The Dodd-Frank Act was enacted on July 21, 2010.1 Section 619 of the Dodd-Frank Act adds a new section 13 to the Bank Holding Company Act of 1956 (“BHC Act”) (to be codified at 12 U.S.C. 1851) that generally prohibits banking entities2 from engaging in proprietary trading or from investing in, sponsoring, or having certain relationships with a hedge fund or private equity fund.3 The new section 13 of the BHC Act also provides that nonbank financial companies supervised by the Board that engage in such activities or have such investments shall be subject to additional capital requirements, quantitative limits, or other restrictions.4 These prohibitions and other provisions of section 619 are commonly known, and referred to herein, as the “Volcker Rule.”

The Board and several other agencies have responsibilities with respect to the Volcker Rule. As required by the Dodd-Frank Act, the FSOC recently issued a study of the Volcker Rule, which included several recommendations regarding the implementation of its prohibitions and restrictions.5 As a general matter, authority for developing and adopting regulations to implement the prohibitions and restrictions of the Volcker Rule is divided between the Board, the Office of the Comptroller of the Currency (“OCC”), the Federal Deposit Insurance Corporation (“FDIC”), the SEC and the CFTC in the manner provided in section 13(b)(2) of the BHC Act.6 The Board and these other agencies are directed to adopt implementing rules not later than 9 months after completion of the FSOC's study.7 The restrictions and prohibitions of the Volcker Rule become effective 12 months after issuance of final rules by the agencies, or July 21, 2012, whichever is earlier.

The Board, however, is solely charged with adopting rules to implement the provisions of the Volcker Rule that provide a banking entity or a nonbank financial company supervised by the Board a period of time after the effective date of the Volcker Rule to bring the activities, investments, and relationships of the banking entity or company that were commenced, acquired, or entered into before the Volcker Rule's effective date into compliance with the Volcker Rule and the agencies' implementing regulations.8 This period is intended to give markets and firms an opportunity to adjust to the Volcker Rule.9

In November 2010, the Board requested public comment on a proposed rule that would implement the conformance period provisions of the Volcker Rule.10 The proposed rule included the general two-year conformance period available to all banking entities and nonbank financial companies supervised by the Board, as well as the provisions of the VolckerRule that allow the Board to extend, by rule or order, this two-year period by up to three, one-year periods.11 In addition, the proposal implemented the special five-year extended transition period available for certain qualifying investments in hedge funds and private equity funds that are “illiquid funds.”12 The proposed rule also defined certain terms related to the conformance period, specified how an application or request for extension should be submitted, and identified the factors that the Board may consider when evaluating such a request. The public comment period on the proposed rule closed on January 10, 2011.

The Board received 12 comments on the proposed rule. Commenters included financial trade associations, banking entities, individuals, and a member of Congress. In general, commenters supported the proposed rule but recommended one or more changes to specific provisions of the proposal. A majority of the commenters focused on the 5-year extended transition period available to banking entities to the extent necessary to fulfill a contractual obligation in place on May 1, 2010, to take or retain an interest in a hedge fund or private equity fund that qualifies as an “illiquid fund” under the Volcker Rule. For example, some commenters suggested that the Board broaden its definition of “illiquid assets,” which is used in determining whether a hedge fund or private equity fund is an illiquid fund. Others requested that the Board lower the proposed rule's requirement that at least 75 percent of a fund's assets be invested in “illiquid assets” (either as of May 1, 2010, or on a future date) in order for the fund to qualify for the extended transition period. Many commenters also asserted that the proposed rule's definition of when a banking entity has a “contractual obligation” to invest or remain invested in an illiquid fund was too narrow and would limit the number of hedge funds and private equity funds that could take advantage of the extended transition period for illiquid funds.

Some commenters also asked that the Board, in the final rule, address several aspects of the Volcker Rule that were not covered by the proposal. For instance, some commenters requested that the final rule state that section 13 of the BHC Act does not prohibit insurance companies from conducting their normal business operations, or does not prohibit foreign companies from engaging in prohibited proprietary trading in the securities of U.S. companies if such trades were booked outside of the United States.

Additionally, some commenters addressed the procedural aspects of the proposed rule governing the receipt and review of applications for an extension of the conformance period. For example, some commeters requested that the rule permit the Board to grant all possible extensions to a banking entity at a single time. Other commenters suggested that the final rule permit banking entities to submit a request for extension well in advance of the date an extension might be needed, and expressly provide for a standard time period for the Board to review any extension requests. The comments received on the proposed rule are discussed in greater detail in the following parts of thisSUPPLEMENTARY INFORMATION.

In developing this final rule, the Board has carefully considered the comments received on the proposal, as well as the language and legislative history of the Volcker Rule, and the Board's experience in supervising and regulating banking entities' trading activities and investments in, or relationships with, hedge funds and private equity funds. The Board also consulted with the Department of the Treasury, the OCC, the FDIC, the SEC, and the CFTC.

After this review, the Board has determined to adopt a final rule that is substantially similar to the proposed rule. However, in response to comments, the Board has modified the proposed rule in a number of respects. For example, the Board has—

• Expanded the conditions under which an asset may be considered an “illiquid asset” to include situations where an asset is subject to a contractual restriction on sale or redemption for a period of 3 years or more;

• Broadened the types of documents that may be considered in determining whether a hedge fund or private equity fund is “contractually committed” to principally invest in illiquid assets or whether a banking entity that has sponsored a hedge fund or private equity fund is “contractually obligated” to invest or remain invested in the fund;

• Extended, from 90 days to 180 days, the number of days in advance a request for an extension of the conformance period by a specific company must be filed with the Board; and

• Clarified that the Board expects to act on extension requests within 90 days from receipt of a complete record.

These changes as well as the Board's responses to the comments received are discussed in greater detail below.

The final rule does not address definitional or other aspects of the Volcker Rule that are subject to, or more appropriately addressed as part of, the separate interagency rulemaking to be conducted under section 13(b)(2) of the BHC Act.13 For example, the final rule incorporates without modification the definitions of “banking entity,” “hedge fund,” and “private equity fund” contained in the Dodd-Frank Act. In addition, the final rule does not address several topics suggested by commenters—such as, for example, the general application of the Volcker Rule to banking entities that are insurance companies or foreign entities, or whether banking entities should also have an extended period of time to conform investments in funds that do not qualify for the statute's extended transition period for illiquid funds—that are appropriately addressed through the coordinated interagency rulemaking process provided for in section 13(b)(2) of the BHC Act.14 The Board expects to review the final rule after completion of the interagency rulemaking process under section 13(b)(2) to determine whether modifications or adjustments to the rule are appropriate in light of the final rules adopted under that section.

The prohibitions and restrictions of the Volcker Rule do not take effect until the earlier of July 21, 2012, or 12 months after the issuance of final regulations by the rulewriting agencies under section 13(b)(2) of the BHC Act. However, in order to allow the markets and firms to adjust to these prohibitions and restrictions, the Volcker Rule, by its terms and without any action by the Board, provides banking entities and nonbank financial companies supervised by the Board an additional conformance period during which the entity or company can wind down, sell, or otherwise conform its activities, investments, and relationships to the requirements of the Volcker Rule. Under the statute, this conformance period generally extends through the date that is 2 years after the date on which the prohibitions become effective or, in the case of a nonbank financial company supervised by the Board, 2 years after the company is designated by the FSOC for supervision by the Board, if that period is later.

Section 225.181(a) of the final rule implements these provisions. In addition, section 225.181(a)(2) of the final rule clarifies how the conformance period applies to a company that first becomes a banking entity after July 21, 2010 (the date of enactment of the Dodd-Frank Act), because, for example, the company acquires or becomes affiliated with an insured depository institution for the first time. In these circumstances, the restrictions and prohibitions of the Volcker Rule would first become effective with respect to the company only at the time it became a banking entity. Accordingly, the final rule (like the proposal) provides that such a company generally must bring its activities, investments, and relationships into compliance with the requirements of the Volcker Rule before the later of: (i) The date the Volcker Rule's prohibitions would otherwise become effective with respect to the company under section 225.181(a)(1) of the rule; or (ii) 2 years after the date on which the company first becomes a banking entity. Thus, for example, a company that first becomes a banking entity on January 1, 2015, would have until January 1, 2017, to bring its activities and investments into conformance with the requirements of section 13 of the BHC Act and its implementing regulations. In this way, the final rule provides comparable treatment to “new” banking entities and nonbank financial companies supervised by the Board, and is consistent with the manner in which newly established bank holding companies are treated for purposes of the nonbanking restrictions under section 4 of the BHC Act.15

The Volcker Rule also permits the Board, by rule or by order, to extend the generally available two-year conformance period by up to three additional one-year periods, for an aggregate conformance period of 5 years.16 In order to grant any extension, the Board must determine that the extension is consistent with the purposes of the Volcker Rule and would not be detrimental to the public interest.17 The process and standards for obtaining a one-year extension are discussed in Part III.E of thisSUPPLEMENTARY INFORMATION.

Several commenters requested that the Board modify the rule to allow the Board to grant a banking entity at one time all three of the one-year extensions potentially available under section 13(c)(2) of the BHC Act.18 One commenter, however, suggested that multiple extensions of the conformance period would not be in keeping with the purpose of the Volcker Rule and urged the Board to restrict extensions to a single one-year general extension (with potentially one additional one-year extension in the case of an illiquid fund investment). Section 13(c)(2) of the BHC Act specifically provides that the “Board may, by rule or order, extend [the general two-year conformance period]for not more than one year at a time,”with a maximum of three, one-year extensions.19 Accordingly, the Board has modified the rule to clarify that the Board may only grant up to three separate one-year extensions of the general conformance period (and may not grant all three one-year extensions at a single time).

Several commenters requested that the Board clarify that the final rule provides a conformance period for both investments in hedge funds and private equity funds and activities prohibited under the Volcker Rule. The general conformance period (including any extension thereof) is available to both banking entities and nonbank financial companies supervised by the Board for activities commenced prior to the Volcker Rule's effective date and applies to any activities, investments and relationships that may be prohibited or restricted by the Volcker Rule.

Section 619 of the Dodd-Frank Act includes a special provision to address the difficulty banking entities may experience in conforming investments in illiquid funds. This provision expressly permits a banking entity to request the Board's approval for an additional extension of up to 5 years in order to permit the banking entity to meet contractual commitments in place as of May 1, 2010, to a hedge fund or private equity fund that qualifies as an “illiquid fund.” Specifically, the statute provides that the Board may extend the period during which a banking entity may take or retain an ownership interest in, or otherwise provide additional capital to, an illiquid fund, but only if the extension is necessary to allow the banking entity to fulfill a contractual obligation that was in effect on May 1, 2010.20 The statute also provides that any extended transition period granted with respect to an illiquid fund automatically terminates on the date during any such extension on which the banking entity is no longer under a contractual obligation to invest in, or provide capital to, the illiquid fund.

As provided in the Volcker Rule, the Board may grant a banking entity only one extended transition period with respect to any illiquid fund, which may not exceed 5 years.21 Any extended transition period granted may be in addition to the conformance period available under other provisions of the Volcker Rule.22 The purpose of this extended transition or “wind-down” period for investments in an illiquid fund is to minimize disruption of existing investments in illiquid funds and permit banking entities to fulfill existing obligations to illiquid funds while still steadily moving banking entities toward conformance with the prohibitions and restrictions of the Volcker Rule.23

Section 225.181(b) of the final rule implements the statute's extended transition period for illiquid funds.24 As a general matter, and consistent with the terms of the Volcker Rule, the final rulerequires that a banking entity's investment in, or relationship with, a hedge fund or private equity fund must meet two sets of criteria to qualify for the statute's extended transition period. The first set of criteria focuses on the nature, assets and investment strategy of the hedge fund or private equity fund itself. The second set of criteria focuses on the terms of the banking entity's investment in the hedge fund or private equity fund.

As noted above, the extended transition period under section 13(c)(3) of the BHC Act is available only with respect to investments made in an “illiquid fund,” and then only with respect to investments in or obligations to these funds made as of May 1, 2010. In accordance with the language of the Volcker Rule, the final rule retains the definition of an “illiquid fund” to mean a hedge fund or private equity fund that: (i) As of May 1, 2010, was principally invested in illiquid assets,orwas invested in, and contractually committed to principally invest in, illiquid assets; and (ii) makes all investments pursuant to, and consistent with, an investment strategy to principally invest in illiquid assets.25 In determining how to implement the definition of an illiquid fund, the Board has considered, among other things, the terms of the statute, as well as public comments submitted on the proposed rule, information (including confidential supervisory information) concerning the terms of investments in hedge funds or private equity funds, the characteristics of liquid and illiquid assets, and the ability of a fund to divest assets held by the fund.

a. “Illiquid Asset.”

The final rule, like the proposal, generally defines an “illiquid asset” as any asset that is not a liquid asset. In turn, the final rule defines “liquid assets” to include:

• Cash or cash equivalents;

• Any asset that is traded on a recognized, established exchange, trading facility or other market on which there exist independent, bona fide offers to buy and sell so that a price reasonably related to the last sales price or current bona fide competitive bid and offer quotations can be determined for the asset almost instantaneously;

• Any asset for which there are bona fide, competitive bid and offer quotations in a recognized inter-dealer quotation system or similar system or for which multiple dealers furnish bona fide, competitive bid and offer quotations to other brokers and dealers on request;

• Any asset the price of which is quoted routinely in a widely disseminated publication that is readily available to the general public or through an electronic service that provides indicative data from real-time financial networks;

• Any asset with an initial term of one year or less and the payments on which at maturity may be settled, closed-out, or paid in cash or one or more other liquid assets described above; and

• Any other asset that the Board determines, based on all the facts and circumstances, is a liquid asset.26

These standards are designed to capture the wide range of instruments and assets (or their equivalents) that one actively or routinely trades on markets or trading facilities, or for which bid, offer or price quotations are widely available. For example, these standards would treat as a liquid asset: (i) Equity and debt securities, derivatives, and commodity futures traded on a registered securities exchange, board of trade, alternative trading system, electronic trading platform or similar market that provides independent, bona fide offers to buy and sell; (ii) assets traded on an electronic inter-dealer quotation system, such as OTC Bulletin Board or the system maintained by PINK OTC Markets, Inc., as well as over-the-counter derivatives, debt securities (such as corporate bonds), and syndicated commercial loans for which active inter-dealer markets exist; and (iii) financial instruments for which indicative price data is supplied by an electronic service, such as Markit Group Limited.

The standards contained in the second, third, and fourth standards above are based on existing standards in the Federal banking and securities laws that are designed to identify securities that are liquid and may be sold promptly at a price that is reasonably related to its fair value. Specifically, the second standard above is based in part on the SEC's definition of securities for which a “ready market” exists for purposes of the net capital rules applicable to broker-dealers under the Securities Exchange Act of 1934 (“Exchange Act”).27 Similarly, the third standard above is based, in part, on the actions regularly taken by a “qualified OTC market maker” as defined in the SEC's Rule 3b-8, with respect to securities under the Exchange Act.28 The fourth standard above is based, in part, on the criteria used to identify whether a security or other asset is a “marketable security” or a “liquid asset” for purposes of the Board's Regulation W governing transactions between member banks and their affiliates.29 In each instance, the Board has modified the standard as incorporated into the final rule to reflect the broader range of financial instruments (including derivatives) or other assets that may be held by a hedge fund or private equity fund and that should be considered “liquid” if traded or quoted in the manner described.

The fifth standard is designed to capture instruments with a relatively short (one year or less) duration and that can be monetized or converted at maturity into a liquid asset. In light of these features, the Board believes it is appropriate to treat such instruments as liquid assets for purposes of the Volcker Rule's conformance period. The final rule recognizes that there may be situations where other, non-enumerated assets may be liquid even though they are not included in the standards contained in sections 225.181(h)(1)-(5) of the final rule. In order to address these situations, the Board has expressly retained the ability to determine that any other asset is a liquid asset, based on all the facts and circumstances.

On the other hand, consistent with the language of the Volcker Rule, the definition of illiquid assets in the final rule should generally encompass investments made by hedge funds or private equity funds in privately-held portfolio companies, real estate (other than those made through publicly traded REITs), and venture capital opportunities, as well as investments in other hedge funds or private equity funds where such investments do not qualify as liquid assets.30 The Volcker Rule specifically refers to portfolio company investments, real estate investments, and venture capital investments as examples of the types of investments that should normally beconsidered illiquid assets for these purposes.31

In addition, the final rule, like the proposed rule, provides that an asset—including a liquid asset such as a security—may be considered an “illiquid asset” if, because of statutory or regulatory restrictions applicable to the hedge fund, private equity fund or asset, the asset cannot be offered, sold, or otherwise transferred by the hedge fund or private equity fund to a person that is unaffiliated with the banking entity. This exception to the general “liquid asset” definition recognizes that funds frequently acquire assets that are normally liquid in transactions that cause the asset to be subject to one or more statutory or regulatory restrictions under the Federal securities laws that temporarily prohibit the transferability or resale of the security. For example, hedge funds or private equity funds often acquire equity securities in private transactions that result in the security being subject to restrictions on resale (such as under Rule 144A of the Securities Act of 1933).32 Several commenters requested that the final rule also permit an asset to be an illiquid asset due to contractual restrictions on sale or transfer (in addition to statutory or regulatory restrictions). In response to comments, the Board has modified the final rule to provide that an asset may be considered an illiquid asset if contractual restrictions applicable to the hedge fund, private equity fund or asset prohibit the fund from offering, selling, or otherwise transferring the asset to a person that is unaffiliated with the relevant banking entity for a period of 3 or more years.

Similarly, the proposed rule also provided that an asset would be considered illiquid only for so long as the relevant statutory or regulatory restriction was applicable. In light of the foregoing, as well as the forward-looking nature of the “principally invested” and “contractually committed” to principally invest in illiquid assets tests discussed below, the Board has removed those provisions of the proposal. Accordingly, assets subject to the type of statutory, regulatory, or contractual restrictions specified in the final rule would generally be considered illiquid assets for purposes of the Volcker Rule. However, because these restrictions may lapse at a future date (including prior to the point in time when a banking entity submits its request for an extended transition period), the final rule has been modified to specifically provide that, in connection with its review of a banking entity's request for an extended transition period, the Board will consider the extent to which the fund's current assets are no longer illiquid (e.g.due to the lapse of applicable restrictions on an investment because a previously illiquid venture capital or portfolio company investment has become liquid, such as through the initial public offering of the company's stock).

Some commenters requested that the Board broaden the definition of “illiquid assets” to specifically include assets that would otherwise meet the rule's definition of a liquid asset, but that the relevant fund may have difficulty selling (or selling at a price the fund believes to be reasonable) because the size of the fund's position in the security or instrument is large relative to daily trading volume in the security or instrument or the outstanding number of securities or instruments of the same class or type. Some commenters also requested that the rule provide the Board flexibility to determine, on a case-by-case basis, that an asset that otherwise meets the definition of a liquid asset was illiquid. Similarly, some commenters asked that the rule specifically provide that a liquid asset could be considered illiquid due to adverse market conditions that might make it difficult for the fund to sell the security or instrument or sell it at a price the fund believes is reasonable.

The Board recognizes that market conditions (including trading volumes) at the time a security or instrument is being sold may have a material effect on the price of the security or instrument. However, by including only investments in portfolio companies, real estate investments, and venture capital investments as examples of illiquid assets, the Volcker Rule itself suggests that the term “illiquid asset” was intended to encompass only those types of investments that are illiquid by their nature, rather than those that may be illiquid due only to prevailing market conditions or the size of a particular fund's holdings of the security or instrument. This intent is reinforced by the fact that the statute requires that a banking entity determine whether a hedge fund or private equity fund is an illiquid fund as of May 1, 2010.33 If the status of an investment by a fund as a liquid or illiquid asset was dependent on market conditions at a future date, it would be difficult or impossible for banking entities and the Board to determine which funds qualify as illiquid funds and, potentially, all hedge funds and private equity funds could qualify as illiquid funds. The statute provides a general conformance period of up to 5 years for any asset, which should assist banking entities in transitioning large positions or assets to the requirements of the Volcker Rule. Moreover, as discussed in Part III.E below, for those funds that do qualify as illiquid funds, the Board may consider market conditions, as well as the actions taken by the banking entity to divest the impermissible investment, in determining whether to grant up to a 5-year extended transition period with respect to the fund. For these reasons, the Board has not modified the rule to allow an asset to be considered illiquid based on market conditions or the absolute or relative size of a fund's holdings.

b.“Principally invested.”

The statute's fund-related criteria also require that the hedge fund or private equity fund either (1) have been principally invested in illiquid assets as of May 1, 2010, or (2) have been invested to some degree in illiquid assets and contractually committed to principally invest in illiquid assets as of such date. In addition, in either case, the fund must make all of its investments pursuant to, and consistent with, an investment strategy to principally invest in illiquid assets. The proposed rule provided that a hedge fund or private equity fund would be considered to be “principally invested” in illiquid assets if at least 75 percent of the fund's consolidated total assets are, or were expected to be, comprised of illiquid assets or risk-mitigating hedges entered into in connection with, and related to, individual or aggregated positions in, or holdings of, illiquid assets. The proposal allowed a fund to count risk-mitigating hedging positions that are related to the fund's holdings of illiquid assets towards the 75 percent asset test because such positions are, by definition, associated with the fund's illiquid holdings.

Commenters supported the inclusion of risk-mitigating hedging positions related to illiquid assets in the determination of whether a fund is “principally invested” in illiquid assets.34 However, many commenters asserted that the proposed 75 percent threshold for a fund to be principally invested in illiquid assets was too high and requested that a lower threshold—no higher than approximately 50 percent—be included in the final rule. Many of these commenters noted thatthe Board had previously interpreted the phrase “engaged principally” in section 20 of the Glass-Steagall Act (previously codified at 12 U.S.C. 377) to mean between 5 percent and 25 percent of the relevant firm's revenue.35 On the other hand, one commenter asserted that the 75 percent test was appropriate.

The Board continues to believe that 75 percent is an appropriate threshold for determining whether a fund is “principally invested” in illiquid assets for purposes of the Volcker Rule. As noted in the proposed rule, many types of hedge funds and private equity funds have investment strategies that focus almost exclusively on one type of illiquid assets, such as real estate or start-up companies (including new or emerging companies in the technology, life sciences, alternative energy, or “clean tech” areas).36 These types of hedge funds and private equity funds typically request capital contributions from their investors only when particular investment opportunities have been identified and hold only a small portion of their assets in cash or other liquid assets (other than during brief periods pending the investment of capital or the distribution of proceeds from the sale of an investment). The Board continues to believe that by limiting the availability of the extended transition period to hedge funds or private equity funds that “principally invest” in and have an investment strategy to principally invest in illiquid assets, such as real estate, nonpublic portfolio companies, and venture capital opportunities, Congress appears to have intended the extended transition period to be available to those types of funds that principally focus and direct their capital towards investments in illiquid assets. Moreover, the Volcker Rule's extended transition period is available only to banking entities that are contractually obligated to invest or remain invested in the fund. Funds that have (or expect to have) a substantial majority of their investments in illiquid assets are more likely to prohibit investors from withdrawing their investments prior to the expiration of the general conformance period under the Volcker Rule (which, as noted above, may potentially extend to 2017).

As the courts have recognized, statutory terms must be read in light of the purposes of the relevant statutory provision and, thus, the same or similar terms may appropriately be interpreted differently when used in different acts.37 The Board notes, moreover, that while commenters requested a lower threshold, commenters did not provide specific examples of funds that would potentially satisfy the “principally invested” asset test if it was set at 50 percent as opposed to 75 percent or supporting explanations as to why treating such funds as illiquid funds would be more consistent with the purposes of the Volcker Rule.

As noted above, by the terms of the statute, a fund qualifies as an illiquid fund if, as of May 1, 2010, it (i) was “principally invested in illiquid assets,” or (ii) was invested in illiquid assets to some degree and contractually committed to principally invest in illiquid assets. In addition, the fund must actually make all of its investments (including investments made after May 1, 2010,) pursuant to and consistent with an investment strategy to principally invest in illiquid assets.38

The final rule provides that the determination of whether a fund was “principally invested” in illiquid assets as of May 1, 2010, must be made based on the fund's financial statements prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) or other applicable accounting standards. Several commenters noted that funds often prepare their financial statements at the end of each calendar quarter and, thus, may not have financial statements dated as of May 1, 2010. In recognition of this, a banking entity may use a fund's most recent financial statements prepared under GAAP or other appropriate accounting standards as of any date between February 28, 2010, and May 1, 2010, to determine whether the fund was principally invested in illiquid assets as of May 1, 2010. Thus, if a fund prepares financial statements at the end of each calendar quarter, the banking entity could use the fund's financial statements as of March 30, 2010, to determine whether the fund was principally invested in illiquid assets as of May 1, 2010 (assuming the fund did not prepare additional financial statements between March 30 and May 1, 2010).

Under the proposed rule, a fund would have been considered to be “contractually committed to principally invest” in illiquid assets as of May 1, 2010, if the fund's organizational documents (such as the limited partnership agreement in the case of a fund organized in this manner), or other documents that constitute a contractual obligation of the fund (such as a binding side letter agreement entered into with investors) that was in effect as of May 1, 2010, provided for the fund to be principally invested in illiquid assets. The proposed rule would have required that any such contractual commitments require the fund to be principally invested in illiquid assets during the period beginning on the date when capital contributions are first received by the fund for the purpose of making investments and ending on the fund's expected termination date. Additionally, the proposed rule provided that a fund would be considered to have an “investment strategy to principally invest” in illiquid assets if the fund either: (i) markets or holds itself out to investors as intending to principally invest in illiquid assets; or (ii) has a documented investment policy of principally investing in illiquid assets.

The Board has made several changes to the corresponding provisions of the final rule in response to comments received on the proposal. First, the Board has modified the final rule to provide that, in determining whether a fund is contractually committed to principally invest, or has an investment strategy to principally invest, in illiquid assets, a banking entity may take into account written representations contained in the fund's offering documents regarding its investment obligations and strategy (in addition to the fund's organizational documents). Funds typically are bound to comply with any written representations contained in the fund's private placement memorandum or other offering documents and a fund's failure to do so may subject the fund to liability under the Federal securities laws.39

Second, the final rule has been modified so that a fund will beconsidered “contractually committed to principally invest” in illiquid assets if the fund's organizational documents or offering documents provide for the fund to be principally invested in illiquid assets at all times other than during limited temporary periods. Some commenters noted that, after its initial pre-investment organizational period, an illiquid fund may naturally experience certain limited periods of time when more than 25 percent of its assets may be in liquid assets, such as when investments are exited and capital has not yet been reinvested or distributed to investors.

Several commenters also asked that the Board clarify when the determination of whether a fund is “contractually committed to principally invest” in illiquid assets must be made and how such determination should be made with respect to investments not yet made. The Volcker Rule expressly provides that the determination of whether a fund is “contractually committed to principally invest” in illiquid assets is to be made “as of May 1, 2010.”40 Thus, a fund that was contractually committed to principally invest in illiquid assets on May 1, 2010, would meet this prong of the test to be an illiquid fund.

In considering whether a hedge fund or private equity fund's organizational documents, marketing materials, or investment policy provide for the fund to principally invest in illiquid assets, banking entities should consider whether the assets to be acquired by the fund (as specified in such materials) are of the type and nature that would make the assets “illiquid assets” or “liquid assets” for purposes of the rule. For example, if a fund's investment strategy provides for the fund to primarily invest in publicly traded stocks or OTC derivatives that are regularly bought and sold in the inter-dealer market, the fund would not be considered to have an investment strategy to principally invest in illiquid assets. This would be the case even if the fund's investment strategy did not indicate that the assets acquired by the fund must be traded on a recognized exchange, trading facility, or market of the type described in section 225.180(h)(2) or quoted on inter-dealer systems of the type described in section 225.180(h)(3). On the other hand, a fund generally would be considered to have an investment policy of principally investing in illiquid assets if the fund's organizational documents or offering materials provide for the fund to invest in the equity of early-stage nonpublic companies, even if the fund's documents do not specify that the equity of such companies must not be traded or quoted in the manner described in section 225.180(h)(2)-(4). This would be true even if such investments may later be converted into publicly traded securities of the company (such as, for example, in connection with an initial public offering of the company) in order to facilitate the fund's sale of the investment.

Besides meeting the criteria described above, a banking entity's interest in a hedge fund or private equity fund may qualify for the extended transition period in section 13(c)(3) of the BHC Act only if the banking entity's retention of that ownership interest in the fund, or provision of additional capital to the fund, is necessary to fulfill a contractual obligation of the banking entity that was in effect on May 1, 2010.41 This statutory restriction complements and reinforces the fund-related criteria discussed above because a fund that is principally invested in liquid assets is unlikely to require its investors to commit to remaining invested in the fund for, or provide additional capital over, the extended period of time covered by the Volcker Rule's extended transition period.

The proposed rule provided that a banking entity would be considered to have a “contractual obligation” to remain invested in a fund only if the banking entity, under the contractual terms of its equity, partnership, or other ownership interest in the fund or other contractual arrangements with the fund that were in effect as of May 1, 2010, is prohibited from both: (i) Redeeming all of its equity, partnership, or other ownership interests in the fund; and (ii) selling or otherwise transferring all such ownership interests to a person that is not an affiliate of the banking entity. Similarly, the proposed rule specified that a banking entity has a contractual obligation to provide additional capital to an illiquid fund only if the banking entity is required, under the contractual terms of its equity, partnership, or other ownership interest in the fund or other contractual arrangements with the fund (such as a side letter with the fund that is binding on the banking entity) that were in effect as of May 1, 2010, to provide additional capital to the fund. The proposal also provided that either of the contractual obligations described above will be considered not to impose a contractual obligation to invest or remain invested for purposes of the Volcker Rule if: (i) The obligation may be terminated by the banking entity or any of its subsidiaries or affiliates; or (ii) the obligation may be terminated with the consent of other persons unless the banking entity and its subsidiaries and affiliates have used their reasonable best efforts to obtain such consent and such consent has been denied.

The Board received a number of comments on these aspects of the proposal. For example, some commenters noted that a banking entity's contractual obligation to remain invested in a fund may be subject to one or more contractual provisions whereby the obligation may be excused or otherwise terminated if the banking entity's compliance with the obligation would cause, or would be reasonably likely to cause, the banking entity or the fund to be in violation of applicable laws or regulations (so-called “regulatory-out” provisions). Commenters requested that the final rule permit a banking entity to qualify for the extended transition period and remain invested in an illiquid fund despite such regulatory-out provisions. These commenters asserted that otherwise the purpose of the extended transition period would not be fulfilled because those banking entities that exercised prudence in obtaining regulatory outs in their agreements with illiquid funds would be forced to exit these investments and could not take advantage of the Volcker Rule's extended transition period for illiquid funds. These commenters also asserted that such forced sales could have adverse consequences on the banking entity, other investors in the fund, or the markets for illiquid assets.

In addition, some commenters requested that the Board strike the provisions of the final rule that provide that the extended transition period automatically terminates upon expiration of the banking entity's contractual obligation to remain invested in, or provide capital to, an illiquid fund. One commenter specifically requested that the final rule provide a 6-month “grace period” which would allow a banking entity to conform its investment in and relationship with an illiquid fund upon termination of the extended transition period. Several commenters also requested that the final rule allow a banking entity to use “commercially reasonable efforts” instead of “reasonable best efforts” to obtain any consents or approvals necessary to terminate the banking entity's contractual obligation to a fund, and allow the banking entity to remaininvested so long as such efforts are not successful.

The Board has carefully considered these comments. The plain language of the Volcker Rule permits a banking entity to potentially receive an extended transition period with respect to an investment in an illiquid fund only if and to the extent necessary to fulfill a contractual obligation that was in effect on May 1, 2010.42 Moreover, the Volcker Rule specifically provides that any extended transition granted by the Board will automatically, by operation of law, terminate on the date on which the contractual obligation to invest in the illiquid fund terminates.43

If, pursuant to the terms of its obligation in effect on May 1, 2010, a banking entity has the contractual right to terminate its investment or commitments to an illiquid fund because such investments would be prohibited by the Volcker Rule after the expiration of the general conformance period (and any extensions thereof), then an extended transition period would not be necessary to fulfill the banking entity's contractual obligation to the fund because the banking entity could legally withdraw from its investments or commitments without violating its contractual obligation at the end of the general conformance period (and any extensions thereof). Thus, the Board does not believe the statute permits it to grant an extended transition period to a banking entity if its contractual obligation in place on May 1, 2010, permits the banking entity to terminate those obligations because they would violate the Volcker Rule after the end of the general conformance period (and any extensions thereof).44

Whether a banking entity has the right to withdraw its investments or terminate its obligations to an illiquid fund based on the contractual provisions in effect on May 1, 2010, will depend on the specific terms of those obligations. For example, if those obligations provide the banking entity the right and ability to redeem or sell its investment if the banking entity determines that continued ownership of the investment would violate the Volcker Rule, the banking entity must exercise that right no later than the end of the Volcker Rule's general conformance period and any extensions thereof and should begin to plan for such actions. In some instances, however, the banking entity's right or ability to redeem or sell its investments under a regulatory-out provision pertaining to its obligations in effect as of May 1, 2010, may be dependent on the consent of an unaffiliated party (such as the general partner or other investors of the fund).45 In such circumstances, the banking entity and its affiliates must use their reasonable best efforts to obtain such consent.46 The Board will consider whether a banking entity and its affiliates have used their reasonable best efforts to obtain the unaffiliated party's consent in determining whether to grant the banking entity an extended transition period with respect to the investment.47 For example, the Board will consider whether the banking entity used its reasonable best efforts, but an unaffiliated general partner or other investors denied the request due to the failure of the banking entity to agree to unreasonable demands by the general partner or investors.

As noted above, the statute provides that the extended transition period is only available to banking entities in order to take or retain an interest in an illiquid fund, and then only to the extent necessary to fulfill a contractual obligation that was in effect on May 1, 2010. The Board recognizes that there may be instances where, in connection with its ownership interest in an illiquid fund, a banking entity serves as the general partner or managing member of, or otherwise “sponsors,” an illiquid fund. In such situations, a banking entity will usually hold some ownership interest in the fund, and that ownership interest may be in excess of the de minimis interest permitted under the Volcker Rule.48 Accordingly, if a banking entity is granted an extended transition period to take or retain an interest in an illiquid fund, the banking entity may continue to serve as the general partner, managing member, or sponsor of the illiquid fund to the extent such service is related to the banking entity's retention of its permitted ownership interest. If, however, a banking entity was not acting as general partner, managing member, or sponsor of the illiquid fund as of May 1, 2010, then it may not begin to serve that role during the extended transition period.

As noted above, the Volcker Rule does not prohibit nonbank financial companies supervised by the Board from engaging in proprietary trading, or from having the types of investments in or relationships with hedge funds or private equity funds that banking entities are prohibited or restricted from having under the Volcker Rule. However, the Volcker Rule provides that the Board or other appropriate agency impose additional capital charges, quantitative limits, or other restrictions on nonbank financial companies supervised by the Board or their subsidiaries that are engaged in such activities or maintain such relationships.49 The Volcker Rule generally gives nonbank financial companies supervised by the Board the same general two-year conformance period (with the potential of up to three, one-year extensions) to bring their activities into compliance with any requirements or limits established as is available to banking entities. Accordingly, section 225.182 of the final rule provides a nonbank financial company supervised by the Board two years after the date the company first becomes a nonbank financial company supervised by the Board to conform its activities to any applicable requirements of the Volcker Rule, including any capital requirements or quantitative limitations adopted thereunder and applicable to the company. Consistent with the conformance period available to banking entities, the final rule also provides the Board the ability to extend this two-year conformance period by up to three additional one-year periods, if the Board determines that such an extension is consistent with the purpose of the Volcker Rule and would not be detrimental to the public interest.50

The FAA has determined that the substance of these special conditions has been subject to the public-comment process in several prior instances with no substantive comments received. The FAA therefore finds that good cause exists for making these special conditions effective upon issuance.

We invite interested people to take part in this rulemaking by sending written comments, data, or views. The most helpful comments reference a specific portion of the special conditions, explain the reason for any recommended change, and include supporting data. We ask that you send us two copies of written comments.

We will file in the docket all comments we receive, as well as a report summarizing each substantive public contact with FAA personnel about these special conditions. You can inspect the docket before and after the comment closing date. If you wish to review the docket in person, go to the address in theADDRESSESsection of this preamble between 7:30 a.m. and 4 p.m., Monday through Friday, except Federal holidays.

We will consider all comments we receive by the closing date for comments. We may change these special conditions based on the comments we receive.

If you want us to acknowledge receipt of your comments on these special conditions, include with your comments a self-addressed, stamped postcard on which you have written the docket number. We will stamp the date on the postcard and mail it back to you.

On March 29, 2005, Gulfstream Aerospace Corporation (hereafter referred to as “Gulfstream”) applied for an FAA type certificate for its new Gulfstream Model GVI passenger airplane. Gulfstream later applied for, and was granted, an extension of time for the type certificate, which changed the effective application date to September 28, 2006. The Gulfstream Model GVI airplane will be an all-new, two-engine jet transport airplane with an executive cabin interior. The maximum takeoff weight will be 99,600 pounds, with a maximum passenger count of 19 passengers.

Under provisions of Title 14 Code of Federal Regulations (14 CFR) 21.17, Gulfstream must show that the Gulfstream Model GVI airplane (hereafter referred to as “the GVI”) meets the applicable provisions of 14 CFR part 25, as amended by Amendments 25-1 through 25-119, 25-122 and 25-124. If the Administrator finds that the applicable airworthiness regulations (i.e.,14 CFR part 25) do not contain adequate or appropriate safety standards for the GVI because of a novel or unusual design feature, special conditions are prescribed under the provisions of § 21.16.

In addition to complying with the applicable airworthiness regulations and special conditions, the GVI must comply with the fuel vent and exhaust emission requirements of 14 CFR part 34 and the noise certification requirements of 14 CFR part 36. The FAA must also issue a finding of regulatory adequacy pursuant to section 611 of Public Law 92-574, the “Noise Control Act of 1972.”

The FAA issues special conditions, as defined in 14 CFR 11.19, in accordance with § 11.38, and they become part of the type certification basis under § 21.17(a)(2).

Special conditions are initially applicable to the model for which they are issued. Should the type certificate for that model be amended later to include any other model that incorporates the same novel or unusual design features, the special conditions would also apply to the other model under provisions of § 21.101.

The enhanced flight vision system (EFVS) is a novel or unusual design feature because it projects a video image derived from a forward-looking infrared (FLIR) camera through the head-up display (HUD). The EFVS image is projected in the center of the “pilot compartment view,” which is governed by § 25.773. The image is displayed with HUD symbology and overlays the forward outside view. Therefore, § 25.773 does not contain appropriate safety standards for the EFVS display.

Operationally, during an instrument approach, the EFVS image is intended to enhance the pilot's ability to detect and identify “visual references for the intended runway” (see§ 91.175(l)(3)) to continue the approach below decision height or minimum descent altitude. Depending on atmospheric conditions and the strength of infrared energy emitted and/or reflected from the scene, the pilot can see these visual references in the image better than he or she can see them through the window without EFVS.

Scene contrast detected by infrared sensors can be much different from that detected by natural pilot vision. On a dark night, thermal differences of objects which are not detectable by the naked eye will be easily detected by many imaging infrared systems. On the other hand, contrasting colors in visual wavelengths may be distinguished by the naked eye but not by an imaging infrared system. Where thermal contrast in the scene is sufficiently detectable, the pilot can recognize shapes and patterns of certain visual references in the infrared image. However, depending on conditions, those shapes and patterns in the infrared image can appear significantly different than they would with normal vision. Considering these factors, the EFVS image needs to be evaluated to determine that it can be accurately interpreted by the pilot.

The image may improve the pilot's ability to detect and identify items of interest. However, the EFVS needs to be evaluated to determine that the imagery allows the pilot to perform the normal duties of the flight crew and adequately see outside the window through the image, consistent with the safety intent of § 25.773(a)(2).

Compared to a HUD displaying the EFVS image and symbology, a HUD that displays only stroke-written symbols is easier to see through. Stroke symbology illuminates a small fraction of the total display area of the HUD, leaving much of that area free of reflected light that could interfere with the pilot's view out the window through the display. However, unlike stroke symbology, the video image illuminates most of the total display area of the HUD (approximately 30 degrees horizontally and 25 degrees vertically) which is a significant fraction of the pilot compartment view. The pilot cannot see around the larger illuminated portions of the video image but must see the outside scene through it.

Unlike the pilot's external view, the EFVS image is a monochrome, two-dimensional display. Many, but not all, of the depth cues found in the natural view are also found in the image. The quality of the EFVS image and the level of EFVS infrared sensor performance could depend significantly on conditions of the atmospheric and external light sources. The pilot needs adequate control of sensor gain and image brightness, which can significantly affect image quality and transparency (i.e.,the ability to see the outside view through the image). Certain system characteristics could create distracting and confusing display artifacts. Finally, because this is a sensor-based system that is intended to provide a conformal perspective corresponding with the outside scene, the system must be able to ensure accurate alignment.

Hence, safety standards are needed for each of the following factors:

Section 25.773, “Pilot Compartment View,” specifies that “Each pilot compartment must be free of glare and reflection that could interfere with the normal duties of the minimum flight crew. * * *” In issuing § 25.773, the FAA did not anticipate the development of EFVSs and does not consider § 25.773 to be adequate to address the specific issues related to such a system. Therefore, the FAA has determined that special conditions are needed to address the specific issues particular to the installation and use of an EFVS.

The EFVS is intended to function by presenting an enhanced view during the approach. This enhanced view would help the pilot to see and recognize external visual references, as required by § 91.175(l), and to visually monitor the integrity of the approach, asdescribed in FAA Order 6750.24D (“Instrument Landing System and Ancillary Electronic Component Configuration and Performance Requirements,” dated March 1, 2000).

Based on this functionality, users would seek to obtain operational approval to conduct approaches, including approaches to Type I runways, when the runway visual range is as low as 1,200 feet.

The purpose of these special conditions is to ensure that the EFVS to be installed can perform the following functions:

Depending on the atmospheric conditions and the particular visual references that happen to be distinctly visible and detectable in the EFVS image, these functions would support its use by the pilot to visually monitor the integrity of the approach path.

Compliance with these special conditions does not affect the applicability of any of the requirements of the operating regulations (i.e.,14 CFR parts 91, 121, and 135). Furthermore, use of the EFVS does not change the approach minima prescribed in the standard instrument approach procedure being used; published minima still apply.

The FAA certification of this EFVS is limited as follows:

An EFVS image may provide an enhanced image of the scene that may compensate for any reduction in the clear outside view of the visual field framed by the HUD combiner. The pilot must be able to use this combination of information seen in the image and the natural view of the outside scene seen through the image as safely and effectively as the pilot would use a § 25.773 compliant pilot compartment view without an EVS image. This is the fundamental objective of the special conditions.

The FAA will also apply additional certification criteria, not as special conditions, for compliance with related regulatory requirements, such as §§ 25.1301 and 25.1309. These additional criteria address certain image characteristics, installation, demonstration, and system safety.

Image characteristics criteria include the following:

Installation criteria address visibility and access to EFVS controls and integration of EFVS in the cockpit.

The EFVS demonstration criteria address the flight and environmental conditions that need to be covered.

The FAA also intends to apply certification criteria relevant to high intensity radiated fields (HIRF) and lightning protection.

As discussed above, these special conditions are applicable to the GVI. Should Gulfstream apply at a later date for a change to the type certificate to include another model incorporating the same novel or unusual design feature, these special conditions would apply to that model as well.

This action affects only certain novel or unusual design features on one model of airplane. It is not a rule of general applicability.

The substance of these special conditions has been subjected to the notice and comment period in several prior instances and has been derived without substantive change from those previously issued. It is unlikely that prior public comment would result in a significant change from the substance contained herein. Therefore, the FAA has determined that prior public notice and comment are unnecessary, and good cause exists for adopting these special conditions upon issuance. The FAA is requesting comments to allow interested persons to submit views that may not have been submitted in response to the prior opportunities for comment described above.

The authority citation for these special conditions is as follows:

Accordingly, pursuant to the authority delegated to me by the Administrator, the following special conditions are issued as part of the type certification basis for Gulfstream GVI airplanes.

1. Enhanced flight vision system (EFVS) imagery on the head-up display (HUD) must not degrade the safety of flight or interfere with the effective use of outside visual references for required pilot tasks during any phase of flight in which it is to be used.

2. To avoid unacceptable interference with the safe and effective use of the pilot compartment view, the EFVS device must meet the following requirements:

(a) The EFVS design must minimize unacceptable display characteristics or artifacts (e.g. noise, “burlap” overlay, running water droplets, etc.) that obscure the desired image of the scene, impair the pilot's ability to detect and identify visual references, mask flight hazards, distract the pilot, or otherwise degrade task performance or safety.

(b) Control of EFVS display brightness must be sufficiently effective, in dynamically changing background (ambient) lighting conditions, to prevent full or partial blooming of the display that would distract the pilot, impair the pilot's ability to detect and identify visual references, mask flight hazards, or otherwise degrade task performance or safety. If automatic control for image brightness is not provided, it must be shown that a single manual setting is satisfactory for the range of lighting conditions encountered during a time-critical, high workload phase of flight (e.g.,low visibility instrument approach).

(c) A readily accessible control must be provided that permits the pilot to immediately deactivate and reactivate display of the EFVS image on demand without removing the pilot's hands from the primary flight controls (yoke or equivalent) or thrust control.

(d) The EFVS image on the HUD must not impair the pilot's use of guidance information or degrade the presentation and pilot awareness of essential flight information displayed on the HUD, such as alerts, airspeed, attitude, altitude and direction, approach guidance, wind shear guidance, TCAS resolutionadvisories, unusual attitude recovery cues, etc.

(e) The EFVS image and the HUD symbols (which are spatially referenced to the pitch scale, outside view, and image), must be scaled and aligned (i.e.,conformal) to the external scene. Also, when considered singly or in combination, the EFVS image and HUD symbols must not be misleading, cause pilot confusion, or increase workload. It should be noted that there may be airplane attitudes or cross-wind conditions which cause certain symbols, such as the zero-pitch line or flight path vector, to reach field of view limits such that they cannot be positioned conformally with the image and external scene. In such cases these symbols may be displayed, but with an altered appearance which makes the pilot aware that they are no longer displayed conformally (e.g.,“ghosting”).

(f) A HUD system used to display EFVS images must, if previously certified, continue to meet all of the requirements of the original approval.

3. The safety and performance of the pilot tasks associated with the pilot compartment view must be not be degraded by the display of the EFVS image. Pilot tasks which must not be degraded by the EFVS image include:

(a) Detection, accurate identification and maneuvering, as necessary, to avoid traffic, terrain, obstacles, and other hazards of flight.

(b) Accurate identification and utilization of visual references required for every task relevant to the phase of flight.

4. Appropriate limitations must be stated in the operating limitations section of the airplane flight manual to prohibit the use of the EFVS for functions that have not been found to be acceptable.

On April 20, 2010, the FAA published in theFederal Registera notice of proposed rulemaking (NPRM) to modify the Cleveland, OH, Class B airspace area (75 FR 20528). The FAA proposed this action to ensure containment of turbo-jet IFR aircraft conducting instrument approaches to CLE within the confines of Class B airspace and better segregate IFR aircraft arriving/departing CLE and non-participating VFR aircraft operating in the vicinity of the Cleveland Class B airspace area.

Interested parties were invited to participate in this rulemaking effort by submitting written comments on the proposal. In response to the NPRM, the FAA received 14 written comment submissions, including comments from Aircraft Owners and Pilots Association (AOPA) and the Soaring Society of America (SSA). Two comments received were duplicate documents submitted by two different commenters. Many of the commenters identified themselves as pilots who operate within, or through, the local area. All comments received were considered before making a determination on the final rule. An analysis of the comments received and the FAA's responses are contained in the “Discussion of Comments” section below.

Subsequent to the NPRM publication, typographical errors were identified for two geographic coordinates proposed in the Area E description published in the regulatory text. The geographic coordinates that were published as “lat. 42°47′20″ N., long. 81°27′36″ W.” in the NPRM should have been “lat. 41°47′20″ N., long. 81°27′36″ W.”, and the geographic coordinates that were published as “lat. 42°40′43″ N., long. 81°38′13″ W.” should have been “lat. 41°40′43″ N., long. 81°38′13″ W.”. The geographic coordinate errors are corrected in this action.

The AOPA cited the work of the FAA in developing this rule. They support the proposed modifications and appreciate the common sense approach the FAA adopted to include only that airspace required for the containment of arrivals and departures at CLE. Further, AOPA applauded the FAA's efforts to address and mitigate concerns raised by general aviation pilots regarding access to the airports affected by the redesign.

Seven commenters objected to proposed Areas F and G. They argued the FAA proposed these areas significantly larger than required or presented previously. Six of the commenters wanted the lateral dimensions of the areas reduced to only five nautical mile (NM) extensions in length by five NM in width. One commenter argued that federal airways are established with four NM lateral widths from a radial of a navigation aid and that the FAA should reduce the widths of the areas to four NM also. Three commenters wanted Areas F andG eliminated altogether if the lateral dimensions could not be reduced. And lastly, three commenters suggested the FAA define the boundaries of Areas F and G to coincide with visual landmarks to prevent inadvertent Class B airspace violations. Unless changed, the commenters believed the proposed Areas F and G would deteriorate safe flight operations beneath and in the vicinity of the Class B airspace extension.

The FAA does not agree. For clarity, the lateral dimensions of Areas F and G as proposed in the NPRM are 10 NM in length, extending from the CLE Runway 24L ILS/DME antenna (I-HPI) 20 NM arc to the I-HPI 30 NM arc. The areas are 6 NM in width, from the CLE Runway 6R localizer (I-CLE) signal extended to 6 NM north of the Runway 6L localizer (I-LIZ) signal extended for Area F and from the I-CLE signal extended to 6 NM south of the Runway 6R localizer (I-EYU) signal extended for Area G. These lateral dimensions were determined to be the absolute minimum essential to control IFR aircraft arriving from multiple arrival streams that are being sequenced in the traffic patterns for Precision Runway Monitor/Simultaneous Offset Instrument Approaches (PRM/SOIA) procedures into CLE. The length of these areas ensures the 15 to 18 percent of IFR aircraft arrivals that currently enter, exit, and re-enter the CLE Class B airspace (as noted in the NPRM) are fully contained within Class B airspace once they enter the traffic patterns to intercept the final approach course and the PRM/SOIA procedures. During periods of moderate and heavy traffic, aircraft may be turned onto the PRM/SOIA finals as far as 25 NM to 30 NM from CLE, as is the case today. The width of these areas ensures IFR arrival aircraft conducting PRM/SOIA are contained within Class B airspace while flying in the traffic patterns and are safely separated, in accordance with aircraft separation standards and guidance, between non-participating VFR aircraft that may be flying along the boundaries of Areas F and G and IFR aircraft flying the instrument approach procedures to Runways 6L/6R. To reduce the lateral dimensions (length or width) of the Areas F or G Class B airspace extensions would be impractical.

For the same reasons as discussed above, the FAA has determined the request to consider eliminating Areas F and G if they cannot be reduced in size is also impractical. The extensions are necessary in the interest of flight safety to contain all the instrument approach procedures and the IFR aircraft flying those procedures at CLE within Class B airspace, as well as segregate the IFR aircraft and non-participating VFR aircraft flying in the vicinity of the CLE Class B airspace area.

The FAA acknowledges the benefits of using visual landmarks for defining airspace boundaries and does so when possible. However, there are no prominent landmarks in the areas needed to mark the lateral boundaries of Areas F and G. Using the landmarks that the commenters noted would not define the minimum airspace needed as addressed above. Since there were no visual landmarks to define the boundaries of Areas F and G, the FAA used arcs and radials from existing CLE navigation aids to define them.

Eight commenters suggested the split floor altitudes proposed for Areas F and G (5,000 feet mean sea level (MSL) and 6,000 feet MSL, respectively) would cause confusion and probably some inadvertent Class B airspace incursions. The commenters stated the split level proposed design still presented a safety infringement to the glider operations at Reader-Botsford airport (67D) and offered multiple recommendations for changing the floor altitudes to remedy their concerns. Two commenters recommended raising the floor of Areas F and G to 6,000 feet MSL and 7,000 feet MSL, respectively; two commenters recommended making both floor altitudes 6,000 feet MSL; and three commenters recommended raising the Area G floor only to 7,000 feet MSL.

The FAA does not agree and has determined it is not possible to raise the floor altitude of either area without impacting the operational efficiency of the PRM/SOIA into CLE. Again, for clarity, the vertical dimensions of Areas F and G as proposed in the NPRM are from 5,000 feet MSL to and including 8,000 feet MSL for Area F and from 6,000 feet MSL to and including 8,000 feet MSL for Area G. Initially, the Class B airspace extension to the southwest in the same airspace proposed as Areas F and G was designed as a single area with a floor altitude of 5,000 feet MSL. After receiving public input from the ad hoc committee and public comments following the informal airspace meetings recommending the configuration proposed, the subdivision and altitudes of the two areas were proposed using the minimum amount of airspace necessary to contain PRM/SOIA procedures to Runways 6L/6R at CLE.

Aircraft flying PRM/SOIA procedures cannot be assigned the same altitude during turn-on to the final approach course; they must be assigned an altitude that differs by at least 1,000 feet from the altitude of other aircraft conducting simultaneous approaches. Air traffic control must continue to maintain at least 1,000 feet vertical separation between aircraft flying PRM/SOIA procedures until they reach 14 NM from CLE where the actively monitored No Transgression Zone between the approaches begins. Specifically, during an east flow at CLE, aircraft will be turned onto and established on final approach courses at 5,000 feet MSL and 7,000 feet MSL for Runway 6L, and 6,000 feet MSL and 8,000 feet MSL for Runway 6R. For both runways, air traffic controllers may be sequencing aircraft from two or more arrival streams, necessitating the use of multiple altitudes in the arrival descent areas, until lateral separation is established. Under some projected traffic scenarios, multiple altitude downwind patterns will be utilized, with aircraft “layered” by altitude and worked by separate controllers. As the boundary between Areas F and G is based on the extended Runway 6R localizer I-CLE signal, the FAA continues to believe that Class B incursions will not become an issue.

Lastly, as noted in the NPRM, the proposed Areas F and G are expected to provide the gliders operating at 67D with airspace supportive of their operations while at the same time ensuring the integrity of the CLE Class B airspace by containing all instrument procedures and the IFR aircraft flying the procedures at CLE.

Eleven commenters stated that establishing the proposed Areas F and G extension would adversely affect flight safety beneath and in the near vicinity of the extension. The safety concerns cited included compression of general aviation aircraft under the extension where gliders operate, increased potential for mid-air collisions, wake turbulence effects on gliders from heavy aircraft arrivals on approach to CLE, and increased potential for off-field landings by glider pilots as a result of the extension overhead 67D.

The FAA acknowledges that some compression will occur since non-participating VFR general aviation and glider aircraft have their choice of flying either above or below the Class B airspace extension or circumnavigating it further west to remain clear should they decide not to contact the Cleveland Terminal Radar Approach Control (TRACON) facility to receive Class B services. However, establishing the Class B airspace extensions is necessary, consistent with regulatory guidance, to contain all instrument procedures and the IFR turbo-jet aircraft flying the instrument approach procedures withinClass B airspace, and to enhance flight safety to all in the CLE terminal area by segregating the large turbo-jet aircraft and the non-participating VFR aircraft operating in the vicinity of the CLE Class B airspace areas.

All aircraft operating beneath or in the vicinity of Areas F and G are expected to continue to comply with the regulatory requirements of Title 14 of the Code of Federal Regulations (14 CFR) § 91.111, titled Operating Near Other Aircraft, to avoid creating a collision hazard with other aircraft operating in the same airspace. Additionally, all aircraft operating in the same areas noted above are expected to continue complying with 14 CFR § 91.113, titled Right-of-Way Rules: Except Water Operations, to “see and avoid” other aircraft as well. The FAA believes that continued general aviation and glider operator compliance with established flight rules regulatory requirements, and these two regulations specifically, will overcome the mid-air collision and wake turbulence concerns raised by the commenters.

Lastly, the FAA acknowledges the concerns of the glider community with the establishment of Class B airspace overhead 67D. However, the design of the Class B airspace extension to the southwest of CLE was minimized to the absolute essential dimensions operationally practical by incorporating the recommendations made by the glider community participating on the ad hoc committee and as requested during the informal airspace meetings. Since the majority of glider operations occur to the south and west of 67D and the redesigned configuration of the Class B airspace extension overlying 67D was raised to 6,000 feet MSL, the FAA believes impacts to local area or cross-country glider flight operation at 67D will be negligible and off-field landing will not be a factor.

The FAA has considered the safety concerns cited above thoroughly and determined they do not negate the need for this action. At the present time, large turbo-jet air carrier, general aviation, and glider aircraft are flying simultaneously in the airspace proposed to become Areas F and G, due to the outdated design of the CLE Class B airspace area. The traffic compression, mid-air collisions, effects of wake turbulence on gliders, and off-field landings concerns raised by the commenters all exist today. Moving forward with the Class B airspace modifications in this action will enhance flight safety for all operators flying within, through, or near the CLE Class B airspace area.

Six commenters stated that the proposed Class B airspace Areas F and G would establish Class B airspace directly over the airspace Fun Country Soaring (FCS) currently flies in and would diminish safe glider operations. The commenters argued that FCS would be forced to consider shutting down its operation or relocating away from 67D. The commenters further suggested that the loss of FCS would create personal financial hardships and result in financial impacts for the owner of 67D and the town of Wellington, OH.

The FAA does not agree. As noted in the NPRM, the initial CLE Class B airspace extension extending to the southwest was proposed from 5,000 feet MSL to 8,000 feet MSL. During the informal airspace meeting held in Wellington, OH, a member of the glider community suggested the airspace extension be split into a north section and a south section whereby the floor of the Class B airspace overlying 67D, where the gliders operate, could be raised to 6,000 feet MSL. This would provide glider operators over 5,000 feet of airspace to maneuver and minimize impacts to glider operations at 67D. Almost half of the comments received following the informal airspace meetings endorsed this recommendation, including the comments received from the Village of Wellington, OH, Administrator. The FAA adopted this suggestion and created Area F and Area G as proposed in the NPRM. Again, since most glider operations occur to the south and west of 67D, the Areas F and G proposed in the NPRM are expected to enable glider operations to continue with negligible impact to local area or cross-country flights. As such, the FCS operation at 67D is not expected to shut down or relocate and the financial impacts to the FCS members, owner of 67D, and town of Wellington, OH, that were alluded to by the commenters responding to the NPRM, would be averted.

Seven commenters questioned the need for the proposed CLE Class B modifications in light of the United and Continental airlines merger. They suggested that the merger would include considerable consolidation and reduction of routes resulting in a lower traffic volume at CLE; making the Class B airspace expansion unnecessary. In addition, one commenter stated further that if the proposed Class B airspace extension areas were being used by air carriers currently, then they did not see the requirement to legislate the exclusion of general aviation flyers by initiating this rulemaking action. In essence they were, arguing this rulemaking action was not needed.

The FAA does not agree. The FAA is taking action to modify the current Class B airspace area to contain all instrument procedures at CLE and the aircraft flying those instrument procedures to and from CLE within Class B airspace, consistent with FAA directives, based on the instrument approach and departure procedures in place today. This action overcomes IFR aircraft entering, exiting, and reentering the CLE Class B airspace area while flying published instrument approach procedures and the associated traffic patterns during arrival. Additionally, this action further enhance flight safety by segregating IFR aircraft flying instrument procedures into CLE and VFR aircraft operating in the vicinity of the CLE Class B airspace. The Class B airspace modifications in this rule represent the minimum airspace needed to reasonably accommodate the current operations, fleet mix, and existing flight tracks at CLE.

AOPA recommended the FAA consider raising the portion of Area B north of the shoreline over Lake Erie from the existing 1,900 feet MSL to 3,000 feet MSL. A second commenter also requested the FAA lift the existing 1,900 feet MSL and 3,000 feet MSL Class B airspace floors over Lake Erie (Areas B and C, respectively), but did not indicate an alternative altitude. Both commenters stated that an alternative to raising the Class B floor altitudes over Lake Erie could be the addition of a VFR flyway. The second commenter also requested the FAA establish a VFR flyway between the eastern Cleveland suburban airports, Cuyahoga County Airport and Burke Lakefront Airport, and the greater Columbus and Cincinnati airports.

The FAA has determined it is not possible to raise the floor altitudes for the CLE Class B airspace areas over Lake Erie, as requested. No modifications were proposed for these areas as the existing airspace structure was deemed sufficient to continue supporting and protecting IFR aircraft departing Runways 6L/6R and VFR aircraft flying along the Lake Erie shoreline. Although the commenters cited safety reasons as the basis for their recommendation and request, there are no known safety issues for that airspace today. The FAA recognizes that raising the CLE Class B Areas B and C airspace floors over Lake Erie would provide VFR pilots additional transit altitudes and airspace over Lake Erie to operate east and west along the shoreline north of Cleveland. However, the Class B airspace in Areas B and C protects the IFR aircraft departing Runways 6L/6R climbing and turning left over Lake Erie to transitionto westbound routings and the VFR aircraft flying in the vicinity of those Class B airspace areas from the IFR departures. Additionally, establishing VFR flyways is not a regulatory action and falls outside the scope of this rule. As such, the commenters' VFR flyway recommendations are being provided to the Cleveland TRACON facility for their consideration as appropriate, and are not addressed further in this action.

One commenter questioned the adequacy of the air traffic controller and radar resources to safely control and separate the aircraft operating in the vicinity of the proposed Class B airspace Areas E, F, and G. The commenter was specifically concerned that establishing the new Class B airspace extensions without additional resources would increase the number of near mid-air collisions occurring in the airspace below the extensions due to increasing numbers of high performance aircraft skirting beneath the proposed Class B airspace extensions and impacting those aircraft already flying there.

The FAA does not agree. Staffing and equipment resources are already in place and adequate to support the CLE Class B modifications and provide all Class B services without impacting safety or efficiency. The FAA does not expect either to be an issue for CLE. No air traffic control facility airspace sector changes will be required to handle the Class B airspace modifications; hence, the existing number of air traffic controllers assigned is sufficient. Additionally, since there are no changes to the current traffic flows associated with this Class B modification action, the existing radar sites, radar displays, navigation aids and communication equipment is also sufficient. However, should circumstances arise that indicate a need for additional air traffic controller or radar resources, action will be taken to obtain them.

Three commenters stated that the geographic coordinates [latitude/longitude] defining Areas F and G did not coincide with the text of the NPRM and needed to be redefined consistent with the dimensions briefed at the informal airspace meetings. Two of these commenters further noted that the southern boundary of Area G was not parallel with the Runway 6R centerline extended as proof the coordinates were in error.

The FAA does not agree. The coordinates published in the NPRM regulatory text for defining Areas F and G were validated with the FAA's Aeronautical Navigation Procedures Group and found to be correct and consistent with the text published in the NPRM. The FAA acknowledges that Areas F and G proposed in the NPRM differ from what was presented during the informal airspace meetings. However, the proposed Areas F and G airspace published in the NPRM is the minimum necessary to reasonably contain IFR arrival aircraft flying PRM/SOIA procedures to runways 6L and 6R, and the geographic coordinates published accurately reflect these areas. With respect to the comments about the southern boundary of Area G, the commenters are correct that the boundary is not parallel to the runway 6R centerline extended. The northern and southern boundaries of the Area G are defined from different navigation aids. The northern boundary is defined by the Runway 6R localizer (I-CLE) signal extended, and the southern boundary is defined 6 miles south and parallel to the Runway 6R localizer (I-EYU) signal extended. This accounts for the fact that the southern boundary of Area G is offset by 3 degrees and is not parallel to the northern boundary.

One commenter requested the FAA consider opening a “Window” into the proposed Areas F and G to make that airspace available to glider pilots when CLE is landing on Runways 24L and 24R. The commenter based their request on what they noted as the FAA's practice of opening Windows into Class A airspace for glider operations under mountain wave conditions in Western States.

Air traffic control has the authority to authorize, on a case by case basis, certain operations within Class B airspace pursuant to the regulatory requirements of 14 CFR part 91.131, Operations in Class B Airspace. Establishing operational procedures is not a regulatory action. As such, this commenter's request for operational procedures is being provided to the Cleveland TRACON for further consideration as appropriate.

One commenter recommended that a steeper descent profile from the existing 3 degree glide slopes at CLE be used so as to enhance air carrier safety. The SSA was concerned that poor weather descents, with reduced aircraft performance in landing configurations, could result in air carrier crashes not being contained within airfield boundaries, risking the public and others.

The FAA does not agree. Aircraft accidents and crash sites are influenced by many factors, i.e. nature of the emergency, altitude, airspeed, weight, phase of flight, distance from an airport, terrain, etc. Establishing steeper instrument approach descent profiles does not necessarily equate to a safer approach into an airport or less risk to the public. Additionally, glide slope angles above 3.1 degrees would result in the loss of approach minimums for category D and E aircraft. A 3 degree glide slope angle is the standard for safety, and increasing the angle of the glide slope is outside the scope of this airspace rule.

Two commenters noted the dimensions of the airspace modifications [presumably Areas F and G] proposed in the NPRM were different from what the ad hoc committee discussed. One of the commenters went on to question whether the FAA had published the airspace extension descriptions in the NPRM with errors, while the other asserted that the passage of time since the ad hoc committee meeting in 2008 had diminished the public's awareness and participation in this proposed rulemaking. In addition, five commenters argued that the airspace modifications proposed in the NPRM did not reflect the correct dimensions the users agreed would be a workable revision. Two of these commenters further argued they did not think it was proper or legal for the FAA to force what they consider to be unacceptable, unsafe restrictions on pilots and air traffic by publishing incorrect information without re-engaging the public forum.

The FAA acknowledges that the dimensions of the Class B airspace proposed in the NPRM are different from the initial airspace configuration dimensions discussed by the ad hoc committee. However, the FAA does not agree that the NPRM was published with errors in the proposed airspace extension descriptions, or that the public's awareness and participation in the rulemaking process has been diminished. An ad hoc committee was formed to solicit local input on an initial proposal and met in 2008 to develop recommendations to the FAA regarding the proposed design of the Class B airspace. The committee did not reach consensus on an airspace design, but did recommend a variety of alternatives for the FAA to consider. In addition, as announced in theFederal Register(73 FR 40446) on July 14, 2008, the FAA held Informal Airspace Meetings in the CLE local area on September 16 and September 17, 2008, to inform users of the planned airspace changes and to gather facts and information relevant to the proposed airspace action. A comment period followed these informal airspace meetings to solicit comments or recommendations on the proposal from the public. Finally, the NPRM was published in theFederal Register(75 FR 20528) on April 20, 2010, to againinform users of the proposed airspace changes and provide a 60 day period for users to submit comments or recommendations on the proposal. All comments received were considered prior to the FAA's determination in this final rule action.

The development of the CLE Class B airspace modification was a dynamic, iterative process of informing the public of the proposed airspace action, receiving comments and recommendations from the public, and considering the operational requirements in concert with public comments and recommendations received. The comments and recommendations received from the ad hoc committee were considered by the FAA in developing the proposed airspace action presented at the informal airspace meetings, and the public's comments and recommendations received following the informal airspace meetings were considered in the development of the proposed airspace action presented in the NPRM. As such, the proposed Class B airspace extension (Areas F and G) descriptions in the NPRM were not published with errors and the public's awareness and participation in this rulemaking action has not been diminished with the passage of time.

One commenter questioned the total operations figure of 550,171 for CLE in 2008 that was cited in theFederal Register(75 FR 20528) notice. The commenter stated he was unable to find any traffic numbers near the figure presented, but did find a 200,268 total operations statistic for 2009 provided by the Hopkins International Airport website, as well as a Department of Transportation statistic that showed 104,823 total departures for CLE in 2008. The commenter further questioned that with actual traffic numbers less than half of the volume cited in the NPRM summary was the proposed change to the airspace really justified?

The FAA source for the 550,171 total operations for CLE in 2008 cited in the background section of the NPRM comes from the Air Traffic Activity Data Systems (ATADS). The FAA's ATADS contains the official National Airspace System (NAS) air traffic operations data available for public release. The total operations figure cited in the NPRM is in fact the total terminal operations for CLE; which is the sum of the tower operations (240,340) and the TRACON operations (309,831) using the Cleveland Class B airspace area. The total operations figure the commenter cited from the Hopkins International Airport website is the total airport operations; which reflect the IFR and VFR arrivals, departures, and local operations at the airport only. It does not account for any overflight operations flying in the vicinity of CLE that contribute to the traffic density or operational complexity.

As noted in the NPRM, the procedural requirements for using PRM/SOIA to establish aircraft on final at least 15 miles from CLE result in aircraft exceeding the lateral boundaries of the current Class B airspace by up to 10 miles during moderate levels of air traffic. Based on the total terminal operations figures above and the existing IFR traffic flows in the vicinity of CLE, the FAA has determined the proposed Class B airspace area modifications are justified and necessary. The Class B airspace extensions will enhance flight safety by containing all instrument procedures and the aircraft flying the instrument approach procedures within Class B airspace and ensuring the segregation of IFR aircraft arriving/departing CLE and VFR general aviation and glider aircraft operating in the vicinity of the Cleveland Class B airspace area.

The FAA is amending 14 CFR part 71 to modify the Cleveland, OH, Class B airspace area. This action (depicted on the attached chart) administratively corrects one area within the existing Cleveland Class B airspace area and establishes two airspace extensions (the first, Area E, to the northeast, and the second, defined by Areas F and G, to the southwest) in order to provide additional airspace needed to contain IFR aircraft conducting instrument approach operations within Class B airspace once they have entered it and to better segregate the IFR aircraft arriving/departing CLE and the non-participating VFR aircraft operating in the vicinity of the Cleveland Class B airspace area. The modifications to the Cleveland Class B airspace area are discussed below.

Areas A, C, and D. Areas A, C, and D are unchanged by this action.

Area B. The FAA is correcting the legal description for Area B by removing the portion that excludes the airspace within a 2-mile radius of Burke Lakefront Airport. The Class B airspace within Area B does not overlap the airspace contained within a 2-mile radius of the Burke Lakefront Airport. Therefore, the Area B exclusion language addressing the airspace within a 2-mile radius of Burke Lakefront Airport is unnecessary.

Area E. Area E is established to the northeast of CLE. This modification extends from the existing Area D boundary defined by the 20-mile arc of I-HPI to the 30-mile arc of I-HPI. The northern boundary of this area is 6 miles north and parallel to the Runway 24R localizer (I-PVY) signal extended, and the southern boundary is 6 miles south and parallel to the Runway 24L localizer (I-FVZ) signal extended. This new area is established with the floor extending upward from 5,000 feet MSL to and including 8,000 feet MSL, overlying the Willoughby Lost Nation Airport in Willoughby, OH. The effect of this new area ensures IFR aircraft flying instrument approaches to runways 24L and 24R are contained within Class B airspace throughout the approach, segregates IFR aircraft arriving CLE and non-participating VFR aircraft operating in the vicinity of the Cleveland Class B airspace area, and provides airspace below and above this area for non-participating VFR aircraft operations outside of Class B airspace.

Area F. Area F is established to the southwest of CLE. This modification extends from the existing Area D boundary defined by the 20-mile arc of I-HPI to the 30-mile arc of I-HPI. The northern boundary is 6 miles north and parallel to the Runway 6L localizer (I-LIZ) signal extended, and the southern boundary is defined by the Runway 6R localizer (I-CLE) signal extended. This new area is established with the floor extending upward from 5,000 feet MSL to and including 8,000 feet MSL, overlying to the north and west of Wellington, OH. Similar to the effect of Area E, this new area [with Area G described below] ensures IFR aircraft flying instrument approaches to runways 6L and 6R are contained within Class B airspace throughout the approach, segregates IFR aircraft arriving CLE and non-participating VFR aircraft operating in the vicinity of the Cleveland Class B airspace area, and provides airspace below and above this area for VFR aircraft operations outside of Class B airspace.

Area G. Area G is established to the southwest of CLE also. This modification extends from the existing Area D boundary defined by the 20-mile arc of I-HPI to the 30-mile arc of I-HPI. The northern boundary is defined by the Runway 6R localizer (I-CLE) signal extended, and the southern boundary is defined 6 miles south and parallel to the Runway 6R localizer (I-EYU) signal extended. This new area is established with the floor extending upward from 6,000 feet MSL to and including 8,000 feet MSL, overlying the Reader-Botsford Airport in Wellington, OH. Similar to the effect of Areas E and F, this new area (with Area F described above) ensuresIFR aircraft flying instrument approaches to runways 6L and 6R are contained within Class B airspace throughout the approach, segregates IFR aircraft arriving CLE and non-participating VFR aircraft operating in the vicinity of the Cleveland Class B airspace area, and provides airspace below and above this area for VFR aircraft operations outside of Class B airspace.

Additionally, this action updates the CLE airport reference point and the CLE Runway 24L ILS/DME antenna (I-HPI) geographic coordinates listed in the airspace designation of the Cleveland Class B airspace area to reflect current NAS aeronautical data.

The FAA has determined that this action qualifies for categorical exclusion under the National Environmental Policy Act in accordance with FAA Order 1050.1E, “Environmental Impacts: Policies and Procedures,” paragraph 311a. This airspace action is not expected to cause any potentially significant environmental impacts, and no extraordinary circumstances exist that warrant preparation of an environmental assessment.

The Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) requires that the FAA consider the impact of paperwork and other information collection burdens imposed on the public. We have determined that there is no new information collection requirement associated with this final rule.

Changes to Federal regulations must undergo several economic analyses. First, Executive Order 12866 directs that each Federal agency shall propose or adopt a regulation only upon a reasoned determination that the benefits of the intended regulation justify its costs. Second, the Regulatory Flexibility Act of 1980 (Pub. L. 96-354) requires agencies to analyze the economic impact of regulatory changes on small entities. Third, the Trade Agreements Act (Pub. L. 96-39) prohibits agencies from setting standards that create unnecessary obstacles to the foreign commerce of the United States. In developing U.S. standards, the Trade Act requires agencies to consider international standards and, where appropriate, that they be the basis of U.S. standards. Fourth, the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4) requires agencies to prepare a written assessment of the costs, benefits, and other effects of proposed or final rules that include a Federal mandate likely to result in the expenditure by State, local, or tribal governments, in the aggregate, or by the private sector, of $100 million or more annually (adjusted for inflation with base year of 1995). This portion of the preamble summarizes the FAA's analysis of the economic impacts of this final rule.

Department of Transportation Order DOT 2100.5 prescribes policies and procedures for simplification, analysis, and review of regulations. If the expected cost impact is so minimal that a proposed or final rule does not warrant a full evaluation, this order permits that a statement to that effect and the basis for it be included in the preamble if a full regulatory evaluation of the cost and benefits is not prepared. Such a determination has been made for this final rule. The reasoning for this determination follows.

This final rule enhances safety by improving the flow of air traffic, and reducing the potential for midair collision in the Cleveland terminal area. In the NPRM, we concluded that the benefits of the proposed rule exceeded any minimal cost associated with the requirements. One commenter indicated that a soaring club would be forced to consider shutting down or relocating operations as a result of the proposal. The company may decide not to relocate which would result in no additional costs. If a company changes locations, there would be relocation costs. However, as explained earlier, the final rule will continue to allow glider operations resulting in only a minimal impact.

The FAA has determined establishing these requirements are essential to ensure flight safety and efficiency of the NAS in the CLE terminal airspace. Due to the efficiency and safety benefits, and because we have incorporated the recommendations of affected individuals into the requirements, there will only be minimal economic cost with substantial positive net benefits.

The FAA has, therefore, determined that this final rule is not a “significant regulatory action” as defined in section 3(f) of Executive Order 12866, and is not “significant” as defined in DOT's Regulatory Policies and Procedures.

The Regulatory Flexibility Act of 1980 (Pub. L. 96-354) (RFA) establishes “as a principle of regulatory issuance that agencies shall endeavor, consistent with the objectives of the rule and of applicable statutes, to fit regulatory and informational requirements to the scale of the businesses, organizations, and governmental jurisdictions subject to regulation. To achieve this principle, agencies are required to solicit and consider flexible regulatory proposals and to explain the rationale for their actions to assure that such proposals are given serious consideration.” The RFA covers a wide-range of small entities, including small businesses, not-for-profit organizations, and small governmental jurisdictions.

Agencies must perform a review to determine whether a rule will have a significant economic impact on a substantial number of small entities. If the agency determines that it will, the agency must prepare a regulatory flexibility analysis as described in the RFA. However, if an agency determines that a rule is not expected to have a significant economic impact on a substantial number of small entities, section 605(b) of the RFA provides that the head of the agency may so certify and a regulatory flexibility analysis is not required. The certification must include a statement providing the factual basis for this determination, and the reasoning should be clear.

Our initial determination was that the rule would not have a significant economic impact on a substantial number of small entities. One commenter indicated that a soaring club would be affected as a result of the proposal. We agree that, if a company changes locations, there would be some relocation cost. However, because we have incorporated the recommendations of affected individuals into the requirements, and we expect operations to continue, there will be minimal economic impact. As such, this final rule will not have a significant economic impact on a substantial number of small entities because the economic impact is expected to be minimal.

Therefore, the FAA Administrator certifies that this final rule will not have a significant economic impact on a substantial number of small entities.

The Trade Agreements Act of 1979 (Pub. L. 96-39), as amended by the Uruguay Round Agreements Act (Pub. L. 103-465), prohibits Federal agencies from establishing standards or engaging in related activities that create unnecessary obstacles to the foreign commerce of the United States. Pursuant to these Acts, the establishment of standards is not considered an unnecessary obstacle to the foreign commerce of the United States, so long as the standard has a legitimate domestic objective, such as the protection of safety, and does notoperate in a manner that excludes imports that meet this objective. The statute also requires consideration of international standards and, where appropriate, that they be the basis for U.S. standards. The FAA has assessed the effect of this final rule and determined that it will enhance safety and is not considered an unnecessary obstacle to trade.

Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4) requires each Federal agency to prepare a written statement assessing the effects of any Federal mandate in a proposed or final agency rule that may result in an expenditure of $100 million or more (in 1995 dollars) in any one year by State, local, and tribal governments, in the aggregate, or by the private sector; such a mandate is deemed to be a “significant regulatory action.” The FAA currently uses an inflation-adjusted value of $143.1 million in lieu of $100 million. This final rule does not contain such a mandate; therefore, the requirements of Title II of the Act do not apply.

In consideration of the foregoing, the Federal Aviation Administration amends 14 CFR part 71 as follows:

This rule amends Title 14, Code of Federal Regulations, part 97 (14 CFR part 97) by amending the referenced SIAPs. The complete regulatory description of each SIAP is listed on the appropriate FAA Form 8260, as modified by the National Flight Data Center (FDC)/Permanent Notice to Airmen (P-NOTAM), and is incorporated by reference in the amendment under 5 U.S.C. 552(a), 1 CFR part 51, and § 97.20 of Title 14 of the Code of Federal Regulations.

The large number of SIAPs, their complex nature, and the need for a special format make their verbatim publication in the Federal Register expensive and impractical. Further, airmen do not use the regulatory text of the SIAPs, but refer to their graphic depiction on charts printed by publishers of aeronautical materials. Thus, the advantages of incorporation by reference are realized and publication of the complete description of each SIAP contained in FAA form documents is unnecessary. This amendment provides the affected CFR sections and specifies the types of SIAP and the corresponding effective dates. This amendment also identifies the airport and its location, the procedure and the amendment number.

This amendment to 14 CFR part 97 is effective upon publication of each separate SIAP as amended in the transmittal. For safety and timeliness of change considerations, this amendment incorporates only specific changes contained for each SIAP as modified by FDC/P-NOTAMs.

The SIAPs, as modified by FDC P-NOTAM, and contained in this amendment are based on the criteria contained in the U.S. Standard for Terminal Instrument Procedures (TERPS). In developing these changes to SIAPs, the TERPS criteria were applied only to specific conditions existing at the affected airports. All SIAP amendments in this rule have been previously issued by the FAA in a FDC NOTAM as an emergency action of immediate flight safety relating directly to published aeronautical charts. The circumstances which created the need for all these SIAP amendments requires making them effective in less than 30 days.

Because of the close and immediate relationship between these SIAPs and safety in air commerce, I find that notice and public procedure before adopting these SIAPs are impracticable and contrary to the public interest and, where applicable, that good cause exists for making these SIAPs effective in less than 30 days.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. It, therefore—(1) is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. For the same reason, the FAA certifies that this amendment will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

Accordingly, pursuant to the authority delegated to me, Title 14, Code of Federal Regulations, part 97, 14 CFR part 97, is amended by amending Standard Instrument Approach Procedures, effective at 0901 UTC on the dates specified, as follows:

This rule amends Title 14 of the Code of Federal Regulations, part 97 (14 CFR part 97), by establishing, amending, suspending, or revoking SIAPS, Takeoff Minimums and/or ODPS. The complete regulators description of each SIAP and its associated Takeoff Minimums or ODP for an identified airport is listed on FAA form documents which are incorporated by reference in this amendment under 5 U.S.C. 552(a), 1 CFR part 51, and 14 CFR 97.20. The applicable FAA Forms are FAA Forms 8260-3, 8260-4, 8260-5, 8260-15A, and 8260-15B when required by an entry on 8260-15A.

The large number of SIAPs, Takeoff Minimums and ODPs, in addition to their complex nature and the need for a special format make publication in theFederal Registerexpensive and impractical. Furthermore, airmen do not use the regulatory text of the SIAPs, Takeoff Minimums or ODPs, but instead refer to their depiction on charts printed by publishers of aeronautical materials. The advantages of incorporation by reference are realized and publication of the complete description of each SIAP, Takeoff Minimums and ODP listed on FAA forms is unnecessary. This amendment provides the affected CFR sections and specifies the types of SIAPs and the effective dates of the associated Takeoff Minimums and ODPs. This amendment also identifies the airport and its location, the procedure, and the amendment number.

This amendment to 14 CFR part 97 is effective upon publication of each separate SIAP, Takeoff Minimums and ODP as contained in the transmittal. Some SIAP and Takeoff Minimums and textual ODP amendments may have been issued previously by the FAA in a Flight Data Center (FDC) Notice to Airmen (NOTAM) as an emergency action of immediate flight safety relating directly to published aeronautical charts. The circumstances which created the need for some SIAP and Takeoff Minimums and ODP amendments may require making them effective in less than 30 days. For the remaining SIAPS and Takeoff Minimums and ODPS, an effective date at least 30 days after publication is provided.

Further, the SIAPs and Takeoff Minimums and ODPS contained in this amendment are based on the criteria contained in the U.S. Standard for Terminal Instrument Procedures (TERPS). In developing these SIAPS and Takeoff Minimums and ODPs, the TERPS criteria were applied to the conditions existing or anticipated at the affected airports. Because of the close and immediate relationship between these SIAPs, Takeoff Minimums and ODPs, and safety in air commerce, I find that notice and public procedures before adopting these SIAPS, Takeoff Minimums and ODPs are impracticable and contrary to the public interest and, where applicable, that good cause exists for making some SIAPs effective in less than 30 days.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. It, therefore—(1) is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule ” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26,1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. For the same reason, the FAA certifies that this amendment will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

Accordingly, pursuant to the authority delegated to me, Title 14, Code of Federal Regulations, part 97 (14 CFR part 97) is amended by establishing, amending, suspending, or revoking Standard Instrument Approach Procedures and/or Takeoff Minimums and/or Obstacle Departure Procedures effective at 0902 UTC on the dates specified, as follows:

Section 157.208(d) of the Commission's Regulations provides for project cost limits applicable to construction, acquisition, operation and miscellaneous rearrangement of facilities (Table I) authorized under the blanket certificate procedure (Order No. 234, 19 FERC ¶ 61,216). Section 157.215(a) specifies the calendar year dollar limit which may be expended on underground storage testing and development (Table II) authorized under the blanket certificate. Section 157.208(d) requires that the “limits specified in Tables I and II shall be adjusted each calendar year to reflect the 'GDP implicit price deflator' published by the Department of Commerce for the previous calendar year.”

Pursuant to § 375.308(x)(1) of the Commission's Regulations, the authority for the publication of such cost limits, as adjusted for inflation, is delegated to the Director of the Office of Energy Projects. The cost limits for calendar year 2011, as published in Table I of § 157.208(d) and Table II of § 157.215(a), are hereby issued.

Accordingly, 18 CFR part 157 is amended as follows:

Throughout this document, whenever “we,” “us,” or “our” is used, we mean EPA. On September 27, 2010, the Commonwealth of Virginia submitted a formal revision to its State Implementation Plan (SIP). The SIP revision consists of the revised definition of “Volatile organic compound” (VOC) listed in 9VAC5 Chapter 10 (General Definitions), Regulation 5-10-20 (Terms defined).

Virginia amended the definition of “Volatile organic compound” to add the organic compounds propylene carbonate and dimethyl carbonate to the list of excluded compounds. The exclusion of these compounds is consistent with the list of excluded compounds found in EPA's definition of “Volatile organic compounds (VOC)” at 40 CFR 51.100(s)(1).

In 1995, Virginia adopted legislation that provides, subject to certain conditions, for an environmental assessment (audit) “privilege” for voluntary compliance evaluations performed by a regulated entity. The legislation further addresses the relative burden of proof for parties either asserting the privilege or seeking disclosure of documents for which theprivilege is claimed. Virginia's legislation also provides, subject to certain conditions, for a penalty waiver for violations of environmental laws when a regulated entity discovers such violations pursuant to a voluntary compliance evaluation and voluntarily discloses such violations to the Commonwealth and takes prompt and appropriate measures to remedy the violations. Virginia's Voluntary Environmental Assessment Privilege Law, Va. Code Sec. 10.1-1198, provides a privilege that protects from disclosure documents and information about the content of those documents that are the product of a voluntary environmental assessment. The Privilege Law does not extend to documents or information (1) that are generated or developed before the commencement of a voluntary environmental assessment; (2) that are prepared independently of the assessment process; (3) that demonstrate a clear, imminent and substantial danger to the public health or environment; or (4) that are required by law.

On January 12, 1998, the Commonwealth of Virginia Office of the Attorney General provided a legal opinion that states that the Privilege Law, Va. Code Sec. 10.1-1198, precludes granting a privilege to documents and information “required by law,” including documents and information “required by Federal law to maintain program delegation, authorization or approval,” since Virginia must “enforce Federally authorized environmental programs in a manner that is no less stringent than their Federal counterparts . . . .” The opinion concludes that “[r]egarding § 10.1-1198, therefore, documents or other information needed for civil or criminal enforcement under one of these programs could not be privileged because such documents and information are essential to pursuing enforcement in a manner required by Federal law to maintain program delegation, authorization or approval.” Virginia's Immunity law, Va. Code Sec. 10.1-1199, provides that “[t]o the extent consistent with requirements imposed by Federal law,” any person making a voluntary disclosure of information to a state agency regarding a violation of an environmental statute, regulation, permit, or administrative order is granted immunity from administrative or civil penalty. The Attorney General's January 12, 1998 opinion states that the quoted language renders this statute inapplicable to enforcement of any Federally authorized programs, since “no immunity could be afforded from administrative, civil, or criminal penalties because granting such immunity would not be consistent with Federal law, which is one of the criteria for immunity.”

Therefore, EPA has determined that Virginia's Privilege and Immunity statutes will not preclude the Commonwealth from enforcing its program consistent with the Federal requirements. In any event, because EPA has also determined that a state audit privilege and immunity law can affect only state enforcement and cannot have any impact on Federal enforcement authorities, EPA may at any time invoke its authority under the CAA, including, for example, sections 113, 167, 205, 211 or 213, to enforce the requirements or prohibitions of the state plan, independently of any state enforcement effort. In addition, citizen enforcement under section 304 of the CAA is likewise unaffected by this, or any, state audit privilege or immunity law.

EPA is approving the amendment to the definition of “Volatile organic compound” in Virginia Regulation 9VAC5-10-20 (Terms defined) as a revision to the Virginia State Implementation Plan. EPA is publishing this rule without prior proposal because the Agency views this as a noncontroversial amendment and anticipates no adverse comment. However, in the “Proposed Rules” section of today'sFederal Register, EPA is publishing a separate document that will serve as the proposal to approve the SIP revision if adverse comments are filed. This rule will be effective on April 15, 2011 without further notice unless EPA receives adverse comment by March 16, 2011. If EPA receives adverse comment, EPA will publish a timely withdrawal in theFederal Registerinforming the public that the rule will not take effect. EPA will address all public comments in a subsequent final rule based on the proposed rule. EPA will not institute a second comment period on this action. Any parties interested in commenting must do so at this time.

Under the CAA, the Administrator is required to approve a SIP submission that complies with the provisions of the CAA and applicable Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the CAA. Accordingly, this action merely approves state law as meeting Federal requirements and does not impose additional requirements beyond those imposed by state law. For that reason, this action:

• Is not a “significant regulatory action” subject to review by the Office of Management and Budget under Executive Order 12866 (58 FR 51735, October 4, 1993);

• Does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501et seq.);

• 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. 601et seq.);

• Does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4);

• Does not have Federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);

• Is not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997);

• Is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001);

• Is not subject to requirements of Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the CAA; and

• Does not provide EPA with the discretionary authority to address, as appropriate, disproportionate human health or environmental effects, using practicable and legally permissible methods, under Executive Order 12898 (59 FR 7629, February 16, 1994).

The Congressional Review Act, 5 U.S.C. 801et seq.,as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller Generalof the United States. EPA will submit a report containing this action and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in theFederal Register. A major rule cannot take effect until 60 days after it is published in theFederal Register. This action is not a “major rule” as defined by 5 U.S.C. 804(2).

Under section 307(b)(1) of the CAA, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by April 15, 2011. 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'sFederal Register, rather than file an immediate petition for judicial review of this direct final rule, so that EPA can withdraw this direct final rule and address the comment in the proposed rulemaking. This action to approve Virginia's revision to the definition of “Volatile organic compound” may not be challenged later in proceedings to enforce its requirements. (Seesection 307(b)(2).)

40 CFR part 52 is amended as follows:

The NAAQS are standards for certain ambient air pollutants set by EPA to protect public health and welfare. PM-10 is among the ambient air pollutants for which EPA has established health-based standards. PM-10 causes adverse health effects by penetrating deep in the lungs, aggravating the cardiopulmonary system. Children, the elderly, and people with asthma and heart conditions are the most vulnerable.

On July 1, 1987 EPA revised the health-based NAAQS (52 FR 24672), replacing the standards for total suspended particulates with new standards applying only to particulate matter up to ten microns in diameter (PM-10). At that time, EPA established two PM-10 standards, annual standards and 24-hour standards. Effective December 18, 2006, EPA revoked the annual PM-10 standards but retained the 24-hour PM-10 standards. 71 FR 61144 (October 17, 2006). The 24-hour PM-10 standards of 150 micrograms per cubic meter (µg/m3) are attained when the expected number of days per calendar year with a 24-hour average concentration above 150 µg/m3, as determined in accordance with appendix K to 40 CFR part 50, is equal to or less than one. 40 CFR 50.6 and 40 CFR part 50, appendix K.

On the date of enactment of the 1990 Clean Air Act Amendments (CAA or the Act), many areas, including the Maricopa area, meeting the qualifications of section 107(d)(4)(B) of the amended Act were designated nonattainment by operation of law. 56 FR 11101 (March 15, 1991). The Maricopa area is located in the eastern portion of Maricopa County and encompasses the cities of Phoenix, Mesa, Scottsdale, Tempe, Chandler, Glendale, as well as 17 other jurisdictions and unincorporated County lands. The nonattainment area also includes the town of Apache Junction in Pinal County. EPA codified the boundaries of the Maricopa area at 40 CFR 81.303.

Once an area is designated nonattainment for PM-10, section 188 of the CAA outlines the process for classifying the area as moderate or serious and establishes the area's attainment deadline. In accordance with section 188(a), at the time of designation, all PM-10 nonattainment areas, including the Maricopa area, were initially classified as moderate.

A moderate PM-10 nonattainment area must be reclassified to serious PM-10 nonattainment by operation of law if EPA determines after the applicable attainment date that, based on air quality, the area failed to attain by that date. CAA sections 179(c) and 188(b)(2). On May 10, 1996, EPA reclassified the Maricopa area as a serious PM-10 nonattainment area. 61 FR 21372.

As a serious PM-10 nonattainment area, the Maricopa area acquired a new attainment deadline of no later than December 31, 2001. CAA section 188(c)(2). However CAA section 188(e) allows states to apply for up to a 5-year extension of that deadline if certain conditions are met. Arizona requested an attainment date extension under CAA section 188(e) from December 31, 2001 to December 31, 2006. On July 25, 2002, EPA approved the serious area PM-10 plan for the Maricopa area and granted Arizona's request to extend the attainment date for the area to December 31, 2006. 67 FR 48718. This final action, as well as the two proposals preceding it, provide a more detailed discussion of the history of PM-10 planning in the Maricopa area. See 65 FR 19964 (April 13, 2000) and 66 FR 50252 (October 2, 2001).

On June 6, 2007, EPA found that the Maricopa area failed to attain the 24-hour PM-10 NAAQS by December 31, 2006 (72 FR 31183) and required the submittal of a new plan meeting the requirements of section 189(d) by December 31, 2007.

On December 19, 2007, the Maricopa Association of Governments (MAG) adopted the “MAG 2007 Five Percent Plan for PM-10 for the Maricopa County Nonattainment Area” (189(d) plan). On December 21, 2007 the Arizona Department of Environmental Quality (ADEQ) submitted the 189(d) plan. MAG adopted and ADEQ submitted this SIP revision in order to address the CAA requirements in section 189(d).

CAA section 110(k)(1) requires EPA to determine whether a SIP submission is complete within 60 days of receipt. This section also provides that any plan that has not been affirmatively determined to be complete or incomplete shall become complete within 6 months by operation of law. EPA's completeness criteria are found in 40 CFR part 51, appendix V. The 189(d) plan submittal became complete by operation of law on June 21, 2008.

EPA proposed to partially approve and partially disapprove the 189(d) plan on September 9, 2010 (75 FR 54806). On January 25, 2011, prior to any final EPA action, Arizona withdrew the 189(d) plan from the Agency's consideration.

If Arizona does not submit the required plan revisions within 18 months of the effective date of today's rulemaking, pursuant to CAA section 179(a) and 40 CFR 52.31, the offset sanction identified in CAA section 179(b) will be applied in the affected area. If the State has still not made a complete submittal 6 months after the offset sanction is imposed, then the highway funding sanction will apply in the affected area, in accordance with 40 CFR 52.31.1 The 18-month clock will stop and the sanctions will not take effect if, within 18 months after the date of the finding, EPA finds that the State has made a complete submittal addressing the 189(d) PM-10 requirements for the Maricopa area. In addition, CAA section 110(c)(1) provides that EPA must promulgate a federal implementation plan (FIP) no later than 2 years after a finding under section 179(a) unless EPA takes final action to approve the submittal within 2 years of EPA's finding.

This final action is effective on February 14, 2011.

Under the Administrative Procedures Act (APA), 5 U.S.C. 553(d)(3), an agency rulemaking may take effect before 30 days after the date of publication in theFederal Registerif an agency has good cause to mandate an earlier effective date. Today's action concerns SIP revisions that are already overdue and the State has been aware of applicable provisions of the CAA relating to overdue SIPs. In addition, today's action simply starts a “clock” that will not result in sanctions for 18 months, and that the State may “turn off” by a complete SIP submittal addressing the 189(d) PM-10 requirements for the Maricopa area. These reasons support an effective date prior to 30 days after the date of publication.

This final agency action is not subject to the notice-and-comment requirements of the APA, 5 U.S.C. 533(b). EPA believes that because of the limited time provided to make findings of failure to submit regarding SIP submissions, Congress did not intend such findings to be subject to notice-and-comment rulemaking. However, to the extent such findings are subject to notice-and-comment rulemaking, EPA invokes the good cause exception pursuant to the APA, 5 U.S.C. 553(d)(3). Notice and comment are unnecessary because no EPA judgment is involved in making a nonsubstantive finding of failure to submit SIPs required by theCAA. Furthermore, providing notice and comment would be impracticable because of the limited time provided under the statute for making such determinations. Finally, notice and comment would be contrary to the public interest because it would divert Agency resources from the critical substantive review of submitted SIPs. See 58 FR 51270, 51272, note 17 (October 1, 1993); 59 FR 39832, 39853 (August 4, 1994).

The Office of Management and Budget (OMB) has exempted this regulatory action from Executive Order 12866, entitled “Regulatory Planning and Review.”

This action does not impose an information collection burden under the provisions of the Paperwork Reduction Act, 44 U.S.C. 3501et seq.Burden is defined at 5 CFR 1320.3(b).

The Regulatory Flexibility Act (RFA) generally requires an agency to conduct a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. Small entities include small businesses, small not-for-profit enterprises, and small governmental jurisdictions.

This final rule will not have a significant impact on a substantial number of small entities because findings of failure to submit required SIP revisions do not by themselves create any new requirements. Therefore, I certify that this action will not have a significant economic impact on a substantial number of small entities.

Under section 202 of the Unfunded Mandates Reform Act of 1995 (“Unfunded Mandates Act”), signed into law on March 22, 1995, EPA must prepare a budgetary impact statement to accompany any proposed or final rule that includes a Federal mandate that may result in estimated costs to State, local, or tribal governments in the aggregate; or to the private sector, of $100 million or more. Under section 205, EPA must select the most cost-effective and least burdensome alternative that achieves the objectives of the rule and is consistent with statutory requirements. Section 203 requires EPA to establish a plan for informing and advising any small governments that may be significantly or uniquely impacted by the rule.

EPA has determined that today's action does not include a Federal mandate that may result in estimated costs of $100 million or more to either State, local, or tribal governments in the aggregate, or to the private sector. The CAA provision discussed in this rule requires states to submit SIPs. This rule merely finds that Arizona has not met that requirement. Accordingly, no additional costs to State, local, or tribal governments, or to the private sector, result from this action.

Federalism(64 FR 43255, August 10, 1999) revokes and replaces Executive Orders 12612 (Federalism) and 12875 (Enhancing the Intergovernmental Partnership). Executive Order 13132 requires EPA to develop an accountable process to ensure “meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications.” “Policies that have federalism implications” is defined in the Executive Order to include regulations that have “substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.” Under Executive Order 13132, EPA may not issue a regulation that has federalism implications, that imposes substantial direct compliance costs, and that is not required by statute, unless the Federal government provides the funds necessary to pay the direct compliance costs incurred by State and local governments, or EPA consults with State and local officials early in the process of developing the proposed regulation. EPA also may not issue a regulation that has federalism implications and that preempts State law unless the Agency consults with State and local officials early in the process of developing the proposed regulation.

This rule will not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132, because it does not alter the relationship or the distribution of power and responsibilities established in the Clean Air Act. Thus, the requirements of section 6 of the Executive Order do not apply to this rule.

Executive Order 13175, entitled “Consultation and Coordination with Indian Tribal Governments” (65 FR 67249, November 9, 2000), requires EPA to develop an accountable process to ensure “meaningful and timely input by tribal officials in the development of regulatory policies that have tribal implications.” This final rule does not have tribal implications, as specified in Executive Order 13175. It will not have substantial direct effects on tribal governments, 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. Thus, Executive Order 13175 does not apply to this rule.

EPA interprets Executive Order 13045 (62 FR 19885, April 23, 1997) as applying only to those regulatory actions that concern health or safety risks, such that the analysis required under section 5-501 of the Executive Order has the potential to influence the regulation. This rule is not subject to Executive Order 13045 because it merely finds that Arizona has failed to make a submission that is required under the Clean Air Act.

This rule is not subject to Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355, May 22, 2001) because it is not a significant regulatory action under Executive Order 12866.

Section 12 of the National Technology Transfer and Advancement Act (NTTAA) of 1995 requires Federal agencies to evaluate existing technical standards when developing a new regulation. To comply with NTTAA, EPA must consider and use “voluntary consensus standards” (VCS) if available and applicable when developing programs and policies unless doing so would be inconsistent with applicable law or otherwise impractical.

The EPA believes that VCS are inapplicable to this action. Today's action does not require the public toperform activities conducive to the use of VCS.

Executive Order (EO) 12898 (59 FR 7629 (Feb. 16, 1994)) establishes federal executive policy on environmental justice. Its main provision directs federal agencies, to the greatest extent practicable and permitted by law, to make environmental justice part of their mission by identifying and addressing, as appropriate, disproportionately high and adverse human health or environmental effects of their programs, policies, and activities on minority populations and low-income populations in the United States.

EPA lacks the discretionary authority to address environmental justice in this rulemaking.

The Congressional Review Act, 5 U.S.C. 801et seq.,as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. EPA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in theFederal Register. A major rule cannot take effect until 60 days after it is published in theFederal Register. This action is not a “major rule” as defined by 5 U.S.C. section 804(2). This rule will be effective February 14, 2011.

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 April 15, 2011. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this rule for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action may not be challenged later in proceedings to enforce its requirements (see section 307(b)(2)).

I. Background

DoD published a proposed rule in theFederal Register(75 FR 22728) on April 30, 2010, to revise guidance for award-fee evaluations and payments, eliminate the use of provisional award-fee payments, and incorporate DoD policy guidance on the use of objective criteria. A new clause entitled Award Fee sets forth the use of award fees in DoD contracts.

In response to the proposed rule, DoD received comments from three respondents. A discussion of the comments is provided below:

a.Comment:The respondents considered the language aligning fee distributions with contract performance and cost schedules. One respondent stated that holding 40 percent of the award fee until the final evaluation does not consider the completion of individual contract line items or undefinitized work.

DoD Response:The purpose of making 40 percent of the award-fee pool available under the final evaluation period is to set aside a sufficient amount to protect the taxpayer's interest in the event a contractor fails to meet contractual obligations. Assuming the contract is properly structured, there is nothing in the rule that prohibits contractors from being paid for completed contract line items or work performed under undefinitized contracts.

b.Comment:The respondents expressed concern that holding 40 percent award fee until the final evaluation does not reward contract performance, particularly if a contract is terminated before the final evaluation. One respondent was concerned that by making a specified percentage of the award fee available for the final evaluation period, in the event of a termination for convenience, the contractor may not have the ability to earn that final award-fee percentage.

DoD response:The rule does not change the current procedures for terminations for convenience. In the event of a termination for convenience prior to the final evaluation period, contractors will be eligible to earn award fee available up to the point of the termination.

c.Comment:One respondent was concerned that holding of 40 percent of the award fee until final evaluation will negatively affect cash flow. The respondents were also concerned that the proposed rule will increase financial risk to Government contractors and result in an imbalance in the risk/reward relationship. One respondent was concerned, therefore, that the rule will unfavorably impact DoD's supplier base by adversely impacting suppliers' ability to attract debt and equity investment.

DoD Response:Contractors will continue to be paid incurred costs on cost-type contracts, completed work under fixed-price contracts with progress payments, or milestones achieved under fixed-price contracts with performance-based payments. Accordingly, a contractor's cash flow should not be significantly impacted. Since contractors who consistently meet contractual performance requirements will maximize the amount of award fee earned, there is no imbalance in the risk/reward relationship. There should be little, if any, impact on a superiorperformer's ability to attract debt and equity investment.

d.Comment:One respondent commented that the 40 percent fee withhold until final evaluation is arbitrary. The respondent requested DoD to consider reducing the 40 percent of the award-fee amount held until final evaluation to a minimum of 20 percent.

DoD response:DoD agrees that under certain circumstances it may be appropriate to establish a lower percentage of award fee to be available for the final evaluation period. Therefore, DFARS 216.405-2(1) has been revised to state that the percentage of award fee available for the final evaluation may be set below 40 percent if the contracting officer determines that a lower percentage is appropriate, and this determination is approved by the head of the contracting activity.

a.Comment:One respondent was concerned that the elimination of provisional award-fee payments will negatively affect cash flow. One respondent suggested that DoD should provide a definition of “provisional award-fee payments” and consider continuation of provisional award-fee payments, but with more restrictions.

DoD response:DoD understands the respondents' concerns. However, the payment of award fee prior to the end of an award-fee period is not appropriate since the contractor's performance has not been evaluated and the contractor may not earn that paid award fee during that period. Because DoD has made the policy decision that provisional award-fee payments are not appropriate, no definition of the term is required.

b.Comment:One respondent stated that payment for successful completion of elements of multiple-incentive contracts should not be affected by the proposed rule's elimination of provisional award fees.

DoD Response:DoD agrees. There is nothing in the rule that prohibits payment when a contractor has successfully completed elements of a multiple-incentive contract.

a.Comment:According to one respondent, limitations on cost-plus-award-fee (CPAF) contracts have the unintended consequence of encouraging the use of the less desirable cost-plus-fixed-fee (CPFF) contract type.

DoD Response:The purpose of the proposed rule is to ensure the amount of award fees paid on CPAF contracts is commensurate with the contractor's performance. DoD expects contracting officers to utilize appropriate contract types.

b.Comment:One respondent suggested DoD delete the language at DFARS 216.45-2(3)(A)(1).

DoD Response:DoD believes the respondent meant proposed DFARS 216.405-2(3)(i)(A)(2) (renumbered from current DFARS 216.405-2(c)(3)(i)(A)(2)), which states that the CPAF contract should not be used to avoid developing objective targets so a cost-plus-incentive-fee (CPIF) contract can be used. This language has not been revised by this rule. CPAF contract types should not be used instead of a CPIF contract type where a CPFF contract type is appropriate.

a.Comment:One respondent recommended the reference to the “Government” be revised to reference the “Contracting Officer” in the proposed clause at DFARS 252.216-70XX.

DoD Response:DoD agrees. DFARS 252.216-7005 has been changed accordingly. Furthermore, the reference to “the Contracting Officer's final evaluation” in DFARS 216.405-2(2) has been revised for clarity to reference “the fee-determining official's final evaluation.”

b.Comment:One respondent suggested that DoD clarify the definition of CPAF such that it includes only contracts that provide for fee only on an award-fee basis, and does not include any hybrid award-fee/incentive-fee contracts.

DoD Response:No change to the definition has been made. Award-fee portions of hybrid contracts shall be subject to the award-fee requirements of this rule.

c.Comment:Respondents suggested that the proposed rule should not be applied retroactively.

DoD Response:The incorporation into an existing contract of the new clause at DFARS 252.216-7005 would require a bilateral modification to that contract. The rule does not require contracting officers to insert DFARS 252.216-7005 into existing contracts. However, in cases where its use may be justified, the contracting officer may insert the clause via a bilateral modification in accordance with FAR 1.108(d).

d.Comment:Respondents suggested that award-fee contract funding modifications should be provided concurrent with the fee-determining official's rating.

DoD Response:This rule has no effect on the timeliness of funding modifications.

e.Comment:Respondents suggested that DoD should reconsider the policy that prohibits roll-over of unearned award fee.

DoD Response:Contractors should not be given a second opportunity to obtain unearned award fees when they fail to meet cost, schedule, and technical performance criteria specified in the contract. The roll-over of unearned award fee would provide a disincentive to contractors to meet cost, schedule, and technical performance criteria specified in the contract in a given evaluation period if the contractor believes they will be given additional opportunities to obtain that unearned award fee in subsequent evaluation periods.

In addition to changes made in response to the public comments, the phrase “held for” has been replaced by the phrase “available for” in DFARS 216.405-2(1) to better reflect DoD policy.

This is not a significant regulatory action and, therefore, was not subject to review under Section 6(b) of Executive Order 12866, Regulatory Planning and Review, dated September 30, 1993. This rule is not a major rule under 5 U.S.C. 804.

DoD certifies that this final rule will not have a significant economic impact on a substantial number of small entities within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 601,et seq.,because most contracts awarded to small entities use simplified acquisition procedures or are awarded on a competitive fixed-price basis and do not utilize award-fee type incentives. Of the 1.16 million contracts awarded to small businesses in Fiscal Year 2010, less than 0.1 percent were award-fee contracts.

The rule prohibits roll-over of unearned award fee, and requires that at least 40 percent of the award-fee pool be available for the final performance evaluation with the intent of incentivizing the contractor throughout performance of the contract. Any impact of these requirements on small businesses that do have award-fee contracts is mitigated by the fact that contractors will continue to be paid costs on cost-type contracts, and progress or performance-based payments on fixed-price contracts. Therefore, contractors' cash flow will not be impacted significantly unless there is a failure to meet the performance criteria in the contract.Furthermore, the final rule provides more flexibility regarding the requirement that 40 percent of the award-fee pool must be available for the final evaluation period. With the approval of the head of the contracting activity, the contracting officer can determine that, in some cases, a percentage of less than 40 percent of the award-fee pool is appropriate to be made available for the final evaluation period.

Additionally, no comments were received in response to publication of the proposed rule with respect to the impact of the proposed rule on small entities.

The final rule does not impose any information collection requirements that require the approval of the Office of Management and Budget under the Paperwork Reduction Act (44 U.S.C. 3501,et seq.).

Therefore, 48 CFR parts 216 and 252 are amended as follows:

Background

Regulations implementing the MSB Fishery Management Plan (FMP) appear at 50 CFR part 648, subpart B. Regulations governing foreign fishing appear at 50 CFR part 600, subpart F. The regulations at §§ 648.21 and 600.516(c) require that NMFS, based on the maximum optimum yield (Max OY) of each fishery, as established by the regulations, annually publish a rule specifying the amounts of the initial optimum yield (IOY), allowable biological catch (ABC), domestic annual harvest (DAH), and domestic annual processing (DAP), as well as, where applicable, the amounts for total allowable level of foreign fishing (TALFF) and joint venture processing (JVP) for the affected species managed under the FMP. In addition, these regulations allow specifications to be specified for up to 3 years, subject to annual review. The regulations at § 648.21 also specify that IOY forIllexandLoligosquid is equal to the combination of Research Set-Aside (RSA) and DAH, with no TALFF specified for squid. For butterfish, the regulations specify that a butterfish bycatch TALFF will be specified only if TALFF is specified for mackerel.

At its June 8-10, 2010, meeting in New York, NY, the Council recommended MSB specifications for the 2011 fishing year. The Council considered the recommendations made by its Monitoring Committee and Scientific and Statistical Committee (SSC). The SSC recommends ABC. SSC advice accounts for scientific uncertainty regarding stock status and biological reference points in recommending the ABC, and the Council relies on that ABC recommendation to set other specifications. In addition to 2011 specifications for each of the MSB species, the Council recommended a modification to the provision that transfers Trimester I quota underages to Trimesters II and III for theLoligofishery. The Council submitted these recommendations, along with the required analyses, for agency review on July 19, 2010, with final submission on September 23, 2010. A proposed rule for the 2011 MSB specifications and management measures was published on November 17, 2010 (75 FR 70187), and the public comment period for the proposed rule ended on December 17, 2010. Details concerning the Council's development of these measures were presented in the preamble of the proposed rule and are not repeated here.

This action implements the following MSB specifications and management measures for the 2011 fishing year, which are described in detail below.