of the SBS Entity.
Against this background, the Commission is not prescribing the means by which an SBS Entity determines the daily mark for an uncleared security-based swap. Commenters have made various suggestions as to additional requirements as to the inputs used for the daily mark calculation, such as requiring independent third-party quotes or limiting the context in which an SBS Entity can use its own bid and offer prices or requiring the daily mark to be an actionable quote.
As noted above, Rule 15Fh-3(c)(2) requires an SBS Entity to disclose to the counterparty its data sources and a description of the methodology and assumptions used to prepare the daily mark for an uncleared security-based swap. Additionally, Rule 15Fh-3(c)(2) requires an SBS Entity to promptly disclose any material changes to the data sources, methodology, or assumptions during the term of the security-based swap. As noted in the Proposing Release, an SBS Entity is not required to disclose the data sources or a description of the methodology and assumptions more than once unless it materially changes the data sources, methodology or assumptions used to calculate the daily mark.
A commenter has requested that we eliminate the requirement to disclose data sources to harmonize more closely with the CFTC.
Rule 15Fh-3(c) as adopted, does not mandate the means by which an SBS Entity must make the required disclosures and the Commission declines to mandate any particular means at this time. The Commission believes that SBS Entities are best positioned to determine the most appropriate means of communication of the disclosures. Commenters have made several specific suggestions for additional requirements regarding the means of communication of the daily mark.
One commenter suggested that we require an SBS Entity to have policies and procedures to reasonably ensure the safety and security of non-electronic means of communication.
In the Proposing Release, the Commission stated that the daily mark for both cleared and uncleared security-based swaps should be provided without charge and with no restrictions on internal use by the counterparty, although restrictions on dissemination to third parties are permissible.
Section 15F(h)(1)(D) of the Exchange Act authorizes the Commission to prescribe business conduct standards that relate to “such other matters as the Commission determines to be appropriate.”
Proposed Rule 15Fh-3(d) would require an SBS Entity, before entering into a security-based swap with a counterparty, other than an SBS Entity or Swap Entity, to disclose to the counterparty its rights under Section 3C(g) of the Exchange Act concerning submission of a security-based swap to a clearing agency for clearing. The counterparty's rights, and thus the proposed disclosure obligations, would differ depending on whether the clearing requirement of Section 3C(a) applies to the relevant transaction.
When the clearing requirements of Section 3C(a) apply to a security-based swap, proposed Rule 15Fh-3(d)(1)(i) would require the SBS Entity to disclose to the counterparty the clearing agencies that accept the security-based swap for clearing and through which of those clearing agencies the SBS Entity is authorized or permitted, directly or through a designated clearing member, to clear the security-based swap. Under proposed Rule 15Fh-3(d)(1)(ii), the SBS Entity would also be required to notify the counterparty of the counterparty's sole right to select which clearing agency is to be used to clear the security-based swap, provided it is a clearing agency at which the SBS Entity is authorized or permitted, directly or through a designated clearing member, to clear the security-based swap.
For security-based swaps that are not subject to the clearing requirement under Exchange Act Section 3C(a), proposed Rule 15Fh-3(d)(2) would require the SBS Entity to determine whether the security-based swap is accepted for clearing by one or more clearing agencies and, if so, to disclose to the counterparty the counterparty's right to elect clearing of the security-based swap. Proposed Rule 15Fh-3(d)(2)(ii) would require the SBS Entity to disclose to the counterparty the clearing agencies that accept the security-based swap for clearing and whether the SBS Entity is authorized or permitted, directly or through a designated clearing member, to clear the security-based swap through such
Four commenters addressed the required disclosure regarding clearing rights.
An additional commenter advocated for harmonizing the clearing rights disclosure requirement with the CFTC's parallel requirement.
After considering the comments, the Commission is adopting Rule 15Fh-3(d) largely as proposed, but with modifications. First, as discussed above in Section II.B, we are limiting an SBS Entity's disclosure obligations regarding clearing rights pursuant to Rule 15Fh-3(d) to counterparties whose identity is known to the SBS Entity at a reasonably sufficient time prior to the execution of the transaction.
The Commission is also making a second modification to the proposed rule. We also added the phrase “subject to
A commenter suggested that, due to the limited number of security-based swap clearing agencies, disclosure of clearing agencies by name was unnecessary.
Rule 15Fh-3(d) requires that disclosure be made before a transaction occurs. As noted in the Proposing Release, the Commission believes that it would be appropriate for a counterparty to exercise its statutory right to select the clearing agency at which its security-based swaps will be cleared on a transaction-by-transaction basis, on an asset-class-by-asset-class basis, or in terms of all potential transactions the counterparty may execute with the SBS Entity.
Consistent with the discussion regarding manner of disclosures above in Section II.G.2.b, the Commission agrees with the commenter that SBS Entities could use standardized disclosure to satisfy Rule 15Fh-3(d).
The Commission also recognizes that a counterparty's clearing elections could affect the price of the security-based swap and recognizes that counterparties may wish to receive disclosures about the effect of clearing on the price. Although the rule does not explicitly require that the SBS Entity provide specific disclosures regarding the effect of clearing on the price of the security-based swap, the SBS Entity may wish to consider whether their obligations under Rule 15Fh-3(b)(1) to disclose the material risks and characteristics of the particular security-based swap, as well as their obligation pursuant to Rule 15Fh-3(g) to communicate with counterparties in a fair and balanced manner based on principles of fair dealing and good faith (including providing a sound basis for evaluating the facts with regard to any particular security-based swap or trading strategy involving a security-based swap) may require such disclosure given their particular facts and circumstances.
One commenter recommended that the Commission not impose the clearing rights disclosure requirement on Major SBS Participants transacting with counterparties at arm's length or as an alternative allow ECP counterparties to opt out of receiving the clearing rights disclosure.
Section 15F(h)(1)(D) of the Exchange Act authorizes the Commission to prescribe business conduct standards that relate to “such other matters as the Commission determines to be appropriate.”
Proposed Rule 15Fh-3(e) would establish a “know your counterparty” requirement under which an SBS Dealer would be required to establish, maintain and enforce policies and procedures reasonably designed to obtain and retain a record of the essential facts that are necessary for conducting business with each counterparty that is known to the SBS Dealer. For purposes of the proposed rule, “essential facts” would be defined as: (i) Facts required to comply with applicable laws, regulations and rules; (ii) facts required to implement the SBS Dealer's credit and operational risk management policies in connection with transactions entered into with such counterparty; (iii) information regarding the authority of any person acting for such counterparty; and (iv) if the counterparty is a special entity, such background information regarding the independent representative as the SBS Dealer reasonably deems appropriate.
Four commenters addressed the proposed know your counterparty requirement.
A third commenter expressed concern that the proposed rule would inappropriately empower SBS Dealers to adopt and enforce rules and to collect information about independent representatives.
A fourth commenter recommended eliminating the proposed requirement to collect background information regarding the independent representative of a special entity.
After considering the comments, the Commission is adopting Rule 15Fh-3(e) with two modifications. First, in response to a specific suggestion from a commenter,
Second, the Commission is adding the word “written” before policies and procedures in the rule text to clarify that the policies and procedures required by the rule must be written. The Commission believes that this change clarifies the proposal and reflects the requirement in Rule 15Fh-3(h), discussed in Section II.G.6 below, that an SBS Dealer establish, maintain and enforce written policies and procedures that are reasonably designed to prevent violations of the applicable federal securities laws and rules and regulations thereunder. Thus, as adopted, Rule 15Fh-3(e) requires SBS Dealers to “establish, maintain and enforce written policies and procedures reasonably designed to obtain and retain a record of the essential facts concerning each counterparty.”
In response to concerns raised by a commenter,
We have determined, as proposed, not to apply the rule where an SBS Dealer does not know the identity of its counterparty. We are not adopting the suggestion of one commenter that we provide an additional exception to cover security-based swaps that are intended to be cleared, executed on a registered national securities exchange or registered or exempt SEF, and of a type that is, as of the date of execution, required to be cleared pursuant to Section 3C of the Exchange Act, even if not anonymous.
In response to a commenter's request for clarification that since the requirement only applies to “known” counterparties, it would not apply to an SBS Dealer transacting on a SEF or other electronic execution platform where such SBS Dealer only learns the identity of the counterparty immediately before the execution and must execute the transaction within a limited time frame after learning the counterparty's identity,
As noted in the Proposing Release, the “know your counterparty” obligations under Rule 15Fh-3(e) are a modified version of the “know your customer” obligations imposed on other market professionals, such as broker-dealers, when dealing with customers.
The Commission is applying the requirements in Rule 15Fh-3(e) to SBS Dealers but declines to apply them to Major SBS Participants, as suggested by a commenter.
Section 15F(h)(1)(D) of the Exchange Act authorizes the Commission to prescribe business conduct standards that relate to “such other matters as the Commission determines to be appropriate.”
Proposed Rule 15Fh-3(f) generally would require an SBS Dealer that recommends a security-based swap or trading strategy involving a security-based swap to a counterparty, other than an SBS Entity or Swap Entity, to have a reasonable basis for believing that the recommended security-based swap or trading strategy is suitable. Specifically, proposed Rule 15Fh-3(f)(1)(i) would require an SBS Dealer to have a reasonable basis to believe, based on reasonable diligence, that the recommended security-based swap or trading strategy is suitable for at least some counterparties. Additionally, proposed Rule 15Fh-3(f)(1)(ii) would require an SBS Dealer to have a reasonable basis to believe that the recommended security-based swap or trading strategy is suitable for the particular counterparty that is the recipient of the SBS Dealer's recommendation (“customer-specific suitability”). Under proposed Rule 15Fh-3(f)(1)(ii), to establish a reasonable basis to believe that a recommendation is suitable for a particular counterparty, an SBS Dealer would need to have or obtain relevant information regarding the counterparty, including the counterparty's investment profile, trading objectives, and its ability to absorb potential losses associated with the recommended security-based swap or trading strategy.
Proposed Rule 15Fh-3(f)(2) would provide an alternative to the general suitability requirements, under which an SBS Dealer could fulfill its suitability obligations with respect to a particular counterparty if: (1) The SBS Dealer reasonably determines that the counterparty (or its agent) is capable of independently evaluating investment risks with regard to the relevant security-based swap or trading strategy involving a security-based swap; (2) the counterparty (or its agent) affirmatively represents in writing that it is exercising independent judgment in evaluating the recommendations by the SBS Dealer; and (3) the SBS Dealer discloses that it is acting in the capacity of a counterparty, and is not undertaking to assess the suitability of the security-based swap or trading strategy for the counterparty.
The Commission sought comment on whether different categories of ECPs should be treated differently for purposes of suitability
(1) A bank, savings and loan association, insurance company or registered investment company;
(2) an investment adviser registered either with the SEC under Section 203 of the Investment Advisers Act or with a state securities commission (or any agency or office performing like functions); or
(3) any other person (whether a natural person, corporation, partnership, trust or otherwise) with total assets of at least $50 million.
Proposed Rule 15Fh-3(f)(3) would provide another alternative to the general suitability requirements for SBS Dealers transacting with special entity counterparties. Under proposed Rule 15Fh-3(f)(3), an SBS Dealer would be deemed to satisfy its suitability obligations with respect to a special entity counterparty if the SBS Dealer either is acting as an advisor to the special entity and complies with proposed Rule 15Fh-4(b),
Six commenters addressed the suitability requirements.
Given the profits at stake, SBS Dealer will have strong incentives to conclude that the counterparty is capable of evaluating the transaction. Counterparties who turn to the derivatives markets out of questionable motives will have equally strong incentives to assert their capacity to independently evaluate investment risk. And even those with purer motives may be reluctant to confess to a lack of expertise.
Two other commenters recommended narrowing the suitability requirements.
Finally, a sixth commenter advocated for harmonizing the suitability requirement in proposed Rule 15Fh-3(f)(1)(i) with the CFTC's parallel requirement.
Three commenters submitted comments regarding the institutional suitability alternative in proposed Rule 15Fh-3(f)(2).
The second commenter strongly opposed the institutional suitability alternative, asserting that the complexity and opacity of structured finance products has made them impenetrable to all but the most sophisticated industry experts.
A third commenter advocated for harmonizing the institutional suitability alternative with the CFTC's parallel provision, citing potential counterparty confusion.
Four commenters submitted comments regarding the suitability alternative for special entity counterparties in proposed Rule 15Fh-3(f)(3).
After considering the comments, the Commission is adopting Rule 15Fh-3(f)(1) with two modifications. The first modification is to rephrase the suitability obligation in proposed Rule 15Fh-3(f)(1)(i), in response to a specific suggestion from a commenter,
The second modification the Commission is making is to add the phrase “involving a security-based swap” to the final line of the customer-specific suitability obligation in proposed Rule 15Fh-3(f)(1)(ii) to modify “trading strategy.” Accordingly, Rule 15Fh-3(f)(1)(ii), as adopted, requires an SBS Dealer that recommends a security-based swap or trading strategy involving a security-based swap to a counterparty, other than an SBS Entity or Swap Entity, to have a reasonable basis to believe that a recommended security-based swap or trading strategy involving a security-based swap is suitable for the counterparty, and to establish a
As noted in the Proposing Release, although suitability is not expressly addressed in Section 15F(h) of the Exchange Act, the obligation to make only suitable recommendations is a core business conduct requirement for broker-dealers and other financial intermediaries.
In recommending to a customer any municipal security transaction, a broker, dealer, or municipal securities dealer shall have reasonable grounds: (i) Based upon information available from the issuer of the security or otherwise, and (ii) based upon the facts disclosed by such customer or otherwise known about such customer, for believing that the recommendation is suitable.
The Commission continues to believe that the determination of whether an SBS Dealer has made a recommendation that triggers suitability obligations should turn on the facts and circumstances of the particular situation and, therefore, whether a recommendation has taken place is not susceptible to a bright line definition.
As noted in the Proposing Release, an SBS Dealer typically would not be deemed to be making a recommendation solely by reason of providing general financial or market information, or transaction terms in response to a request for competitive bids.
We believe that the suitability obligation in Rule 15Fh-3(f)(1)(i) should address one commenter's concerns about the possibility that an SBS Dealer will recommend a financial product that it believes will fail or that it does not have the necessary background to understand.
With respect to another commenter's concerns about SBS Dealers' gathering sufficient information to make the customer-specific suitability assessment,
The Commission declines to apply Rule 15Fh-3(f) to Major SBS Participants, as suggested by one commenter.
Further, Rule 15Fh-3(f) will not impose suitability obligations on an SBS Dealer transacting with an SBS Entity or Swap Entity. The Commission continues to believe that these types of counterparties, which are professional intermediaries or major participants in the swaps or security-based swaps markets, would not need the protections that would be afforded by this rule. However, taking into account the concerns of one commenter,
The Commission is not adopting one commenter's suggestion to impose additional standards for the types of financial products that can be sold to state and local governments, including security-based swaps.
After considering the comments, the Commission is adopting Rules 15Fh-3(f)(2)-(4) with a number of modifications. First, in response to a specific suggestion from a commenter,
Second, in response to concerns raised by a commenter,
Third, in response to specific suggestions from a commenter, the Commission is making changes to harmonize the institutional and special entity suitability alternatives with the CFTC's parallel provisions.
The proposed special entity suitability alternative would have provided that an SBS Dealer would be deemed to satisfy its suitability obligations with respect to a special entity counterparty if the SBS Dealer either (1) is acting as an advisor to the special entity and complies with proposed Rule 15Fh-4(b), or (2) is deemed not to be acting as an advisor to the special entity pursuant to proposed Rule 15Fh-2(a).
Fourth, the Commission is adding the words “with regard to the relevant security-based swap or trading strategy involving a security-based swap” to modify “recommendations of the [SBS Dealer]” in the second prong of the institutional suitability alternative to match the language used in the first prong and clarify that those are the only recommendations to which the rule refers. The Commission is adopting the other two prongs of the institutional suitability alternative as proposed. Accordingly, as adopted, Rule 15Fh-3(f)(2) provides that when an SBS Dealer makes a recommendation, it may fulfill its customer-specific suitability obligations under Rule 15Fh-3(f)(1)(ii) with respect to an institutional counterparty, if: (1) The SBS Dealer reasonably determines that the counterparty (or its agent) is capable of independently evaluating investment risks with regard to the relevant security-based swap or trading strategy involving a security-based swap; (2) the counterparty (or its agent) affirmatively represents in writing that it is exercising independent judgment in evaluating the recommendations of the SBS Dealer with regard to the relevant security-based swap or trading strategy involving a security-based swap; and (3) the SBS Dealer discloses that it is acting in the capacity of a counterparty, and is not undertaking to assess the suitability of the security-based swap or trading strategy for the counterparty. If an SBS Dealer cannot rely on the institutional suitability alternative provided by Rule15Fh-3(f)(2), it would need to make an independent determination that the recommended security-based swap or trading strategy involving security-based swaps is suitable for the counterparty.
The Commission believes that the SBS Dealer reasonably could determine that the counterparty (or its agent) is capable of independently evaluating investment risks with regard to the relevant security-based swap or trading strategy for purposes of Rule 15Fh-3(f)(2)(i) through a variety of means. However, in response to specific suggestions from a commenter
The Commission continues to believe that parties should be able to make the disclosures and representations required by Rules 15Fh-3(f)(2) and (3) on a transaction-by-transaction basis, on an asset-class-by-asset-class basis, or broadly in terms of all potential transactions between the parties.
We are not adopting one commenter's suggestions to require SBS Dealers to conduct routine audits to ensure that the institutional suitability alternative is used appropriately.
The Commission is also not adopting another commenter's suggestion to add a requirement to the institutional suitability alternative that an SBS Dealer have a reasonable basis to believe its counterparty has the capacity to absorb potential losses related to the recommended security-based swap or trading strategy.
Section 15F(h)(3)(C) of the Exchange Act requires the Commission to adopt rules establishing a duty for SBS Entities to communicate in a fair and balanced manner based on principles of fair dealing and good faith.
Proposed Rule 15Fh-3(g) would require SBS Entities to communicate with counterparties in a fair and balanced manner based upon principles of fair dealing and good faith. In particular, the rule would require: (1) Communications to provide a sound basis for evaluating the facts with regard to any particular security-based swap or trading strategy involving a security-based swap; (2) communications not to imply that past performance will recur or make any exaggerated or unwarranted claim, opinion or forecast; and (3) any statement referring to the potential opportunities or advantages presented by a security-based swap to be balanced by an equally detailed statement of the corresponding risks.
Three commenters addressed the fair and balanced communications requirement.
The commenter in opposition to the proposed rule asserted that a fair and balanced communications requirement is unnecessary.
After considering the comments, the Commission is adopting Rule 15Fh-3(g) as proposed. The rule applies in connection with entering into security-based swaps, and will continue to apply over the term of a security-based swap.
The Commission does not believe any changes to the rule are necessary to address a commenter's concern that to be fair and balanced, communications must inform investors of both the potential rewards and risks of their investments because Rule 15Fh-3(g)(3) already provides that “[a]ny statement referring to the potential opportunities or advantages presented by a security-based swap shall be balanced by an equally detailed statement of the corresponding risks.”
The standard set forth in Rule 15Fh-3(g) is consistent with the similarly worded requirement in the FINRA rule on communications.
Section 15F(h)(1)(B) of the Exchange Act authorizes the Commission to adopt rules for the diligent supervision of the business of SBS Entities.
Proposed Rule 15Fh-3(h)(1) would require an SBS Entity to establish, maintain and enforce a system to supervise, and to diligently supervise, its business and associated persons, with a view to preventing violations of applicable federal securities laws, rules and regulations relating to its business as an SBS Entity. Proposed Rule 15Fh-3(h)(2) would require an SBS Entity's supervisory system to be reasonably designed to achieve compliance with applicable securities laws, rules and regulations, and would establish minimum requirements for the supervisory system. Specifically, proposed Rule 15Fh-3(h)(2)(i) would require an SBS Entity to designate at least one person with authority to carry out the supervisory responsibilities of the SBS Entity for each type of business in which it engages for which registration as an SBS Entity is required. Proposed Rule 15Fh-3(h)(2)(ii) would require an SBS Entity to use reasonable efforts to determine that all supervisors are qualified and meet standards of training, experience, and competence necessary to effectively supervise the security-based swap activities of the persons associated with the SBS Entity.
Proposed Rule 15Fh-3(h)(2)(iii) would require an SBS Entity to establish, maintain and enforce written policies and procedures addressing the supervision of the types of security-based swap business in which the SBS Entity is engaged. The policies and procedures would need to be reasonably designed to achieve compliance with applicable securities laws, rules and regulations,
Under proposed Rule 15Fh-3(h)(3), the Commission proposed two mechanisms under which an SBS Entity or associated person would not be deemed to have failed to diligently supervise any other person. The SBS Entity or associated person could demonstrate that: (1) Such person is not subject to his or her supervision, or (2) it meets the terms of a safe harbor. The safe harbor would require the SBS Entity or associated person to satisfy two conditions. The first condition would be that the SBS Entity has established and maintained written policies and procedures, and a documented system for applying those policies and procedures, that would reasonably be expected to prevent and detect, insofar as practicable, any violation of the federal securities laws and the rules and regulations thereunder relating to security-based swaps.
Finally, proposed Rule 15Fh-3(h)(4) would require an SBS Entity to promptly amend its written supervisory procedures as appropriate when material changes occur in either applicable securities laws, rules or regulations, or in the SBS Entity's business or supervisory system, and to promptly communicate any material amendments to its supervisory procedures throughout the relevant parts of its organization.
Five commenters addressed the proposed supervision rule.
Another commenter argued for additional diligent supervision requirements.
In contrast, a third commenter requested that the Commission narrow the proposed supervision requirements.
A fourth commenter opposed the application of the proposed rule to Major SBS Participants.
A fifth commenter recommended harmonizing the Commission's supervision requirements with FINRA Rule 3110 to enable SBS Entities that are also broker-dealers to make use of their existing supervisory systems and to minimize confusion.
After considering the comments, the Commission is adopting Rule 15Fh-3(h) With certain modifications. In response to commenters' concerns regarding SBS Entities that will also be registered as broker-dealers or Swap Entities being subject to overlapping requirements with respect to their supervisory systems,
First, in response to a specific suggestion made by a commenter,
Second, the Commission is making further wording changes to the descriptions of the required supervisory system in Rule 15Fh-3(h)(1) and (2) in response to concerns raised by a commenter regarding the redundancy of the descriptions.
Third, in response to concerns raised by a commenter,
In addition to the wording changes described above, the Commission is making two other sets of changes to the minimum requirements for a supervisory system listed in Rule 15Fh-3(h)(2). First, the Commission is eliminating the specific requirement in proposed Rule 15Fh-3(h)(2)(iii)(E) that the supervision of trading in an associated person's securities or commodities account at another financial institution “includ[e] the receipt of duplicate confirmations and statements related to such accounts.” This change is intended to more closely align our requirement with the analogous FINRA rule, which was amended after our proposal.
Second, in response to concerns raised by a commenter,
The Commission notes that the minimum requirements for a supervisory system listed in Rule 15Fh-3(h)(2) are not an exhaustive list. SBS Entities should keep in mind their overarching obligation in Rule 15Fh-3(h)(1) to establish and maintain a supervisory system that is reasonably designed to prevent violations of applicable federal securities laws and the rules and regulations thereunder relating to the SBS Entity's business as an SBS Entity. For instance, although Rule 15Fh-3(h)(2)(iii)(B) only requires procedures “for the review by a supervisor of incoming and outgoing written (including electronic) correspondence with counterparties or potential counterparties and internal written communications relating to the [SBS Entity's] business involving security-based swaps,” if an SBS Entity records oral communications with counterparties or potential counterparties, the SBS Entity generally should consider providing for the supervisory review of such communications.
In response to a specific suggestion made by a commenter,
In addition to the modifications discussed above, the Commission is making several clarifying changes to the rule. First, the Commission is correcting a typographical error in Rule 15Fh-3(h)(2). The cross-reference in the proposed rule should have been to “paragraph (h)(1),” not to “paragraph (g)(1).” The Commission is correcting this cross-reference in the final rule.
Second, the Commission also is making two other changes to the rule to clarify that Rule 15Fh-3(h) does not require multiple sets of written supervisory policies and procedures. Specifically, the Commission is: (1) Re-designating proposed Rule 15Fh-3(h)(2)(iv) as Rule 15Fh-3(h)(2)(iii)(I); and (2) clarifying that the written policies and procedures referred to in Rule 15Fh-3(h)(3) are those required by Rule 15Fh-3(h)(2)(iii) by adding the modifying language “as required in § 240.15Fh-3(h)(2)(iii)” after “written policies and procedures” in Rule 15Fh-3(h)(3)(i), and by changing the references in Rule 15Fh-3(h)(3)(ii) from “the written policies and procedures” to “such written policies and procedures.”
Rule 15Fh-3(h) establishes supervisory obligations that incorporate principles from both Exchange Act Section 15(b) and existing SRO rules. The concept of diligent supervision in these rules is consistent with business conduct standards for broker-dealers that have historically been established by SROs for their members, subject to Commission approval. As with diligent supervision by a broker-dealer, the Commission believes that it generally would be appropriate for an SBS Entity to use a risk-based review system to satisfy its supervisory obligations under Rule 15Fh-3(h) instead of conducting detailed reviews of every transaction or every communication, so long as the SBS Entity uses a risk-based review system that is reasonably designed to provide the entity with sufficient information to allow it to focus on the areas that pose the greatest risks of federal securities law violations.
Rule 15Fh-3(h)(2)(iii)(I), as adopted, requires an SBS Entity to adopt written policies and procedures reasonably designed, taking into consideration the nature of such SBS Entity's business, to comply with the duties set forth in Section 15F(j) of the Exchange Act. Section 15F(j) of the Exchange Act requires an SBS Entity to comply with obligations concerning: (1) Monitoring of trading to prevent violations of applicable position limits; (2) establishing sound and professional risk management systems; (3) disclosing to regulators information concerning its trading in security-based swaps; (4) establishing and enforcing internal systems and procedures to obtain any necessary information to perform any of the functions described in Section 15F of the Exchange Act, and providing the information to regulators, on request; (5) implementing conflict-of-interest systems and procedures; and (6) addressing antitrust considerations such that the SBS Entity does not adopt any process or take any action that results in any unreasonable restraint of trade or impose any material anticompetitive burden on trading or clearing.
We are not adopting a commenter's
Rule 15Fh-3(h)(3), as adopted, provides that SBS Entities and associated persons will not be liable for failure to supervise another person if either the other person is not subject to the SBS Entity's or associated person's supervision, or if the safe harbor described in the rule is satisfied.
The Commission has long emphasized that the responsibility of broker-dealers to supervise their employees is a critical component of the federal regulatory scheme . . . In large organizations it is especially imperative that those in authority exercise particular vigilance when indications of irregularity reach their attention. The supervisory obligations imposed by the federal securities laws require a vigorous response even to indications of wrongdoing. Many of the Commission's cases involving a failure to supervise arise from situations where supervisors were aware only of “red flags” or “suggestions” of irregularity, rather than situations where, as here, supervisors were explicitly informed of an illegal act. Even where the knowledge of supervisors is limited to “red flags” or “suggestions” of irregularity, they cannot discharge their supervisory obligations simply by relying on the unverified representations of employees. Instead, as the Commission has repeatedly emphasized, “[t]here must be adequate follow-up and review when a firm's own procedures detect irregularities or unusual trading activity. . . .” Moreover, if more than one supervisor is involved in considering the actions to be taken in response to possible misconduct, there must be a clear definition of the efforts to be taken and a clear assignment of those responsibilities to specific individuals within the firm.
Sections 15F(h)(4) and (5) of the Exchange Act provide certain additional protections for “special entities”—such as municipalities, federal and state agencies, pension plans, and endowments
Special entities, like other market participants, may use swaps and security-based swaps for a variety of purposes, including risk management and portfolio adjustment. In adopting the special entity provisions of the Exchange Act, the Commission seeks to implement the statute, while not impeding special entities' access to security-based swaps.
Exchange Act Section 15F(h)(2)(C) defines a “special entity” as: (i) A Federal agency; (ii) a State, State agency, city, county, municipality, or other political subdivision of a State; (iii) any employee benefit plan, as defined in Section 3 of ERISA; (iv) any governmental plan, as defined in Section 3 of ERISA; or (v) any endowment, including an endowment that is an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986.
Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation (except as otherwise provided in subsection (h)), and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.
26 U.S.C. 501(c)(3).
The Proposing Release noted that commenters had raised questions about the scope of the “special entity” definition. The Commission requested comment regarding: (1) Whether to interpret the phrase “employee benefit plan, as defined in Section 3” of ERISA to mean a plan that is subject to regulation under ERISA; (2) whether the phrase “governmental plan” should include government investment pools or other plans, programs or pools of assets; (3) the definition of the term “endowment;” (4) the treatment of collective investment vehicles in which one or more special entities are invested; (5) the treatment of foreign entities; and (6) the treatment of master trusts holding the assets of one or more funded plans of a single employer and its affiliates.
One commenter argued that the term “special entity” was adequately defined in the Exchange Act, and that it “should not require extensive clarification.”
We received no comments regarding the inclusion of federal agencies within the special entity definition. In the Proposing Release, we noted that the definition of “security-based swap” excludes an “agreement, contract or transaction a counterparty of which is a Federal Reserve bank, the Federal Government, or a Federal agency that is expressly backed by the full faith and credit of the United States.”
One commenter suggested that we modify the description of state and municipal entities to include “any instrumentality, department, or a corporation of or established by a State or political subdivision of a State.”
As stated above, Exchange Act Section 15F(h)(2)(C)(iii) defines “special entity” to include “any employee benefit plan, as defined in Section 3 of [ERISA].”
Commenters asked the Commission at the proposing stage to limit the scope of Section 15F(h)(2)(C)(iii) to employee benefit plans that are subject to regulation under ERISA, and not to extend the definition of “special entity” to plans that are merely “defined in” ERISA, “unless they are covered by another applicable prong of the “special entity” definition (
Seven comment letters addressed this issue. One commenter argued that the expansive language of the statute suggested that any employee benefit plan “defined in” ERISA, including a church plan, should be treated as a special entity, and that, as a matter of policy, church plans should not be treated differently than ERISA or governmental plans when entering into security-based swaps with SBS Entities.
A collective group of three commenters argued that the definition of special entity should include only employee benefit plans that are “subject to” ERISA.
One commenter suggested treating plans subject to ERISA and government plans subject to ERISA similarly, so long as both are acting as end-users and are
More broadly, one commenter recommended that the business conduct standards should only apply to certain governmental special entities, and that they should not apply to ERISA plans—since these plans already have similar or greater protections under ERISA.
The Commission additionally requested comment regarding whether to include a master trust that holds the assets of one or more funded plans of a single employer and its affiliates within the special entity definition. Three commenters supported the treatment of master trusts as special entities.
One comment letter suggested that the term “special entity” should be modified to include master trusts holding the assets of one or more funded plans of a single employer.
One commenter urged the Commission to include church benefit boards that hold the assets of multiple church plans, church endowments, and other church-related funds on a commingled basis within the special entity definition, arguing that the functions of church benefit boards are similar to those of tax-exempt trusts, or master trusts established by several multiple-employer pension plans, and that such a definition would reflect the close relationship—recognized in ERISA—between church benefit boards and their constituent church plans.
The Commission requested comment regarding whether to interpret “special entity” to include a collective investment vehicle in which one or more special entities had invested. All eight commenters that commented on this question opposed the designation of collective investment vehicles as special entities, even where such collective investment vehicles have special entity investors.
Commenters generally argued that requiring SBS Entities to investigate or “look through” their collective investment vehicle counterparties to determine whether they held special entity investments would create uncertainty in the market, increase compliance costs, disrupt the gains of special entity investors, and restrict special entities' access to security-based swaps—since collective investment vehicle managers may either limit or reject investments by special entities to avoid limitations on their security-based swap trading activities.
One commenter asked the Commission to clarify that it would not “look through” collective investment vehicles to align its interpretation of the special entity definition with that of the CFTC.
Two commenters argued to exclude collective investment vehicles because these vehicles are almost always passive investors, and that including them within the adopted rules would serve no regulatory purpose, since Congress' intent was to protect special entities as defined within the statute.
Lastly, two commenters urged the Commission to exclude hedge funds, even where a special entity invests in that hedge fund.
The Commission requested comment regarding how to apply the special entity definition to endowments, and whether certain organizations that qualify as endowments should be included in that definition. The five commenters addressing this issue suggested that the Commission limit the definition of endowments in the special entity context, with various caveats.
Three commenters suggested limiting the definition of “endowments” to endowments that, themselves, enter into swaps.
The last commenter requested clarification that private foundations would not be included within the special entity definition.
Similarly, this same commenter suggested that “institutional investor organizations” (such as large non-profits and “sophisticated” endowments) with over $1 billion of net assets under management should be excluded from the special entity definition, since large “sophisticated” endowments employ professional money managers already subject to oversight and review.
The Commission requested comment on whether to exclude from the definition of “special entity” any foreign entity. Six commenters responded to this issue.
Four other commenters objected to the inclusion of foreign pension and employee benefit plans within the special entity definition on the grounds that the statutory language reflected a lack of Congressional intent to provide special protection for such plans under Dodd-Frank, and that extending the SEC's authority outside the United States would create the potential for conflict with other nations' regulatory regimes.
After consideration of all comments, the Commission has determined to modify the scope of the special entity definition as described below.
As noted above, the Commission did not receive any comments on the inclusion of federal agencies within the special entity definition. The Commission continues to believe it is appropriate to include federal agencies within the special entity definition, and is therefore adopting Rule 15Fh-2(e)(1) as proposed, renumbered as Rule 15Fh-2(d)(1).
After further consideration and in light of the comment received, the Commission is modifying proposed Rule 15Fh-2(e)(2), adopted as Rule 15Fh-2(d)(2), to further define state and municipal entities to include “any instrumentality, department, or a corporation of or established by a State or political subdivision of a State.”
In addition, the inclusion of this language will conform the special entity definition to that of a “municipal entity” in the Exchange Act, as well as to the CFTC's definition of State and municipal special entities, thereby providing all categories of municipal entities with heightened protections,
Upon further consideration and in light of the comments received, the Commission is modifying proposed Rule 15Fh-2(e)(3), which stated “any employee benefit plan defined in Section 3 of [ERISA]” to state in adopted Rule 15Fh-2(d)(3) “any employee benefit plan subject to Title I of [ERISA].” Under this modification, Rule 15Fh(2)(d)(3) only includes employee benefit plans that are subject to regulation under Title I of ERISA. Furthermore, proposed Rule 15Fh-2(e)(4), renumbered as Rule 15Fh-2(d)(5), is being adopted as proposed, to include “any governmental plan, as defined in section 3(32) of [ERISA].”
In reaching this determination, we believe that Exchange Act Sections 15F(h)(2)(C)(iii) (employee benefit plans defined in Section 3 of ERISA) and 15F(h)(2)(C)(iv) (governmental plans defined in Section 3 of ERISA) should be read together “to avoid rendering superfluous” any statutory language of the Exchange Act.
We recognize that this interpretation of “special entity” would exclude other types of employee benefit plans “defined in” Section 4(b) of ERISA, including church plans and workmen's compensation plans. Therefore, upon further consideration, and in response to commenters who support a broader interpretation of the term “special entity,” including those commenters who assert that a church plan should be treated as a special entity, the
Under Rule 15Fh-2(d)(4), as adopted, an employee benefit plan that is “defined in” Section 3 of ERISA but not “subject to” regulation under ERISA is included within the special entity definition, although it may elect to opt out of special entity status by notifying an SBS Entity counterparty of its election to opt out prior to entering into a security-based swap. Therefore, for example, under Rule 15Fh-2(d)(4), any church plan, as defined in Section 3(33) of ERISA, would be considered a special entity unless it elected to opt out of special entity status.
We note that the special entity definition the Commission is adopting today differs from the CFTC's special entity definition, which instead includes an opt-in provision for plans “defined in” ERISA.
Lastly, we disagree with the commenter's assertions that the SEC “has extended its regulatory reach” beyond the statute by applying the business conduct rules to ERISA plans, and that the resulting regulations would overlap with the preexisting regulations established under ERISA.
The Commission agrees with commenters that master trusts should be treated as special entities, where a master trust holds the assets of more than one ERISA plan, sponsored by a single employer or by a group of employers under common control.
The Commission similarly agrees with the commenter that, where a church benefit board holds the assets of multiple church plans as defined in Section 3(33) of ERISA, the function of the church benefit board is similar to that of a master trust.
Lastly, this clarification addresses the commenter's request that the Commission interpret the special entity definition in harmony with the CFTC, as the CFTC also includes master trusts as special entities where a master trust holds the assets of more than one ERISA plan, sponsored by a single employer or by a group of employers under common control.
The Commission requested comment on whether to interpret “special entity” to include collective investment vehicles in which one or more special entities had invested. After
Unlike master trusts, formed for the purpose of holding assets of ERISA plans, a collective investment vehicle may be formed for a variety of reasons and only incidentally accept investments from special entities. We share the concerns of commenters that requiring SBS Entities to investigate or “look through” their collective investment vehicle counterparties to determine whether they held special entity investments could create uncertainty in the market, and could potentially increase compliance costs, disrupt the gains of special entity investors, and restrict special entities' access to security-based swaps—since collective investment vehicle managers may either limit or reject investments by special entities to avoid application of the special entity requirements.
At the same time, we recognize the potential benefits of applying heightened protections to special entities that have invested in collective investment vehicles, either by applying those protections to the collective investment vehicle itself or requiring the SBS Entity to “look through” the collective investment vehicle. After further consideration, we have determined that it would neither be appropriate to treat the entire collective investment vehicle as a special entity, nor to require an SBS Dealer to “look through” the collective investment vehicle to determine whether any of its investors qualify as special entities. While the special entity has made the decision to invest in the collective investment vehicle, it is the collective investment vehicle that enters into the security-based swap—not the special entity. In light of the foregoing, we do not believe that collective investment vehicles should be included within the special entity definition.
Lastly, our decision not to include collective investment vehicles in the special entity definition will address the commenter's suggestion that we harmonize the Commission's special entity definition with that of the CFTC to increase regulatory consistency across the security-based swap and swap markets.
The Commission requested comment regarding application of the special entity definition to endowments. After taking into consideration the comments, the Commission has determined to interpret the term “endowment,” as used in Section 15F(h)(2)(C)(v) of the Exchange Act, not to include entities or persons other than the endowment itself. The Commission therefore agrees with commenters that special entity status should be limited to endowments that are, themselves, counterparties to security-based swaps.
For clarification, and in response to comment,
As noted above in Section II.G.1.b, Rule 15Fh-3(a)(2) generally requires an SBS Entity to verify whether its counterparty is a special entity before entering into the security-based swap with that counterparty. Such verification should generally include a determination whether the counterparty may be deemed an endowment under applicable state law, as described above. However, as discussed in Section II.G.1.b,
Also, as with collective investment vehicles, we believe that a more expansive interpretation of the special entity definition would require a burdensome “look through” process to determine whether endowment funds had, for instance, been invested or used as collateral in a particular security-based swap, and could ultimately restrict the ability of entities that are neither themselves endowments nor special entities (such as organizations described in section 501(c)(3) of the Internal Revenue Code of 1986 whose assets merely include funds designated as an endowment) to transact in security-based swaps.
By making the foregoing clarifications, the Commission more closely aligns its interpretation of the term “endowment” with that of the CFTC.
Lastly, as discussed in more detail above in Section II.A.2.d., we decline the commenter's suggestion to permit endowments to opt out of special entity status.
The Commission requested comment on whether to exclude from the definition of “special entity” any foreign entity. After considering the comments, all of which asserted that foreign entities should not be deemed special entities, the Commission is declining to include foreign entities within the definition of “special entity.” The Commission believes that, as stated in the Cross-Border Adopting Release, the term “special entity” applies to “legal persons organized under the laws of the United States.”
As discussed below in Section II.H.3, Section 15F(h)(4)(B) of the Exchange Act imposes a duty on an SBS Dealer acting “as an advisor” to a special entity to act in the best interests of the special entity.
The Commission proposed Rule 15Fh-2(a), which states that an SBS Dealer “acts as an advisor to a special entity when it recommends a security-based swap or a trading strategy that involves the use of a security-based swap to the special entity.” We explained in the Proposing Release that, for these purposes, to “recommend” has the same meaning as that discussed in connection with Rule 15Fh-3(f).
While the Dodd-Frank Act does not preclude an SBS Dealer from acting as both advisor and counterparty, the Commission recognized in the Proposing Release that it could be impracticable for an SBS Dealer acting as a counterparty to a special entity to meet the “best interests” standard imposed by Section 15F(h)(4) if it were deemed to be acting as an advisor to the special entity.
The Commission received numerous comments in response to the definition of “acts as an advisor” to a special entity in proposed Rule 15Fh-2(a). One commenter asserted that the meaning of the phrase “acts as an advisor to a special entity” was critical to several regulatory rulemakings, and that this term should be applied as consistently as possible.
However, the majority of comment letters addressing proposed Rule 15Fh-2(a) related to: (1) The use of the term “recommends” when defining the phrase “acts as an advisor to a special entity;” and (2) the safe harbor from acting as an advisor to a special entity set forth in proposed Rule 15Fh-2(a)(1)-(3). These comments are summarized below.
Eight comment letters addressed whether an SBS Dealer should be deemed to act as an advisor if it “recommends” a security-based swap or trading strategy to a special entity.
One commenter argued that the definition of “acting as an advisor” was too narrow, and should be expanded to include not only making recommendations, but also providing “more general information and opinions.”
A third commenter generally supported our proposed approach, noting that “defining recommendations as advice is consistent . . . with congressional intent.”
Another commenter argued that a definition premised on an SBS Dealer's “recommend[ing]” a security-based swap or related trading strategy was “overly broad and unwise,” and that acting as an advisor “requires a more formal, acknowledged agency, as part of a relationship of trust and confidence.”
Several commenters requested that the Commission clarify whether certain communications constitute “acting as an advisor.” One commenter was concerned that an SBS Dealer could provide a counterparty with data, analysis, and opinions that constituted recommendations in fact, but were not labeled or characterized as such.
The Commission received a number of comment letters on the proposed rule's safe harbor provisions. Ten comment letters generally supported the safe harbor, subject to various suggestions or objections.
Commenters supporting the adoption of safe harbor provisions that would protect an SBS Dealer from being deemed an advisor to a special entity, argued that market participants would benefit from greater certainty provided by the safe harbor, which would enable contracting parties to specify the nature of their relationship.
A number of commenters, however, expressed concern about the possible interaction of the proposed safe harbor with ERISA. One commenter, for example, generally agreed with the proposed safe harbor but expressed concern that requiring an SBS Dealer to have a “reasonable basis” to believe a special entity was being advised by a qualified independent representative could allow the SBS Dealer's opinion of an ERISA plan representative to “trump” that of the ERISA plan fiduciary.
Another commenter suggested the proposed safe harbor be revised to provide that either: (1) The special entity will rely on advice from a qualified independent representative, or (2) if the special entity or its representative is relying on the Qualified Professional Asset Manager (“QPAM”) or In-House Asset Manager (“INHAM”) Exemption, the decision to enter into the transaction will be made by a QPAM or INHAM.
In August 2015, another commenter suggested modifying the proposed rule to harmonize with the CFTC's approach by creating a second separate safe harbor for employee benefit plans subject to Title I of ERISA that “recognizes the unique fiduciary regime already applicable to such special entities.”
Three commenters opposed the proposed safe harbor, arguing that it would erode the statutory protections for special entities. For instance, one commenter argued that the safe harbor would effectively allow SBS Dealers to give advice that might not be in the best interests of the special entity.
Similarly, a third commenter characterized the safe harbor as permitting “an SBS Dealer to escape the critical responsibilities associated with ‘acting as an advisor’ by having Special Entities waive this right,” and expressed concern that special entities would be forced to sign “boilerplate” waivers to enter into a security-based swap.
As stated above, proposed Rule 15Fh-2(a) defined what it means for an SBS Dealer to act as an advisor to a special entity, and proposed Rule 15Fh-4 imposed certain requirements on SBS Dealers acting as advisors. Thus, the proposed rules would not impose these obligations on Major SBS Participants.
Upon review and consideration of the comments, the Commission is adopting Rule 15Fh-2(a) as described below.
We are adopting, as proposed, Rule 15Fh-2(a), under which an SBS Dealer is defined to “act as an advisor to a special entity” when it recommends a security-based swap or a trading strategy that involves a security-based swap to a special entity.
The Commission is not expanding the definition of “recommendation” to encompass “more general information and opinions,” as suggested by a commenter.
As explained in Section II.G.4, the factors considered in determining whether a recommendation has taken place include whether the communication “reasonably could be viewed as a ‘call to action’ ” and “reasonably would influence an investor to trade a particular security or group of securities.”
To avoid unnecessarily narrowing the definition of “recommendation,” we decline to limit the definition of “act as an advisor” to recommendations that are designed to meet the needs of a specific counterparty after taking into account the counterparty's individual circumstances.
Furthermore, we are not limiting the definition of “act as an advisor” to a special entity to situations in which parties affirmatively contract or otherwise establish “more formal, acknowledged agency relationships that are part of a relationship of trust and confidence”
For the same reason, SBS Dealers may not avoid making a “recommendation” as defined in this context through disclaimer, or simply by not characterizing or labeling a recommendation as such.
We reject the commenters' suggestion that we conform the definition of an SBS Dealer that “acts as an advisor” to a special entity to the definition of “investment adviser” under the Advisers Act, or to the definition of “commodity trading advisor” under the CEA.
The Commission continues to believe that the duties imposed on an SBS Dealer that “acts as an advisor” (as well as the definition of “act as an advisor” under Rule 15Fh-2(a)) are supplemental to any duties that may be imposed under other applicable law.
Lastly, the Commission considered and agrees with the comment that the definition of “acting as an advisor” to a special entity should be applied as consistently as possible across various rulemakings, and that the Commission should coordinate with the CFTC with respect to this definition.
We note that the Commission's definition of “acts as an advisor” to a special entity under Rule 15Fh-2(a) differs slightly from the CFTC's parallel rule, under which a swap dealer is deemed to be an advisor when it “recommends a swap or trading strategy involving a swap that is tailored to the particular needs or characteristics of the Special Entity.”
After the Commission issued the Proposing Release, the CFTC adopted final rules that provide two safe harbors from the definition of “acts as an advisor to a special entity.” The first provides a safe harbor for communications between a swap dealer and an ERISA plan that has an ERISA fiduciary, and the second provides a safe harbor for communications between a swap dealer and any special entity (including a special entity that is an ERISA plan). Qualifying for either safe harbor requires specified representations in writing by the swap dealer and special entity. In response to requests from commenters, and upon further consideration, we are adopting an approach that similarly recognizes the use of ERISA fiduciaries by ERISA plans, thereby avoiding the potential conflict or confusion that may result where the existing ERISA rules intersect with the business conduct rules adopted today.
In adopting a separate safe harbor for ERISA plans, we recognize that Congress has already established a comprehensive federal regulatory framework for ERISA plans. Such recognition of the existing federal regulatory framework for ERISA plans maintains statutory protections for ERISA plans, while addressing the potential conflict, recognized by commenters, between the ERISA rules and the business conduct standards we are adopting today.
Under Rule 15Fh-2(a)(1), as adopted, an SBS Dealer may establish that it is not acting as an advisor to a special entity that is an ERISA plan if the special entity is represented by a qualified independent representative that meets the standard for an ERISA fiduciary. Specifically, the rule provides that an SBS Dealer will not be acting as an advisor to an ERISA special entity if: (i) The ERISA plan represents in writing that it has an ERISA fiduciary; (ii) the ERISA fiduciary represents in writing that it acknowledges that the SBS Dealer is not acting as an advisor; and (iii) the ERISA plan represents in writing that: (A) It will comply in good faith with written policies and procedures reasonably designed to ensure that any recommendation the special entity receives from the SBS Dealer involving a security-based swap transaction is evaluated by an ERISA fiduciary before the transaction is entered into; or (B) any recommendation the special entity receives from the SBS Dealer involving a security-based swap transaction will be evaluated by an ERISA fiduciary before that transaction is entered into.
Allowing the ERISA plan to either make written representations about its policies and procedures or represent in writing that the security-based swap transaction will be evaluated by an ERISA fiduciary provides the ERISA plan greater flexibility in structuring its relationship with the SBS Dealer. Moreover, these requirements, taken together, are designed to ensure that the ERISA fiduciary, not the SBS Dealer, is evaluating the security-based swap transaction on behalf of the ERISA plan. As an ERISA fiduciary is already required by statute to, among other things, act with prudence and loyalty when evaluating a transaction for an ERISA plan,
Under Rule 15Fh-2(a)(2), as adopted, an SBS Dealer can establish it is not acting as an advisor to any special entity (including a special entity that is an ERISA plan) when the special entity is relying on advice from a qualified independent representative that satisfies specific criteria. An SBS Dealer will not be “acting as an advisor” to any special entity (including a special entity that is an ERISA plan) if: (i) The special entity represents in writing that it acknowledges that the SBS Dealer is not acting as an advisor, and that the special entity will rely on advice from a qualified independent representative; and (ii) the SBS Dealer discloses that it
In adopting the safe harbor, the Commission agrees with commenters that the provisions in Rule 15Fh-2(a)(1)-(2) will reduce uncertainty regarding the role of an SBS Dealer when transacting with a special entity.
The safe harbor under 15Fh-2(a)(2), as adopted, also differs from the proposed rule, which would have required that an SBS Dealer must have a reasonable basis to believe that the special entity is advised by a qualified independent representative. Rather, under adopted Rule 15Fh-2(a)(2)(i), the safe harbor requires written representations from the special entity that it will rely on advice from a qualified independent representative.
While we acknowledge commenters' concerns that the safe harbor might erode the statutory protections for special entities,
We disagree with commenters that adoption of the safe harbor could cause special entities to waive their right to “best interests” standards or sign “boilerplate agreements” as a condition of transacting with SBS Entities.
Although the safe harbor the Commission is adopting today largely aligns with that of the CFTC, it differs from that of the CFTC in four respects: (1) Rules 15Fh-2(a)(1)(ii) and 15Fh-2(a)(2)(i)(A) require the special entity or its fiduciary to represent in writing that it acknowledges the SBS Dealer is not acting as an advisor, whereas the CFTC requires the special entity or its fiduciary to represent it will not rely on the SBS Dealer's recommendations;
First, as discussed above, the Commission believes that replacing the requirement that the special entity or its fiduciary represent it will not “rely” on the SBS Dealer's recommendations with the requirement that the special entity or its fiduciary represent in writing that it acknowledges that the SBS Dealer is not “acting as an advisor” will afford special entities the same statutory protections. As noted above, the Commission is making this change in response to a commenter's concern.
Second, the Commission has determined to replace the phrase “materially affecting” with the word “involving” in relation to the recommendations that a special entity receives from an SBS Dealer. We believe that further clarification is needed in the context of Rule 15Fh-2(a)(1) to make clear that all recommendations made by the SBS Dealer are covered by this provision.
Third, the Commission has determined to use the phrase “is entered into,” as it is consistently used throughout the business conduct rules being adopted today.
Fourth, the Commission declines to adopt the provision in CFTC Regulation 23.440(b)(2)(i), under which Swap Dealers seeking to avail themselves of the safe harbor would be precluded from “expressing an opinion” as to whether the special entity should enter into a recommended security-based swap or trading strategy. Under the rules adopted today, the determination of whether an SBS Dealer has provided advice to a special entity turns on whether a communication is considered a “
Exchange Act Section 15F(h)(4)(B) imposes on an SBS Dealer that “acts as an advisor” to a special entity a duty to act in the “best interests” of the special entity. In addition, Section 15F(h)(4)(C) requires the SBS Dealer that “acts as an advisor” to a special entity to make “reasonable efforts to obtain such information as is necessary to make a reasonable determination” that any swap recommended by the SBS Dealer is in the “best interests” of the special entity.
Proposed Rule 15Fh-4(b)(1) would generally require an SBS Dealer that acts as an advisor regarding a security-based swap to a special entity to act in the “best interests” of the special entity.
Proposed Rule 15Fh-4(b)(2) would require the SBS Dealer to make “reasonable efforts” to obtain the information necessary to make a reasonable determination that a security-based swap or trading strategy involving a security-based swap is in the best interests of the special entity, and that such information shall include but not be limited to: (i) The authority of the special entity to enter into a security-based swap; (ii) the financial status of the special entity, as well as future funding needs; (iii) the tax status of the special entity; (iv) the investment or financing objectives of the special entity; (v) the experience of the special entity with respect to entering into security-based swaps, generally, and security-based swaps of the type and complexity being recommended; (vi) whether the special entity has the financial capability to withstand changes in market conditions during the term of the security-based swap; and (vii) such other information as is relevant to the particular facts and circumstances of the special entity, market conditions and the type of security-based swap or trading strategy involving a security-based swap being recommended.
The Commission received six comment letters on the imposition of a “best interests” standard.
Similarly, a second commenter supporting a best interests standard stated it did not believe it was “necessary, or even appropriate,” to strictly define best interests.
A third commenter asserted that Congress rejected the imposition of a fiduciary duty on SBS Dealers as incompatible with their role as market makers and asked the Commission to “respect Congressional intent” to protect the ability of end users and pension plans to transact in security-based swaps in a cost-effective manner by rejecting such a duty.
Two additional commenters argued that an SBS Dealer that “acts as an advisor to a special entity” and complies with the “best interest” requirements might become an ERISA fiduciary under the DOL's proposed redefinition of the term “fiduciary.”
One of these commenters also opposed the best interest requirement, and recommended that it be omitted from the final rules.
After the CFTC adopted its rules in 2012, one commenter asserted that “to promote legal certainty and the ability of SBS dealers to continue to trade with special entities, the SEC should provide guidance clarifying the nature of an SBS Dealer's `best interests' duty.”
Upon consideration of commenters' views, the Commission is adopting Rules 15Fh-4(b)(1) and (2), regarding the “best interests” obligation for an SBS Dealer that acts as an advisor to a special entity regarding a security-based swap, with certain modifications.
Under Rule 15Fh-4(b)(1), as adopted, an SBS Dealer that acts as an advisor to a special entity will have a “duty to make a reasonable determination that any security-based swap or trading strategy involving a security based swap recommended by the security based swap dealer is in the best interests of the special entity.” We believe that this language, suggested by a commenter,
Under Rule 15Fh-4(b)(2), as adopted, the advisor will be obligated to “make reasonable efforts to obtain such information that the security-based swap dealer considers necessary to make a reasonable determination that a security-based swap or trading strategy involving a security-based swap is in the best interests of the special entity.” Whether a recommended security-based swap or trading strategy is in the best interests of the special entity is based on information known to the advisor (after it has employed its reasonable efforts under Rule 15Fh-4(b)(2)) at the time the recommendation is made.
Various commenters questioned whether the “best interest” duty was tantamount to, or would give rise to, a “fiduciary duty.”
In response to commenters' requests for clarification, we do not believe that, to act in the best interests of a special entity, an SBS Dealer acting as an advisor would be required to recommend the “best” of all possible alternatives that might exist.
For further clarification in response to comments, we believe that the “best interests” duty would not necessarily preclude an SBS Dealer from acting as a counterparty.
We also do not believe that the “best interests” duty would prevent an SBS Dealer from negotiating commercially reasonable security-based swap terms in its own interest,
As additional guidance in response to comments,
Commenters have suggested that we apply principles applicable to investment advisers under the Advisers Act in the “best interests” standard of Rule 15Fh-4(b).
The Commission also has modified the information that an SBS Dealer must “make reasonable efforts to obtain” and consider in making its reasonable determination that a security-based swap or security-based swap strategy is in the “best interests of the special entity.” Specifically, Rule 15Fh-4(b)(2) now includes the special entity's hedging, investment, financing, or other stated objectives as information that shall be considered by the SBS Dealer in making this determination. The addition of “hedging” and “other” objectives in Rule 15Fh-4(b)(2)(iii) addresses a commenter's suggestion that these terms be included,
Furthermore, we reject the commenter's request to delete the requirement under proposed Rule 15Fh-4(b)(2)(i) that an SBS Dealer make reasonable efforts to obtain “information regarding the authority of the special entity to enter into a security-based swap.”
Lastly, as noted above, commenters requested that we clarify that an SBS Dealer that “acts as an advisor to a special entity” and complies with the “best interests” requirements of these business conduct standards will not necessarily become an ERISA fiduciary under the DOL's proposed (now final) redefinition of the term “fiduciary.”
It is the Department's view that the draft final business conduct standards do not require security-based swap dealers or major security-based swap participants to engage in activities that would make them fiduciaries under the Department's current five-part test defining fiduciary investment advice. 29 CFR 2510.3-21(c). The standards neither conflict with the Department's existing regulations, nor compel security-based swap dealers or major security-based swap participants to engage in fiduciary conduct. Moreover, the Department's recently published final rule amending ERISA's fiduciary investment advice regulation was carefully harmonized with the SEC's business conduct standards so that there are no unintended consequences for security-based swap dealers and major security-based swap participants who comply with the business conduct standards. As explained in the preamble to the Department's final rule, the disclosures required under the SEC's business conduct rules do not, in the Department's view, compel counterparties to ERISA-covered employee benefit plans to make investment advice recommendations within the meaning of the Department's final rule or otherwise compel them to act as ERISA fiduciaries in swap and security-based swap transactions conducted pursuant to section 4s(h) of the Commodity Exchange Act and section 15F of the Securities Exchange Act of 1934.
Proposed Rule 15Fh-4(a) would track the language of Section 15F(h)(4)(A) of the Exchange Act, and prohibit an SBS Entity from: (1) Employing any device, scheme, or artifice to defraud any special entity or prospective customer who is a special entity; (2) engaging in any transaction, practice, or course of business that operates as a fraud or deceit on any special entity or prospective customer who is a special entity; or (3) engaging in any act, practice, or course of business that is fraudulent, deceptive, or manipulative. The first two provisions are specific to an SBS Entity's interactions with special entities, while the third applies more generally.
The Commission received two comment letters on this issue.
The second commenter argued that, because the antifraud prohibitions of proposed Rule 15Fh-4(a)(3) were modeled on language in the Advisers Act applicable to conduct by investment advisers, and SBS Entities do not typically act as advisers to their counterparties, the SEC should include an affirmative defense against alleged violations of the antifraud prohibitions in its final rules.
After considering the comments, the Commission is adopting Rule 15Fh-4(a) as proposed. However, we are re-titling Rule 15Fh-4 “Antifraud provisions and
Rule 15Fh-4(a) codifies the statutory requirements of Exchange Act Section 15F(h)(4)(A).
Under Exchange Act Section 15F(h)(5)(A), an SBS Entity that offers to enter into or enters into a security-based swap with a special entity must comply with any duty established by the Commission requiring the SBS Entity to have a “reasonable basis” to believe the special entity has an “independent representative” that meets certain qualifications. Proposed Rules 15Fh-2(c) and 15Fh-5(a) would implement this provision. In particular, proposed Rule 15Fh-2(c) would define an “independent representative,” and proposed Rule 15Fh-5(a) would require an SBS Entity that “offers to enter into” or enters into a security-based swap with a special entity to have a “reasonable basis” to believe that the special entity has a “qualified independent representative.”
Under proposed Rule 15Fh-5(a), an SBS Dealer or a Major SBS Participant that offers to enter into or enters into an SBS with a special entity must have a reasonable basis to believe that the special entity has a qualified independent representative. Although Exchange Act Section 15F(h)(2)(B) only imposes an express obligation on SBS Dealers to comply with the requirements of Section 15F(h)(5), we proposed to apply the qualified independent representative requirement to Major SBS Participants as well as SBS Dealers because the specific requirements under Section 15F(h)(5)(A) apply by their terms to both a “security-based swap dealer and major security-based swap participant that offers to or enters into a security-based swap with a special entity.”
The sole commenter on this issue supported the proposed Rule, and agreed that it should apply to both SBS Dealers and Major SBS Participants.
In proposed Rule 15Fh-5(a), we proposed to apply the qualified independent representative requirements to transactions with all special entities. In the Proposing Release, we explained that while Exchange Act Section 15F(h)(5)(A) provides broadly that an SBS Entity that offers to or enters into a security-based swap with a special entity must comply with the requirements of that section, Section 15F(h)(5)(A)(i) on its face would apply these requirements only to dealings only with “a counterparty that is an eligible contract participant within the meaning of subclause (I) or (II) of clause (vii) of section 1a(18) of the Commodity Exchange Act.” A reliance on Section 15Fh(5)(A)(i) read in isolation would lead to an anomalous result in which special entity obligations could apply with respect to entities such as multinational and supranational government entities, which are ECPs “within the meaning of subclause (I) or (II) of clause (vii) of section 1a(18) of the Commodity Exchange Act,” but that do not fall within the definition of special entity in Section 15F(h)(2)(C). Conversely, Section 15Fh(5)(A)(i) read in isolation could lead to special entity obligations not being applied with respect to dealings with state agencies, which are special entities as defined in Section 15Fh(2)(C) but are not ECPs as defined in Section 1a(18)(A)(vii)(I) and (II) of the CEA.
To resolve the ambiguity in the statutory language, we proposed to apply the qualified independent requirement under Section 15F(h)(5) to
The Commission received one comment letter that addressed the question of whether proposed Rule 15Fh-5(a) should apply to security-based swap transactions with any special entity.
As stated above, proposed Rule 15Fh-5(a) would apply to an SBS Dealer or Major SBS Participant that “offers to enter into” or enters into a security-based swap with a special entity. The Commission requested comment regarding whether the phrase “offers to enter into” a security-based swap was sufficiently clear, and if not, how the requirement should be clarified.
One commenter suggested that the “offer” stage of a security-based swap transaction would often be too early for the counterparty to ensure that the independent representative requirement was satisfied.
The Commission additionally sought comment regarding the degree of inquiry required for an SBS Entity to form a “reasonable basis” to believe the special entity was represented by a qualified independent representative. Three commenters expressed concern with the additional duties of inquiry and diligence imposed on SBS Entities under proposed Rule 15Fh-5(a).
Other commenters expressed a range of views in response to our request for comment on whether an SBS Entity should be able to rely on representations to form the necessary “reasonable basis” for believing that a special entity counterparty is represented by a qualified independent representative. One commenter argued that no particular level of specificity should be required in the representations, and that the SBS Dealer should not be required to conduct further diligence before relying on the special entity's representations, as “any such diligence would interfere with the relationship between the special entity and its independent advisor and could result in the SBS Dealer second-guessing the special entity's choice of representative.”
One commenter suggested adopting a presumption that the special entity's selection of independent representative was acceptable if the special entity represents to the SBS Entity that the representative satisfies the criteria in Exchange Act Section 15F(h)(5)(A)(i).
Two other commenters supported the actual knowledge standard because they believe the reasonable person standard in practice could require an SBS Entity to perform substantial due diligence to rely on representations.
Another commenter supported permitting an SBS Dealer to rely on a special entity's representation that its independent representative met the statutory and regulatory requirements, unless the SBS Dealer had reason to believe that the special entity's representations with respect to its independent representative were inaccurate.
After the adoption of the CFTC's final rules, one commenter urged the Commission to adopt the CFTC's reasonable person approach, under which an SBS Entity would be deemed to have a reasonable basis to believe the special entity has a qualified independent representative when it relies on written representations that the special entity's representative meets the criteria for a qualified independent representative.
Another commenter requested that the Commission clarify that any representations made by a special entity or its representative to satisfy the rules do not give any party any additional rights, such as rescission or monetary compensation (
After consideration of the comments, we are adopting Rule 15Fh-5(a), subject to the modifications described below.
As a preliminary matter, we continue to believe and agree with the commenter that Rule 15Fh-5(a) should apply to both SBS Dealers and Major SBS Participants.
Moreover, the Commission continues to believe that the qualified independent representative requirements in Rule 15Fh-5 should apply whenever an SBS Entity acts as a counterparty to any special entity. We acknowledge the commenter's suggestion that the Commission “give appropriate effect to the limiting language in Exchange Act Section 15F(h)(5)(A)” regarding the types of special entities to which the independent representative requirement applies.
This interpretation also gives meaning to the requirement of Section 15F(h)(5)(A)(i)(VII) concerning “employee benefit plans subject to ERISA.” Although these benefit plans are not ECPs within the meaning of subclause (I) or (II) of clause (vii) of section 1a(18) of the Commodity Exchange Act, they are included in the category of plans identified as special entities in Exchange Act section 15F(h)(2)(C). For these reasons, we believe Rule 15Fh-5(a) should apply to any special entity as counterparty.
The Commission continues to believe that, consistent with statutory language, the independent representative requirement of the business conduct rules should be triggered when an “offer” to enter into a security-based swap is made. We disagree with the commenter that applying Rule 15Fh-5(a) at the offer stage is premature.
Some commenters argued that the appropriate definition of the term “offer” should be consistent with contract law, and that a communication should only be considered an offer when, based on the relevant facts and circumstances, it is “actionable” or “firm.”
Whether preliminary negotiations would be deemed an “offer” will depend upon the facts and circumstances and details of the communication.
The Commission recognizes and believes it appropriate that Rule 15Fh-5(a) imposes on SBS Entities a duty of inquiry to form a reasonable basis to believe the special entity has a qualified independent representative. The amount of due diligence the SBS Entity must perform to form a reasonable basis to believe the independent representative meets a particular qualification will depend upon the particular facts and circumstances. For example, if the SBS Entity has no prior dealings or familiarity with the particular independent representative, it will likely require more diligence on the part of the SBS Entity than a transaction with an independent representative that the SBS Entity has had numerous recent dealings in various different contexts. Furthermore, if the SBS Entity has dealt with the independent representative in other contexts, but not necessarily in the context of a security-based swap, it may require some limited diligence to form a reasonable basis regarding the requisite qualifications.
The Commission agrees, however, with the concerns of commenters that requiring SBS Entities to perform substantial due diligence regarding the qualifications of independent representatives may provide SBS Entities with the ability to second guess or negate the special entity's choice of independent representative, which may generally increase transaction costs for security-based swaps with special entities, and allow SBS Entities to exert undue influence over the special entity's selection of an independent representative.
The Commission acknowledges one commenter's recommended approach that would permit a special entity to choose between either: (1) Relying on the Commission's proposed framework regarding a reasonable basis to believe the qualifications of the independent representative; or (2) relying on an alternative approach under which it would be permitted to enter into off-exchange security-based swap transactions with an SBS Entity if the special entity had a representative, whether internal or a third party, that had been certified as able to evaluate security-based swap transactions. The commenter contemplated that the certification process would involve the development and implementation of a proficiency examination by the Commission or FINRA “or another recognized testing organization,” and that a certified independent representative would be required to complete periodic continuing education.
As with final Rule 15Fh-2(a), we have determined to adopt Rule 15Fh-5(a) in a bifurcated format to avoid potential conflict with ERISA and DOL regulations, as well as to more closely harmonize with existing CFTC business conduct rules. Rule 15Fh-5(a)(1), as adopted, requires an SBS Entity that offers to enter into or enters into a security-based swap with a special entity other than an ERISA special entity to form a reasonable basis to believe that the special entity has a
The newly bifurcated rule, detailing the requisite criteria for an SBS Entity to form a reasonable basis to believe that ERISA and non-ERISA special entities have qualified independent representatives, is discussed in greater detail below.
Proposed Rule 15Fh-5(a)(6) would require an SBS Entity to have a reasonable basis to believe that, in the case of a special entity that is an employee benefit plan subject to ERISA, the independent representative was a “fiduciary” as defined in section 3(21) of that Act (29 U.S.C. 1002).
The Proposing Release solicited feedback regarding any specific requirements that should be imposed on SBS Entities with respect to this obligation, as well as what other independent representative qualifications might be deemed satisfied if an independent representative of an employee benefit plan subject to ERISA, is a fiduciary as defined in section 3 of ERISA.
The Commission received six comment letters advocating a presumption of qualification for ERISA plan fiduciaries, since ERISA already imposes fiduciary duties upon the person who decides whether to enter into a security-based swap on behalf of an ERISA plan, and imposes on this person a statutory duty to act in the best interests of the plan and its participants, thereby prohibiting certain self-dealing transactions.
To address the potential conflict with ERISA standards, one commenter suggested that the Commission's definition of “independent representative” should be inapplicable to ERISA plans, and that the Commission should merely cross-reference the requirements under ERISA for ERISA representatives.
Another commenter supported the presumptive qualification for ERISA plan fiduciaries, provided that the plan satisfied a minimum $1 billion net asset requirement for institutional investor organizations.
Since the adoption of the CFTC's final rules, another commenter recently advocated for the separate treatment of independent representatives of special entities subject to ERISA.
After consideration of the comments, the Commission is reformulating the rules to reflect a separate treatment for transactions with special entities subject to ERISA, and transactions with special entities other than those subject to ERISA. Toward this end, we have bifurcated Rule 15Fh-5(a) into parts (a)(1) (applicable to dealings with special entities other than those subject to ERISA), and (a)(2) (applicable to dealings with special entities subject to ERISA).
Under Rule 15Fh-5(a)(1), as adopted, an SBS Entity that transacts with a special entity that is not subject to ERISA must have a reasonable basis to believe that the special entity has a qualified independent representative. As defined in the rule, a qualified independent representative is a representative who: Has sufficient knowledge to evaluate the transaction and risks; is not subject to a statutory disqualification; undertakes a duty to act in the best interests of the special entity; makes appropriate and timely disclosures to the special entity of material information concerning the security-based swap; will provide written representations to the special entity regarding fair pricing and the appropriateness of the security-based swap; in the case of a special entity defined in 15Fh-2(2) or (5), is subject to pay to play rules of the Commission, the CFTC, or a SRO subject to the jurisdiction of the Commission or the CFTC; and is independent of the SBS Entity. These qualifications are addressed, separately, in Section II.H.7,
Under new Rule 15Fh-5(a)(2), (formerly proposed Rule 15Fh-5(a)(6)), an SBS Entity that transacts with a special entity subject to ERISA must have a reasonable basis to believe that the special entity has a representative that is a fiduciary, as defined in Section 3 of ERISA.
The Commission agrees with commenters that ERISA fiduciaries should be presumptively deemed qualified as special entity representatives,
This bifurcated rule is designed to address the commenter's concerns regarding the need to align the Commission's treatment of ERISA plans with that of the CFTC,
However, the Commission declines the commenter's suggestion to exclude ERISA plans with a minimum net asset requirement from the requirements of the rule.
As noted above, an SBS Entity must have a reasonable basis to believe that a special entity has a “qualified independent representative.” Proposed Rule 15Fh-2(c) would establish parameters for the term “independent representative” of a special entity.
For instance, proposed Rule 15Fh-2(c)(1) would generally require that a representative of a special entity be “independent” of the SBS Entity that is the counterparty to a proposed security-based swap. Proposed Rule 15Fh-2(c)(2) would provide that a representative of a special entity is “independent” of an SBS Entity if the representative does not have a relationship with the SBS Entity, whether compensatory or otherwise, that reasonably could affect the independent judgment or decision-making of the representative. In the Proposing Release, the Commission noted that the SBS Entity should obtain the necessary information to determine if, in fact, a relationship existed between the SBS Entity and the independent representative that could impair the independence of the representative in making decisions that affect the SBS Entity.
Proposed Rule 15Fh-2(c)(3) would deem a representative of a special entity to be independent of an SBS Entity where two conditions are satisfied: (i) The representative is not and, within one year, was not an associated person of the SBS Entity; and (ii) the representative had not received more than ten percent of its gross revenues over the past year, directly or indirectly, from the SBS Entity. This latter restriction would apply, for example, with respect to revenues received as a result of referrals by the SBS Entity. It was intended to encompass situations where a representative was hired by the special entity as a result of a recommendation by the SBS Entity. The restriction would also apply to revenues received, directly or indirectly, from associated persons of the SBS Entity.
In order for an SBS Entity to reasonably believe that the independent representative received less than ten percent of its gross revenue over the past year from the SBS Entity, the Commission noted that the SBS Entity would likely need to obtain information regarding the independent representative's gross revenues from either the special entity or independent representative.
The Commission requested comment on whether an independent representative must be independent of the special entity entering into the security-based swap, or whether the representative need only be independent of the SBS Entity. All five commenters agreed that the independent representative need only be independent from the SBS Entity, and emphasized that the intent of the proposed rule was to ensure a special entity received advice from someone in no way affiliated with an SBS Entity.
One commenter, representing two trade associations for municipal power producers, argued that the intended benefit of the proposed independent representative requirement was to ensure that a special entity receives security-based swap advice from a person other than the SBS Entity—not to force special entities to hire third-parties as independent representatives.
Another commenter asserted that the legislative history for Dodd-Frank indicated that a representative's “independence” referred to its independence from the dealer or broker—not its independence from the special entity.
The Commission solicited comment regarding whether to adopt a different test for a representative's independence, or whether the definition of “independent representative” should exclude certain categories of associated persons. Eleven comment letters addressed the independence test in proposed Rule 15Fh-2(c)(2)-(3).
Four commenters argued that the proposed rule would not sufficiently ensure a representative's independence.
Another commenter argued that under the proposed rule, a representative might be deemed to be independent even if he or she “worked with the SBS Entity as recently as a year ago, was recommended by the SBS Entity, has a direct business relationship with the SBS Entity that makes the representative highly financially dependent on that entity, and earns more of its revenues from the SBS Entity than from the Special Entity he or she purports to represent.”
Similarly, since the adoption of the CFTC's final business conduct rules, one commenter has argued that the Commission should harmonize its standards of independence with those of the CFTC, replacing the SEC's restriction on revenues received by the independent representative from the SBS Entity with the following qualifications: (1) The representative is not, and within one year of representing the special entity in connection with the security-based swap, was not an associated person of the SBS Entity; (2) there is no principal relationship between the special entity's representative and the SBS Entity; (3) the representative provides timely and effective disclosures to the special entity of all material conflicts of interest, complies with policies and procedures designed to mitigate conflicts of interest, is not directly or indirectly controlled by the SBS Entity, and does not receive referrals, recommendations, or introductions from the SBS Entity within one year of representing the special entity in connection with the security-based swap.
A third commenter suggested that the Commission revise the independence test for special entity representatives by: (1) Using ERISA standards in assessing the independence of a representative (but rejecting the DOL's fiduciary standard, under which a fiduciary may not derive more than 1% of its annual income from a party in interest and its affiliates); (2) considering a representative's relationships with an SBS Entity on behalf of multiple special entities, including the representative's relationships with an SBS Entity outside of the security-based swap transaction at issue; (3) including the revenues of an independent representative's affiliates in applying the gross revenues test; (4) decreasing the ten-percent gross revenue threshold; and (5) adopting a two-year timeframe (rather than one year) to determine whether a representative is independent of the SBS Entity.
The sole commenter that supported the independence test as proposed did so on the grounds that market participants would benefit from the certainty of its safe harbor.
Another commenter argued that the proposed rules' definition of “independent representative” should not apply to ERISA plans, as ERISA already defines the criteria for “independence” of a representative.
However, the majority of commenters urged the Commission to modify the proposed independence standards. For instance, while one commenter supported the Commission's one-year prohibition on associated persons of SBS Entities serving as special entity representatives, the commenter suggested four changes to the gross revenues component of the proposed rule: (1) Only payments by or on behalf of the SBS Entity (not by or on behalf of any affiliates or other associated persons) should be taken into account; (2) the revenue computations should be based on the representative's prior fiscal year rather than a rolling twelve-month look-back to simplify the calculations and reduce compliance costs; (3) payments to any affiliate (other than a wholly-owned subsidiary) of the representative should not be taken into account for purposes of this test; and (4) an SBS Entity should be able to rely on representations from the representative as to its gross revenues and whether payments that have been made to the representative equal or exceed the ten percent threshold.
Another commenter proposed reducing the one year disqualification period for association with the SBS Entity to six months.
A third commenter generally opposed the proposed rule on the basis that it was unclear, would require costly enhancements to compliance systems, and “would be particularly problematic in instances where a corporate transaction changes the identity of associated persons during the look-back year.”
A fourth commenter objected to the compliance burdens raised by the proposed rule, as well as various implementation concerns on the grounds that both prongs of the test were “moving targets” that would substantially complicate compliance and impose additional burdens and costs on advisors and special entities.
Another commenter argued that the final version of proposed Rule 15Fh-2(c) clarify that the ten percent gross revenue test would not apply to any independent representative employed by the special entity, as such a prohibition would be inappropriate.
After consideration of the comments, the Commission is adopting Rule 15Fh-2(c), with certain modifications. First, we moved the rule defining the “independence” of a special entity's representative from Rule 15Fh-2 to Rule 15Fh-5 in an effort to minimize confusion, and to consolidate the requirements of the qualified independent representative into Rule 15Fh-5. Specifically, the Commission is renumbering proposed Rule 15Fh-2(c) as Rule 15Fh-5(a)(1)(vii). In doing so, we have subsumed the requirement that a representative be independent of the SBS Entity under the criteria for a special entity's qualified independent representative.
Consistent with our proposal and with comments received, we continue to believe that a qualified independent representative should be independent of the SBS Entity, but need not be independent of the special entity itself.
We are adopting Rule 15Fh-5(a)(1)(vii) (formerly proposed Rules 15Fh-2(c)(1) and (2)) with one modification. Proposed Rule 15Fh-2(c)(1) defined an independent representative of a special entity, in part, as “independent of the security-based swap dealer or major security-based swap participant that is the counterparty to a proposed security-based swap.” Rule 15Fh-5(a)(1)(vii) as adopted eliminates the phrase “that is the counterparty to a proposed security-based swap” from the definition. As described immediately below, this change is intended to reconcile the use of the term “qualified independent representative” in Rules 15Fh-5(a)(1) and 15Fh-2(a)(2) as adopted.
Specifically, Rule 15Fh-2(a)(2) as proposed and as adopted, under which an SBS Dealer may seek to establish that it is not acting as an advisor to a special entity, refers to the definition of “qualified independent representative” as defined in Rule 15Fh-5(a).
This change will not alter the scope of Rule 15Fh-5(a) as adopted, because that rule is only applicable to an SBS Entity acting as counterparty to a special entity. It will, however, align the definition of qualified independent representative with the scope of Rule 15Fh-2(a), which applies to recommended transactions whether or not the SBS Dealer is a counterparty to the recommended security-based swap. As a result, there must always be someone independent of the SBS Dealer reviewing any recommended security-based swap transaction on behalf of the special entity, whether or not the SBS Dealer making the recommendation is the counterparty to the transaction. Furthermore, the elimination of the phrase “that is the counterparty to a proposed security-based swap” in the rule as adopted will harmonize the rule more closely with the parallel CFTC requirement.
Under Rule 15Fh-5(a)(1)(vii)(A) as adopted, a representative of a special entity is independent of an SBS Entity if the representative does not have a relationship with the SBS Entity, “whether compensatory or otherwise, that reasonably could affect the independent judgment or decision-making of the representative.” Rule 15Fh-5(a)(1)(vii)(B) (as adopted) modifies the criteria for determining the independence of the representative that was proposed in proposed Rule 15Fh-2(c)(3) by replacing the ten percent gross revenues test with requirements for timely disclosures of all material conflicts of interest and a prohibition against referrals, recommendations or introductions by the SBS Entity within one year of the representative's representation of the special entity. Under Rule 15Fh-5(a)(1)(vii)(B) as adopted, a representative of a special entity will be deemed to be independent of an SBS Entity if three conditions are met: (1) The representative is not and, within one year of representing the special entity in connection with the security-based swap, was not an associated person of the SBS Entity; (2) the representative provides timely disclosures to the special entity of all material conflicts of interest that could reasonably affect the judgment or decision making of the representative with respect to its obligations to the special entity and complies with policies and procedures reasonably designed to manage and mitigate such material conflicts of interest; and (3) the SBS Entity did not refer, recommend, or introduce the representative to the special entity within one year of the representative's representation of the special entity in connection with the security-based swap.
Rule 15Fh-5(a)(1)(vii)(B)(1) (formerly proposed Rule 15Fh-2(c)(2)) requires that the independent representative is not and was not an associated person of the SBS Entity “within one year of representing the special entity in connection with the security-based swap.” One commenter agreed with the one-year time frame in this provision.
Rule 15Fh-5(a)(1)(vii)(B)(2) adds the new requirement that a representative must provide timely disclosures to the special entity of all material conflicts of interest that could reasonably affect the judgment or decision making of the representative regarding its obligations to the special entity, and the representative must comply with policies and procedures reasonably designed to manage and mitigate such material conflicts of interest. This requirement establishes a standard that is designed to support the development of an SBS Entity's reasonable belief regarding the independence of the representative advising a special entity. One commenter recommended adopting
In the Commission's view, to be “timely,” a representative's disclosures must allow the special entity sufficient opportunity to assess the likelihood or magnitude of a conflict of interest prior to entering into the security-based swap.
To determine which conflicts of interest disclosures are required, an SBS Entity generally would need a reasonable basis to believe that the representative reviewed its relationships with the SBS Entity and its affiliates, including lines of business in which the representative solicits business. Additionally, where applicable, the SBS Entity generally would also need a reasonable basis to believe the representative reviewed the relationships of its principals and employees, who could affect the judgment or decision making of the representative on behalf of the special entity.
Lastly, Rule 15Fh-5(a)(1)(vii)(B)(3) replaces the proposed “gross revenues” test with a standard under which a representative will not be deemed independent if the SBS Entity refers, recommends, or introduces the representative to the special entity within one year of the representative's representation of the special entity in connection with the security-based swap. The change is intended to provide a simpler standard for achieving the policy goal that a special entity's choice of representative and the advice the representative provides should be made without any influence or input from the SBS Entity.
In making this modification to the rule as adopted, the Commission seeks to address commenters' concerns about cost, clarity, and practicality.
Proposed Rules 15Fh-5(a)(1)(i)-(vii) would list the required qualifications of a special entity's independent representative. The qualifications would be that the independent representative: (1) Has sufficient knowledge to evaluate a security-based swap and its risks; (2) is not subject to statutory disqualification; (3) will undertake a duty to act in the best interests of the special entity; (4) makes appropriate and timely disclosures to the special entity of material information concerning the security-based swap; (5) will provide written representations to the special entity regarding fair pricing and the appropriateness of the security-based swap; (6) (in the case of employee benefit plans subject to ERISA) is a fiduciary as defined in ERISA; and (7) is subject to the pay to play prohibitions of the Commission, the CFTC, or an SRO that is subject to the jurisdiction of the Commission or the CFTC. Each of these proposed qualifications is discussed in turn below.
As discussed above in Section II.H.5.a.iii.B and more fully below, the rules as adopted will distinguish between transactions with special entities subject to ERISA, and transactions with special entities other than those subject to ERISA. Specifically, Rule 15Fh-5(a)(1) as adopted addresses the qualifications for the independent representatives of special entities other than those subject to regulation under ERISA, and Rule 15Fh-5(a)(2) as adopted addresses the qualifications for independent representatives of special entities subject to regulation under ERISA.
In the Proposing Release, the Commission also requested comment regarding whether independent representatives must furnish written representations about their qualifications, or whether the rules should permit other means of establishing that a special entity's independent representative possessed the requisite qualifications.
The Commission received three comment letters on this point, all in favor of a written representation requirement.
Another commenter suggested that, in the case of an internal representative, written representations should be obtained either from the representative or from the special entity, or a combination of the two, depending on the circumstances.
After considering the comments, the Commission has determined not to mandate a manner of compliance with the requirements of Rule 15Fh-5(a). As discussed above, the obligation is on the SBS Entity to have a reasonable basis for believing that an independent representative has the necessary qualifications. An SBS Entity may use various means, such as reliance on representations from the special entity or its representative or due diligence, to form its reasonable basis to believe the special entity's independent representative meets the qualifications outlined in Rule 15Fh-5(a).
When an SBS Entity is relying on representations from a special entity or its representative to satisfy the requirements of the rule, the requirements of Rule 15Fh-1(b) will apply.
Proposed Rule 15Fh-5(a)(1) would require an SBS Entity to have a reasonable basis to believe that the independent representative has sufficient knowledge to evaluate the security-based transaction and related risks.
The Proposing Release solicited comment regarding what circumstances, if any, would give rise to a presumption of qualification for certain independent representatives other than ERISA fiduciaries.
Two commenters supported a finding of presumptive qualification for sophisticated, professional advisers, such as banks, Commission-registered investment advisers, registered municipal advisors, or other similarly qualified professionals.
Other commenters supported the presumption of qualification for in-house representatives of a special entity, since those representatives should presumably act in the best interests of the special entity by virtue of their employment with the special entity.
Similarly, one commenter supported the presumption of qualification for independent representatives where a governmental entity had verified the qualifications of its independent representative employee through the hiring process.
In the Proposing Release, the Commission asked whether to require that an independent representative be registered as a municipal advisor or an investment adviser or otherwise subject to regulation, such as banking regulation.
The first commenter supporting the registration requirement suggested that the written representations regarding a representative's qualifications include a verification that the external swap advisor had registered with and met professional standards set by the appropriate regulatory body overseeing swap advisors.
Another commenter supported the requirement that independent representatives be registered with the Commission as municipal advisors or
The third commenter requested that the Commission establish a safe harbor permitting an SBS Entity to conclude that the special entity's representative was “qualified” (but not necessarily “independent”) if the representative was a registered municipal advisor or an SEC-registered investment adviser that provides investment advice with respect to security-based swaps (or a foreign entity having an equivalent status abroad).
As noted above, one commenter opposed requiring employees of a special entity to register in any capacity, and suggested that any requirement to register third-party representatives should first be issued in the form of a notice of proposed rulemaking.
In the Proposing Release, the Commission requested comment regarding whether a proficiency examination should be developed to assess the qualifications of independent representatives. Four commenters supported the development and usage of a proficiency examination,
One commenter, advocating for a proficiency examination, argued that such testing should be mandatory for both in-house and third-party representatives.
On the other hand, one commenter opposed any proficiency examination for in-house representatives, and argued that a proficiency exam for third-party representatives might provide a false sense of expertise.
In the Proposing Release, the Commission asked whether an SBS Entity should be required to reevaluate (or, as applicable, require a new written representation regarding) the qualifications of the independent representative on a periodic basis.
The Commission received three comment letters in response to the request for comment.
Upon consideration of the comments, the Commission is adopting Rule 15Fh-5(a)(1)(i) (formerly proposed Rule 15Fh-5(a)(1)), as proposed.
Rule 15Fh-5(a)(1)(i) as adopted requires that SBS Entities have a reasonable basis to believe that the independent representative has sufficient knowledge to evaluate the transaction and risks. The independent representative may be required to register by the statutes and rules of another regulatory regime, such as municipal advisor or investment adviser, and nothing in the business conduct standards modifies or otherwise alters those registration requirements. Whether or not an independent representative is otherwise registered under a different regulatory regime may inform the SBS Entity's view of the independent representative's knowledge and qualifications, but would not automatically satisfy the qualification requirements of the independent representative. For example, an independent representative registered as an investment adviser may be very knowledgeable with respect to a variety of asset classes that do not include security-based swaps.
While some commenters supported the development of a proficiency examination, we are neither developing nor requiring that a proficiency examination be developed to assess the qualifications of independent representatives.
As discussed below, we are separately providing in new Rule 15Fh-5(a)(2) that the qualified independent representative requirement will be satisfied if a special entity that is subject to regulation under ERISA has a representative that is a fiduciary as defined in Section 3 of ERISA. We recognize that Congress has established a comprehensive federal regulatory framework that applies to plans subject to regulation under ERISA.
Commenters have suggested various time frames in which an independent representative's qualifications should be confirmed or recertified.
Proposed Rule 15Fh-5(a)(2) would require an SBS Entity to have a reasonable basis to believe that an independent representative is not subject to a statutory disqualification. Although Exchange Act Section 15F(h) does not define “subject to a statutory disqualification,” the term has an established meaning under Section 3(a)(39) of the Exchange Act,
In the Proposing Release, the Commission solicited comment regarding whether it should require an SBS Entity to check publicly available databases, such as FINRA's BrokerCheck and the Commission's Investment Adviser Public Disclosure program, to determine whether an independent representative was subject to a statutory disqualification.
The Commission received two comment letters on this issue. To minimize the degree of diligence imposed on SBS Dealers, one commenter suggested requiring third-party representatives to affirm that they are not subject to statutory disqualification, are not under investigation, and are not listed on the publicly available databases described above.
After the adoption of the CFTC's final rules, the Commission received one comment letter addressing the definition of “statutory disqualification in the Proposing Release.”
The Commission is adopting proposed Rule 15Fh-5(a)(2), renumbered as Rule 15Fh-5(a)(1)(ii), as proposed, with one modification. The Commission is incorporating the definition of “statutory disqualification” under Section 3(a)(39)(A)-(F) of the Exchange Act, whereas the proposed rule incorporated the definition under Section 3(a)(39) of the Exchange Act.
Exchange Act Section 15F(h) does not define “subject to a statutory disqualification,” however Exchange Act Section 3(a)(39) defines the term “statutory disqualification.” As discussed in the SBS Entity Registration Adopting Release, the definition in Exchange Act Section 3(a)(39) specifically relates to persons associated with an SRO. In recognition of the fact that an independent representative of a special entity may not be associated with an SRO, we have modified the text of proposed Rule 15Fh-2(f) to reference Sections 3(a)(39)(A)-(F) of the Securities Exchange Act of 1934. This updated cross-reference incorporates the underlying issues that give rise to statutory disqualification without reference to SRO membership.
In defining the phrase “subject to statutory disqualification,” the Commission declines to reference any parallel provisions of the CEA.
The Commission declines to adopt a commenter's suggestion to require third-party representatives to provide specific affirmations that they are not subject to statutory disqualifications, are not under investigation, and are not listed on publicly available databases as subject to a statutory disqualification. We do not believe that it is necessary or appropriate to prescribe in Rule 15Fh-5(a)(1)(ii) how an SBS Entity must form its reasonable basis to believe that the independent representative is not subject to a statutory disqualification; rather, the rule provides SBS Entities the flexibility to determine how best to meet their obligation. The SBS Entity may reasonably rely on representations regarding the qualifications of the independent representative to form its reasonable basis, but it is not required to do so. Nor is it required to obtain any specific representations or affirmations.
Proposed Rule 15Fh-5(a)(3) would require an SBS Entity to have a reasonable basis to believe that the independent representative would undertake a duty to act in the best interests of the special entity.
The Commission requested comment regarding what circumstances, if any, would give rise to a presumption that an independent representative was acting in the best interests of the special entity. The Commission received seven comment letters supporting the presumption that certain representatives would act in the best interests of the special entity by virtue of their employment with the special entity or their status as fiduciaries.
As discussed in Section I.D.,
The Commission is adopting proposed Rule 15Fh-5(a)(3), renumbered as Rule 15Fh-5(a)(1)(iii), as proposed. The Commission agrees with commenters that an SBS Entity may rely on information about legal arrangements between the special entity and its representative to establish that the representative is obligated to act in the best interests of the special entity, including by contract, employment agreement, or other requirements under state or federal law. In addition, Rule 15Fh-5(b) provides safe harbors for forming a reasonable basis regarding the qualifications of the independent representative.
Proposed Rule 15Fh-5(a)(4) would require an SBS Entity to have a reasonable basis to believe that the special entity's independent representative would make “appropriate and timely” disclosures to the special entity of material information concerning the security-based swap.
The Proposing Release solicited comment regarding whether to impose specific requirements with respect to the content of the disclosures in proposed Rule 15Fh-5(a)(4). The Commission received six letters addressing this provision of the proposed rule. Two commenters supported the use of specific disclosures to satisfy this requirement.
A commenter recommended that the final rules expressly state that the appropriate and timely disclosure requirement would be satisfied if the SBS Entity received a written representation affirming that the representative is “obligated by law and/or agreement or undertaking to provide appropriate and timely disclosures to the special entity.”
A third commenter urged the Commission not to impose specific requirements regarding the content of the disclosures.
As noted above, the SBS Entity may reasonably rely on representations regarding the independent representative making appropriate and timely disclosures to the special entity to form its reasonable basis to believe that the independent representative will comply with Rule 15Fh-5(a)(1)(iv). As with Rule 15Fh-5(a)(1)(iii), an SBS Entity may rely on appropriate legal arrangements between a special entity and its representative to form a reasonable basis to believe the representative will make appropriate and timely disclosures to the special entity of material information regarding the security-based swap—such as an existing contract or employment agreement.
In response to the comments arguing that pre-trade disclosure should not be required, we believe the necessity of pre-trade disclosure will depend on the facts and circumstances of the particular security-based swap in the context of the special entity and independent representative. The SBS Entity is required to have a reasonable basis to believe the independent representative will provide the appropriate and timely disclosures. To the extent that any disclosures from the independent representative are necessary for the special entity to make an investment decision with respect to the security-based swap, the disclosure would not be timely if it was given after the investment decision was made. Similarly, the CFTC rule also requires that the Swap Entity have a reasonable basis to believe that the independent representative will make “appropriate and timely” disclosures. Although the language of the Commission's rule narrows the requirement found in the parallel CFTC rule to appropriate and timely disclosures of “material information concerning the security-based swap,” the timing requirement is the same.
Proposed Rule 15Fh-5(a)(5) would require an SBS Entity to form a reasonable basis to believe that the special entity's independent representative would provide written representations to the special entity regarding fair pricing and the appropriateness of the security-based swap.
Four commenters addressed this proposed rule. Two commenters supported the Commission's proposal that it “should be sufficient if the representation states that the representative is obligated, by law and/or contract, to review pricing and appropriateness with respect to any swap transaction in which the representative serves as such with respect to the plan.”
The third commenter suggested that an independent representative should be required to disclose the basis on which it determined that a particular transaction was fairly priced, and that the underlying documentation should be sufficiently detailed to enable a third party to evaluate the representative's conclusion.
After the adoption of the CFTC's business conduct rules, the fourth commenter urged the Commission to harmonize with the CFTC and require that the qualified independent representative “evaluate[ ], consistent with any guidelines provided by the special entity, regarding fair pricing and the appropriateness of the security-based swap.”
Upon consideration of the comments, the Commission is modifying proposed Rule 15Fh-5(a)(5), renumbered as Rule 15Fh-5(a)(1)(v). The Commission agrees with the commenter's suggestion that the Commission should harmonize with the language of the CFTC's parallel provision, which requires an SBS Entity to form a reasonable basis that the special entity's independent representative will “evaluate” fair pricing and the appropriateness of the security-based swap, “consistent with any guidelines provided by the special entity.” In the Commission's view, requiring an SBS Entity to form a reasonable basis to believe that an independent representative will evaluate, consistent with any guidelines provided by the special entity, fair pricing and the appropriateness of the security-based swap will achieve the purpose of the proposed rule to ensure the special entity receives advice specifically with respect to pricing and whether or not to enter into the security-based swap. The rule will also provide the special entity the flexibility to provide parameters to its independent representative regarding the pricing and appropriateness of its security-based swap. The Commission therefore agrees with the commenter's suggestion that the special entity's guidelines, to the extent a special entity provides them, should establish the criteria for assessing the fair pricing and appropriateness of a security-based swap. In addition, this change will harmonize the rule with the parallel CFTC rule, thus creating efficiencies for entities that have already established infrastructure to comply with the CFTC standard. In the absence of any guidelines provided by the special entity, Rule 15Fh-5(a)(1)(v) requires the SBS Entity to form a reasonable basis to believe that the independent representative will evaluate the fair pricing and appropriateness of the security-based swap.
An SBS Entity also could form a reasonable basis for its determination by relying on a written representation that the independent representative will document the basis for its conclusion that the transaction was fairly priced and appropriate in accordance with any guidelines provided by the plan, and that the independent representative or the special entity will maintain that documentation in its records for an appropriate period of time, and make such records available to the special entity upon request.
Proposed Rule 15Fh-5(a)(7) would require an SBS Entity to have a reasonable basis to believe that a special entity's independent representative is subject to rules of the Commission, the CFTC, or an SRO subject to the jurisdiction of the Commission or the CFTC that prohibit it from engaging in specified activities if certain political contributions have been made, unless the independent representative is an employee of the special entity.
While not addressed in the Dodd-Frank Act, the Commission proposed to include this “pay-to-play” provision among the qualifications for independent representatives.
The Commission received one comment letter addressing the inclusion of a pay-to-play restriction among the qualifications for independent representatives. This commenter supported the exception to the pay-to-play restrictions for advisors who are employees of the special entity.
The Commission is adopting proposed Rule 15Fh-5(a)(7), renumbered as Rule 15Fh-5(a)(1)(vi), as proposed. Accordingly, an SBS Entity must have a reasonable basis for believing that the independent representative is subject to rules of the Commission, the CFTC or an SRO subject to the jurisdiction of the Commission or the CFTC that prohibit it from engaging in specified activities if certain political contributions have been made, unless the independent representative is an employee of the special entity.
Proposed Rule 15Fh-5(a)(6) would require an SBS Entity to have a reasonable basis to believe that, in the case of a special entity that is an employee benefit plan subject to ERISA, the independent representative was a “fiduciary” as defined in section 3(21) of that Act (29 U.S.C. 1002).
The Proposing Release solicited feedback regarding any specific requirements that should be imposed on SBS Entities with respect to this obligation, as well as what other independent representative qualifications might be deemed satisfied if an independent representative of an employee benefit plan subject to ERISA, is a fiduciary as defined in section 3 of ERISA.
The Commission received six comment letters advocating for a presumption of qualification for ERISA plan fiduciaries, since ERISA already imposes fiduciary duties upon the person who decides whether to enter into a security-based swap on behalf of an ERISA plan, and imposes on this person a statutory duty to act in the best interests of the plan and its participants, thereby prohibiting certain self-dealing transactions.
To address the potential conflict with ERISA standards, one commenter suggested that the Commission's definition of “independent representative” should be inapplicable to ERISA plans, and that the Commission should merely cross-
Another commenter supported the presumptive qualification for ERISA plan fiduciaries, provided that the plan satisfied a minimum $1 billion net asset requirement for institutional investor organizations.
One commenter asserted that, for ERISA plans, the determination whether a disclosure was “appropriate” and “timely” should be made with reference to ERISA.
As discussed in Section II.H.5.b.iii, we are adopting a new Rule 15Fh-5(a)(2) that expressly addresses dealings with special entities subject to ERISA.
Under new Rule 15Fh-5(a)(2), (formerly proposed Rule 15Fh-5(a)(6)), an SBS Entity that acts as a counterparty to an employee benefit plan subject to Title I of ERISA must have a reasonable basis to believe that the special entity has a representative that is a fiduciary as defined in Section 3 of ERISA. In this regard, an ERISA fiduciary will be presumed to be a qualified independent representative, and the SBS Entity need not undertake further inquiry into the ERISA fiduciary's qualifications. Such a presumption acknowledges the pre-existing, comprehensive federal regulatory regime governing ERISA fiduciaries and the importance of harmonizing the Dodd-Frank Act requirements with ERISA to avoid unintended consequences.
Although not included in the proposed rules, after adoption of the CFTC's final rules, one commenter requested that the Commission adopt separate safe harbors for transactions with ERISA and non-ERISA special entities regarding the requirement that an SBS Entity form a reasonable basis to believe that the special entity has a qualified independent representative.
After consideration of the comments, the Commission has determined to add a new bifurcated safe harbor in Rule 15Fh-5(b), similar to that adopted by the CFTC. The Commission believes the safe harbor will provide SBS Entities an efficient manner with which to comply with the requirement to have a reasonable basis to believe an independent representative meets certain enumerated qualifications while meeting the purposes of the rule.
Under Rule 15Fh-5(b)(1) as adopted, an SBS Entity shall be deemed to have a reasonable basis to believe that a non-ERISA special entity has a representative that satisfies the requirements of Rule 15Fh-5(a)(1) if: (i) The special entity represents in writing to the SBS Entity that it has complied in good faith with written policies and procedures reasonably designed to ensure that it has selected a representative that satisfies the requirements of Rule 15Fh-5(a)(1), and that such policies and procedures provide for ongoing monitoring of the performance of such representative consistent with Rule 15Fh-5(a)(1); and (ii) the representative represents in writing to the special entity and the SBS Entity that the representative: Has policies and procedures reasonably designed to ensure that it satisfies the requirements of Rule 15Fh-5(a)(1); meets the independence test of Rule 15Fh-f(a)(1)(vii); has the knowledge required under paragraph (a)(1)(i) of this section; is not subject to a statutory disqualification under paragraph (a)(1)(ii) of this section; undertakes a duty to act in the best interests of the special entity as required under paragraph (a)(1)(iii) of this section; and is subject to the requirements regarding political contributions, as applicable, under paragraph (a)(1)(vi) of this section; and is legally obligated to comply with the requirements of Rule 15Fh-5(a)(1) by agreement, condition of employment, law, rule, regulation, or other enforceable duty.
Under Rule 15Fh-5(b)(2) as adopted, an SBS Entity shall be deemed to have a reasonable basis to believe that an ERISA special entity has a representative that satisfies the requirements of Rule 15Fh-5(a)(2), provided that the special entity provides in writing to the SBS Entity the
The Commission believes that the safe harbor will better enable an SBS Entity to fulfill its obligations under Rule 15Fh-5(a), while at the same time appropriately providing protections for special entities. The Commission also agrees with commenters that the safe harbor will increase the efficiency of SBS transactions, reduce costs, and mitigate counterparty confusion. We believe that although SBS Entities will need to obtain additional representations relating to meeting certain of the standards in Rule 15Fh-5(a)(1), most SBS Entities and special entity representatives will still be able to leverage any existing compliance infrastructure established pursuant to the CFTC's safe harbor.
Proposed Rule 15Fh-5(b) would require that, before initiation of a security-based swap with a special entity, an SBS Dealer must disclose in writing the capacity or capacities in which it is acting, and, if the SBS Dealer engages in business or has engaged in business within the last twelve months with the counterparty in more than one capacity, the SBS Dealer must disclose the material differences between such capacities in connection with the security-based swap and any other financial transaction or service involving the counterparty.
As noted in the Proposing Release, a firm might act in multiple capacities in relation to a special entity. For example, the firm might act as an underwriter in a bond offering, as well as a counterparty to a security-based swap used to hedge the financing transaction.
The Commission received five comment letters on this proposed rule. Three commenters expressed concern over the burden imposed on large institutions, which would have to identify and disclose a myriad of possible relationships with special entities.
The first commenter argued that the Commission's proposed capacity disclosure requirement was problematic for two reasons.
Another commenter urged the Commission to allow SBS Entities to represent the capacity in which they were acting with respect to an ERISA plan in a schedule or amendment to an ISDA Master Agreement, other transactional document, or in an annual disclosure document provided by the SBS Entity to the special entity, which could be changed if the SBS Entity were to act in a different capacity.
Another commenter argued that it “would be impossible for an SBS Entity to ascertain and disclose every other relationship it may have with its counterparties” because large financial institutions have multiple points of contact with counterparties, making it impossible to systematically collect and disclose the required information.
One commenter suggested that the capacity disclosure requirement be applied equally to SBS Dealers and Major SBS Participants, as it would maximize the protection for special entities.
After the adoption of the CFTC's final rules, a commenter subsequently recommended deleting this twelve-month “look back” period, as well as the requirement that SBS Dealers disclose the material differences between such capacities “in connection with the security-based swap and any other financial transaction or service involving the counterparty.”
Upon consideration of the foregoing comments, the Commission is adopting proposed Rule 15Fh-5(b), renumbered as Rule 15Fh-5(c), with several modifications in response to comments. Proposed Rule 15Fh-5(b) would require that, before initiation of a security-based swap with a special entity, an SBS Dealer must disclose in writing the capacity or capacities in which it is acting, and, if the SBS Dealer engages in business or has engaged in business within the last twelve months with the counterparty in more than one capacity, the SBS Dealer must disclose the material differences between such capacities in connection with the security-based swap and any other financial transaction or service involving the counterparty. As discussed below, in response to comments, the Commission is amending the first part of the rule to clarify that the disclosure of the capacity in which the SBS Dealer is acting is “in connection with the security-based swap.” The Commission also is amending the second part of the rule to clarify the capacities between which material differences must be disclosed. In addition, we are deleting the 12 month look-back period. Specifically, under the rule, as adopted (renumbered as Rule 15Fh-5(c)), before initiation of a security-based swap, an SBS Dealer must disclose to the special entity in writing the capacity in which the SBS Dealer is acting “in connection with the security-based swap,” and, if the SBS Dealer engages in business
Several commenters argued that the proposed requirement that the SBS Dealer disclose the capacity in which it was acting was too broad and would require the disclosure of a myriad of possible relationships.
The Commission agrees with commenters that the disclosure of capacity in the first part of the rule should be limited to the capacity in which the SBS Dealer is acting in connection with the security-based swap, and has amended the rule to clarify this limitation. However, the Commission declines the commenter's suggestion to eliminate the disclosure of material differences between or among the different capacities in which the SBS Dealer is acting “in connection with the security-based swap and any other financial transaction or service involving the counterparty.”
Some commenters expressed concerns regarding the burden and practical issues relating to having to apply this disclosure requirement to the activities of associated persons of the SBS
After consideration of the comments, the Commission also acknowledges the commenters' concerns regarding the workability and potential delay in execution of transactions and increased costs the twelve month look back may cause. Accordingly, the Commission has also modified the adopted rule to eliminate the 12-month look back period for business in which the SBS Dealer has engaged.
As discussed in Section II.G.2.b. above, the Commission does not prescribe the manner in which these disclosure must be made. In response to comments received,
Finally, the Commission declines to apply Rule 15Fh-5(c) to Major SBS Participants, since the statutory requirement, by its terms, requires disclosure in writing of “the capacity in which the security-based swap dealer is acting.” Furthermore, as discussed in Section II.C.,
As previously discussed in Section II.B,
The Commission received five comments that generally addressed the exception for anonymous or SEF and exchange-traded security-based swaps,
In the specific context of security-based swap transactions with special entities, one commenter suggested that the business conduct standards should only apply to non-SEF and non-exchange traded transactions, regardless whether the transaction is anonymous.
Two commenters addressed the Commission's proposal to apply the statutory exception to any anonymous transaction with a special entity on a registered exchange or SEF.
Another commenter argued that Congress did not intend for the exception to apply when SBS Entities initiate transactions on a SEF or an exchange.
After consideration of the comments, the Commission is adopting Rule 15Fh-4(b)(3) and Rule 15Fh-5(c) (the latter renumbered as 15Fh-5(d)) with several modifications. Under the rules as adopted, the business conduct requirements of Rules 15Fh-4 and 15Fh-5 will not apply to a security-based swap with a special entity if: (1) The transaction is executed on a registered SEF, exempt SEF, or registered national securities exchange; and (2) the SBS Dealer and/or Major SBS Participant does not know the identity of the counterparty at a reasonably sufficient time prior to the execution of the transaction to permit the SBS Dealer and/or Major SBS Participant to comply with the obligations of the rule.
As discussed in Section II.B, by limiting the scope of the business conduct standards to situations where the counterparty's identity is known at a reasonably sufficient time prior to the execution of a transaction to permit the SBS Dealer and/or Major SBS Participant to comply with the obligations of the rule, the Commission seeks to relieve SBS Dealers and/or Major SBS Participants of the duty to comply with the rules' requirements where the counterparty's identity is learned immediately prior to the execution of a transaction, so that the SBS Entity would be able to comply with the requirements of the rules in a manner that would not be disruptive to the counterparties to the transaction. This change is intended to address commenters' concerns that compliance with the rules might be unreasonable or impractical where a counterparty's identity is learned immediately prior to the transaction, and compliance could result in the delay or disruption of the transaction.
Also, as explained in Section II.B, the exception would apply with respect to transactions on exempt as well as registered SEFs. We believe that including transactions on exempt SEFs is appropriate since, as discussed in Section II.B, the practical considerations that underlie the exception are not affected by whether a SEF is registered or not.
We believe that the exceptions under Rule 15Fh-4(b)(3) and 15Fh-5(d), as adopted, appropriately interpret the intended statutory carve-outs for SBS Entities engaged in anonymous, registered exchange-traded, registered or exempt SEF transactions with special entities, while avoiding the ambiguity inherent in determining which party “initiated” the security-based swap. The final rule therefore obviates the need to differentiate between initiating a negotiation and initiating a transaction, as one commenter had requested.
We acknowledge the commenter's suggestion that the exception should apply irrespective of which party initiates a transaction,
We are not accepting the commenter's suggestion that we revise the exceptions under 15Fh-4(b)(3) and 15Fh-5(d) to include transactions that are intended or required to be cleared, which are either executed on a registered national securities exchange or SEF, regardless of whether the transaction is anonymous.
Lastly, we acknowledge the improbability that an SBS Dealer who is acting as an advisor to a special entity and is therefore subject to the requirements of Rule 15Fh-4 would not know the identity of its special entity counterparty. Consequently, we also acknowledge that the circumstances where the exception under Rule 15Fh-4(b)(3) would apply are unlikely, and, in any event, we would question the appropriateness of an SBS Dealer making a recommendation to an unknown special entity. Nevertheless, we believe there is value is providing legal certainty for SBS Dealers that seek to transact on a registered national securities exchange or a registered or exempt SEF without regard to the regulatory status of their counterparty.
As proposed, Rule 15Fh-6(b)(1) would generally make it unlawful for an SBS Dealer to offer to enter into, or enter into, a security-based swap, or a trading strategy involving a security-based swap, with a “municipal entity” within two years after any “contribution” to an “official of such municipal entity” has been made by the SBS Dealer or any of its “covered associate[s].” Proposed Rule 15Fh-6(b)(3)(i) would also prohibit an SBS Dealer from paying a third party to “solicit” municipal entities to offer to enter into, or enter into, a security-based swap, unless the third party is a “regulated person” that is itself subject to a pay to play restriction under applicable law. Proposed Rule 15Fh-6(b)(3)(ii) would prohibit an SBS Dealer from coordinating or soliciting a third party, including a political action committee, to make any: (a) Contribution to an official of a municipal entity with which the SBS Dealer is offering to enter into, or has entered into, a security-based swap, or (b) payment to a political party of a state or locality with which the SBS Dealer is offering to enter into, or has entered into, a security-based swap. Finally, proposed Rule 15Fh-6(c) would make it unlawful for an SBS Dealer to do indirectly or through another person or means anything that would, if done directly, result in a violation of the prohibitions contained in the proposed rule.
As proposed, Rule 15Fh-6(b) included three main exceptions. First, proposed Rule 15Fh-6(b)(2)(i) would permit an individual who is a covered associate to make aggregate contributions without being subject to the two-year time out period, of up to $350 per election, to any one official for whom the individual was entitled to vote at the time of the contributions, and up to $150 per election, to any one official for whom the individual was not entitled to vote at the time of the contributions.
In addition to the above exceptions, proposed Rule 15Fh-6(e)(1) would provide an automatic exception to allow an SBS Dealer a limited ability to cure the consequences of an inadvertent political contribution where: (i) The SBS Dealer discovered the contribution within four months (120 calendar days) of the date of the contribution; (ii) the contribution made did not exceed $350; and (ii) the contribution was returned to the contributor within 60 calendar days of the date of discovery. However, an SBS Dealer would not be able to rely on this exception more than twice in any 12-month period, or more than once for any covered associate, regardless of the time between contributions.
Furthermore, under proposed Rule 15Fh-6(d) an SBS Dealer may apply to the Commission for an exemption from the two-year ban. In determining whether to grant the exemption, the Commission would consider, among other factors: (i) Whether the exemption is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes of the Exchange Act; (ii) whether the SBS Dealer, (a) before the contribution resulting in the prohibition was made, had adopted and implemented policies and procedures reasonably designed to prevent violations of the proposed rule, (b) prior to or at the time the contribution was made, had any actual knowledge of the contribution, and (c) after learning of the contribution, had taken all available steps to cause the contributor to obtain return of the contribution and such other remedial or preventative measures as may be appropriate under the circumstances; (iii) whether, at the time of the contribution, the contributor was a covered associate or otherwise an employee of the SBS Dealer, or was seeking such employment; (iv) the timing and amount of the contribution; (v) the nature of the election (
Six commenters addressed proposed Rule 15Fh-6.
Another commenter agreed that the prohibition timeframe should be two years, consistent with proposed Rule 15Fh-6(b)(1).
One commenter recommended that, with respect to the proposal that independent representatives be subject to “pay to play” limitations, an exception is needed “for advisors that are employees of the special entity, given the employer-employee relationship.”
Another commenter suggested, as a general matter, that because the Dodd-Frank Act did not mandate any restrictions on political contributions by SBS Dealers it is not clear to that commenter that the Commission needs to impose such a requirement on a discretionary basis.
Finally, one commenter suggested that the Commission create a safe harbor from the pay to play rule for a special entity that is represented by a qualified independent representative that affirmatively selects the SBS Dealer.
After the adoption of the CFTC's rules in 2015, this same commenter subsequently proposed that the Commission expressly except from the prohibitions of Rule 15Fh-6(b)(1) contributions that were “made before the security-based swap dealer registered with the Commission as such.”
After considering the comments, the Commission is adopting Rule 15Fh-6 with six modifications. First, after the Proposing Release was published, an inadvertent omission was identified in the definition of “contribution” in proposed Rule 15Fh-6(a)(1)(i). The Proposing Release inadvertently omitted the word “federal” in subsection (i) of the proposed definition of “contribution” in Rule 15Fh-6(a)(1). Although the Commission did not receive any comments noting this omission, we are modifying the rule text to include the word “federal” in subsection (i) of the final definition of “contribution” in Rule 15Fh-6(a)(1)).
Second, the Commission is correcting another inadvertent omission in the text of Rule 15Fh-6(b)(2)(i). As outlined in the Proposing Release, the
Third, as discussed in Section II.B, the Commission is modifying the exception under Rule 15Fh-6(b)(2)(iii) so as to apply when the SBS Dealer does not know the identity of the counterparty with reasonably sufficient time prior to execution of the transaction to permit the SBS Dealer to comply with the obligations of the rule. This language differs from the language used in the proposal, which would apply the exception when the dealer does not know the identity of the counterparty “at any time up to and including execution of the transaction.” The adoption of this language will comport with the language used in the verification of counterparty status and disclosure requirements of final Rule 15Fh-3, as well as the exceptions to the special entity requirements under Rules 15Fh-4(b)(3) and 15Fh-5(d). As discussed in those sections, this language is intended to exclude situations where the identity of the counterparty is not discovered until after execution of a transaction, or where the SBS Dealer learns the identity of the counterparty with insufficient time to be able to satisfy its obligations under the rule without delaying the execution of the transaction.
Fourth, as discussed above in Section II.H.8, the Commission is also modifying the exception under Rule 15Fh-6(b)(2)(iii) to apply to all security-based swap transactions executed on a registered or exempt SEF or registered national securities exchange, rather than just with respect to transactions “initiated by a municipal entity” on such exchange or SEF (as long as the other conditions of Rule 15Fh-6(b)(2)(iii) are met). We are revising the rule to be consistent with the adopted Rules 15Fh-4(b)(3) and 15Fh-5(d), and avoid the ambiguity inherent in determining which party “initiated” the security-based swap.
Fifth, we are also modifying Rule 15Fh-6(e)(2), as one commenter suggested,
Finally, the Commission is also correcting in the final rule the following typographical errors: (1) Revising an internal cross-reference in Rule 15Fh-6(a)(2)(iii) to cross-reference “paragraphs (a)(2)(i) and (a)(2)(ii) of this section” rather than “paragraphs (c)(2)(i) and (c)(2)(ii) of this section”; (2) revising an internal cross-reference in Rule 15Fh-6(d) to cross-reference “paragraph (b) of this section” rather than “paragraph (a)(1) of this section”; (3) revising Rule 15Fh-6(b)(3)(ii)(A) to delete a phrase that was inadvertently repeated “a security-based swap security-based swap”; and (4) revising Rule 15Fh-6(b)(3)(ii)(B) to also delete a phrase that was inadvertently repeated “a security-based swap security-based swap.”
With respect to the balance of Rule 15Fh-6, after considering the comments submitted, the Commission is adopting the Rule as proposed. The Commission disagrees with certain commenters' view that Rule 15Fh-6 is not an appropriate area for the Commission to exercise its authority to prescribe business conduct standards.
The Commission continues to believe and a commenter also agrees that the two-year time out provided for in Rule 15Fh-6 is appropriate.
As we also explained in the Proposing Release, because the rule would attribute to an SBS Dealer those contributions made by a person even prior to becoming a covered associate of the SBS Dealer, SBS Dealers need to “look back” in time to determine whether the two-year time out applies when an employee becomes a covered associate.
With respect to the comment recommending amending the proposed rule to include Major SBS Participants in the prohibitions of Rule 15Fh-6,
Therefore, SBS Dealers, unlike Major SBS Participants, may have an incentive to participate in pay to play practices out of concern that they may be overlooked if they fail to make such contributions which, in turn, would necessitate application of pay to play prohibitions. Furthermore, the exclusion of Major SBS Participants from Rule 15Fh-6 will also be consistent with the pay to play prohibition adopted by the CFTC.
The same commenter also urged the Commission, in a comment letter dated August 2011, to delay imposing the proposed pay to play rule until after the “dealer” definitions are finalized.
The Commission declines to revise Rule 15Fh-6, as one commenter suggested, by limiting the triggering event for the application of the pay to play rules to “engag[ing] in municipal security-based swap business” or “the execution of a security-based swap with a municipal entity.”
One commenter that addressed the definition of “solicit” in the proposed rule generally urged us to adopt a narrower definition.
Another commenter suggested that the Commission revise Rule 15Fh-6 to create a safe harbor from the pay to play rule for a special entity that is represented by a “qualified independent representative” that affirmatively selects the SBS Dealer.
Finally, we are not expressly excluding, as one commenter suggested, state-established plans that are managed by a third-party, such as 529 college savings plans, from the pay to play provisions.
Section 15F(k) of the Exchange Act requires an SBS Entity to designate a CCO, and imposes certain duties and responsibilities on that CCO.
Proposed Rule 15Fk-1(a) would require an SBS Entity to designate a CCO on its registration form. Proposed Rule 15Fk-1(b)(1) would require that the CCO report directly to the board of directors or to the senior officer of the SBS Entity.
Proposed Rule 15Fk-1(b) would impose certain duties on the CCO. Proposed Rule 15Fk-1(b)(2) would require the CCO to review the compliance of the SBS Entity with respect to the requirements in Section 15F of the Exchange Act and the rules and regulations thereunder.
Proposed Rule 15Fk-1(b)(3) would require that the CCO, in consultation with the board of directors or the senior officer of the organization, promptly resolve conflicts of interest that may arise.
Proposed Rule 15Fk-1(c)(1) would require that the CCO annually prepare and sign a report describing the SBS Entity's compliance policies and procedures (including the code of ethics and conflicts of interest policies) and the compliance of the SBS Entity with the Exchange Act and rules and regulations thereunder relating to its business as an SBS Entity.
Proposed Rule 15Fk-1(c)(2)(ii)(D) would require the compliance report to include a certification, under penalty of law, that the compliance report is accurate and complete.
Proposed Rule 15Fk-1(c)(2)(ii)(C) would require the compliance report to include a written representation that the chief executive officer(s) (or equivalent officer(s)) has/have conducted one or more meetings with the CCO in the preceding 12 months, the subject of which addresses the SBS Entity's obligations as set forth in the proposed rules and in Exchange Act Section 15F. The subject of the meeting(s) must include: (1) The matters that are the subject of the compliance report; (2) the SBS Entity's compliance efforts as of the date of such meeting; and (3) significant compliance problems and plans in emerging business areas relating to its business as an SBS Entity.
Under proposed Rule 15Fk-1(c)(2)(iii), if compliance reports are separately bound from the financial statements, the compliance reports shall be accorded confidential treatment to the extent permitted by law.
Five commenters addressed the designation, reporting line and compensation and removal of the CCO.
Similarly, the second commenter asked the Commission to provide guidance specifying that if a division of a larger company is an SBS Entity, then the CCO of such entity could report to the senior officer of that division.
Both commenters objected to the proposed requirement that the compensation and removal of the CCO be approved by a majority of the SBS Entity's board of directors.
Three commenters argued for more stringent requirements with respect to the designation, reporting line and compensation and removal of the CCO.
Similarly, the second commenter recommended that the authority and responsibility to appoint or remove the CCO, or to materially change its duties and responsibilities, be vested only in the independent directors and not the full board.
The third commenter asserted that firms should not be permitted to allow the CCO to report to a senior officer of the firm as a substitute for reporting to the board.
Three commenters addressed the duties of the CCO.
The second commenter recommended harmonizing the Commission's CCO requirements with FINRA Rule 3130 and the CFTC's CCO requirements for Swap Entities to enable SBS Entities that are also broker-dealers and/or Swap Entities to make use of their existing infrastructure and to minimize confusion.
In contrast, the third commenter recommended mandating that CCOs have greater authority to resolve and mitigate conflicts of interest that may cause compliance problems.
Four commenters addressed the annual compliance report requirements.
The commenter also had several concerns regarding the required certification of the compliance report in proposed Rule 15Fk-1(c)(2)(ii)(D).
Similarly, the second commenter requested that the Commission provide guidance clarifying that if a certifying officer has complied in good faith with policies and procedures reasonably designed to confirm the accuracy and completeness of annual compliance report, both the SBS Entity and the certifying officer would have a basis for defending accusations of false, incomplete, or misleading statements or representations made in the report.
The third commenter suggested: (1) Requiring the CCO to meet quarterly with the Audit Committee in addition to annual meetings with the board of directors and senior management; and (2) requiring the board to review and comment on, but not edit, the compliance report.
Rule 15Fk-1, as adopted, is designed to be generally consistent with the current compliance obligations applicable to CCOs of other Commission-regulated entities,
After considering the comments, the Commission is adopting Rule 15Fk-1(a) (designation of the CCO), Rule 15Fk-1(b)(1) (reporting line of the CCO), Rule 15Fk-1(d) (compensation and removal of the CCO), and the associated definitions of “board of directors” and “senior officer” in Rule 15Fk-1(e)(1) and (2) as proposed. To address concerns that an SBS Entity's commercial interests might have undue influence on a CCO's ability to make forthright disclosure to the board of directors or the senior officer about any compliance failures, the rule is designed to help promote CCO independence and effectiveness by establishing a direct reporting line to the board or senior officer, and by requiring compensation and removal decisions to be made by a majority of the board of directors. Accordingly, Rule 15Fk-1(b)(1) requires the CCO to report directly to the board or senior officer of the SBS Entity.
In promoting a CCO's independence and effectiveness, the Commission does not believe that it is necessary to adopt additional requirements suggested by commenters prohibiting a CCO from having additional roles or responsibilities outside of compliance, such as being a member of the SBS Entity's legal department or from serving as the SBS Entity's general counsel.
The Commission also is not adopting rules requiring independent board members to oversee the hiring, compensation and termination of the
One commenter suggested requiring the CCO to meet certain competency standards, including criteria demonstrating relevant knowledge and experience.
Another commenter asked that the Commission provide guidance regarding the supervisory liability of compliance and legal personnel employed by SBS Entities to reflect the guidance Commission staff has issued for broker-dealers' legal and compliance personnel.
After considering the comments, the Commission is adopting Rule 15Fk-1(b)(2)-(4) (duties of the CCO) with a number of modifications. In response to a commenter's concerns,
First, we are reorganizing Rule 15Fk-1(b)(2) to provide additional clarity and certainty as to the obligations of the CCO. Specifically, our modifications are designed to make clear that in taking reasonable steps to ensure that the SBS Entity establishes, maintains and reviews written policies and procedures reasonably designed to achieve compliance with the Exchange Act and the rules and regulations thereunder relating to its business as an SBS Entity, the CCO must satisfy the three specific obligations enumerated in Rule 15Fk-1(b)(2)(i)-(iii), discussed below.
Second, in addition to the reorganization described above, we are making some changes to the descriptions of the duties listed in Rule 15Fk-1(b)(2). As described above, we are making changes to the duty that now appears in Rule 15Fk-1(b)(2). Specifically, the Commission agrees with a commenter that it is the responsibility of the SBS Entity, not the CCO in his or her personal capacity, to establish and enforce required policies and procedures.
We are also modifying the three specific obligations of the CCO now enumerated in Rule 15Fk-1(b)(2)(i)-(iii) that the CCO must perform to satisfy his or her duty to take reasonable steps to ensure that the registrant establishes, maintains and reviews policies and procedures reasonably designed to achieve compliance. As adopted, Rule 15Fk-1(b)(2)(i) requires the CCO to “revie[w] the compliance of the [SBS Entity] with respect to the [SBS Entity] requirements described in [S]ection 15F of the [Exchange Act], and the rules and regulations thereunder, where the review shall involve preparing the registrant's annual assessment of its written policies and procedures reasonably designed to achieve compliance with [S]ection 15F of the [Exchange Act] and the rules and regulations thereunder, by the [SBS Entity].” The requirement that the CCO “prepare the registrant's annual assessment of its” written policies and procedures reasonably designed to achieve compliance with Section 15F of the Exchange Act and the rules and regulations thereunder represents a change from the proposed requirement that the CCO “establish, maintain and review” such policies and procedures. We are making this change in response to a specific suggestion from a commenter.
As adopted, Rule 15Fk-1(b)(2)(ii) requires the CCO to “tak[e] reasonable steps to ensure that the registrant establishes, maintains and reviews policies and procedures reasonably designed to remediate non-compliance issues identified by the [CCO] through any means, including any: (A) Compliance office review; (B) Look-back; (C) Internal or external audit finding; (D) Self-reporting to the Commission and other appropriate authorities; or (E) Complaint that can be validated.” This represents a change from the proposed requirements: (1) That the CCO “establish, maintain and review” such policies and procedures, and (2) that such policies and procedures be reasonably designed to remediate “promptly” non-compliance issues. Additionally, as adopted, Rule 15Fk-1(b)(2)(iii) requires the CCO to “tak[e] reasonable steps to ensure that the registrant establishes and follows procedures reasonably designed for the handling, management response, remediation, retesting, and resolution of non-compliance issues.” This also represents a change from the proposed requirements: (1) That the CCO “establish and follow” such procedures, and (2) that such procedures be reasonably designed for the “prompt” handling, management response, remediation, retesting, and resolution of non-compliance issues.” We are making these changes in response to specific suggestions from a commenter.
In addition to the changes described above, the Commission is making one more modification to the duty to remediate non-compliance issues in final Rule 15Fk-1(b)(2)(ii). The proposed rule referred only to non-compliance issues “identified by the [CCO] through any: (A) Compliance office review; (B) Look-back; (C) Internal or external audit finding; (D) Self-reporting to the Commission and other appropriate authorities; or (E) Complaint that can be validated.” However, as noted above, Rule 15Fk-1(b)(2)(iii) requires that the CCO “tak[e] reasonable steps to ensure that the registrant establishes and follows procedures reasonably designed for the handling, management response,
Third, the Commission is modifying the duties of the CCO now enumerated in Rules 15Fk-1(b)(3) and (4). As adopted, Rule 15Fk-1(b)(3) requires the CCO to “[i]n consultation with the board of directors or the senior officer of the [SBS Entity], take reasonable steps to resolve any material conflicts of interest that may arise.” This represents a change from the proposed requirement, which would have required the CCO to “[i]n consultation with the board of directors or the senior officer of the [SBS Entity], promptly resolve any conflicts of interest that may arise.” The Commission is adding the “take reasonable steps” language and materiality qualifier to further clarify and qualify the role of the CCO in resolving conflicts of interest in response to concerns raised by commenters.
As adopted, Rule 15Fk-1(b)(4) requires the CCO to “[a]dminister each policy and procedure that is required to be established pursuant to [S]ection 15F of the [Exchange Act] and the rules and regulations thereunder.” This represents a change from the proposed requirement that the CCO “be responsible for” administering such policies and procedures. The Commission is eliminating the words “be responsible for” because we believe they are unnecessary and could cause confusion. The CCO is responsible for complying with all of the duties listed in Rule 15Fk-1(b)(2)-(4). Commenters requested clarifications as to what the CCO's administration of the required policies and procedures would entail.
After considering the comments, the Commission is adopting Rule 15Fk-1(c) (annual compliance report) with a number of modifications, as discussed below. In response to concerns raised by a commenter,
First, the Commission is making a clarifying change to Rule 15Fk-1(c)(1) to consistently refer to the annual report required by Rule 15Fk-1(c) as the “compliance report.” This wording change will not alter the substantive requirements of the rule. It is only meant to clarify that the rule refers to a single annual compliance report. Second, the Commission is eliminating the proposed requirement to include a description of “the compliance” of the SBS Entity in the annual compliance report in response to concerns raised by commenters,
The Commission is also making certain modifications to the required content of the annual compliance report in Rule 15Fk-1(c)(2) in response to specific suggestions from a commenter.
Second, the Commission is making a number of changes to harmonize the content requirements for the annual compliance report with the CFTC's parallel requirements for the annual compliance reports of Swap Entities. The Commission agrees with the commenter that alignment of the content requirements will allow SBS Entities that are also registered as Swap Entities to leverage the procedures they have adopted to comply with the CFTC's parallel CCO rule.
The Commission is also changing the proposed requirement in Rule 15Fk-1(c)(2)(i)(C) that the annual compliance report contain a description of “any recommendation for material changes to the policies and procedures” to a requirement to describe “areas for improvement, and recommended potential or prospective changes or improvements to its compliance program and resources devoted to compliance.”
Additionally, the Commission is changing the proposed requirement that the annual compliance report contain a description of “any material compliance matters identified since the date of the preceding compliance report” to a requirement to describe “any material non-compliance matters identified” in Rule 15Fk-1(c)(2)(i)(D).
Finally, the Commission is adding a requirement in Rule 15Fk-1(c)(2)(i)(E) for an SBS Entity to include a description in its annual compliance report of the “financial, managerial, operational, and staffing resources set aside for compliance with the [Exchange Act] and the rules and regulations
The Commission is also making a number of changes with respect to the submission of the annual compliance report. First, the Commission is aligning the deadline for submitting the report with the CFTC's deadline of 90 days after the end of the Swap Entity's fiscal year in response to concerns raised by a commenter.
Second, in connection with the change described above, the Commission is eliminating the proposed provision that “[i]f compliance reports are separately bound from the financial statements, the compliance reports shall be accorded confidential treatment to the extent permitted by law.” The Commission believes this provision is no longer necessary in light of the changes we are making to Rule 15Fk-1(c)(2)(ii)(A), discussed above, which will no longer require the compliance report to accompany the SBS Entity's financial report. SBS Entities may request confidential treatment for their annual compliance reports pursuant to Exchange Act Rule 24b-2.
Third, in response to comment,
Fourth, the Commission is changing the required timing of submission of the compliance report to the board of directors, audit committee and senior officer of the SBS Entity. The timing requirement in proposed Rule 15Fk-1(c)(3)(ii)(B) (“at the earlier of their next scheduled meeting or within 45 days of the date of execution of the required certification”) was based on the timeframe provided in the FINRA rule regarding annual certification of compliance and supervisory processes.
The Commission declines to modify this provision, as suggested by a commenter, to allow for submission of the compliance report to either the board or the senior officer.
Additionally, in response to concerns raised by a commenter
To address concerns raised by commenters,
Additionally, the Commission believes it is appropriate to add the knowledge and materiality qualifiers described above to the required certification to address commenters' concerns regarding the liability standard for the certification.
In response to a specific suggestion from a commenter,
Finally, in response to a specific suggestion from a commenter,
One commenter recommended that the Commission adopt a new rule that would, in connection with security-based swaps executed under a prime brokerage arrangement, permit the executing dealer and prime broker to allocate responsibility for compliance with certain external business conduct obligations in a manner consistent with CFTC No-Action Letter 13-11.
The commenter described a particular situation in which a counterparty (“Prime Broker Client”) enters into an agreement with a registered SBS Dealer (“Prime Broker”). That agreement establishes parameters under which the Prime Broker Client, acting as agent of the Prime Broker, can negotiate and enter into security-based swaps with certain registered SBS Dealers (collectively, the “Executing Dealer”). If a security-based swap negotiated by the Prime Broker Client with the Executing Dealer is accepted by the Prime Broker, the Prime Broker will enter into a corresponding security-based swap with the Prime Broker Client, the terms of which mirror the terms of the security-based swap between the Executing Dealer and the Prime Broker, subject to associated prime brokerage fees agreed by the parties.
In these circumstances, the Prime Broker Client may have entered into a security-based swap with the Prime Broker based not only on communications with the Prime Broker but also on communications including disclosure of material terms and other representations, and possibly on the basis of a recommendation by the Executing Dealer. According to this commenter, in these circumstances, the Prime Broker is in the best position to take responsibility for compliance with the external business conduct standards that relate to the general relationship between the Prime Broker and the Prime Broker Client, whereas the Executing Dealer is in the best position to take responsibility for compliance with business conduct standards that are transaction-specific. The commenter expressed the view that unless SBS Dealers are permitted to allocate compliance with the external business conduct standards between the Prime Broker and the Executing Dealer, it would be impossible to continue existing prime brokerage arrangements.
The commenter proposed a rule under which the Prime Broker and the Executing Dealer would have the full range of business conduct obligations that they would allocate between themselves. The commenter's request is beyond the scope of this rulemaking although we acknowledge the concerns raised by the commenter, and may consider them in the future.
The CFTC proposed rules regarding best execution and front running that it did not ultimately adopt. One commenter urged the Commission to adopt a best execution requirement similar to the CFTC's proposal.
The Commission did not propose rules regarding portfolio reconciliation and compression. Four commenters generally supported portfolio reconciliation and compression requirements.
The Commission proposed generally to apply all requirements in Section 15F of the Exchange Act, and the rules and regulations thereunder, to all SBS Entities, whether U.S. persons or non-U.S. persons.
Under the proposed approach, the entity-level requirements would apply to all transactions of an SBS Entity, regardless of the U.S.-person status of the SBS Entity or its counterparty to any particular transaction.
With respect to SBS Dealers, the Commission proposed a rule that would have provided that registered foreign SBS Dealers and registered U.S. SBS Dealers, with respect to their foreign business, would not be subject to the requirements relating to business conduct standards described in Section 15F(h) of the Exchange Act,
In April 2015, the Commission re-proposed the rule defining the application of business conduct rules to SBS Dealers to incorporate the modified approach to U.S. activity proposed in that release and to make certain technical changes to the “foreign business” definition relating to transactions conducted through a foreign branch.
With respect to Major SBS Participants, the Commission proposed to provide an exception from the business conduct standards as described in Section 15F(h) of the Exchange Act, and the rules and regulations thereunder (other than the rules and regulations prescribed by the Commission pursuant to Section 15F(h)(1)(B)), only for foreign Major SBS Participants, with respect to their transactions with non-U.S. persons.
In response to the U.S. Activity Proposing Release, commenters focused on the proposal to impose business conduct standards on a transaction of a registered foreign SBS Dealer with other non-U.S. persons when the SBS Dealer uses personnel located in the United States to arrange, negotiate, or execute the transaction. Several commenters expressed general support for the Commission's proposed test to determine when various Title VII requirements should apply to transactions between two non-U.S. persons based on U.S. activity.
Some commenters that objected to the Commission's proposed approach argued that none of the business conduct requirements should apply to transactions between non-U.S. persons, even if these transactions involve U.S. activity and therefore constitute “U.S. business” under the proposed definition.
Some commenters taking this view also explained that U.S. asset managers may face challenges in servicing non-U.S. client accounts under the proposed approach, noting that non-U.S. clients may be reluctant to deal with Dodd-Frank-related documentation or to make required representations and describing the significant burdens these requirements would impose on asset managers.
Some commenters that objected to the Commission's proposed application of business conduct requirements to transactions between two non-U.S. persons solely on the basis of activity in the United States urged the Commission to limit the application to specific requirements that, in the commenters' views, address regulatory concerns directly related to the relevant activity in the United States. These commenters supported dividing the business conduct requirements into two separate categories of “relationship-based” requirements and “transaction-specific” or “communication-based” requirements.
On the other hand, commenters explained that application of business conduct requirements that are “communication-based” or transaction-specific—which they identified as including disclosure of material risks and characteristics and material incentives or conflicts of interest and related recordkeeping, disclosures regarding clearing rights and related recordkeeping, product suitability, and fair and balanced communications and supervision—to such transactions would be simpler and less costly to implement.
Two commenters suggested that, if the Commission does apply the business conduct requirements as proposed, it offer an “opt-out” for sophisticated non-U.S. person counterparties that would allow them to trade under their existing documentation rather than develop new documentation pursuant to U.S. rules.
Two commenters argued that the Commission should not allow concern about special entity protections to influence its consideration of whether U.S. activity alone should trigger business conduct requirements. These commenters noted that the Commission has previously explained that only U.S. persons would be special entities and, as such, a registered foreign SBS Dealer would already be subject to the full range of business conduct requirements in transactions with special entities, because such transactions would constitute “U.S. business” under the proposed approach even if the Commission were to eliminate U.S. Activity from the definition of “U.S. business.”
After considering the comments, the Commission is adopting final Rule 3a71-3(c) and amendments to the definitions in Rule 3a71-3(a) largely unchanged from the April 2015 re-proposal.
The Commission continues to believe that the rules and regulations prescribed by the Commission relating to diligent supervision pursuant to Section 15F(h)(1)(B), those relating to the CCO under Section 15F(k) of the Exchange Act, and those relating to requirements under Section 15F(j) of the Exchange Act should be treated as entity-level requirements that apply to the entire business of the registered foreign or U.S. SBS Entity.
As the Commission has previously stated, it is appropriate to subject a registered SBS Entity to the diligent supervision requirements regardless of the status or location of its counterparties to ensure that the SBS Entity is adequately supervising its business and its associated persons to ensure compliance with the full range of its obligations under the federal securities laws.
The CCO requirements under Rule 15Fk-1 also raise entity-wide concerns. CCO's responsibilities include establishing, maintaining, and reviewing policies and procedures reasonably designed to ensure compliance with applicable Exchange Act requirements.
As noted above, the Commission is adopting final Rule 3a71-3(c) and amendments to the definitions in Rule 3a71-3(a) largely unchanged from the proposal. Accordingly, the final rule provides that registered SBS Dealers, with respect to their foreign business, shall not be subject to the requirements relating to business conduct standards described in Section 15F(h) of the Exchange Act,
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.
However, the final rule defines “U.S. business” differently for foreign SBS Dealers and U.S. SBS Dealers. The final rule defines “U.S. business” of a foreign SBS Dealer to mean (i) any transaction entered into, or offered to be entered into, by or on behalf of such foreign SBS Dealer, with a U.S. person (other than a transaction conducted through a foreign branch of that person), or (ii) any security-based swap transaction that is arranged, negotiated, or executed by personnel of the foreign SBS Dealer located in a U.S. branch or office, or by personnel of its agent located in a U.S. branch or office.
The final rule reflects the Commission's continuing view that all registered SBS Dealers should be required to comply with the transaction-level elements of the business conduct standards with respect to their U.S. business.
With respect to foreign SBS Dealers, the Commission continues to believe that the final definition of “U.S. business” should generally encompass transactions with U.S. persons and transactions that the foreign SBS Dealer arranges, negotiates, or executes using personnel located in a U.S. branch or office.
With respect to U.S. SBS Dealers, the Commission continues to believe that the definition of “U.S. business” should encompass all of their transactions, regardless of the U.S.-person status of the counterparty, except for transactions that a U.S. SBS Dealer arranges, negotiates, or executes through a foreign branch with another foreign branch or with a non-U.S. person. As noted above, Title VII is concerned with the protection of U.S. markets and participants in those markets, and it remains our view that imposing these requirements on a U.S.-person dealer when it arranges, negotiates, or executes through its foreign branch with another foreign branch or a non-U.S. person would produce little or no benefit to U.S. market participants.
One commenter urged the Commission to return to its initially proposed approach to the definition of “transactions conducted within the United States,” which would have looked to the location of relevant activity of both counterparties.
Some commenters have argued that the business conduct standards should not apply to any transactions between two non-U.S. persons because the foreign counterparties may not expect to receive such protections, or to any such transactions where expectations of receiving such protections are likely to be particularly low.
Moreover, the approach to identifying relevant dealing activity in the United States reflects the Commission's determination that focusing solely on the location of the personnel arranging, negotiating, or executing the transaction on behalf of the foreign SBS Dealer appropriately balances the regulatory objectives of the business conduct standards with concerns about workability of an activity-based test. To create additional exceptions, particularly for activity occurring in the United States, based on the expectations of the non-dealing counterparty or the mode of its interaction with the foreign SBS Dealer would unnecessarily complicate this approach in a manner, as noted above, that would not advance the regulatory objectives served by these standards.
Some commenters have urged the Commission to harmonize any standards that the Commission does impose on these transactions with requirements that may separately apply to the foreign registered SBS Dealer's U.S.-person intermediary to avoid unnecessary duplication or conflicts.
First, as discussed below, the Commission is adopting a rule that potentially would make substituted compliance available for the business conduct requirements following a substituted compliance determination by the Commission.
In the event that we are unable to determine that an entity may satisfy certain Title VII requirements via substituted compliance, we recognize that such persons may, as a result, be subject to requirements that are duplicative of particular Title VII requirements. While we recognize the significance of such a result, in our view compliance with the Title VII requirements is necessary to advance the policy objectives of Title VII. This would be undermined by permitting foreign dealers to comply with their Title VII obligations by satisfying foreign requirements, unless the alternative route provided by substituted compliance has been made available.
Second, although the Commission is mindful that the U.S. intermediary of a registered foreign SBS Dealer may be subject to business conduct requirements under the Exchange Act and relevant SRO rules and that such requirements may be similar in certain respects to those in Title VII,
Commenters urged the Commission to harmonize FINRA's existing sales practice requirements with the “communication-based” or transaction-specific rules applicable under Title VII.
Further, as we have previously discussed, Congress established a comprehensive framework of business conduct standards in Title VII that applies to registered SBS Dealers, and we continue to believe that the transactional requirements we adopt to implement this framework should govern their transactions with counterparties when such transactions raise market integrity, transparency, and counterparty protection concerns that are addressed by these requirements.
Some commenters supported dividing the business conduct standards into two categories, one of which they argued should not apply to transactions between two non-U.S. persons. These commenters urged the Commission not to impose “relationship-based” requirements (which they defined to include rules relating to the counterparty's ECP status, “know your counterparty” requirements, daily mark disclosure, and suitability requirements) on these transactions but suggested that imposing “trade-specific” or “communication-based” requirements (which they which they identified as including disclosure of material risks and characteristics and material incentives or conflicts of interest and related recordkeeping, disclosures regarding clearing rights and related recordkeeping, product suitability, and fair and balanced communications and supervision) could be a reasonable approach, particularly if they were made more consistent with similar FINRA rules that may apply to the U.S. intermediary.
The Commission does not agree with commenters who argue that the foreign SBS Dealers should be excepted from the “relationship-based” requirements when entering into transactions with other non-U.S. persons.
The Commission recognizes that some non-U.S. person counterparties may express reservations about making certain representations or completing questionnaires to comply with the “relationship-based” business conduct requirements when they have no intention of interacting with the dealer's personnel located in the United States.
As noted above, some commenters acknowledged that the “communication-based” or “trade-specific” requirements likely would advance regulatory objectives, such as the prevention of fraud or manipulation, even in connection with SBS transactions between two non-U.S. persons where one counterparty is using personnel located in the United States to arrange, negotiate, or execute transactions.
The Commission recognizes that application of these requirements may impose costs on asset managers servicing non-U.S. clients and impede their ability to execute certain block trades.
The Commission also disagrees with the commenters that urged the Commission to permit sophisticated counterparties to “opt-out” completely from the business conduct standards and with commenters that requested that the U.S. Activity Test not be applied to transactions with special entities.
As noted above, the Commission is also adopting amendments to Rule 3a67-10 to incorporate a modified exception from the business conduct standards for registered foreign Major SBS Participants.
As proposed, Exchange Act Rule 3a67-10(c), which addressed cross-border application of the definition of “major security-based swap participant,” would require non-U.S. persons to count toward the Major SBS Participant thresholds only their security-based swap transactions with U.S. persons and would have permitted no exception from that requirement. As adopted, however, in the Cross-Border Adopting Release, the relevant rule (Exchange Act Rule 3a67-10(b)) provides that a non-U.S. person need not include in these threshold calculations its security-based swap positions with a U.S. person to the extent that the positions “arise from transactions conducted through a foreign branch of the counterparty, when the counterparty is a registered SBS Dealer.”
The Commission believes similar concerns about the ability of foreign branches of U.S. banks to do business with non-U.S. persons apply in the context of application of the business conduct requirement to these transactions. This exception from the application of the business conduct requirements adopted in the final rules today should address concerns that non-U.S. persons would limit or stop trading with foreign branches of U.S. banks. The Commission is therefore amending Exchange Act rule 3a67-10 to incorporate exceptions for transactions through the foreign branch of a U.S. person modeled on those that are available in the final rule as it applies to registered SBS Dealers.
As part of the Cross-Border Proposing Release, the Commission proposed to make substituted compliance potentially available in connection with the requirements applicable to SBS Dealers pursuant to Exchange Act Section 15F, other than the registration requirements applicable to dealers.
The proposal would have specifically provided that a foreign SBS Dealer
The Commission further explained that allowing substituted compliance for the dealer requirements would have the goal of increasing the efficiency of the security-based swap market and promoting competition “by helping to avoid subjecting foreign security-based swap dealers to potentially conflicting or duplicative compliance obligations, while still achieving the policy objectives of Title VII.” The Commission also stated that such an approach would be consistent with the global nature of the security-based swap market, and may be less disruptive of business relationships than not permitting substituted compliance.
Under the proposal, the Commission would not permit dealer requirements to be satisfied by substituted compliance unless the Commission determined that the foreign regime's requirements were comparable to the otherwise applicable requirements, after taking into account such factors as the Commission determines are appropriate, including the scope and objectives of the relevant foreign regulatory requirements and the effectiveness of the supervisory compliance program administered, and the enforcement authority exercised, by the foreign financial regulatory authority in support of its oversight.
The Commission also stated that in making a substituted compliance determination, it would focus on the similarities in regulatory objectives, rather than requiring that the foreign jurisdiction's rules be identical. Moreover, depending on the assessment of comparability, the Commission could condition the substituted compliance determination by limiting it to a particular class or classes of registrants in the foreign jurisdiction.
The proposal would have required that, prior to making a substituted compliance determination, the Commission must have entered into a supervisory and enforcement memorandum of understanding (“MOU”) or other arrangement with the foreign authority addressing the oversight and supervision of security-based swap dealers subject to the substituted compliance determination.
Under the proposal, substituted compliance would not have been available to Major SBS Participants. In this regard, the Commission particularly noted “the limited information currently available to us regarding what types of foreign entities may become major security-base swap participants, if any, and the foreign regulation of such entities.”
Commenters raised issues in connection with a variety of aspects regarding the proposed substituted compliance rule:
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This commenter particularly described the use of substituted compliance as constituting an impermissible exemption from the Title VII requirements, stating: “Had Congress intended the SEC to permit compliance with foreign regulation to suffice for all Title VII regulation of entities under U.S. jurisdiction, directly or by way of anti-evasion regulations, it certainly could have done so.” In support, the commenter cited Exchange Act section 17A(k), 15 U.S.C. 78q-1(k), added by Dodd-Frank, which specifically permits the Commission to exempt clearing agencies from registration when they are subject to comparable and comprehensive oversight by the CFTC or by foreign regulators.
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A legislative comment letter to the CFTC in connection with the CFTC's own cross-border initiative, on which the SEC Chair and Commissioners were copied, also took the view that there should be a presumption against comparability for substituted compliance purposes and that any assessment be made on a requirement-by-requirement basis.
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Another commenter more generally supported the Commission's ability to not grant substituted compliance due to the substantive enforcement of foreign regulatory regimes.
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After considering the comments received, the Commission is adopting Rule 3a71-6 to make substituted compliance potentially available in connection with the business conduct requirements being adopted today.
As discussed elsewhere, the security-based swap market is global, with a prevalence of cross-border transactions within that market.
The Commission accordingly proposed to implement a substituted compliance framework “to address the effect of conflicting or duplicative regulations on competition and market efficiency and to facilitate a well-functioning global security-based swap market.”
In reaching this conclusion, the Commission notes that one commenter has questioned the Commission's authority to grant substituted compliance and has expressed skepticism regarding the policy basis for
Moreover, the same commenter's view that substituted compliance would lead to a lowering of regulatory standards is addressed by the provision that any grant of substituted compliance would be predicated on there being comparable requirements in the foreign jurisdiction. Indeed, in the Commission's view, the potential for substituted compliance will help to promote the effective application of Title VII requirements, by making it less likely that certain market participants that are complying with comparable foreign requirements will determine that they need to choose between modifying their business conduct systems to reflect the requirements of U.S. rules, or else limiting or ceasing their participation in the U.S. market.
This commenter also expressed the view that any Commission action of this nature at a minimum should be predicated on a finding that there is an actual conflict between Title VII and foreign requirements.
As noted, the final rule has been revised from the proposal to reflect that until other Title VII rules are adopted, substituted compliance will be available only with respect to the business conduct rules. The Commission expects to assess the potential availability of substituted compliance in connection with other requirements when the Commission considers final rules to implement those requirements.
To implement this revised approach, paragraph (a)(1) of Rule 3a71-6 as adopted provides that the Commission may, conditionally or unconditionally, by order, make a determination with respect to a foreign financial regulatory system that compliance with specified requirements under that foreign financial regulatory system by a registered SBS Dealer and/or by a registered Major SBS Participant—each a “security-based swap entity” under the rule—or class thereof, may satisfy the corresponding requirements identified in paragraph (d) of rule 3a71-6 that would otherwise apply.
Paragraph (a)(1) of the final rule also has been modified from the proposal to remove language limiting substituted compliance to “foreign” entities. Substituted compliance for the business conduct standards at issue here will be available only to foreign security-based swap dealers and foreign major security-based swap participants, and the Commission expects to assess whether substituted compliance should be limited to foreign entities in connection with other section 15F requirements.
Paragraph (a)(2) of the final rule provides that the Commission will not make a substituted compliance determination unless it determines that the foreign requirements applicable to the SBS Entity (or class thereof), or to the activities of such entity (or class thereof), are comparable to the otherwise applicable requirements, after taking into account such factors as the Commission determines are appropriate, such as the scope and objectives of the relevant foreign regulatory requirements (taking into account applicable criteria set forth in paragraph (d)), as well as the effectiveness of the supervisory compliance program administered, and the enforcement authority exercised, by the foreign authority to support its oversight of the SBS Entity (or class thereof) or of the activities of the entity (or class thereof). This provision has been revised from the proposal in part to make the rule more flexible, by permitting substituted compliance to be predicated either on foreign regulation of the entity (or class), or, alternatively, on foreign regulation of the entity's (or class's) activities. In this way, the rule can account for situations in which a foreign regulatory regime does not specifically provide for the registration of a particular category of market participant, but nonetheless effectively regulates the activities of members of that category.
As proposed, paragraph (a)(2) made no mention of particular criteria associated with a substituted compliance determination. Paragraph (a)(2) of the final rule, however, specifies that in considering the scope and objectives of the relevant foreign requirements, the Commission intends to consider applicable criteria that are set forth in new paragraph (d).
Paragraph (a)(2) of the rule further provides that the Commission will not make a substituted compliance determination unless the Commission has entered into a supervisory and enforcement memorandum of understanding and/or other arrangement with the relevant foreign financial regulatory authority addressing supervisory and enforcement cooperation and other matters arising under the substituted compliance determination.
Commenters stated that any withdrawal or modification of a substituted compliance determination by the Commission should also be subject to a phase-in period.
Paragraph (b) of the final rule specifies that a registered SBS Entity may satisfy the Exchange Act requirements identified in paragraph (d) of the rule by complying with corresponding law, rules and regulations under a foreign financial regulatory system, provided that: (1) The Commission has made a determination providing that compliance with specified requirements under the foreign financial regulatory system by such registered security-based swap entity (or a class thereof) may satisfy the corresponding requirements, and (2) such entity satisfies any conditions set forth in the Commission's determination.
Paragraph (c) of the final rule addresses requests for substituted compliance determinations. As discussed below, those application provisions have been revised from the proposal in certain respects.
To implement the final rule's targeted approach toward substituted compliance, paragraph (d) of rule 3a71-6 states that substituted compliance will be available in connection with the business conduct and supervision requirements of sections 15F(h) and 15F(j) and rules 15Fh-3 through 15Fh-6, and the CCO requirements of section 15F(k) and rule 15Fk-1, subject to exceptions discussed below.
As discussed below, moreover, paragraph (d) specifies that prior to making these substituted compliance determinations, the Commission intends to consider whether the information required to be provided to counterparties pursuant to the requirements of the foreign jurisdiction, the counterparty protections of the foreign jurisdiction, the mandates for supervisory systems under the requirements of the foreign jurisdiction, the duties imposed by the foreign jurisdiction, and the CCO requirements of the foreign jurisdiction, are comparable to the Exchange Act requirements.
Finally, the Commission is not persuaded by commenter requests that we provide phase-in periods or other means to link the timing of the substantive requirements under the Exchange Act with the availability of substituted compliance.
Paragraph (d)(1) of the final rule provides that substituted compliance is not available in connection with Exchange Act section 15F(h)(4)(A), which in relevant part prohibits SBS Dealers from engaging in fraudulent activities in connection with special entities and more generally. The rule also provides that substituted compliance is not available in connection with Exchange Act rule 15Fh-4(a), which implements that statutory antifraud provision.
In the Commission's view, substituted compliance is not appropriate in connection with those explicit statutory prohibitions of fraudulent conduct, given the central role of the antifraud provisions of the securities laws in protecting the integrity and reputation of U.S. financial markets. The Commission also notes that concerns regarding regulatory duplication do not arise in the context of such antifraud prohibitions in the same way they may arise with respect to other provisions.
Paragraph (d)(1) further provides that substituted compliance is not available in connection with Exchange Act sections 15F(j)(3) and (j)(4)(B). Section 15F(j)(3) requires that SBS Entities disclose, to the Commission and the applicable prudential regulators, information concerning: The terms and conditions of the entity's security-based swaps; security-based swap trading operations, mechanisms and practices; financial integrity protections relating to security-based swaps; and other information relevant to the entity's trading in security-based swaps. Section 15F(j)(4)(B) provides that the SBS Entity upon request shall provide the Commission and any applicable prudential regulator with information necessary to perform statutory functions under Section 15F. In our view, the Commission's oversight of SBS Entities requires that the Commission be able to directly access relevant information from those entities. Accordingly, the Commission does not believe that those requirements that SBS Entities provide information to the Commission are reasonably amenable to being satisfied
It is possible that substituted compliance may be granted with regard to some of these requirements but not others. As discussed below, the Commission intends to assess the comparability of foreign requirements using a holistic approach that focuses on regulatory outcomes rather than predicating substituted compliance on requirement-by-requirement similarity.
The Commission further anticipates that certain categories of the requirements we are adopting today—related to ECP verification, special entities and political contributions—will raise special issues with regard to comparability, and with regard to whether adequate supervision and enforcement is available under the foreign regulatory regime. Such issues are likely to arise with regard to those particular requirements because each of those requirements address protections that may have no foreign law analogues, as those requirements reflect heightened concerns under U.S. law regarding potential abuses involving particular categories of persons. Indeed, those categories and the protections afforded to them under U.S. law may not correspond with any specified categories of persons or protections under relevant foreign law. As a result, substituted compliance assessments in connection with those categories will require inquiry regarding whether foreign regulatory requirements adequately reflect the same particular interests and protections.
Under the proposed rule, substituted compliance would have been available only to registered SBS Dealers, and would not have been available to registered Major SBS Participants. In taking that proposed position, the Commission noted a lack of information regarding the types of entities that may become Major SBS Participants, and the foreign regulation of those entities.
Two commenters disagreed with that aspect of the proposal, with one commenter expressing concern regarding major participants being forced to comply with duplicative or potentially conflicting regulatory regimes, and the other commenter suggesting there would be no reason to distinguish between SBS Dealers and Major SBS Participants in this regard.
After further consideration of the issues, the final rule provides that substituted compliance is potentially available in connection with these business conduct requirements for registered Major SBS Participants as well as for registered SBS Dealers. This decision reflects the fact that the business conduct standards apply to registered Major SBS Participants as well as to registered SBS Dealers, and recognizes that the market efficiency goals that underpin substituted compliance also can apply when substituted compliance is granted to registered Major SBS Participants.
To implement this approach, the final rule has been revised from the proposal to specify that the Commission may determine that compliance by a registered SBS Dealer and/or by a registered Major SBS Participants—each a “security-based swap entity” under the rule—may satisfy the business conduct requirements through substituted compliance.
One commenter had expressed the view that more information is needed before substituted compliance is made available to Major SBS Participants.
Under the final rule, substituted compliance in connection with the business conduct requirements is not available to entities that are U.S. persons.
Consistent with the proposal, the final rule does not make substituted compliance available to U.S. security-based swap dealers or U.S. major
Certain commenters had suggested that substituted compliance for these dealer requirements should be available to foreign branches of U.S. persons,
The Commission concludes on balance that it is appropriate to limit the availability of substituted compliance such that only entities that are not U.S. persons may take advantage of that alternative route for satisfying the Title VII business conduct requirements. In part, this conclusion accounts for the fact that concerns regarding duplication and inconsistency in connection with transaction-level business conduct requirements should be mitigated by the amendment we are adopting to Exchange Act rule 3a71-3, to provide an exception from the business conduct requirements under Exchange Act section 15F(h)—other than supervision requirements pursuant to Exchange Act section 15F(h)(1)(B)—for registered U.S. SBS Dealers in connection with foreign business conducted through their foreign branches.
The Commission recognizes that the above exception would not mitigate the possibility that U.S. entities may face duplication or inconsistency in certain circumstances. For example, for non-U.S. business that U.S. SBS Dealers and U.S. Major SBS Participants conduct through their foreign branches, such duplication or inconsistency may still arise in connection with the entity-level supervision and CCO regulations being adopted today. For the other security-based swap business of those U.S. SBS Entities, such duplication or inconsistency potentially may arise in connection with any of the business conduct requirements being adopted today.
The Commission nonetheless believes that substituted compliance should not be available to registered entities that are U.S. persons. This conclusion reflects a number of policy considerations. Fundamentally, this approach acknowledges that dealers and major participants that fall within the “U.S. person” definition have a heightened connection to the U.S. market.
Moreover, the definition of “U.S. person” does not carve out the foreign branches of U.S. persons. In part this reflects the fact that “a person does not hold itself out as a security-based swap dealer as anything other than a single person even when it enters into transactions through its foreign branch or office.”
Based on the direct nature of this link between the U.S. market and those persons that fall within the “U.S. person” definition, Title VII applies to the security-based swap activities of U.S. persons in a manner that is more comprehensive than its application to the activities of other persons.
This conclusion also reflects our view that U.S. market participants generally would have a reasonable expectation that the business conduct requirements of Title VII would apply directly, and that the activities of such U.S. persons would be subject to Commission oversight with a degree of directness that may not be present in connection with substituted compliance.
Consistent with the proposal, the final rule does not contain any provisions that would limit the ability of foreign registered entities to use substituted compliance to satisfy the business conduct requirements in connection with transactions involving U.S. counterparties or U.S. activity.
One commenter had expressed the view that substituted compliance should not be available in connection with activities involving U.S. persons or U.S. activity, arguing that the security-based swap activity of U.S. persons directly and immediately impacts the U.S., and would endanger U.S. taxpayers if improperly regulated.
Also, following alternative approaches—such as an approach whereby substituted compliance would not be available to a foreign SBS Entity in connection with transactions involving U.S. counterparties or U.S.
As discussed in the Cross-Border Proposing Release, the Commission will endeavor to take a holistic approach in considering whether regulatory requirements are comparable for purposes of substituted compliance, and will focus on the comparability of regulatory outcomes rather than predicating substituted compliance on requirement-by-requirement similarity. The Commission also continues to recognize that foreign regulatory systems differ in their approaches to achieving particular regulatory outcomes, and that foreign requirements that differ from those adopted by the Commission nonetheless may achieve regulatory outcomes comparable with those of Title VII. The Commission further continues to recognize that different regulatory systems may be able to achieve some or all of those regulatory outcomes by using more or fewer specific requirements than the Commission, and that in assessing comparability the Commission may need to take into account the manner in which other regulatory systems are informed by business and market practices in those jurisdictions.
Accordingly, in considering whether the requirements of a foreign regulatory regime are comparable with the various categories of requirements being adopted today (such as the supervision and counterparty protection requirements we are adopting) the Commission will evaluate whether the foreign requirements provide for regulatory outcomes that are consistent with the regulatory outcomes of the applicable category of requirements. Moreover, as noted above, in application the Commission may determine that for a particular jurisdiction, the prerequisites for substituted compliance have been met in connection with certain categories of requirements but not others.
In reaching this conclusion, the Commission notes that certain commenters opposed the proposed holistic approach toward assessing comparability based on regulatory outcomes, and that instead expressed the views that any assessments should be done on a requirement-by-requirement basis. Those views at least in part reflected the reasoning that an outcomes-based approach would be subjective and would lead to a “hypothesized similarity in outcomes for sets of rules that are quite different in substance.”
As noted above, the Commission foresees that there will be difficult questions connected with comparability assessments for Dodd-Frank requirements related to ECP verification, special entities and political contributions, given that those particular requirements all address activities involving certain classes of U.S. persons, and reflect heightened concerns regarding potential abuses involving such persons.
Moreover, paragraph (d) of the final rule (which as discussed above has been added to the rule to specify the requirements for which substituted compliance potentially is available), provides that prior to making these substituted compliance determinations, the Commission intends to consider whether the information required to be provided to counterparties pursuant to the requirements of the foreign jurisdiction, the counterparty protections of the foreign jurisdiction, the mandates for supervisory systems under the requirements of the foreign jurisdiction, the duties imposed by the foreign jurisdiction, and the CCO requirements of the foreign jurisdiction, are comparable to the Exchange Act requirements.
One commenter questioned how the Commission would be notified of material changes to foreign law that underpins a substituted compliance determination.
Commenters also expressed the views that regulatory comparisons should focus on common principles associated with shared G-20 Leaders goals,
Finally, one commenter argued that to help manage operational complexities, the entirety of a regulatory regime should be deemed comparable with the Exchange Act requirements if a significant portion of that regime is found to be comparable.
Assessment of a foreign regulatory regime's supervisory and enforcement practices is expected to be a critical component of any Commission decision to permit substituted compliance. As discussed in the Cross-Border Proposing Release, when the Commission assesses a foreign regulatory regime's oversight for purposes of making a substituted compliance determination, the Commission expects to consider not only overall oversight activities, but also oversight specifically directed at conduct and activity that would be relevant to the substituted compliance determination.
In making this consideration a prerequisite for substituted compliance, the Commission in no way should be interpreted as minimizing the significance of the Commission's own independent obligation to supervise the compliance of registered entities with Title VII requirements, even when requirements may be satisfied via substituted compliance. Registered entities are subject to the requirements of Title VII, and the Commission retains its full authority to inspect, examine and supervise those entities' compliance with Title VII, and take enforcement action as appropriate, regardless of the availability of substituted compliance.
One comment emphasized that the assessment must address a foreign regulatory regime's supervisory and enforcement capabilities in practice, not merely on paper.
Applying those principles here, the Commission notes that the difficult questions noted above with respect to requirements regarding ECP verification, special entities and political contributions also can be expected to manifest themselves in connection with our consideration of a foreign regulatory regime's supervisory and enforcement practices. That is, as the Commission evaluates the foreign regulatory regime's supervisory and enforcement practices in connection with substituted compliance, the Commission necessarily will seek to evaluate whether those supervisory and enforcement practices will adequately support regulatory outcomes consistent with those particular requirements (as well as the other business conduct requirements).
More generally, the scope of any grant of substituted compliance may be linked to the scope of foreign regulatory regime's supervision and enforcement practices. For example, if a foreign regulatory regime closely oversees the security-based swap business that an SBS Entity conducts through an office located in that non-U.S. jurisdiction, but does not exercise the same degree of regulatory oversight over a branch of that entity that is located in the U.S., it is possible that any grant of substituted compliance would not extend to activities conducted through the entity's U.S. branch.
Commenters further have raised certain issues—that were not addressed in the Cross-Border Proposing Release—regarding how the substituted compliance rule would apply to certain special circumstances involving multi-jurisdictional activities of foreign security-based swap dealers. While recognizing the facts-and-circumstances nature of the application of substituted compliance under the final rule, the Commission anticipates that the final rule would apply generally to such circumstances in the following manner:
One commenter particularly raised questions regarding the application of substituted compliance in connection with third-country branches of foreign security-based swap dealers, and requested further guidance regarding how substituted compliance would apply to circumstances where an entity
Commenters also raised issues regarding the assessment of substituted compliance in the context of the European Union, stating that certain rules are adopted at a European level and are applied directly by individual member states.
Another commenter raised issues regarding which sets of requirements would apply to transactions between parties in different markets, and whether the parties to cross-jurisdiction transactions may choose which rules apply.
Paragraph (c)(1) of the final rule provides that a party or group of parties that potentially would rely on substituted compliance, or any foreign financial regulatory authority or authorities supervising such a party or its security-based swap activities, may file an application, pursuant to the procedures set forth in Exchange Act Rule 0-13 requesting that the Commission make a substituted compliance determination.
In addition, paragraph (c)(1) has been revised from the proposal to provide that applications may be made by parties or groups of parties that potentially would rely on substituted compliance, in lieu of the proposed reference to applications by foreign security-based swap dealers or groups of dealers “of the same class.” This change in part accommodates the possibility that market participants may seek approval to rely on substituted compliance prior to their being deemed to be “security-based swap dealers” or “major security-based swap participants” under the applicable definitions. The final rule also does not limit joint applications to those that come from persons “of the same class,” to facilitate the Commission's ability to consider applications jointly submitted by multiple entities notwithstanding differences in their businesses.
In connection with applications submitted by such parties, Rule 3a71-6(c)(2)(i) states that such a party (or group of parties) may make a substituted compliance request only if the party or the party's activities are “directly supervised by the foreign financial regulatory authority or authorities with respect to the foreign regulatory requirements relating to the applicable requirements.”
The final rule further provides that to make a request for substituted
As noted, although commenters to the Cross-Border Proposing Release had questioned such direct access on deference-related grounds, the Commission subsequently adopted a final rule requiring those certifications and opinions of counsel as prerequisites to registration by nonresident entities.
The final rule also has been revised from the proposal to implement an analogous requirement in connection with substituted compliance applications by foreign financial regulatory authorities.
In general, those prerequisites to the submission of substituted compliance applications by entities or by foreign financial authorities should promote efficiency in the substituted compliance assessment process. The prerequisites particularly will help focus such assessments upon those jurisdictions that would not effectively prohibit entities from registering as dealers or major participants as a result of blocking statutes or other laws or policies that otherwise would impede the Commission's ability to exercise its supervisory authority and responsibilities over registered entities. In other words, if a jurisdiction has blocking statutes or other laws or policies that would preclude the registration of such dealers and major participants with the Commission, there would be no purpose to the Commission considering a substituted compliance application in connection with that jurisdiction.
Exchange Act rule 0-13, which addresses the submission of substituted compliance applications, states that the Commission will not consider hypothetical requests for substituted compliance orders.
These final rules will be effective 60 days following publication in the
The Commission believes it appropriate not to apply these rules until entities are required to register as SBS Dealers or Major SBS Participants. Therefore, with the exception of the application of customer protection requirements described in final Rule 3a71-3(c) to transactions described under final Rule 3a71-3(a)(8)(i)(B), the Commission is adopting a compliance date for final Rules 15Fh-1 through 15Fh-6
In the Registration Adopting Release, the Commission provided that the Registration Compliance Date will be the later of: Six months after the date of publication in the
The Commission has previously noted the potential complexities associated with identifying transactions of a dealer that it arranges, negotiates, or executes by personnel located in the United States under Rule 3a71-3(b)(1)(iii)(C),
The Commission believes that these timing requirements should provide firms with adequate time to review the business conduct rules being adopted today and make appropriate business decisions before being required to comply with the requirements of the rules.
For the substituted compliance provisions of Rule 3a71-6, the Commission similarly is adopting an effective date of 60 days following publication in the
In practice, the Commission recognizes that if the requirements of a foreign regime are comparable to Title VII requirements, and the other prerequisites to substituted compliance also have been satisfied, then it may be appropriate to permit a security-based swap dealer or major security-based swap participant to rely on substituted compliance commencing at the time that entity is registered with the Commission. Accordingly, the Commission would consider substituted compliance requests that are submitted prior to the compliance date for the entity registration requirements.
Certain provisions of the Rules impose new “collection of information” requirements within the meaning of the Paperwork Reduction Act of 1995 (“PRA”).
Compliance with collection of information requirements is mandatory. 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 assigned control number 3235-0732 to the new collections of information.
In the Proposing Release, the Commission requested comment on the collection of information requirements contained therein, as well as the accuracy of the Commission's related estimates and statements regarding the associated costs and burdens of the proposed rules. As noted above, the Commission received 43 comment letters addressing the Proposing Release, as well as those portions of the Cross-Border Proposing Release that referenced the proposed rules governing business conduct standards for security-based swap dealers. Although none of the comment letters specifically addressed the Commission's estimates for the proposed collection of information requirements, the views of commenters relevant to the Commission's analysis of burdens, costs, and benefits of the proposed rules are discussed in Section IV.C, below.
The Commission continues to believe that the methodology used for calculating the burdens set forth in the Proposing Release is appropriate. However, where noted, certain estimates have been modified, as necessary, to conform to the adopted rules and to reflect the most recent data available to the Commission. Other than these changes, the Commission's estimates remain unchanged from those in the Proposing Release.
As a part of this release, the Commission also is adopting Rule 3a67-10(d) and Rule 3a71-3(c), which among other things, provide an exception to certain of the business conduct standards described in section 15F(h) of the Act, and the rules and regulations thereunder, to registered Major SBS Participants and registered SBS Dealers in certain transactions conducted through the foreign branch of their U.S.-person counterparty. As part of the process of availing themselves of this exception, registered Major SBS Participants (in the case of Rule 3a67-10(d)) and registered SBS Dealers (in the case of Rule 3a71-3(c)) would be permitted to rely on certain representations provided to them by their counterparties regarding whether a transaction is conducted through a foreign branch. The requirements regarding those representations are contained in Rule 3a71-3(a)(3)(ii). The Commission previously published a notice requesting comment on the collection of information requirements in Rule 3a71-3 as part of the Cross-Border Proposing Release, and submitted those proposed collection of information requirements to OMB for review in accordance with 44 U.S.C. 3507 and 5 CFR 1320.11. The title of the collection of information related to the representation in Rule 3a71-3 is “Reliance on Counterparty Representations Regarding Activity Within the United States.” OMB has not yet assigned a control number to this collection.
The Commission also is adopting Rule 3a71-6 to provide for substituted compliance in connection with the business conduct requirements. As proposed, the title of the information collection associated with that rule was “Rule 3a71-5 Substituted Compliance for Foreign Security-Based Swap Dealers.”
Rule 15Fh-2(d) defines a “special entity” as: (1) A Federal agency; (2) a State, State agency, city, county, municipality, other political subdivision of a State, or any instrumentality, department, or a corporation of or established by a State or political subdivision of a State; (3) any employee benefit plan subject to Title I of ERISA; (4) any employee benefit plan defined in Section 3 of ERISA, not otherwise defined as a special entity, unless such employee benefit plan elects not to be a special entity by notifying an SBS dealer or Major SBS Participant of its election prior to entering into a security-based swap; (5) any governmental plan, as defined in Section 3(32) of ERISA; or (6) any endowment, including organizations described in Section 501(c)(3) of the Internal Revenue Code.
The proposed rule included employee benefit plans “defined in” ERISA within the special entity definition. The final rule similarly includes employee benefit plans “defined in” ERISA that are not otherwise “subject to” ERISA within the special entity definition, although it provides such benefit plans with the ability to opt out of special entity status.
Rule 15Fh-3(a)(1) requires an SBS Entity to verify that a counterparty meets the eligibility standards for ECP status before entering into a security-based swap with that counterparty other than with respect to a transaction executed on a registered national securities exchange.
Rule 15Fh-3(a)(2) requires an SBS Entity to verify whether a counterparty is a special entity before entering into a security-based swap transaction with that counterparty, unless the transaction is executed on a registered or exempt SEF or registered national securities exchange, and the SBS Entity does not know the identity of the counterparty at a reasonably sufficient time prior to the transaction to permit the SBS Entity to comply with the obligations of the rule.
Rule 15Fh-3(a)(3) requires an SBS Entity, in verifying the special entity status of a counterparty pursuant to Rule 15Fh-3(a)(2), to verify whether a counterparty is eligible to elect not to be a special entity as provided for in the adopted special entity definition in Rule 15Fh-2(d)(4), and if so, to notify such counterparty of its right to make such an election. An SBS Entity may satisfy these verification requirements through any reasonable means including, among other things, by obtaining written representations from the counterparty as to specific facts about the counterparty.
Rule 15Fh-3(b) generally requires an SBS Entity at a reasonably sufficient time prior to entering into a security-based swap to disclose to a counterparty (other than an SBS Entity or Swap Entity) material information concerning the security-based swap in a manner reasonably designed to allow the counterparty to assess: (1) The material risks and characteristics of a particular security-based swap; and (2) any material incentives or conflicts of interest that the SBS Entity may have in connection with the security-based swap. These disclosure requirements do not apply unless the identity of the counterparty is known to the SBS Entity at a reasonably sufficient time prior to execution of the transaction to permit the SBS Entity to comply with the obligations of the rule. The rule also requires the SBS Entity to make a written record of any non-written disclosures made pursuant to this provision, and timely provide a written version of these disclosures to counterparties no later than the delivery of the trade acknowledgement of the particular transaction.
Rule 15Fh-3(c)(1), for cleared security-based swaps, requires an SBS Entity to, upon request of the counterparty, disclose the daily mark to the counterparty (other than an SBS Entity or Swap Entity). The daily mark that the SBS Entity receives from the appropriate clearing agency. Rule 15Fh-3(c)(2), for uncleared security-based swaps, requires an SBS Entity to disclose the daily mark to the counterparty, which is the midpoint between the bid and offer, or the calculated equivalent thereof, as of the close of business, unless the parties agree in writing to a different time, on each business day during the term of the security-based swap. Rule 15Fh-3(c)(2) also requires disclosure of the data sources and a description of the methodology and assumptions used to prepare the daily mark for an uncleared security-based swap, as well as disclosure of any material changes to such data sources, methodology or assumptions during the term of the security-based swap. Rule 15Fh-3(c)(1) and (2) also require an SBS Entity to provide the daily mark without charge to the counterparty and without restrictions on the internal use of the daily mark by the counterparty.
Rule 15Fh-3(d) requires an SBS Entity to disclose information regarding clearing rights to its counterparties (other than an SBS Entity or Swap Entity), so long as the identity of the counterparty is known to the SBS Entity at a reasonably sufficient time prior to execution of the transaction to permit the SBS Entity to comply with the obligations of the rule. Pursuant to the rule, before entering into a security-based swap that is subject to the clearing requirements of Section 3C(a) of the Exchange Act, the SBS Entity shall disclose to the counterparty the names of the clearing agencies that accept the security-based swap for clearing, and through which of those clearing agencies the SBS Entity is authorized or permitted, directly or through a designated clearing member, to clear the security-based swap; disclose to the counterparty whether any of the named clearing agencies satisfy the standard for clearing under Section 3C(a)(1) of the Exchange Act; and notify the counterparty that it shall have the sole right to select which clearing agency shall be used to clear the security-based swap. For security-based swaps, not subject to the clearing requirements of Section 3C(a) of the Exchange Act, before entering into a security-based swap, the SBS Entity shall determine whether the security-based swap is accepted for clearing by one or more clearing agencies; disclose to the counterparty the names of the clearing agencies that accept the security-based swap for clearing, and whether the SBS Entity is authorized or permitted, directly or through a designated clearing member, to clear the security-based swap through such clearing agencies; and notify the counterparty that it may elect to require clearing of the security-based swap and shall have the sole right to select the clearing agency at which the security-based swap will be cleared, provided it is a clearing agency at which the SBS Entity is authorized or permitted, directly or through a designated clearing member, to clear the security-based swap. To the extent that the disclosures required by Rule 15Fh-3(d) are not provided in writing prior to the execution of the transaction, the SBS Entity is required to make a written record of the non-written disclosures and provide the counterparty with a written version of these disclosure no later than the delivery of the trade acknowledgement for the transaction.
Rule 15Fh-3(e) requires an SBS Dealer to establish, maintain and enforce written policies and procedures reasonably designed to obtain and retain a record of the essential facts concerning each counterparty whose identity is known to the SBS Dealer that are necessary for conducting business with such counterparty. The essential facts are: (1) Facts required to comply with applicable laws, regulations and rules; (2) facts required to implement the SBS Dealer's credit and operational risk management policies in connection with transactions entered into with such counterparty; and (3) information regarding the authority of any person acting for such counterparty.
Rule 15Fh-3(f)(1) requires an SBS Dealer recommending a security-based swap or trading strategy involving a security-based swap to a counterparty (other than an SBS Entity or a Swap Entity) to: (i) Undertake reasonable diligence to understand the potential risks and rewards associated with the recommendation; and (ii) have a reasonable basis to believe that the recommendation is suitable for the counterparty. To establish a reasonable basis for a recommendation, an SBS Dealer must have or obtain relevant information regarding the counterparty, including the counterparty's investment profile, trading objectives, and its ability to absorb potential losses associated with the recommended security-based swap or trading strategy involving a security-based swap.
Under Rule 15Fh-3(f)(2), an SBS Dealer may also fulfill its suitability obligations under Rule 15Fh-3(f)(1)(ii) with respect to an institutional counterparty (defined as a counterparty that is an eligible contract participant as defined in clauses (A)(i), (ii), (iii), (iv), (viii), (ix) or (x), or clause (B)(ii) (other than a person described in clause (A)(v)) of Section 1a(18) of the Commodity Exchange Act and the rules and regulations thereunder, or any person (whether a natural person, corporation, partnership, trust or otherwise) with total assets of at least $50 million) if: (i) The SBS Dealer reasonably determines that the counterparty (or its agent) is capable of independently evaluating the investment risks with regard to the relevant security-based swap or trading strategy involving a security-based swap; (ii) the counterparty (or its agent) affirmatively represents in writing that it is exercising its independent judgment in evaluating the recommendations of the SBS Dealer with regard to the relevant security-based swap or trading strategy; and (iii) the SBS Dealer discloses to the counterparty that it is acting in its capacity as a counterparty and is not undertaking to assess the suitability of the security-based swap or trading strategy for the counterparty. Under Rule 15Fh-3(f)(3), an SBS Dealer will be deemed to have satisfied the requirements of Rule 15Fh-3(f)(2)(i) if it receives written representations, as provided in Rule 15Fh-1(b), that: (i) In the case of a counterparty that is not a special entity, the counterparty has complied in good faith with written policies and procedures that are reasonably designed to ensure that the persons responsible for evaluating the recommendation and making trading decisions on behalf of the counterparty are capable of doing so; and (ii) in the case of a counterparty that is a special entity, satisfy the terms of the safe harbor in Rule 15Fh-5(b).
Rule 15Fh-3(g) requires an SBS Entity to communicate with its counterparties in a fair and balanced manner based on principles of fair dealing and good faith. The rule requires that: (1) Communications provide a sound basis for evaluating the facts with regard to a particular security-based swap or trading strategy involving a security-based swap; (2) communications not imply that past performance will recur or make any exaggerated or unwarranted claim, opinion, or forecast; and (3) any statement referring to potential opportunities or advantages presented by a particular security-based swap be balanced by an equally detailed statement of the corresponding risks.
Rule 15Fh-3(h) requires an SBS Entity to establish and maintain a system to supervise, and to diligently supervise, its business and the activities of its associated persons. Such a system shall be reasonably designed to prevent violations of the provisions of applicable federal securities laws and the rules and regulations thereunder relating to its business as an SBS Entity. At a minimum, the supervisory system must: (i) Designate at least one person with authority to carry out supervisory responsibilities for each type of business in which the SBS Entity engages for which registration as an SBS Entity is required; (ii) use reasonable efforts to determine all such supervisors are qualified, either by virtue of experience or training, to carry out their assigned responsibilities; and (iii) establish, maintain and enforce written policies and procedures addressing the supervision of the types of security-based swap business in which the SBS Entity is engaged and the activities of it associated persons that are reasonably designed to prevent violations of applicable securities laws and rules and regulations thereunder.
Such written policies and procedures must include, at a minimum, procedures: (a) For the review by a supervisor of transactions for which registration as an SBS Entity is required; (b) for the review by a supervisor of incoming and outgoing written (including electronic) correspondence with counterparties or potential counterparties and internal written communications relating to the SBS Entity's security-based swap business; (c) for a periodic review, at least annually, of the security-based swap business in which the SBS Entity engages that is reasonably designed to assist in detecting and preventing violations of applicable federal securities laws and regulations; (d) to conduct a reasonable investigation regarding the good character, business repute, qualifications, and experience of any person prior to that person's association with the SBS Entity; (e) to consider whether to permit an associated person to establish or maintain a securities or commodities account or a trading relationship in the name of, or for the benefit of, such associated person at another financial institution, and if permitted, to supervise the trading at such institution; (f) describing the supervisory system, including the titles, qualifications and locations of supervisory persons and the responsibilities of each supervisory person with respect to the types of business in which the SBS Entity is engaged; (g) prohibiting an associated person who performs a supervisory function from supervising his or her own activities or reporting to, or having his or her compensation or continued employment determined by, a person or persons he or she is supervising; provided that if the SBS Entity determines, with respect to any of its supervisory personnel, that compliance with this requirement is not possible because of the firm's size or a supervisory person's position within the firm, then the SBS Entity must document the factors used to reach such determination and how the supervisory arrangement otherwise complies with this rule, and include a summary of such determination in the annual compliance report prepared by the SBS Entity's CCO pursuant to Rule 15Fk-1(c); (h) reasonably designed to prevent the supervisory system from being
Rule 15Fh-3(h)(3) provides that an SBS Entity (or associated person of an SBS Entity) will not be deemed to have failed to diligently supervise another person if that person is not subject to his or her supervision, or if: (i) The SBS Entity has established and maintained written policies and procedures (as required in Rule15Fh-3(h)(2)(iii)), and a documented system for applying those policies and procedures that would reasonably be expected to prevent and detect, insofar as practicable, any violation of the federal securities laws and the rules and regulations thereunder relating to security-based swaps; and (ii) the SBS Entity or associated person has reasonably discharged the duties and obligations required by such written policies and procedures and documented system and did not have a reasonable basis to believe that such written policies and procedures and documented system were not being followed.
Rule 15Fh-3(h)(4) provides that an SBS Entity must also promptly amend its written supervisory procedures as appropriate when material changes occur in applicable securities laws, rules, or regulations thereunder, as well as when material changes occur in its business or supervisory system, and promptly communicate any material amendments to its supervisory procedures to all associated persons to whom such amendments are relevant based on their activities and responsibilities.
Rule 15Fh-4(b)(1) imposes the duty on an SBS Dealer that acts as an advisor to a special entity regarding a security-based swap to make a reasonable determination that any security-based swap or trading strategy involving a security-based swap recommended by the SBS Dealer is in the best interests of the special entity. Paragraph (b)(2) also requires an SBS Dealer acting as an advisor to a special entity to make reasonable efforts to obtain such information as it considers necessary to make a reasonable determination that a security-based swap or related trading strategy is in the best interests of the special entity. The information that must be obtained to make this reasonable determination includes, but is not limited to: (i) The authority of the special entity to enter into a security-based swap; (ii) the financial status and future funding needs of the special entity; (iii) the tax status of the special entity; (iv) the hedging, investment, financing or other objectives of the special entity; (v) the experience of the special entity with respect to security-based swaps, generally, and security-based swaps of the type and complexity being recommended; (vi) whether the special entity has the financial capability to withstand changes in market conditions during the term of the security-based swap; and (vii) such other information as is relevant to the particular facts and circumstances of the special entity, market conditions and the type of security-based swap or trading strategy being recommended. However, the requirements of Rule 15Fh-4(b) do not apply to a security-based swap if: (i) The transaction is executed on a registered or exempt SEF or a registered national securities exchange; and (ii) the SBS Dealer does not know the identity of the counterparty at a reasonably sufficient time prior to execution of the transaction to permit the SBS Dealer to comply with the obligations of this rule.
Rule 15Fh-2(a) generally provides that an SBS Dealer acts as an advisor to a special entity when it recommends a security-based swap or security-based swap trading strategy to that special entity. Rule 15Fh-2(a)(1) provides a safe harbor under which an SBS Dealer will not be deemed to act as an advisor to a special entity that is subject to Title I of ERISA if: (i) The special entity represents in writing that it has a fiduciary as defined in Section 3 of ERISA that is responsible for representing the special entity in connection with the security-based swap; (ii) the fiduciary represents in writing that it acknowledges that the SBS Dealer is not acting as an advisor; and (iii) the special entity represents in writing that (a) it will comply in good faith with written policies and procedures reasonably designed to ensure that any recommendation the special entity receives from the SBS Dealer involving a security-based swap transaction is evaluated by a fiduciary before it is entered into; or (b) that any recommendation the special entity receives from the SBS Dealer involving a security-based swap transaction will be evaluated by a fiduciary before the transaction is entered into.
Rule 15Fh-2(a)(2) provides a safe harbor for transactions between an SBS Dealer and any special entity. Under this rule, an SBS Dealer that recommends a security-based swap or security-based swap trading strategy to any special entity (other than a special entity subject to Title I of ERISA) will not be deemed to act as an advisor to that special entity if the special entity represents in writing that it acknowledges that the SBS Dealer is not acting as an advisor, and that it will rely on advice from a qualified independent representative, as defined in Rule 15Fh-5(a). The SBS Dealer must also disclose to the special entity that it is not undertaking to act in the best interests of the special entity, as otherwise required by Section 15F(h)(4) of the Exchange Act.
Rule 15Fh-5(a)(1) requires an SBS Entity that offers to enter into or enters into a security-based swap with a special entity (other than a special entity that is an employee benefit plan subject to Title I of ERISA), to have a reasonable basis to believe that the special entity has a qualified independent representative that meets certain specified qualifications. For purposes of Rule 15Fh-5(a)(1), a qualified independent representative must: (i) Have sufficient knowledge to evaluate the transaction and related risks; (ii) not be subject to a statutory disqualification; (iii) undertake a duty to act in the best interests of the special entity; (iv) make appropriate and timely disclosures to the special entity of material information concerning the security-based swap; (iv) evaluate, consistent with any guidelines provided by the special entity, the fair pricing and appropriateness of the security-based swap; (v) in the case of a special entity defined in Rule 15Fh-2(d)(2) or (5), be subject to the pay-to-play prohibitions of the Commission, the CFTC, or a self-regulatory organization that is subject to the jurisdiction of the Commission or the CFTC (unless the independent representative is an employee of the special entity); and (vii) be independent of the SBS Entity that is the counterparty to a proposed security-based swap.
Rule 15Fh-5(a)(1) also provides that a representative of a special entity will be “independent” of an SBS Entity if the
Rule 15Fh-5(a)(2) provides that an SBS Entity that offers to enter into or enters into a security-based swap with a special entity as defined in Rule 15Fh-2(d)(3) (any employee benefit plan that subject to Title I of ERISA) must have a reasonable basis to believe the special entity has a representative that is a fiduciary as defined in Section 3 of ERISA.
Rule 15Fh-5(b) provides safe harbors for SBS Dealers seeking to form a reasonable basis regarding the qualifications of the independent representative. Under Rule 15Fh-5(b)(1), an SBS Entity shall be deemed to have a reasonable basis to believe that a special entity (other than an ERISA special entity) has a representative that satisfies the requirements of Rule 15Fh-5(a)(1) if: (i) The special entity represents in writing to the SBS Entity that it has complied in good faith with written policies and procedures reasonably designed to ensure that it has selected a representative that satisfies the requirements of Rule 15Fh-5(a)(1), and that such policies and procedures provide for ongoing monitoring of the performance of such representative consistent with Rule 15Fh-5(a)(1); and (ii) the representative represents in writing to the special entity and the SBS Entity that the representative: (a) Has policies and procedures reasonably designed to ensure that it satisfies the applicable requirements of Rule 15Fh-5(a)(1); (b) meets the independence requirements of Rule 15Fh-5(a)(1)(vii); and (c) is legally obligated to comply with the requirements of Rule 15Fh-5(a)(1) by agreement, condition of employment, law, rule, regulation, or other enforceable duty.
Under Rule 15Fh-5(b)(2), an SBS Entity shall be deemed to have a reasonable basis to believe that an ERISA special entity has a representative that satisfies the requirements of Rule 15Fh-5(a)(2), provided that the special entity provides in writing to the SBS Entity the representative's name and contact information, and represents in writing that the representative is a fiduciary as defined in Section 3 of ERISA.
Under Rule 15Fh-5(c), before initiation of a security-based swap, an SBS Dealer must disclose to the special entity in writing the capacity in which the SBS Dealer is acting in connection with the security-based swap, and, if the SBS Dealer engages in business with the counterparty in more than one capacity, the SBS Dealer must disclose the material differences between such capacities and any other financial transaction or service involving the counterparty to the special entity.
Under Rule 15Fh-5(d), formerly Rule 15Fh-5(c), the provisions of Rule 15Fh-5 do not apply when two conditions are satisfied: (1) The transaction is executed on an registered or exempt SEF or registered national securities exchange; and (2) the SBS Entity is unaware of the counterparty's identity, at a reasonably sufficient time prior to the execution of the transaction to permit the SBS Entity to comply with the obligations of the rule.
Rule 15Fh-6(b) prohibits an SBS Dealer from offering to enter into, or entering into a security-based swap, or a trading strategy involving a security-based swap, with a municipal entity within two years after any contribution by the SBS Dealer or its covered associates to an official of such municipal entity, subject to certain exceptions. These prohibitions do not apply to certain contributions made by an SBS Dealer's covered associate if the SBS Dealer discovered the contribution within 120 calendar days of the date of such contribution, the contribution did not exceed $350, and the covered associate obtained a return of the contribution within 60 calendar days of the date of discovery of the contribution by the SBS Dealer. However, a SBS dealer may not rely on that provision more than three times in any 12-month period if it has more than 50 covered associated, and no more than twice if it has 50 or fewer covered associates. The Commission may also, upon application, exempt a security-based swap dealer from the prohibitions of the rule after consideration of several factors.
The provisions of Rule 15Fh-6 do not apply when two conditions are satisfied: (1) The transaction is executed on an registered or exempt SEF or registered national securities exchange; and (2) the SBS Dealer is unaware of the counterparty's identity, at a reasonably sufficient time prior to the execution of the transaction to permit the SBS Dealer to comply with the obligations of the rule.
Rule 15Fk-1 requires an SBS Entity to designate an individual to serve as CCO on its registration form. Under Rule 15Fk-1(b)(1) the CCO must report directly to the board of directors or senior officer of the SBS Entity. Under Rule 15Fk-1(b)(2), the CCO must take reasonable steps to ensure that the SBS Entity establishes, maintains, and reviews written policies and procedures reasonably designed to achieve compliance with the Exchange Act and the rules and regulations thereunder relating to its business as an SBS Entity by: (1) Reviewing the SBS Entity's compliance with the SBS Entity requirements described in Section 15F of the Exchange Act and the rules and regulations thereunder (where such review shall involve preparing the SBS Entity's annual assessment of its written policies and procedures reasonably designed to achieve compliance with Section 15F of the Exchange Act and the rules and regulations thereunder); (2) taking reasonable steps to ensure the SBS Entity establishes, maintains, and reviews policies and procedures reasonably designed to remediate non-compliance issues identified by the CCO through any means, including any compliance office review, look-back, internal or external audit finding, self-reporting to the Commission and other appropriate authorities, or complaint that can be validated; and (3) taking reasonable steps to ensure that the SBS Entity establishes and follows procedures reasonably designed for the handling, management response, remediation, retesting, and resolution of non-compliance issues. Under Rule 15Fk-1(b)(3), the CCO must take reasonable steps to resolve any material conflicts of interest that may arise, in consultation with the board or the senior officer of the SBS Entity. Under Rule 15Fk-1(b)(4), the CCO must
Under Rule 15Fk-1(c), the CCO must also prepare and sign an annual compliance report that must be submitted to the Commission within 30 days following the deadline for filing the SBS Entity's annual financial report with the Commission pursuant to Section 15F of the Exchange Act and the rules and regulations thereunder. This annual compliance report must contain a description of the written policies and procedures of the SBS Entity described in Rule 15Fk-1(b), outlined above, including the code of ethics and conflict of interest policies. The compliance report must also include, at a minimum, a description of: (1) The SBS Entity's assessment of the effectiveness of its policies and procedures relating to its business as an SBS Entity; (2) any material changes to the policies and procedures since the date of the preceding compliance report; (3) any areas for improvement and recommended potential or prospective changes or improvements to its compliance program and resources devoted to compliance; (4) any material non-compliance matters identified; and (5) the financial, managerial, operational, and staffing resources set aside for compliance with the Exchange Act and the rules and regulations thereunder relating to its business as an SBS Entity, including any material deficiencies in such resources. The report must be submitted to the board of directors and audit committee (or equivalent bodies) and the senior officer of the SBS Entity prior to submission to the Commission. The report also must be discussed in one or more meetings (addressing the obligations of this rule) that were conducted by the senior officer with the CCO in the preceding 12 months, and must include a certification by the CCO or senior officer that, to the best of his or her knowledge and reasonable belief and under penalty of law, the information contained in the compliance report is accurate and complete in all material respects.
The final rule allows an SBS Entity to incorporate by reference sections of a compliance report that has been submitted with the current or immediately preceding reporting period to the Commission, and allows an SBS Entity to request from the Commission an extension of time to submit its compliance report, provided that the SBS Entity's failure to timely submit the report could not be eliminated by the SBS Entity without unreasonable effort or expense. Extensions of the deadline will be granted at the discretion of the Commission. The final rule also requires an SBS Entity to promptly submit an amended compliance report if material errors or omissions in the report are identified.
Under Rule 15k-1(d), the compensation and removal of the CCO shall require the approval of a majority of the board of directors of the SBS Entity.
Rule 3a67-10(d), as adopted, provides that registered major security-based swap participants shall not be subject to business conduct standards described in section 15F(h) of the Act (15 U.S.C. 78o-10(h)), and the rules and regulations thereunder, other than rules and regulations prescribed by the Commission pursuant to section 15F(h)(1)(B) of the Act, in certain transactions conducted through the foreign branch of their U.S.-person counterparty. Rule 3a71-3(c), as adopted, provides a similar exception for registered security-based swap dealers. The previously adopted definition of “transaction conducted through a foreign branch” permits a person to rely on its U.S. bank counterparty's representation that the transaction “was arranged, negotiated, and executed on behalf of the foreign branch solely by persons located outside the United States, unless such person knows or has reason to know that the representation is not accurate.”
Rule 3a71-6, as adopted, provides that the Commission may, conditionally or unconditionally, by order, make a determination with respect to a foreign financial regulatory system that compliance with specified requirements under such foreign financial regulatory system by a registered non-U.S. SBS Entity, or class thereof, may satisfy certain business conduct requirements by complying with the comparable foreign requirements. The availability of substituted compliance would be predicated on a determination by the Commission that the relevant foreign requirements are comparable to the requirements that otherwise would be applicable, taking into account the scope and objectives of the relevant foreign requirements,
Requests for substituted compliance may come from parties or groups of parties that may rely on substituted compliance, or from foreign financial authorities supervising such parties or their security-based swap activities.
As provided by Exchange Act Rule 0-13, which the Commission adopted in 2014, applications for substituted compliance determinations in connection with these requirements must be accompanied by supporting documentation necessary for the Commission to make the determination, including information regarding applicable requirements established by the foreign financial regulatory
In adopting Rule 0-13, the Commission also noted that because Rule 0-13 was a procedural rule that did not provide any substituted compliance rights, “collections of information arising from substituted compliance requests, including associated control numbers, [would] be addressed in connection with any applicable substantive rulemakings that provide for substituted compliance.”
Rule 15Fh-3(a) requires an SBS Entity to verify that a counterparty meets the eligibility standards for ECP status before offering to enter into or entering into a security-based swap other than with respect to a transaction executed on a registered national securities exchange. The SBS Entity will use this information to comply with Section 6(l) of the Exchange Act (15 U.S.C. 78(f)(l)), which prohibits a person from entering into a security-based swap with a counterparty that is not an ECP other than on a registered national securities exchange. The rule also requires the SBS Entity to verify, for non-anonymous transactions, whether a counterparty is a special entity before entering into a security-based swap transaction with that counterparty, unless the transaction is executed on a registered or exempt security-based swap execution facility or registered national securities exchange. The SBS Entity will use this information to assess its need to comply with the requirements applicable to dealings with special entities under Rules 15Fh-4(b) and 15Fh-5. In addition, the Commission staff may review this information in connection with examinations and investigations.
The disclosures that SBS Entities must provide to a counterparty (other than an SBS Entity or a Swap Entity) will help the counterparty understand the material risks and characteristics of a particular security-based swap, as well as the material incentives or conflicts of interest that the SBS Entity may have in connection with the security-based swap. As a result, these disclosures will assist the counterparty in assessing the transaction by providing them with a better understanding of the expected performance of the security-based swap under various market conditions. The disclosures will also give counterparties additional transparency and insight into the pricing and collateral requirements of security-based swaps.
Rule 15Fh-3(d) requires SBS Entities, before entering into a security-based swap with a counterparty (other than an SBS Entity or Swap Entity), to determine whether the security-based swap is subject to the clearing requirements of Section 3C(a) of the Exchange Act and to disclose its determination to counterparties, along with certain information regarding the clearing alternatives available to them. In addition to assisting the SBS Entity and its CCO in supervising and assessing internal compliance with the statute and rules, the Commission staff may also review this information in connection with examinations and investigations.
These collections of information will help SBS Dealers comply with applicable laws, regulations and rules, as well as assist SBS Dealers in effectively dealing with counterparties. For example, these collections of information may better enable SBS Dealers to make appropriate recommendations for counterparties, and to gather from the counterparty any information that the SBS Dealer needs for credit and risk management purposes. Furthermore, these collections of information will assist SBS Dealers in determining whether it is reasonable to rely on various representations from a counterparty, and in evaluating the risks of trading with that counterparty. The information will also assist a CCO in determining whether the SBS Entity has written policies and procedures reasonably designed to obtain and retain a record of the essential facts concerning each known counterparty, and to make suitable recommendations to its counterparties. The Commission staff may also review this information in connection with examinations and investigations.
The collection of information concerning the risks of a security-based swap will assist an SBS Entity in communicating with counterparties in a fair and balanced manner by requiring, among other things, that communications provide a sound basis for evaluating the facts with regard to a particular security-based swap and, if a statement refers to potential opportunities or advantages presented by a particular security-based swap, that statement must be balanced by an equally detailed statement of corresponding risks. It will also help the CCO in ensuring that the SBS Entity is communicating with counterparties in a fair and balanced manner based on principles of fair dealing and good faith by establishing certain express requirements with which these communications must comply. Acting on the basis of fair and balanced information, the counterparty will also be better equipped to make more informed investment decisions. The Commission staff may also review this information in connection with examinations and investigations.
The requirement to establish and maintain a reasonably designed system to supervise, and to diligently supervise, the business and the activities of associated persons will assist an SBS Entity in preventing violations of the applicable securities laws, rules and regulations related to the business of an SBS Entity. The CCO may use this information in discharging his or her duties under Rule 15Fk-1 and in determining whether remediation efforts are required. The collection of information will also be useful to supervisors in understanding and carrying out their supervisory responsibilities. The Commission staff may also review this information in connection with examinations and investigations.
Certain information collected under Rule 15Fh-4(b) will help SBS Dealers that act as advisors to special entities to make a reasonable determination that they are acting in the best interests of those special entities.
Other information collected under Rule 15Fh-2(a) will help SBS Dealers establish that they are not acting as advisors to special entities.
These collections of information will also assist CCOs in determining whether an SBS Dealer has complied with relevant provisions of the Exchange Act, as well as the rules and regulations thereunder. The Commission staff may also review this information in connection with examinations and investigations.
The information collected under Rule 15Fh-5(a) will assist an SBS Entity in
The written representations required under Rule 15Fh-5(b) will assist in, and provide a safe harbor for, an SBS Entity forming a reasonable basis as to the qualifications of the independent representative, including representations that: (i) The special entity has complied in good faith with written policies and procedures reasonably designed to ensure its representative satisfies the requirements of Rule 15Fh-5(a)(1), and that such policies and procedures provide for ongoing monitoring of the performance of such representative consistent with Rule 15Fh-5(a)(1); and that (ii) the representative has policies and procedures designed to ensure that it satisfies the requirements of Rule 15Fh-5(a)(1); meets the requirements of Rule 15Fh-5(a)(1)(i), (ii), (iii), (vi) and (vii); and is legally obligated to comply with the requirements of Rule 15Fh-5(a)(1) by agreement, condition of employment, law, rule, regulation, or other enforceable duty.
Disclosures under Rule 15Fh-5(c) regarding the capacity in which an SBS Dealer is acting in connection with a security-based swap will provide additional transparency to special entities as to any material differences between the SBS Dealer's capacities and any other financial transaction or service involving the counterparty to the special entity, such as when an SBS Dealer is acting as a counterparty or principal on the other side of a transaction with potentially adverse interests.
These collections of information will also assist a CCO in assessing the SBS Entity's compliance with relevant provisions of the Exchange Act. The Commission staff may also review this information in connection with examinations and investigations.
Rule 15Fh-6 will deter SBS Dealers from participating, even indirectly, in pay to play practices. In addition to assisting the SBS Dealer and its CCO in supervising and assessing internal compliance with the pay to play prohibitions, the Commission staff may also review this information in connection with examinations and investigations.
The information collected under Rule 15Fk-1 will assist the CCO in overseeing and administering an SBS Entity's compliance with the provisions of the Exchange Act and the rules and regulations thereunder relating to its business as an SBS Entity. The Commission staff may also review this information in connection with examinations and investigations.
Under the final rules, a registered major security-based swap participant or registered security-based swap dealer is not subject to the requirements relating to business conduct standards described in section 15F(h) of the Act (15 U.S.C. 78o-10(h)), and the rules and regulations thereunder, other than the rules and regulations prescribed by the Commission pursuant to section 15F(h)(1)(B) of the Act, in certain transactions conducted through the foreign branch of their U.S.-person counterparty. For these purposes, the foreign branch of a U.S. bank must be the counterparty to the security-based swap transaction, and the transaction must be arranged, negotiated, and executed on behalf of the foreign branch solely by persons located outside the United States.
As discussed in the Cross-Border Proposing Release, the Commission acknowledges that verifying whether a security-based swap transaction falls within the definition of “transaction conducted through a foreign branch” could require significant due diligence. The definition's representation provision would mitigate the operational difficulties and costs that otherwise could arise in connection with investigating the activities of a counterparty to ensure compliance with the corresponding rules.
The Commission would use the information collected pursuant to Exchange Act Rule 3a71-6, as adopted, to evaluate requests for substituted compliance with respect to the business conduct requirements applicable to security-based swap entities. The requests for substituted compliance determinations are required when a person seeks a substituted compliance determination.
Consistent with Exchange Act Rule 0-13(h), the Commission will publish in the
In the Proposing Release, the Commission stated its belief that approximately fifty entities may fit within the definition of SBS Dealer and that up to five entities may fit within the definition of Major SBS Participant.
In the Proposing Release, the Commission estimated that there were approximately 8,500 market participants, including approximately 1,200 special entities in the security-based swap markets.
In the Cross-Border Proposing Release, the Commission preliminarily estimated that 50 entities may include a representation that a security-based swap is a “transaction conducted through a foreign branch” in their trading relationship documentation.
Under the final rule related to substituted compliance, applications for substituted compliance may be filed by foreign financial authorities, or by non-U.S. SBS Entities. Based on the analysis of recent data, the Commission staff expects that there may be approximately 22 non-U.S. entities that potentially may register as SBS Dealers, out of approximately 50 total entities that may register as SBS Dealers.
In practice, the Commission expects that the greater portion of any such substituted compliance requests will be submitted by foreign financial authorities, given their expertise in connection with the relevant substantive requirements, and in connection with their supervisory and enforcement oversight with regard to security-based swap dealers and their activities.
As discussed in Section I.C., above, aspects of Rules 15Fh-1 to 15Fh-6 conform, to the extent practicable, to the business conduct standards applicable to Swap Dealers or Major Swap Participants promulgated by the CFTC.
Furthermore, a number of these rules are based on existing FINRA rules. Accordingly, the Commission expects that the estimated 16 SBS Entities that are also registered as broker-dealers are already complying with a number of these requirements in the context of their equities businesses.
As discussed above, the Commission estimates that approximately 55 SBS Entities (of which we expect approximately 35 will be dually registered with the CFTC as Swap Entities) will be required to verify whether a counterparty is an ECP or special entity, as required by Rule 15Fh-3(a). These verification requirements are the same under the business conduct standards adopted by the CFTC.
As noted above, the Commission believes that approximately 7,412 of the 10,900 security-based swap market participants (which include SBS Entities and counterparties) are also swap market participants and likely already adhere to the relevant protocol.
Pursuant to Rule 15Fh-3(b), (c), and (d), SBS Entities would be required to provide certain disclosures to market participants. Based on the Commission's experience with burden estimates for similar disclosure requirements,
In some cases, such as disclosures about the daily mark for a cleared security-based swap, the SBS Entity is obligated to provide the daily mark upon request. We understand that in the current model of clearing security-based swaps, the security-based swap between the SBS Entity and counterparty is terminated upon novation by the clearing agency. The SBS Entity would no longer have any obligation to provide a daily mark to the original counterparty because a security-based swap no longer exists between them. Therefore, there would not be any ongoing burden on the SBS Entity. Depending on how quickly the security-based swap is cleared, there may not be an initial burden on the SBS Entity either. Unlike the CFTC's rule, Rule 15Fh-3(c)(1) does not require a pre-trade daily mark. So if the security-based swap is cleared before the end of the next day and the clearing results in novation of the original swap, the SBS Entity would not have any daily mark obligations for the cleared swap.
For uncleared security-based swaps, the Commission believes that SBS Entities may need to slightly modify the models used for calculating variation margin to calculate the daily mark. In addition, the SBS Entity will need to provide the counterparty with a description of the methodologies and assumptions used to calculate the daily mark.
Nevertheless, existing accounting standards and other disclosure requirements under the Exchange Act, such as FASB Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures, or Item 305 of Regulation S-K, require disclosures similar to the description of the methodologies and assumptions of the daily mark. To the extent that the model it uses and methodologies and assumptions are not already prepared, the SBS Entity may need to prepare the initial description of the data sources, methodologies and assumptions. In addition, the SBS Entity will have an ongoing burden of updating the disclosure for any material changes to the data sources, methodologies and assumptions.
The Commission continues to believe that SBS Entities will use internal staff to revise existing disclosures to comply with Rules 15Fh-3(b) and (c), and to assist in preparing language to comply with Rule 15Fh-3(d) regarding the clearing options available for a particular security-based swap. In addition, the requirements of Rule 15Fh-3(d) are not the same as the CFTC requirements to disclose clearing choices, so SBS Entities will need to develop new disclosures.
The Commission estimates that in 2014 there has been approximately 740,700 security-based swap transactions between an SBS Dealer and a counterparty that is not an SBS Dealer. Of these, the Commission estimates that approximately 428,000 were new or
Given the foregoing, the Commission continues to conservatively estimate that on average, SBS Entities will initially require three persons from trading and structuring, three persons from legal, two persons from operations, and four persons from compliance, for 100 hours each, to comply with the rules.
Following the initial analysis and development of specifications, the Commission continues to estimate that half of these persons will still be required to spend 20 hours annually to re-evaluate and modify the disclosures and system requirements as necessary, amounting to an ongoing annual burden of 6,600 hours.
The Commission also continues to estimate that, to create and maintain an information technology infrastructure to the specifications identified by the team of persons from trading and structuring, legal, operations and compliance described above, each SBS Entity will require, on average, eight full-time persons for six months of systems development, programming and testing, amounting to a total initial burden of 440,000 hours.
As noted in the Proposing Release, the estimates in this paragraph reflect the Commission's experience with and burden estimates for similar collections of information, as well as our discussions with market participants.
In addition, the Commission estimates that the counterparties will require approximately ten hours for each counterparty or its agent to collect and provide essential facts to the SBS Dealer for a total initial burden of 109,000 hours.
The Commission expects that, given the institutional nature of the participants involved in security-based swaps, most SBS Dealers will obtain the representations in Rules 15Fh-3(f)(2) and (3) to comply with Rule 15Fh-3(f).
Rule 15Fh-3(g) requires SBS Entities to communicate with counterparties “in a fair and balanced manner, based on principles of fair dealing and good faith.” The three specific standards of Rule 15Fh-3(g) require that: (1) Communications must provide a sound basis for evaluating the facts with respect to any security-based swap or trading strategy involving a security-based swap; (2) communications may not imply that past performance will recur, or make any exaggerated or unwarranted claim, opinion, or forecast; and (3) any statement referring to the potential opportunities or advantages presented by a security-based swap or trading strategy involving a security-based swap shall be balanced by an equally detailed statement of the corresponding risks.
The Commission additionally believes that compliance with Rule 15Fh-3(g) would require a review of SBS Entities' other communications to their counterparties, such as emails and Bloomberg messages. However, we believe that such additional communications would likely be reviewed internally, by in-house legal counsel or an SBS Entity's CCO. We estimate that the initial internal burden hours associated with this review would be approximately six hours, for an aggregate total of 330 hours.
For more bespoke transactions, the cost for outside counsel to review the marketing materials will depend on the complexity, novelty and nature of the product, but the Commission expects a higher cost associated with the review for more novel products. The Commission accordingly estimates an initial, aggregate compliance cost for the marketing materials relating to bespoke single name and narrow based index credit default swaps, total return swaps and other security-based swaps at $462,000.
As stated above in Section II.G.5, Rule 15Fh-3(g) applies to communications made before the parties enter into a security-based swap, and continues to apply over the term of a security-based swap. The Commission believes that the ongoing compliance costs associated with the rule will likely be limited to a review of SBS Entities' email communications sent to counterparties, which we believe will likely be done by in-house counsel. We estimate that the ongoing compliance costs of the rule will be approximately two burden hours, for an aggregate total of 330 hours.
As outlined above, Rule 15Fh-3(h) requires an SBS Entity to establish and maintain a system to supervise, and to diligently supervise, its business and the activities of its associated persons. Such a system shall be reasonably designed to prevent violations of the provisions of applicable federal
As for the number of SBS Entities respondents, the Commission continues to estimate that approximately 55 SBS Entities (of which we expect approximately 35 will be dually registered with the CFTC as Swap Entities) will be required to comply with analogous supervision rules like those required by Rule 15Fh-3(h).
The estimates in this paragraph reflect the foregoing information, as well as the Commission's general experience with and understanding of the burden estimates in similar contexts, including, but not limited to, FINRA's analogous supervision rules. While each of the nine written policies and procedures required, at a minimum, by Rule 15Fh-3(h) will vary in cost, the Commission continues to estimate that such policies and procedures will require, on average, 210 hours per respondent, per policy and procedure to initially prepare written policies and procedures in order to establish a system to diligently supervise those policies and procedures, or an average of 1,890 burden hours per SBS Entity—resulting in an initial aggregate burden of 103,950 hours.
As discussed above, Rule 15Fh-4 imposes on SBS Dealers that act as advisors to special entities a duty to make a reasonable determination that any security-based swap or related trading strategy that the SBS Dealer recommends is in the “best interests” of the special entity. Rule 15Fh-2(a) states that an SBS Dealer “acts as an advisor” to a special entity when it recommends a security-based swap or related trading strategy to the special entity. However, the rule provides a safe harbor whereby an SBS Entity will not be deemed an “advisor” if an ERISA special entity counterparty relies on advice from an ERISA fiduciary, or where any special entity counterparty relies on advice from a qualified independent representative that acts in its best interests.
In the Proposing Release, the Commission recognized the inherent tensions that arise where SBS Dealers recommend a security-based swap or related transaction to special entity counterparties.
Among swap dealers operating under the CFTC's parallel safe harbor,
As stated in the Proposing Release, the Commission continues to believe that the 50 SBS Dealers will primarily rely on in-house counsel for compliance with this rule, each of which will need approximately five internal burden hours to draft, review and revise the representations in its standard security-based swap documentation to comply with Rule 15Fh-2(a)(1)-(2), for an initial aggregate burden of 250 hours.
Where a special entity is a counterparty to a security-based swap, Rule 15Fh-5(a)(1) requires an SBS Entity to have a reasonable basis for believing that the special entity has a qualified independent representative
As stated in the Proposing Release, the Commission continues to believe that the burden for determining whether an independent representative is independent of the SBS Entity will depend on the size of the independent representative, the size of the SBS Entity, and the volume of transactions with which each is engaged. The Commission further believes that each SBS Entity would initially require written representations regarding the qualifications of a special entity's independent representative, but would only require updates to the independent representative's qualifications in subsequent dealings with the same independent representative throughout the duration of the swap term, provided the volume and nature of the security-based swap transaction remain the same.
Regarding the initial burden estimates for SBS Entities, the Commission's updated estimates reflect that each SBS Entity will interact with and be required to form a reasonable basis regarding the qualifications of approximately 385 independent, third-party representatives and 25 in-house independent representatives, for a total of 410 independent representatives. In the Proposing Release, the Commission estimated an average internal burden of 15 hours for each SBS Entity per independent representative. We have increased this estimate based on changes to the representations that SBS Entities will have to obtain and now estimate that each SBS Entity, on average, will initially require approximately 15.5 internal burden hours from the SBS Entity's own in-house counsel per independent representative to collect the information necessary to comply with this requirement. This will result in an aggregate initial burden of 349,525 internal hours (15.5 hours × 410 independent representatives × 55 SBS Entities).
With regard to SBS Entities' ongoing burden, the Commission believes that such burden would be minimal, since, once an SBS Entity forms a reasonable basis to believe that a given independent representative meets the qualifications of Rule 15Fh-5, the SBS Entity will not likely need to reaffirm that independent representative's qualifications anew, but could instead rely on past representations regarding the representative's qualifications. We estimate that SBS Entities will incur an ongoing, aggregate burden of 22,500 hours (1 hour × 55 SBS Entities × 410 independent representatives) per year as a result of this rule.
In addition to the burdens imposed on SBS Entities, Rule 15Fh-5(a)(1) will also impose a burden on special entities' independent representatives to collect the necessary information regarding their relevant qualifications, and provide that information to the SBS Entity and/or the special entity. The Commission continues to believe that the reporting burden for the independent representative will consist of providing written representations to the SBS Entity and/or the special entity it represents. The Commission believes that the burden associated with an independent representative's obligation to assess its independence from the SBS Entity will likely depend on the size of the independent representative, the size of the SBS Entity, the interactions between the independent representative and the SBS Entity, the policies and procedures of the independent representative and depend less on the number of transactions in which the independent representative is engaged. The policies and procedures of the independent representative will facilitate its ability to quickly assess, disclose, manage and mitigate any potential material conflicts of interest. We now believe the number of transactions in which the independent representative engages is less likely to impact this assessment. Accordingly, we have updated our estimates.
We anticipate that independent representatives will rely on in-house counsel to collect and submit the relevant documentation and information regarding its qualifications. The Commission also estimates that each independent representative, on average, will initially require approximately 16 internal burden hours from its in-house counsel per SBS Entity to collect the information necessary to comply with this requirement.
As with SBS Entities' ongoing burden associated with this rule, the Commission believes that the ongoing burden imposed on independent representatives would be minimal, since, once the independent representative has provided information regarding its qualifications to the SBS Entity, the independent representative will not likely need to collect or provide that information again, but could instead rely on a bring down certificate that reflects past representations regarding its qualifications. We estimate that independent representatives will incur an ongoing, aggregate burden of 22,500 hours (1 hour × 55 SBS Entities × 410 independent representatives) per year as a result of this rule.
As noted above, the Commission believes that there will be approximately 50 SBS Dealers subject to these rules, and estimates that all of them will provide, or will seek to provide, security-based swap services to municipal entities. SBS Dealers, in order to supervise and assess internal compliance with the pay to play rules, will need to collect information regarding the political contributions of SBS Dealers and their covered associates. In addition, SBS Dealers' covered associates will also need to collect and provide the information required by these rules to SBS Dealers.
The Commission's estimates in this paragraph take into account the burden of the covered associates and the SBS Dealers. These estimates also reflect the
Additionally, we expect some SBS Dealers to incur one-time costs to establish or enhance current systems to assist in their compliance with the rule. These costs will vary widely among firms. Similar to the estimates made by the Commission in connection with the Advisers Act pay to play rule, we have also estimated that some small and medium firms will incur start-up costs, on average, of $10,000, and larger firms will incur, on average, $100,000. Assuming all SBS Dealers will be larger firms, the initial cost to establish or enhance current systems to assist in their compliance with the rule is estimated at $5,000,000 for all SBS Dealers.
The final rules also allow SBS Dealers to file applications for exemptive relief, and outline a list of items to be addressed, including, whether the SBS Dealer has developed policies and procedures to monitor political contributions; the steps taken after discovery of the contribution; and the apparent intent in making the contribution based on the facts and circumstances of each case. The incidence of exemptive relief related to MSRB Rule G-37 and the number of applications the Commission has received under the Advisers Act Rule 206(4)-5 may be indicative of the possible applications for exemptive relief under these final rules. Consistent with the Commission's estimates in connection with Advisers Act Rule 206(4)-5, we also estimate that a firm that applies for an exemption will hire outside counsel to prepare an exemptive request, and estimate that the number of hours counsel will spend preparing and submitting an application between 16 hours to 32 hours, at a rate of $400 per hour. Recognizing that this is an estimate, we conservatively estimate that the Commission may receive up to two applications for exemptive relief per year with respect to pay to play rules.
Under Rule 15Fk-1, an SBS Entity's CCO is responsible for, among other things, taking reasonable steps to ensure that the SBS Entity establishes and maintains policies and procedures reasonably designed to ensure compliance by the SBS Entity with the Exchange Act and the rules and regulations thereunder relating to its business as an SBS Entity. The Commission continues to estimate that, on average, the establishment and administration of the policies and procedures required under Rule 15Fk-1 (
A CCO will also be required to prepare and submit annual compliance reports to the Commission and the SBS Entity's board of directors. In the Proposing Release, the Commission estimated that these reports would require on average 92 hours per respondent per year for an ongoing annual burden of 5,060 hours. As a result of additional descriptions that some CCOs will have to include in their annual compliance reports, we now estimate that these reports will require on average 93 hours per respondent per year for an ongoing annual burden of 5,115.
The Commission estimates the one-time paperwork burden associated with developing representations under this collection of information would be, for each U.S. bank counterparty that may make such representations to its registered Major SBS Participant or registered SBS Dealer counterparty, no more than five hours, and up to $2,000 for the services of outside professionals, for an estimate of approximately 250 hours and $100,000 across all security-based swap counterparties that may make such representations.
However, as the Commission has previously noted in connection with this collection of information, in most cases, the representations associated with the definition of “transaction conducted through a foreign branch” are likely to be made through amendments to the parties' existing trading documentation (
The Commission expects that the majority of the burden associated with the new disclosure requirements will be experienced during the first year as language is developed and trading documentation is amended. After the new representations are developed and incorporated into trading documentation, the Commission continues to believe that the on-going paperwork burden associated with this requirement will be 10 hours per U.S. bank counterparty for verifying representations with existing counterparties, for a total of approximately 500 hours across all applicable U.S. bank counterparties.
Rule 3a71-6 under the Exchange Act would require submission of certain information to the Commission to the extent that foreign financial authorities or security-based swap dealers or major security-based swap participants elect to request a substituted compliance determination with respect to the Title VII business conduct requirements. Consistent with Exchange Act Rule 0-13, such applications must be accompanied by supporting documentation necessary for the Commission to evaluate the request, including information regarding applicable foreign requirements, and the methods used by foreign authorities to monitor and enforce compliance.
The Commission expects that registered security-based swap dealers and major security-based swap participants will seek to rely on substituted compliance upon registration, and that it is likely that the majority of such requests will be made during the first year following the effective date of this substituted compliance rule. Requests would not be necessary with regard to applicable rules and regulations of a foreign jurisdiction that have previously been the subject of a substituted compliance determination in connection with the applicable rules.
In light of the provisions of the final rule and rule 0-13, permitting substituted compliance applications to be made by foreign regulatory authorities, the Commission expects that the great majority of substituted compliance applications will be submitted by foreign authorities, and that very few substituted compliance requests will come from SBS Entities. For purposes of this assessment, the Commission estimates that three such SBS Entities will submit such applications.
In practice, those amounts may overestimate the costs of requests pursuant to Rule 3a71-6 as adopted, as such requests would solely address business conduct requirements, rather than the broader proposed scope of substituted compliance set forth in that proposal.
With the exception of the collection of information related to the foreign branch exception, compliance with collection of information requirements under these rules is mandatory for all SBS Dealers and SBS Entities. 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.
Compliance with the collection of information requirements associated with rule 3a71-6, regarding the availability of substituted compliance, is mandatory for all foreign financial authorities or non-U.S. SBS Entities that seek a substituted compliance determination.
The forms that the Commission has adopted for use by applicants for registration as security-based swap dealers or major security-based swap participants provide for applicants to notify the Commission regarding intended reliance on substituted compliance.
The representations provided in connection with the foreign branch exception would be provided voluntarily by certain U.S. bank counterparties to their registered SBS Dealer counterparties; therefore, the Commission would not typically receive confidential information as a result of this collection of information. However, to the extent that the Commission receives confidential information contained in a representation document through our examination and oversight program, an investigation, or some other means, such information would be kept confidential, subject to the provisions of applicable law.
SBS Dealers will be required to retain records and information relating to
The Commission is sensitive to the costs and benefits imposed by its rules. This section presents an analysis of the particular economic effects—including costs, benefits and impact on efficiency, competition, and capital formation—that may result from our final rules. Section 3(f) of the Exchange Act requires the Commission, when engaging in rulemaking that requires the Commission to consider or determine whether an action is necessary or appropriate in the public interest, to consider, in addition to the protection of investors, whether the action will promote efficiency, competition, and capital formation. Further, Section 23(a)(2) of the Exchange Act requires the Commission, when adopting rules under the Exchange Act, to consider the impact that any new rule would have on competition and to not adopt any rule that would impose a burden on competition that is not necessary or appropriate in furtherance of the purposes of the Exchange Act. In the Proposing Release, the Commission solicited comments on all aspects of the costs and benefits associated with the proposed rules, including any effect the proposed business conduct rules may have on efficiency, competition, and capital formation.
The business conduct rules as adopted implement the requirements under Sections 15F(h) and 15F(k) of the Exchange Act as added by Section 764(a) of the Dodd-Frank Act. As discussed in Section VI.C, infra, the final rules include both requirements expressly addressed by Title VII of the Dodd-Frank Act, as well as discretionary rules designed to further the principles which underlie the statutory requirements. These discretionary rules include requirements to make certain additional disclosures; certain “know your counterparty” obligations; suitability obligations for SBS Dealers; prohibitions against certain “pay to play” activities; and a requirement of board approval for decisions related to the compensation or removal of the CCO.
SBS Entities play a central role in intermediating transactions in complex and opaque security-based swaps, and enjoy significant informational advantages compared to their less sophisticated counterparties. For instance, SBS Dealers observe quote solicitations and order flow. SBS Dealers may also act as lenders, placement agents, underwriters, structurers or securitizers of the securities underlying security-based swaps. As a result of operating in such additional capacities, SBS Dealers may have superior information about the quality of security-based swaps and of securities underlying security-based swaps. Major SBS Participants may have lower volumes of dealing activity than SBS Dealers, but may hold large concentrated positions in security-based swaps,
In addition, SBS Dealers are for-profit entities with business incentives that may be competing with those of their counterparties. Due to the nature of their market making and intermediation roles, SBS Dealers purchase security-based swaps from counterparties seeking to sell them, and sell security-based swaps to counterparties seeking to buy them. When SBS Dealers transact as principal risk holders and do not hedge their exposures, they benefit from directional market moves that result in losses for their counterparties. When SBS Dealers hedge their exposures and do not carry balance sheet risk, they may be indifferent to directional price moves of the security-based swap, but profit from charging high fees to their counterparties, whereas their counterparties benefit from low fees and transaction costs. If SBS Dealers recommend security-based swaps to counterparties, such recommendations may be influenced by the above business incentives. Counterparties of SBS Dealers may be aware of these competing incentives, and SBS Dealers generally benefit from intermediating a greater volume of trades, potentially mitigating these effects. However, informational asymmetries between SBS Dealers and their counterparties outlined above may limit the ability of counterparties to decouple the potential biases and information components of SBS Dealer recommendations, and to evaluate the merits of each security-based swap.
Broadly, these external business conduct rules as adopted may decrease informational asymmetries between SBS Entities and their less sophisticated counterparties and strengthen counterparty protections. This may enable market participants to make better informed investment decisions, and enhance allocative efficiency in security-based swap markets.
The baseline for our economic analysis reflects rules adopted as part of the SBS Entity Definitions Adopting Release, the Cross-Border Adopting Release, Regulation SBSR and SDR Rules,
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). We note that many entities expected to register with the Commission as SBS Entities are currently intermediating large volumes of transactions across swap, security-based swap and reference security markets. The Commission has previously estimated that of the total 55 entities expected to register with the Commission as SBS Entities, up to 35 entities are registered with the CFTC as Swap Entities, and up to 16 entities are registered with the Commission as broker-dealers.
As discussed in the economic baseline, extensive cross-market participation of dealers and non-dealer counterparties in swap, security-based swap and reference security markets points to a high degree of market integration. The Commission has sought to harmonize, to the extent practicable, final business conduct requirements with other existing rules, which may result in efficiencies and lower incremental economic costs for cross-registered SBS Entities and their counterparties than might have otherwise resulted.
Nonetheless, the Commission recognizes—as reflected in the economic analysis—that the final rules establish new requirements applicable to SBS Entities, and that complying with these requirements will entail costs to SBS Entities. In considering the economic consequences of these final rules we have been mindful of the direct and indirect costs these rules will impose on market participants, as well as the effect of various business conduct requirements on the ability of counterparties to transact with SBS Entities. We have considered the likely costs and benefits of the final business conduct requirements for SBS Entities, counterparties in security-based swap markets, investors in reference security markets, as well as stakeholders in special entities, such as taxpayers, pension holders, endowment beneficiaries, and investors in municipal securities. We have also considered how various types of market participants may respond to the obligations and safe harbors in these final rules.
Some of these final rules impose requirements on SBS Dealers only, whereas others apply to transactions by both SBS Dealers and Major SBS Participants. These final rules have considered potential differences between the roles SBS Dealers and Major SBS Participants in security-based swap markets. As discussed in the sections that follow, registered SBS Dealers are expected to intermediate large volumes of security-based swaps and to transact with many hundreds or thousands of counterparties, whereas Major SBS Participants will be holding significant positions in SBS without intermediating significant volumes of deals.
We have also taken into account comments regarding the different application of various business conduct requirements to SBS Dealers and Major SBS Participants,
We recognize that costs of rules imposed on Major SBS Participants may be passed on to counterparties in the form of transaction costs or a decreased willingness to intermediate transactions with non-SBS or Swap Entity counterparties. As reflected in the economic baseline, the Commission estimates that of the 55 SBS Entities that may register with the Commission, between zero and five entities may be Major SBS Participants. The
Final business conduct rules reflect the informational advantage of SBS Entities relative to other market participants. SBS Dealers enjoy informational advantages over their non-SBS Entity counterparties. As we quantify in the economic baseline, inter-dealer transactions play a significant role in security-based swap markets, and security-based swap activity is highly concentrated among a small number of dealers. SBS Dealers observe deal flow, and may act in other capacities, such as in the capacity of underwriters or arrangers, in relation to reference securities underlying security-based swaps. Major SBS Participants may also be better informed about the risks and valuations of security-based swaps due to their large positions in security-based swaps. Therefore, compared to other counterparties, both SBS Dealers and Major SBS Participants may be better informed and better able to assess material risks and characteristics of security-based swaps. Final disclosure and suitability rules are limited to security-based swap activities between SBS Entities and counterparties that are not themselves SBS or Swap Entities. Other external business conduct rules explicitly address conduct of SBS Entities when they act as counterparties or advisors to special entities, such as employee benefit plans, municipalities and endowments.
The Commission has considered counterparty protections, information asymmetries and risks arising from arm's length and inter-affiliate transactions. Inter-affiliate transactions may be conducted for the purposes of internal risk management within a commonly controlled corporate group with generally aligned incentives and few informational asymmetries, and may involve the same personnel acting in or on behalf of both parties. Imposing business conduct requirements on transactions among various control affiliates of the same SBS Entity is less likely to result in counterparty protections, informational benefits or improvements in allocative efficiency, but would result in additional costs and execution delays for SBS Entities.
The Commission notes that, where possible, it has attempted to quantify the costs, benefits, and effects on efficiency, competition, and capital formation expected to result from adopting these rules. In many cases, however, the Commission is unable to quantify the economic effects. Crucially, many of the relevant economic effects, such as counterparty protections, information asymmetry, the ability of less informed market participants to overcome information asymmetries, and the value of Commission enforcement and oversight, are inherently difficult to quantify. In other cases, we lack the information necessary to provide reasonable estimates. For example, we lack data on business conduct practices of U.S. SBS Entities' foreign branches; profitability of SBS Dealer and Major SBS Participant transactions at various volume levels, by type (SEF execution versus OTC/bespoke) and by counterparty (other SBS and Swap Entities, special entities, all other counterparties); the magnitude of the conflicts of interest related to the “pay to play” practices by SBS Entities with respect to special entities and the degree of reliance of dually registered SBS Entities on covered associates already subject to similar prohibitions; and how SBS Entities, new entrants, and counterparties, including those currently not transacting in security-based swap markets, may react to specific business conduct rules. To the best of our knowledge, no such data are publicly available and commenters have not provided data to allow such quantification.
To assess the economic impact of the final rules 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 not yet finalized.
The business conduct rules include a variety of standards for conduct by SBS Entities when they transact with counterparties. While certain requirements apply to SBS Entity transactions with all counterparties, some requirements will affect only SBS Entity transactions with non-SBS or Swap Entities, others distinguish between SBS Dealers and Major SBS Participants, and yet others offer relief for anonymous transactions. The following sections describe current security-based swap market activity, participants, common dealing structures, counterparties, and patterns of cross-border and cross-market participation.
Our understanding of the market is informed in part by available data on security-based swap transactions, though we acknowledge that limitations in the data limit the extent to which we can quantitatively characterize the market.
Specifically, 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 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 single-name CDS was approximately $9.04 trillion,
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 classify index CDS as swaps or security-based swaps.
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;
Activity in the security-based swap market is concentrated among a relatively small number of entities that act as dealers in this market. In addition to these entities, thousands of other participants appear as counterparties to security-based swap contracts in our sample, and include, but are not limited to, investment companies, pension funds, private (hedge) funds, sovereign entities, and industrial companies. We observe that most non-dealer users of security-based swaps do not engage directly in the trading of swaps, but trade through banks, investment advisers, or other types of firms acting as dealers or agents. Based on an analysis of the counterparties to trades reported to the TIW, there are 1,875 entities that engaged directly in trading between November 2006 and December 2014.
As shown in Table 1, below, close to three-quarters of these entities (DTCC-defined “firms” shown in TIW, which we refer to here as “transacting agents”) were identified as investment advisers, of which approximately 40 percent (about 30 percent of all transacting agents) were registered as investment advisers under the Advisers Act.
Principal
Among
As depicted in Figure 1 above, domiciles of new accounts participating in the market have shifted over time. It is unclear whether these shifts represent changes in the types of participants active in this market, changes in reporting or changes in transaction volumes in particular underliers. For example, the increased percentage of new entrants that are foreign accounts may reflect an increase in participation by foreign account holders in the security-based swap market, and the increased percentage of the subset of new entrants that are foreign accounts managed by U.S. persons also may reflect more specifically the flexibility with which market participants can restructure their market participation in response to regulatory intervention, competitive pressures, and other stimuli.
A market participant's domicile, however, does not necessarily correspond to where it engages in security-based swap activity. In particular, financial groups engaged in security-based swap dealing activity operate in multiple market centers and carry out such activity with counterparties around the world.
Consistent with these operational concerns and the global nature of the security-based swap market, the available data appear to confirm that participants in this market are in fact active in market centers around the globe. Although, as noted above, the available data do not permit us to identify the location of personnel in a
Given these market characteristics and practices, 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 where economic decisions are made by managers on behalf of beneficial owners. Market activity may also occur in a jurisdiction other than where the market participant or its counterparty books the transaction. Similarly, a participant in the security-based swap market may be exposed to counterparty risk from a counterparty located in a jurisdiction that is different from the market center or centers in which it participates.
A financial group that engages in a global security-based swap dealing business in multiple market centers may choose to structure its dealing business in a number of different ways. This structure, including where it books the transactions that constitute that business and how it carries out market-facing activities that generate those transactions, reflects a range of business and regulatory considerations, which each financial group may weigh differently.
A financial group may choose to book all of its security-based swap transactions, regardless of where the transaction originated, in a single, central booking entity. That entity generally retains the risk associated with that transaction, but it also may lay off that risk to another affiliate via a back-to-back transaction or an assignment of the security-based swap.
Regardless of where a financial group determines to book its security-based swaps arising out of its dealing activity, it is likely to operate offices that perform sales or trading functions in one or more market centers in other jurisdictions. Maintaining sales and trading desks in global market centers permits the financial group 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,
The financial group affiliate that books these transactions may carry out related 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 financial group may determine that another affiliate in the financial group employs personnel who possess expertise in relevant products or who 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. In these cases, the affiliate that books these transactions and its affiliated agent may operate as an integrated dealing business, each performing distinct core functions in carrying out that business.
Alternatively, the financial group affiliate that books these transactions may in some circumstances, determine to engage the services of an unaffiliated agent through which it can engage in dealing activity. For example, a financial group may determine that using an interdealer broker may provide an efficient means of participating in the interdealer 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 financial group affiliates (whether affiliated with U.S.-based financial groups or not) that are established in foreign jurisdictions 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.-person and non-U.S.-person counterparties. In transactions with non-U.S.-person counterparties, these foreign affiliates may affirmatively seek to engage in dealing activity in the United States because the sales personnel of the non-U.S.-person 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 non-U.S.-person 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. We understand that some of these foreign affiliates 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
As discussed above, security-based swap activity is concentrated in a relatively small number of dealers, which already represent a small percentage of all market participants active in the security-based swap market. Based on analysis of 2014 data, our earlier estimates of the number of entities likely to register as security-based swap dealers remain largely unchanged.
Many of these dealers are already subject to other regulatory frameworks under U.S. law based on their role as intermediaries or on the volume of their positions in other products, such as swaps. Available data supports our prior estimates, based on our experience and understanding of the swap and security-based swap market that of the 55 firms that might register as SBS Dealers or Major SBS Participants, approximately 35 would also be registered with the CFTC as Swap Dealers or Major Swap Participants.
As already noted, firms that act as dealers play a central role in the security-based swap market. Based on an analysis of 2014 single name CDS data in TIW, accounts of those firms that are likely to exceed the SBS Dealer
These dealers transact with hundreds or thousands of counterparties. Approximately 35 percent of accounts of firms expected to register as SBS Dealers and observable in TIW have entered into security-based swaps with over 1,000 unique counterparty accounts as of year-end 2014.
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 2014, separated by whether transactions are between two ISDA-recognized dealers (interdealer transactions) or whether a transaction has at least one non-dealer counterparty.
Figure 2 also shows that the portion of the notional volume of North American corporate single-name CDS represented by interdealer transactions has remained fairly constant and that interdealer transactions continue to represent a significant majority of trading activity even as notional volume has declined over the past six years,
Figure 2: Global, notional trading volume in North American corporate single-name CDS by calendar year and the fraction of volume that is interdealer.
Against this backdrop
If we consider the number of cross-border transactions instead from the perspective of the domicile of the corporate group (
By contrast, the proportion of activity between two foreign-domiciled counterparties drops from 40 percent to 17 percent. 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 accounts for a higher percentage of security-based swap activity than U.S. subsidiaries of foreign firms and U.S. branches of foreign banks. It also demonstrates that financial groups based in the United States are involved in an overwhelming majority (approximately 83 percent) of all reported transactions in North American corporate single-name CDS.
Financial groups based in the United States are also involved in a majority of interdealer transactions in North American corporate single-name CDS. Of transactions on North American corporate single-name CDS between two ISDA-recognized dealers and their branches or affiliates, 65 percent of transaction notional volume involved at least one account of an entity with a U.S. parent.
In addition, we note that a significant majority of North American corporate single-name CDS transactions occur in the interdealer market or between dealers and non-U.S.-person non-dealers, with the remaining (and much smaller) portion of the market consisting of transactions between dealers and U.S.-person non-dealers. Specifically, 79.5 percent of North American corporate single-name CDS transactions involved either two ISDA-recognized dealers or an ISDA-recognized dealer and a non-U.S.-person non-dealer. Approximately 20 percent of such
In 2009, leaders of the G20—whose membership includes the United States, 18 other countries, and the European Union (“EU”)—addressed global improvements in the OTC derivatives markets. They expressed their view on a variety of issues relating to OTC derivatives contracts. In subsequent summits, the G20 leaders have returned to OTC derivatives regulatory reform and encouraged international consultation in developing standards for these markets.
Many SBS Dealers likely will be subject to foreign regulation of their security-based swap activities that are similar to regulations that may apply to them pursuant to Title VII, even if the relevant foreign jurisdictions do not classify certain market participants as “dealers” for regulatory purposes. Some of these regulations may duplicate, and in some cases conflict with, certain elements of the Title VII regulatory framework.
Foreign legislative and regulatory efforts have focused on five general areas: Moving OTC derivatives onto organized trading platforms, requiring central clearing of OTC derivatives, requiring post-trade reporting of transaction data for regulatory purposes and public dissemination of anonymized versions of such data, establishing or enhancing capital requirements for non-centrally cleared OTC derivatives transactions, and establishing or enhancing margin and other risk mitigation requirements for non-centrally cleared OTC derivatives transactions. Foreign jurisdictions have been actively implementing regulations in connection with each of these categories of requirements. Regulatory transaction reporting requirements are in force in a number of jurisdictions including the EU, Hong Kong SAR, Japan, Australia, Brazil, Canada, China, India, Indonesia, South Korea, Mexico, Russia, Saudi Arabia, and Singapore; other jurisdictions are in the process of proposing legislation and rules to implement these requirements.
We expect the magnitude of the above economic costs, benefits, and effects on efficiency, competition and capital formation to depend on the extent to which SBS Entities are already complying with similar business conduct rules. As discussed extensively in the baseline and in the sections that follow, most entities expected to register with the Commission and become subject to these final business conduct standards have registered with the CFTC as Swap Entities or with the Commission as broker-dealers. Therefore, they have already become subject to CFTC's adopted external business conduct rules and/or FINRA rules related to, among others, suitability, communications with the public, supervision, and compliance. The Commission has sought to harmonize the regulatory regimes in recognition of swap and security-based swap market integration and extensive cross-market participation. As a result, some SBS Entities may have already restructured their activities to comply with many of the substantive business conduct standards being adopted. Dually registered SBS Entities that have already restructured their systems and activities to comply with parallel CFTC and FINRA rules may incur lower costs relative to non-dually registered SBS Entities. The specific economic costs, benefits, and effects on efficiency, competition, and capital formation of various business conduct rules and requirements are discussed in further detail in the sections that follow. Wherever practicable, we also evaluate the economic effects of the various rules being adopted against these parallel rules, and other reasonable alternatives.
As noted above, persons registered as SBS Dealers and Major SBS Participants are likely also to engage in swap activity, which is subject to regulation by the CFTC.
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 3,000 of those accounts, or 67 percent, 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 64 percent; 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 10 percent.
Similarly, since the payoffs of security-based swaps are dependent upon the value of underlying securities, activity in the security-based swap market can be correlated with activity in underlying securities markets. Security-based swaps may be used in order to hedge or speculate on price movements of reference securities or the credit risk of reference securities. For instance, prices of both CDS and corporate bonds are sensitive to the credit risk of underlying reference securities. As a result, trading across markets may sometimes result in information and risk spillovers between these markets, with informational efficiency, pricing and liquidity in the security-based swap market affecting informational efficiency, pricing, and liquidity in markets for related assets, such as equities and corporate bonds.
The baseline against which we are assessing the potential effects of the pay to play prohibitions in these final business conduct rules reflects MSRB Rules G-37 and G-38, SEC Rule 206(4)-5 under the Advisers Act, as well as CFTC Regulation 23.451. First, we note that MSRB rules G-37 and G-38 are currently effective and are part of the economic baseline. Second, Rule 206(4)-5 prohibits an adviser and its covered associates from providing or agreeing to provide, directly or indirectly, payment to any third party for solicitation of advisory business from any government entity on such adviser's behalf unless such third party is a “regulated person,” defined in Rule 206(4)-5 as (i) an SEC-registered investment adviser, (ii) a registered broker or dealer subject to pay-to-play rules adopted by a registered national securities association, or (iii) a registered municipal advisor that is subject to pay-to-play rules adopted by the MSRB (“third-party solicitor ban”). Although the compliance date for the third-party solicitor ban was July 31, 2015, the Division of Investment Management stated that it will not
Third, Commodity Exchange Act Rule 23.451 prohibits Swap Dealers from offering to enter or entering into a swap with governmental special entities within two years of any contribution to an official of such entity by the Swap Dealer or any covered associate. The CFTC has similarly stated that the rule is intended to deter fraud and undue influence that harms the public, and to promote consistency in the business conduct standards that apply to financial market professionals dealing with municipal entities. However, CFTC Letter No. 12-33 provided no-action relief from Regulation 23.451 to Swap Dealers and their covered associates with respect to “governmental plans” defined in Section 3 of ERISA, to the extent that such plans are not otherwise covered by SEC and/or MSRB rules. The CFTC has also clarified that the two year “look-back” period does not include any time period that precedes the date on which an entity is required to register as a Swap Dealer.
As indicated above, we estimate that up to 35 of 55 entities seeking to register as SBS Entities may be registered with the CFTC as Swap Entities. Additionally, based on an analysis of 2014 TIW data on accounts likely to trigger SBS Dealer registration requirements, we have identified 18 entities belonging to a corporate group with at least one MSRB registered broker-dealer or bank-dealer.
Rule 15Fh-3(a)(1) requires an SBS Entity to verify that a counterparty meets the standards for an eligible contract participant before entering into a security-based swap with the counterparty, except for transactions executed on a registered national securities exchange. Rule 15Fh-3(a)(2) requires SBS Entities to verify whether a known counterparty is a special entity before entering into a security-based swap with that counterparty, except for transactions executed on a registered or exempt SEF or registered national securities exchange, where the SBS Entity does not know the identity of the counterparty at a reasonably sufficient time prior to execution of the transaction to permit compliance with obligations of the rule. Rule 15Fh-3(a)(3) requires SBS Entities to verify whether a counterparty is eligible to elect not to be a special entity under Rule 15Fh-2(d)(4) and, if so, notify such counterparty of its right to make such an election.
We recognize that many SBS Entities, in the course of business, already may be conducting due diligence and fact gathering concerning their security-based swap counterparties, which may reduce the economic effects of this rule.
The scope of the “know your counterparty” rule reflects differences in the roles of entities likely to register as SBS Dealers and entities that may register as Major SBS Participants. The Commission believes that entities that will register as SBS Dealers will intermediate a large volume of security-based swap transactions as both principal risk holders and agents transacting on behalf of principal risk holders, such as special entities. As discussed in the economic baseline, we understand that entities currently operating as dealers in security-based swap markets play a central intermediation role, transacting with hundreds and thousands of non-dealer counterparties and accounting for large activity volumes. At the same time, the Commission expects that Major SBS Participants will hold large positions in security-based swaps, but have low volumes of security-based swap activity. Hence, we expect Major SBS Participants may not play the central intermediation role fulfilled by SBS Dealers.
These rules limit the scope of application of the “know your counterparty” requirement to SBS Dealers, and exclude Major SBS Participants. As a result, entities that may register as Major SBS Participants will not bear the costs of compliance with this rule. At the same time, SBS Dealers will be required to comply and bear related compliance costs. We note that this approach is substantially similar to the CFTC's final external business conduct rules, which limit the scope of “know your counterparty” requirements to Swap Dealers. This results in a consistent treatment of entities that may trigger both Major Swap Participant and Major SBS Participant registration requirements, and will enable Major Swap Participants to enter into security-based swap positions without bearing additional compliance costs to comply with our “know your counterparty” requirement.
To the extent that SBS Dealers do not already collect and retain essential facts about their counterparties as a part of their normal course of business, this requirement will increase the cost to SBS Dealers of entering into security-based swaps. Specifically, SBS dealers will incur costs of complying with the verification requirements and costs of establishing, maintaining, and enforcing policies and procedures reasonably designed to obtain and retain essential facts about each known counterparty that are necessary for conducting business with such counterparty. We note that the ability to rely on counterparty representations to fulfill the SBS Dealer diligence requirement partly lowers compliance burdens, as reflected in our estimates. Further, to the extent that the majority of SBS Entities have already cross-registered with the CFTC as Swap Entities and have become subject to substantially similar verification and “know your counterparty” requirements, and to the extent the majority of their counterparties transact across swap and security-based swap markets and have already benefited from existing CFTC rules, the economic effects of these final rules may be partly mitigated.
Direct costs of compliance with verification of status requirements related to adherence to standardized protocols by SBS Entities that are not dually registered as Swap Entities are estimated at, approximately, $17,600.
Increases in SBS Entity costs due to these obligations may be reflected in the terms offered to counterparties, and increases in counterparty costs may affect their willingness to transact in security-based swaps. Further, counterparties of SBS Entities that are not also participating in swap markets and relying on the above protocols may incur costs associated with the verification of status requirement and related adherence letters, estimated at approximately $3,051,840.
We note that the eligible contract participant status verification requirement does not apply to transactions executed on a registered national securities exchange. In addition, the special entity status verification requirement does not apply to transactions where the SBS Entity does not know the identity of the counterparty at a reasonably sufficient time prior to execution of the transaction to permit compliance. This limits the scope of the transactions covered by final rules, therefore potentially reducing the expected benefits. However, since anonymous transactions will not be subject to these requirements, the rule imposes lower costs, delays and implementation challenges with respect to anonymous trades. This approach to anonymous transactions executed on registered exchanges or SEFs may incentivize SBS Entities to trade through these venues, to avoid imposition of these obligations under final business conduct rules. The compliance costs imposed on SBS Entities by these and other business conduct requirements (excluding anonymous transactions executed on a registered exchange or SEF) may lead to a decrease in the volume of OTC bilateral security-based swap trades, and an increase in the volume of transactions executed on exchanges or SEFs. This may facilitate liquidity, price discovery and risk mitigation in these transparent venues, which may attract greater market participation. The overall effects will depend on the value of disclosure and suitability requirements, customization and bilateral relationships in OTC transactions, compared with the standardization, liquidity and execution quality of contracts in SEFs and exchanges, among others.
As an alternative to the approach taken in the final rules, the Commission has considered imposing specific requirements as to the form and manner of documentation. Specific documentation requirements could result in greater information gathering and documentation by SBS Entities fulfilling their status verification and “know your counterparty” obligations, which may further strengthen counterparty protections and reduce evasion. However, we recognize commenter concerns regarding costs and loss of flexibility from imposing specific documentation requirements, and the importance of private contractual negotiation, as well as the need to impose effective verification and documentation requirements to facilitate enforcement.
The Commission is adopting a “know your counterparty” requirement based on a policies and procedures approach. However, the final rules explicitly delineate certain items that the Commission believes are essential facts concerning the counterparty that are necessary for conducting business with such counterparty. The CFTC has adopted a substantially similar requirement for swap dealers to implement policies and procedures reasonably designed to obtain and retain a record of the essential facts about each known counterparty that are necessary for conducting business with such counterparty. As noted earlier, in light of extensive cross-market participation between swap and security-based swap markets, and expected cross-registration of SBS Entities already complying with CFTC's business conduct rules, harmonization with the CFTC regime may facilitate continued integration between these markets and may potentially reduce duplicative compliance costs for some dual registrants.
The Commission is adopting rules concerning SBS Entity disclosures of material risks, characteristics, incentives, conflicts of interest and daily mark of security-based swaps to their counterparties. The final rules also require SBS Entities to make a written record of the non-written disclosures and provide a written version of these disclosures to counterparties no later than the delivery of the trade acknowledgement for a particular transaction. We note that the scope of the final disclosure requirements is
Broadly, these disclosure rules may mitigate information asymmetries between more informed SBS Entities and less informed counterparties, and may allow them to make more informed decisions about capital allocation and counterparty selection. At the same time, SBS Entities profit from information rents
As the Commission articulated in other releases, transparency stemming from the SDR Rules and Regulation SBSR should reduce the informational advantage of SBS dealers and promote competition among SBS dealers and other market participants.
These rules may enhance transparency and protect counterparties, but may also adversely affect the willingness of SBS Entities to intermediate OTC security-based swaps with non-SBS or Swap Entity counterparties, and the costs of entering OTC security-based swaps for non-SBS or Swap Entity counterparties may increase. This fundamental tradeoff is discussed in more detail in the sections below with respect to individual disclosure requirements, their scope and implementation. The overall economic effects of the final disclosure requirements will depend on the severity of informational asymmetries and conflicts of interest in security-based swap markets, the ability of some counterparties of SBS Entities to obtain similar information independently without the required disclosures and the costs of doing so,
We note that the SBS Entities will not be required to comply with pre-transaction disclosure requirements if the identity of the counterparty is not known to the SBS Entity at a reasonably sufficient time prior to execution of the transaction to permit the SBS Entity to comply with these obligations.
Rule 15Fh-3(b) requires SBS Entities to make disclosures concerning a security based swap's material risks and characteristics, and the SBS Entity's material incentives or conflicts of interest before entering into a security-based swap. In addition to implementing the statutory requirements, the rule also requires SBS Entities to make a written record of the non-written disclosures and provide a written version of these disclosures to counterparties in a timely manner, but no later than the delivery of the trade acknowledgement for a particular transaction.
In evaluating the economic effects of this rule, we note that security-based swaps are complex products, and security-based swap markets are more opaque than markets for regular equity or fixed income products. Security-based swap markets are characterized by a high degree of informational asymmetry among various groups of counterparties. As described in the economic baseline, dealers intermediate large volumes of security-based swaps, observe quote solicitations and order flow. In addition, SBS Dealers may serve in a variety of capacities such as placement agents, underwriters, structurers, securitizers, and lenders in relation to security-based swaps and the securities underlying them. Further, as outlined above, SBS Dealers generally have business incentives that may be competing with those of their counterparties as a result of taking on the opposite side of the transactions, and may have specific conflicts of interest due to their advisory, market making, trader and other roles. As discussed in Section VI.A, Major SBS Participants may also be better informed about the risks and valuations of security-based swaps due to their large positions in security-based swaps, compared with their non-SBS Entity counterparties.
At the same time, counterparties that are not SBS or Swap Entities do not observe quote solicitations or order flow, and are less likely to arrange or structure security-based swaps and their underlying securities. Such counterparties may also be generally less informed about the nature and risks of security-based swaps due to their low volume of activity, as indicated by the low transaction share of non-dealers in Table 1 of the economic baseline. Many non-dealer counterparties transact in security-based swaps through investment advisers; however approximately 7% transact in security-based swaps directly. If the required disclosures are informative to non-SBS Entities, these final rules may help less informed market participants make more informed counterparty and capital allocation choices. The records requirement may facilitate the implementation of the disclosure requirement, enabling counterparties to reference the non-written disclosures made prior to entering into the swap during the life of the security-based swap.
As we have recognized,
At the same time, disclosures required under these proposed rules will involve costs to SBS Entities and their counterparties. As discussed in Section V, SBS Entities will bear direct compliance burdens related to the disclosures, which are reflected in our compliance cost estimates above. In addition, since SBS Entities are more informed about security-based swaps, they are able to extract information rents in the form of higher markups and fees charged to non-dealer counterparties. If SBS Entity disclosures better inform counterparties concerning characteristics and risks of security-based swaps, these rules may reduce the informational advantage of SBS Entities relative to their counterparties and decrease profitability of transactions with non-SBS Entity counterparties, which may reduce incentives for dealers to provide liquidity to these counterparties.
We recognize that the above costs may be passed on to counterparties through more adverse price and non-price terms of security-based swaps. To the extent that SBS Entities may be unable to recover these costs, they may become less likely to intermediate transactions with non-SBS or Swap Entity counterparties and decrease participation in U.S. security-based swap markets. Further, since final business conduct rules require these disclosures to be made prior to entering into the security-based swap, the disclosure requirements may involve some delays in execution and may affect liquidity in security-based swaps, to the extent that these disclosures are not already being made in master agreements or post trade acknowledgements. We have considered how the timing, manner and content of disclosures may affect these competing considerations. First, we recognize that the ability to rely on master agreements, standardized disclosures and ex post trade acknowledgements of oral disclosures may significantly reduce ongoing transaction specific costs and potential execution delays, as recognized by a commenter,
We have considered commenter concerns that oral disclosures may not satisfy the goal of pre-trade transparency, may make enforcement more difficult, and may allow SBS Entities to obscure conflicts of interest and misrepresent risks until after trade confirmation.
We have received mixed comments on the relative balance of these competing considerations with respect to underlier disclosures.
Finally, we have considered the alternatives of adopting more prescriptive requirements of characteristics to be disclosed, an explicit risk taxonomy, requirements concerning volatility and liquidity metrics, and scenario analysis regarding political, economic events and underlying market factors. These approaches also present a tradeoff between informing investors and protecting counterparties, and costs and willingness of SBS Entities to intermediate trades with non-SBS or Swap Entity counterparties, similar to the effects described above.
For instance, disclosure of a scenario analysis may inform counterparties, but may be particularly costly since such analysis may depend on the specific terms of the agreement. To the extent that the provision of scenario analysis will impose costs on SBS Entities, a requirement to include scenario analysis as part of mandated disclosures may result in bundling research and advice, with SBS intermediation functions for all affected transactions. This would increase costs to SBS Entities, and these costs are likely to be passed on to counterparties. Further, one commenter suggested that the requirement to produce and disclose scenario analysis for each transaction may delay execution and expose counterparties to market risk in times of market volatility.
As an alternative, the CFTC's approach allows counterparties to opt in to receive the scenario analysis for swaps that are not available for trading on a SEF, and requires Swap Dealers to disclose to counterparties their right to receive the scenario analysis. The CFTC's external business conduct rules do not prescribe whether and how swap dealers may be able to charge for such analysis and we do not have data regarding whether any counterparties are taking advantage of the rule provision. We understand that counterparties already privately negotiate terms of over-the-counter derivatives with SBS Dealers, which may also serve in advisory and other capacities. As discussed in the economic baseline, non-dealer market participants are typically institutional investors, the overwhelming majority of which rely on investment advisers in their security-based swap activities. It is unclear that a requirement to disclose the right to receive a scenario analysis would affect the demand for such analyses or inform counterparties.
The Commission has also considered an alternative of adopting prescriptive risk taxonomies, and requiring disclosure of volatility and liquidity metrics. While these requirements may reveal additional information to counterparties, they may be less informative for customized over-the counter security-based swaps, may fail to capture risks of new products, and would increase costs. To the extent that these requirements would increase SBS Entity costs of transacting with non-SBS or Swap Entity counterparties, these costs would also adversely affect terms of security-based swaps for non-SBS or Swap Entity counterparties. Rule 15Fh-3(b)(2) also requires SBS Entities to disclose any material incentives or conflicts of interest that an SBS Entity may have in connection with the security swap, including any compensation or other incentives from any source other than the counterparty. As articulated in Section II, this rule will not require SBS Entities to report all profits or expected returns from the swap or related hedging or trading activities, but will require reporting of incentives, such as revenue sharing arrangements, from any source other than the counterparty in connection with the swap. To the extent that disclosure informs counterparties regarding SBS Entity conflicts of interest, counterparties of SBS Entities may become better able to make informed decisions about security-based swaps and the SBS Entities they transact with. When SBS Entity conflicts of interest are severe, disclosure of such conflicts may lead counterparties to renegotiate the terms of a transaction or select another counterparty with fewer conflicts of interest, contributing to more efficient capital allocation by non-dealer counterparties. Importantly, this requirement does not prohibit material conflicts of interest. Instead, the rule focuses on disclosure of material incentives and conflicts of interest, which may help counterparties better evaluate the terms and risks of transacting with an SBS Entity. The severity of these conflicts of interest in security-based swaps, the awareness of non-SBS or Swap Entity counterparties about these conflicts, the similarity between disclosures of conflicts already made by SBS Entities cross-registered as Swap Entities under CFTC rules with disclosures that will be made under these final rules, and the informativeness of the newly required disclosures will influence the magnitude of the benefits described above.
We recognize that final external business conduct rules for Swap Entities are already in place and include a similar set of conflict of interest disclosure rules. Swap Entities are already disclosing incentives and conflicts of interest in swap transactions, which enters into our economic baseline and is reflected in current market activity. Non-SBS or Swap Entity counterparties that are transacting with the same dealers in both swap and security-based swap markets have benefited from such disclosures in swap markets, and may have already become familiar with standardized disclosures by Swap Dealer counterparties. To the extent that disclosures by the same dealers related to, for instance, index CDS and single name CDS may be similar, such counterparties may enjoy fewer benefits of these final rules. However, we note that the rules being adopted require disclosures specific to security-based swap transactions, and certain disclosures will need to be tailored to a particular security-based swap.
In addition to direct costs of compliance born by SBS Entities, to the extent that disclosures will provide new and relevant information about SBS Entity conflicts of interest, SBS Entities with significant conflicts of interest may lose business to SBS Entities that do not have such conflicts. While this requirement may impose costs on those SBS Entities with the most acute conflicts, such disclosures may benefit less conflicted SBS Entities, enhance protections of counterparties, and improve the ability of market participants to make informed counterparty decisions.
We have considered the costs and benefits of an alternative requiring a disclosure of the difference in compensation between selling a security-based swap versus another product with similar economic terms, or expected profit of the SBS Entity from the transaction, as suggested by some commenters.
SBS Entities are for-profit entities, buying security-based swaps from counterparties seeking to sell them; and selling swaps to counterparties seeking to purchase them. When SBS Entities carry balance sheet risk, they profit from directional price moves that result in losses for their counterparties and so, they may have an incentive to offload security-based swaps in their inventory on less informed non-dealer counterparties, even where such security-based swaps are unsuitable. When SBS Entities hedge their inventory risk and do not carry balance sheet exposure, they benefit from charging higher costs and fees to their counterparties. SBS Entity business incentives may, therefore, be generally competing with the interests or positions of their counterparties. However, SBS Entities have reputational incentives and benefit from intermediating a greater volume of trade which, all else given, mitigates this conflict. Further, it is unclear that market participants are generally unaware of these competing incentives.
SBS Entities act as principal risk holders and transacting agents effecting security-based swaps on behalf of their customers. An SBS Entity's expected return on a security-based swap depends on, among others, price terms of the swap, cost of funds, shorting constraints, balance sheet exposures, costs of underlying elements of the security-based swap, and costs of structuring the security-based swap. It is unclear that disclosure of expected profits of an SBS Entity has any bearing on a counterparty's expected cost of the transaction, quality of execution or assessment of the risks of a security-based swap given the counterparty's investment objectives, horizons, hedging needs, financial condition etc.
Rule 15Fh-3(c) requires SBS Entities to disclose the daily mark to counterparties other than SBS or Swap Entities upon request. For cleared security-based swaps, the rules require an SBS Entity to disclose, upon request of the counterparty, the daily mark that the SBS Entity receives from the appropriate clearing agency. For uncleared swaps, Rule 15Fh-3(c) implements the statutory provision and requires the SBS Entity make this disclosure on a daily basis for any uncleared security-based swap by providing the midpoint between the bid and offer, or the calculated equivalent thereof, as of the close of business unless the parties agree in writing otherwise. The method for computing the daily mark is not provided in the statute. For uncleared swaps, the SBS Entity would also be able to use market quotations for comparable security-based swaps and model implied valuations. The SBS Entity is also required to disclose data sources, methodologies and assumptions used to prepare the daily mark, and promptly disclose any material changes to the above during the term of the security-based swap.
Similar to the economic effects of disclosures concerning material risks and characteristics of security-based swaps, the overall impact of the daily mark disclosure depends on the severity of the informational asymmetries between SBS Entities and counterparties regarding market prices of security-based swaps; the amount of disclosure unsophisticated counterparties require to become better informed; the informativeness of the disclosures; and the direct and indirect costs of producing such disclosures by SBS Entities. For cleared security-based swaps, the requirement to disclose the daily mark from clearing agencies is an explicit statutory requirement, and provides a standardized and comparable reference point for counterparties.
The ability of SBS Entities to rely on quotes, model imputed prices or prices of comparable security-based swaps to calculate the daily mark for uncleared swaps may produce valuations that are potentially superior to stale market prices on illiquid contracts. However, we continue to recognize that SBS Entities may influence the daily mark disclosed to their less sophisticated counterparties by varying modeling assumptions, data sources and methodology which produce the daily mark, as supported by some commenters.
As we recognized in the Proposing Release,
We are sensitive to cost considerations, and recognize that costs borne by SBS Entities as a result of the final business conduct rules may be passed on to counterparties in the form of higher transaction costs. Further, if these costs are significant, SBS Entities may reduce their security-based swap activity or become less willing to intermediate swaps with certain groups of counterparties. As a result, liquidity, price discovery and market access of certain groups of counterparties may be adversely affected. As articulated in the Proposing Release, we understand that SBS Entities routinely assess end-of-day values in the course of their business as an integral component of risk management. We continue to believe that SBS Entities may already be estimating values that may be used to fulfil the daily mark disclosure requirement, and, therefore, to the extent this is the case, direct compliance costs of this requirement to costs of producing disclosures may be less than estimated above.
One commenter indicated that requiring Major SBS Participants to comply with the daily mark requirement for uncleared swaps would result in “significant, unnecessary increased costs without any meaningful benefit.”
As discussed in Section II,
Currently, entities that are likely to trigger SBS Entity registration requirements due to their volume of dealing activity are not required to disclose daily marks of security-based swaps, or data sources, assumptions and methodologies used to calculate them. While this requirement is currently effective in swap markets and some SBS Entities may be making such security-based swap specific disclosures voluntarily, these final rules impose mandatory disclosure requirements on all SBS Entities in their security-based swap transactions with counterparties that are not themselves SBS Entities or Swap Entities. The requirement to disclose data sources, assumptions and methodology used to calculate the value of security-based swaps may reduce the informational advantage SBS Entities enjoy as a result of developing superior valuation models or information, as supported by public comments.
Finally, Rule 15Fh-3(d) requires SBS Entities to make disclosures regarding clearing rights to counterparties that are not SBS Entities or Swap Entities before entering into the security-based swap. For security-based swaps not subject to mandatory clearing, the SBS Entity would be required to determine whether the security-based swap is accepted for clearing by one or more clearing agencies, to disclose the names of clearing agencies that accept the security-based swap for clearing, and to notify the counterparty of their right to elect clearing and the agency used to clear the transaction. For security-based swaps subject to mandatory clearing, the final rules require SBS Entities to disclose clearing agency names to the counterparty, and to notify the counterparty of their right to select the clearing agency subject to Section 3C(g)(5) of the Act. The rule also requires SBS Entities to make a written record of the non-written disclosures and provide counterparties with a written version of these disclosures no later than the delivery of the trade acknowledgement of the transaction.
The required disclosure of clearing rights may increase how informed a counterparty is concerning the availability of clearing in general, the ability to require clearing of security-based swaps, as well as the names of clearing agencies that may accept a given security-based swap for clearing. The reliance on standardized disclosures may lead to more general and less transaction specific information being communicated, reflecting information that has already been absorbed by market participants and potentially reducing these benefits. To the extent that the rule results in greater transparency concerning clearing rights, the volume of cleared security-based swaps may increase.
We note that clearing is currently voluntary and available for CDS only.
Currently, SBS Entities are not yet required to register and are not subject to substantive Title VII requirements, including business conduct rules. Therefore, SBS Entities currently are not required to produce disclosures concerning clearing rights and a list of clearing agencies accepting a security-based swap for clearing. Entities that are currently registered with the CFTC as Swap Entities are required to make clearing rights disclosures for swap transactions. Under these final rules, all SBS Entities will bear costs of producing the clearing rights disclosures pertaining to security-based swap transactions, and communicating them to their counterparties other than SBS Entities and Swap Entities, as estimated in Sections V and VI.C above. However, we recognize that these costs may be lower for dually registered SBS Entities that may have already adjusted their systems and practices to comply with parallel CFTC rules. We also recognize that if, as a result of the disclosure, some counterparties begin choosing to clear as well as choosing the agency used to clear the transaction, SBS Entities may lose potentially beneficial flexibility related to clearing, which may affect the price of security-based swaps. In addition, if clearing rights disclosures lead to a greater volume of transactions cleared through registered clearing agencies, increases in clearing costs borne by SBS Entities may be passed on to counterparties.
SBS Dealers intermediate large volumes of security-based swaps, buying products from counterparties seeking to sell them; and selling swaps to counterparties seeking to purchase them. When SBS Dealer exposure is not hedged by offsetting transactions with other dealers, SBS Dealers act as principal risk holders, benefiting from directional price moves that result in losses for their counterparties, and vice versa. SBS Dealers carrying inventory may have an incentive to recommend security-based swaps from their inventory that may be unsuitable to their counterparties, but help to manage dealer inventory risk. When SBS Dealers hedge the underlying risk of a transaction, dealer profits stem from commissions and fees charged to their counterparties in relation to the security-based swap. As a result, SBS Dealer incentives may be generally inconsistent with, or may be contrary to the economic interests of their counterparties.
As discussed in earlier sections, SBS Dealers are more informed than their non-dealer counterparties as they can directly observe pre-trade requests for quotes and order flow. Where SBS Dealers have previously acted in other capacities, such as in the capacity of an underwriter, arranger or structurer of a security-based swap, they may have superior information about the quality and risk of a specific security-based swap and its underlying assets. As a result, SBS Dealers may have superior information about the inherent value and risk of security-based swaps, including information concerning whether a given security-based swap is unsuitable for a particular non-dealer counterparty given the counterparty's horizon and ability to absorb losses, among other things.
When SBS Dealers advise their counterparties regarding security-based swaps, the above conflicts of interest may result in recommendations of security-based swaps that may be unsuitable for a given counterparty. For instance, more complex security-based swaps are more opaque and difficult to price for less informed counterparties; they may also be unsuitable for a greater number of non-dealer counterparties.
Under Rule 15Fh-3(f)(1), SBS Dealers recommending security-based swaps or trading strategies involving a security-based swap to counterparties other than an SBS Entity or a Swap Entity are required to (i) undertake reasonable diligence to understand potential risks and rewards associated with the recommendation; and, (ii) have a reasonable basis to believe that the recommended swap or strategy is suitable for the counterparty, taking into account, among other things, the counterparty's investment profile, trading objectives and ability to absorb potential losses. Rule 15Fh-3(f)(2) includes an alternative for institutional counterparties (defined as a counterparty that is an eligible contract participant as defined in clauses (A)(i), (ii), (iii), (iv), (viii), (ix) or (x), or clause (B)(ii) of Section 1a(18) of the Commodity Exchange Act and the rules and regulations thereunder, or any person (whether a natural person, corporation, partnership, trust or otherwise) with total assets of at least $50 million) that allows an SBS Dealer to satisfy its customer-specific suitability obligations in Rule 15Fh-3(f)(1)(ii) if (i) the SBS Dealer reasonably determines that the counterparty or agent with delegated authority is capable of independently evaluating investment risks with respect to a given security-based swap or strategy; (ii) the counterparty or agent represents in writing that they are exercising independent judgment in evaluating the dealer's recommendations; and (iii) the SBS Dealer discloses that it is acting as a counterparty and not assessing suitability. Under Rule 15Fh-3(f)(3), an SBS Dealer will be deemed to have satisfied the requirements of the first prong of the institutional suitability alternative in Rule 15Fh-3(f)(2)(i) if it receives written representations that: (i) In the case of a counterparty that is not a special entity, the counterparty has complied in good faith with written policies and procedures that are reasonably designed to ensure that the persons responsible for evaluating the recommendation and making trading decisions on behalf of the counterparty are capable of doing so; and (ii) in the case of a counterparty that is a special entity, satisfy the terms of the safe harbor in Rule 15Fh-5(b).
Rule 15Fh-3(f)(1) may benefit counterparties by requiring that SBS Dealers undertake reasonable diligence to understand the potential risk and
The suitability requirement will impose costs on SBS Dealers. First, the rule requires SBS Dealers to undertake reasonable diligence to understand the potential risks and rewards of the security-based swaps or trading strategy involving a security-based swap they recommend. Second, the rule will involve direct costs required to make an assessment of suitability of a security-based swap or asset class for each counterparty.
In considering the economic effects of this final rule, we note that the suitability requirement does not apply to recommendations made to SBS Dealers, Major SBS Participants, Swap Dealers, or Major Swap Participants. Therefore, the rule may result in higher costs to SBS Dealers in transacting with non-SBS or Swap Entity counterparties. Additionally, costs of suitability assessments may be higher for counterparties with which an SBS Dealer has had no prior transactions.
The rule may adversely affect counterparties of SBS Dealers that are not themselves SBS Dealers, Major SBS Participants, Swap Dealers, or Major Swap Participants. In addition, SBS Dealer cost increases due to suitability assessments discussed above may be passed on to counterparties, and, if a significant percentage of the costs cannot be recovered, the willingness of SBS Dealers to make recommendations to non-dealer counterparties may decrease. Further, SBS Dealers may have superior information about the quality of security-based swaps they intermediate, but have significantly less information about their counterparty. This informational asymmetry may result in SBS Dealers not recommending security-based swaps that may be potentially suitable to the counterparty. Moreover, to the extent that customer suitability evaluations take time and require additional due diligence, the rule may result in execution delays, particularly during times of high market volatility when the value of risk mitigation may be higher. We note, however, that suitability requirements apply only with respect to swaps being recommended by SBS Dealers, and counterparties may continue to have access to security-based swaps intermediated without bundled SBS Dealer advice, as well as swaps executed on SEFs or registered exchanges.
The above benefits and costs of the suitability rule are likely to be limited by the scope of these final rules and the institutional suitability alternative. The suitability requirement is limited to transactions between SBS Dealers and counterparties that are not themselves SBS or Swap Entities. We believe that SBS Entities are likely to be able to independently evaluate material risks, pricing, and overall suitability of a security-based swap given, among others, their investment objectives and risk tolerance. As shown in Figure 3, the majority of trades and trade notional involved trades among dealers, which substantially reduces the scope of application of the suitability requirement. Further, as discussed below, the scope of application of the suitability rule may be reduced if SBS Dealers are able to take advantage of the institutional suitability alternative for customer-specific suitability with respect to a significant fraction of transactions.
As noted in the proposing release,
Rule 15Fh-3(f)(2) includes an institutional suitability alternative for customer-specific suitability assessments. SBS Dealers will be deemed to have fulfilled their customer-specific suitability obligations if they reasonably determine that the counterparty or its agent is capable of independently evaluating the investment risks; the counterparty or agent affirmatively represents in writing that they are evaluating the investment independently; and the SBS Dealer discloses that it is not undertaking to assess suitability for the counterparty. The institutional suitability alternative for customer-specific suitability requirements will not be available with respect to counterparties that are not institutional counterparties (defined as a counterparty that is an eligible contract participant as defined in clauses (A)(i), (ii), (iii), (iv), (viii), (ix) or (x), or clause (B)(ii) of Section 1a(18) of the Commodity Exchange Act and the rules and regulations thereunder, or any
As a result of the institutional suitability alternative, SBS Dealers will not be required to undertake customer-specific suitability evaluations for counterparties that the rule presumes are capable of independently evaluating investment risks with regard to the relevant security-based swap or trading strategy involving a security-based swap. As shown in Table 2 of the economic baseline, between November 2006 and December 2014, 99% of private funds, 100% of registered investment companies, 72% of insurance companies, 75% of non-financial firms and 98% of special entities were represented by investment advisers. Hence, non-dealer counterparties generally have third-party representation and may be able to evaluate security-based swaps independently of SBS Dealers. Many SBS Dealers may be able to rely on the institutional suitability alternative to fulfill their customer-specific suitability obligations. Therefore, a large fraction of transactions may qualify for the institutional suitability alternative, and the economic effects of the suitability requirement above may accrue to a small share of security-based swap market activity.
In addition, the institutional suitability alternative for customer-specific suitability will not be available for SBS Dealers making recommendations to counterparties that are not institutional counterparties. The $50 million asset threshold in the institutional counterparty definition narrows the scope of the alternative and increases the potential counterparty protection and allocative efficiency benefits of the final suitability rule. Our data do not allow us to estimate how many counterparties that would not meet the institutional counterparty definition are currently transacting in security-based swap markets and relying on recommendations by SBS Dealers, asset size thresholds for counterparties at which the intended information and counterparty protection benefits of these final rules become significant, or the extent to which asset size and counterparty sophistication may be correlated in security-based swap markets. We also recognize that the $50 million asset size threshold may increase costs and diverges from the suitability safe harbor adopted by the CFTC as part of business conduct standards for Swap Entities. As a result, all SBS Dealers that are dually registered with the CFTC as Swap Dealers will face a bifurcated suitability standard in swaps and security-based swaps, such as index CDS and single name CDS, with respect to counterparties that do not meet the institutional counterparty definition. In response to these final rules, dually registered SBS Dealers may choose not to rely on the institutional suitability alternative when making recommendations to counterparties that do not meet the institutional counterparty definition in both swap and security-based swap markets.
Direct burdens and costs of suitability assessments have been estimated above. The Commission also recognizes that this aspect of the institutional suitability alternative may increase system complexity, liability and other costs less amenable to quantification that SBS Dealers will incur as a result of advising and transacting with small counterparties in security-based swaps. These costs may be passed on to counterparties of SBS Dealers, which may experience an increase in transaction costs, decreased access to SBS Dealer advice, or decreased willingness of SBS Dealers to intermediate over-the-counter security-based swaps.
However, affected counterparties may continue to retain access to anonymous SEF or exchange executed security-based swaps, which are not subject to the suitability requirements of these final rules. Further, while the asset threshold in the institutional suitability alternative diverges from the CFTC's approach to suitability for Swap Dealers, it aligns with FINRA's asset threshold for the institutional account definition. SBS Dealers cross-registered as broker-dealers are currently unable to rely on institutional suitability when recommending less complex products, such as vanilla equity or fixed income instruments, to the same group of counterparties, and may be less affected by the institutional counterparty asset threshold for the suitability alternative. We note that SBS Dealers will be able to avail themselves of the institutional suitability alternative when making recommendations to certain financial institutions, insurance companies, registered investment companies, commodity pools with at least $5 million in assets, broker-dealers, futures commission merchants, floor brokers, investment advisers and commodity trading advisors with less than $50 million in assets. As discussed above, the Commission believes that the $50 million asset threshold may enhance counterparty protection and allocative efficiency benefits of the final suitability rule relative to the alternative of not including an asset threshold as part of institutional suitability.
We note that the institutional suitability alternative is not applicable to the suitability requirement to undertake reasonable diligence to understand the potential risks and rewards associated with the recommended security-based swap or trading strategy involving a security-based swap. However, when SBS Dealers rely on the alternative, they will not be required to make customer-specific suitability assessments with respect to individual counterparties' investment profile, trading objectives and ability to absorb losses.
As clarified in Section II, the Commission believes that parties should be able to make the disclosures and representations required by Rules 15Fh-3(f)(2) and (3) on a transaction-by-transaction basis, on an asset-class-by-asset-class basis, or in terms of all potential transactions between the parties. As a result, SBS Dealers will not be required to assess customer-specific suitability of whole asset classes or all security-based swaps, if the counterparty makes appropriate representations and other institutional suitability requirements are met.
To the extent that security-based swaps are heterogeneous in their risk and expected return characteristics, and since the degree of counterparty sophistication and familiarity with various types of security-based swaps may vary over time, such an approach to institutional suitability may lower the benefits of the rule. However, the ability to take advantage of the institutional suitability alternative for groups of security-based swaps, asset classes or counterparties as a whole mitigates the burdens imposed on SBS Dealers,
In addition to the above considerations concerning institutional suitability, we note that the final suitability requirements will not apply if an SBS Dealer does not recommend a security-based swap or trading strategy involving a security-based swap to counterparties. As estimated above, the suitability requirement imposes costs on SBS Dealers, and may decrease their willingness to recommend security-based swaps to non-SBS or Swap Entity counterparties. However, as discussed throughout the release, we believe that the overwhelming majority of market participants already have access to third party advice concerning security-based swaps.
Finally, suitability obligations will also apply to transactions with special entities, and the institutional suitability alternative described above will be available for special entity counterparties that meet the institutional counterparty definition (
The business conduct rules being adopted include a number of requirements for SBS Entities specific to their dealings with special entities governing, among other things: (a) The scope of entities that will be subject to the substantive special entity standards; (b) the duty to verify and inform entities when they are eligible to elect not to be considered a special entity for the purposes of these rules; (c) the definition of qualified independent representative for such purposes; (d) the conduct of SBS Entities when they act as counterparties to special entities; (e) the conduct of SBS Dealers when they act as advisors to special entities.
First, as part of verification of status requirement under Rule 15Fh-3(a)(2), SBS Entities will be required to verify whether a counterparty is a special entity before entering into a security-based swap, unless the transaction is executed on a registered or exempt SEF or registered national securities exchange, and the SBS Entity does not know the identity of the counterparty at a reasonably sufficient time prior to execution of the transaction to permit the SBS Entity to comply with the rule. Under Rule 15Fh-3(a)(3), an SBS Entity shall also verify whether a counterparty is eligible to elect not to be a special entity, and, if so, notify such counterparty of its right to make such an election. Rule 15Fh-2(e) defines the scope of special entities to include, among other things, federal and state agencies, States, cities, counties, municipalities, and other political subdivisions of a State, instrumentalities, departments or corporations of or established by a State or political subdivision of a State, employee benefit plans subject to Title I of ERISA, governmental plans as defined in Section 3(32) of ERISA, and endowments. Rule 15Fh-2(e) also provides that employee benefit plans defined in Section 3 of ERISA, that are not otherwise defined as special entities, may elect not to be treated as special entities by notifying an SBS Entity prior to entering into a security-based swap.
These final rules define the set of special entities that will be able to avail themselves of the protections in these final rules. The inclusion of entities defined in, but not subject to, ERISA into the special entity category, subject to an opt out provision, increases the set of market participants afforded the counterparty protections under the final business conduct standards, relative to the exclusive application of these rules to entities subject to ERISA.
We note that the opt out approach for special entities defined in, but not subject to, ERISA differs from parallel CFTC business conduct rules, which allow such entities to opt into the special entity status instead. As discussed in the economic baseline, the Commission expects extensive cross-registration of SBS Entities as Swap Entities, and understands most market participants transact in both swap and security-based swap markets. To the extent that SBS Entities have significant bargaining power in transactions with special entities, special entities that have selected not to opt into the special entity status in swap markets are likely to opt out of similar protections under these final rules. Therefore, it is unclear whether the ability of special entities defined in, but not subject to ERISA to opt out of special entity protections would lead to a greater number of special entities benefiting from counterparty protections in these final rules, relative to the opt in approach. We also recognize that under the final rules, if a special entity chooses to opt out of the special entity status, it would be required to provide a written notice to the SBS Entity and would bear related costs. The overall economic effects of this rule will, therefore, depend on the number of entities defined in, but not subject to, ERISA that will choose to opt out of the special entity status, the costs of producing notices, and magnitude of the transaction cost increases in OTC security-based swaps resulting from compliance with these final special entity rules.
Estimates of special entity market participants in our economic baseline are based on manual account classifications, and our data is not sufficiently granular to estimate the number of special entities defined in but not subject to ERISA currently active in security-based swap markets that may be scoped in by these rules. Special
Special entity requirements and related costs will not apply to security-based swaps transacted on registered national securities exchanges and registered or exempt SEFs, if the SBS Entity does not know the identity of the counterparty at a reasonably sufficient time prior to execution of the transaction to permit the SBS Entity to comply with the obligations of the rules. We recognize that some security-based swaps executed on a SEF or exchange may be bilaterally negotiated, which may point to potential counterparty and information benefits of applying the business conduct rules to SEF and exchange traded security-based swaps. However, bilateral negotiations are likely to require an SBS Entity to know the identity of the counterparty at a reasonably sufficient time prior to execution to permit compliance. We also recognize that conflicts of interest may affect SBS Dealer recommendations of security-based swaps regardless of the venue in which these transactions are executed. It is not clear whether an SBS Dealer would be able to make a recommendation to a counterparty whose identity is not known at a reasonably sufficient time prior to execution. Finally, as we discuss throughout the release, while business conduct rules, including rules concerning special entities, may result in significant benefits, they will impose direct and indirect costs on SBS Entities. In the context of SEF transactions, the application of these rules may increase transaction costs, add complexity and delays, or require negotiation with counterparties. To the extent that security-based swaps executed through SEFs may represent exclusively arms-length transactions, the terms of which are not negotiated, the imposition of the final business conduct rules on such trades could increase costs without corresponding benefits anticipated by these final rules. For instance, if clearing reduces credit risk of counterparties, SBS Entities may compete on transaction costs and quality of execution, as opposed to credit risks of the transaction, as suggested by commenters.
As discussed in Section II, the special entity definition does not include collective investment vehicles, and the final rules do not require SBS Dealers to determine whether any of the investors in the collective investment vehicle counterparty qualify as special entities. Such an approach limits the scope of application of these final rules, reducing potential counterparty protection and allocative efficiency benefits, but also potential costs and risks of loss of access by special entities and entities defined in, but not subject to ERISA, to security-based swaps.
Under final Rule 15Fh-5(a) an SBS Entity that offers to enter or enters into a security-based swap with a special entity must have a reasonable basis to believe that the special entity has a qualified independent representative. Under Rule 15Fh-5(c), before initiating a swap, an SBS Dealer will also be required to disclose in writing the capacity in which the dealer is acting in connection with the security-based swap. Additionally, if the SBS Dealer or its associated persons engage or have engaged in business with the special entity in more than one capacity, the dealer would be required to disclose the material differences between such capacities and any other financial transactions or service involving the special entity. As discussed in section II.H.7 supra, the SBS Dealer may use generalized disclosures regarding the capacities in which the SBS Dealer and its associated persons have acted or may act with respect to the special entity, along with a statement distinguishing those capacities from the capacity in which the SBS Dealer is acting with respect to the present security-based swap. The requirements in Rule 15Fh-5 do not apply to a security-based swap if the transaction is being executed on a registered or exempt SEF or registered national securities exchange, and the SBS Entity does not know the identity of the counterparty at a reasonably sufficient time prior to execution of the transaction to permit compliance with these obligations.
Qualified independent representatives must have sufficient knowledge to evaluate the transaction and risks; may not be subject to statutory disqualification; undertake a duty to act in the best interests of the special entity; appropriately and timely disclose material information concerning the security-based swap to the special entity; evaluate, consistent with any guidelines provided by the special entity, the fairness of pricing and appropriateness of the security-based swap; and for certain types of special entities the representative must be subject to rules for the Commission, the CFTC, or a SRO prohibiting it from engaging in specified activities if certain political contributions have been made, unless the representative is an employee of the special entity. Independence requires that a representative does not have a relationship with the SBS Entity, whether compensatory or otherwise, that reasonably could affect the independent judgment or decision-making of the representative. A
In contrast with the final rule, the proposed rule defined independence based on a two-prong test of (1) associated person status within the preceding year; and (2) ten percent or greater revenue reliance on a given SBS Entity. We are sensitive to commenter concerns that this definition may impose undue restrictions and cost burdens on SBS Entities, and may be difficult to implement.
Under this rule, special entities transacting with more informed and sophisticated SBS Entities will have the benefit of representation by a qualified independent representative that has a duty to act in the best interests of the entity. To the extent that some special entities are less informed about security-based swaps and less able to unwind biases that may exist in potentially conflicted recommendations than other counterparties, this requirement may appropriately facilitate stronger protections and superior capital allocation decisions by special entities. Better informed special entities, such as large well-informed pension funds that regularly transact in security-based swaps, are likely to enjoy fewer benefits of this requirement. However, they may also be more likely to use investment advisers in their current security-based swap transactions, in which case they would need to make that representation to an SBS Dealer under Rule 15Fh-5(b). In addition, similar to our earlier discussion of suitability rules, to the extent that special entities may be entering security-based swap transactions with inferior risk-return characteristics as a result of internal incentive conflicts or macro factors, such as reaching for yield in a low interest rate environment, the benefits of these protections may be muted.
Further, special entities that transact with the SBS Dealer in a variety of roles, such as investment adviser or underwriter, will benefit from greater transparency about the capacity in which the dealer is entering the security-based swap. For instance, if an SBS Dealer currently engages in business with a special entity in the capacity of an investment adviser, the SBS Dealer would be required to disclose that it is not acting in such capacity if it is seeking to enter into a security-based swap with the special entity. This may help counterparties better understand the nature of the incentives of an SBS Dealer in relation to a given security-based swap transaction.
This rule will involve direct and indirect costs. SBS Entity counterparties will incur costs of obtaining a reasonable basis to believe that the special entity has a qualified independent representative. Based on our estimates in Section V, all SBS Entities acting as counterparties to special entities will incur an aggregate initial cost of, approximately, $132,819,500.
Ongoing: (In-house attorney at $380 per hour) × 22,500 hours = $8,569,000.
In addition, some special entities may be entering security-based swaps with SBS Entities that are not in their best interest, and advice from qualified independent representatives may help inform special entities and enable them to make better investment decisions. Therefore, this rule may improve allocative efficiency of security-based swap investments. However, as noted earlier, SBS Entities are for-profit entities, and, to the extent that SBS Entities are currently intermediating security-based swaps that are not in the best interests of some of their special entity counterparties, the rule may lower an SBS Entity's profitability of intermediating security-based swaps with special entities. SBS Entities may attempt to recoup these costs in the form of less attractive security-based swap terms, or become less willing to transact with special entities. As an additional consideration, entities with activity levels below
These costs may be lower if SBS Entities' special entity counterparties provide representations that allow SBS Entities to take advantage of the safe harbor in Rule 15Fh-5(b). Our data do not allow us to estimate the number of
As estimated above, all special entity counterparties of SBS Entities will face costs of making representations to SBS Entities concerning their reliance on independent advisors acting in their best interests. To the extent SBS Entities transact with special entities that are not already relying on representatives, or are relying on representatives that would not meet the qualification and independence criteria in these final rules, such special entities would incur costs of obtaining a new representative and making necessary representations, if they wish to facilitate the SBS Entities' reliance on the safe harbor. This may increase demand for the services of qualified independent representatives, and independent representatives may require higher compensation to reflect such higher demand. Such costs will depend on the number of third-party representatives of special entities that do not currently meet the independence and qualification requirements of these final rules; the resulting increase in the demand for new representation; and the supply of investment advisers not currently representing special entities in security-based swaps that would be considered qualified and independent under these final rules. We lack data to quantify these effects and commenters did not provide information that would enable such quantification. We are, therefore, unable to estimate these costs.
Under the final rules, SBS Entities may become counterparties of special entities only if they have a reasonable basis to believe that the special entity has a qualified independent representative. We note that Rule 15Fh-1(b) allows SBS Entities to rely on written representations of a counterparty to satisfy its due diligence requirements. As a result, SBS Entities that can rely on representations will not be required to conduct independent assessments of the qualifications or independence of special entity representatives, as proposed by some commenters.
Rule 15Fh-2(a) introduces in a default presumption that an SBS Dealer acts as an advisor to a special entity when it recommends a security-based swap or a trading strategy that involves the use of a security-based swap to the special entity. The rule provides a safe harbor, where an SBS Dealer will not be acting as advisor when a special entity represents that it acknowledges that the SBS Dealer is not acting as an advisor, that the special entity will rely on advice from a qualified independent representative, and the SBS Dealer discloses to the special entity that it is not undertaking to act in the best interest of the special entity. The rule also provides a safe harbor for SBS Dealers transacting with ERISA special entities, where the SBS Dealer will not be acting as an advisor if the special entity represents that it has an ERISA fiduciary; the fiduciary represents in writing that it acknowledges that the SBS Dealer is not acting as an advisor; and the special entity represents either that it will comply in good faith with written policies and procedures designed to ensure that any recommendation received from the SBS Dealer involving a security-based swap transaction is evaluated by a fiduciary, or that any recommendation received from the SBS Dealer involving a security-based swap transaction will be evaluated by a fiduciary.
Rule 15Fh-4(b) establishes requirements for an SBS Dealer acting as an advisor to special entities. Rule 15Fh-4(b)(1) provides that an SBS Dealer acting as an advisor to a special entity shall have a duty to make a reasonable determination that any security-based swap or trading strategy involving a security-based swap recommended by the SBS Dealer is in the best interests of the special entity. Rule 15Fh-4(b)(2) requires an SBS Dealer acting as an advisor to a special entity to make reasonable efforts to obtain such information that the SBS Dealer considers necessary to make such a determination.
The final rules except transactions executed on registered or exempt SEFs or registered national securities exchanges if an SBS Dealer does not know the identity of the counterparty at a reasonably sufficient time prior to execution to permit compliance with these final obligations.
As discussed in detail in earlier sections, SBS Dealers enjoy informational advantages relative to their nondealer counterparties, and are for profit entities with business interests that may conflict with those of their counterparties in principal and/or agency transactions. Hence, SBS Dealers may have conflicts of interest related to the security-based swaps and the securities underlying them.
Special entity counterparties may be aware of these fundamental incentives of SBS Dealers and of the complexity and opacity of security-based swaps, and may be able to recognize and parse out the potential bias in dealer recommendations. As discussed above, special entities represent a small fraction of market participants and almost exclusively rely on investment advisers. We also note that, to the extent special entities are currently allocating capital inefficiently in security-based swaps, they may be doing so for reasons unrelated to SBS Dealer recommendations, such as reaching for yield in a low interest rate environment,
As we have noted in prior sections, based on TIW data for 2006 through 2014, approximately 98% of special entities transacting in single name CDS trades in TIW rely on advisors. We lack data to estimate how many of these advisors may be considered qualified independent representatives for the purposes of the safe harbor. However, we recognize that the economic effects of this rule may be significantly reduced if many SBS Dealers avail themselves of the safe harbor in their transactions with and recommendations to special entities.
We note that under the final rules, when an SBS Dealer makes a recommendation to a special entity, and obtains the representations and makes the disclosures required by the safe harbor, the SBS Dealer will not be required to comply with the best interest standard in Rule 15Fh-4(b). However, if, in such cases the special entity counterparty has less than $50 million in assets (and therefore, does not meet the institutional counterparty definition), the SBS Dealer will still be required to comply with its customer-specific suitability obligations in Rule 15Fh-3(f)(1)(ii). This provision imposes customer-specific suitability obligations on SBS Dealers who cannot take advantage of the institutional suitability alternative in Rule 15Fh-3(f)(2). This may enhance potential counterparty protection and allocative efficiency benefits of the final special entity rules relative to the alternative of not imposing customer-specific suitability obligations with respect to special entities under the safe harbor with less than $50 million in assets. Our data do not allow us to estimate how many special entities would fall under the $50 million asset size threshold; asset size thresholds for special entities at which the intended information and counterparty protection benefits of these final rules become significant; or the extent to which asset size and special entity sophistication may be correlated in security-based swap markets.
We also recognize that this approach diverges from the institutional suitability alternative adopted by the CFTC as part of business conduct standards for Swap Entities. As a result, all SBS Dealers that are dually registered with the CFTC as Swap Dealers will face two different standards of care in swaps and security-based swaps when making recommendations to special entities with less than $50 million in assets. As a result, dually registered SBS Dealers may choose not to rely on the institutional suitability alternative when making recommendations to special entities with less than $50 million in both swap and security-based swap markets. This aspect of the alternative may increase costs that SBS Dealers will incur as a result of advising and transacting with small special entities in security-based swaps. SBS Dealers may reduce their provision of advice to small special entities or pass on such costs to counterparties in the form of higher transaction costs or a decreased willingness to intermediate over-the-counter security-based swaps. Further, as discussed above, the Commission believes that suitability obligations for special entities with less than $50 million in assets may increase the potential counterparty protection and allocative efficiency benefits of the final special entity rules. Therefore, the primary economic effects of these rules depend on the degree to which special entities rely on conflicted SBS Dealer recommendations in their security-based swap decisions, the value of biased security-based swap recommendations by SBS Dealers, the relative cost of outside investment advice concerning security-based swaps, and the fraction of SBS Dealers that will be able to take advantage of the qualified independent representative safe harbor.
Therefore, the primary economic effects of these rules depend on the degree to which special entities rely on conflicted SBS Dealer recommendations in their security-based swap decisions, the value of biased security-based swap recommendations by SBS Dealers, the relative cost of outside investment advice concerning security-based swaps, and the fraction of SBS Dealers that will be able to take advantage of the qualified independent representative safe harbor.
SBS Dealers will be unable to recommend security-based swaps that are not in special entities' best interests, and will therefore forego potential incremental profits from such transactions. SBS Dealer “best interest” determinations concerning recommended security-based swaps may potentially give rise to dealer liability or litigation risk if there are differences of opinion concerning the relative merits of different security-based swaps and counterparties incur losses. SBS Dealer registration is not currently required, disclosure of litigation reserves by SBS Dealers is not mandatory, and the economic magnitude of such costs will depend on how special entities, their representatives and SBS Dealers will respond to these final rules. Therefore, we are unable to estimate these costs. However, we recognize that some SBS Dealers may incur such costs. In addition, the aggregate initial costs of revising representations and collecting requisite information from special entities related to the requirements for SBS Dealers serving as advisors to special entities are estimated at $741,000.
SBS Dealers that are most affected by these costs may respond to the final rules by ceasing to provide security-based swap recommendations to special entities, limiting special entities' access to such investment advice, or by decreasing their willingness to intermediate OTC security-based swaps with special entities. However, we note that SBS Dealers that lose the most profit as a result of the requirement to provide advice in their counterparties' best interests may have been issuing more conflicted recommendations that were not in the special entities' best interests. Therefore, special entities may lose access to such conflicted advice, but the remaining advice by SBS Dealers should be consistent with special entities' best interest.
We have considered alternatives that result in tightening of the independence requirements for representatives, for instance, through the imposition of a longer look back period in the associated person prong of the independence definition. More stringent independence requirements may mitigate potential conflicts of interest and biases in security-based swap recommendations registered representatives make to special entities. However, as tabulated in Table 2, the majority of market participants rely on investment advisers for their security-based swap transactions, and more stringent definitions will limit the number of representatives qualified to advise special entities in security-based swaps. A decrease in the supply of independent representatives may increase the cost of retaining independent representation and limit access by smaller, less sophisticated counterparties that benefit from independent advice and representation
Finally, we have considered eliminating the independent representative safe harbor from the special entity requirements, as suggested by some commenters.
Similarly, prohibiting SBS Dealers from selling derivatives when the special entity would be better served by more traditional debt instruments, as suggested by one commenter,
Rule 15Fh-1(b) allows SBS Entities to rely on the written representations of a counterparty to satisfy its due diligence requirements, unless they have information that would cause a reasonable person to question the accuracy of the representation. While these final rules impose new costs on SBS Entities, Rule 15Fh-1(b) will enable SBS Entities to rely on representations in lieu of independent due diligence, under certain circumstances. Since SBS Entities may be able to rely on representations to fulfil the requirements in these final rules, we expect they will do so when the costs of reliance on representations are lower than those of independent due diligence, to the extent that special entities are willing and able to provide representations that meet the requirements of the rule. This may, therefore, provide potentially beneficial flexibility to SBS Entities in managing their compliance obligations under these final rules.
Relying on special entities' representations concerning the qualifications, and independence of investment representatives should be less costly for SBS Entities than conducting independent substantive evaluations of qualifications and independence of their counterparties' representatives. To the extent that the best interest standard introduces costs for SBS Entities, and to the extent that the qualified independent representative safe harbor may mitigate these costs as discussed in prior sections, Rule 15Fh-1(b) may enable SBS Entities to make recommendations and serve as counterparties to special entities at lower costs under reliance on counterparty representations than under independent due diligence. However, if an SBS Entity has information that would lead a reasonable person to question the accuracy of the representation, SBS Entities will be required to perform independent due diligence.
We have considered an “actual knowledge” standard as an alternative to the reliance on representation standard. Under an “actual knowledge” standard, an SBS Entity can rely on a representation unless it knows that the representation is inaccurate. The alternative could allow SBS Entities to rely on questionable representations insofar as they do not have actual knowledge that the representation is inaccurate, even if they have information that would cause reasonable persons to question their accuracy. As a result, this alternative would reduce the benefits of the verification of status, know your counterparty, suitability and special entity requirements and result in weaker protections for counterparties to SBS Entities. However, SBS Entities would be able to rely on counterparty representations with respect to a potentially greater set of transactions and counterparties. To the extent that reliance on representations may lower SBS Entity costs from these final business conduct rules, this actual knowledge standard alternative for reliance on representations has the potential to further reduce costs.
We have received mixed comments on the relative merits of these standards, with some commenters supporting the actual knowledge standard,
We note that under CFTC rules, Swap Entities are subject to the reasonable person reliance standard being adopted in these final rules. We also note that swap and security-based swap markets are interconnected, market participants transact across these markets, and many SBS Entities are expected to be dually-registered as Swap Entities. If the same dealers face differential compliance costs of transacting over the counter with the same special entities in, for instance, single name and index CDS, dealing activity may flow to the market with lower compliance costs, potentially fragmenting price discovery and liquidity. Further, the standard being adopted is likely more timely and cost effective than an approach permitting no reliance on representations.
We have also considered alternative approaches involving a higher standard for reliance on representations or requiring SBS Entities to conduct an independent analysis of conflicts and qualifications of each independent representative of a special entity, with which they may be negotiating swaps. This approach may enhance SBS Entities' due diligence with respect to representatives of special entity counterparties, but may decrease the willingness or ability of SBS Entities to provide special entities with access to security-based swaps.
When considering the likely magnitude of the economic effects of special entity rules discussed above, we note that, based on data for November 2006 through December 2014, approximately 98% of special entities relied on investment advisors for their single name CDS trades in DTCC-TIW, and only approximately 2% of special entities acted as a transacting agents.
We also recognize similarities between the CFTC's business conduct standards, FINRA rules, and the rules being adopted, as well as extensive cross-market participation—all of which may reduce both the economic costs (if dually registered entities have already restructured their compliance infrastructure to comply with similar rules) and the benefits of these rules (if, for instance, special entities have learned about potential biases in recommendations from new market practices of the same dealers in other financial markets). We note that our final business conduct standards include transaction level requirements. Therefore, as we discuss and estimate above, some benefits and costs related to individual security-based transactions are still likely to accrue to special entities, their qualified independent representatives, and SBS Entities; even those already subject to similar rules in other markets. Further, some SBS Entities and potential new entrants may not be cross-registered with the CFTC or with FINRA, and may, therefore, not already be subject to similar rules in other markets.
Finally, the rules relating to transactions with special entities will not apply to security-based swaps executed on registered or exempt SEFs or registered national security exchanges, where SBS Entities do not know the identity of the counterparty at a reasonably sufficient time prior to execution of the transaction to permit the SBS Entity to comply with the obligations of the rules. Therefore, special entities would not receive the benefits of additional counterparty protections of these rules when transacting anonymously through SEFs or registered national securities exchanges. However, as noted earlier these final rules may increase the costs of SBS Entities and reduce their information rents, which may lead SBS Entities to seek to recover lost profits through more adverse terms of OTC swaps sold to special entities, or reduced willingness to transact with special entities. Since anonymous SEF
The final business conduct rules include a set of antifraud provisions covering SBS Entity transactions with all counterparties, and with special entities. With respect to special entities, rules 15Fh-4(a)(1) and 15Fh-4(a)(2) prohibit SBS Entities from employing any device, scheme, or artifice to defraud special entities, and from engaging in any transaction, practice or course of business that operates as a fraud or deceit. Rule 15Fh-4(a)(3) imposes a general ban on SBS Entities engaging in any act, practice, or course of business that is fraudulent, deceptive or manipulative.
To the extent fraudulent, deceptive or manipulative conduct may affect the choice of the SBS Entity's counterparty and the decision to enter into a given swap, antifraud protections may lead to an increased flow of transactions to SBS Entities not engaging in fraudulent practices. To the extent that the risk of fraud may affect the willingness of market participants to transact in security-based swap markets, antifraud protections may increase the willingness of non-SBS or Swap Entity counterparties to participate in security-based swap markets. We recognize that, as indicated by a commenter, general antifraud and anti-manipulation provisions of existing federal securities laws and Commission rules offer similar protections.
The Commission is not establishing a policies and procedures safe harbor for non-scienter violations, or provisions regarding the protection for counterparty confidential information. As an alternative to these final rules, the Commission could adopt such a safe harbor. For instance, the Commission could adopt a rule where an SBS Entity would be able to establish an affirmative defense by demonstrating that it did not act intentionally or recklessly, and complied in good faith with written policies and procedures reasonably designed to meet this particular requirement. The adoption of such a safe harbor may reduce compliance and litigation costs related to nonscienter fraudulent, deceptive or abusive practices or conduct that may occur despite SBS Entities having developed and implemented all relevant policies and procedures, acting in good faith. However, a safe harbor against fraud may weaken counterparty protections in a market for complex and opaque securities.
Under rule 15Fh-3(g), SBS Entities are required to communicate with counterparties in a fair and balanced manner based on principles of fair dealing and good faith. As discussed in Sections I and II, this rule is harmonized with FINRA's communications with the public rule. To the extent that up to 16 likely SBS Entities may be cross-registered as broker-dealers, some SBS Entities are already complying with these requirements with respect to securities transactions. Specifically, all communications must provide a sound basis for evaluating a given security-based swap or trading strategy, communications may not imply that past performance will recur, or make exaggerated and unwarranted claims. Rule 15Fh-3(g) clarifies the kinds of communications that would be consistent with fair dealing or good faith communications. In conjunction with the antifraud rules and enhanced disclosure requirements, the fair and balanced communications rule aims to provide transparency to market participants transacting with SBS Entities. To the extent to which counterparties of SBS Entities may have asymmetric information or are less sophisticated, this requirement may help protect counterparties and improve their ability to select the most appropriate security-based swap and counterparty.
We recognize that the requirement may impose costs on SBS Entities. As indicated in Section V, the related initial aggregate costs are estimated at $917,400 for the industry, with ongoing costs of approximately $125,400.
Rule 15Fh-3(h) requires SBS Entities to establish and maintain a supervision system and diligently supervise their business and the activities of their associated persons. At a minimum the supervisory system must (1) designate at least one person with supervisory authority for each type of a business in which the SBS Entity engages that requires registration as an SBS Entity; (2) use reasonable efforts to determine that all supervisors are qualified; and (3) establish, maintain and enforce written policies and procedures addressing the supervision of the types of security-based swap business an SBS Entity is engaged in and the activities of its associated persons, that are reasonably designed to prevent violations of applicable securities laws, and rules and regulations thereunder. The rule lists specific types of policies and procedures that must be included.
In addition, SBS Entities and their associated persons will not be deemed to have failed to diligently supervise if (1) the SBS Entity has certain written policies and procedures and a documented system for applying them that would reasonably be expected to prevent and detect, insofar as practicable, any violation of the federal securities laws and the rules and regulations thereunder relating to security-based swaps; and (2) the SBS Entity or its associated person has reasonably discharged the duties and obligations required by such written policies and procedures and system, and did not have a reasonable basis to believe they were not being followed.
Lastly, SBS Entities have an obligation to promptly amend written supervisory policies and procedures when there are material changes to applicable securities laws, rules and regulations, or when there are material changes to the SBS Entity's business or supervisory system. SBS Entities are also required to promptly communicate any material amendments to their supervisory procedures to all associated persons to whom such amendments are relevant based on their activities and responsibilities.
The Commission recognizes that these final supervision rules may impose certain burdens and costs on SBS Entities. Specifically, SBS Entities will be required to establish and maintain a supervision system consistent with the minimum requirements articulated in Rule 15Fh-3(h); to diligently supervise their business and the activities of their associated persons; and to amend their written supervisory policies and procedures when material changes
We have considered the alternative of excluding Major SBS Participants from the scope of the supervision rules and have received mixed comment on the issue, as discussed in Section II. One commenter indicated that the rule may impose burdensome and costly supervisory procedures on Major SBS Participants that are not appropriate given their non-dealer role in the marketplace, and the potential costs of compliance “would be without any meaningful offsetting benefit for other market participants or the financial markets as a whole.”
Rule 15Fk-1 requires an SBS Entity to designate a CCO, and imposes certain duties and responsibilities on that CCO, including the preparation of an annual compliance report. In addition, under Rule 15Fk-1(d), the compensation and removal of the CCO require the approval of a majority of the board of directors of the SBS Entity. We note that the adopted SBS Entity registration forms already require SBS Entities to designate an individual to serve as a CCO, which enters into an economic baseline against which we are assessing the effects of these final rules. Therefore, the primary economic effects of these final CCO rules stem from the annual compliance report requirement, other duties of the CCO, and CCO compensation and removal requirements.
Rule 15Fk-1(c) requires each SBS Entity's CCO to prepare and sign an annual compliance report containing a description of the SBS Entity's written policies and procedures described in paragraph (b) of the rule, including the code of ethics and conflict of interest policies. The report must also contain a description of: the SBS Entity's assessment of the effectiveness of its policies and procedures relating to its business as an SBS Entity; any material changes to the SBS Entity's policies and procedures; any areas for improvement, and recommended potential or prospective changes or improvements to the SBS Entity's compliance program and resources devoted to compliance; any material non-compliance matters; and the financial, managerial, operational, and staffing resources set aside for compliance with the Exchange Act and the rules and regulations thereunder relating to its business as an SBS Entity, including any material deficiencies in such resources. Further, SBS Entities must promptly submit an amended compliance report if material errors or omissions in the report are identified. The submission of the annual compliance report as required by the final rules may help the Commission assess the compliance activities of SBS Entities.
In addition, Rule 15Fk-1(b)(2) requires the CCO to take reasonable steps to ensure that the SBS Entity establishes, maintains and reviews policies and procedures reasonably designed to achieve compliance with the Act and the rules and regulations thereunder relating to its business as an SBS Entity by: Reviewing the compliance of the SBS Entity; and taking reasonable steps to ensure that the SBS Entity establishes policies and procedures for the remediation and handling of non-compliance issues. Rule 15Fk-1(b)(3) requires the CCO, in consultation with the board of directors or senior officer, to take reasonable steps to resolve any material conflicts of interest that may arise; and Rule 15Fk-1(b)(4) requires the CCO to administer each policy and procedure required to be established under Section 15F of the Exchange Act and the rules and regulations thereunder.
Our final rules impose a set of duties and responsibilities on CCOs of SBS Entities. As described in the economic baseline and discussed in earlier sections, the Commission believes that a number of entities that will seek to register as SBS Entities may be dually registered, and may already be required to comply with some of these rules in swap or reference security markets. However, we note that SBS Entity registration is currently not required, and entities intermediating security-based swaps, including dually registered entities, are not required to comply with business conduct or CCO rules relating to their business as an SBS Entity. Therefore, these rules impose a new set of requirements on a population of SBS Entity registrants as they pertain to security-based swap business. To the extent that CCO oversight may facilitate compliance, the above rules may enhance compliance of SBS Entities with federal securities laws and other Commission rules.
Based on our analysis in Section V, the establishment and administration of the policies and procedures required under Rule 15Fk-1 will involve a total initial cost of approximately $13,105,950, and an ongoing cost of approximately $2,801,700 per year for all SBS Entities.
In addition, these rules impose new requirements concerning CCO duties. These final rules also require the annual compliance report to include a
CCOs play a central role in monitoring compliance with federal securities laws and regulations. These final rules elevate approval of decisions regarding the compensation or removal of the CCO to the board. As indicated in the proposing release, the Commission believes that the approach being adopted may reduce inherent conflicts of interest that arise when CCO compensation and removal decisions are made by individuals whose compliance with applicable law and regulations the CCO is responsible for monitoring.
SBS Entities are expected to be primarily large institutions and may be part of organizational structures that include hundreds of entities, with varying levels of business complexity. Many SBS Entities may also be active in swap markets, while others may also perform broker-dealer functions or have banking operations; yet others may focus their primary business on security-based swaps. As a result, different governance and oversight structures may be suitable for different SBS Entities depending on their internal operations, business complexity, and the role security-based swap transactions play in their overall operations, among others. Therefore, the rule limits the ability to delegate CCO compensation and removal decisions to a senior officer, which may be optimal for some SBS Entities.
CCO compensation and removal decisions require an understanding of security-based swap markets and the SBS Entities' business opportunities in such markets, compliance risks related to various SBS Entity activities and transactions, the labor market for CCOs of SBS Entities, and an ability to infer the quality of skills and effort exerted by the CCO from performance. To the extent SBS Entity boards lack specific expertise necessary to approve compensation and removal decisions, such boards may currently delegate these functions to other officers, such as head of compliance, chief risk officer, or other persons. As a result of the final rules, such delegation will not be permitted, and boards of some SBS Entities may be required to gather additional information or gain expertise necessary to approve compensation and removal decisions.
SBS Entities that currently delegate these functions to other officers may need to refocus board resources on the area of compliance. As a result, SBS Entity boards may need to replace existing directors, hire new directors, or retain the services of independent executive search and compensation consultants that are familiar with security-based swaps. This may detract from the time and resources SBS Entity boards are able to invest in overseeing activities in other markets, which may represent a larger fraction of the business and shareholder profits for some SBS Entities. To the extent that SBS Entity boards face time and resource constraints, they may also become less effective at monitoring and advising SBS Entities in areas outside of compliance. Further, the requirement that SBS Entity boards approve CCO compensation and removal decisions, may increase the liability of SBS Entity's directors, which may increase the costs of director liability insurance and director compensation. Nevertheless, as discussed above, the Commission continues to believe that these final rules may reduce certain conflicts of interest related to CCO compensation and removal decisions, which may strengthen SBS Entity compliance with federal securities laws and Commission rules.
The final rules do not address the appointment of the CCO. However, the rules require the CCO to report directly to the board or senior officer, and require decisions regarding the compensation and removal of the CCO to be approved by the board. As a result, some SBS Entities may separate reporting to and appointment by the senior officer, from compensation and removal decisions by the board. The Commission recognizes that appointment, compensation and removal decisions may be inextricably intertwined, requiring an informed assessment of the CCO's talent, abilities, expertise and performance when compared against external candidates, as well as an understanding of the CCO labor market. Further, a senior officer may have conflicts of interest in CCO appointment decisions similar to those present in CCO compensation or removal decisions. A potential separation of the CCO reporting line and appointment decisions from compensation and removal decisions may decrease the quality of these decisions. However, the ability of some SBS Entity boards to continue to rely on senior officers for the CCO to report to and for appointment decisions may mitigate some of the resource drain on boards of SBS Entities discussed above.
We have considered an alternative approach under which only independent members of the board can approve decisions regarding the compensation, appointment and removal of CCOs, as proposed by some commenters,
Additionally, appropriate CCO qualifications may depend on the CCO's functional roles and expertise, and business activities that the SBS Entity engage in, particularly for SBS Entities that operate within larger consolidated financial institutions with the same CCO. One-size-fits-all qualification requirements or competency exams would restrict the level and type of expertise of CCOs that SBS Entities are
As discussed in Section II, commenters disagreed on the relative merits of the approach being adopted and the alternatives above.
Rules 15Fh-5(a)(1)(vi) and 15Fh-6 impose a two-year time out period after certain political contributions by security-swap dealers and certain independent representatives. Rule 15Fh-6(b) generally prohibits SBS Dealers from offering to enter into, or entering into, a security-based swap or trading strategy involving a security-based swap with a municipal entity within two years following any contribution to an official of such municipal entity made by the SBS Dealer or any of its covered associates. The rule also prohibits SBS Dealers and any covered associates from providing or agreeing to provide payment to any person to solicit a municipal entity to offer to enter into, or to enter into, security-based swaps, unless such person is a regulated person. The rule prohibits SBS Dealers and any covered associates from coordinating or soliciting any person or political action committee to make contributions to officials of a municipal entity, or to a political party of a state or locality, with which the SBS Dealer is offering to enter into, or has entered into, a security-based swap or a trading strategy involving a security-based swap.
Under Rule 15Fh-6(a)(2) covered associates will include general partners, managing members, executive officers or other persons of similar status or function; employees who solicit municipal entities to enter security-based swaps with an SBS dealer, and all persons directly or indirectly supervising such employees; and political action committees controlled by such persons or SBS Dealers.
These final rules also limit political contributions by independent representatives in security-based swaps. Under Rule 15Fh-5(a) SBS Entities who offer to enter into or enter into a security-based swap with a special entity must have a reasonable basis to believe that the special entity has a qualified independent representative. Rule 15Fh-5(a)(1)(vi) provides that in the case of a special entity, a qualified independent representative is a person that is subject to rules of the Commission, the CFTC or an SRO prohibiting it from engaging in specified activities if certain political contributions have been made, except where the independent representative is an employee of the special entity.
As discussed in more detail below, our economic analysis of these final rules reflects the fact that a large majority of entities expected to seek registration as SBS Entities are expected to be dually registered and required to comply with similar pay to play rules in other markets.
These final rules are intended to address pay to play relationships that may interfere with the process by which municipal entities allocate capital to security-based swaps to enhance returns or manage risk on behalf of their stakeholders.
To the extent that SBS Dealers are currently recovering the costs from pay to play practices in the form of higher prices of security-based swaps, these final rules may decrease transaction costs. We have no data or other information on the prevalence of political contributions of SBS Dealers, the number and contributions of their covered associates, and transaction costs and non-price terms of security-based swaps offered for sale to special entities. Such data is not publicly available and commenters have not provided data to
In a theoretical model by Cotton (2012), contributions may increase access but not necessarily improve outcomes for some agents, while contribution limits decrease rent extraction and may encourage more evidence disclosure.
Several caveats apply. While the pay to play regime considered in the study above examines the effects of the contribution limits in the 1994 pay to play reforms, and the contribution thresholds in these final rules are comparable in magnitude, we cannot quantify the levels at which certain political contributions by SBS Dealers and their covered associates may give rise to conflicts of interest. However, we note that
Finally, the two-year time out may disincentivize direct political contributions to certain officials by SBS Dealers and their covered associates. To the extent that SBS Dealers and covered associates may increase contributions to other entities, such as 501(c) organizations
As a result of the pay to play rule, SBS Dealers will incur costs, including costs of establishing and implementing policies and procedures to monitor the political contributions made by the SBS Dealer and its covered associates. As indicated in Section V, pay to play rules will require collection of information regarding political contributions of SBS Dealers and their covered associates, which may cost up to $3,515,000 for all dealers.
Under the final rules, the two-year time out on SBS dealing with municipal entities is triggered when any of the covered associates has contributed in excess of the
Such SBS Dealers will incur costs from the loss of business with municipal entities. We note that the final rules contain a safe harbor for contributions by natural persons that predate the date of becoming a covered associate by more than 6 months, if such associates do not solicit municipal entities on behalf of the SBS Dealer. Further, if the SBS Dealer discovers the triggering contribution under $350 within 4 months and secures a return of funds within 60 days, the prohibition will not apply. In response to commenter concerns,
The final rules also allow SBS Dealers to file applications for exemptive relief, and outline a list of items to be addressed, including, whether the SBS Dealer has developed policies and procedures to monitor political contributions; the steps taken after discovery of the contribution; and the apparent intent in making the
As discussed in Section V, the incidence of exemptive relief related to MSRB Rule G-37 and the number of applications the Commission has received under the Adviser's act pay to play rules may be indicative of possible applications for exemptive relief under these final rules. Recognizing that this is an estimate, we conservatively estimate that the Commission may receive up to two applications for exemptive relief per year with respect to pay to play rules,
In addition, the Commission has received 13 applications under the Adviser's act (since the compliance date, approximately 4 years). As of2/2016 there were 11,959 registered investment advisers filing form ADV
Costs of compliance with the final pay to play rules may be recovered by SBS Dealers in the form of higher costs of security-based swaps offered to municipal entities. If the costs are significant and cannot be fully recovered from counterparties some SBS Dealers may limit their security-based swap transactions with municipal entities and reduce their access to OTC security-based swaps. However, the pay-to-play rules do not apply to security-based swaps executed on national registered exchanges or SEFs, where the security-based swap dealer does not know the identity of the counterparty to the transaction at a reasonably sufficient time prior to execution to permit the security-based swap dealer to comply. Therefore, municipal entities will retain access to more liquid and standardized security-based swaps executed on SEFs or registered national exchanges, and will continue to be able to rely on security-based swaps as a tool for risk mitigation.
Once SBS Dealers have to comply with the rule, to the extent that SBS Dealers currently engaging in pay to play practices enjoy a competitive advantage over SBS Dealers that are not, they may lose some of their business with municipal entities and related profits. However, other SBS Dealers that do not currently engage in pay to play practices may win business, and SBS Dealers may begin to seek competitive advantages through lower transaction costs, more customized security-based swaps, or superior execution, benefitting municipal entity counterparties.
If some SBS Dealers currently intermediating a significant volume of transactions with municipal entities trigger the two-year time out, it could limit the number of SBS Dealers able to offer to enter into or enter into security-based swaps with municipal entities. However, the lost market share is likely to be picked up by other SBS Dealers. The presence and direction of any economic effects would depend on the number of SBS Dealers that trigger the time outs; the market power of the prohibited SBS Dealers; the market power of SBS Dealers that may be able to step in; and the importance of bilateral relationships. Further, municipal entities will continue to have unconstrained access to security-based swaps transacted through SEFs or registered national security exchanges.
The Commission recognizes that these rules impose restrictions on persons that can represent special entities in security-based swap transactions of special entities with SBS Entities. As discussed in Section II.H.6.f, under Rule 15Fh-5(a)(1)(vi), qualified independent representatives of special entities must be subject to pay to play rules of the Commission, the CFTC or an SRO, except where the independent representative is an employee of the special entity. If special entities currently rely on advisors not subject to pay to play rules, or do not rely on independent advisors in their transactions with SBS Entities in security-based swaps, they will incur costs related to retaining qualified independent representatives. These costs will depend on the type of advisor search the special entity would choose to perform, the special entity's ability to delegate such functions to current employees, and labor market conditions for qualified independent representatives. Table 2 of the economic baseline shows that the overwhelming majority of special entities transact through SEC registered investment advisers already subject to similar pay to play rules under the Adviser's Act. Special entities that do not transact through SEC registered investment advisers likely rely on municipal advisors subject to MSRB rules or employees in their transactions with SBS Entities. While we have no data or other information to enable us to identify what fraction of advisors representing special entities would meet the qualified independent representative requirements of these final rules, the above considerations indicate that costs of pay to play rules for independent representatives of special entities may be mitigated.
However, the Commission recognizes that, to the extent that some representatives currently intermediating special entity transactions with SBS Entities would be prohibited from advising special entities under these final rules, some representatives may incur costs related to loss of business, and competition among qualified independent representatives of special entities may decrease. At the same time, representatives prohibited from such activities under these final rules may seek to register as SEC registered investment advisers, MSRB registered municipal advisors or special entity employees, becoming subject to pay to play rules referenced in Rule 15Fh-5(a)(1)(vi) and continuing to represent special entities in compliance with these final rules. Therefore, the overall effect of pay to play rules on competition among qualified independent representatives of special entities is unclear.
As a result of the two-year time out and other pay to play requirements, SBS Dealers transacting with municipal entities, as well as covered associates of SBS Dealers, may be less likely to make certain political contributions and payments to political parties at or above
As clarified in Section II, the Commission is adopting an approach, under which these prohibitions will not be triggered for an SBS Dealer or any of
We have also considered the alternative, under which dealers would enjoy a safe harbor where the municipal entity is represented by a qualified independent representative, as proposed by one commenter.
Finally, we have considered the alternative of increasing or decreasing the number of exemptions for inadvertent violations. The ability of SBS Dealers to cure reduces the risk that some SBS Dealers may trigger a two-year timeout as a result of inadvertent violations due to prohibited contributions by covered associates, related losses, and potential adverse effects on competition and market liquidity. At the same time, increasing the number of automatic exceptions available to SBS Dealers decreases their incentives to monitor their and their covered associates' political contributions, and may facilitate ongoing pay to play practices. We also note that, under the rules being adopted, in addition to such automatic exceptions, SBS Dealers would be able to apply with the Commission for exemptive relief.
We do not have data or any other information concerning the sizes, donors and recipients of political contributions of entities that may trigger SBS Dealer registration and covered associates. No such information is publicly available, and commenters did not provide data enabling such quantification. Therefore, we cannot quantify the magnitude of the above effects.
The final business conduct rules are designed to facilitate counterparty protections, reduce information asymmetries, and enable Commission oversight. However, as discussed in Sections V and VI above, these final rules impose direct and indirect compliance costs, and may erode SBS Entities' profitability of dealing in security-based swaps, which may reduce the incentive for dealers to intermediate SBS transactions and provide liquidity to end users. We recognize, however, that some market participants, such as complex and diversified corporations or institutions, may in the regular course of business enter into inter-affiliate security-based swaps to manage risk inside a corporate group or to transfer risk to a treasury department or central affiliate.
When the economic interests of those affiliates are aligned adequately, as would be found in the case of majority-ownership, such security-based swaps serve to allocate or transfer risks within an affiliated group, rather than to move those risks out of the group to an unaffiliated third party. Therefore, the application of these final business conduct rules to security-based swaps that SBS Entities enter into with majority-owned affiliates is unlikely to yield enhanced counterparty protections as discussed above. At the same time, SBS Entities would incur costs related to compliance with these final rules for such transactions. Therefore, the exclusion of such transactions may avoid costs that are less likely to be offset by the economic benefits considered above. Further, the CFTC excludes such swaps from substantive business conduct requirements for Swap Entities. Imposing these rules with respect to such security-based swaps would increase the relative costs of transacting in security-based swap markets, including single-name CDS, and swap markets, including index CDS. Such an approach may fragment an otherwise integrated market and could lead to a flight of liquidity to swap markets, with follow on effects on market liquidity and price discovery. As indicated earlier, Rule 15Fh-1(a) specifies that security-based swaps that SBS Entities enter into with the majority-owned affiliates will be excluded from Rules 15Fh-3(a) through 15Fh-3(f), 240.15Fh-4(b) and 240.15Fh-5. We note that CCO and supervision rules will continue to apply to dealers engaging in such swaps.
These final rules are intended to strengthen counterparty protections, reduce informational asymmetries between SBS Entities and their counterparties, and enhance Commission oversight over security-based swap markets. We recognize the inherent heterogeneity in the level of general sophistication and informedness specific to security-based swaps of various counterparties of SBS Entities, as suggested by some commenters.
The final rules reflect these competing considerations through a reliance on representations approach, and in safe harbors and alternatives, such as the institutional suitability alternative for customer-specific suitability and the independent advisor safe harbor for SBS Entities advising special entities. Further, some of the requirements, such as pre-trade disclosures of material incentives, risks and characteristics, will not apply to counterparties that are themselves SBS or Swap Entities. Yet other rules impose requirements on SBS Dealers, but not on Major SBS Participants, recognizing the central role of dealers as intermediaries in security-based swap markets. Finally, as discussed throughout the release, many of these final business conduct requirements are harmonized with CFTC and FINRA conduct rules, which do not allow counterparties to opt out of these or similar protections.
We also note that if counterparties are able to opt-out of some or all of the substantive requirements, SBS Entities may have an incentive to require opt-out of these final rules prior to transacting
Finally, these economic considerations are attenuated by the fact that many of the final rules are not applicable to if the SBS Entity does not know the identity of the counterparty at a reasonably sufficient time prior to the execution of the transaction to permit the SBS Entity to comply with the obligations of the rule and, in certain instances, the transaction is executed on a registered national exchange or a registered or exempt SEF.
As the Commission has indicated in other releases,
Further, SBS Dealers and other counterparties are highly interconnected, with most dealers transacting with hundreds of counterparties, and most non-dealers transacting with several dealers.
As discussed in Section III, business conduct requirements fall into two categories: Entity-level business conduct requirements, such as CCO rules and supervision, and transaction-level requirements, such as disclosure and suitability. The final rules create certain exceptions from application of the transaction-level business conduct requirements to registered SBS Dealers and Major SBS Participants in certain transactions. With respect to SBS Dealers, these transaction-level requirements will apply to any transaction that constitutes an SBS Dealer's U.S. business but not to any transaction that constitutes its foreign business. For U.S. SBS Dealers, U.S. business includes all of their transactions, except for certain transactions conducted through a foreign branch. For foreign SBS Dealers, U.S. business includes all of their transactions with U.S. persons (except for certain transactions conducted through a foreign branch of a U.S.-person counterparty) and transactions captured by the U.S. Activity Test (
The final rule creates a slightly different exception for Major SBS Participants. U.S. Major SBS Participants must comply with the business conduct requirements in all their transactions, except for certain transactions conducted through a foreign branch, and foreign Major SBS Participants must comply with the requirements in their transactions with U.S. persons, except for certain transactions conducted through a foreign branch. Under the final rule, the exception for foreign Major SBS Participants does not incorporate a U.S. Activity Test.
In considering the economic effects of this cross-border approach, we recognize that the economic baseline reflects markets as they exist today, in which compliance with business conduct standards for security-based swaps is not required. Therefore, these final business conduct rules will apply with respect to security-based swap transactions intermediated by SBS Entities where they currently do not. Under Exchange Act Section 15F, these requirements apply to registered SBS Entities by virtue of their registration with the Commission and, in the absence of any exceptions to the requirements, would apply to all business of a registered SBS Entity. However, final Exchange Act rules 3a71-3(c) and 3a67-10(d) create certain exceptions, as described above, that limit the application of these requirements to a subset of the transactions of a registered SBS Entity. For example, a foreign SBS Dealer transacting with a foreign counterparty will not be subject to Title VII transaction-level business conduct requirements if the foreign SBS Dealer does not rely on personnel located in the United States to arrange, negotiate or execute the swap, including with respect to transactions in which the foreign SBS Dealer's counterparty may have relied on personnel located in the United States.
However, we recognize that the inclusion of the U.S. Activity Test in the definition of “U.S. business” for foreign
The final cross-border approach to the scope of the final business conduct requirements may produce several benefits. First, classifying certain rules, such as diligent supervision and CCO rules, as entity-level requirements that apply to the entire security-based swap business of the registered SBS Entity may facilitate Commission oversight of registered SBS Entities and enhance compliance with federal securities laws and Commission rules. For example, as discussed in Section III and in the Cross-Border Proposing Release, supervision and CCO rules are aimed at mitigating conflicts of interest and enhancing compliance with securities laws, rules and regulations thereunder by the entire registered SBS Entity. The Commission continues to recognize that relevant conflicts of interest and non-compliance may arise as a result of transactions comprising an SBS Entity's foreign business. Further, we note that CCO duties include establishing, maintaining, and reviewing policies and procedures reasonably designed to ensure compliance with applicable Exchange Act requirements that apply to the SBS Entity as a whole. As discussed in Section III, the Commission is applying diligent supervision and CCO duties rules at the entity level.
Second, by imposing transaction-level requirements on transactions of SBS Entities with U.S.-person counterparties, subject to a tailored foreign branch exception, these final rules result in disclosure, suitability, fair and balanced communications and special entity requirements, among others, applying to transactions that are particularly likely to raise the types of counterparty protection and other concerns addressed by Title VII business conduct requirements, whether carried out by U.S. or foreign SBS Entities. Specifically, this approach to security-based swap transactions between registered SBS Entities and U.S. persons may potentially enhance the expected counterparty protection, reduce information asymmetry, and facilitate Commission oversight benefits of these final rules to the U.S. security-based swap market.
Third, requiring registered foreign SBS Dealers (but not Major SBS Participants) to comply with business conduct requirements with respect to any transaction with another non-U.S.-person counterparty that the foreign SBS Dealer arranges, negotiates, or executes using personnel located in the United States will facilitate more uniform regulatory treatment of the security-based swap activity of registered SBS Dealers operating in the United States, mitigating potential competitive distortions.
We recognize that foreign SBS Dealers transacting with foreign counterparties may be subject to foreign regulations in addition to these final rules, giving rise to potentially duplicative compliance costs, pointed out by commenters.
Moreover, the Commission is adopting a framework that would potentially permit foreign SBS Dealers to satisfy their requirements with respect to certain of the business conduct requirements by complying with comparable requirements of a foreign jurisdiction. Therefore, foreign SBS Dealers engaged in U.S. Activity may be able to comply with these final rules by complying with foreign jurisdictions' rules and regulations, to the extent that the Commission makes substituted compliance determinations and the other prerequisites to substituted compliance have been satisfied. This may mitigate the potential for conflicting requirements and duplication in compliance costs. We recognize that there will be limits to the availability of substituted compliance, including the possibility that substituted compliance may be permitted with regard to some requirements and not others, or that, in certain circumstances, substituted compliance may not be permitted with respect to any requirements with regard to a particular jurisdiction depending on our assessment of the comparability of the relevant foreign requirements and the availability of supervisory and enforcement arrangements among the Commission and relevant foreign financial regulatory authorities. However, the Commission does not believe it would be appropriate to permit foreign security-based swap dealers to satisfy these final business conduct requirements by complying with foreign requirements when the prerequisites to substituted compliance have not been satisfied.
As we noted earlier, these rules limit the scope of application of these final business conduct requirements by excluding certain transactions of registered foreign and U.S. SBS Entities from the requirements. However, as we have also noted, relative to the baseline,
With respect to assessment costs, registered SBS Entities likely will establish systems to identify transactions that are subject to the business conduct requirements. Foreign SBS Entities will need to establish systems to identify transactions with U.S. persons (including whether the transaction is conducted through a foreign branch of that person), and foreign SBS Dealers will need to establish systems to identify transactions falling within the U.S. Activity Test. Similarly, U.S. SBS Entities will incur additional assessment costs related to identifying their own transactions conducted through a foreign branch, including such transactions with U.S.-person counterparties that constitute transactions conducted through a foreign branch of those U.S.-person counterparties. Most of the assessment costs with respect to analysis and systems to track transactions have been evaluated in connection with other Commission rules; therefore, our economic baseline includes all registered SBS Entities have those systems in place. For instance, in the Cross-Border Adopting Release, the Commission estimated foreign SBS Entity assessment costs with respect to systems tracking transactions with U.S. persons for purposes of counting transactions toward the major security-based swap participant position thresholds and the security-based swap dealer
However, in addition to these previously evaluated costs, U.S. SBS Entities conducting business through a foreign branch will need to classify their counterparties and transactions to determine whether business conduct transaction-level requirements apply. We believe that the costs to a U.S. SBS Entity of creating systems to identify transactions it conducts through a foreign branch with U.S.-person counterparties and to determine whether any such transactions are conducted through the foreign branch of its U.S.-person counterparties may be similar to costs associated with the systems that foreign persons are likely to establish to perform the dealer
For purposes of the cost estimates in this release, we have updated these figures with more recent data as follows: The figure for a Compliance Attorney is $334/hour, the figure for a Compliance Manager is $283/hour, the figure for a Programmer Analyst is $220/hour, and the figure for a Senior Internal Auditor is $209/hour, each from SIFMA's Management & Professional Earnings in the Securities Industry 2013, modified by SEC staff to account for an 1800-hour work-year and multiplied by 5.35 to account for bonuses, firm size, employee benefits, and overhead. We also have updated the Definitions Adopting Release's $464/hour figure for a Chief Financial Officer, which was based on 2011 data, with a revised figure of $500/hour, for a Chief Financial Officer with five years of experience in New York, that is from
Incorporating these new cost figures, the updated one-time programming costs based upon our assumptions regarding the number of hours required in the Definitions Adopting Release would be $14,904 per entity,
As recognized in Section III above, SBS Entities would be permitted to rely on certain representations provided to them by their U.S. bank counterparties regarding whether a transaction is conducted through a foreign branch. Initial costs to the U.S. bank counterparties of developing related representations are estimated at $195,000.
This scope of transactions subject to business conduct requirements may also affect the programmatic costs incurred by participants in security-based swap markets. For entities already required to register as SBS Entities under current rules, this rule may increase the set of transactions and counterparties to which they must apply business conduct requirements, relative to the baseline under which no business conduct requirements apply. We continue to recognize that requiring compliance of foreign SBS Dealers transacting with foreign counterparties where transactions were arranged, negotiated or executed by personnel located in the United States may discourage reliance by foreign SBS Entities on personnel located in the United States. Some foreign SBS Dealers transacting with foreign counterparties may choose to relocate their personnel outside of the United States, or replace personnel located in the United States with personnel not located in the United States to avoid compliance with these final rules. To the extent that these final rules may increase the costs of foreign SBS Entities, or influence competition between U.S. and foreign SBS Dealers, the terms of security-based swaps intermediated by foreign SBS Dealers may deteriorate and foreign SBS Dealers may become less willing to intermediate security-based swap transactions. The approach taken in this rule may mitigate some of the commenter concerns with the initial proposal by focusing only on the location of the foreign dealer's or its agent's market-facing personnel, and not the location of its counterparties' activity.
The Commission has received comment that this approach to the application of business conduct requirements may impose costs of additional disclosures and representations on asset managers servicing foreign clients.
We have considered the alternative of applying business conduct rules to all security-based swap transactions of all registered SBS Entities. This approach would increase the scope of transactions subject to these substantive rules, increasing programmatic costs of compliance by registered SBS Entities—costs that are likely to be passed on to counterparties. Under the rules being adopted, the U.S. business of foreign SBS Dealers excludes transactions conducted through a foreign branch. Further, the final rule provides for an exception from the transaction-level business conduct requirements when a foreign Major SBS Participant (or a U.S. Major SBS Participant in a transaction conducted through its foreign branch) enters into a transaction with a foreign branch of a U.S. person.
To the extent that potential losses on security-based swap transactions may flow from foreign branches of U.S. persons to the U.S. business of U.S. persons, excluding transactions of foreign SBS Dealers with foreign branches of U.S. persons from the definition of U.S. business may increase risks to U.S. persons and impact the integrity of U.S. markets. However, compliance with business conduct requirements with respect to security-based swap transactions between foreign SBS Entities and foreign branches of U.S. persons would further increase costs of foreign SBS Entities. Such costs may be passed along to foreign branches of U.S. persons in the form of higher transaction costs or reduced access to security-based swap transactions with foreign SBS Entities.
The Commission has also considered the alternative of applying these final business conduct rules to all transactions that a U.S. SBS Entity enters into, including any transaction conducted through its foreign branch. Importantly, the definition of “transactions conducted through a foreign branch” requires the transaction to be arranged, negotiated or executed in the foreign branch.
The Commission has also considered the alternative of excepting all transactions of a foreign SBS Dealer with non-U.S. persons, including transactions that involve U.S. activity. We recognize that the alternative would decrease the set of transactions subject to the final business conduct rules, reducing both assessment and programmatic costs to foreign SBS Dealers, and expected programmatic benefits of these final rules discussed above. Data on North American corporate single name CDS market in Figure 3 of the economic baseline suggest that activity among non-U.S. domiciled accounts represents as much as 17% (if we use the domicile of a corporate group) to 40% (if we use registered office location) of global
In addition, this alternative could put U.S. SBS Entities at a competitive disadvantage due to higher direct and indirect costs related to these final business conduct rules when dealing with foreign counterparties. This approach may also incentivize U.S. SBS Dealers to restructure to be considered a non-U.S. person, while continuing to rely on personnel located in the United States to negotiate, arrange or execute security-based swap transactions with their foreign counterparties. As recognized above, we understand security-based swap markets to be global, and we expect registered SBS Dealers transact across multiple jurisdictions. This alternative may involve potentially significant frictions to cross-border transaction activity and may lead to fractioned liquidity and participation in otherwise globally integrated markets. The approach being adopted may reduce incentives to engage in such restructuring by requiring that foreign SBS Dealers comply with transactional business conduct requirements even when transacting with another non-U.S. person where such security-based swap transactions are arranged, negotiated or executed by personnel located in the United States.
Finally, we have considered an alternative approach that would limit the scope of application of these final business conduct rules to transactions between registered SBS Entities and U.S. person counterparties. This alternative would exclude transactions between U.S. as well as non-U.S. SBS Dealers and their foreign counterparties, which may significantly decrease the scope of application and potential economic effects of these final rules.
First, excluding transactions between U.S. SBS Dealers and their foreign counterparties from the scope of these requirements may reduce direct and indirect compliance costs of U.S. SBS Dealers, potentially reducing transaction costs or improving liquidity; however, it may reduce potential information benefits of these final rules. Second, similar to the discussion above, excluding transactions between foreign SBS Dealers and their foreign counterparties may mitigate incentives for inefficient relocation by financial groups that use a non-U.S. dealer to carry out their dealing activity in the United States.
However, to the extent compliance with these business conduct requirements is costly and these costs are passed along to counterparties in, for instance, more adverse pricing and lower liquidity of available OTC security-based swaps, this alternative may give rise to competitive disparities between U.S. and non-U.S. counterparties of registered SBS Dealers. U.S. counterparties that are members of financial groups may respond by restructuring their security-based swap activity so that it is carried out by a non-U.S. person, in which case none of its transactions with SBS Dealers would be required to comply with transaction level business conduct requirements and incur related costs. To the extent that counterparties restructure their security-based swap activity in response to the incentives created by the competitive disparities and market fragmentation, a significant portion of that activity may occur outside the scope of these final business conduct requirements. U.S. persons that currently transact with SBS Dealers may have an incentive to migrate that business to affiliated non-U.S. persons to stay competitive with their non-U.S. competitors. The fraction of U.S. counterparties able to perform such restructuring and related costs are unclear. In contrast, the approach being adopted recognizes the importance of SBS Entity conduct for counterparty protections, may decrease incentives for such evasion, and enhance Commission oversight of registered SBS Entities.
As discussed in Section III, the final rules contemplate a substituted compliance regime for substantive business conduct requirements. Substituted compliance may permit the counterparty protection, information and Commission oversight benefits of these final business conduct rules to be achieved while avoiding potential duplication of compliance costs that foreign SBS Entities may otherwise incur. As indicated in the Cross-Border release,
At the same time, the process of making substituted compliance requests may cause nonresident SBS Entities to incur additional costs of applying for a substituted compliance determination. In Section V the Commission has estimated that three security-based swap dealers will submit substituted compliance applications, noting that the majority of substituted compliance requests may be made by foreign authorities. Based on our analysis of domiciles of likely SBS Entity registrants and our understanding of the market, we believe that there may be between four and nine substituted compliance applications with respect to these final rules. The total cost associated with SBS Entities preparing and submitting requests for substituted compliance determinations in connection with the business conduct requirements are estimated at, approximately, $406,770
Consistent with the Registration Adopting release, certification and opinion of counsel is estimated at: (a) (In-house attorney at $380 per hour) × 0.5 hours × 3 = $570. (b) External: (External counsel at 400$ per hour) × 62.5 × 3 = $75,000.
Total cost for SBS Entities: $240,000 + $75,000 + $91,200 + $570 = $406,770
As noted in Section V, those amounts may overestimate the costs of requests pursuant to Rule 3a71-6 as adopted, as such requests would solely address business conduct requirements, rather than the broader proposed scope of substituted compliance set forth in that proposal. In addition, some SBS Entities may receive a positive substituted compliance determination and use the same certification and opinion of counsel when
Initial cost of substituted compliance applications for up to 6 foreign jurisdiction: (Government management and professional staff at $255) × (80 + 200) × 6 = $428,400.
Initial cost of certifications and assurances concerning Rule 15Fb2-4(c): (Government management and professional staff at $255) × (0.5 + 62.5) × 6 = $96,390.
Total cost for foreign jurisdictions: $428,400 + $96,390 = $524,790.
We note that substituted compliance requests will be made on a voluntary basis, and nonresident SBS Entities would only make such requests when the anticipated costs of relying on substituted compliance are lower than the costs of complying directly with these final rules. Further, after a substituted compliance determination is made, SBS Entities would choose substituted compliance only if their expected private benefits from participating in U.S. security-based swap markets exceed expected private costs, including any conditions the Commission may attach to the substituted compliance determination.
We also recognize that these costs and the overall economic effects of allowing substituted compliance for these final business conduct rules will depend on, among others, whether (and to what extent) substituted compliance requests will be granted for jurisdictions in which some of the most active nonresident SBS Entities are currently residing; the costs of potential relocation, business restructuring, or direct compliance by nonresident SBS Entities in jurisdictions for which substituted compliance is not granted; the relevant information required to demonstrate consistency between the foreign regulatory requirements and the Commission's business conduct rules; the relevant information required to demonstrate the adequacy of the foreign regime's compliance and enforcement mechanisms; and the fraction of SBS Entities in a given jurisdiction that may rely on substituted compliance if available.
We note that substituted compliance determinations will be made on a jurisdiction-wide basis. As a result, after the first applicant from a given jurisdiction receives an affirmative substituted compliance determination, all SBS Entities from the same jurisdiction will be able to comply with these final rules by complying with requirements of that foreign jurisdiction without bearing the related substituted compliance application costs. Such an approach eliminates duplication in application costs for SBS Entities from the same jurisdictions. However, foreign SBS Entities that are the first to make a substituted compliance application from a given jurisdiction will also bear greater costs, which disadvantages first movers. SBS Entities that intermediate greater volume or hold larger positions of security-based swaps in the United States, and SBS Entities that face greater costs of direct compliance with these final rules compared to costs of compliance with rules of a foreign jurisdiction may be the first SBS Entities to make substituted compliance applications and bear application costs.
SBS Entities in foreign jurisdictions with blocking laws, privacy laws, secrecy laws and other legal barriers inconsistent with the Commission's authority over registered entities will be unable to take advantage of substituted compliance. As part of these final rules, the Commission is adopting a requirement that, in order to make a request for substituted compliance, each party must provide the certification and opinion of counsel that the entity can as a matter of law, and will, provide the Commission with prompt access to the entity's books and records and submit to onsite inspection and examination by the Commission. Similarly, foreign financial regulatory authorities may make substituted compliance requests only if they can provide adequate assurances that no law or policy of any relevant foreign jurisdiction would impede the ability of any entity that is directly supervised by the authority and that may register as an SBS Entity to provide prompt access to the Commission to books and records or to submit to onsite inspection or examination. As a result of these requirements, the scope of SBS Entities and jurisdictions able to take advantage of substituted compliance may be reduced. However, as we have stated elsewhere,
We note that U.S. SBS Entities will not be able to rely on substituted compliance with respect to any transactions, including transactions with foreign counterparties. Alternatively, the Commission could allow substituted compliance for U.S. SBS Entities. Under the alternative, U.S. SBS Entities would be able to comply with these substantive transaction-level requirements by complying with business conduct requirements of a comparable regulatory regime when dealing with counterparties domiciled in foreign countries. We recognize that U.S. SBS Entities may be competing for foreign counterparty business with foreign SBS Entities, and substituted compliance may reduce costs of complying with these final business conduct requirements. Under the alternative, the ability of U.S. SBS Entities to rely on substituted compliance may increase the profitability of U.S. SBS Entities transactions with foreign counterparties or may increase business for U.S. SBS Entities seeking to intermediate security-based swaps with foreign market participants. However, such an approach may adversely impact counterparty protection, informational asymmetry and Commission oversight benefits of these substantive requirements enjoyed by all counterparties of U.S. SBS Entities as a result of potential differences among global regulatory regimes. Since any potential costs of compliance with these substantive requirements may be passed on to counterparties, such an alternative may result in differential access and security-based swap terms of U.S. and foreign counterparties of U.S. SBS Entities.
Under the approach being adopted, foreign SBS Entities will be able to comply with these final business conduct requirements by complying with comparable foreign requirements. We have considered an alternative approach, under which the availability of substituted compliance is predicated on a finding of a direct conflict between Title VII and foreign regulatory requirements. Under this alternative, foreign SBS Entities that are currently complying with comparable (though not identical) requirements, would be required to bring their activities into compliance with these final rules, absent a direct conflict between Title VII requirements and their foreign regulatory regime. If the scope of comparable regulatory regimes is broader than the scope of regimes that are in direct conflict with the
Fewer foreign SBS Entities being eligible for substituted compliance may also reduce direct application costs to the industry. However, the burden of establishing a direct conflict may be greater than the burden related to establishing comparability, which may increase direct substituted compliance costs per application.
Crucially, if fewer SBS Entities are able to take advantage of substituted compliance under this alternative, a greater number of foreign SBS Entities would be required to incur costs of restructuring their systems and processes to comply with these final rules. Alternatively, foreign SBS Entities may choose relocate to another jurisdiction, or decrease their participation in U.S. security-based swap markets below thresholds triggering SBS Entity registration requirements and compliance with these final rules. To the extent that these costs may be passed on to counterparties of foreign SBS Entities or affect liquidity provision by foreign SBS Entities, transaction costs may increase and liquidity may be reduced. Further these costs may create a barrier to entry for foreign SBS Entities into U.S. security-based swap markets, and facilitate market segmentation.
Under this alternative, counterparties of foreign SBS Entities unable to rely on substituted compliance may benefit to a greater extent from the transparency and counterparty protections of these final rules. Further, U.S. SBS Entities and foreign SBS Entities from jurisdictions that are able to rely on substituted compliance may step in to intermediate trades with counterparties impacted by foreign SBS Entities unable to rely on substituted compliance. The Commission's future substituted compliance determinations with respect to individual foreign regimes will affect the scope of affected foreign SBS Entities. Therefore, we are unable to estimate and compare the number, market share and scope of counterparties of foreign SBS Entities that may be able to rely on substituted compliance under the approach being adopted, and under the alternative. However, we note that, using DTCC-TIW data as of year-end 2014, all foreign SBS Dealers likely to trigger registration requirements were responsible for 35% of the notional volume of all likely SBS Entities. In addition, as we have noted earlier in the economic analysis, in 2014 non-dealer counterparties transacted with a median of three and an average of four SBS Dealers.
We have also considered an alternative approach under which foreign SBS Entities would be able to rely on substituted compliance only in their transactions with non-U.S. counterparties. This alternative would effectively limit the scope of substituted compliance to non-U.S. SBS Entities that are transacting with non-U.S. counterparties, but are subject to these final rules as a result of their reliance on U.S. personnel discussed above. Such an approach could ensure that U.S. counterparties of all SBS Entities benefit from the same transparency and counterparty protection benefits of these final rules, regardless of the degree of comparability of foreign regimes. However, some foreign SBS Entities already complying with comparable regimes would incur additional costs of restructuring to comply with these final rules without being able to rely on substituted compliance in their transactions with U.S. counterparties. If such costs are significant, non-U.S. SBS Entities may become less willing to intermediate transactions with U.S. counterparties and transaction costs borne by U.S. counterparties may increase. While other U.S. SBS Entities are likely to step in and provide the necessary liquidity, this approach may adversely impact competition and facilitate market segmentation.
In adopting these final rules, we are required to consider their effects on efficiency, competition and capital formation. As we discuss below, these final rules may enhance transparency, and improve informational and allocative efficiency in security-based swap markets. Greater transparency and allocative efficiency may incentivize quality based competition among market participants in general, and SBS Dealers in particular. In the discussion below, we address the potential effects of final disclosure, suitability and special entity rules on informational and allocative efficiency, and their effects on capital formation in security-based swap and reference security markets. We also consider how harmonization with the CFTC external business conduct rules facilitates ongoing market integration between swap and security-based swap markets, and lowers informational inefficiencies. Finally, we discuss the competitive burdens of compliance costs, their effects on the willingness of SBS Dealers to intermediate transactions with certain groups of counterparties, as well as competitive effects of the cross-border approach being adopted.
The business conduct standards for SBS Entities, including requirements to disclose material risks, characteristics, incentives and conflicts of interest related to security-based swaps, as well as the fair and balanced communications rule, may reduce information asymmetries between SBS Entities and their less sophisticated counterparties. To the extent that adverse selection costs described in Section VI.C.2 are present in security-based swap markets, market participants may become more informed and may increase their activity in security-based swaps, which may improve market quality. To the extent that security-based swap market participants consider disclosures under these final rules informative in selecting security-based swaps and SBS Entity counterparties, these final rules may help market participants make more informed counterparty choices. The increased disclosure of information regarding material risks and characteristics, incentives and conflicts of interest may lead to improved informational efficiency and quality-based competition among SBS Entities to the extent that market participants rely on this information in selecting security-based swaps and counterparties.
However, as more informed counterparties, SBS Entities are able to extract information rents from non-dealer counterparties. To the extent that the business conduct rules help inform counterparties, these rules may reduce the informational advantage of SBS Entities, and may decrease profitability of their transactions with non-dealer counterparties. As a result of disclosures of material risks, daily mark, conflicts of interest and other information regarding security-based swaps, some private information of SBS Dealers about the quality of security-based swaps and underlying reference securities may become public. As a result, security-based swap prices and dealer profit margins may decrease. These rules may reduce the incentives of SBS Dealers to gather private information that is impounded into prices, and SBS Dealer willingness to intermediate security-based swap transactions with non-dealer counterparties.
Enhanced disclosures and counterparty protections of these Business Conduct Standards may improve access to information, and may attract non-dealer market participants into security-based swap markets. These
The final suitability and special entity rules would require SBS Dealers to evaluate the suitability of trades for non-dealer counterparties and special entities when making recommendations to such counterparties, unless the SBS Dealer can rely on the institutional suitability alternative to fulfill its customer-specific suitability obligations. SBS Dealers may have superior information about security-based swaps, but may face an informational asymmetry when analyzing the hedging needs, risk tolerance and horizons of their counterparties. This requirement may preclude SBS Dealers from recommending some security-based swaps that may be truly suitable for a given counterparty, while recommending other security-based swaps that may be less suitable. The presence and magnitude of this economic effect depends on the tradeoff between the severity of information asymmetry concerning the nature of the swap and asymmetry concerning the counterparty, and potential losses and risks of investing in unsuitable security-based swaps relative to foregone profits from not investing in suitable security-based swaps.
Suitability requirements and resulting costs could further increase the costs to SBS Dealers of recommending security-based swaps to non-dealer counterparties, particularly counterparties with which the SBS Dealer has had no prior transactions, and counterparties that do not meet institutional suitability requirements. We also recognize that these rules may limit the ability of SBS Dealers to recommend some security-based swaps to certain counterparties, which may decrease the potential range of counterparties and products that some SBS Dealers may intermediate. If these effects result in SBS Dealers refraining from advising or transacting with some counterparties, and these counterparties are otherwise unable to receive advice or enter into security-based swaps, the suitability requirement may come at a net cost to these counterparties and would place them at a disadvantage relative to larger, more sophisticated competitors. To the extent that these counterparties do not participate in the security-based swap market as a result of these costs, adverse effects on market participation and liquidity may follow. However, as we noted previously, market data available to us reveal that relatively few counterparties enter into security-based swap agreements with an SBS Dealer without third-party representation, particularly among special entities. As a result of this third-party representation and the SBS Dealer's ability to fulfill its customer-specific suitability obligations by, among other things, making the determination that a counterparty's agent is capable of independently evaluating investment risk, as well as the exception of anonymous SEF executed security-based swaps, we do not believe that market access is likely to be restricted.
The final pay to play rules may reduce pay to play practices among SBS Dealers. To the extent that political contributions may currently be influencing counterparty and security-based swap selection, these rules may mitigate these influences and enhance allocative efficiency of municipal entities and facilitate greater quality-based competition of SBS Dealers. However, if some SBS Dealers become subject to a two-year time out due to inadvertent violations of the
Further, under these final rules, representatives of special entities transacting with SBS Entities are likely to be employees or independent representatives subject to Commission, CFTC or SRO pay to play rules. To the extent that some special entity representatives currently intermediating transactions with SBS Entities are not registered investment advisers, municipal advisors, other fiduciaries or employees, they may be unable to represent special entities in security-based swap transactions with SBS Entities unless they register as such. This may decrease competition among qualified investment representatives of special entities, or incentivize unregistered representatives to register, for instance, as investment advisers with the Commission or as municipal advisors with the MSRB.
The direct and indirect costs of compliance with these final business conduct rules may be recovered by SBS Entities in the form of higher transaction costs or more adverse non-price terms of security-based swaps offered to counterparties. To the extent that these costs cannot be recovered, incentives for some entities to operate as registered U.S. SBS Entities may be reduced,
In addition to the competitive effects of compliance burdens above, the cross-border approach adopted in these final rules may impact competition between U.S. and non-U.S. SBS Entities and their U.S. and non-U.S. personnel. A substituted compliance regime for business conduct requirements and their application to non-U.S. persons' dealing transactions that are arranged, negotiated, or executed using personnel located in the United States may mitigate competitive frictions between U.S. and non-U.S. SBS Dealers that transact with foreign counterparties, and may promote market efficiency. The final cross-border approach to business conduct requirements will result in a uniform application of these requirements to U.S. and non-U.S. SBS Dealers and their agents. If only U.S. SBS Dealers and their agents were subject to disclosure, suitability and other requirements in these final rules when transacting with foreign counterparties, the costs of such disclosures would primarily be incurred by U.S. SBS Dealers, their agents, and their counterparties. In contrast, non-U.S. SBS Dealers and their agents, including personnel located in the United States, would potentially have a competitive advantage over U.S. SBS Dealers in serving non-U.S. person counterparties using personnel located in a U.S. branch or office, were their activities not subject to the same requirements.
Access to SEC-regulated security-based swap markets increases hedging opportunities for financial market intermediaries; such hedging opportunities reduce risks and allow intermediaries to facilitate a greater volume of financing activities, including issuance of equity and debt securities, and therefore contribute to capital formation. As we have stated in other releases,
The Regulatory Flexibility Act (“RFA”)
For purposes of Commission rulemaking in connection with the RFA, a small entity includes: (i) 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;
With respect to SBS Entities, based on feedback from market participants and our information about the security-based swap markets, the Commission continues to believe that (1) the types of entities that would engage in more than a
For the foregoing reasons, the Commission certifies that the SBS Entity registration rules and forms, as adopted would not have a significant economic impact on a substantial number of small entities for purposes of the RFA.
Pursuant to the Exchange Act and, particularly, Sections 2, 3(b), 3C, 9, 10, 11A, 15, 15F, 17(a) and (b), 23(a) and 30(c) thereof (15 U.S.C. 78b, 78c(b), 78i(i), 78i(j), 78j, 78k-1, 78o, 78o-10, 78q(a) and (b), 78w(a) and 78dd(c)), the Commission is adopting Rule 3a71-6, Rules 15Fh-1 through 15Fh-6, and Rule 15Fk-1, and is amending Rules 3a67-10 and 3a71-3, to address the business conduct obligations of security-based swap dealers and major security-based swap participants, including the cross-border application of those obligations and the availability of substituted compliance in connection with those obligations.
Brokers, Reporting and recordkeeping requirements, Securities.
For the reasons set forth in the preamble, the Securities and Exchange Commission is amending Title 17, Chapter II of the Code of 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
Section 240.3a67-10, 240.3a71-3, 240.3a71-4, 240.3a71-5, and 240.3a71-6 are also issued under Pub. L. 111-203, secs. 712, 761(b), 124 Stat. 1754 (2010), and 15 U.S.C. 78dd(c).
Sections 240.15Fh-1 through 240.15Fh-6 and 240.15Fk-1 are also issued under sec. 943, Pub. L. 111-203, 124 Stat. 1376.
The additions read as follows:
(a) * * *
(5)
(6)
(d)
(2) A registered U.S. major security-based swap participant shall not be subject to the requirements relating to business conduct standards described in section 15F(h) of the Act (15 U.S.C. 78o-10(h)), and the rules and regulations thereunder, other than rules and regulations prescribed by the Commission pursuant to section 15F(h)(1)(B) of the Act (15 U.S.C. 78o-10(h)(1)(B)), with respect to a security-based swap transaction that constitutes a transaction conducted through a foreign branch of the registered U.S. major security-based swap participant with a non-U.S. person or with a U.S.-person counterparty that constitutes a transaction conducted through a foreign branch of that U.S.-person counterparty.
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 entered into or offered to be entered into by or on behalf of such U.S. security-based swap dealer, 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)
(c)
(a)
(2)
(i) Determines that the requirements of such foreign financial regulatory system applicable to such security-based swap entity (or class thereof) or to the activities of such security-based swap entity (or class thereof) are comparable to otherwise applicable requirements, after taking into account such factors as the Commission determines are appropriate, such as the scope and objectives of the relevant foreign regulatory requirements (taking into account the applicable criteria set forth in paragraph (d) of this section), as well as the effectiveness of the supervisory compliance program administered, and the enforcement authority exercised, by a foreign financial regulatory authority or authorities in such system to support its oversight of such security-based swap entity (or class thereof) or of the activities of such security-based swap entity (or class thereof); and
(ii) Has entered into a supervisory and enforcement memorandum of understanding and/or other arrangement with the relevant foreign financial regulatory authority or authorities under such foreign financial regulatory system addressing supervisory and enforcement cooperation and other matters arising under the substituted compliance determination.
(3)
(b)
(1) The Commission has made a substituted compliance determination pursuant to paragraph (a)(1) of this section regarding such foreign financial regulatory system providing that compliance with specified requirements under such foreign financial regulatory system by such registered security-based swap entity (or class thereof) may satisfy the corresponding requirements described in paragraph (d) of this section; and
(2) Such registered security-based swap entity satisfies any conditions set forth in a substituted compliance determination made by the Commission pursuant to paragraph (a)(1) of this section.
(c)
(2) Such a party or group of parties may make a request under paragraph (c)(1) of this section only if:
(i) Each such party, or the party's activities, is directly supervised by the foreign financial regulatory authority or authorities with respect to the foreign regulatory requirements relating to the applicable requirements described in paragraph (d) of this section; and
(ii) Each such party provides the certification and opinion of counsel as described in § 240.15Fb2-4(c), as if the party were subject to that requirement at the time of the request.
(3) Such foreign financial authority or authorities may make a request under paragraph (c)(1) of this section only if each such authority provides adequate assurances that no law or policy of any relevant foreign jurisdiction would impede the ability of any entity that is directly supervised by the foreign financial regulatory authority and that may register with the Commission as a security-based swap dealer or major security-based swap participant to provide prompt access to the Commission to such entity's books and records or to submit to onsite inspection or examination by the Commission.
(d)
(1)
(2)
(a)
(b)
As used in §§ 240.15Fh-1 through 240.15Fh-6:
(a)
(1) With respect to a special entity as defined in § 240.15Fh-2(d)(3):
(i) The special entity represents in writing that it has a fiduciary as defined in section 3 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002) that is responsible for representing the special entity in connection with the security-based swap;
(ii) The fiduciary represents in writing that it acknowledges that the security-based swap dealer is not acting as an advisor; and
(iii) The special entity represents in writing:
(A) That it will comply in good faith with written policies and procedures reasonably designed to ensure that any recommendation the special entity receives from the security-based swap dealer involving a security-based swap transaction is evaluated by a fiduciary before the transaction is entered into; or
(B) That any recommendation the special entity receives from the security-based swap dealer involving a security-based swap transaction will be evaluated by a fiduciary before the transaction is entered into.
(2) With respect to any special entity:
(i) The special entity represents in writing that:
(A) It acknowledges that the security-based swap dealer is not acting as an advisor; and
(B) The special entity will rely on advice from a qualified independent representative as defined in § 240.15Fh-5(a); and
(ii) The security-based swap dealer discloses to the special entity that it is not undertaking to act in the best interest of the special entity, as otherwise required by section 15F(h)(4) of the Act.
(b)
(c)
(d)
(1) A Federal agency;
(2) A State, State agency, city, county, municipality, other political subdivision of a State, or any instrumentality, department, or a corporation of or established by a State or political subdivision of a State;
(3) Any employee benefit plan, subject to Title I of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002);
(4) Any employee benefit plan defined in section 3 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002) and not otherwise defined as a special entity, unless such employee benefit plan elects not to be a special entity by notifying a security-based swap dealer or major security-based swap participant of its election prior to entering into a security-based swap with the particular security-based swap dealer or major security-based swap participant;
(5) Any governmental plan, as defined in section 3(32) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002(32)); or
(6) Any endowment, including an endowment that is an organization described in section 501(c)(3) of the Internal Revenue Code of 1986.
(e) A person is
(a)
(2)
(3)
(b)
(1)
(i) Market, credit, liquidity, foreign currency, legal, operational, and any other applicable risks; and
(ii) The material economic terms of the security-based swap, the terms relating to the operation of the security-based swap, and the rights and obligations of the parties during the term of the security-based swap.
(2)
(3)
(c)
(1) For a cleared security-based swap, upon request of the counterparty, the daily mark that the security-based swap dealer or major security-based swap participant receives from the appropriate clearing agency;
(2) For an uncleared security-based swap, the midpoint between the bid and offer, or the calculated equivalent thereof, as of the close of business, unless the parties agree in writing otherwise to a different time, on each business day during the term of the security-based swap. The daily mark may be based on market quotations for comparable security-based swaps, mathematical models or a combination thereof. The security-based swap dealer or major security-based swap participant shall also disclose its data sources and a description of the methodology and assumptions used to prepare the daily mark, and promptly disclose any material changes to such data sources, methodology and assumptions during the term of the security-based swap; and
(3) The security-based swap dealer or major security-based swap participant shall provide the daily mark without charge to the counterparty and without restrictions on the internal use of the daily mark by the counterparty.
(d)
(1)
(i) Disclose to the counterparty the names of the clearing agencies that accept the security-based swap for clearing, and through which of those clearing agencies the security-based swap dealer or major security-based swap participant is authorized or permitted, directly or through a designated clearing member, to clear the security-based swap; and
(ii) Notify the counterparty that it shall have the sole right to select which of the clearing agencies described in paragraph (d)(1)(i) of this section shall be used to clear the security-based swap subject to section 3C(g)(5) of the Act.
(2)
(i) Determine whether the security-based swap is accepted for clearing by one or more clearing agencies;
(ii) Disclose to the counterparty the names of the clearing agencies that accept the security-based swap for clearing, and whether the security-based swap dealer or major security-based swap participant is authorized or permitted, directly or through a designated clearing member, to clear the security-based swap through such clearing agencies; and
(iii) Notify the counterparty that it may elect to require clearing of the security-based swap and shall have the sole right to select the clearing agency at which the security-based swap will be cleared, provided it is a clearing agency at which the security-based swap dealer or major security-based swap participant is authorized or permitted, directly or through a designated clearing member, to clear the security-based swap.
(3)
(e)
(1) Facts required to comply with applicable laws, regulations and rules;
(2) Facts required to implement the security-based swap dealer's credit and operational risk management policies in connection with transactions entered into with such counterparty; and
(3) Information regarding the authority of any person acting for such counterparty.
(f)
(i) Undertake reasonable diligence to understand the potential risks and rewards associated with the recommended security-based swap or trading strategy involving a security-based swap; and
(ii) Have a reasonable basis to believe that a recommended security-based swap or trading strategy involving a security-based swap is suitable for the counterparty. To establish a reasonable basis for a recommendation, a security-based swap dealer must have or obtain relevant information regarding the counterparty, including the counterparty's investment profile, trading objectives, and its ability to absorb potential losses associated with the recommended security-based swap or trading strategy involving a security-based swap.
(2) A security-based swap dealer may also fulfill its obligations under paragraph (f)(1)(ii) of this section with respect to an institutional counterparty, if:
(i) The security-based swap dealer reasonably determines that the counterparty, or an agent to which the counterparty has delegated decision-making authority, is capable of independently evaluating investment risks with regard to the relevant security-based swap or trading strategy involving a security-based swap;
(ii) The counterparty or its agent affirmatively represents in writing that it is exercising independent judgment in evaluating the recommendations of the security-based swap dealer with regard to the relevant security-based swap or trading strategy involving a security-based swap; and
(iii) The security-based swap dealer discloses that it is acting in its capacity as a counterparty, and is not undertaking to assess the suitability of the security-based swap or trading strategy for the counterparty.
(3) A security-based swap dealer will be deemed to have satisfied its obligations under paragraph (f)(2)(i) of this section if it receives written representations, as provided in § 240.15Fh-1(b), that:
(i) In the case of a counterparty that is not a special entity, the counterparty has complied in good faith with written policies and procedures that are reasonably designed to ensure that the persons responsible for evaluating the recommendation and making trading decisions on behalf of the counterparty are capable of doing so; or
(ii) In the case of a counterparty that is a special entity, satisfy the terms of the safe harbor in § 240.15Fh-5(b).
(4) For purposes of paragraph (f)(2) of this section, an institutional counterparty is a counterparty that is an eligible contract participant as defined in clauses (A)(i), (ii), (iii), (iv), (viii), (ix) or (x), or clause (B)(ii) (other than a person described in clause (A)(v)) of section 1a(18) of the Commodity Exchange Act (7 U.S.C. 1(a)(18)) and the rules and regulations thereunder, or any person (whether a natural person, corporation, partnership, trust or otherwise) with total assets of at least $50 million.
(g)
(1) Communications must provide a sound basis for evaluating the facts with regard to any particular security-based swap or trading strategy involving a security-based swap;
(2) Communications may not imply that past performance will recur or make any exaggerated or unwarranted claim, opinion or forecast; and
(3) Any statement referring to the potential opportunities or advantages presented by a security-based swap shall be balanced by an equally detailed statement of the corresponding risks.
(h)
(2)
(i) The designation of at least one person with authority to carry out the supervisory responsibilities of the security-based swap dealer or major security-based swap participant for each type of business in which it engages for which registration as a security-based swap dealer or major security-based swap participant is required;
(ii) The use of reasonable efforts to determine that all supervisors are qualified, either by virtue of experience or training, to carry out their assigned responsibilities; and
(iii) Establishment, maintenance and enforcement of written policies and procedures addressing the supervision of the types of security-based swap business in which the security-based swap dealer or major security-based swap participant is engaged and the activities of its associated persons that are reasonably designed to prevent violations of applicable federal securities laws and the rules and regulations thereunder, and that include, at a minimum:
(A) Procedures for the review by a supervisor of transactions for which registration as a security-based swap dealer or major security-based swap participant is required;
(B) Procedures for the review by a supervisor of incoming and outgoing written (including electronic) correspondence with counterparties or potential counterparties and internal written communications relating to the security-based swap dealer's or major security-based swap participant's business involving security-based swaps;
(C) Procedures for a periodic review, at least annually, of the security-based swap business in which the security-based swap dealer or major security-based swap participant engages that is reasonably designed to assist in detecting and preventing violations of applicable federal securities laws and the rules and regulations thereunder;
(D) Procedures to conduct a reasonable investigation regarding the good character, business repute, qualifications, and experience of any person prior to that person's association with the security-based swap dealer or major security-based swap participant;
(E) Procedures to consider whether to permit an associated person to establish or maintain a securities or commodities account or a trading relationship in the name of, or for the benefit of such associated person, at another security-based swap dealer, broker, dealer, investment adviser, or other financial institution; and if permitted, procedures to supervise the trading at the other security-based swap dealer, broker, dealer, investment adviser, or financial institution;
(F) A description of the supervisory system, including the titles, qualifications and locations of supervisory persons and the responsibilities of each supervisory person with respect to the types of business in which the security-based swap dealer or major security-based swap participant is engaged;
(G) Procedures prohibiting an associated person who performs a supervisory function from supervising his or her own activities or reporting to, or having his or her compensation or continued employment determined by, a person or persons he or she is supervising; provided, however, that if the security-based swap dealer or major security-based swap participant determines, with respect to any of its supervisory personnel, that compliance with this requirement is not possible because of the firm's size or a supervisory person's position within the firm, the security-based swap dealer or major security-based swap participant must document the factors used to reach such determination and how the supervisory arrangement with respect to such supervisory personnel otherwise complies with paragraph (h)(1) of this section, and include a summary of such determination in the annual compliance report prepared by the security-based swap dealer's or major security-based swap participant's chief compliance officer pursuant to § 240.15Fk-1(c);
(H) Procedures reasonably designed to prevent the supervisory system required by paragraph (h)(1) of this section from being compromised due to the conflicts of interest that may be present with respect to the associated person being supervised, including the position of such person, the revenue such person generates for the security-based swap dealer or major security-based swap participant, or any compensation that the associated person conducting the supervision may derive from the associated person being supervised; and
(I) Procedures reasonably designed, taking into consideration the nature of such security-based swap dealer's or major security-based swap participant's business, to comply with the duties set forth in section 15F(j) of the Act.
(3)
(i) The security-based swap dealer or major security-based swap participant has established and maintained written policies and procedures as required in § 240.15Fh-3(h)(2)(iii), and a documented system for applying those policies and procedures, that would reasonably be expected to prevent and detect, insofar as practicable, any violation of the federal securities laws and the rules and regulations thereunder relating to security-based swaps; and
(ii) The security-based swap dealer or major security-based swap participant, or associated person of the security-based swap dealer or major security-based swap participant, has reasonably discharged the duties and obligations required by such written policies and procedures and documented system and did not have a reasonable basis to believe that such written policies and procedures and documented system were not being followed.
(4)
(i) Promptly amend its written supervisory procedures as appropriate when material changes occur in applicable securities laws or rules or regulations thereunder, and when material changes occur in its business or supervisory system; and
(ii) Promptly communicate any material amendments to its supervisory procedures to all associated persons to whom such amendments are relevant based on their activities and responsibilities.
(a)
(1) To employ any device, scheme, or artifice to defraud any special entity or prospective customer who is a special entity;
(2) To engage in any transaction, practice, or course of business that operates as a fraud or deceit on any special entity or prospective customer who is a special entity; or
(3) To engage in any act, practice, or course of business that is fraudulent, deceptive, or manipulative.
(b)
(1)
(2)
(i) The authority of the special entity to enter into a security-based swap;
(ii) The financial status of the special entity, as well as future funding needs;
(iii) The tax status of the special entity;
(iv) The hedging, investment, financing or other objectives of the special entity;
(v) The experience of the special entity with respect to entering into
(vi) Whether the special entity has the financial capability to withstand changes in market conditions during the term of the security-based swap; and
(vii) Such other information as is relevant to the particular facts and circumstances of the special entity, market conditions and the type of security-based swap or trading strategy involving a security-based swap being recommended.
(3)
(i) The transaction is executed on a registered or exempt security-based swap execution facility or registered national securities exchange; and
(ii) The security-based swap dealer does not know the identity of the counterparty at a reasonably sufficient time prior to execution of the transaction to permit the security-based swap dealer to comply with the obligations of paragraph (b) of this section.
(a)(1) A security-based swap dealer or major security-based swap participant that offers to enter into or enters into a security-based swap with a special entity, other than a special entity defined in § 240.15Fh-2(d)(3), must have a reasonable basis to believe that the special entity has a qualified independent representative. For these purposes, a qualified independent representative is a representative that:
(i) Has sufficient knowledge to evaluate the transaction and risks;
(ii) Is not subject to a statutory disqualification;
(iii) Undertakes a duty to act in the best interests of the special entity;
(iv) Makes appropriate and timely disclosures to the special entity of material information concerning the security-based swap;
(v) Evaluates, consistent with any guidelines provided by the special entity, the fair pricing and the appropriateness of the security-based swap;
(vi) In the case of a special entity defined in §§ 240.15Fh-2(d)(2) or (5), is a person that is subject to rules of the Commission, the Commodity Futures Trading Commission or a self-regulatory organization subject to the jurisdiction of the Commission or the Commodity Futures Trading Commission prohibiting it from engaging in specified activities if certain political contributions have been made,
(vii) Is independent of the security-based swap dealer or major security-based swap participant.
(A) A representative of a special entity is independent of a security-based swap dealer or major security-based swap participant if the representative does not have a relationship with the security-based swap dealer or major security-based swap participant, whether compensatory or otherwise, that reasonably could affect the independent judgment or decision-making of the representative.
(B) A representative of a special entity will be deemed to be independent of a security-based swap dealer or major security-based swap participant if:
(
(
(
(2) A security-based swap dealer or major security-based swap participant that offers to enter into or enters into a security-based swap with a special entity as defined in § 240.15Fh-2(d)(3) must have a reasonable basis to believe that the special entity has a representative that is a fiduciary as defined in section 3 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002).
(b)
(i) The special entity represents in writing to the security-based swap dealer or major security-based swap participant that it has complied in good faith with written policies and procedures reasonably designed to ensure that it has selected a representative that satisfies the applicable requirements of paragraph (a)(1) of this section, and that such policies and procedures provide for ongoing monitoring of the performance of such representative consistent with the requirements of paragraph (a)(1) of this section; and
(ii) The representative represents in writing to the special entity and security-based swap dealer or major security-based swap participant that the representative:
(A) Has policies and procedures reasonably designed to ensure that it satisfies the applicable requirements of paragraph (a)(1) of this section;
(B) Meets the independence test in paragraph (a)(1)(vii) of this section; has the knowledge required under paragraph (a)(1)(i) of this section; is not subject to a statutory disqualification under paragraph (a)(1)(ii) of this section; undertakes a duty to act in the best interests of the special entity as required under paragraph (a)(1)(iii) of this section; and is subject to the requirements regarding political contributions, as applicable, under paragraph (a)(1)(vi) of this section; and
(C) Is legally obligated to comply with the applicable requirements of paragraph (a)(1) of this section by agreement, condition of employment, law, rule, regulation, or other enforceable duty.
(2) A security-based swap dealer or major security-based swap participant shall be deemed to have a reasonable basis to believe that a special entity defined in § 240.15Fh-2(d)(3) of this section has a representative that satisfies the applicable requirements in paragraph (a)(2) of this section, provided that the special entity provides in writing to the security-based swap dealer or major security-based swap participant the representative's name and contact information, and represents in writing that the representative is a fiduciary as defined in section 3 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002).
(c) Before initiation of a security-based swap with a special entity, a security-based swap dealer shall disclose to the special entity in writing the capacity in which the security-based swap dealer is acting in connection with the security-based swap and, if the security-based swap dealer engages in business with the counterparty in more
(d) The requirements of this section shall not apply with respect to a security-based swap if:
(1) The transaction is executed on a registered or exempt security-based swap execution facility or registered national securities exchange; and
(2) The security-based swap dealer or major security-based swap participant does not know the identity of the counterparty at a reasonably sufficient time prior to execution of the transaction to permit the security-based swap dealer or major security-based swap participant to comply with the obligations of paragraphs (a) through (c) of this section.
(a)
(1) The term
(i) For the purpose of influencing any election for federal, state or local office;
(ii) For payment of debt incurred in connection with any such election; or
(iii) For transition or inaugural expenses incurred by the successful candidate for state or local office.
(2) The term
(i) Any general partner, managing member or executive officer, or other person with a similar status or function;
(ii) Any employee who solicits a municipal entity to enter into a security-based swap with the security-based swap dealer and any person who supervises, directly or indirectly, such employee; and
(iii) A political action committee controlled by the security-based swap dealer or by a person described in paragraphs (a)(2)(i) and (ii) of this section.
(3) The term
(i) The president;
(ii) Any vice president in charge of a principal business unit, division or function (such as sales, administration or finance);
(iii) Any other officer of the security-based swap dealer who performs a policy-making function; or
(iv) Any other person who performs similar policy-making functions for the security-based swap dealer.
(4) The term
(5) The term
(i) Is directly or indirectly responsible for, or can influence the outcome of, the selection of a security-based swap dealer by a municipal entity; or
(ii) Has authority to appoint any person who is directly or indirectly responsible for, or can influence the outcome of, the selection of a security-based swap dealer by a municipal entity.
(6) The term
(7) The term
(i) A person that is subject to rules of the Commission, the Commodity Futures Trading Commission or a self-regulatory organization subject to the jurisdiction of the Commission or the Commodity Futures Trading Commission prohibiting it from engaging in specified activities if certain political contributions have been made, or its officers or employees;
(ii) A general partner, managing member or executive officer of such person, or other individual with a similar status or function; or
(iii) An employee of such person who solicits a municipal entity for the security-based swap dealer and any person who supervises, directly or indirectly, such employee.
(8) The term
(b)
(2) The prohibition in paragraph (b)(1) of this section does not apply:
(i) If the only contributions made by the security-based swap dealer to an official of such municipal entity were made by a covered associate, if a natural person:
(A) To officials for whom the covered associate was entitled to vote at the time of the contributions,
(B) To officials for whom the covered associate was not entitled to vote at the time of the contributions,
(ii) To a security-based swap dealer as a result of a contribution made by a natural person more than six months prior to becoming a covered associate of the security-based swap dealer,
(iii) With respect to a security-based swap that is executed on a registered national securities exchange or registered or exempt security-based swap execution facility where the security-based swap dealer does not know the identity of the counterparty to the transaction at a reasonably sufficient time prior to execution of the transaction to permit the security-based swap dealer to comply with the obligations of paragraph (b)(1) of this section.
(3) No security-based swap dealer or any covered associate of the security-based swap dealer shall:
(i) Provide or agree to provide, directly or indirectly, payment to any person to solicit a municipal entity to offer to enter into, or to enter into, a security-based swap or any trading strategy involving a security-based swap with that security-based swap dealer unless such person is a regulated person; or
(ii) Coordinate, or solicit any person or political action committee to make, any:
(A) Contribution to an official of a municipal entity with which the security-based swap dealer is offering to enter into, or has entered into, a security-based swap or a trading strategy involving a security-based swap; or
(B) Payment to a political party of a state or locality with which the security-based swap dealer is offering to enter into, or has entered into, a security-based swap or a trading strategy involving a security-based swap.
(c)
(d)
(1) Whether the exemption is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes of the Act;
(2) Whether the security-based swap dealer:
(i) Before the contribution resulting in the prohibition was made, adopted and implemented policies and procedures reasonably designed to prevent violations of this section;
(ii) Prior to or at the time the contribution which resulted in such prohibition was made, had no actual knowledge of the contribution; and
(iii) After learning of the contribution:
(A) Has taken all available steps to cause the contributor involved in making the contribution which resulted in such prohibition to obtain a return of the contribution; and
(B) Has taken such other remedial or preventive measures as may be appropriate under the circumstances;
(3) Whether, at the time of the contribution, the contributor was a covered associate or otherwise an employee of the security-based swap dealer, or was seeking such employment;
(4) The timing and amount of the contribution which resulted in the prohibition;
(5) The nature of the election (
(6) The contributor's apparent intent or motive in making the contribution that resulted in the prohibition, as evidenced by the facts and circumstances surrounding the contribution.
(e)
(i) The security-based swap dealer discovered the contribution within 120 calendar days of the date of such contribution;
(ii) The contribution did not exceed $350; and
(iii) The covered associate obtained a return of the contribution within 60 calendar days of the date of discovery of the contribution by the security-based swap dealer.
(2) A security-based swap dealer that has more than 50 covered associates may not rely on paragraph (e)(1) of this section more than three times in any 12-month period, while a security-based swap dealer that has 50 or fewer covered associates may not rely on paragraph (e)(1) of this section more than twice in any 12-month period.
(3) A security-based swap dealer may not rely on paragraph (e)(1) of this section more than once for any covered associate, regardless of the time between contributions.
(a)
(b)
(1) Report directly to the board of directors or to the senior officer of the security-based swap dealer or major security-based swap participant; and
(2) Take reasonable steps to ensure that the registrant establishes, maintains and reviews written policies and procedures reasonably designed to achieve compliance with the Act and the rules and regulations thereunder relating to its business as a security-based swap dealer or major security-based swap participant by:
(i) Reviewing the compliance of the security-based swap dealer or major security-based swap participant with respect to the security-based swap dealer and major security-based swap participant requirements described in section 15F of the Act, and the rules and regulations thereunder, where the review shall involve preparing the registrant's annual assessment of its written policies and procedures reasonably designed to achieve compliance with section 15F of the Act, and the rules and regulations thereunder, by the security-based swap dealer or major security-based swap participant;
(ii) Taking reasonable steps to ensure that the registrant establishes, maintains and reviews policies and procedures reasonably designed to remediate non-compliance issues identified by the chief compliance officer through any means, including any:
(A) Compliance office review;
(B) Look-back;
(C) Internal or external audit finding;
(D) Self-reporting to the Commission and other appropriate authorities; or
(E) Complaint that can be validated; and
(iii) Taking reasonable steps to ensure that the registrant establishes and follows procedures reasonably designed for the handling, management response, remediation, retesting, and resolution of non-compliance issues;
(3) In consultation with the board of directors or the senior officer of the security-based swap dealer or major security-based swap participant, take reasonable steps to resolve any material conflicts of interest that may arise; and
(4) Administer each policy and procedure that is required to be established pursuant to section 15F of the Act and the rules and regulations thereunder.
(c)
(2)
(A) The security-based swap dealer or major security-based swap participant's assessment of the effectiveness of its policies and procedures relating to its business as a security-based swap dealer or major security-based participant;
(B) Any material changes to the registrant's policies and procedures since the date of the preceding compliance report;
(C) Any areas for improvement, and recommended potential or prospective changes or improvements to its compliance program and resources devoted to compliance;
(D) Any material non-compliance matters identified; and
(E) The financial, managerial, operational, and staffing resources set aside for compliance with the Act and the rules and regulations thereunder relating to its business as a security-based swap dealer or major security-based swap participant, including any material deficiencies in such resources.
(ii) A compliance report under paragraph (c)(1) of this section also shall:
(A) Be submitted to the Commission within 30 days following the deadline for filing the security-based swap dealer's or major security-based swap participant's annual financial report with the Commission pursuant to section 15F of the Act and rules and regulations thereunder;
(B) Be submitted to the board of directors and audit committee (or equivalent bodies) and the senior officer of the security-based swap dealer or major security-based swap participant prior to submission to the Commission;
(C) Be discussed in one or more meetings conducted by the senior officer with the chief compliance officer(s) in the preceding 12 months, the subject of
(D) Include a certification by the chief compliance officer or senior officer that, to the best of his or her knowledge and reasonable belief and under penalty of law, the information contained in the compliance report is accurate and complete in all material respects.
(iii)
(iv)
(v)
(d)
(e)
(1) The
(2) The
(3)
(4) A
(i) A violation of the federal securities laws relating to its business as a security-based swap dealer or major security-based swap participant by the firm or its officers, directors, employees or agents;
(ii) A violation of the policies and procedures relating to its business as a security-based swap dealer or major security-based swap participant by the firm or its officers, directors, employees or agents; or
(iii) A weakness in the design or implementation of the policies and procedures relating to its business as a security-based swap dealer or major security-based swap participant.
By the Commission.
Category | Regulatory Information | |
Collection | Federal Register | |
sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
Publisher | Office of the Federal Register, National Archives and Records Administration |