On June 6, 2012, the Agricultural Marketing Service (AMS) published a final rule (77 FR 33290) to address the 2012 Sunset Review of substances on the U.S. Department of Agriculture's (USDA) National List of Allowed and Prohibited Substances (National List).

This rule amended the restrictive annotation to the listing for colors at 7 CFR 205.606(d). As published, the modification to the introductory text for this listing for colors at § 205.606(d) inadvertently removed paragraphs (d)(1) through (d)(19). These paragraphs are necessary to identify the specific nonorganic colors that can be used as ingredients in processed products labeled as “organic” if organic forms are not commercially available. This document corrects the final regulations by reinserting paragraphs (d)(1) through (19).

Accordingly, 7 CFR part 205 is corrected by making the following correcting amendments:

The European Aviation Safety Agency (EASA), which is the Technical Agent for the Member States of the European Community, has issued AD No. 2012-0097R1, dated June 1, 2012 (referred to after this as “the MCAI”), to correct an unsafe condition for the specified products. The MCAI states:

Rotax Aircraft Engines BRP has issued Alert Service Bulletin ASB-912-061R1, dated May 31, 2012. The actions described in this service information are intended to correct the unsafe condition identified in the MCAI.

This product has been approved by the aviation authority of another country, and is approved for operation in the United States. Pursuant to our bilateral agreement with this State of Design Authority, they have notified us of the unsafe condition described in the MCAI and service information referenced above. We are issuing this AD because we evaluated all information provided by the State of Design Authority and determined the unsafe condition exists and is likely to exist or develop on other products of the same type design.

An unsafe condition exists that requires the immediate adoption of this AD. The FAA has found that the risk to the flying public justifies waiving notice and comment prior to adoption of this rule because detachment of particles from the fuel hose on the pressure side of the fuel pump could cause engine damage and result in in-flight engine shutdown. Therefore, we determined that notice and opportunity for public comment before issuing this AD are impracticable and that good cause exists for making this amendment effective in fewer than 30 days.

This AD is a final rule that involves requirements affecting flight safety, and we did not precede it by notice and opportunity for public comment. We invite you to send any written relevant data, views, or arguments about this AD. Send your comments to an address listed under theADDRESSESsection. Include “Docket No. FAA-2012-0765; Directorate Identifier 2012-CE-028-AD” at the beginning of your comments. We specifically invite comments on theoverall regulatory, economic, environmental, and energy aspects of this AD. We will consider all comments received by the closing date and may amend this AD because of those comments.

We will post all comments we receive, without change, tohttp://www.regulations.gov,including any personal information you provide. We will also post a report summarizing each substantive verbal contact we receive about this AD.

We estimate that this AD will affect 50 products of U.S. registry. We also estimate that it will take about 3 work-hours per product to comply with the basic requirements of this AD. The average labor rate is $85 per work-hour. Required parts will cost about $300 per product.

Based on these figures, we estimate the cost of the AD on U.S. operators to be $27,750, or $555 per product.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. “Subtitle VII: Aviation Programs,” describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in “Subtitle VII, Part A, Subpart III, Section 44701: General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

We determined that this AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.

For the reasons discussed above, I certify that this AD:

(1) Is not a “significant regulatory action” under Executive Order 12866,

(2) Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979),

(3) Will not affect intrastate aviation in Alaska, and

(4) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

Accordingly, under the authority delegated to me by the Administrator, the FAA amends 14 CFR part 39 as follows:

We issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 to include an AD that would apply to the specified products. That NPRM was published in theFederal Registeron December 8, 2010 (75 FR 76317). That NPRM proposed to correct an unsafe condition for the specified products. The MCAI states:

We gave the public the opportunity to participate in developing this AD. We have considered the comments received.

Gulfstream Aerospace Corporation (Gulfstream) requested that the inspection area be expanded to include tube assemblies outside of the wheel well area that have also been found to have sponge rubber padding and corrosion beneath the padding. Gulfstream stated that the padding with corrosion beneath has been found on four tube assemblies outside of the wheel well area specified in the NPRM (75 FR 76317, December 8, 2010) and Gulfstream Service Bulletin 100-28-297, dated January 21, 2010. These four tube assemblies are part of, or an extension of, the tube assemblies identified by part number in that service bulletin, and terminate in the wing root area.

John R. Dunn, a private citizen, stated that, upon further investigation after discovering instances of sponge rubberin the left wheel well, foam (sponge rubber padding) was found wrapped around tubes in the forward wing root areas of two airplanes along with wire harnesses alongside the affected tubes. Corrosion was also found on those tubes. John R. Dunn stated that neither of the affected wing root areas are mentioned in Gulfstream Service Bulletin 100-28-297, dated January 21, 2010.

We partially agree. We agree to investigate reports of sponge rubber padding use, and any subsequent corrosion, that occurs outside of the wheel well area specified in Gulfstream Service Bulletin 100-28-297, dated January 21, 2010. Depending on the results of the investigation, we will work with the airplane manufacturer to develop appropriate service information and might consider additional rulemaking to address these areas. We do not agree to change this AD to include the additional areas outside of the wheel well areas, since that would expand the scope of this AD and therefore require additional public review. We do not yet have sufficient information to justify delaying this AD to include those tubes. We have not changed the AD in this regard.

Gulfstream requested that the NPRM (75 FR 76317, December 8, 2010) be revised to state that “all” tubes in the wheel well areas be inspected for the sponge rubber padding and corrosion conditions. Gulfstream stated that it has received reports where tube part numbers other than those called out in the service information have sponge rubber padding.

We disagree to revise the wording in paragraph (g) of this AD to add the word “all.” Gulfstream Service Bulletin 100-28-297, dated January 21, 2010, already specifies a detailed inspection in the wheel well area for the presence of sponge rubber padding without specifying part numbers. As noted in paragraph 4.A. of the Accomplishment Instructions of that service bulletin, this inspection is not limited to the fuel line part numbers identified in that service bulletin. The Accomplishment Instructions of that service bulletin note that if fuel lines other than those with part numbers identified in that service bulletin are found to have sponge rubber padding, then the padding must be removed and those affected tubes must also be inspected for corrosion. We have not revised the AD in this regard.

We reviewed the available data, including the comments received, and determined that air safety and the public interest require adopting the AD as proposed, except for minor editorial changes. We have determined that these minor changes:

• Are consistent with the intent that was proposed in the NPRM (75 FR 76317, December 8, 2010) for correcting the unsafe condition; and

• Do not add any additional burden upon the public than was already proposed in the NPRM (75 FR 76317, December 8, 2010).

Where Gulfstream Service Bulletin 100-28-297, dated January 21, 2010, specifies to submit a photo of any sponge rubber padding that is found to the manufacturer, this AD does not require that action.

Gulfstream Service Bulletin 100-28-297, dated January 21, 2010, instructs operators to contact Gulfstream if technical assistance is required. However, any deviation from the instructions provided in that service bulletin and mandated by this AD must be approved as an alternative method of compliance (AMOC) under the provisions of paragraph (h)(1) of this AD.

We estimate that this AD will affect 130 products of U.S. registry. We also estimate that it will take about 25 work-hours per product to comply with the basic requirements of this AD. The average labor rate is $85 per work-hour. Required parts will cost about $100 per product. Where the service information lists required parts costs that are covered under warranty, we have assumed that there will be no charge for these parts. As we do not control warranty coverage for affected parties, some parties may incur costs higher than estimated here. Based on these figures, we estimate the cost of this AD to the U.S. operators to be $289,250, or $2,225 per product.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. “Subtitle VII: Aviation Programs,” describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in “Subtitle VII, Part A, Subpart III, Section 44701: General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

We determined that this AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.

For the reasons discussed above, I certify that this AD:

1. Is not a “significant regulatory action” under Executive Order 12866;

2. Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979);

3. Will not affect intrastate aviation in Alaska; and

4. Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

We prepared a regulatory evaluation of the estimated costs to comply with this AD and placed it in the AD docket.

You may examine the AD docket on the Internet athttp://www.regulations.gov;or in person at the Docket Operations office between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The AD docket contains the NPRM (75 FR 76317, December 8, 2010), the regulatory evaluation, any comments received, and other information. The street address for the Docket Operations office (telephone (800) 647-5527) is in theADDRESSESsection. Comments will be available in the AD docket shortly after receipt.

Accordingly, under the authority delegated to me by the Administrator, the FAA amends 14 CFR part 39 as follows:

Discussion

On May 13, 2010, at 75 FR 26889, theFederal Registerpublished our notice of proposed rulemaking (NPRM), which proposed to amend 14 CFR part 39 to include an AD that would apply to Arrow Falcon Exporters, Inc. (previously Utah State University); Firefly Aviation Helicopter Services (previously Erickson Air-Crane Co.); California Department of Forestry; Garlick Helicopters, Inc.; Global Helicopter Technology, Inc.; Hagglund Helicopters, LLC (previously Western International Aviation, Inc.); International Helicopters, Inc.; Precision Helicopters, LLC; Robinson Air Crane, Inc.; San Joaquin Helicopters (previously Hawkins and Powers Aviation, Inc.); S.M.&T. Aircraft (previously US Helicopters, Inc., UNC Helicopter, Inc., Southern Aero Corporation, and Wilco Aviation); Smith Helicopters; Southern Helicopter, Inc.; Southwest Florida Aviation International, Inc. (previously Jamie R. Hill and Southwest Florida Aviation); Tamarack Helicopters, Inc. (previously Ranger Helicopter Services, Inc.); US Helicopter, Inc. (previously UNC Helicopter, Inc.); West Coast Fabrication; and Williams Helicopter Corporation (previously Scott Paper Co.) Model HH-1K, TH-1F, TH-1L, UH-1A, UH-1B, UH-1E, UH-1F, UH-1H, UH-1L, and UH-1P Helicopters; and Southwest Florida Aviation Model UH-1B (SW204 and SW204HP) and UH-1H (SW205) Helicopters. This NPRM proposed to require inspecting each applicable blade tip block and tip closure for voids and removing any blade with an excessive void from service. The NPRM also proposed to require modifying certain blades by installing shear pins and tip closure rivets. The proposed requirements were intended to prevent loss of a tip block or tip closure, loss of a blade, and subsequent loss of control of the helicopter.

AD 2002-09-04, Amendment 39-12737 (67 FR 22349, May 3, 2002), was issued for the Bell Model 205A, 205A-1, 205B, 212, 412, 412CF, and 412EP helicopters and contained the same requirements as those in this AD. AD 2007-22-02, Amendment 39-15238 (72 FR 60760, October 26, 2007), superseded AD 2002-09-04 to expand the applicability to include other part- and serial-numbered blades. Some of the blades in the applicability of AD 2007-22-02 are eligible for installation on helicopters included in this AD, which may have an FAA-approved modification that increases the helicopter's power rating to the equivalent of the Bell Model 205B or the 212 helicopter. The Bell Model 205B and 212 helicopters are addressed in AD 2007-22-02. Consequently, the inspections and modifications required by AD 2007-22-02 are mandated for the blades installed on helicopters included in this AD.

We gave the public the opportunity to participate in developing this AD, but we did not receive any comments on the NPRM.

We have reviewed the relevant information and determined that an unsafe condition exists and is likely to exist or develop on other products of these same type designs and that air safety and the public interest require adopting the AD requirements as proposed except we have revised the estimated costs of complying with this AD to reflect ten hours for inspection instead of three hours, and minor editorial changes. These minor editorial changes are consistent with the intent of the proposals in the NPRM and will not increase the scope of the AD.

We have reviewed Bell Helicopter Textron Alert Service Bulletin No. 212-00-111, Revision D, dated March 18, 2005 (ASB), which describes procedures for inspecting and modifying certain tail rotor blades. The ASB was issued as a result of an investigation of an in-flight loss of a blade tip block, part number (P/N) 212-010-750-105. The investigation revealed the countersunk screws retaining the tip block were installed incorrectly, resulting in inadequate tip block retention. Reports have also been submitted about loss of the tip closures from other blades possibly because of inadequate adhesive bonding in this area.

We estimate that this AD will affect 716 helicopters of U.S. registry, and 25 of those helicopters will have the increased power rating. Labor costs will average an estimated $85 per work hour. Based on these assumptions, we expect the following costs:

• About 1 work hour to review the helicopter records for a labor cost of $85 per helicopter, $60,860 for the U.S. fleet.

• About 10 work hours to inspect the affected blades, install the shear pins and tip closure rivets, reidentify, and dynamically balance the blade. Required supplies will cost about $45, for a total cost of $895 per helicopter. We assume that the blade sets are installed on 25 helicopters with the FAA-approved modification that will need to be inspected and repaired.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII: Aviation Programs, describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701: “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

This AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.

For the reasons discussed above, I certify that this AD:

(1) Is not a “significant regulatory action” under Executive Order 12866;

(2) Is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979);

(3) Will not affect intrastate aviation in Alaska to the extent that it justifies making a regulatory distinction; and

(4) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

We prepared an economic evaluation of the estimated costs to comply with this AD and placed it in the AD docket.

Accordingly, under the authority delegated to me by the Administrator, the FAA amends 14 CFR part 39 as follows:

Discussion

We issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 to include an AD that would apply to the specified products. That NPRM was published in theFederal Registeron November 28, 2011 (76 FR 72855). That NPRM proposed to correct an unsafe condition for the specified products. The MCAI states:

We gave the public the opportunity to participate in developing this AD. We considered the comments received.

EMBRAER requested that we revise the NPRM (76 FR 72855, November 28, 2011) to include EMBRAER Service Bulletin 190LIN-32-0014, dated February 10, 2011 (for Model 190-100 ECJ airplanes); and EMBRAER Service Bulletin 190LIN-32-0015, dated February 10, 2011 (for Model 190-100 ECJ airplanes); as additional service information for the inspection and replacement of the MLG retraction actuator, bolt, and anti-rotation pin.

We agree with EMBRAER's request to add additional service information to this AD. EMBRAER Service Bulletin 190LIN-32-0014, dated February 10, 2011 (for Model 190-100 ECJ airplanes), provides procedures for doing the inspection; and EMBRAER Service Bulletin 190LIN-32-0015, dated February 10, 2011 (for Model 190-100 ECJ airplanes, provides procedures for the replacement. The procedures to do the inspection and replacement are essentially the same as those specified in EMBRAER Service Bulletin 190-32-0036, dated October 4, 2010 (for Model ERJ 190 airplanes); and EMBRAER Service Bulletin 190-32-0037, dated October 6, 2010 (for Model ERJ 190 airplanes). We have revised this AD accordingly.

EMBRAER requested that we revise the NPRM (76 FR 72855, November 28, 2011) to allow further flight within 500 flight cycles after any damage is found on the airplane. EMBRAER stated that EMBRAER Service Bulletin 190LIN-32-0014, dated February 10, 2011 (for Model 190-100 ECJ airplanes); EMBRAER Service Bulletin 190LIN-32-0015, dated February 10, 2011 (for Model 190-100 ECJ airplanes); and Brazilian Airworthiness Directive 2011-02-01, dated February 12, 2011; allows replacement of the MLG retraction actuator, the attachment bolt, and the anti-rotation pin within the next 500 flight cycles if any discrepancy is found. EMBRAER stated that the NPRM requires that any discrepancy found be replaced before further flight.

We disagree with EMBRAER's request to allow further flight within 500 flight cycles after any damage is found on the airplane. Our policy requires repair of known cracks or damage before further flight (though we might makeexceptions to this policy in certain cases of unusual need). This policy is based on the fact that such damaged airplanes do not conform to the FAA-certificated type design and, therefore, are not airworthy until a properly approved repair is made.

We consider the compliance times in this AD adequate, allowing operators to acquire parts to have on hand in the event that any crack or damage is detected during inspection. Therefore, we have determined that, due to the safety implications and consequences associated with such cracking and damage, any subject MLG retraction actuator that is found to be cracked or damaged must be repaired or modified before further flight. We have not changed the final rule regarding this issue.

We have revised the applicability of the existing NPRM (76 FR 72855, November 28, 2011) to identify model designations as published in the most recent type certificate data sheet for the affected models.

We have redesignated Note 1 of the existing NPRM (76 FR 72855, November 28, 2011) as paragraph (g)(3) of this AD, respectively.

We reviewed the available data, including the comments received, and determined that air safety and the public interest require adopting the AD with the changes described previously—except for minor editorial changes. We have determined that these changes:

• Are consistent with the intent that was proposed in the NPRM (76 FR 72855, November 28, 2011) for correcting the unsafe condition; and

• Do not add any additional burden upon the public than was already proposed in the NPRM (76 FR 72855, November 28, 2011).

We estimate that this AD will affect 73 products of U.S. registry. We also estimate that it will take about 1 work-hour per product to comply with the basic requirements of this AD. The average labor rate is $85 per work-hour. Based on these figures, we estimate the cost of this AD to the U.S. operators to be $6,205, or $85 per product.

In addition, we estimate that any necessary follow-on actions would take about 6 work-hours and require parts costing $0, for a cost of $510 per product. We have no way of determining the number of products that may need these actions.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. “Subtitle VII: Aviation Programs,” describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in “Subtitle VII, Part A, Subpart III, Section 44701: General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

We determined that this AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.

For the reasons discussed above, I certify that this AD:

1. Is not a “significant regulatory action” under Executive Order 12866;

2. Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979);

3. Will not affect intrastate aviation in Alaska; and

4. Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

We prepared a regulatory evaluation of the estimated costs to comply with this AD and placed it in the AD docket.

You may examine the AD docket on the Internet athttp://www.regulations.gov;or in person at the Docket Operations office between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The AD docket contains the NPRM (76 FR 72855, November 28, 2011), the regulatory evaluation, any comments received, and other information. The street address for the Docket Operations office (telephone (800) 647-5527) is in theADDRESSESsection. Comments will be available in the AD docket shortly after receipt.

Accordingly, under the authority delegated to me by the Administrator, the FAA amends 14 CFR part 39 as follows:

Direct Final Rule and Significant Adverse Comments

NASA has determined this rulemaking meets the criteria for a direct final rule because it involves nonsubstantive changes dealing with NASA's procedures for dealing with research misconduct. NASA expects no opposition to the changes and no significant adverse comments. However, if NASA receives a significant adverse comment, the Agency will withdraw this direct final rule by publishing a notice in theFederal Register. A significant adverse comment is one that explains: (1) Why the direct final rule is inappropriate, including challenges to the rule's underlying premise or approach; or (2) why the direct final rule will be ineffective or unacceptable without a change. In determining whether a comment necessitates withdrawal of this direct final rule, NASA will consider whether it warrants a substantive response in a notice and comment process.

The NASA Research Misconduct Rule was created in accordance with the “Federal Policy on Research Misconduct” issued by the Office of Science and Technology Policy on December 6, 2000. The proposed rule, published July 25, 2003 (68 FR 43982), was created to establish a new research misconduct policy for NASA and requested public comments on the proposed action. Details of the proposed rule can be found athttp://www.gpo.gov/fdsys/pkg/FR-2003-07-25/pdf/03-18982.pdf.The proposed rule was changed to address public comments, and the final rule was published on July 14, 2004 (69 FR 42102). Details on how the comments were addressed can be found athttp://www.gpo.gov/fdsys/pkg/FR-2004-07-14/pdf/04-15432.pdf.

NASA's research mission involves the advancement of research in the fields of aeronautics, space science, Earth science, biomedicine, biology, engineering, and physical science. NASA fulfills this objective through intramural research performed by NASA researchers and through extramural contracts, cooperative agreements, grants, and Space Act agreements with external entities, including the private sector; nonprofit and academic and educational organizations; and with other governmental entities. Because of this multiplicity of research arrangements, allegations of research misconduct could arise in any number of ways. While there is some overlap in the actions that may be pursued by Federal agencies and research institutions, this rule provides procedures and criteria for the interaction of NASA with its research partners in dealing with the various contingencies that could arise in the processing of research misconduct allegations.

The National Aeronautics and Space Act (the Space Act), 51 U.S.C. 20113(a), authorizes the Administrator of the National Aeronautics and Space Administration (NASA) to make, promulgate, issue, rescind, and amend rules and regulations governing the manner of its operations and the exercise of the powers vested in it by law.

Executive Orders 13563 and 12866 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, reducing costs, harmonizing rules, and promoting flexibility. This final rule has been designated a “significant regulatory action,” although not economically significant, under section 3(f) of Executive Order 12866. Accordingly, the rule has been reviewed by the Office of Management and Budget.

It has been certified that this final rule is not subject to the Regulatory Flexibility Act (5 U.S.C. 601) because it would not, if promulgated, have a significant economic impact on a substantial number of small entities.

This final rule does not contain an information collection requirement subject to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.).

Accordingly, 14 CFR part 1275 is amended as follows:

Table of Contents I. Background II. Comments on the Notices of Proposed Rulemaking A. Comment Period B. Harmonization C. Cross-Border and Affiliate Transactions D. Comprehensive Implementation Schedule E. Prerequisite Rules F. Definitions 1. Active Fund 2. Third-Party Subaccount 3. Category 1 and Category 2 Entities G. Compliance Schedule for the Clearing Requirement 4. Application to All Swap Types 5. Timing of Implementation Schedules III. Cost-Benefit Considerations IV. Related Matters A. Regulatory Flexibility Act B. Paperwork Reduction Act I. Background

Section 723(a)(3) of the Dodd-Frank Act amended the CEA to provide, under new section 2(h)(1)(A) of the CEA, that it shall be unlawful for any person to engage in a swap unless that person submits such swap for clearing to a derivatives clearing organization (DCO) that is registered under the CEA or a DCO that is exempt from registration under the CEA if the swap is required to be cleared (the Clearing Requirement).1 Section 2(h)(2) charges the Commission with the responsibility for determining whether a swap is required to be cleared (a Clearing Requirement determination), through one of two avenues: (1) Pursuant to a Commission-initiated review; or (2) pursuant to a submission from a DCO of each swap, or any group, category, type, or class of swaps that the DCO “plans to accept for clearing.”2 The Commission is proposing its first Clearing Requirement determination concurrently with its adoption of this compliance schedule rule. The finalization of that proposal will trigger the compliance schedule provided for under this adopting release.

On September 20, 2011, the Commission published proposed § 39.5(e)3 to phase in compliance of the Clearing Requirement upon the Commission's issuance of a Clearing Requirement determination pursuant to § 39.5(b) or (c).4 That notice of proposed rulemaking (NPRM) also included an implementation schedule for the requirement pursuant to amended section 2(h)(8)(A), which requires a swap subject to the ClearingRequirement to be executed on a designated contract market (DCM) or swap execution facility (SEF), unless no SEF or DCM makes the swap available to trade (the Trade Execution Requirement). The Commission is hereby adopting proposed § 39.5(e), as newly designated § 50.25, to establish a schedule for compliance only for the Clearing Requirement. A separate rulemaking will promulgate the final implementation schedule for the Trade Execution Requirement.5

The compliance schedule for the Clearing Requirement is based on the type of market participants entering into a swap subject to the Clearing Requirement. The compliance schedule balances several goals. First, the Commission believes that some market participants, such as certain managed accounts, referred to under § 50.25 as “Third-Party Subaccounts,” may require additional time to bring their swaps into compliance with the Clearing Requirement. Pursuant to § 39.5(e) (finalized as § 50.25), these market participants would be afforded additional time to clear their swaps so that they will be able to document new client clearing arrangements, connect to market infrastructure such as DCOs, and prepare themselves and their customers for the new regulatory requirements.

Another goal of the compliance schedule is to have adequate representation of market participants involved at the outset of implementing a new regime for requiring certain swaps to be cleared. The Commission believes that having a cross-section of market participants involved at the outset of formulating and designing the rules and infrastructure under which the Clearing Requirement is implemented will best meet the needs of all market participants.

The compliance schedule set forth in § 50.25 defines three categories of market participants: Category 1 Entities,6 Category 2 Entities,7 and all other market participants. As described in § 50.25(b), a swap between two Category 1 Entities must comply with the Clearing Requirement no later than 90 days after the publication of the Clearing Requirement determination in theFederal Register.8 A swap between a Category 2 Entity and a Category 1 Entity or another Category 2 Entity must comply within 180 days, and all other swaps must be submitted for clearing no later than 270 days after the Clearing Requirement determination is published in theFederal Register. To clarify, the swap is subject to the latest compliance date for one of the counterparties. In other words, if a Category 1 Entity enters into a swap with a Category 2 Entity, both parties have 180 days to submit the swap for clearing. However, the counterparty entitled to the later compliance date may elect to clear the swap earlier, and in that event, its counterparty is required to oblige.

The Commission received 26 comments during the six-week public comment period following publication of the NPRM. The Commission considered each of these comments in formulating the final regulation, § 39.5(e) (finalized as § 50.25).

The Commission published the NPRM in theFederal Registeron September 20, 2011, and the public comment period closed on November 4, 2011.

Financial Services Roundtable (FSR) comments that the public should be able to comment on an implementation schedule for each swap subject to the Clearing Requirement because the characteristics of one particular swap may necessitate a very different schedule from another.

Pursuant to § 39.5(b)(5) in the case of swap submissions and § 39.5(c)(2) in the case of Commission-initiated reviews, the public will have an opportunity to comment on each of the Commission's proposed Clearing Requirement determinations, and to comment on whether the Commission should employ the compliance schedule for that determination. In this manner, the public will have an opportunity to comment on whether use of the compliance schedule is appropriate for a given Clearing Requirement determination covering particular swaps.

The NPRM reflects consultation with the staff of the Securities and Exchange Commission (SEC), prudential regulators, and international regulatory authorities. With respect to the latter, the Commission is mindful of the benefits of harmonizing its regulatory framework with that of its counterparts in foreign countries. The Commission therefore has monitored global advisory, legislative, and regulatory proposals, and has consulted with foreign regulators in developing the final regulations.

Vanguard, the Federal Home Loan Banks (FHLBs), and the Investment Company Institute (ICI) each recommend that the Commission coordinate the compliance schedule for the Clearing Requirement, as well as implementation schedules concerning other Dodd-Frank Act requirements, with the SEC, the prudential regulators, and international regulators to avoid market disruption and avoid regulatory arbitrage. The American Council of Life Insurers (ACLI) urges the Commission to coordinate with the SEC and international regulators to achieve reductions in compliance costs. A joint letter by the Futures Industry Association, the International Swaps and Derivatives Association, and the Securities Industry and Financial Markets Association (FIA/ISDA/SIFMA) urges the Commission to coordinate implementation schedules with those introduced by the SEC, the National Futures Association, self-regulatory organizations, and market infrastructure providers.

In addition to the regulators referenced above, the Commission has consulted with other U.S. financial regulators including: (1) The Board of Governors of the Federal Reserve System; (2) the Office of the Comptroller of the Currency; and (3) the Federal Deposit Insurance Corporation. Staff from each of these agencies has had the opportunity to provide oral and/or written comments to this adopting release, as well as to the proposal.

The NPRM did not differentiate between domestic and foreign swap dealers (SDs), major swap participants (MSPs) or their counterparties, and did not address affiliate transactions.

MarkitSERV and the Alternative Investment Management Association (AIMA) each comment that the NPRM, as well as other proposals setting forth implementation schedules for complying with Dodd-Frank Act requirements, should clarify the status of cross-border transactions. Better Markets states that trading relationships between an SD or MSP and its affiliate or an international counterparty should not be treated any differently than any other trading relationship. FIA/ISDA/SIFMA comments that the Commission should publish guidance concerning the extraterritorial application of Title VII prior to the commencement of any implementation schedule.

The Commission separately has issued guidance on the cross-border application of Title VII, including the Clearing Requirement.9 With regard to inter-affiliate transactions, the Commission will be considering this issue in an upcoming proposal.

This adopting release pertains exclusively to the implementation of the Clearing Requirement.

The Coalition for Derivatives End-Users (CDE), a joint letter by the Edison Electric Institute, the National Rural Electric Cooperative Association, and the Electric Power Supply Association (Joint Associations); ICI; and MarkitSERV each argue that the Commission should create an implementation plan addressing all of its final Dodd-Frank rules and that the Clearing Requirement compliance schedule should be part of that comprehensive schedule. CDE comments further that a comprehensive schedule is important to end-users, particularly in the areas of recordkeeping and reporting. The Joint Associations also comment that a comprehensive schedule should detail compliance dates, both specific and market-wide, for each registered entity and that the Commission should request further comment on this subject as more final rules are published.

Vanguard comments that in implementing Title VII, the Commission should focus first on systemic risk issues and then issues relating to transparency and trade practices. Implementation schedules should be organized by type of participant and asset class. The schedules should also allow for voluntary compliance.

ACLI argues that the Commission has not provided sufficient guidance concerning new rules and effective dates in order for market participants to conduct a prudent review of resource planning. ACLI maintains that complying with only some rules creates a risk that documents will have to be renegotiated when other rules are phased in.

In this adopting release, the Commission is focused on providing additional time to market participants that may require more time to comply with one of the key elements of the Dodd-Frank Act—the Clearing Requirement. The compliance schedule that is the subject of this adopting release was proposed at the same time as three other compliance schedules—schedules for the Trade Execution Requirement and two important requirements under section 4s of the CEA, documentation and margin for uncleared swaps. Each of these proposed compliance schedules responded to particular concerns from market participants, especially those that are not required to register with the Commission. The Commission also has published compliance dates for phasing in implementation in nearly all of its final rules.10 In addition, the Commission has twice published on its Web site general schedules regarding the sequence and timing for its own consideration of final rules.11

In response to ACLI, as discussed further below, the Commission has finalized all the documentation requirements necessary for compliance with the Clearing Requirement.12 With regard to Vanguard's comment, the Commission intends to implement the Clearing Requirement based on specific classes of swaps, beginning with those asset classes that are currently being cleared. The Commission believes that implementation of the Clearing Requirement will serve to reduce systemic risk by mitigating counterparty credit risk through the use of the marking-to-market, margining, and risk mutualization provided by central counterparties. The adoption of this compliance schedule is an important step toward implementing that requirement. In addition, the compliance schedule expressly allows for voluntary clearing prior to the required compliance date, and market participants currently are free to clear all swaps offered for clearing by DCOs on a voluntary basis.

The preamble to the NPRM stated that prior to requiring compliance with any Clearing Requirement determination, the Commission must publish the following final rules: Definitions of swap, SD, and MSP; End-User Exception to Mandatory Clearing of Swaps; and Protection of Cleared Swaps Customer Collateral.

The FHLBs comment that the rule text of an implementation rule should state that the compliance schedule will not take effect until the Commission has published applicable final rules. The FHLBs believe that it is insufficient for the preamble to make this point.

The Joint Associations state that they cannot comment on the adequacy of either the compliance schedule for the Clearing Requirement or other implementation schedules until various final rules have been published, including the definitions of swap, SD, and MSP. The Joint Associations want to see how many of their comments to these rules have been adopted because this will affect how long it will take their members to comply with Title VII requirements. ICI comments that parties cannot prepare for centralized clearing until the Commission publishes the final rule concerning the definition of swap.

Citadel, FHLBs, and FIA/ISDA/SIFMA each recommend that the Commission publish final rules related to clearing, such as customer clearing documentation, timing of acceptance for clearing, and clearing member risk management, prior to phasing in the Clearing Requirement. FHLBs state that the prior publication of the Customer Clearing Documentation, Timing of Acceptance for Clearing, and Clearing Member Risk Management rules is important so that market participants can fully appreciate risks and not have to renegotiate documentation.

The Committee on Investment of Employee Benefit Assets (CIEBA) recommends that the Commission not impose the Clearing Requirement until full physical segregation is available for margin of cleared swaps. CIEBA alsocomments that if the Commission publishes final segregation rules for cleared swaps customer collateral at the same time that it phases in the Clearing Requirement, then market participants' limited resources would be overwhelmed. ICI comments that parties cannot prepare for centralized clearing until the Commission publishes the final rule concerning the Protection of Cleared Swaps Customer Collateral. ICI also argues that the documentation requirements under section 4s(i) of the CEA must be finalized before market participants are required to comply with mandatory clearing.

CME recommends that the Commission finalize the DCO Conflicts of Interest rules prior to requiring compliance with the Clearing Requirement.

The American Bankers Association (ABA) believes that end-user banks not be required to comply with the Clearing Requirement until 180 days after the Commission determines whether end-user banks will be exempt from the Clearing Requirement.

AIMA believes the Commission should publish final rules concerning the Margin Requirement, as well as customer collateral protection rules, prior to phasing in the Clearing Requirement.

The Commission has finalized all four of the rules identified in the NPRM that it needed to be completed prior to requiring compliance with the Clearing Requirement (namely, the End-User Exception to Mandatory Clearing of Swaps;13 Protection of Cleared Swaps Customer Collateral;14 the Further Definition of “Swap Dealer,” “Security-Based Swap Dealer,” “Major Swap Participant,” “Major Security-Based Swap Participant” and “Eligible Contract Participant”;15 and the Further Definition of “Swap,” “Security-Based Swap,” and “Security-Based Swap Agreement”; Mixed Swaps; Security-Based Swap Agreement Recordkeeping).16 In addition, the Commission has finalized rules related to Customer Clearing Documentation, Timing of Acceptance for Clearing, and Clearing Member Risk Management.17 Finalizing these rules addresses the FHLBs' concerns about having to revise documentation more than once and provides certainty as to swap processing requirements and expectations regarding risk management for clearing members. On the other hand, in response to CME's comment, the Commission does not believe it is necessary for final DCO Conflicts of Interest rules to be in effect before requiring compliance with the Clearing Requirement because these rules do not relate directly to the clearing process, customer connectivity, clearinghouse risk management, or other matters that would affect the implementation of the Clearing Requirement.

In response to the FHLBs' request that the implementation rule text include a provision that the rule is not effective until the definitions of SD, MSP, and swap are finalized, the Commission reiterates that all of the pre-requisite rules for the Clearing Requirement have been adopted. With regard to CIEBA's comment about full physical segregation, the Commission published its final rule concerning Protection of Cleared Swaps Customer Collateral on February 7, 2012.18 In that rulemaking, the Commission indicated that it may address issues related to collateral held in third-party safekeeping accounts at some point in the future. However, given that a fully operational segregation regime is required to be in place by November 8, 2012, the Commission does not believe that it is necessary for this additional matter to be resolved prior to requiring compliance with the Clearing Requirement.

In response to ICI's comment, the Commission clarifies that finalization of the swap trading relationship documentation requirements for SDs and MSPs under section 4s(i) of the CEA is not required for compliance with the Clearing Requirement because the documentation that is the subject of those rules relates primarily to bilaterally-executed, uncleared swap transactions, and none of the provisions in proposed § 23.504 pertain directly to the Clearing Requirement. Similarly, in response to AIMA's comment, final margin rules for uncleared swaps are not required to be finalized prior to requiring compliance with the Clearing Requirement as these are related, but distinct, provisions under the Dodd-Frank Act.

Under § 39.5(e)(1), the Commission proposed definitions of the terms “Category 1 Entity,” “Category 2 Entity,” “Active Fund,” and “Third-Party Subaccount.” The definitions set forth in proposed § 39.5(e) (now § 50.25) would apply specifically to provisions contained in part 39 (now part 50) and only those other rules that explicitly cross-reference these definitions. The Commission is adopting the definitions as proposed, with the exceptions discussed below.

As proposed under § 39.5(e)(1), “any private fund as defined in section 202(a) of the Investment Advisers Act of 1940, that is not a third-party subaccount and that executes 20 or more swaps per month” would be defined as an “Active Fund” and subject to the shortest implementation schedule for compliance with the Clearing Requirement.

Numerous commenters, such as Better Markets, Chris Barnard, and AIMA, agree with the Commission that using a market participant's average monthly trading volume would be an appropriate proxy for determining an entity's ability to comply with the Clearing Requirement and would be better than a proxy based on notional volume or open interest. AIMA agrees with the NPRM's proposal that Active Funds be subject to the 90-day deadline.

Other commenters express concerns about solely relying on monthly volumes as a proxy, especially without further defining the types of swaps that would be included in the calculation. ACLI states that the frequency of trading is not an appropriate indicator of a market participant's experience or resources. The Association of Institutional Investors (AII) states that the definition should specify the type of swaps that count towards the threshold. CDE recommends a minimum average monthly notional threshold to avoid capturing smaller end-users. CDE also states that hedges and inter-affiliate swaps should be excluded from this monthly average threshold. Managed Funds Association (MFA) similarly requests clarification regarding those swaps that would be included in the monthly swap calculation. Specifically, MFA requests clarification as to whether novations, amendments, or partial tear-ups would be included.

Commenters also focus on the average monthly threshold of 20 swaps permonth for the preceding 12 months. FIA/ISDA/SIFMA proposes that the threshold be an average of 200 trades per month. Vanguard proposes a similar threshold. Both AII and MFA think the proposed threshold was overly inclusive. MFA also highlights its belief that the proposed definition would be difficult to administer, while unnecessarily creating another tier of market participants for the purposes of the implementation schedules.

In response to these comments, the Commission is increasing the average monthly threshold to 200 swap trades per month for the preceding 12 months. The Commission believes that monthly trading volume is a suitable proxy for determining the appropriate implementation schedule for a swap counterparty. By increasing the threshold to 200, as recommended by FIA/ISDA/SIFMA, as well as Vanguard, the risk of capturing smaller, less experienced swap counterparties should be substantially diminished. The market participants engaging in this level of swap activity should be able to access the resources necessary to meet the 90-day implementation schedule. In light of the number of transactions currently being cleared on a voluntary basis by funds, the Commission does not believe that an increase in the threshold of monthly swap trades will negatively impact the goal of broad market participation in the implementation of the Clearing Requirement. The Commission believes this increase in the average monthly threshold also addresses CDE's concerns about smaller market participants using swaps only to hedge risk.

Further, by maintaining the concept of Active Fund, the Commission believes that it will continue to ensure adequate representation across the spectrum of market participants during the first phase of the implementation of the Clearing Requirement. As a result of this participation, processes and infrastructure will be established to serve all segments of the market, not just SDs and MSPs, which are included in the initial phase of the compliance schedule for the Clearing Requirement.

In response to AII and MFA, the Commission clarifies that the average monthly threshold of swaps applies to new swaps that the entity enters into, and it does not apply to novations, amendments, or partial tear-ups. In addition, the Commission clarifies that the 200 swap threshold includes any swap, as defined under the CEA and § 1.3, and not just those swaps that would be subject to the relevant Clearing Requirement determination and attendant compliance schedule.

Under § 39.5(e) (finalized herein as § 50.25), Third-Party Subaccounts are excluded from the definitions of Category 1 Entity and Category 2 Entity, with the effect that such subaccounts will have 270 days, the longest period, in which to comply with the Clearing Requirement. The NPRM defined Third-Party Subaccounts as “a managed account that requires the specific approval by the beneficial owner of the account to execute documentation necessary for executing, confirming, margining, or clearing swaps.” The purpose of excluding Third-Party Subaccounts from the defined categories was to ensure that investment managers, who may be faced with bringing numerous accounts into compliance, would have adequate time to do so.

Commenters question whether the definition was broad enough to provide sufficient time for Third-Party Subaccounts to comply with the Clearing Requirement. ICI noted that Third-Party Subaccounts, whether subject to the specific execution authority of the beneficiary or not, require managers to work closely with clients when entering into trading agreements on the customer's behalf. As such, ICI feels that no distinction should be made based on specific execution authority or lack thereof. ICI comments that all Third-Party Accounts should be uniformly classified and be given 270 days to comply. AII similarly states that the definition is too narrow given the administrative work required to manage an account, regardless of the execution authority. Further, AII states that execution authority is not an industry standard. The term, as proposed, therefore divides the universe of managed accounts inappropriately. FIA/ISDA/SIFMA recommends that all accounts managed by third parties, regardless of the execution authority, should be given the most time to comply with the Clearing Requirement.

Based on the comments received, the Commission is revising the definition of Third-Party Subaccount to mean “an account that is managed by an investment manager that (1) is independent of and unaffiliated with the account's beneficial owner or sponsor, and (2) is responsible for the documentation necessary for the account's beneficial owner to clear swaps.” In modifying this definition, the Commission is taking into account the point made by AII, FIA/ISDA/SIFMA, and ICI that all investment managers will need additional time to comply with a Clearing Requirement regardless of whether they have explicit execution authority. However, the definition retains the nexus between the investment manager and the documentation needed for clearing swaps. In other words, if the investment manager has no responsibility for documenting the clearing arrangements, then that account would be required to clear its swaps subject to required clearing within 180 days. For those accounts under the revised definition, however, the Commission believes that the 270-day deadline is more appropriate. Given the general notice investment managers have had about the Dodd-Frank Act's Clearing Requirement since the enactment of the statute in July, 2010, managers should have been able to consider and plan the infrastructure and resources that are necessary for all of their accounts, including Third-Party Subaccounts, to comply with the Clearing Requirement. Thus, the 180- and 270-day deadlines should provide adequate time to accommodate all managed accounts.

The compliance schedule is organized according to the type of market participant. To the extent that the Commission determines that a compliance schedule is warranted in connection with a Clearing Requirement determination (i.e.to comply with the Clearing Requirement) a market participant defined as a Category 1 Entity will have 90 days to comply, a Category 2 Entity will have 180 days, and all others will have 270 days. According to the proposed definitions, a Category 1 Entity includes an SD, a security-based swap dealer, an MSP, a major security-based swap participant, or an Active Fund. A Category 2 Entity includes a commodity pool, a private fund, as defined by the Investment Advisers Act of 1940, an ERISA plan, or a person predominantly engaged in banking or other financial activities, as defined by section 4(k) of the Bank Holding Company Act. A Category 2 Entity would not include an Active Fund or a Third-Party Subaccount.

Encana Marketing (USA) Inc. (Encana) and the Joint Associations comment that non-financial end users should be expressly included in the category with the longest timeframe. CDE argues that financial end-users should be treated identically to non-financial end-users because they do not pose systemic risk, and, therefore, should be given the most time to comply with the Clearing Requirement, and not included in Category 2. ICI seeks clarification that a market participant can determine whether it is an MSP for purposes of the compliance schedule for the ClearingRequirement at the same time that it is required to review its status as an MSP under other Commission and SEC rules.

CIEBA states that in-house ERISA funds should be in the group with the longest compliance time, and not Category 2 Entities. CIEBA notes that such funds do not pose systemic risk, and they typically rely upon third-party managers for some portion of their fund management. Splitting in-house and external accounts (i.e.those accounts meeting definition of Third-Party Subaccount and permitted 270 days) of the same ERISA plan will impact risk management given different implementation schedules. CIEBA also states that this distinction will cause pension funds to bear the costs of compliance because they will need to comply prior to their third-party managers, who would be better positioned to provide insight and service in this regard.

The Commission believes that the definitions of Category 1 Entity should be finalized as proposed, but that the definition of Category 2 Entity should be modified by removing the reference to ERISA plans. In response to Encana and the Joint Associations, non-financial end users are adequately addressed in § 39.5(e)(2)(iii) (now § 50.25(b)(3))—unless the swap transactions are eligible to claim the exception from the Clearing Requirement under section 2(h)(7) of the CEA, the parties are given 270 days to comply with the Clearing Requirement. With respect to issues raised by CDE regarding those financial entities included in Category 2, based on numerous meetings with participants in the swap market, the Commission believes that financial entities are capable of complying with the Clearing Requirement 90 days sooner than non-financial entities. Accordingly, the compliance schedule has correctly situated Category 2 Entities based upon their ability to meet the requirements of the underlying regulations. Moreover, the distinction between financial and non-financial entities has a statutory basis in section 2(h)(7) of the CEA.

The Commission recognizes the concerns raised by CIEBA regarding splitting in-house and external accounts (i.e.,those accounts meeting the definition of Third-Party Subaccount and permitted 270 days) of the same ERISA plan. In response to these concerns, the Commission is removing the reference to employee benefit plans as defined in paragraphs (3) and (32) of section 3 of the Employee Retirement Income and Security Act of 1974. As a result, these ERISA plans will be afforded the longest compliance period (270 days).

With regard to ICI's comment, a potential MSP can review its obligation to register as an MSP at the same time it is reviewing where it fits under the Clearing Requirement compliance schedule. In many instances, MSPs will have to review their registration obligations ahead of complying with the Clearing Requirement. However, if an entity discovers that it has crossed the threshold established under the MSP rules and is required to register during the 90-day period for Category 1 Entities, the Commission would consider allowing that entity to petition for additional time to come into compliance with the Clearing Requirement.19

As mentioned above, § 39.5(e)(2) provides that when the Commission determines that an implementation schedule is appropriate in connection with a given Clearing Requirement determination, market participants within the definition of Category 1 will have 90 days to comply, those within the definition of Category 2 will have 180 days, and all others 270 days to implement the Clearing Requirement.

The Clearing Requirement compliance schedule is based upon the nature of a given swap market participant, considering the participant's risk profile, compliance burden, resources, and expertise. The schedule does not contemplate different implementation timeframes based upon the characteristics of particular swaps.

AIMA states that it does not believe further implementation schedules are necessary based on the nature of the swap itself. Better Markets, Citadel, and MFA comment that the compliance schedule should apply, however, to all swaps within a “group” or “class,” as defined by the Commission's Clearing Requirement determination.

Commenters such as CDE state that the Commission should publish an implementation schedule specific to the characteristics of a particular type of swap. CDE comments that because it is unlikely that end-users, and other entities relied upon by end-users, will be able to meet the requirements necessary to comply with clearing determinations for all swap products at the same time, the Commission should phase in implementation deadlines by swap type, according to the amount of systemic risk posed by a particular swap.

MarkitSERV asserts that all Dodd-Frank Act requirements should be phased-in by asset class, taking into account that different asset classes have various levels of product standardization, electronification, volumes, and types of counterparties. FIA/ISDA/SIFMA also states that there should be a separate compliance schedule for each asset class. FIA/ISDA/SIFMA also states that the Commission should require credit default swaps and interest rate swaps to be cleared first because those products are already being cleared. Commodity and equity swaps, according to FIA/ISDA/SIFMA, should be required to be cleared later because the marketplace is currently clearing fewer of those products.

AIMA, CDE, ICI, and MarkitSERV state that the compliance schedule should require the Commission to phase in each Clearing Requirement determination as set forth in § 39.5(e). FHLB and ICI comment that the Commission should have the flexibility to extend clearing implementation dates, but not shorten them. Citadel counters that the compliance schedule should only be triggered when a determination is issued for a new category of swaps.

This rule affords the Commission discretion to determine whether to apply the compliance schedule in connection with a particular Clearing Requirement determination. The Commission agrees that while the schedule may be necessary in connection with some Clearing Requirement determinations, especially those covering new classes of swaps, there also may be determinations that are sufficiently similar to prior ones that no compliance schedule is necessary. As such, the Commission will determine whether or not to apply the § 39.5(e) (now § 50.25) compliance schedule as part of its analysis in connection with each Clearing Requirement determination.

Further, it remains the Commission's intention that those swaps currently being cleared will be subject to the first Clearing Requirement determinations. As a result, market participants initially will comply with the Clearing Requirement using established platforms and technology. This should limit a market participant's burden in transitioning to clearing, as the use of existing infrastructure will mean less time and expense necessary to develop independent programs, technology, or platforms to clear such transactions.

Citadel and Better Markets comment that they agree with the proposed compliance schedule because market participants have had notice of the movement towards clearing for one to three years, and the clearing infrastructure already exists with regard to interest rate and credit default swap products. Citadel and Tradeweb believe the proposed schedule correctly staggers compliance according to category of market participant. Citadel does not support extending the 270-day timeframe because 270 days would grant sufficient time to market participants without providing so much time as to engender a material, competitive advantage or regulatory arbitrage. AIMA believes the proposed schedule grants sufficient time to each category of market participant so that they will be able to comply with the Clearing Requirement. Similarly, the Joint Associations and The Westpac Group (Westpac) generally agree with phasing in implementation with the Clearing Requirement according to category of participant.

CIEBA states that because SDs, MSPs, and Active Funds will be the first focus for all third party vendors, ERISA plans will be competing for these resources only after the first implementation deadline has passed, leaving only 90 days for a crowded market place to comply. With limited resources, such a tight timeframe may lead to inadequate agreements and/or increased risk exposure. Further, inadequate agreements caused by lack of resources and rushed documentation will create even further cost disparity for clearing between U.S. pension plans and European ones that will not be required to clear swaps. As such, CIEBA recommends that Category 2 Entities have more than 180 days to comply. Likewise, FIA/ISDA/SIFMA note that the compliance schedule should be lengthened and that buy-side entities, which may currently be categorized as Category 1 Entities, should not be required to commence clearing until the second quarter of 2013 at the earliest.

CDE argues that SDs and MSPs should comply before establishing other end-user deadlines. CDE believes that if Category 1 Entities cannot comply, then that will compound problems for Category 2 and 3 Entities. If an implementation schedule must be set, the CDE recommends one year for end-users, in light of their limited internal resources and the competition for external resources.

ACLI comments that complex issues will surface as market participants try to combine the agency framework presently existing in the futures markets (i.e.,customer-futures commission merchant) with the principal-to-principal framework that has existed in the over-the-counter swaps market. In addition to executing the necessary agreements, insurers will want to ensure they enter into agreements with parties that serve them best. The combination of these factors means that timeframes are too short and may result in smaller firms accepting unfavorable agreements with fewer counterparties, possibly concentrating risk. ACLI also highlights that insurers face an additional burden in ensuring that compliance with the Clearing Requirement is consistent with their state regulatory obligations.

Vanguard argues that additional time will be required to enter into the new agreements necessitated by the move to a cleared derivatives market. Vanguard highlights the large volume of such agreements and the lack of market standards. ICI also finds the compliance schedule to be too short in light of the needs to build and test new systems, adapt to new regulatory requirements, and educate customers about these changes.

Mastercard Worldwide urges the Commission to give non-bank firms at least 270 days to comply with the Clearing Requirement in respect of their foreign currency hedging activities, even if the firm is covered by section 4(k) of the Bank Holding Company Act. Westpac comments that Category 1 Entities should have at least 180 days to comply with the Clearing Requirement, noting that not all SDs, particularly smaller ones, are currently DCO members. Regional Banks also request that small SDs have at least 180 days to comply with the Clearing Requirement in light of their relative lack of resources and experience, as compared to larger SDs.

ACLI and FSR believe that the compliance schedule for the respective entity categories should run consecutively rather than concurrently. For example, the 180 days given to Category 2 Entities to comply with the Clearing Requirement should begin only after the expiration of the 90 days given to Category 1 Entities.

FSR does not believe there are sufficient resources, either internally, at market participants, or externally, at third party vendors, for the compliance schedule to run concurrently. If the schedule were to run concurrently, then resources would be allocated sequentially to the detriment of entities in the later implementation groups. ACLI, Joint Associations, and the Coalition of Physical Energy Companies (COPE) each express concern that the proposed compliance schedule does not provide sufficient time for the software companies and other vendors, upon which many smaller market participants rely, to develop, test, and debug the software and other technology that will be needed to ensure compliance with the Clearing Requirement. The Joint Associations and COPE each suggests the Commission take affirmative steps to solicit feedback from these software makers, particularly from vendors that provide “position and trade capture software,” in order to determine the amount of time market participants will need to implement software necessary to comply with the Clearing Requirement.

The Commission is finalizing the compliance schedule for the Clearing Requirement as proposed, except for the changes described above for ERISA plans and Third-Party Subaccounts. The Commission believes that the 90-, 180-, and 270-day implementation periods will give market participants sufficient time to comply with the Clearing Requirement. The Commission agrees with commenters such as Citadel and Better Markets that the move to required clearing has been proceeding for two years under the Dodd-Frank Act. This period should have allowed parties to contemplate and design implementation plans and to identify the resources needed to execute those plans. With the Commission's decision to focus on those swaps that are currently cleared when considering its initial Clearing Requirement determinations, market participants will be working with clearing offerings that are seasoned and established, justifying the timeframes provided for in the compliance schedule. For these reasons, the Commission also declines to change the concurrent nature of the compliance schedule.

Given the final rules for the definitions of swap dealers, and the threshold used in terms of annual notional volume of swaps for such swap dealers, the Commission does not believe it necessary to further distinguish between larger swap dealers and smaller ones for purposes of the implementation periods related to Clearing Requirements.20 Similarly, the Commission does not believe it practicable to make distinctions between entities covered by section 4(k) of the Bank Holding Company Act for the purpose of establishing a 180-dayimplementation period as compared to a 270-day period.

In response to CDE, the Commission also notes that certain swaps would not be subject to the Clearing Requirement under section 2(h)(7) of the CEA when one of the counterparties to a swap (i) is not a financial entity, (ii) is using the swap to hedge or mitigate commercial risk, and (iii) notifies the Commission how it generally meets its financial obligations associated with entering into a non-cleared swap. If a market participant can claim an exemption, the Clearing Requirement will not be applicable. In all other cases, the implementation schedule for a Clearing Requirement would provide for up to 180 or 270 days for such market participants.

In response to concerns that state regulatory obligations for insurance companies might create obstacles to compliance with implementation schedules as suggested by ACLI, the Commission observes that those insurers would have a minimum of six months to work with their state regulators to address the matter. If no solution could be found within that time period, an affected insurer would be able to petition the Commission for specific relief.

The Commission also has taken affirmative steps to ensure that external providers of services to derivative market participants, such as derivatives software providers, have been included in the dialogue concerning implementation scheduling. At the May 2011 Implementation Roundtable, these vendors voiced their opinions with respect to how an implementation schedule could provide sufficient time for market participants relying on “off-the-shelf” derivatives tracking software to deploy such software such that they could comply with the Clearing Requirement. The Commission will continue to develop its understanding of technology issues and will solicit comment on this issue in forthcoming proposed Clearing Requirement determinations.

Prior to the enactment of the Dodd-Frank Act,21 swaps were not subject to required clearing. However, the limited market data that is available suggests that over-the-counter (OTC) swap markets have been migrating into clearing over the last few years in response to natural market incentives as well as in anticipation of the Dodd-Frank Act's clearing requirement. LCH.Clearnet data, for example, shows that the outstanding volume of interest rate swaps cleared by LCH has grown steadily since at least November 2007, as has the monthly registration of new trade sides. Together, those facts indicate increased demand for LCH clearing services related to interest rate swaps, a portion of which preceded the Dodd-Frank Act.22 Data available through CME and TriOptima indicate similar patterns of growing demand for interest rate swap clearing services, though their publicly available data does not provide a picture of demand prior to the passage of the Dodd-Frank Act in July 2010.23 The trend toward increased clearing of swaps is likely to continue as the Commission begins determining that certain swaps are required to be cleared (Clearing Requirement determination). In fact, the Tabb Group estimates that 60-80% of the swaps market measured by notional amount will be cleared within five years of the time that the Dodd-Frank Act is implemented.24

In the wake of the financial crisis of 2008, Congress determined, among other things, that swaps shall be cleared upon Commission determination. Specifically, section 723(a)(3) of the Dodd-Frank Act amended section 2(h)(1)(A) of the CEA to make it “unlawful for any person to engage in a swap unless that person submits such swap for clearing to a derivatives clearing organization that is registered under this Act or a derivatives clearing organization that is exempt from registration under this Act if the swap is required to be cleared.”25 The statutory swap clearing requirement is designed to standardize and reduce counterparty risk associated with swaps, and, in turn, mitigate the potential systemic impact of such risks and reduce the likelihood for swaps to cause or exacerbate instability in the financial system.26 It reflects a fundamental premise of the Dodd-Frank Act: The use of properly functioning central clearing can reduce systemic risk.

The rule contained in this adopting release addresses one aspect of required swap clearing under section 2(h) of the CEA: Implementation scheduling following a Commission determination that a class of swaps is required to be cleared. In other words, is immediate clearing required or is implementation subject to some delay. On September 20, 2011, the Commission published a NPRM.27 The Commission proposed a phased-in compliance schedule for swaps subject to Clearing Requirement determinations that distinguishes among Category 1 Entities, Category 2 Entities, and all other entities (referred to for purposes of this section III as “Category 3 Entities”); those entities, respectively, would have 90 days, 180 days, and 270 days, from the date of the Clearing Requirement determination to comply with the Clearing Requirement.28 The NPRM also requested comment with respect to the costs and benefits of the proposed schedule, including, specifically, data, assumptions, calculations, or other information to quantify its costs and benefits, as well as alternatives to it. The Commission received 26 comment letters in response, none of which provided quantitative analysis regarding the costs or benefits of the proposed compliance schedule.29

These comments touch upon a variety of issues, and include a number that supported the Commission's approach as proposed. Others note certain areas of concern about costs or benefits underthe rule as proposed, and either expressly propose alternatives or raise issues that have caused the Commission to consider alternatives to it. Among other things, commenters responded to the phased approach, the entities included in Category 1, Category 2, and Category 3, the amount of time that the schedule provides for entities in each category, and the optionality of the schedule.

In the absence of this rule, market participants would be required to comply with the Clearing Requirement immediately upon issuance of a Clearing Requirement determination by the Commission. Pursuant to the rule, however, when the Commission deems it appropriate, market participants will be provided additional time as prescribed in the rule's schedule to comply with Clearing Requirement determinations. Category 1 entities, which include, among others, SDs, MSPs, and Active Funds,30 will have 90 days from the date that a Clearing Requirement determination is published in theFederal Registerto comply. Category 2 Entities, which include commodity pools; private funds as defined by the Investment Advisers Act of 1940, other than Active Funds; and banks; but not Third-Party Subaccounts, will have 180 days to comply with a new Clearing Requirement determination. Category 3 Entities are those with Third-Party Subaccounts, as well as any other entity not eligible to claim an exception under section 2(h)(7) of the CEA, including ERISA plans, and they will have 270 days to comply with a Clearing Requirement determination once it is published in theFederal Register.

The discussion that follows considers the costs and benefits of, and alternatives to, the rule in this adopting release.

Section 15(a) of the CEA31 requires the Commission to consider the costs and benefits of its actions before promulgating a regulation under the CEA or issuing certain orders. Section 15(a) further specifies that the costs and benefits shall be evaluated in light of five broad areas of market and public concern: (1) Protection of market participants and the public; (2) efficiency, competitiveness, and financial integrity of futures markets; (3) price discovery; (4) sound risk management practices; and (5) other public interest considerations. The Commission considers the costs and benefits resulting from its discretionary determinations with respect to the section 15(a) factors.

In this rulemaking the Commission is not imposing clearing requirements, but is exercising its discretion to stagger required clearing implementation according to a particular schedule and subject to the conditions specified in these rules. For purposes of this analysis, the Commission considers the costs and benefits attributable to its choices in this rulemaking—e.g.,to stagger the implementation of clearing requirements and to do so in the manner prescribed—against those that would arise absent this Commission action—i.e.,if implementation of the Dodd-Frank Act's Clearing Requirement for those swaps that the Commission separately determines to be subject to clearing was not staggered according to the rule's schedule.

For reasons discussed in more detail below, the cost and benefits associated with requiring clearing immediately upon the Clearing Requirement determination for a swap class, or after some longer versus shorter period of delay, are not susceptible to meaningful quantification. As described above, these are not the costs and benefits of implementing Clearing Requirement determinations, but rather the costs and benefits of implementing them more slowly than would be required in the absence of this rule. The Commission is not aware of any analog to either an immediate or delayed requirement to establish the capability to clear that would produce data that the Commission could use to estimate the difference in costs and benefits between the two. Moreover, any data that might be gleaned from the experiences of an individual market participant establishing a relationship with a futures commission merchant (FCM) during normal market conditions would not reflect the influence of a number of effects that are likely to result from the simultaneous implementation of many market participants in a series of three waves. This coordinated movement creates both costs and benefits that cannot be quantified using data drawn from current market conditions. Notwithstanding these limitations, the Commission identifies and considers the costs and benefits of this rule in qualitative terms.

Determining whether to implement required clearing immediately upon Commission determination or after some period of delay necessarily involves cost and benefit tradeoffs. On the one hand, delaying required clearing implementation also delays the benefits of clearing of certain swaps, including reduced counterparty risk and increased stability in the financial system. These benefits are substantial, and any delay in their realization represents a cost to the market and the public. On the other hand, requiring implementation immediately or within a very compressed timeframe creates certain costs for industry participants. Reducing these costs—enumerated below—by extending the implementation schedule represents a benefit.

First, to meet pressing timelines, some firms will need to contract additional staff or hire vendors to handle some necessary tasks or projects. Additional staff hired or vendors contracted in order to meet more pressing timelines represent an additional cost for market participants. Moreover, a tightly compressed timeframe raises the likelihood that more firms will be competing to procure services at the same time; this could put firms that conduct fewer swaps at a competitive disadvantage in obtaining those services, making it more difficult for them to meet required timelines.32 In addition, it could enable service providers to command a pricing premium when compared to times of “normal” or lesser competition for similar services. That premium represents an additional cost when compared to a longer implementation timeline.

Second, if entities are not able to comply with Clearing Requirement determinations by the required date, they may avoid transacting swaps that are required to be cleared until such a time as they are able to comply. In this event, liquidity that otherwise would result from those foregone swaps would be reduced, making the swaps more expensive for market participants taking the other side. Moreover, firms compelled to withdraw from the market pending implementation of required clearing measures will either leave certain positions un-hedged—potentially increasing the firm's own default risk, and therefore the risk to their counterparties and the public. Alternatively, firms compelled to withdraw from the market for a period of time could attempt to approximatetheir foregone swap hedges using other, likely more expensive, instruments. And to the extent the withdrawing entities are market makers, they will forsake the revenue potential that otherwise would exist for the period of their market absence.

Third, firms may have to implement technological solutions, sign contracts, and establish new operational procedures before industry standards have emerged that address new problems effectively. To the extent that this occurs, it is likely to create costs. Firms may have to incur additional costs later to modify their technology platforms and operational procedures further, and to renegotiate contracts—direct costs that a more protracted implementation schedule would have avoided.33 Moreover, costs created by the adoption of standards that fail to address certain problems, or attributable to undesired competitive dynamics resulting from such standards, may be longstanding.

Given the factors identified above, this rulemaking aims to strike the optimal cost-balance tradeoff amidst the competing concerns. Shorter timelines will tend to push greater numbers of swaps into clearing more quickly, reducing the counterparty and systemic exposures in ways that were intended by the Dodd-Frank Act—a benefit. But, shorter timelines also increase the costs as discussed above. Longer timelines have the opposite effect, decreasing the costs described above, but increasing the amount of time during which counterparty and systemic exposures that would otherwise be mitigated by required clearing persist.

In theory, the optimal tradeoff between the two is the point at which the marginal cost of an additional one-day delay in implementation equals the marginal benefits of the same incremental delay. But it is not possible, at this stage, to determine the marginal costs or benefits of each day of delay. To estimate such values reliably requires data that does not yet exist—i.e.,data gleaned in the midst of the transition process. Therefore, neither the Commission nor commenters are able to assert conclusively that any particular schedule is more or less advantageous relative to all others that the Commission might have considered. Thus, in the face of these practical limitations, the Commission has relied on qualitative considerations, informed by commenters, to guide the necessary tradeoff determinations.

The Commission, informed by its consideration of comments and alternatives, discussed in the sections above and below, believes that the approach contained in this adopting release is reasonable and appropriate in light of the tradeoffs described above. The schedule established here gives the Commission the opportunity to provide additional time to entities in ways that generally align with: (1) Their resources and expertise, and therefore their ability to comply more quickly; and (2) their level of activity in the swap markets, and therefore the possible impact of their swap activities on the stability of the financial system. Entities with the most expertise in, and systems capable to transact, swaps also are likely to be those whose swaps represent a significant portion of all transactions in the swap markets. They are more likely to be able to comply quickly, and the benefits of requiring them to do so are greater than would be the case for less active entities. On the other hand, entities with less system capability and in-house swap expertise may need more time to comply with Clearing Requirement determinations, but it is also likely that their activities represent a smaller proportion of the overall market, and therefore are less likely to create or exacerbate shocks to the financial system.34 The Commission believes that Category 1 encompasses entities likely possessing more advanced systems and expertise, and whose swap activities constitute a significant portion of overall swap market transactions, while Categories 2 and 3 encompass those likely to have relatively less developed infrastructure and whose swap activities constitute a less significant proportion of the market.

The Commission notes that clearing of certain swaps, and in particular interest rate and credit default swaps, has been occurring for some time; by implication, this indicates that the requisite technology, contractual terms, and operational standards among clearinghouses, clearing members, and some clients exist.35 The Commission also notes that it is likely that the degree to which firms have already implemented such technology, contracts, and operational patterns varies considerably, particularly among potential customers of FCMs, and that the legal, technological, and operational changes that are necessary for less frequent swap market participants may be more substantial. However, given the availability of FCMs (through which market participants may clear swaps) as well as the technology and contractual standards necessary to clear swaps, the Commission believes that a number of firms can reduce the costs associated with meeting compliance timelines by forming necessary FCM relationships and contracts, and implementing the necessary technology, before the Commission begins issuing Clearing Requirement determinations.36 Nonetheless, the Commission considered these concerns, among other issues, when determining to grant Category 2 and Category 3 Entities an extended 180 and 270 days, respectively, rather than requiring them to comply at the same time as Category 1 Entities.

Moreover, use of the schedule contained in this release is at the Commission's discretion; in situations where the Commission determines that the benefits of delayed implementation do not justify the additional costs of such a delay, the Commission may require immediate compliance with Clearing Requirement determinations. Therefore, in situations where the Commission determines that a swap must be cleared, and further believes that clearing the swap will not necessitate significant changes to market participants' technology, legal arrangements, or operational patterns, the Commission is likely to determine that immediate compliance iswarranted. In these cases, the benefits of required clearing will be realized immediately.

The discretionary nature of the schedule contained in the adopting release, however, may create some uncertainty for market participants, and consequently may create some costs as market participants take steps to protect themselves from the impact of such uncertainty. For example, if a market participant believes that the Commission may issue a determination that a particular swap must be cleared, but is not certain whether clearing will be required immediately or according to the schedule contained in this release, that entity may begin developing the capacity to clear such a swap prior to a determination by the Commission in order to reduce the risk that it would be forced to stop trading the swap while it comes into compliance. If that participant's belief that the Commission will require the swap to be cleared is incorrect, the participant will have unnecessarily borne the cost of preparing for such a possibility. The Commission considered this cost, but believes that the notice and comment approach that the Commission will use when issuing Clearing Requirement determinations mitigates it. Each proposed Clearing Requirement determination will be published in theFederal Registerand will be available for public comment for a period of at least 30 days; the Commission anticipates clarifying in each proposed Clearing Requirement determination whether compliance will be required immediately upon the final determination or according to the schedule contained in this rule. This approach will provide market participants with notice regarding the expected timeline for compliance, which will mitigate costs associated with uncertainty about compliance timelines.

Commenters propose or otherwise highlight points that suggest alternatives with respect to various aspects of the NPRM.37 These aspects, as categorized for discussion below, are: (1) Phased approach; (2) entity categorization; (3) schedule increments; and (4) schedule discretion.

A number of commenters express support generally for additional time to comply with Clearing Requirement determinations and for a phased approach that distinguishes between various types of entities.38 Commenters note that the additional clarity provided by the schedule will encourage industry participants to commit resources to overcoming structural and economic barriers that prevent widespread clearing.39 Some commenters, however, maintain that the phased approach used to implement clearing requirement determinations should not be applied to exchange trade requirements.40 The AIMA believes that effective required clearing will enable execution of swaps on SEFs and DCMs and that linking the trading and clearing compliance schedules could delay the transition into central clearing. In response to these comments, the Commission has decided to limit the scope of this rule to Clearing Requirement determinations, to retain the phased approach to required clearing, and to address implementation of trade execution in a separate rule.

Some commenters note that a phased approach could complicate implementation for large investor advisor firms that may have multiple funds in separate categories. Specifically, AII expresses concern that it may be difficult for institutional advisers to execute block trades for multiple clients during the implementation period because they will have to consider whether each client must comply with the Clearing Requirement. Nevertheless, AII recommends retaining the phased approach with at least 18 months for entities to comply. The Commission recognizes that such complexities exist and could introduce certain costs for large investor adviser firms. However, it is not clear that delaying the implementation period would alleviate this concern, although prolonging the implementation period likely would exacerbate the issue by extending the time during which such concerns are relevant. Moreover, the Commission notes that the benefits of required clearing are substantial and that further delays create costs borne by market participants and the public. In these circumstances, the Commission considers the latter consideration most compelling and, accordingly, has determined not to delay implementation beyond what is set forth in the schedule in the adopting release.

Finally, relative to the alternative of immediate implementation following a Commission Clearing Requirement determination—the result in the absence of this rule—the Commission believes that the phased approach reflected in this adopting release is superior. The immediate implementation alternative would not mitigate the costs, enumerated above, to market participants and the public. In contrast, while delaying implementation also entails a different set of costs, also discussed above, the Commission has carefully tailored the rule's phased approach to contain and dampen them.

Commenters generally agree that some buy-side representation in Category 1 is valuable in order to ensure that buy-side interests are represented as technological and legal standards begin to form,41 though commenters express varied views about whether Active Funds should play that role, and what entities should be included in that group. Some commenters state their belief that transaction volume is an appropriate proxy for a firm's level of expertise in conducting swaps and, therefore, is a useful criterion for identifying the buy-side entities that are best equipped to make the transition as part of Category 1.42 Some express concern, however, that as defined in the NPRM, the term “Active Fund” could be over-inclusive and recommend raising the threshold number of swaps or excluding swaps that are hedges or have a notional value below $10 million.43

The Commission's intent in selecting Active Funds to participate in Category 1 is to identify those market participants that are larger and have significant experience in the swap markets. To ensure that the rule effectively selects for these entities, and in response to commenters, the Commission has raised the threshold number of swaps from a trailing average of 20 swaps per month over the previous twelve months, to a trailing average of 200 swaps per month over the previous twelve months. The Commission, however, believes thatfurther criteria restricting the swaps that are included against that count would create incremental administrative and operational costs that do not justify the resulting benefit, and therefore has not placed further restrictions on the types of swaps that count against the threshold. However, per commenters' request for clarification, the Commission is clarifying that the average monthly threshold of swaps applies to new swaps that the entity enters into, and it does not apply to novations, amendments, or partial tear-ups.

ACLI maintains that there is diversity among buy-side participants in their use of swaps, and expresses concern that Active Funds may not be able to effectively represent diverse buy-side interests, and those of insurance companies in particular. ACLI, however, does not describe or quantify specific costs that it believes would result from this circumstance.44 The Commission acknowledges that buy-side market participants are diverse and may have specific needs reflecting concerns or interests unique to individual industries or even individual entities. However, the Commission also notes that the fact of certain differences among firms does not exclude the possibility of remaining similarities. Further, it believes that realizing the benefits provided by some buy-side representation in Category 1 is preferable to a scenario in which these benefits are foregone by removing Active Funds from Category 1 for required clearing implementation. Moreover, in the absence of any input as to how dissimilarities may specifically impact the compliance implementation process, the apparent solution to ACLI's concern would be to include insurance companies in Category 1 to assure representation of their interests earlier in the implementation process. While any Category 2 Entity or any other entity may elect to comply sooner than the schedule requires (and are encouraged by the Commission to do so), the Commission finds no basis to believe that the benefits of requiring all insurance companies to participate in Category 1 warrant the additional costs that such an approach would create for them.

MFA expresses concern that questions related to the term “Active Fund” could create an additional burden for fund operations and Commission staff, and proposed that all private funds be placed in Category 2 in order to eliminate this burden.45 MFA, however, does not specify what these questions are, nor the cost to funds associated with addressing them. In the absence of more specific information about the nature of the potential questions and their associated costs, the Commission has insufficient basis to conclude that costs to clarify Active Fund issues—either for fund operators or itself—are likely to be significant. Accordingly, it believes that the benefits of early-stage, buy-side representation warrant retention of the Category 1 Active-Fund component.

Some commenters express concern about the definition of the term Third-Party Subaccounts. They maintain that the Third-Party Subaccount category should include any managed accounts, regardless of the level of authority granted in the advisory agreement to enter into trading agreements, on grounds that the operational and contractual challenges for moving swaps related to these accounts into clearing will be much the same regardless of whether the accounts' investment management agreements have “specific approval” requirements.46 Similarly, some commenters advocate in favor of including all ERISA plans in Category 3 given their expectations that (1) Category 2 entities will bear more “start-up” costs related to required clearing than those in Category 3, and (2) putting some ERISA plans in Category 2 and others in Category 3 will make overlays more difficult and costly.47 Conversely, AIMA specifically states that making all funds Category 3 Entities is not a suitable approach because it would eliminate buy-side representation during the early stages of implementation, and, consequently, urges the Commission not to adopt this approach.48

Furthermore, AIMA and FSR asserted that some Third-Party Subaccounts may be “private funds” as defined in the Investment Advisers Act of 1940 that would otherwise qualify as Active Funds; AIMA expresses concern that allowing such funds 270 days to comply with clearing requirements could provide them a competitive advantage relative to other Active Funds that are not Third-Party Subaccounts for the period of time between the compliance dates for Categories 1 and 3. To level this playing field, AIMA proposes placing all Active Funds in Category 1, regardless of whether the funds also meet the criteria for a Third-Party Subaccount. In support of this proposition, AIMA opines that large institutional managers of large numbers of Third-Party Subaccounts are likely to have sufficient resources to make the transition within the 90 days required of Category 1 Entities.

The Commission recognizes that some managed funds that do not require third party sign-off for clearing agreements, nevertheless, may choose to involve their clients in negotiation of relevant documents, and that some costs may result from placing some managed funds and ERISA plans in Category 2 and others in Category 3. After considering the alternatives posed by commenters, the Commission has modified the definition of Third-Party Subaccount to include managed accounts for which the investment manager is responsible for clearing documentation, regardless of whether the investment manager has explicit execution authority. In addition, the Commission has determined not to include ERISA plans in Category 2. The Commission has made these changes despite the fact that commenters do not attempt to quantify the costs associated with these provisions, nor do they recognize that such costs must be considered against the costs of further delaying required clearing implementation by a number of managed funds and ERISA plans. A fundamental premise of the Dodd-Frank Act is that central clearing minimizes risk to counterparties and the financial system as a whole; therefore, further delaying implementation of one or more groups of market participants creates costs associated with prolonged exposure of the financial system to a greater number of un-cleared swaps. Nonetheless, the Commission believes it appropriate to permit certain market participants an additional 90 days to come into compliance with the clearing requirement based on the comments received.

Some commenters express the opinion that 90, 180, and 270 days is sufficient for Category 1, 2, and 3 Entities, respectively, to comply with Clearing Requirement determinations.49 Several other commenters, however, expressed concern that the additional time provided in this rule may not be sufficient for some entities to comply.50 In that vein, commenters state that theschedules may not be sufficient for contract negotiations to be completed,51 that pressing timelines could undermine the ability of some entities to negotiate effectively,52 and that rapid compliance may lead to the creation of industry standards that are not fair or prudent.53 Some commenters also express concern that entities in Categories 2 and 3 may not be able to find vendors able to provide sufficient support to meet the deadlines effectively.54

It is impossible to quantify the costs and benefits of one particular schedule phase-in increment relative to another—e.g.,90 days to comply versus 110—and the permutations of such an exercise would be endless, even if possible. Similarly, as discussed above, whether the schedule included in this adopting release mitigates costs to a greater degree than other increments the Commission might have adopted as an alternative to immediate implementation of required clearing (the result in the absence of this rule) is also a question that cannot be resolved with precision. In light of these limitations, however, the Commission has drawn upon its historical experience monitoring clearing, as well as its consideration of the qualitative feedback offered by market participants, in determining to incorporate the 90-, 180-, and 270-day benchmark features within the schedule adopted in this release. In so doing, the Commission believes that it has selected a reasonable schedule that is appropriate and well-suited to mitigate compliance pressures for market participants, and fairly accommodate the various competing interests involved.

As is stated above, the Commission recognizes that extending the compliance schedule for one or more entities will reduce compliance costs for market participants in a number of different ways, but will also increase the amount of time during which market participants and the public do not benefit from the protections provided by mandatory clearing.

Some commenters support the Commission's retention of discretion to override the schedule in this release to require immediate clearing when it believes that the benefits do not justify the associated costs.55 These commenters note that over time market participants will gain experience to enable swifter compliance with later Clearing Requirement determinations, and maintain that, over time, the compliance schedules will not be warranted for Clearing Requirement determinations for new types, groups, or categories of swaps within an asset class that are already subject to a prior Clearing Requirement.56 Other commenters, however, support application of the schedule to all Clearing Requirement determinations in order to reduce uncertainty and facilitate orderly transitions to compliance.57

As discussed below, the Commission believes that the challenges of compliance are likely to vary depending on whether previous Clearing Requirement determinations have been made for other swaps in the same class, how long previous Clearing Requirement determinations for swaps in that class have been in place, the similarities between the swaps addressed by a determination and swaps subject to previous determinations, and a number of other factors. Therefore, the Commission believes that the tradeoff between the costs and benefits of more rapid compliance will vary as well. Where Clearing Requirement determinations pertain to swaps that have important points of similarity with swaps already required to be cleared, it is likely that the costs associated with more rapid compliance will be significantly less, and therefore the balance will shift in favor of a shorter compliance deadline than would be allowed under the schedule contained in this rule. Also, by including the applicable compliance schedule within its public notifications of a proposed Clearing Requirement determination, the Commission will mitigate uncertainty costs that could result.

Category 1 includes, among others, SDs as well as MSPs and Active Funds. If SDs were not able to comply immediately with a Clearing Requirement determination, and were not given additional time to comply, they could choose to withdraw from the market as they work toward compliance. Such withdrawal would create lost opportunities for them as they fail to capture business that they would have otherwise conducted during that period. If MSPs or Active Funds choose to withdraw from the market while they work to come into compliance, it could become more costly for them to either effectively create or hedge certain exposures, which could also prompt them to leave certain risks un-hedged that they would otherwise mitigate through the use of swaps. By giving Category 1 Entities an additional 90 days to comply with Clearing Requirement determinations, the schedule contained in this adopting release reduces the likelihood of these entities withdrawing from the swap markets while they work toward compliance; this, in turn, reduces the probability that these Category 1 Entities will bear the potential costs of un-hedged risk exposure.

Moreover, the Commission believes that SDs are an important source of liquidity for swap market participants. If SDs withdraw from the market while they work toward compliance, it could negatively impact swap liquidity, increasing costs for market participants forced to hedge certain risks through less efficient means (or not at all) for a period of time. The costs of not hedging certain risks would be borne not only by the firms that choose such an approach, but by the public in the form of increased counterparty risk throughout the financial system. Again, by providing additional time for SDs to comply with Clearing Requirement determinations, the schedule in the adopting release facilitates an orderly transition and reduces the likelihood that the costs associated with SDs withdrawing from the market for a period of time would materialize. The Commission considered this benefit in light of the cost associated with delayed compliance among Category 1 Entities and believes that an appropriate balance has been struck.

The Commission also anticipates that the staggered compliance schedule contained in this rule will, to some extent, enable Category 2 and 3 Entities to adopt technological, legal, and operational standards developed by Category 1 Entities. To the extent that this occurs, it will reduce the number of entities that are working in parallel to develop solutions to the same problems by allowing Category 2 and 3 Entities some time to wait for Category 1 Entities and vendors to develop viable solutions to technological, legal, and operational challenges. Some of those solutions are likely to be proprietary, while otherswill likely relate to non-proprietary standards that must be shared in order to be effective. Both types of advances can reduce costs for Category 2 and 3 Entities. In the case of non-proprietary standards, Category 2 and 3 entities will benefit from the opportunity to adopt them without having to invest in their development. In the case of proprietary solutions, some of them are likely to be owned by vendors marketing them to multiple market participants, thereby spreading the development costs among their clients. Each of these consequences is likely to reduce overall development costs for the industry, and development costs for Category 2 and 3 Entities, in particular.58

In weighing the tradeoff between shorter versus longer compliance timelines, the Commission believes Category 2 Entities are likely to be less well-resourced and less active in these markets. Therefore the dynamic between more or less rapid compliance tips in favor of providing additional time for these entities. As stated above, by providing 180 days, it becomes more likely that Category 2 Entities will be able to draw from lessons learned and standards established by Category 1 Entities. It also increases the likelihood that where Category 2 Entities will depend on vendors for help developing and implementing necessary technology, legal agreements, and operational patterns, they will not have to compete as directly with Category 1 Entities for those resources.

The Commission believes that entities with Third-Party Subaccounts have an additional challenge of transitioning hundreds (or in some cases, thousands) of subaccounts into compliance with Clearing Requirement determinations, which may require formalizing new agreements with each of their customers, and educating their customers about how the Clearing Requirement will impact costs and operations. In the Commission's view, this additional challenge justifies additional time for compliance beyond what is allowed for Category 2 Entities.59

As described above, the Commission recognizes that delaying implementation creates some additional costs in the form of delayed protections that central clearing of swaps would otherwise provide—standardized and reduced counterparty risk for swaps that are required to be cleared, and associated reductions in the overall level of systemic risk. However, the Commission believes that this approach appropriately balances the tradeoff by requiring firms that are likely to be the most active in these markets to comply first and allowing additional time for those whose positions are less likely to pose significant risk to the financial system as a whole.

As suggested above, Category 1 Entities are likely to establish technological, legal, and operational standards that will influence or be adopted by Category 2 and 3 Entities. This will (1) serve to reduce development costs that Category 2 and 3 Entities otherwise would face, (2) focus responsibility for shaping new platforms and standards on those firms that possess greater cleared swap experience, and (3) support the likelihood that new platforms and standards will reflect current best practices. Each of these elements promotes the efficiency and integrity of the markets. Moreover, by reducing the number of entities necessarily working in parallel to develop such standards, and allowing Category 2 and 3 Entities to learn from and build on the solutions developed by Category 1 Entities, the phased schedule contained in this adopting release holds the potential to foster compatibility and interoperability, which reduces the cost and complexity of interconnectedness.

The phased schedule as adopted also will promote an implementation plan in which similar entities (i.e.,those that usually compete with one another) generally have the same compliance timelines, thereby protecting competition during the transition period. One commenter states, “A phased approach to compliance will allow the Commission to balance its goal of obtaining adequate representation at each stage of the regulatory roll-out with the goal of avoiding anti-competitive concerns.”60

That said, however, the Commission also has to balance the goal of maintaining a level playing field with other priorities. In particular, the Commission deems it important to ensure representation of both buy and sell side firms in the earliest stages of compliance. Moreover, the Commission believes that, in certain circumstances, variance in compliance burden among competitors warrants placing them in different implementation categories. Some competitive consequences may result from the need to balance these various priorities. The Commission believes, however, that it has built sufficient flexibility into the phased schedule to mitigate such consequences; specifically, the schedule preserves entities' ability to respond to competitive incentives to move into clearing voluntarily prior to the date required by the compliance schedule. The Commission believes that providing flexibility to allow expression of competitive market incentives is preferable to the alternative of imposing a more compressed compliance schedule for purposes of maintaining a level playing field. As discussed above, a shorter schedule could also increase the likelihood that industry standards established during the implementation period could create and perpetuate undesirable competitive dynamics. In sum, the Commission anticipates that any temporary impacts on competitive dynamics created by the phased implementation approach it is adopting are likely to be less costly than an approach that increases the likelihood of sustained competitive disparities, and therefore has chosen not to shorten the compliance schedule as a remedy to address the risk of competitive advantages that may be conferred on market participants that have later compliance dates.

As discussed above, for the 90-, 180-, and 270-day periods that Clearing Requirements are delayed, the markets are exposed to the risks that the Clearing Requirements would mitigate. However, the Commission has considered this cost for the limited delay durations prescribed in light of the benefits—reduced implementation costs, greater degrees of compatibility and interoperability, and lessened risk of market disturbances from the withdrawal of entities that are not able to comply immediately—and considers the tradeoff reflected in the rules warranted.

Neither the Commission nor commenters have identified consequences for price discovery that are expected to result from this rule.

An orderly transition for swaps subject to a Clearing Requirement determination promotes sounder risk management practices, particularly during the transition period. As mentioned above, in the absence of theschedule provided in this rule, some entities might exit swap markets while taking steps to come into compliance. This result could reduce liquidity, particularly if the withdrawing entities are SDs. Reduced liquidity likely would increase the cost of using swaps to manage risk by increasing spreads, and make it more difficult for entities to enter and exit positions in a timely manner. It could also prompt some entities to maintain exposures that they would otherwise use swaps to mitigate, which would elevate the risk profile of those entities and the level of risk that their counterparties bear as a consequence. By providing a timetable for orderly transition, this rule encourages continued participation in the swap markets and use of swaps for risk mitigation purposes during the transition.

Clearing Requirement delay does prolong existing costs associated with not having counterparty credit risk monitored and managed effectively by a DCO. More prompt implementation of Clearing Requirements would have the benefit of preventing losses from accumulating over time through the settlement of variation margin between a DCO's clearing members each day. The settlement of variation margin each day (and in some cases, multiple times per day) reduces the size of exposures a clearinghouse faces should one of its counterparties default, and the mechanisms that a clearinghouse has to ensure its own solvency reduce the probability that it would default on obligations to clearing members. Moreover, more prompt implementation also promotes the use of initial margin as a performance bond against potential future losses such that if a party fails to meet its obligation to pay variation margin, resulting in a default, the DCO may use the defaulting party's initial margin to cover most or all of any loss based on the need to replace the open position. The Commission believes, however, that (1) it has tailored the rule to limit the degree, and thereby these costs attributable to, clearing implementation delay and (2) the benefits afforded by the schedule's operation when the Commission elects to use it warrant the costs of the tailored implementation delay.

The schedule allows market participants to comply with the requirements of the Dodd-Frank Act and provides a sound basis for achieving the overarching Dodd-Frank Act goals of reducing counterparty risk and promoting stability of the financial system.

The Regulatory Flexibility Act (RFA) requires that agencies consider whether the rules they propose will have a significant economic impact on a substantial number of small entities and, if so, provide a regulatory flexibility analysis respecting the impact.61 As stated in the NPRM, the subject of this rulemaking provides a compliance schedule for a new statutory requirement, section 2(h)(1)(A) of the CEA, and does not itself impose significant new regulatory requirements.62 Accordingly, the Chairman, on behalf of the Commission, certified pursuant to 5 U.S.C. 605(b) that the proposed rule would not have a significant economic impact on a substantial number of small entities. The Commission then invited public comment on this determination.

FSR comments that the NPRM failed to evaluate the impact of the proposed compliance schedule for the Clearing Requirement on a substantial number of small entities. FSR argued that small entities may have to bear a more significant burden than larger entities in establishing clearing arrangements with FCMs because larger entities will be able to enter into such arrangements first.

In response, the Commission points out that the compliance schedule for the Clearing Requirement will affect only eligible contract participants (ECPs). Pursuant to section 2(e) of the CEA, only ECPs may enter into swaps, unless the swap is listed on a DCM. The Clearing Requirement will affect only ECPs because all persons that are not ECPs are required to execute their swaps on a DCM, and all contracts executed on a DCM must be cleared by a DCO, as required by statute and regulation; not by operation of any Clearing Requirement.

The Commission has previously determined that ECPs are not small entities for purposes of the RFA.63 However, in their comment letter, the Joint Associations assert that certain members of the National Rural Electric Cooperative Association (NRECA) may both be ECPs under the CEA and small businesses under the RFA. These members of NRECA, as the Commission understands, have been determined to be small entities by the Small Business Administration (SBA) because they are “primarily engaged in the generation, transmission, and/or distribution of electric energy for sale and [their] total electric output for the preceding fiscal year did not exceed 4 million megawatt hours.”64 Although the Joint Associations do not provide details on whether or how the NRECA members that have been determined to be small entities use the types of swaps that will be subject to the Clearing Requirement, the Joint Associations do state that NRECA members “engage in swaps to hedge commercial risk.”65 Because the NRECA members that have been determined to be small entities would be using swaps to hedge commercial risk, the Commission expects that they would be able to use the end-user exception from the Clearing Requirement and therefore would not be affected to any significant extent by the Clearing Requirement.

Thus, because nearly all of the ECPs that may be subject to the Clearing Requirement are not small entities, and because the few ECPs that have been determined by the SBA to be small entities are unlikely to be subject to the Clearing Requirement, the Chairman, on behalf of the Commission, hereby certifies pursuant to 5 U.S.C. 605(b) that the rule herein creating the compliance schedule for the Clearing Requirement will not have a significant economic impact on a substantial number of small entities.

The Paperwork Reduction Act (PRA)66 imposes certain requirements on federal agencies (including the Commission) in connection with conducting or sponsoring any collection of information as defined by the PRA. As stated in the NPRM, this rulemaking will not require a new collection of information from any persons or entities.67

In consideration of the foregoing, and pursuant to the authority in the Commodity Exchange Act, as amended, and in particular section 2(h) of the Act, the Commission hereby adopts an amendment to Chapter I of Title 17 of the Code of Federal Regulation by adding a new part 50 as follows:

Appendices to Swap Transaction Compliance and Implementation Schedule: Clearing Requirement under Section 2(h) of the CEA—Commission Voting Summary and Statements of Commissioners

Legal Authority

The DEA implements and enforces Titles II and III of the Comprehensive Drug Abuse Prevention and Control Act of 1970, often referred to as the Controlled Substances Act and the Controlled Substances Import and Export Act (21 U.S.C. 801-971), as amended (hereinafter, “CSA”). The implementing regulations for these statutes are found in Title 21 of the Code of Federal Regulations (CFR), parts 1300 to 1321. Under the CSA, controlled substances are classified in one of five schedules based upon their potential for abuse, their currently accepted medical use, and the degree of dependence the substance may cause. 21 U.S.C. 812. The initial schedules of controlled substances by statute are found at 21 U.S.C. 812(c) and the current list of scheduled substances is published at 21 CFR Part 1308.

On November 29, 1990, the President signed into law the Anabolic Steroids Control Act of 1990 (Title XIX of Pub. L. 101-647), which became effectiveFebruary 27, 1991. This law established and regulated anabolic steroids as a class of drugs under Schedule III of the CSA. As a result, a new anabolic steroid is not scheduled according to the procedures set out in 21 U.S.C. 811, but is administratively classified as an anabolic steroid through the rulemaking process if it meets the regulatory definition of an anabolic steroid in 21 CFR 1300.01.

On October 22, 2004, the President signed into law the Anabolic Steroid Control Act of 2004 (Pub. L. 108-358), which became effective on January 20, 2005. Section 2(a) of the Anabolic Steroid Control Act of 2004 amended 21 U.S.C. 802(41)(A) by replacing the existing definition of “anabolic steroid.” The Anabolic Steroid Control Act of 2004 classifies a drug or hormonal substance as an anabolic steroid if the following four criteria are met: (A) The substance is chemically related to testosterone; (B) the substance is pharmacologically related to testosterone; (C) the substance is not an estrogen, progestin, or a corticosteroid; and (D) the substance is not dehydroepiandrosterone (DHEA). Any substance that meets these criteria is considered an anabolic steroid and must be listed as a Schedule III controlled substance.

In a Notice of Proposed Rulemaking (NPRM) published on November 23, 2011 (76 FR 72355), DEA proposed classification of two steroids as Schedule III anabolic steroids under the CSA: Prostanozol and methasterone. DEA believes that prostanozol (17β-hydroxy-5α-androstano[3,2-c]pyrazole) and methasterone (2α,17α-dimethyl-5α-androstan-17β-ol-3-one) meet this definition of anabolic steroid.

Anabolic steroids are a class of drugs structurally related to the endogenous hormone testosterone that exert androgenic (masculinizing) as well as anabolic (body building) effects. These effects are mediated primarily through binding of the anabolic steroid to the androgen receptor in target tissues (Evans, 2004). Anabolic effects include promotion of protein synthesis in skeletal muscle and bone, while the androgenic effects are characterized by the development of male secondary sexual characteristics such as hair growth, deepening of the voice, glandular activity, thickening of the skin, and central nervous system effects (Kicman, 2008). Anabolic efficacy is characterized by positive nitrogen balance and protein metabolism, resulting in increases in protein synthesis and lean body mass (Evans, 2004). These effects often come at a cost to the healthy individual who experiences clear physical and psychological complications (Trenton and Currier, 2005; Brower, 2002; Hallet al.,2005).

In the United States, only a small number of anabolic steroids are approved for either human or veterinary use. Approved medical uses for anabolic steroids include treatment of androgen deficiency in hypogonadal males, adjunctive therapy to offset protein catabolism associated with prolonged administration of corticosteroids, treatment of delayed puberty in boys, treatment of metastatic breast cancer in women, and treatment of anemia associated with specific diseases (e.g., anemia of chronic renal failure, Fanconi's anemia, and acquired aplastic anemia). However, with the exception of the treatment of male hypogonadism, anabolic steroids are not the first-line treatment due to the availability of other preferred treatment options. DEA is not aware of any legitimate medical use or New Drug Applications (NDA) for the two substances that DEA is proposing to classify by this NPRM as anabolic steroids under the definition set forth under 21 U.S.C. 802(41)(A). Moreover, DEA has been unable to identify any chemical manufacturers currently using these substances as intermediates in their manufacturing processes.

Adverse health effects are associated with abuse of anabolic steroids and depend on several factors (e.g., age, sex, anabolic steroid used, the amount used, and the duration of use) (Hall and Hall, 2005; Quaglioet al.,2009). These include cardiovascular, dermatological, behavioral, hepatic, and gender specific endocrine side effects. Anabolic steroids have direct and indirect impact on the developing adolescent brain and behavior (Satoet al.,2008). Furthermore, adolescent abuse of anabolic steroids may result in stunted growth due to premature closure of the growth plates in long bones.

In adolescent boys, anabolic steroid abuse can cause precocious sexual development. In both girls and women, anabolic steroid abuse induces permanent physical changes such as deepening of the voice, increased facial and body hair growth, menstrual irregularities, and clitoral hypertrophy. In men, anabolic steroid abuse can cause testicular atrophy, decreased sperm count, and sterility. Gynecomastia (i.e., enlargement of the male breast tissue) can develop with the abuse of those anabolic steroids with estrogenic actions. In both men and women, anabolic steroid abuse can damage the liver and may result in high cholesterol levels, which may increase the risk of strokes and cardiovascular heart attacks. Furthermore, anabolic steroid abuse is purported to induce psychological effects such as aggression, increased feelings of hostility, and psychological dependence and addiction (Brower, 2002; Kanayamaet al.,2008).

Upon abrupt termination of long-term anabolic steroid abuse, a withdrawal syndrome may appear including severe depression. Additionally, polysubstance abuse is routinely associated with anabolic steroid abuse, where ancillary drugs, including recreational and prescription drugs, are abused in response to unwanted side effects (Hallet al.,2005; Parkinsonet al.,2005; Skarberget al.,2009).

A review of the scientific literature finds adverse health effects including liver toxicity with renal failure reported in conjunction with methasterone abuse (Shahet al.,2008; Jasiurkowskiet al.,2006; Singhet al.,2009; Nasr and Ahmad, 2008; and Krishnanet al.,2009). In March 2006, the U.S. Food and Drug Administration (FDA) issued a Warning Letter in response to adverse health effects associated with the product Superdrol (methasterone). In July 2009, FDA issued a warning regarding bodybuilding products containing steroid or steroid-like substances. In this warning, a product containing the THP ether derivative of prostanozol was named in conjunction with other products presenting safety concerns.

With the issuance of this Final Rule, DEA classifies prostanozol (17β-hydroxy-5α-androstano[3,2-c]pyrazole) and methasterone (2α,17α-dimethyl-5α-androstan-17β-ol-3-one) as anabolic steroids under the definition set forth under 21 U.S.C. 802(41)(A). As noted previously, a drug or hormonal substance is classified as an anabolic steroid by meeting the following four definitional requirements: (A) The substance is chemically related to testosterone; (B) the substance is pharmacologically related to testosterone; (C) the substance is not an estrogen, progestin, or corticosteroid; and (D) the substance is not DHEA.

To classify a substance as an anabolic steroid, a substance must be chemically related to testosterone. A structure activity relationship (SAR) evaluation for each substance compared the chemical structure of the steroid to that of testosterone. Substances with astructure similar to that of testosterone are predicted to possess comparable pharmacological and biological activity.

Prostanozol is also known by the following name: 17β-hydroxy-5α-androstano[3,2-c]pyrazole. DEA determined that the chemical structure of prostanozol is similar to testosterone, differing by only the attachment of a pyrazole ring at carbon 2 (C2) and carbon 3 (C3) positions of the androstane skeleton, replacing the C3-keto group and the lack of a double bond between carbon 4 (C4) and carbon 5 (C5) positions. Similar modifications to testosterone's chemical structure have been documented and, in general, they have been found to be well tolerated, displaying both anabolic and androgenic activity (Fragkakiet al.,2009; Vida, 1969). Clinton and coworkers, in their synthesis of prostanozol, described the modification as a fusion of a pyrazole ring to the androstane steroidal nucleus at C2 and C3 (Clintonet al.,1961). Further analysis finds the chemical structure of prostanozol to be very similar to the anabolic steroid stanozolol. The two structures differ only about a 17α-methyl group (alpha methyl group attached to carbon 17).

Methasterone is known by the following chemical names: 2α,17α-dimethyl-5α-androstan-17β-ol-3-one; 2α,17α-dimethyl-17β-hydroxy-5α-androstan-3-one; 17α-methyl-drostanolone; methasteron; methyldrostanolone; 2α,17α-dimethyldihydrotestosterone; and 2α,17α-dimethyl-etiocholan-17β-ol-3-one. DEA has determined that the chemical structure of methasterone is chemically related to testosterone. The chemical structure of methasterone differs from testosterone by the following three chemical groups: An alpha methyl group at carbon 17 (C17), an alpha methyl group at C2, and the lack of a double bond between spanning C4 and C5. Removal of the C4-C5 double bond (A-ring) and methylation at the C2 and C17 positions has been shown to increase anabolic activity (Zaffroni, 1960; Fragkakiet al.,2009). Furthermore, methyl group substitution at the C2 and C17 has been reported to impair aromatization, thus, prolonging the anabolic effect (Fragkakiet al.,2009).

A substance must also be pharmacologically related to testosterone (i.e., produce similar biological effects) to be classified as a Schedule III anabolic steroid. The pharmacology of a steroid, as related to testosterone, can be established by performing one or more of the following androgenic and anabolic activity assays: ventral prostate assay, seminal vesicle assay, levator ani assay, and androgen receptor binding and efficacy assays. These assays are described below.

Ventral Prostate Assay, Seminal Vesicle Assay, and Levator Ani Assay:The classic scientific procedure for evaluating androgenic (masculinizing) and anabolic (muscularizing) effects of a steroid is the ventral prostate assay, seminal vesicle assay, and levator ani assay. This testing paradigm allows for the direct comparison to testosterone. Select male accessory tissues (i.e., the ventral prostate, seminal vesicles, and levator ani muscle) are testosterone sensitive, specifically requiring testosterone to grow and remain healthy. Upon the removal of the testes (i.e., castration), the primary endogenous source of testosterone is eliminated causing the atrophy of the ventral prostate, seminal vesicles, and levator ani muscle (Eisenberget al.,1949; Nelsonet al.,1940; Scow, 1952; Wainman and Shipounoff, 1941). Numerous scientific studies have demonstrated the ability of exogenous testosterone or a pharmacologically similar steroid administered to rats following castration to maintain the normal weight and size of all three testosterone sensitive organs (Biskind and Meyer, 1941; Dorfman and Dorfman, 1963; Dorfman and Kincl, 1963; Kincl and Dorfman, 1964; Nelsonet al.,1940; Scow, 1952; Wainman and Shipounoff, 1941). Thus, a steroid with testosterone-like activity will also prevent the atrophy of these three testosterone-dependent organs in castrated rats.

Castrated male rats are administered the steroid for a number of days, then the rats are euthanized and the previously described tissues are excised and weighed. Tissue weights from the three animal test groups are compared, castrated animals alone, castrated animals receiving the steroid, and healthy intact animals (control), to assess anabolic and androgenic activity. A reduction in tissue weights relative to the control group suggests a lack of androgenic and/or anabolic activity. An increase in tissue weights relative to the castrated rats receiving no steroid suggests an androgenic and/or anabolic effect.

Androgen Receptor Binding and Efficacy Assay:Anabolic steroids bind with the androgen receptor to exert their biological effect. Affinity for the receptor is evaluated in the receptor binding assay, while the transactivation (functional) assay provides additional information as to both affinity and ability to activate the receptor. Receptor binding and transactivation studies are valuable tools in evaluating pharmacological activity and drawing comparisons to other substances. A steroid displaying affinity for the androgen receptor and properties of being an agonist in transactivation studies is determined to be pharmacologically similar to testosterone.

Studies used to evaluate anabolic steroids are the androgen receptor binding assay and the androgen receptor transactivation assay. Both are well-established and provide significant utility in evaluating steroids for affinity to their biological target and the modulation of activity. The androgen receptor binding assay provides specific detail as to the affinity of a steroid for the androgen receptor (biological target of anabolic steroids). To assess further whether the steroid is capable of activating the androgen receptor, the androgen receptor transactivation assay evaluates the binding of a steroid to the androgen receptor and subsequent interaction with DNA. In this study, transcription of a reporter gene provides information as to a steroid's ability to modulate a biological event. This activity measurement provides information as to the potency of a steroid to bind to a receptor and either initiate or inhibit the transcription of the reporter gene. The androgen receptor binding assay and androgen receptor transactivation assay are highly valuable tools in assessing the potential activity of a steroid and comparing the activity to testosterone.

Results of the Androgenic and Anabolic Activity Assays:DEA reviewed the published scientific literature, and pharmacological studies were undertaken to collect additional information on prostanozol and methasterone in several different androgenic and anabolic activity assays. Findings from these studies indicate that in addition to being structurally similar to testosterone, prostanozol and methasterone have similar pharmacological activity as testosterone.

The chemical synthesis and anabolic and androgenic effects of prostanozol (17β-hydroxy-5α-androstano[3,2-c]pyrazole) were published in 1961 (Clintonet al.,1961). Clinton and coworkers evaluated the anabolic activity by means of nitrogen balance and androgenic activity based on weight changes of the ventral prostrate of prostanozol upon subcutaneous administration to rats with the referencestandard testosterone propionate. The potency ratio of anabolic activity to androgenic activity for prostanozol was reported to be eight (Clintonet al.,1961). In another study, prostanozol was reported to have approximately the same relative binding affinity for human sex steroid binding protein as testosterone (Cunninghamet al.,1981).

To build on these findings, a pharmacological study1 was conducted to evaluate the anabolic and androgenic effects of prostanozol in castrated male rats. Results were compared to testosterone by a similar protocol. Administration of prostanozol to castrated male rats by subcutaneous injection prevented the atrophy (loss in weight) of the ventral prostate, seminal vesicles, and levator ani muscle.1These testosterone sensitive tissues experienced increases in weight comparable to testosterone in castrated male rats. Results from this study support that prostanozol possesses both androgenic and anabolic activity. Additional studies were conducted to further assess prostanozol's anabolic effect. In a competitive binding assay, prostanozol was found to possess affinity for the androgen receptor comparable to testosterone.1In the androgen receptor transactivation assay, prostanozol displayed increased activity relative to testosterone.1Effects elicited by prostanozol in this transactivation assay were consistent and comparable to those of testosterone. Taken together, data from in vitro and in vivo assays indicate the pharmacology of prostanozol to be similar to testosterone.

The synthesis of methasterone (2α,17α-dimethyl-5α-androstan-17β-ol-3-one) was reported in 1956 and the anabolic activity in 1959 (Ringold and Rosenkranz, 1956; Ringoldet al.,1959). Methasterone was described as a potent anabolic agent exhibiting weak androgenic activity in the castrated male rat (Ringoldet al.,1959). Zaffaroni and coworkers reported methasterone possessed one-fifth the androgenic activity and four times the anabolic activity of the anabolic steroid methyltestosterone, when administered orally to the experimental animal (Zaffaroniet al., 1960).

Additional pharmacological studies were undertaken to further evaluate the androgenic and anabolic effects of methasterone.1Methasterone was administered subcutaneously and orally to castrated male rats. By both routes of administration, methasterone prevented the atrophy (loss in weight) of ventral prostate, seminal vesicles, and levator ani muscle. Tissue weight increases for the castrated methasterone-treated animals were comparable to the castrated rats treated with testosterone and methyltestosterone. These results were consistent with earlier findings that methasterone is anabolic and androgenic (Zaffaroni, 1960; Ringoldet al.,1959). Functional assays were also undertaken to further evaluate methasterone.1Methasterone displayed affinity for the androgen receptor comparable to testosterone in a competitive binding assay.1In the androgen receptor transactivation assay, methasterone displayed increased activity relative to testosterone.1Effects elicited by methasterone in the androgen transactivation assay were consistent and comparable to those of testosterone. Collectively, in vivo and in vitro results indicate that the pharmacology of methasterone is similar to testosterone.

DEA has determined that prostanozol and methasterone are unrelated to estrogens, progestins, and corticosteroids. DEA evaluated the SAR for each of the substances. The chemical structure of each substance was compared to that of estrogens, progestins, and corticosteroids, since chemical structure can be related to its pharmacological and biological activity. DEA found that these two substances lack the necessary chemical structures to impart significant estrogenic activity (e.g., aromatic A ring) (Duaxet al.,1988; Jordanet al.,1985; Williams and Stancel, 1996), progestational activity (e.g., 17β-alkyl group) (Williams and Stancel, 1996), or corticosteroidal activity (e.g., 17β-ketone group or 11β-hydroxyl group) (Milleret al.,2002). Furthermore, methasterone was reported to display anti-estrogenic activity in mouse assay to assess estrogen stimulated uterine growth (Dorfmanet al.,1961). To assess the estrogenic, progestational, and corticosteroid activity of prostanozol and methasterone, these substances were evaluated in receptor binding and functional transactivation assays. Prostanozol and methasterone showed low binding affinity for the estrogen, progesterone, and glucocorticoid receptors. Furthermore, these steroids displayed low to no transactivation mediated by the estrogen receptors, progesterone receptors, or glucocorticoid receptors. Therefore, based on these data, prostanozol and methasterone are not estrogens, progestins, or corticosteroids and these anabolic steroids are not exempt from control on this basis.

Dehydroepiandrosterone, also known as DHEA, is exempt from control as an anabolic steroid by definition (21 U.S.C. 802(41)(A)). Prostanozol and methasterone are not dehydroepiandrosterone and therefore, are not exempt from control on this basis.

On November 23, 2011, DEA published a NPRM (76 FR 72355) to classify prostanozol and methasterone as Schedule III anabolic steroids. The proposed rule provided an opportunity for all interested persons to submit their comments on or before January 23, 2012. In response to the request, DEA received three comments.

Comment:One commenter disagreed that anabolic steroids, and in particular those encountered in dietary supplements, should be placed in Schedule III of the CSA. He indicated that classifying these substances as Schedule III anabolic steroids would force the public to procure other, non-regulated and unsafe substitutes from illicit sources in the future, and that DEA should employ an alternate method of regulation.

DEA Response:DEA disagrees with this comment. As stated in the NPRM and this Final Rule, these substances were found to be similar in structure and pharmacology to testosterone through substantive scientific evaluation and investigation. Further, the United States Food and Drug Administration has issued multiple warnings regarding dietary supplements, especially concerning contamination through novel synthetic steroids that do not qualify as dietary ingredients.

Regarding the commenter's request for alternative regulation of these substances. DEA regulates the manufacture, importation, export, distribution, and sale of controlled substances for medical, scientific, or other legitimate uses pursuant to the CSA. These substances have not been approved as safe for human consumption and, despite the commenter's unsubstantiated and factually inaccurate claims of their benefits, should neither be consumed nor should other unapproved substances ever be sought from any source, illicit or otherwise.

The additional remarks this commenter made regarding a perceiveddisparity between men and women in access to hormonal products, and other perceived problems with the regulation of substances by the government, are not germane to this rulemaking.

Comment:Two separate commenters agreed placement of these two substances under the CSA was appropriate as provided per the Anabolic Steroid Control Act of 2004.

DEA Response:DEA appreciates the support for this rulemaking. As discussed above, prostanozol and methasterone are similar in structure and pharmacology to testosterone and are not approved for human consumption. DEA believes their placement into Schedule III as anabolic steroids will provide the appropriate safeguards to limit their availability to and prevent their abuse by the public.

After evaluation of the statutory factors above and consideration of the comments to the NPRM, DEA concludes that prostanozol and methasterone meet the CSA definition of “anabolic steroid” because each substance is: (A) Chemically related to testosterone; (B) pharmacologically related to testosterone; (C) not an estrogen, progestin, or a corticosteroid; and (D) not DHEA (21 U.S.C. 802(41)). Once a substance is determined to be an anabolic steroid, DEA has no discretion regarding the placement of these substances into Schedule III of the CSA.

With the publication of this Final Rule, DEA classifies prostanozol (17β-hydroxy-5α-androstano[3,2-c]pyrazole) and methasterone (2α,17α-dimethyl-5α-androstan-17β-ol-3-one) as Schedule III anabolic steroids subject to the CSA. Any person who manufactures, distributes, dispenses, imports, or exports prostanozol or methasterone, or who engages in research or conducts instructional activities with respect to these two substances, will be required to obtain a Schedule III registration in accordance with the CSA and its implementing regulations.

As of the effective date of this Final Rule, the manufacture, import, export, distribution, or sale of prostanozol or methasterone, except by DEA registrants, is a violation of the CSA that may result in imprisonment and fines (see,e.g.,21 U.S.C. 841 and 960). Possession of these two steroids, unless legally obtained, is also subject to criminal penalties pursuant to 21 U.S.C. 844.

Manufacturers and importers of these two substances will be required to register with DEA and will be permitted to distribute these substances only to other DEA registrants. Only persons registered as dispensers will be allowed to dispense these substances to end users. The CSA defines a practitioner as “a physician, dentist, veterinarian, scientific investigator, pharmacy, hospital, or other person licensed, registered, or otherwise permitted, by the United States or the jurisdiction in which he practices or does research, to distribute, dispense, conduct research with respect to, administer, or use in teaching or chemical analysis, a controlled substance in the course of professional practice or research.” 21 U.S.C. 802(21). At present, there are no approved medical uses for these two substances. Until a manufacturer applies to the FDA and gains approval for products containing these substances, no person may dispense them in response to a prescription.

Additionally, these two substances may only be imported for medical, scientific, or other legitimate uses (21 U.S.C. 952(b)) under an import declaration filed with DEA (21 CFR 1312.18). Importation of these substances will be illegal unless the person importing these substances is registered with DEA as an importer or researcher and files the required declaration for each shipment. Any individual who purchases either of these substances directly from foreign companies and has them shipped to the United States will be considered to be importing even if the steroids are intended for personal use. Illegal importation of these substances will be a violation of the CSA that may result in imprisonment and fines pursuant to 21 U.S.C. 960.

As of the effective date of this Final Rule, prostanozol and methasterone are subject to CSA regulatory controls and the administrative, civil, and criminal sanctions applicable to the manufacture, distribution, dispensing, importation, and exportation of a Schedule III controlled substance, including the following:

Registration.Any person who manufactures, distributes, dispenses, imports, exports, or engages in research or conducts instructional activities with a substance defined as an anabolic steroid, or who desires to engage in such activities, will be required to be registered to conduct such activities with Schedule III controlled substances in accordance with 21 CFR Part 1301.

Security.Substances defined as anabolic steroids will be subject to Schedule III security requirements and will be required to be manufactured, distributed, and stored in accordance with 21 CFR 1301.71, 1301.72(b), (c), and (d), 1301.73, 1301.74, 1301.75(b) and (c), 1301.76 and 1301.77.

Labeling and Packaging.All labels and labeling for commercial containers of substances defined as anabolic steroids will be required to comply with the requirements of 21 CFR 1302.03-1302.07.

Inventory.Every registrant required to keep records and who possesses any quantity of any substance defined as an anabolic steroid will be required to keep an inventory of all stocks of the substances on hand pursuant to 21 U.S.C. 827 and 21 CFR 1304.03, 1304.04 and 1304.11. Every registrant who desires registration in Schedule III for any substance defined as an anabolic steroid will be required to conduct an inventory of all stocks of the substances on hand at the time of registration.

Records.All registrants will be required to keep records, as generally provided in 21 U.S.C. 827(a) and specifically pursuant to 21 CFR 1304.03, 1304.04, 1304.05, 1304.21, 1304.22, and 1304.23.

Prescriptions.All prescriptions for these Schedule III substances or for products containing these Schedule III substances, if approved in the future by FDA, will be required to be issued pursuant to 21 U.S.C. 829(b) and 21 CFR 1306.03-1306.06 and 1306.21-1306.27. All prescriptions for these Schedule III compounds or for products containing these Schedule III substances, if authorized for refilling, will be limited to five refills within six months of the date of issuance of the prescription. Controlled substance dispensing via the Internet will have to comply with 21 U.S.C. 829(e).

Importation and Exportation.All importation and exportation of any substance defined as an anabolic steroid will be required to be in compliance with 21 U.S.C. 952(b), 953(e), and 21 CFR Part 1312.

Disposal.Persons who possess substances that become classified as anabolic steroids and who wish to dispose of them rather than becoming registered to handle them should contact their local DEA Diversion field office for assistance in disposing of these substances legally pursuant to 21 CFR 1307.21. The DEA Diversion field office will provide the person with instructions regarding the disposal. A list of local DEA Diversion field offices may be found athttp://www.deadiversion.usdoj.gov.

Criminal Liability.Any activity with any substance defined as an anabolicsteroid not authorized by, or in violation of, the Controlled Substances Act or the Controlled Substances Import and Export Act will be unlawful.

The Administrator hereby certifies that this rulemaking has been drafted in accordance with the Regulatory Flexibility Act (5 U.S.C. 601-612). This regulation will not have a significant economic impact on a substantial number of small entities. As of March 2010, DEA had identified approximately 75 dietary supplements that were currently or had been promoted for building muscle and increasing strength that purported to contain prostanozol or methasterone. Thirteen dietary supplements were purported to contain prostanozol and 62 dietary supplements were purported to contain methasterone. These dietary supplements are marketed and sold over the Internet.

The manufacturers and distributors of dietary supplements purported to contain prostanozol and methasterone also sell a variety of other dietary supplements. DEA has identified a substantial number of Internet distributors that sell these dietary supplements. However, these distributors also sell a variety of other nutritional products. Without information on the percentage of revenues derived from these dietary supplements, DEA is not able to determine the economic impact of the removal of these dietary supplements alone on the business of the firms. These steroids have been the focus of warning letters issued by the FDA. However, products continue to be marketed despite these warnings. DEA has not been able to identify any chemical manufacturers that are currently using these substances as intermediates in their manufacturing process(es). As of March 2010, DEA had identified 13 chemical manufacturers and distributors that sell at least one of the two steroids. Most of these companies are located in China and sell a variety of other anabolic steroids. DEA notes that, as the vast majority of entities handling these substances are Internet based, it is virtually impossible to accurately quantify the number of persons handling these substances at any given time. DEA has not identified any company based in the United States that manufactures or distributes these substances. DEA notes, upon placement into Schedule III, these substances may be used for analytical purposes. These companies are registered with DEA and are already in compliance with the CSA and DEA implementing regulations regarding the handling of Schedule III substances.

This rulemaking has been drafted in accordance with the principles of Executive Order 12866, 1(b), as reaffirmed by Executive Order 13563. This rule is not a significant regulatory action but has been reviewed by the Office of Management and Budget. As discussed above, the effect of this rule will be to remove products containing these substances from the over-the-counter marketplace. DEA has no basis for estimating the size of the market for these products. DEA notes, however, that virtually all of the substances are imported. According to U.S. International Trade Commission data, the import value of all anabolic steroids in 2009 was $5.9 million. These two substances would be a subset of those imports. The total market for products containing these substances, therefore, is probably quite small. Moreover, DEA believes that the importation of these two substances is for illegitimate purposes.

The benefit of controlling these substances is to remove from the marketplace substances that have dangerous side effects and no legitimate medical use in treatment in the United States. As discussed in detail above, these substances can produce serious health effects in adolescents and adults. If medical uses for these substances are developed and approved, the drugs would be available as Schedule III controlled substances in response to a prescription issued by a medical professional for a legitimate medical purpose. Until that time, however, this action will bar the importation, exportation, and sale of these two substances except for legitimate research or industrial uses.

This regulation meets the applicable standards set forth in Sections 3(a) and 3(b)(2) of Executive Order 12988 Civil Justice Reform.

This rulemaking does not preempt or modify any provision of State law; nor does it impose enforcement responsibilities on any State; nor does it diminish the power of any State to enforce its own laws. Accordingly, this rulemaking does not have federalism implications warranting the application of Executive Order 13132.

This rule will not have tribal implications and will not impose substantial direct compliance costs on Indian tribal governments.

This rule regulates two anabolic steroids, which are neither approved for medical use in humans nor approved for administration to cattle or other non-humans. Only chemical manufacturers who may use these substances as chemical intermediates for the synthesis of other steroids would be required to register with DEA under the CSA. However, DEA has not been able to identify any chemical manufacturers that are currently using these substances as intermediates in their manufacturing processes. Thus DEA does not expect this rule to impose any additional paperwork burden on the regulated industry.

This rule will not result in the expenditure by state, local, and tribal governments, in the aggregate, or by the private sector, of $136,000,000 or more (adjusted for inflation) in any one year, and will not significantly or uniquely affect small governments. Therefore, no actions were deemed necessary under the provisions of the Unfunded Mandates Reform Act of 1995, 2 U.S.C. 1532.

For the reasons set out above, 21 CFR part 1300 is amended as follows:

The Rev3 Triathlon Director has requested temporary modifications to the operating schedules of the Venice Airport Bridge, the North Manasota Bridge, the Tom Adams Bridge, and the Venice Avenue Bridge in Sarasota, Florida. These deviations will result in the aforementioned bridges remaining in the closed position during the Rev3 Triathlon on October 28, 2012. The Rev3 Triathlon route passes over these four bridges. Any bridge opening during the Rev3 Triathlon would disrupt the race. The temporary deviations will be in effect from 8 a.m. through 1:30 p.m. on October 28, 2012.

The details and regular operating schedule for each bridge are set forth below.

1.Venice Airport Bridge, mile 54.9.The vertical clearance of the Venice Airport Bridge, across the Gulf Intracoastal Waterway, is 19 feet, above mean high water. The normal operating schedule for the Venice Airport Bridge is set forth in 33 CFR 117.5. 33 CFR 117.5 requires the bridge to open promptly and fully for the passage of vessels when a request or signal to open is given in accordance with this subpart. As a result of this temporary deviation, the Venice Airport Bridge will remain closed to navigation from 8 a.m. to 9:45 a.m. on October 28, 2012. Tugs and tugs with tows are not exempt from this deviation.

2.North Manasota Bridge, mile 49.9.The vertical clearance of the North Manasota Bridge, across the Gulf Intracoastal Waterway, is 26 feet, above mean high water. The normal operating schedule for the North Manasota Bridge is set forth in 33 CFR 117.5. 33 CFR 117.5 requires the bridge to open promptly and fully for the passage of vessels when a request or signal to open is given in accordance with this subpart. As a result of this temporary deviation, the North Manasota Bridge will remain closed to navigation from 8:30 a.m. to 10:50 a.m. on October 28, 2012. Tugs and tugs with tows are not exempt from this deviation.

3.Tom Adams Bridge, mile 43.5.The vertical clearance of the Tom Adams Bridge, across the Gulf Intracoastal Waterway, is 26 feet, above mean high water. The normal operating schedule for the Tom Adams Bridge is set forth in 33 CFR 117.5. 33 CFR 117.5 requires the bridge to open promptly and fully for the passage of vessels when a request or signal to open is given in accordance with this subpart. As a result of this temporary deviation, the Tom Adams Bridge will remain closed to navigation from 8:50 a.m. to 10:50 a.m. on October 28, 2012. Tugs and tugs with tows are not exempt from this deviation.

4.Venice Avenue Bridge, mile 56.6.The vertical clearance of the Venice Avenue Bridge, across the Gulf Intracoastal Waterway, is 30 feet, above mean high water. The normal operating schedule for the Venice Avenue Bridge is set forth in 33 CFR 117.287 (a-2). 33 CFR 117.287 (a-2) requires the bridge to open on signal, except that from 7 a.m. to 4:30 p.m., Monday through Friday except Federal holidays, the draw need open only at 10 minutes after the hour, 30 minutes after the hour and 50 minutes after the hour and except between 4:35 p.m. and 5:35 p.m. when the draw need not open. As a result of this temporary deviation, the Venice Avenue Bridge will remain closed to navigation from 10:20 a.m. to 1:30 p.m. on October 28, 2012. Tugs and tugs with tows are not exempt from this deviation.

In accordance with 33 CFR 117.35(e), the drawbridges must return to their regular operating schedules immediately at the end of the designated time period. These deviations from the operating regulations are authorized under 33 CFR 117.35.

Table of Acronyms DHSDepartment of Homeland Security FRFederal Register NPRMNotice of Proposed Rulemaking A. Regulatory History and Information

On June 15, 2012 a Notice of Proposed Rule Making (NRPM) was published in 77 FR 35903. We received no comments on the proposed rule. No public meeting was requested, and none was held.

The legal basis for this rule is 33 U.S.C.1231; 46 U.S.C. Chapter 701, 3306, 3703; 50 U.S.C. 191, 195; 33 CFR 1.05-1, 6.04-1, 6.04-6, 160.5; Pub. L. 107-295, 116 Stat. 2064; Department of Homeland Security Delegation No. 0170.1. which collectively authorize the Coast Guard to define regulatory safety zones.

North Carolina Department of Transportation has contracted Marine Contracting Corporation of Virginia Beach, Virginia to perform bridge maintenance on the NC 58 Fixed Bridge crossing the Atlantic Intracoastal Waterway, mile 226, at Emerald Isle, North Carolina. The contract provides for replacement of the fender system to commence on September 12, 2012 with a completion date of December 12, 2012. The contractor will utilize a 140 foot deck barge with a 40 foot beam as a work platform and for equipment staging. This safety zone will provide a safety buffer for transiting vessels as bridge repairs present potential hazards to mariners and property due to reduction of horizontal clearance. During this period the Coast Guard will require a one-hour notification to the work supervisor at NC 58 Fixed Bridge, Atlantic Intracoastal Waterway crossing, mile 226, Emerald Isle, North Carolina. The notification requirement will be applicable during the maintenance period for vessels requiring a horizontal clearance of greater than 50 feet.

We received no comments on the proposed rule. No public meeting was requested, and none was held.

The temporary safety zone will encompass the waters directly under the NC 58 Fixed Bridge crossing the Atlantic Intracoastal Waterway, mile 226, at Emerald Isle, North Carolina (34°40′28″ N, 077°03′56″ W). All vessels transiting this section of the waterway requiring a horizontal clearance of greater than 50 feet will be required to make a one-hour advanced notification to the work supervisor at the NC 58 Fixed Bridge while the safety zone is in effect. This zone will be in effect and enforced from 8 a.m. September 12, 2012 through 8 p.m. December 12, 2012.

We developed this rule after considering numerous statutes and executive orders related to rulemaking. Below we summarize our analyses based on 13 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. This rule does restrict traffic from transiting a portion of the Atlantic Intracoastal Waterway; it merely imposes a one-hour notification to ensure the waterway is clear of impediment to allow passage to vessels requiring a horizontal clearance of greater than 50 feet.

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 rule would affect the following entities, some of which may be small entities: The owners or operators of commercial tug and barge companies, recreational and commercial fishing vessels intending to transit the specified portion of Atlantic Intracoastal Waterway from 8 a.m. September 12, 2012 through 8 p.m. December 12, 2012.

This safety zone would not have a significant economic impact on a substantial number of small entities for the following reasons. Although the safety zone will apply to this section of the Atlantic Intracoastal Waterway, vessel traffic will be able to request passage by providing a one-hour advanced notification. Before the effective period, the Coast Guard will issue maritime advisories widely available to the users of the waterway.

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 directeffect 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 INFORMATION 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 human environment. This rule involves the establishment of a temporary safety zone. This rule is categorically excluded from further review under paragraph 34(g) of Figure 2-1 of the Commandant Instruction. An environmental analysis checklist supporting this determination and a Categorical Exclusion Determination are available in the docket where indicated 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 165 as follows:

On June 15, 2012 a Notice of Proposed Rule Making (NPRM) was published in 77 FR 35906. We received no comments on the proposed rule. No public meeting was requested, and none was held.

The legal basis for this rule is 33 U.S.C. 1231; 46 U.S.C. Chapter 701, 3306, 3703; 50 U.S.C. 191, 195; 33 CFR 1.05-1, 6.04-1, 6.04-6, 160.5; PubLIC LAW 107-295, 116 Stat. 2064; Department of Homeland Security Delegation No. 0170.1. which collectively authorize the Coast Guard to define regulatory safety zones.

North Carolina Department of Transportation has awarded a contract to Marine Contracting Corporation of Virginia Beach, Virginia to perform bridge maintenance on the NC 133 Fixed Bridge crossing the Atlantic Intracoastal Waterway, mile 311.8, at Oak Island, North Carolina. The contract provides for replacing the fender system to commence on September 12, 2012 with a completion date of December 12, 2012. The contractor will utilize a 140 foot deck barge with a 40 foot beam as a work platform and for equipment staging. The safety zone will provide a safety buffer to transiting vessels as bridge repairs present potential hazards to mariners and property due to reduction of horizontal clearance. During this period the Coast Guard will require a one hour notification to the work supervisor at the NC 133 Fixed Bridge at the Atlantic Intracoastal Waterway crossing, mile 311.8, Oak Island, North Carolina. The notification requirement will be applicable during the maintenance period for vessels requiring a horizontal clearance of greater than 50 feet.

We received no comments on the proposed rule. No public meeting was requested, and none was held.

The temporary safety zone will encompass the waters directly under the NC 133 Fixed Bridge crossing the Atlantic Intracoastal Waterway, mile 311.8, at Oak Island, North Carolina (33°55′18″ N/078°04′22″ W). All vessels transiting this section of the waterway requiring a horizontal clearance of greater than 50 feet will be required to make a one hour advanced notification to the work supervisor at the NC 133 Fixed Bridge while the safety zone is in effect. This zone will be in effect and enforced from 8 a.m. September 12, 2012 through 8 p.m. December 12, 2012.

We developed this rule after considering numerous statutes and executive orders related to rulemaking. Below we summarize our analyses based on 13 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. This rule does restrict traffic from transiting a portion of the Atlantic Intracoastal Waterway; it imposes a one hour notification to ensure the waterway is clear of impediment to allow passage to vessels requiring a horizontal clearance of greater than 50 feet.

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 rule would affect the following entities, some of which may be small entities: The owners or operators of commercial tug and barge companies, recreational and commercial fishing vessels intending to transit the specified portion of Atlantic Intracoastal Waterway from 8 a.m. September 12, 2012 through 8 p.m. December 12, 2012.

This safety zone would not have a significant economic impact on a substantial number of small entities for the following reasons. Although the safety zone will apply to this section of the Atlantic Intracoastal Waterway, vessel traffic will be able to request passage by providing a one hour advanced notification. Before theeffective period, the Coast Guard will issue maritime advisories widely available to the users of the waterway.

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 INFORMATION 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 human environment. This rule involves the establishment of a temporary safety zone. This rule is categorically excluded from further review under paragraph 34(g) of Figure 2-1 of the Commandant Instruction. An environmental analysis checklist supporting this determination and a Categorical Exclusion Determination are available in the docket where indicated 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 165 as follows:

Table of Acronyms DHSDepartment of Homeland Security FRFederal Register NPRMNotice of Proposed Rulemaking A. Regulatory History and Information

The Coast Guard is issuing this temporary final rule without prior notice and opportunity to comment pursuant to authority under section 4(a) of the Administrative Procedure Act (APA) (5 U.S.C. 553(b)). This provision authorizes an agency to issue a rule without prior notice and opportunity to comment when the agency for good cause finds that those procedures are “impracticable, unnecessary, or contrary to the public interest.” Under 5 U.S.C. 553(b)(B), the Coast Guard finds that good cause exists for not publishing a notice of proposed rulemaking (NPRM) with respect to this rule because the final details for this event were not provided to the Coast Guard until June 25, 2012. As such, it is impracticable to provide a full comment period due to lack of time. Delaying the effective date for comment would be contrary to the public interest, since immediate action is needed to ensure the safety of the event participants, patrol vessels, spectator craft and other vessels transiting the event area. The Coast Guard will provide advance notifications to users of the effected waterways of the safety zone via marine information broadcasts, local notice to mariners, commercial radio stations and area newspapers.

Under 5 U.S.C. 553(d)(3), the Coast Guard finds, for the reasons noted above, that good cause exists for making this rule effective less than 30 days after publication in theFederal Register.

The legal basis for this rule is 33 U.S.C.1231; 46 U.S.C. Chapter 701, 3306, 3703; 50 U.S.C. 191, 195; 33 CFR 1.05-1, 6.04-1, 6.04-6, 160.5; Public Law 107-295, 116 Stat. 2064; Department of Homeland Security Delegation No. 0170.1. which collectively authorize the Coast Guard to define regulatory safety zones.

On August 28, 2012, NC NENA/APCO Conference will sponsor a land-based fireworks display on the western shore of the Cape Fear River at Battleship Park. The fireworks debris fallout area will extend over the navigable waters of Cape Fear River. Due to the need to protect mariners and spectators from the hazards associated with the fireworks display, including accidental discharge of fireworks, dangerous projectiles, and falling hot embers or other debris, vessel traffic will be temporarily restricted from transiting within fireworks launch and fallout area.

The Coast Guard is establishing a safety zone on the navigable waters of Cape Fear River within an area bound by a line drawn from the following points: Latitude 34°13′54″ N, longitude 077°57′06″ W; thence northeast to latitude 34°13′57″ N, longitude 077°57′05″ W; thence north to latitude 34°14′11″ N, longitude 077°57′07″ W; thence northwest to latitude 34°14′22″ N, longitude 077°57′19″ W; thence west to latitude 34°14′22″ N, longitude 077°57′06″ W; thence southeast to latitude 34°14′07″ N, longitude 077°57′00″ W; thence south to latitude 34°13′54″ N, longitude 077°56′58″ W; thence to the point of origin, locatedapproximately 500 yards north of Cape Fear Memorial Bridge. This safety zone will be established and enforced in the vicinity of Wilmington, NC from 8 p.m. to 11 p.m. on August 28, 2012. In the interest of public safety, general navigation within the safety zone will be restricted during the specified date and times. Except for participants and vessels authorized by the Coast Guard Captain of the Port or his representative, no person or vessel may enter or remain in the regulated area.

We developed this rule after considering numerous statutes and executive orders related to rulemaking. Below we summarize our analyses based on 13 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 restricts access to a small segment of the Cape Fear River, the effect of this rule will not be significant because: (i) The safety zone will be in effect for a limited duration; (ii) the zone is of limited size; and (iii) the Coast Guard will make notifications via maritime advisories so mariners can adjust their plans accordingly.

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 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 rule will affect the following entities, some of which may be small entities: The owners or operators of vessels intending to transit the specified portion of Cape Fear River from 8 p.m. to 11 p.m. on August 28, 2012. This rule will not have a significant economic impact on a substantial number of small entities for the following reasons: (1) This rule will be enforced for only three hours on August 28, 2012; (2) Vessel traffic will be able to navigate safely around the safety zone without significant impact to their transit plans; and (3) Before the effective period begins, we will issue maritime advisories.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Public Law 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, call1-888-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 INFORMATION 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 incomplying 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 human environment. This rule involves establishing a safety zone for a fireworks display launch site and fallout area and is expected to have no impact on the water or environment. This zone is designed to protect mariners and spectators from the hazards associated with aerial fireworks displays. This rule is categorically excluded from further review under paragraph 34 (g) of Figure 2-1 of the Commandant Instruction. An environmental analysis checklist supporting this determination and a Categorical Exclusion Determination are available in the docket where indicated 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 165 as follows:

Table of Acronyms DHSDepartment of Homeland Security FRFederal Register NPRMNotice of Proposed Rulemaking A. Regulatory History and Information

The Coast Guard is establishing this rule because the current regulation associated with the Seafair Blue Angels Air Show performance (33 CFR 165.1319) is not large enough to safeguard participants and spectators from the safety hazards of this air performance.

The Coast Guard is issuing this temporary final rule without prior notice and opportunity to comment pursuant to authority under section 4(a) of the Administrative Procedure Act (APA) (5 U.S.C. 553(b)). This provision authorizes an agency to issue a rule without prior notice and opportunity to comment when the agency for good cause finds that those procedures are “impracticable, unnecessary, or contrary to the public interest.”

Under 5 U.S.C. 553(b)(B), the Coast Guard finds that good cause exists for not publishing a notice of proposed rulemaking (NPRM) with respect to this rule because publishing an NPRM would be impracticable since the event would be over before notice could be given and comments taken. Notice and comment would also be contrary to the public interest because the public expects to be provided a safe area to observe the Seafair Blue Angels air show. Absent this temporary final rule, the zone provided in 33 CFR 165.1319 will be too small to encompass the anticipated safe flight pattern of the demonstrating aircraft, and would expose spectators to hazards associated with low-flying aircraft over water.

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, because to do so would be contrary to the public interest since the event would be over before notice could be given and comments taken, and it is immediately necessary to protect the event's spectators from the hazards associated with the Seafair Blue Angels Air Show Performance.

The legal basis for this rule is 33 U.S.C.1231; 46 U.S.C. Chapter 701, 3306, 3703; 50 U.S.C. 191, 195; 33 CFR 1.05-1, 6.04-1, 6.04-6, 160.5; Public Law 107-295, 116 Stat. 2064; Department of Homeland Security Delegation No. 0170.1. which collectively authorize the Coast Guard to define regulatory safety zones.

The Coast Guard is establishing this safety zone to ensure the safety of the maritime public during the Seattle Blue Angels Air Show. The safety zone in 33 CFR 165.1319 has been determined to be too small to accommodate the anticipated flight pattern of the Blue Angels. This temporary final rule extends the northern boundary line of the existing regulation northward by 500 yards. The remainder of the safety zone contained at 33 CFR 165.1319 remains unchanged.

As described in 69 FR 35249, the Coast Guard established a final rule for the Blue Angels Air Show Performance. This rule was meant to protect the public from dangers including excessive noise and falling objects from any potential accidents caused by these low-flying military aircraft. The regulation contained in 33 CFR 165.1319 encompasses “[a]ll waters of Lake Washington, Washington State, enclosed by the following points: Near the termination of Roanoke Way 47°35′44″ N, 122°14′47″ W; thence to 47°35′48″ N, 122°15′45″ W; thence to 47°36′02.1″ N, 122°15′50.2″ W; thence to 47°35′56.6″ N, 122°16′29.2″ W; thence to 47°35′42″ N, 122°16′24″ W; thence to the east side of the entrance to the west highrise of the Interstate 90 bridge; thence westerly along the south side of the bridge to the shoreline on the western terminus of the bridge; thence southerly along the shoreline to Andrews Bay at 47°33′06″ N, 122°15′32″ W; thence northeast along the shoreline of Bailey Peninsula to its northeast point at 47°33′44″ N, 122°15′04″ W; thence easterly along the east-west line drawn tangent to Bailey Peninsula; thence northerly along the shore of Mercer Island to the point of origin. [Datum: NAD 1983]”

However, the aircraft in question have a flight pattern that will extend past the northern boundary of the regulation in 33 CFR 165.1319. As such, an extension is necessary in order to protect the spectating public.

This rule encompasses the northern portion of the Seafair Blue Angels Air Show Performance Safety Zone, starting at point 47°36′17.28″ N, 122°16′58.56″ W, thence east to point 47°36′17.28″ N, 122°14′49.44″ W, thence south to point 47°35′45.3″ N, 122°14′49.44″ W, thence south west along the shore line to the I-90 bridge at point, 47°35′23.16″ N, 122°15′17.1″ W, thence west along the I-90 bridge to point, 47°35′25.44″ N, 122°17′9.48″ W, and north along the shoreline back to the point of origin. This rule is effective from 9:00 a.m. on August 2, 2012 through 4:00 p.m. on August 5, 2012.

During the periods the safety zone is in effect no person or vessel may enter into, transit, or remain in the safety zone without the permission of the Captain of the Port or his Designated Representative.

We developed this rule after considering numerous statutes and executive orders related to rulemaking. Below we summarize our analyses based on these statutes and executive 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. This expectation is based on the fact that the regulated area established by the regulation is not frequented by commercial navigation, and it is small in size, and short in duration.

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 term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000. The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities. This rule will affect the following entities, some of which may be small entities: the owners or operators of vessels intending to transit this portion of Lake Washington during the time this regulation is in effect. The zone will not have a significant economic impact because it is limited in size and short in duration. The only vessels likely to be impacted will be recreational boaters and small passenger vessel operators.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Public Law 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 INFORMATION 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 human environment. This rule involves the establishment of a safety zone. This rule is categorically excluded from further review under paragraph 34(g) of Figure 2-1 of the Commandant Instruction. An environmental analysis checklist supporting this determination and a Categorical Exclusion Determination are available in the docket where indicated 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 165 as follows:

The Coast Guard is issuing this temporary final rule without prior notice and opportunity to comment pursuant to authority under section 4(a) of the Administrative Procedure Act (APA) (5 U.S.C. 553(b)). This provision authorizes an agency to issue a rule without prior notice and opportunity to comment when the agency for good cause finds that those procedures are “impracticable, unnecessary, or contrary to the public interest.” Under 5 U.S.C. 553(b)(B), the Coast Guard finds that good cause exists for not publishing a notice of proposed rulemaking (NPRM) with respect to this rule because fishing openers in Prince William Sound, which includes the Port of Valdez, are announced the evening before the opener by the Alaska Department of Fish and Game, which does not afford time for public feedback on a safety zone that will be in effect only when that opener includes the area of Port Valdez that includes the AMHS Terminal.

In the past, during the month of July, the Alaska Department of Fish and Game has announced fishing openers in the Port of Valdez with less than less than 24 hours advance notice. Furthermore, there have been instances when ferries arriving/departing the AMHS Ferry Terminal have encountered fishing vessels holding station and setting nets in positions that created safety hazards for the passenger vessels that were trying to safely maneuver to and from the pier. Any delay encountered in this regulation's effective date by publishing a NPRM would be contrary to public interest, since immediate action is needed to provide for the safety of life and property on navigable waters during these fishing openers.

Under 5 U.S.C. 553(d)(3), the Coast Guard finds, for the reasons noted above, that good cause exists for making this rule effective less than 30 days after publication in theFederal Register.

The legal basis for this rule is 33 U.S.C. 1231; 46 U.S.C. chapter 701, 3306, 3703; 50 U.S.C. 191, 195; 33 CFR 1.05-1, 6.04-1, 6.04-6, 160.5; Public Law 107-295, 116 Stat. 2064; Department of Homeland Security Delegation No. 0170.1. which collectively authorize the Coast Guard to define regulatory safety zones.

The safety zone is necessary to protect all vessels operating in the vicinity of the AMHS Ferry Terminal. The safety zone will terminate whenever a departing ferry vessel is more than 200 yards from the AMHS Ferry Terminal. The safety zone will also terminate whenever an arriving ferry vessel moors to the pier. The impact of this rule on commercial and recreational traffic is expected to be minimal because of the limited area and duration of the safety zone.

The Coast Guard is establishing a temporary 200-yard safety zone around the AMHS Ferry Terminal at position 61°07′26″ N and 146°21′50″ W in the navigable waters of Port Valdez. The zone will only be in effect when a ferry vessel is within 200 yards of the AMHS Ferry Terminal, between July 3, 2012, and August 1, 2012, and when there is an Alaska Department of Fish and Game fish opener that includes the 200-yard radius surrounding the AMHS pier. The limited size and duration of the zone is designed to minimize the impact on other vessels transiting the waters of Port Valdez.

We developed this rule after considering numerous statutes and executive orders related to rulemaking. Below we summarize our analyses based on 13 of these statutes or executive orders.

This rule is not a “significant regulatory action” under section 3(f) of Executive Order 12886, Regulatory Planning and Review, and does not require an assessment of potential costs and benefits under section 6(a)(3) of that Order. The Office of Management and Budget has not reviewed it under that Order. It is not “significant” under the regulatory policies and procedures of the Department of Homeland Security (DHS). This finding is based on the limited size and duration of the safety zone which will have minimal, if any, impact on vessels transiting the waters of Prince William Sound and Port Valdez.

Under the Regulatory Flexibility Act (5 U.S.C. 601-612), we have considered whether this rule would have a significant economic impact on a substantial number of small entities. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000.

The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities.

The ruling will affect the following entities, some of which may be small entities:Recreational, ferry, and fishing vessels for very short periods of time and improve the safe operations for all parties involved by reducing risk to life and property. This rule will only be enforced during an AMHS ferry's arrival or departure from the AMHS Ferry Terminal from July 3, 2012, until August 1, 2012, and from the time a fish opener begins until it expires. Vessel traffic can pass safely around the zone. Before the effective period, we will issue maritime advisories widely available to users of Port Valdez via VHF CH 13. Broadcast Notice toMariners will also be made on CH 16. All indications are that there will be minimal impact to small entities.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we offer to assist small entities in understanding the rule so that they can better evaluate its effects on them and participate in the rulemaking process.

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 calls for no 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 State or local governments and would either preempt State law or impose a substantial direct cost of compliance on them. We have analyzed this rule under that Order and have determined that it does not have implications for federalism.

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.

We have analyzed this rule under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use. We have determined that it is not a “significant energy action” under that order because it is not a “significant regulatory action” under Executive Order 12866 and is not likely to have a significant adverse effect on the supply, distribution, or use of energy. The Administrator of the Office of Information and Regulatory Affairs has not designated it as a significant energy action. Therefore, it does not require a Statement of Energy Effects under Executive Order 13211.

The National Technology Transfer and Advancement Act (NTTAA) (15 U.S.C. 272 note) directs agencies to use voluntary consensus standards in their regulatory activities unless the agency provides Congress, through the Office of Management and Budget, with an explanation of why using these standards would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards (e.g., specifications of materials, performance, design, or operation; test methods; sampling procedures; and related management systems practices) that are developed or adopted by voluntary consensus standards bodies.

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 concluded this action is one of a category of actions that do not individually or cumulatively have a significant effect on the human environment. This rule is categorically excluded, under figure 2-1, paragraph (34)(g) of the Instruction. Under figure 2-1, paragraph (34)(g), of the Instruction, an “Environmental Analysis Check List” and a “Categorical Exclusion Determination” have been completed and are available in the docket where indicated under Addresses.

For the reasons discussed in the preamble, the Coast Guard amends 33 CFR part 165 as follows:

The Coast Guard will enforce the security zones for Seattle's Seafair Fleet Week Moving Vessels within the Captain of the Port, Puget Sound Area of Responsibility in 33 CFR 165.1333 from 12:00 p.m. on July 31, 2012 through 5:00 p.m. on August 6, 2012.

Under the provisions of 33 CFR 165.1333, the following areas are security zones: All navigable waters within 500 yards of the HMCS NANAIMO (NCSM 702), HMCS EDMONTON (NCSM 703), HMCS ORIOLE, and the USCGC STRATTON (WMSL 752) while each vessel is in the Sector Puget Sound COTP Zone. No person or vessel may enter or remain in the security zones described in paragraph (a) of this section without the permission of the COTP or his Designated Representative.

The COTP has granted general permission for vessels to enter the outer 400 yards of the security zones as long as those vessels within the outer 400 yards of the security zones operate at the minimum speed necessary to maintain course unless required to maintain speed by the navigation rules. The COTP may be assisted by other federal, state or local agencies with the enforcement of the security zones.

All vessel operators who desire to enter the inner 100 yards of the security zones or transit the outer 400 yards at greater than minimum speed necessary to maintain course must obtain permission from the COTP or his Designated Representative by contacting the on-scene Coast Guard patrol craft on VHF 13 or Channel 16. Requests must include the reason why movement within this area is necessary. Vessel operators granted permission to enter the security zones will be escorted by the on-scene Coast Guard patrol craft until they are outside of the security zones.

This notice is issued under authority of 33 CFR 165.1333 and 5 U.S.C. 552(a). In addition to this notice, the Coast Guard will provide the maritime community with extensive advanced notification of the security zones via the Local Notice to Mariners and marine information broadcasts on the day of the event.

Purpose of Program

The purpose of the Charter Schools Program (CSP) is to increase national understanding of the charter schools model by—

(1) Providing financial assistance for the planning, program design, and initial implementation of charter schools;

(2) Evaluating the effects of charter schools, including the effects on students, student academic achievement, staff, and parents;

(3) Expanding the number of high-quality charter schools available to students across the Nation; and

(4) Encouraging the States to provide support to charter schools for facilities financing in an amount that is more commensurate with the amount the States have typically provided for traditional public schools.

The purpose of the Collaboration Awards competition (CFDA 84.282P) is to encourage high-quality charter schools (as defined in this notice) to partner with non-chartered public schools (as defined in this notice) and non-chartered LEAs (as defined in this notice) to share and transfer best educational and operational practices, and to disseminate information about such practices. By promoting strong partnerships and supporting the dissemination of information about the activities carried out through the partnerships, these Collaboration Awards should facilitate the exchange of best practices between public charter schools, non-chartered public schools, and non-chartered LEAs; and help the United States Department of Education (Department) identify and publicize successful collaborations. The Collaboration Awards competition is designed to encourage public charter schools, non-chartered public schools, and non-chartered LEAs to share resources and responsibilities; build trust and teamwork; boost academic excellence; and provide students and their parents with a range of effective educational options. The Department, through the Collaboration Awards competition, aims to increase national understanding of the charter schools model.

The CSP is authorized under 20 U.S.C. 7221-7221i; CSP national activities are authorized under 20 U.S.C. 7221d.

The Department published a notice of proposed definitions, requirements, and selection criteria (NPP) for the Collaboration Awards in theFederal Registeron April 25, 2012 (77 FR 24690). The NPP contained background information and our reasons for proposing the particular definitions, requirements, and selection criteria.

There are differences between the definitions, requirements, and selection criteria proposed in the NPP and these final definitions, requirements, and selection criteria, as discussed in theAnalysis of Comments and Changessection elsewhere in this notice. The most significant changes are as follows: (1) Clarifying that only high-quality charter schools are eligible to apply for Collaboration Awards; (2) adding a definition for “high-quality charter school”; (3) creating an additional selection criterion, “Quality of the lead applicant,” which allows consideration of the extent to which an applicant is a high-quality charter school; (4) changing the title of the first selection criterion from “Record of and potential for success” to “Record of and potential for success of collaboration”; (5) altering the title of the Collaboration Awards competition from “Exemplary Charter School Collaboration Awards” to “Charter School Exemplary Collaboration Awards” in order to emphasize that the collaboration itself must be exemplary; and (6) adding “school climate” and access to charter schools for students with disabilities to the list of potential areas suitable for a collaboration.

Public Comment:In response to our invitation in the NPP, eight parties submitted comments on the proposed definitions, requirements, and selection criteria.

Generally, we do not address technical and other minor changes. In addition, we do not address general comments that raise concerns not directly related to the definitions, requirements, or selection criteria.

Analysis of Comments and Changes:An analysis of the comments and any changes in the definitions, requirements, and selection criteria since publication of the NPP follows.

Comment:One commenter suggested that we create a new priority, not included in the NPP, to encourage collaboration between public charter schools and non-chartered public schools that aims to improve access to charter schools for students with disabilities. The commenter stated that disseminating information about successful collaborations related to improving access to charter schools for students with disabilities would also make a positive contribution to the field of special education.

Discussion:We agree that improving access to charter schools for students with disabilities is important, and an area in which charter schools frequently look for best practices and models. Because this is the first year of the competition, however, we believe that it is best to encourage applications from a broad range of charter schools and to avoid requirements or priorities that might discourage potential applicants from applying. This does not preclude the possibility of a priority related to improving access to charter schools for students with disabilities being included in future years.

Change:We decline to create a priority to encourage collaboration between public charter schools and non-chartered public schools that aims to improve access to charter schools for students with disabilities. The Final Application Requirements section of this notice, however, lists examples of areas that might be appropriate for collaboration. This list includes access to charter schools by students with disabilities as an area suitable for collaboration. We have removed “students with other special needs” from the list in the Final Application Requirements section of areas that might be appropriate for collaboration because it duplicates other areas listed: “Special education services and access to charter schools by students with disabilities” and “English learners.”

Comment:One commenter suggested that the proposed definition of “collaboration” align more closely with the intent of the Collaboration Awards as described in the NPP's Summary and Purpose of Program sections. The commenter recommended an expanded and more detailed definition of “collaboration” that incorporates much of the language used in the Summary and Purpose of Program sections.

Discussion:We decline to revise the definition of “collaboration” because a more detailed definition could be unnecessarily restrictive and could limit how applicants think about collaboration. The final definition reads, “Collaboration refers to the activities of a partnership in which two or more organizations or entities work together to accomplish a common goal, which may involve sharing or transferring of best practices or strategies.” We consider this definition appropriate because it provides applicants the flexibility to be creative in continuing, modifying, or expanding their collaborations.

Change:None.

Comment:Two commenters recommended that we define “exemplary” in order to clarify the expectations and standards for applicants and to help them determine whether their schools are qualified to apply for an award.

Discussion:The Collaboration Awards competition is designed to identify exemplary partnerships between high-quality public charter schools and non-chartered public schools and non-chartered LEAs, as well as to support the dissemination of information about the activities carried out through the partnerships. To clarify the requirements for both the applicant and the collaboration, we are making several revisions to the final requirements, definitions, and selection criteria.

Changes:(1) We have changed the competition's title from “Exemplary Charter School Collaboration Awards” to “Charter School Exemplary Collaboration Awards” to emphasize that the collaboration itself must be exemplary. (2) We have revised paragraph (a)(1) of the Final Program Requirements section of this notice to clarify that eligible applicants must be high-quality charter schools. (3) We have included a definition of “high-quality charter school” in this notice. Our definition is similar to the definition of “high-quality charter school” provided in the notice of final priorities for the replication and expansion of high-quality charter schools (CFDA No.84.282M), published in theFederal Registeron July 12, 2011 (76 FR 40901). (4) We have changed the title of the first selection criterion from “Record of and potential for success” to “Record of and potential for success of collaboration.” (5) We have added a selection criterion, “Quality of the lead applicant.” This criterion will allow reviewers to provide points to applicants based on the extent to which the lead applicant is a high-quality charter school.

Comment:Three commenters recommended that high-performing magnet schools be allowed to apply for Collaboration Awards. They cited what they believe is a wealth of outstanding and innovative programs in magnet schools that are worth sharing with others. All three commenters noted that some of the Nation's highest-quality schools today are magnet schools that began as low-performing schools with students from low-income families admitted by lottery.

Discussion:We agree that there are numerous high-performing magnet schools that are worthy of participating in a collaborative initiative. Because the Collaboration Awards are authorized under the CSP, however, only charter schools are the lead applicants. In order to qualify for a Collaboration Award, a charter school must enter into a partnership with a non-chartered public school (as defined in this notice) or a non-chartered LEA (as defined in this notice). Magnet schools are non-chartered public schools and, as such, would be eligible to participate in this competition as partners with high-quality charter schools.

Change:None.

Comment:None.

Discussion:The NPP stated in the Proposed Eligibility Requirements section that “an applicant may submit more than one application if each application proposes to carry out substantially different authorized activities.” We are removing this language from the Final Eligibility Requirements because applicants do not need specific authorization to submit more than one application for a Collaboration Award. Applicants should be aware, however, that it is highly unlikely that more than one application from the same applicant will be approved for funding because the Department anticipates making only a limited amount of funding available for Collaboration Awards and it is within the Secretary's discretion to fund applications out of rank order in order to achieve geographic diversity.

Change:We have removed the statement in the Eligibility section that “An applicant may submit more than one application if each application proposes to carry out substantially different authorized activities.”

Comment:One commenter suggested that we revise the Application Requirements section to include “school climate” on the list of areas that may be suitable for a collaboration. The commenter cited the recent movie “Bully,” which documented the effects of bullying, and stated that communities and schools want to learn from others about providing all students with a safe learning environment. The commenter also cited parts of the ESEA that support the importance of a safe and positive school climate for all students. Finally, the commenter cited research that links a positive school climate to many indicators of a school's success.

Discussion:We agree that a healthy school climate is an important factor in achieving positive educational outcomes. Bullying is one of many issues (drugs and gangs are examples of others) that can have a negative effect on the school environment.

Change:We have revised paragraph (a)(3) of the Final Application Requirements section of this notice to include school climate on the list of potential areas suitable for a collaboration.

Comment:One commenter recommended that we incorporate the following three indicators of operational quality into the first proposed selection criterion, “Record of and potential for success of the collaboration”: (1) Financial performance and sustainability; (2) performance and stewardship; and (3) parent and community engagement. The commenter noted that these three indicators were developed and published by a well-respected consortium of charter school organizations as a tool to help the charter school community determine operational quality.

Discussion:We agree that indicators similar to those recommended by the commenter will help applicants demonstrate operational quality and improve the overall quality of applications received. Applicants can use these indicators to show more clearly the extent to which their proposed collaboration and dissemination plans will improve operational practices and productivity among all partners in the collaboration.

Change:We have incorporated three indicators similar to those suggested by the commenter in the first selection criterion, “Record of and potential for success of the collaboration.” The element in the NPP stated: “Improved operational practices and productivity among all partners.” The revised element (B)(i) of the first selection criterion now reads: “Improved operational practices and productivity among all partners in such areas as financial performance andsustainability, governing board performance and stewardship, and parent and community engagement.”

Comment:One commenter suggested that we expand the first proposed selection criterion, “Record of and potential for success of the collaboration,” to include four indicators of academic quality: (1) Student achievement level; (2) student progress over time; (3) postsecondary readiness and success; and (4) student engagement.

Discussion:Three of the four indicators that the commenter lists were included in the first selection criterion proposed in the NPP and are also included in the Final Selection Criteria. The first selection criterion contains an element, “Improved student achievement,” which peer reviewers will use to judge how the collaboration has improved student achievement in the past, as well as how it will improve student achievement in the future. The first selection criterion also addresses postsecondary readiness and success with elements such as improved high school graduation rates, improved rates of college matriculation and college graduation, and improved rates of attendance and graduation from other postsecondary (i.e., non-college) institutions or programs. However, the first selection criterion, as proposed, did not address student engagement. We agree with the commenter that it should do so and have expanded it accordingly.

Change:We have revised element (B)(iii) in the first selection criterion, “Record of and potential for success of the collaboration,” by adding two factors related to student engagement—attendance and retention. The revised element now reads, “Improved student attendance and retention, and improved high school graduation rates.”

Comment:One commenter noted that the NPP states that the proposed selection criteria for this competition were designed to expand the number of high-quality charter schools, among other things. The commenter stated, however, that the competition's proposed selection criteria would not encourage applicants to address issues or undertake activities designed primarily to increase the number of high-quality charter schools. The commenter recommended adding a selection criterion aimed at encouraging applicants to develop a collaboration project that might increase the number of high-quality charter schools nationwide and improve services to students attending these schools. Specifically, the commenter recommended a new selection criterion that would reward collaborators for jointly: (1) Developing a process to ensure equitable funding for public charter schools and non-chartered public schools; (2) sharing data and information among schools; and (3) developing and implementing activities in schools, such as teacher professional development, building maintenance, and nutrition programs.

Discussion:The commenter is correct in that one purpose of these Collaboration Awards is to increase national understanding of the charter school model by expanding the number of high-quality charter schools available to students nationwide. We also agree that the commenter's proposed selection criterion (and its three elements) would promote this purpose. We believe, however, that the definitions, requirements, and selection criteria set forth in this notice will be more effective not only in increasing the number of high-quality charter schools available to students across the Nation, but also, in promoting the other purposes of the Collaboration Awards.

Change:Although we decline to add the new selection criterion proposed by the commenter, we have revised section (a)(1) of the Eligibility Requirements of this notice to allow public charter schools that do not qualify as high-quality charter schools (as defined in this notice) to be included as partners in the collaboration so long as (1) the lead applicant is a high-quality charter school; (2) the lead applicant is separate and distinct from other charter schools included as partners in the collaboration; and (3) at least one non-chartered public school (as defined in this notice) or non-chartered LEA (as defined in this notice) also is a part of the collaboration. We also have added a sentence to section (a)(2) of the Eligibility Requirements section of this notice to clarify that public charter schools that are not high-quality charter schools are ineligible to serve as the lead applicant or fiscal agent; and revised section (b)(4) of this notice (Funding Restrictions) to allow collaborations to expand by adding public charter schools that are not high-quality charter schools, as described in the grant application. We think these changes further support the goal of increasing the number of high-quality charter schools.

The Assistant Deputy Secretary for Innovation and Improvement establishes the following program requirements for the Collaboration Awards. We may apply one or more of these requirements in any year in which this program is in effect.

(a)Eligibility:

(1) Eligible applicants must be high-quality charter schools (as defined in this notice) that apply in partnership with at least one non-chartered public school (as defined in this notice) or non-chartered LEA (as defined in this notice) and have the support of the partner(s) to participate in the Collaboration Awards competition in accordance with requirements in the Final Application Requirements section of this notice. Other public charter schools that do not qualify as high-quality charter schools may be included in the collaboration so long as (1) the lead applicant is a high-quality charter school; (2) the lead applicant is separate and distinct from any other charter schools included as partners in the collaboration; and (3) at least one non-chartered public school (as defined in this notice) or non-chartered LEA (as defined in this notice) also is a part of the collaboration.

(2) The partnership must comply with the requirements for group applications set forth in 34 CFR 75.127-75.129.

(3) Eligible applicants may not have any significant compliance issues (as defined in this notice), including in the areas of student safety, financial management, and statutory or regulatory compliance.

(b)Funding Restrictions:A Collaboration Award recipient must use the grant funds for one or more of the following: (1) Continuing the collaboration for which it received the award, as described in its grant application; (2) modifying the collaboration for which it received the award, as described in the grant application; (3) expanding the collaboration for which it received the award by adding additional areas of collaboration, as described in the grant application; (4) expanding the collaboration for which it received the award by adding additional partners (non-chartered public schools (as defined in this notice), non-chartered LEAs (as defined in this notice), or public charter schools that are not high-quality charter schools), as described in the grant application. Collaboration Award recipients also must use a portion of the grant funds to disseminate information about thecollaboration activities to other public schools, including public charter schools, non-chartered public schools (as defined in this notice), and non-chartered LEAs (as defined in this notice). All activities carried out under the Collaboration Awards must fall within the scope of authorized activities set forth in section 5205(a) of the ESEA.

The Assistant Deputy Secretary for Innovation and Improvement establishes the following application requirements for the CSP Collaboration Awards competition. We may apply one or more of these requirements in any year in which this program is in effect.

An applicant for a Collaboration Award must—

(a) Provide a detailed narrative describing (1) the applicant's past or existing collaboration (which may involve more than one partner); (2) the applicant's proposal to continue, modify, or expand (by adding new areas of collaboration or new partners) the collaboration; and (3) the applicant's plan to disseminate information about the collaboration (which may include information about best practices) to other public schools, including public charter schools, non-chartered public schools, and non-chartered LEAs.

The proposed collaboration may focus on a wide range of areas within the scope of activities authorized under section 5205(a) of the ESEA. The list of potential areas includes, but is not limited to, curriculum and instruction, data management and sharing, organization and management, personnel, facilities, finances, Federal programs, standards, assessments, special education services and access to charter schools by students with disabilities, English learners, student transportation, professional development and training, and school climate.

(b) Provide written assurances from authorized officials of the entities involved in the partnership that all participants—

• Agree to submit an application for an award under the competition and have read, understand, and agree with the application for the competition; and

• Authorize the executive summary or narrative of the application, with proprietary information redacted, to be published on the U.S. Department of Education's Web site (ed.gov),data.ed.gov,the National Charter School Resource Center Web site (charterschoolcenter.org), or any other Web site or publication deemed appropriate by the Secretary;

(c) Submit a partnership agreement that meets the requirements of 34 CFR 75.128(b);

(d) Provide a clear description of the goals and desired outcomes of the proposed collaboration and current or proposed measures that would be used to gauge success in meeting those goals and desired outcomes;

(e) Describe any past, existing, or anticipated obstacles to implementing the collaboration or to disseminating information about the collaboration, and the strategies that were or will be used to overcome those obstacles;

(f) Specify how the award money will be used to implement the collaboration and to disseminate information about the collaboration in accordance with section 5205(a) of the ESEA; and

(g) Specify how the award money will be allocated between the lead applicant and the partner(s) named in the application, including the specific activities that will be carried out by the lead applicant and its partner(s).

In addition to the definitions in section 5210 of the ESEA, which include the definition of “charter school,” we are establishing the following definitions for the Collaboration Awards competition. We may apply one or more of these definitions in any year in which we make awards under a Collaboration Awards competition.

Collaborationmeans the activities of a partnership in which two or more organizations or entities work together to accomplish a common goal, which may involve sharing or transferring best practices or strategies.

High-quality charter schoolmeans a charter school (as defined in section 5210(1) of the ESEA) that has no significant compliance issue (as defined in this notice) and shows evidence of strong academic results for the past three years (or over the life of the school if the school has been open for fewer than three years), based on the following factors:

(1) Increased student achievement (as defined in this notice) and attainment for all students, including, as applicable, educationally disadvantaged students served by the charter school.

(2) Either—

(i) Demonstrated success in closing historic achievement gaps for the subgroups of students described in section 1111(b)(2)(C)(v)(II) of the ESEA at the charter school; or

(ii) No significant achievement gaps between any of the subgroups of students described in section 1111(b)(2)(C)(v)(II) of the ESEA at the charter school and significant gains in student achievement (as defined in this notice) with all populations of students served by the charter school.

(3) Results (including, where applicable and available, performance on statewide tests, attendance and retention rates, high school graduation rates, college attendance rates, and college persistence rates) for low-income and other educationally disadvantaged students served by the charter school that are above the average achievement results for such students in the State.

Non-chartered local educational agency (LEA)means an LEA that does not qualify as a charter school as defined in section 5210(1) of the ESEA or under State law.

Non-chartered public schoolmeans a public school that does not qualify as a charter school under section 5210(1) of the ESEA or under State law.

Significant compliance issuemeans a violation that did, will, or could lead to the revocation of a school's charter.

Student achievementmeans—

(a) For tested grades and subjects: (1) A student's score on the State's assessments under the ESEA; and (2) as appropriate, other measures of student learning, such as those described in paragraph (b) of this definition, provided they are rigorous and comparable across schools.

(b) For non-tested grades and subjects: alternative measures of student learning and performance, such as student scores on pre-tests and end-of-course tests; student performance on English language proficiency assessments; and other measures of student achievement that are rigorous and comparable across schools.

The Secretary establishes the following selection criteria for Collaboration Awards competitions and may apply one or more of these criteria alone or in combination with one or more selection criteria (1) based on the CSP authorizing statute or (2) in 34 CFR 75.210, in any year in which this program is in effect. In the notice inviting applications or the application package, or both, we will announce the maximum possible points assigned to each criterion.

The Secretary may make awards to the top-rated applications proposing to carry out activities in specific areas of focus (e.g., curriculum and instruction, data management and sharing, organization and management) within the scope of authorized activities under section 5205(a) of the ESEA. In a particular year, the Secretary mayrestrict applications to one or more areas of focus. Additionally, in making awards, the Secretary may fund applications out of rank order in order to ensure that the Collaboration Awards are distributed throughout each area of the Nation or a State.

(1)Record of and potential for success of collaboration.(A) The extent to which the applicant's past or existing collaboration has improved educational outcomes and operational practices; and (B) The extent to which the applicant's proposed collaboration and dissemination plan will achieve one or more of the following demonstrable results:

(i) Improved operational practices and productivity among all partners in such areas as financial performance and sustainability, governing board performance and stewardship, and parent and community engagement.

(ii) Improved student achievement (as defined in this notice).

(iii) Improved student attendance and retention, and improved high school graduation rates.

(iv) Improved rates of college matriculation and college graduation.

(v) Improved rates of attendance and graduation from other postsecondary (i.e., non-college) institutions or programs.

(2)Quality of the lead applicant.(A) The degree, including the consistency over the past three years, to which the applicant has demonstrated success in significantly increasing student achievement (as defined in this notice) and attainment for all students, including, as applicable, educationally disadvantaged students served by the charter school.

(B) Either—

(i) The degree, including the consistency over the past three years, to which the applicant has demonstrated success in closing historic achievement gaps for the subgroups of students described in section 1111(b)(2)(C)(v)(II) of the ESEA at the charter school; or

(ii) The degree, including the consistency over the past three years, to which there have not been significant achievement gaps between any of the subgroups of students described in section 1111(b)(2)(C)(v)(II) of the ESEA at the charter school and to which significant gains in student achievement (as defined in this notice) have been made with all populations of students served by the charter school.

(C) The degree, including the consistency over the past three years, to which the applicant has achieved results (including, where applicable and available, performance on statewide tests, student attendance and retention rates, high school graduation rates, college attendance rates, and college persistence rates) for students from low-income families and other educationally disadvantaged students served by the charter school that are above the average academic achievement results for such students attending other public schools in the State.

(3)Quality of the project design.The extent to which the applicant proposes a high-quality plan to use its Collaboration Award funds to improve educational outcomes and operational practices in public schools, including public charter schools.

(4)Potential for scalability.The extent to which the applicant's proposed collaboration can be replicated or adapted beyond the participating partners by other public schools or LEAs, including public charter schools and charter school LEAs, and sustained over the long-term.

(5)Innovation.The extent to which the applicant demonstrates that its proposed collaboration, as well as its dissemination plan, are either (a) substantially different from other efforts in its area of focus; or (b) substantially more effective than similar efforts in its area of focus.

Under Executive Order 12866, the Secretary must determine whether this regulatory action is “significant” and, therefore, subject to the requirements of the Executive order and subject to review by the Office of Management and Budget (OMB). Section 3(f) of Executive Order 12866 defines a “significant regulatory action” as an action likely to result in a rule that may—

(1) Have an annual effect on the economy of $100 million or more, or adversely affect a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local or tribal governments or communities in a material way (also referred to as an “economically significant” rule);

(2) Create serious inconsistency or otherwise interfere with an action taken or planned by another agency;

(3) Materially alter the budgetary impacts of entitlement grants, user fees, or loan programs or the rights and obligations of recipients thereof; or

(4) Raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles stated in the Executive order.

This final regulatory action is not a significant regulatory action subject to review by OMB under section 3(f) of Executive Order 12866.

We have also reviewed this final regulatory action under Executive Order 13563, which supplements and explicitly reaffirms the principles, structures, and definitions governing regulatory review established in Executive Order 12866. To the extent permitted by law, Executive Order 13563 requires that an agency—

(1) Propose or adopt regulations only upon a reasoned determination that their benefits justify their costs (recognizing that some benefits and costs are difficult to quantify);

(2) Tailor its regulations to impose the least burden on society, consistent with obtaining regulatory objectives and taking into account—among other things and to the extent practicable—the costs of cumulative regulations;

(3) In choosing among alternative regulatory approaches, select those approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity);

(4) To the extent feasible, specify performance objectives, rather than the behavior or manner of compliance a regulated entity must adopt; and

(5) Identify and assess available alternatives to direct regulation, including economic incentives—such as user fees or marketable permits—to encourage the desired behavior, or provide information that enables the public to make choices.

Executive Order 13563 also requires an agency “to use the best available techniques to quantify anticipated present and future benefits and costs as accurately as possible.” The Office of Information and Regulatory Affairs of OMB has emphasized that these techniques may include “identifying changing future compliance costs that might result from technological innovation or anticipated behavioral changes.”

We are issuing these final definitions, requirements, and selection criteria only on a reasoned determination that their benefits justify their costs. In choosingamong alternative regulatory approaches, we selected those approaches that maximize net benefits. The Department believes that this regulatory action is consistent with the principles in Executive Order 13563.

We also have determined that this regulatory action does not unduly interfere with State, local, and Tribal governments in the exercise of their governmental functions.

In accordance with both Executive orders, the Department has assessed the potential costs and benefits, both quantitative and qualitative, of this regulatory action. The potential costs are those resulting from statutory requirements and those we have determined as necessary for administering the Department's programs and activities.

Paperwork Reduction Act of 1995:The Paperwork Reduction Act of 1995 does not require you to respond to a collection of information unless it displays a valid OMB control number. The collection of information is approved under OMB control number 1855-0026.

Intergovernmental Review:This program is subject to Executive Order 12372 and the regulations in 34 CFR part 79. One of the objectives of the Executive Order is to foster an intergovernmental partnership and a strengthened federalism. The Executive Order relies on processes developed by State and local governments for coordination and review of proposed Federal financial assistance.

This document provides early notification of our specific plans and actions for this program.

Accessible Format:Individuals with disabilities can obtain this document in an accessible format (e.g., braille, large print, audiotape, or compact disc) on request to either of the program contact persons listed underFOR FURTHER INFORMATION CONTACT.

Electronic Access to This Document:The official version of this document is the document published in theFederal Register. Free Internet access to the official edition of theFederal Registerand the Code of Federal Regulations is available via the Federal Digital System at:www.gpo.gov/fdsys.At this site you can view this document, as well as all other documents of this Department published in theFederal Register, in text or Adobe Portable Document Format (PDF). To use PDF you must have Adobe Acrobat Reader, which is available free at the site.

You may also access documents of the Department published in theFederal Registerby using the article search feature at:www.federalregister.gov.Specifically, through the advanced search feature at this site, you can limit your search to documents published by the Department.

Table of Contents I. Background II. This Action III. Final Action IV. Statutory and Executive Order Reviews I. Background

EPA is taking final action on Tennessee's July 29, 2011, SIP revision to adopt rules equivalent to federal requirements for NSR permitting.1 Tennessee's July 29, 2011, SIP revision includes changes to Tennessee's Air Quality Regulations, Chapter 1200-03-09—Construction and Operating Permits, Rule Number .01—Construction Permits, to adopt federal PSD and NNSR promulgated in the rule entitled “Implementation of the New Source Review (NSR) Program for Particulate Matter Less than 2.5 Micrometers (PM2.5), ” Final Rule, 73 FR28321 (May 16, 2008), hereafter referred to as the “NSR PM2.5Rule.” Also, Tennessee's July 29, 2011, SIP revision includes clarifying changes to rule 1200-03-09-.01.

On June 11, 2012, EPA published a proposed rulemaking to approve the aforementioned changes to Tennessee's NSR PSD program.See77 FR 34302. Comments on the proposed rulemaking were due on or before July 11, 2012. No comments, adverse or otherwise, were received on EPA's June 11, 2012 proposed rulemaking. Pursuant to section 110 of the CAA, EPA is now taking final action to approve the changes to Tennessee's NSR PSD program as provided in EPA's June 11, 2012, proposed rulemaking. A summary of the background for today's final action is provided below. For more detail, please refer to EPA's proposed rulemaking at 77 FR 34302.

EPA finalized a rule on May 16, 2008, that revised the NSR program requirements to establish the framework for implementing preconstruction permit review for the PM2.5NAAQS in both attainment and nonattainment areas. Specifically, the NSR PM2.5Rule established the following NSR requirements to implement the PM2.5NAAQS: (1) Require NSR permits to address directly emitted PM2.5and precursor pollutants; (2) establish significant emission rates for direct PM2.5and precursor pollutants (including sulfur dioxide (SO2) and nitrogen oxides (NOX)); (3) establish PM2.5emission offsets; (4) provide exceptions to inhalable particles smaller than or equal to 10 micrometers in diameter) (PM10) grandfather policy; and (5) require states to account for gases that condense to form particles (condensables) in PM2.5and PM10emission limits in PSD or nonattainment NSR permits. Additionally, the NSR PM2.5Rule authorized states to adopt provisions in their nonattainment NSR rules that would allow interpollutant offset trading.See73 FR 28321. States were required to provide SIP submissions to address the requirements for the NSR PM2.5Rule by May 16, 2011. Tennessee's July 29, 2011, SIP revision addresses the PSD and NNSR requirements related to EPA's May 16, 2008, NSR PM2.5Rule.

In the NSR PM2.5Rule, EPA required that major stationary sources seeking permits must begin directly satisfying the PM2.5requirements, as of the effective date of the rule, rather than relying on PM10as a surrogate, with two exceptions.2 The first exception is a “grandfathering” provision in the federal PSD program at 40 CFR 52.21(i)(1)(xi). This grandfathering provision applied to sources that had applied for, but had not yet received, a final and effective PSD permit before the July 15, 2008, effective date of the May 2008 final rule. The second exception was that states with SIP-approved PSD programs could continue to implement the Seitz Memo's PM10Surrogate Policy for up to three years (until May 2011) or until the individual revised state PSD programs for PM2.5are approved by EPA, whichever comes first. On May 18, 2011 (76 FR 28646), EPA took final action to repeal the PM2.5grandfathering provision at 40 CFR 52.21(i)(1)(xi). This final action ended the use of the 1997 PM10Surrogate Policy for PSD permits under the federal PSD program at 40 CFR 52.21. In effect, any PSD permit applicant previously covered by the grandfathering provision (for sources that completed and submitted a permit application before July 15, 2008)3 that did not have a final and effective PSD permit before the effective date of the repeal will not be able to rely on the 1997 PM10Surrogate Policy to satisfy the PSD requirements for PM2.5unless the application includes a valid surrogacy demonstration.See76 FR 28646. In its July 29, 2011, SIP revision, Tennessee elected not to adopt the grandfathering provision at 40 CFR 52.21(i)(1)(xi), into its PSD regulations. Therefore, Tennessee's July 29, 2011, SIP revision is consistent with federal regulations since it does not contain the repealed grandfathering provision.

In the NSR PM2.5Rule, EPA revised the definition of “regulated NSR pollutant” for PSD to add a paragraph providing that “particulate matter (PM) emissions, PM2.5emissions and PM10emissions” shall include gaseous emissions from a source or activity which condense to form particulate matter at ambient temperatures and that on or after January 1, 2011, such condensable particulate matter shall be accounted for in applicability determinations and in establishing emissions limitations for PM, PM2.5and PM10in permits issued.See40 CFR 51.166(b)(49)(vi), 52.21(b)(50)(vi) and “Emissions Offset Interpretative Ruling” (40 CFR Part 51, Appendix S). On March 16, 2012,4 EPA proposed a rulemaking to amend the definition of “regulated NSR pollutant” promulgated in the NSR PM2.5Rule regarding the PM condensable provision at 40 CFR 51.166(b)(49)(vi), 52.21(b)(50)(i) and EPA's Emissions Offset Interpretative Ruling.See77 FR 15656. The rulemaking proposes to remove the inadvertent requirement in the NSR PM2.5Rule that the measurement of condensable “particulate matter emissions” be included as part of the measurement and regulation of “particulate matter emissions.”5 Tennessee's July 29, 2011, SIP revision adopts EPA's definition for regulated NSR pollutant for condensables (at 40 CFR 51.166(b)(49)(vi)), including the term “particulate matter emissions,” as promulgated in the NSR PM2.5Rule.

On May 1, 2012, the State of Tennessee provided a letter to EPA with clarification of the State's intent in light of EPA's March 12, 2012, proposed rulemaking. Specifically, in that letter, the State of Tennessee requested that EPA not approve the term “particulate matter emissions” (at rule 1200-03-09-.01(4)(b)47(vi)) as part of the definition for “regulated NSR pollutant” regarding the inclusion of condensable emissions in applicability determinations and in establishing emissions limitations for PM.

The NSR PM2.5final Rule authorized states to adopt provisions in their NNSR rules that would allow major stationary sources and major modifications located in areas designated nonattainment for PM2.5to offset emissions increases of direct PM2.5emissions or PM2.5precursors with reductions of either direct PM2.5emissions or PM2.5precursors in accordance with offsetratios contained in the approved SIP for the applicable nonattainment area. The inclusion, in whole or in part, of the interpollutant trading offset provisions for PM2.5is discretionary on the part of the states. In the preamble to the NSR PM2.5Rule, EPA included preferred or presumptive offset ratios, applicable to specific PM2.5precursors, that states may adopt in conjunction with the new interpollutant trading offset provisions for PM2.5, and for which the state could rely on the EPA's technical work to demonstrate the adequacy of the ratios for use in any PM2.5nonattainment area.6

The preferred ratios were subsequently the subject of a petition for reconsideration which the EPA Administrator granted in 2009. As a result of the reconsideration, on July 21, 2011, EPA issued a memorandum entitled “Revised Policy to Address Reconsideration of Interpollutant Trading Provisions for Fine Particles (PM2.5)” (hereafter referred to as the “Interpollutant Trading Memorandum”). The Interpollutant Trading Memorandum indicated that the existing preferred offset ratios are no longer considered presumptively approvable and that any precursor offset ratio submitted as part of the NSR SIP for a PM2.5nonattainment area must be accompanied by a technical demonstration showing the net air quality benefits of such ratio for the PM2.5nonattainment area in which it will be applied. Tennessee's July 29, 2011, SIP revision adopts the interpollutant policy but not the preferred trading ratios established in the NSR PM2.5Rule.

Tennessee's July 29, 2011, SIP revision adopts NSR PM2.5Rule provisions into the Tennessee SIP at Chapter 12000-03-09 including: (1) Requirement for NSR permits to address directly emitted PM2.5and precursor pollutants; (2) significant emission rates for direct PM2.5and precursor pollutants (SO2and NOX); (3) PSD and NNSR requirements of states to address condensable PM in establishing enforceable emission limits for PM10or PM2.5; (4) PM2.5emission offsets; and (5) optional interpollutant trading provision set forth at 40 CFR 51.165(a)(11). These amendments to the Tennessee rules became state-effective June 27, 2011. Specifically, the SIP revision establishes that the State's existing NSR permitting program requirements for PSD and NNSR apply to the PM2.5NAAQS and its precursors; revise the definitions of “significant”at 1200-03-09-.01(4)(b)24(i) and (5)(b)1(x)(I) to establish significant emission rates for direct PM2.5and PM2.5precursors for major modifications at existing sources (as amended at 40 CFR 51.165(a)(1)(x)(A) and 51.166(b)(23)(i)); revise the term “regulated NSR pollutant”at 1200-03-09-.01(4)(b)47 and (5)(b)1(xlix) to include PM2.5, recognize PM2.5precursors and include the requirement that condensable emissions be accounted for in applicability determinations and in establishing emissions limitations for PM (as amended at 40 CFR 51.165(a)(1)(xxxvii)(C) and 51.166(b)(49)); and adopt NNSR emission offsets (a ratio of 1:1) for direct PM2.5at 1200-03-09-.01(5)2(v) (as amended at 40 CFR 51.165(a)(9)).

Additionally, Tennessee's July 29, 2011, SIP revision does not include the grandfathering provision at 40 CFR 52.21(i)(1)(ix) promulgated in the NSR PM2.5Rule. Therefore, Tennessee's July 29, 2011, SIP revision is consistent with federal regulations. The July 29, 2011, SIP revision adopts the elective interpollutant trading provision policy at 1200-03-09(5)(b)2.(v)(XV) set forth at 40 CFR 51.165(a)(11) for the purpose of offsets under the PM2.5NNSR program. Pursuant to EPA's July 21, 2011, Interpollutant Trading Memorandum, the preferred precursor offset ratios included in the preamble to the NSR PM2.5Rule are no longer considered presumptively approvable. Therefore, any precursor offset ratio submitted to EPA for approval as part of the NSR SIP for a PM2.5nonattainment area must be accompanied by a technical demonstration showing the suitability of the ratios for that particular nonattainment area. Tennessee's adoption of the interpollutant trading policy and not the trading ratios does not in any way allow a major stationary source or major modification in the State to obtain offsets through interpollutant trading, nor does it affect the approvability of Tennessee's July 29, 2011, SIP revision.7

Regarding the condensable provision, in light of Tennessee request in its May 1, 2012, letter and EPA's intention to amend the definition of “regulated NSR pollutant” as discussed in the correction rulemaking,8 EPA is not taking action to approve the terminology “particulate matter emissions” into the Tennessee SIP (at 1200-03-09-.01(4)(b)47(vi)) for the condensable provision in the definition of “regulated NSR pollutant.” EPA is, however, taking final action to approve into the Tennessee SIP at 1200-03-09-.01(4)(b)47(vi) the remaining condensable requirement at 40 CFR 51.166(b)(49)(vi), which requires that condensable emissions be accounted for in applicability determinations and in establishing emissions limitations for PM2.5and PM10.

TDEC's July 29, 2011, SIP revision also makes an administrative change to Chapter 1200-03-09 for PSD and NNSR including removing the sentence “For example, if a project involves both an existing emissions unit and a Clean Unit, the projected increase is determined by summing the values determined using the method specified in paragraph (a)(7)(iv)(c) of this section for the existing unit and determined using the method specified in paragraph (a)(7)(iv)(e) of this section for the Clean Unit.” from the State's hybrid test applicability provision at 1200-03-09-.01(4)(c)4(vi) and 1200-03-09-.01(5)(b)2(xvii). Tennessee proposed this change to be consistent with federal language amended in the June 13, 2007, final rulemaking regarding the vacated portions of the 2002 NSR Reform Rule.9 See72 FR 32526. This final action approves the aforementioned SIP amendments into Tennessee's SIP to provide for the implementation of PM2.5NAAQS in the State's NSR permitting program.

Table of Contents I. Background II. This Action III. Final Action IV. Statutory and Executive Order Reviews I. Background

Upon promulgation of a new or revised NAAQS, sections 110(a)(1) and (2) of the CAA require states to address basic SIP requirements, including emissions inventories, monitoring, and modeling to assure attainment and maintenance for that new NAAQS.

Section 110(a) of the CAA requires states to submit SIPs to provide for the implementation, maintenance, and enforcement of a new or revised NAAQS within three years following the promulgation of such NAAQS, or within such shorter period as EPA may prescribe. Section 110(a) imposes the obligation upon states to make a SIP submission to EPA for a new or revised NAAQS, but the contents of that submission may vary depending upon the facts and circumstances. In particular, the data and analytical tools available at the time the state develops and submits the SIP for a new or revised NAAQS affects the content of the submission. The contents of such SIP submissions may also vary depending upon what provisions the state's existing SIP already contains. In the case of the 1997 8-hour ozone NAAQS, states typically have met the basic program elements required in section 110(a)(2) through earlier SIP submissions in connection with previous ozone NAAQS.

More specifically, section 110(a)(1) provides the procedural and timing requirements for SIPs. Section 110(a)(2) lists specific elements that states must meet for “infrastructure” SIP requirements related to a newly established or revised NAAQS. As already mentioned, these requirements include SIP infrastructure elements such as modeling, monitoring, and emissions inventories that are designed to assure attainment and maintenance of the NAAQS. The requirements that are the subject of this final rulemaking are listed below1 and in EPA's October 2,2007, memorandum entitled “Guidance on SIP Elements Required Under Section 110(a)(1) and (2) for the 1997 8-Hour Ozone and PM2.5National Ambient Air Quality Standards.”

• 110(a)(2)(A): Emission limits and other control measures.

• 110(a)(2)(B): Ambient air quality monitoring/data system.

• 110(a)(2)(C): Program for enforcement of control measures.2

• 110(a)(2)(D): Interstate transport.3

• 110(a)(2)(E): Adequate resources.

• 110(a)(2)(F): Stationary source monitoring system.

• 110(a)(2)(G): Emergency power.

• 110(a)(2)(H): Future SIP revisions.

• 110(a)(2)(I): Areas designated nonattainment and meet the applicable requirements of part D.4

• 110(a)(2)(J): Consultation with government officials; public notification; and Prevention of Significant Deterioration (PSD) and visibility protection.

• 110(a)(2)(K): Air quality modeling/data.

• 110(a)(2)(L): Permitting fees.

• 110(a)(2)(M): Consultation/participation by affected local entities.

On July 18, 1997, EPA promulgated a new NAAQS for ozone based on 8-hour average concentrations, thus states were required to provide submissions to address sections 110(a)(1) and (2) of the CAA for this new NAAQS. Florida provided its infrastructure submission for the 1997 8-hour ozone NAAQS on December 13, 2007. On March 27, 2008, Florida was among other states that received a finding of failure to submit because its infrastructure submission was deemed incomplete for element 110(a)(2)(G) for the 1997 8-hour ozone NAAQS by March 1, 2008.See73 FR 16205. Section 110(a)(2)(G) relates to the requirement for states to provide “emergency power” authority comparable to that in section 303 of the CAA and adequate contingency plans to implement such authority.

In FDEP's December 13, 2007, submission, and in a letter dated April 18, 2008, FDEP cited State statutes as evidence that Florida has the authority to implement emergency powers for the 1997 8-hour ozone NAAQS as required by section 110(a)(2)(G). EPA, however, proposed a Federal Implementation Plan (FIP) with respect to this element of the infrastructure SIP because the statutes cited by FDEP had not been approved into the Florida SIP.See77 FR 23181 (April 18, 2012).5 On April 19, 2012, FDEP submitted, for parallel processing, draft changes to address the deficiencies of the Florida SIP regarding the substantive requirements of section 110(a)(2)(G). EPA published a supplemental proposed rulemaking action on this draft revision on May 18, 2012, to (1) incorporate provisions to address Florida's authority for emergency powers and adequate contingency plans to implement such authority; and (2) propose approval for element 110(a)(2)(G) of Florida's infrastructure SIP.See77 FR 29581. On May 24, 2012, FDEP submitted a final submission to EPA to satisfy to CAA section 110(a)(2)(G). Therefore, in today's rulemaking, EPA will not finalize the FIP for section 110(a)(2)(G) as it is no longer necessary and is instead finalizing full approval of this substantive SIP revision to address the section 110(a)(2)(G) requirements. As a result of this substantive revision to the SIP, EPA is also finalizing its approval of section 110(a)(2)(G) of Florida's infrastructure SIP among the other infrastructure elements approved today.

With respect to section 110(a)(2)(E)(ii), EPA's April 18, 2012, proposed rulemaking described EPA's intention to conditionally approve FDEP's December 13, 2007, infrastructure submission regarding this sub-element. EPA proposed conditional approval of this sub-element because the State's implementation plan did not contain provisions to address the requirements of CAA section 128. However, on March 13, 2012, FDEP submitted a letter to EPA that included a commitment to submit a SIP revision to address the CAA section 128 requirements.See77 FR 23181. The letter Florida submitted to EPA can be accessed atwww.regulations.govusing Docket ID No. EPA-R04-OAR-2011-0809. On April 19, 2012, FDEP submitted, for parallel processing, a draft SIP revision to fully address the deficiencies within the Florida SIP to address CAA section 128 requirements. EPA proposed action on this draft revision on May 18, 2012, which included both a proposed substantive revision to the Florida SIP to incorporate rules satisfying section 128 of the CAA, and a proposed approval for sub-element 110(a)(2)(E)(ii) of Florida's infrastructure SIP.See77 FR 29581. On May 24, 2012, FDEP submitted a final submission to EPA to satisfy the requirements of CAA section 128.

With respect to sections 110(a)(2)(C) and (J), EPA has issued two regulatory revisions—the 1997 8-Hour Ozone NAAQS Implementation Rule New Source Review (NSR) Update—Phase 2 final rule (hereafter referred to as the “Ozone Implementation NSR Update” or “Phase 2 Rule”) (70 FR 71612 (November 29, 2005)); and the Greenhouse Gas Tailoring Rule (hereafter referred to as the “GHG Tailoring Rule”) (75 FR 31514 (EPA's June 3, 2010))—that necessitated updates to Florida's SIP in order for EPA to approve these infrastructure elements for purposes of the 19978-hour Ozone NAAQS.6

Regarding the Phase 2 Rule, on October 19, 2007, and July 1, 2011, FDEP submitted revisions to EPA, for approval into the Florida SIP, to adopt federal requirements for NSR permittingpromulgated in the Phase 2 Rule. These revisions also modified provisions of Florida's SIP at Chapter 62-210 and 62-212 to recognize NOXas an ozone precursor. EPA finalized approval of these revisions into the SIP on June 15, 2012.See77 FR 35862.

Regarding the GHG Tailoring Rule, EPA has identified errors in Florida's federally-approved SIP that result in the State's failure to address, or provide adequate legal authority for, the implementation of a GHG PSD program in Florida. Approval of a revision to address GHGs is required to meet sections 110(a)(2)(C) and 110(a)(2)(J). On December 30, 2010, EPA promulgated a FIP7 because Florida failed to submit, by its December 22, 2010, deadline, the corrective SIP revision to apply its PSD program to sources of GHGs consistent with the thresholds described in the GHG Tailoring rule. Since Florida currently does not have adequate legal authority to address the new GHG PSD permitting requirements at or above the levels of emissions set in the GHG Tailoring Rule, or at other appropriate levels, its SIP does not satisfy portions of section 110(a)(2)(C) and section 110(a)(2)(J) of the infrastructure SIP requirements. As a result, on April 18, 2012, EPA proposed to disapprove FDEP's submission for sections 110(a)(2)(C) and 110(a)(2)(J) as they relate to GHG PSD permitting requirements.See77 FR 23181.

EPA is taking final action to approve in part, and disapprove in part, Florida's infrastructure submissions as demonstrating that the State meets the applicable requirements of sections 110(a)(1) and (2) of the CAA for the 1997 8-hour ozone NAAQS. Section 110(a) of the CAA requires that each state adopt and submit a SIP for the implementation, maintenance, and enforcement of each NAAQS promulgated by the EPA, which is commonly referred to as an “infrastructure” SIP. Florida, through FDEP, certified that the Florida SIP contains provisions that ensure the 1997 8-hour ozone NAAQS is implemented, enforced, and maintained in Florida. EPA received no adverse comments on its April 18, 2012, and May 18, 2012, proposed rulemakings of Florida's December 13, 2007, infrastructure submission and April 19, 2012, draft SIP revision regarding the substantive requirements of CAA sections 128 and 110(a)(2)(G).

Today's disapprovals of Florida's infrastructure submissions are limited to the portions of section 110(a)(2)(C) and section110(a)(2)(J) related to GHG PSD permitting as proposed on April 18, 2012.See77 FR 23181. EPA's disapproval of this portion of these elements does not result in any further obligation on the part of Florida because EPA has already promulgated a FIP for the Florida PSD program to address permitting GHGs at or above the GHG Tailoring Rule thresholds (76 FR 25178). Thus, today's final action to disapprove FDEP's submission for elements related to the GHG PSD permitting portion of sections 110(a)(2)(C) and 110(a)(2)(J) will not require any further action by either FDEP or EPA. The FIP that is currently in place to address GHG requirements in Florida will remain unless and until Florida submits a final submission to EPA for federal approval and EPA takes final action on that submission.

In addition to the above-described infrastructure submission final actions, EPA is also today finalizing two substantive SIP actions related to infrastructure elements 110(a)(2)(E)(ii) and (G) proposed in EPA's May 18, 2012, supplemental proposed rule.See77 FR 29581. EPA is also announcing that it does not intend to finalize the proposed FIP for section 110(a)(2)(G) as it is no longer necessary due to the substantive SIP revisions for this element finalized today. The substantive revisions were submitted by Florida to EPA on May 24, 2012.See77 FR 29581.

Based upon the aforementioned, EPA has determined that Florida's infrastructure submission, provided to EPA on December 13, 2007, and supplemented on April 18, 2008, addresses all the required infrastructure elements for the 1997 8-hour ozone NAAQS, with the exception of CAA section 110(a)(2)(E)(ii), pertaining to CAA section 128 requirements and section 110(a)(2)(G). Florida's May 24, 2012, submission addresses the substantive requirements of CAA sections 128, 110(a)(2)(E)(ii), and 110(a)(2)(G). EPA has determined that the remaining infrastructure elements addressed in Florida's December 13, 2007, submission, supplemented on April 18, 2008, and May 24, 2012, with the exception of the portions of sections 110(a)(2)(C) and (J) related to GHG PSD permitting, are consistent with section 110 of the CAA.

EPA is taking final action to approve in part, and disapprove in part, the December 13, 2007, submission, supplemented on April 18, 2008, and the May 24, 2012, submission, for the 1997 8-hour ozone NAAQS because these submissions are consistent with section 110 of the CAA. FDEP has addressed the elements of the CAA 110(a)(1) and (2) SIP requirements pursuant to EPA's October 2, 2007, guidance to ensure that the 1997 8-hour ozone NAAQS are implemented, enforced, and maintained in Florida. EPA is also taking final action to approve a substantive SIP revision submitted by Florida on May 24, 2012, to address requirements related to sections 128, 110(a)(2)(E)(ii) and (G) of the CAA because these revisions are consistent with the Act.

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

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

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

• Is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601et seq.);

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

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

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

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

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

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

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

Under section 307(b)(1) of the CAA, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by September 28, 2012. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this action for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed and shall not postpone the effectiveness of such rule or action. This action may not be challenged later in proceedings to enforce its requirements. (See section 307(b)(2)).

Therefore, 40 CFR part 52 is amended as follows:

Table of Contents I. General Information A. Does this action apply to me? B. Where can I obtain a copy of this action? C. Judicial Review II. Background III. Summary of Method 16C IV. Public Comments on Proposed Method 16C V. Statutory and Executive Order Reviews A. Executive Order 12866: Regulatory Planning and Review and Executive Order 13563: Improving Regulation and Regulatory Review B. Paperwork Reduction Act C. Regulatory Flexibility Act D. Unfunded Mandates Reform Act E. Executive Order 13132: Federalism F. Executive Order 13175: Consultation and Coordination With Indian Tribal Governments G. Executive Order 13045: Protection of Children From Environmental Health Risks and Safety Risks H. Executive Order 13211: Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use I. National Technology Transfer and Advancement Act J. Executive Order 12898: Federal Actions To Address Environmental Justice in Minority Populations and Low- Income Populations K. Congressional Review Act I. General Information A. Does this action apply to me?

Method 16C applies to TRS measurement from kraft pulp mills subject to Subpart BB of the New Source Performance Standards (NSPS). The methods required under Subpart BB for TRS are sometimes used under the petroleum refineries NSPS (Subpart J). Method 16C may also be applicable to sources regulated by state and local regulations that adopt the Subpart BB testing requirements.

Regulated Entities. Categories and entities potentially affected include the following:

This table is not intended to be exhaustive, but rather to provide a guide for readers regarding entities likely to be affected by this action. This table lists examples of the types of entities the EPA is now aware could potentially be affected by this final action. Other types of entities not listed could also be affected. If you have any questions regarding the applicability of this action to a particular entity, consult the person listed in the precedingFOR FURTHER INFORMATION CONTACTsection.

In addition to being available in the docket, an electronic copy of this rule will also be available on the Worldwide Web (www) through the Technology Transfer Network (TTN). Following the Administrator's signature, a copy of the final rule will be placed on the TTN's policy and guidance page for newly proposed or promulgated rules athttp://www.epa.gov/ttn/oarpg.The TTN provides information and technology exchange in various areas of air pollution control.

Under section 307(b)(1) of the Clean Air Act (CAA), judicial review of this final rule is available by filing a petition for review in the U.S. Court of Appeals for the District of Columbia Circuit by September 28, 2012. Under section 307(d)(7)(B) of the CAA, only an objection to this final rule that was raised with reasonable specificity during the period for public comment can be raised during judicial review. Moreover, under section 307(b)(2) of the CAA, the requirements established by this action may not be challenged separately in any civil or criminal proceedings brought by EPA to enforce these requirements.

Method 16C was proposed in theFederal Registeron September 2, 2010, with a public comment period that ended November 1, 2010. Two comment letters were received from the public.

Method 16C uses the sampling procedures of Method 16A and the analytical procedures of Method 6C to measure TRS. Total reduced sulfur is defined as hydrogen sulfide, methyl mercaptan, dimethyl sulfide, and dimethyl disulfide. As in Method 16A, the sample is collected from the source through a heated probe and immediately conditioned in a citrate buffer scrubber. The conditioned sample is oxidized in a tube furnace to convert TRS to sulfur dioxide (SO2). The oxidized sample is then analyzed for SO2using a real-time SO2analyzer as in Method 6C.

This method may be used as an alternative to Methods 16, 16A, and 16B for determining TRS. Its use has been allowed on a case-by-case basis and, based on our experience, it is a good alternative. Method 16C offers advantages over currently required methods by supplying real-time data in the field using analyzers and procedures that are currently used for other pollutants. Performance checks contained in the method ensure that bias and calibration precision are periodically checked and maintained.

This rule will not require the use of Method 16C but will allow it as an alternative method at the discretion of the user. This method does not impact testing stringency; data are collected under the same conditions and time intervals as the current methods.

Two public comment letters were received on the proposed rule. The comments pointed out contradictions in different sections of the method for the analyzer calibration error test and the system bias check. In one instance, the analyzer calibration acceptance criterion was listed as 5 percent and in another place it was listed as 2 percent. The rule was corrected to state that 5 percent is the correct criterion for this test. For the system bias check, unclear language was amended to specifically state that the pre-test bias check is mandatory, not optional. An additional comment led to the dropping of the sample correction for moisture since it is not needed for most analyzers. The public comments are addressed in the Summary of Comments and Responses Document that has been added to the docket.

This action is not a “significant regulatory action” under the terms of Executive Order 12866 (58 FR 51735, October 4, 1993) and is, therefore, not subject to review under Executive Orders 12866 and 13563 (76 FR 3821, January 21, 2011).

This action does not impose an information collection burden under the provisions of thePaperwork Reduction Act,44 U.S.C. 3501et seq.Burden is defined at 5 CFR 1320.3(b). This final rule does not add information collection requirements beyond those currently required under the applicable regulations. This final rule adds an alternative test method that may be used at the discretion of the source.

The Regulatory Flexibility Act (RFA) generally requires an agency to prepare a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements under the Administrative Procedure Act or any other statute unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. Small entities include small businesses, small organizations, and small governmental jurisdictions.

For purposes of assessing the impacts of this rule on small entities, small entity is defined as: (1) A small business as defined by the Small Business Administration's (SBA) regulations at 13 CFR 121.201; (2) a small governmental jurisdiction that is a government of a city, county, town, school district or special district with a population of less than 50,000; and (3) a small organization that is any not-for-profit enterprise which is independently owned and operated and is not dominant in its field.

After considering the economic impacts of this final rule on small entities, I certify that this action will not have a significant economic impact on a substantial number of small entities. This final rule will not impose any requirements on small entities because Method 16C is not a required test method but may be used at the discretion of the source. Any small entity choosing to use Method 16C would likely do so because it is less burdensome or more advantageous than the other methods allowed.

This action contains no federal mandates under the provisions of Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), 2 U.S.C. 1531-1538 for State, local, or tribal governments or the private sector. This action imposes no enforceable duty on any State, local or tribal governments or the private sector. Therefore, this action is not subject to the requirements of sections 202 or 205 of the UMRA. This action is also not subject to the requirements of section 203 of UMRA because it contains no regulatory requirements that might significantly or uniquely affect small governments. Any small entity choosing to use Method 16C would likely do so because it is less burdensome or more advantageous than the other methods allowed.

This action does not have federalism implications. It will not have substantial direct effects on the states, on the relationship between the national government and the states, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132. This final rule adds Method 16C for use as a new alternative method. Thus, Executive Order 13132 does not apply to this action.

This action does not have tribal implications, as specified in Executive Order 13175 (65 FR 67249, November 9, 2000). This final rule provides an additional testing option for measuring pollutants to what is currently mandated. It does not add any new requirements and does not affect pollutant emissions or air quality. Thus, Executive Order 13175 does not apply to this action.

The EPA interprets EO 13045 (62 FR 19885, April 23, 1997) as applying only to those regulatory actions that concern health or safety risks, such that the analysis required under section 5-501 of the EO has the potential to influence the regulation. This action is not subject to EO 13045 because it does not establish an environmental standard intended to mitigate health or safety risks.

This rule is not subject to Executive Order 13211 (66 FR 28355 (May 22, 2001)), because it is not a significant regulatory action under Executive Order 12866.

Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (“NTTAA”), Public Law 104-113, 12(d)(15 U.S.C. 272 note) directs the EPA to use voluntary consensus standards in its regulatory activities unless to do so would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards (e.g., materials specifications, test methods, sampling procedures, and business practices) that are developed or adopted by voluntary consensus standards bodies. The NTTAA directs the EPA to provide Congress, through OMB, explanations when the Agency decides not to use available and applicable voluntary consensus standards.

This action does not involve technical standards. Therefore, the EPA did not consider the use of any voluntary consensus standards.

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

The EPA has determined that this final rule will not have disproportionately high and adverse human health or environmental effects on minority or low-income populations because it does not affect the level of protection provided to human health or the environment. This final rule does not relax the control measures on sources regulated by the rule and, therefore, will not cause emissions increases from these sources.

The Congressional Review Act, 5 U.S.C. 801et seq.,as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. The EPA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in theFederal Register. A major rule cannot take effect until 60 days after it is published in theFederal Register. This action is not a “major rule” as defined by 5 U.S.C. 804(2). This rule will be effective on July 30, 2012.

For the reasons set out in the preamble, Title 40, Chapter I of the Code of Federal Regulations is amended as follows:

I. General Information II. Background and Rationale for Action III. Implementation IV. Statutory and Executive Order Reviews A. Executive Order 12866: Regulatory Planning and Review and Executive Order 13563: Improving Regulation and Regulatory Review B. Paperwork Reduction Act C. Regulatory Flexibility Act D. Unfunded Mandates Reform Act E. Executive Order 13132: Federalism F. Executive Order 13175: Consultation and Coordination With Indian Tribal Governments G. Executive Order 13045: Protection of Children From Environmental Health and Safety Risks H. Executive Order 13211: Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use I. National Technology Transfer and Advancement Act J. Executive Order 12898: Federal Actions To Address Environmental Justice in Minority Populations and Low-Income Populations K. Congressional Review Act V. Statutory Authority I. General Information A. Does this action apply to me?

This action applies to CAFOs as specified in section 502(14) of the Clean Water Act (CWA), 33 U.S.C. 1362(14) and defined in the NPDES regulations at 40 CFR 122.23. Table 1.1 provides a list of standard industrial codes for operations potentially regulated under this revised rule. The rule also applies to States and Tribes with authorized NPDES Programs.

This table is not intended to be exhaustive, but rather provides a guide for readers regarding entities likely to be affected by this action. Other types of entities not listed in the table could also be affected. To determine whether your facility would be affected by this action, you should carefully examine the definitions and other provisions of 40 CFR 122.23.

On November 20, 2008, the EPA published a final rule (73 FR 70418) that revised the NPDES permitting requirements and Effluent Limitations Guidelines and Standards for CAFOs in response to the order issued by the U.S. Court of Appeals for the Second Circuit inWaterkeeper Alliance et al.v.EPA,399 F.3d 486 (2d Cir. 2005). The 2008 CAFO Rule included a number of changes, including a requirement that CAFO owners or operators that discharge or propose to discharge must apply for an NPDES permit. The 2008 CAFO Rule also created a voluntary option for unpermitted CAFO owners and operators to certify to the permitting authority that the CAFO does not discharge or propose to discharge.

On March 15, 2011, the United States Court of Appeals for the Fifth Circuit (the Court) issued an opinion that, among other things, vacated those portions of the 2008 CAFO Rule requiring CAFOs that propose to discharge to apply for an NPDES permit.National Pork Producers Councilv.EPA,635 F.3d 738, 756 (5th Cir. 2011). This action removes from the Code of Federal Regulations (CFR) the specific “propose to discharge” requirement in 40 CFR 122.23(d).

Today's action also deletes the timing requirements in 40 CFR 122.23(f) related to when CAFO owners and operators must seek coverage under an NPDES permit. These provisions extended the time by which facilities newly required to obtain NPDES permits must apply for a permit. The date-specific deadlines in those sections have passed. The revision clarifies that all CAFOs must have a permit at the time that they discharge.

The rule also removes 40 CFR 122.23(g) to make conforming changes to EPA's requirements for renewing permit coverage.

Also, this action removes from the CFR the option in 40 CFR 122.23(i) and (j) for owners and operators tovoluntarily certify that a CAFO does not discharge or propose to discharge. The option provides that properly certified CAFOs would “not be in violation of the requirement that CAFOs that propose to discharge seek permit coverage. * * *” Removing the requirement that CAFOs apply for permits if they “propose to discharge” renders the option to certify unnecessary and therefore the EPA is eliminating it.

The EPA is not providing an opportunity for comment on this final rule. The Administrative Procedure Act of 1946 (APA) makes provision for the procedural path we are following in this action. In general, the APA requires that general notice of proposed rulemaking shall be published in theFederal Register. Such notice must provide an opportunity for public participation in the rulemaking process. The APA does provide an avenue for an agency to directly issue a final rulemaking in certain specific instances. This may occur, in particular, when an agency for good cause finds (and incorporates the finding and a brief statement of reasons therefore in the rules issued) that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest. See 5 U.S.C. 553(b)(3)(B).

The EPA finds that a notice-and-comment rulemaking is unnecessary and not in the public interest because this action is ministerial in nature. The EPA has no discretion given the specific circumstances presented in the Court's opinion. The EPA is bound by the decisions of the court and must act in accordance with that decision. The EPA accepts the decision of the Court that vacated the requirement that CAFOs that propose to discharge apply for NPDES permits and the EPA lacks discretion to reach a different conclusion. Providing an opportunity for notice and comment is therefore unnecessary and would not serve any public interest.

For the reasons cited above, the EPA is making this action effective upon publication. See 5 U.S.C. 553(d)(3). This action removes content from the CFR that has been found to be contrary to the CWA by a United States Court of Appeals. This is a ministerial but necessary action on the part of the EPA. Given the EPA's lack of discretion in this matter, the EPA has good cause to act in the public interest to implement the court's remedy by amending the CFR without delay.

The deadline has passed by which states were required to make any changes to their approved state NPDES program legal authorities necessary to conform to the 2008 CAFO Rule. States that have not yet done so must make the necessary changes to conform to the 2008 CAFO Rule, less the vacated provisions.

This rule withdraws Federal requirements applicable to CAFOs that propose to discharge as well as the option to certify that a CAFO does not discharge or propose to discharge. It imposes no regulatory requirements on any person or entity, does not interfere with the action or planned action of another agency, and does not have any budgetary impacts or raise novel legal or policy issues. The rule imposes no additional cost on the regulated community. The rule imposes no additional effort on the State regulators. Thus, this rule is not a “significant regulatory action” under the terms of Executive Order 12866 (58 FR 51735, October 4, 1993) and Executive Order 13563 (76 FR 3821, January 21, 2011) and is therefore not subject to review under the Executive Orders.

This rule does not impose an information collection burden under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.), because it is administratively withdrawing Federal requirements.

Today's final rule is not subject to the Regulatory Flexibility Act (RFA), which generally requires an agency to prepare a regulatory flexibility analysis for any rule that will have a significant economic impact on a substantial number of small entities. The RFA applies only to rules subject to notice and comment rulemaking requirements under the Administrative Procedure Act (APA) or any other statute. Although the rule is subject to the APA, the Agency has invoked the “good cause” exemption under 5 USC 553(b), therefore it is not subject to the notice and comment requirement.

This action contains no Federal mandates under the provisions of Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), 2 U.S.C. 1531-1538 for State, local, or tribal governments or the private sector. The action imposes no enforceable duty on any State, local or tribal governments or the private sector. Therefore, this action is not subject to the requirements of sections 202 or 205 of the UMRA. Similarly, the EPA has determined that this rule contains no regulatory requirements that might significantly or uniquely affect small governments and is therefore not subject to UMRA section 203.

Executive Order 13132, entitled “Federalism” (64 FR 43255, August 10, 1999), requires the EPA to develop an accountable process to ensure “meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications.” “Policies that have federalism implications” is defined in the Executive Order to include regulations that have “substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.”

This rule does not have federalism implications. It will not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132. This rule imposes no regulatory requirements on any State, Tribal, or local government. Thus, Executive Order 13132 does not apply to this rule.

Executive Order 13175, entitled “Consultation and Coordination with Indian Tribal Governments” (59 FR 22951, November 9, 2000), requires the EPA to develop an accountable process to ensure “meaningful and timely input by tribal officials in the development of regulatory policies that have tribal implications.” This rule does not have tribal implications, as specified in Executive Order 13175. It imposes no regulatory requirements or costs on any Tribal government. It does not have substantial direct effects on Tribal governments, on the relationship between the Federal government and Indian tribes, or on the distribution of power and responsibilities between the Federal government and Indian tribes. Thus, Executive Order 13175 does not apply to this rule.

This rule is not subject to Executive Order 13045, entitled “Protection of Children from Environmental Health Risks and Safety Risks” (62 FR 19885, April 23, 1997), because it is not economically significant as defined in Executive Order 12866, and the EPA has no reason to believe the environmental health or safety risks addressed by this rule present a disproportionate risk to children.

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

Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (“NTTAA”), Public Law 104-113, 12(d) (15 U.S.C. 272 note) directs the EPA to use voluntary consensus standards in its regulatory activities unless to do so would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards (e.g., materials specifications, test methods, sampling procedures, and business practices) that are developed or adopted by voluntary consensus standards bodies. NTTAA directs the EPA to provide Congress, through the Office of Management and Budget, explanations when the Agency decides not to use available and applicable voluntary consensus standards.

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

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

The EPA has determined that this rule will not have disproportionately high and adverse human health or environmental effects on minority or low-income populations because it merely removes regulations that were vacated by the U.S. Court of Appeals and, therefore, does not affect the level of protection provided to human health or the environment.

The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. Section 808 allows the issuing agency to make a rule effective sooner than otherwise provided by the CRA if the agency makes a good cause finding that notice and public procedure is impracticable, unnecessary or contrary to the public interest. This determination must be supported by a brief statement. 5 U.S.C. 808(2). As stated previously, EPA has made such a good cause finding, including the reasons therefor, and established an effective date of July 30, 2012. EPA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in theFederal Register. This action is not a “major rule” as defined by 5 U.S.C. 804(2).

This rule is issued under the authority of sections 101, 301, 304, 306, 308, 402, and 501 of the CWA. 33 U.S.C. 1251, 1311, 1314, 1316, 1317, 1318, 1342, and 1361.

For the reasons set out in the preamble, 40 CFR part 122 is amended as follows:

The modified BFEs are not listed for each community in this interim rule. However, the address of the Chief Executive Officer of the community where the modified BFE determinations are available for inspection is provided.

Any request for reconsideration must be based on knowledge of changed conditions or new scientific or technical data.

The modifications are made pursuant to section 201 of the Flood Disaster Protection Act of 1973, 42 U.S.C. 4105, and are in accordance with the National Flood Insurance Act of 1968, 42 U.S.C. 4001et seq.,and with 44 CFR part 65.

For rating purposes, the currently effective community number is shown and must be used for all new policies and renewals.

The modified BFEs are the basis for the floodplain management measures that the community is required either to adopt or to show evidence of being already in effect in order to qualify or to remain qualified for participation in the National Flood Insurance Program (NFIP).

These modified BFEs, together with the floodplain management criteria required by 44 CFR 60.3, are the minimum that are required. They should not be construed to mean that the community must change any existing ordinances that are more stringent in their floodplain management requirements. The community may at any time enact stricter requirements of its own or pursuant to policies established by other Federal, State, or regional entities. The changes in BFEs are in accordance with 44 CFR 65.4.

National Environmental Policy Act.This interim rule is categorically excluded from the requirements of 44 CFR part 10, Environmental Consideration. An environmental impact assessment has not been prepared.

Regulatory Flexibility Act.As flood elevation determinations are not within the scope of the Regulatory Flexibility Act, 5 U.S.C. 601-612, a regulatory flexibility analysis is not required.

Regulatory Classification.This interim rule is not a significant regulatory action under the criteria of section 3(f) of Executive Order 12866 of September 30, 1993, Regulatory Planning and Review, 58 FR 51735.

Executive Order 13132, Federalism.This interim rule involves no policies that have federalism implications under Executive Order 13132, Federalism.

Executive Order 12988, Civil Justice Reform.This interim rule meets the applicable standards of Executive Order 12988.

Accordingly, 44 CFR part 65 is amended to read as follows:

The Federal Emergency Management Agency (FEMA) makes the final determinations listed below of the modified BFEs for each community listed. These modified BFEs have been published in newspapers of local circulation and ninety (90) days have elapsed since that publication. The Deputy Associate Administrator for Mitigation has resolved any appeals resulting from this notification.

The modified BFEs are not listed for each community in this notice. However, this final rule includes the address of the Chief Executive Officer of the community where the modified BFE determinations are available for inspection.

The modified BFEs are made pursuant to section 206 of the Flood Disaster Protection Act of 1973, 42 U.S.C. 4105, and are in accordance with the National Flood Insurance Act of 1968, 42 U.S.C. 4001et seq.,and with 44 CFR part 65.

For rating purposes, the currently effective community number is shown and must be used for all new policies and renewals.

The modified BFEs are the basis for the floodplain management measures that the community is required either to adopt or to show evidence of being already in effect in order to qualify or to remain qualified for participation in the National Flood Insurance Program (NFIP).

These modified BFEs, together with the floodplain management criteria required by 44 CFR 60.3, are the minimum that are required. They should not be construed to mean that the community must change any existing ordinances that are more stringent in their floodplain management requirements. The community may at any time enact stricter requirements of its own or pursuant to policies established by other Federal, State, or regional entities.

These modified BFEs are used to meet the floodplain management requirements of the NFIP and also are used to calculate the appropriate flood insurance premium rates for new buildings built after these elevations are made final, and for the contents in those buildings. The changes in BFEs are in accordance with 44 CFR 65.4.

National Environmental Policy Act.This final rule is categorically excluded from the requirements of 44 CFR part 10, Environmental Consideration. An environmental impact assessment has not been prepared.

Regulatory Flexibility Act.As flood elevation determinations are not within the scope of the Regulatory Flexibility Act, 5 U.S.C. 601-612, a regulatory flexibility analysis is not required.

Regulatory Classification.This final rule is not a significant regulatory action under the criteria of section 3(f) of Executive Order 12866 of September 30, 1993, Regulatory Planning and Review, 58 FR 51735.

Executive Order 13132, Federalism.This final rule involves no policies that have federalism implications under Executive Order 13132, Federalism.

Executive Order 12988, Civil Justice Reform.This final rule meets the applicable standards of Executive Order 12988.

Accordingly, 44 CFR part 65 is amended to read as follows:

NMFS manages the groundfish fishery in the (BSAI) exclusive economic zone according to the Fishery Management Plan for Groundfish of the Bering Sea and Aleutian Islands Management Area (FMP) prepared by the North Pacific Fishery Management Council under authority of the Magnuson-Stevens Fishery Conservation and Management Act. Regulations governing fishing by U.S. vessels in accordance with the FMP appear at subpart H of 50 CFR part 600 and 50 CFR part 679.

The 2012 initial total allowable catch (ITAC) of arrowtooth flounder in the BSAI was established as 21,250 metric tons (mt) by the final 2012 and 2013 harvest specifications for groundfish of the BSAI (77 FR 10669, February 23, 2012). In accordance with § 679.20(a)(3) the Regional Administrator, Alaska Region, NMFS, has reviewed the most current available data and finds that the ITAC for arrowtooth flounder in the BSAI needs to be supplemented from the non-specified reserve in order to promote efficiency in the utilization of fishery resources in the BSAI and allow fishing operations to continue.

Therefore, in accordance with § 679.20(b)(3), NMFS apportions from the non-specified reserve of groundfish 1,075 mt to the arrowtooth flounder ITAC in the BSAI. This apportionment is consistent with § 679.20(b)(1)(i) and does not result in overfishing of a target species because the revised ITAC is equal to or less than the specifications of the acceptable biological catch in the final 2012 and 2013 harvest specifications for groundfish in the BSAI (77 FR 10669, February 23, 2012).

The harvest specification for the 2012 arrowtooth flounder ITAC included in the harvest specifications for groundfish in the BSAI is revised as follows: 22,325 mt for arrowtooth flounder in the BSAI.

This action responds to the best available information recently obtained from the fishery. The Assistant Administrator for Fisheries, NOAA, (AA) finds good cause to waive the requirement to provide prior notice and opportunity for public comment pursuant to the authority set forth at 5 U.S.C. 553(b)(B) and § 679.20(b)(3)(iii)(A) as such a requirement is impracticable and contrary to the public interest. This requirement is impracticable and contrary to the public interest as it would prevent NMFS from responding to the most recent fisheries data in a timely fashion and would delay the apportionment of the non-specified reserves of groundfish to the arrowtooth flounder fishery in the BSAI. Immediate notification is necessary to allow for the orderly conduct and efficient operation of this fishery, to allow the industry to plan for the fishing season, and to avoid potential disruption to the fishing fleet and processors. NMFS was unable to publish a notice providing time for public comment because the most recent, relevant data only became available as of July 24, 2012.

The AA also finds good cause to waive the 30-day delay in the effective date of this action under 5 U.S.C. 553(d)(3). This finding is based upon the reasons provided above for waiver of prior notice and opportunity for public comment.

Under § 679.20(b)(3)(iii), interested persons are invited to submit written comments on this action (seeADDRESSES) until August 9, 2012.

This action is required by § 679.20 and is exempt from review under Executive Order 12866.