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Food and Nutrition Service, USDA.
Final rule.
This final rule codifies the provisions of a proposed rule published on December 8, 2006, regarding prisoner verification and death matching procedures mandated by legislation and previously implemented through agency directive. This rule also requires State agencies to use electronic disqualified recipient data to screen all program applicants prior to certification to assure they are not currently disqualified from program participation. Finally, this final rule implements procedures concerning State agencies', participation in a computer matching program using a system of records required by the Computer Matching and Privacy Protection Act of 1988, as amended.
October 12, 2012.
Jane Duffield, Chief, State Administration Branch, Program Accountability and Administration Division, Supplemental Nutrition Assistance Program, Room 857, Alexandria, Virginia 22302, 703–605–4385,
On December 8, 2006, the Food and Nutrition Service (FNS) published a proposed rule in 71 FR 71075 to revise the SNAP regulations in 7 CFR parts 272 and 273 regarding computer matching requirements, the prisoner verification system (PVS), the deceased person matching system and electronic disqualified recipient system (eDRS) matching, as well as redefining data requirements and retention, and the process for application screening. Comments on these proposed revisions were solicited until February 6, 2007. A total of 26 sets of comments were received by the published deadline from 22 State SNAP agencies, 2 governmental associations, and 2 recipient interest groups. This final rule addresses the concerns expressed in these comments. Readers are referred to the proposed rule for a more complete description of the rule's requirements and stipulations. The following is a discussion of the provisions of the proposed rule, the comments received, and the changes made in the final rule.
Of the 26 sets of comments received, most recommended that FNS withdraw the proposed regulation altogether. Of these, 15 comments offered alternative suggestions for FNS to consider. FNS categorized the comments in order to sum up their contents: Burdensome and Ineffective (20 comments); Impact on Application Timeliness (15 comments); Impact on Simplified Reporting (12 comments); Impact on State Computer Systems (9 comments); Inaccurate Cost-Benefit Analysis (3 comments); and Cases Where Matches Cannot Be Verified (3 comments). All comments are addressed under the specific regulation citation they reference. Some comments received were general and did not pertain to specific regulation citations. Those comments are addressed first and are related to simplified reporting and computer systems.
Simplified reporting was authorized by the Farm Security and Rural Investment Act of 2002 (the 2002 Farm Bill), subsequent to the implementation of prisoner and death matching requirements. Since 2002, 51 State agencies have opted to implement simplified reporting. Generally, under simplified reporting, households are required to report changes in income between certification and scheduled reporting periods only when the total countable income rises above 130 percent of the poverty level. Prior to simplified reporting, most households were required to report most changes within 10 days, or monthly. State agencies implementing simplified reporting can set reporting intervals or certification periods at 4, 5, or 6 months. Generally, for households subject to simplified reporting, the death or imprisonment of a household member does not have to be reported until the 6-month report, or at the next recertification period for prisoner verification. Those electing 12-month certification spans must require an update of household circumstances at the 6-month interval, unless the household is made up of elderly or disabled members.
In some circumstances, no overpayment can occur if the change was not required to be reported. Simplified reporting has provided multiple benefits for State administration and Program access. FNS concurs with the comments expressing that simplified reporting has been beneficial in making the Program more efficient and recipient-friendly and will make specific accommodations for simplified reporting options when warranted in the waiver process.
In regard to the need to change computer systems, nine State agencies commented that the overall provisions in the proposed rule will require them to make expensive changes. There were three comments concerned with the steps States may need to take if the matches required by these provisions cannot be verified. In this instance, no adverse action is to be taken against the households for any matches described in this rule that cannot be verified.
In general, the comments expressed recognition that these matches are required by law, and suggested alternatives that would allow State agencies the discretion to determine the frequency of the matches. While FNS carefully considered these comments, the matches are required by law and FNS considers the frequency of the matching requirements described herein to be an acceptable standard.
Section 1003 of the Balanced Budget Act of 1997 (Pub. L. 105–33) amended Section 11(e) of the Food Stamp Act of
FNS received several comments specifically addressing this provision. Thirteen comments stated that PVS data received from the Social Security Administration (SSA) is not reliable, shows only that individuals have been incarcerated in the past, and does not provide the admission and tentative release dates. One comment stated that State agencies cannot require correctional facilities to provide the necessary verification for taking action. Further, six comments indicated that including children and one-person households in the PVS matches provide little value.
FNS carefully considered these comments in finalizing this provision and agrees that it is appropriate to exempt minor children, as that status is defined by each State, and one-person households where there is a face-to-face interview. Therefore, these exemptions are provided for in the revised § 272.13. However, with regard to the frequency of the match, taking into account both simplified reporting and the need to prevent those incarcerated for more than 30 days from participating, FNS determined that conducting the prisoner match at application and recertification provides the best opportunity for effective policy enforcement. Therefore, FNS retained in this final rule the requirement to perform a PVS match with household members at application and recertification. Going forward, FNS will make every effort to work with the SSA and other relevant agencies to improve the quality and timeliness of the data made available to State agencies for the purpose of conducting the prisoner match. FNS is also willing to consider any alternatives that State agencies may wish to propose for their own unique situation through its waiver process.
This rule also implements the deceased matching requirements enacted by Public Law 105–379 on November 12, 1998. Public Law 105–379, which amended Section 11 of the Food Stamp Act of 1977 (7 U.S.C. 2020), required all State agencies to enter into a cooperative arrangement with the SSA to obtain information on individuals who are deceased, and use the information to verify and otherwise ensure that benefits are not issued to such individuals. The law went into effect on June 1, 2000. The mandated requirements were implemented by FNS directive to all SNAP State agencies on February 14, 2000. State agencies are responsible for entering into a matching agreement with SSA in order to access information on deceased individuals. FNS proposed adding a new § 272.14 to codify this requirement in regulation and included requirements for accessing the SSA death master file. These requirements included independently verifying the record prior to taking adverse action, and conducting matches for deceased individuals at application and re-certification.
Several comments specifically addressed this provision. Eleven comments stated that experience has shown that it is very unusual for households to initially apply for benefits for a deceased household member. They state that, since starting to conduct death matches in 1999, it is more common that the death of a household member during the certification period goes unreported by the remaining household members. With simplified periodic reporting, the change does not need to be reported until the interim report of the next recertification.
Four comments received noted that the preamble to the proposed rule states that the SSA death master file be matched at the time of application and at recertification, but the actual wording in the regulation language says “* * *at the time of application and periodically thereafter.” FNS concurs that this is inconsistent and confusing; “periodically thereafter” may not be the same as recertification. FNS has, therefore, amended this provision in the final rule as indicated below.
Two comments noted that fulfilling the volume of match requests at the frequency required by the proposed regulation would be burdensome for SSA. One commenter further noted that, in the past, FNS has instructed State agencies to reduce the frequency of matches because the previous frequency was burdensome for SSA. SSA did encounter certain burdens during the implementation phase of the prisoner and death matches, but has subsequently worked through those complications. Nevertheless, FNS does want to focus on implementing requirements that will improve Program integrity while not imposing unnecessary burdens on State agencies.
Accordingly, after considering the comments, FNS is amending the final rule with respect to death matches. The revised final provision at § 272.14(c)(1) provides the requirement that State agencies conduct the match of deceased individuals against household members at application and no less frequently than every 12 months. As a result, FNS believes this final rule maintains the intent of the statute for conducting this match while relieving States of requirements that do not effectively promote Program integrity. In addition, State agencies can design their matching systems to make them more consistent with their simplified reporting procedures.
Existing regulations at § 273.16(i)(4) require State agencies to use disqualified recipient data to ascertain the correct penalty, based on prior disqualifications, for an individual currently suspected of an intentional Program violation (IPV), and to determine the eligibility of Program applicants suspected of being in a disqualified status. The proposed rule further proposed:
• State agencies use disqualified recipient data to screen all Program recipients and applicants prior to certification. State agencies may also periodically match the entire database of disqualified individuals against its current caseload.
• State agencies not take an adverse action against a household based on information provided by a disqualified recipient match unless the match information has been independently verified.
• The State agency initiating the disqualified recipient search contact the State agency that originated the disqualification or the household for verification prior to taking adverse action against the household. The proposed rule proposed that the agency that originated the disqualification provide documentation to the requesting agency within 20 days of the postmarked date of request.
• The disqualified individual and, if applicable, the household, be informed of the effect of the existing disqualification on the eligibility and, if applicable, benefits of the remaining household members.
• Changes and updates to the format, methodology and fields State agencies use to report and access intentional
Several comments specific to disqualified recipient matching were received. Regarding implementation, 13 comments noted that the provisions of the rule would be very difficult to implement because the nationwide eDRS database provided by FNS to perform this function is problematic. The comments further state that very few of the disqualifications in eDRS are relevant to the day-to-day operation of the Program because eDRS maintains disqualifications indefinitely, including those for individuals who are deceased or incarcerated for long periods of time. As the records age, the disqualifications become less and less useful because they have no impact on current eligibility. One comment noted that a very small percentage of SNAP households had the potential to be affected by an actively disqualified household member. Also, twelve comments noted that in order to meet the requirements of the rule, all eligibility workers would need access to eDRS via the eAuthentication process required by the Department of Agriculture, expressing concern that putting all eligibility workers through this process would be cumbersome and impractical.
Regarding the need for the eDRS system, while one State agency commented that it queries eDRS for those who newly arrive to the State, five other State agencies noted that disqualified recipients who newly arrive in the State are already known to the incoming State agency. State and local eligibility workers regularly contact other State agencies when applicants newly arrive from other States to obtain information about the applicant's participation, disqualification and able-bodied adults without dependents (ABAWD) status. These State agencies asserted that there is no need to check current or former household members (when they apply) from within the State as those participants and their disqualification status are already known. Further, they believed there was no reason to re-screen applicants at recertification since the current State would have originated any disqualification action and would have already known about it.
Regarding secondary verification, 11 comments noted that the timeframe of 20 days, specified under the computer matching requirements, for another State agency to respond for a request for information, does not leave enough time to gather all of the information and process the application in a timely manner. The comments indicated that if the person should not have been certified, it will be discovered when the State processes a periodic match and an overpayment can be completed at that time. They also indicated that it is unclear what a requesting State should do in instances of expedited service cases or if the other State agency does not respond within 20 days. Finally, one comment supported the proposed rule's clarification that no adverse action be taken against a recipient or applicant based on a match unless the match information is independently verified.
Regarding the eAuthentication process, FNS recognizes that this process may be difficult for some States to obtain the proper eAuthentication levels for their eligibility workers. The eAuthentication process is vital to protecting personally identifiable information of SNAP recipients, confidentiality and the integrity of the Program. This process, while difficult, is necessary to maintain the security standards set forth to protect client information. FNS will continue to explore possible ways to make the eAuthentication process less burdensome for States in the future.
In addressing these comments, it is important to note that, as a Program with national eligibility standards, an individual disqualified in one State because of an IPV determination is also disqualified in every State. However, the Program is administered by State agencies that use and maintain their own systems and databases to perform the functions associated with certifying and supplying benefits to households. As such, there must be some mechanism in place so that a State agency can determine that an applicant has been disqualified by another State when they apply for SNAP benefits. Also, since the disqualification penalties are cumulative, the State agency must be aware of whether an individual has had any prior disqualifications by any other State in order to assign the appropriate disqualification penalty.
The issue of how States become aware of an existing or previous disqualification to ensure that ineligible individuals are not participating or the proper disqualification is assigned is the crux of this portion of this rule. In the performance of this function, an individual's rights must be protected to ensure that only those individuals that should be ineligible to receive benefits due to an existing or previous disqualification are indeed determined ineligible. Further, States are expected to provide this information in a timely manner to the requesting State so that they can determine the eligibility of the applicant. States that fail to provide the requested information within the time frame set forth under the computer matching requirements are considered to be out of compliance with these regulations. Those States will be subject to corrective action upon review. In any case where the requesting State has not received the information timely, the State should certify the household for benefits in accordance with our regulations until it receives the requested documentation. If the State subsequently receives verification that the client or household is ineligible, they should disqualify them and establish a claim to collect any benefits that were issued in error. While FNS carefully considered all comments in determining the final provisions in this rule, the Agency wanted to ensure that individuals' rights are protected and that proper disqualifications are assigned. FNS believes this final rule meets these goals while adequately addressing the concerns of the comments.
Many of the comments received regarding this provision focus on the operation and integrity of the data contained in eDRS. There were concerns that the data may be outdated, inaccurate or incomplete. While FNS is continuously trying to add appropriate edits and perform data integrity checks where possible, it is ultimately the responsibility of each State to enter timely, accurate and verifiable disqualification data into eDRS for use by other States. This is a nationwide partnership in which FNS and State agencies need to work together to ensure that ineligible individuals are not participating and that disqualified individuals receive the appropriate disqualification period. FNS is committed to continuing efforts to improve the system and the integrity of data to ensure accurate and timely disqualifications are imposed.
FNS does not agree with the comment that very few of the disqualifications in eDRS are relevant to the day-to-day operation of the Program. Records with disqualification periods that have expired are necessary for making penalty determinations and those that remain active are useful for determining eligibility. Further, in addition to the complete database file containing all the records in the system, FNS has for some time made available a file containing only active records, specifically designed for the purpose of conducting eligibility matches. FNS has also modified its online database access system to search only active records when the user selects “Eligibility” as the purpose for the inquiry.
Nevertheless, FNS agrees with the comment that a very small percentage of SNAP households would be affected by a disqualified member. Data reported by States indicated that, in fiscal year 2010, 36,859 individuals were disqualified out of a total of 40.3 million participants. In addition to these 37,000 disqualifications, there are also those still serving 2-year, 10-year or permanent disqualifications whose records remain active. While this number remains relatively low compared to the number of participants, it still represents a potential issuance risk in excess of nearly $2.0 million per month should these individuals not be prevented from participating, based on estimates for 2013. The potential also exists for any of these individuals to cross into another jurisdiction to avoid serving their penalty. FNS believes that some form of applicant screening is therefore necessary to prevent those inclined to try to participate during a period of disqualification and to deter those that might otherwise make the attempt.
In response to those comments suggesting that there was no need to check current or former recipients (when they apply) from within the State, or to re-screen applicants at recertification since the State would have originated the action and would have already known about it, FNS would point out that since applicant matching was not previously mandated one cannot be certain there are no disqualifications in an individual's past. For example, applicants that may have been in a disqualified status in one State may have moved to, and been determined eligible by, another State that did not conduct the match at the time of application. Therefore, it is possible that disqualified individuals are currently participating in a number of States. However, FNS does agree that there is probably no need to conduct matches at recertification once FNS is reasonably certain that currently disqualified individuals that may be receiving benefits are removed from the active rolls. Consequently, FNS will retain the requirement to match all applicants prior to initial certification but require matches at recertification only for the first year subsequent to implementation of this final rule. Within the first year of the implementation date of this rule, but no later than 180 days from publication, States will be required to match all applicants prior to initial certification, all newly added household members at the time they are added, and all participants in the household at recertification. In the second year, the requirement to match participants at recertification will be discontinued, and States will only be required to match applicants prior to initial certification and newly added household members as they are added. Further, since the purpose of a 1-year match at recertification is to remove currently participating disqualified individuals, States having the ability to conduct a one-time match of their entire active caseload against active cases from the disqualified recipient database may do so and be exempted from the requirement to conduct matches at recertification. The periodic match that would have been required by the proposed rule will not be required in this final rule, but may be conducted at the option of the State. Finally, States may exempt from the matching requirements those individuals that have not reached the age of majority as defined by State statute.
FNS proposed to add language to the existing regulations for when mass changes are made in Federal benefits that affect SNAP allotments. Specifically, in cases when the change in allotment was the result of a computer match, FNS proposed that the information would need to be independently verified, and the SNAP household would need to be provided notice and an opportunity to contest any adverse action, if the adjustment would change the level of benefits or eligibility status of the household.
FNS received several comments specific to this provision. One comment stated that this alternative is not attractive as it constitutes much more effort than applying the existing procedure. In addition, two commenters were concerned about the additional burden placed upon State agencies if this information is not considered verified upon receipt.
FNS carefully considered the comments in this area. A computer match, covered by the Computer Matching Act [5 U.S.C. 552a(o)], uses information provided by a Federal source and compares it to a State record, using a computer to perform the comparison; this match affects eligibility or the amount of benefits for a Federal benefit program. As such, FNS has no discretion in this area and the information must be independently verified. Moreover, the SNAP household must be provided notice and given an opportunity to contest the adverse action if the adjustment would change the level of benefits or eligibility status of the household. However, State agencies should be aware that the independent verification/notice of adverse action provisions apply only if there is an adverse effect on benefits (i.e., a denial, termination or reduction in benefits). The vast majority of mass changes in benefits are increases due to cost-of-living adjustments. As such, FNS expects this new requirement to have a minimal impact on State agency workload. In addition, State agencies can use the option found at § 273.12(e)(3)(A) to implement mass changes using percentages. Therefore, this provision remains unchanged in the final rule (see § 273.12(e)(3)(B)).
State agencies have been instructed through FNS directive to implement the provisions of the prisoner verification matches (Pub. L. 105–33) and death file matches (Pub. L. 105–379) as required by law in the applicable legislation, and these matches should already be in place without waiting for formal regulations. Unless specified below, the remaining provisions of this rule are effective and must be implemented the first day of the month following 60 days from date of publication of this final rule.
Since the inception of the disqualified recipient database in 1992, FNS has required that States query the database for the purpose of assigning the correct penalty to those being disqualified and whenever they believe an applicant may be in a disqualified status. To comply with these requirements, States should already have in place some capability for conducting matches against the disqualified recipient database. In recognition of this, the provisions of this rule dealing with the systematic matching of disqualification data in § 273.16(i) are effective and must be implemented no later than 180 days after the effective date of this final rule.
Executive Orders 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of 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.
As required for all rules that have been designated as significant by the Office of Management and Budget, the following Regulatory Impact Analysis (RIA) was developed for this final rule.
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b.
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4.
The estimate on the impact of the computer match using the PVS is based on a General Accounting Office
Between 1989 and 2009, the average number of initial certifications was nearly identical to the number of households participating in an average month, and the average number of recertifications was close. In any given year, the two numbers tracked closely together—when caseloads rose, so did the number of initial certifications and recertifications. Since we project caseloads and not initial certifications and recertifications, we use projected participation estimates as a proxy for the number of certifications and recertifications.
The effect on participation resulting from a mandatory computer match is taken by applying the 0.13 percent impact to the total projected FY 2013 caseload of 46.9 million. This yields an estimate of 61,000 ineligible prisoners who would be taken off the SNAP rolls at initial certification. However, prior to the enactment of the legislation mandating matches, a number of States were already performing these matches—Connecticut, Massachusetts, New York, Maryland, Pennsylvania, Florida, Mississippi, North Carolina, Tennessee, Illinois, Texas, Kansas, and Missouri—accounting for 45 percent of the FY 2011 caseload. We also adjusted to account for an increase in the number of prisons between 1995 and 2017 (actual numbers through 2010 and projected for 2017) and an expected false positive match rate of 10 percent. Making the match mandatory for the States who did not perform the match prior to the legislation will remove 44,000 prisoners in 2013.
Requiring biennial matches at the time of recertification would yield yet more ineligible prisoners. No States were performing matches at recertification when the law was enacted, but now all States are, so all of the savings are incorporated in the budget baseline and none are “new.” There would be no savings from those prisoners who were identified in previous matches. According to the most recent SNAP characteristics report, the average certification period for SNAP households is 12 months.
To obtain the impact of performing the matches at initial certification and at recertification, we added the two totals together, getting 64,000 prisoners for 2013. The estimate assumes that these prisoners identified by the matches would then be removed from the SNAP caseloads.
To obtain the impact of performing the matches at initial certification and at recertification, we added the two totals together, getting 60,000 prisoners for 2012. The estimate assumes that these prisoners identified by the matches would then be removed from the SNAP caseloads.
In 2013, we estimate that 39,000 deceased individuals will be identified from matches performed at initial certification, and 61,000 individuals will be identified through matches performed at recertification.
The estimate on the impact of the computer match using SSA lists of deceased individuals is based on a GAO Study,
Between 1989 and 2010, the average number of initial certifications was nearly identical to the number of households participating in an average month, and the average number of recertifications was close. In any given year, the two numbers tracked closely together—when caseloads rose, so did the number of initial certifications and recertifications. Since we project caseloads and not initial certifications and recertifications, we use projected participation estimates as a proxy for the number of certifications and recertifications.
The effect on participation resulting from a mandatory computer match on deceased individuals at the time of initial certification is taken by applying the 0.144 percent impact to the total projected FY 2013 caseload of 46.9 million. This yields an estimate of nearly 68,000 deceased individuals who would be taken off the SNAP rolls. Several adjustments were made after this point. First, prior to the enactment of the legislation mandating matches, a number of States were already performing these matches—California, New York, Florida, Illinois, and Ohio—accounting for 35 percent of the FY 2011 caseload. We assume that 10 percent of the matches are false positives. We estimate that mandatory matches at certification will identify an estimated 39,000 deceased individuals being removed from the rolls in 2013.
Requiring the matches at the time of recertification would identify more deceased persons. Since no States were performing matches at recertification at the time that the law was enacted, all States would be included. We also assume that 10 percent of the matches are false positives. Thus, we estimate that performing the match at recertification would identify 61,000 deceased individuals in 2013 for removal from SNAP caseloads.
To obtain the impact of performing the matches at initial certification and at recertification, we added the two totals together, for a total of 100,000 deceased persons identified through matches in 2013.
The estimate on the impact of the computer match using the eDRS is based on a GAO Study,
The four States accounted for 28 percent of the caseload in 1997 and 29 percent of benefits issued. Thus, taking the demonstration figures and applying them nationally, we estimate that over 11,000 individuals would have been disqualified.
We know from the eDRS that as of December 2010, 49,500 individuals were currently disqualified from SNAP. We do not have figures for past years, so we have no definitive data for whether the number of individuals disqualified at any one time has risen or fallen over the past decade. However, in the FNS National Data Bank, we have the number of disqualifications by year and by length of disqualification. Using this data to estimate the number of individuals becoming disqualified and the number of individuals whose disqualification expires, we estimate that over the past decade, the number of disqualified individuals has fluctuated between 50,000 and 70,000, and are not correlated with SNAP participation levels. So we did not make any adjustments to account for changes in overall participation levels.
Under current regulations, States are not required to perform the eDRS matches routinely; they are required only to do periodic matches on an ad hoc basis. FNS staff members estimate that 27 States, with 64 percent of the SNAP caseload, are currently doing routine matches at initial certification. No States are doing matches at recertification. Assuming that the regulations are published by September 2012, and adjusting for a 10 percent false positive rate for matches, we assume that in 2013, 9,000 ineligible persons will be identified by matches performed at initial certification. Of these, we estimate that 6,400 are currently identified and after publication of this regulation, an additional 2,800 will be identified. We are assuming that half the States not doing the match will have implemented the match by January 1, 2013, and the remaining States will have implemented the matches by July 1, 2013, for an overall phase-in rate of 75 percent for 2013 and 100 percent in later years.
The number of ineligible persons identified at recertification is adjusted downwards to account for the fact only new disqualifications would be identified. Also, we are assuming that we are only performing the recertification matches once, rather than annually or biannually. To estimate the impact of running one-time matches at certification, we computed the percentage of disqualifications which are for under a year (91 percent), and adjusted the estimate by that factor. We estimate that over 9,000 ineligible individuals will be identified through matches performed at recertification. We are assuming that in 2013, half the remaining States will have implemented the one-time matches at recertification by January 1, 2013, and the remaining half by July 1, 2013; so we are assuming a 75 percent impact for 2013 and a 25 percent impact for 2014. Thus, we are assuming the newly-matching States will identify nearly 7,000 ineligible individuals in 2013, and the remaining 2,000 individuals identified in FY 2014.
To obtain the impact of performing the matches at initial certification and at recertification, we added the totals for initial certification and recertification together for a total of 6,000 disqualified individuals identified by States currently performing matches and 10,000 disqualified individuals identified by States newly implementing matches in 2013.
The cost estimate was derived using the same methodology as that used for the participation impact estimate. Using data from the GAO report, we estimate that about $2,618,847 in overpayments could have been avoided using the computer match at initial certification. This accounted for 0.03 percent of benefits issued in Fiscal Year 1995.
Applying this to the Fiscal Year 2013 estimated benefits of $75.2 billion yields an unadjusted savings of $24 million in reduced overpayments to prisoners at initial certification. After taking out those States who used the PVS prior to the legislation making such matches mandatory, adjusting for increases in the number of prisoners since 1995, and assuming a 10 percent false positive rate for matches, we estimate that the savings will be $18 million.
Requiring the matches at the time of recertification would yield additional savings. Since all States are performing matches at recertification, any cost savings are included in the current budget baseline. There would be no savings from those prisoners who were identified in previous matches. According to the most recent SNAP characteristics report, the average certification period for SNAP households is 12 months. However, the number of new prisoners who entered the system in 2010 is about half the total prison population as of June 30, 2011. Therefore, matches at recertification would yield only half as many hits as matches performed at initial certification. Therefore, we halved the original savings of $24 million. We also adjusted for increases in the number of prisoners and assume a 10 percent false positive rate for matches. Finally, we halved the estimate because the recertification matches will be performed biennially, rather than annually. The savings from performing matches at recertification is an estimated $8 million in Fiscal Year 2013.
To obtain the impact of performing the matches at initial certification and at recertification, we added the two totals together, for savings of $26 million. The five-year savings are an estimated $115 million.
The cost estimate was derived using the same methodology as that used for the participation impact estimate. Using data from the GAO report, we estimate that about $3,185,000 in overpayments could have been avoided using the computer match. This accounted for 0.04 percent of benefits issued in Fiscal Year 1996.
Applying this to Fiscal Year 2013 estimated benefits of $75.2 billion yields an unadjusted savings of $30 million in reduced overpayments to deceased individuals. After taking out those States who ran computer matches with SSA death lists prior to the legislation making such matches mandatory, and assuming a 10 percent false positive rate for matches, the cost savings for performing matches at initial certification is $18 million.
Since all States currently perform matches with SSA death lists at recertification, these costs are all incorporated in the current budget baselines. The average certification period is 12 months; we take an annual estimate as for initial certification. The cost savings for performing matches at recertification is estimated at nearly $27 million in 2013 and $121 million for 2013–2017.
We then combined the savings for matches at initial certification and at
The cost estimate was derived using the same methodology used for the participation impact estimate. Using data from the GAO report, we estimate that about $301,000 in overpayments could have been avoided using the computer match. Since the states featured in the GAO study accounted for 29 percent of all benefits, applying the study estimates nationally would have saved nearly $1.1 million in FY 1997.
No adjustments were made to account for caseload changes, since recent data, as discussed earlier, does not show a correlation between the number of disqualified individuals and SNAP participation levels. Since 1997, the average monthly benefit has risen; we anticipate that the average monthly benefit will be about 85 percent higher in 2013–2017. (The American Recovery and Reinvestment Act of 2009 increased the maximum allotment by 13.6 in April 2009 and froze it until FY 2014.) Inflating the 1997 cost to capture 2013 benefit costs yields nearly $2 million in savings.
We estimate that today, 64 percent of benefits were issued to States currently performing routine matches at initial certification. We then adjust for past and expected increases in the average monthly benefit, and assume a 10 percent false positive match rate. We estimate that the 2013 cost savings estimate will be $1.1 million for States currently performing the match, with a five year savings of nearly $6 million. We assume that the final regulation is published by October 1, 2012. We assume that 50 percent of the States currently not performing matches at recertification will start by January 1, 2013, and the remaining States will start by July 1, 2013, so the overall phase-in rate for 2013 is 75 percent. The 2013 cost savings by States newly performing the match will be nearly $500,000, and the five year savings will be $3 million.
Today, no States are performing matches at recertification, so all savings are “new” and not incorporated in the budget baseline. This proposal would require all States to perform a one-time match at recertification to capture cases not recently certified. The cost savings from disqualifying ineligible persons identified at recertification is adjusted downwards to account for the fact only new disqualifications would be identified. To estimate that, we computed the percentage of disqualifications that is for under a year (90 percent) and adjusted the estimate by that percentage. We also assumed that 10 percent of matches will be false positives. We estimate that the 2013 cost savings will be $1.1 million, with 75 percent of the matches run the first year; and the remainder matches run the second year. The five-year savings will be $1.6 million.
The combined savings for matches against the eDRS performed at initial certification and recertification is nearly $3 million in 2013 and $8 million over the 2013–2017 five-year time period. Of that, $1 million in 2013 savings comes from States currently performing the match and $1.7 million comes from new States. For the five-year period, nearly $6 million in savings comes from States currently performing the match and $2.2 million comes from new States.
The total savings from the computer matches is estimated at $73 million in 2013 and $326 million for the five-year period of 2013–2017. Of this, an estimated $324 million is incorporated in the current budget and $2 million represents new savings.
Our estimates also assume that the number of deceased persons identified by the match on SSA records is directly proportional to past and projected changes in SNAP caseloads. If the number of deceased persons identified by the match grows more quickly or slowly than the number of SNAP participants, the estimates will be biased.
Likewise, we assume that the number of households claiming prisoner members and thus losing benefits as a result of the match is directly proportional to past and projected changes in SNAP caseloads and the number of individuals incarcerated. If the number of prisoners identified by the match grows more quickly or more slowly than the number of SNAP participants or than the number of prisoners, the estimates will be biased.
Finally, we assume that the number of disqualified individuals has remained fairly constant over the past decade.
In all three cases, FNS has no way to determine the size or direction of the bias.
Because of these issues, there is a moderate degree of uncertainty with these estimates.
This rule has been reviewed with regard to the requirements of the Regulatory Flexibility Act (5 U.S.C. 601–612). The Administrator of the Food and Nutrition Service has certified that this rule will not have a significant economic impact on a substantial number of small entities. State and local welfare agencies will be the most affected to the extent that they administer the Program. Applicants may be affected to the extent that matching client information with records in eDRS, PVS and Death Master Files may identify a client as disqualified, preventing them from Program participation.
Title II of the Unfunded Mandate Reform Act of 1995 (UMRA) established requirements for Federal agencies to assess the effects of their regulatory actions on State, local and tribal governments, and the private sector. Under Section 202 of UMRA, FNS generally must prepare a written statement, including a cost-benefit analysis, for proposed and final rules with “Federal mandates” that may result in expenditures to State, local, or tribal governments in the aggregate, or to the private sector, of $100 million or more in any one year. When such a statement is needed for a rule, section 205 of UMRA generally requires FNS to identify and consider a reasonable number of regulatory alternatives and adopt the least costly, more cost-effective or least burdensome alternative that achieves the objectives of the rule. This rule contains no Federal mandates (under the regulatory provisions of Title II of UMRA) for State, local and tribal governments, or the private sector, of $100 million or more in any one year. Therefore, this rule is not subject to the requirements of sections 202 and 205 of UMRA.
The Supplemental Nutrition Assistance Program is listed in the Catalog of Federal Domestic Assistance under No. 10.551. For the reasons set forth in the Final Rule codified in 7 CFR part 3015, Subpart V and related Notice
Executive Order 13132 requires Federal agencies to consider the impact of their regulatory actions on State and local governments. Where such actions have federalism implications, agencies are directed to provide a statement included in the preamble to the regulations describing the agency's consideration in terms of the three categories called for under section (6)(b)(2)(B) of Executive Order 13132. In adherence with verification laws, this final rule allows for little State agency flexibility on when and how States must match SNAP recipients with SSA Death Master Files, eDRS records, and PVS records. FNS understands that State flexibility is important and will work with each State agency through a waiver process if they can make a reasonable argument for a more efficient procedure that would still comply with the law.
Prior to drafting this final rule, FNS consulted with State and local agencies at various times. FNS regional offices have formal and informal discussions with State and local officials on an ongoing basis regarding program implementation and policy issues. This arrangement allows State and local agencies to provide comments that form the basis for many discretionary decisions in this and other SNAP rules. FNS has responded to numerous written requests for policy guidance on IPV disqualification data reporting. Also, guidance for the prisoner verification and deceased data matching programs were implemented by agency directive with the consultation and input from State and local SNAP agencies. Finally, FNS presented ideas and received feedback on Program policy at various National, State, and professional conferences regarding the matching requirements in this rule.
FNS believes that it is important to standardize matching procedures to provide quality services to all SNAP participants and qualified applicants while ensuring that SNAP benefits are issued only to qualified individuals and households. In doing so, FNS and State agencies contribute to the success and integrity of the Program, garnering public support and user confidence in SNAP.
State and local SNAP agencies, however, want flexibility in Program administration. To the extent possible, FNS will consider alternate means of meeting the objectives of the law and has considered State comments in finalizing this rule.
This rule contains changes that are required by law and were implemented by agency directives in response to the implementation timeframes required in legislation. The changes to SNAP rules describing State agency responsibility for reporting IPV information will clarify how State agencies access disqualification information and follow-up on it, as well as provide for greater flexibility to State agencies for processing, retaining and sharing disqualification information. FNS is not aware of any case where the discretionary provision of this rule would preempt State law.
FNS has considered the impact of the final rule on State and local agencies. This rule is intended to have a preemptive effect with respect to any State and local laws, regulations or policies, which conflict with its provisions or would otherwise impede its full implementation. Prior to any judicial challenge to the provisions of this rule, or the application of its provisions, all applicable administrative procedures must be exhausted.
This rule makes changes to the verification procedures for prisoner and deceased person data match programs, as well as reinforces requirements for disqualified recipient reporting and computer match benefits adjustments, as required by law. These procedures for matching prisoner and deceased persons were implemented by agency directives in May 1999 and February 2000, respectively, in response to implementation timeframes required in legislation. These changes to SNAP rules describing State agency responsibilities for reporting IPV information will clarify access and follow-up procedures for processing, retaining and sharing disqualification information.
Executive Order 13175 requires Federal agencies to consult and coordinate with Tribes on a government-to-government basis on policies that have Tribal implications, including regulations, legislative comments or proposed legislation, and other policy statements or actions that have substantial direct effects 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. In late 2010 and early 2011, USDA engaged in a series of consultative sessions to obtain input by Tribal officials or their designees concerning the effect of this and other rules on Tribes or Indian Tribal governments, or whether this rule may preempt Tribal law.
Reports from the consultative sessions will be made part of the USDA annual reporting on Tribal Consultation and Collaboration. USDA will offer future opportunities, such as webinars and teleconferences, for collaborative conversations with Tribal leaders and their representatives concerning ways to improve rules with regard to their affect on Indian country.
We are unaware of any current Tribal laws that could be in conflict with the final rule.
FNS has reviewed this rule in accordance with Department Regulation 4300–4, “Civil Rights Impact Analysis,” to identify and address any major civil rights impacts the rule might have on minorities, women and persons with disabilities. After careful review of the rule's intent and provisions, and the characteristics of SNAP households and individual participants, FNS has determined that there is no way to determine their effect on any of the protected classes. The changes required to be implemented by law have already been implemented and are further clarified in this regulation. Regulations in § 272.6 specifically state that “State agencies shall not discriminate against any applicant or participant in any aspect of program administration, including, but not limited to, the certification of households, the issuance of coupons, the conduct of fair hearings, or the conduct of any other program service for reasons of age, race, color, sex, handicap, religious creed, national origin, or political beliefs.”
Discrimination in any aspect of program administration is prohibited, stated in § 272.6 and title VI of the Civil Rights Act of 1964 (42 U.S.C. 2000d). Enforcement action may be brought under any applicable federal law, thus enabling FNS to implement verification standards mandating that SNAP State agencies systematize their application process. This would ensure that those who qualify are given a just amount of
The Paperwork Reduction Act of 1995 (44 U.S.C. Chap. 35; see 5 CFR part 1320), requires that the Office of Management and Budget (OMB) approve all collections of information by a Federal agency from the public before they can be implemented. Respondents are not required to respond to any collection of information unless it displays a current, valid OMB control number. This rule does not contain new information collection requirements subject to approval by OMB under the Paperwork Reduction Act of 1995. Information collection requirements and burden associated with this rule have been approved as part of OMB# 0584–0064, “Application and Certification of Food Stamp Program Households” (expiration March 2013) and OMB# 0584–0492, “SNAP Repayment Demand and Program Disqualification” (expiration September 2014).
FNS is committed to complying with the E-Government Act of 2002, to promote the use of the Internet and other information technologies to provide increased opportunities for citizen access to government information and services, and for other purposes. The information collection associated with this regulation is available for electronic submission through eDRS, which complies with the Paperwork Reduction Act.
Civil rights, Supplemental Nutrition Assistance Program, Grant programs-social programs, Reporting and recordkeeping requirements.
Administrative practice and procedure, Claims, Supplemental Nutrition Assistance Program, Fraud, Grant programs-social programs, Penalties, Reporting and recordkeeping requirements, Social Security.
For the reasons set out in the preamble, 7 CFR parts 272 and 273 are amended as follows:
7 U.S.C. 2011–2036.
(f)
(1) The State agency shall retain fiscal records and accountable documents for 3 years from the date of fiscal or administrative closure. Fiscal closure means that obligations for or against the Federal government have been liquidated. Administrative closure means that the State agency has determined and documented that no further action to liquidate the obligation is appropriate. Fiscal records and accountable documents include, but are not limited to, claims and documentation of lost benefits.
(2) Case records relating to intentional Program violation disqualifications and related notices to the household shall be retained indefinitely until the State agency obtains reliable information that the record subject has died or until FNS advises via the disqualified recipient database system edit report that all records associated with a particular individual, including the disqualified recipient database record, may be permanently removed from the database because of the individual's 80th birthday.
(3) Disqualification records submitted to the disqualified recipient database must be purged by the State agency that submitted them when the supporting documents are no longer accurate, relevant, or complete. The State agency shall follow a prescribed records management program to meet this requirement. Information about this program shall be available for FNS review.
(a)
(1) Establishing or verifying initial or continuing eligibility for Federal Benefit Programs;
(2) Verifying compliance with either statutory or regulatory requirements of the Federal Benefit Programs; or
(3) Recouping payments or delinquent debts under such Federal Benefit Programs.
(b)
(c)
(i) The information has been independently verified by the State agency (in accordance with the independent verification requirements set out in the State agency's written agreement as required by paragraph (b) of this section) and a Notice of Adverse Action or Notice of Denial has been sent to the household, in accordance with § 273.2(f); or
(ii) The Federal agency's Data Integrity Board has waived the two-step independent verification and notice requirement and notice of adverse action has been sent to the household, in accordance with § 273.2(f) of this chapter.
(2) A State agency which receives a request for verification from another State agency, or from FNS pursuant to the provisions of § 273.16(i) of this chapter shall, within 20 working days of receipt, respond to the request by providing necessary verification (including copies of appropriate documentation and any statement that an individual has asked to be included in their file).
(a)
(b)
(1) The comparison of identifying information about each household
(2) The reporting of instances where there is a match;
(3) The independent verification of match hits to determine their accuracy;
(4) Notice to the household of match results;
(5) An opportunity for the household to respond to the match prior to an adverse action to deny, reduce, or terminate benefits; and
(6) The establishment and collections of claims as appropriate.
(c)
(a)
(b)
(c)
(1) Comparing identifiable information about each household member against information from databases on deceased individuals. States shall make the comparison of matched data at the time of application and no less frequently than once a year.
(2) The reporting of instances where there is a match;
(3) The independent verification of match hits to determine their accuracy;
(4) Notice to the household of match results;
(5) An opportunity for the household to respond to the match prior to an adverse action to deny, reduce, or terminate benefits; and
(6) The establishment and collection of claims as appropriate.
(f) * * *
(11)
(A) Ascertain the appropriate penalty to impose based on past disqualifications in a case under consideration;
(B) Conduct matches as specified in § 273.16 on:
(
(
(
(ii) State agencies shall not take any adverse action to terminate, deny, suspend, or reduce benefits to an applicant, or SNAP recipient, based on disqualified recipient match results unless the match information has been independently verified. The State agency shall provide to an applicant, or recipient, an opportunity to contest any adverse disqualified recipient match result pursuant to the provisions of § 273.13.
(iii) Independent verification shall take place separate from and prior to issuing a notice of adverse action—a two-step process. Independent verification for disqualification purposes means contacting the applicant or recipient household and/or the State agency that originated the disqualification record immediately to obtain corroborating information or documentation to support the reported disqualification information in the intentional Program violation database.
(A) Documentation may be in any form deemed appropriate and legally sufficient by the State agency considering the adverse action. Such documentation may include, but shall not be limited to, electronic or hard copies of court decisions, administrative disqualification hearing determinations, signed disqualification consent agreements or administrative disqualification hearing waivers.
(B) A State may accept a verbal or written statement from another State agency attesting to the existence of the documentation listed in paragraph (f)(11)(iii)(A) of this section.
(C) A State may accept a verbal or written statement from the household affirming the accuracy of the disqualification information if such a statement is properly documented and included in the case record.
(D) If a State agency is not able to provide independent verification because of a lack of supporting documentation, the State agency shall so advise the requesting State agency or FNS, as appropriate, and shall take immediate action to remove the unsupported record from the disqualified recipient database in accordance with § 273.16(i)(6).
(iv) Once independent verification has been received, the requesting State agency shall review and immediately enter the information into the case record and send the appropriate notice(s) to the record subject and any remaining members of the record subject's SNAP household.
(v) Information from the disqualified recipient database is subject to the disclosure provisions in § 272.1(c) of this chapter and the routine uses described in the most recent “Notice of Revision of Privacy Act System of Records” published in the
(c) * * *
(4) * * *
(i) * * * However, a participating household is entitled to a notice of adverse action prior to any action to reduce, suspend or terminate its benefits, if a State agency determines that it contains an individual who was disqualified in another State and is still within the period of disqualification.
The additions and revision read as follows:
(e) * * *
(3) * * * A State agency may require households to report the change on the appropriate monthly report or may handle the change using the mass change procedures in this section. If the State agency requires the household to report the information on the monthly report, the State agency shall handle such information in accordance with its normal procedures. Households that are not required to report the change on the monthly report, and households not subject to monthly reporting, shall not be responsible for reporting these changes. The State agency shall be responsible for automatically adjusting these households' SNAP benefit levels in accordance with either paragraph (e)(3)(i) or (e)(3)(ii) of this section.
(i) The State agency may make mass changes by applying percentage increases communicated by the source agency to represent cost-of-living increases provided in other benefit programs. These changes shall be reflected no later than the second allotment issued after the month in which the change becomes effective.
(ii) The State agency may update household income information based on cost-of-living increases supplied by a data source covered under the Computer Matching and Privacy Protection Act of 1988 (CMA) in accordance with § 272.12 of this chapter. The State agency shall take action, including proper notices to households, to terminate, deny or reduce benefits based on this information if it is considered verified upon receipt under § 273.2(f)(9). If the information is not considered verified upon receipt, the State agency shall initiate appropriate action and notice in accordance with § 273.2(f)(9).
(4)
The additions and revision read as follows:
(a) * * *
(2) * * * A notice of adverse action that combines the request for verification of information received through an IEVS computer match shall meet the requirements in § 273.2(f)(9). A notice of adverse action that combines the request for verification of information received through a SAVE computer match shall meet the requirements in § 273.2(f)(10).
(b) * * *
(1) The State initiates a mass change through means other than computer matches as described in § 273.12(e)(1), (e)(2), or (e)(3)(i).
(7) A household member is disqualified for an intentional Program violation in accordance with § 273.16, or the benefits of the remaining household members are reduced or terminated to reflect the disqualification of that household member, except as provided in § 273.11(c)(3)(i). A notice of adverse action must be sent to a currently participating household prior to the reduction or termination of benefits if a household member is found through a disqualified recipient match to be within the period of disqualification for an intentional Program violation penalty determined in another State. In the case of applicant households, State agencies shall follow the procedures in § 273.2(f)(11) for issuing notices to the disqualified individual and the remaining household members. * * *
(i)
(2) State agencies shall report information concerning each individual disqualified for an intentional Program violation to FNS. FNS will maintain this information and establish the format for its use.
(i) State agencies shall report information to the disqualified recipient database in accordance with procedures specified by FNS.
(ii) State agencies shall access disqualified recipient information from the database that allows users to check for current and prior disqualifications.
(3) The elements to be reported to FNS are name, social security number, date of birth, gender, disqualification number, disqualification decision date, disqualification start date, length of disqualification period (in months), locality code, and the title, location and telephone number of the locality contact. These elements shall be reported in accordance with procedures prescribed by FNS.
(i) The disqualification decision date is the date that a disqualification decision was made at either an administrative or judicial hearing, or the date an individual signed a waiver to forego an administrative or judicial hearing and accept a disqualification penalty.
(ii) The disqualification start date is the date the disqualification penalty was imposed by any of the means identified in § 273.16(i)(3)(i).
(iii) The locality contact is a person, position or entity designated by a State agency as the point of contact for other State agencies to verify disqualification records supplied to the disqualified recipient database by the locality contact's State.
(4) All data submitted by State agencies will be available for use by any State agency that is currently under a valid signed Matching Agreement with FNS.
(i) State agencies shall, at a minimum, use the data to determine the eligibility of individual Program applicants prior to certification, and for 1 year following implementation, to determine the
(ii) State agencies shall also use the disqualified recipient database for the purpose of determining the eligibility of newly added household members.
(5) The disqualification of an individual for an intentional Program violation in one political jurisdiction shall be valid in another. However, one or more disqualifications for an intentional Program violation, which occurred prior to April 1, 1983, shall be considered as only one previous disqualification when determining the appropriate penalty to impose in a case under consideration, regardless of where the disqualification(s) took place. State agencies are encouraged to identify and report to FNS any individuals disqualified for an intentional Program violation prior to April 1, 1983. A State agency submitting such historical information should take steps to ensure the availability of appropriate documentation to support the disqualifications in the event it is contacted for independent verification.
(6) If a State determines that supporting documentation for a disqualification record that it has entered is inadequate or nonexistent, the State agency shall act to remove the record from the database.
(7) If a court of appropriate jurisdiction reverses a disqualification for an intentional Program violation, the State agency shall take action to delete the record in the database that contains information related to the disqualification that was reversed in accordance with instructions provided by FNS.
(8) If an individual disputes the accuracy of the disqualification record pertaining to him/herself the State agency submitting such record(s) shall be responsible for providing FNS with prompt verification of the accuracy of the record.
(i) If a State agency is unable to demonstrate to the satisfaction of FNS that the information in question is correct, the State agency shall immediately, upon direction from FNS, take action to delete the information from the disqualified recipient database.
(ii) In those instances where the State agency is able to demonstrate to the satisfaction of FNS that the information in question is correct, the individual shall have an opportunity to submit a brief statement representing his or her position for the record. The State agency shall make the individual's statement a permanent part of the case record documentation on the disqualification record in question, and shall make the statement available to each State agency requesting an independent verification of that disqualification.
Federal Aviation Administration (FAA), DOT.
Final special conditions; request for comments.
These special conditions are issued for the Eurocopter France Model EC130T2 helicopter. This model helicopter will have the novel or unusual design feature of a 30-minute power rating, generally intended to be used for hovering at increased power for search and rescue missions. The applicable airworthiness regulations do not contain adequate or appropriate safety standards for this design feature. These special conditions contain the additional safety standards that the Administrator considers necessary to establish a level of safety equivalent to that established by the existing airworthiness standards.
The effective date of these special conditions is July 30, 2012. We must receive your comments by September 27, 2012.
Send comments identified by docket number FAA–2012–0820 using any of the following methods:
Eric Haight, Rotorcraft Standards Staff, ASW–111, Rotorcraft Directorate, Aircraft Certification Service, 2601 Meacham Blvd., Fort Worth, Texas 76137; telephone (817) 222–5204; facsimile (817) 222–5961.
The FAA has determined that notice and opportunity for public comment are impractical because we do not expect substantive comments, and because this special condition only affects this one manufacturer. We also considered that these procedures would significantly delay the issuance of the design approval, and thus, the delivery of the affected aircraft. As certification for the Eurocopter France model EC130T2 is imminent, the FAA finds that good cause exists for making these special conditions effective upon issuance.
While we did not precede this with a notice of proposed special conditions, we invite interested people to take part in this rulemaking by sending written
We will consider all comments we receive by the closing date for comments. We will consider comments filed late if it is possible to do so without incurring expense or delay. We may change these special conditions based on the comments we receive.
On October 7, 2008, Eurocopter France applied to amend Type Certificate No. H9EU to include the new EC130T2 model. The EC130T2 model is a derivative of the EC130B4, which is currently approved under Type Certificate No. H9EU. The EC130T2 is a 14 CFR part 27 normal category, single-engine rotorcraft, which will be certificated for single-pilot operation and a maximum of seven passengers. This model includes increased performance from the Turbomeca Arriel 2D engine, an upgraded main transmission, new vehicle engine management display (VEMD) avionics, and an active vibration control system.
Eurocopter France proposes that the EC130T2 model use a novel and unusual design feature, which is a 30-minute power rating, identified in the Arriel 2D engine type certification data sheet (TCDS) [FAA Turbomeca TCDS No. E00054EN]. 14 CFR 1.1 defines “rated takeoff power” as limited in use to no more than 5 minutes for takeoff operation. Thus, the use of takeoff power for 30 minutes will require special airworthiness standards, known as special conditions, to address the use of this 30-minute power rating and its effects on the rotorcraft. These special conditions will add requirements to the existing airworthiness standards in 14 CFR 27.923 (Rotor drive system and control mechanism tests), § 27.1305 (Powerplant instruments), and § 27.1521 (Powerplant limitations).
For the EC130T2, the European Aviation Safety Agency (EASA) has issued CRI E–02, which documents the special conditions.
The following is a summary of the final special conditions:
In addition to the requirements of Section 27.923, Rotor Drive System and Control Mechanism Tests, the aircraft drive-system effects due to use of the 30-minute power rating versus the Takeoff (5-minute) rating must be accounted for in the rotor drive-system testing.
In addition to the requirements of Section 27.1305, Powerplant Instruments, since this new 30-minute power rating has a time limit associated with its use, the pilot must have the means to identify:
• When the rated engine power level is achieved,
• When the event begins, and
• When the time interval expires.
In addition to the requirements of Section 27.1521, Powerplant Limitations, a new 30-minute rating must be defined for the use of takeoff power for greater than 5 minutes and must be limited to no more than 30 minutes per use.
Furthermore, the Model EC130T2 rotorcraft flight manual must include limitations on use of the 30-minute power rating to state:
• Continuous use above MCP is limited to 30 minutes, and
• Cumulative use above MCP is limited to 1 hour per flight.
Under 14 CFR 21.101, Eurocopter France must show that the EC130T2 model helicopter meets the applicable provisions of the regulations incorporated by reference in Type Certificate No. H9EU, or the applicable regulations in effect on the date of application for the amendment to the type certificate. The regulations incorporated by reference in the type certificate are commonly referred to as the “original type certification basis.” The regulations incorporated by reference in H9EU are as follows:
(a) 14 CFR 21.29, and part 27 Amendments 27–1 through 27–32, except 14 CFR 27.952 is not adopted.
(b) 14 CFR Part 36 Appendix H through Amendment 20
(c) Special Condition 27–009–SC for HIRF
(d) Equivalent Level of Safety Findings issued against:
(1) 14 CFR 27.1549(b) Powerplant Instrument Markings.
(2) 14 CFR 27.1027(b)(2) Main Gearbox Oil Filter Bypass
The Administrator has determined that the applicable airworthiness regulations (that is, 14 CFR part 27) do not contain adequate or appropriate safety standards for the EC130T2 model helicopter because of a novel or unusual design feature. Therefore, special conditions are prescribed under the provisions of 14 CFR 21.16.
The FAA issues special conditions, as defined by 14 CFR 11.19, in accordance with 14 CFR 11.38, and they become part of the type certification basis under § 21.101.
Special conditions are initially applicable to the model for which they are issued. Should the type certificate for that model be amended later to include any other model that incorporates the same novel or unusual design feature, or should any other model already included on the same type certificate be modified to incorporate the same novel or unusual design feature, the special conditions would also apply to the other model.
The EC130T2 model helicopter will incorporate a novel or unusual design feature, which is:
• A 30-minute power rating.
These special conditions are applicable to the Eurocopter France Model EC130T2 helicopter. These special conditions would apply if Eurocopter France seeks to amend Type Certificate No. H9EU to add another model that has the same unusual design feature.
This action affects only certain novel or unusual design features on the Eurocopter France Model EC130T2 helicopter. It is not a rule of general applicability, and it affects only the applicant who applied to the FAA for approval of this feature.
Aircraft, Aviation safety, Reporting and recordkeeping requirements.
49 U.S.C. 106(g), 40113, 44701–44702, 44704.
(a) Section 27.923 Rotor drive system and control mechanism tests, at Amendment 27–29. In addition to the requirements of this section, the test prescribed in § 27.923(e) must be conducted in intervals of not less than 30 minutes.
(b) Section 27.1305 Powerplant instruments, at Amendment 27–37. In addition to the requirements of this section, a means must be provided to indicate to the pilot when the engine is at the 30-minute power level, when the event begins, and when the time interval expires.
(c) Section 27.1521 Powerplant limitations, at Amendment 27–29. In
(1) The maximum rotational speed, which may not be greater than—
(i) The maximum value determined by the rotor design; or
(ii) The maximum value demonstrated during the type tests;
(2) The maximum allowable gas temperature; and
(3) The maximum allowable torque.
Federal Aviation Administration (FAA), DOT.
Final rule.
This action establishes Class E airspace at Fort Morgan, CO, to accommodate aircraft using a new Area Navigation (RNAV) Global Positioning System (GPS) standard instrument approach procedures at Fort Morgan Municipal Airport. This improves the safety and management of Instrument Flight Rules (IFR) operations at the airport.
Effective date, 0901 UTC, November 15, 2012. The Director of the Federal Register approves this incorporation by reference action under 1 CFR part 51, subject to the annual revision of FAA Order 7400.9 and publication of conforming amendments.
Richard Roberts, Federal Aviation Administration, Operations Support Group, Western Service Center, 1601 Lind Avenue SW., Renton, WA 98057; telephone (425) 203–4517.
On June 7, 2012, the FAA published in the
Class E airspace designations are published in paragraph 6005, of FAA Order 7400.9V dated August 9, 2011, and effective September 15, 2011, which is incorporated by reference in 14 CFR 71.1. The Class E airspace designations listed in this document will be published subsequently in that Order.
This action amends Title 14 Code of Federal Regulations (14 CFR) Part 71 by establishing Class E airspace extending upward from 700 feet above the surface, at Fort Morgan Municipal Airport, to accommodate IFR aircraft executing new RNAV (GPS) standard instrument approach procedures at the airport. This action is necessary for the safety and management of IFR operations.
The FAA has determined this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. Therefore, this regulation: (1) Is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified this rule, when promulgated, will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act. The FAA's authority to issue rules regarding aviation safety is found in Title 49 of the U.S. Code. Subtitle 1, Section 106 discusses the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency's authority. This rulemaking is promulgated under the authority described in Subtitle VII, Part A, Subpart I, Section 40103. Under that section, the FAA is charged with prescribing regulations to assign the use of airspace necessary to ensure the safety of aircraft and the efficient use of airspace. This regulation is within the scope of that authority as it establishes controlled airspace at Fort Morgan Municipal Airport, Fort Morgan, CO.
The FAA has determined that this action qualifies for categorical exclusion under the National Environmental Policy Act in accordance with FAA Order 1050.1E, “Environmental Impacts: Policies and Procedures,” paragraph 311a. This airspace action is not expected to cause any potentially significant environmental impacts, and no extraordinary circumstances exist that warrant preparation of an environmental assessment.
Airspace, Incorporation by reference, Navigation (air).
In consideration of the foregoing, the Federal Aviation Administration amends 14 CFR part 71 as follows:
49 U.S.C. 106(g), 40103, 40113, 40120; E. O. 10854, 24 FR 9565, 3 CFR, 1959–1963 Comp., p. 389.
2. The incorporation by reference in 14 CFR 71.1 of the Federal Aviation Administration Order 7400.9V, Airspace Designations and Reporting Points, dated August 9, 2011, and effective September 15, 2011 is amended as follows:
That airspace extending upward from 700 feet above the surface within 7.5-mile radius of the Fort Morgan Municipal Airport.
Commodity Futures Trading Commission.
Final rule; correction.
The Commodity Futures Trading Commission (“CFTC” or “Commission”) published the Real-Time Public Reporting of Swap Transaction Data (“Real-Time Public Reporting”) rule and an accompanying preamble in the
Nancy Markowitz, Deputy Director, 202–418–5453, nmarkowitz@cftc.gov, Laurie Gussow, Attorney-Advisor, 202–418–7623,
The Commission published the final rule entitled
The Commission received inquiries whether it considered all “covered transactions” between affiliates, as defined in Sections 23A and 23B of the Federal Reserve Act
Section 43.2 defines the term “publicly reportable swap transaction,” and also provides an example of certain swap transactions that do not fall within the definition. Under § 43.2, in paragraph (2)(i) of the definition of “publicly reportable swap transaction,” certain inter-affiliate trades may not be reportable as the rule excludes from the definition of reportable swap transactions: “Internal swaps between one hundred percent owned subsidiaries of the same parent entity.” Paragraph (3) of the definition states that the examples of transactions set forth paragraph (2) of the definition that do not fall within the publicly reportable swap transaction definition “represent swaps that are not at arm's length and thus are not publicly reportable swap transactions, notwithstanding that they do result in a corresponding change in the market risk position between two parties.” Indeed, there may be covered transactions as defined in Sections 23A and 23B of the Federal Reserve Act that are not at “arm's length” transactions under Part 43, but which nevertheless result in a corresponding change in market risk between the two parties. Under § 43.2, those types of covered transactions would not be “publicly reportable swap transactions.”
Further, correction of the footnote 44 sentence will remove any conflict with the preamble language. The preamble language immediately preceding the footnote states: “As adopted, the definition of a publicly reportable swap transaction also provides, by way of example, that internal transactions to move risk between wholly-owned subsidiaries of the same parent, without having credit exposure to the other party would not presently require public dissemination because such swaps are not arm's-length transactions.” Again, there may be covered transactions as defined in Sections 23A and 23B of the Federal Reserve Act that may be internal transactions to move risk between wholly-owned subsidiaries of the same parent, without having credit exposure to the other party. Those transactions thus do not require public dissemination because they are not arm's-length transactions.
Accordingly, this document revises the language of the last sentence of footnote 44 on page 1187 of the
For compliance purposes, this correction of the footnote sentence will result in a more accurate reflection of the regulatory language that the determination of whether a covered transaction under Section 23A or 23B of the Federal Reserve Act is a publicly reportable swap transaction should be made by the parties to the swap, rather than the Commission. In turn, the Commission's review of such determination will be based upon the standards as set forth in § 43.2.
In FR Doc. 2011–33173 appearing on page 1182 in the
On page 1187, revise the last sentence of footnote 44 to read, “Certain covered transactions between affiliates as described in Sections 23A and 23B of the Federal Reserve Act may be considered to be publicly reportable swap transactions.”
Environmental Protection Agency (EPA).
Final rule; correction.
This document corrects errors in the amendatory instructions and paragraph heading regarding EPA's limited approval of Pennsylvania's Regional Haze State Implementation Plan (SIP).
Melissa Linden, (215) 814–2096 or by email at
Throughout this document wherever “we,” “us,” or “our” are used we mean EPA. On July 13, 2012 (77 FR 41279), we published a final rulemaking action announcing our limited approval of Pennsylvania's Regional Haze SIP. In this document, we inadvertently provided an incorrect amendatory instruction on page 41284 regarding the addition of an entry to § 52.2020(e)(1), and also omitted a paragraph heading. This action corrects both the erroneous amendatory instruction and the omitted paragraph heading in part 52 for this paragraph.
In rule document 2012–16428, published in the
“2. In § 52.2020, the table in paragraph (e)(1) is amended by adding an entry for Regional Haze Plan at the end of the table to read as follows:”
Section 553 of the Administrative Procedure Act, 5 U.S.C. 553(b)(3)(B), provides that, when an agency for good cause finds that notice and public procedure are impracticable, unnecessary or contrary to the public interest, the agency may issue a rule without providing notice and an opportunity for public comment. We have determined that there is good cause for making today's rule final without prior proposal and opportunity for comment because we are merely correcting an incorrect citation in a previous action. Thus, notice and public procedure are unnecessary. We find that this constitutes good cause under 5 U.S.C. 553(b)(3)(B).
Under Executive Order (E.O.) 12866 (58 FR 51735, October 4, 1993), this action is not a “significant regulatory action” and is therefore not subject to review by the Office of Management and Budget. For this reason, this action is also not subject to Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355 (May 22, 2001)). Because the agency has made a “good cause” finding that this action is not subject to notice-and-comment requirements under the Administrative Procedures Act or any other statute as indicated in the Supplementary Information section above, it is not subject to the regulatory flexibility provisions of the Regulatory Flexibility Act (5 U.S.C. 601 et seq.), or to sections 202 and 205 of the Unfunded Mandates Reform Act of 1995 (UMRA) (Pub. L. 104–4). In addition, this action does not significantly or uniquely affect small governments or impose a significant intergovernmental mandate, as described in sections 203 and 204 of UMRA. This rule also 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, as specified by Executive Order 13175 (65 FR 67249, November 9, 2000), nor will it 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 governments, as specified by Executive Order 13132 (64 FR 43255, August 10, 1999). This rule also is not subject to Executive Order 13045 (62 FR 19885, April 23, 1997), because it is not economically significant.
This technical correction action does not involve technical standards; thus the requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) do not apply. The rule also does not involve special consideration of environmental justice related issues as required by Executive Order 12898 (59 FR 7629, February 16, 1994). In issuing this rule, EPA has taken the necessary steps to eliminate drafting errors and ambiguity, minimize potential litigation, and provide a clear legal standard for affected conduct, as required by section 3 of Executive Order 12988 (61 FR 4729, February 7, 1996). EPA has complied with Executive Order 12630 (53 FR 8859, March 15, 1998) by examining the takings implications of the rule in accordance with the “Attorney General's Supplemental Guidelines for the Evaluation of Risk and Avoidance of Unanticipated Takings” issued under the executive order. This rule does not impose an information collection burden under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.).
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 had made such a good cause finding, including the reasons therefore, and established an effective date of August 13, 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 the
Environmental Protection Agency (EPA).
Final rule.
EPA is approving a request from the State of Illinois to redesignate the Illinois portion of the Chicago-Gary-Lake County, Illinois-Indiana (IL–IN) area (the Greater Chicago area) to attainment of the 1997 8-hour ozone National Ambient Air Quality Standard (NAAQS or standard). The Illinois portion of the Greater Chicago area includes Cook, DuPage, Kane, Lake,
This final rule is effective August 13, 2012.
EPA has established a docket for this action: Docket ID No. EPA–R05–OAR–2009–0666. All documents in the docket are listed on the
Edward Doty, Environmental Scientist, Attainment Planning and Maintenance Section, Air Programs Branch, U.S. Environmental Protection Agency, Region 5, 77 West Jackson Boulevard, Chicago, Illinois 60604, (312) 886–6057,
Throughout this document whenever “we,” “us,” or “our” is used, we mean EPA. This supplementary information section is arranged as follows:
On July 18, 1997 (62 FR 38856), EPA promulgated an 8-hour ozone standard of 0.08 parts per million (ppm) (85 parts per billion (ppb) or higher exceeds the standard). EPA published a final rule designating and classifying areas under the 1997 8-hour ozone NAAQS on April 30, 2004 (69 FR 23857). In that rulemaking, the Greater Chicago area was designated as nonattainment for the ozone standard. This area was classified as a moderate nonattainment area under subpart 2 of the Clean Air Act (CAA).
On July 23, 2009, IEPA requested redesignation of the Illinois portion of the Greater Chicago area to attainment of the 1997 8-hour ozone standard based on ozone data for the period of 2006–2008. On September 16, 2011, IEPA supplemented the original ozone redesignation request, submitting ozone data for the period of 2008–2010, revising the mobile source emission estimates using EPA's on-road mobile source emissions model, MOVES, and extending the demonstration of maintenance of the ozone standard through 2025, with new MVEBs, but without emission reductions resulting from implementation of EPA's Clean Air Interstate Rule (CAIR).
On March 12, 2010, EPA issued a final rulemaking determining that the entire Chicago-Gary-Lake County, IL-IN area had attained the 1997 8-hour ozone NAAQS based on three years of complete, quality-assured ozone data for the period of 2006–2008, and continuing through 2009
On February 9, 2012 (77 FR 6743), EPA issued a notice of rulemaking proposing to approve Illinois' request to redesignate the Illinois portion of the Greater Chicago area to attainment of the 1997 8-hour ozone standard, as well as proposing to approve Illinois' ten-year ozone maintenance plan for the area, VOC and NOx MVEBs, and 2002 VOC and NOx emission inventories as revisions of the Illinois SIP. This proposed rulemaking sets forth the basis for determining that Illinois' redesignation request meets the CAA requirements for redesignation for the 1997 8-hour ozone NAAQS. Complete, quality-assured air quality monitoring data in the Greater Chicago area for 2008–2010 and for 2009–2011 show that this area is currently attaining the 1997 8-hour ozone NAAQS. Preliminary data available to date for 2012 are consistent with continued attainment of the 1997 8-hour ozone NAAQS. The quality-assured ozone data in the Greater Chicago area were discussed in the February 9, 2012, proposed rule for this rulemaking (77 FR 6747). Table 1 summarizes the 2009–2011 annual fourth high ozone concentrations and 2009–2011 ozone design values (three-year averages of the annual fourth high daily maximum 8-hour ozone concentrations) for each of the monitoring sites in the Greater Chicago area. These and other ozone data for the Greater Chicago area are also documented at EPA's Web site
The primary background for today's action is contained in EPA's February 9, 2012, proposal to approve Illinois' redesignation request, and in EPA's March 12, 2010, final rulemaking determining that the area has attained the 1997 8-hour ozone NAAQS. In these rulemakings, we noted that, under EPA regulations at 40 CFR 50.10 and 40 CFR part 50, appendix I, the 1997 8-hour ozone standard is attained when the three-year average of the annual fourth-highest daily maximum 8-hour average ozone concentrations is less than or equal to 0.08 ppm at all ozone monitoring sites in an area. See 69 FR 23857 (April 30, 2004) for further information. To support the redesignation of the area to attainment of the NAAQS, the area must show attainment based on complete, quality-assured data for the most recent three-year period. The data completeness requirement, for any given monitoring site, is met when the three-year average of days with valid ambient monitoring data is greater than 90 percent, and no single year has less than 75 percent data completeness, as determined in accordance with appendix I of 40 CFR part 50. Under the CAA, EPA may redesignate a nonattainment area to attainment if sufficient, complete, quality-assured data are available demonstrating that the area has attained the standard and if the State meets all applicable redesignation requirements specified in section 107(d)(E) and section 175A of the CAA.
The February 9, 2012, proposed rule provides a detailed discussion of how Illinois' ozone redesignation request meets the CAA requirements. Complete, quality-assured and certified air quality monitoring data in the Greater Chicago area for 2009–2011 and preliminary data available for 2012 show that this area is currently attaining the 1997 8-hour ozone NAAQS. With the final approval of its VOC and NOx emission inventories, Illinois has met all CAA requirements for redesignation of the Illinois portion of the Greater Chicago area to attainment for the 1997 8-hour ozone NAAQS. Illinois has demonstrated that attainment of the 1997 8-hour ozone NAAQS will be maintained in the Greater Chicago area through 2025 with or without the implementation of EPA's CAIR. Finally, Illinois has adopted 2008 and 2025 MVEBs that are supported by Illinois' ozone maintenance demonstration and adopted ozone maintenance plan.
EPA provided a 30-day review and comment period for the February 9, 2012, proposed rule. During the comment period, we received one comment set from an individual representing the Sierra Club. These comments are summarized and addressed below.
On June 11, 2012, EPA published its designation for the Chicago-Naperville, IL-IN-WI area for the 2008 ozone standards. 77 FR 34221. EPA designated the Chicago-Naperville, IL-IN-WI area as nonattainment with a classification of marginal for the 2008 ozone standards. The area's status with respect to the 2008 ozone standards, however, does not affect or prevent redesignation of the area to attainment for the 1997 ozone standard. The 1997 ozone standard currently remains in effect, and, thus, EPA continues to evaluate the area's designation status with respect to that standard. Until the 1997 8-hour ozone standard is revoked, it remains in effect and independent of the 2008 8-hour ozone standards, and EPA continues to evaluate and act upon states' redesignation requests with respect to the 1997 ozone standard.
EPA has in the past continued to redesignate areas under existing standards even after the adoption of new standards for the same pollutant. After adopting the 1997 8-hour ozone standard, EPA continued to redesignate areas for the 1-hour ozone standard
Subsequent to the adoption of the 2008 8-hour ozone standard and designation of areas for this standard, EPA has continued to redesignate areas to attainment for the 1997 8-hour ozone standard. See, for example, the Detroit, Michigan redesignation, 74 FR 30950 (June 29, 2009); Clearfield and Indiana Counties, Pennsylvania redesignation, 74 FR 11674 (March 19, 2009); Kewaunee County, Wisconsin redesignation, 73 FR 29436 (May 21, 2008); and, Door and Manitowoc Counties, Wisconsin redesignation, 75 FR 39635 (July 12, 2010). Also see the redesignation of the Illinois portion of the St. Louis area for the 1997 8-hour ozone standard, 77 FR 34819 (June 12, 2012).
Indiana has certified its 2011 ozone data for the Indiana portion of the Greater Chicago area. In addition, Wisconsin has certified the 2011 ozone data for the Chiwaukee Prairie monitoring site in Kenosha County, generally considered to be the peak ozone design value site attributable to emissions in the Greater Chicago area.
The complete, certified 2011 ozone data, along with ozone data for 2009 and 2010, show that the Greater Chicago area continues to attain the 1997 8-hour ozone standard. The highest 8-hour ozone design value for the 2009–2011 period was recorded at the Chiwaukee Prairie monitoring site, with a value of 0.077 parts per million. All of these data show that the area continued to attain the 1997 8-hour ozone standard during the 2009–2011 period. Preliminary ozone data for 2012 for the Greater Chicago area and for Chiwaukee Prairie are consistent with the Greater Chicago area's continued attainment of the 1997 8-hour ozone standard. EPA has, thus, considered these data, which reflect continued attainment of the 1997 8-hour ozone standard. Although the 2011 data were not certified at the time of proposal, these data were available to the public through EPA's Air Quality System and commenters could have reviewed the data and addressed them in comments.
The commenter provides no data to demonstrate that the economic recession of recent years had any impact on emissions in 2008. The commenter merely speculates that there was such an impact. Lacking any data to the contrary, we see no reason to assume that the lower emissions of 2008 (relative to those of the base nonattainment year of 2002) were exclusively or predominantly an artifact of temporary emission reductions resulting from the economic recession.
In addition, the Chicago-Gary-Lake County, IL–IN area has continued to attain the 1997 ozone standard over an extended period (over a number of sequential three-year periods, 2006–2008, 2007–2009, 2008–2010, and now 2009–2011), with general downward trends in ozone design values at most monitoring sites in the area (see Table 1 in the proposed rule for this rulemaking action, 77 FR 6747). Given the downward trend in ozone design values and the ozone design values below the 0.085 ppm ozone standard violation level, we see no reason to believe that a reversal in the economic situation in this area will cause a return to violation of the 1997 8-hour ozone standard in this area in the foreseeable future.
In summary, the requirements of the NO
EPA also disagrees with the commenter's second argument—that the emission reductions associated with the NO
In addition, the case cited by the commenter,
In addition, modeling performed by EPA during the CSAPR rulemaking process also demonstrates that the counties in the Greater Chicago area will have ozone levels below the 1997 8-hour ozone standard in both 2012 and 2014 without emission reductions from CSAPR or CAIR, with the highest value for any county in the area projected to be 81.1 ppb without the implementation of CSAPR/CAIR-based emission controls. See “Air Quality Modeling Final Rule Technical Support Document,” Appendix B, pages B–9, B–10, B–11, and B–33, which is available in the docket for this rulemaking.
Although Illinois did list the “Cross-State Air Pollution Rule” as a possible contingency measure in the ozone maintenance plan, this measure is only one of many that may be selected should the contingency plan be triggered. EPA has concluded, in its consideration of the ozone maintenance plan contingency measures, that there are other contingency measures sufficient to satisfy the requirements of section 175A of the CAA, without the consideration of CSAPR.
With regard to the commenter's assertion that EPA cannot rely on the emission reductions resulting from the implementation of CSAPR because CSAPR would be implemented through the application of an emissions trading program, see our response to the commenter's similar comment with regard to emissions trading under EPA's NOx SIP call in the response to comment 4a above. In addition, CSAPR contains assurance provisions that guarantee that emission reductions will occur in specific states.
First, the commenter asserts that EPA has done nothing to connect the emission changes with air quality impacts. The commenter claims that EPA has conducted no analyses to prove that emission reductions between 2002 and 2008 have led to reduced ozone concentrations and attainment of the 1997 8-hour ozone standard.
Second, the commenter argues that using a single attainment year, 2008, is arbitrary because, as explained in preceding comments, the impact of cap-and-trade emission control programs, such as the NO
Third, the commenter characterizes the choice of 2008 is further problematic because 2008 marked the beginning of a large economic recession in this country. The commenter contends that this resulted in decreased electricity demand, decreased automobile, truck, and shipping traffic, and decreased factory production. The commenter contends that EPA makes the “unsupported and implicit conclusion” that monitored changes in ozone levels between 2002 and 2008 were due to the implementation of permanent and enforceable emission controls rather than to changes in meteorology, economic conditions, temporary, or voluntary (not enforceable) emission controls. The commenter asserts that EPA provides no analysis showing that the recession was not the cause of the 2002–2008 emission reduction and observed ozone air quality improvement.
Finally, the commenter argues that EPA has not shown that the 2008 emissions inventory reflects permanent and enforceable emission reductions occurring between 2002 and 2008. The 2008 emissions inventory appears to be the “actual” or the “projected” emissions from an unidentified group of sources. The commenter argues that there is a significant difference between what sources actually emit and what sources are allowed to emit, and that the IEPA and EPA have incorrectly assumed that allowable emissions are equal to actual emissions.
EPA disagrees with the commenter's assertion that EPA has conducted no analyses to prove that emission reductions between 2002 and 2008 led to reduced ozone concentrations. EPA's analyses included comparison of emissions for the representative nonattainment year to the emissions for the representative attainment year. This comparison, which established the existence of significant emission reductions that resulted in attainment, and also linked these emission reductions to control measures, is consistent with longstanding practice and EPA policy for making such a demonstration. As noted in the proposed rulemaking for this redesignation (77 FR 6754, February 9, 2012), the State of Illinois documented changes in VOC and NO
The State demonstrated that the implementation of these emission controls along with other ongoing emission controls resulting from continued implementation of the Illinois SIP have led to the emission reductions used to demonstrate the emissions reduction in this area. To derive the 2008 emissions, the State determined source category-specific emission control factors associated with the implemented emission controls. Note that the State applied emission control factors only for those source categories covered by State or Federal emission control requirements and for specific sources subject to permanent, enforceable source closures. The State took no credit for temporary or non-permanent emission reductions resulting from voluntary emission control measures or source activity downturn resulting from the current downturn in the economy. The source category-specific emission control factors, along with source category-specific growth factors, were applied to the 2002 base year emissions to project the 2008 emissions. Emission reductions resulting from source closures occurring between 2002 and 2008 and determined to be permanent (including forfeiture of source permits) were also considered and factored into the emission projections, but produced relatively small emission reductions compared to the impacts of implemented emission controls. Since most source categories had positive growth factors, almost all projected emission reductions can be attributed to the impacts of implemented emission controls. Therefore, the State has demonstrated that the derived emission reduction that occurred between 2002 and 2008 is due to the implementation of emission controls.
The CAA does not specifically require the use of ozone modeling to make a demonstration that the observed ozone air quality improvement is due to permanent and enforceable emission reductions resulting from the implementation of emission controls. It has not been the general practice of states to do so in demonstrating emission reductions for purposes of ozone redesignation requests.
EPA disagrees with the commenter's contention that using emissions from a single attainment year is arbitrary due to the year-to-year variation in emission levels resulting from the implementation of cap-and-trade programs. As a general matter, trading programs establish mandatory caps on emissions and permanently reduce total emissions allowed for sources subject to the programs. The emission caps and associated controls are enforced through the associated SIP rules and FIPs. Any purchase of emission allowances and increase in emissions by a utility necessitates a corresponding sale of emission allowances and reduction in emissions by another utility. Given the regional nature of ozone formation and transport, the emissions reduction will have an ozone air quality benefit that will compensate, at least in part, for the impact of any emission increase.
With respect to NO
While the commenter expressed concerns that an economic downturn was responsible for the observed air quality improvement, the commenter has made no demonstration that the reduction in emissions and observed improvement in air quality is due to an economic recession, changes in meteorology, or temporary or voluntary emission reductions. In addition, as noted previously, the CAA does not require modeling to make any such demonstration. There are no data demonstrating that the observed air quality improvement is due to the economic downturn, temporary changes in meteorology, or voluntary emission reductions, and, as discussed above, EPA's modeling for the CSAPR demonstrates that the Greater Chicago area would attain the NAAQS in 2012 and 2014 with or without implementation of CAIR, which is place only temporarily. We, thus, have no reason to believe that factors other than permanent and enforceable emission reductions let to attainment of the 1997 8-hour ozone standard in the Greater Chicago area.
Finally, with regard to consideration of actual versus allowable/permitted emission levels, longstanding practice and EPA policy allows for the use of actual emissions when demonstrating permanent and enforceable emission reductions. Sources seldom emit at maximum allowable emission levels, and assuming that all sources simultaneously operate at maximum capacity would grossly overestimate emission levels. For this reason, EPA believes actual emissions are the appropriate emission levels to consider when comparing nonattainment year emissions with attainment year emissions to demonstrate the basis for improvements in peak ozone levels. EPA also notes that the certified monitoring data establish that the area has been attaining the 1997 8-hour ozone standard continuously during the periods of 2006–2008, 2007–2009, 2008–2010, and 2009–2011, and that EPA's modeling demonstrates that the Greater Chicago area would have attainment air quality in 2012 and 2014 with or without the implementation of CAIR. Emissions reductions have continued during this extended period as the State has continued to implement and enforce emission controls in addition to those required by CAIR.
The Illinois redesignation request and maintenance plan for the 1997 8-hour ozone standard neither revises nor removes any existing emission control requirements. On that basis, EPA concludes that the redesignation will not interfere with attainment or maintenance of any of the air quality standards. Moreover, the maintenance plan itself demonstrates that the emission emissions of NO
The commenter does not provide any information in the comment to indicate that approval of this redesignation would have any impact on the area's ability to comply with any of the referenced NAAQS. In fact, the ozone maintenance plan provided with the State's redesignation request demonstrates a decline in VOC and NO
With regard to the use of E15 fuels in later years, it is noted that, in 2010 and 2011, EPA granted partial waivers for the use of E15 fuels in Model Year (MY) 2001 and newer light-duty motor vehicles (75 FR 68094, November 4, 2010 and 76 FR 4662, January 26, 2011). As discussed in the waiver decisions, there may be some small emission impacts for the use of E15. E15 is expected to cause a small immediate emissions increase in NO
EPA's partial waiver for E15 is based on extensive studies done by the Department of Energy, as well as EPA's engineering assessment, to determine the effects on exhaust and evaporative emissions for the vehicle fleet prior to and after the partial waiver. The criteria for granting the waiver was not that there are no emission impacts for E15, but rather that vehicles operating on E15 would not be expected to violate their emission standards in-use.
The E15 partial waivers do not require that E15 be made or sold, and it is unclear if and to what extent E15 may even be used in Illinois. Even if E15 is introduced into commerce in Illinois, considering the likely small and offsetting direction of the emission impacts, the limited set of motor vehicles approved for its use, and the measures required to mitigate misfueling, EPA believes that any potential emission impacts of E15 will be less than the margin of safety by which Illinois shows maintenance of the 1997 ozone standard.
By the same reasoning, we also disagree with the commenter that EPA must, in the context of a redesignation rulemaking, consider the impact of climate change on future ozone formation. While EPA agrees that climate change is a serious environmental issue, at this time EPA does not believe that an area-specific climate change analysis must occur in the context of rulemaking on a redesignation request and maintenance plan. Even if EPA chose to make such an assessment, it is virtually impossible, especially given the relatively limited spatial and temporal focus of a redesignation request and related maintenance plan, to project or predict the local meteorological changes that might result from climate change. Current modeling uncertainties result in conflicting projections of the spatial patterns of future changes in meteorological variables and the specific regional distributions of future ozone changes across the United States.
We conclude that none of the comments discussed above provides a basis for precluding EPA from finalizing the actions we proposed on February 9, 2012.
After reviewing Illinois' ozone redesignation request, EPA has determined that it meets the redesignation criteria set forth in section 107(d)(3)(E) f the CAA. Therefore, EPA is approving the redesignation of the Illinois portion of the Greater Chicago area to attainment of the 1997 8-hour ozone NAAQS. EPA is also approving Illinois' ozone maintenance plan for the Illinois portion of the Greater Chicago area as a revision of the Illinois SIP based on Illinois' demonstration that the plan meets the requirements of section 175A of the CAA. EPA is approving the 2002 VOC and NO
In accordance with 5 U.S.C. 553(d), EPA finds there is good cause for this action to become effective immediately upon publication. This is because a delayed effective date is unnecessary due to the nature of a redesignation to attainment, which relieves the area from certain CAA requirements that would otherwise apply to it. The immediate effective date for this action is authorized under both 5 U.S.C. 553(d)(1), which provides that rulemaking activities may become effective less than 30 days after publication if the rule “grants or recognizes an exemption or relieves a restriction,” and section 553(d)(3), which allows an effective date less than 30 days after publication “as otherwise provided by the agency for good cause found and published with the rule.” The purpose of the 30-day waiting period prescribed in section 553(d) is to give affected parties a reasonable time to adjust their behavior and prepare before the final rule takes effect. Today's rule, however, does not create any new regulatory requirements such that affected parties would need time to prepare before the rule takes effect. Rather, today's rule relieves the State of planning requirements for this 8-hour ozone nonattainment area. For these reasons, EPA finds good cause under 5 U.S.C. 553(d)(3) for this action to become effective on the date of publication of this action.
Under the CAA, redesignation of an area to attainment and the accompanying approval of a maintenance plan under section 107(d)(3)(E) are actions that affect the status of a geographical area and do not impose any additional regulatory requirements on sources beyond those imposed by State law. A redesignation to attainment does not in and of itself create any new requirements, but rather results in the applicability of requirements contained in the CAA for areas that have been redesignated to attainment. Moreover, the Administrator is required to approve a SIP submission that complies with the provisions of the CAA and applicable Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, EPA's role is to approve State choices, provided that they meet the criteria of the CAA. Accordingly, these actions do not impose additional requirements beyond those imposed by State law and the CAA. For that reason, these actions:
• Are not “significant regulatory actions” subject to review by the Office of Management and Budget under Executive Order 12866 (58 FR 51735, October 4, 1993);
• Do not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501
• Are certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601
• Do 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);
• Do not have Federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);
• Are not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997);
• Are not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001);
• Are not subject to requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the CAA; and,
• Do 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).
In addition, this rule does not have tribal implications as specified by Executive Order 13175 (65 FR 67249, November 9, 2000), because the SIP is not approved to apply in Indian country located in the State, and EPA notes that it will not impose substantial direct costs on tribal governments or preempt tribal law.
The Congressional Review Act, 5 U.S.C. 801
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 October 12, 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).)
Environmental protection, Air pollution control, Incorporation by reference, Intergovernmental relations, Nitrogen oxides, Ozone, Volatile organic compounds.
Air pollution control, Environmental protection, National parks, Wilderness areas.
40 CFR parts 52 and 81 are amended as follows:
42 U.S.C. 7401
(mm) * * *
(2) Approval—Illinois' 2002 volatile organic compounds and nitrogen oxides emission inventories satisfy the emissions inventory requirements of section 182(a)(1) of the Clean Air Act for the Illinois portion of the Chicago-Gary-Lake County, Illinois-Indiana area under the 1997 8-hour ozone standard.
(nn) Approval—On July 23, 2009, and September 16, 2011, Illinois submitted a request to redesignate the Illinois portion of the Chicago-Gary-Lake County, Illinois-Indiana area to attainment of the 1997 8-hour ozone standard. The Illinois portion of the Chicago-Gary-Lake County, Illinois-Indiana area includes Cook, DuPage, Kane, Lake, McHenry, and Will Counties and portions of Grundy (Aux Sable and Goose Lake Townships) and Kendall (Oswego Township) Counties. As part of the redesignation request, the State submitted a plan for maintaining the 1997 8-hour ozone standard through 2025 in the area as required by section 175A of the Clean Air Act. Part of the section 175A maintenance plan includes a contingency plan. The ozone maintenance plan establishes 2008 motor vehicle emissions budgets for the Illinois portion of the Chicago-Gary-Lake County, Illinois-Indiana area of 117.23 tons per day (tpd) for volatile organic compounds (VOC) and 373.52 tpd for nitrogen oxides (NO
42 U.S.C. 7401
Environmental Protection Agency (EPA).
Final rule.
This action finalizes confidentiality determinations for certain data elements in regulations under the Mandatory Greenhouse Gas Reporting Rule. In addition, the EPA is finalizing amendments to defer the reporting deadline of certain data elements until 2013 and to defer the reporting deadline of certain data elements until 2015. Lastly, the EPA is finalizing amendments regarding the calculation and reporting of emissions from facilities that use best available monitoring methods. This action does not include final confidentiality determinations for data elements in the “Inputs to Emission Equations” data category.
This rule will be effective on September 12, 2012, except for the amendments to Tables A–6 and A–7 of 40 CFR part 98 subpart A and the amendments to 40 CFR part 98 subpart I (§ 98.94(a)(2)(iii), (a)(3)(iii), and (a)(4)(iii)), which are effective on August 13, 2012.
The EPA has established a docket for this action under Docket ID No. EPA–HQ–OAR–2011–0028. All documents in the docket are listed in the
Carole Cook, Climate Change Division, Office of Atmospheric Programs (MC–6207J), Environmental Protection Agency, 1200 Pennsylvania Ave. NW., Washington, DC 20460; telephone number: (202) 343–9263; fax number: (202) 343–2342; email address:
The first purpose of this action is to finalize confidentiality determinations for the data elements (except those in the “Inputs to Emission Equations” data category and certain additional subpart I data elements) in seven subparts of 40 CFR part 98 of the Mandatory Greenhouse Gases Reporting Rule (hereafter referred to as “Part 98”):
The second purpose of this action is to finalize confidentiality determinations for new data elements (that are not inputs to emission equations) added to subparts II and TT in the Technical Corrections final rule
The third purpose of this action is to finalize amendments to subpart A of Part 98 to defer until 2013 or 2015 the reporting deadline for inputs to emission equations data elements recently added by the Technical Corrections final rule. These data elements are in subparts W, FF, and TT.
The fourth purpose of this action is to finalize amendments to subpart I regarding the calculation and reporting of emissions from facilities that use best available monitoring methods (BAMM). These amendments remove the obligation to recalculate and resubmit emission estimates for the period during which the facility used best available monitoring methods.
As noted above, we are making final confidentiality determinations for the data elements reported under the finalized subparts of Part 98 identified in Table 1 of this preamble. We are not making final confidentiality determinations for data elements in this action not identified in Table 1. We are also finalizing amendments to Tables A–6 and A–7 of subpart A for the subparts shown in Table 1 of this preamble.
This action finalizes confidentiality determinations for data elements specified in Table 1 of this preamble. For information on the history of CBI determinations for the data elements at issue, see the following notices (available at
• 75 FR 39094, July 7, 2010; hereafter referred to as the “July 7, 2010 CBI proposal.” Proposed confidentiality determinations for Part 98 data elements, including subparts I, W, DD, II, QQ, RR, SS, and TT.
• 76 FR 30782, May 26, 2011; hereafter referred to as the “2011 Final CBI Rule.” Finalized confidentiality determinations for data categories, assigned data elements to data categories and published the final CBI determinations for the data elements in 34 Part 98 subparts, except for those assigned to the “Inputs to Emission Equations” data category. This included confidentiality determinations for subparts II and TT and excluded confidentiality determinations for subparts I, W, DD, QQ, RR, SS, and UU.
• 77 FR 1434, January 10, 2012; hereafter referred to as “2012 CBI re-proposal.” The EPA re-proposed for public comment the confidentiality determinations for the data elements in subparts L,
• 77 FR 10434, February 22, 2012; hereafter referred to as “Subpart I CBI re-proposal.” The EPA re-proposed for public comment the confidentiality determinations for many data elements in subpart I to reflect the reporting data elements in the 2010 final subpart I and all subsequent amendments to subpart I up to the date of the Subpart I CBI re-proposal.
• 77 FR 11039, February 24, 2012; hereafter referred to as “Subpart W CBI re-proposal.” The EPA re-proposed for public comment the confidentiality determinations for the data elements in subpart W to reflect the data elements in the 2010 final subpart W and all subsequent amendments to subpart W up to the date of the Subpart W CBI re-proposal.
This rule finalizes amendments to Tables A–6 and A–7 of subpart A to defer the deadline for reporting certain recently added data elements in subparts W, FF, and TT that we are assigning to the “Inputs to Emission Equations” data category. This action does not include final confidentiality determinations for data elements that are in the “Inputs to Emission Equations” data category. For information on the history of the deferral of the reporting deadline for inputs, see the following notices (available at
• 75 FR 81366, December 27, 2010; hereafter referred to as the “call for information.” Requested comment on whether each data element used as an input to an emission equation for direct emitters was likely to cause substantial competitive harm if made publicly available.
• 76 FR 53057, August 25, 2011; hereafter referred to as the “Final Deferral Notice.” The EPA deferred the deadline for direct emitter reporters to report inputs to emission equations data elements. The EPA deferred the deadline for reporting some of these data elements to March 31, 2013, and others to March 31, 2015. Subpart FF and TT inputs were deferred to March 31, 2013, and are identified in Table A–6 of subpart A, and subpart W inputs were deferred to March 31, 2015, and are identified in Table A–7 of subpart A.
This final rule affects entities required to submit annual greenhouse gas (GHG) reports under certain subparts of Part 98. The Administrator determined that this action is subject to the provisions of Clean Air Act (CAA) section 307(d). See CAA section 307(d)(1)(V) (the provisions of CAA section 307(d) apply to “such other actions as the Administrator may determine”). Part 98 and this action affect owners and operators of electronics manufacturing facilities, petroleum and natural gas systems, electric power systems, electrical equipment manufacturing facilities, carbon dioxide (CO
Table 2 of this preamble lists the types of entities that potentially could be affected by the confidentiality determinations and amendments under the subparts covered by this action. However, this list is not intended to be exhaustive, but rather provides a guide for readers regarding facilities and suppliers likely to be affected by this action. Other types of facilities and suppliers not listed in the table could also be subject to this action. To determine whether you are affected by this action, you should carefully examine the applicability criteria found in 40 CFR part 98, subpart A as well as 40 CFR part 98 subparts I, W, DD, FF, II, QQ, RR, SS, TT, and UU. If you have questions regarding the applicability of this action to a particular facility, consult the person listed in the
The EPA is finalizing certain amendments to Part 98 under its existing CAA authority, specifically authorities provided in CAA section 114. As stated in the preamble to the 2009 Mandatory Reporting of Greenhouse Gases final rule (74 FR 56260, October 30, 2009) and the Response to Comments on the Proposed Rule, Volume 9, Legal Issues, CAA section 114 provides the EPA broad authority to obtain the information in Part 98 because such data inform and are relevant to the EPA's carrying out a wide variety of CAA provisions. As discussed in the preamble to the initial Part 98 proposal (74 FR 16448, April 10, 2009), CAA section 114(a)(1) authorizes the Administrator to require emissions sources, persons subject to the CAA, manufacturers of control or process equipment, or persons whom the Administrator believes may have necessary information to monitor and report emissions and provide such other information the Administrator requests for the purposes of carrying out any provision of the CAA.
In addition, the EPA is finalizing confidentiality determinations for certain Part 98 data under its authorities provided in sections 114, 301 and 307 of the CAA. As mentioned above, CAA section 114 provides the EPA authority to obtain the information in Part 98. Section 114(c) of the CAA requires that the EPA make publicly available information obtained under CAA section 114 except for information (excluding emission data) that qualifies for confidential treatment. The Administrator has determined that this action (Part 98 amendment and confidentiality determinations) is subject to the provisions of CAA section 307(d).
As explained in the 2012 CBI re-proposal, we are applying the same approach to making confidentiality determinations as was used in the 2011 Final CBI Rule. Specifically, we have assigned each data element specified in Table 1 of this preamble to one of 21 data categories
In the 2011 Final CBI Rule, the EPA made categorical confidentiality determinations (i.e., one determination that applies to all data elements in that category) for 16 data categories (eight direct emitter data categories and eight supplier data categories). The categorical determinations for each of these 16 data category are specified in Tables 3 and 4 of this preamble. In this action, we have similarly assigned each of the data elements at issue (see Table 1 of this preamble) to one of the data categories created in the 2011 Final CBI rule. We have applied the categorical determinations made for 16 of the data categories to the data elements that assigned to those data categories.
In the 2011 Final CBI rule, the EPA determined that the data elements assigned to the remaining five data categories (two direct emitter data categories (see Table 3 of this preamble) and three supplier data categories (see Table 4 of this preamble) are not “emission data” (as defined at 40 CFR 2.301(a)(2)(i)). However, instead of categorical determinations, we made final CBI determinations for individual data elements assigned to those five data categories. In making these individual CBI determinations, we considered the confidentiality determination criteria at 40 CFR 2.208, in particular whether release of the data is likely to cause substantial harm to the business' competitive position. See 40 CFR 2.208(e)(1). Consistent with that approach, in this action we determined that data elements identified in Table 1 of this preamble that are assigned to these five data categories are not emission data and made final confidentiality determinations for these data elements in accordance with 40 CFR 2.208.
In this action, the EPA is finalizing the confidentiality determinations for Part 98 data elements specified in Table 1 of this preamble using the approach outlined in Section I.D of this preamble.
The data category assignments and final confidentiality determinations for the Part 98 data elements specified in Table 1 of this preamble are provided in the memorandum “Final Data Category Assignments and Confidentiality Determinations for the 2012 Final CBI Rule” (see Docket EPA–HQ–OAR–2011–0028 and the Web site,
In Section II.B of this preamble, the EPA describes final confidentiality determinations and summarizes comments and responses for direct emitter data elements in subparts I, W, DD, RR, and SS, which we proposed in 2012 in three actions (see Section I.A.1 of this preamble). In Section II.C of this preamble, the EPA describes final confidentiality determinations and summarizes comments and responses for all supplier data elements in subparts QQ, RR, and UU, which we proposed in the 2012 CBI re-proposal.
For direct emitter subparts I, W, DD, RR,
In the subpart I CBI re-proposal, the EPA proposed confidentiality determinations for certain data elements in this direct emitter subpart. The EPA received comments raising concerns about finalizing the confidentiality determinations for some data elements and requesting the EPA delay finalizing confidentiality determinations for certain reporting elements until after the EPA has concluded settlement discussions regarding alternatives to the recipe-specific method for semiconductor manufacturing facilities. The EPA did not intend to take action on reporting elements that are currently the subject of these settlement discussions. Due to the number and complexity of data elements included in the proposal, the EPA inadvertently included a few recipe-specific reporting elements that were in data categories for which we proposed categorical confidentiality determinations. EPA is therefore not finalizing confidentiality determinations for any recipe-specific data reporting elements in this action. Additionally, the EPA does not expect facilities will use the recipe-specific method for the 2011 reporting year;
Additionally, for the same reason provided above for recipe-specific data elements, we have decided to make no confidentiality determination for one additional data element (the annual manufacturing capacity of a facility as determined in Equation I–5 (listed at 40 CFR 98.96(a))) because it is also the subject of a petition for reconsideration of the December 1, 2010
Finally, we are not addressing confidentiality determinations for data elements in the “Inputs to Emission Equations” data category in this final rule. For the remaining subpart I data elements, we are finalizing the confidentiality determinations as proposed. The final confidentiality determinations for these subpart I data elements can be found in the memorandum, “Final Data Category Assignments and Confidentiality Determinations for the 2012 Final CBI Rule.”
This section contains summaries of the significant public comments and our responses thereto. Additional public comments were also received. Response to these comments can be found in “Confidentiality Determinations in the 2012 CBI re-proposals: Responses to Public Comments” in Docket EPA–HQ–OAR–2011–0028 and on the Web site,
• Annual emissions of each fluorinated greenhouse gas (F–GHG)
• Annual emissions of each F–GHG emitted from each process subtype as calculated in Equations I–8 and I–9. (40 CFR 98.96(c)(2))
Specifically, the commenters stated that the release of these data elements could allow competitors to more easily reverse-engineer recipes and back-calculate sensitive information such as the relative proportion of gas-by-gas usage in a recipe or sub-process type.
In our subpart W CBI re-proposal, we proposed category assignments and confidentiality determinations for all of the data elements reported under subpart W that are not inputs to emission equations. In this action, we are finalizing without change the category assignments and confidentiality determinations proposed in the Subpart W CBI re-proposal. For a list of the final data category assignments and confidentiality determinations for all of the non-input subpart W data elements as identified in the Subpart W CBI re-proposal, please see the memorandum titled “Final Data Category Assignments and Confidentiality Determinations for the 2012 Final CBI Rule” (see Docket EPA–HQ–OAR–2011–0028 and the GHGRP Web site,
This section contains summaries of the significant public comments and our responses thereto. Other public comments were also received. Responses to these comments can be found in “Confidentiality Determinations in the 2012 CBI re-proposals: Responses to Public Comments” in Docket EPA–HQ–OAR–2011–0028 and on the Web site,
With respect to the non-inputs to emission equations data elements which we proposed would not be emission data but also not CBI, we disagree that they disclose any CBI relative to exploratory wells for the following reasons. First, reporters are not required to report sensitive information on oil and gas reserves, geological assessments of new prospects, drilling plans, or detailed well-by-well operational information. As explained in the re-proposal, these non-input data elements that are not emissions data relate to well completions (e.g., number of completions, number of days gas was vented during completions) and testing (e.g., number of wells tested during the calendar year, average gas-to-oil ratio for each basin, average number of days wells are tested). None of these data elements reveal information regarding the production characteristics or production rates of any individual production well or the potential production rates for exploratory wells. The commenter did not explain why these specific data elements would be likely to cause competitive harm; rather, the commenter provided only very broad comments that certain information on exploratory wells can be
Second, reporters are not required to identify which wells are exploratory and which are production wells, nor do they report information for individual wells. The non-input data elements reported under subpart W are reported for each basin, sub-basin, tubing diameter/pressure group, or well type (i.e., horizontal or vertical). For example, the reporting of the number of wells tested in a basin within a calendar year (40 CFR 98.236(c)(10)(i)) does not provide any insight into exactly which wells within that basin were tested or whether the wells are being tested after completion of exploratory wells or after workovers on existing wells.
Lastly, we disagree that our decision to consider these data elements to be non-CBI is inconsistent with other state and federal regulations that allow data for exploratory wells to be held confidential. The data reported under subpart W does not include any sensitive information about the underlying geology or potential productivity of an exploratory well, which are the types of information being held as confidential under the state and federal rules mentioned by the commenter. We further note that many of the subpart W data elements are in fact publicly available. For example, the number of well completions for each sub-basin (40 CFR 98.236(c)(6)(i)(A) and (G)) is publicly available from commercial databases (e.g., see
Therefore, we conclude that our proposed determinations regarding the non-input data elements are appropriate and finalize those determinations in this action.
Therefore, we conclude that our proposed determination that this data element (40 CFR 98.234(f)(8)(ii)(C)) is entitled to confidential treatment is appropriate; we therefore finalize that determination in this action.
In the 2012 CBI re-proposal, the EPA proposed category assignments and confidentiality determinations for direct emitter subparts DD and SS and the direct emitter data elements in subpart RR. The EPA did not receive comment on the proposed data category assignments or confidentiality determinations for any data elements in subparts DD and SS, nor did we receive comment on the proposed data category assignments or confidentiality determinations for direct emitter data elements in subpart RR. (We did, however, receive comment on the proposed confidentiality determinations for supplier data elements in subpart RR, which are summarized in Section II.C.2 of this preamble.) The EPA is now finalizing the category assignment and confidentiality determinations for the subpart DD and SS data elements and subpart RR direct emitter data elements as proposed. The final category assignments and confidentiality determinations for these data elements
For supplier subparts QQ, RR, and UU, the EPA is finalizing the assignment of each data element to one of 11 supplier data categories. No change has been made to the data category assignments since proposal. The following section lists changes since proposal to confidentiality determinations of supplier data elements assigned to categories with no categorical determination covered in this action (organized by supplier subpart). This section also includes summaries of the major public comments and our responses, organized by subpart. Other public comments and responses thereto can be found in “Confidentiality Determinations in the 2012 CBI re-proposals: Responses to Public Comments” in Docket EPA–HQ–OAR–2011–0028 and on the Web site,
In the 2012 CBI re-proposal, the EPA proposed confidentiality determinations for data elements in supplier subpart QQ. The EPA received comments raising concerns that the release of certain data elements could allow competitors to link import and export data to publicly available customs data, thereby allowing them to discern import and export practices and potentially sensitive shipment data. As discussed in the summary of the comments section below, after considering these comments, the EPA has decided not to make a final confidentiality determination for the six subpart QQ data elements that reveal the date of import or export (see Table 5 of this preamble for the list of affected data elements). For the remaining subpart QQ data elements that are not listed in Table 5 of this preamble, we are finalizing confidentiality determinations as proposed. The final confidentiality determinations for all subpart QQ data elements can be found in the Memorandum, “Final Data Category Assignments and Confidentiality Determinations for the 2012 Final CBI Rule.”
This section contains summaries of the significant public comments and our responses thereto. Additional public comments were also received. Response to these comments can be found in “Confidentiality Determinations in the 2012 CBI re-proposals: Responses to Public Comments” in Docket EPA–HQ–OAR–2011–0028 and on the Web site,
• Dates on which pre-charged equipment were imported/exported (40 CFR 98.436(a)(5) and (b)(5));
• Dates on which closed-cell foams were imported/exported (40 CFR 98.436(a)(5) and (b)(5));
• If the importer/exporter does not know the identity and mass of the F–GHGs within the closed-cell foam: Dates on which the closed-cell foams were imported/exported (40 CFR 98.436(a)(6)(iv) and (b)(6)(iv)); and
• If the importer/exporter does not know the identity and mass of the F–GHGs within the closed-cell foam: Certification that the importer/exporter was unable to obtain information on the identity and mass of the F–GHGs within the closed-cell foam from the closed-cell foam manufacturer(s) (40 CFR 98.436(a)(6)(vi) and (b)(6)(vi)).
The commenters stated that importers and exporters often submit confidentiality requests to U.S. Customs and Border Protection (CBP) to protect as confidential the information contained in the shipment manifest. In such cases, the CBP protects as confidential the name and address of the importer or exporter, but allows other information contained in the manifest to be made public. Since the name and address of the importer or exporter are held confidential, the commenter stated that other competitively sensitive information contained in the manifest, such as shipment data (e.g., type and quantities of products imported or exported), cannot be attributed to a particular importer or exporter.
The commenters asserted that the EPA's proposal would undermine confidentiality requests granted by the CBP because it would release information on the company name, dates of import/export, and certification statements that could be cross-referenced with public information available in manifests. For example, commenters suggested that the manifest provides information on the country of origin and type and volumes of commodities imported or exported. This information is currently available to the public but cannot be linked to a particular importer or exporter where
However, we note that the CBP holds the name and addresses of importers/exporters confidential only when specifically requested by the importer/exporter and that confidentiality is for a period of only two years unless a request for extension is made. We also note that manifest information may not be sensitive for all importers and exporters. Therefore, the EPA has concluded that the date of import or export (40 CFR 98.436(a)(5), (a)(6)(iv), (b)(5), and (b)(6)(iv)) may cause competitive harm for some but not all importers and exporters. As a result, we are not finalizing a confidentiality determination for these data elements. We will evaluate the confidentiality status of these data elements on a case-by-case basis, in accordance with existing CBI regulations in 40 CFR part 2, subpart B.
The EPA disagrees with comments that releasing certification data (40 CFR 98.436(a)(6)(vi) and (b)(6)(vi)) would likely cause substantial competitive harm to the importer or exporter. The certification is a statement that the importer or exporter was unable to obtain information on the identity and mass of the fluorinated GHG imported or exported in foams. The certification statement consists of a statement indicating whether the reporter was able to obtain information on the identity and mass of F–GHGs within the imported or exported products, and does not include any information that a competitor could cross reference with publicly available information to link manifest data to a particular reporter. The commenters did not provide any supporting rationale for how the certification statement, if disclosed, can cause competitive harm. The EPA has concluded the disclosure of the very limited information in the certification statement is unlikely to cause competitive harm; therefore, the EPA is finalizing a determination that the certification statements (40 CFR 98.436(a)(6)(vi) and (b)(6)(vi)) are not eligible for CBI treatment.
In the 2012 CBI re-proposal, the EPA proposed non-CBI confidentiality determinations for the supplier data elements in subpart RR. Based on public comment, and for the reasons explained in the Summary of Comments section below, we have decided not to make CBI determinations in this final rule for the subpart RR supplier data elements that are listed in Table 6 of this preamble. We will evaluate the confidentiality status of these data elements on a case-by-case basis, in accordance with existing CBI regulations in 40 CFR part 2, subpart B. The EPA did not receive comments on the remaining subpart RR data elements, and is finalizing confidentiality determinations as proposed for the subpart RR data elements that are not listed in Table 6 of this preamble. The final confidentiality determinations for all subpart RR data elements can be found in the Memorandum, “Final Data Category Assignments and Confidentiality Determinations for the 2012 Final CBI Rule” in Docket EPA–HQ–OAR–2011–0028 and on EPA's Web site (see
This section contains summaries of the significant public comments and our responses thereto. Other public comments were also received. Response to these comments can be found in “Confidentiality Determinations in the 2012 CBI re-proposals: Responses to Public Comments” in Docket EPA–HQ–OAR–2011–0028 and on the Web site,
The commenter asserted that CO
The commenter also asserted that if data on the quantities of both injected CO
In the 2012 CBI re-proposal, the EPA proposed confidentiality determinations for subpart UU.
This section contains summaries of the significant public comments and our responses thereto. Other public comments were also received. Response to these comments can be found in “Confidentiality Determinations in the 2012 CBI re-proposals: Responses to Public Comments” in Docket EPA–HQ–OAR–2011–0028 and on the Web site,
In addition to facilities that conduct ER, acid gas operations (facilities that separate a CO
Other than facilities conducting ER or acid gas operations, the facilities that must report under subpart UU include facilities that have received a Research and Development (R&D) project exemption from subpart RR. The EPA notes that data on the quantity of CO
The Technical Corrections final rule, which was issued after the 2011 Final CBI Rule, added seven new non-input data elements to subparts II and TT. Confidentiality determinations for the remainder of the data elements in these subparts have already been finalized in the 2011 Final CBI Rule. Subsequent to the 2011 Final CBI Rule, we proposed category assignments and confidentiality determinations for these new data elements in the 2012 CBI re-proposal. The EPA did not receive any comment on the data category assignments or confidentiality determinations for any data elements for which we proposed confidentiality determinations for these two subparts in the 2012 CBI re-proposal. Thus, the EPA is finalizing confidentiality determinations for these new subpart II and TT data elements as proposed. The final confidentiality determinations for these new subpart II and TT data elements can be found in the memorandum, “Final Data Category Assignments and Confidentiality Determinations for the 2012 Final CBI Rule.”
We are finalizing the proposed amendments made in the Subpart W CBI re-proposal to Table A–7 of subpart A, which included amendments to address the renumbering of 11 inputs, the addition of 10 new inputs, and the deletion of 21 data elements that were re-categorized to other data categories because the data elements are not the actual values used in the equations. (The deletions recognized, for example, the distinction between individual measured values used to calculate emissions, which are inputs, and the reported average of these measured values, which is not used as an input to emissions equations.) We are finalizing these amendments as proposed with the exception that we are correcting a typographical error in the Subpart W CBI re-proposal by replacing the word “required” with “recovered” in two entries (40 CFR 98.236(c)(6)(i)(G) and (H)) for subpart W of Table A–7 of subpart A of Part 98. We are finalizing Table A–7 of subpart A with this minor wording change in response to public comment and to more accurately reflect the actual reporting requirements. As proposed in the Subpart W CBI re-proposal, we are deferring the deadline for reporting all subpart W inputs until March 31, 2015 to allow sufficient time to: (1) Evaluate the extent to which potential competitive harm may result if any of the inputs to equations were reported and made publicly available; and (2) determine whether emissions can be calculated or verified using additional methodologies, consistent with the transparency and accuracy goals of Part 98.
The Technical Corrections final rule added one new subpart TT data element that is used as an input to an emission equation (the methane correction factor (MCF) value used in the calculations (40 CFR 98.446(b)(4)). In the 2012 CBI re-proposal, we proposed to assign this data element to the inputs to equations category. We also proposed that this data element be added to Table A–6 of subpart A to defer its reporting to March 31, 2013. We received no comments on the proposal described above. The EPA is therefore finalizing the assignment of this data element to the “Inputs to Emission Equations” data category and its addition to Table A–6 of subpart A to require its reporting by March 31, 2013.
The Technical Corrections final rule similarly added two new subpart FF data elements that are used as inputs to emission equations:
• Moisture content used in Equation FF–1 and FF–3 (40 CFR 98.326(o)).
• The gaseous organic concentration correction factor used, if Equation FF–9 was required (40 CFR 98.326(o)).
In the 2012 CBI re-proposal, we proposed to assign these two data elements in 98.236(o) to the “Inputs to Emission Equations” data category and defer their reporting deadline to March 31, 2013. As explained in the proposed rule, the paragraph citation for these two data elements (40 CFR 98.326(o)) is already included in Table A–6 of subpart A deferring the reporting
In the Technical Corrections final rule, we also re-numbered the rule citations for three subpart TT data reporting elements. In the 2012 CBI re-proposal, the EPA proposed to amend Table A–6 of subpart A list of paragraph references for subpart TT data elements to reflect the revision to the paragraph citations. We did not receive any comment, and we are finalizing as proposed the amendments to Table A–6 of subpart A in this action.
Following the publication of the final subpart I rule,
For the reasons explained in Section IV of the subpart I CBI re-proposal, we are finalizing amendments to the subpart I BAMM provisions. These amendments to subpart I eliminate the requirement that facilities granted an extension to use BAMM must recalculate and resubmit the emissions estimate for the BAMM extension period. The EPA received comments in support of these amendments and no comments opposing them. Accordingly, we are finalizing as proposed these amendments to subpart I.
This action, which finalizes confidentiality determinations for data elements in the 9 subparts included in the preamble, finalizes amendments to subpart A of Part 98, and removes the requirement that facilities that are granted an extension to use BAMM must recalculate and resubmit the emissions estimate for the BAMM extension period 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, which finalizes confidentiality determinations for data elements in the 9 subparts included in the preamble, finalizes amendments to subpart A of Part 98, and removes the requirement that facilities that are granted an extension to use BAMM must recalculate and resubmit the emissions estimate for the BAMM extension period does not impose any new information collection burden and does not increase the existing reporting burden. The Office of Management and Budget (OMB) has previously approved the information collection requirements contained in these subparts, under 40 CFR part 98, under the provisions of the
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, a 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 today's final rule on small entities, I certify that this action will not have a significant economic impact on a substantial number of small entities. In determining whether a rule has a significant economic impact on a substantial number of small entities, the impact of concern is any significant adverse economic impact on small entities, since the primary purpose of a regulatory flexibility analyses is to identify and address regulatory alternatives “which minimize any significant economic impact of the rule on small entities.” 5 U.S.C. 603,604. Thus, an agency may certify that a rule will not have a significant economic impact on a substantial number of small entities if the rule relieves regulatory burden, has no burden, or otherwise has a positive economic effect on all of the small entities subject to the rule. This action, which finalizes confidentiality determinations for data elements in the 9 subparts included in the preamble, finalizes amendments to subpart A of Part 98, and removes the requirement that facilities that are granted an extension to use BAMM must recalculate and resubmit the emissions estimate for the BAMM extension period does not increase the existing reporting burden on small entities. We have therefore concluded that today's final rule will relieve or have no burden on small entities subject to the rule.
These final rule amendments and confidentiality determinations do not contain a federal mandate that may result in expenditures of $100 million or more for state, local, and tribal governments, in the aggregate, or the private sector in any one year. The amendment to subpart I removes the requirement that facilities that are granted an extension to use BAMM must recalculate and resubmit the emissions estimate for the BAMM extension period and the confidentiality determinations are administrative in nature and do not increase the costs of compliance for facilities to comply with Part 98. Thus, this rule is not subject to the requirements of sections 202 or 205 of the UMRA.
This rule 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. The confidentiality determinations for data
This action, which finalizes confidentiality determinations for data elements in the 9 subparts included in the preamble, finalizes amendments to subpart A of Part 98, and removes the requirement that facilities that are granted an extension to use BAMM must recalculate and resubmit the emissions estimate for the BAMM extension period 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. For a more detailed discussion about how Part 98 relates to existing state programs, please see Section II of the preamble to the final Greenhouse Gas Reporting Rule (74 FR 56266, October 30, 2009).
This action applies to suppliers of GHGs and facilities that directly emit GHGs above threshold levels. Relatively few government facilities are affected by this action since Part 98 applies only to government entities that own a facility that directly emits GHGs above threshold levels. This action also does not limit the power of states or localities to collect GHG data and/or regulate GHG emissions, nor does it directly affect the power of states or localities to disclose or protect information reported to those states or localities. Thus, Executive Order 13132 does not apply to this action.
This action, which finalizes confidentiality determinations for data elements in the 9 subparts included in the preamble, finalizes amendments to subpart A of Part 98, and removes the requirement that facilities that are granted an extension to use BAMM must recalculate and resubmit the emissions estimate for the BAMM extension period does not have tribal implications, as specified in Executive Order 13175 (65 FR 67249, November 9, 2000). This action does not increase the reporting burden. Thus, Executive Order 13175 does not apply to this action. For a summary of the EPA's consultations with tribal governments and representatives, see Section VIII.F of the preamble to the final Greenhouse Gas Reporting Rule (74 FR 56371, October 30, 2009).
The EPA interprets Executive Order 13045 (62 FR 19885, April 23, 1997) as applying only to those regulatory actions that concern health or safety risks, such that the analysis required under section 5–501 of the Executive Order has the potential to influence the regulation. This action is not subject to Executive Order 13045 because it does not establish an environmental standard intended to mitigate health or safety risks.
This action, which finalizes confidentiality determinations for data elements in the 9 subparts included in the preamble, finalizes amendments to subpart A of Part 98, and removes the requirement that facilities that are granted an extension to use BAMM must recalculate and resubmit the emissions estimate for the BAMM extension period 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. NTTAA directs the EPA to provide Congress, through OMB, explanations when the agency decides not to use available and applicable voluntary consensus standards.
This final action, which finalizes confidentiality determinations for data elements in the 9 subparts included in the preamble, finalizes amendments to subpart A of Part 98, and removes the requirement that facilities that are granted an extension to use BAMM must recalculate and resubmit the emissions estimate for the BAMM extension period does not add any new technical standards or revise any existing technical standards included in Part 98. 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 final rule will not have disproportionately high and adverse human health or environmental effects on minority or low-income populations. This final rule does not affect the level of protection provided to human health or the environment because it addresses information collection and reporting procedures.
The Congressional Review Act, 5 U.S.C. 801
Environmental protection, Administrative practice and procedure,
For the reasons stated in the preamble, title 40, chapter I, of the Code of Federal Regulations is amended as follows:
42 U.S.C. 7401,
(a) * * *
(2) * * *
(iii)
(3) * * *
(iii)
(4) * * *
(iii)
Federal Communications Commission.
Final rule.
This document revises the Commission's list of Office of Management and Budget (OMB) approved public information collection requirements with their associated OMB expiration dates. This list will provide the public with a current list of public information collection requirements approved by OMB and their associated control numbers and expiration date as of June 30, 2012.
Effective August 13, 2012.
Judith B. Herman, Office of the Managing Director, (202) 418–0214 or by email to
This document adopted on August 3, 2012 and released on August 6, 2012 by the Managing Director in DA 12–1263 revised 47 CFR 0.408 in its entirety.
1. Section 3507(a)(3) of the Paperwork Reduction Act of 1995, 44 U.S.C. 3507(a)(3), requires agencies to display a current control number assigned by the Director, Office of Management and Budget (“OMB”) for each agency information collection requirement.
2. Section 0.408 of the Commission's rules displays the OMB control numbers assigned to the Commission's public information collection requirements that have been reviewed and approved by OMB.
3. Authority for this action is contained in Section 4(i) of the Communications Act of 1934 (47 U.S.C. 154(i)), as amended, and section 0.231(b) of the Commission's Rules. Since this amendment is a matter of agency organization procedure or practice, the notice and comment and effective date provisions of the Administrative Procedure Act do not apply. See 5 U.S.C. 553(b)(A)(d). For this reason, this rulemaking is not subject to the Congressional Review Act and will not be reported to Congress and the Government Accountability Office. See 5 U.S.C. 801.
4. Accordingly,
5. Persons having questions on this matter should contact Judith B. Herman at (202) 418–0214 or email to
Reporting and recordkeeping requirements.
Accordingly, 47 CFR part 0 is amended as follows:
Sec. 5, 48 Stat. 1068, as amended; 47 U.S.C. 155, 225, unless otherwise noted.
(a)
(b)
Federal Communications Commission.
Final rule.
This document amends the Commission's rules to provide a more efficient use of the 76–77 GHz band, and to enable the automotive and aviation industries to develop enhanced safety measures for drivers and the general public. Specifically, the Commission is eliminating the in-motion and not-in-motion distinction for vehicular radars, and instead adopting new uniform emission limits for forward, side, and rear-looking vehicular radars. This will facilitate enhanced vehicular radar technologies to improve collision avoidance and driver safety. The Commission is also amending its rules to allow the operation of fixed radars at airport locations in the 76–77 GHz band for purposes of detecting foreign object debris on runways and monitoring aircraft and service vehicles on taxiways and other airport vehicle service areas that have no public vehicle access. The Commission takes this action in response to petitions for rulemaking filed by Toyota Motor Corporation (“TMC”) and Era Systems Corporation (“Era”).
Effective September 12, 2012.
Aamer Zain, Office of Engineering and Technology, 202–418–2437,
This is a summary of the Commission's Report and Order, ET Docket Nos. 11–90, 10–28, FCC 11–171, adopted July 3, 2012 and released July 5, 2012. The full text of this document is available for inspection and copying during normal business hours in the FCC Reference Center (Room CY–A257), 445 12th Street SW., Washington, DC 20554. The complete text of this document also may be purchased from the Commission's copy contractor, Best Copy and Printing, Inc., 445 12th Street SW., Room, CY–B402, Washington, DC 20554. The full text may also be downloaded at:
1. In the Report and Order (Order), the Commission modified §§ 15.35 and 15.253 of the rules to enable enhanced vehicular radar technologies in the 76–
2. The Commission also modified § 15.253 to allow fixed radar applications in the 76–77 GHz band at airport locations. These fixed radars can detect foreign object debris (FOD) on runways and monitor aircraft traffic as well as service vehicles on taxiways and other airport vehicle service areas that have no public access. The modifications to the rules that the Commission adopted will provide more efficient use of the spectrum, and enable the automotive and aviation industries to develop enhanced safety measures for drivers and the general public.
3. The 76–77 GHz band, which is allocated to the Radio Astronomy service (RAS) and the Radiolocation service on a primary basis and to the Amateur and Space research (space-to-Earth) services on a secondary basis, is in the region of the radiofrequency spectrum known as “millimeter wave” spectrum. The frequencies above 30 GHz are commonly called millimeter wave frequencies because of their wavelength. At these frequencies, radio propagation decreases more rapidly with distance than at other frequencies and antennas that can narrowly focus transmitted energy are practical and of modest size. While the limited range of such transmissions might appear to be a major disadvantage for many applications, it does allow the reuse of frequencies within very short distances and, thereby enables a higher concentration of transmitters to be located in a geographical area than is possible at lower frequencies.
4. On July 21, 2009, the Toyota Motor Corporation (TMC) filed a petition for rulemaking requesting that the Commission modify the emission limits for vehicular radar systems operating within the 76–77 GHz band. Specifically, TMC requested that the Commission eliminate the in-motion and not-in-motion distinctions in the emission limits for vehicular radar systems and establish a single emission limit that applies in all directions from a vehicle. On September 8, 2009, Era filed comments in CB Docket No. 09–102 requesting that the Commission amend § 15.253 to permit fixed use of 76–77 GHz radars at airports for monitoring air traffic and airport service vehicles only. Emissions from these fixed radars would not illuminate any public access roads.
5. On May 24, 2011, the Commission issued a
6. The Commission finds that the 76–77 GHz band is well suited for unlicensed use by vehicular radar technologies and by fixed radar systems limited to airport locations, and are adopting the proposed modifications to §§ 15.35 and 15.253 accordingly. The modifications to the rules that the Commission adopted are intended to foster the development of improved radar systems that will offer significant safety benefits to the public. Studies show that use of collision avoidance technology can prevent or lessen the severity of a significant number of traffic accidents. By modifying our rules for 76–77 GHz radars to align generally with international automotive industry standards, the Commission expects these life-saving devices to be placed on more passenger vehicles by enabling economies of scale. Furthermore, it believes that the changes in power levels and use as discussed will not result in a significant increase in the potential of interference to other users of the 76–77 GHz band. The Commission notes that these rule changes facilitate expanded use of existing technologies and do not appear to impose any new costs. While no party has provided any specific data, these technologies have the potential to help avoid accidents thereby save lives and damage to property.
7. The Commission also finds that the use of 76–77 GHz fixed radars at airports for detecting foreign objects on runways, as well as for monitoring aircraft and service vehicles on taxiways and other airport vehicle service areas that have no public access (
8.
9.
10. The Commission finds that the new set of emission limits will not measurably increase potential for interference from vehicular radar systems to RAS operations in the 76–77 GHz band. First, the reduced peak limit adopt for vehicular radars will increase the level of interference protection afforded to RAS system because it is lower than the current peak limit. Second, the average power limit is being increased by only 1.7 dB from the current maximum for vehicular radars in the 76–77 GHz band, i.e., from 48.3 dBm to 50 dBm. Under worst-case free space conditions a 1.7 dB increase is only a 1.2-fold increase in signal range. The very short distances that these radars operate under, plus the propagation characteristics of the band, translate in practice to a minimal increase in interference potential that the Commission does not believe will yield any increase in actual interference to RAS operations. Because the radio astronomy observatories typically have control over access to a distance of one kilometer from the telescopes to provide protection from interference caused by automobile spark plugs and other uncontrolled RFI sources, the potential for interference caused by the incremental increase in average power limits at that distance (one kilometer) would be negligible. Furthermore, the effect of an increase in average power level of 1.7 dB is negligible when also taking into account the variability in propagation characteristics due to terrain, weather and other propagation factors.
11. The Commission agrees with the automotive industry that given the horizontal direction of vehicular radar beams, the propagation characteristics of terrain and the geographical location of the RAS equipment, the modified emission limits pose no additional risk of interference or damage to the RAS equipment compared to the current rules. Accordingly, it believes that there is no need to restrict vehicular radar systems based on coordination zones or to impose requirements for a GPS-aware automatic or a user operated cut-off switch.
12. The National Telecommunications and Information Administration (NTIA) noted that the National Science Foundation (NSF)-sponsored a study documenting measurements performed jointly by representatives from the radio astronomy community and several vehicular radar manufacturers. The measurements performed using the University of Arizona's 12 Meter Telescope located at Kitt's Peak examined the impact that vehicular radar emissions would have on radio astronomy installations. Emissions of two different vehicular radars manufactured by Robert Bosch GmbH and Continental Corporation were measured in the adjacent 77–80 GHz band. The measurements of the emissions from a single vehicular radar system at two distances (1.7 km and 26.9 km from the radio astronomy installation) indicated that the received signal level at the radio astronomy installation exceeded the protection criteria specified in Recommendation International Telecommunication Union Radiocommunications Sector (ITU–R) RA.769–2. The study acknowledges that mitigation factors such as terrain shielding, orientation of the vehicular radar transmitter antenna with respect to the observatory, or attenuation of the vehicular radar transmitter if mounted behind the vehicle bumper were not taken into account and would tend to reduce the distance at which interference occurred. NTIA requested that this study be included as part of the public record for this proceeding, and asked that the Commission encourage the radio astronomy community and the vehicular radar manufacturers to continue this cooperative effort to examine and implement mitigation techniques that can be employed to address the potential interference concerns. The Commission recognizes the concerns of the radio astronomy community in both the 76–77 GHz band at issue in this proceeding and in the 77–80 GHz band examined in the study. As discussed, the Commission's rules have permitted vehicular radars to operate in the 76–77 GHz band since 1995. Further, it expects any increase in potential interference in the 76–77 GHz band as a result of the technical rules changes the Commission makes here to be negligible when compared to the overall effect caused by the variability in propagation characteristics due to terrain, weather and other propagation factors. The Commission has not found anything in the NSF study that suggests that the increase in the potential for harmful interference resulting from these rule revisions will not be negligible. Further, it always encourage cooperation between parties with respect to compatibility of systems that use the radio spectrum, thus we specifically encourage continued cooperation between the radio astronomy community and the vehicular radar industry.
13. Finally, the Commission agrees with the commenters that there has been significant growth in the use of automobile radar systems, and it anticipates that these systems will become relatively commonplace within a few years because of consumer demand for increased vehicle safety. The Commission believes that these developments will make automotive safety and convenience more affordable and readily available to the public, as the automotive industry will be able to develop new and improved vehicular radars with no measurable increase in potential interference to licensed services.
14.
15. The Commission sought comment on whether it should allow unlicensed fixed radar applications to operate within the 76–77 GHz band at the same power levels as those proposed for vehicular radars. The Commission also
16.
17.
18. Moreover, airports are challenged with managing increasing congestion on the ground. This rule modification will add to the tools that enhance an airport's ability to determine the location of airplanes and airport ground vehicles that are operating in taxiways and runways. The presence of FOD in an airport's air operations area (AOA) poses a significant threat to the safety of air travel. Foreign object debris on taxiways and runways has the potential to damage aircraft during the critical phases of takeoffs and landings, which can lead to catastrophic loss of life and at the very least increased maintenance and operating costs. This rule modification will help reduce FOD hazards through the implementation of a FOD management program and the effective use of FOD detection and removal equipment.
19. The Commission disagrees with the commenters who state that only vehicular radars should be allowed to operate under the part 15 rules. It concludes that both vehicular radars and fixed radars at airports, under the limited circumstances we are providing for here, will be able to operate successfully in the 76–77 GHz band. Airport runways, taxiways and other non-public areas at airports are generally not near public roadways, and fixed radars at airports should not illuminate public roadways in the vicinity. With respect to the use of fixed radars outside of airports, we continue to believe that vehicular radars should be able to share the band with fixed radars operating at the same levels and note that there are no conclusive test results indicating that there would be incompatibility issues between the two types of radars. The Commission recognizes, however, that no parties have come forward to support fixed radar applications beyond airport locations in this band. Therefore, in the absence of a clear demand, the Commission is not adopting provisions for unlicensed fixed radar operations outside of airport locations in the 76–77 GHz band at this time.
20. This document does not contain a proposed information collection(s) subject to the Paperwork Reduction Act of 1995 (PRA, Pub. L. 104–13). In addition, therefore, it does not contain any new or modified information collection burden for small business concerns with fewer than 25 employees, pursuant to the Small Business Paperwork Relief Act of 2002, Public Law 107–198,
21. As required by the Regulatory Flexibility Act (RFA),
22. On May 24, 2011, the Commission released a NPRM seeking comments regarding petitions for rulemaking filed by Toyota Motor Corporation (TMC) and Era Systems Corporation (Era) requesting modifications to § 15.253 of the rules for vehicular radar systems operating in the 76–77 GHz band. Vehicular radars can determine the exact distance and relative speed of objects in front of, beside, or behind a car to improve the driver's ability to perceive objects under bad visibility conditions or objects that are in blind spots. Some examples of vehicular radar systems include collision warning and mitigation systems, blind spot detection systems, lane change assist and parking aid systems. The NPRM proposed to eliminate the requirement that vehicular radars decrease power when the vehicle on which the radar is mounted is stopped, or not in motion, and to expand the use of unlicensed 76–77 GHz band radars to fixed infrastructure systems. These modifications to the rules will provide more efficient use of spectrum, and enable the automotive radar application industries and fixed radar applications, operating at airports only, to develop enhanced safety measures for drivers and the general public. In addition, these modifications would make the rules governing the vehicle radars in United States more comparable to those outside the United States and benefit the automotive and aviation industries in terms of enabling new product development and cost reduction.
23. There were no public comments filed that specifically addressed the rules and policies in the IRFA.
24. Pursuant to the Small Business Jobs Act of 2010, the Commission is required to respond to any comments filed by the Chief Counsel for Advocacy of the Small Business Administration, and to provide a detailed statement of any change made to the proposed rules as a result of those comments. The Chief Counsel did not file any comments in response to the proposed rules in this proceeding.
25. Our action may, over time, affect small entities that are not easily categorized at present. We therefore describe here, at the outset, three comprehensive, statutory small entity size standards.
26. This Economic Census category “comprises establishments primarily engaged in broadcasting aural programs by radio to the public. Programming may originate in their own studio, from an affiliated network, or from external sources.”
27. We note, however, that in assessing whether a business concern qualifies as small under the above size standard, business affiliations must be included.
28. Radars operating in the 76–77 GHz band are required to be authorized under the Commission's certification procedure as a prerequisite to marketing and importation, and the Report and Order proposes no change to that requirement.
29. The RFA requires an agency to describe any significant alternatives that it has considered in reaching its proposed approach, which may include the following four alternatives (among others): (1) The establishment of differing compliance or reporting requirements or timetables that take into account the resources available to small entities; (2) the clarification, consolidation, or simplification of compliance or reporting requirements under the rule for small entities; (3) the use of performance, rather than design, standards; and (4) an exemption from coverage of the rule, or any part thereof, for small entities.
30. At this time the Commission believes that the new rules adopted in this Report and Order are deregulatory in nature, which we expect will simplify compliance requirements for all parties, particularly small entities, and permit the development of improved radar systems. Elimination of requirement for radars to reduce power when a vehicle is not in motion will simplify equipment design, and establishment of a single emission limit that applies in all directions from a vehicle would allow the development of omni-directional monitoring systems. The allowance of unlicensed fixed radar systems in the 76–77 GHz band at airport locations only along with the unlicensed vehicular radars will improve spectrum efficiency and promote collaboration for shared unlicensed spectrum. We believe that the adopted rules will apply equally to large and small entities. Therefore, there is no inequitable impact on small entities.
31. The Commission will send a copy of the Report and Order, including this FRFA, in a report to Congress pursuant to the Congressional Review Act.
32. Pursuant to sections 1, 2, 4(i), 301, 302, and 303(f) of the Communications Act of 1934, 47 U.S.C. 151, 152, 154(i), 301, 302a, and 303(f), that this Report and Order is hereby
33. The Commission's Consumer and Governmental Affairs Bureau, Reference Information Center,
34.
Communications equipment, Radio.
For the reasons set forth in the preamble, the Federal Communications Commission amends part 15 of Title 47 of the Code of Federal Regulations to read as follows:
47 U.S.C. 154, 302a, 303, 304, 307, 336, 544a and 549.
(b) Unless otherwise specified, on any frequency or frequencies above 1000 MHz, the radiated emission limits are based on the use of measurement instrumentation employing an average detector function. Unless otherwise specified, measurements above 1000 MHz shall be performed using a minimum resolution bandwidth of 1 MHz. When average radiated emission measurements are specified in this part, including average emission measurements below 1000 MHz, there also is a limit on the peak level of the radio frequency emissions. Unless otherwise specified,
(a) Operation within the band 46.7–46.9 GHz is restricted to vehicle-mounted field disturbance sensors used as vehicle radar systems. The transmission of additional information, such as data, is permitted provided the primary mode of operation is as a vehicle-mounted field disturbance sensor. Operation under the provisions of this section is not permitted on aircraft or satellites.
(b) The radiated emission limits within the bands 46.7–46.9 GHz are as follows:
(1) If the vehicle is not in motion, the power density of any emission within the bands specified in this section shall not exceed 200 nW/cm
(2) For forward-looking vehicle mounted field disturbance sensors, if the vehicle is in motion the power density of any emission within the bands specified in this section shall not exceed 60 μW/cm
(3) For side-looking or rear-looking vehicle-mounted field disturbance sensors, if the vehicle is in motion the power density of any emission within the bands specified in this section shall not exceed 30 μW/cm
(4) The provisions in § 15.35 limiting peak emissions apply.
(c) Operation within the band 76.0–77.0 GHz is restricted to vehicle-mounted field disturbance sensors used as vehicle radar systems and to fixed radar systems used at airport locations for foreign object debris detection on runways and for monitoring aircraft as well as service vehicles on taxiways and other airport vehicle service areas that have no public vehicle access. The transmission of additional information, such as data, is permitted provided the primary mode of operation is as a field disturbance sensor. Operation under the provisions of this section is not permitted on aircraft or satellites.
(d) The radiated emission limits within the band 76.0–77.0 GHz are as follows:
(1) The average power density of any emission within the bands specified in this section shall not exceed 88 µW/cm
(2) The peak power density of any emission within the band 76–77 GHz shall not exceed 279 µW/cm
(e) The power density of any emissions outside the operating band shall consist solely of spurious emissions and shall not exceed the following:
(1) Radiated emissions below 40 GHz shall not exceed the general limits in § 15.209.
(2) Radiated emissions outside the operating band and between 40 GHz and 200 GHz shall not exceed the following:
(i) For field disturbance sensors operating in the band 46.7–46.9 GHz: 2 pW/cm
(ii) For field disturbance sensors operating in the band 76–77 GHz: 600 pW/cm
(3) For radiated emissions above 200 GHz from field disturbance sensors operating in the 76–77 GHz band: the power density of any emission shall not exceed 1000 pW/cm
(4) For field disturbance sensors operating in the 76–77 GHz band, the spectrum shall be investigated up to 231 GHz.
(f) Fundamental emissions must be contained within the frequency bands specified in this section during all conditions of operation. Equipment is presumed to operate over the temperature range −20 to +50 degrees Celsius with an input voltage variation of 85% to 115% of rated input voltage, unless justification is presented to demonstrate otherwise.
(g) Regardless of the power density levels permitted under this section, devices operating under the provisions of this section are subject to the radiofrequency radiation exposure requirements specified in §§ 1.1307(b), 2.1091 and 2.1093 of this chapter, as appropriate. Applications for equipment authorization of devices operating under this section must contain a statement confirming compliance with these requirements for both fundamental emissions and unwanted emissions. Technical information showing the basis for this statement must be submitted to the Commission upon request.
Federal Communications Commission.
Final rule.
In this document, the Federal Communications Commission (Commission) determines that the four factors contained in section 713(e) of the Communications Act of 1934, as amended (Act) will continue to apply when evaluating individual requests for closed captioning exemptions under section 713(d)(3) and our corresponding rules, notwithstanding a change in terminology in the statute, enacted by the Twenty-First Century Communications and Video Accessibility Act of 2010 (CVAA), which replaced the term “undue burden” in that section with the term “economically burdensome.” The Order further amends the Commission's rules to replace all current references to “undue burden” with the term “economically burdensome.” These rule amendments correspond with the new statutory language in the CVAA requiring petitioners seeking individual closed captioning exemptions under section 713(d)(3) of the Act to show that providing captions on their programming would be economically burdensome.
Effective September 12, 2012.
Karen Peltz Strauss, Deputy Chief, Consumer and Governmental Affairs Bureau; phone: (202) 418–2388; email:
This is a summary of the Commission's Report and Order, document FCC 12–83, adopted on July 19, 2012, and released on July 20, 2012. The full text of document FCC 12–83 is available for inspection and copying during normal business hours in the FCC Reference Information Center, Room CY–A257, 445 12th Street SW., Washington, DC 20554. The complete text may be purchased from the Commission's duplicating contractor, Best Copy and Printing, Inc. (BCPI), Portals II, 445 12th Street SW., Room CY–B402, Washington, DC 20554, (202) 488–5300, facsimile (202) 488–5563, or via email at
Document FCC 12–83 does not contain new or modified information collection(s) subject to the Paperwork Reduction Act of 1995 (PRA), Public Law 104–13. In addition, therefore, it does not contain any new or modified information collection burden for small business concerns with fewer than 25 employees, pursuant to the Small Business Paperwork Relief Act of 2002, Public Law 107–198,
1. In 1996, Congress added section 713 to the Act (47 U.S.C. 613) establishing requirements for closed captioning on video programming to ensure access by persons with hearing disabilities to television programming and directing the Commission to prescribe rules to carry out this mandate. The Commission's closed captioning rules currently require video programming distributors to caption one-hundred percent of all new, non-exempt English and Spanish language programming.
2. Section 713 of the Act authorizes the Commission to grant individual exemptions from the closed captioning requirements. As originally enacted, section 713 of the Act authorized the Commission to grant individual closed captioning exemptions on a case-by-case basis upon a showing that the provision of closed captions would “result in an undue burden.” 47 U.S.C. 613(d)(3). Section 713(e) of the Act defined “undue burden” to mean “significant difficulty or expense,” and directed the Commission to consider four factors in making an undue burden determination. Those factors are: (1) The nature and cost of the closed captions for the programming; (2) the impact on the operation of the provider or program owner; (3) the financial resources of the provider or program owner; and (4) the type of operations of the provider or program owner.
3. In October 2010, Congress adopted the CVAA, in which it amended section 713(d)(3) of the Act by replacing the “undue burden” terminology with the term “economically burdensome.” Congress did not change the definition of “undue burden” contained in section 713(e) of the Act or the four factors to be considered in evaluating individual petitions. As a result, on October 20, 2011, the Commission adopted an
4. In response to the NPRM, the Commission received a single comment filed jointly by Telecommunications for the Deaf and Hard of Hearing, Inc., the National Association of the Deaf, the Deaf and Hard of Hearing, the Consumer Advocacy Network, the Association of Late-Deafened Adults, the Hearing Loss Association of America, and the Cerebral Palsy and Deaf Organization (Consumer Groups). Consumer Groups agreed with the Commission's proposed interpretation of the economically burdensome standard and concluded that it was consistent with Congress's expressed and unambiguous intent.
5. In document FCC 12–83, the Commission concludes that, for purposes of evaluating individual exemptions under section 713(d)(3) of the Act, Congress intended the term “economically burdensome” to be synonymous with the term “undue burden” as defined by section 713(e) of the Act and as interpreted and applied in Commission rules and precedent. This conclusion is supported by the CVAA itself, which preserves, unchanged, the language in section 713(e) defining an “undue burden” and enumerating the factors to be considered in an “undue economic burden” analysis, and by the CVAA's legislative history, which encouraged the Commission in its determination of “economically burdensome” petitions to continue using these factors in assessing individual exemption requests.
6. Accordingly, document FCC 12–83 concludes that in changing the terminology from “undue burden” to “economically burdensome” in section 713(d)(3) of the Act, Congress did not intend any substantive change to the criteria that the Commission consistently has used for individual closed captioning petitions. It notes that this interpretation is consistent with the manner in which the Commission has interpreted the term “economically burdensome” in other recent Commission rules adopted pursuant to the CVAA governing the delivery of closed captioning on video programming delivered using Internet
7. The Regulatory Flexibility Act of 1980, as amended (RFA), (5 U.S.C. 601–612, as amended by the Small Business Regulatory Enforcement Fairness Act of 1996, Public Law 104–121, Title II, 110 Stat. 857 (1996)), requires that a regulatory flexibility analysis be prepared for notice-and-comment rule making proceedings, unless the agency certifies that “the rule will not, if promulgated, have a significant economic impact on a substantial number of small entities” (5 U.S.C. 605(b)). The RFA generally defines the term “small entity” as having the same meaning as the terms “small business,” “small organization,” and “small governmental jurisdiction” (5 U.S.C. 601(6)). In addition, the term “small business” has the same meaning as the term “small business concern” under the Small Business Act (5 U.S.C. 601(3)). A “small business concern” is one which: (1) Is independently owned and operated; (2) is not dominant in its field of operation; and (3) satisfies any additional criteria established by the Small Business Administration (SBA) (15 U.S.C. 632).
8. In document FCC 12–83, the Commission conforms the terminology used in § 79.1(f) of the Commission's rules to the requirements of section 202 of the CVAA. Under the rule amendments adopted herein, a petitioner seeking an exemption from the closed captioning requirements will have to demonstrate that compliance with such captioning requirements would be “economically burdensome” as mandated by the CVAA. Prior to this amendment, the Act and our rules required a petitioner to show that complying with the captioning requirements would constitute an “undue burden.” In mandating this change in terminology, the Commission concludes that Congress intended no substantive change to the factors used to evaluate individual petitions for closed captioning exemptions. Because no substantive changes to the Commission's rules or procedures were contemplated by the NPRM, the Commission concluded in the NPRM that the proposed change in our rules to reflect the terminology adopted by Congress in section 202 of the CVAA would have no economic impact on small business entities or consumers and included in the NPRM an Initial Regulatory Flexibility Certification.
9. No comments were received concerning the Certification, and the
10. The Commission will send a copy of document FCC 12–83, including a copy of this Final Regulatory Flexibility Certification, in a report to Congress pursuant to the Congressional Review Act (5 U.S.C. 801(a)(1)(A)).
11. Pursuant to sections 4(i), 303(r) and 713 of the Communications Act of 1934, as amended, 47 U.S.C. 154(i), 303(r) and 613, document FCC 12–83
12. The Commission's Consumer and Governmental Affairs Bureau, Reference Information Center,
13. The Commission's Consumer and Governmental Affairs Bureau, Reference Information Center,
Cable television, Closed captioning.
For the reasons discussed in the preamble, the Federal Communications Commission amends 47 part 79 as follows:
47 U.S.C. 151, 152(a), 154(i), 303, 309, 310, 330, 544a, 613, 617.
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(2)
(f)
(2) A petition for an exemption must be supported by sufficient evidence to demonstrate that compliance with the requirements to closed caption video programming would be economically burdensome. The term “economically burdensome” means significant difficulty or expense. Factors to be considered when determining whether the requirements for closed captioning are economically burdensome include:
(i) The nature and cost of the closed captions for the programming;
(ii) The impact on the operation of the provider or program owner;
(iii) The financial resources of the provider or program owner; and
(iv) The type of operations of the provider or program owner.
(3) In addition to these factors, the petition shall describe any other factors the petitioner deems relevant to the Commission's final determination and any available alternatives that might
(4) An original and two (2) copies of a petition requesting an exemption based on the economically burdensome standard, and all subsequent pleadings, shall be filed in accordance with § 0.401(a) of this chapter.
(10) The Commission may deny or approve, in whole or in part, a petition for an economically burdensome exemption from the closed captioning requirements.
(11) During the pendency of an economically burdensome determination, the video programming subject to the request for exemption shall be considered exempt from the closed captioning requirements.
National Highway Traffic Safety Administration (NHTSA), Department of Transportation (DOT).
Final rule; grant of petition for reconsideration.
This document responds to a petition for reconsideration of a final rule issued by this agency on May 13, 2011. The final rule amended the Federal Motor Vehicle Safety Standard for motorcycle helmets. Specifically, the final rule amended the helmet labeling requirements and compliance test procedures in order to make it more difficult to misleadingly label novelty helmets and to aid the agency in enforcing the standard. This document addresses issues raised in a petition for reconsideration relating to early compliance with the amended requirements.
Petitions for reconsideration must be received by September 27, 2012.
Petitions for reconsideration must be submitted to: Administrator, National Highway Traffic Safety Administration, 1200 New Jersey Avenue SE., Washington, DC 20590.
On May 13, 2011, NHTSA published a final rule amending the helmet labeling requirements and compliance test procedures of FMVSS No. 218,
Two petitions for reconsideration, each dated June 23, 2011, were received from the Motorcycle Industry Council (MIC), a not-for-profit national trade association representing manufacturers and distributors of motorcycles and motorcycle parts and accessories, as well as members of allied trades. The first petition requested that the agency include in the preamble a statement permitting voluntary early compliance prior to the effective date of May 13, 2013. This document responds to that petition.
The second petition requested that the definition of “discrete size” in FMVSS No. 218 be amended by adding language requiring that this value reflect the actual size of the helmet. MIC also submitted a clarification of its second petition, which noted various issues regarding the measurement of “discrete size.” The agency will respond to this petition in a separate, forthcoming document.
MIC requested that the agency include in the preamble a statement permitting voluntary early compliance prior to the effective date of May 13, 2013, stating that such a provision is usually included in final rules with safety benefits. MIC asserted that allowing immediate voluntary compliance would serve to accelerate the goals of the rule and would provide needed flexibility to motorcycle helmet manufacturers seeking to introduce helmets complying with the amended requirements on a gradual basis, rather than having to stockpile inventory until the effective date.
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Final rule; correcting amendment.
On May 21, 2012, we published a final rule to revise the turtle excluder devices (TEDs) requirements to allow new materials and to modify existing approved TED designs. In this notice, we are correcting a technical error in the definition of a brace bar included in the allowable modifications to hard TEDs and special hard TEDs.
NMFS, Southeast Regional Office, Protected Resources Division, 263 13th Avenue South, St. Petersburg, FL 33701–5505.
Michael Barnette, NMFS, Southeast Regional Office, and the address above, or at (727) 551–5794.
On May 21, 2012 (77 FR 29905), we published a final rule revising the TED requirements to allow the use of new materials and to modify existing approved TED designs. The definition of a brace bar included as an allowable modification was wrong, however, and must be corrected. Specifically, the previous definition incorrectly required the brace bar to be permanently attached to the frame and rear face of each of the deflector bars within 4 inches (10.2 cm) of the midpoint of the TED frame. This requirement is explicit only for TEDs constructed of steel or aluminum flat bar less than
Accordingly, the final rule published on May 21, 2012 (77 FR 29905), is corrected and is effective upon publication. On page 29909, column 3, paragraph (d)(9) is corrected.
Endangered and threatened species, Exports, Imports, Transportation.
For the reasons set out in the preamble, 50 CFR part 223 is amended by making the following corrected amendment:
16 U.S.C. 1531–1543; subpart B, § 223.201–202 also issued under 16 U.S.C. 1361
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(9)
Nuclear Regulatory Commission.
Public meeting.
The U.S. Nuclear Regulatory Commission (NRC or the Commission) plans to conduct a workshop on performance assessments of near-surface low-level radioactive waste (LLW) disposal facilities. The workshop has been developed to facilitate communication among Federal and State agencies, industry representatives, contractors, and members of the public on three aspects of a performance assessment: (1) Features, Events, and Processes (FEPs) analysis, (2) the development of scenarios and conceptual models, and (3) the selection of computer codes. Information gathered from invited subject matter experts, stakeholders, and other interested members of the public will be used to improve guidance on performance assessments for near-surface disposal of LLW.
The workshop will be held on August 29 and August 30, 2012.
The public meeting will be held (registration begins at 7:30 a.m.) at the NRC Auditorium, 11545 Rockville Pike, Rockville, Maryland 20852. The NRC welcomes active participation from those attending. Members of the public will be able to participate via telephone and webinar. The telephone and webinar information is provided below.
George Alexander, Office of Federal and State Materials and Environmental Management Programs, U.S. Nuclear Regulatory Commission, Washington, DC 20555–0001; telephone: 301–415–6755; email:
Please refer to Docket ID NRC–2011–0012 when contacting the NRC about the availability of information regarding this document. You may access information related to this document, which the NRC possesses and are publicly-available, using any of the following methods:
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• Information related to the workshop will be made available on the NRC's Web site. Information on the Web site will include any updates to the workshop, the final agenda, workshop presentations, and a video recording of the workshop.
The Commission's licensing requirements for the disposal of LLW in near-surface [approximately the uppermost 30 meters (100 feet)] facilities reside in Title 10 of the
The purpose of this public meeting is to facilitate communication and gather information from Federal and State agencies, industry representatives, contractors, and members of the public concerning performance assessments of near-surface disposal facilities. Stakeholders and other interested members of the public will have an opportunity to pose questions directly to presenters and panelists in each of the sessions. Information gathered in the meeting will be used to improve guidance on performance assessments for near-surface disposal of LLW. The workshop will be organized into four sessions comprising a series of presentations followed by panel discussions of invited subject matter experts. The workshop sessions are as follows:
• Session 1: Performance Assessment Overview: US and International Approaches to Performance Assessment and Experiences with Analyses for LLW
• Session 2: Analysis of FEPs for Near-Surface Disposal Facilities
• Session 3: Scenario and Conceptual Model Development
• Session 4: Code Selection and Implementation, Model Abstraction, and Confidence Building Activities
The public meeting will be held on August 29 and August 30, 2012, from 8:00 a.m. to 5:00 p.m. (registration begins at 7:30 a.m.) in the Auditorium on Level P1 at NRC Headquarters, 11545 Rockville Pike, Rockville, Maryland 20852. Pre-registration for this meeting
Date and Time: August 29, 2012 8:00 a.m. to 5:00 p.m.
Telephone Number: 1–888–469–3043.
Access Code: 23678.
Webinar Address:
Date and Time: August 30, 2012 8:00 a.m. to 5:00 p.m.
Telephone Number: 1–888–942–8392.
Access Code: 85687.
Webinar Address:
Members of the public interested in participating via webinar should follow the registration link above. After registering, instructions for joining the Webinar (including a teleconference number and pass code) will be provided via email. All participants will be in “listen-only” mode during the presentation. Participants will have a chance to pose questions either orally after the presentation or in writing during the Webinar.
The agenda for the public meeting will be noticed no fewer than 10 days prior to the meeting on the NRC's Public Meeting Schedule Web site at
Questions about participation in the public meetings should be directed to the points of contact listed in the
For the Nuclear Regulatory Commission.
Office of Energy Efficiency and Renewable Energy, Department of Energy.
Notice of public meeting and availability of the framework document.
The Department of Energy (DOE) issues a framework document to consider whether to amend the energy and water conservation standards for commercial clothes washers. DOE also announces a public meeting to discuss and receive comments on issues that it will address in this rulemaking proceeding. DOE is initiating data collection for considering amended energy and water conservation standards for commercial clothes washers. DOE also encourages written comments on potential amended standards, including comments on the issues identified in the framework document. The framework document, which is intended to inform stakeholders and facilitate the rulemaking process, is available at
DOE will hold a public meeting on September 24, 2012, from 9 a.m. to 12 p.m. in Washington, DC. Any person requesting to speak at the public meeting should submit such request along with a signed original and an electronic copy of the statements to be given at the public meeting before 4:00 p.m., September 10, 2012. Written comments are welcome, especially following the public meeting, and should be submitted by October 12, 2012.
The public meeting will be held at the U.S. Department of Energy, Forrestal Building, Room 8E–089, 1000 Independence Avenue SW., Washington, DC 20585–0121. Please note that foreign nationals participating in the public meeting are subject to advance security screening procedures. If a foreign national wishes to participate in the public meeting, please inform DOE of this fact as soon as possible by contacting Ms. Brenda Edwards at (202) 586–2945 so that the necessary procedures can be completed.
Stakeholders may submit comments, identified by docket number EERE–2012–STD– 0020 and/or Regulation Identifier Number (RIN) 1904–AC77, by any of the following methods:
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For further information on how to submit or review public comments or view hard copies of the docket in the Resource Room, contact Ms. Brenda Edwards at (202) 586–2945 or email:
The Energy Policy and Conservation Act of 1975 (EPCA) established an energy conservation program for consumer products. (42 U.S.C. 6291–6309) The National Energy Conservation Policy Act of 1978 amended EPCA to add Part C of Title III, which established an energy conservation program for certain industrial equipment. (42 U.S.C. 6311–6317) (Part C was re-designated Part A–1 on codification in the U.S. Code, for editorial reasons.) The Energy Policy Act of 2005 (EPACT 2005), Public Law 109–58, further amended
EPACT 2005 established the first energy conservation standards for commercial clothes washers, requiring commercial clothes washers manufactured on or after January 1, 2007 to have a modified energy factor (MEF) of at least 1.26 and a water factor (WF) of no more than 9.5. (42 U.S.C. 6313(e)(1); 10 CFR 431.156) EPACT 2005 further directed DOE to conduct two rulemaking cycles to determine whether to amend these standards. EPCA required completion of the first rulemaking by January 1, 2010, and DOE must complete the second rulemaking by January 1, 2015. (42 U.S.C. 6313(e)).
DOE completed the first rulemaking when it issued a final rule to amend the standards for commercial clothes washers on December 18, 2009. (75 FR 1122, January 8, 2010). Compliance with the amended standards is required as of January 8, 2013. The January 2010 final rule established revised standards for two separate product classes: top-loading and front-loading commercial clothes washers. These standards were based on the MEF and WF metrics.
This current rulemaking will satisfy the requirement to publish the second final rule by January 1, 2015. Compliance with any amended standards would be required three years after the date of publication of the final standards.
EPCA requires that CCWs use the same test procedures as residential clothes washers. (42 U.S.C. 6314(a)(8)) DOE published a final rule amending its clothes washer test procedures on March 7, 2012. (“March 2012 final rule”). (77 FR 13888) The March 2012 final rule amended the test procedure at 10 CFR part 430, subpart B, appendix J1 and established a new test procedure at Appendix J2. Manufacturers of both commercial and residential clothes washers will be required to use the new Appendix J2 on the compliance date of the amended standards for residential clothes washers, March 7, 2015. (The amended standards for residential clothes washers were established by a direct final rule. If DOE withdraws the direct final rule on the basis of adverse comments pursuant to 42 U.S.C. 6295(p)(4), a different compliance date may be established in subsequent rulemaking action for residential clothes washers.)
The new Appendix J2 contains provisions for measuring standby mode and off mode energy use, which is factored into a new efficiency metric, integrated modified energy factor (IMEF). Appendix J2 also establishes a new water efficiency metric, integrated water factor (IWF), which provides a more representative measure of water consumption by incorporating water consumption from all the temperature cycles; in contrast, the WF metric is based on the water consumption of only the cold wash cycle.
Appendix J2 retains provisions for calculating MEF and WF; however, because of certain changes to the active mode provisions of the test procedure, MEF and WF calculated using Appendix J2 will differ from MEF and WF calculated for the same clothes washer using the current test procedure at Appendix J1. The current standard levels for commercial clothes washers are based on MEF and WF as measured using Appendix J1, and products that minimally comply with the standard as measured using Appendix J1 would likely not comply if measured using Appendix J2.
During this rulemaking, DOE will determine whether to further amend the energy conservation standards for commercial clothes washers. (42 U.S.C. 6313(e)). DOE will also consider developing correction factors that would be used to determine compliance with the MEF/WF standards effective January 8, 2013 when manufacturers are required to measure energy and water consumption using Appendix J2. Such correction factors would be used until compliance with any amended standards developed in this rulemaking was required.
EPCA requires that any new or amended energy conservation standard be designed to achieve the maximum improvement in energy or water efficiency that is technologically feasible and economically justified. To determine whether a standard is economically justified, EPCA requires that DOE determine whether the benefits of the standard exceed its burdens by considering, to the greatest extent practicable, the following:
(1) The economic impact of the standard on the manufacturers and consumers of the affected products;
(2) The savings in operating costs throughout the estimated average life of the product compared to any increases in the initial cost, or maintenance expense;
(3) The total projected amount of energy and water (if applicable) savings likely to result directly from the imposition of the standard;
(4) Any lessening of the utility or the performance of the products likely to result from the imposition of the standard;
(5) The impact of any lessening of competition, as determined in writing by the Attorney General, that is likely to result from the imposition of the standard;
(6) The need for national energy and water conservation; and
(7) Other factors the Secretary considers relevant.
(42 U.S.C. 6295 (o)(2)(B)(i) and 42 U.S.C. 6316(a))
To begin the required rulemaking process, DOE has prepared a framework document to explain the issues, analyses, and processes that it is considering for the development of amended energy conservation standards for commercial clothes washers. The framework document is available at
Additionally, DOE will hold a public meeting to focus on the analyses and issues described in the framework document. DOE encourages anyone who wishes to participate in the public meeting to view the framework document and to be prepared to discuss its contents. Public meeting participants need not limit their comments to the topics identified in the framework document; DOE is also interested in receiving views on other relevant issues that participants believe would affect energy conservation standards for this equipment. DOE welcomes all interested parties, regardless of whether they participate in the public meeting, to submit in writing comments and information on matters addressed in the framework document and on other matters relevant to consideration of standards for commercial clothes washers.
DOE will conduct the public meeting in an informal conference style. A court reporter will record the minutes of the meeting. The discussion will not include proprietary information, costs or prices, market shares, or other commercial matters regulated by U.S. antitrust laws.
After the public meeting and the expiration of the period for submitting written statements, DOE will begin collecting data, conducting the analyses as discussed at the public meeting, and reviewing public comments.
Anyone who wishes to participate in the public meeting, receive meeting materials, or be added to the DOE mailing list to receive future notices and information about the rulemaking process for commercial clothes washers
Federal Aviation Administration (FAA), DOT.
Notice of proposed rulemaking (NPRM).
We propose to supersede an existing airworthiness directive (AD) that applies to certain General Electric Company (GE) CF6–80C2 series turbofan engines. The existing AD requires replacement of the fuel tubes connected to the fuel flowmeter. Since we issued that AD, we received several additional reports of fuel leaks and two reports of engine fire due to mis-assembled supporting brackets on the fuel tube connecting the flowmeter to the Integrated Drive Generator (IDG) fuel-oil cooler. This proposed AD would require installing a new simplified one-piece bracket to eliminate mis-assembly. We are proposing this AD to prevent high-pressure fuel leaks caused by improper seating of fuel tube flanges, which could result in an engine fire and damage to the airplane.
We must receive comments on this proposed AD by October 12, 2012.
You may send comments, using the procedures found in 14 CFR 11.43 and 11.45, by any of the following methods:
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For service information identified in this AD, contact General Electric Company, GE–Aviation, Room 285, 1 Neumann Way, Cincinnati, OH 45215, phone: (513) 552–3272; email:
You may examine the AD docket on the Internet at
Jason Yang, Aerospace Engineer, Engine Certification Office, FAA, Engine & Propeller Directorate, 12 New England Executive Park, Burlington, MA 01803; phone: 781–238–7747; fax: 781–238–7199; email:
We invite you to send any written relevant data, views, or arguments about this proposed AD. Send your comments to an address listed under the
We will post all comments we receive, without change, to
On February 17, 2000, we issued AD 2000–04–14, Amendment 39–11597 (65 FR 10698, February 29, 2000), for all GE CF6–80C2 series turbofan engines. That AD requires replacement of the fuel tube connecting the fuel flowmeter to the IDG fuel-oil cooler and the fuel tubes connecting the fuel flowmeter to the Main Engine Control (MEC) or Hydromechanical Unit (HMU) with improved fuel tubes. That AD resulted from reports of fuel leaking in the core cowl cavity under high pressure that can be ignited by contact with hot engine case surfaces. We issued that AD to prevent high-pressure fuel leaks caused by improper seating of fuel tube flanges, which could result in an engine fire and damage to the airplane.
Since we issued AD 2000–04–14, Amendment 39–11597 (65 FR 10698, February 29, 2000), we received several reports of fuel leaks and two reports of engine fire due to mis-assembled supporting brackets on the fuel tube connecting the fuel flowmeter to the IDG fuel-oil cooler. Investigation of these two fires determined the root cause was due to a design shortfall, which allowed improper installation of the two-piece bracket and subsequent fuel leaks from the fuel tube connection.
We are proposing this AD because we evaluated all the relevant information and determined the unsafe condition described previously is likely to exist or develop in other products of the same type design.
This proposed AD would require replacement of the fuel tube connecting the fuel flowmeter to the IDG fuel-oil cooler and the fuel tubes connecting the fuel flowmeter to the MEC or HMU with improved fuel tubes. This proposed AD would also require installing a simplified one-piece bracket to eliminate mis-assembly when the fuel tubes connecting the fuel flowmeter to the IDG fuel-oil cooler are disconnected.
We estimate that this proposed AD would affect 2,300 CF6–80C2 engines installed on airplanes of U.S. registry. We also estimate that one work-hour would be required per engine to accomplish the actions required by this AD. The average labor rate is $85 per work-hour. We also estimate that the required parts will cost about $180 per engine. Based on these figures, we estimate the total cost of the proposed AD to U.S. operators is $609,500.
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,
We are issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701, “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.
We have determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government.
For the reasons discussed above, I certify that the proposed regulation:
(1) Is not a “significant regulatory action” under Executive Order 12866,
(2) Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979),
(3) Will not affect intrastate aviation in Alaska, and
(4) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.
Air transportation, Aircraft, Aviation safety, Incorporation by reference, Safety.
Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows:
1. The authority citation for part 39 continues to read as follows:
49 U.S.C. 106(g), 40113, 44701.
2. The FAA amends § 39.13 by removing airworthiness directive (AD) 2000–04–14, Amendment 39–11597 (65 FR 10698, February 29, 2000), and adding the following new AD:
The FAA must receive comments on this AD action by October 12, 2012.
This AD supersedes AD 2000–04–14, Amendment 39–11597 (65 FR 10698, February 29, 2000).
This AD applies to all General Electric Company (GE) CF6–80C2 A1/A2/A3/A5/A8/A5F/B1/B2/B4/B6/B1F/B2F/B4F/B6F/B7F/D1F turbofan engines with fuel tubes, part number (P/N) 1321M42G01, 1334M88G01, 1374M30G01 or 1383M12G01, or supporting bracket, P/N 1321M88P001A, installed.
This AD was prompted by several reports of fuel leaks and two reports of fire due to mis-assembled supporting brackets on the fuel tube connecting the fuel flowmeter to the Integrated Drive Generator (IDG) fuel-oil cooler. We are issuing this AD to prevent high-pressure fuel leaks caused by improper seating of fuel tube flanges, which could result in an engine fire and damage to the airplane.
Unless already done, do the following.
After the effective date of this AD, if the fuel tubes are disconnected for any reason, or at the next engine shop visit, whichever occurs first, replace the fuel tubes and brackets with improved tubes and brackets eligible for installation. Do the following:
(1) Replace the fuel flowmeter to IDG fuel-oil cooler fuel tube, P/N 1321M42G01, with a part eligible for installation.
(2) For engines with Power Management Controls, replace the Main Engine Control (MEC) to fuel flowmeter fuel tube, P/N 1334M88G01, and bolts, P/N MS9557–12, with a part eligible for installation.
(3) For engines with Full Authority Digital Electronic Controls, replace the Hydromechanical Unit (HMU) to fuel flowmeter fuel tubes, P/Ns 1383M12G01 and 1374M30G01, with a part eligible for installation.
(4) Replace supporting bracket, P/N 1321M88P001A, and spray shields, P/Ns 1606M57G01 and 1775M61G01, with one-piece supporting bracket, P/N 2021M83G01.
(5) Perform an idle leak check after accomplishing paragraphs (f)(1), (f)(2), (f)(3) or (f)(4), or any combination thereof.
For the purpose of this AD, an engine shop visit is defined as the induction of an engine into the shop for any reason.
After the effective date of this AD, do not install any of the following parts into any GE CF6–80C2 series turbofan engines: P/Ns 1321M42G01, 1321M88P001A, 1334M88G01, 1374M30G01, 1383M12G01, 1606M57G01, 1775M61G01, and MS9557–12.
The Manager, Engine Certification Office, may approve AMOCs for this AD. Use the procedures found in 14 CFR 39.19 to make your request.
For more information about this AD, contact Jason Yang, Aerospace Engineer, Engine Certification Office, FAA, Engine & Propeller Directorate, 12 New England Executive Park, Burlington, MA 01803; phone: 781–238–7747; fax: 781–238–7199; email:
Internal Revenue Service (IRS), Treasury.
Notice of public hearing on notice of proposed rulemaking by cross-reference to temporary regulations; correction.
This document corrects a notice of public hearing on proposed rulemaking by cross-reference to temporary regulations (REG–112805–10) that was published in the
Concerning the proposed regulations, Celia Gabrysh (202) 622–3130, and regarding the submission of public comments and the public hearing, Ms. Oluwafunmilayo (Funmi) Taylor, at (202) 622–7180 (not toll-free numbers).
The notice of public hearing on a notice of proposed rulemaking by cross-reference to temporary regulations (REG–112805–10) that is the subject of this correction is under section 9008 of the Patient Protection and Affordable Care Act (ACA), Public Law 111–148 (124 Stat. 119 (2010)), as amended by
As published, REG–112805–10, contains an error that may prove to be misleading and is in need of clarification.
Accordingly, the publication of the notice of public hearing on notice of proposed rulemaking by cross-reference to temporary regulations (REG–112805–10) which was the subject of FR Doc. 2012–19074, is corrected as follows:
On page 46653, column 2, in the preamble, under the caption
Pipeline and Hazardous Materials Safety Administration (PHMSA), DOT.
Notice of proposed rulemaking.
This Notice of Proposed Rulemaking updates the administrative civil penalty maximums for violation of the pipeline safety regulations to conform to current law, updates the informal hearing and adjudication process for pipeline enforcement matters to conform to current law, amends other administrative procedures used by PHMSA personnel, and makes other technical corrections and updates to certain administrative procedures. The proposed amendments do not impose any new operating, maintenance, or other substantive requirements on pipeline owners or operators.
Persons interested in submitting written comments on the rule amendments proposed in this document must do so by September 12, 2012. PHMSA will consider comments filed after this date so far as practicable.
Comments should reference Docket No. PHMSA–2012–0102 and may be submitted in the following ways:
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All comments are posted electronically in their original form, without changes or edits, including any personal information.
Anyone can search the electronic comments associated with any docket by the name of the individual submitting the comment (or signing the comment, if submitted on behalf of an association, business, labor union, etc.). DOT's complete Privacy Act Statement was published in the
James Pates, PHMSA, Office of Chief Counsel, 202–366–0331,
Effective January 3, 2012, the Pipeline Safety, Regulatory Certainty, and Job Creation Act of 2011 (Pub. L. 112–90) (the Act) increased the maximum administrative civil penalties for violation of the pipeline safety laws and regulations to $200,000 per violation per day of violation, with a maximum of $2,000,000 for a related series of violations. The Act also imposed certain requirements for the conduct of informal administrative enforcement hearings including, among other things: convening hearings before a presiding official, an attorney on the staff of the Deputy Chief Counsel; providing an opportunity for a respondent to arrange for a hearing transcript; ensuring a separation of functions between agency employees involved with the investigation or prosecution of an enforcement case and those involved in deciding the case; and prohibiting ex parte communications. The Act also provided PHMSA with new enforcement authority for oil spill response plan compliance under section 4202 of the Oil Pollution Act of 1990 (33 U.S.C. 1321(j)).
In accordance with the Act, PHMSA proposes to: update the administrative civil penalty maximums and the informal hearing process for pipeline enforcement matters to conform to current law and to amend other administrative procedures used by PHMSA personnel; amend the criminal enforcement provisions to conform to current law and practice; make corrections to the special permit provisions in the procedures for adoption of rules; implement the new enforcement authority for Part 194 oil spill response plans; and make certain technical amendments and corrections. The proposed amendments do not impose any new operating, maintenance, or other substantive requirements on pipeline owners or operators.
Although current regulations already provide that hearings are held before a presiding official, section 20(a)(2) of the Act requires that PHMSA issue regulations both defining the term “presiding official” and requiring the presiding official to be an attorney on the staff of the Deputy Chief Counsel who is not engaged in investigative or prosecutorial functions. PHMSA proposes to conform to this requirement by amending the existing definition of “presiding official” in § 190.3 and by adding a new § 190.212 concerning the presiding official's powers and duties.
The proposed regulations will specify the powers and duties of the presiding official and provide that, if the dedicated presiding official is unavailable, the Deputy Chief Counsel may delegate the duties of the presiding official to another attorney in the Office of Chief Counsel who has no prior involvement in the case and who will be supervised by the Deputy Chief Counsel. PHMSA also proposes to amend § 190.211(a) to clarify that this section applies to any hearing relating to civil penalty assessments, compliance orders, safety orders, or CAOs.
Section 20(a)(1)(E) of the Act requires PHMSA to issue regulations prohibiting ex parte communications that are relevant to the question to be decided in an enforcement case. An ex parte communication is a communication between a party to a pending case and the decision maker regarding an issue in that case occurring outside the presence of the other parties and without prior notice and opportunity for all parties to provide comment or rebuttal. In the aforementioned July 12, 2011, PHMSA policy statement discussed earlier in this preamble, the agency explained that ex parte communications with the presiding official are not permitted by the operator, its counsel, or agency staff involved in the investigation and prosecution of the case. This prohibition applies to all communication regarding information, facts, or arguments involving an issue in the case, but not to routine administrative matters, such as scheduling the hearing or clarification of the enforcement process.
To incorporate this prohibition into Part 190, PHMSA proposes to add paragraph (b) to the newly created § 190.210 enjoining any party to an enforcement proceeding (e.g., respondent, agency employees serving in an investigative or prosecutorial capacity, representatives of either party, etc.) from communicating privately with the decision maker concerning information that is material to the question to be decided. Notwithstanding this addition, parties would be allowed to communicate freely with the presiding official regarding procedural or administrative issues, such as scheduling a hearing.
The current process works well both to ensure that an operator has a timely opportunity for a post-order hearing and that PHMSA acts expeditiously to render a final determination on the CAO. Therefore, PHMSA proposes to conform paragraph § 190.233(b) to current law by defining the term “expedited review” for purposes of a CAO issued without prior notice. In this proposed “expedited review,” the respondent must either request such review by answering the order in writing or by requesting a hearing. The Associate Administrator, as soon as practicable following issuance of the order, will decide whether the order should remain in effect or be terminated. Once the determination is issued, the expedited review process is
1. Amending § 190.7(a), relating to subpoenas and witness fees, to clarify that PHMSA has the authority to issue subpoenas for any reason to carry out its duties at any time, both during the investigative phase of an enforcement action and pursuant to a hearing.
2. Amending § 190.11(a)(1), relating to the availability of informal guidance on the pipeline safety regulations, to remove the requirement that “All messages will receive a response by the following business day,” since the Office of Pipeline Safety (OPS) is not always able to provide telephonic guidance or interpretive assistance on pipeline regulations by the following business day.
3. Amending § 190.11(a) to revise paragraph (a)(1) and remove paragraph (a)(2) to reflect the current practice on obtaining telephonic and internet assistance from OPS.
4. Amending § 190.11(b) to remove paragraph (b)(2) to reflect the current practice on obtaining written interpretations from OPS.
5. Amending § 190.201, relating to the purpose and scope of subpart B, to clarify that these enforcement procedures encompass the enforcement of 49 U.S.C. 60101
6. Amending § 190.203(c), relating to inspections and investigations, to clarify that an OPS request for specific information to an owner or operator may be issued at any time and is not limited to a request following an inspection.
7. Amending § 190.203(e) to provide that if a representative of DOT investigates an accident or incident involving a pipeline facility, the owner or operator of the facility must provide all records and information pertaining to the accident or incident to a representative of DOT, including integrity management plans and test results. Pursuant to this proposed change, the owner or operator of the facility would be required to provide all reasonable assistance in the investigation of the accident or incident. Civil penalties may be assessed for obstructing an OPS inspection or investigation, in accordance with section 2 of the Act.
8. Amending §§ 190.205, 190.207, 190.217, 190.219, 190.221, and 190.223, relating to enforcement actions, to provide that OPS may take varied actions under section 4202 of the Oil Pollution Act of 1990 (33 U.S.C. 1321(j)).
9. Amending § 190.211, relating to hearings, to clarify the manner in which informal hearings are conducted, including: A respondent may withdraw a hearing request in writing and, if permitted by the presiding official, supplement the record with a written submission in lieu of a hearing; a respondent must submit the material it intends to use to rebut the allegation of violation at least 10 calendar days prior to the date of the hearing; the hearing is conducted informally; OPS, as well as the respondent, may present evidence and call witnesses at a hearing; and both parties may request permission to submit additional documents after the hearing.
10. Amending § 190.211(c) to provide that all hearings in civil penalty cases under $25,000 (currently $10,000) will be held by telephone conference, unless either party requests an in-person hearing. This proposed change recognizes the increase in the size of civil penalty assessments generally and minimizes travel expense for both parties. The presiding official will also have the flexibility to order a video conference in addition to a telephonic hearing.
11. Amending § 190.211(d) to clarify that all evidentiary material on which OPS intends to rely at a hearing, to the extent possible, must be provided at respondent's request prior to a hearing in order to ensure the respondent's full access to the evidentiary record upon which final orders are based.
12. Amending § 190.213(b), relating to final orders, to clarify that the presiding official in a § 190.211 hearing case or an attorney from the Office of Chief Counsel in a non-hearing case provides a recommended decision to the Associate Administrator proposing findings on all material issues.
13. Amending § 190.213(d) and (e) to remove the provision that an operator may file a judicial appeal of a final order without first filing a petition for reconsideration. This proposed change will ensure that the parties have an administrative opportunity to correct errors prior to the filing of a judicial appeal.
14. Amending § 190.215, relating to petitions for reconsideration, by moving the language in this section to § 190.249 at the end of subpart B and expanding its scope to cover all final orders, corrective action orders, notices of amendment, and safety orders. This proposed change clarifies that a respondent must file a petition to exhaust its administrative remedies. Additionally, a proposed provision on the filing period and the standard of judicial review has been included in order to conform to 49 U.S.C. 60119.
15. Amending the existing language in § 190.215(a) that is moved to § 190.249 to remove the requirement that a respondent file multiple copies of a petition; to allow 30, rather than 20, calendar days from receipt of service of a final order to file a petition for reconsideration; and to indicate that all petitions must be filed with the Associate Administrator, with a copy to the Office of Chief Counsel.
16. Amending § 190.219, relating to consent orders, to expand this section to provide that consent orders may also be used to resolve CAOs and safety orders.
17. Amend §§ 190.223(b) and 190.229(b), relating to civil and criminal penalties, to remove obsolete civil and criminal penalty provisions for violations involving offshore gathering lines.
18. Amending § 190.225(a), relating to civil penalty assessment considerations, to remove paragraph (a)(4) relating to “ability to pay” as a penalty assessment factor, to conform to the Act.
19. Amending § 190.233(b) and (c), relating to CAOs, to provide an expedited process for setting hearings and issuing decisions on CAOs and notices of proposed CAOs. This proposal also includes an expedited process for handling petitions for reconsideration to challenge CAOs, to conform to the Act.
PHMSA proposes to amend the criminal enforcement provisions as follows:
1. Relocating the criminal enforcement sections to a new “Subpart C—Criminal Enforcement.”
2. Amending the language in existing § 190.229 that is moved to § 190.291, relating to criminal penalties, to remove outdated maximum criminal penalty amounts for each criminal offense and insert “fined under Title 18” to conform to current 49 U.S.C. 60123.
PHMSA proposes to amend the procedures for the adoption of rules provisions as follows:
1. Redesignating current Subpart C,
2. Amending § 190.207(a), relating to Notices of Probable Violation (NOPV), to clarify that a NOPV may be issued for
3. Amending § 190.239 to include a process for filing petitions for reconsideration on safety orders.
4. Amending § 190.337 to remove paragraph (b), relating to the reconsideration of petitions for rulemaking, to remove the target times for the Associate Administrator to act on petitions for reconsideration, to conform to actual practice.
5. Amending § 190.341, relating to special permits, to clarify that PHMSA may issue a NOPV for violations of a special permit.
PHMSA proposes to make the following technical amendments and corrections to Part 190:
1. Amending Part 190 to remove all references to 49 U.S.C. 5101, to update Web sites addresses, telephone numbers, and postal addresses, and to eliminate other incorrect references.
2. Amending Part 190 to remove the term “PHMSA” from the phrases “Administrator, PHMSA” and “Chief Counsel, PHMSA” throughout Part 190 and remove the term “OPS” from the phrase “Associate Administrator, OPS.”
3. Amending § 190.3 to define the terms “Associate Administrator,” “Chief Counsel,” “Day,” and “Operator.”
4. Amending § 190.7(d) to harmonize the service of subpoenas with the service of other documents under § 190.5 to reflect that service by hand, certified mail, or registered mail is complete upon mailing.
5. Amending § 190.203(b)(6) and other sections to eliminate the exclusive use of the masculine pronouns “him” and “his” or to define the term to include both masculine and feminine.
6. Amending § 190.205 to clarify that the Associate Administrator or his or her designee(s) issue warning letters and that an operator may respond to a warning letter.
7. Amending § 190.207(a) to clarify that a NOPV may contain a combination of warning items, allegations of violation, proposed civil penalties, and proposed compliance orders for a probable violation of section 4202 of the Oil Pollution Act of 1990 (33 U.S.C. 1321(j)).
8. Amending § 190.207(c) to clarify that the Associate Administrator or his or her designee(s) may amend a NOPV but must provide an additional opportunity for response.
9. Amending § 190.209(a)(1), relating to response options to NOPVs, to clarify that if an operator responds by paying a proposed civil penalty, such action serves to close only that particular allegation of violation and not the entire case.
10. Amending § 190.209(a) to clarify that in responding to a NOPV, an operator may contest it in writing without requesting an in-person hearing.
11. Amending § 190.209(c) to correct a typographical error by changing the reference from paragraph (c) to paragraph (b).
12. Amending language in existing § 190.215(a), which is moved to § 190.249, to clarify that a petition for reconsideration must include an explanation as to why the final order should be reconsidered, rather than an explanation of why the “effectiveness” of the final order should be stayed.
13. Amending § 190.223(a) to clarify that the term “civil penalty” refers to “administrative” civil penalties.
14. Amending § 190.227(a), relating to the payment of penalties, to allow payment of penalties under $10,000 to be made via “www.pay.gov” and to provide the correct address.
15. Amending §§ 190.233 to clarify that CAOs are based upon a determination that a particular facility “is or would be hazardous,” which tracks the statutory language in 49 U.S.C. 60112, and to clarify that the closure of a CAO “terminates” it, as opposed to “rescinding” it.
16. Amending §§ 190.239 and 190.341 to italicize the questions at the beginning of each lettered paragraph.
17. Amending § 190.319, relating to extensions of time for rulemaking comment periods, to clarify that petitions for extensions of time to file comments must be addressed to PHMSA, as provided in § 190.309.
18. Amending § 190.321, relating to the contents of written comments, to remove the requirement to submit multiple copies of a rulemaking comment.
19. Amending § 190.327(b), relating to hearings on proposed rulemakings, to clarify that procedures for rulemaking hearings do not apply to other types of hearings by deleting the phrase “under this part” and inserting “under this subpart.”
20. Amending § 190.335(a) and removing § 190.338(c), relating to the reconsideration of petitions for rulemaking and appeals, to remove the requirement to submit multiple copies of each.
21. For administrative purposes, §§ 190.241, 190.243, 190.245, and 190.247 are added and reserved.
22. Amending §§ 192.603(c), 193.2017(b), 195.402(b), and 199.101(b) to change the reference to § 190.237 to § 190.206.
This notice of proposed rulemaking is published under the authority of the Federal Pipeline Safety Law (49 U.S.C. 60101
This proposed rule is not considered a significant regulatory action under Section 3(f) of Executive Order 12866 and, therefore, is not subject to review by the Office of Management and Budget. This proposed rule is not significant under DOT Regulatory Policies and Procedures (44 FR 11034; Feb. 26, 1979). Executive Orders 12866 and 13563 require agencies to regulate in the most cost effective manner, to make a reasoned determination that the benefits of the intended regulation justify its costs, and to develop regulations that impose the least burden on society. As this proposed rule involves agency practice and procedure, proposes to conform agency procedural requirements to current public law, and does not recommend imposing any new substantive requirements on operators or the public, it has no significant economic impact on regulated entities.
This proposed rule has been analyzed in accordance with the principles and criteria contained in Executive Order 13132 (“Federalism”). This proposed rule does not introduce any regulation that: (1) Has substantial direct effects on the states, the relationship between the national government and the states, or the distribution of power and responsibilities among the various levels of government; (2) imposes substantial direct compliance costs on state and local governments; or (3) preempts state law. Therefore, the consultation and funding requirements of Executive Order 13132 do not apply.
This proposed rule has been analyzed in accordance with the principles and criteria contained in Executive Order 13175 (“Consultation and Coordination with Indian Tribal Governments”). This proposed rule does not significantly or uniquely affect the communities of the Indian tribal governments; therefore, the funding and consultation requirements of Executive Order 13175 do not apply.
This proposed rule is not a significant energy action under Executive Order 13211. 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. Furthermore, this proposed rule has not been designated by the Administrator of the Office of Information and Regulatory Affairs as a significant energy action.
As this proposed rule updates the Part 190 procedures in accordance with current public law and will have no direct or indirect economic impacts for government units, businesses, or other organizations, I certify that this proposed rule will not have a significant economic impact on a substantial number of small entities.
This proposed rule contains no new information collection requirements or additional paperwork burdens. Therefore, submitting an analysis of the burdens to OMB pursuant to the Paperwork Reduction Act is unnecessary.
This proposed rule does not impose unfunded mandates under the Unfunded Mandates Reform Act of 1995. It does not result in costs of $100 million or more, as adjusted for inflation, to either state, local or tribal governments, in the aggregate, or to the private sector, and is the least burdensome alternative that achieves the objective of the rule.
As this proposed rule amends agency administrative practice and procedure and does not impose any new substantive environmental requirements on operators or the public or change the environmental status quo in any way, there are no significant environmental impacts associated with this rule.
Administrative Practice and procedure; Penalties.
Pipeline safety, Fire Prevention, Security measures.
Pipeline safety, Fire prevention, Security measures.
Ammonia, Carbon dioxide, Incorporation by reference, Petroleum, Pipeline safety, Reporting and recordkeeping requirements.
Drug testing, alcohol misuse.
For the reasons discussed in the preamble, PHMSA proposes to amend 49 CFR Subchapter C as follows:
1. The authority citation for part 190 is revised to read as follows:
33 U.S.C. 1321(b); 49 U.S.C. 60101
2. Part 190 is amended by revising the title to read:
3. In part 190, revise all references to “Associate Administrator, PHMSA” to read “Associate Administrator”.
4. In part 190, revise all references to “Chief Counsel, PHMSA” to read “Chief Counsel”.
5. In part 190, revise all references to “Associate Administrator, OPS” to read “Associate Administrator”.
6. In § 190.1, paragraph (a) is amended by removing the phrase “and 49 U.S.C. 5101
7. In § 190.3, the definition of “Presiding Official” is revised and the new definitions for “Associate Administrator,” “Chief Counsel,” “Day,” and “Operator” are added in alphabetical order to read as follows:
8. In § 190.7, paragraphs (a) and (d) are revised to read as follows:
(a) The Administrator, the Chief Counsel, or an official designated by the Administrator may sign and issue subpoenas individually on his or her own initiative at any time. Such times may include during an inspection or investigation or, upon request and adequate showing by a participant to an enforcement proceeding, that the information sought will materially advance the proceeding.
(d) Service of a subpoena upon the person named in the subpoena is achieved by delivering a copy of the subpoena to the person and by paying the fees for one day's attendance and mileage as specified by paragraph (g) of this section. Service of a subpoena can also be made by certified or registered mail to the person at the last known address. Service is complete upon mailing. When a subpoena is issued at the instance of any officer or agency of the United States, fees and mileage need not be tendered at the time of service. Delivery of a copy of a subpoena and tender of the fees to a natural person may be made by handing them to the person, leaving them at the person's office with a person in charge, leaving them at the person's residence with a person of suitable age and discretion residing there, or by any method whereby actual notice is given to the person and the fees are made available prior to the return date.
9. In § 190.11, paragraphs (a) and (b) are revised to read as follows:
(a)
(b)
10. In § 190.201, paragraph (a) is revised to read as follows:
(a) This subpart describes the enforcement authority and sanctions exercised by the Associate Administrator for achieving and maintaining pipeline safety and compliance under 49 U.S.C. 60101
11. In § 190.203, paragraph (b)(6) and paragraphs (c), (e), and (f) are revised to read as follows:
(b) * * *
(6) Whenever deemed appropriate by the Associate Administrator, or his or her designee.
(c) If the Associate Administrator believes that further information is needed to determine appropriate action, the Associate Administrator may notify the pipeline operator in writing that the operator is required to provide specific information within a period specified by the Associate Administrator, but no later than 30 days from the time the notification is received by the operator. The notification must provide a reasonable description of the specific information required.
(e) If a representative of the U.S. Department of Transportation inspects or investigates an incident involving a pipeline facility, the operator must make available to the representative all records and information that pertain to the incident in any way, including integrity management plans and test results. The operator must provide all reasonable assistance in the investigation. Any person who obstructs an inspection or investigation by taking actions that were known or reasonably should have been known to prevent, hinder, or impede an investigation without good cause will be subject to administrative civil penalties under this subpart.
(f) When OPS determines that the information obtained from an inspection or from other appropriate sources warrants further action, OPS may initiate one or more of the enforcement proceedings prescribed in this subpart.
12. Section 190.205 is revised to read as follows:
Upon determining that a probable violation of 49 U.S.C. 60101
13. Add § 190.206 to subpart B to read as follows:
(a) A Regional Director begins a proceeding to determine whether an operator's plans or procedures required under parts 192, 193, 194, 195, and 199 of this subchapter are inadequate to assure safe operation of a pipeline facility by issuing a notice of amendment. The notice will specify the alleged inadequacies and the proposed action for revision of the plans or procedures and provide an opportunity for a hearing under § 190.211 of this Part. The notice will allow the operator 30 days after receipt of the notice to submit written comments, revised procedures, or request a hearing. After considering all material presented in writing or at the hearing if applicable, the Associate Administrator determines whether the plans or procedures are inadequate as alleged and orders the required amendment if they are inadequate, or withdraws the notice if they are not. In determining the adequacy of an operator's plans or procedures, the Associate Administrator may consider:
(1) Relevant available pipeline safety data;
(2) Whether the plans or procedures are appropriate for the particular type of pipeline transportation or facility, and for the location of the facility;
(3) The reasonableness of the plans or procedures; and
(4) The extent to which the plans or procedures contribute to public safety.
(b) The amendment of an operator's plans or procedures prescribed in paragraph (a) of this section is in addition to, and may be used in conjunction with, the appropriate enforcement actions prescribed in this subpart.
14. In § 190.207, paragraphs (a) and (c) are revised to read as follows:
(a) Except as otherwise provided by this subpart, a Regional Director begins an enforcement proceeding by serving a notice of probable violation on a person and charging that person with a probable violation of 49 U.S.C. 60101
(c) The Regional Director may amend a notice of probable violation at any time prior to issuance of a final order under § 190.213. If an amendment includes any new material allegations of fact, proposes an increased civil penalty amount, or proposes new or additional remedial action under § 190.217, the respondent will have the opportunity to respond under § 190.209.
15. In § 190.209, paragraphs (a) and (c) are revised to read as follows:
(a) When the notice contains a proposed civil penalty—
(1) If respondent is not contesting an allegation of probable violation, pay the proposed civil penalty as provided in § 190.227 and advise the Regional Director of the payment. The payment authorizes PHMSA to make a finding of violation as to the uncontested item(s), with prejudice to the respondent;
(2) If respondent is not contesting an allegation of probable violation but wishes to submit a written explanation, information or other materials respondent believes may warrant mitigation or elimination of the proposed civil penalty, respondent may submit such materials. This authorizes PHMSA to make a finding of violation and to issue a final order under § 190.213;
(3) If respondent is contesting one or more allegations of probable violation but is not requesting a hearing under § 190.211, respondent may submit a written response in answer to the allegations; or
(4) The respondent may request a hearing under § 190.211.
(c) Failure of the respondent to respond in accordance with paragraph (a) of this section or, when applicable, paragraph (b) of this section, constitutes a waiver of the right to contest the allegations in the notice of probable violation and authorizes the Associate Administrator, without further notice to the respondent, to find the facts as alleged in the notice of probable violation and to issue a final order under § 190.213.
16. Add § 190.210 to subpart B to read as follows:
(a)
(b)
17. Section 190.211 is revised to read as follows:
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
18. Add § 190.212 to subpart B to read as follows:
(a)
(b)
(c)
(1) Regulate the course of the hearing and conduct of the parties and their counsel;
(2) Receive evidence and inquire into the relevant and material facts concerning the matters that are subject of the hearing;
(3) Require the submission of documents and other information;
(4) Direct that documents or briefs relate to issues raised during the course of the hearing;
(5) Fix the time for filing documents, briefs, and other items;
(6) Prepare a recommended decision; and
(7) Exercise such other authority as is necessary to carry out the responsibilities of the presiding official under this subpart.
19. Section 190.213 is amended by revising paragraph (b)(5), adding paragraph (b)(6) and removing paragraphs (d) and (e) to read as follows:
(b) * * *
(5) In cases involving a § 190.211 hearing, any material submitted during and after the hearing; and
(6) The recommended decision prepared by the presiding official in cases involving a § 190.211 hearing, or prepared by an attorney from the Office of Chief Counsel in cases not involving a hearing, containing proposed findings and determinations on all material issues.
(c) * * *
20. Remove and reserve § 190.215.
21. Section 190.217 is revised to read as follows:
When the Associate Administrator has reason to believe that a person is engaging in conduct that violates 49 U.S.C. 60101
22. In § 190.219, paragraph (a) is revised and paragraph (c) is added to read as follows:
(a) At any time prior to the issuance of a compliance order under § 190.217, a corrective action order under § 190.233, or a safety order under § 190.239, the Associate Administrator and the respondent may agree to dispose of the case by execution of a consent agreement and order which may be jointly executed. Upon execution, the consent order is considered a final order under § 190.213.
(c) The proposed execution of a consent agreement and order arising out of a corrective action order under § 190.233 will comply with the notification procedures set forth in 49 U.S.C. 60112(c).
23. Section 190.221 is revised to read as follows:
When the Associate Administrator has reason to believe that a person has committed an act violating 49 U.S.C. 60101
24. Section 190.223 is revised to read as follows:
(a) Any person who is determined to have violated a provision of 49 U.S.C. 60101
(b) Any person who is determined to have violated any standard or order under 49 U.S.C. 60129 shall be subject to a civil penalty not to exceed $1,000, which shall be in addition to any other penalties to which such person may be subject under paragraph (a) of this section.
(c) No person will be subject to a civil penalty under this section for the violation of any provision of 49 U.S.C. 60101
25. In § 190.225, paragraphs (a)(1), (a)(2), (a)(3), (a)(4) and (a)(5) are revised to read as follows:
(a) The Associate Administrator shall consider:
(1) The nature, circumstances and gravity of the violation, including adverse impact on the environment;
(2) The degree of the respondent's culpability;
(3) The respondent's history of prior offenses;
(4) Any good faith by the respondent in attempting to achieve compliance;
(5) The effect on the respondent's ability to continue in business; and
26. In § 190.227, paragraph (a) is revised to read as follows:
(a) Except for payments exceeding $10,000, payment of a civil penalty proposed or assessed under this subpart may be made by certified check or money order (containing the CPF Number for the case), payable to “U.S. Department of Transportation,” to the Federal Aviation Administration, Mike Monroney Aeronautical Center, Financial Operations Division (AMZ–341), P.O. Box 25770, Oklahoma City, OK 73125, by wire transfer through the Federal Reserve Communications System (Fedwire) to the account of the U.S. Treasury, or via “
27. Remove and reserve § 190.229.
28. Remove and reserve § 190.231.
29. In § 190.233, paragraphs (a), (b), (c)(3), (c)(4), (f)(1), and (g) are revised to read as follows:
(a) Except as provided by paragraph (b) of this section, if the Associate Administrator finds, after reasonable notice and opportunity for hearing in accord with paragraph (c) of this section and § 190.211, a particular pipeline
(b) The Associate Administrator may waive the requirement for notice and opportunity for hearing under paragraph (a) of this section before issuing an order whenever the Associate Administrator determines that the failure to do so would result in the likelihood of serious harm to life, property, or the environment. When an order is issued under this paragraph, a respondent that elects to contest the order may obtain expedited review of the order either by answering in writing to the order or requesting a § 190.211 hearing to be held as soon as practicable in accordance with paragraph (c)(2) of this section. For purposes of this section, the term “expedited review” is defined as the process for making a prompt determination of whether the order should remain in effect or be terminated, in accordance with paragraph (g) of this section. The expedited review of an order issued under this paragraph will be complete upon issuance of such determination.
(c) * * *
(3) A hearing under this section will be conducted pursuant to § 190.211.
(4) After conclusion of a hearing under this section, the presiding official will submit a recommendation to the Associate Administrator as to whether or not a hazardous condition that exists or may exist requiring corrective action expeditiously. Upon receipt of the recommendation, the Associate Administrator will proceed in accordance with paragraphs (d) through (h) of this section. If the Associate Administrator finds the facility is or would be hazardous to life, property, or the environment, the Associate Administrator, OPS issues a corrective action order in accordance with this section or continues a corrective action order already issued under paragraph (b) of this section. If the Associate Administrator does not find the facility is or would be hazardous to life, property, or the environment, the Associate Administrator will withdraw the allegation of the existence of a hazardous facility contained in the notice or will terminate a corrective action order issued under paragraph (b), and promptly notify the owner or operator in writing by service as prescribed in § 190.5.
(f) * * *
(1) A finding that the pipeline facility is or would be hazardous to life, property, or the environment.
(g) The Associate Administrator will terminate a corrective action order whenever the Associate Administrator determines that the facility is no longer hazardous to life, property, or the environment. If appropriate, however, a notice of probable violation may be issued under § 190.207.
30. Remove and reserve § 190.237.
31. Section 190.239 is amended by revising the heading of paragraphs (a), (b), (c), (d), (e), and (f), and adding paragraph (g) to read as follows:
(a)
(b)
(c)
(d)
(e)
(f)
(g)
32. Add and reserve § 190.241.
33. Add and reserve § 190.243.
34. Add and reserve § 190.245.
35. Add and reserve § 190.247.
36. Add § 190.249 to subpart B to read as follows:
(a) A respondent may petition the Associate Administrator for reconsideration of a final order issued under § 190.213, a compliance order issued under § 190.217, a corrective action order issued under § 190.233, an order directing amendment of plans or procedures under § 190.206, or a safety order under § 190.239. The petition must be received no later than 30 days after service of the order upon the respondent and a copy must be provided to the Office of Chief Counsel. Petitions received after that time will not be considered. The petition must contain a brief statement of the complaint and an explanation as to why the order should be reconsidered.
(b) If the respondent requests the consideration of additional facts or arguments, the respondent must submit the reasons they were not presented prior to issuance of the final order.
(c) The Associate Administrator does not consider repetitious information, arguments, or petitions.
(d) The filing of a petition under this section stays the payment of any civil penalty assessed. However, unless the Associate Administrator, OPS otherwise provides, the order, including any required corrective action, is not stayed.
(e) The Associate Administrator may grant or deny, in whole or in part, any petition for reconsideration without further proceedings. In the event the Associate Administrator reconsider a final order, a final decision on reconsideration may be issued without further proceedings, or, in the alternative, additional information, data, and comment may be requested by the Associate Administrator as deemed appropriate.
(f) It is the policy of the Associate Administrator to issue notice of the action taken on a petition for reconsideration expeditiously. In cases where a substantial delay is expected, notice of that fact and the date by which it is expected that action will be taken is provided to the respondent upon request and whenever practicable.
(g) The Associate Administrator's decision on reconsideration is the final agency action. Any application for judicial review must be filed no later than 89 days after the issuance of the decision in accordance with 49 U.S.C. 60119(a). Failure to raise an issue in a petition for reconsideration waives the availability of judicial review of that issue.
(h) Judicial review of agency action under 49 U.S.C. 60119(a) will apply the standards of review established in section 706 of title 5.
37. Redesignate existing subpart C as new subpart D.
38. Add new subpart C to read as follows:
(a) Any person who willfully and knowingly violates a provision of 49 U.S.C. 60101
(b) Any person who willfully and knowingly injures or destroys, or attempts to injure or destroy, any interstate transmission facility, any interstate pipeline facility, or any intrastate pipeline facility used in interstate or foreign commerce or in any activity affecting interstate or foreign commerce (as those terms are defined in 49 U.S.C. 60101
(c) Any person who willfully and knowingly defaces, damages, removes, or destroys any pipeline sign, right-of-way marker, or marine buoy required by 49 U.S.C. 60101
(d) Any person who willfully and knowingly engages in excavation activity without first using an available one-call notification system to establish the location of underground facilities in the excavation area; or without considering location information or markings established by a pipeline facility operator; and
(1) Subsequently damages a pipeline facility resulting in death, serious bodily harm, or property damage exceeding $50,000;
(2) Subsequently damages a pipeline facility and knows or has reason to know of the damage but fails to promptly report the damage to the operator and to the appropriate authorities; or
(3) Subsequently damages a hazardous liquid pipeline facility that results in the release of more than 50 barrels of product; will, upon conviction, be subject to a fine under title 18, imprisonment for a term not to exceed 5 years, or both, for each offense.
(e) No person shall be subject to criminal penalties under paragraph (a) of this section for violation of any regulation and the violation of any order issued under §§ 190.217, 190.219 or 190.291 if both violations are based on the same act.
If an employee of the Pipeline and Hazardous Materials Safety Administration becomes aware of any actual or possible activity subject to criminal penalties under § 190.291, the employee reports it to the Office of the Chief Counsel, Pipeline and Hazardous Materials Safety Administration, U.S. Department of Transportation, Washington, DC 20590. The Chief Counsel refers the report to OPS for investigation. Upon completion of the investigation and if appropriate, the Chief Counsel refers the report to the Department of Justice for criminal prosecution of the offender.
39. Section 190.319 is revised to read as follows:
A petition for extension of the time to submit comments must be submitted to PHMSA in accordance with § 190.309 and received by PHMSA not later than 10 days before expiration of the time stated in the notice. The filing of the petition does not automatically extend the time for petitioner's comments. A petition is granted only if the petitioner shows good cause for the extension, and if the extension is consistent with the public interest. If an extension is granted, it is granted to all persons, and it is published in the
40. Section 190.321 is revised to read as follows:
All written comments must be in English. Any interested person should submit as part of written comments all material considered relevant to any statement of fact. Incorporation of material by reference should be avoided; however, where necessary, such incorporated material shall be identified by document title and page.
41. In § 190.327, paragraph (b) is revised to read as follows:
(b) Sections 556 and 557 of title 5, United States Code, do not apply to hearings held under this subpart. Unless otherwise specified, hearings held under this part are informal, non-adversarial fact-finding proceedings, at which there are no formal pleadings or adverse parties. Any regulation issued in a case in which an informal hearing is held is not necessarily based exclusively on the record of the hearing.
42. In § 190.335, paragraph (a) is revised to read as follows:
(a) Except as provided in § 190.339(d), any interested person may petition the Associate Administrator for reconsideration of any regulation issued under this subpart, or may petition the Chief Counsel for reconsideration of any procedural regulation issued under this subpart and contained in this subpart. The petition must be received not later than 30 days after publication of the rule in the
43. Section 190.337 is revised to read as follows:
The Associate Administrator or the Chief Counsel may grant or deny, in whole or in part, any petition for reconsideration without further proceedings, except where a grant of the petition would result in issuance of a new final rule. In the event that the Associate Administrator or the Chief Counsel determines to reconsider any regulation, a final decision on reconsideration may be issued without further proceedings, or an opportunity to submit comment or information and data as deemed appropriate, may be provided. Whenever the Associate Administrator or the Chief Counsel determines that a petition should be granted or denied, the Office of the Chief Counsel prepares a notice of the grant or denial of a petition for reconsideration, for issuance to the petitioner, and the Associate Administrator or the Chief Counsel issues it to the petitioner. The Associate Administrator or the Chief Counsel may consolidate petitions relating to the same rules.
44. In § 190.338, paragraph (c) is removed and reserved.
45. Section 190.341 is amended by revising the heading of paragraphs (a), (b), (c), (d), (e), (f), (g), (h), (i), and (j), and adding paragraph (k) to read as follows:
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
(k)
46. The authority citation for Part 192 continues to read as follows: 49 U.S.C. 5103, 60102, 60104, 60108, 60109, 60110, 60113, 60116, 60118, and 60137; and 49 CFR 1.53.
47. In § 192.603, paragraph (c) is revised read as follows:
(c) The
48. The authority citation for Part 193 continues to read as follows: 49 U.S.C. 5103, 60102, 60103, 60104, 60108, 60109, 60110, 60113, 60118; and 49 CFR 1.53.
49. In § 193.2017, paragraph (b) is revised read as follows:
(b) The
50. The authority citation for Part 195 continues to read as follows: 49 U.S.C. 5103, 60102, 60104, 60108, 60109, 60116, 60118, and 60137; and 49 CFR 1.53.
51. In § 195.402, paragraph (b) is revised read as follows:
(b) The
52. The authority citation for Part 199 continues to read as follows: 49 U.S.C. 5103, 60102, 60104, 60108, 60117, and 60118; 49 CFR 1.53.
53. In § 199.101, paragraph (b) is revised read as follows:
(b) The
The Department of Agriculture has submitted the following information collection requirement(s) to OMB for review and clearance under the Paperwork Reduction Act of 1995, Public Law 104–13. Comments regarding (a) whether the collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility; (b) the accuracy of the agency's estimate of burden including the validity of the methodology and assumptions used; (c) ways to enhance the quality, utility and clarity of the information to be collected; (d) ways to minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology should be addressed to: Desk Officer for Agriculture, Office of Information and Regulatory Affairs, Office of Management and Budget (OMB),
An agency may not conduct or sponsor a collection of information unless the collection of information displays a currently valid OMB control number and the agency informs potential persons who are to respond to the collection of information that such persons are not required to respond to the collection of information unless it displays a currently valid OMB control number.
The Department of Agriculture has submitted the following information collection requirement(s) to OMB for review and clearance under the Paperwork Reduction Act of 1995, Public Law 104–13. Comments regarding (a) Whether the collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility; (b) the accuracy of the agency's estimate of burden including the validity of the methodology and assumptions used; (c) ways to enhance the quality, utility and clarity of the information to be collected; (d) ways to minimize the burden of the collection of information on those who are to respond, including
An agency may not conduct or sponsor a collection of information unless the collection of information displays a currently valid OMB control number and the agency informs potential persons who are to respond to the collection of information that such persons are not required to respond to the collection of information unless it displays a currently valid OMB control number.
The Department of Agriculture has submitted the following information collection requirement(s) to OMB for review and clearance under the Paperwork Reduction Act of 1995, Public Law 104–13. Comments regarding (a) whether the collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility; (b) the accuracy of the agency's estimate of burden including the validity of the methodology and assumptions used; (c) ways to enhance the quality, utility and clarity of the information to be collected; (d) ways to minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology should be addressed to: Desk Officer for Agriculture, Office of Information and Regulatory Affairs, Office of Management and Budget (OMB),
An agency may not conduct or sponsor a collection of information unless the collection of information displays a currently valid OMB control number and the agency informs potential persons who are to respond to the collection of information that such persons are not required to respond to the collection of information unless it displays a currently valid OMB control number.
Forest Service, USDA.
Notice of meeting.
The Glenn/Colusa County Resource Advisory Committee (RAC) will meet in Willows, California. The committee is authorized under the Secure Rural Schools and Community Self-Determination Act (Pub. L. 110–343) (the Act) and operates in compliance with the Federal Advisory Committee Act. The purpose of the committee is to improve collaborative relationships and to provide advice and recommendations to the Forest Service concerning projects and funding consistent with the title II of the Act. The meeting is open to the public. The purpose of the meeting is to review and discuss new project proposals.
The meeting will be held on August 20, 2012 from 1:00 p.m. and end at approximately 4:00 p.m.
The meeting will be held at the Mendocino National Forest Supervisor's Office, Snow Mountain Conference Room, 825 North Humboldt Ave., Willows, CA. Written comments may be submitted as described under
All comments, including names and addresses when provided, are placed in the record and are available for public inspection and copying. The public may inspect comments received at 825 N. Humboldt Ave., Willows, CA 95988. Please call ahead to (530) 934–3316 to facilitate entry into the building to view comments.
Randy Jero, Committee Coordinator, USDA, Mendocino National Forest, Grindstone Ranger District. Phone voice (530) 934–3316; phone TTY (530) 934–7724; Email
Individuals who use telecommunication devices for the deaf (TDD) may call the Federal Information Relay Service (FIRS) at 1–800–877–8339 between 8:00 a.m. and 8:00 p.m., Eastern Standard Time, Monday through Friday. Please make requests in advance for sign language interpreting, assistive listening devices or other reasonable accomodation for access to the facility or procedings by contacting the person listed
The following business will be conducted: (1) Introductions, (2) Approval of Minutes, (3) Public Comment, (4) RAC Administrative Updates, (5) Project Presentations & Discussion, (6) Next Agenda. The full agenda may be previewed at:
Anyone who would like to bring related matters to the attention of the committee may file written statements with the committee staff before or after the meeting. The agenda will include time for people to make oral statements of three minutes or less. Individuals wishing to make an oral statement should request in writing by August 13, 2012 to be scheduled on the agenda. Written comments and requests for time for oral comments must be sent to Randy Jero, Committee Coordinator, USDA, Mendocino National Forest, Grindstone Ranger District, 825 N. Humboldt Ave., Willows, CA 95988 or by email to
A summary of the meeting will be posted at:
Forest Service, USDA.
Notice of meeting; correction.
The Forest Service published a document in the
Mary Farnsworth, Forest Supervisor and Designated Federal Official, at (208) 765–7369.
In the
September 7, 2012.
Pursuant to the authorities in the Federal Advisory Committee Act (Pub. L. 112–141) and under the Secure Rural Schools and Community Self-
Forest Service, USDA.
Notice of meetings.
The Flathead Resource Advisory Committee will meet in Kalispell, Montana. The committee is authorized under the Secure Rural Schools and Community Self-Determination Act (Pub. L. 112–141) (the Act) and operates in compliance with the Federal Advisory Committee Act. The purpose of the committee is to improve collaborative relationships and to provide advice and recommendations to the Forest Service concerning projects and funding consistent with the title II of the Act. The meeting is open to the public. The purpose of the meeting is to hear project proposal presentations for 2013.
The meetings will be held September 4, 11, 18, and 25, 2012. Meetings will begin at 4:30 p.m. and end at 6:00 p.m.
The meetings will be held at 650 Wolfpack Way, Flathead National Forest Office, Kalispell, MT. Written comments may be submitted as described under
All comments, including names and addresses when provided, are placed in the record and are available for public inspection and copying. The public may inspect comments received at 650 Wolfpack Way, Kalispell, MT. Visitors are encouraged to call ahead to 406–758–6485 to facilitate entry into the building.
Craig Kendall, Flathead National Forest, 406.758.6485.
Individuals who use telecommunication devices for the deaf (TDD) may call the Federal Information Relay Service (FIRS) at 1–800–877–8339 between 8:00 a.m. and 8:00 p.m., Eastern Standard Time, Monday through Friday.
The meeting is open to the public. The following business will be conducted: presentation of project proposals and approval of projects. Anyone who would like to bring related matters to the attention of the committee may file written statements with the committee staff before or after the meeting. The agenda will include time for people to make oral statements of three minutes or less. Individuals wishing to make an oral statement should request in writing by September 1, 2012 to be scheduled on the agenda. Written comments and requests for time for oral comments must be sent to Flathead National Forest, Attn: RAC, 650 Wolfpack Way, Kalispell, MT 59901, or by email to
Forest Service, USDA.
Notice of meeting.
The Missouri River Resource Advisory Committee will meet in Helena, Montana. The committee is authorized under the Secure Rural Schools and Community Self-Determination Act (Pub. L 110–343) (the Act) and operates in compliance with the Federal Advisory Committee Act. The purpose of the committee is to improve collaborative relationships and to provide advice and recommendations to the Forest Service concerning projects and funding consistent with the title II of the Act. The meeting is open to the public. The purpose of the meeting is to approve previous meeting notes; review, vote and recommend projects for title II funding; and address any questions or comments from the public.
The meeting will be held Monday, September 17, 2012 at 6 p.m.
The meeting will be held in the Elkhorn/Tizer meeting room at the Helena National Forest Supervisor's Office at 2880 Skyway Drive, Helena, MT 59602. VTC will be available; members of the public can attend the meeting via VTC at their local Forest Service office.
Written comments may be submitted as described under Supplementary Information. All comments, including names and addresses when provided, are placed in the record and are available for public inspection and copying. The public may inspect comments received at the Helena National Forest office. Please call ahead to 406–495–3747 to facilitate entry into the building to view comments.
Kathy Bushnell, Forest Public Affairs Officer/DFO, Helena National Forest, 406–495–3747,
Individuals who use telecommunication devices for the deaf (TDD) may call the Federal Information Relay Service (FIRS) at 1–800–877–8339 between 8:00 a.m. and 8:00 p.m., Eastern Standard Time, Monday through Friday. Requests for reasonable accomodation for access to the facility or procedings may be made by contacting the person listed For Further Information.
The following business will be conducted: approve previous meeting notes; review, vote and recommend projects for Title II funding; and address any questions or comments from the public. Anyone who would like to bring related matters to the attention of the committee may file written statements with the committee staff before or after the meeting. The agenda will include time for people to make oral statements of three minutes or less. A summary of the meeting will be posted at
Economic Development Administration, Department of Commerce.
Notice and Opportunity for Public Comment.
Pursuant to Section 251 of the Trade Act 1974, as amended (19 U.S.C. 2341 et seq.), the Economic Development Administration (EDA) has received petitions for certification of eligibility to apply for Trade Adjustment Assistance (TAA) from the firms listed below. Accordingly, EDA has initiated investigations to determine whether increased imports into the United States of articles like or directly competitive with those produced by each of these firms contributed importantly to the total or partial separation of the firm's workers, or threat thereof, and to a decrease in sales or production of each petitioning firm.
Any party having a substantial interest in these proceedings may request a public hearing on the matter. A written request for a hearing must be submitted to the Trade Adjustment Assistance for Firms Division, Room 7106, Economic Development Administration, U.S. Department of Commerce, Washington, DC 20230, no later than ten (10) calendar days following publication of this notice.
Please follow the requirements set forth in EDA's regulations at 13 CFR 315.9 for procedures to request a public hearing. The Catalog of Federal Domestic Assistance official number and title for the program under which these petitions are submitted is 11.313, Trade Adjustment Assistance for Firms.
On May 8, 2012, the Executive Secretary of the Foreign-Trade Zones (FTZ) Board docketed an application submitted by the Port of Portland, grantee of FTZ 45, requesting subzone status subject to the existing activation limit of FTZ 45, on behalf of Shimadzu USA Manufacturing, Inc., in Canby, Oregon.
The application was processed in accordance with the FTZ Act and Regulations, including notice in the
The Virginia Port Authority, grantee of FTZ 20, submitted a notification of proposed production activity on behalf of Usui International Corporation (Usui), located in Chesapeake, Virginia. The notification conforming to the requirements of the regulations of the Board (15 CFR 400.22) was received on June 28, 2012.
The Usui facility is located within Site 9 of FTZ 20. The facility is used for the production of diesel engine fuel lines. Production under FTZ procedures could exempt Usui from customs duty payments on foreign status components
Components and materials sourced from abroad include: Plastic caps and clips, rubber o-rings, paper labels, adhesive tape, tubes/pipes/profiles, fasteners, springs, tags, brackets, engine parts, plates, fixtures, alarm tanks, and caps (duty rate ranges from free to 8.5%).
Public comment is invited from interested parties. Submissions shall be addressed to the Board's Executive Secretary at the address below. The closing period for their receipt is September 24, 2012.
A copy of the notification will be available for public inspection at the Office of the Executive Secretary, Foreign-Trade Zones Board, Room 2111, U.S. Department of Commerce, 1401 Constitution Avenue NW., Washington, DC 20230–0002, and in the “Reading Room” section of the Board's Web site, which is accessible via
For further information, contact Pierre Duy at
National Institute of Standards and Technology, Department of Commerce.
Notice of modifications.
This notice announces changes to the existing provisions of the National Institute of Standards and Technology's (NIST) Alternative Personnel Management System (APMS) published October 21, 1997. NIST is implementing direct-hire authority on a permanent basis for all Nuclear Reactor Operator positions in NIST's Scientific and Engineering Technician (ZT) career path at the Pay Band III and above, and for all positions in NIST's Scientific and Engineering (ZP) career path at the Pay Band III and above except for the Information Technology Management, 2210 series; the General Engineering, 801 series; and the General Physical Science, 1301 series.
The changes to the APMS announced in this notice are effective on August 13, 2012.
Susanne Porch at the National Institute of Standards and Technology, (301) 975–3000; or Valerie Smith at the U.S. Department of Commerce, (202) 482–0272.
In accordance with Public Law 99–574, the National Bureau of Standards Authorization Act for Fiscal Year 1987, the Office of Personnel Management (OPM) approved a demonstration project plan, “Alternative Personnel Management System (APMS) at the National Institute of Standards and Technology (NIST),” and published the plan in the
On December 3, 2010, the Department of Commerce approved NIST's request to pilot direct-hire under 5 U.S.C. 3304(a)(3) for a period of one year for all positions within the Scientific and Engineering (ZP) career path at the Pay Band III and above, for Nuclear Reactor Operator positions in the Scientific and Engineering Technician (ZT) career path at Pay Band III and above, and for all occupations for which there is a special rate under the General Schedule (GS) pay system. On January 5, 2011, a
On December 20, 2011, NIST published a
The APMS plan provides for modifications to be made as experience is gained, results are analyzed, and conclusions are reached on how the system is working. This notice formally announces the modification to the APMS and implements direct-hire authority under 5 U.S.C. 3304(a)(3) on a permanent basis.
The National Institute of Standards and Technology's (NIST) Alternative Personnel Management System (APMS) is designed to (1) improve hiring and
Since implementing the APMS in 1987, according to findings in the Office of Personnel Management's (OPM's) “Summative Evaluation Report National Institute of Standards and Technology Demonstration Project: 1988–1995,” NIST has accomplished the following: NIST is more competitive for talent; NIST retained more top performers than a comparison group; and NIST managers reported significantly more authority to make decisions concerning employee pay. This modification builds on this success by implementing direct-hire authority under 5 U.S.C. 3304(a)(3) on a permanent basis.
This amendment modifies the October 21, 1997
NIST will continually monitor the effectiveness of this amendment.
Section 3304(a)(3) of title 5, United States Code, provides agencies with the authority to appoint candidates directly to jobs for which OPM determines that there is a severe shortage of candidates or a critical hiring need.
OPM's direct-hire authority enables agencies to hire, after public notice is given, any qualified application without regard to 5 U.S.C. 3309–3318, 5 CFR part 211, or 5 CFR part 337, subpart A. NIST's APMS allows the NIST Director to modify procedures if no new waiver from law or regulation is added. Given this modification is in accordance with existing law and regulation, the NIST Director is authorized to make the changes described in this notice. The modification to our final
In 1987, with the approval of the NIST APMS (52 FR 37082), and in 1997, when the APMS plan was modified (62 FR 54604), OPM concurred that all occupations in the ZP career path at the Pay Band III and above constitute a shortage category; Nuclear Reactor Operator positions in the ZT Career Path at the Pay Band III and above constitute a shortage category; and all occupations for which there is a special rate under the General Schedule pay system constitute a shortage category.
The APMS at NIST, published in the
1.
2.
3.
NIST uses direct-hire procedures for categories of occupations which require skills that are in short supply. All Nuclear Reactor Operator positions at the Pay Band III and above in the ZT Career Path constitute a shortage category, and all occupations at the Pay Band III and above in the ZP Career Path constitute a shortage category except for the Information Technology Management, 2210 series; the General Engineering, 801 series; and the General Physical Science, 1301 series. Any positions in these categories may be filled through direct-hire procedures in accordance with 5 U.S.C. 3304(a)(3). NIST advertises the availability of job opportunities in direct-hire occupations by posting on the OPM USAJOBS Web site. NIST will follow internal direct-hire procedures for accepting applications.
4.
5.
6.
NIST intends to publish a consolidated plan that reflects all amendments to the APMS in FY13.
National Institute of Standards and Technology, Department of Commerce.
Notice.
This notice lists the membership of the National Institute of Standards and Technology Performance Review Board (NIST PRB) and supersedes the list published on September 9, 2011.
The changes to the NIST PRB membership list announced in this notice are effective on August 13, 2012.
Didi Hanlein at the National Institute of Standards and Technology, (301) 975–3000 or by email at
The National Institute of Standards and Technology Performance Review Board (NIST PRB or Board) reviews performance appraisals, agreements, and recommended actions pertaining to employees in the Senior Executive Service and ST–3104 employees. The Board makes recommendations to the appropriate appointing authority concerning such matters so as to ensure the fair and equitable treatment of these individuals.
This notice lists the membership of the NIST PRB and supersedes the list published in the
National Institute of Standards and Technology, Commerce.
Notice of prospective grant of exclusive patent license.
This is a notice in accordance with 35 U.S.C. 209(e) and 37 CFR 404.7(a)(1)(i) that the National Institute of Standards and Technology (“NIST”), U.S. Department of Commerce, is contemplating the grant of an exclusive license in the United States of America, its territories, possessions and commonwealths, to NIST's interest in the invention embodied in Provisional Application for Patent Application No. 61,638,362 titled “Flow Cytometer Systems and Associated Methods,” NIST Docket No. 11–010 to the Regents of the University of Colorado, having a place of business at 1800 Grant Street, 8th Floor, Denver, CO 80203. The grant of the license would be for all fields of use.
Cathy Cohn, National Institute of Standards and Technology, Technology Partnerships Office, 100 Bureau Drive, Stop 2200, Gaithersburg, MD 20899, (301) 975–6691, fax: (301) 975–3482, or email:
The prospective exclusive license will be royalty bearing and will comply with the terms and conditions of 35 U.S.C. 209 and 37 CFR 404.7. The prospective exclusive license may be granted unless, within fifteen days from the date of this published Notice, NIST receives written evidence and argument which establish that the grant of the license would not be consistent with the requirements of 35 U.S.C. 209 and 37 CFR 404.7.
Provisional Application for Patent Application No. 61,638,362 is co-owned by the U.S. government, as represented by the Secretary of Commerce and the Regents of the University of Colorado. The invention is a flow cytometer system for algal cells which includes a flow cell having an interrogation region, a long wavelength illuminator for illuminating algal cells entering the interrogation region, and a short wavelength illuminator for exciting fluorescence within the algal cells. The system also includes one or more photodetectors for measuring the fluorescence, and a data acquisition system that detects the illuminated algal cells in the interrogation region. The data acquisition system controls the illuminators to provide specific conditions for stimulating the fluorescence, and acquires data from the one or more photodetectors to provide information of the algal cells.
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice; receipt of application.
Notice is hereby given that PRBO Conservation Science, 3820 Cypress Drive, #11, Petaluma, California 94954 (Responsible Party: Russ Bradley), has applied in due form for a permit to conduct research on pinnipeds in California.
Written, telefaxed, or email comments must be received on or before September 12, 2012.
The application and related documents are available upon written request or by appointment in the following offices:
Permits and Conservation Division, Office of Protected Resources, NMFS, 1315 East-West Highway, Room 13705, Silver Spring, MD 20910; phone (301) 427–8401; fax (301) 713–0376; and
Southwest Region, NMFS, 501 West Ocean Blvd., Suite 4200, Long Beach, CA 90802–4213; phone (562) 980–4001; fax (562) 980–4018.
Written comments on this application should be submitted to the Chief, Permits and Conservation Division, at the address listed above. Comments may also be submitted by facsimile to (301) 713–0376, or by email to
Those individuals requesting a public hearing should submit a written request to the Chief, Permits and Conservation Division at the address listed above. The request should set forth the specific reasons why a hearing on this application would be appropriate.
Amy Sloan or Tammy Adams, (301) 427–8401.
The subject permit is requested under the authority of the Marine Mammal Protection Act of 1972, as amended (MMPA; 16 U.S.C. 1361
The applicant requests a five-year permit to study and monitor population trends, health, and ecology of pinnipeds in California, specifically at the Farallon Islands, Point Reyes Peninsula, Año Nuevo, San Francisco Bay, and in Sonoma County near the Russian River. Up to 325 harbor seals (
In compliance with the National Environmental Policy Act of 1969 (42 U.S.C. 4321
Concurrent with the publication of this notice in the
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice; public meeting.
The New England Fishery Management Council (Council) is scheduling a public meeting of its Scientific and Statistical Committee to consider actions affecting New England fisheries in the exclusive economic zone (EEZ). Recommendations from this group will be brought to the full Council for formal consideration and action, if appropriate.
This meeting will be held on Tuesday, September 4, 2012 at 9 a.m.
The meeting will be held at the Seaport Hotel, One Seaport Lane, Boston, MA 02210; telephone: (617) 385–4000; fax: (617) 385–4001.
Paul J. Howard, Executive Director, New England Fishery Management Council; telephone: (978) 465–0492.
The Scientific and Statistical Committee (SSC) will meet to review the stock assessment for Atlantic sea herring completed by the 54th Northeast Regional Stock Assessment Workshop and to develop ABC recommendations for fishing years 2013 through 2015. The Committee may not develop all the recommendations for this stock at this meeting. Other business may be discussed.
Although non-emergency issues not contained in this agenda may come before this group for discussion, those issues may not be the subject of formal action during this meeting. Action will be restricted to those issues specifically listed in this notice and any issues arising after publication of this notice that require emergency action under section 305(c) of the Magnuson-Stevens Act, provided the public has been notified of the Council's intent to take final action to address the emergency.
This meeting is physically accessible to people with disabilities. Requests for sign language interpretation or other auxiliary aids should be directed to Paul J. Howard, Executive Director, at (978) 465–0492, at least 5 days prior to the meeting date.
16 U.S.C. 1801
Department of the Army, DoD.
Notice of availability.
The Department of the Army announces the availability of the Draft Finding of No Significant Impact and the Final Programmatic Environmental Assessment (PEA) for Implementation of the Net Zero program at Army Installations. This PEA evaluates potential direct, indirect, and cumulative effects of the Net Zero Installation program at a programmatic (Army-wide) level; installation- or project-specific analysis will be performed and documented for proposed installation-level action.
The Net Zero program is comprised of changes in management practices and behavior as well as multiple possible projects and technologies to enhance resource efficiency with a broad focus on increased sustainability. It is based on the following concepts: (1) Producing at least as much energy on the installation from renewable sources as it uses annually; (2) Limiting the consumption of freshwater resources and returning water back to the same watershed so as not to deplete the groundwater and surface water resources of that region in quantity or quality; and (3) Reducing, reusing, and recovering waste streams, converting them to resource value with zero solid waste disposed in landfills. The Army does not consider Net Zero as a stand-alone program and intends to leverage existing resources and collaborate with the private sector to strive toward the Net Zero program's energy, water, and waste reduction goals.
The PEA assesses the potential environmental impacts from the range of energy, water, and waste projects that could be implemented in support of Net Zero. The Army evaluated three alternatives: (1) No action; (2) Implement Net Zero Army-wide; and (3) Strategically Implement Net Zero based on mission needs, consumption, and resource constraints (the preferred alternative). The Army identified no significant environmental effects associated with implementation of Net Zero that cannot be mitigated to a level of insignificance with site-specific best management practices or other mitigation measures.
Native Americans, federal, state, and local agencies, organizations, and the public are invited to submit written comments. The document can be accessed at:
Submit comments on or before September 12, 2012.
Written comments should be forwarded to: Office of the Deputy Assistant Secretary of the Army (Energy and Sustainability), OASA(IE&E), 110 Army Pentagon, Room 3D453, Washington, DC 20310–0110.
Please call (703) 697–5433.
Department of Energy.
Notice of open meeting.
This notice announces a meeting of the Environmental
Thursday, September 6, 2012, 8:30 a.m.–5:00 p.m. Friday, September 7, 2012, 8:30 a.m.–3:00 p.m.
Red Lion Hotel, 1101 North Columbia Center Boulevard, Kennewick, WA 99336.
Tifany Nguyen, Federal Coordinator, Department of Energy Richland Operations Office, 825 Jadwin Avenue, P.O. Box 550, A7–75, Richland, WA, 99352; Phone: (509) 376–3361; or Email:
Take notice that on July 31, 2012, Gas Transmission Northwest, LLC (GTN), filed in Docket No. CP12–494–000, an application pursuant to section 7(c) of the Natural Gas Act (NGA) and Part 157 of the Commission's regulations, requesting authorization to construct, own, and operate a new lateral pipeline consisting of approximately 24.3 miles of 20-inch diameter pipeline, along with measurement and other associated facilities, located between GTN's Ione Compressor Station and Portland General Electric Company's (PGE) proposed Carty Generating Station in Morrow County, Oregon (Carty Lateral Project), all as more fully set forth in the application which is on file with the Commission and open to public inspection. This filing may also be viewed on the Commission's Web site at
Any questions regarding this application should be directed to Mr. Richard Parke, Manager, Certificates, Gas Transmission Northwest, LLC, 717 Texas Street, Suite 2400, Houston, Texas 77002–2761, or by calling (832) 320–5516 (telephone), email:
On March 31, 2011, the Commission staff granted GTN's request to use the pre-filing process and assigned Docket No. PF11–5–000 to staff activities involving the Carty Lateral Project. Now, as of the filing of this application on July 31, 2012, the NEPA Pre-Filing Process for this project has ended. From this time forward, this proceeding will be conducted in Docket No. CP12–494–000, as noted in the caption of this Notice.
Pursuant to Section 157.9 of the Commission's rules, 18 CFR 157.9, within 90 days of this Notice the Commission staff will either: complete its environmental assessment (EA) and place it into the Commission's public record (eLibrary) for this proceeding, or issue a Notice of Schedule for Environmental Review. If a Notice of Schedule for Environmental Review is issued, it will indicate, among other milestones, the anticipated date for the Commission staff's issuance of the final environmental impact statement (FEIS) or EA for this proposal. The filing of the EA in the Commission's public record for this proceeding or the issuance of a Notice of Schedule for Environmental Review will serve to notify federal and state agencies of the timing for the completion of all necessary reviews, and the subsequent need to complete all federal authorizations within 90 days of the date of issuance of the Commission staff's FEIS or EA.
There are two ways to become involved in the Commission's review of this project. First, any person wishing to obtain legal status by becoming a party to the proceedings for this project should, on or before the comment date stated below, file with the Federal Energy Regulatory Commission, 888 First Street NE., Washington, DC 20426, a motion to intervene in accordance with the requirements of the Commission's Rules of Practice and Procedure (18 CFR 385.214 or 385.211) and the Regulations under the NGA (18 CFR 157.10). A person obtaining party status will be placed on the service list maintained by the Secretary of the Commission and will receive copies of
However, a person does not have to intervene in order to have comments considered. The second way to participate is by filing with the Secretary of the Commission, as soon as possible, an original and two copies of comments in support of or in opposition to this project. The Commission will consider these comments in determining the appropriate action to be taken, but the filing of a comment alone will not serve to make the filer a party to the proceeding. The Commission's rules require that persons filing comments in opposition to the project provide copies of their protests only to the party or parties directly involved in the protest.
Persons who wish to comment only on the environmental review of this project should submit an original and two copies of their comments to the Secretary of the Commission. Environmental commenters will be placed on the Commission's environmental mailing list, will receive copies of the environmental documents, and will be notified of meetings associated with the Commission's environmental review process. Environmental commenters will not be required to serve copies of filed documents on all other parties. However, the non-party commenters will not receive copies of all documents filed by other parties or issued by the Commission (except for the mailing of environmental documents issued by the Commission) and will not have the right to seek court review of the Commission's final order.
Motions to intervene, protests and comments may be filed electronically via the internet in lieu of paper; see, 18 CFR 385.2001(a)(1)(iii) and the instructions on the Commission's web site under the “e-Filing” link. The Commission strongly encourages electronic filings.
Take notice that the Commission received the following electric rate filings:
Take notice that the Commission received the following land acquisition reports:
The filings are accessible in the Commission's eLibrary system by clicking on the links or querying the docket number.
Any person desiring to intervene or protest in any of the above proceedings must file in accordance with Rules 211 and 214 of the Commission's Regulations (18 CFR 385.211 and 385.214) on or before 5:00 p.m. Eastern time on the specified comment date. Protests may be considered, but intervention is necessary to become a party to the proceeding.
eFiling is encouraged. More detailed information relating to filing requirements, interventions, protests, service, and qualifying facilities filings can be found at:
Take notice that the Commission received the following electric corporate filings:
Take notice that the Commission received the following electric rate filings:
The filings are accessible in the Commission's eLibrary system by clicking on the links or querying the docket number.
Any person desiring to intervene or protest in any of the above proceedings must file in accordance with Rules 211 and 214 of the Commission's Regulations (18 CFR 385.211 and 385.214) on or before 5:00 p.m. Eastern time on the specified comment date. Protests may be considered, but intervention is necessary to become a party to the proceeding.
eFiling is encouraged. More detailed information relating to filing requirements, interventions, protests, service, and qualifying facilities filings can be found at:
Take notice that the Commission received the following electric rate filings:
Take notice that the Commission received the following land acquisition reports:
Take notice that the Commission received the following electric reliability filings:
The filings are accessible in the Commission's eLibrary system by clicking on the links or querying the docket number.
Any person desiring to intervene or protest in any of the above proceedings must file in accordance with Rules 211 and 214 of the Commission's Regulations (18 CFR 385.211 and 385.214) on or before 5:00 p.m. Eastern time on the specified comment date. Protests may be considered, but intervention is necessary to become a party to the proceeding.
eFiling is encouraged. More detailed information relating to filing requirements, interventions, protests, service, and qualifying facilities filings can be found at:
Take notice that the Commission received the following electric corporate filings:
Take notice that the Commission received the following electric rate filings:
Description: Duke Energy Carolinas, LLC submits tariff filing per 35.13(a)(2)(iii: Amendment to NCEMC PPA to be effective 7/2/2012.
The filings are accessible in the Commission's eLibrary system by clicking on the links or querying the docket number.
Any person desiring to intervene or protest in any of the above proceedings must file in accordance with Rules 211 and 214 of the Commission's Regulations (18 CFR 385.211 and 385.214) on or before 5:00 p.m. Eastern time on the specified comment date. Protests may be considered, but intervention is necessary to become a party to the proceeding.
eFiling is encouraged. More detailed information relating to filing requirements, interventions, protests, service, and qualifying facilities filings can be found at:
Take notice that on August 6, 2012, OREG 1, Inc., OREG 2, Inc., OREG 3, Inc., and OREG 4, Inc. submitted a supplement to the compliance refund reports filed on March 19, 2012, pursuant to the Federal Energy Regulatory Commission's (Commission) Orders issued in this proceeding on May 19, 2011, 135 FERC ¶ 61,150 (2011), and February 16, 2012, 138 FERC ¶ 61,110 (2012).
Any person desiring to intervene or to protest this filing must file in accordance with Rules 211 and 214 of the Commission's Rules of Practice and Procedure (18 CFR 385.211, 385.214). Protests will be considered by the Commission in determining the appropriate action to be taken, but will not serve to make protestants parties to the proceeding. Any person wishing to become a party must file a notice of intervention or motion to intervene, as appropriate. Such notices, motions, or protests must be filed on or before the comment date. Anyone filing a motion to intervene or protest must serve a copy of that document on the Applicant and all the parties in this proceeding.
The Commission encourages electronic submission of protests and interventions in lieu of paper using the “eFiling” link at
This filing is accessible on-line at
Take notice that during the month of May 2012, the status of the above-captioned entities as Exempt Wholesale Generators became effective by operation of the Commission's regulations. 18 CFR 366.7(a).
The staff of the Federal Energy Regulatory Commission (FERC or Commission), in cooperation with other federal agencies, will prepare an environmental impact statement (EIS) that will discuss the environmental impacts of Jordan Cove Energy Project LP's (Jordan Cove) proposed liquefaction project in Coos County, Oregon, and Pacific Connector Gas Pipeline LP's (Pacific Connector) proposed pipeline project crossing portions of Klamath, Jackson, Douglas, and Coos Counties, Oregon. The FERC is the lead federal agency in the preparation of an EIS to satisfy the requirements of the National Environmental Policy Act (NEPA). The United States (U.S.) Army Corps of Engineers (COE), U.S. Department of Energy Office of Fossil Energy (DOE), U.S. Department of Agriculture Forest Service (Forest Service), and the U.S. Department of the Interior Bureau of Land Management (BLM), Bureau of Reclamation (Reclamation), and Fish and Wildlife Service are cooperating agencies assisting the FERC in preparation of the EIS.
The Commission will use this EIS in its decision-making process, to determine whether the Jordan Cove liquefied natural gas (LNG) terminal is in the public interest, and whether the Pacific Connector pipeline is in the public convenience and necessity, in accordance with the Natural Gas Act (NGA). The BLM and Forest Service propose to adopt the FERC EIS in accordance with Title 40 Code of Federal Regulations (CFR) 1506.3 to support decisions and findings that must be made by each agency with respect to the Pacific Connector pipeline project.
This notice announces the opening of the scoping process the Commission, Forest Service, BLM, and Reclamation will use to gather input from the public and interested agencies on the planned projects. Your input will help the Commission staff determine what issues should be evaluated in the EIS. Please note that the scoping period will close on September 4, 2012.
You may submit comments in written form or verbally. Further details on how to submit written comments are in the Public Participation section of this notice. In lieu of or in addition to sending in written comments, the Commission invites you to make verbal comments
This notice is being sent to the Commission's current environmental mailing list for these projects. State and local government representatives should notify their constituents about these projects and this scoping effort, and encourage interested members of the public to comment on their areas of concern.
If you are a landowner receiving this notice, a Pacific Connector representative may contact you about the acquisition of an easement to construct, operate, and maintain the planned facilities. The company would seek to negotiate a mutually acceptable agreement. However, if the Commission approves the Pacific Connector pipeline project, that approval conveys with it the right of eminent domain. Therefore, if easement negotiations fail to produce an agreement, the pipeline company could initiate condemnation proceedings where compensation would be determined in accordance with state law.
A fact sheet prepared by the FERC entitled “An Interstate Natural Gas Facility On My Land? What Do I Need To Know?” is available for viewing on the FERC Web site (
On December 17, 2009, the Commission issued an Order authorizing the Jordan Cove LNG import terminal in Docket No. CP07–444–000 and Pacific Connector pipeline in Docket No. CP07–441–000. The Commission vacated those authorizations in an Order issued April 16, 2012, after Jordan Cove submitted its request to begin the pre-filing process to change the facility's purpose from an LNG import terminal to an export terminal.
The FERC staff and cooperating agencies produced an EIS for the previous projects in May 2009. The new EIS for the currently proposed projects will make use of the previous analyses, update information, as needed, and evaluate the impacts associated with the new or modified facilities and routes.
Jordan Cove proposes to construct and operate an LNG export terminal on the North Spit of Coos Bay. The terminal would have the capacity to produce about six million metric tons per annum (MMTPA) of LNG (equivalent to 0.9 billion cubic feet per day [Bcf/d] of natural gas). Facilities would include:
• 7.3-mile-long waterway in Coos Bay for about 80 LNG carriers per year;
• 0.3-mile-long access channel and marine berth;
• A cryogenic transfer pipeline;
• Two 160,000 cubic meter LNG storage tanks;
• Four liquefaction trains (each with a capacity of 1.5 MMTPA);
• two feed gas and dehydration trains with a combined throughput of 1 Bcf/d of natural gas; and
• a 350 megawatt South Dunes power plant.
The Pacific Connector pipeline would be 36-inches-in-diameter and about 230-miles-long, extending from interconnections with other interstate pipelines near Malin, Oregon to the Jordan Cove LNG terminal at Coos Bay. The pipeline would have a design capacity of 0.9 Bcf/d of natural gas. Related facilities include:
• Two meter stations at the interconnections with the existing Gas Transmission Northwest (GTN) and Ruby pipelines near Malin, in Klamath County, Oregon;
• A 23,000-horsepower compressor station adjacent to the GTN and Ruby meter stations;
• A meter station at the interconnection with the existing Williams Northwest Pipeline system near Myrtle Creek, in Douglas County, Oregon; and
• A meter station at the Jordan Cove terminal, in Coos County, Oregon.
The general location of the project facilities is shown in Appendix 1.
The newly proposed Jordan Cove LNG export terminal in PF12–7–000 occupies the same footprint that was analyzed in our
As presented in our May 2009 EIS, construction of the Jordan Cove's LNG terminal would affect about 390 acres onshore, with an additional 72 acres needed to construct the marine berth and access channel for the LNG ships in Coos Bay. Construction of the Pacific Connector pipeline would affect a total of about 6,217 acres. The permanent operational easement for the pipeline right-of-way (ROW) and aboveground facilities would occupy about 1,439 acres.
The NEPA requires the Commission to take into account the environmental impacts that could result from an action whenever it considers the issuance of a Certificate of Public Convenience and Necessity, or makes a public interest determination. The NEPA also requires us to discover and address concerns the public may have about proposals. This process is referred to as scoping. The main goal of the scoping process is to focus the analysis in the EIS on the important environmental issues. By this notice, the Commission requests public comments on the scope of the issues to be addressed in the EIS. We will consider all filed comments during the preparation of the EIS.
In the EIS we will discuss impacts that could occur as a result of the construction and operation of the planned projects under these general headings:
• Land use;
• Geology and soils;
• Water resources and wetlands;
• Vegetation and wildlife;
• Cultural resources;
• Recreation and visual resources;
• Air quality and noise; and
• Public safety.
We will also evaluate possible alternatives to the planned projects or portions of the projects, and make recommendations on how to lessen or avoid impacts on the various environmental resources. The EIS will present our independent analysis of the issues.
Although no formal applications have been filed yet, we have already initiated
The COE, DOE, Forest Service, BLM, and Reclamation also have responsibilities under the NEPA, and can adopt the EIS for their own agencies purposes. The BLM, Reclamation, and Forest Service will use this EIS to evaluate the effects of the Pacific Connector pipeline project on lands and facilities managed by these agencies. The BLM and Forest Service will also use the EIS to address proposed amendments of their respective land management plans
With this notice, we are asking other agencies with jurisdiction by law and/or special expertise with respect to the environmental issues related to the projects to formally cooperate with us in the preparation of the EIS.
We will publish and distribute a draft EIS for public comment. After the comment period, we will consider all timely comments and revise the document, as necessary, before issuing a final EIS. To ensure we have the opportunity to consider and address your comments, please carefully follow the instructions in the Public Participation section of this notice.
In accordance with the Advisory Council on Historic Preservation's implementing regulations for section 106 of the National Historic Preservation Act (NHPA), we are using this notice to initiate consultations with the Oregon State Historic Preservation Office (SHPO), and to solicit its views, and those of other government agencies, interested Indian tribes, and the public on the projects' potential effects on historic properties.
The purpose of the public scoping process is to determine relevant issues that will influence the scope of the environmental analysis, including alternatives. Scoping also allows the public to comment on the BLM and Forest Service plan amendment process, and the consideration of a ROW Grant.
Based in part on our previous environmental analysis, information provided by Jordan Cove and Pacific Connector for their new proposals, and input from other federal and state resource agencies, and other stakeholders, we have already identified several issues that we think deserve attention during our current review. This preliminary list of environmental issues may change based on your comments and our further analysis. The FERC staff identified the following preliminary list of issues:
• Reliability and safety for LNG carrier traffic in Coos Bay, the LNG terminal, and the pipeline;
• Impacts on aquatic resources from dredging the LNG terminal access channel and berth, and pipeline trenching in Coos Bay;
• Geological hazards to the LNG terminal from seismic activity;
• Geological hazards, including landslides at steep slopes, along the pipeline route;
• Impacts of pipeline construction on federally listed threatened and endangered species, including salmon, marbled murrelet, and northern spotted owl;
• Impacts of pipeline construction on private landowners; and
• Visual impacts resulting from construction and operation of the projects.
Preliminary issues for the plan amendments have been identified by BLM and Forest Service staff. The issues include:
• Effects of proposed amendments on Survey and Manage species and their habitat;
• Effects of proposed amendments on contiguous existing or recruitment habitat for marbled murrelets within 0.5 mile of occupied marbled murrelet sites;
• Effects of proposed amendments on habitat in Known Owl Activity Centers (KOAC); and
• Effects of the proposed amendments on Late Successional Reserves (LSR).
Preliminary BLM and Forest Service planning criteria include:
• Evaluation of significance of proposed amendments of Forest Service Land and Resource Management Plans (LRMP) in the context of goals and objectives of the affected LRMPs. Whether a plan amendment is significant is guided by several factors, including the timing and duration of the proposed change, the location and size of the project, and how the proposed change could alter multiple-use goals and objectives for long-term land and resource management;
• Likelihood of persistence of affected Survey and Manage species within the range of the northern spotted owl;
• Amount and quality of marbled murrelet habitat affected by construction and operation of the Pacific Connector pipeline project;
• Amount and quality of habitat in KOAC affected by construction and operation of the Pacific Connector pipeline project;
• Functionality of LSR; and
• Impacts on Connectivity and Diversity Blocks on BLM lands.
The BLM and Forest Service seek public input on issues and planning criteria related to amendment of their District and Forest land management plans related to the Pacific Connector pipeline project. The BLM, Reclamation, and Forest Service also seek public input on issues and planning criteria related to issuance of the ROW Grant, as discussed below (under Proposed Actions of the BLM and Forest Service).
The DOE must meet its obligation under section 3 of the NGA, to authorize the import and export of natural gas, including LNG, unless it finds that the proposed import or export will not be consistent with the public interest. The purpose and need for DOE actions is to respond to the application filed by Jordan Cove with the DOE on March 23, 2012 (FE Docket No. 12–32–LNG), seeking authorization to export up to 6 MMTPA of LNG, an export volume equivalent to about 292 Bcf per year of natural gas, for a 25-year period, commencing the earlier of the date of first export or seven years from the date of issuance of the requested authorization. The LNG proposed for export would be from Jordan Cove's proposed Coos Bay terminal to any country: (1) With which the U.S. does not have a free trade agreement requiring the national treatment for trade in natural gas; (2) that has, or in the future develops, the capacity to import LNG; and (3) with which trade is not prohibited by U.S. law or policy.
Because the proposed projects may involve actions in floodplains, in accordance with 10 CFR part 1022,
The purpose of and need for the proposed action by the BLM is to respond to a ROW Grant application originally submitted by Pacific Connector on April 17, 2006 to construct, operate, maintain, and eventually decommission a natural gas pipeline that crosses lands and facilities administered by the BLM, Reclamation, and Forest Service. In addition, there is a need for the BLM and the Forest Service to consider amending affected District and Forest land management plans to make provision for the Pacific Connector ROW.
The proposed action of the BLM and Forest Service has two components. First, the BLM would amend its Resource Management Plans (RMP) for the Coos Bay, Roseburg, and Medford Districts, and Klamath Falls Resource Area of the Lakeview District; while the Forest Service would amend its LRMPs for the Umpqua, Rogue River, and Winema National Forests to make provisions for the Pacific Connector pipeline project. Reclamation has no land use plan amendments associated with this action. Second, in accordance with 43 CFR 2882.3(i), the BLM would issue a ROW Grant in response to Pacific Connector's application for the project to occupy federal lands, with the written concurrence of the Forest Service and Reclamation. Each agency may submit specific stipulations, including mitigation measures, for inclusion in the ROW Grant related to lands, facilities, and easements within their respective jurisdictions.
The Secretary of the Interior has delegated authority to the BLM to grant a ROW in response to Pacific Connector's application for natural gas transmission on federal lands under the Mineral Leasing Act of 1920. The Responsible Official for amendments of BLM RMPs and issuance of the ROW Grant is the BLM Oregon/Washington State Director. The Responsible Official for amendment of Forest Service LRMPs is the Forest Supervisor of the Umpqua National Forest. The Responsible Official for concurrence on issuance of the ROW Grant by Reclamation is the Area Manager of the Mid-Pacific Region's Klamath Basin Area Office. In accordance with 36 CFR 219.17(b)(2), the Deciding Official for the Forest Service has elected to use the 1982 planning rule procedures to amend Forest Service LRMPs as provided in the transition procedures of the 2000 planning rule.
If the BLM adopts the new FERC EIS for the Pacific Connector pipeline project (in Docket No. PF12–17–000), the Oregon/Washington State Director of the BLM will make the following decisions and determinations:
• Determine whether to amend the RMPs for the BLM Coos Bay, Roseburg, and Medford Districts and the Klamath Falls Resource Area of the Lakeview District as proposed or as described in an alternative to the Proposed Action; and
• Respond to the Pacific Connector application, with concurrence of Reclamation and Forest Service, by issuing a ROW Grant, granting the ROW with conditions, or denying the application.
If the Forest Service adopts the new FERC EIS for the Pacific Connector pipeline project (in Docket No. PF12–17–000), the Forest Supervisor of the Umpqua National Forest will make the following decisions and determinations:
• Decide whether to amend the LRMPs of the Umpqua, Rogue River, and Winema National Forests as proposed or as described in an alternative; and
• Determine the significance of the proposed amendments or alternatives in accordance with national forest planning regulation 36 CFR 219.10(f) (1982 procedures) using criteria in Forest Service Manual 1926.5
Applicable BLM District RMPs and National Forest LRMPs would be amended to exempt certain known sites within the area of the proposed Pacific Connector ROW Grant from the Management Recommendations required by the 2001 “Record of Decision and Standards and Guidelines for Amendments to the Survey and Manage, Protection Buffer, and other Mitigation Measures Standards and Guidelines,” as modified in July 2011. For known sites within the proposed ROW that cannot be avoided, the 2001 Management Recommendations for protection of known sites of Survey and Manage species would not apply. For known sites located outside the proposed ROW but with an overlapping protection buffer only that portion of the buffer within the ROW would be exempt from the protection requirements of the Management Recommendations. Those Management Recommendations would remain in effect for that portion of the protection buffer that is outside of the ROW. The proposed amendment would not exempt the BLM or the Forest Service from the requirements of the 2001 Survey and Manage Record of Decision, as modified, to maintain species persistence for affected Survey and Manage species within the range of the northern spotted owl. This is a site-specific amendment applicable only to the Pacific Connector ROW and would not change future management direction at any other location.
The Coos Bay District and Roseburg District RMPs would be amended to waive the requirements to protect contiguous existing and recruitment habitat for marbled murrelets within the Pacific Connector ROW that is within 0.5 miles of occupied marbled murrelet sites, as mapped by the BLM. This is a
The Roseburg District RMP would be amended to exempt the Pacific Connector pipeline project from the requirement to retain habitat in KOAC at three locations. This is a site-specific amendment applicable only to the Pacific Connector ROW and would not change future management direction at any other location.
The Roseburg District RMP would be amended to change the designation of approximately 409 acres from Matrix land allocations to the LSR land allocation in Sections 32 and 34, Township (T.) 29
The Coos Bay District RMP would be amended to change the designation of approximately 454 acres from Matrix land allocations to the LSR land allocation in Sections 19 and 29 of T.28S., R.10W., W.M., OR. This change in land allocation is proposed to mitigate the potential adverse impact of the Pacific Connector pipeline project on LSRs in the Coos Bay District. The amendment would change future management direction for the lands reallocated from Matrix lands to LSR.
The Umpqua National Forest LRMP would be amended to change the Standards and Guidelines for Fisheries (Umpqua National Forest LRMP, page IV–33, Forest-Wide) to allow the removal of effective shading vegetation where perennial streams are crossed by the Pacific Connector ROW. This change would potentially affect an estimated total of three acres of effective shading vegetation at approximately five perennial stream crossings in the East Fork of Cow Creek subwatershed from pipeline mileposts (MP) 109 to 110 in Sections 16 and 21, T.32S., R.2W., W.M., OR. This is a site-specific amendment applicable only to the Pacific Connector ROW and would not change future management direction at any other location.
The Umpqua National Forest LRMP would be amended to change prescriptions C2–II (LRMP IV–173) and C2–IV (LRMP IV–177) to allow the Pacific Connector pipeline route to run parallel to the East Fork of Cow Creek for approximately 0.1 mile between about pipeline MPs 109.5 and 109.6 in Section 21, T.32S., R.2W., W. M., OR. This change would potentially affect approximately one acre of riparian vegetation along the East Fork of Cow Creek. This is a site-specific amendment applicable only to the Pacific Connector ROW and would not change future management direction at any other location.
The Umpqua National Forest LRMP would be amended to waive limitations on the area affected by detrimental soil conditions from displacement and compaction within the Pacific Connector ROW. Standards and Guidelines for Soils (LRMP page IV–67) requires that not more than 20 percent of the project area have detrimental compaction, displacement, or puddling after completion of a project. This is a site-specific amendment applicable only to the Pacific Connector ROW and would not change future management direction at any other location.
The Umpqua National Forest LRMP would be amended to change the designation of approximately 588 acres from Matrix land allocations to the LSR land allocation in Sections 7, 18, and 19, T.32S., R.2W.; and Sections 13 and 24, T.32S., R.3W., W.M., OR. This change in land allocation is proposed to partially mitigate the potential adverse impact of the Pacific Connector pipeline project on LSR 223 on the Umpqua National Forest. This amendment would change future management direction for the lands reallocated from Matrix to LSR.
The Rogue River National Forest LRMP would be amended to establish a Forest Plan objective that states: “While considering other multiple use values, the Forest shall facilitate and make provision for energy transmission via the Pacific Connector consistent with the Energy Policy Act of 2005, the Mineral Leasing Act, the Natural Gas Act, the Multiple Use Sustained Yield Act, and the National Forest Management Act.”
The Rogue River National Forest LRMP would be amended to change the VQO where the Pacific Connector pipeline route crosses the Big Elk Road at about pipeline MP 161.4 in Section 16, T.37S., R.4E., W.M., OR, from Foreground Retention (Management Strategy 6, LRMP page 4–72) to Foreground Partial Retention (Management Strategy 7, LRMP page 4–86) and allow 10–15 years for amended VQO to be attained. The existing Standards and Guidelines for VQO in Foreground Retention where the Pacific Connector pipeline route crosses the Big Elk Road require that VQOs be met within one year of completion of the project and that management activities not be visually evident. This amendment would apply only to the Pacific Connector pipeline project in the vicinity of Big Elk Road and would not change future management direction for any other project.
The Rogue River National Forest LRMP would be amended to change the VQO where the Pacific Connector pipeline route crosses the Pacific Crest Trail at about pipeline MP 168 in Section 32, T.37S., R.5E., W.M., OR, from Foreground Partial Retention (Management Strategy 7, LRMP page 4–86) to Modification (USDA Forest Service Agricultural Handbook 478) and to allow 15–20 years for amended VQOs to be attained. The existing Standards and Guidelines for VQOs in Foreground Partial Retention in the area where the Pacific Connector pipeline route crosses the Pacific Crest Trail require that visual mitigation measures meet the stated VQO within three years of the completion of the project and that management activities be visually subordinate to the landscape. This
The Rogue River National Forest LRMP would be amended to allow 10–15 years to meet the VQO of Middleground Partial Retention between Pacific Connector pipeline MPs 156.3 to 156.8 and 157.2 to 157.5 in Sections 11 and 12, T.37S., R.3E., W.M., OR. Standards and Guidelines for Middleground Partial Retention (Management Strategy 9, LRMP Page 4–112) require that VQOs for a given location be achieved within three years of completion of the project. Approximately 0.8 miles or 9 acres of the Pacific Connector ROW in the Middleground Partial Retention VQO visible at distances of 0.75 to 5 miles from State Highway 140 would be affected by this amendment. This amendment would apply only to the Pacific Connector pipeline project in Sections 11 and 12, T.37S., R.3E., W.M., OR, and would not change future management direction for any other project.
The Rogue River National Forest LRMP would be amended to allow the Pacific Connector ROW to cross the Restricted Riparian land allocation. This would potentially affect approximately 2.5 acres of the Restricted Riparian Management Strategy at one perennial stream crossing on the South Fork of Little Butte Creek at about pipeline MP 162.45 in Section 15, T.37S., R.4E., W.M., OR. Standards and Guidelines for the Restricted Riparian land allocation prescribe locating transmission corridors outside of this land allocation (Management Strategy 26, LRMP page 4–308,). This is a site-specific amendment applicable only to the Pacific Connector ROW and would not change future management direction at any other location.
The Rogue River National Forest LRMP would be amended to waive limitations on areas affected by detrimental soil conditions from displacement and compaction within the Pacific Connector ROW in all affected Management Strategies. Standards and Guidelines for detrimental soil impacts in affected Management Strategies require that no more than 10 percent of an activity area should be compacted, puddled or displaced upon completion of project (not including permanent roads or landings). No more than 20 percent of the area should be displaced or compacted under circumstances resulting from previous management practices including roads and landings. Permanent recreation facilities or other permanent facilities are exempt (RRNF LRMP 4–41, 4–83, 4–97, 4–123, 4–177, 4–307). This is a site-specific amendment applicable only to the Pacific Connector ROW and would not change future management direction at any other location.
The Rogue River National Forest LRMP would be amended to change the designation of approximately 512 acres from Matrix land allocations to the LSR land allocation in Section 32, T.36S., R.4E. W.M., OR. This change in land allocation is proposed to partially mitigate the potential adverse impact of the Pacific Connector pipeline project on LSR 227 on the Rogue River National Forest. This amendment would change future management direction for the lands reallocated from Matrix to LSR.
The Winema National Forest LRMP would be amended to change the Standards and Guidelines for Management Area 3 (MA–3) (LRMP page 4–103–4, Lands) to allow the 95-foot-wide Pacific Connector pipeline corridor in MA–3 from the Forest Boundary in Section 32, T.37S., R.5E., W.M., OR, to the Clover Creek Road corridor in Section 4, T.38S, R.5. E., W.M., OR. Standards and Guidelines for MA–3 state that the area is currently an avoidance area for new utility corridors. This proposed new utility corridor is approximately 1.5 miles long and occupies approximately 17 acres. This is a site-specific amendment applicable only to the Pacific Connector ROW and would not change future management direction at any other location.
The Winema National Forest LRMP would be amended to allow 10–15 years to achieve the VQO of Foreground Retention where the Pacific Connector ROW crosses the Dead Indian Memorial Highway at approximately pipeline MP 168.8 in Section 33, T.37S., R.5E., W. M., OR. Standards and Guidelines for Scenic Management, Foreground Retention (LRMP 4–103, MA 3A, Foreground Retention) requires VQOs for a given location be achieved within one year of completion of the project. The Forest Service proposes to allow 10–15 years to meet the specified VQO at this location. This is a site-specific amendment that would apply only to the Pacific Connector pipeline project in the vicinity of the Dead Indian Memorial Highway and would not change future management direction for any other project.
The Winema National Forest LRMP would be amended to allow 10–15 years to meet the VQO for Scenic Management, Foreground Partial Retention, where the Pacific Connector Right-of-Way is adjacent to the Clover Creek Road from approximately pipeline MP 170 to 175 in Sections 2, 3, 4, 11, and 12, T.38S., R.5E., and Sections 7 and 18, T.38S., R.6E., W.M., OR. This change would potentially affect approximately 50 acres. Standards and Guidelines for Foreground Partial Retention (LRMP, page 4–107, MA 3B) require that VQOs be met within three years of completion of a project. This is a site-specific amendment would apply only to the Pacific Connector pipeline project in the vicinity of Clover Creek Road and would not change future management direction for any other project.
The Winema National Forest LRMP would be amended to waive restrictions on detrimental soil conditions from displacement and compaction within the Pacific Connector ROW in all affected management areas. Standards and Guidelines for detrimental soil impacts in all affected management areas require that no more than 20 percent of the activity area be detrimentally compacted, puddled, or displaced upon completion of a project (LRMP page 4–73, 12–5). This is a site-
The Winema National Forest LRMP would be amended to waive restrictions on detrimental soil conditions from displacement and compaction within the Pacific Connector ROW within the Management Area 8, Riparian Area (MA–8). This change would potentially affect approximately 0.5 mile or an estimated 9.6 acres of MA–8. Standards and Guidelines for Soil and Water, MA–8 require that not more than 10 percent of the total riparian zone in an activity area be in a detrimental soil condition upon the completion of a project (LRMP page 4–137, 2). This is a site-specific amendment applicable only to the Pacific Connector ROW and would not change future management direction at any other location.
You can make a difference by providing us with your specific comments or concerns about the Jordan Cove and Pacific Connector projects, and proposed BLM and Forest Service land management plan amendments. Your comments should focus on the potential environmental effects, reasonable alternatives, and measures to avoid or lessen environmental impacts. The more specific your comments, the more useful they will be. To ensure that your comments are timely and properly recorded, please send your comments so that the Commission receives them in Washington DC on or before September 4, 2012.
The BLM, Reclamation, and Forest Service are participating as cooperating agencies with the FERC in this public scoping process. With this notice, the BLM is requesting comments through the FERC's public scoping process on proposed amendments of BLM RMPs to make provision for the Pacific Connector ROW on the Coos Bay, Roseburg, and Medford Districts and Klamath Falls Resource Area of the Lakeview District. The BLM is also requesting public comments on the issuance of the ROW Grant that would allow the Pacific Connector pipeline to occupy federal land. The Forest Service is requesting public comments on the proposed amendments of Forest Service LRMPs to make provision for the Pacific Connector ROW on the Rogue River, Umpqua, and Winema National Forests. Timely comments submitted by the public in response to the NOI previously issued by the Forest Service to make provision for the Pacific Connector ROW, published in the
Comments on actions by the BLM, Reclamation, or Forest Service should be submitted through the FERC comment process and within the timeline described. The submission of timely and specific comments can affect a reviewer's ability to participate in subsequent administrative or judicial review of BLM and Forest Service decisions. Comments concerning BLM and Forest Service actions submitted anonymously will be accepted and considered; however such anonymous submittals would not provide the commenters with standing to participate in administrative or judicial review of BLM and Forest Service decisions.
For your convenience, there are three methods you can use to submit your comments to the FERC. In all instances, please reference the docket numbers for these projects (PF12–7–000 and PF12–17–000) with your submission. The Commission encourages electronic filing of comments, and has expert staff available to assist you at (202) 502–8258 or
(1) You can file your comments electronically using the eComment feature located on the Commission's Web site (
(2) You can file your comments electronically using the eFiling feature located on the Commission's Web site (
(3) You can file a paper copy of your comments by mailing them to the following address: Kimberly D. Bose, Secretary, Federal Energy Regulatory Commission, 888 First Street NE., Room 1A, Washington, DC 20426.
Before including your address, phone number, email address, or other personal identifying information in your comments, you should be aware that the entire text of your comments—including your personal identifying information—would be publicly available through the FERC eLibrary system, if you file your comments with the Secretary of the Commission.
The FERC's environmental mailing list includes federal, state, and local government representatives and agencies; elected officials; environmental groups and non-governmental organizations; interested Indian tribes; other interested parties; and local libraries and newspapers. This list also includes all affected landowners (as defined in the Commission's regulations) who are potential right-of-way grantors, whose property may be used temporarily for project purposes, or who own homes within certain distances of aboveground facilities, and anyone who submits comments on the projects. We will update the environmental mailing list as the analysis proceeds to ensure that we send the information related to this environmental review to all individuals, organizations, and government entities interested in and/or potentially affected by the planned projects. Please note that if you submitted comments on the previously reviewed projects (CP07–441–000 and CP07–444–000) and want to be involved in the currently proposed projects (PF12–7–000 and PF12–17–000) you must resubmit comments.
Copies of the completed draft EIS on compact discs (CD) will be sent to the environmental mailing list for public review and comment. If you would prefer to receive a paper copy of the document instead of the CD version, or would like to remove your name from the mailing list, please return the attached Information Request (Appendix 2).
Once Jordan Cove and Pacific Connector file their applications with the FERC, the Commission will issue a
Decisions by the BLM and Forest Service to amend land management plans are subject to administrative review. In accordance with 36 CFR 219.59, the Forest Service has elected to use the administrative review procedures (otherwise known as protest procedures) of the BLM. Administrative objections to Forest Service land management plan amendment decisions and protests of BLM land management plan amendment decisions may be filed under the provisions of 43 CFR 1610.5–2.
Additional information about the projects is available from the Commission's Office of External Affairs, at (866) 208–FERC, or on the FERC Web site (
In addition, the Commission offers a free service called eSubscription which allows you to keep track of all formal issuances and submittals in specific dockets. This can reduce the amount of time you spend researching proceedings by automatically providing you with notification of these filings, document summaries, and direct links to the documents. Go to
Finally, public meetings or site visits will be posted on the Commission's calendar located at
The staff of the Federal Energy Regulatory Commission (FERC or Commission) will prepare an environmental impact statement (EIS) that will identify and address the environmental impacts that could result from the construction and operation of the Cameron Pipeline Expansion Project and the Cameron Liquefied Natural Gas (LNG) Liquefaction Project (collectively Cameron Liquefaction Project or Project) planned by Cameron Interstate Pipeline, LLC and Cameron LNG, LLC (collectively Cameron), respectively. The Commission will use this EIS in its decision-making process to determine whether the Project is in the public interest.
This notice announces the opening of the scoping process the Commission will use to gather input from the public and interested agencies on the Project. Your input will help the Commission staff determine what issues they need to evaluate in the EIS. Please note that the scoping period will close on September 4, 2012.
You may submit comments in written form or verbally. Further details on how to submit written comments are in the Public Participation section of this notice. In lieu of or in addition to sending written comments, the Commission invites you to attend the public scoping meeting scheduled as follows: FERC Public Scoping Meeting, Cameron Liquefaction Project, August 21, 2012, 6:00 p.m., Holiday Inn Express (Indigo Meeting), 330 Arena Road, Sulphur, LA 70665.
This notice is being sent to the Commission's current environmental mailing list for this Project. State and local government representatives should notify their constituents of this planned project and encourage them to comment on their areas of concern.
If you are a landowner receiving this notice, a company representative may contact you about the acquisition of an easement to construct, operate, and maintain the planned facilities. The company would seek to negotiate a mutually acceptable agreement. However, if the Commission approves the Project, that approval conveys with it the right of eminent domain. Therefore, if easement negotiations fail to produce an agreement, Cameron could initiate condemnation proceedings where compensation would be determined in accordance with state law.
A fact sheet prepared by the FERC entitled “An Interstate Natural Gas Facility on My Land? What Do I Need To Know?” is available for viewing on the FERC Internet Web site (
Cameron plans to expand its existing LNG import terminal in Cameron Parish, Louisiana to enable the terminal to liquefy natural gas and export the LNG. The planned facility would have an export capacity of 12 million metric tons per year (MTPY) while maintaining the current capability to import and re-gasify LNG. The related Cameron Pipeline Expansion Project would be constructed and operated to provide natural gas to the planned export terminal. The general locations of the planned pipeline and LNG export terminal are depicted in the figure included as Appendix 1.
The Cameron Pipeline Expansion Project would include construction and operation of the following facilities:
• Approximately 21 miles of new 42-inch-diameter pipeline extending from an interconnection with the Florida Gas Transmission Pipeline in Calcasieu Parish, Louisiana to a new interconnection with the Trunkline Gas Pipeline in Beauregard Parish, Louisiana;
• A new 66,000-horsepower compressor station in Calcasieu Parish, Louisiana;
• A new interconnection and metering facilities with the Trunkline Gas Pipeline in Beauregard Parish, Louisiana; and
• Modifications to existing interconnections and metering facilities in Beauregard, Calcasieu, and Cameron Parishes.
Cameron plans to initiate construction of the Cameron Pipeline Expansion Project in the first quarter of 2015 and complete construction during the second quarter of 2016. The construction schedule would be driven by the need to complete construction of the pipeline by the planned time for commissioning of the initial liquefaction train at the LNG terminal in the fourth quarter of 2016 as described below.
The Cameron LNG Liquefaction Project would include construction and operation of the following facilities:
• Three liquefaction trains, with each train including a feed gas treatment unit, a heavy hydrocarbon removal unit, and a liquefaction unit (with a maximum LNG production capacity of 4 million MTPY each);
• A new 160,000-cubic-meter LNG storage tank;
• A new natural gas liquids (NGL) and refrigerant storage area;
• A new truck loading/unloading facility to unload refrigerants for transport to the storage area and to load NGLs produced during the gas liquefaction process;
• A new construction dock designed to receive barges transporting large equipment via the Calcasieu Ship Channel; and
• Nine natural gas-fueled combustion turbine generators that would generate approximately 200 megawatts of electric power.
Cameron plans to initiate construction of the Cameron LNG Liquefaction Project in the fourth quarter of 2013 and complete construction of the first LNG liquefaction train in the fourth quarter of 2016. Operations would commence after the commissioning of the first LNG liquefaction train. Cameron plans to have the Cameron Liquefaction Project fully constructed and operational by the fourth quarter of 2017.
The Cameron Pipeline Expansion Project would require about 368 acres for construction, with 140 acres as previously disturbed during construction of the existing Cameron pipeline. A 25-acre temporary contractor yard would be located adjacent to the Ragley Compressor Station in Beauregard Parish, Louisiana. The new compressor station would require 30 acres for construction and operation. After construction, Cameron would maintain about 80 acres as permanent right-of-way. The remaining 258 acres of temporary workspace (including all temporary construction rights-of-way and extra workspaces) would be restored and allowed to revert to its former use. Approximately 16 miles of the new 21-mile-long pipeline would be constructed within existing permanent rights-of-way. The remaining 5 miles would be adjacent to existing pipeline/utility corridors, but outside of the existing permanent rights-of-way.
The Cameron LNG Liquefaction Project would be constructed adjacent to and north of the existing Cameron LNG Terminal on approximately 430 acres, of which approximately 50 acres is part of the existing terminal. All 430 acres would be used for construction (including an equipment laydown area) and operation of the terminal.
The National Environmental Policy Act (NEPA) requires the Commission to take into account the environmental impacts that could result from an action whenever it considers the issuance of a Certificate of Public Convenience and Necessity under section 7(c) of the Natural Gas Act (NGA) and authorization to construct, install, and operate LNG facilities under Section 3(a) of the NGA. NEPA also requires us
In the EIS, we will discuss impacts that could occur as a result of the construction and operation of the planned Cameron Liquefaction Project under the following general headings:
• Geology and soils;
• Water resources;
• Wetlands and vegetation;
• Fish and wildlife;
• Threatened and endangered species;
• Land use, recreation, and visual resources;
• Air quality and noise;
• Cultural resources;
• Socioeconomics;
• Reliability and safety;
• Engineering and design material; and
• Cumulative environmental impacts.
We will also evaluate possible alternatives to the planned Project or portions of the Project in the EIS, and make recommendations on how to lessen or avoid impacts on affected resources.
Although no formal application has been filed by Cameron, we have already initiated our NEPA review under the Commission's pre-filing process. The purpose of the pre-filing process is to encourage the early involvement of interested stakeholders and to identify and resolve issues before the FERC receives an application. As part of our pre-filing review, we have begun to contact some federal and state agencies to discuss their involvement in the scoping process and the preparation of the EIS.
The EIS will present our independent analysis of the issues. We will publish and distribute the draft EIS for public comment. After the comment period, we will consider all timely comments and revise the document, as necessary, before issuing a final EIS. To ensure we have the opportunity to consider and address your comments, please carefully follow the instructions in the Public Participation section beginning on page 7.
With this notice, we are asking agencies with jurisdiction by law and/or special expertise with respect to the environmental issues related to this Project to formally cooperate with us in the preparation of the EIS.
In accordance with the Advisory Council on Historic Preservation's implementing regulations for section 106 of the National Historic Preservation Act, we are using this notice to initiate consultation with the Office of the State of Louisiana Cultural Development, which has been given the role of State Historic Preservation Office (SHPO), and to solicit its views and those of other government agencies, interested Indian tribes, and the public on the Project's potential effects on historic properties.
We have already identified many issues that we think deserve attention based on a preliminary review of the Project site and facilities and information provided by Cameron. The following preliminary list of issues may be changed based on your comments and our analysis:
• Potential impacts on perennial and intermittent waterbodies, including waterbodies with federal and/or state designations/protections;
• Evaluation of temporary and permanent impacts on wetlands and the development of appropriate mitigation;
• Potential impacts to fish and wildlife habitat, including potential impacts to federally and state-listed threatened and endangered species;
• Potential effects on prime farmland and erodable soils;
• Potential visual effects of the aboveground facilities on surrounding areas;
• Potential impacts and potential benefits of construction workforce on local housing, infrastructure, public services, and economy;
• Impacts on air quality and noise associated with construction and operation of the Project; and
• Public safety and hazards associated with the transport of natural gas and LNG.
You can make a difference by providing us with your specific comments or concerns about the Project. Your comments should focus on the potential environmental effects, reasonable alternatives, and measures to avoid or lessen environmental impacts. The more specific your comments, the more useful they will be. To ensure that your comments are timely and properly recorded, please send your comments so that the Commission receives them in Washington, DC on or before September 4, 2012. This is not your only public input opportunity; please refer to the Environmental Review Process flow chart in Appendix 2.
For your convenience, there are three methods you can use to submit your comments to the Commission. In all instances, please reference either or both Project docket numbers (PF12–12–000 and PF12–13–000) with your submission. The Commission encourages electronic filing of comments and has expert staff available to assist you at (202) 502–8258 or
(1) You can file your comments electronically using the
(2) You can file your comments electronically using the
(3) You can file a paper copy of your comments by mailing them to the following address: Kimberly D. Bose, Secretary, Federal Energy Regulatory Commission, 888 First Street NE., Room 1A, Washington, DC 20426.
The environmental mailing list includes federal, state, and local government representatives and agencies; elected officials; environmental and public interest groups; Native American Tribes; other interested parties; and local libraries and newspapers. This list also includes all affected landowners (as defined in the Commission's regulations) who are potential right-of-way grantors, whose property may be used temporarily for project purposes, or who own homes within certain distances of aboveground facilities, and anyone who submits comments on the Project. We will update the environmental mailing list as the analysis proceeds to ensure that we send the information related to this environmental review to all individuals, organizations, and government entities interested in and/or potentially affected by the planned Project.
Copies of the completed draft EIS will be sent to the environmental mailing list for public review and comment. If you would prefer to receive a paper copy of the document instead of the CD version or would like to remove your name from the mailing list, please return the attached Information Request (Appendix 3).
Once Cameron files its applications with the Commission, you may want to become an “intervenor,” which is an official party to the Commission's proceeding. Intervenors play a more formal role in the process and are able to file briefs, appear at hearings, and be heard by the courts if they choose to appeal the Commission's final ruling. An intervenor formally participates in the proceeding by filing a request to intervene. Instructions for becoming an intervenor are in the User's Guide under the “e-filing” link on the Commission's Web site. Please note that the Commission will not accept requests for intervenor status at this time. You must wait until the Commission receives a formal application for the planned Project.
Additional information about the Project is available from the Commission's Office of External Affairs, at (866) 208–FERC, or on the FERC Web site (
In addition, the Commission offers a free service called eSubscription which allows you to keep track of all formal issuances and submittals in specific dockets. This can reduce the amount of time you spend researching proceedings by automatically providing you with notification of these filings, document summaries, and direct links to the documents. Go to
Public meetings or site visits will be posted on the Commission's calendar located at
Finally, Cameron has established an Internet Web site for the Project at
This is a supplemental notice in the above-referenced proceeding, of Energy Alternatives Wholesale, LLC's application for market-based rate authority, with an accompanying rate schedule, noting that such application includes a request for blanket authorization, under 18 CFR part 34, of future issuances of securities and assumptions of liability.
Any person desiring to intervene or to protest should file with the Federal Energy Regulatory Commission, 888 First Street NE., Washington, DC 20426, in accordance with Rules 211 and 214 of the Commission's Rules of Practice and Procedure (18 CFR 385.211 and 385.214). Anyone filing a motion to intervene or protest must serve a copy of that document on the Applicant.
Notice is hereby given that the deadline for filing protests with regard to the applicant's request for blanket authorization, under 18 CFR part 34, of future issuances of securities and assumptions of liability is August 27, 2012.
The Commission encourages electronic submission of protests and interventions in lieu of paper, using the FERC Online links at
Persons unable to file electronically should submit an original and 14 copies of the intervention or protest to the Federal Energy Regulatory Commission, 888 First Street NE., Washington, DC 20426.
The filings in the above-referenced proceeding(s) are accessible in the Commission's eLibrary system by clicking on the appropriate link in the above list. They are also available for review in the Commission's Public Reference Room in Washington, DC. There is an eSubscription link on the Web site that enables subscribers to receive email notification when a document is added to a subscribed docket(s). For assistance with any FERC Online service, please email
This is a supplemental notice in the above-referenced proceeding, of Helvetia Solar, LLC's application for market-based rate authority, with an accompanying rate schedule, noting that such application includes a request for blanket authorization, under 18 CFR part 34, of future issuances of securities and assumptions of liability.
Any person desiring to intervene or to protest should file with the Federal Energy Regulatory Commission, 888 First Street NE., Washington, DC 20426, in accordance with Rules 211 and 214 of the Commission's Rules of Practice and Procedure (18 CFR 385.211 and 385.214). Anyone filing a motion to intervene or protest must serve a copy of that document on the Applicant.
Notice is hereby given that the deadline for filing protests with regard to the applicant's request for blanket authorization, under 18 CFR part 34, of future issuances of securities and assumptions of liability is August 27, 2012.
The Commission encourages electronic submission of protests and interventions in lieu of paper, using the FERC Online links at
Persons unable to file electronically should submit an original and 14 copies of the intervention or protest to the Federal Energy Regulatory Commission, 888 First Street NE., Washington, DC 20426.
The filings in the above-referenced proceeding(s) are accessible in the Commission's eLibrary system by clicking on the appropriate link in the above list. They are also available for review in the Commission's Public Reference Room in Washington, DC. There is an eSubscription link on the Web site that enables subscribers to receive email notification when a document is added to a subscribed docket(s). For assistance with any FERC Online service, please email
This is a supplemental notice in the above-referenced proceeding, of NRG Solar Borrego I LLC's application for market-based rate authority, with an accompanying rate schedule, noting that such application includes a request for blanket authorization, under 18 CFR part 34, of future issuances of securities and assumptions of liability.
Any person desiring to intervene or to protest should file with the Federal Energy Regulatory Commission, 888 First Street, NE., Washington, DC 20426, in accordance with Rules 211 and 214 of the Commission's Rules of Practice and Procedure (18 CFR 385.211 and 385.214). Anyone filing a motion to
Notice is hereby given that the deadline for filing protests with regard to the applicant's request for blanket authorization, under 18 CFR part 34, of future issuances of securities and assumptions of liability is August 27, 2012.
The Commission encourages electronic submission of protests and interventions in lieu of paper, using the FERC Online links at
Persons unable to file electronically should submit an original and 14 copies of the intervention or protest to the Federal Energy Regulatory Commission, 888 First Street NE., Washington, DC 20426.
The filings in the above-referenced proceeding(s) are accessible in the Commission's eLibrary system by clicking on the appropriate link in the above list. They are also available for review in the Commission's Public Reference Room in Washington, DC. There is an eSubscription link on the Web site that enables subscribers to receive email notification when a document is added to a subscribed docket(s). For assistance with any FERC Online service, please email
On July 5, 2012, Coralville Energy, LLC filed an application for a preliminary permit under section 4(f) of the Federal Power Act proposing to study the feasibility of the Burlington Street Dam Hydroelectric Project No. 14431, to be located at the existing Burlington Street Dam on the Iowa River, near Iowa City in Johnson County, Iowa. The Burlington Street Dam is owned and operated by the University of Iowa.
A preliminary permit does not authorize the permit holder to perform any land-disturbing activities or otherwise enter upon lands or waters owned by others without the owners' express permission.
The proposed project would consist of: (1) The existing 291-foot-long by 14-foot-high concrete gravity dam; (2) a new 50-foot-long by 50-foot-wide by 50-foot-high powerhouse, containing two 0.75-megawatt (MW) vertical flume propeller-type turbine/generator units for a total capacity of 1.5 MW; (3) a new 2-foot-long by 40-foot-wide by 15-foot-high intake structure; (4) a new 400-foot-long, 12.7-kilovolt transmission line; and (5) appurtenant facilities. The project would have an estimated annual generation of 8,542 megawatt-hours.
Deadline for filing comments, motions to intervene, and competing applications (without notices of intent), or notices of intent to file competing applications: 60 days from the issuance of this notice. Competing applications and notices of intent must meet the requirements of 18 CFR 4.36. Comments, motions to intervene, notices of intent, and competing applications may be filed electronically via the Internet. See 18 CFR 385.2001(a)(1)(iii) and the instructions on the Commission's Web site
More information about this project, including a copy of the application can be viewed or printed on the “eLibrary” link of Commission's Web site at
Take notice that on July 24, 2012 Columbia Gas Transmission, L.L.C. (Columbia), P.O. Box 1273, Charleston, West Virginia 25325, filed in Docket No. CP12–487–000, a Prior Notice request pursuant to sections 157.205 and 157.216 of the Commission's Regulations under the Natural Gas Act for authorization to abandon four underperforming natural gas storage wells in Ashland, Hocking, and Lorain Counties, Ohio. Specifically, Columbia proposes to permanently plug and abandon Benton Storage Well No. 8620, Laurel Storage Well No. 9019, Lucas Storage Well No. 582, and Wellington Storage Well No. 8702 together with the associated well pipeline and appurtenances. The proposed wells to be abandoned have historically performed poorly in relation to other wells and Columbia has determined that plugging and abandoning the wells is the best course of action, all as more fully set forth in the application which is on file with the Commission and open to public inspection. The filing may also be viewed on the Web at
Any questions regarding this Application should be directed to Fredric J. George, Senior Counsel, Columbia Gas Transmission, L.L.C., P.O. Box 1273, Charleston, West Virginia 25325, or call (304) 357–2359, or fax (304) 357–3206, or by email:
Any person may, within 60 days after the issuance of the instant notice by the
Persons who wish to comment only on the environmental review of this project should submit an original and two copies of their comments to the Secretary of the Commission. Environmental commenters will be placed on the Commission's environmental mailing list, will receive copies of the environmental documents, and will be notified of meetings associated with the Commission's environmental review process. Environmental commenters will not be required to serve copies of filed documents on all other parties. However, the non-party commentary will not receive copies of all documents filed by other parties or issued by the Commission (except for the mailing of environmental documents issued by the Commission) and will not have the right to seek court review of the Commission's final order.
The Commission strongly encourages electronic filings of comments, protests, and interventions via the internet in lieu of paper. See 18 CFR 385.2001(a)(1)(iii) and the instructions on the Commission's Web site (
Take notice that on July 25, Carolina Gas Transmission Corporation (Carolina Gas), 601 Old Taylor Road, Cayce, South Carolina 29033, filed in Docket No. CP12–488–000, an application pursuant to sections 157.205 and 157.210 of the Commission's Regulations under the Natural Gas Act (NGA) as amended, to convert three existing standby compressor units at its Grover Compressor Station in Cherokee County, South Carolina, to base load service under Carolina Gas' blanket certificate issued in Docket Nos. CP06–71–000
Carolina Gas proposes to convert three existing standby 1,050 horsepower (HP) Solar Saturn turbine compressor units to base load service at the Grover Compressor Station. Carolina Gas states that it would convert the three standby compressor units to base load service in order to provide additional firm transportation capacity to three customers who have requested additional capacity on Carolina Gas' system. Carolina Gas also states that no construction, abandonment, or earth disturbance would be involved with this proposal. Carolina Gas estimates that the proposed compressor conversions would cost $85,000 to implement.
Any questions concerning this application may be directed to Randy D. Traylor, Jr., Manager—System Planning, Carolina Gas Transmission Corporation, 601 Old Taylor Road, Cayce, South Carolina 29033, telephone (803) 217–2255, or by Email:
This filing is available for review at the Commission or may be viewed on the Commission's Web site at
Any person or the Commission's staff may, within 60 days after issuance of the instant notice by the Commission, file pursuant to Rule 214 of the Commission's Procedural Rules (18 CFR 385.214) a motion to intervene or notice of intervention and pursuant to Section 157.205 of the regulations under the NGA (18 CFR 157.205), a protest to the request. If no protest is filed within the time allowed therefore, the proposed activity shall be deemed to be authorized effective the day after the time allowed for filing a protest. If a protest is filed and not withdrawn within 30 days after the allowed time for filing a protest, the instant request shall be treated as an application for authorization pursuant to Section 7 of the NGA.
Take notice that on July 27, 2012, Transwestern Pipeline Company, LLC (Transwestern), 711 Louisiana Street, Suite 900, Houston, Texas 77002–2716, filed a prior notice request pursuant to sections 157.205, 157.208, and 157.210 of the Commission's regulations under the Natural Gas Act (NGA) for authorization to install piping modifications at its Gallup Compressor Station in McKinley County, New Mexico, and to update its West of Thoreau area mainline design capacity by 15 million cubic feet per day. Transwestern estimates the cost of the proposed project to be approximately $550,000, all as more fully set forth in the application, which is on file with the Commission and open to public inspection. The filing may also be viewed on the Web at
Any questions regarding the application should be directed to Mr. Kelly Allen, Manager of Certificates and Reporting, Transwestern Pipeline Company, LLC, 711 Louisiana Street, Suite 900, Houston, Texas 77002–2716, by telephone at (281) 714–2056, by facsimile at (281) 714–2181, or by email at
Any person may, within 60 days after the issuance of the instant notice by the Commission, file pursuant to Rule 214 of the Commission's Procedural Rules (18 CFR 385.214) a motion to intervene or notice of intervention. Any person filing to intervene or the Commission's staff may, pursuant to section 157.205 of the Commission's regulations under the NGA (18 CFR 157.205) file a protest to the request. If no protest is filed within the time allowed therefore, the proposed activity shall be deemed to be authorized effective the day after the time allowed for protest. If a protest is filed and not withdrawn within 30 days after the time allowed for filing a protest, the instant request shall be treated as an application for authorization pursuant to section 7 of the NGA.
The Commission strongly encourages electronic filings of comments, protests, and interventions via the Internet in lieu of paper. See 18 CFR 385.2001(a) (1) (iii) and the instructions on the Commission's Web site (
Western Area Power Administration, DOE.
Notice of Base Charge and Rates.
In this notice, the Deputy Secretary of Energy (Deputy Secretary) approves the Fiscal Year (FY) 2013 Base Charge and Rates for Boulder Canyon Project (BCP) electric service provided by the Western Area Power Administration (Western). The Base Charge will provide sufficient revenue to pay all annual costs, including interest expense, and repay investments within the allowable period.
The revised Base Charge and Rates will be effective the first day of the first full billing period beginning on or after October 1, 2012, and will stay in effect through September 30, 2013, or until superseded.
Mr. Jack Murray, Rates Manager, Desert Southwest Customer Service Region, Western Area Power Administration, P.O. Box 6457, Phoenix, AZ 85005–6457, (602) 605–2442, email
Hoover Dam, authorized by the Boulder Canyon Project Act (45 Stat. 1057, December 21, 1928), sits on the Colorado River along the Arizona and Nevada border. Hoover Dam power plant has nineteen (19) generating units (two for plant use) and an installed capacity of 2,078,800 kilowatts (kW) (4,800 kW for plant use). High-voltage transmission lines and substations connect BCP power to consumers in southern Nevada, Arizona, and southern California. BCP electric service rates are adjusted annually using an existing rate formula established on April 19, 1996. The rate formula requires the BCP Contractors to pay a Base Charge (expressed in dollars), rather than a rate, for their power. The Base Charge is calculated to generate sufficient revenue to cover all annual costs and to repay investment obligations within allowable time periods. The Base Charge is allocated to each BCP Contractor in proportion to their allocation of Hoover power. A BCP composite power rate, expressed in mills per kilowatt-hour (mills/kWh), can be inferred by dividing the Base Charge by energy sales in the year; however, the rate is not used to determine customers' bills.
Rate Schedule BCP–F8, Rate Order No. WAPA–150, effective October 1, 2010, through September 30, 2015, allows for an annual recalculation of the Base Charge and Rates.
The recalculated Base Charge for BCP electric service, effective October 1, 2012, is $82,379,637, a 2.55-percent decrease from the FY 2012 Base Charge. The decrease is due to a decrease in the annual revenue requirement, driven primarily by decreases in FY 2011 annual operation and maintenance expenses and replacement costs, and increases in the other non-power revenues. The decrease in FY 2011 expenses resulted in additional carryover in FY 2012 and FY 2013, which reduced the FY 2013 Base Charge. The FY 2013 composite rate of 21.28 mills/kWh is an increase of approximately 1 percent compared to the FY 2012 BCP composite rate. The FY 2013 energy rate of 10.64 mills/kWh reflects an increase of approximately 1 percent compared to the existing energy rate of 10.56 mills/kWh. Energy sales are decreasing compared with FY 2012 due to deteriorating hydrological conditions in FY 2013. The FY 2013 capacity rate of $1.96/kW-month reflects an increase of approximately 7 percent compared to the existing capacity rate of $1.84/kW-month. Capacity sales are decreasing compared with FY 2012, due to a forecast of poor hydrology in FY 2013 compared to FY 2012. Although the revenue requirement for FY 2013 is decreasing, the decrease in energy sales results in an increase to the composite and energy rates, and the decrease in capacity sales results in an increase to the capacity rate. The proposed rates were calculated using Western's FY 2012 Final Master Schedule which provides the FY 2013 projections for energy and capacity sales.
The following summarizes the steps taken by Western to ensure involvement of all interested parties in determining the Base Charge and Rates:
1. A
2. Discussion of the proposal was initiated at an informal BCP Contractor meeting held March 7, 2012, in Phoenix, Arizona. At this informal meeting, representatives from Western and the Bureau of Reclamation (Reclamation) explained the basis for estimates used to calculate the Base Charge and Rates and held a question and answer session.
3. At the public information forum held on March 28, 2012, in Phoenix, Arizona, Western and Reclamation representatives explained the proposed Base Charge and Rates for FY 2013 in greater detail and held a question and answer session.
4. A public comment forum held on April 11, 2012, in Phoenix, Arizona, provided the public an opportunity to comment for the record. One individual commented at this forum.
5. Western received three comment letters during the 90-day consultation and comment period. The consultation and comment period ended April 17, 2012. Western responds to comments received in this
• Arizona Westside Irrigation & Electrical Districts, Phoenix, Arizona.
• Irrigation & Electrical Districts Association of Arizona, Phoenix, Arizona.
• Ryley Carlock & Applewhite Attorneys, Phoenix, Arizona.
Comments and responses, paraphrased for brevity when not affecting the meaning of the statements, are presented below.
BCP Base Charge and the resulting calculated Rates for electric service are designed to recover an annual revenue requirement that includes operation and maintenance expenses, payments to states, visitor services, the uprating program, replacements, investment repayment, and interest expense. Western's power repayment study (PRS) allocates the projected annual revenue requirement for electric service equally between capacity and energy.
Information about this Base Charge and Rate adjustment, including PRS, comments, letters, memorandums, and other supporting material developed or maintained by Western used to develop the FY 2013 BCP Base Charge and Rates is available for public review at the Desert Southwest Customer Service Regional Office, Western Area Power Administration, 615 South 43rd Avenue, Phoenix, AZ 85005. The information is also available on Western's Web site at
BCP electric service rates are developed under the Department of Energy Organization Act (42 U.S.C. 7101–7352), through which the power marketing functions of the Secretary of the Interior and Reclamation under the Reclamation Act of 1902 (ch. 1093, 32 Stat. 388), as amended and supplemented by subsequent enactments, particularly section 9(c) of the Reclamation Project Act of 1939 (43 U.S.C. 485h(c)), and other acts that specifically apply to the project involved, were transferred to and vested in the Secretary of Energy, acting by and through Western.
By Delegation Order No. 00–037.00, effective December 6, 2001, the Secretary of Energy delegated: (1) The authority to develop long-term power and transmission rates on a non-exclusive basis to Western's Administrator; (2) the authority to confirm, approve, and place such rates into effect on an interim basis to the Deputy Secretary; and (3) the authority to confirm, approve, and place into effect on a final basis, to remand or to disapprove such rates to the Federal Energy Regulatory Commission (FERC). Existing Department of Energy procedures for public participation in electric service rate adjustments are located at 10 CFR part 903, effective September 18, 1985 (50 FR 37835), and 18 CFR part 300. Department of Energy procedures were followed by Western in developing the rate formula approved by FERC on December 9, 2010, at 133 FERC ¶ 62,229.
The Boulder Canyon Project Implementation Agreement requires that Western determine the annual base charge and rates for the next fiscal year before October 1 of each rate year. The rates for the first rate year, and each fifth rate year thereafter, become effective provisionally upon approval by the Deputy Secretary and subject to final approval by FERC. For all other rate years, the rates become effective on a final basis upon approval by the Deputy Secretary. Because FY 2013 is an interim year, these rates become effective on a final basis upon approval by the Deputy Secretary.
Western will continue to provide annual rates to the BCP Contractors by October 1 of each year using the same rate-setting formula. The rates are reviewed annually and adjusted upward or downward to assure sufficient revenues are collected to achieve payment of all costs and financial obligations associated with the project. Each fiscal year, Western prepares a PRS for the BCP to update actual revenues and expenses including interest, estimates of future revenues, expenses, and capitalized costs.
The BCP rate-setting formula includes a base charge, an energy rate, and a capacity rate. The rate-setting formula was used to determine the BCP FY 2013 Base Charge and Rates.
Western proposed a FY 2013 Base Charge of $82,379,637, an energy rate of 10.64 mills/kWh, and a capacity rate of $1.96/kW-month.
Consistent with procedures set forth in 10 CFR part 903 and 18 CFR part 300, Western held a consultation and comment period. The notice of the proposed FY 2013 Base Charge and Rates for electric service was published in the
Under Delegation Order Nos. 00–037.00 and 00–001.00C, and in compliance with 10 CFR part 903 and 18 CFR part 300, I hereby approve the FY 2013 Base Charge and Rates for BCP Electric Service on a final basis under Rate Schedule BCP–F8 through September 30, 2013.
Environmental Protection Agency (EPA).
Extension to submittal date for applications.
On May 17, 2012, the EPA published a notice in the
Applications for the 2015 Critical Use Exemption must be postmarked on or before August 29, 2012.
EPA encourages users to submit their applications electronically to Jeremy Arling, Stratospheric Protection Division, at
Federal Communications Commission.
Notice of public meeting.
In accordance with the Federal Advisory Committee Act, this notice advises interested persons that the Federal Communications Commission's (FCC or Commission) Communications Security, Reliability, and Interoperability Council (CSRIC) will hold its fifth meeting. The CSRIC will vote on recommendations from several Working Groups and receive progress reports from the remaining Working Groups.
September 12, 2012.
Federal Communications Commission, Room TW–C305 (Commission Meeting Room), 445 12th Street SW., Washington, DC 20554.
Jeffery Goldthorp, Designated Federal Officer, (202) 418–1096 (voice) or
The meeting will be held on September 12, 2012, from 9:00 a.m. to 1:00 p.m. in the Commission Meeting Room of the Federal Communications Commission, Room TW–C305, 445 12th Street SW., Washington, DC 20554. The CSRIC.
The CSRIC is a Federal Advisory Committee that will provide recommendations to the FCC regarding best practices and actions the FCC can take to ensure the security, reliability, and interoperability of communications systems. On March 19, 2011, the FCC, pursuant to the Federal Advisory Committee Act, renewed the charter for the CSRIC for a period of two years through March 18, 2013. Working Groups are described in more detail at
The FCC will attempt to accommodate as many attendees as possible; however, admittance will be limited to seating availability. The Commission will provide audio and/or video coverage of the meeting over the Internet from the FCC's Web page at
Federal Communications Commission.
Notice.
The Enforcement Bureau (the “Bureau”) gives notice of Mr. Willard Ross Lanham's suspension from the schools and libraries universal service support mechanism (or “E-Rate Program”). Additionally, the Bureau gives notice that debarment proceedings are commencing against him. Mr. Lanham, or any person who has an existing contract with or intends to contract with him to provide or receive services in matters arising out of activities associated with or related to the schools and libraries support, may respond by filing an opposition request, supported by documentation to Joy Ragsdale, Federal Communications Commission, Enforcement Bureau, Investigations and Hearings Division, Room 4–C330, 445 12th Street SW., Washington, DC 20554.
Opposition requests must be received by 30 days from the receipt of the suspension letter or September 12, 2012, whichever comes first. The Bureau will decide any opposition request for reversal or modification of suspension or debarment within 90 days of its receipt of such requests.
Federal Communications Commission, Enforcement Bureau, Investigations and Hearings Division, Room 4–C330, 445 12th Street SW., Washington, DC 20554.
Joy Ragsdale, Federal Communications Commission, Enforcement Bureau, Investigations and Hearings Division, Room 4–C330, 445 12th Street SW., Washington, DC 20554. Joy Ragsdale may be contacted by phone at (202) 418–1697 or email at
The Bureau has suspension and debarment authority pursuant to 47 CFR 54.8 and 47 CFR 0.111(a)(14). Suspension will help to ensure that the party to be suspended cannot continue to benefit from the schools and libraries mechanism pending resolution of the debarment process. Attached is the suspension letter, DA 12–1211, which was mailed to Mr. Lanham and released on July 27, 2012. The complete text of the notice of suspension and initiation of debarment proceedings is available for public inspection and copying during regular business hours at the FCC Reference Information Center, Portal II, 445 12th Street SW., Room CY–A257, Washington, DC 20554. In addition, the complete text is available on the FCC's Web site at
Dear Mr. Lanham: The Federal Communications Commission (Commission or FCC) has received notice of your conviction for theft of federal education funds in violation of 18 U.S.C. 666(a)(1), and mail fraud in violation of 18 U.S.C. 1341, in connection with the federal schools and libraries universal service support mechanism (E-Rate program).
The Commission has established procedures to prevent persons who have “defrauded the government or engaged in similar acts through activities associated with or related to the [E-Rate program]” from receiving the benefits associated with that program.
On March 5, 2012, a jury rendered a guilty verdict convicting you on one count of theft of federal funds and three counts of mail fraud in connection with your activities as an E-Rate consultant for the New York City Department of Education (DOE).
Testimony and documentary evidence admitted during your trial corroborates SCI's allegations. Specifically, witnesses testified that you: (1) Arranged for employees of your company, Lanham Enterprises, Inc., to work as consultants for DOE,
Pursuant to § 54.8(b) of the Commission's rules,
In accordance with the Commission's suspension and debarment rules, you may contest this suspension or the scope of this suspension by filing arguments, with any relevant documents, within thirty (30) calendar days of receipt of this letter or it's publication in the
In addition to requiring your immediate suspension from the E-Rate program, your conviction is cause for debarment as defined in § 54.8(c) of the Commission's rules.
As with the suspension process, you may contest the proposed debarment or the scope of the proposed debarment by filing arguments and any relevant documentation within thirty (30) calendar days of receipt of this letter or its publication in the
If and when your debarment becomes effective, you will be prohibited from participating in activities associated
Please direct any response, if sent by messenger or hand delivery, to Marlene H. Dortch, Secretary, Federal Communications Commission, 445 12th Street SW., Room TW–A325, Washington, DC 20554, to the attention of Joy M. Ragsdale, Attorney Advisor, Investigations and Hearings Division, Enforcement Bureau, Room 4–C330, with a copy to Theresa Z. Cavanaugh, Chief, Investigations and Hearings Division, Enforcement Bureau, Room 4–C330, Federal Communications Commission. All messenger or hand delivery filings must be submitted without envelopes.
If you have any questions, please contact Ms. Ragsdale via U.S. postal mail, email, or by telephone at (202) 418–1697. You may contact me at (202) 418–1553 or at the email address noted above if Ms. Ragsdale is unavailable.
Based upon the foregoing, the Receiver has determined that the continued existence of the receivership will serve no useful purpose. Consequently, notice is given that the receivership shall be terminated, to be effective no sooner than thirty days after the date of this Notice. If any person wishes to comment concerning the termination of the receivership, such comment must be made in writing and sent within thirty days of the date of this Notice to: Federal Deposit Insurance Corporation, Division of Resolutions and Receiverships, Attention: Receivership Oversight Department 8.1, 1601 Bryan Street, Dallas, TX 75201.
No comments concerning the termination of this receivership will be considered which are not sent within this time frame.
The notificants listed below have applied under the Change in Bank Control Act (12 U.S.C. 1817(j)) and § 225.41 of the Board's Regulation Y (12 CFR 225.41) to acquire shares of a bank or bank holding company. The factors that are considered in acting on the notices are set forth in paragraph 7 of the Act (12 U.S.C. 1817(j)(7)).
The notices are available for immediate inspection at the Federal Reserve Bank indicated. The notices also will be available for inspection at the offices of the Board of Governors. Interested persons may express their views in writing to the Reserve Bank indicated for that notice or to the offices of the Board of Governors. Comments must be received not later than August 28, 2012.
A. Federal Reserve Bank of Atlanta (Chapelle Davis, Assistant Vice President) 1000 Peachtree Street NE., Atlanta, Georgia 30309:
1.
B. Federal Reserve Bank of Minneapolis (Jacqueline G. King, Community Affairs Officer) 90 Hennepin Avenue, Minneapolis, Minnesota 55480–0291:
1.
2.
The companies listed in this notice have applied to the Board for approval, pursuant to the Bank Holding Company Act of 1956 (12 U.S.C. 1841
The applications listed below, as well as other related filings required by the Board, are available for immediate inspection at the Federal Reserve Bank indicated. The applications will also be available for inspection at the offices of the Board of Governors. Interested persons may express their views in writing on the standards enumerated in the BHC Act (12 U.S.C. 1842(c)). If the proposal also involves the acquisition of a nonbanking company, the review also includes whether the acquisition of the nonbanking company complies with the standards in section 4 of the BHC Act (12 U.S.C. 1843). Unless otherwise noted, nonbanking activities will be conducted throughout the United States.
Unless otherwise noted, comments regarding each of these applications must be received at the Reserve Bank indicated or the offices of the Board of Governors not later than September 7, 2012.
A. Federal Reserve Bank of Kansas City (Dennis Denney, Assistant Vice President) 1 Memorial Drive, Kansas City, Missouri 64198–0001:
1.
Board of Governors of the Federal Reserve System, August 8, 2012.
15 U.S.C. 3719.
ONC, HHS.
Notice
The Office of the National Coordinator for Health Information Technology (ONC) announces the launch of the
This is the fourth in a series of Health IT video contests that will occur throughout 2012. The goal of this video contest series is to generate content that will be used to motivate and inspire others to leverage technology to better manage their health and be more engaged partners in their health and health care. Each challenge will be a call to action for members of the public to create a short video clip [2 minutes or less] on a particular theme, and will award cash prizes to winners in several categories.
Effective on August 9, 2012.
Erin Poetter, Consumer e-Health Policy Analyst,
ONC's Managing Meds Video Challenge invites you to create short, inspiring videos sharing how you use technology to manage your medications effectively or support individuals to take their medications as directed, improving patient health and safety.
If you are a consumer or patient, you can participate by creating a video demonstrating how you can use technology for medication management. For example, you could describe:
• E-prescribing tools your provider uses to send your order directly to the pharmacy so it's ready when you arrive and to avoid potential medication errors from illegible handwriting on a paper script.
• Electronic tools such as mobile apps that help you keep track of the medications you are taking and when it's time to take them, or that notify you when it's time to refill a prescription so you don't run out of your meds.
• Emailing your provider in between visits to notify them you've stopped taking the medication that was prescribed because of side effects.
• Logging on to your provider's portal and viewing your list of medications on file and sending a request to update the list to reflect which meds you are no longer taking or may have been prescribed by another doctor.
If you are a health care provider, such as a doctor, nurse or pharmacist, you can also participate by demonstrating how you use health information technology (health IT), such as e-prescribing and electronic health record systems, to support prescribing patients the right medications and dosage, and to prevent drug-drug interactions.
To be eligible to win a prize under this challenge, an individual or entity—
(1) Shall have registered to participate in the competition under the rules promulgated by HHS;
(2) Shall have complied with all the requirements under this section;
(3) In the case of a private entity, shall be incorporated in and maintain a primary place of business in the United States, and in the case of an individual, whether participating singly or in a group, shall be a citizen or permanent resident of the United States; and
(4) May not be a Federal entity or Federal employee acting within the scope of their employment.
(5) Shall not be an HHS employee working on their applications or submissions during assigned duty hours.
(6) Shall not be an employee of the Office of the National Coordinator for Health Information Technology.
(7) Federal grantees may not use Federal funds to develop COMPETES Act challenge applications unless consistent with the purpose of their grant award.
(8) Federal contractors may not use Federal funds from a contract to develop COMPETES Act challenge applications or to fund efforts in support of a COMPETES Act challenge submission.
(9) May not be:
a. An employee of a commercial business whose name, brand name, product or other trademark is mentioned or featured in the Video, or
b. A contractor or employee of an affiliate, subsidiary, advertising agency, or any other company involved in marketing a commercial business, brand name, product or other trademark mentioned or featured in the Video.
All individual members of a team must meet the eligibility requirements.
An individual or entity shall not be deemed ineligible because the individual or entity used Federal facilities or consulted with Federal employees during a competition if the facilities and employees are made available to all individuals and entities participating in the competition on an equitable basis.
1. During the Challenge Submission Period, visit
2. On
3. Create a video and ensure the following (please read the Official Rules on
a. Your video must demonstrate how technology can be used to help you take your meds as prescribed.
b. Your video encourages viewers to visit
c. Your video is no longer than 2 minutes.
4. Confirm that you have read and agreed to the Official Rules.
• The title of the Video;
• A link to the Video on
• A text description of your use of health IT to improve medication management, and a transcript of the words spoken in the video;
• A transcript of the words spoken or sung in the video;
• Uploaded consent forms for everyone who appears in the video regardless of age.
All individuals that appear in a Video must complete and sign the Video Consent Form. If a minor appears in the Video, the minor's parent/legal guardian must also sign the Video Consent Form. A Submission will not be considered complete and eligible to win prizes without a completed Video Consent Form being uploaded from all individuals that appear in the Video. All completed Video Consent Forms must include a handwritten signature, and be scanned, combined in to a single file (ZIP, PDF, or doc), and uploaded on the submission form on
Videos will be judged based on the following criteria (to be equally weighted):
1. Quality of the Idea (Includes elements such as the relevance and originality of your use of health IT).
2. Potential Impact on health IT adoption (Includes whether the video is compelling, instructive, and easy to follow so that others can perform similar activities using health technology).
The five (5) Contestants whose Submissions earn the highest overall score will win, respectively, the prizes identified below in Section 8. In the event of a tie, winners will be selected based on their score on the criteria described in (3), then (2), and then (1). If there is still a tie then the winner will be selected based on a vote by the judging panel.
In compliance with the requirement of section 3506(c)(2)(A) of the Paperwork Reduction Act of 1995, the Centers for Medicare & Medicaid Services (CMS), Department of Health and Human Services, is publishing the following summary of proposed collections for public comment. Interested persons are invited to send comments regarding this burden estimate or any other aspect of this collection of information, including any of the following subjects: (1) The necessity and utility of the proposed information collection for the proper performance of the Agency's function; (2) the accuracy of the estimated burden; (3) ways to enhance the quality, utility, and clarity of the information to be collected; and (4) the use of automated collection techniques or other forms of information technology to minimize the information collection burden.
1.
The Hospice Quality Data Submission Form was created for hospice providers to collect specified quality data and submit that data to CMS, for the data collection period starting October 1, 2012, through December 31, 2012, and continuing on a calendar year thereafter. Webinar training on data collection and data submission has been and will continue to be provided by CMS. Use of the Hospice Quality Data Submission Form is necessary in order for hospices to submit the quality data specified for the Hospice Quality Reporting Program.
To obtain copies of the supporting statement and any related forms for the proposed paperwork collections referenced above, access CMS Web Site address at
To be assured consideration, comments and recommendations for the proposed information collections must be received by the OMB desk officer at
Office of Head Start (OHS), Administration for Children and Families, HHS.
Notice of meeting.
Pursuant to the Improving Head Start for School Readiness Act of 2007, notice is hereby given of a one-day Tribal Consultation Session to be held between the Department of Health and Human Services, Administration for Children and Families, Office of Head Start leadership and the leadership of Tribal Governments operating Head Start (including Early Head Start) programs. The purpose of this Consultation Session is to discuss ways to better meet the needs of American Indian and Alaska Native children and their families, taking into consideration funding allocations, distribution formulas, and other issues affecting the delivery of Head Start services in their geographic locations.
October 15, 2012 and October 17, 2012.
2012 Office of Head Start Tribal Consultation Session will be held at the following locations: Monday, October 15, 2012—Portland, Oregon—Westin Portland, 750 SW Alder Street, Portland, OR 97205; and Wednesday, October, 17, 2012—Anchorage, Alaska—Hilton Anchorage Hotel, 500 West Third Avenue, Anchorage, AK 99501.
Ann Linehan, Deputy Director, Office of Head Start, email
The Department of Health and Human Services (HHS) announces Office of Head Start (OHS) Tribal Consultations for leaders of Tribal Governments operating Head Start and Early Head Start programs in Region X and in Alaska. The Consultation Session for Region X will take place Monday, October 15, 2012, in Portland, Oregon. The Consultation Session for the State of Alaska will take place Wednesday, October 17, 2012, in Anchorage, Alaska, immediately preceding the annual Alaska Federation of Natives convention. As much as possible, OHS Tribal Consultations are scheduled in conjunction with other Tribal Leader events. This is done in an effort to minimize the financial and travel burden for participants.
The agenda for the scheduled OHS Tribal Consultations will be organized around the statutory purposes of Head Start Tribal Consultations related to meeting the needs of AI/AN children and families, taking into consideration funding allocations, distribution formulas, and other issues affecting the delivery of Head Start services in their geographic locations. In addition, OHS will share actions taken and in progress to address the issues and concerns raised in 2011 OHS Tribal Consultations.
Tribal leaders and designated representatives interested in submitting written testimony or proposing specific agenda topics for the Oklahoma City Consultation Session should contact Ann Linehan at
The Consultation Session will be conducted with elected or appointed leaders of Tribal Governments and their designated representatives (42 U.S.C. 9835, Section 640(l)(4)(A)). Designees must have a letter from the Tribal Government authorizing them to represent the tribe. The letter should be submitted at least three days in advance of the Consultation Session to Ann Linehan at (202) 205–9721 (fax). Other representatives of tribal organizations and Native nonprofit organizations are welcome to attend as observers.
A detailed report of the Consultation Session will be prepared and made available within 90 days of the Consultation Session to all Tribal Governments receiving funds for Head Start and Early Head Start programs. Tribes wishing to submit written testimony for the report should send testimony to Ann Linehan at
Oral testimony and comments from the Consultation Session will be summarized in each report without attribution, along with topics of concern and recommendations. Hotel and logistical information for the Consultation Session has been sent to tribal leaders via email and posted on the Head Start Resource Center Web site at
Food and Drug Administration, HHS.
Notice.
The Food and Drug Administration (FDA) is announcing the availability of the draft guidance entitled “Refuse to Accept Policy for 510(k)s.” The purpose of this document is to explain the procedures and criteria FDA intends to use in determining whether a premarket notification (510(k)) submission is administratively complete, which determines whether it should be accepted for substantive review. This guidance is applicable to 510(k)s reviewed in the Center for Devices and Radiological Health (CDRH) and the Center for Biologics Evaluation and Research (CBER). This draft guidance is not final nor is it in effect at this time.
Although you can comment on any guidance at any time (see 21 CFR 10.115(g)(5)), to ensure that the agency considers your comment on this draft guidance before it begins work on the final version of the guidance, submit either electronic or written comments on the draft guidance by September 27, 2012.
Submit written requests for single copies of the draft guidance document entitled “Refuse to Accept Policy for 510(k)s” to the Division of Small Manufacturers, International and Consumer Assistance, Center for
Submit electronic comments on the draft guidance to
Geeta Pamidimukkala, Center for Devices and Radiological Health, Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 66, rm. 1564, Silver Spring, MD 20993–0002, 301–796–6453; or Stephen Ripley, Center for Biologics Evaluation and Research (HFM–17), Food and Drug Administration, 1401 Rockville Pike, Suite 200N, Rockville, MD 20852–1448, 301–827–6210.
The purpose of the 510(k) acceptance review is to make a threshold determination whether a submission is administratively complete, which determines whether it should be accepted for substantive review to reach a determination regarding substantial equivalence under section 513(i) of the FD&C Act, 21 U.S.C. 360c(i). To find a device substantially equivalent under section 513(i) of the FD&C Act, FDA must find that it has the same intended use as the predicate device, and either: (1) Has the same technological characteristics as the predicate device or (2) has different technological characteristics, as defined at section 513(i)(1)(B), and the submission contains information, including appropriate clinical or scientific data if necessary, that demonstrates the device is as safe and effective as the predicate and does not raise different questions of safety and effectiveness than the predicate.
The purpose of this document is to explain the procedures and criteria FDA intends to use in determining whether a 510(k) submission is administratively complete and should be accepted for substantive review. This guidance document provides updated information to two existing guidance documents entitled “Center for Devices and Radiological Health's Premarket Notification (510(k)) Refuse to Accept Policy” issued on June 30, 1993, and “510(k) Refuse to Accept Procedures, 510(k) Memorandum K94–1” issued on May 20, 1994. Upon issuance as a final guidance document, this guidance will replace those documents.
To further focus the Agency's review resources on complete applications, which will provide a more efficient approach to ensuring that safe and effective medical devices reach patients as quickly as possible, we have modified the 1993 and 1994 guidances. For example, we have modified the 510(k) refuse to accept policy to include an early review against specific acceptance criteria and to inform the submitter within the first 15 calendar days of receipt of the submission if the submission is administratively complete, or if not, to identify the missing element(s). In order to enhance the consistency of our acceptance decisions and to help submitters better understand the types of information FDA needs to conduct a substantive review, this guidance, including the checklists included in the appendices, clarifies the necessary elements and contents of a complete 510(k) submission. These elements are applicable to all devices reviewed through the 510(k) notification process in CDRH and CBER and have been compiled into checklists for use by FDA review staff.
This draft guidance is being issued consistent with FDA's good guidance practices regulation (21 CFR 10.115). The draft guidance, when finalized, will represent the Agency's current thinking on the refuse to accept policy for 510(k)s. It does not create or confer any rights for or on any person and does not operate to bind FDA or the public. An alternative approach may be used if such approach satisfies the requirements of the applicable statute and regulations.
Persons interested in obtaining a copy of the draft guidance may do so by using the Internet. A search capability for all CDRH guidance documents is available at
To receive “Refuse to Accept Policy for 510(k)s,” you may either send an email request to
This draft guidance refers to currently approved collections of information found in FDA regulations. These collections of information are subject to review by the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501–3520). The collections of information in 21 CFR part 807, subpart E, have been approved under OMB control number 0910–0120.
Interested persons may submit to the Division of Dockets Management (see
Food and Drug Administration, HHS.
Notice of public workshop; request for comments.
The Food and Drug Administration (FDA) is announcing the following public workshop entitled “Division of Cardiovascular Devices 30-Day Notices and Annual Reports.” This public workshop will be cosponsored with Advanced Medical Technology Association (AdvaMed). The purpose of
If you need special accommodations due to a disability, please contact Joyce Raines, Center for Devices and Radiological Health, Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 66, rm. 4319, Silver Spring, MD 20993, 301–796–5709, email:
To register for the public workshop, please visit FDA's Medical Devices News & Events—Workshops & Conferences calendar at
Regardless of attendance at the public workshop, interested persons may submit either electronic or written comments. Submit electronic comments to
Under section 515(d)(6)(A) of the Federal Food, Drug, and Cosmetic Act (section 360e(d)(6)(A) of the FD&C Act) and 21 CFR 814.39(a), PMA supplements are required for any change to a device subject to an approved application that affects safety or effectiveness, unless such change is a modification in a manufacturing procedure or method of manufacturing. Under the FD&C Act and 21 CFR 814.39(f), changes in manufacturing procedures or methods of manufacture that affect the safety or effectiveness of the device require a 30-day notice (however, if FDA finds that the notice is inadequate, a supplement will be required). Additionally, under 21 CFR 814.39(b), a manufacturer may make a change to a device after FDA's approval of a PMA for the device without submitting a PMA supplement if the change does not affect the safety or effectiveness of the device and the change is reported to FDA in a post approval periodic (annual) report.
This workshop is intended to focus on manufacturing method and procedure changes to Class III cardiovascular devices, which could be submitted to FDA in a 30-day notice or annual report, depending on the change. A guidance document issued on April 13, 2011, entitled “30-Day Notices, 135-Day Premarket Approval (PMA) Supplements and 75-Day Humanitarian Device Exemption (HDE) Supplements for Manufacturing Method or Process Changes” outlines FDA's current thinking on which changes may qualify for a 30-day notice and which changes may require other submission types (supplements, annual reports, etc.). This workshop will allow a deeper discussion of relevant considerations when determining the appropriate submission for manufacturing changes to Class III cardiovascular devices.
FDA is holding this public workshop to discuss a variety of issues relating to two types of reporting requirements applicable to PMAs, 30-day notices and annual reports, specifically for
• Considerations that go into determining if a change is appropriate for an annual report or 30-day notice (e.g., equipment changes, software changes, supplier changes);
• Best practices for submission contents;
• Other issues and questions raised by the public workshop attendees that are relevant to 30-day notices and annual reports for cardiovascular devices.
15 U.S.C. 3719.
The National Eye Institute (NEI) is announcing the launch of the
The NEI will select up to 20 winners to receive a $3,000 cash prize and will host the winners at the NEI Audacious Goals Development Meeting to present and discuss their winning entries with a broad audience of scientists, NEI staff, and other stakeholders. This challenge will generate valuable contributions from NEI's many and varied stakeholders to inform the Institute's strategic plan, energize the Institute's research efforts, increase public awareness of vision research, and enhance the national effort to reduce the burden of ocular disorders and diseases worldwide.
(1) Submission period begins August 13, 2012.
(2) Submission period ends November 12, 2012, 6:00 p.m. ET.
(3) Winners notified January 7, 2013.
(4) Winners present and discuss their winning entry at the NEI Audacious Goals Development Meeting in early 2013 (date will be announced on
Richard S. Fisher, Ph.D., Associate Director for Science Policy and Legislation, National Eye Institute, Phone: 301–496–4308. [
This
1.
○ Shall have registered to participate in the competition under the rules promulgated by the NEI and explained in this Notice;
○ Shall have complied with all the requirements under this section;
○ Shall be an individual at least 18 years of age and shall be a citizen or permanent resident of the United States;
○ May not be a Federal entity or Federal employee acting within the scope of their employment. Federal employees seeking to participate in this contest outside the scope of their employment should consult their ethics official prior to developing their submission;
○ May not be employees of the NIH or any other company or individual involved with the design, production, execution, judging, or distribution of the Challenge and their immediate family (spouse, parents and step-parents, siblings and step-siblings, and children and step-children) and household members (people who share the same residence at least three (3) months out of the year);
2. Federal grantees may not use Federal funds to develop America COMPETES Act Challenge applications unless consistent with the purpose of their grant award (Grantees should consult with their cognizant Grants Management Official to make this determination); and
3. Federal contractors may not use Federal funds from a contract to develop a Challenge entry or to fund efforts in support of a Challenge submission.
4. A Contestant shall not be deemed ineligible because the individual used Federal facilities or consulted with Federal employees during a competition if the facilities and employees are made available to all individuals participating in the competition on an equitable basis.
5.
6.
7.
8. By participating in this Challenge, each individual agrees to abide by all rules set forth in this Notice and the Challenge.gov Terms of Participation (
9.
○ Be limited to a maximum of 4,000 characters, including spaces (roughly a single page). In addition to information requested by
It would be fantastic if * * *” (Explain why the goal is audacious and
To achieve the audacious goal, * * *” (Discuss the feasibility of achieving the goal within about a 10 year period, including the technological, scientific, or other advances that are needed to reach the goal.)
If the audacious goal is achieved, the impact would be * * *”
10. Contestants may submit more than one audacious goal entry, as long as they are unique.
11. The NEI will not select as a winner an individual who is currently on the Excluded Parties List (
12. Entries must be original works developed solely by the Contestant and not infringe any intellectual property or any other rights of any third party.
For this challenge, registration and submitting an entry are completed in a single step. Participants can register and submit an entry for this challenge by following the instructions at the
Up to 20 winners will each be awarded a $3,000 prize and up to $2,000 in travel reimbursement to participate in the NEI Audacious Goals Development Meeting in the Washington, DC area in early 2013. Prizes awarded under this competition will be paid by electronic funds transfer and may be subject to Federal income taxes. The NEI, one of the National Institutes of Health, which is a component of the Department of Health and Human Services, will comply with the Internal Revenue Service withholding and reporting requirements, where applicable. Winners will be invited to lead small group discussions on their submitted goal and understand that the submitted ideas may be combined with others during the meeting as part of the process to identify audacious goals. If winners are not present at the meeting, their entries will still be discussed. Travel expenses to and from the meeting location, lodging and meals will be separately reimbursed up to $2,000 and in accordance with Federal Government travel policy. Winners will need to provide receipts to document travel expenses for reimbursement purposes in accordance with National Institutes of Health policy and applicable laws and regulations (
The audacious goals entries will be de-identified and then will be judged by a selection board composed of NIH employees in compliance with the requirements of the America COMPETES Act and the Department of Health and Human Services judging guidelines (
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The evaluation process will begin by de-identifying the entries and removing those that are not responsive to this Challenge or not in compliance with all Challenge rules. The judges may consult with technical advisors with relevant expertise if it is necessary to properly evaluate entries. Judges and technical advisors will examine multiple entries in accord with the aforementioned judging criteria. The judges will meet to discuss the most meritorious entries. Final selection of up to 20 winners will be determined by a vote of the judges.
NEI is one of 27 institutes and centers of the National Institutes of Health, a component of the Department of Health and Human Services. NEI is the principal U.S. government agency that supports vision research, both in its own labs and in universities and research facilities throughout the U.S. and around the world. NEI has the responsibility of establishing a national agenda for vision research. Since NEI was established over 40 years ago, it has conducted strategic planning activities culminating in a series of national plans and workshop reports that identify needs and opportunities in vision research. These planning efforts have relied primarily on the expertise of NEI-funded investigators to review the state of the science and describe current specific research needs and opportunities.
The current NEI strategic planning effort consists of three phases:
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The following historical examples are presented to provide a sense of what is meant by “audacious goals.” These were, or would have been big, bold ideas at that time. Each of these examples required multiple components and advances in a variety of areas. The NEI mission encompasses a variety of areas including basic and clinical research, epidemiology, diagnostics, information dissemination, technology development, training, and education and awareness of the special health problems caused by visual impairment. We invite audacious goals that contribute to NEI's mission.
• An audacious goal in 1997 would have been to develop gene therapy to cure an inherited form of childhood blindness in less than 10 years. The first genetic mutations causing Lebers Congenital Amaurosis, a rare form of inherited childhood blindness, were identified in 1997. Multiple research groups then worked on developing gene therapy to treat this form of LCA, leading to the start of human clinical trials in 2007 and reports of success from three groups in 2008 (
• An audacious goal in 1990 would have been to develop imaging techniques to view the microscopic structures of a living human eye to aid the diagnosis and treatment of disease.
Correcting telescope images for the blurring from turbulent atmosphere was first conceived in 1953 and applied successfully by the late 1980s. The technology was developed because the Department of Defense needed to view satellites from ground-based telescopes, but atmospheric turbulence distorted the images. Similarly, doctors could not see the microscopic structures in the back of the eye because their view was blurred by the optics of the patient's eye. The technology developed for astronomy was modified to view the back of the eye, and successful use of this approach allowed visualization of the main light-sensing cells in retina, the cone photoreceptors, in 1999 by Roorda and Williams.
• An audacious goal in 1986 was to sequence the entire human genome in 15 years.
The Department of Energy and the National Institutes of Health officially began the Human Genome Initiative in 1990. Important requirements at the time included enhancing sequencing and analytic technologies as well as computational resources to support future research and commercial applications, exploring gene function through mouse-human comparisons, studying human variation, and training future scientists in genomics. This required multiple approaches, labs, and expertise. A draft of the human genome was reported in 2000 and a complete genome was announced in 2003.
Using information provided in the Audacious Goal Form, winners will be notified by email, telephone, or mail after the judging is completed. Winners' names, hometown, state, and their audacious goal description will also be posted on the Challenge Web site
By participating in this Challenge, each Contestant grants to NEI an irrevocable, paid-up, royalty-free, nonexclusive worldwide license to post, share, and publicly display the Contestant's audacious goal description on the Web, newsletters or pamphlets, and other informational products. Each Contestant understands and agrees that if his/her entry is selected as a winning entry, it will be discussed and refined at the NEI Audacious Goals Development Meeting early in 2013 and may ultimately assist NEI in its prioritization of research goals or funding for research funding.
NEI reserves the right to cancel, suspend, and/or modify the Competition for any reason, at NEI's sole discretion.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. App.), notice is hereby given of a meeting of the National Advisory Environmental Health Sciences Council.
The meeting will be open to the public as indicated below, with attendance limited to space available. Individuals who plan to attend and need special assistance, such as sign language interpretation or other reasonable accommodations, should notify the Contact Person listed below in advance of the meeting.
The meeting will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Any interested person may file written comments with the committee by forwarding the statement to the Contact Person listed on this notice. The statement should include the name, address, telephone number and when applicable, the business or professional affiliation of the interested person.
Information is also available on the Institute's/Center's home page:
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. App.), notice is hereby given of the following meetings.
The meetings will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. App.), notice is hereby given of the following meeting.
The meeting will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Science and Technology Directorate, Plum Island Animal Disease Center, Department of Homeland Security.
Notice of intent.
The Department of Homeland Security Science and Technology Directorate (DHS S&T), through its Plum Island Animal Disease Center (PIADC), is seeking collaborators to aid DHS S&T in conducting validation testing on the ability of VHP and ClO
Submit comments on or before September 14, 2012.
Mail comments and requests to participate to Doug Ports, (PO Box 848, Greenport, NY 11944). Submit electronic comments and other data to
The target agents (FMDV and ASFV) and test microorganisms (
Once CRADA collaborators have been selected, finalized Phase I testing is expected to take approximately 3 months. Contingent on Phase I testing results, Phase II testing is expected to take an additional 6 months and data consolidation, analysis, and results finalization is expected to take another 3 months following.
The Plum Island Animal Disease Center (PIADC) reserves the right to select CRADA collaborators for all, some, or none of the proposals in response to this notice. PIADC will provide no funding for reimbursement of proposal development costs. Proposals (or any other material) submitted in response to this notice will not be returned. Proposals submitted are expected to be unclassified.
PIADC will select proposals at its sole discretion on the basis of:
i. How well the proposal communicates the collaborators' understanding of and ability to meet the CRADAs goals and proposed timeline
ii. How well the proposal addresses the following criteria:
a. Capability of the collaborator to provide equipment and materials for proposed Phase I and Phase II efficacy testing.
b. Capability of the collaborator to provide on-site and remote technological expertise, within a reasonable time period and for a reasonable duration, for Phase I and Phase II efficacy testing.
CRADAs are authorized by the Federal Technology Transfer Act of 1986, as amended and codified by 15 U.S.C. 3710a. DHS, as an executive agency under 5 U.S.C. 105, is a Federal agency for the purposes of 15 U.S.C. 3710a and may enter into a CRADA. DHS delegated the authority to conduct CRADAs to the Science and Technology Directorate and its laboratories.
Federal Emergency Management Agency, DHS.
Notice.
This notice amends the notice of a major disaster declaration for the State of Colorado (FEMA–4067–DR), dated June 28, 2012, and related determinations.
Peggy Miller, Office of Response and Recovery, Federal Emergency Management Agency, 500 C Street SW., Washington, DC 20472, (202) 646–3886.
The notice of a major disaster declaration for the State of Colorado is hereby amended to include the Hazard Mitigation Grant Program for the following areas among those areas determined to have been adversely affected by the event declared a major disaster by the President in his declaration of June 28, 2012.
All counties in the State of Colorado are eligible to apply for assistance under the Hazard Mitigation Grant Program.
United States Geological Survey (USGS), Interior.
Notice; request for comments.
We (U.S. Geological Survey) will ask the Office of Management and Budget (OMB) to approve the information collection (IC) described below. As required by the Paperwork Reduction Act of 1995 (PRA), and as a part of our continuing efforts to reduce paperwork and respondent burden, we invite the general public and other Federal agencies to take this opportunity to comment on this IC. As a federal agency, we may not conduct or sponsor, and you are not required to respond to, a collection of information unless it displays a currently valid OMB control number.
To ensure your comments on this IC are considered, we must receive them on or before October 12, 2012.
Send your comments to the IC to the USGS Information Collection Clearance Officer, U.S. Geological Survey, 807 National Center, Reston, VA 20192 (mail); or
Leslie Richardson at U.S. Geological Survey, 2150 Centre Avenue, Bldg. C, Fort Collins, CO 80525 (mail), or at (970) 226–9181 (phone).
In 2011, two fatalities were caused by grizzly bears in Yellowstone National Park (YNP); the first bear-caused fatalities to occur within park boundaries in 25 years. As a result of these events, park managers are reviewing the effectiveness of bear safety messaging and its message delivery media to backcountry visitors. USGS social scientists and a NPS bear management biologist will use their combined expertise to conduct a social survey of backcountry visitors to YNP to help park managers achieve this review. The survey will identify the effectiveness of various bear safety information and education messages; the results will be used to direct future bear safety information and education efforts in YNP. No such prior analysis has been conducted in YNP.
We invite comments concerning this information collection on: (1) Whether or not the collection of information is necessary, including whether or not the information will have practical utility; (2) the accuracy of our estimate of the burden for this collection of information; (3) ways to enhance the quality, utility, and clarity of the information to be collected; and (4) ways to minimize the burden of the collection of information on respondents, including the use of automated collection techniques or other forms of information technology.
Please note that the comments submitted in response to this notice are a matter of public record. Before including your address, phone number, email address, or other personal identifying information in your comment, you should be aware that your entire comment, including your personal identifying information, may be made publicly available at any time. While you can ask us in your comment to withhold your personal identifying information from public review, we cannot guarantee we will be able to do so.
Bureau of Indian Affairs, Interior.
Notice of Approved Tribal—State Class III Gaming Compact.
This notice publishes an approval of the gaming compact between the Eastern Band of Cherokee Indians and the State of North Carolina.
Paula L. Hart, Director, Office of Indian Gaming, Office of the Deputy Assistant Secretary—Policy and Economic Development, Washington, DC 20240, (202) 219–4066.
Under section 11 of the Indian Gaming Regulatory Act of 1988 (IGRA), Public Law 100–497, 25 U.S.C. 2710, the Secretary of the Interior shall publish in the
Bureau of Land Management, Interior.
Call for Nominations, Twin Falls District Resource Advisory Council
This notice requests public nominations to fill one position on the Twin Falls District Resource Advisory Council (RAC) in category three (representatives of State, county, or local elected office; employees of a State agency responsible for management of natural resources; representatives of Tribes within or adjacent to the area for which the council is organized; representatives of academia who are employed in natural sciences; or the public-at-large).
All nominations must be received no later than September 12, 2012.
Nominations should be sent to Heather Tiel-Nelson, Public Affairs Specialist, Twin Falls District Office, Bureau of Land Management, 2536 Kimberly Road, Twin Falls, ID 83301
Heather Tiel-Nelson, 208–736–2352;
Persons who use a telecommunications device for the deaf (TDD) may call the Federal Information Relay Service (FIRS) at 1–800–877–8339 to contact the above individual during normal business hours. The FIRS is available 24 hours a day, seven days a week, to leave a message or question with the above individual. You will receive a reply during normal business hours.
The Federal Land Policy and Management Act (FLPMA) directs the Secretary of the Interior to involve the public in planning and issues related to management of lands administered by the Bureau of Land Management (BLM). Section 309 of FLPMA directs the Secretary to establish 10- to 15-member citizen-based advisory councils that conform to the requirements of the Federal Advisory Committee Act (FACA). RAC membership must be balanced and representative of the various interests concerned with the land use planning and/or management of the public lands.
The BLM Twin Falls District RAC is calling for nominations to fill a vacancy in category three (description addressed in the SUMMARY above, (43 CFR 1784.6–1(c)(3)). Upon appointment, the individual selected will fill the position until November 18, 2013. Nominees must be residents of Idaho. The BLM will evaluate nominees based on their education, training, experience, and their knowledge of the geographical area. Nominees should demonstrate a commitment to collaborative resource decision-making.
The Obama Administration prohibits individuals who are currently Federally registered lobbyists from being appointed or re-appointed to FACA and non-FACA boards, committees, or councils.
The following must accompany all nominations:
Bureau of Land Management, Interior.
Correction
This notice corrects a Notice of Realty Action published in the
Bureau of Land Management, Needles Field Office, 1303 South U.S. Highway 95, Needles, California 92363.
Jose M. Najar, Realty Specialist, BLM Needles Field Office, 951–697–5387, or email:
The notice of realty action was published in the
The area described contains 133.19 acres, more or less, in San Bernardino County, California.
43 CFR 2741.5.
United States International Trade Commission.
Notice.
Angela Newell (202–708–5409), Office of Investigations, U.S. International Trade Commission, 500 E Street SW., Washington, DC 20436. Hearing-impaired persons can obtain information on this matter by contacting the Commission's TDD terminal on 202–205–1810. Persons with mobility impairments who will need special assistance in gaining access to the Commission should contact the Office of the Secretary at 202–205–2000. General information concerning the Commission may also be obtained by accessing its internet server (
On July 6, 2012, the Commission established a schedule for this expedited review (77 FR 42762, July 20, 2012). On July 31, 2012 (77 FR 45337), the Department of Commerce published a notice extending its time limits for issuing preliminary and final results in the second five-year review of the antidumping duty order on Folding Gift Boxes from China. Given this extension by Commerce, the date for the Commission's final determination is also extended pursuant to 19 U.S.C. 1675(c)(5)(B). Accordingly, the Commission is postponing the release of its staff report and final comment date until after Commerce's preliminary determination scheduled for October 19, 2012. At that time, the Commission will establish revised dates for the release of the report and the submission of final comments.
For further information concerning this review see the Commission's notice cited above and the Commission's Rules of Practice and Procedure, part 201, subparts A through E (19 CFR part 201), and part 207, subparts A and C (19 CFR part 207).
This review is being conducted under authority of title VII of the Tariff Act of 1930; this notice is published pursuant to section 207.21 of the Commission's rules.
By order of the Commission.
United States International Trade Commission.
Institution of investigations, opportunity to provide written submissions, and scheduling of public hearing in investigation No. 332–536.
Following receipt of a request on July 31, 2012, from the United States Trade Representative (USTR) under section 115 of the Uruguay Round Agreements Act (19 U.S.C. 3524) and section 332(g) of the Tariff Act of 1930 (19 U.S.C. 1332(g)), the U.S. International Trade Commission (Commission) instituted two investigations for the purpose of providing the requested advice and information: investigation No. 332–532,
September 6, 2012: Deadline for filing written submissions from interested parties.
October 24, 2012: Transmittal of Commission's report to USTR.
October 31, 2012: Deadline for filing requests to appear at the public hearing.
November 2, 2012: Deadline for filing pre-hearing briefs and statements.
November 8, 2012: Public hearing.
November 20, 2012: Deadline for filing post-hearing briefs and written submissions from interested parties.
February 15, 2013: Transmittal of the Commission's report to USTR.
All Commission offices, including the Commission's hearing rooms, are located in the United States International Trade Commission Building, 500 E Street SW., Washington, DC. All written submissions should be addressed to the Secretary, United States International Trade Commission, 500 E Street SW., Washington, DC 20436. The public record for these investigations may be viewed on the Commission's electronic docket (EDIS) at
Project Leader Shannon Gaffney (202–205–3316 or
The USTR has asked the Commission to provide advice and information in two reports and the Commission has instituted two separate investigations for the purpose of preparing these reports.
In its first report (investigation No. 332–352), the Commission will, as requested by the USTR and to the extent practicable, based on available information and information furnished by interested parties in response to this notice, (1) indicate both the information and communications technology (ICT) purposes and non-ICT purposes for which each product on the list is used, and (2) identify the products that U.S. industry and other interested parties view as import-sensitive. The Commission will provide this report to the USTR by October 24, 2012.
In its second report (investigation No. 332–356), the Commission will, as requested by the USTR and to the extent practicable, identify for each of the listed products: (1) Tariffs in major markets; (2) major producing countries; (3) leading U.S. export markets; and (4) leading sources of U.S. imports. The Commission will also provide an overview of selected key subsectors, and to the extent practicable, examine benefits to the U.S. industry of ITA
Written submissions filed in connection with the respective investigations should focus on providing information of the kind described above that is relevant to the respective investigations and reports. All written submissions should be addressed to the Secretary. All written submissions must conform to the provisions of section 201.8 of the Commission's
Any submissions that contain confidential business information must also conform to the requirements of section 201.6 of the Commission's
In his request letter the USTR said that it is the intent of his office to make the Commission's reports available to the public in their entirety, and asked that the Commission not include any confidential business information. Accordingly, any confidential business information received by the Commission in these investigations and used in preparing the respective reports will not be included in the reports that the Commission sends to the USTR and will not be published in a manner that would reveal the operations of the firm supplying the information.
By order of the Commission.
United States International Trade Commission.
August 21, 2012 at 9:30 a.m.
Room 101, 500 E Street SW., Washington, DC 20436, Telephone: (202) 205–2000.
Open to the public.
1. Agendas for future meetings: None.
2. Minutes.
3. Ratification List.
4. Vote in Inv. No. 731–TA–709 (Third Review) (Certain Seamless Carbon and Alloy Steel Standard, Line, and Pressure Pipe from Germany). The Commission is currently scheduled to transmit its determination and Commissioners” opinions to the Secretary of Commerce on or before August 30, 2012.
5. Outstanding action jackets: None.
In accordance with Commission policy, subject matter listed above, not disposed of at the scheduled meeting, may be carried over to the agenda of the following meeting.
By order of the Commission.
Notice is hereby given that on August 6, 2012, a proposed Consent Decree in
The proposed Consent Decree is between Plaintiff the United States of America, and the following Defendants: The Gillette Company; KeySpan Gas East Corporation (d/b/a National Grid); Energizer Battery Manufacturing, Inc.; Union Carbide Corporation; Spectrum Brands, Inc.; Brambles Environmental, Inc.; Clean Harbors Environmental Services, Inc.; Qwest Communications International, Inc.; Verizon New York, Inc.; 26 Railroad Ave., Inc.; A.P. Pharma, Inc.; Ajinomoto North America, Inc.; Allegheny Ludlum, LLC; Amresco, LLC; Arizona Chemical Company, LLC; Atmos Energy Corporation; Battery Broker Environmental Services, Inc.; Buffalo Optical Co.; Cameron International Corp; Chemtron Corp.; City of Lakeland; City of North Tonawanda; City of Richmond; Dukane Corp.; East Side Jersey Dairy, Inc.; FirstEnergy Corp.; Glit, Division of CCP, LLC; Harding Metals, Inc.; Honeywell International, Inc.; Johnson Controls, Inc.; Los Angeles Unified School District; MDI, Inc.; Memphis Light, Gas & Water Division; Metalor Technologies
Pursuant to the Consent Decree, five Settling Defendants, referred to in the Consent Decree as “Appendix A–1 Settling Defendants,” will finance and perform the selected soil, sediment and groundwater remedies at the Site, estimated to cost $9.3 million. In addition, 26 Railroad Avenue, Inc., the Site owner, will perform certain work in accordance with Appendix H of the Consent Decree. Further, the Appendix A–1 Settling Defendants will reimburse the United States for its future response costs in excess of $1 million. The remaining Settling Defendants, and the Settling Federal Agencies, will make a financial contribution toward the Site cleanup. The Consent Decree includes covenants not to sue the Defendants by the United States under Sections 106 and 107(a) of CERCLA, 42 U.S.C. 9606, 9607(a), and a covenant by EPA not to take administrative action against the Settling Federal Agencies pursuant to Sections 106 and 107(a) of CERCLA, relating to the Site.
The Department of Justice will receive comments relating to the proposed Consent Decree for a period of thirty (30) days from the date of this publication. Comments should be addressed to the Assistant Attorney General, Environment and Natural Resources Division, and either emailed to
During the public comment period, the proposed Consent Decree may be examined on the following Department of Justice Web site,
Employment and Training Administration (ETA), Labor.
Notice.
The Department of Labor (Department), as part of its continuing effort to reduce paperwork and respondent burden, conducts a preclearance consultation program to provide the public and Federal agencies with an opportunity to comment on proposed and/or continuing collections of information in accordance with the Paperwork Reduction Act of 1995 [44 U.S.C. 3506(c)(2)(A)]. This program helps ensure that requested data can be provided in the desired format, reporting burden (time and financial resources) is minimized, collection instruments are clearly understood, and the impact of collection requirements on respondents can be properly assessed.
ETA is soliciting comments concerning the continuation of the collection of data for state administration of applications and grants for SEA beyond the current expiration date of 11/30/2012.
Written comments must be submitted to the office listed in the addresses section below on or before October 12, 2012.
Submit written comments to Scott Gibbons, Office of Unemployment Insurance, Employment and Training Administration, U.S. Department of Labor, 200 Constitution Avenue NW., Washington, DC 20210. Telephone number: 202–693–3008 (this is not a toll-free number). Individuals with hearing or speech impairments may access the telephone number above via TTY by calling the toll-free Federal Information Relay Service at 1–877–889–5627 (TTY/TDD). Email:
On February 22, 2012, the President signed into law the Middle Class Tax Relief and Job Creation Act (MCTRJC) of 2012 (Pub. L. 112–96). In recognition of the importance of supporting entrepreneurship, Subtitle E of Public Law 112–96 (hereinafter referred to as Subtitle E) amended the Federal Unemployment Compensation (UC) Act to extend the SEA program to the long-term unemployed who are receiving benefits under the Emergency Unemployment Compensation (EUC) and Extended Benefits (EB) programs. This is a further expansion of the SEA program, which began in 1993.
Prior to the enactment of the North American Free Trade Agreement (NAFTA) Implementation Act (Pub. L. 103–182) in 1993, withdrawals for the purpose of paying self-employment allowances would have been prohibited as the “withdrawal standard” of Section 3304(a)(4) of the Federal Unemployment Tax Act (FUTA) and Section 303(a)(5), Social Security Act (SSA), limits withdrawals (with specified exceptions not relevant here) from a state's unemployment fund to payments of “compensation.” The term “compensation” is defined in Section 3306(h), FUTA, as “cash benefits payable to individuals with respect to their unemployment.” Because payment must be made with respect to “unemployment,” the withdrawal standard prohibits states from using unemployment funds to help
SEA provides unemployed individuals, volunteering to enter the SEA program, financial support while they access the resources, information, and training they need to get a business established. Individuals enrolled in an SEA program receive a weekly allowance in the same amount as the individual's regular UC weekly benefit amount would have been. The definition of an SEA program under section 3306(t), FUTA requires an individual to be:
a. Eligible to receive regular UC under the state's law, except that the individuals are not required to meet the state's requirements related to:
• Availability for work;
• Active work search;
• Refusal to accept work; and
• Disqualifying income with respect to income earned from self-employment;
b. Identified under a state worker profiling system as likely to exhaust regular UC;
c. Participating in self-employment activities including entrepreneurial training, business counseling, and technical assistance that are approved by the state UC agency; and
d. Actively engaged on a full-time basis in activities (which may include training) relating to the establishment of a business and becoming self-employed.
Section 3306(t), FUTA, also provides that the aggregate number of individuals receiving SEA allowances may at no time exceed five percent of the number of individuals receiving regular UC. In addition, the SEA program may not result in any cost to the Unemployment Trust Fund (UTF) in excess of the cost that would be incurred by the state and charged to the UTF had the individual(s) not participated in the SEA program. The “regular” SEA program remains unchanged except that Publuc Law 112–96 has created a requirement for additional reporting requirements.
The Department is particularly interested in comments which:
• Evaluate whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility;
• Evaluate the accuracy of the agency's estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used;
• Enhance the quality, utility, and clarity of the information to be collected; and
• Minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology, e.g., permitting electronic submissions of responses.
Comments submitted in response to this comment request will be summarized and/or included in the request for OMB approval of the ICR; they will also become a matter of public record.
Employment and Training Administration (ETA), Labor.
Notice.
The Department of Labor (Department), as part of its continuing effort to reduce paperwork and respondent burden, conducts a preclearance consultation program to provide the public and Federal agencies with an opportunity to comment on proposed and/or continuing collections of information in accordance with the Paperwork Reduction Act of 1995 [44 U.S.C. 3506(c)(2)(A)]. This program helps ensure that requested data can be provided in the desired format, reporting burden (time and financial resources) is minimized, collection instruments are clearly understood, and the impact of collection requirements on respondents can be properly assessed.
Currently, ETA is soliciting comments concerning the continuation of the collection of data about the reemployment and eligibility assessments report beyond the current expiration date of 10/31/2012.
Written comments must be submitted to the office listed in the addresses section below on or before October 12, 2012.
Submit written comments to Diane Wood, U.S. Department of Labor, Employment and Training Administration, Office of Workforce Security, 200 Constitution Avenue NW., Frances Perkins Bldg. Room S–4524, Washington, DC 20210, telephone number (202) 693–3212 (this is not a toll-free number) or by email:
The REA program addresses the reemployment needs of UI claimants and is used to detect and prevent improper payments in the Unemployment Insurance (UI) program, both of which are high priorities for ETA. The REA program connects UI claimants with reemployment and training services through the workforce investment system by linking them to services in American Job Centers. The REA program brings claimants into American Job Centers where they are provided a full array of available services, and ensures that claimants meet and comply with all UI eligibility requirements. For many individuals, the UI program provides an entry point into this reemployment service delivery system. Individuals filing UI claims are active job seekers who, through the state's REA program, are made aware of the variety of available reemployment services and referred to those that are appropriate for them. In FY 2012, forty-two states are participating in the REA program for claimants filing for regular UI claims and all states are providing an REA for claimants in the Emergency Unemployment Compensation program.
The Department is seeking to extend an information collection concerning state activities and results around the Reemployment and Eligibility Assessments program. The information collected from these REAs is used to evaluate state performance in terms of service delivery, to better understand program dynamics, and to gather data to report on REAs, including the number of scheduled in-person reemployment and eligibility assessments, the number of individuals who failed to appear for scheduled assessments, actions taken as a result of individuals not appearing for an assessment (e.g., benefits terminated), results of assessments (e.g., referred to reemployment services, found in compliance with program requirements), estimated savings resulting from cessation of benefits, and estimated savings as a result of accelerated reemployment.
The Department is particularly interested in comments which:
• Evaluate whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility;
• Evaluate the accuracy of the agency's estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used;
• Enhance the quality, utility, and clarity of the information to be collected; and
• Minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology, e.g., permitting electronic submissions of responses.
Comments submitted in response to this comment request will be summarized and/or included in the request for OMB approval of the ICR; they will also become a matter of public record.
Employment and Training Administration (ETA), Labor.
Notice.
The U.S. Department of Labor (Department), as part of its continuing effort to reduce paperwork and respondent burden, conducts a preclearance consultation program to provide the public and Federal agencies with an opportunity to comment on proposed and/or continuing collections of information in accordance with the Paperwork Reduction Act of 1995 [44 U.S.C. 3506(c)(2)(A)]. This program helps ensure that requested data can be provided in the desired format, reporting burden (time and financial resources) is minimized, collection instruments are clearly understood, and
ETA is soliciting comments concerning the continuation of the collection of data to support monitoring of implementation of changes to State UI Programs beyond the current expiration date of 12/31/2012.
Written comments must be submitted to the office listed in the addresses section below on or before October 12, 2012.
Submit written comments to Scott Gibbons, Office of Unemployment Insurance, Employment and Training Administration, U.S. Department of Labor, 200 Constitution Avenue NW., Washington, DC 20210. Telephone number: 202–693–3008 (this is not a toll-free number). Individuals with hearing or speech impairments may access the telephone number above via TTY by calling the toll-free Federal Information Relay Service at 1–877–889–5627 (TTY/TDD). Email:
The Department has responsibility for ensuring that states implement the extension and modifications to the Emergency Unemployment Compensation (EUC) program, including Reemployment Services and Reemployment and Eligibility Assessment Activities (REA) for recipients of EUC, herein referred to as EUC RES/REA, and the Work Search Audit requirement in accordance with the Middle Class Job Creation and Tax Relief Act of 2012 (Act), Title II, Subtitle C, and USDOL operating instructions.
ETA is responsible for conducting EUC reviews, Work Search Audit, and EUC RES/REA program reviews. Given the lack of resources available for detailed monitoring, ETA intends to use a questionnaire as a monitoring tool to establish which states are most in need of technical assistance. The goal of this questionnaire is to ensure that states have plans to properly implement and administer the EUC modifications, Work Search Audit, and EUC RES/REA requirements. This collection provides ETA with information pointing to key areas in which technical assistance to states is necessary.
The Department is particularly interested in comments which:
• Evaluate whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility;
• Evaluate the accuracy of the agency's estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used;
• Enhance the quality, utility, and clarity of the information to be collected; and
• Minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology, e.g., permitting electronic submissions of responses.
Comments submitted in response to this comment request will be summarized and/or included in the request for OMB approval of the ICR; they will also become a matter of public record.
Employment and Training Administration (ETA), Labor.
Notice.
The Department of Labor (Department), as part of its continuing effort to reduce paperwork and respondent burden, conducts a preclearance consultation program to provide the public and Federal agencies with an opportunity to comment on proposed and/or continuing collections of information in accordance with the Paperwork Reduction Act of 1995 [44 U.S.C. 3506(c)(2)(A)]. This program helps ensure that requested data can be provided in the desired format, reporting burden (time and financial resources) is minimized, collection instruments are clearly understood, and the impact of collection requirements on respondents can be properly assessed.
Currently, ETA is soliciting comments concerning the continuation of the collection of data on characteristics of the insured unemployed beyond the current expiration date of 11/30/2012.
Written comments must be submitted to the office listed in the addresses section below on or before October 12, 2012.
Submit written comments to Scott Gibbons, Office of Unemployment Insurance, Employment and Training Administration, U.S. Department of Labor, 200 Constitution Avenue NW., Washington, DC 20210. Telephone number: 202–693–3008 (this is not a toll-free number). Individuals with hearing or speech impairments may access the telephone number above via TTY by calling the toll-free Federal Information Relay Service at 1–877–889–5627 (TTY/TDD). Email:
The ETA 203, Characteristics of the Insured Unemployed, is a monthly snapshot of the demographic composition of the claimant population in the Unemployment Insurance system. It is based on those who file a claim in the week containing the 19th day of the month, which reflects unemployment during the week containing the 12th day of the month. This corresponds with the sample frame used by the Bureau of Labor Statistics for the production of labor force statistics they produce. This report serves a variety of socio-economic needs because it provides aggregate data reflecting unemployment insurance claimants' sex, race/ethnic group, age, industry, and occupation.
The Department is particularly interested in comments which:
• Evaluate whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility;
• Evaluate the accuracy of the agency's estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used;
• Enhance the quality, utility, and clarity of the information to be collected; and
• Minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology, e.g., permitting electronic submissions of responses.
Comments submitted in response to this comment request will be summarized and/or included in the request for OMB approval of the ICR; they will also become a matter of public record.
Employment and Training Administration (ETA), Labor.
Notice.
The Department of Labor (Department), as part of its continuing effort to reduce paperwork and respondent burden, conducts a preclearance consultation program to provide the public and Federal agencies with an opportunity to comment on proposed and/or continuing collections of information in accordance with the Paperwork Reduction Act of 1995 [44 U.S.C. 3506(c)(2)(A)]. This program helps ensure that requested data can be provided in the desired format, reporting burden (time and financial resources) is minimized, collection instruments are clearly understood, and the impact of collection requirements on respondents can be properly assessed.
ETA is soliciting comments concerning the continuation of the collection of data concerning administration of recent changes and grants for the expansion of STC beyond the current expiration date of 12/31/2012.
Written comments must be submitted to the office listed in the addresses section below on or before October 12, 2012.
Submit written comments to Scott Gibbons, Office of Unemployment Insurance, Employment and Training Administration, U.S. Department of Labor, 200 Constitution Avenue NW., Washington, DC 20210. Telephone number: 202–693–3008 (this is not a toll-free number). Individuals with hearing or speech impairments may access the telephone number above via TTY by calling the toll-free Federal Information Relay Service at 1–877–889–5627 (TTY/TDD). Email:
The recent enactment of Public Law 112–96 (The Middle Class Tax Relief and Job Creation Act of 2012, referred to hereafter as “MCTRJC” or “the act”) contains Subtitle D, Short-Time Compensation Program, also known as the “Layoff Prevention Act of 2012”. The sections of the law under this subtitle concern states that currently participate in, or wish to initiate a new program in, a layoff aversion program known as short time compensation (STC) or work sharing.
Section 2161 establishes the operational rules for the STC program and Section 2162 covers the temporary financing of STC payments by the Federal Government to states with programs currently in their law. Section 2163 establishes the temporary financing of STC payments by the Federal Government to states operating an STC program under an agreement with the Secretary of Labor and Section 2164 covers grants the Federal Government can provide to state applicants whose STC laws conform to the requirements of Section 2161 for the purpose of implementation or improved administration of an STC program, or for promotion and enrollment in the program.
Each of these sections of the law requires, to varying extents, applications, new administrative processes, monitoring and reporting of data between the state workforce agencies (SWAs) and ETA. ETA has principal oversight responsibility for the Unemployment Insurance (UI) program that SWAs operate. As a result of the many changes to the funding and administration of the UI system introduced in Public Law 112–96, ETA needs to allow for additional reporting and data collection for proper oversight of state STC programs.
The Department is particularly interested in comments which:
• Evaluate whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility;
• Evaluate the accuracy of the agency's estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used;
• Enhance the quality, utility, and clarity of the information to be collected; and
• Minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology, e.g., permitting electronic submissions of responses.
Comments submitted in response to this comment request will be summarized and/or included in the request for OMB approval of the ICR; they will also become a matter of public record.
Employment and Training Administration (ETA), Labor.
Notice.
The Department of Labor (Department), as part of its continuing effort to reduce paperwork and respondent burden, conducts a preclearance consultation program to provide the public and Federal agencies with an opportunity to comment on proposed and/or continuing collections of information in accordance with the Paperwork Reduction Act of 1995 [44 U.S.C. 3506(c)(2)(A)]. This program helps ensure that requested data can be provided in the desired format, reporting burden (time and financial resources) is minimized, collection instruments are clearly understood, and the impact of collection requirements on respondents can be properly assessed.
ETA is soliciting comments concerning the continuation of the collection of data about reemployment services and outcomes for UI claimants in Federal programs beyond the current expiration date of 10/31/2012.
Written comments must be submitted to the office listed in the addresses section below on or before October 12, 2012.
Submit written comments to Scott Gibbons, Office of Unemployment Insurance, Employment and Training Administration, U.S. Department of Labor, 200 Constitution Avenue NW., Washington, DC 20210. Telephone number: 202–693–3008 (this is not a toll-free number). Individuals with hearing or speech impairments may access the telephone number above via TTY by calling the toll-free Federal Information Relay Service at 1–877–889–5627 (TTY/TDD). Email:
ETA is seeking to renew a collection of information for the purposes of describing reemployment activities for UI claimants in Federal programs. The basic report format is very similar to the existing ETA 9002 report (Office of Management and Budget number 1205–0240) that covers quarterly performance data for Wagner-Peyser Act funded public labor exchange. ETA has well established reporting instructions, reporting software, reporting formats and reporting logic that is used for existing reemployment service delivery reporting for UI claimants, and ETA uses this existing structure to serve UI claimants in Federal programs, as required by Section 2142 of the Middle Class Tax Relief and Job Creation Act of 2012 (Pub. L. 112–96). ETA believes that the use of an existing standard in reporting for reemployment service delivery minimizes the burden on states as they seek to rapidly implement the requirements of Public Law 112–96. ETA believes that adapting an existing, approved reporting structure that is extensively used, well tested and well understood presents the best, and possibly only option, for collecting meaningful performance and evaluation data on this program.
The Department is particularly interested in comments which:
• Evaluate whether the proposed collection of information is necessary
• Evaluate the accuracy of the agency's estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used;
• Enhance the quality, utility, and clarity of the information to be collected; and
• Minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology, e.g., permitting electronic submissions of responses.
Comments submitted in response to this comment request will be summarized and/or included in the request for OMB approval of the ICR; they will also become a matter of public record.
The National Science Board, pursuant to NSF regulations (45 CFR part 614), the National Science Foundation Act, as amended (42 U.S.C. 1862n-5), and the Government in the Sunshine Act (5 U.S.C. 552b), hereby gives notice in regard to the scheduling of a teleconference meeting of the Committee on Programs and Plans (CPP) for the transaction of National Science Board business.
National Science Board.
Thursday, August 16, 2012 from 1:00–2:00 p.m.
Chairman's remarks and a proposal for approval of revisions to the Advanced Laser Interferometer Gravity Wave Observatory (AdvLIGO).
Closed.
This meeting will be held by teleconference originating at the National Science Board Office, National Science Foundation, 4201Wilson Blvd., Arlington, VA 22230.
Please refer to the National Science Board Web site
Jacqueline Meszaros,
9:30 a.m., Monday, August 27, 2012.
NTSB Conference Center, 429 L'Enfant Plaza SW., Washington, DC 20594.
The ONE item is open to the public.
8349C Aviation Accident Brief—WPR11MA454: North American P–51D, N79111, Race 177, “The Galloping Ghost,” Reno, Nevada, September 16, 2011.
Telephone: (202) 314–6100.
The press and public may enter the NTSB Conference Center one hour prior to the meeting for set up and seating.
Individuals requesting specific accommodations should contact Rochelle Hall at (202) 314–6305 by Friday, August 24, 2012.
The public may view the meeting via a live or archived webcast by accessing a link under “News & Events” on the NTSB home page at
Schedule updates including weather-related cancellations are also available at
Candi Bing, (202) 314–6403 or by email at
Terry Williams (202) 314–3126 or by email at
Nuclear Regulatory Commission.
Draft regulatory guide; extension of comment period.
On July 5, 2012 (77 FR 39745), the U.S. Nuclear Regulatory Commission (NRC or the Commission) issued Draft Regulatory Guide, DG–1282, “Fuel Oil Systems for Emergency Power Supplies,” in the
Submit comments by September 28, 2012. Comments received after this date will be considered if it is practical to do so, but the NRC is able to ensure consideration only for comments received on or before this date. Although a time limit is given, comments and suggestions in connection with items for inclusion in guides currently being developed or improvements in all published guides are encouraged at any time.
You may access information and comment submissions related to this document, which the NRC possesses and is publicly available, by searching on
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For additional direction on accessing information and submitting comments, see “Accessing Information and Submitting Comments” in the
Mark Orr, Office of Nuclear Regulatory Research, U.S. Nuclear Regulatory Commission, Washington, DC 20555–0001; telephone: 301–251–7495; email:
Please refer to Docket ID NRC–2012–0159 when contacting the NRC about the availability of information regarding this document. You may access information related to this document, which the NRC possesses and are publicly available, by any of the following methods:
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Please include Docket ID NRC–2012–0159 in the subject line of your comment submission, in order to ensure that the NRC is able to make your comment submission available to the public in this docket.
The NRC cautions you not to include identifying or contact information in comment submissions that you do not want to be publicly disclosed. The NRC posts all comment submissions at
If you are requesting or aggregating comments from other persons for submission to the NRC, then you should inform those persons not to include identifying or contact information in their comment submissions that they do not want to be publicly disclosed. Your request should state that the NRC will not edit comment submissions to remove such information before making the comment submissions available to the public or entering the comment submissions into ADAMS.
On July 5, 2012 (77 FR 39745), the NRC published a notice of issuance and availability of DG–1282. By email dated July 27, 2012, the Nuclear Energy Institute (ADAMS Accession No. ML12214A372) requested an extension of the stated comment period for the purpose of providing sufficient review to ensure that the changes incorporated in the draft guidance adequately reflect the contemporary practices it purports to address. It is the desire of the NRC to receive comments of a high quality from all stakeholders. Several factors have been considered in granting an extension. The requested comment period extension is reasonable and does not affect NRC deadlines. The additional time will allow stakeholders to discuss the proposed guide during related meetings. Therefore the comment submittal period is extended from the original date of August 31, 2012 to September 28, 2012.
For the Nuclear Regulatory Commission.
Postal Regulatory Commission.
Notice.
The Commission is noticing a recently-filed Postal Service request to add Priority Mail Contract 39 the competitive product list. This notice addresses procedural steps associated with this filing.
Submit comments electronically via the Commission's Filing Online system at
Stephen L. Sharfman, General Counsel at 202–789–6820.
In accordance with 39 U.S.C. 3642 and 39 CFR 3020.30
The Postal Service contemporaneously filed a redacted contract related to the proposed new product under 39 U.S.C. 3632(b)(3) and 39 CFR 3015.5.
• Attachment A—a redacted copy of Governors' Decision No. 11–6, authorizing the new product;
• Attachment B—a redacted copy of the contract;
• Attachment C—proposed changes to the Mail Classification Schedule competitive product list with the addition underlined;
• Attachment D—a Statement of Supporting Justification as required by 39 CFR 3020.32;
• Attachment E—a certification of compliance with 39 U.S.C. 3633(a); and
• Attachment F—an application for non-public treatment of materials to maintain redacted portions of the contract and related financial information under seal.
In the Statement of Supporting Justification, Dennis R. Nicoski, Manager, Field Sales Strategy and Contracts, asserts that the contract will cover its attributable costs, make a positive contribution to covering institutional costs, and increase contribution toward the requisite 5.5 percent of the Postal Service's total institutional costs.
The Postal Service filed much of the supporting materials, including the related contract, under seal.
The Commission establishes Docket Nos. MC2012–37 and CP2012–45 to consider the Request pertaining to the proposed Priority Mail Contract 39 product and the related contract, respectively.
Interested persons may submit comments on whether the Postal Service's filings in the captioned dockets are consistent with the policies of 39 U.S.C. 3632, 3633, or 3642, 39 CFR 3015.5, and 39 CFR part 3020, subpart B. Comments are due no later than August 14, 2012. The public portions of these filings can be accessed via the Commission's Web site (
The Commission appoints Natalie Rea Ward to serve as Public Representative in these dockets.
1. The Commission establishes Docket Nos. MC2012–37 and CP2012–45 to consider the matters raised in each docket.
2. Pursuant to 39 U.S.C. 505, Natalie Rea Ward is appointed to serve as officer of the Commission (Public Representative) to represent the interests of the general public in these proceedings.
3. Comments by interested persons in these proceedings are due no later than August 14, 2012.
4. The Secretary shall arrange for publication of this order in the
By the Commission.
Postal Service.
Notice.
The Postal Service gives notice of filing a request with the Postal Regulatory Commission to add a domestic shipping services contract to the list of Negotiated Service Agreements in the Mail Classification Schedule's Competitive Products List.
Elizabeth A. Reed, 202–268–3179.
The United States Postal Service® hereby gives notice that, pursuant to 39 U.S.C. 3642 and 3632(b)(3), on August 3, 2012, it filed with the Postal Regulatory Commission a
Postal Service.
Notice.
The Postal Service gives notice of filing a request with the Postal Regulatory Commission to add a domestic shipping services contract to the list of Negotiated Service Agreements in the Mail Classification Schedule's Competitive Products List.
Elizabeth A. Reed, 202–268–3179.
The United States Postal Service® hereby gives notice that, pursuant to 39 U.S.C. 3642 and 3632(b)(3), on August 3, 2012, it filed with the Postal Regulatory Commission a
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the “Act”),
The Exchange proposes to provide an opportunity for Non-Customer orders to be exposed for execution on the Exchange before being rejected when execution of the order would trade through a better price on another exchange or placing the order on the book would lock or cross another market. The text of the proposed rule change is available on the Exchange's Web site (
In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The self-regulatory organization has prepared summaries, set forth in sections A, B and C below, of the most significant aspects of such statements.
Under the intermarket linkage rules, the ISE cannot execute orders at a price that is inferior to the national best bid or offer (“NBBO”), nor can the Exchange place an order on its book that would cause the ISE best bid or offer to lock or cross another exchange's quote.
Under the proposed rule change, the Exchange seeks to provide Non-Customer Orders an opportunity to be executed on the ISE before automatically rejecting the order, similar to the process used to expose Public Customer Orders before ISOs orders are sent to other exchanges. Specifically, instead of automatically rejecting a Non-Customer Order in the circumstances described above, the Exchange proposes to expose Non-Customer Orders to all members for up to one second. The Exchange will reject any unexecuted balance of the Non-Customer Order at the end of the exposure period unless it can be placed on the ISE book without locking or crossing another exchange's quotes.
The Exchange anticipates implementing the new system functionality for the proposed rule change in August 2012. Prior to implementation, the Exchange will issue a circular to all members informing them of the date on which the new functionality will become available.
The Exchange believes that its proposal is consistent with Section 6(b) of the Act
The proposed rule change does not impose any burden on competition.
The Exchange has not solicited, and does not intend to solicit, comments on this proposed rule change. The Exchange has not received any unsolicited written comments from members or other interested parties.
Because the proposed rule change does not (i) significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's Internet comment form (
• Send an email to
• Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
On June 19, 2012, NYSE Arca, Inc. (“Exchange” or “NYSE Arca”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”)
This order institutes proceedings under Section 19(b)(2)(B) of the Act to determine whether to approve or disapprove the proposed rule change. The institution of proceedings does not indicate that the Commission has reached any conclusions with respect to any of the issues involved, nor does it mean that the Commission will ultimately disapprove the proposed rule change. Rather, as described in greater detail below, the Commission seeks and encourages interested persons to provide additional comment on the proposed rule change to inform the Commission's analysis of whether to approve or disapprove the proposed rule change.
The Exchange proposes to list and trade the Shares under NYSE Arca Equities Rule 8.201, which governs the
The Trust's investment objective is for the value of the Shares to reflect, at any given time, the value of the copper owned by the Trust at that time, less the Trust's expenses and liabilities at that time. The Trust would not be actively managed and would not engage in any activities designed to obtain a profit from, or to prevent losses caused by, changes in the price of copper.
The Trust will create Shares only in exchange for copper that: (1) Meets the requirements to be delivered in settlement of copper futures contracts traded on the LME; and (2) is eligible to be placed on London Metal Exchange (“LME”) warrant at the time it is delivered to the Trust.
The net asset value (“NAV”) of the Trust will be calculated as promptly as practicable after 4:00 p.m. EST on each business day. The Trustee will value the Trust's copper at that day's announced LME Bid Price.
NYSE Arca indicates that it will require that a minimum of 100,000 Shares be outstanding at the start of trading,
The Exchange states that it intends to utilize appropriate surveillance procedures applicable to derivative products, including commodity-based trust shares, to monitor trading in the Shares, and represents that such procedures will be adequate to properly monitor Exchange trading of the Shares in all trading sessions and to deter and detect violations of Exchange rules and applicable federal securities laws.
The Notice and the Registration Statement include additional information regarding: The Trust; the Shares; the Trust's investment objectives, strategies, policies, and restrictions; fees and expenses; creation and redemption of Shares; the physical copper market; availability of information; trading rules and halts; and surveillance procedures.
V&F opposes the proposed rule change.
V&F states that almost all of the refined copper produced annually worldwide is subject to long-term delivery contracts with copper fabricating companies, and that at any given time, there is only a limited supply of copper available for immediately delivery.
V&F believes that the only refined copper generally available for immediate delivery is the copper in LME and COMEX warehouses.
V&F also expects that much of the copper used to fund the Trust will come from the immediately available supply in the U.S., stating:
What is more, these effects are, as a practical matter, most likely to be felt most directly in the United States. The reason is that, as with the JPM offering, the copper that is cheapest to acquire will most likely be copper on warrant in United States warehouses. This is because, for the most part, the cheapest location premiums for copper on warrant is from copper in LME warehouses in the United States. The “Authorized Participants,” like Goldman Sachs, who will be authorized to acquire copper for the BlackRock Trust will want to acquire copper at the cheapest location premiums possible in order for the price of ETF shares to be issued in exchange for the copper to mirror as closely as possible, the price per metric ton of copper on the LME. Thus, depletion of copper from the LME warehouses will most likely be felt the hardest in the United States and, once copper from the LME warehouses is depleted, copper from the Comex warehouses will be depleted as well, as copper there is moved to LME warehouses in order to take advantage of higher prices.
V&F asserts that the supply of copper generally is inelastic and that supply, therefore, will not increase fast enough to account for the increased demand from the creation and growth of the Trust.
V&F states that the Registration Statement “tries to convey the false impression that because there is copper tonnage outside of LME and Comex warehouses, such copper must therefore be available for [the Trust] to acquire.”
V&F also believes that investors' ability to redeem Shares for the Trust's physical copper would not mitigate the impact of removing substantial quantities of copper from the market.
According to V&F, removing large amounts of copper from LME and COMEX warehouses would disrupt the supply of copper available for immediate delivery and thereby cause a substantial rise in near-term copper prices.
According to V&F, price increases both for copper and copper products will be especially dramatic in the U.S., where copper currently is relatively
V&F quotes several statements from the Registration Statement to support its conclusion about the Trust's impact on copper prices, including the following statement that:
V&F characterizes the current physical copper market as volatile, and believes that the successful creation and growth of the Trust would create a bubble, and the bursting of the bubble would result in increased price volatility in the physical copper market.
V&F states that the copper bubble will be no different than others, predicting that, as investor demand for this product wanes, the bubble will burst, leaving in its wake a glut of physical copper that the Trust will be forced to dump on the market, causing prices to plummet, and leaving in its wake unsuspecting investors who will have lost the value of their investment.
V&F asserts generally that the tightened supply of copper it believes would be caused by fully funding the Trust would render the physical copper market more susceptible to manipulation.
According to V&F, the Trust “is unlike any other metal ETF currently listed on the Exchange and would allow speculators in the guise of purchasers of shares to create a squeeze on the market.”
Finally, V&F questions whether NYSE Arca's surveillance procedures are adequate to prevent fraudulent and manipulative trading in shares of the JPM Trust.
According to V&F, no ETF backed by a base metal used exclusively for industrial purposes has ever before been listed and sold on any nationally recognized exchange in the United States.
The Commission is instituting proceedings pursuant to Section 19(b)(2)(B) of the Act
Pursuant to Section 19(b)(2)(B) of the Act,
As discussed above, the Commission received one comment letter opposing the proposed rule change. V&F asserts that the successful creation of the Trust would materially reduce the supply of copper available for immediate delivery, which would increase the price of copper and volatility in the copper market, and, in turn, would harm the U.S. economy.
In light of the comments received, the Commission is soliciting further comments on the proposed rule change, including comments regarding the issues already commented upon.
The Commission requests that interested persons provide written submissions of their views, data, and arguments with respect to the concerns identified above, as well as any others they may have regarding the proposed rule change. In particular, the Commission invites the written views of interested persons concerning whether the proposed rule change is consistent with Section 6(b)(5) or any other provision of the Act, or the rules and regulations thereunder. The Commission will consider, pursuant to Rule 19b–4, any request for an opportunity to make an oral presentation.
Interested persons are invited to submit written data, views and arguments regarding whether the proposed rule change should be disapproved by September 12, 2012. Any person who wishes to file a rebuttal to any other person's submission must file that rebuttal by September 27, 2012.
The Commission asks that commenters address the sufficiency and merit of the proposed rule change and the comments received, in addition to any other comments they may wish to submit about the proposed rule change. The Commission requests that commenters support their responses to the questions below with empirical data sufficient to inform the Commission's decision making. In particular, the Commission seeks comment on the following:
1. In light of the comments received, the Commission is soliciting further comments regarding copper usage and supply trends. For example:
○ What was the world mine production capacity in each of the past 10 years? What data is available regarding projected world mine production over the next 3 to 5 years? What factors impact the ability to increase or decrease mine production?
○ What was the refined production in each of the past 10 years? How much of the refined production was from primary and secondary sources? What was the world refinery capacity in each of the past 10 years? What data is available regarding projected refined production over the next 3 to 5 years? What factors impact the ability to increase or decrease refinery production?
○ What was the world refined usage in each of the past 10 years? What data is available regarding projected usage over the next 3 to 5 years?
○ How much copper has been held for investment purposes over the past 10 years? How much of this copper was taken off LME warrant? How much of this copper has been eligible to be placed on LME warrant?
2. According to the International Copper Study Group (“ICSG'), world refined usage of copper exceeded world refined production by approximately 417,000 tons in 2010 and 231,000 tons in 2011, and world refined stocks decreased by 161,000 tons in 2010 and increased by 13,000 tons in 2011.
3. V&F states that the Trust and the proposed JPM Copper Trust,
○ Do commenters believe creation of the Trust will have an impact on the supply of copper? If so, what will that impact be? If not, why not?
○ How does a change in the supply of copper impact the price of copper? To what extent do copper stocks need to be reduced or increased to impact the price of copper?
○ To what extent is the LME Bid Price affected by the amount of copper on LME warrant? To what extent must copper on LME warrant be reduced to impact the LME Bid Price? To what extent, if at all, is the LME Bid Price affected by the supply of copper ineligible to be placed on LME warrant?
○ How does a change in the supply of copper impact volatility in the physical copper and copper derivatives markets?
○ Is there empirical evidence that creation of the Trust will impact copper prices and volatility? What impact, if any, will creation of the Trust have on the US economy?
4. V&F states that Shares would be created by removing copper from LME and COMEX warehouses in the United States,
The principal victims will * * * be United States consumers who typically rely on supplies of copper for immediate delivery to augment their long-term supply. These fabricators will not only be forced to pay higher prices, and incur the risk of price volatility once prices collapse, but there may be periods of time when those who can least afford it will be unable to get supply.
Do commenters agree or disagree with these concerns? Why or why not? Additionally, what mechanisms (if any) exist to allow market participants in need of copper in a specific location to trade an LME warrant or warehouse receipt for copper at another location?
5. V&F states that the only copper eligible for Share creation is copper: (1) Already under LME warrant; (2) stored in COMEX warehouses; (3) already part of the supply chain, subject to long-term contracts between producers and consumers; (4) held in bonded warehouses in China and destined for the Chinese market, which V&F asserts is only rarely delivered to LME warehouses in Asia; or (5) held as strategic reserves by the governments of China and South Korea.
○ How much copper is currently held in LME warehouses? How much of the copper currently held in LME warehouses is on warrant? How much copper in LME warehouses is available for investment purposes?
○ How much copper is held in COMEX, Shanghai Futures Exchange (“SHFE”), and Multi Commodity Exchange of India (“MCX”) warehouses? How much copper held in COMEX, SHFE, and MCX warehouses is eligible to be placed on LME warrant (
○ What quantity of copper stock, if any, is held in other locations that would be eligible to be placed on LME warrant (if it were located at an LME warehouse)?
○ How accessible are stocks of copper eligible to be placed on warrant that are not held in LME warehouses?
○ Are commenters aware of any activities involving the stockpiling of copper? If so, how much copper has been stockpiled? Where is such copper located? How accessible is such copper? How much of this stock was taken off LME warrant? How much of this copper is eligible to be placed on LME warrant?
6. The Custodian will store the Trust's copper in Approved Warehouses around the world.
7. The Trustee generally will value the Trust's copper at that day's announced LME Bid Price,
8. When valuing the Trust's copper, the Trustee will not take into account the location(s) of the copper. In contrast, to support the JPM Copper Proposal, NYSE Arca states that the value of copper depends in part on its location,
○ Does the value of the Trust's copper depend on its location? If so, how?
○ If so, does the LME Bid Price account for the locational premia/
9. V&F states: “the most obvious and freely available source” of copper eligible to create Shares “is copper on warrant in LME warehouses today.”
○ What costs are involved in taking copper off LME warrant? What costs are involved in putting copper on LME warrant?
○ How long does it take to take copper off LME warrant? How long does it take to put copper on LME warrant?
○ How does the cost and time required to take copper off warrant compare to the cost and time to ship copper to an Approved Warehouse?
10. The Commission understands that ETFS Physical Copper securities currently trade on the London Stock Exchange. How much copper did ETFS Physical Copper hold following the initial creation? How much copper does ETFS Physical Copper currently hold? What change, if any, was there in the price of copper following creation of ETFS Physical Copper? Did the creation of ETFS Physical Copper result in an observable impact on the copper market? Has ETFS Physical Copper engaged in the lending of copper?
11. The Commission has previously approved listing on the Exchange under NYSE Arca Equities Rule 8.201 of other issues of CB–ETPs backed by gold, silver, platinum, and palladium (collectively “precious metals”). While these precious metals are often held for investment purposes, the Commission understands they are also used for various industrial purposes. V&F asserts that copper is used exclusively for industrial purposes and is not generally held for investment.
12. V&F states that creation of the Trust could result in the immediate removal of up to 121,200 metric tons of copper from the market.
13. V&F argues that, by decreasing the amount of copper available for immediate delivery, the Trust will make the copper market more susceptible to manipulation.
○ Will creation of the Trust impact the ability to manipulate the physical copper or copper derivatives markets? If so, how? If not, why not?
○ Has there been any increased manipulative behavior due to the reduction of copper available for immediate delivery that resulted from the prior years' deficits in copper production versus copper consumption?
○ Are there any structural aspects of the copper market that render it more or less susceptible to manipulation?
○ Is there empirical evidence that the creation of CB–ETPs backed by gold, silver, platinum, and palladium has led to manipulation of the physical markets for those precious metals? If so, please describe.
14. V&F states the listing and trading of shares of copper CB–ETPs like those “being proposed by BlackRock and JPM—and the consequent drawdown and removal from the market of most of the copper in LME and Comex warehouses—risk endangering the price discovery functions of the LME and Comex.”
Comments may be submitted by any of the following methods:
• Use the Commission's Internet comment form (
• Send an email to
• Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the “Act”),
The Exchange proposes to amend its fees and rebates applicable to Members
In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The self-regulatory organization has prepared summaries, set forth in sections A, B and C below, of the most significant aspects of such statements.
The Exchange proposes to append Footnote 18 to its standard rebate of $0.0003 per share for adding liquidity on the EDGA fee schedule to add the Step Up Tier. The Exchange also proposes to append Footnote 18 to Flags B, V, Y, 3, and 4 to signify a potential rate change should the Member meet the criteria of the Step Up Tier. Members may qualify for a rebate of $0.0005 per share on their displayed shares (Flags B, V, Y, 3, and 4) for adding liquidity to EDGA if the Member, on a daily basis, measured monthly, posts 0.10% of the Total Consolidated Volume (“TCV”)
Because the Exchange can now differentiate non-displayed orders that add liquidity using the Mid Point Discretionary Order type
The Exchange proposes to delete Footnote 4 that is appended to Flag HA in order to clarify for Members that the volume from Flag HA counts towards achieving the tiered pricing in Footnote 4 and the rate for Flag HA does not change where a Member achieves the thresholds outlined in Footnote 4. The Exchange notes that these proposed changes do not modify the Exchanges existing treatment of Flag HA. This amendment supports the Exchange's
In SR–EDGA–2012–29, the Exchange proposed to pass-through the rates for routing orders to the Nasdaq OMX PSX (the “PSX”) on Flags K and RS.
The Exchange proposes to implement these amendments to its fee schedule on August 1, 2012.
The Exchange believes that the proposed rule changes are consistent with the objectives of Section 6 of the Act,
The Exchange proposes to append Footnote 18 to its standard rebate of $0.0003 per share for adding liquidity on the EDGA fee schedule and Flags B, V, Y, 3, and 4 to add the Step Up Tier where Members may qualify for a rebate of $0.0005 per share on their displayed shares (Flags B, V, Y, 3, and 4) for liquidity added to EDGA if the Member on a daily basis, measured monthly, posts at least 0.10% of the TCV in ADV more than their July 2012 ADV added to EDGA. The Exchange believes a rebate of $0.0005 per share for adding liquidity versus the default rebate of $0.0003 per share represents an equitable allocation of reasonable dues, fees, and other charges since higher rebates reward higher liquidity provision commitments by Members. For example, in order for a Member to qualify for the Step Up Tier rebate of $0.0005 per share, the Member must add on a daily basis, measured monthly, 0.10% of the TCV in ADV more than their July 2012 ADV. The Exchange created a baseline of July 2012 ADV in order to reward a Member's growth pattern in providing liquidity beyond a designated benchmark. The Exchange believes that offering Members a higher rebate will incentivize liquidity. Such increased volumes increase potential revenue to the Exchange, and allows the Exchange to spread its administrative and infrastructure costs over a greater number of shares, which results in lower per share costs. The Exchange may then pass on these savings to Members in the form of higher rebates. The increased liquidity also benefits all investors by deepening EDGA's liquidity pool, offering additional flexibility for all investors to enjoy cost savings, supporting the quality of price discovery, promoting market transparency and improving investor protection. Volume-based rebates such as the Step Up Tier have been widely adopted in the cash equities markets,
In Footnote 4 of the fee schedule, the Exchange notes that it currently offers a $0.0004 per share rebate for Members that, on a daily basis, measured monthly, posts more than 1% of the TCV in average daily volume on EDGA, including non-displayed orders that add liquidity. Secondly, a Member, on a daily basis, measured monthly, that posts more than .25% of the TCV on EDGA, including non-displayed orders that add liquidity, and removes more than .25% of TCV in average daily volume, will also qualify for the rebate of $0.0004 per share in Footnote 4. The Exchange believes that the $0.0005 per share rebate in the Step Up assigns a higher value to and rewards a Member's growth pattern over a designated benchmark in a way that attracts new liquidity to the market and is distinctly different from the volume-based tier in Footnote 4. Such increased volume from a Member's growth over said designated benchmark and the resulting liquidity to the market increases potential revenue to the Exchange, and would allow the Exchange to spread its administrative and infrastructure costs over a greater number of shares, leading to lower per share costs. These lower per share costs would allow the Exchange to pass on the savings to Members in the form of higher rebates. The increased liquidity also benefits all investors by deepening EDGA's liquidity pool, offering additional flexibility for all investors to enjoy cost savings, supporting the quality of price discovery, promoting market transparency and improving investor protection. Offering rebates that reward growth patterns such as the ones proposed herein have been widely adopted in the cash equities markets, and are equitable because they are open to all Members on an equal basis and provide discounts that are reasonably related to the value to an exchange's market quality associated with higher levels of market activity, such as higher levels of liquidity provision and introduction of higher volumes of orders into the price and volume discovery processes.
In SR–EDGA–2012–29, the Exchange bifurcated Flag DM into Flags DM and DT to promote market transparency and improve investor protection by adding additional transparency to its fee schedule in order to more precisely delineate for Members whether they were “adders of liquidity” or “removers of liquidity” for purposes of Members' non-displayed orders using the Mid Point Discretionary order type. Similarly, the Exchange believes that counting the volume generated from Flags DM and DT toward the volume threshold in Footnote 2 is reasonable and equitable given that the Exchange can now differentiate between non-displayed orders that add liquidity in the discretionary range from non-displayed orders that remove liquidity in the discretionary range, as explained above. Including Flags DM and DT in Footnote 2 allows their associated
The Exchange proposes to delete Footnote 4 that is appended to Flag HA because the volume from Flag HA counts towards achieving the tiered pricing in Footnote 4 and the rate for Flag HA does not change where a Member achieves the thresholds outlined in Footnote 4. The Exchange believes this amendment to Flag HA supports the Exchange's effort to achieve consistent application among the flags on the fee schedule and provide transparency for its Members. In addition, this amendment supports the Exchange's efforts to annotate flags with footnotes to signify a potential rate change, rather than annotating every flag to denote which flags contribute towards the volume threshold and/or conditions necessary to achieve a potential rate change. Accordingly, the Exchange also proposed to add conforming language to Footnote 4 that indicates to Members that the rebate of $0.0004 per share applies to Flags B, V, Y, 3 and 4, as was already indicated by appending Footnote 4 to these flags on the fee schedule. The Exchange also believes that these proposed amendments are non-discriminatory because they apply to all Members.
The Exchange proposes to amend the fees for Flags K and RS in response to the proposed pricing changes in the PSX's pending filing with the Securities and Exchange Commission, which is effective August 1, 2012, where the PSX proposed a range of fees and rebates for Tape A and Tapes B and C securities. At this time, the PSX passes through applicable fees and/or rebates to DE Route, which, in turn, passes through the applicable fees and/or rebates to the Exchange. In response to the PSX's pending filing, the Exchange proposes to increase the rate for Flag K from $0.0005 per share to $0.0027 per share, and the rate for Flag RS from a charge of $0.0005 per share to a rebate of $0.0016 per share. Because the Exchange's fee schedule currently does not differentiate between Tape A and Tapes B and C securities that are routed to the PSX in Flags K and RS and the Exchange cannot mirror the new PSX fees associated with each tape, the Exchange proposes assessing its Members the highest fee and the lowest rebate associated with the PSX's pending filing for all tapes for ease of administration and to prevent potential arbitrage. The Exchange also notes that routing through DE Route is voluntary. The Exchange believes this represents an equitable allocation of reasonable dues, fees and other charges since it reflects the pass-through of these fees from the PSX. In addition, the Exchange believes that it is reasonable and equitable to pass-through certain fees to its Members. The Exchange also believes that the proposed pass-through of fees is non-discriminatory because it applies to all Members.
The Exchange also notes that it operates in a highly-competitive market in which market participants can readily direct order flow to competing venues if they deem fee levels at a particular venue to be excessive. The proposed rule change reflects a competitive pricing structure designed to incent market participants to direct their order flow to the Exchange. The Exchange believes that the proposed rates are equitable and non-discriminatory in that they apply uniformly to all Members. The Exchange believes the fees and credits remain competitive with those charged by other venues and therefore continue to be reasonable and equitably allocated to Members.
The proposed rule change does not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act.
The Exchange has not solicited, and does not intend to solicit, comments on this proposed rule change. The Exchange has not received any unsolicited written comments from members or other interested parties.
The foregoing rule change has become effective pursuant to Section 19(b)(3) of the Act
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's Internet comment form (
• Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the “Act”),
The Exchange proposes to amend its fees and rebates applicable to Members
In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The self-regulatory organization has prepared summaries, set forth in sections A, B and C below, of the most significant aspects of such statements.
In SR–EDGX–2012–26, the Exchange proposed to pass-through the rates for routing orders to the Nasdaq OMX PSX (the “PSX”) on Flags K and RS.
The Exchange proposes to implement these amendments to its fee schedule on August 1, 2012.
The Exchange believes that the proposed rule changes are consistent with the objectives of Section 6 of the Act,
The Exchange proposes to amend the fees for Flags K and RS in response to the proposed pricing changes in the PSX's pending filing with the Securities and Exchange Commission, which is effective August 1, 2012, where the PSX proposed a range of fees and rebates for Tape A and Tapes B and C securities. At this time, the PSX passes through applicable fees and/or rebates to DE Route, which, in turn, passes through the applicable fees and/or rebates to the Exchange. In response to the PSX's pending filing, the Exchange proposes to increase the rate for Flag K from $0.0005 per share to $0.0027 per share, and the rate for Flag RS from a charge of $0.0005 per share to a rebate of $0.0016 per share. Because the Exchange's fee schedule currently does not differentiate between Tape A and Tapes B and C securities that are routed to the PSX in Flags K and RS and the Exchange cannot mirror the new PSX fees associated with each tape, the Exchange proposes assessing its Members the highest fee and the lowest rebate associated with the PSX's pending filing for all tapes for ease of administration and to prevent potential arbitrage. The Exchange also notes that routing through DE Route is voluntary. The Exchange believes this represents an equitable allocation of reasonable dues, fees and other charges since it reflects the pass-through of these fees from the PSX. In addition, the Exchange believes that it is reasonable and equitable to pass-through certain fees to its Members. The Exchange also believes that the proposed pass-through of fees is non-discriminatory because it applies to all Members.
The proposed rule change does not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act.
The Exchange has not solicited, and does not intend to solicit, comments on this proposed rule change. The Exchange has not received any unsolicited written comments from members or other interested parties.
The foregoing rule change has become effective pursuant to Section 19(b)(3) of
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's Internet comment form (
• Send an email to
• Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”)
CME proposes to make an adjustment to one particular component of its current credit default swap (“CDS”) margin model. The adjustment would apply only to non-customer positions.
In its filing with the Commission, CME included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. CME has prepared summaries, set forth in sections (A), (B), and (C) below, of the most significant aspects of these statements.
CME's currently approved credit default swap margin methodology utilizes a “multi-factor” portfolio model to determine margin requirements for credit default swap (“CDS”) instruments. The model incorporates risk-based factors that are designed to represent the different risks inherent to CDS products. The factors are aggregated to determine the total amount of margin required to protect a portfolio against exposures resulting from daily changes in CDS spreads. For both total and minimum margin calculations, CME evaluates each CDS contract held within a portfolio. These positions are distinguished by the single name of the underlying entity, the CDS tenor, the notional amount of the position, and the fixed spread or coupon rate. For consistency, margins for CDS indexes in a portfolio are handled based on the required margin for each of the underlying components of the index.
CME proposes to make an adjustment to one particular component of its current CDS margin model. The liquidity margin component of the CME CDS margin model is designed to capture the risk associated with bid/ask spreads and concentration inherent in the process of liquidating a portfolio of a CDS Clearing Member. The current methodology for the liquidity factor is a function of a portfolio's gross notional value, the current bid/ask of the 5 year tenor of the “on the run” contract, the Duration/Series/Tenor (“DST”) factor, and a concentration factor based upon the gross notional for each of the CDX IG and CDX HY contracts. The total liquidity margin for a portfolio is the sum of the liquidity margins of the CDX IG and CDX HY CDS Contracts in the CDS Clearing Member portfolio.
The specific proposed change that is the subject of this filing relates only to the methodology used for the DST factor of the CDX IG and HY families. Under current methods, every DST calculation is calibrated separately for each index family. Further, the maximum DST value is used. The proposal is to change the DST factor so that it will apply to the specific series and tenor for each CDX IG and CDX HY CDS contract in a
The proposed adjustment does not require any changes to rule text in the CME rulebook and does not necessitate any changes to CME's CDS Manual of Operations. The change will be announced to CDS market participants in an advisory notice that will be issued prior to implementation but after approval for the change is obtained from the Commission.
The CME believes the proposed rule changes are consistent with the requirements of the Exchange Act including Section 17A of the Exchange Act. The enhancements to CME's current margin methodology will facilitate the prompt and accurate settlement of security-based swaps and contribute to the safeguarding of securities and funds associated with security-based swap transactions. The proposed rule changes accomplish those objectives because the changes are designed to better align the margin methodology with the liquidity profile of the instruments in the portfolio.
CME does not believe that the proposed rule change would impose any burden on competition.
CME has not solicited, and does not intend to solicit, comments regarding this proposed rule change. CME has not received any unsolicited written comments from interested parties.
Within 45 days of the date of publication of this notice in the
(A) By order approve or disapprove the proposed rule change; or
(B) Institute proceedings to determine whether the proposed rule change should be disapproved.
Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commissions Internet comment form (
• Send an email to
• Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090.
All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–CME–2012–28 and should be submitted on or before September 4, 2012.
For the Commission by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the “Act”)
The Exchange proposes implementing amendments to the NYSE MKT LLC Price List to Establish Pricing for the Retail Liquidity Program. The text of the proposed rule change is available on the Exchange's Web site at
In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries,
The Exchange proposes to amend its Price List to establish pricing for the Retail Liquidity Program, which has been approved by the Commission to operate for one year as a pilot program.
Two new classes of market participants were created under the Retail Liquidity Program: (1) Retail Member Organizations (“RMOs”),
In proposing the Retail Liquidity Program, the Exchange stated that it would submit a separate proposal to amend its Price List in connection with the Retail Liquidity Program.
• RPIs of RLPs will be free if executed against Retail Orders. The Exchange notes that, as provided under Rule 107C(f)(3)—Equities, the percentage requirement provided under Rule 107C(f)(1)—Equities is not applicable in the first two calendar months that a member organization operates as an RLP. Instead, the percentage requirement takes effect on the first day of the third consecutive calendar month that the member organization operates as an RLP. The Exchange proposes that, during the first two calendar months that a member organization operates as an RLP, the RLP's RPIs will be free if executed against Retail Orders, regardless of the percentage of the trading day at which the RLP maintains an RPI that is priced better than the PBBO. Thereafter, this proposed rate would only be applicable if the RLP satisfies the percentage requirement of Rule 107C(f)(1)—Equities. An RLP that does not satisfy the percentage requirement of Rule 107C(f)(1)—Equities would be charged the $0.0003 per share rate described below for non-RLP member organizations.
• RPIs of non-RLP member organizations will be charged $0.0003 per share if executed against Retail Orders; provided, however, that RPIs of non-RLP member organizations that execute an average daily volume (“ADV”)
• Retail Orders of RMOs will receive a credit of $0.0005 per share if executed against RPIs of RLPs and other member organizations. The Exchange notes that an RMO submitting a Retail Order could choose one of three ways for the Retail Order to interact with available contra-side interest. First, a Type 1-designated Retail Order could interact only with available contra-side RPIs. These Type 1-designated Retail Orders would not interact with other available contra-side interest in Exchange systems or route to other markets. Portions of a Type 1-designated Retail Order that are not executed would be cancelled. Second, a Type 2-designated Retail Order could interact first with available contra-side RPIs and any remaining portion would be executed as a non-routable Regulation NMS-compliant Immediate or Cancel Order, which would sweep the Exchange's Book without being routed to other markets, and any remaining portion would be cancelled. Finally, a Type 3-designated Retail Order could interact first with available contra-side RPIs and any remaining portion would be executed as a routable Exchange Immediate or Cancel Order, which would sweep the Exchange's Book and be routed to other markets, and any remaining portion would be cancelled. A Retail Order that executes against the Book will be charged according to the standard rate applicable to non-Retail Orders, which is currently $0.0028 per share (or $0.0030 for NASDAQ securities traded pursuant to unlisted trading privileges). Also, the standard routing fee (i.e., $0.0030 per share) would apply to a Retail Order that is routed away from the Exchange and executed on another market.
The Exchange proposes that the pricing described herein be applicable, unless otherwise amended at a later date, for so long as the Retail Liquidity Program is in effect. Because the Retail Liquidity Program has been approved to
The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Securities Exchange Act of 1934 (the “Act”),
The Exchange believes that the proposed rule change is reasonable, equitable and not unfairly discriminatory because it would establish pricing designed to increase competition among execution venues, encourage additional liquidity and offer the potential for price improvement to retail investors. The Exchange notes that a significant percentage of the orders of individual investors are executed over-the-counter.
The Exchange believes that the $0.0005 credit proposed herein for executions of RMOs against RPIs is reasonable, equitable and not unfairly discriminatory because it will create a financial incentive to bring additional retail order flow to a public market. The Exchange also believes applying standard non-Retail Order rates to Retail Orders that execute against the Book or that are routed away from the Exchange and executed on another market is reasonable, equitable and not unfairly discriminatory because these are the rates that would apply to such orders, but for the Retail Order designation.
The Exchange believes that not charging RLPs that satisfy the percentage requirement of Rule 107C(f)(1)—Equities for their executions of RPIs is reasonable, equitable and not unfairly discriminatory because it will incentivize member organizations to become RLPs and therefore could result in greater price improvement for Retail Orders. Similarly, the Exchange believes that not charging non-RLP member organizations that execute an ADV of at least 10,000 shares of RPIs during the month for their executions of RPIs is reasonable, equitable and not unfairly discriminatory because it will incentivize such non-RLPs to submit RPIs for interaction with Retail Orders.
The Exchange believes that it is reasonable, equitable and not unfairly discriminatory to not charge an RLP for its executions of RPIs against a Retail Order during the first two calendar months of operation as an RLP, but to charge a non-RLP member organization for such executions unless it satisfies the 10,000-share ADV threshold. Specifically, while the Exchange believes that member organizations that elect to become RLPs will promptly endeavor to satisfy the applicable percentage requirement provided under Rule 107C(f)(1)—Equities, the Exchange anticipates that RLPs will require a reasonable period of time to adjust their systems and trading to the Retail Liquidity Program. In this regard, the Exchange notes that non-RLP member organizations will not need to make such adjustments, as they are not subject to the percentage requirements of Rule 107C(f)—Equities. Also, whereas an RLP may only enter an RPI for securities to which it is assigned, non-RLP member organizations may submit RPIs in all NYSE MKT Equities-traded securities. Accordingly, while non-RLP member organization executions of RPIs for all NYSE MKT Equities-traded securities would count toward satisfying the 10,000-share ADV threshold, only RLP executions of RPIs in assigned securities would count toward satisfying the percentage requirements of Rule 107C(f)(1)—Equities.
While the Exchange believes that markets and price discovery optimally function through the interactions of diverse flow types, it also believes that growth in internalization has required differentiation of retail order flow from other order flow types. The pricing proposed herein, like the Retail Liquidity Program itself, is not designed to permit unfair discrimination, but instead to promote a competitive process around retail executions such that retail investors would receive better prices than they currently do through bilateral internalization arrangements. The Exchange believes that the transparency and competitiveness of operating a program such as the Retail Liquidity Program on an exchange market, and the pricing related thereto, would result in better prices for retail investors. Additionally, the Exchange notes that participation in the Retail Liquidity Program is optional and, accordingly, the pricing proposed herein would not apply to a member organization that does not choose to participate.
The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act.
No written comments were solicited or received with respect to the proposed rule change.
The foregoing rule change is effective upon filing pursuant to Section 19(b)(3)(A)
At any time within 60 days of the filing of such proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act.
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's Internet comment form (
• Send an email to
• Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
U.S. Small Business Administration.
Notice.
This is a notice of an Administrative declaration of a disaster for the State of Indiana Dated 08/06/2012.
Submit completed loan applications to: U.S. Small Business Administration, Processing and Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155.
A. Escobar, Office of Disaster Assistance, U.S. Small Business Administration, 409 3rd Street SW., Suite 6050, Washington, DC 20416.
Notice is hereby given that as a result of the Administrator's disaster declaration, applications for disaster loans may be filed at the address listed above or other locally announced locations.
The following areas have been determined to be adversely affected by the disaster:
The Interest Rates are:
The number assigned to this disaster for physical damage is 13174B and for economic injury is 131750.
The States which received an EIDL Declaration # are: Indiana, Ohio.
U.S. Small Business Administration.
Notice.
This is a Notice of the Presidential declaration of a major disaster for Public Assistance Only for the State of Wisconsin (FEMA–4076–DR), dated 08/02/2012.
Submit completed loan applications to: U.S. Small Business Administration, Processing And Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155.
A. Escobar, Office of Disaster Assistance, U.S. Small Business Administration, 409 3rd Street SW., Suite 6050, Washington, DC 20416.
Notice is hereby given that as a result of the President's major disaster declaration on 08/02/2012, Private Non-Profit organizations that provide essential services of governmental nature may file disaster loan applications at the address listed above or other locally announced locations.
The following areas have been determined to be adversely affected by the disaster:
The Interest Rates are:
The number assigned to this disaster for physical damage is 13194B and for economic injury is 13195B.
U.S. Small Business Administration.
Notice.
This is a Notice of the Presidential declaration of a major disaster for Public Assistance Only for the State of Maryland (FEMA–4075–DR), dated 08/02/2012.
Submit completed loan applications to: U.S. Small Business Administration, Processing and Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155.
A. Escobar, Office of Disaster Assistance, U.S. Small Business Administration, 409 3rd Street SW., Suite 6050, Washington, DC 20416.
Notice is hereby given that as a result of the President's major disaster declaration on 08/02/2012, Private Non-Profit organizations that provide essential services of governmental nature may file disaster loan applications at the address listed above or other locally announced locations.
The following areas have been determined to be adversely affected by the disaster:
The Interest Rates are:
The number assigned to this disaster for physical damage is 13192B and for economic injury is 13193B.
U.S. Small Business Administration.
Notice.
This is a notice of the Presidential declaration of a major disaster for Public Assistance Only for the State of Montana (FEMA–4074–DR), dated 08/02/2012.
Submit completed loan applications to: U.S. Small Business Administration, Processing and Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155.
A. Escobar, Office of Disaster Assistance, U.S. Small Business Administration, 409 3rd Street SW., Suite 6050, Washington, DC 20416.
Notice is hereby given that as a result of the President's major disaster declaration on 08/02/2012, Private Non-Profit organizations that provide essential services of governmental nature may file disaster loan applications at the address listed above or other locally announced locations.
The following areas have been determined to be adversely affected by the disaster:
The Interest Rates are:
The number assigned to this disaster for physical damage is 131905 and for economic injury is 131915.
U.S. Small Business Administration.
Notice.
This is a notice of an Administrative declaration of a disaster for the State of Colorado dated 08/07/2012.
Submit completed loan applications to: U.S. Small Business Administration, Processing and Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155.
A. Escobar, Office of Disaster Assistance, U.S. Small Business Administration, 409 3rd Street SW., Suite 6050, Washington, DC 20416.
Notice is hereby given that as a result of the Administrator's disaster declaration, applications for disaster loans may be filed at the address listed above or other locally announced locations.
The following areas have been determined to be adversely affected by the disaster:
The Interest Rates are:
The number assigned to this disaster for physical damage is 131965 and for economic injury is 131970.
The States which received an EIDL Declaration # are Colorado, Wyoming.
U.S. Small Business Administration.
Notice.
This is a notice of an Administrative declaration of a disaster for the State of Montana dated 08/06/2012.
Submit completed loan applications to: U.S. Small Business Administration, Processing and Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155.
A. Escobar, Office of Disaster Assistance, U.S. Small Business Administration, 409 3rd Street SW., Suite 6050, Washington, DC 20416.
Notice is hereby given that as a result of the Administrator's disaster declaration, applications for disaster loans may be filed at the address listed above or other locally announced locations.
The following areas have been determined to be adversely affected by the disaster:
The Interest Rates are:
The number assigned to this disaster for physical damage is 131885 and for economic injury is 131890.
The State which received an EIDL Declaration # is Montana.
Notice is hereby given of the following determinations: Pursuant to the authority vested in me by the Act of October 19, 1965 (79 Stat. 985; 22 U.S.C. 2459), Executive Order 12047 of March 27, 1978, the Foreign Affairs Reform and Restructuring Act of 1998 (112 Stat. 2681,
For further information, including a list of the exhibit objects, contact Paul W. Manning, Attorney-Adviser, Office of the Legal Adviser, U.S. Department of State (telephone: 202–632–6469). The mailing address is U.S. Department of State, SA–5, L/PD, Fifth Floor (Suite 5H03), Washington, DC 20522–0505.
Notice is hereby given of the following determinations: Pursuant to the authority vested in me by the Act of October 19, 1965 (79 Stat. 985; 22 U.S.C. 2459), Executive Order 12047 of March 27, 1978, the Foreign Affairs Reform and Restructuring Act of 1998 (112 Stat. 2681,
For further information, including a list of the exhibit objects, contact Paul W. Manning, Attorney-Adviser, Office of the Legal Adviser, U.S. Department of State (telephone: 202–632–6469). The mailing address is U.S. Department of State, SA–5, L/PD, Fifth Floor (Suite 5H03), Washington, DC 20522–0505.
Notice is hereby given that the Department of State proposes to amend an existing system of records, Information Access Programs Records, State-35, pursuant to the provisions of the Privacy Act of 1974, as amended (5 U.S.C. 552a) and Office of Management and Budget Circular No. A–130, Appendix I.
This system of records will be effective on September 24, 2012, unless we receive comments that will result in a contrary determination.
Any persons interested in commenting on the amended system of records may do so by writing to the Director; Office of Information Programs and Services, A/GIS/IPS; Department of State, SA–2; 515 22nd Street NW.; Washington, DC 20522–8001.
Director; Office of Information Programs and Services, A/GIS/IPS; Department of State, SA–2; 515 22nd Street NW.; Washington, DC 20522–8001.
The Department of State proposes that the current system retain the name “Information Access Programs Records.” The proposed system will include revisions to the following sections: Categories of individuals, Categories of records, Authorities, Purpose, Routine Uses, Safeguards, and other administrative updates. The following section has been added to the system of records, Information Access Programs Records, State-35, to ensure Privacy Act of 1974 compliance: Disclosure to Consumer Reporting Agencies.
The Department's report was filed with the Office of Management and Budget. The amended system description, “Information Access Programs Records, State-35,” will read as set forth below.
Information Access Programs Records.
Unclassified and Classified.
Department of State; SA–2; 515 22nd Street NW.; Washington, DC 20522–8001.
Individuals requesting access to Department of State records under the Freedom of Information Act, the Privacy Act, the Ethics in Government Act, the access provisions of Executive Order 13526 or a successor order on national security information, and Touhy regulations. Also covered are individuals and entities requesting access to Department of State records pursuant to certain other authorities for special document requests, discovery and litigation support requests.
Records in the system include but are not limited to the request letters and Department responses, copies of responsive records (if applicable) and any other correspondence, memoranda, interrogatories and declarations related to the processing of the request from the initial receipt stage through to completion, amendment, appeal and litigation.
Hard copy records and electronic records may contain: the date of the request; requester's name and requester's mailing and email address; Social Security number (if provided by the requester) or other personal identifiers; place of birth, and/or date of birth in the form of scanned hardcopy documents or case tracking information entered into the system during the initial processing stage; type of case; case number; dates of acknowledgement letters; fee categories; search and review taskings; number of documents/pages found, reviewed and released or denied; date of response and, where applicable, the exemptions applied pursuant to the Freedom of Information Act or Privacy Act. These records may also contain names, addresses and phone numbers of attorneys, law firms, judges and U.S. attorneys involved with the processing or litigation of the case, as well as separate but related court decisions.
5 U.S.C. 301 (Management of Executive Agencies); 5 U.S.C. 552 (Freedom of Information Act); 5 U.S.C. 552a (Privacy Act); 22 U.S.C. 2651a (Organization of the Department of State); 22 U.S.C. 3921 (Management of Foreign Service) and Executive Order 13526 (Classified National Security Information).
The information in this system supports the Department in the administration of its statutory responsibility for processing requests for access; amendments; appeals; special projects for Congress, the Government Accountability Office, and the Department of Justice in support of court orders and subpoenas; discovery, litigation support, and litigation pursuant to the Freedom of Information Act, the Privacy Act, Executive Order 13526 or a successor order on national security information, and Touhy regulations.
Information in this system may be disclosed to:
1. Government agencies that have custody of Department of State records or that share with the Department responsibility for granting access to certain categories of records, to coordinate decisions on access to records;
2. Government agencies for concurrence reviews in recommendations for access to classified or restricted material and in making appropriate arrangements for such access;
3. A Court or adjudicative body for a proceeding, when the agency, or any component thereof, or any employee of the agency in his or her official capacity, is a party to litigation or has an interest in such litigation, and the agency determines that use of such records is relevant and necessary to the litigation;
4. Department of Justice for the purpose of obtaining its advice on any aspect of the processing of requests for information under the access provisions of the laws or in connection with litigation;
5. Actual or potential party to litigation or the party's attorney for the purpose of negotiation or discussion on such matters as settlement of the case or matter, plea bargaining or in formal or informal discovery proceedings;
6. Office of Management and Budget, National Archives and Records Administration or the Interagency Security Oversight Office, for the purpose of obtaining advice regarding agency obligations under any access provisions or restrictions of law;
7. Interagency Security Classification Appeals Panel or member agencies for the purpose of obtaining advice regarding agency obligations under any access provisions or restrictions of law; and
8. In response to a properly issued subpoena.
9. To the National Archives and Records Administration, Office of Government Information Services (OGIS), to the extent necessary to fulfill its responsibilities in 5 U.S.C. 552(h), to review administrative agency policies, procedures, and compliance with the Freedom of Information Act, and to facilitate OGIS' offering of mediation services to resolve disputes between persons making FOIA requests and administrative agencies.
The Department of State periodically publishes in the
None.
Hard copy and electronic media.
Individual name, case number.
All users are given cyber security awareness training which covers the procedures for handling Sensitive but Unclassified information, including personally identifiable information (PII). Annual refresher training is mandatory. In addition, all Foreign Service and Civil Service employees and those Locally Engaged Staff who handle PII are required to take the Foreign Service Institute distance learning course instructing employees on privacy and security requirements, including the rules of behavior for handling PII and the potential consequences if it is handled improperly.
Before being granted access to Information Access Programs Records, a user must first be granted access to the Department of State computer system.
All employees of the Department of State with authorized access have undergone a thorough background security investigation. Access to the Department of State, its annexes, and posts abroad is controlled by security guards and admission is limited to those individuals possessing a valid identification card or individuals under proper escort. All paper records containing personal information are maintained in secured file cabinets in restricted areas, access to which is limited to authorized personnel. Access to computerized files is password-protected and under the direct supervision of the system manager. In addition, all cases and user-accessible records containing PII are only accessible by cleared individuals whose login is contained on the Access Control List (ACL). If an individual is not listed on the ACL, he/she does not have any access to electronic records containing PII in the system. The system manager has the capability of printing audit trails of access from the computer media, thereby permitting regular and ad hoc monitoring of computer usage.
Records are retired and destroyed in accordance with published Department of State Records Disposition Schedules as approved by the National Archives and Records Administration (NARA). More specific information may be obtained by writing to the Director; Office of Information Programs and Services, A/GIS/IPS; SA–2, Department of State; 515 22nd Street NW.; Washington, DC 20522–8001.
Director, Office of Information Programs and Services, SA–2; Department of State; 515 22nd Street NW.; Washington, DC 20522–8001.
Individuals who have reason to believe that the Office of Information Programs and Services might have records maintained under their name or personal identifier should write to the Director, Office of Information Programs and Services; SA–2; Department of State; 515 22nd Street NW.; Washington, DC 20522–8001. The individual must specify that he/she wishes the system to be checked. At a minimum, the individual must include: Name; date and place of birth; current mailing address and zip code; signature; case number if available; and other information helpful in identifying the record.
Individuals who wish to gain access to or amend records pertaining to
(See above.)
These records may contain information obtained from the requester, attorneys representing the requester and others authorized to represent requesters, records systems searched, and officials of other government agencies who may have provided/referred information relative to the request including, but not limited to documents, advice, concurrence, recommendations and disclosure determinations.
Pursuant to 5 U.S.C. 552a(j)(2), records in this system of records may be exempted from any part of the Privacy Act except 5 U.S.C. 552a(b), (c)(1) and (2), (e)(4)(A) through (F), (e)(6), (7), (9), (10), and (11), and (i).
Pursuant to 5 U.S.C. 552a(k)(1), (k)(2), (k)(3), (k)(4), (k)(5), (k)(6), and (k)(7), records in this system of records may be exempted from 5 U.S.C. 552a(c)(3), (d), (e)(1), (e)(4)(G), (H), and (I) and (f).
When the Department of State is processing requests under the purpose of this system, exempt materials from other systems of records may become part of the records in this system. To the extent that copies of exempt records from other systems of records are entered into this system, the Department of State hereby claims the same exemptions for those records that are claimed for the original primary systems of records from which they originated.
Federal Aviation Administration, Transportation.
Notice.
By
Persons interested in applying for the remaining NPOAG opening representing environmental concerns need to apply by September 12, 2012.
Barry Brayer, Special Programs Staff, Federal Aviation Administration, Western-Pacific Region Headquarters, P.O. Box 92007, Los Angeles, CA 90009–2007, telephone: (310) 725–3800, email:
The National Parks Air Tour Management Act of 2000 (the Act) was enacted on April 5, 2000, as Public Law 106–181. The Act required the establishment of the advisory group within 1 year after its enactment. The NPOAG was established in March 2001. The advisory group is comprised of a balanced group of representatives of general aviation, commercial air tour operations, environmental concerns, and Native American tribes. The Administrator of the FAA and the Director of NPS (or their designees) serve as ex officio members of the group. Representatives of the Administrator and Director serve alternating 1-year terms as chairman of the advisory group.
In accordance with the Act, the advisory group provides “advice, information, and recommendations to the Administrator and the Director—
(1) On the implementation of this title [the Act] and the amendments made by this title;
(2) On commonly accepted quiet aircraft technology for use in commercial air tour operations over a national park or tribal lands, which will receive preferential treatment in a given air tour management plan;
(3) On other measures that might be taken to accommodate the interests of visitors to national parks; and
(4) At the request of the Administrator and the Director, safety, environmental, and other issues related to commercial air tour operations over a national park or tribal lands.”
The current NPOAG ARC is made up of one member representing general aviation, three members representing the commercial air tour industry, four members representing environmental concerns, and two members representing Native American interests. Current members of the NPOAG ARC are as follows:
Heidi Williams representing general aviation; Alan Stephen, Elling Halvorson, and Matthew Zuccaro representing commercial air tour operators; Chip Dennerlein, Greg Miller, Kristen Brengel, and Dick Hingson representing environmental interests; and Rory Majenty and Ray Russell representing Native American tribes.
Selected to fill the air tour operator vacancies, for additional terms, are returning members Alan Stephen and Matthew Zuccaro. Selected to fill the general aviation vacancy is returning member Heidi Williams. Selected to fill the Native American opening is new member Martin Begaye. Selected to fill one of the environmental vacancies is returning member Greg Miller. These members' new or additional terms begin on October 10, 2012. The term of service for NPOAG ARC members is 3 years.
In order to retain balance within the NPOAG ARC with one remaining opening, the FAA and NPS invite persons interested in representing environmental concerns on the ARC to contact Mr. Barry Brayer (contact information is written above in
Requests to serve on the ARC must be made to Mr. Brayer in writing and postmarked or emailed on or before September 12, 2012. The request should indicate whether or not you are a member of an association or group related to environmental issues or concerns or have another affiliation with issues relating to aircraft flights over national parks. The request should also state what expertise you would bring to the NPOAG ARC as related to
Federal Aviation Administration (FAA), DOT.
Notice of petition for exemption received.
This notice contains a summary of a petition seeking relief from specified requirements of 14 CFR. The purpose of this notice is to improve the public's awareness of, and participation in, this aspect of FAA's regulatory activities. Neither publication of this notice nor the inclusion or omission of information in the summary is intended to affect the legal status of the petition or its final disposition.
Comments on this petition must identify the petition docket number involved and must be received on or before August 28, 2012.
You may send comments identified by Docket Number FAA–2012–0751 using any of the following methods:
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Mark Forseth, ANM–113, (425) 227–2796, Federal Aviation Administration, 1601 Lind Avenue SW., Renton, WA 98057–3356, or Brenda Sexton, (202) 267–3664, Office of Rulemaking (ARM–1), Federal Aviation Administration, 800 Independence Avenue SW., Washington, DC 20591.
This notice is published pursuant to 14 CFR 11.85.
Federal Aviation Administration (FAA), DOT.
Notice of petition for exemption received.
This notice contains a summary of a petition seeking relief from specified requirements of 14 CFR. The purpose of this notice is to improve the public's awareness of, and participation in, this aspect of FAA's regulatory activities. Neither publication of this notice nor the inclusion or omission of information in the summary is intended to affect the legal status of any petition or its final disposition.
Comments on this petition must identify the petition docket number and must be received on or before August 23, 2012.
You may send comments identified by Docket Number FAA–2012–0553 using any of the following methods:
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Mark Forseth, (425–227–2796), Standardization Branch, ANM–113, Federal Aviation Administration, 1601 Lind Avenue SW., Renton, WA 98057–3356, or Frances Shaver, (202) 267–4059, Office of Rulemaking, ARM–207, Federal Aviation Administration, 800 Independence Avenue SW., Washington, DC 20591.
This notice is published pursuant to 14 CFR 11.85.
Federal Highway Administration (FHWA), DOT.
Notice of Limitation on Claims for Judicial Review of Actions by FHWA and Other Federal Agencies.
This notice announces actions taken by the FHWA and other Federal agencies that are final within the meaning of 23 U.S.C. 139 (I)(1). The actions relate to a proposed highway project, I–77 High Occupancy/Toll (HOT) lanes, from I–277 (Brookshire Freeway) to West Catawba Avenue (Exit 28), Mecklenburg County, North Carolina. Those actions grant licenses, permits, and approvals for the project.
By this notice, the FHWA is advising the public of final agency actions subject to 23 U.S.C. 139 (I)(1). A claim seeking judicial review of the Federal agency actions on the highway project will be barred unless the claim is filled on or before February 11, 2013. If the Federal law that authorizes judicial review of a claim provides a time period of less than 180 days for filing such claim, then that shorter time period still applies.
Mr. Clarence W. Coleman, P. E., Preconstruction and Environment Director, Federal Highway Administration, 310 New Bern Avenue, Suite 410, Raleigh, North Carolina 27601–1418; Telephone: (919) 747–7014; email:
Notice is hereby given that the FHWA and other Federal agencies have taken final agency actions by issuing licenses, permits, and approvals for the following highway project in the State of North Carolina: I–77 High Occupancy/Toll (HOT) lanes, Federal Aid No. NHF–077–1(209)9, from I–277 (Brookshire Freeway) to West Catawba Avenue (Exit 28) in the city and towns of Charlotte, Huntersville, and Cornelius, Mecklenburg County, North Carolina. The project is also known as State Transportation Improvement Program (STIP) Project I–5405. The project is approximately 17 miles long and includes the following actions:
(1) Conversion of the existing I–77 High Occupancy Vehicle (HOV) lanes to HOT lanes (southbound between Hambright Road and I–277 [Brookshire Freeway] and northbound from just north of I–85 to I–485).
(2) Extension of northbound and southbound HOT lanes from their northern terminus to West Catawba Avenue (Exit 28).
(3) Inclusion of a second HOT lane in each direction from just north of I–85 to West Catawba Avenue (Exit 28).
(4) Designation of HOT lanes as HOT 3+.
The actions by the Federal agencies, and the laws under which such actions were taken, are described in the Categorical Exclusion (CE) for the project, approved on July 31, 2012, and in other documents in the FHWA administrative record. The CE, and other documents in the FHWA administrative record file are available by contacting the FHWA or NCDOT at the addresses provided above.
This notice applies to all Federal agency decisions as of the issuance date of this notice and all laws under which such actions were taken, including but not limited to:
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23 U.S.C. 139(I)(1).
In accordance with Part 235 of Title 49 Code of Federal Regulations (CFR) and 49 U.S.C. 20502(a), this document provides the public notice that by a document dated July 16, 2012, the Union Pacific Railroad Company (UP) has petitioned the Federal Railroad Administration (FRA) seeking approval for the discontinuance or modification of a signal system. FRA assigned the petition docket number FRA–2012–0064.
Applicant: Union Pacific Railroad Company, Mr. Phillip A. Danner, AVP Engineering–Signal, 1400 Douglas Street, MS 0910, Omaha, Nebraska 68179.
UP seeks approval of the proposed discontinuance of the rail locks on the Atchafalaya River Bridge located at Milepost 610.8 on the UP Beaumont Subdivision in Louisiana. The rail locks would be removed in conjunction with the installation of CMI Promex Ridex miter rails. The reasons given for the proposed changes is that rail locks are not needed for safe operation of the bridge with Ridex miter rails installed.
A copy of the petition, as well as any written communications concerning the petition, is available for review online at
Interested parties are invited to participate in these proceedings by submitting written views, data, or comments. FRA does not anticipate scheduling a public hearing in connection with these proceedings since the facts do not appear to warrant a hearing. If any interested party desires an opportunity for oral comment, they should notify FRA, in writing, before the end of the comment period and specify the basis for their request.
All communications concerning these proceedings should identify the appropriate docket number and may be submitted by any of the following methods:
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Communications received by September 27, 2012 will be considered by FRA before final action is taken. Comments received after that date will be considered as far as practicable.
Anyone is able to search the electronic form of any written communications and comments received into any of our dockets by the name of the individual submitting the comment (or signing the comment, if submitted on behalf of an association, business, labor union, etc.). You may review DOT's complete Privacy Act Statement in the
Office of the Comptroller of the Currency, Department of the Treasury.
Notice.
The Comptroller of the Currency has determined that the renewal of the Charter of the OCC Minority Depository Institution Advisory Committee (MDIAC) is necessary and in the public interest in order to provide advice and information about the current circumstances and future development of minority depository institutions, in accordance with the goals established by section 308 of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), Public Law 101–73, Title III, 103 Stat. 353, 12 U.S.C. 1463 note.
The Charter of the OCC MDIAC is renewed for a two-year period that began on July 30, 2012.
Beverly Cole, Designated Federal Official, (202) 874–5020, Office of the Comptroller of the Currency, 250 E Street SW., Washington, DC 20219.
Notice of the renewal of the MDIAC charter is hereby given under section 10(a)(2) of the Federal Advisory Committee Act, 5 U.S.C. App. (1988), and with the approval of the Secretary of the Treasury. The Comptroller of the Currency has determined that the renewal of the MDIAC charter is necessary and in the public interest in order to provide advice and information about the current circumstances and future development of minority depository institutions, in accordance with the goals established by section 308 of FIRREA. The goals of section 308 are to preserve the present number of minority depository institutions, preserve the minority character of minority depository institutions in cases involving mergers or acquisitions, provide technical assistance, and encourage the creation of new minority depository institutions.
By the Office of the Comptroller of the Currency.
The Department of Veterans Affairs (VA) gives notice under Public Law 92–463 (Federal Advisory Committee Act) that the Advisory Committee on Women Veterans will meet on August 20–24, 2012, in the Dennis Auditorium, 2B–137, at the VA Maryland Health Care System (VAMHCS), 10 North Greene Street, Baltimore, MD, from 8:30 a.m. until 4:30 p.m. each day.
The purpose of the Committee is to advise the Secretary of Veterans Affairs regarding the needs of women Veterans with respect to health care, rehabilitation, compensation, outreach, and other programs and activities administered by VA designed to meet such needs. The Committee makes recommendations to the Secretary regarding such programs and activities.
On August 20, the agenda will include overview briefings on the VAMHCS and the VA Capitol Health Care Network (Veterans Integrated Service Network 5) facilities, programs, demographics and women Veterans programs. On August 21, the Committee will receive briefings from VAMHCS program offices on homeless, outreach, and mental health. The Committee will also receive a benefits briefing from the Baltimore Regional Office and a briefing by staff from the Baltimore Vet Center. On August 22, the Committee will receive in depth briefings on several VAMHCS programs on Operation Enduring Freedom, Operation Iraqi Freedom and Operation New Dawn as well as military sexual trauma, domiciliary, inpatient mental health, Million Veteran, caregiver support, telehealth, public and community relations. In the afternoon, the Committee will convene a closed session in order to protect patient privacy as the Committee tours the VA Medical Center and the Comprehensive Women's Health Care Clinic. In the morning of August 23, the Committee will convene a closed session to protect patient privacy as they tour the McVets Center. The Committee will reconvene in an open session as they tour the Baltimore National Cemetery. In the afternoon, the Committee will reconvene in a closed session to protect patient privacy as they tour the Loch Raven VA Community Living and Rehabilitation Center. Closing portions of the sessions are in accordance with 5 U.S.C. 552b(c)(6). On August 24, the Committee will convene in open session to meet with VAMHCS leadership, and conduct a town hall meeting with the women Veterans community and other stakeholders.
With the exception of the town hall meeting, there will be no time for public comment during the meeting. Members of the public may submit written statements for the Committee's review to Ms. Shannon L. Middleton at the Department of Veterans Affairs, Center for Women Veterans (00W), 810 Vermont Avenue NW., Washington, DC 20420, fax at (202) 273–7092, or email at
By Direction of the Secretary.
Commodity Futures Trading Commission; Securities and Exchange Commission.
Joint final rule; interpretations; request for comment on an interpretation.
In accordance with section 712(a)(8), section 712(d)(1), sections 712(d)(2)(B) and (C), sections 721(b) and (c), and section 761(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), the Commodity Futures Trading Commission (“CFTC”) and the Securities and Exchange Commission (“SEC”) (collectively, “Commissions”), in consultation with the Board of Governors of the Federal Reserve System (“Board”), are jointly adopting new rules and interpretations under the Commodity Exchange Act (“CEA”) and the Securities Exchange Act of 1934 (“Exchange Act”) to further define the terms “swap,” “security-based swap,” and “security-based swap agreement” (collectively, “Product Definitions”); regarding “mixed swaps;” and governing books and records with respect to “security-based swap agreements.” The CFTC requests comment on its interpretation concerning forwards with embedded volumetric optionality, contained in Section II.B.2.(b)(ii) of this release.
You may submit comments, identified by RIN number 3038–AD46, by any of the following methods:
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All comments must be submitted in English or, if not, accompanied by an English translation. Comments will be posted as received to
The CFTC reserves the right, but shall have no obligation, to review, pre-screen, filter, redact, refuse or remove any or all of your submission from
CFTC: Julian E. Hammar, Assistant General Counsel, at 202–418–5118,
On July 21, 2010, President Obama signed the Dodd-Frank Act into law.
Section 712(d)(1) of the Dodd-Frank Act provides that the Commissions, in consultation with the Board, shall jointly further define the terms “swap,” “security-based swap,” and “security-based swap agreement” (“SBSA”).
Section 712(d)(2)(B) of the Dodd-Frank Act requires the Commissions, in consultation with the Board, to jointly adopt rules governing books and records requirements for SBSAs by persons registered as swap data repositories (“SDRs”) under the CEA,
Under the comprehensive framework for regulating swaps and security-based swaps established in Title VII, the CFTC is given regulatory authority over swaps,
To assist the Commissions in further defining the Product Definitions (as well as certain other definitions) and in prescribing regulations regarding mixed swaps as may be necessary to carry out the purposes of Title VII, the Commissions published an advance notice of proposed rulemaking (“ANPR”) in the
The Commissions have reviewed and considered the comments received, and the staffs of the Commissions have met with many market participants and other interested parties to discuss the definitions.
Based on this review and consultation, the Commissions are adopting rules and interpretations regarding, among other things: (i) The regulatory treatment of insurance products; (ii) the exclusion of forward contracts from the swap and security-
The Commissions are sensitive to the costs and benefits of their rules. In considering the adoption of the Product Definitions, the Commissions have been mindful of the costs and benefits associated with these rules, which provide fundamental building blocks for the Title VII regulatory regime. There are costs, as well as benefits, arising from subjecting certain agreements, contracts, or transactions to the regulatory regime of Title VII.
Title VII created a jurisdictional division between the CFTC and SEC. The costs and benefits flowing from an agreement, contract, or transaction being subject to the regulatory regime of the CFTC or the SEC may be impacted by similarities and differences in the Commissions' regulatory programs for swaps and security-based swaps. Title VII calls on the SEC and the CFTC to consult and coordinate for the purposes of assuring regulatory consistency and comparability to the extent possible.
In acknowledging the economic consequences of the final rules, the Commissions recognize that the Product Definitions do not themselves establish the scope or nature of those substantive requirements or their related costs and benefits. In determining the appropriate scope of these rules, the Commissions consider the types of agreement, contract, or transaction that should be regulated as a swap, security-based swap, or mixed swap under Title VII in light of the purposes of the Dodd-Frank Act. The Commissions have sought to further define the terms “swap,” “security-based swap,” and “mixed swap” to include agreements, contracts, and transactions only to the extent that capturing these agreements, contracts, and transactions is necessary and appropriate given the purposes of Title VII, and to exclude agreements, contracts, and transactions to the extent that the regulation of such agreements, contracts, and transactions does not serve the statutory purposes of Title VII, so as not to impose unnecessary burdens for agreements, contracts, and transactions whose regulation may not be necessary or appropriate to further the purposes of Title VII.
Title VII of the Dodd-Frank Act applies to a wide variety of agreements, contracts, and transactions classified as swaps or security-based swaps. The statute lists these agreements, contracts, and transactions in the definition of the term “swap.”
The statutory definitions of the terms “swap” and “security-based swap” are detailed and comprehensive, and the Commissions believe that extensive “further definition” of the terms by rule is not necessary. Nevertheless, the definitions could be read to include certain types of agreements, contracts, and transactions that previously have not been considered swaps or security-based swaps, and nothing in the legislative history of the Dodd-Frank Act appears to suggest that Congress intended such agreements, contracts, or transactions to be regulated as swaps or security-based swaps under Title VII. The Commissions thus believe that it is important to further clarify the treatment under the definitions of certain types of agreements, contracts, and transactions, such as insurance products and certain consumer and commercial contracts.
In addition, commenters also raised questions regarding, and the Commissions believe that it is important to clarify: (i) The exclusion for forward contracts from the definitions of the terms “swap” and “security-based swap;” and (ii) the status of certain commodity-related products (including various foreign exchange products and forward rate agreements) under the definitions of the terms “swap” and “security-based swap.” Finally, the Commissions are providing
The statutory definition of the term “swap” includes, in part, any agreement, contract or transaction “that provides for any purchase, sale, payment or delivery (other than a dividend on an equity security) that is dependent on the occurrence, nonoccurrence, or the extent of the occurrence of an event or contingency associated with a potential financial, economic, or commercial consequence.”
Accordingly, the Commissions are adopting final rules that (i) clarify that certain agreements, contracts, or transactions that satisfy the requirements of the Insurance Safe Harbor will not be considered to be swaps or security-based swaps, and (ii) provide an Insurance Grandfather exclusion from the swap and security-based swap definitions for any agreement, contract, or transaction entered into on or before the effective date of the Product Definitions, provided that, when the parties entered into such agreement, contract, or transaction, it was provided in accordance with the Provider Test (as defined below), including a requirement that an agreement, contract or transaction that is provided in accordance with the first prong of the Provider Test must be regulated as insurance under applicable state law or the laws of the United States.
The final rules contain four subparts: The first subpart addresses the agreement, contract, or transaction; the second subpart addresses the person
More specifically, with respect to the first subpart, the Commissions are adopting paragraph (i)(A) of rule 1.3(xxx)(4) under the CEA and paragraph (a)(1) of rule 3a69–1 under the Exchange Act (the “Product Test”) as proposed, with certain modifications to respond to commenters' concerns. As adopted, the Product Test provides that the terms “swap” and “security-based swap” will not include an agreement, contract, or transaction that, by its terms or by law, as a condition of performance:
• Requires the beneficiary of the agreement, contract, or transaction to have an insurable interest that is the subject of the agreement, contract, or transaction and thereby carry the risk of loss with respect to that interest continuously throughout the duration of the agreement, contract, or transaction;
• Requires that loss to occur and be proved, and that any payment or indemnification therefor be limited to the value of the insurable interest;
• Is not traded, separately from the insured interest, on an organized market or over the counter; and
• With respect to financial guaranty insurance only, in the event of payment default or insolvency of the obligor, any acceleration of payments under the policy is at the sole discretion of the insurer.
The Commissions are also adopting paragraph (i)(B) of rule 1.3(xxx)(4) under the CEA and paragraph (a)(2) of rule 3a69–1 under the Exchange Act (the “Provider Test”) as proposed, with certain modifications to respond to commenters' concerns. As adopted, the Provider Test requires that an agreement, contract, or transaction that
• By a person that is subject to supervision by the insurance commissioner (or similar official or agency) of any state
• (i) Directly or indirectly by the United States, any state or any of their respective agencies or instrumentalities, or (ii) pursuant to a statutorily authorized program thereof ((i) and (ii) together, the “second prong”); or
• In the case of reinsurance only
(i) Such person is not prohibited by applicable state law or the laws of the United States from offering such agreement, contract, or transaction to such person that satisfies the Provider Test;
(ii) The agreement, contract, or transaction to be reinsured satisfies the Product Test or is one of the Enumerated Products (as defined below); and
(iii) Except as otherwise permitted under applicable state law, the total amount reimbursable by all reinsurers
• In the case of non-admitted insurance
(i) Is located outside of the United States and listed on the Quarterly Listing of Alien Insurers as maintained by the International Insurers Department of the National Association of Insurance Commissioners; or
(ii) Meets the eligibility criteria for non-admitted insurers
In response to commenters' requests that the Commissions codify the proposed interpretation regarding certain enumerated types of traditional insurance products in the final rules,
In order for an agreement, contract, or transaction to qualify under the final rules as an insurance product that would not be a swap or security-based swap: (i) The agreement, contract, or transaction must satisfy the criteria in the Product Test or be one of the Enumerated Products and (ii) the person providing the agreement, contract or transaction must satisfy one prong of the Provider Test.
Further, in response to commenters' concerns,
However, future market conditions or other developments may prompt the Commissions to reconsider whether a particular product that satisfies the requirements of the Insurance Safe Harbor should instead fall within the swap or security-based swap definition. Because a determination that such a product is a swap or security-based swap could potentially have an unsettling effect on the domestic insurance or financial markets, the Commissions would only consider making a determination that such a product is a swap or security-based swap through a rulemaking
The Commissions are adopting the Product Test as proposed, with certain modifications to respond to commenters' concerns. The Product Test sets forth four criteria for an agreement, contract, or transaction to be considered insurance. First, the final rules require that the beneficiary have an “insurable interest” underlying the agreement, contract, or transaction and thereby carry the risk of loss with respect to that interest continuously throughout the duration of the agreement, contract, or transaction. The requirement that the beneficiary be at risk of loss (which could be an adverse financial, economic, or commercial consequence) with respect to the interest that is the subject of the agreement, contract, or transaction continuously throughout the duration of the agreement, contract, or transaction will ensure that an insurance contract beneficiary has a stake in the interest on which the agreement, contract, or transaction is written.
Second, the requirement that a loss occur and be proved similarly ensures that the beneficiary has a stake in the insurable interest that is the subject of the agreement, contract, or transaction. If the beneficiary can demonstrate loss, that loss would “trigger” performance by the insurer on the agreement, contract, or transaction such that, by making payment, the insurer is indemnifying the beneficiary for such loss. In addition, limiting any payment or indemnification to the value of the insurable interest aids in distinguishing swaps and security-based swaps (where there is no such limit) from insurance.
Third, the final rules require that the insurance product not be traded, separately from the insured interest, on an organized market or over the counter. As the Commissions observed in the Proposing Release, with limited exceptions,
Fourth, the final rules provide that in the case of financial guaranty insurance policies, also known as bond insurance or bond wraps, any acceleration of payment under the policy must be at the sole discretion of the provider of the financial guaranty insurance policy in order to satisfy the Product Test.
As noted in the Proposing Release, the Commissions do not believe that financial guaranty policies, in general, should be regulated as swaps or security-based swaps. However, because of the close economic similarity of financial guaranty insurance policies guaranteeing payment on debt securities to CDS, in addition to the criteria noted above with respect to insurance generally, the final rules require that, in order to satisfy the Product Test, financial guaranty policies also must satisfy the requirement that they not permit the beneficiary of the policy to accelerate the payment of any principal due on the debt securities. This requirement further distinguishes financial guaranty policies from CDS because, as discussed above, the latter generally requires payment of the relevant settlement amount on the CDS after demand by the protection buyer.
Finally, in response to comments,
Requiring all of the criteria in the Product Test will help to limit the application of the final rules to agreements, contracts, and transactions that are appropriately regulated as insurance, and help to assure that agreements, contracts, and transactions appropriately subject to the regulatory regime under Title VII of the Dodd-Frank Act are regulated as swaps or security-based swaps. As a result, the Commissions believe that these requirements will help prevent the final rules from being used to circumvent the applicability of the swap and security-based swap regulatory regimes under Title VII.
In the Proposing Release, the Commissions proposed an interpretation that certain enumerated types of insurance products would be outside the scope of the statutory definitions of swap and security-based swap under the Dodd-Frank Act if provided in accordance with the Provider Test and regulated as insurance. Based on comments received,
Six commenters objected to the requirement in the Product Test that the beneficiary have an insurable interest continuously throughout the duration of the contract.
As discussed above, the Commissions are retaining the insurable interest requirement of the Product Test. The Commissions continue to believe that this requirement is a useful tool to distinguish insurance from swaps and security-based swaps, because swaps and security-based swaps do not require the presence of an insurable interest (or require either counterparty to bear any risk of loss) at any time during the term of the agreement, contract, or transaction. While the Commissions acknowledge commenters who argued that products such as life insurance, property and casualty insurance, and annuities may fail the Product Test because of the insurable interest requirement, the Commissions do not interpret any such failure to mean that life insurance, property and casualty insurance, and annuities are not insurance products. To the contrary, as discussed above, these products are included in the list of Enumerated Products that are excluded from the swap and security-based swap definitions so long as they are provided in accordance with the Provider Test. If a life insurance, property and casualty insurance, or annuity is provided in accordance with the Provider Test, such product is not a swap or security-based swap, whether or not an insurable interest is present at all times during the term of the contract.
Five commenters objected to the requirement in the Product Test that a loss occur and be proven, and that any payment be limited to the value of the insurable interest, because payment under many insurance products may not be directly based upon actual losses incurred.
As discussed above, the Commissions are retaining the requirement in the Product Test that a loss occur and be proven and that any payment for such loss be limited to the value of the insurable interest. The Commissions continue to believe that this requirement is a useful tool to distinguish insurance from swaps and security-based swaps, because payments under swaps and security-based swaps may be required when neither party incurs a loss, nor is the amount of payment limited by any such loss. While the Commissions acknowledge commenters who identified various products that may fail this part of the Product Test, the Commissions do not interpret any such failure to mean that products such as annuities, disability insurance, and long-term care insurance are not insurance products. To the contrary, as discussed above, these products are included in the list of Enumerated Products that are excluded from the swap and security-based swap definitions so long as they are provided in accordance with the Provider Test. If long-term care insurance, disability insurance, or an annuity is provided in accordance with the Provider Test, such product is not a swap or a security-based swap, whether or not a loss occurs, is proven, or indemnification for loss is limited to the value of the insurable interest.
Six commenters stated that the proposed requirement that the agreement, contract, or transaction not be traded, separately from the insured interest, on an organized market or over the counter, is not an effective criterion in determining whether a product is insurance.
The Commissions are retaining the requirement in the Product Test that the agreement, contract, or transaction not be traded separately from the insured interest, on an organized market or over the counter, and as discussed above have provided a clarification regarding assignments and trading on insurance exchanges. The Commissions continue to believe that using this criterion is an effective way to distinguish insurance from swaps and security-based swaps because swaps and security-based swaps are traded on organized markets and over the counter.
As stated above, the Commissions do not interpret the assignment of an insurance contract as described by commenters to be “trading” as that term is used in the Product Test.
Three commenters believed that the proposed requirement that, in the event of payment default or insolvency of the obligor, any acceleration of payments under a financial guaranty insurance policy be at the sole discretion of the insurer, is not an effective criterion in determining whether financial guaranty insurance falls outside the swap and security-based swap definitions and should be deleted from the Product Test.
The Commissions are retaining the requirement that acceleration be at the sole option of the provider of the financial guaranty insurance policy in the Product Test. In response to commenter concerns, the Commissions are clarifying that they plan to interpret the acceleration limitation in accordance with applicable state law to the extent that it does not contradict the Commissions' rules, interpretations and/or guidance regarding what is a swap or security-based swap.
The Commissions proposed an interpretation that certain enumerated types of insurance products would be outside the scope of the statutory definitions of swap and security-based swap. Several commenters stated that the list of enumerated insurance products should be codified in order to enhance legal certainty.
One commenter further argued that the enumerated types of insurance products included in the list should not have to additionally satisfy the requirements that the person offering such product be a U.S. domiciled insurer and that the product be regulated in the U.S. as insurance.
Five commenters addressed the treatment of annuities in the proposed interpretive guidance, with all recommending that all annuities be excluded from the swap and security-based definitions regardless of their status under the tax laws.
Other commenters suggested adding other products to the list of enumerated types of insurance products,
Two commenters noted that the Product Test relies on concepts derived from state law, such as “insurable interest” and “indemnification for loss,” which do not have uniform definitions.
State law differences regarding these concepts should not impede the ability of market participants from interpreting or applying the final rules to distinguishing between insurance and swaps or security-based swaps, and thus the Commissions are retaining these concepts in the Product Test. The Commissions intend to interpret these concepts consistently with the existing and developing laws of the relevant state(s) governing the agreement, contract, or transaction in question. However, the Commissions note their authority to diverge from state law if the Commissions become aware of evasive conduct.
Several commenters suggested that the Commissions amend the Product Test to explicitly address reinsurance and retrocession (
In response to these comments, the Commissions are clarifying that reinsurance and retrocession transactions may fall within the Insurance Safe Harbor, thus, it is unnecessary for the Product Test to be modified as suggested by these commenters. In addition, the Commissions have modified the final rules to include reinsurance (including retrocession) of certain types of insurance products in the list of Enumerated Products. Reinsurance or retrocession of these Enumerated Products will fall within the Insurance Safe Harbor so long as such reinsurance or retrocession is provided in accordance with the Provider Test.
In the Proposing Release, the Commissions requested comment on whether, in order for an agreement, contract, or transaction to be considered insurance under the Product Test, the Commissions should require that payment not be based on the price, rate, or level of a financial instrument, asset, or interest or any commodity. The Commissions also requested comment on whether variable annuity contracts (where the income is subject to tax treatment under section 72 of the Internal Revenue Code) and variable life insurance should be excepted from such a requirement, if adopted.
Eight commenters stated that it is inappropriate to include such a requirement in the final rules because a number of traditional insurance products would not satisfy the requirement and suggested that the Commissions should instead consider whether the agreement, contract, or transaction transfers risk and argued that such a requirement is not a useful marker for distinguishing insurance from swaps and security-based swaps.
Commenters cited several examples of products that would fail a requirement that payment not be based on the price, rate, or level of a financial instrument, asset, or interest or any commodity. ACLI, CAI and NAFA cited registered and unregistered variable annuities and variable life insurance, and certain fixed annuities and equity indexed annuities, stating that these could be construed as being based on, or related to, a price, rate or level of a financial asset. ACLI also cited financial guaranty insurance, and replacement value property and casualty insurance, where the insurer's payment obligation may be based on the current price of the insured property or adjusted to reflect inflation. ACLI and ISDA cited crop insurance, because it could call for payment to be based in some way on the market price of the covered crop on the date of loss. ISDA and RAA cited “dual trigger” insurance (such as replacement power insurance); property and casualty policies purchased by some commodity producers (
Two commenters agreed that such a requirement should be included in the final rules.
The Commissions are not adopting an additional requirement for the Product Test that payment not be based on the price, rate, or level of a financial instrument, asset, or interest or any commodity because the Commissions find the requirement to be unsuitable for distinguishing insurance from swaps and security-based swaps. While the provision might work for property and casualty insurance, as many commenters noted, it is not an effective distinction for a number of other traditional insurance products.
In the Proposing Release, the Commissions requested comment on whether the proposed rules relating to insurance should include a provision related to whether a product is recognized at fair value on an ongoing basis with changes in fair value reflected in earnings under U.S. generally accepted accounting principles.
Three commenters argued that the proposed rules should not include a provision that an insurance product is recognized at fair value under generally accepted accounting principles.
After considering these comments, the Commissions are not including a reference to accounting standards in the Product Test.
Under the first prong of the Provider Test, the agreement, contract, or transaction must be provided by a person that is subject to supervision by the insurance commissioner (or similar official or agency) of any state
The Commissions have revised the first prong of the Provider Test from the proposal. As proposed, the first prong of the Provider Test could only be satisfied by a company that was organized as an insurance company whose primary and predominant business activity was the writing of insurance or the reinsuring of risks underwritten by insurance companies.
The Commissions believe that the requirement that the agreement, contract, or transaction be provided by a person that is subject to state or Federal insurance supervision should help prevent regulatory gaps that otherwise might exist between insurance regulation and the regulation of swaps and security-based swaps by ensuring that products provided by persons that are not subject to state or Federal insurance supervision are not able to be offered by persons that avoid regulation under Title VII of the Dodd-Frank Act as well.
The first prong of the Provider Test also requires that the agreement, contract, or transaction being provided is “regulated as insurance” under applicable state law or the laws of the United States. As stated in the Proposing Release, the purpose of this requirement is that an agreement, contract, or transaction that satisfies the other conditions of the final rules must be subject to regulatory oversight as an insurance product. The Commissions believe that this condition will help prevent products that are not regulated as insurance in the states in which they are offered, and that are swaps or security-based swaps, from being characterized as insurance products in order to evade the regulatory regime under Title VII of the Dodd-Frank Act. As noted by commenters,
As stated in the Proposing Release, the Commissions believe that it is appropriate to exclude, from regulation under Title VII, insurance that is issued by the United States or any of its agencies or instrumentalities, or pursuant to a statutorily authorized program thereof, from regulation as swaps or security-based swaps.
As stated in the Proposing Release, the Commissions believe that where an agreement, contract, or transaction qualifies for the safe harbor and therefore is considered insurance excluded from the swap and security-based swap definitions, the lawful reinsurance of that agreement, contract, or transaction similarly should be excluded.
In response to commenters' concerns,
The Commissions have added a fourth prong to the Provider Test to address commenters' concerns that the proposed Provider Test excluded entities issuing insurance products on a non-admitted basis through surplus lines brokers.
A person will qualify under the fourth prong of the Provider Test if it satisfies any one of the following two requirements:
• It is located outside of the United States and listed on the Quarterly Listing of Alien Insurers that is compiled and maintained by the International Insurers Department of the National Association of Insurance Commissioners;
• It meets the eligibility criteria for non-admitted insurers under applicable state law.
The Commissions received ten comment letters that addressed the Provider Test.
Several commenters recommended that the Commissions expand the first prong of the Provider Test so that it is not limited to “insurance companies,” but to all insurers because not all insurers are organized as “insurance companies,”
The Commissions have revised the first prong of the Provider Test to remove the “insurance company” limitation and to clarify that any person that is subject to state or Federal insurance supervision will qualify under the first prong of the Provider Test. As noted above, the Commissions also believe that this revision should address commenters' concerns that the proposed rules could have excluded some foreign insurers since the revised test does not require that a person be domiciled in the United States; it only requires that the person be subject to state or Federal insurance supervision.
Several commenters suggested that the proposed Provider Test would permit an insurer that is not organized as an insurance company to evade state insurance oversight by deliberately failing the exemption for insurance products (that is, by issuing a contract that would fail the proposed rules because it would not be issued by an insurance company).
The Commissions have revised the first prong of Provider Test to address commenters' concerns that providers of insurance products could evade state insurance regulation by intentionally failing the Provider Test,
Finally, as discussed below, the Commissions have added a fourth prong
Two commenters recommended that the Commissions remove the provision in the first prong of the Provider Test that states “and such agreement, contract, or transaction is regulated as insurance under the laws of such state or of the United States.”
The Commissions have retained the requirement in the first prong of the Provider Test that an insurance product must be regulated as insurance, but have revised the provision to clarify that an insurance product must be regulated as insurance under applicable state law or the laws of the United States. As discussed above, the Commissions believe that this condition will help prevent products that are not regulated as insurance and are swaps or security-based swaps from being characterized as insurance products in order to evade the regulatory regime under the Dodd-Frank Act.
The Commissions have received conflicting comments regarding whether surety bonds are currently offered by persons who do not satisfy the Provider Test, in particular the “regulated as insurance” requirement.
The Commissions agree that the inclusion of the “regulated as insurance” requirement in the first prong of the Provider Test will have the effect of causing non-admitted insurance products to fall within the swap and security-based swap definitions. In response to commenters' concerns about the ability of non-admitted insurers to qualify under the Provider Test, the Commissions have added a fourth prong to the Provider Test to address providers of non-admitted insurance products.
Several commenters recommended that the Commissions expand the third prong of the Provider Test to include domestic reinsurers.
As noted above, the Commissions have revised the third prong of the Provider Test to remove the limitation that a reinsurance provider has to be located outside of the United States, and thereby address commenters' concerns that domestic reinsurers would not qualify under the reinsurance prong. In addition, in response to commenters' concerns, the Commissions have clarified the third prong of the Provider Test so that it does not prohibit a reinsurer from offering a product in a state where it is permitted, even if that product is prohibited in another state, and have revised the portion of the third prong of the Provider Test that addresses a cedant's reimbursable losses to make it subject to applicable state law so that it does not conflict with state-based insurance receivership law.
In the Proposing Release, the Commissions asked whether the proposed rules should include a provision similar to section 302(c)(1) of the Gramm-Leach-Bliley Act that any product regulated as insurance before the date the Dodd-Frank Act was signed into law and provided in accordance with the Provider Test would be considered insurance and not fall within the swap or security-based swap definitions.
In response to comments,
As stated in the Proposing Release, the Commissions are aware of nothing in Title VII to suggest that Congress intended for traditional insurance products to be regulated as swaps or security-based swaps.
In order to qualify for the Insurance Grandfather an agreement, contract, or transaction must meet two requirements. First, it must be entered into on or before the effective date of the Product Definitions. The Commissions are linking the Insurance Grandfather to the effective date of the Product Definitions, rather than the date that the Dodd-Frank Act was signed into law, in order to avoid unnecessary market disruption.
By adopting the Insurance Grandfather and the Insurance Safe Harbor, the Commissions are excluding agreements, contracts, and transactions for which the Commissions have found no evidence that Congress intended them to be regulated as swaps or security-based swaps, and are providing greater certainty regarding the treatment of agreements, contracts, and transactions currently regulated as insurance.
Four commenters addressed whether the final rules should include a grandfather provision that would exclude certain insurance products from the swap or security-based swap definitions.
The Commissions believe that the combination of the Insurance Grandfather along with the Insurance Safe Harbor provides market participants with increased legal certainty with respect to existing agreements, contracts, transactions, and products. In addition, the fact that the Commissions are linking the Insurance Grandfather to the effective date of the Product Definitions, rather than the date that the Dodd-Frank Act was signed into law, takes into account product development and innovation that may have occurred between the date the Dodd-Frank Act was signed into law at the effective date of the Product Definitions. Further, the Commissions believe that a grandfather provision that would exclude all products regulated as insurance before the Dodd-Frank Act was signed into law, as recommended by some commenters,
One commenter argued that the Provider Test should not apply to grandfathered contracts. The commenter stated that it should be enough that the product is regulated as insurance.
A number of commenters proposed that the Commissions adopt alternative tests to distinguish insurance from swaps and security-based swaps.
Several commenters suggested that the sole test for determining whether an agreement, contract, or transaction is insurance should be whether it is subject to regulation as insurance by the insurance commissioner of the applicable state(s).
Several commenters suggested an approach in which insurance products that qualify for the exclusion contained in section 3(a)(8) of the Securities Act
While the Commissions agree that the section 3(a)(8) criteria have a long history of interpretations by the SEC and the courts, the Commissions find that it is inappropriate to apply the section 3(a)(8) criteria in this context. Although section 3(a)(8) contains some conditions applicable to insurance providers that are similar to the prongs of the Provider Test, it does not contain any conditions that are similar to the prongs of the Product Test. Moreover, section 3(a)(8) provides an exclusion from the Securities Act and the CFTC has no jurisdiction under the Federal securities laws. Congress directed both agencies to further define the terms “swap” and “security-based swap.” As such, the Commissions find that it is more appropriate to have a standalone rule that incorporates features that distinguish insurance products from swaps and security-based swaps and over which both Commissions will have joint interpretative authority.
One commenter suggested yet another approach, recommending that insurance be defined as an agreement, contract, or transaction that by its terms:
• Exists for a specified period of time;
• Where the party (the “insured”) to the contract promises to make one or more payments such as money, goods or services;
• In exchange for another party's promise to provide a benefit of pecuniary value for the loss, damage, injury, or impairment of an identified interest of the insured as a result of the occurrence of a specified event or contingency outside of the parties' control; and
• Where such payment is related to a loss occurring as a result of a contingency or specified event.
The Commissions do not find this alternative preferable to the Commissions' proposal for two reasons. First, the requirements of a specified term and the promise to make payments are present in both insurance products and in agreements, contracts, or transactions that are swaps or security-based swaps and therefore do not help to distinguish between them. A test based solely on these requirements, then, could be over-inclusive and exclude from the Dodd-Frank Act regulatory regime agreements, contracts, and transactions that have not traditionally been considered insurance. Further, the third and fourth requirements of this alternative test collapse into the Product Test's requirement that the loss must occur and be proved, and any payment or indemnification therefor must be limited to the value of the insurable interest.
One commenter suggested a three-part test in lieu of the Product and Provider Tests. Under this test, the terms “swap” and “security-based swap” would exclude any agreement, contract, or transaction that:
• Is issued by a person who is or is required to be organized as an insurance company and subject to state insurance regulation;
• Is the type of contract issued by insurance companies; and
• Is not of the type that the Commissions determine to regulate.
This commenter stated that its approach does not contain a definition of insurance, and believes that is preferable to the Commissions' approach, which it believes creates legal uncertainty because any attempted definition of insurance has the potential to be over- or under- inclusive.
Another commenter proposed different approaches for existing products and new products.
In sum, the Commissions find that each of the alternatives proposed by commenters could exclude from the Dodd-Frank Act regulatory regime agreements, contracts, and transactions that have not historically been considered insurance, and that should, in appropriate circumstances, be regulated as swaps or security-based swaps. Accordingly, the Commissions do not find these alternatives to be appropriate for delineating the scope of the Insurance Safe Harbor from the swap and security-based swap definitions.
Five commenters recommended that the Product Test, the Provider Test, and related interpretations should be structured as a “safe harbor” so that they do not raise any presumption or inference that products that do not meet the Product Test, Provider Test and related interpretations are necessarily swaps or security-based swaps.
As discussed above, the Commissions do not intend to create a presumption that agreements, contracts, or transactions that do not fall within the Insurance Safe Harbor are necessarily swaps or security-based swaps. As stated above, the Commissions are instead adopting final rules that clarify that certain agreements, contracts, or transactions meeting the requirements of a non-exclusive “safe harbor” established by such rules will not be considered to be swaps or security-based swaps. An agreement, contract, or transaction that does not fall within the Insurance Safe Harbor will require further analysis of the applicable facts and circumstances to determine whether it is insurance, and thus not a swap or security-based swap.
Four commenters expressed concerns that the proposed rules were unclear in their application to both swaps and security-based swaps.
The Commissions have revised rule 1.3(xxx)(4) under the CEA and rule 3a69–1 under the Exchange Act to clarify that the exclusion contained therein applies to both swaps and security-based swaps.
In the Proposing Release, the Commissions requested comment on whether insurance of an agreement, contract, or transaction that falls within the swap or security-based swap definitions should itself be included in the swap or security-based swap definition. The Commissions also requested comment on whether the Commissions should provide guidance as to whether swap or security-based swap guarantees offered by non-insurance companies should be considered swaps or security-based swaps.
No commenter identified any product that insures swaps (that are not security-based swaps or mixed swaps) other than financial guaranty insurance. The CFTC finds that insurance of an agreement, contract, or transaction that falls within the swap definition (and is not a security-based swap or mixed swap) is functionally or economically similar to a guarantee of a swap (that is not a security-based swap or mixed swap) offered by a non-insurance company.
The CFTC is persuaded that when a swap has the benefit of a guarantee,
In the Entity Definitions Release, the Commissions stated, “we do not believe that it is necessary to attribute a person's swap or security-based swap positions to a parent or other guarantor if the person is already subject to capital regulation by the CFTC or SEC (i.e., swap dealers, security-based swap dealers, major swap participants, major security-based swap participants, FCMs and broker-dealers) or if the person is a U.S. entity regulated as a bank in the United States. Positions of those regulated entities already will be subject to capital and other requirements, making it unnecessary to separately address, via major participant regulations, the risks associated with guarantees of those positions.”
As a result of interpreting the term “swap” (that is not a security-based swap or mixed swap) to include a guarantee of such swap, to the extent that a counterparty to a swap position would have recourse to the guarantor in connection with the position, and based on the reasoning set forth above from the Entity Definitions Release in connection with major swap participants, the CFTC will not deem holding companies to be swap dealers as a result of guarantees to certain U.S. entities that are already subject to capital regulation. It may, however, be appropriate to regulate as a swap dealer a parent or other guarantor who guarantees swap positions of persons who are not already subject to capital regulation by the CFTC (i.e., who are not swap dealers, major swap participants or FCMs). The CFTC is addressing guarantees provided to non-U.S. entities, and guarantees by non-U.S. holding companies, in its proposed interpretive guidance and policy statement regarding the cross-border application of the swaps provisions of the CEA, 77 FR 41214 (Jul. 12, 2012).
The CFTC's interpretation of the term “swap” to include guarantees of swaps does not limit or otherwise affect in any way the relief provided by the Insurance Grandfather. In a separate release, the CFTC will address the practical implications of interpreting the term “swap” to include guarantees of swaps (the “separate CFTC release”).
Three commenters provided comments regarding the treatment of guarantees. Two commenters
One commenter supported treating financial guaranty insurance of a swap or security-based swap as itself a swap or a security-based swap. This commenter argued that financial guaranty insurance of a swap or security-based swap transfers the risk of counterparty non-performance to the guarantor, making it an embedded and essential feature of the insured swap or security-based swap. This commenter further argued that the value of such swap or security-based swap is largely determined by the likelihood that the proceeds from the financial guaranty insurance policy will be available if the counterparty does not meet its obligations.
The CFTC is persuaded that when a swap (that is not a security-based swap or mixed swap) has the benefit of a guarantee, the guarantee and related guaranteed swap must be analyzed together. The events surrounding the failure of AIG Financial Products (“AIGFP”) highlight how guarantees can cause major risks to flow to the guarantor.
Two commenters cautioned against unnecessary and duplicative regulation. One commented that, because the underlying swap, and the parties to it, will be regulated and reported to the extent required by Title VII, there is no need for regulation of non-insurance guarantees.
One commenter also argued that regulating financial guaranty of swaps as swaps would cause monoline insurers to withdraw from the market, which could adversely affect the U.S. and international public finance, infrastructure and structured finance markets, given that insuring a related swap often is integral to the insurance of municipal bonds and other securities.
The SEC believes that a guarantee of an obligation under a security-based swap, including financial guaranty insurance of a security-based swap, is not a separate security-based swap. Further, the SEC is not adopting an interpretation that a guarantee of a security-based swap is part of the security-based swap. Instead, the SEC will consider requiring, as part of its rulemaking relating to the reporting of security-based swaps,
As the Commissions explained in the Proposing Release, the definitions of the terms “swap” and “security-based swap” do not include forward contracts.
The CFTC provided an interpretation in the Proposing Release regarding the forward contract exclusion for nonfinancial commodities and is restating this interpretation with certain modifications in response to commenters. These clarifications include that the CFTC will interpret the forward contract exclusion consistent with the entire body of CFTC precedent.
The wording of the forward contract exclusion from the swap definition with respect to nonfinancial commodities is similar, but not identical, to the forward exclusion from the definition of the term “future delivery” that applies to futures contracts, which excludes “any sale of any cash commodity for deferred shipment or delivery.”
In the Proposing Release, the CFTC proposed an interpretation clarifying the scope of the exclusion of forward contracts for nonfinancial commodities from the swap definition and from the “future delivery” definition in a number of respects. After considering the comments received, the CFTC is restating substantially all of its interpretation regarding these forward exclusions set forth in the Proposing Release, but with several clarifications in response to commenters.
The CFTC is restating from the Proposing Release that the forward exclusion for nonfinancial commodities in the swap definition will be interpreted in a manner consistent with the CFTC's historical interpretation of the existing forward exclusion with respect to futures contracts, consistent with the Dodd-Frank Act's legislative history.
The CFTC's historical interpretation has been that forward contracts with respect to nonfinancial commodities are “commercial merchandising transactions.”
The underlying postulate of the [forward] exclusion is that the [CEA's] regulatory scheme for futures trading simply should not apply to private commercial merchandising transactions which create enforceable obligations to deliver but in which delivery is deferred for reasons of commercial convenience or necessity.
As noted in the Proposing Release, because a forward contract is a commercial merchandising transaction, intent to deliver historically has been an element of the CFTC's analysis of whether a particular contract is a forward contract.
In this interpretation, the CFTC is restating, with certain clarifications in response to commenters, its interpretation from the Proposing Release that the principles underlying the CFTC's “Brent Interpretation” regarding book-outs developed in connection with the forward exclusion from futures apply to the forward exclusion from the swap definition as well. Book-out transactions meeting the requirements specified in the Brent Interpretation that are effectuated through a subsequent, separately negotiated agreement qualify for the safe harbor under the forward exclusions.
As was noted in the Proposing Release, the issue of book-outs first arose in 1990 in the Brent Interpretation
It is noteworthy that while such [book-out] agreements may extinguish a party's delivery obligation, they are separate, individually negotiated, new agreements, there is no obligation or arrangement to enter into such agreements, they are not provided for by the terms of the contracts as initially entered into, and any party that is in a position in a distribution chain that provides for the opportunity to book-out with another party or parties in the chain is nevertheless entitled to require delivery of the commodity to be made through it, as required under the contracts.
Thus, in the scenario at issue in the Brent Interpretation, the contracts created a binding obligation to make or take delivery without providing any right to offset, cancel, or settle on a payment-of-differences basis. The “parties enter[ed] into such contracts with the recognition that they may be required to make or take delivery.”
On these facts, the Brent Interpretation concluded that the contracts were forward contracts, not futures contracts:
Under these circumstances, the [CFTC] is of the view that transactions of this type which are entered into between commercial participants in connection with their business, which create specific delivery obligations that impose substantial economic risks of a commercial nature to these participants, but which may involve, in
Although the CFTC did not expressly discuss intent to deliver, the Brent Interpretation concluded that transactions retained their character as commercial merchandising transactions, notwithstanding the practice of terminating commercial parties' delivery obligations through “book-outs” as described. At any point in the chain, one of the parties could refuse to enter into a new contract to book-out the transaction and, instead, insist upon delivery pursuant to the parties' obligations under their contract.
The CFTC also is clarifying that commercial market participants that regularly make or take delivery of the referenced commodity in the ordinary course of their business meet the commercial participant standard of the Brent Interpretation.
Further, in this final interpretation, the CFTC clarifies, in response to a comment received, that an investment vehicle taking delivery of gold as part of its investment strategy would not be engaging in a commercial activity within the meaning of the Brent Interpretation.
Because the Commission`s interpretation does not explicitly refer to commercial market participants, it would seem to cover financial players as long as those entities regularly make or take delivery of the underlying commodity in connection with their business. Examples of such entities would be hedge funds or other investment vehicles that regularly make or take delivery of commodities (
In sum, the CFTC is interpreting the term “commercial” in the context of the Brent Interpretation in the same way it has done since 1990: “related to the business of a producer, processor, fabricator, refiner or merchandiser.”
In addition, the CFTC is expanding the Brent Interpretation, which applied only to oil, to all nonfinancial commodities, as proposed.
Because the CFTC has expanded the Brent Interpretation to nonfinancial commodities in this final interpretation, the CFTC also has determined to withdraw the Energy Exemption as proposed. In response to comments received, the CFTC is clarifying that certain alternative delivery procedures discussed in the Energy Exemption
In the Proposing Release, the CFTC proposed to withdraw the Energy Exemption, which, among other things,
As discussed above, the CFTC is extending the Brent Interpretation to the swap definition and applying it to all nonfinancial commodities for both the swap and future delivery definitions, but is withdrawing the Energy Exemption. With regard to netting agreements that were expressly permitted by the Energy Exemption,
The CFTC also has determined that, notwithstanding the withdrawal of the Energy Exemption, a failure to deliver as a result of the exercise by a party of a “bona fide termination right” does not render an otherwise binding delivery obligation as non-binding.
The Energy Exemption also discussed a number of methods by which parties to energy contracts settle their obligations, including: The seller's passage of title and the buyer's payment and acceptance of the underlying commodity; taking delivery of the commodity in some instances and in others instead passing title to another intermediate purchaser in a chain; and physically exchanging (i.e., delivering) one quality, grade or type of physical commodity for another quality, grade or type of physical commodity.
The CFTC has taken into consideration comments regarding the documentation of book-outs.
In the Proposing Release, the CFTC requested comment about potentially imposing additional conditions (such as, for example, a minimum contract size) in order for a transaction to qualify as a forward contract under the Brent Interpretation with respect to the future delivery and swap definitions.
Two commenters questioned the reasonableness in instituting a minimum contract size below which a transaction would become regulated, but otherwise would not.
One commenter argued that the forward exclusion should be strengthened with additional conditions to preclude evasion. Its suggested conditions include defining the required regularity of delivery (such as a predominance, or “more often than not” standard); providing a quantitative test of bona fide intent to deliver (such as a demonstrable commercial need for the product and justifying non-physical settlement based on a change in commercial circumstances); and re-evaluating the book-outs aspect of the Brent Interpretation.
Several commenters believed that the CFTC should codify its proposed interpretation regarding the Brent Interpretation in rule text to provide greater legal certainty.
The CFTC has determined not to codify its interpretation in rule text. The CFTC has never codified its prior interpretations of the forward contract exclusion with respect to the future delivery definition as a rule or regulation;
The CFTC believes that its interpretation provides sufficient clarity with respect to the forward contract exclusion from the swap and future delivery definitions.
Commenters generally supported applying the Brent Interpretation to the forward exclusion from the swap definition and expanding it to all nonfinancial commodities for purposes of the forward exclusion from both the definitions of the terms “future delivery” and “swap.”
While, as noted above, the CFTC has clarified that the entire body of its precedent applies to its interpretation of the forward exclusion for nonfinancial commodities in the swap definition, the CFTC does not believe that there is a conflict between the Brent Interpretation and the
Several commenters suggested that the Energy Exemption should not be withdrawn. One commenter noted that the Energy Exemption, along with the Brent Interpretation, should inform the CFTC's interpretation of the forward exclusion.
One commenter suggested the deletion of “commercial merchandising transaction” as a descriptive term in the interpretation. Although recognizing its provenance from the Brent Interpretation, this commenter believed that the phrase was anachronistic at that time, and that it is misleading and narrow in the current evolving commercial environment.
Another commenter requested that the CFTC clarify that a subsequent, separately-negotiated agreement to effectuate a book-out under the Brent Interpretation may be oral or written. This commenter noted that the pace at which certain energy markets transact and the frequency with which book-outs may sometimes occur, makes formal written documentation of all book-outs impracticable.
In response to commenters,
The CFTC interprets the term “nonfinancial commodity” to mean a commodity that can be physically delivered and that is an exempt commodity
In addition, the CFTC is providing an interpretation that an intangible commodity (that is not an excluded commodity) which can be physically delivered qualifies as a nonfinancial commodity if ownership of the commodity can be conveyed in some manner and the commodity can be consumed. One example of an intangible nonfinancial commodity that qualifies under this interpretation, as discussed in greater detail below, is an environmental commodity, such as an emission allowance, that can be physically delivered and consumed (
Several commenters believed that the CFTC should provide an interpretation regarding the meaning of the term “nonfinancial commodity” to provide clarity to market participants on the applicability of the forward exclusion.
The Commissions requested comment on whether environmental commodities should fall within the forward exclusion from the swap definition and, if so, subject to what parameters.
The intangible nature of environmental, or other, commodities does not disqualify contracts based on such commodities from the forward exclusion from the swap definition, notwithstanding that the core of the forward exclusion is intent to deliver the underlying commodity.
The CFTC understands that market participants often engage in environmental commodity transactions in order to transfer ownership
For such transactions, in addition to the factors discussed above, intent to deliver is readily determinable,
Several commenters responded to the Commission's request for comment regarding the applicability of the forward exclusion from the swap definition for agreements, contracts and transactions in environmental commodities.
The CFTC understands that, in the United States, emission allowances and offsets are issued by the U.S. Environmental Protection Agency (“EPA”), state government entities and private entities. Emission allowances and offsets are transferred between counterparties, often through forward contracts, with the purchasing party obtaining the ability to use the allowances or offsets for compliance with clean air or greenhouse gas regulations. The forward sale of allowances and offsets allows market participants to hedge the compliance obligations associated with expected emissions, or to meet a voluntary emissions reduction commitment or make an environmental claim.
Most commenters responding to the Commissions' request for comment concerning the appropriate treatment of agreements, contracts or transactions in environmental commodities asserted that emission allowances, carbon offsets/credits, or RECs should be able to qualify for the forward exclusion from the swap definition. In support of this view, several commenters explained that the settlement process for environmental commodity transactions generally involves “the transfer of title via a tracking system, registry or contractual attestation, in exchange for a cash payment.”
A few commenters also analogized environmental commodities to securities, which (with the exception of certificated securities) are intangible. Some commenters, for example, asserted that the language of the forward exclusion from the swap definition means that non-physical items can be physically settled because the exclusion, which references securities, “implies that securities—which lack a strict physical existence—may be physically settled.”
Some commenters assured the Commissions that applying the forward exclusion to transactions in environmental commodities would not permit transactions that should be subject to the swap regulatory regime to fall outside it. One commenter submitted that intent to deliver with respect to environmental commodities will be readily determinable.
As discussed above, the CFTC has addressed the foregoing concerns of commenters by providing an interpretation that agreements, contracts and transactions in environmental commodities may qualify for the forward exclusion from the swap definition.
One commenter stated its view that the forward exclusion from the swap definition should not be available for carbon transactions because they should be standardized and conducted on open, transparent and regulated exchanges.
One commenter stated that “[i]n the solar industry, RECs are often traded by an individual consumer as an assignment of a right owned by that consumer.”
One commenter takes the position that, because EPA emission allowances are issued in transactions with the EPA, only resales of such allowances (secondary market transactions) could be swaps because the EPA's initial issuance of allowances would be excluded from the swap definition under CEA section 1a(47)(B)(ix).
The Commissions received a comment letter seeking clarification that physical exchange transactions are forward contracts excluded from the swap definition.
The CFTC interprets the exchange transactions described by the commenter, to the extent they are for deferred delivery, as examples of transactions in nonfinancial commodities that are within the forward exclusion from the definition of the terms “swap” and “future delivery.” Based on the information supplied by the commenter, they are commercial merchandising transactions, the primary purpose of which is to transfer
The CFTC understands that fuel delivery agreements can generally be described as agreements whereby two or more parties agree to divide the cost of acquiring fuel for generation facilities based on some formula or factors, which can include, for example, their respective financial contributions to developing the source of the fuel (
Such agreements are forward transactions if they otherwise meet the interpretation set forth in this release regarding the forward exclusions (
In the Proposing Release, the Commissions requested comment regarding whether forwards executed on trading platforms should fall within the forward exclusion from the swap definition and, if so, subject to what parameters.
The CFTC declines to address this request for the 50/100 Forward Safe Harbor, which raises policy issues that are beyond the scope of this rulemaking. Should the CFTC consider the implications of the requested 50/100 Forward Safe Harbor, including possible additional conditions for relief, it would be appropriate for the CFTC to obtain further comment from the public on this discrete proposal. For the same reasons, the CFTC declines to address at this time the comment requesting that the CFTC take the view that cleared forwards between commercial participants fall within the scope of the forward contract exclusion.
The CFTC noted in the Proposing Release
The CFTC reaffirms that commodity options are swaps under the statutory swap definition, and is not providing an additional interpretation regarding commodity options in this release. The CFTC recently addressed commodity options in the context of a separate final rulemaking and interim final rulemaking, under its plenary options authority in CEA section 4c(b).
Several commenters in response to the Proposing Release argued that commodity options should not be regulated as swaps.
The CFTC is not providing an interpretation that commodity options qualify as forward contracts in nonfinancial commodities. Such an approach would be contrary to the plain language of the statutory swap definition, which explicitly provides that commodity options are swaps.
The CFTC is restating the interpretation regarding forwards with embedded options from the Proposing Release, but with certain modifications based on comments received. The CFTC is providing additional interpretations regarding forwards with embedded volumetric optionality, optionality in the form of evergreen and renewal provisions, and optionality with respect to delivery points and delivery dates.
As was noted in the Proposing Release, the question of the application of the forward exclusion from the swap definition with respect to nonfinancial commodities, where commodity options are embedded in forward contracts (including embedded options to cash settle such contracts), is similar to that arising under the CEA's existing forward contract exclusion from the definition of the term “future delivery.”
In
1. May be used to adjust the forward contract price,
2. Do not target the delivery term, so that the predominant feature of the contract is actual delivery; and
3. Cannot be severed and marketed separately from the overall forward contract in which they are embedded.
The CFTC also is providing an interpretation, in response to commenters,
1. The embedded optionality does not undermine the overall nature of the agreement, contract, or transaction as a forward contract;
2. The predominant feature of the agreement, contract, or transaction is actual delivery;
3. The embedded optionality cannot be severed and marketed separately from the overall agreement, contract, or transaction in which it is embedded;
4. The seller of a nonfinancial commodity underlying the agreement, contract, or transaction with embedded volumetric optionality intends, at the time it enters into the agreement, contract, or transaction to deliver the underlying nonfinancial commodity if the optionality is exercised;
5. The buyer of a nonfinancial commodity underlying the agreement, contract or transaction with embedded volumetric optionality intends, at the time it enters into the agreement, contract, or transaction, to take delivery of the underlying nonfinancial commodity if it exercises the embedded volumetric optionality;
6. Both parties are commercial parties;
7. The exercise or non-exercise of the embedded volumetric optionality is based primarily on physical factors,
The first two elements of the interpretation for embedded volumetric optionality, which mirror the CFTC's historical embedded option interpretation discussed above, have been modified to reflect that embedded volumetric optionality relates to delivery rather than price. As noted above, the predominant feature of a forward contract is a binding, albeit deferred, delivery obligation. It is essential that any embedded option in a forward contract as to volume must not undermine a forward contract's overall purpose.
The third element is substantially the same as the third element of the interpretation above with respect to commodity options embedded in forward contracts generally.
The fourth and fifth elements are designed to ensure that both parties intend to make or take delivery (as applicable), subject to the relevant physical factors or regulatory requirements, which may lead the parties to deliver more or less than originally intended. This distinguishes a forward contract from a commodity option, where only the option seller must at all times be prepared to deliver during the term of the option. The sixth element is intended to ensure that the interpretation is not abused by market participants not engaged in a commercial business involving the nonfinancial commodity underlying the embedded volumetric optionality.
The seventh element is based on comments stating that parties to agreements, contracts, and transactions with embedded volumetric optionality intend to make or take delivery (as applicable) of a commodity, and that it is merely the volume of a commodity that would be required to be delivered if the option is exercised, that varies. It is designed to ensure that the volumetric optionality is primarily driven by physical factors or regulatory requirements that influence supply and demand and that are outside the parties' control, and that the optionality is a commercially reasonable way to address uncertainty associated with those factors.
As discussed in the interpretation regarding forwards with embedded optionality discussed above, in evaluating whether an agreement, contract or transaction with embedded volumetric optionality qualifies for the forward exclusions, the CFTC will look to the relevant facts and circumstances of the transaction as a whole to evaluate whether the transaction qualifies for the forward exclusions from the definitions of the terms “swap” and “future delivery.”
The CFTC is providing further interpretations to explain how it would treat some of the specific contracts described in the comment letters. According to one commenter, a “full requirements contract” can be described as a “contract where the seller agrees to provide all requirements for a specific customer's location or delivery point.”
Accordingly, full requirements contracts, as described above, appear not to contain embedded volumetric options. Therefore, a full requirements contract may qualify for the forward exclusion under the same facts and circumstances analysis applicable to all other agreements, contracts, and transactions that might be forwards. The same analysis would apply to an output
With respect to capacity contracts, transmission (or transportation) services agreements, and tolling agreements, the CFTC understands that: (i) Capacity contracts are generally products designed to ensure that sufficient physical generation capacity is available to meet the needs of an electrical system;
Such agreements, contracts and transactions, may have features that will satisfy the “forwards with embedded volumetric optionality” interpretation discussed above, or, like full requirements contracts, may not contain embedded volumetric options and may satisfy other portions of the forward interpretations herein. For example, according to one commenter, the delivery obligations in some tolling agreements are not optional which is indicative that the predominant feature of such tolling agreements is actual delivery.
Some commenters focused on forwards with embedded volumetric optionality in the natural gas industry. For example, one commenter stated that “peaking supply” natural gas contracts do not render delivery optional. Although the purchaser has the option to specify when and if the quantity of gas will be delivered on any given day, this commenter asserted that there is no cash settlement alternative. If the purchaser does not exercise the right to purchase, then the right is terminated. The seller under the transaction must deliver the entire quantity of gas that the purchaser specifies, or pay liquidated damages. Moreover, the option is not severable and cannot be marketed separately from the supply agreement itself.
Depending on the relevant facts and circumstances, these types of agreements, contracts, and transactions—capacity contracts, transmission (or transportation) services agreements, tolling agreements, and peaking supply contracts—may satisfy the elements of the “forwards with embedded volumetric options” interpretation set forth above, or may satisfy other portions of this interpretation. If they do, they would fall within the forward exclusions from the swap and future delivery definitions.
In addition, the CFTC is providing an interpretation in response to a comment that contracts with evergreen or extension terms should be considered forwards.
Also, in response to a commenter,
Commenters generally supported the CFTC's proposed interpretation regarding forwards with embedded options, but many believed that it should be modified or expanded. As noted above, several commenters believed that forward contracts with embedded options that contain optionality as to the quantity/volume of the nonfinancial commodity to be delivered should qualify as forwards, and that the CFTC's proposed interpretation (which only mentions price optionality) should be modified accordingly.
In addition, another commenter requested more generally that any embedded option (for example, price, quantity, delivery point, delivery date, contract term) that does not permit a unilateral election of financial settlement based upon the value change in an underlying cash market should not render the contract a swap.
As discussed above, the CFTC has provided an additional interpretation with respect to forwards with embedded volumetric options to address commenters' concerns. The CFTC also has provided an interpretation above, regarding price optionality, optionality with respect to delivery points and delivery dates specifically in response to this commenter, and optionality as to certain contract terms (such as evergreen and renewal provisions) to address particular concerns raised by commenters. The CFTC declines to adopt a more expansive approach with respect to “any” embedded option.
One commenter requested that an option to purchase or sell a physical commodity, whether embedded in a forward contract or stand alone, should either (i) fall within the statutory forward exclusion from the swap definition, or (ii) alternatively, if deemed by the CFTC to be a swap, should be exempt from the swap definition pursuant to a modified trade option exemption pursuant to CEA section 4c(b).
Another commenter urged the CFTC to broadly exempt commercial forward contracting from swap regulation by generally excluding from the swap definition any forward contract with embedded optionality between end users “whose primary purpose is consistent with that of an `end user', and in which any embedded option is directly related to `end use.' ”
Another commenter believed that the CFTC's “facts and circumstances” approach to forwards with embedded options does not provide the legal certainty required by nonfinancial entities engaging in commercial contracts in the normal course of business.
The CFTC has long applied a facts-and-circumstances approach to the forward exclusion, including with respect to forwards with embedded options, and thus it is an approach with which market participants are familiar. That approach balances the need for legal certainty against the risk of providing opportunities for evasion.
The CFTC's interpretation regarding forwards with volumetric options is an interpretation of the CFTC and may be relied upon by market participants. However, the CFTC believes that it would benefit from public comment about its interpretation, and therefore requests public comment on all aspects of its interpretation regarding forwards with embedded volumetric options,
1. Are the elements set forth in the interpretation to distinguish forwards with embedded volumetric optionality from commodity options appropriate? Why or why not?
2. Are there additional elements that would be appropriate? Please describe and provide support for why such elements would serve to distinguish forwards with embedded volumetric optionality from commodity options.
3. Is the seventh element that, to ensure that an agreement, contract, or transaction with embedded volumetric optionality is a forward and not an option, the volumetric optionality is based primarily on physical factors, or regulatory requirements, that are outside the control of the parties and are influencing demand for, or supply of, the nonfinancial commodity, necessary and appropriate? Why or why not? Is the statement of this element sufficiently clear and unambiguous? If not, what adjustments would be appropriate?
4. Are there circumstances where volumetric optionality is based on other factors? Please describe. Would such factors, if made a part of the interpretation, serve to distinguish forwards with embedded volumetric optionality from commodity options? If so, how?
5. Does the interpretation provide sufficient guidance as to whether agreements, contracts, or transactions
6. Is the interpretation sufficiently clear with respect to capacity contracts, transmission (or transportation) services agreements, peaking supply contracts, or tolling agreements? Why or why not? Do capacity contracts, transmission (or transportation) services agreements, peaking supply contracts, or tolling agreements generally have features that satisfy the forwards with volumetric options interpretation included in this release? If so, which ones? If not, why not? Could these types of agreements, contracts, and transactions qualify for the forward exclusions under other parts of the interpretation set forth above? Are there material differences in the structure, operation, or economic effect of these types of agreements, contracts, and transactions as compared to full requirements contracts that are relevant to whether such agreements, contracts, and transactions are options under the CEA? Please explain. If so, what are the material differences?
7. Do the agreements, contracts, and transactions listed in question No. 6 above have embedded optionality in the first instance? Based on descriptions by commenters, it appears that they may have a binding obligation for delivery, but have no set amount specified for delivery. Instead, delivery (including the possibility of nominal or zero delivery) is determined by the terms and conditions contained within the agreement, contract, or transaction (including, for example, the satisfaction of a condition precedent to delivery, such as a commodity price or temperature reaching a level specified in the agreement, contract, or transaction). That is, the variation in delivery is not driven by the exercise of embedded optionality by the parties. Do the agreements, contracts, and transactions listed in question No. 6 exhibit these kinds of characteristics? If so, should the CFTC consider them in some manner other than its forward interpretation? Why or why not?
The CFTC is providing an interpretation in response to comments regarding certain physical commercial agreements for the supply and consumption of energy that provide flexibility, such as tolls on power plants, transportation agreements on natural gas pipelines, and natural gas storage agreements.
The CFTC will interpret an agreement, contract or transaction not to be an option if the following three elements are satisfied: (1) The subject of the agreement, contract or transaction is usage of a specified facility or part thereof rather than the purchase or sale of the commodity that is to be created, transported, processed or stored using the specified facility; (2) the agreement, contract or transaction grants the buyer the exclusive use of the specified facility or part thereof during its term, and provides for an unconditional obligation on the part of the seller to grant the buyer the exclusive use of the specified facility or part thereof;
However, in the alternative, if the right to use the specified facility is only obtained via the payment of a demand charge or reservation fee, and the exercise of the right (or use of the specified facility or part thereof) entails the further payment of actual storage fees, usage fees, rents, or other analogous service charges not included in the demand charge or reservation fee, such agreement, contract or transaction is a commodity option subject to the swap definition.
Two commenters addressed “lease-like” physical agreements, contracts or transactions.
In the Proposing Release,
Commenters generally believed that such types of agreements, contracts and transactions, although they may contain delivery optionality, should be considered forwards rather than swaps or commodity options.
With the exception of energy management agreements, which are discussed below, the interpretations that the CFTC has already provided above may apply to such types of agreements, contracts and transactions. Specifically, to the extent that such types of agreements, contracts and transactions are forwards with embedded volumetric options, the CFTC has provided an additional interpretation in section II.B.2.b(iii) above. To the extent such types of agreements, contracts or transactions are physical commercial agreements, contracts or transactions discussed in section II.B.2.b(iii),
With regard to Energy Management Agreements (“EMAs”), in general, commenters expressed the view that EMAs are forwards, and not swaps, although they did not provide analysis to support that conclusion.
The Commissions also received several comments discussing contractual liquidated damages provisions. The CFTC is clarifying that the presence, in an agreement, contract, or transaction involving physical settlement of a nonfinancial commodity, of a liquidated damages provision (which may be referred to by another name, such as a “cover costs” or “cover damages” provision) does not necessarily render such an agreement, contract, or transaction ineligible for the forward exclusion.
One commenter notes that a commercial merchandising arrangement involving a nonfinancial commodity may provide that the remedy for a failure to make or take delivery is the payment of a market-rate replacement price, a payment on a performance guaranty, or “cover damages” to compensate the non-breaching party for the failure of the other party to fulfill its contractual obligations.
Another commenter noted that physically settled gas contracts, including peaking contracts (both for daily and monthly supply), bullet day contracts and weather contracts, use the NAESB Base Contract, which does not provide for financial settlement other than a liquidated damages provision, which would compensate a utility for its cost of obtaining alternative supply at the prevailing market price if the seller fails to deliver.
The CFTC generally agrees with these comments regarding liquidated damages provisions, and has provided the final interpretation described above to address them.
As the Commissions stated in the Proposing Release, the Commissions believe it is appropriate to address how the exclusions from the swap and security-based swap definitions apply to security forwards and other purchases and sales of securities.
The Dodd-Frank Act excludes purchases and sales of securities from the swap and security-based swap definitions in a number of different clauses.
As with other purchases and sales of securities, security forwards are
In the Proposing Release, the Commissions provided the following specific interpretation in the context of forward sales of mortgage-backed securities (“MBS”) guaranteed or sold by the Federal National Mortgage Association (“Fannie Mae”), the Federal Home Loan Mortgage Corporation (“Freddie Mac”), and the Government National Mortgage Association (“Ginnie Mae”).
MBS guaranteed or sold by Fannie Mae, Freddie Mac and Ginnie Mae are eligible to be sold in the “To-Be-Announced” (“TBA”) market, which is essentially a forward or delayed delivery market.
The Commissions are confirming that such forward sales of MBS in the TBA market would fall within the exclusion for sales of securities on a deferred settlement or delivery basis even though the precise MBS are not in existence at the time the forward MBS sale is entered into.
The Commissions received two comments on the interpretation regarding security forwards. One commenter recommended that the Commissions codify in the text of the final rules the interpretation regarding forward sales of MBS in the TBA market.
Another commenter suggested that the Commissions narrow the exclusion for contracts for the purchase and sale of securities for subsequent delivery as applied to security-based swaps because parties can use the formal characterization of a delivery contract for securities to disguise a transaction that is substantively a security-based swap.
The Commissions noted in the Proposing Release that “[c]onsumers enter into various types of agreements, contracts, and transactions as part of their household and personal lives that may have attributes that could be viewed as falling within the swap or security-based swap definition.
Commenters on the ANPR pointed out a number of areas in which a broad reading of the swap and security-based swap definitions could cover certain consumer and commercial arrangements that historically have not been considered swaps or security-based swaps.
The Commissions also stated in the Proposing Release that they “do not believe that Congress intended to include these types of customary consumer and commercial agreements, contracts, or transactions in the swap or security-based swap definition, to limit the types of persons that can enter into or engage in them, or to otherwise to subject these agreements, contracts, or transactions to the regulatory scheme for swaps and security-based swaps.”
Accordingly, the Commissions proposed an interpretation in the Proposing Release to assist consumers and commercial and non-profit entities in understanding whether certain agreements, contracts, or transactions that they enter into would be regulated as swaps or security-based swaps.
With respect to consumers, the Commissions have determined that the types of agreements, contracts, or transactions that will not be considered swaps or security-based swaps when entered into by consumers (natural persons) as principals (or by their agents)
• Agreements, contracts, or transactions to acquire or lease real or personal property, to obtain a mortgage, to provide personal services, or to sell or assign rights owned by such consumer (such as intellectual property rights);
• Agreements, contracts, or transactions to purchase products or services for personal, family or household purposes at a fixed price or a capped or collared price, at a future date or over a certain time period (such as agreements to purchase for personal use or consumption nonfinancial energy commodities, including agreements to purchase home heating fuel or agreements involving residential fuel storage, in either case, where the consumer takes delivery of and uses the fuel, and the counterparty is a merchant that delivers in the service area where the consumer resides);
• Agreements, contracts, or transactions that provide for an interest rate cap or lock on a consumer loan or mortgage, where the benefit of the rate cap or lock is realized only if the loan or mortgage is made to the consumer;
• Consumer loans or mortgages with variable rates of interest or embedded interest rate options, including such loans with provisions for the rates to change upon certain events related to the consumer, such as a higher rate of interest following a default;
• Service agreements, contracts, or transactions that are consumer product warranties, extended service plans, or buyer protection plans, such as those purchased with major appliances and electronics;
• Consumer options to acquire, lease, or sell real or personal property, such as options to lease apartments or purchase rugs and paintings, and purchases made through consumer layaway plans;
• Consumer agreements, contracts, or transactions where, by law or regulation, the consumer may cancel the transaction without legal cause;
• Consumer guarantees of credit card debt, automobile loans, and mortgages of a friend or relative.
The types of commercial agreements, contracts, or transactions that involve customary business arrangements (whether or not involving a for-profit entity) and will not be considered swaps or security-based swaps under this interpretation include:
• Employment contracts and retirement benefit arrangements;
• Sales, servicing, or distribution arrangements;
• Agreements, contracts, or transactions for the purpose of effecting a business combination transaction;
• The purchase, sale, lease, or transfer of real property, intellectual property, equipment, or inventory;
• Warehouse lending arrangements in connection with building an inventory of assets in anticipation of a securitization of such assets (such as in a securitization of mortgages, student loans, or receivables);
• Mortgage or mortgage purchase commitments, or sales of installment loan agreements or contracts or receivables;
• Fixed or variable interest rate commercial loans or mortgages entered into by banks
• Fixed or variable interest rate commercial loans or mortgages entered into by the Farm Credit System institutions and Federal Home Loan Banks;
• Fixed or variable interest rate commercial loans or mortgages with embedded interest rate locks, caps, or floors, provided that such embedded interest rate locks, caps, or floors are included for the sole purpose of providing a lock, cap, or floor on the interest rate on such loan or mortgage and do not include additional provisions that would provide exposure to enhanced or inverse performance, or other risks unrelated to the interest rate risk being addressed;
• Fixed or variable interest rate commercial loans or mortgages with embedded interest rate options, including such loans or mortgages that contain provisions causing the interest rate to change upon certain events related to the borrower, such as a higher rate of interest following a default, provided that such embedded interest rate options do not include additional provisions that would provide exposure to enhanced or inverse performance, or other risks unrelated to the primary reason the embedded interest rate option is included; and
• Commercial agreements, contracts, and transactions (including, but not limited to, leases, service contracts, and employment agreements) containing escalation clauses linked to an underlying commodity such as an interest rate or consumer price index.
The Commissions intend for this interpretation to enable consumers to engage in transactions relating to their households and personal or family activities without concern that such arrangements would be considered swaps or security-based swaps. Similarly, with respect to commercial business arrangements, this interpretation should allow commercial and non-profit entities to continue to operate their businesses and operations without significant disruption and provide that the swap and security-based swap definitions are not read to include commercial and non-profit operations that historically have not been considered to involve swaps or security-based swaps.
The types of agreements, contracts, and transactions discussed above are not intended to be exhaustive of the customary consumer or commercial arrangements that should not be considered to be swaps or security-based swaps. There may be other, similar types of agreements, contracts, and transactions that also should not be considered to be swaps or security-based swaps. In determining whether similar types of agreements, contracts, and transactions entered into by consumers or commercial entities are swaps or security-based swaps, the Commissions intend to consider the characteristics and factors that are common to the consumer and commercial transactions listed above:
• They do not contain payment obligations, whether or not contingent, that are severable from the agreement, contract, or transaction;
• They are not traded on an organized market or over-the-counter; and
• In the case of consumer arrangements, they:
• In the case of commercial arrangements, they are entered into:
Two of the key components reflected in these characteristics that distinguish these agreements, contracts, and transactions from swaps and security-based swaps are that: (i) The payment provisions of the agreement, contract, or transaction are not severable; and (ii)
This interpretation is not intended to be the exclusive means for consumers and commercial or non-profit entities to determine whether their agreements, contracts, or transactions fall within the swap or security-based swap definition. If there is a type of agreement, contract, or transaction that is not enumerated above, or does not have all the characteristics and factors that are listed above (including new types of agreements, contracts, or transactions that may be developed in the future), the agreement, contract, or transaction will be evaluated based on its particular facts and circumstances. Parties to such an agreement, contract or transaction may also seek an interpretation from the Commissions as to whether the agreement, contract or transaction is a swap or security-based swap.
Eleven commenters provided comments on the proposed interpretation set forth in the Proposing Release regarding consumer and commercial arrangements.
Four commenters recommended that the Commissions codify the proposed interpretation regarding consumer and commercial arrangements.
One commenter was concerned that the interpretation itself implicitly suggests that many types of consumer and commercial arrangements could be swaps, although none of these arrangements historically has been considered a swap.
One commenter requested that the Commissions remove the term “customary” from the description of consumer and commercial arrangements in the interpretation.
This commenter also requested that specific examples of consumer and commercial arrangements that are not swaps or security-based swaps include “any other similar agreements, contracts, or transactions.”
Several commenters suggested additional examples of consumer and commercial arrangements that the Commissions should not consider to be swaps or security-based swaps.
One commenter suggested that the Commissions should include as an
Three commenters requested clarification that commercial loans and mortgages would fall within the interpretation regardless of whether entered into by a bank or non-bank.
Three commenters suggested that the Commissions should include as additional examples commercial rate lock agreements and commercial loans with interest rate caps, floors, or options.
Four commenters suggested additional examples of commercial arrangements that relate to nonfinancial energy commodities.
One commenter supported the representative characteristics and factors the Commissions set forth to distinguish consumer and commercial arrangements from swaps and security-based swaps.
One of these commenters also suggested the Commissions remove “do not contain payment obligations that are severable” from the interpretation because assignment of rights and delegation of obligations are common in a wide variety of consumer and commercial transactions.
One of these commenters also suggested that the Commissions remove “not traded on an organized market or over the counter” from the interpretation because many of the types of contracts listed as examples are assignable and frequently assigned or traded.
Further, as noted above, the representative characteristics and factors are not intended to be a bright-line test for determining whether a particular consumer or commercial arrangement is a swap or security-based swap. These representative characteristics and factors taken together are indicators that a consumer or commercial arrangement is not a swap or security-based swap. These representative characteristics and factors also do not imply or presume that a consumer or commercial arrangement that does not meet all of these characteristics and factors is a swap or security-based swap. As noted above, if a particular arrangement does not meet all of these characteristics and factors, the parties will need to evaluate the arrangement based on the particular facts and circumstances. Moreover, as noted above, if there is a type of consumer or commercial arrangement that does not meet all of these characteristics and factors, a party to the arrangement can seek an interpretation from the Commissions as to whether the arrangement is outside the scope of the swap and security-based swap definitions.
One commenter requested that the CFTC further define the term “swap” to exclude consumer benefits under the Pacific Northwest Electric Power Planning and Conservation Act of 1980 (“Northwest Power Act”)
The Commissions provided an interpretation in the Proposing Release regarding the treatment of loan participations.
Loan participations arise when a lender transfers or offers a participation in the economic risks and benefits of all or a portion of a loan or commitment it has entered into with a borrower to another party as an alternative or precursor to assigning to such person the loan or commitment or an interest in the loan or commitment.
Depending on the facts and circumstances, a loan participation may be a security under the Federal securities laws and, as such, the loan participation would be excluded from the swap definition as the purchase and sale of a security on a fixed or contingent basis.
The Commissions believe it is important to provide further guidance as to the other circumstances in which certain loan participations would not fall within the swap and security-based swap definitions. Consistent with the proposal, the Commissions do not interpret the swap and security-based swap definitions to include loan participations that reflect an ownership interest in the underlying loan or commitment. The Commissions believe that for a loan participation to not be considered a swap or security-based swap, the loan participation must represent a current or future direct or indirect ownership interest in the loan or commitment that is the subject of the loan participation.
In evaluating whether the loan participation represents such an ownership interest, the Commissions believe the following characteristics should be present:
• The grantor of the loan participation is a lender under, or a participant or sub-participant in, the loan or commitment that is the subject of the loan participation.
• The aggregate participation in the loan or commitment that is the subject of the loan participation does not exceed the principal amount of such loan or commitment. Further, the loan participation does not grant, in the aggregate, to the participant in such loan participation a greater interest than the grantor holds in the loan or commitment that is the subject of the loan participation.
• The entire purchase price for the loan participation is paid in full when acquired and not financed. The Commissions believe a purchase price would not be paid in full if the grantor of the loan participation extends financing to the participant or if such participant levers its purchase, including by posting collateral to secure a future payment obligation.
• The loan participation provides the participant all of the economic benefit and risk of the whole or part of the loan or commitment that is the subject of the loan participation.
These characteristics, which were identified by commenters,
The Commissions agree with commenters that the loan participation does not have to be a “true participation,” as the Commissions had stated in their interpretation in the Proposing Release,
Rather, as noted above, the Commissions believe that the analysis as to whether a loan participation is outside the swap and security-based swap definitions should be based on whether the loan participation reflects an ownership interest in the underlying loan or commitment. The Commissions understand that the characteristics noted above are indicative, based on comments received,
The Commissions believe that the interpretation will prevent disruption in the syndicated loan market for loan participations. Loan participations facilitate a lender's diversification of its portfolio holdings, provide a key component of the efficient settlement process, and enhance liquidity in the global syndicated loan market.
Commenters supported the interpretation that certain loan participations should not be included in the swap and security-based swaps definitions.
One commenter also indicated that loan participations are entered into both with respect to outstanding loans and with respect to a lender's commitments to lend and fund letters of credit (
In light of provisions in the Dodd-Frank Act that specifically address certain foreign exchange products, the Commissions in the Proposing Release proposed rules to clarify the status of products such as foreign exchange forwards, foreign exchange swaps, foreign exchange options, non-deliverable forwards involving foreign exchange (“NDFs”), and cross-currency swaps. The Commissions also proposed a rule to clarify the status of forward rate agreements and provided interpretations regarding: (i) Combinations and permutations of, or options on, swaps or security-based swaps; and (ii) contracts for differences (“CFDs”).
The Commissions are adopting the rules as proposed without modification and are restating the interpretations provided in the Proposing Release without modification. In addition, the Commissions are providing additional interpretations regarding foreign exchange spot transactions and retail foreign currency options.
As adopted, rule 1.3(xxx)(2) under the CEA and rule 3a69–2 under the Exchange Act explicitly define the term “swap” to include certain foreign exchange-related products and forward rate agreements unless such products are excluded by the statutory exclusions in subparagraph (B) of the swap definition.
The CEA, as amended by the Dodd-Frank Act, provides that “foreign exchange forwards” and “foreign exchange swaps” shall be considered swaps under the swap definition unless the Secretary of the Treasury (“Secretary”) issues a written determination that either foreign exchange swaps, foreign exchange forwards, or both: (i) Should not be regulated as swaps; and (ii) are not structured to evade the Dodd-Frank Act in violation of any rule promulgated by the CFTC pursuant to section 721(c) of the Dodd-Frank Act.
Under the Dodd-Frank Act, if foreign exchange forwards or foreign exchange swaps are no longer considered swaps due to a determination by the Secretary, nevertheless, certain provisions of the CEA added by the Dodd-Frank Act would continue to apply to such transactions.
The Commissions are adopting the rules as proposed to explicitly define by rule the term “swap” to include foreign exchange forwards and foreign exchange swaps (as those terms are defined in the CEA),
Two commenters recommended that the Commissions defer action on defining foreign exchange swaps and foreign exchange forwards in their regulations until the Secretary has made his final determination about whether to exempt them.
Further, the Commissions do not believe that adopting the rules is premature, as the Secretary may issue a determination at any time, and the Secretary's authority to do so is independent of the Commissions' authority to issue these rules to further define the term “swap.”
Moreover, commenters provided no support for the assertion that the situation would be awkward for market participants because options on foreign exchange forwards and foreign exchange swaps will be swaps, regardless of whether the Secretary determines to exempt the underlying transactions from the swap definition. The Commissions note that Congress drew the distinction in the statute between foreign currency options and foreign exchange forwards and foreign exchange swaps. The Commissions conclude that adopting these final rules would not contribute to a lack of clarity or consistency for market participants, regardless of any determination the Secretary makes.
The Commissions are adopting rules as proposed stating that a determination by the Secretary that foreign exchange forwards or foreign exchange swaps, or both, should not be regulated as swaps would not affect certain other products involving foreign currency, such as foreign currency options, NDFs, currency swaps and cross-currency swaps.
As discussed above, the statutory swap definition includes options, and it expressly enumerates foreign currency options. It encompasses any agreement, contract, or transaction that is a put, call, cap, floor, collar, or similar option of any kind that is for the purchase or sale, or based on the value, of 1 or more interest or other rates, currencies, commodities, securities, instruments of indebtedness, indices, quantitative measures, or other financial or economic interests or property of any kind.
Any determination by the Secretary, discussed above, that foreign exchange forwards or foreign exchange swaps should not be regulated as swaps would not impact foreign currency options because a foreign currency option is neither a foreign exchange swap nor a foreign exchange forward, as those terms are defined in the CEA. The Commissions did not receive any comments either on the proposed rule further defining the term “swap” to include foreign currency options or the proposed rule clarifying that foreign currency options are not subject to the Secretary's determination to exempt foreign exchange swaps and foreign exchange forwards.
As explained by the Commissions in the Proposing Release,
NDFs are not expressly enumerated in the swap definition, but as was stated in the Proposing Release,
Moreover, the Commissions have determined that NDFs do not meet the definitions of “foreign exchange forward” or “foreign exchange swap” set forth in the CEA.
Notwithstanding their “forward” label, NDFs also do not fall within the forward contract exclusion of the swap definition because currency is outside the scope of the forward contract exclusion for nonfinancial commodities.
Commenters who addressed the nature of NDFs believed that NDFs should not be considered swaps, but rather should be categorized as foreign exchange forwards. In general, commenters maintained that NDFs are functionally and economically equivalent to foreign exchange forwards, and therefore should be treated in the same manner for regulatory purposes.
In addition, commenters believed that not treating NDFs as foreign exchange forwards or foreign exchange swaps would be contrary to both domestic and international market practices. As specific examples, commenters noted that NDFs typically are traded as part of a bank's or broker's foreign exchange desk; the Federal Reserve Bank of New York has described an NDF in a 1998 publication as an instrument “similar to an outright forward,” except that there is no physical delivery or transfer of the local currency; the Bank for International Settlements (“BIS”) categorizes NDFs in its “outright forward” category; various European regulations do not distinguish between the two transaction types; standard foreign exchange trading documentation includes both net- and physically-settled foreign exchange transactions in general definitions of foreign exchange transactions; and special rules under the U.S. tax code apply equally to physically settled and cash settled foreign exchange forwards.
Commenters also raised potential negative consequences to certain U.S. market participants if NDFs are not considered to be foreign exchange forwards. For example, one commenter argued that treating NDFs as swaps will put U.S. corporations doing business in emerging markets at a disadvantage relative to U.S. corporations doing business solely in developed markets.
With respect to the Commissions' legal conclusion that NDFs are not foreign exchange forwards, and thus are not subject to the Secretary's determination, one commenter stated that the Commissions' reading of the definition of the term “foreign exchange forward” as not including NDFs is “too restrictive.”
One commenter, in contrast, agreed with the Commissions' interpretation that NDFs are not encompassed within the definition of the term “foreign
While commenters raised a number of objections to the Commissions' proposal to define NDFs as swaps, these objections primarily raise policy arguments. No commenter has provided a persuasive, alternative interpretation of the statute's plain language in the definition of the term “foreign exchange forward” to overcome the Commissions' conclusion that, under the CEA, NDFs are swaps, not foreign exchange forwards.
One commenter believed that the Commissions' interpretation of “exchange of 2 different currencies” as used in the foreign exchange forward definition is too restrictive, and that the phrase should be read broadly to mean an economic exchange of value in addition to physical exchange; the Commissions believe that this contention is misplaced.
Elsewhere in the CEA, Congress used explicit language that potentially could provide support for a broader interpretation of the type advocated by this commenter, but such language is absent from the definition of the term “foreign exchange forward.” For example, section 2(a)(1)(C)(ii) confers exclusive jurisdiction on the CFTC over “contracts of sale for future delivery of a group or index of securities (or any interest therein or based upon the value thereof) [that meet certain requirements]”. If the phrase “exchange of 2 different currencies” had been intended to include economic exchanges of value, as suggested by this commenter, that phrase would have included language similar to “based on the value thereof” to indicate that other mechanisms of transferring value may occur in these particular types of transactions. Instead, as noted above, Congress limited the scope of each of these particular transactions by using the words “solely involves the exchange of 2 different currencies”. The Commissions conclude that the use of the word “solely” provides further support for the Commissions' interpretation that exchange means an actual interchange of the 2 different currencies involved in the transaction.
A currency swap
See also Derivatives ONE, “Cross Currency Swap Valuation” (“A cross currency swap is swap of an interest rate in one currency for an interest rate payment in another currency * * * This could be considered an interest rate swap with a currency component.”), available at
Currency swaps and cross-currency swaps are not foreign exchange swaps as defined in the CEA because, although they may involve an exchange of foreign currencies, they also require contingent or variable payments in different currencies. Because the CEA defines a foreign exchange swap as a swap that “solely” involves an initial exchange of currencies and a reversal thereof at a later date, subject to certain parameters, currency swaps and cross-currency swaps would not be foreign exchange swaps. Similarly, currency swaps and cross-currency swaps are not foreign exchange forwards because foreign exchange forwards “solely” involve an initial exchange of currencies, subject to certain parameters, while currency swaps and cross-currency swaps contain additional elements, as discussed above.
Currency swaps are expressly enumerated in the statutory definition of the term “swap.”
The CEA generally does not confer regulatory jurisdiction on the CFTC with respect to spot transactions.
The Commissions recognize that the new foreign exchange forward definition in the CEA, which was added by the Dodd-Frank Act and which applies to an exchange of two different currencies “on a specific future date,” could be read to apply to any foreign exchange transaction that does not settle on the same day. Such a reading could render most foreign exchange spot transactions foreign exchange forwards under the CEA; as a result, such transactions would be subject to the CEA reporting and business conduct standards requirements applicable to foreign exchange forwards even if the Secretary determines to exempt foreign exchange forwards from the definition of “swap.” The Commissions do not believe that Congress intended, solely with respect to foreign exchange transactions, to extend the reach of the CEA to transactions that historically have been considered spot transactions. At the same time, however, the Commissions do not want to enable market participants simply to label as “spot” foreign exchange transactions that regularly settle after the relevant foreign exchange spot market settlement deadline, or with respect to which the parties intentionally delay settlement, both of which would be properly categorized as foreign exchange forwards, or CEA section 2(c)(2) transactions (discussed separately below), in order to avoid applicable foreign exchange regulatory requirements.
Accordingly, the Commissions are providing an interpretation that a bona fide foreign exchange spot transaction,
The CFTC will consider the following to be a bona fide spot foreign exchange transaction: An agreement, contract or transaction for the purchase or sale of an amount of foreign currency equal to the price of a foreign security with respect to which (i) the security and related foreign currency transactions are executed contemporaneously in order to effect delivery by the relevant securities settlement deadline and (ii) actual delivery of the foreign security and foreign currency occurs by such deadline (such transaction, a “Securities Conversion Transaction”).
The CFTC also will interpret a Securities Conversion Transaction as not leveraged, margined or financed within the meaning of section 2(c)(2)(C) of the CEA.
One commenter requested clarification regarding the status of foreign exchange spot transactions.
The CFTC is providing an interpretation regarding the status of retail foreign currency options that are described in section 2(c)(2)(B) of the CEA.
The CFTC notes that, in further defining the term “swap” to include foreign currency options, the Proposing Release stated that the proposal was not intended to address, and had no bearing on, the CFTC's jurisdiction over foreign currency options in other contexts, specifically citing section 2(c)(2)(B) of the CEA.
The CFTC believes that Congress did not intend the swap definition to overrule and effectively repeal another provision of the CEA in such an oblique fashion.
The Commissions are adopting rules as proposed to explicitly define the term “swap” to include forward rate agreements (“FRAs”).
In general, an FRA is an over-the-counter contract for a single cash payment, due on the settlement date of a trade, based on a spot rate (determined pursuant to a method agreed upon by the parties) and a pre-specified forward rate. The single cash payment is equal to the product of the present value (discounted from a specified future date to the settlement date of the trade) of the difference between the forward rate and the spot rate on the settlement date multiplied by the notional amount. The notional amount itself is not exchanged.
An FRA provides for the future (executory) payment based on the transfer of interest rate risk between the parties as opposed to transferring an ownership interest in any asset or liability.
Notwithstanding their “forward” label, FRAs do not fall within the forward contract exclusion from the swap definition. FRAs do not involve nonfinancial commodities and thus are outside the scope of the forward contract exclusion. Nor is an FRA a commercial merchandising transaction, as there is no physical product to be delivered in an FRA.
Based on the foregoing considerations, the Commissions are adopting rules to provide greater clarity by explicitly defining the term “swap” to include FRAs. As with the foreign exchange-related products discussed above, the final rules provide that FRAs are not swaps if they fall within one of the exclusions set forth in subparagraph (B) of the swap definition.
Clause (A)(vi) of the swap definition provides that “any combination or permutation of, or option on, any agreement, contract, or transaction described in any of clauses (i) through (v)” of the definition is a swap.
Clause (A)(vi) means, for example, that an option on a swap or security-based swap (commonly known as a “swaption”) would itself be a swap or security-based swap, respectively. The Commissions also interpret clause (A)(vi) to mean that a “forward swap” would itself be a swap or security-based swap, respectively.
As the Proposing Release notes, the Commissions have received inquiries over the years regarding the treatment of CFDs under the CEA and the Federal securities laws.
The Commissions provided an interpretation in the Proposing Release regarding the treatment of CFDs. The Commissions are restating the interpretation set out in the Proposing Release without modification.
CFDs, unless otherwise excluded, fall within the scope of the swap or security-based swap definition, as applicable.
Two commenters requested that the Commissions clarify that non-deliverable forward contracts are not CFDs.
The Commissions are restating the interpretation provided in the Proposing Release regarding agreements, contracts, or transactions that may be called, or documented using form contracts typically used for, swaps or security-based swaps with one modification in response to a commenter.
As was noted in the Proposing Release,
It is not dispositive that the agreement, contract, or transaction is documented using an industry standard form agreement that is typically used for swaps and security-based swaps,
The Commissions requested comment regarding what agreements, contracts, or transactions that are not swaps or security-based swaps are documented using industry standard form agreements that are typically used for swaps and security-based swaps, and asked for examples thereof and details regarding their documentation, including why industry standard form agreements typically used for swaps and security-based swaps are used. One commenter stated its view that documentation can be a relevant factor in determining whether an agreement, contract or transaction is a swap or security-based swap.
The CFTC declines to address the status of transactions in Regional Transmission Organizations (“RTOs”) and Independent System Operators (“ISOs”), including financial transmission rights (“FTRs”) and ancillary services, within this joint definitional rulemaking. As was noted in the Proposing Release, section 722 of the Dodd-Frank Act specifically addresses certain instruments and transactions regulated by FERC that also may be subject to CFTC jurisdiction. Section 722(f) added CEA section 4(c)(6),
The CFTC notes that it has been engaged in discussions with a number of RTOs and ISOs regarding the possibility of a petition seeking an exemption pursuant to CEA section 4(c)(6) for certain RTO and ISO transactions. The CFTC also notes that the status of some RTO and ISO transactions may have been addressed in the interpretation above regarding embedded options and the forward exclusion from the swap definition,
The CFTC received a number of comments discussing transactions in RTOs and ISOs.
By contrast, one commenter asserted that FTRs are in substance swaps and should be regulated as such.
Two commenters supported the CFTC's use of its section 722(f) authority to exempt FERC-regulated transactions and other transactions in RTOs or ISOs.
In response to one commenter's contentions that FERC has complete regulatory authority over RTOs and ISOs and their transactions, and that Congress expected the CFTC and FERC to avoid duplicative, unnecessary regulation, the CFTC notes that Congress addressed this issue not by excluding RTO and ISO transactions from the comprehensive regime for swap regulation, but rather by enacting the exemptive process in CEA section 4(c)(6).
And in response to another commenter's contention that the CFTC should exclude RTO and ISO transactions in the same manner as insurance has been excluded, the CFTC notes that Congress provided neither an exemptive process equivalent to CEA section 4(c)(6) for insurance, nor an energy market-equivalent to the McCarran-Ferguson Act.
As noted above, FERC staff opines that defining RTO and ISO transactions as swaps would be inconsistent with the text, goals, and purpose of the Dodd-Frank Act. The CFTC can consider concerns of the sort expressed by FERC staff in connection with any petition for a CEA section 4(c)(6) exemption that
Title VII of the Dodd-Frank Act defines the term “swap” under the CEA,
Because the discussion below is focused on whether particular agreements, contracts, or transactions are swaps or security-based swaps, the Commissions use the term “Title VII instrument” in this release to refer to any agreement, contract, or transaction that is included in either the definition of the term “swap” or the definition of the term “security-based swap.” Thus, the term “Title VII instrument” is synonymous with “swap or security-based swap.”
The determination of whether a Title VII instrument is either a swap or a security-based swap should be made based on the facts and circumstances relating to the Title VII instrument prior to execution, but no later than when the parties offer to enter into the Title VII instrument.
Classifying a Title VII instrument as a swap or security-based swap is straightforward for most instruments. However, the Commissions provided an interpretation in the Proposing Release to clarify the classification of swaps and security-based swaps in certain areas and to provide an interpretation regarding the use of certain terms and conditions in Title VII instruments. The Commissions are restating the interpretation set out in the Proposing Release with certain modifications to the interpretation regarding TRS.
Parties frequently use Title VII instruments to manage risks related to, or to speculate on, changes in interest rates, other monetary rates or amounts, or the return on various types of assets. Broadly speaking, Title VII instruments based on interest or other monetary rates would be swaps, whereas Title VII instruments based on the yield or value of a single security, loan, or narrow-based security index would be security-based swaps. However, market participants and financial professionals sometimes use the terms “rate” and “yield” in different ways. The Commissions proposed an interpretation in the Proposing Release regarding whether Title VII instruments that are based on interest rates, other monetary rates, or yields would be swaps or security-based swaps and are restating the interpretation, but with a modification to the list of examples of reference rates to include certain secured lending rates under money market rates.
The Commissions believe that when payments exchanged under a Title VII instrument are based solely on the levels of certain interest rates or other monetary rates that are not themselves based on one or more securities, the instrument would be a swap and not a security-based swap.
The interbank offered rates listed here are frequently called either a “reference rate,” the rate of “reference banks,” or by a designation that is specific to the service that quotes the rate. For some of the interbank offered rates listed here, there is a similar rate that is stated as an interbank bid rate, which is the average rate at which a group of banks bid to borrow money from other banks. For example, the bid rate similar to LIBOR is called LIBID.
As discussed above, the Commissions believe that when payments under a Title VII instrument are based solely on any of the foregoing, such Title VII instrument would be a swap.
Two commenters believed that constant maturity swaps always should be treated as swaps, rather than mixed swaps, because they generally are viewed by market participants as rates trades instead of trades on securities.
The Commissions proposed an interpretation in the Proposing Release clarifying the status of Title VII instruments in which one of the underlying references of the instrument is a “yield.” The Commissions received no comments on the interpretation set out in the Proposing Release regarding Title VII instruments based on yields and are restating the interpretation without modification. In cases when a “yield” is calculated based on the price or changes in price of a debt security, loan, or narrow-based security index, it is another way of expressing the price or value of a debt security, loan, or narrow-based security index. For example, debt securities often are quoted and traded on a yield basis rather than on a dollar price, where the yield relates to a specific date, such as the date of maturity of the debt security (
Except in the case of certain exempted securities, when one of the underlying
The above interpretation would not apply in cases where the “yield” referenced in a Title VII instrument is not based on a debt security, loan, or narrow-based security index of debt securities but rather is being used to reference an interest rate or monetary rate as outlined above in subsection one of this section. In these cases, this “yield” reference would be considered equivalent to a reference to an interest rate or monetary rate and the Title VII instrument would be, under the interpretation in this section, a swap (or mixed swap depending on other references in the instrument).
The Commissions provided an interpretation in the Proposing Release regarding instances in which the underlying reference of the Title VII instrument is a government debt obligation. The Commissions received no comments on the interpretation provided regarding instances in which the underlying reference of the Title VII instrument is a government debt obligation and are restating such interpretation without modification.
The security-based swap definition specifically excludes any agreement, contract, or transaction that meets the definition of a security-based swap only because it “references, is based upon, or settles through the transfer, delivery, or receipt of an exempted security under [section 3(a)(12) of the Exchange Act], as in effect on the date of enactment of the Futures Trading Act of 1982 (other than any municipal security as defined in [section 3(a)(29) of the Exchange Act] * * *), unless such agreement, contract, or transaction is of the character of, or is commonly known in the trade as, a put, call, or other option.”
As a result of this exclusion in the security-based swap definition for “exempted securities,”
Foreign government securities, by contrast, were not “exempted securities” as of the date of enactment of the Futures Trading Act of 1982
The Commissions are restating the interpretation regarding TRS set out in the Proposing Release with certain changes with respect to quanto and compo equity TRS and loan TRS based on two or more loans, and to reflect that TRS can overlie reference items other than securities, loans, and indexes of securities or loans.
As was described in the Proposing Release,
In addition, the Commissions are providing a final interpretation providing that, generally, the use of a variable interest rate in the TRS buyer's payment obligations to the seller is incidental to the purpose of, and the risk that the counterparties assume in, entering into the TRS, because such payments are a form of financing reflecting the seller's (typically a security-based swap dealer) cost of financing the position or a related hedge, allowing the TRS buyer to receive payments based on the price appreciation and income of a security or security index without purchasing the security or security index. As stated in
However, where such payments incorporate additional elements that create additional interest rate or currency exposures that are unrelated to the financing of the security-based swap, or otherwise shift or limit risks that are related to the financing of the security-based swap, those additional elements may cause the security-based swap to be a mixed swap. For example, where the counterparties embed interest-rate optionality (
The Commissions also are providing an additional interpretation regarding a quanto equity swap, in response to comments raised by one commenter,
An equity swap in which [(1)] the underlying is denominated in a currency (the foreign currency) other than that in which the equity swap is denominated (the domestic currency) * * * [and (2) t]he final value of the underlying is denominated in the foreign currency and is converted into the domestic currency using the exchange rate prevailing at inception[,] result[ing in] the investor * * * not [being] exposed to currency risk.
While a quanto equity swap, therefore, effectively “exposes the dealer on the foreign leg of the correlation product to a variable notional principal amount that changes whenever the exchange rate or the foreign index fluctuates,”
The Commissions view a quanto equity swap as a security-based swap, and not a mixed swap, where (i) the purpose of the quanto equity swap is to transfer exposure to the return of a security or security index without transferring exposure to any currency or exchange rate risk; and (ii) any exchange rate or currency risk exposure incurred by the dealer due to a difference in the currency denomination of the quanto equity swap and of the underlying security or security index is incidental to the quanto equity swap and arises from the instrument(s) the dealer chooses to use to hedge the quanto equity swap and is not a direct result of any expected payment obligations by either party under the quanto equity swap.
By contrast, in a compo equity swap, the parties assume exposure to, and the total return is calculated based on, both the performance of specified foreign stocks and the change in the relevant exchange rate.
In response to comments,
The Commissions received three comments with respect to the interpretation provided on TRS in the Proposing Release.
One commenter asserted that the terms of a TRS that create interest rate or currency exposures incidental to the primary purpose of the TRS should not cause a transaction that otherwise would be deemed to be a security-based swap to be characterized as a mixed swap.
This commenter also opined that the Commissions' interpretation that “where such payments incorporate additional elements that create additional interest rate or currency exposures * * * unrelated to the financing of the [TRS], or otherwise shift or limit risks that are related to the financing of the [TRS], those additional elements may cause the [TRS] to be a mixed swap” could be seen as requiring a quantitative analysis to determine whether a reference to interest rates or currencies in a TRS is solely for financing purposes or creates additional exposure that might be construed as extending beyond those purposes.
The Commissions are clarifying that a quantitative analysis is not necessarily required in order to determine whether a TRS is a mixed swap. Any analysis, quantitative or qualitative, clearly demonstrating the nature of a payment (solely financing-related, unrelated to financing or a combination of the two) can suffice.
The Commissions also are clarifying that market participants are not necessarily required to compare their financing rates to market financing rates in order to determine whether the financing leg of a TRS is merely a financing leg or is sufficient to render the TRS a mixed swap. Because a number of factors can influence how a particular TRS is structured,
Market participants are better positioned than are the Commissions to determine what analysis, and what supporting information and materials, best establish whether the nature of a particular payment reflects financing costs alone, or something more. Moreover, the Commissions expect that a dealer would know if the purpose of the payment(s) in question is to cover its cost of financing a position or a related hedge.
One commenter noted the nature of quanto equity swaps as TRS and maintained that such a transaction “is equivalent to a financing of a long position in the underlying non-U.S. equity index[]” and that the currency protection is incidental to the financing element, which is the primary purpose of the TRS.
Two commenters requested that the Commissions clarify the status of LTRS on two or more loans.
The Commissions have provided the final interpretation discussed above regarding LTRS based on two or more loans that are not securities. The Commissions acknowledge that this interpretation results in different treatment for an LTRS on two non-security loans (a swap), as opposed to a Title VII instrument based on two securities (a security-based swap). This result, however, is dictated by the statute.
The Commissions provided an interpretation in the Proposing Release regarding security-based swaps based on a single security or loan and single-name CDS
In addition, the third prong of the security-based swap definition includes a swap that is based on the occurrence of an event relating to a “single issuer of a security,” provided that such event “directly affects the financial statements, financial condition, or financial obligations of the issuer.”
The Commissions believe that if the payout on a CDS on a single issuer of a security is triggered by the occurrence of an event relating to that issuer, the CDS is a security-based swap under the third prong of the statutory security-based swap definition.
In relation to aggregations of transactions under a single ISDA Master Agreement,
The Commissions believe that each transaction under an ISDA Master Agreement would need to be analyzed to determine whether it is a swap or security-based swap. For example, the Commissions believe that a number of Title VII instruments that are executed at the same time and that are documented under one ISDA Master Agreement, but in which a separate confirmation is sent for each instrument, should be treated as an aggregation of such Title VII instruments, each of which must be analyzed separately under the swap and security-based swap definitions.
The Commissions received two comments regarding the interpretation regarding aggregation of Title VII instruments under a single ISDA Master Agreement. One commenter requested that the Commissions clarify that the interpretation applies to other types of instruments, such as TRS, in addition to CDS.
A second commenter agreed with the Commissions' interpretation that a number of single-name CDS that are executed at the same time and that are documented under one ISDA Master Agreement, but in which a separate confirmation is sent for each CDS, should not be treated as a single index CDS and stated that this approach is consistent with market practice.
As discussed above, in response to comments the Commissions are expanding the example so it is clear that it applies beyond just CDS.
The Commissions proposed an interpretation in the Proposing Release regarding the treatment, generally, of swaps based on futures contracts.
A Title VII instrument that is based on a futures contract will either be a swap or a security-based swap, or both (i.e., a mixed swap), depending on the nature of the futures contract, including the underlying reference of the futures contract. Thus, a Title VII instrument where the underlying reference is a security future is a security-based swap.
The term security future does not include any agreement, contract, or transaction excluded from the CEA under sections 2(c), 2(d), 2(f), or 2(g) of the CEA, 7 U.S.C. 2(c), 2(d), 2(f), or 2(g), as in effect on the date of enactment of the Commodity Futures Modernization Act of 2000 (“CFMA”) or Title IV of the CFMA.
Rule 3a12–8 under the Exchange Act exempts certain foreign government debt securities, for purposes only of the offer, sale, or confirmation of sale of futures contracts on such foreign government debt securities, from all provisions of the Exchange Act which by their terms do not apply to an “exempted security,” subject to certain conditions.
The Commissions recognize that as a result of rule 3a12–8, futures contracts on the debt securities of the 21 enumerated foreign governments that satisfy the conditions of rule 3a12–8 are subject to the CFTC's exclusive jurisdiction and are not considered security futures. As a result, applying the interpretation above to a Title VII instrument that is based on a futures contract on the debt securities of these 21 enumerated foreign governments would mean that the Title VII instrument would be a swap.
The Commissions indicated in the Proposing Release that they would evaluate whether Title VII instruments based on futures contracts on the debt securities of the 21 enumerated foreign governments that satisfy the conditions of rule 3a12–8 should be characterized as swaps, security-based swaps, or mixed swaps.
The final rules provide that a Title VII instrument that is based on or references a qualifying foreign futures contract on the debt securities of one or more of the 21 enumerated foreign governments is a swap and not a security-based swap, provided that the Title VII instrument satisfies the following conditions:
• The futures contract on which the Title VII instrument is based or that is referenced is a qualifying foreign futures contract (as defined in rule 3a12–8)
• The Title VII instrument is traded on or through a board of trade (as defined in section 1a(6) of the CEA);
• The debt securities on which the qualifying foreign futures contract is based or referenced and any security used to determine the cash settlement amount pursuant to the fourth condition below are not covered by an effective registration statement under the Securities Act or the subject of any American depositary receipt covered by an effective registration statement under the Securities Act;
• The Title VII instrument may only be cash settled; and
• The Title VII instrument is not entered into by the issuer of the securities upon which the qualifying foreign futures contract is based or referenced (including any security used to determine the cash payment due on settlement of such Title VII instrument), an affiliate (as defined in the Securities Act and the rules and regulations thereunder)
Under the first condition, the final rules provide that the futures contract on which the Title VII instrument is based or referenced must be a qualifying foreign futures contract that satisfies the conditions of rule 3a12–8 and may only be based on the debt of any one or more of the enumerated 21 foreign governments. If the conditions of rule 3a12–8 are not satisfied, then there cannot be a qualifying foreign futures contract, the futures contract is a security future, and a swap on such a security future is a security-based swap.
The second condition of the final rules provides that the Title VII instrument on the qualifying foreign futures contract must itself be traded on or through a board of trade because a qualifying foreign futures contract on the debt securities of one or more of the 21 enumerated foreign governments itself is required to be traded on a board of trade. The Commissions believe that swaps on such futures contracts should be traded subject to rules applicable to such futures contracts themselves.
The third condition of the final rules provides that the debt securities on which the qualifying foreign futures contract is based or referenced and any security used to determine the cash settlement amount pursuant to the fourth condition cannot be registered under the Securities Act or be the subject of any American depositary receipt registered under the Securities Act. This condition is intended to prevent circumvention of registration and disclosure requirements of the Securities Act applicable to foreign government issuances of their securities. This condition is similar to a condition included in rule 3a12–8.
The fourth condition of the final rules provides that the Title VII instrument must be cash settled. Although, as the Commissions recognize, rule 3a12–8 permits a qualifying foreign futures contract to be physically settled so long as delivery is outside the United States, any of its possessions or territories,
The fifth condition of the final rules provides that for a Title VII instrument to be a swap under such rules, it cannot be entered into by the issuer of the securities upon which the qualifying foreign futures contract is based or referenced (including any security used to determine the cash payment due on settlement of such Title VII instrument), an affiliate of the issuer, or an underwriter of the issuer's securities. The Commissions have included this condition to address the concerns raised by the SEC in the Proposing Release that the characterization of a Title VII instrument that is based on a futures contract on the debt securities of one of the 21 enumerated foreign governments may affect Federal securities law provisions relating to the distribution of the securities upon which the Title VII instrument is based or referenced.
The Dodd-Frank Act included provisions that would not permit issuers, affiliates of issuers, or underwriters to use security-based swaps to offer or sell the issuers' securities underlying a security-based swap without complying with the requirements of the Securities Act.
Only those Title VII instruments that are based on qualifying foreign futures contracts on the debt securities of the 21
The Commissions recognize that the rules may result in a different characterization of a Title VII instrument that is based directly on a foreign government debt security and one that is based on a qualifying foreign futures contract on a debt security of one of the 21 enumerated foreign governments. However, the Commissions note that this is the case today (i.e., different treatments) with respect to other instruments subject to CFTC regulation and/or SEC regulation, such as futures on broad-based security indexes and futures on a single security or narrow-based security index.
Commenters did not address the interpretation as it applied to Title VII instruments based on futures contracts generally. Two commenters addressed Title VII instruments based on futures contracts on debt securities of the 21 enumerated foreign governments.
The Commissions provided an interpretation in the Proposing Release regarding the use of certain fixed terms in Title VII instruments and are restating that interpretation without modification.
For example, a Title VII instrument, such as an interest rate swap, in which floating payments based on three-month LIBOR are exchanged for fixed rate payments of five percent would be a swap, and not a security-based swap, even if the five percent fixed rate was informed by, or quoted based on, the yield of a security, provided that the five percent fixed rate was set at the time of execution and may not vary over the life of the Title VII instrument.
One commenter agreed with the Commissions' interpretation generally, but believed that the Commissions should broaden the interpretation to allow a swap to reflect “resets,” or changes in the referenced characteristic of a security, where those “resets” or changes are “intended to effect a purpose other than transmitting the risk of changes in the characteristic itself,” without causing a Title VII instrument that is not a security-based swap to become a security-based swap.
The Commissions are not expanding the interpretation to allow “resets” of a fixed rate derived from a security. The interpretation is consistent with the statutory swap and security-based swap definitions. The Commissions believe that a Title VII instrument based on a rate that follows a security, and that may “reset” or change in the future based on changes in that security, is a security-based swap. Further, any amendment or modification of a material term of a Title VII instrument would result in a new Title VII instrument and a corresponding reassessment of the instrument's status as either a swap or a security-based swap.
As noted above, a Title VII instrument in which the underlying reference of the instrument is a “narrow-based security index” is a security-based swap subject to regulation by the SEC, whereas a Title VII instrument in which the underlying reference of the instrument is a security index that is not a narrow-based security index (i.e., the index is broad-based) is a swap subject to regulation by the CFTC. The Commissions proposed an interpretation and rules regarding usage of the term “narrow-based security index” in the security-based swap definition, including:
• The existing criteria for determining whether a security index is a narrow-based security index and the applicability of past guidance of the Commissions regarding those criteria to Title VII instruments;
• New criteria for determining whether a CDS where the underlying reference is a group or index of entities or obligations of entities (typically referred to as an “index CDS”) is based on an index that is a narrow-based security index;
• The meaning of the term “index”;
• Rules governing the tolerance period for Title VII instruments on security indexes traded on DCMs, SEFs, foreign boards of trade (“FBOTs”), security-based SEFs, or NSEs, where the security index temporarily moves from broad-based to narrow-based or from narrow-based to broad-based; and
• Rules governing the grace period for Title VII instruments on security indexes traded on DCMs, SEFs, FBOTs, security-based SEFs, or NSEs, where the security index moves from broad-based to narrow-based or from narrow-based to broad-based and the move is not temporary.
As discussed below, the Commissions are restating the interpretation set forth in the Proposing Release with certain further clarifications and adopting the rules as proposed with certain modifications.
The Commissions provided an interpretation in the Proposing Release regarding the applicability of the statutory definition of the term “narrow-based security index” and past guidance of the Commissions relating to such term to Title VII instruments.
As defined in the CEA and Exchange Act,
• It has nine or fewer component securities;
• A component security comprises more than 30 percent of the index's weighting;
• The five highest weighted component securities in the aggregate comprise more than 60 percent of the index's weighting; or
• The lowest weighted component securities comprising, in the aggregate, 25 percent of the index's weighting have an aggregate dollar value of average daily trading volume of less than $50,000,000 (or in the case of an index with more than 15 component securities, $30,000,000), except that if there are two or more securities with equal weighting that could be included in the calculation of the lowest weighted component securities comprising, in the aggregate, 25 percent of the index's weighting, such securities shall be ranked from lowest to highest dollar value of average daily trading volume and shall be included in the calculation based on their ranking starting with the lowest ranked security.
The first three criteria apply to the number and concentration of the “component securities” in the index. The fourth criterion applies to the average daily trading volume of an index's “component securities.”
This statutory narrow-based security index definition focuses on indexes composed of equity securities and certain aspects of the definition, in particular the evaluation of average daily trading volume, are designed to take into account the trading patterns of individual stocks.
Volatility indexes are indexes composed of index options. The Commissions issued a joint order in
• The index measures the magnitude of changes (as calculated in accordance with the order) in the level of an underlying index that is not a narrow-based security index pursuant to the statutory criteria for equity indexes discussed above;
• The index has more than nine component securities, all of which are options on the underlying index;
• No component security of the index comprises more than 30 percent of the index's weighting;
• The five highest weighted component securities of the index in the aggregate do not comprise more than 60 percent of the index's weighting;
• The average daily trading volume of the lowest weighted component securities in the underlying index (those comprising, in the aggregate, 25 percent of the underlying index's weighting) have a dollar value of more than $50,000,000 (or $30,000,000 in the case of an underlying index with 15 or more component securities), except if there are 2 or more securities with equal weighting that could be included in the calculation of the lowest weighted component securities comprising, in the aggregate, 25 percent of the underlying index's weighting, such securities shall be ranked from lowest to highest dollar value of average daily trading volume and shall be included in the calculation based on their ranking starting with the lowest ranked security;
• Options on the underlying index are listed and traded on an NSE registered under section 6(a) of the Exchange Act;
• The aggregate average daily trading volume in options on the underlying index is at least 10,000 contracts calculated as of the preceding 6 full calendar months.
With regard to debt security indexes, the Commissions issued joint rules in 2006 (“July 2006 Debt Index Rules”) to define when an index of debt securities
• It is comprised of more than nine debt securities that are issued by more than nine non-affiliated issuers;
• The securities of any issuer included in the index do not comprise more than 30 percent of the index's weighting; and
• The securities of any five non-affiliated issuers in the index do not comprise more than 60 percent of the index's weighting.
In the July 2006 Debt Index Rules, instead of the statutory average daily trading volume test, however, the Commissions adopted a public information availability requirement. Under this requirement, assuming the aforementioned number and concentration criteria were satisfied, a debt security index would not be a narrow-based security index if the debt securities or the issuers of debt securities in the index met any one of the following criteria:
• The issuer of the debt security is required to file reports pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934;
• The issuer of the debt security has a worldwide market value of its outstanding common equity held by non-affiliates of $700 million or more;
• The issuer of the debt security has outstanding securities that are notes, bonds, debentures, or evidence of indebtedness having a total remaining principal amount of at least $1 billion;
• The security is an exempted security as defined in section 3(a)(12) of the Securities Exchange Act of 1934
• The issuer of the security is a government of a foreign country or a political subdivision of a foreign country.
In the Dodd-Frank Act, Congress included the term “narrow-based security index” in the security-based swap definition, and thus the statutory definition of the term “narrow-based security index”
To make clear that the Commissions are applying the prior guidance and rules to Title VII instruments, the Commissions are adopting rules to further define the term “narrow-based security index” in the security-based swap definition. Under paragraph (1) of rule 1.3(yyy) under the CEA and paragraph (a) of rule 3a68–3 under the Exchange Act, for purposes of the security-based swap definition, the term “narrow-based security index” has the same meaning as the statutory definition set forth in section 1a(35) of the CEA and section 3(a)(55) of the Exchange Act,
The Commissions also are providing an interpretation and adopting additional rules establishing criteria for indexes composed of securities, loans, or issuers of securities referenced by an
The Commissions provided an interpretation in the Proposing Release regarding the narrow-based security index criteria for index CDS and are restating it without modification.
The statutory definition of the term “narrow-based security index,” as explained above, was designed with the U.S. equity markets in mind.
The Commissions are further defining the term “security-based swap,” and the use of the term “narrow-based security index” within that definition, to modify the criteria applied in the context of index CDS in assessing whether the index is a narrow-based security index. The third prong of the security-based swap definition includes a Title VII instrument based on the occurrence of an event relating to the “issuers of securities in a narrow-based security index,” provided that such event directly affects the “financial statements, financial condition, or financial obligations of the issuer.”
The Commissions proposed rules to further define the terms “issuers of securities in a narrow-based security index” and “narrow-based security index” in order to provide appropriate criteria for determining whether an index composed of issuers of securities referenced by an index CDS and an index composed of securities referenced by an index CDS are narrow-based security indexes.
In formulating the criteria in the final rules, and consistent with the guidance and rules the Commissions have
To satisfy these objectives, the Commissions are adopting rules that are based on the criteria developed for debt indexes discussed above
Further, in response to commenters,
The Commissions received two general comments requesting that the proposed rules further defining the terms “issuers of securities in a narrow-based security index” and “narrow-based security index” be simplified.
The Commissions are adopting the rules regarding index CDS essentially as proposed with certain modifications to address commenters' concerns. While the final rules contain a number of elements that are similar or identical to elements contained in the statutory narrow-based security index definition, in order to enable the narrow-based security index definition to apply appropriately to index CDS, the final rules contain some alternative tests to those set forth in the statutory definition.
The Commissions also recognize the diversity of Title VII instruments. While the final rules for index CDS are based on the July 2006 Debt Index Rules, the substantive differences between the final rules in the index CDS and the equity or debt security contexts are intended to reflect the particular characteristics of the CDS marketplace, in which, for example, index components may be entities (issuers of securities) as well as specific equity and debt securities.
The Commissions also received three comments requesting clarification regarding the applicability of the index CDS rules to CDS based on indexes of loans.
The Commissions believe that the first three criteria of the debt security index test (which are based on the statutory narrow-based security index definition) discussed above (
The first three criteria provide that, for purposes of determining whether an index CDS is a security-based swap under section 3(a)(68)(A)(ii)(III) of the Exchange Act,
•
•
•
Similarly, the Commissions are adopting as proposed the first three criteria of rule 1.3(aaaa) under the CEA and rule 3a68–1b under the Exchange Act. These three criteria provide that, for purposes of determining whether an index CDS is a security-based swap under section 3(a)(68)(A)(ii)(I) of the Exchange Act,
•
•
•
Thus, the applicability of the final rules depends on conditions relating to the number of non-affiliated reference entities or issuers of securities, or securities issued by non-affiliated issuers, as applicable, included in an index and the weighting of notional amounts allocated to the reference entities or securities included in the index, as applicable. These first three criteria of the final rules evaluate the number and concentration of the reference entities or securities included in the index, as applicable, and ensure that an index with a small number of reference entities, issuers, or securities or concentrated in only a few reference entities, issuers, or securities is narrow-based, and thus where such index is the underlying reference of an index CDS, the index CDS is a security-based swap. Further, as more fully described below,
Specifically, the final rules provide that an index meeting any one of certain identified conditions would be a narrow-based security index. The first condition in paragraph (1)(i)(A) of rule 1.3(zzz) under the CEA and paragraph (a)(1)(i) of rule 3a68–1a under the Exchange Act is that there are nine or fewer non-affiliated issuers of securities that are reference entities in the index. An issuer of securities counts toward this total only if a credit event with respect to such entity would result in a payment by the credit protection seller to the credit protection buyer under the index CDS based on the notional amount allocated to such entity, or if the fact of such a credit event or the calculation of the payment with respect to such credit event is taken into account when determining whether to make any future payments under the index CDS with respect to any future credit events.
Similarly, the first condition in paragraph (1)(i)(A) of rule 1.3(aaaa) under the CEA and paragraph (a)(1)(i) of rule 3a68–1b under the Exchange Act provides that a security counts toward the total number of securities in the index only if a credit event with respect to such security, or the issuer of such security, would result in a payment by the credit protection seller to the credit
These provisions are intended to ensure that an index concentrated in a few reference entities or securities, or a few reference entities that are affiliated (as defined in the final rules) or a few securities issued by issuers that are affiliated, are within the narrow-based security index definition.
Further, as this condition is in the alternative (i.e., either there must be a credit event resulting in a payment under the index CDS or a credit event is considered in determining future CDS payments), the tests encompass all index CDS. For example, and in response to a commenter,
The second condition, in paragraphs (1)(i)(B) of rules 1.3(zzz) and 1.3(aaaa) under the CEA and paragraphs (a)(1)(ii) of rules 3a68–1a and 3a68–1b under the Exchange Act, is that the effective notional amount allocated to any reference entity or security of any issuer included in the index comprises more than 30 percent of the index's weighting.
The third condition, in paragraphs (1)(i)(C) of rules 1.3(zzz) and 1.3(aaaa) under the CEA and paragraphs (a)(1)(iii) of rules 3a68–1a and 3a68–1b under the Exchange Act, is that the effective notional amount allocated to any five non-affiliated reference entities, or to the securities of any five non-affiliated issuers, included in the index comprises more than 60 percent of the index's weighting.
Given that Congress determined that these concentration percentages are appropriate to characterize an index as a narrow-based security index, and the Commissions have determined they are appropriate for debt security indexes in the security futures context,
One commenter expressed its view that the Commissions should increase the percentage test in the largest five component concentration.
Two commenters requested clarification regarding nth-to-default CDS, stating their view that such CDS should be treated as security-based swaps to reflect their single-entity triggers.
The Commissions are adopting the affiliation definition that applies when calculating the number and concentration criteria with certain modifications from the proposal to address commenters' concerns.
The final rules provide that a reference entity or issuer of securities included in an index is affiliated with another reference entity or issuer of securities included in the index if it controls, is controlled by, or is under common control with, that other reference entity or issuer.
As the affiliation definition is applied to the number criterion, affiliated reference entities or issuers of securities included in an index will be viewed as a single reference entity or issuer of securities to determine whether there are nine or fewer non-affiliated reference entities included in the index or securities that are issued by nine or fewer non-affiliated issuers. Similarly, as the affiliation definition is applied to the concentration criteria, the notional amounts allocated to affiliated reference entities included in an index or the securities issued by a group of affiliated issuers of securities included in an index must be aggregated to determine the level of concentration of the components of the index for purposes of the 30-percent and 60-percent concentration criteria.
Three commenters requested that the Commissions revise the affiliation definition that applies when calculating the number and concentration criteria to increase the control threshold from 20 percent ownership to majority ownership.
As stated above, the Commissions are modifying the affiliation definition that applies when calculating the number and concentration criteria in response to commenters to use an affiliation test based on majority ownership. Based on commenters' letters, the Commissions understand that the current standard CDS documentation and the current approach used by certain index providers for index CDS with respect to the inclusion of affiliated entities in the same index use majority ownership rather than 20 percent ownership to determine affiliation. The Commissions are persuaded by commenters that, in the case of index CDS only it is more appropriate to use majority ownership because majority-owned entities are more likely to have their economic interests aligned and be viewed by the market as part of a group. The Commissions believe that revising the affiliation definition in this manner for purposes of calculating the number and concentration criteria responds to commenters' concerns that the percentage control threshold may inadvertently include entities that are not viewed as part of a group. Thus, as revised, the affiliation definition will include only those reference entities or issuers included in an index that satisfy the more than 50 percent (i.e., majority ownership) control threshold. The
The Commissions also believe that the modified affiliation definition addresses commenters' concerns noted above
In addition to the number and concentration criteria, the debt security index test also includes, as discussed above, a public information availability test. The public information availability test is intended as the substitute for the average daily trading volume (“ADTV”) provision in the statutory narrow-based security index definition. An ADTV test is designed to take into account the trading of individual stocks and, because Exchange Act registration of the security being traded is a listing standard for equity securities, the issuer of the security being traded must be subject to the reporting requirements under the Exchange Act. Based on the provisions of the statutory ADTV test, the Commissions have determined that the ADTV test is not useful for purposes of determining the status of the index on which the index CDS is based because index CDS most commonly reference entities, which do not “trade,” or debt instruments, which commonly are not listed, and, therefore, do not have a significant trading volume. However, the underlying rationale of such provision, that there is sufficient trading in the securities and therefore public information and market following of the issuer of the securities, applies to index CDS.
In general, if an index is not narrow-based under the number and concentration criteria, it will be narrow-based if one of the reference entities or securities included in the index fails to meet at least one of the criteria in the public information availability test. This test was designed to reduce the likelihood that broad-based debt security indexes or the component securities or issuers of securities in that index would be readily susceptible to manipulation. The fourth condition in the index CDS rules sets out a similar public information availability test that is intended solely for purposes of determining whether an index underlying a CDS is narrow-based.
The Commissions are adopting final rules under which an index CDS will be considered narrow-based (except as discussed below) if a reference entity or security included in the index does not meet any of the following criteria:
• The reference entity or the issuer of the security included in the index is required to file reports pursuant to the Exchange Act or the regulations thereunder;
• The reference entity or the issuer of the security included in the index is eligible to rely on the exemption provided in rule 12g3–2(b) under the Exchange Act;
• The reference entity or the issuer of the security included in the index has a worldwide market value of its outstanding common equity held by non-affiliates of $700 million or more;
• The reference entity or the issuer of the security included in the index (other than a reference entity or an issuer of the security included in the index that is an issuing entity of an asset-backed security as defined in section 3(a)(77) of the Exchange Act
• The reference entity included in the index is an issuer of an exempted security, or the security included in the index is an exempted security, each as defined in section 3(a)(12) of the Exchange Act
• The reference entity or the issuer of the security included in the index is a government of a foreign country or a political subdivision of a foreign country; or
• If the reference entity or the issuer of the security included in the index is an issuing entity of asset-backed securities as defined in section 3(a)(77) of the Exchange Act,
However, so long as the effective notional amounts allocated to reference entities or securities included in the index that satisfy the public information availability test comprise at least 80 percent of the index's weighting, failure by a reference entity or security included in the index to satisfy the public information availability test will be disregarded if the effective notional amounts allocated to that reference entity or security comprise less than five percent of the index's weighting.
The determination as to whether an index CDS is narrow-based is conditioned on the likelihood that information about a predominant percentage of the reference entities or securities included in the index is publicly available.
The Commissions believe that other reference entities or issuers of securities included in the index that do not file reports with the SEC, but that have worldwide equity market capitalization of $700 million or more, have at least $1 billion in outstanding debt obligations (other than in the case of issuing entities of asset-backed securities), issue exempted securities (other than municipal securities), or are foreign sovereign entities either are required to or are otherwise sufficiently likely, solely for purposes of the “narrow-based security-index” and “issuers of securities in a narrow-based security index” definitions, to have public information available about them.
In response to commenters,
As more fully described below,
In the case of indexes including asset-backed securities, or reference entities that are issuing entities of asset-backed securities, information about the reference entity or issuing entity of the asset-backed security will not alone be sufficient and, consequently, the rules provide that the public information availability test will be satisfied only if certain information also is available about the asset-backed securities. An issuing entity (whether or not a reference entity) of asset-backed securities will meet the public information availability test if such asset-backed securities were issued in a transaction for which the asset-backed securities issued (which includes all tranches)
As noted above, if an index is not narrow-based under the number and concentration criteria, it will be narrow-based if one of the reference entities or securities included in the index fails to meet at least one of the criteria in the public information availability test. However, even if one or more of the reference entities or securities included in the index fail the public information availability test, the final rules provide that the index will not be considered “issuers of securities in a narrow-based security index” or a “narrow-based security index,” so long as the applicable reference entity or security that fails the test represents less than five percent of the index's weighting, and so long as reference entities or securities comprising at least 80 percent of the index's weighting satisfy the public information availability test.
An index that includes a very small proportion of reference entities or securities that do not satisfy the public information availability test will be treated as a broad-based security index if the other elements of the definition, including the five percent and 80 percent thresholds, are satisfied prior to execution, but no later than when the parties offer to enter into the index CDS.
The final rules also provide that, for index CDS entered into solely between ECPs, there are alternative means to satisfy the public information availability test. Under the final rules, solely for index CDS entered into between ECPs, an index will be considered narrow-based if a reference entity or security included in the index does not meet (i) any of the criteria enumerated above or (ii) any of the following criteria:
• The reference entity or the issuer of the security included in the index (other than a reference entity or issuer included in the index that is an issuing entity of an asset-backed security) makes available to the public or otherwise makes available to such ECP information about such reference entity or issuer pursuant to rule 144A(d)(4) under the Securities Act;
• Financial information about the reference entity or the issuer of the security included in the index (other than a reference entity or issuer included in the index that is an issuing entity of an asset-backed security) is otherwise publicly available; or
• In the case of an asset-backed security included in the index, or a reference entity included in the index that is an issuing entity of an asset-backed security, information of the type and level included in public distribution reports for similar asset-backed securities is publicly available about both the reference entity or issuing entity and the asset-backed security.
As more fully described below, for purposes of satisfying either the rule 144A information criterion or the financial information otherwise publicly available criterion, the final rules provide that a reference entity or an issuer of securities included in an index may look to an affiliated entity to determine whether it satisfies one of these criterion, regardless of whether such affiliated entity itself or its securities are included in the index.
In response to commenters,
As with other index CDS, with respect to index CDS entered into solely with ECPs, if the percentage of the effective notional amounts allocated to reference entities or securities satisfying this expanded public information availability test comprise at least 80 percent of the index's weighting, then a reference entity or security included in the index that fails to satisfy the alternative public information test criteria will be disregarded so long as the effective notional amount allocated to that reference entity or security comprises less than five percent of the index's weighting.
The Commissions received a number of general and specific comments regarding the public information availability test.
A number of commenters believed that the public information availability test should not be included in the final rules for various reasons, including the potential disparate treatment between products based on indexes due to changes in index components,
The Commissions are adopting the public information availability test as proposed with certain modifications described above. As discussed above, the public information availability test is intended as the substitute for the ADTV provision in the statutory narrow-based security index definition, which the Dodd-Frank Act included as the method for determining whether index CDS are swaps or security-based swaps. Based on the reasons discussed above, the Commissions have retained the public information availability test as the underlying rationale of such provision, that there is sufficient trading in the securities and therefore public information and market following of the issuer of the securities, applies to index CDS. Accordingly, the Commissions believe that there should be public information available about a predominant percentage of the reference entities or issuers of securities underlying the index in order to prevent circumvention of other provisions of the Federal securities laws through the use of CDS based on such indexes, to reduce the likelihood that the index, the component securities, or the named issuers of securities in the index could be readily susceptible to manipulation, and to prevent the misuse of material non-public information about such an index, the component securities, or the reference entities.
The Commissions understand that the characterization of an index underlying a CDS as broad-based or narrow-based may change because of changes to the index, such as addition or removal of components, or changes regarding the
The Commissions are not adopting a volume-based test based on the trading of the CDS or the trading of the index, either as a replacement for the public information availability test or as an alternative means of satisfying it, as one commenter suggested.
The Commissions believe that the public information availability test in the index CDS rules allows more flexibility with respect to the types of components included in indexes underlying index CDS. For many indexes, such as bespoke indexes, trading volume for CDS on individual components may not be significant even though the index component would otherwise have no trouble satisfying one of the criteria of the public information availability test. The public information availability test in the index CDS rules also is very similar to the test in the rules for debt security indexes, which, as noted above, apply in the context of Title VII instruments, thus providing a consistent set of rules under which index compilers and market participants can analyze the characterization of CDS.
One commenter also had concerns regarding specific types of indexes and specific types of index components, including the applicability of the public information availability test to indexes of loans or borrowers.
One commenter agreed with including an outstanding debt threshold as a criterion in the public information availability test, but requested that the Commissions change this criterion to include loans that are not within the definition of security, as well as affiliate debt guaranteed by the issuer of securities or reference entity, and to reduce the required outstanding debt threshold from $1 billion to $100 million.
The Commissions believe that the fact that an entity has guaranteed the obligations of another entity will not affect the likelihood that public information is available about either the borrower on the guaranteed obligation or on the guarantor entity. However, the Commissions note that they are providing an additional interpretation on the affiliation definition of the index CDS rules, including modifying the method of calculating affiliation, that should address this commenter's concerns regarding guaranteed affiliate
One commenter suggested that the proposed rule 144A information criterion of the public information availability test applicable to index CDS entered into solely between ECPs should be satisfied if the issuer made the rule 144A information available upon request to the public or to the ECP in question, rather than being required to provide the information.
The Commissions received one comment regarding the criteria of the public information availability test that relate specifically to asset-backed securities.
The Commissions are adopting as proposed the provisions of the public information availability test applicable to indexes based on asset-backed securities. The Commissions note that there are two possible ways to satisfy the public information availability test for index CDS based on asset-backed securities or asset-backed issuers. For index CDS available to non-ECPs, all asset-backed securities in the index or of the issuer in the index must have been sold in registered offerings under the Securities Act and have publicly available distribution reports. The Commissions are clarifying that monthly service reports filed with the SEC will satisfy the requirement for publicly available distribution reports.
The Commissions are adopting the affiliation definition that applies to certain criteria of the public information availability test with certain modifications from the proposals to address commenters' concerns.
This affiliation definition applies for purposes of determining whether a reference entity or issuer of securities included in an index satisfies one of the following four criteria of the public information availability test: (i) The reference entity or issuer of the security included in the index is required to file reports pursuant to the Exchange Act or the regulations thereunder;
The final rules provide that the terms “reference entity included in the index” and “issuer of the security included in the index” include a single reference entity or issuer of securities included in an index, respectively, or a group of affiliated entities.
The final rules provide that a reference entity or issuer of securities included in an index is affiliated with another entity if it controls, is controlled by, or is under common control with, that other entity.
As the Commissions noted above, this change is based on the Commissions' consideration of comments received. By using a more than 50 percent (i.e., majority ownership) test rather than a 20 percent ownership test for the control threshold, there is a greater likelihood that there will be information available about the reference entity or issuer of securities included in the index because the market likely will view the affiliated entity and the reference entity or issuer of securities included in the index as a single company or economic entity.
As the affiliation definition applies to the Exchange Act reporting company and foreign private issuer criteria of the public information availability test, a reference entity or an issuer of securities included in an index that itself is not required to file reports pursuant to the Exchange Act or the regulations thereunder or is not eligible to rely on the exemption provided in rule 12g3–2(b) under the Exchange Act for foreign private issuers may rely upon the status of an affiliated entity as an Exchange Act reporting company or foreign private issuer, regardless of whether that affiliated entity itself or its securities are included in the index, to satisfy one of these criteria. For example, a majority-owned subsidiary included in an index may rely upon the status of its parent, which may or may not be included in the index, to satisfy the issuer eligibility criteria if the parent is required to file reports under the Exchange Act or is a foreign private issuer.
Similarly, as the affiliation definition applies to the worldwide equity market capitalization and outstanding indebtedness criteria of the public information availability test, a reference entity or an issuer of securities included in an index that itself does not have a worldwide market value of its outstanding common equity held by non-affiliates of $700 million or more or outstanding notes, bonds, debentures, loans, or evidences of indebtedness (other than revolving credit facilities) having a total remaining principal amount of at least $1 billion, may aggregate the worldwide equity market capitalization or outstanding indebtedness of an affiliated entity, regardless of whether that affiliated entity itself or its securities are included in the index, to satisfy one of these criteria. For example, a majority-owned subsidiary included in an index may aggregate the worldwide equity market capitalization or outstanding indebtedness of its parent and/or other affiliated entities, such as other majority-owned subsidiaries of the parent, to satisfy one of these criteria.
Finally, as the affiliation definition applies to the rule 144A information and financial information otherwise publicly available criteria of the alternative public information availability test applicable to index CDS entered into solely between ECPs, a reference entity or an issuer of securities included in an index that itself does not make available rule 144A information or does not have financial information otherwise publicly available may rely upon an affiliated entity, regardless of whether that affiliated entity itself or its securities are included in the index, to satisfy one of these criteria.
One commenter requested that the Commissions revise the affiliation definition that applies for purposes of the public information availability test to increase the threshold from 20 percent ownership to majority ownership.
The Commissions note the commenters' concerns. The Commissions are modifying the method of determining affiliation that applies for purposes of satisfying certain criteria of the public information availability test. The final rules provide that a reference entity or issuer of securities included in an index may rely upon an affiliated entity (meeting the more than 50 percent control threshold) to satisfy one of the criterion of the public information availability test. This modification is similar to the one the Commissions are making to the affiliation definition that applies for purposes of calculating the number and concentration criteria. As noted above, based on commenters' letters, the Commissions understand that the current standard CDS documentation and the current approach with respect to the inclusion of affiliated entities in the same index use majority ownership rather than 20 percent ownership to determine affiliation. The Commissions agree with commenters that in the case of index CDS only it is more appropriate to use a more than 50 percent (i.e., majority ownership) test rather than a 20 percent ownership test. The Commissions believe that because reference entities or issuers of securities included in an index may rely on an affiliated entity to help satisfy the public information availability test a threshold of majority ownership rather than 20 percent ownership will increase the likelihood that there is information available about the reference entity or issuer of securities included in the index. The Commissions believe that determining affiliation in this manner for purposes of the public availability of information test responds to the commenter's concerns.
Further, the Commissions are providing several illustrative examples of the way in which the affiliation definition works in the context of the public availability of information criteria to address the commenter's concerns regarding the application of the affiliation definition in that context. The Commissions also note that the final rules respond to the commenter's concerns regarding the applicability of the affiliation definition to the worldwide equity market capitalization criterion by providing that the worldwide market capitalization of an affiliate can be counted in determining whether the reference entity or issuer of securities included in the index meets the worldwide equity market capitalization criterion. Moreover, the Commissions note that the final rules respond to the commenter's concerns regarding affiliate debt by providing that indebtedness of an affiliate can be counted in determining whether the reference entity or issuer of securities included in the index meets the outstanding indebtedness criterion. Finally, the Commissions note that the affiliation definition as modified responds to the commenter's concerns regarding “private” borrowers because the modified affiliation definition will allow a reference entity or issuer of securities included in an index to consider the indebtedness, the outstanding equity, and the reporting status of an affiliate in determining whether the public information availability test is satisfied.
As noted above, the Commissions also believe that the modified affiliation definition responds to commenters' concerns noted above that the rules further defining the terms “issuers of securities in a narrow-based security index” and “narrow-based security index” should be simplified. The modified affiliation definition enables market participants to make an affiliation determination for purposes of the public information availability test criteria by measuring the more than 50 percent (i.e., majority ownership) control threshold.
The Commissions requested comment in the Proposing Release as to whether the public information availability test should apply to an index compiled by an index provider that is not a party to an index CDS (“third-party index provider”) that makes publicly available general information about the construction of the index, index rules, identity of components, and predetermined adjustments, and which index is referenced by an index CDS that is offered on or subject to the rules of a DCM or SEF, or by direct access in the U.S. from an FBOT that is registered with the CFTC.
The Commissions are adopting the rules regarding the treatment of indexes that include exempted securities or reference entities that are issuers of exempted securities as proposed without modification.
Under paragraph (1)(ii) of rules 1.3(zzz) and 1.3(aaaa) under the CEA and paragraph (a)(2) of rules 3a68–1a and 3a68–1b) under the Exchange Act, an index composed solely of securities that are, or reference entities that are issuers of, exempted securities (other than municipal securities) will not be a
The Dodd-Frank Act defines the term “index” as “an index or group of securities, including any interest therein or based on the value thereof.”
A security index in most cases is designed to reflect the performance of a market or sector by reference to representative securities or interests in securities. There are several well-known security indexes established and maintained by recognized index providers currently in the market.
However, not all changes that occur to the composition or weighting of a security index underlying a Title VII instrument will always result in that security index being treated as a narrow-based security index. Many security indexes are constructed and maintained by an index provider pursuant to a published methodology.
In addition, counterparties to a Title VII instrument frequently agree to use as the underlying reference of a Title VII instrument a security index based on predetermined criteria where the security index composition or weighting may change as a result of the occurrence of certain events specified in the Title VII instrument at execution, such as “succession events.” Counterparties to a Title VII instrument also may use a predetermined self-executing formula to make other changes to the composition or weighting of a security index underlying a Title VII instrument. In either of these situations, the composition of a security index may
In general, and by contrast to Title VII instruments in which the counterparties, either directly or indirectly (
The Commissions are clarifying in response to a commenter that, for purposes of this interpretation, criteria or a self-executing formula regarding composition of a security index underlying a Title VII instrument shall be considered “predetermined” if it is bilaterally agreed upon pre-trade by the parties to a transaction.
The Commissions requested comment on a number of issues regarding the interpretation contained in this section as it was proposed, including whether the terms “predetermined criteria” and “predetermined self-executing formula” are clear, and whether additional interpretations should be provided with respect to these terms. The Commissions received one comment on the interpretation provided in the Proposing Release, in which the commenter requested clarification that criteria affecting the composition of an index, when such criteria are agreed bilaterally, pre-trade, by the counterparties to a bespoke index trade, are “predetermined” for purposes of determining whether the index is treated as narrow-based or broad-based.
The Commissions are restating the interpretation set forth in the Proposing Release with one clarification in response to the commenter's concerns. As discussed above, the Commissions are providing that not all changes that occur to the composition or weighting of a security index underlying a Title VII instrument will result in that security index being treated as a narrow-based security index. Foremost among these examples is a security index that is constructed and maintained by an index provider pursuant to a published methodology.
The determination of whether a Title VII instrument is a swap, a security-based swap, or both (
If the material terms of a Title VII instrument are amended or modified during its life based on an exercise of discretion and not through predetermined criteria or a predetermined self-executing formula, the Commissions view the amended or modified Title VII instrument as a new Title VII instrument.
The Commissions provided an interpretation in the Proposing Release regarding circumstances in which the character of a security index on which a Title VII instrument is based changes according to predetermined criteria or a predetermined self-executing formula set forth in the Title VII instrument (or in a related or other agreement entered into by the counterparties or a third-party index provider to the Title VII instrument) at execution. The Commissions are restating this interpretation with one clarification in response to a commenter.
Where at the time of execution such criteria or such formula would cause the underlying broad-based security index to become or assume the characteristics of a narrow-based security index or vice versa during the duration of the instrument,
The Commissions are clarifying what is meant by whether the pre-determined criteria or pre-determined self-executing formula “would cause” the underlying broad-based security index to become or assume the characteristics of a narrow-based security index, or vice versa, as noted above in the interpretation. The Commissions believe that, unless the criteria or formula were intentionally designed to change the index from narrow to broad, or vice versa, Title VII instruments based on indexes that may, but will not necessarily, change from broad to narrow (or vice versa) under such criteria or formula should be considered swaps or security-based swaps, as appropriate, at execution and for the term thereof, and not mixed swaps. In such circumstances, it is not the case that the criteria or formula “would cause” the change within the meaning of the Commission's interpretation.
The Commissions believe that this interpretation regarding the use of predetermined criteria or a predetermined self-executing formula will prevent potential gaming of the Commissions' interpretation regarding security indexes, and prevent potential regulatory arbitrage based on the migration of a security index from broad-based to narrow-based, or vice versa. In particular, predetermined criteria and predetermined self-executing formulas can be constructed in ways that take into account the characteristics of a narrow-based security index and prevent a narrow-based security index from becoming broad-based, and vice versa.
The Commissions received two comments on the proposed interpretation in this section regarding the classification of Title VII Instruments based on security indexes that change from narrow-based to broad-based, or vice versa, under predetermined criteria or a predetermined self-executing formula, as mixed swaps. One commenter requested that the Commissions clarify that a Title VII instrument based on a security index that may, but will not necessarily, change from narrow-based to broad-based, or vice versa, under predetermined criteria or a predetermined self-executing formula should be characterized at execution as a swap or security-based swap, as applicable, and not as a mixed swap.
Another commenter disagreed with the Commissions' proposed interpretation that transactions on indexes under predetermined criteria or a predetermined self-executing formula that would change from broad to narrow, or narrow to broad, should be classified as mixed swaps at inception.
The Commissions believe that regulatory arbitrage is a sufficient concern to justify mixed swap status and dual regulatory oversight for Title VII instruments where the index would change from broad to narrow, or narrow to broad, under the pre-determined criteria or predetermined self-executing formula. Counterparties that are concerned about regulatory burdens associated with mixed swap status can redesign their formula to avoid the result, or enter into another swap or security-based swap that is structured to achieve the same economic result without mixed swap status.
As was recognized in the Proposing Release, security indexes underlying Title VII instruments that are traded on DCMs, SEFs, FBOTs, security-based SEFs, or NSEs raise particular issues if an underlying security index migrates
In addition, the Commissions are adopting, as proposed, final rules providing for tolerance and grace periods for Title VII instruments on security indexes that are traded on DCMs, SEFs, FBOTs, security-based SEFs and NSEs.
As was noted in the Proposing Release,
The Commissions believe that a similar tolerance period should apply to swaps traded on DCMs, SEFs, and FBOTs and security-based swaps traded on security-based SEFs and NSEs. Accordingly, the Commissions are adopting the rules, as proposed, providing for tolerance periods for swaps that are traded on DCMs, SEFs, or FBOTs
The final rules provide that to be subject to the tolerance period, a security index underlying a swap executed on or subject to the rules of a DCM, SEF, or FBOT must not have been a narrow-based security index
Similarly, the rules provide a tolerance period for security-based swaps traded on security-based SEFs or NSEs. To be subject to the tolerance period, a security index underlying a security-based swap executed on a security-based SEF or NSE must have
In addition, the Commissions are adopting rules as proposed that, once the tolerance period under the rules has ended, there will be a grace period during which a Title VII instrument based on a security index that has migrated from broad-based to narrow-based, or vice versa, will be able to trade on the platform on which Title VII instruments based on such security index were trading before the security index migrated and can also, during such period, be cleared.
As was noted in the Proposing Release,
The rules will not result in the re-characterization of any outstanding Title VII instruments. In addition, the tolerance and grace periods as adopted will apply only to Title VII instruments that are traded on or subject to the rules of DCMs, SEFs, FBOTs, security-based SEFs, and NSEs.
The Commissions received one comment on the proposed rules described in this section.
As discussed above, the Commissions are adopting the proposed rules without modification. The Commissions note that the three-month grace period applicable to security futures was mandated by Congress in that context,
The method that the parties have chosen or use to settle an index CDS following the occurrence of a credit event under such index CDS also can affect whether such index CDS would be a swap, a security-based swap, or both (
If an index CDS that is not based on a narrow-based security index under the Commissions' rules includes a mandatory physical settlement provision that would require the delivery of, and therefore the purchase and sale of, a non-exempted security
An index CDS that is not based on a narrow-based security index under the Commissions' rules and that provides for cash settlement in accordance with the 2009 ISDA Credit Derivatives Determinations Committees and Auction Settlement Supplement to the 2003 Definitions (the “Auction Supplement”) or with the 2009 ISDA Credit Derivatives Determinations Committees and Auction Settlement CDS Protocol (“Big Bang Protocol”)
Following the occurrence of a credit event under a CDS, a determinations committee (“DC”) established by ISDA, following a request by any party to a credit derivatives transaction that is subject to the Big Bang Protocol or Auction Supplement, will determine, among other matters: (i) Whether and when a credit event occurred; (ii) whether or not to hold an auction to enable market participants to settle those of their credit derivatives transactions covered by the auction; (iii) the list of deliverable obligations of the relevant reference entity; and (iv) the necessary auction specific terms. The credit event auction takes place in two parts. In the first part of the auction, dealers submit physical settlement requests, which are requests to buy or sell any of the deliverable obligations (based on the dealer's needs and those of its counterparties), and an initial market midpoint price is created based on dealers' initial bids and offers. Following the establishment of the initial market midpoint, the physical settlement requests are then calculated to determine the amount of open interest.
The aggregate amount of open interest is the basis for the second part of the auction. In the second part of the auction, dealers and investors can determine whether to submit limit orders and the levels of such limit orders. The limit orders, which are irrevocable, have a firm price in addition to size and whether it is a buy or sell order. The auction is conducted as a “dutch” auction, in which the open buy interests and open sell interests are matched.
One commenter believed that a mandatory physical settlement provision in an index CDS based on a broad-based security index should not transform a swap into a mixed swap because (i) the SEC would retain jurisdiction over a transfer of securities as part of such settlement and (ii) application of the interpretation would be difficult since many instruments contemplate physical settlement but have a cash settlement option, or vice versa.
As discussed above, the Commissions are restating the interpretation regarding mandatory physical settlement as provided in the Proposing Release. The Commissions' interpretation assures that the Federal securities laws apply to the offer and sale of the underlying securities at the time the index CDS is sold.
Pursuant to the Dodd-Frank Act, a security-based swap is defined as a “security” under the Exchange Act
The SEC did not provide interpretations in the Proposing Release on the application of the Exchange Act and the Securities Act, and the rules and regulations thereunder, to security-based swaps. However, the SEC solicited comment on whether additional interpretations may be necessary regarding the application of certain provisions of the Exchange Act and the Securities Act, and the rules and regulations promulgated thereunder, to security-based swaps. The SEC did not receive any comments with respect to this issue in the context of this rulemaking and is not providing any interpretations in this release.
The category of mixed swap is described, in both the definition of the term “security-based swap” in the Exchange Act and the definition of the term “swap” in the CEA, as a security-based swap that is also based on the value of 1 or more interest or other rates, currencies, commodities, instruments of indebtedness, indices, quantitative measures, other financial or economic interest or property of any kind (other than a single security or a narrow-based security index), or the occurrence, non-occurrence, or the extent of the occurrence of an event or contingency associated with a potential financial, economic, or commercial consequence (other than an event described in subparagraph (A)(ii)(III) [of section 3(a)(68) of the Exchange Act]).
A mixed swap, therefore, is both a security-based swap and a swap.
For example, a Title VII instrument in which the underlying references are the value of an oil corporation stock and the price of oil would be a mixed swap. Similarly, a Title VII instrument in which the underlying reference is a portfolio of both securities (assuming the portfolio is not an index or, if it is an index, that the index is narrow-based) and commodities would be a mixed swap. Mixed swaps also would include certain Title VII instruments called “best of” or “out performance” swaps that require a payment based on the higher of the performance of a security and a commodity (other than a security). As discussed elsewhere in this release, the Commissions also believe that certain Title VII instruments may be mixed swaps if they meet specified conditions.
The Commissions also believe that the use of certain market standard agreements in the documentation of Title VII instruments should not in and of itself transform a Title VII instrument into a mixed swap. For example, many instruments are documented by incorporating by reference market standard agreements. Such agreements typically set out the basis of establishing a trading relationship with another party but are not, taken separately, a swap or security-based swap. These agreements also include termination and default events relating to one or both of the counterparties; such counterparties may or may not be entities that issue securities.
While the Commissions did not receive any comments on the interpretation regarding the scope of the category of mixed swaps, one commenter recommended that the Commissions require that market participants disaggregate mixed swaps and enter into separate simultaneous transactions so that they cannot employ mixed swaps to obscure the underlying substance of transactions.
The Commissions are adopting as proposed paragraph (a) of rule 1.9 under the CEA and rule 3a68–4 under the Exchange Act to define a “mixed swap” in the same manner as the term is defined in both the CEA and the Exchange Act. The Commissions also are adopting as proposed two rules to address the regulation of mixed swaps. First, paragraph (b) of rule 1.9 under the CEA and rule 3a68–4 under the Exchange Act will provide a regulatory framework with which parties to bilateral uncleared mixed swaps (
Swap dealers and major swap participants will be comprehensively regulated by the CFTC, and security-based swap dealers and major security-based swap participants will be comprehensively regulated by the SEC.
Accordingly, as adopted, paragraph (b) of rule 1.9 under the CEA and rule 3a68–4 under the Exchange Act provide that a bilateral uncleared mixed swap,
• Examinations and information sharing: CEA sections 4s(f) and 8;
• Enforcement: CEA sections 2(a)(1)(B), 4(b), 4b, 4c, 4s(h)(1)(A), 4s(h)(4)(A), 6(c), 6(d), 6c, 6d, 9, 13(a), 13(b) and 23;
• Reporting to an SDR: CEA section 4r;
• Real-time reporting: CEA section 2(a)(13);
• Capital: CEA section 4s(e);
• Position Limits: CEA section 4a.
The Commissions are modifying proposed rule 1.9(b)(3)(i) under the CEA and Rule 3a68–4(b)(3)(i) to include additional “enforcement” authority. Specifically, as adopted, the rules provide that such swaps will be subject to the anti-fraud, anti-manipulation, and other provisions of the business conduct standards in CEA sections 4s(h)(1)(A) and 4s(h)(4)(A) and the rules promulgated thereunder for mixed swaps.
As discussed in the Proposing Release, the Commissions believe that paragraph (b) of rule 1.9 under the CEA and rule 3a68–4 under the Exchange Act will address potentially conflicting or duplicative regulatory requirements for dually-registered dealers and major participants that are subject to regulation by both the CFTC and the SEC, while requiring dual registrants to comply with the regulatory requirements the Commissions believe are necessary to provide sufficient regulatory oversight for mixed swap transactions entered into by such dual registrants. The CFTC also believe that paragraph (b) of rule 1.9 under the CEA and rule 3a68–4 under the Exchange Act will provide clarity to dually-registered dealers and major participants, who are subject to regulation by both the CFTC and the SEC, as to the requirements of each Commission that will apply to their bilateral uncleared mixed swaps.
Because mixed swaps are both security-based swaps and swaps,
As adopted, paragraph (c) of rule 1.9 under the CEA and rule 3a68–4 under the Exchange Act further provide that a person submitting such a request to the Commissions must provide the Commissions with:
(i) All material information regarding the terms of the specified, or specified class of, mixed swap;
(ii) the economic characteristics and purpose of the specified, or specified class of, mixed swap;
(iii) the specified parallel provisions, and the reasons the person believes such specified parallel provisions would be appropriate for the mixed swap (or class thereof);
(iv) an analysis of (1) the nature and purposes of the parallel provisions that are the subject of the request; (2) the comparability of such parallel provisions; and (3) the extent of any conflicts or differences between such parallel provisions; and
(v) such other information as may be requested by either of the Commissions.
This provision is intended to provide the Commissions with sufficient information regarding the mixed swap (or class thereof) and the proposed regulatory approach to make an informed determination regarding the appropriate regulatory treatment of the mixed swap (or class thereof).
As adopted, paragraph (c) of rule 1.9 under the CEA and rule 3a68–4 under the Exchange Act also will allow a person to withdraw a request regarding the regulation of a mixed swap at any time prior to the issuance of a joint order by the Commissions. This provision is intended to permit persons to withdraw requests that they no longer need. This, in turn, will save the Commissions time and staff resources.
As adopted, paragraph (c) of rule 1.9 under the CEA and rule 3a68–4 under the Exchange Act further provide that in response to a request pursuant to the rules, the Commissions may jointly issue an order, after public notice and opportunity for comment, permitting the requesting person (and any other person or persons that subsequently lists, trades, or clears that class of mixed swap) to comply, as to parallel provisions only, with the specified parallel provisions (or another subset of the parallel provisions that are the subject of the request, as the Commissions determine is appropriate), instead of being required to comply with parallel provisions of both the CEA and the Exchange Act. In determining the contents of such a joint order, the Commissions can consider, among other things:
(i) The nature and purposes of the parallel provisions that are the subject of the request;
(ii) the comparability of such parallel provisions; and
(iii) the extent of any conflicts or differences between such parallel provisions.
Finally, as adopted, paragraph (c) of rule 1.9 under the CEA and rule 3a68–4 under the Exchange Act require the Commissions, if they determine to issue a joint order pursuant to these rules, to do so within 120 days of receipt of a complete request (with such 120-day period being tolled during the pendency of a request for public comment on the proposed interpretation). If the Commissions do not issue a joint order within the prescribed time period, the rules require that each Commission publicly provide the reasons for not having done so. Paragraph (c) of rule 1.9 under the CEA and rule 3a68–4 under the Exchange Act makes clear that nothing in the rules requires either Commission to issue a requested joint order regarding the regulation of a particular mixed swap (or class thereof).
These provisions are intended to provide market participants with a prompt review of requests for a joint order regarding the regulation of a particular mixed swap (or class thereof). The rules also will provide transparency and accountability by requiring that at the end of the review period, the Commissions issue the requested order or publicly state the reasons for not doing so.
SBSAs are swaps over which the CFTC has regulatory and enforcement authority but for which the SEC also has antifraud and certain other authority.
The CEA does not contain a stand-alone definition of “security-based swap agreement,” but includes the definition instead in subparagraph (A)(v) of the swap definition in CEA section 1a(47), 7 U.S.C. 1a(47). The only difference between these definitions is that the definition of SBSA in the Exchange Act specifically excludes security-based
Although the Commissions believe it is not possible to provide a bright line test to define an SBSA, the Commissions believe that it is possible to clarify that certain types of swaps clearly fall within the definition of SBSA. For example, as the Commissions noted in the Proposing Release, a swap based on an index of securities that is not a narrow-based security index (
The Commissions received no comments on the examples provided in the Proposing Release regarding SBSAs. Accordingly, the Commissions are not further defining SBSA beyond restating the examples above.
The Commissions are adopting rule 1.7 under the CEA and rule 3a68–3 under the Exchange Act, as proposed, to clarify that there will not be additional books and records requirements regarding SBSAs other than those that are required for swaps. The Dodd-Frank Act provides that the Commissions shall adopt rules regarding the books and records required to be kept for SBSAs.
Accordingly, rule 1.7 under the CEA and rule 3a68–3 under the Exchange Act provide that persons registered as SDRs under the CEA and the rules and regulations thereunder are not required to (i) keep and maintain additional books and records regarding SBSAs other than the books and records regarding swaps that SDRs would be required to keep and maintain pursuant to the CEA and rules and regulations thereunder; and (ii) collect and maintain additional data regarding SBSAs other than the data regarding swaps that SDRs are required to collect and maintain pursuant to the CEA and rules and regulations thereunder. In addition, rule 1.7 under the CEA and rule 3a68–3 under the Exchange Act provide that persons registered as swap dealers or major swap participants under the CEA and the rules and regulations thereunder, or registered as security-based swap dealers or major security-based swap participants under the Exchange Act and the rules and regulations thereunder, are not required to keep and maintain additional books and records, including daily trading records, regarding SBSAs other than the books and records regarding swaps that those persons are required to keep and maintain pursuant to the CEA and the rules and regulations thereunder.
The Commissions recognize that there may be Title VII instruments (or classes of Title VII instruments) that may be difficult to categorize definitively as swaps or security-based swaps. Further, because mixed swaps are both swaps and security-based swaps, identifying a mixed swap may not always be straightforward.
Section 712(d)(4) of the Dodd-Frank Act provides that any interpretation of, or guidance by, either the CFTC or SEC regarding a provision of Title VII shall be effective only if issued jointly by the Commissions (after consultation with the Board) on issues where Title VII requires the CFTC and SEC to issue joint regulations to implement the provision. The Commissions believe that any interpretation or guidance regarding whether a Title VII instrument is a
The Commissions proposed rules in the Proposing Release to establish a process for interested persons to request a joint interpretation by the Commissions regarding whether a particular Title VII instrument (or class of Title VII instruments) is a swap, a security-based swap, or both (i.e., a mixed swap).
Section 718 of the Dodd-Frank Act establishes a process for determining the status of “novel derivative products” that may have elements of both securities and futures contracts. Section 718 of the Dodd-Frank Act provides a useful model for a joint Commission review process to appropriately categorize Title VII instruments. As a result, the final rules include various attributes of the process established in section 718 of the Dodd-Frank Act. In particular, to permit an appropriate review period that provides sufficient time to ensure Federal regulatory interests are satisfied that also does not unduly delay the introduction of new financial products, the adopted process, like the process established in section 718, includes a deadline for responding to a request for a joint interpretation.
The Commissions are adopting rule 1.8 under the CEA and rule 3a68–2 under the Exchange Act that establish a process for parties to request a joint interpretation regarding the characterization of a particular Title VII instrument (or class thereof). Specifically, the final rules provide that any person may submit a request to the Commissions to provide a public joint interpretation of whether a particular Title VII instrument is a swap, a security-based swap, or both (i.e., a mixed swap).
The final rules afford market participants with the opportunity to obtain greater certainty from the Commissions regarding the regulatory status of particular Title VII instruments under the Dodd-Frank Act. This provision should decrease the possibility that market participants inadvertently might fail to meet the regulatory requirements applicable to a particular Title VII instrument.
The final rules provide that a person requesting an interpretation as to the characterization of a Title VII instrument as a swap, a security-based swap, or both (i.e., a mixed swap), must provide the Commissions with the person's determination of the characterization of the instrument and supporting analysis, along with certain other documentation.
• All material information regarding the terms of the Title VII instrument;
• A statement of the economic characteristics and purpose of the Title VII instrument;
• The requesting person's determination as to whether the Title VII instrument should be characterized as a swap, a security-based swap, or both (i.e., a mixed swap), including the basis for such determination; and
• Such other information as may be requested by either Commission.
This provision should provide the Commissions with sufficient information regarding the Title VII instrument at issue so that the Commissions can appropriately evaluate whether it is a swap, a security-based swap, or both (i.e., a mixed swap).
The final rules provide that a person may withdraw a request at any time prior to the issuance of a joint interpretation or joint notice of proposed rulemaking by the Commissions.
This provision will permit parties to withdraw requests for which the party no longer needs an interpretation. This, in turn, should save the Commissions time and staff resources. If the Commissions believe such an interpretation is necessary regardless of a particular request for interpretation, however, the Commissions may provide such a joint interpretation of their own accord.
The final rules provide that if either Commission receives a proposal to list, trade, or clear an agreement, contract, or transaction (or class thereof) that raises questions as to the appropriate characterization of such agreement, contract, or transaction (or class thereof) as a swap, security-based swap, or both (i.e., a mixed swap), the receiving Commission promptly shall notify the other.
This provision is intended to ensure that Title VII instruments do not fall into regulatory gaps and will help the Commissions to fulfill their responsibility to oversee the regulatory regime established by Title VII of the Dodd-Frank Act by making sure that Title VII instruments are appropriately characterized, and thus appropriately regulated. An agency, or their Chairmen jointly, submitting a request for an interpretation as to the characterization of a Title VII instrument under this paragraph will be required to submit the same information as, and could withdraw a request in the same manner as, a person submitting a request to the Commissions. The bases for these provisions are set forth above with respect to paragraphs (b) and (c) of the final rules.
The final rules require that the Commissions, if they determine to issue a joint interpretation as to the characterization of a Title VII instrument, do so within 120 days of receipt of the complete external or agency submission (unless such 120-day period is tolled during the pendency of a request for public comment on the proposed interpretation).
These provisions are intended to assure market participants a prompt review of submissions requesting a joint interpretation of whether a Title VII instrument is a swap, a security-based swap, or both (i.e., a mixed swap). The final rules also provide transparency and accountability by requiring that at the end of the review period, the Commissions issue the requested interpretation or publicly state the reasons for not doing so.
The final rules permit the Commissions, in lieu of issuing a requested interpretation, to issue (within the timeframe for issuing a joint interpretation) a joint notice of proposed rulemaking to further define one or more of the terms “swap,” “security-based swap,” or “mixed swap.”
Three commenters discussed the proposed process for requesting interpretations of the characterization of a Title VII instrument,
The Commissions are adopting the final rules as proposed and are not including SBSAs in the process. The joint interpretive process is intended to decrease the possibility that market participants inadvertently might fail to meet regulatory requirements that are applicable to swaps, security-based swaps, or mixed swaps and, as such, provides a mechanism for market participants to request whether an instrument will be regulated by the CFTC, the SEC, or both. However, the Commissions do not believe it is appropriate to predetermine whether particular swaps also are SBSAs as SBSAs are already swaps over which the CFTC has regulatory and enforcement authority and as to which the SEC has antifraud and certain other related authorities.
The Commissions also are retaining in the final rules the framework for providing or not providing joint interpretations. As noted above, section 718 of the Dodd-Frank Act contains a framework for evaluating novel derivative products that may have elements of both securities and futures contracts (other than swaps, security-based swaps or mixed swaps). The Commissions believe that establishing a joint interpretive process for swaps, security-based swaps and mixed swaps that is modeled in part on this statutory framework should facilitate providing interpretations to market participants in a timely manner, if the Commissions determine to do so. Establishing a process by rule will provide market participants with an understandable method by which they can request an interpretation from the Commissions. As the Commissions have the authority, but not the obligation, under the Dodd-Frank Act to further define the terms “swap,” “security-based swap,” and “mixed swap,” the Commissions are retaining the flexibility in the interpretive process rules to decide whether or not to issue joint interpretations. The Commissions believe, however, that it is appropriate to advise market participants of the reasons why such interpretation is not being issued and the final rules retain the requirement that the Commissions publicly explain the reasons for not issuing a joint interpretation.
Further, the Commissions are not revising the final rules to provide for expedited judicial review. The Dodd-Frank Act does not contain any provision that provides for expedited judicial review if the Commissions do not issue a joint interpretation with respect to a Title VII instrument. Although the Commissions note that section 718 of the Dodd-Frank Act contains a statutorily mandated expedited judicial review of one of the Commission's actions (if sought by the other Commission) regarding novel derivative products that may have elements of both securities and futures contracts, such statutory provision does not apply to Title VII instruments.
Two commenters were concerned about the length of the review period and believed that the Commissions should shorten such time period.
Finally, some commenters expressed concern about the public availability of information regarding the joint interpretive process and asked that the parties be able to seek confidential treatment of their submissions.
Pursuant to the authority in sections 721(c) and 725(g)(2) of the Dodd-Frank Act and CEA sections 1a(47)(E) and 2(i),
Section 721(c) of the Dodd-Frank Act requires the CFTC to further define the terms “swap,” “swap dealer,” “major swap participant,” and “eligible contract participant,” in order “[t]o include transactions and entities that have been structured to evade” subtitle A of Title VII (or an amendment made by subtitle A of the CEA). Moreover, as the CFTC noted in the Proposing Release,
• Subparagraph (E) of the definition of “swap” provides that foreign exchange swaps and foreign exchange forwards shall be considered swaps unless the Secretary of the Treasury makes a written determination that either foreign exchange swaps or foreign exchange forwards, or both, among other things, “are not structured to evade the [Dodd-Frank Act] in violation of any rule promulgated by the [CFTC] pursuant to section 721(c) of that Act;”
• Section 722(d) of the Dodd-Frank Act provides that the provisions of the CEA relating to swaps shall not apply to activities outside the United States unless those activities, among other things, “contravene such rules or regulations as the [CFTC] may prescribe or promulgate as are necessary or appropriate to prevent the evasion of any provision of [the CEA] that was enacted by the [Title VII];”
• Section 725(g) of the Dodd-Frank Act amends the Legal Certainty for Bank Products Act of 2000 to provide that,
One commenter asserted the CFTC has no statutory basis to promulgate the anti-evasion rules, as proposed.
CEA section 6(e), 7 U.S.C. 9a, in relevant part, provides: (4) Any designated clearing organization that knowingly or recklessly evades or participates in or facilitates an evasion of the requirements of section 2(h) shall be liable for a civil money penalty in twice the amount otherwise available for a violation of section 2(h). (5) Any swap dealer or major swap participant that knowingly or recklessly evades or participates in or facilitates an evasion of the requirements of section 2(h) shall be liable for a civil money penalty in twice the amount otherwise available for a violation of section 2(h).
Two commenters supported the proposal's “principles-based” approach to anti-evasion,
One commenter suggested an alternative standard for a finding of evasion should be “whether the transaction is lawful or not” under the CEA, CFTC rules and regulations, orders, or other applicable federal, state or other laws.
The CFTC is adopting the Rule 1.3(xxx)(6) as proposed. As adopted, Rule 1.3(xxx)(6)(i) under the CEA generally defines as swaps those transactions that are willfully structured to evade the provisions of Title VII governing the regulation of swaps. Furthermore, rules 1.3(xxx)(6)(ii) and (iii) effectuate CEA section 1a(47)(E)(i) and section 725(g) of the Dodd-Frank Act, respectively, and will be applied in a similar fashion as rule 1.3(xxx)(6)(i). Rule 1.3(xxx)(6)(ii) applies to currency and interest rate swaps that are willfully structured as foreign exchange forwards or foreign exchange swaps to evade the new regulatory regime for swaps enacted in Title VII. Rule 1.3(xxx)(6)(iii) applies to transactions of a bank that are not under the regulatory jurisdiction of an appropriate Federal banking agency and where the transaction is willfully structured as an identified banking product to evade the new regulatory regime for swaps enacted in Title VII.
Rule 1.3(xxx)(6)(iv) provides that in determining whether a transaction has been willfully structured to evade rules 1.3(xxx)(6)(i) through (iii), the CFTC will not consider the form, label, or written documentation dispositive.
Rule 1.3(xxx)(6)(v) further provides that transactions, other than transactions structured as securities, willfully structured to evade (as provided in rules 1.3(xxx)(6)(i) through (iii)) will be considered in determining whether a person is a swap dealer or major swap participant.
Lastly, rule 1.3(xxx)(6)(vi) provides that rule 1.3(xxx)(6) will not apply to any agreement, contract or transaction structured as a security (including a security-based swap) under the
The CFTC is adopting rule 1.6 as proposed. Section 2(i) of the CEA states that the provisions of the CEA relating to swaps that were enacted by Title VII (including any rule prescribed or regulation promulgated thereunder) shall not apply to activities outside the United States unless, among other things, those activities “contravene such rules or regulations as the [CFTC] may prescribe or promulgate as are necessary or appropriate to prevent the evasion of any provision of [the CEA] that was enacted by [Title VII].”
Pursuant to this authority, rule 1.6(a), as adopted, makes it unlawful to conduct activities outside the United States, including entering into transactions and structuring entities, to willfully evade or attempt to evade any provision of the CEA as enacted under Title VII or the rules and regulations promulgated thereunder.
In addition, rule 1.6(b) provides that in determining whether a transaction or entity has been entered into or structured willfully to evade, as provided in rule 1.6(a), the CFTC will not consider the form, label, or written documentation as dispositive.
Rule 1.6(c) provides that an activity conducted outside the United States to evade, as described in proposed rule 1.6(a), shall be subject to the provisions of Subtitle A of Title VII of the Dodd-Frank Act. As the CFTC explained in the Proposing Release,
Lastly, rule 1.6(d) provides that no agreement, contract or transaction structured as a security (including a security-based swap) under the securities laws shall be deemed a swap pursuant to rule 1.6.
The CFTC is providing an interpretation of the final rules in response to commenters, addressing (i) the applicability of the anti-evasion rules to transactions that qualify for the forward exclusion, (ii) the applicability of the anti-evasion rules to transactions executed on a SEF, (iii) the treatment of evasive transactions after they are discovered, and (iv) documentation considerations.
With regard to the forward exclusion, the CFTC is clarifying, in response to a commenter,
Concerning the applicability of the anti-evasion rules to transactions executed on a SEF, the CFTC is clarifying, in response to comments,
With respect to the treatment of evasive transactions after they are discovered, the CFTC is clarifying, in response to comments,
Moreover, evasive transactions will count toward determining whether each evading party with the requisite intent is a swap dealer or major swap participant.
As an illustration of some of the foregoing concepts, if the market for foreign exchange forwards on a particular currency settles on a T+ 4 basis, but two counterparties agree to expedite the settlement of an foreign exchange forward on such currency to characterize the transaction falsely as a spot transaction in order to avoid reporting the transaction, rule 1.3(xxx)(6)(i) would define the transaction as a swap. In this example, both parties may be subject to sanctions if they both have the requisite intent (i.e., willfully evaded). However, had the counterparty with the reporting obligation in this example convinced the other counterparty, by using a false rationale unrelated to avoiding reporting, to expedite the foreign exchange forward settlement in order to avoid reporting, then the only party that would be at risk for sanctions (
With regard to documentation considerations, as discussed above, the CFTC is adopting rules 1.3(xxx)(6)(iv) and 1.6(b), as proposed,
The CFTC received a number of comments on various aspects of proposed rules 1.3(xxx)(6) and 1.6.
Several commenters requested clarity as to what types of transactions might be considered evasive under proposed rule 1.3(xxx)(6) and 1.6.
Two commenters expressed concern regarding the penalty to the counterparties to a transaction that is deemed to violate the CFTC's anti-evasion provisions.
Furthermore, the CFTC agrees that a transaction that is determined to have violated the CFTC's anti-evasion rules will be considered a swap only if it meets the definition of the term “swap,” and has provided an interpretation to address this comment. In response to both comments, the CFTC also has provided an example to illustrate the concepts in the interpretation.
The CFTC received one comment regarding rules 1.3(xxx)(6)(iv) and 1.6(b). This commenter believed that a difference exists between “documentation,” which contains terms, conditions, etc. of an agreement, and the “form or label.”
Two commenters raised issues applicable to proposed rule 1.6 alone. One commenter believed that proposed rule 1.6 should not be adopted until the cross-border application of the swap provisions of Title VII is addressed.
The CFTC is restating the interpretation contained in the Proposing Release,
In developing its interpretation, the CFTC considered legislative, administrative, and judicial precedent with respect to the anti-evasion provisions in other Federal statutes. For example, the CFTC examined the anti-evasion provisions in the Truth in Lending Act,
In affirming the Board's promulgation of Regulation Z, the Supreme Court noted that anti-evasion provisions such as section 1604(a) evince Congress's intent to “stress[] the agency's power to counteract attempts to evade the purposes of a statute.”
The CFTC will not consider transactions, entities, or instruments structured in a manner solely motivated by a legitimate business purpose to constitute willful evasion (“Business Purpose Test”). Additionally, relying on Internal Revenue Service (“IRS”) concepts, when determining whether particular conduct is an evasion of the Dodd-Frank Act, the CFTC will consider the extent to which the conduct involves deceit, deception, or other unlawful or illegitimate activity.
Consistent with the Proposing Release,
Although some commenters suggest that the determination that there is a legitimate business purpose, and the use of that concept as a relevant fact in the determination of the possibility of evasion, will not provide appropriate clarity, it is a recognized analytical method and would be useful in the overall analysis of potentially willful evasive conduct.
The CFTC fully expects that a person acting for legitimate business purposes within its respective industry will naturally weigh a multitude of costs and benefits associated with different types of financial transactions, entities, or instruments, including the applicable regulatory obligations. In that regard, and in response to commenters, the CFTC is clarifying that a person's specific consideration of regulatory burdens, including the avoidance thereof, is not dispositive that the person is acting without a legitimate business purpose in a particular case. The CFTC will view legitimate business purpose considerations on a case-by-case basis in conjunction with all other relevant facts and circumstances.
Moreover, the CFTC recognizes that it is possible that a person intending to willfully evade Dodd-Frank may attempt to justify its actions by claiming that they are legitimate business practices in its industry; therefore, the CFTC will retain the flexibility, via an analysis of all relevant facts and circumstances, to confirm not only the legitimacy of the business purpose of those actions but whether the actions could still be determined to be willfully evasive. For example, a person may attempt to disguise a product that may be a swap by employing accounting practices that are not appropriate for swaps. Whether or not the method of
Because transactions and instruments are regularly structured, and entities regularly formed, in a particular way for various, and often times multiple, reasons, it is essential that all relevant facts and circumstances be considered. Where a transaction, instrument, or entity is structured solely for legitimate business purposes, it is not willfully evasive. By contrast, where a consideration of all relevant facts and circumstances reveals the presence of a purpose that is not a legitimate business purpose, evasion may exist.
Two commenters believed the proposed business purpose test is inappropriate for determining if a transaction is structured to evade Title VII.
Two commenters urged the CFTC to clarify that considering the costs of regulation is a legitimate business purpose when structuring a transaction. Accordingly, they request that the CFTC clarify that entering into a transaction to avoid costly regulations, even though that transaction could otherwise be structured as a swap, will not be considered
When determining whether a particular activity constitutes willful evasion of the CEA or the Dodd-Frank Act, the CFTC will consider the extent to which the activity involves deceit, deception, or other unlawful or illegitimate activity. This concept was derived from the IRS's delineation of what constitutes tax evasion, as elaborated upon by the courts. The IRS distinguishes between tax evasion and legitimate means for citizens to minimize, reduce, avoid or alleviate the tax that they pay under the Internal Revenue Code.
Avoidance of taxes is not a criminal offense. Any attempt to reduce, avoid, minimize, or alleviate taxes by legitimate means is permissible. The distinction between avoidance and evasion is fine, yet definite. One who avoids tax does not conceal or misrepresent. He/she shapes events to reduce or eliminate tax liability and, upon the happening of the events, makes a complete disclosure. Evasion, on the other hand, involves deceit, subterfuge, camouflage, concealment, some attempt to color or obscure events or to make things seem other than they are. For example, the creation of a bona fide partnership to reduce the tax liability of a business by dividing the income among several individual partners is tax avoidance. However, the facts of a particular investigation may show that an alleged partnership was not, in fact, established and that one or more of the alleged partners secretly returned his/her share of the profits to the real owner of the business, who, in turn, did not report this income. This would be an instance of attempted evasion. IRS,
Although it is likely that fraud, deceit, or unlawful activity will be present where willful evasion has occurred, the CFTC does not believe that these factors are prerequisites to an evasion finding. As stated throughout this release, the presence or absence of fraud, deceit, or unlawful activity is one fact (or circumstance) the CFTC will consider when evaluating a person's activity. That said, the anti-evasion rules do require willfulness,
One commenter, although generally supportive of the use of the IRS “tax evasion” concept as a guidepost for this criterion, requested the CFTC provide examples of legitimate versus evasive conduct in a manner similar to what is contained in the Internal Revenue Manual.
Two commenters suggested that a finding of fraud, deceit, or unlawful activity should be a prerequisite to any finding of evasion.
Section 761(b)(3) of the Dodd-Frank Act grants discretionary authority to the SEC to define the terms “security-based swap,” “security-based swap dealer,” “major security-based swap participant,” and “eligible contract participant,” with regard to security-based swaps, “for the purpose of including transactions and entities that have been structured to evade” subtitle B of Title VII (or amendments made by subtitle B).
The SEC did not propose rules under section 761(b)(3) regarding anti-evasion but requested comment on whether SEC rules or interpretive guidance addressing anti-evasion with respect to security-based swaps, security-based swap dealers, major security-based swap participants, or ECPs were necessary. Two commenters responded to the request for comment and recommended that the SEC adopt anti-evasion rules and interpretive guidance.
The SEC is not adopting anti-evasion rules under section 761(b)(3) at this time. The SEC notes that since security-based swaps are “securities” for purposes of the Federal securities laws, unless the SEC grants a specific exemption,
The Commissions did not propose rules or interpretations in the Proposing Release regarding distinguishing futures from swaps. One commenter requested that the CFTC clarify that nothing in the release was intended to limit a DCM's ability to list for trading a futures contract regardless of whether it could be viewed as a swap if traded over-the-counter or on a SEF, since futures and swaps are indistinguishable in material economic effects.
CME believed that such a modification would clarify the scope of Section 4(a) of the CEA, 7 U.S.C. 6(a), which makes it unlawful to trade a futures contract except on or subject to the rules of a DCM.
The CFTC declines to provide the requested clarification or adopt a rule. Prior distinctions that the CFTC relied upon (such as the presence or absence of clearing) to distinguish between futures and swaps may no longer be relevant.
The swap definition excludes “any agreement, contract, or transaction a counterparty of which is a Federal Reserve bank, the Federal Government, or a Federal agency that is expressly backed by the full faith and credit of the United States.”
Several commenters asserted that swaps transactions to which an IFI is a counterparty should be excluded from the swap and security-based swap definitions.
The CFTC declines to provide an exclusion from the swap definition along the lines suggested by these commenters.
In addition, swaps entered into by foreign sovereigns, foreign central banks, IFIs and similar entities undeniably are swaps. To be sure, the Commissions have adopted rules and interpretations to further define the term “swap” to exclude certain transactions, which prior to the enactment of the Dodd-Frank Act generally would not have been considered swaps. However, the CFTC is not using its authority to further define the term “swap” to effectively exempt transactions that are, in fact, swaps. While, as noted above, Congress included a counterparty-specific exclusion for swaps entered into by the Federal Reserve Board, the Federal government and certain government agencies, Congress did not provide a similar exemption for foreign central banks, foreign sovereigns, IFIs, or similar organizations.
The SEC is adopting a technical rule that provides that the terms “swap” and “security-based swap” as used in the Securities Act
Consistent with sections 754 and 774 of the Dodd-Frank Act, the final rules and interpretations will be effective October 12, 2012. The compliance date for the final rules and interpretations also will be October 12, 2012; with the following exceptions:
• The compliance date for the interpretation regarding guarantees of swaps will be the effective date of the rules proposed in the separate CFTC release when such rules are adopted by the CFTC.
• Solely for the purposes of the Order Granting Temporary Exemptions under the Securities Exchange Act of 1934 in Connection with the Pending Revision of the Definition of “Security” to Encompass Security-Based Swaps
The CFTC believes that it is appropriate to make the compliance date for the interpretation regarding guarantees of swaps the same as the effective date of the rules proposed in the separate CFTC release when such rules are adopted by the CFTC in order to relieve market participants from compliance obligations that would arise as a result of the interpretation. As described in the Exchange Act Exemptive Order and as provided in the SB Swaps Interim Final Rules, the exemptions granted pursuant to the Exchange Act Exemptive Order and the SB Swaps Interim Final Rules will expire upon the compliance date of the final rules further defining the terms “security-based swap” and “eligible contract participant.” The final rules further defining the term “eligible contract participant,” adopted in the Entity Definitions Release,
If any provision of these final rules or interpretations, or the application thereof to any person or circumstance, is held to be invalid, such invalidity shall not affect other provisions or application of such provisions to other persons or circumstances that can be
The Paperwork Reduction Act of 1995 (“PRA”) imposes certain requirements on Federal agencies in connection with their conducting or sponsoring any collection of information as defined by the PRA.
As discussed in the proposal, Rules 1.8 and 1.9 under the CEA will result in new “collection of information” requirements within the meaning of the PRA. Rule 1.8 under the CEA will allow persons to submit a request for a joint interpretation from the Commissions regarding whether an agreement, contract or transaction (or a class thereof) is a swap, security-based swap, or mixed swap. Rule 1.8 provides that a person requesting an interpretation as to the nature of an agreement, contract, or transaction as a swap, security-based swap, or mixed swap must provide the Commissions with the person's determination of the nature of the instrument and supporting analysis, along with certain other documentation, including a statement of the economic purpose for, and a copy of all material information regarding the terms of, each relevant agreement, contract, or transaction (or class thereof). The Commissions also may request the submitting person to provide additional information. In response to the submission, the Commissions may issue a joint interpretation regarding the status of that agreement, contract, or transaction (or class of agreements, contracts, or transactions) as a swap, security-based swap, or mixed swap.
Rule 1.9 of the CEA enables persons to submit requests to the Commissions for joint orders providing an alternative regulatory treatment for particular mixed swaps. Under rule 1.9, a person will provide to the Commissions a statement of the economic purpose for, and a copy of all material information regarding, the relevant mixed swap. In addition, the person will provide the specific alternative provisions that the person believes should apply to the mixed swap, the reasons the person believes it would be appropriate to request an alternative regulatory treatment, and an analysis of: (i) The nature and purposes of the specified provisions; (ii) the comparability of the specified provisions to other statutory provisions of Title VII of the Dodd-Frank Act and the rules and regulations thereunder; and (iii) the extent of any conflicting or incompatible requirements of the specified provisions and other statutory provisions of Title VII and the rules and regulations thereunder. The Commissions also may request the submitting person to provide additional information.
The burdens imposed by rules 1.8 and 1.9 under the CEA are the same as the burdens imposed by the SEC's rules 3a68–2 and 3a68–4. Therefore, the burdens that will be imposed on market participants under rules 1.8 and 1.9 already have been accounted for within the SEC's calculations regarding the impact of this collection of information under the PRA and the request for a control number submitted by the SEC to OMB.
In the Proposing Release, the CFTC invited public comment on the reporting and recordkeeping burdens discussed above with regard to rules 1.8 and 1.9. Pursuant to 44 U.S.C. 3506(c)(2)(B), the CFTC solicited comments in order to: (i) Evaluate whether the proposed collections of information are necessary for the proper performance of the functions of the CFTC, including whether the information will have practical utility; (ii) evaluate the accuracy of the CFTC's estimate of the burden of the proposed collections of information; (iii) determine whether there are ways to enhance the quality, utility, and clarity of the information to be collected; and (iv) minimize the burden of the collections of information on those who are to respond, including through the use of automated collection techniques or other forms of information technology.
No comments were received with respect to the reporting and recordkeeping burdens discussed in the proposing release. In response to the request for a control number by the SEC, OMB issued control number 3235–0685.
As noted above, the CFTC believes that its interpretation which clarifies that oral book-out agreements must be followed in a commercially reasonable timeframe by a confirmation in some type of written or electronic form would result in a new “collection of information” requirement within the meaning of the PRA. Therefore, the CFTC is submitting the new “book-out” information collection to OMB for review in accordance with 44 U.S.C. 3506(c)(2)(A) and 5 CFR 1320.8(d). The CFTC will, by separate action, publish in the
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.
With respect to the proposed release, while the CFTC provided an RFA statement that the proposed rule would have a direct effect on numerous entities, specifically DCMs, SDRs, SEFs, SDs, MSPs, ECPs, FBOTs, DCOs, and certain “appropriate persons” who relied on the Energy Exemption,
In the Proposing Release, the CFTC provided that it previously had established that certain entities subject to the CFTC's jurisdiction—namely, DCMs, DCOs and ECPs—are not small entities for purposes of the RFA.
Furthermore, the CFTC provided that certain entities that would be subject to the proposed rule—namely SDs, MSPs, SDRs, SEFs, and FBOTs—are entities for which the CFTC had not previously made a size determination for RFA purposes. The CFTC determined that these entities should not be considered small entities based on their size and characteristics analogous to non-small entities that pre-dated the adoption of Dodd-Frank,
Finally, the CFTC recognized that, in light of the CFTC's proposed withdrawal of the Energy Exemption, the proposed rule could have an economic impact on certain “appropriate persons” who relied on the Energy Exemption. The Energy Exemption listed certain “appropriate persons” that could rely on the exemption and also required that, to be eligible for this exemption, an “appropriate person must have demonstrable capacity or ability to make or take delivery.” The Energy Exemption stated: “in light of the general nature of the current participants in the market, the CFTC believes that smaller commercial firms, which cannot meet [certain] financial criteria, should not be included.”
With respect to this rulemaking, which includes interpretations, as well as general rules of construction and definitions that will largely be used in other rulemakings, the CFTC received one comment respecting its RFA certification. The commenter, an association that represents producers, generators, processors, refiners, merchandisers and commercial end users of nonfinancial energy commodities, including energy and natural gas, contended that the CFTC's overall new jurisdiction under the Dodd-Frank Act over “swaps” and the burdens that the CFTC's rules place on nonfinancial entities, including small entities such as its members
The commenter did not provide specific information on how the further defining of the terms swap, security-based swap and security-based swap agreement, providing regulations regarding mixed swaps, and providing regulations governing books and records requirements for security-based swap agreements would have a significant impact on a substantial number of small entities. Nonetheless, the CFTC has reevaluated this rulemaking in light of the commenter's statements. Upon consideration, the CFTC declines to consider the economic impacts of the entire mosaic of rules under the Dodd-
Moreover, as the commenter mentioned, most of the transactions into which its members enter are based on nonfinancial commodities. The CFTC has provided interpretations in this release clarifying the forward exclusion in nonfinancial commodities from the swap definition (and the forward exclusion from the definition of “future delivery”), including forwards with embedded volumetric options, and separately, has provided for a trade option exemption.
Accordingly, for the reasons stated in the proposal and the foregoing discussion in response to the comment received, the CFTC continues to believe that the rulemaking will not have a significant impact on a substantial number of small entities. Therefore, the Chairman, on behalf of the CFTC, hereby certifies pursuant to 5 U.S.C. 605(b) that the rules will not have a significant impact on a substantial number of small entities.
Section 15(a) of the CEA requires the CFTC to consider the costs and benefits of its actions before promulgating a regulation or issuing certain orders under the CEA.
In the Proposing Release, the CFTC assessed the costs and benefits of the proposed rules in general, followed by assessments of the costs and benefits of each of the rules, taking into account the considerations described above. The CFTC also requested comment on these assessments, and a number of comments were received. In this Adopting Release, the CFTC will again assess the costs and benefits of the rules in general followed by the individual rules in this rulemaking, for each case taking into account the above considerations and the comments received. These costs and benefits, to the extent identified and, where possible, quantified have helped to inform the decisions of and the actions taken by the CFTC that are described throughout this release.
Prior to the adoption of Title VII, swaps and security-based swaps were by and large unregulated. The Commodity Futures Modernization Act of 2000 (“CFMA”) excluded financial over-the-counter swaps from regulation under the CEA, provided that trading occurred only among “eligible contract participants.”
In the fall of 2008, an economic crisis threatened to freeze U.S. and global credit markets. The Federal government intervened to buttress the stability of the U.S. financial system.
On July 21, 2010, President Obama signed the Dodd-Frank Act into law. Title VII of the Dodd-Frank Act established a comprehensive new regulatory framework for swaps and security-based swaps. As discussed above, the legislation was enacted, among other reasons, to reduce risk, increase transparency, and promote market integrity within the financial system, including by: (i) Providing for the registration and comprehensive regulation of swap dealers, security-based swap dealers, major swap participants, and major security-based swap participants; (ii) imposing clearing and trade execution requirements on swaps and security-based swaps, subject to certain exceptions; (iii) creating rigorous recordkeeping and real-time reporting regimes; and (iv) enhancing the rulemaking and enforcement authorities of the Commissions with respect to, among others, all registered entities and intermediaries subject to the Commissions' oversight.
Section 721 of the Dodd-Frank Act amends the Commodity Exchange Act (“CEA”) by adding definitions of the terms “swap,” “security-based swap,” and “security-based swap agreement.” Section 712(d)(1) provides that the CFTC and the SEC, in consultation with the Federal Reserve Board, shall jointly further define those terms. Section 712(a)(8) provides further that the Commissions shall jointly prescribe such regulations regarding “mixed swaps” as may be necessary to carry out the purposes of Title VII of the Dodd-Frank Act (“Title VII”). Section 712(d)(2) requires the Commissions, in consultation with the Federal Reserve Board, to jointly adopt rules governing books and records requirements for security-based swap agreements.
Under the comprehensive framework for regulating swaps and security-based swaps established in Title VII, the CFTC is given regulatory authority over swaps, the SEC is given regulatory authority over security-based swaps, and the Commissions jointly are to prescribe such regulations regarding mixed swaps as may be necessary to carry out the purposes of Title VII. In addition, the SEC is given antifraud authority over, and access to information from, certain CFTC-regulated entities regarding security-based swap agreements, which are a type of swap related to securities over which the CFTC is given regulatory and enforcement authority.
The statutory definitions of “swap” and “security-based swap” in Title VII are detailed and comprehensive. The Dodd-Frank Act directs the Commissions, among other things, to “further define” these terms; it does not direct the Commissions to provide definitions for them, which are already provided for in the statute. Thus, even in the absence of these rules, the Dodd-Frank Act would require regulating products that meet the statutory definitions of these terms as swaps and security-based swaps. Consequently, a large part of the costs and benefits resulting from the regulation of swaps and security-based swaps derives from the Dodd-Frank Act itself and not from these rules that further define swaps.
Several commenters to the ANPR issued by the Commissions regarding the definitions expressed a concern that the product definitions could be read broadly to include certain types of transactions that previously had never been considered swaps or security-based swaps. In response to those comments, the rules and interpretations clarify that certain traditional insurance products, consumer and commercial agreements, and loan participations are not swaps or security-based swaps, which will increase legal certainty and lower the costs of assessing whether a product is a swap or security-based swap for market participants. In this regard, the rules and interpretations are intended to reduce unnecessary burdens on persons using such agreements, contracts, or transactions, the regulation of which under Title VII may not be necessary or appropriate to further the purposes of Title VII.
In addition, the CFTC is clarifying the scope of the forward contract exclusion
While the statutory definitions of swap and security-based swap are detailed and comprehensive, the rules further clarify whether particular types of transactions are swaps or security-based swaps. For example, foreign exchange forwards and swaps are defined as swaps, subject to the Treasury Secretary's determination to exempt them from the swap definition. The statute provides that certain provisions of the CEA apply to foreign exchange forwards and swaps, even if the Treasury Secretary determines to exempt them, and the rules reflect this. Specifically, these transactions still would be subject to certain requirements for reporting swaps, and swap dealers and major swap participants engaging in such transactions still would be subject to certain business conduct standards. The rules also clarify that, because certain foreign exchange products do not fall within the definitions of foreign exchange swap and forward, such products are not subject to the Treasury Secretary's determination to exempt. Outside of the foreign exchange suite of products, the rules and interpretations clarify that certain transactions are swaps or security-based swaps. These products include forward rate agreements, certain contracts for differences, swaptions and forward swaps. The rules and the interpretations are intended to increase clarity and legal certainty for market participants with respect to these products.
Next this release addresses the relationship between swaps and security-based swaps and how to distinguish them. The Commissions are clarifying whether particular agreements, contracts or transactions that are subject to Title VII of the Dodd-Frank Act (which are referred to as “Title VII Instruments” in this release) are swaps, security-based swaps or both (i.e., mixed swaps). In addition, the Commissions are clarifying the use of the term “narrow-based security index” in the security-based swap definition. In general, the CFTC has jurisdiction over Title VII instruments on broad-based security indexes, while the SEC has jurisdiction over Title VII instruments on narrow-based security indexes. This release clarifies that the existing criteria for determining whether a security index is narrow-based, and the past guidance of the Commissions regarding those criteria in the context of security futures, apply to Title VII instruments. Credit default swaps (“CDS”) also are subject to this same jurisdictional division—CDS on broad-based security indexes are regulated by the CFTC, while CDS on narrow-based security indexes (as well as CDS on single name securities or loans) generally are regulated by the SEC. This release provides new criteria tailored to CDS for determining whether a CDS is based on an index that is a narrow-based security index. Also, it explains the term “index” and adopts a final rule governing tolerance and grace periods for Title VII instruments on security indexes traded on trading platforms. These rules and interpretations generally are designed to provide clarity and enhanced legal certainty regarding the appropriate classification of Title VII instruments as swaps, security-based swaps or mixed swaps, so that market participants may ascertain the applicable regulatory requirements more easily.
This release anticipates that mixed swaps, which are both swaps and security-based swaps, will be a narrow category, but lists a few examples of
This release also includes rules establishing a process for members of the public to request a joint interpretation from the Commissions regarding whether a Title VII instrument is a swap, security-based swap or a mixed swap. The process includes a deadline for a decision, as well as a requirement that if the Commissions do not issue a joint interpretation within the prescribed time period, each Commission must publicly provide the reasons for not having done so.
Finally, this release includes anti-evasion rules and related interpretations adopted by the CFTC, which in general would apply to agreements, contracts, transactions and entities that are willfully structured to evade Dodd-Frank requirements.
The rules and interpretations in this Adopting Release: further define the terms “swap,” “security-based swap,” and “security-based swap agreement;” provide for the regulation of “mixed swaps;” and address books and records requirements for security-based swap agreements. In the discussion that follows, the CFTC considers the costs and benefits resulting from its own discretionary determinations with respect to the section 15(a) factors.
There are “programmatic” costs and benefits as well as “assessment” costs of the Product Definitions. Programmatic costs result from subjecting certain agreements, contracts, or transactions to the regulatory regime of Title VII.
In general, many commenters have suggested that the statutory definitions of swap and security-based swap are overbroad in that they could be viewed to include agreements, contracts, and transactions that the market had not considered to be swaps or security-based swaps prior to the enactment of the Dodd-Frank Act, are (or could be) swaps or security-based swaps. Thus, in response to these comments, the CFTC has engaged in a qualitative analysis of various agreements, contracts, and transactions of which the CFTC is aware and that commenters have brought to its attention. Based on this analysis, the CFTC has established rules and interpretations to identify agreements, contracts, and transactions that are swaps or security-based swaps where the statutory definition may be inadequate or ambiguous. In developing the further definitions, the CFTC has endeavored to narrow the scope of the terms “swap” and “security-based swap” without excluding agreements, contracts and transactions that the CFTC has determined should be regulated as swaps and security-based swaps. Narrowing the scope of the statutory definitions should reduce the overall programmatic costs of Title VII because fewer agreements, contracts, and transactions will be subject to the full panoply of Title VII regulation. Narrowing the scope of the statutory definitions should also increase the net programmatic benefits of the CFTC's Title VII regulations because the CFTC is targeting in the Product Definitions rulemaking agreements, contracts and transactions that the CFTC has determined, after considering comments received and undertaking a qualitative analysis, are swaps or security-based swaps. The CFTC anticipates that applying the full panoply of Title VII regulation to only those agreements, contracts or transactions that the CFTC has determined are swaps or security-based swaps will be most effective in achieving the net benefits of Title VII regulation under the Dodd-Frank Act.
The scope of the terms “swap,” “security-based swap,” “security-based swap agreement,” and “mixed swap” is an important factor in determining the range of activities and entities that will be subject to various requirements set forth in the Dodd-Frank Act, such as trade execution, clearing, reporting, registration, business conduct, and capital requirements. Complying with these requirements, which will be implemented in other rules by the CFTC, are programmatic costs, which also have been or will be addressed in the CFTC's rules to implement those requirements.
The CFTC believes that the rulemaking to further define the terms “swap,” “security-based swap,” “security-based swap agreement,” and “mixed swap” is consistent with how market participants understand these products. The further definitions increase legal certainty and thereby reduce assessment costs by clarifying that certain products that meet the requirements of the applicable rules and interpretations, such as traditional insurance products, are not swaps.
Many of the benefits of Title VII and the CFTC's implementing regulations, including risk reduction, increasing
The CFTC believes that the final rules and interpretations can be consistently applied by substantially all market participants to determine which agreements, contracts, or transactions are, and which are not, swaps, security-based swaps, security-based swap agreements, or mixed swaps. The benefits of the individual rules and interpretations are discussed in their respective sections below.
The CFTC requested comment on the costs and benefits of the proposed rules and interpretations regarding the definitions in general for market participants, markets and the public. Further, the CFTC requested comment as to whether there are any aspects of the proposed rules and interpretive guidance regarding the definitions that are both burdensome to apply and not helpful to achieving clarity as to the scope of the defined terms, and whether there are less burdensome means of providing clarity as to the scope of the defined terms.
A commenter
Another commenter
Commenters
A commenter
Several commenters
The Commissions did not propose rules or interpretations on how to distinguish futures from swaps. A commenter requested that the CFTC clarify that nothing in the release was intended to limit a DCM's ability to list for trading a futures contract regardless of whether it could be viewed as a swap if traded over-the-counter or on a SEF, since futures and swaps are “indistinguishable in material economic effects.”
Although it is potentially more costly to a DCM in terms of providing additional analysis to support listing a futures contract on its exchange, the CFTC is not adopting the distinction the commenter advocates. Prior distinctions that the CFTC relied upon (such as the presence or absence of clearing) to distinguish between futures and swaps
The CFTC notes that a DCM may self-certify its contracts pursuant to Part 40 of the CFTC's rules,
Rule 1.3(xxx)(4)(i) under the CEA clarifies that agreements, contracts or transactions that satisfy its provisions will not be swaps or security-based swaps. Specifically, the term “swap” and “security-based swap” does not include an agreement, contract, or transaction under rule 1.3(xxx)(4)(i)(A) that, by its terms or by law, as a condition of performance on the agreement, contract, or transaction: (i) Requires the beneficiary of the agreement, contract, or transaction to have an insurable interest that is the subject of the agreement, contract, or transaction and thereby carry the risk of loss with respect to that interest continuously throughout the duration of the agreement, contract, or transaction; (ii) requires that loss to occur and be proved, and that any payment or indemnification therefor be limited to the value of the insurable interest; (iii) is not traded, separately from the insured interest, on an organized market or over-the-counter; and (iv) with respect to financial guaranty insurance only, in the event of payment default or insolvency of the obligor, any acceleration of payments under the policy is at the sole discretion of the insurer (the “Product Test”).
Rule 1.3(xxx)(4)(i)(B) under the CEA provides that for an agreement, contract, or transaction that meets the Product Test to be excluded from the swap and security-based swap definitions as insurance, it must be provided: (i) By a person that is subject to supervision by the insurance commissioner (or similar official or agency) of any State or by the United States or an agency or instrumentality thereof, and such agreement, contract, or transaction is regulated as insurance applicable State law or the laws of the United States (the “first prong”); (ii) directly or indirectly by the United States, any State, or any of their respective agencies or instrumentalities, or pursuant to a statutorily authorized program thereof (the “second prong”); (iii) in the case of reinsurance only, by a person to another person that satisfies the Provider Test, provided that: such person is not prohibited by applicable State law or the laws of the United States from offering such agreement, contract, or transaction to such person that satisfies the Provider Test; the agreement, contract, or transaction to be reinsured satisfies the Product Test or is one of the Enumerated Products; and except as otherwise permitted under applicable State law, the total amount reimbursable by all reinsurers for such agreement, contract, or transaction may not exceed the claims or losses paid by the cedant; or (iv) in the case of non-admitted insurance by a person who: is located outside of the United States and listed on the Quarterly Listing of Alien Insurers as maintained by the International Insurers Department of the National Association of Insurance Commissioners; or meets the eligibility criteria for non-admitted insurers under applicable State law (the “Provider Test”).
In response to commenters' requests that the Commissions codify the proposed interpretation regarding certain enumerated types of insurance products in the final rules, the interpretation is being codified in paragraph (i)(C) of rule 1.3(xxx)(4) under the CEA. In addition, in response to comments, the Commissions are expanding and revising the list of traditional insurance products. As adopted, the rule provides that the terms “swap” and “security-based swap” will not include an agreement, contract, or transaction that is provided in accordance with the conditions set forth in the Provider Test and is one of the following types of products (collectively, “Enumerated Products”): surety bonds; fidelity bonds; life insurance; health insurance; long-term care insurance; title insurance; property and casualty insurance; annuities; disability insurance; insurance against default on individual residential mortgages (commonly known as private mortgage insurance, as distinguished from financial guaranty of mortgage pools); and reinsurance (including retrocession) of any of the foregoing. Based on comments received, the Commissions are adding three products to the list of products as proposed, adding reinsurance (including retrocession) of any of the traditional insurance products included in the list, and deleting a requirement applicable to annuities that they must be subject to tax treatment under section 72 of the Internal Revenue Code.
The Commissions are also clarifying that the Product Test, the Provider Test and the Enumerated Products in the rules are a non-exclusive safe harbor (the “Insurance Safe Harbor”), such that if a product fails the Insurance Safe Harbor, that does not necessarily mean that the product is a swap or security-based swap—further analysis may be required in order to make that determination.
Rule 1.3(xxx)(4)(ii) provides a “grandfather” for insurance transactions (as opposed to insurance products), pursuant to which transactions that are entered into on or before the effective date of the Product Definitions will not fall within the definition of swap or security-based swap, provided that, at such time that it was entered into, the transaction was provided in accordance with the Provider Test.
The CFTC is interpreting the term “swap” (that is not a security-based swap or mixed swap) to include a guarantee of such swap, to the extent that a counterparty to a swap position would have recourse to the guarantor in connection with the position. The CFTC is persuaded that when a swap has the benefit of a guarantee, the guarantee is an integral part of that swap. The CFTC finds that a guarantee of a swap (that is not a security-based swap or mixed swap) is a term of that swap that affects the price or pricing attributes of that swap. When a swap counterparty typically provides a guarantee as credit support for its swap obligations, the market will not trade with that counterparty at the same price, on the same terms, or at all without the guarantee. The guarantor's resources are added to the analysis of the swap; if the guarantor is financially more capable than the swap counterparty, the analysis of the swap becomes more dependent on the creditworthiness of the guarantor. The CFTC anticipates that a “full recourse” guarantee would have a greater effect on the price of a swap than a “limited” or “partial recourse” guarantee; nevertheless, the CFTC is determining that the presence of any guarantee with recourse, no matter how robust, is price forming and an integral part of a guaranteed swap. The CFTC's
A market participant will need to ascertain whether an agreement, contract, or transaction satisfies the criteria set forth in rule 1.3(xxx)(4). This analysis will have to be performed prior to entering into the agreement, contract, or transaction to ensure that the relief provided by the Insurance Safe Harbor is available. The CFTC expects that potential costs associated with any possible uncertainty cited by commenters as to whether an agreement, contract, or transaction that the participants consider to be insurance could instead be regulated as a swap would be greater without the Insurance Safe Harbor than the cost of the analysis under the final rule herein.
Although the Insurance Safe Harbor is designed to mitigate costs associated with legal uncertainty and misclassification of products, to the extent that it inadvertently fails to exclude certain types of insurance products from the definitions, these failures could lead to costs for market participants entering into agreements, contracts, or transactions. Some insurance products might inadvertently be subjection to regulation as swaps. To the extent that the Insurance Safe Harbor leads to the inadvertent misclassification of some swaps as insurance, costs for market participants entering into agreements, contracts, or transactions that are inadvertently regulated as insurance products, and not as swaps, may increase.
Assessment costs should be minimal or non-existent for traditional insurance products,
The CFTC is interpreting the term “swap” (that is not a security-based swap or mixed swap) to include a guarantee of such swap, to the extent that a counterparty to a swap position would have recourse to the guarantor in connection with the position. The CFTC anticipates minimal or no assessment costs from the interpretation with respect to guarantees of swaps.
Subjecting traditional insurance products to Title VII could, absent exception, prevent individuals who are not ECPs from obtaining insurance to protect their properties or families against accidental hazards or risks,
The business of insurance is already subject to established pre-Dodd-Frank Act regulatory regimes. Requirements that may work well for swaps and security-based swaps may not be appropriate for traditional insurance products. To the extent that the final rules distinguish insurance from swaps and security-based swaps, the CFTC should be able to tailor rules for specific
Without the Insurance Safe Harbor, market participants might be more uncertain about whether an agreement, contract, or transaction is an insurance product rather than a swap. Rule 1.3(xxx)(4) is intended to reduce the potential uncertainty of what constitutes a swap by setting forth clear and objective criteria for distinguishing an agreement, contract, or transaction that is insurance from a swap. Providing such an objective rule and explanation mitigates the potential additional costs of petitioning the Commissions, or obtaining an opinion of counsel, about whether an agreement, contract, or transaction is insurance or a swap.
The objective criteria provided by the rule also will aid sound risk management practices because it will be easier for market participants to decide whether a particular agreement, contract, or transaction is insurance or a swap.
Further, the CFTC anticipates that the interpretation of the term “swap” to include guarantees of swaps and the separate CFTC release will provide programmatic benefits by enabling the CFTC and market participants to receive more price-forming data about swaps, which may help improve price discovery for swaps. The CFTC will carefully consider these and other benefits in the separate CFTC release.
The CFTC requested comment on the costs and benefits of proposed rule 1.3(xxx)(4) and interpretive guidance to distinguish between insurance products and swaps for market participants, markets, and the public. Several commenters
The Commissions have expanded the list of insurance products excluded from the swap definition to cover certain traditional insurance products that commenters have brought to their attention and that the Commissions have determined are not swaps. The Commissions are also clarifying that the Insurance Safe Harbor does not imply or presume that an agreement, contract or transaction that does not meet its requirements is a swap or security-based swap, but will require further analysis of the applicable facts and circumstances, including the form and substance of the agreement, contract, or transaction, to determine whether it is insurance, and thus not a swap or security-based swap. With regard to financial guaranty in particular, the acceleration of payment criterion is designed to reflect market practice and aid appropriate product classification. The Commissions are stating that they intend to interpret concepts upon which the Product Test relies that are derived from state law consistently with the existing and developing laws of the relevant state(s) governing the agreement, contract, or transaction in question. However, the Commissions note their authority to diverge from state law if the Commissions become aware of evasive conduct. While the CFTC cannot anticipate under what circumstances or how often the Commissions might diverge from state law, the CFTC believes that there will be more consistent than inconsistent interpretations. Accordingly, the rules do not present the increased burden or legal uncertainty that these commenters suggested.
Several commenters also requested that the Commissions codify the proposed interpretive guidance regarding enumerated insurance products in rule text on the basis that codification would enhance legal certainty, and thereby reduce costs.
A commenter proposed that the sole test for determining whether an agreement, contract or transaction is insurance should be whether it is subject to regulation as insurance by the insurance commissioner of the applicable state(s).
Several commenters suggested an approach in which insurance products that qualify for the exclusion contained in section 3(a)(8) of the Securities Act of 1933 would be excluded from the swap definition.
While the Commissions agree that the section 3(a)(8) criteria have a long history of interpretations by the SEC and the courts, the Commissions find that it is inappropriate to apply the section 3(a)(8) criteria in this context. Although section 3(a)(8) contains some
Another commenter proposed the following test for an agreement, contract, or transaction to be insurance:
[It] [e]xists for a specified period of time;
Where the one party to the contract promises to make one or more payments such as money, goods or services;
In exchange for another party's promise to provide a benefit of pecuniary value for the loss, damage, injury, or impairment of an identified interest of the insured as a result of the occurrence of a specified event or contingency outside of the parties' control; and
Where such payment is related to a loss occurring as a result of a contingency or specified event.
This test may not represent a less costly alternative to the Commissions' test in light of its complexity, and in any event would not distinguish swaps and security-based swaps from insurance more effectively than the Commissions' test for two reasons. The requirements of a specified term and the payment of premiums are present in both insurance products and in agreements, contracts, or transactions that are swaps or security-based swaps, and therefore such requirements do not help to distinguish between them. A test based solely on these requirements, then, would be over-inclusive and exclude from the Dodd-Frank regulatory regime agreements, contacts, and transactions that have not traditionally been considered insurance. Also, the third and fourth requirements of the commenter's test collapse into the Product Prong's requirement that the loss must occur and be proved, and any payment or indemnification therefor must be limited to the value of the insurable interest.
Another commenter offered a 3-part test
(1) The insurance contract must be issued by an insurance company and subject to state insurance regulation;
(2) The insurance contract must be the type of contract issued by insurance companies; and
(3) The insurance contract must not be of a type that the CFTC and SEC determine to regulate.
The commenter stated that its approach does not contain a definition of insurance, and for that reason believes that is preferable to the Commissions' approach, which it believes creates legal uncertainty because any attempted definition of insurance has the potential to be over- or under-inclusive.
While the commenter's test may appear simpler on its face, the CFTC does not believe that it represents a less costly alternative. The first two requirements of the commenter's test do not help to distinguish swaps from insurance; the third provides no greater certainty than the Commissions' facts and circumstances approach. Moreover, as discussed in section II.B.1(d) above, the Commissions' rules and related interpretations are not intended to define insurance. Rather, they provide a safe harbor for certain types of traditional insurance products by reference to factors that may be used to distinguish insurance from swaps and security-based swaps. Agreements, contracts, and transactions that do not qualify for the Insurance Safe Harbor may or may not be swaps, depending upon the facts and circumstances. Thus, the Commissions' test neither creates legal uncertainty as suggested by the commenter, nor the costs associated with such uncertainty.
Another commenter proposed different approaches for existing products and new products. According to the commenter, if an existing type of agreement, contract or transaction is currently reportable as insurance in the provider's regulatory and financial reports under a state or foreign jurisdiction's insurance laws, then that agreement, contract or transaction would be insurance rather than a swap or security-based swap. On the other hand, for new products, if this approach is inconclusive, the commenter recommended that the Commissions use the product prong of the Commissions' test only.
The commenter's proposal may represent a less costly alternative than the Commissions' test. However, rather than treating existing products and new products differently, the Commissions as discussed above are providing “grandfather” protection for agreements, contracts, and transactions entered into on or before the effective date of the Products Definitions. Moreover, the commenter's test would eliminate the provider test for new products, which the Commissions believe is important to help prevent products that are swaps or security-based swaps from being characterized as insurance.
In sum, the CFTC finds that, while some of the alternatives proposed by commenters may appear less costly to apply than the Commissions' test, in all cases they would sweep out of the Dodd-Frank Act regulatory regime for swaps agreements, contracts, and transactions that have not historically been considered insurance, and that should, in appropriate circumstances, be regulated as swaps or security-based swaps. Accordingly, the CFTC does not find these alternative tests proposed by commenters to be better tools than the Insurance Safe Harbor for limiting the scope of the statutory definitions of swap and security-based swap. Excluding agreements, contracts, and transactions that are, in fact, swaps from the further definition of the term “swap” is inconsistent with the CFTC's regulatory objectives and could increase risk to the U.S. financial system.
Three commenters provided comments regarding the treatment of guarantees of swaps. Two commenters
One commenter supported treating financial guaranty insurance of a swap or security-based swap as itself a swap or a security-based swap. This commenter argued that financial guaranty insurance of a swap or security-based swap transfers the risk of counterparty non-performance to the guarantor, making it an embedded and essential feature of the insured swap or
While the CFTC is not further defining guarantees of swaps to be swaps, the CFTC is persuaded that when a swap (that is not a security-based swap or mixed swap) has the benefit of a guarantee, the guarantee and related guaranteed swap should be analyzed together. The events surrounding the failure of AIG Financial Products (“AIGFP”) highlight how guarantees can cause major risks to flow to the guarantor.
Two commenters cautioned against unnecessary and duplicative regulation. One commented that, because the underlying swap, and the parties to it, will be regulated and reported to the extent required by Title VII, there is no need for regulation of non-insurance guarantees.
One commenter also argued that regulating financial guaranty of swaps as swaps would cause monoline insurers to withdraw from the market, which could adversely affect the U.S. and international public finance, infrastructure and structured finance markets, given that insuring a related swap often is integral to the insurance of municipal bonds and other securities.
The CFTC is clarifying that the forward contract exclusion from the swap definition for nonfinancial commodities should be read consistently with the forward contract exclusion from the CEA definition of the term “future delivery.” In that regard, the CFTC is retaining the Brent Interpretation and extending it to apply to all nonfinancial commodities, and withdrawing the Energy Exemption, which had extended the Brent Interpretation regarding the forward contract exclusion from the term “future delivery” to energy commodities other than oil, as it is no longer necessary. Although the CFTC is withdrawing the Energy Exemption, the CFTC is providing that certain alternative delivery procedures, such as physical netting agreements, that are mentioned in the Energy Exemption, are consistent with the intent of the book out provision in the Brent Interpretation—provided that the parties had a bona fide intent, when entering into the transactions, to make or take (as applicable) delivery of the commodity covered by those transactions. The CFTC also is providing an interpretation regarding documentation of orally booked-out transactions.
In addition, the CFTC is clarifying that its prior guidance regarding commodity options embedded in forward contracts should be applied as well to the treatment of forward contracts in nonfinancial commodities that contain embedded options under the Dodd-Frank Act. The final interpretation also explains the CFTC's position with regard to forwards with embedded volumetric optionality, including an explanation of how it would treat some of the specific contracts described by commenters, such as full requirements contracts. It also explains the CFTC's view with respect to certain contractual provisions, such as liquidated damages and renewable/evergreen provisions that do not disqualify the transactions in which they are contained from the forward exclusions. The CFTC has also provided an interpretation regarding nonfinancial commodities, including environmental commodities, and interpretations concerning physical exchange transactions, fuel delivery agreements, certain physical commercial agreements, and energy management agreements.
The CFTC's statement that it will construe the forward contract exclusion consistently with respect to the definitions of the terms “swap” and “future delivery,” as discussed herein, will not impose any new material costs on market participants. It also will establish a uniform interpretation of the forward contract exclusion from the definitions of both statutory terms, which will avoid the significant costs that some commenters state would result if the forward contract exclusion were construed differently in these two contexts.
As noted in section II.B.2.(a)(ii) above, the CFTC has explained its position regarding nonfinancial commodities. This should help the industry to determine whether their transactions are eligible for the forward exclusions, and consequently reduce costs to the industry for transactions involving non-financial commodities such as renewable energy credits that may be eligible for the forward exclusions. The final interpretation regarding forwards with embedded volumetric optionality should reduce costs to the industry, because these transactions may qualify for the forward exclusions from the swap and “future delivery” definitions. The explanation of how the CFTC will view specific contracts mentioned by commenters under this interpretation should enhance legal certainty and thereby reduce costs.
The clarification that certain contractual provisions do not disqualify transactions from the forward exclusion also should reduce costs to the industry by providing increased legal certainty that these provisions will not render their transactions subject to Dodd-Frank Act regulation. Similar cost reductions should be achieved through enhanced legal certainty provided by the CFTC's interpretations of physical exchange transactions, fuel delivery agreements, and certain physical commercial agreements, all of which may qualify for the forward exclusions under these interpretations. The interpretation regarding energy management agreements, which provides that the fact that a particular transaction is done under the auspices of such agreements does not alter the nature of that transaction, should likewise enhance legal certainty and reduce costs. While the CFTC's interpretation regarding documentation of oral book-outs—that an oral book-out be followed by a confirmation in a commercially reasonable time in written or electronic form—may impose costs for industries that do not document their orally booked out transactions, the CFTC believes that this requirement is consistent with prudent business practices and is necessary to prevent abuse of the Brent safe harbor.
Market participants will need to assess whether products are forward contracts that qualify for the forward exclusions from the swap and future delivery definitions, and may need to request an interpretation regarding such products, or obtain an opinion of counsel, which will involve certain costs.
The CFTC's interpretations regarding the forward exclusions should provide market participants with greater legal certainty regarding whether their transactions qualify for the forward exclusion from the swap definition, which should facilitate commercial merchandising activity. For example, the interpretation regarding forwards with embedded volumetric options should facilitate commercial merchandising activity of the electricity, natural gas, and other industries that employ these contracts where delivery quantities are flexible, while the conditions in the interpretations should help to assure that these contracts are bona fide forwards.
In addition, the interpretation should result in the appropriate classification of transactions as commercial merchandising transactions (and thus forward contracts) that are not subject to Title VII regulation. This will enhance market participants' efficient use of the swaps markets and, as described above, reduce costs on industry. Documenting oral book-outs should promote good business practices and aid the CFTC in preventing evasion through abuse of the forward exclusion. Finally, the CFTC's interpretation regarding commercial market participants should ensure that the forward exclusions may only be used for commercial merchandising activity and not for speculative purposes.
The CFTC's position regarding nonfinancial commodities should help the industry to determine whether their transactions are eligible for the forward exclusions, which should facilitate commercial merchandising activity for transactions involving non-financial commodities such as renewable energy credits that may be eligible for the forward exclusions.
The CFTC requested comment in the Proposing Release on the costs and benefits of the proposed interpretive guidance regarding the forward contract exclusion and the withdrawal of the Energy Exemption for market participants, markets and the public.
Several commenters requested that the CFTC codify its proposed guidance regarding the forward contract exclusion in rule text to provide greater legal certainty, which they argued may mitigate costs.
Some commenters
Several commenters
A commenter
Another commenter argued more generally that any embedded option (for example, price, quantity, delivery point, delivery date, contract term) that does not permit a unilateral election of financial settlement based upon the value change in an underlying cash market should not render the contract a swap.
Another commenter suggested that an option to purchase or sell a physical commodity, whether embedded in a forward contract or stand alone, should either (i) fall within the statutory forward exclusion from the swap definition, or (ii) alternatively, if deemed by the CFTC to be a swap, should be exempt from the swap definition pursuant to a modified trade option exemption pursuant to CEA Section 4c(b).
Another commenter urged the CFTC to broadly exempt commercial forward contracting from swap regulation by generally excluding from the swap definition any forward contract with embedded optionality between end users “whose primary purpose is consistent with that of an `end user', and in which any embedded option is directly related to `end use.' ”
While this alternative may appear to be less costly than the CFTC's interpretation, its vagueness may create significant legal uncertainty about the scope of the forward exclusion, which may increase costs on market participants. Even if this approach does represent a lower cost alternative, however, it is overbroad and likely would result in the inappropriate classification of transactions as forward contracts, and thus would not achieve the CFTC's objective of appropriately classifying transactions that should qualify for the forward exclusions.
Another commenter believed that the CFTC's “facts and circumstances” approach to forwards with embedded options does not provide the legal certainty required by nonfinancial entities engaging in commercial contracts in the normal course of business.
The CFTC has long applied a facts and circumstances approach to the forward exclusion, including with respect to forwards with embedded options, an approach with which market participants are familiar. That approach balances the need for legal certainty against protecting market participants, market integrity and the risk of providing opportunities for evasion.
Another commenter
The CFTC is also providing relief for other types of physical energy contracts that may qualify for the forward exclusions. Separately, the CFTC has provided relief for trade options in another rulemaking.
In the Proposing Release, the Commissions proposed guidance that they do not interpret the swap and security-based swap definitions to include loan participations in which: (i) The purchaser is acquiring a current or future direct or indirect ownership interest in the related loan; and (ii) the loan participations are “true participations” (the participant acquires a beneficial ownership interest in the underlying loans). One commenter expressed concern with the second prong of the proposed guidance. Specifically, the commenter said that the “true participation” requirement may result in the improper classification of loan participations as swaps, because LMA-style loan participations may not qualify. Moreover, because of legal uncertainty associated with the “true participation” terminology derived from U.S. bankruptcy law, LSTA-style loan participations may be subject to improper classification as well. The commenter proposed an alternative test described in section II.B.3., above.
The Commissions largely are adopting the recommendation from the commenter regarding the Commissions' proposed guidance concerning loan participations as not swaps or security-based swaps, with certain modifications. This reduces costs for market participants because the Commissions' test for loan participations from the proposal included a “true participation” requirement that commenters suggested is subject to legal uncertainty. Benefits of the rule include enhanced legal certainty that loan participations that meet the requirements of the interpretation are not swaps, which should facilitate loan participation market activity.
The Commissions are stating that certain customary consumer and commercial transactions that have not previously been considered swaps or security-based swaps do not fall within the statutory definitions of those terms. Specifically with regard to consumer transactions, the Commissions are adopting as proposed the interpretation that certain transactions entered into by consumers (natural persons) as principals or their agents primarily for personal, family or household purposes would not be considered swaps or security-based swaps. The Commissions have added to the list of consumer transactions certain residential fuel storage contracts; service contracts; consumer options to buy, sell or lease real or personal property; and certain consumer guarantees of loans (credit cards, automobile, and mortgage). The Commissions have also clarified that consumer transactions used to purchase nonfinancial energy commodities are not swaps or security-based swaps. With respect to commercial transactions, the Commissions are adopting as proposed the interpretation that certain commercial transactions involving customary business arrangements (whether or not involving a for-profit entity) would not be considered swaps or security-based swaps. The Commissions also are clarifying that commercial loans by the Federal Home Loan Banks and Farm Credit Institutions are not swaps. Finally, the Commissions are explaining the factors characteristic of consumer and commercial transactions that the Commissions will consider in determining whether other consumer and commercial transactions that are not specifically listed in the interpretation should be considered swaps or security-based swaps.
The CFTC believes that the forgoing interpretation should mitigate costs because it increases legal certainty that specific customary consumer and commercial transactions are not swaps or security-based swaps subject to Dodd-Frank regulation. As a result of this interpretation, consumers and industry participants will not have to seek legal advice regarding whether these transactions are swaps or security-based swaps. The interpretation regarding commercial loans made by the Federal Home Loan Banks and Farm Credit Institutions also reduces costs by not subjecting these transactions to additional Dodd-Frank Act regulation. To the extent a customary consumer or commercial transaction is not included in the interpretation, consumers and market participants may incur costs in seeking an interpretation from the Commissions regarding the status of their transactions or an opinion of counsel. However, the CFTC has emphasized that the lists are not exclusive, and has provided the factors it will consider for determining whether other consumer and commercial transactions that are not specifically listed in the interpretation should be considered swaps or security-based swaps, which should assist consumers and market participants in deciding whether to seek an interpretation and thus mitigate these costs.
The foregoing interpretation provides increased legal certainty benefits for market participants and should ensure that customary consumer and commercial transactions, which have never been considered swaps or security-based swaps, will not be subject to Dodd-Frank Act regulation, and may facilitate consumer and
Several commenters believed that the proposed interpretive guidance regarding consumer/commercial transactions does not provide sufficient legal certainty and request that the Commissions codify such guidance in regulations in order to provide greater legal certainty, which may mitigate costs.
A commenter
Another commenter
The REP
The Commissions do not consider the REP transactions described by the commenter to be swaps or security-based swaps. Consequently, this rulemaking clarifies that Dodd-Frank regulatory costs will not be imposed on REPs and allows the subsidy to continue to be provided to residential and small farm utilities.
CFTC rule 1.3(xxx)(2) under the CEA explicitly defines the term “swap” to include an agreement, contract, or transaction that is a cross-currency swap, currency option, foreign currency option, foreign exchange option, foreign exchange rate option, foreign exchange forward, foreign exchange swap, forward rate agreement, and non-deliverable forward involving foreign exchange, unless such agreement, contract, or transaction is otherwise excluded by section 1a(47)(B) of the CEA. Rule 1.3(xxx)(3) provides that: (i) A foreign exchange forward or a foreign exchange swap shall not be considered a swap if the Secretary of the Treasury makes the determination described in CEA section 1a(47)(E)(i); and (ii) notwithstanding any such determination, certain provisions of the CEA will apply to such a foreign exchange forward or foreign exchange swap (specifically, the reporting requirements in section 4r of the CEA
The Commissions are also clarifying that a bona fide foreign exchange spot transaction,
In complying with rule 1.3(xxx)(2), a market participant will need to ascertain whether an agreement, contract, or transaction is a swap under the definition. This analysis will have to be performed upon entering into the agreement, contract, or transaction. However, any costs associated with this analysis are expected to be less than the costs of doing the same analysis absent the rule, particularly given potential confusion in the event of a determination by the Secretary of the Treasury that foreign exchange forwards and/or foreign exchange swaps not be considered swaps. To the extent that rule 1.3(xxx)(2) improperly includes certain types of agreements, contracts, and transactions in the swap definition, and therefore the imposition of additional requirements and obligations, these requirements and obligations could lead to costs for market participants entering into such agreements, contracts, or transactions. However, the CFTC has carefully considered each of the agreements, contracts and transactions described above that it is further defining as swaps under rule 1.3(xxx)(2) and believe that they are appropriately classified as such, subject to the statutory exclusions.
Because the statutory definition of the term “swap” includes a process by which the Secretary of the Treasury may determine that certain agreements, contracts, and transactions that meet the statutory definition of a “foreign exchange forward” or “foreign exchange swap,” respectively,
Providing such a rule to market participants to determine whether certain types of agreements, contracts, or transactions are swaps alleviates additional costs to persons of inquiring with the Commissions, or obtaining an opinion of counsel, about whether such agreements, contracts, or transactions are swaps. In addition, such a rule regarding the requirements that apply to foreign exchange forwards and foreign exchange swaps that are subject to a determination by the Secretary of the Treasury similarly alleviates additional costs to persons of inquiring with the Commissions, or obtaining an opinion of counsel, to determine the requirements that are applicable to such foreign exchange forwards and foreign exchange swaps. As with the other rules comprising the Product Definitions, enhanced legal certainty will help market participants to engage in sound risk management practices, which will benefit both market participants and the public.
The interpretation concerning bona fide foreign exchange spot transactions should result in the appropriate classification of such transactions as not subject to Dodd-Frank Act regulation. The interpretation regarding retail foreign currency options subject to CEA Section 2(c)(2)(B) as not swaps provides clarity and reduces costs for market participants, who could not offer the product to non-ECP customers off-exchange in accordance with the provisions of CEA Section 2(c)(2)(B).
In addition, including certain FX transactions, forward rate agreements and certain other transactions in the swap definition protects the public by explicitly subjecting these transactions to Dodd-Frank regulation.
The CFTC requested comment as to the costs and benefits of proposed rules 1.3(xxx)(2) and (3). As discussed in the preamble, some commenters
Non-deliverable forward transactions do not satisfy the statutory definition of foreign exchange forwards, as explained in section II.C.2.(b)(ii),
Rule 1.3(bbbb) provides that a Title VII instrument that is based on or references a qualifying foreign futures contract on the debt securities of one or more of the 21 enumerated foreign governments is a swap and not a security-based swap if the Title VII instrument satisfies the following conditions:
• The futures contract on which the Title VII instrument is based or that is referenced must be a qualifying foreign futures contract (as defined in rule 3a12–8) on the debt securities of any one or more of the 21 enumerated foreign governments that satisfies the conditions of rule 3a12–8;
• The Title VII instrument is traded on or through a board of trade (as defined in section 1a(6) of the CEA);
• The debt securities on which the qualifying foreign futures contract is based or referenced and any security used to determine the cash settlement amount pursuant to the fourth condition below are not registered under the Securities Act or the subject of any American depositary receipt registered under the Securities Act;
• The Title VII instrument may only be cash settled; and
• The Title VII instrument is not entered into by the issuer of the securities upon which the qualifying
Only those Title VII instruments that are based on qualifying foreign futures contracts on the debt securities of the 21 enumerated foreign governments and that satisfy these five conditions will be swaps. The final rules are intended to provide consistent treatment (other than with respect to method of settlement) of qualifying foreign futures contracts and Title VII instruments based on qualifying foreign futures contracts on the debt securities of the 21 enumerated foreign governments.
The CFTC believes that the assessment cost associated with determining whether a swap on certain futures contracts on foreign government securities constitute a swap or security-based swap under rule 1.3(bbbb) should be minimal. Currently, qualifying foreign futures contracts on debt securities of the 21 enumerated foreign governments are traded on exchanges or boards of trade. Market participants may look at the exchange or board of trade listing to determine what they are. Therefore, the assessment, in accordance with the rule, would primarily focus on whether such swap itself is traded on or through a board of trade; whether the swap is cash-settled; whether the futures is traded on a board of trade; whether any security used to determine the cash settlement amount are not registered under the Securities Act or the subject of any American depositary receipt registered under the Securities Act; and whether the swap is entered into by the foreign government issuing the debt securities upon which the qualifying futures contract is based or referenced, an affiliate of such foreign government or an underwriter of such foreign government securities. All of these determinations may be readily and quickly ascertained by the parties entering into the agreement, contract, or transaction. Therefore, the assessment costs associated with rule 1.3(bbbb) should be nominal because parties should be able to make assessments in less than an hour.
Historically, the market for index CDS did not divide along jurisdictional divisions between the CFTC and SEC;
Rule 1.3(yyy)(1) under the CEA provides that, for purposes of the security-based swap definition, the term “narrow-based security index” would have the same meaning as the statutory definition set forth in CEA section 1a(35), and the rules, regulations, and orders issued by the Commissions relating to such definition. As a result, except where the new rules the Commissions are adopting provide for other treatment, market participants generally will be able to use the Commissions' past guidance in determining whether certain Title VII instruments based on a security index are swaps or security-based swaps.
The Commissions are promulgating additional rules and providing interpretations regarding Title VII instruments based on a security index. The interpretations and additional rules set forth new narrow-based security index criteria with respect to indexes composed of securities, loans, or issuers of securities referenced by an index CDS. The interpretations and rules also address the definition of an “index” and the treatment of broad-based security indexes that become narrow-based and narrow-based indexes that become broad-based, including rule provisions regarding tolerance and grace periods for swaps on security indexes that are traded on CFTC-regulated and SEC-regulated trading platforms.
In complying with the rules and interpretations, a market participant will need to ascertain whether a Title VII instrument is a swap or a security-based swap according to the criteria set forth in the definitions of the terms “issuers of securities in a narrow-based security index” and “narrow-based security index” as used in the security-based swap definition. This analysis will have to be performed prior to the execution of, but no later than an offer to enter into, a Title VII instrument, and when the material terms of a Title VII instrument are amended or modified, to ensure compliance with rules 1.3(yyy), 1.3(zzz) or 1.3(aaaa).
However, any such costs are expected to be less than the costs of doing the same analysis absent the rules, which the CFTC believes would be more difficult and lead to greater uncertainty. In particular, rule 1.3(yyy) allows market participants to reduce the costs of determining whether a Title VII instrument based on a security index, other than an index CDS, is a swap or security-based swap by clarifying that they will be able to use the
Additionally, absent rule 1.3(yyy), which applies the tolerance period rules, if a security index underlying a Title VII instrument traded on a trading platform migrated from being broad-based to being narrow-based, market participants may suffer disruption of their ability to offset or enter into new Title VII instruments, and incur additional costs as a result.
DCMs and SEFs will incur costs in assessing whether an index underlying a Title VII instrument is broad-based, in monitoring the index for migration from broad to narrow-based. There will also be other costs resulting from the migration such as delisting costs. Such migration costs are mitigated by the tolerance period of 45 business days over three calendar months which should reduce the incidence of migration. Similarly, the three-month grace period following an indexes failure of the tolerance period should mitigate delisting and other costs. There will be a range of assessment costs depending on how customized the index underlying an index CDS is.
In determining whether a Title VII instrument is a swap or a security-based swap, market participants will need to apply the criteria found in CFTC rules 1.3(yyy), 1.3(zzz) and 1.3(aaaa). Market participants may conduct such analysis in-house or employ outside third-party service providers to conduct such analysis. The costs associated with obtaining such outside professional services would vary depending on the relevant facts and circumstances, particularly the composition of the index. The CFTC believes, however, that $20,000 represents a reasonable estimate of the upper end of the range of the costs of obtaining the services of outside professional in undertaking the analysis.
Rules 1.3(zzz) and 1.3(aaaa) clarify the treatment of an index CDS as either a swap or a security-based swap by setting forth objective criteria for meeting the definition of the terms “issuers of securities in a narrow-based security index” and “narrow-based security index,” respectively. These objective rules alleviate additional costs to persons trading index CDS of inquiring with the Commissions, or obtaining an opinion of counsel, to make complex determinations regarding whether an index is broad- or narrow-based, and whether an index CDS based on such an underlying index is a swap or security-based swap.
Also, rules 1.3(zzz) and 1.3(aaaa) should reduce the potential for market participants to use an index CDS to evade regulations, because they set objective requirements relating to the concentration of the notional amount allocated to each reference entity or security included in the index, as well as the eligibility conditions for reference entities and securities. Finally, these rules benefit the public by requiring that the providers of index CDS make publicly available sufficient information regarding the reference entities in an index underlying the index CDS. By requiring that such information be made publicly available, rules 1.3(zzz) and 1.3(aaaa) seek to assure the transparency of the index components that will be beneficial to market participants who trade such instruments and to the public.
Separately, rule 1.3(yyy) addresses exchange-traded swaps based on security indexes where the underlying index migrates from broad-based to narrow-based. The rule includes provisions that many market participants are familiar with from security futures trading. The CFTC believes that by using a familiar regulatory scheme, market participants will be able to more readily understand the rule as compared to a wholly new regulatory scheme. Also, the use of a “tolerance period” for swaps on security indexes that migrate from broad-based to narrow-based also creates greater clarity by establishing a 45-day timeframe (and subsequent grace period) on which market participants may rely. This tolerance period results in cost savings when compared to the alternative scenario where no tolerance period is provided and a migration of an index from broad-based to narrow-based would result in potential impediments to the ability of market participants to offset their swap positions.
Finally, the Commissions are stating that the determination of whether a Title VII instrument is a swap, a security-based swap, or both (
A commenter asserted that the regulatory complexity for index CDS is not worth the high compliance costs.
Another commenter
A commenter
The statutory framework requires delisting and relisting. These costs are mitigated by the tolerance period for migration, which may help to prevent frequent migration of indices from broad-based to narrow-based or vice versa. Moreover, it is the case for both on and off-exchange Title VII instruments that the Commissions are stating that the determination of whether a Title VII instrument on a security index is a swap or security-based swap is made prior to execution, but no later than the offer to enter into the instrument, and remains the same throughout the life of the instrument. Accordingly, even if the public information availability test would cause indexes underlying index CDS to migrate as suggested by a commenter, that will not affect the classification of outstanding index CDS entered into prior to such migration. However, if an amendment or change is made to such outstanding index CDS that would cause it to be a new purchase or sale of such index CDS, that could affect the classification of such outstanding index CDS.
A commenter asserted that extending the “grace period” from three months to six months would ease any disruption or dislocation associated with the delisting process with respect to an index that has migrated from broad to narrow, or narrow to broad, and that has failed the tolerance period.
The Commissions are adopting the proposed rules without modification. As discussed in Section III.G.5(b) above, the Commissions note that the three-month grace period applicable to security futures was mandated by Congress in that context,
Many commenters offered alternatives to the various tests in proposed rules 1.3(zzz) and 1.3(aaaa).
Due to the high compliance costs resulting from the public information availability test in particular, a commenter
One commenter offered an alternative to the public information availability test based on the volume of trading.
In the public information availability test, one commenter proposed moving the outstanding debt threshold from $1 billion to $100 million.
In response to a request for comment by the Commissions, two commenters believed that the presence of a third-party index provider would assure that sufficient information is available regarding the index CDS itself, but neither commenter provided an analysis to explain how or whether a third-party index provider would be able to provide information about the underlying securities or issuers of securities in the index.
A commenter
Rule 1.8 under the CEA allows persons to submit a request for a joint interpretation from the Commissions regarding whether an agreement, contract or transaction (or a class of agreements, contracts, or transactions) is a swap, security-based swap, or mixed swap. The CFTC estimates the cost of submitting a request for a joint interpretation pursuant to rule 1.8 would be a cost of about $7,700 for internal company or individual time and associated costs of $12,000 for the services of outside professionals.
Separately, CFTC rule 1.9 under the CEA allows persons to submit a request for a joint order from the Commissions regarding an alternative regulatory treatment for particular mixed swaps. This process applies except with respect to bilateral, uncleared mixed swaps where one of the parties to the mixed swap is dually registered with the CFTC as a swap dealer or major swap participant and with the SEC as a security-based swap dealer or major security-based swap participant. With respect to bilateral uncleared mixed swaps where one of the parties is a dual registrant, the rule provides that such mixed swaps would be subject to the regulatory scheme set forth in rule 1.9 in order to provide clarity as to the regulatory treatment of such mixed swaps.
The CFTC estimates that the cost of submitting a request for a joint order seeking an alternative regulatory treatment for a particular mixed swap would be approximately $31,000.
The CFTC believes that the rules that enable market participants to submit requests for joint interpretations regarding the nature of various agreements, contracts, or transactions, and requests for joint orders regarding the regulatory treatment of mixed swaps will help to create a more level playing field (since the joint interpretations and joint orders will be available to all market participants) regarding which agreements, contracts, or transactions constitute swaps, security-based swaps, or mixed swaps, and the regulatory treatment applicable to particular mixed swaps. The joint interpretations and joint orders will be available to all market participants. The availability of such joint interpretations and joint orders regarding the scope of the definitions and the regulatory treatment of mixed swaps will reduce transaction costs and thereby promote the use of Title VII instruments for risk management and other purposes.
The product interpretation process established by the Commissions has a 120-day deadline. This deadline will facilitate new products coming to market relatively quickly. Further, the process holds the Commissions accountable because they will have to state why they are not providing an interpretation when they decline to do so.
A commenter
CFTC rule 1.7 under the CEA would clarify that there would not be books and records or data requirements regarding SBSAs other than those that would exist for swaps. The rule alleviates any additional books and records or information costs to persons who are required to keep and maintain books and records regarding, or collect and maintain data regarding, SBSAs because the rule does not require such persons to keep or maintain any books and records, or collect and maintain any data, regarding SBSAs that differs from the books, records, and data required regarding swaps.
Specifically, rule 1.7 would require persons registered as SDRs to: i) keep and maintain books and records regarding SBSAs only to the extent that SDRs are required to keep and maintain books and records regarding swaps; and ii) collect and maintain data regarding SBSAs only to the extent that SDRs are required to collect and maintain data regarding swaps. In addition, rule 1.7 would require persons registered as swap dealers or major swap participants to keep and maintain books and records, including daily trading records, regarding SBSAs only to the extent that those persons would be required to keep and maintain books and records regarding swaps.
Because rule 1.7 imposes no requirements with respect to SBSAs other than those that exist for swaps, rule 1.7 would impose no costs other than those that are required with respect to swaps in the absence of rule 1.7. Rule 1.7 provides clarity by establishing uniform requirements regarding books and records, and data collection, requirements for swaps and for SBSAs. No comments were received with respect to Rule 1.7.
The CFTC is exercising the anti-evasion rulemaking authority granted to it by the Dodd-Frank Act. Generally, CFTC rule 1.3(xxx)(6) under the CEA defines as a swap any agreement, contract, or transaction that is willfully structured to evade the provisions of Title VII governing the regulation of swaps. Further, CFTC rule 1.6 under the CEA would prohibit activities conducted outside the United States, including entering into agreements, contracts, and transactions and structuring entities, to willfully evade or attempt to evade any provision of the CEA as enacted by Title VII or the rules and regulations promulgated thereunder.
As opposed to providing a bright-line test, rule 1.3(xxx)(6) would apply to agreements, contracts, and transactions that are willfully structured to evade and rule 1.6 would apply to entering into agreements, contracts, or transactions to evade (or as an attempt to evade) and structuring entities to evade (or as an attempt to evade) subtitle A of Title VII governing the regulation of swaps. Although this test does not provide a bright line, it helps ensure that would-be evaders cannot willfully structure their transactions or entities for the purpose of evading the requirements of subtitle A of Title VII. The CFTC also is explaining some circumstances that may constitute an evasion of the requirements of subtitle A of Title VII, while at the same time preserving the CFTC's ability to determine, on a case-by-case basis, with consideration given to all the facts and circumstances, that other types of transactions or actions constitute an evasion of the requirements of the statute or the regulations promulgated thereunder.
Market participants may incur costs when deciding whether a particular transaction or entity could be construed as being willfully structured to evade subtitle A of Title VII of the Dodd-Frank Act; however, the rules and related interpretations explain what constitutes evasive conduct, which should serve to mitigate such costs.
Absent the proposed anti-evasion rules and related interpretations, price discovery might be impaired because markets would not be informed about those transactions, since through evasion such transactions would not comply with Dodd-Frank Act regulatory requirements. Additionally, certain risks could increase in a manner that the CFTC would not be able to measure accurately. The anti-evasion rules and related interpretations will bring the appropriate scope of transactions and
A commenter
Activity conducted solely for a legitimate business purpose, absent other indicia of evasion, does not constitute evasion as described in the CFTC's interpretation. The CFTC has clarified that consideration of regulatory burdens, including evidence of regulatory avoidance, is not dispositive of whether there has been evasion or not, but should be considered along with all other relevant facts and circumstances. For example, activities structured as securities instead of swaps and transactions that meet the forward exclusion are not evasion per se. The CFTC has clarified that it will impose appropriate sanctions on the willful evader for violation of the CEA and CFTC regulations and not on non-evading parties.
A commenter suggests that an alternative standard for a finding of evasion should be “whether the transaction is lawful or not” under the CEA, CFTC rules and regulations, orders, or other applicable federal, state or other laws.
Including certain foreign exchange transactions, forward rate agreements and certain other transactions in the swap definition protects the public by subjecting these transactions to Dodd-Frank regulation. Similarly, the anti-evasion rules protect market participants against evasive conduct that would take away the protection afforded to them under Dodd-Frank regulation.
The CFTC believes that the final rules and interpretations can be consistently applied by substantially all market participants to determine which agreements, contracts, or transactions are, and which are not, swaps, security-based swaps, security-based swap agreements, or mixed swaps. This may improve resource allocation efficiency as market participant may not have to incur the cost of petitioning the Commissions or obtaining an opinion of counsel to determine the status of agreements, contracts or transactions as frequently as would be necessary without the rules or interpretations.
Moreover, the Commissions' statement that the determination of whether a Title VII instrument is a swap, a security-based swap, or both (
Not exempting swaps from foreign central banks, foreign sovereigns, international financial institutions, such as multilateral development banks, and similar organizations helps improve transparency and price discovery through disclosure that might otherwise not occur. Market participants will be informed about the prices of these transactions. Furthermore, they will be better informed about the risks that these transactions entail.
The CFTC's interpretation of the term “swap” to include guarantees of swaps that are not security-based swaps or mixed swaps and the separate CFTC release will enable the CFTC and market participants to receive more price-forming data about such swaps, which help improve price discovery for swaps. Without anti-evasion rules, price discovery might be impaired, since market participants would otherwise not be informed about relevant but evasive swap transactions.
Properly classifying transactions as swaps or not swaps may lead to sound risk management practices, because the added clarity provided by the rules and interpretations herein will enable market participants to consider whether a particular agreement, contract, or transaction is a swap, prior to entering into such agreement, contract or transaction.
The business of insurance is already subject to established pre-Dodd-Frank Act regulatory regimes. Requirements that may work well for swaps and security-based swaps may not be appropriate for traditional insurance products. To the extent that the final rules distinguish insurance from swaps and security-based swaps, the CFTC believes that the Commissions should be able to tailor rules for specific
Documenting oral book-outs should promote good business practices and aid the CFTC in preventing evasion through abuse of the forward exclusion.
Title VII instruments on qualifying foreign futures contracts on debt securities of one of the 21 enumerated foreign governments is a swap and not a security-based swap if the Title VII instrument satisfies certain conditions. The classification may provide cross-margining benefits when swap contracts and the futures contract are margined at the same derivatives clearing organization, and thus, may enhance sound risk management practices.
Documenting oral book-outs should promote good business practices and aid the CFTC in preventing evasion through abuse of the forward exclusion.
The product interpretation process established by the Commissions has a 120-day deadline. This deadline will facilitate new products coming to market relatively quickly. Further, the process holds the Commissions accountable, because they will have to state why they are not providing an interpretation when they decline to do so.
The rule for books and records requirements for SBSAs does not impose new recordkeeping requirements on SBSAs, but relies on existing recordkeeping requirements for swaps, which avoids unnecessary regulation.
The SEC is sensitive to the costs and benefits of its rules. In adopting the final rules in this release, the SEC has been mindful of the costs and benefits associated with these rules which provide fundamental building blocks for the Title VII regulatory regime established by Congress. In addition, section 3(f) of the Exchange Act requires the SEC, whenever it engages in rulemaking and is required to consider or determine whether an action is necessary or appropriate in the public interest, to consider, in addition to the protection of investors, whether the action will promote competition, efficiency, and capital formation.
These final rules implement the mandate of Title VII that the CFTC and the SEC, in consultation with the Federal Reserve Board, jointly further define the terms “swap,” “security-based swap,” and “security-based swap agreement.”
First, the Commissions are adopting rules that will assist market participants in determining whether particular agreements, contracts, and transactions fall within or outside the swap and security-based swap definitions (
Second, the Commissions are adopting rules that will assist market participants in determining whether a particular Title VII instrument is a swap subject to CFTC regulation, a security-based swap subject to SEC regulation, or a mixed swap subject to regulation by the CFTC and the SEC (
Third, the Commissions are adopting rules that provide: (1) A regulatory framework for certain mixed swaps and a process for market participants to request that the Commissions issue a joint order determining the appropriate regulatory treatment of certain other mixed swaps
In considering the economic consequences of the final rules, the SEC acknowledges the regulatory regime that was in place prior to the enactment of Title VII. Prior to the enactment of Title VII, swaps and security-based swaps were by-and-large unregulated. The Commodity Futures Modernization Act of 2000 (“CFMA”) created a regulatory regime that prohibited the SEC from regulating security-based swap agreements,
The rules adopted in this release implicate different types of potential costs and benefits. First, there are costs,
The programmatic costs and benefits and the assessment costs raise distinct analytic issues. First, the SEC recognizes that the Product Definitions, while integral to the regulatory requirements that will be imposed on the swap and security-based swap markets pursuant to Title VII, do not themselves establish the scope or nature of those substantive requirements or their related costs and benefits. The SEC anticipates that the rules implementing the substantive requirements under Title VII will be subject to their own economic analysis, but final rules have not yet been adopted that would subject agreements, contracts, or transactions, or entities that act as intermediaries (such as security-based swap dealers (“SBS dealers”) or major security-based swap participants (“MSBSPs”)) or provide market infrastructures (such as clearing agencies, trade repositories and trade execution facilities), to such substantive requirements. The costs and benefits described below are therefore those that may arise in connection with: (1) Determining whether certain agreements, contracts, or transactions are Title VII instruments (
Second, in determining the appropriate scope of these rules, the SEC considers the types of agreements, contracts, or transactions that should be regulated as swaps, security-based swaps, or mixed swaps under Title VII in light of the purposes of the Dodd-Frank Act, the overall regulatory framework, the historical treatment of the instruments and other regulatory frameworks, and the data currently available to the SEC. The SEC has sought to further define the terms “swap,” “security-based swap,” and “mixed swap” to address the status of agreements, contracts, and transactions that are appropriate to regulate as swaps, security-based swaps and mixed swaps within the purposes of Title VII and not to include those agreements, contracts, and transactions that historically have not been considered to be swaps or security-based swaps thereby not imposing unnecessary or inappropriate Title VII costs and burdens on parties engaging in agreements, contracts, and transactions. In addition, the SEC recognizes that these rules may have effects on competition, efficiency, and capital formation as a result of certain agreements, contracts, and transactions being determined to fall under or outside the Title VII regulatory regime, or as a result of the jurisdictional divide between the SEC and CFTC as mandated by the statute.
In the sections below, the SEC begins by recognizing that the Title VII regulatory regime has programmatic benefits and costs, as well as assessment costs. These costs and benefits have informed the decisions and the actions taken that are described throughout the release. Accordingly, the analysis below includes references to the discussions of the decisions and actions taken by the Commissions set forth above in other parts of this release. Finally the SEC discusses the effects of these rules on competition, efficiency, and capital formation.
By enacting Title VII, Congress created a regulatory regime for swaps and security-based swaps that previously did not exist.
The creation of regulatory regimes for agreements, contracts, or transactions that are defined as a swap or security-based swap will result in an array of programmatic benefits. However, if an agreement, contract or transaction falls within the swap or security-based swap definition, the parties to the agreement, contract, or transaction also may incur a number of upfront and ongoing costs associated with the regulation of Title VII instruments and transactions. These programmatic benefits and costs, discussed in more detail below, relate to Title VII registration; business conduct standards, compliance, operation and governance; clearing, trade execution, and reporting and processing; investor protection provisions of Title VII and the application of the Federal securities laws.
As a result of Title VII imposing a new regulatory regime on security-based swaps, in addition to making such security-based swaps securities under the Securities Act and the Exchange Act, Title VII will require the registration of entirely new types of registrants with the SEC, including SBS dealers and MSBSPs,
Title VII imposes requirements on registrants that did not exist prior to the adoption of Title VII, including core principles, duties and/or standards that are related to the type of registrant and its function.
Title VII also imposes a number of requirements on registered SBS dealers and MSBSPs, such as external business conduct requirements.
Section 15F(e) of the Exchange Act as added by section 764(a) of the Dodd Frank Act, imposes capital and margin requirements on dealers and major participants,
Section 3E of the Exchange Act, among other things, requires registered brokers, dealers and SBS dealers that collect initial and variation margin from counterparties to cleared security-based swap transactions to maintain that collateral in segregated accounts.
Section 763 of the Dodd-Frank Act adds section 3C to the Exchange Act, which deals with clearing for security-based swaps.
Title VII also requires the execution of clearable security-based swaps on exchanges or SB SEFs if such security-based swaps are available to trade and the reporting of trades to an SB SDR and dissemination of trading data to the public.
Furthermore, sections 15F(f), (g), and (j)(3) of the Exchange Act impose certain reporting, recordkeeping, and regulatory disclosure requirements on SBS dealers
Prior to the enactment of Title VII, the SEC had the ability to bring actions based on fraud, manipulation or insider trading relating to security-based swap agreements (as defined in section 206B of the GLBA
By including security-based swaps in the definition of security under the Securities Act and the Exchange Act and repealing the restrictions on regulating security-based swap agreements as securities, Title VII extended the investor protections under the Federal securities laws to security-based swaps. In particular, Title VII amends the Exchange Act and the Securities Act to include security-based swaps within the definition of the term “security.”
The programmatic benefits related to investor protection under the Federal securities laws have corresponding costs including costs associated with compliance with the registration and disclosure regime of the Securities Act if an exemption from such registration provisions is not available.
The above programmatic benefits and costs that will flow from regulation of the security-based swap market mandated by Title VII will be significant, although very difficult to quantify and measure.
The Commissions are adopting rules that establish an Insurance Safe Harbor and an Insurance Grandfather for certain agreements, contracts, and transactions that meet the conditions and tests set forth in rule 3a69–1 under the Exchange Act.
Typically, insurance has not been regulated under the Federal securities laws; although variable life insurance and annuities are securities and are regulated under the Federal securities laws.
The rules adopted in this release provide continuity in the regulatory treatment of agreements, contracts, and transactions that are insurance and fall outside the swap and security-based swap definitions. Market participants will be able to continue to rely on their existing understanding of insurance laws and regulations to engage in business activities relating to the insurance agreements, contracts, and transactions that satisfy the Insurance Safe Harbor or Insurance Grandfather.
Market participants will need to assess whether a particular agreement, contract, or transaction satisfies the Insurance Safe Harbor or Insurance Grandfather, prior to execution, but no later than when the parties offer to enter into the agreement, contract, or transaction. If such agreement, contract, or transaction satisfies rules 3a69–1 under the Exchange Act, it would fall outside the swap and security-based swap definitions. If such agreement, contract, or transaction does not satisfy the Insurance Safe Harbor or Insurance Grandfather, it would need to be analyzed based upon its own facts and circumstances in order to determine whether it falls within or outside the swap or security-based swap definition. For agreements, contracts, or transactions entered into subsequent to the effective date of such rule, this analysis will have to be performed prior to execution but no later than when the parties offer to enter into the agreement, contract, or transaction to customers to ensure compliance with Title VII. Incurring these assessment costs with respect to these agreements, contracts, or transactions would not have been required in most cases prior to Title VII for two primary reasons. First, as security-based swaps were not regulated prior to Title VII, there was no need to determine whether an agreement, contract or transaction fell within or outside the definition of security-based swap agreement in the CFMA. Second, the need for parties to assess individual types of insurance for purposes of determining whether the Federal securities laws apply would be limited because, as previously stated, typically,
The SEC believes that rule 3a69–1 under the Exchange Act reduces the assessment costs that would otherwise exist without these rules. Without rule 3a69–1 under the Exchange Act, market participants would still need to assess whether or not the agreement, contract, or transaction they are offering falls within the swap or security-based swap definition. More time and effort would likely be spent on the assessment because of lack of any safe harbor or grandfather to rely on. Without rule 3a69–1 under the Exchange Act, market participants may feel the need to request joint interpretations from the Commissions before they invest resources in insurance business, even with respect to agreements, contracts, or transactions that would otherwise meet the Insurance Safe Harbor or Insurance Grandfather.
The SEC recognizes that the assessment costs associated with rule 3a69–1 under the Exchange Act may include costs related to obtaining legal advice on whether an agreement, contract, or transaction meets the requirements of the Insurance Safe Harbor or Insurance Grandfather. The SEC has sought to minimize the costs of this analysis by adopting an approach that incorporates the characteristics of traditional insurance into the straightforward Product Test and Provider Test, as described in the discussions of relevant rules above.
The SEC believes there will be minimal assessment costs for parties to determine whether an agreement, contract, or transaction is among those specifically enumerated in rule 3a69–1 under the Exchange Act
With respect to rule 3a69–1 under the Exchange Act, the SEC believes that at least some market participants are likely to seek legal counsel for interpretation of various aspects of the rule, particularly when structuring new or novel insurance products. The costs associated with obtaining such legal counsel would vary depending on the relevant facts and circumstances, including the complexity of the agreement, contract, or transaction and whether an interpretation from the Commissions is requested. The SEC believes that the range of costs to undertake the legal analysis required to determine whether the Insurance Safe Harbor or Insurance Grandfather applies to an agreement, contract, or transaction will range from $378 to $27,000, with $27,000 representing a reasonable estimate of the upper end of the range of the costs.
The SEC could have determined to not further define the terms “swap” and “security-based swap” to address the status of traditional insurance products. If the Commissions did not further define the terms “swap” and “security-based swap” to address the status of traditional insurance products by adopting the Insurance Safe Harbor or the Insurance Grandfather certain insurance providers would have treated their insurance products as swaps or security-based swap, thereby incurring programmatic costs that would otherwise be avoidable. Other insurance providers could misinterpret the application of the definition of swap to certain agreements, contracts, or transactions to determine that they fall outside such definition of swap or security-based swap, in which case the amount of Title VII programmatic benefits and costs with respect to such products may potentially decrease. As stated above, without rule 3a69–1 under the Exchange Act, there also would be higher assessment costs to determine whether an agreement, contract, or transaction falls within or outside the swap or security-based swap definition.
The Commissions received several comments in support of alternatives to rule 3a69–1 under the Exchange Act as proposed.
• A test based on whether the agreement, contract, or transaction is subject to regulation as insurance by the insurance commissioner of the applicable state(s).
• A test based on the application of section 3(a)(8) of the Securities Act
• Various alternative tests that add (or exclude) requirements to the Product Test and the Provider Test.
The Commissions have considered each of these alternatives proposed by commenters and are adopting the final rule as discussed above.
In the SEC's view, as discussed above,
As previously stated, Title VII created a jurisdictional division between the CFTC and the SEC. The CFTC has jurisdiction over swaps, whereas the SEC has jurisdiction over security-based
As discussed above, there are programmatic costs and benefits that flow from being a Title VII instrument.
In addition, since Title VII specifically provides that security-based swaps are securities and grants the SEC the exclusive authority to regulate security-based swaps (other than as to mixed swaps for which the SEC shares jurisdiction with the CFTC), in adopting rules 3a68–1a, 3a68–1b, and 3a68–3(a) under the Exchange Act to further define the terms “narrow-based security index,” and “issuers of securities in a narrow-based security index”, the SEC is mindful of the programmatic costs and benefits specifically associated with security-based swaps falling under the Federal securities laws regime and being regulated by the SEC. These programmatic benefits include, for example, the applicability of the Securities Act registration, disclosure, and civil liability scheme, as well as the SEC's authority to take action to protect investors and prevent fraud and market manipulation. These benefits could in some cases have corresponding costs associated with the application of the Securities Act related to registration, disclosure and civil liability scheme and the registration, disclosure and liability provisions of the Exchange Act. For example, if an issuer of an underlying security enters into a security-based swap it will have to comply with the Securities Act registration requirements both for the security-based swap and the underlying security unless an exemption from registration is available. As another example, if market participants wish to sell security-based swaps to non-ECPs they will have to comply with the registration requirements of the Securities Act. Any person that would be required to comply with the registration requirements of the Securities Act with respect to security-based swaps will incur the costs of such registration, including legal and accounting costs. Additionally, such person will become subject to the periodic reporting requirements of the Exchange Act, unless already subject to such requirements, and incur the costs associated with such Exchange Act periodic reporting.
Market participants will need to ascertain whether an agreement, contract or transaction based on an index is a swap or a security-based swap, prior to execution, but no later than when the parties offer to enter into it, according to the criteria set forth in the definitions of the terms “narrow-based security index” and “issuers of securities in a narrow-based security index.” The SEC expects that this assessment will be made each time an index is considered to be used or created for purposes of transactions based on such index, and each time the material terms of the index on which the agreement, contract, or transaction is based are amended or modified.
Although the assessment cost associated with rules 3a68–1a, 3a68–1b, and 3a68–3(a) under the Exchange Act may vary, the SEC estimates that costs associated with undertaking the determination of whether an agreement, contract or transaction based on an index is a swap or security-based swap will range from $378 to $20,000.
The Commissions received many comments on proposed rules 3a68–1a and 3a68–1b and have incorporated many of the suggested alternatives into the final rules and rejected, after careful consideration, other suggested alternatives, as fully discussed in section III.G.3.b. The policy choices made with respect to accepting or rejecting the alternatives suggested by the commenters have been informed by the cost and benefit considerations. In particular, as stated above, the SEC is mindful of the programmatic costs and benefits specifically associated with security-based swaps falling under the Federal securities laws regime.
One alternative to rules 3a68–1a and 3a68–1b is for the Commissions to not further define the terms “issuers of securities in a narrow-based security index” or “narrow-based security index.” The SEC believes the assessment cost associated with determining whether an index CDS is a swap or security-based swap would be greater in the absence of rules 3a68–1a and 3a68–1b. Without these rules, market participants would still need to analyze index components and it would be difficult to apply the statutory language of “issuer of securities in a narrow-based security index” in section 3(a)(68)(A)(ii)(III) of the Exchange Act to index CDS, given that the existing statutory definition of “narrow-based security index” and the past guidance are focused on equity security indexes, volatility indexes and debt security indexes, none of which are specifically tailored for index CDS.
Commenters expressed concern associated with the public information availability test and suggested that the public information availability test not be incorporated into the final rule for various reasons.
The SEC believes there are many programmatic benefits associated with the public information availability test. As noted above, the public information availability test is intended as the substitute test for the ADTV provision in the statutory narrow-based security index definition.
Some commenters indicated that the determinations of public availability of information would be costly but did not quantify such costs or explain the difficulty in making an assessment of whether information was publicly available.
One commenter raised a specific concern about the assessment cost relating to applying the public information availability test to indexes of loans or borrowers and stated that unlike index of securities, which are generally subject to national or exchange-based reporting and disclosure regimes, a higher proportion of the components of an index of loans or borrowers may not be registered securities or reporting companies under the Exchange Act and therefore, this commenter stated that it would be more difficult or costly to determine whether an index of loans or borrowers meets the public information availability test.
The SEC believes that the overall assessment costs of including a public information availability test are justified in light of its benefits of preventing the index CDS from being used as a surrogate for the underlying securities or securities of the referenced issuer of securities. This should, in turn, prevent circumvention of the application of the Securities Act to index CDS transactions, and prevent fraud, manipulation and misuse of material non-public information.
One commenter suggested replacing the public information availability test with a volume trading test.
Similarly, the Commissions also rejected commenters' suggestion that the presence of a third-party index provider would assure that sufficient information is available regarding the index CDS itself without the need for a public information availability test.
As more fully discussed above in section III.G.3.b.iii, in considering other alternatives, including whether to revise or maintain the public information availability test, the SEC has consistently considered the programmatic benefits described above and the importance of assuring that there is information available with respect to the issuers of securities constituting a predominant percentage of an index on which a CDS is based if such index is not going to be considered a “narrow-based security index.”
Rule 3a68–5 provides that a Title VII instrument that is based on qualifying foreign futures contracts on debt securities of one of the 21 enumerated foreign governments is a swap and not a security-based swap if the Title VII instrument satisfies certain conditions.
The SEC believes that the assessment cost associated with determining whether a swap on certain futures contracts on foreign government securities constitute a swap or security-based swap under rule 3a68–5 should be minimal. Currently, qualifying foreign futures contracts on debt securities of the 21 enumerated foreign governments are traded on exchanges or boards of trade. Market participants may look at the exchange or board of trade listing to determine what they are. Therefore, the assessment, in accordance with the rule, would primarily focus on whether such swap itself is traded on or through a board of trade; whether the swap is cash-settled; whether the futures is traded on a board of trade; whether any security used to determine the cash settlement amount are not registered under the Securities Act or the subject of any American depositary receipt registered under the Securities Act; and whether the swap is entered into by the foreign government issuing the debt securities upon which the qualifying futures contract is based or referenced, an affiliate of such foreign government or an underwriter of such foreign government securities. All of these determinations may be readily ascertained by the parties entering into the agreement, contract, or transaction. Therefore, the assessment costs associated with rule 3a68–5 under the Exchange Act should be nominal because parties should be able to make assessments under rule 3a68–5 in less than an hour.
In addition to defining narrow-based security index consistent with the statutory definition set forth in section 3(a)(55) of the Exchange Act and the rules, regulations and orders of the SEC thereunder, Rule 3a68–3 under the Exchange Act establishes a tolerance and grace period for swaps and security-based swaps to address the treatment of indexes that migrate from broad-based to narrow-based or narrow-based to broad-based, so that market participants will know which regulatory jurisdiction will apply to such Title VII instruments.
There are programmatic costs and benefits associated with tolerance and grace periods. Because swaps may only trade on designated contract markets (“DCM”), swap execution facilities (“SEF”), and foreign boards of trade (“FBOT”), and security-based swaps may trade only on registered national securities exchanges (“NSE”) and SB SEFs, a tolerance and grace period creates the benefit of permitting the index provider to substitute certain index components in order to maintain the characteristic of such index being narrow-based or broad-based and allow market participants to continue to enter into the Title VII instrument on which such index is based.
Rule 3a68–3 under the Exchange Act provides a tolerance and grace period and does not require any determination to be made beyond the programmatic cost to monitor for migration as described above. The SEC believes that the assessment costs associated with rule 3a68–3 under the Exchange Act should be nominal on the parties entering into an agreement, contract, or transaction.
One commenter stated its view that extending the “grace period” from three months to six months would ease any disruption or dislocation associated with the delisting process with respect to an index that has migrated from broad-based to narrow-based, or narrow-based to broad-based, and such migration is not reversed during the tolerance period.
(e) Request for Interpretation Process (Rule 3a68–2 Under the Exchange Act)
(i) Programmatic Benefits and Costs
Rule 3a68–2 under the Exchange Act allows persons to submit a request for a joint interpretation from the Commissions regarding whether an agreement, contract or transaction (or a class of agreements, contracts, or transactions) is a swap, security-based swap, or mixed swap. As stated above,
The SEC estimates the costs of submitting a request for a joint interpretation pursuant to rule 3a68–2 under the Exchange Act would be approximately $20,000.
Rule 3a69–2(a) under the Exchange Act states that the term swap has the meaning set forth in section 3(a)(69) of the Exchange Act.
Rule 3a69–2 is parallel to rule 1.3(xxx)(2) under the CEA. In order to determine whether an agreement, contract, or transaction is a “swap” or “security-based swap”, it is necessary for the Commissions to adopt parallel rules that will apply to a Title VII instrument. Therefore, rule 3a69–2 is included under the Exchange Act. The definition of swap is the starting point for determining the status of a Title VII Instrument as a swap, security-based swap, or mixed swap. To the extent that the specific agreements, contracts, and transactions listed in section 1a(47)(B) of the CEA are swaps, the programmatic costs and benefits that flow from such agreements, contracts or transactions being a Title VII instrument under rule 3a69–2 will be determined by the substantive rules adopted by the CFTC mandated by Title VII. If any such agreements, contracts, or transactions are security-based swaps, the programmatic costs and benefits will be the same as with other security-based swaps.
Since this rule lists some of the types of agreements, contracts or transactions already listed in section 1a(47)(B) of the CEA
Rule 3a68–4(a) under the Exchange Act defines a “mixed swap” in the same manner as the term is defined in both the CEA and Exchange Act. Furthermore, rule 3a68–4(b) under the Exchange Act establishes the regulatory framework for mixed swaps with which parties to bilateral uncleared mixed swaps (
Rule 3a68–4(c) under the Exchange Act establishes a process for persons to request that the Commissions issue a joint order, with respect to parallel provisions
With respect to rule 3a68–4(b) under the Exchange Act, one cost is that parties to a mixed swap would need to determine whether they satisfy the conditions set forth in such rule in order to ascertain the regulatory treatment of the mixed swap. Such assessment includes determining whether the mixed swap is neither executed on nor subject to the rules of a DCM, NSE, SEF, SB SEF, or FBOT, whether the mixed swap will not be submitted for clearing, and whether one party to the mixed swap is a dually registered dealer or major participant. The SEC believes that the above determinations would be based on readily ascertainable facts and the assessment costs associated with such determinations should be minimal.
With respect to rule 3a68–4(c) under the Exchange Act, parties to mixed swaps have the option to decide whether to submit a request for issuing a joint order, weighing the benefits realized from the joint order against the cost of submitting such request. If parties to mixed swaps decide to submit a request, the SEC estimates the total costs of preparing and submitting a party's request to the Commissions pursuant to rule 3a68–4(c) under the Exchange Act will be $31,000 per request for mixed swaps for which a request for a joint interpretation pursuant to rule 3a68–4(c) was not previously made.
One commenter recommended that the Commissions require that market participants disaggregate mixed swaps and enter into separate simultaneous transactions so that they cannot employ mixed swaps to obscure the underlying substance of transactions.
Rule 3a69–3 under the Exchange Act provides that there are no additional books and records, or data, requirements regarding SBSAs beyond those required for swaps. The SEC recognized the following programmatic benefits and costs in adopting this rule.
As discussed above, SBSAs are swaps over which the CFTC has primary regulatory authority, but for which the SEC has antifraud, anti-manipulation, and certain other authority.
The SEC does not believe that any assessment costs associated with rule 3a69–3 under the Exchange Act would be material.
Section 3(f) of the Exchange Act requires the SEC, whenever it engages in rulemaking and is required to consider or determine whether an action is necessary or appropriate in the public interest, to consider, in addition to the protection of investors, whether the action would promote efficiency, competition, and capital formation.
The Commissions are further defining “swap” and “security-based swap” pursuant to section 712(d)(1) of the Dodd-Frank Act.
The SEC recognizes that the most significant impact of the swap and security-based swap definitions will derive from these definitions serving as the foundation for implementing the Title VII regulatory regime, particularly given the significant impacts that Title VII will have on the security-based swap market. In adopting these definitional rules, the SEC has sought to fairly reflect the statutory definitions and their underlying intent to implement the regulatory framework Congress intended to impose on the derivatives markets by enacting Title VII.
The scope of the definitions will affect the ultimate regulatory effects on competition, efficiency, and capital formation that will accompany the full implementation of Title VII. The SEC anticipates analyzing these effects in the adopting releases for the particular regulations. Below is a general discussion of the impacts on competition, efficiency, and capital formation as a result of the rules being adopted in this release.
The final rules being adopted relate primarily to further defining the terms “swap,” “security-based swap,” and “mixed swap” to determine (i) the instruments that will be subject to the Title VII regulatory regime and (ii) the jurisdictional line between Title VII
The status of products as inside the Title VII regulatory perimeter (i.e., swaps and security-based swaps) or outside the regulatory perimeter will have impacts on market participants. These rules will impact the status of certain market participants currently acting as intermediaries in the security-based swap market, subjecting them to regulatory oversight and registration. As the SEC has noted, the market among intermediaries for security-based swaps is highly concentrated. The concentration in large part appears to reflect the fact that larger entities possess competitive advantages in engaging in over-the-counter security-based swap dealing activities, particularly with respect to having sufficient financial resources to provide potential counterparties with adequate assurances of financial performance.
As the SEC has noted before, persons who fall within the definitions of “security-based swap dealer” and “major security-based swap participant” will incur a range of programmatic costs by virtue of their status as a registered dealer or major participant and certain assessment costs regarding their security-based swap activities. To the extent the costs associated with these statutorily mandated requirements are relatively fixed or large enough, they may negatively affect competition within the security-based swap market.
Certain aspects of the regulation of products defined as security-based swaps may enhance competition in the market for security-based swaps. For example, the proposed business conduct standards, if adopted as proposed, including those for disclosure of material risks and for fair and balanced communications, may reduce information asymmetries between security-based swap dealers, major security based swap participants, and their counterparties. The reduction of information asymmetries should promote price efficiency, promote more informed decision-making, and reduce the incidence of fraudulent or misleading representations.
In addition, as the SEC noted in the Entity Definitions Release, the current security-based swap market is subject to the potential for risk spillovers and systemic risk, which can occur when the financial sector as a whole (or certain key segments) is exposed to a significant amount of concentrated financial risk, either through direct counterparty relationships or the deterioration of asset values, and such exposure gives rise to the systemic chain effect of one firm's financial distress or losses leading to financial distress or losses of the entire financial sector as a whole.
The effect of the definitions on efficiency and capital formation is linked to their effect on competition. Markets that are competitive, with fair and transparent pricing and equal access to security-based swaps, may be expected to promote the efficient allocation of capital. Similarly, definitions that promote, or do not unduly restrict, competition can be accompanied by regulatory benefits that minimize the risk of market failure and thus promote efficiency and capital formation within the market.
As discussed above, certain Title VII requirements and rules relating to intermediaries, such as internal and external business conduct standards, if adopted as proposed, are expected to reduce information asymmetries and promote price efficiency. These business conduct standards, if adopted as proposed, would also help regulators perform their functions in an effective manner. The resulting increase in market integrity could affect capital formation in U.S. capital markets positively.
Other entities also will be affected by the scope of the security-based swap definition, including clearing agencies that currently, and in the future will, clear security-based swaps, the security-based swap data repositories that collect security-based swap data, and the SB SEFs and exchanges that are transaction venues for security-based swaps, subjecting these entities to regulation and oversight by the SEC.
Similarly, the SEC has previously stated that the core principles, duties, and requirements imposed by Title VII and the proposed rules on SB SEFs will foster innovation in the security-based swap market by allowing entities that seek to become SB SEFs to structure diverse platforms for the trading of security-based swaps,
Furthermore, in the proposing release regarding SDRs,
Other parties to security-based swap transactions may be affected by the definitions as well. Title VII amends the Exchange Act and the Securities Act to include security-based swap within the definition of the term “security.”
While other securities-related derivatives have the same limitations on issuers, affiliates, and underwriters using the derivative to avoid the Securities Act application to the underlying securities at the time the transaction is entered into, these other derivatives, such as security options and security futures, do not contain the same limitation on transactions with non-ECPs. Although security options and security futures must be traded on a national securities exchange as one condition to avail themselves of an exemption from registration under the Securities Act,
There also may be effects on efficiency and capital formation by facilitating end-users' use of security-based swaps for investment or hedging of risks relating to investments or business operations, thereby affecting liquidity and costs in connection with the issuance of equity and debt securities. The further definitions may promote capital formation by facilitating these hedging and investment activities. For example, in the context of CDS, as credit risk is correlated, lenders who made loans and investors in debt securities may find it desirable to hedge credit risks on their loan or securities portfolios by purchasing protection through single-name or index CDS.
There may be competitive impacts that arise due to the jurisdictional divide between the CFTC and the SEC that Congress imposed in Title VII. While the competitive impacts of the substantive rules will be addressed as part of each substantive rulemaking, the SEC acknowledges that such competitive effects may exist as a consequence of the statutory jurisdictional divide. These competitive impacts may arise due to capital and margin treatment, for example, which may affect demand for security-based swaps as compared to other types of security instruments. In addition, to the extent there are differences in regulatory treatment between security-based swaps
As one example of the possible competitive effects of the jurisdictional divide, section 3E(a) of the Exchange Act provides that only a registered broker, dealer, or security-based swap dealer may accept margin from customers to secure cleared security-based swap transactions,
In addition, there may be competitive impacts on security-based swap dealers, major security-based swap participants, clearing agencies, security-based swap data repositories and security-based swap execution facilities (or national securities exchanges) if they provide services for both security-based swaps and swaps, as their businesses will be divided based on the jurisdictional line between swaps and security-based swaps. For registered entities whose derivatives activities involve products that reference indexes or baskets, they will incur assessment costs
The SEC understands that Congress intended to create two parallel regulatory regimes for the derivatives market that complement each other. Each regulatory regime will have the benefit of the regulatory expertise of the respective agency. The rules further defining swap, security-based swap, and mixed swap do not by themselves create negative competitive impacts other than those which potentially could be imposed if the Commissions' substantive requirements differ substantially.
Finally, the rules being adopted may have effects on efficiency and capital formation. For example, the rules defining the terms “issuers of securities in a narrow-based security index” and “narrow-based security index” for purposes of the jurisdictional divide are intended to, among other things, minimize the likelihood that an index on which a CDS is based that is outside of the SEC's jurisdiction can be used as a surrogate or substitute for the underlying security, or with respect to securities of the referenced issuer, or to manipulate the market for such securities. Such provisions will provide greater protection to the reference issuers or the issuers of the securities in the index that the index CDS cannot be used in a manner that will adversely affect such issuers and their ability to raise capital.
In conclusion, the SEC believes the rules and interpretations adopted here would not have overall adverse effects on efficiency, competition, or capital formation.
Rules 3a68–2 and 3a68–4(c) under the Exchange Act contain new “collection of information” requirements within the meaning of the Paperwork Reduction Act of 1995.
The rules containing these two collections of information are being adopted pursuant to the Exchange Act. The rules establish a process through which a person can submit a request to the Commissions that the Commissions provide a joint interpretation of whether an agreement, contract, or transaction (or class thereof) is a swap, security-based swap, or both (
In the Proposing Release, the SEC requested comment on the collection of information requirements.
First, the SEC is adopting new rule 3a68–2 under the Exchange Act, which will allow persons to submit a request for a joint interpretation from the Commissions regarding whether an agreement, contract, or transaction (or a class thereof) is a swap, security-based swap, or both (
The Commissions may issue in response a joint interpretation or joint notice of proposed rulemaking regarding the status of that agreement, contract, or transaction (or class thereof) as a swap, security-based swap, or both (
Persons will submit requests pursuant to rule 3a68–2 under the Exchange Act on a voluntary basis. However, if a person submits a request, all of the information required under the rule, including any additional information requested by the Commissions, must be submitted to the Commissions, except to the extent a person withdraws the request pursuant to the rule.
Second, the SEC is adopting rule 3a68–4(c) under the Exchange Act, which will allow persons to submit requests to the Commissions for joint orders regarding the regulation of a particular mixed swap (or class thereof). Under rule 3a68–4(c) under the Exchange Act, a person will provide to the Commissions all material information regarding the terms of, and the economic characteristics and purpose of, the specified (or specified class of) mixed swap. In addition, a person will provide the specified parallel provisions, the reasons the person believes such specified parallel provisions are appropriate for the mixed swap (or class thereof), and an analysis of: (1) The nature and purposes of the parallel provisions that are the subject of the request; (2) the comparability of such parallel provisions; and (3) the extent of any conflicts or differences between such parallel provisions. The Commissions also may request the submitting person to provide additional information.
The Commissions may issue in response a joint order, after public notice and opportunity for comment, permitting the requesting person (and any other person or persons that subsequently lists, trades, or clears that class of mixed swap) to comply, as to parallel provisions only, with the specified parallel provisions (or another subset of the parallel provisions that are the subject of the request, as the Commissions determine is appropriate), instead of being required to comply with parallel provisions of both the CEA and the Exchange Act. Any joint order will be public and may discuss the material information regarding the terms of the relevant agreement, contract, or transaction (or class thereof), as well as any other information the Commissions deem material to the interpretation. Requesting persons also will be permitted to withdraw a request made pursuant to rule 3a68–4(c) under the Exchange Act at any time before the Commissions have issued a joint order in response to the request.
Persons will submit requests pursuant to rule 3a68–4(c) under the Exchange Act on a voluntary basis. However, if a person submits a request, all of the information required under the rule, including any additional information requested by the Commissions, must be submitted to the Commissions, except to the extent a person withdraws the request pursuant to the rule.
The SEC will use the information collected pursuant to rule 3a68–2 under the Exchange Act to evaluate agreements, contracts, or transactions (or classes thereof) in order to provide joint interpretations or joint notices of
As discussed above, some commenters expressed concern about the public availability of information regarding the joint interpretive process and asked that the parties be able to seek confidential treatment of their submissions.
As discussed in the Proposing Release, the SEC believes that the relevant categories of persons that will submit requests under rule 3a68–2 under the Exchange Act will be swap dealers, security-based swap dealers, major swap participants, and major security-based swap participants; SEFs, security-based SEFs and DCMs trading swaps; and SDRs, SBSDRs, DCOs clearing swaps, and clearing agencies clearing security-based swaps.
However, based on the SEC's experience and information received from commenters to the ANPR
Similarly, because the SEC believes that both the category of mixed swap transactions and the number of market participants that engage in mixed swap transactions are small, the SEC believes that the pool of potential persons requesting a joint order regarding the regulation of a specified, or specified class of, mixed swap pursuant to proposed rule 3a68–4(c) under the Exchange Act will be small. In addition, depending on the characteristics of a mixed swap (or class thereof), a person may choose not to submit a request pursuant to rule 3a68–4(c) under the Exchange Act. The SEC also notes that any joint order issued by the Commissions will apply to any person that subsequently lists, trades, or clears that specified, or specified class of, mixed swap, so that requests for joint orders could diminish over time. Also, persons may submit requests for an interpretation under rule 3a68–4(c) under the Exchange Act that do not result in an interpretation that the agreement, contract, or transaction (or class thereof) is a mixed swap.
Furthermore, although certain requests made pursuant to rule 3a68–
In addition, not only the requesting party, but also any other person that subsequently lists, trades, or clears that mixed swap, will be subject to, and must comply with, the joint order regarding the regulation of the specified, or specified class of, mixed swap, as issued by the Commissions. Therefore, the SEC believes that the number of requests for a joint order regarding the regulation of mixed swaps, particularly involving specified classes of mixed swaps, will decrease over time. As discussed above, the SEC believes that as the Commissions provide joint orders regarding alternative regulatory treatment, the number of requests received will decrease over time. The SEC believes it is reasonable to estimate that there likely will be five requests on average in each ensuing year.
Rules 3a68–2 and 3a68–4(c) under the Exchange Act require submission of certain information to the Commissions to the extent persons elect to request an interpretation and/or alternative regulatory treatment. Rules 3a68–2 and 3a68–4(c) under the Exchange Act each require certain information that a requesting party must include in its request to the Commissions in order to receive a joint interpretation or order, as applicable.
Rule 3a68–2 will apply only to requests made by persons that desire an interpretation from the Commissions. For each agreement, contract, or transaction (or class thereof) for which a person requests the Commissions' joint interpretation under rule 3a68–2 under the Exchange Act, the requesting person will be required to provide certain information, as discussed above.
As discussed above, the SEC believes it is reasonable to estimate that 50 requests will be received in the first year. For purposes of the PRA, the SEC estimates the total paperwork burden associated with preparing and submitting a person's request to the Commissions pursuant to rule 3a68–2 under the Exchange Act will be 20 hours per request and associated costs of $12,000 for outside professionals, which the SEC believes will consist of services provided by attorneys.
Assuming 50 requests in the first year, the SEC estimates that this will result in an aggregate burden for the first year of 1000 hours of company time (50 requests × 20 hours/request) and $600,000 for the services of outside professionals (
As discussed above, the SEC believes that there will be 10 requests on average in each ensuing year, which results in an aggregate burden in each ensuing year of 200 hours of company time (10 requests × 20 hours/request) and $120,000 for the services of outside professionals (
Rule 3a68–4(c) under the Exchange Act will require any party requesting a joint order regarding the regulation of a specified, or specified class of, mixed swap under the rule to include certain information about the agreement, contract, or transaction (or class thereof) that is a mixed swap, including the specified parallel provisions that the person believes should apply to the mixed swap (or class thereof), the reasons the person believes the specified parallel provisions will be appropriate for the mixed swap.
As discussed above, the SEC believes the number of requests that persons will submit pursuant to rule 3a68–4(c) under the Exchange Act is quite small given the limited types of agreements, contracts, and transactions (or classes thereof) the Commissions believe will constitute mixed swaps and that it will receive 20 requests in the first year.
As discussed above, the SEC believes that most requests under rule 3a68–2 under the Exchange Act that result in the interpretation that an agreement, contract, or transaction (or class thereof) is a mixed swap will result in a subsequent request for alternative regulatory treatment pursuant to rule 3a68–4(c) under the Exchange Act.
Also as discussed above, the SEC believes that 90 percent, or 18 of the estimated 20 requests pursuant to rule 3a68–4(c) under the Exchange Act in the first year, as discussed above will be “follow-on” requests. For mixed swaps for which a request for a joint interpretation pursuant to rule 3a68–2 under the Exchange Act was previously made, the SEC estimates the total paperwork burden under the PRA associated with preparing and submitting a party's request to the Commissions pursuant to rule 3a68–4(c) under the Exchange Act will be 10 hours fewer and $6,000 less per request than for mixed swaps for which a request for a joint interpretation pursuant to rule 3a68–2 under the Exchange Act was not previously made because certain, although not all, of the information required to be submitted and necessary to prepare pursuant to rule 3a68–4(c) under the Exchange Act will have been required to be submitted and necessary to prepare pursuant to rule 3a68–2 under the Exchange Act.
The estimated internal or company time burden for rule 3a68–4(c) under the Exchange Act has not changed from that included in the Proposing Release.
As discussed above, the SEC believes that there will be five requests on average in each ensuing year. Assuming five requests in each ensuing year, the SEC estimates that this will result in an aggregate burden in each ensuing year of 150 hours of company time (5 requests × 30 hours/request) and $100,000 for the services of outside professionals (5 requests × 50 hours/request × $400). As discussed above, however, assuming that approximately 90 percent, or 4 of the estimated 5 requests pursuant to rule 3a68–4(c) under the Exchange Act in each ensuing year are “follow-on” requests to requests for joint interpretation from the Commissions under rule 3a68–4(c) under the Exchange Act, the SEC estimates that this will result in an aggregate burden for such “follow-on” requests in each ensuing year of 80 hours of company time (4 requests × 20 hours/request) and $56,000 for the services of outside professionals (4 requests × 35 hours/request × $400) and an aggregate burden for all requests in each ensuing year of 110 hours of company time (1 request × 30 hours/request and 4 requests × 20 hours/request) and $76,000 for the services of outside professionals (1 request × 50 hours/request × $40] and 4 requests × 35 hours/request × $400).
The Regulatory Flexibility Act (“RFA”)
For purposes of SEC rulemaking in connection with the RFA, a small entity includes: (1) When used with reference to an “issuer” or a “person,” other than an investment company, an “issuer” or “person” that, on the last day of its most recent fiscal year, had total assets of $5 million or less
The Proposing Release stated that, based on the SEC's existing information about the swap markets, the SEC believed that the swap markets, while broad in scope, are largely dominated by entities such as those that would qualify as swap dealers, security-based swap dealers, major swap participants, and major security-based swap participants (collectively, “swap market dealers and major participants”) and that the SEC believed that such entities exceed the thresholds defining “small entities” set out above.
The Proposing Release also stated that, although it is possible that other persons may engage in swap and security-based swap transactions, the SEC did not believe that any of these entities would be “small entities” as defined in rule 0–10 under the Exchange Act
The Proposing Release further stated that, to the extent that a small number of transactions did have a counterparty that was defined as a “small entity” under SEC rule 0–10, the SEC believed it is unlikely that the proposed rules and interpretive guidance would have a significant economic impact on that entity because the proposed rules and interpretive guidance simply would address whether certain products fall within the swap definition, address whether certain products are swaps, security-based swaps, SBSAs, or mixed swaps, provide a process for requesting interpretations of whether agreements, contracts, and transactions are swaps, security-based swaps, and mixed swaps, provide a process for requesting alternative regulatory treatment for mixed swaps, and specify that the books and records for SBSAs are those that are applicable to all entities.
As a result, the SEC certified that the proposed rules and interpretive guidance would not have a significant economic impact on a substantial number of small entities for purposes of the RFA, and requested written comments regarding this certification.
In response to the Proposing Release, one commenter, representing a number of market participants, submitted a comment to the CFTC related to the RFA.
The SEC continues to believe that the types of entities that would participate in the swap markets—which generally would be swap market dealers and major participants—would not be “small entities” for purposes of the RFA. The final rules and interpretive guidance do not themselves impose any compliance obligations. Instead they describe the categories of agreements, contracts, and transactions that are outside the scope of the Product Definitions and delineate the jurisdictional divide between the SEC's and the CFTC's regulatory regime. Accordingly, the SEC certifies that the final rules and interpretive guidance would not have a significant economic impact on a substantial number of small entities for purposes of the RFA.
Definitions, General swap provisions.
Reporting and recordkeeping requirements, Securities.
Securities.
Pursuant to the Commodity Exchange Act, 7 U.S.C. 1
For the reasons stated in the preamble, the CFTC is amending Title 17, Chapter I, of the Code of Federal Regulations, as follows:
7 U.S.C. 1a, 2, 5, 6, 6a, 6b, 6c, 6e, 6f, 6g, 6h, 6i, 6j, 6k, 6l, 6m, 6n, 6o, 6p, 6r, 7, 7a, 7b, 8, 9, 10, 12, 12a, 12c, 13a, 13a–1, 16, 16a, 21, 23, and 24.
The additions read as follows:
(nnn)–(www) [Reserved]
(xxx)
(2)
(A) A cross-currency swap;
(B) A currency option, foreign currency option, foreign exchange option and foreign exchange rate option;
(C) A foreign exchange forward;
(D) A foreign exchange swap;
(E) A forward rate agreement; and
(F) A non-deliverable forward involving foreign exchange.
(ii) The term swap does not include an agreement, contract, or transaction described in paragraph (xxx)(2)(i) of this section that is otherwise excluded by section 1a(47)(B) of the Commodity Exchange Act.
(3)
(i) A foreign exchange forward or a foreign exchange swap shall not be considered a swap if the Secretary of the Treasury makes a determination described in section 1a(47)(E)(i) of the Commodity Exchange Act.
(ii) Notwithstanding paragraph (xxx)(3)(i) of this section:
(A) The reporting requirements set forth in section 4r of the Commodity Exchange Act and regulations promulgated thereunder shall apply to a foreign exchange forward or foreign exchange swap; and
(B) The business conduct standards set forth in section 4s(h) of the Commodity Exchange Act and regulations promulgated thereunder shall apply to a swap dealer or major
(iii) For purposes of section 1a(47)(E) of the Commodity Exchange Act and this paragraph (xxx), the term
(iv) For purposes of section 1a(47)(E) of the Commodity Exchange Act and this paragraph (xxx), the term
(v) For purposes of sections 1a(24) and 1a(25) of the Commodity Exchange Act and this paragraph (xxx), the following transactions are not foreign exchange forwards or foreign exchange swaps:
(A) A currency swap or a cross-currency swap;
(B) A currency option, foreign currency option, foreign exchange option, or foreign exchange rate option; and
(C) A non-deliverable forward involving foreign exchange.
(4)
(A) By its terms or by law, as a condition of performance on the agreement, contract, or transaction:
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(B) Is provided:
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(C) Is provided in accordance with the conditions set forth in paragraph (xxx)(4)(i)(B) of this section and is one of the following types of products:
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(ii) The terms
(5)
(6)
(i) An agreement, contract, or transaction that is willfully structured to evade any provision of Subtitle A of the Wall Street Transparency and Accountability Act of 2010, including any amendments made to the Commodity Exchange Act thereby (
(ii) An interest rate swap or currency swap, including but not limited to a transaction identified in paragraph (xxx)(3)(v) of this section, that is willfully structured as a foreign exchange forward or foreign exchange swap to evade any provision of Subtitle A shall be deemed a swap for purposes of Subtitle A and the rules, regulations, and orders of the Commission promulgated thereunder.
(iii) An agreement, contract, or transaction of a bank that is not under the regulatory jurisdiction of an appropriate Federal banking agency (as defined in section 1a(2) of the Commodity Exchange Act), where the agreement, contract, or transaction is willfully structured as an identified banking product (as defined in section 402 of the Legal Certainty for Bank Products Act of 2000) to evade the provisions of the Commodity Exchange Act, shall be deemed a swap for purposes of the Commodity Exchange Act and the rules, regulations, and orders of the Commission promulgated thereunder.
(iv) The form, label, and written documentation of an agreement, contract, or transaction shall not be dispositive in determining whether the agreement, contract, or transaction has been willfully structured to evade as provided in paragraphs (xxx)(6)(i) through (xxx)(6)(iii) of this section.
(v) An agreement, contract, or transaction that has been willfully structured to evade as provided in paragraphs (xxx)(6)(i) through (xxx)(6)(iii) of this section shall be considered in determining whether a
(vi) Notwithstanding the foregoing, no agreement, contract, or transaction structured as a security (including a security-based swap) under the securities laws (as defined in section 3(a)(47) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(47))) shall be deemed a swap pursuant to this paragraph (xxx)(6) or shall be considered for purposes of paragraph (xxx)(6)(v) of this section.
(yyy)
(1)
(2)
(i)(A) A swap on the index is traded on or subject to the rules of a designated contract market, swap execution facility, or foreign board of trade for at least 30 days as a swap on an index that was not a narrow-based security index; or
(B) Such index was not a narrow-based security index during every trading day of the six full calendar months preceding a date no earlier than 30 days prior to the commencement of trading of a swap on such index on a market described in paragraph (yyy)(2)(i)(A) of this section; and
(ii) The index has been a narrow-based security index for no more than 45 business days over three consecutive calendar months.
(3)
(i)(A) A security-based swap on the index is traded on a national securities exchange or security-based swap execution facility for at least 30 days as a security-based swap on a narrow-based security index; or
(B) Such index was a narrow-based security index during every trading day of the six full calendar months preceding a date no earlier than 30 days prior to the commencement of trading of a security-based swap on such index on a market described in paragraph (yyy)(3)(i)(A) of this section; and
(ii) The index has been a security index that is not a narrow-based security index for no more than 45 business days over three consecutive calendar months.
(4)
(i) Solely with respect to a swap that is traded on or subject to the rules of a designated contract market, swap execution facility, or foreign board of trade, an index that becomes a narrow-based security index under paragraph (yyy)(2) of this section solely because it was a narrow-based security index for more than 45 business days over three consecutive calendar months shall not be a narrow-based security index for the following three calendar months.
(ii) Solely with respect to a security-based swap that is traded on a national securities exchange or security-based swap execution facility, an index that becomes a security index that is not a narrow-based security index under paragraph (yyy)(3) of this section solely because it was not a narrow-based security index for more than 45 business days over three consecutive calendar months shall be a narrow-based security index for the following three calendar months.
(zzz) Meaning of “issuers of securities in a narrow-based security index” as used in the definition of “security-based swap” as applied to index credit default swaps.
(1) Notwithstanding paragraph (yyy)(1) of this section, and solely for purposes of determining whether a credit default swap is a security-based swap under the definition of “security-based swap” in section 3(a)(68)(A)(ii)(III) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(68)(A)(ii)(III), as incorporated in section 1a(42) of the Commodity Exchange Act, the term
(i)(A) There are nine or fewer non-affiliated issuers of securities that are reference entities included in the index, provided that an issuer of securities shall not be deemed a reference entity included in the index for purposes of this section unless:
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(B) The effective notional amount allocated to any reference entity included in the index comprises more than 30 percent of the index's weighting;
(C) The effective notional amount allocated to any five non-affiliated reference entities included in the index comprises more than 60 percent of the index's weighting; or
(D) Except as provided in paragraph (zzz)(2) of this section, for each reference entity included in the index, none of the criteria in paragraphs (zzz)(1)(i)(D)(
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(ii)(A) The index is not composed solely of reference entities that are issuers of exempted securities as defined in section 3(a)(12) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(12)), as in effect on the date of enactment of the Futures Trading Act of 1982 (other than any municipal security as defined in section 3(a)(29) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(29))), as in effect on the date of enactment of the Futures Trading Act of 1982; and
(B) Without taking into account any portion of the index composed of reference entities that are issuers of exempted securities as defined in section 3(a)(12) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(12)), as in effect on the date of enactment of the Futures Trading Act of 1982 (other than any municipal security as defined in section 3(a)(29) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(29))), the remaining portion of the index would be within the term “issuer of securities in a narrow-based security index” under paragraph (zzz)(1)(i) of this section.
(2) Paragraph (zzz)(1)(i)(D) of this section will not apply with respect to a reference entity included in the index if:
(i) The effective notional amounts allocated to such reference entity comprise less than five percent of the index's weighting; and
(ii) The effective notional amounts allocated to reference entities included in the index that satisfy paragraph (zzz)(1)(i)(D) of this section comprise at least 80 percent of the index's weighting.
(3) For purposes of this paragraph (zzz):
(i) A reference entity included in the index is affiliated with another reference entity included in the index (for purposes of paragraph (zzz)(3)(iv) of this section) or another entity (for purposes of paragraph (zzz)(3)(v) of this section) if it controls, is controlled by, or is under common control with, that other reference entity included in the index or other entity, as applicable; provided that each reference entity included in the index that is an issuing entity of an asset-backed security as defined in section 3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)) will not be considered affiliated with any other reference entity included in the index or any other entity that is an issuing entity of an asset-backed security.
(ii) Control for purposes of this section means ownership of more than 50 percent of the equity of a reference entity included in the index (for purposes of paragraph (zzz)(3)(iv) of this section) or another entity (for purposes of paragraph (zzz)(3)(v) of this section), or the ability to direct the voting of more than 50 percent of the voting equity of a reference entity included in the index (for purposes of paragraph (zzz)(3)(iv) of this section) or another entity (for purposes of paragraph (zzz)(3)(v) of this section).
(iii) In identifying a reference entity included in the index for purposes of this section, the term reference entity includes:
(A) An issuer of securities;
(B) An issuer of securities that is an issuing entity of an asset-backed security as defined in section 3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)); and
(C) An issuer of securities that is a borrower with respect to any loan identified in an index of borrowers or loans.
(iv) For purposes of calculating the thresholds in paragraphs (zzz)(1)(i)(A) through (1)(i)(C) of this section, the term reference entity included in the index includes a single reference entity included in the index or a group of affiliated reference entities included in the index as determined in accordance with paragraph (zzz)(3)(i) of this section (with each reference entity included in the index that is an issuing entity of an asset-backed security as defined in section 3(a)(77) of the Act (15 U.S.C. 78c(a)(77)) being considered a separate reference entity included in the index).
(v) For purposes of determining whether one of the criterion in either paragraphs (zzz)(1)(i)(D)(
(aaaa) Meaning of “narrow-based security index” as used in the definition of “security-based swap” as applied to index credit default swaps.
(1) Notwithstanding paragraph (yyy)(1) of this section, and solely for purposes of determining whether a credit default swap is a security-based swap under the definition of “security-based swap” in section 3(a)(68)(A)(ii)(I) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(68)(A)(ii)(I), as incorporated in section 1a(42) of the Commodity Exchange Act, the term narrow-based security index means an index in which:
(i)(A) The index is composed of nine or fewer securities or securities that are issued by nine or fewer non-affiliated issuers, provided that a security shall not be deemed a component of the index for purposes of this section unless:
(
(
(B) The effective notional amount allocated to the securities of any issuer included in the index comprises more than 30 percent of the index's weighting;
(C) The effective notional amount allocated to the securities of any five non-affiliated issuers included in the index comprises more than 60 percent of the index's weighting; or
(D) Except as provided in paragraph (aaaa)(2) of this section, for each security included in the index, none of the criteria in paragraphs (aaaa)(1)(i)(D)(
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(ii)(A) The index is not composed solely of exempted securities as defined in section 3(a)(12) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(12)), as in effect on the date of enactment of the Futures Trading Act of 1982 (other than any municipal security as defined in section 3(a)(29) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(29))), as in effect on the date of enactment of the Futures Trading Act of 1982; and
(B) Without taking into account any portion of the index composed of exempted securities as defined in section 3(a)(12) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(12)), as in effect on the date of enactment of the Futures Trading Act of 1982 (other than any municipal security as defined in section 3(a)(29) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(29))), the remaining portion of the index would be within the term “narrow-based security index” under paragraph (aaaa)(1)(i) of this section.
(2) Paragraph (aaaa)(1)(i)(D) of this section will not apply with respect to securities of an issuer included in the index if:
(i) The effective notional amounts allocated to all securities of such issuer included in the index comprise less than five percent of the index's weighting; and
(ii) The securities that satisfy paragraph (aaaa)(1)(i)(D) of this section comprise at least 80 percent of the index's weighting.
(3) For purposes of this paragraph (aaaa):
(i) An issuer of securities included in the index is affiliated with another issuer of securities included in the index (for purposes of paragraph (aaaa)(3)(iv) of this section) or another entity (for purposes of paragraph (aaaa)(3)(v) of this section) if it controls, is controlled by, or is under common control with, that other issuer or other entity, as applicable; provided that each issuer of securities included in the index that is an issuing entity of an asset-backed security as defined in section 3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)) will not be considered affiliated with any other issuer of securities included in the index or any other entity that is an issuing entity of an asset-backed security.
(ii) Control for purposes of this section means ownership of more than 50 percent of the equity of an issuer of securities included in the index (for purposes of paragraph (aaaa)(3)(iv) of this section) or another entity (for purposes of paragraph (aaaa)(3)(v) of this section), or the ability to direct the voting of more than 50 percent of the voting equity an issuer of securities included in the index (for purposes of paragraph (aaaa)(3)(iv) of this section) or another entity (for purposes of paragraph (aaaa)(3)(v) of this section).
(iii) In identifying an issuer of securities included in the index for purposes of this section, the term issuer includes:
(A) An issuer of securities; and
(B) An issuer of securities that is an issuing entity of an asset-backed security as defined in section 3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)).
(iv) For purposes of calculating the thresholds in paragraphs (zzz)(1)(i)(A) through (1)(i)(C) of this section, the term issuer of the security included in the index includes a single issuer of securities included in the index or a group of affiliated issuers of securities included in the index as determined in accordance with paragraph (aaaa)(3)(i) of this section (with each issuer of securities included in the index that is an issuing entity of an asset-backed security as defined in section 3(a)(77) of the Securities Exchange Act of 1934 (15
(v) For purposes of determining whether one of the criterion in either paragraphs (aaaa)(1)(i)(D)(1) through (aaaa)(1)(i)(D)(4) of this section or paragraphs (aaaa)(1)(iv)(D)(
(bbbb) Futures contracts on certain foreign sovereign debt. The term
(1) The futures contract that the agreement, contract, or transaction references or upon which the agreement, contract, or transaction is based is a qualifying foreign futures contract that satisfies the conditions of rule 3a12–8 under the Securities Exchange Act of 1934 (17 CFR 240.3a12–8) applicable to qualifying foreign futures contracts;
(2) The agreement, contract, or transaction is traded on or through a board of trade (as defined in the Commodity Exchange Act);
(3) The debt securities upon which the qualifying foreign futures contract is based or referenced and any security used to determine the cash settlement amount pursuant to paragraph (bbbb)(4) of this section were not registered under the Securities Act of 1933 (15 U.S.C. 77
(4) The agreement, contract, or transaction may only be cash settled; and
(5) The agreement, contract or transaction is not entered into by the issuer of the debt securities upon which the qualifying foreign futures contract is based or referenced (including any security used to determine the cash payment due on settlement of such agreement, contract or transaction), an affiliate (as defined in the Securities Act of 1933 (15 U.S.C. 77
(a) It shall be unlawful to conduct activities outside the United States, including entering into agreements, contracts, and transactions and structuring entities, to willfully evade or attempt to evade any provision of the Commodity Exchange Act as enacted by Subtitle A of the Wall Street Transparency and Accountability Act of 2010 or the rules, regulations, and orders of the Commission promulgated thereunder (
(b) The form, label, and written documentation of an agreement, contract, or transaction, or an entity, shall not be dispositive in determining whether the agreement, contract, or transaction, or entity, has been entered into or structured to willfully evade as provided in paragraph (a) of this section.
(c) An activity conducted outside the United States to evade as provided in paragraph (a) of this section shall be subject to the provisions of Subtitle A.
(d) Notwithstanding the foregoing, no agreement, contract, or transaction structured as a security (including a security-based swap) under the securities laws (as defined in section 3(a)(47) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(47))) shall be deemed a swap pursuant to this section.
(a) A person registered as a swap data repository under section 21 of the Commodity Exchange Act and the rules and regulations thereunder:
(1) Shall not be required to keep and maintain additional books and records regarding security-based swap agreements other than the books and records regarding swaps required to be kept and maintained pursuant to section 21 of the Commodity Exchange Act and the rules and regulations thereunder; and
(2) Shall not be required to collect and maintain additional data regarding security-based swap agreements other than the data regarding swaps required to be collected and maintained by such persons pursuant to section 21 of the Commodity Exchange Act and the rules and regulations thereunder.
(b) A person shall not be required to keep and maintain additional books and records, including daily trading records, regarding security-based swap agreements other than the books and records regarding swaps required to be kept and maintained by such persons pursuant to section 4s of the Commodity Exchange Act and the rules and regulations thereunder if such person is registered as:
(1) A swap dealer under section 4s(a)(1) of the Commodity Exchange Act and the rules and regulations thereunder;
(2) A major swap participant under section 4s(a)(2) of the Commodity Exchange Act and the rules and regulations thereunder;
(3) A security-based swap dealer under section 15F(a)(1) of the Securities Exchange Act of 1934 (15 U.S.C. 78o-10(a)(1)) and the rules and regulations thereunder; or
(4) a major security-based swap participant under section 15F(a)(2) of the Securities Exchange Act of 1934 (15 U.S.C. 78o-10(a)(2)) and the rules and regulations thereunder.
(c) The term
(a)
(1) A swap, as that term is defined in section 1a(47) of the Commodity Exchange Act and the rules and regulations promulgated thereunder;
(2) A security-based swap, as that term is defined in section 1a(42) of the Commodity Exchange Act and the rules and regulations promulgated thereunder; or
(3) A mixed swap, as that term is defined in section 1a(47)(D) of the Commodity Exchange Act and the rules and regulations promulgated thereunder.
(b)
(1) All material information regarding the terms of the agreement, contract, or transaction (or class thereof);
(2) A statement of the economic characteristics and purpose of the agreement, contract, or transaction (or class thereof);
(3) The requesting person's determination as to whether the agreement, contract, or transaction (or class thereof) should be characterized as a swap, a security-based swap, or both, (
(4) Such other information as may be requested by the Commission or the Securities and Exchange Commission.
(c)
(d)
(1) If the Commission or the Securities and Exchange Commission receives a proposal to list, trade, or clear an agreement, contract, or transaction (or class thereof) that raises questions as to the appropriate characterization of such agreement, contract, or transaction (or class thereof) as a swap, a security-based swap, or both (
(2) The Commission or the Securities and Exchange Commission, or their Chairmen jointly, may submit a request for a joint interpretation as described in paragraph (a) of this section; such submission shall be made pursuant to paragraph (b) of this section, and may be withdrawn pursuant to paragraph (c) of this section.
(e)
(2) The Commission and the Securities and Exchange Commission shall consult with the Board of Governors of the Federal Reserve System prior to issuing any joint interpretation as described in paragraph (a) of this section.
(3) If the Commission and the Securities and Exchange Commission seek public comment with respect to a joint interpretation regarding an agreement, contract, or transaction (or class thereof), the 120-day period described in paragraph (e)(1) of this section shall be stayed during the pendency of the comment period, but shall recommence with the business day after the public comment period ends.
(4) Nothing in this section shall require the Commission and the Securities and Exchange Commission to issue any joint interpretation.
(5) If the Commission and the Securities and Exchange Commission do not issue a joint interpretation within the time period described in paragraph (e)(1) or (e)(3) of this section, each of the Commission and the Securities and Exchange Commission shall publicly provide the reasons for not issuing such a joint interpretation within the applicable timeframes.
(f)
(2) A joint proposed rule described in paragraph (f)(1) of this section shall be issued within the timeframe for issuing a joint interpretation set forth in paragraph (e) of this section.
(a)
(b)
(1) The following provisions of the Commodity Exchange Act, and the rules and regulations promulgated thereunder:
(i) Examinations and information sharing: sections 4s(f) and 8 of the Commodity Exchange Act;
(ii) Enforcement: sections 2(a)(1)(B), 4(b), 4b, 4c, 4s(h)(1)(A), 4s(h)(4)(A), 6(c), 6(d), 6c, 6d, 9, 13(a), 13(b), and 23 of the Commodity Exchange Act;
(iii) Reporting to a swap data repository: section 4r of the Commodity Exchange Act;
(iv) Real-time reporting: section 2(a)(13) of the Commodity Exchange Act;
(v) Capital: section 4s(e) of the Commodity Exchange Act; and
(vi) Position Limits: section 4a of the Commodity Exchange Act; and
(2) The provisions of the Federal securities laws, as defined in section 3(a)(47) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(47)), and the rules and regulations promulgated thereunder.
(c)
(2)
(i) All material information regarding the terms of the specified, or specified class of, mixed swap;
(ii) The economic characteristics and purpose of the specified, or specified class of, mixed swap;
(iii) The specified parallel provisions, and the reasons the person believes such specified parallel provisions would be appropriate for the mixed swap (or class thereof); and
(iv) An analysis of:
(A) The nature and purposes of the parallel provisions that are the subject of the request;
(B) The comparability of such parallel provisions;
(C) The extent of any conflicts or differences between such parallel provisions; and
(D) Such other information as may be requested by the Commission or the Securities and Exchange Commission.
(3)
(4)
(i) The nature and purposes of the parallel provisions that are the subject of the request;
(ii) The comparability of such parallel provisions; and
(iii) The extent of any conflicts or differences between such parallel provisions.
(5)
(ii) Nothing in this section shall require the Commission and the Securities and Exchange Commission to issue any joint order.
(iii) If the Commission and the Securities and Exchange Commission do not issue a joint order within the time period described in paragraph (c)(5)(i) of this section, each of the Commission and the Securities and Exchange Commission shall publicly provide the reasons for not issuing such a joint order within that timeframe.
Pursuant to the Securities Act, 15 U.S.C. 77a
For the reasons stated in the preamble, the SEC is amending Title 17, Chapter II of the Code of the Federal Regulations as follows:
15 U.S.C. 77b, 77b note, 77c, 77d, 77f, 77g, 77h, 77j, 77r, 77s, 77z–3, 77sss, 78c, 78d, 78j, 78
(a) The term
(b) The term
15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z–2, 77z–3, 77eee, 77ggg, 77nnn, 77jjj, 77kkk, 77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 78j, 78j–1, 78k, 78k–1, 78
(a) Notwithstanding § 240.3a68–3(a), and solely for purposes of determining
(1)(i) There are nine or fewer non-affiliated issuers of securities that are reference entities included in the index, provided that an issuer of securities shall not be deemed a reference entity included in the index for purposes of this section unless:
(A) A credit event with respect to such reference entity would result in a payment by the credit protection seller to the credit protection buyer under the credit default swap based on the related notional amount allocated to such reference entity; or
(B) The fact of such credit event or the calculation in accordance with paragraph (a)(1)(i)(A) of this section of the amount owed with respect to such credit event is taken into account in determining whether to make any future payments under the credit default swap with respect to any future credit events;
(ii) The effective notional amount allocated to any reference entity included in the index comprises more than 30 percent of the index's weighting;
(iii) The effective notional amount allocated to any five non-affiliated reference entities included in the index comprises more than 60 percent of the index's weighting; or
(iv) Except as provided in paragraph (b) of this section, for each reference entity included in the index, none of the criteria in paragraphs (a)(1)(iv)(A) through (a)(1)(iv)(H) of this section is satisfied:
(A) The reference entity included in the index is required to file reports pursuant to section 13 or section 15(d) of the Act (15 U.S.C. 78m or 78o(d));
(B) The reference entity included in the index is eligible to rely on the exemption provided in § 240.12g3–2(b);
(C) The reference entity included in the index has a worldwide market value of its outstanding common equity held by non-affiliates of $700 million or more;
(D) The reference entity included in the index (other than a reference entity included in the index that is an issuing entity of an asset-backed security as defined in section 3(a)(77) of the Act (15 U.S.C. 78c(a)(77))) has outstanding notes, bonds, debentures, loans, or evidences of indebtedness (other than revolving credit facilities) having a total remaining principal amount of at least $1 billion;
(E) The reference entity included in the index is the issuer of an exempted security as defined in section 3(a)(12) of the Act (15 U.S.C. 78c(a)(12)) (other than any municipal security as defined in section 3(a)(29) of the Act (15 U.S.C. 78c(a)(29)));
(F) The reference entity included in the index is a government of a foreign country or a political subdivision of a foreign country;
(G) If the reference entity included in the index is an issuing entity of an asset-backed security as defined in section 3(a)(77) of the Act (15 U.S.C. 78c(a)(77)), such asset-backed security was issued in a transaction registered under the Securities Act of 1933 (15 U.S.C. 77a
(H) For a credit default swap entered into solely between eligible contract participants as defined in section 3(a)(65) of the Act (15 U.S.C. 78c(a)(65)):
(
(
(
(2)(i) The index is not composed solely of reference entities that are issuers of exempted securities as defined in section 3(a)(12) of the Act (15 U.S.C. 78c(a)(12)), as in effect on the date of enactment of the Futures Trading Act of 1982 (other than any municipal security as defined in section 3(a)(29) of the Act (15 U.S.C. 78c(a)(29))), as in effect on the date of enactment of the Futures Trading Act of 1982); and
(ii) Without taking into account any portion of the index composed of reference entities that are issuers of exempted securities as defined in section 3(a)(12) of the Act (15 U.S.C. 78c(a)(12)), as in effect on the date of enactment of the Futures Trading Act of 1982 (other than any municipal security as defined in section 3(a)(29) of the Act (15 U.S.C. 78c(a)(29))), the remaining portion of the index would be within the term “issuer of securities in a narrow-based security index” under paragraph (a)(1) of this section.
(b) Paragraph (a)(1)(iv) of this section will not apply with respect to a reference entity included in the index if:
(1) The effective notional amounts allocated to such reference entity comprise less than five percent of the index's weighting; and
(2) The effective notional amounts allocated to reference entities included in the index that satisfy paragraph (a)(1)(iv) of this section comprise at least 80 percent of the index's weighting.
(c) For purposes of this section:
(1) A reference entity included in the index is affiliated with another reference entity included in the index (for purposes of paragraph (c)(4) of this section) or another entity (for purposes of paragraph (c)(5) of this section) if it controls, is controlled by, or is under common control with, that other reference entity included in the index or other entity, as applicable; provided that each reference entity included in the index that is an issuing entity of an asset-backed security as defined in section 3(a)(77) of the Act (15 U.S.C. 78c(a)(77)) will not be considered affiliated with any other reference entity included in the index or any other entity that is an issuing entity of an asset-backed security.
(2) Control for purposes of this section means ownership of more than 50 percent of the equity of a reference entity included in the index (for purposes of paragraph (c)(4) of this section) or another entity (for purposes of paragraph (c)(5) of this section), or the ability to direct the voting of more than 50 percent of the voting equity of a reference entity included in the index (for purposes of paragraph (c)(4) of this section) or another entity (for purposes of paragraph (c)(5) of this section).
(3) In identifying a reference entity included in the index for purposes of this section, the term
(i) An issuer of securities;
(ii) An issuer of securities that is an issuing entity of an asset-backed security as defined in section 3(a)(77) of the Act (15 U.S.C. 78c(a)(77)); and
(iii) An issuer of securities that is a borrower with respect to any loan identified in an index of borrowers or loans.
(4) For purposes of calculating the thresholds in paragraphs (a)(1)(i) through (a)(1)(iii) of this section, the term
(5) For purposes of determining whether one of the criterion in either paragraphs (a)(1)(iv)(A) through (a)(1)(iv)(D) of this section or paragraphs (a)(1)(iv)(H)(
(a) Notwithstanding § 240.3a68–3(a), and solely for purposes of determining whether a credit default swap is a security-based swap under section 3(a)(68)(A)(ii)(I) of the Act (15 U.S.C. 78c(a)(68)(A)(ii)(I)), the term
(1)(i) The index is composed of nine or fewer securities or securities that are issued by nine or fewer non-affiliated issuers, provided that a security shall not be deemed a component of the index for purposes of this section unless:
(A) A credit event with respect to the issuer of such security or a credit event with respect to such security would result in a payment by the credit protection seller to the credit protection buyer under the credit default swap based on the related notional amount allocated to such security; or
(B) The fact of such credit event or the calculation in accordance with paragraph (a)(1)(i)(A) of this section of the amount owed with respect to such credit event is taken into account in determining whether to make any future payments under the credit default swap with respect to any future credit events;
(ii) The effective notional amount allocated to the securities of any issuer included in the index comprises more than 30 percent of the index's weighting;
(iii) The effective notional amount allocated to the securities of any five non-affiliated issuers included in the index comprises more than 60 percent of the index's weighting; or
(iv) Except as provided in paragraph (b) of this section, for each security included in the index none of the criteria in paragraphs (a)(1)(iv)(A) through (a)(1)(iv)(H) of this section is satisfied:
(A) The issuer of the security included in the index is required to file reports pursuant to section 13 or section 15(d) of the Act (15 U.S.C. 78m or 78o(d));
(B) The issuer of the security included in the index is eligible to rely on the exemption provided in § 240.12g3–2(b);
(C) The issuer of the security included in the index has a worldwide market value of its outstanding common equity held by non-affiliates of $700 million or more;
(D) The issuer of the security included in the index (other than an issuer of the security that is an issuing entity of an asset-backed security as defined in section 3(a)(77) of the Act (15 U.S.C. 78c(a)(77))) has outstanding notes, bonds, debentures, loans, or evidences of indebtedness (other than revolving credit facilities) having a total remaining principal amount of at least $1 billion;
(E) The security included in the index is an exempted security as defined in section 3(a)(12) of the Act (15 U.S.C. 78c(a)(12)) (other than any municipal security as defined in section 3(a)(29) of the Act (15 U.S.C. 78c(a)(29)));
(F) The issuer of the security included in the index is a government of a foreign country or a political subdivision of a foreign country;
(G) If the security included in the index is an asset-backed security as defined in section 3(a)(77) of the Act (15 U.S.C. 78c(a)(77)), the security was issued in a transaction registered under the Securities Act of 1933 (15 U.S.C. 77a
(H) For a credit default swap entered into solely between eligible contract participants as defined in section 3(a)(65) of the Act (15 U.S.C. 78c(a)(65)):
(
(
(
(2)(i) The index is not composed solely of exempted securities as defined in section 3(a)(12) of the Act (15 U.S.C. 78c(a)(12)), as in effect on the date of enactment of the Futures Trading Act of 1982 (other than any municipal security as defined in section 3(a)(29) of the Act (15 U.S.C. 78c(a)(29))), as in effect on the date of enactment of the Futures Trading Act of 1982); and
(ii) Without taking into account any portion of the index composed of exempted securities as defined in section 3(a)(12) of the Act (15 U.S.C. 78c(a)(12)), as in effect on the date of enactment of the Futures Trading Act of 1982 (other than any municipal security as defined in section 3(a)(29) of the Act (15 U.S.C. 78c(a)(29))), the remaining portion of the index would be within the term “narrow-based security index” under paragraph (a)(1) of this section.
(b) Paragraph (a)(1)(iv) of this section will not apply with respect to securities of an issuer included in the index if:
(1) The effective notional amounts allocated to all securities of such issuer included in the index comprise less than five percent of the index's weighting; and
(2) The securities that satisfy paragraph (a)(1)(iv) of this section comprise at least 80 percent of the index's weighting.
(c) For purposes of this section:
(1) An issuer of securities included in the index is affiliated with another issuer of securities included in the index (for purposes of paragraph (c)(4) of this section) or another entity (for purposes of paragraph (c)(5) of this section) if it controls, is controlled by, or is under common control with, that other issuer or other entity, as applicable; provided that each issuer of securities included in the index that is an issuing entity of an asset-backed security as defined in section 3(a)(77) of
(2) Control for purposes of this section means ownership of more than 50 percent of the equity of an issuer of securities included in the index (for purposes of paragraph (c)(4) of this section) or another entity (for purposes of paragraph (c)(5) of this section), or the ability to direct the voting of more than 50 percent of the voting equity an issuer of securities included in the index (for purposes of paragraph (c)(4) of this section) or another entity (for purposes of paragraph (c)(5) of this section).
(3) In identifying an issuer of securities included in the index for purposes of this section, the term
(i) An issuer of securities; and
(ii) An issuer of securities that is an issuing entity of an asset-backed security as defined in section 3(a)(77) of the Act (15 U.S.C. 78c(a)(77)).
(4) For purposes of calculating the thresholds in paragraphs (a)(1)(i) through (a)(1)(iii) of this section, the term
(5) For purposes of determining whether one of the criterion in either paragraphs (a)(1)(iv)(A) through (a)(1))(iv)(D) of this section or paragraphs (a)(1)(iv)(H)(
(a)
(1) A swap, as that term is defined in section 3(a)(69) of the Act (15 U.S.C. 78c(a)(69)) and the rules and regulations promulgated thereunder;
(2) A security-based swap, as that term is defined in section 3(a)(68) of the Act (15 U.S.C. 78c(a)(68)) and the rules and regulations promulgated thereunder; or
(3) A mixed swap, as that term is defined in section 3(a)(68)(D) of the Act and the rules and regulations promulgated thereunder.
(b)
(1) All material information regarding the terms of the agreement, contract, or transaction (or class thereof);
(2) A statement of the economic characteristics and purpose of the agreement, contract, or transaction (or class thereof);
(3) The requesting person's determination as to whether the agreement, contract, or transaction (or class thereof) should be characterized as a swap, a security-based swap, or both (i.e., a mixed swap), including the basis for such determination; and
(4) Such other information as may be requested by the Commission or the Commodity Futures Trading Commission.
(c)
(d)
(1) If the Commission or the Commodity Futures Trading Commission receives a proposal to list, trade, or clear an agreement, contract, or transaction (or class thereof) that raises questions as to the appropriate characterization of such agreement, contract, or transaction (or class thereof) as a swap, a security-based swap, or both (i.e., a mixed swap), the Commission or the Commodity Futures Trading Commission, as applicable, promptly shall notify the other of the agreement, contract, or transaction (or class thereof); and
(2) The Commission or the Commodity Futures Trading Commission, or their Chairmen jointly, may submit a request for a joint interpretation as described in paragraph (a) of this section; such submission shall be made pursuant to paragraph (b) of this section, and may be withdrawn pursuant to paragraph (c) of this section.
(e)
(2) The Commission and the Commodity Futures Trading Commission shall consult with the Board of Governors of the Federal Reserve System prior to issuing any joint interpretation as described in paragraph (a) of this section.
(3) If the Commission and the Commodity Futures Trading Commission seek public comment with respect to a joint interpretation regarding an agreement, contract, or transaction (or class thereof), the 120-day period described in paragraph (e)(1) of this section shall be stayed during the pendency of the comment period, but shall recommence with the business day after the public comment period ends.
(4) Nothing in this section shall require the Commission and the Commodity Futures Trading Commission to issue any joint interpretation.
(5) If the Commission and the Commodity Futures Trading Commission do not issue a joint interpretation within the time period described in paragraph (e)(1) or (e)(3) of this section, each of the Commission and the Commodity Futures Trading Commission shall publicly provide the reasons for not issuing such a joint interpretation within the applicable timeframes.
(f)
(2) A joint proposed rule described in paragraph (f)(1) of this section shall be issued within the timeframe for issuing a joint interpretation set forth in paragraph (e) of this section.
(a)
(b)
(1)(i) A swap on the index is traded on or subject to the rules of a designated contract market, swap execution facility, or foreign board of trade pursuant to the Commodity Exchange Act (7 U.S.C. 1
(ii) Such index was not a narrow-based security index during every trading day of the six full calendar months preceding a date no earlier than 30 days prior to the commencement of trading of a swap on such index on a market described in paragraph (b)(1)(i) of this section; and
(2) The index has been a narrow-based security index for no more than 45 business days over three consecutive calendar months.
(c)
(1)(i) A security-based swap on the index is traded on a national securities exchange or security-based swap execution facility for at least 30 days as a security-based swap on a narrow-based security index; or
(ii) Such index was a narrow-based security index during every trading day of the six full calendar months preceding a date no earlier than 30 days prior to the commencement of trading of a security-based swap on such index on a market described in paragraph (c)(1)(i) of this section; and
(2) The index has been a security index that is not a narrow-based security index for no more than 45 business days over three consecutive calendar months.
(d)
(2) Solely with respect to a security-based swap that is traded on a national securities exchange or security-based swap execution facility, an index that becomes a security index that is not a narrow-based security index under paragraph (c) of this section solely because it was not a narrow-based security index for more than 45 business days over three consecutive calendar months shall be a narrow-based security index for the following three calendar months.
(a)
(b)
(1) That is neither executed on nor subject to the rules of a designated contract market, national securities exchange, swap execution facility, security-based swap execution facility, or foreign board of trade;
(2) That will not be submitted to a derivatives clearing organization or registered or exempt clearing agency to be cleared; and
(3) Where at least one party is registered with the Commission as a security-based swap dealer or major security-based swap participant and also with the Commodity Futures Trading Commission as a swap dealer or major swap participant, shall be subject to:
(i) The following provisions of the Commodity Exchange Act (7 U.S.C. 1
(A) Examinations and information sharing: 7 U.S.C. 6s(f) and 12;
(B) Enforcement: 7 U.S.C. 2(a)(1)(B), 6(b), 6b, 6c, 6s(h)(1)(A), 6s(h)(4)(A), 9, 13b, 13a–1, 13a–2, 13, 13c(a), 13c(b), 15 and 26;
(C) Reporting to a swap data repository: 7 U.S.C. 6r;
(D) Real-time reporting: 7 U.S.C. 2(a)(13);
(E) Capital: 7 U.S.C. 6s(e); and
(F) Position Limits: 7 U.S.C. 6a; and
(ii) The provisions of the Federal securities laws, as defined in section 3(a)(47) of the Act (15 U.S.C. 78c(a)(47)), and the rules and regulations promulgated thereunder.
(c)
(2)
(i) All material information regarding the terms of the specified, or specified class of, mixed swap;
(ii) The economic characteristics and purpose of the specified, or specified class of, mixed swap;
(iii) The specified parallel provisions, and the reasons the person believes
(iv) An analysis of:
(A) The nature and purposes of the parallel provisions that are the subject of the request;
(B) The comparability of such parallel provisions;
(C) The extent of any conflicts or differences between such parallel provisions; and
(D) Such other information as may be requested by the Commission or the Commodity Futures Trading Commission.
(3)
(4)
(i) The nature and purposes of the parallel provisions that are the subject of the request;
(ii) The comparability of such parallel provisions; and
(iii) The extent of any conflicts or differences between such parallel provisions.
(5)
(ii) Nothing in this section shall require the Commission and the Commodity Futures Trading Commission to issue any joint order.
(iii) If the Commission and the Commodity Futures Trading Commission do not issue a joint order within the time period described in paragraph (c)(5)(i) of this section, each of the Commission and the Commodity Futures Trading Commission shall publicly provide the reasons for not issuing such a joint order within that timeframe.
The term
(a) The futures contract that the agreement, contract, or transaction references or upon which the agreement, contract, or transaction is based is a qualifying foreign futures contract that satisfies the conditions of § 240.3a12–8 applicable to qualifying foreign futures contracts;
(b) The agreement, contract, or transaction is traded on or through a board of trade (as defined in 7 U.S.C. 2);
(c) The debt securities upon which the qualifying foreign futures contract is based or referenced and any security used to determine the cash settlement amount pursuant to paragraph (d) of this section were not registered under the Securities Act of 1933 (15 U.S.C. 77
(d) The agreement, contract, or transaction may only be cash settled; and
(e) The agreement, contract or transaction is not entered into by the issuer of the debt securities upon which the qualifying foreign futures contract is based or referenced (including any security used to determine the cash payment due on settlement of such agreement, contract or transaction), an affiliate (as defined in the Securities Act of 1933 (15 U.S.C. 77
(a) This paragraph is a non-exclusive safe harbor. The terms
(1) By its terms or by law, as a condition of performance on the agreement, contract, or transaction:
(i) Requires the beneficiary of the agreement, contract, or transaction to have an insurable interest that is the subject of the agreement, contract, or transaction and thereby carry the risk of loss with respect to that interest continuously throughout the duration of the agreement, contract, or transaction;
(ii) Requires that loss to occur and to be proved, and that any payment or indemnification therefor be limited to the value of the insurable interest;
(iii) Is not traded, separately from the insured interest, on an organized market or over the counter; and
(iv) With respect to financial guaranty insurance only, in the event of payment default or insolvency of the obligor, any acceleration of payments under the policy is at the sole discretion of the insurer; and
(2) Is provided:
(i)(A) By a person that is subject to supervision by the insurance commissioner (or similar official or agency) of any State, as defined in section 3(a)(16) of the Act (15 U.S.C. 78c(a)(16)), or by the United States or an agency or instrumentality thereof; and
(B) Such agreement, contract, or transaction is regulated as insurance under applicable State law or the laws of the United States;
(ii)(A) Directly or indirectly by the United States, any State or any of their respective agencies or instrumentalities; or
(B) Pursuant to a statutorily authorized program thereof; or
(iii) In the case of reinsurance only by a person to another person that satisfies the conditions set forth in paragraph (a)(2) of this section, provided that:
(A) Such person is not prohibited by applicable State law or the laws of the United States from offering such agreement, contract, or transaction to such person that satisfies the conditions set forth in paragraph (a)(2) of this section;
(B) The agreement, contract, or transaction to be reinsured satisfies the
(C) Except as otherwise permitted under applicable State law, the total amount reimbursable by all reinsurers for such agreement, contract, or transaction may not exceed the claims or losses paid by the person writing the risk being ceded or transferred by such person; or
(iv) In the case of non-admitted insurance by a person who:
(A) Is located outside of the United States and listed on the Quarterly Listing of Alien Insurers as maintained by the International Insurers Department of the National Association of Insurance Commissioners; or
(B) Meets the eligibility criteria for non-admitted insurers under applicable State law; or
(3) Is provided in accordance with the conditions set forth in paragraph (a)(2) of this section and is one of the following types of products:
(i) Surety bond;
(ii) Fidelity bond;
(iii) Life insurance;
(iv) Health insurance;
(v) Long term care insurance;
(vi) Title insurance;
(vii) Property and casualty insurance;
(viii) Annuity;
(ix) Disability insurance;
(x) Insurance against default on individual residential mortgages; and
(xi) Reinsurance of any of the foregoing products identified in paragraphs (i) through (x) of this section.
(b) The terms security-based swap as used in section 3(a)(68) of the Act (15 U.S.C. 78c(a)(68)) and swap as used in section 3(a)(69) of the Act (15 U.S.C. 78c(a)(69)) do not include an agreement, contract, or transaction that was entered into on or before the effective date of this section and that, at such time that it was entered into, was provided in accordance with the conditions set forth in paragraph (a)(2) of this section.
(a)
(b)
(i) A cross-currency swap;
(ii) A currency option, foreign currency option, foreign exchange option and foreign exchange rate option;
(iii) A foreign exchange forward;
(iv) A foreign exchange swap;
(v) A forward rate agreement; and
(vi) A non-deliverable forward involving foreign exchange.
(2) The term
(c)
(1) A foreign exchange forward or a foreign exchange swap shall not be considered a swap if the Secretary of the Treasury makes a determination described in section 1a(47)(E)(i) of the Commodity Exchange Act (7 U.S.C. 1a(47)(E)(i)).
(2) Notwithstanding paragraph (c)(1) of this section:
(i) The reporting requirements set forth in section 4r of the Commodity Exchange Act (7 U.S.C. 6r) and regulations promulgated thereunder shall apply to a foreign exchange forward or foreign exchange swap; and
(ii) The business conduct standards set forth in section 4s(h) of the Commodity Exchange Act (7 U.S.C. 6s) and regulations promulgated thereunder shall apply to a swap dealer or major swap participant that is a party to a foreign exchange forward or foreign exchange swap.
(3) For purposes of section 1a(47)(E) of the Commodity Exchange Act (7 U.S.C. 1a(47)(E)) and this section, the term
(4) For purposes of section 1a(47)(E) of the Commodity Exchange Act (7 U.S.C. 1a(47)(E)) and this section, the term
(5) For purposes of sections 1a(24) and 1a(25) of the Commodity Exchange Act (7 U.S.C. 1a(24) and (25)) and this section, the following transactions are not foreign exchange forwards or foreign exchange swaps:
(i) A currency swap or a cross-currency swap;
(ii) A currency option, foreign currency option, foreign exchange option, or foreign exchange rate option; and
(iii) A non-deliverable forward involving foreign exchange.
(a) A person registered as a swap data repository under section 21 of the Commodity Exchange Act (7 U.S.C. 24a) and the rules and regulations thereunder:
(1) Shall not be required to keep and maintain additional books and records regarding security-based swap agreements other than the books and records regarding swaps required to be kept and maintained pursuant to section 21 of the Commodity Exchange Act (7 U.S.C. 24a) and the rules and regulations thereunder; and
(2) Shall not be required to collect and maintain additional data regarding security-based swap agreements other than the data regarding swaps required to be collected and maintained by such persons pursuant to section 21 of the Commodity Exchange Act (7 U.S.C. 24a) and the rules and regulations thereunder.
(b) A person shall not be required to keep and maintain additional books and records, including daily trading records, regarding security-based swap agreements other than the books and records regarding swaps required to be kept and maintained by such persons pursuant to section 4s of the Commodity Exchange Act (7 U.S.C. 6s) and the rules and regulations thereunder if such person is registered as:
(1) A swap dealer under section 4s(a)(1) of the Commodity Exchange Act (7 U.S.C. 6s(a)(1)) and the rules and regulations thereunder;
(2) A major swap participant under section 4s(a)(2) of the Commodity Exchange Act (7 U.S.C. 6s(a)(2)) and the rules and regulations thereunder;
(3) A security-based swap dealer under section 15F(a)(1) of the Act (15 U.S.C. 78o–10(a)(1)) and the rules and regulations thereunder; or
(4) A major security-based swap participant under section 15F(a)(2) of the Act (15 U.S.C. 78o–10(a)(2)) and the rules and regulations thereunder.
(c) The term
By the Commodity Futures Trading Commission.
By the Securities and Exchange Commission.
The following appendices will not appear in the Code of Federal Regulations.
On this matter, Chairman Gensler and Commissioners Sommers, O'Malia and Wetjen voted in the affirmative; Commissioner Chilton voted in the negative.
I support the final rulemaking to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) requirement to further define “swap” and other products that come under swaps market reform. The Commodity Futures Trading Commission (CFTC) worked closely with the Securities and Exchange Commission (SEC), in consultation with the Federal Reserve, on the final rules and interpretations to further define “swaps,” “security-based swaps,” “mixed swaps” and “security-based swap agreements.”
The statutory definition as laid out by Congress of swap is very detailed. These final rules and interpretations are consistent with that detailed definition and Congressional intent. For example, interest rate swaps, currency swaps, commodity swaps, including energy, metals and agricultural swaps, and broad-based index swaps, such as index credit default swaps, are all swaps. Consistent with Congress's definition of swaps, the rule also defines options as swaps.
In preparing this final rulemaking, staff worked to address the more than 140 comments that were submitted by the public in response to the product further definition proposal. Many of the commenters asked the Commissions to specifically provide guidance on what is not a swap or security-based swap.
For example, under the Commodity Exchange Act, the CFTC does not regulate forward contracts. Over the decades, there have been a series of orders, interpretations and cases that market participants have come to rely upon regarding the exception from futures regulation for forwards and forwards with embedded options. Consistent with that history, the Dodd-Frank Act excluded from the definition of a swap “any sale of a nonfinancial commodity or security for deferred shipment or delivery, so long as the transaction is intended to be physically settled.” The Commission is interpreting that exclusion in a manner that is consistent with Commission precedent and, in response to commenters, is providing increased clarity on the forward exclusion from futures regulation. The final release provides guidance regarding forwards with embedded volumetric options, like those used within the electricity markets, and is requesting comment on this interpretation.
Further, consistent with the Dodd-Frank Act, insurance products will not be regulated as swaps. Similarly, this final rulemaking clarifies that certain consumer and commercial arrangements that historically have not been considered swaps, such as consumer mortgage rate locks, contracts to lock in the price of home heating oil and contracts relating to inventory or equipment, also will not be regulated as swaps.
The rule provides clarity on the dividing line between “swaps” and “security-based swaps” or both, i.e. mixed swaps. The rule also provides a process for requesting joint interpretations in circumstances where there are questions. These dividing lines and the process will benefit market participants, as they will provide greater clarity as to what regulatory requirements apply when they transact in the derivatives markets.
Lastly, the final release includes specific provisions that guard against transactions that are willfully structured to evade Dodd-Frank Act swaps market reforms.
I'd like to express my appreciation for their dedication to completing this rule to Chairman Mary Schapiro and her fellow Commissioners at the SEC, as well as the staff, including Robert Cook, Brian Bussey, Amy Starr, Donna Chambers, Christie March, Andy Schoeffler, Wenchi Hu, John Guidroz and Sarah Otte.
I'd also like to thank the CFTC's hardworking staff: Julian Hammar, Lee Ann Duffy, David Aron, Terry Arbit, Eric Juzenas and Stephen Kane.
I respectfully dissent from this joint final rule and interpretive guidance because I have reservations about certain aspects of the Commodity Futures Trading Commission's (“Commission”) interpretive guidance on forward contracts. Apart from this specific area, I agree with the joint release and would support its adoption.
I am dissenting from the interpretive guidance for two chief reasons. First, I believe that the Commission should make stronger efforts to ensure market participants claim the forward contract exclusion only under appropriate circumstances, consistent with its interpretive guidance. The Commission should apply a rebuttable presumption that contracts do not have as their predominant feature actual delivery in instances where market participants often do not follow the delivery settlement term in a contract. The Commission should set forth the conditions for a safe harbor, consistent with its interpretation of the forward contract exclusion, for market participants that often do not terminate “forward” contracts through physical delivery that includes some affirmative statement to the Commission explaining the circumstances leading to non-delivery. This safe harbor, in my view, would encourage market participants to submit information that would vastly improve the ability of the Commission to ensure that market participants claiming the forward contract exclusion are doing so appropriately, consistent with the law and Commission and staff interpretation of the law.
Second, the Commission has failed to provide adequate legal certainty to market participants engaging in contracts with embedded volumetric commodity options, particularly those that can terminate without physical delivery. Contracts with embedded commodity options that can negate the physical delivery term have optionality that targets the delivery term of the contract and therefore cannot be seen as having as a predominant feature actual delivery, a necessary element in any forward contract under applicable Commission precedent. The Commission has failed to perform an analysis of these types of contracts in an excess of caution that may invite confusion, at best, and evasion, at worst.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”)
The Commission proposed
I believe that the Commission should make stronger efforts to ensure market participants claim the forward contract exclusion only under appropriate circumstances. I am concerned that the forward contract exclusion may be abused if not intentionally evaded by the lack of safeguards to ensure its appropriate application.
The Commission has endorsed the purpose of a transaction as a factor in determining a contract's eligibility for the forward contract exclusion.
At the same time, the Commission should specify the means by which this presumption may be rebutted. I believe that the Commission provide for a safe harbor for market participants that regularly engage in transactions they believe to qualify for the forward contract exclusion that, nonetheless, often do not terminate with delivery (e.g., in less than 20% of instances as measured by number of “forward” contracts or by potential total quantity under all “forward” contracts). This non-delivery could be of the result of, for example, exercised embedded volumetric optionality or through book-outs. Market participants claiming this safe harbor should include a brief, periodic statement that explains the reason why their forward transactions, in general terms or with more specificity as is necessary for the Commission to determine whether the presumption that the market participant is inappropriately claiming the forward contract exclusion is rebutted.
I request comment on my proposed safe harbor concept. I encourage the Commission to adopt some version of this safe harbor in order to allay the very real concerns I and, indeed, many market participants and many in the public have expressed to me that unregulated forwards markets could become a refuge for those that thrive in opacity. Our regulations implementing the Dodd-Frank Act will vastly improve transparency in regulated futures, options, and swaps markets. Unfortunately, our interpretive guidance today does little to ensure even any visibility for regulators in how players in the physical commodity markets, so critical to the Commission's mission, are claiming the forward contract exclusion: the unwatched back door out of the transparency-related requirements of the CEA.
Section 4c(b) of the CEA provides:
No person shall offer to enter into, enter into or confirm the execution of, any transaction involving any commodity regulated under this chapter which is of the character of, or is commonly known to the trade as, an “option”, “privilege'”, “indemnity”, “bid”, “offer”, “put”, “call”, “advance guaranty”, or “decline guaranty”, contrary to any rule, regulation, or order of the Commission prohibiting any such transaction or allowing any such transaction under such terms and conditions as the Commission shall prescribe. Any such order, rule, or regulation may be made only after notice and opportunity for hearing, and the Commission may set different terms and conditions for different markets.
In the Brent Interpretation, the Commission found certain Brent oil contracts to be eligible for the forward contract exclusion, notwithstanding the fact that such transactions “may ultimately result in performance through the payment of cash as an alternative to actual physical transfer or delivery of the commodity.” The Commission found that when delivery obligations under a forward were terminated pursuant to a separate and individually negotiated “book-out” agreement, the parties escaped the physical delivery obligation traditionally required to claim the forward contract exclusion. The Commission also emphasized two features (among others) of the Brent oil contracts at issue: (1) The absence of a contractual right to offset (or to terminate without delivery) the transaction “by the terms of the contracts as initially entered into” and (2) the counterparties had to incur “substantial economic risks of a commercial nature” relating to actual delivery in order to claim the exclusion. Underlying the Brent Interpretation, other CFTC precedent, and the Commission's approach to the interpretive guidance on the forward contract exclusion is the essential feature of forward contracts: actual delivery (and not potential delivery).
The Commission has failed to provide adequate legal certainty to market participants engaging in contracts with embedded volumetric commodity options, particularly those that can terminate without physical delivery. Contracts that are composed of a forward delivery obligation component combined with an embedded commodity option that can render delivery optional (“zero-delivery” embedded volumetric options) are not forwards because the predominant feature of the contract cannot be actual delivery under these circumstances (more literally, the predominant feature is potential delivery which is an essential characteristic of commodity options). Such contracts include a contractual right to offset through the exercise of the volumetric option that can extinguish the delivery obligation. Because such contracts have a commodity option component that mitigates the risk incurred from an underlying forward delivery obligation, these contracts may fail to meet the incurring “economic risks of a commercial nature” element. Moreover, the purpose of the delivery optionality in these types of contracts shares a common purpose with commodity options: To provide market participants a means to hedge commodity quantity risk of a commercial nature. The Commission should therefore clarify, in any future interpretive guidance, that zero-delivery embedded volumetric options are generally commodity options because the delivery obligation is not obligatory.
The confluence of these features, as analyzed under a conservative reading of the Brent Interpretation, leads me to conclude that contracts with embedded zero-delivery option components cannot be said to have actual delivery as their essential feature. Other relevant Commission precedent is consistent with this analysis. Most recently, in
(i) May be used to adjust the forward contract price, but do not undermine the overall nature of the contract as a forward contract; (ii)
Instead of, in my opinion, a proper application of the statute and precedent, the Commission has adopted a seven-element interpretation that applies to contracts with embedded volumetric optionality. This interpretative approach would potentially allow contracts with zero-delivery option components to nonetheless claim the forward contract exclusion when:
1. The embedded optionality does not undermine the overall nature of the agreement, contract, or transaction as a forward contract;
2. The predominant feature of the agreement, contract, or transaction is actual delivery;
3. The embedded optionality cannot be severed and marketed separately from the overall agreement, contract, or transaction in which it is embedded;
4. The seller of a nonfinancial commodity underlying the agreement, contract, or transaction with embedded volumetric optionality intends, at the time it enters into the agreement, contract, or transaction, to deliver the underlying nonfinancial commodity if the optionality is exercised;
5. The buyer of a nonfinancial commodity underlying the agreement, contract or transaction with embedded volumetric optionality intends, at the time it enters into the agreement, contract, or transaction, to take delivery of the underlying nonfinancial commodity if it exercises the embedded volumetric optionality;
6. Both parties are commercial parties; and
7. The exercise or non-exercise of the embedded volumetric optionality is based primarily on physical factors, or regulatory requirements, that are outside the control of the parties and are influencing demand for, or supply of, the nonfinancial commodity.
The first two elements, in particular, invoke the Brent Interpretation and related precedent.
I would amend the seventh element by making it clear the exercise or non-exercise for physical factors that influence demand and supply can negate the delivery obligation only in exceptional circumstances. If delivery renders a contract merely unprofitable and the contract permits a party to elect not to deliver, such a contract is not a forward and is a commodity option.
In addition, I would require, consistent with the third, “severability,” element, that in order to claim the forward contract exclusion where the contract at issue contains a zero-delivery embedded volumetric option, the parties must sever the forward contract component, which has as its purpose the delivery of commodities, from the remaining commodity option component, which has as its purpose the management of the commodity quantity risk associated with operating a commercial enterprise.
Moreover, while the Adopting Release's guidance is the first of its kind and therefore an incremental step toward more legal certainty, it doesn't directly address embedded zero-delivery volumetric optionality specifically or any of the conceivable specific variations of such contracts. I believe this to be a flaw; a flaw that did not exist in a previous version of this document.
The Commission should affirm in any relevant future interpretive guidance the formal features in the Brent Interpretation's forward contract exclusion,
I look forward to receiving and reviewing comments on the Commission's interpretation, in particular those submitted in response to Question Seven.
Fish and Wildlife Service, Interior.
Final rule.
We, the U.S. Fish and Wildlife Service, are designating critical habitat for the endangered
This rule becomes effective on September 12, 2012.
This final rule, and the associated final economic analysis and final environmental assessment, are available on the Internet at
Patty Gelatt, Field Supervisor, U.S. Fish and Wildlife Service, Western Colorado Ecological Services Office, 764 Horizon Drive, Suite B, Grand Junction, CO 81506–3946; telephone 970–243–2778; facsimile 970–245–6933. If you use a telecommunications device for the deaf (TDD), call the Federal Information Relay Service (FIRS) at 800–877–8339.
• Approximately 9,641 acres (ac) (3,902 hectares (ha)), in 4 units, are being designated as critical habitat for
• Approximately 15,510 ac (6,217 ha), in 4 units, are being designated as critical habitat for
• Approximately 25,484 ac (10,313 ha), in 9 units, are being designated as critical habitat for
• In total, approximately 50,635 ac (20,432 ha), in 17 units, are being designated as critical habitat for the three species.
It is our intent to discuss in this final rule only those topics directly relevant to the development and designation of critical habitat for
The final rule listing
We requested written comments from the public on the proposed designation of critical habitat for
During the first comment period, we received six comment letters directly addressing the proposed critical habitat designation. Four comment letters were received between the two comment periods. During the second comment period, we received nine comment letters addressing the proposed critical habitat designation, the DEA, or the draft environmental assessment. All substantive information provided during both comment periods has either been incorporated directly into this final determination or are addressed below. Comments received were grouped into 23 general categories specifically relating to the proposed critical habitat designation for
In accordance with our peer review policy published on July 1, 1994 (59 FR 34270), we solicited expert opinions from three knowledgeable individuals with scientific expertise that included familiarity with the species, the geographic region in which the species occurs, and the principles of conservation biology. We received responses from four peer reviewers because one of the reviewers requested the assistance of two other reviewers.
We reviewed all comments received from the peer reviewers regarding critical habitat for
(1) Comments on the pollinators of
The
(2) Comments on the genetic diversity of
In response to the peer reviewers' comments on genetic variation, we recognize that the genetic information we have for
Our genetic information for
In general, fitness, the size of a population, and genetic diversity are positively correlated (reviewed in Leimu
As pointed out by a commenter, the McMullen study did not find any inbreeding or outbreeding depression for the measure of fruit set for
(3) Comment on
(4) Comments on unoccupied critical habitat units (CHUs) for
When we overlaid our rough suitable habitat layer for
We make decisions on what areas to designate as critical habitat based on the best available information. We may refine our knowledge of
(5) Comments on our criteria for designating our CHUs: All of our peer reviewers responded favorably to the criteria we developed for the identification of critical habitat of
Another commenter stated that areas without suitable habitat should be excluded from the critical habitat designation for
Another commenter stated that our DEA did not account for the effect of the additional 3,280-ft (1,000-m) buffer for
Another commenter discussed the recommended 656-ft (200-m) buffer avoidance distance being implemented by the BLM for surface disturbances near
In this final rule, we have further explained our criteria, especially with respect to inclusion of pollinator areas, under
Pollinators are necessary for the reproduction of
Regarding the comment relating to our final listing rule and the threats to pollinators, threats and the physical and biological features essential to the conservation of a species are not the same. If the loss of pollinator habitat is not considered a threat, this does not mean that pollinator habitat is not essential for the conservation of a species. Additionally, in our final listing rule, we qualified the loss of pollinator habitat and the threat it poses, by stating that the degree of impact was unknown. Through this designation of critical habitat, lease rights will not be revoked or removed, nor is there any requirement for projects to completely avoid critical habitat. The 200-meter buffer mentioned by a reviewer is currently being utilized by the BLM, not the Service.
The FEA considers effects within CHUs incrementally, with the most stringent project modifications within 328-ft (100-m) of plants, more moderate measures from 328 to 984 ft (100 to 300 m), and measures to protect pollinators and habitat beyond 984 ft (300 m) (Industrial Economics, Inc. 2012, pp. ES–5, 2–9, 3–14, 4–2). These project modification distances are based on our draft projection of what section 7 consultations may consider for these three plants (Service 2012a, pp. 1–28). These distances are based on potential effects from disturbances including dust, pollutants, changes in erosion and sedimentation, habitat degradation, an increase in nonnative species, and increased fire risk, among others.
Given the lack of species-specific studies, and the relatively recent (in the last 10 to 15 years) disturbance caused by oil and gas development, we conducted an extensive literature review on effects from disturbances, as well as from habitat fragmentation. To date, we have reviewed 45 papers that evaluate the relationship between distance from a disturbance to the intensity of that disturbance, from a wide array of disturbances and in a wide array of ecosystems (Service 2012a, pp. B–3 to B–4). From this review, we have found effects extending from 33 ft (10 m) to over 6,562 ft (2,000 m), but with the majority of effects concentrated in the first several hundred meters (Service 2012a, pp. B–3 to B–4). From this, and in conjunction and coordination with others, we have developed the 328-ft (100-m) and 984-ft (300-m) draft guidelines for effect determinations in section 7 consultations related to all plant species in Colorado (Service 2012a, pp. 1–28), which were used in the DEA (Industrial Economics, Inc. 2012, pp. ES–5, 2–9, 3–14, 4–2). In combination, we also have reviewed 74 papers looking at the effects of habitat fragmentation on a wide array of plants and in a wide array of ecosystems (Service 2012a, pp. B–5 to B 11).
We recognize that the availability of more species-specific information evaluating the effects of disturbances, such as those from oil and gas development, may have helped us more accurately delineate critical habitat. There are ongoing studies on how disturbances are affecting six rare plants in Western Colorado and Eastern Utah, which are already listed under the Act (BIO–Logic 2010, pp. 1–9; Pitts
Comments received from the State (specifically the Colorado Natural Areas Program (CNAP)) regarding the proposal to designate critical habitat for
(6) Comments on
(7) Comments on exclusions and the management of
An additional commenter on behalf of Oxy also supported excluding all Oxy lands within the
Another commenter supported the exclusion of Oxy lands, provided our overall criteria for designating critical habitat for
Oxy has been working to protect
We agree with a commenter that a permanent conservation easement would be preferable to voluntary protections, but we also recognize that effective conservation can occur in other ways. In addition, Oxy's long-term commitment to protect the species, since 1987, (CNAP 1987, entire) provides us assurance that these voluntary protections will continue into the future.
(8) Comments on requests for extensions: The State commented that there was not adequate time to get the new CNA agreement with Oxy signed before the final critical habitat rule is due for publication. Oxy echoed the same concerns, and requested an extension of the final rule until July 27, 2013, citing language in the regulations as well as the Act allowing a 2-year extension on critical habitat determinations. We received an additional comment supporting an extension to accommodate the signing of Oxy's CNA agreement for
Two counties, two oil and gas companies, and two groups associated with the oil and gas industry requested an extension on the final designation of 120 days, until August 24, 2012, to comment on the DEA.
Moreover, we believe adequate time has been provided for the public to provide comment on the proposed critical habitat rule and the associated economic analysis. We have requested comments on critical habitat in our notice of availability of the DEA and draft environmental assessment from March 27 to April 26, 2012 (77 FR 18157). We requested information on the proposed critical habitat designation, including a request for information on economic impacts, from July 27 to September 26, 2011. Furthermore, we requested information on potential critical habitat areas in our proposed listing rule from June 23 to August 23, 2010 (75 FR 35721).
We worked closely with Oxy and the CNAP on their expansion of the CNA agreement and to address exclusion of all Oxy lands within the
(9) Comments on unoccupied CHUs for
(10) Comment on the quality of information used: One commenter questioned the validity of our information, although no specifics were provided, stating that our finding is based on weak and unreliable scientific information. The commenter stated that by using unpublished reports we were not relying on the best data available. The commenter stated that we should use peer-reviewed science. Another commenter stated that the designation is based on incomplete and outdated science and that the data we relied on were either incomplete, not fully considered, or were improperly relied on and that our proposed critical habitat designation was therefore flawed. This same commenter requested that we conduct another peer review because of our data quality issues. Another
The Act and our regulations do not require us to use only peer-reviewed literature, but instead they require us to use the “best scientific and commercial data available” in a critical habitat designation We use information from many different sources, including survey reports completed by qualified individuals, Master's thesis research that has been reviewed but not published in a journal, status reports, peer-reviewed literature, other unpublished governmental and nongovernmental reports, reports prepared by industry, personal communication about management or other relevant topics, and other sources. Also, in accordance with our peer review policy, published on July 1, 1994 (59 FR 34270), we solicited expert opinions from knowledgeable individuals with scientific expertise that included familiarity with the species, the geographic region in which the species occurs, and conservation biology principles. Additionally, we requested comments or information from other concerned governmental agencies, the scientific community, industry, and any other interested parties concerning the proposed rule. Comments and information we received helped inform this final rule.
In conclusion, we believe we have used the best available scientific information for the designation of critical habitat for these three plants. We did conduct a peer review of our proposed critical habitat designation and incorporated changes into this final rule.
(11) Comment on the taxonomic validity of
(12) Other comments on exclusions: One commenter suggested that any entities that invoke voluntary conservation efforts that have proven to be effective on private lands or leased public lands should be granted appropriate exclusions to continue economic activities in those areas. This same commenter urged us to consider exclusions for all three species on both private and public lands. One commenter stated that critical habitat should not be designated on any private lands. Several commenters suggested exclusions based on economic impacts to the oil and gas industry.
(13) Comments on designating unoccupied units for
(14) Comments on plant locations: One commenter asked why we did not include
(15) Comments on designating critical habitat: One commenter stated that we had not established that designating critical habitat is necessary for these species.
(16) Comments on disturbance and
(17) Comments related to baseline conservation already required for oil and gas development relating to the DEA: One commenter noted that the DEA did not consider the impacts to oil and gas development caused by the restrictions set forth in the Roan Plateau Resource Management Plan (RMP) Amendment. The commenter stated that the restrictions set forth in this RMP combined with the designation of critical habitat for the
The RMP has two lease stipulations that directly address endangered, threatened, and candidate plants. A no surface occupancy lease stipulation (NSO–12) protects occupied habitat and adjacent potential habitat from ground disturbing activities, with narrow exceptions. A controlled surface use stipulation (CSU–12) protects special status plant species and plant communities by authorizing BLM to impose special design, operation, mitigation, and reclamation measures, including relocation of ground disturbing activities by more than 200 meters, with some exceptions. Special management considerations and protections are thus contemplated.
(18) Comments related to oil and gas development and the DEA: Multiple commenters asserted that the DEA underestimates impacts to the oil and gas industry. The commenters stated that oil and gas development on Federal lands is currently subject to overlapping regulations, seasonal restrictions, and legal challenges. Commenters indicated that these restrictions complicate access to Federal resources and often lead to delays in resource extraction. The commenters asserted that the proposed critical habitat will create further delays and, when combined with the current restrictions, may potentially prohibit oil and gas development within certain portions of the proposed critical habitat areas that overlap existing oil and gas fields or areas prospective for natural gas. Commenters indicated that the economic impact to oil and gas companies and Federal, State, and local governments associated with the lost potential to develop oil and gas resources would exceed the costs associated with section 7 consultation currently quantified in the DEA.
In addition, paragraph 96 of the DEA discusses the potential for time delays associated with consultation. This paragraph qualitatively discusses the potential for this impact, but notes that the extent of possible delay is not known and therefore the impact of time delay is not quantified in this analysis. The Service does not expect to recommend timing or seasonal restrictions for the plants that could potentially overlap with those currently in place on Federal lands for other species. A more detailed section on the concerns raised by these commenters has been added to Section 3.3.1 of the FEA.
(19) Comments related to the uncertainty associated with future oil and gas development and the DEA: Multiple commenters asserted that the methods used in the DEA to forecast the level of future oil and gas development
Stakeholders in the region indicated that future drilling activity within Mesa and Garfield Counties would be limited to areas within the Piceance and Paradox Basins and, therefore, the DEA restricts its projections to these areas. No better information is publicly available on the future distribution of wells within each county. Section 3.3.1 of the FEA describes the oil and gas industry's concern that the number of gas wells may be underestimated in the DEA.
(20) Comments on economic impacts to Federal, State, and local governments: Multiple commenters stated that the DEA should consider the impact to Federal, State, and local governments of the proposed critical habitat designation. In particular, these commenters asserted that the designation of critical habitat will lead to lost oil and gas development opportunities, which will in turn result in lost royalty and tax revenues to the Federal, State, and local governments.
(21) Comments relating to oil and gas lease rights on Federal lands: Two commenters express concern that the proposed critical habitat designation may undermine or preempt existing oil and gas lease rights on Federal lands. The commenters state that BLM and the Service should not infringe on lease rights by overly restricting oil and gas activities.
(22) Comments on privately owned surface and mineral rights: One commenter stated that it is inappropriate for the DEA to ignore potential economic impacts associated with the proposed critical habitat designation in areas where both the surface and mineral rights are privately owned.
(23) Comments on oil and gas development in
• Based on additional information which identified unsuitable and discontinuous habitat (Holtrop 2011, pp. 1–2), we refined our designation within
• We have modified the boundaries of
• Based on site surveys in 2011 that located more areas with
• We revised the PCE for
• We added to the PCE for
• We have added language to clarify our reasoning for designation of pollinator areas.
• We have added language to clarify our designation of unoccupied units for
Critical habitat is defined in section 3 of the Act as:
(1) The specific areas within the geographical area occupied by the species, at the time it is listed in accordance with the Act, on which are found those physical or biological features
(a) Essential to the conservation of the species and
(b) Which may require special management considerations or protection; and
(2) Specific areas outside the geographical area occupied by the species at the time it is listed, upon a determination by the Secretary that such areas are essential for the conservation of the species.
Conservation, as defined under section 3 of the Act, means to use all methods and procedures that are necessary to bring an endangered or threatened species to the point at which the measures provided pursuant to the Act are no longer necessary. Such methods and procedures include, but are not limited to, all activities associated with scientific resources management such as research, census, law enforcement, habitat acquisition and maintenance, propagation, live trapping, and transplantation, and, in the extraordinary case where population pressures within a given ecosystem cannot be otherwise relieved, may include regulated loss.
Critical habitat receives protection under section 7 of the Act through the requirement that Federal agencies ensure, in consultation with the Service, that any action they authorize, fund, or carry out is not likely to result in the destruction or adverse modification of critical habitat. The designation of critical habitat does not affect land ownership or establish a refuge, wilderness, reserve, preserve, or other conservation area. Such designation does not allow the government or public to access private lands. Such designation does not require implementation of restoration, recovery, or enhancement measures by non-Federal landowners. Where a landowner requests Federal agency funding or authorization for an action that may affect a listed species or critical habitat, the consultation requirements of section 7(a)(2) of the Act would apply, but even in the event of a destruction or adverse modification finding, the obligation of the Federal action agency and the landowner is not to restore or recover the species, but to implement reasonable and prudent alternatives to avoid destruction or adverse modification of critical habitat.
Under the first prong of the Act's definition of critical habitat, areas within the geographical area occupied by the species at the time it was listed are included in a critical habitat designation if they contain physical or biological features (1) which are essential to the conservation of the species and (2) which may require special management considerations or protection. For these areas, critical habitat designations identify those physical or biological features that are essential to the conservation of the species (such as space, food, cover, and protected habitat). In identifying those physical and biological features within an area, we focus on the principal biological or physical constituent elements (PCEs such as roost sites, nesting grounds, seasonal wetlands, water quality, tide, soil type) that are essential to the conservation of the species. PCEs are those specific elements of physical or biological features that provide for a species' life-history processes and are essential to the conservation of the species.
Under the second prong of the Act's definition of critical habitat, we can designate critical habitat in areas outside the geographical area occupied by the species at the time it is listed, upon a determination that such areas are essential for the conservation of the species. For example, an area currently occupied by the species but that was not occupied at the time of listing may be essential to the conservation of the species and may be included in the critical habitat designation. We designate critical habitat in areas outside the geographical area occupied by a species only when a designation limited to its range would be inadequate to ensure the conservation of the species.
Section 4 of the Act requires that we designate critical habitat on the basis of the best scientific data available. Further, our Policy on Information Standards under the Act (published in the
When we are determining which areas should be designated as critical habitat, our primary source of information is generally the information developed during the listing process for the species. Additional information sources may include the recovery plan for the species, articles in peer-reviewed journals, conservation plans developed by States and counties, scientific status surveys and studies, biological assessments, other unpublished materials, or experts' opinions or personal knowledge.
Habitat is dynamic, and species may move from one area to another over time. We recognize that critical habitat designated at a particular point in time may not include all of the habitat areas that we may later determine are necessary for the recovery of the species. For these reasons, a critical habitat designation does not signal that habitat outside the designated area is unimportant or may not be needed for recovery of the species. Areas that are important to the conservation of the species, both inside and outside the critical habitat designation, will continue to be subject to: (1) Conservation actions implemented under section 7(a)(1) of the Act, (2) regulatory protections afforded by the requirement in section 7(a)(2) of the Act for Federal agencies to ensure their actions are not likely to jeopardize the continued existence of any endangered or threatened species, and (3) the prohibitions of section 9 of the Act if actions occurring in these areas may affect the species. Federally funded or permitted projects affecting listed species outside their designated critical habitat areas may still result in jeopardy findings in some cases. These protections and conservation tools will continue to contribute to recovery of
In accordance with section 3(5)(A)(i) and 4(b)(1)(A) of the Act and regulations at 50 CFR 424.12, in determining which areas within the geographical area occupied by the species at the time of listing to designate as critical habitat, we consider the physical or biological features essential to the conservation of the species and which may require special management considerations or protection. These include, but are not limited to:
(1) Space for individual and population growth and for normal behavior;
(2) Food, water, air, light, minerals, or other nutritional or physiological requirements;
(3) Cover or shelter;
(4) Sites for breeding, reproduction, or rearing (or development) of offspring; and
(5) Habitats that are protected from disturbance or are representative of the historical, geographical, and ecological distributions of a species.
We derive the specific physical or biological features essential for
We have determined that
Complexity in
While
Interestingly,
We have determined that
Toxic elements in the soil such as arsenic and selenium accumulate in the tissues of
While
We have determined that
While
Under the Act and its implementing regulations, we are required to identify the physical or biological features essential to the conservation of
Based on our current knowledge of the physical or biological features and habitat characteristics required to sustain the species' life-history processes, we determine that the PCEs specific to
(i)
(ii)
(iii)
a. Suitable native plant communities (as described in b. below) with small (less than 100 ft
b. Appropriate native plant communities, preferably with plant communities reflective of historical community composition, or altered habitats which still contain components of native plant communities. These plant communities include:
i. Barren shales,
ii. Open montane grassland (primarily Arizona fescue) understory at the edges of open Ponderosa pine, or
iii. Clearings within the Ponderosa pine/Rocky Mountain juniper and Utah juniper/oak communities.
(iv)
a. Pollinator ground and twig nesting areas. Nesting and foraging habitats suitable for a wide array of pollinators and their life history and nesting requirements. A mosaic of native plant communities and habitat types generally would provide for this diversity.
b. Connectivity between areas allowing pollinators to move from one site to the next within each plant population.
c. Availability of other floral resources, such as other flowering plant species that provide nectar and pollen for pollinators. Grass species do not provide resources for pollinators.
d. A 3,280-ft (1,000-m) area beyond occupied habitat to conserve the pollinators essential for plant reproduction.
(v)
a. Appropriate disturbance levels—Light to moderate, or intermittent or discontinuous disturbance.
b. Naturally maintained disturbances through soil erosion, or human-maintained disturbances, that can include light grazing, occasional ground clearing, and other disturbances that are not severe or continual.
With this designation of critical habitat, we identify the physical and biological features essential to the conservation of the species through the identification of the PCEs sufficient to support the life-history processes of the species. Two units designated as critical habitat are currently occupied by
Because two populations do not offer adequate redundancy for the survival and recovery of
Based on our current knowledge of the physical or biological features and habitat characteristics required to sustain the species' life-history processes, we determine that the PCEs specific to
(i)
a. Parachute Member and the Lower part of the Green River Formation.
b. Appropriate soil morphology characterized by a surface layer of small to moderate shale channers (small flagstones) that shift continually due to the steep slopes and below a weakly developed calcareous, sandy to loamy layer with 40 to 90 percent coarse material.
(ii)
(iii)
a. Barren areas with less than 10 percent plant cover.
b. Presence of other oil shale endemics, which can include:
c. Presence of
(iv)
a. Pollinator ground, twig, and mud nesting areas. Nesting and foraging habitats suitable for a wide array of pollinators and their life-history and nesting requirements. A mosaic of native plant communities and habitat types generally would provide for this diversity (see
b. Connectivity between areas allowing pollinators to move from one population to the next within units.
c. Availability of other floral resources, such as other flowering plant species that provide nectar and pollen for pollinators. Grass species do not provide resources for pollinators.
d. A 3,280-ft (1,000-m) area beyond occupied habitat to conserve the pollinators essential for plant reproduction.
(v)
a. Very little or no soil formation.
b. Slow to moderate, but constant, downward motion of the oil shale that maintains the habitat in an early successional state.
With this designation of critical habitat, we identify the physical and biological features essential to the conservation of the species through the identification of the PCEs sufficient to support the life-history processes of the species. Two units designated as critical habitat are currently occupied by
Based on our current knowledge of the physical or biological features and habitat characteristics required to sustain the species' life-history processes, we determine that the PCEs specific to
(i)
a. Atwell Gulch and Shire members of the Wasatch formation.
b. Within these larger formations, small areas (from 10 to 1,000 ft
c. Clay soils that shrink and swell dramatically upon drying and wetting and are likely important in the maintenance of the seed bank.
(ii)
(iii)
a. Elevations from 4,600 to 7,450 ft (1,400 to 2,275 m).
b. Climatic conditions similar to those around DeBeque, Colorado, including suitable precipitation and temperatures. Annual fluctuations in moisture (and probably temperature) greatly influences the number of
(iv)
a. Small (from 10 to 1,000 ft
b. Presence of appropriate associated species that can include (but are not limited to) the natives
c. Appropriate plant communities within the greater pinyon–juniper woodlands that include:
i. Clay badlands within the mixed salt desert scrub, or
ii. Clay badlands within big sagebrush shrublands.
(v)
a. Within suitable soil and geologies, undisturbed areas where seed banks are left undamaged.
b. Areas with light disturbance when dry and no disturbance when wet.
With this designation of critical habitat, we identify the physical and biological features essential to the conservation of the species through the identification of the PCEs sufficient to support the life-history processes of the species. All units and subunits designated as critical habitat are currently occupied by
When designating critical habitat, we assess whether the specific areas within the geographical area occupied by the species at the time of listing contain features that are essential to the conservation of the species and which may require special management considerations or protection. All areas designated as critical habitat will require some level of management to address the current and future threats to the physical and biological features essential to the conservation of the three plants. In all units, special management will be required to ensure that the habitat is able to provide for the growth and reproduction of the species.
A detailed discussion of threats to
The features essential to the conservation of this species (plant community and competitive ability, elevation, soils, climate, reproduction, and disturbance regime) may require special management considerations or protection to reduce threats.
Special management considerations or protections are required within critical habitat areas to address these threats. Management activities that could ameliorate these threats include (but are not limited to): Introducing new
These management activities would protect the PCEs for the species by preventing the loss of habitat and individuals, maintaining or restoring plant communities and natural levels of competition, protecting the plant's reproduction by protecting its pollinators, and managing for appropriate levels of disturbance.
The features essential to the conservation of this species (plant community and competitive ability, elevation, slope, soils, climate, reproduction, and disturbance regime) may require special management considerations or protection to reduce threats. Extremely low numbers and a highly restricted geographic range make
Special management considerations or protections are required within critical habitat areas to address these threats. Management activities that could ameliorate these threats include (but are not limited to): The introduction of new
These management activities would protect the PCEs for the species by preventing the loss of habitat and individuals, maintaining or restoring plant communities and natural levels of competition, protecting the plant's reproduction by protecting its pollinators, and managing for appropriate levels and types of disturbance.
The features essential to the conservation of this species (plant community and competitive ability, elevation, topography, soils, climate, reproduction and seed bank, and disturbance regime) may require special management considerations or protection to reduce threats. Specifically, the clay soils on which
Special management considerations or protections are required within critical habitat areas to address these threats. Management activities that could ameliorate these threats include (but are not limited to): Development of regulations and agreements to balance conservation with energy development and minimize its effects in areas where the species resides; the establishment of additional protection areas that provide greater protections for the species; minimization of OHV use; placement of roads and utility lines away from the species and its habitat; minimization of livestock use or other human-caused disturbances that disturb the soil or seeds; and the minimization of habitat fragmentation.
These management activities would protect the PCEs for the species by preventing the loss of habitat and individuals, protecting the plant's habitat and soils, and managing for appropriate levels of disturbance.
As required by section 4(b)(2) of the Act, we used the best scientific data available to designate critical habitat. We reviewed available information pertaining to the habitat requirements of this species. In accordance with the Act and its implementing regulation at 50 CFR 424.12(e), we considered whether designating additional areas—outside those currently occupied as well as those occupied at the time of listing—are necessary to ensure the conservation of the species. We are designating critical habitat in areas within the geographical area occupied by
Small populations and plant species with limited distributions, like those of
Genetic analysis of
Genetic research on
When designating critical habitat for a species, we consider future recovery efforts and conservation of the species. Realizing that the current occupied habitat is not enough for the conservation and recovery of
Habitat fragmentation can have negative effects on biological populations, especially rare plants, and affect survival and recovery (Aguilar
In general, habitat fragmentation causes habitat loss, habitat degradation, habitat isolation, changes in species composition, changes in species interactions, increased edge effects, and reduced habitat connectivity (Fahrig 2003, pp. 487–515; Fisher and Lindenmayer 2007, pp. 265–280). These effects are more prevalent in arid ecosystems with low native vegetation cover (Fisher and Lindenmayer 2007, p. 272). Habitat fragments are often functionally smaller than they appear because edge effects (such as increased nonnative invasive species or wind speeds) impact the available habitat within the fragment (Lienert and Fischer 2003, p. 597).
Shaffer and Stein (2000) identify a methodology for conserving imperiled species known as the three Rs: Representation, resiliency, and redundancy. Representation, or preserving some of everything, means conserving not just a species but its associated plant communities, pollinators, and pollinator habitats. Resiliency and redundancy ensure there is enough of a species so it can survive into the future. Resiliency means ensuring that the habitat is adequate for a species and its representative components. Redundancy ensures an adequate number of sites and individuals. This methodology has been widely accepted as a reasonable conservation strategy (Tear
We have addressed representation through our PCEs for each species (as discussed above) and by providing habitat for pollinators of
In accordance with the Act and its implementing regulation at 50 CFR 424.12(e), we consider whether designating additional areas—outside those currently occupied as well as those occupied at the time of listing—are necessary to ensure the conservation of the species. For
Occupied critical habitat was identified by delineating all known sites within a population (CNHP 2012a, pp. 1, 6, 11), placing a minimum convex polygon around the perimeter of all sites, and then adding an additional 3,280-ft (1,000-m) area for pollinator habitat. The distance that pollinators can travel is significant to plants including
Typically, pollinators fly distances that are in relation to their body sizes, with smaller pollinators flying shorter distances than larger pollinators (Greenleaf
Foraging studies can be biased in that long-distance foraging bouts occur less frequently and so are less likely to be detected in experiments (Darvill
These studies suggest variability in the distances over which pollen transfer may occur and over which bumblebee species can travel.
A recovery plan has not yet been written for
To assist us in determining which specific unoccupied areas may be essential to the conservation of the species and considered for inclusion, we not only evaluated the biological contribution of an area, but also evaluated the conservation potential of the area through the overlay of a designation of critical habitat. While we recognize that there is an education value to designating an area as critical habitat, the more prevailing benefit is consultation under section 7 of the Act on activities that may affect critical habitat on Federal lands or where a Federal action may exist. Thus, in evaluating the potential conservation value of an unoccupied area for inclusion in critical habitat, we first focused on lands that are biologically important to the species and then considered which of those lands were under Federal ownership or likely to have a Federal action occur on them. If the inclusion of areas that met those criteria were not sufficient to conserve the species, we then evaluated other specific areas on private lands that were not likely to have a Federal action on them.
Unoccupied critical habitat was identified by overlaying the Mancos shale soil layer around Pagosa Springs with Federal ownership (Service 2011d, p. 1). As little overlap occurred where Mancos shale soils and Federal lands intersected with habitat supporting the appropriate plant communities for future
We delineated the CHU boundaries for
(1) In determining what areas were occupied by
(2) For currently occupied CHUs, we delineated critical habitat areas by creating minimum convex polygons around each population and adding a 3,280-ft (1,000–m) wide area for pollinator habitat as previously described.
(3) For currently unoccupied CHUs, we identified two areas where the Mancos shale (Tweto 1979, spatial data) intersected with Federal ownership (COMaP version 8—Theobald
We are designating as critical habitat lands that we have determined are occupied at the time of listing and contain sufficient physical or biological features to support life-history processes essential for the conservation of
We designated four units based on sufficient elements of physical or biological features being present to support
In accordance with the Act and its implementing regulations at 50 CFR 424.12(e), we consider whether designating additional areas—outside those currently occupied as well as those occupied at the time of listing—are necessary to ensure the conservation of the species. We are designating critical habitat in areas within the geographical area occupied by the species at the time of listing in 2011. We also are designating specific areas outside the geographical area occupied by the species at the time of listing, because such areas are essential for the conservation of the species.
Occupied critical habitat was identified by delineating all known sites within a population (CNHP 2012a, p. 5), placing a minimum convex polygon around the perimeter of all these sites, and then adding a 3,280-ft (1,000-m) area for pollinator habitat as previously described for
To allow for future seed dispersal and population growth, occupied areas were expanded into adjacent habitats containing the PCEs. This roughly doubled the size of these occupied units. In doing this, we also have provided more potential habitat for future recovery and introduction efforts, and given the difficulties of surveying cliff areas, have allowed for the possibility that there are more populations of
A recovery plan has not yet been written for
When we overlaid our rough suitable habitat layer (described in further detail in step 3 below) for
To assist us in determining which specific areas may be essential to the conservation of the species and considered for inclusion here, we not only evaluated the biological contribution of an area, but also evaluated the conservation potential of the area through the overlay of a designation of critical habitat. While we recognize that there is an education value to designating an area as critical habitat, the more prevailing benefit is consultation under section 7 of the Act on activities that may affect critical habitat on Federal lands or where a Federal action may exist. Thus, in evaluating the potential conservation value of an unoccupied area for inclusion in critical habitat, we first focused on lands that are biologically important to the species and then considered which of those lands were under Federal ownership or likely to have a Federal action occur on them. If the inclusion of areas that met those criteria were not sufficient to conserve the species, we then evaluated other specific areas on private lands that were not likely to have a Federal action on them. Upon discussions with local species and area experts, as well as land managers, we identified two areas on BLM lands as potential recovery or introduction areas for
We delineated the CHU boundaries for
(1) In determining what areas were occupied by
(2) We delineated preliminary units by creating minimum convex polygons around each population and adding a 3,280-ft (1,000-m) wide area for pollinator habitat as described above.
(3) We then identified potential habitat (Service 2011d, p. 2) in ArcMap 9.3.1 by intersecting the following criteria: The Parachute Creek Member and the Lower part of the Green River Formation geological formations (Tweto 1979, spatial data), with elevations between 6,561 to 9,350 ft (2,000 and 2,850 m), with suitable soil types that included five soil series (Irigul-Starman channery loams, Happle-Rock outcrop association, Rock outcrop-Torriorthents complex, Torriorthents-Camborthids-Rock outcrop complex, and Tosca channery loam), which represented 89 percent of all known
(4) From this potential habitat analysis (as delineated in step 3), we took the two continuous bands of potential habitat that include the areas where
(5) For currently unoccupied CHUs, we identified two areas where our potential habitat was intersected with Federal ownership (COMaP version 8—Theobald
We are designating as critical habitat lands that we have determined were occupied at the time of listing and contain sufficient physical or biological features to support life-history processes essential for the conservation of
Four units were designated based on sufficient elements of physical or biological features being present to support
In accordance with the Act and its implementing regulation at 50 CFR 424.12(e), we consider whether designating additional areas—outside those currently occupied as well as those occupied at the time of listing—are necessary to ensure the conservation of the species. We are not designating any areas outside the geographical area occupied by the species because occupied areas are sufficient for the conservation of the species.
Occupied critical habitat was identified by delineating all known sites within a population (CNHP 2012a, p. 11), and placing a minimum convex polygon around the perimeter of all these sites. We then added a 328-ft (100-m) wide area to account for indirect effects from factors such as edge effects from roads, nonnative species, dust impacts, and others (as discussed above).
We delineated the CHU boundaries for
(1) In determining what areas were occupied by
(2) We delineated critical habitat areas by creating minimum convex polygons around each population and adding a 328-ft (100-m) wide area to account for indirect effects as described immediately above.
(3) We then modified these critical habitat polygon boundaries to exclude unsuitable habitat as defined by a potential habitat model (Decker
We are designating as critical habitat lands that we have determined are occupied at the time of listing and contain sufficient physical or biological features to support life-history processes essential for the conservation of
Nine units were designated based on sufficient elements of physical or biological features being present to support
When determining critical habitat boundaries in this final rule, we made every effort to avoid including developed areas such as lands covered by buildings, pavement, and other structures because such lands lack physical and biological features for
We are designating four units as critical habitat for
The approximate area of each CHU is shown in Table 2.
Area sizes may not sum due to rounding.
We present brief descriptions of all units, and reasons why they meet the definition of critical habitat for
Unit 1, the Dyke Unit, consists of 1,475 ac (597 ha) of Federal and private lands. The Unit is located at the junction of U.S. Hwy 160 and Cat Creek Road (County Road 700) near the historic town of Dyke in Archuleta County, Colorado. Ninety-seven percent of this Unit is on private lands; of these private lands, 1 percent is within highway ROWs. Three percent is on Federal land managed by the BLM, through the Pagosa Springs Field Office of the San Juan Public Lands Center. This Unit is currently occupied.
This Unit currently has all the physical and biological features essential to the conservation of the species including a collection of all three communities (barren shales, open montane grassland (primarily Arizona fescue) understory at the edges of open Ponderosa pine, or clearings within the Ponderosa pine and Rocky Mountain juniper and Utah juniper and oak communities), pockets of shale with little to no competition from other species, suitable elevational ranges from 6,720 to 7,285 ft (2,048 to 2,220 m), Mancos shale soils, suitable climate, pollinators and habitat for these pollinators, and areas where the correct disturbance regime is present. Lands within this Unit are largely agricultural although some housing is present within the Unit. A large hunting ranch also falls within this Unit. While these lands currently have the physical and biological features essential to the conservation of
Threats to
Unit 2, the O'Neal Hill Botanical Unit consists of 564 ac (228 ha) of USFS land managed by the San Juan National Forest. The Unit is north of Pagosa Springs, roughly 13 mi (21 km) north along Piedra Road. Roughly 49 percent of this Unit (279 ac (113 ha)) falls within the O'Neal Hill Special Botanical Area that was designated to protect another Mancos shale endemic,
This Unit currently has all the physical and biological features essential to the conservation of the species, including a collection of all three plant communities, pockets of shale with little to no competition from other species, suitable elevational ranges from 7,640 to 8,360 ft (2,330 to 2,550 m), Mancos shale soils, suitable climate, habitat for pollinators (although we do not know if
Threats to
Unit 3, the Pagosa Springs Unit, is the largest of the four
This Unit currently has all the physical and biological features essential to the conservation of the species, including a collection of all three plant communities, pockets of shale with little to no competition from other species, suitable elevational ranges from 6,960 to 7,724 ft (2,120 to 2,350 m), Mancos shale soils, suitable climate, pollinators and habitat for these pollinators, and areas where the correct disturbance regime is present. Lands within this Unit fall into a wide array of land management scenarios, including agricultural use, junkyards, urban areas, small residential lots, and large 30- to 40-ac (12- to 16-ha) residential parcels. While these lands currently have the physical and biological features essential to the conservation of
Since 86 percent of this Unit is under private ownership and there is no land under Federal ownership, the primary threat to the species in this Unit is agricultural or urban development. Other threats include highway ROW disturbances,
Unit 4, Eight Mile Mesa, consists of 1,146 ac (464 ha) of USFS lands that are managed by the Pagosa Springs Field Office of the San Juan National Forest. This Unit is located roughly 6.5 mi (10.5 km) south of the intersections of Highways 160 and 84 in Pagosa Springs, Colorado, and on the western side of Highway 84. This Unit is not currently occupied. We reduced this Unit from our proposed critical habitat designation in our notice of availability (77 FR 18161) so that isolated patches, separated from the rest of the Unit by roads, would no longer be included (Holtrop 2011, p. 1).
This Unit currently has all the physical and biological features essential to the conservation of the species including a collection of all three plant communities, pockets of shale with little to no competition from other species, suitable elevational ranges from 7,320 to 7,858 ft (2,230 to 2,395 m), Mancos shale soils, suitable climate, habitat for pollinators, and areas where the correct disturbance regime is present. Because there are so few Mancos shale sites on Federal lands, and because this site has an array of habitat types, it provides the best potential area for introduction of
Threats to
We are designating four units as critical habitat for
We present brief descriptions of all units, and reasons why they meet the definition of critical habitat for
Unit 1, the Brush Mountain Unit, consists of 1,437 ac (582 ha) of federally owned lands, managed by BLM through the Grand Junction Field Office. It is located approximately 16 mi (26 km) northwest of the town of DeBeque in Garfield County, Colorado. It is northwest of the intersection of Roan Creek Road (County Road 204) and Brush Creek Road (County Road 209). This Unit is not currently occupied.
This Unit has all the physical and biological features essential to the conservation of the species, including the Rocky Mountain Cliff and Canyon plant community (NatureServe 2004, spatial data) with less than 10 percent plant cover, suitable elevational ranges of 6,234 to 8,222 ft (1,900 to 2,506 m), outcrops of the Parachute Creek Member of the Green River Formation, steep slopes of these soil outcrops that lend to the appropriate disturbance levels, pollinator habitat, and a climate with between 12 to 18 in. (30 and 46 cm) in annual rainfall and winter snow. Because of the presence of these features, we believe this may make a good introduction area for
The primary threat to
Unit 2, the Cow Ridge Unit, is 4,819 ac (1,950 ha) of federally owned lands managed by BLM through the Grand Junction Field Office. It is located approximately 8 mi (13 km) northwest of the town of DeBeque in Garfield County, Colorado, and north of Dry Fork Road. This Unit is not currently occupied.
This Unit has all the physical and biological features essential to the conservation of the species, including the Rocky Mountain Cliff and Canyon plant community (NatureServe 2004, spatial data) with less than 10 percent cover, suitable elevational ranges of 6,273 to 8,284 ft (1,912 to 2,525 m), outcrops of the Parachute Creek Member of the Green River Formation, steep slopes of these soil outcrops that lend to the appropriate disturbance levels, habitat for pollinators, and a climate with between 12 to 18 in (30 and 46 cm) in annual rainfall and winter snow. Because of the presence of these features, we believe this may make a good introduction area for
The primary threat to
Unit 3, the Mount Callahan Unit, consists of 4,369 ac (1,768 ha) of Federal and private land. It is located approximately 2 mi (3 km) west of the town of Parachute on the south-facing slopes of Mount Callahan and westward along the cliffs of the Roan Plateau. Fifty-five percent of Unit 3 is managed by the BLM under the management of two field offices: 80 Percent of these Federal lands are managed by the Colorado River Valley Field Office and 20 percent are managed by the Grand Junction Field Office.
Oxy has been a partner in the conservation of
Once Oxy lands were excluded, four parcels (two BLM and two private) of land remained along the northern edge of the CHU, as proposed. We have elected not to include three (both BLM and one of the two private parcels) of these four parcels in our critical habitat designation because: (1) They would be isolated from the rest of Unit 3; (2) they contain no suitable habitat for
This Unit currently has all the physical and biological features essential to the conservation of
The primary threat to
Unit 4, the Anvil Points Unit, consists of 4,885 ac (1,977 ha) of Federal and private land. It is located approximately 1 mi (2 km) north of the town of Rulison in Garfield County, Colorado. Seventy percent of this Unit is managed by the BLM, Colorado River Valley Field Office. Twenty-three percent of the Unit (1,102 ac (446 ha)) is within several potential BLM Areas of Critical Environmental Concern (ACECs). If these become ACECs, they would have several stipulations to protect
This Unit currently has all the physical and biological features essential to the conservation of
The primary threat to
We are designating nine units as critical habitat for
We present brief descriptions of all units, and reasons why they meet the definition of critical habitat for
Unit 1, the Sulphur Gulch Unit, consists of 1,046 ac (423 ha) of federally owned land. The Unit is located approximately 7.7 mi (12.5 km) southwest of the town of DeBeque in Mesa County, Colorado. This Unit is managed by BLM, through the Grand Junction Field Office. This Unit is currently occupied.
This Unit currently has all the physical and biological features essential to the conservation of the species including barren clay badlands with less than 20 percent plant/vegetation cover, suitable elevational ranges of 5,480 to 6,320 ft (1,670 to 1,926 m), appropriate topography, and shrink-swell alkaline clay soils within the Atwell Gulch and Shire members of the Wasatch Formation. All lands within this Unit are leased as grazing allotments, and less than 1 percent is managed as an active pipeline ROW by the BLM. While these lands currently have the physical and biological features essential to the conservation of
Threats to
Unit 2, the Pyramid Rock Unit, is the largest Unit we are designating and consists of 17,321 ac (7,010 ha) of federally and privately owned lands in Mesa and Garfield Counties, Colorado. This Unit is approximately 1.6 mi (2.6 km) west of the town of DeBeque. The eastern boundary borders Roan Creek, and Dry Fork Creek runs through the northern quarter of the Unit. Eighty-nine percent is managed by BLM through the Grand Junction Field Office, and 11 percent is under private ownership. Three percent of this Unit is within the Pyramid Rock Natural Area and Pyramid Rock ACEC that was designated, in part, to protect
This Unit currently has all the physical and biological features essential to the conservation of the species including barren clay badlands with less than 20 percent plant/vegetation cover, suitable elevational ranges of 4,960 to 6,840 ft (1,512 to 2,085 m), the appropriate topography, and shrink-swell alkaline clay soils within the Atwell Gulch and Shire members of the Wasatch Formation. Ninety-four percent of this Unit is managed as a grazing allotment on BLM and private lands. Additionally, 11 percent of this Unit is managed as an active pipeline ROW. While these lands currently have the physical and biological features essential to the conservation of
Threats to
Unit 3, the Roan Creek Unit, consists of 54 ac (22 ha) of federally and privately owned lands in Garfield County, Colorado. The Unit is located 3.3 mi (5.4 km) north of the town of DeBeque and for 1.7 mi (2.7 km) along both sides of County Road 299. Ninety-seven percent of this Unit is privately owned. Three percent of this Unit is managed by BLM through the Grand Junction Field Office. This Unit is currently occupied.
This Unit currently has all the physical and biological features essential to the conservation of the species including barren clay badlands with less than 20 percent cover, suitable elevational ranges of 5,320 to 5,420 ft (1,622 to 1,652 m), the appropriate topography, and shrink-swell alkaline clay soils within the Atwell Gulch and Shire members of the Wasatch Formation. The entire Unit is within a grazing allotment. While these lands currently have the physical and biological features essential to the conservation of
Threats to
Unit 4, the DeBeque Unit, consists of 530 ac (215 ha) of Federal and private lands in Mesa County, Colorado. This Unit is located 0.25 mi (0.4 km) north of DeBeque between Roan Creek Road and Cemetery Road. Seventy-six percent of this Unit is managed by BLM through the Grand Junction Field Office. This Unit is currently occupied.
This Unit currently has all the physical and biological features essential to the conservation of the species including barren clay badlands with less than 20 percent plant/vegetation cover, suitable elevational ranges of 5,180 to 5,400 ft (1,579 to 1,646 m), the appropriate topography, and shrink-swell alkaline clay soils within the Atwell Gulch and Shire members of the Wasatch Formation. While these lands currently have the physical and biological features essential to the conservation of
Threats to
Unit 5, the Mount Logan Unit, consists of 277 ac (112 ha) of Federal and private lands in Garfield County, Colorado. The Unit is located 2.7 mi (4.4 km) north, northeast of the town of DeBeque, Colorado, and 0.5 mi (0.8 km) west of Interstate 70. Eighty-eight percent of this Unit is managed by BLM through the Grand Junction Field Office. The remainder of this Unit is privately owned. This Unit is currently occupied.
This Unit currently has all the physical and biological features essential to the conservation of the species including barren clay badlands with less than 20 percent plant/vegetation cover, suitable elevational ranges of 4,960 to 5,575 ft (1,512 to 1,699 m), the appropriate topography, and shrink-swell alkaline clay soils within the Atwell Gulch and Shire members of the Wasatch Formation.
Threats to
Unit 6, the Ashmead Draw Unit, consists of 1,276 ac (516 ha) of Federal and private lands in Mesa County, Colorado. The Unit is located 1.5 mi (2.5 km) southeast of the town of DeBeque, Colorado, and east of 45.5 Road (DeBeque Cut-off Road). Eighty-seven percent of this Unit is managed by BLM through the Grand Junction Field Office, the remainder is private lands. This Unit is currently occupied. We slightly increased the size of this Unit from our proposed critical habitat designation in our notice of availability (77 FR 18162) to include sites that were revisited and more accurately mapped during the spring of 2011 (Service 2011e, pp. 1–3).
This Unit currently has all the physical and biological features essential to the conservation of the species including barren clay badlands with less than 20 percent plant/vegetation cover, suitable elevational ranges of 4,940 to 5,808 ft (1,506 to 1,770 m), the appropriate topography, and shrink-swell alkaline clay soils within the Atwell Gulch and Shire members of the Wasatch Formation. A network of access roads runs through the Unit. Eighty-eight percent of this Unit is within a BLM grazing allotment, and 84 percent is within the Grand Junction Field Office's designated energy corridor. Thirty percent of the Unit is managed as an active pipeline ROW. While these lands currently have the physical and biological features essential to the conservation of
Threats to
Unit 7, the Baugh Reservoir Unit, consists of 430 ac (174 ha) of Federal and private lands in Mesa County, Colorado. The Unit is located 6 mi (10 km) south of DeBeque, Colorado, near Kimball Mesa and Horse Canyon Road. Thirty-nine percent is managed by BLM through the Grand Junction Field Office, and the remaining 61 percent is on private lands. This Unit is currently occupied. We slightly increased the size of this Unit from our proposed critical habitat designation in our notice of availability (77 FR 18162) to include sites that were revisited and more accurately mapped during the spring of 2011 (Service 2011e, pp. 5–8).
This Unit currently has all the physical and biological features essential to the conservation of the species, including barren clay badlands with less than 20 percent plant/vegetation cover, a suitable elevational range of 5,400 to 5,700 ft (1,646 to 1,737 m), the appropriate topography, and shrink-swell alkaline clay soils within the Atwell Gulch and Shire members of the Wasatch Formation. An access road runs through the Unit, close to the occurrence of
Threats to
Unit 8, the Horsethief Mountain Unit, consists of 4,209 ac (1,703 ha) of Federal and private lands in Mesa County, Colorado. It is located approximately 3.5 mi (5.6 km) southeast of DeBeque, Colorado, and along the eastern side of Sunnyside Road (V Road). Thirty-four percent is managed by BLM through the Grand Junction Field Office, 29 percent by the White River National Forest, 23 percent by the Grand Mesa Uncompahgre National Forest, and 14 percent is on private lands. This Unit is currently occupied.
This Unit currently has all the physical and biological features essential to the conservation of the species, including barren clay badlands with less than 20 percent plant/vegetation cover, a suitable elevational range of 5,320 to 6,720 ft (1,622 to 2,048 m), the appropriate topography, and shrink-swell alkaline clay soils within the Atwell Gulch and Shire members of the Wasatch Formation. While these lands currently have the physical and biological features essential to the conservation of
Threats to
Unit 9, the Anderson Gulch Unit, consists of 341 ac (138 ha) of State and private lands in Mesa County, Colorado. It is located 11 mi (17 km) southeast of DeBeque, Colorado, and 3.5 mi (5.5 km) north of the town of Molina, Colorado. Within the Unit, 56 percent of the lands are managed by CDOW, within the Plateau Creek State Wildlife Area, and 44 percent is private. This Unit is currently occupied. We slightly increased the size of this Unit from our proposed critical habitat designation in our notice of availability (77 FR 18162) to include sites that were revisited and more accurately mapped during the spring of 2011 (CNHP 2012b, spatial data).
This Unit currently has all the physical and biological features essential to the conservation of the species, including barren clay badlands with less than 20 percent plant/vegetation cover, a suitable elevational range of 5,860 to 6,040 ft (1,786 to 1,841 m), the appropriate topography, and shrink-swell alkaline clay soils within the Atwell Gulch and Shire members of the Wasatch Formation. Forty-two percent of the Unit is a pending pipeline ROW. While these lands currently have the physical and biological features essential to the conservation of
Threats to
Section 7(a)(2) of the Act requires Federal agencies, including the Service, to ensure that any action they fund, authorize, or carry out is not likely to jeopardize the continued existence of any endangered species or threatened species or result in the destruction or adverse modification of designated critical habitat of such species. In addition, section 7(a)(4) of the Act requires Federal agencies to confer with the Service on any agency action that is likely to jeopardize the continued existence of any species proposed to be listed under the Act or result in the destruction or adverse modification of proposed critical habitat.
Decisions by the 5th and 9th Circuit Courts of Appeals have invalidated our regulatory definition of “destruction or adverse modification” (50 CFR 402.02) (see
If a Federal action may affect a listed species or its critical habitat, the responsible Federal agency (action agency) must enter into consultation with us. Examples of actions that are subject to the section 7 consultation process are actions on State, Tribal, local, or private lands that require a Federal permit (such as a permit from the U.S. Army Corps of Engineers under section 404 of the Clean Water Act (33 U.S.C. 1251
As a result of section 7 consultation, we document compliance with the requirements of section 7(a)(2) through our issuance of:
(1) A concurrence letter for Federal actions that may affect, but are not likely to adversely affect, listed species or critical habitat; or
(2) A biological opinion for Federal actions that may affect, and are likely to adversely affect, listed species or critical habitat.
When we issue a biological opinion concluding that a project is likely to jeopardize the continued existence of a listed species and/or destroy or adversely modify critical habitat, we provide reasonable and prudent alternatives to the project, if any are identifiable, that would avoid the likelihood of jeopardy and/or destruction or adverse modification of critical habitat. We define “reasonable and prudent alternatives” (at 50 CFR 402.02) as alternative actions identified during consultation that:
(1) Can be implemented in a manner consistent with the intended purpose of the action,
(2) Can be implemented consistent with the scope of the Federal agency's legal authority and jurisdiction,
(3) Are economically and technologically feasible, and
(4) Would, in the Director's opinion, avoid the likelihood of jeopardizing the continued existence of the listed species and/or avoid the likelihood of destroying or adversely modifying critical habitat.
Reasonable and prudent alternatives can vary from slight project modifications to extensive redesign or relocation of the project. Costs associated with implementing a reasonable and prudent alternative are similarly variable.
Regulations at 50 CFR 402.16 require Federal agencies to reinitiate consultation on previously reviewed actions in instances where we have listed a new species or subsequently designated critical habitat that may be affected and the Federal agency has retained discretionary involvement or control over the action (or the agency's discretionary involvement or control is authorized by law). Consequently, Federal agencies sometimes may need to request reinitiation of consultation with us on actions for which formal consultation has been completed, if those actions with discretionary involvement or control may affect subsequently listed species or designated critical habitat.
The key factor related to the adverse modification determination is whether, with implementation of the proposed Federal action, the affected critical habitat would continue to serve its intended conservation role for the species. Activities that may destroy or adversely modify critical habitat are those that alter the physical or biological features to an extent that appreciably reduces the conservation value of critical habitat for
Section 4(b)(8) of the Act requires us to briefly evaluate and describe, in any proposed or final regulation that designates critical habitat, activities involving a Federal action that may destroy or adversely modify such habitat, or that may be affected by such designation.
Activities that may affect critical habitat, when carried out, funded, or authorized by a Federal agency, should result in consultation for the
For
(1) Actions that would lead to the destruction or alteration of the plants or their habitat; or actions that would result in continual or excessive disturbance or prohibit overland soil erosion on Mancos shale soils. Such activities could include, but are not limited to, removing soils to a depth that the seed bank has been removed, repeatedly scraping areas, repeated mowing, excessive grazing, continually driving vehicles across areas, permanent developments, the construction or maintenance of utility or road corridors, and ditching. These activities could remove the seed bank, reduce plant numbers by prohibiting reproduction, impede or accelerate beyond historical levels the natural or artificial erosion processes on which the plant relies (as described above in “
(2) Actions that would result in the loss of pollinators or their habitat, such that
(3) Actions that would result in excessive plant competition at
For
(1) Actions that would lead to the destruction or alteration of the plants or their habitat. Such activities could include, but are not limited to, activities associated with oil shale mining, including the mines themselves, pipelines, roads, and associated infrastructure; activities associated with oil and gas development, including pipelines, roads, well pads, and associated infrastructure; activities associated with reclamation activities, utility corridors, or infrastructure; and road construction and maintenance. These activities could lead to the loss of individuals, fragment the habitat, impact pollinators, cause increased dust deposition, introduce nonnative invasive species, and alter the habitat such that important downhill movement or the shale erosion no longer occurs.
(2) Actions that would alter the highly mobile nature of the sites. Such activities could include, but are not limited to, activities associated with oil shale mining, including pipelines, roads, and associated infrastructure; activities associated with oil and gas development, including pipelines, roads, well pads, and associated infrastructure; activities associated with reclamation activities, utility corridors, or infrastructure; and road construction and maintenance. These activities could lead to increased soil formation and a subsequent increase in vegetation, alterations to the soil morphology, and the loss of
(3) Actions that would result in the loss of pollinators or their habitat, such that reproduction of
For
(1) Actions that would lead to the destruction or alteration of the plants, their seed bank, or their habitat, or actions that would destroy the fragile clay soils where
(2) Actions that would result in excessive plant competition at
The Sikes Act Improvement Act of 1997 (Sikes Act) (16 U.S.C. 670a) required each military installation that includes land and water suitable for the conservation and management of natural resources to complete an integrated natural resources management plan (INRMP) by November 17, 2001. An INRMP integrates implementation of the military mission of the installation with stewardship of the natural resources found on the base. Each INRMP includes:
(1) An assessment of the ecological needs on the installation, including the need to provide for the conservation of listed species;
(2) A statement of goals and priorities;
(3) A detailed description of management actions to be implemented to provide for these ecological needs; and
(4) A monitoring and adaptive management plan.
Among other things, each INRMP must, to the extent appropriate and applicable, provide for fish and wildlife management; fish and wildlife habitat enhancement or modification; wetland protection, enhancement, and restoration where necessary to support fish and wildlife; and enforcement of applicable natural resource laws.
The National Defense Authorization Act for Fiscal Year 2004 (Pub. L. 108–136) amended the Act to limit areas eligible for designation as critical habitat. Specifically, section 4(a)(3)(B)(i) of the Act (16 U.S.C. 1533(a)(3)(B)(i)) now provides: “The Secretary shall not designate as critical habitat any lands or other geographical areas owned or controlled by the Department of Defense, or designated for its use, that are subject to an integrated natural resources management plan prepared under section 101 of the Sikes Act (16 U.S.C. 670a), if the Secretary determines in writing that such plan provides a benefit to the species for which critical habitat is proposed for designation.”
No Department of Defense lands occur within the critical habitat designation. Therefore, we are not exempting lands from this final designation of critical habitat for
Section 4(b)(2) of the Act states that the Secretary shall designate and make revisions to critical habitat on the basis of the best available scientific data after taking into consideration the economic impact, national security impact, and any other relevant impact of specifying any particular area as critical habitat. The Secretary may exclude an area from critical habitat if he determines that the benefits of such exclusion outweigh the benefits of specifying such area as part of the critical habitat, unless he
In considering whether to exclude a particular area from the designation, we identify the benefits of including the area in the designation, identify the benefits of excluding the area from the designation, and evaluate whether the benefits of exclusion outweigh the benefits of inclusion. If the analysis indicates that the benefits of exclusion outweigh the benefits of inclusion, the Secretary may exercise his discretion to exclude the area only if such exclusion would not result in the extinction of the species.
When identifying the benefits of inclusion for an area, we consider the additional regulatory benefits that area would receive from the protection from adverse modification or destruction as a result of actions with a Federal nexus; the educational benefits of mapping essential habitat for recovery of the listed species; and any benefits that may result from a designation due to State or Federal laws that may apply to critical habitat.
When identifying the benefits of exclusion, we consider, among other things, whether exclusion of a specific area is likely to result in conservation; the continuation, strengthening, or encouragement of partnerships; or implementation of a management plan that provides equal to or more conservation than a critical habitat designation would provide.
In the case of
For these three species, all of which are plants that receive limited protections under the Act, the primary impact and benefit of designating critical habitat will be on Federal lands or in instances where there is a Federal action for projects on private lands.
When we evaluate the existence of a conservation plan when considering the benefits of exclusion, we consider a variety of factors, including but not limited to, whether the plan is finalized; how it provides for the conservation of the essential physical or biological features; whether there is a reasonable expectation that the conservation management strategies and actions contained in a management plan will be implemented into the future; whether the conservation strategies in the plan are likely to be effective; and whether the plan contains a monitoring program or adaptive management to ensure that the conservation measures are effective and can be adapted in the future in response to new information.
After identifying the benefits of inclusion and the benefits of exclusion, we carefully weigh the two sides to evaluate whether the benefits of exclusion outweigh those of inclusion. If our analysis indicates that the benefits of exclusion outweigh the benefits of inclusion, we then determine whether exclusion would result in extinction. If exclusion of an area from critical habitat will result in extinction, we will not exclude it from the designation.
Based on the information provided by entities seeking exclusion, species information, information in our files, as well as other public comments received, we evaluated whether certain lands in the proposed critical habitat unit for
Table 7, below, provides approximate areas (ac, ha) of lands that meet the definition of critical habitat, but are being excluded under section 4(b)(2) of the Act from the final critical habitat rule.
We are excluding these areas because we determine that:
(1) They are appropriate for exclusion under the “other relevant factor” provisions of section 4(b)(2) of the Act.
These exclusions are discussed in detail below.
Under section 4(b)(2) of the Act, we consider the economic impacts of specifying any particular area as critical habitat. In order to consider economic impacts, we prepared a DEA of the proposed critical habitat designation and related factors (Industrial Economics, Incorporated 2012). The DEA, dated March 2, 2012, was made available for public review from March 27, 2012, through April 26, 2012 (77 FR 18157). Following the close of the comment period, a final analysis (dated June 7, 2012) of the potential economic effects of the designation was developed, taking into consideration the public comments received and any new information obtained (Industrial Economics 2012, entire).
The intent of the FEA is to quantify the economic impacts of all potential conservation efforts for
The FEA also addresses how potential economic impacts are likely to be distributed, including an assessment of any local or regional impacts of habitat conservation and the potential effects of conservation activities on government agencies, private businesses, and individuals. The FEA measures lost economic efficiency associated with residential and commercial development and public projects and activities, such as economic impacts on water management and transportation projects, Federal lands, small entities, and the energy industry. Decision-makers can use this information to assess whether the effects of the designation might unduly burden a particular group or economic sector. Finally, the FEA looks retrospectively at costs that have been incurred since 2011 (year of the species' listing) (76 FR 45054), and considers those costs that may occur in the 20 years following the designation of critical habitat, which was determined to be the appropriate period for analysis because limited planning information was available for most activities to forecast activity levels for projects beyond a 20-year timeframe. The FEA quantifies economic impacts of
The FEA estimates that total potential incremental economic impacts in critical habitat areas for all three species over the next 20 years will be $967,000 to $14.8 million (approximately $85,300 to $1.3 million on an annualized basis), assuming a 7 percent discount rate (Table 8). The largest contributor to the incremental costs is impacts to oil and gas development, which represent approximately 90 percent of incremental impacts in the low-cost scenario and 99 percent of impacts in the high-cost scenario.
In the low-cost scenario, proposed Unit 2 for
Incremental impacts to oil and gas development range from $868,000 to $14.7 million, assuming a 7 percent discount rate. These impacts are related to future oil and gas development that occurs in areas greater than 100 meters from known
Incremental impacts to transportation projects are estimated to be $12,700, assuming a 7 percent discount rate. Incremental impacts to recreational activities are estimated to be $32,500, assuming a 7 percent discount rate. The incremental impacts to transportation and recreational activities are limited to the administrative cost of consultation. Incremental impacts to agriculture and grazing are estimated to be $53,200, assuming a 7 percent discount rate.
We are not excluding any lands based on economic impacts. A copy of the FEA with supporting documents may be obtained by contacting the Western Colorado Ecological Services Office (see
Under section 4(b)(2) of the Act, we consider any other relevant impacts, in addition to economic impacts and impacts on national security. We consider a number of factors including whether the landowners have developed any HCPs or other management plans for the area, or whether there are conservation partnerships that would be encouraged by designation of, or exclusion from, critical habitat. In addition, we look at any Tribal issues, and consider the government-to-government relationship of the United States with Tribal entities. We also consider any social impacts that might occur because of the designation.
We consider for exclusions areas that receive some protection due to the existence of partnerships that result in tangible benefits to listed species. For these exclusions, we consider a number of factors, including current management or the existence of a management plan. We consider a current land management or conservation plan (HCPs, as well as other types) to provide adequate management or protection if it meets the following criteria:
(1) The plan is complete and provides the same or better level of protection from adverse modification or destruction than that provided through a consultation under section 7 of the Act;
(2) There is a reasonable expectation that the conservation management strategies and actions will be implemented for the foreseeable future, based on past practices, written guidance, or regulations; and
(3) The plan provides conservation strategies and measures consistent with currently accepted principles of conservation biology.
We find that the Mount Callahan Natural Area, Mount Callahan Saddle Natural Area, and Logan Wash Mine Natural Area and their associated Best Management Practices fulfill the above criteria, and are excluding non-Federal lands covered by this partnership that provide for the conservation of
We are excluding lands owned by Oxy based on the partnership between Oxy and the State of Colorado's CNAP to conserve the majority of three of the four viable populations of
Within the CNAs, the BMPs provide guidelines for surveys and require surveys prior to any surface disturbance. Within 330 ft (100 m) of occupied habitat, the BMPs require that impacts to
As further evidence of the partnership between Oxy and CNAP and their commitment to the conservation of
(1) limit surface disturbance by transporting water by pipelines instead of trucks, reducing visits to well-sites, maximizing drilling technology through high-efficiency rigs, directional drilling, multi-well pads, coiled-tubing unit rigs to minimize disturbance, and limiting the number of rig moves and traffic;
(2) conduct dust abatement activities during the growing season (April to September);
(3) reclaim disturbances and re-vegetate areas with native plants, including forb species that would provide resources for pollinators at optimal times for seed germination and establishment, and track the success of this seeding with follow up seeding if necessary;
(4) ensure that any straw bales used are weed free;
(5) increase pollinator presence by creating nesting substrates;
(6) conduct surveys in all accessible suitable habitat within 330 ft (100 m) of a project disturbance;
(7) protect any new populations of
(8) conduct noxious weed control that limits the use of herbicides within specific distances of occupied habitat, but that also protects occupied habitat from invasive plants (CNAP and Oxy
If these private lands were included in the designation, section (7)(a)(2) consultations would occur on private (Oxy) lands only if there were proposed activities involving a Federal action. A Federal action would most likely arise for drainage crossings (Army Corps permits); other instances of a Federal action are unlikely because any Federal actions or funding would be extremely limited on lands owned by Oxy. There are no Federal minerals below Oxy lands that were proposed as critical habitat. Drainage crossings are generally far removed from
By including these lands in the critical habitat designation, it would be more widely known that these areas have the PCEs for
• Cooperative efforts for the management and conservation of
• Oxy will continue implementing conservation actions for
• Pollinator and habitat BMPs will apply outside of specific Natural Areas.
The exclusion would provide recognition for the proactive conservation efforts that have been implemented in practice by Oxy and CNAP.
Ongoing management of the Mount Callahan Natural Area since 1987, consistent with the conservation measures and BMPs, demonstrates a long-term commitment and partnership by Oxy and the CNAP. Furthermore, the Mount Callahan Saddle Natural Area was added in 2008 and the Mount Logan Mine Natural Area is being added in 2012, demonstrating an expansion of and commitment to conservation efforts, as discussed above. In addition, Oxy has agreed to extend their termination clause on the agreement from 3 months to 2 years, again, demonstrating a commitment to conservation of the species and partnership with CNAP.
Oxy manages the majority of three of the four viable populations of
The partnership between Oxy and CNAP has given rise to an agreement that provides conservation strategies and measures consistent with currently accepted principles of conservation biology and provides better protection for
Executive Order 12866 provides that the Office of Information and Regulatory Affairs (OIRA) will review all significant rules. The OIRA has determined that this rule is not significant.
Executive Order 13563 reaffirms the principles of E.O. 12866 while calling for improvements in the nation's regulatory system to promote predictability, to reduce uncertainty, and to use the best, most innovative, and least burdensome tools for achieving regulatory ends. The executive order directs agencies to consider regulatory approaches that reduce burdens and maintain flexibility and freedom of choice for the public where these approaches are relevant, feasible, and consistent with regulatory objectives. E.O. 13563 emphasizes further that regulations must be based on the best available science and that the rulemaking process must allow for public participation and an open exchange of ideas. We have developed this rule in a manner consistent with these requirements.
Under the Regulatory Flexibility Act (RFA) (5 U.S.C. 601
According to the Small Business Administration, small entities include small organizations, such as independent nonprofit organizations; small governmental jurisdictions, including school boards and city and town governments that serve fewer than 50,000 residents; as well as small businesses. Small businesses include manufacturing and mining concerns with fewer than 500 employees, wholesale trade entities with fewer than 100 employees, retail and service businesses with less than $5 million in annual sales, general and heavy construction businesses with less than $27.5 million in annual business, special trade contractors doing less than $11.5 million in annual business, and agricultural businesses with annual sales less than $750,000. To determine if potential economic impacts on these small entities are significant, we consider the types of activities that might trigger regulatory impacts under this rule, as well as the types of project modifications that may result. In general, the term “significant economic impact” is meant to apply to a typical small business firm's business operations.
To determine if the rule could significantly affect a substantial number of small entities, we consider the number of small entities affected within particular types of economic activities (e.g., oil and gas development, transportation projects, and agriculture and grazing). We apply the “substantial number” test individually to each industry to determine if certification is appropriate. However, the SBREFA does not explicitly define “substantial number” or “significant economic impact.” Consequently, to assess whether a “substantial number” of small entities is affected by this designation, this analysis considers the relative number of small entities likely to be impacted in an area. In some circumstances, especially with critical habitat designations of limited extent, we may aggregate across all industries and consider whether the total number of small entities affected is substantial. In estimating the number of small entities potentially affected, we also consider whether their activities have any Federal involvement.
Designation of critical habitat only affects activities authorized, funded, or carried out by Federal agencies. Some kinds of activities are unlikely to have any Federal involvement and so will not be affected by critical habitat designation. In areas where the species is present, Federal agencies already are required to consult with us under section 7 of the Act on activities they authorize, fund, or carry out that may affect
In our FEA of the critical habitat designation, we evaluated the potential economic effects on small business entities resulting from conservation actions related to the listing of
Small entities represent 60 percent of all entities in the oil and gas development industry that may be affected. The analysis expects conservation efforts for the three plants to affect companies that are involved with drilling for oil and gas and that lease or plan to lease Federal lands. Although we predict that drilling activity will not be precluded by the designation, we anticipate requesting that drilling companies undertake project modifications to reduce potential impacts to the habitat. The costs of implementing these project modifications are one impact of the regulation. In addition, affected companies will incur administrative costs associated with the section 7 consultation process.
The FEA estimates that between 0.23 and 5.1 oil and gas development projects are undertaken in the study area annually (total number of projects divided by 20 years). We multiply these projects by the percentage of small entities in these counties, or approximately 60 percent, to identify the annual number of projects likely to be undertaken by small entities (0.14 to 3.06 projects annually). Some of these projects will only incur incremental administrative costs because they are located close to occupied habitat. In these cases, the project modification costs will be incurred regardless of the designation of critical habitat. Projects experiencing the highest annual incremental costs are located in unoccupied areas. We multiply the per-project costs in these unoccupied areas by the total number of annual projects undertaken by small entities and then divide by the number of affected small entities to estimate per-entity costs. These impacts are then compared to average annual sales per small business in the oil and gas development sector. On average, annual incremental impacts per small drilling company represent 0.01 to 0.27 percent of small developers' annual average sales.
Based on estimates and calculations, fewer than two to four small entities may be affected annually by the critical habitat designation. These entities will likely experience costs equivalent to less than 1 percent of annual revenues. Importantly, these estimates assume each well pad is drilled by a separate entity. In the case that one small company drills more well pads than predicted, impacts to that company are underestimated, and the annual number of affected entities is overstated.
In summary, we considered whether this designation would result in a significant economic effect on a substantial number of small entities. Based on the above reasoning and currently available information, we concluded that this rule would not result in a significant economic impact on a substantial number of small entities. Therefore, we are certifying that the designation of critical habitat for
Executive Order 13211 (Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use) requires agencies to prepare Statements of Energy Effects when undertaking certain actions. OMB has provided guidance for implementing this Executive Order that outlines nine outcomes that may constitute “a significant adverse effect” when compared to not taking the regulatory action under consideration.
Critical habitat designation for the three plants is anticipated to affect oil and gas activities. However, the Service is more likely to recommend a series of project modifications that will allow for work within critical habitat, rather than complete avoidance of critical habitat. Therefore, reductions in oil and natural gas production are not anticipated. Furthermore, given the small fraction of projects affected, approximately three or fewer, project modification costs are not anticipated to increase the cost of energy production or distribution in the United States in excess of 1 percent, one of the nine thresholds contained in Executive Order 13211. Thus, none of the nine threshold levels of impact provided by OMB is exceeded. Therefore, designation of critical habitat is not expected to lead to any adverse outcomes (such as a reduction in oil and natural gas production or distribution), and a Statement of Energy Effects is not required.
In accordance with the Unfunded Mandates Reform Act (2 U.S.C. 1501
(1) This rule will not produce a Federal mandate. In general, a Federal mandate is a provision in legislation, statute, or regulation that would impose an enforceable duty upon State, local, or Tribal governments, or the private sector, and includes both “Federal intergovernmental mandates” and “Federal private sector mandates.” These terms are defined in 2 U.S.C. 658(5)–(7). “Federal intergovernmental mandate” includes a regulation that “would impose an enforceable duty upon State, local, or tribal governments” with two exceptions. It excludes “a condition of Federal assistance.” It also excludes “a duty arising from participation in a voluntary Federal program,” unless the regulation “relates to a then-existing Federal program under which $500,000,000 or more is provided annually to State, local, and tribal governments under entitlement authority,” if the provision would “increase the stringency of conditions of assistance” or “place caps upon, or otherwise decrease, the Federal Government's responsibility to provide funding,” and the State, local, or Tribal governments “lack authority” to adjust accordingly. At the time of enactment, these entitlement programs were: Medicaid; Aid to Families with Dependent Children work programs; Child Nutrition; Food Stamps; Social Services Block Grants; Vocational Rehabilitation State Grants; Foster Care, Adoption Assistance, and Independent Living; Family Support Welfare Services; and Child Support Enforcement. “Federal private sector mandate” includes a regulation that “would impose an enforceable duty upon the private sector, except (i) a condition of Federal assistance or (ii) a duty arising from participation in a voluntary Federal program.”
The designation of critical habitat does not impose a legally binding duty on non-Federal Government entities or private parties. Under the Act, the only regulatory effect is that Federal agencies must ensure that their actions do not destroy or adversely modify critical habitat under section 7. While non-Federal entities that receive Federal funding, assistance, or permits, or that otherwise require approval or authorization from a Federal agency for an action, may be indirectly impacted by the designation of critical habitat, the legally binding duty to avoid destruction or adverse modification of critical habitat rests squarely on the Federal agency. Furthermore, to the extent that non-Federal entities are indirectly impacted because they receive Federal assistance or participate in a voluntary Federal aid program, the Unfunded Mandates Reform Act would not apply, nor would critical habitat shift the costs of the large entitlement programs listed above onto State governments.
(2) We do not believe that this rule will significantly or uniquely affect small governments because it would not produce a Federal mandate of $100 million or greater in any year; that is, it is not a “significant regulatory action” under the Unfunded Mandates Reform Act. The FEA concludes that incremental impacts may occur due to project modifications and administrative costs of consultation that may need to be made for oil and gas, transportation, grazing, and recreational activities; however, these are not expected to affect small governments to the extent described above. Consequently, we do not believe that the critical habitat designation would significantly or uniquely affect small government entities. As such, a Small Government Agency Plan is not required.
In accordance with Executive Order 12630 (Government Actions and Interference with Constitutionally Protected Private Property Rights), we have analyzed the potential takings implications of designating critical habitat for
We believe that the takings implications associated with this critical habitat designation will be insignificant, even though private lands are included as well as Federal lands. Impacts of critical habitat designation may occur on private lands where there is Federal involvement (e.g., Federal funding or permitting) subject to section 7 of the Act. Impacts on private entities also may result if the decision on a proposed action on federally owned land designated as critical habitat could affect economic activity on adjoining non-Federal land. Each action would be evaluated by the involved Federal agency, in consultation with the Service, in relation to its impact on these species' designated critical habitat. In the unexpected event that expensive modifications would be required to a project on private property, it is not likely that the economic impacts to the property owner would be such to support a takings action.
The takings implications assessment concludes that this designation of critical habitat for
In accordance with Executive Order 13132 (Federalism), this rule does not have significant Federalism effects. A Federalism impact summary statement is not required. In keeping with
Where State and local governments require approval or authorization from a Federal agency for actions that may affect critical habitat, consultation under section 7(a)(2) would be required. While non-Federal entities that receive Federal funding, assistance, or permits, or that otherwise require approval or authorization from a Federal agency for an action, may be indirectly impacted by the designation of critical habitat, the legally binding duty to avoid destruction or adverse modification of critical habitat rests squarely on the Federal agency.
In accordance with Executive Order 12988 (Civil Justice Reform), the Office of the Solicitor has determined that the rule does not unduly burden the judicial system and that it meets the applicable standards set forth in sections 3(a) and 3(b)(2) of the Order. We are designating critical habitat in accordance with the provisions of the Act. This final rule uses standard property descriptions and identifies the elements of physical or biological features essential to the conservation of
This rule does not contain any new collections of information that require approval by OMB under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501
It is our position that, outside the jurisdiction of the U.S. Court of Appeals for the Tenth Circuit, we do not need to prepare environmental analyses pursuant to the National Environmental Policy Act (NEPA) (42 U.S.C. 4321
We completed NEPA analysis for this critical habitat designation. We notified the public of availability of the draft environmental assessment (Service 2012b, entire) for the proposed rule on March 27, 2012 (77 FR 18157). The final environmental assessment, as well as the finding of no significant impact, is available upon request from the Field Supervisor, Colorado Ecological Services Office (see
In accordance with the President's memorandum of April 29, 1994 (Government-to-Government Relations with Native American Tribal Governments; 59 FR 22951), Executive Order 13175 (Consultation and Coordination with Indian Tribal Governments), and the Department of the Interior's manual at 512 DM 2, we readily acknowledge our responsibility to communicate meaningfully with recognized Federal Tribes on a government-to-government basis. In accordance with Secretarial Order 3206 of June 5, 1997 (American Indian Tribal Rights, Federal-Tribal Trust Responsibilities, and the Act), we readily acknowledge our responsibilities to work directly with Tribes in developing programs for healthy ecosystems, to acknowledge that Tribal lands are not subject to the same controls as Federal public lands, to remain sensitive to Indian culture, and to make information available to Tribes. We determined that there are no Tribal lands occupied by
A complete list of all references cited is available on the Internet at
The primary authors of this rulemaking are the staff members of Western Colorado Ecological Services Office.
Endangered and threatened species, Exports, Imports, Reporting and recordkeeping requirements, Transportation.
Accordingly, we amend part 17, subchapter B of chapter I, title 50 of the Code of Federal Regulations, as set forth below:
16 U.S.C. 1361–1407; 16 U.S.C. 1531–1544; 16 U.S.C. 4201–4245; Pub. L. 99–625, 100 Stat. 3500; unless otherwise noted.
(h) * * *
(a)
Family Hydrophyllaceae:
(1) Critical habitat units are designated for Garfield and Mesa Counties, Colorado.
(2) The primary constituent elements of the physical and biological features essential to the conservation of
(i)
(A) Atwell Gulch and Shire members of the Wasatch formation.
(B) Within these larger formations, small areas (from 10 to 1,000 ft
(C) Clay soils that shrink and swell dramatically upon drying and wetting and are likely important in the maintenance of the seed bank.
(ii)
(iii)
(A) Elevations from 4,600 ft (1,400 m) to 7,450 ft (2,275 m).
(B) Climatic conditions similar to those around DeBeque, Colorado, including suitable precipitation and temperatures. Annual fluctuations in moisture (and probably temperature) greatly influences the number of
(iv)
(A) Small (from 10 to 1,000 ft
(B) Presence of appropriate associated species that can include (but are not limited to) the natives
(C) Appropriate plant communities within the greater pinyon-juniper woodlands that include:
(v)
(A) Within suitable soil and geologies (see paragraph (2)(i) of this entry), undisturbed areas where seed banks are left undamaged.
(B) Areas with light disturbance when dry and no disturbance when wet.
(3) Critical habitat does not include manmade structures (such as buildings, aqueducts, runways, roads, and other paved areas) and the land on which they are located existing within the legal boundaries on September 12, 2012.
(4)
(5)
(6) Unit 1: Sulfur Gulch, Mesa County, Colorado.
(7) Unit 2: Pyramid Rock, Garfield and Mesa Counties, Colorado.
(8) Unit 3: Roan Creek, Garfield County, Colorado.
(9) Unit 4: DeBeque, Mesa County, Colorado.
(10) Unit 5: Mount Logan, Garfield County, Colorado.
(11) Unit 6: Ashmead Draw, Mesa County, Colorado.
(12) Unit 7: Baugh Reservoir, Mesa County, Colorado.
(13) Unit 8: Horsethief Mountain, Mesa County, Colorado.
(14) Unit 9: Anderson Gulch, Mesa County, Colorado.
Family Plantaginaceae:
(1) Critical habitat units are designated for Garfield County, Colorado.
(2) The primary constituent elements of the physical and biological features essential to the conservation of
(i)
(A) Parachute Member and the Lower Part of the Green River Formation.
(B) Appropriate soil morphology characterized by a surface layer of small to moderate shale channers (small flagstones) that shift continually due to the steep slopes and below a weakly developed calcareous, sandy to loamy layer with 40 to 90 percent coarse material.
(ii)
(iii)
(A) Barren areas with less than 10 percent plant cover.
(B) Other oil shale endemics, which can include:
(C) Presence of
(iv)
(A) Pollinator ground, twig, and mud nesting areas. Nesting and foraging habitats suitable for a wide array of pollinators and their life-history and nesting requirements. A mosaic of native plant communities and habitat types generally would provide for this diversity (see paragraph (2)(iii) of this entry). These habitats can include areas outside of the soils identified in paragraph (2)(i) of this entry.
(B) Connectivity between areas allowing pollinators to move from one population to the next within units.
(C) Availability of other floral resources such as other flowering plant species that provide nectar and pollen for pollinators. Grass species do not provide resources for pollinators.
(D) A 3,280-ft (1,000-m) area beyond occupied habitat to conserve the pollinators essential for plant reproduction.
(v)
(A) Very little to no soil formation.
(B) Slow to moderate but constant downward motion of the oil shale that maintains the habitat in an early successional state.
(3) Critical habitat does not include manmade structures (such as buildings, aqueducts, runways, roads, and other paved areas) and the land on which they are located existing within the legal boundaries on September 12, 2012.
(4)
(5)
(6) Unit 1: Brush Mountain, Garfield County, Colorado.
(7) Unit 2: Cow Ridge, Garfield County, Colorado.
(8) Unit 3: Mount Callahan, Garfield County, Colorado.
(9) Unit 4: Anvil Points, Garfield County, Colorado.
Family Polemoniaceae:
(1) Critical habitat units are designated for Archuleta County, Colorado.
(2) The primary constituent elements of the physical and biological features essential to the conservation of
(i)
(ii)
(iii)
(A) Suitable native plant communities (as described in paragraph (2)(iii)(B) of this entry) with small (less than 100 ft
(B) Appropriate native plant communities, preferably with plant communities reflective of historical community composition, or altered habitats which still contain components of native plant communities. These plant communities include:
(iv)
(A) Pollinator ground and twig nesting areas. Nesting and foraging habitats suitable for a wide array of pollinators and their life-history and nesting requirements. A mosaic of native plant communities and habitat types generally would provide for this diversity.
(B) Connectivity between areas allowing pollinators to move from one site to the next within each plant population.
(C) Availability of other floral resources, such as other flowering plant species that provide nectar and pollen for pollinators. Grass species do not provide resources for pollinators.
(D) A 3,280-ft (1,000-m) area beyond occupied habitat to conserve the pollinators essential for plant reproduction.
(v)
(A) Appropriate disturbance levels—Light to moderate, or intermittent or discontinuous disturbances.
(B) Naturally maintained disturbances through soil erosion or human-maintained disturbances that can include light grazing, occasional ground clearing, and other disturbances that are not severe or continual.
(3) Critical habitat does not include manmade structures (such as buildings, aqueducts, runways, roads, and other paved areas) and the land on which they are located existing within the legal boundaries on September 12, 2012. However, because
(4)
(5)
(6) Unit 1: Dyke, Archuleta County, Colorado.
(7) Unit 2: O'Neal Hill Special Botanical Unit, Archuleta County, Colorado.
(8) Unit 3: Pagosa Springs, Archuleta County, Colorado.
(9) Unit 4: Eight Mile Mesa, Archuleta County, Colorado.