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Office of Energy Efficiency and Renewable Energy, Department of Energy.
Final rule; correction.
The Department of Energy is correcting a final rule that appeared in the
The effective date of this rule is December 17, 2012.
The regulatory reviews conducted for this rulemaking are those set forth in the October 31, 2012 final rule. (77 FR 65941)
Pursuant to the Administrative Procedure Act, 5 U.S.C. 553(b), DOE has determined that notice and prior opportunity for comment on this rule are unnecessary and contrary to the public interest. The instruction is being revised to delete reference to adding section 3.1.3.3 because there is no accompanying text for such a section; the insertion was made in error. DOE has determined that there is good cause to waive the 30-day delay in effective date for these same reasons.
Bureau of Consumer Financial Protection.
Final rule; official interpretation.
The Bureau of Consumer Financial Protection (Bureau) is amending Regulation Z (Truth in Lending) to, in effect, delay implementation of certain new mortgage disclosure requirements in title XIV of the Dodd-Frank Wall Street Reform and Consumer Protection Act that would otherwise take effect on January 21, 2013. Instead, to avoid potential consumer confusion and reduce compliance burden for industry, the Bureau plans to implement these disclosures as part of the integrated mortgage disclosure forms proposed earlier this year, which combine certain disclosures that consumers receive in connection with applying for and closing on a mortgage loan under the Truth in Lending Act and the Real Estate Settlement Procedures Act. Accordingly, this rulemaking exempts persons from complying with these mortgage disclosure requirements and provides that such exemptions are intended to last only until the integrated mortgage disclosure forms take effect.
The rule is effective on November 23, 2012.
Michael G. Silver, Counsel; and Richard B. Horn, Senior Counsel, Office of Regulations, Consumer Financial Protection Bureau, 1700 G Street NW., Washington, DC 20552 at (202) 435–7700.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), Public Law 111–203, amended the Real Estate Settlement Procedures Act of 1974 (RESPA) and the Truth in Lending Act (TILA) to mandate that the Bureau of Consumer Financial Protection (Bureau) establish a single disclosure scheme for use by lenders or creditors in complying with certain mortgage disclosure requirements under both statutes.
In addition to the integrated disclosure requirements in title X of the Dodd-Frank Act, various provisions of title XIV of the Dodd-Frank Act amend TILA, RESPA, and other consumer financial laws to impose new disclosure requirements for mortgage transactions (the Title XIV Disclosures). These provisions generally require disclosure of certain information when a consumer applies for a mortgage loan or shortly before consummation of the loan, around the same time that consumers will receive the TILA–RESPA integrated disclosures required by sections 1032(f), 1098, and 1100A of the Dodd-Frank Act (the TILA–RESPA integrated disclosures), and after consummation of the loan if certain events occur. Dodd-Frank Act title XIV provisions generally take effect within 18 months after the designated transfer date (
The Title XIV Disclosures generally include the following:
• Warning regarding negative amortization features. Dodd-Frank Act section 1414(a); TILA section 129C(f)(1).
• Disclosure of State law anti-deficiency protections. Dodd-Frank Act section 1414(c); TILA section 129C(g)(2) and (3).
• Disclosure regarding creditor's partial payment policy prior to consummation and, for new creditors, after consummation. Dodd-Frank Act section 1414(d); TILA section 129C(h).
• Disclosure regarding mandatory escrow or impound accounts. Dodd-Frank Act section 1461(a); TILA section 129D(h).
• Disclosure prior to consummation regarding waiver of escrow in connection with the transaction. Dodd-Frank Act section 1462; TILA section 129D(j)(1)(A).
• Disclosure regarding cancellation of escrow after consummation. Dodd-Frank Act section 1462; TILA section 129D(j)(1)(B).
• Disclosure of monthly payment, including escrow, at initial and fully-indexed rate for variable-rate residential mortgage loan transactions. Dodd-Frank Act section 1419; TILA section 128(a)(16).
• Repayment analysis disclosure to include amount of escrow payments for taxes and insurance. Dodd-Frank Act section 1465; TILA 128(b)(4).
• Disclosure of aggregate amount of settlement charges, amount of charges included in the loan and the amount of such charges the borrower must pay at closing, the approximate amount of the wholesale rate of funds, and the aggregate amount of other fees or required payments in connection with a residential mortgage loan. Dodd-Frank Act section 1419; TILA section 128(a)(17).
• Disclosure of aggregate amount of mortgage originator fees and the amount of fees paid by the consumer and the creditor. Dodd-Frank Act section 1419; TILA section 128(a)(18).
• Disclosure of total interest as a percentage of principal. Dodd-Frank Act section 1419; TILA section 128(a)(19).
• Optional disclosure of appraisal management company fees. Dodd-Frank Act section 1475; RESPA section 4(c).
• Disclosure regarding notice of reset of hybrid adjustable rate mortgage. Dodd-Frank Act section 1418(a); TILA section 128A(b).
• Loan originator identifier requirement. Dodd-Frank section 1402(a)(2); TILA section 129B(b)(1)(B).
• Consumer notification regarding appraisals for higher-risk mortgages. Dodd-Frank Act section 1471; TILA section 129H(d).
• Consumer notification regarding the right to receive an appraisal copy. Dodd-Frank Act section 1474; Equal Credit Opportunity Act (ECOA) section 701(e)(5).
As noted in the list above, the Title XIV Disclosures include certain disclosures that may need to be given both before and after consummation. For example, the Title XIV Disclosures include disclosures regarding a creditor's policy for acceptance of partial loan payments both before consummation and, for persons who subsequently become creditors for the transaction, after consummation as required by new TILA section 129C(h), added by Dodd-Frank Act section 1414(d).
On July 9, 2012, the Bureau issued a proposal requesting comment on proposed rules and forms to integrate certain disclosure requirements of TILA and RESPA for most closed-end consumer credit transactions secured by real property (the TILA–RESPA Integration Proposal), as required by sections 1032(f), 1098, and 1100A of the Dodd-Frank Act.
Among other things, the TILA–RESPA Integration Proposal requested comment on an amendment to § 1026.1(c) of Regulation Z that would temporarily exempt persons from compliance with the following Title XIV Disclosures (collectively, the Affected Title XIV Disclosures) so that the disclosures could instead be incorporated into the TILA–RESPA integrated disclosures that would be finalized in the future:
• Warning regarding negative amortization features. Dodd-Frank Act section 1414(a); TILA section 129C(f)(1).
• Disclosure of State law anti-deficiency protections. Dodd-Frank Act section 1414(c); TILA section 129C(g)(2) and (3).
• Disclosure regarding creditor's partial payment policy prior to consummation and, for new creditors, after consummation. Dodd-Frank Act section 1414(d); TILA section 129C(h).
• Disclosure regarding mandatory escrow or impound accounts. Dodd-Frank Act section 1461(a); TILA section 129D(h).
• Disclosure prior to consummation regarding waiver of escrow in connection with the transaction. Dodd-Frank Act section 1462; TILA section 129D(j)(1)(A).
• Disclosure of monthly payment, including escrow, at initial and fully-indexed rate for variable-rate residential mortgage loan transactions. Dodd-Frank Act section 1419; TILA section 128(a)(16).
• Repayment analysis disclosure to include amount of escrow payments for taxes and insurance. Dodd-Frank Act section 1465; TILA 128(b)(4).
• Disclosure of aggregate amount of settlement charges, amount of charges included in the loan and the amount of such charges the borrower must pay at closing, the approximate amount of the wholesale rate of funds, and the aggregate amount of other fees or required payments in connection with a residential mortgage loan. Dodd-Frank Act section 1419; TILA section 128(a)(17).
• Disclosure of aggregate amount of mortgage originator fees and the amount of fees paid by the consumer and the creditor. Dodd-Frank Act section 1419; TILA section 128(a)(18).
• Disclosure of total interest as a percentage of principal. Dodd-Frank Act section 1419; TILA section 128(a)(19).
• Optional disclosure of appraisal management company fees. Dodd-Frank Act section 1475; RESPA section 4(c).
The TILA–RESPA Integration Proposal provided for a bifurcated comment process. Comments regarding the proposed amendments to § 1026.1(c) were required to have been received on or before September 7, 2012. For all other proposed amendments and comments pursuant to the Paperwork Reduction Act, comments were required to have been received on or before November 6, 2012.
Sections 1461 and 1462 of the Dodd-Frank Act create new TILA section 129D, which substantially codifies requirements that the Board had previously adopted in Regulation Z regarding escrow requirements for higher-priced mortgage loans, but also adds disclosure requirements and lengthens the period for which escrow accounts are required. 15 U.S.C. 1639d. On March 2, 2011, the Board proposed amendments to Regulation Z implementing certain requirements of sections 1461 and 1462 of the Dodd-Frank Act. 76 FR 11598 (Mar. 2, 2011) (2011 Escrows Proposal). The Board proposed, among other things, to implement the disclosure requirements under TILA section 129D(j)(1) in Regulation Z under a new § 226.19(f)(2)(ii) and § 226.20(d) of the Board's Regulation Z, including both the Pre-Consummation Escrow Waiver Disclosure and the Post-Consummation Escrow Cancellation Disclosure.
The comment period for the 2011 Escrows Proposal closed on May 2, 2011. The Board did not finalize the 2011 Escrows Proposal. Subsequent to the issuance of the 2011 Escrows Proposal, the authority for finalizing the proposal was transferred to the Bureau pursuant to the Dodd-Frank Act.
As described above, the Affected Title XIV Disclosures impose certain new disclosure requirements for mortgage transactions. Section 1400(c)(3) of the Dodd-Frank Act
The Bureau provided in the TILA–RESPA Integration Proposal that it believed that implementing integrated disclosures that satisfy the applicable sections of TILA and RESPA and the Affected Title XIV Disclosures would benefit consumers and facilitate compliance for industry with TILA and RESPA. The Bureau provided further that consumers would benefit from a consolidated disclosure that conveys loan terms and costs to consumers in a
However, given the broad scope and complexity of TILA–RESPA Integration Proposal and the 120-day comment period provided, the Bureau stated that it believed a final rule would not be issued by January 21, 2013. The Bureau was concerned that absent a final rule implementing the Affected Title XIV Disclosures, institutions would have to comply with those disclosures beginning January 21, 2013 due to the statutory requirement that any section of Dodd-Frank Act title XIV for which regulations have not been issued by January 21, 2013 are self-effectuating as of that date. The Bureau stated that this likely would result in widely varying approaches to compliance in the absence of regulatory guidance, creating confusion for consumers, and would impose a significant burden on industry. For example, this could result in a consumer who shops for a mortgage loan receiving different disclosures from different creditors. The Bureau noted that it believed such disclosures would not only be unhelpful to consumers, but likely would be confusing since the same disclosures would be provided in widely different ways, and, moreover, implementing the Affected Title XIV Disclosures separately from the TILA–RESPA integrated disclosures would increase compliance costs and burdens on industry. The Bureau also noted in the TILA–RESPA Integration Proposal that nothing in the Dodd-Frank Act itself or its legislative history suggests that Congress contemplated how the separate requirements in titles X and XIV would work together.
Accordingly, in the TILA–RESPA Integration Proposal, the Bureau proposed to implement the Affected Title XIV Disclosures for purposes of Dodd-Frank Act section 1400(c) by providing a temporary exemption from the requirement to comply with such requirements such that they would not become self-effective on January 21, 2013, and instead would be required at the time the TILA–RESPA integrated disclosure requirements become effective.
Specifically, as set forth in the section-by-section analysis to proposed § 1026.1(c) in the TILA–RESPA Integration Proposal, the Bureau proposed to delay those requirements by temporarily exempting persons from the requirement to comply on January 21, 2013.
The Bureau proposed to exclude the following Title XIV Disclosures from the list of Affected Title XIV Disclosures in the TILA–RESPA Integration Proposal, stating they would be implemented in separate rulemakings:
• Disclosure regarding notice of reset of hybrid adjustable rate mortgage. Dodd-Frank Act section 1418(a); TILA section 128A(b).
• Loan originator identifier requirement. Dodd-Frank section 1402(a)(2); TILA section 129B(b)(1)(B).
• Consumer notification regarding appraisals for higher-risk mortgages. Dodd-Frank Act section 1471; TILA section 129H(d).
• Consumer notification regarding the right to receive an appraisal copy. Dodd-Frank Act section 1474; ECOA section 701(e)(5).
• Post-Consummation Escrow Cancellation Disclosure. Dodd-Frank Act section 1462; TILA section 129D(j)(1)(B).
The Bureau stated generally that these disclosures were expected to be proposed separately in summer 2012 and finalized by January 21, 2013. However, the Post-Consummation Escrow Cancellation Disclosure was excluded from the list of Affected Title XIV Disclosures, in part, because the Bureau stated it “will be implemented by final rule pursuant to an outstanding proposal published by the Board,” referring to the Board's 2011 Escrows Proposal.
The Bureau proposed to delay the Affected Title XIV Disclosures to the fullest extent those requirements could apply under the statutory provisions, including to transactions not covered by the proposed integrated disclosure provisions, including open-end credit plans, transactions secured by dwellings that are not real property, and reverse mortgages. The Bureau specifically solicited comment on this scope of the exemption of the Affected Title XIV Disclosures. The Bureau also solicited comment on whether the regulatory exemption should sunset on a specific date, rather than provide an exemption until a final rule for the integrated disclosures becomes effective.
As of September 7, 2012, the Bureau had received nearly 500 comments on the TILA–RESPA Integration Proposal from depository institutions, credit unions, settlement agents, mortgage brokers, mortgage brokerage companies, industry trade groups, consumers, consumer advocacy organizations, a State attorney general, Government-Sponsored Enterprises (GSEs), and other sources. More than 20 of these comments specifically addressed the Bureau's proposed delay of the Affected Title XIV Disclosures, and those commenters were unanimously supportive of a temporary exemption from the Affected Title XIV Disclosures until the TILA–RESPA integrated disclosure rulemaking is finalized. Several industry commenters and their trade groups stated that this approach would result in disclosures that are more useful for consumers and would facilitate compliance for financial institutions by delaying compliance until a comprehensive implementation of all such rules could be accomplished. A State attorney general commented in support of this delayed implementation
A number of commenters urged the Bureau to delay implementation of other Title XIV Disclosures or otherwise addressed the Title XIV Disclosures more generally. One mortgage company expressly urged the Bureau to delay implementation of the other Title XIV Disclosures (which include the Post-Consummation Escrow Cancellation Disclosure) in addition to the Affected Title XIV Disclosures. A national trade association for credit unions encouraged the Bureau to use its exemption authority under the Dodd-Frank Act, TILA, and RESPA to the fullest extent permissible to relieve regulatory burdens for credit unions. Several state-level trade associations for credit unions urged the Bureau to finalize all Regulation Z rulemakings at the same time. A GSE noted the benefits of implementing rules in a manner that would necessitate only a one-time change for software and other systems. One trade association supported the proposal to delay implementation of the Affected Title XIV Disclosures and urged the Bureau to clarify in the final rule its reasoning for exercising its exemption authority under section 1032(a) of the Dodd-Frank Act to specifically incorporate the considerations in section 1032(c) of the Dodd-Frank Act. Two trade associations commented that the Bureau should make clear that proposed § 1026.1(c) is a rule in “final form” pursuant to section 1400(c)(1) of the Dodd-Frank Act and that such a rule prevents the triggering of section 1400(c)(3) of the Dodd-Frank Act.
Several industry trade associations were opposed to a sunset of the regulatory exemption on a specific date and instead, were in favor of the exemption existing until the TILA–RESPA integrated disclosures final rule becomes effective. These industry trade group commenters were concerned that a specific sunset date may precede the effective date for the TILA–RESPA integration final rule. Removing the exemption at the same time as implementing the TILA–RESPA integrated disclosures would, in their view, reduce unnecessary disruption and provide regulatory certainty.
In addition, the Bureau did not receive any comments in favor of limiting the scope of the temporary exemptions, such that the disclosure requirements would become self-effective for the types of loans that are not subject to the TILA–RESPA integrated disclosure requirements in the TILA–RESPA Integration Proposal. One national trade association representing the reverse mortgage industry commented in support of exemptions from the Affected Title XIV Disclosures for reverse mortgage loans. A national trade association representing banks and bank holding companies that provide retail financial services commented that the exemption should also apply to the fullest extent under the statute, and not be limited to the loans subject the TILA–RESPA integrated disclosure requirements as proposed. The trade association specifically stated that many banks use similar systems for home equity lines of credit, reverse mortgages, and loans secured by dwellings that are not real property and noted that including them in the exemption would allow banks to implement the disclosure requirements in a coordinated manner. A trade association representing financial institutions in a particular State also commented in favor of the full scope of the temporary exemption.
The 2011 Escrows Proposal proposed to implement the Pre-Consummation Escrow Waiver Disclosure required under TILA section 129D(j)(1)(A) and the Post-Consummation Escrow Cancellation Disclosure required under TILA section 129D(j)(1)(B).
The Board received approximately 70 comments to the 2011 Escrows Proposal, of which roughly a dozen addressed the timing of the implementation of the Post-Consummation Escrow Cancellation Disclosure. Specifically, national industry trade associations, State industry trade associations, large depository institutions, and community banks urged the Board to delay implementation of the Dodd-Frank Act escrow disclosure requirements until the Bureau had authority over the disclosures or until the Bureau could finalize the escrow disclosure requirements along with the TILA–RESPA integrated disclosures. These commenters stated that harmonizing the rulemakings would allow for a comprehensive approach and avoid duplicative forms and repetitive rulemakings. One industry trade association commented that it would be “premature” and “potentially counterproductive” to issue new escrow rules prior to the completion of the TILA–RESPA integrated disclosures, and therefore recommended that the Board delay finalizing the escrow rules to allow the Bureau to incorporate the Dodd-Frank Act's escrow amendments into the TILA–RESPA integrated disclosures.
As noted above, the Bureau proposed, as part of the TILA–RESPA Integration Proposal, to provide a temporary exemption from compliance with the TILA section 129D(j)(1)(A), which requires the Pre-Consummation Escrow Waiver Disclosure. The Bureau did not propose to effectively delay the Post-Consummation Escrow Cancellation Disclosure in the TILA–RESPA Integration Proposal, and instead stated it would implement the statute, TILA section 129D(j)(1)(B), by final rule pursuant to the Board's 2011 Escrows Proposal. Absent the Bureau's issuance of a final rule implementing TILA section 129D(j)(1)(B) by January 21, 2013, the provision would go into effect as of such date by operation of law under the Dodd-Frank Act section 1400(c)(3).
The final rule implements the Affected Title XIV Disclosures and the Post-Consummation Escrow Cancellation Disclosure in § 1026.1(c) of Regulation Z and provides for a temporary exemption for persons from these statutory disclosure requirements. The Bureau is issuing this final rule implementing the Affected Title XIV Disclosures and the Post-Consummation Escrow Cancellation Disclosure prior to the statutory provisions becoming self-effectuating on January 21, 2013. Accordingly, persons will not be required to comply with these statutory disclosure requirements until such time as the Bureau removes the exemption, which it plans to do in the final rule for the TILA–RESPA integrated disclosures, and such removal takes effect.
The Bureau is exercising its authority under and consistent with TILA section 105(a) and (f), RESPA section 19(a), Dodd-Frank section 1032(a), and, for residential mortgage loans, Dodd-Frank Act section 1405(b) to, in effect, delay the effective date of the Affected Title XIV Disclosures and the Post-Consummation Escrow Cancellation Disclosure by exempting regulated persons from these provisions until a final rule for the TILA–RESPA integrated disclosures mandated by Dodd-Frank Act sections 1032(f), 1098 and 1100A takes effect. 15 U.S.C. 1604(a), 1604(f); 12 U.S.C. 2617(a); 12 U.S.C. 5532(a); 15 U.S.C. 1601 note. TILA section 105(a) gives the Bureau authority to adjust or except from the disclosure requirements of TILA all or any class of transactions to effectuate the purposes of TILA, to prevent circumvention or evasion thereof, or facilitate compliance therewith. As set forth above and below, delaying the Affected Title XIV Disclosures and the Post-Consummation Escrow Cancellation Disclosure until such time as a final rule implementing the TILA–RESPA integrated disclosures takes effect achieves the purpose of TILA to promote the informed use of credit through a more effective, consolidated disclosure, and facilitates compliance by reducing regulatory burden associated with revising systems and practices multiple times and providing multiple disclosures to consumers.
The Bureau is also exercising exemption authority pursuant to TILA section 105(f). The Bureau has considered the factors in TILA section 105(f) and believes that an exemption is appropriate under that provision. Specifically, the Bureau believes that the exemption is appropriate for all affected borrowers, regardless of their other financial arrangements and financial sophistication and the importance of the loan to them. Similarly, the Bureau believes that the exemption is appropriate for all affected loans, regardless of the amount of the loan and whether the loan is secured by the principal residence of the consumer. Furthermore, the Bureau believes that, on balance, the exemption will simplify the credit process without undermining the goal of consumer protection or denying important benefits to consumers.
As discussed above, the Bureau believes that the exemption overall provides a benefit to consumers by facilitating a more effective, consolidated disclosure scheme. Absent an exemption, the Affected Title XIV Disclosures and the Post-Consummation Escrow Cancellation Disclosure would complicate and hinder the mortgage lending process because consumers would receive inconsistent disclosures and, likely, numerous additional pages of Federal disclosures that do not work together in a meaningful, synchronized way. The Bureau also believes that the credit process could be more expensive and complicated if the Affected Title XIV Disclosures and the Post-Consummation Escrow Cancellation Disclosure take effect independent of the larger TILA–RESPA integration rulemaking because industry would be required to revise systems and practices multiple times. The Bureau has also considered the status of mortgage borrowers in issuing the exemptions, and believes the exemption is appropriate to improve the informed use of credit. The Bureau does not believe that the goal of consumer protection would be undermined by the exemption, because of the risk that layering the Affected Title XIV Disclosures and the Post-Consummation Escrow Cancellation Disclosure on top of existing mandated disclosures would lead to consumer confusion. The exemption allows the Bureau to coordinate the changes in a way that improves overall consumer understanding of the disclosures.
RESPA section 19(a) provides the Bureau with authority to grant reasonable exemptions for classes of transactions from the requirements of RESPA as necessary to achieve the purposes of RESPA. 12 U.S.C. 2617(a). As discussed above, one purpose of RESPA is to achieve more effective advance disclosure to home buyers and sellers of settlement costs. RESPA section 2(b)(1); 12 U.S.C. 2601(b). Delaying the optional disclosure of the appraisal management company fee and the fee paid to the appraiser provided for by Dodd-Frank Act section 1475 (amending RESPA section 4(c)) until such time as a final rule implementing the TILA–RESPA integrated disclosures takes effect will result in a more effective disclosure and improve consumer understanding, as discussed above.
Section 1405(b) of the Dodd-Frank Act additionally gives the Bureau authority to exempt from or modify disclosure requirements, in whole or in part, for any class of residential mortgage loans if the Bureau determines that the exemption or modification is in the interest of consumers and the public. 15 U.S.C. 1601 note. As discussed above, implementing the Affected Title XIV Disclosures and the Post-Consummation Escrow Cancellation Disclosure with the TILA–RESPA integrated disclosures is in the interest of consumers because it allows the Bureau to coordinate the changes mandated by the Dodd-Frank Act in a way that synchronizes and harmonizes the disclosures, which in turn will improve overall consumer understanding of the disclosures. Further, implementing the Affected Title XIV Disclosures and the Post-Consummation Escrow Cancellation Disclosure as part of the integrated disclosure rulemaking is in the public interest because it produces a more efficient regulatory scheme by incorporating multiple, potentially confusing disclosures into clear and understandable forms through consumer testing.
Consistent with section 1032(a) of the Dodd-Frank Act,
For these reasons, the Bureau is issuing this final rule to delay the Affected Title XIV Disclosures and the Post-Consummation Escrow Cancellation Disclosure until the Bureau issues a final rule implementing the TILA–RESPA integrated disclosures required by sections 1032(f), 1098, and 1100A of the Dodd-Frank Act and such rule takes effect. The Bureau considers the adoption of these amendments to § 1026.1(c) as prescribing the rules in final form for the Affected Title XIV Disclosures and the Post-Consummation Escrow Cancellation Disclosure pursuant to Dodd-Frank Act section 1400(c)(1)(A), to the extent regulations are required to be prescribed, and the effective date of the final rule as satisfying Dodd-Frank Act section 1400(c)(1)(B). The Bureau views this final rule as issuing regulations for purposes of Dodd-Frank Act section 1400(c)(3); therefore, the Affected Title XIV Disclosures and Post-Consummation Escrow Cancellation Disclosure do not take effect by operation of law with respect to any transaction covered by TILA or RESPA on January 21, 2013.
This final rule will be effective on the date of publication in the
In the TILA–RESPA Integration Proposal, the Bureau proposed to exempt persons temporarily from the disclosure requirements of the Affected Title XIV Disclosures (
The Bureau has considered the comments addressing the proposed amendments to § 1026.1(c), which are summarized in part II.C, above. Based on those comments and its own analysis, the Bureau has determined that it will adopt the proposed amendments to § 1026.1(c), with only one substantive change and the technical changes described below.
Although the Post-Consummation Escrow Cancellation Disclosure was not included in the Affected Title XIV Disclosures in the TILA–RESPA Integration Proposal, the Bureau nevertheless received comment requesting that it delay implementation of this disclosure, as described above. Furthermore, as discussed above, the Board received similar requests from commenters on its 2011 Escrows Proposal, which is now the Bureau's responsibility.
The Bureau has considered the comments received by the Board and the Bureau and believes that, for the reasons given by the commenters and the reasons described in part II above, delaying implementation of the Post-Consummation Escrow Cancellation Disclosure and coordinating such implementation with that of the TILA–RESPA integrated disclosures is in the interest of industry and consumers alike. As discussed in part II above, the Dodd-Frank Act statutory requirements for the content of the Pre-Consummation Escrow Waiver Disclosure and the Post-Consummation Escrow Cancellation Disclosure are the same, and the model forms proposed in the Board's 2011 Escrows Proposal contained similar language for both disclosures. The Bureau tested language for the Pre-Consummation Escrow Waiver Disclosure at its consumer testing conducted in connection with the TILA–RESPA Integration Proposal and proposed to integrate this disclosure into the Closing Disclosure (which integrates the final TILA disclosure and the RESPA settlement statement).
In light of the considerations discussed above, including the comments submitted to the Board and the Bureau in support of a temporary exemption from compliance, the Bureau is modifying the proposed amendments to § 1026.1(c) to exempt persons from compliance with the Post-Consummation Escrow Cancellation Disclosure in addition to the Affected Title XIV Disclosures. Accordingly, the Bureau is adding a reference in § 1026.1(c)(5) and associated commentary to TILA section 129D(j)(1)(B).
In addition, in the final rule the Bureau is making three technical changes to § 1026.1 and its commentary. First, in § 1026.1(a), reference has been added to reflect the implementation of certain provisions of RESPA. This technical change relates to the fact that the optional disclosure of appraisal management company fees and fees paid to appraisers under RESPA section 4(c) (as added by Dodd-Frank Act section 1475) is being implemented in Regulation Z, rather than Regulation X, by exempting persons from the disclosure requirements of that section.
Second, in comment 1(c)(5)–1, references have been added to Dodd-Frank Act sections 1098 and 1100A, which amend RESPA section 4(a) and TILA section 105(b), respectively, in addition to the proposed comment's reference to Dodd-Frank Act section 1032(f). This technical change reflects the fact that sections 1098 and 1100A of the Dodd-Frank Act also mandate the TILA–RESPA integrated disclosures. Third, the Bureau has amended § 1026.1(a) to make clear that the Office of Management and Budget control number listed applies only to Bureau respondents.
Section VII of the TILA–RESPA Integration Proposal contained the Bureau's preliminary analysis under section 1022(b)(2)(A) of the Dodd-Frank Act of the potential benefits and costs of the proposed rule to consumers and covered persons (as defined in Dodd-Frank Act section 1002(6), 12 U.S.C. 5481(6)), including the potential reduction of access by consumers to consumer financial products or services; the impact on depository institutions and credit unions with $10 billion or less in total assets as described in section 1026 of the Dodd-Frank Act; and the impact on consumers in rural areas (the Preliminary Section 1022(b)(2) Analysis).
The baseline for analysis in this final Dodd-Frank Act section 1022(b)(2) analysis is a post-statutory baseline analysis. The Preliminary Section 1022(b)(2) Analysis used a pre-statutory baseline,
The Bureau did not receive any comments on the Bureau's Preliminary Section 1022(b)(2) Analysis regarding the effect of the proposed delay of implementing the Affected Title XIV Disclosures on covered persons and consumers. The Bureau also believes that delaying implementation of the Post-Consummation Escrow Cancellation Disclosure and, instead, implementing the disclosure along with the TILA–RESPA integrated disclosures would avoid unnecessary regulatory burden by preventing covered persons from having to implement multiple iterations of disclosure rules. The Bureau does not anticipate additional costs to covered persons as a result of such delayed implementation of the Post-Consummation Escrow Cancellation Disclosure, although covered persons may incur additional recurring costs associated with calculating and disclosing this additional information to consumers once the implementing rules take effect.
In light of this, the Bureau concludes, using a post-statutory baseline, that the
The Bureau's TILA–RESPA Integration Proposal included an initial regulatory flexibility analysis (IRFA) discussing the potential impact of the Bureau's regulations on small entities, including small businesses, under the Regulatory Flexibility Act (RFA).
The Bureau did not receive any comments on the conclusions that the Bureau made in the IRFA regarding the effect on small entities of the proposed delay of implementing the Affected Title XIV Disclosures. The Bureau also believes that delaying implementation of the Post-Consummation Escrow Cancellation Disclosure to implement it simultaneously with the TILA–RESPA integration final rulemaking will avoid unnecessary regulatory burden by preventing covered persons that are small entities from having to implement multiple iterations of disclosure rules. The Bureau does not anticipate additional costs as a result of delayed implementation of the Post-Consummation Escrow Cancellation Disclosure, although small entities may incur additional recurring costs associated with calculating and disclosing this additional information to consumers once the implementing rules take effect.
Accordingly, because this final rule, which the Bureau is issuing separately from the other parts of the TILA–RESPA Integration Proposal, will not create additional costs for covered persons that are small entities, the undersigned certifies that it will not have a significant economic impact on a substantial number of small entities. Therefore, an analysis under the RFA is not required for this final rule. However, the factors required in such an analysis are addressed below for informational purposes.
The Bureau has concluded that the final rule will impose, subject to a post-statutory baseline, the impacts on small entities that were discussed in the IRFA. The delay of the implementation of the Affected Title XIV Disclosures and the Post-Consummation Escrow Cancellation Disclosure, so that they may be implemented with the integrated TILA–RESPA disclosures, will improve the integrated disclosures, which may benefit consumers and small entities, and avoid unnecessary regulatory burden by preventing covered persons that are small entities from having to implement multiple iterations of disclosure rules.
As described in the TILA–RESPA Integration Proposal, the Bureau estimates the final rule to affect small entities that are engaged in closed-end mortgage transactions that are commercial banks and savings associations, credit unions, non-bank mortgage lenders, mortgage brokers, and settlement agents, totaling about 26,000 small entities.
In sum, this final rule will eliminate the costs that covered small entities would have incurred if they had to implement the disclosure provisions multiple times,
The Bureau has determined that this final rule does not impose any new recordkeeping, reporting, or disclosure requirements on covered persons or members of the public that would be collections of information requiring OMB approval under the Paperwork Reduction Act (PRA), 44 U.S.C. 3501,
Advertising, Consumer protection, Credit, Credit unions, Mortgages, National banks, Recordkeeping requirements, Reporting, Savings associations, Truth in lending.
For the reasons stated in the preamble, the Bureau amends Regulation Z, 12 CFR part 1026, as set forth below:
12 U.S.C. 2601; 2603–2605, 2607, 2609, 2617, 5511, 5512, 5532, 5581; 15 U.S.C. 1601
(a)
(c) * * *
(5) No person is required to provide the disclosures required by sections 128(a)(16) through (19), 128(b)(4), 129C(f)(1), 129C(g)(2) and (3), 129C(h), 129D(h), 129D(j)(1)(A), or 129D(j)(1)(B) of the Truth in Lending Act or section 4(c) of the Real Estate Settlement Procedures Act.
A. Under
The additions read as follows:
1.
Federal Aviation Administration (FAA), DOT.
Final rule.
We are adopting a new airworthiness directive (AD) for certain Cessna Aircraft Company Models 172R and 172S airplanes. This AD was prompted by reports of chafed fuel return line assemblies, which were caused by the fuel return line assembly rubbing against the right steering tube assembly during full rudder pedal actuation. This AD requires you to inspect the fuel return line assembly for chafing; replace the fuel return line assembly if chafing is found; inspect the clearance between the fuel return line assembly and both the right steering tube assembly and the airplane structure; and adjust as necessary. We are issuing this AD to correct the unsafe condition on these products.
This AD is effective December 28, 2012.
Director of the Federal Register approved the incorporation by reference of a certain other publication listed in this AD as of March 13, 2012 (77 FR 6003, February 7, 2012).
For service information identified in this AD, contact Cessna Aircraft Company, Customer service, P.O. Box 7706, Wichita, KS 67277; telephone: (316) 517–5800; fax: (316) 517–7271; Internet:
You may examine the AD docket on the Internet at
Jeff Janusz, Aerospace Engineer, Wichita Aircraft Certification Office, FAA, 1801 S. Airport Road, Room 100, Wichita, Kansas 67209; phone: (316) 946–4148; fax: (316) 946–4107; email:
We issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 to include an AD that would apply to the specified products. That NPRM published in the
We gave the public the opportunity to participate in developing this AD. We received no comments on the NPRM (77 FR 50054, August 20, 2012) or on the determination of the cost to the public.
We reviewed the relevant data and determined that air safety and the public interest require adopting the AD as proposed except for minor editorial changes. We have determined that these minor changes:
• Are consistent with the intent that was proposed in the NPRM (77 FR 50054, August 20, 2012) for correcting the unsafe condition; and
• Do not add any additional burden upon the public than was already proposed in the NPRM (77 FR 50054, August 20, 2012).
We estimate that this AD affects 55 airplanes of U.S. registry.
We estimate the following costs to comply with this AD:
We estimate the following costs to do any necessary replacements and adjustments that would be required based on the results of the inspection. We have no way of determining the number of aircraft that might need these replacements:
Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII: Aviation Programs, describes in more detail the scope of the Agency's authority.
We are issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701: “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.
This AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.
For the reasons discussed above, I certify that this AD:
(1) Is not a “significant regulatory action” under Executive Order 12866,
(2) Is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979),
(3) Will not affect intrastate aviation in Alaska, 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 amends 14 CFR part 39 as follows:
49 U.S.C. 106(g), 40113, 44701.
This AD is effective December 28, 2012.
None.
This AD applies to the following Cessna Aircraft Company (Cessna) airplanes, certificated in any category:
(1) Model 172R, serial numbers (S/N) 17280001 through 17281187, that have
(2) Model 172S, S/N l72S8001 through 172S9490, that have incorporated Cessna Aircraft Company Service Bulletin SB04–28–03, dated August 30, 2004, and Engine Fuel Return System, Modification Kit MK172–28–01; dated August 30, 2004.
Joint Aircraft System Component (JASC)/Air Transport Association (ATA) of America Code 2820, Aircraft Fuel Distribution System.
This AD was prompted by reports of chafed fuel return line assemblies caused by the fuel return line assembly rubbing against the right steering tube assembly during full rudder pedal actuation. We are issuing this AD to correct the unsafe condition on these products.
Comply with this AD within the compliance times specified, unless already done.
At whichever of the following that occurs later, inspect the fuel return line assembly (Cessna part number (P/N) 0500118–49) for chafing following Cessna Service Bulletin SB07–28–01, Revision 1, dated September 22, 2011.
(1) At the next annual inspection after December 28, 2012 (the effective date of this AD); or
(2) Within the next 100 hours time-in-service (TIS) after December 28, 2012 (the effective date of this AD); or
(3) Within the next 12 calendar months after December 28, 2012 (the effective date of this AD).
If you find evidence of chafing of the fuel return line assembly (Cessna P/N 0500118–49) as a result of the inspection required by paragraph (g) of this AD, then before further flight, replace the fuel return line assembly (Cessna P/N 0500118–49) following Cessna Service Bulletin SB07–28–01, Revision 1, dated September 22, 2011.
After any inspection required by paragraph (g) of this AD and no chafing of the fuel return line assembly (Cessna P/N 0500118–49) is found or after replacement of the fuel return line assembly (Cessna P/N 0500118–49) required by paragraph (h) of this AD, before further flight, inspect for a minimum clearance between the following parts throughout the range of copilot pedal travel:
(1) A minimum clearance of 0.5 inch between the fuel return line assembly (Cessna P/N 0500118–49) and the right steering tube assembly (Cessna P/N MC0543022–2C); and
(2) Visible positive clearance between the fuel return line assembly (Cessna P/N 0500118–49) and the airplane structure.
If the clearance between the fuel return line assembly and the right steering tube assembly and the clearance between the fuel return line assembly and the aircraft structure do not meet the minimums as specified in paragraphs (i)(l) and (i)(2) of this AD, before further flight, adjust the clearances to meet the required minimums following the Instructions paragraph of Cessna Service Bulletin SB07–28–01, Revision 1, dated September 22, 2011.
Do not incorporate Cessna Aircraft Company Engine Fuel Return System Modification Kit MK 172–28–01 as referenced in Service Bulletin SB 04–28–03, both dated August 30, 2004, without performing the actions in this AD before further flight after installation.
(1) The Manager, Wichita Aircraft Certification Office (ACO), FAA, has the authority to approve AMOCs for this AD, if requested using the procedures found in 14 CFR 39.19. In accordance with 14 CFR 39.19, send your request to your principal inspector or local Flight Standards District Office, as appropriate. If sending information directly to the manager of the ACO, send it to the attention of the person identified in the Related Information section of this AD.
(2) Before using any approved AMOC, notify your appropriate principal inspector, or lacking a principal inspector, the manager of the local flight standards district office/certificate holding district office.
For more information about this AD, contact Jeff Janusz, Aerospace Engineer, Wichita ACO, FAA, 1801 S. Airport Road, Room 100, Wichita, Kansas 67209; phone: (316) 946–4148; fax: (316) 946–4107; email:
(1) The Director of the Federal Register approved the incorporation by reference (IBR) of the service information listed in this paragraph under 5 U.S.C. 552(a) and 1 CFR part 51.
(2) You must use this service information as applicable to do the actions required by this AD, unless the AD specifies otherwise.
(3) The following service information was approved for IBR on March 13, 2012 (77 FR 6003, February 7, 2012).
(i) Cessna Aircraft Company Cessna Service Bulletin SB07–28–01, Revision 1, dated September 22, 2011.
(ii) Reserved.
(4) For Cessna Aircraft Company service information identified in this AD, contact Cessna Aircraft Company, Customer service, P.O. Box 7706, Wichita, KS 67277; telephone: (316) 517–5800; fax: (316) 517–7271; Internet:
(5) You may view this service information at FAA, Small Airplane Directorate, 901 Locust, Kansas City, MO 64106. For information on the availability of this material at the FAA, call (816) 329–4148.
(6) You may view this service information that is incorporated by reference at the National Archives and Records Administration (NARA). For information on the availability of this material at NARA, call 202–741–6030, or go to:
Securities and Exchange Commission.
Final rule; correction.
This release makes a technical correction to Release No. 34–67717 (August 22, 2012), which adopted disclosure rules for resource extraction issuers and was published in the
Tamara Brightwell, Senior Special Counsel, or Eduardo Aleman, Special Counsel, Division of Corporation Finance, at 202–551–3290, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549.
We are making the following correction to Release No. 34–67717 (August 22, 2012), which was published in FR Doc. 2012–21155 and appeared on page 56365 of the
On page 56395, above the last line of the second column, the following footnote text is inserted: “471
Securities and Exchange Commission.
Final rule.
The Securities and Exchange Commission (“Commission”) is adopting a new rule under the Investment Company Act of 1940 (“Investment Company Act”) to establish a standard of credit-worthiness in place of a statutory reference to credit ratings that the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) removes. The rule will establish the standard of credit quality that must be met by certain debt securities purchased by entities relying on the Investment Company Act exemption for business and industrial development companies.
Anu Dubey, Senior Counsel, or Penelope Saltzman, Assistant Director (202) 551–6792, Office of Regulatory Policy, Division of Investment Management, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–8549.
The Commission is adopting new rule 6a–5 [17 CFR 270.6a–5] under the Investment Company Act.
The Dodd-Frank Act was enacted on July 21, 2010.
Business and industrial development companies (“BIDCOs”) are companies that operate under state statutes that provide direct investment and loan financing, as well as managerial assistance, to state and local enterprises.
BIDCOs that seek to rely on the exemption in section 6(a)(5) are limited with respect to the types of securities issued by investment companies and companies exempt from the definition of investment company under section 3(c)(1) or 3(c)(7) of the Investment Company Act (“private funds”) that they may purchase. Specifically, section 6(a)(5)(A)(iv) prohibits these BIDCOs from purchasing securities issued by investment companies and private funds other than debt securities that are rated investment grade by at least one NRSRO and securities issued by registered open-end investment companies that invest at least 65 percent of their assets in investment grade
As described above, section 939(c) of the Dodd-Frank Act eliminates the credit rating reference in section 6(a)(5)(A)(iv) of the Investment Company Act. Instead of limiting BIDCOs to purchasing debt securities issued by investment companies and private funds that are rated “investment grade,” the amendment requires such debt securities to meet “such standards of credit-worthiness as the Commission shall adopt.”
We do not understand that the statutory amendment was intended to change the standard of credit quality represented by an investment grade rating. Accordingly, we are adopting rule 6a–5, as proposed, to establish a standard of credit-worthiness designed to achieve the same degree of risk limitation as the credit rating it replaces. Rule 6a–5 deems a BIDCO to have met the requirements for credit-worthiness of certain debt securities under section 6(a)(5)(A)(iv)(I) if the board of directors or members of the company (or its or their delegate) determines, at the time of purchase, that the debt security is (i) subject to no greater than moderate credit risk and (ii) sufficiently liquid that the security can be sold at or near its carrying value within a reasonably short period of time.
The final rule does not, as one commenter suggested, include specific factors or tests that the board must apply in performing its credit analysis.
The standard we are adopting is designed to limit BIDCOs to purchasing debt securities issued by investment companies or private funds of sufficiently high credit quality that they are likely to maintain a fairly stable market value and may be liquidated easily, as appropriate, for the BIDCO to support its investment and financing activities.
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. Rule 6a–5 does not create any new collections of information.
As discussed above, we are adopting a new rule to implement section 939(c) of the Dodd-Frank Act to replace a statutory reference to a credit rating with an alternative credit-worthiness standard. We considered the economic effects, including costs and benefits, of our proposed new rule in the 2011 Proposing Release and we discuss below the comment received related to our analysis.
The Commission has discretion in adopting the alternative standard of credit-worthiness, and we undertake
Rule 6a–5 establishes a credit-worthiness standard under section 6(a)(5)(A)(iv)(I) of the Investment Company Act. BIDCOs that seek to rely on the exemption in section 6(a)(5) of the Act are limited to investing in debt securities issued by investment companies and private funds if, at the time of purchase, the board of directors or members of the BIDCO (or its or their delegate) determines that the debt security is (i) subject to no greater than moderate credit risk and (ii) sufficiently liquid that the security can be sold at or near its carrying value within a reasonably short period of time.
We anticipate that the adoption of rule 6a–5 may result in certain benefits. First, we do not understand that by amending section 6(a)(5), Congress intended to change the credit quality of the debt securities that BIDCOs may purchase and our rule is designed to establish a similar credit quality standard in order to achieve the same limitation on risk as the credit rating it replaces. In particular, the amended standard is designed to limit BIDCOs to purchasing debt securities issued by investment companies or private funds of sufficiently high credit quality that they are likely to maintain a fairly stable market value and may be liquidated easily, as appropriate, for the BIDCO to support its investment and financing activities. Second, the subjective credit quality standard in amended rule 6a–5 may provide BIDCOs greater flexibility in determining the pool of eligible debt securities in which they may invest. Finally, the credit quality standard in new rule 6a–5 may further Congress' stated purpose of reducing reliance on ratings in the context of a BIDCO's purchase of certain debt securities.
We also recognize that BIDCOs may incur some costs as a result of the adoption of new rule 6a–5. These may be internal costs or costs to consult outside legal counsel to evaluate whether changes to any policies and procedures the BIDCOs may have currently for acquiring debt securities issued by investment companies or private funds may be appropriate in light of the new rule. We expect that, although not required by the Investment Company Act, as a matter of good business practice, directors or members of most BIDCOs that do not currently have them may prepare policies and procedures to make the credit quality and liquidity determinations required by the new rule. Staff estimates that BIDCOs will incur the costs of preparing the procedures for making determinations of credit quality and liquidity under the rule once, and directors and members of BIDCOs (or their delegates) will be able to follow these procedures for purposes of making future determinations under the rule. Commission staff estimated in the 2011 Proposing Release that each BIDCO would incur, on average, an initial one-time cost of $1000 to prepare policies and procedures and an average of $1000 in annual costs for making credit determinations with respect to the acquisition of debt securities.
Adopting a new credit quality standard in place of the ratings requirement in section 6(a)(5)(A)(iv) of the Investment Company Act may result in other costs for BIDCOs and their investors. The minimum rating requirement in section 6(a)(5)(A)(iv) of the Act, before it was amended by the Dodd-Frank Act, established an objective standard that is easy to apply and may have limited BIDCOs from investing in securities that posed greater credit risks. The new rule instead requires BIDCO boards or members to assess credit quality by applying a subjective standard. We acknowledge that a BIDCO could invest in lower quality debt securities that it determines meets the standard in new rule 6a–5, and that it may be difficult for the Commission to challenge the determination of a BIDCO's directors or members (or their delegates). In addition, because credit quality assessments could differ across BIDCOs, the range of risk of investments may be broader than it is currently. We do not,
As part of our economic analysis, we considered alternatives to the standard that we are adopting in rule 6a–5. In particular, we considered including specific factors or tests that a fund board must apply in performing its credit analysis in the rule. As noted above, we believe that this alternative could function as a limit to a fund's credit quality analysis
The Commission has prepared the following Final Regulatory Flexibility Analysis (“FRFA”) in accordance with section 4(a) of the Regulatory Flexibility Act regarding new rule 6a–5, which we are adopting today to give effect to provisions of the Dodd-Frank Act.
As described more fully in Sections I and II of this Release, the Commission is adopting new rule 6a–5 to set forth a standard of credit-worthiness for purposes of section 6(a)(5)(A)(iv) of the Investment Company Act, as anticipated by section 939(c) the Dodd Frank Act, which eliminates the investment grade standard from section 6(a)(5) of the Investment Company Act.
In the Proposing Release, we requested comment on the IRFA. In particular, we sought comment on how many small entities would be subject to the proposed new rule and whether the effect of the proposed new rule on small entities subject to it would be economically significant. None of the comment letters we received specifically addressed the IRFA. None of the comment letters specifically addressed the effect of the new rule on small BIDCOs.
New rule 6a–5 under the Investment Company Act would affect BIDCOs, including entities that are considered to be a small business or small organization (collectively, “small entity”) for purposes of the Regulatory Flexibility Act. Under the standards adopted by the Small Business Administration, small entities in the financial investment industry include entities with $7 million or less in annual receipts.
Rule 6a–5 imposes no reporting, recordkeeping or other compliance requirements.
The Regulatory Flexibility Act directs us to consider significant alternatives that would accomplish our stated objectives, while minimizing any significant adverse effect on small entities. In connection with the new rule, the Commission considered the following alternatives: (i) Establishing different compliance standards or timetables that take into account the resources available to small entities; (ii) clarifying, consolidating, or simplifying compliance and reporting requirements under the rule for small entities; (iii) use of performance rather than design standards; and (iv) exempting small entities from all or part of the requirements.
We believe that special compliance or reporting requirements for small entities, or an exemption from coverage for small entities, is not appropriate or consistent with investor protection or section 939(c) of the Dodd-Frank Act, which rule 6a–5 implements. With respect to rule 6a–5, we believe that special compliance requirements or timetables for small entities, or an exemption from coverage for small entities, may create a risk that those BIDCOs could acquire debt securities that are not of sufficiently high credit quality that they would be likely to maintain a fairly stable market value or be liquidated easily, as we believe may have been intended for the BIDCO to support its long-term commitments. Further consolidation or simplification of rule 6a–5 for BIDCOs that are small entities is inconsistent with the Commission's goals of fostering investor protection. Finally, rule 6a–5 uses performance rather than design standards for determining the credit quality of specific debt securities.
The Commission is adopting new rule 6a–5 under the authority set forth in section 38(a) of the Investment Company Act [15 U.S.C. 80a–37(a)] and section 939 of the Dodd-Frank Act, to be codified at section 6(a)(5)(A)(iv)(I) of the Investment Company Act [15 U.S.C. 80a–6(a)(5)(A)(iv)(I)].
Investment companies, Reporting and recordkeeping requirements, Securities.
15 U.S.C. 80a–1
Section 270.6a–5 is also issued under 15 U.S.C. 80a–6(a)(5)(A)(iv)(I).
For purposes of reliance on the exemption for certain companies under section 6(a)(5)(A) of the Act (15 U.S.C. 80a–6(a)(5)(A)), a company shall be deemed to have met the requirement for credit-worthiness of certain debt securities under section 6(a)(5)(A)(iv)(I) of the Investment Company Act (15 U.S.C. 80a–6(a)(5)(A)(iv)(I)) if, at the time of purchase, the board of directors
(a) Subject to no greater than moderate credit risk; and
(b) Sufficiently liquid that it can be sold at or near its carrying value within a reasonably short period of time.
By the Commission.
Coast Guard, DHS.
Notice of enforcement of regulation.
The Coast Guard will enforce special local regulations during the Lake Havasu City Boat Parade of Lights on December 01, 2012 from 5 p.m. to 9 p.m. This event occurs on Lake Havasu on the Bridgwater Channel. These special local regulations are necessary to provide for the safety of the participants, crew, spectators, sponsor vessels of the regatta, and general users of the waterway. During the enforcement period, persons and vessels are prohibited from entering into, transiting through, or anchoring within this safety zone unless authorized by the Captain of the Port, or his designated representative.
The regulations in 33 CFR 100.1102 will be enforced on December 1, 2012 from 5 p.m. until 9 p.m.
If you have questions on this notice, call or email Petty Officer Bryan Gollogly, Waterways Management, U.S. Coast Guard Sector San Diego, CA; telephone (619) 278–7656, email
The Coast Guard will enforce the special local regulations in 33 CFR 100.1102 in support of the Lake Havasu City Boat Parade of Lights (Item 10 on Table 1 of 33 CFR 100.1102). The Coast Guard will enforce the special local regulations between Thompson Bay and Windsor State Beach on December 01, 2012 from 5 p.m. to 9 p.m. The event will include approximately fifty powerboats and sailboats participating in a follow-the-leader style parade. The vessels will be decorated in Christmas lights according to a predetermined theme. The route will begin in Thompson Bay, proceed through the channel, make a large circle in Windsor bay, and return to Thompson Bay along the same route.
Under the provisions of 33 CFR 100.1102, persons and vessels are prohibited from entering into, transiting through, or anchoring within this safety zone unless authorized by the Captain of the Port, or his designated representative. The Coast Guard may be assisted by other Federal, State, or local law enforcement agencies in enforcing this regulation.
This notice is issued under authority of 33 CFR 100.1102 and 5 U.S.C. 552(a). In addition to this notice in the
Environmental Protection Agency (EPA).
Withdrawal of direct final rule.
Due to the approval of certain terms that were not meant to be approved, EPA is withdrawing the October 1, 2012 direct final rule approving a revision to the Ohio State Implementation Plan (SIP). EPA will address the revision in a subsequent final action based upon the proposed rulemaking action, which was also published on October 1, 2012. EPA does not expect to institute a second comment period on this action.
The direct final rule published at 77 FR 59751 on October 1, 2012, is withdrawn as of November 23, 2012.
Kaushal Gupta, Environmental Engineer, Air Permits Section, Air Programs Branch (AR–18J), Environmental Protection Agency, Region 5, 77 West Jackson Boulevard, Chicago, Illinois 60604, (312) 886–6803,
EPA is withdrawing the October 1, 2012 direct final rule (77 FR 59751) approving six Permit-by-Rule (PBR) provisions, a Permit to Install and Operate (PTIO) program, two permanent exemptions from the Permit to Install (PTI) requirement and a general permit program as additions to Ohio's SIP. After publication of the direct final rule, it came to EPA's attention that the following had been inadvertently included in the rulemaking action:
• The SIP revision classified municipal incinerators capable of charging more than 250 tons of refuse per day as having a major stationary source emission threshold of 100 tons per year or more. Ohio Administrative Code (OAC) 3745–31–01(LLL)(2)(ix).
• The SIP revision allowed Director's discretion for complying with the public participation notification requirements for Federal Land Managers. OAC 3745–31–06(H)(2)(d).
• The SIP revision allowed Director's discretion and specific exemptions with regard to preconstruction activities. OAC 3745–31–33.
EPA did not intend to act on the above provisions when approving the PBR and PTIO rules and is therefore withdrawing the direct final rule. EPA will publish a subsequent final action based upon the proposed rulemaking action, also published on October 1, 2012 (77 FR 59879), that excludes the above provisions. EPA does not expect to institute a second comment period on this action.
Environmental protection, Air pollution control, Incorporation by reference, Intergovernmental relations, Reporting and recordkeeping requirements.
42 U.S.C. 7401
Accordingly, the amendments to 40 CFR 52.1870 published in the
Nuclear Regulatory Commission.
Plan for retrospective analysis of existing rules; request for comment.
The U.S. Nuclear Regulatory Commission (NRC or the Commission) is making available its draft Plan for the retrospective analysis of its existing regulations. The draft Plan describes the processes and activities that the NRC uses to determine whether any of its regulations should be modified, streamlined, expanded, or repealed. This action is part of the NRC's voluntary implementation of Executive Order (E.O.) 13579, “Regulation and Independent Regulatory Agencies,” issued by the President on July 11, 2011. The NRC is requesting public comment on the draft Plan at this time. This request for comment is solely for information and program-planning purposes. The NRC will consider the comments submitted and may use them, as appropriate, in the preparation of a final retrospective review plan; however, the NRC does not anticipate responding to individual comments.
Submit comments by February 6, 2013. Comments received after this date will be considered if it is practical to do so, but the Commission is able to only ensure consideration only of comments received before this date. Requests for extension of the comment period will not be granted.
You may access information and comment submissions related to this draft plan, 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
The NRC's draft Plan may be viewed online on the NRC's Public Web site at the following locations: 1) On the NRC's Open Government Web page at
Cindy Bladey, Chief, Rules, Announcements, and Directives Branch, Office of Administration, U.S. Nuclear Regulatory Commission, Washington, DC 20555–0001; telephone: 301–492–3667 or email:
Please refer to Docket ID NRC–2011–0246 when contacting the NRC about the availability of information for this draft Plan. You may access information related to this action, which the NRC possesses and is publicly available, by the following methods:
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Please include Docket ID NRC–2011–0246 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 that you do not want to be publicly disclosed in your comment submission. The NRC will post all comment submissions at
If you are requesting or aggregating comments from other persons for submission to the NRC, then you should inform those persons not to include identifying or contact information that they do not want to be publicly disclosed in their comment submission. Your request should state that the NRC 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 January 18, 2011, President Obama issued E.O. 13563, “Improving
The NRC's draft Plan describes the NRC's processes and activities relating to retrospective review of existing regulations, including discussions of the: (1) Efforts to incorporate risk assessments into regulatory decisionmaking; (2) efforts to address the cumulative effects of regulation; (3) the NRC's methodology for prioritizing its rulemaking activities; (4) rulemaking initiatives arising out of the NRC's ongoing review of its regulations related to the recent events at the Fukushima Dai-ichi Nuclear Power Plant in Japan; and (5) the NRC's previous and ongoing efforts to update its regulations in a systematic, ongoing basis.
For the Nuclear Regulatory Commission.
Board of Governors of the Federal Reserve System (Board).
Proposed policy statement with request for public comment.
The Board is requesting public comment on a policy statement on the approach to scenario design for stress testing that would be used in connection with the supervisory and company-run stress tests conducted under the Board's Regulations pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act or Act) and the Board's capital plan rule.
Comments must be received by February 15, 2013.
Tim Clark, Senior Associate Director, (202) 452–5264, Lisa Ryu, Assistant Director, (202) 263–4833, or David Palmer, Senior Supervisory Financial Analyst, (202) 452–2904, Division of Banking Supervision and Regulation; Benjamin W. McDonough, Senior Counsel, (202) 452–2036, or Christine Graham, Senior Attorney, (202) 452–3099, Legal Division; or Andreas Lehnert, Deputy Director, (202) 452–3325, or Rochelle Edge, Adviser, (202) 452–2339, Office of Financial Stability Policy and Research.
Stress testing is a tool that helps both bank supervisors and a banking organization measure the sufficiency of capital available to support the banking organization's operations throughout periods of stress.
In particular, as part of its effort to stabilize the U.S. financial system during the 2007–2009 financial crisis, the Board and the Federal Reserve banks, along with other federal financial regulatory agencies, conducted stress tests of large, complex bank holding companies through the Supervisory Capital Assessment Program (SCAP). The SCAP was a forward-looking exercise designed to estimate revenue, losses, and capital needs under an adverse economic and financial market scenario. By looking at the broad capital needs of the financial system and the specific needs of individual companies, these stress tests provided valuable information to market participants, reduced uncertainty about the financial condition of the participating bank holding companies under a scenario that was more adverse than that which was anticipated to occur at the time, and had an overall stabilizing effect.
Building on the SCAP and other supervisory work coming out of the crisis, the Board initiated the annual Comprehensive Capital Analysis and Review (CCAR) in late 2010 to assess the capital adequacy and the internal capital planning processes of the same large, complex bank holding companies
In the wake of the financial crisis, Congress enacted the Dodd-Frank Act, which requires the Board to implement enhanced prudential supervisory standards, including requirements for stress tests, for covered companies to mitigate the threat to financial stability posed by these institutions.
In addition, section 165(i)(2) of the Dodd-Frank Act requires the Board to issue regulations that require covered companies to conduct stress tests semi-annually and require financial companies with total consolidated assets of more than $10 billion that are not covered companies and for which the Board is the primary federal financial regulatory agency to conduct stress tests on an annual basis (collectively, company-run stress tests).
The Board's stress test rules provide that the Board will notify covered companies, by no later than November 15 of each year of a set of conditions (each set, a scenario), it will use to conduct its annual supervisory stress tests.
Stress tests required under the stress test rules and under the Board's capital plan rule require the Board and financial institutions to calculate pro-forma capital levels—rather than “current” or actual levels—over a specified planning horizon under baseline and stressed scenarios. This approach integrates key lessons of the 2007–2009 financial crisis into the Board's supervisory framework. In the financial crisis, investor and counterparty confidence in the capitalization of financial institutions eroded rapidly in the face of changes in the current and expected economic and financial conditions, and this loss in market confidence imperiled institutions' ability to access funding, continue operations, serve as a credit intermediary, and meet obligations to creditors and counterparties. Importantly, such a loss in confidence occurred even when a financial institution's capital ratios exceeded the regulatory minimums. This is because the institution's capital ratios were perceived as lagging indicators of its financial condition, particularly when conditions were changing.
The stress tests required under the stress test rules and capital plan rule are a valuable supervisory tool that provides a forward-looking assessment of large financial institutions' capital adequacy under hypothetical economic and financial market conditions. Currently, these stress tests primarily focus on credit risk and market risk—that is, risk of mark-to-market losses associated with firms' trading and counterparty positions—and not on other types of risk, such as liquidity risk or operational risk unrelated to the macroeconomic environment. Pressures stemming from these sources are considered in separate supervisory exercises. No single supervisory tool, including the stress tests, can provide an assessment of an institution's ability to withstand every potential source of risk.
Selecting appropriate scenarios is an especially significant consideration for stress tests required under the capital plan rule, which ties the review of a bank holding company's performance under stress scenarios to its ability to make capital distributions. More severe scenarios, all other things being equal, generally translate into larger projected declines in a company's capital. Thus, a company would need more capital today to meet its minimum capital requirements in more stressful scenarios and have the ability to continue making capital distributions, such as common dividend payments. This translation is far from mechanical; it will depend on factors that are specific to a given company, such as underwriting standards and the banking organization's business model, which would also greatly affect projected revenue, losses, and capital.
To enhance the transparency of the scenario design process, the Board is requesting public comment on a proposed policy statement (Policy Statement) that would be used to develop scenarios for annual supervisory and company-run stress tests under the stress testing rules
The proposed Policy Statement outlines the characteristics of the stress test scenarios and explains the considerations and procedures that underlie the formulation of these scenarios. The considerations and procedures described in this policy statement would apply to the Board's stress testing framework, including to the stress tests required under 12 CFR part 252, subparts F, G, and H, as well as the Board's capital plan rule (12 CFR 225.8). The Board may determine that material modifications to the Policy Statement would be appropriate if the supervisory stress test framework expands materially to include additional components or other scenarios that are currently not captured.
Although the Board does not envision that the approach used to develop scenarios would change from year to year, the characteristics of the scenarios provided to companies would reflect changes in the outlook for economic and financial conditions and changes to specific risks or vulnerabilities that the Board, in consultation with the other federal banking agencies, determines should be considered in the annual stress tests. The stress test scenarios should not be regarded as forecasts; rather, they are hypothetical paths of economic variables that would be used to assess the strength and resilience of the companies' capital in various economic and financial environments.
The proposed Policy Statement is organized as follows. Section 1 provides background on the proposed Policy Statement. Section 2 is an outline of the proposed Policy Statement and describes its scope. Section 3 provides a broad description of the baseline, adverse, and severely adverse scenarios and describes the types of variables that the Board expects to include in the macro scenarios and the market shock component of the stress test scenarios applicable to firms with significant trading activity.
Consistent with the stress testing rules and the Act, the Board will issue a minimum of three different scenarios, including baseline, adverse, and severely adverse scenarios, for use under the stress test rules. Specific circumstances or vulnerabilities, over which the Board determines, in any given year, require particular vigilance to ensure the resilience of the banking sector, will be captured in either the adverse or severely adverse scenarios. A greater number of scenarios could be needed in some years—for example, because the Board identifies a large number of unrelated and uncorrelated but nonetheless significant risks.
While the Board generally expects to use the same scenarios for all companies subject to the stress testing rules, it may require a subset of companies—depending on a company's financial condition, size, complexity, risk profile, scope of operations, or activities, or risks to the U.S. economy—to include additional scenario components or additional scenarios that are designed to capture different effects of adverse events on revenue, losses, and capital. One example of such components is the market shock that applies only to trading companies. Additional components or scenarios may also include other stress factors that may not necessarily be directly correlated to macroeconomic or financial assumptions but nevertheless can materially affect companies' risks, such as the unexpected default of a major counterparty.
Early in each stress testing cycle, the Board plans to publish the macro scenarios along with a brief narrative summary that explains how these scenarios have changed relative to the previous year. In cases where scenarios are modified to reflect particular risks and vulnerabilities, the narrative would also explain the underlying motivation for these changes. The Board also plans to release a broad description of the market shock component.
The Board seeks comment on all aspects of the proposed Policy Statement. The Board notes that it will not revise the baseline, adverse, and severely adverse scenarios or market shock component that were recently issued under the Board's stress test rules and the capital plan rule for CCAR 2013 in light of any comments on the proposed policy statement but will consider the comments in developing future macro scenarios.
Section 722 of the Gramm-Leach-Bliley Act (Pub. L. 106–102, 113 Stat. 1338, 1471, 12 U.S.C. 4809) requires the Federal banking agencies to use plain language in all proposed and final rules published after January 1, 2000. The Board has sought to present the proposed rule in a simple and straightforward manner, and invites comment on the use of plain language.
In accordance with the requirements of the Paperwork Reduction Act of 1995 (44 U.S.C. 3506), the Board has reviewed the proposed policy statement to assess any information collections. There are no collections of information as defined by the Paperwork Reduction Act in the proposal.
In accordance with section 3(a) of the Regulatory Flexibility Act (RFA), the Board is publishing an initial regulatory flexibility analysis of the proposed policy statement. The RFA, 5 U.S.C. 601
Under regulations issued by the Small Business Administration (SBA), a “small entity” includes those firms within the “Finance and Insurance” sector with asset sizes that vary from $7 million or less in assets to $175 million or less in assets.
As discussed in the
As noted above, because the proposed policy statement is not likely to apply to any company with assets of $175 million or less, if adopted in final form, it is not expected to affect any small entity for purposes of the RFA. The Board does not believe that the proposed policy statement duplicates, overlaps, or conflicts with any other Federal rules. In light of the foregoing, the Board does not believe that the proposed policy statement, if adopted in final form, would have a significant economic impact on a substantial number of small entities supervised. Nonetheless, the Board seeks comment on whether the proposed policy statement would impose undue burdens on, or have unintended consequences for, small organizations, and whether there are ways such potential burdens or consequences could be minimized in a manner consistent its purpose.
Administrative practice and procedure, Banks, Banking, Federal Reserve System, Holding companies, Nonbank Financial Companies Supervised by the Board, Reporting and recordkeeping requirements, Securities, Stress Testing.
For the reasons stated in the
1. The authority citation for part 252 would continue to read as follows:
12 U.S.C. 321–338a, 1467a(g), 1818, 1831p–1, 1844(b), 1844(c), 5361, 5365, 5366.
2. Appendix A to part 252 would be added to read as follows:
The Board has imposed stress testing requirements through its regulations implementing section 165(i) of the Dodd-Frank Act (stress test rules) and through its capital plan rule (12 CFR 225.8). Under the stress test rules issued under section 165(i)(1) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act or Act), the Board conducts an annual stress test (supervisory stress tests), on a consolidated basis, of each bank holding company with total consolidated assets of $50 billion or more and each nonbank financial company that the Financial Stability Oversight Council has designated for supervision by the Board (together, covered companies).
The stress test rules provide that the Board will notify covered companies by no later than November 15 of each year scenarios it will use to conduct its annual supervisory stress tests and provide, also by no later than November 15, covered companies and other banking organizations subject to the final rules the set of scenarios they must use to conduct their annual company-run stress tests.
In addition, section 225.8 of the Board's Regulation Y (capital plan rule) requires all U.S. bank holding companies with total consolidated assets of $50 billion or more to submit annual capital plans, including stress test results, to the Board to allow the Board to assess whether they have robust, forward-looking capital planning processes and have sufficient capital to continue operations throughout times of economic and financial stress.
Stress tests required under the stress test rules and under the capital plan rule require the Board and banking organizations to calculate pro-forma capital levels—rather than “current” or actual levels—over a specified planning horizon under baseline and stressful scenarios. This approach integrates on key lessons of the 2007–2009 financial crisis into the Board's supervisory framework. During the financial crisis, investor and counterparty confidence in the capitalization of financial institutions eroded rapidly in the face of changes in the current and expected economic and financial conditions, and this loss in market confidence imperiled institutions' ability to access funding, continue operations, serve as a credit intermediary, and meet obligations to creditors and counterparties. Importantly, such a loss in confidence occurred even when a financial institution's capital ratios were in excess of regulatory minimums. This is because the institution's capital ratios were perceived as lagging indicators of its financial condition, particularly when conditions were changing.
The stress tests required under the stress test rules and capital plan rule are a valuable supervisory tool that provides a forward-looking assessment of large financial institutions' capital adequacy under hypothetical economic and financial market conditions. Currently, these stress tests primarily focus on credit risk and market risk—that is, risk of mark-to-market losses associated with firms' trading and counterparty positions—and not on other types of risk, such as liquidity risk or operational risk unrelated to the macroeconomic environment. Pressures stemming from these sources are considered in separate supervisory exercises. No single supervisory tool, including the stress tests, can provide an assessment of an institution's ability to withstand every potential source of risk.
Selecting appropriate scenarios is an especially significant consideration, for stress tests required under the capital plan rule, which ties the review of a bank holding company's performance under stress scenarios to its ability to make capital distributions. More severe scenarios, all other things being equal, generally translate into larger projected declines in banks' capital. Thus, a company would need more capital today to meet its minimum capital requirements in more stressful scenarios and have the ability to continue making capital distributions, such as common dividend payments. This translation is far from mechanical; it will depend on factors that are specific to a given company, such as underwriting standards and the company's business model, which would also greatly affect projected revenue, losses, and capital.
This policy statement provides more detail on the characteristics of the stress test scenarios and explains the considerations and procedures that underlie the approach for formulating these scenarios. The considerations and procedures described in this policy statement apply to the Board's stress testing framework, including to the stress tests required under 12 CFR part 252, subparts F, G, and H, as well as the Board's capital plan rule (12 CFR 225.8).
Although the Board does not envision that the broad approach used to develop scenarios will change from year to year, the stress test scenarios will reflect changes in the outlook for economic and financial conditions and changes to specific risks or vulnerabilities that the Board, in consultation with the other federal banking agencies, determines should be considered in the annual stress tests. The stress test scenarios should not be regarded as forecasts; rather, they are hypothetical paths of economic variables that will be used to assess the strength and resilience of the companies' capital in various economic and financial environments.
The remainder of this policy statement is organized as follows. Section 3 provides a broad description of the baseline, adverse, and severely adverse scenarios and describes the types of variables that the Board expects to include in the macro scenarios and the market shock component of the stress test scenarios applicable to firms with significant trading activity. Section 4 describes the Board's approach for developing the macro scenarios, and section 5 describes the approach for the market shocks. Section 6 describes the relationship between the macro scenario and the market shock components. Section 7 provides a timeline for the formulation and publication of the macroeconomic assumptions and market shocks.
The Board will publish a minimum of three different scenarios, including baseline, adverse, and severely adverse conditions, for use in stress tests required in the stress test rules.
While the Board generally expects to use the same scenarios for all companies subject to the final rule, it may require a subset of companies—depending on a company's financial condition, size, complexity, risk profile, scope of operations, or activities, or risks to the U.S. economy—to include additional scenario components or additional scenarios that are designed to capture different effects of adverse events on revenue, losses, and capital. One example of such components is the market shock that applies only to companies with significant trading activity. Additional components or scenarios may also include other stress factors that may not necessarily be directly correlated to macroeconomic or financial assumptions but nevertheless can materially affect companies' risks, such as the unexpected default of a major counterparty.
Early in each stress testing cycle, the Board plans to publish the macro scenarios along with a brief narrative summary that explains how these scenarios have changed relative to the previous year. In cases where scenarios are changed to reflect particular risks and vulnerabilities, the narrative will also explain the underlying motivation for these changes. The Board also plans to release a broad description of the market shock components.
The macro scenarios will consist of the future paths of a set of economic and financial variables.
• Five measures of economic activity and prices: real and nominal gross domestic product (GDP) growth, the unemployment rate of the civilian non-institutional population aged 16 and over, nominal disposable personal income growth, and the Consumer Price Index (CPI) inflation rate;
• Four measures of developments in equity and property markets: The Core Logic National House Price Index, the National Council for Real Estate Investment Fiduciaries Commercial Real Estate Price Index, the Dow Jones Total Stock Market Index, and the Chicago Board Options Exchange Market Volatility Index; and
• Four measures of interest rates: the rate on the three-month Treasury bill, the yield on the 10-year Treasury bond, the yield on a 10-year BBB corporate security, and the interest rate associated with a conforming, conventional, fixed-rate, 30-year mortgage.
The international variables provided for in the 2012 CCAR included, for the euro area, the United Kingdom, developing Asia, and Japan:
• Percent change in real GDP;
• Percent change in the Consumer Price Index or local equivalent; and
• The U.S./foreign currency exchange rate.
The economic variables included in the scenarios influence key items affecting banking organizations' net income, including pre-provision net revenue and credit losses on loans and securities. Moreover, these variables exhibit fairly typical trends in adverse economic climates that can have unfavorable implications for banks' net income and, thus, capital positions.
The economic variables included in the scenario may change over time. For example, the Board may add variables to a scenario if the international footprint of companies that are subject to the stress testing rules changed notably over time such that the variables already included in the scenario no longer sufficiently capture the material risks of these companies. Alternatively, historical relationships between macroeconomic variables could change over time such that one variable (
The Board expects that the company may not use all of the variables provided in the scenario, if those variables are not appropriate to the company's line of business, or may add additional variables, as appropriate.
The market shock component of the stress test scenarios will only apply to companies with significant trading activity and their subsidiaries.
The Board envisions that the market shocks will include shocks to a broad range of risk factors that are similar in granularity to those risk factors trading companies use internally to produce profit and loss estimates, under stressful market scenarios, for all asset classes that are considered trading assets, including equities, credit, interest rates, foreign exchange rates, and commodities. For example, risk factor shocks for interest rates would capture changes in the level, correlation, and volatility, by country and maturity. Risk factors will be specified separately by currency or geographic region, and include key sub-categories relevant to each asset class. For example, the risk factor shocks applied to credit spreads will differ by risk category and the risk factor shocks for spot oil prices will vary by grade and type of crude oil.
Examples of risk factors include, but are not limited to:
• Equity indices of all developed markets, and of developing and emerging market nations to which companies with significant trading activity may have exposure, along with term structures of implied volatilities;
• Cross-currency FX rates of all major and many minor currencies, along term structures of implied volatilities;
• Term structures of government rates (
• Term structures of implied volatilities that are key inputs to the pricing of interest rate derivatives;
• Term structures of futures prices for energy products including crude oil (differentiated by country of origin), natural gas, and power;
• Term structures of futures prices for metals and agricultural commodities;
• “Value-drivers” (credit spreads or instrument prices themselves) for credit-sensitive product segments including: Corporate bonds, credit default swaps, and collateralized debt obligations by risk; non-agency residential mortgage-backed securities and commercial mortgage-backed securities by risk and vintage; sovereign debt; and, municipal bonds; and
• Shocks to the values of private equity positions.
This section describes the Board's approach for formulating macroeconomic assumptions for each scenario. The methodologies for formulating this part of each scenario differ by scenario, so these methodologies for the baseline, severely adverse, and the adverse scenarios are described separately in each of the following subsections.
In general, the baseline scenario will reflect the most recently available consensus views of the macroeconomic outlook expressed by professional forecasters, government agencies, and other public-sector organizations as of the beginning of the annual stress-test cycle. The severely adverse scenario will consist of a set of economic and financial conditions that reflect the conditions of post-war U.S. recessions. The adverse scenario will consist of a set of economic and financial conditions that are more adverse than those associated with the baseline scenario but less severe than those associated with the severely adverse scenario.
Each of these scenarios is described further in sections below as follows: Baseline (subsection 4.1), severely adverse (subsection 4.2), and adverse (subsection 4.3).
The stress test rules define the baseline scenario as a set of conditions that affect the U.S. economy or the financial condition of a banking organization, and that reflect the consensus views of the economic and financial outlook. Projections under a baseline scenario are used to evaluate how companies would perform in more likely economic and financial conditions. The baseline serves also as a point of comparison to the severely adverse and adverse scenarios, giving some sense of how much of the company's capital decline could be ascribed to the scenario as opposed to the company's capital adequacy under expected conditions.
The baseline scenario will be developed around a macroeconomic projection that captures the prevailing views of private-sector forecasters (
For some scenario variables—such as U.S. real GDP growth, the unemployment rate, and the consumer price index—there will be a large number of different forecasts available to project the paths of these variables in the baseline scenario. For others, a more limited number of forecasts will be available. If available forecasts diverge notably, the baseline scenario will reflect an assessment of the forecast that is deemed to be most plausible. In setting the paths of variables in the baseline scenario, particular care will be taken to ensure that, together, the paths present a coherent and plausible outlook for the U.S. and global economy, given the economic climate in which they are formulated.
The stress test rules define a severely adverse scenario as a set of conditions that affect the U.S. economy or the financial condition of a banking organization and that overall are more severe than those associated with the adverse scenario. The banking organization will be required to publicly disclose a summary of the results of its stress test under the severely adverse scenario, and the Board intends to publicly disclose the results of its analysis of the banking organization under the severely adverse scenario.
The Board intends to use a recession approach to develop the severely adverse scenario. In the recession approach, the Board will specify the future paths of variables to reflect conditions that characterize post-war U.S. recessions, generating either a typical or specific recreation of a post-war U.S. recession. The Board chose this approach because it has observed that the conditions that typically occur in recessions—such as increasing unemployment, declining asset prices, and contracting loan demand—can put significant stress on companies' balance sheets. This stress can occur through a variety of channels, including higher loss provisions due to increased delinquencies and defaults; losses on trading positions through sharp moves in market prices; and lower bank income through reduced loan originations. For these reasons, the Board believes that the paths of economic and financial variables in the severely adverse scenario should, at a minimum, resemble the paths of those variables observed during a recession.
This approach requires consideration of the type of recession to feature. All post-war U.S. recessions have not been identical: some recessions have been associated with very elevated interest rates, some have been associated with sizable asset price declines, and some have been relatively more global. The most common features of recessions, however, are increases in the unemployment rate and contractions in aggregate incomes and economic activity. For this and the following reasons, the Board intends to use the unemployment rate as the primary basis for specifying the severely adverse scenario. First, the unemployment rate is likely the most representative single summary indicator of adverse economic conditions. Second, in comparison to GDP, labor market data have traditionally featured more prominently than GDP in the set of indicators that the National Bureau of Economic Research reviews to inform its recession dates.
After specifying the unemployment rate, the Board will specify the paths of other macroeconomic variables based on the paths of unemployment, income, and activity. However, many of these other variables have taken wildly divergent paths in previous recessions (
The Board considered alternative methods for scenario design of the severely adverse scenario, including a probabilistic approach. The probabilistic approach constructs a baseline forecast from a large-scale macroeconomic model and identifies a scenario that would have a specific probabilistic likelihood given the baseline forecast. The Board believes that, at this time, the recession approach is better suited for developing the severely adverse scenario than a probabilistic approach because it guarantees a recession of some specified severity. In contrast, the probabilistic approach requires the choice of an extreme tail outcome—relative to baseline—to characterize the severely adverse scenario (
The Board anticipates that the severely adverse scenario will feature an unemployment rate that increases between 3 to 5 percentage points from its initial level over the course of 6 to 8 calendar quarters.
This methodology is intended to generate scenarios that feature stressful outcomes but
Under this method, if the initial unemployment rate were low—as it would be after a sustained long expansion—the unemployment rate in the scenario would increase to a level as high as what has been seen in past severe recessions. However, if the initial unemployment rate were already high—as would be the case in the early stages of a recovery—the unemployment rate would exhibit a change as large as what has been seen in past severe recessions.
The Board believes that the typical increase in the unemployment rate in the severely adverse scenario would be about 4 percentage points. However, the Board would calibrate the increase in unemployment based on its views of the status of cyclical systemic risk. The Board intends to set the unemployment rate at the higher end of the range if the Board believed that cyclical systemic risks were high (as it would be after a sustained long expansion), and to the lower end of the range if cyclical systemic risks were low (as it would be in the earlier stages of a recovery). This may result in a scenario that is slightly more intense than normal if the Board believed that cyclical systemic risks were increasing in a period of robust expansion.
As indicated previously, if a 3 to 5 percentage point increase in the unemployment rate does not raise the level of the unemployment rate to 10 percent—the average level to which it has increased in the most recent three severe recessions—the path of the unemployment rate will be specified so as to raise the unemployment rate to 10 percent. Setting a floor for the unemployment rate at 10 percent recognizes the fact that not only do cyclical systemic risks build up at financial intermediaries during robust expansions but that these risks are also easily obscured by the buoyant environment.
In setting the increase in the unemployment rate, the Board would consider the extent to which analysis by economists, supervisors, and financial market experts finds cyclical systemic risks to be elevated (but difficult to be captured more precisely in one of the scenario's other variables). In addition, the Board—in light of impending shocks to the economy and financial system—would also take into consideration the extent to which a scenario of some increased severity might be necessary for the results of the stress test and the associated supervisory actions to sustain confidence in financial institutions.
While the approach to specifying the severely adverse scenario is designed to avoid adding sources of procyclicality to the financial system, it is not designed to explicitly offset any existing procyclical tendencies in the financial system. The purpose of the stress test scenarios is to make sure that the banks are properly capitalized to withstand severe economic and financial conditions, not to serve as an explicit countercyclical offset to the financial system.
In developing the approach to the unemployment rate, the Board also considered a method that would increase the unemployment rate to some fairly elevated fixed level over the course of 6 to 8 quarters. This would result in scenarios being more severe in robust expansions (when the unemployment rate is low) and less severe in the early stages of a recovery (when the unemployment rate is high) and so would not result in pro-cyclicality. Depending on the initial level of the unemployment rate, this approach could lead to only a very modest increase in the unemployment rate—or even a decline. As a result, this approach—while not procyclical—could result in scenarios not featuring stressful macroeconomic outcomes.
Generally, all other variables in the severely adverse scenario will be specified to be consistent with the increase in the unemployment rate. The approach for specifying the paths of these variables in the scenario will be a combination of (1) how economic models suggest that these variables should evolve given the path of the unemployment rate, (2) how these variables have typically evolved in past U.S. recessions, and (3) and evaluation of these and other factors.
Economic models—such as medium-scale macroeconomic models—should be able to generate plausible paths consistent with the unemployment rate for a number of scenario variables, such as real GDP growth, CPI inflation and short-term interest rates, which have relatively stable (direct or indirect) relationships with the unemployment rate (
The severely adverse scenario will be developed to reflect specific risks to the economic and financial outlook that are especially salient but would feature minimally in the scenario if the Board were only to use approaches that looked to past recessions or relied on historical relationships between variables.
There are some important instances when it would be appropriate to augment the recession approach with salient risks. For example, if an asset price were especially elevated and thus potentially vulnerable to an abrupt and potentially destabilizing decline, it would be appropriate to include such a decline in the scenario even if such a large drop were not typical in a severe recession. Likewise, if economic developments abroad were particularly unfavorable, assuming a weakening in international conditions larger than what typically occurs in severe U.S. recessions would likely also be appropriate.
Clearly, while the recession component of the severely adverse scenario is within some predictable range, the salient risk aspect of the scenario is far less so, and therefore, needs an annual assessment. Each year, the Board will identify the risks to the financial system and the domestic and international economic outlooks that appear more elevated than usual, using its internal analysis and supervisory information and in consultation with the FDIC and the OCC. Using the same information, the Board will then calibrate the paths of the macroeconomic and financial variables in the scenario to reflect these risks.
Detecting risks that have the potential to weaken the banking sector is particularly difficult when economic conditions are buoyant, as a boom can obscure the weaknesses present in the system. In sustained robust expansions, therefore, the selection of salient risks to augment the scenario will err on the side of including risks of uncertain significance.
The Board will factor in particular risks to the domestic and international macroeconomic outlook identified by its
The adverse scenario can be developed in a number of different ways, and the selected approach will depend on a number of factors, including how the Board intends to use the results of the adverse scenario.
The simplest method to specify the adverse scenario is to develop a less severe version of the severely adverse scenario. For example, the adverse scenario could be formulated such that the deviations of the paths of the variables relative to the baseline were simply one-half of or two-thirds of the deviations of the paths of the variables relative to the baseline in the severely adverse scenario.
Another method to specify the adverse scenario is to capture risks in the adverse scenario that the Board believes should be understood better or should be monitored, but does not believe should be included in the severely adverse scenario, perhaps because these risks would render the scenario implausibly severe. For instance, the adverse scenario could feature sizable increases in oil or natural gas prices or shifts in the yield curve that are atypical in a recession. The adverse scenario might also feature less acute, but still consequential, adverse outcomes, such as a disruptive slowdown in growth from emerging-market economies.
Under the Board's stress test rules, covered companies are required to develop their own scenarios for mid-cycle company-run stress tests.
It might also be informative to periodically use a stable adverse scenario, at least for a few consecutive years. Even if the scenario used for the stress test does not change over the credit cycle, if companies tighten and relax lending standards over the cycle, their loss rates under the adverse scenario—and indirectly the projected changes to capital—would decrease and increase, respectively. A consistent scenario would allow the direct observation of how capital fluctuates to reflect growing cyclical risks.
Finally, the Board may consider specifying the adverse scenario using the probabilistic approach described in section 3.2.1 (that is, with a specified lower probability of occurring than the severely adverse scenario but a greater probability of occurring than the baseline scenario). The approach has some intuitive appeal despite its shortcomings. For example, using this approach for the adverse scenario could allow the Board to explore an alternative approach to develop stress testing scenarios and their effect on a company's net income and capital.
With the exception of cases in which the probabilistic approach is used to generate the adverse scenario, the adverse scenario would at a minimum contain a mild to moderate recession. This is because most of the value from investigating the implications of the risks described above is likely to be obtained from considering them in the context of balance sheets of covered companies and large banks that are under some stress.
This section discusses the approach the Board proposes to adopt for developing the stress scenario component appropriate for companies with significant trading activities. The design and specification of the stress components for trading differ from that of the macro scenarios because profits and losses from the trading are measured in mark-to-market terms, while revenues and losses from traditional banking are generally measured using the accrual method. As noted above, another critical difference is the time-evolution of the trading stress tests. The trading stress component consists of an instantaneous “shock” to a large number of risk factors that determine the mark-to-market value of trading positions, while the macro scenarios supply a projected path of economic variables that affect traditional banking activities over the entire planning period.
The development of the scenarios in the final rules that are detailed in this section are as follows: baseline (subsection 5.1), severely adverse (subsection 5.2), and adverse (subsection 5.3).
By definition, market shocks are large, previously unanticipated moves in asset prices and rates. Because asset prices should, broadly speaking, reflect consensus opinions about the future evolution of the economy, large price movements, as envisioned in the market shock, should not occur along the baseline path. As a result, market shocks will not be included in the baseline scenario.
This section addresses possible approaches to designing market shocks in the severely adverse scenario, including important considerations for scenario design, possible approaches to designing scenarios, and a development strategy for implementing the preferred approach.
The general market practice for stressing a trading portfolio is to specify market shocks either in terms of extreme moves in observable, broad market indicators and risk factors or directly as large changes to the mark-to-market values of financial instruments. These moves can be specified either in relative terms or absolute terms. Supplying values of risk factors after a “shock” is roughly equivalent to the macro scenarios, which supply values for a set of economic and financial variables; however, trading stress testing differs from macroeconomic stress testing in several critical ways.
In the past, the Board used one of two approaches to specify market shocks. During SCAP and CCAR in 2011, the Board used a very general approach to market shocks and required companies to stress their trading positions using changes in market prices and rates experienced during the second half of 2008, without specifying risk factor shocks. This broad guidance resulted in inconsistency across companies both in terms of the severity and the application of shocks. In certain areas companies were permitted to use their own experience during the second half of 2008 to define shocks. This resulted in significant variation in shock severity across companies.
To enhance the consistency and comparability in market shocks for CCAR in 2012, the Board provided to each trading company more than 35,000 specific risk
Also importantly, the ultimate losses associated with a given market shock will depend on a company's trading positions, which can make it difficult to rank order,
The instantaneous nature of market shocks and the immediate recognition of mark-to-market losses add another element to the design of market shocks, and to determining the appropriate severity of shocks. For instance, in both SCAP and CCAR, the Board assumed that market moves that occurred over the six-month period in late 2008 would occur instantaneously. The design of the market shocks must factor in appropriate assumptions around the period of time during which market events would unfold and any associated market responses.
For each scenario, the Board plans to use a standardized set of market shocks that apply to all companies with significant trading activity. The market shocks could be based on a single historical episode, multiple historical periods, hypothetical (but plausible) events, or some combination of historical episodes and hypothetical events (hybrid approach). Depending on the type of hypothetical events, a scenario based on such events may result in changes in risk factors that were not previously observed. In 2012 CCAR, the shocks were largely based on relative moves in asset prices and rates during the second half of 2008, but also included some additional considerations to factor in the widening of spreads for European sovereigns and financial companies based on actual observation during the latter part of 2011.
For the severely adverse scenario, the Board plans to use the hybrid approach to develop shocks. The hybrid approach allows the Board to maintain certain core elements of consistency in market shocks each year while providing flexibility to add hypothetical elements based on market conditions at the time of the stress tests. In addition, this approach will help ensure internal consistency in the scenario because of its basis in historical episodes; however, combining the historical episode and hypothetical events may require tweaks to ensure mutual consistency of the joint moves. In general, the hybrid approach provides considerable flexibility in developing scenarios that are relevant each year, and by introducing variations in the scenario, the approach will also reduce the ability of companies with significant trading activity to modify or shift their portfolios to minimize expected losses in the severely adverse scenario.
The Board has considered a number of alternative approaches for the design of market shocks. For example, the Board explored an option of providing tailored market shocks for each trading company, using information on the companies' portfolio gathered through ongoing supervision or other means. By specifically targeting known or potential vulnerabilities in a company's trading position, this approach would be useful in assessing each company's capital adequacy as it relates to the company's idiosyncratic risk. However, the Board does not believe this approach to be well-suited for the stress tests required by regulation. Consistency and comparability are key features of annual supervisory stress tests and annual company-run stress tests required in the stress test rules. It would be difficult to use the information on the companies' portfolio to design a common set of shocks that are universally stressful for all covered companies. As a result, this approach would be better suited to more customized, tailored stress tests that are part of the company's internal capital planning process or to other supervisory efforts outside of the stress tests conducted under the stress test rules.
Consistent with the approach describe above, the market shock component for the severely adverse scenario will incorporate key elements of market developments during the second half of 2008, but also incorporate observations from other periods or price and rate movements in certain markets that the Board deems to be plausible though such movements may not have been observed historically. The Board also expects to rely less on market events of the second half of 2008 and more on hypothetical events or other historical episodes to develop the market shock, particularly as the bank holding company's portfolio changes over time and a different combination of events would better capture material risk in bank holding company's portfolio in the given year.
The developments in the credit markets during the second half of 2008 were unprecedented, providing a reasonable basis for market shocks in the severely adverse scenario. During this period, key risk factors in virtually all asset classes experienced extremely large shocks; the collective breadth and intensity of the moves have no parallels in modern financial history and, on that basis, it seems likely that this episode will continue to be the dominant historical scenario, although experience during other historical episodes may also guide the severity of the market shock component of the severely adverse scenario. Moreover, the risk factor moves during this episode are directly consistent with the “recession” approach that underlies the macroeconomic assumptions. However, market shocks based only on historical events could become stale and less relevant over time as the company's positions change, particularly if more salient features are not added each year.
While the market shocks based on the second half of 2008 are of unparalleled magnitude, the shocks may become less relevant over time as the companies' trading positions change. In addition, more recent events could highlight the companies' vulnerability to certain market events. For example, in 2011, Eurozone credit spreads in the sovereign and financial sectors surpassed those observed during the second half of 2008, necessitating the modification of the stress scenario for the CCAR 2012 to reflect a salient source of stress to trading positions. As a result, it is important to incorporate both historical and hypothetical outcomes in market shocks for the severely adverse scenario. For the time being, the development of market shocks in the severely adverse scenario will begin with the risk factor movements in the particular historical period, such as the second half of 2008. The Board will then consider hypothetical but plausible outcomes, based on financial stability reports, supervisory information, and internal and external assessments of market risks and potential flash points. The hypothetical outcomes could originate from major geopolitical, economic, or financial market events with potentially significant impacts on market risk factors. The severity of these hypothetical moves will likely be guided by similar historical events, assumptions embedded in the companies' internal stress tests or market participants, and other available information.
For the time being, the development of market shocks in the severely adverse scenario will begin with the risk factor movements in the particular historical period, such as the second half of 2008. The Board will then develop hypothetical but plausible scenarios, based on financial stability reports, supervisory information, and internal and external assessments of market risks and potential flash points. Once broad market scenarios are agreed upon, specific risk factor groups will be targeted as the source of the trading stress. For example, a scenario involving the failure of a large, interconnected globally active financial institution could begin with a sharp increase in credit default swaps spreads and a precipitous decline in asset prices across multiple markets, as investors become more risk averse and market liquidity evaporates.
The market shock component included in the adverse scenario will be designed to be generally less severe than the severely adverse scenario while providing useful information to supervisors. As in the case of the macro scenario, the market shock component in the adverse scenario can be developed in a number of different ways.
The adverse scenario could be differentiated from the severely adverse scenario by the absolute size of the shock, the scenario design process (
There are several possibilities for the adverse scenario and the Board may use a different approach each year to better explore the vulnerabilities of companies with significant trading activity. One approach is to use a scenario based on some combination of historical events. This approach is similar to the one used for 2012 CCAR, where the market shock component was largely based on the second half of 2008, but also included a number of risk factor shocks that reflected the significant widening of spreads for European sovereigns and financials in late 2011. This approach would provide some consistency each year and provide an internally consistent scenario with minimal implementation burden. Having a relatively consistent adverse scenario may be useful as it potentially serves as a benchmark against the results of the severely adverse scenario and can be compared to past stress tests.
Another approach is to have an adverse scenario that is identical to the severely adverse scenario, except that the shocks are smaller in magnitude (
Alternatively, the market shock component of an adverse scenario could differ substantially from the severely adverse scenario with respect to the sizes and nature of the shocks. Under this approach, the market shock component could be constructed using some combination of historical and hypothetical events, similar to the severely adverse scenario. As a result, the market shock component of the adverse scenario could be viewed more as an alternative to the severely adverse scenario and, therefore, it is possible that the adverse scenario could have larger losses for some companies than the severely adverse scenario. However, this approach would provide valuable information to supervisors, by focusing on different facets of potential vulnerabilities.
Finally, the design of the adverse scenario for annual stress tests could be informed by the companies' own market shock components used for their mid-cycle company-run stress tests.
As discussed earlier, the market shock comprises a set of movements in a very large number of risk factors that are realized instantaneously. Among the risk factors specified in the market shock are several variables also specified in the macro scenarios, such as short- and long-maturity interest rates on Treasury and corporate debt, the level and volatility of U.S. stock prices, and exchange rates.
Generally, the market shock scenario will be directionally consistent with the macro scenario, though the magnitude of moves in broad risk factors, such as interest rates, foreign exchange rates, and prices, may differ. Because the market shock is designed, in part, to mimic the effects of a sudden market dislocation, while the macro scenarios are designed to provide a description of the evolution of the real economy over two or more years, assumed economic conditions can move in significantly different ways. However, such differences should not be viewed as inconsistency in scenarios as long as the macro scenario and the market shock component of the scenario are directionally consistent. In effect, the market shock can simulate a market panic, during which financial asset prices move rapidly in unexpected directions, and the macroeconomic assumptions can simulate the severe recession that follows. Indeed, the pattern of a financial crisis, characterized by a short period of wild swings in asset prices followed by a prolonged period of moribund activity, and a subsequent severe recession is familiar and plausible.
As discussed in section 4.2.4, the Board may feature a particularly salient risk in the macroeconomic assumptions for the severely adverse scenario, such as a fall in an elevated asset price. In such instances, the Board would also seek to reflect the same risk in one of the market shocks. For example, if the macro scenario were to feature a substantial decline in house price, it would seem plausible for the market shock to also feature a significant decline in market values of any securities that are closely tied to the housing sector or residential mortgages.
In addition, as discussed in section 4.3, the Board may specify the macroeconomic assumptions in the adverse scenario in such a way as to explore risks qualitatively different from those in the severely adverse scenario. Depending on the nature and type of such risks, the Board may also seek to reflect these risks in one of the market shocks as appropriate.
The Board will provide a description of the macro scenarios by no later than November 15 of each year. During the period immediately preceding the publication of the scenarios, the Board will collect and consider information from academics, professional forecasters, international organizations, domestic and foreign supervisors, and other private-sector analysts that regularly conduct stress tests based on U.S. and global economic and financial scenarios, including analysts at the covered companies. In addition, the Board will consult with the FDIC and the OCC on the salient risks to be considered in the scenarios. The Board expects to conduct this process in July and August of each year and to update the scenarios based on incoming macroeconomic data releases and other information through the end of October.
Currently, the Board does not plan to publish the details of the market shock component. The Board expects to provide a broad overview of the market shock component.
United States Agency for International Development.
Altered system of records.
The United States Agency for International Development (USAID) is issuing public notice of its intent to alter a system of records maintained in accordance with the Privacy Act of 1974 (5 U.S.C. 552a), as amended, entitled “USAID–33, Phoenix Financial Management System”. This action is necessary to meet the requirements of the Privacy Act to publish in the
Public comments must be received on or before January 10, 2013. Unless comments are received that would require a revision; this update to the system of records will become effective on January 10, 2013.
You may submit comments:
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For general questions, please contact, USAID Privacy Office, United States Agency for International Development, 2733 Crystal Drive, 11th Floor, Arlington, Va. 22202. Email:
The Phoenix Financial Management System was established as an Agency-wide system of record since it is required to collect, maintain or store personal data requiring protection under the Privacy Act. It is USAID's core financial management system and accounting system of record. Phoenix enables USAID to effectively and efficiently analyze, allocate and report on US foreign assistance funds. Phoenix includes modules such as General Ledger, Accounts Payable, Accounts Receivables, and Budget Execution, which are required to perform necessary accounting operations. Phoenix falls under strict regulatory audit requirements from the Office of Management and Budget, as well as the General Accountability Office.
Phoenix Financial Management System.
Sensitive But Unclassified.
Terremark, 50 NE 9th Street, Miami, FL 33132.
This system contains records of current employees, contractors, personal service contractors (PSCs), consultants, partners, and those receiving foreign assistance funds.
This system contains USAID organizational information. Phoenix imports the following data elements from NFC Payroll files for Personnel Services Contractors (PSC) and direct hires: name, social security number, details of payroll transactions and work phone numbers. Phoenix imports the following data elements from the E2 Travel system for each traveler: name, date of travel (month/year) and destination.
Privacy Act of 1974 (Pub. L. 93–579), sec. 552a (c), (e), (f), and (p).
Records in this system will be used:
(1) The payroll information is used to associate PSC payroll-related payments with their contracts and track direct hire payroll payments in the system in order to produce 1099 files. If this information is not imported form NFC to Phoenix, then USAID cannot comply with IRS regulations to maintain and produce 1099s.
(2) The travel information is used to associate E2 travel records with Phoenix accounting information regarding travel authorization and funding.
USAID may disclose relevant system records in accordance with any current and future blanket routine uses established for its record systems. These may be for internal communications or with external partners.
These records are not disclosed to consumer reporting agencies
Electronic records are maintained in user-authenticated, password-protected systems.
All records are accessed only by authorized personnel who have a need to access the records in the performance of their official duties. Information is retrieved by name or by a system specific ID (Vendor ID, Traveller ID, etc.). SSN is not employed as a key, but only present for tax reporting purposes.
Administrative, managerial and technical controls are in place. Phoenix has a current C&A in place. Phoenix is secured through access control provided to only those individuals with a need to know within the Agency. Further, access to the PII is limited to the staff within the CMP and CAR divisions. Phoenix is maintained by the US government, not contractors.
Records are retained using the appropriate, approved National Archives Records Administration—Schedules for the type of record being maintained.
David Ostermeyer, United States Agency for International Development, U.S. Department of State Annex 44, 455, 301 4th Street SW., Washington, DC 20547.
Individuals requesting notification of the existence of records on them must send the request in writing to the Chief Privacy Officer, USAID, 2733 Crystal Drive, 11th Floor, Arlington, Va. 22202. The request must include the requestor's full name, his/her current address and a return address for transmitting the information. The request shall be signed by either notarized signature or by signature under penalty of perjury and reasonably specify the record contents being sought.
Individuals wishing to request access to a record must submit the request in writing according to the “Notification Procedures” above. An individual wishing to request access to records in person must provide identity documents, such as government-issued photo identification, sufficient to satisfy the custodian of the records that the requester is entitled to access.
An individual requesting amendment of a record maintained on himself or herself must identify the information to be changed and the corrective action sought. Requests must follow the “Notification Procedures” above.
The records contained in this system will be provided by and updated by the individual who is the subject of the record.
None.
Forest Service, USDA.
Notice of Intent to prepare an Environmental Impact Statement.
The USDA Forest Service will prepare an Environmental Impact Statement (EIS) to disclose the environmental effects of issuing Term Grazing Permits to continue authorizing cattle grazing on all or portions of four existing grazing allotments: Bannon, Aeneas, Revis, and Tunk; herein after referred to as BART. The issuance of Term Grazing Permits would continue to authorize grazing at current permitted cattle numbers and seasons of use.
Comments concerning the scope of the analysis should be received by January 7, 2013. The draft environmental impact statement is expected to be filed with the Environmental Protection Agency and made available for public review in January 2013. The final environmental impact statement is expected to be available for review in February 2013.
Submit written comments and suggestions concerning the scope of the analysis to Christina Bauman, Project Lead, Tonasket District, 1 West Winesap, Tonasket, Washington 98855, or phone 509–486–5112. Comments may also be sent via emailed to
Christina Bauman, Project Leader, Tonasket District, Okanogan-Wenatchee National Forest, 1 West Winesap, Tonasket, Washington 98855 or call 509–486–5112.
Individuals who use telecommunication devices for the deaf (TDD) may call the Federal Information Relay Service (FIRS) at 1–800–877–8339 between 8 a.m. and 8 p.m., Eastern Time, Monday through Friday.
The assessment area covers about 36,803 acres of National Forest System lands within T. 35 N., R. 28 & 29 E., and T. 36 N., R. 28 & 29 E., Willamette Meridian. Landmark locations include, Bannon Mountain, Tunk Mountain, Crawfish Lake, Aeneas, Barnell, Lost, Cole, Bench and Jungle Creeks, and Barnell Meadows.
The purpose of this assessment is to authorize continued grazing in the project area consistent with Forest Plan standards and guidelines as amended providing forage for permitted livestock grazing is proposed because of the following:
• Public Law 104–19 Section 504 of the 1995 Rescissions Act, as amended, requires each National Forest to establish and adhere to a schedule for completing NEPA analysis and updating allotment management plans for all rangeland allotments on National Forest System lands.
• Where consistent with other multiple use goals and objectives, there is congressional intent to allow livestock grazing on suitable lands (Multiple Use Sustained Yield Act of 1960; Forest and Rangeland Renewable Resources Planning Act of 1974; Federal Land Policy and Management Act of 1976; and the National Forest Management Act of 1976.
• It is Forest Service policy to make forage available to qualified livestock operators from lands suitable for grazing consistent with land management plans (CFR 222.2(c); and Forest Service Manual [FSM] 2203.1).
• Recent surveys of the analysis area identified some areas that are of concern or are currently not meeting or moving toward desired conditions in a manner that is consistent with the Okanogan Forest Land and Resource Management Plan as amended. There is a need to modify range infrastructure and livestock management to move toward desired conditions for soils, vegetation and riparian resources. Livestock grazing is one of the factors that contribute to these altered resource conditions.
The proposed action authorizes continued livestock grazing at current levels using a combination of range improvements and adaptive management strategies to meet or move toward meeting Forest Plan Standards and to attain resource specific desired conditions.
This alternative would implement adaptive management strategies analyzed in detail to provide management options if changes to the Proposed Action grazing strategy are
Range improvement proposals include:
• Removal of approximately 3 miles of fence no longer needed for livestock management and 2 non-functioning water developments.
• Relocation of 4 troughs and one corral outside of the Riparian Habitat Conservation Area (RHCA) and 1 fence approximately 1.5 miles long.
• Development of 16 springs including exclosures around spring source.
• Reconstruction of 3 existing spring developments.
• Construction of 2 new corrals.
• Construction of 1 hardened crossing on Aeneas Creek.
• Possible construction of approximately 13 miles of new pasture fence for rested areas.
More detailed information about the proposed action and maps can be accessed on the Okanogan-Wenatchee National Forest internet site
In addition to the Proposed Action and any alternative that is developed following the scoping effort, the project interdisciplinary team will analyze the effects of:
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Range improvement proposals include:
• Removal of approximately 3 miles of fence no longer needed for livestock management and 2 non-functioning water developments.
• Relocation of 4 troughs and one corral outside the RHCA and 1 fence approximately 1.5 miles long.
• Development of 16 springs including exclosures around spring source.
• Reconstruction of 3 existing spring developments.
• Construction of 2 new corrals.
• Construction of 1 hardened crossing on Aeneas Creek.
• Construction of approximately 13 miles of new pasture fence for rested areas.
The responsible official will be the Forest Supervisor, Okanogan-Wenatchee National Forest, 215 Melody Lane, Wenatchee, Washington 98801.
An environmental analysis will evaluate site-specific issues, consider management alternatives and analyze the potential effects of the proposed action and alternatives. An environmental impact statement will provide the Responsible Official with the information needed to decide whether to adopt and implement the proposed action, or an alternative to the proposed action, or take no action to reauthorize grazing in the Bannon, Aeneas, Revis, and Tunk grazing Allotments.
This EIS will tier to the Okanogan National Forest Land and Resource Management Plan and its subsequent amendments, which provide overall guidance for land management activities on the Okanogan-Wenatchee National Forest.
Preliminary issues identified include the effects of livestock grazing on riparian resources such as stream bank and channel instability, high stream width/depth ratio, lack of diverse riparian vegetation, high stream sedimentation, and soil compaction, displacement or erosion.
This notice of intent initiates the scoping process, which guides the development of the Environmental Impact Statement. Public comments about this proposal are requested in order to assist in identifying issues, and determining how to best manage the resources, and focus the analysis.
It is important that reviewers provide their comments at such times and in such manner that they are useful to the agency's preparation of the environmental impact statement. Therefore, comments should be provided prior to the close of the comment period and should clearly articulate the reviewer's concerns and contentions.
Comments received in response to this solicitation, including names and addresses of those who comment, will become part of the public record for this proposal and will be available for public inspection. Comments submitted anonymously will be accepted and considered; however, anonymous comments will not provide the agency with the ability to provide the commenter with subsequent environmental documents.
The Department of Commerce will submit to the Office of Management and Budget (OMB) for clearance the following proposal for collection of information under the provisions of the Paperwork Reduction Act (44 U.S.C. Chapter 35).
The Magnuson-Stevens Fishery Conservation and Management Act
Owners or operators of vessels applying for or renewing a commercial vessel moratorium permit for Gulf shrimp must complete an annual Gulf Shrimp Vessel and Gear Characterization Form. The form will be provided by NMFS at the time of permit application and renewal. Compliance with this reporting requirement is required for permit issuance and renewal.
Through this form, NMFS is collecting census-level information on fishing vessel and gear characteristics in the Gulf of Mexico Exclusive Economic Zone (EEZ) shrimp fishery to conduct analyses that will improve fishery management decision-making in this fishery; ensure that national goals, objectives, and requirements of the Magnuson-Stevens Act, National Environmental Policy Act (NEPA), Regulatory Flexibility Act (RFA), Endangered Species Act (ESA), and Executive Order (E.O.) 12866 are met; and quantify achievement of the performance measures in the NMFS' Operating Plans. This information is vital in assessing the economic, social, and environmental effects of fishery management decisions and regulations on individual shrimp fishing enterprises, fishing communities, and the nation as a whole.
Copies of the above information collection proposal can be obtained by calling or writing Jennifer Jessup, Departmental Paperwork Clearance Officer, (202) 482–0336, Department of Commerce, Room 6616, 14th and Constitution Avenue NW., Washington, DC 20230 (or via the Internet at
Written comments and recommendations for the proposed information collection should be sent within 30 days of publication of this notice to
The Department of Commerce will submit to the Office of Management and Budget (OMB) for clearance the following proposal for collection of information under the provisions of the Paperwork Reduction Act (44 U.S.C. Chapter 35).
National Marine Fisheries Service (NMFS) has issued regulations under authority of the Western and Central Pacific Fisheries Convention Implementation Act (WCPFCIA; 16 U.S.C. 6901
(3) automatic “position reports” from the VMS unit to NOAA and the Commission as part of a vessel monitoring system (VMS) operated by the Commission (50 CFR 300.45). Under this information collection, it is expected that vessel owners and operators would also need to purchase, install, and occasionally maintain the VMS units.
The information collected from the vessel position reports is used by NOAA and the Commission to help ensure compliance with domestic laws and the Commission's conservation and management measures, and are necessary in order for the United Stated to satisfy its obligations under the Convention.
Copies of the above information collection proposal can be obtained by calling or writing Jennifer Jessup, Departmental Paperwork Clearance Officer, (202) 482–0336, Department of Commerce, Room 6616, 14th and Constitution Avenue NW., Washington, DC 20230 (or via the Internet at
Written comments and recommendations for the proposed information collection should be sent within 30 days of publication of this notice to
On July 20, 2012 the Toledo-Lucas County Port Authority, grantee of FTZ 8, submitted a notification of proposed production activity to the Foreign-Trade Zones (FTZ) Board on behalf of Whirlpool Corporation, within Subzone 8I, in Clyde and Green Springs, Ohio.
The notification was processed in accordance with the regulations of the
The Emerging Technology and Research Advisory Committee (ETRAC) will meet on December 12, 2012, 8:30 a.m., Room 6527, (closed session) and December 13, 2012, 8:30 a.m., Room 3884, (open session) at the Herbert C. Hoover Building, 14th Street between Pennsylvania and Constitution Avenues NW., Washington, DC. The Committee advises the Office of the Assistant Secretary for Export Administration on emerging technology and research activities, including those related to deemed exports.
The open sessions will be accessible via teleconference to 40 participants on a first come, first serve basis. To join the conference, submit inquiries to Ms. Yvette Springer at
A limited number of seats will be available for the public session. Reservations are not accepted. To the extent that time permits, members of the public may present oral statements to the Committee. The public may submit written statements at any time before or after the meeting. However, to facilitate the distribution of public presentation materials to the Committee members, the Committee suggests that presenters forward the public presentation materials prior to the meeting to Ms. Springer via email.
The Assistant Secretary for Administration, with the concurrence of the delegate of the General Counsel, formally determined on October 4, 2012, pursuant to Section l0(d) of the Federal Advisory Committee Act, as amended, that the portion of the meeting dealing with matters of which would be likely to frustrate significantly implementation of a proposed agency action as described in 5 U.S.C. 552b(c)(9)(B) shall be exempt from the provisions relating to public meetings found in 5 U.S.C. app. 2 sections 10(a)1 and 10(a)(3). The remaining portions of the meeting will be open to the public.
For more information, call Yvette Springer at (202) 482–2813.
Import Administration, International Trade Administration, Department of Commerce.
On July 2, 2012, the Department of Commerce (“Department”) initiated the second Sunset Reviews of the antidumping duty orders on steel concrete reinforcing bars from Belarus, Indonesia, Latvia, Moldova, Poland, the People's Republic of China and Ukraine. The Department finds that revocation of these antidumping duty orders would be likely to lead to continuation or recurrence of dumping at the margins identified in the “Final Results of Reviews” section of this notice.
Mahnaz Khan or David Layton, AD/CVD Operations, Office 1, Import Administration, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue NW., Washington, DC 20230; telephone (202) 482–0914 and (202) 482–0371, respectively.
The antidumping duty orders on steel concrete reinforcing bars from Belarus, Indonesia, Latvia, Moldova, the People's Republic of China (“PRC”), Poland, and Ukraine were published on September 7, 2001.
On July 2, 2012, the Department initiated the second sunset reviews of these orders, pursuant to section 751(c) of the Tariff Act of 1930, as amended (“the Act”).
On July 30, 2012, the Department received adequate substantive responses to the notice of initiation from the domestic interested parties within the 30-day deadline specified in 19 CFR 351.218(d)(3)(i). We received no responses from respondent interested parties with respect to any of the orders covered by these sunset reviews. As a result, pursuant to 19 CFR 351.218(e)(1)(ii)(C)(2), the Department is conducting expedited (120-day) sunset
The product covered by the orders is all steel concrete reinforcing bars sold in straight lengths, currently classifiable in the Harmonized Tariff Schedule of the United States (“HTSUS”) under item numbers 7214.20.00, 7228.30.8050, 7222.11.0050, 7222.30.0000, 7228.60.6000, 7228.20.1000, or any other tariff item number. Specifically excluded are plain rounds (
Although the HTSUS item numbers are provided for convenience and customs purposes, the written description of the scope of the orders remains dispositive.
All issues raised in these reviews are addressed in the Issues and Decision Memorandum (“Decision Memorandum”) from Christian Marsh, Deputy Assistant Secretary for Antidumping and Countervailing Duty Operations, to Paul Piquado, Assistant Secretary for Import Administration, dated November 1, 2012, which is hereby adopted by this notice. The issues discussed in the Decision Memorandum include the likelihood of continuation or recurrence of dumping and the magnitude of the margins likely to prevail if the orders were revoked. Parties can find a complete discussion of all issues raised in these reviews and the corresponding recommendations in this public memorandum, which is on file electronically via Import Administration's Antidumping and Countervailing Duty Centralized Electronic Service System (“IA ACCESS”). IA ACCESS is available to registered users at
Pursuant to sections 752(c)(1) and (3) of the Act, we determine that revocation of the antidumping duty orders on steel concrete reinforcing bars from Belarus, Indonesia, Latvia, Moldova, Poland, the PRC and Ukraine would be likely to lead to continuation or recurrence of dumping at the following weighted-average percentage margins:
This notice also serves as the only reminder to parties subject to administrative protective order (“APO”) of their responsibility concerning the return or destruction of proprietary information disclosed under APO in accordance with 19 CFR 351.305. Timely notification of the return or destruction of APO materials or conversion to judicial protective orders is hereby requested. Failure to comply with the regulations and terms of an APO is a violation which is subject to sanction.
We are issuing and publishing the final results and notice in accordance with sections 751(c), 752(c), and 777(i)(1) of the Act.
Pursuant to Section 6(c) of the Educational, Scientific and Cultural Materials Importation Act of 1966 (Pub. L. 89–651, as amended by Pub. L. 106–36; 80 Stat. 897; 15 CFR part 301), we invite comments on the question of whether instruments of equivalent scientific value, for the purposes for which the instruments shown below are intended to be used, are being manufactured in the United States.
Comments must comply with 15 CFR 301.5(a)(3) and (4) of the regulations and be postmarked on or before December 13, 2012. Address written comments to Statutory Import Programs Staff, Room 3720, U.S. Department of Commerce, Washington, DC 20230. Applications may be examined between 8:30 a.m. and 5:00 p.m. at the U.S. Department of Commerce in Room 3720.
Import Administration, International Trade Administration, Department of Commerce.
The Department of Commerce (“the Department”) and the Russian Federation's Ministry of Economic Development (“MED”) have initialed a draft revision to the Agreement Suspending the Antidumping Investigation on Certain Hot-Rolled Flat-Rolled Carbon Quality Steel Products (“Suspension Agreement”). The proposed revision will update the reference prices provided under the Suspension Agreement applicable to October 1, 2012 through December 31, 2012, to bring them into alignment with current U.S. prices. The Department is now inviting interested parties to comment on the text of the proposed revision.
Comments must be submitted by no later than November 23, 2012.
Sally C. Gannon at (202) 482–0162 or Anne D'Alauro (202) 482–4830, Import Administration, International Trade Administration, U.S. Department of Commerce, 14th Street & Constitution Avenue NW., Washington, DC 20230.
On July 12, 1999, the Department and the Ministry of Trade (“MOT”) of the Russian Federation signed an agreement under section 734
On August 1, 2011, Nucor Corporation (“Nucor”) submitted a request for an administrative review pursuant to
On June 1, 2012, the preliminary results of the administrative review were published.
In evaluating the information on the record of the administrative review with respect to the current status of, and compliance with, the Suspension Agreement, the Department preliminarily determined that the Suspension Agreement's reference price mechanism, in its current form, was no longer preventing price undercutting by Russian imports of hot-rolled steel into the U.S. market, and, as a result, also preliminarily determined that the Suspension Agreement was no longer fulfilling its statutory requirement. The record evidence indicated that the adjustments made quarterly within the Suspension Agreement's current reference price mechanism have failed to keep pace with changes in U.S. prices. Further, once the reference prices became too low relative to U.S. market prices, the subsequent quarterly adjustments were no longer effective in providing new reference prices that were reflective of U.S. market prices for hot-rolled steel. In addition, the record evidence and the Department's analysis indicated that the failing reference price mechanism, as described, has led to the undercutting of domestic hot-rolled steel price levels by Russian hot-rolled steel imports during the period of review (“POR”). In its
In the
On November 14, 2012, and November 15, 2012, respectively, the Department and MED initialed a draft revision to the Suspension Agreement. The proposed revision updates the reference prices provided within the Suspension Agreement for the October 1, 2012 through December 31, 2012, period in order to bring them into alignment with U.S. market prices and also modifies the existing mechanism for calculating percentage changes going forward. The text of the draft revision follows in Annex 1 to this notice.
On November 15, 2012, the Department released the initialed draft revision and a request for comments to interested parties.
With this additional notice, the Department reiterates that interested parties are invited to submit comments to the Department on the draft revision to the Suspension Agreement no later than November 23, 2012. Comments from interested parties must be filed electronically using Import Administration's Antidumping and Countervailing Duty Centralized Electronic Service System (“IA ACCESS”) and must be received by IA ACCESS by 5 p.m. Eastern Time by November 23, 2012. All information provided to the Department will be subject to release under Administrative Protective Order (“APO”) and should be submitted in accordance with 19 CFR 351.103 and 19 CFR 351.105 of the Department's regulations, including the service of copies of comments on interested parties to this proceeding. The APO and public service lists in this proceeding can be found at the following Web site address:
The Agreement Suspending the Antidumping Investigation on Hot-Rolled Flat-Rolled Carbon-Quality Steel Products from the Russian Federation,
The Preamble is revised by adding the following paragraph to the end:
The Ministry of Economic Development of the Russian Federation (“MED”) and the Department of Commerce (“DOC”) acknowledge that, for purposes of the Agreement Suspending the Antidumping Investigation on Hot-Rolled Flat-Rolled Carbon-Quality Steel Products from the Russian Federation, as revised (“Agreement”), the successor in interest to MOT is MED. All references to MOT in this Agreement shall be understood to indicate MED.
Section III.C is revised, as follows:
III.C. The Reference Prices for the fourth quarter of the 2012 Export Limit Period, corresponding to October 1, 2012 through December 31, 2012, shall be updated by using the following procedure:
1. To update the Reference Price for Group One products, DOC shall average FOB U.S. mill (East of the Mississippi) prices for hot-rolled band (“HRB”) from the public source
2. DOC shall decrease the two-month average price resulting from Section III.C.1 by two percent to account for the percentage difference between the average
3. DOC shall adjust the price resulting from Section III.C.2 for freight and transportation expenses, using the following methodology. DOC shall calculate the freight and transportation expenses using publicly-available import statistics from the U.S. Bureau of the Census (from the International Trade Commission's Dataweb) for January–June 2012. Based on the difference between the CIF values of Russian hot-rolled steel imports relative to the Customs values for the same entries during this period, DOC shall calculate the percentage ratio to be used as a deduction for freight and transportation expenses. DOC shall then subtract the resulting percentage amount of 10.23 percent from the price calculated in Step 2 above to determine the updated Reference Price of $601.75 per metric ton for Group One products for the October 1, 2012, through December 31, 2012, quarterly period.
4. DOC shall calculate the Reference Prices for products in Groups Two and Three for the October 1, 2012, through December 31, 2012, quarterly period based on a 10 and 28 percent increase, respectively, to the Reference Price calculated for Group One, as set forth above.
5. The resulting updated Reference Prices for the October 1, 2012 through December 31, 2012, quarterly period are as follows:
Section III.E is replaced with:
III.E. Thirty days before the start of each quarter of each Export Limit Period (beginning with the first quarter, or January 1, 2013, through March 31, 2013), DOC shall calculate the new quarterly Reference Prices, based on the percentage increase or decrease in the weighted-average unit import values for hot-rolled steel from all countries not subject to antidumping duty orders or investigations over the most recent three months for which data is available, compared to the three preceding months. The source of the unit import values will be publicly-available import statistics from the U.S. Bureau of the Census (International Trade Commission's Dataweb). DOC will provide MED with the worksheets supporting its calculation of the quarterly Reference Prices at the time it provides the Reference Prices to MED. For the first calculation only,
To the extent that there are any inconsistencies between this revision and the Agreement, the provisions of the Agreement are superseded, and the provisions of this revision shall govern. All other provisions of the Agreement and their applicability continue with full force.
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce; Fish and Wildlife Service (USFWS), Interior.
Notice of availability and receipt of application.
This notice announces the availability of the draft Mendocino Redwood Company Habitat Conservation Plan and Natural Community Conservation Plan (Proposed Plan), draft Implementing Agreement, and draft Environmental Impact Statement/Program Timberland Environmental Impact Report (EIS/PTEIR) for public review and comment. In response to receipt of an application from The Mendocino Redwood Company (MRC; Applicant), the National Marine Fisheries Service and the U.S. Fish and Wildlife Service (Services) are considering the proposed action of issuing an 80-year incidental take permit for nine federally listed species and two currently unlisted species. The proposed permit would authorize take of individual members of species listed under section 10 of the Endangered Species Act (ESA) of 1973 (16 U.S.C. 1531–1544, 87 Stat. 884), as amended. The permit is needed because take of species could occur during timber harvest, forest management, and related activities within the 213,244-acre Proposed Plan Area in western Mendocino County, CA.
Two public meetings will be held: Tuesday, December 11, 2012, from 7 p.m. to 9 p.m. (Ukiah, California), and Wednesday, December 12, 2012, from 7 p.m. to 9 p.m. (Fort Bragg, California). Written comments should be received on or before February 21, 2013.
The public meetings will be held at: Redwood Empire Fair Fine Arts Building, 1055 North State Street, Ukiah, CA 95482; and at C.V. Starr Center, 300 S. Lincoln St., Fort Bragg, CA 95437. Send comments by mail or facsimile to: (1) Eric Shott, National Marine Fisheries Service, 777 Sonoma Avenue, Room 325, Santa Rosa, CA 95404, facsimile (707) 578–3435; or (2) John Hunter, Fish and Wildlife Biologist, Fish and Wildlife Service, Arcata Fish and Wildlife Office, 1655 Heindon Road, Arcata, California 95521, facsimile (707) 822–8411. Send comments by email to
Eric Shott, National Marine Fisheries Service (see
Copies of the draft Proposed Plan, draft Implementing Agreement and draft EIS/PTEIR are available for public review during regular business hours from 9 a.m. to 5 p.m. at the National Marine Fisheries Service (see
The initial Notice of Intent to prepare an draft EIS/EIR for this project was published in the
Section 9 of the Endangered Species Act of 1973, as amended (ESA; 16 U.S.C. 1531
Although take of listed plant species is not prohibited under the ESA, and therefore cannot be authorized under an incidental take permit, plant species may be included on a permit in recognition of the conservation benefits provided to them under a Habitat Conservation Plan (HCP). All species included on an incidental take permit would receive assurances under the Services “No Surprises” regulation 50 CFR 17.22(b)(5) and 17.32(b)(5).
The application for an incidental take permit was prepared and submitted by Mendocino Redwood Company (Applicant). The Applicant has prepared an HCP to satisfy the application requirements for a section 10(a)(1)(B) permit under the ESA, a section 2835 permit under the California Natural Community Conservation Planning Act of 2002 (NCCPA), and for compliance with California Code of Regulations 14 §§ 916.9(w)(3)–(4), 919.9(d), 919.11, and 1092.21(d) under the California Forest Practice Rules (FPRs). Thus, the Proposed Plan constitutes an HCP pursuant to the ESA, and a Natural Community Conservation Plan pursuant to the California NCCPA.
The Applicant seeks an 80-year incidental take permit for covered activities within a proposed 213,244 acre Plan Area located entirely in Mendocino County, California. The Proposed Plan Area includes commercial timberlands owned by Mendocino Redwood Company that are located west of U.S. Route 101, and includes portions of the Albion, Big, Garcia, South Fork Eel, Navarro, Noyo, and upper Russian River river watersheds, as well as portions of Cottaneva, Howard, Hardy, Juan, Alder, Elk, Greenwood, and Mallo Pass creek watersheds.
The Applicant has requested permits that will authorize take of nine animals listed as threatened or endangered under the ESA and two species that are
If the Proposed Plan is approved and the permits are issued, take authorization of covered listed species would be effective at the time of permit issuance. Take of the currently nonlisted covered species would be authorized concurrent with the species' listing under the ESA, should they be listed during the permit period. The Proposed Plan is intended to be a comprehensive document, providing for species conservation and habitat planning, while allowing the Applicant to better manage ongoing forestry operations. The Proposed Plan also is intended to provide a coordinated process for permitting and mitigating the take of covered species as an alternative to the current project-by-project approach.
In order to comply with the requirements of the ESA, California Endangered Species Act, the California Natural Community Conservation Act (NCCPA), and the California Forest Practice Rules (FPRs), the Proposed Plan addresses a number of required elements, including: Species and habitat goals and objectives; evaluation of the effects of covered activities on covered species, including indirect and cumulative effects; a conservation strategy; a monitoring and adaptive management program; descriptions of changed circumstances and remedial measures; identification of funding sources; and an assessment of alternatives to take of listed species.
Proposed covered activities within the Proposed Plan are all related to forestry operations and include timber felling, transportation, road and landing construction, maintenance, development and operation of rock pits and water drafting sites, site preparation, tree planting, thinning and other silvicultural activities, prescribed burning, habitat restoration and improvement, and monitoring and research in the Proposed Plan Area.
The Proposed Plan's conservation strategy was designed to maintain or improve habitat conditions for listed and nonlisted covered species. The Proposed Plan includes minimization measures, such as disturbance buffers and sediment control measures that would avoid or minimize take of covered species from ongoing operations. The Proposed Plan also includes mitigation for take of covered species, including maintenance and enhancement of riparian areas, wetland areas, hardwood stands, and late successional coniferous forest stands. A 1,237-acre Lower Alder Creek Management area also would be established at the outset of the Proposed Plan. The only forest management that would be permitted within this management area would enhance habitat conditions for the marbled murrelet in order to offset any loss of any occupied marbled murrelet habitat that occurs elsewhere in the proposed Plan Area during the permit term. Habitat protected under the Proposed Plan would be monitored, and annual reports documenting the status of the species and compliance with the Proposed Plan would be submitted to the Services.
Proposed permit issuance triggers the need for compliance with the National Environmental Policy Act (NEPA) and the California Environmental Quality Act (CEQA). Accordingly, a joint NEPA/CEQA document has been prepared. As co-lead Federal agencies, the Services have responsibility for compliance under NEPA and are providing notice of the availability of the draft EIS/PTEIR, which evaluates the impacts of proposed issuance of the permit and implementation of the Proposed Plan, as well as a reasonable range of alternatives.
The draft EIS/PTEIR analyzes five alternatives, including the Proposed Plan, described above. The five alternatives being considered by the Services are the following:
The Services invite the public to comment on the draft Proposed Plan, draft implementing agreement, and draft EIS/PTEIR during a 90-day public comment period beginning on the date of this notice. All comments received, including names and addresses, will become part of the administrative record and may be made available to the public.
Comments submitted in an email will be accepted provided they do not exceed 6 megabytes in size and are virus free. Hypertext email links to other Web pages or publications shall not be deemed the equivalent of written comment.
The Services will evaluate the applications, associated documents, and comments submitted to them to prepare a final EIS/PTEIR. A permit decision will be made no sooner than 30 days after the publication of the final EIS/PTEIR.
This notice is provided pursuant to section 10(a) of the ESA and Service regulations for implementing NEPA, as amended (40 CFR 1506.6). We provide this notice in order to allow the public, agencies, or other organizations to review and comment on these documents.
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce; Fish and Wildlife Service (USFWS), Interior.
Notice of availability of final environmental impact statement, multi-species habitat conservation plan, and implementing agreement.
This notice announces the availability for public review of the Final Environmental Impact Statement (FEIS) for Authorization for Incidental Take and Implementation of the Stanford University Habitat Conservation Plan; the Stanford University Habitat Conservation Plan (HCP); and the Implementing Agreement (IA). Pursuant to the National Environmental Policy Act (NEPA), this notice advises the public that we, the USFWS and NMFS (collectively the Services), have received applications for 50-year Incidental Take Permits (ITPs) pursuant to the Endangered Species Act of 1973, as amended (ESA) from the Board of Trustees of Leland Stanford Junior University (Stanford; Applicant). The Applicant seeks the ITPs to authorize incidental take of the covered species that could occur as a result of the proposed covered activities.
Written comments on the FEIS, HCP, and IA, must be received by 5 p.m. Pacific Time on December 24, 2012.
Comments concerning the FEIS, HCP, and IA can be sent by U.S. Mail, facsimile, or email to (1) Mike Thomas, Division Chief, Conservation Planning Division, Fish and Wildlife Service, Sacramento Fish and Wildlife Office, 2800 Cottage Way, Room W–2605, Sacramento, CA 95825, facsimile (916) 414–6713; (2)
Gary Stern, San Francisco Bay Branch Supervisor, NMFS, telephone (707) 575–6060, Sheila Larsen, Senior Staff Biologist, USFWS; telephone (916) 414–6685, or Mike Thomas, Chief, Conservation Planning Division, USFWS; telephone (916) 414–6600.
This notice is provided pursuant to the ESA and regulations for implementing NEPA, as amended (40 CFR 1506.6), to inform the public that the FEIS and HCP, and the Services' responses to public comments are available for review, and that the Services have filed a FEIS with the U.S. Environmental Protection Agency (EPA) for public notice. The decision on whether to issue ITPs to Stanford will be made by the Services no sooner than 30 days after the publication of the EPA's public notice. Copies of the FEIS, HCP and IA are available for public review during regular business hours from 9 a.m. to 5 p.m. at the USFWS, Sacramento Fish and Wildlife Office (see
1. Social Sciences Resource Center, Green Library, Room 121, Stanford, CA 94305.
2. Palo Alto Main Library, 1213 Newell Road, Palo Alto, CA 94303.
Individuals wishing to obtain copies of the FEIS, HCP, or IA should contact either of the Services by telephone (see
Section 9 of the Federal Endangered Species Act (ESA) of 1973, as amended, and Federal regulations prohibit the take of fish and wildlife species listed as endangered or threatened (16 U.S.C. 1538). The term “take” means to harass, harm, pursue, hunt, shoot, wound, kill, trap, capture, or collect, or to attempt to engage in any such conduct (16 U.S.C. 1532(19)). Harm includes significant habitat modification or degradation that actually kills or injures listed wildlife by significantly impairing essential behavioral patterns, including breeding, feeding, and sheltering (50 CFR 17.3(c)). NMFS further defines harm as an act which actually kills or injures fish or wildlife, and expands the list of essential behavioral patterns that can be impaired by habitat modification or degradation to include breeding, spawning, rearing, migrating, feeding or sheltering (50 CFR 222.102). Pursuant to section 10(a)(1)(B) of the ESA, the Services may issue ITPs authorizing the take of listed species if, among other things, such taking is incidental to, and not the purpose of, otherwise lawful activities. Regulations governing ITPs for threatened and endangered species are found in 50 CFR 17.22, 17.32, and 222.307.
Each of the Services has received an application for an ITP for implementation of the HCP. The applications were prepared and submitted by The Board of Trustees of Leland Stanford Junior University. The Applicant has prepared the HCP to satisfy the application requirements for a section 10(a)(1)(B) permit under the ESA .
The Applicant seeks a 50-year incidental take permit for Covered Activities within a proposed 8,180-acre permit area located in southern San Mateo and northern Santa Clara counties. The permit area includes approximately 8,000 acres of Stanford's lands. Located on portions of the Santa
The Applicant has requested permits that will authorize the take of four animal species, which are currently listed as threatened or endangered under the ESA, and one animal species that may become listed under the ESA. The Applicant has requested coverage from the USFWS for the California tiger salamander (
If the proposed HCP is approved and the permits issued, take authorization of listed Covered Species would be effective at the time of permit issuance. Take of the currently non-listed Covered Species would be authorized concurrent with the species' listing under the ESA, should it be listed during the duration of the permit.
The proposed HCP is intended to be a comprehensive document, providing for species conservation and habitat planning, while allowing the Applicant to better manage ongoing operations and future growth. The proposed HCP also is intended to provide a coordinated process for permitting and mitigating the take of Covered Species as an alternative to a project-by-project approach.
The proposed HCP addresses a number of required elements, including: Species and biological goals and objectives; evaluation of the effects of Covered Activities on Covered Species, including indirect and cumulative effects; a conservation strategy; a monitoring and adaptive management program; descriptions of changed circumstances and remedial measures; identification of funding sources; and an assessment of alternatives to take of listed species.
The HCP divides the permit area into four “zones.” Zone 1 supports one or more of the Covered Species or provides critical resources for the species. Zone 2 areas are occasionally occupied by a Covered Species and provide some of the resources used by the species, or buffers between occupied habitat and urbanized areas. Zone 3 consists of generally undeveloped land that provides only limited and indirect benefit to the Covered Species. Zone 4 includes urbanized areas that do not support the covered species. The covered activities described in the HCP include the ongoing operation and maintenance of several existing University facilities, and a limited amount of future development. Ongoing operations and maintenance are divided into the following categories of activities: Water management; creek maintenance; academic activities; utility installation and maintenance; general infrastructure; recreation and athletics; grounds and vegetation; agricultural and equestrian leaseholds; and commercial and institutional leaseholds. Up to 180 acres of development in Zones 1, 2, and 3 are also covered by the HCP, but the HCP does not supersede any permitting or entitlement required by other regulations. The HCP does not cover ongoing operations and maintenance associated with Searsville Dam, Searsville Reservoir and other facilities directly related to Searsville Reservoir
Stanford's proposed conservation strategy in the HCP is designed to minimize and mitigate the impacts of Covered Activities, improve habitat conditions for listed Covered Species, and protect populations of the non-listed Covered Species. The HCP includes minimization measures that would avoid and minimize the take of Covered Species from ongoing operation and maintenance of most University facilities and future development. The HCP also includes mitigation for the loss of habitat, and proposes to conserve approximately 360 acres of riparian habitat with conservation easements within one year of issuance of the permits. Additional riparian habitat would be preserved as needed. A 315-acre “California Tiger Salamander Reserve” (Reserve) also would be established at the outset of the HCP. No development would be permitted within the Reserve for the term of the permits, and a portion of habitat within the 315-acre Reserve would be permanently protected to offset any loss of California tiger salamander habitat that occurs during the permit term. Habitat protected under the HCP would be managed and monitored, and annual reports documenting the status of the species and compliance with the HCP would be submitted to the Services. In addition to the minimization measures and mitigation for the loss of habitat, the HCP includes a number of potential habitat enhancements that Stanford may perform during the term of the permits. Other conservation activities include a California tiger salamander management plan that covers 95 acres, including Lagunita Reservoir and habitat around Lagunita Reservoir.
Proposed permit issuance triggers the need for compliance with the NEPA. As co-lead agencies, the Services prepared a Draft EIS which evaluated the impacts of the proposed issuance of the permit and implementation of the HCP, as well as a reasonable range of alternatives. The Draft EIS and Draft HCP were circulated for public review and comment. The public review period was initiated with the publication of a Notice of Availability (NOA) in the
During the comment period, 30 comment letters were received from Federal and local agencies, environmental organizations, and the general public, including over 3000 form email messages. The primary issues raised in the comment letters and email messages were related to Searsville Dam and Reservoir. Many commenters requested Stanford revise the HCP and the Services prepare a supplemental DEIS for public review and comment. Comments received on the Draft EIS and Draft HCP and responses can be found in Volume II of the FEIS. Following the public comment period, in January 2011, Stanford revised the HCP to remove Covered Activities related to Searsville Dam, Reservoir, and Diversion. Accordingly, minimization measures for Searsville-related activities have also been
The FEIS analyzes three alternatives including the issuance of ITPs and the implementation of the proposed HCP described above. The issuance of 50-year take permits and Applicant implementation of the proposed HCP is considered the Preferred Alternative. Two other alternatives being considered by the Services include the following:
Under the No Action Alternative, the Services would not issue incidental take permits for implementation of the HCP. As a result, the Applicant would likely seek individual incidental take authorization as needed for new projects and ongoing operations that would result in the take of federally listed species.
Under the California Tiger Salamander Only Alternative, Stanford would prepare a HCP only for the California tiger salamander, and obtain section 10 authorization only for the take of California tiger salamander. Future development and ongoing activities that would result in the take of other listed species would be permitted individually, as needed.
The Services invite the public to review the final HCP, final IA, and FEIS during a 30-day public waiting period [see
The Services will evaluate the applications, associated documents, and public comments submitted to them to prepare their respective Records of Decision (RODs). Any comments received during this 30-day period will be considered during the Services' decision-making process. A permit decision will be made no sooner than 30 days after the publication of EPA's notice of the FEIS and completion of the RODs.
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice of Cancellation of SEDAR 28 Gulf of Mexico Spanish mackerel and cobia assessment Webinar.
The SEDAR 28 assessment of the Gulf of Mexico Spanish mackerel and cobia fisheries will consist of a series of workshops and supplemental Webinars. This notice is for a Cancellation of a Webinar associated with the Assessment portion of the SEDAR process. See
The SEDAR 28 Assessment Workshop Webinar scheduled to be held on November 26, 2012, from 1 p.m. until 5 p.m. EDT has been cancelled.
Ryan Rindone, SEDAR Coordinator, 2203 N. Lois Ave., Suite 1100, Tampa FL 33607; telephone: (813) 348–1630; email:
The original notice published in the
The Gulf of Mexico Fishery Management Council (GMFMC), in conjunction with NOAA Fisheries, has implemented the Southeast Data, Assessment and Review (SEDAR) process, a multi-step method for determining the status of fish stocks in the Southeast Region. SEDAR is a three-step process including: (1) Data Workshop; (2) Assessment Process, including a workshop and Webinars; and (3) Review Workshop. The product of the Data Workshop is a data report which compiles and evaluates potential datasets and recommends which datasets are appropriate for assessment analyses. The product of the Assessment Process is a stock assessment report which describes the fisheries, evaluates the status of the stock, estimates biological benchmarks, projects future population conditions, and recommends research and monitoring needs. The assessment is independently peer reviewed at the Review Workshop. The product of the Review Workshop is a summary documenting panel opinions regarding the strengths and weaknesses of the stock assessment and input data. Participants for SEDAR Workshops are appointed by the GMFMC, NOAA Fisheries Southeast Regional Office, and the NOAA Southeast Fisheries Science Center. Participants include: data collectors and database managers; stock assessment scientists, biologists, and researchers; constituency representatives including fishermen, environmentalists, and non-governmental organizations (NGOs); international experts; and staff of Councils, Commissions, and state and federal agencies.
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice of public meetings.
The Mid-Atlantic Fishery Management Council (Council) and its Visioning and Strategic Planning
The meetings will be held Monday, December 10, 2012 through Thursday, December 13, 2012. See
The meetings will be held at Pier V, 711 Eastern Avenue, Baltimore, MD 21202; telephone: (410) 539–2000.
Christopher M. Moore, Ph.D. Executive Director, Mid-Atlantic Fishery Management Council; telephone: (302) 526–5255.
On Monday, December 10—The Visioning and Strategic Planning Working Group will meet from 9 a.m. until 5 p.m. On Tuesday, December 11—The Visioning and Strategic Planning Working Group will meet from 9 a.m. until 5 p.m. On Wednesday, December 12—The Executive Committee will meet from 8 a.m. to 9 a.m. The Council will convene at 9 a.m. From 9 a.m. until 11:30 a.m., the Council will hold its regular Business Session to approve the October 2012 minutes and receive liaison, organizational, Executive Director, Science, and Committee Reports. From 11:30 a.m. until 12 p.m., the proposed rule on Amendment 5 to the Highly Migratory Species (HMS) Fishery Management Plan (FMP) regarding shark rebuilding and management measures will be presented. From 1 p.m. until 2:30 p.m., Mackerel, Squid, Butterfish, River Herring, and Shad will be discussed. From 2:30 p.m. until 3:30 p.m., Special Management Zone (SMZ) Alternatives will be discussed. From 3:30 p.m. until 5 p.m.,. Black Sea Bass issues will be discussed. There will be a Public Listening Session from 5 p.m. until 6 p.m. on Wednesday evening with discussion of impacts from Hurricane Sandy. On Thursday December 13—The Demersal Committee will meet as a Committee of the Whole with the Atlantic States Marine Fisheries Commission's (ASMFC) Summer Flounder, Scup, and Black Sea Board. From 9 a.m. until 10:30 a.m., summer flounder 2013 recreational management measures will be finalized with the Board. From 10:30 a.m. until 12 p.m., scup 2013 recreational management measures with the Board will be finalized. From 1 p.m. until 4 p.m., the black sea bass 2013 recreational management measures with the Board will be finalized. From 4 p.m. until 5 p.m., the Council will conduct any continuing and/or new business.
Agenda items by day for the Council's Committees and the Council itself are: On Monday, December 10—The Visioning and Strategic Planning Working Group will discuss the next steps for completing the draft strategic plan, finalize Science and Data and Ecosystems goal sequences, review top themes from the Visioning Project, and discuss objectives, strategies, and tactics for one strategic goal sequence. On Tuesday, December 11—The Visioning and Strategic Planning Working Group will review the outcomes from Monday and discuss objectives, strategies, and tactics for up to three strategic goals. On Wednesday, December 12—The Executive Committee will meet to identify the 2013 Council priorities and discuss the nominations for the Ricks E. Savage Award. The Council will hold its regular Business Session to approve the October minutes, and receive liaison, organizational, Executive Director, Science, and Committee Reports. The Council will receive a presentation from NMFS regarding Amendment 5 to the HMS FMP. The Council will hold its second meeting of Framework 8 to Mackerel, Squid, and Butterfish (MSB). MSB Amendment 15 scoping results will be presented and confirmation on scope of Amendment for the Fishery Management Action Team (FMAT) will be discussed along with an update on the January 15–17, 2013 Squid Management Workshop. The Council will discuss SMZ Alternatives. The Council will discuss Black Sea Bass issues with regard to the 2012 overages and review accountability measures and black sea bass data. The Council will hold a public listening session to discuss fishery impacts from Hurricane Sandy. On Thursday, December 13—the Council in conjunction with the ASMFC's Summer Flounder, Scup, and Black Sea Bass Boards will review and discuss the associated Monitoring Committee's and Advisory Panel's recommendations and develop and approve 2013 recreational management measures for summer flounder, scup, and black sea bass. The Council will also discuss an update on Amendment 17 to the Summer Flounder, Scup, and Black Sea Bass FMP. The ASMFC Board will discuss an Addendum to enable State-by-State Black Sea Bass Recreational Management Measures. The Council will conduct any continuing and/or new business.
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 these meetings. 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 Fishery Conservation and Management Act, provided the public has been notified of the Council's intent to take final action to address the emergency.
These meetings are physically accessible to people with disabilities. Requests for sign language interpretation or other auxiliary aid should be directed to M. Jan Saunders, (302) 526–5251, at least 5 days prior to the meeting date.
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice of workshop.
NMFS, Alaska Region, will present a workshop on seaLandings, a consolidated electronic means of reporting landings and production of commercial groundfish to multiple management agencies for Federal and State fisheries off Alaska, and 2013 recordkeeping and reporting requirements for the Alaska groundfish fisheries and Individual Fishing Quota fisheries.
The workshop will be held on November 29, 2012, from 9:00 a.m. to 1:00 p.m., Pacific Standard Time.
The workshop will be held at the Swedish Cultural Center located at 1920 Dexter Ave N., Seattle, WA. Directions to the center can be found on its Web site,
Susan Hall, 907–586–7462.
The workshop will include a discussion of
The final rule for monitoring and enforcement requirements in the Bering Sea and Aleutian Islands freezer longline fleet (77 FR 59053) mandates that vessel operators who opt into the program will be required to use an electronic logbook beginning in 2013.
NMFS will provide a demonstration of the latest version of seaLandings for at-sea catcher/processors and motherships, and training on how to submit daily production reports and landing reports with and without Individual Fishing Quota. NMFS will also provide a demonstration of the freezer longline catcher/processor electronic logbook in seaLandings.
This workshop will be physically accessible to people with disabilities. Requests for sign language interpretation or other auxiliary aids should be directed to Susan Hall, 907–586–7462, at least 5 working days prior to the meeting date.
Department of Defense, Defense Security Cooperation Agency.
Notice.
The Department of Defense is publishing the unclassified text of a section 36(b)(1) arms sales notification. This is published to fulfill the requirements of section 155 of Public Law 104–164 dated July 21, 1996.
Ms. B. English, DSCA/DBO/CFM, (703) 601–3740.
The following is a copy of a letter to the Speaker of the House of Representatives, Transmittals 12–56 with attached transmittal, policy justification, and Sensitivity of Technology.
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The Government of Indonesia has requested a possible purchase of 180 Block I Javelin Missiles, 25 Command Launch Units (CLU), Missile Simulation Rounds (MSR), Battery Coolant Units (BCU), Enhanced Basic Skills Trainer, Weapon Effects Simulator, batteries, battery chargers, support equipment, spare and repair parts, personnel training and training equipment, publications and technical data, U.S. Government and contractor technical assistance and other related logistics support. The estimated cost is $60 million.
This proposed sale will contribute to the foreign policy and national security of the United States by helping to improve the security of a friendly country which has been, and continues to be, an important force for the political stability and economic progress in Southeast Asia.
The proposed sale provides Indonesia with assets vital to protect its sovereign territory and deter potential threats. The acquisition of the Javelin system is part of the Indonesia Army's overall military modernization program. The proposed sale will foster continued cooperation between the U.S. and Indonesia, making Indonesia a more valuable regional partner in an important area of the world.
The proposed sale of the missiles and support will not alter the basic military balance in the region.
The principal contractors will be Raytheon/Lockheed Martin Javelin Joint Venture (JJV) in Tucson, Arizona and Orlando, Florida. There are no known offset agreements proposed in connection with this potential sale.
Implementation of this proposed sale will not require the assignment of any additional U.S. Government or contractor representatives to Indonesia.
There will be no adverse impact on U.S. defense readiness as a result of this proposed sale.
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1. The Javelin Weapon System's hardware and the documentation provided are unclassified. However, sensitive technology is contained within the system itself. The sensitivity is primarily in the software programs that instruct the system how to operate in the presence of countermeasures. Programs are contained in the system in the form of microprocessors with Read Only Memory (ROM) maps, which do not provide the software program itself. The overall hardware is considered sensitive in that the modulation frequency and infrared wavelengths could be used in countermeasure development.
2. If a technologically advanced adversary were to obtain knowledge of the specific hardware and software elements, the information could be used to develop countermeasures that might reduce weapon system effectiveness or be used in the development of a system with similar or advanced capabilities.
Department of Defense, Defense Security Cooperation Agency.
Notice.
The Department of Defense is publishing the unclassified text of a section 36(b)(1) arms sales notification. This is published to fulfill the requirements of section 155 of Public Law 104–164 dated July 21, 1996.
Ms. B. English, DSCA/DBO/CFM, (703) 601–3740.
The following is a copy of a letter to the Speaker of the House of Representatives, Transmittal 12–64 with attached transmittal, policy justification, and Sensitivity of Technology.
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The Sultanate of Oman has requested a possible sale of 400 Javelin Guided Missiles, Javelin Weapon Effects Simulator (JAVWES), containers, spare and repair parts, support equipment, personnel training and training equipment, publications and technical documentation, U.S. Government and contractor representative logistics and technical support services, and other related elements of logistics and program support. The total estimated cost is $96 million.
This proposed sale will contribute to the foreign policy and national security of the United States by helping to improve the security of a friendly country that has been, and continues to be, an important force for political and economic progress in the Middle East.
The proposed sale of the JAVELIN Anti-Tank Weapon System will improve Oman's capability to meet current and future threats and provide greater security for its critical oil and natural gas infrastructure. Oman will use the enhanced capability to strengthen its homeland defense. Oman will have no difficulty absorbing these missiles into its armed forces.
The proposed sale of this equipment and support will not alter the basic military balance in the region.
The principal contractors will be Raytheon/Lockheed Martin Javelin Joint Venture in Orlando, Florida and Tucson, Arizona. There are no known offset agreements proposed in connection with this potential sale.
Implementation of this proposed sale will not require the assignment of any additional U.S. Government or contractor representatives to Oman.
There will be no adverse impact on U.S. defense readiness as a result of this proposed sale.
(vii)
1. The Javelin Weapon System is a medium-range, man portable, shoulder-launched, fire and forget, anti-tank system for infantry, scouts, and combat engineers. It may also be mounted on a variety of platforms to include vehicles and watercraft. The system weighs 49.5 pounds and has a maximum range in excess of 2,500 meters. The system is highly lethal against tanks and other systems with conventional and reactive armors. The system possesses a secondary capability against bunkers.
2. Javelin's key technical feature is the use of fire-and-forget technology which allows the gunner to fire and immediately relocate or take cover. Additional special features are the top attack and/or direct fire modes, an advanced tandem warhead and imaging infrared seeker, target lock-on before launch, and soft launch from enclosures or covered fighting positions. The Javelin missile also has a minimum smoke motor thus decreasing its detection on the battlefield. The Javelin Training System consists of the following training devices: the missile simulation round, the basic skills trainer and the field tactical trainer, JAVWES, and tripod.
3. The Javelin Weapon System is comprised of two major tactical components, which are a reusable Command Launch Unit (CLU) and a round contained in a disposable launch tube assembly. The CLU incorporates an integrated day-night sight that provides a target engagement capability in adverse weather and countermeasure environments. The CLU may also be used in a stand-alone mode for battlefield surveillance and target detection. The CLU's thermal sight is a second generation Forward-Looking Infrared (FLIR) sensor operating in the 8–10 micron wavelength and has a 240 X 2 scanning array with a Dewar-coolant unit. To facilitate initial loading and subsequent updating of software, all on-board missile software is uploaded via the CLU after mating and prior to launch.
4. The missile is autonomously guided to the target using an imaging infrared seeker and adaptive correlation tracking algorithms. This allows the gunner to take cover or reload and engage another target after firing a missile. The missile contains an infrared seeker with a 64 x 64 element staring Mercury-Cadmium-Telluride (HgCdTE) Focal Plane Array (FPA) operating in the 8–10 micron wavelength. The missile has an advanced tandem warhead and can be used in either the top attack or direct fire modes (for targets undercover). An onboard flight computer guides the missile to the selected target. The missile is designed as a “wooden round” thus requiring no maintenance.
5. The Javelin Missile System hardware and the documentation are unclassified. The missile software which resides in the CLU is considered sensitive. The sensitivity is primarily in the software programs which instruct the system how to operate in the presence of countermeasures.
6. If a technologically advanced adversary were to obtain knowledge of the specific hardware and software elements, the information could be used to develop countermeasures that might reduce weapon system effectiveness or be used in the development of a system with similar or advanced capabilities.
Department of the Navy, DoD.
Notice.
Pursuant to Section 102(2)(c) of the National Environmental Policy Act (NEPA) of 1969, as implemented by the Council on Environmental Quality regulations (40 CFR parts 1500–1508), the Department of the Navy (DoN) announces its intent to prepare an Environmental Impact Statement (EIS) to evaluate the potential environmental consequences of the disposal and reuse of the former Naval Air Station Joint Reserve Base (NAS JRB) Willow Grove, Horsham, Pennsylvania, per Public Law 101–510, the Defense Base Closure and Realignment Act of 1990, as amended in 2005 (BRAC Law). Potential impacts associated with reuse of NAS JRB Willow Grove, including the change in land use and traffic patterns, will be evaluated and will contribute to the alternatives considered.
The DoN will conduct public scoping meetings in Horsham Township
1. Open House: Thursday, December 13, 2012, 4:00 p.m.–8:00 p.m.
2. Open House: Friday, December 14, 2012, 10:00 a.m.–2:00 p.m.
The previously announced public scoping meetings scheduled for October 29 and October 30, 2012 were cancelled due to Hurricane Sandy.
Director, BRAC Program Management Office Northeast, 4911 Broad Street, Building 679, Philadelphia, PA 19112–1303, telephone 215–897–4900, fax 215–897–4902, email:
The Base Closure and Realignment (BRAC) Commission was established by Public Law 101–510, the BRAC Law, to recommend military installations for realignment and closure. Recommendations of the 2005 BRAC Commission were included in a report presented to the President on September 8, 2005. The President approved and forwarded this report to Congress on September 16, 2005, which became effective as public law on November 9, 2005, and must be implemented in accordance with the requirements of the BRAC Law. In 2005, NAS JRB Willow Grove, PA was designated for closure under the authority of the Defense Base Closure and Realignment Act of 1990, Public Law 101–510, as amended (the Act). Pursuant to this designation, on January 8, 2010, land and facilities at this installation were declared excess to the DoN and made available to other DoD components and other Federal agencies. The DoN has evaluated all timely Federal requests and made a decision to close the former NAS JRB Willow Grove on September 15, 2011.
The proposed action for this EIS is to accommodate the BRAC 2005 law. The BRAC-directed action includes disposal and reuse of NAS JRB Willow Grove and its excess properties. Upon completion of the disposal, the property will be redeveloped in accordance with the Horsham Township Authority (HLRA) Redevelopment Plan.
The EIS will consider the alternatives that are reasonable to accomplish the proposed action. Alternatives to be considered include: (1) Disposal of the property by the DoN and reuse in accordance with the HLRA's Preferred Land Use Plan; (2) Disposal of the property by the DoN with a higher-density reuse scenario; (3) Disposal of the property by the DoN and reuse as an airport; and (4) No Action in which the DoN would retain the property in a caretaker status and no reuse or development would occur.
Alternative 1 would meet the requirements of the BRAC Law by allowing for the disposal and reuse of NAS JRB Willow Grove. Reuse would be conducted in accordance with the HLRA Plan. The Plan provides a mix of land uses based on existing conditions on the installation and in the community, guiding principles for development established by the HLRA, and public participation. It is anticipated that full build-out of the Plan would be implemented over a 20-year period. The Reuse Plan calls for the development of approximately 444 acres (52%) of the total base property. In addition, approximately 418 acres (48%) would be dedicated to a variety of active and passive land uses, including recreation, open space, and natural areas. The plan also incorporates elements based on smart-growth principles, including pedestrian-friendly transportation features (e.g., walkable neighborhoods, bike lanes, and compact development), open spaces, and a mix of land use types.
Alternative 2 would also meet the requirements of the BRAC Law by allowing for disposal and reuse of NAS JRB Willow Grove. This alternative features a higher density of residential and community mixed-use development. Similar to Alternative 1, this alternative includes a mix of land use types, preserves open space and natural areas, and incorporates elements based on smart-growth principles, including pedestrian-friendly transportation and compact development. It is anticipated that full build-out of the higher-density scenario would be implemented over a 20-year period. The higher density alternative calls for the development of approximately 576 acres (67%) of the total base property. In addition, approximately 280 acres (32%) of the base would be dedicated to a variety of active and passive land uses, including recreation, open space, and natural areas.
Alternative 3 would maintain and reuse the existing airfield for private aviation purposes. The plan reuses the existing airfield and its supporting infrastructure (i.e., taxiways, parking aprons and hangar facilities). After accounting for the area being reused for aviation purposes, the remaining land available for development would be approximately 380 acres. This would be developed in a mix of land use types and densities, and preserves open space and natural areas. New development would be airport related industry and businesses.
Alternative 4 is required by NEPA and is the No Action Alternative. Under this alternative, NAS JRB Willow Grove would be retained by the U.S. government in caretaker status. No reuse or redevelopment would occur at the facility.
The EIS will address potential direct, indirect, short-term, long-term, and cumulative impacts on the human and natural environments, including potential impacts on topography, geology and soils, water resources, biological resources, air quality, noise, infrastructure and utilities, traffic, cultural resources, land use, socioeconomics, environmental justice, and waste management. Known areas of concern associated with the BRAC action include impacts on socioeconomics due to loss of the military and civilian workforce, impacts on local traffic patterns resulting from reuse scenarios, and the clean-up of installation remediation sites.
The DoN is initiating the scoping process to identify community concerns and issues that should be addressed in the EIS. Agencies and the public are encouraged to provide written comments at scheduled public scoping meetings. Comments should clearly describe specific issues or topics that the EIS should address. Written comments must be postmarked or emailed by midnight December 31, 2012, and should be sent to: Director, BRAC Program Management Office Northeast, 4911 South Broad Street, Building 679, Philadelphia, PA 19112–1303, telephone 215–897–4900, fax 215–897–4902, email:
Requests for special assistance, sign language interpretation for the hearing impaired, language interpreters, or other auxiliary aids for scheduled public scoping meetings must be sent by mail or email by November 30, 2012, to Mr. Matt Butwin, Ecology and Environment, Inc., 348 Southport Circle, Suite 101, Virginia Beach, Virginia, 23452, telephone 757–456–5356, ext. 2811, email:
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 has received the following Natural Gas Pipeline Rate and Refund Report filings:
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.
Any person desiring to protest in any the above proceedings must file in accordance with Rule 211 of the Commission's Regulations (18 CFR 385.211) on or before 5:00 p.m. Eastern time on the specified comment date.
The filings are accessible in the Commission's eLibrary system by clicking on the links or querying the docket number.
eFiling is encouraged. More detailed information relating to filing requirements, interventions, protests, and service 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
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 November 15, 2012, pursuant to sections 306 and 309 of the Federal Power Act and Rule 206 of the Federal Energy Regulatory Commission's (Commission) Rules of Practice and Procedure, Marble River, LLC (Marble River or Complainant) filed a formal complaint against Noble Clinton Windpark I, LLC, Noble Ellenburg Windpark, LLC, Noble Chateaugay Windpark, LLC, (collectively, Noble or Respondent) and New York Independent System Operator, Inc. (NYISO or Respondent), alleging that Noble failed to pay Marble River for headroom created by common system upgrade facilities that benefit Noble and that were paid for by Marble River. The complaint also alleges that NYISO has failed to properly implement Attachment S of its Open Access Transmission Tariff, as more fully explained in the complaint.
The Complainant certifies that copies of the complaint were served on the contacts for each of the Respondents as listed on the Commission's list of Corporate Officials.
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 and 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. The Respondent's answer and all interventions, or protests must be filed on or before the comment date. The Respondent's answer, motions to intervene, and protests must be served on the Complainants.
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 on November 15, 2012, Henry W. Knueppel submitted for filing, an application for authority to hold interlocking positions, pursuant to section 305(b) of the Federal Power Act, 16 U.S.C. 825d(b) (2008), Part 45 of Title 18 of the Code of Federal Regulations, 18 CFR part 45(c)(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. On or before the comment date, it is not necessary to serve motions to intervene or protests on persons other than the Applicant.
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
On November 9, 2012, New York Independent System Operator, Inc. (NYISO) filed a motion requesting a 2-month extension of time (motion), until February 15, 2013, to submit its annual Installed Capacity Demand Curve Report. The report would otherwise be due December 20, 2012. NYISO
Notice is hereby given that NYISO has filed a motion requesting an extension of time to submit its annual report until February 15, 2013. Any Party wishing to respond to the motion may file an answer within 21 days from the date of the motion, or November 30, 2012.
Take notice that on November 15, 2012, pursuant to section 207(a)(2) and 212 of the Federal Energy Regulatory Commission's (Commission) Rules of Practice and Procedure, California Independent System Operator Corporation filed a petition requesting that the Commission issue a declaratory order to enforce the exercise of its authority and rights under its tariff to obtain reliability services under a Reliability Must-Run (“RMR”) agreement with AES Huntington Beach LLC.
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. On or before the comment date, it is not necessary to serve motions to intervene or protests on persons other than the Applicant.
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
The Federal Energy Regulatory Commission hereby gives notice that members of the Commission's staff may attend the following meetings related to the interregional transmission planning activities of the Southwest Power Pool (SPP):
The above-referenced meeting will be a teleconference.
The above-referenced meeting is open to the public.
Further information may be found at
The discussions at the meeting described above may address matters at issue in the following proceedings:
For more information, contact Luciano Lima, Office of Energy Markets Regulation, Federal Energy Regulatory Commission at (202) 288–6738 or
Section 309(a) of the Clean Air Act requires that EPA make public its comments on EISs issued by other Federal agencies. EPA's comment letters on EISs are available at:
As of October 1, 2012, EPA will not accept paper copies or CDs of EISs for filing purposes; all submissions on or after October 1, 2012 must be made through e-NEPA.
While this system eliminates the need to submit paper or CD copies to EPA to meet filing requirements, electronic submission does not change requirements for distribution of EISs for public review and comment. To begin using e-NEPA, you must first register
Environmental Protection Agency (EPA).
Notice.
The National Environmental Education Advisory Council will meet on December 13–14th, 2012 in Washington, DC. The focus of the meeting will be to convene the new members of the Council, form work groups and develop plans for the report to congress.
This is an open meeting and all interested persons are invited to attend. The Council will hear comments from the public between 4:30 p.m. and 5:00 p.m. on Thursday December 13th, 2012. Each individual or organization wishing to address the NEEAC meeting will be allowed a maximum of five minutes to present their point of view. Also, written comments should be submitted electronically to
The NEEAC meeting will be held at Ariel Rios North, Room 3530 located at 1201 Constitution Avenue NW., Washington, DC 20004.
The Council's meeting minutes and summary notes will be available online after the meeting, at
Javier Araujo, DFO for the National Environmental Education Advisory Council (NEEAC) at (202) 564–2642 or email at
Please contact Javier Araujo at (202) 564–2642 or email at:
Export-Import Bank of the United States .
Notice.
This Notice is to inform the public, in accordance with Section 3(c)(10) of the Charter of the Export-Import Bank of the United States (“Ex-Im Bank”), that Ex-Im Bank has received an application for final commitment for a long-term loan or financial guarantee in excess of $100 million (as calculated in accordance with Section 3(c)(10) of the Charter). Comments received within the comment period specified below will be presented to the Ex-Im Bank Board of Directors prior to final action on this Transaction.
To support the export of U.S. manufactured aircraft under operating lease from the United States to South Korea and China.
Brief non-proprietary description of the anticipated use of the items being exported:
To provide regional and domestic airline service from and within South Korea and China.
To the extent that Ex-Im Bank is reasonably aware, the item(s) being exported are not expected to produce exports or provide services in competition with the exportation of goods or provision of services by a United States industry.
Obligor: Air Lease Corporation.
Guarantor(s): N/A.
Description of Items Being Exported: Boeing 737 aircraft.
Comments must be received on or before December 18, 2012 to be assured of consideration before final consideration of the transaction by the Board of Directors of Ex-Im Bank.
Comments may be submitted through Regulations.gov at
Federal Deposit Insurance Corporation.
Notice of open meeting.
In accordance with the Federal Advisory Committee Act, 5 U.S.C. App. 2, notice is hereby given of a meeting of the FDIC Systemic Resolution Advisory Committee (the “SR Advisory Committee”), which will be held in Washington, DC. The SR Advisory Committee will provide advice and recommendations on a broad range of issues regarding the resolution of systemically important financial companies pursuant to Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111–203 (July 21, 2010), 12 U.S.C. 5301
Monday, December 10, 2012, from 8:45 a.m. to 3:00 p.m.
The meeting will be held in the FDIC Board Room on the sixth floor of the FDIC Building located at 550 17th Street NW., Washington, DC.
Requests for further information concerning the meeting may be directed to Mr. Robert E. Feldman, Committee Management Officer of the FDIC, at (202) 898–7043.
The Commission gives notice that the following applicants have filed an application for an Ocean Transportation Intermediary (OTI) license as a Non-Vessel-Operating Common Carrier (NVO) and/or Ocean Freight Forwarder (OFF) pursuant to section 19 of the Shipping Act of 1984 (46 U.S.C. 40101). Notice is also given of the filing of applications to amend an existing OTI license or the Qualifying Individual (QI) for a licensee.
Interested persons may contact the Office of Ocean Transportation Intermediaries, Federal Maritime Commission, Washington, DC 20573, by telephone at (202) 523–5843 or by email at
Dated: November 16, 2012.
By the Commission.
The Commission gives notice that the following Ocean Transportation Intermediary license has been revoked pursuant to section 19 of the Shipping Act of 1984 (46 U.S.C. 40101) effective on the date shown.
Department of Health and Human Services.
Notice.
This notice announces the recognition of the National Committee for Quality Assurance (NCQA) and URAC as recognized accrediting entities for the purposes of fulfilling the accreditation requirement as part of qualified health plan certification.
This notice is effective on November 20, 2012.
Section 1311(c)(1)(D) of the Affordable Care Act specifies that to be certified as a qualified health plan (QHP) and operate in the Exchange, a health plan must be accredited by a recognized accrediting entity on a uniform timeline established by the applicable Exchange. On July 20, 2012, we published a final rule in the
NCQA and URAC met the requirements and criteria described in the final rule to be recognized as an accrediting entity (77 FR 42662 through 42668). Therefore, this notice serves as public notification that NCQA and URAC are recognized by the Secretary of HHS
This document does not impose information collection and recordkeeping requirements. Consequently, it need not be reviewed by the Office of Management and Budget under the authority of the Paperwork Reduction Act of 1995.
Centers for Medicare & Medicaid Services (CMS), HHS.
Notice of meeting.
This notice announces a Town Hall meeting in accordance with section 1886(d)(5)(K)(viii) of the Social Security Act (the Act) to discuss fiscal year (FY) 2014 applications for add-on payments for new medical services and technologies under the hospital inpatient prospective payment system (IPPS). Interested parties are invited to this meeting to present their comments, recommendations, and data regarding whether the FY 2014 new medical services and technologies applications meet the substantial clinical improvement criterion.
In addition, we are providing two alternatives to attending the meeting in person—(1) there will be an open toll-free phone line to call into the Town Hall Meeting; or (2) participants may view and participate in the Town Hall Meeting via live stream technology and/or webinar. Information on these options are discussed in section II.B. of this notice.
Michael Treitel, (410) 786–4552,
Sections 1886(d)(5)(K) and (L) of the Social Security Act (the Act) require the Secretary to establish a process of identifying and ensuring adequate payments to acute care hospitals for new medical services and technologies under Medicare. Effective for discharges beginning on or after October 1, 2001, section 1886(d)(5)(K)(i) of the Act requires the Secretary to establish (after notice and opportunity for public comment) a mechanism to recognize the costs of new services and technologies under the hospital inpatient prospective payment system (IPPS). In addition, section 1886(d)(5)(K)(vi) of the Act specifies that a medical service or technology will be considered “new” if it meets criteria established by the Secretary (after notice and opportunity for public comment). (See the FY 2002 IPPS proposed rule (66 FR 22693, May 4, 2001) and final rule (66 FR 46912, September 7, 2001) for a more detailed discussion.)
In the September 7, 2001 final rule (66 FR 46914), we noted that we evaluated a request for special payment for a new medical service or technology against the following criteria in order to determine if the new technology meets the substantial clinical improvement requirement:
• The device offers a treatment option for a patient population unresponsive to, or ineligible for, currently available treatments.
• The device offers the ability to diagnose a medical condition in a patient population where that medical condition is currently undetectable or offers the ability to diagnose a medical condition earlier in a patient population than allowed by currently available methods. There must also be evidence that use of the device to make a diagnosis affects the management of the patient.
• Use of the device significantly improves clinical outcomes for a patient population as compared to currently available treatments. Some examples of outcomes that are frequently evaluated in studies of medical devices are the following:
++ Reduced mortality rate with use of the device.
++ Reduced rate of device-related complications.
++ Decreased rate of subsequent diagnostic or therapeutic interventions (for example, due to reduced rate of recurrence of the disease process).
++ Decreased number of future hospitalizations or physician visits.
++ More rapid beneficial resolution of the disease process treatment because of the use of the device.
++ Decreased pain, bleeding or other quantifiable symptoms.
++ Reduced recovery time.
In addition, we indicated that the requester is required to submit evidence that the technology meets one or more of these criteria.
Section 503 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) amended section 1886(d)(5)(K)(viii) of the Act to revise the process for evaluating new medical services and technology applications by requiring the Secretary to do the following:
• Provide for public input regarding whether a new service or technology represents an advance in medical technology that substantially improves the diagnosis or treatment of Medicare beneficiaries before publication of a proposed rule.
• Make public and periodically update a list of all the services and technologies for which an application is pending.
• Accept comments, recommendations, and data from the public regarding whether the service or technology represents a substantial improvement.
• Provide for a meeting at which organizations representing hospitals, physicians, manufacturers and any other interested party may present comments, recommendations, and data to the clinical staff of CMS as to whether the service or technology represents a substantial improvement before publication of a proposed rule.
The opinions and alternatives provided during this meeting will assist us as we evaluate the new medical
As noted in section I. of this notice, we are required to provide for a meeting at which organizations representing hospitals, physicians, manufacturers and any other interested party may present comments, recommendations, and data to the clinical staff of CMS concerning whether the service or technology represents a substantial clinical improvement. This meeting will allow for a discussion of the substantial clinical improvement criteria on each of the FY 2014 new medical services and technology add-on payment applications. Information regarding the applications can be found on our Web site at
The majority of the meeting will be reserved for presentations of comments, recommendations, and data from registered presenters. The time for each presenter's comments will be approximately 10 to 15 minutes and will be based on the number of registered presenters. Presenters will be scheduled to speak in the order in which they register and grouped by new technology applicant. Therefore, individuals who would like to present must register and submit their agenda item(s) via email to
In addition, written comments will also be accepted and presented at the meeting if they are received via email to
For participants who cannot attend the Town Hall Meeting in person, an open toll-free phone line, (877) 267–1577, has been made available. The conference code is “7702.”
Also, there will be an option to view and participate in the Town Hall Meeting via live streaming technology and/or a webinar. Information on the option to participate via live streaming technology and/or a webinar will be provided through an upcoming listserv notice and posted on the New Technology Web site at
The Division of Acute Care in CMS is coordinating the meeting registration for the Town Hall Meeting on substantial clinical improvement. While there is no registration fee, individuals planning to attend the Town Hall Meeting in person must register to attend.
Registration may be completed on-line at the following web address:
If you are unable to register on-line, you may register by sending an email to
Because these meetings will be located on Federal property, for security reasons, any persons wishing to attend these meetings must register by the date specified in the
Security measures include the following:
• Presentation of government-issued photographic identification to the Federal Protective Service or Guard Service personnel.
• Interior and exterior inspection of vehicles (this includes engine and trunk inspection) at the entrance to the grounds. Parking permits and instructions will be issued after the vehicle inspection.
• Passing through a metal detector and inspection of items brought into the building. We note that all items brought to CMS, whether personal or for the purpose of demonstration or to support a demonstration, are subject to inspection. We cannot assume responsibility for coordinating the receipt, transfer, transport, storage, set-up, safety, or timely arrival of any personal belongings or items used for demonstration or to support a demonstration.
All visitors must be escorted in areas other than the lower and first floor levels in the Central Building. Seating capacity is limited to the first 250 registrants.
Section 503 of Public Law 108–173.
The purpose of this form is to enable each State or Tribe to meet its statutory and regulatory requirement to report program expenditures made in the
The Administration for Children and Families provides Federal funding at the rate of 50 percent for nearly all allowable and legitimate administrative costs of these programs and at other funding rates for other specific categories of costs as detailed in Federal statute and regulations. The information collected in this report is used by this agency to calculate quarterly Federal grant awards and to enable oversight of the financial management of the programs.
Estimated Total Annual Burden Hours: 4,960.
In compliance with the requirements of Section 506(c)(2)(A) of the Paperwork Reduction Act of 1995, the Administration for Children and Families is soliciting public comment on the specific aspects of the information collection described above. Copies of the proposed collection of information can be obtained and comments may be forwarded by writing to the Administration for Children and Families, Office of Planning, Research and Evaluation, 370 L'Enfant Promenade SW., Washington, DC 20447, Attn: ACF Reports Clearance Officer. Email address:
The Department specifically requests comments on: (a) Whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information shall have practical utility; (b) the accuracy of the agency's estimate of the burden of the proposed collection of information; (c) the quality, utility, and clarity of the information to be collected; and (d) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology. Consideration will be given to comments and suggestions submitted within 60 days of this publication.
Food and Drug Administration, HHS.
Notice.
The Food and Drug Administration (FDA) is establishing a public docket for information pertaining to FDA's implementation of the provisions of the Food and Drug Administration Safety and Innovation Act (FDASIA) related to medical gases. This action is intended to ensure that information submitted to FDA on the implementation of the medical gas provisions of FDASIA is available to all interested persons in a timely fashion.
Submit electronic or written comments by November 25, 2013.
Submit electronic comments to
Patrick Raulerson, Center for Drug Evaluation and Research, Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 51, rm. 6368, Silver Spring, MD 20993–0002, 301–796–3522,
On July 9, 2012, President Obama signed into law FDASIA (Pub. L. 112–144, 126 Stat. 993). Title XI, Subtitle B, section 1111 of FDASIA added new sections 575, 576, and 577 to the Federal Food, Drug, and Cosmetic Act (the FD&C Act) regarding medical gases. Among other things, these new sections define the terms “designated medical gas” and “medical gas” and establish the process for the certification of a medical gas as a designated medical gas. (See sections 575(1) and (2) of the FD&C Act.) The sections describe the process for filing a request for certification and describe the information that should be included in the request for certification. (See section 576(a) of the FD&C Act.) Under section 576(a)(3) of the FD&C Act, if a certification is granted for a designated medical gas, the designated medical gas will be deemed to have in effect an approved new human drug application under section 505 (21 U.S.C. 355) or an approved new animal drug application under section 512 (21 U.S.C. 360b) of the FD&C Act for certain specified indications and subject to all applicable postapproval requirements. Under section 576(a)(1) of the FD&C Act, requests for certification may be submitted to FDA beginning 180 days after the enactment of FDASIA, or January 5, 2013.
FDA is establishing a public docket for information pertaining to FDA's implementation of these new medical gas provisions. This action is intended to ensure that information submitted to FDA on the implementation of the medical gas provisions of FDASIA is available to all interested persons in a timely fashion. The Compressed Gas
Interested persons may submit either written comments to the Division of Dockets Management (see
Food and Drug Administration, HHS.
Notice.
The Food and Drug Administration (FDA) is announcing the availability of a draft guidance for industry entitled “Vaginal Microbicides: Development for the Prevention of HIV Infection.” The purpose of this guidance is to assist sponsors in all phases of development of vaginal microbicides for the prevention of human immunodeficiency virus (HIV) infection. The guidance outlines the types of nonclinical studies and clinical trials recommended throughout the drug development process to support approval of vaginal microbicides.
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 February 21, 2013.
Submit written requests for single copies of the draft guidance to the Division of Drug Information, Center for Drug Evaluation and Research, Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 51, Rm. 2201, Silver Spring, MD 20993–0002. Send one self-addressed adhesive label to assist that office in processing your requests. See the
Submit electronic comments on the draft guidance to
Charu Mullick, Center for Drug Evaluation and Research, Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 22, Rm. 6365, Silver Spring, MD 20993–0002, 301–796–1500.
FDA is announcing the availability of a draft guidance for industry entitled “Vaginal Microbicides: Development for the Prevention of HIV Infection.” This guidance addresses nonclinical development, early phases of clinical development, phase 3 trial considerations, and safety considerations in vaginal microbicide development, including safety considerations in adolescent and pregnant populations. The guidance also provides some information on approaches for developing combination microbicide products such as drug-drug combinations, drug-device combinations containing a microbicide, or combination products containing a microbicide that are intended for multiple indications. With the recent approval of oral emtricitabine/tenofovir for HIV pre-exposure prophylaxis (PrEP), the effect of oral PrEP on microbicide trial designs is an emerging topic. The guidance discusses this issue; however, it should be noted the pertinent sections may be revised as FDA takes into consideration evolving opinions in the prevention field as well as public comments on this topic.
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 developing vaginal microbicides for preventing HIV transmission. 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 statutes and regulations.
This draft guidance refers to previously approved collections of information that are subject to review by the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501–3520). The collections of information in 21 CFR part 312 have been approved under OMB control number 0910–0014, and the collections of information referred to in the guidance for clinical trial sponsors entitled “Establishment and Operation of Clinical Trial Data Monitoring Committees” have been approved under OMB control number 0910–0581.
Interested persons may submit either written comments regarding the draft guidance to the Division of Dockets
Persons with access to the Internet may obtain the document at either
Food and Drug Administration, HHS.
Notice.
The Food and Drug Administration (FDA) is announcing the availability of the guidance entitled “The Content of Investigational Device Exemption (IDE) and Premarket Approval (PMA) Applications for Artificial Pancreas Device Systems.” FDA is issuing this guidance to inform industry and Agency staff of its recommendations for analytical and clinical performance studies to support premarket submissions for artificial pancreas systems.
Submit either electronic or written comments on this guidance at any time. General comments on Agency guidance documents are welcome at any time.
Submit written requests for single copies of the guidance document entitled “The Content of Investigational Device Exemption (IDE) and Premarket Approval (PMA) Applications for Artificial Pancreas Device Systems” to the Division of Small Manufacturers, International and Consumer Assistance, Center for Devices and Radiological Health, Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 66, rm. 4613, Silver Spring, MD 20993–0002. Send one self-addressed adhesive label to assist that office in processing your request, or fax your request to 301–847–8149. See the
Submit electronic comments on the guidance to
Stayce Beck, Center for Devices and Radiological Health, Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 66, Rm. 5609, Silver Spring, MD 20993, 301–796–6514.
Diabetes mellitus has reached epidemic proportions in the United States and, more recently, worldwide. The morbidity and mortality associated with diabetes is anticipated to account for a substantial proportion of health care expenditures. Although there are many devices available that help patients manage the disease, FDA recognizes the need for new and improved devices for treatment of diabetes. One of the more advanced diabetes management systems is an artificial pancreas device system. An artificial pancreas system is a type of autonomous system that adjusts insulin infusion based upon the continuous glucose monitor via a control algorithm. On June 22, 2011 (76 FR 36542), FDA announced the availability of the draft guidance document entitled “Draft Guidance for Industry and Food and Drug Administration Staff: The Content of Investigational Device Exemption (IDE) and Premarket Approval Applications (PMA) for Low Glucose Suspend (LGS) Device Systems.” On December 6, 2011 (76 FR 76166), FDA announced the availability of the draft guidance document entitled “The Content of Investigational Device Exemption (IDE) and Premarket Approval (PMA) Applications for Artificial Pancreas Device Systems.” Ninety-seven sets of comments were received in total for both guidance documents. In response to comments, FDA made clarifying edits in several sections. Based on the similarities between the two draft guidance documents and the comments received, these two documents have been combined into one guidance document, which provides industry and Agency staff with recommendations for developing premarket submissions for artificial pancreas device systems (APDS) and is the subject of this
Artificial pancreas device systems are class III devices and require the submission of a PMA. All components of the APDS (insulin pump, continuous glucose monitoring system, blood glucose device, and control algorithm and signal processing functional component) are considered essential components of the system and will be regulated as class III devices when used as part of an APDS. As such, all information sufficient for approval of the components as part of the system should be provided in the PMA submission (e.g., manufacturing information, specifications, etc.).
This guidance is being issued consistent with FDA's good guidance practices regulation (21 CFR 10.115). The guidance represents the Agency's current thinking on the content of IDE and PMA applications for artificial pancreas device systems. 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 guidance may do so by using the Internet. A search capability for all CDRH guidance documents is available at
This guidance refers to currently approved collections of information found in FDA regulations and guidance documents. These collection 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 54.4 are approved under OMB control number 0910–0396; the collections of information in 21 CFR 56.115 are approved under OMB control number 0910–0130; the collections of information in 21 CFR parts 801 and 809 are approved under OMB control number 0910–0485; the collections of information in 21 CFR part 812 are approved under OMB control number 0910–0078; and the collections of information in 21 CFR part 814 are approved under OMB control number 0910–0231; the collections of information in 21 CFR part 820 are approved under OMB control number 0910–0073.
Interested persons may submit either written comments regarding this document to the Division of Dockets Management (see
In accordance with section 10(a)(2) of the Federal Advisory Committee Act (Pub. L. 92–463), notice is hereby given of the following meeting:
Individuals who plan to participate on the webinar should register at least one day prior to the meeting, using the following webinar information:
Requests to make oral comments or provide written comments to the ACICBL should be sent to Dr. Joan Weiss, Designated Federal Official, at least 3 days prior to the meeting using the address and phone number below. Individuals who plan to participate on the conference call or webinar should notify Dr. Weiss at least 3 days prior to the meeting, using the address and phone number below. Members of the public will have the opportunity to provide comments. Interested parties should refer to meeting subject as the HRSA Advisory Committee on Interdisciplinary, Community-Based Linkages.
Anyone requesting information regarding the ACICBL should contact Dr. Joan Weiss, Designated Federal Official within the Bureau of Health Professions, Health Resources and Services Administration, in one of three ways: (1) Send a request to the following address: Dr. Joan Weiss, Designated Federal Official, Bureau of Health Professions, Health Resources and Services Administration, Parklawn Building, Room 9C–05, 5600 Fishers Lane, Rockville, Maryland 20857; (2) call (301) 443–6950; or (3) email
In accordance with section 10(a)(2) of the Federal Advisory Committee Act (Pub. L. 92–463), notice is hereby given of the following meeting:
The ACCV will meet on Thursday, December 6, 2012, from 1:00 p.m. to 4:45 p.m. (EDT). The public can join the meeting via audio conference call by dialing 1–800–369–3104 on December 6 and providing the following information:
Notice is hereby given of a change in the meeting of the Center for Scientific Review Special Emphasis Panel, December 3, 2012, 8:30 a.m. to December 4, 2012, 5:00 p.m., which was published in the
The meeting will be held November 27–28, 2012 at 8:30 a.m. and will end at 5:00 p.m. The meeting location remains the same. The meeting is closed to the public.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. Appendix 2); 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 purpose of this meeting is to evaluate requests for preclinical development resources for potential new therapeutics for the treatment of cancer. The outcome of the evaluation will provide information to internal NCI committees that will decide whether NCI should support requests and make available contract resources for development of the potential therapeutic to improve the treatment of various forms of cancer. The research proposals and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the proposed research projects, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Joseph Tomaszewski, Ph.D., Executive Secretary, Development Experimental Therapeutics Program, National Cancer Institute, NIH, 31 Center Drive, Room 3A44, Bethesda, MD 20892, (301) 496–6711,
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. Appendix 2); 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 purpose of this meeting is to evaluate requests for preclinical development resources for potential new therapeutics for the treatment of cancer. The outcome of the evaluation will provide information to internal NCI committees that will decide whether NCI should support requests and make available contract resources for development of the potential therapeutic to improve the treatment of various forms of cancer. The research proposals and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the proposed research projects, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Joseph Tomaszewski, Ph.D. Executive Secretary, Development Experimental Therapeutics Program, National Cancer Institute, NIH, 31 Center Drive, Room 3A44, Bethesda, MD 20892, (301) 496–6711,
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.
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.
Notice is hereby given of a change in the meeting of the National Cancer Institute Special Emphasis Panel, October 30, 2012, 8:00 a.m. to October 30, 2012, 5:00 p.m., National Institutes of Health, 6120 Executive Blvd., Rockville, MD 20852 which was published in the
This notice is being amended to change the location, date and time to 6116 Executive Boulevard, Room 707, Rockville, MD 20852, November 30, 2012, 9:00 a.m.–4:00 p.m. Additionally the meeting is being held as a teleconference. The meeting is closed to the public.
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.
Coast Guard, DHS.
Notice of recommended interim voluntary guidance with request for comments.
As part of its continuing response to the explosion, fire and sinking of the Mobile Offshore Drilling Unit (MODU)
The policy on recommended guidance described in this notice is effective November 23, 2012. Comments and related materials must reach the Docket Management Facility by February 21, 2013.
You may submit comments identified by docket number USCG–2012–0848 using any one of the following methods. To avoid duplication, please use only one of these four methods:
(1)
(2)
(3)
(4)
To avoid duplication, please use only one of these four methods. See the “Public Participation” portion of the
Documents mentioned as being available in the docket are part of docket USCG–2012–0848 and are available for inspection or copying at the Docket Management Facility (M–30), U.S. Department of Transportation, West Building Ground Floor, Room W12–140, 1200 New Jersey Avenue SE., Washington, DC 20590, between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. You may also find this docket on the Internet by going to
If you have questions on this notice, call or email Mr. Randall Eberly, U.S. Coast Guard, Office of Design and Engineering Standards, Lifesaving and Fire Safety Division (CG–ENG–4), telephone (202) 372–1393, email
You may submit comments and related material regarding whether this recommended interim voluntary guidance should be incorporated into future rulemaking documents concerning lifesaving and fire-fighting equipment, training and drills on board offshore facilities and MODUs operating on the U.S. Outer Continental Shelf. All comments received will be posted, without change, to
If you submit a comment, please include the docket number for this notice (USCG–2012–0848) and provide a reason for each suggestion or recommendation. You may submit your comments and material online or by fax, mail or hand delivery, but please use only one of these means. We recommend that you include your name and a mailing address, an email address, or a telephone number in the body of your document so that we can contact you if we have questions regarding your submission.
To submit your comment online, go to
To view comments, as well as documents mentioned in this notice as being available in the docket, go to
Anyone can search the electronic form of 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 a Privacy Act system of records notice regarding our public dockets in the January 17, 2008, issue of the
The Report of Investigation into the Circumstances Surrounding the Explosion, Fire, Sinking and Loss of Eleven Crew Members Aboard the Mobile Offshore Drilling Unit
The Report recommended that a fixed deluge system or multiple high capacity water monitors should be installed for the protection of the drill floor and adjacent areas, with consideration given to requiring automatic operation upon gas detection.
We are considering proposing requirements for installation of such systems, since it is believed that, in some circumstances, early employment of a deluge or monitor spray system during a drilling mishap could serve to prevent or delay ignition of an uncontrolled release of product and/or mitigate the effects of ignition.
As an interim measure, we recommend that operators of MODUs and manned offshore facilities should consider installation of fixed water spray systems for the protection of critical drill floor equipment, structural components and intervening fire barriers. A minimum water application rate of at least 0.50 gpm/ft
The Report recommended that the Commandant work to amend the International Maritime Organization (IMO) Life-Saving Appliance Code (LSA Code) and its associated testing recommendations to ensure the adequacy of lifesaving appliance standards. In particular, the minimum average occupant weight of 165 or 181.5 lbs presently used to determine the carrying capacity of lifeboats is not considered representative of the weight of average offshore workers on the U.S. OCS, and thus lifeboat embarkation and evacuation could be hampered in an emergency due to occupant size.
We believe the existing requirements in the LSA Code, and associated Coast Guard type approval standards, are adequate for most shipboard applications subject to IMO requirements. Nevertheless, they are minimums. The number of requests the Coast Guard has received from offshore operators for approval of lifeboats designed to accommodate offshore workers larger than the average population is consistent with the Report's conclusion that current lifeboat design and testing requirements are not adequate for the physical build of the average offshore worker today. The Coast Guard is therefore considering proposing requirements for higher average occupant weight and size standards specifically for lifeboats used on MODUs and offshore facilities.
We recommend that operators of MODUs and manned offshore facilities should consider specifying any new or replacement lifeboats on the basis of an occupant average weight of at least 95 kg (210 lbs) per person (versus the current standard of 82.5 kg (181.5 lbs)), with a minimum seat width of 530 mm (21 inches) (versus the current standard of 430 mm (17 inches)). A number of Coast Guard approved SOLAS lifeboats have already been approved to this standard by request of the customer(s), and are currently available for use on OCS facilities.
The Report recommended that the Commandant clarify 46 CFR 109.213(g)(5), which requires that onboard training in the use of davit-launched liferafts must take place at intervals of not more than 4 months, and that “whenever practicable”, this must include the inflation and lowering of a liferaft. The regulations permit the inflation and lowering of a davit launched liferaft to be performed only “whenever practicable” because an operational raft would need to be taken out of service to perform the drill, and would remain out of service until inspected and repacked by an approved servicing facility ashore. It was anticipated that the requirement to deploy the rafts “whenever practicable” would encourage scheduling drills to coordinate with the required periodic servicing of the facility's liferafts, to avoid having them repeatedly sent for servicing. However, the current requirement to inflate and deploy a liferaft “whenever practicable” also potentially allows for indefinite deferral of this important training.
To promote hands-on familiarity with davit-launched liferaft operations, the Coast Guard is considering proposing requirements for drills to include the inflation and lowering of a davit-launched liferaft at specified intervals.
In the interim, we recommend that operators of MODUs and manned offshore facilities fitted with davit-launched liferafts should consider the carriage of a dedicated training liferaft (which need not be serviced at an authorized facility after it is used in drills) for the crew to practice the necessary steps for successful deployment, including inflation of the raft, connection to the launching appliance, lowering, and recovery of the liferaft.
Alternatively, when the liferafts onboard the MODU or facility become due for required periodic servicing, the crew should be permitted to deploy them during drills, prior to being sent to a shoreside approved facility for servicing and repacking.
The Report recommended that the Commandant work with IMO to amend the Code for the Construction and Equipment of Mobile Offshore Drilling Units (MODU Code) to prohibit the dual purpose acceptance of life boats as rescue boats on MODUs.
The Coast Guard believes totally enclosed lifeboats are not well suited for use as rescue boats on MODUs and offshore facilities, and is considering changing the regulations that permit this practice. When a dual purpose life/rescue boat is fully loaded and being used as a survival craft, it is not available for use as a rescue boat, and vice versa. Rescue boats are primarily intended to marshal liferafts, and for man overboard situations. In order to carry out this mission, they are fitted with special launching and retrieval appliances that allow their recovery onboard in harsh weather and sea conditions. Dual purpose lifeboats do not have similar launching and retrieval capability, and on MODUs and offshore facilities, lifeboats can be difficult or impossible to safely recover in anything but the most benign conditions due to the large air gap and the lack of a ship's side to potentially provide a lee.
Until new regulations are proposed, we recommend that operators of new MODUs and manned offshore facilities should provide a dedicated approved SOLAS rescue boat (USCG approval series 160.156 or equivalent) and dedicated approved launching
For MODUs or facilities with a large air gap, operators should consider the improved launching and recovery capabilities of an approved fast rescue boat with a dedicated fast rescue boat launching appliance (which is equipped with motion damping and a constant tensioning winch).
The Report recommended the Commandant amend 46 CFR 109.213 to require performance of a man overboard drill on at least a quarterly basis.
We agree that 46 CFR 109.213, as well as the relevant OCS Activities regulations in 33 CFR Subchapter N, should include a quarterly man overboard drill, and are considering proposing regulation changes for this purpose.
Until new requirements are proposed, the Coast Guard urges operators of all MODUs and manned offshore facilities on the U.S. OCS to consider performing a man overboard drill on at least a quarterly basis, including deployment of a rescue boat, where provided, to simulate the recovery of a person from the water.
This document is issued under the authority of 5 U.S.C. 552(a), 43 U.S.C. 1331,
Coast Guard, DHS.
Notice and request for comments.
In accordance with Coast Guard regulations in 33 CFR 127.007, Oil Tanking North America has submitted a Letter of Intent and Waterway Suitability Assessment to the Coast Guard Captain of the Port, Sector Houston-Galveston regarding the company's proposed expansion of its Liquefied Hazardous Gas (LHG) facilities in Houston and Texas City, Texas, and increased LHG marine traffic in the associated waterway. The Coast Guard is notifying the public of this action to solicit public comments on the proposed increase in LHG marine traffic in Houston and Texas City, Texas.
Comments and related material must be received on or before December 24, 2012.
You may submit comments identified by docket number USCG–2012–0640 using any one of the following methods:
(1)
(2)
(3)
To avoid duplication, please use only one of these three methods. See the “Public Participation and Request for Comments” portion of the
If you have questions on this notice, call or email LCDR Xochitl Castaneda, U.S. Coast Guard; telephone 713–671–5164, email
We encourage you to submit comments and related material in response to this notice. All comments received will be posted without change to
If you submit a comment, please include the docket number for this notice (USCG–2012–0640), and provide a reason for each suggestion or recommendation. You may submit your comments and material online at
To submit your comment online, go to
If you submit your comments by mail or hand delivery, submit them in an unbound format, no larger than 8
To view comments, go to
Anyone can search the electronic form of 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 a Privacy Act notice regarding our public dockets in the January 17, 2008, issue of the
We do not now plan to hold a public meeting, but you may submit a request for one, using one of the methods specified under
Under 33 CFR 127.007(a), an owner or operator planning new construction to expand or modify marine terminal operations in an existing facility handling Liquefied Natural Gas (LNG) or Liquefied Hazardous Gas (LHG), where the construction, expansion, or modification would result in an increase in the size and/or frequency of LNG or LHG marine traffic on the waterway associated with the facility, must submit a Letter of Intent (LOI) to the COTP of the zone in which the facility is located. Under 33 CFR 127.007(e), an owner or operator planning such an expansion must also file or update a Waterway Suitability Assessment (WSA) that addresses the proposed increase in LNG or LHG marine traffic in the associated waterway. Oil Tanking North America submitted an LOI on May 12, 2011 and a WSA on April 24, 2012 regarding the company's proposed expansion of its LHG facilities in Houston and Texas City, Texas.
Under 33 CFR 127.009, after receiving an LOI, the COTP issues a Letter of Recommendation (LOR) as to the suitability of the waterway for LNG or LHG marine traffic to the appropriate jurisdictional authorities. The LOR is based on a series of factors outlined in 33 CFR 127.009 that relate to the physical nature of the affected waterway and issues of safety and security associated with LNG or LHG marine traffic on the affected waterway.
The purpose of this notice is to solicit public comments on the proposed increase in LHG marine traffic in Houston and Texas City, Texas. The Coast Guard believes that input from the public may be useful to the COTP with respect to development of the LOR. Additionally, the Coast Guard tasked the Area Maritime Security Committee, Houston-Galveston, Texas, with forming a subcommittee comprised of affected port users and stakeholders, including appropriate members of the Harbor Safety Committee. The goal of the subcommittee will be to gather information to help the COTP assess the suitability of the associated waterway for increased LHG marine traffic as it relates to navigational safety and security.
On January 24, 2011, the Coast Guard published Navigation and Vessel Inspection Circular (NVIC) 01–2011, “Guidance Related to Waterfront Liquefied Natural Gas (LNG) Facilities.” NVIC 01–2011 provides guidance for owners and operators seeking approval to build and operate LNG facilities. While NVIC 01–2011 is specific to LNG, it provides useful process information and guidance for owners and operators seeking approval to build and operate LHG facilities as well. The Coast Guard will refer to NVIC 01–2011 for process information and guidance in evaluating Oil Tanking North America's WSA. A copy of NVIC 01–2011 is available for viewing in the public docket for this notice and also on the Coast Guard's Web site at
This notice is issued under the authority of 33 U.S.C. 1223–1225, Department of Homeland Security Delegation Number 0170.1(70), 33 CFR 127.009, and 33 CFR 103.205.
Office of the Chief Information Officer, HUD.
Notice.
The proposed information collection requirement described below has been submitted to the Office of Management and Budget (OMB) for review, as required by the Paperwork Reduction Act. The Department is soliciting public comments on the subject proposal.
Section 516 of the Quality Housing and Work Responsibility Act of 1998 (QHWRA) (Pub. L. 105–276, October 21, 1998) added Section 30, Public Housing Mortgages and Security Interest, to the United States Housing Act of 1937 (1937 Act) (42 U.S.C. 1437z–2). Section 30 authorizes the Secretary of the Department of Housing and Urban Development (HUD) to approve a Housing Authority's (HA) request to mortgage public housing real property or grant a security interest in other tangible forms of personal property if the proceeds of the loan resulting from the mortgage or security interest are used for low-income housing uses. Public Housing Agencies (PHAs) must provide information to HUD for approval to allow PHAs to grant a mortgage in public housing real estate or a security interest in some tangible form of personal property owned by the PHA for the purposes of securing loans or other financing for modernization or development of low-income housing. The title of the information collection has been changed to be more clearly descriptive of the range of transactions that would be reviewed under this collection for compliance with Section 30. There are several circumstances other than a mixed finance transaction that would potentially trigger this collection. For example, most recently Energy Performance Contract (EPC) transactions that provide for a security interest in energy improvements have been reviewed for approval under Section 30.
Interested persons are invited to submit comments regarding this proposal. Comments should refer to the proposal by name and/or OMB approval Number (2577–0265) and should be sent to: HUD Desk Officer, Office of Management and Budget, New Executive Office Building, Washington, DC 20503; fax: 202–395–5806. Email:
Colette Pollard., Reports Management Officer, QDAM, Department of Housing and Urban Development, 451 Seventh Street SW., Washington, DC 20410; email Colette Pollard at
This notice informs the public that the
This notice also lists the following information:
Section 3507 of the Paperwork Reduction Act of 1995, 44 U.S.C. 35, as amended
Office of the Chief Information Officer, HUD.
Notice.
The proposed information collection requirement described below has been submitted to the Office of Management and Budget (OMB) for review, as required by the Paperwork Reduction Act. The Department is soliciting public comments on the subject proposal.
This information is necessary to ensure that responsible individuals and organizations participate in HUD's multifamily housing programs. The information will be used to evaluate participants' previous participation in government programs and ensure that the past record is acceptable prior to granting approval to participate in HUD's multifamily housing programs. The collection of this information is designed to be 100 percent automated and digital submission of all data and certifications is available via HUD's secure Internet systems. However HUD will provide for both electronic and paper submissions until it publishes revised regulations.
Interested persons are invited to submit comments regarding this proposal. Comments should refer to the proposal by name and/or OMB approval Number (2502–0118) and should be sent to: HUD Desk Officer, Office of Management and Budget, New Executive Office Building, Washington, DC 20503; fax: 202–395–5806. Email:
Colette Pollard., Reports Management Officer, QDAM, Department of Housing and Urban Development, 451 Seventh Street SW., Washington, DC 20410; email Colette Pollard at
This notice informs the public that the Department of Housing and Urban Development has submitted to OMB a request for approval of the Information collection described below. This notice is soliciting comments from members of the public and affecting agencies concerning the proposed collection of information to: (1) 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; (2) Evaluate the accuracy of the agency's estimate of the burden of the proposed collection of information; (3) Enhance the quality, utility, and clarity of the information to be collected; and (4) Minimize the burden of the collection of information on those who are to respond; including through the use of appropriate automated collection techniques or other forms of information technology, e.g., permitting electronic submission of responses.
This notice also lists the following information:
Section 3507 of the Paperwork Reduction Act of 1995, 44 U.S.C. 35, as amended.
Office of the Chief Information Officer, HUD.
Notice.
The proposed information collection requirement described below has been submitted to the Office of Management and Budget (OMB) for review, as required by the Paperwork Reduction Act. The Department is soliciting public comments on the subject proposal.
The Mark to Market Program is authorized under the Multifamily Assisted Housing Reform and Affordability Act of 1997 as extended by the Market to Market Extension Act of 2001. The information collection is required and will be used to determine the eligibility of FHA insured multifamily properties for participation in the Mark to Market program and the terms on which such participation should occur as well as to process eligible properties from acceptance into the program through closing of the mortgage restructure in accordance with program guidelines. The result of participation in the program is the refinancing and restructure of the property's FHA insured mortgage and, generally the reduction of Section 8 rent payments and establishment of adequately funded accounts to fund required repair and rehabilitation of the property. Agency form numbers, if applicable: Operating Procedures Guide (OPG) Forms: Accommodation Agreement—Debt Assgn—TPA Post Restr (Form/Apdx C), Accommodation Agreement—Debt Forgiveness—TPA Post Restr (Form/Apdx C), Agreement of Assignment of Debt to QNP (Form/ApdxC), Allonge—Debt Assignment From QNP (Form/Apdx C), Allonge—Debt Assignment to QNP (Form/Apdx C), Assignment of Debt from QNP (Form/Apdx C), Assumption & Modification of Use Agmt (Assignment) (Form/Apdx C), Assumption and Modification of Use Agreement—Forgiveness (Form/Apdx C), OPG 11.1, OPG 3.1, OPG 3.2, OPG 3.3, OPG 3.4, OPG 4.10, OPG 4.11, OPG 4.12, OPG 4.2, OPG 4.3, OPG 4.4, OPG 4.7, OPG 4.8, OPG 5.4, OPG 5.5, OPG 7.11, OPG 7.12, OPG 7.13, OPG 7.14, OPG 7.21, OPG 7.22, OPG 7.23, OPG 7.25, OPG 7.4, OPG 7.8.
Interested persons are invited to submit comments regarding this proposal. Comments should refer to the proposal by name and/or OMB approval Number (2502–0533) and should be sent to: HUD Desk Officer, Office of Management and Budget, New Executive Office Building, Washington, DC 20503; fax: 202–395–5806. Email:
Colette Pollard., Reports Management Officer, QDAM, Department of Housing and Urban Development, 451 Seventh Street SW., Washington, DC 20410; email Colette Pollard at
This notice informs the public that the Department of Housing and Urban Development has submitted to OMB a request for approval of the Information collection described below. This notice is soliciting comments from members of the public and affecting agencies concerning the proposed collection of information to: (1) 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; (2) Evaluate the accuracy of the agency's estimate of the burden of the proposed collection of information; (3) Enhance the quality, utility, and clarity of the information to be collected; and (4) Minimize the burden of the collection of information on those who are to respond; including through the use of appropriate automated collection techniques or other forms of information technology, e.g., permitting electronic submission of responses.
This notice also lists the following information:
Section 3507 of the Paperwork Reduction Act of 1995, 44 U.S.C. 35, as amended.
Office of the Chief Information Officer, HUD.
Notice.
The proposed information collection requirement described below has been submitted to the Office of Management and Budget (OMB) for review, as required by the Paperwork Reduction Act. The Department is soliciting public comments on the subject proposal.
This information will be used to ensure that HUD multifamily housing properties are not placed in physical, financial, or managerial jeopardy during a transfer of physical assets.
Interested persons are invited to submit comments regarding this proposal. Comments should refer to the proposal by name and/or OMB approval Number (2502–0275) and should be sent to: HUD Desk Officer, Office of Management and Budget, New Executive Office Building, Washington, DC 20503; fax: 202–395–5806. Email:
Colette Pollard, Reports Management Officer, QDAM, Department of Housing and Urban Development, 451 Seventh Street SW., Washington, DC 20410; email Colette Pollard at
This notice informs the public that the Department of Housing and Urban Development has submitted to OMB a request for approval of the Information collection described below. This notice is soliciting comments from members of the public and affecting agencies concerning the proposed collection of information to: (1) 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; (2) Evaluate the accuracy of the agency's estimate of the burden of the proposed collection of information; (3) Enhance the quality, utility, and clarity of the information to be collected; and (4) Minimize the burden of the collection of information on those who are to respond; including through the use of appropriate automated collection techniques or other forms of information technology, e.g., permitting electronic submission of responses.
This notice also lists the following information:
Section 3507 of the Paperwork Reduction Act of 1995, 44 U.S.C. 35, as amended.
Office of the Chief Information Officer, HUD.
Notice.
The proposed information collection requirement described below has been submitted to the Office of Management and Budget (OMB) for review, as required by the Paperwork Reduction Act. The Department is soliciting public comments on the subject proposal.
Requirements for notification of leadbased paint hazard in federally-owned residential properties and housing receiving Federal assistance, as codified in 24 CFR part 35.
Interested persons are invited to submit comments regarding this proposal. Comments should refer to the proposal by name and/or OMB approval Number (2539–0009) and should be sent to: HUD Desk Officer, Office of Management and Budget, New Executive Office Building, Washington, DC 20503; fax: 202–395–5806. Email:
Colette Pollard, Reports Management Officer, QDAM, Department of Housing and Urban Development, 451 Seventh Street SW., Washington, DC 20410; email Colette Pollard at
This notice informs the public that the Department of Housing and Urban Development has submitted to OMB a request for approval of the Information collection described below. This notice is soliciting comments from members of the public and affecting agencies concerning the proposed collection of information to: (1) 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; (2) Evaluate the accuracy of the agency's estimate of the burden of the proposed collection of information; (3) Enhance the quality, utility, and clarity of the information to be collected; and (4) Minimize the burden of the collection of information on those who are to respond; including through the use of appropriate automated collection techniques or other forms of information technology, e.g., permitting electronic submission of responses.
This notice also lists the following information:
Section 3507 of the Paperwork Reduction Act of 1995, 44 U.S.C. 35, as amended.
Office of the Assistant Secretary for Community Planning and Development, HUD.
Notice.
This Notice identifies unutilized, underutilized, excess, and surplus Federal property reviewed by HUD for suitability for possible use to assist the homeless.
Juanita Perry, Department of Housing and Urban Development, 451 Seventh Street SW., Room 7262, Washington, DC 20410; telephone (202) 402–3970; TTY number for the hearing- and speech-impaired (202) 708–2565, (these telephone numbers are not toll-free), or call the toll-free Title V information line at 800–927–7588.
In accordance with the December 12, 1988 court order in
Office of the Assistant Secretary for Housing—Federal Housing Commissioner, HUD.
Notice of sale of mortgage loans.
This notice announces HUD's intention to sell certain unsubsidized multifamily and healthcare mortgage loans, without Federal Housing Administration (FHA) insurance, in a competitive, sealed bid sale (MHLS 2013–1). This notice also describes generally the bidding process for the sale and certain persons who are ineligible to bid.
The Bidder's Information Package (BIP) was made available to qualified bidders on or about November 14, 2012. Bids for the loans must be submitted on the bid date of December 12, 2012. HUD anticipates that awards will be made on or before December 13, 2012. Closings are expected to take place between December 18 and December 21, 2012.
To become a qualified bidder and receive the BIP, prospective bidders must complete, execute, and submit a Confidentiality Agreement and a Qualification Statement acceptable to HUD. Both documents will be available on the HUD Web site at
John Lucey, Deputy Director, Asset Sales Office, Room 3136, U.S. Department of Housing and Urban Development, 451 7th Street SW., Washington, DC 20410–8000; telephone 202–708–2625, extension 3927. Hearing- or speech-impaired individuals may call 202–708–4594 (TTY). These are not toll-free numbers.
HUD announces its intention to sell in MHLS 2013–1 certain unsubsidized mortgage loans (Mortgage Loans) secured by multifamily and healthcare properties located throughout the United States. The Mortgage Loans are comprised of non-performing mortgage loans. A final listing of the Mortgage Loans will be included in the BIP. The Mortgage Loans will be sold without FHA insurance and with servicing released. HUD will offer qualified bidders an opportunity to bid competitively on the Mortgage Loans.
The Mortgage Loans may be stratified for bidding purposes into several mortgage loan pools. Each pool may contain Mortgage Loans that generally have similar performance, property type, geographic location, lien position and other characteristics. Qualified bidders may submit bids on one or more pools of Mortgage Loans or may bid on individual loans. A mortgagor who is a qualified bidder may submit an individual bid on its own Mortgage Loan. Interested Mortgagors should review the Qualification Statement to determine whether they may also be eligible to qualify to submit bids on one or more pools of Mortgage Loans or on individual loans in MHLS 2013–1.
The BIP will describe in detail the procedure for bidding in MHLS 2013–1. The BIP will also include a standardized non-negotiable loan sale agreement (Loan Sale Agreement).
As part of its bid, each bidder must submit a deposit equal to the greater of $100,000 or 10% of the bid price. In the event that the bidder's aggregate bid is less than $100,000, the minimum deposit shall be not less than fifty percent (50%) of the bidder's aggregate bid. HUD will evaluate the bids submitted and determine the successful bids in its sole and absolute discretion. If a bidder is successful, the bidder's deposit will be non-refundable and will be applied toward the purchase price. Deposits will be returned to unsuccessful bidders. Closings are expected to take place between December 18 and December 21, 2012.
These are the essential terms of sale. The Loan Sale Agreement, which will be included in the BIP, will contain additional terms and details. To ensure a competitive bidding process, the terms of the bidding process and the Loan Sale Agreement are not subject to negotiation.
The BIP will describe the due diligence process for reviewing loan files in MHLS 2013–1. Qualified bidders will be able to access loan information remotely via a high-speed Internet connection. Further information on performing due diligence review of the Mortgage Loans will be provided in the BIP.
HUD reserves the right to add Mortgage Loans to or delete Mortgage Loans from MHLS 2013–1 at any time prior to the Award Date. HUD also reserves the right to reject any and all bids, in whole or in part, without prejudice to HUD's right to include any Mortgage Loans in a later sale. Mortgage Loans will not be withdrawn after the Award Date except as is specifically provided in the Loan Sale Agreement.
This is a sale of unsubsidized mortgage loans, pursuant to Section 204(a) of the Departments of Veterans Affairs and Housing and Urban Development, and Independent Agencies Appropriations Act of 1997, 12 U.S.C. 1715z–11a(a).
HUD selected a competitive sale as the method to sell the Mortgage Loans. This method of sale optimizes HUD's return on the sale of these Mortgage Loans, affords the greatest opportunity for all qualified bidders to bid on the Mortgage Loans, and provides the quickest and most efficient vehicle for HUD to dispose of the Mortgage Loans.
In order to bid in the sale, a prospective bidder must complete, execute and submit both a Confidentiality Agreement and a Qualification Statement acceptable to HUD. The following individuals and entities are ineligible to bid on any of the Mortgage Loans included in MHLS 2013–1:
1. Any employee of HUD, a member of such employee's household, or an entity owned or controlled by any such employee or member of such an employee's household;
2. Any individual or entity that is debarred, suspended, or excluded from doing business with HUD pursuant to Title 24 of the Code of Federal Regulations, Part 24, and Title 2 of the Code of Federal Regulations, Part 24;
3. Any contractor, subcontractor and/or consultant or advisor (including any agent, employee, partner, director, principal or affiliate of any of the foregoing) who performed services for, or on behalf of, HUD in connection with MHLS 2013–1;
4. Any individual who was a principal, partner, director, agent or employee of any entity or individual described in subparagraph 3 above, at any time during which the entity or individual performed services for or on behalf of HUD in connection with MHLS 2013–1;
5. Any individual or entity that uses the services, directly or indirectly, of any person or entity ineligible under subparagraphs 1 through 4 above to assist in preparing any of its bids on the Mortgage Loans;
6. Any individual or entity which employs or uses the services of an employee of HUD (other than in such employee's official capacity) who is involved in MHLS 2013–1;
7. Any affiliate, principal or employee of any person or entity that, within the two-year period prior to November 1, 2012, serviced any of the Mortgage
8. Any contractor or subcontractor to HUD that otherwise had access to information concerning the Mortgage Loans on behalf of HUD or provided services to any person or entity which, within the two-year period prior to November 1, 2012, had access to information with respect to the Mortgage Loans on behalf of HUD;
9. Any employee, officer, director or any other person that provides or will provide services to the potential bidder with respect to such Mortgage Loans during any warranty period established for the Loan Sale, that serviced any of the Mortgage Loans or performed other services for or on behalf of HUD or within the two-year period prior to November 1, 2012, provided services to any person or entity which serviced, performed services or otherwise had access to information with respect to the Mortgage Loans for or on behalf of HUD;
10. Any mortgagor or operator that failed to submit to HUD on or before October 31, 2012, audited financial statements for fiscal years 2008 through 2011 (for such time as the project has been in operation or the prospective bidder served as operator, if less than three (3) years) for a project securing a Mortgage Loan;
11. Any individual or entity and any Related Party (as such term is defined in the Qualification Statement) of such individual or entity that is a mortgagor in any of HUD's multifamily and or healthcare housing programs and that is in default under such mortgage loan or is in violation of any regulatory or business agreements with HUD, unless such default or violation was cured on or before October 31, 2012;
Prospective bidders should carefully review the Qualification Statement to determine whether they are eligible to submit bids on the Mortgage Loans in MHLS 2013–1.
HUD reserves the right, in its sole and absolute discretion, to disclose information regarding MHLS 2013–1, including, but not limited to, the identity of any successful bidder and its bid price or bid percentage for any pool of loans or individual loan, upon the closing of the sale of all the Mortgage Loans. Even if HUD elects not to publicly disclose any information relating to MHLS 2013–1, HUD will have the right to disclose any information that HUD is obligated to disclose pursuant to the Freedom of Information Act and all regulations promulgated there under.
This notice applies to MHLS 2013–1 and does not establish HUD's policy for the sale of other mortgage loans.
Office of the General Counsel, HUD.
Request for Information, Reopening of public comments period.
On October 4, 2012, HUD published a request for information in the
Interested persons are invited to submit comments responsive to this request for information to the Office of General Counsel, Regulations Division, Department of Housing and Urban Development, 451 7th Street, SW., Room 10276, Washington, DC 20410–0001. Communications must refer to the above docket number and title and should contain the information specified in the “Request for Comments” of this notice.
Shauna Sorrells, Director, Public Housing Programs, Office of Public and Indian Housing, Department of Housing and Urban Development, 451 7th Street, SW., Room 4232, Washington, DC, 20410–4000, telephone number 202–402–2769 (this is not a toll-free number) or Catherine Brennan, Director, Office of
On October 4, 2012 (77 FR 60712), HUD published a notice in the
U.S. Geological Survey, Interior.
Notice.
The U.S. Department of the Interior published a notice announcing the establishment of the Advisory Committee on Climate Change and Natural Resource Science (Committee), and inviting nominations for membership on the Committee. The closing date for nominations was November 19, 2012. This
Written nominations must be received by December 24, 2012.
Send nominations to: Robin O'Malley, Policy and Partnership Coordinator, National Climate Change and Wildlife Science Center, U.S. Geological Survey, 12201 Sunrise Valley Drive, Mail Stop 400, Reston, VA 20192,
Robin O'Malley, Policy and Partnership Coordinator, National Climate Change and Wildlife Science Center, U.S. Geological Survey, 12201 Sunrise Valley Drive, Mail Stop 400, Reston, VA 20192,
On October 4, 2012, the U.S. Department of the Interior (DOI) published a notice announcing the establishment of the Advisory Committee on Climate Change and Natural Resource Science (Committee), and inviting nominations for membership on the committee. The Committee will provide advice on matters and actions relating to the establishment and operations of the U.S. Geological Survey National Climate Change and Wildlife Science Center and the DOI Climate Science Centers. In doing so, the Committee will obtain input from Federal, state, tribal, local government, nongovernmental organizations, private sector entities, and academic institutions.
The Department has determined that additional time is required to enable members to be nominated for the committee.
We are seeking nominations for individuals to be considered as Committee members. Nominations should include a resume that describes the nominee's qualifications in enough detail to enable us to make an informed decision regarding meeting the membership requirements of the Committee and to contact a potential member.
Members of the Committee will be composed of approximately 25 members from both the Federal Government, and the following interests: (1) State and local governments, including state membership entities; (2) Non-governmental organizations, including those whose primary mission is professional and scientific and those whose primary mission is conservation and related scientific and advocacy activities; (3) American Indian tribes and other Native American entities; (4) Academia; (5) Individual landowners; and (6) Business interests.
In addition, the Committee may include scientific experts, and will include rotating representation from one or more of the institutions that host the DOI Climate Science Centers.
The Committee will meet approximately 2–4 times annually, and at such times as designated by the DFO. The Secretary of the Interior will appoint members to the Committee. Members appointed as special Government employees are required to file on an annual basis a confidential financial disclosure report.
No individual who is currently registered as a Federal lobbyist is eligible to serve as a member of the Committee.
Bureau of Land Management, Interior.
Notice of availability.
In accordance with the National Environmental Policy Act of 1969, as amended, and the Federal Land Policy and Management Act of 1976, as amended (FLPMA), the Bureau of Land Management (BLM) has prepared a Draft California Desert Conservation Area (CDCA) Plan Amendment and a Draft Environmental Impact Statement/Environmental Impact Report (EIS/EIR) for the Stateline Solar Farm Project (Stateline) and by this notice is announcing the opening of the comment period.
To ensure that comments will be considered, the BLM must receive written comments on the Draft Plan Amendment and Draft EIS/EIR within 90 days following the date the Environmental Protection Agency publishes its Notice of Availability in the
You may submit comments related to the Stateline Draft Plan Amendment and Draft EIS/EIR by any of the following methods:
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Copies of the Stateline Draft Plan Amendment and Draft EIS/EIR are available for public inspection at BLM California Desert District Office at the above address; or on the Internet at
Jeffery Childers, Project Manager; telephone 951–697–5308; address BLM California Desert District Office, 22835 Calle San Juan de Los Lagos, Moreno Valley, CA 92553–9046; email
First Solar Development, Inc. (First Solar) has requested a right-of-way (ROW) authorization to construct, operate, maintain and decommission the 300-megawatt (MW) Stateline Project from the BLM and a separate well permit from the County of San Bernardino. The BLM is responding to the ROW application as required by FLPMA. The proposed project located on BLM-administered lands would include access roads, a photovoltaic arrays, an electrical substation, a meteorological station, a monitoring and maintenance facility, water wells, and a 2.3-mile generation tie-line on up to 2,143 acres. The project location is in San Bernardino County approximately 2 miles south of the Nevada-California border and 0.5 miles west of Interstate 15.
The BLM's purpose and need for the Stateline EIS/EIR is to respond to First Solar's application for a ROW grant to construct, operate, maintain, and decommission a photovoltaic solar energy facility on public lands in compliance with FLPMA, BLM ROW regulations, and other applicable Federal laws. The BLM will decide whether to grant, grant with modification, or deny a ROW to First Solar. In connection with its consideration of the Stateline ROW application, the BLM is proposing to amend the CDCA Plan by designating the project area as either suitable or unsuitable for solar energy development. The CDCA Plan (1980, as amended), recognized the potential compatibility of solar energy generation facilities with other uses on public lands; however, it requires that all sites proposed for power generation or transmission not already identified in the plan be considered through the plan amendment process. While connected, the decision to amend the CDCA plan is separate from the decision to approve the ROW application. As part of its consideration of project impacts, the BLM may also amend the CDCA Plan to address cumulative impacts of this and other developments in the Ivanpah Valley watershed. Specifically, the BLM will consider whether to expand the boundaries of the Ivanpah Desert Wildlife Management Area (DWMA).
The Draft Plan Amendment and Draft EIS/EIR analyze four project development alternatives, including the proposed action, which is analyzed as Alternative 1: 300 MWs of development on 2,143 acres. The other alternatives include—Alternative 2: 300 MWs of development on 2,385 acres; Alternative 3: 300 MWs of development on 2,151 acres; and Alternative 4: 232 MWs of development on 1,766 acres. In addition to project-related impacts, all project development alternatives analyze potential expansion of the current boundaries of the Ivanpah DWMA. The management prescriptions for the Ivanpah DWMA are defined in Appendix A, Section A.2, of the Northern and Eastern Mojave Desert Management Plan Amendment to the California Desert Conservation Area Plan (July 2002). If the DWMA is expanded, these management prescriptions will be applied to the expansion.
The Draft Plan Amendment and Draft EIS/EIR also analyze three No Project alternatives—Alternative 5: No Action; Alternative 6: No Project and amendment of the CDCA Plan to find the Project area unsuitable for solar development; and Alternative 7: No Project and amendment of the CDCA Plan to find the Project area suitable for solar development.
The Draft Plan Amendment and EIS/EIR evaluate the potential impacts of the proposed Stateline on air quality and greenhouse gas emissions, biological resources, cultural resources, special status species, geology and soils, hazards and hazardous materials, hydrology and water quality, land use, noise, recreation, traffic, visual resources, lands with wilderness characteristics, cumulative effects and areas with high potential for renewable energy development.
A Notice of Intent to Prepare a Draft Plan Amendment and EIS/EIR for the Stateline Project was published in the
Please note that public comments will be available for public review at the above address during regular business hours (8 a.m. to 4 p.m.), Monday through Friday, except holidays.
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 that we will be able to do so.
40 CFR 1506.6, 40 CFR 1506.10, 43 CFR 1610.2.
National Park Service, Interior.
Notice of meeting.
Under section 10(a)(2) of the Federal Advisory Committee Act (5 U.S.C. App.) the National Park Service (NPS) is hereby giving notice that the Boston Harbor Islands National Recreation Area Advisory Council will hold a meeting. This meeting is open to the public. Topics to be discussed include a report from the Council's environmental interest group, a summer review of park operations, activation of the nominating committee, and public
The Boston Harbor Islands Advisory Council will meet from 4:00 p.m. to 6:00 p.m. on December 5, 2012, (EASTERN).
Bruce Jacobson, Superintendent, Boston Harbor Islands National Recreation Area, at (617) 223–8669 or
The Advisory Council was appointed by the Director of National Park Service pursuant to Public Law 104–333. The 28 members represent business, educational/cultural, community and environmental entities; municipalities surrounding Boston Harbor; Boston Harbor advocates; and Native American interests. The purpose of the Council is to advise and make recommendations to the Boston Harbor Islands Partnership with respect to the development and implementation of a management plan and the operations of the Boston Harbor Islands National Recreation Area.
Office of Surface Mining Reclamation and Enforcement, Interior.
Notice and request for comments.
In compliance with the Paperwork Reduction Act of 1995, the Office of Surface Mining Reclamation and Enforcement (OSM) is announcing that the information collection request for the Petition process for designation of Federal lands as unsuitable for all or certain types of surface coal mining operations and for termination of previous designations, has been submitted to the Office of Management and Budget (OMB) for review and approval. The information collection request describes the nature of the information collection and its expected burden and cost. This information collection activity was previously approved by OMB and assigned clearance number 1029–0098.
Comments must be submitted on or before December 24, 2012, to be assured of consideration.
Comments may be submitted to the Office of Information and Regulatory Affairs, Office of Management and Budget, Department of the Interior Desk Officer, via email at
To receive a copy of the information collection request contact John Trelease at (202) 208–2783, or electronically at
OMB regulations at 5 CFR part 1320, which implement provisions of the Paperwork Reduction Act of 1995 (Pub. L. 104–13), require that interested members of the public and affected agencies have an opportunity to comment on information collection and recordkeeping activities [see 5 CFR 1320.8(d)]. OSM has submitted a request to OMB to renew its approval for the collection of information found at 30 CFR part 769—Petition process for designation of Federal lands as unsuitable for all or certain types of surface coal mining operations and for termination of previous designations. OSM is requesting a 3-year term of approval for this collection. This collection is required to obtain or retain a benefit.
An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number. The OMB control number for this collection of information is 1029–0098.
As required under 5 CFR 1320.8(d), a
Send comments on the need for the collection of information for the performance of the functions of the agency; the accuracy of the agency's burden estimates; ways to enhance the quality, utility and clarity of the information collection; and ways to minimize the information collection burden on respondents, such as use of automated means of collection of the information, to the offices listed in the
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 that we will be able to do so.
Office of Surface Mining Reclamation and Enforcement, Interior.
Notice and request for comments.
In compliance with the Paperwork Reduction Act of 1995, the Office of Surface Mining Reclamation and Enforcement (OSM) is announcing that the information collection request for contractor eligibility, and the Abandoned Mine Land Contractor Information Form, has been forwarded to the Office of Management and Budget (OMB) for review and approval. The information collection request describes the nature of the information collection and the expected burden and cost. This information collection activity was previously approved by OMB and assigned clearance number 1029–0119.
Comments must be submitted on or before December 24, 2012, to be assured of consideration.
Comments may be submitted to the Office of Information and Regulatory Affairs, Office of Management and Budget, Department of the Interior Desk Officer, via email at
To receive a copy of the information collection request contact John Trelease at (202) 208–2783, or electronically at
The Office of Management and Budget (OMB) regulations at 5 CFR part 1320, which implement provisions of the Paperwork Reduction Act of 1995 (Pub. L. 104–13), require that interested members of the public and affected agencies have an opportunity to comment on information collection and recordkeeping activities [see 5 CFR 1320.8(d)]. OSM has submitted a request to OMB to renew its approval for the collection of information for 30 CFR 874.16, and the AML Contractor Information Form which is found in the Applicant/Violator System (AVS) handbook. OSM is requesting a 3-year term of approval for this collection. This collection is required to obtain or retain a benefit.
An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number. The OMB control number for this collection of information is 1029–0119.
As required by 5 CFR 1320.8(d), a
Send comments on the need for the collection of information for the performance of the functions of the agency; the accuracy of the agency's burden estimates; ways to enhance the quality, utility and clarity of the information collection; and ways to minimize the information collection burden on respondents, such as use of automated means of collection of the information, to the offices listed in the
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 that we will be able to do so.
United States International Trade Commission.
Notice.
The Commission hereby gives notice of the institution of an investigation and commencement of a preliminary phase antidumping investigation No. 731–TA–1205 (Preliminary) under section 733(a) of the Tariff Act of 1930 (19 U.S.C.1673b(a)) (the Act) to determine whether there is a reasonable indication that an industry in the United States is materially injured or threatened with material injury, or the establishment of an industry in the United States is materially retarded, by reason of imports from China of silica bricks and shapes, provided for in subheading 6902.20.10 of the Harmonized Tariff Schedule of the United States, that are alleged to be sold in the United States at less than fair value. Unless the Department of Commerce extends the time for initiation pursuant to section 732(c)(1)(B) of the Act (19 U.S.C.1673a(c)(1)(B)), the Commission must reach a preliminary determination in antidumping investigations in 45 days, or in this case by December 31,
For further information concerning the conduct of this investigation and rules of general application, consult the Commission's Rules of Practice and Procedure, part 201, subparts A through E (19 CFR part 201), and part 207, subparts A and B (19 CFR part 207).
DATES:
Mary Messer (202–205–3193), 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 (
In accordance with sections 201.16(c) and 207.3 of the rules, each document filed by a party to the investigation must be served on all other parties to the investigation (as identified by either the public or BPI service list), and a certificate of service must be timely filed. The Secretary will not accept a document for filing without a certificate of service.
This investigation is being conducted under authority of title VII of the Tariff Act of 1930; this notice is published pursuant to section 207.12 of the Commission's rules.
By order of the Commission.
By Notice dated August 17, 2012, and published in the
The company plans to import small quantities of the listed controlled substances for the manufacture of analytical reference standards.
No comments or objections have been received. DEA has considered the factors in 21 U.S.C. 823(a) and 952(a) and determined that the registration of Cerilliant Corporation to import the basic classes of controlled substances is consistent with the public interest and with United States obligations under international treaties, conventions, or protocols in effect on May 1, 1971. DEA has investigated Cerilliant Corporation to ensure that the company's registration is consistent with the public interest. The investigation has included inspection and testing of the company's physical security systems, verification of the company's compliance with state and local laws, and a review of the company's background and history.
Therefore, pursuant to 21 U.S.C. 952(a) and 958(a), and in accordance with 21 CFR 1301.34, the above named company is granted registration as an importer of the basic classes of controlled substances listed.
By Notice dated July 30, 2012, and published in the
The company plans to import analytical reference standards for distribution to its customers for research and analytical purposes.
No comments or objections have been received. DEA has considered the factors in 21 U.S.C. 823(a) and 952(a) and determined that the registration of Lipomed, Inc., to import the basic classes of controlled substances is consistent with the public interest and with United States obligations under international treaties, conventions, or protocols in effect on May 1, 1971. DEA has investigated Lipomed, Inc., to ensure that the company's registration is consistent with the public interest. The investigation has included inspection and testing of the company's physical security systems, verification of the company's compliance with state and local laws, and a review of the company's background and history.
Therefore, pursuant to 21 U.S.C. 952(a) and 958(a), and in accordance with 21 CFR 1301.34, the above named company is granted registration as an importer of the basic classes of controlled substances listed.
By Notice dated March 8, 2012, and published in the
The company plans to import the listed controlled substances in finished dosage form (FDF) from foreign sources for analytical testing and clinical trials in which the foreign FDF will be compared to the company's own domestically-manufactured FDF. This analysis is required to allow the company to export domestically-manufactured FDF to foreign markets.
No comments or objections have been received. DEA has considered the factors in 21 U.S.C. 823(a) and 952(a), and determined that the registration of Mylan Pharmaceuticals, Inc. to import the basic classes of controlled substances is consistent with the public interest, and with United States obligations under international treaties, conventions, or protocols in effect on May 1, 1971. DEA has investigated Mylan Pharmaceuticals, Inc. to ensure that the company's registration is consistent with the public interest. The investigation has included inspection and testing of the company's physical security systems, verification of the company's compliance with state and local laws, and a review of the company's background and history.
Therefore, pursuant to 21 U.S.C. 952(a) and 958(a), and in accordance with 21 CFR 1301.34, the above named
Pursuant to § 1301.33(a), Title 21 of the Code of Federal Regulations (CFR), this is notice that on September 25, 2012, Cayman Chemical Company, 1180 East Ellsworth Road, Ann Arbor, Michigan 48108, made application to the Drug Enforcement Administration (DEA) to be registered as a bulk manufacturer of the following basic classes of controlled substances:
The company plans to manufacture the listed controlled substances for distribution to their research and forensics customers conducting drug testing and analysis.
Any other such applicant, and any person who is presently registered with DEA to manufacture such substances, may file comments or objections to the issuance of the proposed registration pursuant to 21 CFR 1301.33(a).
Any such written comments or objections should be addressed, in quintuplicate, to the Drug Enforcement Administration, Office of Diversion Control, Federal Register Representative (ODL), 8701 Morrissette Drive, Springfield, Virginia 22152; and must be filed no later than January 22, 2013.
Pursuant to § 1301.33(a), Title 21 of the Code of Federal Regulations (CFR), this is notice that on September 14, 2012, Alltech Associates Inc., 2051 Waukegan Road, Deerfield, Illinois 60015, made application to the Drug Enforcement Administration (DEA) to be registered as a bulk manufacturer of the following basic classes of controlled substances:
The company plans to manufacture high purity drug standards used for analytical applications only in clinical, toxicological, and forensic laboratories.
Any other such applicant, and any person who is presently registered with DEA to manufacture such substances, may file comments or objections to the issuance of the proposed registration pursuant to 21 CFR 1301.33(a).
Any such comments or objections should be addressed, in quintuplicate, to the Drug Enforcement Administration, Office of Diversion Control, Federal Register Representative (ODL), 8701 Morrissette Drive, Springfield, Virginia 22152; and must be filed no later than January 22, 2013.
By Notice dated July 17, 2012, and published in the
The company plans to manufacture the listed controlled substances in bulk for sale to its customers for formulation into finished pharmaceuticals. In reference to Methadone Intermediate (9254) the company plans to produce Methadone HCL active pharmaceutical ingredients (APIs) for sale to its customers.
No comments or objections have been received. DEA has considered the factors in 21 U.S.C. 823(a) and determined that the registration of Boehringer Ingelheim Chemicals, Inc., to manufacture the listed basic classes of controlled substances is consistent with the public interest at this time. DEA has investigated Boehringer Ingelheim Chemicals, Inc., to ensure that the company's registration is consistent with the public interest. The investigation has included inspection and testing of the company's physical security systems; verification of the company's compliance with state and local laws; and a review of the company's background and history.
Therefore, pursuant to 21 U.S.C. 823(a), and in accordance with 21 CFR 1301.33, the above named company is granted registration as a bulk manufacturer of the basic classes of controlled substances listed.
By Notice dated July 30, 2012, and published in the
The company plans to manufacture small quantities of marihuana derivatives for research purposes. In reference to drug code 7360 (Marihuana), the company plans to bulk manufacture cannabidiol. In reference to drug code 7370 (Tetrahydrocannabinols), the company will manufacture a synthetic THC. No other activity for this drug code is authorized for this registration.
The company plans to manufacture the remaining listed controlled substances to supply these materials to the research and forensics community for drug testing and analysis.
No comments or objections have been received. DEA has considered the factors in 21 U.S.C. 823(a) and determined that the registration of Cayman Chemical Company to manufacture the listed basic classes of controlled substances is consistent with the public interest at this time. DEA has investigated Cayman Chemical Company to ensure that the company's registration is consistent with the public interest. The investigation has included inspection and testing of the company's physical security systems, verification of the company's compliance with state and local laws, and a review of the company's background and history.
Therefore, pursuant to 21 U.S.C. 823(a), and in accordance with 21 CFR 1301.33, the above named company is granted registration as a bulk manufacturer of the basic classes of controlled substances listed.
By Notice dated July 17, 2012 and published in the
The company plans to manufacture the listed controlled substances in bulk for sale to its customers, for dosage form development, for clinical trials, and for use in stability qualification studies.
No comments or objections have been received. DEA has considered the factors in 21 U.S.C. 823(a), and
Therefore, pursuant to 21 U.S.C. 823(a), and in accordance with 21 CFR 1301.33, the above named company is granted registration as a bulk manufacturer of the basic classes of controlled substances listed.
The Legal Services Corporation's Board of Directors will meet telephonically on November 29, 2012. The meeting will commence at 5:00 p.m., Eastern Standard Time, and will continue until the conclusion of the Board's agenda.
F. William McCalpin Conference Center, Legal Services Corporation Headquarters, 3333 K Street NW., Washington DC 20007.
Members of the public who are unable to attend in person but wish to listen to the public proceedings may do so by following the telephone call-in directions provided below but are asked to keep their telephones muted to eliminate background noises. To avoid disrupting the meeting, please refrain from placing the call on hold if doing so will trigger recorded music or other sound. From time to time, the presiding Chair may solicit comments from the public.
• Call toll-free number: 1–866–451–4981;
• When prompted, enter the following numeric pass code: 5907707348;
• When connected to the call, please immediately “MUTE” your telephone.
Open.
1. Approval of Agenda.
2. Approval of minutes of the Board's meeting of October 1–2, 2012.
3. Consider and act on the Board of Directors' transmittal to accompany the Inspector General's Semiannual Report to Congress for the period of April 1, 2012 through September 30, 2012.
4. Report on legal services needs and activities relating to Hurricane Sandy.
5. Public comment.
6. Consider and act on other business.
7. Consider and act on motion to adjourn the meeting.
Katherine Ward, Executive Assistant to the Vice President & General Counsel, at (202) 295–1500. Questions may be sent by electronic mail to
Non-confidential meeting materials will be made available in electronic format at least 24 hours in advance of the meeting on the LSC Web site, at
LSC complies with the American's with Disabilities Act and Section 504 of the 1973 Rehabilitation Act. Upon request, meeting notices and materials will be made available in alternative formats to accommodate individuals with disabilities. Individuals who need other accommodations due to disability in order to attend the meeting in person or telephonically should contact Katherine Ward, at (202) 295–1500 or
Nuclear Regulatory Commission.
Notice of the OMB review of information collection and solicitation of public comment.
The U.S. Nuclear Regulatory Commission (NRC) has recently submitted to OMB for review the following proposal for the collection of information under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35). The NRC hereby informs potential respondents that an agency may not conduct or sponsor, and that a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number. The NRC published a
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The public may examine and have copied for a fee publicly available documents, including the final supporting statement, at the NRC's Public Document Room, Room O–1F21, One White Flint North, 11555 Rockville Pike, Rockville, Maryland 20852. The OMB clearance requests are available at the NRC's Web site:
Comments and questions should be directed to the OMB reviewer listed below by December 24, 2012. Comments received after this date will be considered if it is practical to do so, but assurance of consideration cannot be given to comments received after this date.
Chad Whiteman, Desk Officer, Office of Information and Regulatory Affairs (3150–0127), NEOB–10202, Office of Management and Budget, Washington, DC 20503.
Comments can also be emailed to
The NRC Clearance Officer is Tremaine Donnell, 301–415–6258.
For the Nuclear Regulatory Commission.
Nuclear Regulatory Commission.
Notice of the OMB review of information collection and solicitation of public comment.
The U.S. Nuclear Regulatory Commission (NRC) has recently submitted to OMB for review the following proposal for the collection of information under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35). The NRC hereby informs potential respondents that an agency may not conduct or sponsor, and that a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number. The NRC published a
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The public may examine and have copied for a fee, publicly available documents, including the final supporting statement, at the NRC's Public Document Room, Room O–1F21, One White Flint North, 11555 Rockville Pike, Rockville, Maryland 20852. The OMB clearance requests are available at the NRC's Web site:
Comments and questions should be directed to the OMB reviewer listed below by December 24, 2012. Comments received after this date will be considered if it is practical to do so, but assurance of consideration cannot be given to comments received after this date.
Chad Whiteman, Desk Officer, Office of Information and Regulatory Affairs (3150–0032), NEOB–10202, Office of Management and Budget, Washington, DC 20503.
Comments can also be emailed to
The NRC Clearance Officer is Tremaine Donnell, 301–415–6258.
For the Nuclear Regulatory Commission.
Nuclear Regulatory Commission.
Notice of pending NRC action to submit an information collection request to the Office of Management and Budget (OMB) and solicitation of public comment.
The U.S. Nuclear Regulatory Commission (NRC) invites public comment about our intention to request the OMB's approval for renewal of an existing information collection that is summarized below. We are required to publish this notice in the
Information pertaining to the requirement to be submitted:
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Submit, by January 22, 2013, comments that address the following questions:
1. Is the proposed collection of information necessary for the NRC to properly perform its functions? Does the information have practical utility?
2. Is the burden estimate accurate?
3. Is there a way to enhance the quality, utility, and clarity of the information to be collected?
4. How can the burden of the information collection be minimized, including the use of automated collection techniques or other forms of information technology?
The public may examine and have copied for a fee publicly available document, including the draft supporting statement, at the NRC's Public Document Room, Room O–1F21, One White Flint North, 11555 Rockville Pike, Rockville, Maryland 20852. The OMB clearance requests are available at the NRC's Web site:
The document will be available on the NRC's home page site for 60 days after the signature date of this notice. Comments submitted in writing or in electronic form will be made available for public inspection. Because your comments will not be edited to remove any identifying or contact information, the NRC cautions you against including any information in your submission that you do not want to be publicly disclosed. Comments submitted should reference Docket No. NRC–2012–0263. You may submit your comments by any of the following methods: Electronic comments: Go to
Questions about the information collection requirements may be directed to the NRC Clearance Officer, Tremaine Donnell (T–5 F53), U.S. Nuclear Regulatory Commission, Washington, DC 20555–0001, by telephone at 301–415–6258, or by email to
For the Nuclear Regulatory Commission.
Nuclear Regulatory Commission.
Appointment to Performance Review Boards for Senior Executive Service.
The U.S. Nuclear Regulatory Commission (NRC) has announced the following appointments to the NRC's Performance Review Boards (PRB) responsible for making recommendations to the appointing and awarding authorities on performance appraisal ratings and performance awards for Senior Executives and Senior Level employees:
The following individuals will serve as members of the NRC's PRB Panel that was established to review appraisals and make recommendations to the appointing and awarding authorities for NRC's PRB members:
All appointments are made pursuant to Section 4314 of Chapter 43 of Title 5 of the United States Code.
Secretary, Executive Resources Board, U.S. Nuclear Regulatory Commission, Washington, DC 20555, (301) 492–2076.
For the U.S. Nuclear Regulatory Commission.
Pursuant to 10 CFR 2.313(c) and 2.321(b), the Atomic Safety and Licensing Board (Board) in the above-captioned
All correspondence, documents, and other materials shall continue to be filed in accordance with 10 CFR 2.302 and any relevant filing directives issued by the Board.
Securities and Exchange Commission (“Commission”).
Temporary order and notice of application for a permanent order under section 9(c) of the Investment Company Act of 1940 (“Act”).
Applicants have received a temporary order exempting them from section 9(a) of the Act, with respect to an injunction entered against Wells Fargo Bank, N.A. (“Wells Fargo Bank”) on September 20, 2012, by the United States District Court for the District of Columbia, until the Commission takes final action on an application for a permanent order. Applicants have requested a permanent order.
Wells Fargo Bank, First International Advisors, LLC (“First International”), Metropolitan West Capital Management, LLC (“Metropolitan West”), Golden Capital Management, LLC (“Golden Capital”), Alternative Strategies Brokerage Services, Inc. (“Alternative Strategies Brokerage”), Alternative Strategies Group, Inc. (“Alternative Strategies”), Wells Fargo Funds Management, LLC (“WF Funds Management”), Wells Capital Management Incorporated (“Wells Capital Management”), Peregrine Capital Management, Inc. (“Peregrine”), Galliard Capital Management, Inc. (“Galliard”), and Wells Fargo Funds Distributor, LLC (“WF Funds Distributor”) (each an “Applicant” and collectively, the “Applicants”).
The application was filed on August 31, 2012, and amended on September 21, 2012.
An order granting the application will be issued unless the Commission orders a hearing. Interested persons may request a hearing by writing to the Commission's Secretary and serving Applicants with a copy of the request, personally or by mail. Hearing requests should be received by the Commission by 5:30 p.m. on December 11, 2012, and should be accompanied by proof of service on Applicants, in the form of an affidavit, or for lawyers, a certificate of service. Hearing requests should state the nature of the writer's interest, the reason for the request, and the issues contested. Persons who wish to be notified of a hearing may request notification by writing to the Commission's Secretary.
Elizabeth M. Murphy, Secretary, U.S. Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. Applicants: Wells Fargo Bank, 101 North Phillips Avenue, Sioux Falls, SD 57104; First International, 30 Fenchurch Street, London, England, UK EC3M 3BD; Metropolitan West, 610 Newport Center Drive, Suite 1000, Newport Beach, CA 92660; Golden Capital, 5 Resource Square, Suite 400, 10715 David Taylor Drive, Charlotte, NC 28262; Alternative Strategies Brokerage, 401 South Tryon Street, Charlotte, NC 28202; Alternative Strategies, 401 South Tryon Street, TH 3, Charlotte, NC 28202; WF Funds Management and WF Funds Distributor, 525 Market Street, 12th Floor, San Francisco, CA 94105; Wells Capital Management, 525 Market Street, 10th Floor, San Francisco, CA 94105; Peregrine, 800 LaSalle Avenue, Suite 1850, Minneapolis, MN 55402; and Galliard, 800 LaSalle Avenue, Suite 1100, Minneapolis, MN 55402.
Steven I. Amchan, Senior Counsel, at (202) 551–6826 or Daniele Marchesani, Branch Chief, at (202) 551–6821 (Division of Investment Management, Office of Investment Company Regulation).
The following is a temporary order and a summary of the application. The complete application may be obtained via the Commission's Web site by searching for the file number, or an applicant using the Company name box, at
1. Wells Fargo Bank is a national banking association wholly-owned, directly and indirectly, by Wells Fargo & Company (“Wells Fargo”). Through its direct and indirect subsidiaries, Wells Fargo, a registered financial holding company and bank holding company under the Bank Holding Company Act of 1956, as amended, offers banking, brokerage, advisory and other financial services to institutional and individual customers worldwide. Wells Fargo also is the ultimate parent of the other Applicants, who, as direct or indirect, majority-owned or wholly-owned, subsidiaries of the same ultimate parent, are, or may be considered to be, under common control with Wells Fargo Bank.
2. Effective December 1, 2011, and August 24, 2012, respectively, two separately identifiable departments within Wells Fargo Bank, Abbot Downing Investment Advisors and Wells Capital Management Singapore, each became registered as an investment adviser under the Investment Advisers Act of 1940 (“Advisers Act”) and each serves as an investment adviser to one or more Funds (as defined below). First International, Metropolitan West, Golden Capital, Alternative Strategies, WF Funds Management, Wells Capital
3. On July 12, 2012, the U.S. Department of Justice filed a complaint (“Complaint”) against Wells Fargo Bank in the United States District Court for the District of Columbia (“District Court”) in a civil action.
1. Section 9(a)(2) of the Act, in relevant part, prohibits a person who has been enjoined from acting as a bank, or from engaging in or continuing any conduct or practice in connection with such activity, from acting, among other things, as an investment adviser or depositor of any registered investment company, or a principal underwriter for any registered open-end investment company, UIT or registered face-amount certificate company. Section 9(a)(3) of the Act extends the prohibitions of section 9(a)(2) to a company any affiliated person of which has been disqualified under the provisions of section 9(a)(2). Section 2(a)(3) of the Act defines “affiliated person” to include, among others, any person directly or indirectly controlling, controlled by, or under common control with, the other person. Applicants state that Wells Fargo Bank is, or may be considered to be, under common control with and therefore an affiliated person of each of the other Applicants. Applicants state that the entry of the Injunction may result in Applicants being subject to the disqualification provisions of section 9(a) of the Act because Wells Fargo Bank is enjoined from engaging in or continuing certain conduct and/or practices in connection with its banking activity.
2. Section 9(c) of the Act provides that the Commission shall grant an application for exemption from the disqualification provisions of section 9(a) if it is established that these provisions, as applied to Applicants, are unduly or disproportionately severe or that the Applicants' conduct has been such as not to make it against the public interest or the protection of investors to grant the exemption. Applicants have filed an application pursuant to section 9(c) seeking temporary and permanent orders exempting the Applicants and the other Covered Persons from the disqualification provisions of section 9(a) of the Act. On September 21, 2012, Applicants received a temporary conditional order from the Commission exempting them from section 9(a) of the Act with respect to the Injunction from September 20, 2012 until the Commission takes final action on an application for a permanent order or, if earlier, November 16, 2012.
3. Applicants believe they meet the standard for exemption specified in section 9(c). Applicants state that the prohibitions of section 9(a) as applied to them would be unduly and disproportionately severe and that the conduct of Applicants has been such as not to make it against the public interest or the protection of investors to grant the exemption from section 9(a).
4. Applicants state that the conduct giving rise to the Injunction did not involve any of the Applicants acting in their capacity as investment adviser, sub-adviser, or principal underwriter for Funds. Applicants also state that the alleged conduct giving rise to the Injunction did not involve any Fund or the assets of any Fund for which they provided Fund Servicing Activities. Applicants further state that to the best of their reasonable knowledge: (i) None of the Applicants' (other than certain of Wells Fargo Bank's) current or former directors, officers or employees had any knowledge of, or had any involvement in, the conduct alleged in the Complaint to have constituted the alleged violations that provided a basis for the Injunction; (ii) the personnel who were involved in the violations alleged in the Complaint have had no involvement in, and will not have any future involvement in, providing advisory, sub-advisory, depository or underwriting services to Funds; and (iii) because the personnel of the Applicants involved in Fund Servicing Activities did not have any involvement in the alleged misconduct, shareholders of Funds that received investment advisory, depository and principal underwriting services from the Applicants were not affected any differently than if those Funds had received services from any other non-affiliated investment adviser, depositor or principal underwriter.
5. Applicants further represent that the inability of Applicants to continue providing Fund Servicing Activities would result in potentially severe financial hardships for both the Funds and their shareholders. Applicants state that they will distribute written materials, including an offer to meet in person to discuss the materials, to the board of directors of each Fund, including the directors who are not “interested persons,” as defined in section 2(a)(19) of the Act, of such Fund, and their independent legal counsel as defined in rule 0–1(a)(6) under the Act, if any, regarding the Injunction, any impact on the Funds, and the application. The Applicants will provide the Funds with all
6. Applicants also assert that, if the Applicants were barred from engaging in Fund Servicing Activities, the effect on their businesses and employees would be severe. The Applicants state that they have committed substantial capital and resources to establishing expertise in advising and sub-advising Funds and in support of their principal underwriting business.
7. Applicants state that several Applicants and certain of their affiliates have previously received orders under section 9(c), as described in greater detail in the application.
Applicants agree that any order granted by the Commission pursuant to the application will be subject to the following condition:
Any temporary exemption granted pursuant to the application shall be without prejudice to, and shall not limit the Commission's rights in any manner with respect to, any Commission investigation of, or administrative proceedings involving or against, Covered Persons, including without limitation, the consideration by the Commission of a permanent exemption from section 9(a) of the Act requested pursuant to the application, or the revocation or removal of any temporary exemptions granted under the Act in connection with the application.
The Commission has considered the matter and finds that Applicants have made the necessary showing to justify granting a temporary exemption.
Accordingly,
By the Commission.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the “Act”),
The Exchange proposes to amend NYSE Rule 123C to add new Supplementary Material .40 to clarify that all times specified in Rule 123C are adjusted when the scheduled close of trading is before 4:00 p.m. 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, set forth in sections A, B, and C below, of the most significant parts of such statements.
The Exchange proposes to amend Rule 123C to add new Supplementary Material .40 to clarify that all times specified in Rule 123C are adjusted when the scheduled close of trading is before 4:00 p.m.
Pursuant to Rule 51, except as may be otherwise determined by the Board of Directors as to particular days, the Exchange shall be open for the transaction of business on every business day for a 9:30 a.m. to 4:00 p.m. trading session. Each year, the Exchange announces which trading days shall have an early scheduled close. For example, for the years 2012, 2013, and 2014, the Exchange has announced an early scheduled close of 1:00 p.m. for the day after Thanksgiving, on December 24, and on July 3.
Rule 123C specifies a number of times that are keyed off of the 4:00 p.m. closing time. For example, Rule 123C(1)(b) defines an Informational Imbalance Publication that is disseminated between 3:00 p.m. and 3:45 p.m.; Rule 123C(2) discusses order entry for MOC, LOC, and CO Orders before and after 3:45 p.m. However, these sections of the rule do not specify what happens in the case of an early scheduled close. Some subsections of Rule 123C specify what time is applicable when there is an early scheduled close. For example, Rule 123C(6)(a)(v) specifies that on any day that the scheduled close of trading on the Exchange is earlier than 4:00 p.m., the dissemination of Order Imbalance Information prior to the closing transaction will commence approximately 15 minutes before the scheduled close of trading.
The Exchange notes that even if not specified, all times in Rule 123C are adjusted when there is an early scheduled close. Accordingly, the Exchange proposes to add new Supplementary Material .40 to Rule 123C to clarify that if not otherwise specified, when the scheduled close of trading is before 4:00 p.m., the times specified in the Rule shall be adjusted based on the early scheduled closing
The proposed rule change is consistent with Section 6(b)
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.
Because the foregoing proposed rule 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, provided that the self-regulatory organization has given the Commission written notice of its intent to file the proposed rule change at least five business days prior to the date of filing of the proposed rule change or such shorter time as designated by the Commission, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act
The Exchange asked the Commission to waive the 30-day operative delay period for non-controversial proposed rule changes to allow the proposed rule change to be operative upon filing.
The Commission believes it is consistent with the public interest to waive the 30-day operative delay. Waiver of the operative delay will allow for the implementation of the amended rules prior to the next early scheduled close, November 23, 2012, which is the day after Thanksgiving, thereby providing additional clarity in the rules and reduce any potential confusion regarding how the times specified in Rule 123C are handled when there is an early scheduled close. The Commission, therefore, grants such waiver and designates the proposal operative upon filing.
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.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the “Act”),
The Exchange proposes to amend NYSE MKT Rule 123C—Equities to add new Supplementary Material .40 to clarify that all times specified in Rule 123C—Equities are adjusted when the scheduled close of trading is before 4:00 p.m. 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, set forth in sections A, B, and C below, of the most significant parts of such statements.
The Exchange proposes to amend NYSE MKT Rule 123C—Equities (“Rule 123C”) to add new Supplementary Material .40 to clarify that all times specified in Rule 123C are adjusted when the scheduled close of trading is before 4:00 p.m.
Pursuant to Rule 51, except as may be otherwise determined by the Board of Directors as to particular days, the Exchange shall be open for the transaction of business on every business day for a 9:30 a.m. to 4:00 p.m. trading session. Each year, the Exchange announces which trading days shall have an early scheduled close. For example, for the years 2012, 2013, and 2014, the Exchange has announced an early scheduled close of 1:00 p.m. for the day after Thanksgiving, on December 24, and on July 3.
Rule 123C specifies a number of times that are keyed off of the 4:00 p.m. closing time. For example, Rule 123C(1)(b) defines an Informational Imbalance Publication that is disseminated between 3:00 p.m. and 3:45 p.m.; Rule 123C(2) discusses order entry for MOC, LOC, and CO Orders before and after 3:45 p.m. However, these sections of the rule do not specify what happens in the case of an early scheduled close. Some subsections of Rule 123C specify what time is applicable when there is an early scheduled close. For example, Rule 123C(6)(a)(v) specifies that on any day that the scheduled close of trading on the Exchange is earlier than 4:00 p.m., the dissemination of Order Imbalance Information prior to the closing transaction will commence approximately 15 minutes before the scheduled close of trading.
The Exchange notes that even if not specified, all times in Rule 123C are adjusted when there is an early scheduled close. Accordingly, the Exchange proposes to add new Supplementary Material .40 to Rule 123C to clarify that if not otherwise specified, when the scheduled close of trading is before 4:00 p.m., the times specified in the Rule shall be adjusted based on the early scheduled closing time and references to 4:00 p.m. shall mean the early scheduled close, 3:00 p.m. shall mean one hour before the early scheduled close, 3:45 p.m. shall mean 15 minutes before the early scheduled close, 3:55 p.m. shall mean five minutes before the early scheduled close, and 3:58 p.m. shall mean two minutes before the early scheduled close.
The proposed rule change is consistent with Section 6(b)
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.
Because the foregoing proposed rule 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, provided that the self-regulatory organization has given the Commission written notice of its intent to file the proposed rule change at least five business days prior to the date of filing of the proposed rule change or such shorter time as designated by the Commission, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act
The Exchange asked the Commission to waive the 30-day operative delay period for non-controversial proposed rule changes to allow the proposed rule change to be operative upon filing.
The Commission believes it is consistent with the public interest to waive the 30-day operative delay. Waiver of the operative delay will allow for the implementation of the amended rules prior to the next early scheduled close, November 23, 2012, which is the day after Thanksgiving, thereby providing additional clarity in the rules and reduce any potential confusion regarding how the times specified in Rule 123C are handled when there is an early scheduled close. The Commission, therefore, grants such waiver and designates the proposal operative upon filing.
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.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”),
Nasdaq proposes to establish the Equity Trade Journal for Clearing [sic] service, and assess a related fee. Nasdaq is proposing to implement the proposed service on November 15, 2012 and implement the proposed fee on January 2, 2013. The text of the proposed rule change is available at
In its filing with the Commission, Nasdaq 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
Nasdaq is proposing to offer The Equity Trade Journal for Clearing Firms (“ETJ Clearing”) service, a new service offered to clearing member firms that provides daily and ad hoc reports of correspondent trading activity associated with the subscribing member firm's clearing number.
The ETJ Clearing service can only be accessed via NasdaqTrader.com. Nasdaq plans on offering the service at no cost beginning November 15, 2012, and to assess a monthly tiered fee, beginning January 2, 2013. The proposed ETJ Clearing service fee is divided into five tiers based on the total number of correspondent MPIDs subscribed for coverage by the service. The first tier provides daily reports for up to ten correspondent MPIDs for a monthly fee of $750, the second tier provides daily reports for eleven to twenty correspondent MPIDs for a monthly fee of $1,000, the third tier provides daily reports for twenty-one to thirty correspondent MPIDs for a monthly fee of $1,250, the fourth tier provides daily reports for thirty-one to forty correspondent MPIDs for a monthly fee of $1,500, and the fifth tier provides daily reports for forty-one or more correspondent MPIDs for a monthly fee of $1,750. As noted, the tiers are based on the total number of correspondent MPID [sic] subscribed, so for example, if a member clearing firm subscribes thirty correspondent MPIDs to the service it would be assessed a monthly fee of $1,250 per month. A member clearing firm that subscribes thirty-one correspondent MPIDs to the service, however, would be assessed a monthly fee of $1,500.
The ETJ Clearing service is similar to the equity trade journal report provided under the NasdaqTrader.com Trading and Compliance Data Package service (“Data Package”).
The Exchange notes that it has a low number of clearing member firms with more than forty correspondent MPIDs registered with the Exchange at this time. Should this change, Nasdaq may file a rule change to modify the fees assessed under the tiers. The proposed fee will be applied to offset the costs associated with establishing the service, responding to customer requests, configuring Nasdaq's systems, programming to user specifications, and administering the service, among other things. To the extent that costs are covered by the proposed fee, the proposed fee may also provide Nasdaq with a profit.
Nasdaq believes that the proposed rule change is consistent with the provisions of Section 6 of the Act,
Nasdaq determined that the proposed fee is reasonable based on member firm interest in the functionality provided by the ETJ Clearing service, costs associated with developing and supporting the service, and the value that ETJ Clearing service provides to subscribing member firms. Moreover, ETJ Clearing provides data similar to that as the equity trade journal report of the Data Package, and Nasdaq has set the proposed fee similarly on a per-report basis. The information provided by ETJ Clearing service relates to the trade activity done on Nasdaq, FINRA ORF, and FINRA/NASDAQ TRF by a correspondent of the subscribing clearing member firm on a given day,
The Exchange also believes the proposed rule change is consistent with Section 6(b)(5) of the Act,
The Exchange does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act, as amended.
Written comments were neither solicited nor received.
Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A)
A proposed rule change filed under Rule 19b–4(f)(6)
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act.
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change, as amended, 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.
All submissions should refer to File Number SR–NASDAQ–2012–130. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site (
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”),
CBOE proposes to correct a numbering error in CBOE Rule 12.3 that was unintentionally created. No substantive changes are proposed in this filing. The text of the proposed rule change is available on the Exchange's Web site (
In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements.
In SR–CBOE–2012–043, an error was inadvertently made to the numbering of Rule 12.3 (Margin Requirements).
The Exchange believes that the proposed rule change is consistent with Section 6(b)
CBOE 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.
Because the foregoing proposed rule change does not:
(i) Significantly affect the protection of investors or the public interest;
(ii) Impose any significant burden on competition; and
(iii) Become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest, it has become effective pursuant to Section 19(b)(3)(A)
A proposed rule change filed under Rule 19b–4(f)(6)
At any time within 60 days of the filing of this 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.
All submissions should refer to File Number SR–CBOE–2012–112 and should be submitted on or before December 14, 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 (“Act”)
The purpose of the proposed rule change is to update the Contract Reference Obligation International Securities Identification Number (“Contract Reference Obligation ISIN”) in Schedule 502 of the ICC Rules in order to be consistent with the industry standard reference obligation for one single name contract that ICC currently clears (Nucor Corporation).
In its filing with the Commission, ICC 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. ICC has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements.
ICC is updating the Contract Reference Obligation ISIN in Schedule 502 of the ICC Rules in order to be consistent with the industry standard reference obligation for one single name contract that ICC currently clears (Nucor Corporation). The Contract Reference Obligation ISIN update does not require any changes to the ICC risk management framework or the body of the ICC Rules. The only change being submitted is the update to the Contract Reference Obligation ISIN for Nucor Corporation in Schedule 502 of the ICC Rules.
Section 17A(b)(3)(F) of the Act
ICC does not believe that the proposed rule change will have any impact or impose any burden on competition.
Written comments relating to the proposed rule change have not been solicited or received. ICC will notify the Commission of any written comments received by ICC.
The foregoing rule change has become effective pursuant to Section 19(b)(3)(A)(iii)
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.
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–ICC–2012–20 and should be submitted on or before December 14, 2012.
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 the Presidential declaration of a major disaster for the State of Rhode Island (FEMA–4089–DR), dated 11/14/2012.
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 11/14/2012, 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 133878 and for economic injury is 133880.
U.S. Small Business Administration.
Amendment 1.
This is an amendment of the Presidential declaration of a major disaster for Public Assistance Only for the State of New York (FEMA–4085–DR), dated 11/03/2012.
Submit completed loan applications to: U.S. Small Business
A. Escobar, Office of Disaster Assistance, U.S. Small Business Administration, 409 3rd Street SW., Suite 6050, Washington, DC 20416.
The notice of the President's major disaster declaration for Private Non-Profit organizations in the State of NEW YORK, dated 11/03/2012, is hereby amended to include the following areas as adversely affected by the disaster.
All other information in the original declaration remains unchanged.
U.S. Small Business Administration.
Amendment 1.
This is an amendment of the Presidential declaration of a major disaster for the State of West Virginia (FEMA–4071–DR), dated 09/19/2012.
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.
The notice of the Presidential disaster declaration for the State of West Virginia, dated 09/19/2012 is hereby amended to include the following areas as adversely affected by the disaster:
All other information in the original declaration remains unchanged.
U.S. Small Business Administration.
Notice of Members for the FY 2012 Performance Review Board.
Title 5 U.S.C. 4314(c)(4) requires each agency to publish notification of the appointment of individuals who may serve as members of that Agency's Performance Review Board (PRB). The following individuals have been designated to serve on the FY 2012 Performance Review Board for the U.S. Small Business Administration.
1. Delorice Ford, PRB Chairperson, Assistant Administrator Hearings and Appeals
2. Nicholas Coutsos, Assistant Administrator for Congressional and Legislative Affairs
3. Nina Levine, Associate General Counsel for Financial Law and Lender Oversight
4. Pravina Raghavan, District Director, New York District Office
5. John A. Miller, Assistant Administrator for Financial Program Operations in Capital Access
6. Jonathan Swain, Chief of Staff
Susquehanna River Basin Commission.
Notice.
The Susquehanna River Basin Commission will hold its regular business meeting on December 14, 2012, in Annapolis, Maryland. Details concerning the matters to be addressed at the business meeting are contained in the
December 14, 2012, at 8:30 a.m.
Lowe House Office Building, House of Delegates, Prince George's Delegation (Room #150), 6 Bladen Street, Annapolis, MD 21401. (The recommended parking and transportation option is to park at the Navy-Marine Corps Memorial Stadium and take the Annapolis Transit Trolley Shuttle from there—for all available parking options, see
Richard A. Cairo, General Counsel, telephone: (717) 238–0423, ext. 306; fax: (717) 238–2436.
Interested parties are invited to attend the business meeting and encouraged to review the Commission's Public Meeting Rules of Conduct, which are posted on the Commission's Web site,
The business meeting will include actions or presentations on the following items: (1) Presentation on eel collection, stocking and research by the U.S. Fish and Wildlife Service; (2) presentation recognizing former alternate
Pub. L. 91–575, 84 Stat. 1509
Federal Highway Administration (FHWA), DOT.
Notice and request for comments.
The FHWA invites public comments about our intention to request the Office of Management and Budget's (OMB) approval for a new information collection, which is summarized below under Supplementary Information. We are required to publish this notice in the
Please submit comments by January 22, 2013.
You may submit comments identified by DOT Docket ID 2012–0112 by any of the following methods:
Rosemary Jones, 202–366–2042, Office of Real Estate Services, Federal Highway Administration, Department of Transportation, 1200 New Jersey Ave. SE., Washington, DC, between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays.
The Paperwork Reduction Act of 1995; 44 U.S.C. Chapter 35, as amended; and 49 CFR 1.48.
Federal Highway Administration (FHWA), DOT.
Notice and request for comments.
The FHWA invites public comments about our intention to request the Office of Management and Budget's (OMB) approval for a new information collection, which is summarized below under
Please submit comments by January 22, 2013.
You may submit comments identified by DOT Docket ID 2012–0113 by any of the following methods:
Joyce Gottlieb, 202–366–3664, Office of Civil Rights, Federal Highway Administration, Department of Transportation, 1200 New Jersey Ave. SE., Washington, DC, between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays.
The Paperwork Reduction Act of 1995; 44 U.S.C. Chapter 35, as amended; and 49 CFR 1.48.
Federal Highway Administration (FHWA), DOT.
Notice; correction.
This notice corrects an error in the FHWA notice published on October 10, 2012, at 77 FR 61654. That notice provided an incorrect reference to a statute of limitations timeframe, and an incorrect date.
This notice is effective November 23, 2012.
Manuel E. Sánchez, Senior Transportation Engineer/Border Engineer, Federal Highway Administration—California Division, 401 B Street, Suite 800, San Diego, CA 92101, Regular Office Hours: 6:30 a.m. to 4:00 p.m., Telephone: (619) 699– 7336, Email:
On October 10, 2012, at 77 FR 61654, the FHWA published a notice regarding actions taken by the FHWA and other Federal agencies that are final within the meaning of 23 U.S.C. 139(l)(1). The actions relate to the proposed State Route 11 and Otay Mesa East Land Port of Entry project in the City and County of San Diego, State of California.
The original notice indicated that claims seeking judicial review of the Federal agency actions on the highway project will be barred unless the claim is filed on or before April 8, 2013, which represents 180 days after publication in the
23 U.S.C. 139(l); Sec. 1308, Pub. L. 112–141, 126 Stat. 405.
Eastside Community Rail, LLC (ECR), a noncarrier, has filed a verified notice of exemption under 49 CFR 1150.31 to acquire, pursuant to an Asset Purchase Agreement dated September 5, 2012,
ECR states that, pending the closing of the transaction, ECR and Ballard Terminal Railroad Company (Ballard) entered into an Interim Operating Agreement with the Bankruptcy Trustee of GNP in which ECR will manage the assets of GNP and Ballard will continue to operate the Line in the same fashion that it did while operating the Line for GNP.
ECR states that it plans to consummate the transaction on or after December 8, 2012. Unless stayed, the effective date of the exemption will be December 7, 2012 (30 days after the verified notice was filed).
ECR certifies that its projected annual revenues as a result of this transaction will not exceed $5 million and will not result in the creation of a Class II or Class I rail carrier.
If the verified notice contains false or misleading information, the exemption is void
An original and 10 copies of all pleadings, referring to Docket No. FD 35692, must be filed with the Surface Transportation Board, 395 E Street SW., Washington, DC 20423–0001. In addition, a copy of each pleading must be served on Myles L. Tobin, Fletcher & Sippel LLC, 29 North Wacker Drive, Suite 920, Chicago, IL 60606–2832.
Board decisions and notices are available on our Web site at “
By the Board, Rachel D. Campbell, Director, Office of Proceedings.
The Department of the Treasury will submit the following information collection request to the Office of Management and Budget (OMB) for review and clearance in accordance with the Paperwork Reduction Act of 1995, Public Law 104–13, on or after the date of publication of this notice.
Comments should be received on or before December 24, 2012 to be assured of consideration.
Send comments regarding the burden estimate, or any other aspect of the information collection, including suggestion for reducing the burden, to (1) Office of Information and Regulatory Affairs, Office of Management and Budget, Attention: Desk Officer for Treasury, New Executive Office Building, Room 10235, Washington, DC 20503, or email at
Copies of the submission(s) may be obtained by calling (202) 927–5331, email at
The Department of the Treasury will submit the following information collection request to the Office of Management and Budget (OMB) for review and clearance in accordance with the Paperwork Reduction Act of 1995, Public Law 104–13, on or after the date of publication of this notice.
Comments should be received on or before December 24, 2012 to be assured of consideration.
Send comments regarding the burden estimate, or any other aspect of the information collection, including suggestion for reducing the burden, to (1) Office of Information and Regulatory Affairs, Office of Management and Budget, Attention: Desk Officer for Treasury, New Executive Office Building, Room 10235, Washington, DC 20503, or email at
Copies of the submission(s) may be obtained by calling (202) 927–5331, email at
The Department of the Treasury will submit the following information collection request to the Office of Management and Budget (OMB) for review and clearance in accordance with the Paperwork Reduction Act of 1995, Public Law 104–13, on or after the date of publication of this notice.
Comments should be received on or before December 24, 2012 to be assured of consideration.
Send comments regarding the burden estimate, or any other aspect of the information collection, including suggestion for reducing the burden, to (1) Office of Information and Regulatory Affairs, Office of Management and Budget, Attention: Desk Officer for Treasury, New Executive Office Building, Room 10235, Washington, DC 20503, or email at
Copies of the submission(s) may be obtained by calling (202) 927–5331, email at
The following Applications for Certificates of Public Convenience and Necessity and Foreign Air Carrier Permits were filed under Subpart B (formerly Subpart Q) of the Department of Transportation's Procedural Regulations (See 14 CFR 301.201 et. seq.). The due date for Answers, Conforming Applications, or Motions to Modify Scope are set forth below for each application. Following the Answer period DOT may process the application by expedited procedures. Such procedures may consist of the adoption of a show-cause order, a tentative order, or in appropriate cases a final order without further proceedings.
Office of Foreign Assets Control, Treasury.
Notice.
The Treasury Department's Office of Foreign Assets Control (“OFAC”) is publishing the names of seven entities whose property and interests in property are blocked pursuant to Executive Order 13464 of April 30, 2008 (“Blocking Property and Prohibiting Certain Transactions Related to Burma”) (“E.O. 13464”) or Executive Order 13448 of October 18, 2007 (“Blocking Property and Prohibiting Certain Transactions Related to Burma”) (“E.O. 13448”). OFAC is also amending the listing of a person whose property and interests in property were previously blocked.
The designation by the Director of OFAC of the seven entities named in this notice, pursuant to E.O. 13464 or E.O. 13448, and the amendment to an existing listing are effective November 16, 2012.
Assistant Director for Sanctions Compliance and Evaluation, Office of Foreign Assets Control, Department of the Treasury, Washington, DC 20220, Tel.: 202/622–2490.
This document and additional information concerning OFAC are available from OFAC's Web site (
On October 18, 2007, President George W. Bush signed E.O. 13448 pursuant to,
Section 1 of E.O. 13448 blocks, with certain exceptions, all property and interests in property that are in, or thereafter come within, the United States, or within the possession or control of United States persons, of the persons listed in the Annex to E.O. 13448, as well as those persons determined by the Secretary of the Treasury, after consultation with the Secretary of State, to satisfy any of the criteria set forth in subparagraphs (b)(i)–(b)(vi) of Section 1 of E.O. 13448.
On November 16, 2012, the Director of OFAC, after consultation with the Department of State, designated, pursuant to one or more of the criteria set forth in Section 1 subparagraphs (b)(i)–(b)(vi) of E.O. 13448, the following four entities, whose names have been added to the list of Specially Designated Nationals and Blocked Persons and whose property and interests in property are blocked pursuant to E.O. 13448:
1. GOLD ENERGY CO. LTD., No. 74 Lan Thit Road, Insein Township, Rangoon, Burma; Taungngu (Tungoo) Branch, Karen State, Burma [BURMA].
2. GOLD OCEAN PTE LTD, 101 Cecil Street #08–08, Tong Eng Building, Singapore 069533, Singapore; 1 Scotts Road, #21–07/08 Shaw Centre, Singapore 228208, Singapore [BURMA].
3. GREAT SUCCESS PTE. LTD., 1 Scotts Road, #21/07–08 Shaw Centre, Singapore, 228208, Singapore; 101 Cecil Street #08–08, Tong Eng Building, Singapore, 069533, Singapore [BURMA].
4. GREEN LUCK TRADING COMPANY (a.k.a. GREEN LUCK TRADING COMPANY LIMITED), No. 61/62 Bahosi Development, Wadan Street, Lanmadaw Township, Rangoon, Burma; No. 74 Lan Thit Street, Insein Township, Rangoon, Burma [BURMA].
On April 30, 2008, President George W. Bush signed E.O. 13464, pursuant to,
Section 1 of E.O. 13464 blocks, with certain exceptions, all property and interests in property that are in, or thereafter come within, the United States, or within the possession or control of any United States person, of the persons listed in the Annex to E.O. 13464, as well as those persons determined by the Secretary of the Treasury, after consultation with the Secretary of State, to satisfy any of the criteria set forth in subparagraphs (b)(i)–(b)(iii) of Section 1 of E.O. 13464.
On November 16, 2012, the Director of OFAC, after consultation with the Department of State, designated, pursuant to one or more of the criteria set forth in Section 1, subparagraphs (b)(i)–(b)(iii) of E.O. 13464, the following three entities, whose names have been added to the list of Specially Designated Nationals and Blocked Persons and whose property and interests in property are blocked pursuant to E.O. 13464:
1. ASIA PIONEER IMPEX PTE. LTD., 10 Anson Road, #23–16 International Plaza, Singapore 079903, Singapore [BURMA].
2. TERRESTRIAL PTE. LTD., 3 Raffles Place, #06–01 Bharat Building, Singapore 048617, Singapore; 10 Anson Road, #23–16 International Plaza, Singapore 079903, Singapore [BURMA].
3. ASIA GREEN DEVELOPMENT BANK (a.k.a. AGD BANK), 168 Thiri Yatanar Shopping Complex, Zabu Thiri Township, Nay Pyi Taw, Burma; 73/75 Sule Pagoda Road, Pabedan Township, Yangon, Burma; SWIFT/BIC AGDB MM MY [BURMA].
OFAC is also amending the Golden Aaron Pte. Ltd. listing on the Department of the Treasury's List of Specially Designated Nationals and Blocked Persons. The entry has been amended as:
GOLDEN AARON PTE. LTD. (a.k.a. CHINA FOCUS DEVELOPMENT; a.k.a. CHINA
Veterans Benefits Administration, Department of Veterans Affairs.
Notice.
In compliance with the Paperwork Reduction Act (PRA) of 1995 (44 U.S.C. 3501–3521), this notice announces that the Veterans Benefits Administration (VBA), Department of Veterans Affairs, will submit the collection of information abstracted below to the Office of Management and Budget (OMB) for review and comment. The PRA submission describes the nature of the information collection and its expected cost and burden; it includes the actual data collection instrument.
Comments must be submitted on or before December 24, 2012.
Submit written comments on the collection of information through
Crystal Rennie, Enterprise Records Service (005R1B), Department of Veterans Affairs, 810 Vermont Avenue NW., Washington, DC 20420, (202) 632–7492 Fax (202) 632–7583 or email
a. Veteran's Application for Compensation and/or Pension, VA Form 21–526.
b. Veteran's Supplemental Claim Application, VA Form 21–526b.
c. Authorization and Consent Release Information to the Department of Veterans Affairs (VA), VA Form 21–4142.
a. Veterans complete VA Form 21–526 to initially apply for compensation and/or pension benefits.
b. Veterans who previously filed a claim using VA Form 21–526, and who wish to request an increase in a service connected condition, reopen their claim for a previously denied claim, and/or file a claim for a new service-connected condition must complete VA Form 21–526b. VA Form 21–526b will be used for supplemental disability or ancillary benefit claims.
c. Veterans who need VA's assistance in obtaining non-VA medical records must complete VA Form 21–4142.
An agency may not conduct or sponsor, and a person is not required to respond to a collection of information unless it displays a currently valid OMB control number. The
a. VA Form 21–526—391,708.
b. VA Form 21–526b—50,000.
c. VA Form 21–4142—823.
a. VA Form 21–526—1 hour.
b. VA Form 21–526b—15 minutes.
b. VA Form 21–4142—5 minutes.
a. VA Form 21–526—391,708.
b. VA Form 21–526b—200,000.
c. VA Form 21–4142—3,292.
By direction of the Secretary.
Office of Small and Disadvantaged Business Utilization, Department of Veterans Affairs.
Notice.
In compliance with the Paperwork Reduction Act (PRA) of 1995 (44 U.S.C. 3501–3521), this notice announces that the Office of Small and Disadvantaged Business Utilization (OSDBU), Department of Veterans Affairs, will submit the collection of information abstracted below to the Office of Management and Budget (OMB) for review and comment. The PRA submission describes the nature of the information collection and its expected cost and burden and includes the actual data collection instrument.
Comments must be submitted on or before December 24, 2012.
Submit written comments on the collection of information through
Crystal Rennie, Enterprise Records Service (005R1B), Department of Veterans Affairs, 810 Vermont Avenue NW., Washington, DC 20420, (202) 632–7492, fax (202) 632–7583 or email
An agency may not conduct or sponsor, and a person is not required to respond to a collection of information unless it displays a currently valid OMB
By direction of the Secretary.
Veterans Benefits Administration, Department of Veterans Affairs.
Notice.
In compliance with the Paperwork Reduction Act (PRA) of 1995 (44 U.S.C. 3501–21), this notice announces that the Veterans Benefits Administration, Department of Veterans Affairs, will submit the collection of information abstracted below to the Office of Management and Budget (OMB) for review and comment. The PRA submission describes the nature of the information collection and its expected cost and burden and it includes the actual data collection instrument.
Comments must be submitted on or before December 24, 2012.
Submit written comments on the collection of information through
An agency may not conduct or sponsor, and a person is not required to respond to a collection of information unless it displays a currently valid OMB control number. The
By direction of the Secretary.
National Cemetery Administration, Department of Veterans Affairs.
Notice.
In compliance with the Paperwork Reduction Act (PRA) of 1995 (44 U.S.C. 3501–21), this notice announces that the National Cemetery Administration (NCA), Department of Veterans Affairs, has submitted the collection of information abstracted below to the Office of Management and Budget (OMB) for review and comment. The PRA submission describes the nature of the information collection and its expected cost and burden; it includes the actual data collection instrument.
Comments must be submitted on or before December 24, 2012.
Submit written comments on the collection of information through
Crystal Rennie, Enterprise Records Service (005R1B), Department of Veterans Affairs, 810 Vermont Avenue NW., Washington, DC 20420, (202) 632–7492, FAX (202) 632–7583 or email:
a. 2012 Veterans Burial Benefits Survey
b. Focus Group
c. New and Emerging Burial Practices Study: Structured Interview Guide.
An agency may not conduct or sponsor, and a person is not required to respond to a collection of information unless it displays a currently valid OMB control number. The
a. 2012 Veterans Burial Benefits Survey—3,572 hours.
b. Focus Group—240 hours.
c. New and Emerging Burial Practices Study: Structured Interview Guide—75 hours.
a. 2012 Veterans Burial Benefits Survey—14 minutes.
b. Focus Group—90 minutes.
c. New and Emerging Burial Practices Study: Structured Interview Guide—90 minutes.
a. 2012 Veterans Burial Benefits Survey—15,307.
b. Focus Group—160.
c. New and Emerging Burial Practices Study: Structured Interview Guide—50.
By direction of the Secretary.
Veterans Benefits Administration, Department of Veterans Affairs.
Notice.
In compliance with the Paperwork Reduction Act (PRA) of 1995 (44 U.S.C. 3501–3521), this notice announces that the Veterans Benefits Administration (VBA), Department of Veterans Affairs, will submit the collection of information abstracted below to the Office of Management and Budget (OMB) for review and comment. The PRA submission describes the nature of the information collection and its expected cost and burden; it includes the actual data collection instrument.
Comments must be submitted on or before December 24, 2012.
Submit written comments on the collection of information through
Crystal Rennie, Enterprise Records Service (005R1B), Department of Veterans Affairs, 810 Vermont Avenue NW., Washington, DC 20420, (202) 461–7492, fax (202) 632–7583 or email
An agency may not conduct or sponsor, and a person is not required to respond to a collection of information unless it displays a currently valid OMB control number. The
By direction of the Secretary.
Securities and Exchange Commission.
Proposed rule.
In accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”), the Securities and Exchange Commission (“Commission”), pursuant to the Securities Exchange Act of 1934 (“Exchange Act”), is proposing capital and margin requirements for security-based swap dealers (“SBSDs”) and major security-based swap participants (“MSBSPs”), segregation requirements for SBSDs, and notification requirements with respect to segregation for SBSDs and MSBSPs. The Commission also is proposing to increase the minimum net capital requirements for broker-dealers permitted to use the alternative internal model-based method for computing net capital (“ANC broker-dealers”).
Comments should be received on or before January 22, 2013.
Comments may be submitted by any of the following methods:
• Use the Commission's Internet comment form (
• Send an email to
• Use the Federal eRulemaking Portal (
• Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090.
Michael A. Macchiaroli, Associate Director, at (202) 551–5525; Thomas K. McGowan, Deputy Associate Director, at (202) 551–5521; Randall W. Roy, Assistant Director, at (202) 551–5522; Mark M. Attar, Branch Chief, at (202) 551–5889; Sheila Dombal Swartz, Special Counsel, at (202) 551–5545; Valentina M. Deng, Attorney, at (202) 551–5778; or Teen I. Sheng, Attorney, at 202–551–5511, Division of Trading and Markets, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–7010.
On July 21, 2010, President Obama signed the Dodd-Frank Act into law.
Section 764 of the Dodd-Frank Act added section 15F to the Exchange Act.
Section 4s(e)(1)(B) of the CEA provides that the CFTC shall prescribe capital and margin requirements for swap dealers and major swap participants for which there is not a prudential regulator (“nonbank swap dealers” and “nonbank swap participants”).
Pursuant to sections 763 and 764 of the Dodd-Frank Act, the Commission is proposing to amend Rule 15c3–1 and Rule 15c3–3 and propose new Rules 18a–1 (including appendices to Rule 18a–1), 18a–2, 18a–3, and 18a–4 (including an exhibit to Rule 18a–4).
Further, the proposals also would increase the minimum net capital
As discussed in detail below, the proposals for capital, margin, and segregation requirements for SBSDs and MSBSPs are based in large part on existing capital, margin, and segregation requirements for broker-dealers (“broker-dealer financial responsibility requirements”).
However, the Commission recognizes that there may be other approaches to establishing financial responsibility requirements that may be appropriate—including, for example, applying a standard based on the international capital standard for banks (“Basel Standard”)
This approach could promote a consistent view and management of capital within a bank holding company structure. The Commission is not proposing this approach, however, both because of the distinctions between bank and nonbank dealer business models and access to backstop liquidity, as well as uncertainties as to how a bank capital standard would in practice affect valuations and the conduct of business in a nonbank entity; but the Commission is specifically seeking comment on this approach. In addition, detailed comment is requested below on alternative financial responsibility frameworks that could serve as a model for establishing financial responsibility requirements for SBSDs and MSBSPs.
The minimum financial and customer protection requirements proposed today—like other financial tests that market participants use in the ordinary course of business to manage risk or to comply with applicable regulations—incorporate many specific numerical thresholds, limits, deductions, and ratios.
The Commission notes in this regard that the specific quantitative requirements included in this proposal have not been derived directly from econometric or mathematical models, nor has the Commission performed a detailed quantitative analysis of the likely economic consequences of the specific quantitative requirements being included in this proposal. As discussed in the economic analysis below, there are a number of challenges presented in conducting such a quantitative analysis in a robust fashion. Accordingly, the selection of a particular quantitative requirement proposed below reflects a qualitative assessment by the Commission regarding the appropriate financial standard for an identified issue. In making such assessments and in turn selecting proposed quantitative requirements, the Commission has drawn from its experiences in regulating broker-dealers and has frequently looked to comparable quantitative elements in the existing broker-dealer financial responsibility regime (
The Commission invites comment, including relevant data and analysis, regarding all aspects of the various quantitative requirements reflected in the proposed rules. In particular, data and comment from market participants and other interested parties regarding the likely effect of each proposed quantitative requirement, the effect of such requirements in the aggregate, and potential alternative requirements will be particularly useful to the Commission in evaluating modifications to the proposals. Commenters are also requested to describe in detail any econometric or mathematical models or economic analyses of data, to the extent they exist, that they believe would be relevant for evaluating or modifying any quantitative provisions contained in the proposals.
The Commission staff consulted with the prudential regulators and the CFTC in drafting the proposals discussed in this release.
The capital, margin, and segregation requirements ultimately adopted, like other requirements established under the Dodd-Frank Act, could have a substantial impact on international commerce and the relative competitive position of intermediaries operating in various, or multiple, jurisdictions. In particular, intermediaries operating in the U.S. and in other jurisdictions could be advantaged or disadvantaged if corresponding requirements are not established in other jurisdictions or if the Commission's rules are substantially more or less stringent than corresponding requirements in other jurisdictions. This could, among other potential impacts, affect the ability of intermediaries and other market participants based in the U.S. to participate in non-U.S. markets, the ability of non-U.S.-based intermediaries and other market participants to participate in U.S. markets, and whether and how international firms make use of global “booking entities” to centralize risks related to security-based swaps. These issues have been the focus of numerous comments to the Commission and other regulators, Congressional inquiries, and other public dialogue.
The potential international implications of the proposed capital, margin, and segregation requirements warrant further consideration. However, consistent with the Commission's general approach with respect to its other proposals under Title VII, these implications are recognized here but not fully addressed. Instead, the Commission intends to publish a comprehensive release seeking public comment on the full spectrum of issues relating to the application of Title VII to cross-border security-based swap transactions and non-U.S. persons that act in capacities regulated under the Dodd-Frank Act. This approach will provide market participants, foreign regulators, and other interested parties with an opportunity to consider, as an integrated whole, the proposed approach to the cross-border application of Title VII, including capital, margin, and segregation requirements.
Section 15F(e)(1)(B) of the Exchange Act requires that the Commission prescribe capital requirements for nonbank SBSDs and nonbank MSBSPs.
As described above, the capital and other financial responsibility requirements for broker-dealers generally provide a reasonable template for crafting the corresponding requirements for nonbank SBSDs. For example, among other considerations, the objectives of capital standards for both types of entities are similar. Rule 15c3–1, described in detail below, is a net liquid assets test that is designed to require a broker-dealer to maintain sufficient liquid assets to meet all obligations to customers and counterparties and have adequate additional resources to wind-down its business in an orderly manner without the need for a formal proceeding if it fails financially.
In addition, the Dodd-Frank Act divided responsibility for SBSDs by providing the prudential regulators with authority to prescribe the capital and margin requirements for bank SBSDs and the Commission with authority to prescribe capital and margin requirements for nonbank SBSDs.
For these reasons, the proposed capital standard for nonbank SBSDs is a net liquid assets test modeled on the broker-dealer capital standard in Rule 15c3–1.
The capital standard in Rule 15c3–1—that serves as a model for the proposed capital standard for nonbank SBSDs—is a net liquid assets test. This standard is designed to promote liquidity; the rule allows a broker-dealer to engage in activities that are part of conducting a securities business (
Rule 15c3–1 requires broker-dealers to maintain a minimum level of net capital (meaning highly liquid capital) at all times.
In computing net capital, the broker-dealer must, among other things, make certain adjustments to net worth such as deducting illiquid assets and taking other capital charges and adding qualifying subordinated loans.
A different capital standard than the net liquid assets test is proposed for nonbank MSBSPs. As discussed in more detail below, proposed Rule 18a–2 would require nonbank MSBSPs to maintain positive tangible net worth.
The Commission generally requests comment on the proposals to impose a net liquid assets test capital standard for nonbank SBSDs and a tangible net worth standard for nonbank MSBSPs. In addition, the Commission requests comment, including empirical data in support of comments, in response to the following questions:
1. Will the entities that register as nonbank SBSDs engage in a securities business with respect to security-based swaps that is similar to the securities business conducted by broker-dealers? If not, describe how the securities activities of nonbank SBSDs will differ from the securities activities of broker-dealers.
2. Will some broker-dealers register as nonbank SBSDs? If so, which types of broker-dealers and which types of activities do these broker-dealers currently engage in?
3. Should there be different capital standards for nonbank SBSDs depending on whether they are registered as broker-dealers or affiliated with bank holding companies, or not registered as broker-dealers and not affiliated with bank holding companies? If so, explain why. If not, explain why not. For example, should stand-alone SBSDs be subject to a tangible net worth standard or, if affiliated with a bank holding company, the bank capital standard? Would different standards create competitive advantages? If so, explain why. If different capital standards would be appropriate, explain the appropriate capital standard that should apply to each of these classes of nonbank SBSDs.
4. Generally, is there a level of capital under which counterparties will not transact with a dealer in OTC derivatives because the counterparty credit risk is too great? If so, identify that level of capital.
5. Will stand-alone SBSDs seek to effect transactions in securities OTC derivatives products other than security-based swaps, such as OTC options, that would necessitate registration as a broker-dealer? If so, would registering as a limited purpose broker-dealer under the provisions applicable to OTC derivatives dealers provide a workable alternative to registering as a full-service broker-dealer? For example, would there be conflicts between the proposed capital, margin, and segregation requirements for SBSDs and the existing requirements for OTC derivatives dealers? If so, identify the conflicts.
6. Should the requirements for OTC derivatives dealers be amended (by exemptive relief or otherwise) to accommodate firms that want to deal in security-based swaps? If so, explain how the requirements should be amended and why.
7. Should the Commission exempt nonbank SBSDs engaged in activities with respect to securities OTC derivatives products other than security-based swaps from any requirements applicable to OTC derivatives dealers? Please identify which requirements and explain why.
8. As discussed below, the proposed minimum net capital requirements would differ substantially for stand-alone SBSDs that are approved to use models in computing net capital (
9. Describe the types of entities that may need to register as MSBSPs and how the activities that these entities engage in would impact the entity's capital position.
10. Should nonbank MSBSPs be subject to a net liquid assets test capital standard (in contrast to a tangible net worth test)? If so, explain why. If not, explain why not.
As discussed in detail below, proposed new Rule 18a–1 would prescribe capital requirements for stand-alone SBSDs and amendments to Rule 15c3–1 would prescribe capital requirements for broker-dealer SBSDs. Proposed new Rule 18a–1 would require a stand-alone SBSD to compute net capital using standardized haircuts prescribed in the rule (including standardized haircuts specifically for security-based swaps and swaps) or, alternatively, with Commission approval, to use internal models for positions for which the stand-alone SBSD has been approved to use internal models. Under the proposed amendments to Rule 15c3–1, a broker-dealer SBSD would be required to use the existing standardized haircuts in the rule plus proposed new additional standardized haircuts specifically for security-based swaps and swaps. A broker-dealer SBSD that seeks to compute net capital using internal models would need to apply to the Commission for approval to operate as an ANC broker-dealer. A nonbank SBSD permitted to use internal models to compute net capital (whether a stand-alone SBSD subject to proposed new Rule 18a–1 or an ANC broker-dealer subject to Rule 15c3–1, as amended) would need to comply with additional requirements as compared to a nonbank SBSD that is not approved to use internal models. This would be consistent with the existing requirements in Rule 15c3–1, which impose additional requirements on ANC broker-dealers and OTC derivatives dealers as compared with other broker-dealers.
Rule 15c3–1 prescribes the minimum net capital requirement for a broker-dealer as the greater of a fixed-dollar amount specified in the rule and an amount determined by applying one of two financial ratios: the 15-to-1 aggregate indebtedness to net capital ratio or the 2% of aggregate debit items ratio.
A stand-alone SBSD would be subject to the capital requirements set forth in proposed new Rule 18a–1. Under this proposed new rule, a stand-alone SBSD that is not approved to use internal models to compute haircuts would be required to maintain minimum net capital of not less than the greater of $20 million or 8% of the firm's
The proposed $20 million fixed-dollar minimum requirement would be the same as the fixed-dollar minimum
Further, the CFTC proposed a $20 million fixed-dollar “tangible net equity” minimum requirement for swap dealers and major swap participants that are not FCMs
At the same time, the proposed $20 million fixed-dollar minimum requirement for stand-alone SBSDs that do not use internal models to calculate net capital would be substantially higher than the fixed-dollar minimums in Rule 15c3–1 currently applicable to broker-dealers that do not use internal models (
This level of minimum capital may be appropriate because of the nature of the business of a stand-alone SBSD and the differences from the business of a broker-dealer or OTC derivatives dealer. Generally, OTC derivatives, such as security-based swaps, are contracts between a dealer and its counterparty. Consequently, the counterparty's ability to collect amounts owed to it under the contract depends on the financial wherewithal of the dealer. In contrast, the returns on financial instruments held by a broker-dealer for an investor (other than a derivative issued by the broker-dealer) are not linked to the financial wherewithal of the broker-dealer holding the instrument for the customer. Accordingly, if a stand-alone SBSD fails, the counterparty may not be able to liquidate the contract or replace the contract with a new counterparty without incurring a loss on the position. The entities that will register and operate as nonbank SBSDs should be sufficiently capitalized to minimize the risk that they cannot meet their obligations to counterparties, particularly given that the counterparties will not be limited to other dealers but will include customers and other counterparties as well.
In addition, stand-alone SBSDs will not be subject to the same limitations that apply to OTC derivative dealers in effecting transactions with customers and engaging in dealing activities.
Consequently, stand-alone SBSDs that do not use internal models would be subject to the same $20 million fixed-dollar minimum net capital requirement that applies to OTC derivatives dealers. The same firms would not, however, be subject to a minimum tentative net capital requirement, which is applied to firms that use internal models to account for risks that may not be fully captured by the models.
The proposed 8% margin factor would be part of determining the stand-alone SBSD's minimum net capital requirement. As noted above, the stand-alone SBSD would determine this amount by adding:
• The greater of the total margin required to be delivered by the stand-alone SBSD with respect to security-based swap transactions cleared for security-based swap customers at a clearing agency or the amount of the deductions that would apply to the cleared security-based swap positions of the security-based swap customers pursuant to paragraph (c)(1)(vi) of Rule 18a–1;
• The total
The total of these two amounts—
Under the proposed rule, nonbank SBSDs—including stand-alone SBSDs that are not approved to use internal models to calculate net capital—would be subject to a minimum net capital requirement that increases in tandem with an increase in the risks associated with nonbank SBSD's security-based swap activities.
The amount computed under the 8% margin factor generally would increase as the stand-alone SBSD increased the volume, size, and risk of its security-based swap transactions. Specifically, the proposed definition of the term
As proposed, the 8% margin factor is determined using the greater of required margin or standardized haircuts with respect to cleared security-based swaps
The Commission generally requests comment on the proposed minimum net capital requirements in proposed new Rule 18a–1 for stand-alone SBSDs that are not approved to use internal models to compute net capital. In addition, the Commission requests comment, including empirical data in support of comments, in response to the following questions:
1. Is the proposed $20 million minimum net capital requirement for stand-alone SBSDs not using internal models appropriate? If not, explain why not. What minimum amount would be more appropriate? For example, should the minimum fixed-dollar amount be greater than $20 million to account for the broader range of activities that stand-alone SBSDs will be able to engage in as compared with OTC derivatives dealers? If so, explain why. If it should be a greater amount, how much greater should it be (
2. Is the proposed definition of
3. Is the component of the
4. Should the proposed definition of
5. Is the component of the
6. Is the 8% margin factor an appropriate metric for determining a nonbank SBSD's minimum net capital requirement in terms of increasing a nonbank SBSD's minimum net capital requirement as the risk of its security-based swap activities increases? If not, explain why not. For example, should the percentage be greater than 8% (
7. Should the 8% multiplier be tiered as the amount of the risk margin amount increases? If so, explain why. For example, should the multiplier decrease from 8% to 6% for the amount of the risk margin amount that exceeds a certain threshold, such as $1 billion or $5 billion? If so, explain why. Should the amount of the multiplier increase from 8% to 10% for the amount of the risk margin amount that exceeds a certain threshold such as $1 billion or $5 billion? If so, explain why.
8. Should the 8% margin factor be an adjustable ratio (
9. Would the 8% margin factor be a sufficient minimum net capital requirement without the $20 million fixed-dollar minimum? If so, explain why.
10. Are there metrics other than a fixed-dollar minimum and the 8% margin factor for calculating required minimum capital that would more appropriately reflect the risk of nonbank SBSDs? If so, identify them and explain why they would be preferable. For example, instead of an absolute fixed-dollar minimum, should the minimum net capital requirement be linked to a scalable metric such as the size of the nonbank SBSD or the amount of the deductions taken by the nonbank SBSD when computing net capital? For any scalable minimum net capital requirements identified, explain how the computation would work in practice and how the minimum requirement would address the same objectives of a fixed-dollar minimum.
11. Would the 8% margin factor address the risk of extremely large nonbank SBSDs? If not, explain why not. For example, if the customer margin requirements for cleared and non-cleared security-based swaps carried by the nonbank SBSD were low because the positions were hedged or otherwise not high risk, the 8% margin
12. Would the 8% margin factor provide an appropriate and workable restraint on the amount of leverage incurred by stand-alone SBSDs not using internal models because the amount of minimum net capital would increase as the risk margin amount increases? If not, explain why not. Is there another measure that would more accurately and effectively address the leverage risk of these firms? If so, identify the measure and explain why it would be more accurate and effective.
13. Should the 8% margin factor be applied to margin related to cleared and non-cleared swap transactions in addition to security-based swap transactions? For example, the provision could require that 8% of the margin required for cleared and non-cleared swaps be added to the 8% of margin required for cleared and non-cleared security-based swaps in determining the minimum net capital requirement. Would this be a workable approach to address the fact that the CFTC's proposed 8% margin requirement would not apply to swap dealers that are not registered as FCMs and, with respect to dually-registered FCM swap dealers, it would apply only to cleared swaps? Including swaps in the 8% margin factor calculation would provide for equal treatment of security-based swaps and swaps in determining a minimum net capital requirement. Would this be a workable approach? If so, explain why. If not, explain why not.
14. Would the 8% margin factor be practical as applied to a portfolio margin account that contains security-based swaps and swaps? If so, explain why. If not, explain why not.
15. What will be the practical impacts of the 8% margin factor? For example, what will be the effect on transaction costs, liquidity in security-based swaps, availability of capital to support security-based swap transactions generally and/or for non-security-based swap-related uses, use of security-based swaps for hedging purposes, risk management at SBSDs, the costs for potential new SBSDs to participate in the security-based swap markets, etc.? How would these impacts increase or decrease if the 8% margin factor were set at a higher or lower percentage?
A broker-dealer that registers as an SBSD would continue to be subject to the capital requirements in Rule 15c3–1, as proposed to be amended to account for security-based swap activities. Proposed amendments to paragraph (a) of Rule 15c3–1 would establish minimum net capital requirements for a broker-dealer SBSD that is not approved to use internal models to compute net capital.
In addition, a broker-dealer SBSD that does not use internal models would be required to use the 8% margin factor to compute its minimum net capital amount. As discussed above in section II.A.2.a.i. of this release, the 8% margin factor is designed to adjust the broker-dealer SBSD's minimum net capital requirement in tandem with the risk associated with the broker-dealer SBSD's security-based swap activity. Without the 8% margin factor, the minimum net capital requirement for a broker-dealer SBSD would be the same (
Moreover, the broker-dealer SBSD—as a broker-dealer—would be subject to the existing financial ratio requirements in Rule 15c3–1 and, therefore, would need to include the applicable financial ratio amount when determining the firm's minimum net capital requirement.
The proposed amendments to Rule 15c3–1 would provide that a broker-dealer SBSD that is not approved to use internal models would be required to maintain a minimum net capital level of not less than the greater of: (1) $20 million or (2) the financial ratio amount required pursuant to paragraph (a)(1) of Rule 15c3–1
The Commission generally requests comment on the proposed minimum net capital requirements for broker-dealer SBSDs that are not approved to use internal models. Commenters are referred to the general questions above in section II.A.2.a.i. of this release about the 8% margin factor as applied broadly to nonbank SBSDs. In addition, the Commission requests comment, including empirical data in support of comments, in response to the following questions:
1. Is the proposed $20 million minimum net capital requirement appropriate for broker-dealer SBSDs that are not approved to use internal models? If not, explain why not. What minimum amount would be more appropriate? For example, should the minimum fixed-dollar amount be greater than $20 million to account for the broader range of activities that broker-dealer SBSDs will be able to engage in (
2. Is combining the 8% margin factor requirement with the applicable Rule 15c3–1 financial ratio requirement an appropriate way to determine a minimum net capital requirement for broker-dealer SBSDs that are not approved to use internal models? If not, explain why not.
3. Would the 8% margin factor combined with the Rule 15c3–1 financial ratio provide an appropriate and workable restraint on the amount of leverage incurred by broker-dealer SBSDs not using internal models? If not, explain why not. Is there another measure that would more accurately and effectively address the leverage risk of these firms? If so, identify the measure and explain why it would be more accurate and effective.
As discussed above, a stand-alone SBSD would be subject to the capital requirements in proposed new Rule 18a–1.
A stand-alone SBSD approved to use internal models also would be subject to a minimum tentative net capital requirement of $100 million.
The Commission generally requests comment on the proposed capital requirements for stand-alone SBSDs using internal models. Commenters are referred to the general questions above in section II.A.2.a.i. of this release about the 8% margin factor as applied broadly to nonbank SBSDs. In addition, the Commission requests comment, including empirical data in support of comments, in response to the following questions:
1. Is the proposed minimum net capital requirement of $20 million appropriate for stand-alone SBSDs that are approved to use internal models, in comparison to OTC derivatives dealers which are more limited by the activities they are permitted to conduct (such as being prohibited from effecting transactions with customers)? If not, explain why not. What minimum amount would be more appropriate? For example, should the minimum fixed-dollar amount be greater than $20 million to account for the use of internal models? If it should be a greater amount, how much greater should it be (
2. Is it necessary to impose a minimum tentative net capital requirement for stand-alone SBSDs using internal models to capture additional risks not incorporated into VaR models (consistent with those tentative minimum met capital requirements imposed on OTC derivatives dealers)? If not, why not?
3. Is the proposed amount of the minimum tentative net capital level of $100 million for stand-alone SBSDs using internal models appropriate? If not, explain why not. For example, should the minimum tentative net capital amount be greater than $100 million to account for the use of internal models? If it should be a greater amount, how much greater should it be (
4. Are there metrics other than a fixed-dollar minimum tentative net capital requirement that would more appropriately reflect the risk of nonbank SBSDs? If so, identify them and explain why they would be preferable. For example, instead of an absolute fixed-dollar minimum tentative net capital requirement, should the minimum tentative net capital requirement be linked to a scalable metric such as the size of a nonbank SBSD? For any scalable minimum tentative net capital requirements identified, explain how the computation would work in practice and how the minimum requirement would address the same objectives of a fixed-dollar minimum. Would the 8% margin factor provide an appropriate and workable restraint on the amount of leverage incurred by stand-alone SBSDs that are approved to use internal models? Is there another measure that would more accurately and effectively address the leverage risk of these firms? If so, identify the measure and explain why it would be more accurate and effective.
Under the current requirements of Rule 15c3–1, a broker-dealer that seeks to use internal models to compute net capital must apply to the Commission to become an ANC broker-dealer.
Under the proposed amendments, the current net capital requirements for ANC broker-dealers in Rule 15c3–1 would be enhanced to account for the firms' large size, the scale of their custodial activities, and the potential that they may become substantially more active in the security-based swap markets under the Dodd-Frank Act's OTC derivatives reforms. As discussed in more detail below, the proposed enhancements would include increasing the minimum tentative net capital and minimum net capital requirements; increasing the “early warning” notice threshold; narrowing the types of unsecured receivables for which ANC broker-dealers may take a credit risk charge in lieu of a 100% deduction; and requiring ANC broker-dealers to comply with a new liquidity requirement.
Currently, an ANC broker-dealer must maintain minimum tentative net capital of at least $1 billion and minimum net capital of at least $500 million.
The proposals to strengthen the requirements for ANC broker-dealers are made in response to issues that arose during the 2008 financial crisis, recognizing the large size of these firms, and the scale of their custodial responsibilities. The proposals also are based on the Commission staff's experience supervising the ANC broker-dealers. The financial crisis demonstrated the risks to financial firms when market conditions are stressed and how the failure of a large firm can accelerate the further deterioration of market conditions.
Under the proposed amendments to Rule 15c3–1, ANC broker-dealers would be required to maintain: (1) Tentative net capital of not less than $5 billion; and (2) net capital of not less than the greater of $1 billion or the financial ratio amount required pursuant to paragraph (a)(1) of Rule 15c3–1
As indicated above, the proposed amendments to Rule 15c3–1 would require an ANC broker-dealer to incorporate the 8% margin factor into its net capital calculation.
Under the proposal, an ANC broker-dealer would be required to provide early warning notification to the Commission if its tentative net capital fell below $6 billion.
The rules applicable to ANC broker-dealers provide that the Commission may impose additional conditions on an ANC broker-dealer under certain circumstances.
The Commission generally requests comment on the proposed minimum capital requirements for ANC broker-dealers. Commenters are referred to the general questions above in section II.A.2.a.i. of this release about the 8% margin factor as applied broadly to nonbank SBSDs. In addition, the Commission requests comment, including empirical data in support of comments, in response to the following questions:
1. Is the proposed increased minimum net capital requirement from $500 million to $1 billion for ANC broker-dealers appropriate? If not, explain why not. What minimum amount would be preferable? For example, should the minimum fixed-dollar amount be greater than $1 billion to account for the large size of these firms and the scale of their custodial activities? If so, explain why. If it should be a greater amount, how much greater should it be (
2. Is the proposed increase in the minimum tentative net capital level for ANC broker-dealers appropriate? If not, explain why not. For example, should the minimum tentative net capital amount be greater than $5 billion to account for the use of internal models and the large size of these firms and the scale of their custodial activities? If it should be a greater amount, how much greater should it be (
3. Is the proposed increase in the early warning threshold from $5 billion to $6 billion for ANC broker-dealers appropriate? If not, explain why not. For example, should the minimum tentative net capital amount be greater than $6 billion, given that the current early warning threshold ($5 billion) is five times the current tentative net capital requirement ($1 billion)? If the early warning level should be a greater amount, how much greater should it be (
4. Is it appropriate to require broker-dealer SBSDs to become ANC broker-dealers in order to use internal models? For example, would it be appropriate to permit broker-dealer SBSDs to use internal models but subject them to lesser minimum capital requirements than the ANC broker-dealers? If so, explain why. In addition, provide suggested alternative minimum capital requirements.
5. Is combining the 8% margin factor requirement with the applicable Rule 15c3–1 financial ratio requirement an appropriate way to determine a minimum net capital requirement for ANC broker-dealers? If not, explain why not.
6. Would the 8% margin factor provide an appropriate and workable restraint on the amount of leverage incurred by ANC broker-dealers? If not, explain why not. Is there another measure that would more accurately and effectively address the leverage risk of these firms? If so, identify the measure and explain why it would be more accurate and effective.
On June 7, 2012, the OCC, the FDIC, and the Federal Reserve (collectively, the “Banking Agencies”) approved a joint final rule (“Final Rule”) regarding market risk capital rules.
Under the Final Rule, the capital charge for market risk is the sum of: (1) Its VaR-based capital requirement; (2) its stressed VaR-based capital requirement; (3) any specific risk add-ons; (4) any incremental risk capital requirement; (5) any comprehensive risk capital requirement; and (6) any capital requirement for
The Banking Agencies' stressed VaR-based capital requirement is a new requirement that banks calculate a VaR measure with model inputs calibrated to reflect historical data from a continuous 12-month period that reflects a period of significant financial stress appropriate to the bank's current portfolio. The stressed VaR requirement is designed to address concerns that the Banking Agencies' existing VaR-based measure, due to inherent limitations, proved inadequate in producing capital requirements appropriate to the level of losses incurred at many banks during the financial crisis and to mitigate
The Final Rule also specifies modeling standards for specific risk and eliminates the current option for a bank to model some but not all material aspects of specific risk for an individual portfolio of debt or equity positions. To address concerns about the ability to model specific risk of securitization products, the Final Rule would require a bank to calculate an additional capital charge “add-on” for certain securitization positions that are not correlation trading positions.
Further, under the Final Rule, a bank that measures the specific risk of a portfolio of debt positions using internal models is required to calculate an incremental risk measure for those positions using an internal model (an incremental risk model). Generally, incremental risk consists of the risk of default and credit migration risk of a position. Under the Final Rule, an internal model used to calculate capital charges for incremental risk must measure incremental risk over a one-year time horizon and at a one-tail, 99.9% confidence level, either under the assumption of a constant level of risk, or under the assumption of constant positions.
A bank may measure all material price risk of one or more portfolios of correlation trading positions using a comprehensive risk model. Among the requirements for using a comprehensive risk model is that the model measure comprehensive risk consistent with a one-year time horizon and at a one-tail, 99.9% confidence level, under the assumption of either a constant level of risk or constant positions.
The Commission seeks comment on whether the Final Rule adopted by the Banking Agencies for calculating market risk capital requirements should be required for ANC broker-dealers, OTC derivatives dealers, and nonbank SBSDs that have approval to use internal models for regulatory capital purposes, and, if so, which aspects of the proposed rules of the Banking Agencies would be appropriate in this context.
The net liquid assets test embodied in Rule 15c3–1 is being proposed as the regulatory capital standard for all nonbank SBSDs (
The net liquid assets test is imposed through the mechanics of how a broker-dealer is required to compute net capital pursuant to Rule 15c3–1. These requirements are set forth in paragraph (c)(2) of Rule 15c3–1, which defines the term “net capital.”
The first adjustment permits the broker-dealer to add back to net worth liabilities that are subordinated to all other creditors pursuant to a loan agreement that meets requirements set forth in Appendix D to the net capital rule.
The second adjustment to net worth is that the broker-dealer must add unrealized gains and deduct unrealized losses in the firm's accounts, mark-to-market all long and short positions in listed options, securities, and commodities as well as add back certain deferred tax liabilities.
The third adjustment is that the broker-dealer must deduct from net worth any asset that is not readily convertible into cash.
As discussed in more detail below, the final step in the process of computing net capital is to take deductions from tentative net capital to account for the market risk inherent in the proprietary positions of the broker-dealer and to create a buffer of extra liquidity to protect against other risks associated with the securities business.
In order to comply with the proposed net liquid assets test capital standard for nonbank SBSDs, broker-dealer SBSDs would be required to comply with the existing provisions of Rule 15c3–1 and proposed amendments to the rule designed to account for security-based swap activities. Consequently, a broker-dealer SBSD would compute its net capital pursuant to the provisions described above. Stand-alone SBSDs would be subject to the net liquid assets test capital standard through application of proposed new Rule 18a–1.
As discussed above, Rule 15c3–1 provides two alternative approaches for taking the deductions to tentative net capital to compute net capital: standardized haircuts and internal VaR models.
Nonbank SBSDs would be required to apply the standardized haircuts currently set forth in Rule 15c3–1 for securities positions for which they have not been approved to use internal models.
Security-based swaps currently are not an identified class of securities in Rule 15c3–1.
The proposals would establish two separate sets of standardized haircuts for security-based swaps: one applicable to security-based swaps that are credit default swaps and one applicable to other security-based swaps.
The proposed standardized haircuts for cleared and uncleared security-based swaps that are credit default swaps (“CDS security-based swaps”) are designed to account for the unique attributes of these positions.
In addition to the entity or asset-backed security to which they reference, CDS security-based swaps are defined by the amount of protection purchased (the notional amount) and the tenor of the contract (
The proposed standardized haircuts for CDS security-based swaps would be based on a “maturity grid” approach.
Time to Maturity and Deduction
Less than 1 year—2.0%
1 year but less than 2 years—3.0%
2 years but less than 3 years—5.0%
3 years but less than 5 years—6.0%
5 years but less than 10 years—7.0%
10 years but less than 15 years—7.5%
15 years but less than 20 years—8.0%
20 years but less than 25 years—8.5%
25 years or more—9%
The proposed grid for CDS security-based swaps would prescribe the applicable deduction based on two variables: the length of time to maturity of the CDS security-based swap contract and the amount of the current offered basis point spread on the CDS security-based swap.
The number of maturity and spread categories in the proposed grid for CDS security-based swaps is based on Commission staff experience with the maturity grids for other securities in Rule 15c3–1 and, in part, on FINRA Rule 4240.
The horizontal “spread” axis is designed to address the specific credit risk associated with the obligor or obligation referenced in the contract. As noted above, the spread increases as the protection seller's estimation of the likelihood of a credit event occurring increases. Therefore, the net capital deduction—which is designed to address the risk inherent in the instrument—should increase as the spread increases. Combining the two components (maturity and spread) in the grid results in the smallest deduction (1% of notional) required for a short CDS security-based swap with a maturity of 12 months or less and a spread of 100 basis points or below and the largest deduction (50% of notional) required for a short CDS security-based swap with a maturity of 121 months or longer and a spread of 700 basis points or more. The deduction for an un-hedged short position in a CDS security-based swap (
The proposed deduction requirements for CDS security-based swaps would permit a nonbank SBSD to net long and short positions where the credit default swaps reference the same entity (in the case of CDS securities-based swaps referencing a corporate entity) or
A reduced deduction also could be taken for long and short CDS security-based swap positions in the same maturity and spread categories and that reference corporate entities in the same industry sector.
Reduced deductions also would apply for strategies where the firm is long (short) a bond or asset-backed security and long (short) protection through a CDS security-based swap referencing the same underlying bond or asset-backed security. In the case where the nonbank SBSD is long a bond or an asset-backed security and long protection through a credit default swap, the nonbank SBSD would be required to take 50% of the deduction required on the bond (
Security-based swaps that are not credit default swaps (each, a “non-CDS security-based swap”) can be divided into two broad categories: those that reference equity securities and those that reference debt instruments.
The proposed standardized haircut for a non-CDS security-based swap would be the deduction currently prescribed in Rule 15c3–1 applicable to the instrument referenced by the security-based swap multiplied by the contract's notional amount.
The examples above reflect the proposed standardized haircuts for a single non-CDS security-based swap treated in isolation. It is expected that nonbank SBSDs will maintain portfolios of multiple non-CDS security-based swaps with offsetting long and short positions to hedge their risk. Under the proposed standardized haircuts for non-CDS security-based swaps, nonbank SBSDs would be able to recognize the offsets currently permitted under Rule 15c3–1.
Appendix A to Rule 15c3–1 prescribes a standardized theoretical pricing model to determine a potential loss for a portfolio of equity positions involving the same equity security to establish a single haircut for the group of positions (“Appendix A methodology”).
Under the Appendix A methodology (as proposed to be amended), a nonbank SBSD could group equity security-based swaps, options, security futures, long securities positions, and short securities positions involving the same underlying security (
With respect to portfolios of debt security-based swaps, a nonbank SBSD could use the offsets permitted in the debt-maturity grids in Rule 15c3–1.
The Commission generally requests comment on the proposed standardized haircuts for calculating deductions for security-based swaps. In addition, the Commission requests comment, including empirical data in support of comments, in response to the following questions:
1. Is the proposed maturity/spread grid approach for CDS security-based swaps appropriate in terms of addressing the risk of these positions? If not, explain why not. How could the proposed maturity/spread grid approach be modified to better address the risk of these positions?
2. Do broker-dealers currently use the spread/maturity grid in FINRA Rule 4240 to determine capital charges for credit default swaps? If so, what has been the experience of broker-dealers in using the grid? If not, what potential practical issues does the maturity/spread grid raise? Are there ways these practical issues could be addressed through modifications to the proposed maturity/spread grid?
3. Is there an alternative maturity/spread grid approach that would be a preferable model for the standardized haircuts? If so, identify the model and explain why it would be preferable. For example, should the standardized haircut for a CDS security-based swap that references an obligation be based on the standardized haircut that would apply to the obligation under paragraph (c)(2)(vi) of Rule 15c3–1? If so, explain why. If not, explain why not. How could a CDS security-based swap that references an obligor as an entity be addressed under such a standardized haircut approach? For example, could the standardized haircut that would apply to obligations (
4. Are the proposed spread categories for the CDS security-based swap grid appropriate? If not, explain why not. For example, should there be more spread categories? If so, specify the total number of recommended spread categories and the basis point ranges that should be in each category, and explain why the recommended modifications would be preferable. Should there be fewer spread categories? If so, specify the total number of recommended spread categories and the basis point ranges that should be in each category, and explain why the recommended modifications would be preferable.
5. Would there always be an observable current offered basis point spread for purposes of determining the applicable spread category for a CDS security-based swap? If it could be the case that a CDS security-based swap does not have an observable current offered spread, how should the spread category be determined and how should the rule be modified to require the use of the determined spread category? For example, should the rule require that the nonbank SBSD apply the greatest percentage deduction applicable to the CDS security-based swap based on its maturity (
6. Are the proposed maturity categories for the CDS security-based swap grid appropriate? If not, explain why not. For example, should there be more maturity categories? If so, specify the total number of recommended maturity categories and the time ranges that should be in each category, and explain why the recommended modifications would be preferable. Should there be fewer maturity categories? If so, specify the total number of recommended maturity categories and the time ranges that should be in each category, and explain why the recommended modifications would be preferable.
7. Are the proposed percentage deductions in the CDS security-based swap grid appropriate? If not, explain why not. For example, should the percentage deductions be greater? If so, specify the greater deductions and explain why they would be preferable. Should the percentage deductions be lesser? If so, specify the lesser deductions and explain why it would be preferable.
8. Is the proposed 50% reduced deduction for long CDS security-based swaps appropriate? If not, explain why not. For example, should the amount of the reduced deduction be greater? If so, specify the amount and explain why it would be preferable. Should the amount of the reduced deduction be lesser? If so, specify the lesser amount and explain why it would be preferable.
9. Is the proposed offset and corresponding reduced deduction for net long and short positions where the CDS security-based swaps reference the same obligor or obligation and are in the
10. Is the proposed offset and corresponding reduced deduction for net long and short positions where the CDS security-based swaps reference the same obligor or obligation, are in the same spread category, and are in an adjacent maturity category and have maturities within three months of the other maturity category appropriate? If not, explain why not.
11. Is the proposed offset and corresponding reduced deduction for long and short CDS security-based swap positions in the same maturity and spread categories and that reference obligors or obligations of obligors in the same industry sector appropriate? If not, explain why not.
12. Should the rule specify an industry sector classification system? If so, specify the recommended industry sector classification system and explain why it would be useful for the purposes of the standardized haircuts for CDS security-based swaps.
13. If a nonbank SBSD uses its own industry sector classification system, what factors would be relevant in evaluating whether the system is reasonable?
14. Should there be a concentration charge that would apply when the notional amount of the long and short CDS security-based swap positions in the same maturity and spread categories and that reference obligors or obligations of obligors in the same industry sector exceed a certain threshold to account for the potential that long and short positions may not directly offset each other? If so, explain why. If not, explain why not.
15. Is the proposed deduction for a position where a nonbank SBDS is long a bond and long a CDS security-based swap on the same underlying obligor appropriate? If not, explain why not. For example, is the proposed provision that the reduced deduction would apply only if the CDS security-based swap allowed the nonbank SBSD to deliver the bond to satisfy the firm's obligation on the swap appropriate? If not, explain why not. Additionally, is reducing the deduction applicable to the bond by 50% an appropriate reduction level? Should the reduction be less than 50% (
16. Is the proposed reduced deduction for a position where a nonbank SBDS is short a bond and short a CDS security-based swap on the same underlying bond appropriate? If not, explain why not.
17. Should the Commission propose separate grids for CDS security-based swaps that reference a single obligor or obligation and CDS security-based swaps that reference a narrow based index? If so, how should the two grids differ?
18. Are the proposed standardized haircuts for non-CDS security-based swaps appropriate? If not, explain why not. For example, would the risk characteristics of non-CDS security-based swaps (
19. Are there practical issues with treating equity security-based swaps under the Appendix A methodology? If so, describe them. Are there modifications that could be made to the Appendix A methodology to address any practical issues identified? If so, describe the modifications.
20. Are there provisions in Appendix A to Rule 15c3–1 not included in Appendix A to Rule 18a–1 that should be incorporated into the latter rule? If so, identify the provisions and explain why they should be incorporated into Appendix A to Rule 18a–1. For example, should the strategy-based methodology in Appendix A to Rule 15c3–1 be applied to equity security-based swaps? If so, explain why.
21. Are there practical issues with treating debt security-based swaps under the debt maturity grids in Rule 15c3–1? If so, describe them. Are there modifications that could be made to address any practical issues identified? If so, describe the modifications.
The proposed capital requirements for nonbank SBSDs would permit the use of internal VaR models to compute deductions for proprietary securities positions, including security-based swap positions, in lieu of the standardized haircuts. VaR models are used by financial institutions for internal risk management purposes.
Broker-dealer SBSDs that are not already ANC broker-dealers would need to obtain approval to operate as ANC broker-dealers to use internal VaR models to compute net capital. Stand-alone SBSDs also would need to obtain Commission approval to use VaR models for this purpose. The requirements for a broker-dealer to apply for approval to operate as an ANC broker-dealer are contained in Appendix E to Rule 15c3–1.
A broker-dealer applying to become an ANC broker-dealer is required to provide the Commission with, among other things, the following information:
• An executive summary of the information provided to the Commission with its application and an identification of the ultimate holding company of the ANC broker-dealer;
• A comprehensive description of the internal risk management control system of the broker-dealer and how that system satisfies the requirements set forth in Rule 15c3–4;
• A list of the categories of positions that the ANC broker-dealer holds in its proprietary accounts and a brief description of the methods that the ANC broker-dealer will use to calculate deductions for market and credit risk on those categories of positions;
• A description of the mathematical models to be used to price positions and to compute deductions for market risk, including those portions of the deductions attributable to specific risk, if applicable, and deductions for credit risk; a description of the creation, use, and maintenance of the mathematical models; a description of the ANC broker-dealer's internal risk management controls over those models, including a description of each category of persons who may input data into the models; if a mathematical model incorporates empirical correlations across risk categories, a description of the process for measuring correlations; a description of the backtesting procedures the ANC broker-dealer will use to backtest the mathematical model used to calculate maximum potential exposure; a description of how each mathematical model satisfies the applicable qualitative and quantitative requirements set forth in paragraph (d) of Appendix E to Rule 15c3–1; and a statement describing the extent to which each mathematical model used to compute deductions for market and credit risk will be used as part of the risk analyses and reports presented to senior management;
• If the ANC broker-dealer is applying to the Commission for approval to use scenario analysis to calculate deductions for market risk for certain positions, a list of those types of positions, a description of how those deductions will be calculated using scenario analysis, and an explanation of why each scenario analysis is appropriate to calculate deductions for market risk on those types of positions;
• A description of how the ANC broker-dealer will calculate current exposure;
• A description of how the ANC broker-dealer will determine internal credit ratings of counterparties and internal credit risk weights of counterparties, if applicable;
• For each instance in which a mathematical model used by the ANC broker-dealer to calculate a deduction for market risk or to calculate maximum potential exposure for a particular product or counterparty differs from the mathematical model used by the ultimate holding company of the ANC broker-dealer to calculate an allowance for market risk or to calculate maximum potential exposure for that same product or counterparty, a description of the difference(s) between the mathematical models;
• Sample risk reports that are provided to the persons at the ultimate holding company who are responsible for managing group-wide risk and that will be provided to the Commission pursuant to Rule 15c3–1g.
The Commission may request that a broker-dealer applying to operate as an ANC broker-dealer supplement its application (“ANC application”) with other information relating to the internal risk management control system, mathematical models, and financial position of the broker-dealer.
As part of the ANC application approval process, the Commission staff reviews the operation of the broker-dealer's VaR model, including a review of associated risk management controls and the use of stress tests, scenario analyses, and back-testing.
After an ANC application is approved, an ANC broker-dealer is required to amend and submit to the Commission for approval its ANC application before materially changing its VaR model or its internal risk management control system.
An ANC broker-dealer must comply with certain qualitative and quantitative requirements set forth in Appendix E to Rule 15c3–1.
The qualitative requirements in Appendix E to Rule 15c3–1 specify, among other things, that: (1) Each VaR model must be integrated into the ANC broker-dealer's daily internal risk management system;
The quantitative requirements specify that the VaR model of the ANC broker-dealer must, among other things: (1) Use a 99%, one-tailed confidence level with price changes equivalent to a ten-business-day movement in rates and prices;
The deduction an ANC broker-dealer must take to tentative net capital in lieu of the standardized haircuts is an amount equal to the sum of four charges.
Finally, ANC broker-dealers are subject to on-going supervision with respect to their internal risk management, including their use of VaR models.
The Commission generally requests comment on the proposed requirements for using VaR models to compute net capital. In addition, the Commission requests comment, including empirical data in support of comments, in response to the following questions:
1. Would VaR models appropriately account for the risks of security-based swaps? If not, explain why not. For example, do the characteristics of security-based swaps make it more difficult to measure their market risk using VaR models than it is to measure the market risk of other types of securities using VaR models? If so, explain why.
2. Are the application requirements in Appendix E to Rule 15c3–1 an appropriate model for the application requirements in proposed new Rule 18a–1? If not, explain why not.
3. Are there provisions in the application requirements in Appendix E to Rule 15c3–1 not incorporated into proposed new Rule 18a–1 that should be included in the proposed rule, such as information regarding the ultimate holding company of the nonbank SBSD? If so, identify the provisions and explain why they should be incorporated into the proposed rule.
4. Is the review process for ANC applications an appropriate model for the review process for stand-alone SBSDs seeking approval to use internal models to compute net capital? If not, explain why not.
5. Are there ways to facilitate the timely review of applications from nonbank SBSDs to use internal models if a large number of applications are filed at the same time? For example, could a more limited review process be used if a banking affiliate of a nonbank SBSD has been approved by a prudential regulator to use the same model the nonbank SBSD intends to use? If so, what conditions should attach to such approval? Are there other indicia of the reliability of such models that could be relied on?
6. Are the qualitative requirements in Appendix E to Rule 15c3–1 an appropriate model for the qualitative requirements in proposed new Rule 18a–1?
7. More generally, are the qualitative requirements in Appendix E to Rule 15c3–1 appropriate for VaR models that will include security-based swaps? If not, explain why not. For example, are there additional or alternative qualitative requirements that should be required to address the unique risk characteristics of security-based swaps? If so, describe them and explain why they would be appropriate qualitative requirements.
8. Are the quantitative requirements in Appendix E to Rule 15c3–1 an appropriate model for the quantitative requirements in proposed new Rule 18a–1? If not, explain why not.
9. More generally, are the quantitative requirements in Appendix E to Rule 15c3–1 appropriate for VaR models that will include security-based swaps? If not, explain why not. For example, are there additional or alternative quantitative requirements that should be required to address the unique risk characteristics of security-based swaps? If so, describe them and explain why they would be preferable.
10. Are the components of the deduction an ANC broker-dealer must take from tentative net capital under Appendix E to Rule 15c3–1 an appropriate model for the components of the deduction a stand-alone SBSD approved to use internal models would be required to take from tentative net capital under proposed new Rule 18a–1? If not, explain why not.
11. Should the Commission employ the same type of on-going monitoring process used for ANC broker-dealers to monitor stand-alone SBSDs using internal models? If not, explain why not.
Obtaining collateral is one of the ways dealers in OTC derivatives manage their credit risk exposure to OTC derivatives counterparties.
As discussed below in section II.B. of this release, the margin rule for non-cleared security-based swaps—proposed new Rule 18a–3—would require a nonbank SBSD to collect collateral from a counterparty to cover current and potential future exposure to the counterparty.
ANC broker-dealers currently are permitted to add back to net worth uncollateralized receivables from counterparties arising from OTC derivatives transactions (
The current requirements for determining risk-based capital charges for credit exposures are prescribed in Appendix E to Rule 15c3–1. These requirements are based on a method of computing capital charges for credit risk exposures in the international capital standards for banking institutions. In general terms, credit risk is the risk of loss arising from a borrower or counterparty's failure to meet its obligations in accordance with agreed terms, including, for example, by failing to make a payment of cash or delivery of securities. The considerations that inform an entity's assessment of a counterparty's credit risk therefore are broadly similar across the various relationships that may arise between the dealer and the counterparty. Accordingly, the methodology in Appendix E to Rule 15c3–1 should be a reasonable model for determining risk-based capital charges for credit exposures whether the entity in question is an ANC broker-dealer or a stand-alone SBSD using models. Similarly, because credit risk arises regardless of the number or size of transactions, the methodology should apply in a consistent manner whether an entity deals exclusively in OTC derivatives, maintains a significant book of such derivatives, or only engages in one from time to time.
As discussed above in section II.A.2.b.i. of this release, the capital standard in Rule 15c3–1 is a net liquid assets test. The rule imposes this test by requiring a broker-dealer to deduct all illiquid assets, including most unsecured receivables.
For these reasons, ANC broker-dealers (including broker-dealer SBSDs that are approved to use internal models) would be required to treat uncollateralized receivables from counterparties arising from security-based swaps like most other types of unsecured receivables (
Under the proposed capital requirements for nonbank SBSDs, this credit risk charge for a
The proposed method for calculating the credit risk charge for
The first component of the credit risk charge is the counterparty exposure charge.
A collateral agreement gives the dealer the right of recourse to an asset or assets that can be sold or the value of which can be applied in the event the counterparty defaults on an obligation arising from an OTC derivatives contract between the dealer and the counterparty.
Appendix E to Rule 15c3–1 sets forth certain minimum requirements for giving effect to netting agreements
• The netting agreement is legally enforceable in each relevant jurisdiction, including in insolvency proceedings;
• The gross receivables and gross payables that are subject to the netting agreement with a counterparty can be determined at any time; and
• For internal risk management purposes, the ANC broker-dealer monitors and controls its exposure to the counterparty on a net basis.
The counterparty exposure charge is the sum of the MPE and current exposure amounts multiplied by an applicable credit risk weight factor and then multiplied by 8%.
The second component of an ANC broker-dealer's credit risk charge is a counterparty concentration charge.
The third—and final—component of the credit risk charge is a portfolio concentration charge.
The Commission generally requests comment on the proposed credit risk charges. In addition, the Commission requests comment, including empirical data in support of comments, in response to the following questions:
1. Should ANC broker-dealers and stand-alone SBSDs using internal models be required to deduct in full unsecured receivables from
2. Should ANC broker-dealers and stand-alone SBSDs using internal models be required to take a capital charge in lieu of margin for non-cleared security-based swaps with
3. Is the credit risk charge an appropriate measure to address the risk to nonbank SBSDs of having uncollateralized current and potential future exposure to
4. What will be the economic impact of the credit risk charge? For example, will the additional capital that a nonbank SBSD would be required to maintain because of the credit risk charge result in costs that will be passed through to end users? Please explain.
5. Should the application of the credit risk charge be expanded to unsecured receivables from other types of counterparties? If so, explain why. If not, explain why not. How would such an expansion impact the liquidity of nonbank SBSDs?
6. Should the application of the credit risk charge be expanded to the other exceptions to the margin collateral requirements in proposed new Rule 18a–3? If so, explain why. If not, explain why not. How would such an expansion impact the risk profile of nonbank SBSDs?
7. The ability to take a credit risk charge in lieu of a 100% deduction for an unsecured receivable would apply only to unsecured receivables from
8. Is the overall method of computing the credit risk charge appropriate for nonbank SBSDs? If not, explain why not. For example, are there differences between ANC broker-dealers and nonbank SBSDs that would make the method of computing the credit risk charge appropriate for the former but not appropriate for the latter? If so, identify the differences and explain why they would make the credit risk charge not appropriate for nonbank SBSDs. What modifications should be made to the method of computing the credit risk charge for nonbank SBSDs?
9. Are the steps required to compute the credit risk charge understandable? If not, identify the steps that require further explanation.
10. Is the method of computing the first component of the credit risk charge—the counterparty exposure charge—appropriate for nonbank SBSDs? If not, explain why not. For example, is the calculation of the
11. Are the conditions for taking collateral into account when calculating the
12. Are the conditions for taking netting agreements into account when calculating the
13. Are the standardized risk weight factors (20%, 50%, and 150%) proposed for calculating the
14. Is the method of computing the second component of the credit risk charge—the counterparty concentration charge—appropriate for nonbank SBSDs? If not, explain why not.
15. Is the method of computing the third component of the credit risk charge—portfolio concentration charge—appropriate for nonbank SBSDs? If not, explain why not.
As discussed above in section II.B. of this release, collateral is one of the ways dealers in OTC derivatives manage their credit risk exposure to OTC derivatives counterparties.
Rule 15c3–1 currently requires a broker-dealer to take a deduction from net worth for under-margined accounts.
In order to prescribe a similar requirement for security-based swap positions, Rule 15c3–1 would be amended to require broker-dealer SBSDs to take a deduction from net worth for the amount of cash required in the account of each security-based swap customer to meet the margin requirements of a clearing agency, self-regulatory organization (“SRO”), or the Commission, after application of calls for margin, marks to the market, or other required deposits which are outstanding one business day or less.
As discussed below in section II.B. of this release, proposed new Rule 18a–3 would require nonbank SBSDs to collect collateral to meet account
In addition to the deductions for under-margined security-based swap accounts, the proposed rules would impose capital charges designed to address situations where the account of a security-based swap customer is meeting all applicable margin requirements but the margin collateral requirement results in the collection of an amount of collateral that is insufficient to address the risk because, for example, the requirement for cleared security-based swaps established by a clearing agency does not result in sufficient margin collateral to cover the nonbank SBSD's exposure or because an exception to collecting margin collateral for non-cleared security-based swaps exists.
With respect to cleared security-based swaps, for which margin requirements will not be established by the Commission, the rules would impose a capital charge that would apply if a nonbank SBSD collects margin collateral from a counterparty in an amount that is less than the deduction that would apply to the security-based swap if it was a proprietary position of
Margin collateral is designed to mitigate this risk by serving as a buffer to account for a decrease in the market value of the counterparty's positions between the time of the default and the liquidation. If the amount of the margin collateral is insufficient to make up the difference, the nonbank SBSD will incur losses. This proposed capital charge is designed to require the nonbank SBSD to hold sufficient net capital, as an alternative to margin, to enable it to withstand such losses.
With respect to non-cleared security-based swaps, the rules would impose capital charges to address three exceptions in proposed new Rule 18a–3 (the nonbank SBSD margin rule).
The first proposed capital charge would apply when a nonbank SBSD not approved to use internal models does not collect sufficient margin collateral from a counterparty to a non-cleared security-based swap because the counterparty is a
The second proposed capital charge would apply when the nonbank SBSD does not hold the margin collateral because the counterparty to the non-cleared security-based swap is requiring the margin collateral to be segregated pursuant to section 3E(f) of the Exchange Act.
The third proposed capital charge would apply when a nonbank SBSD does not collect sufficient margin collateral from a counterparty to a non-cleared security-based swap because the transaction was entered into prior to the effective date of proposed new Rule 18a–3 (a “legacy non-cleared security-based swap”).
The Commission generally requests comment on the proposed capital in lieu of margin requirements. In addition, the Commission requests comment, including empirical data in support of comments, in response to the following questions:
1. Would the proposed deductions for under-margined accounts be appropriate for cleared security-based swap margin requirements, which would be established by clearing agencies and SROs? If not, explain why not. For example, is the requirement to take the deduction after one business day workable in the context of cleared security-based swaps? If not, explain why not. In addition, should the margin requirements of clearing agencies be included in the deduction for under-margined accounts?
2. Would the proposed deductions for under-margined accounts be appropriate for non-cleared security-based swap margin requirements, which would be established by proposed new Rule 18a–3 and, potentially, by SROs? If not, explain why not. For example, is the requirement to take the deduction after one business day workable in the context of non-cleared security-based swaps? If not, explain why not.
3. Should there be a deduction for under-margined swap accounts? If so, explain why. If not, explain why not.
4. Would the proposed capital charges in lieu of collecting margin collateral appropriately address the potential future exposure risk of nonbank SBSDs arising from security-based swaps? If not, explain why not. Are there alternative means of addressing this risk? If so, identify and explain them.
5. Is the proposed capital charge in lieu of margin for cleared security-based swaps appropriate? If not, explain why not. In particular, if the amount of margin collateral required to be collected for cleared security-based swaps is less than the capital deduction that would apply to the positions, would the margin collateral nonetheless be sufficient? If so, explain why. In addition, should SBSDs approved to use internal models be permitted to use their VaR models (as opposed to the standardized haircuts) for purposes of determining whether this capital charge applies? If so, explain why.
6. Is the proposed capital charge in lieu of margin for non-cleared security-based swaps with counterparties that are
7. Should there be an exception for broker-dealer SBSDs and stand-alone SBSDs not using internal models from the requirement to take a capital charge in lieu of collecting margin collateral from
8. Should there be a capital charge in lieu of margin for non-cleared swaps with counterparties that are
9. Is it appropriate to apply the proposed capital charge in lieu of margin for non-cleared security-based swaps with counterparties that require segregation pursuant to section 3E(f) of the Exchange Act? If not, explain why not.
10. Should there be an exception for counterparties that require segregation pursuant to section 3E(f) of the Exchange Act from the requirement to take a capital charge in lieu of margin collateral? If so, explain why such an exception would not negatively impact the risk profiles of nonbank SBSDs and suggest alternative measures that could be implemented to address the risk of not holding collateral to cover the potential future exposure.
11. Should there be a capital charge in lieu of margin for non-cleared swaps with counterparties that require margin
12. Is the proposed capital charge in lieu of margin for non-cleared security-based swaps in accounts that hold legacy security-based swaps appropriate, or should there be an exception from the capital charge for legacy security-based swaps? Is there an alternate measure that could be implemented to address the risk of uncollateralized potential future exposure resulting from legacy security-based swaps? If the proposed capital charge applies to legacy security-based swaps, explain how the proposed capital charge in lieu of margin collateral would change the economics of the transactions previously entered into. How would any such change(s) be reflected in the cost of maintaining those, or initiating, new positions? Would there be any other impacts of the change in treatment of the legacy positions?
13. If there is an exception from the capital charge for legacy security-based swaps, how would such an exception impact the risk profiles of nonbank SBSDs?
14. After the SBSD registration requirements take effect, would substantial amounts of legacy security-based swaps with uncollateralized potential future exposure be transferred to broker-dealer SBSDs? Would entities with substantial amounts of legacy security-based swaps with uncollateralized potential future exposure register as stand-alone SBSDs?
15. Would it be practical for financial institutions to wind down legacy security-based swaps in existing entities rather than transferring them to nonbank SBSDs? What legal and operational issues would this approach raise?
16. Should there be a capital charge in lieu of margin for non-cleared swap accounts that hold legacy swaps? If so, explain why. If not, explain why not.
17. What should be deemed a legacy security-based swap? For example, if a nonbank SBSD dealer holds an existing legacy security-based swap that is subsequently modified for risk mitigation purposes, should this be deemed a new security-based swap transaction or should it continue to be treated as a legacy security-based swap?
CFTC Rule 1.17 prescribes minimum capital requirements for FCMs.
Broker-dealer SBSDs (as broker-dealers) would be subject to Appendix B to Rule 15c3–1.
In addition, nonbank SBSDs and broker-dealers may have proprietary positions in swaps. Consequently, Appendix B to Rule 15c3–1 would be amended to establish standardized haircuts for proprietary swap positions and analogous provisions would be included in Appendix B to proposed new Rule 18a–1.
The proposed standardized haircuts for swaps are similar to the proposed standardized haircuts for security-based swaps. Specifically, swaps that are credit default swaps referencing a broad based securities index (“Index CDS swaps”) would be subject to a maturity grid similar to the proposed maturity grid for CDS security-based swaps.
The standardized haircuts proposed for Index CDS swaps would use the maturity grid approach proposed for CDS security-based swaps discussed above in section II.A.2.b.ii. of this release. This would provide for a consistent standardized haircut approach for Index CDS swaps and CDS security-based swaps though, as discussed below, the haircuts would be lower for the Index CDS security-based swaps. As with CDS security-based swaps, the proposed maturity grid for Index CDS swaps prescribes the applicable deduction based on two variables: the length of time to maturity of the swap and the amount of the current offered spread on the swap.
The haircut percentages in the proposed maturity grid for Index CDS swaps would be one-third less than the haircut percentages in the maturity grid for CDS security-based swaps to account for the diversification benefits of an index.
Consistent with the maturity grid approach for CDS security-based swaps, the proposed deduction for an un-hedged long position in an Index CDS swap would be 50% of the applicable haircut in the grid.
Reduced deductions also would apply for strategies where the firm is long a basket of securities consisting of the components of an index and long (buyer of protection on) an Index CDS swap on the index.
For interest rate swaps, Appendix B to both Rule 15c3–1 and proposed new Rule 18a–1 would prescribe a standardized haircut equal to a percentage of the notional amount of the swap that is generally based on the standardized haircuts in Rule 15c3–1 for U.S. government securities.
Under the proposed rule, each side of the interest rate swap would be converted into a synthetic bond position based on the notional amount of the swap and the interest rates against which payments are calculated. These synthetic bonds would then be placed into the standardized haircut grid in Rule 15c3–1 for U.S. government securities. Any obligation to receive payments under the swap would be categorized as a long position; any obligation to make payments under the swap would be categorized as a short position. A position receiving or paying based on a floating interest rate generally would be treated as having a maturity equal to the period until the next interest reset date; a position receiving or paying based on a fixed rate would be treated as having a maturity equal to the residual maturity of the swap. Synthetic bond equivalents derived from interest rate swaps, when offset against one another, would be subject to a one percent charge based on the swap's notional amount. Any synthetic bond equivalent that would be subject to a standardized haircut of less than one percent under the approach described above would be subject to a minimum deduction equal to a one percent charge against the notional value of the swap.
In the case of a swap that is not an Index CDS swap or an interest rate swap, the applicable haircut would be the amount calculated by multiplying the notional value of the swap and the percentage specified in either Rule 15c3–1 or CFTC Rule 1.17 for the asset, obligation, or event referenced by the swap.
The Commission generally requests comment on the proposed standardized haircuts swaps. In addition, the Commission requests comment, including empirical data in support of comments, in response to the following questions:
1. Which types of swap activities would nonbank SBSDs engage in? How would nonbank SBSDs use swaps?
2. Which types of swap activities would broker-dealers engage in? How would broker-dealers use swaps?
3. Do the proposed standardized haircuts for swaps provide a reasonable and workable solution for determining capital charges? Explain why or why not. Are there preferable alternatives? If so, describe those alternatives.
4. Are there additional categories of swaps, other than commodity swaps, currency swaps, and interest rate swaps, that the Commission should address in Rule 15c3–1 and/or proposed Rule 18a–1? If so, describe them.
5. Are the proposed standardized haircuts for swaps too high or too low? If so, please explain why and provide data to support the explanation.
6. Are there capital charges that should be applied to swaps? If so, describe them.
7. Do the proposed standardized haircuts for swaps adequately recognize offsets in establishing capital deductions? If not, what offsets should be recognized, for what type of swap, and why? Provide data, if applicable, and identify why that offset would be appropriate.
8. Do the proposed standardized haircuts for swaps provide any incentives or disincentives to effect swap transactions in a particular type of legal entity (
9. Do the proposed standardized haircuts for swaps provide any competitive advantages or disadvantages for a particular type of legal entity? Describe the advantages and/or disadvantages.
10. How closely do the movements of interest rates on U.S. government securities track the movements of interest rates upon which interest rate swap payments are based? Is the proposed 1% minimum percentage deduction for interest rate swaps appropriate given that U.S. government securities with a maturity of less than nine months have a haircut ranging from three-quarters of 1% to 0%?
Prudent financial institutions establish and maintain integrated risk management systems that seek to have in place management policies and procedures designed to help ensure an awareness of, and accountability for, the risks taken throughout the firm and to develop tools to address those risks.
Nonbank SBSDs would be required to comply with Rule 15c3–4, which requires the establishment of a risk management control system.
• A risk control unit that reports directly to senior management and is independent from business trading units;
• Separation of duties between personnel responsible for entering into a transaction and those responsible for recording the transaction in the books and records of the OTC derivatives dealer;
• Periodic reviews (which may be performed by internal audit staff) and annual reviews (which must be conducted by independent certified public accountants) of the OTC derivatives dealer's risk management systems;
• Definitions of risk, risk monitoring, and risk management.
Rule 15c3–4 further provides that the elements of the internal risk management control system must include written guidelines, approved by the OTC derivatives dealer's governing body, that cover various topics, including, for example:
• Quantitative guidelines for managing the OTC derivatives dealer's overall risk exposure;
• The type, scope, and frequency of reporting by management on risk exposures;
• The procedures for and the timing of the governing body's periodic review of the risk monitoring and risk
• The process for monitoring risk independent of the business or trading units whose activities create the risks being monitored;
• The performance of the risk management function by persons independent from or senior to the business or trading units whose activities create the risks;
• The authority and resources of the groups or persons performing the risk monitoring and risk management functions;
• The appropriate response by management when internal risk management guidelines have been exceeded;
• The procedures to monitor and address the risk that an OTC derivatives transaction contract will be unenforceable;
• The procedures requiring the documentation of the principal terms of OTC derivatives transactions and other relevant information regarding such transactions;
• The procedures authorizing specified employees to commit the OTC derivatives dealer to particular types of transactions.
Rule 15c3–4 also requires management to periodically review, in accordance with the written procedures, the business activities of the OTC derivatives dealer for consistency with risk management guidelines.
In 2004, when adopting the ANC broker-dealer oversight program, the Commission included a requirement that an ANC broker-dealer must comply with Rule 15c3–4.
The Commission is proposing to require that nonbank SBSDs comply with Rule 15c3–4 because their activities will involve risk management concerns similar to those faced by other firms subject to the rule.
The Commission generally requests comment on the proposed risk management requirements. In addition, the Commission requests comment, including empirical data in support of comments, in response to the following questions:
1. Are the types of management controls required by Rule 15c3–4 appropriate for addressing the risks associated with engaging in a security-based swap business? If not, explain why not.
2. Are there types of risk management controls not identified in Rule 15c3–4 that would be appropriate to prescribe for nonbank SBSDs? If so, identify the controls and explain why they would be appropriate for nonbank SBSDs.
3. Are the factors listed in paragraph (b) of Rule 15c3–4 appropriate for nonbank SBSDs? If not, explain why not.
4. Are there any additional factors that a nonbank SBSD should consider when adopting its internal control system guidelines, policies, and procedures, in addition to the factors listed in paragraph (b) of Rule 15c3–4? If so, identify the factors and explain why they should be included.
5. Are the elements prescribed in paragraph (c) of Rule 15c3–4 appropriate for nonbank SBSDs? If not, explain why not.
6. Are there any additional elements that a nonbank SBSD should include in its internal risk management system in addition to the applicable elements prescribed in paragraph (c) of Rule 15c3–4? If so, identify the elements and explain why they should be included.
7. Are there any elements in paragraph (c) of Rule 15c3–4 that should not be applicable to nonbank SBSDs other than elements in paragraphs (c)(xiii) and (xiv)? If so, identify the elements and explain why they should not be applicable.
8. Are the factors management would need to consider in its periodic review of the nonbank SBSD's business activities for consistency with the risk management guidelines appropriate for nonbank SBSDs? If not, explain why not.
9. Should management consider any additional factors in its periodic review of the nonbank SBSD's business activities for consistency with the risk management guidelines other than those listed in paragraph (d) of Rule 15c3–4? If so, identify the factors and explain why they should be included.
10. Are there any factors in paragraph (d) of Rule 15c3–4 that management should not consider other than the factors in paragraphs (d)(8) and (9)? If so, identify the factors and explain why they should not be considered.
The Commission is proposing that ANC broker-dealers and nonbank SBSDs approved to use internal models be subject to liquidity risk management requirements. Funding liquidity risk has been defined as the risk that a firm will not be able to efficiently meet both expected and unexpected current and future cash flow and collateral needs without adversely impacting either the daily operations or the financial condition of the firm.
The financial crisis demonstrated that the funding liquidity risk management practices of certain individual financial institutions were not sufficient to handle a liquidity stress event of that magnitude.
As discussed above in section II.A.2.c. of this release, nonbank SBSDs approved to use internal models would be subject to Rule 15c3–4, which currently applies to ANC broker-dealers and OTC derivatives dealers.
Given the large size of ANC broker-dealers and the potentially substantial role that stand-alone SBSDs approved to use internal models may play in the security-based swap markets, these firms would be required to take steps to manage funding liquidity risk.
Under the proposal, an ANC broker-dealer and stand-alone SBSD using internal models would need to perform a liquidity stress test at least monthly that takes into account certain assumed conditions lasting for 30 consecutive days.
These required assumed conditions are designed to be consistent with the liquidity stress tests performed by the ANC broker-dealers (based on Commission staff experience supervising the firms) and to address the types of liquidity outflows experienced by ANC broker-dealers and other broker-dealers in times of stress. The required assumed conditions would be:
• A stress event that includes a decline in creditworthiness of the firm severe enough to trigger contractual credit-related commitment provisions of counterparty agreements;
• The loss of all existing unsecured funding at the earlier of its maturity or put date and an inability to acquire a material amount of new unsecured funding, including intercompany advances and unfunded committed lines of credit;
• The potential for a material net loss of secured funding;
• The loss of the ability to procure repurchase agreement financing for less liquid assets;
• The illiquidity of collateral required by and on deposit at clearing agencies or other entities which is not deducted from net worth or which is not funded by customer assets;
• A material increase in collateral required to be maintained at registered clearing agencies of which the firm is a member; and
• The potential for a material loss of liquidity caused by market participants exercising contractual rights and/or refusing to enter into transactions with respect to the various businesses, positions, and commitments of the firm, including those related to customer businesses of the firm.
The results of stress tests play a key role in shaping an entity's liquidity risk contingency planning.
The Commission generally requests comment on the proposed liquidity stress test requirement. In addition, the Commission requests comment, including empirical data in support of comments, in response to the following questions:
1. Are the proposed funding liquidity requirements appropriate for ANC broker-dealers and nonbank SBSDs that use internal models? If not, explain why not. Are there modifications that would improve the funding liquidity provisions? If so, explain them.
2. Should the proposed funding liquidity requirements apply to a broader group of broker-dealers (
3. Should the proposed funding liquidity requirements apply to all nonbank SBSDs? If so, explain why. If not, explain why not.
4. Is monthly an appropriate frequency for the liquidity stress test? For example, would it be preferable to require the liquidity stress test on a more frequent basis such as weekly, or, alternatively, on a less frequent basis such as quarterly? If so, explain why.
5. Is the requirement to provide the results of the liquidity stress test within ten business days to senior management that has responsibility to oversee risk management at the firm appropriate? If not, explain why not. Should results be provided in a shorter or longer timeframe than ten business days? For example, is ten business days sufficient time to run the stress tests, generate the results, and provide them to senior management? If the time-frame should be longer or shorter, identify the different timeframe and explain why it would be more appropriate than ten business days.
6. Is the requirement that the assumptions underlying the liquidity stress test be reviewed at least quarterly by senior management that has responsibility to oversee risk management at the firm and at least annually by senior management of firm appropriate? If not, explain why not. Should the reviews be more or less frequent? If so, identify the frequency and explain why it would be more appropriate than quarterly and annually.
7. Are the required assumptions of the funding liquidity stress test appropriate? If not, explain why not.
8. Are there additional or alternative assumptions that should be required in the funding liquidity stress test? If so, identify the additional or alternative assumptions and explain why they should be included.
9. Are the required assumptions of the funding liquidity stress test understandable? If not, identify the elements that require further explanation.
10. Should other types of securities in addition to U.S. government securities be permitted for the liquidity pool? If so, identify the types of securities and explain why they should be permitted.
11. Are the requirements for the written contingency funding plan appropriate? If not, explain why not.
12. Should additional or alternative requirements for the written contingency funding plan be required? If so, identify the additional or alternative requirements and explain why they should be required.
Rule 15c3–1 has four other sets of provisions that are proposed to be included in new Rule 18a–1: (1) Debt-equity ratio requirements;
Rule 15c3–1 sets limits on the amount of a broker-dealer's outstanding subordinated loans.
The Commission generally requests comment on the proposal to incorporate the debt-equity ratio provisions of Rule 15c3–1 into proposed new Rule 18a–1. In addition, the Commission requests comment, including empirical data in support of comments, in response to the following question:
1. Are the debt-equity ratio requirements in Rule 15c3–1 appropriate standards for stand-alone SBSDs? If not, explain why not and suggest an alternative standard.
Rule 15c3–1 requires that a broker-dealer provide notice when it seeks to withdraw capital in an amount that exceeds certain thresholds.
Stand-alone SBSDs would be subject to the same provisions, with one difference.
.
The Commission generally requests comment on the proposal to incorporate the capital withdrawal provisions of Rule 15c3–1 into proposed new Rule 18a–1. In addition, the Commission requests comment, including empirical data in support of comments, in response to the following questions:
1. Are the capital withdrawal requirements in Rule 15c3–1 appropriate standards for stand-alone SBSDs? If not, explain why and suggest an alternative standard.
2. Under Rule 15c3–1, a broker-dealer must give the Commission notice two days before a withdrawal that would exceed 30% of the firm's excess net capital and two days after a withdrawal that exceeded 20% of that measure. Are these thresholds appropriate for stand-alone SBSDs? If not, explain why not and suggest alternative thresholds.
3. Rule 15c3–1 also restricts capital withdrawals that would have certain financial impacts on a broker-dealer such as lowering net capital below certain levels. Are these same requirements appropriate standards for stand-alone SBSDs?
4. Under the proposed amendments, the 30% of excess net capital limitation currently contained in Rule 15c3–1 with respect to Commission orders restricting withdrawals would be eliminated. However, under the proposed amendments, the Commission in issuing an order restricting withdrawals could impose such terms and conditions as the Commission deems necessary or appropriate in the public interest or consistent with the protection of investors. Please identify terms and conditions that the Commission should consider to be included in such orders. For example, under certain circumstances, would it be appropriate for the current limitation in Rule 15c3–1 to be included in the order? Alternatively, should the 30% of excess net capital limitation currently contained in Rule 15c3–1 be retained in proposed new Rule 18a–1? If so, please explain why.
Appendix C to Rule 15c3–1 requires a broker-dealer in computing its net capital and aggregate indebtedness to consolidate in a single computation assets and liabilities of any subsidiary or affiliate for which it guarantees, endorses or assumes directly or indirectly obligations or liabilities.
Based on Commission staff experience and information from an SRO, very few broker-dealers consolidate subsidiaries or affiliates to obtain the flow-through capital benefits under Appendix C to Rule 15c3–1. The review and information from the SRO indicate that the limited use results from the difficulty in obtaining the required opinion of counsel. Consequently, Appendix C to proposed new Rule 18a–1 would contain only the requirement that a stand-alone SBSD include in its net capital computation all liabilities or obligations of a subsidiary or affiliate of the stand-alone SBSD that the SBSD guarantees, endorses, or assumes either directly or indirectly. Thus, stand-alone SBSDs would not be able to claim flow-through capital benefits for consolidated subsidiaries or affiliates. The Commission does not expect that this difference in approach between Rule 15c3–1 and proposed new Rule 18a–1 would create any competitive disadvantage for stand-alone SBSDs vis-à-vis broker-dealer SBSDs, given the limited use of the flow-through benefits provision under the current rule.
The Commission generally requests comment on Appendix C of both Rule 15c3–1 and proposed Rule 18a–1. In addition, the Commission requests comment, including empirical data in support of comments, in response to the following questions:
1. Should the flow-through capital benefit provisions of Appendix C to Rule 15c3–1 be eliminated? If so, explain why. Alternatively, should the flow-through capital benefit provisions in Appendix C to Rule 15c3–1 be incorporated into proposed Rule 18a–1? If so, explain why.
2. Would stand-alone SBSDs be subject to a competitive disadvantage vis-à-vis broker-dealer SBSDs as a result of the differences between proposed Appendix C of Rule 18a–1 and Appendix C of Rule 15c3–1? Would these differences provide an incentive for an entity to register a nonbank SBSD as a broker-dealer SBSD? Please explain.
Appendix D to Rule 15c3–1 sets forth the minimum and non-exclusive requirements for satisfactory subordination agreements.
In order to receive beneficial regulatory capital treatment under Rule 15c3–1, the obligation to the third party must be subordinated to the claims of creditors pursuant to a satisfactory subordination agreement, as defined under Appendix D.
There are two types of subordination agreements under Appendix D to Rule 15c3–1: (1) a subordinated loan agreement, which is used when a third party lends cash to a broker-dealer;
A broker-dealer SBSD would be subject to the provisions of Appendix D to Rule 15c3–1 through parallel provisions in Appendix D to proposed new Rule 18a–1.
Subordination agreements under Appendix D to Rule 15c3–1 are approved by a broker-dealer's designated examining authority.
The Commission generally requests comment on Appendix D to both Rule 15c3–1 and proposed new Rule 18a–1. In addition, the Commission requests comment, including empirical data in support of comments, in response to the following questions:
1. Should the secured demand note provisions of Appendix D to Rule 15c3–1 be eliminated? Alternatively, should the secured demand note provisions be incorporated into Appendix D to proposed new Rule 18a–1? If so, explain why.
2. Would stand-alone SBSDs be disadvantaged vis-à-vis broker-dealer SBSDs as a result of the differences between proposed Appendix D to proposed new Rule 18a–1 and Appendix D to Rule 15c3–1? Would these differences provide an incentive for an entity to register a nonbank SBSD as a broker-dealer SBSD? Please explain.
Proposed new Rule 18a–2 would establish capital requirements for nonbank MSBSPs. In particular, a nonbank MSBSP would be required at all times to have and maintain positive tangible net worth.
The term
Because nonbank MSBSPs, by definition, will be entities that engage in a substantial security-based swap business, they would be required to comply with Rule 15c3–4 with respect to their security-based swap and swap activities.
Finally, the risk that the failure of a nonbank MSBSP could have a destabilizing market impact is being addressed in part by the account
The Commission generally requests comment on the proposed capital requirements for nonbank MSBSPs. In addition, the Commission requests comment, including empirical data in support of comments, in response to the following questions:
1. Is a tangible net worth test an appropriate standard for a nonbank MSBSP? Would a net liquid assets test capital standard be more appropriate? If so, describe the rationale for such an approach.
2. Should nonbank MSBSPs be permitted to calculate their tangible net worth using generally accepted accounting principles in jurisdictions other than U.S., such as where the nonbank MSBSP is incorporated, organized, or has its principal office? If so, explain why.
3. Can the risks to market stability presented by nonbank MSBSPs be largely addressed through margin requirements?
4. Should proposed new Rule 18a–2 require that a nonbank MSBSP maintain a minimum fixed-dollar amount of tangible net equity, for example, equal to $20,000,000 or some greater or lesser amount? If so, explain the merits of imposing a fixed-dollar amount and identify the recommended fixed-dollar amount.
5. Should proposed new Rule 18a–2 require that a nonbank MSBSP compute capital charges for market risk and credit risk? For example, should such a requirement be modeled on the CFTC's proposed market and credit risk charges for nonbank swap dealers and nonbank major swap participants that are not using internal models and are not FCMs?
6. Should nonbank MSBSPs be subject to a leverage test and if so, how should it be designed? Explain the rationale for such a test.
7. Should a nonbank MSBSP be subject to a minimum tangible net worth requirement that is proportional to the amount of risk incurred by the MSBSP through its outstanding security-based swap transactions? More specifically, should an MSBSP calculate an “adjusted tangible net worth” by subtracting market risk deductions for their security-based swaps (either based on the standardized haircuts or on approved models) from their tangible net worth and be required to maintain sufficient capital such that this adjusted tangible net worth figure is positive?
As discussed above in section II.A.2.b.iv. of this release, dealers in OTC derivatives manage credit risk to their OTC derivatives counterparties through collateral and netting agreements.
Dealers may require counterparties to provide collateral to cover their current and potential future exposures to the counterparty.
The Dodd-Frank Act seeks to address the risk of uncollateralized credit risk exposure arising from OTC derivatives by, among other things, mandating margin requirements for non-cleared security-based swaps and swaps. In particular, section 764 of the Dodd-Frank Act added new section 15F to the Exchange Act.
Similarly, sections 4s(e)(1)(A) and (B) of the CEA provide that the prudential regulators and the CFTC shall prescribe margin requirements for, respectively, bank swap dealers and bank major swap participants, and nonbank swap dealers and nonbank major swap participants.
The margin requirements that must be established with respect to non-cleared security-based swaps and non-cleared swaps will operate in tandem with provisions in the Dodd-Frank Act requiring that security-based swaps and swaps must be cleared through a registered clearing agency or registered DCO, respectively, unless an exception to mandatory clearing exists.
Clearing agencies and DCOs that operate as central counterparties (“CCPs”) manage credit and other risks through a range of controls and methods, including prescribed margin rules for their members.
Pursuant to section 15F(e) of the Exchange Act, the Commission is proposing new Rule 18a–3 to establish margin requirements for nonbank SBSDs and nonbank MSBSPs with respect to non-cleared security-based swaps. The provisions of proposed Rule 18a–3 are based on the margin rules applicable to broker-dealers (the “broker-dealer margin rules”).
Under the broker-dealer margin rules, an accountholder is required to maintain a specified level of
Proposed new Rule 18a–3 is based on these same principles and is intended to form part of an integrated program of financial responsibility requirements, along with the proposed capital and segregation standards. For example, proposed new Rule 18a–1 would impose a capital charge in certain cases for uncollateralized exposures arising from security-based swaps. The segregation requirements are intended to ensure that initial margin collected by SBSDs is protected from their proprietary business risks.
The Commission generally requests comment on the proposal to model the nonbank SBSD margin rule for non-cleared security-based swaps on the broker-dealer margin rules. In addition, the Commission requests comment, including empirical data in support of comments, in response to the following questions:
1. Are there other margin standards that would more appropriately address the risks of non-cleared security-based swaps and/or be more practical margining programs for non-cleared security-based swaps? If so, identify them and explain how they would be more appropriate and/or practical.
2. What are the current margining practices of dealers in OTC derivatives with respect to contracts that likely would be security-based swaps subject to proposed new Rule 18a–3? How do those margining practices differ from the proposed requirements in proposed new Rule 18a–3?
3. As a practical matter, would the structure of proposed new Rule 18a–3 accommodate portfolio margining of security-based swaps and swaps? If so, explain why. If not, explain why not.
Proposed new Rule 18a–3 would apply to nonbank SBSDs and nonbank MSBSPs.
Proposed new Rule 18a–3 would require a nonbank MSBSP to collect collateral from counterparties to which the nonbank MSBSP has current exposure and deliver collateral to counterparties that have current exposure to the nonbank MSBSP; however, there would be exceptions to these requirements for certain types of counterparties. These requirements would apply only to current exposure (
The proposed rule would not identify the types of instruments that must be delivered as collateral (
Finally, the provisions in proposed new Rule 18a–3 are intended to establish
Proposed new Rule 18a–3 would require nonbank SBSDs to collect collateral from their counterparties to non-cleared security-based swaps to cover both current exposure and potential future exposure, subject to certain exceptions discussed below.
As discussed below in section II.B.2.c.i. of this release, the daily calculations would form the basis for the nonbank SBSD to determine the amount of collateral the counterparty would need to deliver to cover any current exposure and potential future exposure the nonbank SBSD has to the counterparty. The proposed rule would except certain counterparties from this requirement. Even if the counterparty is not required to deliver collateral, the calculations—by measuring the current and potential future exposure to the counterparty—would assist the nonbank SBSD in managing its credit risk and understanding the extent of its uncollateralized credit exposure to the counterparty and across all counterparties. In addition, as discussed above in section II.A.2.a. of this release, the calculations would be used for determining the
The first calculation would be to determine the amount of
As indicated by the proposed definition of
The
The second calculation would be to determine a
As noted above, a nonbank SBSD (regardless of whether it is approved to use internal models to compute net capital) would be required to calculate the
The Commission generally requests comment on the proposed daily calculation requirements for nonbank SBSDs in proposed new Rule 18a–3. In addition, the Commission requests comment, including empirical data in support of comments, in response to the following questions:
1. Is the proposed definition of
2. Should the definition of
3. Should the terms
4. Are the proposed requirements for netting agreements to qualify for purposes of determining the amount of
5. Is the proposed method for calculating the
6. Should proposed new Rule 18a-3 allow an alternative method of calculating the
7. In addition to internal models, should external models be permitted such as: (1) a model currently in use for margining cleared security-based swaps at a clearing agency; (2) a model currently in use for modeling non-cleared swaps by an entity subject to regular assessment by a prudential regulator; or (3) a model available for licensing to any market participant by a vendor? What would be the advantages and disadvantages of permitting external models?
8. How would the proposed standardized approaches to determining the
9. The provisions for using VaR models to compute net capital require that the model use a 99%, one-tailed confidence level with price changes equivalent to a ten-business-day movement in rates and prices. This means the VaR model used for the purpose of determining a counterparty's
Proposed new Rule 18a–3 would require nonbank MSBSPs to collect collateral from counterparties to which the nonbank MSBSP has current exposure and provide collateral to counterparties that have current exposure to the nonbank MSBSP.
As would be the case for a nonbank SBSD, the first step for a nonbank MSBSP in calculating the
If the value of the securities positions plus the amount of any cash in the account exceeds the amount of the debit balance, the account would have
Nonbank MSBSPs would not be required to deliver or collect margin collateral to collateralize potential future exposure.
The proposed margin requirements for nonbank MSBSPs are designed to “neutralize” the credit risk between a nonbank MSBSP and a counterparty. The collection of collateral from counterparties would strengthen the liquidity of the nonbank MSBSP by collateralizing its current exposure to counterparties. Nonbank MSBSPs, in contrast to nonbank SBSDs, would be required to deliver collateral to counterparties to collateralize their current exposure to the nonbank MSBSP, which would lessen the impact on the counterparties if the nonbank MSBSP failed, and is intended to account for the fact that nonbank MSBSPs would be subject to less stringent capital requirements than nonbank SBSDs.
In addition, as discussed in section II.A.3. of the release, the entities that may need to register as nonbank MSBSPs could include companies that engage in commercial activities that are not necessarily financial in nature (
The Commission generally requests comment on the proposed daily calculation requirements for nonbank MSBSPs. Commenters are referred to the questions about the daily calculation requirements for nonbank SBSDs above in section II.B.2.b.i. of this release to the extent those questions address provisions in proposed new Rule 18a–3 that also apply to nonbank MSBSPs. In addition, the Commission requests comment, including empirical data in support of comments, in response to the following questions:
1. Which types of counterparties would be expected to transact with nonbank MSBSPs? Which types of security-based swap transactions would these counterparties enter into with nonbank MSBSPs?
2. Should nonbank MSBSPs be required to calculate a daily
3. If nonbank MSBSPs should calculate a daily
4. Would nonbank MSBSPs have the systems and personnel necessary to operate daily margin collateral programs to calculate a daily margin amount?
A nonbank SBSD would be required to calculate as of the close of each business day: (1) the amount of
A nonbank SBSD would need to collect cash, securities, and/or money market instruments to meet the account
The prudential regulators and the CFTC are proposing to specifically identify the asset classes that would be eligible collateral for purposes of their margin rules.
The reason for not proposing a definition of
The Commission is proposing certain additional requirements for eligible collateral, which are modeled on the existing collateral requirements in Appendix E to Rule 15c3–1.
• The collateral must be subject to the physical possession or control of the nonbank SBSD;
• The collateral must be liquid and transferable;
• The collateral must be capable of being liquidated promptly by the nonbank SBSD without intervention by any other party;
• The collateral agreement between the nonbank SBSD and the counterparty must be legally enforceable by the nonbank SBSD against the counterparty and any other parties to the agreement;
• The collateral must not consist of securities issued by the counterparty or a party related to the nonbank SBSD, or to the counterparty; and
• If the Commission has approved the nonbank SBSD's use of a VaR model to compute net capital, the approval allows the nonbank SBSD to calculate deductions for market risk for the type of collateral.
These proposed collateral requirements are designed to ensure that the treatment of collateral requirements remains consistent between the proposed capital and margin requirements. As discussed above in section II.A.2.b.v. of this release, a nonbank SBSD would be required to take a capital charge if a counterparty does not deliver cash, securities, and/or money market instruments to the nonbank SBSD to meet an account
There would be four exceptions to the account
Under the first exception to the account
The proposed exception for
For purposes of the rule, the term
Under the proposed definition, an individual could not qualify as a
The rationale for exempting
As discussed below in section II.B.2.e. of this release, a nonbank SBSD would be required to establish, maintain, and document procedures and guidelines for monitoring the risk of accounts holding non-cleared security-based swaps.
The second exception to the account
The two alternatives are being proposed in order to elicit detailed comment on each approach in terms of comparing how they would meet the goals of the Dodd-Frank Act,
Under Alternative A, a nonbank SBSD would be required to collect cash, securities, and/or money market instruments from another SBSD only to cover the amount of
Requiring a nonbank SBSD to deliver collateral to cover potential future exposure could impact its liquidity. As discussed above in sections II.A.1. and II.A.2.b.i. of this release, the proposed capital requirements for nonbank SBSDs are based on a net liquid assets test. The objective of the test is to require the firm to maintain in excess of a dollar of highly liquid assets for each dollar of liabilities in order to facilitate the liquidation of the firm if necessary and without the need for a formal proceeding. When assets are delivered to another party as margin collateral, they become unsecured receivables from the party holding the margin collateral. Consequently, they no longer are readily available to be liquidated by the delivering party. In times of market stress, a nonbank SBSD may need to liquidate assets to raise funds and reduce its leverage. However, if assets are in the control of another nonbank SBSD, they would not be available for this purpose. For this reason, the assets would need to be deducted from net worth when the nonbank SBSD computes net capital under the proposed capital requirements.
Promoting the liquidity of nonbank SBSDs is the policy consideration underlying Alternative A. In addition, the prudential regulators and the CFTC have received comments on this issue in response to their proposals raising concerns about requiring bank SBSDs and swap dealers to exchange collateral to cover potential future exposure and to have the collateral held by an independent third-party custodian. For example, some commenters assert that imposing segregated initial margin requirements on trades between swap entities would result in a tremendous cost to the financial system in the form of a massive liquidity drain, and that swap dealers will lose the ability to reinvest this collateral to finance other lending or derivatives transactions, thereby reducing capital formation and increasing costs.
Another commenter stated that a combination of daily variation margin, robust operational procedures, legally enforceable netting and collateral agreements, and regulatory capital requirements provide comprehensive risk mitigation for collateralized derivatives, and that any additional initial margin requirements for swaps between swap entities would be unnecessary and unwarranted.
On the other hand, a number of comments submitted in response to the proposals of the prudential regulators and the CFTC supported bilateral margining and argued that it should be extended to require SBSDs and swap dealers to exchange margin collateral with all counterparties.
The prudential regulators explained the reasoning behind their proposal as follows:
Non-cleared swaps transactions with counterparties that are themselves swap entities pose risk to the financial system because swap entities are large players in swap and security-based swap markets and therefore have the potential to generate systemic risk through their swap activities. Because of their interconnectedness and large presence in the market, the failure of a single swap entity could cause severe stress throughout the financial system. Accordingly, it is the preliminary view of the Agencies that all non-cleared swap transactions with swap entities should require margin.
Alternative B is being proposed in light of the policy considerations underlying the proposals of the prudential regulators and the CFTC.
Under the third exception to the account
As discussed below in section II.C. of this release, proposed new Rule 18a–3 would establish certain conditions that
Under the fourth exception to the account
The Commission generally requests comment on the proposed account
1. Would it be appropriate to limit the assets that could be used to collateralize the
2. Is the proposed requirement to take deductions on securities and money market instruments in calculating the amount of
3. Are the proposed conditions (modeled on the Appendix E conditions) for taking into account collateral in determining the amount of
4. Is the proposed requirement that a nonbank SBSD take prompt steps to liquidate securities in an account to the extent necessary to eliminate an account
5. Is the proposed exception to the account
6. Is the proposed definition of
7. Should the rule contain a proposed definition of
8. Do
9. Should proposed new Rule 18a–3 define the term
10. Should there be a two-tiered approach with respect to the account
11. How do non-
12. With respect to counterparties that are SBSDs, how would Alternatives A and B compare in terms of promoting the goals of the Dodd-Frank Act, including limiting the risks posed by non-cleared security-based swaps? How would each address or fail to address systemic issues relating to non-cleared security-based swaps?
13. What would be the impact of Alternatives A and B on the efficient use of capital?
14. What would be the practical effects of Alternatives A and B on the capital and liquidity positions, or the financial health generally, of nonbank SBSDs? How would each alter current market practices and conventions with respect to collateralizing credit exposures arising from non-cleared security-based swaps? Are there practical issues with respect to Alternatives A and B? If so, identify and explain them.
15. How would the benefits of Alternatives A and B compare? How would the costs compare?
16. How would Alternatives A and B impact the market for security-based swaps? How would they impact participants in those markets?
17. How would Alternatives A and B promote the clearing of security-based swaps? For example, would Alternative B—because of the requirement to fund margin collateral requirements—incentivize nonbank SBSDs to transact in cleared security-based swaps? If so, explain why.
18. What would be the potential impact if the Commission adopted Alternative A and the prudential regulators and the CFTC adopted rules similar to Alternative B? Consider and explain the impact competitively and practically.
19. Would the proposed exception to the account
20. Would the proposed exception to the account
21. Would it be appropriate to permit legacy security-based swaps to be held in an entity that is not an SBSD? If so, why, and what conditions should be imposed on such an entity?
22. Should counterparties be required to post variation margin with respect to legacy swaps? Is this consistent with current market practice?
23. Should there be an exception from the account
24. Should there be an exception from the account
25. Should there be an exception for foreign governmental entities? Explain why or why not. Should types of foreign governmental entities be distinguished for purposes of an exception? For example, are there objective benchmarks based on creditworthiness that could be used to distinguish between foreign governmental entities for which the exception to the account
26. Do dealers in OTC derivatives currently collect collateral from foreign governmental entities for their OTC derivatives transactions? If so, from which types of foreign governmental entities?
27. Do national foreign governments typically guarantee the obligations of political subdivisions and agencies? If so, identify the types of political subdivisions and agencies that are guaranteed and are not guaranteed.
A nonbank MSBSP would be required to calculate as of the close of each business day the amount of
Nonbank MSBSPs may not maintain two-sided markets or otherwise engage in activities that would require them to register as an SBSD.
Unlike nonbank SBSDs, nonbank MSBSPs would not be required to reduce the fair market value of securities and money market instruments held in the account of a counterparty (or delivered to a counterparty) for purposes of determining whether the level of
Like nonbank SBSDs, nonbank MSBSPs would be subject to the requirements in paragraph (c)(4) of proposed new Rule 18a–3, which are modeled on the existing collateral requirements in Appendix E to Rule 15c3–1.
Nonbank MSBSPs would be required to take prompt steps to liquidate securities and money market instruments in the account to the extent necessary to eliminate an account
There would be three exceptions to the account
Under the second exception, a nonbank MSBSP would not be required to collect cash, securities, and/or money market instruments from an SBSD to collateralize the amount of the
The third exception would apply to a
The Commission generally requests comment on the proposed account
1. Are the proposed account
2. Should nonbank MSBSPs be required to reduce the fair market value of securities and money market instruments for purposes of determining whether the level of
3. Should nonbank MSBSPs be required to collect or deliver cash, securities, and/or money market instruments to collateralize a margin amount (potential future exposure) in addition to the
4. Is the proposed exception to the account
5. Is the proposed exception to the account
6. Is the proposed exception to the account
Proposed new Rule 18a–3 would establish a minimum transfer amount of $100,000 with respect to a particular counterparty.
The proposed minimum transfer provision is designed to establish a threshold so that the degree of risk reduction achieved by requiring account
The Commission generally requests comment on the minimum transfer amount in proposed new Rule 18a–3. In addition, the Commission requests comment, including empirical data in support of comments, in response to the following questions:
1. Is it appropriate to have a minimum transfer amount? If not, explain why not. For example, should an account
2. Is $100,000 an appropriate minimum transfer amount? Should the amount be greater than $100,000 (
A nonbank SBSD would be required to monitor the risk of each account of a counterparty to a non-cleared security-based swap and establish, maintain, and document procedures and guidelines for monitoring the risk of such accounts.
• Obtaining and reviewing the account documentation and financial information necessary for assessing the amount of current and potential future exposure to a given counterparty permitted by the nonbank SBSD;
• Determining, approving, and periodically reviewing credit limits for each counterparty, and across all counterparties;
• Monitoring credit risk exposure to the security-based swap dealer from non-cleared security-based swaps, including the type, scope, and frequency of reporting to senior management;
• Using stress tests to monitor potential future exposure to a single counterparty and across all counterparties over a specified range of possible market movements over a specified time period;
• Managing the impact of credit exposure related to non-cleared security-based swaps on the nonbank SBSD's overall risk exposure;
• Determining the need to collect collateral from a particular counterparty, including whether that determination was based upon the creditworthiness of the counterparty and/or the risk of the specific non-cleared security-based swap contracts with the counterparty;
• Monitoring the credit exposure resulting from concentrated positions with a single counterparty and across all counterparties, and during periods of extreme volatility; and
• Maintaining sufficient equity in the account of each counterparty to protect against the largest individual potential future exposure of a non-cleared security-based swap carried in the account of the counterparty as measured by computing the largest maximum possible loss that could result from the exposure.
These proposed requirements are modeled on similar requirements in FINRA Rule 4240, which establishes an interim pilot program imposing margin requirements for transactions in credit default swaps executed by a FINRA member.
The procedures and guidelines that a nonbank SBSD would establish pursuant to proposed new Rule 18a–3 would be a part of the broader system of risk management controls the nonbank SBSD would establish pursuant to Rule 15c3–4.
The Commission generally requests comment on the requirements in proposed new Rule 18a–3 to monitor risk and to have risk monitoring procedures and guidelines. In addition, the Commission requests comment, including empirical data in support of comments, in response to the following questions:
1. Are the required elements of the risk monitoring procedures and guidelines appropriate? If not, explain why not. Should there be additional or alternative required elements to the risk monitoring procedures and guidelines? If so, identify them and explain why they should be included.
2. Are the descriptions of the required elements of the risk monitoring procedures and guidelines in paragraphs (e)(1) through (8) of proposed new Rule 18a–3 sufficiently clear in terms of what is proposed to be required of nonbank SBSDs? If not, explain why not and suggest changes to make the elements more clear.
3. Is it appropriate to require that the risk monitoring procedures and guidelines be a part of the system of risk management control prescribed in Rule 15c3–4? If not, explain why not.
4. What are the current practices of dealers in OTC derivatives in terms of monitoring the risk of counterparties? Are the requirements in proposed new Rule 18a–3 consistent with current practices? Are they more limited or are they broader than current practices?
5. Should nonbank MSBSPs be subject to the requirements of paragraph (e) of proposed new Rule 18a–3? If so, explain why. If not, explain why not.
Proposed new Rule 18a–3 does not specifically identify classes of assets that could be used to meet the account
Limiting eligible collateral to cash and U.S. government securities could be a way to ensure that a nonbank SBSD will be able to liquidate the collateral promptly and at current market prices if necessary to cover the obligations of a defaulting counterparty. During a period of market stress, the value of collateral other than cash pledged as margin also may come under stress through rapid market declines and systemic liquidations and deleveraging by financial institutions. Generally, U.S. government securities are substantially less susceptible to this risk than other types of securities and, in fact, may become the investment of choice during a period of market stress as investors seek the relative safety of these securities.
Another approach would be to adopt the definition of
The Commission also seeks comment in response to the following questions, including empirical data in support of comments:
1. Should the types of assets that could be used to meet the nonbank
2. Explain the risk to nonbank SBSDs if they are permitted to accept a broader range of securities and money market instruments (as proposed in new Rule 18a–3) to meet the account
3. Should the types of assets that could be used to meet the nonbank MSBSP account
4. Explain the risk to nonbank MSBSPs if they are permitted to accept a broader range of securities and money market instruments (as proposed in new Rule 18a–3) to meet the account
5. If the term
6. If the term
7. If the term
8. If the term
9. If the term
10. Should there be separate
The U.S. Bankruptcy Code provides special protections for
The Dodd-Frank Act contains provisions designed to ensure that cash and securities held by an SBSD relating to security-based swaps will be deemed customer property under the stockbroker liquidation provisions.
The provisions of section 3E(g) of the Exchange Act apply the customer protection elements of the stockbroker liquidation provisions to cleared security-based swaps, including related collateral, and, if subject to segregation requirements, to collateral delivered as margin for non-cleared security-based swaps.
Section 3E(b)(1) of the Exchange Act provides that a broker, dealer, or SBSD shall treat and deal with all money, securities, and property of any security-based swap customer received to margin, guarantee, or secure a cleared security-based swap transaction as belonging to the customer.
Section 3E(c)(1) of the Exchange Act provides that, notwithstanding section 3E(b), money, securities, and property of cleared security-based swap customers of a broker, dealer, or SBSD may, for convenience, be commingled and deposited in the same one or more accounts with any bank, trust company, or clearing agency.
With respect to non-cleared security-based swaps, section 3E(f)(1)(A) of the Exchange Act provides that an SBSD and an MSBSP shall be required to notify a counterparty of the SBSD or MSBSP at the beginning of a non-cleared security-based swap transaction that the counterparty has the right to require the segregation of the funds or other property supplied to margin, guarantee, or secure the obligations of the counterparty.
The objective of individual segregation is for the funds and other property of the counterparty to be carried in a manner that will keep these assets separate from the bankruptcy estate of the SBSD or MSBSP if it fails financially and becomes subject to a liquidation proceeding. Having these assets carried in a bankruptcy-remote manner protects the counterparty from the costs of retrieving assets through a bankruptcy proceeding caused, for example, because another counterparty of the SBSD or MSBSP defaults on its obligations to the SBSD or MSBSP.
Section 3E(f)(2)(B)(i) of the Exchange Act provides that the segregation requirements for non-cleared security-based swaps do not apply to variation margin payments, so that the right of a counterparty to require individual account segregation applies only to initial and not variation margin.
Pursuant, in part, to the grants of rulemaking authority in sections 3E and 15(c)(3) of the Exchange Act, the Commission is proposing new Rule 18a–4 to establish segregation requirements for SBSDs with respect to cleared and non-cleared security-based swaps that would supplement the requirements in section 3E.
The omnibus segregation requirements in Rule 18a–4 would not apply to MSBSPs.
As discussed in more detail below, the omnibus segregation requirements of Rule 18a–4 are modeled on the provisions of the broker-dealer segregation rule—Rule 15c3–3.
The first step required by Rule 15c3–3 is that a carrying broker-dealer must maintain physical possession or control over customers' fully paid and excess margin securities.
The second step is that a carrying broker-dealer must maintain a reserve of funds or qualified securities in an account at a bank that is at least equal in value to the net cash owed to customers.
In addition, the Exhibit A formula permits the broker-dealer to offset
Proposed new Rule 18a–4 would contain certain provisions that are modeled on corresponding provisions of Rule 15c3–3.
Paragraph (d) of Rule 18a–4 would contain certain additional provisions that do not have analogues in Rule 15c3–3. First, it would require an SBSD and an MSBSP to provide the notice required by section 3E(f)(1)(A) of the Exchange Act prior to the execution of the first non-cleared security-based swap transaction with the counterparty.
As discussed in more detail below, the omnibus segregation requirements in proposed new Rule 18a–4 are designed to accommodate the operational aspects of an SBSD collecting cash, securities, and/or money market instruments from security-based swap customers to margin cleared security-based swaps and delivering cash, securities, and/or money market instruments to registered clearing agencies to meet margin requirements of the clearing agencies with respect to the customers' transactions. Similarly, the omnibus segregation requirements are designed to accommodate the current practice of dealers in OTC derivatives to collect cash, securities, and/or money market instruments from a counterparty to cover current and potential future exposure arising from an OTC derivatives transaction with the counterparty and concurrently deliver cash, securities, and/or money market instruments to another dealer as collateral for an OTC derivatives transaction that hedges (takes the opposite side of) the OTC derivatives transaction with the counterparty. At the same time, the omnibus segregation requirements are designed to isolate, identify, and protect cash, securities, and/or money market instruments received by the SBSD as collateral for cleared and non-cleared security-based swaps, whether the collateral is held by the SBSD, a registered clearing agency, or another SBSD.
Finally, the Commission is proposing a conforming amendment to add new paragraph (p) to Rule 15c3–3 to state that a broker-dealer that is registered as an SBSD pursuant to section 15F of the Exchange Act must also comply with the provisions of Rule 18a–4.
The Commission generally requests comment on the approach of proposed new Rule 18a–4. In addition, the Commission requests comment, including empirical data in support of comments, in response to the following questions:
1. Should there be rules under section 3E(f)(1)(B)(i) of the Exchange Act with respect to how an SBSD and an MSBSP must segregate funds and other property relating to non-cleared security-based swaps to supplement the individual segregation provisions in section 3E(f)? If so, describe the types of requirements the rules should impose.
2. Should there be rules under section 3E(f)(2)(B)(ii)(I) of the Exchange Act with respect to how an SBSD and an MSBSP may invest funds or other property relating to non-cleared security-based swaps to supplement the individual segregation provisions in section 3E(f)? If so, describe the types of requirements the rules should impose. For example, should the rules require that the funds may be invested only in U.S. government securities or in
3. Is it appropriate to model the segregation provisions for security-based swap customers on the provisions of Rule 15c3–3? If not, explain why and identify another segregation model.
4. Should MSBSPs be required to comply with all the omnibus segregation requirements of proposed new Rule 18a–4? If so, explain why. If not, explain why not.
5. Should the omnibus segregation requirements accommodate the ability to hold swaps in security-based swap customer accounts to facilitate a portfolio margin treatment for related or offsetting positions in the account? What practical or legal impediments may exist to doing so? If swaps could be held in the account along with security-based swaps, how would the existence of differing bankruptcy regimes for securities and commodities instruments impact the ability to unwind positions or distribute assets to customers in the event of insolvency of the SBSD?
Paragraph (b)(1) of Rule 18a–4 would require an SBSD to promptly obtain and thereafter maintain physical possession or control of all excess securities collateral carried for the accounts of security-based swap customers.
The term
Proposed new Rule 18a–4 would define the term
The first exception in the definition refers to securities and money market instruments held in a
The term
• The account is designated “Special Clearing Account for the Exclusive Benefit of the Cleared Security-Based Swap Customers of [name of the SBSD]”;
• The clearing agency has acknowledged in a written notice provided to and retained by the SBSD that the funds and other property in the account are being held by the clearing agency for the exclusive benefit of the security-based swap customers of the SBSD in accordance with the regulations of the Commission and are being kept separate from any other accounts maintained by the SBSD with the clearing agency;
• The account is subject to a written contract between the SBSD and the clearing agency which provides that the funds and other property in the account shall be subject to no right, charge, security interest, lien, or claim of any kind in favor of the clearing agency or any person claiming through the clearing agency, except a right, charge, security interest, lien, or claim resulting from a cleared security-based swap transaction effected in the account.
These provisions are designed to ensure that securities and money market instruments of security-based swap customers related to cleared security-based swaps provided to a clearing agency are isolated from the proprietary assets of the SBSD and identified as property of the security-based swap customers.
The second exception in the definition of
The term
• The account is designated “Special Account for the Exclusive Benefit of the Security-Based Swap Customers of [name of the SBSD]”;
• The account is subject to a written acknowledgement by the other SBSD provided to and retained by the SBSD that the funds and other property held in the account are being held by the other SBSD for the exclusive benefit of the security-based swap customers of the SBSD in accordance with the regulations of the Commission and are being kept separate from any other accounts maintained by the SBSD with the other SBSD;
• The account is subject to a written contract between the SBSD and the other SBSD which provides that the funds and other property in the account shall be subject to no right, charge, security interest, lien, or claim of any kind in favor of the other SBSD or any person claiming through the SBSD, except a right, charge, security interest, lien, or claim resulting from a non-cleared security-based swap transaction effected in the account;
• The account and the assets in the account are not subject to any type of subordination agreement.
Paragraph (b)(2) of proposed new Rule 18a–4 would identify five satisfactory control locations for
• Are represented by one or more certificates in the custody or control of a clearing corporation or other subsidiary organization of either national securities exchanges, or of a custodian bank in accordance with a system for the central handling of securities complying with the provisions of Exchange Act Rule 8c–1(g) and Exchange Act Rule 15c2–1(g) the delivery of which certificates to the SBSD does not require the payment of money or value, and if the books or records of the SBSD identify the security-based swap customers entitled to receive specified quantities or units of the securities so held for such security-based swap customers collectively;
• Are the subject of bona fide items of transfer; provided that securities and money market instruments shall be deemed not to be the subject of bona fide items of transfer if, within 40 calendar days after they have been transmitted for transfer by the SBSD to the issuer or its transfer agent, new certificates conforming to the instructions of the SBSD have not been received by the SBSD, the SBSD has not
• Are in the custody or control of a bank as defined in section 3(a)(6) of the Act, the delivery of which securities and money market instruments to the SBSD does not require the payment of money or value and the bank having acknowledged in writing that the securities and money market instruments in its custody or control are not subject to any right, charge, security interest, lien or claim of any kind in favor of a bank or any person claiming through the bank;
• Are held in or are in transit between offices of the SBSD; or are held by a corporate subsidiary if the SBSD owns and exercises a majority of the voting rights of all of the voting securities of such subsidiary, assumes or guarantees all of the subsidiary's obligations and liabilities, operates the subsidiary as a branch office of the SBSD, and assumes full responsibility for compliance by the subsidiary and all of its associated persons with the provisions of the Federal securities laws as well as for all of the other acts of the subsidiary and such associated persons;
• Are held in such other locations as the Commission shall upon application from an SBSD find and designate to be adequate for the protection of customer securities.
Paragraph (b)(3) of Rule 18a–4 would require that each business day the SBSD must determine from its books and records the quantity of
• Subject to a lien securing an obligation of the SBSD, then the SBSD, not later than the next business day on which the determination is made, must issue instructions for the release of the securities or money market instruments from the lien and must obtain physical possession or control of the securities and money market instruments within two business days following the date of the instructions;
• Held in a qualified clearing agency account, then the SBSD, not later than the next business day on which the determination is made, must issue instructions for the release of the securities or money market instruments by the clearing agency and must obtain physical possession or control of the securities or money market instruments within two business days following the date of the instructions;
• Held in a qualified SBSD account maintained by another SBSD, then the SBSD, not later than the next business day on which the determination is made, must issue instructions for the release of the securities and money market instruments by the other SBSD and must obtain physical possession or control of the securities or money market instruments within two business days following the date of the instructions;
• Loaned by the SBSD, then the SBSD, not later than the next business day on which the determination is made, must issue instructions for the return of the loaned securities and money market instruments and must obtain physical possession or control of the securities or money market instruments within five business days following the date of the instructions;
• Failed to receive more than 30 calendar days, then the SBSD, not later than the next business day on which the determination is made, must take prompt steps to obtain physical possession or control of the securities or money market instruments through a buy-in procedure or otherwise;
• Receivable by the SBSD as a security dividend, stock split or similar distribution for more than 45 calendar days, then the SBSD, not later than the next business day on which the determination is made, must take
• Included on the books or records of the SBSD as a proprietary short position or as a short position for another person more than 10 business days (or more than 30 calendar days if the SBSD is a market maker in the securities), then the SBSD must, not later than the business day following the day on which the determination is made, take prompt steps to obtain physical possession or control of such securities or money market instruments.
The Commission generally requests comment on the proposed physical possession and control requirements in proposed new Rule 18a–4. In addition, the Commission requests comment, including empirical data in support of comments, in response to the following questions:
1. Are possession and control requirements modeled on Rule 15c3–3 appropriate for security-based swaps? If not, explain why not.
2. Is the proposed definition of
3. Is the proposed definition of
4. Is the proposed exception in the definition of
5. Is the proposed definition of
6. Is the proposed exception in the definition of
7. Is the proposed definition of
8. How do dealers in OTC derivatives that will be security-based swaps use offsetting transactions to hedge the risk of these positions? Would the proposed possession and control requirements for non-cleared security-based swaps adversely affect the ability of SBSDs to enter into hedging transactions? If so, explain why and suggest modifications to the requirements that could address this issue.
9. Are the control locations identified in proposed new Rule 18a–4 appropriate for security-based swaps? If not, explain why not. Should the two additional control locations in paragraphs (c)(2) and (c)(4) of Rule 15c3–3 that are not being incorporated into proposed new Rule 18a–4 be included in the rule? If so, explain why.
10. Should the process for applying to the Commission to have a location designated to be adequate for the protection of customer securities and money market instruments under paragraph (b)(2)(v) of proposed new Rule 18a–4 be similar to the current process for a broker-dealer to utilize a foreign control location under Rule 15c3–3 (
11. Are the steps in paragraph (b)(3) of proposed new Rule 18a–4 that an SBSD would be required to take to move securities and money market instruments from non-control locations to control locations appropriate for security-based swaps? If not, explain why not.
12. Are there any possession and control provisions in Rule 15c3–3 that are not being incorporated in proposed new Rule 18a–4 that should be included in the rule? If so, identify them and explain why they should be incorporated into proposed new Rule 18a–4.
Paragraph (c)(1) of Rule 18a–4 would require an SBSD, among other things, to maintain a
• The account is designated “Special Account for the Exclusive Benefit of the Security-Based Swap Customers of [name of the SBSD]”;
• The account is subject to a written acknowledgement by the bank provided to and retained by the SBSD that the funds and other property held in the account are being held by the bank for the exclusive benefit of the security-based swap customers of the SBSD in accordance with the regulations of the Commission and are being kept separate from any other accounts maintained by the SBSD with the bank;
• The account is subject to a written contract between the SBSD and the bank which provides that the funds and other property in the account shall at no time be used directly or indirectly as security for a loan or other extension of credit to the SBSD by the bank and, shall be subject to no right, charge, security interest, lien, or claim of any kind in favor of the bank or any person claiming through the bank.
Paragraph (c)(1) of proposed new Rule 18a–4 would provide that the SBSD must at all times maintain in a Rule 18a–4 Customer Reserve Account, through deposits into the account, cash and/or qualified securities in amounts computed in accordance with the formula set forth in Exhibit A to Rule 18a–4.
The formula in Exhibit A for determining the amount to be maintained in a Rule 18a–4 Customer Reserve Account similarly would require an SBSD to add up credit items and debit items.
• Margin related to cleared security-based swap transactions in accounts carried for security-based swap customers required and on deposit at a clearing agency registered with the Commission pursuant to section 17A of the Exchange Act (15 U.S.C. 78q–1); and
• Margin related to non-cleared security-based swap transactions in accounts carried for security-based swap customers held in a qualified registered SBSD account at another SBSD.
If the total credits exceed the total debits, an SBSD would need to maintain that amount on deposit in a Rule 18a–4 Customer Reserve Account in the form of funds and/or qualified securities.
The term
While section 3E(d) of the Exchange Act permits the use of municipal
The first proposed condition for municipal securities is that they must be general obligation bonds. General obligation bonds are backed by the full faith and credit and/or taxing authority of the issuer.
The second proposed condition for the use of municipal securities is that they must be part of an initial offering of $500 million or greater. The size of the initial offering is an indication of the size of the market for a particular issuer's municipal securities. Additionally, the secondary market for a municipal security is generally smaller than for the initial offering.
The third proposed condition for the use of municipal securities is that they must be issued by an issuer that has published audited financial statements within 120 days of its most recent fiscal year-end.
As discussed above, an SBSD would be required to add up credit items and debit items pursuant to the formula in Exhibit A to proposed new Rule 18a–1. If, under the formula, the credit items exceed the debit items, the SBSD would be required to maintain cash and/or qualified securities in that net amount in the Rule 18a–4 Customer Reserve Account. Paragraph (c)(1) of proposed new Rule 18a–4 would require an SBSD to take certain deductions for purposes of this requirement.
First, the SBSD would need to deduct the percentage of the value of municipal securities specified in paragraph (c)(2)(vi) of Rule 15c3–1.
Second, the SBSD would need to deduct the aggregate value of the municipal securities of a single issuer to the extent the value exceeds 2% of the amount required to be maintained in the Rule 18a–4 Customer Reserve Account. The Commission preliminarily believes that this deduction would serve as a reasonable benchmark designed to avoid the potential that the SBSD might use customer funds to establish a concentrated position in municipal securities of a single issuer. A concentrated position could be more difficult to liquidate at current market values.
Third, the SBSD would need to deduct the aggregate value of all municipal securities to the extent the amount of the securities exceeds 10% of the amount required to be maintained in the Rule 18a–4 Customer Reserve Account. The Commission preliminarily believes that this deduction would serve as a reasonable benchmark designed to limit the amount of customer funds an SBSD could invest in municipal securities.
Fourth, the SBSD would be required to deduct the amount of funds held in a Rule 18a–4 Customer Reserve Account at a single bank to the extent the amount exceeds 10% of the equity capital of the bank as reported by the bank in its most recent Consolidated Report of Condition and Income (“Call Report”).
Broker-dealers must deposit cash or “qualified securities” into the customer reserve account maintained at a “bank” under Rule 15c3–3(e). Rule 15c3–3(f) further requires the broker-dealer to obtain a written contract from the bank in which the bank agrees not to re-lend or hypothecate securities deposited into the reserve account. Consequently, the securities should be readily available to the broker-dealer. Cash deposits, however, are fungible with other deposits carried by the bank and may be freely used in the course of the bank's commercial lending activities. Therefore, to the extent a broker-dealer deposits cash in a reserve bank account, there is a risk the cash could be lost or inaccessible for a period if the bank experiences financial difficulties. This could adversely impact the broker-dealer and its customers if the balance of the reserve deposit is concentrated at one bank in the form of cash.
Paragraph (c)(2) of proposed new Rule 18a–4 would provide that it is unlawful for an SBSD to accept or use credits identified in the items of the formula set forth in Exhibit A to proposed new Rule 18a–4 except to establish debits for the specified purposes in the items of the formula.
Paragraph (c)(3) of proposed new Rule 18a–4 would provide that the computations necessary to determine the amount required to be maintained in the Rule 18a–4 Customer Reserve Account must be made daily as of the close of the previous business day and any deposit required to be made into the account must be made on the next business day following the computation no later than one hour after the opening of the bank that maintains the account.
Proposed new Rule 18a–4 would require a daily computation as opposed to the weekly computation that is required by Rule 15c3–3. The margin requirements of clearing agencies and other SBSDs for security-based swaps are expected generally to be determined on a daily basis, which will require SBSDs to deliver collateral to, and receive the return of collateral from, clearing agencies and other SBSDs on a daily basis.
Finally, paragraph (c)(4) of proposed new Rule 18a–4 would require an SBSD to promptly deposit funds or qualified securities into a Rule 18a–4 Customer Reserve Account of the SBSD if the amount of funds and/or qualified securities held in one or more Rule 18a–4 Customer Reserve Accounts falls below the amount required to be maintained pursuant to the rule.
The Commission generally requests comment on the requirements for the Rule 18a–4 Customer Reserve Account in proposed new Rule 18a–4. In addition, the Commission requests comment, including empirical data in support of comments, in response to the following questions:
1. Are Rule 18a–4 Customer Reserve Account requirements modeled on Rule 15c3–3 appropriate for security-based swaps? If not, explain why not.
2. Is the proposed definition of
3. Are the proposed credit and debit items in Exhibit A to proposed new Rule 18a–4 appropriate? If not, explain why not. Are there alternative or additional credit and debit items that should be included in the formula? If so, describe them and explain why they should be included in the formula.
4. How would the formula computation for a broker-dealer SBSD differ from the formula computation for a stand-alone SBSD? For example, the debit items relating to financing securities transactions would not apply to stand-alone SBSDs as financing securities transactions would need to be conducted in a broker-dealer. Consequently, should there be a separate Exhibit A formula for stand-alone SBSDs?
5. Are the two additional debit items in Exhibit A to proposed new Rule 18a–4 relating to margin collateral required and on deposit at clearing agencies, DCOs, and other SBSDs appropriate? If not, explain why not.
6. Note G to Exhibit A to proposed new Rule 18a–4 is analogous to Note G to Exhibit A to Rule 15c3–3. Note G to Exhibit A to Rule 15c3–3 prescribes (and Note G to Exhibit A to proposed new Rule 18a–1 would prescribe) the conditions for when a clearing agency or DCO can qualify for purposes of including debits in the reserve formula under Item 14 (margin related to security futures products). Should these conditions apply to when a clearing agency would qualify for purposes of including debits in the Rule 18a–4 Customer Reserve Account formula under Item 15? If so, explain why. If not, explain why not. For example, could the Note G conditions, if applied to Item 15, be used instead of the proposed definition of
7. Is the proposed definition of
8. Is the proposed condition to the definition of qualified security that municipal securities be general obligation bonds in the definition appropriate? If not, explain why not. Identify other types of municipal securities that should be included and explain how their inclusion would be consistent with the objective that only the most highly liquid securities (
9. It is expected that the proposed condition that municipal securities be part of an initial offering of $500 million or greater in the definition of
10. Is the proposed condition that municipal securities must be issued by an issuer that has published audited financial statements within 120 days of its most recent fiscal year-end in the definition of
11. The MSRB Rule Filing contemplates those issuers who are engaged in the voluntary annual filing undertaking will be able to provide the information to the MSRB's Electronic Muni Market Access System within 150 calendar days after the end of the applicable fiscal year prior to January 1, 2014. The 150 calendar day time frame is an interim measure and would no longer be available after January 1, 2014. Should municipal securities that otherwise meet the definition of qualified securities be permitted if the issuer submits financial information within 150 calendar days after the end of the applicable fiscal year during this transitional period that would end on January 1, 2014?
12. Is the proposed deduction for municipal securities held in a Rule 18a–4 Customer Reserve Account equal to the percentage specified in paragraph
13. Is the proposed deduction for municipal securities of a single issuer held in a Rule 18a–4 Customer Reserve Account in excess of 2% of the amount required to be maintained in the account appropriate? If not, explain why not. For example, should the threshold be greater (
14. Is the proposed deduction for municipal securities held in a Rule 18a–4 Customer Reserve Account in excess of 10% of the amount required to be maintained in the account appropriate? If not, explain why not. For example, should the threshold be greater (
15. Is the proposed deduction for the amount that funds held in a Rule 18a–4 Customer Reserve Account at a single bank exceed 10% of the equity capital of the bank as reported by the bank in its most recent Call Report appropriate? If not, explain why not. For example, should the threshold be greater (
16. Is it appropriate to require that the computations to determine the amount required to be maintained in the Rule 18a–4 Customer Reserve Account must be made daily as of the close of the previous business day and any deposit required to be made into the account must be made on the next business day following the computation? If not, explain why not. For example, should the computations be required on a weekly basis consistent with Rule 15c3–3? If so, explain why.
17. Are there any customer reserve account provisions in Rule 15c3–1 that are not being incorporated in proposed new Rule 18a–4 that should be included in the rule? If so, identify them and explain why they should be incorporated into proposed new Rule 18a–4.
18. More generally, are there any provisions in Rule 15c3–1 that are not being incorporated in proposed new Rule 18a–4 that should be included in the rule? If so, identify them and explain why they should be incorporated into proposed new Rule 18a–4.
Paragraph (d) of proposed new Rule 18a–4 would require an SBSD and an MSBSP to provide the notice required by section 3E(f)(1)(A) of the Exchange Act prior to the execution of the first non-cleared security-based swap with the counterparty.
The provisions in section 3E(f) of the Exchange Act allow a program by which a counterparty to non-cleared security-based swaps with an SBSD or an MSBSP can choose individual segregation.
Paragraph (d)(2) of proposed new Rule 18a–4 would require an SBSD to obtain agreements from counterparties that either elect individual segregation or waive segregation altogether that such counterparties subordinate all of their claims against the SBSD to the claims of security-based swap customers.
As discussed in section II.C.1. of this release, segregation requirements are designed to identify customer property as distinct from the proprietary assets of the firm and to protect the customer property by, for example, preventing the firm from using it to make proprietary investments. The goal of segregation is to facilitate the prompt return of customer property to customers either before or during a liquidation proceeding if the firm fails. However, if a counterparty's property is held by a third-party custodian because the counterparty elects individual segregation or if the counterparty waives segregation, there is no need to isolate the counterparty's property since it is with the third-party custodian in the former case or the counterparty has agreed that the SBSD can use it for proprietary purposes in the latter case. The subordination provisions in proposed new Rule 18a–4 are designed to clarify the rights of counterparties
An SBSD would need to obtain a conditional subordination agreement from a counterparty that elects individual segregation.
An SBSD also would need to obtain an unconditional subordination agreement from a counterparty that waives segregation altogether.
The Commission generally requests comment on the special provisions for non-cleared security-based swaps in proposed new Rule 18a–4. In addition, the Commission requests comment, including empirical data in support of comments, in response to the following questions:
1. Is the requirement to have notice be given in writing prior to the execution of the first non-cleared security-based swap transaction with the counterparty occurring after the effective date of the rule appropriate? If not, explain why not. Should the notice be required on a periodic basis such as monthly or annually? If so, explain why. If not, explain why not. Should the notice be required before every transaction? If so, explain why. If not, explain why not.
2. Describe the current practices and arrangements for individual segregation. For example, are these arrangements based on tri-party agreements between the SBSD, counterparty, and independent third-party custodian? If so, describe the terms of the these third-party agreements. Under these agreements, how would the SBSD perfect its security interest in the funds and other property held by the third-party custodian? What terms would the counterparty require that are designed to ensure that funds or property held by the independent third-party custodian at the time of a liquidation proceeding of the SBSD are not included in the bankruptcy estate of the SBSD?
3. Is it appropriate to require counterparties electing individual segregation to subordinate their claims to security-based swap customers? If not, explain why not and describe other measures that could be taken to ensure that security-based swap customers whose cash, securities, and money market instruments are subject to the omnibus segregation requirements have a first priority claim to these assets over counterparties whose funds and other property are individually segregated at a third party custodian.
4. Is it appropriate to require counterparties who waive all right to segregation to subordinate their claims to security-based swap customers? If not, explain why not and describe other measures that could be taken to ensure that security-based swap customers whose cash, securities, and money market instruments are subject to the omnibus segregation requirements have a first priority claim to these assets over counterparties who waive all right to segregation.
In responding to the specific requests for comment above, interested persons are encouraged to provide supporting data and analysis and, when appropriate, suggest modifications to proposed rule text. Responses that are supported by data and analysis provide great assistance to the Commission in considering the practicality and effectiveness of proposed new requirements as well as weighing the benefits and costs of proposed requirements. In addition, commenters are encouraged to identify in their responses a specific request for comment by indicating the section number of the release.
The Commission also seeks comment on the proposals as a whole. In this regard, the Commission seeks comment, including empirical data in support of comments, on the following:
1. Are there financial responsibility programs other than the broker-dealer financial responsibility program that could serve as a better model for establishing financial responsibility requirements for SBSDs and MSBSPs? If so, identify the program and explain how it would be a better model for implementing the provisions of the Dodd-Frank Act mandating capital and margin requirements for nonbank SBSDs and nonbank MSBSPs.
2. Should any of the proposed quantitative requirements (
3. How would the proposals integrate with provisions in other titles and subtitles of the Dodd-Frank Act and any regulations or proposed regulations under those other titles and subtitles?
4. How would the proposals integrate with other proposals applicable to SBSDs or MSBSPs in the Exchange Act and any applicable regulations adopted under authority in the Exchange Act?
5. As discussed throughout this release, many of the proposed amendments are based on dollar amounts that are prescribed in existing requirements. Should any of these proposed dollar amounts be adjusted to account for inflation?
6. What should the implementation timeframe be for the proposed amendments and new rules? For example, should the compliance date be 90, 120, 150, 180, or some other number of days after publication? Should the proposed requirements have different time frames before their compliance dates are triggered? For example, would it take longer to come into compliance with certain of these proposals than others? If so, rank the requirements in terms of the length of time it would take to come into compliance with them and propose a schedule of compliance dates.
Certain provisions of the proposed rule amendments and proposed new rules would contain a new “collection of information” within the meaning of the Paperwork Reduction Act of 1995 (“PRA”).
(1) Rule 18a–1 and related appendices, Net capital requirements for security-based swap dealers for which there is not a prudential regulator (a proposed new collection of information);
(2) Rule 18a–2, Capital requirements for major security-based swap participants for which there is not a prudential regulator (a proposed new collection of information);
(3) Rule 18a–3, Non-cleared security-based swap margin requirements for security-based swap dealers and major security-based swap participants for which there is not a prudential regulator (a proposed new collection of information);
(4) Rule 18a–4, Segregation requirements for security-based swap dealers and major security-based swap participants (a proposed new collection of information); and
(5) Rule 15c3–1 Net capital requirements for brokers or dealers (OMB Control Number 3235–0200).
Section 764 of the Dodd-Frank Act added section 15F to the Exchange Act.
First, under proposed Rule 18a–1, a stand-alone SBSD would need to apply to the Commission to be authorized to use internal models to compute net capital.
Second, under proposed Rule 18a–1 and amendments to Rule 15c3–1, nonbank SBSDs that are approved to use models to compute deductions for market and credit risk under Rule 18a–1 and ANC broker-dealers would be required to perform a liquidity stress test at least monthly and, based on the results of that test, maintain liquidity reserves to address funding needs.
Third, nonbank SBSDs, including broker-dealer SBSDs, would be required to comply with certain requirements of
Fourth, under paragraph (c)(2)(vi)(O)(
Fifth, under paragraph (i) of proposed Rule 18a–1, stand-alone SBSDs would be required to provide the Commission with certain written notices with respect to equity withdrawals.
Finally, under paragraph (c)(5) of Appendix D to proposed Rule 18a–1, a stand-alone SBSD would be required to file with the Commission two copies of any proposed subordinated loan agreement (including nonconforming subordinated loan agreements) at least 30 days prior to the proposed execution date of the agreement.
Proposed new Rule 18a–2 would establish capital requirements for nonbank MSBSPs.
Because MSBSPs, by definition, will be entities that engage in a substantial security-based swap business, the Commission is proposing that they be required to comply with Rule 15c3–4,
Proposed new Rule 18a–3 would establish minimum margin requirements for non-cleared security-based swap transactions entered into by nonbank SBSDs and nonbank MSBSPs.
• Obtaining and reviewing account documentation and financial information necessary for assessing the amount of current and potential future exposure to a given counterparty permitted by the SBSD;
• Determining, approving, and periodically reviewing credit limits for each counterparty, and across all counterparties;
• Monitoring credit risk exposure to the SBSD from non-cleared security-based swaps, including the type, scope, and frequency of reporting to senior management;
• Using stress tests to monitor potential future exposure to a single counterparty and across all counterparties over a specified range of possible market movements over a specified time period;
• Managing the impact of credit exposure related to non-cleared security-based swaps on the SBSD's overall risk exposure;
• Determining the need to collect collateral from a particular counterparty, including whether that determination was based upon the creditworthiness of the counterparty and/or the risk of the specific non-cleared security-based swap contracts with the counterparty;
• Monitoring the credit exposure resulting from concentrated positions with a single counterparty and across all counterparties, and during periods of extreme volatility; and
• Maintaining sufficient equity in the account of each counterparty to protect against the largest individual potential future exposure of a non-cleared security-based swap carried in the
Proposed new Rule 18a–4 would establish segregation requirements for cleared and non-cleared security-based swap transactions, which would apply to all types of SBSDs (
Paragraph (d) of proposed new Rule 18a–4 would contain provisions that are not modeled specifically on Rule 15c3–1. First, it would require an SBSD and an MSBSP to provide the notice required by section 3E(f)(1)(A) of the Exchange Act to a counterparty in writing prior to the execution of the first non-cleared security-based swap transaction with the counterparty.
Additionally, paragraph (a)(3) of proposed new Rule 18a–4 would define
• The account is designated “Special Clearing Account for the Exclusive Benefit of the Cleared Security-Based Swap Customers of [name of the SBSD]”;
• The clearing agency has acknowledged in a written notice provided to and retained by the SBSD that the funds and other property in the account are being held by the clearing agency for the exclusive benefit of the cleared security-based swap customers of the SBSD in accordance with the regulations of the Commission and are being kept separate from any other accounts maintained by the SBSD with the clearing agency;
• The account is subject to a written contract between the SBSD and the clearing agency which provides that the funds and other property in the account shall be subject to no right, charge, security interest, lien, or claim of any kind in favor of the clearing agency or any person claiming through the clearing agency, except a right, charge, security interest, lien, or claim resulting from a cleared security-based swap transaction effected in the account.
Under paragraph (a)(4) of proposed new Rule 18a–4, a qualified SBSD account would be defined to mean an account at another SBSD registered with the Commission pursuant to section 15F of the Exchange Act that is not an affiliate of the SBSD and that meets conditions that are largely identical to the conditions for a qualified clearing agency account. Finally, paragraph (c)(1) of proposed new Rule 18a–4 would require an SBSD, among other things, to maintain a
Paragraph (c)(1) of proposed new Rule 18a–4 would provide that the SBSD must at all times maintain in a Rule 18a–4 Customer Reserve Account, through deposits into the account, cash and/or qualified securities in amounts computed in accordance with the formula set forth in Exhibit A to Rule 18a–4.
As discussed more fully above, the Commission and SROs, as applicable, would use the information collected under new Rules 18a–1, 18a–2, 18a–3 and 18a–4, as well as the amendments to Rule 15c3–1 to determine whether an SBSD, MSBSP, or ANC broker-dealer, as applicable, is in compliance with each applicable rule and to help fulfill their oversight responsibilities. The
Proposed new Rules 18a–1 and 18a–2, as well as the proposed amendments to Rule 15c3–1 would be integral parts of the Commission's financial responsibility program for SBSDs and MSBSPs, and ANC broker-dealers, respectively. Proposed Rule 18a–1 and Rule 15c3–1 are designed to ensure that nonbank SBSDs and broker-dealers (including broker-dealer SBSDs), respectively, have sufficient liquidity to meet all unsubordinated obligations to customers and counterparties and, consequently, if the SBSD or broker-dealer fails, sufficient resources to wind-down in an orderly manner without the need for a formal proceeding. The collections of information in proposed new Rule 18a–1, Rule 18a–2 and the amendments to Rule 15c3–1 would facilitate the monitoring of the financial condition of nonbank SBSDs, nonbank MSBSPs and broker-dealers by the Commission.
Proposed new Rule 18a–3 would prescribe, among other things, requirements for nonbank SBSDs to collect collateral with regard to non-cleared security-based swap transactions. Under proposed Rule 18a–3, a nonbank SBSD would be required to establish and implement risk monitoring procedures with respect to counterparty accounts.
Proposed new Rule 18a–4 would establish segregation requirements for cleared and non-cleared security-based swap transactions, which would apply to all types of SBSDs (
Consistent with the
The Commission previously estimated that 16 broker-dealers would likely seek to register as SBSDs.
Because proposed Rules 18a–1 and 18a–3 would apply only to nonbank SBSDs, including nonbank subsidiaries of bank holding companies the Federal Reserve regulates, the number of respondents subject to these proposed rules would be less than the 50 entities expected to register with the Commission as an SBSD, as many of the dealers that currently engage in OTC derivative activities are banks, and would therefore be “bank SBSDs.”
Of the 9 stand-alone SBSDs, the Commission staff estimates that, based on its experience with ANC broker-dealers and OTC derivatives dealers, the majority of stand-alone SBSDs would apply to use internal models.
The Commission generally requests comment on all aspects of these estimates of the number of respondents. Commenters should provide specific data and analysis to support any comments they submit with respect to the number of respondents, including identifying any sources of industry information that could be used to estimate the number of respondents.
Proposed Rule 18a–1 and the proposed amendments to Rule 15c3–1 would have collection of information requirements that result in one-time and annual hour burdens for nonbank SBSDs and ANC broker-dealers. The estimates in this section are based in part on the Commission's experience with burden estimates for similar collections of information requirements, including the current collection of information requirements for Rule 15c3–1.
First, under paragraph (a)(2) of proposed Rule 18a–1, the Commission is proposing that a stand-alone SBSD be required to file an application for authorization to compute net capital using internal models.
Based on its experience with ANC broker-dealers and OTC derivatives dealers, the Commission expects that stand-alone SBSDs that apply to the Commission to use internal models to calculate net capital will already have developed models to calculate market and credit risk and will already have developed internal risk management control systems. On the other hand, the Commission notes that proposed Rule 18a–1 contains additional requirements that stand-alone SBSDs may not yet have incorporated into their models and control systems.
These estimates are based on currently approved PRA estimates for the ANC firms and OTC derivatives dealers.
The Commission staff estimates that each of the 6 stand-alone nonbank SBSDs that apply to use the internal models would spend approximately 1,000 hours to develop and submit its VaR model and the description of its risk management control system to the Commission as well as to create and compile the various documents to be included with the application and to work with the Commission staff through the application process.
The Commission staff estimates that a stand-alone SBSD approved to use internal models would spend approximately 5,600 hours per year to review and update the models and approximately 160 hours each quarter, or approximately 640 hours per year, to backtest the models.
Stand-alone SBSDs electing to file an application with the Commission to use a VaR model will incur start-up costs including information technology costs to comply with proposed Rule 18a–1. Because each stand-alone SBSD's information technology systems may be in varying stages of readiness to enable these firms to meet the requirements of the proposed rules, the cost of modifying their information technology systems could vary significantly. Based on the estimates for the ANC broker-dealers,
Second, under paragraph (f) of proposed Rule 18a–1 and proposed new paragraph (f) of Rule 15c3–1, stand-alone SBSDs that are approved to use models to compute deductions for market and credit risk under Rule 18a–1 and ANC broker-dealers would be subject to liquidity stress test requirements. The Commission staff estimates that the proposed requirements resulting from these provisions would result in a one-time burden to applicable stand-alone SBSDs and ANC broker-dealers as they would need to develop models for the liquidity stress test, document the results of the test to provide to senior management, document differences in the assumptions used in the liquidity stress test of the firm from those used in a consolidated entity of which the firm is a part, and develop a written contingency funding plan.
In terms of annual hour burden, the Commission staff estimates that a stand-alone SBSD or ANC broker-dealer would spend an average of approximately 50 hours
Third, under paragraph (g) of proposed new Rule 18a–1, a stand-alone SBSD would be required to comply with Rule 15c3–4 (except for certain provisions of that rule) as if it were an OTC derivatives dealer.
• A risk control unit that reports directly to senior management and is independent from business trading units;
• Separation of duties between personnel responsible for entering into a transaction and those responsible for recording the transaction in the books and records of the OTC derivatives dealer;
• Periodic reviews (which may be performed by internal audit staff) and annual reviews (which must be conducted by independent certified public accountants) of the OTC derivatives dealer's risk management systems;
• Definitions of risk, risk monitoring, and risk management.
Rule 15c3–4 further provides that the elements of the internal risk management control system must include written guidelines, approved by the OTC derivatives dealer's governing body, that discuss a number of matters, including for example:
• Quantitative guidelines for managing the OTC derivatives dealer's overall risk exposure;
• The type, scope, and frequency of reporting by management on risk exposures;
• The procedures for and the timing of the governing body's periodic review of the risk monitoring and risk management written guidelines, systems, and processes;
• The process for monitoring risk independent of the business or trading units whose activities create the risks being monitored;
• The performance of the risk management function by persons independent from or senior to the business or trading units whose activities create the risks;
• The authority and resources of the groups or persons performing the risk monitoring and risk management functions;
• The appropriate response by management when internal risk management guidelines have been exceeded;
• The procedures to monitor and address the risk that an OTC derivatives transaction contract will be unenforceable;
• The procedures requiring the documentation of the principal terms of OTC derivatives transactions and other relevant information regarding such transactions;
• The procedures authorizing specified employees to commit the OTC derivatives dealer to particular types of transactions.
Based on the nature of the written guidelines described above, the Commission staff estimates that the requirement to comply with Rule 15c3–4 would result in one-time and annual hour burdens to nonbank SBSDs. The Commission staff estimates that the average amount of time a firm would spend implementing its risk management control system would be 2,000 hours,
The proposed rule would require a nonbank SBSD to consider a number of issues affecting its business environment when creating its risk management control system. For example, a nonbank SBSD would need to consider, among other things, the sophistication and experience of relevant trading, risk management, and internal audit personnel, as well as the separation of duties among these personnel, when designing and implementing its internal control system's guidelines, policies, and procedures. This would help to ensure that the control system that is implemented would adequately address the risks posed by the firm's business and the environment in which it is being conducted. In addition, this would enable a nonbank SBSD derivatives dealer to implement specific policies and procedures unique to its circumstances.
In implementing its policies and procedures, a nonbank SBSD would be required to document and record its system of internal risk management controls. In particular, a nonbank SBSD would be required to document its consideration of certain issues affecting its business when designing its internal controls. A nonbank SBSD would also be required to prepare and maintain written guidelines that discuss its internal control system, including procedures for determining the scope of authorized activities. The Commission staff estimates that each of these 15 nonbank SBSDs
Nonbank SBSDs may incur start-up costs to comply with the provisions of Rule 15c3–4 incorporated into proposed Rule 18a–1, including information technology costs. The information technology systems of nonbank SBSDs may be in varying stages of readiness to enable these firms to meet the requirements of the proposed rules so the cost of modifying their information technology systems could vary significantly. Based on the estimates for similar collections of information,
Fourth, proposed paragraph (c)(2)(vi)(O)(
As discussed above, the Commission staff estimates that 6 broker-dealer SBSDs and 3 nonbank SBSDs not using models would utilize the credit default swap haircut provisions under the proposed amendments to Rule 15c3–1 and proposed new Rule 18a–1, respectively. Consequently, these firms would use an industry sector classification system that is documented for the credit default swap reference obligors. The Commission expects that these firms would utilize external classifications systems because of reduced costs and ease of use as a result of the common usage of several of these classification systems in the financial services industry. The Commission staff estimates that nonbank SBSDs not using models would spend approximately 1 hour per year documenting these industry sectors, for a total annual hour burden of 9 hours.
Fifth, under paragraph (i) of proposed new Rule 18a–1, a nonbank SBSD would be required to file certain notices with the Commission relating to the withdrawal of equity capital.
Finally, under Appendix D to proposed new Rule 18a–1, a nonbank SBSD would be required to file a proposed subordinated loan agreement with the Commission (including nonconforming subordinated loan agreements).
Proposed new Rule 18a–2 would establish capital requirements for nonbank MSBSPs.
The proposed rule would require a nonbank MSBSP to consider a number of issues affecting its business environment when creating its risk management control system. For example, a nonbank MSBSP would need to consider, among other things, the sophistication and experience of relevant trading, risk management, and internal audit personnel, as well as the separation of duties among these personnel, when designing and implementing its internal control system's guidelines, policies, and procedures. This would help to ensure that the control system that is implemented would adequately address the risks posed by the firm's business and the environment in which it is being conducted. In addition, this would enable a nonbank MSBSP to implement specific policies and procedures unique to its circumstances.
In implementing its policies and procedures, a nonbank MSBSP would be required to document and record its system of internal risk management controls. In particular, a nonbank MSBSP would be required to document its consideration of certain issues affecting its business when designing its internal controls. A nonbank MSBSP would also be required to prepare and maintain written guidelines that discuss its internal control system, including procedures for determining the scope of authorized activities. The Commission staff estimates that each of the 5 MSBSPs would spend approximately 250 hours per year reviewing and updating their risk management control systems to comply with Rule 15c3–4, resulting in an industry-wide annual hour burden of approximately 1,250 hours.
Because nonbank MSBSPs may not initially have the systems or expertise internally to meet the risk management requirements of proposed new Rule 18a–2, these firms would likely hire an outside risk management consultant to assist them in implementing their risk management systems. The Commission staff estimates that a nonbank MSBSP may hire an outside management consultant for approximately 200 hours to assist the firm for a total start-up cost to the nonbank MSBSP of $80,000 per MSBSP, or a total of $400,000 for all nonbank MSBSPs.
Nonbank MSBSPs may incur start-up costs to comply with proposed Rule 18a–2, including information technology costs. The information technology systems of a nonbank MSBSP may be in varying stages of readiness to enable these firms to meet the requirements of the proposed rules so the cost of modifying their information technology systems could vary significantly. Based on the estimates for similar collections of information,
Proposed paragraph (e) of new Rule 18a–3 would require a nonbank SBSD to establish and implement risk monitoring procedures with respect to counterparty accounts.
Because these firms would already be required to comply with Rule 15c3–4,
The 25 respondents subject to the collection of information may incur start-up costs in order to comply with this collection of information. These costs may vary depending on the size and complexity of the nonbank SBSD. In addition, the start-up costs may be less for the 16 nonbank SBSD respondents also registered as broker-dealers because these firms may already be subject to similar requirements with respect to other margin rules.
Under proposed new Rule 18a–4, SBSDs would be required to establish special accounts with banks and obtain written acknowledgements from, and
Paragraph (c)(1) of proposed new Rule 18a–4 would provide that the SBSD must at all times maintain in a special account, through deposits into the account, cash and/or qualified securities in amounts computed in accordance with the formula set forth in Exhibit A to Rule 18a–4,
Under paragraph (d)(1) of proposed new Rule 18a–4, an SBSD or an MSBSP would be required to provide a notice to a counterparty pursuant to section 3E(f) of the Exchange Act prior to the execution of the first non-cleared security-based swap transaction with the counterparty occurring after the effective date of the proposed rule.
The number of notices sent in the first year the rule is effective would depend on the number of counterparties with which each SBSD and MSBSP engages in security-based swap transactions. The number of counterparties an SBSD and MSBSP would have would vary depending on the size and complexity of the firm and its operations. The Commission staff estimates that each of the 50 SBSDs and 5 MSBSPs would have approximately 1,000 counterparties at any given time.
Under proposed new Rule 18a–4(d)(2), an SBSD would be required to obtain agreements from counterparties that do not choose to require segregation of funds or other property pursuant to Section 3E(f) of the Exchange Act or paragraph (c)(3) of Rule 18a–4 in which the counterparty agrees to subordinate all of its claims against the SBSD to the claims of security-based swap customers of the SBSD.
As discussed above, the Commission staff estimates that each of the 50 SBSDs would have approximately 1,000 counterparties at any given time. The Commission staff further estimates that approximately 50% of these counterparties would either elect individual segregation or waive segregation altogether.
The collections of information pursuant to the proposed amendments and new rules are mandatory, as applicable, for ANC broker-dealers, SBSDs, and MSBSPs.
The Commission expects to receive confidential information in connection with the proposed collections of information. To the extent that the Commission receives confidential information pursuant to these collections of information, the Commission is committed to protecting the confidentiality of such information to the extent permitted by law.
ANC broker-dealers are required to preserve for a period of not less than three years, the first two years in an easily accessible place, certain records required under Rule 15c3–4 and certain records under Appendix E to Rule 15c3–1.
As noted above, the recordkeeping burdens with respect to some requirements in proposed new Rules 18a–1 through 18a–4 will be addressed in the SBSD and MSBSP recordkeeping requirements, which will the subject of a separate release.
Pursuant to 44 U.S.C. 3306(c)(2)(B), the Commission requests comment on the proposed collections of information in order to:
• Evaluate whether the proposed collections of information are necessary for the proper performance of the functions of the Commission, including whether the information would have practical utility;
• Evaluate the accuracy of the Commission's estimates of the burden of the proposed collections of information;
• Determine whether there are ways to enhance the quality, utility, and clarity of the information to be collected; and
• Evaluate whether there are ways to minimize the burden of the collection of information on those who respond, including through the use of automated collection techniques or other forms of information technology.
The Commission is sensitive to the costs and benefits of its rules. Some of these costs and benefits stem from statutory mandates, while others are affected by the discretion exercised in implementing the mandates. The following economic analysis seeks to identify and consider the benefits and costs—including the effects on efficiency, competition, and capital formation—that would result from the proposed capital, margin, and segregation rules for SBSDs and MSBSPs and from the proposed amendments to Rule 15c3–1. The costs and benefits considered in proposing these new rules and amendments are discussed below and have informed the policy choices described throughout this release.
The Commission discusses below a baseline against which the rules may be evaluated. For the purposes of this economic analysis, the baseline is the OTC derivatives markets as they exist today prior to the effectiveness of the statutory and regulatory provisions that will govern these markets in the future pursuant to the Dodd-Frank Act. With respect to the proposed amendments to Rule 15c3–1, the baseline for purposes of this economic analysis is the current capital regime for broker-dealers under Rule 15c3–1.
While the Commission does not have comprehensive information on the U.S. OTC derivatives markets, the Commission is using the limited data currently available in considering in this economic analysis the effects of the proposals, including their intended benefits and anticipated possible costs.
If these proposed rules and rule amendments are adopted, their benefits and costs would affect competition, efficiency, and capital formation in the security-based swap market broadly, with the impact not being limited to SBSDs and MSBSPs. Section 3(f) of the Exchange Act provides that whenever the Commission engages in rulemaking under the Exchange Act and is required to consider or determine whether an action is necessary or appropriate in the public interest, the Commission shall also consider, in addition to the protection of investors, whether the action will promote efficiency, competition, and capital formation.
As discussed more fully in section II. above, the Commission is proposing: (1) Rules 18a–1 and 18a–2, and amendments to Rule 15c3–1, to establish capital requirements for nonbank SBSDs and nonbank MSBSPs; (2) Rule 18a–3 to establish customer margin requirements applicable to nonbank SBSDs and nonbank MSBSPs for non-cleared security-based swaps; and (3) Rule 18a–4 to establish segregation requirements for SBSDs and notification requirements with respect to segregation for SBSDs and MSBSPs.
The sections below present an overview of the OTC derivatives markets, a discussion of the general costs and benefits of the proposed financial responsibility requirements, and a discussion of the costs and benefits of each proposed amendment and new rule. The sections that follow also incorporate a consideration of the potential effects of the proposed amendments and new rules on competition, efficiency, and capital formation.
As stated above, to assess the costs and benefits of these rules, a baseline must be established against which the rules may be evaluated. For the purposes of this economic analysis, the baseline is the OTC derivatives markets
The OTC derivatives markets have been described as opaque because, for example, transaction-level data about OTC derivatives trading generally is not publicly available.
Available information about the global OTC derivatives markets suggests that swap transactions, in contrast to security-based swap transactions, dominate trading activities, notional amounts, and market values.
Because the financial responsibility program for SBSDs and MSBSPs would apply to dealers and participants in the security-based swap markets, they are expected to affect a substantially smaller portion of the U.S. OTC derivatives markets than the proposed financial responsibility rules for swap dealers and major swap participants proposed by the CFTC and prudential regulators.
While the number of transactions is larger in single-name credit default swaps than in index credit default swaps, the aggregate total notional amount of the latter exceeds that of single-name credit default swaps.
As described more fully in the
This concentration to a large extent appears to reflect the fact that those larger entities are well-capitalized and therefore possess competitive advantages in engaging in OTC security-based swap dealing activities by providing potential counterparties with adequate assurances of financial performance.
Other than OTC derivatives dealers, which are subject to significant limitations on their activities, broker-dealers historically have not participated in a significant way in security-based swap trading for at least two reasons. First, because the Exchange Act has not previously defined security-based swaps as “securities,” they have not been required to be traded through registered broker-dealers.
End users enter into OTC derivatives transactions to take investment positions or to hedge commercial and financial risk. These non-dealer end users of OTC derivatives are, for example, commercial companies, governmental entities, financial institutions, investment vehicles, and individuals. Available data suggests that the largest end users of credit default swaps are, in descending order, hedge funds, asset managers, and banks, which may have a commercial need to hedge their credit exposures to a wide variety of entities or may take an active view on credit risk.
Finally, this baseline for proposed new Rules 18a–1 through 18a–4 will be further discussed in the applicable sections of the release below.
The Commission generally requests comment about its preliminary estimates of the scale and composition of the OTC derivatives market, including the relative size of the security-based swap segment of that market. In addition, the Commission requests that commenters provide data and sources of data to quantify:
1. The average daily and annual volume of OTC derivatives transactions;
2. The volume of transactions in each class of OTC derivatives (
3. The total notional amount of all pending swap transactions;
4. The total current exposure of all pending swap transactions;
5. The total notional amount of all pending security-based swap transactions;
6. The total current exposure of all pending security-based swap transactions;
7. The types and numbers of dealers in OTC derivatives (
8. The capital levels of dealers, particularly those not subject to regulatory capital requirements;
9. The types and numbers of dealers in OTC derivatives dealers that engage in both a swap and security-based swap business;
10. The types and numbers of dealers in OTC derivatives that engage only in a swap business;
11. The types and numbers of dealers in OTC derivatives that engage only in a security-based swaps business;
12. The classes of end users (
13. The types of OTC derivatives transactions that each class of end user commonly engages in;
14. The amount of assets posted for OTC derivatives to collateralize current exposure;
15. The amount of assets posted for OTC derivatives to collateralize potential future exposure;
16. The type of assets used as collateral; and
17. The amount of assets that are held under the different types of collateral arrangements (
As discussed in more detail above, the Commission is proposing amendments to Rule 15c3–1.
As discussed in section II.A.1. of this release, the existing broker-dealer capital requirements are contained in Rule 15c3–1
Specifically, current Rule 15c3–1 requires broker-dealers to maintain a minimum level of net capital (meaning highly liquid capital) at all times.
In computing net capital, the broker-dealer must, among other things, make certain adjustments to net worth such as deducting illiquid assets and taking other capital charges and adding qualifying subordinated loans.
Finally, the baseline of the current capital regime will be further discussed in the applicable sections of the release below.
Generally, the financial responsibility requirements the Commission is proposing today are intended to enhance the financial integrity of SBSDs and MSBSPs. As discussed more fully below, in proposing these requirements, the Commission is seeking to appropriately consider both the potential benefits of minimizing the risk that the failure of one firm will cause financial distress to other firms and disrupt financial markets and the U.S. financial system and the potential costs to that firm, the financial markets, and the U.S. financial system if SBSDs and MSBPs are required to comply with overly restrictive capital, margin and segregation requirements. This introductory section reviews at a general level certain considerations regarding the economic analysis of the proposed rules that is set forth in greater detail below.
As discussed in section I. of the release, the current broker-dealer financial responsibility requirements serve as the template for the proposals for several reasons. First, the financial markets in which SBSDs and MSBSPs are expected to operate are similar to the financial markets in which broker-dealers operate in the sense that they are driven in significant part by dealers that buy and sell on a regular basis and that take principal risk. Second, like nonbank dealers in securities but unlike bank SBSDs, nonbank SBSDs will not be able to rely on a backstop provider of liquidity but rather need to be able to liquidate assets quickly in the event of a counterparty default. Third, the broker-dealer financial responsibility requirements have existed for many years and have facilitated the prudent operation of broker-dealers.
However, the Commission recognizes that there may be other appropriate
This approach could promote a consistent view and management of capital within a bank holding company structure. However, it would not be a net liquid assets standard. In addition, applying capital rules designed for banks to a non-bank entity would raise various practical and policy issues that are not directly implicated by the proposed approach. First, it would need to be clear whether a regulator with primary responsibility for the non-bank entity would defer to bank regulators with respect to the interpretation of Basel standards as applied to the entity, or instead develop its own interpretation of those standards. Further, it would need to be clear how trading and other risks of the non-bank entity and its bank affiliate or affiliates would be expected to be managed, whether such risks would be managed holistically at the holding company level or separately at the entity level, and what limitations, if any, would apply to transfers of risks from a bank to its non-bank entity affiliate, or vice versa. In addition, to the extent that bank capital standards would permit the non-bank entity to hold more illiquid assets as regulatory capital, an additional liquidity standard might be required at the entity level in order to assure that the entity maintained sufficient liquidity to support its trading activity. Similarly, if the non-bank entity were an SBSD that held assets for customers, the impact of any reduced liquidity associated with the application of bank capital standards on the ability of the entity to quickly wind down operations and distribute assets to customers would need to be considered. The Commission specifically seeks comment as to whether to adapt Basel capital standards to non-bank affiliates of banks, and how such a regime would work in practice—including how it would address the issues described above and similar challenges.
The Commission also recognizes that in determining appropriate financial responsibility requirements—whether based on current broker-dealer rules or other alternative approaches described above—it must assess and consider a number of different costs and benefits, and the determinations it ultimately makes can have a variety of economic consequences for the relevant firms, markets, and the financial system as a whole. On the one hand, the capital and margin requirements in particular are broadly intended to work in tandem to strengthen the financial system by reducing the potential for default to an acceptable level and limiting the amount of leverage that can be employed by SBSDs and other market participants. Requiring particular firms to hold more capital or exchange more margin may reduce the risk of default by one or more market participants and reduce the amount of leverage employed in the system generally, which in turn may have a number of important benefits. The failure of an SBSD could result in immediate financial loss to its counterparties or customers, particularly those that are not able to avoid losses by liquidating collateral or those that have delivered assets for custody by the SBSD. Since the primary benefit of the capital and margin requirements is to reduce the probability of a SBSD failure, potential counterparties may be more willing to transact when they have greater assurance that they will be paid following a credit event. Depending on the size of the SBSD and its interconnectedness with other market participants, such a default also could have adverse spillover or contagion effects that could create instability for the financial markets more generally, such as limiting the willingness of healthy market participants to extend credit to each other, and thus substantially reduce liquidity and valuations for particular types of financial instruments.
On the other hand, as described below, higher financial responsibility requirements for individual firms also give rise to direct costs for the firms involved and potentially significant collective costs for the markets and the financial system as a whole. For example, overly restrictive requirements that increase the cost of trading by individual firms could reduce their willingness to engage in such trading, adversely affecting liquidity in the security-based swaps markets and increasing transaction costs for market participants. Similarly, capital requirements that are set high enough to limit or restrict the willingness or ability of new firms to enter the market may impair or reduce competition in the markets, which in turn could also adversely affect liquidity and price discovery and increase transaction costs. Any such reduction in liquidity or price discovery, or increase in transaction costs, could adversely affect efficiency and impose direct costs on those market participants who rely on security-based swaps to manage or hedge the risks arising from their business activities that may support or promote capital formation. Even if the cost of overly restrictive financial responsibility requirements were shouldered only by those market participants that are subject to them, the excess amount of capital or margin tied up as a result of those requirements would not be available for potentially more efficient uses, which thereby could impair effective capital allocation and formation.
Although, in establishing appropriate financial responsibility requirements that are neither insufficient nor excessive, the Commission must seek to consider these and other potential benefits and costs, the Commission notes that it is difficult to quantify such benefits and costs. For example, although the adverse spillover effects of defaults on liquidity and valuations were evident during the financial crisis,
These difficulties are further aggravated by the fact that only limited public data related to the security-based swap market, in general, and to security-based swap market participants in particular, exist, all of which could assist in quantifying certain benefits and costs. It also is difficult to demonstrate empirically that the customer protections associated with the proposed financial responsibility requirements would alter the likelihood that any specific market participant would suffer injury, or the degree to which the participant would suffer injury, from participating in an under- or over-regulated security-based swap market.
In light of these challenges, much of the discussion of the proposed rules in this economic analysis will remain qualitative in nature, although where possible the economic analysis attempts to quantify these benefits and costs. The inability to quantify these benefits and costs, however, does not mean that the benefits and costs of the proposals are any less significant. In addition, as noted above, the proposed rules include a number of specific quantitative requirements—such as numerical thresholds, limits, deductions and ratios. The Commission recognizes that the specificity of each such quantitative requirement could be read by some to imply a definitive conclusion based on quantitative analysis of that requirement and its alternatives. These quantitative requirements have not been derived directly from econometric or mathematical models. Instead, they reflect a preliminary assessment by the Commission, based on qualitative analysis, regarding the appropriate financial standard for an identified issue, drawing (as noted above) from the Commission's long-term experience in administering its existing broker-dealer financial responsibility regime as well as its general experience in regulating broker-dealers and markets and from comparable quantitative requirements in its own rules and those of other regulators. Accordingly, the discussion generally describes in a qualitative way the primary costs, benefits and other economic effects that the Commission has identified and taken into account in developing these specific quantitative requirements. The Commission emphasizes that it invites comment, including relevant data and analysis, regarding all aspects of the various quantitative requirements reflected in the proposed rules.
Finally, the Commission notes that the proposals ultimately adopted, like other requirements under the Dodd-Frank Act, could have a substantial impact on international commerce and the relative competitive position of intermediaries operating in various, or multiple, jurisdictions. U.S. or foreign firms could be advantaged or disadvantaged depending on how the rules ultimately adopted by the Commission compare with corresponding requirements in other jurisdictions. Such differences could in turn affect cross-border capital flows and the ability of global firms to most efficiently allocate capital among legal entities to meet the demands of their counterparties. The Commission intends to address the potential international implications of the proposed capital, margin and segregation requirements, together with the full spectrum of other issues relating to the application of Title VII to cross-border security-based swap transactions, in a separate proposal.
In addition to fulfilling a statutory requirement, it is expected that the proposed capital, margin and segregation rules should be beneficial to market participants by advancing market transparency, risk reduction and counterparty protection as Title VII of the Dodd-Frank Act intended.
Apart from the positive impact on the safety and soundness of the security-based swap market, the proposed new rules and rule amendments could create the potential for regulatory arbitrage to the extent that they differ from corresponding rules other regulators adopt. As noted above in section I. of this release, the Commission is proposing capital and margin requirements for nonbank SBSDs that differ in some respects from the prudential regulators' proposed capital and margin requirements for bank SBSDs.
The proposed financial responsibility requirements for SBSDs would also result in costs to individual market participants and may affect the amount of capital available to support security-based swap transactions generally.
Costs related to specific sections of the proposed new rules and rule amendments are discussed below. Some of these costs may be largely fixed in nature; other costs (such as minimum capital requirements and margin costs) may be variable as they reflect the level of the nonbank SBSD's security-based swap activity. End users also may incur increased transaction costs in connection with the proposals as SBSDs are likely to pass on the financial burden of any increased capital, margin or segregation requirements to customers.
This economic analysis considers the overall benefits and costs of the proposed new rules and amendments, keeping in mind that the benefits may be distributed across market participants, accrue over the long-term, and are difficult to quantify or to measure as easily as certain costs.
The Commission generally requests comment about its analysis of the general costs and benefits of the proposed rules. The Commission requests data to quantify and estimates of the costs and the value of the benefits of the proposals described above. The Commission also requests data to quantify the impact of the proposals against the baseline. In addition, the Commission requests comment in response to the following questions:
1. In general terms, how effectively would the proposed rules limit systemic risk arising from security-based swap transactions? Please explain.
2. In general, how would the proposed rules and rule amendments impact the capital of entities that would need to register as nonbank SBSDs? For example, would they require these entities to hold more capital? If so, what would be the impact of the availability of sources of funding to these entities?
3. How important is parity of treatment between nonbank SBSDs and bank SBSDs in terms of regulatory requirements, and how should parity be understood? For example, should nonbank SBSDs and bank SBSDs be required to hold the same amounts of capital to support a certain level of security-based swaps business?
4. To what extent would the proposed regulatory requirements impact the amount of liquidity provided for or required by security-based swap market participants, and to what extent will that affect the funding cost for the financial sector in particular and the economy in general? Please quantify.
As with their application to nonbank SBSDs, in addition to fulfilling a statutory requirement, it is expected that the proposed capital, margin and notification requirements under the segregation rules for MSBSPs will advance market transparency, risk reduction and counterparty protection as Title VII of the Dodd-Frank Act intended.
These proposed requirements are expected to have a relatively smaller aggregate effect than the proposed financial responsibility requirements for nonbank SBSDs because they are likely to affect relatively fewer entities. The Commission expects that only 5 or fewer entities will register as nonbank MSBSPs with the Commission.
The proposed financial responsibility requirements for MSBSPs would also result in costs to individual market participants and may affect the amount of capital available to support security-based swap transactions overall and the financial markets generally. To the extent that the proposed capital and margin requirements are too restrictive, it could limit capital formation and the use of security-based swaps to hedge risks associated with the MSBSP's business activities.
The proposed requirements may also impose more limited compliance burdens on MSBSPs. For example, nonbank MSBSPs as well as other market participants would also incur costs to hire compliance personnel and to establish internal systems, procedures and controls designed to ensure compliance with the new requirements.
Costs related to specific sections of the proposed new rules and rule amendments are discussed below. Some of these costs may be largely fixed in nature; other costs (such as minimum capital requirements and margin costs) may be variable as they reflect the level of the nonbank MSBSP's security-based swap activity.
The Commission generally requests comment about its analysis of the general costs and benefits of the proposed rules on MSBSPs. The Commission requests data to quantify and estimates of the costs and the value of the benefits of the proposals for MSBSPs described above.
As discussed above in section II.A. of this release, proposed new Rule 18a–1 would prescribe capital requirements for stand-alone SBSDs, and proposed amendments to Rule 15c3–1 would prescribe capital requirements for broker-dealer SBSDs and increase existing capital requirements for ANC broker-dealers.
As described above, the capital and other financial responsibility requirements for broker-dealers generally provide a reasonable template for crafting the corresponding requirements for nonbank SBSDs. For example, among other considerations, the objectives of capital standards for both types of entities are similar. Rule 15c3–1 is a net liquid assets test that is designed to require a broker-dealer to maintain sufficient liquid assets to meet all obligations to customers and counterparties and have adequate additional resources to wind-down its business in an orderly manner without the need for a formal proceeding if it fails financially. The objective of the proposed capital standards for nonbank SBSDs is the same.
In addition, as discussed in section II.A.1. above, the Dodd-Frank Act divided responsibility for SBSDs and MSBSPs by providing the prudential regulators with authority to prescribe the capital and margin requirements for bank SBSDs and the Commission with authority to prescribe capital and margin requirements for nonbank SBSDs.
As discussed in section II.A.1. above, certain differences in the activities of securities firms, banks, and commodities firms, differences in the products at issue, or the balancing of relevant policy choices and considerations, appear to support this distinction between nonbank SBSDs and bank SBSDs. First, based on the Commission staff's understanding of the activities of nonbank dealers in OTC derivatives, nonbank SBSDs are expected to engage in a securities business with respect to security-based swaps that is more similar to the dealer activities of broker-dealers than to the activities of banks; indeed, some broker-dealers likely will be registered as nonbank SBSDs.
The net liquid assets test is designed to allow a broker-dealer to engage in activities that are part of conducting a securities business (
This aspect of the rule severely limits the ability of broker-dealers to engage in activities, such as unsecured lending, that generate unsecured receivables. The rule also does not permit fixed assets or other illiquid assets to count as allowable net capital, which creates disincentives for broker-dealers to own real estate and other fixed assets that cannot be readily converted into cash. For these reasons, Rule 15c3–1 incentivizes broker-dealers to confine their business activities and devote capital to activities such as underwriting, market making, and advising on and facilitating customer securities transactions.
Proposed new Rule 18a–1 and the proposed amendments to Rule 15c3–1 would provide a number of benefits, as well as impose certain costs on nonbank SBSDs, broker-dealer SBSDs, and broker-dealers, which are described below. In considering costs, in cases where the Commission is proposing amendments to Rule 15c3–1, the baseline is the current broker-dealer capital regime under Rule 15c3–1.
The following table provides a summary of the proposed minimum capital requirements under the proposed new Rule 18a–1 and proposed amendments to Rule 15c3–1:
Stand-alone SBSDs and broker-dealer SBSDs that are not approved to use internal models, that is, are neither ANC broker-dealers nor OTC derivatives dealers, would be required to maintain net capital of the larger of $20 million or 8% of the firm's margin factor. The proposed $20 million fixed-dollar minimum requirement would be consistent with the fixed-dollar minimum requirement applicable to OTC derivatives dealers and already familiar to existing market participants.
However, the proposed $20 million fixed-dollar minimum requirement for stand-alone SBSDs not using internal models to calculate net capital would be substantially higher than the fixed-dollar minimums in Rule 15c3–1 currently applicable to broker-dealers that do not use internal models.
Stand-alone SBSDs using models would be required to maintain minimum net capital of the higher of $20 million or the 8% margin factor, as well as a minimum tentative net capital of $100 million, a requirement that also applies to OTC derivatives dealers. Models to calculate deductions from tentative net capital for proprietary positions take only market and credit risk into account and therefore generally lead to lower deductions and higher levels of net capital.
However, because the tentative net capital calculation does not take account of market risk deductions, the minimum $100 million tentative net capital requirement might be a less effective standard in cases where a dealer maintains a substantial amount of less liquid positions that require relatively large deductions for market risk. As an alternative, the Commission could impose a minimum requirement that increases according to the nature and size of the positions held, for example, 25% of the market risk deductions that are required to be taken in determining actual net capital. This approach could better scale the tentative net capital requirement according to the risk of the proprietary positions held by an SBSD. On the other hand, a variable tentative net capital test would not serve as an accurate measure of risk if the model did not appropriately capture all material risks of the positions or the assumptions underlying the use of the model were no longer appropriate. The variable tentative net capital test also could increase the tentative net capital requirement in some cases to a level that could limit or discourage the entry of firms that do not presently compete in the security-based swap markets. Further, as noted above, the minimum net capital requirement in each case would increase in accordance with an increase in the amount of business conducted as a result of the 8% margin factor. The Commission is specifically seeking comment on this alternative in section II.A.1. of this release.
Under the proposed amendments to Rule 15c3–1, ANC broker-dealers would be required to maintain: (1) Tentative net capital of not less than $5 billion; and (2) net capital of not less than the greater of $1 billion or the financial ratio amount required pursuant to paragraph (a)(1) of Rule 15c3–1
Based on financial information reported by the ANC broker-dealers in their monthly FOCUS Reports filed with the Commission, the six current ANC broker-dealers maintain capital levels in excess of these proposed increased minimum requirements. For example, at the end of 2011, the interquartile range of net capital and tentative net capital levels among the six ANC broker-dealers were from $1.11 billion to $7.77 billion and from $1.32 billion to $9.69 billion, respectively. Further, ANC broker-dealers are currently required to notify the Commission if their tentative net capital falls below $5 billion.
Although increases to minimum tentative and minimum net capital requirements are being proposed, the proposals may not present a material cost to the current ANC broker-dealers, because they already hold more than the proposed minimum requirements in the amendments to Rule 15c3–1. The more relevant number is the proposed increase in the early warning notification threshold from $5 billion to $6 billion. The existing early warning requirement for OTC derivatives dealers triggers a notice when the firm's tentative net capital falls below an amount that is 120% of the firm's required minimum tentative net capital amount of $100 million ($120 million = 1.2 × $100 million).
In addition to the proposed minimum fixed tentative and minimum net capital requirements, the proposed 8% margin factor would be part of determining a nonbank SBSD's minimum net capital requirement.
The 8% margin factor ratio requirement also is similar to an existing requirement in the CFTC's net capital rule for FCMs,
Based on FOCUS Report information as of year-end 2011, approximately ten broker-dealers, including the current ANC broker-dealers, maintain tentative net capital in excess of $5 billion,
Although the proposed increase in minimum capital and early warning requirements for ANC broker-dealers will not affect firms that already have this classification, it would reduce the number of additional firms (from 31 to 4, according to FOCUS Report data) that would currently qualify for this designation and hence represents a significant potential cost for additional registrants. As noted above, these costs may be prohibitive to new entrants that wish to register as ANC broker-dealer SBSDs using internal models. If these additional costs were not imposed or were lower, there might be greater opportunities for more competition in the security-based swap markets, which in turn could lower transaction costs and increase liquidity in these markets. However, setting capital levels that allow new entrants that do not have sufficient capital to engage in the diverse business of ANC broker dealers could be disruptive to the market. In addition, to the extent that potential new entrants are able to operate effectively in these markets as stand-alone SBSDs (i.e., swap dealers that are not registered as broker-dealers), they would be eligible for lower minimum capital requirements and competition could further increase without compromising the heightened requirements for ANC broker-dealers.
With respect to the derivatives markets in particular, it is difficult to quantify the impact of the proposed capital requirements against the baseline of the OTC derivatives markets as they exist today because prior to the adoption of Title VII, swaps and security-based swaps were by and large unregulated.
As discussed above in section II.A.1. of this release, the Commission is seeking comment on possible modifications to the capital requirements in ways that may lessen potential compliance costs. First, to the extent that a nonbank SBSD that is approved to use models may be required to register as a broker-dealer solely to conduct certain brokerage activity,
The Commission also could consider modifications that would increase the flexibility for a broader group of firms to conduct a derivatives business that extends beyond security-based swaps. For example, the Commission could determine to allow a firm to register jointly as an OTC derivatives dealer and SBSD. This modification could allow the registrant to conduct a broader range of derivatives activities than dealing only in security-based swaps, and to be able to use internal models for capital purposes without being subject to much higher capital requirements that apply to ANC broker-dealers. On the other hand, there could be practical difficulties in merging the registration regimes. For example, because OTC derivatives dealers are prohibited from having custody of customers' assets, while nonbank SBSDs would be
Alternatively, the Commission could provide conditional relief on a case-by-case basis to allow a firm that is registered as an SBSD to conduct dealing activity in derivatives other than security-based swaps. This also could provide a means for an entity to do business in a broad set of derivative instruments, subject to the basic capital standards that would apply to SBSDs. This approach also could allow the Commission to fashion exemptive relief on a case-by-case basis, pending further consideration of how and whether to reconcile the SBSD and OTC derivatives dealer regimes. On the other hand, allowing SBSDs to deal in products that OTC derivatives dealers can deal in, without the restrictions that apply to their activities, could undermine the purpose for the restrictions. The Commission is specifically soliciting comment on these potential approaches above in section II.A.1.
As discussed in section II.A.2.b.ii. of this release, under proposed new Rule 18a–1 and the amendments to Rule 15c3–1, a nonbank SBSD would be required to apply standardized haircuts to its proprietary positions, unless the Commission approved it to use internal models for specific positions. In general, all haircut regimes are intended to be conservative estimates of risk as they tend to overcompensate for the actual risks and hence generally impose higher costs in terms of capital compared to VaR models.
As discussed in section II.A.2.b.ii. of this release, for positions that are not security-based swaps, broker-dealer SBSDs and stand-alone SBSDs also would be required to apply the standardized haircuts currently set forth in Rule 15c3–1.
Security-based swaps that are not credit default swaps can be divided into two broad categories: Those that reference equity securities and those that reference debt instruments. Since each type of security-based swap can be viewed as being equivalent to a highly-levered synthetic position in the referenced instrument and therefore has the same price volatility as the referenced instrument, the standardized haircut for these categories of security-based swaps would be the deduction currently prescribed in Rule 15c3–1 applicable to the instrument referenced by the security-based swap multiplied by the contract's notional amount.
Under the Commission's proposed standardized haircuts for these categories of security-based swaps, nonbank SBSDs would also be able to recognize the offsets currently permitted under Rule 15c3–1.
Similarly, nonbank SBSDs would be permitted to treat a debt security-based swap in the same manner as debt instruments are treated in the Rule 15c3–1 grids in terms of allowing offsets between long and short positions where the instruments are in the same maturity categories, subcategories, and in some cases, adjacent categories.
The proposed approaches, like other types of standardized haircuts, likely will require a higher amount of capital to conduct security-based swaps
The benefit of the standardized haircut approach of measuring market risk, besides its inherent simplicity, is that it may reduce the likelihood of default or failure by nonbank SBSDs that have not demonstrated that they have the risk management capabilities, of which VaR models are an integral part, or capital levels to support the use of VaR models. Therefore, the standardized haircut approach, in turn, may improve customer protections and reduce systemic risk. In addition, a standardized haircut approach may reduce costs for the nonbank SBSD related to the risk of failing to observe or correct a problem with the use of VaR models that could adversely impact the firm's financial condition, because the use of VaR models would require the allocation by the nonbank SBSD of additional firm resources and personnel.
Conversely, if the proposed standardized haircuts are too conservative, they could make the conduct of security-based swaps business too costly, preventing or impairing the ability of firms to engage in security-based swaps, increasing transaction costs, reducing liquidity, and reducing the availability of security-based swaps for risk mitigation by end users.
As discussed in section II.A.2.b.v. of this release, the Commission is proposing certain capital charges in lieu of margin. Generally, margin collateral is designed to serve as a buffer to account for a decrease in the market value of the counterparty's positions between the time of default and liquidation. If the amount of the margin collateral is insufficient to make up the difference, the nonbank SBSD will incur losses. The proposal requires the nonbank SBSD to hold sufficient net capital to enable it to, first, withstand such losses and to cover counterparty exposures that are not sufficiently secured with liquid collateral, and, second, to create a strong incentive for dealers to collateralize these exposures. Consequently, this proposed capital charge may serve as an alternative to margin collateral, enhance the financial soundness of the nonbank SBSD and, in turn, ultimately reduce systemic risk.
With respect to cleared security-based swaps, the rules would impose a capital charge if a nonbank SBSD collects margin collateral from a counterparty in an amount that is less than the deduction that would apply to the security-based swap if it were a proprietary position of the nonbank SBSD (
This proposed charge, however, could impose additional capital costs on cleared transactions where the amount of the additional costs would depend on the differences between amounts required under Rule 18a–1 and margin amounts the clearing agency sets. It is difficult to estimate the cost impact of this proposal because there is currently a lack of trading for customers in cleared security-based swaps that could be used for comparative purposes.
As discussed in section II.A.2.b.v. of the release, with respect to non-cleared security-based swaps, the Commission is proposing capital charges to address three exceptions in proposed new Rule 18a–3 (nonbank SBSD margin rule), including margin not collected from
The charge for collateral segregated in individual accounts under Section 3E(f) of the Exchange Act reflects the potential that collateral collected by an SBSD but held in a third-party custodian account may not be readily liquidated immediately following a counterparty's default. Accordingly, this aspect of the rule would create an additional capital cost to SBSDs that hold collateral in independent third-party accounts.
The third proposed capital charge would apply to margin not collected in the case of legacy non-cleared security-based swaps. This proposal should benefit nonbank SBSDs and their counterparties in that it is designed to avoid the difficulties of requiring a nonbank SBSD to renegotiate security-based swap contracts to come into compliance with the new margin collateral requirements, which would be a complex and costly task. Based on discussions with market participants, this proposal, however, may impose substantial costs in the form of capital charges on firms that have legacy contracts.
As discussed in section II.A.2.b.iv. of this release, consistent with existing rules affecting broker-dealers,
The proposed rule is designed to provide an alternative, less costly way (in lieu of the 100% deduction otherwise required by the rules) to recognize credit exposure incurred in transactions with
The rule, however, will increase costs
To the extent that
According to FOCUS Reports and staff experience supervising the ANC broker-dealers, ANC broker-dealers have not engaged in a large volume of OTC derivatives transactions since the rules were adopted in 2004. Therefore, they have not had significant amounts of unsecured receivables that would be subject to the credit risk charge provisions in Appendix E to Rule 15c3–1. However, when the Dodd-Frank OTC derivatives reforms are implemented, ANC broker-dealers could significantly increase their holdings of OTC derivatives. An increase in derivatives exposure that is uncollateralized would increase the exposure of the ANC broker-dealers to their derivatives counterparties. In turn, however, this proposed amendment should strengthen the capital position of the ANC broker-
As discussed in section II.A.2.d. of this release, the Commission is proposing a funding liquidity stress requirement
• A stress event that includes a decline in creditworthiness of the firm severe enough to trigger contractual credit-related commitment provisions of counterparty agreements;
• The loss of all existing unsecured funding at the earlier of its maturity or put date and an inability to acquire a material amount of new unsecured funding, including intercompany advances and unfunded committed lines of credit;
• The potential for a material net loss of secured funding;
• The loss of the ability to procure repurchase agreement financing for less liquid assets;
• The illiquidity of collateral required by and on deposit at clearing agencies or other entities which is not deducted from net worth or which is not funded by customer assets;
• A material increase in collateral required to be maintained at registered clearing agencies of which the firm is a member; and
• The potential for a material loss of liquidity caused by market participants exercising contractual rights and/or refusing to enter into transactions with respect to the various businesses, positions, and commitments of the firm, including those related to customer businesses of the firm.
The benefit of the proposed liquidity stress test requirement is an additional level of protection against disruptions in the ability to obtain funding for a firm with significant proprietary positions in securities or derivatives.
This proposal, however, would impose additional opportunity costs of capital, and other costs on ANC broker-dealers and nonbank SBSDs directly related to the amount of the required liquidity reserve because a nonbank SBSD would be unable to deploy the assets that are maintained for the liquidity reserve in other, potentially more efficient ways.
In addition, smaller firms may incur more implementation costs, because, in general, large firms already run stress tests and maintain a liquidity reserve based on those tests.
Finally, under the proposals, an ANC broker-dealer and a stand-alone SBSD using internal models would be required to establish a written contingency funding plan. The plan would need to clearly set out the strategies for addressing liquidity shortfalls in emergency situations,
This proposal may reduce the likelihood of default of a nonbank SBSD that uses internal models or an ANC broker-dealer, and thus, in turn, reduce systemic risk. Based on staff experience supervising ANC broker-dealers and monitoring the ultimate holding companies of these firms, most of these entities have a written contingency funding plan, generally, at the holding company level. To the extent that these firms are required to implement a written contingency funding plan at the nonbank SBSD level or ANC level, these firms may incur personnel, technology or other operational costs to develop and implement such a plan.
As discussed in section II.A.2.c. above, nonbank SBSDs would be required to comply with the risk management provisions of Rule 15c3–4, as if they were OTC derivatives dealers, because the risks of trading by nonbank SBSDs in security-based swaps,
As discussed in section II.A.3. of the release, proposed new Rule 18a–2 would require nonbank MSBSPs to have and maintain positive tangible net worth at all times.
Risk management controls at nonbank MSBSPs may promote the stability of these firms and, consequently, the stability of the entire financial system. This, in turn, may protect the financial industry from systemic risk.
The Commission could instead impose capital requirements that are the same as, or modeled on, those that are being proposed for nonbank SBSDs, which could more effectively reduce the risk of failure of MSBSPs and thereby reduce systemic risk. In general, nonbank SBSDs and MSBSPs can be expected to differ in terms of the range and types of their counterparty relationships and, by definition, MSBSPs will not maintain two-sided exposure to a range of instruments that is characteristic of dealer activity. The systemic impact of the failure of an MSBSP will depend on various factors, including the ability of its counterparties to readily liquidate assets posted by the MSBSP as collateral, without suffering a loss. Although the Commission is proposing to require MSBSPs to post collateral to eliminate their current exposure to counterparties in security-based swaps, the collateral may not be sufficient to avoid losses during a period of market volatility. At the same time, imposing a capital regime on MSBSPs that is based on a net liquid assets test could impact the ability of an MSBSP to pursue business activities and strategies unrelated to its activities involving financial instruments. For example, these entities may engage in commercial activities that require them to have substantial fixed assets to support manufacturing and/or result in them having significant assets comprised of unsecured receivables. Requiring them to adhere to a net liquid assets test could result in their having to obtain significant additional capital or engage in costly restructurings. The Commission is specifically seeking comment on this approach in section II.A.3. of this release.
As stated above, at present, entities that may be required to be registered as MSBSPs are expected to be companies that engage in a diverse range of business. For these reasons, it would be difficult to quantify how much additional capital, if any, or costs the capital requirements under proposed new Rule 18a–3 would require these entities to maintain or incur and compare these amounts against the current baseline of the OTC derivatives market as it exists today.
The proposed financial responsibility requirements should reduce the risk of a failure of any major market participant in the security-based swap market, which in turn reduces the possibility of a general market failure, and thus promotes confidence for market participants to transact in security-based swaps for investment and hedging purposes. The proposed capital requirements are designed to promote confidence in nonbank SBSDs among customers, counterparties, and the entities that provide financing to nonbank SBSDs and, thereby, lessen the potential that these market participants may seek to rapidly withdraw assets and financing from SBSDs during a time of market stress. This heightened confidence is expected to increase trading activity and promote competition among dealers. The proposed financial responsibility requirements, in significant part, will affect efficiency and capital formation through their impact on competition.
Any new entrant will increase the number of competing entities, and the extent to which competition increases will depend on the number of additional entrants and their success in attracting business from established market participants. As discussed in section IV. of this release, the Commission expects up to 50 entities to register as SBSDs. The number of registered firms will depend, among other factors, on whether potential new entrants determine that the cost impact of the proposed financial responsibility requirements would allow them to compete effectively for business. To the extent that costs associated with the proposed rules are high however, they
The possibility of using VaR to calculate haircuts may permit a nonbank SBSD to more efficiently deploy capital in other parts of its operations (because VaR models could reduce capital charges and thereby could make additional capital available), which should be a factor in the decision to enter the security-based swap markets in general and through which type of registrant in particular. Because of the reduced charges for market and credit risk, a nonbank SBSD may be able to reallocate capital from the nonbank SBSD to affiliates that may receive a higher return than the nonbank SBSD.
However, some of the entities that presently compete in the market may opt to conduct these activities in registered broker-dealer affiliates; this development would not increase the number of competitors. But other firms that currently do not deal in security-based swaps or do not do so in any significant degree, may choose to compete either as a stand-alone SBSD or as a broker-dealer SBSD. This may increase the number of competing firms.
The proposals ultimately adopted, like other requirements established under the Dodd-Frank Act, could have a substantial impact on international commerce and the relative competitive position of intermediaries operating in various, or multiple, jurisdictions. In particular, intermediaries operating in the U.S. and in other jurisdictions could be advantaged or disadvantaged if corresponding requirements are not established in other jurisdictions or if the Commission's rules are substantially more or less stringent than corresponding requirements in other jurisdictions. This could, among other potential impacts, affect the ability of intermediaries and other market participants based in the U.S. to participate in non-U.S. markets, the ability of non-U.S.-based intermediaries and other market participants to participate in U.S. markets, and whether and how international firms make use of global “booking entities” to centralize risks related to security-based swaps. As discussed in section I. of this release, these issues have been the focus of numerous comments to the Commission and other regulators, Congressional inquiries, and other public dialogue.
Accordingly, substantial differences between the U.S. and foreign jurisdictions in the costs of complying with the financial responsibility requirements for security-based swaps between U.S. and foreign jurisdictions could reduce cross-border capital flows and hinder the ability of global firms to most efficiently allocate capital among legal entities to meet the demands of their counterparties. As discussed in section I. of this release, the potential international implications of the proposed capital, margin, and segregation requirements warrant further consideration.
The willingness of end users to trade with a nonbank SBSD dealer will depend on their evaluation of the risks of trading with that particular firm compared to more established firms, and their ability to negotiate favorable price and other terms. As discussed in section V.A. of this release, end users of security-based swaps are mostly comprised of hedge funds and other asset management and financial firms. Many of these entities are sophisticated participants that trade in substantial volume and generally post collateral for their security-based swap positions.
In addition, benefits may be expected to also arise from the ability of nonbank SBSDs, which now conduct substantial business in security-based swaps, to consolidate those operations within their affiliated U.S. broker-dealers. This flexibility may yield efficiencies for clients conducting business in securities and security-based swaps, including netting benefits,
While these arguments generally suggest the possibility of positive effects of the proposed rules on competition, efficiency and capital formation, financial responsibility requirements that impose too many competitive burdens pose the risk of imposing excessive regulatory costs that could deter the efficient allocation of capital. Such rules also may be expected to reduce the capital formation benefits that otherwise would be associated with security-based swaps. Specifically, financial responsibility requirements that are overly stringent may prevent entries in the security-based swap markets and thereby may either increase spreads and trading costs or even reduce the availability of security-based swaps. In both instances, end users would face higher cost to meet their business needs.
Apart from their impact on the extent of dealer competition and efficiencies for end users, the proposed new rules and rule amendments could create the potential for regulatory arbitrage to the extent that they differ from corresponding rules other regulators adopt. As noted above in section I. of this release, the proposals of the prudential regulators and the CFTC were considered in developing the Commission's proposed capital, margin, and segregation requirements for SBSDs and MSBSPs. The Commission's proposals differ in some respects from proposals of the prudential regulators and the CFTC. While some differences are based on differences in the activities of securities firms, banks, and commodities firms, or differences in the products at issue, other differences may reflect an alternative approach to balancing the relevant policy choices and considerations. Depending on the final rules the Commission adopts, the financial responsibility requirements could make it more or less costly to conduct security-based swaps trading in banks as compared to nonbank SBSDs. For example, high capital requirements may discourage certain entities from participating in the security-based swap markets, particularly if the regulatory costs for nonbank SBSDs are high. Likewise, if the application of the proposed 8% margin risk factor substantially increases capital requirements for nonbank SBSDs compared to risk-based capital requirements imposed by the prudential regulators on the same activity, bank holding companies could be incentivized to conduct these activities in their bank affiliates.
Finally, in significant part, the effect of the proposals for nonbank MSBSPs on efficiency and capital formation will also be linked to the effect of these requirements on competition,
Conversely, if the proposals for MSBSPs are accompanied by too many competitive burdens, the proposals risk the imposition of excessive regulatory costs that could deter the efficient allocation of capital. Such rules also may be expected to reduce the capital formation benefits that otherwise would be associated with security-based swaps. Requirements for nonbank MSBSPs that are overly stringent may prevent entries in the security-based swap markets and thereby may reduce the availability of security-based swaps, forcing end users to use less effective financial instruments to meet their business needs.
The Commission generally requests comment about its analysis of the general costs and benefits of the proposed capital rules for SBSDs and MSBSPs. In addition, the Commission requests comment in response to the following questions:
1. Would the minimum capital requirements represent a barrier to entry to firms that may otherwise seek to trade security-based swaps as SBSDs? If so, which types of firms would be foreclosed?
2. Is it correct to assume that firms that have the risk management capability to act as a dealer in security-based swaps generally would also meet or be readily able to meet the proposed capital minimums?
3. To what extent will firms that receive approval to use VaR models be able to dominate trading in security-based swaps, whether because of costs to other firms in applying a haircut methodology to security-based swaps or for other reasons?
4. What would be the impact of market concentration on reduction in systemic risk? For example, would concentration of positions in a relatively few firms exacerbate systemic risk by exaggerating the impact of the failure of a single firm? Conversely, would high capital requirements better protect against systemic risk by reducing the risk of failure of a nonbank SBSD?
5. Do the proposed capital requirements for nonbank SBSDs proportionately reflect the increased risk associated with the use of internal models and trading in a portfolio of instruments, including securities, security-based swaps, and other derivatives?
6. The Commission requests comment on how much additional capital would be required, if any, as a result of the proposed 8% margin factor based on a sample portfolio of security-based swaps and how the result compares to the amount these firms currently hold against the same risk.
7. Under the proposed 8% margin factor, the relation between exposure and capital is linear. Is this type of formal approach appropriate for risks associated with security-based swaps? Should the risk margin factor be increased at higher levels of exposure, or should it increase on some other basis?
8. How would firms' current risk management practices for calculating their exposures to counterparties compare to the proposed 8% margin factor, if nonbank SBSDs were only required to comply with a fixed minimum net capital standard?
9. From a systemic risk perspective, should the proposed capital rules for nonbank SBSDs encourage the conduct of security-based swaps trading outside of broker-dealer affiliates?
10. From a systemic risk perspective, are the proposed increases in the minimum net capital (from $500 million to $1 billion) and minimum tentative net capital ($1 billion to $5 billion) requirements for ANC broker-dealers adequate? From a systematic risk perspective, is the proposed increase in the “early warning” level from $5 billion to $6 billion for ANC broker-dealers adequate?
11. Would the proposed CDS grid impose any additional costs on nonbank SBSDs in comparison to the current haircut charges for similar debt securities under Rule 15c3–1?
12. Would a nonbank SBSD incur additional costs resulting from the proposed liquidity stress test based on current practice? The Commission requests that commenters quantify the extent of the additional cost the proposed stress test would yield based on hypothetical firm portfolios, and provide the Commission with such data.
13. Are the factors proposed in the liquidity funding stress test adequate? If
14. How would proposed new Rule 18a–2 impact entities that may be required to register as MSBSPs?
15. Would proposed new Rule 18a–2 require nonbank MSBSPs to hold additional capital, in comparison to current capital levels maintained at these firms? If yes, please quantify the amount.
16. What additional costs, if any, would a nonbank MSBSP incur in making adjustments to risk management practices to conform to the specific provisions of Rule 15c3–4?
17. If stand-alone SBSDs would not be able to claim flow-through capital benefits for consolidated subsidiaries or affiliates under Rule 18a–1c, in contrast to Appendix C of existing Rule 15c3–1, would stand-alone SBSDs be competitively disadvantaged? If yes, please explain.
18. Would the Commission's proposals lead to greater competition among intermediaries for security-based swaps business, greater concentration, or neither? How important are the goals of reduction in systemic risk versus promotion of competition in crafting rules in this area, and to what extent are they competing goals? If they are not competing goals, how should the achievement of both goals inform the Commission's overall approach?
19. Will the Commission's proposals affect the competitive position of U.S. firms in the global security-based swaps market? How in general would they impact global trading in these products? How could the Commission best address any anti-competitive effects? For example, should the Commission permit U.S. firms trading with off-shore counterparties to collect margin based on the rules of the jurisdiction where the counterparty is located, provided the Commission determines that those rules are comparable to the U.S. regime? How would comparability be determined?
20. The Commission specifically requests comment on the potential impact of interagency differences in specific aspects of capital and margin requirements. Which specific aspects of the proposed rules could have the most impact in determining the type of legal entity in which trading is conducted? What would be the market or economic effects?
As discussed in section II.B. of this release, pursuant to section 15F(e) of the Exchange Act, proposed new Rule 18a–3 would establish margin requirements for nonbank SBSDs and nonbank MSBSPs with respect to transactions with counterparties in non-cleared security-based swaps.
The two types of credit exposure arising from OTC derivatives are current exposure and potential future exposure. The current exposure is the amount that the counterparty would be obligated to pay the dealer if all the OTC derivatives contracts with the counterparty were terminated (
Rule 18a–3 is intended to support a goal of the Dodd-Frank Act by promoting centralized clearing of sufficiently standardized products,
While available data suggests that clearing of security-based swaps has been increasing, significant segments of the security-based swap markets remain uncleared, even where a CCP is available to clear the product in question on a voluntary basis.
Other costs resulting from proposed new Rule 18a–3 may result from reducing the availability of liquid assets for purposes other than posting collateral. Data available to the Commission suggests that existing collateral practices vary widely by type of market participant and counterparty.
The
The data from the
Rule 18a–3 is generally modeled on the broker-dealer margin rules in terms of establishing an account
In the securities markets, margin rules have been set by relevant regulatory authorities (the Federal Reserve and the SROs) since the 1930s.
The discussion below focuses on the impact of specific provisions of proposed new Rule 18a–3 and their potential benefits and costs. With respect to certain provisions, the Commission has identified alternatives to the proposed approach and is seeking comment on the relative costs and benefits of adopting the alternatives, in comparison to the proposed approach. As to whether nonbank SBSDs should be required to collect initial margin in transactions with each other, the Commission is expressly proposing alternative formulations of the rule.
Proposed new Rule 18a–3 would require a nonbank SBSD to perform two calculations (and a nonbank MSBSP to perform one calculation) as of the close of each business day with respect to each account carried by the firm for a counterparty to a non-cleared security-based swap transaction.
As described in section II.B. of the release, paragraph (d) of proposed new Rule 18a–3 would prescribe a standardized method for calculating the margin amount as well as a model-based method if the non-bank SBSD is approved to use internal models.
As is the case with the impact of standardized haircuts on regulatory capital, as described in section II.B. of the release, nonbank SBSDs required to use standardized haircuts under Rule 18a–3(d) to determine the margin amount generally will be required to collect higher margin amounts from counterparties for non-cleared security-based swap transactions than nonbank SBSDs that are approved to use internal models will need to collect, because VaR models generally result in lower charges than the standardized haircut provisions.
In addition, this proposed requirement would impose additional operational and technology costs to install or upgrade systems needed to perform daily calculations under proposed new Rule 18a–3. These costs may vary because broker-dealers registering as nonbank SBSDs may already have systems in place, as current margin rules
As described in section II.B. to this release, a nonbank SBSD and nonbank MSBSP generally would need to collect cash and/or securities to meet the account
As an alternative, the Commission could limit eligible collateral to the most highly liquid categories, as proposed by the prudential regulators and the CFTC and described in section II.B.2.c. of this release.
As discussed in section II.B.2.c.i. of this release, under proposed new Rule 18a–3, a nonbank SBSD would not be required to collect cash or securities to cover the
As discussed above in section II.A.2.b.v. of this release, this proposed exception to the requirement to collect collateral is intended to benefit
At the same time, to the extent of any dealer exposure to
The extent of the impact of the intended benefit to
As an alternative, the Commission could limit this proposed exception for
As described in section II.B. to the release, the Commission is proposing specific alternative margin requirements with respect to counterparties that are nonbank SBSDs. Under Alternative A, which would create an exception from proposed new Rule 18a–3, a nonbank SBSD would need collateral only to cover the current exposure (
As discussed in section V.A. above, the baseline of this economic analysis is the OTC derivatives markets as they exist today. The
Alternatives A and B would both require the exchange of variation margin; the difference between the alternatives therefore is, first and foremost, whether to require nonbank SBSD counterparties to exchange initial margin. The cost impact would depend on how significant initial margin is in relation to variation margin, which will vary by type of contract, extent of market volatility, and other factors. The goal for either alternative is to reduce systemic risk without imposing undue additional cost to the extent that the ability of counterparties to trade security-based swaps is severely compromised. However, the benefit of collecting the margin amount under Alternative B would be the further protection of a nonbank SBSD from market exposure during the period of unwinding a position from a defaulting counterparty when that counterparty, by definition, would not be able to post additional variation margin.
Requiring a nonbank SBSD to post initial margin, however, could significantly impact its liquidity and therefore limit the ability of the nonbank SBSD to trade in security-based swaps. Permitting a firm to retain a pool of liquid assets that would not otherwise be used to post initial margin could permit the nonbank SBSD to use this capital more efficiently, for example by increasing its investment in information technology or increasing its investments that offer a higher rate of return. The potential benefit of Alternative B is that it would limit the aggregate amount of leverage in the financial system associated with security-based swaps. A principal purpose of Title VII of the Dodd-Frank Act, including those provisions that apply to capital and margin requirements for dealers, is to reduce systemic risk, particularly risks associated with relatively opaque bilateral, non-cleared derivative transactions. Requiring dealers to collateralize their potential future exposure to each other by exchanging both initial and variation margin may further reduce systemic risk by reducing leverage and the potential that a default by a single large dealer could translate to defaults of counterparty dealers with potential ripple effects throughout the system.
On the other hand, the requirement to exchange initial margin would not only impose costs to the extent that it would result in substantially less capital available to support the security-based swap business or other dealer activity, but also it could contribute to the instability of a nonbank SBSD. The instability stems from the possibility that assets posted to the custodian account might in the case of a counterparty default not be immediately returned to a nonbank SBSD to absorb losses or meet other liquidity demands. In this regard, the ability of a dealer counterparty to demand and obtain the return of initial margin held by a third-party custodian could be subject to various uncertainties, including the potential for counterparty disputes that might be subject to court resolution. During periods of general market instability or loss of confidence, even a brief delay in being able to access liquid assets could prove decisive.
The prudential regulators and the CFTC have received comment letters regarding the liquidity impact of their proposed rules, as well as public research reports attempting to estimate the liquidity impact.
One commenter to the prudential regulators' proposed margin rule stated that imposing segregated initial margin requirements on trades between swap entities would result in a tremendous cost to the financial system in the form of a massive liquidity drain.
In addition, the OCC Unfunded Mandates Report estimated that the initial margin collected under the prudential regulators' proposed margin rule in one year could total $2.56 trillion.
Finally, the
In summary, as stated above, commenters concluded that the liquidity impact of the initial margin rules proposed by the CFTC and the prudential regulators was significant.
As described in section II.B. of this release, a nonbank MSBSP would be required to calculate as of the close of each business day the amount of
Nonbank MSBSPs are not expected to maintain two-sided markets or otherwise engage in activities that would require them to register as an SBSD.
The collection of collateral from counterparties would strengthen the liquidity of the nonbank MSBSP by collateralizing its current exposure to counterparties. The delivery of collateral to counterparties to collateralize their current exposure to the nonbank MSBSP would lessen the impact on the counterparties if the nonbank MSBSP failed.
The requirement for nonbank MSBSPs to post current exposure to certain counterparties under proposed new Rule 18a–3 would impose an incremental opportunity cost for these nonbank MSBSPs only to the extent that they do not currently post collateral to cover current exposure. The requirement that nonbank MSBSPs collect variation margin from certain counterparties also would represent an incremental cost to those counterparties users to the extent they do not currently post such margin.
As stated above, proposed new Rule 18a–3 contains an exception for trades between nonbank MSBSPs and
Instead of the proposed approach, the Commission could adopt margin requirements for nonbank MSBSPs that are consistent with those proposed for nonbank SBSDs, by requiring them to collect initial margin from all non-dealer counterparties. This approach could better protect the MSBSP from loss in the event of a counterparty default, and thereby lessen the possibility of a default by the MSBSP. On the other hand, such a requirement would increase the credit exposure of counterparties to the MSBSP by the amount of the initial margin that they provide to the MSBSP and could increase their risk of loss if the MSBSP were to fail and they were unsuccessful in obtaining the return of amounts owed to them. The Commission is seeking comment on this alternative.
The proposed margin requirements to collect collateral from their counterparties to non-cleared security-based swaps to cover both current exposure and potential future exposure are designed to insulate security-based swap market participants from the negative fallout of a defaulting counterparty. Basing proposed Rule 18a–3 on the broker-dealer margin rules is intended to achieve those objectives in the market for security-based swaps. Moreover, the consistency between margin requirements for securities and security-based swaps should ultimately promote efficiency in the securities
The proposed rule offers built-in flexibilities that should enhance the efficiency in the application of the rule. For example, granting counterparties the flexibility to post a variety of collateral types to meet margin requirements may result in increased efficiencies for end users, and could encourage increased trading of security-based swaps and thereby increase competition. Furthermore, the proposed exception for
However, the flexibility to use models to calculate margins instead of applying the standard haircuts could have an adverse impact on competition if the differences in these margin amounts are sufficiently large. If this was the case, a nonbank SBSD not approved to use models will find it difficult to compete with an SBSD approved to use models. However, it is conceivable that SBSDs not approved to use models would tend to do business only in cleared security-based swaps and SBSDs that use models would compete in both cleared and non-cleared security-based swaps. This separation could have a negative impact on competition in non-cleared security-based swaps. If, however, SBSDs that are approved to use models manage counterparty risk more efficiently, the market for non-cleared security-based swaps might be systemically less risky than it would be if SBSDs not using models participated actively in that market. It is unclear whether the benefit from the reduction in systemic risk would outweigh the potential cost of the reduced competition.
There also is a trade-off between Alternatives A and B for SBSDs. Under Alternative A the reduced demand on posting and collecting collateral should lead to more efficient allocation of capital and hence improve competition, but it comes at the cost of being less resilient to counterparty defaults and hence might overall increase systemic risk. In addition, if the Commission does not require nonbank SBSDs to collect initial margin in their transactions with each other, as is generally current market practice,
The Commission generally requests comment about its analysis of the costs and benefits of proposed Rule 18a–3. In addition, the Commission requests comment in response to the following questions:
1. In many respects, the proposed rules reflect an interplay between capital and margin requirements. How should each set of rules take account of the other? For example, does the proposed alternative capital charge in lieu of collecting margin from
2. What would be the general market impact of requiring that dealers post both variation and initial margin in transactions with each other? Commenters are asked to supply data on the volume of interdealer transactions in security-based swaps and the aggregate dollar impact of this proposal. How does the impact of requiring dealers to exchange both variation and initial margin compare with the aggregate dollar impact of requiring that nonbank SBSDs collect only variation margin?
3. With regard to Alternatives A and B regarding interdealer margin, the Commission requests that commenters provide the following data points to the Commission:
• The relative amounts of variation and initial margin for sample dealer portfolios of security-based swaps;
• The industry dollar impact and liquidity impact of requiring lock up of initial margin for dealer portfolios; and
• How the amount of initial margin would compare to overall dealer capital.
4. The Commission also requests comment on the potential legal limitations involved in obtaining a return of collateral that has been posted to a third party custodian, the costs involved, and whether there are ways to overcome these limitations.
5. The Commission requests comment on the costs and benefits, if the Commission, as an alternative to proposed new Rule 18a–3, permitted nonbank SBSDs to apply to the Commission to use internal models solely to compute the margin amount in paragraph (d) to Rule 18a–3 (without seeking approval to use internal models for capital purposes). Would this alternative impact the Commission's oversight responsibility of nonbank SBSDs?
6. What is the cost impact, if any, of permitting nonbank SBSDs to accept securities as collateral that may be less liquid than Treasury securities in the case of severe market disruptions? Would this cost be mitigated by the haircut and collateral requirements in proposed Rule 18a–3?
7. What would be the costs and benefits of an initial margin requirement between nonbank SBSDs counterparties dependent on the firm's minimum net capital requirement (
8. Proposed Rule 18a–3(d) would require that firms approved to use VaR models calculate
9. Would the margin requirements under proposed new Rule 18a–3 incentivize counterparties to trade in cleared security-based swaps? If certain security-based swaps cannot be cleared, would the proposed margin requirements render the use of these non-cleared contracts inefficient?
10. Will nonbank MSBSPs incur operational, technology or other costs to calculate the amount of
Proposed new Rule 18a–4 would establish segregation requirements for cleared and non-cleared security-based swap transactions, which would apply to bank SBSDs, nonbank stand-alone SBSDs, and broker-dealer SBSDs.
As discussed earlier in this release, Rule 18a–4 is in substantial part modeled on provisions of Rule 15c3–3 that require a carrying broker-dealer to take two primary steps to safeguard these assets. The first step required by Rule 15c3–3 is that a carrying broker-dealer must maintain physical possession or control over customers' fully paid and excess margin securities.
Paragraph (a) of the proposed new rule would define key terms used in the rule.
Paragraph (d) of proposed new Rule 18a–4 would contain provisions that are designed to implement the individual account segregation requirements of section 3E(f) of the Exchange Act, and therefore, are not modeled specifically on Rule 15c3–3. First, it would require an SBSD and an MSBSP to provide the notice required by section 3E(f)(1)(A) of the Exchange Act prior to the execution of the first non-cleared security-based swap transaction with the counterparty.
Available information suggests that customer assets related to OTC derivatives are currently not consistently segregated from dealer proprietary assets. With respect to non-cleared derivatives, available information suggests that there is no uniform segregation practice but that collateral for most accounts is not segregated.
In the absence of a segregation requirement, the likelihood that security-based swap customers would suffer losses upon a dealer default may substantially increase. The proposed segregation requirements would limit for security-based swap customers these potential losses if an SBSD fails.
It is difficult to measure these benefits against the current baseline of the OTC derivatives market as it exists today, as discussed in section V.A.1. of this release. Rule 15c3–3, on which proposed Rule 18a–4 is modeled, however, may generally provide a reasonable template for crafting the corresponding requirements for nonbank SBSDs.
Further, modeling the provisions of Rule 18a–4 on existing Rule 15c3–3 will generally promote consistent treatment of collateral in circumstances where a broker-dealer SBSD conducts business in securities and security-based swaps with the same counterparty, and in these cases it will facilitate the ability of firms to offer portfolio margin treatment. In addition, “omnibus segregation” requirements of proposed Rule 18a–4 are intended to reduce costs for SBSDs and their customers by providing a less expensive segregation alternative to individual account segregation.
Currently, because of a lack of trading in cleared security-based swaps for customers,
As stated above, proposed new Rule 18a–4 also is intended to provide SBSDs and their counterparties a less expensive segregation alternative to individual account segregation. Higher costs for individual segregation derive from, among other things, higher fees charged by custodians to monitor individual account assets and to account for potentially greater legal risks and liabilities of custodians to account beneficiaries or dealers, as well as higher operational costs to account for collateral on an individual customer basis. A commenter to the CFTC raised concerns with the length of time and the costs to comply with an individual segregation mandate. Specifically, the commenter raised concerns regarding the number of collateral arrangements that would be required. The commenter estimated, based on discussion with its members, that “a rough estimate of the time it would take to establish the necessary collateral arrangements is 1 year and eleven months, with an associated cost of $141.8 million, per covered swap entity.”
Rule 18a–4 will impose on SBSDs operational costs, as well as costs related to the use of customer funds, compared to the baseline, given that dealers in general do not presently segregate customer collateral for security-based swaps, and to the extent collateral is segregated, it is not done so on the terms that would be required by proposed new Rule 18a–4. The operational costs include costs to establish qualifying bank accounts and to perform the calculations required to determine the amount that is required at any one time to be maintained in the reserve account.
A further cost would be imposed on SBSDs to the extent that collateral they hold that could otherwise be rehypothecated would no longer be eligible for this purpose.
The proposed segregation requirements for SBSDs are designed to protect and preserve counterparty collateral held at SBSDs. More specifically, the goal of proposed new Rule 18a–4 is to protect customer assets by ensuring that cash and securities that SBSDs hold for security-based swap customers are isolated from the proprietary assets of the SBSD and identified as property of such customers.
Therefore, proposed segregation rules that promote, or do not unduly restrict, competition may be accompanied by regulatory benefits that minimize the risk of market failure and thus promote efficiency within the market. Such competitive markets would increase the efficiency with which market participants could transact in security-based swaps for speculative, trading, hedging and other purposes. Conversely, increased costs associated with the proposed segregation rules could result in high barriers to entry and negatively affect competition for SBSDs in the security-based swap markets.
Further, modeling the provisions of Rule 18a–4 on existing Rule 15c3–3 will generally promote consistent treatment of collateral in circumstances where a broker-dealer SBSD conducts business in securities and security-based swaps with the same counterparty, increasing efficiencies for counterparties. Finally, the proposed “omnibus segregation” requirements of proposed Rule 18a–4 are intended to provide a less expensive segregation alternative to individual account segregation.
The Commission generally requests comment about its analysis of the costs and benefits of the proposed segregation rules. In addition, the Commission requests comment in response to the following questions:
1. To what extent do counterparties presently require that their assets associated with security-based swaps be independently segregated?
2. What would be the overall market impact of a right by customers to demand individual segregation? How would costs to end users be impacted? Would those costs differ depending on the type of end user or size of its positions with the SBSD?
3. How would the existence of omnibus versus independent accounts factor into the ability easily to resolve a defaulting SBSD?
4. Would the proposed segregation requirements prove to be difficult to implement for existing contracts?
As discussed above, proposed Rules 18a–1 through 18a–4, as well as the proposed amendments to Rule 15c3–1, would impose certain costs on SBSDs and MSBSPs. The Commission expects that the highest economic cost impact as a result of the proposed new rules and rule amendments would likely result from the additional capital nonbank SBSDs and nonbank SBSDs may have to hold as a result of the proposed capital rules, and the additional margin that SBSDs, MSBSPs, and other market participants may have to post and/or collect as a result of proposed margin requirements.
The proposed new rules and rule amendments, however, as discussed above, would impose certain implementation burdens and related costs on SBSDs, MSBSPs and other market participants. These costs may include start-up costs, including personnel and other costs, such as technology costs, to comply with the proposed new rules and rule amendments. As discussed in section IV.D. of this release, the Commission has estimated the burdens and related costs of these implementation requirements for SBSDs and MDBSPs.
A stand-alone SBSD that applies to use internal models would be required under proposed new Rule 18a–1 to create and compile various documents to be included with the application, including documents related to the development of its VaR models, and to provide additional documentation to, and respond to questions from, Commission staff throughout the application process.
Stand-alone SBSDs that use internal models and ANC broker-dealers would be required to develop a liquidity stress test and a written contingency plan under proposed new Rule 18a–1 and proposed amendments to Rule 15c3–1, and periodically review them.
Rule 18a–1 also would require stand-alone SBSDs to establish, document, and maintain a system of internal risk management controls required under Rule 15c3–4, as well as to review and update these controls.
Finally, nonbank SBSDs and broker-dealers, as applicable, may incur one-time and ongoing costs related to filing notices and subordination agreements and documenting industry sector classifications under proposed new Rule 18a–1, and amendments to Rule 15c3–1.
Rule 18a–2 also would require nonbank MSBSPs to establish, document, and maintain a system of internal risk management controls required under Rule 15c3–4, as well as to review and update these controls.
Rule 18a–3 would require nonbank SBSDs to establish a written risk analysis methodology, which would need to be reviewed and updated.
Finally, SBSDs and MSBSPs would incur various one-time and ongoing costs in the aggregate in order to comply with the segregation and notification requirements of proposed new Rule 18a–4.
In addition, both SBSDs and MSBSPs would be required to prepare and send to their counterparties segregation-related notices pursuant to section 3E(f)
Finally, proposed new Rule 18a–4 would require each SBSD to draft, prepare, and enter into subordination agreements with certain counterparties.
The Commission requests data to quantify, and estimates of, the costs and the value of the benefits of the proposed rules described above. Commenters should provide estimates of these costs and benefits, as well as any costs and benefits not already defined, that may result from the adoption of the proposed rules. Commenters should provide analysis and empirical data to support their views on the costs and benefits associated with the proposals. The Commission requests comment on any effect the proposed new rules and rule amendments may have on efficiency, competition, and capital formation, including the competitive or anticompetitive effects the proposals may have on market participants. In addition, the Commission requests comment on whether other provisions of the Dodd-Frank Act for which Commission rulemaking is required are likely to have an effect on the costs and benefits of the proposed rules. Commenters should provide analysis and empirical data to support their views on the costs and benefits associated with the proposed rules.
The Regulatory Flexibility Act (“RFA”)
For purposes of Commission 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,
Based on available information about the security-based swap market,
Based on feedback from industry participants about the security-based swap markets, entities that will qualify as SBSDs and MSBSPs, whether registered broker-dealers or not, will likely exceed the thresholds defining “small entities” set out above. Thus, it is unlikely that proposed Rules 18a–1 to 18a–4 and the amendments to Rule 15c3–1 would have a significant economic impact on any small entity.
The Commission estimates that there are approximately 808 broker-dealers that were “small” for the purposes Rule 0–10. The amendments to Rule 15c3–1 relating to the standardized haircuts for swaps and security-based swaps, as well as the proposed CDS maturity grid would apply to all broker-dealers with such proprietary positions. These proposed amendments, therefore, would apply to all “small” broker-dealers in that they would be subject to the requirements in the proposed amendments. It is likely, however, that these proposed amendments would have no, or little, impact on “small” broker-dealers, since most, if not all, of these firms generally would not hold these types of positions.
For the foregoing reasons, the Commission certifies that the proposed new Rules 18a–1 through 18a–4, amendments to Rule 15c3–1, and amendments to Rule 15c3–3 would not have a significant economic impact on any small entity for purposes of the RFA.
The Commission encourages written comments regarding this certification. The Commission requests that commenters describe the nature of any impact on small entities and provide empirical data to illustrate the extent of the impact.
Pursuant to the Exchange Act, 15 U.S.C. 78a
Brokers, Fraud, Reporting and recordkeeping requirements, Securities.
In accordance with the foregoing, Title 17, Chapter II of the Code of Federal Regulations is proposed to be amended as follows:
1. The general authority citation for part 240 is revised, the sectional authorities for §§ 240.15c3–1 and 240.15c3–3 are revised, add sectional authorities for §§ 240.15c3–1a, 240.15c3–1e, 240.15c3–3, 240.18a–1, 240.18a–1a, 240.18a–1b, 240.18a–1c, 240.18a–1d, 240–18a–2, 240.18a–3 and 240.18a–4 in numerical order to read as follows.
15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z–2, 77z–3, 77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c–3, 78c–5, 78d, 78e, 78f, 78g, 78i, 78j, 78j–1, 78k, 78k–1, 78
Section 240.15c3–1 is also issued under 15 U.S.C. 78o(c)(3), 78o–10(d), and 78o–10(e).
Section 240.15c3–3 is also issued under 15 U.S.C. 78c–5, 78o(c)(2), 78(c)(3), 78q(a), 78w(a); sec. 6(c), 84 Stat. 1652; 15 U.S.C. 78fff.
Sections 240.18a–1, 240.18a–1a, 240.18a–1b, 240.18a–1c, 240.18a–1d, 240.18a–2, and 240.18a–3 are also issued under 15 U.S.C. 78o–10(d) and 78o–10(e).
Section 240.18a–4 is also issued under 15 U.S.C. 78c–5(f).
2. Section 240.15c3–1 is amended by:
a. Revising the center heading above paragraph (a)(7);
b. In paragraph (a)(7) removing the phrase “and using the credit risk standards of Appendix E to compute a deduction for credit risk on certain credit exposures arising from transactions in derivatives instruments, instead of the provisions of paragraph (c)(2)(iv) of this section” and in its place adding the phrase “and using the credit risk standards of Appendix E to compute a deduction for credit risk for security-based swap transactions with
c. Revising paragraph (a)(7)(i);
d. In paragraph (a)(7)(ii), remove “$5 billion” and in its place add “$6 billion”;
e. Adding a center heading and paragraph (a)(10);
f. Adding paragraph (c)(2)(vi)(O);
g. Re-designating paragraph (c)(2)(xii) as paragraph (c)(2)(xii)(A) and adding new paragraph (c)(2)(xii)(B);
h. Adding paragraph (c)(2)(xiv);
i. Adding paragraph (c)(16); and
j. Adding paragraph (f).
The revisions and additions read as follows:
(a) * * *
(7) * * *
(i) At all times maintain tentative net capital of not less than $5 billion and net capital of not less than the greater of $1 billion or the sum of the ratio requirement under paragraph (a)(1) of this section and eight percent (8%) of the risk margin amount;
(10) A broker or dealer registered with the Commission as a security-based swap dealer, other than a broker or dealer subject to the provisions of (a)(7) of this section, must:
(i) At all times maintain net capital of not less than the greater of $20 million or the sum of the ratio requirement under paragraph (a)(1) of this section and eight percent (8%) of the risk margin amount; and
(ii) Comply with § 240.15c3–4 as though it were an OTC derivatives dealer with respect to all of its business
(c) * * *
(2) * * *
(vi)(O)
(
(
(
(
(
(xii) * * *
(B) Deducting the amount of cash required in the account of each security-based swap customer to meet the margin requirements of a clearing agency, Examining Authority, or the Commission, after application of calls for margin, marks to the market, or other required deposits which are outstanding one business day or less.
(xiv)
(B)
(
(
(16) The term
(i) The greater of the total margin required to be delivered by the broker or dealer with respect to security-based swap transactions cleared for security-based swap customers at a clearing agency or the amount of the deductions that would apply to the cleared security-based swap positions of the security-based swap customers pursuant to paragraph (c)(2)(vi)(O) of this section; and
(ii) The total margin amount calculated by the broker or dealer with respect to non-cleared security-based swaps pursuant to § 240.18a–3(c)(1)(i)(B).
(f)
(i) A stress event that includes a decline in creditworthiness of the broker or dealer severe enough to trigger contractual credit-related commitment provisions of counterparty agreements;
(ii) The loss of all existing unsecured funding at the earlier of its maturity or put date and an inability to acquire a material amount of new unsecured funding, including intercompany advances and unfunded committed lines of credit;
(iii) The potential for a material net loss of secured funding;
(iv) The loss of the ability to procure repurchase agreement financing for less liquid assets;
(v) The illiquidity of collateral required by and on deposit at registered clearing agencies or other entities which is not deducted from net worth or which is not funded by customer assets;
(vi) A material increase in collateral required to be maintained at registered clearing agencies of which it is a member; and
(vii) The potential for a material loss of liquidity caused by market participants exercising contractual rights and/or refusing to enter into transactions with respect to the various businesses, positions, and commitments of the broker or dealer, including those related to customer businesses of the broker or dealer.
(2)
(3)
(i) Cash, obligations of the United States, or obligations fully guaranteed as to principal and interest by the United States; and
(ii) Unencumbered and free of any liens at all times. Securities in the liquidity reserve can be used to meet delivery requirements as long as cash or other acceptable securities of equal or greater value are moved into the liquidity pool contemporaneously.
(4)
3. Section 240.15c3–1a is amended by:
a. In paragraph (a)(4), revising the first and last sentences; and
b. Adding paragraph (b)(1)(v)(C)(
The addition to read as follows:
(a) * * *
(4) The term
(b) * * *
(1) * * *
(v) * * *
(C) * * *
(
4. Section 240.15c3–1b is amended by adding a paragraph (b) to read as follows:
(b) Every broker or dealer in computing net capital pursuant to § 240.15c3–1 must comply with the following:
(1)
(i)
(B)
(C)
(
(
(2)
(A) Section 240.15c3–1 applicable to the reference asset if § 240.15c3–1 specifies a percentage deduction for the type of asset;
(B) 17 CFR 1.17 applicable to the reference asset if 17 CFR 1.17 specifies a percentage deduction for the type of asset and § 240.15c3–1 does not specify a percentage deduction for the type of asset; or
(C) In the case of an interest rate swap, § 240.15c3–1(c)(2)(vi)(A) based on the maturity of the swap, provided that the percentage deduction must be no less than 0.5%.
(ii) A security-based swap dealer may reduce the deduction under this paragraph (b)(2)(ii) by an amount equal to any reduction recognized for a comparable long or short position in the reference asset or interest rate under § 240.15c3–1 or 17 CFR 1.17.
5. Section 240.15c3–1d is amended by:
a. Adding to the end of the second sentence of paragraph (b)(7) the phrase “, or if, in the case of a broker or dealer operating pursuant to paragraph (a)(10) of § 240.15c3–1, its net capital would be less than either $24 million or 10% of the risk margin amount under § 240.15c3–1”;
b. In the first sentence of paragraph (b)(8)(i), adding after the phrase “if greater, or” the phrase “, in the case of a broker or dealer operating pursuant to paragraph (a)(10) of § 240.15c3–1, its net capital would be less than either $24 million or 10% of the risk margin amount under § 240.15c3–1, or”;
c. In paragraph (b)(10)(ii)(B), adding after the phrase “if greater,” the phrase “or, in the case of a broker or dealer operating pursuant to paragraph (a)(10) of § 240.15c3–1, its net capital is less than either $20 million or 8% of the risk margin amount under § 240.15c3–1,”;
d. In paragraph (c)(2), adding at the end of the sentence the phrase “, or, in the case of a broker or dealer operating pursuant to paragraph (a)(10) of § 240.15c3–1, its net capital would be less than either $24 million or 10% of the risk margin amount under § 240.15c3–1”; and
e. In paragraph (c)(5)(i)(B), adding after the phrase “if greater, or less than 120 percent of the minimum dollar amount required by paragraph (a)(1)(ii) of this section,” the phrase “, or, in the case of a broker or dealer operating pursuant to paragraph (a)(10) of § 240.15c3–1, its net capital would be less than either $24 million or 10% of the risk margin amount under § 240.15c3–1,”.
6. Section 240.15c3–1e is amended by:
a. In the first sentence of paragraph (a) before the first “:”, removing the phrase “transactions in derivatives instruments” and adding in its place the phrase “security-based swap transactions with
b. In the first sentence of paragraph (c) before the first “:”, removing the phrase “transactions in derivatives instruments” and adding in its place the phrase “security-based swap transactions with
c. In paragraph (c)(2)(ii), removing the phrase “$5 billion” and adding in its place the phrase “$6 billion”; and
d. In paragraph (e)(1), removing the phrase “$5 billion” and adding in its place the phrase “$6 billion”.
7. Section 240.15c3–3 is amended by adding new paragraph (p) to read as follows:
(p)
8. Section 240.18a–1 is added to read as follows:
Rule 18a–1 and its appendices do not apply to a security-based swap dealer that has a prudential regulator as such a security-based swap dealer is subject to the capital requirement of the prudential regulator. In addition, Rule 18a–1 and its appendices do not apply to a security-based swap dealer that also is registered as a broker or dealer pursuant to section 15(b) of the Act (15 U.S.C. 78o(b)) as such a security-based swap dealer is subject to the net capital requirements in § 240.15c3–1 and its appendices.
(a)
(1) A security-based swap dealer must at all times maintain net capital of not less than the greater of $20 million or eight percent (8%) of the risk margin amount.
(2) In accordance with paragraph (d) of this section, the Commission may approve, in whole or in part, an application or an amendment to an application by a security-based swap dealer to calculate net capital using the market risk standards of paragraph (d) to compute a deduction for market risk on some or all of its positions, instead of the provisions of paragraphs (c)(1)(iv), (vi), and (vii) of this section, and using the credit risk standards of paragraph (d) to compute a deduction for credit risk for security-based swap transactions with
(b) A security-based swap dealer must at all times maintain net capital in addition to the amounts required under paragraph (a)(1) or (2) of this section, as applicable, in an amount equal to 10 percent of:
(1) The excess of the market value of United States Treasury Bills, Bonds and Notes subject to reverse repurchase agreements with any one party over 105 percent of the contract prices (including accrued interest) for reverse repurchase agreements with that party;
(2) The excess of the market value of securities issued or guaranteed as to principal or interest by an agency of the United States or mortgage related securities as defined in section 3(a)(41) of the Act subject to reverse repurchase agreements with any one party over 110 percent of the contract prices (including accrued interest) for reverse repurchase agreements with that party; and
(3) The excess of the market value of other securities subject to reverse repurchase agreements with any one party over 120 percent of the contract prices (including accrued interest) for reverse repurchase agreements with that party.
(c)
(1) The term
(i)
(B)(
(
(C) Adding to net worth the lesser of any deferred income tax liability related to the items in paragraphs (c)(1)(i)(C)(
(
(
(
(D) Adding, in the case of future income tax benefits arising as a result of unrealized losses, the amount of such benefits not to exceed the amount of income tax liabilities accrued on the books and records of the security-based swap dealer, but only to the extent such benefits could have been applied to reduce accrued tax liabilities on the date of the capital computation, had the related unrealized losses been realized on that date.
(E) Adding to net worth any actual tax liability related to income accrued which is directly related to an asset otherwise deducted pursuant to this section.
(ii)
(iii)
(A)
(B)
(C)
(D)
(E)(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(F)
(G) Any receivable from an affiliate of the security-based swap dealer (not otherwise deducted from net worth) and the market value of any collateral given to an affiliate (not otherwise deducted from net worth) to secure a liability over the amount of the liability of the security-based swap dealer unless the books and records of the affiliate are made available for examination when requested by the representatives of the Commission in order to demonstrate the validity of the receivable or payable. The provisions of this subsection shall not apply where the affiliate is a registered security-based swap dealer, registered broker or dealer, registered government securities broker or dealer, bank as defined in section 3(a)(6) of the Act, insurance company as defined in section 3(a)(19) of the Act, investment company registered under the Investment Company Act of 1940, federally insured savings and loan association, or futures commission merchant or swap dealer registered pursuant to the Commodity Exchange Act.
(iv)
(v) Deducting from the contract value of each failed to deliver contract that is outstanding five business days or longer (21 business days or longer in the case of municipal securities) the percentages of the market value of the underlying security that would be required by application of the deduction required by paragraph (c)(1)(vii) of this section. Such deduction, however, shall be increased by any excess of the contract price of the failed to deliver contract over the market value of the underlying security or reduced by any excess of the market value of the underlying security
(vi)
(A)
(
(
(
(
(B)
(vii)
(viii)
(B)
(
(
(ix)
(2) The term
(3)
(4)
(5) The term
(6) The term
(i) The greater of the total margin required to be delivered by the security-based swap dealer with respect to security-based swap transactions cleared for security-based swap customers at a clearing agency or the amount of the deductions that would apply to the cleared security-based swap positions of the security-based swap customers pursuant to paragraph (c)(1)(vi) of this section; and
(ii) The total margin amount calculated by the security-based swap dealer with respect to non-cleared security-based swaps pursuant to § 240.18a–3(c)(1)(i)(B).
(d)
(i) A security-based swap dealer shall submit the following information to the Commission with its application:
(A) An executive summary of the information provided to the Commission with its application and an identification of the ultimate holding company of the security-based swap dealer;
(B) A comprehensive description of the internal risk management control system of the security-based swap dealer and how that system satisfies the requirements set forth in § 240.15c3–4;
(C) A list of the categories of positions that the security-based swap dealer holds in its proprietary accounts and a brief description of the methods that the security-based swap dealer will use to calculate deductions for market and credit risk on those categories of positions;
(D) A description of the mathematical models to be used to price positions and to compute deductions for market risk, including those portions of the deductions attributable to specific risk, if applicable, and deductions for credit risk; a description of the creation, use, and maintenance of the mathematical models; a description of the security-based swap dealer's internal risk management controls over those models, including a description of each category of persons who may input data into the models; if a mathematical model incorporates empirical correlations across risk categories, a description of the process for measuring correlations; a description of the backtesting procedures the security-based swap dealer will use to backtest the mathematical models used to calculate maximum potential exposure; a description of how each mathematical model satisfies the applicable qualitative and quantitative requirements set forth in this paragraph (d); and a statement describing the extent to which each mathematical model used to compute deductions for market risk and credit risk will be used as part of the risk analyses and reports presented to senior management;
(E) If the security-based swap dealer is applying to the Commission for approval to use scenario analysis to calculate deductions for market risk for certain positions, a list of those types of positions, a description of how those deductions will be calculated using scenario analysis, and an explanation of why each scenario analysis is appropriate to calculate deductions for market risk on those types of positions;
(F) A description of how the security-based swap dealer will calculate current exposure;
(G) A description of how the security-based swap dealer will determine internal credit ratings of counterparties and internal credit risk weights of counterparties, if applicable;
(H) For each instance in which a mathematical model to be used by the security-based swap dealer to calculate a deduction for market risk or to calculate maximum potential exposure for a particular product or counterparty differs from the mathematical model used by the ultimate holding company to calculate an allowance for market risk or to calculate maximum potential
(I) Sample risk reports that are provided to management at the security-based swap dealer who are responsible for managing the security-based swap dealer's risk.
(ii) [Reserved].
(2) The application of the security-based swap dealer shall be supplemented by other information relating to the internal risk management control system, mathematical models, and financial position of the security-based swap dealer that the Commission may request to complete its review of the application;
(3) The application shall be considered filed when received at the Commission's principal office in Washington, DC A person who files an application pursuant to this section for which it seeks confidential treatment may clearly mark each page or segregable portion of each page with the words “Confidential Treatment Requested.” All information submitted in connection with the application will be accorded confidential treatment, to the extent permitted by law;
(4) If any of the information filed with the Commission as part of the application of the security-based swap dealer is found to be or becomes inaccurate before the Commission approves the application, the security-based swap dealer must notify the Commission promptly and provide the Commission with a description of the circumstances in which the information was found to be or has become inaccurate along with updated, accurate information;
(5) The Commission may approve the application or an amendment to the application, in whole or in part, subject to any conditions or limitations the Commission may require if the Commission finds the approval to be necessary or appropriate in the public interest or for the protection of investors, after determining, among other things, whether the security-based swap dealer has met the requirements of this paragraph (d) and is in compliance with other applicable rules promulgated under the Act;
(6) A security-based swap dealer shall amend its application to calculate certain deductions for market and credit risk under this paragraph (d) and submit the amendment to the Commission for approval before it may change materially a mathematical model used to calculate market or credit risk or before it may change materially its internal risk management control system;
(7) As a condition for the security-based swap dealer to compute deductions for market and credit risk under this paragraph (d), the security-based swap dealer agrees that:
(i) It will notify the Commission 45 days before it ceases to compute deductions for market and credit risk under this paragraph (d); and
(ii) The Commission may determine by order that the notice will become effective after a shorter or longer period of time if the security-based swap dealer consents or if the Commission determines that a shorter or longer period of time is necessary or appropriate in the public interest or for the protection of investors; and
(8) Notwithstanding paragraph (d)(7) of this section, the Commission, by order, may revoke a security-based swap dealer's exemption that allows it to use the market risk standards of this paragraph (d) to calculate deductions for market risk, and the exemption to use the credit risk standards of this paragraph (d) to calculate deductions for credit risk on certain credit exposures arising from transactions in derivatives instruments if the Commission finds that such exemption is no longer necessary or appropriate in the public interest or for the protection of investors. In making its finding, the Commission will consider the compliance history of the security-based swap dealer related to its use of models, the financial and operational strength of the security-based swap dealer and its ultimate holding company, and the security-based swap dealer's compliance with its internal risk management controls.
(9)
(i)
(B) The VaR model must be reviewed both periodically and annually. The periodic review may be conducted by the security-based swap dealer's internal audit staff, but the annual review must be conducted by a registered public accounting firm, as that term is defined in section 2(a)(12) of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7201
(C) For purposes of computing market risk, the security-based swap dealer must determine the appropriate multiplication factor as follows:
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(ii) Quantitative requirements.
(A) For purposes of determining market risk, the VaR model must use a 99 percent, one-tailed confidence level with price changes equivalent to a ten business-day movement in rates and prices;
(B) For purposes of determining maximum potential exposure, the VaR model must use a 99 percent, one-tailed confidence level with price changes equivalent to a one-year movement in rates and prices; or based on a review of the security-based swap dealer's procedures for managing collateral and if the collateral is marked to market daily and the security-based swap dealer has the ability to call for additional collateral daily, the Commission may approve a time horizon of not less than ten business days;
(C) The VaR model must use an effective historical observation period of at least one year. The security-based swap dealer must consider the effects of market stress in its construction of the model. Historical data sets must be updated at least monthly and reassessed whenever market prices or volatilities change significantly; and
(D) The VaR model must take into account and incorporate all significant, identifiable market risk factors applicable to positions in the accounts of the security-based swap dealer, including:
(
(
(
(
(iii)
(
(
(
(
(
(
(e)
(i) For positions for which the Commission has approved the security-based swap dealer's use of VaR models, the VaR of the positions multiplied by the appropriate multiplication factor determined according to paragraph (d) of this section, except that the initial multiplication factor shall be three, unless the Commission determines, based on a review of the security-based swap dealer's application or an amendment to the application under paragraph (d) of this section, including a review of its internal risk management control system and practices and VaR models, that another multiplication factor is appropriate;
(ii) For positions for which the VaR model does not incorporate specific risk, a deduction for specific risk to be determined by the Commission based on a review of the security-based swap dealer's application or an amendment to the application under paragraph (d) of this section and the positions involved;
(iii) For positions for which the Commission has approved the security-based swap dealer's application to use scenario analysis, the greatest loss resulting from a range of adverse movements in relevant risk factors, prices, or spreads designed to represent a negative movement greater than, or equal to, the worst ten-day movement of
(A) A set of pricing equations for the positions based on, for example, arbitrage relations, statistical analysis, historic relationships, merger evaluations, or fundamental valuation of an offering of securities;
(B) Auxiliary relationships mapping risk factors to prices; and
(C) Data demonstrating the effectiveness of the scenario in capturing market risk, including specific risk; and
(iv) For all remaining positions, the deductions specified in § 240.15c3–1(c)(2)(vi), § 240.15c3–1(c)(2)(vii), and applicable appendices to § 240.15c3–1.
(2)
(i) A counterparty exposure charge in an amount equal to the sum of the following:
(A) The net replacement value in the account of each counterparty that is insolvent, or in bankruptcy, or that has senior unsecured long-term debt in default; and
(B) For a counterparty not otherwise described in paragraph (e)(2)(i)(A) of this section, the
(ii) A concentration charge by counterparty in an amount equal to the sum of the following:
(A) For each counterparty with a credit risk weight of 20% or less, 5% of the amount of the current exposure to the counterparty in excess of 5% of the tentative net capital of the security-based swap dealer;
(B) For each counterparty with a credit risk weight of greater than 20% but less than 50%, 20% of the amount of the current exposure to the counterparty in excess of 5% of the tentative net capital of the security-based swap dealer; and
(C) For each counterparty with a credit risk weight of greater than 50%, 50% of the amount of the current exposure to the counterparty in excess of 5% of the tentative net capital of the security-based swap dealer; and
(iii) A portfolio concentration charge of 100% of the amount of the security-based swap dealer's aggregate current exposure for all counterparties in excess of 50% of the tentative net capital of the security-based swap dealer.
(iv)
(B) The
(C) The
(D)
(
(
(
(E)
(
(
(
(
(
(
(
(
(F)
(
(
(
(f)
(i) A stress event includes a decline in creditworthiness of the broker or dealer severe enough to trigger contractual credit-related commitment provisions of counterparty agreements;
(ii) The loss of all existing unsecured funding at the earlier of its maturity or put date and an inability to acquire a material amount of new unsecured funding, including intercompany advances and unfunded committed lines of credit;
(iii) The potential for a material net loss of secured funding;
(iv) The loss of the ability to procure repurchase agreement financing for less liquid assets;
(v) The illiquidity of collateral required by and on deposit at clearing agencies or other entities which is not deducted from net worth or which is not funded by customer assets;
(vi) A material increase in collateral required to be maintained at registered clearing agencies of which it is a member; and
(vii) The potential for a material loss of liquidity caused by market participants exercising contractual rights and/or refusing to enter into transactions with respect to the various businesses, positions, and commitments of the security-based swap dealer, including those related to customer businesses of the security-based swap dealer.
(2)
(3)
(i) Cash, obligations of the United States, or obligations fully guaranteed as to principal and interest by the United States; and
(ii) Unencumbered and free of any liens at all times.
Securities in the liquidity reserve can be used to meet delivery requirements as long as cash or other acceptable securities of equal or greater value are moved into the liquidity pool contemporaneously.
(4)
(g)
(h)
(1) It does not have any of the provisions for accelerated maturity provided for by paragraphs (b)(8)(i), (9)(i), or (9)(ii) of Appendix D of this section and is maintained as capital subject to the provisions restricting the withdrawal thereof required by paragraph (i) of this section; or
(2) The partnership agreement provides that capital contributed pursuant to a satisfactory subordination agreement as defined in Appendix D of this section shall in all respects be partnership capital subject to the provisions restricting the withdrawal thereof required by paragraph (i) of this section.
(i)
(i) Two business days prior to any withdrawals, advances or loans if those withdrawals, advances or loans on a net basis exceed in the aggregate in any 30 calendar day period, 30 percent of the security-based swap dealer's excess net capital. A security-based swap dealer, in an emergency situation, may make withdrawals, advances or loans that on a net basis exceed 30 percent of the security-based swap dealer's excess net capital in any 30 calendar day period without giving the advance notice required by this paragraph, with the prior approval of the Commission. Where a security-based swap dealer makes a withdrawal with the consent of the Commission, it shall in any event comply with paragraph (i)(1)(ii) of this section; or
(ii) Two business days after any withdrawals, advances or loans if those withdrawals, advances or loans on a net basis exceed in the aggregate in any 30 calendar day period, 20 percent of the security-based swap dealer's excess net capital.
(iii) This paragraph (i)(1) does not apply to:
(A) Securities or commodities transactions in the ordinary course of business between a security-based swap dealer and an affiliate where the security-based swap dealer makes payment to or on behalf of such affiliate for such transaction and then receives payment from such affiliate for the securities or commodities transaction within two business days from the date of the transaction; or
(B) Withdrawals, advances or loans which in the aggregate in any thirty calendar day period, on a net basis, equal $500,000 or less.
(iv) Each required notice shall be effective when received by the Commission in Washington, DC, the regional office of the Commission for the region in which the security-based swap dealer has its principal place of business, and the Commodity Futures Trading Commission if such security-based swap dealer is registered with that Commission.
(2)
(i) The security-based swap dealer's net capital would be less than 120 percent of the minimum dollar amount required by paragraph (a) of this section; and
(ii) The total outstanding principal amounts of satisfactory subordinated loan agreements of the security-based swap dealer and any subsidiaries or affiliates consolidated pursuant to Appendix C of this section (other than such agreements which qualify as equity under paragraph (h) of this section) would exceed 70% of the debt-equity total as defined in paragraph (h) of this section.
(3)
(ii) An order temporarily prohibiting the withdrawal of capital shall be rescinded if the Commission determines that the restriction on capital withdrawal should not remain in effect. A hearing on an order temporarily prohibiting withdrawal of capital will be held within two business days from the date of the request in writing by the security-based swap dealer.
(4)
(ii) The term equity capital includes capital contributions by partners, par or stated value of capital stock, paid-in capital in excess of par, retained earnings or other capital accounts. The term equity capital does not include securities in the securities accounts of partners and balances in limited partners' capital accounts in excess of their stated capital contributions.
(iii) Paragraphs (i)(1) and (2) of this section shall not preclude a security-based swap dealer from making required tax payments or preclude the payment to partners of reasonable compensation, and such payments shall not be included in the calculation of withdrawals, advances, or loans for purposes of paragraphs (i)(1) and (2) of this section.
(iv) For the purpose of this paragraph (i), any transactions between a security-based swap dealer and a stockholder, partner, employee or affiliate that results in a diminution of the security-based swap dealer's net capital shall be deemed to be an advance or loan of net capital.
9. Section 240.18a–1a is added to read as follows:
(a)(1)
(2) The term
(3) The term
(4) The term
(5) The term
(6) The term
(b) The deduction under this Appendix A must equal the sum of the deductions specified in paragraph (b)(1)(iv)(C) of this section.
(1)(i)
(B) The term
(
(
(
(
(
(
(C) The term
(D) The term
(ii) With respect to positions involving listed option positions in its proprietary or other account, the security-based swap dealer shall group long and short positions into the following portfolio types:
(A) Equity options on the same underlying instrument and positions in that underlying instrument;
(B) Options on the same major market foreign currency, positions in that major market foreign currency, and related instruments within those options' classes;
(C) High-capitalization diversified market index options, related instruments within the option's class, and qualified stock baskets in the same index;
(D) Non-high-capitalization diversified index options, related instruments within the index option's class, and qualified stock baskets in the same index; and
(E) Narrow-based index options, related instruments within the index option's class, and qualified stock baskets in the same index.
(iii) Before making the computation, each security-based swap dealer shall obtain the theoretical gains and losses for each option series and for the related and underlying instruments within those options' class in the proprietary or other accounts of that security-based swap dealer. For each option series, the theoretical options pricing model shall calculate theoretical prices at 10 equidistant valuation points within a range consisting of an increase or a decrease of the following percentages of the daily market price of the underlying instrument:
(A) +(−)15% for equity securities with a ready market, narrow-based indexes, and non-high-capitalization diversified indexes;
(B) +(−)6% for major market foreign currencies;
(C) +(−)20% for all other currencies; and
(D) +(−)10% for high-capitalization diversified indexes.
(iv)(A) The security-based swap dealer shall multiply the corresponding theoretical gains and losses at each of the 10 equidistant valuation points by the number of positions held in a particular option series, the related instruments and qualified stock baskets within the option's class, and the positions in the same underlying instrument.
(B) In determining the aggregate profit or loss for each portfolio type, the security-based swap dealer will be allowed the following offsets in the following order, provided, that in the case of qualified stock baskets, the security-based swap dealer may elect to net individual stocks between qualified stock baskets and take the appropriate deduction on the remaining, if any, securities:
(
(
(
(
(
(
(
(
(
(C) For each portfolio type, the total deduction shall be the larger of:
(
(
(
(
(
10. Section 240.18a–1b is added to read as follows:
(a) Every registered security-based swap dealer in computing net capital pursuant to § 240.18a–1 shall comply with the following:
(1) Where a security-based swap dealer has an asset or liability which is treated or defined in paragraph § 240.18a–1, the inclusion or exclusion of all or part of such asset or liability for net capital shall be in accordance with § 240.18a–1, except as specifically provided otherwise in this Appendix B. Where a commodity related asset or liability is specifically treated or defined in 17 CFR 1.17 and is not generally or specifically treated or defined in § 240.18a–1 or this Appendix B, the inclusion or exclusion of all or part of such asset or liability for net capital shall be in accordance with 17 CFR 1.17.
(2) In computing net capital as defined in paragraph (c)(1) of § 240.18a–1, the net worth of a security-based swap dealer shall be adjusted as follows with respect to commodity-related transactions:
(i)
(B) The value attributed to any commodity option which is not traded on a contract market shall be the difference between the option's strike price and the market value for the physical or futures contract which is the subject of the option. In the case of a long call commodity option, if the market value for the physical or futures contract which is the subject of the option is less than the strike price of the option, it shall be given no value. In the case of a long put commodity option, if the market value for the physical commodity or futures contract which is the subject of the option is more than the striking price of the option, it shall be given no value.
(ii) Deduct any unsecured commodity futures or option account containing a ledger balance and open trades, the combination of which liquidates to a deficit or containing a debit ledger balance only:
(iii) Deduct all unsecured receivables, advances and loans except for:
(A) Management fees receivable from commodity pools outstanding no longer than thirty (30) days from the date they are due;
(B) Receivables from foreign clearing organizations;
(C) Receivables from registered futures commission merchants or brokers, resulting from commodity futures or option transactions, except those specifically excluded under paragraph (a)(2)(ii) of this Appendix B.
(iv) Deduct all inventories (including work in process, finished goods, raw materials and inventories held for resale) except for readily marketable spot commodities; or spot commodities which adequately collateralize indebtedness under 17 CFR 1.17(c)(7);
(v) Guarantee deposits with commodities clearing organizations are not required to be deducted from net worth;
(vi) Stock in commodities clearing organizations to the extent of its margin value is not required to be deducted from net worth;
(vii) Deduct from net worth the amount by which any advances paid by the security-based swap dealer on cash commodity contracts and used in computing net capital exceeds 95 percent of the market value of the commodities covered by such contracts.
(viii) Do not include equity in the commodity accounts of partners in net worth.
(ix) In the case of all inventory, fixed price commitments and forward contracts, except for inventory and forward contracts in the inter-bank market in those foreign currencies which are purchased or sold for further delivery on or subject to the rules of a contract market and covered by an open futures contract for which there will be no charge, deduct the applicable percentage of the net position specified below:
(A) Inventory which is currently registered as deliverable on a contract market and covered by an open futures contract or by a commodity option on a physical—No charge.
(B) Inventory which is covered by an open futures contract or commodity option—5% of the market value.
(C) Inventory which is not covered—20% of the market value.
(D) Fixed price commitments (open purchases and sales) and forward contracts which are covered by an open futures contract or commodity option—10% of the market value.
(E) Fixed price commitments (open purchases and sales) and forward contracts which are not covered by an open futures contract or commodity option—20% of the market value.
(x) Deduct for undermargined customer commodity futures accounts the amount of funds required in each such account to meet maintenance margin requirements of the applicable board of trade or, if there are no such maintenance margin requirements, clearing organization margin requirements applicable to such positions, after application of calls for margin, or other required deposits which are outstanding three business days or less. If there are no such maintenance margin requirements or clearing organization margin requirements on such accounts, then deduct the amount of funds required to provide margin equal to the amount necessary after application of calls for margin, or other required deposits outstanding three days or less to restore original margin when the original margin has been depleted by 50 percent or more.
(xi) Deduct for undermargined non-customer and omnibus commodity futures accounts the amount of funds required in each such account to meet maintenance margin requirements of the applicable board of trade or, if there are no such maintenance margin requirements, clearing organization margin requirements applicable to such positions, after application of calls for margin, or other required deposits which are outstanding two business days or less. If there are no such maintenance margin requirements or clearing organization margin requirements, then deduct the amount of funds required to provide margin equal to the amount necessary after application of calls for margin, or other required deposits outstanding two days or less to restore original margin when the original margin has been depleted by 50 percent or more.
(xii) In the case of open futures contracts and granted (sold) commodity options held in proprietary accounts carried by the security-based swap dealer which are not covered by a position held by the security-based swap dealer or which are not the result of a “changer trade” made in accordance with the rules of a contract market, deduct:
(A) For a security-based swap dealer which is a clearing member of a contract market for the positions on such contract market cleared by such member, the applicable margin requirement of the applicable clearing organization; (B) For a security-based swap dealer which is a member of a self-regulatory organization, 150% of the applicable maintenance margin requirement of the applicable board of trade or clearing organization, whichever is greater; or
(C) For all other security-based swap dealers, 200% of the applicable maintenance margin requirement of the applicable board of trade or clearing organization, whichever is greater; or
(D) For open contracts or granted (sold) commodity options for which there are no applicable maintenance margin requirements, 200% of the applicable initial margin requirement;
(xiii) In the case of a security-based swap dealer which is a purchaser of a commodity option which is traded on a contract market, the deduction shall be the same safety factor as if the security-based swap dealer were the grantor of such option in accordance with paragraph (a)(2)(xii), but in no event shall the safety factor be greater than the market value attributed to such option.
(xiv) In the case of a security-based swap dealer which is a purchaser of a commodity option not traded on a contract market which has value and such value is used to increase net capital, the deduction is ten percent of the market value of the physical or futures contract which is the subject of such option but in no event more than the value attributed to such option.
(xv) A loan or advance or any other form of receivable shall not be considered “secured” for the purposes of paragraph (a)(2) of this Appendix B unless the following conditions exist:
(A) The receivable is secured by readily marketable collateral which is otherwise unencumbered and which can be readily converted into cash:
(B)(1) The readily marketable collateral is in the possession or control of the security-based swap dealer; or
(2) The security-based swap dealer has a legally enforceable, written security agreement, signed by the debtor, and has a perfected security interest in the readily marketable collateral within the meaning of the laws of the State in which the readily marketable collateral is located.
(xvi) The term
(xvii) The term
(b) Every registered security-based swap dealer in computing net capital pursuant to § 240.18a–1 shall comply with the following:
(1)
(i)
(B)
(C)
(
(
(2)
(A) § 240.15c3–1 applicable to the reference asset if § 240.15c3–1 specifies a percentage deduction for the type of asset;
(B) 17 CFR 1.17 applicable to the reference asset if 17 CFR 1.17 specifies a percentage deduction for the type of asset and § 240.15c3–1 does not specify a percentage deduction for the type of asset; or
(C) In the case of an interest rate swap, § 240.15c3–1(c)(2)(vi)(A) based on the maturity of the swap, provided that the percentage deduction must be no less than 1%.
(ii) A security-based swap dealer may reduce the deduction under this paragraph (b)(2)(ii) by an amount equal to any reduction recognized for a comparable long or short position in the reference asset or interest rate under 17 CFR 1.17 or § 240.15c3–1.
11. Section 240.18a–1c is added to read as follows:
Every security-based swap dealer in computing its net capital pursuant to § 240.18a–1 shall include in its computation all liabilities or obligations of a subsidiary or affiliate that the security-based swap dealer guarantees, endorses, or assumes either directly or indirectly.
12. Section 240.18a–1d is added to read as follows:
(a)
(2)
(i) The term “
(ii) The term “
(iii) The term “
(b)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(ii) Notwithstanding the provisions of paragraph (b)(7) of this appendix, the Payment Obligation of the security-based swap dealer with respect to a subordinated loan agreement, together with accrued interest and compensation, shall mature in the event of any receivership, insolvency, liquidation, bankruptcy, assignment for the benefit of creditors, reorganization whether or not pursuant to the bankruptcy laws, or any other marshalling of the assets and liabilities of the security-based swap dealer but the right of the lender to receive Payment, together with accrued interest or compensation, shall remain subordinate as required by the provisions of § 240.18a–1 and § 240.18a–1d.
(9)
(A) Failure to pay interest or any installment of principal on a subordinated loan agreement as scheduled;
(B) Failure to pay when due other money obligations of a specified material amount;
(C) Discovery that any material, specified representation or warranty of the security-based swap dealer which is included in the subordinated loan agreement and on which the subordinated loan agreement was based or continued was inaccurate in a material respect at the time made;
(D) Any specified and clearly measurable event which is included in the subordinated loan agreement and which the lender and the security-based swap dealer agree:
(
(
(
(E) Any continued failure to perform agreed covenants included in the subordinated loan agreement relating to the conduct of the business of the security-based swap dealer or relating to the maintenance and reporting of its financial position; and
(ii) Notwithstanding the provisions of paragraph (b)(7) of this appendix, a subordinated loan agreement may provide that, if liquidation of the business of the security-based swap dealer has not already commenced, the Payment Obligation of the security-based swap dealer shall mature, together with accrued interest or compensation, upon the occurrence of an Event of Default (as hereinafter defined). Such agreement may also provide that, if liquidation of the business of the security-based swap dealer has not already commenced, the rapid and orderly liquidation of the business of the security-based swap dealer shall then commence upon the happening of an Event of Default. Any subordinated loan agreement which so provides for maturity of the Payment Obligation upon the occurrence of an Event of Default shall also provide that the date on which such Event of Default occurs shall, if liquidation of the security-based swap dealer has not already commenced, be the date on which the Payment Obligations of the security-based swap dealer with respect to all other subordinated loan agreements then outstanding shall mature but the rights of the respective lenders to receive Payment, together with accrued interest or compensation, shall remain subordinate as required by the provisions of this Appendix (D). Events of Default which may be included in a subordinated loan agreement shall be limited to:
(A) The net capital of the security-based swap dealer falling to an amount below either of $20 million or 8% of the risk margin amount under § 240.18a–1, or, if the security-based swap dealer is approved to calculate net capital under § 240.18a–1(d), its tentative net capital falling below $100 million, throughout a period of 15 consecutive business days, commencing on the day the security-based swap dealer first determines and notifies the Commission, or the Commission first determines and notifies the security-based swap dealer of such fact;
(B) The Commission revoking the registration of the security-based swap dealer;
(C) The Commission suspending (and not reinstating within 10 days) the registration of the security-based swap dealer;
(D) Any receivership, insolvency, liquidation, bankruptcy, assignment for the benefit of creditors, reorganization whether or not pursuant to bankruptcy laws, or any other marshalling of the assets and liabilities of the security-based swap dealer. A subordinated loan agreement that contains any of the provisions permitted by this paragraph (b)(9) shall not contain the provision otherwise permitted by paragraph (b)(8)(i) of this section.
(c)
(2) Every security-based swap dealer shall immediately notify the Commission if, after giving effect to all Payments of Payment Obligations under subordinated loan agreements then outstanding that are then due or mature within the following six months without reference to any projected profit or loss of the security-based swap dealer, either its net capital would fall below $24 million, its net capital would fall below 10% of the risk margin amount under § 240.18a–1, or, if the security-based swap dealer is approved to calculate net capital under § 240.18a–1(d), its tentative net capital would fall to an amount below $120 million.
(3)
(4)
(i) After giving effect thereto (and to all Payments of Payment Obligations
(ii) Pre-tax losses during the latest three-month period equaled more than 15% of current excess net capital.
Any subordinated loan agreement entered into pursuant to this paragraph (c)(4) shall be subject to all the other provisions of this Appendix D. Any such subordinated loan agreement shall not be considered equity for purposes of paragraph (h) of § 240.18a–1, despite the length of the initial term of the loan.
(5)
13. Section 240.18a–2 is added to read as follows:
(a) Every major security-based swap participant for which there is not a prudential regulator must at all times have and maintain positive tangible net worth.
(b) The term
(c) Every major security-based swap participant must comply with § 240.15c3–4 as though it were an OTC derivatives dealer with respect to its security-based swap and swap activities, except that paragraphs (c)(5)(xiii) and (xiv) and (d)(8) and (9) of § 240.15c3–4 shall not apply.
14. Section 240.18a–3 is added to read as follows:
(a) Every security-based swap dealer and major security-based swap participant for which there is not a prudential regulator must comply with this section.
(b)
(1) The term
(2) The term
(i) Engages primarily in commercial activities that are not financial in nature and that is not a
(ii) Is using non-cleared security-based swaps to hedge or mitigate risk relating to the commercial activities.
(3) The term
(4) The term
(5) The term
(6) The term
(7) The term
(8) The term
(9) The term
(c)
(A) The amount of equity in the account of the counterparty; and
(B) The margin amount for the account of the counterparty calculated pursuant to paragraph (d) of this section.
(ii)
(A) The negative equity in the account calculated as of the previous business day; and
(B) The margin amount calculated under paragraph (c)(1)(i)(B) of this section as of the previous business day to the extent that amount is greater than the amount of positive equity in the account on the previous business day.
(iii)
(B)
(B)
(C)
(D)
(2)
(ii)
(A) Collect from a counterparty cash, securities and/or money market instruments in an amount equal to the negative equity in the account calculated on the previous business day pursuant to paragraph (c)(2)(i) of this section; and
(B) Deliver to a counterparty cash, securities and/or money market instruments in an amount equal to the positive equity in the account calculated on the previous business day pursuant to paragraph (c)(2)(i) of this section.
(iii)
(B)
A security-based swap dealer must collect from a counterparty that is a major security-based swap participant cash, securities, and/or money market instruments as required by paragraph (c)(1)(ii) of this section.
(C)
(3)
(4)
(i) The collateral is subject to the physical possession or control of the security-based swap dealer or the major security-based swap participant;
(ii) The collateral is liquid and transferable;
(iii) The collateral may be liquidated promptly by the security-based swap dealer or the major security-based swap participant without intervention by any other party;
(iv) The collateral agreement between the security-based swap dealer or the major security-based swap participant and the counterparty is legally enforceable by the security-based swap dealer or the major security-based swap participant against the counterparty and any other parties to the agreement;
(v) The collateral does not consist of securities issued by the counterparty or a party related to the security-based swap dealer, the major security-based swap participant, or to the counterparty; and
(vi) If the Commission has approved the security-based swap dealer's use of a VaR model to compute net capital, the approval allows the security-based swap dealer to calculate deductions for market risk for the type of collateral.
(5)
(i) The netting agreement is legally enforceable in each relevant jurisdiction, including in insolvency proceedings;
(ii) The gross receivables and gross payables that are subject to the netting agreement with a counterparty can be determined at any time; and
(iii) For internal risk management purposes, the security-based swap dealer or major security-based swap participant monitors and controls its exposure to the counterparty on a net basis.
(6)
(7)
(8)
(d)
(1)
(ii)
(2)
(e)
(1) Obtaining and reviewing account documentation and financial information necessary for assessing the amount of current and potential future exposure to a given counterparty permitted by the security-based swap dealer;
(2) Determining, approving, and periodically reviewing credit limits for each counterparty, and across all counterparties;
(3) Monitoring credit risk exposure to the security-based swap dealer from non-cleared security-based swaps, including the type, scope, and frequency of reporting to senior management;
(4) Using stress tests to monitor potential future exposure to a single counterparty and across all counterparties over a specified range of possible market movements over a specified time period;
(5) Managing the impact of credit exposure related to non-cleared security-based swaps on the security-based swap dealer's overall risk exposure;
(6) Determining the need to collect collateral from a particular counterparty, including whether that determination was based upon the creditworthiness of the counterparty and/or the risk of the specific non-cleared security-based swap contracts with the counterparty;
(7) Monitoring the credit exposure resulting from concentrated positions with a single counterparty and across all counterparties, and during periods of extreme volatility; and
(8) Maintaining sufficient equity in the account of each counterparty to protect against the largest individual potential future exposure of a non-cleared security-based swap carried in the account of the counterparty as measured by computing the largest maximum possible loss that could result from the exposure.
15. Section 240.18a–4 is added to read as follows:
(a)
(1) The term
(2) The term
(i) Securities and money market instruments held in a qualified clearing agency account but only to the extent the securities and money market instruments are being used to meet a margin requirement of the clearing agency resulting from a security-based swap transaction of the customer; and
(ii) Securities and money market instruments held in a qualified registered security-based swap dealer account but only to the extent the securities and money market instruments are being used to meet a margin requirement of the other security-based swap dealer resulting from the security-based swap dealer entering into a non-cleared security-based swap transaction with the other security-based swap dealer to offset the risk of a non-cleared security-based swap transaction between the security-based swap dealer and the customer.
(3) The term
(i) The account is designated “Special Clearing Account for the Exclusive Benefit of the Cleared Security-Based Swap Customers of [name of security-based swap dealer]”;
(ii) The clearing agency has acknowledged in a written notice provided to and retained by the security-based swap dealer that the funds and other property in the account are being held by the clearing agency for the exclusive benefit of the security-based swap customers of the security-based swap dealer in accordance with the regulations of the Commission and are being kept separate from any other accounts maintained by the security-based swap dealer with the clearing agency; and
(iii) The account is subject to a written contract between the security-based swap dealer and the clearing agency which provides that the funds and other property in the account shall be subject to no right, charge, security interest, lien, or claim of any kind in favor of the clearing agency or any person claiming through the clearing agency, except a right, charge, security interest, lien, or claim resulting from a cleared security-based swap transaction effected in the account.
(4) The term
(i) The account is designated “Special Account for the Exclusive Benefit of the Security-Based Swap Customers of [name of security-based swap dealer]”;
(ii) The account is subject to a written acknowledgement by the other security-based dealer provided to and retained by the security-based swap dealer that the funds and other property held in the account are being held by the other security-based swap dealer for the exclusive benefit of the security-based
(iii) The account is subject to a written contract between the security-based swap dealer and the other security-based swap dealer which provides that the funds and other property in the account shall be subject to no right, charge, security interest, lien, or claim of any kind in favor of the other security-based swap dealer or any person claiming through the other security-based swap dealer, except a right, charge, security interest, lien, or claim resulting from a non-cleared security-based swap transaction effected in the account; and
(iv) The account and the assets in the account are not subject to any type of subordination agreement between the security-based swap dealer and the other security-based swap dealer.
(5) The term
(i) Obligations of the United States;
(ii) Obligations fully guaranteed as to principal and interest by the United States; and
(iii) General obligations of any State or subdivision of a State that:
(A) Are not traded flat and are not in default;
(B) Were part of an initial offering of $500 million or greater; and
(C) Were issued by an issuer that has published audited financial statements within 120 days of its most recent fiscal year-end.
(6) The term
(7) The term
(i) The account is designated “Special Account for the Exclusive Benefit of the Security-Based Swap Customers of [name of security-based swap dealer]”;
(ii) The account is subject to a written acknowledgement by the bank provided to and retained by the security-based swap dealer that the funds and other property held in the account are being held by the bank for the exclusive benefit of the security-based swap customers of the security-based swap dealer in accordance with the regulations of the Commission and are being kept separate from any other accounts maintained by the security-based swap dealer with the bank; and
(iii) The account is subject to a written contract between the security-based swap dealer and the bank which provides that the funds and other property in the account shall at no time be used directly or indirectly as security for a loan or other extension of credit to the security-based swap dealer by the bank and, shall be subject to no right, charge, security interest, lien, or claim of any kind in favor of the bank or any person claiming through the bank.
(b)
(2) A security-based swap dealer has
(i) Are represented by one or more certificates in the custody or control of a clearing corporation or other subsidiary organization of either national securities exchanges, or of a custodian bank in accordance with a system for the central handling of securities complying with the provisions of §§ 240.8c–1(g) and 240.15c2–1(g) the delivery of which certificates to the security-based swap dealer does not require the payment of money or value, and if the books or records of the security-based swap dealer identify the security-based swap customers entitled to receive specified quantities or units of the securities so held for such security-based swap customers collectively;
(ii) Are the subject of bona fide items of transfer; provided that securities and money market instruments shall be deemed not to be the subject of bona fide items of transfer if, within 40 calendar days after they have been transmitted for transfer by the security-based swap dealer to the issuer or its transfer agent, new certificates conforming to the instructions of the security-based swap dealer have not been received by the security-based swap dealer, the security-based swap dealer has not received a written statement by the issuer or its transfer agent acknowledging the transfer instructions and the possession of the securities or money market instruments, or the security-based swap dealer has not obtained a revalidation of a window ticket from a transfer agent with respect to the certificate delivered for transfer;
(iii) Are in the custody or control of a bank as defined in section 3(a)(6) of the Act, the delivery of which securities or money market instruments to the security-based swap dealer does not require the payment of money or value and the bank having acknowledged in writing that the securities and money market instruments in its custody or control are not subject to any right, charge, security interest, lien or claim of any kind in favor of a bank or any person claiming through the bank;
(iv)(A) Are held in or are in transit between offices of the security-based swap dealer; or
(B) Are held by a corporate subsidiary if the security-based swap dealer owns and exercises a majority of the voting rights of all of the voting securities of such subsidiary, assumes or guarantees all of the subsidiary's obligations and liabilities, operates the subsidiary as a branch office of the security-based swap dealer, and assumes full responsibility for compliance by the subsidiary and all of its associated persons with the provisions of the Federal securities laws as well as for all of the other acts of the subsidiary and such associated persons; or
(v) Are held in such other locations as the Commission shall upon application from a security-based swap dealer find and designate to be adequate for the protection of customer securities.
(3) Each business day the security-based swap dealer must determine from its books and records the quantity of excess securities collateral in its possession and control as of the close of the previous business day and the quantity of excess securities collateral not in its possession and control as of the previous business day. If the security-based swap dealer did not obtain possession or control of all excess securities collateral on the previous business day as required by this section and there are securities or money market instruments of the same issue and class in any of the following non-control locations:
(i) Securities or money market instruments subject to a lien securing an obligation of the security-based swap dealer, then the security-based swap dealer, not later than the next business
(ii) Securities or money market instruments held in a qualified clearing agency account, then the security-based swap dealer, not later than the next business day on which the determination is made, must issue instructions for the release of the securities or money market instruments by the clearing agency and must obtain physical possession or control of the securities or money market instruments within two business days following the date of the instructions;
(iii) Securities or money market instruments held in a qualified registered security-based swap dealer account maintained by another security-based swap dealer, then the security-based swap dealer, not later than the next business day on which the determination is made, must issue instructions for the release of the securities or money market instruments by the other security-based swap dealer and must obtain physical possession or control of the securities or money market instruments within two business days following the date of the instructions;
(iv) Securities or money market instruments loaned by the security-based swap dealer, then the security-based swap dealer, not later than the next business day on which the determination is made, must issue instructions for the return of the loaned securities or money market instruments and must obtain physical possession or control of the securities or money market instruments within five business days following the date of the instructions;
(v) Securities or money market instruments failed to receive more than 30 calendar days, then the security-based swap dealer, not later than the next business day on which the determination is made, must take prompt steps to obtain physical possession or control of the securities or money market instruments through a buy-in procedure or otherwise;
(vi) Securities or money market instruments receivable by the security-based swap dealer as a security dividend, stock split or similar distribution for more than 45 calendar days, then the security-based swap dealer, not later than the next business day on which the determination is made, must take prompt steps to obtain physical possession or control of the securities or money market instruments through a buy-in procedure or otherwise; or
(vii) Securities or money market instruments included on the books or records of the security-based swap dealer as a proprietary short position or as a short position for another person more than 10 business days (or more than 30 calendar days if the security-based swap dealer is a market maker in the securities), then the security-based swap dealer must, not later than the business day following the day on which the determination is made, take prompt steps to obtain physical possession or control of such securities or money market instruments.
(c)
(i) The percentage of the value of a general obligation of a State or subdivision of a State specified in § 240.15c3–1(c)(2)(vi);
(ii) The aggregate value of general obligations of a State or subdivision of a State to the extent the amount of the obligations of a single issuer exceeds 2% of the amount required to be maintained in the special account for the exclusive benefit of security-based swap customers;
(iii) The aggregate value of all general obligations of a State or subdivision of a State to the extent the amount of the obligations exceeds 10% of the amount required to be maintained in the special account for the exclusive benefit of security-based swap customers; and
(iv) The amount of funds held at a single bank to the extent the amount exceeds 10% of the equity capital of the bank as reported by the bank in its most recent Consolidated Reports of Condition and Income.
(2) It is unlawful for a security-based swap dealer to accept or use credits identified in the items of the formula set forth in § 240.18a–4a except to establish debits for the specified purposes in the items of the formula.
(3) The computations necessary to determine the amount required to be maintained in the special account for the exclusive benefit of security-based swap customers must be made daily as of the close of the previous business day and any deposit required to be made into the account must be made on the next business day following the computation no later than 1 hour after the opening of the bank that maintains the account. The security-based swap dealer may make a withdrawal from the special account for the exclusive benefit of security-based swap customers only if the amount remaining in the account after the withdrawal is equal to or exceeds the amount required to be maintained in the account pursuant to paragraph (c)(1) of this section.
(4) A security-based swap dealer must promptly deposit into a special account for the exclusive benefit of security-based swap customers funds or qualified securities of the security-based swap dealer if the amount of funds and/or qualified securities in one or more special accounts for the exclusive benefit of security-based swap customers falls below the amount required to be maintained pursuant to this section.
(d)
(2)
(ii)
16. Section 240.18a–4a is added to read as follows:
(2) Debit balances in special omnibus accounts, maintained in compliance with the requirements of section 4(b) of Regulation T under the Act (12 CFR 220.4(b)) or similar accounts carried on behalf of another security-based swap dealer, shall be reduced by any deficits in such accounts (or if a credit, such credit shall be increased) less any calls for margin, marks to the market, or other required deposits which are outstanding 5 business days or less.
(3) Debit balances in security-based swap customers' accounts included in the formula under item 10 shall be reduced by an amount equal to 1 percent of their aggregate value.
(4) Debit balances in accounts of household members and other persons related to principals of a security-based swap dealer and debit balances in cash and margin accounts of affiliated persons of a security-based swap dealer shall be excluded from the Reserve Formula, unless the security-based swap dealer can demonstrate that such debit balances are directly related to credit items in the formula.
(5) Debit balances in accounts (other than omnibus accounts) shall be reduced by the amount by which any single security-based swap customer's debit balance exceeds 25% (to the extent such amount is greater than $50,000) of the broker-dealer's tentative net capital (
If the Commission is satisfied, after taking into account the circumstances of the concentrated account including the quality, diversity, and marketability of the collateral securing the debit balances in accounts subject to this provision, that the concentration of debit balances is appropriate, then the Commission may, by order, grant a partial or plenary exception from this provision.
The debit balance may be included in the reserve formula computation for five
(6) Debit balances of joint accounts, custodian accounts, participations in hedge funds or limited partnerships or similar type accounts or arrangements of a person who would be excluded from the definition of security-based swap customer (“non-security-based swap customer”) which persons includible in the definition of security-based swap customer shall be included in the Reserve Formula in the following manner: if the percentage ownership of the non-security-based swap customer is less than 5 percent then the entire debit balance shall be included in the formula; if such percentage ownership is between 5 percent and 50 percent then the portion of the debit balance attributable to the non-security-based swap customer shall be excluded from the formula unless the security-based swap dealer can demonstrate that the debit balance is directly related to credit items in the formula; if such percentage ownership is greater than 50 percent, then the entire debit balance shall be excluded from the formula unless the security-based swap dealer can demonstrate that the debit balance is directly related to credit items in the formula.
(b) Item 14 shall apply only if the security-based swap dealer has the margin related to security futures products on deposit with:
(1) A registered clearing agency or derivatives clearing organization that:
(i) Maintains security deposits from clearing members in connection with regulated options or futures transactions and assessment power over member firms that equal a combined total of at least $2 billion, at least $500 million of which must be in the form of security deposits. For purposes of this Note G, the term “security deposits” refers to a general fund, other than margin deposits or their equivalent, that consists of cash or securities held by a registered clearing agency or derivative clearing organization;
(ii) Maintains at least $3 billion in margin deposits; or
(iii) Does not meet the requirements of paragraphs (b)(1)(i) through (b)(1)(ii) of this Note G, if the Commission has determined, upon a written request for exemption by or for the benefit of the security-based swap dealer, that the security-based swap dealer may utilize such a registered clearing agency or derivatives clearing organization. The Commission may, in its sole discretion, grant such an exemption subject to such conditions as are appropriate under the circumstances, if the Commission determines that such conditional or unconditional exemption is necessary or appropriate in the public interest, and is consistent with the protection of investors; and
(2) A registered clearing agency or derivatives clearing organization that, if it holds funds or securities deposited as margin for security futures products in a bank, as defined in section 3(a)(6) of the Act (15 U.S.C. 78c(a)(6)), obtains and preserves written notification from the bank at which it holds such funds and securities or at which such funds and securities are held on its behalf. The written notification shall state that all funds and/or securities deposited with the bank as margin (including security-based swap customer security futures products margin), or held by the bank and pledged to such registered clearing agency or derivatives clearing agency as margin, are being held by the bank for the exclusive benefit of clearing members of the registered clearing agency or derivatives clearing organization (subject to the interest of such registered clearing agency or derivatives clearing organization therein), and are being kept separate from any other accounts maintained by the registered clearing agency or derivatives clearing organization with the bank. The written notification also shall provide that such funds and/or securities shall at no time be used directly or indirectly as security for a loan to the registered clearing agency or derivatives clearing organization by the bank, and shall be subject to no right, charge, security interest, lien, or claim of any kind in favor of the bank or any person claiming through the bank. This provision, however, shall not prohibit a registered clearing agency or derivatives clearing organization from pledging security-based swap customer funds or securities as collateral to a bank for any purpose that the rules of the Commission or the registered clearing agency or derivatives clearing organization otherwise permit; and
(3) A registered clearing agency or derivatives clearing organization that establishes, documents, and maintains:
(i) Safeguards in the handling, transfer, and delivery of cash and securities;
(ii) Fidelity bond coverage for its employees and agents who handle security-based swap customer funds or securities. In the case of agents of a registered clearing agency or derivatives clearing organization, the agent may provide the fidelity bond coverage; and
(iii) Provisions for periodic examination by independent public accountants; and
(4) A derivatives clearing organization that, if it is not otherwise registered with the Commission, has provided the Commission with a written undertaking, in a form acceptable to the Commission, executed by a duly authorized person at the derivatives clearing organization, to the effect that, with respect to the clearance and settlement of the security-based swap customer security futures products of the broker-dealer, the derivatives clearing organization will permit the Commission to examine the books and records of the derivatives clearing organization for compliance with the requirements set forth in § 240.15c3–3a, Note G. (b)(1) through (3).
(c) Item 14 shall apply only if a security-based swap dealer determines, at least annually, that the registered clearing agency or derivatives clearing organization with which the security-based swap dealer has on deposit margin related to security futures products meets the conditions of this Note G.
By the Commission.