On February 9, 2011, the Board issued its final rule to implement the provisions of section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”)1 that grant banking entities and nonbank financial companies supervised by the Board a period of time to conform their activities and investments with the prohibitions and restrictions imposed by that section on proprietary trading activities and on hedge fund and private equity funds activities. Subsequently, the Board received a number of requests for clarification of the manner in which this conformance period would apply to various activities and investments covered by the requirements of section 619 of the Dodd-Frank Act. The Board is issuing this interpretation to address this question.

As more fully explained in this statement, the Board confirms that banking entities by statute have two years from July 21, 2012, to conform all of their activities and investments to section 619, unless that period is extended by the Board. During the conformance period, banking entities should engage in good-faith planning efforts, appropriate for their activities and investments, to enable them to conform their activities and investments to the requirements of section 619 and final implementing rules by no later than the end of the conformance period. This may include complying with reporting or recordkeeping requirements if such elements are included in the final rules implementing section 619 and the agencies determine such actions are required during the conformance period.

Section 619 of the Dodd-Frank Act added a new section 13 to the Bank Holding Company Act (“BHC Act”) that imposes certain prohibitions and requirements on a banking entity2 and a nonbank financial company supervised by the Board3 that engages in proprietary trading and has certain interests in, or relationships with, a hedge fund or private equity fund (each a “covered fund”).4 As required by section 13(b)(2) of the BHC Act, the Board, the Office of the Comptroller of the Currency (“OCC”), Federal Deposit Insurance Corporation (“FDIC”), and Securities and Exchange Commission (“SEC”) in October 2011 invited the public to comment on proposed rules implementing that section's prohibitions and requirements.5 Those proposed rules may be found at 76 FR 68846et seq.(Nov. 7, 2011). The period for filing public comments on this proposal was extended for an additional 30 days, until February 13, 2012. On January 11, 2012, the CFTC requested comment on a substantially similar proposed rule to implement section13 of the BHC Act and invited public comment through April 16, 2012.6

Section 13(c)(6) of the BHC Act required the Board, acting alone, to adopt rules regarding the conformance periods for activities and investments restricted by section 13.7 The Board issued its final conformance rule (“Conformance Rule”) on February 9, 2011.8

After adoption by the Board of the Conformance Rule, a number of commenters on the interagency proposed rules to implement section 13 requested advice regarding the period of time a banking entity would have to conform its activities and investments to the requirements of section 13 and the implementing rules and whether certain activities would be prohibited prior tothe expiration of the conformance period.9 In particular, commenters sought confirmation that the Conformance Rule would allow a banking entity the full period permitted by statute to conform all of its investments and activities to section 13 and the final implementing rules. In addition, commenters sought confirmation that activities conducted and investments made during the conformance period would not be subjected to the requirements of the implementing rules during the conformance period.

Section 13 of the BHC Act generally provides that, unless the period for conformance is extended by the Board, a banking entity must conform its activities and investments to the prohibitions and requirements of that section and any final implementing rules no later than 2 years after the statutory effective date of section 13.10 The effective date of section 13 is July 21, 2012.11

As noted in the issuing release for the Conformance Rule and the legislative history of section 13, the conformance period for banking entities is intended to give markets and firms an opportunity to adjust to the prohibitions and requirements of that section and any implementing rules adopted by the agencies.12 Consistent with this purpose and the statute, the Conformance Rule provides each banking entity with a period of 2 years after the effective date of section 13 (i.e., until July 21, 2014) in which to fully conform its activities and investments to the prohibitions and requirements of section 13 and the final implementing rules, unless that period is extended by the Board (the “conformance period”). The Conformance Rule also provides a nonbank financial company supervised by the Board with 2 years after the date the company becomes a nonbank financial company supervised by the Board to comply with any applicable requirements of section 13 of the BHC Act, including any applicable capital requirements or quantitative limitations adopted thereunder, unless that period is extended by the Board.13

Under the Conformance Rule, all proprietary trading activity conducted by each banking entity must conform to the prohibitions and requirements of section 13 of the BHC Act and any final implementing rules by no later than the end of the conformance period. Similarly, all activities, investments and transactions with or involving a covered fund, including a covered fund organized and offered or sponsored by the banking entity, must conform to section 13 of the BHC Act and final implementing rules by no later than the end of the relevant conformance period.

During the conformance period, every banking entity that engages in an activity or holds an investment covered by section 13 is expected to engage in good-faith efforts, appropriate for its activities and investments, which will result in the conformance of all of its activities and investments to the requirements of section 13 of the BHC Act by no later than the end of the conformance period. This includes evaluating the extent to which the banking entity is engaged in activities and investments that are covered by section 13 of the BHC Act, as well as developing and implementing a conformance plan that is as specific as possible about how the banking entity will fully conform all of its covered activities and investments with section 13 of the BHC Act and any final implementing rules by July 21, 2014, unless that period is extended by the Board. These good-faith efforts should take account of the statutory provisions in section 13 of the BHC Act as they will apply to the activities and investments of the banking entity at the end of the conformance period as well as any applicable implementing rules adopted in final by the primary financial regulatory agency for the banking entity. Good-faith conformance efforts may also include complying with reporting or recordkeeping requirements if such elements are included in the final rules implementing section 13 of the BHC Act and the agencies determine such actions are required during the conformance period.

Nothing in this guidance restricts in any way the authority of any agency to use its supervisory or other authority to limit any activity the agency determines to be unsafe or unsound or otherwise in violation of law.

I. Background A. HERA Requirements

Effective July 30, 2008, HERA, Public Law 110-289, 122 Stat. 2654 (2008), created FHFA as an independent agency of the Federal Government and transferred to it the supervisory and oversight responsibilities over the regulated entities formerly vested with the Office of Federal Housing Enterprise Oversight (OFHEO) and the Federal Housing Finance Board (Finance Board). Section 1108 of HERA also added a new section 1313B to the Safety and Soundness Act, which requires the FHFA Director to establish standards that address 10 separate areas relating to the management and operation of the regulated entities, and authorizes the Director to establish the standards by regulation or by guideline. 12 U.S.C. 4513b. Those 10 areas relate to: Adequacy of internal controls and information systems; adequacy and independence of the internal audit systems; management of interest rate risk; management of market risk; adequacy of liquidity and reserves; management of growth in assets and in the investment portfolio; management of investments and acquisition of assets to ensure that they are consistent with the purposes of the Safety and Soundness Act and the regulated entities' authorizing statutes;1 adequacy of overall risk management processes; adequacy of credit and counterparty risk management practices; and maintenance of records that allow an accurate assessment of the institution's financial condition. 12 U.S.C. 4513b(a)(1)-(10). Section 1313B(a) also specifically authorizes the Director to establish other appropriate management and operations standards. 12 U.S.C. 4513b(a)(11).

Section 1313B(b)(1) addresses the possible consequences for a regulated entity that fails to meet any of the Standards, and provides that the Director “shall require” the regulated entity to submit a corrective plan if the Standards have been adopted by regulation and “may require” the regulated entity to submit a corrective plan if the Standards have been adopted as guidelines. 12 U.S.C. 4513b(b)(1)(A). If a regulated entity is required to submit a corrective plan to FHFA, it must do so within thirty (30) days after the Director determines that it has failed to meet any Standard. That plan must specify the actions that the regulated entity will take to conform its practices to the requirements of the Standards. 12 U.S.C. 4513b(b)(1). FHFA generally must act on such plans within thirty (30) days after receipt. 12 U.S.C. 4513b(b)(1)(C)(ii).

Section 1313B(b)(2) also addresses the possible consequences for a regulated entity that fails to submit an acceptable plan within the required time period or that fails in any material respect to implement a corrective plan that the Director has approved. In those cases, the Director must order the regulated entity to correct the deficiency. 12 U.S.C. 4513b(b)(2)(A). The Director also has the discretionary authority to order further sanctions, including limits on asset growth, increases in capital, or any other action the Director believes will better carry out the purposes of the statute, until the regulated entity meets the Standard. 12 U.S.C. 4513b(b)(2)(B). Although the imposition of those additional sanctions generally is a matter of discretion for the Director, if a regulated entity that has failed to submit or implement a corrective plan also has experienced “extraordinary growth” within the preceding 18 months, the Director is then required to impose at least one of those additional sanctions. The remedial powers that the Director may invoke under the prudential standards provisions are not exclusive, and section 1313B(c) expressly preserves the Director's right to exercise any other supervisory or enforcement authority available under the Safety and Soundness Act. 12 U.S.C. 4513b(c).

On June 20, 2011, FHFA proposed a rule to establish the Standards as guidelines, which were set out in an appendix to the proposed rule.2 The proposal included other provisions relating to procedures for FHFA to notify a regulated entity of its failure to meet the Standards and the possible consequences for doing so. The proposed rule did not subject the Banks' Office of Finance (OF) to the prudential standards regime because several of the Standards address matters that are not relevant to the OF, such as those relating to interest rate, market and credit risks, and investment portfolio growth, and because the relevant HERA provisions did not require the inclusion of the OF. The same is true with respect to the statutory sanctions for noncompliance with the Standards, which include limits on asset growth and mandatory increases in capital.

Section 1313(f) of the Safety and Soundness Act, as amended by HERA, requires the Director, when promulgating regulations relating to the Banks, to consider differences between the Banks and the Enterprises (Fannie Mae and Freddie Mac) with respect to the Banks' cooperative ownership structure; mission of providing liquidity to members; affordable housing and community development mission; capital structure; and joint and several liability. In preparing this final rule, the Director considered the differences between the Banks and the Enterprises as they relate to the above factors, and determined that the rule is appropriate.

In developing the proposed rule, FHFA differentiated between the Banks and the Enterprises in defining “extraordinary growth” by excluding Bank advances from the calculation of extraordinary growth. The proposed standards also included provisions relating to market value of equity and par value of capital stock, which applied only to the Banks. Those provisions recognized the Banks' mission of providing liquidity to members through advances, as well as their unique capital structure. As discussed below in Section II.B.2. of this final rule, FHFA has further refined the definition of extraordinary growth in response to the Banks' comments by using a longer-term six calendar quarter period as the basis for measuring such growth. The revised definition should make it less likely that the short-termfluctuations in non-advance assets that occur between the time that a member repays an advance and the time that a Bank redeems or repurchases the underlying capital stock will be deemed to constitute extraordinary growth.

FHFA considered the Banks' request for different treatment in other areas as well. The Banks, in their joint comment letter (Joint Bank Letter), cited the importance of advances to the Banks' mission and the history of no credit-default on advances in support of their request to be exempted from § 1236.5(a)(1) of the proposed rule, which allows FHFA, among other things, to prohibit a regulated entity from increasing its average total assets if it fails to submit a corrective plan or fails to comply with an approved corrective plan. The Banks raised that same argument with respect to certain requirements under Standard 9 relating to credit concentration.3 With respect to § 1236.5(a)(1) of the proposed rule, that provision included a cross-reference to a statutory definition of “total assets,” located at 12 U.S.C. 4516(b)(4), because the Safety and Soundness Act explicitly mandates that FHFA use that definition in determining a regulated entity's “total assets” for purposes of imposing any growth limitations under the remedial provisions of § 1236.5(a). The Banks contended that the statutory definition of total assets in 12 U.S.C. 4516(b)(4) should not apply to them because that provision on its face applies only to the Enterprises. Although that is technically true, the HERA provision mandating the establishment of the prudential standards, 12 U.S.C. 4513b(b)(2)(B)(i), explicitly incorporates that definition into the prudential standards regime, which effectively extends that definition to the Banks for purposes of this final rule. Moreover, that definition, which includes only a regulated entity's on-balance sheet assets, any mortgage-backed securities that it has issued or guaranteed, and any off-balance sheet obligations permitted by FHFA, can readily be applied to the Banks. Accordingly, FHFA has determined not to treat the Banks any differently from the Enterprises for purposes of the definition of “total assets,” as used in § 1236.5(a)(1). With respect to the comments about credit concentration, FHFA has determined that § 1236.5(a)(1) could serve as an effective and necessary remedy in appropriate circumstances without jeopardizing the Banks' mission. Furthermore, the absence of any history of defaults on advances does not guarantee that future defaults would not occur. Therefore, FHFA did not adopt these suggestions in the final rule.

In this final rule, FHFA establishes the Standards, which are attached in an Appendix, as guidelines, as is authorized by 12 U.S.C. 4513b(a). By adopting the Standards as guidelines, rather than as regulations, the Director may modify, revoke, or add to any one or more of them at any time by order and without undertaking a notice and comment rulemaking. The final rule also establishes certain procedures related to the Standards, and sets out the processes by which FHFA can notify a regulated entity of its failure to operate in accordance with the Standards and can direct the entity to take corrective action. The final rule also specifies the possible consequences for any regulated entity that fails to operate in accordance with the Standards or otherwise fails to comply with this part.

In adopting the final rule, FHFA considered the four comment letters received in response to the proposed rule. The twelve Banks jointly submitted one comment letter, and individual letters were received from Fannie Mae (Fannie Letter), Freddie Mac (Freddie Letter), and the Mortgage Insurance Companies of America (MICA Letter). FHFA adopted some of the commenters' recommendations, in some instances making changes to the language of several rule provisions and Standards, and in other instances providing clarification in theSupplementary Information.

In response to certain comments regarding the inclusion within many of the proposed Standards of references to the responsibilities of the boards and management, FHFA has made two principal revisions to the Standards. First, FHFA has created an introductory section to the Standards, entitled “General Responsibilities of the Board of Directors and Senior Management.” Second, FHFA has revised the Standards to remove many of the references to specific obligations of the board and management from the individual standards.

The introductory section does not constitute a separate Standard, and thus does not impose any additional requirement on the regulated entities. Instead, this section is intended to recite, in the context of the regulated entities and the Standards generally, common concepts of corporate governance that would be typical for the board and management of any financial institution. The introductory section also contains a reminder that the specified responsibilities found in the Standards are not a comprehensive listing of the responsibilities of either the boards of directors or senior management, each of whom have additional duties and responsibilities to those described in the Standards. The streamlining of certain principles under the other Standards is designed to simplify them and eliminate repetition. The final rule also makes several clarifying non-substantive changes to the wording of certain principles of the Standards and to the text of §§ 1236.1, 1236.3(b), 1236.4(b), and 1236.5(b) and (c). With those exceptions, the overall approach to establishing the Standards used in the proposed rule remains the same in the final rule.

The following discussion of the comments is divided into two sections. The first section discusses three comments that are general in nature. These comments relate to the definition of extraordinary growth, corporate governance and the role of boards of directors of regulated entities, and potential conflicts between the Standards and existing FHFA regulations, including those of the Finance Board and OFHEO that remain in effect. The second category consists of comments that relate to specific provisions of the proposed rule or Standards. For ease of reference, in discussing the comments on the specific principles that make up each Standard, FHFA refers to each principle using the number given to the principle in the proposed rule. Other than the modifications discussed in this section, FHFA is adopting the rule and Standards as proposed.

The Banks and the Enterprises both believe that the language of several Standards can be read as placing on boards of directors of regulated entities responsibilities that are above and beyond the fiduciary duties typically imposed by existing corporate law. They also believe that the proposed rule may be interpreted in a manner that distorts the conventional distinction between the respective roles of boards of directors and senior management.4

In response to these comments, FHFA has modified the Standards in a manner that clarifies the duties of the boards of directors but still preserves the intent of the Standards. As previously noted,FHFA has also streamlined and combined many of the principles relating to responsibilities of boards of directors and imported certain universally applicable concepts from the individual Standards into the new introductory section of the Standards. FHFA notes that boards of directors of regulated entities are ultimately responsible for overseeing the operations of a regulated entity and are expected to understand and remain informed about the nature of the risks faced by a regulated entity, and to have in place appropriate policies and controls to manage those risks. FHFA did not intend to suggest in the proposed rule that the boards of directors must effectively assume the duties of senior management, such as by becoming involved in the day-to-day operations of the entity, in order to carry out their oversight responsibilities.

The proposed rule included separate definitions of “extraordinary growth” for the Banks and for the Enterprises.5 For the Enterprises, “extraordinary growth” was defined to mean, for a given calendar quarter, quarterly non-annualized growth of assets in excess of 7.5 percent, with such growth occurring within the 18-month period preceding the date on which FHFA notified the Enterprise that it must submit a corrective plan to address a failure to operate in accordance with the Standards. For the Banks, the definition was the same except that it was based on the growth of “non-advance assets” rather than total assets. The Banks suggested expanding the definition of “extraordinary growth” in § 1236.2 of the proposed rule to include a 20 percent annualized combined six calendar quarter growth threshold in addition to the quarterly 7.5 percent threshold proposed by FHFA.6

The Banks argued that, due to the mechanics and time lags in the repayment of advances and redemption of capital stock, short-term quarterly fluctuations in non-advance assets are common and can distort the results of the 7.5 percent test. In support of their contention, the Banks stated that as of the date of their letter, 9 of the 12 Banks would have been considered to be experiencing extraordinary growth, as defined by the proposed rule. The Banks believed that implementing an additional threshold of 20 percent annualized growth over the entire six calendar quarter look-back period would resolve their issue.7 After careful consideration of the Banks' comment and conducting its own analysis, FHFA is persuaded that the proposed definition of extraordinary growth for the Banks could have resulted in Banks being deemed to have experienced extraordinary growth based on short-term fluctuations in their non-advance assets that should not necessarily be deemed to have been extraordinary, given the cooperative business model of the Banks. Accordingly, in the final rule FHFA is eliminating the 7.5 percent threshold for the Banks and replacing it with a threshold of 30 percent non-annualized growth in non-advance assets over the entire six calendar quarter look-back period.8

The look-back trigger date for the determination of extraordinary growth is the date on which FHFA notifies a regulated entity that it has failed to operate in accordance with the Standards and must submit a corrective plan. In order to accommodate situations where the trigger date occurs in the middle of a calendar quarter, FHFA is interpreting the look-back period to be the six full calendar quarters9 immediately prior to the trigger date. For example, if FHFA notifies an Enterprise on September 15, 2012 that it must submit a corrective plan, the relevant six calendar quarters over which the extraordinary growth calculation would be made would be the first two quarters of 2012 and all four quarters in 2011. If the Enterprise had asset growth of more than 7.5 percent in any of those quarters, it would be deemed to have experienced extraordinary growth. For a Bank, utilizing the same dates, if its non-advance assets grew more than 30 percent from January 1, 2011 (the beginning of the first quarter of 2011) to June 30, 2012 (the end of the second quarter of 2012), it would be deemed to have experienced extraordinary growth.

FHFA received the following additional comments with respect to the definition of extraordinary growth. The Banks' letter asked that FHFA apply the extraordinary growth test prospectively, such that only asset growth occurring after the effective date of the final rule would be considered.10 The Freddie Letter asked that FHFA follow the approach of the federal banking agencies, in which the definition would only apply to regulated entities that are not in the highest capital classification. The Freddie Letter also asked that, for the Enterprises, assets be measured using the criteria specified in determining compliance with the portfolio limit covenant of the Senior Stock Purchase agreement with the Department of the Treasury.11 Both Freddie and the Banks also advocated for the creation of a process by which a regulated entity could challenge FHFA's finding of extraordinary growth. The Banks also argued that FHFA should be required to submit its numerical analysis to the regulated entity to support its finding of extraordinary growth.12

Applying the extraordinary growth test using only asset growth that would occur after the effective date of the final rule would unduly delay the operation of that portion of the rule for at least 18 months, which FHFA does not believe is necessary given the revisions that it has made to the definition of extraordinary growth with respect to the Banks. FHFA also believes that modifying the definition of extraordinary growth with respect to the Enterprises to incorporate the portfolio limit covenant of the Senior Stock Purchase agreement is not appropriate. Under that covenant, the Enterprises are required to reduce their “mortgage-related investments portfolios” by 10 percent per year until reaching a specified limit, and FHFA does not believe that such a provision is appropriate for measuring growth of the Enterprises. With respect to limiting the application of extraordinary growth to those entities that are not in the highest capital classification, FHFA is not persuaded that the standards used for depository institutions are necessarily well-suited to the regulated entities, and the Safety and Soundness Act does notmandate that the definition be limited in that manner. Moreover, the Standards address matters other than capital adequacy, and it is possible that an adequately-capitalized entity may fail to operate in accordance with the Standards. Lastly, FHFA does not believe that it is appropriate to include a method to contest a determination of extraordinary growth or to require FHFA to submit numerical analysis to justify a finding of extraordinary growth, as both steps would unduly delay the administration of the rule and remedies for failures to meet the Standards. Also, given that FHFA has revised the definition of extraordinary growth for the Banks, they should be able to assess FHFA's determination based on the data in their own call reports.

The Banks believed that certain Standards conflict or overlap with other existing regulations, particularly the remaining regulations of the Finance Board.13 As noted when this rule was proposed, FHFA intends to review all of its regulations, as well as those of the Finance Board and OFHEO as it incorporates them into the FHFA regulations, to ensure conformity and eliminate conflicts and overlap. To address any potential issues that may arise until such review is completed, FHFA is amending § 1236.3 of the proposed rule to provide that in cases of a direct conflict between a Standard and an FHFA regulation (including Finance Board and OFHEO regulations that remain in effect pursuant to sections 1302 and 1312 of HERA), the regulation would control. Additionally, in such cases, a regulated entity would not be held accountable for failing to meet the Standard and the remedial provisions in §§ 1236.4 and 1236.5 relating to the failure to meet a Standard and the submission and implementation of a corrective plan would not apply. FHFA notes that in cases where it is possible for a regulated entity to comply with both a Standard and a regulation, such as when there is substantial overlap or when a Standard is more stringent than a regulation, FHFA does not consider this to be a direct conflict and expects regulated entities to comply with both the Standard and the regulation.

The Banks have requested that FHFA provide the opportunity for notice and comment on any future changes to the Standards and afford regulated entities at least a 90-day grace period to conform with such changes.14 The proposed rule would have allowed FHFA to update the Standards by order, as necessary to incorporate changes in best practices and to address particular supervisory concerns. That approach is clearly contemplated by the HERA amendments, which authorize the Director to adopt the Standards as regulations, which require formal notice and comment, or as guidelines, which do not. Although the final rule does not require the Director to go through a rulemaking process to amend the Standards, it does allow the Director the flexibility to seek public comment on particular changes to the guidelines, as the Director deems to be appropriate. FHFA believes that the decision to exercise the flexibility to seek public comment and to provide a grace period for regulated entities to align their practices with new or revised guidelines is best addressed on a case-by-case basis when future changes are proposed.

The Banks have requested that in making any finding of a failure to meet a Standard pursuant to § 1236.4(a), FHFA identify the relevant Standard and the basis for the determination. The Banks' letter also requests that FHFA create a process for a regulated entity to contest a finding of failure to meet a Standard, and a safe-harbor provision for a good faith effort to meet a Standard.15 FHFA has added language to § 1236.4(b) of the final rule that would provide that the written notice that FHFA must provide to any regulated entity that is required to submit a corrective plan must inform the regulated entity of FHFA's determination. By adding that language, FHFA intends that any such notice would clearly identify the Standard and the substance of the regulated entity's failure to meet it. However, FHFA does not believe that the creation of a process to contest a finding of failure to meet a Standard is appropriate because it would unduly delay the remediation of the underlying problem and hinder FHFA's ability to carry out its oversight responsibilities. Furthermore, such a process is not required by statute. Unlike a violation of a statute or a regulation that has been adopted with force and effect of law, a regulated entity's failure to meet a Standard that has been adopted as a guideline would likely not trigger FHFA's administrative enforcement authority. Instead, a failure to meet a Standard would, in the absence of any other violation or unsafe or unsound conduct, trigger only those remedies provided by HERA with respect to the prudential standards regime.

Section 1236.4(c) addresses the contents and filing requirements relating to a corrective plan. One provision of the proposed rule implemented a statutory provision, which provides that a regulated entity that is undercapitalized and is required to submit a capital restoration plan may submit the corrective plan required under these regulations as part of the capital restoration plan. 12 U.S.C. 4513b(b)(1)(B). Section 1236.4(c)(2)(ii) of the proposed rule carried over the substance of the statutory provision, providing that a regulated entity that is required to file a capital restoration plan may, with the permission of FHFA, submit a corrective plan as part of the capital restoration plan. The proposed rule also expanded on the statutory authorization by allowing a regulated entity to submit its corrective plan as part of its response to any cease-and-desist order, agreement with FHFA, or a report of examination or inspection. The Banks have requested that FHFA remove the requirement for obtaining FHFA permission in order for a regulated entity to file its corrective plan as part of some other submission.16 In the final rule, in order to be consistent with the statutory language, FHFA is removing the requirement that a regulated entity obtain FHFA's permission before combining its corrective plan with a capital restoration plan. However, FHFA notes that in certain cases, a capital restoration plan and a corrective plan may well have little in common to justify their combination or may present matters that must be addressed on different timeframes. For example, a corrective plan will set out the actions that a regulated entity plans to take in order to conform its practices to one or more of the prudential standards and the timeframe for doing so. A capital restoration plan will address matters relating to the capital adequacy and may present issues of more compelling urgency that must be addressed before any other supervisory matters. In anycases where combining a corrective plan and capital restoration plan would not be effective, FHFA may decline to consider a corrective plan as part of a capital restoration plan. Because the HERA amendments are permissive in nature, providing that a regulated entity “may” submit a corrective plan as part of a capital restoration plan, FHFA believes that it need not consider the two plans together if it believes there are valid supervisory reasons for evaluating them separately. Thus, FHFA expects that any undercapitalized entity that is contemplating submitting combined plans should first consult with FHFA to determine whether it would have any supervisory reasons for objecting to that approach. Furthermore, for similar reasons as stated above, FHFA has retained the requirement that a regulated entity obtain FHFA's permission before combining its corrective plan with another type of response to a supervisory action because FHFA believes that the discretion on whether it is desirable to combine a corrective plan with another type of response to a supervisory action, other than a capital restoration plan, must remain with FHFA. FHFA has made clarifying revisions to § 1236.4(c)(2)(ii), which make clear that while it may be possible for a regulated entity to submit a corrective plan as part of a capital restoration plan, the corrective plan would not be “part of” a cease-and desist order, formal or informal agreement, or examination, even if it were to be submitted as part of a regulated entity's compliance with any such order, agreement, or response to an examination.

Section 1236.4(e) addresses the period of time within which FHFA must act in response to the submission of a corrective plan. As a general matter, within thirty (30) calendar days of its receipt of a corrective plan, FHFA must notify the regulated entity of its decision on the plan (i.e.,approval or denial), or of its need for additional information, or of its decision to extend the review period beyond thirty (30) calendar days. The Banks' letter requests that the decision to extend the review period be communicated in writing.17 FHFA is revising § 1236.4(e) to adopt this suggestion.

The underlying statute sets forth certain actions that FHFA may take if a regulated entity has failed to timely submit an acceptable corrective plan or has failed to implement or otherwise comply with an approved corrective plan in any material respect. At a minimum, the Director must order the regulated entity to correct that deficiency. The Director also has the discretion under the statute to place limits on asset growth, require increases to capital, limit dividends and stock redemptions or repurchases, or require a minimum level of retained earnings, or take any other action that the Director deems would better carry out the purposes of the prudential standards statutory regime. 12 U.S.C. 4513b(b)(2)(B). The statute further provides that, if a regulated entity that has failed to submit or implement a corrective plan also has experienced “extraordinary growth” over the 18-month period preceding its failure to meet the Standards, the Director must impose at least one of the remedies listed above. Section 1236.5(a) and (b) of the proposed rule largely carried over those statutory requirements into the final rule.

Freddie Mac's letter requests that materiality be factored into any determination of non-compliance with a corrective plan, and seeks clarification that any other remedy that the Director decides to impose must be deemed to be more effective than the five remedies listed in § 1236.5(a).18 The Banks' letter requests that a regulated entity be afforded an opportunity to modify a corrective plan deemed unacceptable instead of being penalized for a failure to submit an acceptable plan.19 In response to Freddie Mac's comment, FHFA is revising § 1236.5(a) to add in the words “in any material respect” in relation to a regulated entity's failure to implement an approved corrective plan, and is revising § 1236.5(a)(6) to include language that any “other actions” that the Director may order must “better carry out” the purposes of the statute, as that proviso also appears in the statute. FHFA also notes that it does not intend to penalize regulated entities that in good faith submit corrective plans that require modifications in order to be accepted by FHFA. FHFA would not deem a plan unacceptable unless a regulated entity fails to promptly modify it to provide for acceptable remediation, or submits a plan that is so significantly insufficient that it does not appear to be realistically susceptible of acceptable modification through the normal processes of discussion between a regulator and the regulated entity. With respect to the “other actions” that the Director may take under § 1236.5(a)(6), FHFA does not interpret the “better carry out” proviso as requiring that any such “other action” must be taken in lieu of the enumerated remedies. Rather, FHFA believes that the proviso authorizes the Director to combine one or more of the enumerated remedies with any “other action” that the Director determines will better enable FHFA to ensure that the entity operates in accordance with the Standards.20

Under § 1236.5(c)(1), FHFA generally will notify a regulated entity that has failed to submit or implement a corrective plan of its intent to issue an order requiring the regulated entity to take corrective action. However, if the circumstances so require, § 1236.5(c)(4) provides that FHFA need not provide advance notice and may instead require a regulated entity immediately to take or refrain from taking actions to correct its failure to meet one or more of the Standards. Within fourteen (14) calendar days of the issuance of such an immediately effective order, unless otherwise specified by FHFA, a regulated entity may appeal the order in writing. FHFA will act on an appeal within sixty (60) days, during which time the order will remain in effect unless FHFA stays its effectiveness.

The Banks have requested that FHFA clarify the circumstances under which the Director may invoke the provision in § 1236.5(c)(4) and issue an immediately effective order. The Banks also believe that the sixty (60) days granted to FHFA to act on an appeal is too lengthy, especially when compared to the fourteen (14) days granted to a regulated entity to appeal an immediately effective order.21 FHFA believes that it is impractical to specify in advance all of the circumstances under which an immediately effective order might be necessary, and that the rule must allow the Director sufficient latitude to respond to various types of circumstances that may require immediate corrective action. Furthermore, FHFA believes that the safeguards provided by the appeal process, including the proposed time frames, as proposed, are appropriate.

The Banks and Freddie Mac both requested revisions to Standard 1,believing that the scope of Principle 2 of proposed Standard 1, which requires the board of directors of a regulated entity to review and approve the overall business strategy and significant policies of the regulated entity, is overly broad. The Banks' letter suggests that the term “significant policies” should be defined only as internal controls that must be approved by the audit committee under the Sarbanes-Oxley Act, while Freddie Mac's letter suggests that the principle be limited to corporate governance rules of the national securities exchanges where a regulated entity's securities are listed.23 FHFA believes that having board-approved business strategies and significant policies are a key starting point for having effective internal controls and that narrowing the scope of Principle 2 in the manner suggested would unnecessarily weaken the effectiveness of the principle.24

Freddie Mac's letter states that proposed Principle 3, which requires the board of directors of a regulated entity to approve the entity's organizational structure, is too vague and overly burdensome. Freddie suggests either eliminating the principle or limiting its scope.25 FHFA disagrees with Freddie Mac's assessment and believes that, as drafted, the principle is an appropriate means to ensure that regulated entities have appropriate organizational structures that are part of a robust internal control function.26

In their letter, the Banks argue that the requirement to have a formal self-assessment process to monitor internal controls under proposed Principle 12 is redundant in light of the fact that the Banks must comply with Sarbanes-Oxley Act requirements relating to internal controls.27 However, the scope of Principle 12 is broader than the scope of the Sarbanes-Oxley requirements, as those requirements address internal controls for financial reporting, whereas Principle 12 is designed to address all types of internal controls. Therefore, FHFA does not believe that Principle 12 is redundant and is adopting it as proposed.28

The Banks have requested that proposed Principle 5, relating to internal audit systems, use the term “testing” instead of “monitoring” because the Banks believe that audits are designed to test and not provide ongoing monitoring.29 Freddie Mac believes that the term “internal audit system” should be changed to “internal audit function” to avoid any suggestion that “system” means a fully automated system.30 FHFA is adopting both of these suggestions. In addition, FHFA is changing proposed Principle 10, in response to a comment by the Banks, to clarify the scope of the responsibilities of the internal audit department. This revision removes a requirement that the audit department must “ensure” that certain violations or findings are satisfactorily resolved because the auditors do not have operational responsibilities and thus cannot act to “resolve” the underlying matters. As revised, the Standard requires the audit department to determine whether the responsible parties within the organization have addressed the violations or findings.

Fannie Mae believes that proposed Principle 1, relating to market risk exposure, is redundant because proposed Principle 7, which requires the board of directors or a committee of the board to review risk exposures periodically, and proposed Principle 6 under Standard 8, which requires, among other things, that the board of directors and senior management be provided with accurate and timely reports on market risk exposure, sufficiently address the issue of market risk.31 FHFA believes that proposed Principle 1 is broader and different in focus than the other principles cited by Fannie Mae and should not be repealed. However, in an effort to streamline the board of responsibility requirements, the substance of proposed Principles 2, 3, 4, 5, 6, and 7 have been merged into final Principles 2 and 3 and certain concepts have been relocated to parts 1 and 4 of the general responsibilities section.

Proposed Principle 11 requires senior management to ensure that a regulated entity's policies and procedures identify remedial actions to be taken in the event that market risk limits are violated. The Banks argue that a particular future remedial action to be taken in response to a violation of the market risk limitations cannot be predetermined, and thus should not be required to be stated in their policies and procedures.32 In response to the comment, FHFA has revised the principle to require that if a market risk limit is breached, the board of directors must ensure that appropriate remedial action is taken.33 The Banks' letter asks FHFA to clarify that under proposed Principle 12, which requires senior management to keep the board of directors sufficiently informed about market risk exposures, satisfactory monitoring by the board would generally include periodic monitoring of established market risk tolerances and limits and exception-based reporting.34 Although the actions identified by the Banks' letter may well be part of an acceptable process for identifying and managing market risk exposure, FHFA does not believe that it would be appropriate to specify that these particular actions would be sufficient to demonstrate compliance with the Standard. Because the level of market risk may vary from regulated entity to regulated entity, FHFA believes that the language of the proposed standard, which requires that the information provided to the board be sufficient for it to meaningfully assess market risk exposures, is a better approach. Accordingly, the final rule does not include the requested change. FHFA has, however, streamlined proposed Principles 3, 4, 5, 8, 9, 10, 12 and 13 (which are now final Principles 3, 5, 6) and moved certain concepts to items 4, 6, and 8 of the general responsibilities section of the Standards.

Proposed Principle 3 requires that a regulated entity's market riskmeasurement system be capable of valuing all financial assets and liabilities in the entity's portfolio. The Banks' letter requests further clarification of the terms “financial assets and liabilities.”35 FHFA believes that these terms are widely understood and do not require additional clarification.

Proposed Principle 1 of this Standard requires a regulated entity's board to approve, at least annually, all major strategies and policies governing liquidity and reserves. The Banks' letter notes that Finance Board regulations § 917.3(a)(2) and 917.3(b)(3)(iii) require the boards of directors of the Banks to review the risk management policy annually and re-adopt such policy at least every three years, which the Banks view as a direct conflict.36 FHFA does not believe that the regulations directly conflict with Principle 1 because the annual approval contemplated by the Standard would satisfy the requirement that the boards re-adopt policies at least every three years. However, FHFA has streamlined proposed Principles 1 and 2 into final Principle 1, streamlined proposed Principles 3 and 4 into final Principle 2, and relocated some of the requirements to parts 1 and 2 of the general responsibilities section of the Standards.

Proposed Principle 2 generally requires the board of directors to establish policies governing asset and investment growth, including limits on growth of mortgage loans and mortgage-backed securities. The Banks asked that FHFA revise this provision to make clear that it is not intended to apply to the growth of advances or letters of credits by the Banks.37 FHFA has decided not to make any changes to the text of the principle to exempt advances and standby letters of credit from these requirements because it believes that the Banks should monitor growth in those products to ensure that the Banks are not taking any undue risks. That said, the requirement that the Banks must have policies relating to growth in advances and letters of credit does not mean that the Banks must establish numerical limits for those products. Instead, it would be sufficient for the Banks to have policies that link growth in advances and letters of credit to factors such as the financial condition of the members, the amount and quality of the collateral, the members' collateral management practices, and prudent underwriting standards. FHFA notes that it has combined proposed Principles 1 and 2 into final Principle 1; streamlined proposed Principles 3 and 4 (renumbered as final Principles 2 and 3); moved certain concepts in proposed Principles 1, 2, and 3 to items 1, 2, and 5 in the general responsibilities section of the Standards; and reorganized the subheadings in Standard 6.

Proposed Standard 7 implements a statutory requirement that FHFA adopt Standards that relate to a regulated entity's “investments and acquisitions of assets” to ensure that they are consistent with the regulated entity's chartering statute and the Safety and Soundness Act. Several principles under Standard 7 utilize the terms “investments” and “other assets,” neither of which is defined, and Freddie Mac has asked that FHFA clarify the meaning of “other assets.”38 FHFA considers “investments” to mean all assets held by the regulated entity for the purpose of yielding a return but that are not related to its core mission as a GSE. In the case of the Banks, “investments” would include things such as federal funds sold, repurchase agreements, and investment securities. In the case of the Enterprises, investments would include things such as federal funds and investment securities. “Other assets” are all assets held by the regulated entity other than “investments,” including mission related assets such as advances and acquired member assets in the case of the Banks and mortgage loans in the case of the Enterprises. FHFA notes that the final rule has streamlined proposed Principles 1 and 2 into final Principle 1 and replaced a subheading within Standard 7.

The final rule revises proposed Principle 11 (renumbered as final Principle 5) to state that the chief risk officer should report directly to both the chief executive officer and the risk committee of the board of directors. This change is being made to conform proposed Principle 11 to the recommended practices issued by other financial regulators.39 The final rule also combines proposed Principles 1 through 4 into final Principle 1 and proposed Principles 5 through 8 into final Principle 2 and certain concepts from these principles have been relocated to items 2 and 4 of the general responsibilities section of the Standards.

In light of a pending joint rulemaking on derivative instruments by the Commodity Futures Trading Commission (“CFTC”) and the Securities and Exchange Commission (“SEC”), the Banks' letter requests that FHFA suspend proposed Principle 2, relating to policies and procedures for the use of derivative instruments, until the completion of the CFTC and SEC rulemaking.40 FHFA has decided not to suspend this principle until the joint rulemaking is complete because the Banks currently use derivative instruments and should already have appropriate derivative policies in place, even in the absence of final rulemaking by the CFTC and SEC. FHFA expects that those policies will need to be modified after the issuance of final rules by the CFTC and SEC relating to the use of clearinghouses and exchanges for derivatives trades.41

Proposed Principle 442 requires senior management to brief the board regularly on a regulated entity's credit exposure including, among other things, “problem credits,” and proposed Principle 10 requires entities to have policies for addressing such “problem credits.” The Banks' letter requests that FHFA exclude advances from the scope of the term “problem credits” because the Banks have never sustained any credit losses on advances. The Banks further argue that the programs that they currently have in place to assess, monitor, measure, and report credit risk are sufficient.43 As previously noted, the historical absence of credit losses on advances does not guarantee that there will be no future losses and does not justify excluding advances from the scope of Principles 4 and 10.44

The Banks again cite the historical absence of credit losses on advances to argue that proposed Principle 5(renumbered as final Principle 3), which requires a regulated entity to have policies that limit concentrations of credit risk and systems that can identify such concentrations, should not apply to them.45 For the same reasons discussed in the previous paragraph, FHFA believes that proposed Principle 5 should apply to all regulated entities. Concentrations of credit risk for the Banks may be present in their advances business as well as in other areas of their business, such as extensions of unsecured credit and derivatives transactions, as well as the investment portfolio. The existence of those other sources of risk requires that the Banks have systems in place that can identify such concentration of risk, as well as policies to limit those concentration risks. Although the secured nature of advances and the lien priority that is afforded to the Banks lessen the risks to a Bank resulting from a concentration of advances to certain borrowers, the risks exist and the Banks should have in place policies for addressing them. Given the unique nature of advances and the Banks' cooperative business model, FHFA expects that a Bank's policies and limits relating to concentrations arising from its advances business may well differ from those relating to concentrations arising from other sources.

MICA's letter suggests that FHFA expand proposed Principle 8 (renumbered as final Principle 6) to not only require that regulated entities have procedures and policies in place to make informed credit decisions at the outset, but to also require that such procedures are employed on an ongoing basis and include the use of back-testing to ensure that the initial credit decisions are validated and to reveal any need for further improvement in credit-risk protocols.46 FHFA does not believe that the extra procedures requested by MICA are necessary at this time.

Proposed Principle 11 (renumbered as final Principle 9) requires a regulated entity to have a system of independent, ongoing credit review, including stress testing and scenario analysis. The Banks' letter seeks clarification of the scope of the term “independent ongoing credit review.”47 In response to the comment, FHFA is revising Principle 11 to more specifically identify the type of ongoing credit review program envisioned by this principle.

In response to a comment from the Banks, FHFA is changing the term “records management plan” to “record retention program” in proposed Principle 348 to better align it with the terminology of part 1235 of the FHFA regulations (12 CFR part 1235), which addresses record retention requirements for the regulated entities.49 In response to a comment from Freddie Mac, FHFA is modifying proposed Principle 4 to make it clear that the scope of the records management plan includes all records and not just the records of the board of directors.50 Lastly, in response to a comment by the Banks requesting clarification as to what type of “reporting errors” or “irregularities” must be detected and corrected, FHFA is revising proposed Principle 5 to delete the term “irregularities.”51 FHFA believes that the term “reporting errors” is sufficiently clear. The final rule also deletes the subheading that appears before proposed Principle 6.

As discussed previously, the final version of the Standards includes an introductory section dealing with the general responsibilities of the boards and management of the regulated entities. That new section consists of the following three parts: Responsibilities of the board of directors, responsibilities of senior management, and joint responsibilities of the board and senior management. Each section is compiled from concepts that had been included as part of the Principles under most of the 10 proposed Standards. FHFA believes that grouping these generally applicable board of directors and senior management responsibilities in an introductory section, rather than dispersing them over 10 separate Standards, improves the presentation and clarity of the Standards. As stated previously, the introductory section is intended to provide an overview of what FHFA believes to be typical director and officer responsibilities in the context of financial institutions generally, as well as in the context of the Standards.

Items 1 through 4 of the general responsibilities section address responsibilities of boards of directors. Item 1 requires the board of directors, with respect to each subject matter addressed by each Standard, to adopt appropriate business strategies, policies, and procedures. It also requires boards to review such strategies, policies and procedures periodically and approve all major strategies, policies, and procedures annually. The next item addresses the board's responsibility in overseeing management and ensuring that management includes qualified personnel. Items 3 and 4 require boards to remain informed about the operations of a regulated entity and about specific risks and exposures, including market, credit, and counterparty risk. These items also address the need to establish risk tolerances and remedy any violation of those risk limits.

Items 5 through 8 of the general responsibilities section address the responsibilities of senior management of the regulated entities. Item 5 requires senior management, with respect to each subject matter addressed by each Standard, to develop the policies, procedures, and practices that are necessary to implement the business strategies and policies adopted by the board of directors. Senior management should also ensure that the policies, procedures, and practices are followed by all personnel and that such personnel are competent and appropriately trained. Item 6 requires senior management to ensure that the regulated entity has adequate resources, systems, and controls to effectively execute the entity's business strategies, policies and procedures, including operating consistently with each of the Standards. The last two items, 7 and 8, address the need for senior management to keep the board of directors informed through periodic reports and discussions.

Items 9 and 10 (formerly Principle 13 of proposed Standard 1 and Principle 7 of proposed Standard 8, respectively) of the general responsibilities section require the board of directors and senior management to conduct themselves in a manner that promotes high ethical standards and a culture of compliance throughout the organization. The board of directors and senior management are also required to ensure that the regulated entity's overall risk profile is aligned with its mission objectives.

The final rule does not contain any information collection requirement that requires the approval of the Office of Management and Budget under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501et seq.).

The final rule applies only to the Banks and the Enterprises, which do not come within the meaning of small entities as defined in the Regulatory Flexibility Act (5 U.S.C. 601et seq.).See5 U.S.C. 650(b). Therefore, FHFA certifies that this final rule will not have significant economic impact on a substantial number of small entities.

For the reasons stated in theSupplementary Information,FHFA amends chapter XII of title 12 of the Code of Federal Regulations by adding part 1236 to subchapter B to read as follows:

Background

On March 23, 2010, U.S. Customs and Border Protection (CBP) published in theFederal Register(75 FR 13699) a proposal to amend title 19 of the Code of Federal Regulations (19 CFR) regarding customs broker recordkeeping requirements as they pertain to the location and method of record retention. In that document, CBP proposed amendments to the CBP regulations to permit a licensed customs broker to store records relating to his or her customs transactions at any location within the customs territory of the United States, so long as the broker's designated recordkeeping contact, identified in the broker's permit application, makes all records available to CBP within a reasonable period of time from request at the broker district that covers the CBP port to which the records relate. The document also proposed to remove the requirement, as it applied to brokers who maintain separate electronic records, that certain entry records must be retained in their original format for the 120-day period after the release or conditional release of imported merchandise.

CBP solicited comments on the proposed rulemaking.

Eleven commenters responded to the solicitation of public comment in the proposed rule. Eight commenters expressed support for the proposed rulemaking, noting in particular that the proposed amendments serve to maximize the use of available technologies, increase efficiency and reduce the cost of storing records. Several of these eight commenters included additional suggestions.

A description of the comments received, together with CBP's analyses, is set forth below.

Comment:One commenter requested that CBP issue guidance to the ports as to what constitutes a “reasonable timeperiod” within which a broker must produce requested documentation. The commenter also suggested that CBP allow brokers to submit requested entry documents to any port in an electronic format.

CBP Response:In an effort to maintain uniform standards at its ports, CBP is amending 19 CFR 111.23(a) in this final rule by replacing the term “reasonable time period” with “30 calendar days, or such longer time as specified by CBP.” Regarding the submission of requested entry-related documentation in an electronic format, CBP intends, through the Automated Commercial Environment (ACE) and related technology, to allow for the submission of entry-related documentation through electronic imaging.

Comment:One commenter inquired whether the ability to reproduce entry data that is generated by an application-based software program, as opposed to data stored in an electronic Portable Document Format (PDF) or Tagged Image File (TIF) format, satisfies CBP's electronic recordkeeping requirements.

CBP Response:Yes, but unless otherwise excepted, documents must be maintained in their original format for 120 days.

Comment:One commenter inquired whether a broker's electronic (imaged file) documentation can be maintained on a server physically located outside the customs territory of the United States.

CBP Response:For purposes of complying with CBP's broker recordkeeping requirements, a broker's electronic documentation must be maintained on a server physically located within the customs territory of the United States wherein CBP has jurisdiction to issue a summons under 19 U.S.C. 1509(a)(2).

Comment:Two commenters recommended that CBP further amend 19 CFR 163.5(b)(2)(iii) by removing the requirement for express consignment brokers who are also serving as importers of record to maintain records in their original format for 120 days following the end of release or conditional release. The commenters stated that many brokers are the importer of record for numerous shipments and the 120-day recordkeeping requirement is burdensome. Additionally, removing this requirement would allow these brokers to manage their recordkeeping responsibilities in a systemic manner which parallels their day-to-day business practices.

CBP Response:CBP will not remove the requirement for brokers who are also serving as importers of record to maintain records in their original format for the prescribed 120-day period. The intent of the proposed amendments is to eliminate duplicative record retention requirements, and not to alter the importer of record's ultimate responsibility.

Comment:Two commenters noted that most large customs brokers operate nationally (in 42 districts) and are not limited to the specific district in which they are physically located. Unless a broker is able to obtain a waiver from CBP, he or she is faced with the burden of procuring 42 permit qualifiers. The commenters also stated that the recent promulgation of the Remote Location Filing regulations is indicative of the fact that modern business practices allow a customs broker to operate nationally regardless of their actual locations. In light of the above, the commenters suggested that CBP should revise the current regulations that require an individual licensed broker to be designated as a permit qualifier in each customs district. The commenters are of the view that having one national permit without local district permit qualifiers will have no impact on broker responsibilities or liability, as CBP can easily obtain required information and records without the need to have a person available to contact locally in each district.

CBP Response:The recommendation to revise the current regulations that require an individual licensed broker to be designated as a permit qualifier in each district is beyond the scope of this proposed rulemaking. CBP is, however, engaged in a comprehensive review of the role of brokers, and will consider the proposal in that context.

Comment:One commenter noted that there does not appear to be any reason to distinguish “packing lists” from the other types of records associated with an import transaction and, therefore, CBP should remove the existing exception in 19 CFR 163.5(b)(2)(iii) which excludes “packing lists” from the types of records that a broker must maintain for the requisite 120-day period. The commenter recommended that the final rule provide that the obligation for maintaining original records, including packing lists, rests with the importer of record in accordance with 19 U.S.C. 1509. At a minimum, the commenter suggested that the final rule clarify that the obligation to maintain packing lists in original form does not extend to brokers.

CBP Response:CBP notes that § 163.4(b)(2) requires, in pertinent part, that packing lists must be retained for a shorter 60-day, rather than a 120-day, period. It is further noted that the intent of the proposed rulemaking is not to alter the scope of a broker's recordkeeping requirements; therefore, the obligation to maintain packing lists will continue to apply.

Comment:One commenter suggested the following technical amendments to the final rule:

• The word “broker” should be removed from 19 CFR 111.23(a) in that there is no such thing as a “broker district.”

• Section 163.5(b)(3) has been modified to provide that changes to alternative storage procedures must be approved by Regulatory Audit in Charlotte, North Carolina. However, §§ 111.23(b)(2), 163.5(b)(1), 163.12(b)(2) and 163.12(c)(1) still require that approval be sought from Regulatory Audit in Miami. These locations should be harmonized.

• Several references to “Customs” throughout the cited sections should be changed to “CBP.”

CBP Response:CBP does not agree that the word “broker” should be deleted from 19 CFR 111.23(a). CBP still recognizes broker districts in the administration of broker permits even though districts and regions were eliminated in the agency reorganization of 1995.

The regulatory provisions cited by the commenter, in fact, currently reflect the Regulatory Audit office located in Charlotte, N.C., and do not need to be amended.SeeCBP Dec. 07-82 of October 19, 2007 (72 FR 59174).

When CBP proposes to amend a regulatory provision, it endeavors to change all outdated references in the section to “Customs” and replace it with either “CBP” or “customs,” as appropriate. The proposed rulemaking omitted one such reference in § 163.5(b)(2)(i), and this document corrects such omission.

After analysis of the comments and further review of the matter, CBP has determined to adopt as final, with the technical change noted above in § 163.5(b)(2)(i), and a clarification, the proposed rule published in theFederal Register(75 FR 13699) on March 23, 2010. The change to 19 CFR 111.23(a) clarifies that “the reasonable time period” within which a designated recordkeeping contact must make all records available to CBP is “30 calendar days, or such longer time as specified by CBP.”

Because these amendments liberalize broker recordkeeping requirements andplace no new regulatory requirements on small entities to change their business practices, pursuant to the provisions of the Regulatory Flexibility Act, 5 U.S.C. 601et seq.,it is certified that the amendments will not have a significant economic impact on a substantial number of small entities. Further, these amendments do not meet the criteria for a “significant regulatory action” as specified in E.O. 12866.

The information collections contained in this rule have been previously submitted and approved by the Office of Management and Budget (OMB) and assigned OMB control numbers 1651-0076 and 1651-0034. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid control number assigned by OMB.

This document is being issued in accordance with 19 CFR 0.1(a)(1) of the CBP regulations (19 CFR 0.1(a)(1)) pertaining to the authority of the Secretary of the Treasury (or his or her delegate) to approve regulations related to certain customs revenue functions.

For the reasons stated in the preamble, parts 111 and 163 of title 19 of the CFR (19 CFR parts 111 and 163) are amended as set forth below.

On March 19, 2012 the Coast Guard published a notice of proposed rulemaking (NPRM) entitled “Special Local Regulations; OPSAIL 2012 Connecticut, Niantic Bay, Long Island Sound, Thames River and New London Harbor, New London, CT” in theFederal Register(77 FR 15981). We received no comments on the proposed rule. No public meeting was requested and none was held.

Under 5 U.S.C. 553(d)(3), the Coast Guard finds that good cause exists for making this rule effective less than 30 days after publication in theFederal Register. The Coast Guard published and NPRM for this rule in March, but there was not sufficient time to publish this Final Rule more than thirty days prior to the effective date of the rule.

The legal basis for this rule is 33 U.S.C. 1233, which authorizes the Coast Guard to define special local regulations.

This temporary special local regulation is necessary to ensure the safety of vessels and spectators from hazards associated with OPSAIL 2012 CT.

No comments were received and this final rule is unchanged from the rule published in the NPRM.

We developed this rule after considering numerous statutes and executive orders related to rulemaking. Below we summarize our analyses based on several of these statutes or executive orders.

This rule is not a significant regulatory action under section 3(f) of Executive Order 12866, Regulatory Planning and Review, as supplemented by Executive Order 13563, Improving Regulation and Regulatory Review, and does not require an assessment of potential costs and benefits under section 6(a)(3) of Executive Order 12866 or under section 1 of Executive Order 13563. The Office of Management and Budget has not reviewed it under those Orders.

Although this regulation prevents traffic from transiting a portion of Long Island Sound, the Thames River and New London Harbor during OPSAIL 2012 CT, the effect of this regulation will not be significant for the following reasons: During the limited time that the regulated areas will be in effect, mariners will be able to transit around some areas, and persons and vessels will still be able to enter, transitthrough, anchor in, or remain within the regulated areas if authorized by the COTP Sector Long Island Sound (SLIS) or designated representative. Mariners will also be able to adjust their plans based on extensive advance notifications that will be made to the maritime community through Local Notice to Mariners, marine information broadcasts and New London area media. In addition, the sponsoring organization, Operation Sail, Inc., is planning to publish information on the event in local newspapers, internet sites pamphlets, and television and radio broadcasts.

These regulated areas have been narrowly tailored to impose the least impact on maritime interests yet provide the necessary level of safety.

The Regulatory Flexibility Act of 1980 (RFA), 5 U.S.C. 601-612, as amended, requires federal agencies to consider the potential impact of regulations on small entities during rulemaking. The Coast Guard received no comments from the Small Business Administration on this rule. The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities.

This temporary rule might affect the following entities, some of which might be small entities: The owners or operators of vessels intending to transit through Niantic Bay, portions of Long Island Sound, the Thames River and New London Harbor during various times from July 6-7, 2012. Although these regulations apply to a substantial portion of Niantic Bay and New London Harbor, designated areas for viewing the “Parade of Sail” have been established to allow for maximum use of the waterways by commercial tour boats that usually operate in the affected areas. Vessels, including commercial traffic, will be able to transit around some designated areas, and persons and vessels would still be able to enter, transit through, anchor in, or remain within the regulated areas if authorized by the COTP SLIS or designated representative. Before the effective period, the Coast Guard will make notifications to the public through Local Notice to Mariners and Broadcast Notice to Mariners. In addition, the sponsoring organization, Operation Sail, Inc., is planning to publish information of the event in local newspapers, internet sites pamphlets, television and radio broadcasts.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we want to assist small entities in understanding this rule. If the rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please contact the person listed in theFOR FURTHER INFORMATION CONTACT, above.

Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR (1-888-734-3247). The Coast Guard will not retaliate against small entities that question or complain about this rule or any policy or action of the Coast Guard.

This rule will not call for a new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. We have analyzed this rule under that Order and determined that this rule does not have implications for federalism.

The Coast Guard respects the First Amendment rights of protesters. Protesters are asked to contact the person listed in theFOR FURTHER INTFORMATION CONTACTsection to coordinate protest activities so that your message can be received without jeopardizing the safety or security of people, places or vessels.

The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 (adjusted for inflation) or more in any one year. Though this rule will not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble.

This rule will not cause a taking of private property or otherwise have taking implications under Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights.

This rule meets applicable standards in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden.

We have analyzed this rule under Executive Order 13045, Protection of Children From Environmental Health Risks and Safety Risks. This rule is not an economically significant rule and does not create an environmental risk to health or risk to safety that may disproportionately affect children.

This rule does not have tribal implications under Executive Order 13175, Consultation and Coordination With Indian Tribal Governments, because it does not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes.

This action is not a “significant energy action” under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use.

This rule does not use technical standards. Therefore, we did not consider the use of voluntary consensus standards.

We have analyzed this rule under Department of Homeland Security Management Directive 023-01 and Commandant Instruction M16475.lD, which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321-4370f), and have determined that this action is one of a category of actions that do not individually or cumulatively have a significant effect on the humanenvironment. This rule establishes temporary special local regulations. This rule is categorically excluded from further review under paragraph 34(h) of Figure 2-1 of the Commandant Instruction. An environmental analysis checklist supporting this determination and a Categorical Exclusion Determination are available in the docket where indicated underADDRESSES. We seek any comments or information that may lead to the discovery of a significant environmental impact from this rule.

For the reasons discussed in the preamble, the Coast Guard amends 33 CFR part 100 as follows:

The Coast Guard is correcting a final rule that appeared in theFederal Registerof March 23, 2012 (77 FR 17254), entitled “Standards for Living Organisms in Ships' Ballast Water Discharged in U.S. Waters.” Six technical errors were inadvertently published in the final rule that require correction, two in the preamble and four in the regulatory text. The corrections are necessary for readability and accuracy.

The first preamble correction is to theDiscussion of Comments and Changes/Summary of Changes from the NPRM/Applicabilitysection (section V.A.3), where we revise our response to comments about non-seagoing vessel applicability by removing the words “U.S. Exclusive Economic Zone (EEZ)” and replacing them with “U.S. Exclusive Economic Zone and Canadian equivalent (EEZ; see 16 U.S.C. 4702)”. This correction is needed to align the preamble text with the existing definition of EEZ in 33 CFR 151.1504. The omission of the reference to the Canadian equivalent was a technical error, as the Coast Guard did not intend to change the applicable definition of EEZ in the discussion of the final rule. Additionally, the word “U.S.” is deleted from the abbreviation of EEZ inI. Abbreviations.

The second correction is to theEnvironmentsection (section VII.M) of the preamble, which incorrectly states that a separate Record of Decision is available in the docket where indicated underADDRESSES. By reason of this being a rulemaking action under the Administrative Procedure Act, the final rule constitutes the Record of Decision and it was published on March 23, 2012, consistent with 40 CFR 1506.10(b).

The additional corrections are to the regulatory text. The first regulatory text corrections are to 33 CFR 151.1510(a)(1) and 151.1515(a). In those paragraphs, we delete the text “U.S.” prefacing the words “Exclusive Economic Zone (EEZ)”. These corrections are needed to align with the definition of EEZ applicable to this part, 33 CFR 151.1504. Two regulatory text corrections are grammatical corrections required to clarify 33 CFR 151.2005(b), “Definitions” and 46 CFR 162.060-22(a), “Marking requirements”. The final correction, to 46 CFR 162.060-42(a)(3), “Responsibilities for independent laboratories (ILs)”, corrects a mistake which had directed independent laboratories to provide the estimated date for commencement of type-approval testing to the “Commandant (CG-52), Commercial Regulations and Standards Directorate”. Notification should be provided to U.S. Coast Guard Marine Safety Center.

In FR doc 2012-6579 appearing on page 17254 in the issue of Friday, March 23, 2012, the following corrections are made:

1. On page 17254, in the third column,Abbreviationssection, remove the word “U.S.” from the abbreviation for “EEZ”.

2. On page 17257, in the second column, in the last paragraph, remove the words “U.S. Exclusive Economic Zone (EEZ)” and add, in their place, the words “U.S. Exclusive Economic Zone and Canadian equivalent (EEZ; see 16 U.S.C. 4702)”.

3. On page 17304, in the first column, correct the paragraph following “M. Environment” to read as follows: “We have analyzed this rule under Department of Homeland Security Management Directive 023-01 and Commandant Instruction M16475.lD, which guide the Coast Guard in complying with NEPA (42 U.S.C. 4321-4370f), and have concluded that this action may have a significant effect on the human environment. A Final Programmatic Environmental Impact Statement is available in the docket where indicated underADDRESSES, and includes a summary of our actions to comply with NEPA”.

The Coast Guard will enforce the safety zone listed in 33 CFR 165.160 on the specified dates and times as indicated in Table 1 below. If the event is delayed by inclement weather, the regulation will be enforced on the rain date indicated in Table 1 below. These regulations were published in theFederal Registeron November 9, 2011 (76 FR 69614).

Under the provisions of 33 CFR 165.160, a vessel may not enter the regulated area unless given express permission from the COTP or the designated representative. Spectator vessels may transit outside the regulated area but may not anchor, block, loiter in, or impede the transit of other vessels. The Coast Guard may be assisted by other Federal, State, or local law enforcement agencies in enforcing this regulation.

This notice is issued under authority of 33 CFR 165.160(a) and 5 U.S.C. 552(a). In addition to this notice in theFederal Register, the Coast Guard will provide mariners with advanced notification of enforcement periods via the Local Notice to Mariners and marine information broadcasts. If the COTP determines that the regulated area need not be enforced for the full duration stated in this notice, a Broadcast Notice to Mariners may be used to grant general permission to enter the regulated area.

On March 2, 2011, the Federal Maritime Commission (Commission) issued a final rule, promulgating 46 CFR part 532, regulations which govern the exemption of licensed NVOCCs from their tariff rate publication obligations when entering into a “negotiated rate arrangement” (NRA). Commission Docket No. 10-03, 76 FR 11351, effective April 18, 2011.1 On December 20, 2011, the Commission issued a Notice of Inquiry (NOI), Commission Docket No. 11-22, seeking comments on ways to make NRAs more useful, including the possible extension of the ability to offer NRAs to foreign-based NVOCCs not licensed by the Commission. December 27, 2011 at 76 FR 80866. The record in Commission Docket No. 10-03 was incorporated into Docket No. 11-22. Comments were due by March 26, 2012. The Commission received 23 comments. Of those 23 comments, 16 came from ocean transportation intermediaries; 4 from U.S. trade associations; and 3 from foreign trade associations. A number of the commenters suggested eliminating some of the technical requirements of the rule. In particular, commenters suggested eliminating the requirement for the shipper's title and address in their written assent to rates; eliminating the requirement that the bill of lading include a notice that a shipment is moving pursuant to an NRA; and eliminating the requirement that an NVOCC retain all associated records and written communications pertaining to an NRA. After consideration of these specific suggestions, the Commission has determined to adopt these suggestions and revise the regulation governing NRAs through a direct finalrule. In a direct final rulemaking, an agency publishes a direct final rule in theFederal Registeralong with a statement that the rule will become effective unless the agency receives significant adverse comment within a specified period. The Commission is using a direct final rule for this rulemaking because it expects the rule to be noncontroversial and because the rule removes technical requirements and imposes no requirements or costs. The Commission will continue to consider other suggestions made by commenters and may further modify part 532 at a future date.

In accordance with the Paperwork Reduction Act of 1995, as amended, agencies are required to display a currently valid control number. The valid control number for this collection of information is 3072-0071. Revised estimated burdens of collection of information authorized by this direct final rule have been submitted to the Office of Management and Budget for review under section 3504(h) of the Paperwork Reduction Act of 1995, as amended. The estimated annual burden for the estimated 3548 annual respondents is $340,921. Send comments regarding the burden estimate or any other aspect of this collection of information, including suggestions for reducing this burden, to Ronald D. Murphy, Managing Director, Federal Maritime Commission, 800 North Capitol Street NW., Washington, DC 20573, email:OMD@fmc.gov, or fax: (202) 523-3646; and to the Office of Information and Regulatory Affairs, Office of Management and Budget, Attention: Desk Officer for Federal Maritime Commission, 17th Street and Pennsylvania Avenue NW., Washington, DC 20503, email:OIRASubmission@OMB.EOP.GOV, or fax: (202) 395-5806.

Accordingly, the Federal Maritime Commission amends 46 CFR part 532 as follows:

This is a summary of the Commission'sReport and Orderin WT Docket Nos. 12-64 and 11-110; FCC 12-55, adopted and released May 24, 2012. The full text of this document is available for inspection and copying during normal business hours in the FCC Reference Center, 445 12th Street SW., Washington, DC 20554. The complete text may be purchased from the Commission's copy contractor, Best Copy and Printing, Inc., 445 12th Street SW., Room CY-B402, Washington, DC 20554, (202) 488-5300, facsimile (202) 488-5563, or via email atfcc@bcpiweb.com.The full text may also be downloaded at:www.fcc.gov.Alternative formats are available to persons with disabilities by sending an email tofcc504@fcc.govor by calling the Consumer & Governmental Affairs Bureau at 202-418-0530 (voice), 202-418-0432 (tty).

1. As part of our ongoing efforts to reduce barriers to innovation and investment in new technologies and to promote greater spectrum efficiency, we adopt thisReport and Orderto amend a legacy regulatory requirement in part90 and provide certain spectrum licensees with increased regulatory and technical flexibility to deploy advanced wireless services in portions of the 800 MHz band. By removing a legacy channelization scheme and bandwidth limitation, thisReport and Orderwill allow Economic Area (EA)-based 800 MHz Specialized Mobile Radio (SMR) licensees in the 813.5-824/858.5-869 MHz portion of the 800 MHz band to more efficiently utilize their spectrum resources to deploy competitive wireless services. Consumers will benefit from this flexibility through improved access to advanced wireless services, including in rural, unserved, and underserved areas. We are also mindful of the need to protect 800 MHz public safety licensees from harmful interference, and take action in thisReport and Orderto help ensure that the flexibility provided to EA-based 800 MHz SMR licensees does not cause harmful interference to 800 MHz public safety licensees.

2. The Commission revised its part 90 rules to create a new geographic-licensing framework for 800 MHz SMR in 1995. In doing so, the Commission transitioned the 800 MHz SMR service from a site-by-site licensing process that required licensees to seek prior authorization to add or modify individual frequency channels and transmitter sites to a geographic-based licensing mechanism that provides licensees with the flexibility to add transmitters or modify operations within their licensed market and licensed spectrum as market conditions dictate.

3. The Commission determined that wide-area licensing would “give licensees the flexibility to use technologies that can operate on either contiguous or non-contiguous spectrum” and that large spectrum blocks were necessary for “broadband technologies such as CDMA and GSM.” With wide-area licenses, the Commission indicated licensees would be able to “compete effectively with other CMRS providers, such as cellular and broadband PCS systems.” Further, the Commission stated its intent in the Executive Summary of the800 MHz SMR First Report and Order,at 61 FR 6138, Feb. 16, 1996, that EA-based licensees would have “full discretion over channelization of available spectrum within the block.” The Commission also adopted an out-of-band emission (OOBE) requirement that applies to the outer channels of the spectrum block and to spectrum adjacent to interior channels used by incumbents.

4. In 2004, the Commission initiated a process to reconfigure the 800 MHz band in the800 MHz Reconfiguration Report and Order,at 69 FR 67823, Nov. 22, 2004, to “address the [then] ongoing and growing problem of interference to public safety communications in the 800 MHz band.” The interference problem was caused “by a fundamentally incompatible mix of two types of communications systems: Cellular-architecture multi-cell systems * * * and high-site non-cellular systems.” To provide immediate relief, the Commission implemented technical standards that defined unacceptable interference in the 800 MHz band, while also reconfiguring the band to separate commercial wireless systems from public safety and other high site systems. Under the reconfiguration plan, SMR and other cellular-system operators including Sprint Nextel were required to vacate the 806-817/851-862 MHz band segment and relocate to the 817-824/862-869 MHz band segment.

5. In part due to the reconfiguration of the 800 MHz band, Sprint Nextel holds the majority of EA-based 800 MHz SMR licenses, and reports that it “has or will soon have access to 14 MHz of spectrum in the ESMR band * * * across much of the nation.” In June 2010, Sprint Nextel announced its Network Vision initiative, under which it will “deploy next-generation base station technology that will operate across all of Sprint's licensed spectrum.” As part of its Network Vision initiative, Sprint Nextel reports it will incorporate its 800 MHz SMR spectrum into its CDMA network and forthcoming LTE deployment. However, Sprint Nextel is unable to aggregate its EA-based 800 MHz SMR channels to deploy CDMA or LTE because of the channel spacing and bandwidth limitation in § 90.209 of the Commission's rules. Sprint Nextel reports that CDMA requires contiguous spectrum and occupies a 1.25 MHz bandwidth, and that other wireless carriers are deploying LTE using 10 megahertz or 20 megahertz channel pairs. Specifically, § 90.209 limits EA-based 800 MHz SMR licensees to 25 kHz channels with a bandwidth of 20 kHz. Therefore, in June 2011, Sprint Nextel filed a petition for declaratory ruling, or rulemaking in the alternative, that would allow EA-based 800 MHz SMR licensees (commonly referred to as Enhanced SMR or ESMR) to exceed the channel spacing and bandwidth limitation under § 90.209. The Wireless Telecommunications Bureau released aPublic Notice,WT Docket No. 11-110, DA 11-1152, June 30, 2011, seeking comment on Sprint Nextel's petition.

6. Prior to Sprint Nextel filing the petition, and subsequently while the petition has been pending, the Commission has granted waivers and special temporary authorizations to allow Sprint Nextel to deploy and test CDMA in several markets on its EA-based 800 MHz SMR licenses. Sprint Nextel filed for additional waivers in March 2012, and the Wireless Telecommunications Bureau issued aPublic Notice,WT Docket No. 12-82, DA 12-506, Mar. 30, 2012, seeking comment on the request.

7. Based on the record developed in response to thePublic Noticeseeking comment on Sprint's petition for declaratory ruling or rulemaking in the alternative and our analysis of the relevant part 90 rules and the underlying 800 MHz proceeding, we concluded that while the Commission may have intended to provide EA-based 800 MHz SMR licensees with discretion over channelization within their channel blocks, the Commission did not amend the applicable channel spacing and bandwidth limitation in § 90.209 to allow licensees to exercise such discretion. We therefore denied Sprint Nextel's request for a declaratory ruling and issued aNotice of Proposed Rulemaking,(NPRM) at 77 FR 18991, Mar. 29, 2012, proposing to allow EA-based 800 MHz SMR licensees to exceed the channel spacing and bandwidth limitation in § 90.209, subject to proposed conditions to protect against potential harmful interference with 800 MHz public safety licensees.

8. Commenters generally support our proposal to provide flexibility to EA-based 800 MHz SMR licensees to exceed the channel spacing and bandwidth limitation in § 90.209. Similarly, many commenters support or do not oppose the proposed conditions to protect 800 MHz public safety licensees from harmful interference. As discussed below, we adopt the proposals from theNPRMwith a minor modification.

9. We amend § 90.209 of the Commission's rules to allow EA-based 800 MHz SMR licensees operating in the 813.5-824/858.5-869 MHz portion of the 800 MHz band to provide wireless services across aggregated channels, without unnecessary bandwidth or channelization limitations. We note that, pursuant to § 90.614(c) of the Commission's rules, the band segment 813.5-817/858.5-862 MHz is available for SMR operations only in the Southeastern United States. We conclude that the public interest will beserved by allowing EA-based 800 MHz SMR licensees to exceed the existing channel spacing and bandwidth limitation in § 90.209, subject to conditions designed to protect neighboring public safety operations. We find strong support in the record for this conclusion. As Motorola Solutions, Inc. asserts, the proposals in theNPRM“strike the right balance * * * by allowing EA-based 800 MHz SMR licensees to introduce more advanced wideband technologies on their licensed spectrum in situations where there is little risk to public [safety] operations.”

10. We also find that the proposals from theNPRMwill balance the benefits of providing channel spacing and bandwidth flexibility to EA-based 800 MHz SMR licensees with the need to continue to prevent harmful interference to 800 MHz public safety licensees. As described below, the record shows that with the flexibility we adopt today, EA-based 800 MHz SMR licensees will be able to invest in the deployment of new wireless technologies, such as CDMA and LTE, while incurring little additional compliance costs. The record also shows that consumers will benefit from access to these advanced technologies. Further, the record demonstrates little additional costs to 800 MHz public safety licensees from such operation relative to the status quo, which may be incurred through increased monitoring for harmful interference for a time following an EA-based 800 MHz SMR licensee's transition to a wideband technology. We find that, based on the record, the minimal costs incurred by EA-based 800 MHz SMR licensees or 800 MHz public safety licensees are far outweighed by the benefits gained through the efficient utilization of spectrum resources and the deployment and availability of advanced wireless services.

11. Below we explain the conditions under which EA-based 800 MHz SMR licensees may exceed the channel spacing and bandwidth limitation in § 90.209, take steps to protect 800 MHz public safety licensees from harmful interference, and discuss the continued applicability and sufficiency of other part 90 rules. We also discuss and decline to adopt additional protections proposed by commenters and decline to take other actions that we find are outside of the scope of this proceeding.

12. We find that there are substantial benefits to revising our part 90 rule regarding channel spacing and bandwidth limits. The record demonstrates that providing EA-based 800 MHz SMR licensees the flexibility to exceed the channel spacing and bandwidth limitation in § 90.209 effectively eliminates a barrier to the deployment of advanced wireless technologies, promotes spectrum efficiency, and improves regulatory parity between commercial wireless licensees, to consumers' benefit. Under this rule change, EA-based 800 MHz SMR licensees will no longer be forced to comply with an inefficient channelization scheme that prevents licensees from utilizing multiple contiguous channels to provide service. With flexibility regarding channelization and bandwidth utilization, as Sprint Nextel and SouthernLINC Wireless (SouthernLINC) assert, EA-based 800 MHz SMR licensees will be able to deploy CDMA, LTE, and other advanced wireless technologies. Licensees will therefore be able to transition networks deployed using EA-based 800 MHz SMR licenses from legacy narrowband technologies to 3G as well as other advanced technologies including LTE, in order to better compete in the commercial wireless marketplace. We agree with Sprint Nextel that this will allow EA-based 800 MHz SMR licensees to “respond to consumer demand for innovative wireless services” including, as SouthernLINC argues, through the deployment of advanced wireless services to “rural, unserved, and underserved areas.” Southern also argues that when SouthernLINC transitions its network to more advanced wireless technologies, SouthernLINC will be able to provide innovative services to Southern Company Services' electric company affiliates.

13. Based on the record, we therefore find that it is in the public interest to amend § 90.209 to allow EA-based 800 MHz SMR licensees to exceed the channel spacing and bandwidth limitation in § 90.209 in the 813.5-824/858.5-869 MHz band segment in National Public Safety Planning Advisory Committee (NPSPAC) regions where all 800 MHz public safety licensees in the region have completed band reconfiguration. In NPSPAC regions where reconfiguration is incomplete, we amend § 90.209 to allow EA-based 800 MHz SMR licensees to exceed the channel spacing and bandwidth limitation only in the 813.5-821/858.5-866 MHz band segment. Consistent with thisReport and Order,EA-based 800 MHz SMR licensees will only be able to exceed the channel spacing and bandwidth limitation utilizing frequencies in 821-824/866-869 MHz once 800 MHz public safety licensees have vacated this portion of the 800 MHz band in a given NPSPAC region. Upon all 800 MHz public safety licensees in a region completing band reconfiguration, EA-based 800 MHz SMR licensees in the 821-824/866-869 MHz band would then be allowed to exceed the channel spacing and bandwidth limitation. As noted, pursuant to § 90.614(c), the band segment 813.5-817/858.5-862 MHz is available for SMR operations only in the Southeastern United States.

14. We recognize that the affected portion of the 800 MHz band is currently subject to an ongoing reconfiguration process to protect 800 MHz public safety users from interference from incompatible commercial networks. We seek to ensure that the progress made to protect public safety licensees from interference is not affected by the flexibility we provide today, and adopt additional protections for 800 MHz public safety licensees.

15. We find based on the record that the 30-day notification condition we proposed in theNPRM,with a minor modification, will help protect 800 MHz public safety licensees from the risk of harmful interference. We require all EA-based 800 MHz SMR licensees that seek to exceed the channel spacing and bandwidth limitation in § 90.209 to provide at least 30 days written notice to public safety licensees with base stations in a NPSPAC region where the EA-based 800 MHz SMR licensee intends to exceed the channel spacing and bandwidth limitation, and to public safety licensees with base stations within 113 kilometers (70 miles) of an affected NPSPAC region border. Further, pursuant to a request by Concepts to Operations, Inc. (CTO), we modify our original proposal to require that the notice include the estimated date on which the EA-based 800 MHz SMR licensee will begin operations that exceed the channel spacing and bandwidth limitation. We find that by requiring EA-based 800 MHz SMR licensees to include the estimated date of operation in the notice, 800 MHz public safety licensees will be better able to monitor their networks for harmful interference on and around the date of a SMR licensee's expected transition from operations within the channel spacing and bandwidth limitation of § 90.209 to operations thatexceed the channel spacing and bandwidth limitation.

16. We agree with commenters that the 30-day notice requirement will allow EA-based 800 MHz SMR licensees to use their spectrum more efficiently, while continuing to protect 800 MHz public safety licensees. Pursuant to this notice requirement, in the event that an 800 MHz public safety licensee experiences harmful interference subsequent to receiving the required notice from an EA-based 800 MHz SMR licensee, the public safety licensee can more quickly identify or eliminate EA-based 800 MHz SMR operations as the source of interference. While this requirement will result in certain costs to EA-based licensees who must identify and timely notify affected public safety entities, we find that the resulting benefits—efficient resolution of interference to a public safety entity—offsets such costs. As SouthernLINC states, this condition “will impose only a modest burden on ESMR licensees and will ensure that 800 MHz public safety licensees are fully informed, thus making it easier to swiftly resolve any issues or concerns that may arise.”

17. The Association of Public-Safety Communications Officials-International, Inc. (APCO) and CTO suggest additional conditions that they argue will help protect 800 MHz public safety licensees from harmful interference caused by EA-based 800 MHz SMR licensees that exceed the channel spacing and bandwidth limitation. APCO urges us to require EA-based 800 MHz SMR licensees that seek to exceed the channel spacing and bandwidth limitation in NPSPAC regions bordering Mexico to provide 30 days prior written notification to all public safety licensees in the border area, and that such notice should include a 24-hour contact number in case interference occurs.

18. We decline to modify the notice requirement as requested by APCO. APCO describes a scenario in which an EA-based 800 MHz SMR licensee exceeds the channel spacing and bandwidth limitation in a NPSPAC region that includes the Mexico border area, and is operating co-channel with an 800 MHz public safety licensee with a base station in the Mexico border area within the same NPSPAC region. In this scenario, the EA-based 800 MHz SMR licensee would be required under thisReport and Orderto transmit the 30-day notification to the public safety licensee in the Mexico border area because the licensees would be in the same NPSPAC region. We also note that, as described below, EA-based 800 MHz SMR licensees will still be obligated to meet all other technical requirements under Part 90, including co-channel separation distances, further protecting 800 MHz public safety licensees operating in the Mexico border area. We find that the notice requirement adopted herein is sufficient to provide additional protection to all 800 MHz public safety licensees from any harmful interference caused by wideband EA-based 800 MHz SMR operations, and find no reason to modify the notice requirement for 800 MHz public safety operations in the Mexico border area.

19. Further, with respect to APCO's request that the notice be accompanied by a 24-hour contact number, Sprint Nextel notes that the 24-hour reporting capability is currently available on the CMRS/public safety interference reporting Web site, required by the800 MHz Reconfiguration Report and Order,in order to implement the interference resolution procedures set forth in § 90.674 of the Commission's rules. Under that procedure, EA-based 800 MHz SMR licensees are required to respond to any notification of harmful interference reported by public safety licensees to that Web site within 24 hours. Although the procedure in § 90.674 is not identical to APCO's proposal, we find that it is adequate to address APCO's concerns, as this Web site will enable public safety licensees to report any harmful interference events at any time, 24 hours a day, and licensees are required to respond to any notification of harmful interference within 24 hours of receipt. Further, we do not anticipate that permitting EA-based 800 MHz SMR licensees to operate with wider channel bandwidths than currently permitted under § 90.209 will result in an increase in harmful interference to public safety licensees. Accordingly, we decline to impose additional, largely duplicative requirements on EA-based 800 MHz SMR licensees.

20. CTO urges us to adopt an additional condition requiring EA-based 800 MHz SMR licensees to transmit a second notice to affected 800 MHz public safety licensees that would include the date on which operations will begin, the specific locations of antenna sites, and effective radiated power (ERP) for each antenna site. CTO argues that the additional notice would ensure that public safety entities continue to be notified of changes near their operations. While we find it appropriate to require licensees to include the approximate date of operation in their notifications, we decline to adopt the additional notice suggested by CTO. The notice requirement we adopt today is designed to provide notice to public safety licensees so that they may monitor their networks for any increase in harmful interference caused by EA-based 800 MHz SMR licensees that exceed the standard channel spacing and bandwidth limitation and take appropriate steps to initiate a process to remedy such interference should it occur. A notification requirement that includes antenna location or ERP would not further this goal. Therefore, we find that adopting a second notice requirement would result in little added benefit to public safety entities while imposing undue costs on EA-based 800 MHz SMR licensees.

21. TheNPRMalso sought comment on proposals by the National Public Safety Telecommunications Council (NPSTC) and APCO seeking to impose a one megahertz separation between public safety operations and EA-based 800 MHz SMR operations that exceed the channel spacing and bandwidth limitation. In response to theNPRM,however, APCO acknowledges that the one megahertz separation is not warranted as the use of 1.25 MHz CDMA channels will result in a de facto buffer of one megahertz. We therefore decline to adopt these proposed conditions.

22. We conclude that the 30-day notice condition, in combination with the limitation preventing EA-based 800 MHz SMR licensees from exceeding the channel spacing and bandwidth limitation in NPSPAC regions where reconfiguration is incomplete, adequately protects 800 MHz public safety licensees from harmful interference.

23. We note that, while we find that the 30-day notice requirement and the continued application of the channel spacing and bandwidth limitation in 821-824/866-869 MHz in NPSPAC regions where reconfiguration is incomplete will help protect public safety operations from harmful interference, these measures are supplements to the existing technical rules in part 90 governing EA-based 800 MHz SMR operations. We continue to believe that our current rules provide appropriate safeguards against harmful interference, and we emphasize that, in providing greater flexibility with respect to the channel spacing and bandwidth limitation, we are not removing or revising any other technical rules that enable licensees to coexist within the 800 MHz band.

24. To the contrary, EA-based 800 MHz SMR licensees subject to thisReport and Ordermust continue tocomply with all other applicable rules in part 90. For example, licensees must continue to meet the OOBE requirement in § 90.691 on the outer channels of the licensee's block and the interior channels of the licensee's block adjacent to channels occupied by incumbent licensees. EA-based 800 MHz SMR licensees also must abide by strict protections against unacceptable interference to non-cellular 800 MHz licensees under § 90.672. SouthernLINC argues this rule effectively establishes an even more stringent out-of-band emission requirement than § 90.691. As noted, EA-based 800 MHz SMR licensees must continue to meet the co-channel separation requirements in § 90.621. Additionally, EA-based 800 MHz SMR licensees are strictly responsible for abating any unacceptable interference under § 90.673, and must comply with the interference resolution procedures under § 90.674.

25. The Enterprise Wireless Alliance (EWA) states its assumption that because the Commission will allow EA-based 800 MHz SMR licensees to exceed the channel spacing and bandwidth requirement in 813.5-824/858.5-869 MHz, such operation will not “present interference concerns for future users of the Guard Band spectrum [817-818/861-862 MHz] either.” TheNPRMlimited the applicability of the proposals to EA-based 800 MHz SMR operations and the record demonstrates no specific concern regarding potential interference issues to hypothetical future users of the guard band. To the extent that the guard band is licensed in the future, the Commission will establish applicable technical and service rules as necessary at that time.

26. EWA also suggests we clarify the applicability of the rule change adopted in thisReport and Orderin the Canada border area, because the existing protection from EA-based 800 MHz SMR licensees to adjacent site-based systems “has always been calculated on a frequency-specific, co-channel contour basis.” We reiterate that EA-based 800 MHz licensees that exceed the channel spacing and bandwidth limitation are required to continue to comply with all other applicable Part 90 rules, including co-channel separation requirements. As Sprint Nextel acknowledges, any action permitting operations on bandwidths greater than 25 kHz does not change the interference protection requirements applicable to public safety and other non-ESMR licensees in and adjacent to the U.S.-Canada border areas. EA-based 800 MHz SMR licensees must continue to comply with part 90 rules regarding operation in the Canada and Mexico border areas, including any international agreements.

27. Several commenters agree that, as a general matter, EA-based 800 MHz SMR licensees' continued compliance with the part 90 rules will serve to protect all other 800 MHz licensees from harmful interference. For example, SouthernLINC argues that “the ongoing obligation of 800 MHz ESMR licensees to operate in strict compliance with these rules will continue to serve as yet another form of protection from interference for 800 MHz public safety licensee.” RCA—The Competitive Carriers Association notes that the Commission “has done much to ensure 800 MHz public safety licensees receive ample protection from broadband operations,” specifically citing EA-based 800 MHz SMR licensees' obligation to abate interference to public safety systems and other 800 MHz licensees.

28. In this regard, Sprint Nextel argues that it has taken steps beyond what the Commission's rules require to minimize the risk of interference to public safety licensees. Sprint Nextel asserts that it will incorporate “extremely tight” OOBE requirements into its CDMA equipment to minimize the risk of harmful interference in areas where reconfiguration is complete, as well as provide aggressive OOBE roll-off protection for public safety systems operating in 821-824/866-869 MHz. Sprint Nextel also asserts that numerous tests confirm that its CDMA deployment “should further reduce the already-low risk of intermodulation interference to 800 MHz band public safety systems.”

29. A group of nine public safety entities (Public Safety Licensees) argues that the technical analysis provided by Sprint Nextel on the record is an “Intermodulation Interference test,” and that without filtering specifications, the Public Safety Licensees are unable to verify Sprint Nextel's claimed OOBE protections. The Public Safety Licensees argue that without certainty regarding OOBE levels, the Commission should require a greater demonstration of non-interference before revising the channel spacing and bandwidth limitation. In response, Sprint Nextel states that it has previously provided detailed information regarding its OOBE base station emissions mask requirements, as well as statements from each of its three equipment vendors affirming that Sprint Nextel's base stations are being designed to meet that mask. Sprint Nextel argues that the risk of interference to public safety or other non-ESMR 800 MHz operators from Sprint Nextel's planned 800 MHz broadband operations will be the same or less than its current iDEN deployment.

30. We find no basis to conclude that EA-based 800 MHz SMR operations using bandwidths wider than 25 kHz must be subject to more stringent technical requirements than our rules in part 90 currently impose. We believe that our existing part 90 technical rules are sufficient to protect 800 MHz public safety licensees or other 800 MHz licensees from harmful interference from EA-based 800 MHz SMR operations that exceed the channel spacing and bandwidth limitation in § 90.209. We believe that revising the part 90 channel spacing and bandwidth limitation is unlikely to cause 800 MHz public safety licensees to experience increased harmful intermodulation interference due in part to the fact that, other things being equal, the use of wider channels generally spreads the available power across a much wider bandwidth than narrowband technologies, thereby lowering the level of intermodulation interference that might occur. As Sprint Nextel affirms on the record, its CDMA operations may decrease intermodulation interference relative to its iDEN operations. We note that Sprint Nextel is permitted under waiver or special temporary authority to exceed the channel spacing and bandwidth limitation prescribed by § 90.209 in nine different markets covering large population centers. Sprint Nextel has been able to exceed the channel spacing or bandwidth limitation in five of the markets for 11 months. We have not received any complaints of interference from any 800 MHz licensee as a result of Sprint Nextel's operations in any of the markets to date. Accordingly, we believe 800 MHz public safety licensees will not be subject to increased harmful interference when EA-based 800 MHz SMR licensees comply with or exceed the protections under existing technical requirements in part 90.

31. The Public Safety Licensees also assert that the Commission should proactively ensure that interference will not occur, rather than have 800 MHz licensees rely on the interference abatement process in § 90.673 if interference occurs. They argue that, although the interference may be resolved, the public safety licensee is stuck with the costs of finding, investigating, and participating in resolving interference under § 90.673. As a general matter, our part 90 rules are designed to proactively limit the possibility of harmful interference. Section 90.673 was created to further protect public safety licensees in the unforeseen event that harmfulinterference does occur, and we find no reason to revisit this rule in thisReport and Order.Absent information showing that 800 MHz public safety licensees will experience harmful interference as a result of this rule change, and such interference will result in significant costs, we find the measures taken in thisReport and Orderreasonably balance the interests of EA-based 800 MHz SMR licensees and 800 MHz public safety entities.

32. Finally, CTO and Thomas Michael Roskos, Jr. (Roskos) suggest we afford additional flexibility to licensees other than EA-based 800 MHz SMR licensees. CTO urges us to “treat all [800 MHz commercial] licensee's [sic] equally and to develop plans which allow `contiguous use of spectrum' to licensees to be able to provide similar and competing services in the Band.” Roskos argues that we should find that any licensee under part 90 with contiguous spectrum should be able to aggregate the channels and use them on a wideband basis so long as the operations do not raise OOBE above an unacceptable level. We find insufficient record support for these requests, and we decline to expand the scope of thisReport and Order.As explained herein, thisReport and Orderis based upon the specific proposals in theNPRMand the record developed in response to theNPRM,and applies only to EA-based 800 MHz SMR operations in the 813.5-824/858.5-869 MHz segment of the 800 MHz band.

33. We find that the record strongly supports our decision to provide channel spacing and bandwidth flexibility to EA-based 800 MHz SMR licensees, and that such flexibility will promote the deployment of advanced wireless technologies. The record demonstrates that the minimal costs incurred by EA-based 800 MHz SMR licensees and 800 MHz public safety licensees are far outweighed by the benefits generated through the elimination of this legacy rule, including improving spectrum efficiency and the availability of wireless broadband. We also find that the existing protections in our rules, coupled with the new protections added through thisReport and Orderare sufficient to limit the potential for harmful interference caused by EA-based 800 MHz SMR licensee operations at greater than 25 kHz channels with greater than 20 kHz bandwidth.

34. As required by the Regulatory Flexibility Act of 1980, the Commission has prepared a Final Regulatory Flexibility Analysis (FRFA) of the possible significant economic impact on small entities of the policies and rules addressed in this document.

35. This document adopts new or revised information collection requirements subject to the Paperwork Reduction Act of 1995 (PRA). The requirements were submitted to the Office of Management and Budget (OMB) for review under sec. 3507 of the PRA. The Commission published notice of the information collection in theFederal Register, 77 FR 18991, Mar. 29, 2012, and invited comment on the new information collection that we adopt in this document. The requirements will not go into effect until OMB has approved the requirements and the Commission has published a notice announcing the effective date of the information collection requirements. In addition, we note that pursuant to the Small Business Paperwork Relief Act of 2002, we previously sought specific comment on how the Commission might “further reduce the information collection burden for small business concerns with fewer than 25 employees.”

36. The Commission will send a copy of thisReport and Orderto Congress and the Government Accountability Office pursuant to the Congressional Review Act.

As required by the Regulatory Flexibility Act of 1980, as amended (RFA), an Initial Regulatory Flexibility Analysis (IRFA) was included in theNotice of Proposed Rulemakingin WT Docket Nos. 11-110 and 12-64. The Commission sought written public comment on the proposals in these dockets, including comment on the IRFA. This Final Regulatory Flexibility Analysis (FRFA) conforms to the RFA.

37. The rule adopted in thisReport and Ordereliminates a legacy channel spacing and bandwidth limitation governing Economic Area (EA)-based 800 MHz specialized mobile radio (SMR) licensees. This rule provides the licensees with the flexibility to deploy competitive wireless services, while also continuing to protect 800 MHz public safety licensees and other 800 MHz licensees from harmful interference.

38. The rule allows EA-based 800 MHz SMR licensees in the 813.5-824/858.5-869 MHz band segment to exceed the channel spacing and bandwidth limits in § 90.209 of the Commission's rules, subject to conditions. EA-based 800 MHz SMR licensees may exceed the channel spacing and bandwidth limitation in the 813.5-824/858.5-869 MHz band segment of the 800 MHz band in National Public Safety Planning Advisory Committee (NPSPAC) regions where 800 MHz reconfiguration is complete. In NPSPAC regions where 800 MHz reconfiguration is incomplete, EA-based 800 MHz licensees may exceed the channel spacing and bandwidth limitation only in 813.5-821/858.5-866 MHz. Upon all 800 MHz public safety licensees in a region completing band reconfiguration, EA-based 800 MHz SMR licensees in 821-824/866-869 MHz may also exceed the channel spacing and bandwidth limitation. We note that, pursuant to § 90.614(c) of the Commission's rules, the band segment 813.5-817/858.5-862 MHz is available for SMR operations only in the Southeastern United States. We also require EA-based 800 MHz SMR licensees to provide 30 days written notice to 800 MHz public safety licensees with base stations in a NPSPAC region where an EA-based 800 MHz SMR licensee intends to exceed the channel spacing and bandwidth limitation, and to public safety licensees with base stations within 113 kilometers (70 miles) of an affected NPSPAC region border. Finally, we require such notice to include the estimated date the EA-based 800 MHz SMR licensee's operations will exceed the channel spacing requirement and bandwidth limitation.

39. We believe this rule will reduce barriers to innovation and investment and allow EA-based 800 MHz SMR licensees to deploy competitive wireless services, to consumers' benefit. The record demonstrates support for the rule change, and demonstrates that it will result in significant benefits while imposing minimal costs on EA-based 800 MHz SMR licensees, 800 MHz public safety licensees, or other 800 MHz licensees

40. There were no public comments filed that specifically addressed the rules and policies proposed in the IRFA.

41. Pursuant to the Small Business Jobs Act of 2010, the Commission is required to respond to any comments filed by the Chief Counsel for Advocacy of the Small Business Administration, and to provide a detailed statement of any change made to the proposed rules as a result of those comments. The Chief Counsel did not file any comments in response to the proposed rules in this proceeding.

42. The RFA directs agencies to provide a description of, and where feasible, an estimate of the number of small entities that may be affected by the proposed rules, if adopted. The RFA generally defines the term “small entity” as having the same meaning as the terms “small business,” “small organization,” and “small governmental jurisdiction.” In addition, the term “small business” has the same meaning as the term “small-business concern” under the Small Business Act. A small-business concern” is one which: (1) Is independently owned and operated; (2) is not dominant in its field of operation; and (3) satisfies any additional criteria established by the SBA.

43.Small Businesses, Small Organizations, and Small Governmental Jurisdictions.Our action may, over time, affect small entities that are not easily categorized at present. We therefore describe here, at the outset, three comprehensive, statutory small entity size standards. First, nationwide, there are a total of approximately 27.5 million small businesses, according to the SBA. In addition, a “small organization” is generally “any not-for-profit enterprise which is independently owned and operated and is not dominant in its field.” Nationwide, as of 2007, there were approximately 1,621,315 small organizations. Finally, the term “small governmental jurisdiction” is defined generally as “governments of cities, towns, townships, villages, school districts, or special districts, with a population of less than fifty thousand.” Census Bureau data for 2011 indicate that there were 89,476 local governmental jurisdictions in the United States. We estimate that, of this total, as many as 88,506 entities may qualify as “small governmental jurisdictions.” Thus, we estimate that most governmental jurisdictions are small.

44.Wireless Telecommunications Carriers (except Satellite).Since 2007, the SBA has recognized wireless firms within this new, broad, economic census category. Prior to that time, such firms were within the now-superseded categories of Paging and Cellular and Other Wireless Telecommunications. Under the present and prior categories, the SBA has deemed a wireless business to be small if it has 1,500 or fewer employees. For this category, census data for 2007 show that there were 1,383 firms that operated for the entire year. Of this total, 1,368 firms had 999 or fewer employees, and 15 had 1,000 employees or more. Similarly, according to Commission data, 413 carriers reported that they were engaged in the provision of wireless telephony, including cellular service, Personal Communications Service (PCS), and Specialized Mobile Radio (SMR) Telephony services. Of these, an estimated 261 have 1,500 or fewer employees, and 152 have more than 1,500 employees. Consequently, the Commission estimates that approximately half or more of these firms can be considered small. Thus, using available data, we estimate that the majority of wireless firms can be considered small.

45.Specialized Mobile Radio.The Commission awards small business bidding credits in auctions for Specialized Mobile Radio (SMR) geographic area licenses in the 800 MHz and 900 MHz bands to entities that had revenues of no more than $15 million in each of the three previous calendar years. The Commission awards very small business bidding credits to entities that had revenues of no more than $3 million in each of the three previous calendar years. The SBA has approved these small business size standards for the 800 MHz and 900 MHz SMR Services. The Commission has held auctions for geographic area licenses in the 800 MHz and 900 MHz bands. The 900 MHz SMR auction was completed in 1996. Sixty bidders claiming that they qualified as small businesses under the $15 million size standard won 263 geographic area licenses in the 900 MHz SMR band. The 800 MHz SMR auction for the upper 200 channels was conducted in 1997. Ten bidders claiming that they qualified as small businesses under the $15 million size standard won 38 geographic area licenses for the upper 200 channels in the 800 MHz SMR band. A second auction for the 800 MHz band was conducted in 2002 and included 23 BEA licenses. One bidder claiming small business status won five licenses.

46. The auction of the 1,053 800 MHz SMR geographic area licenses for the General Category channels was conducted in 2000. Eleven bidders that won 108 geographic area licenses for the General Category channels in the 800 MHz SMR band qualified as small businesses under the $15 million size standard. In an auction completed in 2000, a total of 2,800 Economic Area licenses in the lower 80 channels of the 800 MHz SMR service were awarded. Of the 22 winning bidders, 19 claimed small business status and won 129 licenses. Thus, combining all three auctions, 40 winning bidders for geographic licenses in the 800 MHz SMR band claimed status as small business.

47. In addition, there are numerous incumbent site-by-site SMR licensees and licensees with extended implementation authorizations in the 800 and 900 MHz bands. We do not know how many firms provide 800 MHz or 900 MHz geographic area SMR pursuant to extended implementation authorizations, nor how many of these providers have annual revenues of no more than $15 million. One firm has over $15 million in revenues. In addition, we do not know how many of these firms have 1,500 or fewer employees. We assume, for purposes of this analysis, that all of the remaining existing extended implementation authorizations are held by small entities, as that small business size standard is approved by the SBA.

48. The rule provides regulatory flexibility to all EA-based 800 MHz SMR licensees. The rule will impose limited reporting or recordkeeping requirements to the extent an EA-based 800 MHz SMR licensee seeks to exceed the channel spacing and bandwidth limitation in § 90.209 of the Commission's rules. In such cases, the licensee must provide 30 days advanced written notice to all public safety licensees with a base station in an affected NPSPAC region and within 113 kilometers (70 miles) of the border of an affected NPSPAC region. This notice must include the estimated date that the EA-based 800 MHz SMR licensee's operations will exceed the channel spacing and bandwidth limitation. Otherwise, the rule will impose only a small compliance burden.

49. The RFA requires an agency to describe any significant alternatives that it has considered in reaching its proposed approach, which may include the following four alternatives (among others): (1) The establishment of differing compliance or reporting requirements or timetables that take into account the resources available to small entities; (2) the clarification, consolidation, or simplification of compliance or reporting requirements under the rule for small entities; (3) the use of performance, rather than design, standards; and (4) an exemption from coverage of the rule, or any part thereof, for small entities.

50. TheReport and Orderis deregulatory in nature and imposes only a minor compliance requirement on all affected entities, including small entities. In recognition of the resources available to small entities, and in the interest of simplified compliance obligations, theReport and Orderdoes not mandate any specific form or manner in which entities must comply with the reporting requirement. Specifically, theReport and Orderrequires EA-based 800 MHz SMR licensees to provide written notice to all public safety licensees with a base station in an affected NPSPAC region and within 113 kilometers (70 miles) of the border of an affected NPSPAC region if the licensee intends to exceed the channel spacing and bandwidth limitation. This notice must include the estimated date that the EA-based 800 MHz SMR licensee's operations will exceed the channel spacing and bandwidth limitation. Licensees have the flexibility to provide written notice through whatever means the licensee chooses. We believe this notice is necessary to ensure that public safety licensees are aware of the operation and can actively monitor for any interference issues that may arise. While we strive to provide flexibility to small entities, because we believe that protection of public safety licensees is essential and in the public interest, we do not adopt any exemption for small entities.

51. None.

52. Pursuant to the authority contained in sections 1, 2, 4(i), 4(j), 301, 302, 303, 307, and 308 of the Communications Act of 1934, as amended, 47 U.S.C. 151, 152, 154(i), 154(j), 301, 302a, 303, 307, and 308, thisReport and Orderis adopted and that part 90 of the Commission's rules, 47 CFR part 90, is amended as set forth herein.

53. The rules adopted herein will become effective July 9, 2012.

54. The Commission's Consumer & Governmental Affairs Bureau, Reference Information Center, shall send a copy of thisReport and Order,including the Final Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy of the Small Business Administration.

For the reasons set forth in the preamble, the Federal Communications Commission amends part 90 of Title 47 of the Code of Federal Regulations (CFR) as set forth below: