Federal Register Vol. 81, No.95,
Federal Register Volume 81, Issue 95 (May 17, 2016)
Federal Register Volume 81, Issue 95 (May 17, 2016)
| Page Range | 30483-31159 | |
| FR Document |
Document Created: 2015-12-31 23:05:21
Document Modified: 2015-12-31 23:05:21
| Page and Subject | |
|---|---|
| 81 FR 30530 - Applications for New Awards; Charter Schools Program (CSP) Grants for Replication and Expansion of High-Quality Charter Schools; Correction | |
| 81 FR 30597 - 30-Day Notice of Proposed Information Collection: Reporting Requirements on Responsible Investment in Burma | |
| 81 FR 30572 - Sunshine Act Meeting | |
| 81 FR 30483 - Rules of Practice and Procedure; Adjusting Civil Money Penalties for Inflation | |
| 81 FR 30610 - Submission for OMB Review; Comment Request | |
| 81 FR 30521 - Proposed Collection; Comment Request | |
| 81 FR 30597 - Section 7058(c) Determination for Zika Virus | |
| 81 FR 30599 - 60-Day Notice of Proposed Information Collection: U.S. Passport Renewal Application for Eligible Individuals | |
| 81 FR 30535 - Notification of Two Public Teleconferences of the Science Advisory Board; Environmental Economics Advisory Committee | |
| 81 FR 30599 - 60-Day Notice of Proposed Information Collection: Technology Security/Clearance Plans, Screening Records, and Non-Disclosure Agreements | |
| 81 FR 30541 - Submission for OMB Review; 30-Day Comment Request; National Institutes of Health (NIH) Loan Repayment Programs; Office of the Director (OD) | |
| 81 FR 30519 - Determination Under the Textile and Apparel Commercial Availability Provision of the Dominican Republic-Central America-United States Free Trade Agreement (“CAFTA-DR Agreement”) | |
| 81 FR 30545 - Notice of Aged Delinquent Portfolio Loan Sale (ADPLS) | |
| 81 FR 30595 - Texas Disaster Number TX-00468 | |
| 81 FR 30520 - Academic Research Council Meeting | |
| 81 FR 30505 - Mandatory Deposit of Electronic Books and Sound Recordings Available Only Online | |
| 81 FR 30565 - 181st Meeting of the Advisory Council on Employee Welfare and Pension Benefit Plans Notice of Meeting | |
| 81 FR 30569 - Records Schedules; Availability and Request for Comments | |
| 81 FR 30518 - Input on Proposals and Positions for 2016 World Telecommunication Standardization Assembly | |
| 81 FR 30531 - Environmental Management Site-Specific Advisory Board, Northern New Mexico | |
| 81 FR 30523 - Applications for New Awards; Indian Education Discretionary Grants Programs-Professional Development Grants Program | |
| 81 FR 30533 - Environmental Management Site-Specific Advisory Board, Oak Ridge Reservation | |
| 81 FR 30596 - New York Disaster #NY-00167 | |
| 81 FR 30531 - Environmental Management Site-Specific Advisory Board, Hanford | |
| 81 FR 30532 - Application To Export Electric Energy; Termoelectrica U.S., LLC | |
| 81 FR 30596 - IDAHO Disaster #ID-00062 Declaration of Economic Injury | |
| 81 FR 30571 - Disposition of Information Related to the Time Period That Safety-Related Structures, Systems, or Components Are Installed | |
| 81 FR 30571 - Southern Nuclear Operating Company, Inc.; Establishment of Atomic Safety and Licensing Board | |
| 81 FR 30548 - Notice on Outer Continental Shelf Oil and Gas Lease Sales | |
| 81 FR 30566 - Nemko-CCL, Inc.: Applications for Expansion of Recognition | |
| 81 FR 30529 - Reopening; Application Deadline for Fiscal Year 2016; Small, Rural School Achievement Program | |
| 81 FR 30607 - Chrysler Group, LLC, Grant of Petition for Decision of Inconsequential Noncompliance | |
| 81 FR 30609 - Open Meeting of the Advisory Committee on Risk-Sharing Mechanisms | |
| 81 FR 30568 - Susan Harwood Training Grant Program, FY 2016 | |
| 81 FR 30530 - Agency Information Collection Activities; Comment Request; Survey on the Use of Funds Under Title II, Part A (SEA Uses of Funds) | |
| 81 FR 30522 - Agency Information Collection Activities; Comment Request; Impact Aid Program Application for Section 7002 Assistance | |
| 81 FR 30607 - Reports, Forms, and Record Keeping Requirements Agency Information Collection Activity Under OMB Review | |
| 81 FR 30605 - Compendium of Public Transportation Safety Standards | |
| 81 FR 30536 - Information Collection Being Submitted for Review and Approval to the Office of Management and Budget | |
| 81 FR 30538 - Information Collection Being Reviewed by the Federal Communications Commission | |
| 81 FR 30537 - Information Collection Being Submitted for Review and Approval to the Office of Management and Budget | |
| 81 FR 30604 - Contact Rail (Third Rail) System Hazards | |
| 81 FR 30601 - Buy America Waiver Notification | |
| 81 FR 30602 - Buy America Waiver Notification | |
| 81 FR 30596 - Public Availability of Social Security Administration Fiscal Year (FY) 2015 Service Contract Inventory | |
| 81 FR 30517 - Fisheries of the Caribbean, Gulf of Mexico, and South Atlantic; Reef Fish Resources of the Gulf of Mexico; Amendment 41 | |
| 81 FR 30600 - Agency Information Collection Activities: Requests for Comments; Clearance of Renewed Approval of Information Collection: Application for Employment With the Federal Aviation Administration; Withdrawal | |
| 81 FR 30547 - Notice of Public Meetings: Sierra Front-Northwestern Great Basin Resource Advisory Council, Nevada | |
| 81 FR 30602 - Notice of Proposed Buy America Waiver for Minivans | |
| 81 FR 30521 - U.S. Air Force Academy Board of Visitors Notice of Meeting | |
| 81 FR 30571 - Proposal Review Panel for Physics; Notice of Meeting | |
| 81 FR 30570 - Advisory Committee for Mathematical and Physical Sciences; Notice of Meeting | |
| 81 FR 30570 - Advisory Committee on the Records of Congress | |
| 81 FR 30540 - Use of Electronic Health Record Data in Clinical Investigations; Draft Guidance for Industry; Availability | |
| 81 FR 30548 - Certain Lithium Metal Oxide Cathode Materials, Lithium-Ion Batteries for Power Tool Products Containing Same, and Power Tool Products With Lithium-Ion Batteries Containing Same; Commission Determination To Review in Part a Final Initial Determination; Deny Certain Motions; and Grant a Request for a Commission Hearing; Request for Written Submissions on the Issues Under Review and on Remedy, the Public Interest and Bonding | |
| 81 FR 30550 - United States v. Charter Communications, Inc., et al.; Proposed Final Judgment and Competitive Impact Statement | |
| 81 FR 30568 - Distribution of the 2012-2013 Digital Audio Recording Technology Musical Works Royalty Funds | |
| 81 FR 30545 - Agency Information Collection Activities: Proposed Collection; Comment Request | |
| 81 FR 30515 - Agency Information Collection Activities: Proposed Collection; Comment Request-Information Collection for the Child and Adult Care Food Program | |
| 81 FR 31126 - Regulations Under the Americans With Disabilities Act | |
| 81 FR 31143 - Genetic Information Nondiscrimination Act | |
| 81 FR 30543 - Government-Owned Inventions; Availability for Licensing | |
| 81 FR 30541 - National Institute of Allergy and Infectious Diseases; Notice of Closed Meetings | |
| 81 FR 30544 - National Institute of Allergy and Infectious Diseases; Notice of Closed Meetings | |
| 81 FR 30533 - Nicatous Lake Lodge and Cabins, LLC; Notice of Declaration of Intention and Soliciting Comments, Protests, and Motions To Intervene | |
| 81 FR 30534 - Competitive Transmission Development, Technical Conference; Supplemental Notice of Technical Conference and Request for Speakers | |
| 81 FR 30517 - Foreign-Trade Zone (FTZ) 121-Albany, New York; Notification of Proposed Production Activity; Townsend Leather Company, Inc., (Finished Upholstery Grade Leather, Cut Parts and Product Samples); Johnstown, New York | |
| 81 FR 30517 - Foreign-Trade Zone (FTZ) 281-Miami, Florida, Notification of Proposed Production Activity, Alpha Marketing Network, Inc. d/b/a AMN Distributors, (Kitting-Wine Gift Sets), Miami, Florida | |
| 81 FR 30516 - Foreign-Trade Zone 110-Albuquerque, New Mexico; Application for Reorganization Under Alternative Site Framework | |
| 81 FR 30583 - Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and Immediate Effectiveness of Proposed Change Modifying the NYSE Amex Options Fee Schedule | |
| 81 FR 30580 - Self-Regulatory Organizations; Bats EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Related to Fees as They Apply to the Equity Options Platform | |
| 81 FR 30594 - Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending Its Price List To Make a Clarifying Change Regarding the Rebate Program Recently Implemented by the Exchange for the NYSE Bonds System | |
| 81 FR 30573 - Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Related to Customer Rebates | |
| 81 FR 30578 - Self-Regulatory Organizations; Bats EDGA Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Rule 11.11, Routing to Away Trading Centers, To Delete the IOCM and ICMT Routing Options | |
| 81 FR 30575 - Self-Regulatory Organizations; ICE Clear Europe Limited; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to Accounts Categories for Positions of Clearing Member Affiliates | |
| 81 FR 30589 - Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 98-Equities | |
| 81 FR 30585 - TCW Alternative Funds, et al.; Notice of Application | |
| 81 FR 30484 - Approval of California Air Plan Revisions, Eastern Kern Air Pollution Control District | |
| 81 FR 30503 - Safety Zone; Annual Roy Webster Cross-Channel Swim, Columbia River, Hood River, OR | |
| 81 FR 30509 - Approval of California State Air Plan Revisions, Eastern Kern Air Pollution Control District | |
| 81 FR 30610 - Advisory Committee on Cemeteries and Memorials, Notice of Meeting | |
| 81 FR 30510 - Rules Relating to Board-Initiated Investigations | |
| 81 FR 30495 - Retrospective Review-Improving the Previous Participation Reviews of Prospective Multifamily Housing and Healthcare Programs Participants; Supplemental Notice of Proposed Rulemaking | |
| 81 FR 30487 - Medicare Program; Obtaining Final Medicare Secondary Payer Conditional Payment Amounts via Web Portal | |
| 81 FR 30614 - Joint Industry Plan; Notice of Filing of the National Market System Plan Governing the Consolidated Audit Trail |
Issue
Food and Nutrition Service
Foreign-Trade Zones Board
National Oceanic and Atmospheric Administration
National Telecommunications and Information Administration
Air Force Department
Federal Energy Regulatory Commission
Centers for Medicare & Medicaid Services
Food and Drug Administration
National Institutes of Health
Substance Abuse and Mental Health Services Administration
Coast Guard
Land Management Bureau
Ocean Energy Management Bureau
Antitrust Division
Employee Benefits Security Administration
Occupational Safety and Health Administration
Copyright Office, Library of Congress
Copyright Royalty Board
Federal Aviation Administration
Federal Highway Administration
Federal Transit Administration
National Highway Traffic Safety Administration
Consult the Reader Aids section at the end of this issue for phone numbers, online resources, finding aids, and notice of recently enacted public laws.
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Farm Credit System Insurance Corporation.
Final rule.
This rule implements inflation adjustments to civil money penalties (CMPs) that the Farm Credit System Insurance Corporation (FCSIC) may impose under the Farm Credit Act of 1971, as amended. These adjustments are required by 2015 amendments to the Federal Civil Penalties Inflation Adjustment Act of 1990.
This rule is effective on August 1, 2016.
Howard Rubin, General Counsel, Farm Credit System Insurance Corporation, 1501 Farm Credit Drive, McLean, Virginia 22102, (703) 883-4380, TTY (703) 883-4390.
The Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (the 2015 Act) amended the Federal Civil Penalties Inflation Adjustment Act of 1990 (the Inflation Adjustment Act)
FCSIC must enact regulations that adjust its CMPs pursuant to the inflation adjustment formula of the amended Inflation Adjustment Act and rounded using a method prescribed by the Inflation Adjustment Act. The new amounts will apply to penalties assessed on or after the effective date of this rule. Agencies do not have discretion in choosing whether to adjust a CMP, by how much to adjust a CMP, or the methods used to determine the adjustment.
First, section 5.65(c) of the Farm Credit Act, as amended (Act), provides that any insured Farm Credit System bank that willfully fails or refuses to file any certified statement or pay any required premium shall be subject to a penalty of not more than $100 for each day that such violations continue, which penalty FCSIC may recover for its use.
FCSIC's current § 1411.1, promulgated in 2001 pursuant to the Inflation Adjustment Act as then in effect, provides that FCSIC can impose a maximum penalty of $117 per day for a violation under section 5.65(c) and (d) of the Act. FCSIC has not been required to make adjustments under the Inflation Adjustment Act since 2001.
The 2015 Act requires agencies to (1) adjust the level of civil monetary penalties with an initial “catch-up” adjustment through an interim final rulemaking (IFR) and (2) make subsequent annual adjustments for inflation. Catch-up adjustments are based on the percent change between the Consumer Price Index for all Urban Consumers (CPI-U) for the month of October of the year in which the CMP was established or adjusted (other than through Inflation Adjustment Act adjustments), and the October 2015 CPI-U. Annual inflation adjustments will be based on the percent change between the October CPI-U preceding the date of the adjustment and the prior year's October CPI-U. CMPs provided for in section 5.65 of the Act were enacted in 1988 and not subsequently changed (other than through Inflation Adjustment Act adjustments). In accordance with guidance issued by the Office of Management and Budget (pursuant to a directive in the 2015 Act), FCSIC must multiply the maximum amount of civil money penalty provided for in section 5.65(c) and (d) of the Farm Credit Act ($100) by 1.97869.
The 2015 Act specifically directs Federal agencies to “adjust civil money penalties through an interim final rulemaking” and the Inflation Adjustment Act gives agencies no discretion in the calculation of the adjustment. Therefore, FCSIC concludes that public notice and an opportunity to comment are not necessary or appropriate under the Administrative Procedure Act and adopts this rule in final form.
Pursuant to section 605(b) of the Regulatory Flexibility Act,
Banks, Banking, Civil money penalties, Penalties.
For the reasons stated in the preamble, part 1411 of chapter XIV, title 12 of the Code of Federal Regulations is amended as follows:
Secs. 5.58(10), 5.65(c) and (d) of the Farm Credit Act (12 U.S.C. 2277a-7(10), 2277a-14(c) and (d)); 28 U.S.C. 2461 note.
In accordance with the Federal Civil Penalties Inflation Adjustment Act of 1990, as amended, a civil money penalty imposed pursuant to section 5.65(c) or (d) of the Farm Credit Act of 1971, as amended, for a violation occurring on or after August 1, 2016 shall not exceed $198 per day for each day the violation continues.
Environmental Protection Agency (EPA).
Direct final rule.
The Environmental Protection Agency (EPA) is taking direct final action to approve revisions to the Eastern Kern Air Pollution Control District (EKAPCD) portion of the California State Implementation Plan (SIP). These revisions concern administrative changes of a previously approved regulation and emissions of volatile organic compounds (VOCs) in aerospace assembly and coating operations and in metal, plastic and pleasure craft parts and products coating operations. We are approving local rules that regulate these activities under the Clean Air Act (CAA or the Act).
This rule is effective on July 18, 2016 without further notice, unless the EPA receives adverse comments by June 16, 2016. If we receive such comments, we will publish a timely withdrawal in the
Submit your comments, identified by Docket ID No. EPA-R09-OAR-2016-0070 at
Vanessa Graham, EPA Region IX, (415) 947-4120,
Throughout this document, “we,” “us,” and “our” refer to the EPA.
Table 1 lists the rules addressed by this action with the dates that they were adopted by the local air agency and submitted by the California Air Resources Board (CARB).
On October 30, 1996, the EPA determined that the submittal for EKAPCD Rule 103.1 met the completeness criteria in 40 CFR part 51 Appendix V, which must be met before formal EPA review. On September 11, 2014, the EPA determined that the submittal for EKAPCD Rules 410.4 and 410.8 met the completeness criteria as well.
EKAPCD adopted an earlier version of Rule 103.1 on August 31, 1976, which CARB submitted to us on November 10,
EKAPCD amended an earlier version of Rule 410.4 on March 7, 1996, and CARB submitted it to us on May 10, 1996. We approved the earlier version of 410.4 into the SIP on January 13, 2000 (65 FR 2046). EKAPCD adopted revisions to the SIP-approved version of Rule 410.4 on March 13, 2014, and CARB submitted it to us on July 25, 2014.
There are no previous versions of Rule 410.8 in the SIP. EKAPCD adopted Rule 410.8 on March 13, 2014, and submitted it to us on July 25, 2014.
While we can act on only the most recently submitted version, we have reviewed materials provided with previous submittals.
VOCs help produce ground-level ozone, smog and particulate matter (PM), which harm human health and the environment. Section 110(a) of the CAA requires States to submit regulations that control VOC emissions.
Rule 103.1 supports some of the basic infrastructure SIP requirements described in section 110(a) of the CAA with respect to public records access. The submitted version of Rule 103.1 contains only minor typographical changes from the version that we previously approved into the SIP in 1978, and is identical in substance to the SIP-approved version.
Rule 410.4 limits the VOC content and establishes related requirements for the coating of metal parts or products, large appliance parts or products, metal furniture, and plastic parts or products. EKAPCD revised the rule largely to be consistent with national guidance and with the rules of neighboring air districts.
Rule 410.8 limits VOC emissions from aerospace primers, coatings, adhesives, maskants and lubricants, as well as from cleaning, stripping, storing and disposal of organic solvents and waste materials associated with the use of the abovementioned aerospace products. This rule also provides for administrative requirements including those for recordkeeping and measurement of VOC emissions.
The EPA's technical support documents (TSDs) have more information about these rules.
SIP rules must be enforceable (see CAA section 110(a)(2)), must not interfere with applicable requirements concerning attainment and reasonable further progress or other CAA requirements (see CAA section 110(l)), and must not modify certain SIP control requirements in nonattainment areas without ensuring equivalent or greater emissions reductions (see CAA section 193).
Generally, SIP rules must require Reasonably Available Control Technology (RACT) for each category of sources covered by a Control Techniques Guidelines (CTG) document as well as each major source of VOCs in ozone nonattainment areas classified as moderate or above (see CAA sections 182(b)(2)). EKAPCD regulates an ozone nonattainment area classified as Marginal
Guidance and policy documents that we used to evaluate enforceability, revision/relaxation and rule stringency requirements for the applicable criteria pollutants include the following:
1. “State Implementation Plans; General Preamble for the Implementation of Title I of the Clean Air Act Amendments of 1990,” (57 FR 13498, April 16, 1992, and 57 FR 18070, April 28, 1992).
2. “Issues Relating to VOC Regulation Cutpoints, Deficiencies, and Deviations” (“the Bluebook,” U.S. EPA, May 25, 1988; revised January 11, 1990).
3. “Guidance Document for Correcting Common VOC & Other Rule Deficiencies” (“the Little Bluebook,” EPA Region 9, August 21, 2001).
4. “Control of Volatile Organic Compound Emissions from Coating Operations at Aerospace Manufacturing and Rework Operations” (EPA 453/R-97-004, December 1997).
5. Guidance Memorandum for “Control Technique Guidelines for Miscellaneous Metal and Plastic Parts Coating” (EPA 453/R-08-003, June 2010).
6. “Control Technique Guidelines for Miscellaneous Metal and Plastic Parts Coating” (EPA 453/R-08-003, September 2008).
7. “Guidance on Infrastructure State Implementation Plan (SIP) Elements under Clean Air Act Sections 110(a)(1) and 110(a)(2),” USEPA Memorandum dated September 13, 2013.
8. “Review of State Regulation Recodifications,” USEPA Memorandum dated February 12, 1990.
We believe these rules are consistent with the relevant policy and guidance regarding enforceability, RACT and SIP relaxations. The TSDs have more information on our evaluation.
The TSDs describe additional rule revisions that we recommend for the next time the local agency modifies the rules but are not currently the basis for rule disapproval.
As authorized in section 110(k)(3) of the Act, the EPA is fully approving the submitted rules because we believe they fulfill all relevant requirements. We do not think anyone will object to this approval, so we are finalizing it without proposing it in advance. However, in the Proposed Rules section of this
Please note that if the EPA receives adverse comment on an amendment, paragraph, or section of this rule and if that provision may be severed from the remainder of the rule, the EPA may adopt as final those provisions of the rule that are not the subject of an adverse comment.
In this rule, the EPA is finalizing regulatory text that includes incorporation by reference. In accordance with requirements of 1 CFR 51.5, the EPA is finalizing the incorporation by reference of the EKAPCD rules described in the amendments to 40 CFR part 52 set forth below. The EPA has made, and will continue to make, these documents
Under the Clean Air Act, the Administrator is required to approve a SIP submission that complies with the provisions of the Act and applicable federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, the EPA's role is to approve state choices, provided that they meet the criteria of the Clean Air Act. Accordingly, this action merely approves state law as meeting federal requirements and does not impose additional requirements beyond those imposed by state law. For that reason, this action:
• Is not a significant regulatory action subject to review by the Office of Management and Budget under Executive Orders 12866 (58 FR 51735, October 4, 1993) and 13563 (76 FR 3821, January 21, 2011);
• does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501
• is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601
• does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4);
• does not have Federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);
• is not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997);
• is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001);
• is not subject to requirements of Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the Clean Air Act; and
• does not provide the EPA with the discretionary authority to address, as appropriate, disproportionate human health or environmental effects, using practicable and legally permissible methods, under Executive Order 12898 (59 FR 7629, February 16, 1994).
In addition, the SIP is not approved to apply on any Indian reservation land or in any other area where the EPA or an Indian tribe has demonstrated that a tribe has jurisdiction. In those areas of Indian country, the rule does not have tribal implications and will not impose substantial direct costs on tribal governments or preempt tribal law as specified by Executive Order 13175 (65 FR 67249, November 9, 2000).
The Congressional Review Act, 5 U.S.C. 801
Under section 307(b)(1) of the Clean Air Act, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by July 18, 2016. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this action for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. Parties with objections to this direct final rule are encouraged to file a comment in response to the parallel notice of proposed rulemaking for this action published in the Proposed Rules section of today's
Environmental protection, Air pollution control, Incorporation by reference, Intergovernmental relations, Ozone, Reporting and recordkeeping requirements, and Volatile organic compounds.
Part 52, Chapter I, Title 40 of the Code of Federal Regulations is amended as follows:
42 U.S.C. 7401
(c) * * *
(35) * * *
(xiii) * * *
(F) Previously approved on March 22, 1978, in paragraph (c)(35)(xiii)(A) of this section and now deleted with replacement in paragraph (c)(239)(i)(C)(
(231) * * *
(i) * * *
(B) * * *
(
(239) * * *
(i) * * *
(C) * * *
(
(447) * * *
(i) * * *
(D) * * *
(
(
Centers for Medicare & Medicaid Services (CMS), HHS.
Final rule.
This final rule specifies the process and timeline for expanding CMS' existing Medicare Secondary Payer (MSP) Web portal to conform to section 201 of the Medicare IVIG and Strengthening Medicare and Repaying Taxpayers Act of 2012 (the SMART Act). The final rule specifies a timeline for developing a multifactor authentication solution to securely permit authorized users other than the beneficiary to access CMS' MSP conditional payment amounts and claims detail information via the MSP Web portal. It also requires that we add functionality to the existing MSP Web portal that permits users to: Notify us that the specified case is approaching settlement; obtain time and date stamped final conditional payment summary statements and amounts before reaching settlement; and ensure that relatedness disputes and any other discrepancies are addressed within 11 business days of receipt of dispute documentation.
These regulations are effective June 16, 2016.
Suzanne Mattes, (410) 786-2536.
The Medicare IVIG and Strengthening Medicare and Repaying Taxpayers Act of 2012 (the SMART Act) was enacted on January 10, 2013. Section 201 of the SMART Act amends section 1862(b)(2)(B) of the Social Security Act (the Act) and requires the establishment of an internet Web site (referred to as the “Web portal”) through which beneficiaries, their attorneys or other representatives, and authorized applicable plans (as defined in section 1862(b)(8)(F) of the Act (42 U.S.C. 1395y(b)(8)(F)) who have pending liability insurance (including self-insurance), no-fault insurance, or workers' compensation settlements, judgments, awards, or other payments, may access related CMS' MSP conditional payment amounts and claims detail information.
The existing MSP Web portal currently permits authorized users (including beneficiaries, attorneys, or other representatives) and applicable plans to register through the Web portal in order to access MSP conditional payment amounts electronically and update certain case-specific information online.
Beneficiaries are able to log into the existing Web portal by logging into their
Beneficiaries' attorneys or other representatives, as well as applicable plans, may register through the Web portal to access conditional payment information. In order to comply with federal privacy and security requirements, including the Federal Information Security Management Act (FISMA), we have implemented a multifactor authentication tool that will permit authorized individuals, other than the beneficiary, to securely access detailed conditional payment information through the Web portal.
Once the beneficiary's attorney or other representative is designated as an authorized user, he or she may log into the Web portal to view the conditional payment amount and perform certain actions, which include addressing discrepancies by disputing claims and uploading settlement information. It is important to note that, in situations where there is a pending insurance or workers' compensation settlement, the beneficiary is designated as the “identified debtor”. This means that only the beneficiary and his or her attorney or other representative have the authority to take action on the beneficiary's MSP recovery case. This includes disputing claims and requesting a final conditional payment amount through the Web portal. An applicable plan is only able to take these actions if it submits proper proof of representation. The applicable plan cannot take action on a beneficiary's case unless it has obtained proof of representation that authorizes it to act on behalf of the beneficiary.
In keeping with the requirements of the SMART Act, we have added functionality to the existing Web portal that permits users to notify us when the specified case is approaching settlement, download or otherwise obtain time and date stamped final conditional payment summary statements and amounts before reaching settlement, and ensure that relatedness disputes and any other discrepancies are addressed within 11 business days of receipt of dispute documentation.
In the September 20, 2013
In the September 2013 IFC (78 FR 57804), we defined “Applicable plan” as the following laws, plans, or other arrangements, including the fiduciary or administrator for such law, plan or arrangement:
• Liability insurance (including self-insurance).
• No fault insurance.
• Workers' compensation laws or plans.
We also defined “Medicare Secondary Payer conditional payment information” as a term that means all of the following:
• Dates of service.
• Provider names.
• Diagnosis codes.
• Conditional payment amounts.
• Claims detail information.
We note that we are removing the definition of “Medicare Secondary Payer conditional payment information” to avoid redundancy and confusion. The language of the rule, itself, specifies which pieces of conditional payment information will be available via Web portal, based upon the level of authorization the user has when he or she accesses the Web portal.
In the September 2013 IFC (78 FR 57801), we noted that we will continue to provide beneficiaries with access to details on claims related to their pending settlements through the Web portal. This will include dates of service, provider names, diagnosis codes, and conditional payment amounts. Beneficiaries and their attorneys or other representatives will continue to be able to dispute the relatedness of claims and submit a notice of settlement and other types of documentation through the Web portal. We have added functionality that will permit beneficiaries to download or otherwise electronically obtain time and date stamped payment summary statements, and exchange other information securely with Medicare's contractor via the Web portal.
A beneficiary's attorney or other representative and the applicable plan will continue to be able to register to use the Web portal and access conditional payment amounts. To access more detailed information related to a beneficiary's pending settlement, users will register to use a multifactor authentication process, as defined in and required by the most recent version of the CMS Enterprise Information Security Group Risk Management Handbook, Volume III, Standard 3.1, CMS Authentication Standards, developed in accordance with FISMA and regulations promulgated by the National Institute of Standards and Technology (NIST). The most recent version of CMS' Risk Management Handbook can be found at
With this tool, a beneficiary's authorized attorney or other representatives or an authorized applicable plan that has appropriately registered to access the Web portal, and has registered to use the multifactor authentication tool, has access to more detailed MSP conditional payment information for a specified MSP recovery case. This additional information includes dates of services, provider names, diagnosis codes, as well as the conditional payment amounts already available through the Web portal. If an authorized user does not register to use the multifactor authentication tool, he or she will continue to have access to the conditional payment amounts and he or she will continue to be able to perform certain functions, but details, including dates of service, provider names, diagnosis codes, will not be visible to that user.
In the September 2013 IFC (78 FR 57801), we noted that once the beneficiary, his or her attorney or other representative, or an applicable plan provides notice of pending liability insurance (including self-insurance), no-fault insurance, and workers' compensation settlements, judgments, awards, or other payments to the appropriate Medicare contractor, the Medicare contractor will compile and post claims that are related to the pending settlement for which Medicare has paid conditionally. Once a recovery case is established and posted on the Web portal, the beneficiary, or his or her attorney, other representative, or authorized applicable plan may access the recovery case through the Web portal, and notify CMS once—and only once—that a settlement is expected to occur in 120 days or less. Conditional payment information will be posted to the Web portal within 65 days or less of receipt of the notice of the pending settlement.
Section 1862(b)(2)(B)(vii)(V) of the Act permits us to extend our response timeframe by an additional 30 days if we determine that additional time is required to address related claims that Medicare has paid conditionally. We anticipate that such situations would include, but are not limited to, the following:
• A recovery case that requires CMS' contractor to review the systematic filtering of associated claims for a case and subsequently adjust those filters manually to ensure that claims are related to the pending settlement.
• CMS' systems failures that do not otherwise fall within the definition of exceptional circumstances.
Section 1862(b)(2)(B)(vii)(V) of the Act also permits us to further extend our claims compilation response timeframe by the number of days required to address the issue(s) that result from “exceptional circumstances” pertaining to a failure in the claims and payment posting system. Per the statute, such situations must be defined in regulations in a manner such that “not
If the beneficiary, or his or her authorized attorney or other representative, believes that claims included in the most up-to-date conditional payment summary statement are unrelated to the pending liability insurance (including self-insurance), no-fault insurance, or workers' compensation settlement, he or she may address discrepancies through the dispute process available through the Web portal. The beneficiary, or his or her authorized attorney or other representative, may dispute the relatedness of an individual conditional payment once and only once. The beneficiary or his or her authorized attorney or other representative may be required to submit additional supporting documentation in a form and manner specified by the Secretary to support the assertion that the disputed conditional payment is unrelated to the settlement. If the Medicare contractor does not accept a dispute for a particular conditional payment, that conditional payment will remain part of the total conditional payment amount and may not be disputed through this process again.
Once CMS has been notified that a pending settlement is 120 days or less from settlement, disputes submitted through the Web portal will be resolved within 11 business days of receipt of the dispute, including any required supporting documentation, as per section 1862(b)(2)(B)(vii)(IV) of the Act.
After disputes have been fully resolved, the beneficiary, or his or her attorney or other representative, may download or otherwise request a time and date stamped final conditional payment summary statement through the Web portal. This statement will constitute the final conditional payment amount if settlement is reached within 3 days of the date on the conditional payment summary statement. If the beneficiary or his or her attorney is approaching settlement and any disputes have not been fully resolved, he or she may not download or otherwise request a final conditional payment summary statement until the dispute has been resolved.
It is important to note that, per section 1862(b)(2)(B)(vii)(IV) of the Act, this dispute process is not an appeals process, nor does it establish a right of appeal regarding that dispute. There will be no administrative or judicial review related to this dispute process. However, the beneficiary will maintain his or her appeal rights regarding CMS' MSP recovery determination, once CMS issues its final demand. Those appeal rights are explained in the final demand letter issued by CMS, and more information may be found in 42 CFR 405, subpart I.
The beneficiary or his or her attorney or other representative may obtain the recovery demand letter by submitting settlement information specified by the Secretary through the Web portal in 30 days or less from date of settlement. The amount and type of settlement information required will be the same information that CMS typically collects to calculate its recovery demand amount. This information will include, but is not limited to: The date of settlement, the total settlement amount, the attorney fee amount or percentage, and additional costs borne by the beneficiary to obtain his or her settlement. This information must be provided within 30 days or less of the date of settlement. Otherwise, the final conditional payment amount obtained through the Web portal will expire and any additional conditional payments with dates of service through and including the date of settlement will be included in the recovery demand letter. Once settlement information is received, we will apply a pro rata reduction to the final conditional payment amount in accordance with 42 CFR 411.37 and issue a MSP recovery demand letter. We expect to incorporate a method into the Web portal that will allow settlement information to be entered directly through the Web portal and/or uploaded directly through the Web portal.
If the underlying liability insurance (including self-insurance), no-fault insurance, or workers' compensation claim derives from alleged exposure to a toxic substance or environmental hazard, ingestion of pharmaceutical drug or other product or substance, or implantation of a medical device, joint replacement or something similar, the beneficiary or his or her attorney or other representative must provide notice to the CMS contractor via the Web portal before beginning the process to obtain a final conditional payment summary statement and amount through the Web portal. Many of these types of recovery cases require additional manual filtering and review to ensure that the claims included in the payment summary statement are related to the pending settlement.
An applicable plan may only obtain a final conditional payment amount related to a pending liability insurance (including self-insurance), no-fault insurance, or workers' compensation settlement, in the form and manner described in 42 CFR 411.39(c), if the applicable plan has properly registered to use the Web portal and has obtained from the beneficiary, and submitted to the appropriate Medicare contractor, proper proof of representation. The applicable plan may obtain read only access if the applicable plan obtains from the beneficiary proper consent to release and submits it to the appropriate Medicare contractor.
The final conditional payment amount obtained via the Web portal represents Medicare covered and otherwise reimbursable items and services that are related to the beneficiary's settlement and that are furnished prior to the time and date stamped on the final conditional payment summary statement. Systems and process changes to provide final conditional payment summary statements and amounts via the Web portal were implemented on January 1, 2016.
We recognize that the intent of the final conditional payment process is to expedite Medicare reimbursement and promote timely settlement. However, we are required to apply a pro rata reduction, in accordance with to 42 CFR 411.37, to account for attorney fees and costs borne by the beneficiary to obtain his or her settlement. In order to comply with this regulatory requirement and comport with the aforementioned intent of the final conditional payment process, we have imposed a requirement that settlement information must be submitted within no more than 30 days of reaching settlement.
After consideration of all of the comments received, we are finalizing the provisions included in the September 2013 IFC (78 FR 57800) with the following modifications to § 411.39:
• Paragraph (a), we are removing the definition of “Medicare Secondary Payer conditional payment information” to avoid redundancy and confusion.
• Paragraph (b), we removed language related to Web portal functionality before January 1, 2016.
• Paragraph (c)(1)(iii), we removed the claims refresh requirement.
• Paragraphs (c)(1)(iv) and (v), we revised the language to clarify that a claim, meaning an individual conditional payment amount, or line item, on a payment summary statement, may be disputed once and only once. An individual or entity may submit disputes more than once, but never for the same conditional payment or line item.
• Paragraph (c)(1)(viii), we revised the language to clarify that settlement information must be submitted within no more than 30 days of reaching settlement in order for CMS to remain bound by any final conditional payment amount it provided through the Web portal.
• Paragraph (c)(2), we revised the language to clarify that a final conditional payment amount may be requested at any time after a recovery case has been posted on the Web portal.
This document does not impose information collection and recordkeeping requirements. Consequently, it need not be reviewed by the Office of Management and Budget under the authority of the Paperwork Reduction Act of 1995.
We have examined the impact of this rule as required by Executive Order 12866 on Regulatory Planning and Review (September 30, 1993), Executive Order 13563 on Improving Regulation and Regulatory Review (February 2, 2011), the Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), section 1102(b) of the Social Security Act, section 202 of the Unfunded Mandates Reform Act of 1995 (March 22, 1995; Pub. L. 104-4), Executive Order 13132 on Federalism (August 4, 1999) and the Congressional Review Act (5 U.S.C. 804(2)). Executive Orders 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). A regulatory impact analysis (RIA) must be prepared for major rules with economically significant effects ($100 million or more in any 1 year). We have determined that the effect of this final rule on the economy and the Medicare program is not economically significant, since it imposes certain requirements on the Agency to merely improve its current mechanism for providing conditional payment information to beneficiaries, their attorneys or other representatives, and authorized applicable plans.
The RFA requires agencies to analyze options for regulatory relief of small entities. For purposes of the RFA, small entities include small businesses, nonprofit organizations, and small governmental jurisdictions. Most hospitals and most other providers and suppliers are small entities, either by nonprofit status or by having revenues of less than $7.5 million to less than $38.5 million in any 1 year. Individuals and states are not included in the definition of a small entity. We have determined that this final rule will not have a significant economic impact on a substantial number of small entities because there is and will be no change in the administration of the MSP provisions. Therefore, we are not preparing an analysis for the RFA.
In addition, section 1102(b) of the Act requires us to prepare an RIA if a rule may have a significant impact on the operations of a substantial number of small rural hospitals. This analysis must conform to the provisions of section 604 for proposed rules of the RFA. For purposes of section 1102(b) of the Act, we define a small rural hospital as a hospital that is located outside of a Metropolitan Statistical Area for Medicare payment regulations and has fewer than 100 beds. We have determined that this final rule will not have a significant effect on the operations of a substantial number of small rural hospitals because there is and would be no change in the administration of the MSP provisions. Therefore, we are not preparing an analysis for section 1102(b) of the Act.
Section 202 of the Unfunded Mandates Reform Act of 1995 also requires that agencies assess anticipated costs and benefits before issuing any rule whose mandates require spending in any 1 year of $100 million in 1995 dollars, updated annually for inflation. In 2015, that threshold is approximately $146 million. This final rule has no consequential effect on state, local, or tribal governments or on the private sector because there is and will be no change in the administration of the MSP provisions.
Executive Order 13132 establishes certain requirements that an agency must meet when it promulgates a proposed rule (and subsequent final rule) that imposes substantial direct requirement costs on state and local governments, preempts state law, or otherwise has Federalism implications. Since this final rule does not impose any costs on state or local governments, the requirements of Executive Order 13132 are not applicable. In accordance with the provisions of Executive Order 12866, this final rule was not reviewed by the Office of Management and Budget.
Kidney diseases, Medicare, Physician referral, Reporting and recordkeeping requirements.
For the reasons set forth in the preamble, the Centers for Medicare & Medicaid Services adopts as final, the interim rule amending 42 CFR part 411 which was published on September 20, 2013 (78 FR 57800) with the following changes:
Secs. 1102, 1860D-1 through 1860D-42, 1871, and 1877 of the Social Security Act (42 U.S.C. 1302, 1395w-101 through 1395w-152, 1395hh, and 1395nn).
The revisions read as follows:
(b) * * *
(1) * * *
(ii) The appropriate Medicare contractor has received initial notice of a pending liability insurance (including self-insurance), no-fault insurance, or workers' compensation settlement, judgment, award, or other payment and has posted the recovery case on the Web portal.
(2)
(i) Access conditional payment information via the MSP Recovery Portal (Web portal).
(ii) Dispute claims.
(iii) Upload settlement information via the Web portal using multifactor authentication.
(c)
(i) The beneficiary, his or her attorney or other representative, or an applicable plan, provides initial notice of a pending liability insurance (including self-insurance), no-fault insurance, and workers' compensation settlement, judgment, award, or other payment to the appropriate Medicare contractor before accessing information via the Web portal.
(ii) The Medicare contractor compiles claims for which Medicare has paid conditionally that are related to the pending settlement, judgment, award, or other payment within 65 days or less of receiving the initial notice of the pending settlement, judgment, award, or other payment and posts a recovery case on the Web portal.
(iii) If the underlying liability insurance (including self-insurance), no-fault insurance, or workers' compensation claim derives from one of the following, the beneficiary, or his or her attorney or other representative, must provide notice to CMS' contractor via the Web portal in order to obtain a final conditional payment summary statement and amount through the Web portal:
(A) Alleged exposure to a toxic substance.
(B) Environmental hazard.
(C) Ingestion of pharmaceutical drug or other product or substance.
(D) Implantation of a medical device, joint replacement, or something similar.
(iv) Up to 120 days before the anticipated date of a settlement, judgment, award, or other payment, the beneficiary, or his or her attorney, other representative, or authorized applicable plan may notify CMS, once and only once, via the Web portal, that a settlement, judgment, award or other payment is expected to occur within 120 days or less from the date of notification.
(A) CMS may extend its response timeframe by an additional 30 days when it determines that additional time is required to address claims that Medicare has paid conditionally that are related to the settlement, judgment, award, or other payment in situations including, but not limited to, the following:
(
(
(B) In exceptional circumstances, CMS may further extend its response timeframe by the number of days required to address the issue that resulted from such exceptional circumstances. Exceptional circumstances include, but are not limited to the following:
(
(
(
(
(
(
(
(
(v) The beneficiary, or his or her attorney, or other representative may then address discrepancies by disputing individual conditional payments, once and only once, if he or she believes that the conditional payment included in the most up-to-date conditional payment summary statement is unrelated to the pending liability insurance (including self-insurance), no-fault insurance, or workers' compensation settlement, judgment, award, or other payment.
(A) The dispute process is not an appeals process, nor does it establish a right of appeal regarding that dispute. There will be no administrative or judicial review related to this dispute process.
(B) The beneficiary, or his or her attorney or other representative may be required to submit supporting documentation in the form and manner specified by the Secretary to support his or her dispute.
(vi) Disputes submitted through the Web portal and after the beneficiary, or his or her attorney, other representative, or authorized applicable plan has notified CMS that he or she is 120 days or less from the anticipated date of a settlement, judgment, award, or other payment, are resolved within 11 business days of receipt of the dispute and any required supporting documentation.
(vii) When any disputes have been fully resolved, the beneficiary, or his or her attorney or other representative, may download or otherwise request a time and date stamped conditional payment summary statement through the Web portal.
(A) If the download or request is within 3 days of the date of settlement, judgment, award, or other payment, that conditional payment summary statement will constitute Medicare's final conditional payment amount.
(B) If the beneficiary, or his or her attorney or other representative, is within 3 days of the date of settlement, judgment, award, or other payment and any claim disputes have not been fully resolved, he or she may not download or otherwise request a final conditional payment summary statement.
(viii) Within 30 days or less of securing a settlement, judgment, award, or other payment, the beneficiary, or his or her attorney or other representative, must submit through the Web portal documentation specified by the Secretary, including, but not limited to the following:
(A) The date of settlement, judgment, award, or other payment, including the total settlement amount, the attorney fee amount or percentage.
(B) Additional costs borne by the beneficiary to obtain his or her settlement, judgment, award, or other payment.
(
(
(ix) Once settlement, judgment, award, or other payment information is received, CMS applies a pro rata reduction to the final conditional payment amount in accordance with § 411.37 and issues a final MSP recovery demand letter.
(2) An applicable plan may only obtain a final conditional payment amount related to a pending liability insurance (including self-insurance), no-fault insurance, or workers' compensation settlement, judgment, award, or other payment in the form and manner described in § 411.38(b) if the applicable plan has properly registered to use the Web portal and has obtained
Office of the Assistant Secretary for Housing, HUD.
Supplemental notice of proposed rulemaking.
On August 10, 2015, HUD published in the
This document opens the public comment period solely for the provisions addressed in this document to address concerns that while the proposed rule provided greater flexibility, it lacked the greater certainty to which HUD committed, and how HUD would provide such certainty.
Interested persons are invited to submit comments regarding this notice to the Regulations Division, Office of General Counsel, Department of Housing and Urban Development, 451 7th Street SW., Room 10276, Washington, DC 20410-0500. Communications must refer to the above docket number and title. There are two methods for submitting public comments. All submissions must refer to the above docket number and title.
1.
2.
To receive consideration as public comments, comments must be submitted through one of the two methods specified above. Again, all submissions must refer to the docket number and title of the document.
Aaron Hutchinson, Office of Housing, Department of Housing and Urban Development, 451 7th Street SW., Room 6178, Washington, DC 20410; telephone number 202-708-3994 (this is not a toll- free number). Individuals with speech or hearing impairments may access this number through TTY by calling the toll- free Federal Relay Service at 800-877- 8339 (this is not a toll-free number).
On August 10, 2015, at 80 FR 47874, HUD published a document that proposed to amend its regulations, at 24 CFR part 200, subpart H, that govern the process by which HUD reviews the previous participation and performance of applicants seeking to participate in HUD's multifamily and healthcare programs. Currently, all principals seeking to participate in HUD's multifamily housing and healthcare programs must certify that all principals involved in a proposed project have acted responsibly and have honored their legal, financial, and contractual obligations in their previous participation in HUD programs, in certain programs administered by the U.S. Department of Agriculture, and in projects assisted or insured by state and local government housing finance agencies. HUD's regulations require applicants to complete a very detailed and lengthy certification form (HUD Form 2530)
The August 10, 2015, proposed rule proposed to clarify which individuals and entities will be reviewed, the purpose of the review, and the review to be undertaken. HUD proposed by targeting more closely the individuals and actions that would be subject to prior participation review, HUD would not only bring greater certainty and clarity to the process but would provide HUD with flexibility as to the necessary previous participation review for entities and individuals that is not possible in a one-size fits all approach.
The public comment period on the proposed rule closed on October 9,
Several comments expressed concern that the proposed regulations were overly broad and therefore would be open to various interpretations, which would complicate the review process for applicants and participants rather than simplify the process. The commenters suggested that in order to obtain flexibility in the review process, which the commenters supported, the approach in the proposed rule sacrificed specificity and certainty. Commenters suggested that HUD revise the proposed regulations to provide the greater certainty and specificity they need. Other commenters suggested that HUD issue guidance when HUD issues the final regulations to provide the specificity and certainty that the proposed regulations lack according to the commenters.
Through this document, HUD proposes to use an approach that HUD has taken in certain of its other regulations and that is to provide regulations that clearly document the regulatory requirements imposed, but provide in a supplemental document, a document referenced in the regulations, that will address the specific procedures to be followed.
For the previous participation review process, HUD proposes to issue with its final regulations a “Processing Guide for Previous Participation Reviews of Prospective Multifamily Housing and Healthcare Programs' Participants” (Guide). This Guide, which will be posted on HUD's Web site, will provide the details on procedures which commenters are seeking and which HUD submits is more appropriate for a process guide than for regulatory text. The Guide will provide applicants for and participants in HUD's multifamily housing and healthcare programs the detailed information desired on the previous participation review process, and provide HUD with the ability to make changes as may be needed to address specific circumstances that may arise in the previous participation process and to keep up-to-date with changes that may arise in the housing market. One of the longstanding complaints about HUD's previous participation review process is that the process and the regulations that govern the process are very outdated and do not keep up with the times. HUD submits that a lean set of regulations supplemented by a detailed processing Guide that is subject to notice and comment for any significant changes is the best approach for this process and one that will endure successfully for some time. The appendix to this document provides the proposed Guide for which HUD is seeking public comment for a period of 30 days. The Guide, in addition to elaborating upon terms and provisions in the proposed rule, also addresses “flags,” which are not addressed in either the existing regulations or proposed regulations. Flags refer to an issue or issues in a prospective participant's application for which further review is necessary. The Guide also includes certain information collection requirements but those requirements are ones which are already included in HUD's 2530 form and which already have an approval number assigned by the Office of Management and Budget under the Paperwork Reduction Act. For example, the Guide requires organizational information to be presented in an organizational chart instead of merely listed. However, the Guide makes clear that not every entity identified in the organizational chart will be considered a Controlling Participant, as defined in the regulation.
In addition to publication in the
In addition to issuance of the proposed Guide for comment, HUD also seeks comment on the following additional provisions that are proposed to be included or revised in the regulation.
HUD proposes to revise § 200.210 (Policy) to clarify that it is HUD's policy, in accordance with the intent of the National Housing Act, and with other applicable federal statutes, participants in HUD's housing and healthcare programs be responsible individuals and organizations who will honor their legal, financial and contractual obligations. HUD would further clarify that it will review the prior participation of Controlling Participants, as defined in the August 10, 2015, proposed rule, as a prerequisite to participation in HUD's multifamily housing and healthcare programs listed in § 200.214.
HUD would further revise the policy language in § 200.210 to advise that the regulations in 24 CFR part 200, subpart H, as proposed to be amended by the August 10, 2015, proposed rule would be supplemented by the Processing Guide for Previous Participation Reviews of Prospective Multifamily Housing and Healthcare Programs' Participants (Guide), which would be made available on HUD's Web site at
In § 200.212, the Definition section, HUD proposes to include a definition of “Risk.” While § 200.220 of the proposed rule addresses “risk,” HUD is proposing to add a definition of this term that would clarify that in order to determine whether a Controlling Participant's participation in a project would constitute an unacceptable risk, HUD's FHA Commissioner must determine whether the Controlling Participant could be expected to participate in the Covered Project (as defined in the August 10, 2015, proposed rule) in a manner consistent with furthering HUD's purpose of supporting and providing decent, safe and affordable housing for the public. The Commissioner's review of Previous Participation shall consider compliance with applicable statutes, regulations and program requirements. HUD would clarify that the FHA Commissioner must consider the Controlling Participant's
This Processing Guide (Guide) supplements HUD's Previous Participation Review regulations in 24 CFR part 200, subpart H. The Guide defines controlling participants for previous participation review, new flag approval, and rejection guidance and flag protocols in federal programs of certain participants seeking to take part in multifamily housing and healthcare programs administered by HUD's Office of Housing. The Guide aids in clarifying and simplifying the process by which HUD reviews previous participation of participants that have decision making authority over their projects as one component of HUD's responsibility to assess financial and operational risk to projects in these programs.
This Guide updates and clarifies previous procedures and supersedes outstanding policy and guidance concerning previous participation review found in the following: Multifamily Accelerated Processing (MAP) Guide Handbook 4430.G, Multifamily Asset Management and Project Servicing Handbook 4350.1, Healthcare Mortgage Insurance Program Handbook 4232.1, and Mortgage Insurance for Hospitals 4615.1. HUD will incorporate elements of this Guide into these handbooks. In addition, the Guide supersedes the Previous Participation (HUD-2530) Handbook 4065.1.
This Guide applies to Covered Projects administered by the Office of Multifamily Housing, the Office of Grant Administration and the Office of Healthcare Programs, as listed in HUD's regulations in 24 CFR part 200 subpart H.
The Covered Projects are those that are insured under the following sections of the National Housing Act: Sections 213, 220, 231, 223(d), 221(d)(4), 241(a), 223(f), 232/223(f), 242/223(f), 223(a)(7), 232, 232(i), 242, 542(b) and 542(c).
The Guide also applies to non-insured projects that include Section 202 or Section 811 Capital Advances or Direct Loans, Section 236 loans, or Subsidized Projects in which 20 percent or more of the units now receive or will receive a subsidy in the form of:
• Interest reduction payments under section 236 of the National Housing Act (12 U.S.C. 1715z-1);
• Rental Assistance Payments under section 236 of the National Housing Act (12 U.S.C. 1715z-1); Rent Supplement payments under section 101 of the Housing and Urban Development Act of 1965 (12 U.S.C. 1701s); or
• Project based rental assistance pursuant to housing assistance payment contracts under Section 8 of the Housing Act of 1937 (but not including project-based assistance provided under the Housing Choice Voucher program administered by HUD's Office of Public and Indian Housing).
For the Sections 223(a)(7), 223(f), 241(a), 232(i) and 223(d) programs Controlling Participants are only subject to previous participation review if they were not previously approved to participate in that project.
Any new Controlling Participant of a Covered Project requires consent by HUD.
Program offices may waive any portion of this Guide that is not regulatory subject, however, to a good cause justification as required by HUD for all waivers. HUD expects waivers to be rare and in response to unique circumstances meeting the intent of HUD's Previous Participation Review regulations.
The below sections outline who is subject to a previous participation review, submission requirements, review procedures, approval and rejection processes as well as participant flagging.
Previous Participation Review is required for Controlling Participants. In connection with each Triggering Event, Mortgagees in insured projects and entities serving in the Specified Capacities listed below in non-insured projects shall provide to HUD a list of all Controlling Participants. Controlling Participants are those entities and individuals (i) serving as a Specified Capacity with respect to a Covered Project and (ii) the entities and individuals in control of the Specified Capacities. At least one natural person must be identified as a Controlling Participant for each Specified Capacity. The chart below shows the Specified Capacities for the listed programs.
1. Entities and individuals owning, directly or indirectly, 25% or more of a Specified Capacity.
2. Any officers and other executive management (including Executive Director and other similar capacities) of the Specified Capacity.
3. The controlling owners (entities and/or individuals) of the entity that controls the Specified Capacity.
4. Managers or managing members of Limited Liability Companies (LLCs).
5. General partners of limited partnerships, including “administrative” general partners or other general partners if they exercise day-to-day control over the entity.
6. Partners in a general partnership.
7. Executive Director (or equivalent position) of a non-profit sponsor of a Specified Capacity.
8. With respect to non-profit Borrowers under the Section 242 program, the executive management of the Borrower and the members of the Board of Directors that HUD determines have control over the finances or operation of the hospital.
9. Officers of a for-profit corporation's Board of Directors.
10. Controlling stockholders of a corporation.
11. Trustees of a trust.
12. For real estate investment trusts (REITs), the REIT itself, the chief executive officer (or equivalent position) and all company officers (except those officers determined by HUD not to exercise day-to-day control over the REIT, the Specified Capacity or the Covered Project) must file.
13. For insured projects, if applicable, the person (people) and/or entity (entities) to be listed on the Regulatory Agreement Non-Recourse Debt section.
14. Any other person or entity determined by HUD to exercise day-to-day control over a Specified Capacity. This may include any officers, directors or members of an executive management team (even of excluded entities) who would otherwise not be required to make a submission if they are exercising control over the Specified Capacity.
If the applicant or Mortgagee has any reason to believe that any Controlling Participant is not of sound mind or body or is otherwise incapacitated, such information must be disclosed to HUD to review and determine whether another individual is acting as a Controlling Participant.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
An organization chart must be submitted for each Specified Capacity and for any entity within the organization chart if requested by HUD. Organization charts are visual representations of the ownership structure of an organization. All organization charts submitted in connection with a Triggering Event are considered part of the application for HUD review and subject to the certifications stating that the application is true and complete. The organization chart must be clear enough so that a person unfamiliar with the Covered Project and the entities involved can understand the ownership and control structure. The organization chart must include the following:
1. Clearly show all tiers of the ownership structure, including the members or owners of the entities listed.
2. Show all participants, not just those who the Lender or Applicant considers to be principals or Controlling Participants. To the extent ownership interests are identified as widely held, the Applicant must provide any information requested by HUD regarding such interests.
3. Shows percentages of ownership and role in the entity (
4. At least one natural person, and not just entities.
5. Each Specified Capacity must be shown on a separate organization chart (
6. Anyone on an organizational chart that is debarred, suspended, or is subject to a Limited Denial of Participation (LDP), a voluntary abstention or a voluntary exclusion may not participate in the Covered Project.
7. With respect to each entity on the organization chart, the executive management teams (for example, all officers such as CEO, CFO, President, Executive Director, etc., but not department heads or lower level management) and any members of a Board of Directors must be disclosed to HUD even if such individuals are not considered to be Controlling Participants and do not need to file Previous Participation Review submissions.
To fulfill the Previous Participation Review requirements, applicable controlling participants must file a Previous Participation Certification. Participants may utilize either the electronic Active Partners Performance System (APPS)
The following chart indicates which filing options are available for which
If there
If there are current flags in the system, HUD staff will review:
• The comments in the system related to the flag
• The lender or participant's explanation of the flag and any mitigation of risk associated with the flag.
• Whether flags need to be resolved.
• The flag history in the system to assess patterns of misconduct and risk to the Department.
Based upon this review, including review of the certifications, HUD will determine whether or not the Controlling Participant poses an unacceptable Risk to the Covered Project, in accordance with the definition in 24 CFR 200.212, namely whether the Controlling Participant could be expected to participate in the Covered Project in a manner consistent with furthering the Department's purpose of supporting and providing decent, safe and affordable housing for the public. Based on this determination, HUD may approve, disapprove, limit, or otherwise condition the continued participation of the Controlling Participant in the Triggering Event. HUD will disapprove a Controlling Participant if the Controlling Participant is suspended, debarred or subject to other restriction pursuant to 2 CFR part 180 or 2 CFR part 2424. HUD may disapprove a Controlling Participant if HUD determines: (i) The Controlling Participant is materially restricted, including voluntarily, from doing business with HUD (other than the restrictions listed above) or any other
If a recommendation for rejection is proposed, HUD staff will notify the participant, or lender, if applicable, in advance of the recommendation. This notification will allow an opportunity for the participant to provide additional arguments for HUD's consideration to preserve processing efficiency and cut down on requests for reconsideration.
Participants have the right to request a reconsideration of HUD decisions rejecting participants. Requests for reconsideration must be filed in writing. Participants may provide support for their reconsideration or additional information that was not previously provided. Please see the below table for the officials responsible for rendering reconsideration decisions applicable to each program area. The decision rendered by the officials below is final agency action.
HUD utilizes flags in the APPS system as a way to assess risk associated with participants in Office of Multifamily Housing and Office of Healthcare Programs projects. A flag does not automatically exclude an applicant from participation in HUD's programs; however, flags are considered risk factors that require appropriate mitigation, where possible. Flags are to be a meaningful representation of risk, and therefore, they should not be placed for minor infractions that do not pose a risk to HUD. HUD will notify participants in writing when flags are placed.
HUD has developed three flag tiers, which provide for varying levels of risk to HUD. Tier 1 flags are elevated risk to HUD. HUD considers Tier 1 flags to be a significant long-term risk to HUD and warrant significant mitigation in new transactions. Tier 2 flags are considered an ongoing risk to HUD. For Tier 2 flags that have a resolution date (as listed in the chart below), flags will not be removed until the time period has expired even if the action has been resolved earlier. This is considered a risk factor in production and asset management transactions. Tier 3 flags are considered a single risk to HUD and will be removed when the reason for the flag is corrected.
Tier 1 flags warrant permanent consideration when reviewing Controlling Participants for their participation in triggering events.
Tier 2 flags warrant consideration for an extended period of time when reviewing Controlling Participants for their participation in Triggering Events, even after the underlying reason for the flag is resolved. A “Repeated” Offense means there are three or more occurrences.
Tier 3 flags relate to a single and/or less serious incident of non-compliance and can be resolved and removed.
HUD will not make any significant changes to the Guide without first offering advance notice and the opportunity for comment for a period of not less than 30 days.
Coast Guard, DHS.
Notice of proposed rulemaking.
The Coast Guard proposes to establish a safety zone on the Columbia River in Hood River, OR. This action is necessary to help ensure the safety of the maritime public during a cross-channel swimming event and would do so by prohibiting unauthorized persons and vessels from entering the safety zone unless authorized by the Sector Columbia River Captain of the Port 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 16, 2016.
You may submit comments identified by docket number USCG-2016-0370 using the Federal eRulemaking Portal at
If you have questions about this proposed rulemaking, call or email Ken Lawrenson, Waterways Management Division, Marine Safety Unit Portland, Coast Guard; telephone 503-240-9319, email
The Roy Webster Cross-Channel Swim is an annual event that has been occuring for the last 74 years on the Columbia River in the vicinity of Hood River, OR. Registered participants attend the event on Labor Day each year and are ferried across the Columbia River from the Hood River Marina to the Washington shore to start the event. From there the swimmers jump off the ferry and swim back across the river, following a swim lane that is lined with volunteers in sailboats, kayaks and paddleboards. Approximately 300 swimmers participate in this event annually.
The Captain of the Port, Columbia River (COTP) has determined that potential hazards associated with cross-channel swims could be a safety concern for the event participants, any other mariners transiting the area during the event hours, and a potential threat to the marine environment.
The purpose of this rulemaking is to ensure the safety of event participants, the marine environment and the protection of the navigable waterway during the scheduled event. The Coast
The COTP proposes to establish a safety zone on Labor Day of each year between 6 a.m. and noon. As the event consists of swimmers crossing the navigable channel, the Coast Guard feels that it would be necessary to establish a safety zone that would cover all waters of the Columbia River between river mile 169 and river mile 170. Vessels needing to transit through the safety zone during the event would be permitted to enter the safety zone only by obtaining permission from the COTP or a designated representative. The regulatory text the Coast Guard is 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, short duration, and the event's long history. Commercial vessel traffic would be able to transit the area with permission from the COTP or a designated representative. 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 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 proposed rule would 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 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 approximately six hours that would prohibit entry within a specified section of the Columbia River in the vicinity of Hood River, OR. Normally such actions are categorically excluded from further review under paragraph 34(g) 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, 160.5; Department of Homeland Security Delegation No. 0170.1.
(a)
(b)
(c)
(1) Non-participant persons and vessels may request authorization to enter, transit through, anchor in, or remain within the regulated area by contacting the Captain of the Port Sector Columbia River or a designated representative via VHF radio on channel 16. If authorization is granted by the Captain of the Port Sector Columbia River or a designated representative, all persons and vessels receiving such authorization must comply with the instructions of the Captain of the Port Sector Columbia River or a designated representative.
(2) The Coast Guard will provide notice of the safety zone by Local Notice to Mariners, Broadcast Notice to Mariners and on-scene designated representatives.
(d)
U.S. Copyright Office, Library of Congress.
Notice of inquiry.
In 2010, the U.S. Copyright Office, acting pursuant to section 407 of title 17 and following a public rulemaking process, adopted an interim rule governing mandatory deposit of electronic works that are not available in a physical format. The interim rule refers to such works as “electronic works published in the United States and available only online” (or “online-only works”). The interim rule created a limited exception to the Register's longstanding regulatory exemption that online-only works are not subject to mandatory deposit requirements. It also established best edition criteria and regulations as to electronic serials requested pursuant to section 407. The Library has adopted policies for the use of such materials, including limiting public access to deposited works to dedicated terminals located at the Library of Congress in Washington, DC. These policies were anticipated and discussed during the rulemaking process, but are not memorialized in the regulations.
The Library of Congress is now interested in extending the interim rule to apply to online-only books and sound recordings. Because over six years have passed since the interim rule was adopted, and because the interim rule was intended to inform a more permanent solution and rule, the Copyright Office is initiating a notice of inquiry to further guide its work in this area. The Copyright Office seeks feedback from affected communities regarding the experience with mandatory deposit of electronic serials, generally, as well as comments pertaining to the potential application of mandatory deposit to online-only books and sound recordings, specifically. Based on this feedback, the Office will solicit further written comments and/or invite stakeholder meetings before moving to a rulemaking process.
Written comments must be received no later than 11:59 p.m. Eastern Time on July 18, 2016.
For reasons of government efficiency, the Copyright Office is using
Jacqueline C. Charlesworth, General Counsel and Associate Register of Copyrights,
Mandatory deposit provisions, sometimes called “legal deposit” in foreign countries, permit national libraries to demand creative works for their respective collections pursuant to applicable laws, rights, restrictions, regulations, and fines. In the United States, the authority to demand, exempt, and otherwise regulate such works vests with the Register of Copyrights, who administers section 407 of title 17 of the United States Code, part of the Copyright Act.
Section 407 provides that the owner of copyright, or of the exclusive right of publication, in a work published in the United States is required to deposit two complete copies (or, in the case of sound recordings, two phonorecords) of the “best edition” of the work with the Copyright Office
Section 202.19 of title 37 of the Code of Federal Regulations sets forth a number of rules governing the mandatory deposit of copies and phonorecords under section 407, including certain best edition requirements. Appended to part 202 is a list, entitled “ `Best Edition' of Published Copyrighted Works for the Collection of the Library of Congress” (referred to as the “Best Edition Statement”), which sets forth the best edition criteria for particular categories of works.
Section 407 further provides that deposit is to be made within three months after such publication.
These general provisions, however, are subject to limitations. Section 407 provides that the Register of Copyrights may by regulation “exempt any categories of material from the deposit requirements of [that] section, or require deposit of only one copy or phonorecord with respect to any categories.”
Finally, the registration and deposit provisions of section 408 as to published works generally require the submission for examination of two complete copies of the best edition.
When regulations implementing section 407 were first promulgated by the Copyright Office in 1978, the Office adopted a broad exemption from the mandatory deposit requirements for “[l]iterary works, including computer programs and automated databases, published in the United States only in the form of machine readable copies (such as magnetic tape or disks, punch cards, or the like) from which the work cannot ordinarily be visually perceived except with the aid of a machine or device.”
On January 25, 2010, after a period of notice and public comment, the Copyright Office adopted a new interim rule to address the mandatory deposit requirements for published electronic works that are only made available online.
The interim rule did two key things. First, it codified the Office's longstanding practice of exempting online-only works from the requirements of mandatory deposit as a general matter.
In extending mandatory deposit requirements to online-only serials, the Office observed that “the Internet has grown to become a fundamental tool for the publication and dissemination of millions of works of authorship.”
Under the interim rule, a publisher does not need to proactively deposit copies of electronic serials with the Copyright Office.
The interim rule also provides for public access to deposited works, stating that “[c]opies or phonorecords deposited in response to a demand must be able to be accessed and reviewed by the Copyright Office, Library of Congress, and the Library's authorized users on an ongoing basis.”
• Access to electronic works received through mandatory deposit will be as similar as possible to the access provided to analog works.
• Access to electronic works received through mandatory deposit will be limited, at any one time, to two Library of Congress authorized users.
• Library of Congress authorized users will access the electronic works via a secure server over a secure network that serves Capitol Hill facilities and remote Library of Congress locations. The term “Library of Congress authorized users” includes Library staff, contractors, and registered researchers, and Members, staff and officers of the U.S. House of Representatives and the U.S. Senate. The Library will not make the copyrighted works available to the public over the Internet without rights holders' permissions.
• Authorized users may print from electronic works to the extent allowed by the fair use provisions of the copyright law (17 U.S.C. 107 and 108(f)), as is the case with traditional publications. However, users may not reproduce or distribute (
In accordance with these policies, the Library developed a system for providing and controlling access to electronic serials collected under the interim rule. The serials are stored on a server located in the Library's Capitol Hill facilities. The electronic files can be viewed on two secure terminals located in the Microform & Electronic Resources Center (“MERC”), located in the Library of Congress's Jefferson Building, which together constitute the sole point of public access to the files. The terminals have a web-based interface for searching and browsing the electronic serials collected by the Library. Individual articles are opened and read using customized viewing software that prevents users from being able to save
In adopting the interim rule in 2010, the Copyright Office emphasized that “[t]he rule is interim, and not final, because the Office anticipates that the experience of issuing and responding to demands for online-only works will raise additional issues that should be considered before the regulation becomes final,
Although the 2010 interim rule requires publishers to deposit only electronic serials—and only when the Office issues a demand for such a work—in promulgating that rule, the Register noted that mandatory deposit might be expanded over time to encompass new categories of online-only works.
The Library has requested that the Copyright Office issue demands for electronic books that have been published solely through online channels. To be clear, in the case of a book published in both physical and electronic formats, the publisher would still be required to deposit the physical format as the “best edition” under section 407, rather than the electronic format.
The Library has some experience in collecting, preserving and providing limited access to electronic deposits of text-based works under the existing interim rule for electronic serials. But there are some notable differences between online-only books and electronic serials. For example, many electronic serials, such as those in certain commercial journal databases, are accessed on a subscription basis and viewed via a live internet connection. Indeed, it was this fact that originally led the Office to adopt mandatory deposit requirements for electronic serials. As the Office noted in the 2010 interim rule, “subscriptions are typically `access only,' and rarely allow the Library to acquire a `best edition' copy for its collections.” The lack of mandatory deposit in this context thus “place[d] the long-term preservation of the works at risk.”
Under any rule requiring mandatory deposit of online-only books, the Library proposes to provide public access to such books under the same policies adopted in the 2010 interim rule (which could be included in the regulatory provision itself), which, as noted above, are as follows:
• Access to electronic works received through mandatory deposit will be as similar as possible to the access provided to analog works.
• Access to electronic works received through mandatory deposit will be limited, at any one time, to two Library of Congress authorized users.
• Library of Congress authorized users will access the electronic works via a secure server over a secure network that serves Capitol Hill facilities and remote Library of Congress locations. The term “Library of Congress authorized users” includes Library staff, contractors, and registered researchers, and Members, staff and officers of the U.S. House of Representatives and the U.S. Senate. The Library will not make the copyrighted works available to the public over the Internet without rights holders' permissions.
• Authorized users may print from electronic works to the extent allowed by the fair use provisions of the copyright law (17 U.S.C. 107 and 108(f)), as is the case with traditional publications. However, users may not reproduce or distribute (
The Library has also communicated to the Copyright Office its interest in acquiring online-only sound recordings
As with online-only books, it seems that many, if not most, published sound recordings are available not only via subscription services, but also for purchase and download. As explained above, this is distinct from electronic serials, many of which are accessible to end users only through a subscription service. The Office invites comment on this difference as it may relate to the advisability of extending on-demand deposit requirements to online-only sound recordings, including the need for such mandatory deposit to further the Library's collection and preservation goals.
Under any rule requiring mandatory deposit of online-only sound recordings, the Library would provide public access to such recordings. The Library currently has a system by which authorized users can access and listen to digitized copies of physical sound recordings collected through other means at the Madison Building of the Library of Congress. Currently, users may access such recordings through six dedicated computer terminals.
• Access to electronic works received through mandatory deposit will be as similar as possible to the access provided to analog works.
• Access to electronic works received through mandatory deposit will be limited, at any one time, to two Library of Congress authorized users.
• Library of Congress authorized users will access the electronic works via a secure server over a secure network that serves Capitol Hill facilities and remote Library of Congress locations. The term “Library of Congress authorized users” includes Library staff, contractors, and registered researchers, and Members, staff and officers of the U.S. House of Representatives and the U.S. Senate. The Library will not make the copyrighted works available to the public over the Internet without rights holders' permissions.
• Users may not reproduce or distribute (
The Office invites written comments on the general subjects below. A party choosing to respond to this notice of inquiry need not address every subject, but the Office requests that responding parties clearly identify and separately address each subject for which a response is submitted. In responding, please identify your particular interest in and experience with these issues.
1. Please comment on the efficacy of the 2010 interim rule, including whether it adequately addresses the digital collection and preservation needs of the Library of Congress, whether it has adequately addressed the concerns of affected parties, and whether it is a good framework for further developing section 407.
2. Please comment on the Library's adopted policies as to the interim rule and/or their application to online-only books and/or sound recordings.
3. Please comment on the information technology, security, and/or other requirements that should apply to the Library's receipt and storage of, and public access to, any online-only books and/or sound recordings collected under section 407.
4. Please provide comments and observations regarding the application of “best edition” requirements to online-only books and/or sound recordings, including whether and how the “best edition” criteria for electronic serials found in part 202 of 37 CFR, appendix B, or the guidelines from the Library's Recommended Formats Statement, might or might not be adapted to address these additional categories of online-only works.
Environmental Protection Agency (EPA).
Proposed rule.
The Environmental Protection Agency (EPA) is proposing to approve revisions to the Eastern Kern Air Pollution Control District (EKAPCD) portion of the California State Implementation Plan (SIP). These revisions concern administrative changes of a previously approved regulation and emissions of volatile organic compounds (VOCs) from aerospace coating assembly and coating operations and metal, plastic and pleasure craft parts and products coating operations. We are proposing to approve local rules to regulate these activities under the Clean Air Act (CAA or the Act).
Any comments on this proposal must arrive by June 16, 2016.
Submit your comments, identified by Docket ID No. EPA-R09-OAR-2016-0070 at
Vanessa Graham, EPA Region IX, (415) 947-4120,
Throughout this document, “we,” “us” and “our” refer to the EPA. This proposal addresses the following EKAPCD rules: Rule 103.1, “Inspection of Public Records,” Rule 410.4, “Metal, Plastic, and Pleasure Craft Parts and Products Coating Operations,” and Rule 410.8, “Aerospace Assembly and Coating Operations.” In the Rules and Regulations section of this
We do not plan to open a second comment period, so anyone interested in commenting should do so at this time. If we do not receive adverse comments, no further activity is planned. For further information, please see the direct final action.
Surface Transportation Board.
Notice of proposed rulemaking.
Through this Notice of Proposed Rulemaking, the Surface Transportation Board (Board or STB) is proposing rules for investigations conducted on the Board's own initiative pursuant to the Surface Transportation Board Reauthorization Act of 2015.
Comments are due by June 15, 2016. Replies are due by July 15, 2016.
Comments and replies may be submitted either via the Board's e-filing format or in the traditional paper format. Any person using e-filing should attach a document and otherwise comply with the instructions at the E-FILING link on the Board's Web site, at
Scott M. Zimmerman at (202) 245-0386. [Assistance for the hearing impaired is available through the Federal Information Relay Service (FIRS) at 1-800-877-8339.]
Section 12 of the
The Board accordingly proposes regulations, to be set forth at 49 CFR part 1122, establishing procedures for investigations conducted on the Board's own initiative pursuant to Section 12 of the
The
Within 30 days after initiating an investigation, the Board must provide notice to parties under investigation stating the basis for such investigation. The Board may only investigate issues that are of national or regional significance. Parties under investigation have a right to file a written statement describing all or any facts and circumstances concerning a matter under investigation, and the Board has an obligation to separate the investigative and decisionmaking functions of Board staff to the extent practicable.
Investigations must be dismissed if they are not concluded with “administrative finality within one year after commencement.”
The
To implement this statutory framework for investigations, the Board is proposing a three-stage process,
During the Preliminary Fact-Finding stage, Board staff would conduct a nonpublic inquiry regarding an issue to determine if there is a potential violation of 49 U.S.C. Subtitle IV, Part A, of national or regional significance that warrants a Board-Initiated Investigation. Information identifying a potential violation of national or regional significance could come from a variety of sources, including, but not limited to, third party tips, referrals from other agencies or Congress, reports submitted to the Board, or news articles.
The goal of Preliminary Fact-Finding would be for Board staff to decide whether to close its fact-gathering or request authorization to open a Board-Initiated Investigation and determine if a violation has in fact occurred.
As a matter of policy, Preliminary Fact-Finding generally would be nonpublic and confidential, subject to the provisions found in § 1122.6,
To commence a Board-Initiated Investigation (which statutorily must conclude with administrative finality within one year), the Board would issue an Order of Investigation and provide a copy of the order to the parties under investigation within 30 days of issuance.
As with Preliminary Fact-Finding, Board-Initiated Investigations generally would be nonpublic and confidential, except as provided by § 1122.6, in order to protect the integrity of the process and to protect parties under investigation from possibly unwarranted reputational damage or other harm. Parties who are not the subject of the investigation would not be able to intervene or participate as a matter of right in Board-Initiated Investigations. Section 1122.8.
The goal of the Board-Initiated Investigation would be for the Investigating Officer(s) to decide whether to recommend to the Board that it dismiss the investigation or open a proceeding to determine if a violation of 49 U.S.C. Subtitle IV, Part A occurred. To assist in making this determination, the Investigating Officer(s) would be able to interview or depose witnesses, inspect property and facilities, and request the production of any information, documents, books, papers, correspondence, memoranda, agreements or other records, in any form or media, potentially relevant or material to the basis for the Board-Initiated Investigation, with the power of subpoena to compel the production of documents or testimony of witnesses, if necessary.
Under the proposed regulations, the Investigating Officer(s) would be required to conclude the Board-Initiated Investigation no later than 275 days after issuance of the Order of Investigation and, at that time, submit to the Board and the parties under investigation any recommendations made as a result of the Board-Initiated Investigation and a summary of the findings that support such recommendations.
The Board recognizes that potential violations that are “of national or regional significance” could have serious and far-reaching consequences. The Board, therefore, will endeavor to resolve Board-Initiated Investigations as soon as possible. To be clear, 275 days would be the
Investigating Officer(s), in their discretion and time permitting, would have the option of presenting (orally or in writing) their recommendations and/or summary of findings to parties under investigation
If the Investigating Officer(s) were to decide not to use the optional provisions described above, parties subject to investigation would still be allowed to submit written statements to
Upon receipt of the recommendations and summary of findings from the Investigating Officers, the Board would decide whether to open a public Formal Board Proceeding to determine whether a provision of 49 U.S.C. Subtitle IV, Part A had been violated. If so, the Board would issue a public Order to Show Cause as described in § 1122.5(c) and (d). The Order to Show Cause would state the basis for the proceeding and set forth a procedural schedule.
The proposed regulations described above and set forth below implement the investigative authority conferred to the Board in the
The Regulatory Flexibility Act of 1980 (RFA), 5 U.S.C. 601-612, generally requires a description and analysis of new rules that would have a significant economic impact on a substantial number of small entities. In drafting a rule, an agency is required to: (1) Assess the effect that its regulation will have on small entities; (2) analyze effective alternatives that may minimize a regulation's impact; and (3) make the analysis available for public comment. Sections 601-604. In its notice of proposed rulemaking, the agency must either include an initial regulatory flexibility analysis, Section 603(a), or certify that the proposed rule would not have a “significant impact on a substantial number of small entities.” Section 605(b). The impact must be a direct impact on small entities “whose conduct is circumscribed or mandated” by the proposed rule.
The proposed regulations here only specify procedures related to investigations of matters of regional or national significance conducted on the Board's own initiative and do not mandate or circumscribe the conduct of small entities. Therefore, the Board 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 as defined by the RFA. A copy of this decision will be served upon the Chief Counsel for Advocacy, Office of Advocacy, U.S. Small Business Administration, Washington, DC 20416.
Investigations.
1. Comments are due by June 15, 2016. Replies are due by July 15, 2016.
2. A copy of this decision will be served upon Chief Counsel for Advocacy, Office of Advocacy, U.S. Small Business Administration.
3. Notice of this decision will be published in the
4. This decision is effective on its service date.
By the Board, Chairman Elliott, Vice Chairman Miller, and Commissioner Begeman.
For the reasons set forth in the preamble, the Surface Transportation Board proposes to amend title 49, chapter X, subchapter B, of the Code of Federal Regulations by adding part 1122 to read as follows:
49 U.S.C. 1321, 11144, 11701.
(a)
(b)
(c)
(d)
This part applies only to matters subject to Section 12 of the Surface Transportation Board Reauthorization Act of 2015, 49 U.S.C. 11701.
The Board staff may, in its discretion, conduct nonpublic Preliminary Fact-Finding, subject to the provisions of
The Board may, in its discretion, commence a nonpublic Board-Initiated Investigation of any matter of national or regional significance that is subject to the jurisdiction of the Board under 49 U.S.C. Subtitle IV, Part A, subject to the provisions of § 1122.6, by issuing an Order of Investigation. Orders of Investigation shall state the basis for the Board-Initiated Investigation and identify the Investigating Officer(s). The Board may add or remove Investigating Officer(s) during the course of a Board-Initiated Investigation. To the extent practicable, an Investigating Officer shall not participate in any decisionmaking functions in any Formal Board Proceeding(s) opened as a result of any Board-Initiated Investigation(s) that he or she conducted.
(a) Not later than 30 days after commencing a Board-Initiated Investigation, the Investigating Officer(s) shall provide the parties under investigation a copy of the Order of Investigation. If the Board adds or removes Investigating Officer(s) during the course of the Board-Initiated Investigation, it shall provide written notification to the parties under investigation.
(b) Not later than 275 days after issuance of the Order of Investigation, the Investigating Officer(s) shall submit to the Board and the parties under investigation:
(1) Any recommendations made as a result of the Board-Initiated Investigation; and
(2) A summary of the findings that support such recommendations.
(c) Not later than 90 days after receiving the recommendations and summary of findings, the Board shall decide whether to dismiss the Board-Initiated Investigation if no further action is warranted or initiate a Formal Board Proceeding to determine whether any provision of 49 U.S.C. Subtitle IV, Part A, has been violated in accordance with Section 12 of the Surface Transportation Board Reauthorization Act of 2015. The Board shall dismiss any Board-Initiated Investigation that is not concluded with administrative finality within one year after the date on which it was commenced.
(d) A Formal Board Proceeding commences upon issuance of a public Order to Show Cause. The Order to Show Cause shall state the basis for the Formal Board Proceeding and set forth a procedural schedule.
(a) All information and documents obtained under § 1122.3 or § 1122.4, whether or not obtained pursuant to a Board request or subpoena, and all activities conducted by the Board under this part prior to the opening of a Formal Board Proceeding, shall be treated as nonpublic by the Board and its staff except to the extent that:
(1) The Board directs or authorizes the public disclosure of activities conducted under this part prior to the opening of a Formal Board Proceeding;
(2) The information or documents are made a matter of public record during the course of an administrative proceeding; or
(3) Disclosure is required by the Freedom of Information Act, 5 U.S.C. 552 or other relevant provision of law.
(b) Procedures by which persons submitting information to the Board pursuant to this part of title 49, chapter X, subchapter B, of the Code of Federal Regulations may specifically seek confidential treatment of information for purposes of the Freedom of Information Act disclosure are set forth in § 1122.7. A request for confidential treatment of information for purposes of Freedom of Information Act disclosure shall not, however, prevent disclosure for law enforcement purposes or when disclosure is otherwise found appropriate in the public interest and permitted by law.
Any person that produces documents to the Board pursuant to § 1122.3 or § 1122.4 may claim that some or all of the information contained in a particular document or documents is exempt from the mandatory public disclosure requirements of the Freedom of Information Act (FOIA), 5 U.S.C. 552, is information referred to in 18 U.S.C. 1905, or is otherwise exempt by law from public disclosure. In such case, the person making such a claim shall, at the time the person produces the document to the Board, indicate on the document that a request for confidential treatment is being made for some or all of the information in the document. In such case, the person making such a claim also shall file a brief statement specifying the specific statutory justification for non-disclosure of the information in the document for which confidential treatment is claimed. If the person states that the information comes within the exception in 5 U.S.C. 552(b)(4) for trade secrets and commercial or financial information, and the information is responsive to a subsequent FOIA request to the Board, 49 CFR 1001.4 shall apply.
No party who is not the subject of a Board-Initiated Investigation may intervene or participate as a matter of right in any such Board-Initiated Investigation under this part.
(a) The Investigating Officer(s), in connection with any Board-Initiated Investigation, may interview or depose witnesses, inspect property and facilities, and request and require the production of any information, documents, books, papers, correspondence, memoranda, agreements, or other records, in any form or media, potentially relevant or material to the issues related to the Board-Initiated Investigation. The Investigating Officer(s), in connection with a Board-Initiated Investigation, also may issue subpoenas, in accordance with 49 U.S.C. 1321, to compel the attendance of witnesses, the production of any of the records and other documentary evidence listed above, and access to property and facilities.
(b) With regard for due process, the Board may for good cause exclude a particular attorney from further participation in any Board-Initiated Investigation in which the attorney is obstructing the Board-Initiated Investigation.
Transcripts, if any, of investigative testimony shall be recorded solely by the official reporter or other person or by means authorized by the Board or by the Investigating Officer(s).
(a) When producing documents under this part, the producing party shall submit a statement certifying that such person has made a diligent search for the responsive documents and is producing all the documents called for
(b) If any responsive documents are withheld because of a claim of the attorney-client privilege, work product privilege, or other applicable privilege, the producing party shall submit a list of such documents which shall, for each document, identify the attorney involved, the client involved, the date of the document, the person(s) shown on the document to have prepared and/or sent the document, and the person(s) shown on the document to have received copies of the document.
(c) Under this part, any person making false statements under oath is subject to criminal penalties for perjury under 18 U.S.C. 1621. Any person who knowingly and willfully makes false or fraudulent statements, whether under oath or otherwise, or who falsifies, conceals, or covers up a material fact, or submits any false writing or document, knowing it to contain false, fictitious, or fraudulent information is subject to the criminal penalties set forth in 18 U.S.C. 1001.
Any party subject to a Board-Initiated Investigation may, at any time during the course of a Board-Initiated Investigation, submit to the Board written statements of facts or circumstances, with any relevant supporting evidence, concerning the subject of that investigation.
(a) After conducting sufficient investigation and prior to submitting recommendations and a summary of findings to the Board, the Investigating Officer, in his or her discretion, may inform the parties under investigation (orally or in writing) of the proposed recommendations and summary of findings that may be submitted to the Board. If the Investigating Officer so chooses, he or she shall also advise the parties under investigation that they may submit a written statement, as explained below, to the Investigating Officer prior to the consideration by the Board of the recommendations and summary of findings. This optional process is in addition to, and does not limit in any way, the rights of parties under investigation otherwise provided for in this part.
(b) Unless otherwise provided for by the Investigating Officer, parties under investigation may submit written statement(s) described above within 14 days after of being informed by the Investigating Officer of the proposed recommendation(s) and summary of findings, and such statements shall be no more than 15 pages, double spaced on 8
(c) Such written statements, if the parties under investigation choose to submit, shall be submitted to the Investigating Officer. The Investigating Officer shall provide any written statement(s) from the parties under investigation to the Board at the same time that he or she submits his or her recommendations and summary of findings to the Board.
Food and Nutrition Service, USDA.
Notice.
In accordance with the Paperwork Reduction Act of 1995, this notice invites the general public and other public agencies to comment on the Agency's proposed information collection for the Child and Adult Care Food Program. This collection is a revision of a currently approved information collection.
Written comments must be received on or before July 18, 2016.
Comments are invited on: (1) Whether the proposed collection of information is necessary for the proper performance of the Agency's functions, including whether the information will have practical utility; (2) the accuracy of the Agency's estimate of the proposed information collection burden, 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 use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology.
Comments may be sent to Andrea Farmer, Policy and Program Development Division, Child Nutrition Programs, 3101 Park Center Drive, Alexandria, VA 22302. Comments will also be accepted through the Federal eRulemaking Portal. Go to
All responses to this notice will be summarized and included in the request for Office of Management and Budget (OMB) approval. All comments will also become a matter of public record.
Requests for additional information or copies of this information collection should be directed to Andrea Farmer, Policy and Program Development Division, Child Nutrition Programs, 3101 Park Center Drive, Alexandria, VA 22302.
This is a revision of a currently approved collection. It revises reporting burden as a result of increases in the number of sponsoring organizations and facilities, and an increase in the number of enrolled participants, who are required to submit information. It also adds a new requirement for written documentation when requesting substitutions for fluid milk or food components for participants with special non-disability, dietary needs. This requirement is added by the regulation
This revision removes two reporting requirements that had been duplicated in the current burden estimate (
Refer to the table below for estimated total annual burden.
An application has been submitted to the Foreign-Trade Zones (FTZ) Board by the City of Albuquerque, New Mexico, grantee of FTZ 110, requesting authority to reorganize the zone under the alternative site framework (ASF) adopted by the FTZ Board (15 CFR 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 Board (15 CFR part 400). It was formally docketed on May 10, 2016.
FTZ 110 was approved by the FTZ Board on October 30, 1984 (Board Order 279, 49 FR 44516, November 7, 1984) and expanded on March 29, 2002 (Board Order 1214, 67 FR 17048-17049, April 9, 2002).
The current zone includes the following site:
The grantee's proposed service area under the ASF would include all of Bernalillo, Sandoval, Santa Fe, Torrance, Socorro and Valencia Counties, New Mexico, as described in the application. If approved, the grantee would be able to serve sites throughout the service area based on companies' needs for FTZ designation. The application indicates that the proposed service area is within and adjacent to the Albuquerque, New Mexico U.S. Customs and Border Protection port of entry.
The applicant is requesting authority to reorganize its existing zone to include the existing site as a “magnet” site. The ASF allows for the possible exemption of one magnet site from the “sunset” time limits that generally apply to sites under the ASF, and the applicant proposes that Site 1 be so exempted. No subzones/usage-driven sites are being requested at this time. The application would have no impact on FTZ 110's previously authorized subzones.
In accordance with the FTZ Board's regulations, Christopher Kemp 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 18, 2016. Rebuttal comments in response to material submitted during the foregoing period may be submitted during the subsequent 15-day period to August 1, 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
Miami-Dade County, grantee of FTZ 281, submitted a notification of proposed production activity to the FTZ Board on behalf of Alpha Marketing Network, Inc. d/b/a AMN Distributors (AMN), located in Miami, Florida. The notification conforming to the requirements of the regulations of the FTZ Board (15 CFR 400.22) was received on May 3, 2016.
The AMN facility is located within Site 41 of FTZ 281. The facility is used for the kitting of Irish cream wine gift sets. Pursuant to 15 CFR 400.14(b), FTZ activity would be limited to the specific foreign-status materials and components and specific finished products described in the submitted notification (as described below) and subsequently authorized by the FTZ Board.
Production under FTZ procedures could exempt AMN from customs duty payments on foreign status materials used in export production. On its domestic sales, AMN would be able to choose the duty rate during customs entry procedures that applies to finished Irish cream wine gift sets (4.2¢/liter) for the inputs noted below. Customs duties also could possibly be deferred or reduced on foreign status production equipment.
The components sourced from abroad include: Irish cream gift boxes/paper/master; drinking glasses; and, Irish cream wine (duty rate ranges from free to 28.5%; 4.2¢/liter).
Public comment is invited from interested parties. Submissions shall be addressed to the FTZ Board's Executive Secretary at the address below. The closing period for their receipt is June 27, 2016.
A copy of the notification will be available for public inspection at the Office of the Executive Secretary, Foreign-Trade Zones Board, Room 21013, U.S. Department of Commerce, 1401 Constitution Avenue NW., Washington, DC 20230-0002, and in the “Reading Room” section of the FTZ Board's Web site, which is accessible via
For further information, contact Pierre Duy at
The Capital District Regional Planning Commission, grantee of FTZ 121, submitted a notification of proposed production activity to the FTZ Board on behalf of Townsend Leather Company, Inc. (Townsend), located in Johnstown, New York. The notification conforming to the requirements of the regulations of the FTZ Board (15 CFR 400.22) was received on May 9, 2016.
The Townsend facility is located within Site 7 of FTZ 121. The facility is used to produce finished upholstery grade leather, cut parts and product samples. The products are used in aviation/motor vehicle/yacht interiors, interior design and fashion accessories. Pursuant to 15 CFR 400.14(b), FTZ activity would be limited to the specific foreign-status material and specific finished products described in the submitted notification (as described below) and subsequently authorized by the FTZ Board.
Production under FTZ procedures could exempt Townsend from customs duty payments on the foreign-status components used in export production. On its domestic sales, Townsend would be able to choose the duty rates during customs entry procedures that apply to finished upholstery grade leather, cut parts and product samples (duty rates range from free to 2.9%) for the foreign-status upholstery grade pearl crust leather hides (duty rate, 2.8%). Customs duties also could possibly be deferred or reduced on foreign-status production equipment.
Public comment is invited from interested parties. Submissions shall be addressed to the FTZ Board's Executive Secretary at the address below. The closing period for their receipt is June 27, 2016.
A copy of the notification will be available for public inspection at the Office of the Executive Secretary, Foreign-Trade Zones Board, Room 21013, U.S. Department of Commerce, 1401 Constitution Avenue NW., Washington, DC 20230-0002, and in the “Reading Room” section of the FTZ Board's Web site, which is accessible via
For further information, contact Diane Finver at
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice of Intent (NOI) to prepare a draft environmental impact statement (DEIS); request for comments.
The NMFS Southeast Region in collaboration with the Gulf of Mexico Fishery Management Council (Council) intends to prepare a DEIS to describe and analyze a range of alternatives for management actions to be included in Amendment 41 to the Fishery Management Plan (FMP) for the Reef Fish Resources of the Gulf of Mexico (Amendment 41). Amendment 41 will consider management approaches for the harvest of red snapper from vessels with a Gulf Charter Vessel/Headboat Permit for Reef Fish that do not participate in the Southeast Region Headboat Survey. The purpose of this NOI is to solicit public comments on the scope of issues to be addressed in the DEIS.
Written comments on the scope of issues to be addressed in the DEIS will be accepted until June 16, 2016.
You may submit comments, identified by NOAA-NMFS-2016-0057, by either of the following methods:
•
•
Cynthia Meyer, NMFS Southeast Regional Office, telephone: 727-824-5305; or email:
The Council recently took action to provide more flexibility in managing the harvest of red snapper by the various components of the Gulf reef fish recreational sector. In 2014, the Council established separate private angling and Federal charter vessel/headboat (for-hire) components of the red snapper recreational sector. There has been a decrease over time in the proportion of red snapper harvested by anglers fishing from Federal for-hire vessels and differences in regulatory environments faced by Federal for-hire operators and private anglers. These factors contributed to the Council's decision to restructure the red snapper recreational sector to increase flexibility for each component.
The purpose of Amendment 41 is to develop a management approach for federally permitted Gulf reef fish charter vessels that reduces management uncertainty, provides flexibility and improves economic conditions for the owners and operators of Federal charter vessels, and increases opportunities for anglers who fish from Federal charter vessels to harvest red snapper.
NMFS, in collaboration with the Council, will develop a DEIS for Amendment 41 to describe and analyze alternatives to address the management needs described above, including the “no action” alternative. In accordance with the regulations issued by the Council on Environmental Quality (CEQ) for implementing the National Environmental Policy Act (NEPA; 40 CFR parts 1500-1508), NMFS, in collaboration with the Council, has identified preliminary environmental issues as a means to initiate discussion for scoping purposes only. These preliminary issues may not represent the full range of issues that eventually will be evaluated in the DEIS. A copy of the Amendment 41 draft options paper is available at:
Comments on the scope of the DEIS may be submitted in writing to NMFS (see
After the DEIS associated with Amendment 41 is completed, it will be filed with the Environmental Protection Agency (EPA). After filing, the EPA will publish a notice of availability of the DEIS for public comment in the
The Council and NMFS will consider public comments received on the DEIS in developing the final environmental impact statement (FEIS) and before adopting final management measures for the amendment. NMFS will submit the consolidated final amendment and supporting FEIS to the Secretary of Commerce (Secretary) for review as required by the Magnuson-Stevens Fishery Conservation and Management Act.
NMFS will announce, through a notification in the
NMFS will announce, through a document published in the
16 U.S.C. 1801
National Telecommunications and Information Administration, U.S. Department of Commerce.
Notice and request for public comment.
The National Telecommunications and Information Administration (NTIA) seeks input from stakeholders and interested parties to help develop its proposals and positions regarding matters that will be addressed at the upcoming 2016 World Telecommunication Standardization Assembly (WTSA-2016) of the International Telecommunication Union (ITU), being held from October 25 to November 3, 2016. The results of this Notice and Request for Public Comment will be reflected in NTIA's recommendations for U.S. proposals and positions to the U.S. Department of State, which is coordinating the WTSA-2016 preparatory process.
Comments are due on or before June 16, 2016.
Written comments may be submitted by mail to Vernita D. Harris, Deputy Associate Administrator, Office of International Affairs, National Telecommunications and Information Administration, 1401 Constitution Avenue NW., Room 4701, Washington, DC 20230. Comments may also be submitted electronically to
For questions about this Notice contact: Vernita D. Harris, Deputy Associate Administrator, Office of International Affairs, National Telecommunications and Information Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW., Room 4701, Washington, DC 20230; telephone: (202) 482-4686; email:
The U.S. Department of State initiated U.S. preparations for WTSA-2016 in January 2016, which are focused on developing formal U.S. priorities for WTSA-2016.
NTIA, as the principal adviser to the President on telecommunications and information policy, seeks input from stakeholders and other interested parties to develop its recommendations to the U.S. Department of State and to inform any NTIA delegates who will attend the WTSA. NTIA's participation in the U.S. WTSA-2016 preparatory process is intended to ensure that U.S. proposals and positions support the nation's telecommunications, converged communications infrastructure, information and technology policies to promote economic growth and digital innovation, and do not duplicate the standards development processes of other bodies.
The purpose of this Notice and Request for Public Comment is to seek input from stakeholders and other interested parties to share their perspectives as to whether and how the work of the ITU-T results in standards that meet their needs. We are interested in particular on input related to ITU-T restructuring and work methods and rules of procedure.
NTIA requests comment on the questions below. NTIA also welcomes input and comments on any specific issues being advanced by other countries, private sector organizations, and stakeholders for WTSA-2016.
(1) Are there overarching objectives and priorities that the U.S. delegation should adopt for WTSA-2016 and the ITU-T? What is the best way for the U.S. delegation to advance and ultimately achieve these objectives and priorities?
(2) In an environment with a wide range of industry led, multistakeholder standards development organization (SDOs) leading the development of telecommunications and information standards, does an intergovernmental organization, such as the ITU, provide any unique value? How does ITU involvement in global standards development influence, or affect U.S. industry interests in engaging in and promoting the international digital economy?
(3) What do you believe is the percentage of participation of relevant organizations or companies in the ITU-T study groups? What is the value of this participation in the ITU-T study groups? Does this participation meeting the needs of relevant organizations or companies?
(4) Is there a wide implementation of the ITU-T recommendations in the United States or elsewhere by relevant organizations or companies? Why or why not? Can you provide examples of these implementations, if any?
(5) The WTSA-12 Action Plan (see
(6) Are the ITU-T work methods and/or rules of procedure effective? Why or why not? What, if any, modifications to ITU-T Resolutions and Recommendations (see
(7) What are the most important international standardization public policy issues and topics? And why? In what areas or subjects do you believe the ITU-T has a particular role or expertise?
(8) Assuming the ITU-T study group structure remains as it is today, in which study groups and activities should NTIA prioritize its participation and why?
(9) How could cooperation and collaboration between ITU-T and other SDOs be strengthened? How could cooperation and collaboration among the three ITU sectors be strengthened?
(10) The ITU and its membership have identified a standardization gap between developed and developing countries and a need to bridge that gap to ensure greater participation by all countries in the work of the ITU-T. What is the best way to address this gap? Would ITU programs on this topic be better placed within the ITU-D or the ITU-T? What other steps can be taken to bridge this gap?
NTIA invites comment on the questions set forth in this Notice and Request for Public Comment as well as input on any other issues relevant to NTIA's participation in the ITU-T that will assist NTIA in its consultations with the U.S. Department of State and other U.S. government agencies in preparation for WTSA-2016.
The Committee for the Implementation of Textile Agreements.
Determination to add a product in unrestricted quantities to Annex 3.25 of the CAFTA-DR Agreement.
The Committee for the Implementation of Textile Agreements (“CITA”) has determined that certain warp stretch woven rayon blend fabrics, as specified below, are not available in commercial quantities in a timely manner in the CAFTA-DR countries. The product will be added to the list in Annex 3.25 of the CAFTA-DR Agreement in unrestricted quantities.
Effective May 17, 2016.
Maria Goodman, Office of Textiles and Apparel, U.S. Department of Commerce, (202) 482-3651.
The CAFTA-DR Agreement; Section 203(o)(4) of the Dominican Republic-Central America-United States Free Trade Agreement Implementation Act (“CAFTA-DR Implementation Act”), Public Law 109-53; the Statement of Administrative Action, accompanying the CAFTA-DR Implementation Act; and Presidential Proclamations 7987 (February 28, 2006) and 7996 (March 31, 2006).
The CAFTA-DR Implementation Act requires the President to establish procedures governing the submission of a request and providing opportunity for interested entities to submit comments and supporting evidence before a commercial availability determination is made. In Presidential Proclamations 7987 and 7996, the President delegated to CITA the authority under section 203(o)(4) of CAFTA-DR Implementation Act for modifying the Annex 3.25 list. Pursuant to this authority, on September 15, 2008, CITA published modified procedures it would follow in considering requests to modify the Annex 3.25 list of products determined to be not commercially available in the territory of any Party to CAFTA-DR (
On April 12, 2016, the Chairman of CITA received a request for a Commercial Availability determination (“Request”) from Grunfeld, Desiderio, Lebowitz, Silverman, & Klestadt, LLC, on behalf of Tang Textiles & Apparel, for certain warp stretch woven rayon blend fabrics. On April 14, 2016, in, in accordance with CITA's procedures, CITA notified interested parties of the Request, which was posted on the dedicated Web site for CAFTA-DR Commercial Availability proceedings. In its notification, CITA advised that any Response with an Offer to Supply (“Response”) must be submitted by April 26, 2016, and any Rebuttal Comments to a Response must be submitted by May 2, 2016, in accordance with sections 6 and 7 of CITA's procedures. No interested entity submitted a Response to the Request advising CITA of its objection to the Request and its ability to supply the subject product.
In accordance with section 203(o)(4)(C) of the CAFTA-DR Implementation Act, and section 8(c)(2) of CITA's procedures, as no interested entity submitted a Response objecting to the Request and providing an offer to supply the subject product, CITA has determined to add the specified fabric to the list in Annex 3.25 of the CAFTA-DR Agreement.
The subject product has been added to the list in Annex 3.25 of the CAFTA-DR Agreement in unrestricted quantities. A revised list has been posted on the dedicated Web site for CAFTA-DR Commercial Availability proceedings.
Bureau of Consumer Financial Protection.
Notice of public meeting.
This notice sets forth the announcement of a public meeting of the Academic Research Council (ARC or Council) of the Consumer Financial Protection Bureau (Bureau). The notice also describes the functions of the Council. Notice of the meeting is permitted by section 8 of the ARC Charter. Specifically, section 8(d) of the ARC Charter states:
The Council will convene in person from time to time at the call of the Assistant Director or the Assistant Director's designee, but at a minimum shall meet annually. Council members may also make additional
The meeting date is Friday, May 20, 2016, 9 a.m. to 11 a.m. eastern time.
The meeting location is Consumer Financial Protection Bureau, 1275 First Street NE., Washington, DC 20002.
Jassmine Okiemen, Research Assistant, Academic Research Council, Office of Research, Consumer Financial Protection Bureau, at
Section 1013(b)(1) of the Consumer Financial Protection Act, 12 U.S.C. 5493(b)(1) establishes the Office of Research (OR) and assigns to it the responsibility of researching, analyzing, and reporting on topics relating to the Bureau's mission, including developments in markets for consumer financial products and services, consumer awareness, and consumer behavior.
The Academic Research Council is a consultative body comprised of scholars that help the Office of Research perform these responsibilities. Section 3 of the ARC Charter states: “The Council will provide the Office of Research advice and feedback on research methodologies, framing research questions, data collection, and analytic strategies. Additionally, the Council will provide both backward- and forward-looking feedback on the Office of Research's research work and will offer input into its research strategic planning process and research agenda.”
The Academic Research Council will discuss methodology and direction for consumer finance research at the Bureau.
Persons who need a reasonable accommodation to participate should contact
Individuals who wish to attend the Academic Research Council meeting must RSVP to
The Council's agenda will be made available to the public on May 10, 2016, via
U.S. Air Force Academy Board of Visitors.
Meeting notice.
In accordance with 10 U.S.C. Section 9355, the U.S. Air Force Academy (USAFA) Board of Visitors (BoV) will hold a meeting at the Rayburn House Office Building, Gold Room 2168, Washington, DC, on June 9, 2016. On Thursday, the meeting will begin at 8:30 a.m. and will conclude at 3:45 p.m. The purpose of this meeting is to review morale and discipline, social climate, strategic communications, and other matters relating to the Academy. Specific topics for this meeting include a Superintendent's Update; USAFA Diversity Update; and Strategic Communications. Public attendance at this USAFA BoV meeting shall be accommodated on a first-come, first-served basis up to the reasonable and safe capacity of the meeting room. In addition, any member of the public wishing to provide input to the USAFA BoV should submit a written statement in accordance with 41 CFR Section 102-3.140(c) and section 10(a)(3) of the Federal Advisory Committee Act and the procedures described in this paragraph. Written statements must address the following details: The issue, discussion, and a recommended course of action. Supporting documentation may also be included as needed to establish the appropriate historical context and provide any necessary background information. Written statements can be submitted to the Designated Federal Officer (DFO) at the Air Force address detailed below at any time. However, if a written statement is not received at least 10 calendar days before the first day of the meeting which is the subject of this notice, then it may not be provided to or considered by the BoV until its next open meeting. The DFO will review all timely submissions with the BoV Chairman and ensure they are provided to members of the BoV before the meeting that is the subject of this notice. If after review of timely submitted written comments and the BoV Chairman and DFO deem appropriate, they may choose to invite the submitter of the written comments to orally present the issue during an open portion of the BoV meeting that is the subject of this notice. Members of the BoV may also petition the Chairman to allow specific personnel to make oral presentations before the BoV. In accordance with 41 CFR Section 102-3.140(d), any oral presentations before the BoV shall be in accordance with agency guidelines provided pursuant to a written invitation and this paragraph. Direct questioning of BoV members or meeting participants by the public is not permitted except with the approval of the DFO and Chairman. For the benefit of the public, rosters that list the names of BoV members and any releasable materials presented during the open portions of this BoV meeting shall be made available upon request.
Office of the Assistant Secretary of Defense for Manpower and Reserve Affairs, DoD.
Notice.
In compliance with the
Consideration will be given to all comments received by July 18, 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 Rajeev Ramchand, RAND Corporation, 1100 South Hayes Street, Arlington, VA 22202, or call (703) 413-1100 ext. 5096.
Respondents are: Administrators who oversee the PEER forums, Recovery Care Coordinators who refer caregivers to the PEER forums, Military and Family Life Counselors who run the PEER forums, and caregivers who have been referred to participate in the PEER forums.
Office of Elementary and Secondary Education (OESE), Department of Education (ED).
Notice.
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. chapter 3501
Interested persons are invited to submit comments on or before July 18, 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 Amanda Ognibene, 202-453-6637.
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
Office of Elementary and Secondary Education, Department of Education.
Notice.
Indian Education Discretionary Grants Programs—Professional Development Grants Program.
Notice inviting applications for new awards for fiscal year (FY) 2016.
These priorities are:
Projects that—
(i) Provide support and training to Indian individuals to complete a pre-service education program before the end of the award period that enables the individuals to meet the requirements for full State certification or licensure as a teacher through—
(A) Training that leads to a degree in education;
(B) For States allowing a degree in a specific subject area, training that leads to a degree in the subject area; or
(C) Training in a current or new specialized teaching assignment that requires a degree and in which a documented teacher shortage exists;
(ii) Provide one year of induction services, during the award period, to participants after graduation, certification, or licensure, while they are completing their first year of work as teachers in schools with significant Indian student populations; and
(iii) Include goals for the—
(A) Number of participants to be recruited each year;
(B) Number of participants to continue in the project each year;
(C) Number of participants to graduate each year; and
(D) Number of participants to find qualifying jobs within twelve months of completion.
Projects that—
(i) Provide support and training to Indian individuals to complete a graduate degree in education administration that is provided before the end of the award period and that allows participants to meet the requirements for State certification or licensure as an education administrator;
(ii) Provide one year of induction services, during the award period, to participants after graduation, certification, or licensure, while they are completing their first year of work as administrators in schools with significant Indian student populations; and
(iii) Include goals for the—
(A) Number of participants to be recruited each year;
(B) Number of participants to continue in the project each year;
(C) Number of participants to graduate each year; and
(D) Number of participants to find qualifying jobs within twelve months of completion.
These priorities are:
An application that includes a letter of support signed by the authorized representative of a local educational agency (LEA) or Department of the Interior Bureau of Indian Education-funded school or other entity in the applicant's service area that agrees to consider program graduates for qualifying employment.
An application submitted by an Indian tribe, Indian organization, or Indian institution of higher education (Indian IHE) that is eligible to participate in the Professional Development program. A consortium application of eligible entities that meets the requirements of 34 CFR 75.127 through 75.129 and includes an
A consortium application of eligible entities whose lead is non-tribal that—
(i) Meets the requirements of 34 CFR 75.127 through 75.129 and includes an Indian tribe, Indian organization, or Indian IHE; and
(ii) Is not eligible to receive a preference under Competitive Preference Priority 2.
(a) Awards that are primarily for the benefit of Indians are subject to the provisions of section 7(b) of the Indian Self-Determination and Education Assistance Act (Pub. L. 93-638). That section requires that, to the greatest extent feasible, a grantee—
(1) Give to Indians preferences and opportunities for training and employment in connection with the administration of the grant; and
(2) Give to Indian organizations and to Indian-owned economic enterprises, as defined in section 3 of the Indian Financing Act of 1974 (25 U.S.C. 1452(e)), preference in the award of contracts in connection with the administration of the grant.
(b) For purposes of this section, an Indian is a member of any federally recognized Indian tribe.
20 U.S.C. 7442.
The regulations in 34 CFR part 79 apply to all applicants except federally recognized Indian tribes.
The regulations in 34 CFR part 86 apply to institutions of higher education only.
On April 22, 2015, the Department amended regulations including 34 CFR 263.1 through 263.12 (80 FR 22403). We encourage applicants to read closely the amended regulations, particularly as they relate to payback requirements, payback reporting requirements, and grantee post-award requirements. We also have included the text of these regulations in the application package.
Contingent upon the availability of funds and the quality of applications, we may make additional awards in FY 2017 from the list of unfunded applications from this competition.
The Department is not bound by any estimates in this notice.
(a) An applicant must be an eligible entity which means—
(1) An institution of higher education, including an Indian IHE;
(2) A State educational agency in consortium with an institution of higher education;
(3) An LEA in consortium with an institution of higher education;
(4) An Indian tribe or Indian organization in consortium with an institution of higher education; or
(5) A Bureau of Indian Education (Bureau)-funded school.
(b) Bureau-funded schools are eligible applicants for—
(1) An in-service training program; and
(2) A pre-service training program when the Bureau-funded school applies in consortium with an institution of higher education that is accredited to provide the coursework and level of degree required by the project.
(c) Eligibility of an applicant requiring a consortium with an institution of higher education, including Indian IHEs, requires that the institution of higher education be accredited to provide the coursework and level of degree required by the project.
An applicant applying as an Indian organization must demonstrate that the entity meets the definition of “Indian organization” in 34 CFR 263.3. “Indian organization” means an organization that—
(1) Is legally established—
(i) By tribal or inter-tribal charter or in accordance with State or tribal law; and
(ii) With appropriate constitution, by-laws, or articles of incorporation;
(2) Includes in its purposes the promotion of the education of Indians;
(3) Is controlled by a governing board, the majority of which is Indian;
(4) If located on an Indian reservation, operates with the sanction or by charter of the governing body of that reservation;
(5) Is neither an organization or subdivision of, nor under the direct control of, any institution of higher education; and
(6) Is not an agency of State or local government.
The term “Indian institution of higher education” means an accredited college or university within the United States cited in section 532 of the Equity in Educational Land-Grant Status Act of 1994 (7 U.S.C. 301 note), any other institution that qualifies for funding under the Tribally Controlled College or University Assistance Act of 1978 (25 U.S.C. 1801
2.
3.
1.
You can contact ED Pubs at its Web site, also:
If you request an application from ED Pubs, be sure to identify this program or competition as follows: CFDA number 84.299B.
Individuals with disabilities can obtain a copy of the application package in an accessible format (
2. a.
• A “page” is 8.5″ x 11″, on one side only, with 1″ margins at the top, bottom, and both sides.
• Double space all text in the application narrative, including titles, headings, footnotes, quotations, references, and captions, as well as all text in charts, tables, figures, and graphs.
• Use a font that is either 12 point or larger or no smaller than 10 pitch (characters per inch).
• Use one of the following fonts: Times New Roman, Courier, Courier New, or Arial.
The suggested page limit does not apply to the cover sheet; the budget section, including the budget narrative justification; the assurances and certifications; or the abstract, table of contents, the resumes, the bibliography, letters of support, or the signed consortium agreement, if applicable.
b.
Because we plan to make successful applications available to the public by posting them on our Web site, you may wish to request confidentiality of business information. Consistent with Executive Order 12600, please designate in your application any information that you believe is exempt from disclosure under Exemption 4. In the appropriate Appendix section of your application, under “Other Attachments Form,” please list the page number or numbers on which we can find this information. For additional information please see 34 CFR 5.11(c).
3.
Applications for grants under this competition must be submitted electronically using
We do not consider an application that does not comply with the deadline requirements.
Individuals with disabilities who need an accommodation or auxiliary aid in connection with the application process should contact the person listed under
4.
5.
A Professional Development program may include, as training costs, assistance to—
(1) Fully finance a student's educational expenses including tuition, books, and required fees; health insurance required by the institution of higher education; stipend; dependent allowance; technology costs; program required travel; and instructional supplies; or
(2) Supplement other financial aid, including Federal funding other than loans, for meeting a student's educational expenses.
The maximum stipend amount is $1,800 per month for full-time students; grantees may also provide participants with a $300 allowance per month per dependent during an academic term. The Department will reduce any stipends in excess of this amount. The terms “stipend,” “full-time student,” and “dependent allowance” are defined in 34 CFR 263.3. Stipends may be paid only to full-time students.
Other costs that a Professional Development program may include, but that must not be included as training costs, include costs for—
(1) Collaborating with prospective employers within the grantees' local service area to create a pool of potentially available qualifying employment opportunities;
(2) In-service training activities such as providing mentorship linking experienced teachers at job placement sites with program participants; and
(3) Assisting participants in identifying and securing qualified employment opportunities in their fields of study following completion of the program.
We reference additional regulations outlining funding restrictions in the
6.
a. Have a Data Universal Numbering System (DUNS) number and a Taxpayer Identification Number (TIN);
b. Register both your DUNS number and TIN with the System for Award Management (SAM) (formerly the Central Contractor Registry), the Government's primary registrant database;
c. Provide your DUNS number and TIN on your application; and
d. Maintain an active SAM registration with current information while your application is under review by the Department and, if you are awarded a grant, during the project period.
You can obtain a DUNS number from Dun and Bradstreet at the following Web site:
If you are a corporate entity, agency, institution, or organization, you can obtain a TIN from the Internal Revenue
The SAM registration process can take approximately seven business days, but may take upwards of several weeks, depending on the completeness and accuracy of the data you enter into the SAM database. Thus, if you think you might want to apply for Federal financial assistance under a program administered by the Department, please allow sufficient time to obtain and register your DUNS number and TIN. We strongly recommend that you register early.
Once your SAM registration is active, it may be 24 to 48 hours before you can access the information in, and submit an application through,
If you are currently registered with SAM, you may not need to make any changes. However, please make certain that the TIN associated with your DUNS number is correct. Also note that you will need to update your registration annually. This may take three or more business days.
Information about SAM is available at
In addition, if you are submitting your application via
7.
Applications for grants under the Indian Education—Professional Development Grants program, CFDA number 84.299B, must be submitted electronically using the Governmentwide
We will reject your application if you submit it in paper format unless, as described elsewhere in this section, you qualify for one of the exceptions to the electronic submission requirement
You may access the electronic grant application for the Indian Education—Professional Development Grants program at
Please note the following:
• When you enter the
• Applications received by
• The amount of time it can take to upload an application will vary depending on a variety of factors, including the size of the application and the speed of your Internet connection. Therefore, we strongly recommend that you do not wait until the application deadline date to begin the submission process through
• You should review and follow the Education Submission Procedures for submitting an application through
• You will not receive additional point value because you submit your application in electronic format, nor will we penalize you if you qualify for an exception to the electronic submission requirement, as described elsewhere in this section, and submit your application in paper format.
• You must submit all documents electronically, including all information you typically provide on the following forms: The Application for Federal Assistance (SF 424), the Department of Education Supplemental Information for SF 424, Budget Information—Non-Construction Programs (ED 524), and all necessary assurances and certifications.
• You must upload any narrative sections and all other attachments to your application as files in a read-only, non-modifiable Portable Document Format (PDF). Do not upload an interactive or fillable PDF file. If you upload a file type other than a read-only, non-modifiable PDF (
• Your electronic application must comply with any page-limit requirements described in this notice.
• After you electronically submit your application, you will receive from
Once your application is successfully validated by
These emails do not mean that your application is without any disqualifying errors. While your application may have been successfully validated by
• We may request that you provide us original signatures on forms at a later date.
If you are prevented from electronically submitting your application on the application deadline date because of technical problems with the
If you submit an application after 4:30:00 p.m., Washington, DC time, on the application deadline date, please contact the person listed under
The extensions to which we refer in this section apply only to the unavailability of, or technical problems with, the
• You do not have access to the Internet; or
• You do not have the capacity to upload large documents to the
• No later than two weeks before the application deadline date (14 calendar days or, if the fourteenth calendar day before the application deadline date falls on a Federal holiday, the next business day following the Federal holiday), you mail or fax a written statement to the Department, explaining which of the two grounds for an exception prevents you from using the Internet to submit your application.
If you mail your written statement to the Department, it must be postmarked no later than two weeks before the application deadline date. If you fax your written statement to the Department, we must receive the faxed statement no later than two weeks before the application deadline date.
Your paper application must be submitted in accordance with the mail or hand delivery instructions described in this notice.
If you qualify for an exception to the electronic submission requirement, you may mail (through the U.S. Postal Service or a commercial carrier) your application to the Department. You must mail the original and two copies of your application, on or before the application deadline date, to the Department at the following address: U.S. Department of Education, Application Control Center, Attention: (CFDA Number 84.299B), LBJ Basement Level 1, 400 Maryland Avenue SW., Washington, DC 20202-4260.
You must show proof of mailing consisting of one of the following:
(1) A legibly dated U.S. Postal Service postmark.
(2) A legible mail receipt with the date of mailing stamped by the U.S. Postal Service.
(3) A dated shipping label, invoice, or receipt from a commercial carrier.
(4) Any other proof of mailing acceptable to the Secretary of the U.S. Department of Education.
If you mail your application through the U.S. Postal Service, we do not accept either of the following as proof of mailing:
(1) A private metered postmark.
(2) A mail receipt that is not dated by the U.S. Postal Service.
The U.S. Postal Service does not uniformly provide a dated postmark. Before relying on this method, you should check with your local post office.
We will not consider applications postmarked after the application deadline date.
If you qualify for an exception to the electronic submission requirement, you (or a courier service) may deliver your paper application to the Department by hand. You must deliver the original and two copies of your application by hand, on or before the application deadline date, to the Department at the following address: U.S. Department of Education, Application Control Center, Attention: (CFDA Number 84.299B), 550 12th Street SW., Room 7039, Potomac Center Plaza, Washington, DC 20202-4260.
The Application Control Center accepts hand deliveries daily between 8:00 a.m. and 4:30:00 p.m., Washington, DC time, except Saturdays, Sundays, and Federal holidays.
If you mail or hand deliver your application to the Department—
(1) You must indicate on the envelope and—if not provided by the Department—in Item 11 of the SF 424 the CFDA number, including suffix letter, if any, of the competition under which you are submitting your application; and
(2) The Application Control Center will mail to you a notification of receipt of your grant application. If you do not receive this notification within 15 business days from the application deadline date, you should call the U.S. Department of Education Application Control Center at (202) 245-6288.
1.
(a)
(1) The extent to which specific gaps or weaknesses in services, infrastructure, or opportunities have been identified and will be addressed by the proposed project, including the nature and magnitude of those gaps or weaknesses.
(2) The extent to which employment opportunities exist in the project's service area, as demonstrated through a job market analysis.
(b)
(1) The extent to which the goals, objectives, and outcomes to be achieved by the proposed project are ambitious but also attainable and address—
(i) The number of participants expected to be recruited in the project each year;
(ii) The number of participants expected to continue in the project each year;
(iii) The number of participants expected to graduate; and
(iv) The number of participants expected to find qualifying jobs within twelve months of completion.
(2) The extent to which the proposed project has a plan for recruiting and selecting participants that ensures that program participants are likely to complete the program.
(3) The potential of the proposed project to develop effective strategies for teaching Indian students and improving Indian student achievement, as demonstrated by a plan to share findings gained from the proposed project with parties who could benefit from such findings, such as other institutions of higher education who are training teachers and administrators who will be serving Indian students.
(4) The extent to which the proposed project will incorporate the needs of potential employers, as identified by a job market analysis, by establishing partnerships and relationships with appropriate entities (
(c)
(1) The likelihood that the proposed project will provide participants with learning experiences that develop needed skills for successful teaching and/or administration in schools with significant Indian populations.
(2) The extent to which the proposed project prepares participants to adapt teaching and/or administrative practices to meet the breadth of Indian student needs.
(3) The extent to which the applicant will provide job placement activities that reflect the findings of a job market analysis and needs of potential employers.
(4) The extent to which the applicant will offer induction services that reflect the latest research on effective delivery of such services.
(5) The extent to which the training or professional development services to be provided by the proposed project are of sufficient quality, intensity, and duration to lead to improvements in practice among the recipients of those services.
(d)
(1) The qualifications, including relevant training, experience, and cultural competence, of the project director and the amount of time this individual will spend directly involved in the project.
(2) The qualifications, including relevant training, experience, and cultural competence, of key project personnel and the amount of time to be spent on the project and direct interactions with participants.
(3) The qualifications, including relevant training, experience, and cultural competence (as necessary), of project consultants or subcontractors, if any.
(e)
(1) The extent to which the costs are reasonable in relation to the number of persons to be served and to the anticipated results and benefits.
(2) The adequacy of procedures for ensuring feedback and continuous improvement in the operation of the proposed project.
(3) The extent to which the time commitments of the project director and principal investigator and other key project personnel are appropriate and adequate to meet the objectives of the proposed project.
2.
In addition, in making a competitive grant award, the Secretary requires various assurances, including those applicable to Federal civil rights laws that prohibit discrimination in programs or activities receiving Federal financial assistance from the Department of Education (34 CFR 100.4, 104.5, 106.4, 108.8, and 110.23).
3.
1.
If your application is not evaluated or not selected for funding, we notify you.
2.
We reference the regulations outlining the terms and conditions of an award in the
3.
(b) At the end of your project period, you must submit a final performance report, including financial information, as directed by the Secretary. If you receive a multiyear award, you must submit an annual performance report that provides the most current performance and financial expenditure information as directed by the Secretary under 34 CFR 75.118. The Secretary may also require more frequent performance reports under 34 CFR 75.720(c). For specific requirements on reporting, please go to
(c) Under 34 CFR 75.250(b), the Secretary may provide a grantee with additional funding for data collection analysis and reporting. In this case the Secretary establishes a data collection period.
4.
These measures constitute the Department's indicator of success for this program. Consequently, we advise an applicant for a grant under this program to give careful consideration to these measures in conceptualizing the approach and evaluation for its proposed project. Each grantee will be required to provide, in its annual performance and final reports, data about its progress in meeting these measures.
5.
In making a continuation award, the Secretary also considers whether the grantee is operating in compliance with the assurances in its approved application, including those applicable to Federal civil rights laws that prohibit discrimination in programs or activities receiving Federal financial assistance from the Department (34 CFR 100.4, 104.5, 106.4, 108.8, and 110.23).
John Cheek, U.S. Department of Education, 400 Maryland Avenue SW., Room 3W207, Washington, DC 20202-6335. Telephone: (202) 401-0274 or by email:
If you use a TDD or a TTY, call the FRS, toll free, at 1-800-877-8339.
You may also access documents of the Department published in the
Office of Elementary and Secondary Education, Department of Education.
Notice.
Catalog of Federal Domestic Assistance (CFDA) Number: 84.358A.
On February 5, 2016, we published in the
The Department contacts local educational agencies that we determine to be newly eligible for SRSA funding, informs them of their eligibility, and instructs them to apply for funding. Due to unanticipated delays in the eligibility determination process, eligible applicants were not able to submit their applications for FY 2016 awards under the SRSA program by the close of the initial application period. Therefore, we are reopening the application period until May 31, 2016, 4:30:00 p.m., Washington, DC time. All other requirements and conditions
Applicants that did not meet the initial May 2 deadline must submit applications by May 31 to be considered for FY 2016 funding. Applicants that already submitted timely applications that meet all of the requirements of the notice inviting applications do not have to resubmit their applications.
David Cantrell, Rural Programs Group Leader, Office of Elementary and Secondary Education, 400 Maryland Avenue SW., Room 3E-204, Washington, DC 20202. Telephone: (202) 453-5990 or by email:
If you use a telecommunications device for the deaf or a text telephone, call the Federal Relay Service, toll free, at 1-800-877-8339.
You may also access documents of the Department published in the
Sections 6211-6213 of the Elementary and Secondary Education Act of 1965, as amended by the No Child Left Behind Act of 2001.
Office of Elementary and Secondary Education (OESE), Department of Education (ED).
Notice.
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. chapter 3501
Interested persons are invited to submit comments on or before July 18, 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 Elizabeth Witt, 202-260-5585.
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.
Office of Innovation and Improvement, Department of Education.
Notice; correction.
On May 10, 2016, we published in the
Brian Martin, U.S. Department of Education, 400 Maryland Avenue SW., Room 4W224, Washington, DC 20202-5970. Telephone: (202) 205-9085, or by email:
If you use a telecommunications device for the deaf (TDD) or a text telephone (TTY), call the Federal Relay Service, toll free, at 1-800-877-8339.
On May 10, 2016, we published in the
Also, on page 28837, in the third column, under
All other requirements and conditions stated in the notice inviting applications, including the deadline for intergovernmental review, remain the same.
Consolidated Appropriations Act, 2016, Division H, Public Law 114-113; and title V, part B of the Elementary and Secondary Education Act of 1965, as amended by the No Child Left Behind Act of 2001.
You may also access documents of the Department published in the
Department of Energy.
Notice of open meeting.
This notice announces a meeting of the Environmental Management Site-Specific Advisory Board (EM SSAB), Hanford. The Federal Advisory Committee Act (Pub. L. 92-463, 86 Stat. 770) requires that public notice of this meeting be announced in the
Wednesday, June 8, 2016; 9:00 a.m.-5:00 p.m., Thursday, June 9, 2016; 8:30 a.m.-1:00 p.m.
Red Lion Hanford House, 802 George Washington Way, Richland, WA 99352.
Kristen Holmes, Federal Coordinator, Department of Energy Richland Operations Office, 825 Jadwin Avenue, P.O. Box 550, A7-75, Richland, WA, 99352; Phone: (509) 376-5803; or Email:
Department of Energy.
Notice of open meeting.
This notice announces a combined meeting of the Environmental Monitoring and Remediation Committee and Waste Management Committee of the Environmental Management Site-Specific Advisory Board (EM SSAB), Northern New Mexico (known locally as the Northern New Mexico Citizens' Advisory Board [NNMCAB]). The Federal Advisory Committee Act (Pub. L. 92-463, 86 Stat. 770) requires that public notice of this meeting be announced in the
Wednesday, June 15, 2016, 1:00 p.m.-4:00 p.m.
NNMCAB Office, 94 Cities of Gold Road, Santa Fe, NM 87506.
Menice Santistevan, Northern New Mexico Citizens' Advisory Board, 94 Cities of Gold Road, Santa Fe, NM 87506. Phone (505) 995-0393; Fax (505) 989-1752 or Email:
Tentative Agenda:
Office of Electricity Delivery and Energy Reliability, DOE.
Notice of application.
Termoelectrica U.S., LLC (Applicant) has applied for authority to transmit electric energy from the United States to Mexico pursuant to section 202(e) of the Federal Power Act.
Comments, protests, or motions to intervene must be submitted on or before June 16, 2016.
Comments, protests, motions to intervene, or requests for more information should be addressed to: Office of Electricity Delivery and Energy Reliability, Mail Code: OE-20, U.S. Department of Energy, 1000 Independence Avenue SW., Washington, DC 20585-0350. Because of delays in handling conventional mail, it is recommended that documents be transmitted by overnight mail, by electronic mail to
Exports of electricity from the United States to a foreign country are regulated by the Department of Energy (DOE) pursuant to sections 301(b) and 402(f) of the Department of Energy Organization Act (42 U.S.C. 7151(b), 7172(f)) and require authorization under section 202(e) of the Federal Power Act (16 U.S.C. 824a(e)).
On March 21, 2016, DOE received an application from the Applicant for authority to transmit electric energy from the United States to Mexico as a power marketer solely over the TDM Gen-Tie, an authorized international electric transmission facility issued in Presidential Permit PP-235-2 and for a period not to extend beyond the date of termination of the associated Presidential Permit PP-235-2.
In its application, the Applicant states that it does own or control an electric generation or transmission facility at the point where the 230kV generation tie-line crosses the U.S. Mexico border, and does not have a franchised service area. The Applicant's request is limited to the delivery of intermittent and de minimis start-up and station power to the TDM Facility over the TDM-Gen-Tie. The electric energy that the Applicant proposes to export to Mexico would be surplus energy purchased from third parties such as electric utilities and Federal power marketing agencies pursuant to voluntary agreements. The existing international transmission facility to be utilized by the Applicant have previously been authorized by Presidential permits issued pursuant to Executive Order 10485, as amended, and are appropriate for open access transmission by third parties.
Comments and other filings concerning the Applicant's application to export electric energy to Mexico should be clearly marked with OE Docket No. EA-418. An additional copy is to be provided to both Daniel A. King, Sempra U.S. Gas & Power, LLC, 488 8th Ave., HQ12S1, San Diego, CA 92101 and Jose A. Lau, Sempra International, LLC, 488 8th Ave., HQ13N1, San Diego, CA 92101.
A final decision will be made on this application after the environmental impacts have been evaluated pursuant to DOE's National Environmental Policy Act Implementing Procedures (10 CFR part 1021) and after a determination is made by DOE that the proposed action will not have an adverse impact on the sufficiency of supply or reliability of the U.S. electric power supply system.
Copies of this application will be made available, upon request, for public inspection and copying at the address provided above, by accessing the program Web site at
Department of Energy.
Notice of open meeting.
This notice announces a meeting of the Environmental Management Site-Specific Advisory Board (EM SSAB), Oak Ridge Reservation. The Federal Advisory Committee Act (Pub. L. 92-463, 86 Stat. 770) requires that public notice of this meeting be announced in the
Wednesday, June 8, 2016 6:00 p.m.
Department of Energy Information Center, Office of Science and Technical Information, 1 Science.gov Way, Oak Ridge, Tennessee 37830.
Melyssa P. Noe, Federal Coordinator, Department of Energy Oak Ridge Operations Office, P.O. Box 2001, EM-90, Oak Ridge, TN 37831. Phone (865) 241-3315; Fax (865) 576-0956 or email:
Take notice that the following application has been filed with the Commission and is available for public inspection:
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
The Commission strongly encourages electronic filing. Please file comments, protests, and motions to intervene using the Commission's eFiling system at
k.
When a Declaration of Intention is filed with the Federal Energy Regulatory Commission, the Federal Power Act requires the Commission to investigate and determine if the project would affect the interests of interstate or foreign commerce. The Commission also determines whether or not the project: (1) Would be located on a navigable waterway; (2) would occupy public lands or reservations of the United States; (3) would utilize surplus water or water power from a government dam; or (4) would be located on a non-navigable stream over which Congress has Commerce Clause jurisdiction and would be constructed or enlarged after 1935.
l.
m. Individuals desiring to be included on the Commission's mailing list should so indicate by writing to the Secretary of the Commission.
n.
o.
p.
As announced in the Notice of Technical Conference issued in this proceeding on March 17, 2016, the Federal Energy Regulatory Commission will hold a Commissioner-led technical conference on June 27, 2016, from approximately 1:00 p.m. to 5:00 p.m., and on June 28, 2016, from approximately 9:00 a.m. to 5:00 p.m., at the Commission's headquarters at 888 First Street NE., Washington, DC 20426. The purpose of the technical conference is to discuss issues related to competitive transmission development processes, including, but not limited to, the use of cost containment provisions, the relationship of competitive transmission development to transmission incentives, and other ratemaking issues.
Attached to this Supplemental Notice is a preliminary agenda for the technical conference and a description of key concepts.
Those interested in speaking at the technical conference should notify the Commission by May 17, 2016, by completing the online form at the following Web page:
Interested parties may submit pre-technical conference comments (with a ten page limit) for consideration in Docket No. AD16-18-000 no later than May 31, 2016.
The conference will be open for the public to attend. Information on the technical conference will also be posted on the Calendar of Events on the Commission's Web site,
This event will be webcast and transcribed. Anyone with internet access can navigate to the “FERC Calendar” at
Commission conferences are accessible under section 508 of the Rehabilitation Act of 1973. For accessibility accommodations, please send an email to
For more information about this technical conference, please contact:
Environmental Protection Agency (EPA).
Notice.
The Environmental Protection Agency (EPA) Science Advisory Board (SAB) Staff Office announces two public teleconferences of the Environmental Economics Advisory Committee (EEAC) to review its draft report regarding the EPA's proposed methodology for updating its mortality risk valuation estimates for policy analysis.
The SAB Environmental Economics Advisory Committee will conduct public teleconferences on June 16 and June 17, 2016. Each of the teleconferences will begin at 1:00 p.m. and end at 5:00 p.m. (Eastern Time).
The teleconferences will be conducted by telephone only.
Any member of the public who wants further information concerning the public teleconferences may contact Dr. Thomas Armitage, Designated Federal Officer (DFO), EPA Science Advisory Board Staff Office (1400R), U.S. Environmental Protection Agency, 1200 Pennsylvania Avenue NW., Washington, DC 20460; by telephone at (202) 564-2155 or via email
The EPA's Office of Policy requested advice on proposed improvements to the Agency's methodology for estimating benefits associated with reduced risk of mortality. This methodology takes into account the amounts that individuals are willing to pay for reductions in mortality risk. The resulting values are combined into an estimate known as the value of statistical life (VSL) which is used in regulatory benefit-cost analysis. The EPA also requested that the SAB review options for accounting for changes in the VSL over time as real income grows, known as income elasticity of willingness to pay. The EPA submitted the following documents to the SAB for review: (1)
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 Office of Management and Budget (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 comments should be submitted on or before June 16, 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 contacts below as soon as possible.
Direct all PRA comments to Nicholas A. Fraser, OMB, via email
For additional information or copies of the information collection, contact Nicole Ongele at (202) 418-2991. To view a copy of this information collection request (ICR) submitted to OMB: (1) Go to the Web page <
The Commission is requesting approval for an extension (no change in the reporting, recordkeeping and/or third-party disclosure requirements). Prepaid calling card service providers must report quarterly the percentage of interstate, intrastate and international access charges to carriers from which they purchase transport services. Prepaid calling card providers must also file certifications with the Commission quarterly that include the above information and a statement that they are contributing to the federal Universal Service Fund based on all interstate and international revenue, except for revenue from the sale of prepaid calling cards by, to, or pursuant to contract with the Department of Defense (DoD) or a DoD entity.
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 Office of Management and Budget (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 comments should be submitted on or before June 16, 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 contacts below as soon as possible.
Direct all PRA comments to Nicholas A. Fraser, OMB, via email
For additional information or copies of the information collection, contact Cathy Williams at (202) 418-2918. To view a copy of this information collection request (ICR) submitted to OMB: (1) Go to the Web page
Type of Review: Revision of a currently approved collection.
The data collected on FCC Form 601 includes the FCC Registration Number (FRN), which serves as a “common link” for all filings an entity has with the FCC. The Debt Collection Improvement Act of 1996 requires entities filing with the Commission use an FRN.
On July 20, 2015, the Commission released the part 1 R&O in which it updated many of its part 1 competitive bidding rules (See Updating Part 1 Competitive Bidding Rules; Expanding the Economic and Innovation Opportunities of Spectrum Through Incentive Auctions; Petition of DIRECTV Group, Inc. and EchoStar LLC for Expedited Rulemaking to Amend Section 1.2105(a)(2)(xi) and 1.2106(a) of the Commission's Rules and/or for Interim Conditional Waiver; Implementation of the Commercial Spectrum Enhancement Act and Modernization of the Commission's Competitive Bidding Rules and Procedures, Report and Order, Order on Reconsideration of the First Report and Order, Third Order on Reconsideration of the Second Report and Order, and Third Report and Order, FCC 15-80, 30 FCC Rcd 7493 (2015), modified by Erratum, 30 FCC Rcd 8518 (2015) (Part 1 R&O)). Of relevance to the information collection at issue here, the Commission: (1) Implemented a new general prohibition on the filing of auction applications by entities controlled by the same individual or set of individuals (but with a limited exception for qualifying rural wireless partnerships); (2) modified the eligibility requirements for small business benefits, and updated the standardized schedule of small business sizes, including the gross revenues thresholds used to determine eligibility; (3) established a new bidding credit for eligible rural service providers; (4) adopted targeted attribution rules to prevent the unjust enrichment of ineligible entities; and (5) adopted rules prohibiting joint bidding arrangements with limited exceptions. The updated Part 1 rules apply to applicants seeking licenses and permits.
Additionally, on June 2, 2014 the Commission released the Mobile Spectrum Holdings R&O, in which the Commission updated its spectrum screen and established rules for its upcoming auctions of low-band spectrum. Of relevance to the information collection at issue here, the Commission stated that it could reserve spectrum in order to ensure against excessive concentration in holdings of below-1-GHz spectrum (In the Matter of Policies Regarding Mobile Spectrum Holdings, Expanding the Economic and Innovation Opportunities of Spectrum Through Incentive Auctions, FCC 14-63, Report and Order, 29 FCC Rcd 6133, 90) 135 (2014) (Mobile Spectrum Holdings R&O). See also Application Procedures for Broadcast Incentive Auction Scheduled to Begin on March 29, 2016; Technical Formulas for Competitive Bidding, Public Notice, 30 FCC Rcd 11034, Appendix 3 (WTB 2015); Wireless Telecommunications Bureau Releases Updated List of Reserve-Eligible Nationwide Service Providers in each PEA for the Broadcast Incentive Auction, Public Notice, AU No. 14-252 (WTB 2016).
The Commission seeks approval for revisions to its previously approved collection of information under OMB Control Number 3060-0798 to permit the collection of the additional information for Commission licenses and permits, pursuant to the rules and information collection requirements adopted by the Commission in the Part 1 R&O and the Mobile Spectrum Holdings R&O. As part of the collection, the Commission is seeking approval for the information collection and recordkeeping requirements associated with 47 CFR 1.2210(j), 1.2112(b)(2)(iii), 1.2112(b)(2)(v), 1.2112(b)(2)(vii), and 1.2112(b)(2)(viii). Also, in certain circumstances, the Commission requires the applicant to provide copies of their agreements and/or submit exhibits.
In addition, the Commission seeks approval for various other, non-substantive editorial/consistency edits and updates to FCC Form 601 that correct inconsistent capitalization of words and other typographical errors, and better align the text on the form with the text in the Commission rules both generally and in connection with recent non-substantive, organizational amendments to the Commission's rules. The Commission therefore seeks approval for a revision to its currently approved information collection on FCC Form 601 to revise FCC Form 601 accordingly.
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 the Commission) invites the general public and other Federal agencies to take this opportunity to comment on the following information collection. 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 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 Office of Management and Budget (OMB) control number.
Written PRA comments should be submitted on or before July 18, 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 Nicole Ongele, FCC, via email
For additional information about the information collection, contact Nicole Ongele at (202) 418-2991.
Frequency of Response: One-time reporting requirement and recordkeeping requirement.
In the
• Whether they received the alert message during the designated test;
• whether they retransmitted the alert;
• if they were not able to receive and/or transmit the alert, their `best effort' diagnostic analysis regarding the cause(s) for such failure;
• a description of their station identification and level of designation (PEP, LP-1, etc.);
• the date/time of receipt of the EAN message by all stations; the date/time of PEP station acknowledgement of receipt of the EAN message to FOC;
• the date/time of initiation of actual broadcast of the Presidential message;
• the date/time of receipt of the EAT message by all stations;
• who they were monitoring at the time of the test, and the make and
• model number of the EAS equipment that they utilized.
The
The FCC is submitting this information collection to the Office of Management and Budget (OMB) as a revision of the previously approved information collection that established the mandatory Electronic Test Reporting System (ETRS) that EAS Participants must utilize to file identifying and test result data as part of their participation in nationwide EAS testing. Specifically, the
• A description of any actions taken by the EAS Participant (acting individually, in conjunction with other EAS Participants in the geographic area, and/or in consultation with state and local emergency authorities), to make EAS alert content available in languages other than English to its non-English speaking audience(s);
• A description of any future actions planned by the EAS Participant, in consultation with state and local emergency authorities, to provide EAS alert content in languages other than English to its non-English speaking audience(s), along with an explanation for the EAS Participant's decision to plan or not plan such actions; and
• Any other relevant information that the EAS Participant may wish to provide.
In addition, in the event that there is a material change to any of the information that EAS Participants are required to furnish their respective SECCs, EAS Participants must, within 60 days of the occurrence of such material change, submit aa letter to their respective SECCs, copying the Commission's Public Safety and Homeland Security Bureau (Bureau) that describe such change. The SECCs are required to incorporate the information in such letters as amendments to the State EAS Plans on file with the Bureau.
This information will be used by FCC staff to gauge the effectiveness of the EAS's capacity to disseminate in-language EAS emergency alert content to persons who communicate in a language other than English or may have a limited understanding of the English language; to determine whether private and local efforts to disseminate EAS multilingual content might be incorporated into the overall national EAS structure; and to confirm that private and local EAS multilingual operations are consistent with national plans, FCC regulations, and EAS operation.
The Commission expects that the costs to EAS Participants to comply with these reporting requirements will be minimal, and largely limited to internal administrative charges associated with drafting a brief statement, and submitting that statement, and any other relevant information that the EAS Participant may wish to provide to their SECC for inclusion into the State EAS Plan for the state in which the EAS Participant operates. The Commission further expects that the vast majority of EAS Participants are not engaged in multilingual EAS activities and therefore will need to submit nothing more than a very brief statement to their SECC explaining their decision to plan or not plan future actions to provide EAS alert content in languages other than English to their non-English speaking audience(s). For the presumably small percentage of EAS Participants that actually are engaged in multilingual EAS activities, the filing will merely require that they supply a summary of actions they already have taken in this regard. Accordingly, the FCC estimates that complying with the reporting requirement will take EAS Participants, on average, approximately one hour. The FCC estimates that compiling the EAS Participant summaries of multilingual EAS activities and incorporating such information into the State EAS Plan will take SECCs, on average, approximately 20 hours.
The following information collection contained in part 11 may be impacted by these rule amendments: Section 11.21 requires that state and local EAS plans be reviewed and approved by the Chief, Public Safety and Homeland Security, prior to implementation to ensure that they are consistent with national plans, FCC regulations, and EAS operation.
Food and Drug Administration, HHS.
Notice of availability.
The Food and Drug Administration (FDA or Agency) is announcing the availability of a draft guidance for industry entitled “Use of Electronic Health Record Data in Clinical Investigations.” The draft guidance is intended to assist sponsors, clinical investigators, contract research organizations, institutional review boards (IRBs), and other interested parties on the use of electronic health record (EHR) data in FDA-regulated clinical investigations.
Although you can comment on any guidance at any time (see 21 CFR 10.115(g)(5)), to ensure that the Agency considers your comment on this draft guidance before it begins work on the final version of the guidance, submit either electronic or written comments on the draft guidance by July 18, 2016.
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.”
•
Submit written requests for single copies of the draft guidance to the Division of Drug Information, Center for Drug Evaluation and Research, Food and Drug Administration, 10001 New Hampshire Ave., Hillandale Building, 4th Floor, Silver Spring, MD 20993-0002; the Office of Communication, Outreach, and Development, Center for Biologics Evaluation and Research, Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 71, Rm. 3128, Silver Spring, MD 20993-0002; or 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
Cheryl Grandinetti, Center for Drug Evaluation and Research, Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 51, Rm. 3348, Silver Spring, MD 20993-0002, 301-796-2500; Stephen Ripley, Center for Biologics Evaluation and Research, Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 71, Rm. 7301, Silver Spring, MD 20993-0002, 240-402-7911; or Irfan Khan, Center for Devices and Radiological Health, Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 66, Rm. 3563, Silver Spring, MD 20993-0002, 301-796-7100.
FDA is announcing the availability of a draft guidance for industry entitled “Use of Electronic Health Record Data in Clinical Investigations.” The draft guidance is intended to assist sponsors, clinical investigators, contract research organizations, IRBs, and other interested parties on the use of EHR data in FDA-
This draft guidance is being issued consistent with FDA's good guidance practices regulation (21 CFR 10.115). The draft guidance, when finalized, will represent the current thinking of FDA on the use of EHR data in clinical investigations. It does not establish any rights for any person and is not binding on FDA or the public. You can use an alternative approach if it satisfies the requirements of the applicable statutes and regulations.
This draft guidance refers to collections of information that are subject to review by the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520). The draft guidance pertains to sponsors, clinical investigators, contract research organizations, IRBs, and other interested parties who use EHR systems as electronic source data in FDA-regulated clinical investigations and who send certain information to FDA or others or who keep certain records and make them available to FDA inspectors. The collections of information discussed in the draft guidance are contained in our investigational new drug regulations in part 312 (21 CFR part 312), approved under OMB control number 0910-0014, including §§ 312.58(a) and 312.62(b); investigational device exemption regulations in § 812.140 (21 CFR 812.140) approved under OMB control number 0910-0078; and electronic records; electronic signatures regulations in 21 CFR part 11, approved under OMB control number 0910-0303. The use of EHR systems as a source of data, as described in the draft guidance, would not result in any new costs, including capital costs or operating and maintenance costs, because sponsors and others already have and are experienced with using computer-based equipment and software necessary to be consistent with the draft guidance.
Persons with access to the Internet may obtain the draft guidance at
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.
The AIDS Research Loan Repayment Program (AIDS-LRP) is authorized by Section 487A of the Public Health Service Act (42 U.S.C. 288-1); the Clinical Research Loan Repayment Program for Individuals from Disadvantaged Backgrounds (CR-LRP) is authorized by Section 487E (42 U.S.C. 288-5); the General Research Loan Repayment Program (GR-LRP) is authorized by Section 487C of the Public Health Service Act (42 U.S.C. 288-3); the Clinical Research Loan Repayment Program (LRP-CR) is authorized by Section 487F (42 U.S.C. 288-5a); the Pediatric Research Loan Repayment Program (PR-LRP) is authorized by Section 487F (42 U.S.C. 288-6); the Extramural Clinical Research LRP for Individuals from Disadvantaged Backgrounds (ECR-LRP) is authorized by an amendment to Section 487E (42 U.S.C. 288-5); the Contraception and Infertility Research LRP (CIR-LRP) is authorized by Section 487B (42 U.S.C. 288-2); and the Health Disparities Research Loan Repayment Program (HD-LRP) is authorized by Section 485G (42 U.S.C. 287c-33).
The Loan Repayment Programs can repay up to $35,000 per year toward a participant's extant eligible educational loans, directly to financial institutions. The information proposed for collection will be used by the Division of Loan Repayment to determine an applicant's eligibility for participation in the program.
OMB approval is requested for 3 years. There are no costs to respondents other than their time. The total estimated annualized burden hours are 33,242.
National Institutes of Health, HHS.
Notice.
The invention listed below is owned by an agency of the U.S. Government and is available for licensing and/or co-development in the U.S. in accordance with 35 U.S.C. 209 and 37 CFR part 404 to achieve expeditious commercialization of results of federally-funded research and development. Foreign patent applications are filed on selected inventions to extend market coverage for companies and may also be available for licensing and/or co-development.
Invention Development and Marketing Unit, Technology Transfer Center, National Cancer Institute, 9609 Medical Center Drive, Mail Stop 9702, Rockville, MD 20850-9702.
Information on licensing and co-development research collaborations, and copies of the U.S. patent applications listed below may be obtained by contacting: Attn. Invention Development and Marketing Unit, Technology Transfer Center, National Cancer Institute, 9609 Medical Center Drive, Mail Stop 9702, Rockville, MD 20850-9702, Tel. 240-276-5515 or email
Technology description follows.
• Large scale manufacturing of chimeric monoclonal antibodies
• Cost effective means of removing impurities to produce GMP grade chimeric antibodies for regulatory approval.
HHS Ref. No. E-291-2014/0-US-01, corresponding to US Provisional Patent App. No. 62/028,994, filed July 25, 2014, entitled “Method for Purifying Antibodies using PBS”
HHS Ref. No. E-291-2014/0-US-02, corresponding to US Patent App. No. 14/809,211, filed July 25, 2015, entitled “Method for Purifying Antibodies using PBS”
HHS Ref. No. E-291-2014/0-PCT-03, corresponding to International Patent App. No. PCT/US2015/042241, filed July 27, 2015, entitled “Method for Purifying Antibodies”
1. FDA published document:
2. US Food and Drug Administration. FDA approves first therapy for high-risk neuroblastoma.
3. WO2016015048 METHOD FOR PURIFYING ANTIBODIES
National Institutes of Health, HHS.
Notice.
The invention listed below is owned by an agency of the U.S. Government and is available for licensing and/or co-development in the U.S. in accordance with 35 U.S.C. 209 and 37 CFR part 404 to achieve expeditious commercialization of results of federally-funded research and development. Foreign patent applications are filed on selected inventions to extend market coverage for companies and may also be available for licensing and/or co-development.
Invention Development and Marketing Unit, Technology Transfer Center, National Cancer Institute, 9609 Medical Center Drive, Mail Stop 9702, Rockville, MD 20850-9702.
Information on licensing and co-development research collaborations, and copies of the U.S. patent applications listed below may be
Technology description follows.
• Law enforcement (policing, riot control, crowd control)
• Incapacitating agent for use in hostage situations
• Personal self-defense
• Incapacitating pepper spray with reduced toxicity and enhanced safety.
• May reduce potential agency liability in case of an adverse response of an individual who was sprayed (due to reduced toxicity may not be as life threatening to those suffering from asthma or have hypersensitive airways as standard pepper sprays).
• Mixture can be incorporated into a spray, aerosol, or other dispersions.
HHS Reference No. E-048-2010/0.
U.S. Provisional Application 61/340,063 (HHS Reference No. E-048-2010/0-US-01) filed March 12, 2010 entitled, “Improved Pepper Spray for Repellency and Incapacitation of People and Animals”.
PCT Application PCT/US2011/028132 (HHS Reference No. E-048-2010/0-PCT-02) filed March 11, 2011 entitled, “Agonist/Antagonist Compositions and Methods of Use”.
Canada: Application 2,792, 878 (HHS Reference No. E-048-2010/0-CA-03) filed March 11, 2011 entitled, “Agonist/Antagonist Compositions and Methods of Use” (Pending).
U.S. Patent Application 13/634,447 (HHS Reference No. E-048-2010/0-US-04) filed September 12, 2012 entitled, “Agonist/Antagonist Compositions and Methods of Use”.
U.S. Patent Application 15/010,830 (HHS Reference No. E-048-2010/0-US-05) filed January 29, 2016 entitled, “Agonist/Antagonist Compositions and Methods of Use” (Pending).
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.
In compliance with Section 3506(c)(2)(A) of the Paperwork Reduction Act of 1995 concerning opportunity for public comment on proposed collections of information, the Substance Abuse and Mental Health Services Administration (SAMHSA) will publish periodic summaries of proposed projects. To request more information on the proposed projects or to obtain a copy of the information collection plans, call the SAMHSA Reports Clearance Officer on (240) 276-1243.
Comments are invited on: (a) Whether the proposed collections of information are necessary for the proper performance of the functions of the agency, including whether the information shall have practical utility; (b) the accuracy of the agency's estimate of the burden of the proposed collection of information; (c) ways to enhance the quality, utility, and clarity of the information to be collected; and (d) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology.
The Substance Abuse and Mental Health Services Administration's (SAMHSA) Center for Mental Health Services (CMHS) is requesting approval from the Office of Management and Budget (OMB) for new data collection activities associated with its Mental Health First Aid (MHFA) program.
This information is needed to evaluate implementation of MHFA and Youth Mental Health First Aid in three distinct grant programs: Project Advancing Wellness and Resilience in Education (AWARE) State Education Agency (SEA) Cooperative Agreements, which provide funding to support MHFA and YMHFA training to state education agencies; Project AWARE Local Education Agency (LEA) Grants, which provide funding to school districts; and Project AWARE Community (C), a new funding opportunity in fiscal year 2015 that is intended to support MHFA and YMHFA training through a wide range of community organizations.
The MHFA/YMHFA evaluation will address both overarching and program-specific questions related to the implementation and effectiveness of widespread dissemination of mental health literacy programs through these three distinct funding mechanisms and increase SAMHSA's understanding of training, referral benefits, and issues in varied milieu (
This data collection is covered under the requirements of Public Law 103-62, the Government Performance and Results Act (GPRA) of 1993,Title 38, section 527, Evaluation and Data Collection, as well as 38 CFR 1.15, Standards for Program Evaluation.
SAMHSA is requesting clearance for four data collection instruments:
(1) MHFA/YMHFA Pre-Training Survey.
(2) MHFA/YMHFA Post-Training Survey.
(3) MHFA/YMHFA 3-Month and 6-Month Follow-Up Survey.
(4) Qualitative protocol for interviews with site coordinators.
The table below reflects the annualized hourly burden.
Send comments to Summer King, SAMHSA Reports Clearance Officer, 5600 Fishers Lane, Room 15E57-B, Rockville, Maryland, 20857
Office of the Assistant Secretary for Housing—Federal Housing Commissioner, HUD.
Notice of sales of mortgage loans.
This notice announces HUD's intention to competitively sell certain unsubsidized single family mortgage loans, in a sealed bid sale offering called ADPLS, without Federal Housing Administration (FHA) mortgage insurance. This notice also generally describes the bidding process for the sale and certain persons who are ineligible to bid. This is the first ADPLS offering, and the sale will be held on May 18, 2016.
For this sale action, the Bidder's Information Package (BIP) was made available to qualified bidders on April 11, 2016. Bids for the ADPLS sale will be accepted on the Bid Date of May 18, 2016 (Bid Date). HUD anticipates that award(s) will be made on or after May 18, 2016 (the Award Date).
To become a qualified bidder and receive the BIP, prospective bidders must complete, execute, and submit a Confidentiality Agreement and a Qualification Statement acceptable to HUD. Both documents are available via the HUD Web site at:
John Lucey, Director, Asset Sales Office, Room 3136, Department of Housing and Urban Development, 451 Seventh Street SW., Washington, DC 20410-8000; telephone 202-708-2625, extension 3927. Hearing- or speech-impaired individuals may call 202-708-4594 (TTY). These are not toll-free numbers.
HUD announces its intention to sell in ADPLS certain unsubsidized non-performing mortgage loans (Mortgage Loans) secured by single family properties located throughout the United States. A listing of the Mortgage Loans is included in the due diligence materials made available to qualified bidders. The Mortgage Loans will be sold without FHA insurance and with servicing released. HUD will offer qualified bidders an opportunity to bid competitively on the Mortgage Loans.
The BIP describes in detail the procedure for bidding in ADPLS. The BIP also includes a standardized non-negotiable Conveyance, Assignment and Assumption Agreement (CAA Agreement). Qualified bidders will be required to submit a deposit with their bid. Deposits are calculated based upon each qualified bidder's aggregate bid price.
HUD will evaluate the bids submitted and determine the successful bid, in terms of the best value to HUD, in its sole and absolute discretion. If a qualified bidder is successful, the qualified bidder's deposit will be non-refundable and will be applied toward the purchase price. Deposits will be returned to unsuccessful bidders. For ADPLS, settlements are expected to take place on or about June 27, 2016, and July 29th, 2016.
This notice provides some of the basic terms of sale. The CAA Agreement, which is included in the BIP, provides comprehensive contractual terms and conditions. To ensure a competitive bidding process, the terms of the bidding process and the CAA Agreement are not subject to negotiation.
The BIP describes how qualified bidders may access the due diligence materials remotely via a high-speed Internet connection.
HUD reserves the right to remove Mortgage Loans from ADPLS at any time prior to the Award Date. HUD also reserves the right to reject any and all bids, in whole or in part, and include any Mortgage Loans in a later sale. Deliveries of Mortgage Loans will occur in at least two settlements and the number of Mortgage Loans delivered will vary depending upon the number of Mortgage Loans the Participating Servicers have submitted for the payment of an FHA insurance claim. The Participating Servicers will not be able to submit claims on loans that are not included in the Mortgage Loan Portfolio set forth in the BIP.
There can be no assurance that any Participating Servicer will deliver a minimum number of Mortgage Loans to HUD or that a minimum number of Mortgage Loans will be delivered to the Purchaser.
The ADPLS Mortgage Loans are assigned to HUD pursuant to section 204(a)(1)(A) of the National Housing Act as amended under Title VI of the Departments of Veterans Affairs and Housing and Urban Development and Independent Agencies Appropriations Act, 1999. The sale of the Mortgage Loans is pursuant to section 204(g) of the National Housing Act.
HUD selected an open competitive whole-loan sale as the method to sell the Mortgage Loans for this specific sale transaction. For ADPLS, HUD has determined that this method of sale optimizes HUD's return on the sale of these Mortgage Loans, affords the greatest opportunity for all qualified bidders to bid on the Mortgage Loans, and provides the quickest and most efficient vehicle for HUD to dispose of the Mortgage Loans.
In order to bid in ADPLS as a qualified bidder, a prospective bidder must complete, execute and submit both a Confidentiality Agreement and a Qualification Statement acceptable to HUD. In the Qualification Statement, the prospective bidder must provide certain representations and warranties regarding (i) a prospective bidder, (ii) a prospective bidder's board of directors, (iii) a prospective bidder's direct parent, (iii) a prospective bidder's subsidiaries, and (iv) any related entity with which the prospective bidder shares a common officer, director, subcontractor or sub-contractor who has access to Confidential Information as defined in the Confidentiality Agreement or is involved in the formation of a bid transaction (“Related Entities”), and (v) a prospective bidder's repurchase lenders. The prospective bidder is ineligible to bid on any of the Mortgage Loans included in ADPLS if the prospective bidder, its Related Entities or its repurchase lenders, is any of the following, unless other exceptions apply as provided for the in Qualification Statement.
1. An individual or entity that is currently debarred, suspended, or excluded from doing business with HUD pursuant to the Governmentwide Suspension and Debarment regulations at Title 2 of the Code of Federal Regulations, Parts 180 and 2424;
2. An individual or entity that is currently suspended, debarred or otherwise restricted by any department or agency of the federal government or of a state government from doing business with such department or agency;
3. An individual or entity that is currently debarred, suspended, or excluded from doing mortgage related business, including having a business license suspended, surrendered or revoked, by any federal, state or local government agency, division or department;
4. An entity that has had its right to act as a Government National Mortgage Association (“Ginnie Mae”) issuer terminated and its interest in mortgages backing Ginnie Mae mortgage-backed securities extinguished by Ginnie Mae;
5. An individual or entity that is in violation of its neighborhood stabilizing outcome obligations or post-sale reporting requirements under a Conveyance, Assignment and Assumption Agreement executed for a past sale;
6. An employee of HUD's Office of Housing, a member of such employee's household, or an entity owned or controlled by any such employee or member of such an employee's household with household to be inclusive of the employee's father, mother, stepfather, stepmother, brother, sister, stepbrother, stepsister, son, daughter, stepson, stepdaughter, grandparent, grandson, granddaughter, father-in-law, mother-in-law, brother-in-law, sister-in-law, son-in-law, daughter-in-law, first cousin, the spouse of any of the foregoing, and the employee's spouse;
7. A contractor, subcontractor and/or consultant or advisor (including any
8. An individual or entity that knowingly acquired or will acquire prior to the sale date material non-public information, other than that information which is made available to Bidder by HUD pursuant to the terms of this Qualification Statement, about Mortgage Loans offered in the sale;
9. An individual or entity that knowingly uses the services, directly or indirectly, of any person or entity ineligible under 1 through 11 to assist in preparing any of its bids on the Mortgage Loans;
10. An individual or entity which knowingly employs or uses the services of an employee of HUD's Office of Housing (other than in such employee's official capacity); or
11. A Participating Servicer that contributed Mortgage Loans to a pool on which the Bidder is placing a bid.
The Qualification Statement has additional representations and warranties which the prospective bidder must make, including but not limited to the representation and warranty that the prospective bidder or its Related Entities are not and will not knowingly use the services, directly or indirectly, of any person or entity that is, any of the following (and to the extent that any such individual or entity would prevent Bidder from making the following representations, such individual or entity has been removed from participation in all activities related to this sale and has no ability to influence or control individuals involved in formation of a bid for this sale):
(1) An entity or individual is ineligible to bid on any included Mortgage Loan or on the pool containing such Mortgage Loan because it is an entity or individual that:
(a) Serviced or held any Mortgage Loan at any time during the two-year period prior to the bid, or
(b) Is any principal of any entity or individual described in the preceding sentence;
(c) Any employee or subcontractor of such entity or individual during that two-year period; or
(d) Any entity or individual that employs or uses the services of any other entity or individual described in this paragraph in preparing its bid on such Mortgage Loan.
HUD reserves the right, in its sole and absolute discretion, to disclose information regarding ADPLS, including, but not limited to, the identity of any successful qualified bidder and its bid price or bid percentage for any pool of loans or individual loan, upon the closing of the sale of all the Mortgage Loans. Even if HUD elects not to publicly disclose any information relating to ADPLS, HUD will disclose any information that HUD is obligated to disclose pursuant to the Freedom of Information Act and all regulations promulgated thereunder.
This notice applies to ADPLS and does not establish HUD's policy for the sale of other mortgage loans.
Bureau of Land Management, Interior.
Notice of public meetings.
In accordance with the Federal Land Policy and Management Act (FLPMA) and the Federal Advisory Committee Act of 1972 (FACA), the U.S. Department of the Interior, Bureau of Land Management (BLM) Sierra Front-Northwestern Great Basin Resource Advisory Council (RAC), will hold two meetings in Nevada, in 2016. The meetings are open to the public.
June 2 and 3 at the BLM Winnemucca, Nevada District. A meeting will be held on Thursday, June 2, at the Winnemucca BLM District Office (5100 East Winnemucca Blvd.) in Winnemucca, Nevada. A field trip will be held on Friday, June 3 within the Winnemucca BLM District. The second meeting will be held August 11 and 12, at the BLM Carson City, Nevada District. A meeting will be held on Thursday, August 11, at the Carson City BLM District Office (5665 Morgan Mill Road) in Carson City, Nevada. A field trip will be held on Friday, August 12 within the Carson City BLM District. Approximate meeting times are 8 a.m. to 4 p.m. However, meetings could end earlier if discussions and presentations conclude before 4 p.m. The meetings will include a public comment period at approximately 8:30 a.m. and approximately 4:00 p.m.
Lisa Ross, Public Affairs Specialist, Carson City District Office, 5665 Morgan Mill Road, Carson City, NV 89701, telephone: (775) 885-6107, email:
The 15-member Council advises the Secretary of the Interior, through the BLM, on a variety of planning and management issues associated with public land management in Nevada. Topics for discussion at the meeting will include, but are not limited to:
• June 2 & 3—landscape vegetative management, rangeland health assessments, Fire Invasive Assessment Tool (FIAT), sage grouse, drought, and fire restoration. Managers' reports of district office activities will be distributed at each meeting.
• August 11 & 12—Sage Grouse, Wild Horse & Burro, Land Health projects, Managers' report of district office activities will be distributed at each meeting.
The Council may raise other topics at the meetings.
Final agendas will be posted on-line at the BLM Sierra Front-Northwestern Great Basin RAC Web site at
Individuals who need special assistance such as sign language interpretation or other reasonable accommodations, or who wish to receive a copy of each agenda, may contact Lisa Ross no later than 10 days prior to each meeting.
Bureau of Ocean Energy Management (BOEM), Interior.
List of restricted joint bidders.
Pursuant to the joint bidding provisions of 30 CFR 556.511, the Director of the Bureau of Ocean Energy Management is publishing a List of Restricted Joint Bidders. Each entity within one of the following groups is restricted from bidding with any entity in any of the other following groups at Outer Continental Shelf oil and gas lease sales to be held during the bidding period May 1, 2016, through October 31, 2016. This List of Restricted Joint Bidders will cover the period May 1, 2016, through October 31, 2016, and replace the prior list published on November 2, 2015, which covered the period of November 1, 2015, through April 30, 2016.
U.S. International Trade Commission.
Notice.
Notice is hereby given that the U.S. International Trade Commission has determined to review in part the final initial determination (“ID”) issued by the presiding administrative law judge (“ALJ”) on February 29, 2016, finding a violation of section 337 of the Tariff Act of 1930, as amended (19 U.S.C. 1337), as to the asserted patent claims in this investigation. The Commission has also determined to deny motions for intervention and to reopen the record. Pursuant to Commission Rule 210.45 (19 CFR 210.45), Respondents' request for a Commission hearing has been granted. A notice providing the scope and details of the hearing will be forthcoming.
Panyin A. Hughes, Office of the General Counsel, U.S. International Trade Commission, 500 E Street SW., Washington, DC 20436, telephone 202-205-3042. Copies of non-confidential documents filed in connection with this investigation are or will be available for inspection during official business hours (8:45 a.m. to 5:15 p.m.) in the Office of the Secretary, U.S. International Trade Commission, 500 E Street SW., Washington, DC 20436, telephone 202-205-2000. General information concerning the Commission may also be obtained by accessing its Internet server (
The Commission instituted this investigation on March 30, 2015, based on a complaint filed by BASF Corporation of Florham Park, New Jersey and UChicago Argonne LLC of Lemont, Illinois (collectively, “Complainants”). 80 FR 16696 (Mar. 30, 2015). The complaint alleges violations of section 337 of the Tariff Act of 1930, as amended (19 U.S.C. 1337), in the importation into the United States, the sale for importation, and the sale within the United States after importation of certain lithium metal oxide cathode materials, lithium-ion batteries for power tool products containing same, and power tool products with lithium-ion batteries containing same by reason of infringement of one or more of claims 1-4, 7, 13, and 14 of U.S. Patent No. 6,677,082 (“the '082 patent”) and claims 1-4, 8, 9, and 17 of U.S. Patent No. 6,680,143 (“the '143 patent”).
On November 5, 2015, the ALJ granted a joint motion by Complainants and Makita to terminate the investigation as to Makita based upon settlement.
On December 1, 2015, the ALJ granted an unopposed motion by Complainants to terminate the investigation as to claim 8 of the '082 patent.
On February 29, 2016, the ALJ issued his final ID, finding a violation of section 337 by Umicore in connection with claims 1-4, 7, 13, and 14 of the '082 patent and claims 1-4, 8, 9, and 17 of the '143 patent. Specifically, the ID found that the Commission has subject matter jurisdiction,
On March 14, 2016, Umicore filed a petition for review of the ID. Also on March 14, 2016, the Commission investigative attorney (“IA”) petitioned for review of the ID's finding that a laches defense fails as a matter of law in section 337 investigations. Further on March 14, 2016, Complainants filed a contingent petition for review of the ID. That same day, Umicore filed a motion under Commission Rules 210.15(a)(2) and 210.38(a) (19 CFR 210.15(a)(2) and 210.38(a)), for the Commission to reopen the record in this investigation to admit a paper published on October 29, 2015, and a press release issued that day (collectively, “documents”). On March 22, 2016, the parties filed responses to the petitions for review. On March 24, 2016, Complainants and the IA filed oppositions to Umicore's motion to reopen the record. On April 5, 2016, Umicore moved for leave to file a reply. The Commission has determined to grant Umicore's motion for leave to file a reply.
On April 8, 2016, 3M Corporation (“3M”) filed a motion to intervene under Commission Rule 210.19. 3M requests that the Commission grant it “with full participation rights in this Investigation in order to protect its significant interests in the accused materials.”
Having examined the record of this investigation, including the final ID, the petitions for review, and the responses thereto, the Commission has determined to review the final ID in part. Specifically, the Commission has determined to review (1) the ID's contributory and induced infringement findings; (2) the ID's domestic industry findings under 19 U.S.C. 1337(a)(3)(C); and (3) the ID's findings on laches.
The Commission has determined to deny Umicore's motion to reopen the record to admit the documents. The Commission notes that the documents that Umicore seeks to introduce into evidence were available as of October 29, 2015, the last day of the hearing before the ALJ. Thus, Umicore could not have presented them prior to the hearing. Nothing, however, prevented Umicore from filing a timely motion under Commission Rule 210.42(g) requesting the ALJ to reopen the record and consider the documents prior to issuance of the final ID. The Commission notes that the final ID did not issue until February 29, 2016, four months after the documents were published. Yet, Umicore made no attempt to request the ALJ to consider the documents in the final ID. Thus, the Commission has determined to deny Umicore's motion to reopen the record at this late stage.
The Commission has determined to deny 3M's motion to intervene. The Commission notes that 3M filed a public interest statement on April 8, 2016, making substantially the same arguments it makes in its motion to intervene. The Commission will consider 3M's comments in considering remedy, bonding and the public interest this investigation if a violation of section 337 is found.
The parties are requested to brief their positions on the issues under review with reference to the applicable law and the evidentiary record. In connection with its review, the Commission is interested in responses to the following questions:
1. Please discuss whether laches should be an available defense in a section 337 investigation. In your response, please address how
2. Please discuss whether a good faith belief of non-infringement negates a contributory infringement finding, where the accused products have no substantial non-infringing uses. In your response, please address the impact of the following cases:
3. Please point to evidence (or lack of evidence) showing that Umicore had a good faith belief of non-infringement, including evidence showing that Umicore relied upon that belief.
4. Please discuss in detail the extent to which an exclusion order would affect research and development efforts with respect to lithium ion batteries by universities and private companies.
5. Please provide a detailed discussion of the record evidence as to whether Umicore's NMC material is uniquely suited for specific applications in energy saving technology, cutting-edge research and development, including identifying those specific areas and volumes involved and whether any other material can be used in such applications.
6. Please discuss whether each of the research companies and universities currently using Umicore NMC material (
7. Please discuss whether NMC materials produced by other suppliers have lower performance characteristics and consistency.
8. Please discuss how the Umicore NMC material relates to 3M's research and whether other suppliers provide comparable material that 3M can use in its research.
9. Please identify the suppliers of NMC to the U.S. market and the percentage of the market held by each.
Pursuant to Commission rule 210.45 (19 CFR 210.45), Umicore's request for a Commission hearing has been granted. A notice providing the scope and details of the hearing will be forthcoming.
In connection with the final disposition of this investigation, the Commission may (1) issue an order that could result in the exclusion of the subject articles from entry into the United States, and/or (2) issue one or more cease and desist orders that could result in the respondent being required to cease and desist from engaging in unfair acts in the importation and sale of such articles. Accordingly, the Commission is interested in receiving written submissions that address the form of remedy, if any, that should be ordered. If a party seeks exclusion of an article from entry into the United States for purposes other than entry for consumption, the party should so indicate and provide information establishing that activities involving other types of entry either are adversely affecting it or likely to do so. For background, see
If the Commission contemplates some form of remedy, it must consider the effects of that remedy upon the public interest. The factors the Commission will consider include the effect that an exclusion order and/or cease and desist orders would have on (1) the public health and welfare, (2) competitive conditions in the U.S. economy, (3) U.S. production of articles that are like or directly competitive with those that are subject to investigation, and (4) U.S. consumers. The Commission is therefore interested in receiving written submissions that address the aforementioned public interest factors in the context of this investigation.
If the Commission orders some form of remedy, the U.S. Trade Representative, as delegated by the President, has 60 days to approve or disapprove the Commission's action.
Persons filing written submissions must file the original document electronically on or before the deadlines stated above and submit eight true paper copies to the Office of the Secretary by noon the next day pursuant to section 210.4(f) of the Commission's Rules of Practice and Procedure (19 CFR 210.4(f)). Submissions should refer to the investigation number (“Inv. No. 337-TA-951”) in a prominent place on the cover page and/or the first page. (
Any person desiring to submit a document to the Commission in confidence must request confidential treatment. All such requests should be directed to the Secretary to the Commission and must include a full statement of the reasons why the Commission should grant such treatment.
The authority for the Commission's determination is contained in section 337 of the Tariff Act of 1930, as amended (19 U.S.C. 1337), and in part 210 of the Commission's Rules of Practice and Procedure (19 CFR part 210).
By order of the Commission.
Notice is hereby given pursuant to the Antitrust Procedures and Penalties Act, 15 U.S.C. 16(b)-(h), that a proposed Final Judgment, Stipulation, and Competitive Impact Statement have been filed with the United States District Court for the District of Columbia in
Copies of the Complaint, proposed Final Judgment, and Competitive Impact Statement are available for inspection on the Antitrust Division's Web site at
Public comment is invited within 60 days of the date of this notice. Such comments, including the name of the submitter, and responses thereto, will be posted on the Antitrust Division's Web site, filed with the Court, and, under certain circumstances, published in the
The United States of America, acting under the direction of the Attorney General of the United States, brings this civil antitrust action to enjoin the proposed combination of Charter Communications, Inc. (“Charter”), Time Warner Cable Inc. (“TWC”), and Advance/Newhouse Partnership's (“Advance/Newhouse”) subsidiary, Bright House Networks, LLC (“BHN”) (collectively referred to herein as “New Charter”), which would create the second-largest cable company and the third-largest multi-channel video distributor in the United States.
1. Online video programming distributors (“OVDs”) are beginning to revolutionize the way Americans receive and experience video content. With access to an adequate Internet connection, consumers can now choose among a number of OVDs to access collections of movies and television shows, including original content, at any time and on a device of their choosing. The early OVDs, such as Netflix, Hulu, and Amazon, focused on offering on-demand video to their customers and have developed video services that have already proven popular. Several newer OVDs, including DISH Network's Sling TV and Sony's Playstation Vue, have introduced services that offer live television channels in addition to on-demand content. And several television networks, including CBS, HBO, and Showtime, have launched OVD services to distribute their own programming over the Internet directly to subscribers. Continued growth of OVDs promises to deliver more competitive choices and a greater ability for consumers to customize their consumption of video content to their individual viewing preferences and budgets.
2. The emergence of OVDs threatens to upend the competitive landscape. For years, incumbent cable companies such as Comcast, TWC, and Charter have served the majority of American video households. Although these companies now face competition from the two direct broadcast satellite (“DBS”) providers, DirecTV and DISH Network, and, in some areas, from telephone companies (“telcos”) like AT&T and Verizon that also offer video services, all of these distributors—collectively referred to as multichannel video programming distributors (“MVPDs”)—offer fairly similar products and pricing. Most notably, all of these MVPDs sell content to consumers primarily through large and costly video bundles that include hundreds of channels of programming that many customers neither desire nor watch.
3. In order for an OVD to successfully compete with the traditional MVPDs, it needs both the ability to reach consumers over the Internet and the ability to obtain programming from content providers that consumers will want to watch. Importantly, incumbent cable companies often can exert significant influence over one or both of these essential ingredients to an OVD's success, because they provide broadband connectivity that OVDs need to reach consumers and are also a critical distribution channel for the same video programmers that supply OVDs with video content. To the extent a transaction, such as the one at issue here, enhances an MVPD's ability or incentive to restrain OVDs' access to either of these critical inputs, and thus to prevent OVDs from becoming a meaningful new competitive option, consumers lose.
4. MVPDs have responded to the emergence of OVDs in various ways. Many MVPDs have sought to keep their customers from migrating some or all of their viewing to OVDs by taking steps to make their services more attractive to consumers, for example, by allowing their subscribers to receive programming over the Internet through Web sites or apps and providing expanded video-on-demand offerings. But some MVPDs have sought to restrain nascent OVD competition directly by exercising their leverage over video programmers to restrict the programmers' ability to license content to OVDs. To this end, some MVPDs have sought so-called Alternative Distribution Means (“ADM”) clauses in their programming contracts that prohibit programmers from distributing content online, or have placed significant restrictions on online distribution. No MVPD has sought and obtained these restrictive ADMs as frequently, or as successfully, as TWC.
5. The combination of TWC with Charter and BHN will result in a larger MVPD with a greater ability and incentive to secure restrictions on programmers that limit or foreclose OVD access to important content. The Defendants, along with other MVPDs and OVDs, compete with one another as buyers of video content and serve as alternative distribution channels for national video programmers to build viewership scale. Since New Charter would have nearly 60 percent more subscribers than TWC standing alone, the merger will make New Charter a more vital distribution channel for these video programmers than each of the Defendants individually. Hence, as a result of the merger, New Charter will have greater bargaining leverage to insist that video programmers limit their distribution to OVDs.
6. In addition, with its much larger subscriber base, New Charter would gain significant additional benefits from impeding OVD competition. Today, Charter, TWC, and BHN each only act to protect its own MVPD profits. After the merger, however, New Charter would act to protect the much larger combined video revenues of all three Defendants. That is, while prior to the merger TWC has an incentive to obtain restrictive contract clauses to protect its $10.4 billion in video revenues, New Charter would have a much larger incentive to protect the Defendants' over $16 billion in aggregated video revenues.
7. With more to gain from imposing ADMs and other contractual restrictions and with greater bargaining leverage with programmers to insist on such provisions, New Charter will be well-positioned to restrain continued OVD growth by limiting or foreclosing OVD access to the video content that is vital to their competitiveness. Accordingly, the proposed combination of Charter, TWC, and BHN is likely to substantially lessen competition in the provision of video programming distribution in violation of Section 7 of the Clayton Act, 15 U.S.C. 18, and should be enjoined.
8. The United States brings this action under Section 15 of the Clayton Act, as amended, 15 U.S.C. 25, to prevent and restrain Charter, TWC, and BHN from violating Section 7 of the Clayton Act, 15 U.S.C. 18.
9. Defendants Charter, TWC, and BHN all provide video distribution services to programmers in the flow of interstate commerce, distributing video programming to millions of consumers in numerous states within the United States. Accordingly, Defendants' activities substantially affect interstate commerce. The Court has subject matter jurisdiction over this action and these Defendants pursuant to Section 15 of the Clayton Act, as amended, 15 U.S.C. 25, and 28 U.S.C. 1331, 1337(a), and 1345.
10. Defendants have consented to personal jurisdiction and venue in the District of Columbia for the purposes of this action.
11. Defendant Charter is a Delaware corporation with headquarters in
12. Defendant TWC is a New York corporation with headquarters in New York, New York. With over 10.8 million video subscribers across 30 states, TWC is the second-largest cable company in the United States (behind only Comcast), and the fourth-largest MVPD in the country. In 2014, TWC reported total revenues of approximately $22.8 billion. Around 45% of those revenues, or about $10.4 billion, were derived from TWC's video business.
13. Defendant Advance/Newhouse is a New York partnership with headquarters in East Syracuse, New York, and the sole owner of Defendant BHN, a Delaware limited liability company headquartered in East Syracuse, New York. BHN is the sixth-largest cable company in the United States and the ninth-largest MVPD. BHN owns cable systems serving around 2 million video customers across six states. In 2014, BHN generated total revenues of around $3.7 billion, approximately $1.5 billion of which were derived from its video business.
14. On May 23, 2015, Charter, TWC, and Advance/Newhouse entered into a series of agreements that would combine Charter, TWC, and BHN into a single company, New Charter. Pursuant to these agreements, (1) Charter and TWC would merge in a transaction valued at over $78 billion; and (2) Charter would acquire BHN from Advance/Newhouse in a transaction valued at $10.4 billion. The combined entity would have nearly 17.4 million video subscribers across 41 states, making it the second-largest cable company and third-largest MVPD, accounting for nearly 18% of all MVPD subscribers in the United States.
15. There are two distinct levels to the video programming distribution industry. At the “upstream” level, video programmers license their content to video programming distributors—both OVDs and traditional MVPDs including Charter, TWC, and BHN. At the “downstream” level, the video programming distributors then sell subscriptions to various packages of that content and deliver the content to residential customers.
16. Video programmers produce themselves, or acquire from other copyright holders, a collection of professional, full-length programs and movies. These video programmers then typically aggregate this content into branded networks (
17. In order to acquire the rights to distribute each network, video programming distributors pay the video programmer a license fee. Generally, MVPDs and OVDs pay the video programmer a monthly per-subscriber fee. These license fees are an important revenue stream for video programmers. Most of the remainder of their revenues comes from fees for advertisements placed on their networks.
18. Video programmers rely on video programming distributors to reach consumers. Unless a video programmer obtains carriage in the packages of video programming distributors that reach a sufficient number of consumers, the programmers will be unable to earn enough revenue in licensing or to attract enough advertising revenue to generate a return on their investments in content. For this reason, video programmers prefer to have as many video programming distributors as possible carry their networks, and particularly seek out the largest MVPDs that reach the most customers. If the programmer is unable to agree on acceptable terms with a particular distributor, the programmer's content will not be available to that distributor's customers. This potential consequence gives the largest MVPDs significant bargaining leverage in their negotiations with programmers.
19. The timely distribution of professional, full-length video programming to residential customers (“video programming distribution”) constitutes a relevant product market and line of commerce under Section 7 of the Clayton Act, 15 U.S.C. 18. Both
20. Video programming distribution is characterized by the aggregation and delivery of professionally produced content. This content includes scripted and unscripted television shows, live programming, sports, news, and movies licensed from a mixture of broadcast and cable networks, as well as from movie studios. Video programming can be viewed immediately by consumers, whether on demand or as scheduled.
21. Consumers purchase video programming distribution services from among those distributors that can offer such services directly to their home. The DBS operators, DirecTV and DISH, can reach almost any customer in the continental United States who has an unobstructed line of sight to their satellites. OVDs are available to any consumer with Internet service sufficient to deliver video of an acceptable quality. In contrast, wireline-based distributors such as cable companies and telcos generally must obtain a franchise from local, municipal, or state authorities in order to construct and operate a wireline network in a specific area, and then build lines to homes in that area. A consumer cannot purchase video programming distribution services from a wireline distributor operating outside its franchise area because the distributor does not have the facilities to reach the consumer's home. Thus, although the set of video programming distributors able to offer service to individual consumers' residences is generally the same within each local community, the set can differ from one local community to another.
22. Each local community whose residents face the same competitive choices in video programming distribution comprises a local geographic market and section of the country under Section 7 of the Clayton Act, 15 U.S.C. 18. A hypothetical monopolist of video programming distribution in any of these geographic areas could profitably raise prices by a small but significant, non-transitory amount.
23. The specific geographic markets relevant to this action are the numerous local markets throughout the United States shown in the map below where either Charter, TWC, or BHN is the incumbent cable operator.
24. The incumbent cable companies typically have the highest share of subscribers within their respective service areas, often above 50 percent. The DBS providers, DirecTV and DISH, account for approximately one-third of the video programming distribution subscribers nationwide, although their shares vary by local market. The telcos, AT&T and Verizon, account for over 10 percent of video programming distribution nationwide and have successfully achieved penetration of up to 40 percent in some areas, but their video services remain limited to certain local markets and are unavailable to most American homes. In a handful of areas, other providers called “overbuilders” have constructed an additional wireline network to residential consumers, offering another competitive option for video and broadband service. But these overbuilders, including companies like RCN and Google Fiber, are available in very few communities, serving less than two percent of U.S. television households nationwide.
25. Although OVDs have acquired a significant number of customers over the last several years, they account for only five percent of total video programming distribution revenues. Nevertheless, established distributors such as Charter, TWC, and BHN view OVDs as a growing competitive threat and have taken steps to respond to OVD entry.
26. Charter, TWC, and BHN compete with DBS, overbuilder, and telco providers by upgrading their existing services, offering promotions and other price discounts, and introducing new product offerings. Consumers benefit from this competition by receiving better quality services, lower prices, and more programming choices. Competition between the incumbent cable companies and these alternative video providers has also fostered innovation, including the development of digital transmission, HD, and 4K programming, and the introduction of DVRs, video-on-demand, and ways to view content on other devices or away from home.
27. The continued development and expansion of OVDs could unlock additional competitive benefits. Today, many consumers purchase OVD services as a supplement to a traditional MVPD subscription. But in light of expanding OVD options, some consumers are switching from larger, more expensive MVPD bundles to slimmer and cheaper bundles. A small number of consumers are even “cutting the cord”—cancelling their MVPD subscription altogether and relying solely on one or more OVDs to receive content. And many younger consumers are emerging as “cord nevers” that do not seek out an MVPD subscription in the first place. Large cable companies such as Charter and TWC, which rely on their video businesses to deliver significant profit margins, have observed these developments with growing concern. In numerous internal documents, Defendants show a keen awareness of the competitive threat that OVDs pose. In fact, a TWC board presentation from February 2014 illustrated the threat posed by such emerging online competitors as a meteor speeding toward earth:
28. Because of the threat OVDs pose to their video business, some MVPDs have an incentive to engage in tactics that would diminish OVDs' ability to compete. TWC, in particular, has recognized that it can use its contracts with video programmers to try and foreclose OVD competitors from access to valuable content. TWC has been the most aggressive MVPD in the industry in seeking and obtaining restrictive contract provisions in its agreements with programmers that limit the programmer's ability to license programming to OVDs. Specifically, TWC has used the leverage that comes from its status as an important distribution channel for many video programmers to secure ADM provisions that either prevent the programmer from distributing its content online, or place certain restrictions on such online distribution. For example, some of TWC's ADMs prohibit any online distribution for a certain period of time; others prevent the programmers from distributing their content through OVDs that do not meet specific criteria that can be difficult for OVDs to satisfy (
29. Although they offer service to residential customers in different local areas, each of the Defendants serves as an alternative distribution channel for nationwide video programmers to deliver their content to consumers and to build national viewership scale. Video programmers rely on traditional MVPDs to provide licensing fees and to build a large viewership base that is attractive to advertisers. Post-merger, New Charter will become one of the largest MVPDs in the country and will serve as a critical distributor for video programmers, offering access to over 17 million customers spread across 41 states. As a result, New Charter will have more leverage to demand that video programmers agree to forego or limit the licensing of programming to OVDs.
30. In addition, New Charter will have greater incentive to engage in conduct designed to make OVDs less competitive because the merged firm will be significantly larger than any of the Defendants individually. Because New Charter will have far more subscribers, it will also stand to lose more profits as OVDs continue to take business from traditional video distributors. Today,
31. Restrictions imposed on video programmers by New Charter will likely make it more difficult for OVDs to obtain important content from programmers in the future. In order to comply with New Charter's restrictions, video programmers may have to effectively cease providing certain programming to an OVD altogether, or may be obligated to impose burdensome conditions on an OVD (such as the requirement to include a minimum number of programming networks in the service). Such actions could negatively affect OVDs' business models and undermine their ability to provide robust video offerings that compete with the offerings of traditional MVPDs. By limiting OVDs' access to content that is important to their customers, the competitiveness of OVDs will likely be diminished and consumers will likely receive lower-quality services and fewer choices.
32. Entry or expansion of traditional video programming distributors will not be timely, likely, or sufficient to reverse the competitive harm that would likely result from the proposed merger of Charter, TWC, and BHN. Entry and expansion in the traditional video programming distribution business is difficult and time-consuming because it requires an enormous upfront investment to create distribution infrastructure such as building out wireline facilities or launching satellites. Entry or expansion into a new geographic area also typically requires approval from one or more regulatory bodies.
33. OVDs are less likely to enter or expand to develop into significant competitors if denied access to popular content as a result of the proposed transaction.
34. The United States hereby incorporates paragraphs 1 through 33.
35. Defendants' proposed combination of Charter, TWC, and BHN would likely substantially lessen competition in the numerous geographic markets for video programming distribution identified above in violation of Section 7 of the Clayton Act, 15 U.S.C. 18.
36. Unless enjoined, the proposed transactions between Charter, TWC, and Advance/Newhouse would likely have the following anticompetitive effects, among others:
a. competition in the development, provision, and sale of video programming distribution services in each of the relevant geographic markets will likely be substantially lessened;
b. prices for video programming distribution services will likely increase to levels above those that would prevail absent the proposed transactions; and
c. innovation and quality of video programming distribution services will likely decrease to levels below those that would prevail absent the proposed transactions.
37. Plaintiff United States requests that this Court:
a. adjudge and decree that the proposed transactions violate Section 7 of the Clayton Act, 15 U.S.C. 18;
b. preliminarily and permanently enjoin the Defendants from carrying out the proposed transactions, or from entering into or carrying out any other agreement, understanding, or plan that would have the effect of bringing the video distribution businesses of Charter, TWC, and BHN under common ownership or control;
c. award the United States its costs in this action; and
d. award the United States such other and further relief as may be just and proper.
The United States of America (“United States”), pursuant to Section 2(b) of the Antitrust Procedures and Penalties Act (“APPA” or “Tunney Act”), 15 U.S.C. 16(b)-(h), files this Competitive Impact Statement relating to the proposed Final Judgment submitted for entry in this civil antitrust proceeding.
On May 23, 2015, Charter Communications, Inc. (“Charter”) and Time Warner Cable, Inc. (“TWC”), two of the largest cable companies in the United States, agreed to merge in a deal valued at over $78 billion. In addition, Charter and Advance/Newhouse Partnership, which owns Bright House Networks, LLC (“BHN”), announced that Charter would acquire BHN for $10.4 billion, conditional on the sale of TWC to Charter. As a result of these transactions, the combined company, referred to as “New Charter,” will become one of the largest providers of pay television service in the United States.
The United States filed a civil antitrust Complaint on April 25, 2016, seeking to enjoin the proposed transactions because their likely effect would be to lessen competition substantially in numerous local markets for the timely distribution of professional, full-length video programming to residential customers (“video programming distribution”) throughout the United States in violation of Section 7 of the Clayton Act, 15 U.S.C. 18. Specifically, the Complaint alleges that the proposed merger would increase the ability and incentive of New Charter to use its leverage with video programmers to limit the access of online video distributors (“OVDs”) to important content. These OVDs are increasingly offering meaningful competition to cable companies like Charter, and the loss of competition caused by the proposed merger likely would result in lower-quality services, fewer choices, and higher prices for consumers, as well
At the same time the Complaint was filed, the United States also filed a Stipulation and proposed Final Judgment, which are designed to eliminate the anticompetitive effects of the proposed merger. Under the proposed Final Judgment, which is explained more fully below, the Defendants will be prohibited from using their bargaining leverage with video programmers to inhibit the flow of video content to OVDs. The proposed Final Judgment will provide a prompt, certain, and effective remedy for consumers by preventing New Charter from using its leverage over programmers to harm competition. The United States and the Defendants have stipulated that the proposed Final Judgment may be entered after compliance with the APPA. Entry of the proposed Final Judgment would terminate this action, except that the Court would retain jurisdiction to construe, modify, or enforce the provisions of the proposed Final Judgment, and to punish and remedy violations thereof.
The proposed merger was also subject to review and approval by the Federal Communications Commission (“FCC”).
Charter is the third-largest cable company in the United States, and the sixth-largest multichannel video programming distributor (“MVPD”) overall. Charter owns cable systems across 28 states, serving approximately 4.8 million residential broadband customers and 4.2 million residential video customers. Charter reported total revenues of around $9.1 billion in 2014, approximately $4.4 billion of which were derived from Charter's video business.
TWC is the second-largest cable company in the United States (behind only Comcast Corp.), and the fourth-largest MVPD in the country. TWC's cable systems serve approximately 11.7 million residential broadband and 10.8 million residential video customers in 30 states. TWC reported total revenues of approximately $22.8 billion in 2014, around $10.4 billion of which were derived from TWC's video business.
BHN is the sixth-largest incumbent cable company in the United States and the ninth-largest MVPD overall. It owns cable systems serving approximately 2 million video customers across six states, the majority of whom are located in the Orlando and Tampa-St. Petersburg, Florida areas. BHN is a wholly-owned subsidiary of Advance/Newhouse Partnership. Although the Advance/Newhouse Partnership retains the authority to manage BHN, it has entered into agreements by which TWC performs certain functions for BHN, including the procurement of cable programming. In 2014, BHN generated total revenues of around $3.7 billion, approximately $1.5 billion of which were derived from its video business.
The proposed transactions combining Charter, TWC, and BHN into New Charter, as initially agreed to by the Defendants on May 23, 2015, would lessen competition substantially in numerous local markets for video programming distribution. These transactions are the subject of the Complaint and proposed Final Judgment filed by the United States on April 25, 2016.
The video programming distribution industry operates at two distinct levels. At the “upstream” level, video programmers license their content to video programming distributors—both OVDs and traditional MVPDs including Charter, TWC, and BHN. At the “downstream” level, the video programming distributors then sell subscriptions to various packages of that content and deliver the content to residential customers.
Video programmers produce themselves, or acquire from other copyright holders, a collection of professional, full-length programs and movies. These video programmers then typically aggregate this content into branded networks (
In order to acquire the rights to distribute each network, video programming distributors pay the video programmer a license fee, generally on a per-subscriber basis. These license fees are an important revenue stream for video programmers. Most of the remainder of their revenues comes from fees for advertisements placed on their networks.
Video programmers rely on video programming distributors—both MVPDs and OVDs—to reach consumers. Unless a video programmer obtains carriage in the packages of video programming distributors that reach a sufficient number of consumers, the programmers will be unable to earn enough revenue in licensing or to attract enough advertising revenue to generate a return on their investments in content. For this reason, video programmers prefer to have as many video programming distributors as possible carry their networks, and particularly seek out the largest MVPDs that reach the most customers. If the programmer is unable to agree on acceptable terms with a particular distributor, the programmer's content will not be available to that distributor's customers. This potential consequence gives the largest MVPDs significant bargaining leverage in their negotiations with programmers.
Traditional video programming distributors include incumbent cable companies such as Charter and TWC; direct broadcast satellite (“DBS”) providers such as DirecTV and DISH Network; telephone companies (“telcos”) that offer video services such as Verizon and AT&T; and overbuilders such as Google Fiber and RCN.
OVDs are relatively recent entrants into the video programming distribution market. They deliver a variety of live and/or on-demand video programming over the Internet, whether streamed to Internet-connected televisions or other devices, or downloaded for later viewing. OVDs today include services like Netflix, Hulu, Amazon Prime Instant Video, and Sling TV, although, as discussed in more detail below, their content selection and business models vary greatly. Unlike MVPDs, OVDs do not own distribution facilities and are dependent upon broadband Internet access service providers, including incumbent cable companies such as Charter and TWC, for the delivery of their content to viewers.
The Complaint alleges that video programming distribution constitutes a relevant product market and line of commerce under Section 7 of the Clayton Act, 15 U.S.C. 18. The market for video programming distribution includes both traditional MVPDs and their newer OVD rivals.
Consumers purchase video programming distribution services from among those distributors that can offer such services directly to their home. The DBS operators, DirecTV and DISH, can reach almost any customer in the continental United States who has an unobstructed line of sight to their satellites. OVDs are available to any consumer with an Internet service sufficient to deliver video of an acceptable quality. In contrast, wireline-based distributors such as cable companies and telcos generally must obtain a franchise from local, municipal, or state authorities in order to construct and operate a wireline network in a specific area, and then build lines to homes in that area. A consumer cannot purchase video programming distribution services from a wireline distributor operating outside its franchise area because the distributor does not have the facilities to reach the consumer's home. Thus, although the set of video programming distributors able to offer service to individual consumers' residences is generally the same within each local community, the set can differ from one local community to another.
According to the Complaint, each local community whose residents face the same competitive choices in video programming distribution comprises a geographic market and section of the country under Section 7 of the Clayton Act, 15 U.S.C. 18. The geographic markets relevant to this action are the numerous local markets throughout the United States where either Charter, TWC, or BHN is the incumbent cable operator—an area encompassing 48 million U.S. television households located across 41 states. However, because OVDs typically offer services nationwide, the Complaint alleges that anticompetitive effects of the proposed merger likely extend to the entire United States.
The incumbent cable companies are often the largest video distribution provider in their respective local territories; the Defendants' market shares, for example, exceed 50 percent in many local markets in which they operate. The DBS providers, DirecTV and DISH Network, account for an average of about one third of video programming subscribers combined in any given local market. The telcos, including AT&T and Verizon, have market shares as high as 40 percent in the communities they have entered, but they are only available in limited areas and account for about 10 percent of video programming customers nationwide. Overbuilders such as Google Fiber can also have moderately high shares in particular local markets, but their services are only available in a small number of areas and they account for fewer than two percent of nationwide video programming distribution subscribers.
Although OVDs have acquired a significant number of customers over the last several years, most of these customers also purchase traditional MVPD subscriptions. As a result, OVDs currently have a small share of video programming distribution market revenues—likely around 5%.
OVDs have developed a number of different business models for delivering content to consumers. Several OVDs, including Netflix, Amazon Prime Instant Video, and Hulu Plus, offer “subscription video on demand” (“SVOD”) services where consumers typically obtain access to a wide library of movies, past-season television shows, and original content for a subscription fee.
In contrast to these SVOD providers, a few OVDs have recently begun
As OVDs have developed new business models and obtained a wider array of attractive video content, they have started to become closer substitutes for traditional MVPD services. Although many consumers treat OVD services as a complement to traditional MVPD service—for example, purchasing services from an SVOD like Netflix to access past season content and Netflix's original content but subscribing to an MVPD for live and current-season content—some are already using OVDs as substitutes for at least a portion of their video consumption. These consumers buy smaller content packages from traditional MVPDs, decline to take certain premium channels, or purchase fewer VOD offerings, and instead substitute content from OVDs, a practice known as “cord-shaving.” In addition, a small, but growing number of MVPD customers are “cutting the cable cord” completely, using one or more OVDs as a replacement for their MVPD service. Finally, some younger consumers are emerging as “cord nevers” who do not seek out an MVPD subscription in the first place.
Absent interference from the established MVPDs, OVDs are likely to continue to grow, and to become stronger competitors to MVPDs. Moreover, to the extent that OVDs continue to develop services that more closely resemble those offered by traditional MVPDs, such as the live programming offered by vMVPDs or the current season content offered by certain SVODs, traditional MVPDs will likely face greater substitution to OVD services. To this end, the Defendants' internal documents show that they have typically been comparatively less concerned about competition from certain SVOD providers, like Netflix, that do not offer live or current-season programming, and more concerned by the threat posed by vMVPDs like Sling TV and SVODs like HBO NOW that offer current season content.
The Defendants and many other MVPDs recognize the threat that the growth of OVDs pose to their video distribution businesses. Numerous internal documents reflect the Defendants' assessment that OVDs are growing quickly and pose a competitive threat to traditional forms of video programming distribution. MVPDs have responded to this growth in various ways. To keep their customers from migrating some or all of their viewing to OVDs, many MVPDs, including the Defendants, have introduced new and less expensive packages with smaller numbers of channels, increased the amount of content available on an on-demand basis, and made content available to subscribers on devices other than traditional cable set-top boxes. At the same time, however, some MVPDs have sought to restrain nascent OVD competition directly by exercising their leverage over video programmers to restrict video programmers' ability to license content to OVDs. As alleged in the Complaint, and explained in more detail below, TWC has been an industry leader in seeking such restrictions, and the formation of New Charter will create an entity with an increased ability and incentive to do so.
Although Defendants do not compete to provide video distribution services to consumers in the same local geographic markets, the Clayton Act is also concerned with mergers that threaten to reduce the number or quality of choices available to consumers by increasing the merging parties' incentive or ability to engage in conduct that would foreclose competition.
As alleged in the Complaint, New Charter will be significantly larger than each of the Defendants individually, and thus will have a greater incentive and ability to use its bargaining power with video programmers to protect its market power in the local markets for video programming distribution. Specifically, following the merger, New Charter will be the one of the largest MVPDs in the country, with over 17 million subscribers in 41 states, and will therefore be a critical distribution channel for video programmers. The Complaint alleges that this greater scale will give New Charter more leverage to demand that programmers agree to limit their distribution to OVDs, enabling the merged firm to increase barriers to entry for OVDs or otherwise make OVDs less competitive.
The Complaint also alleges that New Charter will have increased incentive to engage in such behavior because it will stand to lose substantially more profits than Charter, TWC, and BHN individually if OVDs take business from traditional MVPDs, and it will internalize more of the benefits of harming OVDs. The Defendants' specific means for foreclosing OVDs—ADM clauses and other restrictive contracting provisions—are discussed in more detail below.
Video programmers sign lengthy licensing agreements with distributors that establish the terms on which the distributors will carry the programmers' networks. Sometimes, these licensing agreements include restrictions on the other distributors to whom the programmer may license content, or on other ways the programmer may make the content available to consumers. One type of restriction is often referred to in the industry as an “alternative distribution means” (“ADM”) clause. ADM clauses take many forms, and in some cases can have significant consequences for programmers' ability to license to OVDs. For example, some ADMs prohibit a video programmer from licensing content to OVDs for an extended period of time after the content is first aired on traditional MVPDs—permanently blocking OVDs from being able to offer current-season content from those programmers. Other ADMs prohibit the programmer from licensing content to OVDs unless the OVDs meet a number of strict (and sometimes elaborate) criteria that can be difficult to satisfy.
TWC has been the most aggressive MVPD at seeking and obtaining restrictive ADM clauses in recent years. The Department's review of hundreds of programming contracts and ordinary course business documents revealed that TWC has obtained numerous ADMs that limit distribution to paid OVDs. Other distributors, by contrast, have rarely, if ever, sought or obtained such clauses, or have only obtained ADMs that are much less restrictive. TWC's success in seeking and obtaining ADMs is likely attributable in part to its bargaining leverage over video programmers; although such programmers might disfavor such restrictions because they require the programmer to forsake opportunities to earn revenues from OVDs, they are more likely to agree to a large MVPD such as TWC's demand to include them because they do not want to lose access to TWC's millions of cable subscribers.
The Department's investigation further suggested that TWC may be the most aggressive at obtaining such clauses because, other than Comcast, TWC has more to lose from the expansion of OVDs than any other traditional MVPD. Although Comcast also has substantial video profits at risk, it is prohibited from entering into or enforcing any provisions that restrict distribution to OVDs under the terms of a consent decree entered in
The number and scope of the ADMs that TWC obtained prior to the merger suggests that TWC believes that these ADM clauses are worth whatever consideration it must provide video programmers in return. After the merger, New Charter, with over 17 million video subscribers in 41 states, will have even more leverage than TWC to demand that programmers agree to ADMs. Given the importance of New Charter as a distribution channel, programmers will be less likely to risk losing access to New Charter's considerable subscriber base—which is almost 60 percent larger than TWC alone—and will be more likely to accept to New Charter's demands. Moreover, since New Charter will have far more profits at risk from increased OVD competition than Charter, TWC, or BHN standing alone, it will be willing to provide greater consideration to programmers to obtain such clauses. As a result, New Charter can be expected to seek and obtain ADMs with more programmers than TWC has to date, and the ADMs are likely to be more restrictive than TWC's current ADM provisions. As alleged in the Complaint, such ADMs could negatively affect OVDs' business models and undermine their ability to provide robust video offerings that compete with the offerings of traditional MVPDs. The weakening of OVD competition will result in lower-quality services, fewer consumer choices, and higher prices.
Successful entry into the traditional video programming distribution business is difficult and requires an enormous upfront investment to create a distribution infrastructure. As alleged in the Complaint, additional entry into wireline or DBS distribution is not likely to be significant for the next several years. Telcos have been willing to incur some of the enormous costs to modify their existing telephone infrastructure to distribute video, and will continue to do so, but only in certain areas. Other new providers, such as Google Fiber, are also expanding services, but the time and expense required to build to each new area makes expansion slow. Therefore, traditional MVPDs' market shares are likely to be fairly stable over the next several years.
OVDs represent the most likely prospect for successful and significant competitive entry into the existing video programming distribution market. However, in addition to the other barriers they face, OVDs must obtain access to a sufficient amount of content to become viable distribution businesses, and the proposed merger will likely increase that barrier to entry even further.
The proposed Final Judgment ensures that New Charter will not impede competition by using programming contracts to prevent the flow of content to OVDs. The proposed Final Judgment thereby protects consumers by eliminating the likely anticompetitive effects of the proposed merger alleged in the Complaint.
As discussed above, certain types of contract provisions, such as ADMs, can have the purpose and effect of limiting distribution to OVDs. However, not all provisions that limit distribution are anticompetitive. Reflecting this reality, Sections IV.A and IV.B of the proposed Final Judgment set forth broad prohibitions on restrictive contracting practices, while Section IV.C delineates a narrowly tailored set of exceptions. Taken together, these provisions ensure that New Charter cannot use restrictive contract terms to harm the development of OVDs, but preserve programmers' incentives to produce quality programming and New Charter's ability to compete with other distributors to obtain marquee content.
Section IV.A of the proposed Final Judgment prohibits New Charter from entering into or enforcing agreements that forbid, limit, or create incentives to limit the provision of video programming to OVDs. This language prevents New Charter from enforcing the ADM provisions in current TWC contracts, or from entering into new provisions.
Section IV.B provides additional detail as to the types of terms that could create “incentives to limit” distribution to OVDs. The Department's investigation revealed that TWC has obtained ADM provisions for the purpose of attempting to limit distribution to OVDs. However, once those agreements are prohibited, New Charter could substitute ADMs with more subtle types of contract provisions that do not directly limit distribution to
Alternatively, New Charter could enter into certain kinds of “most favored nation” (“MFN”) provisions that are designed to create incentives to limit distribution to OVDs. Although MFN provisions are ubiquitous in the industry—for example, many MVPDs use MFN provisions entitling the MVPD to the lowest license fee that the programmer offers to any other MVPD—the Department's investigation revealed that some MVPDs were utilizing certain provisions that, while referred to as “MFNs,” actually require much more than equal treatment. Specifically, some provisions, commonly referred to as “unconditional MFNs” or “cherry-picking MFNs,” require that a programmer provide an MVPD the most favorable term the programmer has offered to any other distributor, even if that other distributor agreed to additional payment or other conditions in exchange for receiving that term.
Although unconditional MFNs are uncommon today, and the Defendants have only a few such provisions in their current contracts, the Department was concerned that New Charter could replace ADMs with unconditional MFNs in an effort to circumvent the proposed Final Judgment. For example, New Charter might obtain an unconditional MFN from a programmer that would entitle New Charter to receive at no additional cost any content a programmer makes available to an OVD, regardless of payments or other conditions with which the OVD must comply. In such case, by providing programming to an OVD, the programmer might face significant economic disadvantages in the form of losing the opportunity to monetize the content through distribution by New Charter. As a result, unconditional MFNs could create significant disincentives for programmers to license content to OVDs. For these reasons, Section IV.B.2 of the proposed Final Judgment prohibits New Charter from entering into or enforcing unconditional MFNs against programmers for distributing their content to OVDs.
Section IV.C of the proposed Final Judgment establishes three narrow exceptions to the broad prohibitions in Sections IV.A and IV.B. First, New Charter may prohibit the programmer from making content available on the Internet for free for 30 days after its initial airing, if New Charter has paid a fee for the video programming. The Department's investigation revealed that such limitations on free distribution are ubiquitous in the industry, and the Department has discovered no evidence that such provisions are harmful to competition.
Second, New Charter may enter into an agreement in which the programmer provides content exclusively to New Charter, and to no other MVPD or OVD. Although uncommon, a few programmers wish to make some of their content available to only one distributor. This relationship then incentivizes the distributor to vigorously market the content, and thus can be procompetitive in some circumstances. The proposed Final Judgment ensures that New Charter can continue to compete with other distributors to obtain these kinds of exclusives. As long as the exclusivity applies to
Third, New Charter may condition carriage of programming on its cable system on terms which require it to receive as favorable material terms as other MVPDs or OVDs, except to the extent such terms would be inconsistent with the purpose of the proposed Final Judgment. That is, New Charter may enter into the kinds of ordinary conditional MFNs that are ubiquitous in the industry, such as a provision which entitles New Charter to the lowest license fee paid by any other distributor. This provision explicitly does not override Section IV.B.2's ban on the application of unconditional MFNs to OVD distribution. Importantly, New Charter may not use MFNs as a back door to obtain provisions which are otherwise “inconsistent with the purpose of Sections A and B.” For instance, even if another distributor obtains a provision which “create[s] incentives to limit” a programmer's provision of programming to an OVD, New Charter cannot use an MFN to add that other distributor's provision to New Charter's own contract.
Section IV.D of the proposed Final Judgment prohibits Defendants from discriminating against, retaliating against, or punishing any Video Programmer for providing programming to any OVD. This provision ensures that even though Defendants are no longer permitted to contractually prohibit or deter video programmers from licensing content to OVDs, the Defendants are not able to instead deter such licensing through threats or punishment. Section IV.D also prohibits Defendants from discriminating against, retaliating against, or punishing any video programmer for invoking any provisions of the proposed Final Judgment or any FCC rule or order, or for furnishing information to the Department concerning Defendants' compliance with the proposed Final Judgment.
Negotiations between video programmers and MVPDs are often contentious, high-stakes affairs, and it is common for one or both sides to the negotiation to threaten to walk away, or even to temporarily terminate the relationship (sometimes called a “blackout” or “going dark”) in order to secure a better deal. The proposed Final Judgment is not concerned with such negotiating tactics and therefore clarifies that “[p]ursuing a more advantageous deal with a Video Programmer does not constitute discrimination, retaliation, or
Although the Department's Complaint focuses on the likely competitive harm resulting from New Charter's imposition of ADMs and other contractual restrictions on video programmers, the Department also investigated the potential for the proposed merger to increase the price New Charter will charge Internet content companies, including OVDs, for access to its broadband subscribers. OVDs rely on broadband connections provided by other companies to reach their customers, and the Defendants are also major providers of Internet access service. Therefore, the Department examined whether the merger could increase both the incentive and ability of New Charter to use its control over the interconnection to New Charter's broadband Internet service provider network to try and disadvantage online video competitors.
The FCC's order approving the merger imposes an obligation on New Charter to make interconnection available on a non-discriminatory, settlement-free basis to any Internet content provider, transit provider, or content delivery network (“CDN”) who meets certain basic criteria. Although this policy only directly protects those sending large volumes of traffic, even smaller sources who do not qualify for direct interconnection ought to find ample bandwidth available at competitive prices because large transit and CDN providers will be guaranteed access, and could resell that capacity. Thus, the Department expects that the FCC's order will prevent any merger-related harm to Internet content companies, including OVDs. In light of the FCC's remedy, the Department did not target interconnection in its Complaint and elected not to pursue duplicative relief with respect to interconnection in the proposed Final Judgment. However, in order to assist the Department in monitoring future developments with regard to interconnection and in taking whatever action might be appropriate to prevent anticompetitive conduct, Section IV.E requires New Charter to provide the Department with copies of the regular reports that New Charter furnishes to the FCC pursuant to the FCC's order.
Section VIII of the proposed Final Judgment provides that the Final Judgment will expire seven years from the date of entry. The Department believes this time period is long enough to ensure that New Charter cannot harm OVD competitors at a crucial point in their development while accounting for the rapidly evolving nature of the video distribution market. After five years, Section VIII permits Charter to request that the Department reevaluate whether the Final Judgment remains necessary to protect competition. If at such time the Department concludes that the market has evolved such that the protections of the decree are no longer necessary, it will recommend to the Court that the Final Judgment be terminated.
Section 4 of the Clayton Act, 15 U.S.C. 15, provides that any person who has been injured as a result of conduct prohibited by the antitrust laws may bring suit in federal court to recover three times the damages the person has suffered, as well as costs and reasonable attorneys' fees. Entry of the proposed Final Judgment will neither impair nor assist the bringing of any private antitrust damage action. Under the provisions of Section 5(a) of the Clayton Act, 15 U.S.C. 16(a), the proposed Final Judgment has no prima facie effect in any subsequent private lawsuit that may be brought against Defendants.
The United States and Defendants have stipulated that the proposed Final Judgment may be entered by the Court after compliance with the provisions of the APPA, provided that the United States has not withdrawn its consent. The APPA conditions entry upon the Court's determination that the proposed Final Judgment is in the public interest.
The APPA provides a period of at least 60 days preceding the effective date of the proposed Final Judgment within which any person may submit to the United States written comments regarding the proposed Final Judgment. Any person who wishes to comment should do so within 60 days of the date of publication of this Competitive Impact Statement in the
The proposed Final Judgment provides that the Court retains jurisdiction over this action, and the parties may apply to the Court for any order necessary or appropriate for the modification, interpretation, or enforcement of the Final Judgment.
The United States considered, as an alternative to the proposed Final Judgment, seeking preliminary and permanent injunctions against Defendants' transactions and proceeding to a full trial on the merits. The United States is satisfied, however, that the relief in the proposed Final Judgment will preserve competition for the provision of video programming distribution services in the United States. Thus, the proposed Final Judgment would protect competition as effectively as would any remedy available through litigation, but avoids the time, expense, and uncertainty of a full trial on the merits.
The Clayton Act, as amended by the APPA, requires that proposed consent judgments in antitrust cases brought by the United States be subject to a sixty-day comment period, after which the court shall determine whether entry of the proposed Final Judgment “is in the public interest.” 15 U.S.C. 16(e)(1). In making that determination, the court, in accordance with the statute as amended in 2004, is required to consider:
(A) the competitive impact of such judgment, including termination of alleged violations, provisions for enforcement and modification, duration of relief sought,
(B) the impact of entry of such judgment upon competition in the relevant market or markets, upon the public generally and individuals alleging specific injury from the violations set forth in the complaint including consideration of the public benefit, if any, to be derived from a determination of the issues at trial.
As the United States Court of Appeals for the District of Columbia Circuit has held, under the APPA a court considers, among other things, the relationship between the remedy secured and the specific allegations set forth in the government's complaint, whether the decree is sufficiently clear, whether enforcement mechanisms are sufficient, and whether the decree may positively harm third parties.
Courts have greater flexibility in approving proposed consent decrees than in crafting their own decrees following a finding of liability in a litigated matter. “[A] proposed decree must be approved even if it falls short of the remedy the court would impose on its own, as long as it falls within the range of acceptability or is `within the reaches of public interest.'”
Moreover, the court's role under the APPA is limited to reviewing the remedy in relationship to the violations that the United States has alleged in its Complaint, and does not authorize the court to “construct [its] own hypothetical case and then evaluate the decree against that case.”
In its 2004 amendments, Congress made clear its intent to preserve the practical benefits of utilizing consent decrees in antitrust enforcement, adding the unambiguous instruction that “[n]othing in this section shall be construed to require the court to conduct an evidentiary hearing or to require the court to permit anyone to intervene.” 15 U.S.C. 16(e)(2);
Mo. 1977) (“Absent a showing of corrupt failure of the government to discharge its duty, the Court, in making its public interest finding, should . . . carefully consider the explanations of the government in the competitive impact statement and its responses to comments in order to determine whether those explanations are reasonable under the circumstances.”); S. Rep. No. 93-298, at 6 (1973) (“Where the public interest can be meaningfully evaluated simply on the basis of briefs and oral arguments, that is the approach that should be utilized.”).
Appendix B to the FCC's Memorandum Opinion and Order,
WHEREAS, Plaintiff, the United States of America, filed its Complaint on April 25, 2016 alleging that Defendants propose to enter into transactions the likely effect of which would be to lessen competition substantially in the market for the timely distribution of professional, full-length video programming to residential customers (“video programming distribution”) across the United States in violation of Section 7 of the Clayton Act, 15 U.S.C. 18, and Plaintiff and Defendants, by their respective attorneys, have consented to the entry of this Final Judgment without trial or adjudication of any issue of fact or law, and without this Final Judgment constituting any evidence against or admission by any party regarding any issue of fact or law;
AND WHEREAS, Defendants agree to be bound by the provisions of this Final Judgment pending its approval by the Court;
AND WHEREAS, Plaintiff requires Defendants to agree to undertake certain actions and refrain from certain conduct for the purpose of remedying the loss of competition alleged in the Complaint;
AND WHEREAS, Defendants have represented to the United States that the actions and conduct restrictions can and will be undertaken and that Defendants will later raise no claim of hardship or difficulty as grounds for asking the Court to modify any of the provisions contained below;
NOW THEREFORE, before any testimony is taken, without trial or adjudication of any issue of fact or law, and upon consent of the parties, it is ORDERED, ADJUDGED, AND DECREED:
This Court has jurisdiction over the subject matter of and each of the parties to this action. The Complaint states a claim upon which relief may be granted against Defendants under Section 7 of the Clayton Act, as amended, 15 U.S.C. 18.
As used in this Final Judgment:
A. “Advance/Newhouse” means defendant Advance/Newhouse Partnership, a New York partnership with headquarters in East Syracuse, New York, its successors and assigns, and its Subsidiaries, divisions, groups, affiliates, partnerships and joint ventures, and their directors, officers, managers, agents, and employees, in their capacity as directors, officers, managers, agents, and employees of the foregoing.
B. “Bright House” means defendant Bright House Networks, LLC, a Delaware limited liability company with headquarters in East Syracuse, New York, its successors and assigns, and its Subsidiaries, divisions, groups, affiliates, partnerships and joint ventures, and their directors, officers, managers, agents, and employees, in their capacity as directors, officers, managers, agents, and employees of the foregoing.
C. “Charter” means defendant Charter Communications, Inc., a Delaware corporation with headquarters in Stamford, Connecticut, its successors and assigns (including, without limitation, CCH I, LLC), and its Subsidiaries, divisions, groups, affiliates, partnerships and joint ventures, and their directors, officers, managers, agents, and employees, in their capacity as directors, officers, managers, agents, and employees of the foregoing.
D. “Defendants” means Charter, TWC, Bright House, and Advance/Newhouse, acting individually or collectively. Notwithstanding the foregoing, Advance/Newhouse is not a “Defendant” for purposes of Section IV.
E. “Department of Justice” means the United States Department of Justice Antitrust Division.
F. “MVPD” means a multichannel video programming distributor as that term is defined on the date of entry of this Final Judgment in 47 CFR 76.1200(b), in its capacity as an MVPD.
G. “OVD” means any service that (1) distributes Video Programming in the United States by means of the Internet; (2) is not a component of an MVPD subscription; and (3) is not solely available to customers of an Internet access service owned or operated by the Person providing the service or an affiliate of the Person providing the service. For avoidance of doubt, this definition (1) includes a service offered by a Video Programmer for the distribution of its own Video
H. “Person” means any natural person, corporation, company, partnership, joint venture, firm, association, proprietorship, agency, board, authority, commission, office, or other business or legal entity, whether private or governmental.
I. “Subsidiary” refers to any Person in which there is partial (25 percent or more) or total ownership or control between the specified Person and any other Person. Notwithstanding the foregoing, Subsidiary shall not include any Person in which a Defendant does not have majority ownership or de facto control if that Person does not provide MVPD service.
J. “TWC” means defendant Time Warner Cable Inc, a New York corporation with headquarters in New York, New York, its successors and assigns, and its Subsidiaries, divisions, groups, affiliates, partnerships and joint ventures, and their directors, officers, managers, agents, and employees, in their capacity as directors, officers, managers, agents, and employees of the foregoing.
K. “Video Programmer” means any Person that provides Video Programming for distribution through MVPDs, in its capacity as a Video Programmer.
L. “Video Programming” means programming provided by, or generally considered comparable to programming provided by, a television broadcast station or cable network, regardless of the medium or method used for distribution, and, without expanding the foregoing, includes programming prescheduled by the programming provider (also known as scheduled programming or a linear feed); programming offered to viewers on an on-demand, point-to-point basis (also known as video on demand); pay per view or transactional video on demand; short programming segments related to other full-length programming (also known as clips); programming that includes multiple video sources (also known as feeds, including camera angles); programming that includes video in different qualities or formats (including high-definition and 3D); and films for which a year or more has elapsed since their theatrical release.
This Final Judgment applies to Defendants and all other Persons in active concert or participation with any of them who receive actual notice of this Final Judgment by personal service or otherwise.
A. Defendants shall not enter into or enforce any agreement with a Video Programmer under which Defendants forbid, limit, or create incentives to limit the Video Programmer's provision of its Video Programming to one or more OVDs.
B. Agreements that “create incentives to limit” a Video Programmer's provision of its Video Programming to one or more OVDs within the meaning of Section IV.A shall include, but are not limited to, the following:
1. agreements that provide for any pecuniary or non-pecuniary penalty on the Video Programmer for the provision of its Video Programming to an OVD, such as rate reductions, re-tiering or re-positioning penalties, termination rights for Defendants, or loss or waiver of any rights or benefits otherwise available to the Video Programmer; or
2. agreements that entitle Defendants to receive any benefits such as favorable rates, contract terms, or content rights offered or granted to an OVD by a Video Programmer without requiring Defendants to also accept any obligations, limitations, or conditions:
i. that are integrally related, logically linked, or directly tied to the offering or grant of such rights or benefits, and
ii. with which Defendants can reasonably comply technologically and legally. For avoidance of doubt, Defendants will be deemed able to “reasonably comply technologically” if they are able to implement an obligation, limitation, or condition in a technologically equivalent manner.
C. Notwithstanding the foregoing, nothing in this Final Judgment shall prohibit Defendants from:
1. entering into and enforcing an agreement under which Defendants discourage or prohibit a Video Programmer from making Video Programming for which Defendants pay available to consumers for free over the Internet within the first 30 days after Defendants first distribute the Video Programming to consumers;
2. entering into and enforcing an agreement under which the Video Programmer provides Video Programming exclusively to Defendants, and to no other MVPD or OVD; or
3. entering into and enforcing an agreement which requires that Defendants receive as favorable material terms as other MVPDs or OVDs, except to the extent application of other MVPDs' or OVDs' terms would be inconsistent with the purpose of Sections A and B of this Section IV.
D. Defendants shall not discriminate against, retaliate against, or punish any Video Programmer (i) for providing Video Programming to any MVPD or OVD, (ii) for invoking any provisions of this Final Judgment, (iii) for invoking the provisions of any rules or orders concerning Video Programming adopted by the Federal Communications Commission, or (iv) for furnishing information to the United States concerning Defendants' compliance or noncompliance with this Final Judgment. Pursuing a more advantageous deal with a Video Programmer does not constitute discrimination, retaliation, or punishment.
E. Defendants shall submit to the Department of Justice all reports and data relating to interconnection with the Defendants' broadband Internet access network that are required to be submitted to the Federal Communications Commission (“the Commission”) pursuant to any rule or order of the Commission, at the same time such reports or data are required to be submitted to the Commission.
A. For purposes of determining or securing compliance with this Final Judgment, or of determining whether the Final Judgment should be modified or vacated, and subject to any legally recognized privilege, from time to time duly authorized representatives of the Department of Justice, including consultants and other persons retained by the Department of Justice, shall, upon written request of an authorized representative of the Assistant Attorney General in charge of the Antitrust Division, and on reasonable notice to Defendants, be permitted:
1. access during the Defendants' office hours to inspect and copy, or at the option of the United States, to require Defendants to provide to the United States hard copy or electronic copies of, all books, ledgers, accounts, records, data, and documents in the possession, custody, or control of Defendants, relating to any matters contained in this Final Judgment; and
2. to interview, either informally or on the record, the Defendants' officers, employees, or agents, who may have
B. Upon the written request of an authorized representative of the Assistant Attorney General in charge of the Antitrust Division, Defendants shall submit written reports or respond to written interrogatories, under oath if requested, relating to any of the matters contained in this Final Judgment as may be requested.
C. No information or documents obtained by the means provided in this section shall be divulged by the United States to any person other than an authorized representative of the executive branch of the United States or the Federal Communications Commission, except in the course of legal proceedings to which the United States is a party (including grand jury proceedings), or for the purpose of securing compliance with this Final Judgment, or as otherwise required by law.
D. If at the time information or documents are furnished by a Defendant to the United States, the Defendant represents and identifies in writing the material in any such information or documents to which a claim of protection may be asserted under Rule 26(c)(1)(G) of the Federal Rules of Civil Procedure, and the Defendant marks each pertinent page of such material, “Subject to claim of protection under Rule 26(c)(1)(G) of the Federal Rules of Civil Procedure,” then the United States shall give the Defendant ten calendar days notice prior to divulging such material in any civil or administrative proceeding (other than a grand jury proceeding).
This Court retains jurisdiction to enable any party to apply to this Court at any time for further orders and directions as may be necessary or appropriate to carry out or construe this Final Judgment, to modify any of its provisions, to enforce compliance, and to punish violations of its provisions.
Nothing in this Final Judgment shall limit the right of the United States to investigate and bring actions to prevent or restrain violations of the antitrust laws concerning any past, present, or future conduct, policy, or practice of the Defendants.
This Final Judgment shall expire seven years from the date of its entry. Notwithstanding the foregoing, the Defendants may request after five years that the Department of Justice examine competitive conditions and determine whether the Final Judgment continues to be necessary to protect competition. If after examination of competitive conditions the Department of Justice in its sole discretion concludes that the Final Judgment should be terminated, it will recommend to the Court that the Final Judgment be terminated.
Entry of this Final Judgment is in the public interest. The parties have complied with the requirements of the Antitrust Procedures and Penalties Act, 15 U.S.C. 16, including making copies available to the public of this Final Judgment, the Competitive Impact Statement, and any comments thereon and the United States' responses to comments. Based upon the record before the Court, which includes the Competitive Impact Statement and any comments and response to comments filed with the Court, entry of this Final Judgment is in the public interest.
Pursuant to the authority contained in section 512 of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. 1142, the 181st meeting of the Advisory Council on Employee Welfare and Pension Benefit Plans (also known as the ERISA Advisory Council) will be held on June 7-9, 2016.
The three-day meeting will take place at the U.S. Department of Labor, 200 Constitution Avenue NW., Washington, DC 20210 in C5320 Room 6. The meeting will run from 9:00 a.m. to approximately 5:30 p.m. on June 7-8 and from 8:30 a.m. to 3:00 p.m. on June 9, with a one hour break for lunch each day. The purpose of the open meeting is for Advisory Council members to hear testimony from invited witnesses and to receive an update from the Employee Benefits Security Administration (EBSA). The EBSA update is scheduled for the morning of June 9, subject to change.
The Advisory Council will study the following topics: (1) Cybersecurity Considerations for Benefit Plans, on June 7 and (2) Participant Plan Transfers and Account Consolidation for the Advancement of Lifetime Plan Participation, on June 8. The schedule is subject to change. The Council will discuss both topics on June 9. Descriptions of these topics are available on the Advisory Council page of the EBSA Web site, at
Organizations or members of the public wishing to submit a written statement may do so by submitting 35 copies on or before May 31, 2016 to Larry Good, Executive Secretary, ERISA Advisory Council, U.S. Department of Labor, Suite N-5623, 200 Constitution Avenue NW., Washington, DC 20210. Statements also may be submitted as email attachments in word processing or pdf format transmitted to
Individuals or representatives of organizations wishing to address the Advisory Council should forward their requests to the Executive Secretary or telephone (202) 693-8668. Oral presentations will be limited to 10 minutes, time permitting, but an extended statement may be submitted for the record. Individuals with disabilities who need special accommodations should contact the Executive Secretary by May 31.
Occupational Safety and Health Administration (OSHA), Labor.
Notice.
In this notice, OSHA announces the applications of Nemko-CCL, Inc. for expansion of its scope of recognition as a Nationally Recognized Testing Laboratory (NRTL) and presents the Agency's preliminary finding to grant the applications.
Submit comments, information, and documents in response to this notice, or requests for an extension of time to make a submission, on or before June 1, 2016.
Submit comments by any of the following methods:
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Information regarding this notice is available from the following sources:
The Occupational Safety and Health Administration is providing notice that Nemko-CCL, Inc. (CCL), is applying for expansion of its current recognition as an NRTL. CCL requests the addition of two (2) recognized testing and certification sites, and twenty-two (22) additional test standards to its NRTL scope of recognition. Additionally, CCL is applying to relocate its headquarters to Ottawa, Canada, after its existing headquarters in Salt Lake City, Utah was destroyed in a fire.
OSHA recognition of an NRTL signifies that the organization meets the requirements specified in title 29, Code of Federal Regulations, section 1910.7 (29 CFR 1910.7). Recognition is an acknowledgment that the organization can perform independent safety testing and certification of the specific products covered within its scope of recognition and is not a delegation or grant of government authority. Recognition enables employers to use products approved by the NRTL to meet OSHA standards that require product testing and certification.
The Agency processes applications by an NRTL for initial recognition and for an expansion or renewal of this recognition, following requirements in Appendix A to 29 CFR 1910.7. This appendix requires that the Agency publish two notices in the
Each NRTL's scope of recognition includes: (1) The type of products the NRTL may test, with each type specified by its applicable test standard; and (2) the recognized site(s) that has/have the technical capability to perform the product testing and product-certification activities for test standards within the NRTL's scope.
CCL currently has one facility (site) recognized by OSHA for product testing and certification, with its headquarters located at: Nemko-CCL 1940 West Alexander Street, Salt Lake City, Utah 84119-2039. A complete list of CCL sites recognized by OSHA is available at
CCL submitted two applications, one dated January 28, 2015 (OSHA-2013-0016-008), and a second dated January 26, 2016 (OSHA-2013-0016-009), to expand its recognition to include the addition of two recognized testing and certification sites located at: Nemko North America, Inc., 2210 Faraday Avenue, Suite 150, Carlsbad, California 92008; and Nemko Canada, Inc., 303 River Road, Ottawa, Ontario, Canada K1V 1H2. OSHA staff performed an on-site review of CCL's testing facilities on November 17-18, 2015, at CCL Ottawa, and on January 11-12, 2016, at CCL California. During these assessments, the assessors found some nonconformances with the requirements of 29 CFR 1910.7. CCL addressed these issues sufficiently, and OSHA staff preliminarily determined that OSHA should grant the applications.
CCL's first application also requested the addition of twenty-two test standards to its scope of recognition. OSHA staff performed a detailed analysis of the application packet, reviewed other pertinent information, and conducted the on-site reviews described above in relation to this application.
Table 1 below lists the appropriate test standards found in CCL's application for expansion for testing and certification of products under the NRTL Program.
On October 28, 2015, CCL provided notice to OSHA that their company headquarters located at 1940 West Alexander Road, Salt Lake City, Utah 84119-2039 had been completely destroyed in a fire that occurred on October 25, 2015. CCL temporarily moved their testing operations to their Ottawa and California locations while searching for a location to re-establish their headquarters. OSHA advised CCL that their inability to perform testing at their recognized site could lead to revocation from the NRTL Program, but proceeded to conduct the November 2015 and January 2016 on-site assessments of the Ottawa and California proposed sites because these assessments were scheduled before the fire occurred. In January of 2016, CCL advised OSHA that they wanted to move their headquarters to the Ottawa, Canada site and had secured a new location for their Salt Lake City, Utah site, which would now serve as an administrative site with no test capabilities. OSHA performed an electronic assessment of this new administrative site located at Nemko-CCL, Inc. 2964 West 4700 South, Suite 200, Salt Lake City, Utah 84129, on February 17, 2016.
CCL submitted acceptable applications for expansion of its scope of recognition, and relocation of its company headquarters. OSHA's review of the application files and its detailed on-site and electronic assessments indicate that CCL can meet the requirements prescribed by 29 CFR 1910.7 for expanding its recognition to include the addition of these two sites and twenty-two test standards for NRTL testing and certification and the new headquarters site. This preliminary finding does not constitute an interim or temporary approval of CCL's applications.
OSHA welcomes public comment as to whether CCL meets the requirements of 29 CFR 1910.7 for expansion of its recognition as an NRTL. Comments should consist of pertinent written documents and exhibits. Commenters needing more time to comment must submit a request in writing, stating the reasons for the request. Commenters must submit the written request for an extension by the due date for comments. OSHA will limit any extension to 10 days unless the requester justifies a longer period. OSHA may deny a request for an extension if it is not adequately justified. To obtain or review copies of the exhibits identified in this notice, as well as comments submitted to the docket, contact the Docket Office, Room N-2625, Occupational Safety and Health Administration, U.S. Department of Labor, at the above address. These materials also are available online at
OSHA staff will review all comments to the docket submitted in a timely
OSHA will publish a public notice of this final decision in the
David Michaels, Ph.D., MPH, Assistant Secretary of Labor for Occupational Safety and Health, 200 Constitution Avenue NW., Washington, DC 20210, authorized the preparation of this notice. Accordingly, the Agency is issuing this notice pursuant to 29 U.S.C. 657(g)(2), Secretary of Labor's Order No. 1-2012 (77 FR 3912, Jan. 25, 2012), and 29 CFR 1910.7.
Occupational Safety and Health Administration (OSHA), Labor.
Notice of availability of funds and funding opportunity announcements (FOA) for Targeted Topic Training and Capacity Building grants.
Catalog of Federal Domestic Assistance Number: 17.502.
This notice announces availability of approximately $4.5 million for Susan Harwood Training Program grants. Two separate funding opportunity announcements are available for Targeted Topic Training grants and Capacity Building grants. Two types of grants are being announced under each funding opportunity. Funding Opportunity Number SHTG-FY-16-01 will cover the two types of Targeted Topic Training grants: (1) Targeted Topic Training and (2) Targeted Topic Training and Educational Materials Development grants. Funding Opportunity Number SHTG-FY-16-02 will cover the two types of Capacity Building grants: (1) Capacity Building Developmental and (2) Capacity Building Pilot grants.
Grant applications for both Targeted Topic Training and Capacity Building grants must be received electronically by the
The complete Susan Harwood Training Grant Program funding opportunity announcements and all information needed to apply for these funding opportunities are available at the
Questions regarding the funding opportunity announcements should be emailed to
Questions regarding
David Michaels, Ph.D., MPH, Assistant Secretary of Labor for Occupational Safety and Health, directed the preparation of this notice. The authority for this notice is Section 21 of the Occupational Safety and Health Act of 1970, (29 U.S.C. 670), Public Law 113-235, and Secretary of Labor's Order No. 1-2012 (77 FR 3912).
Copyright Royalty Board, Library of Congress.
Notice soliciting comments on motion for partial distribution.
The Copyright Royalty Judges solicit comments on a motion for partial distribution in connection with 2012 and 2013 DART Musical Works Fund royalties.
Comments are due on or before June 16, 2016.
This notice and request for comments is also posted on the agency's Web site (
Kimberly Whittle, attorney-advisor, by telephone at (202) 707-7658 or email at
On April 3, 2016, Broadcast Music, Inc. (BMI), the American Society of Composers, Authors and Publishers (ASCAP), SESAC, Inc. (SESAC) (together the Performing Rights Organizations or PROs) and The Harry Fox Agency LLC (with the PROs, the Settling Claimants) filed with the Copyright Royalty Judges (Judges) a
The Settling Claimants contend that they are, or they represent, “the vast majority” of claimants entitled to the Musical Works Fund royalties at issue in this proceeding. As support for their request, the Settling Claimants assert that, since 1997, non-settling music writer or publisher claimants have established claims to and have received less than 0.1% of the Musical Works Fund, if any. The Settling Claimants request a partial distribution of 95% of the subject royalty funds pursuant to Section 801(b)(3)(C) of the Copyright Act (Act).
Under section 801(b)(3)(C) of the Act, before ruling on a partial distribution motion the Judges must publish a notice
Interested claimants must submit comments to only
National Archives and Records Administration (NARA).
Notice of availability of proposed records schedules; request for comments.
The National Archives and Records Administration (NARA) publishes notice at least once monthly of certain Federal agency requests for records disposition authority (records schedules). Once approved by NARA, records schedules provide agencies with mandatory instructions for what to do with records when agencies no longer need them for current Government business. The instructions authorize agencies to preserve records of continuing value in the National Archives of the United States and to destroy, after a specified period, records lacking administrative, legal, research, or other value. NARA publishes notice in the
NARA must receive requests for copies in writing by June 16, 2016. Once NARA appraises the records, we will send you a copy of the schedule you requested. We usually prepare appraisal memoranda that contain additional information concerning the records covered by a proposed schedule. You may also request these. If you do, we will also provide them once we have completed the appraisal. You have 30 days after we send you these requested documents in which to submit comments.
You may request a copy of any records schedule identified in this notice by contacting Records Appraisal and Agency Assistance (ACRA) using one of the following means:
You must cite the control number, which appears in parentheses after the name of the agency that submitted the schedule, and a mailing address. If you would like an appraisal report, please include that in your request.
Margaret Hawkins, Director, by mail at Records Appraisal and Agency Assistance (ACRA); National Archives and Records Administration; 8601 Adelphi Road, College Park, MD 20740-6001, by phone at 301-837-1799, or by email at
Each year, Federal agencies create billions of records on paper, film, magnetic tape, and other media. To control this accumulation, agency records managers prepare schedules proposing retention periods for records and submit these schedules for NARA's approval. These schedules provide for timely transfer into the National Archives of historically valuable records and authorize disposal of all other records after the agency no longer needs them to conduct its business. Some schedules are comprehensive and cover all the records of an agency or one of its major subdivisions. Most schedules, however, cover records of only one office or program or a few series of records. Many of these update previously approved schedules, and some include records proposed as permanent.
The schedules listed in this notice are media-neutral unless otherwise specified. An item in a schedule is media-neutral when an agency may apply the disposition instructions to records regardless of the medium in which it has created or maintains the records. Items included in schedules submitted to NARA on or after December 17, 2007, are media-neutral unless the item is specifically limited to a specific medium. (See 36 CFR 1225.12(e).)
Agencies may not destroy Federal records without the approval of the Archivist of the United States. The Archivist grants this approval only after thorough consideration of the records' administrative use by the agency of origin, the rights of the Government and of private people directly affected by the Government's activities, and whether or not the records have historical or other value.
In addition to identifying the Federal agencies and any subdivisions requesting disposition authority, lists the organizational unit(s) accumulating the records or lists that the schedule has agency-wide applicability (in the case of schedules that cover records that may be accumulated throughout an agency); provides the control number assigned to each schedule, the total number of schedule items, and the number of temporary items (the records proposed for destruction); and includes a brief description of the temporary records. The records schedule itself contains a full description of the records at the file unit level as well as their disposition. If NARA staff has prepared an appraisal memorandum for the schedule, it also includes information about the records. You may request additional information about the disposition process at the addresses above.
1. Department of Agriculture, Farm Service Agency (DAA-0161-2016-0001, 4 items, 4 temporary items). Records
2. Department of Agriculture, Food and Nutrition Service (DAA-0462-2016-0001, 1 item, 1 temporary item). Master files of an electronic information system used to collect and track data relating to the Supplemental Nutritional Assistance Program.
3. Department of the Army, Agency-wide (DAA-AU-2016-0007, 1 item, 1 temporary item). Records relating to requests for waivers for applicants who do not meet established standards for enlistment in the Army.
4. Department of the Army, Agency wide (DAA-AU-2016-0018, 1 item, 1 temporary item). Records of economic data gathered during water management projects.
5. Department of Defense, Defense Finance and Accounting Service (DAA-0507-2016-0001, 1 item, 1 temporary item). Revision of item for foreign military sales case files to add collection and disbursement vouchers.
6. Department of Defense, Defense Threat Reduction Agency (DAA-0374-2014-0016, 1 item, 1 temporary item). Records relating to policies and procedures for verifying location of weapons systems.
7. Department of Defense, Defense Threat Reduction Agency (DAA-0374-2014-0030, 1 item, 1 temporary item). Records relating to the development of strategic plans including balanced scorecard and program review documentation.
8. Department of Homeland Security, Immigration and Customs Enforcement (DAA-0567-2015-0014, 6 items, 6 temporary items). Records related to removal travel operations including copies of international deportation agreements, guidance briefings, detainee custody review case files, and transportation logistics materials.
9. Department of Homeland Security, United States Citizenship and Immigration Services (DAA-0566-2016-0012, 3 items, 3 temporary items). Undeliverable and returned outgoing mail, to include submitted documentation and notices.
10. Department of Justice, Bureau of Alcohol, Tobacco, Firearms, and Explosives (DAA-0436-2016-0001, 2 items, 2 temporary items). Master files of an electronic information system used to collect and manage information gathered in the investigation of reported incidents of internal misconduct.
11. Department of Labor, Office of Congressional and Intergovernmental Affairs (DAA-0174-2013-0003, 9 items, 8 temporary items). Records related to congressional and intergovernmental affairs including correspondence and casework files, notification and announcement files, work files, appointment files, subject files, general correspondence, and related materials. Proposed for permanent retention are memorandum files.
12. Department of the Treasury, Internal Revenue Service (DAA-0058-2016-0007, 1 item, 1 temporary item). Master files of an electronic information system used for fraud detection.
13. Department of the Treasury, Internal Revenue Service (DAA-0058-2016-0009, 1 item, 1 temporary item). Master files of an electronic information system used for transaction processing and data validation.
14. Department of the Treasury, Internal Revenue Service (DAA-0058-2016-0010, 1 item, 1 temporary item). Master files of an electronic information system used to detect fraudulent tax return filings.
15. Department of the Treasury, Internal Revenue Service (DAA-0058-2016-0011, 1 item, 1 temporary item). Records of a Web site used to support a taxpayer rights conference.
16. Court Services and Offenders Supervision Agency for the District of Columbia, Agency-wide (DAA-0562-2014-0002, 4 items, 1 temporary item). Internal administrative directives. Proposed for permanent retention are records of high-level officials, mission-related policies and procedures, and annual reports and strategic plans.
17. Court Services and Offenders Supervision Agency for the District of Columbia, Agency-wide (DAA-0562-2016-0001, 2 items, 2 temporary items). Records documenting court-ordered expunction.
18. Environmental Protection Agency, Office of Water (DAA-0412-2016-0001, 1 item, 1 temporary item). Electronic data obtained from injection well activity reports and managed by the Underground Injection Control Program Summary System.
National Archives and Records Administration (NARA).
Notice of Advisory Committee meeting.
In accordance with the Federal Advisory Committee Act, NARA announces a meeting of the Advisory Committee on the Records of Congress. The meeting is open to the public.
The meeting will be on June 13, 2016, from 10:00 a.m. to 11:30 a.m. EDT.
Capitol Visitor Center, Room SVC209-08 (Senate Visitor Center).
Center for Legislative Archives at (202) 357-5350 or Sharon Fitzpatrick by email at:
The committee advises NARA on the full range of programs, policies, and plans for the Center for Legislative Archives in the Office of Legislative Archives, Presidential Libraries, and Museum Services (LPM).
In accordance with the Federal Advisory Committee Act (Pub. L. 92-463, as amended), the National Science Foundation announces the following meeting:
In accordance with the Federal Advisory Committee Act (Pub. L. 92-463, as amended), the National Science Foundation announces the following meeting:
June 23, 2016; 8:30 a.m.-12:00 p.m.
Pursuant to delegation by the Commission,
This proceeding involves a challenge to an application by Southern Nuclear Operating Company, Inc. for an amendment to the operating licenses for the Vogtle Electric Generating Plant, Units 3 and 4, located in Burke County, Georgia. In response to a notice of the license amendment application filed in the
The Board is comprised of the following Administrative Judges:
All correspondence, documents, and other materials shall be filed in accordance with the NRC E-Filing rule.
Rockville, Maryland.
Nuclear Regulatory Commission.
Draft regulatory issue summary; request for comment.
The U.S. Nuclear Regulatory Commission (NRC) is seeking public comment on a draft regulatory issue summary (RIS) to inform nuclear power reactor licensees of existing requirements related to dispositioning information pertaining to the capability of safety-related structures, systems, and components (SSCs) to perform their safety-related functions in nuclear power plants. The draft RIS addresses instances where a licensee becomes aware of credible information pertaining to the time period that a safety-related structure, system, or component is installed that may negatively impact its ability to perform its safety-related function or functions. Licensees must address this information consistent with their licensing basis and applicable NRC requirements.
Submit comments by July 18, 2016. Comments received after this date will be considered if it is practical to do so, but the Commission is able to ensure consideration only for comments received before this date.
You may submit comments by any of the following methods (unless this document describes a different method for submitting comments on a specific subject):
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For additional direction on obtaining information and submitting comments, see “Obtaining Information and Submitting Comments” in the
John Thompson, telephone: 301-415-1011, email:
Please refer to Docket ID NRC-2016-0098 when contacting the NRC about the availability of information for this action. You may obtain publicly-available information related to this action by any of the following methods:
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Please include Docket ID NRC-2016-0098 in your comment submission.
The NRC cautions you not to include identifying or contact information that you do not want to be publicly disclosed in your comment submission. The NRC posts all comment submissions at
If you are requesting or aggregating comments from other persons for submission to the NRC, then you should inform those persons not to include identifying or contact information that they do not want to be publicly disclosed in their comment submission. Your request should state that the NRC does not routinely edit comment submissions to remove such information before making the comment submissions available to the public or entering the comment submissions into ADAMS.
The NRC staff has developed draft RIS 2016-xx, “Disposition of Information Related to the Time Period that Safety-Related Structures, Systems, or Components are Installed,” to clarify NRC requirements and programs that provide quality assurance and ensure the operability of safety-related SSCs. When a licensee either becomes aware that a safety-related SSC has been installed for longer that the amount of time described in the licensing basis, or becomes aware of credible information that challenges the presumption that a safety-related SSC can continue to perform its safety function(s), the licensee must assess the information consistent with their licensing basis and applicable NRC requirements. These instances must be addressed in accordance with a licensee's NRC-approved quality assurance program, operability/functionality determination process, and corrective action program.
The NRC issues RISs to communicate with stakeholders on a broad range of matters. This may include clarification of existing requirements and regulations.
The NRC is requesting public comment on the draft RIS. The NRC plans to hold a public meeting to discuss this draft RIS. All comments that are to receive consideration in the final RIS must still be submitted electronically or in writing as indicated in the
For the Nuclear Regulatory Commission.
Notice is hereby given, pursuant to the provisions of the Government in the Sunshine Act, Public Law 94-409, that the Securities and Exchange Commission will hold a closed meeting on Thursday, May 19, 2016 at 2 p.m.
Commissioners, Counsel to the Commissioners, the Secretary to the Commission, and recording secretaries will attend the closed meeting. Certain staff members who have an interest in the matters also may be present.
The General Counsel of the Commission, or her designee, has certified that, in her opinion, one or more of the exemptions set forth in 5 U.S.C. 552b(c)(3), (5), (7), 9(B) and (10) and 17 CFR 200.402(a)(3), (a)(5), (a)(7), (a)(9)(ii) and (10), permit consideration of the scheduled matter at the closed meeting.
Commissioner Piwowar, as duty officer, voted to consider the items listed for the closed meeting in closed session.
The subject matter of the closed meeting will be:
At times, changes in Commission priorities require alterations in the scheduling of meeting items.
For further information and to ascertain what, if any, matters have been added, deleted or postponed, please contact Brent J. Fields from the Office of the Secretary at (202) 551-5400.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”),
The Exchange proposes to amend the Exchange's Pricing Schedule at Section B, entitled “Customer Rebate Program.”
The text of the proposed rule change is available on the Exchange's Web site at
In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements.
The purpose of the proposed rule change is to amend the Exchange's Pricing Schedule at Section B, entitled “Customer Rebate Program.” Specifically, the Exchange is proposing to exclude options overlying NDX
Currently, the Exchange has a Customer Rebate Program consisting of five tiers that pay Customer rebates on three Categories, A,
Today, options overlying NDX and MNX are included in the total volume to qualify a market participant for a Customer Rebate. The Exchange is proposing to continue to permit the electronically-delivered and executed volume associated with options overlying NDX and MNX to be included in the calculation of total market volume. The Exchange proposes to exclude options overlying NDX and MNX as eligible to receive a Customer Rebate in any Category.
In calculating electronically-delivered and executed Customer volume in Multiply Listed Options, the numerator of the equation will remain unchanged and will continue to include all electronically-delivered and executed Customer volume in Multiply Listed Options, including NDX and MNX. The denominator of that equation will also remain unchanged and will continue to include national customer volume in multiply-listed equity and ETF options volume. By including options overlying NDX and MNX in the computation for Customer Rebates, members will continue to receive the benefit of those transactions toward calculating their eligible rebate tiers and earning a rebate on all qualifying transactions.
At this time, the Exchange proposes to not pay Customer Rebates on options overlying NDX and MNX because of the exclusivity of these options. NDX and MNX are Phlx proprietary index options which currently trade on Phlx and one other options exchange. Therefore, the Exchange would not pay rebates on options overlying NDX and MNX as part of the Customer Rebate Program. The Exchange believes members will continue to be afforded an opportunity to achieve new Customer Rebate Program tiers or maintain their current level of Customer Rebate Program tiers.
The proposal is consistent with Section 6(b) of the Act,
The Commission and the courts have repeatedly expressed their preference for competition over regulatory intervention in determining prices, products, and services in the securities markets. In Regulation NMS, while adopting a series of steps to improve the current market model, the Commission highlighted the importance of market forces in determining prices and SRO revenues and, also, recognized that current regulation of the market system “has been remarkably successful in promoting market competition in its broader forms that are most important to investors and listed companies.”
Likewise, in
Further, “[n]o one disputes that competition for order flow is `fierce.' . . . As the SEC explained, `[i]n the U.S. national market system, buyers and sellers of securities, and the broker-dealers that act as their order-routing agents, have a wide range of choices of where to route orders for execution'; [and] `no exchange can afford to take its market share percentages for granted' because `no exchange possesses a monopoly, regulatory or otherwise, in the execution of order flow from broker dealers' . . . .”
It is reasonable to no longer pay Customer Rebates on options overlying NDX and MNX in any Category (A, B or C) because these proprietary index options only trade on two options markets at this time. The original intent of the Customer Rebate Program was to pay rebates on electronically-delivered Multiply-Listed Options. By definition, these indices qualify as Multiply-Listed Options because they trade on more than one options exchange. These proprietary index options trade on Phlx and one other options exchange. The Exchange does not desire to pay rebates on options overlying NDX and MNX because of their exclusivity. Despite the fact that technically these options trade on more than one venue, other exchanges cannot list these options. The Exchange believes it is reasonable to continue to count options overlying NDX and MNX in the total volume to qualify a market participant for a Customer Rebate, however, options overlying NDX and MNX will no longer be paid the Customer rebates in any Category because of the exclusivity of this option. Market participants would continue to benefit from NDX and MNX options volume in terms of qualifying for Customer Rebate Tiers. The Exchange believes that not paying Customer Rebates on options overlying NDX and MNX further aligns these products with other Singly Listed Options as compared to Multiply-Listed Options.
It is equitable and not unfairly discriminatory to no longer pay Customer Rebates on options overlying NDX and MNX in any Category because the Exchange would apply its calculation to determine the eligibility and payment of Customer rebates in a uniform manner. The Exchange's proposal to no longer pay Customer Rebates on options overlying NDX and MNX in any Category is equitable and not unfairly discriminatory because the Exchange would no longer pay Customer Rebates on any transaction with options overlying either NDX or MNX to any market participant. Also, any market participant is eligible to earn a Customer Rebate.
The Exchange does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. In terms of inter-market competition, the Exchange notes that it operates in a highly competitive market in which market participants can readily favor competing venues if they deem fee levels at a particular venue to be excessive, or rebate opportunities available at other venues to be more favorable. In such an environment, the Exchange must continually adjust its fees to remain competitive with other exchanges and with alternative trading systems that have been exempted from compliance with the statutory standards applicable to exchanges. Because competitors are free to modify their own fees in response, and because market participants may readily adjust their
The Exchange's proposal to no longer pay Customer Rebates on options overlying NDX and MNX in any Category does not impose an undue burden on intra-market competition because the Exchange would apply the calculation of Customer rebates and would pay rebates on qualifying orders in a uniform manner. No market participant would be paid a Customer Rebate in options overlying NDX or MNX. All market participants may participate in the Customer Rebate Program. Members would continue to benefit from the inclusion of options overlying NDX and MNX in the total volume to qualify a market participant for a Customer Rebate.
Also, the Exchange's proposal to no longer pay Customer Rebates on options overlying NDX and MNX in any Category does not impose an undue burden on inter-market competition because there is only one other exchange that transacts options overlying NDX and MNX through a contractual agreement with the Exchange. That venue may choose to also not pay rebates on options overlying NDX or MNX. Other venues may not list these proprietary indices.
No written comments were either solicited or received.
The foregoing rule change has become effective pursuant to Section 19(b)(3)(A)(ii) of the Act.
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is: (i) Necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved.
Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's Internet comment form (
• Send an email to
• Send paper comments in triplicate to 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”),
The principal purpose of the proposed changes is to clarify the account categories to be used for positions of affiliates of Clearing Members.
In its filing with the Commission, ICE Clear Europe included statements concerning the purpose of and basis for the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. ICE Clear Europe has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements.
ICE Clear Europe submits proposed amendments to its Clearing Procedures to clarify the account categories in which positions of affiliates of Clearing Members are to be maintained, in light of applicable US and EU regulatory requirements. ICE Clear Europe does not propose to amend its Rules in connection with these changes.
Under CFTC rules, the positions of an affiliate of an FCM are considered “proprietary” for purposes of segregation requirements and thus cannot be held in a customer account.
Specifically, ICE Clear Europe proposes to amend paragraph 2.3(b) of the Clearing Procedures to establish new position-keeping accounts, labeled the “F” and “R” accounts, which will be required to be used for all positions of affiliates of FCM/BD Clearing Members. The “F” account will use a gross margin model (for positions in contracts margined on a gross basis under the Rules and Procedures); the “R” account will use a net margin model (for positions in contracts margined on a net basis under the Rules and Procedures). Both accounts will be treated as separate Proprietary Accounts for purposes of the Rules (and accordingly the accounts will not constitute Customer Accounts of the FCM/BD Clearing Member). New paragraph 2.3(f) has been added to provide a definition of “affiliate” for this purpose, based on the relevant definitions of proprietary accounts under CFTC rules.
Paragraph 2.3 has also been revised to clarify the treatment of positions of affiliates of Non-FCM/BD Clearing Members. New paragraph 2.3(f) also includes a definition of “affiliate” for this purpose, based on the EMIR definition of “group.” Conforming changes have been made to paragraph 2.3(b)(4) to use such definition. Additional clarifications have been made in paragraph 2.3(b)(5) as to the use by certain Non-FCM/BD Clearing Members of the “T” and “K” accounts (as separate Segregated Customer Omnibus Accounts for F&O or Segregated TTFCA Customer Omnibus Accounts for F&O) and of the “F” and “R” accounts as available for holding positions of their affiliates. Paragraph 2.3(c) has been revised to clarify that the Clearing House may establish additional position-keeping accounts for a Clearing Member to facilitate separate tracking of positions for each exchange non-clearing member for which the Clearing Member provides services. The revisions also clarify the treatment of such position-keeping accounts for exchange members as customer or proprietary, consistent with the requirements of the Rules and Clearing Procedures and applicable law.
Amendments to paragraph 3.1(a) of the Clearing Procedures provide for the margining of the “F” and “R” accounts of FCM/BD Clearing members as separate Proprietary Accounts. The summary table following paragraph 3.2 of the Clearing Procedures has been amended to conform to the other changes made in the Clearing Procedures.
ICE Clear Europe believes that the proposed amendments to the Clearing Procedures are consistent with the requirements of Section 17A of the Act
The amendments are designed to clarify the treatment of positions of affiliates of Clearing Members in light of applicable legal and regulatory requirements. Specifically, for FCM/BD Clearing Members, the amendments establish separate accounts in which such positions must be held, in a manner that is consistent with both CFTC and EMIR requirements. Such accounts will allow positions of affiliates to be held separately from the Clearing Member's positions, consistent with the EMIR requirements, but will be treated as Proprietary Accounts under the Rules and Procedures, consistent with CFTC rules. The amendments also clarify the treatment of positions of affiliates of Non-FCM/BD Clearing Members, consistent with EMIR requirements. Overall, in ICE Clear Europe's view, the amendments will enhance its ability (and that of its Clearing Members) to track positions of Clearing Member affiliates and comply with relevant regulatory obligations. As a result, in ICE Clear Europe's view, the amendments will promote the prompt and accurate clearance and settlement of derivative transactions, are consistent with the safeguarding of funds and securities in the custody or control of ICE Clear Europe, and generally further the public interest. The amendments are therefore consistent with the requirements of Section 17A(b)(3)(F) of the Act
ICE Clear Europe does not believe the proposed changes to the Rules discussed herein would have any adverse impact, or impose any burden, on competition not necessary or appropriate in furtherance of the purposes of the Act. The proposed amendments are intended to clarify the treatment of positions of affiliates of Clearing Member, consistent with applicable legal requirements. ICE Clear Europe does not believe the proposed amendments would adversely affect access to clearing by Clearing Members or their affiliates (or customers), adversely affect competition among Clearing Members or adversely affect the market for clearing services or limit market participants' choices for clearing transactions. Although the proposed amendments may impose additional compliance costs on Clearing Members, including because of the requirements to hold affiliate positions in separate accounts that are separately margined, ICE Clear Europe believes that such costs reflect, and are appropriate in light of, the legal requirements applicable to such positions. Although the amendments treat affiliate positions of FCM/BD Clearing Members and Non-FCM/BD Clearing Members differently in certain respects, in ICE Clear Europe's view such differences also result from the different legal frameworks applicable to such Clearing Members. As a result, ICE Clear Europe does not believe that the proposed amendments to the Clearing Procedures will impose any burden on competition not appropriate in furtherance of the purposes of the Act.
ICE Clear Europe has not solicited or received any written comments with respect to the proposed changes. ICE Clear Europe will notify the Commission of any written comments received by ICE Clear Europe.
The foregoing rule change has become effective upon filing pursuant to Section 19(b)(3)(A)
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.
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.
All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-ICEEU-2016-006 and should be submitted on or before June 7, 2016.
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 Rule 11.11, Routing to Away Trading Centers, to delete the IOCM and ICMT routing options. The Exchange also proposes to amend its fee schedule to delete: (i) References to the IOCM and ICMT routing options under footnotes 7 and 12; and (ii) fee code MT, which is yielded on MidPoint Peg Orders
The text of the proposed rule change is available at the Exchange's Web site at
In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in Sections A, B, and C below, of the most significant parts of such statements.
The Exchange proposes to amend Rule 11.11, Routing to Away Trading Centers, to delete the IOCM and ICMT routing options. The Exchange also proposes to amend its fee schedule to delete: (i) References to the IOCM and ICMT routing options under footnotes 7 and 12; and (ii) fee code MT, which is yielded on MidPoint Peg Orders routed to EDGX using the IOCM or ICMT routing options.
Under Rule 11.11(g)(11), an order utilizing the IOCM routing option checks the System
Fee codes CR and XR are yielded to orders that remove liquidity from the Exchange using an eligible routing option. Footnote 7 of the Exchanges fee schedule lists the eligible routing options for fee code XR, which includes the IOCM routing option and footnote 12 lists the eligible routing options for fee code CR, which includes the ICMT routing option. Fee code MT is yielded on MidPoint Peg Orders routed to EDGX using the IOCM or ICMT routing options. Orders that yield fee code MT pay a fee of $0.0029 per share in securities priced at or above $1.00 and 0.30% of the trade's dollar value for securities priced below $1.00.
Because few Users elect the IOCM or ICMT routing options, the Exchange has determined that the current demand does not warrant the infrastructure and ongoing maintenance expenses required to support the products. Therefore, the Exchange proposes to delete the IOCM and ICMT routing options under Rule 11.11(g)(11) and (12) as well as a reference to the IOCM and ICMT routing options under Rule 11.11(g)(15). The Exchange also proposes to amend its fee schedule to delete: (i) References to the IOCM and ICMT routing options under footnotes 7 and 12; and (ii) fee code MT, which is yielded on MidPoint Peg Orders routed to EDGX using the IOCM or ICMT routing options. Users seeking to route midpoint eligible orders to EDGX may use alternative methods, such as connecting to EDGX directly or through a third party service provider, or electing another routing option offered by the Exchange that enables a User to post an order to certain primary listing markets.
The Exchange intends to implement the proposed rule change on May 6, 2016.
The Exchange believes that its proposal is consistent with Section 6(b) of the Act
The Exchange does not believe that this proposal will permit unfair discrimination among customers,
The Exchange does not believe that the proposal will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. The proposed rule change is not designed to address any competitive issues but rather avoid investor confusion by eliminating the IOCM and ICMT routing options that are to be discontinued by the Exchange.
The Exchange has neither solicited nor received written comments on the proposed rule change.
Because the proposed rule change does not (i) significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act
A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the Act
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule change should be approved or disapproved.
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's Internet comment form (
• Send an email to
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the “Act”),
The Exchange filed a proposal to amend the 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 amend its fee schedule for its equity options platform (“EDGX Options”) to: (1) Modify an existing tier and add a new tier to its existing tiered pricing structure; and (2) simplify the Exchange's routing fees, as further described below.
The Exchange currently offers two pricing tiers under footnotes 1 and 2 of the fee schedule, Customer Volume Tiers and Market Maker Volume Tiers, respectively. Under the tiers, Members that achieve certain volume criteria may qualify for reduced fees or enhanced rebates for Customer
Fee code PC and NC are currently appended to all Customer orders in Penny Pilot Securities
Pursuant to Customer Volume Tier 6, a Member currently will receive a rebate of $0.21 per contract where: (1) The Member has an ADV in Customer orders equal to or greater than 0.25% of average TCV; and (2) the Member has an ADV in Market Maker orders equal to or greater than 0.25% of average TCV. In order to encourage the entry of additional orders to the Exchange, Exchange proposes to modify Customer Volume Tier 6 to reduce the criteria necessary to qualify. Specifically, the Exchange proposes to provide the same rebate, $0.21 per contract, as it currently provides for Customer Volume Tier 6, but to provide such rebate where: (1) The Member has an ADV in Customer orders equal to or greater than 0.20% of average TCV; and (2) the Member has an ADV in Market Maker orders equal to or greater than 0.15% of average TCV. The Exchange believes that this change will make Customer Volume Tier 6 more attainable for additional Members.
Fee code PM and NM are currently appended to all Market Maker orders in Penny Pilot Securities and Non-Penny Pilot Securities, respectively, and result in a standard fee of $0.19 per contract. The Market Maker Volume Tiers in footnote 2 consist of six separate tiers, each providing a reduced fee or rebate to a Member's Market Maker orders that yield fee codes PM or NM upon satisfying monthly volume criteria required by the respective tier. For instance, pursuant to Market Maker Volume Tier 1, the lowest volume tier, a Member will pay a reduced fee of $0.16 per contract where the Member has an ADV in Market Maker orders equal to or greater than 0.05% of average TCV. Pursuant to Market Maker Volume Tier 6, the highest volume tier, a Member will receive a rebate of $0.01 per contract where the Member has an ADV in Market Maker orders equal to or greater than 1.10% of average TCV.
In addition to the change to the qualifying criteria for Customer Volume Tier 6 set forth above, the Exchange proposes to adopt a new Market Maker Volume Tier with the same criteria as amended Customer Volume Tier 6. Specifically, the Exchange proposes to
The Exchange notes that the reduced fee of $0.10 per contract is the same fee as Market Maker Volume Tier 3, which is provided where the Member has an ADV in Market Maker orders equal to or greater than 0.20% of average TCV. By introducing Tier 7, the Exchange is providing an additional mechanism for a Member to achieve this reduced fee. The Exchange also notes that the proposed fee and associated criteria are intended to encourage the entry of both Customer orders and Market Maker orders by providing a hybrid tier that rewards the entry of both. Although the qualifying criteria includes Customer orders, as noted above, the proposed reduced fee of $0.10 per contract would only be awarded to a Member's Market Maker orders that yield fee codes PM or NM upon satisfying the monthly volume criteria (and not such Member's Customer orders). However, as noted above, because the criteria are the same, a Member qualifying for Market Maker Volume Tier 7 would also qualify for Customer Volume Tier 6, and thus would be entitled to enhanced rebates for such Member's Customer orders.
In addition to the changes described above, the Exchange proposes to add the phrase “of average TCV” to the end of the criteria for existing Market Making Volume Tiers 1 through 6. Although the filing initially adopting such tiers did include the language in describing the applicable criteria, the Exchange believes that such language is appropriate for the fee schedule. This change would ensure that the language of footnote 2 is consistent with footnote 1, which does include this phrase in each Tier's criteria description. The Exchange also proposes to change all references to “Customer Orders” to “Customer orders” and from “Market Maker Orders” to “Market Maker orders” throughout footnote 1 and footnote 2. These changes will also ensure consistency on the fee schedule with respect to the word “order”, which is not contained in any of the defined terms on the fee schedule.
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 $0.60 per contract (fee code RF, applicable to Non-Customer orders in Penny Pilot Securities executed at BZX 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, 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, BZX Options, 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, BZX Options, 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 code BD, applicable to Customer orders in Non-Penny Pilot Securities executed at BX Options) to $0.94 per contract (fee code RD, applicable to Customer orders executed at BZX Options 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 [sic] fee to a particular options exchange is indeed significantly higher than the fee charged by such
The Exchange proposes to implement these amendments to its fee schedule immediately.
The Exchange believes that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder that are applicable to a national securities exchange, and, in particular, with the requirements of Section 6 of the Act.
The Exchange believes its proposed fees and rebates pursuant to the tiered pricing structure are reasonable, fair and equitable, and non-discriminatory. The Exchange operates in a highly competitive market in which market participants may readily send order flow to many competing venues if they deem fees at the Exchange to be excessive. As a new options exchange, the proposed fee structure remains intended to attract order flow to the Exchange by offering market participants a competitive yet simple pricing structure. At the same time, the Exchange believes it is reasonable to incrementally adopt incentives intended to help to contribute to the growth of the Exchange.
Volume-based rebates such as those currently maintained on the Exchange have been widely adopted by options exchanges and are equitable because they are open to all Members on an equal basis and provide additional benefits or discounts that are reasonably related to the value of 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 proposed modification to the Customer Volume Tier and the proposed addition of Market Maker Volume Tier 7 is each intended to incentivize Members to send additional Customer orders and Market Maker orders to the Exchange in an effort to qualify for the enhanced rebate or lower fee made available by the tiers.
The Exchange believes that the proposed tiers are reasonable, fair and equitable, and non-discriminatory, for the reasons set forth above with respect to volume-based pricing generally and because such changes will incentivize participants to further contribute to market quality. The proposed tiers will provide an additional way for market participants to qualify for enhanced rebates or reduced fees. The Exchange also believes that the proposed tiered pricing structure is consistent with pricing previously offered by the Exchange as well as other options exchanges and does not represent a significant departure from such pricing structures.
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 in Market Maker and Customer orders, however, the Exchange believes that its pricing for all capacities is competitive with that offered by other options exchanges. 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)
The Exchange proposes to modify the NYSE Amex Options Fee Schedule (“Fee Schedule”). The Exchange proposes to implement the fee change effective May 2, 2016. The proposed change is available on the Exchange's Web site at
In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements.
The purpose of this filing is to modify the definition of a Firm Facilitation trade to include Broker-Dealers, which would be consistent with the treatment of such transactions on another options market. The Exchange proposes to implement the change effective on May 2, 2016.
The current Fee Schedule defines a “Firm Facilitation” trade as “a Manual trade that is executed in open outcry, in which one counterparty clears in the Firm range at the OCC, the other counterparty clears in the Customer range at the OCC, and both counterparties have the same Clearing Member symbol or identification.”
The Exchange proposes to modify the definition of Firm Facilitation to include Manual trades clearing in the
The Exchange believes that the proposed rule change is consistent with section 6(b) of the Act,
The Exchange believes that the proposed modification to the definition of Firm Facilitation trades is reasonable, equitable and not unfairly discriminatory because it would align the scope of such trades with how trades are characterized on at least one other options exchange, thereby encouraging greater harmonization across exchange. Additionally, the Exchange believes the proposed change is consistent with the Act because they it attract greater volume and liquidity to the Exchange, which would benefit all market participants by providing tighter quoting and better prices, all of which perfects the mechanism for a free and open market and national market system.
For these reasons, the Exchange believes that the proposal is consistent with the Act.
In accordance with section 6(b)(8) of the Act,
The Exchange notes that it operates in a highly competitive market in which market participants can readily favor competing venues. In such an environment, the Exchange must continually review, and consider adjusting, its fees and credits to remain competitive with other exchanges. For the reasons described above, the Exchange believes that the proposed rule change reflects this competitive environment.
No written comments were solicited or received with respect to the proposed rule change.
The foregoing rule change is effective upon filing pursuant to section 19(b)(3)(A)
At any time within 60 days of the filing of such proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings under section 19(b)(2)(B)
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's Internet comment form (
• Send an email to
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Securities and Exchange Commission (“Commission”).
Notice of an application for an order pursuant to: (a) Section 6(c) of the Investment Company Act of 1940 (“Act”) granting an exemption from sections 18(f) and 21(b) of the Act; (b) section 12(d)(1)(J) of the Act granting an exemption from section 12(d)(1) of the Act; (c) sections 6(c) and 17(b) of the Act granting an exemption from sections 17(a)(1), 17(a)(2) and 17(a)(3) of the Act; and (d) section 17(d) of the Act and rule 17d-1 under the Act to permit certain joint arrangements and transactions.
Hearing requests should be received by the Commission by 5:30 p.m. on June 6, 2016, and should be accompanied by proof of service on the applicants, in the form of an affidavit, or, for lawyers, a certificate of service. Pursuant to Rule 0-5 under the Act, hearing requests should state the nature of the writer's interest, any facts bearing upon the desirability of a hearing on the matter, the reason for the request, and the issues contested. Persons who wish to be notified of a hearing may request notification by writing to the Commission's Secretary.
Secretary, U.S. Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090; Applicants: 865 S. Figueroa Street, Suite 1800, Los Angeles, CA 90017.
Mark N. Zaruba, Senior Counsel, at (202) 551-6878 or Mary Kay Frech, Branch Chief, at (202) 551-6821 (Division of Investment Management, Chief Counsel's Office).
The following is a summary of the application. The complete application may be obtained via the Commission's Web site by searching for the file number, or an applicant using the Company name box, at
1. Each Trust is organized as a Delaware statutory trust and is registered under the Act as an open-end management investment company. The Corporation is a Maryland corporation and is registered as an open-end management investment company. Each Trust and the Corporation has issued one or more series, each of which has its own investment objective and its own investment policies.
2. The Funds may lend cash to banks or other entities by entering into repurchase agreements or purchasing short-term instruments. The Funds may also need to borrow money for temporary purposes. In order to meet an unexpected volume of redemptions or to cover unanticipated cash shortfalls, the Metropolitan West Funds have contracted for a revolving credit facility with the Bank of New York Mellon Corporation, and other lenders that may be added in the future to the lending syndicate (“Bank Borrowing”). The TCW Alternative Funds and TCW Funds, Inc. may in the future join this credit facility or enter into other arrangements with other bank lenders (each also a “Bank Borrowing”). The amount of borrowing under each of these lines of credit is limited to the amount specified by fundamental investment restrictions, the terms specified in the agreements, and/or other policies of the applicable Fund and section 18 of the Act.
3. If Funds that experience a cash shortfall were to draw down on their Bank Borrowing, they would pay interest at a rate that is likely to be higher than the rate that could be earned by non-borrowing Funds on investments in repurchase agreements and other short-term money market instruments of the same maturity as the Bank Borrowing (“Short-Term Instruments”). Applicants assert the difference between the higher rate paid on Bank Borrowing and what the bank pays to borrow under repurchase agreements or other arrangements represents the bank's profit for serving as the middleperson between a borrower and lender and is not attributable to any material difference in the credit quality or risk of such transactions.
4. The Funds seek to enter into master interfund lending agreements with each other (the “InterFund Program”) that would permit each Fund whose policies permit it to do so to lend money directly to and borrow money directly from other Funds for temporary purposes through the InterFund Program (an “Interfund Loan”). The Money Market Funds will not participate as borrowers. Applicants state that the requested will relief enable the Funds to access an available source of money and reduce costs incurred by the Funds that need to obtain loans for temporary purposes and permit those Funds that have cash
5. Applicants anticipate that the proposed InterFund Program would provide a borrowing Fund with significant savings at times when the cash position of the Fund is insufficient to meet temporary cash requirements. This situation could arise when shareholder redemptions exceed anticipated cash volumes and certain Funds have insufficient cash on hand to satisfy such redemptions. When the Funds liquidate portfolio securities to meet redemption requests, they often do not receive payment in settlement for up to three days (or longer for certain foreign transactions). However, redemption requests normally are effected on the day following the trade date. The proposed InterFund Program would provide a source of immediate, short-term liquidity pending settlement of the sale of portfolio securities.
6. Applicants also anticipate that a Fund could use the InterFund Program when a sale of securities “fails” due to circumstances beyond the Fund's control, such as a delay in the delivery of cash to the Fund's custodian or improper delivery instructions by the broker effecting the transaction. “Sales fails” may present a cash shortfall if the Fund has undertaken to purchase a security using the proceeds from securities sold. Alternatively, the Fund could: (i) “Fail” on its intended purchase due to lack of funds from the previous sale, resulting in additional cost to the Fund; or (ii) sell a security on a same-day settlement basis, earning a lower return on the investment. Use of the InterFund Program under these circumstances would enable the Fund to have access to immediate short-term liquidity.
7. While Bank Borrowing and/or custodian overdrafts generally could supply Funds with needed cash to cover unanticipated redemptions and sales fails, under the proposed InterFund Program, a borrowing Fund would pay lower interest rates than those that would be payable under short-term loans offered by banks or custodian overdrafts. In addition, Funds making short-term cash loans directly to other Funds would earn interest at a rate higher than they otherwise could obtain from investing their cash in Short-Term Instruments. Thus, applicants assert that the proposed InterFund Program would benefit both borrowing and lending Funds.
8. The interest rate to be charged to the Funds on any Interfund Loan (the “Interfund Loan Rate”) would be the average of the “Repo Rate” and the “Bank Loan Rate,” both as defined below. The Repo Rate would be the highest current overnight repurchase agreement rate available to a lending Fund. The Bank Loan Rate for any day would be calculated by the InterFund Program Team, as defined below, on each day an Interfund Loan is made according to a formula established by each Fund's board of trustees (the “Board”) intended to approximate the lowest interest rate at which a bank short-term loan would be available to the Fund. The formula would be based upon a publicly available rate (
9. Certain members of the Advisers' administration personnel (other than investment advisory personnel) (the “InterFund Program Team”) would administer the InterFund Program. No portfolio manager of any Fund will serve as a member of the InterFund Program Team. Under the proposed InterFund Program, the portfolio managers for each participating Fund could provide standing instructions to participate daily as a borrower or lender. The InterFund Program Team on each business day would collect data on the uninvested cash and borrowing requirements of all participating Funds. Once the InterFund Program Team has determined the aggregate amount of cash available for loans and borrowing demand, the InterFund Program Team will allocate loans among borrowing Funds without any further communication from the portfolio managers of the Funds. Applicants anticipate that there typically will be far more available uninvested cash each day than borrowing demand. Therefore, after the InterFund Program Team has allocated cash for Interfund Loans, the InterFund Program Team will invest any remaining cash in accordance with the standing instructions of the relevant portfolio manager or such remaining amounts will be invested directly by the portfolio managers of the Funds.
10. The InterFund Program Team would allocate borrowing demand and cash available for lending among the Funds on what the InterFund Program Team believes to be an equitable basis, subject to certain administrative procedures applicable to all Funds, such as the time of filing requests to participate, minimum loan lot sizes, and the need to minimize the number of transactions and associated administrative costs. To reduce transaction costs, each Interfund Loan normally would be allocated in a manner intended to minimize the number of participants necessary to complete the loan transaction. The method of allocation and related administrative procedures would be approved by the Board of each of the Funds, including a majority of the Board members who are not “interested persons,” as defined in section 2(a)(19) of the Act (“Independent Board Members”), to ensure that both borrowing and lending Funds participate on an equitable basis.
11. The InterFund Program Team, on behalf of the Advisers. would: (a) Monitor the Interfund Loan Rate and the other terms and conditions of the Interfund Loans; (b) limit the borrowings and loans entered into by each Fund to ensure that they comply with the Fund's investment policies and limitations; (c) implement and follow procedures designed to ensure equitable treatment of each Fund; and (d) make quarterly reports to the Board of each Fund concerning any transactions by the applicable Fund under the InterFund Program and the Interfund Loan Rate.
12. The Advisers, through the InterFund Program Team, would administer the InterFund Program as disinterested fiduciaries as part of their duties under the investment management and administrative agreements with each Fund and would receive no additional fee as compensation for its services in connection with the administration of the InterFund Program.
13. No Fund may participate in the InterFund Program unless: (a) The Fund has obtained shareholder approval for its participation, if such approval is required by law; (b) the Fund has fully disclosed all material information concerning the InterFund Program in its registration statement on Form N-1A; and (c) the Fund's participation in the InterFund Program is consistent with its
14. As part of the Board's review of the continuing appropriateness of a Fund's participation in the proposed credit facility as required by condition 14, the Board of the Fund, including a majority of the Independent Board Members, also will review the process in place to appropriately assess: (i) If the Fund participates as a lender, any effect its participation may have on the Fund's liquidity risk; and (ii) if the Fund participates as a borrower, whether the Fund's portfolio liquidity is sufficient to satisfy its obligations under the facility along with its other liquidity needs.
15. In connection with the InterFund Program, applicants request an order under section 6(c) of the Act exempting them from the provisions of sections 18(f) and 21(b) of the Act; under section 12(d)(1)(J) of the Act exempting them from section 12(d)(1) of the Act; under sections 6(c) and 17(b) of the Act exempting them from sections 17(a)(1), 17(a)(2), and 17(a)(3) of the Act; and under section 17(d) of the Act and rule 17d-1 under the Act to permit certain joint arrangements and transactions.
1. Section 17(a)(3) of the Act generally prohibits any affiliated person of a registered investment company, or affiliated person of an affiliated person, from borrowing money or other property from the registered investment company. Section 21(b) of the Act generally prohibits any registered management company from lending money or other property to any person, directly or indirectly, if that person controls or is under common control with that company. Section 2(a)(3)(C) of the Act defines an “affiliated person” of another person, in part, to be any person directly or indirectly controlling, controlled by, or under common control with, such other person. Section 2(a)(9) of the Act defines “control” as the “power to exercise a controlling influence over the management or policies of a company,” but excludes circumstances in which “such power is solely the result of an official position with such company.” Applicants state that the Funds may be under common control by virtue of having common investment advisers and/or by having common trustees, directors, managers and/or officers.
2. Section 6(c) of the Act provides that an exemptive order may be granted where an exemption is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act. Section 17(b) of the Act authorizes the Commission to exempt a proposed transaction from section 17(a) provided that the terms of the transaction, including the consideration to be paid or received, are fair and reasonable and do not involve overreaching on the part of any person concerned, and the transaction is consistent with the policy of the investment company as recited in its registration statement and with the general purposes of the Act. Applicants believe that the proposed arrangements satisfy these standards for the reasons discussed below.
3. Applicants assert that sections 17(a)(3) and 21(b) of the Act were intended to prevent a party with strong potential adverse interests to, and some influence over the investment decisions of, a registered investment company from causing or inducing the investment company to engage in lending transactions that unfairly inure to the benefit of such party and that are detrimental to the best interests of the investment company and its shareholders. Applicants assert that the proposed transactions do not raise these concerns because: (a) The Advisers, through the InterFund Program Team members, would administer the InterFund Program as disinterested fiduciaries as part of their duties under the investment management and administrative agreements with each Fund; (b) all Interfund Loans would consist only of uninvested cash reserves that the Fund otherwise would invest in short-term repurchase agreements or other short-term investments; (c) the Interfund Loans would not involve a greater risk than such other investments; (d) the lending Fund would receive interest at a rate higher than it could otherwise obtain through such other investments; and (e) the borrowing Fund would pay interest at a rate lower than otherwise available to it under its bank loan agreements or through custodian overdrafts and avoid the commitment fees associated with lines of credit. Moreover, applicants assert that the other terms and conditions that applicants propose also would effectively preclude the possibility of any Fund obtaining an undue advantage over any other Fund.
4. Section 17(a)(1) of the Act generally prohibits an affiliated person of a registered investment company, or any affiliated person of such a person, from selling securities or other property to the investment company. Section 17(a)(2) of the Act generally prohibits an affiliated person of a registered investment company, or any affiliated person of such a person, from purchasing securities or other property from the investment company. Section 12(d)(1) of the Act generally prohibits a registered investment company from purchasing or otherwise acquiring any security issued by any other investment company except in accordance with the limitations set forth in that section.
5. Applicants state that the obligation of a borrowing Fund to repay an Interfund Loan could be deemed to constitute a security for the purposes of sections 17(a)(1) and 12(d)(1). Applicants also state that any pledge of securities to secure an Interfund Loan by the borrowing Fund to the lending Fund could constitute a purchase of securities for purposes of section 17(a)(2) of the Act. Section 12(d)(1)(J) of the Act provides that the Commission may exempt persons or transactions from any provision of section 12(d)(1) if and to the extent that such exemption is consistent with the public interest and the protection of investors. Applicants contend that the standards under sections 6(c), 17(b), and 12(d)(1)(J) are satisfied for all the reasons set forth above in support of their request for relief from sections 17(a)(3) and 21(b) and for the reasons discussed below. Applicants state that the requested relief from section 17(a)(2) of the Act meets the standards of section 6(c) and 17(b) because any collateral pledged to secure an Interfund Loan would be subject to the same conditions imposed by any other lender to a Fund that imposes conditions on the quality of or access to collateral for a borrowing (if the lender is another Fund) or the same or better conditions (in any other circumstance).
6. Applicants state that section 12(d)(1) was intended to prevent the pyramiding of investment companies in order to avoid imposing on investors additional and duplicative costs and fees attendant upon multiple layers of investment companies. Applicants submit that the proposed InterFund Program does not involve these abuses. Applicants note that there will be no duplicative costs or fees to the Funds or their shareholders, and that each Adviser will receive no additional compensation for its services in administering the InterFund Program. Applicants also note that the purpose of the proposed InterFund Program is to provide economic benefits for all the participating Funds and their shareholders. Section 18(f)(1) of the Act prohibits open-end investment companies from issuing any senior security except that a company is permitted to borrow from any bank, provided, that immediately after the borrowing, there is asset coverage of at
7. Applicants believe that granting relief under section 6(c) is appropriate because the Funds would remain subject to the requirement of section 18(f)(1) that all borrowings of a Fund, including combined Interfund Loans and bank borrowings, have at least 300% asset coverage. Based on the conditions and safeguards described in the application, applicants also submit that to allow the Funds to borrow from other Funds pursuant to the proposed InterFund Program is consistent with the purposes and policies of section 18(f)(1).
8. Section 17(d) of the Act and rule 17d-1 under the Act generally prohibit an affiliated person of a registered investment company, or any affiliated person of such a person, when acting as principal, from effecting any joint transaction in which the investment company participates, unless, upon application, the transaction has been approved by the Commission. Rule 17d-1(b) under the Act provides that in passing upon an application filed under the rule, the Commission will consider whether the participation of the registered investment company in a joint enterprise, joint arrangement or profit sharing plan on the basis proposed is consistent with the provisions, policies and purposes of the Act and the extent to which such participation is on a basis different from or less advantageous than that of the other participants.
9. Applicants assert that the purpose of section 17(d) is to avoid overreaching by and an unfair advantage to insiders. Applicants assert that the InterFund Program is consistent with the provisions, policies and purposes of the Act in that it offers both reduced borrowing costs and enhanced returns on loaned funds to all participating Funds and their shareholders. Applicants note that each Fund would have an equal opportunity to borrow and lend on equal terms consistent with its investment policies and fundamental investment limitations. Applicants assert that each Fund's participation in the proposed InterFund Program would be on terms that are no different from or less advantageous than that of other participating Funds.
Applicants agree that any order granting the requested relief will be subject to the following conditions:
1. The Interfund Loan Rate will be the average of the Repo Rate and the Bank Loan Rate.
2. On each business day, when an interfund loan is to be made, the InterFund Program Team will compare the Bank Loan Rate with the Repo Rate and will make cash available for Interfund Loans only if the Interfund Loan Rate is: (a) More favorable to the lending Fund than the Repo Rate; and (b) more favorable to the borrowing Fund than the Bank Loan Rate.
3. If a Fund has outstanding Bank Borrowings, any Interfund Loan to the Fund will: (a) Be at an interest rate equal to or lower than the interest rate of any outstanding bank loan; (b) be secured at least on an equal priority basis with at least an equivalent percentage of collateral to loan value as any outstanding bank loan that requires collateral; (c) have a maturity no longer than any outstanding bank loan (and in any event not over seven days); and (d) provide that, if an event of default occurs under any agreement evidencing an outstanding bank loan to the Fund, that event of default by the Fund, will automatically (without need for action or notice by the lending Fund) constitute an immediate event of default under the interfund lending agreement which both (i) entitles the lending Fund to call the Interfund Loan immediately and exercise all rights with respect to any collateral and (ii) causes the call to be made if the lending bank exercises its right to call its loan under its agreement with the borrowing Fund.
4. A Fund may borrow on an unsecured basis through the InterFund Program only if the relevant borrowing Fund's outstanding borrowings from all sources immediately after the interfund borrowing total 10% or less of its total assets, provided that if the borrowing Fund has a secured loan outstanding from any other lender, including but not limited to another Fund, the lending Fund's Interfund Loan will be secured on at least an equal priority basis with at least an equivalent percentage of collateral to loan value as any outstanding loan that requires collateral. If a borrowing Fund's total outstanding borrowings immediately after an Interfund Loan would be greater than 10% of its total assets, the Fund may borrow through the InterFund Program only on a secured basis. A Fund may not borrow through the InterFund Program or from any other source if its total outstanding borrowings immediately after the borrowing would be more than 33
5. Before any Fund that has outstanding interfund borrowings may, through additional borrowings, cause its outstanding borrowings from all sources to exceed 10% of its total assets, it must first secure each outstanding Interfund Loan to a Fund by the pledge of segregated collateral with a market value at least equal to 102% of the outstanding principal value of the loan. If the total outstanding borrowings of a Fund with outstanding Interfund Loans exceed 10% of its total assets for any other reason (such as a decline in net asset value or because of shareholder redemptions), the Fund will within one business day thereafter either: (a) Repay all its outstanding Interfund Loans to other Funds; (b) reduce its outstanding indebtedness to other Funds to 10% or less of its total assets; or (c) secure each outstanding Interfund Loan to other Funds by the pledge of segregated collateral with a market value at least equal to 102% of the outstanding principal value of the loan until the Fund's total outstanding borrowings cease to exceed 10% of its total assets, at which time the collateral called for by this condition 5 shall no longer be required. Until each Interfund Loan that is outstanding at any time that a Fund's total outstanding borrowings exceed 10% of its total assets is repaid or the Fund's total outstanding borrowings cease to exceed 10% of its total assets, the Fund will mark the value of the collateral to market each day and will pledge such additional collateral as is necessary to maintain the market value of the collateral that secures each outstanding Interfund Loan to Funds at least equal to 102% of the outstanding principal value of the Interfund Loans.
6. No Fund may lend to another Fund through the InterFund Program if the loan would cause the lending Fund's aggregate outstanding loans through the InterFund Program to exceed 15% of its current net assets at the time of the loan.
7. A Fund's Interfund Loans to any one Fund shall not exceed 5% of the lending Fund's net assets.
8. The duration of Interfund Loans will be limited to the time required to receive payment for securities sold, but in no event more than seven days. Loans effected within seven days of each other will be treated as separate loan transactions for purposes of this condition.
9. A Fund's borrowings through the InterFund Program, as measured on the day when the most recent loan was made, will not exceed the greater of 125% of the Fund's total net cash redemptions for the preceding seven calendar days or 102% of a Fund's sales fails for the preceding seven calendar days.
10. Each Interfund Loan may be called on one business day's notice by a lending Fund and may be repaid on any day by a borrowing Fund.
11. A Fund's participation in the InterFund Program must be consistent with its investment restrictions, policies, limitations and organizational documents.
12. The InterFund Program Team will calculate total Fund borrowing and lending demand through the InterFund Program, and allocate Interfund Loans on an equitable basis among the Funds, without the intervention of any portfolio manager. The InterFund Program Team will not solicit cash for the InterFund Program from any Fund or prospectively publish or disseminate loan demand data to portfolio managers. The InterFund Program Team will invest all amounts remaining after satisfaction of borrowing demand in accordance with the standing instructions of the relevant portfolio manager or such remaining amounts will be invested directly by the portfolio managers of the Funds.
13. The InterFund Program Team will monitor the Interfund Loan Rate charged and the other terms and conditions of the Interfund Loans and will make a quarterly report to the Boards concerning the participation of the Funds in the InterFund Program and the terms and other conditions of any extensions of credit under the InterFund Program.
14. Each Board, including a majority of its Independent Board Members, will:
(a) Review, no less frequently than quarterly, the participation of each Fund it oversees in the InterFund Program during the preceding quarter for compliance with the conditions of any order permitting such participation;
(b) establish the Bank Loan Rate formula used to determine the interest rate on Interfund Loans;
(c) review, no less frequently than annually, the continuing appropriateness of the Bank Loan Rate formula; and
(d) review, no less frequently than annually, the continuing appropriateness of the participation in the InterFund Program by each Fund it oversees.
15. Each Fund will maintain and preserve for a period of not less than six years from the end of the fiscal year in which any transaction by it under the InterFund Program occurred, the first two years in an easily accessible place, written records of all such transactions setting forth a description of the terms of the transaction, including the amount, the maturity and the Interfund Loan Rate, the rate of interest available at the time each Interfund Loan is made on overnight repurchase agreements and Bank Borrowings, and such other information presented to the Boards of the Funds in connection with the review required by conditions 13 and 14.
16. In the event an Interfund Loan is not paid according to its terms and the default is not cured within two business days from its maturity or from the time the lending Fund makes a demand for payment under the provisions of the interfund lending agreement, the Adviser to the lending Fund promptly will refer the loan for arbitration to an independent arbitrator selected by the Board of any Fund involved in the loan who will serve as arbitrator of disputes concerning Interfund Loans.
17. The Advisers will prepare and submit to the Board for review an initial report describing the operations of the InterFund Program and the procedures to be implemented to ensure that all Funds are treated fairly. After the commencement of the InterFund Program, the Advisers will report on the operations of the InterFund Program at each Board's quarterly meetings. Each Fund's chief compliance officer, as defined in rule 38a-1(a)(4) under the Act, shall prepare an annual report for its Board each year that the Fund participates in the InterFund Program, that evaluates the Fund's compliance with the terms and conditions of the application and the procedures established to achieve such compliance. Each Fund's chief compliance officer will also annually file a certification pursuant to Item 77Q3 of Form N-SAR as such form may be revised, amended or superseded from time to time, for each year that the Fund participates in the InterFund Program, that certifies that the Fund and its Adviser have implemented procedures reasonably designed to achieve compliance with the terms and conditions of the order. In particular, such certification will address procedures designed to achieve the following objectives:
(a) That the Interfund Loan Rate will be higher than the Repo Rate but lower than the Bank Loan Rate;
(b) compliance with the collateral requirements as set forth in the application;
(c) compliance with the percentage limitations on interfund borrowing and lending;
(d) allocation of interfund borrowing and lending demand in an equitable manner and in accordance with procedures established by the Board; and
(e) that the Interfund Loan Rate does not exceed the interest rate on any third party borrowings of a borrowing Fund at the time of the Interfund Loan.
Additionally, each Fund's independent registered public accountants, in connection with their audit examination of the Fund, will review the operation of the InterFund Program for compliance with the conditions of the application and their review will form the basis, in part, of the auditor's report on internal accounting controls in Form N-SAR.
18. No Fund will participate in the InterFund Program, upon receipt of requisite regulatory approval, unless it has fully disclosed in its registration statement on Form N-1A (or any successor form adopted by the Commission) all material facts about its intended participation.
For the Commission, by the Division of Investment Management, under delegated authority.
Pursuant to Section 19(b)(1)
The Exchange proposes to amend Rule 98—Equities to provide that when Designated Market Makers (“DMM”) enter interest for the purpose of facilitating the execution of customer orders, such orders would not be required to be designated as DMM interest. The proposed rule change is available on the Exchange's Web site at
In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements.
The Exchange proposes to amend Rule 98—Equities (“Rule 98”) to provide that when DMMs enter interest on a proprietary basis for the purpose of facilitating the execution of customer orders, such orders would not be required to be designated as DMM interest.
In 2014, the Exchange amended Rule 98 to adopt a principles-based approach to prohibit the misuse of material nonpublic information by a member organization that operates a DMM unit and make conforming changes to other Exchange rules.
Rule 98(c) sets forth specified restrictions to operating a DMM unit.
Rule 98(c)(5) provides that a member organization must provide the Exchange with real-time net position information for trading in DMM securities by the DMM unit and any independent trading unit of which it is a part, at such times and in the manner prescribed by the Exchange. Rule 98(d) further specifies that the DMM rules
Because Rule 98(c)(4) currently requires that any interest entered into Exchange systems by the DMM unit in DMM securities be identifiable as DMM interest, a DMM unit integrated with a customer-facing unit that would send customer orders in DMM securities to the Exchange as proprietary interest must identify it as DMM interest. As a result, although agency orders are not subject to DMM rules, customer-driven interest entered on a proprietary basis is subject to all DMM rules.
To date, none of the member organizations operating a DMM have integrated a DMM unit with a customer-facing trading unit and the Exchange believes that the current rule requiring customer-driven orders that are represented on a proprietary basis be designated as DMM interest has served as a barrier to achieving such integration.
The Exchange proposes to amend Rule 98 to better reflect how member organizations that integrate DMM unit operations with customer-facing operations may facilitate customer-driven order flow to the Exchange in DMM securities. As noted above, one of the intended goals of the 2014 Filing was to permit member organizations to integrate DMM unit operations with other market-making operations, including customer-facing units. However, as discussed above, subjecting customer order flow that is entered on a proprietary basis to DMM rules may be inconsistent with a member organization's obligations to its customers, and thus continue to serve as a barrier to integrating DMM units within a member organization. Accordingly, the Exchange proposes to amend Rule 98 to facilitate better integration of DMM units with a member organization's existing customer-facing market-making trading units by specifying that, as with agency orders, customer-driven orders that are entered on a proprietary basis by the DMM unit would not be required to be designated as DMM interest.
The Exchange proposes to amend Rule 98 to provide that proprietary interest that is entered by a DMM unit for the purposes of facilitating customer orders would not be required to be designated as DMM interest. The Exchange proposes to replace the phrase “any interest” with the phrase “proprietary interest” in Rule 98(c)(4) to clarify that the existing rule only governs proprietary interest of a DMM unit,
The proposed definition of “customer-driven order” is not a novel concept in that other SROs rules define the concept of a proprietary order being entered to facilitate a customer order. For example, Supplementary Material .03 to FINRA Rule 5320 defines the term “facilitated order” to mean a proprietary trade that is for the purposes of facilitating the execution, on a riskless principal basis, of an order from a customer (whether its own customer or another broker-dealer).
The proposed rule change is designed to reflect how member organizations handle customer orders, which in many circumstances, are routed to an exchange on a proprietary basis to facilitate execution of a customer's order. Therefore, the Exchange believes that the proposed amendment is consistent with the current rule, which does not require agency orders entered by the member organization that operates a DMM unit to be subject to DMM rules.
The Exchange further proposes to amend Rule 98(c)(4) to specify that a DMM unit must use unique mnemonics that identify to the Exchange its customer-driven orders in DMM securities. Such mnemonics may not be used for trading activity at the Exchange in DMM securities that are not customer-driven orders, but may be used for trading activities in securities not assigned to the DMM. The Exchange believes that requiring a separate mnemonic for customer-driven orders would assist the Exchange in monitoring DMM unit compliance with the proposed rule.
The Exchange further proposes to amend Rule 98(d) to specify which rules would be applicable to trading by the DMM unit. As proposed, the rules, fees, or credits applicable to DMM quoting or trading activity would apply only to a DMM unit's quoting or trading in its DMM securities for its own account at the Exchange that has been identified as DMM interest. In addition, consistent with the proposal that customer-driven orders would not be required to be designated as DMM interest, the Exchange proposes to add text to Rule 98(d) to state that customer-driven orders for the account of a DMM unit that have not been identified as DMM interest would not be subject to DMM rules or be eligible for any fees or credits applicable to DMM quoting or trading activity.
The Rule 98(c)(5) obligation to provide the Exchange with real-time net position information in DMM securities would continue to be applicable to the DMM unit's position in DMM securities together with any position of a Regulation SHO independent trading unit of which the DMM unit may be included, regardless of whether they are positions resulting from trades in away markets, trades as a result of DMM interest entered at the Exchange, or customer-driven orders routed to the Exchange that were not identified as DMM interest.
The basis under the Act for this proposed rule change is the requirement under Section 6(b)(5)
The Exchange believes that the proposed amendment to define the term “customer-driven order” to be proprietary interest of a DMM that is for the purposes of facilitating the execution of an order received from a customer (whether its own customer or the customer of another broker-dealer) on a riskless principal basis or on a principal basis to provide price improvement to the customer reflects the current reality of how broker-dealers facilitate customer orders that are routed to an exchange. Specifically, after receiving a customer order, such customer order is routed to an exchange on a proprietary basis, and once an execution is received from an exchange, the execution is provided to the customer either on a riskless principal basis or with price improvement. Facilitating customer orders on a proprietary basis is not a novel concept and serves as the basis of the definition of the term “facilitated order” in Supplementary Material .03 to FINRA Rule 5320. While the Exchange proposes that customer-driven orders for the purposes of Rule 98 would not be required to be executed only on a riskless principal basis, but could also be executed on a principal basis to provide price improvement to the customer, this difference does not alter the premise of how member organizations facilitate customer orders, as already established in Rule 5320.03. Because the proposed definition is narrowly defined to reflect how customer orders are facilitated on a proprietary basis when routed to an exchange, the Exchange believes that the proposed amendment to Rule 98(c)(4) to define the term “customer-driven order” would remove impediments to and perfect the mechanism of a free and open market.
The Exchange believes that requiring a DMM unit to use unique mnemonics to identify customer-driven orders in DMM securities would promote just and equitable principles of trade because requiring such orders to be entered using unique mnemonics would assist the Exchange in monitoring DMM unit compliance with the proposed rule.
The Exchange further believes that providing DMM units with a choice of whether to designate a customer-driven order as DMM interest would remove impediments to and perfect the mechanism of a free and open market because certain DMM rules may conflict with a broker-dealer's obligation to its customers. As discussed in the 2014 Filing, agency orders entered by a member organization that operates a DMM unit are not subject to DMM rules.
The proposed rule change would further be consistent with the protection of investors and the public interest because it would enable customer-driven orders to not be subject to DMM rules and eliminate any conflict with customer instructions or best execution obligations. The Exchange notes that this proposed rule change would not alter in any way a member organization's existing obligations under Section 15(g) of the Act,
The Exchange further believes that the proposed amendments to Rule 98(d) would remove impediments to and perfect the mechanism of a free and open market by promoting transparency in Exchange rules regarding which rules, fees or credits applicable to DMM quoting or trading activity would be applicable to which interest. More specifically, the Exchange believes that it would remove impediments to and
Finally, the Exchange believes that the proposed amendment to Rule 98(c)(5) would remove impediments to and perfect the mechanism of a free and open market by removing extraneous rule text, thus promoting simplicity in Exchange rules.
The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposed rule change is designed to be pro-competitive because it would remove a restriction unique to DMMs as specified in Rule 98, thus enabling existing customer-facing market making units to operate as a DMM unit at the Exchange without needing to change the manner by which they may facilitate customer orders on a proprietary basis at an exchange. The proposed rule change would also harmonize the Exchange's rules with recently approved amendments to NYSE Rule 98.
No written comments were solicited or received with respect to the proposed rule change.
The Exchange has filed the proposed rule change pursuant to Section 19(b)(3)(A) of the Act
A proposed rule change filed under Rule 19b-4(f)(6)
At any time within 60 days of the filing of such proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings under Section 19(b)(2)(B)
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's Internet comment form (
• Send an email to
• Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to Section 19(b)(1)
The Exchange proposes to amend its Price List to make a clarifying change regarding the rebate program recently implemented by the Exchange for the NYSE Bonds
In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements.
The Exchange proposes to amend its Price List to make a clarifying change regarding the rebate program recently implemented by the Exchange for the NYSE Bonds system.
Pursuant to the Liquidity Provider Incentive Program, a voluntary rebate program, the Exchange pays Users
The rebate amount is tiered based on the number of CUSIPs quoted by a User, as follows:
To qualify for a rebate, a User is required to provide continuous two-sided quotes for at least eighty percent (80%) of the time during the Core Bond Trading Session for an entire calendar month.
The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act,
In accordance with Section 6(b)(8) of the Act,
No written comments were solicited or received with respect to the proposed rule change.
Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act
A proposed rule change filed pursuant to Rule 19b-4(f)(6) normally does not become operative for 30 days after the date of its filing. However, pursuant to Rule 19b-4(f)(6)(iii), the Commission may designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has asked the Commission to waive the 30-day operative delay so that the proposal may become operative immediately upon filing. The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest as it will allow the Exchange to clarify the application of its rebate program and therefore reduce confusion in the application of the Exchange's Price List. Therefore, the Commission hereby waives the operative delay and designates the proposed rule change operative upon filing.
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved.
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's Internet comment form (
• Send an email to
• Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
U.S. Small Business Administration.
Amendment 2.
This is an amendment of the Presidential declaration of a major disaster for the State of Texas (FEMA-4269-DR), dated 04/25/2016.
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 Presidential disaster declaration for the State of Texas, dated 04/25/2016 is hereby amended to include the following areas as adversely affected by the disaster:
All other information in the original declaration remains unchanged.
U.S. Small Business Administration.
Notice.
This is a notice of an Administrative declaration of a disaster for the State of New York dated 05/10/2016.
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 14719 5 and for economic injury is 14720 0.
The State which received an EIDL Declaration # is New York.
U.S. Small Business Administration.
Notice.
This is a notice of an Economic Injury Disaster Loan (EIDL) declaration for the State of IDAHO, dated 05/09/2016.
Incident: Landslide and State Highway 14 Closure.
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 EIDL declaration, applications for economic injury 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 economic injury is 147160.
The States which received an EIDL Declaration # are Idaho, Montana, Oregon.
Social Security Administration.
Notice of public availability of FY 2015 Service Contract inventories.
In accordance with section 743 of Division C of the Consolidated Appropriations Act of 2010 (Pub. L. 111-117), we are publishing this notice to advise the public of the availability of the FY 2015 Service Contract inventory. This inventory provides information on FY 2015 service contract actions over $25,000. We organized the information by function to show how we distribute contracted resources throughout the agency. We developed the inventory in accordance with guidance issued on December 19, 2011 by the Office of Management and Budget's Office of Federal Procurement Policy (OFPP). OFPP's guidance is available at
Maria Radvansky, Office of Budget, Social Security Administration, 6401 Security Boulevard, Baltimore, MD
Pursuant to section 7058(c) of the Department of State, Foreign Operations, and Related Appropriations Act, 2015 (Div. J, Pub. L. 113-235) and the authority delegated to her by the Secretary of State under Delegation of Authority 245-1, notice is hereby given that, on April 5, 2016, Deputy Secretary of State for Management and Resources Heather Higginbottom has determined that an international outbreak of the Zika virus is sustained, severe, and is spreading internationally, and that it is in the national interest to respond to the related Public Health Emergency of International Concern.
Aditi Nigam, U.S. Department of State, 2201 C Street NW., Washington, DC 20520, (202) 647-4029,
Section 7058(c) of the Department of State, Foreign Operations, and Related Programs Appropriations Act, 2015 (Div. J, P.L. 113-235) provides that:
If the Secretary of State determines and reports to the Committees on Appropriations that an international infectious disease outbreak is sustained, severe, and is spreading internationally, or that it is in the national interest to respond to a Public Health Emergency of International Concern, funds made available under title III of this Act may be made available to combat such infectious disease or public health emergency: Provided, That funds made available pursuant to the authority of this subsection shall be subject to prior consultation with, and the regular notification procedures of, the Committees on Appropriations.
Exercising this authority with respect to the Zika virus outbreak allows funds made available in the bilateral economic assistance accounts in the Department of State, Foreign Operations, and Related Programs Appropriations Act, 2015 to be used to respond to the Zika outbreak.
Notice of request for public comment and submission to OMB of proposed collection of information.
The Department of State has submitted the information collection described below to the Office of Management and Budget (OMB) for approval. In accordance with the Paperwork Reduction Act of 1995 we are requesting comments on this collection from all interested individuals and organizations. The purpose of this Notice is to allow 30 days for public comment.
Submit comments directly to the Office of Management and Budget (OMB) up to June 16, 2016.
Direct comments to the Department of State Desk Officer in the Office of Information and Regulatory Affairs at the Office of Management and Budget (OMB). You may submit comments by the following methods:
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Direct requests for additional information regarding the collection listed in this notice, including requests for copies of the proposed collection instrument and supporting documents, to Stacey May, U.S. Department of State, DRL/EAP Suite 7817, 2201 C St. NW., Washington, DC 20520, who may be reached on 202-647-8260 or at
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We are soliciting public comments to permit the Department to:
• Evaluate whether the proposed information collection is necessary for the proper functions of the Department.
• Evaluate the accuracy of our estimate of the time and cost burden for this proposed collection, including the validity of the methodology and assumptions used.
• Enhance the quality, utility, and clarity of the information to be collected.
• Minimize the reporting burden on those who are to respond, including the use of automated collection techniques or other forms of information technology.
Please note that comments submitted in response to this Notice are public record. Before including any detailed personal information, you should be aware that your comments as submitted, including your personal information, will be available for public review.
Section 203(a)(1)(B) of the International Emergency Economic Powers Act (IEEPA) grants the President authority to, inter alia, prevent or prohibit any acquisition or transaction involving any property, in which a foreign country or a national thereof has any interest, by any person, or with respect to any property, subject to the jurisdiction of the United States, if the President declares a national emergency with respect to any unusual and extraordinary threat, which has its source in whole or substantial part outside the United States, to the national security, foreign policy, or economy of the United States.
In Executive Order 13047 of May 20, 1997, the President determined that the actions and policies of the Government
In response to several political reforms by the Government of Burma and pursuant to authority granted by IEEPA, the Department of the Treasury's Office of Foreign Assets Control (OFAC) issued a general license (GL 17) on July 11, 2012 authorizing new investment in Burma, subject to certain restrictions and conditions.
In order to support the Department of State's efforts to assess the extent to which new U.S. investment authorized by GL 17 furthers U.S. foreign policy goals of improving human rights protections and facilitating political reform in Burma, GL 17 requires U.S. persons engaging in new investment in Burma to report to the Department of State information related to such investment, as laid out in the “Reporting Requirements on Responsible Investment in Burma,” (hereafter referred to as the “collection”). This collection is authorized by section 203(a)(2) of IEEPA, which grants the President authority to keep a full record of, and to furnish under oath, in the form of reports or otherwise, complete information relative to any act or transaction referred to in section 203(a)(1) of IEEPA.
The Department of State will collect the information requested via electronic submission.
It is the overarching policy goal of the U.S. Government to support political reform in Burma towards the establishment of a peaceful, prosperous, and democratic state that respects human rights and the rule of law. In the past, some foreign investment in Burma has been linked to human rights abuses, particularly in the area of natural resource development in ethnic minority regions. For example, some foreign investments have entailed acquisition and control of land in disputed ethnic minority territories exacerbating or contributing to both social unrest and armed conflict and leading to adverse community and/or environmental impacts. Increased military/security presence, particularly in disputed ethnic minority areas, to provide security for foreign investment projects is reported to have led to seizures of farm land, involuntary relocations, forced labor, torture, summary execution, and sexual violence.
The collection will help the Department of State, in consultation with other relevant government agencies, to evaluate whether easing the ban on investment by U.S. persons advances U.S. foreign policy goals to address the national emergency with respect to Burma. In addition, the Department of State will use the collection as a basis to conduct informed consultations with U.S. businesses to encourage and assist such businesses to develop robust policies and procedures to address any potential adverse human rights, worker rights, anti-corruption, environmental, or other impacts resulting from their investments and operations in Burma. The Department of State will use the collection of information about new investment with the Myanmar Oil and Gas Enterprise (MOGE) to track investment that involves MOGE and to identify investors with whom it may be beneficial to have targeted consultation on anti-corruption and human rights policies. The public, including civil society actors in Burma, may use publicly available information resulting from the collection to engage U.S. businesses on their responsible investment policies and procedures and to monitor the Burmese government's management of revenues from investment.
U.S. persons to whom this requirement applies will be required to submit a version of the report to the U.S. Government for public release, from which information considered in good faith to be exempt from disclosure under FOIA Exemption 4—
Burmese civil society groups, particularly those representing ethnic minority communities, have requested that the Department of State make public certain information obtained through the collection on investments purportedly made for the benefit of the Burmese people, as a means of holding their own government accountable. Nobel Peace Prize laureate Aung San Suu Kyi, leader of Burma's democratic opposition party and recently elected to a seat in Burma's parliament, also underscored the importance of transparency in her recent remarks in Bangkok, noting that she did not want “more investment to mean more possibilities for corruption.” This was among the most specific of the recommendations she made to the international community, stressing that “Transparency is very important if we are going to avoid problems in the future . . . So whatever investments, governmental agreements, whatever aid might be proposed, please make sure that it is transparent, that the people of Burma are in a position to understand what has been done, and how and for whom the benefits are intended.”
Therefore public release of portions of this collection is aimed at providing civil society this type of information to both ensure the transparency of U.S. investment in Burma and to encourage civil society to partner with their government and U.S. companies towards building responsible investment, which ultimately promotes U.S. foreign policy goals.
Notice of request for public comment.
The Department of State is seeking Office of Management and Budget (OMB) approval for the information collection described below. In accordance with the Paperwork Reduction Act of 1995, we are requesting comments on this collection from all interested individuals and organizations. The purpose of this notice is to allow 60 days for public comment preceding submission of the collection to OMB.
The Department will accept comments from the public up to July 18, 2016.
You may submit comments by any of the following methods:
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You must include the DS form number (if applicable), information collection title, and the OMB control number in any correspondence.
Direct requests for additional information regarding the collection listed in this notice to: Steve Derscheid—PM/DDTC, SA-1, 12th Floor, Directorate of Defense Trade Controls, Bureau of Political-Military Affairs, U.S. Department of State, Washington, DC 20522-0112, who may be reached via email at
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We are soliciting public comments to permit the Department to:
• Evaluate whether the proposed information collection is necessary for the proper functions of the Department.
• Evaluate the accuracy of our estimate of the time and cost burden for this proposed collection, including the validity of the methodology and assumptions used.
• Enhance the quality, utility, and clarity of the information to be collected.
• Minimize the reporting burden on those who are to respond, including the use of automated collection techniques or other forms of information technology.
Please note that comments submitted in response to this Notice are public record. Before including any detailed personal information, you should be aware that your comments as submitted, including your personal information, will be available for public review.
The export, temporary import, and brokering of defense articles, defense services, and related technical data are licensed by the Directorate of Defense Trade Controls (DDTC) in accordance with the International Traffic in Arms Regulations (“ITAR,” 22 CFR parts 120-130) and section 38 of the Arms Export Control Act.
ITAR § 126.18 eliminates, subject to certain conditions, the requirement for an approval by DDTC of the transfer of unclassified defense articles, which includes technical data, to or within a foreign business entity, foreign governmental entity, or international organization that is an authorized end-user or consignee (including transfers to approved sub-licensees) for defense articles, including the transfer to dual nationals or third-country nationals who are bona fide regular employees directly employed by the foreign consignee or end-user.
To use ITAR § 126.18, effective procedures must be in place to prevent diversion to any destination, entity, or for purposes other than those authorized by the applicable export license or other authorization. Those conditions can be met by requiring a security clearance approved by the host nation government for its employees, or the end-user or consignee have in place a process to screen all its employees and to have executed a Non-Disclosure Agreement that provides assurances that the employee will not transfer any defense articles to persons or entities unless specifically authorized by the consignee or end-user. ITAR § 126.18(c)(2) also provides that the technology security/clearance plans and screening records shall be made available to DDTC or its agents for law enforcement purposes upon request.
When information kept on file pursuant to this recordkeeping requirement is required to be sent to the Directorate of Defense Trade Controls, it may be sent electronically or by mail according to guidance given by DDTC.
Notice of request for public comment.
The Department of State is seeking Office of Management and Budget (OMB) approval for the information collection described below. In accordance with the Paperwork Reduction Act of 1995, we are requesting comments on this collection from all interested individuals and organizations. The purpose of this notice is to allow 60 days for public comment preceding submission of the collection to OMB.
The Department will accept comments from the public up to July 18, 2016.
You may submit comments by any of the following methods:
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You must include the DS form number (if applicable), information collection title, and the OMB control number in any correspondence.
Direct requests for additional information regarding the collection listed in this notice, including requests for copies of the proposed collection instrument and supporting documents, to PPT Forms Officer, U.S. Department of State, CA/PPT/S/L, 44132 Mercure Cir., P.O. Box 1227, Sterling, VA 20166-1227, or at
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We are soliciting public comments to permit the Department to:
• Evaluate whether the proposed information collection is necessary for the proper functions of the Department.
• Evaluate the accuracy of our estimate of the time and cost burden for this proposed collection, including the validity of the methodology and assumptions used.
• Enhance the quality, utility, and clarity of the information to be collected.
• Minimize the reporting burden on those who are to respond, including the use of automated collection techniques or other forms of information technology.
Please note that comments submitted in response to this Notice are public record. Before including any detailed personal information, you should be aware that your comments as submitted, including your personal information, will be available for public review.
The information collected on the DS-82 is used to facilitate the issuance of passports to U.S. citizens and nationals. The primary purpose of soliciting the information is to establish citizenship, identity, and entitlement to the issuance of the U.S. passport or related service, and to properly administer and enforce the laws pertaining to the issuance thereof.
The DS-82 solicits data necessary for Passport Services to issue a United States passport (book and/or card format) in the exercise of authorities granted to the Secretary of State in 22 United States Code (U.S.C.) section 211a
The issuance of U.S. passports requires the determination of identity, nationality, and entitlement, with reference to the provisions of title III of the Immigration and Nationality Act (INA) (8 U.S.C. 1401-1504), the 14th Amendment to the Constitution of the United States, other applicable treaties and laws and implementing regulations at 22 CFR part 50 and 51. The specific regulations pertaining to the Application for a U.S. Passport by Mail are at 22 CFR 51.20 and 51.21
Passport Services collects information from U.S. citizens and non-citizen nationals who complete and submit the U.S. Passport Renewal Application. Passport applicants can either download the DS-82 from the internet or obtain one from an Acceptance Facility/Passport Agency. The form must be completed, signed, and submitted along with the applicant's previous U.S. passport.
U.S. citizens overseas may download the DS-82 from the Internet or obtain one from the nearest U.S. embassy or consulate, along with the procedures to be followed when applying overseas.
The Privacy Act statement has been amended to clarify that an applicant's failure to provide his or her Social Security number may result in the denial of an application, consistent with section 32101 of the Fixing America's Surface Transportation Act (Pub. L. 114-94), which authorizes the Department to deny U.S. passport applications when the applicant failed to include his or her Social Security number. It also makes clear that failure to include one's Social Security number may also subject the applicant to a penalty enforced by the International Revenue Service. These requirements and the underlying legal authorities are further described on page 3 of the instructions titled “Federal Tax Law” which has also been amended to include a reference to Public Law 114-94.
Federal Aviation Administration (FAA), DOT.
Notice and request for comments; withdrawal.
This action withdraws the Notice to collect information to process and report Unmanned Aircraft Systems (UAS) airborne and ground based observations by the public of drone behavior that they consider suspicious or illegal. The document contained errors, and needs further clarification.
May 17, 2016.
Ronda Thompson, Room 441, Federal Aviation Administration, ASP-110, 950 L'Enfant Plaza SW., Washington, DC 20024, by phone at (202) 267-1416, or by email at
The FAA published in the
In consideration of the foregoing, the Notice and request for comments as published in the
Federal Highway Administration (FHWA), Department of Transportation (DOT).
Notice.
This notice provides information regarding FHWA's finding that a Buy America waiver is appropriate for the obligation of Federal-aid funds for 34 State projects involving the acquisition of vehicles and equipment on the condition that they be assembled in the U.S.
The effective date of the waiver is May 18, 2016.
For questions about this notice, please contact Mr. Gerald Yakowenko, FHWA Office of Program Administration, telephone 202-366-1562, or via email at
An electronic copy of this document may be downloaded from the
This notice provides information regarding FHWA's finding that a Buy America waiver is appropriate for the obligation of Federal-aid funds for 34 State projects involving the acquisition of vehicles (including sedans, vans, pickups, trucks, buses, and street sweepers) and equipment (such as trail grooming equipment) on the condition that they be assembled in the U.S. The waiver would apply to approximately 2,528 vehicles and equipment acquisitions. The requests for the fourth quarter of calendar year 2015, available at
Title 23, section 635.410, Code of Federal Regulations (23 CFR 635.410) requires that steel or iron materials (including protective coatings) that will be permanently incorporated in a Federal-aid project must be manufactured in the U.S. For FHWA, this means that all the processes that modified the chemical content, physical shape or size, or final finish of the material (from initial melting and mixing, continuing through the bending and coating) occurred in the U.S. The statute and regulations create a process for granting waivers from the Buy America requirements when its application would be inconsistent with the public interest or when satisfactory quality domestic steel and iron products are not sufficiently available.
In 1983, FHWA determined that it was both in the public interest and consistent with the legislative intent to waive Buy America for manufactured products other than steel manufactured products. However, FHWA's national waiver for manufactured products does not apply to the requests in this notice because they involve predominately steel and iron manufactured products. The FHWA's Buy America requirements do not have special provisions for applying Buy America to “rolling stock” such as vehicles or vehicle components (see 49 U.S.C. 5323(j)(2)(C), 49 CFR 661.11, and 49 U.S.C. 24405(a)(2)(C) for examples of Buy America rolling stock provisions for other DOT agencies).
Based on all the information available to the agency, FHWA concludes that there are no domestic manufacturers that produce the vehicles and vehicle components identified in this notice in such a way that their steel and iron elements are manufactured domestically. The FHWA's Buy America requirements were tailored to the types of products that are typically used in highway construction, which generally meet the requirement that steel and iron materials be manufactured domestically. In today's global industry, vehicles are assembled with iron and steel components that are manufactured all over the world. The FHWA is not aware of any domestically produced vehicle on the market that meets FHWA's Buy America requirement to have all its iron and steel be manufactured exclusively in the U.S. For example, the Chevrolet Volt, which was identified by many commenters in a November 21, 2011,
In accordance with Division K, section 122 of the Consolidated and Further Continuing Appropriations Act of 2015 (Pub. L. 113-235), FHWA published a notice of intent to issue a waiver on its Web site at
Based on FHWA's conclusion that there are no domestic manufacturers that can produce the vehicles and equipment identified in this notice in such a way that steel and iron materials are manufactured domestically, and after consideration of the comments received, FHWA finds that application of FHWA's Buy America requirements to these products is inconsistent with the public interest (23 U.S.C. 313(b)(1) and 23 CFR 635.410(c)(2)(i)).
However, FHWA believes that it is in the public interest and consistent with the Buy America requirements to impose the condition that the vehicles and the vehicle components be assembled in the U.S. Requiring final assembly to be performed in the U.S. is consistent with past guidance to FHWA Division Offices on manufactured products (see Memorandum on Buy America Policy Response, December 22,
In accordance with the provisions of section 117 of the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users, Technical Corrections Act of 2008 (Pub. L. 110-244), FHWA is providing this notice of its finding that a public interest waiver of Buy America requirements is appropriate on the condition that the vehicles and equipment identified in the notice be assembled in the U.S. The FHWA invites public comment on this finding for an additional 15 days following the effective date of the finding. Comments may be submitted to FHWA's Web site via the link provided to the waiver page noted above.
23 U.S.C. 313; PL 110-161; 23 CFR 635.410.
Federal Highway Administration (FHWA), Department of Transportation (DOT).
Notice.
This notice provides information regarding FHWA's finding that a Buy America waiver is appropriate for the use of non-domestic motor and machinery brakes (maximum torque 100 ft-lb, wheel size 8 inches) for the rehabilitation of a bascule bridge in Port Clinton, Ohio.
The effective date of the waiver is May 18, 2016.
For questions about this notice, please contact Mr. Gerald Yakowenko, FHWA Office of Program Administration, 202-366-1562, or via email at
An electronic copy of this document may be downloaded from the
The FHWA's Buy America policy in 23 CFR 635.410 requires a domestic manufacturing process for any steel or iron products (including protective coatings) that are permanently incorporated in a Federal-aid construction project. The regulation also provides for a waiver of the Buy America requirements when the application would be inconsistent with the public interest or when satisfactory quality domestic steel and iron products are not sufficiently available. This notice provides information regarding FHWA's finding that a Buy America waiver is appropriate for use of non-domestic motor and machinery brake systems (maximum torque 100 ft-lb, wheel size 8 inches) for rehabilitation of a bascule bridge in Port Clinton, Ohio.
In accordance with Division K, section 122 of the Consolidated and Further Continuing Appropriations Act of 2015 (Pub. L. 113-235), FHWA published a notice of intent to issue a waiver on its Web site
In accordance with the provisions of section 117 of the SAFETEA-LU Technical Corrections Act of 2008 (Pub. L. 110-244), FHWA is providing this notice that a waiver of Buy America requirements is appropriate. The FHWA invites public comment on this finding for an additional 15 days following the effective date of the finding. Comments may be submitted to FHWA's Web site via the link provided to the waiver page noted above.
23 U.S.C. 313; Public Law 110-161, 23 CFR 635.410.
Federal Transit Administration, DOT.
Notice of proposed Buy America waiver and request for comment.
The Federal Transit Administration (FTA) received a formal request from the Pace Suburban Bus Division of the Regional Transportation Authority (Pace) for a Buy America non-availability waiver to purchase 188 Dodge Caravan minivans for its vanpool program. Minivans are considered rolling stock and are subject to the Buy America waiver set forth in 49 U.S.C. 5323(j)(2)(C), which requires that minivans (i) contain more than 60 percent domestic content, and (ii) final assembly of the vehicles occurs in the United States. Although initially Pace sought only a waiver of the requirement that final assembly take place in the United States, Pace now seeks a waiver of both requirements. Because FTA is aware of at least four manufacturers that can meet the final assembly requirement, however, FTA is proposing a waiver of only the domestic content requirement for non-ADA-accessible minivans. This waiver would apply to all procurements of non-ADA-accessible minivans by any FTA grantee and would be limited to contracts entered into before September 30, 2019 or until a fully compliant domestic source becomes available, whichever is earlier. In accordance with 49 U.S.C. 5323(j)(3)(A), FTA is providing notice of this proposed waiver and seeks public and industry comment on whether FTA should grant the waiver.
Comments must be received by May 31, 2016. Late-filed comments will be considered to the extent practicable.
Please submit your comments by one of the following means, identifying your submissions by docket number FTA-2016-0025:
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Laura Ames, FTA Attorney-Advisor, at (202) 366-2743 or
By way of background, Pace operates a vanpool program in the Chicago suburban area with more than 785 vehicles in service. A vanpool vehicle is defined, in pertinent part, as a vehicle with a seating capacity of at least six adults (not including the driver).
In October 2014, Pace issued an invitation for bid (IFB) for a five-year contract for the purchase of seven-person minivans. The successful bidder, Napoleon Fleet, Inc., proposed providing Chrysler Dodge Caravan minivans, but certified that the vehicles were not compliant with the Buy America requirement that the vehicles be assembled in the United States. Chrysler manufactures its minivans in Windsor, Ontario, Canada. On April 15, 2015, Pace requested a Buy America non-availability waiver for the procurement of 188 Dodge Caravan minivans based on the final assembly requirement only. Pace believed that the vehicles it proposed to purchase met the domestic content requirement.
In August 2015 and November 2015, Pace conducted pre-award Buy America audits of the Dodge Caravan minivans and discovered that Chrysler did not meet the current domestic content requirement of more than 60%. Pace notified FTA that the audit showed a 57.4% domestic content for 2015 minivans and only 52% domestic content for 2016 minivans. Pace, therefore, is requesting a waiver on the grounds that a seven-person minivan that complies with Buy America's domestic content and final assembly requirements is not available.
In addition to the request from Pace, FTA has received inquiries from other grantees and manufacturers about the asserted non-availability of minivans for their vanpool fleet that meet both requirements of Buy America. Therefore, FTA proposes to grant a general Buy America waiver from the domestic content requirement for non-ADA-accessible minivans procured pursuant to contracts entered into before September 30, 2019, or until a fully-compliant domestic source becomes available, whichever is earlier.
With certain exceptions, FTA's Buy America statute prevents FTA from obligating an amount that may be appropriated to carry out its program for a project unless “the steel, iron, and manufactured goods used in the project are produced in the United States.” 49 U.S.C. 5323(j)(1). A manufactured product is considered produced in the United States if: (1) All of the manufacturing processes for the product must take place in the United States; and (2) All of the components of the product must be of U.S. origin. A component is considered of U.S. origin if it is manufactured in the United States, regardless of the origin of its subcomponents. 49 CFR 661.5(d). If, however, FTA determines that “the steel, iron, and goods produced in the United States are not produced in a sufficient and reasonably available amount or are not of a satisfactory quality,” then FTA may issue a waiver (non-availability waiver). 49 U.S.C. 5323(j)(2)(B); 49 CFR 661.7(c).
The requirement that manufactured goods be produced in the United State may be waived for rolling stock if (i) the cost of components and subcomponents produced in the United States for fiscal years 2016 and 2017 is more than 60 percent of the cost of all components of the rolling stock; and (ii) final assembly of the rolling stock occurs in the United States.
FTA funds the procurement of between 2,500 and 3,000 minivans annually, including both ADA-accessible vans and non-ADA-accessible vans. The challenges associated with buying minivans that comply with FTA's Buy America statute and regulations have been well documented over the past six years. In 2010, El Dorado National, Kansas and Chrysler Group LLC petitioned FTA for a waiver of the Buy America final assembly requirement. In response to the request FTA published a notice in the
On November 27, 2012, FTA rescinded the non-availability waiver for minivans, finding that the manufacturer of the MV-1 was a domestic manufacturer of eligible paratransit vehicles and could meet both the domestic content and the final assembly requirements for rolling stock under Buy America.
On November 27, 2013, FTA issued a one-time, limited Buy America waiver of the final assembly requirement to the North Front Range Metropolitan Planning Organization (NFRMPO), for the purchase of 25 seven-passenger minivans, based upon non-availability.
The market for non-ADA accessible minivans has changed since 2013. In 2013, the Chrysler minivan met the domestic content requirements but was not assembled in the United States. FTA issued a non-availability waiver for final assembly because more than 60 percent of the minivan's components were produced in the United States. Today, Chrysler does not meet either Buy America requirements. However, there are at least four manufacturers—GMC, Ford, Honda and Toyota—that make non-ADA-accessible minivans that are assembled in the U.S.
Because there are at least four minivans manufacturers who assemble their vehicles in the United States, FTA will not grant Pace a non-availability waiver for both final assembly and domestic content. Instead, in order to maintain U.S. jobs and obtain the benefits of the Buy America statute, FTA proposes to grant a general waiver of only the domestic content requirement for non-ADA-accessible minivans. This waiver would apply to all procurements of non-ADA-accessible minivans and is limited to contracts entered into before September 30, 2019 or until a fully-compliant domestic source becomes available, whichever is earlier. Because the non-ADA-accessible minivans are production line vehicles sold to the general public (
This waiver would not apply to ADA-accessible minivans because such vehicles are available that meet the Buy America requirements.
FTA is publishing this Notice to seek public and industry comment from all interested parties in accordance with 49 U.S.C. 5323(j)(3)(A). Such information and comments will help FTA understand completely the facts surrounding the request, including the merits of the request. A full copy of the request has been placed in docket number FTA-2016-0025.
Federal Transit Administration (FTA), Department of Transportation (DOT).
Notice of Safety Advisory.
The Federal Transit Administration (FTA) issued Safety Advisory 16-2 regarding contact rail system hazards on rail fixed guideway public transportation systems (RFGPTSs). A letter to the Managers of State Safety Oversight (SSO) programs with RFGPTSs that use a contact rail system, was also issued requesting data and information on contact rail system hazards occurring during calendar year 2015. Safety Advisory 16-2 and the accompanying letter are available in their entirety on the FTA public Web site at
FTA is asking the managers of the SSO programs to submit the requested data and information 90 days from issuance of the advisory.
For program matters, Sam Shelton, Office of System Safety, telephone (202) 366-0815 or
Nationwide, 13 RFGPTS operate and maintain contact rail traction power electrification (TPE) systems to power trains that move millions of daily passengers in some of the nation's largest cities. Recently, the FTA has investigated several safety events related to failures of contact rail TPE systems, including:
• Smoke events caused by arcing insulators and traction power cable fires;
• An explosion caused by a flashover on porcelain insulators;
• A high-intensity fire caused by an electrical short circuit that resulted in the total loss of a traction power substation and major service disruptions;
• Damage to electrical propulsion equipment on dozens of railcars caused by spiking voltage that significantly impacted passenger service; and
• Poor track conditions exacerbated by electrolysis and corrosion from stray current, which degraded anchor bolts and fasteners to the point of failure in a tunnel.
The FTA finds sufficient evidence that each SSOA with an RFGPTS operating and maintaining a contact rail TPE system should investigate potential hazards associated with these systems through its hazard management program specified at 49 CFR 659.31. Further, in accordance with its authority at 49 CFR 659.39(d) to periodically request program information from the SSOAs,
(1) A brief description of the RFGPTS contact rail TPE system and components.
(2) A brief description regarding any major changes or upgrades to the contact rail TPE system made over the last 10 years and whether the traction power cables were also upgraded.
(3) A brief description of the RFGPTS preventive maintenance program in place to determine the insulation integrity of traction power feeder cables (
(4) The approximate percentage of traction power feeder cables used by the RFGPTS that are low smoke and zero halogen emission cables. Please specify the type and manufacturer.
(5) A brief description of the construction and installation processes used to manage potential impacts of vibration, friction, rubbing, etc. on traction power cables, and whether protective matting is used for cables lying along the ballast and tunnel invert.
(6) A listing of any corrective action plans (CAPs) required and approved by the SSOA related to the traction power electrification system since calendar year 2012 and their status, to include both open and closed CAPs.
(7) A copy of the RFGPTS inspection, testing, and maintenance program manual for its contact rail TPE system.
(8) The RFGPTS definition of “arcing insulator.”
(9) The following safety event information for calendar year 2015:
a. The total number of times a fire department responded to smoke conditions at the RFGPTS related to the contact rail TPE system;
b. The total number of smoke/fire events related to the contact rail TPE system that resulted in evacuations for fire/life safety reasons at the RFGPTS; and
c. The total number of fatalities and injuries and the total amount of property damage at the RFGPTS resulting from smoke/fire events related to the contact rail TPE system.
(10) A description of any hazards, issues, or concerns related to the contact rail TPE system reported to, identified and/or investigated by the SSOA during calendar year 2015.
The cooperation of the rail transit industry would be very helpful in developing a better understanding of contact rail system hazards, and in due course, a strategy for mitigating the safety risks created by these hazards.
Federal Transit Administration (FTA), DOT.
Request for comments.
FTA is inviting the public to evaluate and provide comments on its Compendium of transit safety standards and protocols. The Fixing America's Surface Transportation Act (FAST Act) requires the Secretary of Transportation to conduct a review of public transportation safety standards and protocols to document existing standards and protocols and examine their efficacy. Following the review, the Secretary also is required to engage with the public in an evaluation of the standards to assess the need to establish additional Federal minimum public transportation safety standards. Upon completion of the review and evaluation, the Secretary must issue a report presenting the findings of the review of standards; the outcome of the evaluation; a comprehensive set of recommendations to improve the safety of the public transportation industry, including recommendations for regulatory changes, if applicable; and actions that the Secretary of the Department of Transportation will take to address the recommendations provided.
Comments must be submitted by June 16, 2016. Comments filed after the deadline will be considered to the extent practicable.
Please submit your comments by only one of the following methods, identifying your submission by Docket Number (FTA-2016-0024).
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•
•
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For program matters, contact Brian Alberts, Office of Transit Safety and Oversight, (202) 366-1783 or
Office hours are from 8:30 a.m. to 5:00 p.m., Monday through Friday, except Federal holidays.
Section 3020 of the FAST Act requires the Secretary of Transportation to conduct a review of public transportation safety standards and protocols to assess the efficacy of those standards and protocols. The content of the review must include minimum safety performance standards developed by the public transportation industry and safety performance standards, practices, or protocols in use by rail fixed guideway public transportation systems. The review also must include rail and bus safety standards, practices, or protocols in use by public transportation systems regarding (1) rail and bus design and the workstation of rail and bus operators, (2) scheduling fixed route rail and bus service with adequate time and access for operators to use restroom facilities, (3) fatigue management, (4) and crash avoidance and worthiness. Section 3020(b) of the FAST Act requires the Secretary to conduct an evaluation following the review in consultation with the public transportation industry to assess the need to establish additional Federal minimum public transportation safety standards.
FTA has placed in the docket and on FTA's Web site its review of public transportation safety standards and protocols contained as a “Compendium of Public Transportation Safety Standards” (Compendium) provided in tabular format. Included within this Compendium are standards for all public transportation modes (where available), including commuter rail and ferry boat, modes for which regulatory oversight rests within another DOT modal administration. FTA seeks comments from the public transportation industry on the utilization of the standards contained within the Compendium, observations or data driven statements of the effectiveness of the standards, and areas
The Compendium includes those standards or protocols applicable to or used in those transit modes referenced in the National Transit Database, including: Rail Transit (Alaska Railroad, Cable Car, Commuter Rail, Heavy Rail, Hybrid Rail, Inclined Plan, Light Rail, Monorail/Automated Guideway, and Streetcar) and Non-Rail Transit (Aerial Tramway; Bus, Bus Rapid Transit, Commuter Bus, Demand Response, Demand Response Taxi, Ferryboat, Jitney, Público, Trolleybus, and Vanpool).
The Compendium identifies state and Federal regulations, minimum safety performance standards that have been developed by the public transportation industry (within modes described above), as well as those specific standards or protocols in use by rail fixed guideway public transportation systems, including those related to emergency plans and procedures for passenger evacuations, training programs that ensure personnel compliance and readiness in emergency situations, and coordination plans with emergency responders.
The Compendium is a single Excel file with individual tabs within the workbook titled “bus,” “rail,” “other modes,” “and all modes” to aid in the review of the standards presented. Within each of these tabs, standards are presented alphabetically by specific source. As an example, standards and recommended practices from APTA would appear first and standards from “States” would be presented last. The Compendium is further organized by a series of worksheet column headings that include the title of the standard, and the type of standard and standard sub and sub-function categories, further defined below. The standard development entity, whether a Federal agency, Standard Development Organization (SDO), State, State Safety Oversight Agency (SSOA), or specific industry association is also identified. Hyperlinks to specific standards, protocols, and classification content are provided in the Compendium to allow an opportunity for a thorough review of those standards and protocols.
The “standard types” used in the Compendium include those standards and protocols related to vehicle standards (including performance), infrastructure and related items, operational standards, personnel (including operator and fatigue management), State of Good Repair (SGR), emergency/incident management, and training and certifications. Each of these standard types is presented below with associated standard sub categories.
If a state or industry organization adopts a Federal regulation by reference or a standard developed by a standard development organization, this regulation or standard is not reflected in the section of the Compendium specific to that state or organization, but rather is included within the list of standards from the source Federal regulatory body or standard development organization.
FTA seeks specific comments, and any related statements or observations, to the following questions.
1. Are there standards in place for your system that are not reflected in the Compendium?
2. Are the standards utilized within your system, but not listed in the Compendium mandated or promulgated by a Federal or State agency, State Safety Oversight Agency, regional regulatory body, or other entity? If so, what are they?
3. What observations or data driven statements can you provide stating or documenting the effectiveness of the standards included in the Compendium (or those in place for your system, but not reflected in the Compendium)?
4. Based on your experiences or safety-related trends at your agency, are there areas of concern for which standards should be established by FTA through subsequent rulemaking activity? If so, what are they?
5. Are there specific transit modes and associated areas of risk that should be areas of focus for FTA more than others? If so, what are they?
6. If standards were established based on various determinants of risk, how should those areas of risk be prioritized? Should standards be established based on exposure rates (passenger/vehicle miles), number or rate of injuries, or number or rate of fatalities, as examples?
7. Are there any safety standards utilized in the public transportation industry that are not reflected in the Compendium nor in place within your agency that should be included in the Compendium? If so, what are they?
8. Are you aware of safety standards utilized in other industries that should be examined? If so, what are they?
9. FTA was unable to identify any standards or protocols relates to the following topics:
• Reduce blind spots,
• protect rail and bus operators from assaults, and
• allow sufficient time within route schedules for operators to use restroom facilities.
Are you aware of any existing safety standards or protocols that may address any of these areas of risk? If so, please identify each standard or protocol by its reference and source and provide information you may have related to the efficacy of such standard or protocol.
Comments received will be included in FTA's ongoing evaluation of safety standards and the effectiveness of those standards and will be reflected in the report issued in accordance with Section 3020(c) of the FAST Act.
National Highway Traffic Safety Administration (NHTSA), U.S. Department of Transportation (DOT).
Notice.
In compliance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3501
Comments must be submitted on or before June 16, 2016.
Send comments, within 30 days, to the Office of Information and Regulatory Affairs, Office of Management and Budget, 725-17th Street NW., Washington, DC 20503, Attention NHTSA Desk Officer.
Dr. Kristie Johnson, 202-366-2755.
• Their background, including job roles and responsibilities, which provide context for document use,
• What are their key information needs for the
• Opinions on the documents' structure, format, and content, which includes using a consistent question format for different information items/sections in the document,
• Opinions about specific aspects and potential changes or improvements pertaining to examples of alternative presentation formats,
• Opinions about how the Countermeasures At Work guide would be used, what information should be included, and if stakeholders have information about good locality examples, and
• Opinions about features or topics that should be included both guides, such as the addition of figures and illustrations, and adjustments to the design of topic subsections.
(i) 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;
(ii) the accuracy of the agency's estimate of the burden of the proposed information collection;
(iii) ways to enhance the quality, utility, and clarity of the information to be collected; and
(iv) ways to minimize the burden of the collection of information on respondents, including the use of automated collection techniques or other forms of information technology.
A comment to OMB is most effective if OMB receives it within 30 days of publication.
44 U.S.C. 3506(c)(2)(A)
National Highway Traffic Safety Administration (NHTSA), Department of Transportation (DOT).
Grant of petition.
Chrysler Group, LLC (Chrysler), a wholly owned subsidiary of Fiat S.p.A., has determined that certain model year (MY) 2014 RAM 2500 and RAM 3500 trucks do not fully comply with paragraph S4.3 of Federal Motor Vehicle Safety Standard (FMVSS) No. 110,
For further information on this decision contact Stuart Seigel, Office of Vehicle Safety Compliance, National Highway Traffic Safety Administration (NHTSA), telephone (202) 366-5287, facsimile (202) 366-5930.
Notice of receipt of Chrysler's petition was published, with a 30-Day public comment period, on August 25, 2014 in the
Paragraph S5.3 of FMVSS No. 120 requires in pertinent part:
S5.3 Each vehicle shall show the information specified in S5.3.1 and S5.3.2 and, in the case of a vehicle equipped with a non-pneumatic spare tire, the information specified in S5.3.3, in the English language, lettered in block capitals and numerals not less than 2.4 millimeters high and in the format set forth following this paragraph. This information shall appear either—
(a) After each GAWR listed on the certification label required by § 567.4 or § 567.5 of this chapter; or at the option of the manufacturer,
(b) On the tire information label affixed to the vehicle in the manner, location, and form described in § 567.4(b) through (f) of this chapter as appropriate of each GVWR=GAWR combination listed on the certification label.
S5.3.1
S5.3.2.
1. Tire size and pressure information is located on the Tire Inflation Pressure label which is located in the same door opening as the certification label.
a. Certification label is located on the driver door.
b. Tire placard is located on the forward edge of the driver's B-pillar.
2. Tire size and inflation pressure can be found on each tire.
3. Tire and rim information can be found in the vehicle owner's manual.
4. Rim/wheel size can be derived using the tire information printed on the Tire Inflation Pressure label or the tire sidewall information.
5. Chrysler mentioned that in a previous similar petition the agency stated, “that this noncompliance will not have an adverse effect on vehicle safety. Since rim size and type information are marked on the wheels of the vehicles, and the rim diameter can be determined from the tire size on the placard attached to some of the vehicles, the information needed to ensure that the vehicles are equipped with the proper rims and compatible tires is readily available to potential users.”
6. Chrysler is not aware of any warranty claims, field reports, customer complaints, legal claims or any incidents or injuries related to the subject condition.
7. Chrysler also stated its belief that NHTSA has previously granted petition similar in nature.
With respect to the incorrect statement used to indicate that vehicles conforms to all applicable Federal Standards Chrysler states that the purpose of the statement is to communicate to a reader that a vehicle is both certified and meets applicable safety standards. The vehicles in question meet and/or exceed all applicable FMVSS required for sale in the United States.
Chrysler has additionally informed NHTSA that it has corrected the noncompliances so that all future production of these vehicles will fully comply with FMVSS Nos. 110 and 120.
In summation, Chrysler believes that the described noncompliances of the subject vehicles are inconsequential to motor vehicle safety, and that its petition, to exempt from providing recall notification of noncompliance as required by 49 U.S.C. 30118 and remedying the recall noncompliance as required by 49 U.S.C. 30120 should be granted.
Chrysler noted that the certification label attached to the subject vehicles, required by 49 CFR part 567, does not include the correct required statement of certification. The use of the incorrect certification statement on the certification labels is considered a violation of 49 U.S.C. 30115,
Second, the affected vehicles (approximately 285 RAM 2500 and 3500 trucks) must comply with either FMVSS No. 110 or FMVSS No. 120 depending on the GVWR. The vehicles with a GVWR of 10,000 pounds or less do not comply with paragraph S4.3.3 of FMVSS No. 110 which requires that the rim size designation appear on the certification label for vehicles other than passenger cars. Likewise, the vehicles with a GVWR greater than 10,000 pounds, do not comply with paragraph S5.3 of FMVSS No. 120 which requires that the rim size designation appear on the certification label or at the manufacture's option on a separate tire information label.
For all affected vehicles, the rim size information can be found in the vehicle's owner's manual or on the rim itself, and the tire size information is available from multiple sources including the owner's manual, the sidewalls of the tires on the vehicle and on the tire placard or information label located on the door or door opening. The rim size can be derived using this tire information. In addition, according
NHTSA considers both the Ram 2500 and 3500 trucks to be light duty work trucks that are primarily used by operators experienced with and knowledgeable of their vehicles. It is highly likely that these individuals will readily be able to determine the correct rim sizing if necessary.
Therefore, although the rim size was omitted from the certification labels, the information needed to ensure that the vehicles are equipped with the proper rims and compatible tires is readily available to potential users.
Accordingly, Chrysler's petition is hereby moot in part and granted in part and Chrysler is exempted from the obligation of providing notification of, and a free remedy for, that noncompliance under 49 U.S.C. 30118 and 30120.
NHTSA notes that the statutory provisions (49 U.S.C. 30118(d) and 30120(h)) that permit manufacturers to file petitions for a determination of inconsequentiality allow NHTSA to exempt manufacturers only from the duties found in sections 30118 and 30120, respectively, to notify owners, purchasers, and dealers of a defect or noncompliance and to remedy the defect or noncompliance. Therefore, any decision on this petition only applies to the subject vehicles that Chrysler no longer controlled at the time it determined that the noncompliance existed. However, the granting of this petition does not relieve Chrysler distributors and dealers of the prohibitions on the sale, offer for sale, or introduction or delivery for introduction into interstate commerce of the noncompliant vehicles under their control after Chrysler notified them that the subject noncompliance existed.
49 U.S.C. 30118, 30120: delegations of authority at 49 CFR 1.95 and 501.8.
Departmental Offices, U.S. Department of the Treasury.
Notice of open meeting.
This notice announces that the Department of the Treasury's Advisory Committee on Risk-Sharing Mechanisms (“Committee”) will convene a meeting on Wednesday, June 1, 2016, in Room 4121, 1500 Pennsylvania Avenue NW., Washington, DC 20220, from 10:00 a.m.-1:30 p.m. Eastern Time. The meeting is open to the public, and the site is accessible to individuals with disabilities.
The meeting will be held on Wednesday, June 1, 2016, from 10:00 a.m.-4:30 p.m. Eastern Time.
The Advisory Committee on Risk-Sharing Mechanisms meeting will be held in Room 4121, Department of the Treasury, 1500 Pennsylvania Avenue NW., Washington, DC 20220. The meeting will be open to the public. Because the meeting will be held in a secured facility, members of the public who plan to attend the meeting must either:
1. Register online. Attendees may visit
Online registration will close at 5:00 p.m. Eastern Time on Thursday, May 26, 2016.
2. Contact the Federal Insurance Office (FIO), at (202) 622-5892, by 5:00 p.m. Eastern Time on Thursday, May 26, 2016, and provide registration information.
Requests for reasonable accommodations under Section 504 of the Rehabilitation Act should be directed to Marcia Wilson, Office of Civil Rights and Diversity, Department of the Treasury at (202) 622-8177, or
Brett D. Hewitt, Policy Advisor, FIO, Room 1410, Department of the Treasury, 1500 Pennsylvania Avenue NW., Washington, DC 20220, at (202) 622-5892 (this is not a toll-free number). Persons who have difficulty hearing or speaking may access this number via TTY by calling the toll-free Federal Relay Service at (800) 877-8339.
Notice of this meeting is provided in accordance with the Federal Advisory Committee Act, 5 U.S.C. App. II 10(a)(2), through implementing regulations at 41 CFR 102-3.150.
• Send electronic comments to
• Send paper statements in triplicate to the Advisory Committee on Risk-Sharing Mechanisms, Room 1410, Department of the Treasury, 1500 Pennsylvania Avenue NW., Washington, DC 20220.
In general, the Department of the Treasury will post all statements on its Web site
The Department of the Treasury will submit the following information collection requests 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 16, 2016 to be assured of consideration.
Send comments regarding the burden estimates, or any other aspect of the information collections, including suggestions for reducing the burden, to (1) Office of Information and Regulatory Affairs, Office of Management and Budget, Attention: Desk Officer for Treasury, New Executive Office Building, Room 10235, Washington, DC 20503, or email at
Copies of the submissions may be obtained by emailing
The Department of Veterans Affairs (VA) gives notice under Federal Advisory Committee Act, 38 U.S.C. App. 2 that a meeting of the Advisory Committee on Cemeteries and Memorials will be held on June 22-23, 2016, in the National Cemetery Administration's training room 104 at 1100 First Street NE., Washington, DC 20002, from 8:30 a.m. to 4:30 p.m. The meeting is open to the public.
The purpose of the Committee is to advise the Secretary of Veterans Affairs on the administration of national cemeteries, soldiers' lots and plots, the selection of new national cemetery sites, the erection of appropriate memorials, and the adequacy of Federal burial benefits.
On June 22, the Committee will receive mandatory training from the Office of General Counsel in the morning and updates on VA and National Cemetery Administration (NCA) issues by appropriate VA staff. On the morning of June 23, the Committee will receive background information on NCA projects and updates from ex-officio members.
Time will be allocated on both June 22 and June 23 to receive public comments at 1:00 p.m. Public comments are limited to three minutes each.
Members of the public may direct questions or submit written statements for review by the Committee in advance of the meeting to Ms. Robin Cooper, Designated Federal Officer, VA, NCA (43A2), 1100 1st Street NE., Washington, DC 20002, or via email at
Pursuant to Section 11A of the Securities Exchange Act of 1934 (the “Act”)
The Commission believes that the regulatory data infrastructure on which the SROs and the Commission currently must rely generally is outdated and inadequate to effectively oversee a complex, dispersed, and highly automated national market system. In performing their oversight responsibilities, regulators today must
Currently, FINRA and some of the exchanges maintain their own separate audit trail systems for certain segments of this trading activity, which vary in scope, required data elements and format. In performing their market oversight responsibilities, SRO and Commission Staffs today must rely heavily on data from these various SRO audit trails. However, as noted in Section IV.D below, there are shortcomings in the completeness, accuracy, accessibility, and timeliness of these existing audit trail systems. Some of these shortcomings are a result of the disparate nature of the systems, which make it impractical, for example, to follow orders through their entire lifecycle as they may be routed, aggregated, re-routed, and disaggregated across multiple markets. The lack of key information in the audit trails that would be useful for regulatory oversight, such as the identity of the customers who originate orders, or even the fact that two sets of orders may have been originated by the same customer, is another shortcoming.
Though SRO and Commission Staff also have access to sources of market activity data other than SRO audit trails, these systems each suffer their own drawbacks. For example, data obtained from the electronic blue sheet (“EBS”)
Recognizing these shortcomings, on July 11, 2012, the Commission adopted Rule 613 of Regulation NMS under the Act.
The SROs also submitted a separate NMS plan and an exemptive request letter related to the CAT NMS Plan. Specifically, on September 3, 2013, the SROs filed an NMS Plan pursuant to Rule 608 governing the SROs' review, evaluation, and ultimate selection of the Plan Processor
As described further in this Section III of this Notice, the SROs propose to conduct the activities of the CAT through CAT NMS, LLC, a jointly owned limited liability company formed under Delaware state law; and to that end, the SROs submitted the CAT NMS, LLC's limited liability company agreement (the “LLC Agreement”), including exhibits and appendices attached thereto, to the Commission as the CAT NMS Plan. The SROs also submitted a cover letter that included a description of the CAT NMS Plan, along with the information required by Rule 608(a)(4) and (5) under the Act,
The LLC Agreement, attached hereto as
In Appendix C to the LLC Agreement, the SROs address the considerations listed in Rule 613(a)(1), providing information and analysis regarding the specific features, details, costs, and processes related to the CAT NMS Plan. Appendix D to the LLC Agreement provides an outline of the CAT's minimum functional and technical requirements for the Plan Processor.
The following statement of purpose provided herein is substantially as prepared and submitted by the SROs to the Commission.
On July 11, 2012, the Commission adopted Rule 613
Since the adoption of Rule 613, the Participants have worked to formulate an effective Plan. To this end, the Participants have, among other things, developed a plan for selecting the Plan Processor, solicited and evaluated Bids, and engaged diverse industry participants in the development of the Plan. Throughout, the Participants have sought to implement a process that is fair, transparent, and consistent with the standards and considerations in Rule 613.
On February 26, 2013, the Participants published a request for proposal (“RFP”) soliciting Bids from parties interested in serving as the Plan Processor.
On September 4, 2013, the Participants filed with the Commission a national market system plan to govern the process for Participant review of the Bids submitted in response to the RFP, the procedure for evaluating the Bids, and, ultimately, selection of the Plan Processor (the “Selection Plan”).
The Selection Plan divides the review and evaluation of Bids, and the selection of the Plan Processor, into various stages, certain of which have been completed to date.
The Selection Plan established an Operating Committee responsible for formulating, drafting, and filing with the Commission the Plan and for ensuring that the Participants' joint obligations under Rule 613 were met in a timely and efficient manner.
Throughout the process of developing the Plan, the Participants consistently have been engaged in meaningful dialogue with industry participants with respect to the development of the CAT. From the outset of this process, the Participants have recognized that industry input is a critical component in the creation of the Plan. To this end, the Participants created a Web site
The DAG conducted 43 meetings
In addition, the CAT Web site includes a variety of resources for the public with respect to the development of the CAT. The site contains an overview of the process, an expression of the guiding principles behind the Plan development, links to relevant regulatory actions, gap analyses comparing the requirements of Rule 613 with current reporting systems, the CAT implementation timeline, a summary of the RFP process, a set of frequently-asked questions (updated on an ongoing basis), questions for comment from the industry, industry feedback on the development of the Plan, and announcements and notices of upcoming events. This Web site, along with the requests for comments and many public events (announced on the site), have been a venue for public communication with respect to the development of the Plan.
Following multiple discussions between the Participants and both the DAG and the Bidders, as well as among the Participants themselves, the Participants recognized that some provisions of Rule 613 would not permit certain solutions to be included in the Plan that the Participants determined advisable to effectuate the most efficient and cost-effective CAT. Consequently, on January 30, 2015, the Participants submitted to the Commission a request for exemptive relief from certain provisions of Rule 613 regarding: (1) Options Market Maker quotes; (2) Customer-IDs; (3) CAT-Reporter-IDs; (4) linking of executions to specific subaccount allocations on Allocation Reports; and (5) time stamp granularity for manual order events.
Rule 613(c)(7)(ii) and (iv) for Options Market Makers with regard to their options quotes;
Rule 613(c)(7)(i)(A), (c)(7)(iv)(F), (c)(7)(viii)(B) and (c)(8) which relate to the requirements for Customer-IDs;
Rule 613(c)(7)(i)(C), (c)(7)(ii)(D), (c)(7)(ii)(E), (c)(7)(iii)(D), (c)(7)(iii)(E), (c)(7)(iv)(F), (c)(7)(v)(F), (c)(7)(vi)(B) and (c)(8) which relate to the requirements for CAT-Reporter-IDs;
Rule 613(c)(7)(vi)(A), which requires CAT Reporters to record and report the account number of any subaccounts to which the execution is allocated; and
The millisecond time stamp granularity requirement in Rule 613(d)(3) for certain manual order events subject to time stamp reporting under Rules 613(c)(7)(i)(E), 613(c)(7)(ii)(C), 613(c)(7)(iii)(C), and 613(c)(7)(iv)(C).
Rule 613 requires the Participants to “jointly file . . . a national market system plan to govern the creation, implementation, and maintenance of a consolidated audit trail and Central Repository.”
The Participants propose to conduct the activities related to the CAT in a Delaware limited liability company pursuant to a limited liability company agreement, entitled the Limited Liability Company Agreement of CAT NMS, LLC (“Company”). The Participants will jointly own on an equal basis the Company. The Company will create, implement and maintain the CAT. The limited liability company agreement (“LLC Agreement”) itself, including its appendices, is the proposed Plan, which would be a national market system plan as defined in Rule 600(b)(43) of NMS.
Each national securities exchange and national securities association currently registered with the Commission would be a Participant in the Plan. The names and addresses of each Participant are set forth in Exhibit A to the Plan. Article III of the Plan provides that any entity approved by the Commission as a national securities exchange or national securities association under the Exchange Act after the Effective Date may become a Participant by submitting to the Company a completed application in the form provided by the Company and satisfying each of the following requirements: (1) Executing a counterpart of the LLC Agreement as then in effect; and (2) paying a fee to the Company in an amount determined by a Majority Vote of the Operating Committee as fairly and reasonably compensating the Company and the Participants for costs incurred in creating, implementing and maintaining the CAT (including such costs incurred in evaluating and selecting the Initial Plan Processor and any subsequent Plan Processor) and for costs the Company incurs in providing for the prospective Participant's participation in the Company, including after consideration of certain factors identified in Section 3.3(b) of the Agreement (“Participation Fee”). The amendment of the Plan reflecting the admission of a new Participant will be effective only when: (1) It is approved by the SEC in accordance with Rule 608 or otherwise becomes effective pursuant to Rule 608; and (2) the prospective Participant pays the Participation Fee.
A number of factors are relevant to the determination of a Participation Fee. Such factors include: (1) The portion of costs previously paid by the Company for the development, expansion and maintenance of the CAT which, under GAAP, would have been treated as capital expenditures and would have been amortized over the five years preceding the admission of the prospective Participant; (2) an assessment of costs incurred and to be incurred by the Company for modifying the CAT or any part thereof to accommodate the prospective Participant, which costs are not otherwise required to be paid or reimbursed by the prospective Participant; (3) Participation Fees paid by other Participants admitted as such after the Effective Date; (4) elapsed time from the Effective Date to the anticipated date of admittance of the prospective Participant; and (5) such other factors, if any, as may be determined to be appropriate by the Operating Committee and approved by the Commission. In the event that the Company and a prospective Participant do not agree on the amount of the Participation Fee, such amount will be subject to review by the SEC pursuant to Section 11A(b)(5) of the Exchange Act.
An applicant for participation in the Company may apply for limited access to the CAT System for planning and testing purposes pending its admission as a Participant by submitting to the Company a completed Application for Limited Access to the CAT System in a form provided by the Company, accompanied by payment of a deposit in the amount established by the Company, which will be applied or refunded as described in such application. To be eligible to apply for such limited access, the applicant must have been approved by the SEC as a national securities exchange or national securities association under the Exchange Act but the applicant has not yet become a Participant of the Plan, or the SEC must have published such applicant's Form 1 Application or From [sic] X-15AA-1 Application to become a national securities exchange or a national securities association, respectively.
All Company Interests will have the same rights, powers, preferences and privileges and be subject to the same restrictions, qualifications and limitations. Once admitted, each Participant will be entitled to one vote on any matter presented to Participants for their consideration and to participate equally in any distribution made by the Company (other than a distribution made pursuant to Section 10.2 of the Plan). Each Participant will have a Company Interest equal to that of each other Participant.
Article III also describes a Participant's ability to Transfer a Company Interest. A Participant may only Transfer any Company Interest to a national securities exchange or national securities association that succeeds to the business of such Participant as a result of a merger or consolidation with such Participant or the Transfer of all or substantially all of
In addition, Article III addresses the voluntary resignation and termination of participation in the Plan. Any Participant may voluntarily resign from the Company, and thereby withdraw from and terminate its right to any Company Interest, only if: (1) A Permitted Legal Basis for such action exists; and (2) such Participant provides to the Company and each other Participant no less than thirty days prior to the effective date of such action written notice specifying such Permitted Legal Basis, including appropriate documentation evidencing the existence of such Permitted Legal Basis, and, to the extent applicable, evidence reasonably satisfactory to the Company and other Participants that any orders or approvals required from the SEC in connection with such action have been obtained. A validly withdrawing Participant will have the rights and obligations discussed below with regard to termination of participation.
A Participant's participation in the Company, and its right to any Company Interest, will terminate as of the earliest of: (1) The effective date specified in a valid resignation notice; (2) such time as such Participant is no longer registered as a national securities exchange or national securities association; or (3) the date of termination for failure to pay fees. With regard to the payment of fees, each Participant is required to pay all fees or other amounts required to be paid under the Plan within thirty days after receipt of an invoice or other notice indicating payment is due (unless a longer payment period is otherwise indicated) (the “Payment Date”). If a Participant fails to make such a required payment by the Payment Date, any balance in the Participant's Capital Account will be applied to the outstanding balance. If a balance still remains with respect to any such required payment, the Participant will pay interest on the outstanding balance from the Payment Date until such fee or amount is paid at a per annum rate equal to the lesser of: (1) The Prime Rate plus 300 basis points; or (2) the maximum rate permitted by applicable law. If any such remaining outstanding balance is not paid within thirty days after the Payment Date, the Participants will file an amendment to the Plan requesting the termination of the participation in the Company of such Participant, and its right to any Company Interest, with the SEC. Such amendment will be effective only when it is approved by the SEC in accordance with Rule 608 or otherwise becomes effective pursuant to Rule 608.
From and after the effective date of termination of a Participant's participation in the Company, profits and losses of the Company will cease to be allocated to the Capital Account of the Participant. A terminated Participant will be entitled to receive the balance in its Capital Account as of the effective date of termination adjusted for profits and losses through that date, payable within ninety days of the effective date of termination, and will remain liable for its proportionate share of costs and expenses allocated to it for the period during which it was a Participant, for obligations under Section 3.8(c) regarding the return of amounts previously distributed (if required by a court of competent jurisdiction), for its indemnification obligations pursuant to Section 4.1, and for obligations under Section 9.6 regarding confidentiality, but it will have no other obligations under the Plan following the effective date of termination. The Plan will be amended to reflect any termination of participation in the Company of a Participant, provided that such amendment will be effective only when it is approved by the SEC in accordance with Rule 608 or otherwise becomes effective pursuant to Rule 608.
1. Do Commenters believe that the process for a national securities exchange and national securities association to become a Participant pursuant to and under the CAT NMS Plan is clearly and adequately set forth in the CAT NMS Plan? Do Commenters believe that the process for, and the circumstances under which a Participant could voluntarily terminate its participation as a Participant to the CAT NMS Plan is clearly and adequately set forth in the CAT NMS Plan? If not, what additional details should be provided? Do Commenters believe that these two processes are appropriate and reasonable?
2. Do Commenters believe that the process and enumerated factors for determining the Participation Fee are clear and reasonable under the CAT NMS Plan? If not, what additional modifications, if any, should be considered in the Participation Fee determination process?
3. Are restrictions on the transfer of a Company Interest appropriate and reasonable? If not, why not? What additional limitations or factors, if any, should be imposed on such transfers? Please explain.
4. Do Commenters believe that permitting the termination of a Participant that continues to be a registered national securities exchange or national securities association from participation in the Company is an appropriate recourse for failure to pay Participant fees? If not, can Commenters recommend an alternative remedy? Please explain.
5. Are there other circumstances that should trigger termination of participation in the Company? If yes, what are they?
(3) Management
Article IV of the Plan establishes the overall governance structure for the management of the Company. Specifically, the Participants propose that the Company be managed by an Operating Committee.
The Operating Committee will consist of one voting member representing each Participant and one alternate voting member representing each Participant who will have a right to vote only in the absence of the Participant's voting member of the Operating Committee. Each of the voting and alternate voting members of the Operating Committee will be appointed by the Participant that he or she represents, will serve at the will of the Participant appointing such member and will be subject to the confidentiality obligations of the Participant that he or she represents as set forth in Section 9.6. One individual may serve as the voting member of the Operating Committee for multiple Affiliated Participants, and such individual will have the right to vote on behalf of each such Affiliated Participant.
The Operating Committee will elect, by Majority Vote, one of its members to act as Chair for a term of two years. No Person may serve as Chair for more than two successive full terms, and no Person then appointed to the Operating Committee by a Participant that then serves, or whose Affiliate then serves, as the Plan Processor will be eligible to serve as the Chair. The Chair will preside at all meetings of the Operating Committee, designate a Person to act as Secretary, and perform such other duties and possess such other powers as the Operating Committee may from time
Each of the members of the Operating Committee, including the Chair, will be authorized to cast one vote for each Participant that he or she represents on all matters voted upon by the Operating Committee. Action of the Operating Committee will be authorized by Majority Vote (except under certain designated circumstances), subject to the approval of the SEC whenever such approval is required under the Exchange Act and the rules thereunder. For example, the Plan specifically notes that a Majority Vote of the Operating Committee is required to: (1) Select the Chair; (2) select the members of the Advisory Committee (as described below); (3) interpret the Plan (unless otherwise noted therein); (4) approve any recommendation by the Chief Compliance Officer pursuant to Section 6.2(a)(v)(A); (5) determine to hold an Executive Session of the Operating Committee; (6) determine the appropriate funding-related policies, procedures and practices consistent with Article XI; and (7) any other matter specified elsewhere in the Plan (which includes the Appendices to the Plan) as requiring a vote, approval or other action of the Operating Committee (other than those matters expressly requiring a Supermajority Vote or a different vote of the Operating Committee).
Article IV requires a Supermajority Vote of the Operating Committee, subject to the approval of the SEC when required, for the following: (1) Selecting a Plan Processor, other than the Initial Plan Processor selected in accordance with Article V of the Plan; (2) terminating the Plan Processor without cause in accordance with Section 6.1(p); (3) approving the Plan Processor's appointment or removal of the Chief Information Security Officer, Chief Compliance Officer, or any Independent Auditor in accordance with Section 6.1(b); (4) entering into, modifying or terminating any Material Contract (if the Material Contract is with a Participant or an Affiliate of a Participant, such Participant and Affiliated Participant will be recused from any vote); (5) making any Material Systems Change; (6) approving the initial Technical Specifications or any Material Amendment to the Technical Specifications proposed by the Plan Processor; (7) amending the Technical Specifications on its own motion; and (8) any other matter specified elsewhere in the Plan (which includes the Appendices to the Plan) as requiring a vote, approval or other action of the Operating Committee by a Supermajority Vote.
A member of the Operating Committee or any Subcommittee thereof (as discussed below) shall recuse himself or herself from voting on any matter under consideration by the Operating Committee or such Subcommittee if such member determines that voting on such matter raises a Conflict of Interest. In addition, if the members of the Operating Committee or any Subcommittee (excluding the member thereof proposed to be recused) determine by Supermajority Vote that any member voting on a matter under consideration by the Operating Committee or such Subcommittee raises a Conflict of Interest, such member shall be recused from voting on such matter. No member of the Operating Committee or any Subcommittee will be automatically recused from voting on any matter except matters involving Material Contracts as discussed in the prior paragraph, as otherwise specified in the Plan, and as follows: (1) If a Participant is a Bidding Participant whose Bid remains under consideration, members appointed to the Operating Committee or any Subcommittee by such Participant or any of its Affiliated Participants will be recused from any vote concerning: (a) Whether another Bidder may revise its Bid; (b) the selection of a Bidder; or (c) any contract to which such Participant or any of its Affiliates would be a party in its capacity as Plan Processor; and (2) if a Participant is then serving as Plan Processor, is an Affiliate of the Person then serving as Plan Processor, or is an Affiliate of an entity that is a Material Subcontractor to the Plan Processor, then in each case members appointed to the Operating Committee or any Subcommittee by such Participant or any of its Affiliated Participants shall be recused from any vote concerning: (a) The proposed removal of such Plan Processor; or (b) any contract between the Company and such Plan Processor.
Article IV also addresses meetings of the Operating Committee.
The Operating Committee may, by Majority Vote, designate by resolution one or more Subcommittees it deems necessary or desirable in furtherance of the management of the business and affairs of the Company. For any Subcommittee, any member of the Operating Committee who wants to serve thereon may so serve. If Affiliated Participants have collectively appointed one member to the Operating Committee to represent them, then such Affiliated Participants may have only that member serve on the Subcommittee or may decide not to have only that collectively appointed member serve on the Subcommittee. Such member may designate an individual other than himself or herself who is also an employee of the Participant or Affiliated Participants that appointed such member to serve on a Subcommittee in lieu of the particular member. Subject to the requirements of the Plan and non-waivable provisions of Delaware law, a Subcommittee may exercise all the powers and authority of the Operating Committee in the management of the business and affairs of the Company as so specified in the resolution of the
Article IV requires that the Operating Committee maintain a Compliance Subcommittee for the purpose of aiding the Chief Compliance Officer as necessary, including with respect to issues involving: (1) The maintenance of the confidentiality of information submitted to the Plan Processor or Central Repository pursuant to Rule 613, applicable law, or the Plan by Participants and Industry Members; (2) the timeliness, accuracy, and completeness of information submitted pursuant to Rule 613, applicable law or the Plan by Participants and Industry Members; and (3) the manner and extent to which each Participant is meeting its obligations under Rule 613, Section 3.11, and as set forth elsewhere in the Plan and ensuring the consistency of the Plan's enforcement as to all Participants.
Article IV also sets forth the requirements for the formation and functioning of an Advisory Committee, which will advise the Participants on the implementation, operation and administration of the Central Repository, including possible expansion of the Central Repository to other securities and other types of transactions.
Article IV describes the composition of the Advisory Committee. No member of the Advisory Committee may be employed by or affiliated with any Participant or any of its Affiliates or facilities. The Operating Committee will select one member from representatives of each of the following categories to serve on the Advisory Committee on behalf of himself or herself individually and not on behalf of the entity for which the individual is then currently employed: (1) A broker-dealer with no more than 150 Registered Persons; (2) a broker-dealer with at least 151 and no more than 499 Registered Persons; (3) a broker-dealer with 500 or more Registered Persons; (4) a broker-dealer with a substantial wholesale customer base; (5) a broker-dealer that is approved by a national securities exchange: (a) To effect transactions on an exchange as a specialist, market maker or floor broker; or (b) to act as an institutional broker on an exchange; (6) a proprietary-trading broker-dealer; (7) a clearing firm; (8) an individual who maintains a securities account with a registered broker or dealer but who otherwise has no material business relationship with a broker or dealer or with a Participant; (9) a member of academia with expertise in the securities industry or any other industry relevant to the operation of the CAT System; (10) an institutional investor trading on behalf of a public entity or entities; (11) an institutional investor trading on behalf of a private entity or entities; and (12) an individual with significant and reputable regulatory expertise. The members selected to represent categories (1) through (12) above must include, in the aggregate, representatives of no fewer than three broker-dealers that are active in the options business and representatives of no fewer than three broker-dealers that are active in the equities business. In addition, upon a change in employment of any such selected member, a Majority Vote of the Operating Committee will be required for such member to be eligible to continue to serve on the Advisory Committee. Furthermore, the SEC's Chief Technology Officer (or the individual then currently employed in a comparable position providing equivalent services) will serve as an observer of the Advisory Committee (but not be a member). The members of the Advisory Committee will have a term of three years.
Members of the Advisory Committee will have the right to attend meetings of the Operating Committee or any Subcommittee, to receive information concerning the operation of the Central Repository, and to submit their views to the Operating Committee or any Subcommittee on matters pursuant to the Plan prior to a decision by the Operating Committee on such matters. A member of the Advisory Committee will not have a right to vote on any matter considered by the Operating Committee or any Subcommittee. In addition, the Operating Committee or any Subcommittee may meet in Executive Session if the Operating Committee or Subcommittee determines by Majority Vote that such an Executive Session is advisable.
Article IV also describes the appointment of Officers for the Company. Specifically, the Chief Compliance Officer and the Chief Information Security Officer, each of whom will be employed solely by the Plan Processor and neither of whom will be deemed or construed in any way to be an employee of the Company, will be Officers of the Company. Neither such Officer will receive or be entitled to any compensation from the Company or any Participant by virtue of his or her service in such capacity (other than if a Participant is then serving as the Plan Processor, compensation paid to such Officer as an employee of such Participant). Each such Officer will report directly to the Operating Committee. The Chief Compliance Officer will work on a regular and frequent basis with the Compliance Subcommittee and/or other Subcommittees as may be determined by the Operating Committee. Except to the extent otherwise provided in the Plan, including Section 6.2, each such Officer will have such fiduciary and other duties with regard to the Plan Processor as imposed by the Plan Processor on such individual by virtue of his or her employment by the Plan Processor.
In addition, the Plan Processor will inform the Operating Committee of the individual who has direct management responsibility for the Plan Processor's performance of its obligations with respect to the CAT. Subject to approval by the Operating Committee of such individual, the Operating Committee will appoint such individual as an Officer. In addition, the Operating Committee by Supermajority Vote may appoint other Officers as it shall from time to time deem necessary. Any Officer appointed pursuant to Section 4.6(b) will have only such duties and responsibilities as set forth in the Plan, or as the Operating Committee shall from time to time expressly determine. No such Officer shall have any authority to bind the Company (which authority is vested solely in the Operating Committee) or be an employee of the Company, unless in each case the Operating Committee, by Supermajority Vote, expressly determines otherwise. No person subject to a “statutory disqualification” (as defined in Section 3(a)(39) of the Exchange Act) may serve as an Officer. It is the intent of the Participants that the Company have no employees.
6. Do Commenters believe that the organizational, governance and/or managerial structure of CAT NMS, LLC is in the public interest? Why or why not?
7. Do Commenters believe that the organizational, governance, and/or managerial structure set forth in the CAT NMS Plan, including the role of the Operating Committee, is appropriate and reasonable? If not, please explain.
8. The CAT NMS Plan specifies the corporate actions that require a Majority Vote and the corporate actions that require a Supermajority Vote. Do Commenters believe that such voting procedures are appropriate and reasonable? Should any corporate actions require a higher or lower voting threshold than specified in the Plan? Are there any corporate actions that should require a Supermajority Vote? Please explain.
9. Do Commenters believe that the CAT NMS Plan should explicitly or more clearly specify who should determine whether a systems change or amendment is “material”? If so, who? Please explain.
10. Do Commenters believe that two successive full terms is an appropriate and reasonable term limit for a Person to serve as chair of the Operating Committee? If not, please explain.
11. Section 1.1 defines Conflict of Interest to mean that the interest of a Participant (
12. Do Commenters believe that the definition of Conflict of Interest of the CAT NMS Plan properly reflects the business interests of each Participant and the Operating Committee? If not, please explain. Do Commenters believe that the CAT NMS Plan governing procedures on Conflicts of Interest and recusals contained in Section 4.3(d) of the CAT NMS Plan, reasonably and adequately address Conflicts of Interest? If not, please explain. Are there other conflicts of interest that may arise for any Participant that are not addressed in the CAT NMS Plan definitions or governing procedures? If so, what?
13. Is the CAT NMS Plan clear and reasonable regarding whether it permits the Operating Committee to delegate the authority to vote on matters to a Subcommittee? If so, in what circumstances? Are there any circumstances in which a Subcommittee would or should be prohibited from voting in place of the Operating Committee? Please explain.
14. Do Commenters believe that the Advisory Committee structure and provisions set forth in the CAT NMS Plan are appropriate and reasonable? Is the size of the Advisory Committee as contemplated by the Plan appropriate and reasonable? Are the Advisory Committee member categories reasonable and adequately representative of entities impacted by the CAT NMS Plan? Would expanding membership on the Advisory Committee to any additional types of entities enhance the quality of the input it would provide to the Operating Committee? Please explain.
15. Is the mechanism for determining who serves on the Advisory Committee (
16. Do Commenters believe that the CAT NMS Plan's requirement that Advisory Committee members serve on the Advisory Committee in their personal capacities, and that the Operating Committee members serve on the Operating Committee as representatives of their employers who are the Plan Participants create different incentives for members of the Advisory Committee and members of the Operating Committee? If so, in what ways? Do Commenters believe that these differing incentives would impact the regulatory objective of the CAT? If so, in what ways?
17. The CAT NMS Plan outlines the size, tenure and membership categories of the Advisory Committee members. Do Commenters believe there are any additional or alternative factors that should be taken into consideration in structuring the Advisory Committee that would benefit the operation of the CAT? If so, what are those additional or alternative factors? How would these factors benefit the operation of the CAT?
18. Are the roles and responsibilities of the Advisory Committee clearly and adequately set forth in the CAT NMS Plan? If not, why not? Should additional details on these roles and responsibilities be provided? If so, what additional details should be provided?
19. Are there any alternatives for involvement by the Advisory Committee that could increase the effectiveness of the Advisory Committee? For example, should the Advisory Committee be given a vote in connection with decisions regarding the CAT NMS Plan, equivalent to the vote each Participant has? If so, please specifically identify the alternatives for involvement and how those alternatives could increase the effectiveness of the CAT.
20. Do Commenters believe that the Advisory Committee is structured in a way that would allow industry to provide meaningful input on the implementation, operation, and administration of the CAT? If not, please explain and/or provide specific suggestions for improving the Advisory Committee structure. Should additional authority be given to the Advisory Committee, for example allowing it to initiate its own recommendations? Should additional mechanisms through which the industry or others could provide input be included in the CAT NMS Plan?
21. Do Commenters believe that the Plan's provision that prohibits the Advisory Committee from attending any Executive Session of the Operating Committee is appropriate and reasonable?
22. Do Commenters believe that the CAT NMS Plan adequately sets forth provisions regarding the scope, authority, and duties of the Officers of the CAT, as well as the scope and authority of the Plan Processor generally? If not, what further provisions should the CAT NMS Plan set forth with respect to Officers and the Plan Processor and why?
23. Do Commenters believe that the Operating Committee and the proposed CAT NMS Plan governance structure would ensure effective corporate governance, process and action? Why or why not?
24. The CAT NMS Plan provides that emergency meetings of the Operating Committee may be called at the request of two or more Participants, and may be held as soon as practical after such a meeting is called. Do Commenters believe that there should be a different method for the Operating Committee to meet and take action in the event of an emergency? Should the CAT NMS Plan denote certain emergency situations in which the Operating Committee must be required to take action on an expedited basis? If so, what time period would be reasonable to require action by the Operating Committee and what mechanisms or processes should the Operating Committee be required to follow?
25. What, if any, impact on the Operating Committee's governance and voting do Affiliated Participant groups have? Do Commenters believe that the Operating Committee's governance and voting provisions set forth in the CAT NMS Plan, including the definitions of Supermajority Vote and Majority Vote, are appropriate and reasonable in light of these Affiliated Participant groups? What, if any, additional governance and voting provisions or protections should be included? Is there an alternative model for voting rights that would be more appropriate and reasonable, for example distributing votes using a measure other than exchange licenses?
26. Do Commenters believe the use of Executive Session is appropriate and reasonable? Is a Majority Vote the appropriate mechanism for the Operating Committee to go into Executive Session? Should the CAT NMS Plan specify particular scenarios for which an Executive Session is or is not appropriate?
27. Do Commenters believe that the provisions in the CAT NMS Plan regarding the mechanics of voting by the Operating Committee, the Selection Committee, or other entities are appropriate and reasonable? Does the CAT NMS Plan include sufficient detail on when voting should be carried out openly (
28. Are there any other matters relating to the operation and administration of the Plan that should be included in the Plan for the Commission's consideration? If so, please identify such matters and explain why and how they should be addressed in the Plan.
Article V of the Plan sets forth the process for the Participants' evaluation of Bids and the selection process for narrowing down the Bids and choosing the Initial Plan Processor. The initial steps in the evaluation and selection process were and will be performed pursuant to the Selection Plan; the final two rounds of evaluation and voting, as well as the final selection of the Initial Plan Processor, will be performed pursuant to the Plan.
As discussed above, the Selection Committee has selected the Shortlisted Bids pursuant to the Selection Plan. After reviewing the Shortlisted Bids, the Participants have identified the optimal proposed solutions for the CAT and, to the extent possible, included such solutions in the Plan.
After receipt of any permitted revisions, the Selection Committee will select the Initial Plan Processor from the Shortlisted Bids in two rounds of voting where each Participant has one vote via its Voting Senior Officer in each round.
Once two Shortlisted Bids have been chosen, the Voting Senior Officers of the Participants (other than those subject to recusal) will vote for a single Shortlisted Bid from the final two to determine the Initial Plan Processor. If the tie persists, the Participants will identify areas for discussion and, following these discussions, revotes will be taken until the tie is broken. As set forth in Article VI of the Plan, following the selection of the Initial Plan Processor, the Participants will file with the Commission a statement identifying the Initial Plan Processor and including the information required by Rule 608.
Article VI describes the responsibilities of the selected Plan Processor. The Company, under the direction of the Operating Committee, will enter into one or more agreements with the Plan Processor obligating the Plan Processor to perform the functions and duties contemplated by the Plan to be performed by the Plan Processor, as well as such other functions and duties the Operating Committee deems necessary or appropriate.
As set forth in the Plan, the Plan Processor is required to develop and, with the prior approval of the Operating Committee, implement policies, procedures, and control structures related to the CAT System that are consistent with Rule 613(e)(4), Appendix C and Appendix D. The Plan
The Plan Processor will enter into appropriate Service Level Agreements (“SLAs”) governing the performance of the Central Repository, as generally described in Appendix D, Functionality of the CAT System, with the prior approval of the Operating Committee. The Plan Processor in conjunction with the Operating Committee will regularly review and, as necessary, update the SLAs, in accordance with the terms of the SLAs. As further contemplated in Appendix C, System Service Level Agreements (SLAs), and in Appendix D, System SLAs, the Plan Processor may enter into appropriate service level agreements with third parties applicable to the Plan Processor's functions related to the CAT System (“Other SLAs”), with the prior approval of the Operating Committee. The Chief Compliance Officer and/or the Independent Auditor will, in conjunction with the Plan Processor and as necessary the Operating Committee, regularly review and, as necessary, update the Other SLAs, in accordance with the terms of the applicable Other SLA. In addition, the Plan Processor: (1) Will, on an ongoing basis and consistent with any applicable policies and procedures, evaluate and implement potential system changes and upgrades to maintain and improve the normal day-to-day operating function of the CAT System; (2) in consultation with the Operating Committee, will, on an as needed basis and consistent with any applicable operational and escalation policies and procedures, implement such material system changes and upgrades as may be required to ensure effective functioning of the CAT System; and (3) in consultation with the Operating Committee, will, on an as needed basis, implement system changes and upgrades to the CAT System to ensure compliance with applicable laws, regulations or rules (including those promulgated by the SEC or any Participant). Furthermore, the Plan Processor will develop and, with the prior approval of the Operating Committee, implement a securities trading policy, as well as necessary procedures, control structures and tools to enforce this policy.
In addition, the Plan Processor will provide the Operating Committee regular reports on the CAT System's operation and maintenance. Furthermore, upon request of the Operating Committee or any Subcommittee, the Plan Processor will attend any meetings of the Operating Committee or such Subcommittee.
The Plan Processor may appoint such officers of the Plan Processor as it deems necessary and appropriate to perform its functions under the Plan and Rule 613. The Plan Processor, however, will be required to appoint, at a minimum, the Chief Compliance Officer, the Chief Information Security Officer, and the Independent Auditor. The Operating Committee, by Supermajority Vote, will approve any appointment or removal of the Chief Compliance Officer, Chief Information Security Officer, or the Independent Auditor.
The Plan Processor will designate an employee of the Plan Processor to serve, subject to the approval of the Operating Committee by Supermajority Vote, as the Chief Compliance Officer. The Plan Processor will also designate at least one other employee (in addition to the person then serving as Chief Compliance Officer), which employee the Operating Committee has previously approved, to serve temporarily as the Chief Compliance Officer if the employee then serving as the Chief Compliance Officer becomes unavailable or unable to serve in such capacity (including by reason of injury or illness). Any person designated to serve as the Chief Compliance Officer (including to serve temporarily) will be appropriately qualified to serve in such capacity based on the duties and responsibilities assigned to the Chief Compliance Officer and will dedicate such person's entire working time to such service (or temporary service) (except for any time required to attend to any incidental administrative matters related to such person's employment with the Plan Processor that do not detract in any material respect from such person's service as the Chief Compliance Officer). Article VI sets forth various responsibilities of the Chief Compliance Officer. With respect to all of his or her duties and responsibilities in such capacity (including those as set forth in the Plan), the Chief Compliance Officer will be directly responsible and will directly report to the Operating Committee, notwithstanding that she or he is employed by the Plan Processor. The Plan Processor, subject to the oversight of the Operating Committee, will ensure that the Chief Compliance Officer has appropriate resources to fulfill his or her obligations under the Plan and Rule 613. The compensation (including base salary and bonus) of the Chief Compliance Officer will be payable by the Plan Processor, but be subject to review and approval by the Operating Committee. The Operating Committee will render the Chief Compliance Officer's annual performance review.
The Plan Processor also will designate an employee of the Plan Processor to serve, subject to the approval of the Operating Committee by Supermajority Vote, as the Chief Information Security Officer. The Plan Processor will also designate at least one other employee (in addition to the person then serving as Chief Information Security Officer), which employee the Operating
The Plan Processor, subject to the oversight of the Operating Committee, will ensure that the Chief Information Security Officer has appropriate resources to fulfill the obligations of the Chief Information Security Officer set forth in Rule 613 and in the Plan, including providing appropriate responses to questions posed by the Participants and the SEC. In performing such obligations, the Chief Information Security Officer will be directly responsible and directly report to the Operating Committee, notwithstanding that he or she is employed by the Plan Processor. The compensation (including base salary and bonus) of the Chief Information Security Officer will be payable by the Plan Processor, but be subject to review and approval by the Operating Committee, and the Operating Committee will render the Chief Information Security Officer's annual performance review. Consistent with Appendices C and D, the Chief Information Security Officer will be responsible for creating and enforcing appropriate policies, procedures, standards, control structures and real time tools to monitor and address data security issues for the Plan Processor and the Central Repository, as described in the Plan. At regular intervals, to the extent that such information is available to the Company, the Chief Information Security Officer will report to the Operating Committee the activities of the Financial Services Information Sharing and Analysis Center (“FS-ISAC”) or comparable bodies to the extent that the Company has joined FS-ISAC or other comparable body.
The Plan Processor will afford to Participants and the Commission such access to the Representatives of the Plan Processor as any Participant or the Commission may reasonably request solely for the purpose of performing such Person's regulatory and oversight responsibilities pursuant to the federal securities laws, rules, and regulations or any contractual obligations. The Plan Processor will direct such Representatives to reasonably cooperate with any inquiry, investigation, or proceeding conducted by or on behalf of any Participant or the Commission related to such purpose.
The Operating Committee will review the Plan Processor's performance under the Plan at least once each year, or more often than once each year upon the request of two Participants that are not Affiliated Participants. The Operating Committee will notify the SEC of any determination made by the Operating Committee concerning the continuing engagement of the Plan Processor as a result of the Operating Committee's review of the Plan Processor and will provide the SEC with a copy of any reports that may be prepared in connection therewith.
The Operating Committee, by Supermajority Vote, may remove the Plan Processor from such position at any time. However, the Operating Committee, by Majority Vote, may remove the Plan Processor from such position at any time if it determines that the Plan Processor has failed to perform its functions in a reasonably acceptable manner in accordance with the provisions of the Plan or that the Plan Processor's expenses have become excessive and are not justified. In making such a determination, the Operating Committee will consider, among other factors: (1) The reasonableness of the Plan Processor's response to requests from Participants or the Company for technological changes or enhancements; (2) results of any assessments performed pursuant to Section 6.6; (3) the timeliness of conducting preventative and corrective information technology system maintenance for reliable and secure operations; (4) compliance with requirements of Appendix D; and (5) such other factors related to experience, technological capability, quality and reliability of service, costs, back-up facilities, failure to meet service level agreement(s) and regulatory considerations as the Operating Committee may determine to be appropriate.
In addition, the Plan Processor may resign upon two year's (or such other shorter period as may be determined by the Operating Committee by Supermajority Vote) prior written notice. The Operating Committee will fill any vacancy in the Plan Processor position by Supermajority Vote, and will establish a Plan Processor Selection Subcommittee to evaluate and review Bids and make a recommendation to the Operating Committee with respect to the selection of the successor Plan Processor.
29. The CAT NMS Plan, Section 6.1 (Plan Processor) sets forth details regarding the Plan Processor's responsibilities. Do Commenters believe that the enumerated responsibilities of the Plan Processor are appropriate and reasonable? Please explain.
30. Do Commenters believe that the CAT NMS Plan provides the Operating Committee with sufficient authority to maintain oversight of the Plan Processor? Is the Plan Processor given too much discretion? Too little? Please explain.
31. The CAT NMS Plan provides in Section 6.1(s) that a Plan Processor may resign upon giving two years notice of such resignation. Do Commenters believe that two years is a sufficient amount of notice to ensure a replacement Plan Processor could be selected? Is two years too long a period to require notice of resignation? Why or why not?
32. The CAT NMS Plan includes two provisions governing removal of the Plan Processor. Section 6.1(q) allows the Operating Committee to remove the Plan Processor at any time by a Supermajority Vote. Do Commenters believe it is appropriate for the Operating Committee to have authority to remove the Plan Processor without cause upon a Supermajority Vote? Why or why not?
33. Section 6.1(r) of the CAT NMS Plan allows the Operating Committee to remove the Plan Processor by a Majority Vote if it determines that the Plan Processor has failed to perform its functions in a reasonably acceptable manner in accordance with the provisions of the CAT LLC Agreement or that the Plan Processor's expenses have become excessive and are not justified. Do Commenters believe it is appropriate and reasonable for the Operating Committee to have the authority to remove the Plan Processor on these bases using a Majority Vote? Why or why not, and with respect to which of these bases? Do Commenters believe there are other grounds upon which the Operating Committee should have the ability to remove the Plan Processor upon a Majority Vote?
34. The CAT NMS Plan states that the Plan Processor must implement policies and procedures consistent with Rule
35. The CAT NMS Plan provides that the CCO and CISO, while Officers of CAT NMS, LLC, would be employees of the Plan Processor. Do Commenters believe that this arrangement creates any conflicts of interest that could undermine the ability of the CCO and CISO to effectively carry out their responsibilities under the CAT NMS Plan? Please describe any such conflicts of interest and explain how they could affect the performance of the CCO or CISO's CAT-related duties.
36. The CAT NMS Plan provides that the Operating Committee must approve the CCO and CISO selected by the Plan Processor by Supermajority Vote, that the CCO and CISO shall dedicate their entire working time to their service as CCO or CISO, that the Operating Committee shall have oversight over the Plan Processor's compensation of and provision of resources to the CCO and CISO, and that the CCO and CISO shall report directly to and receive annual performance reviews from the Operating Committee.
37. The CAT NMS Plan provides that the CCO and CISO would not, to the extent permitted under applicable law, have fiduciary or similar duties to CAT NMS, LLC, but that they may have fiduciary or similar duties to the Plan Processor to the extent that their employment with the Plan Processor entails such duties.
38. Is the mechanism by which changes to CAT functionality can be suggested to the Plan Processor by the Advisory Committee members, Participants, or the SEC appropriate and reasonable? Why or why not?
39. Is the Operating Committee's role in the hiring of the CCO, CISO, and Independent Auditor appropriate and reasonable? Should the Advisory Committee be consulted on these decisions? Why or why not?
The Central Repository, under the oversight of the Plan Processor, and consistent with Appendix D, Central Repository Requirements, will receive, consolidate, and retain all CAT Data. The Central Repository will collect (from a SIP or pursuant to an NMS Plan) and retain on a current and continuing basis, in a format compatible with the Participant Data and Industry Member Data, all data, including the following: (1) Information, including the size and quote condition, on quotes, including the National Best Bid and National Best Offer for each NMS Security; (2) Last Sale Reports and transaction reports reported pursuant to an effective transaction reporting plan filed with the SEC pursuant to, and meeting the requirements of, Rules 601 and 608; (3) trading halts, LULD price bands and LULD indicators; and (4) summary data.
Consistent with Appendix D, Data Retention Requirements, the Central Repository will retain the information collected pursuant to paragraphs (c)(7) and (e)(7) of Rule 613 in a convenient and usable standard electronic data format that is directly available and searchable electronically without any manual intervention by the Plan Processor for a period of not less than six years. Such data when available to the Participant regulatory Staff and the SEC will be linked. In addition, the Plan Processor will implement and comply with the records retention policy contemplated by Section 6.1(d)(i).
Consistent with Appendix D, Data Access, the Plan Processor will provide Participants and the SEC access to the Central Repository (including all systems operated by the Central Repository), and access to and use of the CAT Data stored in the Central Repository, solely for the purpose of performing their respective regulatory and oversight responsibilities pursuant to the federal securities laws, rules and regulations or any contractual obligations. The Plan Processor will create and maintain a method of access to the CAT Data stored in the Central Repository that includes the ability to run searches and generate reports. The method in which the CAT Data is stored in the Central Repository will allow the ability to return results of queries that are complex in nature including market reconstruction and the status of order books at varying time intervals. The Plan Processor will, at least annually and at such earlier time promptly following a request by the Operating Committee, certify to the Operating Committee that only the Participants and the SEC have access to the Central Repository (other than access provided to any Industry Member for the purpose of correcting CAT Data previously reported to the Central Repository by such Industry Member).
40. Do Commenters believe that the requirements presented in Appendix D, Central Repository Requirements, are sufficiently detailed to guide the Plan Processor in how to build and operate the Central Repository with regard to receiving, consolidating, and retaining data? If not, what additional information should the requirements contain? Are there any requirements that should be eliminated? Will such provisions give the Plan Processor too much discretion or flexibility in how to build and operate the Central Repository with regard to receiving, consolidating, and retaining data? Please identify and explain why such requirements are not necessary or appropriate.
41. Do Commenters believe that the information provided in Appendix D, Data Access, is sufficiently detailed to
42. The CAT NMS Plan does not mandate a specific method for primary data storage of CAT Data, but does require that the storage solution would meet the security, reliability, and accessibility requirements for the CAT, including storage of personally identifiable information (“PII”) data, separately. The CAT NMS Plan also indicates several considerations in the selection of a storage solution including maturity, cost, complexity, and reliability of the storage method. The Commission requests comment on whether the CAT NMS Plan should mandate a particular data storage method. Why or why not? What are the advantages and disadvantages for CAT of the various storage methods?
The Plan also sets forth the requirements regarding the data recording and reporting by Participants.
As contemplated in Appendix D, Data Types and Sources, each Participant will report Participant Data to the Central Repository for consolidation and storage in a format specified by the Plan Processor, approved by the Operating Committee and compliant with Rule 613. As further described in Appendix D, Reporting and Linkage Requirements, each Participant is required to record the Participant Data contemporaneously with the Reportable Event. In addition, each Participant must report the Participant Data to the Central Repository by 8:00 a.m. Eastern Time on the Trading Day following the day that the Participant recorded the Participant Data. Participants may voluntarily report the Participant Data prior to the 8:00 a.m. Eastern Time deadline.
Each Participant that is a national securities exchange is required to comply with the above recording and reporting requirements for each NMS Security registered or listed for trading on such exchange or admitted to unlisted trading privileges on such exchange. Each Participant that is a national securities association is required to comply with the above recording and reporting requirements for each Eligible Security for which transaction reports are required to be submitted to the association.
The Plan also sets forth the data reporting and recording requirements for Industry Members. Specifically, subject to Section 6.4(c), and Section 6.4(d)(iii) with respect to Options Market Makers, and consistent with Appendix D, Reporting and Linkage Requirements, each Participant, through its Compliance Rule, will require its Industry Members to record and electronically report to the Central Repository for each order and each Reportable Event the information referred to in Section 6.3(d), as applicable (“Recorded Industry Member Data”)—that is, Participant Data discussed above. In addition, subject to Section 6.4(c), and Section 6.4(d)(iii) with respect to Options Market Makers, and consistent with Appendix D, Reporting and Linkage Requirements, each Participant, through its Compliance Rule, will require its Industry Members to record and report to the Central Repository the following (“Received Industry Member Data” and,
With respect to the reporting obligations of an Options Market Maker with regard to its quotes in Listed Options, Reportable Events required pursuant to Section 6.3(d)(ii) and (iv) will be reported to the Central Repository by an Options Exchange in lieu of the reporting of such information by the Options Market Maker. Each Participant that is an Options Exchange will, through its Compliance Rule, require its Industry Members that are Options Market Makers to report to the Options Exchange the time at which a quote in a Listed Option is sent to the Options Exchange (and, if applicable, any subsequent quote modifications and/or cancellation time when such modification or cancellation is originated by the Options Market Maker). Such time information also will be reported to the Central Repository by the Options Exchange in lieu of reporting by the Options Market Maker.
Each Participant will, through its Compliance Rule, require its Industry Members to record and report to the Central Repository other information or additional events as prescribed in Appendix D, Reporting and Linkage Requirements.
As contemplated in Appendix D, Data Types and Sources, each Participant will require its Industry Members to report Industry Member Data to the Central Repository for consolidation and storage in a format(s) specified by the Plan Processor, approved by the Operating Committee and compliant with Rule 613. As further described in Appendix D, Reporting and Linkage Requirements, each Participant will require its Industry Members to record Recorded Industry Member Data contemporaneously with the applicable Reportable Event. In addition, consistent with Appendix D, Reporting and Linkage Requirements, each Participant will require its Industry Members to report: (1) Recorded Industry Member Data to the Central Repository by 8:00 a.m. Eastern Time on the Trading Day following the day the Industry Member records such Recorded Industry Member Data; and (2) Received Industry Member Data to the Central Repository by 8:00 a.m. Eastern Time on the Trading Day following the day the Industry Member receives such Received Industry Member Data. Each Participant will permit its Industry Members to voluntarily report Industry Member Data prior to the applicable 8:00 a.m. Eastern Time deadline.
Each Participant that is a national securities exchange must require its Industry Members to report Industry Member Data for each NMS Security registered or listed for trading on such exchange or admitted to unlisted trading privileges on such exchange. Each Participant that is a national securities association must require its Industry Members to report Industry Member Data for each Eligible Security for which transaction reports are required to be submitted to the association.
43. Sections 6.3(d) and 6.4(d) of the CAT NMS Plan set forth the details that Participants and Industry Members must report to the Central Repository. Do Commenters believe that these details will be sufficient to allow the Central Repository to link information to accurately reflect the lifecycle of an order? If not, what additional information should be required to be reported for this purpose?
44. Sections 6.3 and 6.4 of the CAT NMS Plan require Participants and Industry Members to record and report to the Central Repository other information or additional events as may be prescribed in Appendix D, Reporting and Linkage Requirements. Do Commenters believe that the CAT NMS Plan is sufficiently clear regarding the “other information or additional events as may be prescribed in Appendix D” that may be required? Please explain. Are these “other information or additional events prescribed in Appendix D” appropriate and reasonable? Please explain.
45. The CAT NMS Plan does not specify the format in which CAT Reporters must submit data, and states the Plan Processor will specify the format. Do Commenters believe that the CAT NMS Plan should specify a particular format? If so, what format? Please explain.
As described in Article VI, the Participants are required to provide the Commission with a written assessment of the operation of the CAT that meets the requirements set forth in Rule 613, Appendix D, and the Plan at least every two years or more frequently in connection with any review of the Plan Processor's performance under the Plan pursuant to Section 6.1(m).
46. Do Commenters believe that the details and requirements regarding the regular written assessment of the operation of the CAT provided in Section 6.6 of the CAT NMS Plan are appropriate and reasonable? Would additional details or requirements for this assessment be beneficial?
47. Do Commenters believe that the Chief Compliance Officer should oversee the regular written assessment, as is required by Section 6.6? If not, would another party be better suited to this role?
Section 6.8 of the Plan discusses time stamps and the synchronization of Business Clocks. Each Participant is required to synchronize its Business Clocks (other than such Business Clocks used solely for Manual Order Events) at a minimum to within 50 milliseconds of the time maintained by the National Institute of Standards and Technology, consistent with industry standards. In addition, each Participant must, through its Compliance Rule, require its Industry Members to: (1) Synchronize their respective Business Clocks (other than such Business Clocks used solely for Manual Order Events) at a minimum to within 50 milliseconds of the time maintained by the National Institute of Standards and Technology, and maintain such a synchronization; (2)
Each Participant shall, and through its Compliance Rule require its Industry Members to, report information required by Rule 613 and this Agreement to the Central Repository in milliseconds. To the extent that any Participant utilizes time stamps in increments finer than the minimum required by the Plan, the Participant is required to make reports to the Central Repository utilizing such finer increment when reporting CAT Data to the Central Repository so that all Reportable Events reported to the Central Repository could be adequately sequenced. Each Participant will, through its Compliance Rule: (1) Require that, to the extent that its Industry Members utilize time stamps in increments finer than the minimum required in the Plan, such Industry Members will utilize such finer increment when reporting CAT Data to the Central Repository; and (2) provide that a pattern or practice of reporting events outside of the required clock synchronization time period without reasonable justification or exceptional circumstances may be considered a violation of SEC Rule 613 and the Plan. Notwithstanding the preceding sentences, each Participant and Industry Member will be permitted to record and report Manual Order Events to the Central Repository in increments up to and including one second, provided that Participants and Industry Members will be required to record and report the time when a Manual Order Event has been captured electronically in an order handling and execution system of such Participant or Industry Member in milliseconds. In conjunction with Participants' and other appropriate Industry Member advisory groups, the Chief Compliance Officer will annually evaluate and make a recommendation to the Operating Committee as to whether industry standards have evolved such that the required synchronization should be shortened or the required time stamp should be in finer increments. The Operating Committee will make determinations regarding the need to revise the synchronization and time stamp requirements.
48. Do Commenters believe that the CAT NMS Plan's requirement that Participants and Industry Members synchronize their Business Clocks to within 50 milliseconds of the time maintained by the National Institute of Standards and Technology (“NIST”) is appropriate and reasonable? Do Commenters agree with the Participants that this clock offset tolerance represents current industry standards? Would a tighter clock offset tolerance be feasible?
49. Do Commenters believe that the CAT NMS Plan's requirement that Participants and Industry Members report information to the Central Repository in milliseconds is appropriate and reasonable? Would a more granular time stamp requirement be feasible? Do Commenters agree with the Participants that time stamp granularity to the millisecond represents current industry standards?
50. How should “industry standard,” for purposes of the CAT NMS Plan's clock synchronization and time stamping requirements, be determined? Do Commenters believe that “industry standard” should be based on current industry practice? If not, how should “industry standard” be defined? What other factors, if any, should be considered in defining such “industry standards”?
Section 6.9 of the Plan establishes the requirements involving the Plan Processor's Technical Specifications. The Plan Processor will publish Technical Specifications that are at a minimum consistent with Appendices C and D, and updates thereto as needed, providing detailed instructions regarding the submission of CAT Data by Participants and Industry Members to the Plan Processor for entry into the Central Repository. The Technical Specifications will be made available on a publicly available Web site to be developed and maintained by the Plan Processor. The initial Technical Specifications and any Material Amendments thereto will require the approval of the Operating Committee by Supermajority Vote.
The Technical Specifications will include a detailed description of the following: (1) The specifications for the layout of files and records submitted to the Central Repository; (2) the process for the release of new data format specification changes; (3) the process for industry testing for any changes to data format specifications; (4) the procedures for obtaining feedback about and submitting corrections to information submitted to the Central Repository; (5) each data element, including permitted values, in any type of report submitted to the Central Repository; (6) any error messages generated by the Plan Processor in the course of validating the data; (7) the process for file submissions (and re-submissions for corrected files); (8) the storage and access requirements for all files submitted; (9) metadata requirements for all files submitted to the CAT System; (10) any required secure network connectivity; (11) data security standards, which will, at a minimum: (a) Satisfy all applicable regulations regarding database security, including provisions of Regulation Systems Compliance and Integrity under the Exchange Act (“Reg SCI”); (b) to the extent not otherwise provided for under the Plan (including Appendix C thereto), set forth such provisions as may be necessary or appropriate to comply with Rule 613(e)(4); and (c) comply with industry best practices; and (12) any other items reasonably deemed appropriate by the Plan Processor and approved by the Operating Committee.
Amendments to the Technical Specifications may be made only in accordance with Section 6.9(c). The process for amending the Technical Specifications varies depending on whether the change is material. An amendment will be deemed “material” if it would require a Participant or an Industry Member to engage in significant changes to the coding necessary to submit information to the Central Repository pursuant to the Plan, or if it is required to safeguard the
Material Amendments to the Technical Specifications require approval of the Operating Committee by Supermajority Vote. The Operating Committee, by Supermajority Vote, may amend the Technical Specifications on its own motion.
51. Do Commenters believe that the list of items to be included in the Technical Specifications, as set forth in Section 6.9(b) of the CAT NMS Plan, is appropriate and reasonable? Do Commenters believe that detailed descriptions of any of the listed items should be included in the CAT NMS Plan rather than in the Technical Specifications? Do Commenters believe that the list addresses all of the areas that should be included in the Technical Specifications? Are there other aspects of the CAT that require Technical Specifications? If so, please identify and explain why the additional Technical Specifications are needed.
52. Do Commenters believe the Plan Processor should have sole discretion to amend and publish interpretations regarding the Technical Specifications, except for Material Amendments? Why or why not? What discretion or input, if any, should the Operating Committee or other parties, including the Advisory Committee, have in amending and publishing Technical Specifications interpretations?
53. How should Technical Specifications be communicated to the industry? Why?
54. What are the incentives for the Operating Committee to review the Plan Processor's interpretation of Technical Specifications and verify that the interpretation is consistent with the regulatory objectives of the Plan? What are the best practices to ensure sufficient review by the Operating Committee? What provisions of the Plan are in place to ensure that the Operating Committee follows these practices? What provisions, if any, could be strengthened? Please explain and provide supporting examples and evidence, if available.
55. The CAT NMS Plan provides that non-Material Amendments and published interpretations will be deemed approved ten days following provision to the Operating Committee, unless two unaffiliated Participants call for a vote to be taken on the proposed amendment or interpretation. Do Commenters have any views on this process? If so, please explain.
56. Do Commenters have any views regarding the definition of Material Amendments? Is the definition too broad? Too narrow? Please explain. Do Commenters have any views on who should be responsible for determining whether an amendment to the Technical Specifications is a Material Amendment? Do Commenters believe the CAT NMS Plan clearly states who shall have the responsibility to make the determination? Do Commenters have any views on how the determination should be made? Please explain.
57. The CAT NMS Plan requires that Material Amendments be approved by the Operating Committee by Supermajority Vote and allows the Operating Committee to amend the Technical Specifications on its own motion by Supermajority Vote. Do Commenters have any views on these processes? If so, please explain.
58. The CAT NMS Plan provides that the Plan Processor's business continuity planning must include a secondary site for critical staff, capable of recovery and restoration of services within 48 hours, with the goal of next day recovery. Should the CAT NMS Plan provide additional details regarding “the goal of next day recovery”? Do Commenters believe a 48-hour recovery and restoration period is too long? Too short? Please explain. Should the CAT NMS Plan impose any other requirements on the Plan Processor to better assure the Plan Processor is able to transition to the secondary site within the specified time frames? If so, what?
Surveillance issues are described in Section 6.10. Using the tools provided for in Appendix D, Functionality of the CAT System, each Participant will develop and implement a surveillance system, or enhance existing surveillance systems, reasonably designed to make use of the consolidated information contained in the Central Repository. Unless otherwise ordered by the SEC, within fourteen months after the Effective Date, each Participant must initially implement a new or enhanced surveillance system(s) as required by Rule 613 and Section 6.10(a) of the Plan. Participants may, but are not required to, coordinate surveillance efforts through the use of regulatory services agreements and agreements adopted pursuant to Rule 17d-2 under the Exchange Act.
Consistent with Appendix D, Functionality of the CAT System, the Plan Processor will provide Participants and the SEC with access to all CAT Data stored in the Central Repository. Regulators will have access to processed CAT Data through two different methods: (1) An online targeted query tool; and (2) user-defined direct queries and bulk extracts. The online targeted query tool will provide authorized users with the ability to retrieve CAT Data via an online query screen that includes the ability to choose from a variety of pre-defined selection criteria. Targeted queries must include date(s) and/or time range(s), as well as one or more of a variety of fields. The user-defined direct queries and bulk extracts will provide authorized users with the ability to retrieve CAT Data via a query tool or language that allows users to query all available attributes and data sources.
Extraction of CAT Data will be consistent with all permission rights granted by the Plan Processor. All CAT Data returned will be encrypted, and PII data will be masked unless users have permission to view the PII contained in the CAT Data that has been requested.
The Plan Processor will implement an automated mechanism to monitor direct query usage. Such monitoring will include automated alerts to notify the Plan Processor of potential issues with bottlenecks or excessively long queues for queries or CAT Data extractions. The Plan Processor will provide the Operating Committee or its designee(s) details as to how the monitoring will be accomplished and the metrics that will be used to trigger alerts.
The Plan Processor will reasonably assist regulatory Staff (including those of Participants) with creating queries. Without limiting the manner in which
59. What features of the CAT NMS Plan will facilitate the creation of enhanced surveillance systems? Are the minimum functional and technical requirements for the Plan Processor set forth in Appendix D consistent with the creation of enhanced surveillance systems? What, if any, additional requirements or details should be provided in the CAT NMS Plan to ensure that the Plan facilitates the creation of enhanced surveillance systems?
60. Under the CAT NMS Plan, will regulatory Staff have appropriate access to the Central Repository? Specifically, do Commenters believe that the online targeted query tool and user-defined direct queries and bulk extracts described in Sections 8.1 and 8.2 of Appendix D will enable regulatory Staff to use the data in the Central Repository to carry out their surveillance, analysis, and other regulatory functions? If not, why not and what should be added? Does the CAT NMS Plan provide sufficient detail to determine if regulators will have appropriate access? If not, what additional details should be provided?
61. Do Commenters believe that the provisions in Section 6.10(c)(ii) of the CAT NMS Plan regarding permission rights granted by the Plan Processor, encryption, and masking of PII are appropriate and reasonable? Would these provisions affect the ability of Commission or SRO regulatory Staff to access and use the data in the Central Repository? If so, what additional or different provisions would mitigate the impact on regulatory access to and use of the data?
62. Do Commenters believe that the query monitoring mechanism to be implemented by the Plan Processor, as described in Section 6.10(c)(iii) of the CAT NMS Plan, is appropriately designed to help enable regulators to carry out their regulatory functions? If not, what additional details or functionality should be provided? Will the provisions regarding Plan Processor assistance of regulatory Staff and submission of regulatory Staff queries (Sections 6.10(c)(iv)-(v) of the CAT NMS Plan) and the CAT user support functionality (as described in Section 10.2 of Appendix D) provide sufficient assistance to regulators in carrying out their regulatory functions?
As set forth in Section 6.12, the Plan Processor is required to develop and maintain a comprehensive information security program for the Central Repository that contains, at a minimum, the specific requirements detailed in Appendix D, Data Security. The information security program must be approved and reviewed at least annually by the Operating Committee.
63. Do Commenters believe the CAT NMS Plan should include a discussion of policies and procedures applicable to members of the Advisory Committee to ensure the security and confidentiality of the operation of the CAT (for example, requiring members of the Advisory Committee to enter into a non-disclosure agreement with the Company)? If so, what additional measures should be considered?
64. Do Commenters believe the CAT NMS Plan should detail the policies and procedures applicable to regulatory users of the CAT that would ensure the security and confidentiality of the CAT Data and the operation of the CAT? If so, what measures should be considered? Do Commenters have any views on how such policies and procedures should be enforced? Please explain.
Articles VII and VIII of the Plan address certain financial matters related to the Company. In particular, the Plan states that, subject to certain special allocations provided for in Section 8.2, any net profit or net loss will be allocated among the Participants equally. In addition, subject to Section 10.2, cash and property of the Company will not be distributed to the Participants unless the Operating Committee approves by Supermajority Vote a distribution after fully considering the reason that such distribution must or should be made to the Participants, including the circumstances contemplated under Section 8.3, Section 8.6, and Section 9.3. To the extent a distribution is made, all Participants will participate equally in any such distribution except as otherwise provided in Section 10.2.
Article XI addresses the funding of the Company. On an annual basis the Operating Committee will approve an operating budget for the Company. The budget will include the projected costs of the Company, including the costs of developing and operating the CAT System for the upcoming year, and the sources of all revenues to cover such costs, as well as the funding of any reserve that the Operating Committee reasonably deems appropriate for prudent operation of the Company.
Subject to certain funding principles set forth in Article XI, the Operating Committee will have discretion to establish funding for the Company, including: (1) Establishing fees that the Participants will pay; and (2) establishing fees for Industry Members that will be implemented by Participants. In establishing the funding of the Company, the Operating Committee will seek to: (1) Create transparent, predictable revenue streams for the Company that are aligned with the anticipated costs to build, operate and administer the CAT and the other costs of the Company; (2) establish an allocation of the Company's related costs among Participants and Industry Members that is consistent with the Exchange Act, taking into account the timeline for implementation of the CAT and distinctions in the securities trading operations of Participants and Industry Members and their relative impact upon Company resources and operations; (3) establish a tiered fee structure in which the fees charged to: (a) CAT Reporters that are Execution Venues, including ATSs, are based upon the level of market share, (b) Industry Members' non-ATS activities are based upon message traffic, and (c) the CAT Reporters with the most CAT-related activity (measured by market share and/or message traffic, as applicable) are generally comparable (where, for these comparability purposes, the tiered fee structure takes into consideration affiliations between or among CAT Reporters, whether Execution Venues and/or Industry Members); (4) provide for ease of billing and other administrative functions; (5) avoid any disincentives such as placing an inappropriate burden on competition and a reduction in market quality; and (6) build financial stability to support the Company as a going concern. The Participants will file with the SEC under Section 19(b) of the Exchange Act any such fees on Industry Members that the Operating Committee approves, and such fees will be labeled as “Consolidated Audit Trail Funding Fees.”
To fund the development and implementation of the CAT, the Company will time the imposition and collection of all fees on Participants and Industry Members in a manner
The Operating Committee will establish fixed fees to be payable by Execution Venues as follows. Each Execution Venue that executes transactions, or, in the case of a national securities association, has trades reported by its members to its trade reporting facility or facilities for reporting transactions effected otherwise than on an exchange, in NMS Stocks or OTC Equity Securities will pay a fixed fee depending on the market share of that Execution Venue in NMS Stocks and OTC Equity Securities. The Operating Committee will establish at least two and no more than five tiers of fixed fees, based on an Execution Venue's NMS Stocks and OTC Equity Securities market share. For these purposes, market share will be calculated by share volume. In addition, each Execution Venue that executes transactions in Listed Options will pay a fixed fee depending on the Listed Options market share of that Execution Venue. The Operating Committee will establish at least two and no more than five tiers of fixed fees, based on an Execution Venue's Listed Options market share, with market share calculated by contract volume. Changes to the number of tiers after approval of the Plan would require a Supermajority Vote of the Operating Committee and Commission approval under Section 19(b) of the Exchange Act, as would the establishment of the initial fee schedule and any changes to the fee schedule within the tier structure.
The Operating Committee also will establish fixed fees payable by Industry Members, based on the message traffic generated by such Industry Member. The Operating Committee will establish at least five and no more than nine tiers of fixed fees, based on message traffic. For the avoidance of doubt, the fixed fees payable by Industry Members pursuant to this paragraph will, in addition to any other applicable message traffic, include message traffic generated by: (1) An ATS that does not execute orders that is sponsored by such Industry Member; and (2) routing orders to and from any ATS system sponsored by such Industry Member.
Furthermore, the Operating Committee may establish any other fees ancillary to the operation of the CAT that it reasonably determines appropriate, including: Fees for the late or inaccurate reporting of information to the CAT; fees for correcting submitted information; and fees based on access and use of the CAT for regulatory and oversight purposes (and not including any reporting obligations).
The Company will make publicly available a schedule of effective fees and charges adopted pursuant to the Plan as in effect from time to time. Such schedule will be developed after the Plan Processor is selected. The Operating Committee will review the fee schedule on at least an annual basis and will make any changes to such fee schedule that it deems appropriate. The Operating Committee is authorized to review the fee schedule on a more regular basis, but will not make any changes on more than a semi-annual basis unless, pursuant to a Supermajority Vote, the Operating Committee concludes that such change is necessary for the adequate funding of the Company.
The Operating Committee will establish a system for the collection of fees authorized under the Plan. The Operating Committee may include such collection responsibility as a function of the Plan Processor or another administrator. Alternatively, the Operating Committee may use the facilities of a clearing agency registered under Section 17A of the Exchange Act to provide for the collection of such fees.
Each Participant will require each Industry Member to pay all applicable fees authorized under Article XI within thirty days after receipt of an invoice or other notice indicating payment is due (unless a longer payment period is otherwise indicated). If an Industry Member fails to pay any such fee when due, such Industry Member will pay interest on the outstanding balance from such due date until such fee is paid at a per annum rate equal to the lesser of: (1) The Prime Rate plus 300 basis points; or (2) the maximum rate permitted by applicable law. Each Participant will pay all applicable fees authorized under Article XI as required by Section 3.7(b).
Disputes with respect to fees the Company charges Participants pursuant to Article XI will be determined by the Operating Committee or a Subcommittee designated by the Operating Committee. Decisions by the Operating Committee on such matters shall be binding on Participants, without prejudice to the rights of any Participant to seek redress from the SEC pursuant to SEC Rule 608 or in any other appropriate forum. The Participants will adopt rules requiring that disputes with respect to fees charged to Industry Members pursuant to Article XI be determined by the Operating Committee or a Subcommittee. Decisions by the Operating Committee or Subcommittee on such matters will be binding on Industry Members, without prejudice to the rights of any Industry Member to seek redress from the SEC pursuant to SEC Rule 608 or in any other appropriate forum.
65. Do Commenters believe that the provisions in the CAT NMS Plan regarding the funding and budget of the Company to operate the CAT (as described in Article XI) are appropriate and reasonable? Specifically, do Commenters believe that the tiered funding model described in Section 11.2(c) of the CAT NMS Plan and the fixed-tier funding model described in
66. What are Commenters' views regarding the methodology in the CAT NMS Plan to establish and impose fees on Participants and the industry? Do Commenters believe that the fee system described in Sections 11.2 and 11.3 of the CAT NMS Plan will result in an equitable and fair allocation of CAT-related fees between Participants, other types of Execution Venues, and Industry Members? Will the fee system in the Plan, including consideration of the distinctions in securities trading operations, impose higher costs upon or result in any competitive advantage to some types of Execution Venues or Industry Members as opposed to others? If yes, are those differences in fees appropriate and reasonable? Will this proposed fee system create incentives to execute orders in certain Execution Venues over others? What alternative fee systems, if any, would be more appropriate?
67. Do Commenters believe that assessing fees based on market share and message traffic, as described in Sections 11.2 and 11.3 of the CAT NMS Plan, is appropriate and reasonable? Specifically, is it appropriate and reasonable to base Industry Member fees on message traffic and Execution Venue fees on market share? Will this method of calculating fees impose higher costs upon or result in any competitive advantage to some types of Execution Venues or Industry Members as opposed to others? What fee calculation method, if any, would be more appropriate?
68. Are the tier levels appropriate and reasonable? Why or why not? Is the number of tiers contemplated (2-5 for Execution Venues and 5-9 for Industry Members) appropriate and reasonable? Why or why not?
69. Do Commenters believe that giving the right to the Operating Committee to change the fee tier assigned to any particular Person as set forth in Section 11.1(d) of the CAT NMS Plan is appropriate and reasonable? If not, why not? What alternative process, if any, would be more appropriate?
70. Do Commenters believe that giving the right to the Operating Committee to change the fee tier assigned to any particular Person as set forth in Section 11.1(d) of the CAT NMS Plan conflicts with the tier structure of fees as set forth in Section 11.2(c) of the CAT NMS Plan, which will be based on the market share for Execution Venues, and message traffic for Industry Members? Why or why not?
71. Section 11.1(d) of the CAT NMS Plan also provides that any change to a Person's fee tier will be effective upon reasonable notice to such Person. Do Commenters believe that a notice to any such Person is necessary, given that the CAT NMS Plan provides that a Person will change fee tiers based on market share or message traffic, as applicable? Why or why not? What should constitute reasonable notice?
72. Do Commenters believe the Operating Committee's ability to establish additional fees for “access and use of the CAT for regulatory and oversight purposes” (as described in Section 11.3(c) of the CAT NMS Plan) is appropriate and reasonable? Would this provision affect the ability of regulatory Staff to access and use the data in the Central Repository? If so, what additional or different provisions would mitigate the impact upon regulatory access to and use of the data?
73. Do Commenters believe that the funding provisions in Section 11.1 of the CAT NMS Plan provide sufficient authority and guidance to the Operating Committee to establish and maintain such reserves as are reasonably deemed appropriate by the Operating Committee for the prudent operation of the Company? If not, why not?
74. Do Commenters believe that the provisions in the CAT NMS Plan regarding the collection of fees (Section 11.4 of the CAT NMS Plan) and fee disputes (Section 11.5 of the CAT NMS Plan) are appropriate and reasonable? If not, what alternatives do Commenters suggest?
75. Do Commenters believe the CAT NMS Plan provides sufficient detail regarding the proposed cost allocation among the Plan Processor and regulators with respect to hardware and software costs that may be required in order to use CAT Data? If not, what are the risks of not providing sufficient detail and what requirements should be set forth in the CAT NMS Plan? For example, since there will only be one Plan Processor, what are the risks of significant costs for regulators to the extent regulators will need to contract with the Plan Processor for additional computing resources, storage costs and data transfer costs?
76. Should the Operating Committee be required to consult the Advisory Committee when setting fees and performing regular reviews of fees? Please explain.
Section 12.3 of the CAT NMS Plan, which governs amendments to the Plan, states that, except with respect to the addition of new Participants (Section 3.3), the transfer of Company Interest (Section 3.4), the termination of a Participant's participation in the Plan (Section 3.7), amendments to the Selection Plan (Section 5.3 [sic]) and special allocations (Section 8.2), any change to the Plan requires a written amendment authorized by the affirmative vote of not less than two-thirds of all of the Participants, or with respect to Section 3.8 by the affirmative vote of all the Participants. Such proposed amendment must be approved by the Commission pursuant to Rule 608 or otherwise becomes effective under Rule 608. Notwithstanding the foregoing, to the extent that the SEC grants exemptive relief applicable to any provision of this Agreement, Participants and Industry Members will be entitled to comply with such provision pursuant to the terms of the exemptive relief so granted at the time such relief is granted irrespective of whether the LLC Agreement has been amended.
Under Article III, each Participant agrees to comply with and enforce compliance by its Industry Members with the provisions of Rule 613 and the Plan, as applicable, to the Participant and its Industry Members. Accordingly, the Participants will endeavor to promulgate consistent rules (after taking into account circumstances and considerations that may impact Participants differently) requiring compliance by their respective Industry Members with the provisions of Rule 613 and the Plan.
The Plan includes three appendices.
Rule 608 requires copies of all governing or constituent documents relating to any person (other than a self-regulatory organization) authorized to implement or administer such plan on behalf of its sponsors. The Participants will submit to the Commission such
The terms of the Plan will be effective immediately upon approval of the Plan by the Commission (the “Effective Date”). The Plan sets forth each of the significant phases of development and implementation contemplated by the Plan, together with the projected date of completion of each phase. These include the following, each of which is subject to orders otherwise by the Commission:
Within two months after the Effective Date, the Participants will jointly select the winning Shortlisted Bid and the Plan Processor pursuant to the process set forth in Article V. Following the selection of the Initial Plan Processor, the Participants will file with the Commission a statement identifying the Plan Processor and including the information required by Rule 608;
Within four months after the Effective Date, each Participant will, and, through its Compliance Rule, will require its Industry Members to, synchronize its or their Business Clocks and certify to the Chief Compliance Officer (in the case of Participants) or the applicable Participant (in the case of Industry Members) that it has met this requirement;
Within six months after the Effective Date, the Participants must jointly provide to the SEC a document outlining how the Participants could incorporate into the CAT information with respect to equity securities that are not NMS Securities,
Within one year after the Effective Date, each Participant must report Participant Data to the Central Repository;
Within fourteen months after the Effective Date, each Participant must implement a new or enhanced surveillance system(s);
Within two years after the Effective Date, each Participant must, through its Compliance Rule, require its Industry Members (other than Small Industry Members) to report Industry Member Data to the Central Repository; and
Within three years after the Effective Date, each Participant must, through its Compliance Rule, require its Small Industry Members to provide Industry Member Data to the Central Repository.
In addition, Industry Members and Participants will be required to participate in industry testing with the Central Repository on a schedule to be determined by the Operating Committee. Furthermore, Appendix C, A Plan to Eliminate Existing Rules and Systems (SEC Rule 613(a)(1)(ix)), and Appendix D, Data Types and Sources, set forth additional implementation details concerning the elimination of rules and systems.
The Chief Compliance Officer will appropriately document objective milestones to assess progress toward the implementation of this Agreement.
77. Under the CAT NMS Plan, the SROs' rules would require that their members become CAT Reporters. What mechanism should there be to ensure that all CAT Reporters would participate in all pre-implementation activities, including connectivity and testing? Please explain.
78. Do Commenters believe that the CAT NMS Plan allows for sufficient pre-implementation testing support for CAT Reporters, including providing CAT Reporter feedback and accuracy reports? If not, what requirements should be added to the CAT NMS Plan?
79. Do Commenters believe that full implementation of the CAT would allow for the retirement of OATS? Please explain. Are any identified gaps with respect to OATS' data elements not addressed in the CAT NMS Plan? If yes, what are they?
80. The CAT NMS Plan provides for a single Plan Processor. As such, do Commenters believe there are adequate and appropriate incentives for continuous CAT innovation and cost reductions by the Plan Processor and the Participants? If not, explain and describe what additional incentives may be implemented in the CAT NMS Plan or related documentation. What competition might be encouraged to lead to further innovations and reduced costs for future CAT technologies?
81. Do Commenters believe that the proposed CAT NMS Plan sets forth acceptable milestones to measure the progress of developing and implementing the CAT? Why or why not?
82. The CAT NMS Plan sets forth significant phases of development and implementation and a projected timetable for each stage. Are these projections appropriate and reasonable? If not, why not, and what is a more appropriate and reasonable timeline?
83. The CAT NMS Plan's “Access to the Central Repository for Regulators” Section
The Plan states that it does not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Exchange Act. Section 8 of Appendix C, An Analysis of the Impact on Competition, Efficiency and Capital Formation, discusses the competition impact of the Plan in detail.
The Participants have no written understandings or agreements relating to interpretations of, or participation in, the Plan other than those set forth in the Plan itself. For example, Section 4.3(a)(iii) states that the Operating Committee only may authorize the interpretation of the Plan by Majority Vote, Section 6.9(c)(i) addresses interpretations of the Technical Specifications, and Section 8.2 addresses the interpretation of Sections 8.1 and 8.2. In addition, Section 3.3 sets forth how any entity registered as a national securities exchange or national securities association under the Exchange Act may become a Participant.
The Plan does not include a general provision addressing the method by which disputes arising in connection with the operation of the Plan will be resolved. The Plan does, however, provide the means for resolving disputes regarding the Participation Fee. Specifically, Article III states that, in the event that the Company and a prospective Participant do not agree on the amount of the Participation Fee, such amount will be subject to the review by the SEC pursuant to Section 11A(b)(5) of the Exchange Act.
This marks the end of the statement of purpose as set forth above and as substantially prepared and submitted by the SROs.
The Commission requests and encourages any interested person to comment generally on the proposed CAT NMS Plan. In addition to the specific requests for comment throughout the release, the Commission requests general comment on all aspects of the proposed CAT NMS Plan. The Commission encourages Commenters to provide information regarding the advantages and disadvantages of each aspect of the proposed CAT NMS Plan. The Commission invites Commenters to provide views and data as to the costs and benefits associated with the proposed CAT NMS Plan. The Commission also seeks comment regarding other matters that may have an effect on the proposed CAT NMS Plan.
The CAT NMS Plan requires CAT Reporters to comply with specific reporting procedures when reporting CAT Data to the Central Repository.
The CAT NMS Plan requires specific data elements of CAT Data that must be recorded and reported to the Central Repository upon: (i) “original receipt or origination of an order,”
84. Do Commenters believe that the data recording, reporting, and formatting procedures described in the CAT NMS Plan are appropriate and reasonable? Would providing additional details or requirements on these procedures enhance the quality of CAT Data reported to the Central Repository or the efficiency and cost-effectiveness of the CAT?
85. Do Commenters believe that the CAT NMS Plan, including Appendix D thereto, requires sufficient outreach, support, training, guidance and/or documentation to ensure that CAT Reporters are able to make data transmissions to the Central Repository that are complete and timely? If not, please explain. Describe what, if any, further requirements may be needed.
86. Do Commenters believe that the CAT NMS Plan should have a formal communications plan, other than the public Web site, to provide CAT Reporters the information they would need in order to set-up or configure their systems to record and report CAT Data to the Central Repository? If so, how, when, and by whom should such information be disseminated to CAT Reporters?
87. Do Commenters believe the Plan should require a specific method for entering CAT Data upon each CAT Reportable Event or upon updates and corrections to CAT Reportable Events? If so, what method? Please explain.
88. Do Commenters believe that the CAT NMS Plan should include a requirement that the Participants and the Plan Processor set forth a more detailed schedule, with milestones, for CAT Reporters to adhere to in setting-up or configuring their systems to become CAT Data reporting compliant? If so, please explain and describe what details and milestones should be included in the schedule (
Section 6.3(b)(ii) of the CAT NMS Plan requires each Participant to report Participant Data to the Central Repository by 8:00 a.m. Eastern Time on the Trading Day following the day the Participant records such data.
89. The CAT NMS Plan requires that all Participants report Participant Data to the Central Repository by 8:00 a.m. Eastern Time on the Trading Day following the day the Participant records such data,
90. Do Commenters believe that CAT Reporters will submit their reports at or about the same time? If all or most of the CAT Reporters would report at or just before 8:00 a.m. Eastern Time, what, if any, impact would there be on the necessary CAT infrastructure? Would this place an excessive burden on the Plan Processor? Do Commenters believe this would increase operational risk and/or increase costs? If so, please explain. Are there alternative reporting mechanisms that could reduce such risks?
91. The CAT NMS Plan provides that the Plan Processor must be able to handle two times the historical peak data to ensure that, if a significant number of CAT Reporters choose to submit data at or around the same time, the Plan Processor could handle the influx of data.
92. Do Commenters believe that the CAT NMS Plan allocates, or requires the Plan Processor to have, sufficient resources to work with the approximately 1,800 CAT Reporters that would, under the CAT NMS Plan, have to establish secure connections over which CAT Data will flow from their systems to the Central Repository? Do Commenters believe that the Plan Processor could implement the CAT Reporters' Central Repository connections nearly simultaneously without compromising testing periods and implementation timelines?
The CAT NMS Plan does not mandate the format in which data must be reported to the Central Repository.
The CAT NMS Plan requires that data reported to the Central Repository be stored in an electronic standard format.
93. The CAT NMS Plan provides that CAT Reporters could be required to report data either in a uniform electronic format, or in a manner that would allow the Central Repository to convert the data to a uniform electronic format, for consolidation and storage. Do Commenters believe that if data is reported to the Central Repository in a non-uniform format, the proposed CAT NMS Plan includes sufficient requirements or details to determine whether the Central Repository could reliably and accurately convert such data to a uniform electronic format, for consolidation and storage, without affecting the quality of the data? If not, what additional requirements or details should be provided in the CAT NMS Plan prior to the Commission's approval of such plan?
94. If Commenters believe that it is not necessary to provide additional requirements or details, if any, in the CAT NMS Plan, what additional requirements or details should be included in the Technical Specifications to determine whether the Central Repository could reliably and accurately convert such data to a uniform electronic format, for consolidation and storage?
95. Do Commenters believe the CAT NMS Plan's lack of a mandated uniform format in which data must be reported to the Central Repository would affect the accuracy of CAT Data collected and maintained under the CAT? If so, how? Would reporting data in a uniform format result in greater accuracy? If so, please explain.
96. Do Commenters believe the CAT NMS Plan's lack of a mandated uniform format in which data must be reported to the Central Repository would affect the completeness of CAT Data collected and maintained under the CAT? If so, how? Would reporting data in a uniform format result in more complete CAT Data? If so, please explain.
97. Do Commenters believe the CAT NMS Plan's lack of a mandated uniform format in which data must be reported to the Central Repository would affect the accessibility of CAT Data collected and maintained under the CAT? If so, how? Would reporting data in a uniform format result in a different level of accessibility? If so, please explain.
98. Do Commenters believe allowing CAT Reporters to report data to the Central Repository in a non-uniform format would affect the timeliness of data collected and maintained under the CAT? How would the requirement that the Central Repository convert non-uniform data to a uniform format affect the timeliness of the data collected and maintained under the CAT? Would reporting data in a uniform format result in a different level of timeliness of data reporting? If so, please explain.
99. Do Commenters believe that allowing CAT Reporters to report data to the Central Repository in a non-uniform format is more efficient and cost-effective than requiring data to be reported in a uniform format? Would allowing CAT Reporters to report data to the Central Repository in a non-uniform format merely transfer the costs from individual CAT Reporters to the Central Repository? Would centralization of the costs of converting data to a uniform format reduce costs? Please explain.
100. Do Commenters believe that allowing CAT Reporters to report data to the Central Repository in a non-uniform format would affect the security and confidentiality of CAT Data? If so, how? Would reporting data in a uniform format create different security or confidentiality concerns? If so, please explain.
Pursuant to Section 6.8(a) of the CAT NMS Plan, each Participant and Industry Member, (through the Compliance Rule adopted by every Participant), must synchronize its Business Clocks,
Appendix C describes the process by which Participants determined that a 50-millisecond clock offset tolerance was consistent with industry standards.
Appendix C discusses mechanisms to ensure compliance with the 50-millisecond clock offset tolerance.
101. Do Commenters believe that a clock offset tolerance of 50 milliseconds is appropriate and reasonable, in light of the increase in the speed of trading over the last several years? If not, what would an appropriate and reasonable standard be?
102. What are current clock synchronization practices? Do Commenters believe that current industry clock synchronization practices are sufficiently rigorous in light of current trading speeds? If not, please explain.
103. Would a smaller clock offset tolerance be reasonably achievable? If so, please identify such tolerance and any incremental additional costs that achieving that smaller clock offset tolerance might entail.
104. If Commenters believe that, in light of the current speed of trading, the clock offset tolerance should be more rigorous, what, if any transition period would be reasonable and appropriate for reducing the clock offset tolerance standards of CAT?
105. What is the range of clock synchronization practices across the industry?
106. Do Commenters believe the range of clock synchronization practices should be considered when considering the appropriate clock synchronization standard?
107. If an SRO or broker-dealer can or does synchronize its clocks to an offset tolerance more rigorous than 50 milliseconds, do Commenters believe that that SRO or broker-dealer should be required to synchronize its clocks to that standard? Why or why not? If so, how, if at all, would that affect sequencing of Reportable Events in CAT?
108. Do Commenters believe that certain categories of market participants should be held to a smaller or larger clock offset tolerance? If so, what category of market participant and why? How, if at all, would that affect sequencing of Reportable Events in CAT?
109. Do Commenters believe a 50-millisecond clock offset tolerance would materially impair the quality and accuracy of CAT Data? If so, please explain. Would such a standard undermine the ability of the Central Repository to accurately and reliably link order and sequence event data across venues, or combine it with other sources of trade and order data? If so, please explain. Is there a benefit from applying the same uniform clock offset tolerance to all market participants, or would a variable clock offset tolerance approach be preferable? For example, should a high-volume market participant trading on multiple exchanges and ATSs have the same clock offset tolerance as a small retail-focused regional office? Would the benefits of a smaller clock offset tolerance for service bureaus that report but do not record order events be lower than for other types of CAT Reporters? Would the benefits of a smaller clock offset tolerance for clearing brokers that record and report information available only after an execution be lower than for other types of CAT Reporters? Please explain.
110. The CAT NMS Plan provides that as time synchronization standards evolve, the Participants would assess, on an annual basis, the ability to tighten the clock synchronization standards for CAT to reflect changes in industry standards. Do Commenters believe that this would establish an appropriately rigorous process and schedule for the Participants to evaluate whether the clock synchronization standard should be tightened? Are there any other factors that should affect when and how to tighten the clock synchronization standard?
111. Do Commenters believe the CAT NMS Plan provides adequate enforcement provisions to ensure CAT Reporters synchronize Business Clocks within the proposed 50-millisecond clock offset tolerance? If not, what additional enforcement provisions should the CAT NMS Plan provide?
112. Do Commenters believe that sufficient detail has been provided in the CAT NMS Plan concerning the reasonable justification or exceptional circumstances that would permit a pattern or practice of reporting events outside of the specified clock synchronization standard?
113. The CAT NMS Plan generally requires CAT Reporters to record and report Reportable Events with a time stamp of at least to the millisecond but provides for a 50 millisecond clock offset tolerance. Do Commenters believe the time stamp granularity requirement and the clock offset tolerance should correspond more closely or even identically? If so, please explain, including what such time stamp granularity requirement and clock offset tolerance should be.
The CAT NMS Plan requires CAT Reporters to record and report the time of each Reportable Event using time stamps reflecting current industry standards, which should be at least to the millisecond, except with respect to events that involve non-electronic communication of information (“Manual Order Events”).
114. Are the time stamp granularity standards for both electronic and non-electronic reportable events appropriate and reasonable? If not, why not and what would be a better alternative?
115. Do Commenters believe the CAT NMS Plan's time stamp granularity requirement is precise enough to reliably and accurately sequence Reportable Events? If not, why not? Is there a better time stamp approach and what should the requirement(s) be?
116. To what degree does the millisecond or less time stamp granularity requirement enable or prevent regulators' ability to sequence events that occur in different execution venues? Please explain.
117. Are certain CAT Reportable Events more time-sensitive than other CAT Reportable Events? If so, what events are more time-sensitive and why? What systems are more likely to process these more sensitive events and to what level of time stamp granularity are such events processed? Where are those systems located (
118. What market participant systems, if any, should have less granular time stamp requirements? Why? What time stamp granularity standard should these systems have? Why?
119. What market participant systems, if any, should have more granular time stamp requirements? Why? What time stamp granularity standard should these systems have? Why?
120. The Commission granted an exemption from Rule 613 in order to allow the alternative of permitting CAT Reporters to report Manual Order Events with a time stamp granularity of one second, in lieu of the Rule 613 requirement that the CAT NMS Plan require CAT Reporters to report with a time stamp granularity of one millisecond, to be included in the CAT NMS Plan and subject to notice and comment.
121. What alternative approach with respect to Manual Order Events may be preferable? Could the provisions in the CAT NMS Plan related to Manual Order Events be more narrowly tailored to, for example, only apply to CAT Reporters who are unable to record and report Manual Order Events with a time stamp granularity of one millisecond?
122. The SROs note in the Exemption Request that recording and reporting Manual Order Events with a time stamp granularity of at least one second would result in little additional benefit, and, in fact, could result in adverse consequences such as creating a false sense of precision for data that is inherently imprecise, while imposing additional costs on CAT Reporters. Do Commenters agree? Why or why not?
123. If Manual Order Events are recorded and reported with a time stamp granularity of one second, what, if any, challenges do Commenters believe would arise with respect to the sequencing of order events (for the same order) and orders (for a series of orders)? Would the one millisecond standard originally provided for in Rule 613 be preferable? Please explain.
124. Do Commenters believe the CAT NMS Plan's requirement that time stamp granularity (other than for Manual Order Events) should be to at least the millisecond is granular enough in light of current practices? If not, why not?
125. The CAT NMS Plan provides that as time stamp standards evolve, the Participants would assess, on an annual basis, the ability to require more precise time stamp granularity standards for CAT to reflect changes in industry standards. Do Commenters believe that this establishes an appropriately rigorous schedule for the Participants to evaluate whether time stamp granularity requirements could potentially be set to finer increments? Are there any other factors that should affect when and how the requirements for time stamp granularity increments could be made more precise?
126. Do Commenters believe the CAT NMS Plan provides adequate enforcement provisions to ensure CAT Reporters time stamp Reportable Events to a granularity of one millisecond (and for Manual Order Events to a granularity of one second)? If not, what additional enforcement provisions should the CAT NMS Plan provide?
127. Do Commenters believe that the CAT NMS Plan's requirement that Participants and Industry Members synchronize Business Clocks used solely for Manual Order Events to within one second of the time maintained by the NIST is appropriate and reasonable? Would a tighter clock synchronization standard for Business Clocks used solely for Manual Order Events be feasible?
Sections 6.3 and 6.4 of the CAT NMS Plan require CAT Reporters to record and report to the Central Repository an SRO-Assigned Market Participant Identifier
The CAT NMS Plan requires the Plan Processor to develop and maintain the mechanism to assign (and to change, if necessary) CAT-Reporter-IDs.
The consolidated audit trail must be able to capture, store, and maintain current and historical SRO-Assigned Market Participant Identifiers.
128. The Commission granted an exemption from Rule 613 in order to allow the Existing Identifier Approach to be included in the CAT NMS Plan and subject to notice and comment. The Existing Identifier Approach would allow a CAT Reporter to report an existing SRO-Assigned Market Participant Identifier in lieu of Rule 613's requirement that a CAT Reporter must report a universal CAT-Reporter-ID.
129. Do Commenters believe that the Existing Identifier Approach would affect the accuracy of CAT Data? Would the Rule 613 approach result in greater accuracy? If so, please explain.
130. Do Commenters believe that the CAT NMS Plan's proposed Existing Identifier Approach would affect the accessibility of CAT Data? If so, how? Would the Rule 613 approach result in a different level of accessibility? If so, please explain.
131. Do Commenters believe that the CAT NMS Plan's proposed Existing Identifier Approach would affect the timeliness of CAT Data? If so, how? Would the Rule 613 approach result in greater timeliness? If so, please explain.
132. Do Commenters believe the Existing Identifier Approach would affect the security and confidentiality of CAT Data? If so, how? Would the Rule 613 approach result in a different level of security and confidentiality? If so, please explain.
133. What challenges or risks do Commenters believe the Plan Processor would face in linking all SRO-Assigned Market Participant Identifiers to the appropriate CAT-Reporter-IDs? What, if anything, could be done to mitigate those challenges and risks?
134. The CAT NMS Plan does not require that an Industry Member provide its LEI to the Plan Processor as part of the identifying information used to assign a CAT-Reporter-ID. The CAT NMS Plan permits an Industry Member to report its CRD number in lieu of its LEI for this purpose. Do Commenters believe that the CAT NMS Plan should mandate that Industry Members provide their LEIs, along with their SRO-Assigned Market Participant Identifiers, to the Plan Processor for purposes of developing a unique CAT-Reporter-ID? Why or why not?
Rule 613(c)(7)(i)(A) requires that for the original receipt or origination of an order, a CAT Reporter report the “Customer-ID(s) for each Customer.”
In Appendix C, the Participants describe the “Customer Information Approach,”
Under the Customer Information Approach, broker-dealers would be required to report only the Firm Designated ID for each new order submitted to the Central Repository, rather than the “Customer-ID” as defined by Rule 613(c)(j)(5) and as required by Rule 613(c)(7)(i)(A), and the Plan Processor would associate specific Customers and their Customer-IDs with individual order events based on the reported Firm Designated IDs.
Appendix C provides additional requirements that the Plan Processor must meet under the Customer Information Approach.
Rule 613(c)(7)(viii)(B) requires broker-dealers to report to the Central Repository “Customer Account Information” upon the original receipt or origination of an order.
The second circumstance where a broker-dealer may report the “Account Effective Date” rather than the date an account was opened as required in Rule 613(c)(7)(viii)(B) is when particular legacy system data issues prevent a broker-dealer from providing an account open date for any type of account (
(1) A broker-dealer has switched back office providers or clearing firms and the new back office/clearing firm system identifies the account open date as the date the account was opened on the new system;
(2) A broker-dealer is acquired and the account open date becomes the date that an account was opened on the post-merger back office/clearing firm system;
(3) Certain broker-dealers maintain multiple dates associated with accounts in their systems and do not designate in a consistent manner which date constitutes the account open date, as the parameters of each date are determined by the individual broker-dealer; or
(4) No account open date exists for a proprietary account of a broker-dealer.
Thus, when legacy systems data issues arise due to one of the four reasons above and no account open date is available, the Plan provides that broker-dealers would be permitted to report an “Account Effective Date” in lieu of an account open date.
Rule 613(c)(7)(iv)(F) requires that “[t]he CAT-Reporter-ID of the broker-dealer or Customer-ID of the
135. The Commission granted an exemption from Rule 613 in order to allow the Customer Information Approach to be included in the CAT NMS Plan and subject to notice and comment. The Customer Information Approach would require each broker-dealer to assign a unique Firm Designated ID to each trading account and to submit an initial set of information identifying the Customer to the Central Repository, in lieu of Rule 613's requirement that a CAT Reporter must report a Customer-ID for each Customer upon the original receipt or
136. If broker-dealers are permitted to report a Firm Designated ID, do Commenters believe the proposed CAT NMS Plan includes sufficiently detailed requirements to determine whether the Plan Processor could use the Firm Designated ID to identify a Customer?
137. Do Commenters believe the CAT NMS Plan's proposal to permit reporting a Firm Designated ID would affect the accuracy of CAT Data collected and maintained under the CAT compared to the Rule 613 approach that requires a unique Customer-ID? If so, how? Would permitting reporting a Firm Designated ID result in more complete CAT Data? If so, please explain.
138. Do Commenters believe the CAT NMS Plan's proposal to permit reporting a Firm Designated ID would affect the accessibility of CAT Data collected and maintained under the CAT compared to the Rule 613 approach? If so, how? Would permitting reporting a Firm Designated ID result in CAT Data being more accessible? If so, please explain.
139. Do Commenters believe allowing broker-dealers to report a Firm Designated ID to the Central Repository would affect the timeliness of data collected and maintained under the CAT compared to the Rule 613 approach? Would permitting reporting a Firm Designated ID result in more timely CAT Data? If so, please explain.
140. Do Commenters believe there are any increased risks related to allowing a broker-dealer to report a Firm Designated ID rather than a unique Customer-ID to the Central Repository? How difficult would it be for the Central Repository to utilize a Firm Designated ID for each account?
141. Do Commenters believe that the CAT NMS Plan has provided sufficient information to determine whether the Central Repository could use a Firm Designated ID to efficiently, reliably and accurately link orders and Reportable Events to a Customer?
142. Do Commenters believe that the CAT NMS Plan includes sufficient safeguards or policies to assure that the same Firm Designated ID would not be used for multiple Customers?
143. The CAT NMS Plan does not require that a broker-dealer provide an LEI to the Plan Processor as part of the identifying information used to assign a Customer-ID at the Central Repository. The CAT NMS Plan provides that a broker-dealer must report its LEI, if available, but allows a broker-dealer to report another comparable common entity identifier, if an LEI is not available. Do Commenters believe that the CAT NMS Plan should mandate that broker-dealers provide an LEI as part of the information used by the Plan Processor to uniquely identify Customers? Why or why not?
144. Do Commenters believe that reporting the Firm Designated ID, rather than a unique Customer-ID, would affect the security and confidentiality of CAT Data? If so, how? Would permitting reporting a Firm Designated ID result in a different level of security and confidentiality of CAT Data? If so, please explain.
145. The CAT NMS Plan provides that an initial set of Customer Account Information and Customer Identifying Information would be reported to the Central Repository by broker-dealers upon the commencement of reporting audit trail data to the Central Repository by that broker-dealer, and that such Customer Identifying Information would be updated as set forth in the CAT NMS Plan. Do Commenters believe that the approach for reporting an initial set of Customer Account Information and Customer Identifying Information and updates to such information thereafter as set forth in the CAT NMS Plan would affect the quality, accuracy, completeness, accessibility or timeliness of the data? If so, what additional requirements or details should be provided in the CAT NMS Plan?
146. Do Commenters believe that allowing broker-dealers to report an initial set of Customer Account Information and Customer Identifying Information and updates to such information thereafter is more efficient and cost-effective than the Rule 613 approach for identifying Customers under Rule 613? Or do Commenters believe that the Rule 613 approach is preferable? Why or why not?
147. Do Commenters believe there are any increased risks as a result of allowing a broker-dealer to report an initial set of Customer Account Information and Customer Identifying Information and updates to such information thereafter to be reported to the Central Repository? How difficult would it be for the Central Repository to ingest the Customer Account Information and Customer Identifying information, and any updates thereafter?
148. Do Commenters believe that the CAT NMS Plan provides sufficient information to determine whether the Central Repository could use the initial set of Customer Account Information and Customer Identifying Information and updates to such information thereafter to efficiently, reliably and accurately link orders and Reportable Events to a Customer?
149. Do Commenters believe that reporting an initial set of Customer Account Information and Customer Identifying Information and updates to such information thereafter would affect the security and confidentiality of CAT Data? If so, how? Would reporting an initial set of Customer Account Information and Customer Identifying Information and updates to such information result in a different level of security and confidentiality? If so, please explain.
150. As part of the Customer Identifying Information reported to the Central Repository, the CAT NMS Plan requires a broker-dealer to report PII such as the Customer's name, address, date of birth, and ITIN/SSN. Do Commenters believe there is data that could be reported by broker-dealers and used by the Central Repository to identify Customers that is not PII? What types of data would this be? If data other than PII is used to identify a Customer, do Commenters believe that such data would be sufficiently unique to ensure that Customers can be accurately identified by the Central Repository?
151. If data other than PII is used by the Central Repository to identify a Customer, would the use of such data affect the quality or completeness of the CAT audit trail, as compared to the use of PII to identify a Customer?
152. Do Commenters believe that if broker-dealers reported data other than PII to identify Customers, the accessibility and timeliness of the data collected and maintained under the CAT would be affected? If the data would be affected, in what way(s)?
153. Would relying on data other than PII to identify a Customer be a more efficient and cost-effective way to identify Customers, as compared to relying on PII to identify a Customer?
154. Do Commenters believe that there would be increased risks to the reliability of the CAT audit trail data if broker-dealers were required to identify a Customer with data that does not include PII?
155. If broker-dealers report data other than PII to identify Customers, do Commenters believe that the Central Repository could efficiently, reliably
156. Do Commenters believe that the proposed CAT NMS Plan provides sufficient information to determine when broker-dealers would report the “Account Effective Date”, rather than the date the Customer's account was opened as required by Rule 613? Is there any ambiguity in the circumstances under which a broker-dealer would report an “Account Effective Date” rather than the date a Customer's account was opened?
157. Do Commenters believe reporting of the “Account Effective Date” rather than the account open date for a Customer's account under the Rule 613 approach would affect the quality, accuracy, completeness, accessibility or timeliness of the CAT data? If it does, what additional requirements or details should be provided in the CAT NMS Plan prior to the Commission's approval of such Plan? Or do Commenters believe that the Rule 613 approach is preferable? Why or why not?
158. Do Commenters believe that reporting the “Account Effective Date” would provide sufficient information to the Central Repository to facilitate the ability of the Plan Processor to link a Customer's account with the Customer?
159. Do Commenters believe that allowing the reporting of the “Account Effective Date” would be more efficient and cost-effective than requiring the Rule 613 approach of reporting of a Customer's account open date? Or do Commenters believe that the Rule 613 approach is preferable? Why or why not? Would allowing CAT Reporters to report the “Account Effective Date” rather than the date a Customer's account was opened merely transfer the costs from individual CAT Reporters to the Central Repository?
160. Do Commenters agree that the proposed approach for reporting the “Account Effective Date,” which differs depending on whether the account was established before or after the commencement of reporting audit trail data to the Central Repository as set forth in the CAT NMS Plan, is a reasonable approach? Why or why not?
161. The Commission granted an exemption from Rule 613 to permit the alternative of allowing CAT Reporters to report whether the modification or cancellation of an order was given by a Customer, or initiated by a broker-dealer or exchange, in lieu of requiring the reporting of the Customer-ID of the person giving the modification or cancellation instruction, to be included in the CAT NMS Plan and subject to notice and comment. To what extent does the approach permitted by the exemption affect the completeness of the CAT? Would the information lost under the approach permitted by the exemption affect investigations or surveillances? If so, how?
Section 6.4(d)(ii)(A)(1) of the CAT NMS Plan provides that each Participant through its Compliance Rule must require that Industry Members record and report to the Central Repository an Allocation Report that includes the Firm Designated ID when an execution is allocated in whole or part.
162. The Commission granted an exemption from Rule 613 in order to allow the alternative of permitting the CAT NMS Plan to provide that Industry Members record and report to the Central Repository an Allocation Report that includes the Firm Designated ID when an execution is allocated in whole or part. This alternative is in lieu of the requirement in Rule 613 that Industry Members must report the account number for any subaccount to which an execution is allocated.
163. Do Commenters believe that the Allocation Report Approach would affect the completeness of CAT Data? If so, how? Would the Allocation Report Approach result in more complete CAT Data? If so, please explain.
164. Do Commenters believe that the Allocation Report Approach would affect the accessibility of allocation information? If so, how? Would the Allocation Report Approach result in more accessible CAT Data? If so, please explain.
165. Do Commenters believe that the Allocation Report Approach would affect the timeliness of allocation information? If so, how? Would the Allocation Report Approach result in more timely CAT Data? If so, please explain.
166. Do Commenters believe the Allocation Report Approach would affect the security and confidentiality of CAT Data? If so, how? Would the Allocation Report Approach result in a different level of security or confidentiality? If so, please explain.
167. Do Commenters believe that the Allocation Report Approach described by the SROs is feasible? What challenges or risks would CAT Reporters face in providing such information? What challenges or risks would the Plan Processor face when ingesting such information and linking it to the appropriate Customers' accounts?
Section 6.4(d)(iii) of the CAT NMS Plan states that, with respect to the reporting obligations of an Options Market Maker under Sections 6.3(d)(ii) and (iv) regarding its quotes
168. The Commission granted an exemption from Rule 613 in order to allow the alternative of permitting Options Exchanges to report Options Market Maker quotes to the Central Repository in lieu of requiring such reporting by both the Options Exchange and the Options Market Maker as is required by Rule 613, to be included in the CAT NMS Plan and subject to notice and comment.
169. Under Rule 613, Options Market Makers would report their quotes to the Central Repository and time stamps would be attached to such quotes. Under the exemption, Options Market Makers would include the Quote Sent Time when sending quote information to the Options Exchanges. What, if any, are the risks of permitting the Options Exchanges to report information Options Market Makers otherwise would be required to report?
170. Do Commenters believe that the cost savings from permitting Options Exchanges to report information Options Market Makers would otherwise have to report makes this a preferable approach than Rule 613?
The CAT NMS Plan defines Error Rate as “the percentage of [R]eportable [E]vents collected by the [C]entral [R]epository in which the data reported does not fully and accurately reflect the order event that occurred in the market.”
The CAT NMS Plan sets the initial maximum Error Rate at 5% for any data reported pursuant to subparagraphs (3) and (4) of Rule 613(c).
The Participants, moreover, anticipate reviewing and resetting the maximum Error Rate once Industry Members (excluding Small Industry Members) begin to report to the Central Repository and again once Small Industry Members report to the Central Repository.
The Participants thus propose a phased approach to lowering the maximum Error Rates among CAT Reporters based on the period of time reporting to the Central Repository and whether the CAT Reporters are Participants, large broker-dealers or small broker-dealers.
The CAT NMS Plan requires that the Plan Processor to: (i) Measure and report errors every business day;
171. Do Commenters believe the CAT NMS Plan's initial maximum Error Rate of 5% for CAT Data reported to the Central Repository is appropriate in light of OATS' current error rate of less than 1%?
172. Please provide examples of error rates that are generally accepted with respect to other regulatory data reporting systems. At what error rate should data be considered materially unreliable? Please explain.
173. Do Commenters believe the CAT NMS Plan's initial maximum Error Rate of 5% would negatively affect the quality of CAT Data? Why or why not? In explaining why or why not, please address each quality (accuracy, completeness, timeliness and accessibility) separately.
174. Do Commenters believe that it was reasonable for the Participants to compare the contemplated Error Rates of CAT Reporters to the error rates of OATS reporters in the time periods immediately following three significant OATS releases in the last ten years? Why or why not?
175. If not 5%, what initial maximum Error Rate do Commenters believe Participants and Industry Members should be subject to and why?
176. What impact, if any, do Commenters believe a 5% initial maximum Error Rate would have on Industry Members' costs of compliance? Please describe the costs of correcting audit trail data. Given the costs of correcting audit trail data, do Commenters believe that establishing a lower maximum Error Rate could be less costly to Industry Members? Why or why not? How much less costly?
177. What impact, if any, do Commenters believe a 5% initial maximum Error Rate would have on the timing of the retirement of any redundant audit trail systems and any related costs? Please explain. Should the actual Error Rate for CAT Data affect the timing of the retirement of any redundant audit trail systems? If so, why? If not, why not?
178. Do Commenters believe the CAT NMS Plan's target maximum Error Rate of 1% for CAT Data reported to the Central Repository pursuant to the CAT NMS Plan's phased approach is the appropriate target maximum Error Rate in light of current industry standards? If not, why not? If not 1%, what target maximum Error Rate do Commenters believe Participants and Industry Members should be subject to and why?
179. Do Commenters believe there are any increased risks as a result of allowing CAT Data subject to an initial maximum Error Rate of 5% to be reported to the CAT? How difficult would it be for the Central Repository to process and analyze CAT Data based on data reported subject to an initial maximum Error Rate of 5%? Specifically, what are the increased risks, if any, of CAT Data reported subject to an Error Rate of 5% in respect of combining or linking data within the Central Repository or across other sources of trade and order data currently available to regulators?
180. Do Commenters believe there are any increased risks as a result of allowing CAT Data subject to a target maximum Error Rate of 1% to be reported to the CAT? How difficult would it be for the Central Repository to process and analyze CAT Data based on data reported subject to a target maximum Error Rate of 1%? Specifically, what are the increased risks, if any, of CAT Data reported subject to an Error Rate of 1% in respect of combining or linking data within the Central Repository or across other sources of trade and order data currently available to regulators?
181. The CAT NMS Plan provides that the Participants would review and reset, at least on an annual basis, the maximum Error Rate. Do Commenters believe that this establishes an appropriately rigorous schedule for the Participants to evaluate whether the maximum Error Rate could potentially be set to a lower rate? Are there any other factors that should affect when and how the maximum Error Rate is set?
182. The CAT NMS Plan provides as a goal a four-year phased approach schedule to lower the maximum Error
183. Do Commenters believe that the CAT NMS Plan is clear whether the four-year phased approach is a goal? Should it be more than a goal? Please explain.
184. Do Commenters believe the phased approach for CAT implementation, whereby SROs would begin reporting CAT Data one year prior to other CAT Reporters and two years prior to small CAT Reporters, would affect the quality of the CAT Data and the number of available CAT Data items in the audit trail?
185. Do Commenters believe the CAT NMS Plan provides adequate enforcement provisions to ensure CAT Reporters submit data to the Central Repository no higher than the maximum Error Rate? If not, what additional enforcement provisions should the CAT NMS Plan provide?
186. Do Commenters believe that there should be a lower initial maximum Error Rate and/or a more accelerated or slower reduction of the target maximum Error Rate? Would an accelerated reduction of the target maximum Error Rate facilitate the earlier retirement of any redundant audit trail system? What should the initial maximum Error Rate and/or what should be the schedule for reducing the target maximum Error Rate?
187. What framework and criteria should regulators adopt when determining whether to retire potentially redundant regulatory data reporting systems? Please explain when and how such retirement should take place.
188. Do Commenters believe the CAT NMS Plan sets forth sufficient consequences for a CAT Reporter exceeding the maximum Error Rates? If not, what should be those consequences?
189. Do Commenters believe that some errors are of greater concern than others? If so, what types of errors are more or less problematic? Should the type of error be considered when calculating Error Rates? If so, how should the Plan Processor take into account different types of errors when calculating Error Rates? How should the Participants take into account different types of errors when setting Error Rates?
Under Section 6.5(c) of the CAT NMS Plan, the Plan Processor must provide regulators access to the Central Repository for regulatory and oversight purposes and create a method of accessing CAT Data that includes the ability to run complex searches and generate reports.
The CAT NMS Plan requires that CAT must support a minimum of 3,000 regulatory users and at least 600 such users accessing CAT concurrently without an unacceptable decline in performance.
Sections 8.1.1, 8.1.2, and 8.1.3 of Appendix D contain further specifications for the online targeted query tool.
Section 8.2 of Appendix D outlines the requirements for user-defined direct queries and bulk extraction of data, which regulators would use to obtain large data sets for internal surveillance or market analysis.
Section A.2 of Appendix C addresses the time and method by which CAT
190. Do Commenters believe the CAT NMS Plan's “Functionality of the CAT System” Section (Section 8 of Appendix D) describes with sufficient detail how a regulator would access, use and analyze CAT Data? If not, describe what, if any, additional requirements and details should be provided and how.
191. Do Commenters believe the CAT NMS Plan's “Functionality of the CAT System” Section sufficiently addresses all regulators' end-user requirements? If not, please explain. Describe what, if any, additional requirements and details should be provided and how.
192. If Commenters believe that the CAT NMS Plan's “Functionality of the CAT System” Section does not cover all regulators' end-user requirements, please describe how regulators would integrate their applications in a timely and reasonable manner.
193. The CAT NMS Plan permits the CAT to be implemented in a way that would (1) require regulators to download entire data sets and analyze such data within the regulator or the regulators' cloud or (2) permit regulators to analyze sets of data within the CAT using applications or programs selected by the Commission. What do Commenters believe are the advantages and disadvantages to each approach?
194. Do Commenters believe the CAT NMS Plan's T+5 schedule for regulatory access to corrected and linked Order and Customer data is the appropriate schedule in light of current industry standards? If not, why not? Do Commenters believe that the SROs' determination of current industry standards is reasonable or appropriate? Do Commenters believe that it is appropriate to base the timing for regulatory access on industry standards? Why or why not?
195. If the T+5 schedule is not appropriate, when do Commenters believe regulatory access to corrected and linked Order and Customer data should be provided and why? Do Commenters believe the SROs' should include in the CAT NMS Plan detailed provisions with milestones in achieving a more accelerated regulatory access schedule to corrected and linked Order and Customer data?
196. Do Commenters believe the Plan's proposed error correction timeframe—
197. To what extent do Commenters believe the CAT NMS Plan's T+5 regulatory access schedule to corrected and linked Order and Customer data would affect the accuracy, completeness, accessibility and/or timeliness of CAT Data collected and maintained under the CAT? How?
198. To what extent do Commenters believe the Plan's three-day window of error correction would affect the accuracy, completeness, accessibility and/or timeliness of CAT Data collected and maintained under the CAT? How?
199. Regulators' technology teams would be required to work with the Plan Processor to integrate their applications under the CAT NMS Plan. What, if any, are the risks to this approach? Should the Plan Processor be required to enter into support contracts with regulators? If so, please explain. Describe what, if any, service contract terms should be set forth in the CAT NMS Plan or set forth in any related documents. Do Commenters have any concerns about the security or confidentiality of CAT Data resulting from a service contract between the Plan Processor and the regulators? If so, please explain. If Commenters have any security or confidentiality concerns resulting from a service contract between the Plan Processor and the regulators, please specify any appropriate service contract terms that would address the concerns.
200. How do Commenters believe the Plan Processor should set pricing for a regulator seeking additional functionality from the Plan Processor under the CAT? What, if anything, do Commenters believe should govern pricing for additional functionality by the Plan Processor? For example, should pricing or contract standards (
201. Do Commenters believe the CAT NMS Plan appropriately encourages or incentivizes the Participants and the Plan Processor to incorporate new technology and to innovate? Does the CAT NMS Plan appropriately encourage or incentivize the Plan Processor to have a flexible and scalable solution? Do Commenters believe that the CAT NMS Plan would result in a CAT that has adequate system flexibility and scalability to incorporate improvements in technology and future regulatory, analytic and data capture needs? Why or why not?
202. Does the regulatory access approach set forth in the CAT NMS Plan provide regulators with sufficient tools to maximize their regulatory activities, actions, and improve their surveillances? If not, why not and what should be added?
203. The CAT NMS Plan provides that targeted queries and data extractions would be logged so that the Plan Processor can provide the Operating Committee, the Participants, and the Commission with monthly performance and usage reports including data such as the user ID of the person submitting the query and the parameters of the query. Do Commenters believe that the data to be recorded in these logs and provided in these reports to each Participant and to the SEC would be appropriate and useful? Should any data elements be added or removed from these reports?
204. Do Commenters believe it is appropriate for the Plan Processor and the Operating Committee to also have access to these logs and monthly performance and usage reports? How should the Plan Processor and
The CAT NMS Plan provides that the Plan Processor is responsible for the security and confidentiality of all CAT Data received and reported to the Central Repository, including during all communications between CAT Reporters and the Plan Processor, data extraction, data manipulation and transformation, loading to and from the Central Repository, and data maintenance by the Central Repository.
In addition, the Plan Processor must develop a comprehensive information security program as well as a training program that addresses the security and confidentiality of all information accessible from the CAT and the operational risks associated with accessing the Central Repository.
Appendix D of the CAT NMS Plan sets forth minimum data security requirements for CAT that the Plan Processor must meet.
In addition, the Participants must establish and enforce policies and procedures that ensure the confidentiality of the CAT Data obtained from the Central Repository, limit the use of CAT Data obtained from the Central Repository solely for surveillance and regulatory purposes,
205. Do Commenters believe that the CAT NMS Plan appropriately allocates responsibility for the security and confidentiality of CAT Data among the Participants, the Plan Processor, and other parties? If not, how should these responsibilities be allocated?
206. Do Commenters believe that the data security requirements set out in Appendix D are appropriate and reasonable? Should any additional details or requirements be provided?
207. What, if any, specific details or requirements regarding data security and confidentiality do Commenters believe should be included in the information security program, training program, and Technical Specifications to be developed by the Plan Processor? Should additional details on the content of these programs and specifications be provided?
208. What, if any, specific details or requirements regarding data confidentiality do Commenters believe should be included in the policies and procedures to be developed by the Participants? Should additional details on the content of these policies and procedures be provided?
209. Do Commenters believe that the CAT NMS Plan includes sufficient safeguards to prevent the misuse of CAT Data by employees or agents of the Participants or other persons with access to the Central Repository? For example, do Commenters believe that requiring information barriers between regulatory and non-regulatory staff
210. Do Commenters believe the data access and breach management provisions described in Appendix D of the CAT NMS Plan
211. Which persons or entities should have the responsibility to monitor for and prevent the misuse of CAT Data? For example, should the Chief Compliance Officer or the Chief Information Security Officer have this responsibility? Why or why not? Should additional details be provided to clarify where this responsibility lies?
212. Do Commenters believe it is appropriate for Participants to be permitted to use all Raw Data reported to the Central Repository for commercial purposes? If not, what particular types of Raw Data would be inappropriate to use for commercial purposes?
213. Do Commenters believe that the CAT NMS Plan adequately addresses the protection and security of PII in CAT? If not, why not and what should be added to the CAT NMS Plan? For example, should the CAT NMS Plan provide that PII is accessible only when required, that PII be properly masked,
214. Do Commenters believe that there are alternative methods or information that could be used in lieu of requiring the reporting of Customer PII to the Central Repository that, without diminishing the quality of CAT Data available to regulators or impairing regulators' ability to use CAT Data to carry out their functions, would create less risk of a breach of the security or confidentiality of the personal information of Customers? If so, what methods or information, specifically, could serve as such an alternative to PII?
215. Do Commenters believe that the CAT NMS Plan includes adequate requirements regarding the operational security of the CAT System? What, if any, additional details or requirements should be provided? Should the CAT NMS Plan require the Plan Processor to have the ability to monitor for threats, attacks, and anomalous activity on a 24/7 basis through a Security Operations Center (“SOC”) or a similar capability? What would be the costs and benefits of such a requirement?
216. Appendix C of the CAT NMS Plan discusses solutions for encrypting data at rest and in motion. Appendix D of the CAT NMS Plan states that all CAT Data must be encrypted in flight, and PII Data must encrypted in flight and at rest. Do Commenters believe that the Plan's data encryption requirements are adequate for CAT Data and PII Data? Why or why not? Do Commenters believe that the CAT NMS Plan provides sufficient information and clarity regarding data encryption requirements? Do Commenters believe that there is a particular method for data encryption, in motion and/or at rest, that should be used?
217. Appendix D, Section 4.1.1 of the CAT NMS Plan states that the CAT System must have “encrypted internet connectivity.” What are the risks, if any, of allowing Internet access from the Central Repository, even if encrypted? Please explain. Do Commenters believe that the encrypted connection requirement in the CAT NMS Plan should apply to communication paths from the Central Repository to the Internet and/or connections from CAT to/from trusted parties? What challenges would the Plan Processor face in implementing either option? Does one option provide more robust security than the other? Why or why not?
218. To the extent the requirement for “encrypted internet connectivity” applies to connectivity between the Central Repository and trusted parties such as the Commission and the Participants, do Commenters believe that the CAT NMS Plan should require that these parties and the Plan Processor enter into formal Memoranda of Understanding or Interconnection Security Agreements that document the technical, operational, and management details regarding the interface between the CAT System and these parties? Why or why not?
219. With respect to industry standards, do Commenters believe that the CAT NMS Plan should be updated to include standards and requirements of other NIST Special Publications (“SPs”) that were not mentioned in Appendix D (
220. Do Commenters believe that the Plan should be updated more broadly to include the NIST family of guidance documents? Why or why not?
221. Throughout the Plan, there are numerous references to leveraging “industry best practices” pertaining to compliance subjects such as system assessments and disaster recovery/business continuity planning. How do “industry best practices” compare to NIST guidance in these areas? Do Commenters believe that the Plan Processor should implement NIST guidance for the Plan rather than industry best practices? Why or why not?
222. The CAT NMS Plan states that the Plan Processor must conduct third party risk assessments at regular intervals to verify that security controls implemented are in accordance with NIST SP 800-53.
223. Do Commenters believe that the CAT NMS Plan should include requirements regarding how the Plan Processor should categorize data from a security perspective? For example, should the Plan Processor be required to implement data categorization standards consistent with Federal Information Processing Standard (“FIPS”) 199 or NIST SP 800-60? Why or why not? Would including data categorization requirements in the CAT NMS Plan improve data integrity, availability, segmentation, auditing, and incident response? Why or why not?
224. The CAT NMS Plan provides that CAT must follow NIST SP 800-137—Information Security Continuous Monitoring for Federal Information Systems and Organizations in addition to a limited number of related monitoring provisions.
225. Do Commenters believe the CAT NMS Plan adequately sets forth the roles and responsibilities of independent third party risk assessment functions, including the consistent description of their specific functions and performance frequency? For example, are the CAT NMS Plan independent third party risk assessment provisions consistent with “industry best practices”? Or should the CAT require a greater or lesser performance frequency than as described in the CAT NMS Plan? As another example, do the technical assessments described in Section 6.2, Appendix C, Section A.5, and the NIST SP 800-53 requirements noted in Appendix D, Section 4.2, adequately and clearly establish the roles and responsibilities of the parties assessing the technical aspects of the CAT?
226. Do Commenters believe the CAT NMS Plan should specify the general audit and independent assessment requirements and the proper timeframes for when those assessments should occur? For instance, are there assessments that may need to occur on an annual basis? If so, what are those assessments? Are there assessments that may need to occur more frequently? If so, what are those assessments and why do they need to occur more frequently?
227. Do Commenters believe that the CAT NMS Plan requirements for conducting ad hoc penetration testing and an application security code audit by a reputable third-party in Appendix D, Section 4.1.3 “prior to launch” and periodically as defined by SLAs are consistent with industry best practices? Should additional testing or audits be required? Why or why not? Should testing or audits be required to occur more frequently than required by the CAT NMS Plan and SLAs? Why or why not?
228. Do Commenters believe that the third party risk assessments and penetration tests required by the CAT
229. In Section 6.2(b)(vi) of the CAT NMS Plan, the Chief Information Security Officer is required to report to the Operating Committee the activities of the Financial Services Information Sharing and Analysis Center (“FS-ISAC”) or other comparable body. Do Commenters believe there are other cyber and threat intelligence bodies, in addition to FS-ISAC, that the Plan Processor should join? Why or why not?
230. Do Commenters believe the CAT NMS Plan effectively describes the verification process when CAT Reporters connect to the Central Repository network? For example, which specific individual(s) at a CAT Reporter would be allowed access to CAT for reporting and verification purposes? Should there be a public key exchange process?
231. Do Commenters believe the CAT NMS Plan provides sufficient detail regarding the ability of CAT to determine whether a regulator's queries are shielded from the Plan Processor (including its staff, officers, and administrators) as well as other regulators and users of CAT? If not, what specifically should be added to the CAT NMS Plan?
232. Do Commenters believe that the CAT NMS Plan should require an audit of all CAT Reporters' data security? If so, which person or entity should have responsibility for such an audit, and what should the scope and elements of the audit be? Please estimate the cost of such audits. What other changes, if any, should be made to the CAT NMS Plan to provide for the allocation of sufficient resources whereby such an audit could be carried out?
233. Do Commenters believe the CAT NMS Plan should require the Plan Processor to provide a “blanket” security authorization to operate (“ATO”) document (or its equivalent) prior to CAT Reporters sending CAT Data?
When adopting Rule 613, the Commission noted that the adopted Rule permitted the SROs to consider a wider array of solutions than did the proposed Rule. The Commission stated its belief that, as a result, “the economic consequences of the consolidated audit trail now will become apparent only over the course of the multi-step process for developing and approving an NMS plan that will govern the creation, implementation, and maintenance of a consolidated audit trail.”
To assist in that analysis, Rule 613, as adopted, requires that the SROs: (1) Provide an estimate of the costs associated with creating, implementing, and maintaining the consolidated audit trail under the terms of the NMS plan submitted to the Commission for its consideration; (2) discuss the costs, benefits, and rationale for the choices made in developing the NMS plan submitted; and (3) provide their own analysis of the submitted NMS plan's potential impact on competition, efficiency and capital formation.
The Commission is sensitive to the economic effects of the CAT NMS Plan,
In accordance with the approach articulated by the Commission in the Adopting Release, the Commission is hereby publishing its economic analysis of the CAT NMS Plan and is soliciting comment thereon. This Section reflects the Commission's preliminary analysis and conclusions regarding the economic effects of the creation, implementation and maintenance of the CAT pursuant to the details proposed in the NMS plan submitted to the Commission for its consideration. The analysis is divided into eight topics: (1) A summary of the expected economic effects of approving the CAT NMS Plan; (2) a description of the economic framework for analyzing the economic effects of approving the CAT NMS Plan; (3) a discussion of the current, or “Baseline,” audit trail data available to regulators, and the sources of such data; (4) a discussion of the potential benefits of the CAT NMS Plan; (5) a discussion of the potential costs of the CAT NMS Plan; (6) an economic analysis of the CAT NMS Plan's impact on efficiency, competition, and capital formation; (7) a discussion of alternatives to various features of the CAT NMS Plan and to the CAT NMS Plan itself; and (8) a request for comment on the Commission's preliminary economic analysis.
As the Commission explained in the Adopting Release, the Commission believes that the regulatory data infrastructure on which the SROs and the Commission currently must rely is outdated for effective oversight of a complex, dispersed, and highly automated national market system.
In general, the Commission preliminarily believes that, if approved, the CAT NMS Plan would result in benefits by improving the quality of the data available to regulators in four areas that affect the ultimate effectiveness of core regulatory efforts—completeness, accuracy, accessibility and timeliness.
In terms of completeness, the Plan requires the reporting of certain additional data fields, events, and products.
With respect to the accuracy of available data, the Commission preliminarily believes that the requirements in the Plan would improve data accuracy significantly. For example, the Commission expects that the requirements to store the CAT Data in a uniform linked format and the use of consistent identifiers for customers and market participants would result in fewer inaccuracies as compared to current data sources. These accuracy improvements should significantly reduce the time regulators spend processing the data and finding solutions when faced with inaccurate data. The Commission preliminarily believes that the requirements in the Plan for clock synchronization and time stamp granularity would improve the accuracy of data with respect to the timing of market events, but the improvements would be modest. The Commission preliminarily believes that the Plan would improve regulators' ability to determine the sequence of a small percentage of market events relative to all surrounding events.
The Commission also preliminarily believes that the Plan would increase the accessibility of data for SROs and the Commission, because regulators would be able to access the CAT Data directly.
Finally, the Commission preliminarily believes that the CAT NMS Plan would improve the timeliness of available data. Because regulators would be able to access uncorrected data the day after an order event and would be able to access corrected and linked data five days after an order event,
The Commission notes that the Plan lacks information regarding the details of certain elements of the Plan likely to affect the costs and benefits associated
The Commission also preliminarily believes that more effective and efficient regulation of securities markets and market participants resulting from approval of the CAT NMS Plan could significantly benefit investors and the integrity of the market. For example, the Commission preliminarily believes that more effective and efficient surveillance and enforcement would detect a higher proportion of violative market activity. This additional detection could not only reduce violative behavior through potential enforcement actions, but through deterrence if market participants believe violative activities are more likely to be detected. Because violative activity degrades market quality and imposes costs on investors and market participants, reductions in violative activity would benefit investors and market integrity. Likewise, more effective and efficient risk assessment and risk-based examinations should more effectively facilitate the selection of market participants for examination who have characteristics that elevate their risk of violating the rules. Decreasing the amount of violative activity by targeting exams in this way would provide investors with a more effectively regulated trading environment and hence better market quality. Further, access to audit trail data that is comprehensive, accurate, and timely could improve regulatory reconstruction of market events, market analysis, and research resulting in an improved understanding of emerging market issues and regulatory policies that better encourage industry competition, thus improving investor protection through better transparency and more efficient prices.
Further, regulatory initiatives that are based on a more thorough understanding of underlying events and their causes, and that are narrowly tailored to address any market deficiency, could improve market quality and thus benefit investors. Moreover, access to more complete and linked audit trail data would improve regulators' ability to analyze and reconstruct market events, allowing regulators to provide investors and the public with more accurate explanations of market events, to develop more effective responses to such events, and to use the information to assist in retrospective analyses of their rules and pilots.
The Commission has also evaluated the potential costs that would result from approval of the CAT NMS Plan. In particular, using information included in the Plan, information gathered from market participants through discussions, surveys of market participants, and other relevant information, the Commission has preliminarily estimated the potential costs associated with building and maintaining the Central Repository as well as the costs to report data to the Central Repository. Currently, the 20 Participants spend $154.1 million annually on reporting regulatory data and performing surveillance, while the approximately 1,800 broker-dealers anticipated to have CAT reporting responsibilities spend $1.6 billion annually on regulatory data reporting, for total current industry costs of $1.7 billion annually for regulatory data reporting and surveillance by SROs. The Commission preliminarily estimates the cost of the Plan as approximately $2.4 billion in initial aggregate implementation costs and recurring annual costs of $1.7 billion.
Drawing from the discussion in the CAT NMS Plan,
The Commission notes that while the Participants developed the Plan in compliance with Rule 613 by considering information from industry representatives, the Commission has discretion to approve the Plan subject to changes or conditions that the Commission deems necessary or appropriate.
As discussed above, the Commission is conducting an economic analysis of the CAT NMS Plan filed by the SROs on February 27, 2015, as amended, as anticipated in the Adopting Release for Rule 613.
The CAT NMS Plan would create a new data source that could replace the use of some current data sources for many regulatory activities. As such, the economic benefits of the CAT NMS Plan would come from any expanded and more efficient regulatory activities facilitated by improvements to the data regulators use. Therefore, the framework for examining benefits in this economic analysis involves first considering whether and to what degree the CAT Data would improve on the Baseline of current trading and order data in terms of the four qualities of accuracy, completeness, accessibility, and timeliness.
Through these improvements in the data, the economic analysis then considers the degree to which the Plan would result in improvements to regulatory activities such as the analysis and reconstruction of market events, in addition to market analysis and research conducted by SROs and Commission Staff, as well as market surveillance, examinations, investigations, and other enforcement functions. These potential improvements, based on the regulatory objectives of the CAT NMS Plan described in the Adopting Release,
In the Adopting Release, the Commission identified four qualities of trade and order data that impact the effectiveness of core SRO and Commission regulatory efforts: Accuracy, completeness, accessibility, and timeliness.
Any economic benefits would derive from how such improved data would affect regulatory activities. Therefore, to analyze the potential benefits of the CAT NMS Plan, the economic analysis also evaluates the potential of the CAT NMS Plan to meet the regulatory objectives set out in the Adopting Release for Rule 613. The objectives are: Improvements in the analysis and reconstruction of broad-based market events; improvements in market analysis in support of regulatory decisions; and improvements in market surveillance, investigations, and other enforcement activities.
The economic analysis considers whether and to what extent the CAT NMS Plan would facilitate regulators'
The economic analysis considers whether and to what extent the CAT NMS Plan would enhance the ability of the SROs and the Commission to conduct market analysis and research, including analysis of market structure, and the degree to which it would improve regulators' market knowledge and facilitate consideration of policy questions of interest. The SROs and Commission Staff conduct data-driven analysis on market structure, in direct support of both rulemaking and other regulatory decisions such as SRO rule approvals. The Commission also relies on such analysis to improve understanding of market structure in ways that could inform policy. Finally, SROs conduct market analysis and research on their own regulatory initiatives. Improvements in the ability to conduct market analysis could further improve analysis related to regulatory decisions and potentially influence those regulatory decisions to the benefit of investors and the markets more generally.
The economic analysis examines whether the CAT NMS Plan would improve market surveillance and investigations, potentially resulting in more effective oversight of trading, better investor protection, and deterrence of violative behavior. As described in more detail in the Baseline Section,
The economic analysis evaluates the costs of building and operating the Central Repository; the costs of CAT reporting for Participants, broker-dealers, and service bureaus; and other CAT-related costs. Where the CAT NMS Plan provides estimates of these costs, the economic analysis evaluates those estimates and re-estimates them when necessary. The economic analysis also discusses the drivers of these costs, and whether broker-dealers may or may not pass these costs down to their customers. In addition, the economic analysis assesses whether the CAT NMS Plan has the potential to result in cost savings. Rule 613 requires the Plan to discuss “[a] plan to eliminate existing rules and systems (or components thereof) that would be rendered duplicative by the consolidated audit trail.”
The economic analysis also considers whether the CAT NMS Plan could result in second order effects, such as changes to the behavior of market participants, that impose certain costs. For example, the CAT NMS Plan's tiered funding model could lead to costly efforts by market participants to try to control their tiers in order to affect their fee payments, such as reducing activity levels near the end of an activity level measuring period to avoid being classified as a higher activity level firm. In addition, Participants, their members, and investors could incur costs if their private information were accessed in the event of a security breach of the Central Repository. The economic analysis considers these and other elements of the Plan that could lead to distortions in behavior by market participants.
The Commission has carefully analyzed the information in the CAT NMS Plan, as well as other relevant data, in order to assess the economic effects of the Plan. As discussed throughout the analysis, in certain cases the Commission lacks information needed to evaluate all of the potential economic effects of the CAT NMS Plan, creating uncertainty in some potential benefits and costs. The primary drivers of uncertainty include the fee schedule applicable to funding the Central Repository (the “Funding Model”), which has not yet been finalized, the deferral of decisions on certain discretionary elements including the Technical Specifications applicable to the CAT, and a lack of detailed information that would enable the Commission to assess certain economic effects with greater precision. The implications of each primary area of uncertainty for the Commission's economic analysis are discussed below.
First, as noted above, the economic analysis evaluates information provided in the CAT NMS Plan on the economic effects of the Plan, as well as information drawn from outside of the Plan. However, the Commission lacks detailed information regarding some of the individual costs and discretionary decisions in the Plan, including the Funding Model. Specifically, the Plan does not outline the proportion of CAT costs that would be allocated to Participants versus broker-dealers. This uncertainty limits the Commission's ability to evaluate the economic effects of the Plan in some cases. However, the Commission has analyzed the expected economic effects of the Plan to the extent possible with the information available, and where the Commission can identify such areas of uncertainty, the economic analysis addresses this uncertainty. In addition, the Commission requests comments to help resolve such uncertainties during the consideration of the CAT NMS Plan.
Second, certain elements of the CAT NMS Plan would not be finalized until after the selection of a “Plan
Because these and other elements of the Plan have not yet been finalized, the Commission cannot assess how and to what extent they could affect the overall economic effects of the Plan. The Commission's economic analysis is therefore limited to the extent that the economic effects of the Plan depend on decisions that would be made after approval of the Plan. However, the Commission has identified these areas of uncertainty and has assessed the economic effects of the Plan to the best of its ability in light of these existing uncertainties.
Given the range of possible outcomes with respect to both the costs and benefits of the CAT NMS Plan that depend on future decisions, the Commission also recognizes the importance of provisions of the Plan related to the operation and administration of the CAT. In particular, governance provisions of the Plan related to voting by the Operating Committee and the involvement of the Advisory Committee may help promote better decision-making by the relevant parties. Such provisions could mitigate concerns about potential uncertainty in the economic effects of the Plan by giving the Commission greater confidence that its expected benefits would be achieved in an efficient manner and that costs resulting from inefficiencies would be avoided. As part of this economic analysis, the Commission therefore considers these features of the Plan.
The Commission requests comment on all aspects of the Framework for the Economic Analysis on the CAT NMS Plan. In particular, the Commission seeks responses to the following questions:
234. Do Commenters believe that the general economic framework applied in this analysis is appropriate? If not, which considerations should be added or removed?
235. Do Commenters agree with the approach to identifying benefits of the CAT NMS Plan? Are there important sources of benefits that are not discussed here? Are the data qualities important for regulatory uses? Are there additional data qualities that the Commission should consider? Are the regulatory objectives important and beneficial for investors? Are there additional regulatory objectives that the Commission should consider?
236. Do Commenters agree with the approach taken in this analysis for examining the costs of CAT? Please explain.
237. Do the Commenters agree with the approach for analyzing second order effects? Are there other sources of economic effects that the Commission should consider?
238. Do Commenters agree with the Commission's characterization of uncertainties in the economic analysis? How important are these uncertainties to the Commission's consideration of the CAT NMS Plan? Are there other sources of uncertainty that the Commission should consider?
239. Do Commenters agree with the Commission's preliminary assessment that governance provisions of the Plan related to voting by the Operating Committee and the involvement of the Advisory Committee may help promote better decision-making by the relevant parties and thus mitigate concerns associated with uncertainties in the economic effects of the Plan? Please explain.
The CAT NMS Plan would create a new regulatory dataset that SROs and the Commission would use to supplement or replace their current data sources. The Adopting Release states that “improvements [in the quality of audit trail data] should have the potential to result in the following: (1) [I]mproved market surveillance and investigations; (2) improved analysis and reconstructions of broad-based market events; and (3) improved market analysis.”
The SROs and the Commission use data to analyze and reconstruct market events, conduct market analysis and research in support of regulatory decision-making, and conduct market surveillance, examinations, investigations, and other enforcement functions. The trend in this area is to use more automated and data-intensive methods as regulators' activities adjust to the data and technology available. The following Sections describe these regulatory activities and how regulators currently use data.
In the Adopting Release, the Commission described how it expected CAT Data to significantly improve the ability of regulators to reconstruct market events so that the public might be informed by an accurate and timely accounting of the events in question.
In the Adopting Release, the Commission described how it expected CAT Data to improve the ability of regulators to monitor overall market structure and better understand its relationship with market behavior, so that the Commission and the SROs could be better informed in their policy decisions.
Regulators perform market surveillance and investigation functions that rely on access to multiple types of market data. In the Adopting Release, the Commission discussed how data limitations impact surveillance and investigations, including risk-based examinations, market manipulation investigations, tips and complaints, and cross-market and principal order surveillance.
Rule 613(f) requires the SROs to develop and implement a surveillance system, or enhance existing surveillance systems, reasonably designed to make use of the CAT Data.
FINRA has responsibility to oversee and regulate OTC trading of exchange-listed and non-exchange-listed securities, as well as trading in corporate and municipal debt instruments and other fixed income instruments. Also, FINRA conducts cross-market surveillance for approximately 99% of the listed equity market and approximately 70% of the listed options market.
Additional surveillance is conducted by exchange-operating SROs, some of it
In the Adopting Release, the Commission explained how it expected CAT Data to facilitate risk-based examinations.
Examinations of broker-dealers and investment advisers involve intensive analysis of trading data. Examinations seek to determine whether the entity being examined is: Conducting its activities in accordance with the federal securities laws, rules adopted under these laws, and SRO rules; adhering to the disclosures it has made to its clients, customers, the general public, SROs and/or the Commission; and implementing supervisory systems and/or compliance policies and procedures that are reasonably designed to ensure that the entity's operations are in compliance with the applicable legal requirements.
The Commission and certain SROs, such as FINRA, use a risk-based approach to select candidates and to determine exam scope and focus.
Because of the data-intensive nature of examinations, the Commission and SROs have systems, such as the Commission's National Exam Analytics Tool (“NEAT”), to combine, standardize, and analyze exam data. The NEAT system allows examiners to import trade blotter data to conduct commission analysis, cross trades analysis, bunch price analysis, trading pattern analysis, and restricted trade analysis. However, as discussed further below, there are limitations on the trade blotter data imported by the NEAT system.
The Adopting Release details how the Commission expects the CAT Data to aid in the analysis of potential manipulation.
SROs rely primarily on surveillance to initiate investigations based on anomalies in the trading of securities. The Commission initiates enforcement investigations when SROs or others submit reliable tips, complaints, or referrals, or when the Commission becomes aware of anomalies indicative of manipulation. After the detection of potential anomalies, a tremendous amount of time and resources are expended in gathering and interpreting trade and order data to construct an accurate picture of when trades were actually executed, what market conditions were in effect at the time of the trade, which traders participated in the trade, and which beneficial owners were affected by the trade. In 2015, the Commission filed 807 enforcement actions, including 39 related to insider trading, 43 related to market manipulation, 124 related to broker-dealers, 126 related to investment advisers/investment companies, and one related to exchange or SRO duties. In 2014, the Commission filed 755 enforcement actions, including 52 related to insider trading, 63 related to market manipulation, 166 related to broker-dealers, and 130 related to investment advisers/investment companies, many of which involved trade and order data.
The Adopting Release discussed how the Commission expected CAT Data to improve the processes used by the SROs and the Commission for evaluating tips and complaints.
Analysis of tips and complaints follows three general stages. First, regulators ensure that the tip or complaint contains sufficient information to facilitate analysis. The second stage involves a triaging effort in which regulators may use directly accessible data or make phone calls and other informal queries to determine if the tip or complaint is credible. For tips and complaints that seem credible, the third stage involves a more in-depth investigation or examination, which follows the processes described above for examinations and enforcement investigations.
To assess how and to what degree the CAT NMS Plan would affect the trade and order data available to regulators, the economic analysis considers what data regulators use currently and the limitations in that data.
The SROs and the Commission currently use a range of trading and order data sources for the regulatory activities discussed above. The types of data and ease of use can vary widely from one source to the next. Some data sources provide access to in-depth information on a narrow slice of the market, while others reveal more limited information but with broader market coverage. This Section reviews the primary sources of data currently available to regulators, describing the content of the data provided and examples of their specialized uses. There are limitations on each of the data sources discussed below that reduce their usefulness for regulatory purposes. These limitations and their impact on the ability of the SROs and the Commission to use the data sources for regulatory purposes are explained in Section IV.D.2.b below.
Most SROs maintain audit trails that contain the trade and order data that they obtain from members. Regulators have access to at least three sources of audit trail data. First, the National Association of Securities Dealers (“NASD”)
Specifically, for each of these stages in the life of an order, FINRA Rule 7440 requires the recording and reporting of the following information, as applicable, including but not limited to: For the receipt or origination of the order, the date and time the order was first originated or received by the reporting member, a unique order identifier, the market participant symbol of the receiving reporting member, and the material terms of the order;
A majority of options exchanges require their members to provide the following information with respect to orders entered onto their exchange: (1) The material terms of the order;
Although SROs that operate exchanges collect much of their audit trail information directly from their internal systems, broker-dealers also have the responsibility to report regulatory data to SRO audit trails. Some broker-dealers perform nearly all of these data reporting requirements in-house, whereas others contract with service bureaus to accomplish this data reporting.
Audit trail data have become more useful to regulators over time. As noted above, FINRA expanded OATS from covering only NASDAQ listed securities to include OTC equity securities and all NMS stocks.
SRO audit trail data is used for market reconstructions and market analyses, and to inform policy decisions, both by the Commission and by SROs. Regulators also use SRO audit trail data extensively for surveillance, examinations, investigations, and other enforcement functions. Current SRO market surveillance relies primarily on data from the SRO audit trails, generated directly from the exchange servers and from OATS. Likewise, SRO examinations and investigations pull information from their own audit trails before seeking data from others. Commission examinations and investigations also rely heavily on SRO audit trails to start the process of tracing a particular trade from its execution to the order initiations and customer information, and the audit trails can be useful for manipulation investigations or other regulatory activities that require analyses of microcap securities trading activity. There are, however, limitations on SRO audit trail data that reduce their usefulness to regulators. For example, for the examinations mentioned above, Commission examination Staff may undertake a laborious process of linking SRO audit trail data with EBS data, because SRO audit trail data does not contain customer information.
The SROs and Commission also have access to equity and option cleared reports. Clearing broker-dealers report their equity and option cleared data on a daily basis and the NSCC and the OCC aggregate the data across the market and generate the reports.
Equity and option cleared reports provide a way for regulators to directly access a dataset to see how much trading volume is accounted for by a particular clearing broker. As such, these data are often used at the beginning of an examination or investigation to start identifying the market participants that may have additional data needed to pinpoint a particular activity. But there are limitations on these reports that reduce their usefulness to regulators. For example, the information available on the reports is limited to the date, the clearing firm, and the number of transactions cleared by each clearing firm on each SRO. These and other limitations are discussed in Section IV.D.2.b,
Broker-dealers provide detailed data to regulators in the form of EBS. The EBS data, provided pursuant to Rule 17a-25 under the Act,
The EBS system also provides additional information on market participants who meet the definition of “large traders” and have self-identified to the Commission as required by Rule 13h-1.
Investment advisers and broker-dealers maintain data in the form of order tickets and trade blotters that regulators can obtain on request.
Broker-dealers maintain data in trade blotters that are similar to EBS. However, the trade blotters also contain more information, including the commissions paid in executing each order, time stamps of when an order is received and when it is executed (and the number of fills), and the pricing information for all executions in the order.
Broker-dealers and exchanges also collect and maintain records of activity in their order handling systems and internal matching systems.
Exchanges and SROs also make data available to the public, in some cases on a commercially-available basis,
The SEC's Market Information Data Analytics System (“MIDAS”) uses information disseminated by the SIP feeds, as well as exchange direct feeds consisting of data that individual exchanges choose to sell to subscribers. In addition, at the request of Commission Staff, most equities exchanges produce and make public two datasets with information on short sales: A file of short selling volume by stock, which contains the short selling and total volume on that exchange by symbol, and a file of short selling transactions, which contains trade information such as time, volume, and price for each transaction involving a short sale.
The Commission and SROs use these publicly available trade and order data to conduct market analyses, market reconstructions, examinations, and investigations. Because of the accessibility and ease of use of the public data, regulators often use it as a starting point or a basis of comparison to other data sources. For example, real-time surveillance can rely on SIP data, and some insider trading surveillance relies on information from other publicly available sources such as news sources. Further, investigations into short sale market manipulation sometimes start with an analysis of the short selling data. Some market analyses by regulators rely on public data alone.
Although regulators have access to trade and order data from the sources described above,
“Completeness” refers to whether the data represents all market activity of interest or just a subset, and whether the data is sufficiently detailed to provide the required information.
There is currently no single data source that covers all market activities. EBS data contains executed trades but does not contain information on orders or quotes (and thus does not provide information on routes, modifications, or cancellations). Similarly, trade blotters and order tickets contain only information recorded by that particular broker-dealer or investment adviser and may contain limited information about full order lifecycles. SRO audit trail data are limited to identifying the activity of their members, can have incomplete information concerning their members, lack order lifecycle information occurring prior to receipt by an exchange, and may not contain information regarding principal trading. Furthermore, public consolidated and direct data feeds provide data about the entire market, but lack information regarding non-displayed orders and do not provide sufficient information to identify the different lifecycle events of a single order.
Individual SRO audit trails are extensive but still incomplete in their coverage of the activities of the market participants they cover; they contain only activity of their own members and many do not necessarily contain all activity by their members. For example, FINRA's OATS data does not include proprietary orders originated by a trading desk in the ordinary course of a member's market making activities, or options data. And while OATS collects data from FINRA members with respect to orders and trades involving NMS and OTC stocks, OATS does not include trade or order activity that occurs on exchanges or at broker-dealers that are not FINRA members.
Further, not all FINRA members are obligated to report to OATS. FINRA's rules exempt from reporting certain members that engage in a non-discretionary order routing process.
Exchange audit trails also lack information on the order lifecycle events that occur prior to receipt at the exchange.
Additionally, some SRO audit trails do not include and are not required to include activity associated with principal trading, such as market-making activity. This may result in the exclusion of a significant amount of activity, particularly for firms with substantial market-making business activities. Principal trading activity represents a significant portion of market activity and there are aspects of the current market regime that may result in the underreporting of this trading activity. Indeed, an analysis by Commission Staff estimates that principal trading accounted for 40.5% of all reported transactions and principal activity accounted for 67% of all exchange message traffic.
Finally, no single current data source integrates both equities and options. The lack of any combined equity and options audit trail data is a significant impediment to regulators performing cross-product surveillance.
Each of the available data sources discussed above
Most notably, the identity of the customer is unavailable from all current data sources that are reported to regulators on a routine basis. A unique customer identifier could be useful for many types of investigations and examinations such as market manipulation investigations and examinations of investment advisers. As noted above, some data sources—specifically Large Trader, EBS, trade blotters, and order tickets—identify customers.
Because there is currently no data source that includes customer identities across multiple parts an order lifecycle,
The methods for obtaining such information significantly reduce its utility, particularly for surveillance and market reconstruction purposes. Market reconstructions, for example, cannot take advantage of the detail in the EBS and trade blotter data because of the resources required to link so many data sources, lack of necessary elements (such as time stamps in milliseconds) needed to link data sources (for example, matching large trader reports to activity on a particular exchange), or the absence of standardized format. To examine a tip or complaint, regulators may consolidate data from each affected
For many regulatory activities, lack of completeness results in regulators initially relying upon the most accessible data sources, with significant information contained only in data sources made available by request. Starting regulatory functions with incomplete data sources requires regulators to later make data requests and link such data request responses. More importantly, however, incomplete or unconsolidated data interferes with effective surveillance. Access to data through non-routine means makes investigations and examinations less efficient, and makes automated surveillance less accurate and less effective. For example, the publicly available data discussed above
Some valuable data fields, such as modifications that make an order non-displayed and other special handling instructions are consistently available on only a few data sources or require linking different data sources.
Subaccount allocation information needed for regulatory activities can be difficult for regulators to collect and compile. SRO audit trails currently do not require allocation reports and broker-dealers may not have records of the time of a subaccount allocation. When regulators require an understanding of subaccount allocations for a regulatory task, they generally request and sift through trade blotter or EBS data in an attempt to identify allocations and the details of those allocations. Current trade blotter data contains limited customer information on allocations and is not required to contain allocation time information at the subaccount level. While the Commission is sometimes able to acquire allocation time on trade blotters, not all broker-dealers keep records in a manner that facilitates efficient regulatory requests for allocation time information.
The difficulty in obtaining allocation information and the difficulty in reconstructing allocations with data from broker-dealers limits the efficiency of certain surveillances and examinations. Allocation time at the subaccount level is critical for determining whether some customers are systematically given more favorable allocation treatment than others. For example, when a broker-dealer places an order or series of orders for multiple customer accounts that generates multiple executions at multiple prices, it is possible that different customers receive different prices in the allocation process. However, if some customers systematically receive less favorable prices than others when they should be receiving the same prices for their executions, this could indicate that the broker-dealer is handling allocations improperly.
In the Adopting Release, the Commission noted that while “to some extent, errors in reporting audit trail data to the central repository will occur,” the CAT NMS Plan would improve the quality of data including improvements to accuracy.
The prospect of inaccurate data can result in regulators expending extra resources to run additional quality checks to ensure reliable data and conclusions in enforcement investigations, or being unable to draw reliable conclusions at all. In addition, risk-based analysis may not properly identify a potential risk that justifies further examination if the underlying data suffers from inaccuracies. Ultimately, inaccurate data results in less efficient investigations as well as less effective surveillance and risk analyses. This economic analysis considers several forms of data inaccuracy, including data errors, inaccurate event sequencing, the inability to link data accurately, inconsistent identifiers, and obfuscating levels of irreversible data aggregation.
Based on
Audit trail data contain errors, as well. The CAT NMS Plan reports that 2.42% of order events submitted to OATS fail validation checks,
Other audit trail data may also contain errors. For example, the Commission notes that exchange SROs populate most of the information with data from their in-house order and trading records, but a few of these exchange SROs also rely on members to complete their audit trails.
The ability to sequence market events is crucial to the efficacy of detecting and investigating some types of manipulation, particularly those involving high frequency trading, those in liquid stocks in which many order events can occur within microseconds, and those involving orders spread across various markets. In today's market, high frequency and algorithmic traders can react to changes in the market in a few milliseconds or less.
Thus, the sequencing of order events requires both sufficient clock synchronization across market participants and time stamps that are granular enough for accurate sequencing.
Clock synchronization refers to the synchronization of the business clocks used by market participants for the purposes of recording the date and time of market events to a centralized benchmark clock, often that maintained by the NIST. Clock synchronization helps to ensure that the time stamps used by various participants are consistent, thereby allowing regulators to compare time stamps across participants and to use multiple time stamps to determine the sequence of market events. The ability of regulators to accurately sequence events can be limited by the permitted “offset” between the clocks—
Current rules require most broker-dealers to synchronize their system clocks to within one second. In particular, FINRA specifies a clock offset tolerance of one second,
In practice, some broker-dealers currently synchronize their clocks to smaller clock offset tolerances. FIF surveyed market participants to gather information on current broker-dealer clock synchronization practices.
Certain exchanges, the SIPs, and FINRA synchronize their clocks for their trading, recordkeeping, and other systems. According to FIF, all exchange matching engines meet a clock offset tolerance of 50 milliseconds.
Because multiple order events can occur within timeframes of less than one second, current clock synchronization requirements and practices greatly limit the ability of regulators to accurately sequence order events. To examine, among other things, how many events can be synchronized with current clock offset tolerances, Commission Staff conducted an analysis of the frequency of events using MIDAS data.
Delta
This is the shortest time difference (Delta
Delta
Finally, the analysis uses the shorter of the time differences to evaluate whether an event occurs within a particular time period of another event in the same security on a different venue.
Delta
Values are aggregated over one week (June 15, 2015 through June 19, 2015) for the equities analysis; and the options analysis data is from one day (June 15, 2015).
Table 3 shows that 97.95% of the order events for listed equities and 91% of order events for listed options in the samples occurred within one second of another unrelated order event in the same security. At the other extreme in Table 3, 14.44% of the unrelated order events for listed equities and 3.12% of the unrelated order events for listed options in the same security occurred within 5 microseconds of another order event in the same security. The Commission notes that Table 3 underestimates the true frequency of unrelated events within the given time frames because it includes only order events that are included in the MIDAS data. As such, the analysis is unable to include events such as the placing of hidden orders on exchanges, the placing of orders on an ATS, order originations, order routes, order receipts, and order cancellations and modifications for any order not displayed on an exchange order book. Despite this limitation, Table 3 illustrates how the current frequency of order events makes sequencing unrelated order events difficult.
Given the frequency with which order events can occur, regulators need sufficiently granular time stamps to sequence events across orders and within order lifecycles. As noted above, even if the clocks recording time stamps have no clock offset, the granularity of the time stamp can limit regulators' ability to sequence events accurately.
Current data sources have different time stamp granularity standards. Many public data sources report time in seconds or milliseconds and some,
Sometimes one order or market activity event may be reflected in information contained in various data sources or in different fields within the same data source, and fully understanding that activity requires linking information across the different data sources. Therefore, regulators analyzing an event or running a surveillance pattern often need to link data. For example, cross-market examinations require the cumbersome and time-consuming task of linking many different data sources.
Regardless of whether order lifecycle reports are reflected in the same or different data sources, the process of linking lifecycle events is complex and can create inaccuracies. Merging different data sources often involves translating the data sources into the same format,
The data sources described in Section IV.D.2.a also lack consistent customer and broker-dealer identifiers, which limit regulators' ability to track the activity of one client or broker-dealer across the market. There is no standard convention for how broker-dealers identify customers.
Regulators face challenges in tracking broker-dealers' activities across markets due to inconsistent identifiers and a lack of a centralized database. These challenges occur primarily in the context of regulatory activities that require manual or ad hoc data analysis, as is often the case in particular investigations, examinations, and market studies. In the case of broker-dealers, SROs generally identify their members within their data using market participant identifiers (“MPIDs”). However, the MPIDs that identify broker-dealers on Execution Venues are not standardized across venues; consequently, a broker-dealer identified as “ABCD” on one venue may be identified differently on another venue, where “ABCD” may refer to a different broker-dealer entirely. Therefore, aggregating a broker-dealer's activity across venues requires verifying the MPIDs assigned to a broker-dealer on each venue, usually referencing the broker-dealer by its Central Registration Depository (“CRD”) number.
Regulators sometimes find it necessary to analyze trading activity at the customer level instead of the broker-dealer level. Consistently identifying customer account owners across the multiple broker-dealers with whom they transact is difficult and prone to error. Although, for example, the EBS system provides the names associated with each account traded, these names are drawn from the separate records of each broker-dealer providing data to the EBS system, and the same party may be identified by a different name across multiple broker-dealers. Further, the lack of tax identification numbers in many EBS records limits the ability for regulators to trace the trading activity of customers across broker-dealers. Tax identification numbers are not required to be reported in EBS for average price, allocation, riskless principal, foreign accounts, and subaccounts. In fact, when one broker-dealer executes for a second broker-dealer, the tax identification number is that of the second broker-dealer regardless of whether the second broker-dealer is trading for a customer.
The practice used in some data records of bundling together data from different orders and trades also can make it difficult to distinguish the different orders and trades in a given bundle. As an example, brokers frequently utilize average-price accounts to execute and aggregate multiple trades for one or more customers. In these cases, for example with EBS data, the system does not reflect the details of each individual trade execution, because it reports only the average aggregate prices and volumes of the various trades within a series that have been bundled together for reporting purposes. Further, information on trade allocations aggregate the trade information to such an extent that it is difficult for regulators to identify when particular clients may be afforded preferential treatment because it is challenging to link subaccount allocations to orders and trades.
Equity and options cleared reports provide valuable data to regulators, but aggregation reduces their usefulness, because the reports do not have detailed trade information and do not include activity that does not require clearing.
Finally, issuer repurchase information is aggregated at the monthly and quarterly level.
The SROs and Commission also lack direct access—meaning the ability to log into a system in a manner that would allow them to gather and analyze the data they need—to many of the data sources described above. SROs generally have direct access only to their own audit trails and the public data feeds.
The Commission has direct access only to the public data feeds and the equity and option cleared data; it lacks direct access to information provided in EBS or contained in trade blotters, order tickets, order handling data, SRO audit trails, and OATS data. Unlike the SROs, the Commission can subpoena data from entities that are not registered with the Commission, such as professional traders that are neither broker-dealers nor investment advisers.
If a regulator does not have direct access to data it needs, the regulator would request it. This can result in many data requests to broker-dealers, SROs, and others,
Fragmentation in trade and order data can take many forms. First, an analysis may require the same type of data from many market participants. Second, the required data fields for an analysis may be reflected in different types of data. Finally, an analysis may require data on different products covered in separate data sources. The fragmentation in the data across market participants is a function of the fragmentation of trading and broker-dealer services. In today's equity markets, trades execute across 12 exchanges, more than 40 ATSs, and around 250 dealers.
Exchange SROs generally limit their data collection to securities traded on their own exchanges, and limit the scope of their audit trails to transactions occurring on their exchanges. While ATSs and dealers report order events in equities to OATS, each of the 12 equities exchanges has its own audit trail. As a result of this structure, a market reconstruction for a single security may involve data requests to multiple exchanges. Likewise, a project involving options data may require data from each of the 14 options exchanges.
To acquire broker-dealer order records, EBS, trade blotters, and order tickets, regulators need to send a request to each broker-dealer to obtain its data. In the Commission's experience requested data can suffer from missing variables, truncations, and formatting problems due to the way that the data is queried by the broker-dealer. These problems can lead to substantial delays in using data and loss in regulatory productivity. Many different broker-dealers could have trading records in a given security on a given day of interest, so one narrow investigation could generate many data requests. As a result, in 2014 the Commission made 3,722 EBS requests that generated 194,696 letters to broker-dealers for EBS data. Likewise, the Commission understands that FINRA requests further generate about half this number of letters. In addition, for examinations of investment advisers and investment companies, the Commission makes approximately 1,200 data requests per year. Further, an investigation that requires tracing a single trade or a set of trades back to an investor or investors can generate many data requests. For such investigations, regulators would first need to request data from the exchanges or market participants executing the trades. This data would tell the regulators which members, subscribers, or broker-dealers sent the orders that led to the executions. Regulators would then need to go to the members, subscribers, and broker-dealers to get information on the orders and repeat until they get to the broker-dealer who initiated the order to see the customer behind the order.
Finally, some regulatory activities require data on both equities and options. Because current data sources do not contain information regarding both equities and options, regulators needing data on both types of securities would need to make several data requests. Closely related securities are sometimes traded on entirely different exchanges, complicating cross-product analyses. For example, COATS data covers options trades but excludes the trading of the underlying assets. Often investigations or analyses require examining both options and their underlying assets, creating the need for regulators to request data from multiple sources.
This data fragmentation also results in disparate requirements for industry members to record and report the same information in multiple formats. Because each SRO has its own data requirements, a market participant that is a member of multiple SROs may be required to report audit trail data in numerous formats and interact with multiple regulators in response to normal data queries. That said, the Commission understands that the number of disparate formats faced by each member may have reduced over the past several years.
In order to respond promptly to market events, regulators must be able to obtain and analyze relevant data in a timely fashion. Currently, obtaining trade and order data and converting the
Some of the data sources described above can be accessed by SROs and the Commission without significant delay. For example, SROs and the Commission have some real-time direct access to public data and, through MIDAS, the Commission has next-day direct access to analytics that are based on public data, such as volumes over various time horizons. Regulators can also sometimes request and receive trade blotter data on the same day as the trade(s) of interest because trade blotters are generally stored in systems immediately.
Corrected FINRA OATS data may be available less than two weeks after an event and uncorrected data on day T+1. In particular, FINRA members submit OATS data on a daily basis, submitting end-of-day files by 8:00 a.m. Eastern Time the following day or they are marked late by FINRA.
Because market participants generally do not report or compile datasets immediately after an order event, there is a delay before regulators may access some data sources. For example, the compilation of equity and option cleared reports occurs on day T+1 for options and day T+3 for equities (
As discussed above,
Once regulators receive requested data, the data often have to be processed into a form in which they can be analyzed. As discussed above,
In addition, those who use regulatory data also typically take time to ensure the accuracy of the data. When regulators question the accuracy of data, they often check several alternative sources until they are comfortable that their data are accurate. This checking of data accuracy and augmentation process adds time to an investigation or analysis. In some cases, regulators may filter out unreliable data or refocus an investigation to avoid relying on data after spending time and resources unsuccessfully attempting to ensure accuracy.
As discussed in the Adopting Release, the timely accessibility of data to regulators also impacts the efficacy of detecting (and possibly mitigating the effects of) some types of market manipulation.
The Commission requests comment on all aspects of the Baseline for the economic analysis of the CAT NMS Plan. In particular, the Commission seeks responses to the following questions:
240. Do Commenters agree with the Commission's assessment of the Baseline for the economic effects of the CAT NMS Plan? Why or why not?
241. Do Commenters believe that the Baseline appropriately describes current market surveillance, examination, and investigation activities by regulators? Why or why not?
242. Do Commenters believe that the Baseline appropriately describes current market event analysis and reconstruction activities by regulators? Why or why not?
243. Do Commenters believe that the Baseline appropriately describes market analysis activities by regulators? Why or why not?
244. Do Commenters believe that the Baseline appropriately describes the sources of trade and order data currently available to regulators? Why or why not?
245. Are there additional sources of trade and order data currently available to regulators? Please explain and describe those sources in detail, including any limitations.
246. Do Commenters agree with the Commission's assessment of the completeness of the trade and order data currently available to regulators? Why or why not? Does the fragmented nature of current data sources pose significant challenges to regulators seeking complete data?
247. Do Commenters agree with the Commission's assessment of the accuracy of the trade and order data currently available to regulators? Why or why not?
248. Do Commenters agree that the error rates in current data sources or in responses to ad hoc data requests pose significant challenges to regulators? Why or why not? Do Commenters have additional statistics on error rates in these data?
249. Do Commenters agree with the Commission's assessment of the Baseline of clock synchronization for broker-dealers, exchanges, and others in the securities industry? Please explain. Does the Commission's analysis appropriately describe the frequency of orders that regulators may need to sequence and the challenges to sequencing given current clock synchronization standards? If not, do Commenters have more appropriate analyses? How could the Commission improve the analysis? Please explain.
250. Do Commenters believe that the Baseline appropriately describes granularity of time stamps in the trade and order data currently available to regulators? Please explain.
251. Do Commenters agree with the Commission's assessment of regulators' ability to combine or link data across the sources of trade and order data currently available to regulators? Please explain.
252. Do Commenters believe that the Baseline appropriately describes customer and broker-dealer identifiers in the sources of trade and order data currently available to regulators? Please explain.
253. Do Commenters believe that the Baseline appropriately describes aggregation within the sources of trade and order data currently available to regulators? Please explain.
254. Do Commenters agree with the Commission's assessment of the current ability of regulators to access trade and order data? Why or why not?
255. Do Commenters agree with the Commission's assessment of the timeliness of the trade and order data currently available to regulators? Why or why not?
256. Is there any other information that the Commission should include in the Baseline? Please explain.
As noted in the Framework Section above, the economic benefits of the CAT NMS Plan would come from any expanded or more efficient regulatory activities facilitated by improvements to the data regulators use because the Plan would create a new consolidated data source, CAT Data that could replace the use of some current data sources for many regulatory activities. Therefore, the Benefits Section first describes how CAT Data compares to data regulators currently use for regulatory activities. Then this Section describes how the CAT Data would improve regulatory
The Commission preliminarily believes that the CAT NMS Plan would produce data that would improve on current data sources, because CAT Data would result in regulators having direct access to consolidated audit trail data that would improve many of the regulatory activities discussed in the Baseline Section. As summarized in Table 4, if the Plan is approved, the Commission preliminarily believes that the Plan would generate improvements in the quality of data that regulators would have access to in the areas of completeness, accuracy, accessibility, and timeliness. The Commission preliminarily believes that the improvements in the quality of regulatory data within these categories would significantly improve the ability of regulators to perform a wide range of regulatory activities, which would lead to benefits for investors and markets. In addition, the Commission preliminarily believes that certain provisions in the Plan related to future upgrades of the Central Repository, the promotion of the accuracy of CAT Data, the promotion of the timeliness of CAT Data, and the inclusion of specific governance provisions identified by the Commission in the Adopting Release for Rule 613, increase the likelihood that the potential benefits of the CAT NMS Plan described below would be realized.
In the category of completeness, the ability for regulators to access more material data elements from a consolidated source would enable regulators to more efficiently carry out investigations, examinations, and analyses because regulators could acquire from a single source data that they would otherwise need to compile from many data sources. This data source would include data elements that regulators currently acquire with difficulty (if at all), including customer information, allocation records, open/close position information for equities, and certain other trade and order information not consistently available in SRO audit trails.
In the category of accuracy, the Commission preliminarily believes that the Plan would substantially improve data accuracy by requiring CAT Data to be collected, compiled, and stored in a uniform linked format using consistent identifiers for customers and market participants. These requirements should over time result in fewer inaccuracies in the data as well as fewer inaccuracies introduced in combining data compared to the current data regime.
In the category of accessibility, the Commission preliminarily believes that the Plan would substantially improve the access of data for regulators due to the Plan's requirement for regulators to have direct access to CAT Data. While some elements of CAT Data can currently be obtained from other sources, it can take regulators weeks or months to obtain this data. As opposed to the current state of fragmented data with indirect regulatory access, if the CAT NMS Plan is approved, regulators would have direct access to consolidated trade and order data from a single source. Therefore, instead of requesting data from multiple sources, the Plan would allow regulators to log into a single system and query data directly from the system. This direct access for regulators would dramatically reduce the hundreds of thousands of requests that regulators must make each year in order to obtain data, thus reducing the burden on the industry.
In the category of timeliness, the Commission preliminarily believes that the Plan would significantly improve the timeliness of data acquisition and use, which could improve the timeliness of regulatory actions that use data. CAT Data would be reported by 8:00 a.m. Eastern Time on day T+1 and made available to regulators in raw form after it is received and passes basic formatting validations,
Regulatory activities expected to benefit from improved data quality would include surveillance, investigations, examinations, analysis and reconstruction of market events, and analysis in support of rulemaking initiatives. Data is essential to all of these regulatory activities and therefore substantial improvements in the quality of the regulatory data should result in substantial improvements in the efficiency and effectiveness of these regulatory activities, which should translate into benefits to investors and markets. For example, improved data could lead to more effective and efficient surveillance that better protects investors and markets from violative behavior and facilitates more efficient and effective risk-based investigations and examinations that more effectively protect investors. Together, these improved activities could better deter violative behavior of market participants, which could improve market efficiency. Furthermore, this increase in directly accessible data should improve regulators' understanding of the markets, leading to more informed public policy decisions that better address market deficiencies to the benefit of investors and markets.
The Commission notes that the Plan lacks information regarding the details of certain elements of the Plan, primarily because many details likely to affect the benefits of the Plan have not yet been determined, which creates some uncertainty about the expected economic effects. As discussed further below, lack of specificity surrounding the processes for converting data formats and linking related order events
As explained above, in the Adopting Release the Commission identified four qualities of trade and order data that impact the effectiveness of core SRO and Commission regulatory efforts: Accuracy, completeness, accessibility, and timeliness.
The CAT NMS Plan, if approved, would result in regulators having direct access to a single data source that would be more complete than any current data source.
CAT Data would be more complete than any current data source because it combines currently fragmented information into one data source. In particular, the Plan states that the Central Repository, under the Plan Processor's oversight, shall receive, consolidate, and retain all CAT Data.
CAT Data would include data from all SRO audit trails, combined into a single data source. In addition, it would include some off-exchange activity not captured on current SRO audit trails. Section 6.4(d) of the Plan requires the Participants to require their Industry Members to record and report order events to the Central Repository. The Commission notes that SRO audit trails currently do not include the activity of firms that are not members of that SRO.
CAT Data would also include many Reportable Events such as order origination, order routing, receipt of a routed order, order modifications, cancellations, and executions, and trade cancellations. Currently, OATS data contains most of these Reportable Events but does not cover all participants and does not include options.
CAT Data also would include the information described above for listed equities and options and OTC Equity Securities.
The CAT NMS Plan also would improve completeness by consolidating in a single source fields that currently may only be available from some data sources, and by including some fields that are difficult for regulators to compile. Not every data field that would be in CAT Data is currently included in SRO audit trails, and very few fields are included in all data sources.
The inclusion of consistent unique customer information, in particular, in the CAT Data represents a significant improvement over current SRO audit trails in terms of completeness. Rule 613(c)(7)(i) requires that a CAT Reporter report information to the Central Repository that uniquely identifies a customer across all broker-dealers.
In addition to data fields providing customer information, the Plan would improve completeness by including other data fields not found on current SRO audit trails. For example, CAT Data would include allocation information, open/close information, Quote Sent Time, and information on whether a Customer gave a modification or cancellation instruction.
The information in the Allocation Report required by the CAT NMS Plan represents a significant improvement in completeness over current sources for subaccount allocation data, such as trade blotter and EBS data. Under the Plan, an Allocation Report would include the Firm Designated ID for any account(s), including subaccount(s), to which executed shares are allocated, the security that has been allocated, the identifier of the firm reporting the allocation, the price per share of shares allocated, the side of shares allocated, the number of shares allocated to each account, and the time of the allocation.
In addition, while many of the elements contained in the definition of “Material Terms of the Order” are
Because data on open/close indicators are not currently included in SRO audit trails, obtaining data on whether a trade opens or closes a position in equities is currently very difficult. Ready access to this information would facilitate regulators' ability to determine whether a purchase or sale increases or decreases equity exposure, such as when a buy covers a short position.
The CAT Data would also include information regarding the sent time for Options Market Maker quotes and information about whether a modification or cancellation instruction for an order was given by a Customer associated with an order, or was initiated by a broker-dealer or exchange associated with the order. Neither of these data fields is currently readily available from existing SRO audit trails.
The remaining data fields included in CAT Data are also included in some or all current SRO audit trails, although no single source contains all of them. For instance, Rule 613(c)(7)(vi)(C) requires the collection of audit trail data that links executions to contra-side orders and a CAT-Order-ID for the contra-side order.
Additionally, the inclusion of order display information (
Other information required by the CAT NMS Plan includes the security symbol, date and time of the Reportable Event, the identity of each Industry Member or Participant accepting, routing, receiving, modifying, canceling, or executing each order, the identity and nature of the department or desk to which an order is routed, if an order is routed internally within the system of an Industry Member, a CAT-Order-ID, changes in any Material Term of the Order (if the order is modified), execution capacity, the CAT-Order-ID of any contra-side order(s), and the SRO-Assigned Market Participant Identifier of the clearing broker or prime broker.
The Commission preliminarily believes that the CAT Data would include all data elements that would be useful and efficient to include in a consolidated audit trail. The Commission previously considered which fields should be reported to CAT when proposing and adopting Rule 613. The set of data fields required by Rule 613 reflected the Commission's assessment, as informed by public comment, of the benefits and costs of including various data elements in CAT.
This Section analyzes the expected effect of the CAT NMS Plan, if approved, on the accuracy of the data available to regulators.
The Commission notes that the full extent of improvement that would result from the Plan is currently unknown, because the Plan defers many decisions relevant to accuracy until the Plan Processor publishes the Technical Specifications and interpretations.
Nonetheless, the Commission preliminarily believes that the Plan provides some procedural protections to mitigate this uncertainty and help promote accuracy. For example, the Plan requires that, at a minimum, the Technical Specifications be “consistent with [considerations and minimum standards discussed in] Appendices C and D,” and that the initial Technical Specifications and any Material Amendments thereto must be provided to the Operating Committee for approval by Supermajority Vote.
The CAT NMS Plan specifies a high-level process for handling errors that includes target Error Rates for data initially submitted by CAT Reporters and a correction process and timeline. In particular, the Plan specifies an initial maximum Error Rate, which measures errors by CAT Reporters and linkage validation errors,
The Plan states that 5% is an appropriate initial Error Rate, to allow CAT Reporters the opportunity to get used to a new reporting regime, and that the Error Rate should be reduced over time, with goal of a 1% Error Rate to be achieved one year after each new category of Reporters is required to begin reporting.
But, because the current OATS error rate is below 1%, the Commission preliminarily believes that the initial
The Plan specifies an error correction process after initial reports are received and indicates that practically all errors identifiable by the validations used in the error correction process would be corrected by 8:00 a.m. Eastern Time on day T+5, stating that errors are expected to be “de minimis” after the error correction period.
Rather than providing details on the validations that would occur, however, the Plan provides high-level requirements for the validations and delegates the detailed design of the specific validations to the Plan Processor (with the involvement of the Operating Committee and the Advisory Committee).
As noted above, it is therefore difficult to conclude whether the Error Rates and processes in the CAT NMS Plan would constitute an accuracy improvement as compared to current data sources. With respect to OATS, FINRA currently performs over 152 validation checks on each order event reported.
Rule 613(d)(1) and (2) requires that the CAT NMS Plan require that the business clocks of Participants and their members be synchronized to a specified standard of precision and for protocols to be in place for that standard to be maintained over time. Complying with this clock synchronization standard will require that, for the purpose of recording the date and time of Reportable Events, the business systems of Participants and their members be synchronized consistently with “industry standards.” The Commission did not define the term “industry standard” in Rule 613, though it noted that it expected the Plan to “specify the time increment within which clock synchronization must be maintained, and the reasons the plan sponsors believe this represents the industry standard.”
The CAT NMS Plan describes the “industry standard” in this context in terms of the technology adopted by the majority of the industry.
The Commission preliminarily believes that the clock synchronization standards in the CAT NMS Plan are reasonably designed to improve the accuracy of market activity sequencing by increasing the percentage of order events that could be chronologically sequenced relative to other order events,
As discussed in the Baseline Section, 39% of the broker-dealers responding to the FIF Clock Offset Survey currently synchronize their clocks to a clock offset tolerance of greater than 50 milliseconds.
To evaluate the proportion of order events that could be sequenced with the clock offset tolerance specified in the CAT NMS Plan, the Commission has conducted an analysis of the frequency of market events occurring within 100 milliseconds of an event in a different trading venue in the same security.
The analysis finds that the current FINRA one-second clock offset tolerance allows only 1.31% of unrelated order events for listed equities and 6.97% of unrelated order events for listed options to be sequenced. The proposed 50-millisecond clock offset tolerance could accurately sequence 7.84% for listed equities and 18.83% for listed options of such events included in the MIDAS data. This analysis overestimates the portion of unrelated events that the proposed clock synchronization standard could sequence because the analysis includes only trade and quote events observable in the MIDAS data. The data currently available to the Commission provides only a rough and upwardly-biased estimate of how many of these events could be sequenced by the order data that would be captured by the CAT. In sum, the results of the Commission's analysis suggest that the standards required by the Plan do represent an improvement over current standard but that the majority of market events would remain impossible to sequence based on the Plan's required clock synchronization standards.
This analysis does not consider events in OTC Equity Securities. The Commission believes that the proposed clock synchronization standard could accurately sequence a higher proportion of unrelated events in OTC Equity Securities because OTC Equity Securities trade less frequently than NMS equities and unrelated order events may be less frequent in OTC Equity Securities than in listed equities. The Commission therefore preliminarily believes that the proposed 50 millisecond clock offset tolerance in the CAT NMS Plan could improve accuracy by modestly increasing the number of events that could be sequenced in OTC Equity Securities.
The Plan acknowledges that the required clock offset tolerance, which is based on its determination of the current industry standard, would not be sufficient to accurately sequence all order events by their time stamps alone.
The Plan discusses its determination of the current industry standard and specifies implementation requirements for the clock synchronization standards in Appendix C.
The Commission notes however, that the current practices for exchanges and Execution Venues may differ from the industry standard for broker-dealers as defined in the Plan, and current practices for certain systems within broker-dealers may vary by the system within the broker-dealers. As noted in the Baseline Section, the Commission does not have precise information on the clock synchronization standards on exchange and ATS matching engines and quoting systems, but exchanges may currently synchronize their clocks to a 100 microsecond or less clock offset tolerance, and have an average clock offset of 36 microseconds.
Despite these limitations, it is worth noting that the Plan requires the CCO of the Plan Processor to develop and conduct an annual assessment of Business Clock synchronization.
The Commission preliminarily believes that the minimum time stamp granularity required by the Plan would result in some improvement in data accuracy, but that the level of improvement could be limited. Despite the modest level of direct improvements expected from the Plan's minimum time stamp granularity standards, the Commission preliminarily believes that the Plan should continue to have a time stamp granularity standard because the Plan provides a mechanism for making future improvements and monitoring whether more granular time stamps would provide better quality CAT Data and be feasible given technology improvements.
The level of precision or granularity with which time stamps are recorded has significant implications for the usability of audit trail data in terms of sequencing events, matching records, and linking the data to other data sources. In some current regulatory data, the relative lack of time stamp granularity standards for data reporters could lead to difficulties in accurately sequencing events or linking data with other data sources. Rule 613(d)(3) requires that CAT Reporters record time stamps to reflect current industry standards and be at least to the millisecond.
The Plan asserts that the millisecond increment required for CAT Data reflects the industry standard level of granularity.
Thus, to the extent that some current data sources report time stamps in increments coarser than a millisecond, which is the case for 12% of OATS records and all EBS records, the Commission expects the CAT millisecond time stamp requirement to improve data, and thereby allow regulators to more accurately determine the sequence of market events relative to surrounding events.
The Commission preliminarily believes, however, that benefits from the more granular time stamps could be limited by the level of clock synchronization required by the Plan. In particular, the Commission believes that time stamp granularity would not be the limiting factor in sequencing accuracy, because recording events with time stamps with resolutions of less than one millisecond cannot help to sequence events occurring on different venues with clocks that may be 100 milliseconds out of sync due to clock synchronization offsets.
The Commission believes the requirements of Rule 613 and the Plan related to data linking would result in improvements to the accuracy of the data available to regulators, but the extent of the improvement would depend on the accuracy of the linking algorithm and the reformatting process that the Plan Processor would eventually develop.
As discussed in the Baseline, data is currently stored in multiple formats, is difficult to merge, and results in errors during the merging process. Moreover, in some cases, the data sources do not capture the information necessary to link records, while in other cases linking must be done with algorithms that accomplish the linking with some degree of error.
Rule 613(e)(1) generally requires the creation and maintenance of a Central Repository that would receive, consolidate, and retain information reported to the CAT.
The Commission preliminarily believes that the requirement that data be stored in a uniform format would eliminate the need for regulators who are accessing the data to reformat the data. As noted in the Baseline Section above, regulators face delays and inaccuracies when attempting to reformat and link data from multiple sources, such as linking trade blotters from several broker dealers with SRO audit trails. Given that the reformatting of CAT Data would be accomplished by individuals that likely specialize in this activity and that repetitively do so in a prescriptive and formalized way, this requirement could reduce the errors that could be introduced in the current regime where reformatting data is often done on an ad hoc basis by regulatory Staff who need to work with the data.
The process for linking orders designated in the CAT NMS Plan is similar to the process FINRA currently uses to link OATS records across market participants. However, the Plan would significantly improve the ability of regulators to link order events compared to OATS, and would link this activity to specific customers unlike current audit trail data.
Unlike OATS data, CAT Data would be less prone to breaking the order lifecycle chain when an order is sent across market participants because the order lifecycle linking procedure across reporters would be uniform and all industry participants would be reporters.
The CAT NMS Plan does not provide sufficiently detailed information for the Commission to estimate the likely Error Rates associated with the linking process required by the CAT NMS Plan. Indeed, the 5% Error Rate covers data from CAT Reporters, but the Plan Processor could create errors as well, for example, through the linking process. Further, the Plan does not include details on how the Plan Processor would perform the linking process, identify broken linkages, and seek corrected reports from CAT Reporters to correct broken linkages. Instead, the Plan defers key decisions regarding the validation process until the selection of a Plan Processor and the development of Technical Specifications.
Uncertainties also prevent the Commission from determining whether the process for converting data into a uniform format at the Central Repository would improve the accuracy of the data over existing audit trail accuracy rates. The Plan includes two alternative approaches to data conversion. In the first, called Approach 1, CAT Reporters would submit data to the Central Repository in an existing industry standard protocol of their choice such as the Financial Information eXchange (“FIX”) protocol. In Approach 2, CAT Reporters would submit data to the Central Repository in single mandatory specified format, such as an augmented version of the OATS protocol. Under Approach 1, the data must be converted into a uniform format at the Central Repository in a second step. Under Approach 2, the data is already in a uniform format at the time of submission. The Plan defers the decision regarding which approach to take until the selection of a Plan Processor and the development of Technical Specifications.
The Commission preliminarily believes that Approach 1 would likely result in a lower Error Rate than Approach 2. Under Approach 1, the CAT Reporters would presumably be submitting the actual data captured in real time without having to translate it into another format. In addition, under Approach 1, the conversion would be performed at the Central Repository by the Plan Processor, rather than the conversion being performed by each of the approximately 1,800 individual CAT Reporters or their vendors, which should reduce potential points where errors in formatting could be introduced, and provide for economies of scale.
Uniquely complex situations also pose a difficulty for assessing the ability of the Plan Processor to build a complete and accurate database of linked data that regulators could query for regulatory purposes. First, the Plan requires the Plan Processor, in consultation with industry, to develop a linking mechanism that would allow the option and equity legs of multi-leg trades to be linked within the Central Repository.
Second, the Commission in the Proposing Release noted concern about the ability of the daisy chain approach to link a Customer order and a member's order from which the Customer is provided with an allocation.
While uncertainty about this issue remains, the Commission notes that the Plan's requirement for standardized Allocation Reports that consistently and uniquely identify Customers and reporters should improve the linkability of allocation information compared to current data, despite the limitation of direct linkage to order lifecycles, particularly in scenarios where potentially violative conduct is carried out by market participants operating through multiple broker dealers. This moderate improvement in the linkability of allocation data should improve regulators' ability to identify market participants who commit violations related to improper subaccount allocations.
The Commission preliminarily believes that the inclusion of unique Customer and Reporter Identifiers described in the CAT NMS Plan would increase the accuracy of customer and broker-dealer information in data regulators use and provide benefits to a broad range of regulatory activities that involve audit trail data.
Currently, only a few data sources, which typically cover only a small portion of order lifecycles, include information regarding customers.
Rule 613 requires the use of a unique Customer-ID that identifies the Customer involved in CAT Reportable Events.
To facilitate the creation of Customer-IDs, certain information would be submitted to the Central Repository. Specifically, broker-dealers would be required to submit an initial set of information identifying a Customer to the Central Repository, including the Firm Designated ID and the other biographical information associated therewith including, for an individual, name, address, date of birth, ITIN/SSN, and individual's role in the account (
Based on this information, the Plan Processor has to “maintain information of sufficient detail to uniquely and consistently identify each Customer across all CAT Reporters, and associated accounts from each CAT Reporter.”
The Commission preliminarily believes that approval of the Plan would likely further remedy some of the inconsistencies and other limitations mentioned above. The Plan also contains provisions related to the accuracy of submitted Customer information. For example, a robust data validation process must be established for submitted Customer and Customer Account Information.
In addition to Customer-IDs, the CAT NMS Plan calls for the use of CAT-Reporter-IDs. The data to be reported to the Central Repository includes the SRO-assigned Market Participant Identifier (MPID) of the Industry Member or Participant receiving, routing, or executing the order.
The Commission preliminarily believes that the Customer-ID approach in the CAT NMS Plan would significantly improve the accuracy of customer information available to regulators. As noted above, existing data does not consistently capture information about the customers involved in a trade or other market event, which negatively affects the ability of regulators to accurately track customers' activities across broker-dealers. Additionally, customer identities in many existing data sources use inconsistent definitions and mappings across market centers. Accordingly, it is difficult for regulators to identify the trading of a single customer across multiple market participants.
Furthermore, the Commission preliminarily believes that the Reporter ID approach specified in the CAT NMS Plan would improve the accuracy of tracking information regarding entities with reporting obligations, namely broker-dealers and SROs. Because the Commission currently face challenges in using MPIDs and CRD numbers, for example, to identify broker-dealers across the market, the Plan's requirement for consistent unique Reporter IDs would eliminate the need for the Commission to reconcile broker-dealer information from multiple data sources, which can be a costly task for regulatory Staff that is often limited in terms of accuracy by the inconsistencies and non-uniqueness of current identifiers, and facilitate more efficient and effective regulatory activities that protect investors from harm. Moreover, because CAT Data would include more Industry Members in the Reporter ID category than are currently in any current set of broker-dealer identifiers, the Commission preliminarily believes that approval of the Plan would likely further remedy some of the inconsistencies and other limitations mentioned above.
Most CAT Data would be disaggregated data, meaning that CAT Data would not suffer from the limitations that characterize some of the aggregated data sources that regulators must currently use. As mentioned in the Baseline Section, subaccount allocation data and issuer repurchase data exist in forms that are aggregated and thus these data sources are limited for use in certain regulatory activities and interests.
To meet the requirements of Rule 613, the CAT NMS Plan includes a required allocation reporting tool that would provide information on executions that are allocated to multiple subaccounts.
The Commission preliminarily believes that the CAT NMS Plan would improve the accuracy of allocation data compared to existing data available to regulators. It would provide disaggregated information on the identity of the security, the number of shares and price allocated to each subaccount, when the allocation took place, and how each Customer subaccount is associated with the master account. This would more accurately reflect which Customer ultimately received the shares that were purchased in a particular trade.
The Commission anticipates that regulators may use CAT Data for some purposes that they use cleared data for now because CAT is significantly less aggregated. As discussed above, regulators often used equity and option cleared reports to identify market participants involved in trading activity relevant to an investigation.
Likewise, the disaggregated issuer repurchase information that would be in the CAT data would be an improvement in the accuracy of information available to regulators about those issuer repurchases. In particular, the Plan would require that the Plan Processor link Customer information to the order lifecycle and the report would identify as Customers those issuers that are
In general, the Commission believes that the Plan, if approved, would substantially improve the accessibility of regulatory data by providing regulators with direct access to the consolidated CAT Data, including some data elements that currently take weeks or months to obtain. However, there is some uncertainty regarding the process for regulatory access under the Plan, which creates uncertainty as to the degree of the expected improvement.
As discussed in the Baseline Section,
The Commission recognizes that improving accessibility relative to the Baseline requires ensuring that enough SRO and Commission Staff members are able to use the direct access system supplied by the Central Repository when they need it. The ability to use the direct access system depends, among other things, on how user-friendly the system is, whether it has enough capacity for the expected use of the system, and whether it contains the functionality that the SROs and Commission Staff require. The Commission preliminarily believes that the minimum requirements for the direct access system would ensure that the Plan would improve on the Baseline of access to current data, including the process of requesting data.
Appendix D provides minimum functional and technical requirements that must be met by the Technical Specifications to facilitate these methods of access, including the methods of selecting data that must be supported, query and bulk extract performance standards, and formats in which data could be retrieved.
Two types of query interfacing must be supported. The first, an online targeted query tool, must include a date or time range, or both, and allow users to choose from a broad menu of 26 pre-defined selection criteria (
The actual method of query support is to be determined by the Plan Processor, but must provide an open API that allows use of regulator-supplied common analytic tools (
All queries must be able to be run against raw (
The Commission preliminary believes that the direct access facilitated by provisions of the CAT NMS Plan described above is reasonably designed to substantially reduce the number of ad hoc data requests and provide access to substantial data without the delays and costly time and knowledge investments associated with the need to create and respond to data requests. For example, regulators do not have direct access to EBS or trade blotter data and therefore they must request such data when needed for regulatory tasks. As a result, in 2014 the Commission made 3,722 EBS requests that generated 194,696 letters to broker-dealers for EBS data.
The Plan would also permit regulators to directly access customer information, which could improve the ability of SROs to conduct surveillance. Rule 613(e)(3) requires that the CAT provide the capability to run searches and generate reports.
The Commission also preliminarily believes that, if approved, the Plan would improve accessibility by consolidating various data elements into one combined source, reducing data fragmentation. First, Rule 613 requires that the Central Repository collect data that includes the trading and routing of a given security from all CAT Reporters.
The Plan would also marginally increase the accessibility of historical exchange data. In particular, Section 6.5(b)(i) of the Plan requires that the Central Repository make historical data available for not less than six years, in
In some dimensions of accessibility, the Commission notes that uncertainties exist that could affect the degree of expected improvement to accessibility. In particular, while the Plan provides detail on the method of access and the types of queries that regulators could run, many of the decisions regarding access have been deferred until after the Plan Processor is selected and finalizes the Technical Specifications; the Plan does not specify how regulators would access the data beyond providing for both an online query tool and user-defined direct queries that could do bulk extractions.
In addition, it is not known whether the Plan Processor would host a server workspace that regulators could use for more complex analyses, what software tools would be available to regulators within such a workspace, and whether complex analyses would be able to be performed without extracting significant data from the Central Repository's database.
While all Bidders included certain baseline functionality, such as some means for regulators to perform dynamic searches, data extraction, and “off-line analysis,”
Nonetheless, the requirements included in the Plan describe a system that, once implemented, would result in the ability to query consolidated data sources that represents a significant improvement over the currently available systems. This substantial reduction in data delays and costly data investments would permit regulators to complete market reconstructions, analyses, and research projects, as well as investigations and examinations, more effectively and efficiently and would lead to improved productivity in the array of regulatory matters that rely on data, which should lead to improved investor protection.
The Commission believes that, if approved, the CAT NMS Plan would significantly improve the timeliness of the reporting, compiling, and access of regulatory data, which would benefit a wide array of regulatory activities that use or could use audit trail data.
The Plan would require CAT Reporters to report data to the Central Repository at times that are on par with current audit trails that require reporting, but the Central Repository would compile the data for initial access sooner than some other such data.
As noted in the Baseline, some current data sources compile and report the data with delays. For example, equity and option clearing data are not compiled and reported to the NSCC and OCC until day T+3, and thus access to this data by the Commission cannot occur until day T+3 at the very soonest. Under the Plan, raw data would be available two days sooner to all regulators. In other cases such as EBS reports, the data are not compiled and reported to a centralized database until
It is true that the Plan would not necessarily improve the timeliness of audit trail data in every case or for every regulator, as some kinds of audit trail data are currently timely for some regulators. For example, exchange SROs already have real-time access to their own audit trail data.
Further, the Commission preliminarily believes that the error correction process required by the CAT NMS Plan is reasonably designed to provide additional improvements in timeliness for corrected data. The CAT NMS Plan specifies that the initial data validation and communication of errors to CAT Reporters must occur by noon on day T+1, corrections of these errors must be submitted by the CAT Reporters to the Central Repository by 8:00 a.m. Eastern Time on day T+3, and the corrected data made available to regulators by 8:00 a.m. Eastern Time on day T+5.
As discussed in the Baseline Section, the error resolution process for OATS is limited to five business days from the date a rejection becomes available.
Improvements to timeliness would also result from the ability of regulators to directly access CAT Data.
As discussed above, Rule 613 generally requires that the Central
Furthermore, the search tool must include a resource management component, which could manage query requests to balance the workload, and categorize and prioritize query requests based on the input parameters, complexity of the query, and the volume of data to be parsed in the query, with the details on the prioritization plan to be provided at a later date.
The Commission also preliminarily expects the CAT NMS Plan to reduce the time required to process data before analysis. Currently regulators can spend days and up to months processing data they receive into a useful format.
The expected improvements to data accuracy discussed above could also result in an increase in the timeliness of data that is ready for analysis, although uncertainty exists regarding the extent of this benefit.
The Commission preliminarily believes that improvements in the quality of available data have the potential to result in improvements in the analysis and reconstruction of market events; market analysis and research in support of regulatory
Regulators' abilities to perform analyses and reconstructions of market events would likely improve, allowing regulators to more quickly and thoroughly investigate these events. This would allow regulators to provide investors and other market participants with more timely and accurate explanations of market events, and to develop more effective responses to such events. The availability of the CAT Data would benefit market analysis and research in support of regulatory decisions, facilitating an improved understanding of markets and informing potential policy decisions. Regulatory initiatives that are based on an accurate understanding of underlying events and are narrowly tailored to address any market deficiency should improve market quality and benefit investors.
In the Commission's preliminary view, CAT Data would substantially improve both the efficiency and effectiveness of SRO broad market surveillance programs, which could benefit investors and market participants by allowing regulators to more quickly and precisely identify and address a higher proportion of market violations that occur, as well as prevent violative behavior through deterrence.
The Commission also preliminarily believes that CAT Data would enhance the SROs' and the Commission's abilities to effectively target risk-based examinations of market participants who are at elevated risk of violating market rules, as well as their abilities to conduct those examinations efficiently and effectively, which could also contribute to the identification and resolution of a higher proportion of violative behavior in the markets. The reduction of violative behaviors in the markets should benefit investors by providing investors with a safer environment for allocating their capital and making financial decisions. A reduction in violative behaviors could also benefit market participants whose business activities are harmed by the violative behavior of other market participants. The Commission further believes that more targeted examinations could also benefit market participants by resulting in proportionately fewer burdensome examinations of compliant market participants. A significant percentage of Commission enforcement actions involve trade and order data,
The Commission further anticipates additional benefits associated with enhanced abilities to handle tips, complaints and referrals, and improvements in the speed with which they could be addressed, particularly in connection with the significant number of tips, complaints, and referrals that relate to manipulation, insider trading, or other trading and pricing issues.
The Commission preliminarily believes that, if approved, the Plan would improve regulators' ability to perform analysis and reconstruction of market events. As noted in the Adopting Release, the sooner regulators can complete a market reconstruction, the sooner regulators can begin reviewing an event to determine what happened, who was affected and how, if any regulatory responses might be required to address the event, and what shape such responses should take.
The fragmented nature of current audit trail data and the lack of direct access to such data renders market reconstructions cumbersome and time-consuming. Currently, the information needed to perform these analyses is spread across multiple audit trails, with some residing in broker-dealer order systems and trade blotters. Requesting the data necessary for a reconstruction of a market event often takes weeks or months and, once received, regulators then need weeks to reconcile disparate data formats used in different data sources. For example, on the afternoon of May 6, 2010, the U.S. equity and equity futures markets experienced a sudden breakdown of orderly trading when indices, such as the Dow Jones Industrial Average Index and the S&P 500 Index, fell about 5% in five minutes, only to rebound soon after (the “Flash Crash”).
The lack of readily available trade and order data resulted in delays and gaps in the Commission's analysis of the events of the Flash Crash. Ultimately, it took Commission Staff nearly five months to complete an accurate representation of the order books of the equity markets for May 6, 2010.
Regulators, such as the Commission and SROs on whose exchanges events took place, faced similar challenges when reconstructing events around the May 2012 Facebook IPO, the August 2012 Knight Securities “glitch,” and the August 2013 NASDAQ SIP outage.
And although there is a proposed FINRA rule that will require FINRA members to report to OATS identification for their non-FINRA member customers who are broker-dealers, even after approval of this rule OATS will lack identification for customers who are not broker-dealers.
More generally, regulators face significant difficulties in using some current data sources for a thorough market reconstruction. Some of the most detailed data sources, including sources like EBS and trade blotters that identify customers, are impractical for broad-based reconstructions of market events. In particular, including EBS data for a reconstruction of trading in the market for even one security on one day could involve many, perhaps hundreds, of requests, and would require linking that to SRO audit trail data or public data.
The Commission therefore expects that improvements in data completeness and accuracy from the Plan would enhance regulators' ability to perform analyses and to reach conclusions faster in the wake of a market event by reducing the time needed to collect, consolidate and link the data. The inclusion of Customer-IDs and consistent CAT-Reporter-IDs in CAT would allow regulators to more effectively and efficiently identify market participants that submit orders through several broker-dealers and execute on multiple exchanges and whose activity may warrant further analysis. This would be useful if regulators were interested in determining if a particular trader or category of traders had some role in causing the market event, or how they might have adjusted their behavior in response to the event, which could amplify the effects of the root cause or causes. Furthermore, the clock synchronization requirements of the Plan would improve the ability of regulators to sequence some events that happened in different market centers to better identify the causes of market events. Overall, the Commission preliminarily believes that, if the Plan is approved, regulators would have dramatically improved ability to identify the market participants involved in market events.
The Commission further believes that better data accessibility would significantly improve the ability of regulators to analyze and reconstruct market events. As noted above, CAT Data would improve data accessibility relative to every other data source because all SROs and the Commission would have direct access to CAT Data. If the Plan is approved, much of this information would be housed in the Central Repository with query capabilities that would allow regulators to access raw data beginning the day after an event.
The Commission preliminarily believes that the CAT NMS Plan would benefit the quality of market analysis and research that is produced to increase regulatory knowledge and support policy decisions and would lead to a more thorough understanding of current markets and emerging issues. These expected benefits would stem from improvements in accessibility, accuracy, and completeness of regulatory data. Improvements in regulatory market analysis and research aimed at informing regulatory decisions would benefit investors and market participants by improving regulators' understanding of the intricacies of dynamic modern markets and how different market participants behave in response to policies and information. These more nuanced and more thorough insights would help regulators to identify the need for regulation that specifically tailors policies and interventions to the diverse landscape of market participants and conditions that characterize current financial markets, as well as assist them in conducting retrospective analysis of their rules and pilots.
A lack of direct access to necessary data, along with inaccuracies in the data that are available, currently limits the types of analyses that regulators can conduct. These data limitations constrain the information available to regulators when they are considering the potential effects of regulatory decisions. For example, in January 2010 the Commission published a concept release on equity market structure that discusses how the markets have rapidly evolved from trading by floor-based specialists to trading by high-speed computers.
The Commission preliminarily believes that the CAT NMS Plan improves this situation, benefiting market analysis and research in support of SRO and Commission rulemaking. It would provide direct access to data that currently requires an often lengthy and labor-intensive effort to request, compile, and process. Additionally, the expected improvements in accuracy and completeness could benefit efforts to analyze the activities of particular categories of market participants, understand order routing behavior, identify short selling and short covering trades, issuer repurchases, and related topics. The requirement to store the data in a uniform format in the Central Repository is particularly important, as linking and normalizing data from disparate sources in different formats is a major component of completing many types of analyses and currently requires a significant amount of time. The Plan would provide direct access to data that regulators could use to more directly study issues such as high frequency trading, maker-taker pricing structures, short selling, issuer repurchases, and ETF trading.
The CAT NMS Plan could improve market analysis and research concerning HFT by providing regulators with direct access to more uniform and comprehensive data that identifies HFT activity more precisely compared to existing academic research that regulators currently utilize. Existing academic research on high frequency trading cannot precisely identify high frequency traders or their trading activity and more comprehensive regulatory analysis on high frequency trading currently relies on fragmented data that is cumbersome to collect and process.
The Plan also would provide information on how various broker-dealers route their customer orders and would allow regulators to study whether access fees and rebates drive routing decisions as much as execution quality considerations. This could inform debates about effects of conflicts of interest created by such maker-taker pricing. Studies of maker-taker pricing require information on routing decisions and how routing affects execution quality. Current academic studies of maker-taker pricing rely on data that provide imprecise information that cannot directly link routing and execution quality, and current similar research carried out by some regulators is often hindered by the significant amount of time it takes to obtain the relevant data from all market centers. However, the Plan would provide regulators with direct access to a data source that would link order lifecycle events together in a way that would allow regulators to more thoroughly analyze how and where broker-dealers route various order types. This could assist regulators in analyzing the importance of fees to the routing decisions and the ultimate impact on investors of any conflicts of interest in broker-dealer routing decisions. Such analysis could inform debates regarding whether maker/taker pricing structures are harmful to market structure.
Similarly, the Plan would provide regulators with data to better understand the nature of short selling. Existing studies of the effects of short selling lack the ability to associate short selling activity with customer-level data, and also lack the ability to distinguish buying activity that covers short positions from buying activity that establishes new long positions. The Plan would allow regulators to examine, for example, how long particular types of traders hold a short position and what types of traders short around corporate events.
The Plan, in requiring information about a Customer, would also facilitate studies of how certain entities other than natural persons trade and the market impact of their trading. For example, existing information on repurchases is aggregated at the monthly and quarterly level while the CAT Data on issuer repurchases would be much more granular. CAT Data would provide information that could determine the size and timing of issuer repurchases, for example. In addition, CAT Data would provide information that could help identify open market repurchases whereas existing data does not distinguish the type of repurchase. As such, the Plan would facilitate research that addresses the timing of issuer repurchases around corporate events or stock option grants and exercises, the extent to which issuers use the safe harbor in Rule 10b-18, and how aggressively issuers trade in the market. In addition, CAT Data on the trading of leveraged ETFs, particularly the end of day rebalancing, could shed light on how the leveraged ETFs relate to market volatility. In addition, Customer information should facilitate analyses of the secondary market trading of ETF Authorized Participants in their ETFs.
The Commission preliminarily believes that CAT Data would also better inform SROs and the Commission in rulemakings and assist them in conducting retrospective analysis of their rules and pilots. In particular, SROs would be able to use order data that is currently not available to examine whether rule changes are in the interest of investors. For example, direct access to consolidated audit trail data that identifies trader types could help an SRO examine whether a new rule improved market quality across the entire market and whether it benefitted retail and institutional investors specifically. Further, CAT Data would allow SROs to examine whether a rule
The Commission preliminarily believes that the enhanced surveillance and investigations made possible by the implementation of the CAT NMS Plan could allow regulators to more efficiently identify and investigate violative behavior in the markets and could also lead to market participants that currently engage in violative behavior reducing or ceasing such behavior, to the extent that such behavior is not already deterred by current systems. The current markets are characterized by surveillance systems that identify violators so that regulators may address these violations. Given that violative behavior is identifiable in current markets, and potential violators know that there is a positive probability that they would be caught by surveillance should they commit a violation, fewer potential violators commit violations than would do so in markets that had no surveillance. Potential violators' expected probability of being caught influences their likelihood of committing a violation.
Specifically, if market participants believe that the existence of CAT, and the improved regulatory activities that result from improvements in data and data processes, increase the likelihood of regulators detecting violative behavior, they could reduce or eliminate the violative activity in which they engage to avoid incurring the costs associated with detection, such as fines, legal expenses, and loss of reputation. Such a reduction in violative behavior would benefit investor protection and the market as investors would no longer bear the costs of the violative behavior that would otherwise exist in the current system. Many of the improvements that would result from CAT could also allow regulators to identify violative activity, such as market manipulation, more quickly and reliably, which could improve market efficiency by deterring market manipulation and identifying and addressing it more quickly and more often when it occurs.
The Commission preliminarily believes that the CAT NMS Plan would result in improvements in SROs' surveillance capabilities and that many of the benefits to SRO surveillance stem from improvements to data completeness. These benefits encompass a number of improvements to surveillance, including: detection of insider trading; surveillance of principal orders; cross-market and cross-product surveillance, and other market surveillance activities.
Rule 613(f) requires SROs to implement surveillances reasonably designed to make use of the CAT Data.
CAT Data would include additional fields not currently available in data used for surveillance.
Furthermore, having direct access to data could assist an SRO in its surveillance activities by potentially facilitating quicker responses to suspicious trading activity. Additionally, the inclusion of the principal orders of members would enable regulators to better identify rule violations by broker-dealers that have not previously had to provide audit trail data on their unexecuted principal orders. The evolution of the market has increased the importance of surveillance on principal orders. Many of these principal orders originate from algorithmic or high frequency trading firms who have been the recent subject of regulatory interest.
The Plan would also improve regulators' efficiency in conducting cross-market and cross-product surveillance. The Plan would particularly enhance regulators' ability to perform cross-market surveillance, across equity and options markets, by enabling any regulator to surveil the trading activity of market participants in both equity and options markets and across multiple trading venues without data requests. Regulators would also have access to substantially more information about market participants' activity,
Increasing market complexity and fragmentation has increased the importance of cross-market surveillance. The Commission noted in its Regulation of NMS Stock Alternative Trading Systems proposing release that, “[i]n the seventeen years since the Commission adopted Regulation ATS, the equity markets have evolved significantly, resulting in an increased number of trading centers and a reduced concentration of trading activity in NMS stocks.”
The Commission preliminarily believes that availability of the CAT would also improve examinations and that these improvements would benefit investor protection, and the market in general, by resulting in more effective supervision of market participants. The Commission conducted 493 broker-dealer examinations in 2014 and 484 in 2015, 70 exams of the national securities exchanges and FINRA in 2014 and 21 in 2015. In addition, the Commission conducted 1,237 investment adviser and investment company examinations in 2014 and 1,358 in 2015. Virtually all investment adviser examinations and a significant proportion of the Commission's other examinations involve analysis of trading and order data. Currently some data that would be useful to conduct risk-based selection for examinations, such as trade blotters, are not available in data sources available for pre-exam analysis.
First, the Commission preliminarily believes that the expected improvements in the data qualities discussed above would enhance the ability of regulators to select market participants for focused examinations on the basis of risk. The direct access to consolidated data in a single location would dramatically improve regulators' ability to efficiently conduct analyses in an attempt to select broker-dealers and investment advisers for more intensive examinations based on identified risk. Having CAT Data stored in the Central Repository in a linked format would allow examiners to access much more data directly through a query and without performing the linking process on an ad-hoc basis than is currently available before an exam. The ability to use Customer Account Information in the process for selecting investment advisers for exams, for example, could allow those selection models to incorporate trading data directly instead of imperfect proxies for trading data. This could lead to improved outcomes for risk-based examinations, such as more regulatory resources invested in examining market participants who are at an elevated risk of violating federal securities laws, rules, and regulations, and SRO rules, and a reduction in the proportion of examinations that might not have been necessary if a more complete view of the market participant's activity had been available. Compliant market participants could benefit from a reduction in the relative frequency of burdensome examinations. Improvements in the breadth and effectiveness of risk-based examination would help protect investors by increasing the likelihood of identifying market participants who are violating laws, rules and regulations.
Second, the Commission preliminarily believes that with the CAT, regulators would be able to examine market participants more effectively. In particular, regulators would be able to conduct certain types of exams more efficiently because of the inclusion of Customer-IDs in CAT. In addition, direct access to CAT Data would provide examination Staff with the ability to conduct more analysis prior to opening an examination because data would be available without the need to make a formal data request. In addition, the clock synchronization provisions of the Plan could aid regulators in sequencing some events more accurately, thereby facilitating more informed exams.
Many Commission enforcement actions involve trade and order data.
Dramatic expected benefits come from improvements to the accuracy, accessibility, timeliness, and completeness of the data. As noted above,
Under the CAT NMS Plan, the data for an enforcement investigation initiated at least five days after an event would be processed, linked, and available for analysis within 24 hours of a query, instead of the current timeline of weeks or longer. Further, some of the data processing steps that are now performed on an ad-hoc basis during an investigation would be systematically performed by the Plan Processor in advance.
Other expected benefits stem from improvements in the accuracy and completeness of the data. The inclusion and expected improvement in the accuracy of customer identifying data could allow regulators to review the activity of specific market participants more efficiently; currently, identifying the activity of a single market participant across the market is cumbersome and prone to error.
The Commission also believes that increasing the proportion of market events that could be sequenced under the CAT NMS Plan could yield some benefits in enforcement investigations, improving investigations of insider trading, manipulation, and compliance with Rule 201 of Regulation SHO and Rule 611 of Regulation NMS.
The Commission preliminarily believes that the CAT NMS Plan would improve the process for evaluating tips and complaints by allowing regulators to more effectively triage tips and complaints, which could focus resources on behavior that is most likely to be violative.
The Commission notes that there are a number of provisions of the CAT NMS Plan that provide for features that are uniquely applicable to a consolidated audit trail or otherwise lack a direct analog in existing data systems.
Several provisions in the Plan seek to ensure that the CAT Data would continually be updated to keep pace with technological and regulatory developments. For example, the Plan would require that the Chief Compliance Officer review the completeness of CAT Data periodically,
Specifically, Rule 613(b)(6)(ii) and (iii) require that the Plan include a provision requiring a report at least every two years that details potential improvements in the CAT, such as incorporating new technology to improve system performance. Such a report would also include the costs of any such improvements. The CAT NMS Plan delegates responsibility for the report to the Chief Compliance Officer.
Section 6.1(d)(iv) of the Plan, with respect to new functionality, requires the Plan Processor to “design and implement appropriate policies and procedures governing the determination to develop new functionality for the CAT including, among other requirements, a mechanism by which changes can be suggested by Advisory Committee members, Participants, or the SEC,” as well as providing for the escalation of reviews of proposed technological changes and upgrades to the Operating Committee, and for addressing the handling of surveillance.
With respect to upgrades to maintain existing functionality, the Plan Processor could evaluate and implement potential system changes and upgrades to maintain and improve the normal day-to-day operating function of the CAT System; material system changes and upgrades are to be performed by the Plan Processor in consultation with the Operating Committee.
Section 11 of Appendix D sets out the obligations of the Plan Processor with respect to the requirements discussed above (
Appendix C notes that the Plan Processor must ensure that the Central Repository's technical infrastructure is scalable (to increase capacity to handle increased reporting volumes); adaptable (to support future technology developments so that new requirements could be incorporated); and current (to ensure, through maintenance and upgrades, that technology is kept current, supported, and operational).
These provisions are designed to ensure that the Participants consider enhancing and expanding CAT Data shortly after initial implementation of the CAT NMS Plan and that the Participants consider improvements regularly continuing forward. The Commission preliminarily expects that, in addition to these provisions, the CCO review would further facilitate proactive expansion of CAT to account for a regulatory change or change in how the market operates, or should there be a need for regulators to have access to new order events or new information about particular order events. To the extent that the Participants determine that an expansion is necessary and it is approved by the Commission, the Plan's scalability provision promotes the efficiency of the implementation of that expansion such that it could be completed at lower cost and/or in a timely manner.
Taken together, these provisions could also provide a means for the Commission to ensure that improvements to CAT functionality are considered so as to preserve its existing benefits, or that expansion of CAT functionality is undertaken in order to create new benefits. These methods are not certain, but the Commission does retain the ability to modify the Plan, if such a step becomes necessary to ensure that future upgrades are undertaken as necessary.
The Commission notes that the Plan contains specific provisions designed to generally promote the accuracy of information contained in the Central Repository. The CCO is required, among other responsibilities, to perform reviews related to the accuracy of information submitted to the Central Repository and report to the Operating Committee with regard thereto,
The Operating Committee is responsible for adopting policies and procedures regarding the accuracy of CAT Data, which the Plan Processor shall be responsible to implement.
Under the Plan, the Plan Processor would also provide details to each CAT Reporter on the number of rejected records and the reasons for their rejection on a daily basis. And on a monthly basis, the Plan Processor would publish report cards that would allow CAT Reporters to compare their Error Rates with those of industry peers; this is similar to the process used by FINRA for OATS reporting. The Plan Processor would notify each CAT Reporter that exceeds the maximum Error Rate, and provide the specific reporting requirements that they did not fully meet. Participants and the SEC could request reports on Error Rates from the Plan Processor. The Plan Processor would also provide statistics on each CAT Reporter's Compliance Thresholds—the CAT Reporter's specific Error Rate, which could serve as the basis for a review or investigation into the CAT Reporter's performance by the Participants or the SEC for failure to comply with CAT reporting obligations—to the Participants or the SEC.
In addition to providing CAT Reporters data on their Error Rates, the Plan states that the Participants believe that in order to meet Error Rate targets, industry would require certain resources, including a stand-alone testing environment, and time to test their reporting systems and infrastructure. The Technical Specifications must also be well-written and effectively communicated to CAT Reporters with sufficient time to allow proper systems updates.
The Commission preliminarily believes that these provisions to document Error Rates and promote data accuracy are reasonably designed to improve the overall accuracy of CAT Data relative to the exclusion of such provisions; however, the Commission also preliminarily believes that certain procedures outlined in the Plan may not incentivize all firms to further improve the quality of the data they report. The Commission recognizes that providing feedback to individual CAT Reporters on their individual Error Rates and information that compares Error Rates to industry peers could motivate firms with high Error Rates to reduce those rates, to avoid accruing penalties and fines associated with being a high Error Rate CAT Reporter.
The Commission notes that the Plan includes provisions requiring the establishment of a symbology database that will also foster accuracy. The Plan requires the Central Repository to create and maintain a symbol history and mapping table, as well as provide a tool to regulators and CAT Reporters showing the security's complete symbol history, along with a start of day and end of day list of reportable securities for use by CAT Reporters, in .csv format, by 6:00 a.m. on each trading day.
Regarding the Plan's business clock synchronization requirements, the Plan also discusses the expectation that Participants and their Industry Members will each be required to maintain a five-year running log, or comparable procedure, documenting the time of each clock synchronization performed and the result of such synchronization. These practices would reveal the parameters of any discrepancies, between Business Clocks and NIST, that exceed 50 milliseconds.
In addition to the specific timeliness benefits discussed in the foregoing Sections, the Plan contains some provisions that promote performance of the Central Repository, and that therefore could indirectly improve the timeliness of regulator access to or use of the CAT Data. These are found in capacity requirements for the Plan Processor, disaster recovery requirements to ensure the availability of the system, and in supervision and reporting of timeliness issues.
Specifically, first, the Plan Processor must measure and monitor Latency within the Central Repository's systems, must establish acceptable levels of Latency with the approval of the Operating Committee, and must establish policies and procedures to ensure that data feed delays are communicated to CAT Reporters, the Commission, and Participants' regulatory Staff.
Second, the Plan Processor must develop disaster recovery and business continuity plans to support the continuation of CAT business operations.
Third, the Chief Compliance Officer of the Plan Processor must conduct regular monitoring of the CAT System for compliance, including with respect to the reporting and linkage requirements in Appendix D.
Finally, one caveat on the foregoing discussion is that system performance would in part be dependent on a series of SLAs to be negotiated between the Plan Participants and the eventual Plan Processor, including with respect to linkage and order event processing performance, query performance and response times, and system availability.
There are certain elements of the CAT NMS Plan's governance that, like the other factors discussed in this subsection, are uniquely applicable to a consolidated audit trail, and that the Commission therefore analyzed in comparison to a CAT NMS Plan without these features (or that implements those features in a different way). The Commission preliminarily believes that these provisions of the CAT NMS Plan increase the likelihood that the potential benefits of the CAT NMS Plan described above would be realized.
In adopting Rule 613, the Commission established certain requirements for the governance of the CAT NMS Plan, stating that those “requirements are important to the efficient operation and practical evolution of the [CAT], and are responsive to many commenters' concerns about governance structure, cost allocations, and the inclusion of SRO members as part of the planning process.”
The Plan's governance is described in greater detail in Section III.A.3. above, but generally consists of a Delaware LLC, which is to “create, implement, and maintain the CAT and the Central Repository,” and which is to be managed by the Operating Committee, consisting of one voting representative of each SRO Participant. The Operating Committee acts by majority or Supermajority Vote, depending on the issue. An Advisory Committee that includes a mix of broker-dealers, as required by Rule 613, is to “advise the [Operating Committee] on the implementation, operation and administration of the central repository.”
The Commission preliminarily believes that the governance provisions identified in the Adopting Release continue to be important to the efficient operation and practical evolution of the Plan, particularly given that there are a range of possible outcomes with respect to both the costs and benefits of the Plan that depend on future decisions. The way in which the identified governance provisions have been incorporated into the Plan, as discussed in greater detail below, could help facilitate better decision-making by the relevant parties. This, in turn, means that the Commission could have greater confidence that the benefits resulting from implementation of the Plan would be achieved in an efficient manner and that costs resulting from inefficiencies would be avoided.
The Commission notes that it can monitor whether the benefits of CAT are being achieved. For example, certain Operating Committee actions are subject to Commission approval.
Two factors identified by the Commission in the Adopting Release as “important to the efficient operation and practical evolution of the [CAT]” are voting within the Operating Committee and the role and composition of the Advisory Committee. Voting thresholds that result in Operating Committee decision-making that balances the ability of minority members to have alternative views considered with the need to move forward when appropriate to implement needed policies can promote achievement of the Plan's benefits in an efficient manner. Similarly, an Advisory Committee that is balanced in terms of membership size and composition, as well as in its ability to present views to the Operating Committee, can result in better performance of its informational role, and thus more efficient achievement of the benefits of the Plan.
In adopting Rule 613, the Commission found that one Commenter's concerns about unanimous voting in the context of the CAT NMS Plan “have merit.” Specifically, the Commission stated that “an alternate approach” to voting involving “the possibility of a governance requirement other than unanimity, or even super-majority approval, for all but the most important decisions” should be considered, as it “may be appropriate to avoid a situation where a significant majority of plan sponsors—or even all but one plan sponsor—supports an initiative but, due to a unanimous voting requirement, action cannot be undertaken.”
The Plan sets forth two voting thresholds for most matters to be decided by the Operating Committee.
The Plan generally eschews a unanimous voting threshold, except for the three clearly-defined circumstances noted above. Unanimity as a voting threshold may confer greater influence on holders of minority views, but it may also give a small faction the ability to extract private benefits inconsistent with Plan objectives by acting as holdouts.
The ability of a single member to prevent action with regard to the Plan could be particularly troublesome if that member were motivated by a conflict of interest.
Majority voting as a voting threshold strikes a different balance between the rights of members than does unanimous voting. Majority voting avoids the hold-out problem of unanimity, but can result in decisions that bear less concern for the interests of the minority members. Whether it does so or not may depend at least in part on voting dynamics on the Operating Committee. Under the Plan, each member has only one vote within the Operating Committee, and so an individual member—and represented Participant—could not unilaterally advance a position that benefits only the Participant under the Plan. That said, however, some individual members could exercise more influence than others over the outcome of the voting process. Participant SROs that are affiliated with one another could vote as a bloc by designating a single individual to represent them on the Committee.
The Plan's supermajority voting requirement for more important matters represents an intermediate ground between majority and unanimous voting, requiring more than a bare majority of members to agree to support a position, which therefore enhances the ability of members of the minority to seek to have their views reflected in the ultimate decision, while limiting the ability of minority members to act as holdouts. That said, the supermajority voting requirement may also have some disadvantages: To the extent that rules and practices already in place require correction, a supermajority voting requirement may make it more difficult to assemble the votes necessary to make needed changes. For example, supermajority voting could have the indirect effect of locking in the preferred business practices of the inaugural members of the Operating Committee. For decisions later in the Plan implementation, this lock-in effect of supermajority voting could make it more difficult for the Operating Committee to take non-routine actions, such as replacing the Plan Processor after the initial selection decision.
Rule 613(b)(7) requires that the Plan designate an Advisory Committee.
The Adopting Release states that the “provision requiring the creation of an Advisory Committee, composed at least in part by representatives of the plan sponsors,” was “[i]n response to the comment requesting that the broker-dealer industry receive a `seat at the table' regarding governance of the NMS plan.”
In implementing these provisions of Rule 613, the Plan requires the Advisory Committee to have diverse membership.
The Commission believes that the Plan's provisions regarding the Advisory Committee advance the goals of the Advisory Committee articulated in the Adopting Release: To allow the Operating Committee to receive the benefit of members' expertise with respect to “expected or unexpected operational or technical issues” and “help assure the Commission and market participants that any requirements imposed on SRO members will be accomplished in a manner that takes into account the burdens on SRO members.”
Given the primary purpose of the Advisory Committee as a forum to communicate important information to the Operating Committee, which the Operating Committee could then use to ensure its decisions are fully-informed, the Plan's choices in implementing Rule 613 do reflect some trade-offs. One factor in the ability of the Advisory Committee to collect relevant information for the Operating Committee is the quality and depth of the expertise, and the diversity of viewpoints, of the Advisory
Another factor in the ability of the Advisory Committee to advise the Operating Committee is whether the Advisory Committee, having assembled a diverse set of views, could effectively communicate those views to the Operating Committee. Two Plan provisions, relating to the staggering of member terms and the limits on participation of the Advisory Committee under Rule 613(b)(7)(ii), bear on this communication.
First, the Plan provides for Advisory Committee members to serve for staggered three-year terms in order to provide “improved continuity given the complexity of CAT processing.”
An additional factor that bears on the ability of the Advisory Committee to advise the Operating Committee is a feedback loop: Whether the Advisory Committee could receive sufficiently detailed information on the operations of the Plan so that the Advisory Committee members can, in turn, provide decision-useful information to the Operating Committee. Here, the Plan specifies that the Advisory Committee has the right to receive from the Operating Committee information necessary and appropriate to the fulfillment of its functions, but that the scope and content of the information is to be determined by the Operating Committee.
One other determinant bears on the effectiveness of the Advisory Committee in ensuring that the Operating Committee makes decisions in light of diverse information—whether the Operating Committee actually takes into account the facts and views of the Advisory Committee before making a decision. Although the Plan expressly provides for Advisory Committee input, it does not contain a mechanism—such as requiring the Operating Committee to respond to the Advisory Committee's views, formally or informally, in advance of or following a decision by the Operating Committee—to ensure that the Operating Committee considers the views of the Advisory Committee as a part of the Operating Committee's decision-making process.
The Commission preliminarily believes that the governance provisions discussed above, which the Commission identified as being “important to the efficient operation and practical evolution of the [CAT], and . . . responsive to many commenters' concerns about governance structure, cost allocations, and the inclusion of SRO members as part of the planning process,” could help promote better decision-making by the relevant parties. These provisions thus could mitigate concerns about potential uncertainty in the economic effects of the Plan by giving the Commission greater confidence that its expected benefits would be achieved in an efficient manner and that costs resulting from inefficiencies would be avoided.
The Commission requests comment on all aspects of the discussion of the potential benefits of the CAT NMS Plan. In particular, the Commission seeks responses to the following questions:
257. Do Commenters agree with the Commission's assessment of the potential benefits of the CAT NMS Plan? Why or why not?
258. To what extent do the uncertainties related to future decisions about Plan implementation impact the
259. Do Commenters agree that the inclusion of the data fields in one centralized data source in the CAT NMS Plan described above would result in more complete data than what is currently available to regulators? Which elements of the Plan would deliver improvements to completeness? Are there any elements of the Plan that would degrade the completeness of regulatory data? Please explain.
260. The Commission reviewed gap analyses that examine whether the CAT Data would contain all important data elements in current data sources
261. The Commission also seeks comment on the significance of the gaps identified in the analyses. If there are particular fields that are identified in the gap analyses that should not be incorporated into CAT, please identify them and explain.
262. The Commission expects that, pursuant to the requirements of the Plan,
263. Do Commenters agree that the CAT NMS Plan would improve the accuracy of the data available to regulators? Which elements of the Plan would deliver these improvements? Are there any elements of the Plan that would degrade the accuracy of regulatory data relative to today? Are there any elements of the Plan that would prevent or limit improvements in the accuracy of regulatory data? Are the provisions of the Plan related to accuracy appropriate and reasonable in light of the goal of improving data quality? Please explain.
264. Do Commenters believe that procedural protections in the Plan, such as the requirement that the Technical Specifications be “consistent with [considerations and minimum standards discussed in] Appendices C and D,” the requirement to provide the initial Technical Specifications and any Material Amendments thereto to the Operating Committee for approval by Supermajority Vote,
265. Do Commenters believe that the Error Rate, validations, and error resolution processes described in the CAT NMS Plan would provide improvements in accuracy? Are these processes appropriate and reasonable in light of the goal of improving data quality? Please explain.
266. The Plan specifies an error correction process after initial reports are received and indicates that practically all errors identifiable by the validations used in the error correction process would be corrected by 8:00 a.m. Eastern Time on day T+5, stating that errors are expected to be “de minimis” after the error correction period.
267. Do Commenters believe that the provisions in the CAT NMS Plan related to event sequencing would provide improvements in accuracy? To what degree does the 50 millisecond clock synchronization requirement enable or prevent regulators' ability to sequence events that occur in different Execution Venues? Are the provisions of the Plan related to event sequencing appropriate and reasonable in light of the goal of improving data quality? Please explain.
268. The Plan does not specify the approach that would be used to sequence events when time stamps are identical. Do Commenters believe that there is a way for the Plan Processor to sequence events with identical time stamps? How would this process, or the lack of a process, affect the quality of the CAT Data?
269. The Plan states that “the Participants plan to require that the Plan Processor develop a way to accurately track the sequence of order events [of a particular order] without relying entirely on time stamps.”
270. The Plan further states, “For unrelated events,
271. Do Commenters agree with the Commission's data analysis of the clock synchronization improvements from the Plan? If not, how could the Commission improve the data analysis? Do Commenters have their own data analysis that informs on the expected improvements from the Plan? If so, please provide. Do Commenters agree that the improvements to the percentage of sequenceable order events by Plan standards are modest and the requirements of the Plan may not be sufficient to completely sequence the majority of market events relative to all other events?
272. Do Commenters agree with the Plan's assessment of the industry standard for clock synchronization? Does this reflect the standards for all CAT Reporters, including exchanges, ATSs, and other broker-dealers? If not, what would be a more appropriate way to define the industry standard for clock synchronization?
273. Do Commenters believe that the provisions in the CAT NMS Plan related to linking data would result in improvements to the accuracy of the data available to regulators? Would the process for linking orders across market participants and SROs improve accuracy compared to existing data? Would the Plan Processor be able to
274. Would the Error Rates associated with the linking process represent improvements to data accuracy? Would Approach 1 to data conversion result in a lower Error Rate than Approach 2? Would the Approach affect the Plan Processor's ability to build a complete and accurate database of linked data? Are the Error Rates associated with the linking process appropriate and reasonable in light of the goal of improving data quality? Please explain.
275. Do Commenters believe that the inclusion of unique Customer and Reporter Identifiers would increase the accuracy of information in data regulators use and provide benefits to a broad range of regulatory activities that involve audit trail data? Please explain.
276. Do Commenters agree that the CAT Data would provide less aggregated allocation information and less aggregated issuer repurchase information? Why or why not? Would these changes significantly affect regulatory activities?
277. Do Commenters agree that the CAT NMS Plan would improve the accessibility of the data available to regulators? Which elements of the Plan would deliver these improvements? Are there any elements of the Plan that would degrade the accessibility of regulatory data relative to today? Are there any elements of the Plan that would prevent or limit improvements in the accessibility of regulatory data?
278. Do Commenters believe that the minimum requirements for direct access ensure that the Plan would improve access to current data, including the process of requesting data? Would the direct access facilitated by the Plan provide sufficient capacity and functionality? Would direct access reduce the number of ad hoc data requests?
279. Do Commenters agree that the CAT NMS Plan would improve the timeliness of the data available to regulators? Which elements of the Plan would deliver these improvements? Are there any elements of the Plan that would degrade the timeliness of regulatory data relative to today? Are there any elements of the Plan that would prevent or limit improvements in the timeliness of regulatory data?
280. Do Commenters believe that the CAT NMS Plan will facilitate the ability of each national securities exchange and national securities association to comply with the requirement in Rule 613(f) that they develop and implement a surveillance system, or enhance existing surveillance systems, reasonably designed to make use of the consolidated information contained in the consolidated audit trail? If not, why not?
281. Do Commenters agree that the CAT NMS Plan will facilitate the ability of regulators to conduct risk-based examinations? Why or why not? How significantly would the Plan improve risk-based examinations? Please explain.
282. Do Commenters agree that the CAT NMS Plan will improve the efficiency of regulators' enforcement activities? Why or why not? Which specific regulatory activities would be most improved by the CAT NMS Plan? Please explain.
283. Do Commenters agree that the CAT NMS Plan will improve the ability for regulators to determine the credibility of tips and complaints? Please explain.
284. Overall, do Commenters agree that the surveillance, examination, and enforcement activities of regulators would improve with the CAT NMS Plan? Please explain. Would these improvements be significant enough to deter violative behavior? Please explain. What would be the economic effect of this deterrence?
285. Would such improvements reduce the percentage of activities that generate false positives (
286. Do Commenters agree with the Commission's assessment of the economic effects of the improvements to surveillance, examinations, and enforcement from the CAT NMS Plan? Please explain.
287. Do Commenters agree that the CAT NMS Plan would improve the efficiency and effectiveness of regulators conducting analysis and reconstruction of market events? Please explain. Do Commenters agree with the Commission's assessment of the benefits to investors and the market of more efficient and effective analysis and reconstruction of market events? Please explain.
288. Do Commenters agree that the CAT NMS Plan would facilitate market analysis and research that would improve regulators' understanding of securities markets? Please explain. Do Commenters agree with the Commission's assessment of the benefits to investors and the markets from regulators having a better understanding of the markets? Please explain.
289. Do Commenters believe that there are other features of the CAT NMS Plan uniquely applicable to a consolidated audit trail that increase the likelihood that the potential benefits of the CAT NMS Plan would be realized? Please identify these features and explain.
290. Do Commenters agree that provisions of the Plan related to future upgrades, promoting accuracy, and promoting timeliness increase the likelihood that the potential benefits of the CAT NMS Plan would be realized? Do current regulatory data sources have provisions similar to ones the Commission analyzed? If so, please describe such provisions.
291. Do Commenters believe that provisions of the Plan provide incentives to reduce reporting errors for a CAT Reporter that has an Error Rate that does not exceed the thresholds that would trigger fines under the Plan or possible enforcement actions by regulators? If so, what are the incentives? Could the Plan provide different incentives to reduce reporting errors? Please explain.
292. Under the Plan, proposals to adjust the maximum allowable Error Rate are to originate from the Plan Processor. Do Commenters agree with this approach? Please explain. Should others, such as the Operating Committee, or Advisory Committee be able to originate changes to the Error Rate? Please explain.
293. Do Commenters agree that communication of data feed delays for public consumption is beneficial to the operation and effectiveness of the CAT? If so, in what ways? What are the benefits and costs of such public disclosure?
294. Do Commenters agree that the governance provisions identified in the Rule 613 Adopting Release continue to be important to the efficient operation and practical evolution of the Plan, and therefore to the achievement of the Plan's benefits? Are there other aspects of the Plan's governance that might enhance (or detract from) the Plan's ability to achieve its intended benefits? Are there other governance aspects that the Plan does not address that might enhance, if included (or detract from, if not remedied) the Plan's ability to achieve its intended benefits? Please identify these other features and explain how they enhance (or detract from) the Plan's ability to achieve its intended benefits.
295. The Commission's analysis of the provisions of the Plan relating to voting assumes that these provisions will
296. The Plan provides that “[a]ll votes by the Selection Committee shall be confidential and non-public.”
297. Do Commenters believe that the size, membership, and tenure of Advisory Committee members is appropriately tailored to encourage the effective accumulation and communication of Advisory Committee member views to the Operating Committee, thereby improving Plan decision-making? If not, why not? Are there other factors that could bear on whether the provisions of the Plan relating to the Advisory Committee will promote better decision-making? If so, what other factors?
298. Are there any alternatives for Advisory Committee involvement that could increase the effectiveness of its involvement? What benefits would these achieve in terms of improving the Operating Committee's efficiency? Would these alternatives increase or decrease costs?
299. What obstacles to information-sharing between individual members of the Operating Committee and the Commission, if any, are likely to limit the Plan's effectiveness in meeting its regulatory objectives? Is there any information, such as regarding individual SRO clock synchronization standards, that members would need to share within the Operating Committee to achieve plan regulatory objectives but may be uncomfortable sharing with one another (or more comfortable sharing with the Commission than with one another)? Please be specific and explain what, if any, changes to the plan could mitigate obstacles from inadequate information-sharing.
300. Are there any other factors relating to the operation and administration of the Plan that the Commission should consider as part of determining whether to approve the Plan? If so, what are those factors and how could they influence the costs and benefits of the Plan? Does the Plan currently address these factors? If not, how could the Plan address these factors and what would be the relative costs and benefits of any changes to the Plan?
As noted above, at the time of the Adopting Release the Commission deferred its economic analysis of the creation, implementation, and maintenance of CAT until after submission of the CAT NMS Plan.
As discussed in detail below, the Commission has preliminarily estimated current costs related to regulatory data reporting, anticipated costs associated with building and maintaining the Central Repository, and the anticipated costs to report CAT Data to the Central Repository. These preliminary estimates are calculated from information provided in the CAT NMS Plan as well as supplemental information. Currently, the 20 Participants spend $154.1 million annually on reporting regulatory data and performing surveillance.
As explained in detail below, the Commission believes, however, that there is significant uncertainty surrounding the actual implementation costs of CAT and the actual ongoing broker-dealer data reporting costs if the Plan were approved. Methodology and data limitations used to develop these preliminary cost estimates could result in imprecise estimates that may significantly differ from actual costs. The Commission has used its best judgment, however, in obtaining and assessing available information and data to provide the analysis and estimates included in this Notice. The Commission is also requesting comment on the methodology and any additional data Commenters believe should be considered.
Furthermore, the Commission notes that because some CAT design decisions (such as setting forth detailed Technical Specifications) have been deferred until the selection of the Plan Processor, the associated cost uncertainties could cause the actual costs to vary significantly from the estimates set forth in this analysis.
The Commission notes that the cost estimates set forth in this analysis are updated from the cost estimates provided in the Proposing Release. In the Proposing Release, the Commission estimated $4.3 billion in initial implementation costs and $2.3 billion in ongoing annual costs.
The Plan provides estimates of the expected costs associated with the Plan, including costs to build and operate the Central Repository and costs to Participants and CAT Reporters to implement and maintain CAT reporting.
In this Section, the Commission provides preliminary estimates of the individual elements that constitute the estimated expected total cost associated with implementing and maintaining the CAT, including the costs of operating and building the Central Repository, the costs to Participants, the costs to broker-dealers, and other costs considered in the CAT NMS Plan.
The Plan's estimates of the costs to build the Central Repository are based on Bids that vary in a range as high as $92 million. The Plan's estimates of annual operating costs are based on Bids that vary in a range up to $135 million. The eventual magnitude of Central Repository costs is dependent on the Participants' selection of the Plan Processor, and may ultimately differ from estimates discussed in the Plan if Bids are revised as the bidding process progresses. The Plan discusses these costs both as (i) one-time and ongoing costs as well as (ii) a five-year total cost, to help evaluate economic trade-offs between initial build costs and operating costs. The Plan anticipates that Participants and their members would bear the costs of building and operating the Central Repository. The Commission preliminarily believes that these estimates are reliable because they are the result of a competitive bidding process, although the Commission recognizes that the Bids are not legally binding on bidders. In particular, the Commission preliminarily believes that a Bidder would not likely decline a
To estimate the one-time total cost to build the Central Repository, the Plan uses the Bids of the final six Shortlisted Bidders.
The Plan also provides information based on the Bids on the total five-year operating costs for the Central Repository because the annual costs to operate and maintain the Central Repository are not independent of the build cost. In particular, it is plausible that the Bidders with the lowest build costs trade off lower build costs for higher recurring annual costs. To account for this possibility, the Plan presents the range of total five-year costs across Bidders using the Bids of the final six Shortlisted Bidders.
The Plan provides that costs associated with building and operating the Central Repository would be borne by both Participants and their members.
The Commission believes that a range of factors would drive the ultimate costs associated with building and operating the Central Repository and who would bear those costs. The Plan explains that the major cost drivers identified by Bidders are (1) transactional volume, (2) technical environments, (3) likely future growth in transactional volumes, (4) data archival requirements, and (5) user support/help desk resource requirements.
The Commission is mindful that the cost estimates associated with building and operating the Central Repository are subject to a number of additional uncertainties. First, the Participants have not yet selected a Plan Processor, and the Shortlisted Bidders have submitted a wide range of cost estimates for building and operating the Central
The Commission preliminarily believes that the Plan's estimates for Participants to report CAT Data are reliable because all of the SROs provided cost estimates, and most SROs have experience collecting audit trail data as well as expertise in the both the requirements of CAT as well as their current business practices. The Plan provides estimated costs for the Participants to report CAT Data.
The Plan estimates costs for the Participants as an aggregate across all Participants (the six single-license Participants and the five Affiliated Participant Groups).
The Plan also provides estimates of the costs Participants currently face in reporting regulatory data.
In addition to data reporting costs, Participants face costs associated with developing and implementing a surveillance system reasonably designed to make use of the information contained in CAT Data as required by Rule 613(f).
The Commission preliminarily believes the data reporting cost estimates are reasonable because the Commission expects that Participants would be required to implement new technology infrastructure to report data to the Central Repository and support specialized personnel to maintain this infrastructure and respond to inquiries from the Plan Processor and users of CAT Data. The Commission likewise preliminarily believes that the surveillance cost estimates are reasonable, even though the annual estimate of $87.7 million is lower than the $147.2 million Participants, in aggregate, currently spend on surveillance programs annually
Table 6 summarizes the Participants' estimated costs, both current and CAT-related, that are set forth in the Plan. Currently, Participants spend approximately $154 million per year on data reporting and surveillance activities. The Participants estimate that they would incur $41 million in CAT implementation costs, and $102 million annually in ongoing costs to report CAT Data and perform surveillance as mandated under Rule 613.
The Plan estimates total costs for those broker-dealers expected to report to CAT. In particular, the Plan relies on the Costs to CAT Reporters Study (“Reporters Study”), which gathered from broker-dealers the same categories of cost estimates used in the Participants Study—
Based on the Reporters Study survey data, the Plan estimates implementation costs of less than $740 million for small firms
The Commission preliminarily believes, however, that the cost estimates for small broker-dealers provided in the Plan, which are based upon responses set forth in the Reporters Study, do not prove reliable estimates of smaller CAT Reporter costs for a number of reasons. First, some respondents classified as small in the Reporters Study appear to have responded numerically with incorrect units, with such responses resulting in annual estimated cost figures that would be 1,000 times too large. Second, maximum responses in certain categories of costs suggest that some large broker-dealers may have misclassified themselves as small broker-dealers.
First, the Commission preliminarily believes that the respondents to the Reporters Study survey are likely to have used different units in their responses and that the survey precision is materially affected because
Because of errant responses of this type, the Plan recommends using medians instead of averages;
In addition, the Commission preliminarily believes that the small firm cost survey information in the Reporters Study is unlikely to be representative of the small broker-dealers that would have CAT reporting responsibilities in part because the Commission also believes preliminarily that some survey respondents misclassified their firm's size, which renders the Plan's separate presentation of results for large and small broker-dealers imprecise. In particular, the Commission believes that at least one large firm misclassified itself as a small firm. The CAT NMS Plan Table 6 reveals that one firm designated as a small firm responded to the Reporters Study survey with it having 68 full-time employees dedicated to performing regulatory data reporting activities for a yearly cost of $27,300,000.
Moreover, the Commission preliminarily believes that the methodologies implemented to remove outliers in the Reporters Study introduce cost estimate biases.
Finally, the Commission believes that the Reporters Study response rate is not adequate to be representative of the population of broker-dealers that would report to CAT. The survey was delivered to 4,025 broker-dealers. After removing erroneous and materially incomplete responses, only 167 responses remained of the 4,025 broker-dealers who were sent the survey. To be representative of the broker-dealers that would report to CAT, a final response rate of 4.15% seems low considering the diversity of these broker-dealers. The majority of broker-dealers are small and smaller broker-dealers are diverse along many dimensions relevant to the likely magnitude of their expected CAT costs, including business practices; tendency to centralize technology; specialization in market segments, such as options versus equities; and the range of products and markets in which individual broker-dealers participate. Because broker-dealer diversity is great, a survey of expected broker-dealer costs would ideally have a higher response rate to ensure a representative sample. Furthermore, of the 167 responses incorporated into the Plan's cost estimates, 118 respondent firms were classified as small in the Reporters Study, and 88 of these 118 small firms were identified as having no current OATS reporting responsibilities.
Although the Commission has preliminarily concluded that the small broker-dealer cost estimates presented in the Plan are unreliable, the Commission also preliminarily believes that the cost estimates in the Plan for large broker-dealers may be reliable. The Commission preliminarily believes that problems with the Reporters Study data are less likely to affect the Plan's large broker-dealer cost estimates for several reasons. First, if a large broker-dealer were to respond to the Reporter Study survey with the incorrect level of units (resulting in estimates that were 1,000 times too large as was the case for some small broker-dealer responses), then these errant cost survey responses would result in estimates that likely would be denominated in billions of dollars. The maximums presented in the Plan's tables describing the Reporters Study data do not include responses denominated in billions; notably, under the Plan's cost estimate methodology, if such responses were generated, these responses likely would have been removed as outliers. Second, although it is possible that small broker-dealers misclassified themselves as large broker-dealers in the Reporters Study data, such misclassification does not seem to have biased the cost estimate results for large broker-dealers to the degree that the Commission preliminarily believes has occurred for the small broker-dealer Reporters Study data. Cost estimates for large broker-dealers, particularly those that do not have current OATS reporting obligations, are not inconsistent with information gathered by the Commission in discussions with broker dealers and service providers,
The Plan presents cost estimates for large broker-dealers' current regulatory data reporting costs and costs they would incur to implement and maintain CAT Data reporting. The Plan estimates that an OATS-reporting large broker-dealer has current data reporting costs of $8.7 million per year.
The Commission's broker-dealer cost estimates incorporate some broker-dealer data from the Plan, but to address issues in the Plan's Reporters Study data, the Commission's cost estimates also include other data sources.
The Commission preliminarily believes classifying broker-dealers based on their manner of reporting provides a more accurate estimate of the costs firms will incur because, as noted below, costs differ based on whether the firm insources or outsources reporting responsibilities and insourcing/outsourcing does not necessarily correlate with firm size. Accordingly, the Commission begins its estimation of costs using the number of OATS Reportable Order Events (“ROEs”) reported by firms that report to OATS. The Commission preliminarily believes that because OATS reportable events, such as order originations, routes, and executions are also CAT Reportable Events, these two measures are likely to be highly correlated, making the number of OATS records a proxy for the anticipated level of CAT reporting.
The Plan also separates industry costs of current OATS reporting firms from those that currently have no OATS reporting obligations, recognizing that the group of non-OATS reporting firms are diverse in size and scope of activities. The Commission maintains this approach in its re-estimation, as firms that do not currently report to OATS would face a different range of costs to implement and maintain CAT reporting because firms that currently do not report to OATS may have little to no regulatory data infrastructure in place. Broker-dealers that do not currently report to OATS may have higher or lower costs than firms that do report to OATS, depending on whether they do not report because of SRO membership status or lack of equity market activity or because of size and scope of activity within equity markets. For example, an electronic liquidity provider (“ELP”) may trade extensively both on and off-exchange, yet not report to OATS because it is not a FINRA member; such a firm could incur high data reporting costs under CAT because it has a high volume of records to report. Conversely, a small equity trading firm might be excluded or exempted from OATS reporting due to its size and scope of activities; such a firm could have relatively low CAT reporting costs, although still higher than its existing regulatory reporting costs, because it has few Reportable Events and is assumed to outsource its reporting responsibilities. Recognizing this diversity in non-OATS firms, the Commission's re-estimation anticipates a large range of firm activity levels in non-OATS CAT reporters and treats them differently when estimating their costs.
In sum, the framework for the Commission's re-estimation is as follows. First, the Commission identifies those OATS-reporting firms that insource (“Insourcers”) and those that outsource based on an analysis of the number of OATS reporting ROEs combined with specific data provided by FINRA on how firms report. Furthermore, the Commission identifies firms that do not currently report to OATS but are likely to insource based on their expected activity level by identifying Options Market Makers and ELPs. Based on that analysis, the Commission preliminarily estimates that there are 126 OATS-reporting Insourcers and 45 non-OATS reporting Insourcers; these estimates are discussed further below. The Commission's re-estimation classifies the remaining 1,629 broker-dealers that the Plan anticipates would have CAT Data reporting obligations as “Outsourcers,” based on outsourcing practices observed in data obtained from FINRA and discussed further below. The Commission preliminarily believes that most of these firms would accomplish their CAT Data reporting through a service bureau. Next, to determine costs for Insourcers, the Commission relies upon cost estimates for firms classified as “large” in the Reporters Study. For Outsourcers, the Commission uses a model of ongoing outsourcing costs (“Outsourcing Cost Model”) to estimate both current regulatory data reporting costs and CAT-related data reporting costs Outsourcers would incur if the CAT NMS Plan were approved.
Although the Commission's analysis segregates broker-dealers into two groups (Insourcers and Outsourcers), within those groups, broker-dealer data reporting methods currently vary widely across firms, and these varied methods affect the data reporting costs that broker-dealers incur. As discussed previously, depending on the business in which broker-dealers participate, broker-dealers can have a wide range of reporting responsibilities.
There are two primary methods by which broker-dealers accomplish data reporting: Insourcing, where the firm reports data to regulators directly; and outsourcing, where a third-party service provider performs the data reporting, usually as part of a service agreement that includes other services. Firms that outsource retain responsibility for complying with rules related to outsourced activity. Based on data from FINRA and conversations with market participants, the Commission preliminarily believes that the vast majority of broker-dealers outsource most of their regulatory data reporting
Often, service bureaus bundle regulatory data reporting services with an order-handling system service that provides broker-dealers with market access and order routing capabilities. Sometimes regulatory data reporting services are bundled with trade clearing services. A broker-dealer's decision to insource/outsource these functions and services can be complex, and different broker-dealers reach different solutions based on their business characteristics. To illustrate, some broker-dealers self-clear trades but outsource regulatory data reporting functions; some broker-dealers have proprietary order handling systems, self-clear trades, and outsource regulatory data reporting functions. Other broker-dealers outsource order-handling, outsource clearing trades, and self-report regulatory data. The most common insource/outsource service configuration, however, for all but the most active-in-the-market broker-dealers is to use one or more service bureaus to handle all of these functions.
In most, but not all, cases, service bureaus host their client broker-dealer's order-handling system on the service bureau's servers while the broker-dealer has software serving as a “front end” for this system running on the broker-dealers' local IT infrastructure. For broker-dealers whose order-handling systems are thus hosted on their service bureau's servers, their service bureaus would handle many elements of CAT implementation, including clock synchronization. These broker-dealers would still incur some CAT implementation costs because some CAT Data, such as Customer information (including PII), is likely to reside outside of the broker-dealer's order handling system; consequently, such broker-dealers would need to develop technical and regulatory infrastructure to provide such CAT Data to its service bureaus. Further, broker-dealers that outsource could still need to adapt their in-house software systems to address order-management system changes. In addition to the resources needed to reprogram the system, any order-handling system change is likely to require significant staff training. Furthermore, broker-dealers that outsource would need to update their internal monitoring of their service bureau's reporting to ensure it meets the requirements of the Plan.
In discussions arranged by FIF, broker-dealers cited a number of factors that influence a broker-dealer's decision on whether to handle regulatory data reporting in-house. Generally, smaller broker-dealers (with relatively few registered persons and limited capital) do not have the business volume required to support the IT infrastructure and specialized staff that is necessary to perform in-house regulatory data reporting; these broker-dealers may have no business choice but to rely upon third-party service providers to provide order handling and market connectivity, as well as clearing services.
On the other hand, some broker-dealers choose to insource their regulatory data reporting functions. In discussions arranged by FIF, broker-dealers cited a number of reasons supporting their decision to self-report. First, some broker-dealers cited ancillary benefits to constructing the IT infrastructure necessary to accomplish their regulatory data reporting. Data collected in a central location for regulatory data reporting and the software necessary to manipulate the regulatory data facilitates self-monitoring and business reporting, providing other benefits to the firm. Second, some broker-dealers cited protecting their proprietary strategies as a motivator to self-report regulatory data. These broker-dealers felt that sharing their trading data with a service bureau was potentially too revealing of their proprietary trading strategies. Third, some broker-dealers cited operational complexity as a driver of their insourcing decision. For these very large broker-dealers that traded in a wide range of assets, outsourcing would involve multiple service provider contracts. At least one broker-dealer stated that it did not believe service bureaus could meet all of its requirements due to its complexity. Finally, while some broker-dealers preferred to outsource to reduce the costs of demonstrating compliance, others stated that outsourcing would increase compliance costs because they could not conduct their own compliance checks to ensure the reports comply with relevant regulations.
Current costs of outsourcing regulatory data reporting vary widely across broker-dealers. Whether data reporting is provided on behalf of a broker-dealer by the provider of an order-management system or another third-party firm, a broker-dealer generally enters into long-term agreements with its service provider to obtain a bundle of services that includes regulatory data reporting, and costs to change service bureaus are high. Furthermore, based on discussions with service providers, the Commission understands that switching service bureaus can be costly and involve complex onboarding processes and requirements, and that systems between service bureaus may be disparate; furthermore, changing service bureaus may require different or updated client documentation.
For broker-dealers that perform regulatory data reporting in-house, implementation costs are likely to vary widely. Some very large broker-dealers that self-report regulatory data have a centralized IT infrastructure and trade in relatively few asset classes. Some of these broker-dealers carry no customer accounts, simplifying their regulatory data reporting obligations. The Commission preliminarily believes that such broker-dealers could incur relatively low CAT implementation costs because they have a centralized IT infrastructure that captures all broker-dealer activity and specialized personnel who are dedicated to broker-dealer-wide data reporting. At the other end of the spectrum, large broker-dealers may be very complex, facilitating complex multi-leg transactions and operating within a non-centralized structure. These broker-dealers would be likely to experience CAT implementation costs far higher than broker-dealers with less complex structures for several reasons. First, some of these broker-dealers do not have a centralized IT infrastructure; instead, orders could originate from many locations in the broker-dealer and may be handled by diverse legacy systems, each of which the broker-dealer would need to adapt for CAT Data reporting.
To separately examine the costs to broker-dealers that outsource and to aggregate those costs across all broker-dealers, Commission Staff first established a count of CAT Reporters likely to outsource their regulatory data reporting functions. For this, the Commission analyzed data provided by FINRA.
The FINRA data allows the Commission to examine how broker-dealers' current outsourcing activities vary with the number of ROEs reported to OATS. Figure 1 shows the percentage of OATS ROEs that are self-reported for five size categories of broker-dealers with the following OATS reporting activity levels for a four-week period from June 15-July 10, 2015: More than 1 billion records; 1 million to 1 billion records; 350,000 to 1 million records; 100,000 to 350,000 records; and 100,000 records or fewer.
Based on this analysis of FINRA data, the Commission preliminarily believes that the 126 broker-dealers that reported more than 350,000 OATS ROEs between June 15 and July 10, 2015 make the insourcing-outsourcing decision strategically based on the broker-dealer's characteristics and preferences, while the remaining OATS reporters are likely to utilize a service bureau to accomplish their regulatory data reporting.
As seen in Figure 1, broker-dealers in the highest OATS-reporting category insourced reporting for more than 60% of the OATS ROEs reported. More specifically, the FINRA data shows that 16 broker-dealers reported more than a billion OATS ROEs each between June 15 and July 10, 2015; most of these broker-dealers (11) self-reported nearly all of their regulatory data, but 3 used service bureaus for 100% of their OATS reporting.
Figure 1 also shows that broker-dealers that report between 1 million and 1 billion OATS ROEs during the four-week period insourced reporting for more than 70% of the OATS ROEs they reported in aggregate. Thirty-six of these 89 broker-dealers used service bureaus to report at least 90% of their OATS data while 42 of these 89 broker-dealers self-reported over 99% of their regulatory data.
For the 21 broker-dealers that reported more than 350,000 but fewer than 1 million OATS ROEs during the sample period, Figure 1 shows that they insource approximately 27% of their aggregate OATS ROEs reporting. Thirteen of these broker-dealers use service bureaus for more than 99% of their OATS reporting while 7 of these 21 broker-dealers self-reported more than 98% of their OATS data.
For the 806 broker-dealers that reported fewer than 350,000 OATS ROEs during the sample period, approximately 88.9% of those OATS ROEs were reported through service bureaus, with 730 broker-dealers reporting more than 99% of their OATS ROEs through one or more service bureaus.
The Commission has estimated ongoing costs for outsourcing firms using a model based on data gleaned from discussions with service bureaus and broker-dealers and implementation costs using information learned in conversations with industry.
Based on discussions with market participants, the Commission assumes that the cost function for outsourcing is concave.
The Commission relies on a schedule of average charges to access liquidity and rebates to provide liquidity from four non-inverted exchanges to estimate the concavity of the exchange pricing function, which the Commission uses to approximate the concavity of the outsourcing cost model.
The Commission obtained public fee schedule data from Web sites for NASDAQ, PSX, NYSE, and ARCA during October, 2015. For NASDAQ, the differential between access fees and liquidity rebates was calculated using the universal “take fee,” and rebates were for shares trading at greater than $1.00 per share (
The Commission's estimation of the outsourcing cost model begins with construction of a tiered function based on the exchange pricing function; the incorporation of the exchange pricing function is the source of the concavity in the model.
The final step in estimating the Outsourcing Cost Model is to smooth the tiered function by fitting it to a polynomial. As discussed previously, tiered functions are not continuous; the behavior of the function can change dramatically at a discontinuity, such as happens when moving from one activity level category to another. In the earlier illustrative example, a vendor offered pricing that would be characterized by a tiered function, in which the firm charges $1 per unit for orders of 100 units or less, or $.80 per unit for orders up to 400 units. In this example, a purchase of 100 units is more expensive than a purchase of 120 units.
The model's output in Figure 3 is an estimate of a broker-dealer's current cost to outsource data reporting services as part of a bundle of services from a service bureau; for smaller broker-dealers, it is assumed to include provision of an order management system and market connectivity.
To estimate costs of CAT Data reporting by the service bureaus, the Commission preliminarily assumes that the current pricing function would apply for CAT Data reporting, but the costs in relation to the number of ROEs would increase because some events that are excluded from OATS (like proprietary orders originated by a trading desk in the ordinary course of a member's market making activities), would be included in CAT.
The Commission preliminarily believes this activity is unlikely to result in a service bureau pricing structure that significantly differs from the Commission's current outsourcing cost model. The Commission recognizes, however, that these new data sources create implementation costs for both broker-dealers and service bureaus, and preliminarily believes that these costs are reflected in cost estimates provided by service bureaus because service providers that responded to the Service Providers Study were presumably familiar with the requirements of CAT when they estimated the costs they could likely incur if the CAT NMS Plan is approved. The number of ROEs broker-dealers would report would likely increase because, for example, proprietary orders originated by a trading desk in the ordinary course of a member's market-making activities, currently excluded from OATS, would be included in a broker-dealer's audit trail data under the Plan.
In addition, the Commission recognizes that larger and more complex broker-dealers are likely to have significant regulatory reporting responsibilities related to their options activities, but the Commission preliminarily believes that these broker-dealers are likely to be included in the broker-dealers reporting more than 350,000 OATS ROEs per month. The Commission estimates these broker-dealers' costs using information from the Reporters Study in the Plan as opposed to the Outsourcing Cost Model, and those cost estimates presumably include costs related to options activity.
Application of the model to data provided by FINRA allows the Commission to estimate current outsourcing costs for broker-dealers, as well as projected costs under the CAT NMS Plan.
Firms that outsource their regulatory data reporting still incur internal staffing costs associated with this activity. These employees perform activities directly related to regulatory data reporting such as answering inquiries from their service bureaus, investigating reporting exceptions, maintaining any systems that transmit data to their service providers, and overseeing their service bureaus' data reporting to ensure compliance.
In addition to broker-dealers that currently report to OATS, the Commission estimates there are 799 broker-dealers that are currently excluded from OATS reporting rules due to firm size, or exempt because all of their order flow is routed to a single OATS reporter, such as a clearing broker, that would have CAT reporting responsibilities.
The Commission recognizes that some broker-dealers that are categorized in its estimation as Outsourcers in fact currently self-report their regulatory data; there are 36 firms that the Commission categorized as Outsourcers that self-report more than 95% of their OATS ROEs. Some of these broker-dealers could find that the costs associated with adapting their systems to the CAT NMS Plan reporting would render self-reporting (insourcing) CAT Data reporting infeasible or undesirable; others could continue to self-report regulatory data. The Commission preliminarily believes that the estimated cost of outsourcing for these broker-dealers is reliable, but recognizes that some of these broker-dealers could choose to self-report for other reasons at costs that could exceed these estimates. If some of these broker-dealers choose to outsource under CAT, these broker-dealers would likely incur additional costs associated with establishing or re-negotiating service bureau relationships.
The Commission's methodology to estimate costs to broker-dealers of implementing and maintaining CAT reporting varies by the type of broker-dealer. As discussed previously,
The Commission, however, preliminarily believes that there are three other categories of broker-dealers not reflected in the above detailed cost estimates that do not currently report OATS data but could be CAT Reporters. First, there are at least 14 ELPs that do not carry customer accounts; these firms are not FINRA members and thus have no regular OATS reporting obligations.
Most if not all ELPs have SRO memberships that require them to report OATS data upon request. Consequently, these firms are likely to have infrastructure in place that would reduce their implementation costs for CAT. The Commission preliminarily believes that this is reflected in the lower CAT implementation costs that the Plan estimates for large firms that do not currently report OATS; these estimates form the basis of the Commission's estimates of costs that ELPs would face if CAT were approved.
The estimated costs in the Reporters Study for non-OATS reporting firms are lower than the Reporters Study's estimated costs for large OATS-reporting firms; in reviewing the Reporters Study data, the Commission considered the possibility that firms that do not currently report OATS may systematically underestimate the costs they would incur to initiate and maintain the type of comprehensive regulatory data reporting that OATS entails or the CAT NMS Plan would entail. After discussions with multiple broker-dealers, the Commission, however, preliminarily believes that large non-OATS reporting firms would likely have lower CAT Data reporting costs than current OATS reporting large
The Commission presents cost estimates for individual broker-dealers in Table 7 that include estimates of current costs, CAT implementation costs, and ongoing CAT reporting costs. In addition, Table 7 presents cost estimates for three categories of costs: Hardware/software; staffing; and outsourcing.
Table 8 presents aggregate total costs to broker-dealers by broker-dealer type. The Commission estimates that broker-dealers spend approximately $1.6 billion annually on current regulatory data reporting activities. The Commission estimates approximate one-time implementation costs of $2.1 billion, and annual ongoing costs of CAT reporting of $1.5 billion. The Commission notes that estimates of ongoing CAT reporting costs of $1.5 billion are slightly lower than current data reporting costs of $1.6 billion. This differential is driven by reductions in data reporting costs reported by large OATS-reporting broker-dealers in the Reporters Study survey.
The Plan discusses costs that service bureaus would face to implement the CAT NMS Plan and maintain ongoing CAT reporting.
The Commission preliminarily believes that costs that service bureaus would face to implement CAT should be included as part of the aggregate costs of CAT. While the CAT NMS Plan does not require the use of service bureaus to report CAT Data, the Commission recognizes that the most cost effective manner to implement the CAT NMS Plan likely would be for most market participants to continue their current practice of outsourcing their regulatory data reporting to one or more service bureaus. By doing so, the roughly 1,600 broker-dealers predicted to outsource would avoid incurring a significant fraction of CAT implementation costs; instead, service bureaus would incur implementation costs on their behalf. Based on conversations with market participants, the Commission preliminarily believes that these implementation costs are likely to pass-through to broker-dealers that outsource data reporting, because service contracts between broker-dealers and service bureaus are renegotiated periodically, and approval of the CAT NMS Plan might trigger renegotiation as the bundle of services provided would materially change. Consequently, service bureaus likely would renegotiate their client agreements during the period of implementation of the CAT NMS Plan. The Commission preliminarily recognizes that service bureaus may, when re-negotiating these service contracts factor in the CAT implementation costs the service bureaus incurred; consequently, broker-dealers could see increases in costs that reflect a service bureau's efforts to recoup those costs. In its analysis of costs, the Commission includes these service bureau costs and separately identifies them as service bureau implementation costs, but the Commission recognizes that they are likely to ultimately be borne by broker-dealers.
The Commission, however, preliminarily believes that the ongoing costs of CAT Data reporting by service bureaus would be duplicative of costs incurred by broker-dealers. The aggregate fees paid by outsourcing broker-dealers to service bureaus cover the service bureaus' costs of ongoing data reporting. To include ongoing service bureau costs as a cost of CAT would double-count the costs that broker-dealers incur for CAT Data reporting; thus, in aggregating the cost estimates for CAT, the Commission includes only the maximum implementation cost that vendors would likely face of $118.2 million.
The Sections above provide four sets of cost estimates that together encompass the costs of the Plan. This Section discusses aggregation of these costs into the total costs of the Plan. The Plan provides estimates of the total costs to industry if the Commission approves the Plan. The Plan estimates initial aggregate costs to industry of $3.2 billion to $3.6 billion and annual ongoing costs of $2.8 billion to $3.4
Using estimates discussed above, the Commission recalculated total implementation and ongoing annual costs, partitioned across market participant types as possible. Because the Plan does not discuss how Central Repository costs would be partitioned across Participants and CAT Reporters, the analysis here presents Central Repository costs separately from costs to Participants and costs to CAT Reporters. The Plan presents some costs related to constructing and operating the Central Repository as ranges; in these cases, the Commission uses range maximums in the total cost calculation. Where costs differ for Approach 1 and Approach 2, the Commission uses estimates for the approach that is more costly in aggregate.
Table 9 presents estimates of aggregate current, implementation, and ongoing costs to the industry. The Commission notes that costs to broker-dealers are much greater than the costs of building and maintaining the Central Repository. In terms of magnitudes of aggregate costs, costs to the 126 largest broker-dealers that currently report OATS data is the largest driver of implementation costs, accounting for 38.3% of CAT implementation costs. Although these firms would face significant costs in implementing CAT, the Reporters Study survey results suggest that they anticipate lower ongoing reporting costs than they currently incur ($599 million annually in expected aggregate costs versus $1.1 billion annually in current aggregate regulatory data reporting costs).
Although the Commission relied on an alternative to the Reporters Study data to estimate costs for most broker-dealers, the Commission's aggregate cost estimate is consistent with information presented in the Plan that suggests that ongoing costs under CAT would likely be lower than ongoing costs for current reporting systems.
The Commission has not included those costs in its estimate of the aggregate costs of the Plan for several reasons. First, for reasons discussed below, the Commission preliminarily believes that cost estimates provided in the Plan are unlikely to accurately represent the actual costs industry will face in retiring duplicative reporting systems. Second, the retirement of current regulatory reporting systems is not a requirement of the Plan and the timeline and process for their retirement is uncertain.
The Commission preliminarily believes that the period of duplicative reporting would likely constitute a major cost to industry for several reasons. These reasons include the length of the duplicative reporting period; constraints on the capacity of industry to implement changes to regulatory reporting infrastructure that might cause market participants to implement changes using less cost-effective resources; and the inability of some market participants to implement duplicative reporting in house, necessitating that they seek service bureau relationships to accomplish their CAT reporting requirements.
Based on data provided in the Plan, the Commission believes that the period of duplicative reporting anticipated by the Participants is likely to last for 2 to 2.5 years. The Commission preliminarily believes that these estimates are reliable because they reflect the Participants' experience with their historical rulemaking activity, although the Commission preliminarily believes that some steps outlined by the Participants might happen concurrently with Commission rulemaking required to facilitate ending some duplicative reporting. The Plan outlines a timeline for eliminating duplicative reporting.
According to the Plan, step (1)—SRO identification of duplicative SRO rules and systems—of the process could take 12 to 18 months from implementation. SROs have 12 months (in the case of duplicative rules and systems) or 18 months (in the case of partially duplicative rules and systems) to complete their analysis of existing rules and systems to identify which systems should continue collecting data, or whether data in the Central Repository could substitute for the information collected through rules and systems in place.
Certain SRO rules or systems identified by the SROs in step (1) might first necessitate an SEC rule change before the SROs can properly modify or eliminate such SRO rule or system. If so, Commission rulemaking may be required.
According to the Plan, step (2) of the process could take 6 months. After identifying the rules to eliminate or modify, the Plan provides the Participants with six months to file the proposed rule change with the Commission. It is possible for the Participants to file these sooner if their rule changes are not complex, but the Plan places an upper bound on this. Under this timeline, it could take 18 months to two years after the first broker-dealers start reporting to the Central Repository for Participants to file rules to eliminate duplicative reporting.
According to the Plan, step (3) of the process could take another 3 months to a year. The Commission recognizes that the approval process for Participant rule changes can take time. In particular, for the Commission to approve such rules could take another 3 to 12 months depending on how complex the rule change. However, the Commission preliminarily expects that as long as such rule changes would be fairly straight forward, approval would likely take 3 months or less. As such, the first three steps add up to 21 months to 27 months.
Step (4) involves implementing the Participant rule changes, which would eliminate duplicative reporting. The Plan states that Participants would, upon Commission approval of rule changes, implement the “. . . most appropriate and expeditious timeline . . . for eliminating such rules and systems.”
Based on the timelines for all four steps and the Commission's analysis of how this timeline would be affected by the need in some cases for Commission rulemaking, the Commission preliminarily believes that the period of duplicative reporting could last at least 2 years, and the period of system retirement could extend for up to 2.5 years after Industry Members begin reporting data, assuming SROs are not limited in their initial analysis by problems such as delays in Commission rulemaking or excessive Error Rates, and Commission approval of SRO rules is completed within 90 days of submission.
Second, industry-wide resources to update order-handling systems are limited. Based on conversations with market participants, the Commission preliminarily believes that while most Insourcers and service bureaus have permanent staff that specialize in these activities, some would rely on hiring additional staff or utilizing contractors to increase their capacity to implement changes to order handling and data reporting systems and support of duplicative reporting systems. Furthermore, multiple broker-dealers and service providers cited access to specialized staff as a constraint that limits their ability to implement regulatory rule changes, stating that while current and newly hired staff might be able to implement the CAT NMS Plan and continue supporting OATS, they would be unlikely to be able to continue to implement changes to both systems. Consequently, Insourcers and service bureaus would likely incur significant costs associated with hiring additional employees to implement the CAT NMS Plan and accomplish regulatory data reporting during any duplicative reporting period.
Third, the Commission preliminarily believes that some firms that are currently challenged to maintain their self-reporting of data may not have the resources to implement the CAT NMS Plan at the same time as current reporting absent a service bureau relationship. It is possible that a number of relatively large firms would seek to establish service bureau relationships to accomplish both CAT reporting and current reporting even as a number of very small firms that currently do not report OATS could seek to establish such relationships. This could precipitate a “crowded entrances” situation in the market to provide data reporting services. The establishment of these relationships would pose a significant cost to industry.
The Commission expects that there would be some cost efficiencies with respect to current data reporting costs and CAT reporting costs during any period of duplicative reporting. For example, servers hosting software to produce records for CAT could possibly also host software to produce records for OATS during the duplicative reporting period because these regulatory reporting systems rely upon much of the same underlying data. However, the Commission does not currently have the necessary data to determine the extent of these efficiencies, which would vary across market participants. Therefore, the Commission cannot estimate duplicative reporting costs. The Commission preliminarily believes, however, that the current data reporting costs of $1.7 billion per year constitutes an estimate of the cost per year to industry of duplicative reporting requirements, as it represents the cost of duplicative reporting to industry if there are no efficiencies. The Commission notes, however, that staff required to implement changes to order handling systems are a limited resource. If market participants do not have adequate staffing to implement the changes required by CAT and maintain duplicative reporting, costs for duplicative reporting could exceed current reporting costs because market participants could have to rely on external staff (such as consultants) or contract through service bureaus to accomplish this reporting; this is likely to be more expensive than staff used for current reporting.
Further, the Commission does not believe that duplicative reporting costs should be added to the estimated aggregate costs of the CAT NMS Plan. The Commission believes that the aggregate costs above represent the total costs of the Plan and do not account for the differential between these costs and the costs the industry currently incurs for regulatory data reporting and maintenance. During the period of duplicative reporting, industry would incur the aggregate costs of accomplishing CAT reporting described above, plus the costs of current data reporting, which the Commission uses as an estimate of duplicative reporting costs. The Commission notes that market participants will incur costs equal to current data reporting costs if the Plan were not approved (because current regulatory data reporting would continue), or as duplicative reporting costs if the Plan were approved. Consequently, the Commission preliminarily believes these costs should not be considered as costs attributable to approval of the Plan, because market participants would bear these costs whether the Plan is approved or disapproved.
While broker-dealers are anticipated to bear the burden of the costs associated with CAT, including implementation costs, ongoing costs and duplicative reporting costs, the Commission does not know whether these costs would be passed on to investors, or whether these costs would be absorbed by the broker-dealers themselves. On one hand, it could be assumed that broker-dealers could pass on the costs associated with CAT to investors because broker-dealers currently already pass on certain regulatory fees to their customers. For instance, the SROs have adopted rules that require broker-dealer to pay Section 31 transaction fees,
In general, the CAT NMS Plan does not break down its cost estimates as a function of particular CAT NMS Plan requirements, although it does provide some cost information for certain requirements in the Plan. However, the Commission has considered which elements of the CAT NMS Plan are likely to be among the most significant contributors to CAT costs. The Commission preliminarily believes that significant sources of costs would include the requirement to report customer information, the requirement to report certain information as part of the material terms of the order, the requirement to use listing exchange symbology, and possibly, the inclusion of Allocation Reports. The Commission preliminarily believes that the clock synchronization requirements, the requirement that Options Market Makers send quote times to the exchanges, the requirement that the Central Repository maintain six years of CAT Data, and the inclusion of OTC Equity Securities in the initial phase of the implementation of the CAT NMS Plan are unlikely to be significant contributors to the overall costs of the Plan. Notably, the Commission believes that its estimates of the implementation costs and ongoing costs to industry above include each of the costs discussed in this Section because these provisions encapsulate major parts of the Plan.
The Commission preliminarily believes that the requirement in the CAT NMS Plan to report customer information for each transaction represents a significant source of costs.
Similarly, the Commission preliminarily believes that the requirement to report material terms of the order that include an open/close indicator, order display information, and special handling instructions represents a significant source of costs.
The Commission also preliminarily believes that the requirement to use listing exchange symbology in the CAT NMS Plan could represent a significant source of costs. The Plan requires CAT Reporters to report CAT Data using the listing exchange symbology format,
The Commission recognizes that industry would bear certain costs associated with Allocation Reports, particularly the requirement that the reports include allocation times. The Commission understands that some broker-dealers already record allocation times; broker-dealers that do not currently record these times will face implementation costs associated with changing their business processes to record these times. Implementation costs for allocation reporting may include significant costs associated with incorporating additional systems into their regulatory data reporting infrastructure to facilitate this reporting, if such systems would not already be involved in recording or reporting order events. Furthermore, Outsourcers could face significant implementation and ongoing costs associated with reporting Allocation Reports if their service bureaus do not extend their services to manage the servers that handle allocations. Because implementation costs for Allocation Reports would vary widely across broker-dealers and because the Plan does not break out costs associated with reporting allocation information, the Commission cannot separately estimate costs attributable to this reporting.
The Commission preliminarily believes that the clock synchronization requirements in the Plan represent a less significant source of costs. The CAT NMS Plan estimates industry costs associated with the 50 millisecond clock synchronization requirement, based on the FIF Clock Offset Survey.
Based on discussions with industry, the Commission preliminarily believes that the majority of broker-dealers (Outsourcers) would not face significant direct costs for clock synchronization because time stamps for CAT Data reporting would be applied by service bureaus.
Other Plan requirements that the Commission preliminarily believes are unlikely to represent major contributions to the overall costs of the Plan include the requirement that Options Market Makers report the quote times sent to the exchanges,
There are many other categories of costs that contribute to the aggregated estimates of the costs of the Plan in addition to the items discussed above. For example, in addition to providing CAT Reporters data on their Error Rates, the Plan states that the Participants believe that in order to meet Error Rate targets, industry would require certain resources, including a stand-alone testing environment, and time to test their reporting systems and infrastructure. There are also likely to be costs related to the Plan Processor's management of PII.
The Plan states that the Operating Committee would have the authority to levy ancillary fees on both broker-dealers reporting to, and regulators accessing, the Central Repository.
As noted in the Adopting Release, Commenters have expressed concerns regarding the risk of failing to maintain appropriate controls over the privacy and security of CAT Data.
The Commission believes that it is difficult to form reliable economic expectations for the costs of security breaches, because there are few examples of security breaches analogous to the type that could occur under the CAT NMS Plan. However, the Commission can break down the expected costs of security breaches into two components: The risk of a security breach and the cost resulting from a security breach. Therefore, the Commission separates its discussion of the expected costs of security breaches into these two components. The Commission recognizes that security risks could give rise to second order costs as well where the costs come not directly from the security breach but rather from the actions of market participants attempting to avoid security risks.
The form of the direct costs resulting from a security breach would vary across market participants and could be significant. For broker-dealers, investment advisers, and other similar institutions, a security breach could leak highly-confidential information about trading strategies or positions,
A data breach could also potentially reveal PII of Customers. Because some of the CAT Data that would be stored in the Central Repository would contain PII such as names, addresses and social security numbers, a security breach could raise the possibility of identity theft, which currently costs Americans billions of dollars per year.
A breach that reveals the activities of regulators within the Central Repository, such as data on the queries and processes run on query results, could compromise regulatory efforts or lead to speculation that could falsely harm the reputation of market participants and investors. For example, a breach could result in an article that reports on regulators querying trading information of certain individuals or broker-dealers, which could harm those individuals or broker-dealers even if no regulators open investigations. Further, perpetrators of a breach could attempt to trade on information on regulatory queries to try to profit ahead of public information of an action, to the disadvantage of other investors.
The Commission preliminarily believes that the risks of a security breach may not be significant because certain provisions of Rule 613 and the
Provisions of Rule 613 provide safeguards designed to prevent security breaches. Rule 613(e)(4) requires policies and procedures that are designed to ensure the rigorous protection of confidential information collected by the Central Repository, and Rule 613(iv) requires that the Plan contain a discussion of the security and confidentiality of the information reported to the Central Repository. Rule 613 also restricts access to use only for regulatory purposes, and requires certain provisions that are designed to mitigate these security risks such as the appointment of a Chief Compliance Officer and annual audits of Plan Processor operating procedures.
The Plan also includes provisions designed to prevent security breaches. First, governance provisions of the CAT NMS Plan could mitigate the risk of a security breach. Section 4.12 of the CAT NMS Plan provides for a Compliance Subcommittee whose activities could reduce the risk that information is released to unauthorized entities.
As discussed in the Plan,
The Commission preliminarily believes the Plan marginally increases the threat of breach of broker-dealer trading and business strategies because although SROs currently receive this data from their own members, SROs are expected to have access to other SROs data more readily within the Central Repository. There is some risk that SROs could use this data improperly to gain information on how broker-dealers interact with other SROs' trading platforms. The Plan includes certain measures that mitigate this risk, however, by restricting the use of CAT Data reported by other entities for business purposes.
The desire to avoid direct costs of a security breach could motivate actions that would result in second order effects of security breaches. For example, if service bureaus perceive the costs and risks of a security breach to be great enough because of the addition of PII in the data, which is not included in current data, some could decide not to provide CAT Data reporting services. This could increase the potential for a short term strain on capacity and exacerbate the costs of this strain described above and below.
Nonetheless, the Commission preliminarily does not believe that the effect of the Plan on the risk or costs of a data breach would be great enough to result in significant second order effects. As discussed above, the Commission preliminarily believes the Plan marginally increases the threat of breach of broker-dealer trading and business strategies. However, the Plan includes certain measures that mitigate this risk. In light of these provisions, the Commission preliminarily believes that the Plan is unlikely to significantly deter broker-dealers from participating in markets. In addition, in deciding whether to trade in the U.S. markets or abroad, investors and other market participants would continue to assess a multitude of potential trade-offs. While the expected costs of a security breach may factor in, so would the level of investor protections, which the Commission preliminarily believes would increase if it approved the Plan.
Another possible second order effect of avoiding the risk and cost of a security breach event could be the risk that one or more service bureaus could choose to exit the market in providing data reporting services rather than change their business practices to report PII to the Central Repository, in order to assist their client(s) in meeting their reporting responsibilities under the Plan. Specifically, while some service bureaus currently handle PII for their broker-dealer clients, others do not or do so only on an occasional and limited basis. To the extent service bureaus that do not already handle such PII were to stop offering regulatory data reporting services due to an unwillingness to host such customer information, their customers would be forced to establish new service bureau relationships, or undertake self-reporting. This potentially would be very costly to the broker-dealer clients of the exiting service bureaus due to the switching costs that broker-dealers incur to change service bureaus. Such an event could also contribute to crowded entrances problems.
The Commission acknowledges that increased surveillance could potentially impose some costs by altering the behavior of market participants. Benefits could accrue to the extent that improved surveillance, investigation, and enforcement capabilities allow for regulators to better identify and address violative behavior when it occurs; and to the extent that common knowledge of improved capabilities deters violative behavior.
In particular, the Commission acknowledges that some market participants could reduce economically beneficial behavior if those market participants believe that, because of enhanced surveillance, their activities would increase the level of regulatory scrutiny that they bear. In other words, if market participants engaging in non-violative activity believe that such activity could increase the likelihood of examinations, inspections, and other interactions with regulators, those market participants could reduce or cease such activity to reduce the frequency and costs of interactions with regulators, including staff time to accommodate inspections, facilitate examinations and answer regulatory inquiries. Because facilitating regulatory inquiries is costly to firms, such a firm might conclude that certain permissible activities generate insufficient profits to offset costs associated with the regulatory scrutiny generated by these activities, even if the firm's behavior is permissible and no fines or other penalties result from these inquiries. To the extent that market participants could reduce activity that benefits the market, this could impose costs on investors and the market in the form of a reduction in the economic value of such activity.
Additionally, in an environment of improved surveillance, regulators could increase the number of inspections, examinations and enforcement proceedings that they initiate.
The Commission preliminarily believes that establishing a small number of discrete fee tiers, as occurs under the Plan, could create incentives for CAT Reporters to alter their behavior to switch from one tier to another, thereby qualifying for lower fees. Specifically, in the discussion of Consideration 7, the Plan states that CAT Reporters would be classified into a number of groups based on reporter type and market share of share volume or message traffic and assessed a fixed fee that is determined by this classification.
The Commission recognizes that the tiering of fees also could create calendar effects within markets. Although the Plan does not detail the horizon at which CAT would measure activity levels, the structure ultimately approved by the Operating Committee could affect market participant behavior near the end of a measuring period. For example, high levels of market activity during a measuring period might cause CAT Reporters to limit their activity near the end of a measurement period to avoid entering a higher fee tier. If this translates into a reduction in quoting activity, market liquidity conditions could deteriorate at the end of activity measurement periods, and improve when a new measurement period begins, for example.
The Commission notes that the Operating Committee has discretion under the Plan governance structure to make the tier adjustments discussed in Section 11.1.d for individual CAT Reporters. This provision might mitigate incentives for individual market participants to alter market activities to reduce their expected CAT fees.
The funding model proposed in the Plan is a bifurcated funding model, in which costs are first allocated between the group of all broker-dealers and the group of all Execution Venues, then within these groups by market activity level.
In addition to friction created by the bifurcated structure of the funding model, the Commission preliminarily believes that the CAT NMS Plan funding model shifts broker-dealer costs associated with the Central Repository to all broker-dealers and away from Options Market Makers. The CAT NMS Plan provides that broker-dealers would not report their options quotations to the Central Repository, while equity market makers would report their equity
Although this differential treatment would marginally increase the cost of providing other broker-dealers services relative to options market making, the Commission preliminarily does not believe that this would materially affect a market participant's willingness to provide broker-dealer services other than options market making for several reasons. First, many market participants participate in both equities and options markets because activity in one market (equities or options) could be used to hedge positions acquired in the other market. Consequently, many firms already find it cost effective to participate in both markets. Second, broker-dealers participating in equity markets have significant infrastructure in place for serving that market and switching costs to participate in options market making are high due to the need to establish quantitative infrastructure to quote options, market connectivity, IT infrastructure, and clearing/settlement arrangements required to transact in options; consequently, reducing the cost to make markets in options is unlikely to attract broker-dealers to change their business models. Finally, the Commission believes that the market to provide liquidity in the options market is already a competitive one because many broker-dealers participate in that market and market share that is sufficient to cover substantial fixed costs of making markets in options is valuable; consequently, options market participants have incentives to compete to win market share. Without a market change that significantly affects profits to be made in options market making, it seems broker-dealers would need a competitive advantage relative to existing competitors to successfully win market share from the existing competitors. The Commission preliminarily believes that that broker-dealers that currently focus on equity market making and other broker-dealer services unrelated to options market making are likely to continue to focus on the markets in which they participate because their competitive advantages relate to these activities.
The Commission requests comment on all aspects of the discussion of the potential costs of the CAT NMS Plan. In particular, the Commission seeks responses to the following questions:
301. Do Commenters agree with the Commission's assessment of the potential costs of the CAT NMS Plan? Why or why not?
302. To what extent do the uncertainties related to future decisions about Plan implementation impact the assessment of potential costs of the Plan? Please explain.
303. Do Commenters agree that the Plan's level of detail regarding the drivers of the costs to build, operate, and maintain the Central Repository is sufficient to assess the economic effects of the Plan? If more detail is needed, how can this information be obtained?
304. Do Commenters agree that using the cost estimates provided in Bids from the Shortlisted Bidders provides reasonable estimates of costs to build and operate the Central Repository? Why or why not?
305. Estimates in the Plan suggest that the Participants' data reporting costs will significantly increase while surveillance costs will significantly decrease if the Plan is approved. Do Commenters agree that these changes are likely to occur? Please explain.
306. Do Commenters agree with the Commission's characterization of the limitations in the cost studies? Do Commenters agree with the Commission's assessment that the Vendors Study and Participants Study have reliable cost estimates? Do Commenters agree that cost estimates for large OATS Reporters and large non-OATS Reporters are reliable? Do Commenters agree that cost estimates for small reporters are unreliable? Why or why not? Do Commenters have more precise estimates of the costs than provided in the cost surveys?
307. The Commission re-estimated aggregated costs under a different set of assumptions than the Plan. Do Commenters agree that the re-estimated costs better represent the expected costs of the CAT NMS Plan? Why or why not? Do Commenters agree that most broker-dealers that report fewer than 350,000 OATS ROEs per month are likely to report this data through a service bureau?
308. Do Commenters agree with the estimates of annual service bureau costs for a very small OATS-reporting firm of $50,000 to $180,000 per year, which assumes that the service bureau provides order routing and an order-handling system? If not, please provide alternate estimates.
309. Do Commenters agree that the pricing function for service bureaus is concave (increasing at a decreasing rate)? Why or why not? The Commission assumes in its re-estimation that service bureau cost functions are approximately as concave as exchange pricing functions. Do Commenters agree? Why or why not?
310. Will the requirement to provide customer information to the Central Repository be a significant cost-driver for Outsourcers? Why or why not? Is the need for encryption of this data a significant cost-driver?
311. Will the anticipated retirement of duplicative reporting systems such as EBS affect Outsourcer costs? Why or why not? Will the reduction in ad hoc data requests significantly affect the costs incurred by service bureaus in assisting their clients in responding to these requests? Why or why not?
312. Are there ways in which the Commission could better estimate the aggregate costs of the CAT NMS Plan? If so, please explain.
313. Do Commenters agree with the Commission's assumption that most firms that report fewer than 350,000 OATS ROEs per month are self-clearing? If not, please explain. Do Commenters believe that these firms would have significantly higher implementation costs due to their need to provide this information to any service bureaus they use for regulatory data reporting?
314. Do Commenters agree that broker-dealers that are exempt or excluded from OATS reporting are likely to be small and should have their costs estimated as Outsourcers? If no, how many of these broker-dealers currently participate in more than 350,000 events that would be OATS-reportable, were they not exempt or excluded, per month?
315. Are Commenters aware of options market making firms that are FINRA members and report fewer than 350,000 OATS ROEs per month, or that are exempt or excluded from OATS reporting rules? If so, are there ways that the Commission can identify these firms to better estimate their costs under the Plan?
316. Are Commenters aware of ELPs that are not CBOE members that did not trade on ATSs in 2014? If so, are there ways that the Commission can identify these firms to better estimate their costs under the Plan?
317. Do Commenters agree that FINRA member broker-dealers that are Options Market Makers are unlikely to be exempt or excluded from OATS-reporting requirements, and are likely to report more than 350,000 OATS ROEs per month? If not, how many FINRA member Options Market Makers exist that are exempt or excluded from OATS reporting requirements, or that report fewer than 350,000 OATS ROEs per month? Are there methods by which the Commission could improve its estimates of costs these broker-dealers are likely to face if the Plan is approved?
318. According to survey results, Approach 1 aggregate implementation and ongoing costs are higher than those for Approach 2 for CAT Reporters, though not statistically so.
319. Do Commenters believe that duplicative reporting systems will be retired and, if so, when? What systems do Commenters expect to be retired?
320. Do service bureaus handle EBS reporting for their clients? To what extent would EBS reporting contribute to duplicative reporting costs or system retirement costs and savings?
321. The Commission's analysis discusses the Plan's timetable for retirement of duplicative reporting systems (
322. Do Commenters believe that the period of duplicative reporting that would precede the retirement of certain current, anticipated to be retired, regulatory reporting systems would impose significant cost burdens on industry? Are the Commission's estimates of those costs accurate? Are there dimensions of these costs that the Commission has not recognized? If so, what are they and what are their magnitudes?
323. What milestones should CAT be required to reach before duplicative reporting systems can be retired?
324. What costs would service bureaus face in accomplishing a period of duplicative reporting during which both CAT and the regulatory data reporting systems that the Plan anticipates would be retired are operational? How many FTEs would be involved?
325. What costs would broker-dealers face in accomplishing a period of duplicative reporting during which both CAT and the regulatory data reporting systems that the Plan anticipates would be retired are operational? How many FTEs would be involved?
326. The CAT NMS Plan estimates that market participants would face significant costs of approximately $2.6 billion in connection with retiring duplicative reporting systems. What expenses does this estimate cover, and which systems account for which costs? For some broker-dealers, would implementation of CAT reporting accomplish the retirement of other regulatory data reporting systems? How do system retirement costs differ between broker-dealers that outsource their data reporting versus those who perform this function in-house?
327. Do Commenters believe that the CAT NMS Plan would deliver additional cost savings from sources other than the retirement of duplicative reporting systems and a reduction in the amount of ad-hoc data requests to regulated entities? Are there any changes to the CAT NMS Plan that would increase the potential cost savings?
328. Are SROs adequately incentivized to retire current regulatory reporting and surveillance systems that might be replaced by CAT? Do they have incentives to resist the retirement of these systems that this analysis fails to identify?
329. Do Commenters agree that costs associated with the Plan incurred by broker-dealers could be passed down to their customers? Why or why not? If so, do Commenters have estimates regarding what fraction of broker-dealer costs would be passed down?
330. The Commission preliminarily believes that the Vendors Study measures ongoing costs that would also be captured by the third-party outsourcing costs in the other surveys. As a result, the Commission does not add these to the aggregated cost estimates. Do Commenters agree with this approach? Is there any double counting of costs across the surveys, or can the individual survey estimates be aggregated into an industry-wide estimate? Please explain.
331. According to survey results, Approach 1 aggregate implementation costs are higher than those for Approach 2 for vendors and ongoing costs are lower.
332. The Commission assumes that cost estimates from Participants include all costs the Participants would incur if the Plan is approved, and that other costs related to development of the Plan are not avoidable if the Plan is not approved. Is it reasonable for the Commission to treat all costs related to development of the Plan that are not included in implementation and ongoing costs as sunk costs? Why or why not?
333. To what degree would industry's costs to implement and maintain CAT reporting be passed on to investors? Would competition between broker-dealers affect the passing on of costs to investors? Why or why not?
334. How significant to the total industry costs of the CAT NMS Plan are
335. How significant to the total industry costs of the CAT NMS Plan is the requirement to report customer information to the Central Repository? What elements of this requirement contribute to its significance of the potential costs of the Plan? Are there ways in which this data can be made available to regulators that would prove less costly to industry and investors? If so, what are they?
336. How significant to the total industry costs of the CAT NMS Plan is the requirement to report certain information as part of the material terms of the order? What elements of this requirement contribute to its significance of the potential costs of the Plan? Are there ways in which this data can be made available to regulators that would prove less costly to industry and investors? If so, what are they?
337. How significant to the total industry costs of the CAT NMS Plan is the requirement to report information to the Central Repository using listing exchange symbology? What elements of this requirement contribute to its significance of the potential costs of the Plan? Are there ways in which this data can be made available to regulators that would prove less costly to industry and investors? If so, what are they?
338. How significant to the total industry costs of the CAT NMS Plan is the requirement to report allocation information to the Central Repository? What elements of this requirement contribute to its significance of the potential costs of the Plan? Are there ways in which this data can be made available to regulators that would prove less costly to industry and investors? If so, what are they?
339. Are there other requirements of the CAT NMS Plan that would be significant sources of costs? If so, what are they? Are there ways in which those requirements could be made less costly? If so, what are they?
340. Do Commenters agree that ancillary fees levied by the Plan Processor on broker-dealers in response to late or inaccurate reporting are unlikely to broadly levied on broker-dealers? Do Commenters believe they would comprise a significant source of CAT costs to industry? Why or why not?
341. Do Commenters agree with the Commission's analysis of potential cost savings from a reduction in the number (and ultimately the cost) of data requests as a result of regulators having direct access to CAT Data?
342. Do Commenters agree with the Commission's analysis of the risk of a security breach? Do Commenters agree with the Commission's analysis of the potential costs of a security breach? Are there factors not covered in the analysis? What are they? Are the security measures outlined in the Plan appropriate and reasonable? Why or why not?
343. Do Commenters agree with the Commission's analysis of potential changes to CAT reporter behavior? Why or why not? Are there additional factors that should be considered?
344. Do Commenters agree with the Commission's analysis of the Plan's funding model? Why or why not? Are there additional factors that should be considered?
345. Do Commenters agree with the Commission's analysis of potential costs resulting from differential CAT costs across Execution Venues? Why or why not? Are there additional factors that should be considered?
346. Should the Plan require the inclusion of a web-based manual data entry option for initial CAT reporting in addition to updates and corrections? Please explain. How would a web-based manual data entry option affect the costs incurred by CAT Reporters? Do any current regulatory data reporting systems have a web-based manual data entry option? If so, which ones and how often do broker-dealers utilize that option for data submission?
In determining whether to approve the CAT NMS Plan, and whether the Plan is in the public interest, Rule 613 requires the Commission to consider the impact of the Plan on efficiency, competition and capital formation.
The Commission preliminarily believes that the Plan generally promotes competition. However, as explained below, the Commission recognizes that the Plan could increase barriers to entry because of the costs to comply with the Plan. Further, the Commission's analysis identifies several limitations to competition, but the Plan contains provisions to address some limitations and Commission oversight can also address the limitations.
The Commission preliminarily believes that the Plan would improve the efficiency of regulatory activities and enhance market efficiency by deterring violative activity that harms market efficiency. The Commission preliminarily believes that the Plan would have modest positive effects on capital formation and that the threat of a security breach at the Central Repository is unlikely to significantly harm capital formation.
The Commission notes that the significant uncertainties discussed earlier in this economic analysis also affect the Commission's analysis of efficiency, competition, and capital formation. For example, the Commission recognizes that the uncertainties around the improvements to data qualities can affect the strength of the Commission's conclusions on efficiency, and the uncertainty regarding how the Operating Committee allocates the fees used to fund the Central Repository could affect the Commission's conclusions on competition. Additionally, the Commission recognizes that the Plan's likely effects on competition, efficiency and capital formation are dependent to some extent on the performance and decisions of the Plan Processor and the Operating Committee in implementing the Plan, and thus there is necessarily some further uncertainty in the Commission's analysis. Nonetheless, the Commission believes that the Plan contains certain governance provisions, as well as provisions relating to the selection and removal of the Plan Processor, that mitigate this uncertainty by promoting decision-making that could, on balance, have positive effects on competition, efficiency, and capital formation.
As required by Rule 613, the Plan contains an analysis of its expected impact on competition.
The Commission's evaluation of competition reorients the Plan's approach to analyzing competition, expands upon it, and notes some limitations in the scope and conclusions of the Plan's analysis. In particular, the Commission's analysis of competition is organized and segmented by the particular markets in which competition among service providers of types of services exists. The Commission's analysis focuses on four distinct markets: The market for trading services, the markets for broker-dealer services, the market for regulatory services, and the market for data reporting services. In the context of the Plan, this allows the competition analysis to consider a more complex interaction between all market participants in a defined market than would be feasible by focusing solely on market participant types. This approach allows the Commission to determine whether a differential impact across competitors affects overall competition in the market. Much like the Plan's criteria for evaluation, the Commission recognizes that any effects on competition, with respect to each market, should be compared to a Baseline that characterizes the competitive environment without the CAT NMS Plan. In addition, the Commission considered uncertainty in the effect of the Plan on competition in any of these markets.
After analyzing the discussion of competition and the other relevant provisions of the Plan in the context of four affected markets, the Commission preliminarily believes that, while there could be effects on individual competitors, these effects would not lead to changes to competition as a whole in affected markets in a way that would generate significant adverse effects. In sum, and as discussed in detail below, the Commission preliminarily believes that the Plan poses a risk for competition for trading services, but provisions in the Plan and Commission oversight could mitigate this risk. Additionally, the Plan could have a differential impact on the ability of smaller broker-dealers and broker-dealers subject to CAT reporting to compete in the various markets for broker-dealer services, but these differential impacts may not be significant enough to affect overall competition in the markets for broker-dealer services. Moreover, the Plan generally promotes competition to be the Plan Processor and competition for regulatory services, but friction in those markets could limit the competition. Finally, the Plan could have a harmful effect on competition in the market for data reporting services, at least in the short term, because of capacity constraints, but the prolonged implementation for small broker-dealers could limit these harmful effects.
The Commission analyzed the CAT NMS Plan's economic effects on competition in the market for trading services, compared to the Baseline of the competitive environment without the Plan, and preliminarily believes that the Plan would not place a significant burden on competition for trading services. The Commission recognizes the risk for the Plan to have negative effects on competition and to increase the barriers to entry in this market, but preliminarily believes that Plan provisions and Commission oversight could mitigate these risks.
The market for trading services, which is served by exchanges, ATSs, and liquidity providers (internalizers and others), relies on competition to supply investors with execution services at efficient prices. These trading venues, which compete to match traders with counterparties, provide a framework for price negotiation and disseminate trading information. The market for trading services in options and equities consists of 19 national securities exchanges, which are all Plan Participants,
The Plan examined the effect of the CAT NMS Plan on the market for trading services primarily from the perspective of the exchanges. The Plan asserts that distribution of regulatory costs incurred by the Plan would be distributed according to “the Plan's funding principles,” calibrated to avoid placing “undue burden on exchanges relative to their core characteristics,” and would thus not cause any exchange to be at a relative “competitive disadvantage in a way that would materially impact the respective Execution Venue marketplaces.”
The Commission also examined the effect of the funding model on competition in the market for trading services, including off-exchange liquidity suppliers and ATSs. In addition, the Commission considered the effect of implementation and ongoing costs of the Plan, whether particular elements of the Plan could hinder competition, and the effect of enhanced surveillance on competition in the market for trading services.
As noted above, the Operating Committee would fund the Central Repository by allocating its costs across exchanges, FINRA, ATSs and broker-dealers.
Any entity that becomes a new exchange would be required to join the CAT NMS Plan as a Participant. In addition, any new Participant to the Plan must pay a “Participation Fee,” to the Company “in an amount determined by a Majority Vote of the Operating Committee as fairly and reasonably compensating the Company and the Participants for costs incurred in creating, implementing, and maintaining the CAT.”
The Commission preliminarily believes that any impacts of such fees on competition in the market for trading services would manifest either through the model for the fees itself or through the later allocation of the fees across market participant types, across equity or options exchanges or, within market participant types and markets, through the levels of fees paid by each tier. Each of the different channels through which the Plan could have an adverse effect on competition is discussed separately below.
As discussed in Section IV.F.4.d, the Commission preliminarily believes that the structure of the funding model could provide a competitive advantage to exchanges over ATSs. The Plan states that an entity would be assessed exactly the same amount for a given level of activity whether it acted as an ATS or an exchange.
Additionally, the Commission preliminarily believes that the Participation Fee could discourage new entrants or the registration of an ATS as an exchange, increasing the barriers to entry to becoming an exchange. In particular, the factors listed in the Plan for determining the Participation Fee consider the previous costs incurred by the existing Participants but not the costs already incurred by the new Participant when it acted as an ATS.
Further, because the funding model seems to charge ATSs more for their market share than exchanges, ATSs could pay relatively less for their market share as an exchange than as an ATS, countering this barrier to entry depending on the magnitudes of the two fee types.
The Plan discusses the allocation of fees among market participants of different sizes within the same market participant type (Execution Venues versus broker-dealers), but does not
The Commission recognizes that the potential for a burden on competition and effects on competitors in the market for trading services could arise from provisions relating to the allocation and exercise of voting rights. In particular, a concentration of influence over Committee decisions could directly and indirectly affect competition. The potential for concentration of influence over vote outcomes arises from proposed provisions to give one vote to each Plan Participant
The inclusion of all exchanges on the Operating Committee could give the Plan Participants opportunities and incentives to share information and coordinate strategies in ways that could reduce the competition among exchanges or could create a competitive advantage of exchange trading over off-exchange trading.
Additionally, the Commission agrees with the Plan's assessment that some governance features of the Plan would limit adverse effects on competition in the market for trading services. The governance structure of the Plan contains provisions to limit the incentive and ability of Operating Committee members to serve the private interests of their employers, such as rules regulating conflicts of interest.
Because all Participants but one compete in the market for trading services, the ability of affiliates to vote as a group could in principle allow a few large Participant groups to influence the outcome of competition in the market for trading services by making various decisions that can alter the costs of one set of competitors more than another set. Further, the Plan would allocate profits and losses from operating the Central Repository equally across Participants, which could advantage small exchanges in the event of a profit and disadvantage small exchanges in the event of a loss. This could negatively impact competition if the cost differentials are unnecessary in light of the cost-benefit trade-offs of alternatives and if the cost differentials are significant enough to alter the set of services that some Participants offer.
Generally, smaller competitors could have implementation and ongoing costs of compliance that are disproportionate
In addition, as noted above, the Plan provides that the Technical Specifications would not be finalized until after the selection of a Plan Processor, which would not occur until after any decision by the Commission to approve the Plan.
The Commission also preliminarily believes that the CAT NMS Plan could promote competition in the market for trading services through enhanced surveillance and the deterrence of violative behavior that could inhibit competition.
The Commission analyzed the effect of the CAT NMS Plan on the market for broker-dealer services. For simplification, the Commission presents its analysis as if the market for broker-dealer services encompasses one broad market with multiple segments even though, in terms of competition, it actually may be more realistic to think of it as numerous inter-related markets. The market for broker-dealer services covers many different markets for a variety of services, including, but not limited to, managing orders for customers and routing them to various trading venues, holding customer funds and securities, handling clearance and settlement of trades, intermediating between customers and carrying/clearing brokers, dealing in government bonds, private placements of securities, and effecting transactions in mutual funds that involve transferring funds directly to the issuer. Some broker-dealers may specialize in just one narrowly defined service, while others may provide a wide variety of services.
The market for broker-dealer services relies on competition among broker-dealers to provide the services listed above to their customers at efficient levels of quality and quantity. The broker-dealer industry is highly competitive, with most business concentrated among a small set of large broker-dealers and thousands of small broker-dealers competing for niche or regional segments of the market. To limit costs and make business more viable, small broker-dealers often contract with larger broker-dealers or service bureaus to handle certain functions, such as clearing and execution, or to update their technology.
There are approximately 1,800 broker-dealers likely to be CAT Reporters, while approximately 2,338 broker-dealers would not be CAT Reporters because their businesses do not involve reportable events in securities covered by the Plan.
The Commission preliminarily believes costs of compliance incurred by broker-dealers to comply with the Plan, particularly to report order events to the Central Repository, will differ substantially between broker-dealers and may affect competition between smaller and larger broker-dealers. As discussed previously in the Commission's analysis of Costs, broker-dealers that outsource regulatory data reporting activities are expected to see their costs of regulatory data reporting increase, while broker-dealers that Insource may see a decrease in their regulatory data reporting costs.
The Plan discusses certain aspects of competition pertaining to broker-dealers that relate to costs and the allocation of fees. The Plan states, “[b]roker-dealer competition could be impacted if the direct and indirect costs associated with meeting the CAT NMS Plan's requirements materially impact the provision of their services to the public. Further, competition may be harmed if a particular class or group of broker-dealers bears the costs disproportionately . . . .” The Plan asserts that it would have little to no adverse effect on competition between large broker-dealers, and would not materially disadvantage small broker-dealers relative to large broker-dealers. Regarding small broker-dealers, the Plan states, “. . . . [the allocation of costs on broker-dealers based on their contribution to market activity] may be significant for some small firms, and may even impact their business models materially . . . .” and that the Participants were sensitive to the burdens the Plan could impose on small broker-dealers, noting that such broker-dealers could incur minimal costs under their existing regulatory reporting requirements “because they are OATS-exempt or excluded broker-dealers or limited purpose broker-dealers.” The CAT NMS Plan attempts to mitigate its impact on these broker-dealers by proposing to follow a cost allocation formula that (in expectation) charges lower fees to smaller broker-dealers; furthermore, Rule 613 provides them additional time to commence their reporting requirements.
The Commission preliminarily agrees with the Plan's general assessment of competition among broker-dealers, and also with the Plan's assessment of differential effects on small versus large broker-dealers. The Commission agrees that the Plan's funding model is an explicit source of financial obligation for broker-dealers and therefore an important feature to evaluate when considering potential differential effects of the Plan on competition in the market for broker-dealers. The Commission understands that the tiered funding model should result in the smallest broker-dealers paying the smallest fees, but the Plan does not outline how the magnitudes of fees would differ across the tiers. The Commission also recognizes that the potentially greater level of service specialization that may characterize small broker dealers and the potentially non-linear economies of scale may result in the compliance costs associated with the Plan competitively disadvantaging small broker-dealers, on average, relative to large broker-dealers.
However, the Commission preliminarily believes that the segments of the market most likely to experience higher barriers to entry are those that currently have no data reporting requirements of the type the Plan requires and those that would involve more CAT Reporting obligations, such as the part of the broker-dealer market that involves connecting to exchanges, because of the technology infrastructure requirements and the potential to have to report several types of order events.
The Commission also recognizes that the Plan could affect the current relative competitive positions of broker-dealers in the market for broker-dealer services. To varying degrees, the economic impacts resulting from the Plan could benefit some broker-dealers and adversely affect others. The magnitude of these effects on broker-dealers could vary across and within categories of broker-dealers and classes of securities. However, there is no clear reason to expect these impacts, should they occur, to decrease the current state of overall competition in the market for broker-dealer services so as to materially burden the price or quality of services received by investors on average.
Regardless of the differential effects of the CAT NMS Plan on small versus large broker-dealers, it is the Commission's preliminary view that the CAT NMS Plan, in aggregate, would likely not reduce competition and efficiency in the overall market for broker-dealer services. Even if small broker-dealers potentially face a burden, this may not necessarily have an adverse effect on competition as a whole in the overall market for broker-dealer services. Under the CAT NMS Plan, broker-dealers would have greater reporting responsibilities than they would otherwise have. Broker-dealers could face high upfront infrastructure costs to set up a processing environment to meet reporting responsibilities. Because these infrastructure costs are upfront, fixed costs, the burden to bear these costs could be potentially greater for small broker-dealers. Instead of bearing these costs in-house, small broker-dealers could contract with outside technology vendors for reporting services. This outcome could lead to lower costs relative to not using a vendor for reporting services. For these reasons, even firms that currently do not report to OATS, but will be CAT Reporters under the Plan, could face manageable upfront costs that permit them to continue in their line of business without a severe setback in their profitability.
The Commission notes that a difficulty in assessing the likely impacts of the CAT NMS Plan on competition among broker-dealers is that competition in the markets for different broker-dealer services could be affected in different ways. As mentioned above, there is great diversity in the business activities of broker-dealers. Broker-dealer services that are likely to incur CAT reporting responsibilities include: executing orders, whether it be as an ATS or acting as a carrying broker-dealer; intermediating between customers and carrying/clearing brokers; effecting transactions in mutual funds that involve transferring funds directly to the issuer; writing options; and acting as an exchange floor broker. As noted above, these broker-dealers may also compete with the approximately 2,338 other broker-dealers in market segments that are not related to CAT reporting, such as dealing in municipal bonds or arranging
The Commission recognizes that the CAT NMS Plan could result in fewer broker-dealers providing specialized services that trigger CAT reporting obligations. The Commission preliminarily believes that this potential effect on broker-dealer specialization depends on whether three key conditions are met. First, the effect requires that, compared to large broker-dealers, small broker-dealers disproportionately specialize in providing regional or niche services to a particular market segment of clients. Second, the effect requires that this specialization is correlated with business risk associated with changes in marginal cost. Finally, the effect requires that the compliance costs of the CAT NMS Plan could affect the ability for some small broker-dealers to provide these specialized services. This effect, in which fewer broker-dealers compete in specialized market segments, could thereby negatively affect the competitive dynamics in these market segments, especially if these segments currently contain relatively few broker-dealers. The Commission preliminarily believes that these conditions could hold, particularly for smaller broker-dealers, and result in fewer broker-dealers operating in specialized or niche markets if the Plan is approved.
The Commission recognizes, however, that fewer broker-dealers in a specialized segment of the market may not necessarily harm competition in that segment. In particular, the costs of compliance with the Plan may be less of a relative burden for large broker-dealers who may, compared to small broker-dealers, provide a larger portfolio of specialized services to clients. This portfolio may buffer large broker-dealers from business risk associated with specialization. Because of the lower relative burden, large broker-dealers are more likely to maintain their presence in specialized market segments. If a sufficient number of large broker-dealers, or all broker-dealers more generally, maintain their presence in specialized market segments, a net decrease in broker-dealers may not affect the competition in such market segments to a level in which the market segment offers fewer or lower quality services or higher prices. However, the Commission recognizes that negative effects on competition in specialized market segments could result if broker-dealers achieve a level of market concentration necessary to adversely affect prices for investors.
SROs compete in the market for regulatory services.
As a result, the market for regulatory services in the equity and options markets currently has one dominant competitor, FINRA. This may provide relatively uniform levels of surveillance across trading venues. One SRO having a competitive advantage in providing such services could also limit the incentives to innovate in surveillance. Hypothetically, increases in the competition to provide regulatory services could promote regulatory oversight of exchanges and investor protection for investors. To the extent that a regulator could improve on current regulatory oversight, this could result in a better functioning, more liquid, financial market. However, it is possible that increased competition between SROs to provide regulatory services could have negative effects on the market if SROs compete on the basis of providing light-touch regulation, which might be less likely to detect violative activity.
The Commission preliminarily believes that the Plan could provide opportunities for increased competition in the market to provide regulatory services. In particular, designated regulatory Staff from all of the SROs would have access to CAT Data, which would reduce the differences in data access across SROs.
The Commission analyzed the effect of the CAT NMS Plan on competition in the market for data reporting services with a focus on its impact on the costs incurred by broker-dealers to comply with the Plan. As discussed in the Costs Section above, the Commission preliminarily believes that many broker-dealers, particularly smaller broker-dealers, would fulfill their CAT Reporting obligations by outsourcing to service bureaus and that the fees charged by the service bureaus would be a major cost driver for these broker-dealers. Further, these fees would factor into the increase in barriers to entry in the market for broker-dealer services.
The Plan provides information on broker-dealers' use of third-party service providers to accomplish current regulatory data reporting. The Plan notes that while some broker-dealers perform their regulatory data reporting in-house, others outsource this activity. The Plan does not state what proportion of broker-dealers currently outsources their regulatory data reporting work. However, the Commission interviewed a variety of broker-dealers and service bureaus in order to gain insight into the scope of broker-dealers' use of data reporting services. As noted in the Costs Section,
The market for regulatory data reporting services is characterized by bundling, high switching costs, and barriers to entry. The high IT infrastructure costs of regulatory data reporting creates economies of scale that give rise to the data reporting services provided by service bureaus. Broker-dealers, instead of investing in the IT infrastructure necessary for regulatory data reporting, could share the costs of the IT infrastructure with other broker-dealers by paying for a service bureau to report for them. Often, service bureaus bundle regulatory data reporting services with an order-handling system service that provides broker-dealers with market access and order routing capabilities.
In discussions with Staff, service bureaus stated that switching service bureaus can be costly and involve complex onboarding processes and requirements, that systems between service bureaus may be disparate, and switching service providers may require different or updated client documentation. However, service bureaus stated that on-boarding operations were infrequent and that it was rare for broker-dealers to switch between service providers. Difficulty switching between service providers could limit the competition among service bureaus to provide data reporting services, and impact the costs that Outsourcers incur to secure regulatory data reporting services. Furthermore, the high IT infrastructure costs also give rise to barriers to entry, which could slow the entry of new market participants into the market. Despite this, the trend in the market is toward expansion.
The Commission preliminarily believes that the Plan could alter the competitive landscape in the market for data reporting services in several ways. It is not clear whether demand for regulatory data reporting services would increase or decrease; although more broker-dealers would be required to report regulatory data, it is possible that flexible reporting options allowed by the Plan could make preparing data for reporting less onerous, leading to fewer firms choosing to outsource this activity.
It is possible that the Plan would increase the demand for data reporting services by requiring regulatory data reporting by broker-dealers that may have previously been exempt due to size under individual SRO rules.
The CAT NMS Plan could also dramatically change the pool of firms demanding data reporting services, which would be skewed toward firms that are smaller and on average costlier to service, which could result in higher
In addition to possibly increasing demand for data reporting services, the CAT NMS Plan may have a mixed effect on the number of firms offering data reporting services. This can impact the competitiveness of this market, and affect the costs broker-dealers bear in securing these services. On one hand, the number of firms offering data reporting services could decrease, because the need to secure PII might increase the likelihood of liability and litigation risks in the event of a security breach.
It is also possible that the Plan would decrease the demand for data reporting services. Many broker-dealers currently pay another firm (such as a service bureau) to fulfill their regulatory data reporting; this may be because these broker-dealers find it would be more expensive to handle the translation of their order management system data into fixed formats, such as is required for OATS. If the Plan Processor allows broker-dealers to send data to the Central Repository in the formats that they use for normal operations, in drop copies for example, these broker-dealers may no longer see a cost advantage in engaging the services of a regulatory data reporting service provider because one of the costs associated with regulatory data reporting—having to translate data into a fixed format—will have been eliminated.
The Commission preliminarily believes that this reduction in demand would not likely be realized and, if realized, would be unlikely to offset the increase in demand that would come from CAT reporters not subject to OATS reporting. As noted in the Costs Section, of the 1,800 expected CAT Reporters, 868 do not currently report to OATS.
The Commission has analyzed the potential impact of the Plan on efficiency. The Plan includes a discussion of certain efficiency effects anticipated if the Plan is approved; as part of its economic analysis, the Commission discusses these effects, as well as additional effects on efficiency anticipated by the Commission. The Commission preliminarily believes that the Plan as proposed is likely to result in significant improvements in efficiency related to how regulatory data is collected and used. The Plan also has the potential to result in improvements in market efficiency by deterring violative activity that could reduce market efficiency.
The Commission has analyzed the possible effects of the CAT NMS Plan on efficiency. Specifically, building off the discussion in the Plan, the Commission analyzed the effect of the Plan on the efficiency of detecting violative behavior through examinations and enforcement, on the efficiency of surveillance, on market efficiency through deterrence of violative behavior, on operational efficiency of CAT Reporters, and on efficiencies through reduced ad hoc data requests and quicker access to data.
The current state of regulatory data collection and use provides ample opportunity for efficiency improvements. First, regulators' ability to efficiently perform cross-market surveillance is hindered by data fragmentation.
The Plan discusses a number of expected efficiency effects associated with the Plan, including both positive and negative effects.
The Plan concludes SROs would experience improved efficiency in the detection of rule violations, particularly for violations that involve trading in multiple markets.
The Plan states that the Participants believe that the CAT NMS Plan could improve the efficiency of surveillance.
The Commission preliminarily believes that CAT may reduce violative behavior.
The Plan discusses increased efficiency due to reductions in redundant reporting systems.
The Plan discusses two other efficiency improvements: a reduction in ad-hoc data requests and more fulsome access to raw data. The Plan predicts a reduction in ad-hoc data requests, which would free up resources previously used to service such requests.
Furthermore, the Plan anticipates more robust access to unprocessed regulatory data, which could improve the efficiency with which SROs could respond to market events where they previously had to submit data requests and wait for data validation procedures to be completed before accessing data collected by other regulators.
The Plan discusses several sources of inefficiency due to costs of the Plan that are difficult to quantify, and are transient in nature. First, the Plan anticipates that implementation would introduce new costs related to data mapping and data dictionary creation.
The Plan notes that there could be a market inefficiency effect related to the funding proposal for the Plan. For example, the cost allocation methodology for the Plan could create disincentives for the provision of liquidity, which could impair market quality and increase the costs to investors to transact.
The Commission has examined the potential effects on capital formation discussed in the Plan in addition to other potential effects on capital formation that the Commission believes could result if the Plan is approved. The Commission preliminarily believes that the Plan would have a modest positive effect on capital formation.
The Plan's analysis regarding capital formation concludes that the Plan would generally not have a deleterious effect on capital formation and could bolster capital formation that could lead to increased investor participation in capital markets.
The Plan's analysis states that the Plan may improve capital formation by improving investor confidence in the market due to improvements in surveillance. As discussed previously,
The Commission preliminarily believes there could be additional increases in capital formation in the form of improvements in allocative efficiency of existing capital within the industry. If investors perceive an environment of improved surveillance, they could be willing to allocate additional capital to liquidity provision or other activities that increase market efficiency. Furthermore, an environment of improved surveillance efficiency could result in the reduction of capital allocated to violative activities that impose costs on other market participants, because these market participants may no longer find it possible to engage in such behavior that exposes them to regulatory action. In this scenario, this reallocation of capital could improve market quality and efficiency even if net capital formation changes little. In addition to the potential reallocation of capital currently mobilized toward violative activities, investor capital that may currently be diverted because of the risk of loss to violative activities could also be reallocated should the violative activities decrease. If the CAT NMS Plan reduces manipulative quoting activities, either through improved detection/enforcement or through deterrence of such activities, then investors are less likely to make capital allocation decisions in response to manipulative quoting activities. In this scenario, because manipulative quoting activities have been reduced, the contribution of manipulation to prices has been reduced and prices should therefore better reflect fundamentals. It would follow that, to the extent that displayed prices better reflect fundamentals rather than manipulation, investors could allocate capital more efficiently for their purposes. The Commission notes, however, that market participants engaging in allowable activity that might risk additional regulatory scrutiny under the Plan regime could allocate capital to other activities to avoid this scrutiny, because even when activity is not violative, interacting with regulators can be costly for market participants.
The Plan states that the costs from CAT are unlikely to deter investor participation in the capital markets.
The Commission preliminarily agrees with the Plan's assessment that data security concerns are unlikely to materially affect capital formation. In its discussion of capital formation, the Plan recognizes that data security concerns could potentially impact capital formation through market participants' perception that sensitive proprietary data might be vulnerable in case of a data breach at the Central Repository. The Plan's analysis discusses the security measures that are required by Rule 613 and the manner in which they have been implemented in the Plan. It concludes that these security measures are sufficient and that it is unlikely market participants would reduce their participation in markets in a manner that would affect capital formation.
As noted above, the Commission agrees that concerns regarding data security are unlikely to substantially affect capital formation, but that some uncertainty about the risks exist because of the variations in the potential security solutions and their resulting effectiveness.
A data breach could also substantially harm market participants by exposing proprietary information, such as a proprietary trading strategy or the existence of a significant business relationship with either a counterparty or client. The Commission notes, however, that broker-dealers already bear such risks in transmitting regulatory data to SROs. The Commission preliminarily believes that the marginal increase in the risks to broker-dealers associated with a data breach would be unlikely to deter
A data breach could potentially reveal PII of investors. To address the potential for harm to the investing public and the health of capital markets through such a breach, the Plan has enhanced requirements for security around PII. Those requirements include a separate PII-specific workflow, PII-specific authentication and access control, separate storage of PII data, and a full audit trail of PII access.
The Commission recognizes that the Plan's likely effects on competition, efficiency and capital formation are dependent to some extent on the performance and decisions of the Plan Processor and the Operating Committee in implementing the Plan, and thus there is necessarily some uncertainty in the Commission's analysis. Nonetheless, the Commission believes that the Plan contains certain governance provisions, as well as provisions relating to the selection and removal of the Plan Processor, that mitigate this uncertainty by promoting decision-making that could, on balance, have positive effects on competition, efficiency, and capital formation.
As noted in several places above,
The Plan specified three types of voting protocols and determines when each protocol applies.
The Plan balanced the efficiency of the decision-making process against the value of considering minority and dissenting opinions in proposing these voting protocols.
The Commission preliminarily agrees with the discussion on the need to balance efficiency in the voting protocols in the Plan. The Commission notes that the speed and ability to make a decision are key components of whether the Plan promotes efficiency in its operations. High-vote thresholds may result in an increase in the effort needed to obtain enough votes to make a decision. Further, in addition to the drawn out discussions necessary to obtain a unanimous vote, a unanimous
Furthermore, while the decision-making processes with a very low voting threshold would be faster, the resulting decisions might not consider all relevant information.
The Plan also discusses the role of industry representation as part of the governance structure.
The Commission preliminarily agrees with the discussion in the Plan that including industry representation might result in a more efficiently designed CAT, but adds that an Advisory Committee also adds operational inefficiencies. As discussed above, the Commission preliminarily believes that an Advisory Committee could add more diverse viewpoints to the debates surrounding Operating Committee decisions and thus reduce the risk that members of the Operating Committee could make decisions without first obtaining a full understanding of the underlying facts or the likely impact of its decisions.
The Commission considered an additional source of potential efficiencies in the decision-making process. The Plan specifies minimum standards for particular provisions or solutions in Appendix D of the Plan instead of specifying the solutions themselves in the Plan.
Provisions of the Plan should also promote efficiently implementing expansions to the CAT Data. Appendix C of the Plan notes that the Plan Processor must ensure that the Central Repository's technical infrastructure is scalable and adaptable.
The CAT NMS Plan uses a request for proposal (“RFP”) to select the Plan Processor that would design, build, and operate the Central Repository. The winning bidder becomes the sole supplier of the operation of the Central Repository. The Commission preliminarily believes this is necessary to achieve the benefits of a single consolidated source of regulatory data.
The competitiveness of the selection process influences the ultimate economic effect of the Plan because those effects depend in large part on the efficiency and effectiveness of the Plan Processor. In particular, many of the details of the Plan would be determined either by the winning bid or in negotiations with the Plan Processor after selection. The Plan Processor exercises control over the future costs of operating and maintaining the Central Repository in this context and the Plan Processor chooses its performance level, subject to the minimum standards in the Plan and with oversight from the Operating Committee.
Given the effects associated with the selection process for the Plan Processor, the Commission considered whether the Plan promotes a competitive process and whether the Plan contains provisions that would create incentives for the chosen Plan Processor to set costs and performance competitively. As explained below, the Commission preliminarily believes that the selection process generally promotes competition but that there are also a few potential limitations on competition. Moreover, the Commission recognizes that a competitive bidding process does not necessarily mean that the selected bidder would behave competitively after being selected as the Plan Processor.
The Commission believes that two elements determine the competitiveness of the bidding process. The first relates to the voting process and the second relates to the degree of transparency in the bidding process. The Commission preliminarily believes that the Plan provisions relevant to these two factors could promote competition in the bidding process and limit the risk that selection of the Plan Processor would be affected by a conflict of interest, thereby promoting better decision-making.
The CAT NMS Plan outlines a bidding process whereby a Selection Committee votes on bidders during several rounds of voting that each narrow the potential bidders until one bidder is selected.
The Participants received 31 Intent to Bid forms during the RFP process; 13 of the potential bidders withdrew before January 30, 2014; the Participants reported receiving 10 Bids by April 2, 2014.
In considering how competitive the voting process is, the Commission has considered whether conflicts of interest could limit competition in the bidding process through the proposed participation of a bidder representative on the Selection Committee. The Plan includes provisions that mitigate this conflict but that have not eliminated it completely. In particular, the Plan requires recusal of an SRO from any selection round if that SRO or its affiliate has submitted a bid—or is included as a material subcontractor as part of a bid—that is still under consideration in such round.
The Commission also recognizes that, to the extent the Operating Committee has specific preferred solutions as to how the Plan should be implemented, the degree to which the Committee is transparent about those preferences in the bidding process would affect the competitiveness of that process. For example, if the Commission were to approve the Plan and bidders were thereafter given the opportunity to revise their bids, the Operating Committee could promote competitiveness in the bidding process by outlining its preferences. Transparency into the Operating Committee's views regarding potential optimal solutions could assist a bidder in revising its bid to inform how that bidder could supply those optimal solutions, and the Selection Committee could then compare all bidders on those particular solutions. To the extent that the Operating Committee has strong preferences toward particular solutions but did not specify those preferences directly in the Plan, the bidder may not know that it could improve its chances of winning the bid by proposing a different solution and the Selection Committee would not know whether the bidder is capable of delivering the preferred solution more efficiently than the other bidders. On the other hand, the Commission notes that specifying a preferred solution also has the potential to discourage bidders from competing on innovation by proposing novel approaches that may deliver superior outcomes.
The Commission has no reason to believe that the Operating Committee has preferred solutions beyond what is in the Plan that would significantly impact the competitiveness of the Plan Processor selection process. Indeed, Appendix D of the Plan details numerous minimum standards not included in the RFP. In addition, the Plan also provides details on the range of solutions proposed by bidders and why the Operating Committee may not have a preference and therefore did not select a particular solution. This provides transparency to the bidders on the criteria the Selection Committee may use to compare bidders.
The Plan could create competitive incentives for the selected Plan Processor by detailing strong requirements for the Plan Processor and providing an efficient mechanism to
The Plan contains several provisions that would allow the Operating Committee to remove the Plan Processor.
The Commission preliminarily believes that the ability of the Operating Committee to remove the Plan Processor for poor performance with only a Majority Vote incentivizes the Plan Processor to perform well enough to avoid being removed. The Commission further preliminarily believes that the performance of the Plan Processor would depend significantly on strong oversight by the Operating Committee.
The Commission recognizes that the effort required to remove a Plan Processor could be significant, which would limit the incentives of the Plan Processor to perform well. To subject a removal to a Majority Vote, the Operating Committee would presumably need to demonstrate the Plan Processor's performance and determine that it was not “reasonably acceptable.” If not, the removal would be subject to Supermajority Vote, which could also take significant effort and a removal would be less likely to pass.
In addition, significant switching costs could influence whether removing a Plan Processor despite poor performance makes economic sense. In other words, the Operating Committee could wait for significant performance issues before initiating a vote to remove the Plan Processor. Additionally, before removing a Plan Processor, the Operating Committee would need to select a new Plan Processor. This would likely be a lengthy process taking significant time and effort by the Operating Committee. Moreover, switching Plan Processors could entail a complete rebuild of the Central Repository and significant implementation costs for CAT Reporters and Participants, potentially amounting to the initial implementation costs of the Plan. These costs would be higher if the Plan Processor's solutions include proprietary technologies that no other potential replacement (competitor) could supply. The costs would be lower if the new Plan Processor could implement the existing Technical Specifications. The benefits of switching could also depend on the benefits from technological advancements that these competitors could supply. In light of these costs, the competitive incentives of the Plan Processor to maintain top performance could be limited. Specifically, the Plan Processor may only need to perform well enough to keep the inefficiencies associated with their performance from exceeding the cost to switch to another Plan Processor. Despite the limitations on competitive incentives due to switching costs, however, the Commission preliminarily believes that the threat of replacement still provides an incentive to stay relatively current on technology advancements to avoid falling significantly behind potential competitors.
The Commission requests comment on all aspects of the discussion of the effects of the CAT NMS Plan on efficiency, competition, and capital formation. In particular, the Commission seeks responses to the following questions:
347. The Participants state in the Plan that they believe the Plan would avoid disincentives such as placing an inappropriate burden on competition in the U.S. securities markets. In its analysis, the Commission concludes that competition is unlikely to be harmed to a degree that would affect investors. Do Commenters agree with the conclusions discussed in the Plan? Why or why not? Do Commenters agree with the Commission's conclusion regarding the Plan's impact on competition? Why or why not?
348. Do Commenters agree with the Commission's characterization of the relevant markets that the CAT NMS Plan affect? Why or why not? Do Commenters agree with the identified level of competition in each of the relevant markets in the Commission's analysis? Why or why not?
349. Do Commenters agree with the Commission's discussion of the Baseline for the market for trading services? Why or why not?
350. Do Commenters agree with the Commission's analysis of competition in the market for trading services under the Plan? Why or why not?
351. Do Commenters agree with the Commission's analysis of effects of the Plan's funding model on competition? Why or why not? Would the funding model as outlined in the Plan affect competition in the market for trading services between exchanges and ATSs? If so, how? Do Commenters agree with the Commission's analysis of the effects on competition of the Plan's allocation of CAT fees across market participants? Why or why not? Would the Participation Fee outlined in the Plan serve as a barrier to entry for ATSs that might otherwise register as exchanges? Why or why not?
352. Do Commenters believe that the allocation of voting rights among the Participants may serve to affect competition between Participants that operate options exchanges and those that do not? Why? Do governance provisions outlined in the Plan provide controls that could prevent burdens on competition due to the allocation of voting rights among Participants? If not, are there controls that could achieve this?
353. Do Commenters believe that the allocation of voting rights among the Participants may serve to affect competition between exchanges and ATSs in the market for trading services? Why or why not?
354. Do Commenters agree with the Commission's analysis of the effects on competition of costs of compliance with the Plan? Why or why not?
355. Do Commenters agree with the Commission's analysis of the effects on competition of the Plan's enhanced surveillance and deterrence? Why or why not?
356. Do Commenters agree with the Commission's analysis of the Baseline
357. Do Commenters agree with the Commission's analysis of the effects on competition in the market for broker-dealer services of the Plan? Why or why not? Are these effects different for smaller broker-dealers? How? How significant are these impacts?
358. Do Commenters agree with the Commission's analysis of the competition to be Plan Processor? Why or why not?
359. Do Commenters believe that any elements of the CAT NMS Plan may affect competition among the bidders? Do Commenters believe that any decisions by the Operating Committee that are allowable or likely under the proposed Plan may affect competition among the bidders in the market to be Plan Processor? If so, how would these competitive dynamics affect CAT as outlined in the Plan?
360. Do Commenters agree with the Commission's analysis of competition in the market to be Plan Processor post-selection? Why or why not?
361. Do Commenters agree with the Commission's analysis of the Baseline for competition in the market for regulatory services? Why or why not?
362. Do Commenters agree with the Commission's analysis of competition in the market for regulatory services of the Plan? Why or why not?
363. Do Commenters agree with the Commission's analysis of the Baseline for competition in the market for data reporting services? Why or why not? Do Commenters believe that capacity constraints in this market may affect broker-dealers' ability to comply with data reporting requirements under the Plan?
364. Do Commenters agree with the Commission's analysis of competition in the market for data reporting services under the Plan? Why or why not?
365. If some or all of the Participants decide to share the Raw Data they collect pursuant to the CAT NMS Plan and use the combined data for commercial purposes, how do Commenters believe that might affect competition in the markets described above?
366. In the Plan, the Participants state that they believe the Plan would have a net positive effect on efficiency. The Commission's analysis states that the Commission preliminarily believes the Plan would have a significant positive effect on efficiency. Do Commenters agree with the conclusions stated in the Plan? Why or why not? Do Commenters agree with the Commission's analysis? Why or why not?
367. Do Commenters agree that costs related to the Plan's requirements for data mapping, data dictionary creation, and encryption associated with the transmission of PII would not significantly affect efficiency? Why or why not?
368. Do Commenters agree with the Commission's analysis of the Plan's effects on the efficiency of market regulation and oversight? Why or why not?
369. Do Commenters agree with the Commission's analysis of the Plan's effects on market efficiency due to reductions in violative behavior? Why or why not?
370. Do Commenters agree with the Commission's analysis of the Plan's effect on efficiency related to reductions in ad hoc data requests from regulators? Why or why not?
371. Do Commenters agree with the Commission's analysis of the Plan's effect on efficiency due to reductions in duplicative reporting systems? Why or why not?
372. Do Commenters believe that the period of duplicative reporting that would precede the retirement of certain current, anticipated to be retired, regulatory reporting systems would significantly affect efficiency? Why or why not?
373. Do Commenters agree with the Commission's analysis of inefficiencies related to the funding model? Why or why not?
374. Do Commenters agree with the Commission's analysis of the likelihood of CAT fees being passed on to investors under the Plan? Why or why not?
375. Do Commenters agree with the Commission's analysis of the efficiency of Plan operations? Why or why not?
376. Do Commenters agree with the Commission's analysis of the effects of voting thresholds for Operating Committee decisions on efficiency? Why or why not?
377. Do Commenters agree with the Commission's analysis of the Advisory Committee's effect on efficiency under the Plan? Why or why not?
378. Do Commenters agree with the Commission's analysis of the effects on efficiency of the Participants' decision to specify or not specify certain aspects of CAT in the RFP? Why or why not?
379. Do Commenters believe that the CAT NMS Plan would impact investor confidence? If so, how? Do investors currently lack confidence because of the current state of regulatory data? Would the expected improvements to investor protection result in increased investor confidence? Please explain. What would be the expected effects of changes in investor confidence on allocative efficiency and capital formation? What would be the magnitude of the economic effects from expected changes to investor confidence? Please provide analysis.
380. The Plan states that the Participants believe that the Plan would have no deleterious effect on capital formation. Do Commenters agree with the Participants' conclusions stated in the Plan? Do Commenters agree with the Commission's preliminary belief that the Plan would not have a deleterious effect on capital formation? Why or why not?
381. Do Commenters agree with the Commission's analysis of the Plan's effects on capital formation due to enhanced market surveillance and regulatory activities? Why or why not?
382. Do Commenters agree with the Commission's analysis of effects on capital formation due to data security provisions of the Plan? Why or why not?
As a part of its economic analysis, the Commission is considering and soliciting comment on alternatives to certain approaches or elements of the CAT NMS Plan. The Commission analyzes alternatives that could have a direct and significant impact on costs or benefits deriving from at least one of the four data qualities discussed above: accuracy, completeness, accessibility, and timeliness. While the discussed alternatives are not the only alternatives that could significantly impact costs, benefits, or data quality, they are an attempt to identify reasonable options. Each has the potential to alter the Commission's preliminary conclusions regarding the economic effects of the CAT NMS Plan.
The analysis of alternatives is divided into three categories. First, the Commission analyzes alternatives to the approaches the Exemption Order permitted the Participants to include in the Plan.
The Commission is soliciting additional comment on alternatives to the approaches the Exemption Order permitted the SROs to include in the CAT NMS Plan.
The Commission is soliciting comment on how an alternative approach—the Rule 613 approach—to the reporting of Options Market Maker quotations might impact the costs and benefits of the Plan. Rule 613(c)(7) provides that the CAT NMS Plan must require each national securities exchange, national securities association, and any member of such exchange or association to record and electronically report to the Central Repository details for each order and each Reportable Event, including the routing and modification or cancellation of an order.
Pursuant to the exemptive relief granted by the Commission, the CAT NMS Plan provides that only Options Exchanges—but not Options Market Makers—would be required to report information to the Central Repository regarding Options Market Maker quotations.
Under the Rule 613 approach, the reports from the Options Exchanges would be virtually identical to the reports coming from the Options Market Makers, with the exception that reports from the Options Market Makers would indicate the time that the Options Market Maker routes its quote, or any modification or cancellation thereof, to the exchange (“Quote Sent Time”). However, to ensure that regulators would receive all of the information contemplated by Rule 613(c)(7), the CAT NMS Plan requires that (1) Options Market Makers report to the relevant Options Exchange the Quote Sent Time along with any quotation, or any modification or cancellation thereof; and (2) Options Exchanges submit the quotation data received from Options Market Makers, including the Quote Sent Time, to the Central Repository without change.
Furthermore, the CAT NMS Plan estimates that the Rule 613 approach would increase the amount of records that must be handled by the Central Repository by 18 billion records per day, at an additional cost of between $2 million and $16 million for data storage and technical infrastructure over a five year period.
The Commission notes that there are limitations to the cost estimation methodology presented in the Exemption Request. These limitations include the lack of quantified cost estimates for additional indirect cost savings associated with the exemption. However, the Commission preliminarily believes that the Rule 613 approach would increase certain costs associated with the implementation and operation of CAT as compared to the Plan as filed
The Commission is soliciting comment on how an alternative approach—the Rule 613 approach—to the reporting of customer information might impact the costs and benefits of the Plan. Rule 613(c)(7)(i)(A) requires that for the original receipt or origination of an order, a CAT Reporter report the “Customer-ID(s) for each Customer.”
Pursuant to the exemptive relief granted by the Commission, the CAT NMS Plan provides for the use of the Customer Information Approach.
The Commission also preliminarily believes that the Rule 613 approach would have no significant impact on the benefits of the CAT NMS Plan. The Participants maintain that, under the Rule 613 approach, there would be no gains in terms of accuracy or reliability, no effect on the ability to link records, and no effect on the time the data would be made available to regulators, as compared to the Customer Information Approach.
The Commission also preliminarily believes that the Rule 613 approach would increase the costs of the CAT NMS Plan. In their Exemption Request, the Participants discussed a number of reasons why the Customer Information Approach is less burdensome than the Rule 613 approach. First, it reduces the CAT implementation burden on market participants by eliminating the need for changes to their current customer identification systems.
Based on cost survey data provided by the Participants, the Rule 613 approach would increase quantifiable costs to the top three tiers of CAT Reporters by at least $195 million.
The Commission is soliciting comment on how an alternative approach—the Rule 613 approach—to the reporting of CAT Reporter information might impact the costs and benefits of the Plan. A CAT-Reporter-ID is “a code that uniquely and consistently identifies [a CAT Reporter] for purposes of providing data to the central repository.”
Pursuant to the exemptive relief granted by the Commission, the CAT NMS Plan provides for the use of the Existing Identifier Approach.
The Commission preliminarily believes that the Rule 613 approach would not result in more reliable or accurate data as compared to the Existing Identifier Approach. The Exemption Request states that “the proposed approach would not compromise the goal of Rule 613 to record and link Reportable Events to the CAT Reporter associated with the event.”
In fact, the Commission preliminarily believes that the Rule 613 approach would reduce the quality of data obtained as compared to the Existing Identifier Approach. Specifically, the Rule 613 approach would reduce the granularity of information on departments, trading desks, and other business units within CAT Reporters, which would be captured under the Existing Identifier Approach. This additional granularity would be possible under the Existing Identifier Approach because identifiers currently in use are often assigned to entities that are defined more granularly than the CAT-Reporter-ID level. The Commission also preliminarily believes that the ability to leverage existing infrastructure and business processes may reduce the potential for delays and errors that could be associated with requiring CAT Reporters to modify their systems and workflows to handle the CAT-Reporter-IDs.
The Commission preliminarily believes that the Rule 613 approach would increase the costs of the CAT NMS Plan relative to the Existing Identifier Approach. The Participants estimate implementation costs for the top three tiers of CAT Reporters for the Rule 613 approach of $78 to $244 million, depending on how report types have to use the CAT-Reporter-IDs.
While the Commission preliminarily believes that the Rule 613 approach would increase certain costs associated with the implementation and operation of CAT as compared to the Existing Identifier Approach, the Commission notes that there are limitations associated with the cost estimation methodology presented in the Exemption Request. These limitations include the exclusion of SROs and smaller CAT Reporters from the survey, no apparent differentiation between initial, deferred, and recurring costs, and lack of support for the method used to extrapolate the estimates for large broker-dealers to the industry. Nor do the cost estimates address the broker-dealers who would be CAT Reporters but are currently not OATS reporters, including those that are currently not registered with FINRA, which may have a very different cost structure. However, it is likely that the dominant effect would be the exclusion of many CAT Reporters from the cost estimates, which would tend to underestimate the cost increases. The Commission currently has no data from which it can independently estimate the cost differential because it depends on information internal to each of a heterogeneous group of CAT Reporters, which is not compiled or stored anywhere and to which the Commission therefore does not have ready access. The Commission believes that these effects are not likely to alter its preliminary conclusion that the Rule 613 approach would significantly increase the costs of the CAT NMS Plan as compared to the Plan's Existing Identifier Approach. The Commission is requesting comment on this preliminary conclusion and any additional data Commenters believe should be considered.
The Commission is soliciting comment on how an alternative approach to the reporting of allocation information—the Rule 613 approach—might impact the costs and benefits of the Plan. Rule 613(c)(7)(vi)(A) requires each CAT Reporter to record and report to the Central Repository “the account number for any subaccounts to which the execution is allocated (in whole or part).”
Pursuant to the exemptive relief granted by the Commission, the CAT NMS Plan provides that, rather than providing the account number for any subaccounts to which the execution is allocated, CAT Reporters would submit information to the Central Repository in the form of an Allocation Report, in order to allow regulators to link subaccount information to the Customer that submitted the original order.
The Commission is soliciting comment on the Rule 613 approach, which would require CAT Reporters to record and report the account number for any subaccounts to which the execution is allocated, as described above. The Commission preliminarily believes that that the Rule 613 approach could provide the Central Repository with a way to link allocations to order lifecycles.
The Commission preliminarily believes that either approach would allow regulators to link specific allocations, and the prices received on those allocations, with the aggregated executions that resulted in the allocations and their execution prices. Industry feedback received by the Participants indicates that existing business practices typically involve aggregating executions in an average price account before making allocations, and forcing a precise matching between orders and executions ex-post would be misleading.
However, the Rule 613 approach would provide regulators access to allocations linked to specific disaggregated orders, which is not possible under the approach in the Plan. The Exemption Request notes that linking particular allocations to particular order lifecycles would be inaccurate in some circumstances, such as when many orders are allocated to many customers.
The Commission preliminarily believes that the Rule 613 approach would increase the costs of compliance with the CAT NMS Plan. According to industry feedback collected by the Participants, the Rule 613 approach would require broker-dealers to undertake a major re-engineering of their middle and back office systems and processes.
The Commission is soliciting comment on how an alternative approach—the Rule 613 approach—to time stamps on “Manual Order Events” might impact the costs and benefits of
Pursuant to the exemptive relief granted by the Commission, the CAT NMS Plan provides that: (1) Each CAT Reporter would record and report Manual Order Event time stamps to the second; (2) Manual Order Events would be identified as such when reported to the CAT; and (3) CAT Reporters would report in millisecond time stamp increments when a Manual Order Event is captured electronically in the relevant order handling and execution system of the CAT Reporter (“Electronic Capture Time”).
The Participants maintain in the Exemption Request that there would be little benefit, and possibly some adverse consequences, of capturing Manual Order Event time stamps in milliseconds.
The Participants discussed the costs and benefits of the proposed exemption in their Exemption Request. They estimated a minimum total cost to the industry of $10.5 million based on the cost of advanced OATS-compliant clocks with granularity of one second, and noted that clocks with millisecond granularity would likely be more expensive if available.
The Commission has analyzed alternatives to specific approaches in the CAT NMS Plan with respect to clock synchronization, time stamps, error rates, the time within which errors must be corrected, the funding model, requirements regarding listing exchange symbology, data accessibility standards, and intake capacity levels.
The Commission is soliciting comments on alternate approaches to clock synchronization as compared to those proposed in the CAT NMS Plan. First, the Commission is soliciting comment on alternatives to the Plan's one-size-fits-all definition of “industry standard.” Under these alternatives, “industry standard” would be defined in terms of the standard practices of different segments of the CAT Reporters, or by looking at information other than current industry practices. These alternative approaches could result in clock offset tolerances shorter than the CAT NMS Plan's proposed 50 millisecond standard for some or all CAT Reporters. The Commission preliminarily believes that these alternatives could substantially increase the benefits of CAT in regulatory activities that require event sequencing, such as analysis and reconstruction of market events, as well as market analysis and research in support of policy decisions, and cross-market surveillance, examinations, investigations, and other enforcement functions.
Second, the Commission is soliciting comment on two additional alternatives that could allow for more cost-effective clock synchronization standards. In particular, the Commission is soliciting comment on modifying the requirement to document clock synchronization activities such that only events that require clock adjustment would be required to be documented, and modifying the clock synchronization requirement such that clocks would not have to be synchronized at times when systems are not recording time-sensitive CAT Reportable Events, such as orders originated outside of market hours when they are not immediately actionable. The Commission preliminarily believes that reduced clock synchronization logging requirements might significantly reduce ongoing costs associated with clock synchronization compliance as compared to the Plan as filed, without losing any additional material information. In addition, the Commission preliminarily believes that more flexible clock synchronization standards outside of regular and extended trading hours may also reduce costs without a material loss to the ability of regulators to sequence order events as compared to the Plan as filed, without losing any additional material information. Each of these alternatives is outlined below.
Rule 613(d)(1) requires synchronization of business clocks for the purposes of recording the date and time of Reportable Events consistent
The benefits of alternative clock offset tolerances discussed in this Section may be dependent on time stamp granularity requirements. Related alternatives are discussed in Section IV.H.2.b,
First, the Commission is soliciting comment on an alternative definition of industry standard that would consider the standard practices of different segments of CAT Reporters. Under this alternative, all systems within market participants that process CAT-Reportable Events would be required to comply with a clock synchronization requirement reflecting an industry standard particular to that market participant's segment of the industry. Currently, the Commission lacks the information necessary to reach a preliminary conclusion regarding the appropriate industry standards for all subsets of the industry. Specifically, neither the FIF Clock Offset Survey nor the Plan provides comprehensive data on the clock synchronization practices of firms within each of the relevant subsets of the industry, and the Commission has no data from which it can independently estimate the cost differential because the Commission is not aware of any such data available to it at this time. However, the Commission is soliciting comment on this approach, which it believes would result in a clock offset tolerance of less than 50 milliseconds for some market participants. The Commission seeks comment on the current practices for clock synchronization in various segments of the industry, including but not limited to broker-dealers that are introducing firms, institutional firms, retail firms that accept customer orders electronically, registered market makers and principal trading firms, as well as service bureaus hosting order management systems, exchanges and ATSs, and branches of broker-dealers that predominantly handle manual orders. The Commission also seeks comment on the costs and benefits of requiring varying clock offset tolerances within the industry.
The Commission notes that the current practices for exchanges and Execution Venues may differ from the industry standard for broker-dealers as defined by the Plan, and current practices for certain systems within broker-dealers may vary by the system within the broker-dealers. For example, a small clock offset tolerance may be nearly universally adopted for systems like ATSs that operate a matching engine, while systems involved in manual entry of orders may typically have larger clock offset tolerances. By defining industry standard based on practices of the broker-dealer industry generally, the Plan does not account for these differences.
Other information now available for the Commission and the public to study, particularly information from the FIF Clock Offset Survey, shows that several of the survey respondents that have a current clock offset tolerance of one second are clearing firms or service bureaus.
Finally, exchanges and ATSs, as well as the SIPs, may have current clock offset tolerances that are significantly different from the clock offset tolerances at broker-dealers and could therefore achieve finer clock offset tolerances at lower cost than broker-dealers.
Given this information, the Commission recognizes the possibility that some business systems and some CAT Reporter types would rarely be responsible for recording the date and time of reportable events and also recognizes that the time stamp precision of such rare events might not be as critical as for other events. For example, a system that routes customer orders to market centers may be considered critical for sequencing market events, while a system that facilitates manual input of orders received by telephone may not. Conversely, the clock synchronization practices of some CAT Reporters may be more critical to the overall benefits of CAT or could be less costly to implement. For example, a service bureau that provides an order-handling system hosted on its own servers is likely to route orders for many market participants and its clock synchronization practices would, thus, be critical to event sequencing. On the other hand, the precision of time stamps from systems of an isolated broker-dealer that routes customer orders to its service bureau or another broker-dealer for market access and conducts no
Relative to the proposed clock synchronization standard, the Commission preliminarily believes that an alternative approach that would consider the standard practices of different segments of the industry for the purposes of setting the clock synchronization requirements, and would require a smaller clock offset tolerance than in the Plan for certain business systems that are more critical to being able to accurately sequence order events, could have significant benefits. In other words, the Commission preliminarily believes that some business systems may be responsible for time stamping more time-sensitive order events than others, where more time-sensitive orders are those for which precise time stamps are more critical for event sequencing.
The Commission does not currently have the information necessary to specify which particular types of business system handle more time-sensitive orders because neither the FIF Clock Offset Survey nor the Plan provides this data. The Commission has no data from which it can independently estimate this because the Commission is not aware of any such data available to it. However, the Commission recognizes the potential for such an approach. For example, it is possible that almost all of the order origination events, routing events, modification events, and execution events, which are likely to be more time-sensitive than other CAT Reportable Events, occur on systems at broker-dealers that conduct certain types of businesses. The businesses that seem most likely to record these time-sensitive events include: Introducing broker-dealers; institutional broker-dealers; retail broker-dealers that accept customer orders electronically; registered market makers; principal trading firms; service bureaus that host order management systems; exchanges; and ATSs.
Further, some systems collect order events that either do not require a granular time stamp; other systems would not be required to record order events in real time. An example would be regional branches of broker-dealers that only handle manual orders which require a time stamp to the second until the broker enters the order into an electronic system. If the order entry hits a centralized system quickly, then perhaps the clock precision of the centralized system may be sufficient for sequencing.
The Commission is also soliciting comment on an alternative approach that would define industry standard by looking at information other than current industry practices; for example, by considering the most accurate technology currently available in the industry, or the standard recommended by a particular industry group or authority. Defining industry standards by majority practices may have the unintended effect of setting a standard that delays adopting advances in technology. The Commission preliminarily believes that this alternative approach could result in defining an industry standard for clock synchronization that would require a clock offset tolerance for all CAT Reporters that is lower than the 50 millisecond standard required by the Plan. The Commission seeks comment on any appropriate definitions of “industry standard” with respect to clock synchronization, including the costs and benefits of using any alternative definitions of “industry standard” for the purposes of setting clock synchronization requirements. The Commission also seeks comment on whether a definition of “industry standard” could set a maximum clock offset tolerance with an expectation that each CAT Reporter would be responsible for smaller clock offsets if the CAT Reporter is technically capable of such clock offsets.
The Commission conducted an analysis to assess the benefits of alternative approaches to defining industry standard that would result in smaller clock offset tolerances for some or all segments of CAT Reporters. The Commission evaluated the percentage of unrelated events that can potentially be sequenced under various clock offset tolerances, including the 50 millisecond tolerance outlined in the CAT NMS Plan. The Commission estimates that approximately 7.84% of unrelated orders for listed equities and 18.83% of unrelated orders for listed options can be accurately sequenced using a clock offset tolerance of 50 milliseconds.
The Commission's analysis suggests that approximately 16.51% of unrelated order events for equities and 35.54% of unrelated order events for options could be sequenced under a clock offset tolerance of 5 milliseconds, 22.08% of orders events for equities and 50.70% of order events for options could be sequenced under a clock offset tolerance of 1 millisecond, and 42.47% of order events for equities and 78.42% of orders events for options could be sequenced under a clock offset tolerance of 100 microseconds. Given these results, the Commission believes that requiring a smaller clock offset tolerance than the Plan's proposed 50 milliseconds for some segments of the industry could improve the accuracy of event sequencing.
Relative to the Plan's proposed universal 50 millisecond clock offset tolerance, the Commission preliminarily believes that requiring a smaller clock offset tolerance for some segments of the industry would likely increase the costs of the CAT NMS Plan. Table 11 is from page C-126 of the CAT NMS Plan, and it provides the costs of the Plan's proposed clock offset tolerance (50 milliseconds) and alternative tolerances (100 microseconds, 5 milliseconds, and 1 millisecond).
The Commission understands that the cost figures in Table 11 do not net out the current ongoing costs of clock synchronization, which are $203,846.
Based on these estimates, the Commission estimated aggregate clock synchronization costs for broker-dealers consistent with the estimation of their total CAT compliance costs as detailed in the Costs Section above.
With these implementation costs, the Commission aggregated implementation and ongoing costs as indicated in Table 14.
Table 14 suggests that the Plan's clock synchronization costs for the approximately 1,800 expected CAT Reporters would be approximately $268 million in estimated implementation costs and about $25 million in ongoing costs.
Table 15 provides estimates for how the costs of alternative clock offset tolerances applied to all business systems would be greater than those of the CAT NMS Plan if a different clock offset tolerance applied to all CAT Reporters.
The Commission does not have information on the implementation and ongoing costs to exchanges or ATSs of various alternative clock offset tolerances because trading venues were not included in the FIF Clock Offset Survey.
As noted above, the Commission is soliciting comment on both an alternative that would consider the standard practices of different segments of the CAT Reporters for the purposes of setting the clock synchronization requirements, and an alternative that would define industry standard by looking at information other than current industry practice. The Commission preliminarily believes that if the CAT NMS Plan used an alternative interpretation of “industry standard” that considered the standard practices of different segments of the CAT Reporters for the purposes of setting the clock synchronization requirements, the cost increases associated with smaller clock offset tolerances might be lower than estimates presented in the tables above. In particular, if the clock synchronization requirements were only applied to the most time-sensitive systems, the costs increases would be lower than those presented.
The Commission recognizes that a clock offset tolerance smaller than 50 milliseconds would have differential cost across market participants. An alternate approach to defining “industry standard” that took into account the standard practices of different segments of CAT Reporters could mitigate those costs. All FIF Clock Offset Survey respondents that provided technology information use technology capable of 50 millisecond clock offset tolerances, but 36% of those respondents do not employ a technology capable of clock offset tolerances smaller than 50 milliseconds. Some survey respondents indicated that they employ software that is not capable of clock offset tolerances of less than 50 milliseconds or that desktop PCs would be a challenge with such clock offset tolerances. An alternative definition of “industry standard” that considered the practices of various segments of the industry could apply smaller clock offset tolerances to a subset of business systems; the Commission expects that applying smaller clock offset tolerances to a subset of systems would cost less than applying such clock offset tolerances to all systems. However, the benefits could also be limited in terms of the percentage of unrelated events that could potentially be sequenced, as compared to a definition of “industry standard” that a set a lower clock offset tolerance for all CAT Reporters.
Rule 613(d)(1) requires synchronizing business clocks that are used for the purposes of recording the date and time of any Reportable Event. The CAT NMS Plan further requires that Participants and other CAT Reporters maintain a log recording the time of each clock synchronization that is performed and the result of such synchronization, specifically identifying any synchronization initiated in response to an observed discrepancy between the CAT Reporter's business clock and the time maintained by the NIST exceeding 50 milliseconds.
A few survey respondents indicated that the number of logged events would go up significantly with a shorter clock offset, which requires a costly logging system.
The Commission cannot quantify the reduction in costs from this alternative because it lacks data on the proportion of clock synchronization costs that are associated with event logging and the proportion of those costs that could be avoided by alternative event logging requirements. The Commission preliminarily believes that any reduction in benefits from this alternative, as compared to the CAT NMS Plan's approach for clock synchronization, would be minor because the inclusion of clock synchronization checks that required no clock adjustment would not improve regulators' ability to sequence events. The Commission notes, however, that enforcement of clock synchronization requirements may be more difficult without comprehensive logging requirements that document firms' actions to comply with requirements; consequently, relaxing the logging requirement may also reduce incentives to comply with the clock synchronization requirements.
The Commission is soliciting comment on alternative requirements for the times during which clock synchronization is required that would provide more flexibility than the requirements of the Plan. The clock synchronization requirement presented in the CAT NMS Plan makes no provision for reduced clock synchronization requirements at times during which systems are not performing tasks that produce time-sensitive CAT Reportable Events; in the FIF Clock Offset Survey, respondents identified that there were certain times during which maintaining clock synchronization is more costly. Survey respondents noted they would incur additional costs in maintaining clock offset “99.9% of the time” or with “100% reliability” and costs associated with managing “clock synch instability . . . after server reboot.” The Commission notes that maintaining 99.9% or 100% reliability may be unnecessary during times when the system does not record Reportable Events. Further, the Commission understands that generally a system does not record Reportable Events during server reboots. Therefore, the Commission preliminarily believes that an alternative that does not require synchronizing clocks when servers are not recording Reportable Events or when precise time stamps are not as important to sequencing, such as outside of normal trading hours, would not materially reduce benefits. Given the responses to the FIF Clock Offset Survey, the Commission preliminarily believes that this alternative could reduce costs because synchronization activities and log entries related to those events would not be as beneficial outside of normal trading hours. The Commission does not have information necessary to quantify the cost reduction because cost information available to the Commission is not broken down by time of day or server status.
The Commission is soliciting comment on the benefits and costs of an alternative time stamp granularity requirement of less than one millisecond. Rule 613(d)(3) requires time stamp granularity consistent with industry standards and, as discussed above, the Plan requires time stamps that reflect industry standards and are at
The Commission recognizes that regulators' ability to sequence events is dependent on both clock offset tolerance and time stamp granularity. If the Plan requires any or all CAT Reporters to implement clock offset tolerances of less than a millisecond, time stamps reported at the millisecond level would not capture the additional precision of the smaller clock offset tolerance and much of the benefits of this smaller clock offset requirement would be lost if time stamps were rounded or truncated due to a millisecond time stamp granularity requirement. The Commission notes that provisions in the Plan require that any Participant that utilizes time stamps in increments finer than the minimum required to be reported under the Plan utilize such increments in reporting data to the Central Repository. Also, the Commission notes that a sub-millisecond clock offset tolerance would not in itself require the reporting of sub-millisecond time stamps to the Central Repository.
A requirement for time stamps at resolutions finer than 1 millisecond would entail certain costs. Because some market participants already use time stamps at the sub-millisecond level and will be required to report this information under the Plan, such a requirement is unlikely to create significant additional costs for CAT Reporters. Furthermore, while some exchanges and broker-dealers are already required to report time stamps at the sub-millisecond level, implementation costs are likely to vary across CAT Reporters. The Plan does not provide data on the cost of requiring sub-millisecond time stamps, and the Commission has no other data from which it can independently estimate this, because the Commission is not aware of any such data currently available to it.
Requiring sub-millisecond time stamp reporting would bring certain benefits. However, the Commission preliminarily believes these benefits may be limited without requiring clock offset tolerances of less than one millisecond as well. For example, with a 50 millisecond clock offset tolerance, a time stamp can only pinpoint the time of an event to a 100 millisecond range.
The Commission is soliciting comment on the benefits and costs of alternative maximum Error Rates. The Commission does not possess sufficient data to quantitatively assess the costs and benefits of an alternative to the maximum Error Rates specified in the CAT NMS Plan. However, the Commission is using information provided in the CAT NMS Plan to perform a qualitative assessment of the proposed maximum Error Rates.
The potential benefits from a lower maximum Error Rate than proposed in the CAT NMS Plan could be improved accuracy in the data, and a quicker retirement of OATS and other regulatory data reporting systems.
Second, because OATS currently has a lower observed error rate than the CAT NMS Plan, a reduction in CAT Error Rates may accelerate the retirement of OATS because the SROs may find it advantageous to retain OATS until CAT Data is at least as accurate as OATS data. However, the CAT NMS Plan does not require a particular target Error Rate before OATS can be retired and the Plan does not estimate any cost savings associated with the retirement of OATS or other systems, beyond those resulting from the end of a period of costly duplicative reporting. Therefore, any acceleration in the retirement of OATS would not provide a direct benefit resulting from a lower Error Rate. Further, the error rates in OATS may not be comparable to the Error Rates in CAT Data because the algorithm that identifies errors in CAT Data is unlikely to be identical to the algorithm that identifies errors in OATS. In particular, the Plan requires some types of validation checks on CAT Data that OATS data does not go through. These additional validation checks will help to ensure the accuracy of information types not currently collected by OATS such as Customer Account Information, Firm Designated
While reducing error rates may have these potential benefits, the Commission recognizes that it would also come at a cost. In particular, reducing Error Rates could increase the implementation and ongoing costs incurred by CAT Reporters and the Central Repository as compared to costs estimated in the Plan, as filed. To achieve lower Error Rates, some CAT Reporters might have to run additional validation checks on their data before sending their data to the Central Repository. Such CAT Reporters would incur additional costs to code and test any additional validation checks prior to implementation. CAT Reporters might also have to monitor and adjust their validation checks to respond to Error Rate reports from the Central Repository, incurring additional ongoing costs. However, the CAT Reporters already achieving lower Error Rates might not require additional checks, adjustments, or monitoring. Additionally, the Commission preliminarily believes that costs incurred by CAT Reporters to reduce error rates prior to sending data to the Central Repository may ultimately result in lower costs associated with correcting errors after the data is sent. The Commission also notes that the costs incurred would depend in part on the format in which data is reported to the Central Repository, which has yet to be determined. If a solution is chosen that requires the reformatting of data, and this reformatting results in errors, then the costs could be higher. Conversely, a solution that does not require data reformatting could result in a lower Error Rate with lower costs to CAT Reporters.
Additionally, the Plan contains provisions that require the Plan Processor to monitor and address Error Rates. For example, the Plan Processor is required to notify each CAT Reporter that exceeds the maximum Error Rate, and provide the specific reporting requirements that they did not fully meet. Requiring a lower Error Rate could increase the costs of these provisions, as compared to the costs estimated in the Plan as filed, because more CAT Reporters would exceed the Error Rate at which penalties are levied by the Plan Processor.
The Commission is soliciting comment on an alternative error correction timeline to that proposed in the CAT NMS Plan. The CAT NMS Plan proposes a deadline of T+3 for submission of corrected data to the Central Repository.
The Commission is soliciting comment on whether the CAT NMS Plan should impose a day T+5 deadline rather than the day T+3 deadline. In comment letters submitted to the Participants, FIF and SIFMA maintain that the day T+3 deadline may not be feasible and would prove costly to market participants.
The mechanism by which CAT fees are allocated is important because it can potentially disadvantage particular business models. Although the Plan does not discuss the final details of the CAT funding model, it does provide some details, including a set of funding principles that the Participants have discussed with the Development Advisory Group. The Commission is soliciting comment on alternative mechanisms for allocating fees across Execution Venues and across Industry Members.
The CAT NMS Plan presents details regarding an allocation of costs between the Execution Venues and the other Industry Members (
The Commission is soliciting comment on several unified funding models as alternatives to the Plan's bifurcated funding model. One of the alternative funding models the Commission is soliciting comment on is a unified funding model in which Central Repository costs are allocated across all market participants (including Execution Venues) by message traffic. The Commission expects that message traffic will be a primary cost driver for the Central Repository, because transactional volume (which is cited by the Plan as a primary cost driver for the Central repository) is highly correlated with message traffic. Consequently, assessing CAT costs on market participants by message traffic may have the benefit of aligning market participants' incentives with the Participants' stated goal of minimizing costs. However, the Commission is also aware that while a broker-dealer's choice of business model is likely to determine its level of message activity, the majority of an exchange's message traffic is passive receipt of quote updates.
The Commission is also soliciting comment on an alternative approach to reporting market maker quotations on exchanges that could address this concern. In this approach, market makers (both equity and options) would not need to report their quotation updates. Exchanges (both equity and options) would report quotation sent times (as detailed in the Plan with regard to Options Market Makers and the Exemption Request
The Commission is soliciting comment on this alternative for a number of reasons. First, it ties CAT costs to a primary driver of the magnitude of Central Repository costs: message traffic.
The Commission also is soliciting comment on a second alternative approach to CAT funding, a unified funding approach where the tiers in the funding model are based on market share of share volume. Under this approach, all market participants (both exchanges and broker-dealers) would qualify for a tier based on reported share volumes. Share volume would count equally toward the tier regardless of the Execution Venue selected by the broker-dealer originating the order. However, this approach does not align the costs of operating and maintaining the Central Repository, which would largely depend on message traffic, with the fees charged to market participants. Furthermore, it is possible that some Execution Venues could compete for order flow by not passing this fee on to their customers, generating the same limitations as discussed above for the funding model in the Plan.
A third alternative would be for the funding model to impose fees on every individual trade instead of imposing a fixed fee by tier. This approach has several benefits. First, the Commission preliminarily believes that implementation costs for this approach are likely to be lower than other alternatives because infrastructure already exists to levy fees on each trade (this is the mechanism by which Section 31 fees are levied).
Assessing fees directly on trades entails certain costs as well. First, it does not provide incentives for market participants to limit their message traffic, which is a primary cost-driver for the Central Repository. Second, it does not provide the benefits of a tiered approach, which the CAT NMS Plan lists as including transparency, predictability and ease of calculation.
The Commission is also soliciting comment on alternatives to the funding model proposed in the CAT NMS Plan that would also be bifurcated. One alternative would be to allocate CAT costs to broker-dealers by market share of share volume while retaining the Plan's funding model for Execution
The Commission is further soliciting comment on the alternative of requiring the CAT NMS Plan to treat ATSs only as broker-dealers for funding purposes, instead of treating ATSs as Execution Venues. Under this alternative, firms that operate ATSs would not be charged for both their ATS's market share of share volume (like an exchange) and its message traffic (as a broker-dealer).
The Commission is also soliciting comment on the alternative approach of not charging broker-dealers for message traffic to and from their ATSs while still assessing fees to ATSs as Execution Venues or exchange broker-dealers for their message traffic. Under this alternative, broker-dealers that operate ATSs would pay trading volume based fees on their ATSs volume in the same manner as exchanges' fees are assessed. However, the message traffic to and from the ATS would not be included in the message traffic used to calculate fees assessed to the broker-dealer that sponsors the ATS. The Commission preliminarily believes this alternative would help mitigate the broker-dealer routing incentives discussed above. The Commission is aware that because the volume executed on ATSs would be included in the portion of Central Repository funding assigned to Execution Venues, this funding approach would not shift part of the funding burden assigned to Execution Venues away from ATSs (and the broker-dealers that operate them) to exchanges as the previous alternative would.
The Commission preliminarily believes that either of these ATS-related funding alternative approaches would avoid disadvantaging ATSs relative to similarly situated exchanges, and would be less likely to result in the conflicts of interest in routing described above. Currently, the Commission lacks sufficient details on the fee structure to make this determination, because the fee structure has not yet been finalized.
The Commission is also soliciting comment on the alternative of excluding ATS volume from TRF volume for purposes of allocating fees across Execution Venues. Under this alternative, SROs that operate TRFs (currently only FINRA) would not pay Execution Venue fees for volume that originated from an ATS execution. This alternative would avoid the problem of double-counting ATS volume as share volume, which originates because each ATS trade is counted for fee-levying purposes as share volume associated with an ATS, then counted again as share volume when the trade is printed to a TRF. However, the Commission notes that other over the counter volume, such as occurs when orders are executed off-exchange against a broker-dealer's inventory, would be assessed share volume fees while the message traffic that resulted in this execution would also be subject to fees through the broker-dealers that had order events related to these transactions. This contrasts to executions that occur on exchanges, where the venue that facilitates the execution does not pay fees for message traffic that led to the execution.
The Commission is also soliciting comment on the alternative of not treating the Trade Reporting Facilities (“TRFs”) as FINRA Execution Venues. TRFs capture ATS share volume, which is already subject to fees allocated to Execution Venues, and non-ATS off-exchange share volume, which is subject to CAT fees allocated to broker-dealer message traffic. Consequently, under the approach in the Plan, the activity that generates a TRF trade report is already assessed CAT fees through the broker-dealers that facilitate the trade, or the ATSs that served as the Execution Venue. Under this alternative approach, FINRA would not pay any fees directly into the Central Repository, and broker-dealers would only incur fees directly levied on them by the Operating Committee, rather than also
The CAT NMS Plan would allocate net profit or net loss from the operation of the CAT equally among the Participants, regardless of size, which could advantage small exchanges in the event of a profit and disadvantage small exchanges in the event of a loss. This could negatively impact competition if the cost differentials are significant enough to alter the set of services that some competitors offer. As an alternative, the Commission is soliciting comment on whether the profit or loss from operating CAT should be allocated across Participants by market share of share volume, consistent with how the CAT costs would be allocated under the Plan.
Finally, the Commission is soliciting comment on requiring a strictly variable funding model, rather than the fixed-tiered model in the CAT NMS Plan. Under a variable funding model, each trade or message is subject to a fee, rather than a broker-dealer incurring a fixed fee that depends on that broker-dealer's volume tier.
The Commission is soliciting comment on an alternative to the CAT NMS Plan that would allow CAT Reporters to report using their existing symbologies, rather than listing exchange symbology. The Plan requires the Plan Processor maintain a complete symbology database, including the historical symbology. The CAT NMS Plan also requires CAT Reporters to report data using the listing exchange symbology format, which would be used in the display of linked data. The CAT NMS Plan also requires Participants to provide the Plan Processor with the issue symbol information, and validation of symbology would be part of data validation performed by the Plan Processor.
The Commission preliminarily believes that, in light of the proposed requirement for the Plan Processor to maintain a complete symbology database, the requirement that CAT Reporters report using listing exchange symbology may result in unnecessary costs to CAT Reporters. Therefore, the Commission preliminarily believes that the alternative of allowing CAT Reporters to use their existing symbologies for reporting purposes could significantly reduce the costs for exchanges and broker-dealers to report order events to the Central Repository, as compared to the approach in the CAT NMS as filed, without a significant impact on the expected benefits of the Plan or the costs to operate the Central Repository.
Currently, Execution Venues handle complex symbology in different fashions. Some common stocks, for example, have multiple classes of shares. Exactly specifying the issue to be traded involves identifying the ticker symbol and sometimes a share class. On some venues, the convention is that these security types are reported without a delimiter in the symbol; other venues use a delimiter, and delimiters can vary across venues. For example, assume a firm has a listing symbol of ABC, and has two classes of shares, A and B. An issue might be “ABC A” on one venue, “ABC_A” on another, and “ABCA” on a third. This can cause numerous problems for analyses that extend beyond a single trading venue, particularly if “ABCA” is the complete listing symbol for an unrelated security. As mentioned in the Benefits Section, the inclusion of the complete symbol history of a security and the requirement for queries, reports, and searches to automatically collect the appropriate data despite symbol changes promotes accurate query responses by ensuring the inclusion of order events that might have been excluded because of symbology differences and by excluding order events in unrelated securities. The Commission preliminarily believes that the CAT NMS Plan can achieve these benefits without requiring CAT Reporters to report using listing exchange symbology.
As discussed in the Costs Section, one potential cost driver to CAT Reporters is the need to process reports before submitting them to the Central Repository.
Some broker-dealers may already have adequate computational resources to run the transformation, whether at once, in batches, or in real-time; others could have to invest in such resources—an investment that would be saved by eliminating the requirement to use listing exchange symbology. The degree of cost savings would depend on any requirements to transform the data prior to reporting, which depends on the allowable formats for transmission. The CAT NMS Plan does not specify the allowable formats or whether the Central Repository would require a fixed format. If the Technical Specifications require a fixed format, broker-dealers would most likely have
Further, the Commission cannot estimate the degree to which eliminating this requirement could reduce costs as compared to those in the CAT NMS Plan as filed, because it lacks the data to do so. The Plan assumes the need to transform the data to match exchange symbologies and therefore does not separately itemize the cost for transformation as a separate step in the reporting process. The Commission has no data from which it can independently estimate the cost differential because it depends on information internal to each of a heterogeneous group of CAT Reporters (
The Commission is soliciting comment on alternative approaches to the manner in which the CAT NMS Plan provides data access to regulators. Section IV.E.1.c of the CAT NMS Plan summarizes the Central Repository's requirements to provide access to regulators. This access would include both an online targeted query tool and a user-defined direct query or bulk extract.
The Commission is generally soliciting comment on alternatives to each minimum data accessibility standard required in the CAT NMS Plan. With multiple standards that could each be adjusted in countless ways, the set of possibilities is infinite, which precludes their enumeration and discussion within this analysis. Instead, this Section discusses several examples and requests comment on alternative standards that might be adopted. Because query response time standards provide exact limits, the Commission uses those to illustrate how changing the standards could affect benefits and costs. The CAT NMS Plan requires query responses for various types of queries of 5 minutes, 10 minutes, 3 hours, and 24 hours, where the simplest queries involving scanning narrow sets of data would be required to return in 5 minutes and complex queries scanning multiple days of data and returning large datasets would be required to return within 24 hours.
The Commission notes that particularly large and complex data queries can take extensive computing resources. While the benefits of direct access to CAT Data depend on reasonably fast query responses, the Commission recognizes that faster query response times come at a cost. The Commission does not have detailed information on significant breakpoints in those costs to judge whether slightly longer response times than those in the Plan could significantly reduce the costs of developing, maintaining, and operating the Central Repository. For example, the Commission does not know whether a 48-hour response time on a query of 5 years of data is significantly less expensive than a 24 hour response time, but either maximum response time would provide a significant improvement in timeliness over current data. Likewise, the Commission does not know whether the response times could be faster without a significant increase in costs. The Commission recognizes that the detailed information on numerous other minimum standards regarding access to regulators is similarly unclear. Therefore, the Commission requests comment regarding all standards for regulatory access and whether technology creates natural breakpoints in costs such that a particular alternative could reduce the costs of the Plan without significantly reducing benefits or could increase benefits without significantly increasing costs.
The Commission is soliciting comment on alternatives to the intake capacity level required in the CAT NMS Plan. The CAT NMS Plan requires that the Central Repository have an intake capacity of twice historical peak daily volume measured over the most recent six years and the ability to handle peaks beyond this Baseline level for short periods.
The Commission performed an analysis using MIDAS data and determined that, for equities, the daily message traffic volume would exceed two times the maximum daily message volume from the previous six years (2010 through 2015) with a probability of 0.033%, which amounts to the intake exceeding capacity levels about once every 8
The Commission preliminarily believes that intake capacity level is likely to be a primary cost driver for the Central Repository.
The Commission is soliciting comment on requiring a different intake capacity level. Alternative intake capacity levels would result in costs and benefits that depend on the specific alternative capacity level and whether it is higher or lower than the proposed level. For an alternative with a lower intake capacity level, such as 1.5 times the historic peak capacity level, the cost of creating and operating the Central Repository might be lower, but the risk that the Central Repository would be unable to meet regulator's data needs would be higher than under the CAT NMS Plan, particularly following events similar to the Flash Crash and August 24th, which created both a high volume of trading records and a high demand for timely regulatory analysis.
An alternative with a higher required intake capacity level, such as 3 times the historic peak capacity level, would likely entail higher costs than the CAT NMS Plan, but higher intake capacity levels would reduce the risk of the Central Repository being unable to meet regulators' data needs and thus increase the benefits of the Plan.
The CAT NMS Plan does not provide sufficient information for the Commission to quantify the cost difference between alternative intake capacities and the intake capacity in the CAT NMS Plan and there are no analogous projects of this scope with publicly-available data from bidding or otherwise from which the Commission could extrapolate.
The Commission notes that Rule 613 sets forth the minimum elements the Commission believes are necessary for an effective consolidated audit trail.
While the Commission and the SROs have previously analyzed Rule 613, including the elements to be included in the CAT NMS Plan, the Commission now has the Plan, together with the cost and alternatives analysis provided by the Participants. The Commission has reviewed the Plan, including the cost estimates, and has performed its own economic analysis of the Plan. With the benefit of having reviewed and analyzed the Plan, the Commission believes that it is reasonable to solicit comment on alternatives to the scope of certain elements of the CAT NMS Plan because these alternatives could impact the cost and benefits of CAT, and given the passage of time, there may be market developments that could affect those costs and benefits that should be evaluated. These alternatives include: (1) Not requiring certain data fields that are currently required by the Plan; (2) requiring the Operating Committee to consider including more primary market transactions than it would otherwise be required to consider under the Plan; (3) removing from the Plan the OTC Equity Securities recording and reporting requirements; and (4) excluding certain Customer information periodic update requirements.
Rule 613 provides that the Plan must require the reporting of certain data fields.
The Commission is soliciting comment on whether any data fields that would be subject to CAT reporting under the Plan should be excluded. For example, Rule 613 required the Plan to include a unique customer identifier. As discussed further in Section IV.H.1 above the Commission granted the Participants an exemption from certain requirements in Rule 613 so that the Plan could include an approach whereby each broker-dealer would assign a unique Firm Designated ID to each trading account, which would be linked to a set of identifying information.
As an alternative, the Commission could eliminate the requirement to report customer identifiers. In the Adopting Release, the Commission recognized that the implementation of the unique customer identifier requirement might be complex and costly, and that the reporting of a unique customer identifier would require SROs and their members to modify their systems to comply with the Rule's requirements.
The Commission could also consider the alternative of excluding the allocation time field from reporting requirements in the Allocation Reports. Although this field is not currently required for recordkeeping, some broker-dealers do already retain allocation time information at the subaccount level in their trade blotters, though the Commission does not have precise information on the prevalence of this practice. The Commission preliminarily believes that removing allocation time would significantly
The Plan requires both the CAT-Reporter-ID for the broker-dealer routing an order and the CAT-Reporter-ID for the broker-dealer receiving a routed order to be reported to the Central Repository, both when the order is routed and again when the routed order is received. The Commission could eliminate the requirement to report the CAT-Reporter-IDs when the routed order is received. However, while the Commission preliminarily believes this might reduce the CAT Reporting burden on some broker-dealers as compared to the Plan as filed, without providing any additional material information, the Commission noted in the Adopting Release that it does not believe the information reported when the order is received would be duplicative. Instead, the Commission noted that information regarding when a broker-dealer received a routed order could prove useful in an investigation of allegations of best execution violations to see if, for example, there were delays in executing an order that could have been executed earlier.
The Commission preliminarily believes that, with respect to the reporting of data fields required by Rule 613, the analysis in the Adopting Release is still applicable and the elimination of these data fields from the Plan would result in a failure to achieve many of the significant potential benefits of the Plan. However, as noted above, the costs or benefits of including particular fields in the Plan as filed, may have changed due to technological advances and/or changes in the nature of markets since Rule 613 was adopted. The Commission is therefore soliciting comment on the benefits and drawbacks of eliminating these and any other required data fields from the Plan.
The CAT NMS Plan does not require the reporting of any primary market information to the Central Repository. However, as required by Rule 613(i), the CAT NMS Plan commits to incorporating a discussion of how and when to implement the inclusion of some primary market information into a document outlining how additional Eligible Securities could be reported to the Central Repository (the “Discussion Document”), which would be jointly provided to the Commission within six months after effectiveness of the Plan.
In its discussion of primary market transactions, the CAT NMS Plan states that including some primary market allocation information in the CAT NMS Plan would provide significant benefits without unreasonable costs, while other allocation information would provide marginal benefits at significantly higher cost.
Based on that discussion, the Plan states that “the Participants are supportive of considering the reporting of Primary Market Transactions, but only at the subaccount level, and would incorporate analysis of this requirement, including how and when to implement such a requirement, into their document outlining how additional Eligible Securities could be reported to the Central Repository, in accordance with SEC Rule 613(i) and Section 6.11 of the Plan.”
Some primary market information is currently available to regulators. FINRA collects primary market allocation information on the initial and final list of distribution participants in their Distribution Manager. Based on discussions with Participants, the Commission understands that issuers of IPOs are required to report primary market allocations to broker-dealers within the Distribution Manager, but reported information does not contain broker-dealer customer information on those allocations. Primary market allocations to market participants other than broker-dealers can be voluntarily reported to the system. FINRA uses this system in the course of investigations in response to complaints and in normal
Primary market information currently assists regulators in examining underwriting practices and surveilling for violations of regulations regarding allocations in primary offerings. The information also is useful for conducting market analysis and research on policy issues such as allocation decisions, flipping, and secondary market price support and the analysis and reconstruction of market events such as the Facebook IPO or the Vonage IPO.
The Commission preliminarily believes that including both top-account and subaccount allocation information for primary market transactions in CAT would make primary market information that identifies customers directly accessible to regulators, which would be beneficial. In particular, top-account information in addition to subaccount information would be necessary to surveil, without requesting data from underwriters, for prohibited activities in the book-building process and would improve the efficiency of investigations into such prohibited activities. For example, including top-account information in CAT Data would provide regulators efficient access to data relevant for investigations into tie-in arrangements because regulators would be able to correlate treatment in the primary offering with other trading activity to see if, for example, those who trade more in the aftermarket receive more of the initial public offering shares they request than others. Including such information in CAT Data would also provide efficient access to data that could identify potential allocations that preference some customers over others in the IPO allocation process because the SROs and Commission could examine the relationship between IPO initial allocations, initial indications of interest, and fluctuations in allocations and indications of interest during the book-building process. In the Adopting Release, the Commission noted several additional benefits of collecting top-account information in addition to subaccount information for primary market transactions. For example, examinations of “spinning,” “laddering,” and other “quid pro quo” arrangements would benefit from efficient access to such CAT Data, which would facilitate a comparison of those customers allocated shares in an offering to those who are not allocated shares in an offering and how the conditional allocations change during the book-building process. Book-building information, which is currently very difficult for regulators to assemble, would provide very useful insights into IPO and follow-on allocations in market analysis. Such insights would better inform rulemaking and other policy decisions.
The CAT NMS Plan estimates that for broker-dealers to implement a system to record and report top-account and subaccount allocation information for primary market transactions would take 36 months of staff time per firm at a cost of $234.8 million whereas just subaccount information would take 12 months of staff time per firm at a cost of $58.7 million.
However, the Commission preliminarily believes that the costs of adding top-account allocation information may be lower than those estimated in the CAT NMS Plan, for several reasons. First, in combination with an alternative that would require less granular time stamps or a larger allowable clock offset on less time-sensitive systems, the costs for top-account information would be lower than indicated in the Plan. The Commission recognizes that the benefits from time stamp granularity and clock synchronization in the systems for reporting top-account information may be lower than those for secondary market systems because activity occurs far less frequently than it does on exchanges and regulators may not need to sequence primary market transactions relative to secondary market transactions within a second. The Commission is unable to estimate cost savings from alternative clock synchronization requirements because estimates presented in the Plan do not cite these specific costs. Second, the Plan's estimate is sensitive to the number of underwriters. In particular, the estimates assume 250 underwriters would need to implement changes to provide for top-account allocation information for primary market transactions.
The Commission does not have an estimate of the ongoing costs of underwriters reporting top-account information. However, the Commission preliminarily estimates an average of
The Commission also recognizes that including top-account information in the CAT NMS Plan could change the competitive landscape of the market for underwriting services. In particular, some underwriters may choose to exit the market instead of report top-account information. The Commission preliminarily believes that the compliance costs themselves would be low compared to underwriting fees.
Finally, the Commission recognizes that requiring top-account information in the CAT NMS Plan could alter the way underwriters conduct their book-building activities. The Commission is not sure if these changes would be beneficial or harmful to issuers and investors. For example, issuers and investors could benefit if including top-account information in CAT deters book-building activity that violates Regulation M or FINRA Rule 5110, 5130 or 5131, though some particular investors may lose any gains from preferential treatment. However, the Commission is uncertain whether investors and issuers would benefit if underwriters altered their book-building activity in an effort to reduce their reporting burden. For example, if reporting every change to a conditional allocation proved cumbersome, underwriters may choose to update preliminary allocations less often. This could change the way that underwriters and investors interact with each other in the book-building process with implications for the potential success of the offering or investors' satisfaction with the outcome.
The CAT NMS Plan requires the reporting of data regarding OTC Equity Securities upon implementation of the CAT NMS Plan. The Commission is soliciting comment on the alternative of eliminating the requirement to report activity in OTC Equity Securities from the CAT NMS Plan, and instead requiring only that the SROs include a discussion of how OTC Equity Securities could be incorporated into the CAT in the Discussion Document that they are required to provide within six months after the effective date of the Plan pursuant to Rule 613(i).
Under the alternative approach, OTC Equity Securities would be excluded from the Plan upon implementation. While they could still be incorporated into the Plan following the submission of the Discussion Document, the alternative approach would create uncertainty as to whether or not OTC Equity Securities would ultimately be incorporated into CAT NMS Plan and the timeline for that process.
Excluding OTC Equity Securities from the CAT NMS Plan could limit oversight of the OTC equity market relative to the oversight obtainable under the Plan.
The CAT NMS Plan states that including OTC Equity Securities could facilitate the retirement of OATS.
The Commission preliminarily believes that excluding OTC Equity Securities from the CAT upon implementation would reduce certain costs associated with implementation and operation of CAT as compared to the Plan as filed, without providing any additional material information, because less data would be reported,
Furthermore, the Commission preliminarily believes that the cost savings from delaying incorporating OTC Equity Securities in the CAT NMS Plan are likely to be lower than the increase in costs of duplicative reporting that result from a delay to OATS retirement. Any broker-dealers that trade both OTC Equity Securities and listed equity or option securities would have to comply with the Plan regardless of the inclusion of OTC equities, so the cost savings to these broker-dealers from the exclusion of OTC Equity Securities may not be significant. The Commission preliminarily believes that the number of broker-dealers that trade only OTC Equity Securities is small. Finally, the Commission expects that the duplicative reporting costs would be fairly significant and that extending the time until the retirement of OATS would be a significant additional cost.
The Commission cannot estimate the amount of the cost reduction from excluding OTC Equity Securities because it lacks the data to do so. The CAT NMS Plan presents data only on the aggregate costs of on-exchange and OTC equity reporting; it does not present data on the costs specifically attributable to OTC equity reporting. The Commission has no data from which it can independently estimate the cost differential because it depends on information internal to each CAT Reporter (
As noted above in Section IV.E.1.b(4), the Plan Processor is required to create a Customer-ID and map Firm Designated IDs to this Customer-ID so that records stored in the CAT Data link to the Customers. To facilitate this, the Plan requires CAT Reporters to submit an initial set of Customer information to the Central Repository and subsequent daily updates and changes to that Customer information.
The CAT NMS Plan states that the purpose of these refreshes is to “ensure the completeness and accuracy of Customer information and associations.”
The Commission is soliciting comment on the broad set of alternatives of modifying existing systems to reduce the data limitations described above instead of approving the CAT NMS Plan.
When it adopted Rule 613, the Commission noted that “the costs and benefits of creating a consolidated audit trail, and the consideration of specific costs as related to specific benefits, are more appropriately analyzed once the SROs narrow the expanded array of choices they have under the adopted Rule and develop a detailed NMS plan.”
The Commission recognizes that approving the CAT NMS Plan is not the only available means of improving the completeness, accuracy, accessibility, and timeliness of the data used in regulatory activities. Alternatively, the Commission could mandate improvements to one or more existing data sources to address the data limitations noted in the Baseline Section. The Commission previously considered this set of alternatives when considering whether to adopt Rule 613.
As an alternative to the CAT NMS Plan, the Commission could require modifications to OATS. In the Adopting Release, the Commission noted that it had received comments suggesting various ways that the OATS system could be modified to serve as the central repository for the consolidated audit trail.
The Commission preliminarily believes that, as stated in the Adopting Release, the missing attributes identified above are crucial to improving the completeness, accuracy, accessibility, and timeliness of the data used in regulatory activities. Thus, any alternative to CAT based on OATS that does not address those deficiencies would limit the potential benefits of the alternative significantly. Given the modifications necessary, the Commission cannot estimate the potential cost savings, if any, from mandating an OATS-based approach as an alternative to the CAT NMS Plan, because the Commission does not have sufficient information to estimate the cost of modifying OATS to address some or all of these deficiencies, either separately or in combination. The Plan does not provide data on the cost of making each relevant modification to OATS, and the Commission has no other data from which it can independently estimate this, because the Commission is not aware of any such data currently available to it. The Commission notes, however, that Rule 613 provided flexibility to the SROs to propose an approach based on OATS and/or other existing data sources.
Another alternative would be for the Commission to modify other data sources instead of, or in combination with, OATS. However, like OATS, all of the current data sources have limitations that would need to be addressed in order to provide the attributes that the Commission deems crucial to an effective audit trail.
In summary, the Commission cannot estimate the potential cost savings, if any, from modifying one or more other data sources instead of, or in combination with, OATS, because the Commission does not have sufficient information to estimate the cost of modifying each of the currently available data sources to address their current limitations, separately or in combination. The Plan does not provide data on the cost of making each relevant modification to each current data source, and the Commission has no other data from which it can independently estimate this, because the Commission is not aware of any such data currently available to it.
However, the Commission preliminarily believes that mandating improvements to the completeness, accuracy, accessibility, and timeliness of current data sources without an NMS Plan that requires the consolidation of data and increased coverage across markets and broker-dealers would likely significantly limit the potential benefits, possibly without providing significant cost savings. The Commission seeks comment on the costs and benefits of modifying one or more currently available data sources, separately or in combination, as an alternative to the CAT NMS Plan.
383. Are there any other alternatives that the Plan should require? If so, please describe the alternative and the costs and benefits of the alternative relative to the Plan.
384. Should the CAT NMS Plan require Options Market Makers to report their quotes to the Central Repository? Please explain. Do Commenters believe that the costs of the Rule 613 approach would be disproportionately borne by smaller broker-dealers? Why or why not? Please provide data supporting your position.
385. Should the Plan treat equity market makers the same as Options Market Makers for purposes of quotation reporting—
386. Should the Plan require an alternative approach to reporting market maker quotes on exchanges where both equity and Options Market Makers would not need to report their quotation updates, and instead the exchanges would report Quote Sent Times in their reports of receiving these quotation updates? Why or why not? How would such an alternative affect the costs of building and operating the Central Repository? How would such an alternative affect market-maker costs of implementing and continuing CAT reporting?
387. Should the CAT NMS Plan require that Allocation Reports provide sufficient information for the Central Repository to be able to link those allocations to order lifecycles? What are the costs and benefits of providing this information? Please explain and provide cost estimates.
388. How do broker-dealers currently track which customers should receive allocations from which set of orders and how do broker-dealers ensure that those orders receive the correct average price? Can these same systems provide a key that could accurately link the allocations to lifecycles in many-to-many allocations? Please explain.
389. Should the CAT NMS Plan require an alternative to the Customer Information Approach? If so, what alternative should the Commission require and what are the relative costs and benefits of the alternative? Please explain.
390. Should the CAT NMS Plan require an alternative approach to assigning CAT-Reporter-IDs? If so, what alternative should the Commission require and what are the relative costs and benefits of the alternative? Please explain.
391. Should the CAT NMS Plan provide for the use of the LEI or another unique identification code as an alternative to the CAT-Reporter-ID? What are the advantages and disadvantages of this approach?
392. Should the CAT NMS Plan require an alternative to the requirement to time stamp manual orders to the second? If so, what alternative should the Commission require? For example, should the Plan require millisecond time stamps or one-minute time stamps? Please explain and provide information on the relative costs and benefits of the alternatives.
393. Should the “industry standard” for the purposes of the clock synchronization and time stamping be “one-size-fits-all”? Please explain. If not, how should the CAT NMS Plan structure variations in clock synchronization and time stamp requirements that are based on industry practices?
394. Should the “industry standard” for the purposes of the clock synchronization and time stamping requirements be defined based on industry practice? Please explain. If not, how should “industry standard” be defined? Should the “industry standard” consider information other than current industry practice, such as the most accurate technology currently available in the industry, or the standard recommended by a particular industry group or authority? Could a definition of “industry standard” set a maximum clock offset threshold with an expectation that each CAT Reporter would be responsible for smaller clock offsets if the CAT Reporter is technically capable of such clock offsets? Please explain and include information on the relative costs and benefits of such alternative definitions.
395. What benefits, if any, would derive from applying the same uniform clock synchronization standards to all market participants versus applying different standards to different participant types? Which approach is preferable? If applying different standards to different participant types, which participant types should have smaller clock offset tolerances and which should have larger clock offset tolerances and what are the industry standards for those participant types? Please explain and provide any supporting data.
396. Do Commenters agree with the Commission's cost estimates for clock synchronization alternatives? Are there CAT Reporters other than broker-dealers that would incur significant costs from increasing clock synchronization standards to allowable clock drifts of less than 50 milliseconds, such as 1 millisecond or 100 microseconds? At what level of clock synchronization would these costs become material? Please explain. Do Commenters have estimates of these costs?
397. Does the FIF Clock Offset Survey reflect the operational capabilities of all potential CAT Reporters? Please explain.
398. Do Commenters agree that an alternative that would relax the logging requirements such that CAT Reporters would only need to log exceptions and resulting synchronization events (and not every synchronization event) would reduce costs of the CAT NMS Plan without materially reducing its benefits? Why or why not? Do Commenters have an estimate of how much such an alternative would reduce costs, either in isolation or in combination with the alternative to not require synchronization outside of event recording times? Please provide supporting documentation for these estimates.
399. Is there a need for clock synchronization standards outside of regular and extended trading hours? Is clock synchronization beneficial for retail orders that come in overnight? Are there examples of times or events outside of regular and extended trading hours when clock synchronization is more beneficial? Do Commenters agree that an alternative that would not require synchronizing clocks outside of times when servers record Reportable Events would reduce costs of the Plan without materially reducing its benefits? Do Commenters have an estimate of how much such an alternative would reduce costs? Please explain and provide supporting documentation if possible.
400. Are some CAT Reportable Events more time-sensitive than other events? If so, what events are more time-sensitive and why? What systems are more likely to process these events, and where are those systems located (
401. What market participant systems, if any, should have smaller clock offset tolerances? Why? What clock
402. Should the Plan require time stamps to be reported more granularly than the one millisecond required in the Plan? If so, what standard should be required? Do Commenters agree with the Commission's analysis of the costs and benefits of requiring finer time stamp resolution than 1 millisecond? Please explain.
403. Should the CAT NMS Plan require different Error Rates in CAT? For example, should the Plan require a lower initial Error Rate? If so, what initial Error Rate should the Plan require and why? What would be the costs and benefits of requiring a lower initial Error Rate? Should the Plan require a lower Error Rate at some time period after implementation? If so, what Error Rate should the Plan require and why and when? What would be the costs and benefits of requiring a lower Error Rate?
404. Should the CAT NMS Plan require a day T+5 error correction deadline instead of a day T+3 error correction deadline? What are the relative costs and benefits of different error correction deadlines? Please explain and provide cost estimates.
405. Should the CAT NMS Plan require an alternative to the funding model in which broker-dealers and Execution Venues pay fees on the same fee schedule? If so, how would that funding model be structured and what metric would determine the fee level? How would that funding model affect the costs and benefits of the Plan, including the effect on competition? Please explain.
406. The Plan cites “transactional volume” as a cost driver for the Central Repository, but uses “message traffic” to allocate Central Repository costs across Industry Members. Do Commenters agree with the Commission's assumption that these two metrics are highly correlated? Is one of these metrics preferable for allocating costs across Industry Members? Please explain.
407. Should the CAT NMS Plan require alternative metrics to the message traffic and market share metrics required by the Plan for determining the tiers of the funding model but still place Execution Venues on a different fee schedule than broker-dealers? If so, which metrics? How would these alternative metrics affect the costs and benefits of the Plan, including effects on competition? Could these alternative metrics create conflicts of interest? Please explain.
408. Do Commenters agree with the Commission's analysis of unified versus bifurcated funding models? Why or why not?
409. Should the Plan require a unified funding model wherein Central Repository costs are allocated across all market participants by message traffic? Why or why not?
410. Should the Plan require a unified funding model wherein the tiers of the funding model for all CAT Reporters would be based on market share of share volume? Why or why not?
411. Should the Plan require a unified funding model wherein a fixed fee is levied on every trade? Why or why not? Could such a funding model reduce implementation costs by utilizing infrastructure already in place to assess Section 31 fees?
412. Should the Plan require a bifurcated funding model wherein Central Repository costs are allocated across broker-dealers by market share of share volume? Why or why not?
413. Should the Plan require a bifurcated funding model wherein Central Repository costs treat ATSs as part of broker-dealers only, instead of including them as Execution Venues? Why or why not?
414. Should the Plan require a bifurcated funding model wherein broker-dealer message traffic to and from an ATS are not included in message traffic measures used to assess fees on broker-dealers? Why or why not?
415. Should the Plan require a bifurcated funding model wherein ATS volume is excluded from TRF volume for the purposes of assessing Execution Venue fees to operators of TRFs? Why or why not?
416. Should the Plan require a bifurcated funding model wherein TRFs are not counted as Execution Venues for purposes of assessing fees on Execution Venues? Why or why not?
417. Should the Plan require that profits or losses from operating the Central Repository be allocated across Participants by market share of share volume? Why or why not?
418. Should the Plan require a strictly variable, rather than tiered, funding model? Why or why not?
419. Should the CAT NMS Plan require any funding model alternatives that could result in ATSs and exchanges paying equivalent fees? If so, how should that funding model be structured and what metrics should determine the funding tiers? How would that funding model affect the costs and benefits of this alternative, including effects on competition? Could these alternatives create conflicts of interest and, if so, to what extent? Please explain.
420. How should the CAT NMS Plan distribute the profits and losses of the Company among Participants? What are the relative costs and benefits of alternative ways to divide the profits and losses among the Participants? Please explain.
421. Should the CAT NMS Plan require a strictly variable funding model in which the fees paid are a set percentage of message traffic or share volume instead of a tiered funding model in which fees are fixed for a tier that is determined by message traffic or market share of share volume? If so, how would that funding model be structured? What are the relative costs and benefits of that funding model, including the effect on competition? Please explain.
422. Should the CAT NMS Plan exclude the requirement to report listing exchange symbology and instead allow CAT Reporters to use existing symbologies? Please explain. Would excluding this requirement allow broker-dealers to report data to CAT without processing the data ahead of the report? Please explain. What would be the relative costs and benefits of removing this requirement from the Plan? Please provide any cost estimates.
423. Should the CAT NMS Plan require alternative minimum standards for access to the CAT Data to those proposed in the CAT NMS Plan? If so, what alternative minimum standards should the Commission require? For example, should the response time on the largest queries be longer or shorter than 24 hours? How would changes to the alternative minimum standards affect the costs and benefits of the Plan? Please be specific and provide cost estimates.
424. Should the CAT NMS Plan require an intake capacity level different from twice historical peak daily volume measured over the most recent six years? If so, what intake capacity level should the Plan require? What are the relative costs and benefits of this alternative intake capacity level?
425. The Plan proposes using a “daisy chain” approach for linking order events within the Central Repository.
426. The CAT NMS Plan requires that the Plan Processor make use of a commercially available file management tool. What are the benefits to CAT Reporters from this requirement? Does this requirement have any effects on the competition between bidders? For example, are any bidders, such as those that could more efficiently use a proprietary file management tool, disadvantaged by this requirement? Please explain. Does this requirement affect the ability of the Operating Committee to replace an under-performing Plan Processor? Are there other costs or benefits of this requirement? Please explain.
427. Should the CAT NMS Plan require excluding any data fields currently required to be included in the CAT Data (
428. Should the CAT NMS Plan exclude primary market information? Why or why not?
429. Do Commenters agree with the analysis in the Plan of the feasibility, benefits, and costs of the inclusion of primary market information (including primary market transactions) in the CAT NMS Plan? Please explain.
430. Do Commenters have additional analysis relevant to the decision to include primary market information (including primary market transactions) in the CAT NMS Plan? If so, please describe that analysis, including any data.
431. Do Commenters agree with the Plan's decision to include subaccount allocation information for primary market transactions in the Discussion Document, which commits the Operating Committee to consider the implementation of this subaccount allocation information in the CAT NMS Plan? Please explain.
432. Do Commenters agree with the Commission's assessment of the costs and benefits of requiring top-account allocation information for primary market transactions? Please explain. Should the Operating Committee consider requiring top-account information? Please explain.
433. What are the implications of the SROs decision not to include top-account information for primary market transactions in the Discussion Document? Please explain.
434. Should the CAT NMS Plan exclude OTC Equity Securities? Please explain. Would the exclusion of OTC Equity Securities in the CAT NMS Plan delay the retirement of OATS? If so, by how long and what would be the added cost be? Please provide an estimate. What are the other costs and benefits of excluding OTC Equity Securities from the CAT NMS Plan?
435. The CAT NMS Plan requires that CAT Reporters provide periodic refreshes of all customer information to the Central Repository to maintain an accurate database of customer information. What intervals for updates would be appropriate and reasonable, and what information should be required to be updated? Should the CAT NMS Plan remove the requirement for periodic full submission of customer information beyond the daily updates sent when customer information changes? Please explain. Would broker-dealers reduce their costs if they did not have to report all customer information periodically? Would the removal of this requirement significantly reduce the risk of a security breach of personally identifiable information? Please explain.
436. Do Commenters agree with the Commission's analysis of the broad alternatives to approving the CAT NMS Plan, such as modifying OATS and/or other data sources to meet the objectives of Rule 613? Please explain. Are there other alternative approaches that the Commission has not identified that it should consider? Please explain.
The Commission recognizes that the Plan discusses many alternatives that the Commission does not analyze above, including alternatives in Consideration 12 therein. This Consideration (Rule 613(a)(1)(xii)) requires the Participants to discuss in the Plan any reasonable alternative approaches that the plan sponsors considered in developing the Plan, including a description of any such alternative approach; the relative advantages and disadvantages of each such alternative, including an assessment of the alternative's costs and benefits; and the basis upon which the plan sponsors selected the approach reflected in the CAT NMS Plan. Such discussions appear in Section 12 of Appendix C. The Commission reviewed these alternatives and has not included above a discussion of all of the specific alternatives addressed in the Plan. In some cases, the Commission, at this time, has no analysis to add beyond the analysis in the Plan. In other cases, the Plan does not require any specific alternative, so the Commission cannot analyze the effect on the Plan of selecting a different alternative. The Commission is soliciting comment on the alternatives discussed by the Participants in the Plan but not discussed above. The Commission requests comment on each of these alternatives, both in isolation and in combination, as well as any data that would assist the Commission in evaluating the costs and trade-offs associated with these alternatives.
437. Organizational Structure. According to the CAT NMS Plan, the Participants considered various organizational structures of the Bidders.
438. Primary Storage. The CAT NMS Plan states that bidders proposed two methods of primary data storage: traditionally-hosted storage architecture and infrastructure-as-a-service.
439. Personally Identifiable Information. The CAT NMS Plan discusses several requirements to reduce the risk of misuse of PII, such as multi-factor authentication
440. Data Ingestion Format. The Plan discusses the trade-offs between requiring that the CAT Reporters report data to CAT in a uniform defined format or in existing messaging protocols.
441. The Commission requests further information on the relative costs and benefits and strengths and weaknesses of these two data ingestion format approaches. Would either of these approaches produce more accurate data? For example, would using existing messaging protocols such as FIX be more accurate because CAT Reporters would send their messages without the possibility of adding errors when translating them to a different format? Alternatively, would using existing messaging protocols such as FIX be less accurate because the Central Repository would have to translate too many different and possibly bespoke formats into a uniform format for the CAT data? Would a hybrid approach produce the most accurate data?
442. The Commission requests comment on the implementation costs of these two data ingestion format approaches. The Commission expects that broker-dealers would need to modify existing messaging protocols to implement CAT regardless of which approach the Plan requires for reporting order events. What additional implementation costs would CAT Reporters incur to report using existing messaging protocols? What additional implementation costs would CAT Reporters, both OATS and non-OATS reporters, incur to report using a uniform defined format such as a modification of OATS format? In what ways would the implementation costs incurred at the Central Repository differ for the two approaches? What is the estimated cost of implementing each approach for CAT Reporters, Participants, and the Central Repository?
443. The Commission requests comment on the ongoing costs of these two data ingestion format approaches. How would ongoing costs be different for the two approaches? Would CAT Reporters need to process the order messages before reporting using existing messaging protocols to comply with requirements such as using the listing exchange symbology? If so, how costly is that processing? How costly is the processing required to translate order messages into a uniform defined format such as OATS format? What other ongoing costs associated with these approaches would CAT Reporters incur and how would they differ for the two approaches? How do the ongoing costs incurred by the Central Repository differ for the two approaches? Would the translation process from existing messaging protocols into a uniform format be more costly for the Central
444. Process to Develop the CAT. Bidders proposed, and the Plan describes, several processes for development of the CAT: The agile or iterative development model, the waterfall model, and hybrid models.
445. Industry Testing. The CAT NMS Plan requires a dedicated test environment that is functionally equivalent to the production environment and available 24 hours a day, six days a week.
446. Quality Assurance (QA). The CAT NMS Plan mentions several alternative approaches to quality assurance, but does not select a particular approach.
447. User Support and Help Desk. The CAT NMS Plan discusses several alternatives related to how the Plan Processor provides a CAT Help Desk that would be available 24 hours a day, 7 days a week and be able to manage 2,500 calls per month.
448. CAT User Management. The CAT NMS Plan discusses several alternatives to manage users, but does not require a specific approach or standards.
449. Required Reportable Events. The CAT NMS Plan states that the Participants considered requiring the reporting of multiple additional order event types, such as the “results order event” and the “CAT feedback order
450. Data Feed Connectivity. The Plan discusses requiring the collection of SIP data in real-time as opposed to through an end-of-day batch process.
The Commission has identified above the economic effects associated with the proposed CAT NMS Plan and requests comment on all aspects of its preliminary economic analysis. The Commission encourages Commenters to identify, discuss, analyze, and supply relevant data, information, or statistics regarding any such economic effects. Commenters should, when possible, provide the Commission with data to support their views. Commenters suggesting alternative approaches should provide comprehensive proposals, including any conditions or limitations that they believe should apply, the reasons for the suggested approaches, their analysis of the cost-benefit trade-offs of suggested approaches compared to the Plan, and their analysis regarding why their suggested approaches would satisfy the objectives of Rule 613. In particular, the Commission seeks comment on the following:
451. Do Commenters agree with the Commission's analysis of the potential economic effects of the Plan? Why or why not?
452. Has the Commission considered all relevant economic effects? If not, what other economic effects should the Commission consider?
453. Do Commenters have information that could help the Commission fill in gaps in the economic analysis related to a lack of information on details in the plan that could significantly affect the economic analysis? If so, please provide this information and explain how it could affect the economic analysis.
454. Do Commenters have data that could help the Commission fill in gaps in the economic analysis related to a lack of available data? If so, please provide this information and explain how it could affect the economic analysis.
455. Do Commenters believe that there are additional categories of benefits or costs that could be quantified or otherwise monetized? If so, please identify these categories and, if possible, provide specific estimates or data.
456. Do Commenters believe that the CAT NMS Plan would change the behavior of any market participant in such a way as to create unintended effects? For example, would requirements to report certain data elements or events change the activities of market participants in ways other than deterrence but that create second-order economic effects? If so, please explain. Would such effects be economic benefits or economic costs? Please explain.
Certain provisions of Rule 613 contain “collection of information requirements” within the meaning of the Paperwork Reduction Act of 1995 (“PRA”)
As noted above, Rule 613 of Regulation NMS (17 CFR part 242) requires the Participants to jointly submit to the Commission the CAT NMS Plan to govern the creation, implementation, and maintenance of the consolidated audit trail and Central Repository for the collection of information for NMS securities. The CAT NMS Plan must require each Participant and its respective members to provide certain data to the Central Repository in compliance with Rule 613. When it adopted Rule 613, the Commission discussed the burden hours associated with the development and submission of the CAT NMS Plan.
The Commission is now publishing its preliminary estimates of the paperwork burdens of the CAT NMS Plan. These estimates are based on the requirements of Rule 613 and take into account the Exemption Order discussed above.
Rule 613 requires that the CAT NMS Plan must provide for an accurate, time-sequenced record of an order's life, from receipt or origination, through the process of routing, modification, cancellation and execution.
Rule 613 provides that the CAT NMS Plan must require that all Participants that are exchanges, and their members, record and report to the Central Repository certain data for each NMS security registered or listed on a national securities exchange, or admitted to unlisted trading privileges on such exchange, and each Participant that is a national securities association, and its members, record and report for each NMS security for which transaction reports are required to be submitted to the national securities association in a uniform electronic format or in a manner that would allow the Central Repository to convert the data to a uniform electronic format for consolidation and storage. This data must be recorded contemporaneously with the Reportable Event and reported to the Central Repository in no event later than 8:00 a.m. Eastern Time on the trading day following the day such information has been recorded by the national securities exchange, national securities association, or member.
Rule 613 also provides that the CAT NMS Plan must require each member of a Participant to record and report to the Central Repository other information which may not be available until later in the clearing process no later than 8:00 a.m. Eastern Time on the trading day following the day the member receives such information.
Rule 613 requires all Participants to make use of the consolidated information, either by each developing and implementing new surveillance systems, or by enhancing existing surveillance systems.
Rule 613 provides that the CAT NMS Plan must require the creation and maintenance of a Central Repository that would be responsible for the receipt, consolidation, and retention of all data submitted by the Participants and their members.
Rule 613 provides that the CAT NMS Plan must require each Participant, and any member of such Participant, to record and electronically report to the
Such information must also be reported to the Central Repository with a time stamp of a granularity that is at least to the millisecond or less to the extent that the order handling and execution systems of a Participant or a member utilize time stamps in finer increments.
Rule 613(e)(7) provides that the CAT NMS Plan must require the Central Repository to collect and retain on a current and continuing basis: (i) Information on the NBBO for each NMS Security; (ii) transaction reports reported pursuant to a transaction reporting plan filed with the Commission pursuant to, and meeting the requirements of, Rule 601 of Regulation NMS; and (iii) Last Sale Reports reported pursuant to the OPRA Plan.
Rule 613(f) provides that the CAT NMS Plan must require that every Participant develop and implement a surveillance system, or enhance existing surveillance systems, reasonably designed to make use of the consolidated information contained in the consolidated audit trail. Rule 613(a)(3)(iv) provides that the CAT NMS Plan must require that the surveillance systems be implemented within fourteen months after effectiveness of the CAT NMS Plan.
Rule 613(g)(1) requires each Participant to file with the Commission, pursuant to Section 19(b)(2) of the Exchange Act and Rule 19b-4 thereunder,
Rule 613(b)(6) provides that the CAT NMS Plan must require the Participants to provide the Commission a written assessment of the consolidated audit trail's operation at least every two years, once the CAT NMS Plan is effective.
Rule 613(i) provides that the CAT NMS Plan must require the Participants to jointly provide to the Commission, within six months after the CAT NMS Plan is effective, a document outlining how the Participants could incorporate into the CAT information regarding: (1) Equity securities that are not NMS securities;
Rule 613 states that the Central Repository is required to receive, consolidate and retain the data required to be submitted by the Participants and their members.
The Commission believes that the data collected and reported pursuant to the requirements of Rule 613 would be used by regulators to monitor and surveil the securities markets and detect and investigate activity, whether on one market or across markets.
The CAT NMS Plan must require the Central Repository to collect and retain NBBO information, transaction reports, and Last Sale Reports in a format compatible with the order and event information collected pursuant to Rule 613(c)(7).
The requirement in Rule 613(f) that the Participants develop and implement a surveillance system, or enhance existing surveillance systems, reasonably designed to make use of the consolidated information in the consolidated audit trail,
Rule 613(b)(6) requires the CAT NMS Plan to require the Participants to provide the Commission a written assessment of the CAT's operation at least every two years, once the CAT NMS Plan is effective.
Rule 613(i) requires the CAT NMS Plan to require the Participants to jointly provide to the Commission, within six months after the CAT NMS Plan is effective, a document outlining how the SROs could incorporate into the CAT information regarding certain products that are not NMS securities.
Rule 613 applies to the 20 Participants (the 19 national securities exchanges and the one national securities association (FINRA)) currently registered with the Commission.
Rule 613 also applies to the Participants' members, that is, broker-dealers. The Commission believes that Rule 613 applies to 1,800 broker-dealers. The Commission understands that there are currently 4,138 broker-dealers; however, not all broker-dealers are expected to have CAT reporting obligations. The Participants report that approximately 1,800 broker-dealers currently quote or execute transactions in NMS Securities, Listed Options or OTC Equity Securities and would likely have CAT reporting obligations.
Rule 613 requires the Participants to jointly establish a Central Repository tasked with the receipt, consolidation, and retention of the reported order and execution information. The Participants issued an RFP soliciting Bids from entities to act as the consolidated audit trail's Plan Processor.
The Plan's Operating Committee, which consists of one voting representative of each Participant,
Additionally, in managing the Central Repository, the Operating Committee would have the responsibility and authority, as appropriate, to: (1) Direct the LLC to enter into one or more agreements with the Plan Processor obligating the Plan Processor to perform the functions and duties contemplated by the Plan to be performed by the Plan Processor, as well as such other functions and duties the Operating Committee deems necessary or appropriate;
The CAT NMS Plan also proposes to establish a Selection Committee comprised of one Voting Senior Officer from each Participant,
For its initial and ongoing internal burden and cost estimates associated with the management of the Central Repository, the Commission is relying on estimates provided in the CAT NMS Plan for the development of the CAT NMS Plan, which the Participants “have accrued, and will continue to accrue,”
The Commission believes that the activities of the Operating Committee and the Selection Committee overlap with those undertaken by the Participants to develop the CAT NMS Plan. The CAT NMS Plan describes the costs incurred by the Participants to develop the CAT NMS Plan as including “staff time contributed by each Participant to, among other things, determine the technological requirements for the Central Repository, develop the RFP, evaluate Bids received, design and collect the data necessary to evaluate costs and other economic impacts, meet with Industry
As proposed, each Participant would contribute an employee and a substitute for the employee to serve on the Operating Committee that would oversee the Central Repository.
The Commission preliminarily estimates that, over the 12-month period after the effectiveness of the CAT NMS Plan within which the Participants would be required to select an initial Plan Processor
Additionally, the Commission preliminarily estimates that the Participants will collectively spend $2,400,000 on external public relations, legal and consulting costs associated with the building of the Central Repository and the selection of the Plan Processor for the Central Repository, or $120,000 per Participant.
The CAT NMS Plan provides the estimates given by the Shortlisted Bidders
After the Central Repository has been developed and implemented, there would be ongoing costs for operating and maintaining the Central Repository, including the cost of systems and connectivity upgrades or changes necessary to receive, consolidate, and store the reported order and execution information from Participants and their members; the costs to store data, and make it available to regulators, in a uniform electronic format, and in a form in which all events pertaining to the same originating order are linked together in a manner that ensures timely and accurate retrieval of the information;
The Commission preliminarily estimates that the Participants would incur an ongoing annual internal burden of 720 burden hours associated with the continued management of the Central Repository, for an aggregate annual estimate of 14,407 burden hours across the Participants.
Additionally, the Commission estimates that the Participants will collectively spend $800,000 annually on external public relations, legal and consulting costs associated with the continued management of the Central Repository, or $40,000 per Participant.
The CAT NMS Plan includes the estimates the six Shortlisted Bidders provided for the annual ongoing costs to the Participants to operate the Central Repository.
Rule 613(c)(1) requires the CAT NMS Plan to provide for an accurate, time-sequenced record of orders beginning with the receipt or origination of an order by a Participant, and further to document the life of the order through the process of routing, modification, cancellation and execution (in whole or in part) of the order. Rule 613(c) requires the CAT NMS Plan to impose requirements on Participants to record and report CAT information to the Central Repository in accordance with specified timelines.
Rule 613(c) would require the collection and reporting of some information that Participants already collect to operate their business and are required to maintain in compliance with Section 17(a) of the Exchange Act and Rule 17a-1 thereunder.
The CAT NMS Plan provides estimated costs for the Participants to report CAT Data. These estimates are based on Participant responses to the Participants Study that the Participants collected to estimate CAT-related costs for hardware and software, FTE costs, and third-party providers, if the Commission approves the CAT NMS Plan.
The Commission notes that throughout this Paperwork Reduction Act analysis, it is categorizing the FTE cost estimates for the Participants, as well as the broker-dealer respondents, that were provided in the CAT NMS Plan as an internal burden. To convert the FTE cost estimates into internal burden hours, the Commission: (1) Divided the FTE cost estimates by a divisor of $424,350, which is the Commission's estimated average salary for a full-time equivalent employee in the securities industry in a job category associated with regulatory data reporting;
The CAT NMS Plan provides the following average costs that the Participants would expect to incur to adopt the systems changes needed to comply with the data reporting requirements of the consolidated audit trail: $10,300,000 in aggregate FTE costs for internal operational, technical/development, and compliance functions; $770,000 in aggregate third party legal and consulting costs; and $17,900,000 in aggregate total costs.
Based on estimates provided in the CAT NMS Plan, the Commission preliminarily estimates that the initial internal burden hours to develop and implement the needed systems changes to capture the required information and transmit it to the Central Repository in compliance with the Rule for each Participant would be approximately 2,185 burden hours.
Once a Participant has established the appropriate systems and processes required for collection and transmission of the required information to the Central Repository, the Commission preliminarily estimates that Rule 613 would impose on each Participant ongoing annual burdens associated with, among other things, personnel time to monitor each Participant's reporting of the required data and the maintenance of the systems to report the required data; and implementing changes to trading systems that might result in additional reports to the Central Repository. The CAT NMS Plan provides the following average aggregate costs that the Participants would expect to incur to maintain data reporting systems to be in compliance with Rule 613: $7,300,000 in anticipated annual FTE costs for operational, technical/development, and compliance functions related to data reporting; $720,000 in annual third party legal, consulting, and other costs;
Based on estimates provided in the CAT NMS Plan, the Commission believes that it would take each Participant 1,548 ongoing burden hours per year
Rule 613(e)(7) provides that the CAT NMS Plan must require the Central Repository to collect and retain on a current and continuous basis NBBO information for each NMS security, transaction reports reported pursuant to an effective transaction reporting plan, and Last Sale Reports reported pursuant to the OPRA Plan.
Rule 613(f) provides that the CAT NMS Plan must require that every national securities exchange and national securities association develop and implement a surveillance system, or enhance existing surveillance systems, reasonably designed to make use of the consolidated information contained in the consolidated audit trail. Rule 613(a)(3)(iv) provides that the CAT NMS Plan must require that the surveillance systems be implemented within fourteen months after effectiveness of the CAT NMS Plan.
The CAT NMS Plan states that the estimated total cost to the Participants to implement surveillance programs within the Central Repository is $23,200,000.
Based on the estimates provided in the CAT NMS Plan, the Commission preliminarily estimates that the initial internal burden hours to implement new or enhanced surveillance systems reasonably designed to make use of the consolidated audit trail data for each Participant would be approximately 3,711.6 burden hours,
The CAT NMS Plan states that the estimated total annual cost associated with the maintenance of surveillance programs for the Participants is $87,700,000.
Rule 613(b)(6) provides that the CAT NMS Plan must require the Participants to provide the Commission a written assessment of the CAT's operation at least every two years, once the CAT NMS Plan is effective.
The CAT NMS Plan states that the CCO would oversee the assessment required by Rule 613(b)(6), and would allow the Participants to review and comment on the assessment before it is submitted to the Commission.
The Commission preliminarily estimates that it would take each Participant approximately 45 annual burden hours of internal legal, compliance, business operations, and information technology staff time to review and comment on the assessment prepared by the CCO of the operation of the consolidated audit trail as required by Rule 613(b)(6).
Rule 613(i) provides that the CAT NMS Plan must require the Participants to jointly provide to the Commission, within six months after the CAT NMS Plan is effective, a document outlining how the Participants could incorporate into the consolidated audit trail information regarding: (1) Equity securities that are not NMS securities;
The Commission preliminarily estimates that it would take each Participant approximately 180 burden hours of internal legal, compliance, business operations and information technology staff time to create a document addressing expansion of the consolidated audit trail to additional securities as required by Rule 613(i).
Rule 613(c)(1) requires the CAT NMS Plan to provide for an accurate, time-sequenced record of orders beginning with the receipt or origination of an order by a broker-dealer member of a Participant, and further documenting the life of the order through the process of routing, modification, cancellation and execution (in whole or in part) of the order. Rule 613(c) requires the CAT NMS Plan to impose requirements on broker-dealer members to record and report CAT information to the Central Repository in accordance with specified timelines.
The Commission acknowledges the inherent difficulty in establishing precise burden estimates because the Commission does not know the exact method of data reporting the Participants would decide for broker-dealers. For these estimates, the Commission is relying, in part, on the cost data provided by the Participants in the CAT NMS Plan,
The Commission's estimates delineate broker-dealer firms by whether they insource or outsource, or are likely to insource or outsource, CAT Data reporting obligations.
The Commission preliminarily estimates that there are 126 OATS-reporting Insourcers and 45 non-OATS reporting Insourcers.
The Commission relies on the Reporters Study's large broker-dealer cost estimates in estimating costs for large broker-dealers that can practicably decide between insourcing or outsourcing their regulatory data reporting functions. The Commission estimates that there are 14 large broker-dealers that are not OATS reporters currently in the business of electronic liquidity provision that would be classified as Insourcer firms.
Additionally, the Commission estimates that there are 31 broker-dealers that may transact in options but not in equities that can be classified as Insourcer firms.
The Commission assumes the 31 options firms and 14 ELPs would be typical of the Reporters Study's large, non-OATS reporting firms; for these firms, the Commission relies on the cost estimates provided under Approach 1
The CAT NMS Plan provides the following average initial external cost and FTE count figures that a large non-OATS reporting broker-dealer would expect to incur to adopt the systems changes needed to comply with the data reporting requirements of Rule 613 under Approach 1: $450,000 in external hardware and software costs; 8.05 internal FTEs;
The Commission also preliminarily estimates that these broker-dealers would, on average, incur approximately $450,000 in initial costs for hardware and software to implement the systems changes needed to capture the required information and transmit it to the Central Repository, and an additional $9,500 in initial third party/outsourcing costs.
Once a large non-OATS reporting broker-dealer has established the appropriate systems and processes required for collection and transmission of the required information to the Central Repository, the Commission preliminarily estimates that the Rule would impose ongoing annual burdens associated with, among other things, personnel time to monitor each large non-OATS reporting broker-dealer's reporting of the required data and the maintenance of the systems to report the required data; and implementing changes to trading systems that might result in additional reports to the Central Repository. The CAT NMS Plan provides the following average ongoing external cost and internal FTE count figures that a large non-OATS reporting broker-dealer would expect to incur to maintain data reporting systems to be in compliance with Rule 613: $80,000 in external hardware and software costs; 7.41 internal FTEs;
Therefore, the Commission preliminarily estimates that the average ongoing annual burden per large non-OATS reporting broker-dealer would be approximately 13,338 hours, plus $81,300 in external costs
Based on the Commission's analysis of data provided by FINRA and discussions with market participants, the Commission estimates that 126 broker-dealers, which reported more than 350,000 OATS ROEs between June 15 and July 10, 2015, would strategically decide to either self-report CAT Data or outsource their CAT data reporting functions.
The CAT NMS Plan provides the following average initial external cost and internal FTE count figures that a large OATS-reporting broker-dealer would expect to incur as a result of the implementation of the consolidated audit trail under Approach 1: $750,000 in hardware and software costs; 14.92 internal FTEs;
Therefore, the Commission preliminarily estimates that the average one-time initial burden per large OATS-reporting broker-dealer would be 26,856 burden hours and external costs of $900,000,
Once a large OATS-reporting broker-dealer has established the appropriate systems and processes required for collection and transmission of the required information to the Central Repository, the Commission preliminarily estimates that the Rule would impose on each broker-dealer ongoing annual burdens and costs associated with, among other things, personnel time to monitor each broker-dealer's reporting of the required data and the maintenance of the systems to report the required data; and implementing changes to trading systems which might result in additional reports to the Central Repository.
The CAT NMS Plan provides the following average ongoing external cost and FTE count figures that a large OATS-reporting broker-dealer would expect to incur to maintain data reporting systems to be in compliance with Rule 613: $380,000 in ongoing external hardware and software costs; 10.03 internal FTEs;
Therefore, the Commission preliminarily estimates that the average ongoing annual burden per large OATS-reporting broker-dealer would be approximately 18,054 burden hours, plus $500,000 in external costs
Based on data provided by FINRA, the Commission estimates that there are 806 broker-dealers that report fewer than 350,000 OATS ROEs monthly. The Commission preliminarily believes that these broker-dealers generally outsource their regulatory reporting obligations because during the period June 15-July 10, 2015, approximately 88.9% of their 350,000 OATS ROEs were reported through service bureaus, with 730 of these broker-dealers reporting more than 99% of their OATS ROEs through one or more service bureaus.
Firms that outsource their regulatory data reporting still face internal staffing burdens associated with this activity. These employees perform activities such as answering inquiries from their service bureaus, and investigating reporting exceptions. Based on conversations with market participants, the Commission estimates that these firms currently have 0.5 full-time employees devoted to these activities.
Based on this information, the Commission preliminarily estimates that the average initial burden to implement the needed systems changes to capture the required information and transmit it to the Central Repository in compliance with the CAT NMS Plan for small OATS-reporting broker-dealers would be approximately 1,800 burden hours.
$124,373 in initial external outsourcing costs.
Small OATS-reporting broker-dealers that outsource their regulatory data reporting would likely face internal staffing burdens and external costs associated with ongoing activity, such as maintaining any systems that transmit data to their service providers. Based on conversations with market participants, the Commission estimates these firms would need 0.75 FTEs on an ongoing basis to maintain CAT reporting.
Based on this information the Commission preliminarily believes that it would take a small OATS-reporting broker-dealer 1,350 ongoing burden hours per year
Therefore, the Commission preliminarily estimates that the average ongoing annual burden per small OATS-reporting broker-dealer would be approximately 1,350 hours, plus $124,373 in external costs, for an estimated aggregate ongoing burden of 1,088,100 hours
In addition to firms that currently report to OATS, the Commission estimates there are 799 broker-dealers that are currently exempt from OATS reporting rules due to firm size, or excluded because all of their order flow is routed to a single OATS reporter, such as a clearing firm, that would incur CAT reporting obligations.
The Commission assumes these broker-dealers would have very low levels of CAT reporting, similar to those of the lowest activity firms that currently report to OATS. For these firms, the Commission assumes that under CAT they would incur the average estimated service bureau cost of broker-dealers that currently report fewer than 350,000 OATS ROEs per month, which is $124,373 annually.
Based on this information, the Commission preliminarily estimates that the average initial burden to develop and implement the needed systems changes to capture the required information and transmit it to the Central Repository in compliance with the Rule for small, non-OATS-reporting broker-dealers would be approximately 3,600 initial burden hours.
Therefore, the Commission preliminarily estimates that the average one-time initial burden per small OATS-reporting broker-dealer would be 3,600 burden hours and external costs of $124,373 for an estimated aggregate initial burden of 2,962,800 hours
Small non-OATS-reporting broker-dealers that outsource their regulatory data reporting would likely face internal staffing burdens and costs associated with ongoing activity, such as maintaining any systems that transmit data to their service providers. Based on conversations with market participants, the Commission estimates these firms would need 0.75 full-time employees annually to maintain CAT reporting.
Based on this information the Commission preliminarily believes that it would take a small non-OATS-reporting broker-dealer 1,350 ongoing burden hours per year
Each collection of information discussed above would be a mandatory collection of information.
Rule 613 requires that the information to be collected and electronically provided to the Central Repository would only be available to the national securities exchanges, national securities association, and the Commission for the purpose of performing their respective regulatory and oversight responsibilities pursuant to the federal securities laws, rules and regulations. Further, the CAT NMS Plan is required to include policies and procedures to ensure the security and confidentiality of all information submitted to the Central Repository, and to ensure that all SROs and their employees, as well as all employees of the Central Repository, shall use appropriate safeguards to ensure the confidentiality of such data and shall agree not to use such data for any purpose other than surveillance and regulatory purposes. The Commission will receive confidential information. To the extent that the Commission does receive confidential information pursuant to this collection of information, such information will be kept confidential, subject to the provisions of applicable law.
National securities exchanges and national securities associations would be required to retain records and information pursuant to Rule 17a-1 under the Exchange Act.
Pursuant to 44 U.S.C. 3506(c)(2)(A), the Commission solicits comment to:
(1) Evaluate whether the proposed collections are necessary for the proper performance of our functions, including whether the information shall have practical utility;
(2) Evaluate the accuracy of our estimate of the burden of each collection of information;
(3) Determine whether there are ways to enhance the quality, utility, and clarity of the information to be collected; and
(4) Evaluate whether there are ways to minimize the burden of each collection of information on those who are to respond, including through the use of automated collection techniques or other forms of information technology.
Persons submitting comments on the collection of information requirements should direct them to the Office of Management and Budget, Attention: Desk Officer for the Securities and Exchange Commission, Office of Information and Regulatory Affairs,
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the CAT NMS Plan 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.
By the Commission.
Equal Employment Opportunity Commission.
Final rule.
The Equal Employment Opportunity Commission (EEOC or Commission) is issuing its final rule to amend the regulations and interpretive guidance implementing Title I of the Americans with Disabilities Act (ADA) to provide guidance on the extent to which employers may use incentives to encourage employees to participate in wellness programs that ask them to respond to disability-related inquiries and/or undergo medical examinations. This rule applies to all wellness programs that include disability-related inquiries and/or medical examinations whether they are offered only to employees enrolled in an employer-sponsored group health plan, offered to all employees regardless of whether they are enrolled in such a plan, or offered as a benefit of employment by employers that do not sponsor a group health plan or group health insurance. Published elsewhere in this issue of the
Christopher J. Kuczynski, Assistant Legal Counsel, (202) 663-4665, or Joyce Walker-Jones, Senior Attorney Advisor, (202) 663-7031, or (202) 663-7026 (TTY), Office of Legal Counsel, U.S. Equal Employment Opportunity Commission. (These are not toll free numbers.) Requests for this rule in an alternative format should be made to the Office of Communications and Legislative Affairs, (202) 663-4191 (voice) or (202) 663-4494 (TTY). (These are not toll free numbers.)
This rule applies to wellness programs that are considered “employee health programs” under Title I of the ADA.
A wellness program that is an employee health program may be part of a group health plan or may be offered outside of a group health plan or group health insurance coverage.
Many employers that sponsor group health plans also offer health promotion and disease prevention activities, known as wellness programs, to employees enrolled in a health plan.
Some employers offer incentives to encourage employees simply to participate in a wellness program, while others offer incentives based on whether employees achieve certain health outcomes.
Several federal laws govern wellness programs offered by employers. Wellness programs must comply with Title I of the ADA, Title II of GINA,
Title I of the ADA prohibits discrimination against individuals on the basis of disability in regard to employment compensation and other terms, conditions, and privileges of employment, including “fringe benefits available by virtue of employment, whether or not administered by the covered entity.”
HIPAA's nondiscrimination provisions, as amended by the Affordable Care Act, generally prohibit group health plans and health insurance issuers providing group health insurance in connection with a group health plan from discriminating against participants and beneficiaries in premiums, benefits, or eligibility based on a health factor.
The 2013 final tri-Department regulations to implement HIPAA's nondiscrimination provisions discuss two types of wellness programs: “participatory” and “health contingent.”
Health-contingent wellness programs, which may be either activity-only or outcome-based, require individuals to satisfy a standard related to a health factor to obtain a reward. Examples of health-contingent wellness programs include a program that requires employees to walk or do a certain amount of exercise weekly (an activity-based program) or to reduce their blood pressure or cholesterol level (an outcome-based program) in order to earn an incentive. Incentives offered in connection with health-contingent wellness programs generally must not
Finally, the 2013 final regulations recognize that compliance with HIPAA's nondiscrimination rules (as amended by the Affordable Care Act), including the wellness program requirements, is not determinative of compliance with any other provision of any other state or federal law, including, but not limited to, the ADA, Title VII, and GINA.
The Commission drafted a Notice of Proposed Rulemaking (NPRM) that was circulated to the Office of Management and Budget for review (pursuant to Executive Order 12866) and to federal executive branch agencies for comment (pursuant to Executive Order 12067).
The NPRM re-asserted the Commission's position that, as required by the ADA, employee health programs that include disability-related inquiries or medical examinations (including inquiries or medical examinations that are part of a HRA or medical history) must be “voluntary,” and defined what that term meant in light of the amendments made to HIPAA by the Affordable Care Act. The NPRM sought comment on wellness programs in general and on any of the proposed revisions to the ADA regulations and interpretative guidance at § 1630.14, which:
The NPRM also explained that the references to the requirement to provide a notice and the limitations on incentives in the proposed rule, and the changes to the corresponding section of the interpretive guidance, apply only to wellness programs that are part of or provided by a group health plan or by a health insurance issuer offering health insurance in connection with a group health plan. The proposed rule asked for comments on whether employers offer or are likely to offer wellness programs outside of a group health plan or group health insurance coverage and whether the Commission should issue regulations specifically limiting incentives provided as part of such programs.
Additionally, the Commission specifically sought comments on several other issues, including:
During the 60-day comment period, the Commission received nearly 2,750 public comments on the NPRM from a wide spectrum of stakeholders, including, among others: Individuals, including individuals with disabilities and those who are considered overweight or have eating disorders; disability rights and other advocacy organizations and their members; civil rights groups; federal and state government employees and representatives, including a joint letter from members of Congress; employer associations and industry groups and law firms on their behalf; and health insurance issuers and associations representing them, third party administrators, and wellness vendors (referred to as “health care groups”). The comments from individuals included 2,410 similar, but not uniform, letters—almost all of which were submitted by a national organization that supports women and families—urging the Commission to address HRAs that ask women whether they are pregnant or plan on becoming pregnant. Most of the comments (2,723) were submitted through the United States Government's electronic docket system,
The Commission has reviewed and considered each of the comments in preparing this final rule. The first section of this preamble addresses general comments concerning the Commission's interpretation of the interaction between the ADA and HIPAA's wellness program provisions, the final rule's applicability date, and the ADA's “safe harbor” provision.
The second section discusses comments submitted in response to questions the NPRM asked about several issues, as noted above.
Finally, because three of the questions asked in the NPRM directly relate to the provisions regarding the notice requirement and the limitations on incentives, the preamble addresses those comments in the last section that discusses comments regarding specific provisions.
The Commission received a number of comments expressing support for, and concerns about, wellness programs. For example, while many commenters stated that properly designed wellness programs have the potential to help employees become healthier and bring down health care costs, they believe that these programs also carry serious potential to discriminate in ways long prohibited by the civil rights laws by allowing employers to coerce employees into providing medical information. Disability rights and advocacy groups expressed concerns that the EEOC was abandoning its prior position that a voluntary wellness program that includes disability-related inquiries and/or medical examinations cannot involve penalties, while employer and industry groups commented that the proposed rule's limitation on incentives is inconsistent with the tri-Department rules.
Although the Commission recognizes that compliance with the standards in HIPAA, as amended by the Affordable Care Act, is not determinative of compliance with the ADA, we believe that the final rule interprets the ADA in a manner that reflects the ADA's goal of limiting employer access to medical information and is consistent with HIPAA's provisions promoting wellness programs. Accordingly, after consideration of all of the comments, the Commission reaffirms its conclusion that allowing certain incentives related to wellness programs, while limiting them to prevent economic coercion that could render provision of medical information involuntary, is the best way to effectuate the purposes of the wellness program provisions of both laws.
Employer associations and industry groups also submitted comments regarding the effective date of the final rule, recommending that it allow enough time for employers to bring their wellness programs into compliance, that it be issued jointly with the GINA wellness rule, and that it not be applied retroactively. The Commission agrees and concludes that the provisions of this rule set forth at § 1630.14(d)(2)(iv) (concerning notice) and § 1630.14(d)(3) (concerning incentives) will apply only prospectively to employer wellness programs as of the first day of the first plan year that begins on or after January 1, 2017, for the health plan used to determine the level of incentive permitted under this regulation. So, for example, if the plan year for the health plan used to calculate the permissible incentive limit begins on January 1, 2017, that is the date on which the provisions of this rule governing incentives apply to the wellness program. If the plan year of the plan used to calculate the level of incentives
All other provisions of this final rule are clarifications of existing obligations that apply at, and prior to, issuance of this final rule.
A number of stakeholders commented on a footnote in the NPRM, which noted that the ADA's safe harbor provision applicable to insurance
Employer associations and industry groups that commented on the footnote thought that the safe harbor provision applies to wellness programs that ask disability-related questions or require medical examinations. Several members of Congress asserted that the EEOC was inappropriately seeking to rewrite the statute and vacate court decisions through regulation. A few commenters distinguished between wellness programs that are part of a group health plan, to which the commenters said the safe harbor should apply, and those that are not part of a group health plan, to which it should not apply. Several noted that information obtained through wellness programs could provide employers with valuable insight that would help them develop and administer present and future plans. Two comments expressed the view that the EEOC has no authority to interpret the meaning of the safe harbor provision because it is in Title V of the ADA, not Title I, and these commenters urged deletion of the entire footnote.
The Commission has authority to interpret the safe harbor provision because, by its express terms, this provision applies to Titles I through IV of the ADA. Moreover, as stated in § 1630.14(d)(6) of this rule, we reaffirm our position that the safe harbor provision does not apply to an employer's decision to offer rewards or impose penalties in connection with wellness programs that include disability-related inquiries or medical examinations.
First, as we observed in the preamble to our proposed rule, the ADA, codified at 42 U.S.C. 12112(d)(4)(B), specifically provides an exception that allows employers to make disability-related inquiries or conduct medical examinations as part of an employee health program as long as employee participation is voluntary. To read the insurance safe harbor provision as applicable to wellness programs—and thus to permit incentives in excess of what this rule allows and even to permit practices such as requiring employees to participate in wellness programs in order to maintain their health insurance—would render 42 U.S.C. 12112(d)(4)(B) superfluous.
One commenter disagreed, arguing that application of the insurance safe harbor provision to wellness programs that are part of a group health plan would not render 42 U.S.C. 12112(d)(4)(B) superfluous, as that section could still apply to wellness programs that are not part of a group health plan. We, however, discern no Congressional intent—either in the plain language of 42 U.S.C. 12112(d)(4)(B) or in the legislative history on that section of the ADA—to restrict the section's reach only to health programs that are not part of a group health plan.
Additionally, the plain language of the safe harbor provision, and an abundance of legislative history explaining it, make its narrow purpose clear. At the time the ADA was enacted, health plans were allowed to engage in some practices that are no longer permitted today. For example, before HIPAA made the practice illegal in 1996, group health plans were allowed to charge individuals in the plan higher rates based on increased risks associated with their medical conditions.
In commenting on the safe harbor provision, the report of the House Committee on Education and Labor accompanying the ADA noted:
Under the ADA, a person with a disability cannot be denied insurance or be subject to different terms or conditions of insurance based on disability alone, if the disability does not impose increased risks.
* * *
Moreover, while a plan which limits certain kinds of coverage based on classification of risk would be allowed under this section [codified at 42 U.S.C. 12201(c)], the plan may not refuse to insure, or refuse to continue to insure, or limit the amount, extent, or kind of coverage available to an individual, or charge a different rate for the same coverage solely because of a physical or mental impairment, except where the refusal, limitation, or rate differential is based on sound actuarial principles or is related to actual or reasonably anticipated experience.
For example, a blind person may not be denied coverage based on blindness independent o[f] actuarial risk classification.
[S]ection 501 is intended to afford insurers and employers the same opportunities they would enjoy in the absence of this legislation to design and administer insurance products and benefit plans in a manner that is consistent with basic insurance risk classification. . . . Without such a clarification, the legislation could arguably find violative of its provisions any action taken by an insurer or employer which treats disabled persons differently under an insurance or benefit plan because they represent an increased hazard of illness or death.
Nowhere does the ADA's legislative history refer to wellness programs in connection with the safe harbor provision. The evidence, in fact, is to the contrary. The only reference to wellness programs is in a committee report discussing the ADA provision governing voluntary health programs.
Consistent with this legislative history, EEOC's ADA regulations, the interpretive guidance accompanying them, and interim enforcement guidance that the Commission issued in 1993 and that is still in effect, confirm that the safe harbor provision applies to the practices of the insurance industry with respect to the use of sound actuarial data to make determinations about insurability and the establishment of rates. Section 1630.16(f) of the regulations incorporates the language of section 501(c) of the ADA. The interpretive guidance provides that the safe harbor provision “is a limited exception that is only applicable to those who establish, sponsor, observe, or administer benefit plans, such as health and insurance plans. . . . The purpose of this provision is to permit the development and administration of benefit plans in accordance with accepted principles of risk assessment.”
Risk classification refers to the identification of risk factors and the grouping of those factors that pose similar risks. Risk factors may include characterizations such as age, occupation, personal habits (
The Commission disagrees with the result in the two district court decisions that have applied the safe harbor provision far more expansively to support employers' imposition of penalties on employees who do not answer disability-related questions or undergo medical examinations in connection with wellness programs,
The Commission also believes both cases were wrongly decided. The employers in
Individuals, including individuals with disabilities and their advocates, commented that employees should be allowed to provide a certification from a medical professional that any medical risks they have are under active treatment instead of being required to complete a HRA or undergo a medical examination. By contrast, health insurance issuers and employer groups generally commented that allowing an employee to submit such a certification instead of completing a HRA would circumvent the ability of a wellness program to assess and mitigate health risks.
The Commission has decided that although some employees already may be aware of their particular risk factors, a general certification or attestation that they are receiving medical care for those risks would limit the effectiveness of wellness programs that the Affordable Care Act clearly intends to promote. For example, employers may use aggregate information from HRAs to determine the prevalence of certain conditions in their workforce to design specific programs aimed at improving the health of employees with those conditions. The Commission concludes that protections in the final rule—such as the requirement that wellness programs be reasonably designed to promote health or prevent disease, and confidentiality requirements that have been further strengthened over those in the proposed
One individual commented that if the EEOC feels constrained to adopt the rule that the incentives provided in a wellness program that asks employees to respond to disability-related inquiries and/or undergo medical examinations may not be so large as to render health insurance coverage unaffordable under the Affordable Care Act, it should at least do so based on the cost of the family premium for individuals who have family coverage.
The Commission has decided that by extending the 30 percent limit set under HIPAA and the Affordable Care Act to include participatory wellness programs that ask an employee to respond to a disability-related inquiry or undergo a medical examination, this rule promotes the ADA's interest in ensuring that incentive limits are not so high as to make participation in a wellness program involuntary. We also agree that the Treasury regulations that provide that the affordability of eligible employer-sponsored coverage is determined by assuming that each employee fails to satisfy the requirements of a wellness program (except for the requirements of a nondiscriminatory wellness program related to tobacco use) already serves as a constraint on the level of incentives an employer may offer, since affordability generally is calculated based on the employee's cost of coverage relative to his or her income without considering the value of any wellness program incentive. Accordingly, the Commission declines to incorporate an affordability standard into the final rule.
Several comments were submitted in response to the question in the NPRM asking whether employers offer or are likely to offer wellness programs not in connection with a group health plan or group health insurance coverage (outside of a group health plan), and whether the final rule should specifically limit incentives provided as part of such programs. One advocacy group commented that more employers are sending employees to Exchanges for health care coverage but are offering wellness programs in an effort to improve employees' health and increase job productivity. Some commenters stated that the final rule should apply both to wellness programs that are part of an employer-sponsored health plan as well as to wellness programs offered outside of such plans, while others asked the EEOC to clarify what it means for a wellness program “to be part of, or provided by, a group health plan.” One group said that an example of a wellness program offered outside of a group health plan is one that is available to all employees whether or not they participate in an employer-sponsored group health plan. Another group suggested criteria for determining whether a wellness program is part of or outside of a group health plan, such as: (1) Whether the program is offered by a vendor that has contracted with the group health plan or insurer; (2) whether it only is offered to employees enrolled in a group health plan; and (3) whether the wellness program is described as a covered benefit under the terms of the group health plan.
Rather than listing factors for determining whether a wellness program is part of, or outside of, an employer-sponsored group health plan, the Commission has decided that all of the provisions in this rule, including the requirement to provide a notice and the limitations on incentives, apply to all wellness programs that include disability-related inquiries and/or medical examinations. This means that this rule applies to wellness programs that are: offered only to employees enrolled in an employer-sponsored group health plan; offered to all employees regardless of whether they are enrolled in such a plan; or offered as a benefit of employment by employers that do not sponsor a group health plan or group health insurance.
We considered taking the position that wellness programs that are not offered through a group health plan that require employees to provide medical information could not offer any incentives. However, such an approach would be inconsistent with our conclusion, with respect to wellness programs that are part of a group health plan, that the offer of limited incentives will not render the program involuntary. Similarly, allowing unlimited incentives where a wellness program is not offered through a group health plan would be inconsistent with our position that limitations on incentives are necessary to ensure voluntariness. Accordingly, as noted below, this rule explains how to calculate the permissible incentive level for wellness programs regardless of whether they are related or unrelated to a group health plan.
Some commenters suggested that the EEOC leave it to the tri-Departments to determine what constitutes a health or wellness program, while others commented that wellness programs should be required to be based on clinical guidelines or national standards or have a stronger connection between the content of a HRA and the development of specific disease management programs.
The final rule acknowledges that satisfaction of the “reasonably designed” standard must be determined by examining all of the relevant facts and circumstances and otherwise retains the NPRM's requirement that an employee health program, including any disability-related inquiries and medical examinations that are part of such a program, must be “reasonably designed to promote health or prevent disease.” This standard is similar to the standard under the tri-Department regulations applicable to health-contingent wellness programs.
Finally, because the ADA generally restricts the medical information employers may obtain from employees, the Commission believes that requiring wellness programs that include disability-related inquiries and/or medical examinations to be “reasonably designed to promote health or prevent disease” is necessary to give meaning to the exception for inquiries and examinations that are part of voluntary employee health programs. In addition, this is a standard with which health plans are now sufficiently familiar, and, thus, it is reasonable to apply that standard under the ADA to employers that sponsor wellness programs. Although the standard is less stringent than some commenters would prefer, the Commission believes it provides a sufficient level of protection against the misuse of employee medical information.
Individuals with disabilities and their advocates commented that participation in wellness programs is not voluntary when an employee has no choice or when financial penalties are the cost of opting out. By contrast, health insurance and employer groups commented that if an employee has a choice whether to participate, even if that choice may result in a penalty, participation should be considered voluntary.
To give meaning to the ADA's requirement that an employee's participation in a wellness program must be voluntary, the incentives for participation cannot be so substantial as to be coercive. We, therefore, reject the suggestion that merely offering employees a choice whether or not to participate renders participation voluntary, regardless of the consequences associated with that choice. Nonetheless, although substantial, the Commission concludes that, given current insurance rates, offering an incentive of up to 30 percent of the total cost of self-only coverage does not, without more, render a wellness program coercive. Accordingly, the final rule does not make any changes to the requirement that, in order for a wellness program to be considered voluntary, an employer may not require employees to participate in the program.
Some employer and health care groups commented that a number of employers have begun experimenting with tiered health plan benefit and cost-sharing structures (sometimes called “gateway plans”) that base eligibility for a particular health plan on completing a HRA or undergoing biometric screenings and asked the Commission to allow for such plans. For example, a health insurance issuer commented that a current trend is to allow employees who participate in a wellness program to enroll in a comprehensive health plan, while offering non-participants a less comprehensive plan or one that requires higher premiums or cost-sharing.
The Commission concludes that the ADA does not prohibit an employer from denying an incentive that is within the limits set out in this final rule to an employee who does not participate in a wellness program that includes disability-related inquiries or medical examinations; nor does it prohibit requiring an employee to pay more for insurance that is more comprehensive. The ADA, however, does prohibit the outright denial of access to a benefit available by virtue of employment. When an employer denies access to a health plan because the employee does not answer disability-related inquiries or undergo medical examinations, it discriminates against the employee within the meaning of 42 U.S.C. 12112(d)(4) by requiring the employee to answer questions or undergo medical examinations that are not job related and consistent with business necessity and cannot be considered voluntary. Consequently, we decline to change this provision in the final rule to allow for the kind of tiered health plans described by commenters. However, an employer still may offer incentives up to 30 percent of the total cost of self-only coverage based on participation in a wellness program. Thus, an employee who chooses a more comprehensive health plan but declines to participate in a wellness program could pay more for the same comprehensive health plan than an employee who participates in a wellness program.
Individuals, including individuals with disabilities and their advocates, and civil rights groups generally commented that because financial incentives can be significant enough to become coercive for many employees, the proposed rule did not offer enough protection and was inconsistent with the plain language of the ADA. Health insurance and employer groups, however, supported the provision.
No changes have been made to this paragraph, which states that, in order to be considered voluntary, an employer may not retaliate against, interfere with, coerce, intimidate, or threaten employees in violation of Section 503 of the ADA, codified at 42 U.S.C. 12203 (
The Commission asked whether the requirement that employees participating in wellness programs that ask disability-related questions and/or require medical examinations be given a notice concerning the information to be collected, how it will be used, with whom it will be shared, and how it will be kept confidential should apply to all wellness programs and not just to wellness programs that are part of a group health plan. We also asked whether a notice should be required where a covered entity offers only “de minimis” incentives. (See the discussion of de minimis incentives under “Types of Incentives” below.)
Some disability advocacy groups commented that rather than trying to define what constitutes de minimis rewards or penalties, the notice requirements should apply to all programs that include disability-related inquiries or medical examinations, regardless of whether they are part of a group health plan or offer incentives. However, an employer group commented that any notice requirements should be waived where incentives are only de minimis.
Because the importance of the information the notice communicates does not depend on whether a wellness program is part of a group health plan or whether incentives are offered in connection with the program, this provision of the final rule clarifies that the requirement to provide a notice applies to all wellness programs that ask employees to respond to disability-related inquiries and/or undergo medical examinations. For these wellness programs to be deemed voluntary, a covered entity must provide a notice—in language reasonably likely to be understood by the employee from whom medical information is being obtained—that clearly explains what medical information will be obtained, how the medical information will be used, who will receive the medical information, the restrictions on its disclosure, and the methods the covered entity uses to prevent improper disclosure of medical information.
Commenters representing employer and health care groups said that the notice requirement is duplicative of existing law, while others asked the Commission to provide model language for a notice that would meet the necessary requirements. Where an employer's current written notifications to employees regarding wellness programs include the required information, the employer can continue to use those notifications for all of its wellness programs that ask employees to respond to disability-related inquiries and/or undergo medical examinations. However, where current notifications do not include the detailed information required by this provision, even if the employer claims to meet requirements under another law, it must revise existing notifications or develop a new notice to comply with this final rule. Within 30 days of the final rule's publication, the Commission will provide on its Web site an example of a notice that complies with this rule.
The Commission also asked whether the proposed notice provision should include a requirement that employees participating in wellness programs that include disability-related inquiries and/or medical examinations provide prior, written, and knowing confirmation that their participation is voluntary. Disability groups expressed concerns about employees who may unwittingly “waive” their privacy rights, particularly when completing online HRAs. For example, one group commented that some HRA Web sites include a provision, buried in an obscure link, stating that using the wellness program Web site constitutes a waiver of the person's privacy rights. Other groups commented that employees should have the option to actively opt in to a privacy notification agreement and that they should be fully informed of everything that the vendor or third party might do with personal health data, including: Marketing products and services to the employee; disclosing personal information to third party vendors that help provide services on the vendor's site; or authorizing the third party vendor to collect the employee's health information directly or indirectly from interaction with the services and/or from the employee's health care provider or health insurer.
Health insurance issuers and employer groups commented that requiring employers to collect signatures from non-participants would create an administrative burden and introduce additional costs and barriers to employers' willingness to offer wellness programs and to employees' participation. Another stakeholder said that if the point of the proposed regulation is to minimize confusion between the ADA and Affordable Care Act rules, requiring a written authorization would undermine that point and make the determination of a “voluntary” wellness program an employee-by-employee process rather than a determination made at the program level.
Although the Commission has decided not to include a requirement that employees must provide prior, written, and knowing authorization, we are concerned that the completion of a HRA or disclosure of health information in connection with a wellness program, particularly when online resources are used, would cause employees to waive critical confidentiality protections of their health information. We have addressed this concern in the final rule's provisions on confidentiality of medical information. (See the discussion of § 1630.14(d)(4)(v) below.)
The Commission received numerous comments on this provision of the proposed rule. As stated in the general comments section of this preamble, disability advocacy groups and individuals with disabilities said that the proposed rule was based on the erroneous assumption that the ADA must be “conformed” to provisions of the Affordable Care Act concerning wellness programs. They also commented that allowing wellness programs to offer incentives of up to 30 percent of the total cost of self-only coverage in exchange for employees responding to disability-related inquiries or undergoing medical examinations would be coercive and would substantially weaken the ADA's protections. While some individuals with disabilities did not categorically object to allowing employers to offer incentives to employees who provide health information, they stated that employees should not have to answer questions about their disabilities in order to receive whatever reward is offered. Employer and industry groups, however, commented that the EEOC should align the incentive limits for wellness programs with the incentive limits established in the tri-Department regulations.
The final rule reaffirms that an employer may offer incentives up to a maximum of 30 percent of the total cost of self-only coverage (including both the employee's and employer's contribution), whether in the form of a reward or penalty, to promote an employee's participation in a wellness program that includes disability-related inquiries and/or or medical examinations as long as participation is voluntary. The 30 percent limit applies to all workplace wellness programs whether they are: Offered only to employees enrolled in an employer-sponsored group health plan; offered to
The final rule explains how to calculate the permissible incentive limit in four situations. First, where participation in a wellness program depends on enrollment in a particular group health plan, the employer may offer an incentive up to 30 percent of the total cost of self-only coverage (including both employer and employee contributions) under that plan. Second, where an employer offers a single group health plan, but participation in a wellness program does not depend on the employee's enrollment in that plan, an employer may offer an incentive of up to 30 percent of the total cost of self-only coverage under that plan. Third, where an employer has more than one group health plan, but participation in a wellness program does not depend on the employee's enrollment in any plan, the employer may offer an incentive up to 30 percent of the total cost of the lowest cost self-only coverage under a major medical group health plan offered by the employer. Finally, where an employer does not offer a group health plan or group health insurance coverage, the rule uses the cost of the second lowest cost Silver Plan
The Commission has concluded that the employer's lowest cost self-only coverage under a major medical group health plan is an appropriate benchmark for establishing the incentive limit where an employer has more than one group health plan and participation in a wellness program does not depend on enrollment in any particular plan for two reasons. First, it offers employers predictability and administrative efficiency in complying with the rule. Second, the rule is consistent with the Commission's objective of ensuring that incentives for answering disability-related questions or undergoing medical examinations do not become so high as to render the employee's participation involuntary.
The second lowest cost Silver Plan available on the Exchange in the location that the employer identifies as its principal place of business is used as a benchmark for determining the amount of an eligible individual's premium tax credit for purchasing health insurance on the Exchanges.
Some groups also commented that non-financial incentives should not be counted toward the cap. According to these commenters, determining the value of in-kind incentives, such as employee recognition, use of a parking spot, or easing of a dress code for a wellness participant are difficult, if not impossible, to determine and that including such non-financial incentives will add an additional administrative burden and possibly discourage the use of these kinds of incentives. Others commented that if the provision is adopted, the EEOC should avoid requiring plans to calculate the value of de minimis rewards when demonstrating compliance with applicable limits.
The final rule reaffirms that the offer of limited incentives (whether financial or in-kind) to encourage employees to participate in wellness programs that include disability-related inquiries and/or medical examinations will not render the program involuntary. However, the total allowable incentive available under all programs (both participatory and health-contingent programs), whether part of, or outside of, a group health plan, may not exceed 30 percent of the total cost of self-only coverage, which generally is the maximum allowable incentive available under HIPAA and the Affordable Care Act for health-contingent wellness programs.
We also decline to exclude de minimis incentives. Although commenters gave examples of some incentives that might be considered de minimis, no commenters offered a workable principle or a dollar amount that could be used as the basis for defining which incentives are de minimis and which are not. We suspect that employers' interpretation of the term would vary, and there is no clear basis on which to establish a de minimis value threshold. Moreover, the tri-Department regulations do not distinguish between de minimis incentives and others for purposes of determining whether a plan has complied with the 30 percent incentive limit applicable to most health-contingent wellness programs, even though it is quite possible that health-contingent wellness programs utilize both de minimis and more substantial incentives. Consequently, we have not exempted the value of de minimis incentives from the 30 percent limit on incentives for wellness programs that include disability-related questions and/or medical examinations.
Numerous commenters said that calculating the 30 percent limit on the total cost of self-only coverage does not align with the tri-Department regulations implementing HIPAA's
The interpretive guidance accompanying the proposed rule explained the application of this provision to smoking cessation programs. Specifically, the interpretive guidance stated that because a smoking cessation program that merely asks employees whether or not they use tobacco (or whether or not they ceased using tobacco upon completion of the program) is not an employee health program that includes disability-related inquiries or medical examinations, the 30 percent incentive limit does not apply. Therefore, a covered entity may offer incentives as high as 50 percent of the cost of self-only coverage, pursuant to the regulations implementing section 2705(j) of the PHS Act, for such a program. However, the interpretive guidance explained that because any biometric screening or other medical procedure that tests for the presence of nicotine or tobacco is a medical examination under the ADA, the 30 percent incentive limit would apply to such a screening or procedure.
Some commenters said that the distinction the proposed rule made between inquiries about tobacco use and tests to determine such use was confusing. Additionally, a national trade association representing large employers commented that the ADA's prohibition on medical examinations was intended to prohibit employers from acquiring and improperly using knowledge about an employee's or applicant's disability and was not intended to protect employees from restrictions on tobacco usage, which is not a disability. Other employer groups commented that EEOC should not reverse course on the efforts being made by wellness programs to discourage tobacco use, particularly since employees are not required to quit smoking/using tobacco but, rather, simply asked to participate in cessation programs.
The final rule retains the distinction between smoking cessation programs that require employees to be tested for nicotine use and programs that merely ask employees whether they smoke. Although the fact that someone smokes is not information about a disability, the ADA's provisions limiting disability-related inquiries and medical examinations apply to all applicants and employees, whether or not they have disabilities.
The NPRM had three subsections addressing the confidentiality of medical information obtained through voluntary health programs. Specifically, the Commission redesignated paragraph (d)(1) in § 1630.14, which states that information regarding the medical condition or history of any employee shall be collected and maintained on separate forms and in separate medical files and be treated as a confidential medical record, as paragraph (d)(4) but did not change any of the exceptions to confidentiality set out in that section. It also redesignated paragraph (d)(2), which states that medical information regarding the medical history of any employee shall not be used for any purpose inconsistent with § 1630.14(d), as paragraph (d)(5). Finally, the Commission proposed to add a new paragraph (d)(6) to § 1630.14, concerning the confidentiality and use of medical information gathered in the course of providing voluntary health services to employees, including information collected as part of an employee's participation in an employee health program.
Paragraph (d)(6) in § 1630.14 stated that medical information collected through an employee health program only may be provided to a covered entity under the ADA in aggregate terms that do not disclose, or are not reasonably likely to disclose, the identity of specific individuals, except as needed to administer the health plan and except as permitted under § 1630.14(d)(4). The interpretive guidance explained that both employers that sponsor wellness programs and administrators of wellness programs acting as agents of employers have obligations to ensure compliance with this provision.
Employer and health care groups suggested that the confidentiality provisions applicable to wellness programs should be more closely aligned with the HIPAA privacy and security standards and the Affordable Care Act. For example, an employer group commented that the EEOC's guidance implies that compliance with HIPAA's privacy and security standards may not always satisfy the ADA's requirement and that the final rule should explicitly state that compliance with the HIPAA privacy and security standards would satisfy the confidentiality requirement. By contrast, one individual commented that the Commission should strengthen employment non-discrimination protections beyond allowing disclosure of only aggregate information to the employer and recommended that individuals have the right to request that employers delete all their wellness data if they stop participating in the wellness program, or leave their employer.
In response, the Commission retains the requirements set forth in this paragraph but includes additional requirements to further protect employees' personal health information. The final rule also places all of the confidentiality requirements in a single
In response to comments that participation in a wellness program, particularly completion of an online HRA, may result in employees waiving critical confidentiality protections, the final rule adds a new paragraph, (d)(4)(iv), which is similar to a provision in the final rule issued today under Title II of GINA. Section 1630.14(d)(iv) states that a covered entity may not require an employee to agree to the sale, exchange, sharing, transfer, or other disclosure of medical information (except to the extent permitted by this part to carry out specific activities related to the wellness program), or to waive confidentiality protections available under the ADA as a condition for participating in a wellness program or receiving a wellness program incentive.
The Commission declines to include a requirement that employers or wellness programs delete medical information of employees who elect not to continue participating in a wellness program. The ADA only requires that medical information of employees participating in health programs be maintained as a confidential medical record, subject to limited exceptions for its disclosure. We are mindful that other laws may require the retention of such information. Even the ADA's confidentiality provisions, codified at 42 U.S.C. 12112(d)(3)(B)(iii) and (4)(C), contemplate that otherwise confidential medical information may have to be shared with government officials investigating compliance with the ADA.
This paragraph of the proposed rule (previously § 1630.14(d)(7)) clarified that compliance with paragraph (d) of this section, including the limit on incentives under the ADA, does not relieve a covered entity of its obligation to comply with other employment nondiscrimination laws. Some commenters suggested that the final rule should give specific examples of wellness programs that violate other nondiscrimination laws, especially those that may have a disparate impact on a protected group.
The Commission has revised the interpretive guidance accompanying the proposed rule to further explain that even if an employer's wellness program complies with the incentive limits set forth in the ADA regulations, the employer would violate Title VII or the ADEA if that program discriminates on the basis of race, sex (including pregnancy, gender identity, transgender status, and sexual orientation), national origin, age, or any other grounds prohibited by those statutes. The interpretive guidance also explains that if a wellness program requirement (such as achieving a particular blood pressure or glucose level or body mass index) disproportionately affects individuals on the basis of some protected characteristic, an employer may be able to avoid a disparate impact claim by offering and providing a reasonable alternative standard.
Pursuant to Executive Order 12866, the EEOC has coordinated this final rule with the Office of Management and Budget. Under section 3(f)(1) of Executive Order 12866, the EEOC has determined that the amended regulation will not have an annual effect on the economy of $100 million or more, or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or state, local, or tribal governments or communities.
Although a detailed cost-benefit analysis of the final rule is not required, the Commission recognizes that providing some information on potential costs and benefits of the rule may be helpful in assisting members of the public in better understanding the rule's potential impact. The Commission notes that by providing standards applicable to wellness program incentives and clarity about other ADA provisions (including the insurance safe harbor provision), the rule will significantly aid compliance with the ADA and with HIPAA's nondiscrimination provisions, as amended by the Affordable Care Act, by employers and group health plans that offer wellness programs. Currently, employers that offer wellness programs as part of group health plans face uncertainty as to whether providing incentives permitted by HIPAA will subject them to liability under the ADA. Additionally, employers that do not offer health plans and so are not subject to the wellness program provisions of HIPAA, as amended by the Affordable Care Act, have no way to determine what, if any, incentives they may want to offer are permissible under the ADA. This rule clarifies that the ADA does permit employers to offer incentives to promote participation in wellness programs that include disability-related inquiries and/or medical examinations and sets out the limits on such incentives. The rule also removes uncertainty about whether practices that have been the subject of litigation, such as conditioning enrollment in an employer's health plan on participation in a wellness program that asks disability-related questions or requires medical examinations, are prohibited.
The Commission does not believe the costs associated with the rule are significant. Employers covered by the ADA that offer wellness programs as part of their group health plans are already required to comply with wellness program incentive limits for health-contingent wellness programs. EEOC's final rule differs from HIPAA's wellness program incentives in that it extends the 30 percent limit on incentives under health-contingent wellness programs to participatory wellness programs. HIPAA, as amended by the Affordable Care Act, places no limits on incentives for participatory wellness programs. As the incentives offered by the vast majority of employers currently fall below the limit of 30 percent of the cost of self-only coverage, the Commission does not believe the rule will negatively affect the ability of employers to offer incentives sufficient to promote meaningful participation in wellness programs that are part of group health plans. Employers that offer wellness programs that do not require employees to participate in a particular group health plan can determine incentive limits by reference to readily available information about the cost of their own group health plan or, in the case of employers that do not offer group health insurance, the cost of the second lowest Silver Plan available under the state or federal Exchanges under the Affordable Care Act.
The only other potential cost is associated with the requirement that employers provide a notice to employees informing them what medical information will be obtained, how it will be used, who will receive it, and the restrictions on disclosure. For the reasons set forth in the Paperwork Reduction Act analysis that follows, the Commission concludes that approximately 265,880 employers will need to develop such a notice. The Commission estimates the time required to develop the notice to be four hours, for a total of 1,063,520 hours. According to data from the Bureau of Labor Statistics, the average hourly compensation for employees in “management, professional, and related” occupations was $55.56 as of
Other requirements in the rule will result in no costs since they simply restate basic principles of nondiscrimination under the ADA. Even in the absence of this rule, employers are prohibited from requiring employees to participate in employee health programs that include disability-related inquiries and/or medical examinations; denying employees health insurance (or any other benefit of employment) if they do not participate in wellness programs; retaliating against employees who file charges claiming that a wellness program violates the ADA; and attempting to induce participation in employee health programs through interference with their ADA rights or by coercion, intimidation, and threats. Employers are also required to provide reasonable accommodations to enable employees to enjoy the equal benefits and privileges of employment, including participation in employee health programs. To the extent confidentiality of medical information acquired in the course of providing an employee health program is required, the final rule will result in no additional costs as the ADA already requires employers to keep medical information about applicants and employees confidential.
To the extent this rule can be read to impose additional confidentiality obligations, the interpretive guidance to the rule makes clear that a wellness program that is part of a group health plan may satisfy its obligation to comply with § 1630.14(d)(4)(iii) by adhering to the HIPAA Privacy Rule.
The final rule contains an information collection requirement subject to review and approval by the Office of Management and Budget (OMB) under the Paperwork Reduction Act. As required by the Paperwork Reduction Act, the EEOC is submitting to OMB a request for approval of the information collection requirement under section 3507(d) of the Act.
The NPRM asked for comments on whether the proposed notice requirement was necessary and on the accuracy of its burden estimate. Although none of the comments specifically addressed the burden estimate, some commenters said that the notice requirement was duplicative of existing law, while others asked the Commission to provide model language for a notice that would meet necessary requirements.
The final rule states that, to the extent that employers already use forms that provide the requisite information in an applicable document that complies with disclosures required under ERISA and HIPAA, they do not have to create a new notice to satisfy the requirements of this provision and can use the same notice for all of its wellness programs that ask employees to respond to disability-related inquiries and/or undergo medical examinations. Therefore, the burden only will be on employers that will incur a one-time burden to develop an appropriate notice to ensure that employees who provide medical information pursuant to a wellness program do so voluntarily. This notice may be included on or attached to any HRA employees are asked to complete and should explain what medical information will be obtained, how it will be used, who will receive it, and the restrictions on disclosure.
Within 30 days of the final rule's publication, the Commission will provide on its Web site an example of a notice that complies with the rule. Thus, the Commission anticipates that the sample notice will reduce an employer's burden by making it easier to satisfy this requirement. Because we
Title I of the ADA applies to approximately 782,000 employers with 15 or more employees, approximately 764,233 of which are small firms (entities with 15-500 employees) according to data provided by the Small Business Administration Office of Advocacy.
The Commission certifies under 5 U.S.C. 605(b) that this proposed rule will not have a significant economic impact on a substantial number of small entities because it imposes no reporting burdens and only minimal costs. The final rule clarifies that, in most respects, employers that offer wellness programs that are part of, or outside of, their health plans may offer incentives to employees consistent with HIPAA and the Affordable Care Act without violating the ADA. The rule also clarifies that employers that offer wellness programs to all employees, regardless of whether they are enrolled in a group health plan, and employers that offer wellness programs but do not provide group health insurance, also may provide incentives for participation in such programs consistent with the limits set forth in this rule.
To the extent that employers will expend resources to train human resources staff and others on the revised rule, we note that the EEOC conducts extensive outreach and technical assistance programs, many of them at no cost to employers, to assist in the training of relevant personnel on EEO-related issues. For example, in fiscal year 2014, the agency's outreach programs reached more than 236,000 persons through participation in more than 3,500 no-cost educational, training, and outreach events. Now that this rule is final, we will include information about the revisions to the regulations in our general outreach programs and continue to offer ADA-specific outreach programs that will include this information. On the date this rule is published, we also will post technical assistance documents on our Web site explaining the revisions to these regulations, as we do with all of our new regulations and policy documents.
We estimate that the typical human resources professional will need to dedicate, at most, 90 minutes to gain a satisfactory understanding of the revised regulations. We further estimate that the median hourly pay rate of a human resources professional is approximately $49.41.
The EEOC does not believe that this cost will be significant for the impacted small entities.
This rule will not result in the expenditure by state, local, or tribal governments, in the aggregate, or by the private sector, of $100 million or more in any one year, and it will not significantly or uniquely affect small governments. Therefore, no actions were deemed necessary under the provisions of the Unfunded Mandates Reform Act of 1995.
Equal employment opportunity, Individuals with disabilities.
For the reasons set forth in the preamble, the EEOC amends 29 CFR part 1630 as follows:
42 U.S.C. 12116 and 12205a of the American with Disabilities Act, as amended.
The revisions and additions read as follows:
(d) * * *
(1)
(2)
(i) Does not require employees to participate;
(ii) Does not deny coverage under any of its group health plans or particular benefits packages within a group health plan for non-participation, or limit the extent of benefits (except as allowed under paragraph (d)(3) of this section) for employees who do not participate;
(iii) Does not take any adverse employment action or retaliate against, interfere with, coerce, intimidate, or threaten employees within the meaning of Section 503 of the ADA, codified at 42 U.S.C. 12203; and
(iv) Provides employees with a notice that:
(A) Is written so that the employee from whom medical information is being obtained is reasonably likely to understand it;
(B) Describes the type of medical information that will be obtained and the specific purposes for which the medical information will be used; and
(C) Describes the restrictions on the disclosure of the employee's medical information, the employer representatives or other parties with whom the information will be shared, and the methods that the covered entity will use to ensure that medical information is not improperly disclosed (including whether it complies with the measures set forth in the HIPAA regulations codified at 45 CFR parts 160 and 164).
(3)
(i) Thirty percent of the total cost of self-only coverage (including both the employee's and employer's contribution) of the group health plan in which the employee is enrolled when participation in the wellness program is limited to employees enrolled in the plan;
(ii) Thirty percent of the total cost of self-only coverage under the covered entity's group health plan, where the covered entity offers only one group health plan and participation in a wellness program is offered to all employees regardless of whether they are enrolled in the plan;
(iii) Thirty percent of the total cost of the lowest cost self-only coverage under a major medical group health plan where the covered entity offers more than one group health plan but participation in the wellness program is offered to employees whether or not they are enrolled in a particular plan; and
(iv) Thirty percent of the cost of self-only coverage under the second lowest cost Silver Plan for a 40-year-old non-smoker on the state or federal health care Exchange in the location that the covered entity identifies as its principal place of business if the covered entity does not offer a group health plan or group health insurance coverage.
(4) * * *
(iii) Except as permitted under paragraph (d)(4)(i) of this section and as is necessary to administer the health plan, information obtained under this paragraph (d) regarding the medical information or history of any individual may only be provided to an ADA covered entity in aggregate terms that do not disclose, or are not reasonably likely to disclose, the identity of any employee.
(iv) A covered entity shall not require an employee to agree to the sale, exchange, sharing, transfer, or other disclosure of medical information (except to the extent permitted by this part to carry out specific activities related to the wellness program), or to waive any confidentiality protections in this part as a condition for participating in a wellness program or for earning any incentive the covered entity offers in connection with such a program.
(5) Compliance with the requirements of this paragraph (d), including the limit on incentives under the ADA, does not relieve a covered entity from the obligation to comply in all respects with the nondiscrimination provisions of Title VII of the Civil Rights Act of 1964, 42 U.S.C. 2000e
(6) The “safe harbor” provisions in § 1630.16(f) of this part applicable to health insurance, life insurance, and other benefit plans do not apply to wellness programs, even if such plans are part of a covered entity's health plan.
Part 1630 permits voluntary medical examinations and inquiries, including voluntary medical histories, as part of employee health programs. These health programs include many wellness programs, which often incorporate, for example: A health risk assessment (HRA) consisting of a medical questionnaire, with or without medical examinations, to determine risk factors; medical screening for high blood pressure, cholesterol, or glucose; classes to help employees stop smoking or lose weight; physical activities in which employees can engage (such as walking or exercising daily); coaching to help employees meet health goals; and/or the administration of flu shots. Many employers offer wellness programs as part of a group health plan as a means of improving overall employee health with the goal of realizing lower health care costs. Other employers offer wellness programs that are available to all employees, regardless of whether they are in enrolled in a group health plan, while some employers offer wellness programs but do not sponsor a group health plan or group health insurance.
It is not sufficient for a covered entity merely to claim that its collection of medical information is part of a wellness program; the program, including any disability-related inquiries and medical examinations that are part of such program, must be reasonably designed to promote health or prevent disease. In order to meet this standard, the program must have a reasonable chance of improving the health of, or preventing disease in, participating employees, and must not be overly burdensome, a subterfuge for violating the ADA or other laws prohibiting employment discrimination, or highly suspect in the method chosen to promote health or prevent disease. Asking employees to complete a HRA and/or undergo a biometric screening for the purpose of alerting them to health risks of which they may have been unaware would meet this standard, as would the use of aggregate information from HRAs by an employer to design and offer health programs aimed at specific conditions identified by the information collected. An employer might conclude from aggregate information, for example, that a significant number of its employees have diabetes or high blood pressure and might design specific programs that would enable employees to treat or manage these conditions. On the other hand, collecting medical information on a health questionnaire without providing employees meaningful follow-up information or advice, such as providing feedback about specific risk factors or using aggregate information to design programs or treat any specific conditions, would not be reasonably designed to promote health or prevent disease. Additionally, a program is not reasonably designed to promote health or prevent disease if it imposes, as a condition to obtaining a reward, an overly burdensome amount of time for participation, requires unreasonably intrusive procedures, or places significant costs related to medical examinations on employees. A program also is not reasonably designed if it exists mainly to shift costs from the covered entity to targeted employees based on their health or simply to give an employer information to estimate future health care costs.
Section 1630.14(d)(2)(i) through (iii) of this part says that participation in employee health programs that include disability-related inquiries or medical examinations (such as disability-related inquiries or medical examinations that are part of a HRA) must be voluntary in order to comply with the ADA. This means that covered entities may not require employees to participate in such programs, may not deny employees access to health coverage under any of their
Section 1630.14(d)(2)(iv) of this part also states that for a wellness program that includes disability-related inquiries or medical examinations to be voluntary, an employer must provide employees with a notice clearly explaining what medical information will be obtained, how the medical information will be used, who will receive the medical information, the restrictions on its disclosure, and the methods the covered entity uses to prevent improper disclosure of medical information.
The ADA, interpreted in light of the Health Insurance Portability and Accountability Act (HIPAA), as amended by the Affordable Care Act, does not prohibit the use of incentives to encourage participation in employee health programs, but it does place limits on them. In general, the use of limited incentives (which include both financial and in-kind incentives, such as time-off awards, prizes, or other items of value) in a wellness program will not render a wellness program involuntary. However, the maximum allowable incentive for a participatory program that involves asking disability-related questions or conducting medical examinations (such as having employees complete a HRA) or for a health-contingent program that requires participants to satisfy a standard related to a health factor may not exceed: (i) 30 Percent of the total cost of self-only coverage (including both the employee's and employer's contribution) where participation in a wellness program depends on enrollment in a particular health plan; (ii) 30 percent of the total cost of self-only coverage when the covered entity offers only one group health plan and participation in a wellness program is offered to all employees regardless of whether they are enrolled in the plan; (iii) 30 percent of the total cost of the lowest cost self-only coverage under a major medical group health plan where the covered entity offers more than one group health plan but participation in the wellness program is offered to employees whether or not they are enrolled in a particular plan; or (iv) 30 percent of the cost to a 40-year-old non-smoker of the second lowest cost Silver Plan (available under the Affordable Care Act) in the location that the employer identifies as its principal place of business, where the covered entity does not offer a group health plan or group health insurance coverage. The following examples illustrate how to calculate the permissible incentive limits in each of these situations.
Where an employee participates in a wellness program that is only offered to employees enrolled in a group health plan and the total cost of self-only coverage under that plan is $6,000 annually, the maximum allowable incentive is $1,800 (30 percent of $6,000). The same incentive would be available if this employer offers only one group health plan and allowed employees to participate in the wellness program regardless of whether they are enrolled in the health plan. Suppose, however, an employer offers three different group health plans with the total cost of self-only coverage under its major medical group health plans ranging in cost from $5,000 to $8,000 annually and wants to offer employees incentives for participating in a wellness program that includes a HRA and medical examination regardless of whether they are enrolled in a particular health plan. In that case, the maximum allowable incentive is $1,500 (30 percent of the total cost of the lowest cost self-only coverage under a major medical group health plan). Finally, if the employer does not offer health insurance but wants to offer an incentive for employees to participate in a wellness program that includes disability-related inquiries or medical examinations, the maximum allowable incentive is 30 percent of what it would cost a 40-year-old non-smoker to purchase the second lowest cost Silver Plan on the federal or state health care Exchange in the location that the employer identifies as its principal place of business. Thus, if such a plan would cost $4,000, the maximum allowable incentive would be $1,200.
Not all wellness programs require disability-related inquiries or medical examinations in order to earn an incentive. Examples may include attending nutrition, weight loss, or smoking cessation classes. These types of programs are not subject to the ADA incentive rules discussed here, although programs that qualify as health-contingent programs (such as an activity-based program that requires employees to exercise or walk) and that are part of a group health plan are subject to HIPAA incentive limits.
Under the ADA, regardless of whether a wellness program includes disability-related inquiries or medical examinations, reasonable accommodations must be provided, absent undue hardship, to enable employees with disabilities to earn whatever financial incentive an employer or other covered entity offers. Providing a reasonable alternative standard and notice to the employee of the availability of a reasonable alternative under HIPAA and the Affordable Care Act as part of a health-contingent program would generally fulfill a covered entity's obligation to provide a reasonable accommodation under the ADA. However, under the ADA, a covered entity would have to provide a reasonable accommodation for a participatory program even though HIPAA and the Affordable Care Act do not require such programs to offer a reasonable alternative standard, and reasonable alternative standards are not required at all if the program is not part of a group health plan.
For example, an employer that offers employees a financial incentive to attend a nutrition class, regardless of whether they reach a healthy weight as a result, would have to provide a sign language interpreter so that an employee who is deaf and who needs an interpreter to understand the information communicated in the class could earn the incentive, as long as providing the interpreter would not result in undue hardship to the employer. Similarly, an employer would, absent undue hardship, have to provide written materials that are part of a wellness program in an alternate format, such as in large print or on computer disk, for someone with a vision impairment. An individual with a disability also may need a reasonable accommodation to participate in a wellness program that includes disability-related inquiries or medical examinations, including a waiver of a generally applicable requirement. For example, an employer that offers a reward for completing a biometric screening that includes a blood draw would have to provide an alternative test (or certification requirement) so that an employee with a disability that makes drawing blood dangerous can participate and earn the incentive.
Regulations implementing the wellness provisions in HIPAA, as amended by the Affordable Care Act, permit covered entities to offer incentives as high as 50 percent of the total cost of self-only coverage for tobacco-related wellness programs, such as smoking cessation programs. As noted above, the incentive rules in paragraph 1630.14(d)(3) apply only to employee health programs that include disability-related inquiries or medical examinations. A smoking cessation program that merely asks employees whether or not they use tobacco (or whether or not they ceased using tobacco upon completion of the program) is not an employee health program that includes disability-related inquiries or medical examinations. The incentive rules in § 1630.14(d)(3) would not apply to incentives a covered entity could offer in connection with such a program. Therefore, a covered entity would be permitted to offer incentives as high as 50 percent of the cost of self-only coverage for that smoking cessation program, pursuant to the regulations implementing HIPAA, as amended by the Affordable Care Act, without implicating the disability-related inquiries or medical examinations provision of the ADA. The ADA nondiscrimination requirements, such as the need to provide reasonable accommodations that provide employees with disabilities equal access to benefits, would still apply.
By contrast, a biometric screening or other medical examination that tests for the presence of nicotine or tobacco is a medical examination. The ADA financial incentive rules discussed
Paragraphs (d)(4)(i) and (ii) say that medical records developed in the course of providing voluntary health services to employees, including wellness programs, must be maintained in a confidential manner and must not be used for any purpose in violation of this part, such as limiting insurance eligibility.
Section 1630.14(d)(4)(iii) says that a covered entity only may receive information collected as part of an employee health program in aggregate form that does not disclose, and is not reasonably likely to disclose, the identity of specific individuals except as is necessary to administer the plan or as permitted by § 1630.14(d)(4)(i). Notably, both employers that sponsor employee health programs and the employee health programs themselves (if they are administered by the employer or qualify as the employer's agent) are responsible for ensuring compliance with this provision.
Where a wellness program is part of a group health plan, the individually identifiable health information collected from or created about participants as part of the wellness program is protected health information (PHI) under the HIPAA Privacy, Security, and Breach Notification Rules. (45 CFR parts 160 and 164.) The HIPAA Privacy, Security, and Breach Notification Rules apply to HIPAA covered entities, which include group health plans, and generally protect identifiable health information maintained by or on behalf of such entities, by among other provisions, setting limits and conditions on the uses and disclosures that may be made of such information.
PHI is information, including demographic data that identifies the individual or for which there is a reasonable basis to believe it can be used to identify the individual (including, for example, address, birth date, or social security number), and that relates to: An individual's past, present, or future physical or mental health or condition; the provision of health care to the individual; or the past, present, or future payment for the provision of health care to the individual. HIPAA covered entities may not disclose PHI to an individual's employer except in limited circumstances. For example, as discussed more fully below, an employer that sponsors a group health plan may receive PHI to administer the plan (without authorization of the individual), but only if the employer certifies to the plan that it will safeguard the information and not improperly use or share the information.
A wellness program that is part of a HIPAA covered entity likely will be able to comply with its obligation under § 1630.14(d)(4)(iii) by complying with the HIPAA Privacy Rule. An employer that is a health plan sponsor and receives individually identifiable health information from or on behalf of the group health plan, as permitted by HIPAA when the plan sponsor is administering aspects of the plan, may generally satisfy its requirement to comply with § 1630.14(d)(4)(iii) by certifying to the group health plan, as provided by 45 CFR 164.504(f)(2)(ii), that it will not use or disclose the information for purposes not permitted by its plan documents and the Privacy Rule, such as for employment purposes, and abiding by that certification. Further, if an employer is not performing plan administration functions on behalf of the group health plan, it may receive aggregate information from the wellness program under § 1630.14(d)(4)(iii) only so long as the information is de-identified in accordance with the HIPAA Privacy Rule. In addition, disclosures of protected health information from the wellness program may only be made in accordance with the Privacy Rule. Thus, certain disclosures that are otherwise permitted under § 1630.14(d)(4)(i) and (ii) for employee health programs generally may not be permissible under the Privacy Rule for wellness programs that are part of a group health plan without the written authorization of the individual. For example, the ADA allows disclosures of medical information when an employee needs a reasonable accommodation or requires emergency treatment at work.
Section 1630.14(d)(4)(iv) says that a covered entity may not require an employee to agree to the sale, exchange, sharing, transfer, or other disclosure of medical information (except to the extent permitted by this part to carry out specific activities related to the wellness program), or waive confidentiality protections available under the ADA as a condition for participating in a wellness program or receiving a wellness program incentive.
Employers and wellness program providers must take steps to protect the confidentiality of employee medical information provided as part of an employee health program. Some of the following steps may be required by law; others may be best practices. It is critical to properly train all individuals who handle medical information about the requirements of the ADA and, as applicable, HIPAA's privacy, security, and breach requirements and any other privacy laws. Employers and program providers should have clear privacy policies and procedures related to the collection, storage, and disclosure of medical information. On-line systems and other technology should guard against unauthorized access, such as through use of encryption for medical information stored electronically. Breaches of confidentiality should be reported to affected employees immediately and should be thoroughly investigated. Employers should make clear that individuals responsible for disclosures of confidential medical information will be disciplined and should consider discontinuing relationships with vendors responsible for breaches of confidentiality.
Individuals who handle medical information that is part of an employee health program should not be responsible for making decisions related to employment, such as hiring, termination, or discipline. Use of a third-party vendor that maintains strict confidentiality and data security procedures may reduce the risk that medical information will be disclosed to individuals who make employment decisions, particularly for employers whose organizational structure makes it difficult to provide adequate safeguards. If an employer uses a third-party vendor, it should be familiar with the vendor's privacy policies for ensuring the confidentiality of medical information. Employers that administer their own wellness programs need adequate firewalls in place to prevent unintended disclosure. If individuals who handle medical information obtained through a wellness program do act as decision-makers (which may be the case for a small employer that administers its own wellness program), they may not use the information to discriminate on the basis of disability in violation of the ADA.
Section 1630.14(d)(5) clarifies that compliance with the requirements of paragraph (d) of this section, including the limits on incentives applicable under the ADA, does not mean that a covered entity complies with other federal employment nondiscrimination laws, such as Title VII of the Civil Rights Act of 1964, 42 U.S.C. 2000e
Finally, section 1630.14(d)(6) states that the “safe harbor” provision, set forth in section 501(c) of the ADA, 42 U.S.C. 12201(c), that allows insurers and benefit plans to classify, underwrite, and administer risks, does not apply to wellness programs, even if such programs are part of a covered entity's health plan. The safe harbor permits insurers and employers (as sponsors of health or other insurance benefits) to treat individuals differently based on disability, but only where justified according to accepted principles of risk classification (some of which became unlawful subsequent to passage of the ADA).
For the Commission:
Equal Employment Opportunity Commission.
Final rule.
The Equal Employment Opportunity Commission (EEOC or Commission) is issuing a final rule to amend the regulations implementing Title II of the Genetic Information Nondiscrimination Act of 2008 as they relate to employer-sponsored wellness programs. This rule addresses the extent to which an employer may offer an inducement to an employee for the employee's spouse to provide information about the spouse's manifestation of disease or disorder as part of a health risk assessment (HRA) administered in connection with an employer-sponsored wellness program. Several technical changes to the existing regulations are included. Published elsewhere in this issue of the
Christopher J. Kuczynski, Assistant Legal Counsel, at (202) 663-4665 (voice), or Kerry E. Leibig, Senior Attorney Advisor, at (202) 663-4516 (voice), or (202) 663-7026 (TTY). (These are not toll free numbers.) Requests for this rule in an alternative format should be made to the Office of Communications and Legislative Affairs, at (202) 663-4191 (voice) or (202) 663-4494 (TTY). (These are not toll free numbers.)
The Commission issued a proposed rule in the
Several federal laws govern wellness programs offered by employers. Employer-sponsored wellness programs must comply with Title II of the Genetic Information Nondiscrimination Act of 2008 (GINA),
Congress enacted Title II of GINA to protect job applicants, current and former employees, labor union members, and apprentices and trainees from employment discrimination based on their genetic information.
Title II of GINA prohibits the use of genetic information in making employment decisions in all circumstances, with no exceptions. It also restricts employers and other
There are only six limited circumstances in which an employer
Although the EEOC received no comments prior to the publication of the Title II final rule in 2010 regarding how GINA's restriction on employers' acquiring genetic information interacts with the practice of offering employees inducements where a spouse participates in an employer-sponsored wellness program, this question arose after publication of the Title II final rule in 2010. Read one way, such a practice could be interpreted to violate the 29 CFR 1635.8(b)(2)(ii) prohibition on providing financial inducements in return for an employee's protected genetic information. This is because information an employer seeks from a spouse (who is a “family member” under GINA as set forth at 42 U.S.C. 2000ff(4)(a)(ii) and 29 CFR 1635.3(a)(1)) about his or her manifestation of disease or disorder is treated under GINA as requesting genetic information about the employee. Although the EEOC's original regulations specifically permitted employers to seek information about manifestation of diseases or disorders in employees' family members who are receiving health or genetic services from the employer, including such services offered as part of a voluntary employer-sponsored wellness program,
The Commission drafted a Notice of Proposed Rulemaking (NPRM) that was circulated to the Office of Management and Budget for review (pursuant to Executive Order 12866) and to federal executive branch agencies for comment (pursuant to Executive Order 12067).
The NPRM sought comment on the proposed revisions to the GINA regulation which:
• Clarified that an employer may offer, as part of its health plan, a limited inducement (in the form of a reward or penalty) to an employee whose spouse (1) is covered under the employee's health plan; (2) receives health or genetic services offered by the employer, including as part of a wellness program; and (3) provides information about his or her current or past health status.
• Explained that the total inducement for an employee and spouse to participate in an employer-sponsored wellness program that is part of a group health plan and collects information about the spouse's current or past health status may not exceed 30 percent of the total cost of the plan in which the employee and any dependents are enrolled.
• Described how inducements must be apportioned between the employee and spouse.
• Explained that inducements may be financial or in kind, consistent with regulations issued by DOL, HHS, and Treasury to implement the wellness program provisions in the Affordable Care Act. For that reason, the proposed rule deleted the term “financial” where it appeared as a modifier for the term “inducement” in 29 CFR 1635.8(b)(2).
• Explained that any request for current or past health status information from an employee's spouse must comply in all other respects with 29 CFR 1635.8(b)(2) concerning requests for genetic information that are part of voluntary health or genetic services offered by an employer.
• Explained that an employer may not require employees (or employees' spouses or dependents covered by the employees' health plan) to agree to the sale, or waive the confidentiality, of their genetic information as a condition for receiving an inducement or participating in an employer-sponsored wellness program.
• Added an example making it clear that a request for current or past health status information from an employee's spouse who is participating in a wellness program does not constitute an unlawful request for genetic information about the employee.
• Made several technical changes to correct a previous drafting error and to add references, where needed, to HIPAA and the Affordable Care Act.
Additionally, the Commission specifically sought comments on several other issues, including:
• Whether employers that offer inducements to encourage the spouses of employees to disclose information about current or past health status must also offer similar inducements to persons who choose not to disclose such information but, who instead, provide certification from a medical professional stating that the spouse is under the care of a physician and that any medical risks identified by that physician are under active treatment.
• Whether the proposed authorization requirements apply only to employer-sponsored wellness programs that offer more than de minimis rewards or penalties to employees whose spouses provide information about current or past health status as part of a HRA.
• Which best practices or procedural safeguards ensure that employer-sponsored wellness programs are designed to promote health or prevent disease and do not operate to shift costs to employees with spouses who have health impairments or stigmatized conditions.
• Whether the rule should include more specific guidance to employers regarding how to implement the requirements of 29 CFR 1635.9(a) for electronically stored records. If so, what procedures are needed to achieve GINA's goal of ensuring the confidentiality of genetic information with respect to electronic records stored by employers.
• Whether there are best practices or procedural safeguards to ensure that information about spouses' current health status is protected from disclosure.
• Whether the regulation should restrict the collection of any genetic information by an employer-sponsored wellness program to only the minimum necessary to directly support the specific wellness activities, interventions, and advice provided through the program—namely information collected through the program's HRA and biometric screening. Should programs be prohibited from accessing genetic information from other sources, such as patient claims data and medical records data.
• Whether employers offer (or are likely to offer in the future) wellness programs outside of a group health plan or group health insurance coverage that use inducements to encourage employees' spouses to provide information about current or past health status as part of a HRA, and the extent to which the GINA regulations should allow inducements provided as part of such programs.
During the 60-day comment period, which was extended by 30 days, the Commission received 3,003
The Commission has reviewed and considered each of the comments in preparing this final rule. The first section of this preamble begins by clarifying the purpose of this rule. It goes on to address general comments about the interaction between GINA and the wellness program provisions of
The second section discusses comments submitted in response to questions the NPRM asked about several issues, as noted above.
The third section addresses comments regarding specific provisions of the rule.
Many comments submitted by individuals objected to a rule that would allow employers to charge employees more for benefits based on the illness of family members, impose stiff penalties on people that do not measure up to certain health guidelines, allow employers to fire or otherwise adversely treat employees based on medical information collected through employer-sponsored wellness programs, and/or allow “metrics” that would harm millions of people with disabilities. This rule, however, is more limited in scope. Instead, it addresses the very limited question of the extent to which an employer may offer inducements to an employee for the employee's spouse to provide information about the spouse's manifestation of disease or disorder as part of a HRA administered in connection with an employer-sponsored wellness program. The absolute prohibition on the use of genetic information to make employment decisions enshrined in Title II of GINA remains intact, as do the existing protections of Title I of the ADA, which prohibits discrimination on the basis of disability.
The Commission received comments expressing support for and/or concerns about employer-sponsored wellness programs. For example, many commenters stated that although properly designed employer-sponsored wellness programs have the potential to help employees become healthier and bring down health care costs, they believe that these programs also carry serious potential for discrimination in ways already prohibited by GINA and other civil rights laws, by allowing employers to coerce employees into providing genetic information (as well as other health information). Disability rights and health advocacy groups expressed concern that the EEOC was abandoning its prior position that GINA prohibits financial inducements in return for all genetic information, while employer and industry groups commented that the proposed rule's limitation on inducements was inconsistent with the wellness program rules under section 2705(j) of the PHS Act. Disability rights groups further noted that there was no need to alter Title II of GINA's prohibition on financial incentives in order to conform to laws that regulate insurance discrimination, given that Title II of GINA is about employment discrimination, and pointed out that the tri-Department wellness regulations explicitly state that GINA imposes separate and additional restrictions.
Although the Commission recognizes that compliance with the standards in HIPAA, as amended by the Affordable Care Act, is not determinative of compliance with Title II of GINA,
The Commission received a number of comments requesting that the final rule be issued jointly with the final ADA wellness rule, a suggestion that has been adopted.
Comments raising more substantive concerns about the interaction between the ADA and GINA focused on the desire for alignment of the inducement limits available under the statutes, suggesting that the incentive limit under the ADA, which is based on the total cost of self-only coverage, be revised to correspond with the inducement limit proposed in the GINA NPRM, which is based on the total cost of coverage for the plan in which the employee and any dependents are enrolled. The Commission declines to adopt this recommendation, however, because the ADA does not apply to the inducements employer-sponsored wellness programs offer in connection with spousal participation. As discussed in more detail below, this final GINA rule will, consistent with the ADA final rule, limit the maximum share of the inducement attributable to the employee's participation in an employer-sponsored wellness program (or multiple employer-sponsored wellness programs that request such information) to up to 30 percent of the cost of self-only coverage. Furthermore, the maximum total inducement for a spouse to provide information about his or her manifestation of disease or disorder will also be 30 percent of the total cost of (employee) self-only coverage, so that the combined total inducement will be no more than twice the cost of 30 percent of self-only coverage.
An advocacy group representing older individuals commented that protections similar to those proposed in the ADA wellness NPRM against conditioning access to employer-provided health insurance on the provision of medical information to an employer-sponsored wellness program and on retaliation against those who do not participate should be included in the GINA final
Another advocacy group whose mission is to protect the rights of women and girls asked that the final rule include language making clear that in addition to complying with the requirements of the final rule, employers must abide by other nondiscrimination provisions, including, for example, Title VII of the Civil Rights Act of 1964. We have not added any language to the final rule on this topic because the existing regulations already state that nothing contained in § 1635.8(b)(2) limits the rights or protections of an individual under the ADA, or other applicable civil rights laws, or under HIPAA, as amended by GINA. We have made technical revisions to this provision due to the changes made to the renumbering of other provisions.
Employer associations and industry groups submitted comments regarding the effective date of the final rule, recommending that it allow enough time for employers to bring their wellness programs into compliance, that it be issued jointly with the ADA wellness rule, and that it not be applied retroactively. The Commission agrees and concludes that the provisions of § 1635.8(b)(2)(iii) related to wellness program inducements will apply only prospectively to employer-sponsored wellness programs as of the first day of the first plan year that begins on or after January 1, 2017, for the health plan used to determine the level of inducement permitted under this regulation. So, for example, if the plan year for the health plan used to calculate the permissible inducement limit begins on January 1, 2017, that is the date on which the provisions of this rule governing inducements apply to the employer-sponsored wellness program. If the plan year of the plan used to calculate the level of inducements begins on March 1, 2017, the provisions on inducements will apply to the employer-sponsored wellness program as of that date. For this purpose, the second lowest cost Silver Plan is treated as having a calendar year plan year.
All other provisions of this final rule are clarifications of existing obligations that apply at, and prior to, issuance of this final rule.
A number of advocacy groups, employer groups, and industry groups, in addition to members of Congress, submitted comments concerning the Commission's proposal that no inducement be permitted in return for the current or past health status information or the genetic information of employees' children. Two commenters, pointing to the fact that Title II of GINA defines “family members” to include both spouses and children, argued that there was no basis for making a distinction between spouses and children and that, therefore, no inducements should be permitted in return for current or past health information of either. Others argued that prohibiting inducements in return for past or current health information of children conflicts with the Affordable Care Act's requirement that employers who offer health insurance coverage to dependents of employees must offer coverage to dependents up to age 26 and that, therefore, inducements should be permitted in return for current or past health information from both spouses and children. Although some commenters agreed with the Commission's argument that health information about a child is more likely to reveal genetic information about an employee, one commenter noted that this does not support the distinction made in the proposed rule because the same cannot be said of health information about a spouse and adopted children. Commenters also asked for clarification of whether the prohibition applied to the current or past health status information of all children, including children up to the age of 26 who are permitted to remain on their parents' health plans, or just minor children, with some urging the Commission to extend the prohibition and others arguing that children between the ages of 18 and 26 were not in need of this additional protection and would benefit from participation in an employer-sponsored wellness program.
The Commission maintains its conclusion that the information about the manifestation of a disease or disorder in an employee's child can more easily lead to genetic discrimination against an employee than information about an employee's spouse. Even where the information provided concerns an adopted child, it is unlikely that a wellness program will know whether the child is biological or adopted, and the information may therefore be used to make predictions about an employee's health. Consequently, the final rule provides that no inducements are permitted in return for information about the manifestation of disease or disorder of an employee's children and makes no distinction between adult and minor children or between biological and adopted children.
The fact that the final rule treats health information about spouses and children differently with respect to wellness program inducements, however, does not alter the statutory definition of family member, which includes both spouses and children. Nor does the distinction, as suggested by some commenters, mean that employers are prohibited from offering health or genetic services (including participation in an employer-sponsored wellness program) to an employee's children on a voluntary basis. They may do so, but may not offer any inducement in exchange for information about the manifestation of any disease or disorder in the child.
The Commission agrees with commenters who suggested that the final rule should clarify that the prohibition on inducements applies to adult children. The possibility that
The Commission received numerous comments from individuals and advocacy groups asking that we strengthen the confidentiality protections of the rule, especially given that the availability of inducements in return for certain genetic information would likely mean that more genetic information will end up in the hands of employer-sponsored wellness programs. Commenters questioned how employer-sponsored wellness programs would use the information, to whom they would disclose and/or sell it, and how they would ensure that it remained confidential. One commenter further noted that many people erroneously assume that the privacy protections of HIPAA apply to all employer-sponsored wellness programs and therefore “may let their privacy guard down.” Some of these commenters provided specific examples of ways in which employer-sponsored wellness programs were not maintaining, or might not maintain in the future, the confidentiality of genetic information in their possession—pointing to, for example, advances in technology that allow for the re-identification and de-aggregation of unidentifiable and aggregate data that some employer-sponsored wellness programs are taking or might take advantage of—and/or made specific suggestions on how GINA's confidentiality protections could be improved. These suggestions included, among other ideas: Adding a requirement that individuals have the right to receive copies of all personal information collected about them as part of an employer-sponsored wellness program, to challenge the accuracy and completeness of that information, and to obtain a list of parties with whom that information was shared and a description of the compensation or consideration received for that disclosure; providing that covered entities are strictly liable for any confidentiality breaches and are not permitted to disclaim liability for harms that result from sharing data; requiring wellness programs to delete all genetic information obtained about an individual participating in the employer-sponsored wellness program if that individual stops participating and requests that his or her genetic information be deleted; and prohibiting the storage of individually identifiable information obtained by the wellness program on work computers, servers, or paper files. Another commenter noted that the rule should include confidentiality protections for health information provided by spouses who do not want that information to fall into the hands of the employee, due, for example, to domestic violence.
In response, the Commission notes that Title II of GINA and the existing regulations implementing it include specific confidentiality provisions which require employers and other covered entities that possess genetic information to maintain it in medical files (including where the information exists in electronic forms or files) that are separate from personnel files and treat such information as a confidential medical record. These provisions prohibit the disclosure of genetic information except in six very limited circumstances.
Several commenters asked that the Commission clarify its position on GINA's application to tobacco-related employer-sponsored wellness programs, such as smoking cessation programs. In response, we reaffirm that the inducement rules in § 1635.8(b)(2) apply only to health and genetic services that request genetic information. An employer-sponsored wellness program does not request genetic information when it asks the spouse of an employee whether he or she uses tobacco or ceased using tobacco upon completion of a wellness program or when it requires a spouse to take a blood test to determine nicotine levels, as these are not requests for information about the spouse's manifestation of disease or disorder.
One commenter asserted that the EEOC underestimated the burden the proposed rule would impose on employers, arguing that the rule was an economically significant one that would have an annual effect on the economy of $100 million or more. Among other things, the commenter argued that the EEOC underestimated training, compliance review, and program revision costs; failed to include “familiarization” costs; and failed to provide necessary empirical support for various conclusions. We disagree.
The proposed rule appropriately estimated the training cost by using wage data from the Bureau of Labor Statistics indicating a median $49.41 per hour wage for human resource management professionals.
In response to the commenter's argument that the projected costs should have included the hiring of a private contractor to provide training, we reiterate that human resource professionals will be able to learn what is necessary for compliance with the rule by reading the EEOC's freely provided technical assistance documents, or participating in our general or GINA-specific outreach programs, many of which are free.
Although the commenter asserts that “great effort” will be expended by entities that are not covered by Title II of GINA in reading the rule to ensure that they are not covered and that these costs should be included, the proposed regulation does not alter long established coverage requirements of Title II of GINA, and it is unlikely that entities that have never before concerned themselves with compliance with this and other workplace nondiscrimination laws will now undergo “great effort” to ensure that the changes in this rule do not apply to them.
Finally, we note that the final rule does not require any changes to employer-sponsored wellness programs that are already in compliance with Title II of GINA and its existing implementing regulations. Instead, this rule merely clarifies that offering limited inducements to spouses is permitted in certain circumstances.
We, therefore, reiterate our conclusion that the rule will not have an annual effect on the economy of $100 million or more, or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or state, local or tribal governments or communities.
One commenter argued that the Commission could not take any action on issues described only in the portion of the NPRM that asked questions because the mere posing of a question does not provide the regulated community with sufficient information to adequately assess the impact of any eventual proposal as required by the Administrative Procedure Act (APA). We note, however, that notice is sufficient under the APA when the final rule “follow[s] logically” from the notice so that “interested parties [are allowed] a fair opportunity to comment” upon what becomes the final rule.
Individuals, including individuals with disabilities and their advocates, as well as one insurance company and one industry group, commented that spouses should be allowed to provide a certification from a medical professional stating that the spouse is under the care of a physician and that any medical risks identified by that physician are under active treatment, instead of being required to answer questions about manifested diseases or disorders. By contrast, most of the health insurance issuers, industry groups, and employer groups that commented argued that allowing a spouse to receive the same inducement for completing such a certification would circumvent the ability of an employer-sponsored wellness program to assess and mitigate health risks. Several industry groups also pointed out that this alternative was not necessary because the tri-Department wellness regulations already provide a waiver standard that is sufficient to ensure individuals can earn full inducements even if an impairment makes it difficult to meet the requirements of a health-contingent wellness program.
The Commission has decided that although some spouses may already be aware of their particular risk factors, a general certification or attestation that they are receiving medical care for those risks would limit the effectiveness of employer-sponsored wellness programs that the Affordable Care Act intended to promote. For example, employers may use aggregate information from HRAs to determine the prevalence of certain conditions in their workforce and in the families of their workforce for the purpose of designing specific programs aimed at improving the health of employees and spouses with those conditions.
Most of the individuals and advocacy groups who commented on this issue argued that the authorization requirements should apply to all employer-sponsored wellness programs, regardless of the level of inducement offered, in order to provide appropriate protections for genetic information. Some of these commenters noted that employers have ways to pressure employees to participate in wellness programs that have nothing to do with inducements, and others noted that any ambiguity in the definition of “de minimis” could lead to failure to obtain authorization even when significant inducements are offered. Although one health insurance company asserted that the authorization rule should apply to all employer-sponsored wellness programs due to the administrative complications that different standards
We decline to exclude programs that offer de minimis inducements from the authorization requirement of the rule. Although commenters gave examples of some inducements that might be considered de minimis, no commenters offered a workable principle that could be used as the basis for defining which inducements are de minimis and which are not. We suspect that employers' interpretation of the term would vary, and there is no clear basis on which to establish a threshold for the de minimis value. We have responded to arguments that the authorization requirement of the rule be eliminated for various reasons in the in-depth discussion of the authorization provision, below. (See
Individuals and advocacy groups responded to this question with the same suggestions they made for strengthening the definition of employer-sponsored wellness programs that are “reasonably designed to promote health or prevent disease,” discussed below, raising ideas such as requiring that employer-sponsored wellness programs be based on scientifically valid evidence or that they include due process protections for individuals who claim rules are unfairly applied to them. Health insurance issuers, employer associations, and industry groups similarly reasserted the objections they raised in response to the proposed rule's suggestion that a “reasonably designed” standard be adopted, arguing that existing HIPAA, Affordable Care Act, and GINA protections are sufficient to protect against discrimination and unlawful disclosures of genetic information. Some also expressed frustration with the very idea that employer-sponsored wellness programs might operate to shift costs in a discriminatory way. The final rule will not adopt additional protections to safeguard spousal information or prevent cost-shifting, because existing protections are sufficient. We will, however, discuss these issues in more detail below, given that they essentially reiterate comments received in response to the proposal to adopt a “reasonably designed” standard. (See
Several commenters urged the EEOC to convene expert stakeholder groups or hold public meetings to determine what guidance should be offered to employers on how to protect electronically stored data. Some commented that the EEOC should require specific protocols to maximize the safety of electronically stored genetic information without providing specifics; others provided suggested restrictions or referred to security standards such as those being developed by the Precision Medicine Initiative or those that already exist under the HIPAA Privacy and Security Rules (some arguing that HIPAA's existing standard already sufficiently restricts employer-provided wellness programs and others arguing that rules identical to those under HIPAA should be specifically applied to all employer-provided wellness programs). Others argued that since it is unclear whether certain kinds of genetic information can ever be stored in a way that prevents re-identification, employers should not be permitted to store such data (
The goal of the confidentiality and disclosure rules of GINA is to protect genetic information as required by the statute whether that information is in paper or electronic format. As noted above, the regulations already have specific confidentiality provisions that require employers and other covered entities that possess genetic information to maintain it in medical files (including where the information exists in electronic forms or files) that are separate from personnel files, and treat such information as a confidential medical record. These provisions prohibit the disclosure of genetic information except in six very limited circumstances.
Those who commented on this question raised points quite similar to those raised about ensuring the confidentiality of electronically stored data, which are discussed above. Health insurance issuers, employer associations, and industry groups asserted that existing HIPAA privacy and security requirements, along with GINA's existing rules, were sufficient, while advocacy groups provided ideas for strengthening applicable confidentiality requirements. We reiterate that we do not believe that additional protections are needed, given GINA's requirements that genetic information be kept confidential and disclosed in only six limited circumstances, but urge employers to consider adopting best practices such as
Individuals and advocacy groups argued that the collection of genetic information by employer-sponsored wellness programs should be restricted to the minimum necessary to directly support specific wellness activities and interventions. Many of these commenters also urged the EEOC to prohibit employer-sponsored wellness programs from obtaining genetic information from sources other than voluntarily submitted health risk assessments and biometric screenings, such as patient claims data or medical records data. Taking the opposite view, health insurance issuers, employer associations, and industry groups argued against adopting any further restrictions on employer-sponsored wellness programs. Some asserted that information from sources such as claims data and medical records assists in the development of effective employer-sponsored wellness programs and that restricting access to it would impede the design and success of the programs. These commenters also pointed out that when an employer-sponsored wellness program is offered as part of a health plan, it may work more optimally to allow that program to quickly identify people in need of services by using claims data already being received by the administrator of the health plan. These and other commenters noted that no additional restrictions were needed because the existing frameworks of the ADA and GINA adequately limit the information that may be collected as part of an employer-sponsored wellness program, while others said that existing tri-Department wellness rules requiring “reasonable design” ensure that programs are nondiscriminatory. Several of these commenters also noted that any additional restrictions would unnecessarily stifle innovation in the design and implementation of employer-sponsored wellness programs.
The final rule will not include a specific restriction on the collection of genetic information to only the minimum necessary to directly support specific employer-sponsored wellness program activities or a limitation on accessing genetic information from other sources. The Commission believes that the protections in the final rule—such as the requirement that employer-sponsored wellness programs that collect genetic information be reasonably designed to promote health and prevent disease and the existing confidentiality requirements—provide significant protections for employees and spouses without adopting further restrictions or limitations. (See
Numerous comments offering a broad range of opinions were submitted in response to the question in the NPRM asking whether employers offer or are likely to offer wellness programs outside of a group health plan or group health insurance coverage that use inducements to encourage employees' spouses to provide information about current or past health status as part of a HRA, and the extent to which the GINA regulations should allow inducements provided as part of such programs. Some commenters stated many employers already offer wellness programs that are outside group health plans, while others pointed out that employer-sponsored wellness programs that offer medical care are group health programs in themselves. Some argued that the final rule should apply both to wellness programs that are part of an employer-sponsored health plan and to wellness programs offered by employers outside such plans, while others asked the EEOC to clarify what it means for a wellness program “to be part of, or provided by, a group health plan.” Others argued against applying the final rule to programs offered by employers that operate outside group health plans (thereby either allowing these programs to impose higher inducements in return for genetic information or, in the opinion of one advocacy group, meaning that these programs would be prohibited from offering inducements for genetic information at all). One employer association asserted that many of its members offer inducements for HRAs only under employer-sponsored wellness programs that are part of a larger group health plan, but that the breadth of the tri-Department's wellness program rules has the effect of applying at least some nondiscrimination requirements to nearly all wellness programs. That commenter concluded that it would be a better use of the EEOC's time to work on the alignment of Title II of GINA with the Affordable Care Act, rather than focusing on this issue. One industry group indicated that the proposed rule failed to provide guidance for stand-alone wellness programs and argued that anything less than the 30 percent maximum incentive standard would conflict with the Affordable Care Act.
Rather than listing factors for determining whether an employer-sponsored wellness program is part of, or outside of, an employer-sponsored group health plan, the Commission has decided that all of the provisions in this rule apply to all employer-sponsored wellness programs that request genetic information. This means that this rule applies to employer-sponsored wellness programs that are: Offered only to spouses of employees enrolled in an employer-sponsored group health plan; offered to spouses of all employees regardless of whether the employee or spouse is enrolled in such a plan; or offered as a benefit of employment to spouses of employees of employers who do not sponsor a group health plan or group health insurance.
We considered taking the position that employer-sponsored wellness programs that are not offered through a group health plan and that request information about the manifestation of disease or disorder from spouses could not offer any inducements. However, having concluded that some level of inducement is consistent with other requirements of 29 CFR 1635.8(b)(2), including the requirement that the employer-sponsored wellness program be “voluntary,” where the wellness program is part of a group health plan, there seemed to be no basis for reaching a contrary conclusion with respect to employer-sponsored wellness programs that are outside of a group health plan. At the same time, allowing unlimited inducements where an employer-sponsored wellness program is not offered through a group health plan would be inconsistent with our position that limitations on spousal inducements are necessary to promote GINA's interest in limiting access to genetic information and ensuring that inducements are not so high as to be coercive. Accordingly, as noted below, this rule explains how to calculate the permissible inducement level for employer-sponsored wellness programs regardless of whether they are related to a group health plan.
The NPRM proposed that employers may request, require, or purchase genetic information as part of health or genetic services only when those services, including any acquisition of genetic information that is part of those services, are reasonably designed to promote health or prevent disease. Many commenters, including health insurance issuers, employer associations, industry groups, and a Congressional committee, urged the EEOC to strike this requirement, noting that it was beyond the EEOC's authority under GINA to impose a reasonable design requirement on health and genetic services and that the EEOC should leave it to the tri-Departments to determine what constitutes a reasonably designed employer-sponsored wellness program. Some of these commenters further noted that the proposed requirement was confusing because even though it sounded very similar, or even identical, to the corresponding requirement in the Affordable Care Act, it seemed to mean something different. They urged the Commission to delete the examples in the preamble and instead make clear that, as with the Affordable Care Act, satisfaction of the reasonable design standard is based on all facts and circumstances. Several of these commenters made specific mention of the preamble's example of a HRA that would not meet the “reasonably designed” standard—one that collected information without providing follow-up information or advice—arguing that this conclusion did not conform to the Affordable Care Act's definition and that it is not always appropriate to provide follow-up information. Some further argued that if the Commission was going to rely on examples to explain the standard, it should put the examples in the regulation itself and make them more detailed.
Individuals and advocacy groups, on the other hand, argued that the new standard was not sufficiently rigorous and that it should be based on clinical guidelines or national standards, or that there should be a stronger connection between the content of a HRA and the development of specific disease management programs. Some argued, for example, for a requirement that employer-sponsored wellness programs collect no more than the minimum necessary information from spouses directly linked to specific program services in order to meet the “reasonably designed” standard and/or that employer-sponsored wellness programs be required to provide scientific evidence that demonstrates that the program improves health or prevents disease. Others noted that the standard as described has virtually no meaning and will allow employers to decide for themselves what is “reasonable.”
The final rule acknowledges that satisfaction of the “reasonably designed” standard must be determined by examining all of the relevant facts and circumstances and otherwise retains the requirement in the NPRM that employers may request, require, or purchase genetic information as part of health or genetic services only when those services, including any acquisition of genetic information that is part of those services, are reasonably designed to promote health or prevent disease. As noted in the NPRM, in order to meet this standard, the program must have a reasonable chance of improving the health of, or preventing disease in, participating individuals, and must not be overly burdensome, a subterfuge for violating Title II of GINA or other laws prohibiting employment discrimination, or highly suspect in the method chosen to promote health or prevent disease. The examples in the preamble to the proposed rule were intended simply to illustrate how this standard works. We now clarify, in agreement with several comments about one of these examples, that programs consisting of a measurement, test, screening, or collection of health-related information without providing results, follow-up information, or advice designed to improve the participant's health would not be reasonably designed to promote health or prevent disease, unless the collected information actually is used to design a program that addresses at least a subset of conditions identified. Additionally, we would consider a program to not be reasonably designed to promote health or prevent disease if it imposes, as a condition of obtaining a reward, an overly burdensome amount of time for participation, requires unreasonably intrusive procedures, or places significant costs related to medical examinations on employees. We also would not consider a program to be reasonably designed to promote health or prevent disease if it exists merely to shift costs from the covered entity to targeted employees based on their health or if the employer is only using the program for data collection or to try to determine its future health costs. Additionally, under these rules, an employer-sponsored wellness program is not reasonably designed if it penalizes an employee because a spouse's manifestation of disease or disorder prevents or inhibits the spouse from participating or from achieving a certain health outcome. For example, an employer may not deny an employee an inducement for participation of either the employee or the spouse in an employer-sponsored wellness program because the employee's spouse has blood pressure, a cholesterol level, or a blood glucose level that the employer considers too high.
The Commission believes that because the requirement that an employer-sponsored wellness program be “reasonably designed to promote health or prevent disease” is a standard with which health plans are now sufficiently familiar, it is reasonable to apply that standard under GINA to employers that sponsor wellness programs. For consistency, this same requirement, with the same examples, has recently been adopted under the ADA.
As noted in the general comments section, above, numerous individuals and advocacy groups urged the Commission to abandon the position set forth in the proposed rule that employers may offer limited inducements when a spouse who receives genetic services offered by an employer provides information about his or her current or past health status information as part of a HRA. These commenters, as well as some members of Congress, argued that the absolute prohibition on financial inducements set forth in the existing GINA regulations should be reaffirmed, arguing that allowing employer-sponsored wellness programs to offer inducements in exchange for spouses to provide information about their current or past health status would be coercive and would substantially weaken GINA's protections. Several industry and employer groups, on the other hand, expressed support for the proposed rule's clarification that GINA does not preclude inducements for spouses for
The Commission retains the NPRM's requirements that, consistent with the requirements of § 1635.8(b)(2)(i) and (ii), a covered entity may offer an inducement to an employee whose spouse provides information about the spouse's own current or past health status as part of a HRA. In order to clarify that the rule only applies to questions asked of the spouse that meet the definition of genetic information, the final rule will replace the phrase “current or past health status” with “manifestation of disease or disorder.” Moreover, as discussed in detail above, because the final rule will apply not only to employer-sponsored wellness programs that are part of group health plans, but to all wellness programs offered by employers, the language of the final rule at § 1635.8(b)(2)(iii) will be revised to eliminate references to the employer's health plan. (See
The Commission received numerous comments on this provision of the proposed rule. As stated in the general comments section of this preamble, individuals and health advocacy groups said that the proposed rule was based on the erroneous assumption that the GINA rule must be “conformed” to provisions of the Affordable Care Act concerning employer-sponsored wellness programs. These and other commenters, including some members of Congress, commented that allowing employer-sponsored wellness programs to offer inducements up to 30 percent in exchange for spouses to provide information about their current or past health status would be coercive and would substantially weaken GINA's protection and urged the Commission to strike this proposal and reaffirm that inducements are not permitted in return for genetic information. Other advocacy groups argued that allowing inducements for spousal information would lead to conflict within families, worsening the mental and physical health of family members when, for example, an employee and spouse disagree about whether the spouse will provide the information needed to obtain a reward or avoid a penalty. One commenter noted that a rule that permits employers to increase the amount an employee pays for health insurance by as much as 30 percent of the total cost of coverage if the employee or the employee's spouse fails to provide certain health information would lead some to forego employer-provided health insurance and thus increase the pool of families without “good” health insurance coverage. Employer and industry groups, however, commented that the EEOC should align the inducement limits for employer-sponsored wellness programs with the inducement limits established in the tri-Department wellness regulations. One industry group asserted that requests to an individual for information about his or her own past or current health status is not genetic information (except for genetic test results) and that the EEOC therefore did not have authority under GINA to adopt requirements with respect to inducements for this information. Another industry group, after expressing strong disapproval of the proposed rule's inducement limitation, went on to provide suggestions for improving the description of that limitation if the Commission were to adopt it, suggesting, for example, that certain provisions in the regulatory language be moved. Although some of these commenters appreciated that the proposed rule based the inducement limit on the total cost of coverage for the plan in which the employee and any dependents are enrolled, employer associations and industry groups generally asserted that the inducement limits should conform to those established by the tri-Department wellness regulations, particularly the lack of incentive limits on participatory programs.
Most individuals and advocacy groups that submitted comments did not comment on the proposed rule's discussion of how inducements should be apportioned. Two groups that did comment indicated their support for the idea, assuming that the EEOC was going to move forward with the proposal to allow inducements. In contrast, numerous health insurance issuers, employer associations, industry groups, as well as a Congressional committee and various United States Senators, commented that the apportionment rule should be eliminated, arguing that it was administratively complicated and/or that it conflicts with the tri-Departments' wellness regulations, which does not require apportionment. Many of these commenters also pointed out that the apportionment rule conflicts with the general practice of providing an equal inducement to an employee and a spouse when both participate in an employer-sponsored wellness program and that encouraging a larger inducement for spouses was arbitrary, implied that the spouse's achievement of a health goal is more
The Commission agrees that the proposed rule's apportionment standards, which would have permitted a larger inducement to the spouse for providing similar information to that which the employee provided, is overly complicated and sends the wrong message about the value of employer-sponsored wellness programs for each participating individual. Moreover, we determined, in developing the final ADA rule on employer-sponsored wellness programs, that incentives in excess of 30 percent of the cost of self-only coverage offered in exchange for an employee answering disability-related questions or taking medical examinations as part of a wellness program would be coercive. We see no reason for adopting a different threshold where the employee's spouse is the individual whose health information is being sought. Consequently, this final rule states that when an employee and the employee's spouse are given the opportunity to enroll in an employer-sponsored wellness program, the inducement to each may not exceed 30 percent of the total cost of (1) self-only coverage under the group health plan in which the employee is enrolled (including both employee and employer cost), if enrollment in the plan is a condition for participation in the wellness program; (2) self-only coverage under the group health plan offered by the employer (including both employee and employer cost), where the employer offers a single group health plan, but participation in a wellness program does not depend on the employee's or spouse's enrollment in that plan; (3) the lowest cost self-only coverage under a major medical group health plan offered by the employer (including both employee and employer cost), where the employer has more than one group health plan, but enrollment in a particular plan is not a condition for participating in the wellness program; or (4) the second lowest cost Silver Plan
The final rule includes examples explaining how the inducement limits are to be calculated. For example, if an employee is enrolled in a group health plan through the employer at a total cost (taking into account both employer and employee contributions towards the cost of coverage) of $14,000 for family coverage, that plan has a self-only option for a total cost of $6,000, and the employer provides the option of participating in a wellness program to the employee and spouse if they participate in the plan, the employer may not offer more than $1,800 to the employee and $1,800 to the spouse. If participation in a particular group health plan is not required for the employee and spouse to earn an inducement and the employer has only one group health plan under which self-only coverage costs $7,000, the employee and the spouse can each get an inducement of up to $2,100. If participation in a particular group health plan is not required for the employee and the spouse to earn an inducement and the employer has more than one group health plan and self-only coverage under the major medical group health plans range in cost from $5,000 to $8,000, the employee and spouse can each get an inducement of up to $1,500. Finally, if the employer offers no group health plan at all and the second lowest-cost Silver Plan available through the state or federal health care Exchange established under the Affordable Care Act in the location that the employer identifies as its principal place of business would cost a 40-year-old non-smoker $4,000, the maximum inducement the employer could offer the employee and the spouse would be no more than $1,200 each to answer questions about their current health or to take a medical examination as part of a wellness program.
As noted in the ADA final rule, the Commission has concluded that the employer's lowest total cost self-only coverage under a major medical group health plan is an appropriate benchmark for establishing the inducement limit where an employer has more than one group health plan and participation in an employer-sponsored wellness program does not depend on enrollment in any particular plan for two reasons. First, it offers employers predictability and administrative efficiency in complying with the rule. Second, the rule is consistent with the Commission's objective of ensuring that inducements in return for a spouse providing information about his or her manifestation of disease or disorder are not coercive.
The second lowest cost Silver Plan available on the Exchange in the location that the employer identifies as its principal place of business is used as a benchmark for determining the amount of an eligible individual's premium tax credit for purchasing health insurance on the Exchange.
Revisions will be made to § 1635.8(b)(2)(iii) to correspond to these changes. We also clarify that the portion of the inducement attributable to the spouse's provision of information about his or her manifestation of disease or disorder need not be paid directly to the spouse, but may be paid in whatever way the remaining portion of the inducement is made such as, for example, as part of a reduction in premium.
Although numerous health and other advocacy groups agreed that authorization is a much needed component of employer-sponsored wellness programs that collect genetic
This final rule adds no new notice or authorization requirements. It reaffirms that when an employer offers an employee an inducement in return for his or her spouse's providing information about the spouse's manifestation of disease or disorder as part of a HRA, the HRA (which may include a medical questionnaire, a medical examination, or both), must otherwise comply with § 1635.8(b)(2)(i) in the same manner as if completed by the employee, including the requirement that the spouse provide prior knowing, voluntary, and written authorization when the spouse is providing his or her own genetic information, and the requirement that the authorization form describe the confidentiality protections and restrictions on the disclosure of genetic information. The employer also must obtain authorization from the spouse when collecting information about the spouse's manifestation of disease or disorder, although a separate authorization for the acquisition of this information from the employee is not necessary.
The Commission believes that GINA's existing authorization requirements prohibit many of the practices about which advocacy groups expressed concern. For example, these requirements already prohibit an employer-sponsored wellness program that collects genetic information from using an authorization notice that uses arcane legal language or is otherwise difficult to understand.
Individuals and advocacy groups that commented on this portion of the proposed rule supported it but requested that it be strengthened. They argued, for example, that the provision should be expanded to not only prohibit conditioning participation in an employer-sponsored wellness program on agreeing to the sale of genetic information, but also other forms of sharing genetic information such as exchanges and transfers. Others argued that the provision should state that harm will be presumed from unauthorized disclosure of genetic information and that, if sharing does occur, employers should be required to reveal the identity of those with whom they shared the genetic information. One industry group expressed support for the notion that genetic information, as one type of protected health information, should not be sold, but noted that this did not necessarily apply to de-identified or aggregate data.
The Commission agrees that this prohibition should be expanded. The final rule therefore prohibits a covered entity from conditioning participation in an employer-sponsored wellness program or an inducement on an employee, an employee's spouse, or other covered dependent agreeing to the sale, exchange, sharing, transfer, or other disclosure of genetic information (except to the extent permitted by paragraph 1635.8(b)(2)(i)(D)), or waiving protections provided under § 1635.9. As explained above, however, the Commission does not believe that any further changes are needed because the confidentiality protections of § 1635.9, as well as the specific disclosure rules that apply to health and genetic services set forth at § 1635.8(b)(2), provide strong protections against disclosure of genetic information. (See
Few people commented on the new example the EEOC added to this section of the rule. Two industry groups that did comment supported the EEOC's acknowledgement that employers may ask for information about the manifestation of disease, disorder, or pathological condition of a family member if that individual is receiving genetic services on a voluntary basis. However, comments indicated that clarification is needed for this example to be understood. As noted in the preamble to the proposed rule, this provision cross-references 29 CFR 1635.8(b)(2) to make clear that an employer may request information about the manifestation of disease, disorder, or pathological condition of a family member who is participating in voluntary genetic services only when all of the requirements for seeking genetic
Industry groups, employer associations, and several United States Senators urged the Commission to alter this proposal so that the final rule applies only to financial incentives. These groups argued that an expansion of the definition of inducement would be inconsistent with the Affordable Care Act and Congressional intent and would increase administrative burden by requiring employers to calculate the value of in-kind inducements, such as gift cards, raffle tickets, and key chains. Many argued that applying the inducement rule to in-kind inducements would cause employers to eliminate them altogether.
The final rule reaffirms the Commission's proposal to remove the term “financial” as a modifier of the type of inducements discussed in the regulations and make clear that the term “inducements” includes both financial and in-kind inducements, such as time-off awards, prizes, or other items of value, in the form of either rewards or penalties. Contrary to several comments received, this clarification is consistent with the tri-Department wellness program provisions, which generally define a reward as “a discount or rebate of a premium or contribution, a waiver of all or part of a cost-sharing mechanism, an additional benefit, or any financial or other incentive.”
We received no comments concerning the proposed technical amendments to the rule and they are therefore adopted without change.
Pursuant to Executive Order 12866, the EEOC has coordinated this final rule with the Office of Management and Budget. Under section 3(f)(1) of Executive Order 12866, the EEOC has determined that the regulation will not have an annual effect on the economy of $100 million or more, or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or state, local or tribal governments or communities.
Although a detailed cost-benefit assessment of the regulation is not required, the Commission notes that the rule will aid compliance with Title II of GINA by employers. Currently, employers face uncertainty as to whether providing an employee with an inducement if his or her spouse provides information about the spouse's manifestation of disease or disorder on a HRA will subject them to liability under Title II of GINA. This rule will clarify that offering limited inducements in these circumstances is permitted by Title II of GINA if the requirements of section 202(b)(2)(A) of GINA otherwise have been met. We believe that a potential benefit of this rule is that it will provide employers that adopt wellness programs that include spousal inducements with clarity about their obligations under GINA.
The Commission does not believe the costs to employers associated with the rule are significant. Under HIPAA, as amended by the Affordable Care Act, inducements of up to 30 percent of the total cost of coverage in which an employee is enrolled are permitted where the employee and the employee's dependents are given the opportunity to fully participate in a health-contingent wellness program. This final rule simply clarifies that a similar inducement is permissible under Title II of GINA where an employer offers inducements for an employee's spouse enrolled in the group health plan to provide information about his or her manifestation of disease or disorder. Where participation in the employer-sponsored wellness program does not depend on enrollment in a particular group health plan, employers will be able to calculate the amount of the permissible inducement by reference to easily verifiable sources, such as the cost of the group health plans they provide or by reference to the second lowest cost Silver Plan available on the Exchange in the location that the Employer identifies as its principal place of business.
The Commission further believes that employers will face initial start-up costs to train human resources staff and others on the revised rule. The EEOC conducts extensive outreach and technical assistance programs, many of them at no cost to employers, to assist in the training of relevant personnel on EEO-related issues. For example, in FY 2014, the agency's outreach programs reached more than 236,000 persons through participation in more than 3,500 no-cost educational, training and outreach events. Now that the rule has become final, we will include information about the revisions to the GINA regulations in our outreach programs in general and continue to offer GINA-specific outreach programs which will, of course, include information about the revisions. As is our practice when issuing new regulations and policy guidances, we have posted two technical assistance documents on our Web site explaining the revisions to the GINA regulations.
We estimate that there are approximately 782,000 employers with 15 or more employees subject to Title II of GINA
Finally, GINA's plain language (at 42 U.S.C. 2000ff-(1)(b)(2)) and the EEOC's regulations (at 29 CFR 1635.8(b)(2) and (c)(2)) make clear that an employer must obtain authorization for the collection of genetic information as part of providing health or genetic services to employees and their family members on a voluntary basis. Consequently, this rule imposes no new obligations with respect to authorization for the collection of genetic information.
This rule contains no new information collection requirements subject to review by the Office of Management and Budget under the Paperwork Reduction Act (44 U.S.C. chapter 35).
Title II of GINA applies to all employers with 15 or more employees, approximately 764,233 of which are small firms (entities with 15-500 employees) according to data provided by the Small Business Administration Office of Advocacy.
The Commission certifies under 5 U.S.C. 605(b) that this final rule will not have a significant economic impact on a substantial number of small entities because it imposes no reporting burdens and only minimal costs on such firms. The rule simply clarifies that employers that offer wellness programs are free to adopt a certain type of inducement without violating GINA. It also corrects an internal citation and provides citations to the Affordable Care Act. It does not require any action on the part of covered entities, except to the extent that those entities created documentation or forms which cite to GINA for the proposition that the entity is unable to offer inducements to employees in return for a spouse's completion of HRAs that request information about the spouse's manifestation of disease or disorder. We do not have data on the number or size of businesses that may need to alter documents relating to their employer-sponsored wellness programs. However, our experience with enforcing the ADA, which required all employers with 15 or more employees to remove medical inquiries from application forms, suggests that revising questionnaires to eliminate or alter an instruction would not impose significant costs.
To the extent that employers will expend resources to train human resources staff and others on the revised rule, we reiterate that the EEOC conducts extensive outreach and technical assistance programs, many of them at no cost to employers, to assist in the training of relevant personnel on EEO-related issues. For example, in fiscal year 2014, the agency's outreach programs reached more than 236,000 persons through participation in more than 3,500 no-cost educational, training and outreach events. We will put information about the revisions to the GINA regulations in our outreach programs in general and continue to offer GINA-specific outreach programs which will, of course, include information about the revisions now that the rule is final. We will also post technical assistance documents on our Web site explaining the revisions to the GINA regulations, as we do with all of our new regulations and policy documents.
We estimate that the typical human resources professional will need to dedicate, at most, 60 minutes to gain a satisfactory understanding of the revised regulations. We further estimate that the median hourly pay rate of a human resource professional is approximately $49.41.
This final rule will not result in the expenditure by state, local, or tribal governments, in the aggregate, or by the private sector, of $100 million or more in any one year, and it will not significantly or uniquely affect small governments. Therefore, no actions were deemed necessary under the provisions of the Unfunded Mandates Reform Act of 1995.
Administrative practice and procedure, Equal employment opportunity.
For the reasons set forth in the preamble, the EEOC amends chapter XIV of title 29 of the Code of Federal Regulations as follows:
29 U.S.C. 2000ff.
The revisions and additions read as follows:
(b) * * *
(2) * * *
(i) * * *
(A) The health or genetic services, including any acquisition of genetic information that is part of those services, are reasonably designed to promote health or prevent disease. A program satisfies this standard if it has a reasonable chance of improving the health of, or preventing disease in, participating individuals, and it is not overly burdensome, is not a subterfuge for violating Title II of GINA or other laws prohibiting employment discrimination, and is not highly suspect in the method chosen to promote health or prevent disease. A program is not reasonably designed to promote health or prevent disease if it imposes a penalty or disadvantage on an individual because a spouse's manifestation of disease or disorder prevents or inhibits the spouse from participating or from achieving a certain health outcome. For example, an employer may not deny an employee an inducement for participation of either the employee or the spouse in an employer-sponsored wellness program because the employee's spouse has blood pressure, a cholesterol level, or a blood glucose level that the employer considers too high. In addition, a program consisting of a measurement, test, screening, or collection of health-related information without providing participants with results, follow-up information, or advice designed to improve the participant's health is not reasonably designed to promote health or prevent disease, unless the collected information actually is used to design a program that addresses at least a subset of conditions identified. Whether health or genetic services are reasonably designed to promote health or prevent disease is evaluated in light of all the relevant facts and circumstances.
(ii) Consistent with, and in addition to, the requirements of paragraph (b)(2)(i) of this section, a covered entity may not offer an inducement (financial or in-kind), whether in the form of a reward or penalty, for individuals to provide genetic information, except as described in paragraphs (b)(2)(iii) and (iv) of this section, but may offer inducements for completion of health risk assessments that include questions about family medical history or other genetic information, provided the covered entity makes clear, in language reasonably likely to be understood by those completing the health risk assessment, that the inducement will be made available whether or not the participant answers questions regarding genetic information.
(iii) Consistent with, and in addition to, the requirements of paragraphs (b)(2)(i) and (ii) of this section, a covered entity may offer an inducement to an employee whose spouse provides information about the spouse's manifestation of disease or disorder as part of a health risk assessment. No inducement may be offered, however, in return for the spouse's providing his or her own genetic information, including results of his or her genetic tests, or for information about the manifestation of disease or disorder in an employee's children or for genetic information about an employee's children, including adult children. The health risk assessment, which may include a medical questionnaire, a medical examination (
(A) Thirty percent of the total cost of self-only coverage under the group health plan in which the employee is enrolled, if enrollment in the plan is a condition for participation in the employer-sponsored wellness program. For example, if an employee is enrolled in health insurance through the employer at a total cost (taking into account both employer and employee contributions toward the cost of coverage) of $14,000 for family coverage, that plan has a self-only option for $6,000, and the employer provides the option of participating in a wellness program to the employee and spouse because they are enrolled in the plan, the employer may not offer more than $1,800 to the employee and $1,800 to the spouse.
(B) Thirty percent of the total cost of self-only coverage under the group health plan offered by the employer where the employer offers a single group health plan, but participation in a wellness program does not depend on the employee's or spouse's enrollment in that plan. For example, if the employer offers one group health plan and self-only coverage under that plan costs $7,000, and the employer provides the option of participation in a wellness program to the employee and the spouse, the employer may not offer more than $2,100 to the employee and $2,100 to the spouse.
(C) Thirty percent of the total cost of the lowest cost self-only coverage under a major medical group health plan offered by the employer, if the employer offers more than one group health plan but enrollment in a particular plan is not a condition for participation in the wellness program. For example, if the employer has more than one major medical group health plan under which self-only coverage ranges in cost from $5,000 to $8,000, and the employer provides the option of participation in a wellness program to the employee and the spouse, the employer may not offer more than $1,500 to the employee and $1,500 to the spouse.
(D) Thirty percent of the cost of self-only coverage available to an individual who is 40 years old and a non-smoker under the second lowest cost Silver Plan available through the Exchange in the location that the employer identifies as its principal place of business is located, where the employer has no group health plan. For example, if the cost of insuring a 40-year-old non-smoker is $4,000 annually, the maximum inducement the employer could offer the employee and the spouse would be no more than $1,200 each.
(iv) A covered entity may not, however, condition participation in an employer-sponsored wellness program or provide any inducement to an employee, or the spouse or other covered dependent of the employee, in exchange for an agreement permitting the sale, exchange, sharing, transfer, or other disclosure of genetic information, including information about the
(v) A covered entity may not deny access to health insurance or any package of health insurance benefits to an employee, or the spouse or other covered dependent of the employee, or retaliate against an employee, due to a spouse's refusal to provide information about his or her manifestation of disease or disorder to an employer-sponsored wellness program.
(vii) Nothing contained in paragraphs (b)(2)(ii) through (v) of this section limits the rights or protections of an individual under the Americans with Disabilities Act (ADA), as amended, or other applicable civil rights laws, or under the Health Insurance Portability and Accountability Act (HIPAA), as amended by GINA. For example, if an employer offers an inducement for participation in disease management programs or other programs that promote healthy lifestyles and/or require individuals to meet particular health goals, the employer must make reasonable accommodations to the extent required by the ADA; that is, the employer must make modifications or adjustments that enable a covered entity's employee with a disability to enjoy equal benefits and privileges of employment as are enjoyed by its other similarly situated employees without disabilities unless such covered entity can demonstrate that the accommodation would impose an undue hardship on the operation of its business.
(c) * * *
(2) A covered entity does not violate this section when it requests, requires, or purchases genetic information or information about the manifestation of a disease, disorder, or pathological condition of an individual's family member who is receiving health or genetic services on a voluntary basis, as long as the requirements of paragraph (b)(2) of this section, including those concerning authorization and inducements, are met. For example, an employer does not unlawfully acquire genetic information about an employee when it asks the employee's family member who is receiving health services from the employer if her diabetes is under control. Nor does an employer unlawfully acquire genetic information about an employee when it seeks information—through a medical questionnaire, a medical examination, or both—about the manifestation of disease, disorder, or pathological condition of the employee's family member who is completing a health risk assessment on a voluntary basis in connection with the family member's receipt of health or genetic services (including health or genetic services provided as part of an employer-sponsored wellness program) offered by the employer in compliance with paragraph (b)(2) of this section.
(b) * * *
(1) * * *
(iii) Section 702(a)(1)(F) of ERISA (29 U.S.C. 1182(a)(1)(F)), section 2705(a)(6) of the PHS Act, as amended by section 1201 of the Affordable Care Act and section 9802(a)(1)(F) of the Internal Revenue Code (26 U.S.C. 9802(a)(1)(F)), which prohibit a group health plan or a health insurance issuer in the group or individual market from discriminating against individuals in eligibility and continued eligibility for benefits based on genetic information; or
(iv) Section 702(b)(1) of ERISA (29 U.S.C. 1182(b)(1)), section 2705(b)(1) of the PHS Act, as amended by section 1201 of the Affordable Care Act and section 9802(b)(1) of the Internal Revenue Code (26 U.S.C. 9802(b)(1)), as such sections apply with respect to genetic information as a health status-related factor, which prohibit a group health plan or a health insurance issuer in the group or individual market from discriminating against individuals in premium or contribution rates under the plan or coverage based on genetic information.
For the Commission:
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