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Food and Nutrition Service (FNS), USDA.
Final rule, Interim Final Rule.
The Food and Nutrition Service (FNS) is issuing a final rule to amend Supplemental Nutrition Assistance Program (SNAP or Program) regulations to allow State agencies to deny a request for a replacement card until contact is made by the household with the State agency, if the requests for replacement cards are determined to be excessive. State agencies which elect to exercise this authority will be required to protect vulnerable persons, such as individuals with disabilities, homeless individuals or the elderly, who may repeatedly lose their Electronic Benefit Transfer (EBT) cards but are not committing fraud.
FNS is also changing the EBT card replacement timeframes in the same section to require State agencies to make replacement cards available for pick up or to place the card in the mail within two business days following notice by the household to the State agency that the card has been lost or stolen. FNS is further amending its regulations to define the term “trafficking” to include the attempt to buy or sell SNAP benefits in cases where an individual makes the offer to sell SNAP benefits and/or EBT card online or in person.
Finally, FNS is issuing an interim final rule (with a request for additional comment) that requires State agencies to monitor EBT card replacement requests and send notices to those clients who have requested four cards within a 12-month period. The State agency shall be exempt from sending this Excessive Replacement Card Notice if it adopts the card withholding option in accordance with this final rule and sends the requisite Withhold Replacement Card Warning Notice on the 4th replacement card request.
The Food and Nutrition Service, USDA, invites interested persons to submit comments on the interim rule provision § 274.6(b)(6). Comments may be submitted by one of the following methods:
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All comments submitted in response to the interim rule provision will be included in the record and will be made available to the public. Please be advised that the substance of the comments and the identity of the individuals or entities submitting the comments will be subject to public disclosure. FNS will make the comments publicly available on the Internet via
Jane Duffield, Chief, State Administration Branch, Food and Nutrition Service, USDA, 3101 Park Center Drive, Alexandria, Virginia, 22302. Ms. Duffield may be reached by telephone at 703–605–4385.
In this final rule, FNS is amending the SNAP regulations at 7 CFR 274.6, to give State agencies an option for handling requests for multiple replacement cards. Current regulations do not allow State agencies to require clients requesting multiple replacement cards to contact the agency and provide an explanation before a new card is issued, even though such requests may indicate fraudulent activity. Under this rule, State agencies may choose to withhold the benefit card when the client has requested an excessive number of replacements, until the client makes contact with the State agency to provide an explanation for the request. State agencies taking this option would be expected to establish a threshold beyond which the individual must make contact. That threshold may not be fewer than four cards in a 12-month period prior to the request, except in limited circumstances.
Although the intent of the rule is not to systematically affect clients requesting fewer than four cards in a 12-month period, FNS recognizes that State agencies may obtain additional evidence indicating that a household is suspected of potential fraud that may warrant initiating the process sooner. For example, if a State agency receives a complaint that an individual sold their EBT card to another party, the State agency shall initiate an investigation and may promptly provide a notice to the client, requiring the individual or household to contact the State agency to provide an explanation prior to receiving a subsequent replacement card.
FNS established the minimum threshold of four cards within a 12-month period on the basis of an analysis of SNAP EBT electronic transaction records. FNS found that shopping behavior appeared consistent when compared to the average until a household requested its fourth replacement card. Transaction activity indicates that, after the fourth replacement card, a household's shopping behavior is three times more likely to be flagged as potential
Under this option, the State agency must notify the household when the threshold for excessive card replacements is reached, as determined by the State agency, and indicate that if a member of the household requests another card replacement, the State agency will withhold the card until contact is made. The State agency would be expected to contact the fraud investigation unit regarding clients who contact the agency but do not provide an appropriate explanation. The State agency must issue a replacement card during an ongoing investigation. In all cases, States would be required to protect vulnerable persons who lose EBT cards but are not committing fraud.
FNS is further amending 7 CFR 274.6, to change the EBT card replacement timeframes, requiring State agencies to make replacement cards available for pick up or to place the card in the mail within two business days following notice by the client that the card has been lost, stolen, or damaged. Currently, State agencies must ensure clients receive replacement EBT cards within two business days (or five business days if using a centralized mail issuance system) after the client notifies the State agency that the card has been lost or stolen. This change places the requirement on the State agency issuance end instead of the on receiving end of the replacement card process, and alleviates State agencies' responsibility for mail delays beyond their control, while allowing FNS to hold State agencies more accountable for delays within their control.
Additionally, this final rule amends the definition of trafficking to include actions that clearly express the attempt to sell or buy SNAP benefits or EBT cards in person or online through Web sites and social media.
Finally, FNS is issuing an interim final rule provision at 7 CFR 274.6(b)(6), that requires State agencies to monitor card replacement requests and issue Excessive Replacement Card Notices to clients who have requested four card replacements in a 12-month period. The State agency shall be exempt from sending this notice if it chooses to exercise the card withholding option, in accordance with 7 CFR 274.6(b)(5), and sends the Withhold Replacement Card Warning Notice upon the household's fourth card replacement request, indicating that the State agency will withhold a fifth replacement card until the household contacts the State agency.
FNS' decision to issue the interim final rule is based on a comment received in response to the proposed rule. The commenter suggested that the Department propose a method for handling multiple card requests similar to that initiated by North Carolina and recently implemented by the majority of States. The commenter added that the process has proven to be efficient and cost effective for State agencies. FNS agrees with this comment and is, therefore, amending the regulations in the same section, requiring States to monitor and send warning notices to clients who request four card replacements in a 12-month period. Based on current data, the number of clients requesting five or more cards has decreased nationally since many States adopted this practice. Since the majority of States currently monitor EBT card replacement requests and subsequently issue warning notices for four or more requests, FNS does not believe this provision will create a substantial burden for States overall.
The proposed rule was published on May 30, 2012, at 77 FR 31738, and public comments were invited through July 30, 2012. All comments have been considered and adjustments have been made to the final and interim final rule. States administering SNAP are required to administer the Program in accordance with the provisions of the Act and regulations issued pursuant to the Act, including 7 CFR parts 271 and 274.
Failure to comply with the final rule and the interim final rule when they become effective would be subject to appropriate FNS action.
Thirty-six comments to the proposed regulations were received from various stakeholders and are available for public inspection online at
Several commenters suggested that the threshold for card replacements should be applied to individuals, not households, as some households contain more than one person with a card. These commenters further suggested that EBT cards that are never used should not count against the total for replacements. They pointed out that some clients may not use an EBT card because they request a card be mailed but then go to the office and pick up another card before receiving the card in the mail. Another commenter suggested that many first-time users do not understand how to use the card and a grace period in the beginning would benefit those clients. Multiple commenters felt that individuals must be provided notice before reaching the
The terms “individual” and “household” are both used in this rule and serve different purposes. FNS does not intend for this rule to require all members of the household make contact with the State agency before a replacement card can be issued. However, the household must receive the proper notification when the card will be withheld. The household must be aware of why the card is being withheld and understand what they are required to do in order to receive their card replacement. The term “individual” is used regarding the required contact by an individual member of the household. Further, only an individual who has been found guilty through an administrative or court hearing may be disqualified from SNAP, not the entire household, per regulations at 7 CFR 273.16(b)(11). FNS will retain in the final rule that all card replacement requests will count towards the threshold, regardless of the reason for the request.
Some clients may not understand the State's process for how to request replacement cards or how long to expect the card replacement to take. For example, they may not understand that a replacement card is not needed every time the benefits are spent down or that once a card is requested, it may take a few days to receive the replacement. This may create situations where clients request additional cards while they are waiting for a replacement card to arrive. In such cases, the State would be able to determine that there is no suspicious activity and thus no reason to refer the case for a fraud investigation. In these situations, States have an opportunity to follow up with these cases and educate the clients about the appropriate replacement card process or otherwise intercede, such as appointing an authorized representative to help the household manage the EBT card.
FNS believes that it is sufficient to notify the client once when they have reached the excessive card replacement threshold, prior to the State agency withholding the EBT card, and then once they exceed the threshold, at the times the State agency withholds the EBT card. The final rule requires that States implementing the card withholding option must send notices to the most recent address on file for all households who have reached or exceeded the excessive card replacement threshold. The State agency may only request an explanation, provide a 5th replacement card, and if deemed appropriate, refer the case for investigation, after the State agency has sent the written notice to the household that the State agency is withholding the household's EBT card. If the State agency has an over-the counter issuance system in place, and the client comes in to request a 5th replacement card, the State agency must document that the client has first received the written warning notice to withhold the 5th replacement card prior to requesting an explanation from the client, replacing the card, and if deemed appropriate, referring the case for investigation.
States are not required to include a timeframe in the notice because the State can continue to hold the card until the client contacts the State agency. It is up to the client to make the contact in order to receive their replacement card. If the client never makes contact with the agency, the card may be held indefinitely, likely until the client is up for recertification or benefits are expunged according to FNS regulations at 7 CFR 274.2(h).
FNS has also clarified that the notices include information about how the client is to contact the State agency, including a telephone number. It is up to the State agency to determine how the contact should be made, such as in person or by phone, and the State agency must take into consideration those with special circumstances and make accommodations for compliance. FNS feels that notice requirements are adequate for their intended purpose and the notice does not require a statement about what it means to be referred for a fraud investigation. Not all households receiving these notices will be referred for an investigation; some are likely candidates for receiving educational information regarding the proper use of their card. State agencies should provide information on proper EBT card use on the notices. FNS will retain in the final rule the requirement that the State ensures that notices meet language requirements described at 7 CFR 272.4(b).
FNS received several comments suggesting that any explanation provided by the individual that is not evidence of fraud is a satisfactory explanation. Commenters stated that FNS should make clear that the State may only initiate an investigation for fraud when the explanation provides evidence of fraud. One commenter stated that the language is too vague and permissive, and allows eligibility workers to interpret many legitimate explanations as suspicious. Another commenter points to 7 CFR 273.16(a), which states that the disqualification or prosecution process cannot be initiated unless the State agency has sufficient documentary evidence to substantiate fraud.
The final regulation does not specify which client explanations for needing card replacements are suspicious and which are satisfactory. FNS requires States to refer individuals for fraud investigations and conduct investigations on all cases that the State agency has determined suspicious. The State is not required to have evidence in order to conduct an investigation. The purpose of the investigative process is for the State agency to determine if fraudulent behavior occurred, and to gather evidence in order to pursue a disqualification and/or criminal charges where appropriate. If the State cannot gather enough evidence, then the case would not be taken through the administrative disqualification hearing (ADH) process or prosecuted, and no disqualification penalty will be assigned. If the State has gathered enough evidence of an Intentional Program Violation (IPV), the case will be heard by the appropriate authority, who will make a determination as to whether the individual committed an IPV. 7 CFR 273.16(a) does not preclude a State agency from conducting an investigation to collect evidence, rather it specifies that the case may not be taken to an ADH or prosecuted without sufficient documentary evidence—which is gathered during the investigation.
One commenter stated that, if the State provides a replacement card to a household that has made contact but has not provided an explanation for the need to replace the card, the State has rewarded the household for non-cooperation. Another commenter stated that clients will not cooperate or show up because there is no reason to do so, and FNS should revise the rule to allow the State agency to close the case if the recipient fails to keep the interview
FNS does not view the release of the EBT replacement card upon contact with the State agency as rewarding the household for failing to cooperate. This process provides the State agency an opportunity to address the issue with the client to determine if the behavior may be indicative of fraud. In cases where the client does not provide a reasonable explanation for the requests, the State agency must refer the case to the State's fraud investigation unit. This final rule is intended to provide a tool for States to use as a means of assessing these cases of multiple card replacements. It is not intended as a means for a State agency to terminate or close a case.
State agencies may not terminate or close a case where the client has not been found guilty of an IPV through an ADH or a court hearing. Clients have the right to remain silent and have their cases heard by the appropriate authority. Until the client has been found to have committed an IPV, the case may not be closed. This final rule allows the State agency to hold the card until the household makes contact in order to help the State agency determine why they are requesting so many cards. If the client refuses to cooperate by not providing an explanation, this should be taken into consideration and the case must be turned over for an investigation. However, withholding the card until contact is made, regardless of client cooperation, does not affect the client's eligibility for the Program.
One commenter stated that the rule should ensure that States replace cards without any undue delays, such as lengthy waits in State agency offices, lack of access to in-person appointments or inability to reach someone at the State agency by phone. FNS agrees that the State agency must ensure they have a process in place to handle these cases and there is not a delay in issuing the card when the client complies with the requirement to contact the State agency after reaching the excessive card threshold for replacement cards. The regulation has been modified to require State agencies to mail or make the replacement card available for pick up within two business days after the client contacts the State agency to provide an explanation.
FNS received 11 comments requesting guidance be provided for States that use EBT cards for both SNAP and cash assistance. One commenter expressed concerns as some States use EBT cards for SNAP, cash benefits and Medicaid. The commenter stated that if the card is also used to deliver cash aid, such as Temporary Assistance for Needy Families (TANF), it cannot be withheld or delayed unless the cash assistance program provides for this. FNS recognizes the challenge where EBT cards are used for multiple programs and reiterates that the process for withholding the card in these cases is a State agency's option and not a requirement. FNS has conferred with the United States Department of Health and Human Services (HHS), which has responsibility for the TANF Program, and determined there are no TANF rules preventing States from invoking this option. FNS urges State agencies to work with other assistance programs delivered on the State's EBT card, such as Medicaid, to determine solutions that may address this issue. FNS is willing to assist States in this process.
FNS received four comments regarding the increased workload issues, costliness and requirement of massive system changes to implement this rule. These comments expressed that this option will create a lot of work for State agencies, and the agencies will not get much in return for the extra effort. State agencies may choose not to implement this process because they decide it is not a good use of limited State resources.
One commenter is concerned with implementing this rule timely, and the ability or willingness of EBT contractors to make the necessary changes for reports on card replacements. This section of the final rule, allowing State agencies to withhold the EBT card until contact is made, is an agency option designed to provide States with a tool to assist in identifying and disqualifying those who are committing IPVs against SNAP, as well as to educate those who do not understand how to properly use their EBT card. FNS is not requiring State agencies to implement this option and therefore has no requirement for agencies to comply in a timely manner. FNS encourages State agencies that want to exercise this option to meet with their EBT processors to discuss which reports will be useful and identify their needs so that the EBT processors can determine the best way to support this process. Identifying and disqualifying anyone who commits an IPV by requesting multiple card replacements and trafficking SNAP benefits sends a strong message that abuse of the Program will not be tolerated.
FNS received one comment stating that the rule should direct State agencies to inquire whether an individual who repeatedly requests card replacements needs some accommodation and to investigate the feasibility of allowing restrictions on recipients with disabilities to only use their EBT cards in certain stores. FNS received five comments that the rule should provide much more detail about what the State agency should do to protect victims of crime, the homeless and persons with disabilities. One commenter was concerned that a State agency may require only in-person meetings to get information about excessive card replacements, thus placing severe hardship on the elderly and disabled. Another commenter was concerned about the noticing requirements to the homeless population, making this difficult and impractical to apply equitably to them. Another commenter stated that the homeless should not be excluded from providing an explanation for excessive requests for card replacements. These comments suggested that FNS should provide guidance on specific steps to protect vulnerable populations and the definition of vulnerable population should be expanded to include other groups, such as illiterate populations and victims of domestic violence.
FNS expects that State agencies will work to ensure no undue hardships are placed on the elderly or disabled and the accommodations State agencies typically make available to comply with federal regulations will also be made available for them if a State agency invokes this option. The Agency thinks the rule is sufficiently clear in this regard. FNS does not have the legal authority to restrict or limit card usage to certain authorized retailers. This option to withhold the card is a tool for State agencies to monitor the integrity of the Program and FNS expects State agencies will follow all existing requirements and regulations if they choose to exercise this option.
The State agency should make every effort to reach those clients who are known to be homeless and to take that circumstance into consideration when these clients reach their card threshold. For example, if a State agency suspects that the client is in a vulnerable status group such as the elderly, disabled, or homeless and needs additional accommodation, the State agency may choose to contact the client for purposes of collecting information for the card replacement option; however, the State agency must still send a warning notice to the most recent address on file prior to requesting an explanation and providing the 5th EBT card replacement. Some State agencies also allow clients who do not list an address to pick up their notices in the local office. State agencies may opt to give written notice to homeless clients and
State agencies should take the household's circumstances into account when considering their explanation for needing multiple replacements. The regulation, as written, encompasses other vulnerable populations, such as those who are illiterate, those with language barriers and victims of domestic violence, which allows for State agencies to make a determination as they become aware of a client's circumstance. FNS has removed references that suggest that contact must be made by phone or in-person. While phone and in-person contact is acceptable, this will provide State agencies the flexibility to offer other contact options to those with special circumstances.
Several comments asked for FNS to clarify what sufficient additional evidence they would need to provide to warrant withholding a card sooner than the threshold. A commenter also stated that the evidence be specific to the individual, rather than a characteristic that they may share with others, such as residency or the food store where they shop. There are many circumstances a State may become aware of that would make them want to take action sooner. State agencies may in fact receive evidence that direct them to a particular household based on activity by one household member or transactions conducted at a store under suspicion of trafficking. A State agency may receive a complaint indicating that a client is selling their card for cash and then requesting a replacement card. Or a State agency may flag a client based on suspicious transaction activity that is indicative of trafficking. Some clients may already be under investigation and the State agency may already have additional evidence in their case when the client makes another card request. These are examples of cases where the State agency has additional evidence that may warrant noticing the client sooner than the determined threshold. By determining four cards within a 12-month period as excessive, FNS is providing State agencies with its expectation of how to respond systematically. The minimum threshold is not intended to preclude a State agency from initiating the process sooner for individual households if they have additional evidence that warrants doing so, to ensure that potential trafficking situations are identified and acted upon quickly.
FNS received four comments that interrupting the household's access to benefits by delaying or denying a replacement card would deny the household its right to a predetermination hearing under 7 CFR 273.15, section 11(e)(10) of the Act, and due process clauses as interpreted by
FNS does not agree that the rule fails to provide due process. FNS currently allows State agencies the choice to make cards available to clients either by coming to the office to pick them up or by mail. While most State agencies use a central mail process to issue cards, there are agencies which only use the over-the-counter method for issuing cards to clients. Other State agencies use the over-the-counter method but will mail cards in special circumstances. This has always been a State agency's option and FNS does not consider the over-the-counter method as interrupting a household's access to benefits or violating due process requirements. The cards and benefits are available for the client once the card is made available pursuant to current regulations at 7 CFR 274.6(b). Similarly, when the State agency chooses to withhold the card until the client makes contact, those agencies must make the card available, pursuant to 7 CFR 274.6(b) in this final rule, to the client once the client makes the required contact. Furthermore, as stated earlier, eligibility remains unaffected by this process. The benefits the household has been determined eligible to receive are made available on the EBT card as long as the household remains eligible and the client has access to the card by making the required contact with the State agency. Therefore, because the withholding of a replacement card in accordance with this final rule is not an adverse action, Section 11(e)(10) of the Act and 7 CFR 273.15 do not apply.
Commenters also stated that there is the possibility of coercion because the threat of delay of benefits forces someone to incriminate themselves. FNS does not believe that this would be coercion because the client is not required to provide an explanation in order to receive their card. The card will be given to the client regardless of their willingness to answer questions or otherwise cooperate beyond making contact. State agencies are expected to clearly explain in their notice to clients that clients must contact the State agency but that they are not required to provide an explanation in order to receive a replacement card. Notices to clients should explain that the process is being used to yield useful, accurate information and will not be used in a way that might harass or coerce clients into making false statements.
FNS received one comment stating that the commenter was unclear how withholding the card improves trafficking prevention if FNS has the ability to track EBT data. By withholding the card, FNS believes it provides the State agency with the necessary tools to obtain sufficient information from a household in order to determine the nature of the excessive card replacement requests. This information allows the State agency to better determine whether the request is legitimate and indicates a need to educate the household on how to better manage their EBT card, or that an explanation is suspicious and warrants a referral for investigation.
Another commenter asked that further clarification should be provided concerning the analysis used to determine the four card threshold. FNS determined the minimum threshold of four cards within a 12-month period based on the fact that 98 percent of households use three or fewer cards within a year, with most (79 percent) using only one card.
Also, for those that exceed the fourth replacement card, their transaction activity is three times more likely to be flagged as trafficking by FNS' fraud detection system.
FNS received one comment that the rule is restrictive since State agencies are unable to make contact for subsequent replacement requests beyond the threshold level unless the pattern has changed. The commenter suggests that each person is limited to one call or visit to explain the circumstances for the request and this does not do much to deter fraud. If the State agency has spoken with the client or conducted an investigation and found no evidence of fraud, the agency may not continue to withhold that card. However, the State agency should continue to monitor additional card requests, and if the household continues to request additional cards and the pattern of card activity changes to indicate possible trafficking behavior, the State agency may notify the household that the State agency is withholding the EBT card and that the household must contact the State
FNS received multiple comments referencing the rule is too lenient and allowing four cards is too many. As noted above, the minimum threshold is based on an analysis by FNS of electronic transaction data, which demonstrates a statistically significant difference when a household requests a fourth replacement card indicating that transaction activity is three times more likely to be flagged as potential trafficking, compared to clients with three or fewer replacement cards. As the intent of the rule is to further strengthen program integrity, FNS believes that the threshold of four cards within a 12-month period is appropriate. However, FNS acknowledges that State agencies may want to initiate the process sooner if they have additional evidence that a household is suspected of trafficking, thus the final rule maintains this provision.
In new paragraph 7 CFR 274.6(b)(6), FNS has included a requirement in this interim rule that State agencies monitor requests for EBT card replacements and send a Excessive Replacement Card Notice to clients who request four cards in a 12-month period. If a client requests a fifth replacement card, the State agency shall refer the case to the State's fraud investigation unit, if they suspect the client is trafficking. If the State agency suspects the client's lack of understanding of how to manage an EBT card is the reason for requesting excessive replacement cards, no referral for investigation is warranted and, therefore, should not be made.
If the State agency chooses to exercise the option to withhold the replacement card until it is contacted by the client, and as long as the threshold used for the initial Withhold Replacement Card Warning Notice is on the fourth card replacement request, the State agency shall be exempt from sending the Excessive Replacement Card Notice, in accordance with 7 CFR 274.6(b)(6)(i). If the State agency chooses the option to withhold the replacement card and uses a threshold higher than the fourth card replacement request for the initial notice, the State agency must send the Excessive Replacement Card Notice upon the fourth card request in accordance with 7 CFR 274.6(b)(6). This interim rule provides a minimum requirement for the contents of the required Excessive Replacement Card Notice. States may contact FNS for specific examples. Paragraph 274.6(b)(6) is being published as an interim final rule in order to provide the opportunity for comment.
The decision to include paragraph 274.6(b)(6) as an interim rule is based on a comment received on the proposed regulation. The comment notes that FNS has touted the North Carolina agency's approach to handling multiple card replacements the State agency sends a letter to any household requesting four or more cards in a 12-month period and if another request is made, refers the case to the State's fraud investigation unit. The commenter added that the model to use a letter to deter excessive card replacements has proven to be very effective and less burdensome for State agencies and should have been reflected in the proposed regulation. FNS agrees with the commenter that the North Carolina agency's model is a reasonable and simple process and is aware that the majority of State agencies are currently issuing notices based on this model.
FNS believes that all State agencies should be monitoring card replacement activity and that the requirement to issue an Excessive Replacement Card Notice, as set forth in this interim final rule, along with the option to withhold a replacement card until the client contacts the State agency, as set forth in the final rule, provide important tools for State agencies to use in monitoring and preventing trafficking of EBT cards. Since the majority of States currently send warning notices to households with four or more replacement card requests, FNS does not believe the noticing requirement will substantially increase the burden for State agencies overall.
Thirteen commenters addressed the provision prescribing a one business day timeframe when State agencies must make a replacement card available for pick up or place a replacement EBT card in the mail instead of when the client must actually receive the EBT card.
Some commenters believed the proposed change is unwarranted and would result in delaying benefits to needy households. Other commenters wanted FNS to require that State agencies replace EBT cards within 7 days when mailing cards instead of requiring that State agencies place the card in the mail within one business day.
Because State agencies do not have control over the length of time it takes the United States Postal Service (USPS) to get replacement EBT cards into the hands of SNAP households, FNS believes that prescribing when States must act on a card replacement request is a better approach to minimize possible delays that are beyond the States' control. In the end, FNS expects that the new provision will better ensure that SNAP households receive their replacement cards within a reasonable amount of time, while also giving FNS greater ability to hold State agencies accountable for delays within their control.
Another commenter felt the proposed requirement for placing the card in the mail within one day is too restrictive because State agencies need more days to investigate and verify instances of identity theft or other possible abuses. Another commenter felt State agencies should be able to determine their own timeframes for mailing or making replacement cards available, depending on the number of replacement cards requested, the reason for the request, and other factors. The commenter added that if the replacement is questionable, but does not prove fraud, the State agency would then be able to extend the timeframe to a longer period so the household is penalized. The proposed rule specifically provides State agencies the opportunity for further investigation, if there have been multiple card replacement requests before having to provide another card. As a result, State agencies now have the ability to delay a card replacement until contact is made for an individual household that meets the threshold for excessive card replacements or whose request is questionable based on available evidence. At the same time, FNS continues to believe clients who have legitimately lost their card or had it stolen must receive a replacement card within a reasonable amount of time to ensure they have access to benefits necessary to meet their dietary needs. Therefore, in an effort to take the different perspectives into consideration, FNS has decided to extend the timeframe by when State agencies must act on card replacement requests that do not meet the criteria for further investigation to two business days instead of one.
Several commenters also requested FNS specifically prohibit the use of bulk mail, indicating that many State agencies use bulk mail postage to reduce costs, which results in delayed mailings as a State agency waits to amass enough items to reach the bulk rate minimum. As a result, bulk mail may not be delivered for several weeks, in contrast to the typical delivery time of 5 days for regular mail. Under the new provision, State agencies must meet the required two-day timeframe for acting on card replacement requests. Therefore, they cannot wait to amass enough
One commenter requested that FNS specifically prohibit mailing Personal Identification Numbers (PINs) with EBT cards, while another commenter asked that both the card and PIN be mailed within one business day. The proposed provision required that State agencies mail EBT cards and PINs in accordance with industry standards. In general, States agencies no longer mail assigned PINs and all provide clients with the ability to select their own PIN through an automated response unit. However, FNS understands that PINs must be mailed separately from EBT cards to prevent theft and fraudulent use of the card and that clients cannot access their benefits without the PIN. Therefore, for those State agencies that mail assigned PINs or provide that option, we are specifically requiring that PINs and cards be mailed separately and PINs be mailed one business day after the card is mailed. This requirement applies to both initial issuance and card replacements.
Several other commenters felt State agencies should be required to explain to the household their options for mailing or picking up a replacement card and the timeframe associated with both. FNS wishes to clarify that State agencies are not required to provide both mailing and pick-up options, nor did FNS propose all State agencies should now offer both options. In general, State agencies rely mostly on one method or the other, providing the alternative option in only special circumstances. Because there are both advantages and disadvantages associated with each option, FNS continues to believe that State agencies are in the best position to decide which option better meets the needs of their SNAP population. Furthermore, training requirements in 7 CFR 274.2(e) already require State agencies to inform all households of the card replacement policies. Therefore, FNS will continue to rely on the existing provision for informing clients of the card replacement timeframes and possible options.
Finally, in response to a comment regarding the timeframes for cards other than those that are lost or stolen, FNS is including damaged cards in the card replacement provision in order to be consistent with related language in other provisions.
In the proposed rule, FNS clarified the definition of trafficking to include the intent to sell SNAP benefits. FNS received numerous comments that the definition of trafficking should use the word “attempt” instead of “intent.” Commenters state that the word “intent” permits State agencies to take action based on what people are thinking and not what they are doing. “Attempt” consists of the intent to do an act, an overt action beyond mere preparation, and the failure to complete the act. FNS also received numerous comments that the definition of “trafficking” should include the word “buy” as well as the word “sell”. FNS agrees with both of these comments and has made this change in the final regulation language.
FNS received one comment that the rule should make clear that the party found to have committed an IPV is the individual who violates, or attempts to violate, the Program. Other members of the household, including the head of household, should not be found to have committed an IPV if they are not involved in the activity. FNS agrees with this comment. FNS regulations under 7 CFR 273.16(b)(11) are clear that IPVs are assigned to individuals who are found guilty and not the entire household. FNS expects State agencies to comply with FNS regulations and only the household member who committed the IPV is disqualified from the Program. As this perspective is already clear in regulation, no additional modifications are being made.
FNS received one comment that adding to a definition that already prohibits this behavior is an expansion, not a clarification. The comment further states that USDA already clarified in a policy memo that the regulations already prohibit this behavior. FNS agrees that it is amending the definition of “trafficking” to include the attempt to buy and sell benefits, thus giving State agencies expanded means to target both retailers and recipients who attempt to buy or sell SNAP benefits online or in person.
FNS received five comments regarding eliminating the reference to “coupons.” FNS also received one comment that the definition should include both recipients and retailers. A final rule titled,
This rule has been determined to be not significant and was reviewed by the Office of Management and Budget (OMB) in conformance with Executive Order 12866.
This rule has been reviewed with regard to the requirements of the Regulatory Flexibility Act (RFA) of 1980, 5 U.S.C. 601–612. Pursuant to that review, it has been certified this rule would not have a significant impact on a substantial number of small entities. State agencies that distribute Supplemental Nutrition Assistance Program benefits are the entities affected by this change.
Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public Law 104–4, establishes requirements for Federal agencies to assess the effects of their regulatory actions on State, local and Tribal governments and the private sector. Under section 202 of the UMRA, the Department generally must prepare a written statement, including a cost benefit analysis, for proposed and final rules with “Federal mandates” that may result in expenditures by State, local or Tribal governments, in the aggregate, or the private sector, of $100 million or more in any one year. When such a statement is needed for a rule, Section 205 of the UMRA generally requires the Department to identify and consider a reasonable number of regulatory alternatives and adopt the most cost effective or least burdensome alternative that achieves the objectives of the rule.
This final rule does not contain Federal mandates (under the regulatory provisions of Title II of the UMRA) for State, local and Tribal governments or the private sector of $100 million or more in any one year. Thus, the rule is not subject to the requirements of sections 202 and 205 of the UMRA.
The Supplemental Nutrition Assistance Program is listed in the
Executive Order 13132, requires Federal agencies to consider the impact of their regulatory actions on State and local governments. Where such actions have federalism implications, agencies are directed to provide a statement for inclusion in the preamble to the regulations describing the agency's considerations in terms of the three categories called for under Section (6)(b)(2)(B) of Executive Order 13132. FNS has considered this rule's impact on State and local agencies and has determined that because the majority of States currently send warning notices to households with four or more replacement card requests, this rule does not have federalism implications under Executive Order 13132. This rule does not impose substantial or direct compliance costs on State and local governments. Therefore, under Section (6)(b) of the Executive Order, a federalism summary impact statement is not required.
This final rule has been reviewed under Executive Order 12988, Civil Justice Reform. This final rule is intended to have preemptive effect with respect to any State or local laws, regulations or policies which conflict with its provisions or which would otherwise impede its full and timely implementation. This rule is not intended to have retroactive effect unless so specified in the Dates section of the final rule. Prior to any judicial challenge to the provisions of the final rule, all applicable administrative procedures must be exhausted.
FNS has reviewed this final rule in accordance with the Department Regulation 4300–4, “Civil Rights Impact Analysis,” to identify and address any major civil rights impacts the rule might have on minorities, women and persons with disabilities. After a careful review of the rule's intent and provisions, FNS has determined that this rule will not in any way limit or reduce the ability of protected classes of individuals to receive SNAP benefits on the basis of their race, color, national origin, sex, age, disability, religion or political belief nor will it have a differential impact on minority owned or operated business establishments, and women owned or operated business establishments that participate in SNAP.
Executive Order 13175, requires Federal agencies to consult and coordinate with tribes on a government-to-government basis on policies that have tribal implications, including regulations, legislative comments or proposed legislation, and other policy statements or actions that have substantial direct effects on one or more Indian tribes, on the relationship between the Federal government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes. In November of 2011 and May of 2013, USDA engaged in a series of consultative sessions to obtain input by Tribal officials or their designees concerning the impact of this rule on the tribe or Indian Tribal governments, or whether this rule may preempt Tribal law. Reports from these sessions for consultation will be made part of the USDA annual reporting on Tribal Consultation and Collaboration.
The Paperwork Reduction Act of 1995 (44 U.S.C. Chap. 35; see 5 CFR part 1320) requires the Office of Management and Budget (OMB) approve all collections of information by a Federal agency before they can be implemented. Respondents are not required to respond to any collection of information unless it displays a current valid OMB control number. This final and interim final rule contains information collections that are subject to review and approval by OMB. Therefore, FNS has submitted an information collection under 0584–NEW, which contains the burden information in the rule for OMB's review and approval. The new provisions in this rule, which increase current burden hours by 8,336 hours, will be merged into Supplemental Nutrition Assistance Program (SNAP) Forms: Applications, Periodic Reporting, Notices, OMB Control Number #0584–0064, expiration date 4/30/2016. These changes are contingent upon OMB approval under the Paperwork Reduction Act of 1995. When the information collection requirements have been approved, the Department will publish a separate action in the
Comments on the information collection in this final and interim final rule must be received by October 21, 2013. Send comments to the Office of Information and Regulatory Affairs, OMB, Attention: Desk Officer for FNS, Washington, DC 20503. Please also send a copy of your comments to Jane Duffield, State Administration Branch, 3101 Park Center Drive, Alexandria, VA 22302. For further information, or for copies of the information collection requirements, please contact Jane Duffield at the address indicated above. Comments are invited on: (1) Whether the proposed collection of information is necessary for the proper performance of the Agency's functions, including whether the information will have practical utility; (2) the accuracy of the Agency's estimate of the proposed information collection burden, including the validity of the methodology and assumptions used; (3) ways to enhance the quality, utility and clarity of the information to be collected; and (4) ways to minimize the burden of the collection of information on those who are to respond, including use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology.
All responses to this request for comments will be summarized and included in the request for OMB approval. All comments will also become a matter of public record.
This rule codifies provisions for State Agencies to issue warning notices to withhold replacement cards or a notice for excessive replacement cards.
The average burden per response and the annual burden hours are explained below and summarized in the charts which follow.
Food stamps, Grant programs-social programs, Reporting and recordkeeping requirements.
For the reasons set forth in the preamble, 7 CFR parts 271 and 274 are amended as follows:
7 U.S.C. 2011–2036.
(6) Attempting to buy, sell, steal, or otherwise affect an exchange of SNAP benefits issued and accessed via Electronic Benefit Transfer (EBT) cards, card numbers and personal identification numbers (PINs), or by manual voucher and signatures, for cash or consideration other than eligible food, either directly, indirectly, in complicity or collusion with others, or acting alone.
(f)
(2) The State agency shall permit SNAP households to select their PIN.
(i) PIN assignment procedures shall be permitted in accordance with industry standards as long as PIN selection is available to clients if they so desire and clients are informed of this option.
(ii) If assigning a PIN by mail in conjunction with card issuance, State agencies shall mail the PIN separate from the card one business day after the card is mailed.
The revision and additions read as follows:
(b)
(4)
(5)
(i) The State agency shall notify the household in writing when it has reached the threshold, indicating that the next request for card replacement will require contact with the State agency to provide an explanation for the requests, before the replacement card will be issued. The State agency shall also notify the household in writing once the threshold has been exceeded that the State agency is withholding the card until contact is made. These notices must:
(A) Be written in clear and simple language;
(B) Meet the language requirements described at § 272.4(b) of this chapter;
(C) Specify the number of cards requested and over what period of time;
(D) Explain that the next request, or the current request if the threshold has been exceeded, requires contact with the State agency before another card is issued;
(E) Provide all applicable information on how contact is to be made in order for the client to comply, such as whom to contact, a telephone number and address;
(F) Include a statement that explains what is considered a misuse or fraudulent use of benefits and the possibility of referral to the fraud investigation unit for suspicious activity.
(ii) Following notification, should another card be requested, the State agency shall require that the household contact the State agency to provide an explanation for the requests. If the client makes contact, the State agency shall make the replacement EBT card available for pick up or place the card in the mail in accordance with § 274.2(f) of this chapter within two business days following household contact with the State agency, regardless of whether or not an explanation was provided.
(A) If a household does not contact the State agency in response to the State agency's notice, the State agency shall not issue a replacement card to the household and the case must be referred for investigation.
(B) The State agency shall educate the client on the proper use of the card if the explanation is deemed appropriate and the State agency shall not require contact upon subsequent requests, unless the pattern of card activity has changed since the initial contact and indicates possible trafficking activity.
(C) The State agency shall refer the individual for investigation in cases where the individual contacts the State agency but refuses to explain the card losses or the explanation provided appears to be indicative of trafficking in accordance with § 271.2 of this chapter. The State agency shall issue a replacement card to any household that makes the required contact so that the household has access to benefits in its EBT account while the investigation is underway and while awaiting a hearing, in accordance with § 273.16(e)(5).
(iii) In all cases, a State agency shall act to protect households containing homeless persons, elderly or disabled members, victims of crimes and other vulnerable persons who may lose EBT cards but are not committing fraud.
(6)
(i) The State agency shall be exempt from sending the Excessive Replacement Card Notice if they have chosen to exercise the option to withhold the replacement card until contact is made with the State agency, in accordance with paragraph (b)(5) of this section, as long as the State agency has chosen to use the minimum threshold, which requires sending the first warning notice on the fourth card replacement request within 12 months. If the State agency chooses to use a threshold higher than the fourth card replacement request, the State agency must send the Excessive Replacement Card Notice on the fourth card request in accordance with this section.
(ii) The State agency shall notify the household in writing upon their fourth card request that their case is being monitored. This notice shall, at a minimum:
(A) Be written in clear and simple language;
(B) Meet the language requirements described at § 272.4(b) of this chapter;
(C) Specify the number of cards requested and over what period of time;
(D) Explain that the transactions of the cardholder's account are being monitored for potential trafficking activity;
(E) Include a statement that explains what is considered a misuse or fraudulent use of benefits and the possibility of referral to the State's fraud investigation unit for suspicious activity.
(F) Provide contact information, including a telephone number, should the household have questions or concerns regarding the notice.
Grain Inspection, Packers and Stockyards Administration, USDA.
Final rule.
The Department of Agriculture's (USDA) Grain Inspection, Packers and Stockyards Administration (GIPSA) is amending the regulations issued under the Packers and Stockyards Act, 1921, as amended and supplemented (P&S Act), to ensure that payments by live poultry dealers and swine contractors to poultry and swine production contract growers are based on accurate weighing of both inputs and outputs. Specifically, we are amending a regulation about scale tickets to reduce redundant wording and to clarify weighing procedures. In addition, we are amending a regulation about reweighing to add swine contractors to the list of firms that must comply, and adding feed to the list of items for which reweighing may be requested. We are also amending two other regulations about weighing livestock and poultry to add weighing processes for feed, to add a specific time limit for weighing poultry, and to add swine contractors to the list of firms that must comply with care and promptness requirements.
S. Brett Offutt, Director, Policy and Litigation Division, P&SP, GIPSA, 1400 Independence Ave. SW., Washington, DC 20250, (202) 720–7363,
GIPSA administers and enforces the P&S Act (7 U.S.C. 181–229, 229c.). Under authority delegated to us by the Secretary of Agriculture (Secretary), we are authorized (7 U.S.C. 228) to make those regulations necessary to carry out the provisions of the P&S Act.
This final rule clarifies existing requirements involving scale tickets and live poultry weighing. Currently, § 201.49 of the regulations issued under the P&S Act, “Requirements regarding scale tickets evidencing weighing of livestock, live poultry, and feed,” contains redundant wording about scale tickets issued when weighing livestock, live poultry and feed. Because the requirements for numbering scale tickets and executing sufficient copies are largely the same for livestock, live poultry, and feed, we are consolidating in this final rule these general requirements into a new § 201.49(a), which is followed by separate specific requirements for livestock, live poultry, and feed. This final rule will require that a zero balance of a scale be recorded and that the time the zero balance was determined be printed on the scale ticket, which is consistent with other weighing regulations involving scale tickets. Additionally, we are removing regulatory language in § 201.108–1, “Instructions for weighing live poultry,” regarding scale tickets that duplicates language in § 201.49. GIPSA believes that these revisions will clarify the requirements that are unique to each commodity and thus prevent confusion caused by the redundant language contained in the current regulations.
In this final rule, we are also clarifying that the “number of the person” who performed the weighing service means the identification number of that individual, not that person's telephone number. In addition, we are clarifying that the regulatory requirement for recording the license number of the truck and trailer applies to situations involving weighing separately the truck or the trailer, or both together. We are also making consistent throughout § 201.49 language about license numbers or other identification numbers of trucks and/or trailers.
We are adding “swine contractors” to the list of firms required to comply with § 201.76, “Reweighing” We are also adding “feed” to the list of items that must be reweighed upon request by any authorized representative of the Secretary.
We are amending § 201.82(a), “Care and Promptness in Weighing and Handling Livestock and Live Poultry”, to add “swine contractors” in the list of firms required to comply with this regulation. Presently, § 201.82(b) requires that live poultry dealers purchasing poultry under growout contracts obtain the gross weight for each load of poultry immediately upon arrival at the processing plant. This final rule will add a sentence to the end of § 201.82(b) to require that the weighing process begin without delay, and to establish the time period within which live poultry dealers must complete the weighing process. We are also amending § 201.82(b) to clarify that this section applies whenever the weight of live poultry is a factor in calculating payment to the grower. Finally, we are adding a new paragraph (c) to § 201.82 to prohibit the use of split transport trailer loads by live poultry dealers. Split loads of live poultry are loads containing flocks from more than one grower. We believe that prohibiting split loads will prevent live poultry dealers from failing to weigh each grower's flock promptly. The failure by a live poultry dealer to weigh poultry promptly can result in weight loss, injury, death or other avoidable losses to a poultry grower.
We are amending § 201.108–1 of the regulations, “Instructions for Weighing Live Poultry”, to require additional procedures to ensure accurate weighing. We are also adding the term “feed” to the title of this section. In addition, we are amending § 201.108–1 to include the weighing of picked up feed in addition to the weighing of live poultry. In this final rule, we are also adding new procedures for weighing unused feed picked up from one or more poultry growers in a single load, including requirements for operating and maintaining onboard weighing systems and onboard weighing tickets. This final rule will ensure that unused feed is accurately weighed. GIPSA has found that failure to weigh unused feed by the live poultry dealer, or failure to use appropriately calibrated equipment, can result in inaccurate estimates of weight and inaccurate payment to the grower. Both feed (inputs) and live poultry (outputs) must be weighed accurately in order to ensure that growers are compensated fairly.
GIPSA believes that this final rule will ensure the fair and accurate weighing of feed, poultry, and livestock. There will be less potential for live poultry dealers and swine contractors to engage in unfair and deceptive practices by delaying the weighing of livestock, using scales incorrectly or inaccurately, or denying requests for reweighing.
On February 11, 2008, GIPSA published a notice of proposed rulemaking in the
We received seven letters from commenters that supported our proposed amendments and asked that we help protect poultry growers' investments. Specifically, the commenters asked that we ensure (1) that poultry and feed are weighed properly and (2) that poultry growers are allowed to watch as their birds are being weighed without fear of retaliation by the live poultry dealer. We believe that the first issue raised by the commenters was addressed adequately in our proposed amendments to § 201.49, § 201.76, § 201.82, and § 201.108–1. The second issue raised by these commenters is addressed in § 201.108–1(e)(4) of the current regulations, which has been redesignated as § 201.108–1(e)(3) in this final rule. Currently, § 201.108–1(e)(4) states, in part, that poultry growers, live poultry dealers, sellers, or others having legitimate interest in a load of poultry are entitled to observe the balancing, weighing, and recording procedures. A weigher shall not deny such persons that right or withhold from them any information pertaining to the weight.
It is GIPSA's position that the phrase “others having a legitimate interest in a load of poultry” includes (but is not limited to) members of the poultry grower's immediate family, agent(s), representative(s), employee(s), or business associate(s). Because we did not propose an amendment to the language of current § 201.108–1(e)(4) of the regulations, however, we are making no changes to this final rule based on these comments.
We received an additional 13 comments from poultry growers and
Sections 201.49, 201.76, 201.82 and 201.108–1 of the current regulations do not address the number of tare weights that must be taken for each load or when tare weights must be taken. Because we did not propose changes to the number of tares taken for each load or the time-frame within which tares are taken, the issue raised by these comments is beyond the scope of our proposed rulemaking. The last sentence of proposed § 201.82(b), however, referred to the “completion of the weighing process” when describing the process of obtaining the gross load weight and not the entire weighing process for a load. We believe that this sentence may have led some people to believe that we were referring to the process of obtaining the net load weight. We will therefore clarify our requirement for “immediately” obtaining the gross weight for poultry in § 201.82(b) of the final rule to mean that the process of obtaining the gross weight must not exceed 30 minutes following arrival at the scale normally used for such weighing. To make clear that the last sentence of § 201.82(b) pertains only to obtaining the gross weight of loads and not the entire weighing process, GIPSA will modify this sentence in this final rule to read as set forth in the regulatory text of this rule.
Twelve of the 13 commenters agreed that copies of scale tickets must actually be provided to all parties to the transaction. To clarify the final rule, we are replacing the language requiring growers, purchasers, sellers, and live poultry dealers “be furnished” with scale tickets currently in § 201.49(b)(11) and § 201.49(c)(2) with language in § 201.49(a) “Sufficient copies must be executed and provided to all parties to the transaction.” This retains requirements that livestock producers and poultry growers be provided hard copies of their scale tickets.
One of the 12 commenters also suggested that GIPSA require that all parties be provided scale ticket copies immediately, before any change occurred in the weight due to fluctuations in temperature or truck/trailer maintenance. Sections 201.73–1(e)(4) and 201.108–1(e)(4) of the current regulations under the P&S Act require that weighers permit anyone having a legitimate interest in livestock or poultry to observe the balancing, weighing, and recording procedures for the livestock or poultry. Livestock or poultry producers may request that the weigher provide them with a copy of the scale ticket for their livestock or poultry at the time of weighing. Since the temperature would primarily affect the weight of the animals, we believe that our requirement for obtaining the gross weight within 30 minutes of arrival adequately addresses concerns regarding loss in animal weight due to temperature.
With regard to the comments on maintenance work, except for emergencies, live poultry dealers do not perform maintenance or repair work on trucks or trailers in the time between taking the tare and gross weights. Typically, truck repair and fabrication work does not take place near areas where live poultry is handled. Because unscheduled maintenance and repair work on trucks and trailers can result in costly delays to the operations of the processing plants, we do not believe that this is either a significant or a recurring problem in the industry, and are therefore making no change to this final rule based on this comment.
The 13 of these commenters further recommended that we require live poultry dealers to disconnect trailers from the trucks before obtaining gross and net weights. Many live poultry dealers weigh trucks and trailers before leaving the plant, prior to loading the poultry, and use a mathematical formula to account for fuel use during the trip. The commenters said that they would accept weighing of the truck and trailer together if differences in fuel levels were accounted properly. Since our investigators routinely examine fuel formulas to verify proper fuel adjustments, and we have not found that a significant or recurring problem exists in this area, we are making no change to the final rule based on these comments.
The 13 commenters also requested that, for the accurate weighing of poultry, we require that scales be balanced before every load, instead of once per day. Our proposed amendment to § 201.108–1(a) requires that scales be balanced each day before weighing begins and then verified throughout the day prior to each weighing of poultry or feed. Our proposal also requires that the weigher verify that the scales register a zero balance upon returning to the scales following his/her absence from the scale. We believe that our use of the word “verified” may have been understood to mean a visual check of the balance condition of the scale made without documentation of the balance condition. Therefore, in this final rule, we are deleting the word “verified” from the second sentence of § 201.108–1(a)(1), and revising it to state that the scale is to be balanced at the time any poultry or feed is weighed. We are also merging the third sentence with the contents of the second sentence in the same section to make clear that documentation of the zero balance and the time and date of balancing must be done at the time any poultry or feed is weighed. By adding the contents of the third sentence to the second sentence, we are deleting the phrase “or its zero balance shall be verified” to make it clear that we are requiring scales be balanced and that the balance condition be documented for every instance that a load of poultry or feed is weighed, and not just once per day. We are also making similar revisions to § 201.108–1(c)(1)(v)–(c)(1)(vi) in this final rule for the same reason.
All 13 commenters asked that we not permit the delivery of split loads of feed (feed for more than one grower on a single truck) unless the truck has an on-board scale and weighing system, specifically when feed is taken from one farm directly to another. Currently, § 201.55(a) of the regulations requires that the actual weight be obtained for all feed delivered to a livestock or poultry grower. This means that live poultry dealers and swine contractors may either weigh and place feed on a truck in a separate bin for each producer or grower, or use a truck with an on-board scale and weighing system, when delivering feed to multiple producers or growers. Although the current regulations allow mutually agreed upon estimated weights be applied to feed that is picked up from a grower, that same feed may not be delivered to another farm on the basis of estimated weight according to § 201.55(a) and (b) because actual weight is required. Feed picked up from one livestock producer or poultry grower must be weighed on a certified scale (via an on-board system or otherwise) before being delivered to another producer or grower. Because we are not requiring that live poultry dealers or swine contractors use on-board systems, we are making no change to this final rule based on these comments.
Thirteen additional individuals representing four poultry companies, four poultry associations and one lending institution responded to the proposed rule. The following discussion addresses their comments.
Two commenters stated that their firm would have to employ someone to program the firm's computer system to print a zero balance scale ticket. They also stated that their poultry firm would need to hire a dispatcher if a zero balance had to be printed prior to loading. Presently, the company's feed truck drivers confirm visually that a feed scale registers a zero balance on a “scoreboard” before driving the truck onto a scale. The driver then immediately records in writing his/her visual observation of the scale's zero balance.
In the proposed rule, we added a sentence to § 201.108–1(a)(1) requiring that the time and date the empty poultry or feed scale was balanced be mechanically printed on the scale ticket or other basic transaction record along with the zero balance. We are adding similar wording to § 201.49, which provides the requirements for recording evidence of livestock, live poultry, and feed weighing. GIPSA believes that hand recorded notes used to verify the zero balance of weight scales are undependable and should not be relied upon in determining payment to a livestock producer or poultry grower.
One live poultry dealer argued that documenting the time and date of zero balances was sufficient and did not see the need to print a zero balance on the scale tickets. As we stated previously, hand written notes used to verify the zero balance of weight scales are undependable and should not be relied upon when determining payment to a livestock producer or poultry grower. GIPSA believes that livestock producers and poultry growers cannot reasonably be assured that a scale was balanced properly prior to the start of the weighing process unless a zero balance is printed mechanically on the scale ticket. We estimate there are about 230 feed scales in the U.S. that are used to weigh feed for delivery to livestock producers or poultry growers. Based on GIPSA's industry experience, 30 percent or more of all feed scales can print a zero balance on the same scale ticket as the tare and gross weight amounts.
Costs involved in bringing the other 70 percent of printers into compliance may vary. Some systems may require minor alteration to permit the printer to print a zero balance on the scale ticket along with the tare and gross weight. Other systems may require a reprogramming of the computer system controlling the printer. In these cases, an independent scale company will likely have to do the reprogramming. In some cases the manufacturer will likely have to do the reprogramming. In researching this issue, we contacted six scale manufacturers, two scale software program developers and two scale dealers that also upgrade and service existing livestock, poultry and feed scales. All are prominent in their field and operate on at least a national, if not international level. They estimated that the cost to modify scale settings or alter a scale program would generally vary in a range of a few hundred dollars for the time and effort involved in having a scale dealer make on-site adjustments. If individual scales require new programming to print the zero balance on the same ticket as the tare and gross, the scale manufacturers estimated that the costs could range from $1,000 to $3,000. Software developers estimated that costs could range from $2,000 for a partial reprogramming to $5,000 to $10,000 for a full reprogramming. Among all the firms as a whole, $1,500 appeared to be a reasonable overall average cost. If this is the case, GIPSA estimates that the total cost to the industry would be approximately $362,250. We believe that this cost is negligible in comparison to the overall annual volume of poultry produced in the U.S. (more than 43 billion pounds in 2012).
Another live poultry dealer stated that it would not be feasible to print zero balances between obtaining the tare weight and the gross weight for feed placed on a load. In addition, a swine trade association asked that we clarify what we mean by “zero balance for both the tare and gross weights” for feed scale tickets. In our proposed rule, we proposed amending § 201.49(d)(5) to require that scale tickets showing the weighing of feed include “the zero balance for both the gross and tare, when applicable.” In our proposal, we did not intend to require separate zero balances between obtaining each tare weight and each gross weight, nor did we intend to require a zero balance between obtaining tare and gross weights of feed when the truck and trailer do not move off the scale once the tare weight is obtained and loading begins. Weighers must ensure that the certified scale registers a zero balance prior to beginning the weighing process. Typically, one zero balance documented on a scale ticket along with the tare and gross weight for the grower or truckload is sufficient. If the truck is moved from one scale to another scale to complete the weighing process a separate zero balance must be recorded for the tare and gross weights. Once the scale registers a zero balance, a truck/trailer may be driven onto the scale to obtain the tare or gross weights of the truck/trailer and the load. Again, GIPSA believes that the beginning zero balance, along with the tare and gross weights of the load, must be printed on the scale ticket so that livestock producers and poultry growers have documentation of the zero balance condition of the scale at the time that the weighing process occurred.
Given the preceding discussion, GIPSA will delete the phrase “for both the gross and tare” from § 201.49(d)(5) in this final rule, stating only that a zero balance must be printed on the scale ticket or other basic transaction record. There will be one exception made in this final rule, however, for vehicle scales when feed for more than one producer or grower is loaded into a multi-compartment feed truck. In this case, the gross weight of the feed for the initial producer or grower may be used as the tare weight for the feed loaded for the next grower. This process must be repeated until the loading of feed into the truck is complete. A zero balance must appear on the scale ticket or basic transaction record for the first load of feed, but not on the ticket or record for subsequent loads of feed on the same truck. We will add wording to § 201.49(d)(5) in this final rule to address this exception. Since these changes address all the situations where printing the zero balance for both the tare and gross might not be applicable, we are also deleting the phrase “when applicable” from § 201.49(d)(5) and § 201.49(d)(6) in this final rule.
In § 201.49(a) of the proposed rule, we required that unused and partially executed scale tickets be secured under lock or made inaccessible to other parties, which is a general rule applicable to livestock, poultry and feed scales. One comment received from a poultry company stated, however, that feed truck drivers are often weighers and must weigh their own loads. Drivers come and go from feed mills at any time of day and therefore, the scale tickets must be readily accessible to those drivers each day. The commenter stated that unused tickets secured in a locked compartment or in an area inaccessible to other parties is impractical. We believe that unused scale tickets must be secured to prevent unauthorized access and/or theft. Feed mills, however, typically restrict access to
We received a comment submitted by a trade association that focused on our proposal to amend § 201.49 to require that scale tickets for feed weight also show the name and address of a livestock producer. The trade association said that swine contractors often use assumed names for producers on the scale tickets that do not identify the producer by name. Because the true name of a producer can be determined from the swine contractor's business records, the trade association preferred that we allow the use of common names. We currently allow the use of assumed names, codes or numbers on scale tickets that reveal the identity of sellers and buyers of livestock, provided that the formal names can be accessed from the records of the issuer of the tickets. Under these circumstances, we will therefore revise § 201.49(d)(2) in the final rule by adding the phrase “. . . or a designation by which they may be readily identified.” For consistency, we will also add this same phrase to the end of § 201.49(c)(3) in the final rule.
The trade association also stated that the requirement that scale tickets contain the location of the scale (proposed § 201.49(c)(5) & (d)(4)) is imprecise. They suggested we specify that we meant the address and physical location of a scale, especially if there is more than one scale at that address. To address this concern, we will modify § 201.49(d)(4) in this final rule to require that scale tickets show “The city and state in which the scale is located, and, if a facility has more than one scale on which feed is weighed, the identity of the scale.” For consistency, we will revise similarly proposed § 201.49(c)(5) in this final rule. We believe these revisions sufficiently allow GIPSA personnel to locate the scale that produced a specific scale ticket.
The trade association further stated that some automated pork slaughtering plants do not have employees present to physically operate the monorail scale. They stated that the slaughtering plant employee who checks for the producer identification number tattooed on the carcass is the closest to a scale operator that many automated pork plants have. Section 201.49(a)(7) of the current regulations requires that weighers be identified on scale tickets. This requirement pertains to the weighing of all livestock when being weighed for purchase or sale, etc., whether in automated pork plants or elsewhere. We agree with this comment, however, and will add wording to § 201.49(b)(7) in this final rule exempting automated livestock slaughtering plants from the requirement that scale tickets show the name, initials, or identification number of a weigher.
In the proposed rule, GIPSA added the terms “swine contractors” and “feed” to § 201.76 of the regulations. The trade association said that it would not be feasible to reweigh picked-up feed, feeder and weaner pigs and hog carcasses. They cited the impractical aspects of reweighing feed and pigs picked up from a grower's farm as well as bio-security concerns involved with hog carcasses in packing plants. Our proposed amendment to § 201.76 requires that swine contractors reweigh only feed and hog carcasses upon the request of GIPSA personnel, not feeder and weaner pigs from a grower's farm. Anytime the weight of delivered or returned feed is determined using a scale or by estimating, and the weight of feed is a factor in determining payment or settlement, GIPSA periodically requires that feed be reweighed to verify contract compliance and ensure proper payment to swine and poultry growers. We have requested the reweighing of hog carcasses at slaughter plants for many years. The carcasses are returned by rail to the hot weight scale before entering the cooler, or the chain is stopped and carcasses are transported back for placement on the hot weight scale for reweighing. This process does not require that carcasses be transported from the coolers to the hot weight scale. We believe that this process therefore eliminates the bio-security concerns raised by the trade association. Because the established reweighing procedures allow our personnel to verify that the weighing procedures used by swine contractors to weigh pigs and feed typically report weights accurately, we are making no change to the final rule based on the comment.
Further, in the preamble of our proposed rule, we also stated that “. . . feed for each grower be weighed on a certified scale and that a scale ticket be generated at the time the feed is picked up from each grower, before proceeding to another grower to pick up unused feed.” (73 FR 7687) While this statement was correct, the statement caused commenters to question whether we were changing the procedures for collecting and weighing unused feed returned from poultry growers, which is covered by § 201.55 of the current regulations. In the preamble of our proposed rule, we addressed general procedures for weighing feed and for weighing feed being delivered to poultry growers. The only proposed amendment that specifically concerned unused feed is § 201.108–1(d)(3) and pertains to the printing of scale tickets when onboard weighing systems are used to pick up unused feed. Because the comments did not take issue with the proposed amendments to § 201.108–1(d)(3), however, we are making no changes in this final rule.
While there were several comments from poultry company representatives regarding the handling of unused feed that is not picked-up from growers, there are no regulations under the P&S Act that cover the handling of unused feed that is left on a farm. Because this issue is not addressed in our proposed amendments to the regulations, we are making no change to the final rule.
In § 201.108–1(a) of the final rule, we are also replacing the term “shall” with the term “must” everywhere the term “shall” appears in to make the terminology in § 201.108–1(b)(5) consistent with plain language guidelines. We are also deleting from the final rule the last sentence of proposed § 201.108–1(c)(1)(v), which reads “Further, the hopper must be empty and balanced at zero prior to each weighment.” With a hopper scale, it is possible that as many as 8 different printed weights can exist for an individual grower; therefore, there is no need for a zero balance between individual hopper loads for one grower. This sentence was part of an original draft of the regulatory text and inadvertently published as part of the proposed rule when it should not have been. In addition, in the first sentence of proposed § 201.49(b), the phrase “live or” was inadvertently deleted and will be added to the final rule for clarity. In proposed § 201.49(b), the word “by” in the phrase “by designation” is being deleted from the final rule for clarity since it redundant. Finally, in the third sentence of proposed § 201.82, the phrase “the gross weight includes, but is not limited to” is being revised in the final rule for clarity to read “the gross weight, which may include, but is not limited to . . . .”
The Office of Management and Budget designated this rule as not significant for the purposes of Executive Order 12866.
We have determined that this final rule will not have a significant economic impact on a substantial number of small entities as defined in the Regulatory Flexibility Act (5 U.S.C. 601–612). An initial regulatory flexibility analysis as described in 5 U.S.C. 605 of the Regulatory Flexibility Act is not required or provided here. This final rule directly affects companies in contractual relationships with swine production contract growers and poultry growers. Most of these entities are slaughterers and processors of swine or poultry with more than 500 employees and do not meet the applicable size standards for small entities presented in the Small Business Administration regulations (13 CFR 121.201). To the extent that this final rule does affect small entities, it will not impose substantial new expenses or changes to routine operations.
GIPSA believes that small swine production contract growers and poultry growers will benefit directly from this final rule, which will provide accurate and fair weighing of their inputs and outputs.
We have considered the effects of this final rule under the Regulatory Flexibility Act and we believe that it will not have a significant impact on a substantial number of small entities.
This final rule has been reviewed under Executive Order 12988, Civil Justice Reform. This final rule is not intended to have a retroactive effect. This final rule will not pre-empt State or local laws, regulations, or policies, unless they present an irreconcilable conflict with the amendments in this rule. The provisions of this final rule will not require administrative procedures be exhausted prior to judicial challenges.
This final rule has been reviewed with the requirements of Executive Order 13175, Consultation and Coordination with Indian Tribal Governments. This rule will not have substantial and direct effects on Tribal governments and will not have significant Tribal implications.
This final rule does not contain new information collection requirements or changes to existing information collection requirements subject to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501
GIPSA is committed to complying with the E-Government Act, to promote the use of the Internet and other information technologies to provide increased opportunities for citizen access to Government information and services, and for other purposes.
Reporting and recordkeeping requirements, Poultry and poultry products, Trade practices.
For the reasons set forth in the preamble, we are amending 9 CFR part 201 to read as follows:
7 U.S.C. 181–229, 229c.
(a) When livestock, poultry or feed is weighed for the purpose of purchase, sale, acquisition, or settlement, a scale ticket must be issued which must be serially numbered and used in numerical sequence. Sufficient copies must be executed and provided to all parties to the transaction. Unused and partially executed scale tickets must not be left exposed or accessible to other parties and, except in feed mills, must be kept under lock when the weigher is not at the scale. In instances where the weight values are automatically recorded directly on the account of purchase, account of sale, or other basic transaction record, this record may serve in place of a scale ticket.
(b)
(1) The name and location of the agency performing the weighing service;
(2) The date of the weighing;
(3) The name of the buyer and seller or consignor, or a designation by which they may be readily identified;
(4) The number of head;
(5) Kind of livestock;
(6) Actual weight of each draft of livestock; and
(7) The name, initials, or identification number of the person who weighed the livestock, or if required by State law, the signature of the weigher, except for an automated weighing system where a weigher is not stationed at the scale.
(c)
(1) The name of the agency performing the weighing service;
(2) The name of the live poultry dealer;
(3) The name and address of the grower or seller, and purchaser, or a designation by which they may be readily identified;
(4) The name, initials, or identification number of the person who weighed the poultry, or if required by State law, the signature of the weigher;
(5) The city and state in which the scale is located, and, if more than one scale is used to obtain the weight of poultry within the same facility, the identity of the scale;
(6) The zero balance for both the gross weight and tare weight;
(7) The date and time zero balance was determined;
(8) The gross weight, tare weight, and net weight;
(9) The date and time gross weight and tare weight are determined;
(10) The number of poultry weighed;
(11) The weather conditions;
(12) Whether the driver was on or off the truck at the time of weighing, if applicable; and
(13) The license number or other identification numbers on the truck and trailer, if weighed together, or trailer if only the trailer is weighed;
(d)
(1) The name of the agency performing the weighing service, or the name and location of the firm responsible for supplying the feed;
(2) The name and address of the livestock producer or poultry grower, or a designation by which they may be readily identified;
(3) The name, initials or identification number of the person who weighed the feed, or if required by State law, the signature of the weigher;
(4) The city and state in which the scale is located, and, if a facility has more than one scale on which feed is weighed, the identity of the scale;
(5) The zero balance;
(6) The date and time zero balance was determined;
(7) The gross weight, tare weight, and net weight of each lot assigned to an individual producer or grower, if applicable;
(8) The date and time gross weight and, if applicable, tare weight, are determined;
(9) The identification of each lot assigned to an individual producer or grower by vehicle or trailer compartment number and seal number, if applicable;
(10) Whether the driver was on or off the truck at the time of weighing, if applicable; and
(11) The license number or other identification numbers on the truck and trailer, if weighed together, or trailer if only the trailer is weighed, if applicable.
Stockyard owners, market agencies, dealers, packers, swine contractors and live poultry dealers must reweigh livestock, livestock carcasses, and live poultry or feed on request of any authorized representative of the Secretary.
(a) Each stockyard owner, market agency, dealer, packer, swine contractor and live poultry dealer must exercise reasonable care and promptness with respect to loading, transporting, holding, yarding, feeding, watering, weighing, or otherwise handling livestock, or live poultry to prevent waste of feed, shrinkage, injury, death or other avoidable loss.
(b) Whenever live poultry is obtained under a poultry growing arrangement and the weight of the live poultry is a factor in calculating payment to the grower, the poultry must be transported promptly after loading. The process of obtaining the gross weight must commence immediately upon arrival at the processing plant, holding yard, or other scale normally used for such purpose. The process of obtaining the gross weight which may include, but is not limited to, fueling, uncoupling the trailer, changing the road tractor to a yard tractor or weighing the trailer only, must be conducted without delay;
(c) Live poultry dealers must not place poultry from multiple growers on a single live poultry transport trailer or other live poultry transport equipment, creating what is commonly referred to as a “split load.”
Live poultry dealers who operate scales on which live poultry or feed is weighed for purposes of purchase, sale, acquisition, or settlement are responsible for the accurate weighing of such poultry or feed. * * *
(a) * * * (1) The scale must be maintained in zero balance at all times. The empty scale must be balanced each day before weighing begins and thereafter the scale must be balanced; and the zero balance, the time and date the empty scale was balanced must be mechanically printed on the scale ticket or other basic transaction record before any poultry or feed is weighed. In addition, the zero balance of the scale must be verified whenever a weigher resumes weighing duties after an absence from the scale.
(c) * * *
(1) * * *
(v) A feed hopper attached to an electronic digital scale must be empty of feed and the electronic digital scale must be balanced at zero prior to first weighment for each grower or per truckload, whichever is applicable. The date and time that the empty hopper scale is balanced with proof of the zero balance must be mechanically printed on the scale ticket or other permanent record that must be attached to the grower's copy of the scale ticket.
(vi) An onboard weighing system must be level and locked in position and zero balanced prior to weighing. The date and time the onboard scale is balanced with proof of the zero balance must be mechanically printed on the scale ticket or other permanent record that must be attached to the grower's copy of the scale ticket. When more than one grower's feed is weighed, the preceding grower's gross weight can be used for the next grower's tare weight, and can be repeated until the unit is full.
(d) * * *
(3) When returned feed from a contract poultry grower is picked up and weighed on an onboard weighing system, the weight of the feed must be recorded and a ticket printed. That weight must be used as the tare weight when feed from another contract poultry grower is picked up on the same load. The procedure must be followed each time another grower's feed is added to the load.
Coast Guard, DHS.
Final rule.
The Coast Guard is revising and updating the Vessel Traffic Service (VTS) regulations in 33 CFR Part 161. The revision makes participation in the VTS in Port Arthur, TX mandatory and expands it to include Lake Charles, LA; consolidates and expands a VTS Special Area in Puget Sound, WA; adds the designated frequencies for the Maritime Mobile Service Identifiers (MMSIs) for Louisville, KY and Los Angeles/Long Beach, CA; and updates the definitions and references in Sailing Plan requirements. The changes made by this rule will align regulations with the current operating procedures of the
This final rule is effective September 20, 2013.
Comments and material received from the public, as well as documents mentioned in this preamble as being available in the docket, are part of docket USCG–2011–1024 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 rule, call or email Mr. Mike Sollosi, Office of Navigation Systems (CG–NAV), Coast Guard; telephone 202–372–1545, email
This final rule is issued, pursuant to the Ports and Waterways Safety Act (PWSA) (33 U.S.C. 1221
This final rule changes VTS Port Arthur from a voluntary compliance system to a mandatory compliance system and also expands the VTS Port Arthur area to include Lake Charles, LA. The Coast Guard decided on this course of action due to the findings of the Port and Waterways Safety Assessments (PAWSAs) that were conducted in Port Arthur, TX in 1999 and in Lake Charles, LA in 2000, which indicated that a VTS is a necessary risk mitigation tool.
Additionally, due to increased vessel traffic in Puget Sound, WA, this final rule modifies and expands the current VTS Special Area to include the waters of Bellingham Bay, western Padilla Bay and the Saddlebag route that is located east of Guemes Island, in the vicinity of Vendovi Island. Those categories of vessels, defined in 33 CFR 161.16 and 161.55, that operate in this single consolidated VTS Special Area will be subject to the VTS Special Area operating requirements of 33 CFR 161.13.
Finally, this rule makes two minor updates to the VTS regulations in 33 CFR 161.12 and 161.19, respectively. The first update adds Marine Mobile Service Identifier (MMSI) numbers for VTSs Los Angeles/Long Beach and Louisville. As described in footnote 1 of Table 161.12(c), an MMSI is a unique nine-digit number assigned to ship stations, ship earth stations, coast stations, coast earth stations, and group calls for use by a digital selective calling (DSC) radio, an INMARSAT ship earth station, or Automatic Identification System (AIS). In short, an MMSI number is essentially a call sign that mariners use to identify those stations. The first update also amends footnote 1 of Table 161.12(c) for the purpose of establishing that the addition of MMSI numbers to VTSs Louisville and Los Angeles-Long Beach does not, through this rulemaking, impose AIS equipment carriage requirements for vessels operating in those areas for the reasons explained under the “Regulatory History” of this preamble. The second update, an edit to Sailing Plan requirements in 33 CFR 161.19, replaces an outdated reference to Dangerous cargo with an updated reference to Certain dangerous cargo, as defined in 33 CFR 160.204.
In the late 1990s, the Coast Guard convened a national dialogue group (NDG) comprised of maritime and waterway community stakeholders to identify the needs of waterway users with respect to Vessel Traffic Management (VTM) and VTS systems. Those stakeholders, representing port authorities, pilots, environmental conservationists, the Coast Guard, and all major sectors of the U.S. and foreign flag shipping industry were tasked to identify the information needs of waterway users to help ensure safe passage, help establish a process to identify candidate waterways for VTM improvements and VTS installations, and identify the basic elements of a VTS. The intent of the NDG was to provide the foundation for an approach to VTM that would meet the stakeholders' shared objective of improving vessel traffic safety in U.S. ports and waterways in a technologically sound and cost-effective way.
A major outcome of the NDG was the development of the PAWSA process, which the Coast Guard established to open a dialogue with waterway users and port stakeholders to help identify needed VTM improvements, and to determine candidate VTS waterways. The PAWSA process provides a formal structure for identifying risk factors and evaluating potential mitigation measures. The process requires the participation of experienced waterway users having local expertise in navigation, waterway conditions, and port safety. In addition, the Coast Guard includes non-maritime industry stakeholders in the process to ensure that important environmental, public safety, and economic considerations are given appropriate attention as risk-mitigation measures are selected.
The Coast Guard has conducted 47 PAWSA workshops in U.S. ports since 1999, when the PAWSA process was developed, including one in Port Arthur, TX, on September 21–23, 1999, and one in Lake Charles, LA, on April 25–26, 2000. The Port Arthur, TX and Lake Charles, LA PAWSA reports are publicly available on the NAVCEN Web
As a result of the Port Arthur PAWSA workshop, which determined that a VTS would provide the greatest potential to mitigate risk in the port, the Coast Guard added Port Arthur to the Port and Waterways Safety System (PAWSS) acquisition project. The PAWSS project's goal was to install a computer-based VTM system in VTS ports. Installation of the VTS system in Port Arthur, TX began in 2004 and finished in February 2006.
Although this rule changes VTS Port Arthur from a voluntary system to a mandatory compliance system for vessels transiting VTS Port Arthur, it does not alter vessel operations nor impose new costs on industry or the Coast Guard because, under 33 CFR 164.46(a)(3), all vessels which would be affected by changing VTS Port Arthur to a mandatory VTS system are already required to be equipped with AIS. Because AIS carriage requirements are the sole cost item for vessels to comply with VTS requirements; have been in force since December 31, 2004; and currently include the VTS Port Arthur area under Table 161.12(c) in 33 CFR 161.12; we have determined that changing VTS Port Arthur to a mandatory VTS will not alter current vessel operations or impose new costs on either the industry or the Coast Guard. This final rule also expands the currently voluntary VTS Port Arthur area to include Lake Charles, LA. The 2000 Lake Charles PAWSA study supported the establishment of a VTS in Lake Charles, LA. Coast Guard data pertaining to commercial vessel activities indicate that commercial vessels that transit the expansion area of Lake Charles, LA also satisfy the AIS carriage requirements established under 33 CFR 164.46(a)(3).
In addition to making participation in VTS Port Arthur mandatory, this final rule consolidates and expands the two VTS Special Areas in Puget Sound, WA. A VTS Special Area is defined in 33 CFR 161.2 as “a waterway within a VTS area in which special operating requirements apply.” The Coast Guard typically institutes a VTS Special Area when geographic or other conditions, such as a concentration of vessels or vessels carrying particularly hazardous cargoes, make a portion of the waterway an inherently dangerous navigational area.
When the federal regulations for vessel traffic services were first implemented in 1994 (59 FR 36316, July 15, 1994), the Coast Guard instituted two VTS Special Areas within VTS Puget Sound. These VTS Special Areas serve to avoid having large vessels impeding, meeting, overtaking or crossing each other in the constricted waters between the San Juan Islands in Puget Sound, WA. In addition to the two existing VTS Special Areas in Puget Sound, special operating requirements have traditionally been issued in the expansion area by VTS Puget Sound due to the relatively restricted nature of these waters. This final rule incorporates the waters of the two existing VTS Special Areas and the waters currently covered by these special operating requirements into a single consolidated VTS Special Area. Because this final rule consolidates existing vessel operating procedures within VTS Puget Sound, the Coast Guard does not anticipate that the expansion of this VTS Special Area will alter current vessel operations or impose new regulatory costs on industry. The consolidation simplifies compliance with these traffic management requirements by consolidating them into one.
On September 10, 2012, the Coast Guard published a notice of proposed rulemaking (NPRM) in the
We did not receive any comments or requests for a public meeting during the NPRM's 90-day comment period that ended on December 10, 2012. After publication of the NPRM, we noticed that the coordinates of the monitoring areas printed in regulations at Table 161.12(c), and §§ 161.55 and 161.70 are formatted inconsistently. In this final rule, therefore, we are reformatting the coordinates contained in Table 161.12(c) and §§ 161.55 and 161.70 so that all coordinates are consistently represented in a format that includes “degree-minute-decimal.” Additionally, we are reformatting an entry in Table 161.12(c) specific to the St. Mary's River for greater clarity. This reformatting does not alter the location or position of the monitoring area specific to the St. Mary's River. As an example to show this, we have uploaded a chart of the St. Mary's River from De Tour Passage to Munuscong Lake to the public docket. Because none of the changes to the coordinates in Table 161.12(c) and §§ 161.55 and 161.70 alter the location or position of any of the monitoring areas set forth in regulation, the changes are not substantive. A supplemental notice of proposed rulemaking (SNPRM) is, therefore, unnecessary and would delay completion of this rulemaking. Thus, we find good cause under 5 U.S.C. 552(b)(B) to proceed with publication of this final rule without an SNPRM. Other than these formatting corrections to the coordinates listed in the monitoring areas under Table 161.12(c) and §§ 161.55 and 161.70, no changes to the rule have been made and the text of the final rule is the same as the text in the NPRM and in the correction to the NPRM. For a complete discussion of the rule, please see the discussion included in the NPRM at 77 FR 55439.
We developed this rule after considering numerous statutes and executive orders related to rulemaking. Below we summarize our analyses
Executive Orders 12866 (“Regulatory Planning and Review”) and 13563 (“Improving Regulation and Regulatory Review”) direct agencies to assess the costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This final rule has not been designated a “significant regulatory action” under section 3(f) of Executive Order 12866. Accordingly, the final rule has not been reviewed by the Office of Management and Budget.
We received no public comments, additional information, or data that would alter our assessment of the NPRM. Therefore, we adopt the Preliminary Regulatory Analysis for the NPRM as final. A summary of the analysis follows:
This final rule establishes mandatory participation for the VTS area in Port Arthur, TX, and includes Lake Charles, LA as part of this VTS area. This rule also consolidates and expands the VTS Special Areas in the area of Puget Sound, WA to include Bellingham Channel, western Padilla Bay and the Saddlebag route east of Guemes Island.
The VTS in Port Arthur, TX was installed in 2004 and became fully operational in February 2006. Currently VTS Port Arthur operates as a voluntary system. This rule makes participation in the VTS mandatory for all vessels that are required to carry AIS equipment.
Because AIS carriage is required by regulation under 33 CFR 164.46 for commercial vessels, including those vessels that would be affected by this rule, we expect that there would not be additional costs to either industry or government resulting from this rule. A list of the categories of commercial vessels and the dates of compliance for AIS carriage are shown in Table 1.
The principal benefits of changing VTS participation from voluntary to mandatory will be to codify current practices and to provide VTS Port Arthur with full VTS authorities to direct and manage traffic.
The final rule also consolidates and slightly expands the current VTS Special Area in the VTS Puget Sound area. This rule expands the zone in which VTS personnel control entry into and movement within the Special Area. VTS Puget Sound has imposed operating conditions in this consolidated VTS Special Area since the VTS national regulations were established in 1994. The final rule simply codifies into regulation the current practices already in place in the consolidated VTS Special Area and will not result in additional requirements for vessels.
Due to the constricted waters within the San Juan Islands, special operating requirements have been instituted since the VTS national regulations were first implemented in 1994 to avoid the risk of large vessels meeting, overtaking or crossing in this area. VTS Puget Sound has consistently issued measures or directions to enhance navigation and vessel safety by imposing special operating requirements for all vessels operating in Bellingham Channel, western Padilla Bay, and the Saddlebag route east of Guemes Island and in the vicinity of Vendovi Island due to the relatively restricted nature of these waters. Therefore, we do not expect that the expansion of this VTS Special Area will alter vessel operations.
Other minor administrative changes include updating the table in 33 CFR 161.12(c) to include the MMSI numbers for VTS Los Angeles/Long Beach and VTS Louisville. Updating the table to add these MMSI numbers will not result in any costs for vessel owners or operators, because this final rule revises Note 1 to Table 161.12(c) to specifically exclude users of VTS Louisville and VTS Los Angeles/Long Beach from AIS carriage equipment requirements. This final rule also amends 33 CFR 161.19(f) by changing the reference from “Dangerous cargo . . . as defined in 33 CFR 160.203” to “Certain dangerous cargo . . . as defined in 33 CFR 160.204.” The final rule also removes the references to §§ 160.211 and 160.213 because these sections no longer exist in the CFR. We expect these administrative changes to result in no additional costs to the public or industry.
Under the Regulatory Flexibility Act (5 U.S.C. 601–612), we have considered whether this rule would have a significant economic impact on a substantial number of small entities. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000.
The AIS carriage requirements were implemented by a prior regulation in 33 CFR 164.46, and all vessels which will
Therefore, the Coast Guard certifies under 5 U.S.C. 605(b) that this final rule will not have a significant economic impact on a substantial number of small entities.
Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104–121), we offered to assist small entities in understanding the rule so that they could better evaluate its effects on them and participate in the rulemaking. The Coast Guard will not retaliate against small entities that question or complain about this rule or any policy or action of the Coast Guard.
Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1–888–REG–FAIR (1–888–734–3247).
This rule calls for no new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501–3520). Vessels affected by this rule will already be covered under OMB collection of information 1625–0112.
A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. We have analyzed this rule under that Order and have determined that it is consistent with the fundamental federalism principles and preemption requirements described in the Executive Order. Our analysis follows.
Title I of the Ports and Waterways Safety Act (PWSA) (33 U.S.C. 1221
The Coast Guard has determined, after considering the factors developed by the Supreme Court in the consolidated cases of
While it is well settled that States may not regulate in categories in which Congress intended the Coast Guard to be the sole source of a vessel's obligations, the Coast Guard recognizes the key role that State and local governments may have in making regulatory determinations. Additionally, Sections 4 and 6 of Executive Order 13132 require that for any rules with preemptive effect, the Coast Guard will provide elected officials of affected State and local governments and their representative national organizations, notice and opportunity for appropriate participation in any rulemaking proceedings, and to consult with such officials early in the rulemaking process.
The Coast Guard invited affected State and local governments and their representative national organizations to indicate their desire for participation and consultation in this rulemaking process by submitting comments. We received no comments.
The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531–1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 (adjusted for inflation) or more in any one year. Though this rule will not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble.
This rule will not cause a taking of private property or otherwise have taking implications under Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights.
This rule meets applicable standards in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden.
We have analyzed this rule under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. This rule is not an economically significant rule and does not create an environmental risk to health or risk to safety that may disproportionately affect children.
This rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it does not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes.
We have analyzed this rule under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use. We have determined that it is not a “significant energy action” under that order because it is not a “significant regulatory action” under Executive Order 12866 and is not likely to have a significant adverse effect on the supply, distribution, or use of energy.
The National Technology Transfer and Advancement Act (15 U.S.C. 272 note) directs agencies to use voluntary consensus standards in their regulatory activities unless the agency provides Congress, through the Office of Management and Budget, with an explanation of why using these standards would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards (e.g., specifications of materials, performance, design, or operation; test methods; sampling procedures; and related management systems practices) that are developed or adopted by voluntary consensus standards bodies.
This rule does not use technical standards. Therefore, we did not consider the use of voluntary consensus standards.
We have analyzed this rule under Department of Homeland Security Management Directive 023–01 and Commandant Instruction M16475.lD, which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (42 U.S.C. 4321–4370f), and have concluded that this action is one of a category of actions which do not individually or cumulatively have a significant effect on the human environment. This rule is categorically excluded under section 2.B.2, figure 2–1, paragraphs (34)(a) and (i) of the Instruction. This rule involves administrative changes, changing regulations in aid of navigation, and updating vessel traffic services. An environmental analysis checklist and a categorical exclusion determination are available in the docket where indicated under
Harbors, Navigation (water), Reporting and recordkeeping requirements, Vessels, Waterways.
For the reasons discussed in the preamble, the Coast Guard amends 33 CFR part 161 as follows:
33 U.S.C. 1223, 1231; 46 U.S.C. 70114, 70119; Pub. L. 107–295, 116 Stat. 2064; Department of Homeland Security Delegation No. 0170.1.
(f) Certain dangerous cargo on board or in its tow, as defined in § 160.204 of this subchapter.
(b) VTS Special Area: The Eastern San Juan Island Archipelago VTS Special Area consists of all waters of the eastern San Juan Island Archipelago including: Rosario Strait bounded to the south by latitude 48°26.40′ N. (the center of the Precautionary Area “RB”) extending from Lopez Island to Fidalgo Island, and to the north by latitude 48°40.57′ N. (the center of the Precautionary Area “C”) extending from Orcas Island to Lummi Island; Guemes Channel; Bellingham Channel; Padilla Bay and southern Bellingham Bay (Samish Bay) south of latitude 48°38.42′N.
The center of precautionary area “RB” is not marked by a buoy. All precautionary areas are depicted on National Oceanic and Atmospheric Administration (NOAA) nautical charts.
(c) Additional VTS Special Area Operating Requirements. The following additional requirements are applicable in the Eastern San Juan Island Archipelago VTS Special Area:
(a) The VTS area consists of the navigable waters of the United States to the limits of the territorial seas bound by the following points: 30°10.00′ N., 92°37.00′ W.; then south to 29°10.00′ N., 92°37.00′ W.; then west to 29°10.00′ N., 93°52.25′ W.; then northwest to 29°33.70′ N., 94°21.25′ W.; then north to 30°10.00′ N., 94°21.25′ W.; then east along the 30°10′ N. latitude to the origination point.
Although mandatory participation in VTS Port Arthur is limited to the area within the navigable waters of the United States, prospective users are encouraged to report at the safe water marks in order to facilitate vessel traffic management in the VTS Area and to receive advisories or navigational assistance.
(b)
(c)
(d)
(e)
(f)
(g)
Department of Veterans Affairs.
Final rule.
The Department of Veterans Affairs (VA) is making technical changes to remove from its regulations a series of forms related to VA payments for care provided to veterans at State homes. Official forms are not required to be reproduced in the Code of Federal Regulations (CFR), and all VA forms are more readily available on VA Web sites. Removing these forms from the CFR is an administrative action and will not impact the ability of the public to comment on any amendments to the information collections contained in these forms.
Jo Anne Parker, Geriatrics and Extended Care Service (10NC4), Veterans Health Administration, 810 Vermont Avenue NW., Washington, DC 20420, (202) 461–1785. (This is not a toll-free number.)
On January 6, 2000, VA added 38 CFR part 58 to the Code of Federal Regulations (CFR) for the express purpose of making it easier to find the forms required by 38 CFR part 51, Per Diem for Nursing Home Care of Veterans in State Homes. 65 FR 962, Jan. 6, 2000. Since that time, VA, State home program participants and administrators, and the general public have increasingly come to rely on VA's Publications Web site (
In addition, several forms currently found in part 58 have been superseded, and the current forms are readily available for printing, downloading, or online submission on the VA Publications Web site. Updated versions are available on the Web site immediately—whereas the CFR is updated only once per year. Removing the forms from the CFR will ensure that the CFR does not reference and depict outdated forms. We are, therefore,
The cross references to part 58 in parts 51 and 52 will become obsolete with this rulemaking, and we are, therefore, amending parts 51 and 52 to remove the cross-references to part 58.
In accordance with 5 U.S.C. 553(b)(A), the Secretary of Veterans Affairs finds that notice and public comment is not required for this rulemaking as it relates to agency procedure or practice. The forms being removed from the regulation are more readily available on the VA Publications Web site (
Although this action contains provisions constituting collections of information, at 38 CFR part 51, part 52, and part 58, under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501–3521), no new or proposed revised collections of information are associated with this final rule. The information collection requirements for part 51, part 52, and part 58 are currently approved by the Office of Management and Budget (OMB) and have been assigned OMB control numbers 2900–0091 and 2900–0160.
The Secretary hereby certifies that this final rule will not have a significant economic impact on a substantial number of small entities as they are defined in the Regulatory Flexibility Act, 5 U.S.C. 601–612. This final rule is small business neutral as it removes forms that are outdated and more readily available elsewhere. The forms will continue to be required for part 51, Per Diem for Nursing Home Care of Veterans in State Homes, and for part 52, Per Diem for Adult Day Health Care of Veterans in State Homes, but removing them from the CFR will ensure that small businesses access the required forms from a common location and thereby minimize the likelihood of relying upon an outdated form. Ensuring reporting is accomplished on the current, correct forms will be cost-neutral or will save money by avoiding potential duplication of effort. On this basis, the Secretary certifies that the adoption of this final rule will not have a significant economic impact on a substantial number of small entities as they are defined in the Regulatory Flexibility Act, 5 U.S.C. 601–612. Therefore, under 5 U.S.C. 605(b), this rulemaking is exempt from the initial and final regulatory flexibility analysis requirements of sections 603 and 604.
Executive Orders 12866 and 13563 direct agencies to assess the costs and benefits of available regulatory alternatives and, when regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, and other advantages; distributive impacts; and equity). Executive Order 13563 (Improving Regulation and Regulatory Review) emphasizes the importance of quantifying both costs and benefits, reducing costs, harmonizing rules, and promoting flexibility. Executive Order 12866 (Regulatory Planning and Review) defines a “significant regulatory action,” requiring review by OMB unless OMB waives such review, as “any regulatory action that is likely to result in a rule that may: (1) Have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities; (2) Create a serious inconsistency or otherwise interfere with an action taken or planned by another agency; (3) Materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or (4) Raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in this Executive Order.”
The economic, interagency, budgetary, legal, and policy implications of this regulatory action have been examined, and it has been determined not to be a significant regulatory action under Executive Order 12866. VA's impact analysis can be found as a supporting document at
The Unfunded Mandates Reform Act of 1995 requires, at 2 U.S.C. 1532, that agencies prepare an assessment of anticipated costs and benefits before issuing any rule that may result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more (adjusted annually for inflation) in any one year. This final rule will have no such effect on State, local, and tribal governments, or on the private sector.
The Catalog of Federal Domestic Assistance numbers and titles for the programs affected by this final rule are 64.014, Veterans State Domiciliary Care, and 64.015, Veterans State Nursing Home Care.
The Secretary of Veterans Affairs, or designee, approved this document and authorized the undersigned to sign and submit the document to the Office of the Federal Register for publication electronically as an official document of the Department of Veterans Affairs. Jose D. Riojas, Chief of Staff, Department of Veterans Affairs, approved this document on July 29, 2013, for publication.
Administrative practice and procedure, Claims, Day care, Dental health, Government contracts, Grant programs-health, Grant programs-veterans, Health care, Health facilities, Health professions, Health records, Mental health programs, Nursing homes, Reporting and recordkeeping requirements, Travel and transportation expenses, Veterans.
Administrative practice and procedure, Claims, Day care, Dental health, Government contracts, Grant programs-health, Grant programs-veterans, Health care, Health facilities, Health professions, Health records, Mental health programs, Nursing homes, Reporting and recordkeeping requirements, Travel and transportation expenses, Veterans.
Administrative practice and procedure, Claims, Day care, Government contracts, Health facilities, Nursing homes, Reporting and recordkeeping requirements, Veterans.
For the reasons stated in the preamble, under the authority of 38 U.S.C. 501, the Department of Veterans Affairs amends 38 CFR parts 51, 52, and 58 as follows:
38 U.S.C. 101, 501, 1710, 1720, 1741–1743; and as stated in specific sections.
The addition reads as follows:
(a) * * * These VA Forms, which are available at any VA medical center and at
38 U.S.C. 101, 501, 1741–1743; unless otherwise noted.
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Temporary rule; closure.
NMFS is prohibiting retention of thornyhead rockfish in the Western Regulatory Area of the Gulf of Alaska (GOA). This action is necessary because the 2013 total allowable catch of thornyhead rockfish in the Western Regulatory Area of the GOA has been reached.
Effective 1200 hours, Alaska local time (A.l.t.), August 17, 2013, through 2400 hours, A.l.t., December 31, 2013.
Josh Keaton, 907–586–7228.
NMFS manages the groundfish fishery in the GOA exclusive economic zone according to the Fishery Management Plan for Groundfish of the Gulf of Alaska (FMP) prepared by the North Pacific Fishery Management Council under authority of the Magnuson-Stevens Fishery Conservation and Management Act. Regulations governing fishing by U.S. vessels in accordance with the FMP appear at subpart H of 50 CFR part 600 and 50 CFR part 679.
The 2013 total allowable catch (TAC) of thornyhead rockfish in the Western Regulatory Area of the GOA is 150 metric tons as established by the final 2013 and 2014 harvest specifications for groundfish of the GOA (78 FR 13162, February 26, 2013).
In accordance with § 679.20(d)(2), the Administrator, Alaska Region, NMFS (Regional Administrator), has determined that the 2013 TAC of thornyhead rockfish in the Western Regulatory Area of the GOA has been reached. Therefore, NMFS is requiring that thornyhead rockfish caught in the Western Regulatory Area of the GOA be treated as prohibited species in accordance with § 679.21(b).
This action responds to the best available information recently obtained from the fishery. The Acting Assistant Administrator for Fisheries, NOAA (AA), finds good cause to waive the requirement to provide prior notice and opportunity for public comment pursuant to the authority set forth at 5 U.S.C. 553(b)(B) as such requirement is impracticable and contrary to the public interest. This requirement is impracticable and contrary to the public interest as it would prevent NMFS from responding to the most recent fisheries data in a timely fashion and would delay prohibiting the retention of thornyhead rockfish in the Western Regulatory Area of the GOA. NMFS was unable to publish a notice providing time for public comment because the most recent, relevant data only became available as of August 15, 2013.
The AA also finds good cause to waive the 30-day delay in the effective date of this action under 5 U.S.C. 553(d)(3). This finding is based upon the reasons provided above for waiver of prior notice and opportunity for public comment.
This action is required by §§ 679.20 and 679.21 and is exempt from review under Executive Order 12866.
16 U.S.C. 1801
Federal Trade Commission (FTC or Commission).
Request for public comment.
The Federal Trade Commission requests public comment concerning the proposed parental consent method submitted by AssertID, Inc. (“AssertID”) under the Voluntary Commission Approval Processes provision of the Children's Online Privacy Protection Rule.
Written comments must be received on or before September 20, 2013.
Interested parties may file a comment online or on paper, by following the instructions in the Request for Comment part of the
Kandi Parsons, Attorney, (202) 326–2369, or Peder Magee, Attorney, (202) 326–3538, Division of Privacy and Identity Protection, Federal Trade Commission, Washington, DC 20580.
On October 20, 1999, the Commission issued its final Rule
Pursuant to Section 312.12(a) of the Rule, AssertID has submitted a proposed parental consent method to the Commission for approval. The full text of its application is available on the Commission's Web site at
The Commission is seeking comment on the proposed parental consent method, and is particularly interested in receiving comment on the questions that follow. These questions are designed to assist the Commission's consideration of the petition and should not be construed as a limitation on the issues on which public comment may be submitted. Responses to these questions should cite the number of the question being answered. For all comments submitted, please provide any relevant data, statistics, or any other evidence, upon which those comments are based.
1. Is this method already covered by existing methods enumerated in Section 312.5(b)(1) of the Rule?
2. If this is a new method, provide comments on whether the proposed parental consent method meets the requirements for parental consent laid out in 16 CFR § 312.5(b)(1). Specifically, the Commission is looking for comments on whether the proposed parental consent method is reasonably calculated, in light of available technology, to ensure that the person providing consent is the child's parent.
3. Does this proposed method pose a risk to consumers' personal information? If so, is that risk outweighed by the benefit to consumers and businesses of using this method?
You can file a comment online or on paper. For the Commission to consider your comment, we must receive it on or before September 20, 2013. Write “AssertID Application for Parental Consent Method, Project No. P–135415” on your comment. Your comment—including your name and your state—will be placed on the public record of this proceeding, including, to the extent practicable, on the Commission Web site, at
Because your comment will be made public, you are solely responsible for making sure that your comment doesn't include any sensitive personal information, such as Social Security number, date of birth, driver's license number or other state identification number or foreign country equivalent, passport number, financial account number, or credit or debit card number. You are also solely responsible for making sure that your comment doesn't include any sensitive health information, including medical records or other individually identifiable health information. In addition, do not include any “[t]rade secret or any commercial or financial information which is . . . privileged or confidential,” as discussed in Section 6(f) of the FTC Act, 15 U.S.C. 46(f), and FTC Rule 4.10(a)(2), 16 CFR 4.10(a)(2). In particular, do not include competitively sensitive information such as costs, sales statistics, inventories, formulas, patterns, devices, manufacturing processes, or customer names.
If you want the Commission to give your comment confidential treatment, you must file it in paper form, with a request for confidential treatment, and
Postal mail addressed to the Commission is subject to delay due to heightened security screening. As a result, we encourage you to submit your comments online. To make sure that the Commission considers your online comment, you must file it at
If you file your comment on paper, write “AssertID Application for Parental Consent Method, Project No. P–135415” on your comment and on the envelope, and mail or deliver it to the following address: Federal Trade Commission, Office of the Secretary, Room H–113 (Annex E), 600 Pennsylvania Avenue NW., Washington, DC 20580. If possible, submit your paper comment to the Commission by courier or overnight service.
Visit the Commission Web site at
By direction of the Commission.
Office of the Under Secretary of Defense for Personnel and Readiness, DoD.
Proposed rule; correction.
On Wednesday, August 14, 2013 (78 FR 49382–49400), the Department of Defense published a proposed rule titled Voluntary Education Programs. Subsequent to the publication of the proposed rule in the
This correction is effective on August 21, 2013.
Patricia Toppings, 571–372–0485.
Section 68.5(f)(1) is corrected to read as follows:
On page 49388, in the second column, in § 68.5(f)(1), in the fourth line, “paragraph (f) of this section” should read “paragraph (f) of § 68.6.”
Postal Regulatory Commission.
Proposed rule.
The Commission is proposing a set of rules to address Postal Service filings concerning market tests of experimental products. The proposed rules address the contents of market test filings, describe how the filings will be reviewed, and discuss related matters. The Commission invites public comments on the proposed rule.
Comments are due September 20, 2013. Reply comments are due October 10, 2013.
Submit comments electronically via the Commission's Filing Online system at
Stephen L. Sharfman, General Counsel, at 202–789–6820.
The Commission proposes to establish rules governing market tests of experimental products to implement the requirements of the standards for market tests established by Congress in 39 U.S.C. 3641.
The Postal Accountability and Enhancement Act (PAEA)
• Significantly different product: The product is, from the viewpoint of the mail users, significantly different from all products offered by the Postal Service within the 2-year period preceding the start of the test.
• Market disruption: The introduction or continued offering of the product will not create an unfair or otherwise inappropriate competitive advantage for the Postal Service or any mailer, particularly in regard to small business concerns.
• Correct categorization: The Postal Service identifies the product, for the purpose of a test, as either market-dominant or competitive.
The Postal Service must file notice with the Commission and publish the notice in the
In general, an experimental product may only be tested if “total revenues that are anticipated, or in fact received, by the Postal Service do not exceed $10,000,000 in any year,” subject to adjustments for inflation.
The PAEA authorizes the Commission to cancel a market test or take other appropriate action if it determines that the market test fails, with respect to any particular product, to meet one or more requirements of section 3641.
The proposed rules balance the Commission's oversight authority over market tests with the Postal Service's need for flexibility to expand the scope of its products. The proposed rules also reflect the lessons learned since the passage of the PAEA, during which time the Postal Service has conducted eight market tests of experimental products.
In this section, the Commission describes the proposed rules, including what each rule seeks to accomplish. The purpose of this discussion is to assist commenters in determining the nature of each proposed regulation and the rationale behind it. The discussion of the proposed rules fall under nine broad categories: (1) Use of fiscal year, (2) notice requirements, (3) Commission review and action, (4) duration and extension, (5) cancellation, (6) dollar amount limitation and exemption, (7) adjustment for inflation, (8) data collection and reporting requirements, and (9) definition of “small business concern.”
The PAEA states that except in subchapters I and IV of chapter 36, “year,” as used in chapter 36, means a fiscal year. 39 U.S.C. 102(10). 39 U.S.C. 3641 is located in subchapter III of title 39. Thus, the Commission interprets “year” in section 3641 and the proposed rules to mean “fiscal year.” This interpretation is consistent with the text of section 3641, which lists certain periods of time in months to distinguish them from fiscal years. For example, section 3641(d) states “24 months” and “12 months” instead of “2 years” and “1 year,” respectively.
Under this interpretation, “the 2-year period preceding the start of the test” in 39 U.S.C. 3641(b)(1) refers to the two fiscal years preceding the start of the market test.
Proposed rule 3035.2 requires the Postal Service to provide advance notice of its intent to initiate a market test by filing notice with the Commission at least 30 days before the market test begins. This proposed rule codifies the statutory notice requirement in 39 U.S.C. 3641(c). Proposed rule 3035.3 sets forth the contents of the notice.
Over the past nine market tests, the Postal Service has developed filings that include most of the information required for the notice initiating a market test. For example, in Docket No. MT2013–1, the Postal Service submitted a notice that described the nature and scope of the experimental product and set forth the reasons why the market test was covered by section 3641.
The items listed above are contained in proposed rule 3035.3. In general, the proposed rule does not require the Postal Service to provide more information than it currently does for market tests. The only additions are rules requiring the Postal Service to identify the beginning and end dates of the market test and estimate, for each fiscal year of the market test, the total revenue that is anticipated by the Postal Service. Proposed rule 3035.3(b)(2), (4). The rules also direct the Postal Service to describe the geographic market(s) in which the market test will be conducted.
These items are necessary to ensure compliance with 39 U.S.C. 3641(d) and (e). Identifying the beginning and end dates of the market test ensures that the market test will not exceed 24 months in duration, unless a request for extension is filed. 39 U.S.C. 3641(d). Describing the geographic market(s) in which the market test will be conducted is consistent with the Commission's authority to “limit the amount of revenues the Postal Service may obtain from any particular geographic market as necessary to prevent market disruption . . . .”
Once the Postal Service files notice of a market test, the Commission will establish a docket, promptly publish a notice in the
The Postal Service must keep the Commission apprised of any changes to
Proposed rules 3035.10 and 3035.11 set forth requirements regarding the duration of market tests. Market tests in general may not exceed 24 months in duration. Proposed rule 3035.10. Consistent with section 3641(d)(2), the Postal Service may request an extension for up to an additional 12 months, if necessary to determine the feasibility or desirability of a product being tested. Proposed rule 3035.11(a). A request for extension must be filed at least 60 days before the market test is scheduled to terminate.
The Postal Service previously filed requests for extensions in Docket Nos. MT2009–1, MT2011–1, MT2011–2, and MT2013–2.
Proposed rule 3035.11(b) sets forth the filing requirements for requesting an extension. A request for extension must list the new end date for the market test and explain why an extension is necessary to determine the feasibility or desirability of the experimental product. The request for extension must both calculate the total revenue received by the Postal Service from the market test and estimate the additional revenue anticipated by the Postal Service for each fiscal year (or part thereof) prior to the conclusion of the extension period of the market test. These proposed rules will help ensure that the market test does not exceed applicable dollar amount limitations in 39 U.S.C. 3641(e).
39 U.S.C. 3641(f) provides the Commission with statutory authority to cancel a market test at any time if it “determines that a market test under this section [3641] fails, with respect to any particular product, to meet 1 or more of the requirements of this section. . . .” A cancellation of a market test must “be made in accordance with such procedures as the Commission shall by regulations prescribe.” 39 U.S.C. 3641(f). These procedures, which are set forth in proposed rule 3035.12, require the Postal Service to demonstrate a market test's continued compliance with the statute and Commission's rules. The proposed rule recognizes that the Postal Service may cancel a market test.
Proposed rules 3035.15 and 3035.16 contain requirements regarding the dollar amount limitations for market tests set forth in 39 U.S.C. 3641(e) and 3641(g). Under 39 U.S.C. 3641(e)(1), an experimental product may only be tested if total revenues that the Postal Service anticipates or receives do not exceed $10 million in any fiscal year, as adjusted for inflation ($10 Million Adjusted Limitation). Proposed rule 3035.15(a) codifies this requirement.
Under 39 U.S.C. 3641(e)(2), the Commission may exempt a market test from the $10 Million Adjusted Limitation if total revenues anticipated or received do not exceed $50 million in any fiscal year, as adjusted for inflation ($50 Million Adjusted Limitation). Proposed rule 3035.16(a) codifies this requirement. Section III.G, below, explains how the $10 Million and $50 Million Adjusted Limitations are calculated.
The Postal Service previously filed requests for exemption from the $10 Million Adjusted Limitation in Docket Nos. MT2011–1, MT2011–3, and MT2013–1.
Proposed rule 3035.16(f) contains the filing requirements for the request for exemption. Consistent with 39 U.S.C. 3641(e)(2)(A)–(C), the request for exemption shall explain how the experimental product is likely to benefit the public, meet an expected demand, contribute to the Postal Service's financial stability, and not result in market disruption. Proposed rule 3035.16(f)(1). The requirements in proposed rules 3035.16(f)(2) and (3) help ensure that applicable dollar amount limitations will not be exceeded.
Under 39 U.S.C. 3641(e)(1), the Commission “may limit the amount of revenues the Postal Service may obtain from any particular geographic market as necessary to prevent market disruption. . . .” 39 U.S.C. 3641(e)(1). This authority is codified in proposed rule 3035.17. To carry out this authority, proposed rule 3035.20(c) authorizes the Commission to require the Postal Service to report the total revenue anticipated or received from the market test for specified geographic markets.
Proposed rule 3035.18 requires the Postal Service to file its request to offer the experimental product as a permanent product sufficiently in advance to preclude the possibility that the applicable Adjusted Limitation would be breached. The intent is to afford the Commission and interested persons sufficient time to consider the Postal Service's request, filed pursuant to 39 CFR 3020 subpart B, so that, in particular, the $50 Million Adjusted Limitation is not exceeded.
39 U.S.C. 3641(g) requires the $10 million and $50 million amount limitations in 39 U.S.C. 3641(e) to be adjusted for inflation. The $10 million and $50 million amount limitations must be adjusted by the change in CPI “[f]or purposes of each year following the year in which occurs the deadline for the Postal Service's first report to the Postal Regulatory Commission under section 3652(a)[.]” 39 U.S.C. 3641(g). As noted in Section III.A, “year” is construed as “fiscal year.” The “first report to the Postal Regulatory Commission under section 3652(a)” refers to the Postal Service's Annual Compliance Report (ACR). The deadline for the first ACR was December 28, 2007, during fiscal year 2008.
The steps for calculating the $10 Million Adjusted Limitation and $50 Million Adjusted Limitation are listed in proposed rules 3035.15(d) and 3035.16(c). These proposed rules model the Commission's price cap rules regarding the calculation of the annual limitation.
The next step in proposed rules 3035.15(d) and 3035.16(c) also involves calculating a simple average CPI–U index for each subsequent fiscal year to obtain the Recent Average. For example, the simple average CPI–U to be applied in fiscal year 2015 would be calculated by summing the 12 monthly CPI–U values from October 2013 through September 2014 and dividing the sum by 12. Finally, the annual limitation for the current fiscal year is calculated by multiplying either $10 million or $50 million by the Recent Average divided by 214.5. Because these rules are designed to calculate dollar amount limitations, the resulting number is rounded to the nearest dollar.
Proposed rule 3035.20 lists the data collection and reporting requirements for each market test. The Commission has required the Postal Service to report data on costs, revenues, and volumes periodically in each of the past eight market tests, and the Postal Service has suggested data collection plans in previously-submitted filings.
Proposed rule 3035.20(a) requires that data collection reports include revenue by fiscal quarter, attributable costs incurred, and a quantification of start-up costs incurred. The Commission recently required the Postal Service to report some of this information in Docket Nos. MT2012–1 and MT2013–1. Order No. 1035 at 6–7; Order No. 1539 at 12. The Commission may require the Postal Service to provide other information in its data collection reports as appropriate. Proposed rule 3035.20(b).
39 U.S.C. 3641(e)(1) requires the Commission to ensure that total revenues that are anticipated or received by the Postal Service from an experimental product do not exceed the $10 Million Adjusted Limitation, unless an exemption is granted. In carrying out this responsibility, the Commission “may limit the amount of revenues the Postal Service may obtain from any particular geographic area to prevent market disruption. . . .” 39 U.S.C. 3641(e)(1). To that end, the Commission may require the Postal Service to report revenues for specified geographic markets to evaluate the potential impact of a market test in those areas.
Proposed rule 3035.20(d) requires the results of the market test data collection to be filed by the Postal Service within 40 days after each fiscal quarter ends. This requirement, which is consistent with current practice, informs the Commission and the public of the status of the market test.
The Postal Service may conduct market tests of experimental products as long as the product offering does not “create an unfair or otherwise inappropriate competitive advantage for the Postal Service or any mailer, particularly in regard to small business concerns. . . .” 39 U.S.C. 3641(b)(2).
The Small Business Act states that a small business concern “shall be deemed to be one which is independently owned and operated and which is not dominant in its field of operation. . . .” 15 U.S.C. 632(a)(1). Small Business Administration regulations define “business concern” as “a business entity organized for profit, with a place of business located in the United States, and which operates primarily within the United States or which makes a significant contribution to the U.S. economy through payment of taxes or use of American products, materials or labor.” 13 CFR 121.105.
SBA regulations state that federal agencies promulgating regulations relating to small businesses usually use SBA size criteria. 13 CFR 121.903(a). Consistent with this practice and section 3641(h), the definition in proposed rule 3001.5(v) contains the requirements of section 3 of the Small Business Act as well as regulations promulgated by the SBA.
To qualify as “small,” a business concern must, among other things, meet the criteria and size standards listed in the SBA's small business size regulations.
When determining the impact of a market test on small business concerns, the Postal Service would first identify the types of businesses that may be affected by the market test. Second, the Postal Service would determine whether these businesses qualify as “small business concerns” under proposed section 3001.5(v) based on SBA size standards. Third, the Postal Service would analyze the impact of the market test on qualifying small business concerns and provide that analysis in its notice initiating the market test to establish that “[t]he introduction or continued offering of the experimental product will not create an unfair or otherwise inappropriate competitive advantage for the Postal Service or any mailer, particularly in regard to small business concerns. . . .” 39 U.S.C. 3641(b)(2); proposed rule 3035.3(a)(2).
This framework was followed recently in Docket No. MT2013–1 involving the
The following is a section-by-section analysis of the proposed rules that contains brief descriptions of the contents of each rule.
Interested persons may comment on the Commission's proposed rules governing market tests of experimental products. Comments are due within 30 days of the date of publication of this notice in the
Pursuant to 39 U.S.C. 505, Anne J. Siarnacki is designated as the Public Representative in this proceeding to represent the interests of the general public.
1. Docket No. RM2013–5 is established for the purpose of receiving comments on the Commission's proposed rules governing market tests of experimental products.
2. Interested persons may submit comments no later than 30 days from the date of publication of this notice in the
3. Interested persons may submit reply comments no later than 20 days from the date for submission of initial comments.
4. Pursuant to 39 U.S.C. 505, Anne J. Siarnacki is appointed to serve as Public Representative in this proceeding.
5. The Secretary shall arrange for publication of this order in the
In Docket No. MT2009–1, the Commission authorized a market test of Collaborative Logistics, an experimental product.
On April 26, 2011, the Postal Service filed a motion for temporary extension.
In Docket No. MT2010–1, the Commission approved the Samples Co-Op Box market test on May 5, 2010.
On December 23, 2010, the Postal Service filed a request to modify the Mail Classification Schedule by adding Parcel Select Contract 1 with StartSampling, Inc. to the competitive product list.
In Docket No. MT2011–1, the Commission authorized a 24-month market test for Alternate Postage Payment Method for Greeting Cards.
The Alternate Postage Payment Method for Greeting Cards market test began on January 2, 2011 and was set to expire on January 2, 2013.
In Docket No. MT2011–2, the Commission conditionally approved the Gift Cards market test on April 28, 2011.
The market test began on June 27, 2011, and was set to expire on June 27, 2013.
The Postal Service began offering Every Door Direct Mail—Retail (EDDM–R) as an experimental product once the Commission authorized the market test in Docket No. MT2011–3.
The EDDM–R market test began on March 31, 2011. Notice at 1. In January 2012, the Commission granted the Postal Service's request for an exemption from the $10 million amount limitation, as adjusted for inflation.
In Docket No. MT2011–4, the Commission authorized the Mail Works Guarantee market test on May 16, 2011.
The market test began on June 14, 2011.
The Commission approved the proposed experimental product identified as First-Class Tracer on December 9, 2011.
In Docket No. MT2013–1, the Commission approved the market test of the experimental product Metro Post on November 14, 2012.
The Commission also granted the Postal Service an exemption from the $10 Million Adjusted Limitation.
On July 1, 2013, the Postal Service filed a notice announcing its intent to conduct a market test of a competitive experimental product called International Merchandise Return Service—Non-Published Rates (IMRS–NPR).
By the Commission.
Administrative practice and procedure, Freedom of information, Postal Service, Sunshine Act.
Administrative practice and procedure, Postal Service.
For the reasons discussed in the preamble, the Commission proposes to amend chapter III of title 39 of the Code of Federal Regulations as follows:
39 U.S.C. 404(d); 503; 504; 3661.
(v)
(1) Is independently owned and operated;
(2) Is not dominant in its field of operation;
(3) Has a place of business located in the United States;
(4) Operates primarily within the United States or makes a significant contribution to the United States economy by paying taxes or using American products, materials, or labor; and
(5) Together with its affiliates, qualifies as “small” in its primary industry under the criteria and size standards established by the Small Business Administration in 13 CFR 121.201, as amended, based on annual receipts or number of employees.
39 U.S.C. 3641.
The rules in this part apply to market tests of experimental products pursuant to 39 U.S.C. 3641.
The Postal Service shall file notice with the Commission of its determination to initiate a market test at least 30 days before initiating the market test.
Notices of proposed market tests shall include:
(a) The basis for the Postal Service's determination that the market test is governed by 39 U.S.C. 3641, which shall:
(1) Describe, from the viewpoint of mail users, how the experimental product is significantly different from all products offered by the Postal Service within the 2 fiscal years preceding the start of the market test;
(2) Establish that the introduction or continued offering of the experimental product will not create an unfair or otherwise inappropriate competitive advantage for the Postal Service or any mailer, particularly in regard to small business concerns; and
(3) Identify the experimental product as either market dominant or competitive for purposes of the market test.
(b) A description of the nature and the scope of the market test that:
(1) Demonstrates why the market test is not inconsistent with the requirements of 39 U.S.C. 3641;
(2) Identify the beginning and ending dates of the market test;
(3) Describes the geographic market(s) where the market test may be conducted;
(4) Estimates the total revenue that is anticipated by the Postal Service for each fiscal year of the market test, including available supporting documentation;
(5) Provides proposed Mail Classification Schedule Language; and
(6) Includes a plan for monitoring the performance of the market test, including a description of the specific data items to be collected, as required by § 3035.20.
The Commission will establish a docket for each market test initiated under this part, promptly publish a notice in the
(a) Describe the general nature of the proceeding;
(b) Refer to the legal authority under which the proceeding is to be conducted;
(c) Identify an officer of the Commission to represent the interests of the general public in the docket;
(d) Specify a period for public comment; and
(e) Include such other information as the Commission deems appropriate.
The Commission shall review the Postal Service notice together with any comments for initial compliance with the statutory requirements of 39 U.S.C. 3641, and:
(a) Find that the market test is consistent with the requirements of 39 U.S.C. 3641; or
(b) Find that the market test is inconsistent with the requirements of 39 U.S.C. 3641 and provide an opportunity to correct the identified deficiencies; or
(c) Find that the market test is inconsistent with the requirements of 39 U.S.C. 3641 and order that the market test not go into effect; or
(d) Direct other action as the Commission may consider appropriate.
(a) The Postal Service shall immediately notify the Commission of any material changes made to the market test, including, without limitation, adjustments to prices, geographic scope, or termination date.
(b) The Commission may, in its discretion, notice the filing and provide an opportunity for comment.
A market test may not exceed 24 months in duration unless the Postal Service requests an extension under § 3035.11.
(a) The Postal Service may request an extension of the duration of a market test, not to exceed an additional 12 months, if necessary to determine the feasibility or desirability of a product being tested. The Postal Service must file a written request for extension with the Commission at least 60 days before the market test is scheduled to terminate.
(b) The request for extension shall:
(1) Explain why an extension is necessary to determine the feasibility or desirability of the experimental product;
(2) List the new end date for the market test;
(3) Calculate the total revenue received by the Postal Service from the market test for each fiscal year the market test has been in operation;
(4) Estimate the additional revenue that is anticipated by the Postal Service for each fiscal year prior to the conclusion of the extension period of the market test, including available supporting documentation; and
(5) Provide any additional information necessary for the Commission to evaluate the continued consistency with the requirements of 39 U.S.C. 3641.
(c) The Commission shall review the Postal Service request for extension to ensure that an extension is necessary in order to determine the feasibility or desirability of the experimental product and:
(1) Find that the extension is consistent with the requirements of 39 U.S.C. 3641; or
(2) Find that the extension is inconsistent with the requirements of 39 U.S.C. 3641 and provide an opportunity to correct the identified deficiencies;
(3) Find that the extension is inconsistent with the requirements of 39 U.S.C. 3641 and deny the extension; or
(4) Direct other action as the Commission considers appropriate.
(a) The Postal Service may cancel a market test at any time. It shall file notice of cancellation with the Commission within 10 days of cancelling the market test.
(b) Pursuant to 39 U.S.C. 3641(f), the Commission may direct the Postal Service to demonstrate that the market test continues to meet the requirements of 39 U.S.C. 3641 and the Commission's rules. The Commission, in its discretion, may provide an opportunity for comments.
(c) Based upon its review, the Commission may:
(1) Find that the market test is consistent with the requirements of 39 U.S.C. 3641; or
(2) Find that the market test is inconsistent with the requirements of 39 U.S.C. 3641 and provide an opportunity to correct the identified deficiencies; or
(3) Find that the market test is inconsistent with the requirements of 39 U.S.C. 3641 and cancel the market test; or
(4) Direct other action as the Commission may consider appropriate.
(a) An experimental product may only be tested if total revenues that are anticipated or received by the Postal Service do not exceed $10,000,000 in any fiscal year, as adjusted for the change in the Consumer Price Index, as specified in paragraph (d) of this section ($10 Million Adjusted Limitation). Total revenues anticipated or received may exceed the $10 Million Adjusted Limitation in any fiscal year if an exemption is granted pursuant to § 3035.16.
(b) The Consumer Price Index, as specified in §§ 3010.21(a) and 3010.22(a) of this chapter, is applicable for calculations under this part.
(c) For each fiscal year, the $10 Million Adjusted Limitation shall reflect the average CPI result during the previous fiscal year calculated as described in paragraph (d) of this section. The Commission shall publish this figure on its Web site at
(d) The calculation of the $10 Million Adjusted Limitation involves the following steps. First, a simple average CPI–U index was calculated for fiscal year 2008 by summing the monthly CPI–U values from October 2007 through September 2008 and dividing the sum by 12 (Base Average). The resulting Base Average is 214.5. Then, a second simple average CPI–U index is similarly calculated for each subsequent fiscal year by summing the 12 monthly CPI–U values for the previous fiscal year and dividing the sum by 12 (Recent
(e) The formula for calculating the $10 Million Adjusted Limitation is as follows: $10 Million Adjusted Limitation = $10,000,000 * (Recent Average/214.5).
(a) The Postal Service may request an exemption from the $10 Million Adjusted Limitation by filing a written request with the Commission. In no instance shall the request for exemption exceed the market test dollar amount limitation of $50,000,000 in any fiscal year, as adjusted for the change in the Consumer Price Index, as specified in paragraph (c) of this section ($50 Million Adjusted Limitation).
(b) For each fiscal year, the $50 Million Adjusted Limitation shall reflect the average CPI result during the previous fiscal year calculated as described in 39 CFR 3035.16(c). The Commission shall publish this figure on its Web site at
(c) The calculation of the $50 Million Adjusted Limitation involves the following steps. First, a simple average CPI–U index was calculated for fiscal year 2008 by summing the monthly CPI–U values from October 2007 through September 2008 and dividing the sum by 12 (Base Average). The Resulting Base Average is 214.5. Then, a second simple average CPI–U index is similarly calculated for each subsequent fiscal year by summing the 12 monthly CPI–U values for the previous fiscal year and dividing the sum by 12 (Recent Average). Finally, the annual limitation for the current fiscal year is calculated by multiplying $50,000,000 by the Recent Average divided by 214.5. The result is expressed as a number, rounded to the nearest dollar.
(d) The formula for calculating the $50 Million Adjusted Limitation is as follows: $50 Million Adjusted Limitation = $50,000,000 * (Recent Average/214.5).
(e) The Postal Service shall file its request for exemption at least 45 days before it expects to exceed the $10 Million Adjusted Limitation.
(f) The request for exemption shall:
(1) Explain how the experimental product will:
(i) Benefit the public and meet an expected demand;
(ii) Contribute to the financial stability of the Postal Service; and
(iii) Not result in unfair or otherwise inappropriate competition.
(2) Calculate the total revenue received by the Postal Service from the market test for each fiscal year the market test has been in operation; and
(3) Estimate the additional revenue that is anticipated by the Postal Service for each fiscal year prior to the conclusion of the extension period of the market test, including available supporting documentation;
(g) The Commission shall review the request for exemption for consistency with the statutory requirements of 39 U.S.C. 3641 and:
(1) Find that the exemption is consistent with the requirements of 39 U.S.C. 3641;
(2) Find that the exemption is inconsistent with the requirements of 39 U.S.C. 3641 and provide an opportunity to correct the identified deficiencies;
(3) Find that the exemption is inconsistent with the requirements of 39 U.S.C. 3641 and deny the exemption; or
(4) Direct other action as the Commission may consider appropriate.
Notwithstanding the $10 Million Adjusted Limitation or any adjustment granted pursuant to § 3035.16, the Commission may limit the amount of revenues the Postal Service may obtain from any particular geographic market as necessary to prevent market disruption as defined in 39 U.S.C. 3641 (b)(2).
If the Postal Service determines to make an experimental product permanent, it shall file a notice, pursuant to § 3020.30 of this chapter, sufficiently in advance so that the market test does not exceed the $10 Million Adjusted Limitation or any authorized adjusted limitation in any fiscal year.
(a) A notice of a market test shall describe plans for monitoring the performance of the market test, including plans to collect volume, revenue, and other data. Data collection reports shall include, at a minimum:
(1) The revenue by fiscal quarter received to date by the Postal Service from the market test;
(2) Attributable costs incurred in conducting the market test, including administrative and ancillary costs;
(3) A quantification of start-up costs incurred to date associated with the market test.
(b) The Commission may request additional information or data as it deems appropriate.
(c) To assess the potential impact of a market test in a particular geographic market, the Commission may require the Postal Service to report the revenues from the market test for specified geographic markets.
(d) The Postal Service shall file the results of the market test data collection within 40 days after the close of each fiscal quarter during which the market test is offered, or such other period as the Commission may prescribe.
(e) The Postal Service shall file in its Annual Compliance Report information on each market test conducted during the fiscal year pursuant to § 3050.21(h) of this chapter.
Environmental Protection Agency (EPA).
Proposed rule.
The EPA is proposing to approve a revision to the Oklahoma Regional Haze State Implementation Plan (SIP) submitted on June 20, 2013 by the Oklahoma Secretary of Environment addressing the Best Available Retrofit Technology (BART) requirements for sulfur dioxide (SO
Written comments must be received on or before September 20, 2013.
Submit your comments, identified by Docket ID No. EPA–R06–OAR–2013–0227 by one of the following methods:
•
•
•
The State submittal is also available for public inspection during official business hours, by appointment, at the Oklahoma Department of Environmental Quality (ODEQ), Air Quality Division, 707 North Robinson, P.O. Box 1677, Oklahoma City, Oklahoma 73101–1677.
Terry Johnson at telephone number (214) 665–2154, email:
Throughout this document whenever “we,” “us,” or “our” is used, we mean the EPA. Information is organized as follows:
The ODEQ submitted a Regional Haze SIP (Oklahoma RH SIP) on February 19, 2010 to address the requirements of the regional haze program at 40 CFR 51.308 for the first implementation period. In December 2011, we partially approved, partially disapproved, and took no action on various portions of this SIP submittal (76 FR 81727, December 28, 2011). Even as significant portions of the Oklahoma RH SIP submittal were approved, we disapproved ODEQ's BART determinations for SO
Subsequent to this action, stakeholders, including AEP/PSO, ODEQ, and EPA, entered into discussions on the development and submittal of a revised SIP (Oklahoma RH SIP revision) designed to address BART requirements for Units 3 and 4 of the AEP/PSO Northeastern Power Station for SO
This
In the CAA Amendments of 1977, Congress established a program to protect and improve visibility in the national parks and wilderness areas. See CAA section 169A. Congress amended the visibility provisions in the CAA in 1990 to focus attention on the problem of regional haze. See CAA section 169B. We promulgated regulations in 1999 to implement sections 169A and 169B of the Act. These regulations require states to develop and implement plans to ensure reasonable progress toward improving visibility in mandatory Class I Federal areas
Regional haze is impairment of visual range or colorization caused by emissions of air pollution produced by numerous sources and activities, located across a broad regional area. The sources include, but are not limited to, major and minor stationary sources, mobile sources, and area sources, including non-anthropogenic sources. Visibility impairment is primarily caused by fine particulate matter (PM
Data from the existing visibility monitoring network, the “Interagency Monitoring of Protected Visual Environments” (IMPROVE) monitoring network, show that visibility impairment caused by air pollution occurs virtually all the time at most national parks and wilderness areas. Average visual range in many Class I areas in the Western United States is 100–150 kilometers, or about one-half to two-thirds the visual range that would exist without man-made air pollution.
In section 169A of the 1977 CAA Amendments, Congress created a program for protecting visibility in the nation's national parks and wilderness areas. This section of the CAA establishes as a national goal the “prevention of any future, and the remedying of any existing, impairment of visibility in Class I areas, which impairment results from man-made air pollution.”
Congress added section 169B to the CAA in 1990 to further address regional haze issues. We promulgated a rule to address regional haze on July 1, 1999 (64 FR 35713) (the Regional Haze Rule or RHR). The RHR revised the existing visibility regulations by adding provisions that address regional haze impairment and that establish a comprehensive visibility protection program for Class I areas. The requirements for regional haze, found at 40 CFR 51.308 and 51.309, are included in our visibility protection regulations at 40 CFR 51.300–309. Some of the main elements of the regional haze requirements are summarized in section III of this rulemaking. The requirement to submit a regional haze SIP applies to all 50 states, the District of Columbia, and the Virgin Islands.
On July 18, 1997, we promulgated new NAAQS for 8-hour ozone and PM
On April 25, 2005, we published a “Finding of Failure to Submit SIPs for Interstate Transport for the 8-hour Ozone and PM
On August 15, 2006, we issued our “Guidance for State Implementation Plan (SIP) Submissions to Meet Current Outstanding Obligations Under Section 110(a)(2)(D)(i) for the 8-Hour Ozone and PM
As identified in the 2006 Guidance, the “good neighbor” provisions in section 110(a)(2)(D)(i) of the CAA require each state to submit a SIP that prohibits emissions that adversely affect another state in the ways contemplated in the statute. Section 110(a)(2)(D)(i) contains four distinct requirements related to the impacts of interstate transport. The SIP must prevent sources in the state from emitting pollutants in amounts which will: (1) Contribute significantly to nonattainment of the NAAQS in other states; (2) interfere with maintenance of the NAAQS in other states; (3) interfere with provisions to prevent significant deterioration of air quality in other states; or (4) interfere with efforts to protect visibility in other states.
The 2006 Guidance stated that states may make a simple SIP submission confirming that it is not possible at that time to assess whether there is any interference with measures in the applicable SIP for another state designed to “protect visibility” for the 8-hour ozone and PM
On May 10, 2007, we received a SIP revision submitted to address the interstate transport provisions of CAA 110(a)(2)(D)(i) for the 1997 ozone and 1997 PM
Regional haze SIPs must assure reasonable progress towards the national goal of achieving natural visibility conditions in Class I areas. Section 169A of the CAA and EPA's implementing regulations require states to establish long-term strategies for making reasonable progress toward meeting this goal. Implementation plans must also give specific attention to certain stationary sources that were in existence on August 7, 1977, but were not in operation before August 7, 1962, and require these sources, where appropriate, to install BART controls for the purpose of eliminating or reducing visibility impairment.
Section 169A of the CAA directs states to evaluate the use of retrofit controls at certain larger, often uncontrolled, older stationary sources in order to address visibility impacts from these sources. Specifically, section 169A(b)(2)(A) of the CAA requires States to revise their SIPs to contain such measures as may be necessary to make reasonable progress towards the natural visibility goal, including a requirement that certain categories of existing major stationary sources
On July 6, 2005, we published the
States must address all visibility-impairing pollutants emitted by a source in the BART determination process. The most significant visibility-impairing pollutants are SO
Under the BART Guidelines, States may select and document an exemption threshold value to determine those BART-eligible sources not subject to
In their SIPs, States must identify BART-eligible sources that have a visibility impact in any Class I area above the “BART-subject” exemption threshold established by the State and thus, are subject to BART. States must document their BART control analysis and determination for all sources subject to BART.
The term “BART-eligible source” used in the BART Guidelines means the collection of individual emission units at a facility that together comprises the BART-eligible source. In making a BART determination, section 169A(g)(2) of the CAA requires that States consider the following factors: (1) The costs of compliance, (2) the energy and non-air quality environmental impacts of compliance, (3) any existing pollution control technology in use at the source, (4) the remaining useful life of the source, and (5) the degree of improvement in visibility which may reasonably be anticipated to result from the use of such technology.
Each state's regional haze SIP must include source-specific BART emission limits and compliance schedules for each source subject to BART. Once a state has made its BART determination, the BART controls must be installed and in operation as expeditiously as practicable, but no later than five years after the date the EPA approves the regional haze SIP.
In our prior review and action on the Oklahoma RH SIP, we agreed with Oklahoma's identification of sources that are BART-eligible and subject to BART, including Units 3 and 4 of the AEP/PSO Northeastern Power Station. 76 FR 81727 (December 28, 2011). We approved the State's PM and NO
The Oklahoma RH SIP Revision explains that it “does not reopen [the prior and EPA-approved] NO
The Oklahoma RH SIP Revision also includes a new SO
• By January 31, 2014, Units 3 and 4 must comply with an emission limit of 0.65 lb/MMBtu on a 30-day rolling average basis, to be met through the use of low-sulfur coal. An additional limit of 3,104 lb/hr on a 30-day rolling average basis will also apply to each unit;
• By December 31, 2014, Units 3 and 4 must comply with a reduced emission limit of 0.60 lb/MMBtu on a 12-month rolling average basis and a combined emissions cap of 25,097 tons/year on a 12-month rolling basis;
• By April 16, 2016, one of the two units must be permanently shut down, while the remaining unit must comply with a reduced emission limit of 0.4 lb/MMBtu
• The capacity utilization of the remaining unit will be capped at 70 percent by January 1, 2021; 60 percent by January 1, 2023; and 50 percent by January 1, 2025; and
• The remaining unit must be permanently shut down by December 31, 2026.
In its BART analysis, ODEQ identified its DSI/shutdown proposal as one control option and the FIP scenario of two DFGD/SDA systems as the second control option.
ODEQ also conducted a revised visibility modeling analysis using CALPUFF. ODEQ found that, while two DFGD/SDA systems provided the greatest visibility improvement across all Class I areas, the incremental visibility improvement between the DSI/shutdown scenario and the FIP scenario was small. ODEQ concluded that the FIP scenario would result in approximately 0.1 dv of additional visibility improvement compared with the DSI/shutdown scenario at each impacted Class I area, with a total additional improvement of approximately 0.27 dv across all four of the nearest Class I areas.
ODEQ noted that the DSI/shutdown scenario would result in additional reductions of NO
Oklahoma's revised NO
The CAA defines a FIP as “a plan (or portion thereof) promulgated by the Administrator to fill all or a portion of a gap or otherwise correct all or a portion of an inadequacy in a [SIP].” CAA section 302(y). Because a FIP is intended as a gap-filling measure, EPA encourages states to submit approvable SIP revisions that correct the deficiencies that a given FIP remedied. Such a SIP revision need not adopt the same suite of control options and techniques as EPA's FIP, nor does it necessarily have to be as stringent as EPA's FIP in all instances. Rather, when a State submits a SIP revision to EPA with the intention of replacing a FIP, EPA must approve the SIP revision so long as the SIP revision does not “interfere with any applicable requirement concerning attainment and reasonable further progress . . . or any other applicable requirement of [the Act].” CAA section 110(l). In regards to regional haze SIPs and the statutory requirement to make BART determinations for certain older major stationary sources, EPA must approve a State's SIP revision so long as the State complies with the CAA's visibility protection provisions, the RHR, and the BART Guidelines, and makes a reasonable control determination based on the weighing of the five factors. We have analyzed Oklahoma's new SO
We propose to conclude that ODEQ has appropriately met the requirements of 40 CFR 308(e) and the BART Guidelines of Appendix Y in determining BART for emissions of SO
ODEQ's revised BART determination includes the shutdown of one of the two units in April 2016 and the second unit in December 2026, so the controlling facts for the BART analysis are different than the facts that were presented with Oklahoma's 2010 SIP submission. As discussed previously, in the 2013 SIP revision ODEQ determined that the DSI/shutdown scenario was SO
Regarding the other BART factors, while BART determinations are typically made on a unit-by-unit basis, we believe that ODEQ's decision to evaluate BART on a facility-wide basis is a reasonable way to take into account the visibility and energy and non-air quality environmental benefits associated with unit shutdowns. While we believe ODEQ's facility wide approach to BART is reasonable, we have also analyzed BART on a unit by unit analysis. A unit by unit analysis includes the consideration of a scenario, not considered by ODEQ, in which the unit that remains in operation after April 16, 2016 installs DFGD/SDA. We also made adjustments to ODEQ's cost and visibility calculations to take into account more recent information regarding the facilities baseline “uncontrolled” emissions and the useful life of the facility. The adjustments were necessary to properly assess the cost and visibility factors on a unit by unit basis but were less important when the analysis was conducted, as ODEQ did, on a facility wide basis. First, we re-calculated cost-effectiveness assuming a baseline emission rate of 0.6 lb/MMBtu instead of the 0.9 lb/MMBtu rate used by ODEQ. The 0.6 lb/MMBtu emission rate takes into account more recent information regarding the actual emissions of Units 3 and 4 and it is more representative of the emission limits Oklahoma requires the two units to meet beginning January 31, 2014. In addition, based on the enforceable shutdown deadline, we assumed an amortization period of ten years for both DSI and DFGD/SDA. We used the same heat input of 4,775 MMBtu/hr and 85% capacity factor as ODEQ.
We calculated that the average cost-effectiveness of the DSI/shutdown scenario would be $1,758/ton, while the average cost-effectiveness of the DFGD/SDA/shutdown scenario would be $3,211/ton. The incremental cost-effectiveness of installing DFGD/SDA as the BART control on the remaining unit rather than DSI would be $7362/ton. See our TSD for more details of our cost analysis. A spreadsheet containing this EPA calculated cost effectiveness of DFGD/SDA is contained in the docket, and a summary of this information is presented in Table 1of the Technical Support Document accompanying this proposed action.
We reviewed the CALPUFF visibility modeling in the proposed SIP revision submittal and also performed additional analyses (including additional CALPUFF model runs). Please see the SIP's Appendix II and EPA's Technical Support Document for more details of AEP/PSO's modeling, ODEQ's evaluation, and EPA's modeling and evaluation. While, as described in the TSD, the Oklahoma's modeling has some differences from ours, the relative results are similar and the differences are not such that it changes our overall conclusions. In addition to the scenarios considered by Oklahoma, we also considered the scenario of one unit shutting down and one unit with DFGD/SDA. While we did not model this scenario, it is reasonable to approximate this scenario would result in one half the visibility impairment of the FIP scenario of two units operating with DFGD/SDA. Based on this assumption, this scenario results in an improvement of 0.19 deciviews at the most impacted Class I area and 0.64 deciviews cumulatively, when compared to DSI on the remaining operating unit. As discussed above, this visibility benefit is achieved at relatively high incremental cost effectiveness.
Oklahoma found, and we agree, that the DFGD/SDA scenario in the FIP would only result in slightly more visibility benefit than Oklahoma's chosen BART determination in which one unit operates until 2026 using DSI. A unit by unit analysis reveals that additional visibility benefit can be achieved if the unit that remains in operation were to implement DFGD/SDA, but this visibility benefit is achieved at a relatively high incremental cost.
In summary, we believe that when incremental costs, energy and non-air quality impacts, and the remaining useful life of the source are taken into consideration, ODEQ's determination that DSI is the proper BART control for the remaining unit is ultimately reasonable. We therefore propose to approve ODEQ's new SO
Previously, we disapproved the “PSO Regional Haze Agreement, DEQ Case No. 10–025 (February 10, 2010),” and its emission limitations for SO
Oklahoma submitted its
As an initial matter, we note that CAA section 110(a)(2)(D)(i)(II) does not explicitly specify how we should ascertain whether a state's SIP contains adequate provisions to prevent emissions from sources in that state from interfering with measures required in another state to protect visibility. Thus, the statute is ambiguous on its face, and we must interpret that provision in a reasonable fashion. Our 2006 Guidance recommended that a state could meet the visibility prong of CAA section 110(a)(2)(D)(i)(II) by submitting a fully approvable regional haze SIP. We reasoned that the development of the regional haze SIPs involved collaboration among the states. In fact, in developing their respective reasonable progress goals, CENRAP states consulted with each other through CENRAP's work groups. As a result of this process, the common understanding was that each state would take action to achieve the emissions reductions relied upon by other states in their reasonable progress demonstrations. CENRAP states consulted in the development of reasonable progress goals, using the products of the technical consultation
In the case of Northeastern Units 3 and 4, the CENRAP modeling assumed that each of these units would achieve the presumptive limit of 0.15 lb/MMBtu by 2018. Under the Oklahoma RH SIP Revision, one of the two units is required to shut down before that date, while the remaining unit is required to install DSI. To achieve emission levels equivalent to the levels assumed in other States' Regional Haze plans, the remaining unit must would have to meet an emission limit of 0.3 lb/MMBtu (0.15 + 0.15) by 2018. Currently, the First Amended Regional Haze Agreement in the submitted SIP revision only requires the remaining unit to meet an emission limit of 0.4 lb/MMBtu. However, the First Amended Regional Haze Agreement also requires the source operators to optimize the performance of DSI on the remaining unit to ensure that the best possible performance is achieved and adjust the limit accordingly. Further, if the remaining operating unit still cannot meet the emission limit of 0.3 lb/MMBtu, then the Oklahoma RH SIP Revision contains an enforceable commitment on behalf of ODEQ to “obtain and/or identify additional SO
Therefore, if the SO
In conclusion, we propose to approve the enforceable commitments made in the Oklahoma RH SIP Revision as satisfying Oklahoma's interstate transport obligations for visibility. We also propose to find that the SO
For the reasons explained above, we are proposing to approve ODEQ's revised SO
The newly submitted regional haze SIP revision also includes, and we are proposing to approve, an accelerated NO
Because we are proposing to approve the State's new SO
We are proposing to withdraw those portions of the FIP at 40 CFR § 52.1923 that impose SO
Section 110(l) of the CAA states that “[t]he Administrator shall not approve a revision of a plan if the revision would interfere with any applicable requirement concerning attainment and reasonable further progress or any other applicable requirement of this chapter.” 42 U.S.C. 7410(l). EPA does not interpret section 110(l) to require a full attainment or maintenance demonstration before any changes to a SIP may be approved. Generally, a SIP revision may be approved under section 110(l) if EPA finds that it will at least preserve status quo air quality, particularly where the pollutants at issue are those for which an area has not been designated nonattainment.
We do not believe an approval, as proposed, will interfere with CAA requirements for BART or for preventing interference with other states' programs to protect visibility because our proposal is supported by an evaluation that those CAA requirements are met. An approval will not result in any substantive changes to the BART requirements or other CAA requirements, and the AEP/PSO units will continue to be subject to the CAA requirements for BART. The SIP replaces a federal determination that was based on different underlying facts. Because of this, the submitted SIP cannot be said to be less stringent than the determination in the FIP. We also believe that approval of the submitted SIP revision will not interfere with attainment and maintenance of the NAAQS within the state of Oklahoma. The submitted SIP revision, if approved, will reduce emissions from the current levels allowed to impact local air quality. The area where the Northeastern facility is located has not been designated nonattainment for any NAAQS pollutants nor have any nearby areas. The revision being approved here will result in reductions in NOx and SO
Under the CAA, the Administrator is required to approve a SIP submission that complies with the provisions of the Act and applicable Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the CAA. Accordingly, this proposed
• Is not a “significant regulatory action” subject to review by the Office of Management and Budget under Executive Order 12866 (58 FR 51735, October 4, 1993);
• does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501
• is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601
• does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104–4);
• does not have Federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);
• is not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997);
• is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001);
• is not subject to requirements of Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the Clean Air Act; and
• does not provide EPA with the discretionary authority to address, as appropriate, disproportionate human health or environmental effects, using practicable and legally permissible methods, under Executive Order 12898 (59 FR 7629, February 16, 1994).
In addition, this rule does not have tribal implications as specified by Executive Order 13175 (65 FR 67249, November 9, 2000) because the SIP is not approved to apply in Indian country located in the state, and EPA notes that it will not impose substantial direct costs on tribal governments or preempt tribal law.
Environmental protection, Air pollution control, Intergovernmental relations, Nitrogen dioxide, Particulate matter, Regional haze, Reporting and recordkeeping requirements, Sulfur dioxide, Visibility, and Volatile organic compounds.
Title 40, chapter I, of the Code of Federal Regulations is proposed to be amended as follows:
42 U.S.C. 7401
The revised text read as follows:
(a)
(c)
(e) * * *
(1) No later than the compliance date of this regulation, the owner or operator shall install, calibrate, maintain and operate Continuous Emissions Monitoring Systems (CEMS) for SO
Environmental Protection Agency (EPA).
Proposed rule; extension of comment period.
EPA issued a proposed rule in the
Comments, identified by docket identification (ID) number EPA–HQ–OPPT–2012–0018, must be received on or before October 9, 2013.
Follow the detailed instructions as provided under
This document extends the public comment period established in the
To submit comments, or access the docket, please follow the detailed instructions as provided under
Environmental protection, Formaldehyde, Reporting and recordkeeping requirements, Toxic substances, Wood.
Environmental Protection Agency (EPA).
Proposed rule; extension of comment period.
EPA issued a proposed rule in the
Comments, identified by docket identification (ID) number EPA–HQ–OPPT–2011–0380, must be received on or before September 25, 2013.
Follow the detailed instructions as provided under
This document extends the public comment period established in the
To submit comments, or access the docket, please follow the detailed instructions as provided under
Environmental protection, Composite wood products, Formaldehyde, Reporting and recordkeeping, Third-party certification.
Legal Services Corporation.
Notice of proposed rulemaking with request for comments.
This proposed rule updates the Legal Services Corporation (LSC or Corporation) regulation on legal assistance to aliens. The revisions are intended to implement three statutory changes on aliens eligible for legal assistance from LSC grant recipients that have been enacted since the pertinent provisions of the existing regulation were last revised in 1997. Those three changes are described in more detail in the Supplementary Information section of this preamble.
LSC seeks comments on the proposed changes to the rule. LSC also seeks comments on specific items that it has identified in this notice.
Comments must be submitted by October 21, 2013.
Written comments must be submitted to Mark Freedman, Senior Assistant General Counsel, Legal Services Corporation, 3333 K Street NW., Washington, DC 20007; (202) 337–6519 (fax) or
Mark Freedman, Senior Assistant General Counsel, Legal Services Corporation, 3333 K Street NW.,
LSC's current appropriations restrictions, including those governing the assistance that may be provided to aliens, were enacted in 1996 and have been reincorporated annually with amendments. Section 504(a)(11) of the FY 1996 LSC appropriation prohibits the Corporation from providing funds to any person or entity (recipient) that provides legal assistance to ineligible aliens, subject to statutory exceptions. Public Law 104–134, Title V, section 504(a)(11), 110 Stat. 1321, 1321–54 (1996).
After the alienage restrictions were enacted in 1996, LSC adopted an interim rule to implement these statutory requirements. 61 FR 45750 (August 29, 1996). While this rule was pending for comment, Congress passed the Kennedy Amendment, which expanded eligibility for LSC recipients to use non-LSC funds to provide related assistance to aliens who have been battered or subjected to extreme cruelty in the United States by family members. Public Law 104–208, Div. A, Title V, section 502(a)(2)(C),110 Stat. 3009, 3009–60 (1996). The Kennedy Amendment was repeated in the FY 1998 modification of the LSC appropriation restrictions. Thereafter, LSC's annual appropriations have incorporated the FY 1998 restrictions by reference. Public Law 105–119, Title V, section 502(a)(2)(C), 111 Stat. 2440, 2511 (1997) incorporated by Public Law 113–6, Div. B, Title IV, 127 Stat. 198, 268 (2013) (LSC FY 2013 appropriation).
In 1997, LSC revised Part 1626 to implement the Kennedy Amendment. 62 FR 19409 (April 21, 1997), amended by 62 FR 45755 (August 29, 1997). The substantive provisions in Part 1626 have not been changed since 1997. In 2003, LSC added a list of documents establishing the eligibility of aliens for legal assistance from LSC grant recipients as an appendix to Part 1626. 68 FR 55540 (Sept. 26, 2003). The appendix has not been changed since 2003. This proposed rule makes three changes in Part 1626 to conform the regulation to statutory provisions.
The first proposed change would update the definition of aliens eligible for legal assistance under anti-abuse statutes. In the existing regulation, this definition appears in 45 CFR 1626.4, which in turn implements section 502(a)(2)(C) of the FY 1997 LSC appropriation. Public Law 104–208, 110 Stat. 3009 as repeated in FY 1998 and incorporated by reference in LSC's annual appropriations thereafter. Public Law 113–6, 127 Stat. 198 (2013) incorporating by reference FY 1998 appropriations. Since the last revision of the regulation in 1997, section 502(a)(2)(C) has been amended by anti-abuse statutes to expand the definition of eligible aliens. The anti-abuse statutes are the Victims of Trafficking and Violence Protection Act of 2000 (VTVPA), the Trafficking Victims Protection Reauthorization Act of 2003 (TVPRA), and the Violence Against Women and Department of Justice Reauthorization Act of 2005 (VAWA). These statutes permit LSC recipients to provide assistance to aliens who are direct victims of abuse and to other covered aliens who are not direct victims, such as family members and persons who may assist in law enforcement efforts. VTVPA and TVPRA create trafficking exceptions to the alienage prohibitions. VAWA amends section 502.
Because the amended text of section 502 is not codified, the pertinent portion is available at
The second proposed rule change would implement the FY 2008 LSC appropriation expansion of eligibility for legal assistance to include alien forestry workers admitted to the United States as temporary workers under the H–2B program of the Immigration and Nationality Act (INA).
The third proposed rule change is technical. The statutory basis for an existing category of eligible aliens under the regulation, persons granted withholding of removal from the U.S., has been relocated to a new section of the INA.
The proposed rule also updates the definition of “related legal services” that may be provided to aliens because of abuse and related crimes to conform with statutory authority and previous LSC interpretations.
The existing regulation includes an appendix that lists examples of documents acceptable to establish the eligibility of aliens for legal assistance from LSC grant recipients. The proposed rule would modify the appendix in three respects. First, the Corporation proposes to move the list of example documents from an appendix to the alienage regulation to a program letter because updating the example documents as immigration forms change is a ministerial function that does not alter the substance of the regulation. Second, the list is updated to include documentation that would establish eligibility for the categories of eligible aliens added in the proposed rule. Third, the list has been updated to include new eligibility documents for aliens covered under the existing regulation.
The most extensive revisions in the proposed rule are to section 1626.4 of the regulation, and update that provision to conform to the statutory changes in alien eligibility that result from the trafficking statutes and VAWA.
The VTVPA and TVPRA require that LSC and Federal agencies “shall expand benefits and services to victims of severe forms of trafficking in persons in the United States, and aliens classified as a nonimmigrant under section 1101 (a)(15)(T)(ii) of title 8 [family members of trafficking victims], without regard to the immigration status of such victims. 22 U.S.C. 7105, codifying VTVPA, Public Law 106–386, sections 107(b) and (e), 114 Stat. 1464, 1475, and 1477 (2000), and TVPRA, Public Law 108–193, section 4,117 Stat. 2875, 2877 (2003). In 2006, VAWA amended the LSC alienage eligibility provision in section 502(a)(2)(C) to expand the categories of aliens to whom recipients may provide related assistance by adding aliens who (1) are victims of sexual assault or trafficking in the United States or (2) qualify for “U” visas under section 101(a)(15)(U) of the INA. Public Law 105–119, Title V, section 502(a)(2)(C), amended by Public Law 109–162, section 104, 119 Stat. 2960, 2978 (2006). The U visa provision of the INA allows aliens to remain in the United States for a limited period who are victims of a variety of abuse crimes, who may assist in law enforcement related to such crimes, or who are family members of victims. 8 U.S.C. 1101(a)(15)(U). The VAWA amendments in 2006 incorporated the VTVPA and TVPRA provisions.
The two major changes resulting from the VAWA amendment of the LSC appropriations were that (1) LSC recipients are permitted to provide assistance to previously ineligible aliens who are entitled to remain in the U.S. under the anti-abuse statutes and (2) recipients may use LSC funds to assist these aliens.
LSC issued two program letters to provide guidance to recipients on implementing the VTVPA, TVPRA and VAWA eligibility changes. Program Letter 05–2 (October 6, 2005) (addressing VTVPA and TVPRA); Program Letter 06–2 (February 21, 2006) (addressing VAWA). However, the existing regulation has not been updated to include the extension of eligibility under the anti-abuse statutes.
In addition to the changes resulting from the anti-abuse statutes, the FY 2008 LSC appropriation amended section 504(a)(11) to extend eligibility for assistance from recipients to forestry workers admitted to the U.S. under the H–2B temporary worker provisions in section 101(a)(15)(H)(ii)(b) of the INA. Public Law 104–134, section 504(a)(11)(E), 110 Stat. at 1321–55, amended by Public Law 110–161, Div. B, Title V, section 540, 121 Stat. 1844, 1924 (2007). Section 1626.11 of the LSC alienage regulation establishes eligibility for H–2A agricultural temporary workers, but has not been amended to implement the statutory extension of eligibility to forestry workers.
On April 14, 2013, the Operations and Regulations Committee (the Committee) of the LSC Board of Directors (the Board) recommended that the Board authorize rulemaking to conform Part 1626 to statutory authorizations. On April 16, 2013, the Board authorized the initiation of rulemaking.
Pursuant to the LSC Rulemaking Protocol, LSC staff prepared a proposed rule amending Part 1626 with an explanatory rulemaking options paper. On July 22, 2013, the Committee recommended that the Board approve the proposed rule for notice and comment rulemaking. On July 23, 2013, the Board approved the proposed rule for publication in the
Citations to the VTVPA, TVPRA, VAWA, the FY 2006 Appropriations Act, and the FY 2008 Appropriations Act are added.
No revisions have been made to this section.
Paragraphs (b) and (c) have been changed to add references to § 1626.4 to the definitions of “eligible alien” and “ineligible alien.” This revision, along with others discussed subsequently, reflects a change in how the two sections on alien eligibility, § 1626.4 and § 1626.5, are described in the proposed rule. In the existing regulation, aliens eligible under anti-abuse statutes (§ 1626.4) are described as persons to whom alienage restrictions do not apply, and aliens eligible because of immigration status (§ 1626.5) are described as eligible aliens. In the proposed rule, both § 1626.4 and § 1626.5 are described as establishing categories of aliens who are eligible for assistance. The Corporation believes that this adds clarity to the rule's identification of aliens who may be assisted by recipients.
Paragraph (d) has been revised to identify the Department of Homeland Security (DHS) as the governmental entity that makes status adjustment determinations in place of the Immigration and Naturalization Service.
Paragraph (f) of the existing regulation, the definition of persons “battered or subjected to extreme cruelty”, has been moved to § 1626.4(c)(1). Paragraph (g) of the existing regulation, the definition of “[l]egal assistance directly related to the prevention of, or obtaining relief from, the battery or cruelty” has been moved to § 1626.4(b) and renamed with substantive revisions that are explained in the discussion of that section.
These moves are part of the proposed rule's consolidation of all terms exclusive to eligibility under anti-abuse statutes to § 1626.4. Existing definitions that apply to § 1626.4 and new definitions added in the interim rule appear in that section as revised. A new paragraph (f) is added that defines the term “anti-abuse statutes,” which is used to collectively describe the statutes that expand eligibility.
Technical revisions have been made to this section.
This section is substantially rewritten to incorporate alien eligibility expansion under the VTVPA, TPVRA, VAWA, and resulting amendments to the LSC restrictions. The title of this section and of § 1626.5 have been revised to clearly state that these two sections of Part 1626 establish the two major categories of eligible aliens who are excepted from the restrictions on assistance: (1) aliens who are eligible for assistance under anti-abuse laws (covered in § 1626.4) and (2) aliens eligible for assistance based on immigration status (covered in § 1626.5).
Paragraph (a) of this provision has been rewritten to incorporate into the regulation (1) the current language of section 502(a)(2)(C) of the appropriations restrictions, which contains the VAWA amendment expanding alien eligibility, and (2) the language of 22 U.S.C. 7105(b)(1)(B) implementing VTVPA and TPVRA. The introductory clause before paragraph (a)(1) tracks that of § 1626.5. As is the case with the new titles, this is intended to clearly reflect that the two sections establish two distinct categories of aliens who are eligible for assistance.
Paragraph (a) allows recipients to assist aliens eligible under the anti-abuse statutes with any funds, including LSC funds, as permitted by those statutes. This replaces the superseded funding limitation in the existing § 1626.4, which requires that recipients use non-LSC funds to assist clients eligible under this provision.
Paragraph (a)(1) in the proposed rule adopts language identifying eligible aliens from the VAWA amendment to section 502(a)(2)(C) of the appropriations restrictions. Persons “battered and subject to extreme cruelty” are eligible under the existing Part 1626 language, which adopts the definition of that term from immigration regulations implementing the 1994 VAWA.
The proposed changes in paragraph (a)(1) also implement the VAWA amendment by adding two new groups of eligible aliens: (1) victims of sexual assault or trafficking in the United States and (2) persons qualified for “U visa” relief under section 101(a)(15)(U) of the INA. The existing limitation that only “related legal assistance” can be provided is retained in the VAWA amendment and the regulation.
Paragraph (a)(2) adds language implementing 22 U.S.C. 7105 (codifying provisions of the VTVPA and TVPRA), which requires that LSC expand all services to “victims of severe forms of trafficking in the United States” as well as to some relatives of such victims. Unlike the VAWA provision, the VTVPA and TVPRA do not limit recipients to providing “related legal assistance.”
Paragraph (b) is a relocated and provides a revised definition of “related legal assistance” that may be provided to VAWA-eligible aliens under section 502(b)(2) of the FY 1998 LSC appropriation, as amended. The VAWA amendment limits assistance to aliens to “related legal assistance.” The definition of such assistance is relocated
The substance of the definition of related legal assistance is changed to use the same term for assistance, “related legal assistance,” as used in the VAWA amendment to the LSC appropriations. Paragraphs (1), (2), and (3) of the definition link the assistance to the three categories of aliens eligible under the anti-abuse laws, including the categories added by VAWA and included in the proposed rule.
The closing paragraph of the definition of “related legal assistance,” following the three paragraphs, adopts LSC's prior interpretation of permissible legal assistance for persons eligible under anti-abuse laws. The definition of “related legal assistance” in the proposed rule conforms to the interpretation of that term in the February 21, 2006 LSC Program Letter 06–2 providing guidance of the VAWA amendments. That program letter referenced LSC's interpretation on the existing Part 1626 regulation. 62 FR 45757 (preamble to final rule) (Aug. 29, 1997). In that interpretation, LSC concluded that related legal assistance for abused aliens could include representation on matters such as domestic and poverty law, employment, housing, and benefits, so long as such matters would assist in preventing, protecting from, or ameliorating abuse.
Paragraph (c) adds definitions for the four groups of aliens eligible for assistance under the anti-abuse statutes. Paragraph (c)(1), the definition of persons “battered or subjected to extreme cruelty,” is part of the existing regulation and is relocated from the definitions in § 1626.2 to § 1626.4 on eligibility under the anti-abuse laws. The first sentence of paragraph (c) defines “battered or subjected to extreme cruelty” by cross-reference to that term as defined in DHS regulations. This will allow the definition to remain accurate if the DHS regulations change. The examples of prohibited abusive behavior that follow the cross-reference are taken directly from the language of existing DHS regulations.
Paragraph (c)(3) incorporates the definition of the term “severe forms of trafficking” from the INA “T visa” provision, VTVPA and TVPRA. This language differs from the VAWA term “trafficking” in that it adds the words “severe forms.”
Paragraph (c)(4) identifies persons “qualified for relief” under the U visa statute, section 101(a)(15)(U) of the INA. This includes persons who have been granted U visas, listed in paragraph (c)(3)(A). Because the term “qualified for relief” is not limited to persons who have been granted relief, the U visa paragraph also establishes eligibility for applicants for U visa relief and for persons who have not applied but who a recipient concludes are entitled to U visa relief. These latter two groups are included to permit recipients to represent aliens who have either applied for U visa relief or would, in the recipient's determination, qualify for U visas but have not applied.
The eligibility provisions for U visa qualified aliens who have not been granted U visa relief require that there be evidentiary support for a recipient's determination of U visa qualification and eligibility. This standard is adopted from Rule 11 of the Federal Rules of Civil Procedure and is used to require recipients to have a factual basis for eligibility determinations.
The last sentence of paragraph (c)(4) addresses the two categories of U visa relief, referred to in immigration forms as “primary U visa status” and “derivative U visa” status. Primary U visas are those sought by persons who are victims of abuse or who can assist with investigation or enforcement of such crimes, while derivative visas are those sought for family members of persons seeking primary U visas.
Derivative U visa applicants are qualified for relief based on the eligibility of their family members applying for primary U visa status. The clarification in the proposed rule confirms that all U visa seekers are eligible for assistance without exclusion of applicants seeking derivative U visa status. The Corporation determined that this clarification would be useful to incorporate the analysis and conclusions of a recent Advisory Opinion from the LSC Office of Legal Affairs on U visa eligibility.
Paragraph (d) of the proposed rule addresses two issues regarding geographic location. As described below, LSC specifically requests comments on these issues. Generally, the 504(a)(11) provision regarding eligible aliens requires presence in the United States, a requirement set forth in § 1626.5. The anti-abuse laws enacted by Congress subsequent to the FY 1996 restrictions do not contain the same broad presence requirement.
The first geographic location issue is the geographic location of the criminal activity that gives rise to the eligibility of the alien, addressed in paragraph (d)(1). The prohibitions of VAWA and the trafficking acts are not limited to activity within the United States.
Similarly, the VAWA definition of “battered and extreme cruelty” was amended to eliminate the requirement that such conduct take place in the United States. The U visa provision in the INA requires that the criminal activity have “violated the laws of the United States
The USCIS regulation makes clear that criminal activity violative of U.S. law sufficient for U visa eligibility
However, the VAWA amendment to section 502 of the appropriations legislation states that “a victim of sexual assault or trafficking
In sum, it is LSC's view that the predicate activity for eligibility under the anti-abuse statutes need not take place in the United States so long as the activity violates a law of the United States, with the exception of trafficking and severe forms of trafficking, which must occur in the United States as described above.
The second geographic location issue is whether an alien must be physically present in the United States to be eligible, addressed in paragraph (d)(2). The U visa statutory provision does
VAWA does not address whether aliens must be physically present in the U.S. The trafficking acts themselves do not impose such a requirement, although they do reference victims in the United States and eligibility for services when victims are in the United States. 22 U.S.C. 7105(b). However, the T visa provision of the INA, which establishes visa eligibility for victims of trafficking, requires that victims be present in the United States. 8 U.S.C. 1101(a)(15)(T). The VAWA amendment to the appropriations legislation refers to eligibility for “victims of sexual assault or trafficking in the United States.” Public Law 109–162, section 104, 119 Stat. at 2979 (amending section 502(a)(2)(C)). Complicating this further, trafficking and VAWA violations are among the crimes that establish U visa eligibility, so a victim of trafficking who is not in the United States can obtain a U visa but not a T visa. 8 U.S.C. 1101(a)(15(U).
Reviewing these statutes collectively, it is the view of LSC that aliens should be eligible for assistance under the anti-abuse statutes regardless of whether they are present in the United States. Most significantly, this interpretation of the statutes comports with the USCIS interpretation of the U visa statute, under which victims of trafficking and VAWA violations may seek relief. Victims of sexual assault
Paragraph (e) of the proposed rule, “evidentiary support”, establishes an evidentiary standard for determining eligibility for assistance under the anti-abuse statutes. The standard is adopted from Rule 11 of the Federal Rules of Civil Procedure, and permits a recipient to determine an alien is eligible if there is evidentiary support that the alien falls within any of the eligibility categories or if there is likely to be evidentiary support after reasonable opportunity for further investigation. The list of examples of evidence that would meet the standard is taken from VAWA, which allows consideration of “any credible evidence” of abuse. This standard is established in section 204(a)(1)(J) of the INA (8 U.S.C. 1154(a)(1)(J)), and has been adopted by DHS. 8 CFR 204.2(c)(1)(vi). Paragraph (e) of the proposed rule identifies the examples of credible evidence listed in VAWA and the DHS regulation.
In applying the evidentiary standard, LSC considered that recipients will be making eligibility determinations on whether aliens qualify for recipient assistance on pending and contested claims rather than making final decisions on the merits of the claims of aliens for relief. For that reason, LSC chose an evidentiary standard that was appropriate for assessing the validity of filing and proceeding with claims. The evidentiary support standard in the proposed rule addresses the issues that recipients will confront in assessing eligibility in several ways.
First, the rule adopts a standard based on Rule 11 of the Federal Rules of Civil Procedure for filing and continuing with claims. Second, the standard permits recipients to make a judgment that an alien who may not possess evidence at intake will be able to do so after further investigation. Third, the rule allows eligibility based on statements taken from an alien, which may in some cases be the only evidence available during intake. Fourth, the rule accounts for the reality that the facts underlying eligibility assessments in abuse cases will often be fluid by calling for recipient staff to continue to assess eligibility beyond the intake process and to reverse eligibility determinations when appropriate. Fifth, the rule does not permit a recipient to delay in making eligibility determinations in order to provide assistance to an ineligible alien.
Paragraph (f) of the proposed rule is a revision of paragraph (d) of the existing regulation, which states that recipients are not required to maintain records regarding the immigration status of clients represented under § 1626.4(a). The reason for this waiver of immigration status recordkeeping for clients eligible under § 1626.4 is that, under the existing regulation, clients are eligible under § 1626.4 because they are victims of abuse and not because of their immigration status.
For clients who are eligible because they are battered, subjected to extreme cruelty, victims of sexual abuse, or victims of trafficking or severe forms of trafficking, but who have not been granted visa, eligibility is based on abuse and not on immigration status. Paragraph (f)(2) of the proposed rule requires that evidence of the abuse must be maintained for such clients but does not require evidence of immigration status. When such clients have filed applications for U visas or T visas copies of those applications must be retained.
However, the eligibility of certain of the aliens eligible under the proposed rule does rest in part on immigration status. Specifically, the eligibility of aliens who have been granted U visas or T visas is based on their immigration status in the visa process. Accordingly, paragraph (f)(1) in the proposed rule requires that recipients maintain verification of U visa or T visa status for clients whose eligibility is based on their receiving such visas.
Paragraph (g) is a new provision that addresses aliens who qualify under both § 1626.4 and § 1626.5. Because recipients are limited to providing “related legal assistance” under § 1626.4 but may provide the full range of permissible assistance without this restriction under § 1626.5, the paragraph instructs recipients to treat “dual eligible” aliens as eligible under § 1626.5.
This section is substantively unchanged. As explained in the immediately preceding discussion, the titles for proposed § 1626.4 and § 1626.5, have been changed to describe more precisely the exceptions to the prohibition of assistance to aliens established in those sections.
The proposed rule includes a change in § 1626.5(e), which concerns persons granted withholding of deportation. Section 1626.5 of the regulation allows recipients to provide assistance to several categories of aliens who have been granted immigration status and are lawfully present or admitted to the United States. One category eligible under this section is “alien[s] who [are] lawfully present in the United States as a result of the Attorney General's withholding of deportation pursuant to section 243(h) of the INA (8 U.S.C. 1253(h)).” 45 CFR 1626.5(e).
The withholding provision has been relocated to another section of the INA, and is now codified at 8 U.S.C. 1231(b)(3). The relocated withholding provision prohibits the removal of an alien to a country if the life or freedom of the alien would be threatened in the country of removal. Section 1626.5(e) in the proposed regulation is amended to correctly identify the citation to the statutory basis for withholding relief, and to reflect that the relocated provisions refers to withholding of “removal” and not to withholding of “deportation.”
No substantive revisions have been made to this section. The proposed rule amends the section to reference internet, email, or other non-telephone communications.
This section is revised to reflect that the list of eligibility documents presently published as an appendix to § 1626 will be subsequently published and revised in LSC program letters, or equivalent documents. The revision made to § 1626.6 on non-in-person communications also appears in this section.
Section 1626.4 has been added to the list of provisions for which emergency service can be provided prior to compliance with eligibility provisions.
No revisions have been made to this section.
No revisions have been made to this section.
This section establishes eligibility for assistance to certain workers admitted to the U.S. under temporary workers provisions in section 101(a)(15)(H)(ii) of the INA. Workers with immigration status under this section of the INA are often referred to as “H–2A” or “H–2B” visa holders, depending on the subsection of the H–2 provision they are admitted under.
The title of this section has been changed to add a reference to forestry workers, because statutory changes implemented in this section of the proposed rule add forestry workers authorized to be in the United States pursuant to the H–2B provision of the INA. The changes in paragraph (a) of this section conform the regulation's language on eligibility of agricultural workers to the statutory authority establishing this eligibility. The statutory authority establishing eligibility for agricultural workers, section 504(a)(11)(E) of the FY 1996 LSC appropriations legislation, permits recipients to provide assistance to “an alien to whom section 305 of the Immigration Reform Act of 1986 [“IRCA”] (8 U.S.C. 1101 note) applies.” Public Law 104–134, section 504(a)(11)(E), 110 Stat. at 1321–55, amended by Public Law 110–161, section 540, 121 Stat. at 1924. Section 305 of IRCA in turn establishes eligibility for “non-immigrant worker[s] admitted or permitted to remain in the United States under section 101(a)(15)(H)(ii)(a) of the Immigration and Naturalization Act .” 8 U.S.C. 1101, note. The existing § 1626.11 language refers generally to “agricultural H–2 workers” and eligibility “under the provisions of 8 U.S.C. 1101(a)(15)(H)(ii).” This general reference to H–2 could be confused as a broader authorization than that actually created by the statute, which establishes eligibility specifically for H–2
The added paragraph (b) implements the FY 2008 amendment to section 504(a)(11)(E) of the FY 1996 LSC appropriations legislation, which extended eligibility for assistance from recipients to H–2B visa forestry workers. Public Law 104–134, section 504(a)(11)(E), 110 Stat. at 1321–55, amended by Public Law 110–161, section 540, 121 Stat. at 1924. The existing § 1626.11 provision on H–2 visa eligibility does not include forestry workers.
Paragraph (b) of the proposed rule also establishes that the existing limitations on assistance for H–2A agricultural workers apply as well to H–2B forestry workers. This conforms to the FY 2008 LSC appropriation, which limits the assistance for H–2B eligible forestry workers to that described in section 305 of IRCA.
No revisions have been made to this section.
The list of eligibility documents presently included in the regulation as an appendix to Part 1626 was last updated in 2003, and, like the regulation, it requires updates. Revisions to the list do not entail policy decisions, as they are limited to administrative updates to the list of examples of documents or information which satisfy eligibility. In view of the frequency with which immigration forms change, subjecting updates of the list to the process of repeated Board approval and the LSC rulemaking protocol would be unduly complicated. For that reason, the Corporation proposes that the information currently contained in the appendix be reclassified as a program letter posted on the LSC Web site, and emailed to grant recipients.
The initial revision of the appendix and reclassification as a program letter is a change in the regulation and is therefore being done pursuant to the LSC rulemaking protocol, which requires Board review and approval prior to publication for notice and comment. Legal Services Corporation Rulemaking Protocol, 67 FR 69762 (November 19, 2002). Subsequent revision of the program letter would allow for, but would not require, Board consideration and approval and thereafter notice and comment.
Aliens, Grant programs—law, Legal services, Migrant labor, Reporting and recordkeeping requirements.
For the reasons discussed in the preamble, the Legal Services Corporation proposes to revise 45 CFR part 1626 to read as follows:
Pub. L. 104–208, 110 Stat. 1321; Pub. L. 104–134, 110 Stat. 3009; Pub. L. 105–119, 111 Stat. 2440; Pub. L. 106–386, 114 Stat. 1464; Pub. L. 108–193, 117 Stat. 2875; Pub. L. 109–162, 119 Stat. 2960; Pub. L. 110–161, 121 Stat. 1844.
This part is designed to ensure that recipients provide legal assistance only to citizens of the United States and eligible aliens. It is also designed to assist recipients in determining the eligibility and immigration status of persons who seek legal assistance.
(a)
(b)
(c)
(d)
(e) To provide legal assistance
(f)
(g)
Recipients may not provide legal assistance for or on behalf of an ineligible alien. For purposes of this part, legal assistance does not include normal intake and referral services.
(a) Subject to all other eligibility requirements and restrictions of the LSC Act and regulations and other applicable law:
(1) A recipient may provide related legal assistance to an alien who is within one of the following categories:
(i) An alien who has been battered or subjected to extreme cruelty, or is a victim of sexual assault or trafficking in the United States, or qualifies for relief under section 101(a)(15)(U) of the INA (8 U.S.C. 1101(a)(15)(U)); or
(ii) An alien whose child, without the active participation of the alien, has been battered or subjected to extreme cruelty, or has been a victim of sexual assault or trafficking in the United States, or qualifies for immigration relief under section 101(a)(15)(U) of the INA (8 U.S.C. 1101(a)(15)(U)).
(2) A recipient may provide legal assistance, including but not limited to related leal assistance, to:
(i) an alien who is a victim of “severe forms of trafficking” of persons in the United States, or
(ii) an alien classified as a non-immigrant under section 101 (a)(15)(T)(ii) of the INA (8 U.S.C. 1101(a)(15)(T)(ii) regarding others related to the victim).
(b) (1)
(i) To the prevention of, or obtaining relief from, battery or cruelty, sexual assault or trafficking;
(ii) To the prevention of, or obtaining relief from, crimes listed in section 101(a)(15)(U)(iii) of the INA (8 U.S.C. 1101(a)(15)(U)(iii));
(iii) To an application for relief:
(A) Under Section 101(a)(15)(U) of INA (8 U.S.C. 1101(a)(15)(U)); or
(B) Under section 101(a)(15)(T) of INA (8 U.S.C. 1101(a)(15)(T)).
(2) Such assistance includes representation in matters that will assist a person eligible for assistance under this part to escape from the abusive situation, ameliorate the current effects of the abuse, or protect against future abuse, so long as the recipient can show the necessary connection of the representation to the abuse. Such representation may include immigration law matters, and domestic or poverty law matters (such as obtaining civil protective orders, divorce, paternity, child custody, child and spousal support, housing, public benefits, employment, abuse and neglect, juvenile proceedings and contempt actions).
(c)
(2)
(i)
(ii)
(3) A
(4) A person who
(i) A person who has been granted relief under that section;
(ii) A person who has applied for relief under that section and who the recipient determines has evidentiary support for such application; or
(iii) A person who has not filed for relief under that section, but who the recipient determines has evidentiary support for filing for such relief.
A person who “qualifies for immigration relief” includes any person who may apply for primary U visa relief under subsection (i) of section 101(a)(15)(U) of the INA or for derivative U visa relief for family members under subsection (ii) of section 101(a)(15)(U) of the INA (8 U.S.C. 1101(a)(15)(U)). Recipients may provide assistance for any person who qualifies for derivative U visa relief regardless of whether such a person has been subjected to abuse.
(d)
(2)
(e)
(f)
(2) For a client whose eligibility is based on other evidentiary support as described in paragraph (e) of this section, recipients are required to maintain originals or copies of such evidence. When such a client has filed an application for relief under section 101(a)(15)(U) of the INA or section 101(15)(T) of the INA, recipients must maintain a copy of the application for such relief filed with immigration authorities as well as copies of other evidentiary support.
(g)
Subject to all other eligibility requirements and restrictions of the LSC Act and regulations and other applicable law, a recipient may provide legal assistance to an alien who is present in the United States and who is within one of the following categories:
(a) An alien lawfully admitted for permanent residence as an immigrant as defined by section 1101(a)(20) of the INA (8 U.S.C. 1101(a)(20));
(b) An alien who is either married to a United States citizen or is a parent or an unmarried child under the age of 21 of such a citizen and who has filed an application for adjustment of status to permanent resident under the INA, and such application has not been rejected;
(c) An alien who is lawfully present in the United States pursuant to an admission under section 207 of the INA (8 U.S.C. 1157) (relating to refugee admissions) or who has been granted asylum by the Attorney General under section 208 of the INA (8 U.S.C. 1158).
(d) An alien who is lawfully present in the United States as a result of being granted conditional entry pursuant to section 203(a)(7) of the INA (8 U.S.C. 1153(a)(7), as in effect on March 31, 1980) before April 1, 1980, because of persecution or fear of persecution on account of race, religion, or political opinion or because of being uprooted by catastrophic natural calamity;
(e) An alien who is lawfully present in the United States as a result of the Attorney General's withholding of removal pursuant to section 241(b)(3) of the INA (8 U.S.C. 1231(b)(3); or
(f) An alien who meets the requirements of § 1626.10 or § 1626.11.
(a) A recipient shall require all applicants for legal assistance who claim to be citizens to attest in writing in a standard form provided by the Corporation that they are citizens, unless the only service provided for a citizen is brief advice and consultation by telephone, or by other non-in-person means, which does not include continuous representation.
(b) When a recipient has reason to doubt that an applicant is a citizen, the recipient shall require verification of citizenship. A recipient shall not consider factors such as a person's accent, limited English-speaking ability, appearance, race, or national origin as a reason to doubt that the person is a citizen.
(1) If verification is required, a recipient may accept originals, certified copies, or photocopies that appear to be complete, correct, and authentic of any of the following documents as evidence of citizenship:
(i) United States passport;
(ii) Birth certificate;
(iii) Naturalization certificate;
(iv) United States Citizenship Identification Card (INS Form 1–197 or I–197); or
(v) Baptismal certificate showing place of birth within the United States and date of baptism within two months after birth.
(2) A recipient may also accept any other authoritative document, such as a document issued by INS, by a court, or by another governmental agency, that provides evidence of citizenship.
(3) If a person is unable to produce any of the above documents, the person may submit a notarized statement signed by a third party, who shall not be an employee of the recipient and who can produce proof of that party's own United States citizenship, that the person seeking legal assistance is a United States citizen.
(a) An alien seeking representation shall submit appropriate documents to verify eligibility, unless the only service provided for an eligible alien is brief advice and consultation by telephone, or by other non-in-person means, which does not include continuous representation of a client.
(1) As proof of eligibility, a recipient may accept originals, certified copies, or photocopies that appear to be complete, correct, and authentic, of any documents establishing eligibility. LSC will publish a list of examples of such documents from time to time, in the form of a program letter or equivalent.
(2) A recipient may also accept any other authoritative document issued by the DHS, by a court, or by another governmental agency, that provides evidence of alien status.
(b) A recipient shall upon request furnish each person seeking legal assistance with a current list of documents establishing eligibility under this part as is published by LSC.
In an emergency, legal services may be provided prior to compliance with § 1626.4, § 1626.6 and § 1626.7 if:
(a) An applicant cannot feasibly come to the recipient's office or otherwise transmit written documentation to the recipient before commencement of the representation required by the emergency, and the applicant provides oral information to establish eligibility which the recipient records, and the applicant submits the necessary documentation as soon as possible; or
(b) An applicant is able to come to the recipient's office but cannot produce the required documentation before commencement of the representation, and the applicant signs a statement of eligibility and submits the necessary documentation as soon as possible; and
(c) The recipient informs clients accepted under paragraph (a) or (b) of this section that only limited emergency legal assistance may be provided without satisfactory documentation and that, if the client fails to produce timely and satisfactory written documentation, the recipient will be required to discontinue representation consistent with the recipient's professional responsibilities.
If, to the knowledge of the recipient, a client who was an eligible alien becomes ineligible through a change in circumstances, continued representation is prohibited by this part and a recipient must discontinue representation consistent with applicable rules of professional responsibility.
(a) (1) This part is not applicable to recipients providing services in the Commonwealth of the Northern Mariana Islands, the Republic of Palau, the Federated States of Micronesia, or the Republic of the Marshall Islands.
(2) All citizens of the Republic of Palau, the Federated States of Micronesia, and the Republic of the Marshall Islands residing in the United States are eligible to receive legal assistance provided that they are otherwise eligible under the Act.
(b) All Canadian-born American Indians at least 50% Indian by blood are eligible to receive legal assistance provided they are otherwise eligible under the Act.
(c) Members of the Texas Band of Kickapoo are eligible to receive legal assistance provided they are otherwise eligible under the Act.
(d) An alien who qualified as a special agricultural worker and whose status is adjusted to that of temporary resident alien under the provisions of the Immigration Reform and Control Act (“IRCA”) is considered a permanent resident alien for all purposes except immigration under the provisions of section 302 of 100 Stat. 3422, 8 U.S.C. 1160(g). Since the status of these aliens is that of permanent resident alien under section 1101(a)(20) of Title 8, these workers may be provided legal assistance. These workers are ineligible for legal assistance in order to obtain the adjustment of status of temporary resident under IRCA, but are eligible for legal assistance after the application for adjustment of status to that of temporary resident has been filed, and the application has not been rejected.
(e) A recipient may provide legal assistance to indigent foreign nationals who seek assistance pursuant to the Hague Convention on the Civil Aspects of International Child Abduction and the Federal implementing statute, the International Child Abduction Remedies Act, 42 U.S.C. 11607(b), provided that they are otherwise financially eligible.
(a) Nonimmigrant agricultural workers admitted under the provisions of 8 U.S.C. 1101(a)(15)(h)(ii)(a), commonly called H–2A agricultural workers, may be provided legal assistance regarding the matters specified in paragraph (c) of this section;
(b) Nonimmigrant forestry workers admitted under the provisions of 8 U.S.C. 1101(a)(15)(h)(ii)(b), commonly called H–2B forestry workers, may be provided legal assistance regarding the matters specified in paragraph (c) of this section.
(c) The following matters which arise under the provisions of the worker's specific employment contract may be the subject of legal assistance by an LSC-funded program:
(1) Wages;
(2) Housing;
(3) Transportation; and
(4) Other employment rights as provided in the worker's specific contract under which the nonimmigrant worker was admitted.
Each recipient shall adopt written policies and procedures to guide its staff in complying with this part and shall maintain records sufficient to document the recipient's compliance with this part.
Fish and Wildlife Service, Interior.
Proposed rule; correction.
We, the U.S. Fish and Wildlife Service (Service), correct the public meeting dates published in the August 2, 2013, proposed rule to designate critical habitat for
We will hold a public meeting on the proposed rule on September 10, 2013, in Reno, Nevada, from 4:00 to 6:00 p.m.
The public meeting will be held at the U.S. Department of the Interior Building, Great Basin Conference Room, 1340 Financial Blvd., Reno, NV 89502. People needing reasonable accommodations in order to attend and participate in the public hearing should contact Jeannie Stafford, Nevada Fish and Wildlife Office, as soon as possible (see
Edward D. Koch, State Supervisor, U.S. Fish and Wildlife Service, Nevada Fish and Wildlife Office, 1340 Financial Boulevard, Suite 234, Reno, NV 89502; by telephone 775–861–6300; or by facsimile 775–861–6301. Persons who use a telecommunications device for the deaf (TDD) may call the Federal Information Relay Service (FIRS) at 800–877–8339.
In our August 2, 2013, proposed rule to designate critical habitat for
The authority for this action is the Endangered Species Act of 1973, as amended (16 U.S.C. 1531
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice of public hearings.
We, NMFS, will hold public hearings related to our Proposed Designation of Marine Critical Habitat for the Loggerhead Sea Turtle,
The public hearings will be held on September 9 and 10, 2013, from 7 p.m. to 9 p.m., with doors opening at 6:30 p.m.
The hearings will be held at:
• University of North Carolina-Wilmington, Warwick Center, Ballroom 5, 629 Hamilton Drive, Wilmington, NC 28403 on September 9.
• Crystal Coast Civic Center, 3505 Arendell Street, Morehead City, NC 28557 on September 10.
Susan Pultz, NMFS Office of Protected Resources, Silver Spring, MD, telephone: 301–427–8472, email:
NMFS staff will present a brief overview of the Proposed Rule titled Designation of Critical Habitat for the Northwest Atlantic Ocean Loggerhead Sea Turtle Distinct Population Segment (DPS) and Determination Regarding Critical Habitat for the North Pacific Ocean Loggerhead DPS. Following this overview, members of the public will have the opportunity to go on record with comments on the proposed designation. Members of the public may also submit written comments at the hearing, or via the Federal e-Rulemaking Portal. To do the latter, go to
Doors will open for registration at 6:30 p.m. for sign-up and seating. Time allotted will depend upon the number of speakers but will likely be limited to 5 minutes each. Registered speakers will be asked to indicate their full name, contact information, and the identity of any organizations on whose behalf they may be speaking.
The meeting is physically accessible to people with disabilities. Requests for auxiliary aids should be directed to Susan Pultz (see
16 U.S.C. 1531
Animal and Plant Health Inspection Service, USDA.
Notice.
We are advising the public of our determination that a soybean line developed by Bayer CropScience LP (Bayer), designated as event FG72, which has been genetically engineered for resistance to the herbicides glyphosate and isoxaflutole, is no longer considered a regulated article under our regulations governing the introduction of certain genetically engineered organisms. Our determination is based on our evaluation of data submitted by Bayer in its petition for a determination of nonregulated status, our analysis of available scientific data, and comments received from the public in response to our previous notice announcing the availability of the petition for nonregulated status and its associated environmental assessment and plant pest risk assessment. This notice also announces the availability of our written determination and finding of no significant impact.
You may read the documents referenced in this notice and the comments we received in our reading room. The reading room is located in room 1141 of the USDA South Building, 14th Street and Independence Avenue SW., Washington, DC. Normal reading room hours are 8 a.m. to 4:30 p.m., Monday through Friday, except holidays. To be sure someone is there to help you, please call (202) 799–7039 before coming. Those documents are also available on the Internet at
Dr. Rebecca Stankiewicz Gabel, Chief, Biotechnology Environmental Analysis Branch, Environmental Risk Analysis Programs, Biotechnology Regulatory Services, APHIS, 4700 River Road Unit 147, Riverdale, MD 20737–1236; (301) 851–3927, email:
The regulations in 7 CFR part 340, “Introduction of Organisms and Products Altered or Produced Through Genetic Engineering Which Are Plant Pests or Which There Is Reason to Believe Are Plant Pests,” regulate, among other things, the introduction (importation, interstate movement, or release into the environment) of organisms and products altered or produced through genetic engineering that are plant pests or that there is reason to believe are plant pests. Such genetically engineered organisms and products are considered “regulated articles.”
The regulations in § 340.6(a) provide that any person may submit a petition to the Animal and Plant Health Inspection Service (APHIS) seeking a determination that an article should not be regulated under 7 CFR part 340. Paragraphs (b) and (c) of § 340.6 describe the form that a petition for a determination of nonregulated status must take and the information that must be included in the petition.
APHIS received a petition (APHIS Petition Number 09–328–01p) from Bayer CropScience LP (Bayer), seeking a determination of nonregulated status of soybean designated as event FG72, which has been genetically engineered for resistance to the herbicides glyphosate and isoxaflutole. The petition states that this soybean is unlikely to pose a plant pest risk and, therefore, should not be a regulated article under APHIS' regulations in 7 CFR part 340.
In a notice
APHIS received 80 comments during the comment period. Several of these comments included electronic attachments consisting of a consolidated document of many identical or nearly identical letters, for a total of 5,096 comments. Issues raised during the comment period include the potential effects of FG72 on human health, animals, and nontarget organisms; herbicide use changes; and economic costs of herbicide-resistant weeds. APHIS has addressed the issues raised during the comment period and has provided responses to comments as an attachment to the finding of no significant impact.
To provide the public with documentation of APHIS' review and analysis of any potential environmental impacts associated with the determination of nonregulated status of Bayer's soybean event FG72, an EA has been prepared. The EA was prepared in accordance with: (1) The National Environmental Policy Act (NEPA), as amended (42 U.S.C. 4321
Based on APHIS' analysis of field and laboratory data submitted by Bayer, references provided in the petition, peer-reviewed publications, information analyzed in the EA, the PPRA, comments provided by the public, and information provided in APHIS' response to those public comments, APHIS has determined that Bayer's soybean event FG72 is unlikely to pose a plant pest risk. We have, therefore, determined that Bayer's soybean event FG72 is no longer subject to our regulations governing the introduction of certain genetically engineered organisms.
Copies of the signed determination document, as well as copies of the petition, PPRA, EA, finding of no significant impact, and response to comments are available as indicated in the
7 U.S.C. 7701–7772 and 7781–7786; 31 U.S.C. 9701; 7 CFR 2.22, 2.80, and 371.3.
Forest Service, USDA.
Notice of meeting.
The Shasta County Resource Advisory Committee (RAC) will meet in Redding, CA. The committee is authorized under the Secure Rural Schools and Community Self-Determination Act (Pub. L. 110–343) (the Act) and operates in compliance with the Federal Advisory Committee Act. The purpose of the committee is to improve collaborative relationships and to provide advice and recommendations to the Forest Service concerning projects and funding consistent with the title II of the Act. The meeting is open to the public. The purpose of the meeting is to discuss the monitoring of past projects, and to discuss and vote on recommendations for the use of funds from the Secure Rural Schools second one-year extension to the 2008–2011 RAC authorization.
The meeting will be held September 18, 2013 at 9:00 a.m.
The meeting will be held at the USDA Service Center, 3644 Avtech Parkway, Redding, California; in conference rooms A and B. Written comments may be submitted as described under
All comments, including names and addresses when provided, are placed in the record and are available for public inspection and copying. The public may inspect comments received at the USDA Service Center, 3644 Avtech Parkway, Redding, California. Please call ahead to facilitate entry into the building to view comments.
Mary St. John, RAC Assistant, at 530–351–3154 or
Individuals who use telecommunication devices for the deaf (TDD) may call the Federal Information Relay Service (FIRS) at 1–800–877–8339 between 8:00 a.m. and 8:00 p.m., Eastern Standard Time, Monday through Friday. Please make requests in advance for sign language interpreting, assistive listening devices or other reasonable accomodation for access to the facility or procedings by contacting the person listed For Further Information.
The meeting agenda is available at
A summary of the meeting will be posted at the RAC Web site listed above within 21 days of the meeting.
On April 17, 2013, the Lincoln-Foreign Trade Zone, Inc., grantee of FTZ 59, submitted a notification of proposed production activity to the Foreign-Trade Zones (FTZ) Board on behalf of CNH America, LLC, within Subzone 59B, in Grand Island, Nebraska.
The notification was processed in accordance with the regulations of the FTZ Board (15 CFR part 400), including notice in the
Import Administration, International Trade Administration, Department of Commerce
The Department of Commerce (the Department) is rescinding the administrative review of the antidumping duty order on certain polyester staple fiber (polyester staple fiber) from the Republic of Korea (Korea) for the period May 1, 2012, through April 30, 2013, based on the withdrawal of requests for review.
Joseph Shuler, AD/CVD Operations, Office 1, Import Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue NW., Washington, DC 20230; telephone: (202) 482–1293.
On June 28, 2013, the Department initiated an administrative review of the antidumping duty order on polyester staple fiber from Korea for the period May 1, 2012, through April 30, 2013,
Pursuant to 19 CFR 351.213(d)(1), the Department will rescind an administrative review, in whole or in part, if the party that requested the review withdraws its request within 90 days of the publication of the notice of initiation of the requested review. In this case, Petitioners and Huvis withdrew their respective requests within the 90-day deadline, and no other parties requested an administrative review of the antidumping duty order. Therefore, in accordance with 19 CFR 351.213(d)(1), we are rescinding the administrative review of the antidumping duty order on polyester staple fiber from Korea covering the period May 1, 2012, through April 30, 2013, in its entirety.
The Department will instruct U.S. Customs and Border Protection (CBP) to assess antidumping duties on all entries of polyester staple fiber from Korea. Antidumping duties shall be assessed at rates equal to the cash deposit of estimated antidumping duties required at the time of entry, or withdrawal from warehouse, for consumption, in accordance with 19 CFR 351.212(c)(1)(i). The Department intends to issue appropriate assessment instructions to CBP 15 days after the date of publication of this notice of rescission of administrative review.
This notice also serves as a final reminder to importers of their responsibility under 19 CFR 351.402(f)(2) to file a certificate regarding the reimbursement of antidumping duties prior to liquidation of the relevant entries during this review period. Failure to comply with this requirement could result in the presumption that reimbursement of antidumping duties occurred and the subsequent assessment of doubled antidumping duties.
This notice also serves as a final 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(a)(3). Timely written notification of the return or destruction of APO materials, or conversion to judicial protective order, is hereby requested. Failure to comply with the regulations and terms of an APO is a violation that is subject to sanction.
This notice is issued and published in accordance with sections 751(a)(1) and 777(i)(1) of the Tariff Act of 1930, as amended, and 19 CFR 351.213(d)(4).
NAFTA Secretariat, United States Section, International Trade Administration, Department of Commerce.
Notice of Decision of Panel.
On August 6, 2013, the NAFTA Chapter 19 binational panel issued its decision in the review of the final results of the 2008–2009 antidumping administrative review made by the U.S. Department of Commerce, with respect to Light-Walled Rectangular Pipe and Tube from Mexico, NAFTA Secretariat File Number USA–MEX–2011–1904–02. The panel affirmed the U.S. Department of Commerce's Final Determination regarding this matter. Copies of the panel's decision are available from the U.S. Section of the NAFTA Secretariat.
Ellen M. Bohon, United States Secretary, NAFTA Secretariat, Suite 2061, 14th and Constitution Avenue, Washington, DC 20230, (202) 482–5438.
Chapter 19 of the North American Free-Trade Agreement (“Agreement”) establishes a mechanism to replace domestic judicial review of final determinations in antidumping and countervailing duty cases involving imports from a NAFTA country with review by independent binational panels. When a Request for Panel Review is filed, a panel is established to act in place of national courts to review expeditiously the final determination to determine whether it conforms with the antidumping or countervailing duty law of the country that made the determination.
Under Article 1904 of the Agreement, which came into force on January 1, 1994, the Government of the United States, the Government of Canada and the Government of Mexico established Rules of Procedure for Article 1904 Binational Panel Reviews (“Rules”). These Rules were published in the
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice of availability of a Draft Environmental Assessment; request for comments.
NMFS announces the availability of the “Draft Environmental Assessment (EA) on the Effects of Issuing an Incidental Take Permit (No. 18102) to the North Carolina Division of Marine Fisheries for the Incidental Take of Atlantic Sturgeon Distinct Population Segments in the North Carolina Inshore Gillnet Fishery.” Publication of this notice begins the official public comment period for this draft EA. Per the National Environmental Policy Act (NEPA), the purpose of the draft EA is to evaluate the potential direct, indirect, and cumulative impacts caused by the issuance of Permit No. 18102 to the North Carolina Division of Marine Fisheries (NCDMF) for the incidental take of Atlantic sturgeon (
Written comments must be received at the appropriate address or fax number (see
The EA is available for download and review at
You may submit comments, identified by “NOAA–NMFS–2013–0104”, by any of the following methods:
•
•
•
Therese Conant or Angela Somma, (301) 427–8403.
Section 9 of the ESA and Federal regulations prohibits the `taking' of a species listed as endangered or threatened. The ESA defines “take” to mean harass, harm, pursue, hunt, shoot, wound, kill, trap, capture, or collect, or to attempt to engage in any such conduct. NMFS may issue permits, under limited circumstances to take listed species incidental to, and not the purpose of, otherwise lawful activities. Section 10(a)(1)(B) of the ESA provides for authorizing incidental take of listed species. The regulations for issuing incidental take permits for threatened and endangered species are promulgated at 50 CFR 222.307.
NMFS received a draft permit application from NCDMF on April 5, 2012. Based on our review of the draft application, we requested further information and clarification. On December 19, 2012, NCDMF submitted an updated draft application. Based on review of the updated draft, NMFS and NCDMF held further discussions on a monitoring program to gather improved estimates of Atlantic sturgeon bycatch and a better understanding of population impacts. On June 28, 2013, NCDMF submitted a revised complete application for the take of ESA-listed Atlantic sturgeon Gulf of Maine, New York Bight, Chesapeake, Carolina, and South Atlantic DPSs that may be caught in gill net fisheries operating in estuarine waters and deploying anchored gill nets (i.e., passive gill net sets deployed with an anchor or stake at one or both ends of the nets).
On July 9, 2013, we published a notice of application receipt and requested review and comment on the application and conservation plan in the
Through this notice, we are making the Draft EA available for comment and review. The EA analyzes the effects to the human and natural environment caused by the issuance of ITP No. 18102 to NCDMF for the incidental take of Atlantic sturgeon Gulf of Maine, New York Bight, Chesapeake, Carolina, and South Atlantic DPSs during management of North Carolina inshore gillnet fisheries. As required by regulations implementing section 10(a)(1)(B) of the ESA, the conservation plan must specify, based on the best scientific and commercial data available:
• The impact which will likely result from the taking;
• How the applicant will minimize and mitigate those impacts, and the funding available to implement;
• What alternative actions the applicant considered, and why those actions are not being pursued;
• Other measures the Secretary of Commerce may require; and
• All sources of data relied on in preparing the plan.
The conservation plan prepared by NCDMF describes measures designed to monitor, minimize, and mitigate the incidental take of ESA-listed Atlantic Sturgeon. The conservation plan includes managing inshore gill net fisheries by dividing estuarine waters into 5 management units. Each of the
In preparing the Draft EA, NMFS considered the following 3 alternatives for the action.
Alternative 1—No Action. Under the No Action alternative no ITP would be issued for the incidental take of Atlantic sturgeon Gulf of Maine, New York Bight, Chesapeake, Carolina, and South Atlantic DPSs. NCDMF would not receive an exemption for the commercial inshore gillnet fishery from the ESA prohibitions against take.
Alternative 2—(Proposed) Issue ITP as Requested in Application. Under Alternative 2, an ITP would be issued to exempt NCDMF from the ESA prohibition on taking Atlantic sturgeon Gulf of Maine, New York Bight, Chesapeake, Carolina, and South Atlantic DPSs during the otherwise lawful recreational and commercial inshore gillnet fishery.
Alternative 3—Issue Permit with Reductions in Large and Small Mesh (Alternatives 3 and 5 in the Conservation Plan) and Expansion of Weekly Closures (Alternative 4 in the Conservation Plan). Under Alternative 3, a permit would be issued to exempt NCDMF from the ESA prohibition on taking Atlantic sturgeon Gulf of Maine, New York Bight, Chesapeake, Carolina, and South Atlantic DPSs during the otherwise lawful recreational and commercial gill net fishery operating in inshore waters and deploying anchored gill nets. But it would require further reductions in large and small mesh gill net effort and expand the soak time prohibitions to all inshore waters.
The Draft EA presents the scientific and analytic basis for comparison of the direct, indirect, and cumulative effects of the alternatives. Regulations for implementing NEPA (42 U.S.C. 4331
NMFS is currently preparing a biological opinion, pursuant to section 7(b) of the ESA, evaluating the effects of the issuance of the ITP on listed species under NMFS' purview. The biological opinion will assess the potential impacts of the action and determine if the issuance of the ITP is likely to jeopardize the continued existence of Atlantic sturgeon Gulf of Maine, New York Bight, Chesapeake, Carolina, and South Atlantic DPSs.
NMFS determined that the issuance of Permit 18102 to NCDMF is not likely to adversely affect the West Indian manatee, Roseate Tern, Wood Stork, or the loggerhead, green, Kemp's ridley, and leatherback sea turtles (terrestrial life stage) and requested concurrence with the United States Fish and Wildlife Service (FWS) on July 16, 2013. A final determination from FWS will be considered and incorporated in the final permit and EA.
NMFS assumes for the No Action Alternative (Alternative 1) that the status quo would largely be maintained for the fishery. Because no incidental take permit would be issued, NCDMF would not receive an exemption from the ESA prohibitions against take; therefore, any incidental takes of Atlantic sturgeon resulting from the recreational and commercial gill net fishery deploying anchored sets and operating in inshore waters would not be exempted. To the extent that this alternative would limit additional burdens on recreational and commercial gill net fishermen (e.g., allowing more yardage, net shots, avoiding additional reporting requirements, education etc.), the No Action Alternative would have less of a socio-economic impact than the two action alternatives.
The issuance of the Permit as Requested in the Application (Alternative 2 Proposed Action) would result in additional burdens to recreational and commercial gill net fishermen deploying anchored sets and operating in inshore waters, NCDMF could potentially close areas or further restrict fisheries practices and effort in areas and times identified as a high potential for Atlantic sturgeon bycatch. This would result in socio-economic costs to the fishing community and ancillary businesses that are greater than the no action alternative (Alternative 1).
The issuance of the Permit with Reductions in Large and Small Mesh and Expansion of Weekly Closures (Alternative 3) would result in additional burdens to recreational and commercial gill net fishermen deploying anchored sets and operating in inshore waters. NCDMF would further limit gill net fishing in all inshore waters to a 3-day closure and limit yardage and soak times and require attendance in certain areas and times. This would result in socio-economic costs to the fishing community and ancillary businesses that are greater than the No Action (Alternative 1) and Proposed Action (Alternative 2) alternatives.
NMFS and NCDMF are developing an implementing agreement to define roles and responsibilities of each party and provide a common understanding of actions to be undertaken to minimize and mitigate the effects of anchored gillnet fishing in inshore waters on Atlantic sturgeon Gulf of Maine, New York Bight, Chesapeake, Carolina, and South Atlantic DPSs. The agreement describes obligations of both parties, including how changed and unforeseen circumstances will be addressed, as well as the responsibilities of each party in implementing the conservation plan. Additionally, the agreement describes the process for initiating and implementing adaptive management as needed to achieve the Plan's biological objectives or respond to new information (e.g., observer data).
This notice is provided pursuant to section 10(c) of the ESA. The application, supporting documents, public comments, and views already received by the agency, as well as those submitted in response to this notice, will be fully considered and evaluated as we prepare the final EA and determine whether to issue a Finding of No Significant Impact. The final NEPA document and ITP determinations will not be completed until after the 30-day comment period ends. NMFS will publish a record of its final action in the
Office of Oceanic and Atmospheric Research (OAR), National Oceanic and Atmospheric Administration (NOAA), Department of Commerce (DOC).
Notice of open meeting.
This notice sets forth the schedule of a forthcoming meeting of the DoC NOAA National Climate Assessment and Development Advisory Committee (NCADAC).
Dr. Cynthia Decker, Designated Federal Officer, National Climate Assessment and Development Advisory Committee, NOAA, Rm. 11230, 1315 East-West Highway, Silver Spring, Maryland 20910. (Phone: 301–734–1156, Fax: 301–713–1459, Email:
The National Climate Assessment and Development Advisory Committee was established in December 2010. The committee's mission is to synthesize and summarize the science and information pertaining to current and future impacts of climate change upon the United States; and to provide advice and recommendations toward the development of an ongoing, sustainable national assessment of global change impacts and adaptation and mitigation strategies for the Nation. Within the scope of its mission, the committee's specific objective is to produce a National Climate Assessment.
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice of public meetings.
The North Pacific Fishery Management Council's (Council) Gulf of Alaska (GOA) and Bering Sea/Aleutian Islands (BS/AI) groundfish plan teams will meet in Seattle, WA.
The meetings will be held September 10–13, 2013. The meetings will begin at 9 a.m. on Tuesday, September 10, and continue through Friday September 13, 2013.
The meetings will be held at the Alaska Fisheries Science Center, 7600 Sand Point Way NE., Building 4, National Marine Mammal Lab Room 2039 (GOA Plan Team) and Traynor Room 2076 (BS/AI Plan Team, Joint meeting), Seattle, WA.
Jane DiCosimo or Diana Stram, NPFMC; telephone: (907) 271–2809.
Agenda: Principal business is to recommend proposed groundfish catch specifications for 2014/15. The teams also will review status reports on various management actions, review the draft Ecosystems Considerations Chapter, review the draft BSAI forage fish chapter, review proposed changes to Bering Sea/Aleutian Island and Gulf of Alaska groundfish stock assessment models, as well as other reports. The Agenda is subject to change, and the latest version is posted at
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 aids should be directed to Gail Bendixen, (907) 271–2809, at least 5 working days prior to the meeting date.
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice; public meeting.
The New England Fishery Management Council (Council) is scheduling a public meeting of its Joint Groundfish/Habitat Committees on September 5, 2013 to consider actions affecting New England fisheries in the exclusive economic zone (EEZ). Recommendations from this group will be brought to the full Council for formal consideration and action, if appropriate.
This meeting will be held on Thursday, September 5, 2013 at 9 a.m.
The meeting will be held at the Sheraton Harborside Hotel, 250 Market Street, Portsmouth, NH 03801; telephone: (603) 431–2300; fax: (603) 433–5649.
Thomas A. Nies, Executive Director, New England Fishery Management Council; telephone: (978) 465–0492.
The Council's Habitat and Groundfish Oversight Committees will meet jointly to discuss alternatives under development in Omnibus Essential Fish Habitat Amendment 2. Specifically, the Committees will discuss information collected during a series of interviews between staff and industry members, including a technical review conducted by the Council's Habitat Plan Development and Closed Area Technical Teams. Based on the industry information and the associated technical guidance, the Committee may recommend that the Council adjust some of the management alternatives prior to completion of the draft environmental impact statement. In addition, the Committees will discuss and approve a framework adjustment and data collection process related to groundfish management areas. The Committees will also review the amendment timeline and discuss 2014 management priorities. The Groundfish Committee may also address issues under development for Framework 51 to the Northeast Multispecies (Groundfish) fishery management plan. A closed session will be used to review advisory panel appointments.
Although non-emergency issues not contained in this agenda may come before this group for discussion, those issues may not be the subject of formal action during this meeting. Action will be restricted to those issues specifically listed in this notice and any issues arising after publication of this notice that require emergency action under section 305(c) of the Magnuson-Stevens Act, provided the public has been notified of the Council's intent to take final action to address the emergency.
This meeting is physically accessible to people with disabilities. Requests for sign language interpretation or other auxiliary aids should be directed to Thomas A. Nies, Executive Director, at (978) 465–0492, at least 5 days prior to the meeting date.
16 U.S.C. 1801 et seq.
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice; public meeting.
The New England Fishery Management Council (Council) is scheduling a public meeting of its Whiting Advisory Panel on September 9, 2013 to consider actions affecting New England fisheries in the exclusive economic zone (EEZ). Recommendations from this group will be brought to the full Council for formal consideration and action, if appropriate.
This meeting will be held on Monday, September 9, 2013 at 10 a.m.
Thomas A. Nies, Executive Director, New England Fishery Management Council; telephone: (978) 465–0492.
The advisors will develop recommendations for Georges Bank yellowtail flounder accountability measures to be considered as alternatives in Multispecies Framework Adjustment 51. Since combined discards are estimated for small mesh gears, rather than fisheries, industry advisors for the squid fishery may have interest in this meeting. These recommendations will be presented to the Groundfish Oversight Committee on September 17, 2013 in Portsmouth, NH. Framework Adjustment 51 will be approved by the Council at the November 2013 Council meeting and implemented on or before May 1, 2014. Other small mesh fishery issues may also be discussed as time permits, such as adjustments to management measures in a 2015–17 specifications package to be prepared in 2014.
Although non-emergency issues not contained in this agenda may come before this group for discussion, those issues may not be the subject of formal action during this meeting. Action will be restricted to those issues specifically listed in this notice and any issues arising after publication of this notice that require emergency action under section 305(c) of the Magnuson-Stevens Act, provided the public has been notified of the Council's intent to take final action to address the emergency.
This meeting is physically accessible to people with disabilities. Requests for sign language interpretation or other auxiliary aids should be directed to Thomas A. Nies, Executive Director, at (978) 465–0492, at least 5 days prior to the meeting date.
16 U.S.C. 1801
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Issuance of permit.
Notice is hereby given that NMFS Southeast Fisheries Science Center (SEFSC; Responsible Party: Bonnie Ponwith), 75 Virginia Beach Dr., Miami, FL 33149 has been issued a permit to take loggerhead (
The permit and related documents are available for review upon written request or by appointment in the following offices:
Permits and Conservation Division, Office of Protected Resources, NMFS, 1315 East-West Highway, Room 13705, Silver Spring, MD 20910; phone (301) 427–8401; fax (301) 713–0376;
Northeast Region, NMFS, 55 Great Republic Drive, Gloucester, MA 01930; phone (978) 281–9328; fax (978) 281–9394; and
Southeast Region, NMFS, 263 13th Ave South, St. Petersburg, FL 33701; phone (727) 824–5312; fax (727) 824–5309.
Amy Hapeman or Kristy Beard, (301) 427–8401.
On September 24, 2012, notice was published in the
The permit authorizes aerial, vessel, and acoustic surveys on sea turtles in the North Atlantic Ocean, Gulf of Mexico, Caribbean Sea and their embayments. Sea turtles may be directly captured by hand or using nets or alternatively, sea turtle may be obtained from other legal sources. Authorized procedures for captured sea turtles include: measurements, laboratory experiments, biological sampling, temporary marking, tracking, ultrasound, and/or attachment of transmitters before release back to the wild. Up to six sea turtles may accidentally die over the five-year life of the permit.
Issuance of this permit, as required by the ESA, was based on a finding that such permit (1) was applied for in good faith, (2) will not operate to the disadvantage of such endangered or threatened species, and (3) is consistent with the purposes and policies set forth in section 2 of the ESA.
Wednesday, August 21, 2013, 10 a.m.–11 a.m.
Room 420, Bethesda Towers, 4330 East West Highway, Bethesda, Maryland.
Commission Meeting—Open to the Public
A live Webcast of the Meeting can be viewed at
For a recorded message containing the latest agenda information, call (301) 504–7948.
Todd A. Stevenson, Office of the Secretary, U.S. Consumer Product Safety Commission, 4330 East West Highway, Bethesda, MD 20814, (301) 504–7923.
Department of Defense.
Notice.
Under the provisions of the Federal Advisory Committee Act of 1972 (5 U.S.C. Appendix, as amended), the Government in the Sunshine Act of 1976 (5 U.S.C. 552b, as amended), and 41 CFR 102–3.150, the Department of Defense announces an open meeting of the Strategic Environmental Research and Development Program, Scientific Advisory Board (SAB). This notice is published in accordance with Section 10(a)(2) of the Federal Advisory Committee Act (Pub. L. 92–463).
Wednesday, September 11, 2013, from 9:00 a.m. to 5:00 p.m. and Thursday, September 12, 2013, from 9:00 a.m. to 4:25 p.m.
Potomac Institute for Policy Studies, 901 North Stuart Street, Suite 200, Arlington, VA 22203.
Mr. Jonathan Bunger, SERDP Office, 4800 Mark Center Drive, Suite 17D08, Alexandria, VA 22350–3600; or by telephone at (571) 372–6384.
Pursuant to 5 U.S.C. 552b and 41 CFR 102–3.140 through 102–3.165, and the availability of space, this meeting is open to the public. Seating is on a first-come basis.
The purpose of the September 11–12, 2013 meeting is to review new start research and development projects requesting Strategic Environmental Research and Development Program funds in excess of $1 million over the proposed length of the project as required by the SERDP Statute, U.S. Code—Title 10, Subtitle A, Part IV, Chapter 172, § 2904. The full agenda follows:
Pursuant to 41 CFR 102–3.105(j) and 102–3.140, and section 10(a)(3) of the Federal Advisory Committee Act of 1972, the public or interested organizations may submit written statements to the Strategic Environmental Research and Development Program, Scientific Advisory Board. Written statements to the committee may be submitted to the committee at any time or in response to an approved meeting agenda.
All written statements shall be submitted to the Designated Federal Officer (DFO) for the Strategic Environmental Research and Development Program, Scientific Advisory Board. The DFO will ensure that the written statements are provided to the membership for their consideration. Contact information for the DFO can be obtained from the GSA's FACA Database at
Time is allotted at the close of each meeting day for the public to make comments. Oral comments are limited to 5 minutes per person.
Department of the Navy, DoD.
Notice.
In compliance with Section 3506(c)(2)(A) of the
Consideration will be given to all comments received by October 21, 2013.
You may submit comments, identified by docket number and title, by any of the following methods:
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Any associated form(s) for this collection may be located within this same electronic docket and downloaded for review/testing. Follow the instructions at
To request more information on this proposed information collection or to obtain a copy of the proposal and associated collection instruments, please write to the Commandant of Midshipmen, Operations Office, United States Naval Academy, 101 Buchanan Road, Annapolis, MD 21402–5101, or contact Commandant's Operations Officer, telephone (410) 293–7125.
The sponsor program matches first year students with families in the community for a semblance of home away from the rigors of the academy. The application is used to evaluate and match sponsor families with incoming midshipmen of similar interests.
Advisory Committee on Student Financial Assistance, Education.
Notice of an opening meeting/hearing.
This notice sets forth the schedule and proposed agenda of a forthcoming open hearing/meeting of the Advisory Committee on Student Financial Assistance. This notice also describes the functions of the Advisory Committee. Notice of an advisory committee meeting is required under Section 10(a)(2) of the Federal Advisory Committee Act. This document is intended to notify the general public of their opportunity to attend.
DoubleTree by Hilton Washington, DC—Crystal City, Salon A & B, North Tower, 300 Army Navy Drive, Arlington, VA 22202.
Ms. Janet Chen, Director of Programs, Advisory Committee on Student Financial Assistance, Capitol Place, 80 F Street NW., Suite 413, Washington, DC 20202–7582, (202) 219–2099.
The Advisory Committee on Student Financial Assistance is established under Section 491 of the Higher Education Act of 1965 as amended by Public Law 100–50 (20 U.S.C. 1098). The Advisory Committee serves as an independent source of advice and counsel to the Congress and the Secretary of Education on student financial aid policy. Since its inception, the congressional mandate requires the Advisory Committee to conduct objective, nonpartisan, and independent analyses on important aspects of the student assistance programs under Title IV of the Higher Education Act. In addition, Congress expanded the Advisory Committee's mission in the Higher Education Opportunity Act of 2008 to include several important areas: access, Title IV modernization, early information and needs assessment and review and analysis of regulations. Specifically, the Advisory Committee is to review, monitor and evaluate the Department of Education's progress in these areas and report recommended improvements to Congress and the Secretary.
The one-day hearing will consist of two main sessions. The morning session will be a discussion among representatives from the higher education community of the Advisory Committee's forthcoming report for HEA reauthorization scheduled to be released in September. The afternoon session will provide the public with an opportunity to comment on issues related to student aid for HEA reauthorization. To make public comments during the afternoon session, please email
Space for the hearing is limited and you are encouraged to register early. You may register on the Advisory Committee's Web site,
Individuals who will need accommodations for a disability in order to attend the hearing (i.e., interpreting
Records are kept for Advisory Committee proceedings, and are available for inspection at the Office of the Advisory Committee on Student Financial Assistance, Capitol Place, 80 F Street NW., Suite 413, Washington, DC from the hours of 9:00 a.m. to 5:30 p.m. Eastern Standard Time, Monday through Friday, except Federal holidays. Information regarding the Advisory Committee is available on the Committee's Web site,
Take notice that on August 1, 2013, Northern Natural Gas Company (Northern), 1111 South 103rd Street, Omaha, Nebraska 68124, filed an application pursuant to section 7(c) of the Natural Gas Act and part 157 of the Commission's regulations to construct and operate certain compression, pipeline and meter station facilities, with appurtenances, located in Nebraska and Iowa. The estimated cost for the facilities proposed herein is $70,880,412. Northern states that the installation of the proposed facilities will allow it to serve up to 88,430 dekatherms per day of incremental peak day capacity, all as more fully set forth in the application which is on file with the Commission and open to public inspection. The filing may also be viewed on the web at
Any questions regarding this application should be directed to Michael T. Loeffler, Senior Director, Certificates and External Affairs for Northern, 1111 South 103rd Street, Omaha, Nebraska 68124, or call (402) 398–7103, or by email
Pursuant to section 157.9 of the Commission's rules, 18 CFR 157.9, within 90 days of this Notice the Commission staff will either: Complete its environmental assessment (EA) and place it into the Commission's public record (eLibrary) for this proceeding; or issue a Notice of Schedule for Environmental Review. If a Notice of Schedule for Environmental Review is issued, it will indicate, among other milestones, the anticipated date for the Commission staff's issuance of the final environmental impact statement (FEIS) or EA for this proposal. The filing of the EA in the Commission's public record for this proceeding or the issuance of a Notice of Schedule for Environmental Review will serve to notify federal and state agencies of the timing for the completion of all necessary reviews, and the subsequent need to complete all federal authorizations within 90 days of the date of issuance of the Commission staff's FEIS or EA.
There are two ways to become involved in the Commission's review of this project. First, any person wishing to obtain legal status by becoming a party to the proceedings for this project should, on or before the comment date stated below file with the Federal Energy Regulatory Commission, 888 First Street NE., Washington, DC 20426, a motion to intervene in accordance with the requirements of the Commission's Rules of Practice and Procedure (18 CFR 385.214 or 385.211) and the Regulations under the NGA (18 CFR 157.10). A person obtaining party status will be placed on the service list maintained by the Secretary of the Commission and will receive copies of all documents filed by the applicant and by all other parties. A party must submit 7 copies of filings made in the proceeding with the Commission and must mail a copy to the applicant and to every other party. Only parties to the proceeding can ask for court review of Commission orders in the proceeding.
However, a person does not have to intervene in order to have comments considered. The second way to participate is by filing with the Secretary of the Commission, as soon as possible, an original and two copies of comments in support of or in opposition to this project. The Commission will consider these comments in determining the appropriate action to be taken, but the filing of a comment alone will not serve to make the filer a party to the proceeding. The Commission's rules require that persons filing comments in opposition to the project provide copies of their protests only to the party or parties directly involved in the protest.
Persons who wish to comment only on the environmental review of this project should submit an original and two copies of their comments to the Secretary of the Commission. Environmental commentors will be placed on the Commission's environmental mailing list, will receive copies of the environmental documents, and will be notified of meetings associated with the Commission's environmental review process. Environmental commentors will not be required to serve copies of filed documents on all other parties. However, the non-party commentors will not receive copies of all documents filed by other parties or issued by the Commission (except for the mailing of environmental documents issued by the Commission) and will not have the right to seek court review of the Commission's final order.
The Commission strongly encourages electronic filings of comments, protests and interventions in lieu of paper using the “eFiling” link at
Take notice that the following hydroelectric application has been filed with the Commission and is available for public inspection.
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
The Commission strongly encourages electronic filing. Please file motions to intervene, protests, comments, recommendations, preliminary terms and conditions, and preliminary fishway prescriptions using the Commission's eFiling system at
The Commission's Rules of Practice require all intervenors filing documents with the Commission to serve a copy of that document on each person on the official service list for the project. Further, if an intervenor files comments or documents with the Commission relating to the merits of an issue that may affect the responsibilities of a particular resource agency, they must also serve a copy of the document on that resource agency.
k. This application has been accepted for filing and is now ready for environmental analysis.
l.
The proposed project would operate in a run-of-release mode using flows made available by the Corps.
The proposed project boundary would enclose all of the generating facilities located on 1 acre of Corps' land as well as the transmission line located on 7 acres of privately owned land.
m. A copy of the application is available for review at the Commission in the Public Reference Room or may be viewed on the Commission's Web site at
Register online at
n. Anyone may submit comments, a protest, or a motion to intervene in accordance with the requirements of Rules of Practice and Procedure, 18 CFR 385.210, .211, and .214. In determining the appropriate action to take, the Commission will consider all protests or other comments filed, but only those who file a motion to intervene in accordance with the Commission's Rules may become a party to the proceeding. Any comments, protests, or motions to intervene must be received on or before the specified comment date for the particular application.
All filings must (1) bear in all capital letters the title “PROTEST”, “MOTION TO INTERVENE”, “COMMENTS,” “REPLY COMMENTS,” “RECOMMENDATIONS,” “PRELIMINARY TERMS AND CONDITIONS,” or “PRELIMINARY FISHWAY PRESCRIPTIONS;” (2) set forth in the heading the name of the applicant and the project number of the application to which the filing responds; (3) furnish the name, address, and telephone number of the person protesting or intervening; and (4) otherwise comply with the requirements of 18 CFR 385.2001 through 385.2005. All comments, recommendations, terms and conditions or prescriptions must set forth their evidentiary basis and otherwise comply with the requirements of 18 CFR 4.34(b). Agencies may obtain copies of the application directly from the applicant. A copy of any protest or motion to intervene must be served upon each representative of the applicant specified in the particular application. A copy of all other filings in reference to this application must be accompanied by proof of service on all persons listed in the service list prepared by the Commission in this proceeding, in accordance with 18 CFR 4.34(b) and 385.2010.
o.
p. Final amendments to the application must be filed with the Commission no later than 30 days from the issuance date of this notice.
q.
r. Any qualified applicant desiring to file a competing application must submit to the Commission, on or before the specified intervention deadline date, a competing development application, or a notice of intent to file such an application. Submission of a timely notice of intent allows an interested person to file the competing development application no later than 120 days after the specified intervention deadline date. Applications for preliminary permits will not be accepted in response to this notice.
A notice of intent must specify the exact name, business address, and telephone number of the prospective applicant, and must include an unequivocal statement of intent to submit a development application. A notice of intent must be served on the applicant(s) named in this public notice.
Take notice that the Commission has received the following Natural Gas Pipeline Rate and Refund Report filings:
The filings are accessible in the Commission's eLibrary system by clicking on the links or querying the docket number.
Any person desiring to intervene or protest in any of the above proceedings must file in accordance with Rules 211 and 214 of the Commission's Regulations (18 CFR 385.211 and 385.214) on or before 5:00 p.m. Eastern time on the specified comment date. Protests may be considered, but intervention is necessary to become a party to the proceeding.
eFiling is encouraged. More detailed information relating to filing requirements, interventions, protests, service, and qualifying facilities filings can be found at:
Take notice that the Commission received the following electric rate filings:
The filings are accessible in the Commission's eLibrary system by clicking on the links or querying the docket number.
Any person desiring to intervene or protest in any of the above proceedings must file in accordance with Rules 211 and 214 of the Commission's Regulations (18 CFR 385.211 and 385.214) on or before 5:00 p.m. Eastern time on the specified comment date. Protests may be considered, but intervention is necessary to become a party to the proceeding.
eFiling is encouraged. More detailed information relating to filing requirements, interventions, protests, service, and qualifying facilities filings can be found at:
Take notice that the Commission received the following electric rate filings:
Take notice that the Commission received the following electric securities filings:
The filings are accessible in the Commission's eLibrary system by clicking on the links or querying the docket number.
Any person desiring to intervene or protest in any of the above proceedings must file in accordance with Rules 211 and 214 of the Commission's Regulations (18 CFR 385.211 and 385.214) on or before 5:00 p.m. Eastern time on the specified comment date. Protests may be considered, but intervention is necessary to become a party to the proceeding.
eFiling is encouraged. More detailed information relating to filing requirements, interventions, protests, service, and qualifying facilities filings can be found at:
Take notice that the Commission received the following electric rate filings:
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:
Environmental Protection Agency (EPA).
Notice of public comment period and public meeting.
EPA is announcing a 60-day public comment period for the external review draft human health assessment titled “Toxicological Review of benzo[a]pyrene: In Support of Summary Information on the Integrated Risk Information System (IRIS)” (EPA/635/R–13/138) and the draft peer review charge questions. The draft assessment was prepared by the National Center for Environmental Assessment (NCEA) within the EPA Office of Research and Development (ORD). EPA is releasing this draft assessment and peer review charge questions for the purpose of public comment. This draft assessment is not final as described in EPA's information quality guidelines, and it does not represent and should not be construed to represent Agency policy or views. The draft assessment will also be discussed at the first bi-monthly IRIS public meeting scheduled for October 23–24, 2013.
The public comment period begins, August 21, 2013, and ends October 21, 2013. Technical comments should be in writing and must be received by EPA by October 21, 2013.
Discussion of the draft toxicological review of benzo[a]pyrene will be included on the agenda of the bi-monthly IRIS public meeting to be held on October 23–24, 2013, at EPA offices in Arlington, Virginia. Information on this meeting, including meeting location, time, and registration and participation procedures are available at the IRIS Web site (
For general information about IRIS public meetings, please contact Christine Ross, IRIS Staff, Environmental Protection Agency, National Center for Environmental Assessment (NCEA), Mail Code 8601P; telephone: 703–347–8592; facsimile: 703–347–8689; or email:
The draft “Toxicological Review of benzo[a]pyrene: In Support of Summary Information on the Integrated Risk Information System (IRIS)” is available primarily via the Internet on the NCEA home page under the Recent Additions and Publications menus at
Discussion of the draft toxicological review of benzo[a]pyrene will be included on the agenda of the bi-monthly IRIS public meeting to be held on October 23–24, 2013, at EPA offices in Arlington, Virginia. Detailed information regarding meeting location, time, and registration and participation procedures will be available at the IRIS Web site (
EPA's IRIS Program is a human health assessment program that evaluates quantitative and qualitative risk information on effects that may result from exposure to chemical substances found in the environment. Through the IRIS Program, EPA provides the highest quality science-based human health assessments to support the Agency's regulatory activities and decisions to protect public health. The IRIS database contains information for more than 500 chemical substances that can be used to support the first two steps (hazard identification and dose-response evaluation) of the human health risk assessment process. When supported by available data, IRIS provides health effects information and toxicity values for health effects (including cancer and effects other than cancer). Government and others combine IRIS toxicity values with exposure information to characterize public health risks of chemical substances; this information is then used to support risk management decisions designed to protect public health.
In addition to the 60-day public comment period announced in this notice, the draft assessment will be discussed at the first bi-monthly IRIS public meeting scheduled for October 23–24, 2013. Information on this meeting, including meeting location, time, and registration and participation procedures, will be available at the IRIS Web site (
After consideration of public comments by EPA, the draft assessment will be sent to the EPA's Science Advisory Board (SAB) Chemical Assessment Advisory Committee (CAAC) for peer review. The EPA SAB is a body established under the Federal Advisory Committee Act with a broad mandate to advise the Agency on scientific matters. The public comment period and bi-monthly public meeting announced in this notice are separate processes from the SAB/CAAC peer review. The SAB will schedule one or more public peer review meetings, which will be announced in a separate
Submit your comments, identified by Docket ID No. EPA–HQ–ORD–2011–0391 by one of the following methods:
•
• Email:
• Fax: 202–566–9744.
• Mail: Office of Environmental Information (OEI) Docket (Mail Code: 28221T), U.S. Environmental Protection Agency, 1200 Pennsylvania Ave. NW., Washington, DC 20460. The phone number is 202–566–1752.
• Hand Delivery: The OEI Docket is located in the EPA Headquarters Docket Center, EPA West Building, Room 3334, 1301 Constitution Ave. NW., Washington, DC. The EPA Docket Center's Public Reading Room is open from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding legal holidays. The telephone number for the Public Reading Room is 202–566–1744. Deliveries are only accepted during the docket's normal hours of operation, and special arrangements should be made for deliveries of boxed information. If you provide comments by mail or hand delivery, please submit one unbound original with pages numbered consecutively, and three copies of the comments. For attachments, provide an index, number pages consecutively with the comments, and submit an unbound original and three copies.
All documents in the docket are listed in the
For information on the federal docket, contact the Office of Environmental Information Docket; telephone: 202–566–1752; facsimile: 202–566–9744; or email:
For information on the bi-monthly IRIS public meeting please contact Christine Ross, IRIS Staff, National Center for Environmental Assessment, (8601P), U.S. EPA, 1200 Pennsylvania Avenue NW., Washington, DC 20460; telephone: 703–347–8592; facsimile: 703–347–8689; or email:
If you have questions about the document, contact Kathleen Newhouse, National Center for Environmental Assessment (NCEA); telephone: 707–347–8641; facsimile: 703–347–8689; or email:
Environmental Protection Agency (EPA).
Notice.
In accordance with the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA), EPA is issuing a notice of receipt of requests by registrants to voluntarily cancel certain pesticide registrations. This notice announces a request from Syngenta Crop Protection, LLC to voluntarily cancel the last two remaining tralkoxydim products registered for use in the United States. EPA intends to grant these requests at the close of the comment period for this announcement unless the Agency receives substantive comments within the comment period that would merit its further review of the requests, or unless the registrants withdraw their requests. If these requests are granted, any sale, distribution, or use of products listed in this notice will be permitted after the registration has been canceled only if such sale, distribution, or use is consistent with the terms as described in the final order.
Comments must be received on or before September 20, 2013.
Submit your comments, identified by docket identification (ID) number EPA–HQ–OPP–2009–1017, by one of the following methods:
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Submit written withdrawal request by mail to: Pesticide Re-Evaluation Division (7508P), Office of Pesticide Programs, Environmental Protection Agency, 1200 Pennsylvania Ave. NW., Washington, DC 20460–0001. ATTN: John W. Pates, Jr.
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Additional instructions on commenting or visiting the docket, along with more information about dockets generally, is available at
John W. Pates, Jr., Pesticide Re-Evaluation Division (7508P), Office of Pesticide Programs, Environmental Protection Agency, 1200 Pennsylvania Ave. NW., Washington, DC 20460–0001; telephone number: (703) 308–8195; email address:
This action is directed to the public in general, and may be of interest to a wide range of stakeholders including environmental, human health, and agricultural advocates; the chemical industry; pesticide users; and members of the public interested in the sale, distribution, or use of pesticides.
1.
2.
i. Identify the document by docket ID number and other identifying information (subject heading,
ii. Follow directions. The Agency may ask you to respond to specific questions or organize comments by referencing a Code of Federal Regulations (CFR) part or section number.
iii. Explain why you agree or disagree; suggest alternatives and substitute language for your requested changes.
iv. Describe any assumptions and provide any technical information and/or data that you used.
v. If you estimate potential costs or burdens, explain how you arrived at your estimate in sufficient detail to allow for it to be reproduced.
vi. Provide specific examples to illustrate your concerns and suggest alternatives.
vii. Explain your views as clearly as possible, avoiding the use of profanity or personal threats.
viii. Make sure to submit your comments by the comment period deadline identified.
This notice announces receipt by the Agency of requests from registrants to cancel 29 pesticide products registered under FIFRA section 3 or 24(c). These registrations are listed in sequence by registration number (or company number and 24(c) number) in Tables 1a and 1b of this unit.
This notice also announces receipt by EPA of requests from the registrant Syngenta Crop Protection, LLC (Syngenta) to cancel the last two remaining tralkoxydim product registrations. Tralkoxydim is a systemic, postemergence herbicide registered for agricultural use to selectively control certain annual grass weeds in wheat, barley, and triticale. Tolerances are currently established for tralkoxydim residues in or on the raw agricultural commodities barley and wheat (40 CFR 180.548). There are no residential uses currently registered for tralkoxydim. The registration review process for tralkoxydim began in September 2011, with the issuance of the Preliminary Work Plan for Registration Review in the docket EPA–HQ–OPP–2011–0706 for a 60-day comment period. The Tralkoxydim Final Work Plan for Registration Review was completed in February 2012, and the registration review Data Call-In was issued in February 2013. Syngenta is currently the only registrant of tralkoxydim products in the United States. In a letter to EPA, dated August 2, 2013, Syngenta requested voluntary cancellation of two tralkoxydim end-use products (EPA Registration Nos. 000100–01105 and 000100–01106). These are the last two tralkoxydim products registered for use in the United States. EPA is not proposing any tolerance actions for tralkoxydim at this time. If any tolerance actions become necessary in the future, there will be an announcement in the
Unless the Agency determines that there are substantive comments that warrant further review of the requests or the registrants withdraw their requests, EPA intends to issue an order in the
Table 2 of this unit includes the names and addresses of record for all registrants of the products in Table 1a and Table 1b of this unit, in sequence by EPA company number. This number corresponds to the first part of the EPA registration numbers of the products listed in this unit.
Section 6(f)(1) of FIFRA provides that a registrant of a pesticide product may at any time request that any of its pesticide registrations be canceled. FIFRA further provides that, before acting on the request, EPA must publish a notice of receipt of any such request in the
Section 6(f)(1)(B) of FIFRA requires that before acting on a request for voluntary cancellation, EPA must provide a 30-day public comment period on the request for voluntary cancellation or use termination. In addition, FIFRA section 6(f)(1)(C) requires that EPA provide a 180-day comment period on a request for voluntary cancellation or termination of any minor agricultural use before granting the request, unless:
1. The registrants request a waiver of the comment period, or
2. The EPA Administrator determines that continued use of the pesticide would pose an unreasonable adverse effect on the environment.
The registrants in Table 2 of Unit II. have requested that EPA waive the 180-day comment period. Accordingly, EPA will provide a 30-day comment period on the proposed requests.
Registrants who choose to withdraw a request for cancellation should submit such withdrawal in writing to the person listed under
Existing stocks are those stocks of registered pesticide products that are currently in the United States and that were packaged, labeled, and released for shipment prior to the effective date of the cancellation action. Because the Agency has identified no significant potential risk concerns associated with the pesticide products listed in Table 1a and Table 1b of Unit II. of this notice, the proposed existing stocks provisions for these products are as follows.
EPA anticipates allowing registrants to sell and distribute existing stocks of these products for 1-year after publication of the Cancellation Order in the
EPA anticipates allowing the registrant to continue to sell and distribute the existing stocks of these products until November 1, 2014. Thereafter, registrants will be prohibited from selling or distributing the pesticides identified in Table 1b of Unit II., except for export consistent with FIFRA section 17 or for proper disposal. Additionally, persons other than the registrant may sell, distribute, or use existing stocks of these products until existing stocks are exhausted, provided that such sale, distribution, or use is consistent with the terms of the
Environmental protection, Pesticides and pests.
Environmental Protection Agency (EPA).
Notice of opportunity for public hearing and comment.
The California Air Resources Board (CARB) has notified EPA that it has adopted a tractor-trailer greenhouse gas emission regulation applicable to new and in-use 53-foot and longer box-type trailers and to new and in-use tractors that haul such trailers on California highways (HD Tractor-Trailer GHG Regulation). By letter dated June 20, 2013, CARB submitted a request that EPA grant a waiver of preemption of the Clean Air Act (CAA), of the HD Tractor-Trailer GHG Regulation pertaining to new tractors (2011 through 2013 model years) and new trailers (2011 and subsequent model years). This notice announces that EPA has scheduled a public hearing concerning California's request and that EPA is accepting written comment on the request.
EPA has scheduled a public hearing concerning CARB's request on September 16, 2013, beginning at 9:00 a.m. Any party planning to present oral testimony should notify EPA by September 6, 2013, expressing its interest. EPA will hold the public hearing at EPA's offices at 1310 L Street NW., Washington, DC 20460. Any party may submit written comments by October 18, 2013.
EPA will make available for in person inspection, at the Air and Radiation Docket and Information Center, written comments received from interested parties, in addition to any testimony given at the public hearing. The official public docket is the collection of materials that is available for public viewing at the Air and Radiation Docket in the EPA Docket Center, (EPA/DC) EPA West, Room B102, 1301 Constitution Ave. NW., Washington, DC. The EPA Docket Center Public Reading Room is open from 8:30 to 4:30 p.m., Monday through Friday, excluding legal holidays. The telephone number for the Public Reading Room is (202) 566–1744, and the telephone number for the Air and Radiation Docket is (202) 566–1743. The reference number for this docket is EPA–HQ–OAR–2013–0491.
EPA will make available an electronic copy of this Notice on the Office of Transportation and Air Quality's (OTAQ's) homepage (
Please note that due to differences between the software used to develop the documents and the software into which the documents may be downloaded, changes in format, page length, etc., may occur.
David Dickinson, Compliance Division (6405J), U.S. Environmental Protection Agency, 1200 Pennsylvania Ave. NW., Washington, DC 20460. Telephone: (202) 343–9256, Fax: (202) 343–2804, email address:
Submit your comments, identified by Docket ID No. EPA–HQ–OAR–2013–0491, by one of the following methods:
•
• Email:
• Fax: (202) 343–2804.
• Mail: U.S. Environmental Protection Agency, EPA West (Air Docket), 1200 Pennsylvania Ave. NW., Room B108, Mail Code 6102T, Washington, DC 20460, Attention Docket ID No. EPA–HQ–OAR–2013–0491. Please include a total of two copies.
• Hand Delivery: EPA Docket Center, EPA/DC, EPA West, Room B102, 1301 Constitution Ave. NW., Washington, DC. Such deliveries are only accepted during the Docket's normal hours of operation, and special arrangements should be made for deliveries of boxed information. Instructions: Direct your comments to Docket ID No EPA–HQ–OAR–2013–0491.
EPA's policy is that all comments received will be included in the public docket without change and may be made available online at
The
CARB's June 20, 2013, letter to the Acting Administrator presents EPA with CARB's HD Tractor-Trailer GHG Regulation as adopted in 2008 and amended in 2010 and 2012.
Section 209(a) of the Clean Air Act, as amended (“Act”), 42 U.S.C. 7543(a), provides:
No state or any political subdivision thereof shall adopt or attempt to enforce any standard relating to the control of emissions from new motor vehicles or new motor vehicle engines subject to this part. No state shall require certification, inspection or any other approval relating to the control of emissions from any new motor vehicle or new motor vehicle engine as condition precedent to the initial retail sale, titling (if any), or registration of such motor vehicle, motor vehicle engine, or equipment.
Section 209(b) of the Act requires the Administrator, after notice and opportunity for public hearing, to waive application of the prohibitions of section 209(a) for any state that has adopted standards (other than crankcase emission standards) for the control of emissions from new motor vehicles or new motor vehicle engines prior to March 30, 1966, if the state determines that the state standards will be, in the aggregate, at least as protective of public health and welfare as applicable federal standards. California is the only state that is qualified to seek and receive a waiver under section 209(b). EPA must grant a waiver unless the Administrator finds that (A) the determination of the state is arbitrary and capricious, (B) the state does not need the state standards to meet compelling and extraordinary conditions, or (C) the state standards and accompanying enforcement procedures are not consistent with section 202(a) of the Act. Previous decisions granting waivers of federal preemption for motor vehicles have maintained that state standards are inconsistent with section 202(a) if there is inadequate lead time to permit the development of the necessary technology giving appropriate consideration to the cost of compliance within that time period or if the federal and state test procedures impose inconsistent certification procedures.
EPA invites comment on CARB's request for a waiver of its HD Tractor-Trailer GHG Regulation with regard to those regulatory provisions pertaining to new tractors (2011 through 2013 model years) and new trailers (2011 and subsequent model years) under the following three criteria: Whether (a) California's determination that its motor vehicle emission standards are, in the aggregate, at least as protective of public health and welfare as applicable federal standards is arbitrary and capricious, (b) California needs such standards to meet compelling and extraordinary conditions, and (c) California's standards and accompanying enforcement procedures are consistent with section 202(a) of the Clean Air Act.
The Agency will make a verbatim record of the proceedings. Interested parties may arrange with the reporter at the hearing to obtain a copy of the transcript at their own expense. EPA will keep the record open until October 18, 2013. Upon expiration of the comment period, the Administrator will render a decision on CARB's request based on the record of the public hearing, relevant written submissions, and other information that she deems pertinent.
Persons with comments containing proprietary information must distinguish such information from other comments to the greatest possible extent and label it as “Confidential Business Information” (CBI). If a person making comments wants EPA to base its decision in part on a submission labeled CBI, then a non-confidential version of the document that summarizes the key data or information should be submitted for the public docket. To ensure that proprietary information is not inadvertently placed in the docket, submissions containing such information should be sent directly to the contact person listed above and not to the public docket. Information covered by a claim of confidentiality will be disclosed by EPA only to the extent allowed and by the procedures set forth in 40 CFR part 2. If no claim of confidentiality accompanies the submission when EPA receives it, EPA will make it available to the public without further notice to the person making comments.
Federal Communications Commission.
Notice.
In accordance with the Federal Advisory Committee Act, this notice advises interested persons that the fourth meeting of the WRC–15 Advisory Committee will be held on September 19, 2013, at the Federal Communications Commission. The Advisory Committee will consider recommendations from its Informal Working Groups.
September 19, 2013; 11:00 a.m.
Federal Communications Commission, 445 12th Street SW., Room TW–C305, Washington, DC 20554.
Alexander Roytblat, Designated Federal Official, WRC–15 Advisory Committee, FCC International Bureau, Strategic Analysis and Negotiations Division, at (202) 418–7501.
The Federal Communications Commission (FCC) established the WRC–15 Advisory Committee to provide advice, technical support and recommendations relating to the preparation for the 2015 World Radiocommunication Conference (WRC–15).
In accordance with the Federal Advisory Committee Act, Public Law 92–463, as amended, this notice advises interested persons of the fourth meeting of the WRC–15 Advisory Committee. Additional information regarding the WRC–15 Advisory Committee is available on the Advisory Committee's Web site,
Open captioning will be provided for this event. Other reasonable accommodations for people with disabilities are available upon request. Requests for such accommodations should be submitted via email to
The proposed agenda for the fourth meeting is as follows:
Federal Communications Commission, 445 12th Street SW., Room TW–C305, Washington, DC 20554, September 19, 2013; 11:00 a.m.
The Commission hereby gives notice of the filing of the following agreements under the Shipping Act of 1984. Interested parties may submit comments on the agreements to the Secretary, Federal Maritime Commission, Washington, DC 20573, within ten days of the date this notice appears in the
By Order of the Federal Maritime Commission.
The notificants listed below have applied under the Change in Bank Control Act (12 U.S.C. 1817(j)) and § 225.41 of the Board's Regulation Y (12 CFR 225.41) to acquire shares of a bank or bank holding company. The factors that are considered in acting on the notices are set forth in paragraph 7 of the Act (12 U.S.C. 1817(j)(7)).
The notices are available for immediate inspection at the Federal Reserve Bank indicated. The notices also will be available for inspection at the offices of the Board of Governors. Interested persons may express their views in writing to the Reserve Bank indicated for that notice or to the offices of the Board of Governors. Comments must be received not later than September 5, 2013.
A. Federal Reserve Bank of Kansas City (Dennis Denney, Assistant Vice President) 1 Memorial Drive, Kansas City, Missouri 64198–0001:
1.
The companies listed in this notice have applied to the Board for approval, pursuant to the Bank Holding Company Act of 1956 (12 U.S.C. 1841
The applications listed below, as well as other related filings required by the Board, are available for immediate inspection at the Federal Reserve Bank indicated. The applications will also be available for inspection at the offices of
Unless otherwise noted, comments regarding each of these applications must be received at the Reserve Bank indicated or the offices of the Board of Governors not later than September 16, 2013.
A. Federal Reserve Bank of St. Louis (Yvonne Sparks, Community Development Officer) P.O. Box 442, St. Louis, Missouri 63166–2034:
1.
Board of Governors of the Federal Reserve System, August 16, 2013.
Department of Health and Human Services, Office of the Secretary, Office of the Assistant Secretary for Health; and U.S. Department of Agriculture, Food, Nutrition and Consumer Services and Research, Education, and Economics.
Notice.
As stipulated by the Federal Advisory Committee Act, the U.S. Department of Health and Human Services (HHS), in collaboration with the U.S. Department of Agriculture (USDA), are hereby giving notice that a meeting of the 2015 Dietary Guidelines Advisory Committee (DGAC) will be held. This meeting will be open to the public.
This meeting will be held on October 3, 2013 from 8:30 a.m.–11:30 a.m. E.D.T., including oral testimony, and October 4, 2013 from 8:30 a.m.–3:45 p.m. E.D.T.
The meeting will be accessible by webcast on the Internet or by attendance in-person. For in-person participants, on October 3, 2013, the meeting will take place in the National Institutes of Health (NIH) Masur Auditorium. On October 4, 2013, the meeting will be held in the NIH Foundation for Advanced Education in the Sciences (FAES) Academic Center. Both facilities are located at the NIH Clinical Center, Building 10, 10 Center Drive, 9000 Rockville Pike, Bethesda, MD 20892.
Designated Federal Officer (DFO), 2015 DGAC, Richard D. Olson, M.D., M.P.H.; Alternate DFO, 2015 DGAC, Kellie (O'Connell) Casavale, Ph.D., R.D., Nutrition Advisor; Office of Disease Prevention and Health Promotion, OASH/HHS; 1101 Wootton Parkway, Suite LL100 Tower Building; Rockville, MD 20852: Telephone: (240) 453–8280; Fax: (240) 453–8281; Lead USDA Co-Executive Secretary, Colette I. Rihane, M.S., R.D., Director, Nutrition Guidance and Analysis Division, Center for Nutrition Policy and Promotion, USDA; 3101 Park Center Drive, Room 1034; Alexandria, VA 22302; Telephone: (703) 305–7600; Fax: (703) 305–3300; and/or USDA Co-Executive Secretary, Shanthy A. Bowman, Ph.D., Nutritionist, Food Surveys Research Group, Beltsville Human Nutrition Research Center, Agricultural Research Service, USDA; 10300 Baltimore Avenue, BARC-West Bldg 005, Room 125; Beltsville, MD 20705–2350; Telephone: (301) 504–0619. Additional information about the 2015 DGAC is available on the Internet at
Under Section 301 of Public Law 101–445 (7 U.S.C. 5341, the National Nutrition Monitoring and Related Research Act of 1990, Title III) the Secretaries of Health and Human Services (HHS) and Agriculture (USDA) are directed to issue at least every five years a report titled
Centers for Disease Control and Prevention (CDC), Department of Health and Human Services (HHS).
General notice.
The Centers for Disease Control and Prevention (CDC), located within the Department of Health and Human Services (HHS) announces fees for vessel sanitation inspections for Fiscal Year (FY) 2014. These inspections are conducted by HHS/CDC's Vessel Sanitation Program (VSP). VSP helps the cruise line industry fulfill its responsibility for developing and implementing comprehensive sanitation programs to minimize the risk for acute gastroenteritis. Every vessel that has a foreign itinerary and carries 13 or more passengers is subject to twice-yearly inspections and, when necessary, re-inspection.
These fees are effective October 1, 2013, through September 30, 2014.
CAPT Jaret T. Ames, Chief, Vessel Sanitation Program, National Center for Environmental Health, Centers for Disease Control and Prevention, 4770 Buford Highway NE., MS F–58, Atlanta, Georgia 30341–3717, phone: 800–323–2132 or 954–356–6650, email:
HHS/CDC established the Vessel Sanitation Program (VSP) in the 1970s as a cooperative activity with the cruise ship industry. VSP helps the cruise ship industry prevent and control the introduction, transmission, and spread of gastrointestinal illnesses on cruise ships. VSP operates under the authority of the Public Health Service Act (Section 361 of the Public Health Service Act; 42 U.S.C. 264, “Control of Communicable Diseases”). Regulations found at 42 CFR 71.41 (Foreign Quarantine—Requirements Upon Arrival at U.S. Ports: Sanitary Inspection; General Provisions) state that carriers arriving at U.S. ports from foreign areas are subject to sanitary inspections to determine whether rodent, insect, or other vermin infestations exist, contaminated food or water, or other sanitary conditions requiring measures for the prevention of the introduction, transmission, or spread of communicable diseases are present.
The fee schedule for sanitation inspections of passenger cruise ships by VSP was first published in the
The following formula will be used to determine the fees:
The average cost per inspection is multiplied by size and cost factors to determine the fee for vessels in each size category. The size and cost factors were established in the fee schedule published in the
The fee schedule (Appendix A) will be effective October 1, 2013, through September 30, 2014. The fee schedule (Appendix A) will be effective October 1, 2013, through September 30, 2014. The increase in fees is required due to administrative structure support costs within HHS/CDC. The last change in VSP inspection fees was October 1, 2006.
If travel expenses or other charges to VSP change, the fee schedule may need to be adjusted before September 30, 2014. If a fee adjustment is necessary, HHS/CDC will publish a notice in the
The fees will apply to all passenger cruise vessels for which inspections are conducted as part of HHS/CDC's VSP.
Inspections and reinspections involve the same procedures, require the same amount of time, and are therefore charged at the same rates.
In accordance with section 10(a) (2) of the Federal Advisory Committee Act (Pub. L. 92–463), the Centers for Disease Control and Prevention (CDC) announces the following meeting for the aforementioned committee:
Agenda items are subject to change as priorities dictate.
An agenda is also posted on the NIOSH Web site (
The Director, Management Analysis and Services Office, has been delegated the authority to sign
Center for Medicare and Medicaid Services.
In compliance with the requirement of section 3506(c)(2)(A) of the Paperwork Reduction Act of 1995, the Centers for Medicare and Medicaid Services (CMS), Department of Health and Human Services, is publishing the following summary of proposed collections for public comment. Interested persons are invited to send
We are, however, requesting an emergency review of the information collection referenced below. In compliance with the requirement of section 3506(c)(2)(A) of the Paperwork Reduction Act of 1995, we have submitted to the Office of Management and Budget (OMB) the following requirements for emergency review. This is necessary to ensure compliance with an initiative of the Administration. We are requesting an emergency review under 5 CFR Part 1320(a)(2)(i) because public harm is reasonably likely to result if the normal clearance procedures are followed. The approval of this data collection process is essential to ensuring that Information Security (IS) incidents, which also include Personally Identifiable Information (PII) and Protected Health Information (PHI), are captured within the specified timeframe. In absence of this change, a significant number of incidents will not be detected; therefore causing harm and potential risk to the public's identity with identity fraud.
1.
The AEs shall report suspected or confirmed incidents affecting loss or suspected loss of PII within one hour of discovery to their designated Center for Consumer Information and Insurance Oversight State Officer who will then notify the affected Federal agency data sources, i.e., Internal Revenue Service, Department of Defense, Department of Homeland Security, Social Security Administration, Peace Corps, Office of Personnel Management and Veterans Health Administration. Additionally, AEs shall contact the office of the appropriate Special Agent-in-Charge, Treasury Inspector General for Tax Administration (TIGTA), and the IRS Office of Safeguards within 24 hours of discovery of any potential breach, loss, or misuse of Return Information.
We are requesting OMB review and approval of this collection by
To obtain copies of the supporting statement and any related forms for the proposed paperwork collections referenced above, access CMS's Web site address at
In commenting on the proposed information collections please reference the document identifier or OMB control number. To be assured consideration, comments and recommendations must be submitted in one of the following ways by
1.
2.
CMS, Office of Strategic Operations and Regulatory Affairs, Division of Regulations Development, Attention: Document Identifier (CMS–10496), Room C4–26–05, 7500 Security Boulevard, Baltimore, Maryland 21244–1850.
OMB Office of Information and Regulatory Affairs, Attention: CMS Desk Officer, New Executive Office Building, Room 10235, Washington, DC 20503, Fax Number: (202) 395–6974.
Centers for Medicare & Medicaid Services, HHS.
Notice.
The Centers for Medicare & Medicaid Services (CMS) is announcing an opportunity for the public to comment on CMS' intention to collect information from the public. Under the Paperwork Reduction Act of 1995 (the PRA), federal agencies are required to publish notice in the
Comments must be received by October 21, 2013.
When commenting, please reference the document identifier or OMB control number (OCN). To be assured consideration, comments and
1.
2.
To obtain copies of a supporting statement and any related forms for the proposed collection(s) summarized in this notice, you may make your request using one of following:
1. Access CMS' Web site address at
2. Email your request, including your address, phone number, OMB number, and CMS document identifier, to
3. Call the Reports Clearance Office at (410) 786–1326.
Reports Clearance Office at (410) 786–1326.
This notice sets out a summary of the use and burden associated with the following information collections. More detailed information can be found in each collection's supporting statement and associated materials (see
Under the PRA (44 U.S.C. 3501–3520), federal agencies must obtain approval from the Office of Management and Budget (OMB) for each collection of information they conduct or sponsor. The term “collection of information” is defined in 44 U.S.C. 3502(3) and 5 CFR 1320.3(c) and includes agency requests or requirements that members of the public submit reports, keep records, or provide information to a third party. Section 3506(c)(2)(A) of the PRA requires federal agencies to publish a 60-day notice in the
1.
Under current regulations at 42 CFR 412.106, in order to meet the qualifying criteria for this additional DSH payment, a hospital must prove that a disproportionate percentage of its patients are low income using Supplemental Security Income (SSI) and Medicaid as proxies for this determination. This percentage includes two computations: (1) The “Medicare fraction” or the “SSI ratio” which is the percent of patient days for beneficiaries who are eligible for Medicare Part A and SSI and (2) the “Medicaid fraction” which is the percent of patient days for patients who are eligible for Medicaid but not Medicare. Once a hospital qualifies for this DSH payment, we also determine a hospital's payment adjustment.
2.
The MHCQ Demonstration programs are designed to examine the extent to which major, multifaceted changes to traditional Medicare's health delivery and financing systems lead to improvements in the quality of care provided to Medicare beneficiaries without increasing total program expenditures. Each demonstration site uses a different approach for changing health delivery and financing systems, but all share the goal of improving the quality and efficiency of medical care provided to Medicare beneficiaries. Focus groups and individual interviews will be conducted at 2 demonstration sites that are active in the demonstration: Gundersen Health System (GHS) and Meridian Health System (MHS).
This MHCQ Demonstration evaluation will include analysis of both quantitative and qualitative sources of information. This multifaceted approach will enable this evaluation to consider a broad variety of evidence for evaluating the nature and impact of each site's interventions. We are seeking approval to conduct in-person focus groups and individual interviews with beneficiaries and their caregivers to inform our evaluation of the MHCQ Demonstration at the GHS and MHS demonstration sites.
3.
Hospital OQR Program payment determinations are made based on OQR quality measure data reported and supporting forms submitted by hospitals as specified through rulemaking. To reduce burden, a variety of different data collection mechanisms are employed, with every consideration taken to employ existing data and data collection systems. The complete list of measures and data collection forms are organized by type of data collected and data collection mechanism.
The Medicare program has a responsibility to ensure that Medicare beneficiaries receive the health care services of appropriately high quality that are comparable to that received by those under other payers. The Hospital OQR Program seeks to encourage care that is both efficient and of high quality in the hospital outpatient setting through collaboration with the hospital community to develop and implement quality measures that are fully and specifically reflective of the quality of hospital outpatient services.
Food and Drug Administration, HHS.
Notice of public workshop.
The Food and Drug Administration's (FDA) Office of Orphan Products Development is announcing the following meeting entitled “The Food and Drug Administration/European Medicines Agency Orphan Product Designation and Grant Workshop.” This 1-day workshop is intended to provide valuable information about the FDA and European Medicines Agency (EMA) Orphan Drug Designation programs, the FDA Humanitarian Use Device (HUD) Designation program, and the FDA Orphan Products Grant program to participants representing pharmaceutical, biotechnology, and device companies, as well as academics.
For participants who cannot attend the morning meetings, simultaneous live interactive Webcasts will be made available. Participants may access the drug and biologics Webcast by visiting the following site:
The FDA/EMA Orphan Product Designation and Grant Workshop is being conducted in partnership with the European Organisation for Rare Diseases, Genetic Alliance, and the National Organization for Rare Disorders.
The morning program includes two simultaneous sessions. The first will provide an overview of the FDA and EMA Orphan Drug Designation programs, respectively, while the second will provide an overview of the FDA HUD Designation Program and Pediatric Device Consortia Grant Program. Both morning sessions will also cover the Orphan Products Grant Program as they relate to drugs, biologics, and devices. Both of these morning sessions will also be available by Webcast.
The afternoon session (no Webcast), provides an opportunity for appropriately registered participants to have one-on-one meetings with FDA staff members onsite, to discuss the specifics on how to apply for an orphan product grant, a HUD designation, or orphan drug designation. It also provides for videoconference sessions with EMA staff representatives on EMA orphan drug designation. Participants requesting one-on-one meetings are expected to bring information for at
The notice announces a meeting to peer review the Draft Report on Carcinogens (RoC) Monographs for
Dr. Lori White, NTP Designated Federal Official, Office of Liaison, Policy and Review, DNTP, NIEHS, P.O. Box 12233, MD K2–03, Research Triangle Park, NC 27709. Phone: (919) 541–9834, Fax: (301) 480–3272, Email:
The NTP follows an established, four-part process for preparation of the RoC (
Pentachlorophenol (CASRN 87–86–5) is a general biocide that has been used extensively as a fungicide, bactericide, herbicide, and insecticide by agriculture and other industries. In 1987, over-the-counter use was banned and other uses restricted. Currently, pentachlorophenol is defined in the United States as a `heavy duty' wood preservative that is used primarily in the treatment of utility poles and cross arms. The candidate substance is defined as “pentachlorophenol and by-products of its synthesis.” During synthesis of pentachlorophenol, several additional chlorinated molecules are formed as by-products. In addition, biomonitoring studies have found that people who are exposed to pentachlorophenol or pentachlorophenol-containing products are always exposed to the combination of pentachlorophenol and its by-products. Additional information about the review of pentachlorophenol for the RoC is available at
The preliminary agenda and draft monographs should be posted on the NTP Web site (
Public comment at this meeting is welcome, with time set aside for the presentation of oral comments on the draft monographs. In addition to in-person oral comments at the meeting at the NIEHS, public comments can be presented by teleconference line. There will be 50 lines for this call; availability will be on a first-come, first-served basis. The lines will be open from 8:30 a.m. until approximately 5:00 p.m. EDT on October 7 and from 8:30 a.m. EDT until adjournment on October 8, and oral comments will be received only during the formal public comment periods indicated on the preliminary agenda. Each organization is allowed one time slot per monograph. At least 7 minutes will be allotted to each speaker, and if time permits, may be extended to 10 minutes at the discretion of the chair. Persons wishing to make an oral presentation are asked to register online at
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 a meeting of the National Advisory Council for Complementary and Alternative Medicine.
The meeting will be open to the public as indicated below, with attendance limited to space available. Individuals who plan to attend and need special assistance, such as sign language interpretation or other reasonable accommodations, should notify the Contact Person listed below in advance of the meeting.
The meeting will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning
Any interested person may file written comments with the committee by forwarding the statement to the Contact Person listed on this notice. The statement should include the name, address, telephone number and when applicable, the business or professional affiliation of the interested person.
In the interest of security, NIH has instituted stringent procedures for entrance onto the NIH campus. All visitor vehicles, including taxicabs, hotel, and airport shuttles will be inspected before being allowed on campus. Visitors will be asked to show one form of identification (for example, a government-issued photo ID, driver's license, or passport) and to state the purpose of their visit.
Information is also available on the Institute's/Center's home page:
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. App.), notice is hereby given of the following meetings.
The meetings will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
This notice is being published less than 15 days prior to the meeting due to the timing limitations imposed by the review and funding cycle.
This notice is being published less than 15 days prior to the meeting due to the timing limitations imposed by the review and funding cycle.
Office of Refugee Resettlement, ACF, HHS.
Notice of awards.
The Office of Refugee Resettlement (ORR), Administration for Children and Families (ACF), announces the allocation of Refugee Social Services formula awards to States and Wilson/Fish Alternative Project grantees.
The FY 2013 formula allocations for Social Services are available on ORR's Web site at:
The awards are effective immediately.
Henley Portner, Office of the Director, Office of Refugee Resettlement, (202) 401–5363,
The purpose of the Refugee Social Services program is to provide employability services, English language training, case management, social adjustment services, interpretation and translation services, and other resettlement services to refugees, Amerasians, asylees, Cuban and Haitian entrants, victims of trafficking, and Iraqis and Afghans with Special Immigrant Visas. The awards are determined by the number of the eligible populations residing in the State during the two-year period from October 1, 2010, to September 30, 2012. States with allocations under $100,000 through this calculation instead receive floor allocations ranging from $75,000 to $100,000 depending on the number of the eligible population in each State. The purpose of the floor allocations is to ensure that all participating States receive an award sufficient to maintain a program of resettlement services.
Funds must be obligated by September 30, 2014, and funds must be expended by September 30, 2015.
ACF reminds recipients and members of the public that a
Sections 412(c)(1)(B) of the Immigration and Nationality Act (INA) (8 U.S.C. 1522(c)(1)(B))
Office of Refugee Resettlement, ACF, HHS.
Notice of awards.
The Office of Refugee Resettlement (ORR), Administration for Children and Families (ACF), announces the allocation of Refugee Targeted Assistance formula awards to States and Wilson/Fish Alternative Project grantees.
The awards are effective immediately.
Henley Portner, Office of the Director, Office of Refugee Resettlement, (202) 401–5363,
Refugee Targeted Assistance award allocations are available on the ORR Web page. The table of FY 2013 Allocations to Counties and Targeted Assistance Areas and the Table of FY 2013 Allocations to States may be found at:
The purpose of the Targeted Assistance program is to provide employment and other resettlement services to refugees, Amerasians, asylees, Cuban and Haitian entrants, victims of trafficking, and Iraqis and Afghans with Special Immigrant Visas. The grants are awarded to States on behalf of counties with the greatest number of arrivals of the eligible populations. Services provided are intended to assist refugees obtain employment within one year's participation in the program and to achieve self-sufficiency. Awards are determined by the number of the eligible populations residing in each county during the two-year period from October 1, 2010, to September 30, 2012.
Funds must be obligated by September 30, 2014, and funds must be expended by September 30, 2015.
ACF reminds recipients and members of the public that a
Section 412(c)(2)(A) of the Immigration and Nationality Act (INA) (8 U.S.C. 1522).
Coast Guard, DHS.
Notice of Federal Advisory Committee Meeting.
The Merchant Marine Personnel Advisory Committee (MERPAC) will meet on September 11, 2013 and September 12, 2013 in Linthicum Heights, MD, to discuss various issues related to the training and fitness of merchant marine personnel. This meeting will be open to the public.
MERPAC working groups will meet on September 11, 2013, from 8 a.m. until 4 p.m., and the full committee will meet on September 12, 2013, from 8 a.m. until 4 p.m. Please note that this meeting may adjourn early if all business is finished.
The Committee will meet in Room A–111/113 of the Maritime Institute of Technology and Graduate Studies (MITAGS), 692 Maritime Boulevard, Linthicum Heights, MD 21090. For further information on the location of MITAGS, please contact Mr. Brian Senft at (410) 859–5700.
For information on facilities or services for individuals with disabilities or to request special assistance, contact Mr. Davis Breyer at 202–372–1445 or at
To facilitate public participation, we are inviting public comment on the issues to be considered by the committee and working groups as listed in the “Agenda” section below. Written comments for distribution to committee members and inclusion on MERPAC Web site must be submitted on or before August 28, 2013.
Written comments must be identified by Docket No. USCG–2013–0756 and submitted by one of the following methods:
•
•
•
•
Public oral comment periods will be held each day. Speakers are requested to limit their comments to 3 minutes. Please note that the public oral comment periods may end before the prescribed ending time following the last call for comments. Contact Davis Breyer as indicated above no later than August 28, 2013, to register as a speaker.
This notice may be viewed in our online docket, USCG–2013–0756, at
Mr. Davis Breyer, Alternate Designated Federal Officer (ADFO), telephone 202–372–1445, or at
Notice of this meeting is given under the
MERPAC is an advisory committee established under the Secretary's authority in section 871 of the Homeland Security Act of 2002, Title 6, United States Code, section 451, and chartered under the provisions of the FACA. The Committee acts solely in an advisory capacity to the Secretary of the Department of Homeland Security (DHS) through the Commandant of the Coast Guard and the Director of Commercial Regulations and Standards on matters relating to personnel in the U.S. merchant marine, including but not limited to training, qualifications, certification, documentation, and fitness standards. The Committee will advise, consult with, and make recommendations reflecting its independent judgment to the Secretary.
A copy of all meeting documentation is available at
The agenda for the September 11, 2013, meeting is as follows:
(1) The full committee will meet briefly to discuss the working groups' business/task statements, which are listed under paragraph 2 (a)–(g) below.
(2) Working groups addressing the following task statements, available for viewing at
(a) Task Statement 30, Utilizing Military Education, Training and Assessment for the International Convention on Standards of Training, Certification and Watchkeeping for Seafarers (STCW) and U.S. Coast Guard Certifications;
(b), Task Statement 58, Communication between External Stakeholders and the Mariner Credentialing Program, as it Relates to the National Maritime Center;
(c) Task Statement 78, Consideration of the International Labor Organization's Maritime Labour Convention, 2006;
(d) Task Statement 80, Crew Training Requirements Onboard Natural Gas-Fueled Vessels Other Than Liquefied Natural Gas Carriers.
(e) Task Statement 81, Development of Competency Requirements for Vessel Personnel Working Within the Polar Regions;
(f) Task Statement 82, Review and submit recommendations for proposed revisions to CG–719K, Merchant Mariner Credential Medical Evaluation Report and CG–719K/E, Merchant Mariner Evaluation of Fitness for Entry Level Ratings; and
(g) Task Statement 83, Development of competency requirements to meet STCW Chief Engineer III/2 for personnel working on small vessels with high horsepower.
(3) Public comment period. This will be held prior to the Reports of working groups.
(4) Reports of working groups. At the end of the day, the working groups will report to the full committee on what was accomplished in their meetings. The full committee will not take action on these reports on this date. Any official action taken as a result of this working group meeting will be taken on day 2 of the meeting.
(5) Adjournment of meeting.
The agenda for the September 12, committee meeting is as follows:
(1) Introduction;
(2) Remarks from Coast Guard Leadership;
(3) Roll call of committee members and determination of a quorum;
(4) Designated Federal Officer (DFO) announcements;
(5) Reports from the following working groups;
(a) Task Statement 30, Utilizing Military Education, Training and Assessment for STCW and U.S. Coast Guard Certifications;
(b) Task Statement 58, Communication between External Stakeholders and the Mariner Credentialing Program, as it Relates to the National Maritime Center;
(c) Task Statement 78, Consideration of the International Labor Organization's Maritime Labour Convention, 2006;
(d) Task Statement 80, Crew Training Requirements Onboard Natural Gas-Fueled Vessels Other Than Liquefied Natural Gas Carriers.
(e) Task Statement 81, Development of Competency Requirements for Vessel Personnel Working Within the Polar Regions;
(f) Task Statement 82, Review and submit recommendations for proposed revisions to CG–719K, Merchant Mariner Credential Medical Evaluation Report and CG–719K/E, Merchant Mariner Evaluation of Fitness for Entry Level Ratings; and
(g) Task Statement 83, Development of competency requirements to meet STCW Chief Engineer III/2 for personnel working on small vessels with high horsepower.
(6) Other items for discussion:
(a) Report on National Maritime Center (NMC) activities from NMC Commanding Officer, such as the net processing time it takes for a mariner to receive his or her credential after application submittal;
(b) Report on Mariner Credentialing Program Policy Division activities, such as its current initiatives and projects;
(c) Report on International Maritime Organization (IMO)/International Labor Organization (ILO issues related to the merchant marine industry;
(d) Report on the implementation of the 2010 amendments to the STCW Convention; and
(e) Briefings about on-going Coast Guard projects related to personnel in the U.S. Merchant Marine, such as possible Task Statements concerning:
• Correction of merchant mariner credentials issued with clear errors;
• Review of draft update to Volume III of the Marine Safety Manual, Chapters 20 to 26; and
• Seafarer fatigue
(7) Public comment period/presentations.
(8) Discussion of working group recommendations. The committee will review the information presented on each issue, deliberate on any recommendations presented by the working groups and approve/formulate recommendations for the Department's consideration. Official action on these recommendations may be taken on this date.
(9) Closing remarks/plans for next meeting.
(10) Adjournment of meeting.
A copy of all meeting documentation is available at
U.S. Customs and Border Protection, Department of Homeland Security.
Notice of final determination.
This document provides notice that U.S. Customs and Border Protection (“CBP”) has issued a final determination concerning the country of origin of certain digital storage devices known as hard disk drives (“HDDs”) and self-encrypting drives (“SEDs”). Based upon the facts presented, CBP has concluded that the programming operations performed in the United States, using U.S.-origin firmware, substantially transform non-TAA country HDDs. Therefore, the country of origin of the HDDs and SEDs is the United States for purposes of U.S. Government procurement.
The final determination was issued on August 14, 2013. A copy of the final determination is attached. Any party-at-interest, as defined in 19 CFR 177.22(d), may seek judicial review of this final determination on or before September 20, 2013.
Heather K. Pinnock, Valuation and Special Programs Branch: (202) 325–0034.
Notice is hereby given that on August 14, 2013, pursuant to subpart B of Part 177, U.S. Customs and Border Protection Regulations (19 CFR part 177, subpart B), CBP issued a final determination concerning the country of origin of certain digital storage devices known as HDDs and SEDs, which may be offered to the U.S. Government under an undesignated government procurement contract. This final determination, HQ H241362, was issued under procedures set forth at 19 CFR Part 177, subpart B, which implements Title III of the Trade Agreements Act of 1979, as amended (19 U.S.C. 2511–18). In the final determination, CBP concluded that, based upon the facts presented, the programming operations performed in the United States, using U.S.-origin firmware, substantially transform non-TAA country HDDs. Therefore, the country of origin of the HDDs and SEDs is the United States for purposes of U.S. Government procurement.
Section 177.29, CBP Regulations (19 CFR 177.29), provides that a notice of final determination shall be published in the
This is in response to your letter, dated April 24, 2013, requesting a final determination on behalf of Seagate Technology, LLC (“Seagate”), pursuant to subpart B of part 177 of the U.S. Customs and Border Protection (“CBP”) Regulations (19 C.F.R. Part 177). Under these regulations, which implement Title III of the Trade Agreements Act of 1979 (TAA), as amended (19 U.S.C. § 2511 et seq.), CBP issues country of origin advisory rulings and final determinations as to whether an article is or would be a product of a designated country or instrumentality for the purposes of granting waivers of certain “Buy American” restrictions in U.S. law or practice for products offered for sale to the U.S. Government. In reaching our decision, we have taken into account additional information submitted on June 3, 2013.
This final determination concerns the country of origin of three lines of Seagate's Hard Disk Drives (“HDDs”) designated as: (1) “Mission Critical”; (2) “Business Critical”; and, (3) “Personal Storage”. We note that as a U.S. importer, Seagate is a party-at-interest within the meaning of 19 C.F.R. § 177.22(d)(1) and is entitled to request this final determination. Your request for confidential treatment regarding all cost and price information contained in your request is granted and such information will not be disclosed to the public.
Seagate imports fully assembled HDDs from [non-TAA country] or [non-TAA country]. An HDD is a digital storage device. The products at issue are three lines of HDDs: (1) Mission Critical, sold under the brand names “Cheetah”, “Savvio”, and “Enterprise Performance”; (2) Business Critical, sold under the brand names “Constellation”, “Enterprise Capacity”, and “Enterprise Value”; and, (3) Personal Storage, sold under the brand names “Barracuda” and “Desktop”.
HDDs are designed in the United States and assembled either in [non-TAA country] or [non-TAA country] from components manufactured by Seagate outside the United States or obtained by Seagate from suppliers in Asia. The assembly process in [non-TAA country] or [non-TAA country] is as follows:
The Head Disk Assembly (“HDA”), usually comprised of two magnetic recording media (“Media”) and three read/write recording heads (“Heads”), a head actuator assembly, and an airtight metal enclosure is assembled in minutes.
The HDA is mated to a printed circuit board (“PCB”) containing disk drive electronics to create an HDD. It is assembled in seconds.
The HDD is loaded into the factory testing system, and testing firmware is downloaded onto the HDD to facilitate media certifications. The HDD stays in a sequence of media certification operations for one or more days, as necessary.
Following successful media certification, the HDD testing firmware is replaced with generic, basic firmware that only allows the HDD's computer interface functions to be tested. Testing lasts between [xxx] and [xxx].
After testing, the generic firmware is removed and the drive is “forced blocked”, that is, it is blocked from being able to have software loaded onto it or to be further tested. It is stated that force blocking renders the HDD unable to function as a storage drive.
The Heads in the HDA incorporate semiconductor, magnetic, mechanical, and manufacturing process design into an integrated recording reader and writer. It takes approximately [xxx] hours to design a Head, [xxx] of which are allocated to design work in the U.S., [xxx] hours to design work in [non-TAA country], and [xxx] hours to design work in [non-TAA country]. The Media in the HDA incorporates thin film magnetics, mechanical surface design and manufacturing process design. It takes approximately [xxx] hours to design Media, [xxx] of which are allocated to work done in the U.S., [xxx] hours to work done in [TAA country], and [xxx] hours to work done in [non-TAA country].
Fully assembled HDDs are shipped to the United States. According to the information submitted, in their imported condition, HDDs cannot function as storage media. The disk heads cannot move, data cannot be stored or retrieved and, were the HDDs to be installed on computers or networks, they would not be recognized or listed. They do, however, have a rudimentary serial port that enables the HDD to communicate with a computer using a proprietary Seagate protocol so that firmware may be installed and tests performed.
In the U.S., the imported HDD is unblocked and programmed with two types of firmware:
1. Servo Firmware, which controls all motor, preamp and servo functions without which the motors, Media, and Heads will not operate and the HDD will not work; and
2. Non-Security Controller Firmware, which manages all communications between the host and target drives as well as all data within the drive. It allows data files to be stored on the Media in the HDD, to be found and listed within applications, and to be saved, retrieved and overwritten.
Installation and testing of the Servo and Non-Security Controller Firmware takes between [xxx] and [xxx], depending on the capacity and model of the HDD. Both types of firmware are developed in the U.S. and [TAA country]. Approximately 80% of the work hours spent on combined firmware
During programming operations, approximately 25% of the generic HDDs are reformatted based on specific customer requirements, such as security features, format sizes, and format modes. Customer-specific code is developed in the United States. Security Controller Firmware, which may be added on to Non-Security Controller Firmware as a part of a customer's code, allows the HDDs to be secured through encryption, which involves enabling an encryption program and security interface, locking the debug ports, and loading credentials and certificates. The Security Controller Firmware is written in the U.S. (85–90%) and in [TAA country] (10–15%), based on architecture totally designed in the U.S. involving thousands of hours and millions of dollars. After the HDDs are configured to customer security requirements, the HDDs are known as self-encrypting drives (SEDs). SEDs encrypt data as it is being written and decrypts data as it is being read.
After programming is complete, the HDDs and SEDs are validated or tested. A final quality assurance inspection is performed, after which the HDDs and SEDs receive new part numbers and labels, and are sold.
What is the country of origin of Seagate's Hard Disk Drives and Self-Encrypting Drives for purposes of U.S. Government procurement?
Pursuant to Subpart B of Part 177, 19 CFR § 177.21 et seq., which implements Title III of the Trade Agreements Act of 1979, as amended (19 U.S.C. § 2511 et seq.), CBP issues country of origin advisory rulings and final determinations as to whether an article is or would be a product of a designated country or instrumentality for the purposes of granting waivers of certain “Buy American” restrictions in U.S. law or practice for products offered for sale to the U.S. Government.
Under the rule of origin set forth under 19 U.S.C. § 2518(4)(B):
An article is a product of a country or instrumentality only if (i) it is wholly the growth, product, or manufacture of that country or instrumentality, or (ii) in the case of an article which consists in whole or in part of materials from another country or instrumentality, it has been substantially transformed into a new and different article of commerce with a name, character, or use distinct from that of the article or articles from which it was so transformed.
In rendering advisory rulings and final determinations for purposes of U.S. Government procurement, CBP applies the provisions of subpart B of Part 177 consistent with the Federal Procurement Regulations.
[A]n article that is mined, produced, or manufactured in the United States or that is substantially transformed in the United States into a new and different article of commerce with a name, character, or use distinct from that of the article or articles from which it was transformed.
In order to determine whether a substantial transformation occurs when components of various origins are assembled into completed products, CBP considers the totality of the circumstances and makes such determinations on a case-by-case basis. The country of origin of the item's components, extent of the processing that occurs within a country, and whether such processing renders a product with a new name, character, and use are primary considerations in such cases. Additionally, factors such as the resources expended on product design and development, the extent and nature of post-assembly inspection and testing procedures, and worker skill required during the actual manufacturing process will be considered when determining whether a substantial transformation has occurred. No one factor is determinative.
In
In
In C.S.D. 84–85, 18 Cust. B. & Dec. 1044 (Apr. 2, 1984), CBP stated:
We are of the opinion that the rationale of the court in the
Accordingly, the programming of a device that changes or defines its use generally constitutes substantial transformation.
HQ H052325, dated February 14, 2006, concerned the country of origin of a switch and a switch/router. The Brocade 7800 Extension Switch was assembled to completion in China and programmed in the U.S. with U.S.-origin operating system (OS) software and customer specified firmware and software. The Brocade FX8–24 switch/router contained a PCBA that was assembled and programmed in China and shipped to the U.S., where it was assembled with other components to make the final product. The completed unit was then programmed with U.S.-origin OS software and customer firmware and software. In both cases, the U.S.-origin OS software provided the devices with their functionality. Customs found that in both cases, the processing performed in the United States, including the downloading of the U.S.-origin OS software, resulted in a substantial transformation of the foreign
In HQ H175415, dated October 4, 2011, hardware components were assembled into complete Ethernet switches in China. The switches were then shipped to the U.S., where they were programmed with EOS software, developed in the U.S. The U.S.-origin EOS software enabled the imported switches to interact with other network switches through network switching and routing, and allowed for the management of functions such as network performance monitoring and security and access control. Without this software, the imported devices could not function as Ethernet switches. As a result of the programming performed in the U.S., with software developed in the U.S., CBP found that the imported switches were substantially transformed in the U.S.
In HQ H215555 (July 13, 2012), fully assembled SheevaPlug microcomputers were imported into the United States, where they were programmed with Pwnie Express proprietary software developed in the U.S. The custom software provided a web-based interface for configuring the microcomputers into Pwn Plugs. In addition, the U.S. software allowed Pwn Plugs to provide secure, persistent and reliable remote access over a variety of network protocols and customer environments. Without the U.S.-origin Pwnie Express software, an imported microcomputer could not function as a Pwn Plug. As a result of the programming performed in the U.S., with software developed in the U.S., we found that the imported microcomputers were substantially transformed in the U.S. and that the country of origin of Pwn Plugs was the United States.
In this case, fully assembled digital storage devices are imported into the United States. Mechanically, the HDDs consist of magnetic heads and a PBC. Their purpose is to store data. Accordingly, in their imported condition they are completely non-functional, in that, their disk heads cannot move, they cannot store or retrieve data, and they cannot be recognized or listed by a computer or network. The imported HDDs only have a basic ability to communicate through a serial port using a proprietary Seagate protocol that is used solely to install firmware and to test the devices. They are programmed in the U.S. with U.S.-origin Servo firmware, which causes the HDD to function mechanically by controlling the motors, preamp and servo mechanisms, which operate the recording media and disk heads in the HDA. They are also programmed in the U.S. with U.S.-origin Controller firmware, which manages all communication between the host and target drives as well as all data management within the drive. In particular, Controller firmware allows data files to be stored on the recording media in the HDA, found and listed within applications, and saved, retrieved and overwritten. Together, the U.S.-origin firmware causes the imported HDDs to function as digital storage devices. As a result of the programming performed in the U.S., with software primarily developed in the U.S., we find that the imported HDDs are substantially transformed in the U.S.
Counsel also argues that SEDs are different products than standard HDDs because they undergo an additional substantial transformation. Specifically, counsel states that the U.S.-origin security firmware with which HDD is programmed in the U.S. converts a standard HDD into a SED, a controlled encryption device for U.S. export control purposes. In addition, counsel states that the SED performs different functions than a standard HDD, has different labeling and part numbers, is marketed and sold in a different market than the HDD (a separate portion of the Seagate website is devoted to security devices such as SEDs), and is priced differently. We agree. To the extent that the HDDs are programmed with additional U.S.-origin security firmware, the country of origin of the SEDs will be the United States.
Nonetheless, this determination concerns whether the HDDs and SEDs are products of a designated country or instrumentality for the purposes of granting waivers of certain “Buy American” restrictions in U.S. law or practice for products offered for sale to the U.S. Government. Consequently, the question of whether additional programming performed in the U.S., using U.S.-origin firmware incorporating an encryption code, transforms the HDD into a SED subject to U.S. export control jurisdiction is outside the scope of this determination.
Please be advised that whether the HDDs may be marked “Made in the U.S.A.” or with similar words, is an issue under the authority of the Federal Trade Commission (“FTC”). We suggest that you contact the FTC, Division of Enforcement, 6th and Pennsylvania Avenue, NW, Washington, DC 20508, on the propriety of markings indicating that articles are made in the United States.
Based on the facts provided, the programming operations performed in the United States impart the essential character to Seagate's hard disk drives. As such, the HDDs are considered products of the United States for purposes of U.S. Government procurement.
Notice of this final determination will be given in the
U.S. Geological Survey (USGS), Interior.
Notice of a new information collection, Registry of Climate Change Vulnerability Assessments.
We (the U.S. Geological Survey) will ask the Office of Management and Budget (OMB) to approve the information collection (IC) described below. To comply with the Paperwork Reduction Act of 1995 (PRA) and as part of our continuing efforts to reduce paperwork and respondent burden, we invite the general public and other Federal agencies to take this opportunity to comment on this IC.
Submit written comments on or before October 21, 2013.
You may submit comments on this IC to the Information Collection Clearance Officer, U.S. Geological Survey, 12201 Sunrise Valley Drive, MS 807, Reston, VA 20192 (mail); (703) 648–7197 (fax); or
Laura Thompson, National Climate Change and Wildlife Science Center, U.S. Geological Survey, 12201 Sunrise Valley Drive, Mail Stop 400, Reston, VA 20192 (mail); 703–648–4083 (phone); or
The USGS proposes to collect information on existing assessments of the vulnerability of various resources and societal assets to climate change (hereafter VA or “vulnerability assessments”). This information will include organization conducting the study, its location, the topical focus of the assessment, methodology and supporting data used, and point of contact information. Because many governmental and nongovernmental parties are conducting such assessments, and because their conclusions, methodologies, and related data assets may be of interest or utility to others contemplating such assessments, the USGS will make the information collected available on the Web in the form of a simple registry-type database. Users, including the
Please note that the comments submitted in response to this notice are a matter of public record. We will include or summarize each comment in our request to OMB to approve this IC. 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.
Bureau of Land Management, Interior.
Notice.
The United States Forest Service (USFS) filed an application with the Bureau of Land Management (BLM) requesting the Secretary of the Interior to withdraw approximately 541 acres of National Forest System lands in the Shasta-Trinity National Forest for a period of 20 years, from location and entry under the United States mining laws, but not from leasing under the mineral or geothermal leasing laws. The purpose of the withdrawal would be to protect the cultural, recreational, and biological resources within and along the Trinity River Wild and Scenic River (TRWSR) located in Trinity County, California. This notice temporarily segregates the lands from location and entry under the United States mining laws for up to 2 years while the withdrawal application is considered. This notice also gives the public an opportunity to comment on the withdrawal application and to request a public meeting.
Comments and/or requests for a public meeting should be received by November 19, 2013.
Comments and/or requests for a public meeting should be sent to California State Director, Bureau of Land Management, 2800 Cottage Way, Suite W1623, Sacramento, CA 95825–1886.
Elizabeth Easley, BLM California State Office, 916–978–4673, or Brenda Tracy, Shasta-Trinity National Forest Headquarters, 530–226–2500 during regular business hours, 8 a.m. to 4:30 p.m., Monday through Friday, except holidays. Persons who use a telecommunications device for the deaf (TDD) may call the Federal Information Relay Service (FIRS) at 1–800–877–8339 to contact the above individuals. The FIRS is available 24 hours a day, 7 days a week, to leave a message or question with the above individual. You will receive a reply during normal business hours.
The USFS has filed an application requesting that the Secretary of the Interior withdraw, subject to valid existing rights, the following described lands located in Trinity County, California, from location and entry under the United States mining laws, but not from leasing under the mineral or geothermal leasing laws, to protect the cultural, recreational, and biological resources within the TRWSR:
The areas described aggregate 541 acres, more or less, in Trinity County, California.
The above-described lands being National Forest System lands, the Secretary shall make a withdrawal only
The use of a right-of-way, interagency agreement, or cooperative agreement would not adequately constrain non-discretionary uses and would not provide adequate protection of the resources within the TRWSR .
There are no suitable alternative sites with equal or greater benefit to the government.
No additional water rights will be needed to fulfill the purpose of the requested withdrawal.
The identification of mineral resources along the Trinity River indicates there is a high potential for the occurrence of placer gold and associated platinum group elements in the river alluvium. There is a moderate to high potential for commercial placer gold development. These alluvial gravel deposits, including the placer tailings, also have a moderate potential for development as sources of mineral materials. There are no other significant mineral occurrences or development potentials.
Records related to the application may be examined by contacting either of the above individuals listed above.
Notice is also hereby given that the opportunity for a public meeting is afforded in connection with the proposed withdrawal. All interested parties who desire a public meeting for the purpose of being heard on the proposed withdrawal must submit a written request to the BLM California State Office at the address listed above by November 19, 2013.
If the BLM authorized officer determines that the BLM/FS will hold a public meeting, the BLM will publish a notice of the time and place 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. Individuals that submit written comments may request confidentiality by asking us in your comment to withhold your personal identifying information from public review, however, we cannot guarantee that we will be able to do so.
The application will be processed in accordance with the regulations set forth in 43 CFR part 2300.
Bureau of Land Management, Interior.
Notice.
The Assistant Secretary of the Interior for Policy, Management and Budget proposes to withdraw, subject to valid existing rights, on behalf of the Bureau of Land Management (BLM) 3,123 acres of public lands located in Trinity County, California, from location and entry under the United States mining laws, but not from mineral material sales or mineral or geothermal leasing, to protect the cultural, recreational, and biological resources within and along the recreational segments of the Trinity Wild and Scenic River (TRWSR). This notice temporarily segregates the lands for up to 2 years from location and entry under the United States mining laws and gives the public an opportunity to comment on the proposed withdrawal application and to request a public meeting.
The BLM must receive comments and requests for a public meeting by November 19, 2013.
Comments and meeting requests should be sent to Jennifer Mata, Field Manager, Redding Field Office, Bureau of Land Management (BLM), 355 Hemsted Drive, Redding, CA 96002.
Susie Greenhalgh, Northern California District Office, BLM, 530–224–2142. Persons who use a telecommunications device for the deaf (TDD) may call the Federal Information Relay Service (FIRS) at 1–800–877–8339 to contact the above individual. The FIRS is available 24 hours a day, 7 days a week, to leave a message or question with the above individual. You will receive a reply during normal business hours.
The BLM filed an application requesting the Assistant Secretary for Policy, Management and Budget to withdraw, subject to valid existing rights, the following described lands located in Trinity County, California, from location and entry under the United States mining laws, but not from leasing under the mineral or geothermal leasing laws, or disposal under the Materials Act of 1947, to protect the cultural, recreational, and biological resources within the TRWSR:
That portion of Section 18, Township 33 North, Range 10 West, M.D.M., according to the official plat thereof, described as follows:
Beginning at the quarter corner common to Sections 19 and 18, Township 33 North, Range 10 West, M.D.M., which point is marked by a brass capped iron pipe monument in a mound of rock set by the Bureau of Land Management in 1962; thence
1. North 0°29′ East, 1318.58 feet to the center south 1/16th corner of said Section 18, which is marked by a brass capped pipe monument in a mound of rock set by the Bureau of Land Management in 1986; thence
2. South 87°21′ East, 772.29 feet along the North line of the Southwest quarter of the Southeast quarter [lot 8] of said Section 18 to a point; thence
3. South 10°51′11″ West 579.13 feet to a point; thence
4. South 37°08′48″ West, 904.48 feet to a point in the South Line of said Section 18, from which the South quarter corner thereof bears North 86°54′ West, 127.55 feet distant; thence
5. North 86°54′ West, 127.55 feet to the point of beginning.
This portion of lot 8 has not been officially surveyed and platted.
The areas described aggregate 3,123 acres, more or less, in Trinity County.
The Assistant Secretary for Policy, Management and Budget approved the BLM's petition/application. Therefore, the petition/application constitutes a withdrawal proposal of the Secretary of the Interior (43 CFR 2310.1–3(e)).
The purpose of the proposed withdrawal is to protect the cultural, recreational, and biological resources within the TRWSR.
The use of a right-of-way, interagency agreement, or cooperative agreement would not adequately constrain non-discretionary uses and would not provide adequate protection of the Federal investment in the improvements located on the lands.
There are no suitable alternative sites as the described lands contain the resource values to be protected.
No additional water rights will be needed to fulfill the purpose of the requested withdrawal.
Records relating to the application may be examined by contacting the BLM at the above address and phone number.
For a period until November 19, 2013, all persons who wish to submit comments, suggestions, or objections in connection with the proposed withdrawal may present their views in writing to the Field Manager, BLM Redding Field Office, 355 Hemsted Drive, Redding, CA 96002. Information regarding the proposed withdrawal will be available for public review at the BLM's Redding Field Office, during regular business hours, 8 a.m. to 4:30 p.m. Monday through Friday, except Federal 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. Individuals that submit written comments may request confidentiality by asking us in your comment to withhold your personal identifying information from public review, however, we cannot guarantee that we will be able to do so.
Notice is hereby given that the opportunity for a public meeting is afforded in connection with the proposed withdrawal. All interested parties who desire a public meeting for the purpose of being heard on the proposed withdrawal must submit a written request to the Field Manager, BLM Redding Field Office, BLM at the address indicated above by November 19, 2013. If the BLM authorized officer determines that the BLM will hold a public meeting, the BLM will publish a notice of the time and place in the
For a period until August 21, 2015, the public lands described in this notice will be segregated from location and entry under the United States mining laws, but not from leasing under the mineral or geothermal leasing laws or disposal under the Materials Act of 1947, unless the application is denied or canceled or the withdrawal is approved prior to that date.
Licenses, permits, cooperative agreement, or discretionary land use authorizations of a temporary nature that will not significantly impact the values to be protected by the withdrawal may be allowed with the approval of the authorized officer of the BLM during the temporary segregation period.
The application will be processed in accordance with the regulations set forth in 43 CFR part 2300.
National Park Service, Interior.
Notice; request for comments.
We (National Park Service) have sent an Information Collection Request (ICR) to OMB for review and approval. We summarize the ICR below and describe the nature of the collection and the estimated burden and cost. This information collection is scheduled to expire on September 30, 2013. We 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. However, under OMB regulations, we may continue to conduct or sponsor this information collection while it is pending at OMB.
You must submit comments on or before September 20, 2013.
Send your comments and suggestions on this information collection to the Desk Officer for the Department of the Interior at OMB–OIRA at (202) 395–5806 (fax) or
To request additional information about this ICR, contact Ben Erichsen, Chief, Commercial Services Program, at (202) 513–7156 (telephone) or
The regulations at 36 CFR Part 51 primarily implement Title IV of the National Parks Omnibus Management Act of 1998 (Pub. L. 105–391), which provides legislative authority, policies, and requirements for the solicitation, award, and administration of NPS concession contracts. The information collection requirements associated with NPS concessions are currently approved under four OMB control numbers. During our review for this renewal, we discovered some additional requirements that need OMB approval. In this revision of 1024–0029, we are including all of the information collection requirements associated with applying for and operating NPS concessions. If OMB approves this revision, we will discontinue OMB Control Numbers 1024–0125, 1024–0126, and 1024–0231.
We again invite comments concerning this information collection on:
• Whether or not the collection of information is necessary, including whether or not the information will have practical utility;
• The accuracy of our estimate of the burden for this collection of information;
• Ways to enhance the quality, utility, and clarity of the information to be collected; and
• Ways to minimize the burden of the collection of information on respondents.
Comments that you submit in response to this notice are a matter of public record. Before including your address, phone number, email address, or other personal identifying information in your comment, you should be aware that your entire comment, including your personal identifying information, may be made publicly available at any time. While you can ask OMB in your comment to withhold your personal identifying information from public review, we cannot guarantee that it will be done.
United States International Trade Commission.
Scheduling of additional public hearing in Moffett Field, CA.
The Commission has scheduled a public hearing in investigation No. 332–540,
September 12, 2013: Deadline for filing requests to appear at the public hearing.
September 18, 2013: Deadline for filing pre-hearing briefs and statements.
September 25, 2013: Public hearing.
October 3, 2013: Deadline for filing post-hearing briefs and statements.
March 21, 2014: Deadline for filing all other written submissions.
July 14, 2014: Transmittal of Commission report to the Senate Committee on Finance.
All written submissions should be addressed to the Secretary, United States International Trade Commission, 500 E Street SW., Washington, DC 20436. The public record for this investigation may be viewed on the Commission's electronic docket (EDIS) at
Project Leader James Stamps (202–205–3227 or
• estimate the value of U.S. digital trade and the potential growth of this trade (with the potential growth estimates to highlight any key trends and discuss their implications for U.S. businesses and employment);
• provide insight into the broader linkages and contributions of digital trade to the U.S. economy (such linkages and contributions may include effects on consumer welfare, output, productivity, innovation, business practices, and job creation);
• present case studies that examine the importance of digital trade to selected U.S. industries that use or produce such goods and services, with some of the case studies to highlight, if possible, the impact of digital trade on small and medium-sized enterprises; and
• examine the effect of notable barriers and impediments to digital trade on selected industries and the broader U.S. economy.
The Commission expects to transmit this second report to the Committee by July 14, 2014. For the purposes of this investigation, the Commission is defining “digital trade” to encompass commerce in products and services delivered via the Internet as well as commerce in products and services that is facilitated by the use of the Internet and Internet-based technologies. Commerce includes both U.S. domestic economic activity as well as international trade.
This field hearing is being planned in conjunction with a field hearing to be held on September 26, 2013 for Inv. No. 332–541,
Any submissions that contain confidential business information (CBI) must also conform to the requirements of section 201.6 of the
In its request letter, the Committee stated that it intends to make the Commission's reports available to the public in their entirety, and asked that the Commission not include any confidential business information or national security classified information in the reports that the Commission sends to the Committee. Any confidential business information received by the Commission in this investigation and used in preparing this report will not be published in a manner that would reveal the operations of the firm supplying the information.
By order of the Commission.
United States International Trade Commission.
Scheduling of additional public hearing in Moffett Field, CA.
The Commission has scheduled an additional public hearing in Inv. No. 332–541,
This field hearing is being scheduled in conjunction with a field hearing to be held on September 25, 2013, also at the NASA Center in Moffett Field, CA in a second Commission investigation, No. 332–540,
September 12, 2013: Deadline for filing requests to appear at the Moffett Field, CA hearing.
September 18, 2013: Deadline for filing pre-hearing briefs and statements.
September 26, 2013: Public hearing in Moffett Field, CA.
October 3, 2013: Deadline for filing post-hearing briefs.
October 15, 2013: Deadline for filing all other written submissions.
January 31, 2014: Transmittal of Commission report to the USTR.
All written submissions should be addressed to the Secretary, United States International Trade Commission, 500 E Street SW., Washington, DC 20436. The public record for this investigation may be viewed on the Commission's electronic docket (EDIS) at
Project Leader William Deese (202–205–2626 or
The Commission is particularly interested in receiving information and views from SMEs and related organizations about trade-related barriers faced by U.S. SMEs in exporting goods or services to the EU and about EU trade barriers by economic sector or by special issue. (For purposes of this report, an SME is defined as a firm with fewer than 500 U.S.-based employees.) The Commission is also interested in receiving information and views about specific trade barriers in individual EU countries; the relative effect on exports of different EU trade barriers; and ways in which SME participation in transatlantic trade might be strengthened.
Any submissions that contain confidential business information (CBI) must also conform to the requirements of section 201.6 of the
In the request letter, the USTR stated that the Office of the USTR intends to make the Commission's report available to the public in their entirety, and asked that the Commission not include any confidential business information or national security classified information in the report that the Commission sends to the USTR. Any confidential business information received by the Commission in this investigation and used in preparing this report will not be published in a manner that would reveal the operations of the firm supplying the information.
By order of the Commission.
Pursuant to Title 21 Code of Federal Regulations 1301.34 (a), this is notice that on June 27, 2013, Noramco, Inc., 1440 Olympic Drive, Athens, Georgia 30601, made application by renewal to the Drug Enforcement Administration (DEA) for registration as an importer of the basic classes of controlled substances:
The company plans to import Thebaine (9333) analytical standards for distribution to its customers. The company plans to import an intermediate form of Tapentadol (9780) to bulk manufacture Tapentadol for distribution to its customers. The company plans to import the Phenylacetone (8501) in bulk for the manufacture of a controlled substance.
Comments and requests for hearings on applications to import narcotic raw material are not appropriate. 72 FR 3417 (2007).
In reference to the non-narcotic raw material, any bulk manufacturer who is presently, or is applying to be, registered with DEA to manufacture such basic classes of controlled substances listed in schedules I or II, which fall under the authority of section 1002(a)(2)(B) of the Act (21 U.S.C. 952(a)(2)(B)) may, in the circumstances set forth in 21 U.S.C. 958(i), file comments or objections to the issuance of the proposed registration and may, at the same time, file a written request for a hearing on such application pursuant to 21 CFR 1301.43, and in such form as prescribed by 21 CFR 1316.47.
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 September 20, 2013.
This procedure is to be conducted simultaneously with, and independent of, the procedures described in 21 CFR 1301.34(b), (c), (d), (e), and (f). As noted in a previous notice published in the
Office of Justice Programs (OJP), Justice.
Notice of meeting.
This is an announcement of a meeting of DOJ's National Motor Vehicle Title Information System (NMVTIS) Federal Advisory Committee to discuss various issues relating to the operation and implementation of NMVTIS.
The meeting will take place on Tuesday October 8, 2013, from 10:00 a.m. to 4:00 p.m. ET.
The meeting will take place at the Office of Justice Programs (OJP), 810 7th Street NW., Washington, DC 20531.
Todd Brighton, Designated Federal Employee (DFE), Bureau of Justice
This meeting is open to the public. Members of the public who wish to attend this meeting must register with Mr. Brighton at the above address at least seven (7) days in advance of the meeting. Registrations will be accepted on a space available basis. Access to the meeting will not be allowed without registration. Please bring photo identification and allow extra time prior to the meeting. Interested persons whose registrations have been accepted may be permitted to participate in the discussions at the discretion of the meeting chairman and with approval of the DFE.
Anyone requiring special accommodations should notify Mr. Brighton at least seven (7) days in advance of the meeting.
The NMVTIS Federal Advisory Committee will provide input and recommendations to the Office of Justice Programs (OJP) regarding the operations and administration of NMVTIS. The primary duties of the NMVTIS Federal Advisory Committee will be to advise the Bureau of Justice Assistance (BJA) Director on NMVTIS-related issues, including but not limited to: implementation of a system that is self-sustainable with user fees; options for alternative revenue-generating opportunities; determining ways to enhance the technological capabilities of the system to increase its flexibility; and options for reducing the economic burden on current and future reporting entities and users of the system.
Mine Safety and Health Administration, Labor.
Request for public comments.
The Department of Labor, as part of its continuing effort to reduce paperwork and respondent burden, conducts a pre-clearance consultation program to provide the general public and Federal agencies with an opportunity to comment on proposed and continuing collections of information in accordance with the Paperwork Reduction Act of 1995, 44 U.S.C. 3506(c)(2)(A). This program helps to assure that requested data can be provided in the desired format, reporting burden (time and financial resources) is minimized, collection instruments are clearly understood, and the impact of collection requirements on respondents can be properly assessed. Currently, the Mine Safety and Health Administration (MSHA) is soliciting comments concerning the proposed information collection for updating Hazardous Conditions Complaints 30 CFR 43.4 and 43.7.
All comments must be postmarked or received by midnight Eastern Standard Time on October 21, 2013.
Comments concerning the information collection requirements of this notice may be sent by any of the methods listed below.
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Sheila McConnell, Deputy Director, Office of Standards, Regulations, and Variances, MSHA, at
Under Section 103(g) of the Federal Mine Safety and Health Act of 1977, as amended (Mine Act), a representative of miners, or any individual miner where there is no representative of miners, may submit a written or oral notification of an alleged violation of the Mine Act or a mandatory standard that an imminent danger exists. The notifier has the right to obtain an immediate inspection by the Mine Safety and Health Administration (MSHA). A copy of the notice must be provided to the operator, with individual miner names redacted.
MSHA regulations at 30 CFR Part 43 implement Section 103(g) of the Mine Act. These regulations provide the procedures for submitting notification of the alleged violation or imminent danger and the actions that MSHA must take after receiving the notice. Although the regulations contain a review procedure (required by Section 103(g)(2) of the Mine Act) whereby a miner or a representative of miners may in writing request a review if no citation or order is issued as a result of the original notice, the option is so rarely used that it was not considered in the burden estimates.
MSHA is soliciting comments concerning the proposed extension of the information collection related to Hazardous Conditions Complaints in 30 CFR 43.4 and 43.7. MSHA is particularly interested in comments that:
• Evaluate whether the collection of information is necessary for the proper performance of the functions of the agency, including whether the information has practical utility;
• Evaluate the accuracy of the MSHA's estimate of the burden of the collection of information, including the validity of the methodology and assumptions used;
• Suggest methods to enhance the quality, utility, and clarity of the information to be collected; and
• Minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology, e.g., permitting electronic submission of responses.
This proposed information collection request is available on MSHA's Web site at
The public may also examine the proposed information collection at MSHA, Office of Standards, Regulations, and Variances, 1100 Wilson Boulevard, Room 2350, Arlington, VA 22209–3939 by signing in at the receptionist's desk on the 21st floor.
Questions about the information collection requirements may be directed to the person listed in the
This request for collection of information contains notification and recordkeeping provisions for the Proposed Information Collection Request Submitted for Public Comment and Recommendations; Hazardous Conditions Complaints 30 CFR 43.4 and 43.7. MSHA has updated the data in respect to the number of respondents and responses, as well as the total burden hours and burden costs supporting this information collection request.
Comments submitted in response to this notice will be summarized and included in the request for Office of Management and Budget approval of the information collection request; they will also become a matter of public record.
Mine Safety and Health Administration, Labor.
Request for public comments.
The Department of Labor, as part of its continuing effort to reduce paperwork and respondent burden, conducts a pre-clearance consultation program to provide the general public and Federal agencies with an opportunity to comment on proposed and continuing collections of information in accordance with the Paperwork Reduction Act of 1995, 44 U.S.C. 3506(c)(2)(A). This program helps to assure that requested data can be provided in the desired format, reporting burden (time and financial resources) is minimized, collection instruments are clearly understood, and the impact of collection requirements on respondents can be properly assessed. Currently, the Mine Safety and Health Administration (MSHA) is soliciting comments concerning the proposed information collection for updating Ventilation Plan and Main Fan Maintenance Record 30 CFR 57.8520, and 57.8525.
All comments must be postmarked or received by midnight Eastern Standard Time on October 21, 2013.
Comments concerning the information collection requirements of this notice may be sent by any of the methods listed below.
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Sheila McConnell, Deputy Director, Office of Standards, Regulations, and Variances, MSHA, at
Section 103(h) of the Federal Mine Safety and Health Act of 1977 (Mine Act), 30 U.S.C. 813, authorizes the Mine Safety and Health Administration (MSHA) to collect information necessary to carry out its duty in protecting the safety and health of miners.
Underground mines usually present harsh and hostile working environments. The ventilation system is the most vital life support system in underground mining and a properly operating ventilation system is essential for maintaining a safe and healthful working environment. A well planned mine ventilation system is necessary to assure a fresh air supply to miners at all working places, to control the amounts of harmful airborne contaminants in the mine atmosphere, and to dilute possible accumulation of explosive gases.
Lack of adequate ventilation in underground mines has resulted in fatalities from asphyxiation and/or explosions due to a buildup of explosive gases. Inadequate ventilation can be a primary factor for deaths caused by disease of the lungs (e.g. silicosis).
In addition, poor working conditions from lack of adequate ventilation contribute to accidents resulting from heat stress, limited visibility, or impaired judgment from contaminants. The mine operator is required to prepare a written plan of the mine ventilation system. The plan is required to be updated at least annually. Upon written request of the District Manager, the plan or revisions must be submitted to MSHA for review and comment.
The main ventilation fans for an underground mine must be maintained either according to the manufacturers' recommendations or a written periodic schedule. Upon request of an Authorized Representative of the Secretary of Labor, this fan maintenance schedule must be made available for review. The records assure compliance with the standard and may serve as a warning mechanism for possible ventilation problems before they occur.
MSHA is particularly interested in comments that:
• Evaluate whether the collection of information is necessary for the proper performance of the functions of the agency, including whether the information has practical utility;
• Evaluate the accuracy of the MSHA's estimate of the burden of the collection of information, including the validity of the methodology and assumptions used;
• Suggest methods to enhance the quality, utility, and clarity of the information to be collected; and
• Minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology, e.g., permitting electronic submission of responses.
This information collection request is available on MSHA's Web site at
The public may also examine this information collection request at MSHA, Office of Standards, Regulations, and Variances, 1100 Wilson Boulevard, Room 2350, Arlington VA 22209–3939 by signing in at the receptionist's desk on the 21st floor.
Questions about the information collection requirements may be directed to the person listed in the
This request for collection of information contains notification and recordkeeping provisions for the Proposed Information Collection Request submitted for public comment and recommendations; Ventilation Plan and Main Fan Maintenance Record 30 CFR 57.8520, and 57.8525. MSHA has updated the data in respect to the number of respondents and responses, as well as the total burden hours and burden costs supporting this information collection request.
Comments submitted in response to this notice will be summarized and included in the request for Office of Management and Budget approval of the information collection request; they will also become a matter of public record.
On August 8, 2013, the Legal Services Corporation (“LSC” or “Corporation”) issued a public announcement that the Institutional Advancement Committee will meet telephonically on August 20, 2013, at 4 p.m., Eastern Daylight Time (“EDT”). This announcement was published in the
Atitaya Rok, Staff Attorney, at (202) 295–1500. Questions may be sent by electronic mail to
National Aeronautics and Space Administration.
Notice of Public Conference to examine ideas in response to the recent RFI for the agency's Asteroid Initiative.
The National Aeronautics and Space Administration announces a public conference to provide a status on the Agency's Asteroid Initiative planning and to enable feedback and discussion from the global community and the public.
(12 p.m. CDT) Monday, September 30, 2013–(5 p.m. CDT) Wednesday October 2, 2013
Lunar and Planetary Institute, 3600 Bay Area Boulevard, Houston, TX 77058.
Michele Gates, Senior Technical Advisor, NASA Human Exploration and Operations Mission Directorate: 202–358–1048.
• The purpose of this conference is to publicly examine and synthesize highly rated responses to the NASA's Asteroid Initiative RFI. Findings will be developed and provided as inputs to NASA's planning activities.
• Due to limited seating capacity, onsite attendance is by invitation only. Invitations will be sent starting Monday, August 19.
• NASA will invite many of the RFI submitters to attend the workshop to share their ideas. Invited presenters will have the option to attend onsite, or present their ideas remotely via online virtual meeting capabilities. Presenters must R.S.V.P. through the registration form provided to them in the invitation email.
• Anyone who is not invited to present at the workshop will be able to participate virtually through live streaming forums dedicated to the workshop plenary sessions and focused track sessions.
• Workshop check-in will open at 11:00 a.m. CDT on Monday, September 30.
• All attendees must enter through the LPI main doors (3600 Bay Area Blvd., Houston, Texas 77058).
News media interested in attending are required to pre-register and should contact Sarah Becky Ramsey at 202–358–1694 or Rachel Kraft at 202–358–1100 for additional information.
Event attendees will receive a workshop badge upon check in. All participates are asked to keep this badge on them at all times while in the facility.
All attendees must park at the University Baptist Church Clear Lake, located at 16106 Middlebrook Drive, Houston, TX 77059. A shuttle will be available throughout the workshop to and from the LPI building. A map is available at the
Local Area information including additional directions and maps can be found here:
For Houston Metro information, please visit their Web site at
National Mediation Board (NMB).
Notice.
The Director, Office of Administration, invites comments on the submission for OMB review, in accordance with the Paperwork Reduction Act of 1995 (Pub. L. 104–13, May 22, 1995 and 5 CFR part 1320). This notice announces that the NMB has submitted to the Office of Management and Budget a request for clearance of three (3) information collections.
Interested persons are invited to submit comments within 30 days from the date of this publication.
Written comments should be addressed to June D. W. King, Director, Office of Administration, National Mediation Board, 1301 K Street NW., Suite 250 East, Washington, DC 20572 or should be emailed to
Section 3506 of the Paperwork Reduction Act of 1995 (U.S.C. Chapter 35) requires that the Office of Management and Budget (OMB) provide interested Federal agencies and the public an early opportunity to comment on information collection requests. OMB may amend or waive the requirement for public consultation to the extent that public participation in the approval process would defeat the purpose of the information collection, violate State or Federal law, or substantially interfere with any agency's ability to perform its statutory obligations. The Chief Information Officer, Finance and Administration Department, publishes that notice containing proposed information collection requests prior to submission of these requests to OMB. Each proposed information collection contains the following: (1) Type of review requested, e.g. new, revision extension, existing or reinstatement; (2) Title; (3) Summary of the collection; (4) Description of the need for, and proposed use of, the information; (5) Respondents and frequency of collection; and (6) Reporting and/or Record keeping burden. OMB invites public comment.
This form is necessary to assist the parties in this process. The parties invoke the process through the submission of this form. The brief information is necessary for the NMB to perform this important function.
This form is necessary for the NMB to fulfill its statutory responsibilities. Without this information, the NMB would not be able to assist the railroad labor and management representatives in resolving disputes, which is contrary to the intent of the Railway Labor Act.
Requests for copies of the proposed information collection request may be accessed from
Comments regarding burden and/or the collection activity requirements should be directed to June D. W. King at 202–692–5010 or via internet address
The National Science Board's
Monday, August 26, 2013 at 3:30 p.m. EST
Consideration of nominations for the NSB class of 2014–2020.
Closed.
This meeting will be held by teleconference originating at the National Science Board Office, National Science Foundation, 4201Wilson Blvd., Arlington, VA 22230.
Please refer to the National Science Board Web site (
The ACRS Subcommittee on Fukushima will hold a meeting on September 18, 2013, Room T–2B3, 11545 Rockville Pike, Rockville, Maryland.
The entire meeting will be open to public attendance.
The agenda for the subject meeting shall be as follows:
The Subcommittee will review and discuss the development of Interim Staff Guidance in Support of Order EA–13–109, “Order Modifying Licenses with Regard to Reliable Hardened Containment Vents Capable of Operation Under Severe Accident Conditions.” The Subcommittee will hear presentations by and hold discussions with the NRC staff and other interested persons regarding this matter. The Subcommittee will gather information, analyze relevant issues and facts, and formulate proposed positions and actions, as appropriate, for deliberation by the Full Committee.
Members of the public desiring to provide oral statements and/or written comments should notify the Designated Federal Official (DFO), Weidong Wang (Telephone 301–415–6279 or Email:
Detailed meeting agendas and meeting transcripts are available on the NRC Web site at
If attending this meeting, please enter through the One White Flint North building, 11555 Rockville Pike, Rockville, MD. After registering with security, please contact Mr. Theron Brown (Telephone 240–888–9835) to be escorted to the meeting room.
The ACRS Subcommittee on Regulatory Policies and Practices will hold a meeting on September 16, 2013, Room T–2B1, 11545 Rockville Pike, Rockville, Maryland.
The entire meeting will be open to public attendance.
The agenda for the subject meeting shall be as follows:
The Subcommittee will review the State-of-the-Art Reactor Consequence Analysis (SOARCA) uncertainty analyses. The Subcommittee will hear presentations by and hold discussions with the NRC staff and other interested persons regarding this matter. The Subcommittee will gather information, analyze relevant issues and facts, and formulate proposed positions and actions, as appropriate, for deliberation by the Full Committee.
Members of the public desiring to provide oral statements and/or written comments should notify the Designated Federal Official (DFO), Hossein Nourbakhsh (Telephone 301–415- or Email:
Detailed meeting agendas and meeting transcripts are available on the NRC Web site at
If attending this meeting, please enter through the One White Flint North building, 11555 Rockville Pike, Rockville, MD. After registering with security, please contact Mr. Theron Brown (Telephone 240–888–9835) to be escorted to the meeting room.
Nuclear Regulatory Commission.
Notice of intent to prepare a supplemental environmental impact statement.
By letter dated October 3, 2012, AUC, LLC (AUC) submitted to the U.S. Nuclear Regulatory Commission (NRC) an application for a new source material license. The requested license, or the proposed action, would authorize the construction and operation, and decommissioning of AUC's proposed
Please refer to Docket ID NRC–2013–0164 when contacting the NRC about the availability of information regarding this document. You may access publicly-available information related to this action by the following methods:
• Federal Rulemaking Web site: Go to
• NRC's Agencywide Documents Access and Management System (ADAMS): You may access publicly available documents online in the NRC Library at
• NRC'S PDR: You may examine and purchase copies of public documents at the NRC's PDR, Room O1–F21, One White Flint North, 11555 Rockville Pike, Rockville, Maryland 20852.
Jill Caverly, Senior Project Manager, Office of Federal and State Materials and Environmental Management Programs, U.S. Nuclear Regulatory Commission, Washington, DC 20555–0001; telephone: 301–415–6699; email:
The purpose of this notice of intent is to inform the public that the NRC will be preparing a site-specific Supplemental Environmental Impact Statement (SEIS) regarding the proposed action in accordance with NRC's regulations in part 51 of Title 10 of the
AUC submitted its application for a 10 CFR part 40 license by letter dated October 3, 2012. A notice of receipt and availability of the license application, including the ER, and opportunity to request a hearing was published in the
The NRC will prepare a SEIS for the issuance of the ISR license to possess and use source material for uranium milling to fulfill 10 CFR 51.20(b)(8) requirements. The purpose of this Notice of Intent is to inform the public that the NRC staff, as part of its review of AUC's application, is preparing a draft SEIS for public comment that will tier off of the ISR GEIS. The GEIS identifies specific areas for consideration on a site specific basis that form the staff's intended scope for this site specific SEIS. While NRC's part 51 regulations do not require scoping for SEISs, the NRC staff is planning to place ads in newspapers serving communities near the proposed site, requesting information and comments from the public regarding the proposed action as well as information about other resources, such as historic and cultural resources, that could be affected by the proposed action. In preparing the SEIS, the NRC staff will also consult with Environmental Protection Agency Region 8, U.S. Fish & Wildlife Service; Wyoming Department of Environmental Quality; Wyoming State Historic Preservation Office; potentially interested Tribes and public interest groups; and Wyoming Game and Fish Department.
The NRC will evaluate the potential environmental impacts associated with the proposed ISR facility in parallel with the safety review of the license application. The environmental evaluation will be documented in draft and final SEISs in accordance with NEPA and NRC's implementing regulations contained in 10 CFR part 51.
The facilities, if licensed, would use ISR technology to extract uranium from the 6,057-acre project site. The facility
Other alternatives not listed here may be identified through the environmental review process.
The following areas have been tentatively identified for analysis in the SEIS:
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This list is not intended to be all inclusive, nor is it a predetermination of potential environmental impacts.
The SEIS for the Reno Creek ISR Project will be prepared pursuant to the NRC's NEPA regulations at 10 CFR Part 51. The NRC will conduct its environmental review of the application and as soon as practicable, the NRC will prepare and publish a draft SEIS. The NRC currently plans to have a 45-day public comment period for the draft SEIS. Availability of the draft SEIS and the dates of the public comment period will be announced in the
For the U.S. Nuclear Regulatory Commission.
Nuclear Regulatory Commission.
License amendment request; opportunity to provide comments, request a hearing and to petition for leave to intervene.
The U.S. Nuclear Regulatory Commission (NRC) has received, by letter dated June 21, 2013 (actual receipt by NRC was July 18, 2013), a license amendment application from the U.S. Department of the Army (the licensee) for its Jefferson Proving Ground (JPG) site located in Madison, Indiana, requesting to replace its security plan with a new radiation safety plan.
Submit comments by September 20, 2013. Requests for a hearing and petition for leave to intervene must be filed by October 21, 2013.
You may submit comment by any of the following methods (unless this document describes a different method for submitting comments on a specific subject):
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For additional direction on accessing information and submitting comments, see “Accessing Information and Submitting Comments” in the
Thomas McLaughlin, Office of Federal and State Materials and Environmental Management Programs, U.S. Nuclear Regulatory Commission, Washington, DC 20555; telephone: 301–415–5869; email:
Please refer to Docket ID NRC–2013–0194 when contacting the NRC about the availability of information regarding this document. You may access publicly-available information related to this action by the following methods:
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Please include Docket ID NRC–2013–0194 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 posts all comment submissions at
If you are requesting or aggregating comments from other persons for submission to the NRC, then you should inform those persons not to include identifying or contact information that they do not want to be publicly disclosed in their comment submission. Your request should state that the NRC does not routinely edit comment submissions to remove such information before making the comment submissions available to the public or entering the comment submissions into ADAMS.
License No. SUB–1435 authorizes the licensee to possess depleted uranium. The proposed change is to modify License Condition No. 12 D which refers to the security plan of December 10, 2003 (ADAMS Accession No. ML033650261). In the security plan, a management team of Army personnel controls access to JPG. Under the proposed revised radiation plan, which would supersede the 2003 security plan, the access control for JPG would be managed by the Fish and Wildlife Service (ADAMS Accession No. ML13191A824).
An NRC administrative review, documented in a letter to the U.S. Department of the Army dated July 24, 2013 (ADAMS Accession No. ML13204A269), found the application acceptable to begin a technical review. If the NRC approves the amendment, the approval will be documented in an amendment to the NRC License No. SUB–1435. However, before approving the proposed amendment, the NRC will need to make the findings required by the Atomic Energy Act of 1954, as amended, and the NRC's regulations. These findings will be documented in a Safety Evaluation Report and an Environmental Assessment, unless the extension request satisfies the requirements of a categorical exclusion under 10 CFR 51.22.
Within 60 days after the date of publication of this
As required by 10 CFR 2.309, a petition for leave to intervene shall set forth with particularity the interest of the petitioner in the proceeding and how that interest may be affected by the results of the proceeding. The petition must provide the name, address, and telephone number of the petitioner and specifically explain the reasons why intervention should be permitted with particular reference to the following factors: (1) The nature of the petitioner's right under the Act to be made a party to the proceeding; (2) the nature and extent of the petitioner's property, financial, or other interest in the proceeding; and (3) the possible effect of any order that may be entered in the proceeding on the petitioner's interest.
A petition for leave to intervene must also include a specification of the contentions that the petitioner seeks to have litigated in the hearing. For each contention, the petitioner must provide a specific statement of the issue of law or fact to be raised or controverted, as well as a brief explanation of the basis for the contention. Additionally, the petitioner must demonstrate that the issue raised by each contention is within the scope of the proceeding and is material to the findings the NRC must make to support the granting of a license amendment in response to the application. The petition must also include a concise statement of the alleged facts or expert opinions which support the position of the petitioner and on which the petitioner intends to rely at hearing, together with references to the specific sources and documents on which the petitioner intends to rely. Finally, the petition must provide sufficient information to show that a genuine dispute exists with the applicant on a material issue of law or fact, including references to specific portions of the application for amendment that the petitioner disputes and the supporting reasons for each dispute, or, if the petitioner believes that the application for amendment fails to contain information on a relevant matter as required by law, the identification of each failure and the supporting reasons for the petitioner's belief. Each contention must be one that, if proven, would entitle the petitioner to relief.
Those permitted to intervene become parties to the proceeding, subject to any limitations in the order granting leave to intervene, and have the opportunity to participate fully in the conduct of the hearing with respect to resolution of that person's admitted contentions, including the opportunity to present evidence and to submit a cross-examination plan for cross-examination of witnesses, consistent with the NRC's regulations, policies, and procedures.
Requests for hearing, petitions for leave to intervene, and motions for leave to file new or amended contentions that are filed after October 21, 2013 day deadline will not be entertained absent a determination by the presiding officer that the filing demonstrates good cause by satisfying the three factors in 10 CFR 2.309(c)(1)(i–(iii).
A State, local governmental body, Federally-recognized Indian tribe, or agency thereof may submit a petition to the Commission to participate as a party under 10 CFR 2.309(h)(1). The petition should state the nature and extent of the petitioner's interest in the proceeding. The petition should be submitted to the Commission by October 21, 2013. The petition must be filed in accordance with the filing instructions in Section IV of this document, and should meet the requirements for petitions for leave to intervene set forth in this section, except that under 10 CFR 2.309(h)(2) a State, local governmental body, or Federally-recognized Indian tribe, or agency thereof does not need to address the standing requirements in 10 CFR 2.309(d) if the facility is a production or utilization facility located within its boundaries. A State, local governmental body, Federally-recognized Indian tribe, or agency thereof may also have the opportunity to participate in a hearing as a nonparty pursuant to 10 CFR 2.315(c).
If a hearing is granted, any person who does not wish, or is not qualified, to become a party to this proceeding may, in the discretion of the presiding officer, be permitted to make a limited appearance under 10 CFR 2.315(a). A person making a limited appearance may make an oral or written statement of position on the issues, but may not otherwise participate in the proceeding. A limited appearance may be made at any session of the hearing or at any prehearing conference, subject to such limits and conditions as may be imposed by the presiding officer. Persons desiring to make a limited appearance are requested to inform the Secretary of the Commission by October 21, 2013.
All documents filed in NRC adjudicatory proceedings, including a request for hearing, a petition for leave to intervene, any motion or other document filed in the proceeding prior to the submission of a request for hearing or petition to intervene, and documents filed by interested governmental entities participating under 10 CFR 2.315(c), must be filed in accordance with the NRC E-Filing rule (72 FR 49139; August 28, 2007). The E-Filing process requires participants to submit and serve all adjudicatory documents over the Internet, or in some cases to mail copies on electronic storage media. Participants may not submit paper copies of their filings unless they seek an exemption in accordance with the procedures described below.
To comply with the procedural requirements of E-Filing, at least 10 days prior to the filing deadline, the participant should contact the Office of the Secretary by email at
Information about applying for a digital ID certificate is available on the NRC's public Web site at
If a participant is electronically submitting a document to the NRC in accordance with the E-Filing rule, the participant must file the document using the NRC's online, Web-based submission form. In order to serve documents through the Electronic Information Exchange System, users will be required to install a Web browser plug-in from the NRC's Web site. Further information on the Web-based submission form, including the installation of the Web browser plug-in, is available on the NRC's public Web site at
Once a participant has obtained a digital ID certificate and a docket has been created, the participant can then submit a request for hearing or petition for leave to intervene. Submissions should be in Portable Document Format (PDF) in accordance with the NRC guidance available on the NRC's public Web site at
A person filing electronically using the agency's adjudicatory E-Filing system may seek assistance by contacting the NRC Meta System Help Desk through the “Contact Us” link located on the NRC's Web site at
Participants who believe that they have a good cause for not submitting documents electronically must file an exemption request, in accordance with 10 CFR 2.302(g), with their initial paper filing requesting authorization to continue to submit documents in paper format. Such filings must be submitted by: (1) First class mail addressed to the Office of the Secretary of the Commission, U.S. Nuclear Regulatory Commission, Washington, DC 20555–0001, Attention: Rulemaking and Adjudications Staff; or (2) courier, express mail, or expedited delivery
Documents submitted in adjudicatory proceedings will appear in the NRC's electronic hearing docket which is available to the public at
For the Nuclear Regulatory Commission.
Postal Regulatory Commission.
Notice.
The Commission is noticing a recent Postal Service filing concerning an additional Global Expedited Package Services (GEPS) 3 negotiated service agreement. This notice informs the public of the filing, invites public comment, and takes other administrative steps.
Submit comments electronically via the Commission's Filing Online system at
Stephen L. Sharfman, General Counsel, at 202–789–6820.
On August 14, 2013, the Postal Service filed a notice stating that it has entered into an additional Global Expedited Package Services (GEPS) 3 negotiated service agreement (Agreement).
The Commission first approved the addition of a GEPS negotiated service agreement to the competitive product list as a result of consideration of Governors' Decision No. 08–7 in Docket No. CP2008–5.
The Agreement is a successor to the negotiated service agreement that was the subject of Docket No. CP2012–34 and is set to expire on August 31, 2013. Notice at 3. The effective date of the Agreement is September 1, 2013.
The Notice includes the following attachments:
• Attachment 1—a redacted copy of the Agreement;
• Attachment 2—a redacted copy of the certified statement required by 39 CFR 3015.5(c)(2);
• Attachment 3—a redacted copy of Governors' Decision No. 08–7, which establishes prices and classifications for Global Expedited Package Services Contracts; and
• Attachment 4—an application for non-public treatment of materials to be filed under seal.
Materials filed under seal include unredacted copies of the Agreement, the certified statement, and supporting financial workpapers.
In the Notice, the Postal Service asserts that the Agreement is functionally equivalent to the GEPS 3 baseline agreement, notwithstanding differences in two of the introductory paragraphs of the Agreement; revisions to several existing articles; and new, deleted, and renumbered articles.
The Postal Service contends that the Agreement is in compliance with the requirements of 39 U.S.C. 3633 and that the Agreement is functionally equivalent to the baseline agreement.
The Commission establishes Docket No. CP2013–76 for consideration of matters raised by the Notice. Interested persons may submit comments on whether the Postal Service's filings are consistent with 39 U.S.C. 3632, 3633, or 3642, 39 CFR part 3015, and subpart B of 39 CFR part 3020. Comments are due no later than August 22, 2013. The public portions of the Postal Service's filing can be accessed via the Commission's Web site,
The Commission appoints Kenneth R. Moeller to serve as Public Representative in the above-captioned proceeding.
1. The Commission establishes Docket No. CP2013–76 for consideration of the matters raised by the Postal Service's Notice.
2. Comments by interested persons in this proceeding are due no later than August 22, 2013.
3. Pursuant to 39 U.S.C. 505, the Commission appoints Kenneth R. Moeller to serve as an officer of the Commission (Public Representative) to represent the interests of the general public in this docket.
4. The Secretary shall arrange for publication of this order in the
By the Commission.
On June 14, 2013, each of New York Stock Exchange LLC (“Exchange”), NYSE MKT LLC (“NYSE MKT”), and NYSE Arca, Inc. (“NYSE Arca” and, with the Exchange and NYSE MKT, the “NYSE Exchanges”), filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1)
The Commission has reviewed carefully the proposed rule changes, the comment letter, and finds that the proposed rule changes are consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.
The Exchange, NYSE MKT and NYSE Arca have submitted their proposed rule changes in connection with the proposed business combination (the “Combination”) pursuant to which NYSE Euronext's successor entity, NYSE Euronext Holdings LLC (“NYX Holdings”), will become a wholly-owned subsidiary of ICE Group.
NYSE Euronext owns 100% of the equity interest of NYSE Group, Inc., a Delaware corporation (“NYSE Group”), which in turn directly or indirectly owns (1) 100% of the equity interest of the NYSE Exchanges and, (2) 100% of the equity interest of NYSE Market (DE), Inc. (“NYSE Market”), NYSE Regulation, Inc. (“NYSE Regulation”), NYSE Arca L.L.C., NYSE Arca Equities, Inc. (“NYSE Arca Equities”) and NYSE Amex Options LLC (“NYSE Amex Options”) (the NYSE Exchanges, together with NYSE Market, NYSE Regulation, NYSE Arca L.L.C., NYSE Arca Equities, NYSE Amex Options and any similar U.S. regulated entity acquired, owned or created after the date hereof, the “U.S. Regulated Subsidiaries” and each, a “U.S. Regulated Subsidiary”).
IntercontinentalExchange, Inc. (“ICE”) is an operator of regulated exchanges and clearing houses serving the risk management needs of global markets for agricultural, credit, currency, emissions, energy and equity index products. ICE owns ICE Futures Europe, ICE Futures U.S., Inc., ICE Futures Canada, Inc., ICE U.S. OTC Commodity Markets, LLC, and five central counterparty clearing houses, including ICE Clear Europe Limited and ICE Clear Credit LLC, each of which is registered as a clearing agency under Section 17A of the Exchange Act,
As a result of the Combination, the businesses of ICE and NYSE Euronext, including the U.S. Regulated Subsidiaries, will be held under ICE Group as a single publicly traded holding company that will be listed on the Exchange. The proposed rule changes are necessary to effectuate the consummation of the Combination and will not be operative until the date of the consummation of the Combination (the “Closing Date”). The proposed rule changes and exhibits thereto contain modifications to the underlying corporate governance documents of the U.S. Regulated Subsidiaries and their respective direct and indirect owners that reflect the current structure of the Combination. The Commission notes that any changes to the structure of the Combination that are made subsequent to the date of this approval order but
Following the Combination, the successor to NYSE Euronext, the NYSE Exchanges' indirect parent, NYX Holdings, will be a wholly-owned subsidiary of ICE Group.
The NYSE Exchanges represent that the Combination will have no effect on the ability of any party to trade securities on the NYSE Exchanges. Other than as described herein, the NYSE Exchanges also represent that ICE Group will not make any changes to the regulated activities of the U.S. Regulated Subsidiaries in connection with the Combination. If ICE Group determines to make any such changes to the regulated activities of any U.S. Regulated Subsidiary, it will seek the approval of the Commission.
A core aspect of the structure of the Combination is that it would maintain local regulation of the marketplace, members, and issuers. Therefore, securities exchanges, members, and issuers of the U.S. Regulated Subsidiaries will continue to be regulated in the same manner as they are currently regulated. The Commission notes that this conclusion (
Following the Combination, ICE Group will be a for-profit, publicly traded corporation that will act as a holding company for the businesses of NYX Holdings and ICE. ICE Group will hold (i) all of the equity interests in NYX Holdings, which in turn, directly or indirectly holds 100 percent of the equity interests of the U.S. Regulated Subsidiaries, and (ii) all of the equity interests in ICE. Section 19(b) of the Act and Rule 19b–4 thereunder require a self-regulatory organization (“SRO”) to file proposed rule changes with the Commission. Although ICE Group is not an SRO, certain provisions of its amended and restated Certificate of Incorporation (“ICE Group Certificate”) and amended and restated Bylaws (“ICE Group Bylaws”, and together with the ICE Group Certificate, “the ICE Group Articles”), along with other corporate documents, are rules of an exchange
The proposed ICE Group Articles include restrictions on the ability to vote and own shares of stock of ICE Group. Under the proposed ICE Group Certificate (1) no person, either alone or together with its related persons,
In addition, the ownership restrictions in the ICE Group Certificate would provide that no person, either alone or together with its related persons, may at any time own beneficially shares of ICE Group representing in the aggregate more than 20% of the then outstanding votes entitled to be cast on any matter (the “ICE Group Ownership Restrictions”).
The ICE Group Certificate would provide that the ICE Group Voting Restriction and the ICE Group Ownership Restriction would apply only for so long as ICE Group directly or indirectly controls a U.S. Regulated
The ICE Group board of directors may waive the provisions regarding voting and ownership limits, subject to a determination by the ICE Group board of directors that the exercise of such voting rights (or the entering into of a voting agreement) or ownership, as applicable:
• Will not impair the ability of any of the U.S. Regulated Subsidiaries, ICE Group, or NYSE Group to discharge their respective responsibilities under the Act and the rules and regulations thereunder;
• Will not impair the ability of any of the European Market Subsidiaries, ICE Group, or Euronext to discharge their respective responsibilities under the European Exchange Regulations;
• Is otherwise in the best interest of ICE Group, its shareholders, the U.S. Regulated Subsidiaries and the European Market Subsidiaries; and
• Will not impair the Commission's ability to enforce the Act or the European Regulators' ability to enforce the European Exchange Regulations.
In addition, for so long as ICE Group directly or indirectly controls the Exchange, NYSE Market (DE), Inc., NYSE MKT, NYSE Arca, NYSE Arca Equities Inc. or any facility of NYSE Arca or NYSE MKT, the ICE Group board of directors cannot waive the voting and ownership limits above the 20% threshold for any person if such person or its related persons is a member of NYSE or NYSE MKT, an ETP Holder of NYSE Arca Equities,
Members that trade on an exchange traditionally have had ownership interests in such exchange. As the Commission has noted in the past, however, a member's interest in an exchange could become so large as to cast doubt on whether the exchange can fairly and objectively exercise its self-regulatory responsibilities with respect to that member.
(August 19, 2010) (File No. 10–198) (order approving registration application of BATS Y-Exchange, Inc. as a national securities exchange); 61698 (March 12, 2010), 75 FR 13151 (March 18, 2010) (File Nos. 10–194 and 10–196) (order approving registration applications of EDGX Exchange, Inc. and EDGA Exchange, Inc. as national securities exchanges); 58375 (August 18, 2008), 73 FR 49498 (August 21, 2008) (File No. 10–182) (order approving registration application of BATS Exchange, Inc. as a national securities exchange); 55293 (February 14, 2007), 72 FR 8033 (February 22, 2007) (SR–NYSE–2006–120) (order approving proposed combination between NYSE Group, Inc. and Euronext N.V. (“NYSE-Euronext Merger Order”); 53382 (February 27, 2006), 71 FR 11251 (March 6, 2006) (SR–NYSE–2005–77) (order approving merger of New York Stock Exchange, Inc. and Archipelago, and demutualization of New York Stock Exchange, Inc.) (“NYSE Inc.-Archipelago Merger Order”)); 53128 (January 13, 2006), 71 FR 3550 (January 23, 2006) (File No. 10–131); 51149 (February 8, 2005), 70 FR 7531 (February 14, 2005) (SR–CHX–2004–26); 49718 (May 17, 2004), 69 FR 29611 (May 24, 2004) (SR–PCX–2004–08); 49098 (January 16, 2004), 69 FR 3974 (January 27, 2004) (SR-Phlx-2003–73); and 49067 (January 13, 2004), 69 FR 2761 (January 20, 2004) (SR–BSE–2003–19).
The Commission finds the ownership and voting restrictions in the proposed ICE Group Articles are consistent with the Act. These requirements should minimize the potential that a person could improperly interfere with or restrict the ability of the Commission, the Exchange, or its subsidiaries to effectively carry out their regulatory oversight responsibilities under the Act.
Following the Combination, NYX Holdings will be a wholly-owned subsidiary of ICE Group. Furthermore, NYX Holdings will not be a publicly-held company. The NYSE Exchanges have proposed certain changes to reflect that NYX Holdings will become a wholly-owned subsidiary and will not be publicly held. NYX Holdings will act as a holding company for the businesses of the NYSE Group and Euronext. NYX Holdings will own all of the equity interests in NYSE Group and its subsidiaries, including the Exchange, NYSE Arca, and NYSE MKT, and all of the equity interests in Euronext and its respective subsidiaries.
More specifically, the NYX Holdings Operating Agreement would reflect, in part, the following modifications to the NYSE Euronext Certificate and Bylaws: (i) removing the provision for preferred membership interests, (ii) allowing a majority of the membership interests outstanding to call special meetings, take shareholder action by written consent, and to postpone such meetings, (iii) allowing shareholders to fill board vacancies, (iv) deleting provisions requiring a supermajority vote of shareholders to amend or repeal certain sections of the NYX Holdings Operating Agreement, (v) clarifying that notice of shareholder meetings is not required if waived, (vi) deleting the requirement that directors be elected by a majority of the votes cast, (vii) deleting provisions requiring advance notice from shareholders of shareholder director nominations or shareholder proposals, (viii) deleting provisions relating to the mechanics of shareholders' meetings, such as the appointment of an inspector of elections, (ix) clarifying that NYX Holdings may not have a Nominating and Governance Committee, (x) deleting the requirement that 75% of the Euronext board must be independent, (xi) providing that the Corporation Trust Company would be the registered office and agent of NYX Holdings in Delaware, (xii) removing certain residency requirements applicable to directors and officers and references to U.S. and European director domiciles, (xiii) deleting that board meetings be held with equal frequency in the United States and Europe, (xiv) removing
The NYSE Exchanges have proposed changing the voting and ownership limitations of NYX Holdings to include a statement that such limitations would not be applicable as long as ICE Group owned all of the issued and outstanding shares of NYX Holdings
First, it would expand the definition of “Related Persons” to provide that (1) in the case of a person that is a “member” (as defined in Section 3(a)(3)(A)(i) of the Exchange Act) of NYSE MKT, such person's “Related Persons” would include the “member” (as defined in Section 3(a)(3)(A)(ii), (iii) or (iv) of the Exchange Act) with which such person is associated; and (2) in the case of any person that is a “member” (as defined in 3(a)(3)(A)(ii), (iii) or (iv) of the Exchange Act) of NYSE MKT, such person's “Related Persons” would include any “member” (as defined in Section 3(a)(3)(A)(i) of the Exchange Act) that is associated with such person.
Second, the mandatory repurchase of membership interests from a Person whose ownership represents in the aggregate more than 20% in interest of the interests entitled to vote on any matter would be at a price determined by reference to each incremental percentage ownership over 20% rather than at par value, specifically $1,000 for each percent.
The Commission finds that the changes to the ownership and voting restrictions in the proposed NYX Holdings Operating Agreement and the proposed NYSE Group Certificate of Incorporation, as well as the change in control provisions in the NYSE Euronext Certificate of Incorporation are consistent with the Act. The transfer, ownership and voting restrictions should minimize the potential that a person could improperly interfere with or restrict the ability of the Commission and the U.S. Regulated Subsidiaries to effectively carry out their regulatory oversight responsibilities under the Act.
In addition, to allow ICE Group to wholly-own and vote all of NYSE Euronext stock upon consummation of the Combination, ICE Group delivered a written notice to the board of directors of NYSE Euronext pursuant to the procedures set forth in the current NYSE Euronext Certificate of Incorporation requesting approval of its ownership and voting of NYSE Euronext stock in excess of the NYSE Euronext voting restriction and NYSE Euronext ownership restriction.
The Commission believes it is consistent with the Act to allow ICE Group to wholly-own and vote all of the outstanding common stock of NYSE Euronext. The Commission notes that ICE Group represents that neither ICE Group nor any of its related persons is subject to any statutory disqualification (as defined in Section 3(a)(39) of the Act), or is a member of the Exchange or NYSE MKT, an ETP Holder, an OTP Holder or an OTP Firm, or a European Disqualified Person. ICE Group has also included in its corporate documents certain provisions designed to maintain the independence of the U.S. Regulated Subsidiaries' self-regulatory functions from ICE Group, NYX Holdings and NYSE Group.
The Fourth Amended and Restated Operating Agreement, dated as of August 23, 2012, of the Exchange (the “Exchange Operating Agreement”), currently provides that (1) a majority of the members of the Exchange's board of directors must be U.S. persons and members of the board of directors of NYSE Euronext who satisfy the independence requirements of the NYSE Euronext board, and (2) at least 20% of the Exchange's board members must be persons who are not board members of NYSE Euronext but who qualify as independent under the independence policy of the NYSE Euronext board of directors (the “Non-Affiliated Exchange Directors”).
Under the Proposed Rule Change, these provisions would be amended to refer to ICE Group instead of NYSE Euronext. Also, references throughout to the Exchange's “Corporation Independence Policy” would be changed to “Company Independence Policy” in recognition of the form of organization of the Exchange. Substantially the same revisions would be made to the analogous provisions of the Third Amended and Restated Operating Agreement of NYSE MKT.
In addition, references to NYSE Euronext in the Director Independence Policy of each of the Exchange, NYSE Market, NYSE Regulation, NYSE Arca and NYSE MKT would be revised to refer to ICE Group.
The NYSE Exchanges propose, in part, the following changes to the Exchange Rules, NYSE MKT Rules and NYSE Arca Equities Rules: (i) replacing NYSE Euronext with ICE Group or NYX Holdings, as appropriate, (ii) revising the Exchange Rules to delete the definitions of “member” and “member organization” relating to NYSE MKT due to the incorporation of such provisions into the proposed ICE Group Certificate, and (iii) eliminating certain provisions in NYSE MKT Rule 104T relating to restrictions on transfer in the NYSE Euronext Certificate because the referenced restrictions are no longer in effect and there will be no analogous provision in the ICE Group Certificate.
The Commission finds that these proposals are consistent with the Act, particularly Section 6(b)(1),
Although ICE Group itself will not carry out regulatory functions, its activities with respect to the operation of any of the U.S. Regulated Subsidiaries must be consistent with, and not interfere with, the U.S. Regulated Subsidiaries' self-regulatory obligations. The proposed ICE Group corporate documents include certain provisions that are designed to maintain the independence of the U.S. Regulated Subsidiaries' self-regulatory functions from ICE Group, NYX Holdings, and NYSE Group, enable the U.S. Regulated Subsidiaries to operate in a manner that complies with the U.S. federal securities laws, including the objectives and requirements of Sections 6(b) and 19(g) of the Act,
For example, under the proposed ICE Group Bylaws, ICE Group shall comply with the U.S. federal securities laws, the European Exchange Regulations, and the respective rules and regulations thereunder; shall cooperate with the Commission, the European Regulators, and the U.S. Regulated Subsidiaries.
In addition, ICE Group's books and records shall be subject at all times to inspection and copying by the Commission, the European Regulators, any U.S. Regulated Subsidiary (provided that such books and records are related to the activities of such U.S. Regulated Subsidiary or any other U.S. Regulated Subsidiary over which such U.S. Regulated Subsidiary has regulatory authority or oversight) and any European Market Subsidiary (provided that such books and records are related to the operation or administration of such European Market Subsidiary or any European Regulated Market over which such European Market Subsidiary has regulatory authority or oversight).
In addition, for so long as ICE Group directly or indirectly controls any U.S. Regulated Subsidiary, the books, records, premises, officers, directors, and employees of ICE Group shall be deemed to be the books, records, premises, officers, directors, and employees of the U.S. Regulated Subsidiaries for purposes of and subject to oversight pursuant to the Act, and for so long as ICE Group directly or indirectly controls any European Market Subsidiary, the books, records, premises, officers, directors, and employees of ICE Group shall be deemed to be the books, records, premises, officers, directors, and employees of such European Market Subsidiaries for purposes of and subject to oversight pursuant to the European Exchange Regulations.
ICE Group and its directors and, to the extent they are involved in the activities of the U.S. Regulated Subsidiaries, ICE Group's officers and employees whose principal place of business and residence is outside of the United States irrevocably submit to the jurisdiction of the U.S. federal courts and the Commission with respect to activities relating to the U.S. Regulated Subsidiaries, and to the jurisdiction of the European Regulators and European courts with respect to activities relating to the European Market Subsidiaries.
The ICE Group Bylaws would provide that ICE Group will take reasonable steps necessary to cause its directors, officers and employees, prior to accepting a position as an officer, director or employee, as applicable, of ICE Group to agree and consent in writing to the applicability to them of these jurisdictional and oversight provisions with respect to their activities related to any U.S. Regulated Subsidiary.
Further, ICE Group acknowledges that it is responsible for referring possible rule violations to the NYSE Exchanges. In addition, ICE Group will enter into an agreement with NYSE Regulation acknowledging that each of the Exchange, NYSE MKT and NYSE Arca has contracted to have NYSE Regulation perform its self-regulatory obligations, in each case with the self-regulatory organization retaining its responsibility for the adequate performance of those regulatory obligations, and agreeing to provide adequate funding to NYSE Regulation.
Finally, the proposed ICE Group Articles require that, for so long as ICE Group controls, directly or indirectly, any of the U.S. Regulated Subsidiaries, any changes to the proposed ICE Group Articles be submitted to the board of directors of such U.S. Regulated Subsidiaries, and if any such boards of directors determines that such amendment is required to be filed with or filed with and approved by the Commission pursuant to Section 19 of the Act
The Commission finds that these provisions are consistent with the Act, and that they are intended to assist the NYSE Exchanges in fulfilling its self-regulatory obligations and in administering and complying with the requirements of the Act. With respect to the maintenance of books and records of ICE Group, the Commission notes that while ICE Group has the discretion to maintain Overlapping Records in either the United States or the home jurisdiction of one or more of the European Market Subsidiaries, ICE Group is liable for any books and records it is required to produce for inspection and copying by the Commission that are created outside the United States and where the law of a foreign jurisdiction prohibits ICE Group from providing such books and records to the Commission for inspection and copying.
Under Section 20(a) of the Act,
Under the Proposed Rule Change, ICE Group will adopt a Director Independence Policy that would be substantially identical to the current Independence Policy of the NYSE Euronext board of directors except for the change of the entity whose board of directors adopted the policy and nonsubstantive conforming changes.
The Commission finds that the proposed Director Independence Policy is consistent with the Act, particularly Section 6(b)(1),
The Commission received one comment letter
The issue of the rights of owners of Separated OTRs is not before the Commission in the context of this rule filing. Pursuant to Section 19(b)(1) of the Act,
For the foregoing reasons, the Commission finds that the proposed rule change is consistent with the Act and the rules and regulations thereunder applicable to a national securities exchange.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to Section 19(b)(1)
The Exchange proposes to (i) describe the Exchange's current billing practice for co-location services received by Users that connect to more than one market, and (ii) expand its co-location services to provide for a 40 gigabit (“Gb”) Liquidity Center Network (“LCN”) connection in the Exchange's data center. 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 (i) describe the Exchange's current billing practice for co-location services received by Users that connect to more than one market, and (ii) expand its co-location services to provide a 40 Gb LCN connection in the Exchange's data center.
The Exchange and its Affiliates (collectively, the “Exchanges”) utilize a single data center in Mahwah, New Jersey (the “data center”) to provide co-location services to their respective Users.
As discussed below, there are a number of reasons for billing co-location in this manner. Co-location services do not directly result in access to any of the Exchanges; other, non-co-location fees apply to access. In addition, the level of co-location services requested by a User does not, in and of itself, depend on whether the User connects only to the Exchange, or to the Exchange and one or both of its Affiliates; and, in fact, as noted above, not all Users connect to an Exchange.
First, the fees for co-location services are not fees for direct access to an Exchange; co-location services do not provide such direct access to an Exchange. Rather, all orders sent to the Exchanges enter their respective trading and execution systems through the same order gateway—the Common Customer Gateway (“CCG”)—regardless of whether the sender is co-located in the data center or not. The particular trading and execution systems of the Exchanges to which an order is eventually sent are determined by order/quote entry ports (“ports”). Fees for ports are charged separately based on the particular Exchanges to which the ports are configured to access/connect.
Second, the level of co-location services a User purchases does not, in and of itself, depend on whether the User connects only to the Exchange or to the Exchange and one or both of its Affiliates. Similarly, the cost incurred by the Exchanges to provide co-location services does not vary based on whether the User connects to one or to several of the Exchanges' markets. The fees charged for co-location services generally fall in three groups: (1) Equipment and hardware, (2) labor-based services, and (3) administrative matters. Many of the fees vary depending on the amount of such services used, so that as the level of equipment and hardware or services used increases, so does the cost.
For example, with respect to equipment and hardware, a User may purchase cross connects, which are fiber cross connects between its cabinets or between its cabinets and those of another User. The number of cross-connects a User purchases directly depends on how it configures its cabinets and whether it is a CSP User, not the number of Exchanges to which it connects. Similarly, a User may purchase a physical cage to house its servers and other equipment in the data center. Fees for cages are based on the size of the cage. The more cabinets a User has, the greater the size of the cage it is likely to request and therefore the greater the cost. The number of the Exchanges to which the User connects is not determinative of the number of cabinets and size of the cage that the User purchases.
With respect to labor-related services, for example, the Exchanges charge an “Initial Install Services” fee of $800 per cabinet, for initial racking of equipment in a User's cabinet and the provision of up to 10 cables. A “Rack and Stack Installation” charge of $200 per server applies for handling, unpacking, tagging, and installation of the server in the User's cabinet. Additionally, a “Hot Hands Service” is available and allows Users to use on-site data center personnel to maintain User equipment, with hourly charges depending on whether the service is during normal business hours and whether the service is expedited. None of these charges vary based on the number of the Exchanges' markets to which a User connects, but rather based on the services sought.
With respect to administrative matters, for example, the Exchange charges $50 per badge request for provision of a permanent data center site access badge for a User representative. The Exchange also charges $75 per hour for visitor security escorting, which is required during User visits to the data center. These, like other co-location fees, are not charged differently based on how many of the Exchanges' markets to which a User connects.
Finally, the Exchange notes that not all Users of co-location services actually connect to the Exchanges. If billing for co-location services was based on the Exchanges to which a User connected, CSP Users would not be charged at all. Therefore, billing once per co-location service is also consistent with the fact that some CSP Users do not connect to any of the Exchanges.
The Exchange will amend its Price List to describe the Exchange's current billing practice for co-location services received by Users that connect to more than one of the Exchanges.
The LCN is a local area network that is available in the data center and that provides Users with access to the Exchange's trading and execution systems via the CCG and to the Exchanges' proprietary market data products. LCN access is currently available in one and 10 Gb capacities. LCN access with higher capacity is designed to achieve lower latency in the transmission of data between Users and the Exchange. The Exchange proposes to make a 40 Gb LCN connection available in the Exchange's data center.
As is the case with all Exchange co-location arrangements, neither a User nor any of the User's customers would be permitted to submit orders directly to the Exchange unless such User or customer is a member organization, a Sponsored Participant or an agent thereof (e.g., a service bureau providing order entry services). Additionally, as is the case with existing co-location services, use of the co-location services proposed herein would be completely voluntary and would be available to all Users on a non-discriminatory basis.
The proposed change is not otherwise intended to address any other issues relating to co-location services and/or related fees, and the Exchange is not aware of any problems that Users would have in complying with the proposed change.
The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act,
The Exchange believes that its billing practice promotes just and equitable principles of trade and is not designed to permit unfair discrimination between customers, issuers, brokers, or dealers because the level of co-location services requested by a User generally does not, in and of itself, depend on whether the User connects only to the Exchange, or to the Exchange and its Affiliates. For example, to charge one User twice for a cage because that User connects to two Exchanges, when another User that buys the same size cage only pays once, would not promote just and equitable principles of trade. Similarly, the cost incurred by the Exchanges to provide co-location services does not vary based on whether the User connects to one or several of the Exchanges' markets. CSP Users do not connect to any of the Exchanges, which would make billing based on connection to the Exchanges impractical. The Exchange also believes that its billing practice is not designed to permit unfair discrimination between customers, issuers, brokers, or dealers because charging a User for co-location services based on how many of the Exchanges' markets to which a User connects could result in the Exchanges receiving the proceeds from multiple fees despite only providing a service once.
The Exchange also believes that the proposed change would remove impediments to, and perfect the mechanisms of, a free and open market and a national market system and, in general, protect investors and the public interest because co-location services do not directly result in access to the Exchanges' markets, and, therefore, co-
The Exchange believes that the proposed 40 Gb LCN connection is not designed to permit unfair discrimination between customers, issuers, brokers, or dealers because it would make a service available to Users that require the increased bandwidth, but Users that do not require the increased bandwidth could continue to request an existing lower-bandwidth LCN connection. The Exchange believes that this would remove impediments to, and perfect the mechanisms of, a free and open market and a national market system and, in general, protect investors and the public interest because it would provide Users with additional choices with respect to the optimal bandwidth for their connections.
Finally, the Exchange believes that it is subject to significant competitive forces, as described below in the Exchange's statement regarding the burden on competition.
For these reasons, the Exchange believes that the proposal is consistent with the Act.
In accordance with Section 6(b)(8) of the Act,
The Exchange also believes that its billing practice will not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act because all Users are only charged once for each co-location service in the data center, even if such User connects to more than one of the Exchanges' markets, or to none of the Exchanges, and the pricing for co-location services is such that as the level of services increases, so does the cost. Additionally, the Exchange believes that its co-location billing practice is consistent with the co-location services billing practice of at least one of its competitors, The NASDAQ Stock Market LLC (“NASDAQ”).
The Exchange also believes that the proposed 40 Gb LCN connections will not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act because it will satisfy User demand for more efficient, lower-latency connections. Additionally, the Exchange believes that the proposed change will enhance competition, in that NASDAQ offers a similar service to its co-location users.
Finally, the Exchange notes that it operates in a highly competitive market in which market participants can readily favor competing venues if, for example, they deem fee levels at a particular venue to be excessive or if they determine that another venue's products and services are more competitive than on the Exchange. In such an environment, the Exchange must continually review, and consider adjusting, the services it offers as well as any corresponding fees and credits to remain competitive with other exchanges. For the reasons described above, the Exchange believes that the proposed rule change reflects this competitive environment.
No written comments were solicited or received with respect to the proposed rule change.
Because the foregoing proposed rule change does not: (1) Significantly affect the protection of investors or the public interest; (2) impose any significant burden on competition; and (3) by its terms does not become operative for 30 days after the date of this filing, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act
A proposed rule change filed under Rule 19b–4(f)(6) normally does not become operative for 30 days after the date of filing. However, Rule 19b–4(f)(6)(iii) permits the Commission to designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has asked the Commission to waive the 30-day operative delay so that the proposal may become operative immediately upon filing. The Exchange noted that the cost incurred by the Exchange to provide co-location services does not vary based on whether the User connects to one or several of the Exchange's Affiliates, or to none of the Affiliates, and co-location services do not directly result in access to the Exchange or its Affiliates. Also, the proposal of a new 40Gb LCN connection would merely make higher-bandwidth, lower-latency LCN connections available on a voluntary basis to Users that require the increased bandwidth. The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest. With respect to the Exchange's billing practices for co-location for Users that connect to the Exchange and its Affiliates, the waiver of the 30-day operative delay would allow the Exchange's fee schedule to immediately reflect the Exchange's existing practice. Regarding the proposed 40 Gb LCN Connection, it would allow Users to immediately benefit from an additional choice with respect to the optimal bandwidth for
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 is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's Internet comment form (
• Send an email to
• Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
On June 12, 2013, NYSE Arca, Inc. (“Exchange” or “NYSE Arca”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”)
The Exchange proposes to list and trade Shares of the Funds pursuant to NYSE Arca Equities Rule 8.200, Commentary .02.
The Low Volatility ETF will seek to track changes, whether positive or negative, in the performance of the Morningstar® Long/Flat Commodity Index
Each Fund will seek to achieve its respective investment objective by investing principally in exchange-traded futures contracts on commodities (“Index Commodity Contracts”) comprising the Long/Flat Index and the Long/Short Index, respectively, and U.S. Treasury bills maturing in eight weeks or less to reflect “flat” positions and, in certain circumstances (as described below), futures contracts other than Index Commodity Contracts traded on
Each Fund intends to invest first in Index Commodity Contracts. Thereafter, if a Fund reaches the position limits applicable to one or more Index Commodity Contracts or a “Futures Exchange”
Consistent with seeking to achieve each Fund's investment objective, if a Fund reaches position limits applicable to one or more Index Commodity Contracts or when a Futures Exchange has imposed limitations on a Fund's ability to maintain or increase its positions in an Index Commodity Contract, the Managing Owner may cause a Fund to first enter into or hold Cleared Swaps and then, if applicable, enter into and hold Other Commodity Contracts or Other Commodity Instruments. For example, certain Cleared Swaps have standardized terms similar, and are priced by reference, to a corresponding Index Commodity Contract or Other Commodity Contract. Additionally, certain Other Commodity Instruments can generally be structured as the parties to the contract desire. Therefore, a Fund might enter into multiple Cleared Swaps and/or certain Other Commodity Instruments intended to exactly replicate the performance of one or more Index Commodity Contracts or Other Commodity Contracts, or a single Other Commodity Instrument designed to replicate the performance of the applicable Index as a whole.
After reaching position limits or when a Futures Exchange has imposed limitations on the Fund's ability to maintain or increase its positions in an Index Commodity Contract as described above, and after entering into or holding Cleared Swaps, a Fund might also enter into or hold Other Commodity Contracts or Other Commodity Instruments that would (1) facilitate effective trading, consistent with a Fund's long/flat or long/short strategy, as applicable; or (2) be expected to alleviate overall deviation between a Fund's performance and that of the Long/Flat Index or Long/Short Index, as applicable, that may result from certain market and trading inefficiencies or other reasons.
By using certain or all of these investments, the Managing Owner will endeavor to cause a Fund's performance to closely track that of the Long/Flat Index or Long/Short Index, as applicable, over time. Each Fund will invest to the fullest extent possible in Index Commodity Contracts and Other Instruments without being leveraged (
Each of the Indexes is currently composed of long, flat, or short (as applicable) positions in Index Commodity Contracts, each of which is subject to speculative position limits and other position limitations, as applicable, which are imposed by either the CFTC or the rules of the Futures Exchanges on which the Index Commodity Contracts are traded. These position limits prohibit any person from holding a position of more than a specific number of such Index Commodity Contracts.
Futures Exchanges may establish daily price fluctuation limits on futures contracts. The daily price fluctuation
According to the Exchange, although the Managing Owner does not expect the Funds to have a significant exposure to Other Commodity Instruments that trade OTC, the Trust's Declaration of Trust does not limit the amount of funds that the Funds may invest in such Other Commodity Instruments. Therefore, as the amount of funds invested in Other Commodity Instruments that trade OTC increase, the applicable risks described in the Registration Statements increase correspondingly.
The Long/Flat Index is a rules-based, fully collateralized commodity futures index that employs a momentum rule to determine if exposure to a particular commodity should be maintained with its prescribed weighting (“long position”) or moved to cash (“flat position”).
To be considered for inclusion in the Long/Flat Index, a commodity future must be listed on a U.S. futures exchange, be denominated in U.S. dollars and rank in the top 95% by total U.S. dollar value of the total open interest pool of all eligible commodities. The weight of each Index Commodity Contract is the product of two factors: magnitude and the direction of the momentum signal
The Long/Short Index is a rules-based, fully collateralized commodity futures index that employs a momentum rule to determine if exposure to a particular Index Commodity Contract should be maintained with its prescribed weighting (“long position”) or moved to a short weighting (“short position”).
To be considered for inclusion in the Long/Short Index, a commodity future must be listed on a U.S. futures exchange, be denominated in U.S. dollars and rank in the top 95% by total U.S. dollar value of the total open interest pool of all eligible commodities. The weight of each individual Index Commodity Contract is the product of two factors: magnitude and the direction of the momentum signal (
Information on the composition of the Indexes as of February 28, 2013, including the Index Commodity Contracts, percentage weightings and signals, as well as the Futures Exchanges on which the Index Commodity Contracts trade, is set forth in the Notice.
With respect to each of the Indexes, the following are excluded:
(1) Financial futures contracts (
(2) Commodity futures contracts not denominated in U.S. dollars.
(3) Commodity futures contracts with less than twelve months of pricing.
Morningstar sorts all commodity futures contracts that meet the above eligibility requirements in descending order by the total U.S. dollar value of open interest. All commodity futures contracts that make up the top 95% of the total open interest pool of all eligible commodity futures contracts, starting with the one with the largest open interest value, will be included in each of the Indexes.
The weight of each Index Commodity Contract in the Indexes is the product of two factors: magnitude and the direction of the momentum signal. Morningstar initially sets the magnitude based on the 12-month average of the dollar value of open interest of each Index Commodity Contract. Morningstar then caps the top magnitude at 10%, redistributing any overage to the magnitudes of the remaining Index Commodity Contracts. Morningstar chooses this capped open-interest weighting system in order to reflect the importance of each Index Commodity Contract in a global economy and to keep the Indexes diversified across commodities.
Each of the Indexes is reconstituted and rebalanced (
Morningstar implements all futures contract rolls on the third Friday of each month to coincide with portfolio repositioning and the rolling of the U.S. Treasury bills used for collateral. If the third Friday of the month is a trading holiday, Morningstar rolls and rebalances or reconstitutes on the trading day prior to the third Friday. To ensure that contracts are rolled before becoming committed to receive physical delivery, contracts are selected so that the delivery month is at least two months away from the upcoming month. On each potential roll date, the delivery month of the current contract is compared to the delivery month of the nearest contract whose delivery month is at least two months away from the upcoming month. If the latter is further into the future than the former, the contract is rolled.
A more detailed description of the Funds and the Shares, the Indexes and the Index Commodity Contracts, as well as investment risks, creation and redemption procedures, NAV calculation, availability of values and other information regarding the Funds' holdings, and fees, among other things, is included in the Notice and the Registration Statements, as applicable.
After careful review, the Commission finds that the proposed rule change is consistent with the requirements of Section 6 of the Act
The Commission finds that the proposal to list and trade the Shares on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the Act,
Each Fund will disseminate its respective holdings on a daily basis on the Funds' Web site, which will include, as applicable, the names, quantity, price and market value of Index Commodity Contracts, Other Instruments (including forward contracts, OTC swaps, and other OTC transactions), and Cash Instruments. This Web site disclosure of the portfolio composition of the Funds will occur at the same time as the disclosure by the Managing Owner of the portfolio composition to authorized participants so that all market participants are provided portfolio composition information at the same time.
The intra-day level and the most recent end-of-day closing level of each Index will be published by the Exchange once every 15 seconds throughout the Exchange's Core Trading Session and as of the close of business for the Exchange, respectively. Any adjustments made to an Index will be published on Morningstar's Web site. The IIV
The Commission believes that the proposal to list and trade the Shares is reasonably designed to promote fair disclosure of information that may be necessary to price the Shares appropriately and to prevent trading when a reasonable degree of transparency cannot be assured. If the Exchange becomes aware that the NAV with respect to the Shares is not disseminated to all market participants at the same time, it will halt trading in the Shares until such time as the NAV is available to all market participants. Further, the Exchange represents that it may halt trading during the day in which an interruption to the dissemination of the IIV, an Index value, or the value of the Index Commodity Contracts or Other Instruments occurs. If the interruption persists past the trading day in which it occurred, the Exchange will halt trading no later than the beginning of the trading day following the interruption. The Exchange may halt trading in the Shares if trading is not occurring in the Index Commodity Contracts or Other Instruments, or if other unusual conditions or circumstances detrimental to the maintenance of a fair and orderly market are present.
The Commission notes that the Financial Industry Regulatory Authority (“FINRA”), on behalf of the Exchange,
The Exchange represents that the Shares are deemed to be equity securities, thus rendering trading in the Shares subject to the Exchange's existing rules governing the trading of equity securities. In support of this proposal, the Exchange has made representations, including:
(1) Each Fund will meet the initial and continued listing requirements applicable to Trust Issued Receipts in NYSE Arca Equities Rule 8.200 and Commentary .02 thereto.
(2) The Exchange has appropriate rules to facilitate transactions in the Shares during all trading sessions.
(3) The trading in the Shares will be subject to the existing trading surveillances, administered by FINRA on behalf of the Exchange, which are designed to detect violations of Exchange rules and applicable federal securities laws, and that these procedures are adequate to properly monitor Exchange trading of the Shares in all trading sessions and to deter and detect violations of Exchange rules and applicable federal securities laws.
(4) Prior to the commencement of trading, the Exchange will inform its ETP Holders in an Information Bulletin of the special characteristics and risks associated with trading the Shares. Specifically, the Information Bulletin will discuss the following: (a) The risks involved in trading the Shares during the Opening and Late Trading Sessions when an updated IIV will not be calculated or publicly disseminated, as well as during the Core Trading Session where the IIV may be based in part on static underlying values; (b) the procedures for purchases and redemptions of Shares in creation baskets and redemption baskets (and that Shares are not individually redeemable); (c) NYSE Arca Equities Rule 9.2(a), which imposes a duty of due diligence on its ETP Holders to learn the essential facts relating to every customer prior to trading the Shares; (d) how information regarding the IIV is disseminated; (e) the requirement that ETP Holders deliver a prospectus to investors purchasing newly issued Shares prior to or concurrently with the confirmation of a transaction; and (f) trading information.
(5) With respect to application of Rule 10A–3 under the Act,
(6) Each Fund intends to invest first in Index Commodity Contracts. Thereafter, if a Fund reaches the position limits applicable to one or more Index Commodity Contracts or a Futures Exchange imposes limitations on the Fund's ability to maintain or increase its positions in an Index Commodity Contract after reaching accountability levels or a price limit is in effect on an Index Commodity Contract during the last 30 minutes of its regular trading session, each Fund's intention is to invest first in Cleared Swaps to the extent permitted under the position limits applicable to Cleared Swaps and appropriate in light of the liquidity in the Cleared Swaps market, and then, using its commercially reasonable judgment, in Other Commodity Contracts or in Other Commodity Instruments. Each Fund's investments will be consistent with such Fund's investment objective and will not be used to enhance leverage.
(7) With respect to the Funds' assets traded on exchanges, not more than 10% of the weight of such assets in the aggregate shall consist of components whose principal trading market is not a member of ISG or is a market with which the Exchange does not have a comprehensive surveillance sharing agreement.
(8) The Managing Owner will attempt to minimize market and credit risks by requiring the Funds to abide by various trading limitations and policies, which will include limiting margin accounts and trading only in liquid markets. The Managing Owner will implement procedures which will include, but will not be limited to: executing and clearing trades with creditworthy counterparties; limiting the amount of margin or premium required for any Index Commodity Contract or Other Commodity Contract or all Index Commodity Contracts or Other Commodity Contracts combined; and generally limiting transactions to Index Commodity Contracts or Other Commodity Contracts which will be traded in sufficient volume to permit the taking and liquidating of positions.
(9) The Funds will enter into Other Commodity Instruments traded OTC (if any) with counterparties selected by the Managing Owner. The Managing Owner will select such Other Commodity Instrument counterparties giving due consideration to such factors as it deems appropriate, including, without limitation, creditworthiness, familiarity with the applicable Index, and price. Under no circumstances will the Funds enter into an OTC Other Commodity Instrument with any counterparty whose credit rating is lower than investment-grade at the time a contract is entered into. The Funds expect that investments in OTC Other Commodity Instruments (if any) will be made on terms that are standard in the market for such OTC Other Commodity Instruments. In connection with such OTC Other Commodity Instruments, the Funds may post or receive collateral in the form of Cash Instruments, which will be marked to market daily.
(10) A minimum of 100,000 Shares of each Fund will be outstanding at the commencement of trading on the Exchange.
This approval order is based on all of the Exchange's representations and description of the Funds, including those set forth above and in the Notice.
For the foregoing reasons, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to Section 19(b)(1)
The Exchange proposes to amend the fees for display use of the NYSE MKT BBO and NYSE MKT Trades market data products and make certain technical changes to the fee schedule. The changes will be operative on August 1, 2013. 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 the fees for display use of the NYSE MKT BBO
The Exchange currently charges $10 per month for professional users and $5 per month for non-professional users for display use of NYSE MKT BBO.
The Exchange also charges an access fee of $750 per month for NYSE MKT BBO and an access fee of $750 for NYSE MKT Trades. However, a single access fee applies for clients receiving both NYSE MKT BBO and NYSE MKT Trades.
Vendors that redistribute NYSE MKT Trades data pay a redistribution fee of $750 per month.
The Exchange proposes to lower the professional user fees for display use of NYSE MKT BBO from $10 per month to $1 per month, lower the non-professional user fees for display use of NYSE MKT BBO from $5 per month to $0.05 per month, and eliminate the per quote option for display use of NYSE MKT BBO for non-professional users. The Exchange also proposes to lower the professional user fee for display use of NYSE MKT Trades from $10 per month to $1 per month and introduce a fee for display use of NYSE MKT Trades by non-professional users of $0.05 per month.
The Exchange also proposes to establish a $20,000 per month enterprise fee for an unlimited number of professional and non-professional users for NYSE MKT BBO and a $20,000 per month enterprise fee for an unlimited number of professional and non-professional users for NYSE MKT Trades. A single enterprise fee will apply for vendors receiving both NYSE MKT BBO and NYSE MKT Trades.
As an example, under the current fee structure, if a firm had 1,500 professional users who each received
A vendor that pays the enterprise fee would not have to report the number of such users on a monthly basis.
Lastly, the Exchange proposes to make certain technical corrections to clarify its fee schedule and to delete operative dates that are no longer needed.
The purpose of the foregoing changes is to encourage greater use of NYSE MKT BBO and NYSE MKT Trades by making them more affordable, to compete more effectively with similar products in the marketplace, and to clarify the fee schedule. The Exchange is eliminating the per quote option for display use of NYSE MKT BBO for non-professional users because non-professional users are not electing to use it. The Exchange is not aware of any significant problems that persons affected are likely to have in complying with the proposed rule change.
The Exchange further believes that the proposed rule change is consistent with the market-based approach of the Securities and Exchange Commission (“Commission”). The decision of the United States Court of Appeals for the District of Columbia Circuit in
In fact, the legislative history indicates that the Congress intended that the market system `evolve through the interplay of competitive forces as unnecessary regulatory restrictions are removed' and that the SEC wield its regulatory power `in those situations where competition may not be sufficient,' such as in the creation of a `consolidated transactional reporting system.'
As explained below in the Exchange's Statement on Burden on Competition, the Exchange believes that there is substantial evidence of competition in the marketplace for data and that the Commission can rely upon such evidence in concluding that the fees established in this filing are the product of competition and therefore satisfy the relevant statutory standards.
As the
The Exchange believes that the proposed rule change is consistent with the provisions of Section 6 of the Act,
The Exchange believes that lowering the professional and non-professional user fees for NYSE MKT BBO and lowering the professional user fee for NYSE MKT Trades is reasonable because it will make the products more affordable and result in their greater availability to professional and non-professional users. The Exchange believes that introducing a non-professional fee for NYSE MKT Trades is reasonable because it provides an additional method for retail investors to access NYSE MKT last sale data and provides the same last sale data that is available to professional users, an option heretofore unavailable.
In addition, the Exchange believes that the proposed fees are reasonable when compared to fees for comparable products offered by at least one other exchange and under the CTA and CQ Plans. Specifically, The NASDAQ Stock Market LLC (“NASDAQ”) offers NASDAQ Basic, which includes best bid and offer and last sale data, for a monthly fee of $10 per professional subscriber and $0.50 per non-professional subscriber; alternatively, a broker-dealer may purchase an enterprise license at a rate of $100,000 per month for distribution to an unlimited number of non-professional subscribers only.
The proposed enterprise fees for NYSE MKT BBO and NYSE MKT Trades also are reasonable because they could result in a fee reduction for vendors with a large number of professional and non-professional users, as described in the example above. If a vendor has a smaller number of professional users of NYSE MKT BBO and/or NYSE MKT Trades, then it may continue using the per user structure and benefit from the per user fee reductions. By reducing prices for vendors with a large number of professional and non-professional users, the Exchange believes that more vendors may choose to offer NYSE MKT BBO and NYSE MKT Trades, thereby expanding the distribution of this market data for the benefit of investors. The Exchange also believes that offering an enterprise fee will expand the range of options for offering NYSE MKT BBO and NYSE MKT Trades and will allow vendors greater choice in selecting the most appropriate level of data and fees for the professional and non-professional users they are servicing.
The Exchange further believes that the proposed enterprise fees are reasonable because they will simplify billing for certain recipients that have large numbers of professional and non-professional users. Firms that pay the proposed enterprise fees will not have to report the number of users on a monthly basis as they currently do, but rather will only have to count natural person users every six months; this is a significant reduction in administrative burdens and is a significant value. The Exchange believes that it is reasonable to charge a single enterprise fee for clients receiving both NYSE MKT BBO and NYSE MKT Trades because the Exchange has charged a single access fee for both products since 2010,
The Exchange believes that the proposed fees are equitable and not unfairly discriminatory because they will be charged uniformly to vendors and users that select these products. The Exchange notes that the fee structure of differentiated professional and non-professional fees has long been used by the Exchange for other products, by other exchanges for their products, and by the CTA and CQ Plans in order to reduce the price of data to retail investors and make it more broadly available.
The proposed technical corrections to the fee schedule will benefit vendors and users by making the fee schedule clearer and easier to understand.
For these reasons, the Exchange believes that the proposed fees are reasonable, equitable, and not unfairly discriminatory.
In accordance with Section 6(b)(8) of the Act,
Competitive markets for listings, order flow, executions, and transaction reports provide pricing discipline for the inputs of proprietary data products and therefore constrain markets from overpricing proprietary market data. The U.S. Department of Justice also has acknowledged the aggressive competition among exchanges, including for the sale of proprietary market data itself. In announcing that the bid for NYSE Euronext by NASDAQ OMX Group Inc. and IntercontinentalExchange Inc. had been abandoned, Assistant Attorney General Christine Varney stated that exchanges “compete head to head to offer real-time equity data products. These data products include the best bid and offer of every exchange and information on each equity trade, including the last sale.”
It is common for broker-dealers to further exploit this recognized competitive constraint by sending their order flow and transaction reports to multiple markets, rather than providing them all to a single market. As a 2010 Commission Concept Release noted, the “current market structure can be described as dispersed and complex” with “trading volume . . . dispersed among many highly automated trading centers that compete for order flow in the same stocks” and “trading centers offer[ing] a wide range of services that are designed to attract different types of
In addition, in the case of products that are distributed through market data vendors, the market data vendors themselves provide additional price discipline for proprietary data products because they control the primary means of access to certain end users. These vendors impose price discipline based upon their business models. For example, vendors that assess a surcharge on data they sell are able to refuse to offer proprietary products that their end users do not or will not purchase in sufficient numbers. Internet portals, such as Google, impose price discipline by providing only data that they believe will enable them to attract “eyeballs” that contribute to their advertising revenue. Similarly, vendors will not offer NYSE MKT BBO or NYSE MKT Trades unless those products will help them maintain current users or attract new ones. For example, a broker-dealer will not choose to offer NYSE MKT BBO or NYSE MKT Trades to its retail customers unless the broker-dealer believes that the retail customers will use and value the data and the provision of such data will help the broker-dealer maintain the customer relationship, which allows the broker-dealer to generate profits for itself. Professional users will not request NYSE MKT BBO or NYSE MKT Trades from market data vendors unless they can use the data for profit-generating purposes in their businesses. All of these operate as constraints on pricing proprietary data products.
The costs of producing market data include not only the costs of the data distribution infrastructure, but also the costs of designing, maintaining, and operating the exchange's transaction execution platform and the cost of regulating the exchange to ensure its fair operation and maintain investor confidence. The total return that a trading platform earns reflects the revenues it receives from both products and the joint costs it incurs. Moreover, an exchange's broker-dealer customers view the costs of transaction executions and market data as a unified cost of doing business with the exchange.
Other market participants have noted that the liquidity provided by the order book, trade execution, core market data, and non-core market data are joint products of a joint platform and have common costs.
Analyzing the cost of market data product production and distribution in isolation from the cost of all of the inputs supporting the creation of market data and market data products will inevitably underestimate the cost of the data and data products. Thus, because it is impossible to obtain the data inputs to create market data products without a fast, technologically robust, and well-regulated execution system, system costs and regulatory costs affect the price of both obtaining the market data itself and creating and distributing market data products. It would be equally misleading, however, to attribute all of an exchange's costs to the market data portion of an exchange's joint products. Rather, all of an exchange's costs are incurred for the unified purposes of attracting order flow, executing and/or routing orders, and generating and selling data about market activity. The total return that an exchange earns reflects the revenues it receives from the joint products and the total costs of the joint products.
The level of competition and contestability in the market is evident in the numerous alternative venues that compete for order flow, including 12 equities self-regulatory organization (“SRO”) markets, as well as internalizing broker-dealers (“BDs”) and various forms of alternative trading systems (“ATSs”), including dark pools and electronic communication networks (“ECNs”). Competition among trading platforms can be expected to constrain the aggregate return that each platform earns from the sale of its joint products, but different platforms may choose from a range of possible, and equally reasonable, pricing strategies as the means of recovering total costs. For example, some platforms may choose to pay rebates to attract orders, charge relatively low prices for market data products (or provide market data products free of charge), and charge relatively high prices for accessing posted liquidity. Other platforms may choose a strategy of paying lower rebates (or no rebates) to attract orders, setting relatively high prices for market data products, and setting relatively low prices for accessing posted liquidity. In this environment, there is no economic basis for regulating maximum prices for one of the joint products in an industry in which suppliers face competitive constraints with regard to the joint offering.
The fact that proprietary data from ATSs, BDs, and vendors can bypass SROs is significant in two respects. First, non-SROs can compete directly with SROs for the production and sale of proprietary data products. Second, because a single order or transaction report can appear in an SRO proprietary product, a non-SRO proprietary product, or both, the amount of data available via proprietary products is greater in size than the actual number of orders and transaction reports that exist in the marketplace. Because market data users can thus find suitable substitutes for most proprietary market data products, a market that overprices its market data products stands a high risk that users may substitute another source of market data information for its own.
Moreover, consolidated data provides two additional measures of pricing discipline for proprietary data products that are a subset of the consolidated data stream. First, the consolidated data is widely available in real-time at $0.50-$1 per month for non-professional users. Second, consolidated data is also available at no cost with a 15- or 20-minute delay. Because consolidated data contains marketwide information, it effectively places a cap on the fees assessed for proprietary data that is simply a subset of the consolidated data (such as NYSE MKT Trades and NYSE MKT BBO). The mere availability of low-cost or free consolidated data provides a powerful form of pricing discipline for proprietary data products that contain data elements that are a subset of the consolidated data by highlighting the optional nature of proprietary products.
Those competitive pressures imposed by available alternatives are clearly evident in the Exchange's proposed pricing. As noted above, the Exchange's proposed user and enterprise fees are substantially less than the fees charged by both NASDAQ and the CTA and CQ Plans, and the Exchange's enterprise fee also permits distribution by a non-broker-dealer.
In addition to the competition and price discipline described above, the market for proprietary data products is also highly contestable because market entry is rapid and inexpensive. The history of electronic trading is replete with examples of entrants that swiftly grew into some of the largest electronic trading platforms and proprietary data producers: Archipelago, Bloomberg Tradebook, Island, RediBook, Attain, TrackECN, BATS Trading and Direct Edge. Today, BATS and Direct Edge provide certain market data at no charge on their Web sites in order to attract more order flow, and use revenue rebates from resulting additional executions to maintain low execution charges for their users.
Further, data products are valuable to professional users only if they can be used for profit-generating purposes in their businesses and valuable to non-professional users only insofar as they provide information that such users expect will assist them in tracking prices and market trends and making order routing and trading decisions.
In establishing the proposed fees, the Exchange considered the competitiveness of the market for proprietary data and all of the implications of that competition. The Exchange believes that it has considered all relevant factors and has not considered irrelevant factors in order to establish fair, reasonable, and not unreasonably discriminatory fees and an equitable allocation of fees among all users. The existence of numerous alternatives to the Exchange's products, including real-time consolidated data, free delayed consolidated data, and proprietary data from other sources, ensures that the Exchange cannot set unreasonable fees, or fees that are unreasonably discriminatory, when vendors and subscribers can elect these alternatives or choose not to purchase a specific proprietary data product if its cost to purchase is not justified by the returns any particular vendor or subscriber would achieve through the purchase.
No written comments were solicited or received with respect to the proposed rule change.
The foregoing rule change is effective upon filing pursuant to Section 19(b)(3)(A)
At any time within 60 days of the filing of such proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings under Section 19(b)(2)(B)
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's Internet comment form (
• Send an email to
• Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
On February 1, 2013, New York Stock Exchange (“NYSE”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the “Act”)
Section 19(b)(2) of the Act
The Commission finds it appropriate to designate a longer period within which to issue an order approving or disapproving the proposed rule change so that it has sufficient time to consider the proposed rule change, the issues raised in the comment letters that have been submitted in connection with the proposed rule change, and the NYSE's responses to such issues. Specifically, as the Commission noted in more detail in the Order Instituting Proceedings, the proposal raises significant questions as to whether the Exchange has provided adequate justification for material aspects of its proposal such that the Commission can determine that the proposal is consistent with the Act. Extending the time within which to approve or disapprove the proposed rule change will enable the Commission to more fully consider this issue and the other issues raised in the comment letters.
Accordingly, the Commission, pursuant to Section 19(b)(2) of the Act,
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to Section 19(b)(1)
The Exchange proposes to amend the fees for display use of the NYSE BBO and NYSE Trades market data products and make certain technical changes to the fee schedule. The changes will be operative on August 1, 2013. 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 the fees for display use of the NYSE BBO
The Exchange currently charges $15 per month for professional users and $5 per month for non-professional users for display use of NYSE BBO.
The Exchange also charges an access fee of $1,500 per month for NYSE BBO and an access fee of $1,500 for NYSE Trades. However, a single access fee applies for clients receiving both NYSE BBO and NYSE Trades.
Vendors that redistribute NYSE Trades data pay a redistribution fee of $1,000 per month.
The Exchange proposes to lower the professional user fees for display use of NYSE BBO from $15 per month to $4 per month, lower the non-professional user fees for display use of NYSE BBO from $5 per month to $0.20 per month, and eliminate the per quote option for display use of NYSE BBO for non-professional users. The Exchange also proposes to lower the professional user fee for display use of NYSE Trades from $15 per month to $4 per month and introduce a fee for display use of NYSE Trades by non-professional users of $0.20 per month.
The Exchange also proposes to establish a $190,000 per month enterprise fee for an unlimited number of professional and non-professional users for NYSE BBO and a $190,000 per month enterprise fee for an unlimited number of professional and non-professional users for NYSE Trades. A single enterprise fee will apply for vendors receiving both NYSE BBO and NYSE Trades.
As an example, under the current fee structure, if a firm had 7,000 professional users who each received NYSE Trades at $15 per month and NYSE BBO at $15 per month, then the firm currently pays $210,000 per month in professional user fees. Under the proposed enterprise fee, the firm will pay a flat fee of $190,000 for an unlimited number of professional and non-professional users for both products.
A vendor that pays the enterprise fee would not have to report the number of such users on a monthly basis.
Lastly, the Exchange proposes to make certain technical corrections to clarify its fee schedule and to delete operative dates that are no longer needed.
The purpose of the foregoing changes is to encourage greater use of NYSE BBO and NYSE Trades by making them more affordable, to compete more effectively with similar products in the marketplace, and to clarify the fee schedule. The Exchange is eliminating the per quote option for display use of NYSE BBO for non-professional users because non-professional users are not electing to use it. The Exchange is not aware of any significant problems that persons affected are likely to have in complying with the proposed rule change.
The Exchange further believes that the proposed rule change is consistent with the market-based approach of the Securities and Exchange Commission (“Commission”). The decision of the United States Court of Appeals for the District of Columbia Circuit in
In fact, the legislative history indicates that the Congress intended that the market system `evolve through the interplay of competitive forces as unnecessary regulatory restrictions are removed' and that the SEC wield its regulatory power `in those situations where competition may not be sufficient,' such as in the creation of a `consolidated transactional reporting system.'
As explained below in the Exchange's Statement on Burden on Competition, the Exchange believes that there is substantial evidence of competition in the marketplace for data and that the Commission can rely upon such evidence in concluding that the fees established in this filing are the product of competition and therefore satisfy the relevant statutory standards.
As the
The Exchange believes that the proposed rule change is consistent with the provisions of Section 6 of the Act,
The Exchange believes that lowering the professional and non-professional user fees for NYSE BBO and lowering the professional user fee for NYSE Trades is reasonable because it will make the products more affordable and result in their greater availability to professional and non-professional users.
In addition, the Exchange believes that the proposed fees are reasonable when compared to fees for comparable products offered by at least one other exchange and under the CTA and CQ Plans. Specifically, The NASDAQ Stock Market LLC (“NASDAQ”) offers NASDAQ Basic, which includes best bid and offer and last sale data, for a monthly fee of $10 per professional subscriber and $0.50 per non-professional subscriber; alternatively, a broker-dealer may purchase an enterprise license at a rate of $100,000 per month for distribution to an unlimited number of non-professional subscribers only.
The proposed enterprise fees for NYSE BBO and NYSE Trades also are reasonable because they could result in a fee reduction for vendors with a large number of professional and non-professional users, as described in the example above. If a vendor has a smaller number of professional users of NYSE BBO and/or NYSE Trades, then it may continue using the per user structure and benefit from the per user fee reductions. By reducing prices for vendors with a large number of professional and non-professional users, the Exchange believes that more vendors may choose to offer NYSE BBO and NYSE Trades, thereby expanding the distribution of this market data for the benefit of investors. The Exchange also believes that offering an enterprise fee will expand the range of options for offering NYSE BBO and NYSE Trades and will allow vendors greater choice in selecting the most appropriate level of data and fees for the professional and non-professional users they are servicing.
The Exchange further believes that the proposed enterprise fees are reasonable because they will simplify billing for certain recipients that have large numbers of professional and non-professional users. Firms that pay the proposed enterprise fees will not have to report the number of users on a monthly basis as they currently do, but rather will only have to count natural person users every six months; this is a significant reduction in administrative burdens and is a significant value. The Exchange believes that it is reasonable to charge a single enterprise fee for clients receiving both NYSE BBO and NYSE Trades because the Exchange has charged a single access fee for both products since 2010,
The Exchange believes that the proposed fees are equitable and not unfairly discriminatory because they will be charged uniformly to vendors and users that select these products. The Exchange notes that the fee structure of differentiated professional and non-professional fees has long been used by the Exchange for other products, by other exchanges for their products, and by the CTA and CQ Plans in order to reduce the price of data to retail investors and make it more broadly available.
The proposed technical corrections to the fee schedule will benefit vendors and users by making the fee schedule clearer and easier to understand.
For these reasons, the Exchange believes that the proposed fees are reasonable, equitable, and not unfairly discriminatory.
In accordance with Section 6(b)(8) of the Act,
Competitive markets for listings, order flow, executions, and transaction reports provide pricing discipline for the inputs of proprietary data products and therefore constrain markets from overpricing proprietary market data. The U.S. Department of Justice also has acknowledged the aggressive competition among exchanges, including for the sale of proprietary market data itself. In announcing that the bid for NYSE Euronext by NASDAQ OMX Group Inc. and IntercontinentalExchange Inc. had been abandoned, Assistant Attorney General Christine Varney stated that exchanges “compete head to head to offer real-time equity data products. These data products include the best bid and offer of every exchange and information on each equity trade, including the last sale.”
It is common for broker-dealers to further exploit this recognized competitive constraint by sending their order flow and transaction reports to multiple markets, rather than providing them all to a single market. As a 2010 Commission Concept Release noted, the “current market structure can be described as dispersed and complex” with “trading volume . . . dispersed among many highly automated trading centers that compete for order flow in the same stocks” and “trading centers offer[ing] a wide range of services that are designed to attract different types of market participants with varying trading needs.”
In addition, in the case of products that are distributed through market data vendors, the market data vendors themselves provide additional price discipline for proprietary data products because they control the primary means of access to certain end users. These vendors impose price discipline based upon their business models. For example, vendors that assess a surcharge on data they sell are able to refuse to offer proprietary products that their end users do not or will not purchase in sufficient numbers. Internet portals, such as Google, impose price discipline by providing only data that they believe will enable them to attract “eyeballs” that contribute to their advertising revenue. Similarly, vendors will not offer NYSE BBO or NYSE Trades unless those products will help them maintain current users or attract new ones. For example, a broker-dealer will not choose to offer NYSE BBO or NYSE Trades to its retail customers unless the broker-dealer believes that the retail customers will use and value the data and the provision of such data will help the broker-dealer maintain the customer relationship, which allows the broker-dealer to generate profits for itself. Professional users will not request NYSE BBO or NYSE Trades from market data vendors unless they can use the data for profit-generating purposes in their businesses. All of these operate as constraints on pricing proprietary data products.
The costs of producing market data include not only the costs of the data distribution infrastructure, but also the costs of designing, maintaining, and operating the exchange's transaction execution platform and the cost of regulating the exchange to ensure its fair operation and maintain investor confidence. The total return that a trading platform earns reflects the revenues it receives from both products and the joint costs it incurs. Moreover, an exchange's broker-dealer customers view the costs of transaction executions and market data as a unified cost of doing business with the exchange.
Other market participants have noted that the liquidity provided by the order book, trade execution, core market data, and non-core market data are joint products of a joint platform and have common costs.
Analyzing the cost of market data product production and distribution in isolation from the cost of all of the inputs supporting the creation of market data and market data products will inevitably underestimate the cost of the data and data products. Thus, because it is impossible to obtain the data inputs to create market data products without a fast, technologically robust, and well-regulated execution system, system costs and regulatory costs affect the price of both obtaining the market data itself and creating and distributing market data products. It would be equally misleading, however, to attribute all of an exchange's costs to the market data portion of an exchange's joint products. Rather, all of an exchange's costs are incurred for the unified purposes of attracting order flow, executing and/or routing orders, and generating and selling data about market activity. The total return that an
The level of competition and contestability in the market is evident in the numerous alternative venues that compete for order flow, including 12 equities self-regulatory organization (“SRO”) markets, as well as internalizing broker-dealers (“BDs”) and various forms of alternative trading systems (“ATSs”), including dark pools and electronic communication networks (“ECNs”). Competition among trading platforms can be expected to constrain the aggregate return that each platform earns from the sale of its joint products, but different platforms may choose from a range of possible, and equally reasonable, pricing strategies as the means of recovering total costs. For example, some platforms may choose to pay rebates to attract orders, charge relatively low prices for market data products (or provide market data products free of charge), and charge relatively high prices for accessing posted liquidity. Other platforms may choose a strategy of paying lower rebates (or no rebates) to attract orders, setting relatively high prices for market data products, and setting relatively low prices for accessing posted liquidity. In this environment, there is no economic basis for regulating maximum prices for one of the joint products in an industry in which suppliers face competitive constraints with regard to the joint offering.
The fact that proprietary data from ATSs, BDs, and vendors can bypass SROs is significant in two respects. First, non-SROs can compete directly with SROs for the production and sale of proprietary data products. Second, because a single order or transaction report can appear in an SRO proprietary product, a non-SRO proprietary product, or both, the amount of data available via proprietary products is greater in size than the actual number of orders and transaction reports that exist in the marketplace. Because market data users can thus find suitable substitutes for most proprietary market data products, a market that overprices its market data products stands a high risk that users may substitute another source of market data information for its own.
Moreover, consolidated data provides two additional measures of pricing discipline for proprietary data products that are a subset of the consolidated data stream. First, the consolidated data is widely available in real-time at $0.50–$1 per month for non-professional users. Second, consolidated data is also available at no cost with a 15- or 20-minute delay. Because consolidated data contains marketwide information, it effectively places a cap on the fees assessed for proprietary data that is simply a subset of the consolidated data (such as NYSE Trades and NYSE BBO). The mere availability of low-cost or free consolidated data provides a powerful form of pricing discipline for proprietary data products that contain data elements that are a subset of the consolidated data by highlighting the optional nature of proprietary products.
Those competitive pressures imposed by available alternatives are clearly evident in the Exchange's proposed pricing. As noted above, the Exchange's proposed per-user fees are lower than NASDAQ's fees. While the Exchange's enterprise fee is higher, the Exchange will permit broader distribution of its data,
In addition to the competition and price discipline described above, the market for proprietary data products is also highly contestable because market entry is rapid and inexpensive. The history of electronic trading is replete with examples of entrants that swiftly grew into some of the largest electronic trading platforms and proprietary data producers: Archipelago, Bloomberg Tradebook, Island, RediBook, Attain, TrackECN, BATS Trading and Direct Edge. Today, BATS and Direct Edge provide certain market data at no charge on their Web sites in order to attract more order flow, and use revenue rebates from resulting additional executions to maintain low execution charges for their users.
Further, data products are valuable to professional users only if they can be used for profit-generating purposes in their businesses and valuable to non-professional users only insofar as they provide information that such users expect will assist them in tracking prices and market trends and making order routing and trading decisions.
In establishing the proposed fees, the Exchange considered the competitiveness of the market for proprietary data and all of the implications of that competition. The Exchange believes that it has considered all relevant factors and has not considered irrelevant factors in order to establish fair, reasonable, and not unreasonably discriminatory fees and an equitable allocation of fees among all users. The existence of numerous alternatives to the Exchange's products, including real-time consolidated data, free delayed consolidated data, and proprietary data from other sources, ensures that the Exchange cannot set unreasonable fees, or fees that are unreasonably discriminatory, when vendors and subscribers can elect these alternatives or choose not to purchase a specific proprietary data product if its cost to purchase is not justified by the returns any particular vendor or subscriber would achieve through the purchase.
No written comments were solicited or received with respect to the proposed rule change.
The foregoing rule change is effective upon filing pursuant to Section 19(b)(3)(A)
At any time within 60 days of the filing of such proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings under Section 19(b)(2)(B)
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 ”),
OCC proposes to revise its By-Laws and Rules to make structural changes to OCC's Membership/Risk Committee (“MRC”) regarding Public Directors and the process for designating MRC members.
In its filing with the Commission, OCC 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. OCC has prepared summaries, set forth in sections (A), (B), and (C) below, of the most significant aspects of these statements.
The purpose of this proposed rule change is to revise OCC's By-Laws and Rules to make structural changes to OCC's MRC regarding Public Directors
Currently, Article III, Section 9 of OCC's By-Laws specifies that at the first meeting of the Board of Directors that follows each annual meeting the Board must designate the Chairman of the Board, the Vice Chairman of the Board, and at least three other Member Directors to serve on the MRC. The By-Laws would be modified to provide that at least one Public Director must serve on the MRC and that the MRC Chairman must be a Public Director. These modifications would correspond to OCC's existing practice of having at least one Public Director serve on the MRC, and OCC believes that including this requirement in the By-Laws would help ensure that the MRC will continue
The proposed rule change would also eliminate the requirement from the By-Laws that MRC members must be designated at the first meeting of OCC's Board of Directors that follows each annual meeting. Instead, the only timing requirement in the By-Laws would be for MRC members to be designated annually. OCC believes this change to the By-Laws would provide OCC's Board with appropriate flexibility to decide when it is best for new MRC member designations to be made.
As amended, Article III, Section 9 of OCC's By-Laws would provide that the Public Director(s) would be nominated to serve on the MRC by the Chairman of the Board and that any nomination would be subject to approval by the Board of Directors. Article III, Section 9 would also provide that the Chairman of the MRC would be required to be a Public Director. If more than one Public Director is nominated to serve on the MRC, the Chairman of the Board would nominate one of the Public Directors to serve as the MRC Chairman. Any such nomination by the Chairman of the Board would be subject to Board approval. OCC also proposes to make technical corrections in Article III, Section 9 to eliminate specific references to Article V of the By-Laws and Chapter VI of the Rules in order to avoid any erroneous inference that those are the only provisions of the By-Laws and Rules that set forth powers and duties of the MRC, which are in fact contained in many other provisions of the By-Laws and Rules as well.
OCC believes that the proposed rule change is consistent with Section 17A(b)(3)(F)
OCC does not believe that the proposed rule change would impose a burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act.
Changes to the rules of a clearing agency may have an impact on the participants in a clearing agency and the markets that the clearing agency serves. This proposed rule change primarily affects OCC in that it would require at least one Public Director to serve on the MRC, the MRC Chairman to be a Public Director, and all MRC members to be designated on an annual basis. OCC does not believe that these changes with respect to governance would treat any clearing member or group of clearing members disparately or otherwise disparately affect access to or use of any of OCC's facilities or disadvantage or favor any user in relationship to any other such user. In fact, OCC believes that the proposed requirement that at least one member be a Public Director and that the MRC Chairman be a Public Director would promote competition by lessening the influence that any particular clearing member may have on the MRC.
For the foregoing reasons, OCC believes that the proposed rule change is in the public interest, that it would be consistent with the requirements of the Act applicable to clearing agencies, and would not impose any burden on competition that is unnecessary or inappropriate in furtherance of the purposes of the Act because the changes would help ensure that the MRC continues to operate in a manner that is appropriately free from outside influence and therefore help promote the purposes of the Act and Rule 17Ad–22(d)(8)
Written comments on the proposed rule change were not and are not intended to be solicited with respect to the proposed rule change and none have been received.
Within 45 days of the date of publication of this notice in the
(A) By order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule change should be disapproved.
Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the 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.
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–OCC–2013–12 and should be submitted on or before September 11, 2013.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
On April 30, 2013, the New York Stock Exchange LLC (“NYSE” or the “Exchange”) filed with the Securities and Exchange Commission (“SEC” or “Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”)
The Exchange proposes to: (i) delete the sections in the Manual containing the listing application materials (including the listing application and the listing agreement) and adopt updated listing application materials that will be posted on the Exchange's Web site; and (ii) adopt as new rules certain provisions that are currently included in the various forms of agreements that are in the Manual, as well as some additional new rules that make explicit existing Exchange policies with respect to initial listings.
The Exchange proposes changes to the Manual's requirements detailing the information an applicant is required to provide.
New Section 104.00 would describe a free confidential review of the eligibility for listing undertaken by the Exchange of any company that: (i) Requests such a review; and (ii) provides the documents listed in Section 104.01 (domestic companies) or Section 104.02 (non-U.S. companies). A company may submit an original listing application only after it has been cleared to do so by the Exchange following the completion of a confidential eligibility review.
New Section 107.00 (“Financial Disclosure and Other Information Requirements”) would specifically set forth in the Manual certain financial requirements that NYSE states it currently requires of companies listing on the Exchange. Specifically, (i) new Section 107.01 would outline the accounting standards applicable to listed companies, (ii) new Section 107.02 would require all companies applying for initial listing to be audited by an independent public accountant registered with the Public Company Accounting Oversight Board, (iii) new Section 107.03 would stipulate that no security will be approved for listing if the issuer has not, for the 12 months immediately prior to the date of listing, timely filed all periodic reports required to be filed with the Commission or Other Regulatory Authority (as defined in the rule), and (iv) new Section 107.04 would require all companies applying to list on the Exchange to provide the Exchange with any information or documentation necessary to make a determination regarding the initial listing.
The Exchange proposes to amend Sections 204.00, 204.04, 204.13, 204.18 and 204.23 to include a statement that the form of listing application and information regarding supporting documents required in connection with the listing application would be available on the Exchange's Web site or from the Exchange upon request.
The Exchange proposes to add a requirement to Section 311.01 that would stipulate that partial redemptions of listed securities must be done on a pro rata basis or by lot. In conjunction with this change, the Exchange has proposed to delete this requirement from the listing agreements for domestic and non-U.S. companies.
The Exchange proposes to add a requirement to Section 501.01 that would require listed companies to issue new certificates for listed securities replacing lost ones upon notification of loss of the original certificate and receipt of proper indemnity. In conjunction with this change, the Exchange has proposed to delete this requirement from the listing agreements for domestic and non-U.S. companies.
The Exchange further proposes to add a requirement to Section 501.02 that would require that, in the event of the issuance of any duplicate bond to replace a bond which has been alleged to be lost, stolen or destroyed and the subsequent appearance of the original bond in the hands of an innocent bondholder, either the original or the duplicate bond must be taken up and cancelled and the issuer must deliver to such holder another bond. In conjunction with this change, the Exchange has proposed to delete this requirement from the listing agreements for domestic and non-U.S. companies.
The Exchange has proposed to add certain requirements to Section 601.01 that were not previously embodied in any other rule. Provisions being added to Section 601.01(A) would require a transfer agent to comply with the rule of the Exchange, maintain officer for the purposes of transfer activities that are staffed by experienced personnel, provide adequate facilities foe the safekeeping of securities, maintain facilities to expedite transfers, and appoint an agent for service of process. A provision added to Section 601.01(B) would require the transfer agent to take immediate corrective action if the transfer agent's independent auditor specifies any material weaknesses, and provide a letter to the Exchange indicating that the material weaknesses have been corrected. The Exchange further proposes to delete Section 601.03 in its entirety, as it relates solely to the transfer agent and registrar agreements which the Exchange has also proposed to eliminate.
The Exchange proposes to amend Section 702.00 (Original Listing Application Securities of Other than Debt Securities) to replace the information currently in that section with a general outline of the listing process designed to be more descriptive of the listing process.
Upon receiving a clearance letter, a company choosing to list must file an original listing application.
In addition to the changes to Section 702.00 discussed above, the Exchange has proposed to delete Sections 702.01 (Introduction), 702.02 (Timetable for Original Listing of Securities Other than Debt Securities), 702.03 (Submission of Listing Application), 702.04 (Supporting Documents) and 702.05 (Printing of Application) and renumber subsequent sections. Section 702.01 describes the listing application as historically used, which was not on a set form and required companies to provide a narrative of the information relevant to the particular issue. The listing application form used going forward will be in the form of a questionnaire and the Exchange has stated that it will not require the sort of narrative that was historically included in the listing application, as this information, according to the Exchange, is typically all readily available in the company's Commission filings. In its filing, the NYSE stated that Section 702.02 is being eliminated because the timeline provided in that Section does not necessarily bear any relation to the listing experience of any individual company and, according to NYSE, is of
The following supporting documents currently required by Section 702.04, in its current form, and a brief discussion of whether each individual document will continue to be required under the NYSE's proposal and, if not, why not is discussed below:
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The Exchange noted that the second paragraph of Section 702.04 requires applicants to provide required documents at least one week prior to listing or, if this is not possible because of the nature of the document in question, as soon as practicable thereafter, but in any event prior to the first day of trading subject to the Exchange's conditional listing approval. Although the Exchange has proposed to delete Section 702.04, amended Section 702.00 will contain a similar requirement, with the exception of specifying the supporting documents be submitted one week before the Exchange needs to take action.
Section 702.05 (Printing of Application) is being deleted as it is obsolete and the Exchange has not distributed printed copies of approved listing applications for many years. In addition, the Exchange believes that the listing application has lost its relevance as a disclosure document in recent decades due to the development of the SEC's own comprehensive disclosure system.
Section 703.00 is being amended by modifying subsections 703.01 through 703.14, relating to the application process and the filing of the listing application and any supplemental, or supporting, documents. References to the form of supplemental listing application set forth in Section 903.02 and also the lists of documents required to be submitted in connection with the relevant supplemental listing application are being deleted from these subsections. Various subsections will no longer contain a listing of the supplemental documents to be provided to the Exchange, but will state that the form of listing application and information regarding supporting documents required in connection with supplemental listing applications and debt securities applications are available on the Exchange's Web site or from the Exchange upon request. Section 703.01 Parts 1(A) and 2(B) and (C) currently require, respectively, that the application be in the form of a memo from the company and four signed typewritten copies of the supplemental listing applications provided to the Exchange. Section 703.01 Part 2(B) is being revised to remove an obsolete reference to the Exchange's weekly bulletin. Furthermore, Section 703.01 Part 2 (D) and (E), which refer to data that is to be provided in any subsequent listing application and a statement that the application need not be typed, are being removed from the Manual.
Section 802.01D is being revised with a provision explicitly providing that the Exchange may delist a company for a breach of the terms of its listing agreement.
In addition to the above described changes, various sections of the Manual are being revised to remove, or update, obsolete or incorrect cross-references.
The Exchange proposes to remove from the Manual the current form of listing agreements for various types of company. In addition, the Exchange seeks to update the listing agreements used to reflect current practices at the exchange. According to the NYSE, the
The Exchange proposes to eliminate the Listing Securities Fee Agreement set forth in Section 902.01 of the Manual in its entirety.
The form of original listing application supplemental listing application, and summary of such applications contained in Section 903.01, Section 903.02, and 903.03, respectively, are being deleted from the Manual in their entirety. A revised form of the original listing application and the existing forms of the supplemental listing applications for certain issuances were provided in Exhibit 3 as part of the filing and these forms will be provided on the Exchange's Web site.
The Stock Distribution Schedule in Section 904.01 is being deleted as the Exchange obtains the distribution information required in Section 904.01 from the company's transfer agent. Exchange proposes to require applicants to provide the information in Section 904.02 (Unpaid Dividends, Unsettled Rights, and Record Dates—Memorandum) in the revised form of original listing application and, therefore, is deleting Section 904.02. In addition, Sections 904.03 (“Due Bill” Form Letter) and 904.04 (Foreign Currency Warrants and Currency Index Warrants and Stock Index Warrants membership Circular) will be renumbered Sections 904.01 and 904.02, respectively.
In addition to changes to the various Section of the Manual, the Exchange has also proposed to make changes to the various Listing Agreements contained in the Manual. The revised listing agreements will be available on the Exchange's Web site and were submitted as part of the rule filing in Exhibit 3, and the amended forms submitted in the Exhibit 3 to Amendment No. 1. Specifically, the Exchange is removing Sections 901.01 (Listing Agreement for Domestic Companies), 901.02 (Listing Agreement for Foreign Private Issuers), 901.03 (Listing Agreement for Depository of a Foreign Private Issuer), 901.04 (For Japanese Companies—Free Share Distribution Understanding), and 901.05 (Listing Agreement for Voting Trusts). Although the Exchange is removing each of these agreements from the Manual, the Exchange will still be using each of these agreements, although in the listing agreements for domestic companies in 901.01 and foreign companies in 901.02 will be modified.
The Exchange proposes to delete from the domestic and foreign private issuers listing agreement certain requirements contained elsewhere in either the Manual or SEC Rules.
In addition, the Exchange is proposing to delete the requirement that a company notify the Exchange of all facts relating to the purchase, direct or indirect, of any of its securities listed on the Exchange at a price in excess of the market price of such security prevailing on the Exchange at the time of such purchase.
The Exchange is also proposing to delete the requirement that, in case the securities to be listed are in temporary form, the company agrees to order permanent engraved securities within thirty days after the date of listing because all securities traded through the facilities of the Exchange are now traded electronically. The requirement prohibiting a company from making any change in the form or nature of any of its securities listed on the Exchange, nor in the rights or privileges of the holders thereof, without having given twenty days' prior notice to the Exchange of the proposed change, and having made application for the listing of the securities as changed if the Exchange shall so require, is being removed from the listing agreement.
The requirement to notify the Exchange of any diminution in the supply of stock available for the market occasioned by deposit of stock under voting trust agreements or other deposit
The Exchange proposes to delete the provision requiring a company publish at least once a year and submit to its stockholders at least fifteen days in advance of the annual meeting of such stockholders, and not later than three months after the close of the last preceding fiscal year of the Corporation, certain balance sheets, a surplus and income statements.
The requirement that a company or its subsidiaries not make any substantial charges against capital surplus, without notifying the Exchange is being removed from the listing agreement.
The requirement that a company maintain an office or agency for specified corporate purposes is being deleted along with the requirement that a company maintain registrar for specified corporate purposes. The requirement that a company have on hand at all times a sufficient supply of certificates to meet the demands for transfer and provide copies of preferences of stock classes in certain circumstances is being deleted. The Exchange proposes to delete certain requirements that a company publish information in connection with certain corporate actions along with the requirement for domestic companies that a company solicit proxies for all meetings of stockholders.
Some of the key provisions that will be included in the reformulated listing agreements for domestic companies and foreign private issuers are: (i) A certification by the issuer that it understands and agrees to comply with all current and future rules, listing standards, procedures and policies of the Exchange; (ii) an agreement by the issuer to promptly notify the Exchange in writing of any corporate action or other event which will cause the issuer to cease to be in compliance with Exchange listing requirements; (iii) the issuer agrees to maintain a transfer agent and registrar which satisfies the requirements set forth in Section 601.00 of the Manual et seq.; (iv) the issuer agrees to file all required periodic financial reports with the SEC, including annual reports and, where applicable, quarterly or semi-annual reports, by due date established by the SEC; (v) the issuer agrees to comply with all requirements under the federal securities laws and applicable SEC rules; and (vi) that nothing contained in, or inferred from the listing agreement shall be construed as constituting a contract for the continued listing of the company's securities and that the company understands that the Exchange may suspend the company's securities and commence delisting proceedings with or without prior notice upon failure of the company to comply with one or more sections of the listing agreement. In addition to the above key provisions, foreign private issuers must also agree to: (i) Solicit proxies from U.S. holders for all meetings of shareholders; and (ii) not appoint any successor or additional Depository unless such Depository has entered into a listing agreement with the Exchange.
The Exchange has proposed deleting from the Manual the form of original listing application contained in Section 903.01 (Listing Applications). The revised form of original listing application will be provided on the Exchange's Web site. In general, the information the Exchange proposes to remove from the Listing Application is being removed because the Exchange believes such information is available in the applicant's filings with the SEC, made pursuant to the Exchange Act or the Securities Act of 1933.
The Exchange has proposed to delete from the Manual the forms of transfer agent and registrar agreements currently set forth in Sections 906.01, 906.02 and 906.03 of the Manual. In both of its revised listing agreements, the Exchange has included an explicit agreement by the applicant issuer to abide by the transfer agent and registrar requirements set forth in Section 601.00 of the Manual
After careful review, the Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.
The Commission finds that the changes proposed to Sections 102.01C, 103.01B, 103.04, 104.01, 104.02, 204.00, 204.04, 204.13, 204.18, 204.23, 703.01 (part 1), 703.02 (part 3), 703.04, 703.05, 703.06, 703.07, 703.08, 703.09, 703.10, 703.11, 703.12, 703.13, 703.14, each of which provide that the form of listing application and information regarding supporting documents are available on the Exchange's Web site or from the Exchange upon request, are consistent with the act in that they make the necessary forms widely available. The Commission notes, and the Exchange acknowledged in its original filing, that in the event that the Exchange makes any substantive changes to the documents being removed from the Manual,
The Exchange proposed to add new Section 104.00 describing the Exchange's free confidential review process. The application process is further described in Section 702.00 which describes the steps an issuer must follow in obtaining a clearance letter. Among other clarifications about the confidential review and listing process, the new language states that if a company has to pay an initial application fee, that it will be informed in writing that upon payment of the fee, it will receive a clearance letter to list. This process should give issuers certainty that they will not have to pay a non-refundable initial application fee if they will not be receiving a clearance letter to list. The Commission finds the addition of rule language describing the application process to be consistent with the protection of investor and the public interest in that it makes the listing application process more transparent for issuers.
The Exchange has proposed to amend Sections 104.01 and 104.02 to remove the requirement that the copy of the charter and by-laws (or equivalent constitutional documents) be certified and to require that specimens of bonds or stock certificates be provided only if they exist. The Commission finds these changes to be consistent with the protection of investors and the public interest in that they make it easier for issuers to comply with the listing application requirements without weakening the quality of information provided to the Exchange.
The Exchange believes that the provisions the Exchange proposes to
The Exchange further proposed to change Section 501.01 to require listed companies to issue new certificates for securities listed on the Exchange, replacing lost ones upon notification of the loss and receipt of proper indemnity. Amended Section 501.02(c) would require that, following the issuance of a duplicate bond issued to replace a lost, stolen or destroyed bond, should the original bond subsequently appear in the hands of an innocent bondholder, the original or duplicate bond must be taken up and cancelled. The Commission notes that these provisions are identical to those currently set forth in the existing forms of listing agreements, which the Exchange is proposing now to delete from the Manual in this filing. The Commission believes these provisions are consistent with the Act in that they are intended to protect shareholders and innocent bondholders.
The Exchange has proposed to delete Sections 906.01, 906.02 and 906.03 from the Manual and will no longer be entering into contracts with transfer agents. As a result, the Exchange proposed to amend Sections 601.01(A) and (B) to reflect the addition of certain provisions currently found in Sections 906.01, 906.02 and 906.03. The provisions being added to Sections 601.01(A) would require that the transfer agent: (i) Comply with the rules of the Exchange; (ii) maintain offices for the purposes of transfer activities that are staffed by experienced personnel; (iii) maintain adequate facilities for the safekeeping of securities; (iv) maintain facilities to expedite transfers; (v) appoint an agent for service of process. The provision being added to Section 601.01(B) would require the transfer agent to take immediate corrective action on any material weakness specified in the auditor's report and submit a subsequent letter indicating that the material weakness has been corrected. The provision also notes that no approval to act in a dual capacity as transfer agent or registrant will be approved until the auditor's report has been delivered. The Exchange is deleting Section 601.03 in its entirety since it merely contains cross-references to Sections 906.01, 906.02 and 906.03. The listing agreement will also require the issuer to maintain a registered transfer agent and a registrar, as necessary, which satisfies the requirements of Section 601.00. The Commission believes these changes are consistent with the protection of investors and the public interest since the specific requirements being deleted will still be included in Section 601.01 of the Manual. Furthermore, if a listed company does not use a transfer agent that is in compliance with the provisions contained in Section 601.01, which includes capital surplus requirements, such company would no longer meet the requirements set forth in the Manual and the listing agreement and could be delisted from the Exchange. The Commission believes this will ensure that a listed company will have a qualified transfer agent and registrar at all times while listed on the Exchange, protecting investors and the public interest.
The Exchange's proposed deletion of Section 702.01 of the Manual in its current form, as described above, is consistent with the protection of investors and the public interest, as it simply eliminates a description which is not accurate as it relates to the listing application process proposed to be adopted pursuant to this filing. The indicative timeline for the original listing of securities proposed to be deleted from Section 702.02 is very approximate and, according to NYSE, does not necessarily bear any relation to the listing experience of any individual company. The proposed changes to Sections 702.03, 702.04 and 702.05 of the Manual are consistent with the protection of investors and the public interest, as the information required to be included in the listing application that is detailed in these Sections will either continue to be required, or is readily available from another source (such as the Commission's EDGAR system).
The Commission believes that the proposed deletions from Sections 703.01 through 703.14, relating to the application process and the filing of the listing application and any supplemental, or supporting, documents, is consistent with the Act as the information required to be provided by these Sections would still be required as part of the Listing Application or are readily available from other sources (such as the Commission's EDGAR system).
The Commission believes that the proposed addition to the Exchange's continued listing criteria, Section 802.01D, of the stipulation that a listed company could face delisting if it breaches the terms of its listing agreement is consistent with the Act as it sets forth specifically in the Manual the Exchange's ability to remove unsuitable companies from its market for such violations. While, as NYSE notes, it currently has broad discretion to delist a company when its continued listing is inadvisable, the Commission believes that explicitly stating that a violation of the listing agreement may result in delisting provides transparency to listed companies and investors, and is consistent with the terms of the listing agreement. The Commission also believes that the removal of unsuitably listed companies serves to protect investors and the public interest.
The proposed modifications to the domestic and foreign listing agreements, and their removal from the Manual, are
The Commission notes that certain key provisions, discussed above, are either being added or will remain in the reformulated listing agreements. These provisions include: (i) An acknowledgement by the issues that a violation of all current and future rules, listing standards, procedures and policies of the Exchange along with a failure by the issuer to promptly notify the Exchange of any corporation action or other event that causes the issuer to cease to be in compliance with the Exchange's listing requirements could result in removal of the issuer's securities from listing and trading on the Exchange; (ii) a requirement that the issuer file all required periodic financial reports with the Commission, including annual reports and, where applicable, quarterly or semi-annual reports by the due dates established by the Commission; and (iii) a requirement that the issuer agrees to comply with all requirements under the federal securities laws and applicable Commission rules. The Commission believes that the inclusion of these provisions is consistent with the Act in that each of these provisions aids in the protection of investors and the public interest. In addition, the Commission notes that the listing agreement for foreign private issuers includes the requirement that foreign private issuers solicit proxies from U.S. holders for all meetings of shareholders.
One key change being made to the listing agreements is the removal of certain requirements relating to disclosures about the issuers business, financial and accounting policies. Specifically, the Exchange has proposed to remove from the listing agreement the requirement that an issuer disclose how long the independent public accountant has audited the company's accounts; whether their audit is continuous or periodic, or the extent of their authority. However, the Commission notes that Regulation S–X contains requirements relating to auditor independence that provide assurances as to the independence and qualifications of the auditor that, in the Commission's opinion, more than adequately replace the requirements being deleted by the proposal. As a result, the Commission believes that these changes are consistent with the Act.
Many of the provisions that are being removed from the listing agreement, as noted above, are being removed because they are already included in other sections of the Manual or NYSE believes it no longer needs the issuer to provide additional information because it is obsolete or already receives the information through Commission filings and its monitoring of such through EDGAR. For example, one eliminated provision had required companies to provide four copies of all material mailed to stockholders with respect to amendments or proposed amendments to its certificate of incorporation. NYSE indicated that it has other rules that require companies to provide it with copies of notices to shareholders concerning charter amendments. In addition, NYSE noted that its rules require listed companies to submit to it copies of all proxy material submitted to shareholders. While the Commission notes that the current requirement in the listing agreement requires copies of all communications to shareholders concerning an amendment to its certificate of incorporation, we are satisfied that the requirements in NYSE's rules should provide it with adequate notice of changes to a company's certificate of incorporation for purposes of monitoring compliance with Exchange rules and corporate actions that could impact the trading of the company's securities. Another example concerns the deletion, from the listing agreement, of the requirement that a listed company promptly notify the Exchange of any action to fix a stockholders' record date, or to close the transfer books, and that it will give the Exchange at least ten days' notice in advance of such record date or closing of the books. In support of deleting these from the listing agreement the Exchange cited several existing Sections of the Manual that contain these requirements and also stated that it notifies companies of these requirements in a letter sent annually to all listed companies. The Commission continues to believe that notification to the Exchange 10 days in advance of fixing a date for taking a record of shareholders and the closing of the transfer books is important. As a result, the deletion from the listing agreement simply recognizes that this is already covered elsewhere in NYSE's rules.
Other provisions of the listing agreement that are being permitted to be deleted, such as a requirement that a
The proposed deletions of Sections 904.01 through 904.03 of the Manual are consistent with the protection of investors and the public interest, as: (i) The Stock Distribution Schedule in Section 904.01 is obsolete because the Exchange has indicated it obtains the distribution information it needs from the company's transfer agent; (ii) the information required by Section 904.02 would still be required in the revised listing application.
The proposed modifications to the listing application are consistent with the protection of investors and the public interest, because the Exchange is simply eliminating from the application information requirements that are duplicative of disclosure requirements under the Federal securities laws or where similar disclosure provisions under the Federal securities laws provide information sufficient for the Exchange to make informed determinations about the suitability of issuers for listing.
A significant number of changes are technical in nature and relate to updating internal cross-references and rule numbering as a result of the changes described above. As a result, the Commission finds these changes consistent with the act as they work to protect investors and the public interest by removing confusion in the application and organization of the Manual.
The Amendment No. 1 revised the proposal to, among other things, ensure that the rule text provided is properly marked, therefore reducing confusion when determining which rule changes have been proposed and remove unnecessary provisions from the listing agreements. In addition, changes proposed in Amendment No. 1 will clarify and strengthen the Exchange's proposal and listing application process, and avoid redundancies and ambiguities that exist in the original filing, thereby making the listing process more streamlined and efficient. Accordingly, the Commission also finds good cause, pursuant to Section 19(b)(2) of the Act,
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to Section 19(b)(1)
The Exchange proposes to amend the fees for display use of the NYSE Arca BBO and NYSE Arca Trades market data products and make certain technical changes to the fee schedule. The changes will be operative on August 1, 2013. 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 the fees for display use of the NYSE Arca BBO
The Exchange currently charges $10 per month for professional users and $5 per month for non-professional users for display use of NYSE Arca BBO.
The Exchange also charges an access fee of $750 per month for NYSE Arca BBO and an access fee of $750 for NYSE Arca Trades. However, a single access fee applies for clients receiving both NYSE Arca BBO and NYSE Arca Trades.
Vendors that redistribute NYSE Arca Trades data pay a redistribution fee of $750 per month.
The Exchange proposes to lower the professional user fees for display use of NYSE Arca BBO from $10 per month to $4 per month, lower the non-professional user fees for display use of NYSE Arca BBO from $5 per month to $0.25 per month, and eliminate the per quote option for display use of NYSE Arca BBO for non-professional users. The Exchange also proposes to lower the professional user fee for display use of NYSE Arca Trades from $10 per month to $4 per month and introduce a fee for display use of NYSE Arca Trades by non-professional users of $0.25 per month.
The Exchange also proposes to establish a $175,000 per month enterprise fee for an unlimited number of professional and non-professional users for NYSE Arca BBO and a $175,000 per month enterprise fee for an unlimited number of professional and non-professional users for NYSE Arca Trades. A single enterprise fee will apply for vendors receiving both NYSE Arca BBO and NYSE Arca Trades.
As an example, under the current fee structure, if a firm had 9,000 professional users who each received NYSE Arca Trades at $10 per month and NYSE Arca BBO at $10 per month, then the firm currently pays $180,000 per month in professional user fees. Under the proposed enterprise fee, the firm will pay a flat fee of $175,000 for an unlimited number of professional and non-professional users for both products.
A vendor that pays the enterprise fee would not have to report the number of such users on a monthly basis.
Lastly, the Exchange proposes to make certain technical corrections to clarify its fee schedule and to delete operative dates that are no longer needed.
The purpose of the foregoing changes is to encourage greater use of NYSE Arca BBO and NYSE Arca Trades by making them more affordable, to compete more effectively with similar products in the marketplace, and to clarify the fee schedule. The Exchange is eliminating the per quote option for display use of NYSE Arca BBO for non-professional users because non-professional users are not electing to use it. The Exchange is not aware of any significant problems that persons affected are likely to have in complying with the proposed rule change.
The Exchange further believes that the proposed rule change is consistent with the market-based approach of the Securities and Exchange Commission (“Commission”). The decision of the United States Court of Appeals for the District of Columbia Circuit in
In fact, the legislative history indicates that the Congress intended that the market system “evolve through the interplay of competitive forces as unnecessary regulatory restrictions are removed” and that the SEC wield its regulatory power “in those situations where competition may not be sufficient,” such as in the creation of a “consolidated transactional reporting system.”
As explained below in the Exchange's Statement on Burden on Competition, the Exchange believes that there is substantial evidence of competition in the marketplace for data and that the Commission can rely upon such evidence in concluding that the fees established in this filing are the product of competition and therefore satisfy the relevant statutory standards.
As the
The Exchange believes that the proposed rule change is consistent with the provisions of Section 6 of the Act,
The Exchange believes that lowering the professional and non-professional user fees for NYSE Arca BBO and lowering the professional user fee for NYSE Arca Trades is reasonable because it will make the products more affordable and result in their greater availability to professional and non-professional users. The Exchange believes that introducing a non-professional fee for NYSE Arca Trades is reasonable because it provides an additional method for retail investors to access NYSE Arca last sale data and provides the same last sale data that is available to professional users, an option heretofore unavailable.
In addition, the Exchange believes that the proposed fees are reasonable when compared to fees for comparable products offered by at least one other exchange and under the CTA and CQ Plans. Specifically, The NASDAQ Stock Market LLC (“NASDAQ”) offers NASDAQ Basic, which includes best bid and offer and last sale data, for a monthly fee of $10 per professional subscriber and $0.50 per non-professional subscriber; alternatively, a broker-dealer may purchase an enterprise license at a rate of $100,000 per month for distribution to an unlimited number of non-professional subscribers only.
The proposed enterprise fees for NYSE Arca BBO and NYSE Arca Trades also are reasonable because they could result in a fee reduction for vendors with a large number of professional and non-professional users, as described in the example above. If a vendor has a smaller number of professional users of NYSE Arca BBO and/or NYSE Arca Trades, then it may continue using the per user structure and benefit from the per user fee reductions. By reducing prices for vendors with a large number of professional and non-professional users, the Exchange believes that more vendors may choose to offer NYSE Arca BBO and NYSE Arca Trades, thereby expanding the distribution of this market data for the benefit of investors. The Exchange also believes that offering an enterprise fee will expand the range of options for offering NYSE Arca BBO and NYSE Arca Trades and will allow vendors greater choice in selecting the most appropriate level of data and fees for the professional and non-professional users they are servicing.
The Exchange further believes that the proposed enterprise fees are reasonable because they will simplify billing for certain recipients that have large numbers of professional and non-professional users. Firms that pay the proposed enterprise fees will not have to report the number of users on a monthly basis as they currently do, but rather will only have to count natural person users every six months; this is a significant reduction in administrative burdens and is a significant value. The Exchange believes that it is reasonable to charge a single enterprise fee for clients receiving both NYSE Arca BBO and NYSE Arca Trades because the Exchange has charged a single access fee for both products since 2010,
The Exchange believes that the proposed fees are equitable and not unfairly discriminatory because they will be charged uniformly to vendors and users that select these products. The Exchange notes that the fee structure of differentiated professional and non-professional fees has long been used by the Exchange for other products, by other exchanges for their products, and by the CTA and CQ Plans in order to reduce the price of data to retail investors and make it more broadly available.
The proposed technical corrections to the fee schedule will benefit vendors and users by making the fee schedule clearer and easier to understand.
For these reasons, the Exchange believes that the proposed fees are reasonable, equitable, and not unfairly discriminatory.
In accordance with Section 6(b)(8) of the Act,
Competitive markets for listings, order flow, executions, and transaction reports provide pricing discipline for the inputs of proprietary data products and therefore constrain markets from overpricing proprietary market data. The U.S. Department of Justice also has acknowledged the aggressive competition among exchanges, including for the sale of proprietary market data itself. In announcing that the bid for NYSE Euronext by NASDAQ OMX Group Inc. and IntercontinentalExchange Inc. had been abandoned, Assistant Attorney General Christine Varney stated that exchanges “compete head to head to offer real-time equity data products. These data products include the best bid and offer of every exchange and information on each equity trade, including the last sale.”
It is common for broker-dealers to further exploit this recognized competitive constraint by sending their order flow and transaction reports to multiple markets, rather than providing them all to a single market. As a 2010 Commission Concept Release noted, the “current market structure can be described as dispersed and complex” with “trading volume . . . dispersed among many highly automated trading centers that compete for order flow in the same stocks” and “trading centers offer[ing] a wide range of services that are designed to attract different types of market participants with varying trading needs.”
In addition, in the case of products that are distributed through market data vendors, the market data vendors themselves provide additional price discipline for proprietary data products because they control the primary means of access to certain end users. These vendors impose price discipline based upon their business models. For example, vendors that assess a surcharge on data they sell are able to refuse to offer proprietary products that their end users do not or will not purchase in sufficient numbers. Internet portals, such as Google, impose price discipline by providing only data that they believe will enable them to attract “eyeballs” that contribute to their advertising revenue. Similarly, vendors will not offer NYSE Arca BBO or NYSE Arca Trades unless those products will help them maintain current users or attract new ones. For example, a broker-dealer will not choose to offer NYSE Arca BBO or NYSE Arca Trades to its retail customers unless the broker-dealer believes that the retail customers will use and value the data and the provision of such data will help the broker-dealer maintain the customer relationship, which allows the broker-dealer to generate profits for itself. Professional users will not request NYSE Arca BBO or NYSE Arca Trades from market data vendors unless they can use the data for profit-generating purposes in their businesses. All of these operate as constraints on pricing proprietary data products.
The costs of producing market data include not only the costs of the data distribution infrastructure, but also the costs of designing, maintaining, and operating the exchange's transaction execution platform and the cost of regulating the exchange to ensure its fair operation and maintain investor confidence. The total return that a trading platform earns reflects the revenues it receives from both products and the joint costs it incurs. Moreover, an exchange's broker-dealer customers view the costs of transaction executions and market data as a unified cost of doing business with the exchange.
Other market participants have noted that the liquidity provided by the order book, trade execution, core market data, and non-core market data are joint products of a joint platform and have common costs.
Analyzing the cost of market data product production and distribution in isolation from the cost of all of the inputs supporting the creation of market data and market data products will inevitably underestimate the cost of the data and data products. Thus, because it is impossible to obtain the data inputs to create market data products without a fast, technologically robust, and well-regulated execution system, system costs and regulatory costs affect the price of both obtaining the market data itself and creating and distributing market data products. It would be equally misleading, however, to attribute all of an exchange's costs to the market data portion of an exchange's joint products. Rather, all of an exchange's costs are incurred for the unified purposes of attracting order flow, executing and/or routing orders, and generating and selling data about market activity. The total return that an exchange earns reflects the revenues it receives from the joint products and the total costs of the joint products.
The level of competition and contestability in the market is evident in the numerous alternative venues that compete for order flow, including 12 equities self-regulatory organization (“SRO”) markets, as well as internalizing broker-dealers (“BDs”) and various forms of alternative trading systems (“ATSs”), including dark pools and electronic communication networks (“ECNs”). Competition among trading platforms can be expected to constrain the aggregate return that each platform earns from the sale of its joint products, but different platforms may choose from a range of possible, and equally reasonable, pricing strategies as the means of recovering total costs. For example, some platforms may choose to pay rebates to attract orders, charge relatively low prices for market data products (or provide market data products free of charge), and charge relatively high prices for accessing posted liquidity. Other platforms may choose a strategy of paying lower rebates (or no rebates) to attract orders, setting relatively high prices for market data products, and setting relatively low prices for accessing posted liquidity. In this environment, there is no economic basis for regulating maximum prices for one of the joint products in an industry in which suppliers face competitive constraints with regard to the joint offering.
The fact that proprietary data from ATSs, BDs, and vendors can bypass SROs is significant in two respects. First, non-SROs can compete directly with SROs for the production and sale of proprietary data products. Second, because a single order or transaction report can appear in an SRO proprietary product, a non-SRO proprietary product, or both, the amount of data available via proprietary products is greater in size than the actual number of orders and transaction reports that exist in the marketplace. Because market data users can thus find suitable substitutes for most proprietary market data products, a market that overprices its market data products stands a high risk that users may substitute another source of market data information for its own.
Moreover, consolidated data provides two additional measures of pricing discipline for proprietary data products that are a subset of the consolidated data stream. First, the consolidated data is widely available in real-time at $0.50-$1 per month for non-professional users. Second, consolidated data is also available at no cost with a 15- or 20-minute delay. Because consolidated data contains marketwide information, it effectively places a cap on the fees assessed for proprietary data that is simply a subset of the consolidated data (such as NYSE Arca Trades and NYSE Arca BBO). The mere availability of low-cost or free consolidated data provides a powerful form of pricing discipline for proprietary data products that contain data elements that are a subset of the consolidated data by highlighting the optional nature of proprietary products.
Those competitive pressures imposed by available alternatives are clearly evident in the Exchange's proposed pricing. As noted above, the Exchange's proposed per-user fees are lower than NASDAQ's fees. While the Exchange's enterprise fee is higher, the Exchange will permit broader distribution of its data,
In addition to the competition and price discipline described above, the market for proprietary data products is also highly contestable because market entry is rapid and inexpensive. The history of electronic trading is replete with examples of entrants that swiftly grew into some of the largest electronic trading platforms and proprietary data producers: Archipelago, Bloomberg Tradebook, Island, RediBook, Attain, TrackECN, BATS Trading and Direct Edge. Today, BATS and Direct Edge provide certain market data at no charge on their Web sites in order to attract more order flow, and use revenue rebates from resulting additional executions to maintain low execution charges for their users.
Further, data products are valuable to professional users only if they can be used for profit-generating purposes in their businesses and valuable to non-professional users only insofar as they provide information that such users
In establishing the proposed fees, the Exchange considered the competitiveness of the market for proprietary data and all of the implications of that competition. The Exchange believes that it has considered all relevant factors and has not considered irrelevant factors in order to establish fair, reasonable, and not unreasonably discriminatory fees and an equitable allocation of fees among all users. The existence of numerous alternatives to the Exchange's products, including real-time consolidated data, free delayed consolidated data, and proprietary data from other sources, ensures that the Exchange cannot set unreasonable fees, or fees that are unreasonably discriminatory, when vendors and subscribers can elect these alternatives or choose not to purchase a specific proprietary data product if its cost to purchase is not justified by the returns any particular vendor or subscriber would achieve through the purchase.
No written comments were solicited or received with respect to the proposed rule change.
The foregoing rule change is effective upon filing pursuant to Section 19(b)(3)(A)
At any time within 60 days of the filing of such proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings under Section 19(b)(2)(B)
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.
Notice of request for public comment and submission to OMB of proposed collection of information.
The Department of State has submitted the information collection described below to the Office of Management and Budget (OMB) for approval. In accordance with the Paperwork Reduction Act of 1995 we are requesting comments on this collection from all interested individuals and organizations. The purpose of this Notice is to allow 30 days for public comment.
Submit comments directly to the Office of Management and Budget (OMB) up to September 20, 2013.
Direct comments to the Department of State Desk Officer in the Office of Information and Regulatory Affairs at the Office of Management and Budget (OMB). You may submit comments by the following methods:
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Direct requests for additional information regarding the collection listed in this notice, including requests for copies of the proposed collection instrument and supporting documents, to Sydney Taylor, Visa Services, U.S. Department of State, 2401 E. Street NW., L–603, Washington, DC 20522, who may be reached at
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We are soliciting public comments to permit the Department to:
• Evaluate whether the proposed information collection is necessary for the proper functions of the Department.
• Evaluate the accuracy of our estimate of the time and cost burden for this proposed collection, including the validity of the methodology and assumptions used.
• Enhance the quality, utility, and clarity of the information to be collected.
• Minimize the reporting burden on those who are to respond, including the use of automated collection techniques or other forms of information technology.
Please note that comments submitted in response to this Notice are public record. Before including any detailed personal information, you should be aware that your comments as submitted, including your personal information, will be available for public review.
The Department of State will use Form DS–1648 to elicit information from applicants for a renewal of A, G, or NATO visas, excluding A–3, G–5 and NATO–7 applicants. INA sections 101(a)(15)(A) and (G), and 22 CFR 41.25, describe the criteria for these nonimmigrant visa classifications,
The DS–1648 will be submitted electronically to the Department via the internet. The applicant will be instructed to print a confirmation page containing a bar coded record locator, which will be scanned at the time of processing.
Notice is hereby given of the following determinations: Pursuant to the authority vested in me by the Act of October 19, 1965 (79 Stat. 985; 22 U.S.C. 2459), Executive Order 12047 of March 27, 1978, the Foreign Affairs Reform and Restructuring Act of 1998 (112 Stat. 2681,
For further information, including a list of the exhibit objects, contact Paul W. Manning, Attorney-Adviser, Office of the Legal Adviser, U.S. Department of State (telephone: 202–632–6469). The mailing address is U.S. Department of State, SA–5, L/PD, Fifth Floor (Suite 5H03), Washington, DC 20522–0505.
Notice is hereby given of the following determinations: Pursuant to the authority vested in me by the Act of October 19, 1965 (79 Stat. 985; 22 U.S.C. 2459), Executive Order 12047 of March 27, 1978, the Foreign Affairs Reform and Restructuring Act of 1998 (112 Stat. 2681,
For further information, including a list of the exhibit objects, contact Julie Simpson, Attorney-Adviser, Office of the Legal Adviser, U.S. Department of State (telephone: 202–632–6467). The mailing address is U.S. Department of State, SA–5, L/PD, Fifth Floor (Suite 5H03), Washington, DC 20522–0505.
Notice is hereby given of the following determinations: Pursuant to the authority vested in me by the Act of October 19, 1965 (79 Stat. 985; 22 U.S.C. 2459), Executive Order 12047 of March 27, 1978, the Foreign Affairs Reform and Restructuring Act of 1998 (112 Stat. 2681,
For further information, including a list of the exhibit objects, contact Paul W. Manning, Attorney-Adviser, Office of the Legal Adviser, U.S. Department of State (telephone: 202–632–6469). The mailing address is U.S. Department of State, SA–5, L/PD, Fifth Floor (Suite 5H03), Washington, DC 20522–0505.
Notice is hereby given of the following determinations: Pursuant to the authority vested in me by the Act of October 19, 1965 (79 Stat. 985; 22 U.S.C. 2459), Executive Order 12047 of March 27, 1978, the Foreign Affairs Reform and Restructuring Act of 1998 (112 Stat. 2681,
For further information, including a list of the exhibit objects, contact Julie Simpson, Attorney-Adviser, Office of the Legal Adviser, U.S. Department of State (telephone: 202–632–6467). The mailing address is U.S. Department of State, SA–5, L/PD, Fifth Floor (Suite 5H03), Washington, DC 20522–0505.
Notice is hereby given of the following determinations: Pursuant to the authority vested in me by the Act of October 19, 1965 (79 Stat. 985; 22 U.S.C. 2459), Executive Order 12047 of March 27, 1978, the Foreign Affairs Reform and Restructuring Act of 1998 (112 Stat. 2681,
For further information, including a list of the exhibit objects, contact Ona M. Hahs, Attorney-Adviser, Office of the Legal Adviser, U.S. Department of State (telephone: 202–632–6473). The mailing address is U.S. Department of State, SA–5, L/PD, Fifth Floor (Suite 5H03), Washington, DC 20522–0505.
Notice is hereby given of the following determinations: Pursuant to the authority vested in me by the Act of October 19, 1965 (79 Stat. 985; 22 U.S.C. 2459), Executive Order 12047 of March 27, 1978, the Foreign Affairs Reform and Restructuring Act of 1998 (112 Stat. 2681,
For further information, including a list of the exhibit objects, contact Paul W. Manning, Attorney-Adviser, Office of the Legal Adviser, U.S. Department of State (telephone: 202–632–6469). The mailing address is U.S. Department of State, SA–5, L/PD, Fifth Floor (Suite 5H03), Washington, DC 20522–0505.
Federal Aviation Administration (FAA), DOT.
Final Notice of the Process for Limiting Aircraft Data Displayed Via ASDI.
In a proposal published on May 9, 2012, the FAA tentatively identified a process through which aircraft owners and operators could ask the FAA to limit the agency's dissemination of their aircraft data via the FAA's ASDI program.
If you wish to review the background documents or the comments received in this matter, you may go to
The procedures described in this document will take effect on September 20, 2013.
You may direct any questions about adding aircraft to and removing aircraft from the ASDI block list to Mr. Damon Thomas by telephone at (202) 267–5300 or by electronic mail at
On November 18, 2011, the President signed into law H.R. 2112, the “Consolidated and Further Continuing Appropriations Act, 2012,” which provided the U.S. Department of Transportation's appropriation for the balance of fiscal year 2012. Section 119A of that statute provided that:
[n]otwithstanding any other provision of law, none of the funds made available under this Act or any prior Act may be used to implement or to continue to implement any limitation on the ability of any owner or operator of a private aircraft to obtain, upon a request to the Administrator of the [FAA], a blocking of that owner's or operator's aircraft registration number from any display of the [FAA's ASDI and NASSI] data that is made available to the public, except data made available to a Government agency, for the noncommercial flights of that owner or operator.
In light of this appropriation language, the FAA withdrew a prior policy that it published on June 3, 2011, which required owners or operators to submit a Certified Security Concern in order to have their aircraft blocked from the public's view on displays of ASDI and NASSI information. In connection with its withdrawal of the June 3 policy, the FAA published interim procedures by which the owners and operators of aircraft could request that the FAA block information about the operations of their aircraft from release to the public via the FAA's ASDI data feed.
The FAA received eight written comments on the FAA's proposed procedures. Out of the eight commenters, two are generically opposed to blocking aircraft information from the ASDI and NASSI data, and three are generically in favor of the ASDI aircraft blocking program. The three remaining commenters question certain aspects of the program and the FAA's proposal.
The FAA cannot accommodate the two commenters who oppose the blocking of aircraft information from the FAA's ASDI and NASSI data feed. The appropriations provision quoted above clearly precluded the use of appropriated funds to implement or to carry out any limitation on blocking from any display of the FAA's public data feed, on owner or operator request, the aircraft registration number of an aircraft conducting a noncommercial flight. In the absence of appropriated funds, the FAA cannot implement a policy or program that would limit owner or operator ability to block the specified aircraft from the FAA's data feed.
With respect to the commenters who raised questions with respect to the FAA program, an anonymous commenter questions the need and effectiveness of the option to request the blocking of aircraft data at the ASDI subscriber level. This commenter suggests that the convenience of allowing an intermediate level of blocking at the ASDI subscriber level could be counterbalanced by the potential harm from the inadvertent release of ASDI and NASSI data at that level.
In the FAA's notice inviting these comments, the FAA explained the rationale for the ASDI program's two
The National Business Aviation Association (NBAA) inquires about the manner in which the FAA expects to protect blocked aircraft data from subscribers' intentional or inadvertent release. The FAA's agreement with subscribers requires each subscriber to demonstrate to the FAA's satisfaction the subscriber's ability to block selectively the display of any data related to any identified aircraft. In addition, the agreement has historically required ASDI data subscribers to honor the privacy and security interests of airspace system users under the legacy ASDI blocking program. In the notice announcing the FAA's interim policy, the FAA specified that it construes the current agreement to obligate ASDI subscribers to filter any aircraft data at the FAA's direction.
NBAA also asks the FAA to identify clearly a process for removing aircraft from the ASDI block list. The FAA's May 2012 proposal states that the FAA was proposing that it would use the same process for adding as well as removing aircraft from the ASDI block list.
NBAA additionally suggests that the FAA should permit associations to consolidate and forward aircraft blocking and unblocking requests to the FAA. In the FAA's May 2012 proposal, the FAA tentatively determined that requests to block aircraft must come to the FAA from aircraft owners, aircraft operators, or their legally authorized agent and not from associations acting on their behalf. The FAA will adhere to this requirement. In proposing a minimum legal relationship between an ASDI block requestor and the aircraft owner or operator, the FAA determined that the requestor, if he or she is not the actual owner or operator, should have a fiduciary duty to adhere to the owner's or operator's express wishes. This is intended to ensure that the requestor has a legal duty to carry out promptly the owner's or operator's request, and the FAA expects this to result in a very close correlation between owner/operator preference and the composition of the ASDI block list. The FAA continues to believe that the threshold identified in the proposal is appropriate and will promote the ASDI block list's ongoing accuracy.
NBAA further notes that the FAA's proposal does not specify a type of documentation that the FAA needs in order to process a request related to aircraft blocking. The FAA did not prescribe a specific form for blocking and unblocking aircraft principally because the FAA intends this process to be as simple as possible; the FAA does not want to suggest that a particular form is necessary to effect the requesting owner's or operator's wishes. The FAA proposed the minimum amount of information that the FAA expects the program will need to process the request.
• The name of the requestor;
• the registration number(s) of the aircraft to be blocked or unblocked;
• a certification that the requestor is the owner or operator of the specified aircraft or is a legally authorized representative of the aircraft owner or operator;
• a telephone number or electronic mail address to which the FAA can direct any questions about the request; and
• for a request to block one or more aircraft, a statement indicating the requestor's desired level of ASDI blocking—either at the FAA source or at the ASDI subscriber level.
The request must be in writing and delivered either to the designated electronic mail address or to the designated regular mailing address for the ASDI blocking program.
An anonymous commenter asks the FAA to clarify the uses that ASDI subscribers can make of the ASDI data feed. The commenter states that the FAA should permit ASDI subscribers to pass along to “aviation community” users ASDI and NASSI near real time data that is further filtered only to protect basic privacy considerations. The commenter does not consider the aviation community user to correspond to the general public, instead defining the aviation community to include, for example, corporate aircraft operators and fixed base operators and perhaps also including all businesses and commercial entities providing air transportation related services. The commenter also asks that the FAA place no restriction on subscribers' retransmission of historical flight data, including the past operations of aircraft on the ASDI block list.
The permissible uses of ASDI and NASSI data that are subject to subscriber-level blocking is technically a concern that is separate from the present discussion. The notice underlying this matter was limited to the procedures by which aircraft owners and operators can request that the FAA block their aircraft from the ASDI data feed.
Nevertheless, the FAA notes potential pitfalls that could accompany the recommendations of the anonymous commenter. For example, the commenter's definition of an aviation community user could include the flight department of a company that is interested in the aircraft movements of a competitor's aircraft. This could presumably thwart a reason that the competing airspace user sought ASDI blocking in the first place. In addition, the FAA has not previously agreed that ASDI subscribers can display the historical movements of blocked aircraft. Aside from the absence of a clear line as to when such data becomes historical, the FAA did not propose to permit ASDI subscribers to retransmit the historical movements of blocked aircraft, and the commenter's suggestion therefore falls outside the scope of the proposal.
With respect to the procedures for aircraft owner and operator requests to block and unblock aircraft from inclusion in the FAA's ASDI data feed, the FAA concludes as follows:
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• The name of the requestor;
• the registration number(s) of the aircraft to be blocked or unblocked;
• a certification that the requestor is the owner or operator of the specified aircraft or is a legally authorized representative of the aircraft owner or operator;
• a telephone number or electronic mail address to which the FAA can direct any questions about the request; and
• for a request to block one or more aircraft, a statement indicating the requestor's desired level of ASDI blocking—either at the FAA source or at the ASDI subscriber level.
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Federal Aviation Administration (FAA), DOT.
Notice and request for comments.
In accordance with the Paperwork Reduction Act of 1995, FAA invites public comments about our intention to request the Office of Management and Budget (OMB) approval to renew an information collection. 14 CFR part 125 prescribes requirements for issuing operating certificates and for appropriate operating rules. In addition to the statutory basis, the collection of this information is necessary to issue, reissue, or amend applicant's operating certificates and operations specifications.
Written comments should be submitted by October 21, 2013.
Kathy DePaepe at (405) 954–9362, or by email at:
Send comments to the FAA at the following address: Ms. Kathy DePaepe, Room 126B, Federal Aviation Administration, AES–200, 6500 S MacArthur Blvd., Oklahoma City, OK 73169.
Federal Aviation Administration (FAA), DOT.
Notice and request for comments.
In accordance with the Paperwork Reduction Act of 1995, FAA invites public comments about our intention to request the Office of Management and Budget (OMB) approval to renew an information collection. The FAA collects information from airport sponsors and planning agencies in order to administer the Airports Grants Program. Data is used to determine eligibility, ensure proper use of Federal Funds, and ensure project accomplishment.
Written comments should be submitted by October 21, 2013.
Kathy DePaepe at (405) 954–9362, or by email at:
Send comments to the FAA at the following address: Ms. Kathy DePaepe, Room 126B, Federal Aviation Administration, AES–200, 6500 S. MacArthur Blvd., Oklahoma City, OK 73169.
Federal Aviation Administration (FAA), DOT.
Notice and request for comments.
In accordance with the Paperwork Reduction Act of 1995, FAA invites public comments about our intention to request the Office of Management and Budget (OMB) approval to renew an information collection. The FAA collects information from applicants for experimental permits in order to determine whether they satisfy the requirements for obtaining an experimental permit under 14 CFR part 437.
Written comments should be submitted by October 21, 2013.
Kathy DePaepe at (405) 954–9362, or by email at:
Send comments to the FAA at the following address: Ms. Kathy DePaepe, Room 126B, Federal Aviation Administration, AES–200, 6500 S. MacArthur Blvd., Oklahoma City, OK 73169.
Federal Aviation Administration (FAA), DOT.
Notice and request for comments.
In accordance with the Paperwork Reduction Act of 1995, FAA invites public comments about our intention to request the Office of Management and Budget (OMB) approval to renew an information collection. The FAA Office of the Associate Administrator for Commercial Space Transportation (AST) conducts this survey in order to obtain industry input on customer service standards which have been developed and distributed to industry customers.
Written comments should be submitted by October 21, 2013.
Kathy DePaepe at (405) 954–9362, or by email at:
Send comments to the FAA at the following address: Ms. Kathy DePaepe, Room 126B, Federal Aviation Administration, AES–200, 6500 S. MacArthur Blvd., Oklahoma City, OK 73169.
Federal Aviation Administration (FAA), U.S. Department of Transportation (DOT).
Meeting Notice of RTCA Special Committee 206, Aeronautical Information and Meteorological Data Link Services.
The FAA is issuing this notice to advise the public of the thirty-fourth meeting of the RTCA Special Committee 206, Aeronautical Information and Meteorological Data Link Services.
The meeting will be held September 23–27, 8:30 a.m.–5:00 p.m.
The meeting will be held at United Airlines, 233 S. Wacker Drive, Chicago, IL 60606.
The RTCA Secretariat, 1150 18th Street NW., Suite 910, Washington, DC 20036, or by telephone at (202) 330–0652/(202) 833–9339, fax at (202) 833–9434, or Web site at
Pursuant to section 10(a)(2) of the Federal Advisory Committee Act (Pub. L. 92–463, 5 U.S.C., App.), notice is hereby given for a meeting of Special Committee 206. The agenda will include the following:
• Introduction and opening remarks
• Approval of previous meeting minutes and Action item review
• Review and approve meeting agenda
• Sub-Groups status and week's plan
• Presentations
• SESAR Update
• Wake Vortex Safety System: Today and Tomorrow
• Flight Simulation Evaluation of AIS/MET Data Link Services in the Terminal Area
• MIT/LL Winds Study to Support ATC Winds
• SC–214 Briefing
• TOR Changes
• Other business
• Sub-Groups meetings
• Tuesday—SG4: Update on SE2020 Eddy Dissipation Rate (EDR)
• Turbulence Project (9:00–11:00 AM)
• Tuesday—SG1: Open session on wake progress (1:00 PM)
• Thursday—AIS and MET Delivery Architecture Recommendations review
• Sub-Groups reports
• Appoval for AIS and MET Delivery Architecture Recommendations document to enter FRAC
• Action item review
• Future meeting plans and dates
• Industry Coordination: Report on SAE G–10A ARP 6467 SFO
• Other business
• Adjourn
Attendance is open to the interested public but limited to space availability. With the approval of the chairman, members of the public may present oral statements at the meeting.
Persons wishing to present statements or obtain information should contact the person listed in the
Federal Aviation Administration (FAA), U.S. Department of Transportation (DOT).
Notice of RTCA Special Committee 217—Aeronautical Databases Joint with EUROCAE WG–44—Aeronautical Databases.
The FAA is issuing this notice to advise the public of a meeting of RTCA Special Committee 217—Aeronautical Databases being held jointly with EUROCAE WG–44—Aeronautical Databases.
The meeting will be held September 8 through September 13, 2013, from 9:00 a.m. to 5 p.m.
The meeting will be held by Irish Aviation Authority (IAA), IAA Headquarters, The Times Building, 11–12 D'Olier Street, Dublin 2. Ireland
Sophie Bousquet,
Pursuant to section 10(a)(2) of the Federal Advisory Committee Act (Pub. L. 92–463, 5 U.S.C., App.), notice is hereby given for a meeting of RTCA Special Committee 217—Aeronautical Databases held jointly with EUROCAE WG–44—Aeronautical Databases. The agenda will include the following:
• Co-Chairmen's remarks and introductions
• Housekeeping
• Approve minutes from 16th meeting
• Review and approve meeting agenda for 17th meeting
• Schedule and working arrangements for this week
• Review of joint WG–1/WG–2 Action Items
• Update on WorkSpace
• Terms of Reference Date Change Discussion
• Report on July Meeting- European Committee for Standardization (CEN), Technical Committee (TC) 377 “Air Traffic Management” and WG2 “Aerodrome Mapping Data”
• Presentation of WG1 and WG2 conclusions
• Working arrangements for the remaining work
• Review of action items
• Next meetings, dates and locations
• Any other business
• Adjourn
Attendance is open to the interested public but limited to space availability. With the approval of the chairman, members of the public may present oral statements at the meeting. Persons wishing to present statements or obtain information should contact the person listed in the
Federal Aviation Administration (FAA), U.S. Department of Transportation (DOT).
Meeting Notice of RTCA Special Committee 227, Standards of Navigation Performance.
The FAA is issuing this notice to advise the public of the seventh meeting of the RTCA Special Committee 227, Standards of Navigation Performance.
The meeting will be held September 9–13, 2013 from 9:00 a.m.–5:00 p.m. Contact Dave Nakamura by telephone at 425–965–6896 or email
The meeting will be held at RTCA, 1150 18th Street NW., Suite 910, Washington, DC 20036.
The RTCA Secretariat, 1150 18th Street NW., Suite 910, Washington, DC 20036, or by telephone at (202) 330–0662 or (202) 833–9339, fax at (202) 833–9434, or Web site at
Pursuant to section 10(a)(2) of the Federal Advisory Committee Act (Pub. L. 92–463, 5 U.S.C., App.), notice is hereby given for a meeting of Special Committee 227. The agenda will include the following:
Attendance is open to the interested public but limited to space availability. With the approval of the chairman, members of the public may present oral statements at the meeting. Persons wishing to present statements or obtain information should contact the person listed in the
Federal Aviation Administration (FAA), U.S. Department of Transportation (DOT).
Meeting Notice of RTCA Special Committee 224, Airport Security Access Control Systems.
The FAA is issuing this notice to advise the public of the twenty-fourth meeting of the RTCA Special Committee 224, Airport Security Access Control Systems.
The meeting will be held on September 9 from 9:00 a.m.–5:00 p.m.
The meeting will be held at RTCA, Inc., 1150 18th Street NW., Suite 910, Washington, DC 20036.
The RTCA Secretariat, 1150 18th Street NW., Suite 910, Washington, DC 20036, or by telephone at (202) 833–9339, fax at (202) 833–9434, or Web site at
Pursuant to section 10(a)(2) of the Federal Advisory Committee Act (Pub. L. 92–463, 5 U.S.C., App.), notice is hereby given for a meeting of Special Committee 224. The agenda will include the following:
Attendance is open to the interested public but limited to space availability. With the approval of the chairman, members of the public may present oral statements at the meeting. Persons wishing to present statements or obtain information should contact the person listed in the
Federal Aviation Administration (FAA), DOT.
Notice of intent to rule on land release request.
Under the provisions of Title 49, U.S.C. Section 47153(c), notice is being given that the FAA is considering a request from the Starkville Board of Alderman to waive the requirement that a 10.01-acre parcel of surplus property, located at the George M. Bryan Airport, be used for aeronautical purposes.
Comments must be received on or before September 20, 2013.
Comments on this notice may be mailed or delivered in triplicate to the FAA at the following address: Jackson Airports District Office, 100 West Cross Street, Suite B, Jackson, MS 39208–2307.
In addition, one copy of any comments submitted to the FAA must be mailed or delivered to Rodney Lincoln, Airport Manager, at the following address: George M. Bryan Airport, 120 Airport Rd., Starkville, MS 39759.
David Shumate, Program Manager, or Brian Hendry, Community Planner, at the Jackson Airports District Office, 100 West Cross Street, Suite B, Jackson, MS 39208–2307, (601)664–9882. The land release request may be reviewed in person at this same location.
The FAA is reviewing a request by George M. Bryan Airport to release 10.01 acres of surplus property at the Starkville/Oktibbeha County Airport. The property will be purchased by Golden Triangle Planning and Development District for a passive recreation park. The net proceeds from the sale of this property will be used for Airport Improvement Program eligible development.
Any person may inspect the request in person at the FAA office listed above under
Federal Transit Administration, DOT.
Notice of request for comments.
The Federal Transit Administration invites public comment about our intention to request the Office of Management and Budget's (OMB) approval to renew the following information collection:
The information collected enables each SSO agency to monitor each rail transit agency's implementation of the State's requirements as specified in the Program Standard approved by FTA. The
Comments must be submitted before September 20, 2013 A comment to OMB is most effective if OMB receives it within 30 days of publication.
LaStar Matthews, Office of Administration, Office of Management Planning, (202) 366–2295.
Collection of this information enables each SSO agency to monitor each rail transit agency's implementation of the State's requirements as specified in the Program Standard approved by FTA. Without this information, States would not be able to oversee the rail transit agencies in their jurisdictions. Recommendations from the National Transportation Safety Board (NTSB) and the Government Accountability Office (GAO) have encouraged States and rail transit agencies to devote additional resources to these safety activities and safety oversight in general.
SSO agencies also submit an annual certification to FTA that the State is in compliance with Section 5330 and an annual report documenting the State's safety and security oversight activities. States also submit annual grant applications for Federal transit assistance and report quarterly on the progress of those activities. FTA uses the annual information submitted by the States to monitor implementation of the program. If a State fails to comply with Section 5330, FTA may withhold up to five percent of the funds appropriated for use in a State or urbanized area in the State under section 5307. The information submitted by the States ensures FTA's compliance with applicable federal laws, OMB Circular A–102, and 49 CFR Part 18, “Uniform Administrative Requirements for Grants and Cooperative Agreements with State and Local Governments.”
Estimated Total Annual Burden: 177,820 hours.
All written comments must refer to the docket number that appears at the top of this document and be submitted to the Office of Information and Regulatory Affairs, Office of Management and Budget, 725—17th Street NW. Washington, DC 20503, Attention: FTA Desk Officer.
Federal Transit Administration, DOT.
Notice of request for comments.
The Federal Transit Administration invites public comment about our intention to request the Office of Management and Budget's (OMB) approval to renew the following information collection: Transit Investments in Greenhouse Gas and Energy Reduction (TIGGER) Program.
The information collected is necessary to ensure that recipients of TIGGER funds are meeting program objectives and are complying with FTA Circular 5010.1D, “Grant Management Requirements” and other federal requirements. The
Comments must be submitted before September 20, 2013 A comment to OMB is most effective if OMB receives it within 30 days of publication.
LaStar Matthews, Office of Administration, Office of Management Planning, (202) 366–2295.
The information that's currently being collected for this program is submitted as part of the Project Management reporting requirements for TIGGER. The collection of Project Management information provides documentation that the recipients of TIGGER funds are meeting program objectives and are complying with FTA Circular 5010.1D, “Grant Management Requirements” and other federal requirements. Estimated Total Annual Burden: 17,052 hours.
All written comments must refer to the docket number that appears at the top of this document and be submitted to the Office of Information and Regulatory Affairs, Office of Management and Budget, 725—17th Street NW., Washington, DC 20503, Attention: FTA Desk Officer.
Federal Transit Administration (FTA), DOT.
Notice of Funding Availability (NOFA): Solicitation of Project Proposals for the Passenger Ferry Grant Program.
The Federal Transit Administration (FTA) announces the availability of Section 5307 Urbanized Area Formula Grant program funds in support of the Discretionary Passenger Ferry Grant program. This grant opportunity will be funded using $29.9 million in FY 2013 Urbanized Area Formula Grants program funds authorized by the Moving Ahead for Progress in the 21st Century Act (MAP–21), Public Law 112–141, July 6, 2012.
The Passenger Ferry Grant program (Ferry program), as authorized, is available to urbanized areas for the same general authority provided under 49 U.S.C. 5307 (Section 5307). However, within the authority provided to the Secretary of Transportation to develop a competitive process, FTA is limiting this discretionary opportunity to capital projects. These funds constitute a core investment in the enhancement and revitalization of public ferry systems in the Nation's urbanized areas. This notice solicits proposals to compete for Fiscal Year (FY) 2013 funding under the Ferry program and may include additional funds made available under future appropriations.
This notice also includes priorities established by FTA for these discretionary funds, criteria FTA will use to identify meritorious projects for funding, and the process to apply for funding. This announcement is available on the FTA Web site at:
Complete proposals for Ferry program projects must be submitted by 11:59 p.m. EDT on October 21, 2013. All proposals must be submitted electronically through the GRANTS.GOV APPLY function. Any agency intending to apply should initiate the process of registering on the GRANTS.GOV site immediately to ensure completion of registration before the submission deadline. Instructions for applying can be found on FTA's Web site at
Contact the appropriate FTA Regional Office found at
Section 5307(h) of Title 49, United States Code, as established by MAP–21, authorizes FTA's Passenger Ferry Grant program. The program authorizes FTA to solicit grant applications and make grants for eligible projects on a competitive basis subject to the Section 5307 terms and conditions, unless noted otherwise in the competitive solicitation.
Improving and maintaining the Nation's public ferry systems is a key strategic goal of the U.S. Department of Transportation (DOT) and FTA. The Ferry program is intended to contribute to the improvement of the condition of the public ferry systems by providing financial assistance for capital projects. As part of the program and as evidenced in the criteria established for the program, FTA intends to prioritize ferry projects that aim to improve a system's state of good repair and that support the connection of ferry service with multiple modes of transportation, including but not limited to: rail, bus, intercity bus, and private transportation providers.
Eligible proposers and eventual grant applicants under this initiative must be eligible direct recipients of Section 5307 funds engaged in providing a public transportation passenger ferry service. Ferry systems that accommodate cars must also accommodate walk-on passengers.
Under this competitive program, eligible projects are capital projects including ferries, terminals, and related infrastructure. Capital projects include, but are not limited to, the purchase, replacement, or rehabilitation of, ferries and terminals and related equipment. Funds made available under this Notice of Funding Availability (NOFA) may not be used to fund operating expenses, planning, or preventive maintenance. FTA's Section 5307 formula funds may be used for these activities.
Costs will be shared at the following ratio:
i. The Federal share is 80 percent for capital projects with exceptions explained below:
○ The Federal share is 85 percent for net project costs for acquiring vehicles (including clean-fuel or alternative fuel) attributable to compliance with the Clean Air Act (CAA) or attributable to compliance with the Americans with Disabilities Act (ADA) of 1990.
○ The Federal share is 90 percent for net project costs for vehicle-related equipment or facilities (including clean-fuel or alternative-fuel vehicle-related equipment or facilities) attributable to compliance with the Clean Air Act (CAA) or Americans with Disabilities Act (ADA) of 1990.
FTA considers vehicle-related equipment to be equipment on and attached to the vehicle. The award recipient may itemize the cost of specific, discrete, vehicle-related equipment being purchased to be in compliance with ADA or CAA.
After the appropriate Federal share is established, the applicant must provide the local share of the net project cost in
i. Cash from non-governmental sources other than revenues from providing public transportation services;
ii. Non-farebox revenues from the operation of public transportation service, such as the sale of advertising and concession revenues. A voluntary or mandatory fee that a college, university, or similar institution imposes on all its students for free or discounted transit service is not farebox revenue;
iii. Amounts received under a service agreement with a State or local social service agency or private social service organization;
iv. Undistributed cash surpluses, replacement or depreciation cash funds, reserves available in cash, or new capital;
v. Amounts appropriated or otherwise made available to a department or agency of the Government (other than the U.S. Department of Transportation); and
vi. In-kind contribution such as the market value of in-kind contributions integral to the project may be counted as a contribution toward local share.
vii. Revenue bond proceeds for a capital project, with prior FTA approval.
viii. Transportation Development Credits (formerly referred to as Toll Revenue Credits).
Project proposals must be submitted electronically through
Within 24–48 hours after submitting an electronic application, the applicant should receive three email messages from GRANTS.GOV: (1) Confirmation of successful transmission to GRANTS.GOV, (2) confirmation of successful validation by GRANTS.GOV and (3) confirmation of successful validation by FTA. If confirmations of successful validation are not received and a notice of failed validation or incomplete materials is received, the applicant must address the reason for the failed validation, as described in the email notice, and resubmit before the submission deadline. If making a resubmission for any reason, include all original attachments regardless of which attachments were updated and check the box on the supplemental form indicating this is a resubmission.
Complete instructions on the application process can be found at
Proposers are encouraged to begin the process of registration on the GRANTS.GOV site well in advance of the submission deadline. Registration is a multi-step process, which may take several weeks to complete before an application can be submitted. Registered proposers may still be required to take steps to keep their registration up to date before submissions can be made successfully: (1) Registration in the System for Award Management (SAM) is renewed annually and (2) persons making submissions on behalf of the Authorized Organization Representative (AOR) must be authorized in GRANTS.GOV by the AOR to make submissions. Instructions on the GRANTS.GOV registration process are listed in Appendix A.
Proposers may submit one proposal for each project or one proposal containing multiple projects. Proposers submitting multiple projects in one proposal must be sure to clearly define each project by completing a supplemental form for each project. Supplemental forms must be added within the proposal by clicking the “add project” button in Section II of the supplemental form.
Information such as proposer name, Federal amount requested, local match amount, description of areas served, etc. may be requested in varying degrees of detail on both the SF 424 form and supplemental form. Proposers must fill in all fields unless stated otherwise on the forms. Proposers should use both the “Check Package for Errors” and the “Validate Form” validation buttons on both forms to check all required fields on the forms, and ensure that the federal and local amounts specified are consistent. The following information MUST be included on the SF 424 and supplemental forms for all requests for the Ferry program funding:
1. Name of applicant and, if applicable, the specific ferry agency submitting the application.
2. Dun and Bradstreet (D&B) Data Universal Numbering System (DUNS) number.
3. Contact information including: Contact name, title, address, congressional district, fax and phone number, and email address if available.
4. Description of public transportation services including areas currently served by the ferry system, if any.
5. Name of person (s) authorized to apply on behalf of the system (attach a signed transmittal letter) must accompany the proposal.
For complete and up to date guidance on the project information and project evaluation criteria that must be documented, refer to the applicable program on the FTA Web site:
1. Submit an SF–424 with the correct supplemental form attached.
2. State the project title and describe the project scope to be funded in the executive summary.
3. Address whether project will need a Buy America waiver.
4. Choose the type of service provided, project type and fleet information.
5. Address each evaluation criterion separately, demonstrating how the project responds to each criterion.
6. Provide a line-item budget for the total project, with enough detail to indicate the various key components of the project. As FTA may elect to fund only part of some project proposals, the budget should provide for the minimum amount necessary to fund specific project components of independent utility.
7. Provide the Federal amount requested.
8. Document the matching funds, including amount and source of the match (may include local or private sector financial participation in the project).
9. Provide support documentation, including financial statements, bond-ratings, and documents supporting the commitment of non-federal funding to the project, or a timeframe upon which those commitments would be made.
10. Address whether other Federal funds have been sought for the project.
11. Provide a project time-line, including significant milestones such as the date anticipated to issue a request for proposals for the project components or contract for purchase of ferry(s), and actual or expected delivery date or notice of request for proposal and notice to proceed for capital replacement/rehabilitation projects.
12. Provide Congressional district information for the project's place of performance.
Projects will be evaluated by FTA based on the proposals submitted according to the following criteria. Each proposer is encouraged to demonstrate the responsiveness of a project to any and all criteria with the most relevant information that the proposer can provide, regardless of whether such information has been specifically requested, or identified in this notice.
FTA will evaluate each project to determine its need for resources. In addition to the project-specific criteria below, it will include evaluating the project's impact on service delivery and whether the project represents a one-time or periodic need that cannot reasonably be funded from FTA program formula allocations or State and/or local resources.
i. For vessel replacement or rehabilitation projects:
• The age of the asset to be replaced or rehabilitated by the proposed project, relative to its useful life.
• Condition and performance of the asset to be replaced by the proposed project, as ascertained through inspections or otherwise, if available.
ii. For infrastructure (facility) improvements or related-equipment acquisitions:
• The age of the facility or equipment to be rehabilitated or replaced relative to its useful life.
• The degree to which the proposed project will enable the agency to improve the maintenance and condition of the agency's fleet and/or other related ferry assets.
iii. For expansion requests (vessel or facility-related):
• The degree to which the proposed project addresses a current capacity constraint that is limiting the ability of the agency to provide reliable service, meet ridership demands, or maintain vessels and related-equipment in a state of good repair.
In this section, the proposal should also demonstrate the needs of the ferry passengers and discuss how the proposed project will address the identified needs.
In this section, proposals should identify expected project benefits. Possible examples include how the project: will improve the state of good repair of the system, impact ridership, increase reliability of service, improve operations or maintenance capabilities, or provide more mobility options, intermodal connections, or economic benefits to the community. Benefits can be demonstrated quantifiably or qualitatively. Proposers should document, explain or show the benefits in whatever format is reasonable to present them.
In this section, the applicant should describe how the proposed project is consistent with planning documents and local priorities. This will involve assessing whether:
i. The project is consistent with the transit priorities identified in the long-range plan and/or contingency/illustrative projects. Proposer should note if the project could not be included in the financially constrained Transportation Improvement Plan (TIP)/Statewide Transportation Improvement Program (STIP) due to lack of funding (if selected, project must be in federally approved STIP before grant award).
ii. Local support is demonstrated by availability of local match for this and/or related projects and letters of support.
iii. In an area with both ferry and other public transit operators, the proposal demonstrates coordination with and support of other related projects within the proposer's Metropolitan Planning Organization (MPO) or the geographic region within which the proposed project will operate.
In this section, the applicant should describe the extent to which the project is ready to be implemented. This will involve assessing whether:
i. The project is a Categorical Exclusion (CE) or required environmental work has been initiated or completed for construction projects requiring an Environmental Assessment (EA) or Environmental Impact Statement (EIS).
ii. Project implementation plans are ready, including initial design of facility projects.
iii. The TIP/STIP can be amended (evidenced by MPO/State endorsement).
iv. Project funds can be obligated and the project implemented quickly, if selected.
v. The project will require a Buy America waiver.
The applicant demonstrates the ability to carry out the proposed project successfully.
In this section, the applicant should address all of the following points:
i. The proposer has the technical capacity to administer the project.
ii. There are no outstanding legal, technical, or financial issues with the proposer that would make this a high-risk project to implement quickly.
iii. The proposer has good financial systems in place that meet generally acceptable accounting standards that can be audited and has identified the source of local match if selected (no deferred local share will be allowed).
iv. The grantee is in fundable status for grant-making purposes.
The proposals should include information about transfer connections to other modes of transportation, including but not limited to: rail, bus, intercity bus, and private transportation providers. Supporting documentation should include data that supports the number of trips (passengers and vehicles), the number of walk-on passengers, and transfers to other modes (if applicable).
In addition to other FTA staff that may review the proposals, a technical evaluation committee will review proposals under the project evaluation criteria. Members of the technical evaluation committee and other involved FTA staff reserve the right to screen and rate the applications it receives and to seek clarification from any applicant about any statement in its application that FTA finds ambiguous and/or request additional documentation to be considered during
After consideration of the findings of the technical evaluation committee, the FTA Administrator will determine the final selection and amount of funding for each project. Geographic diversity and the applicant's receipt of other Federal funding for ferries may be considered in FTA's award decisions. FTA expects to announce the selected projects and notify successful proposers by September 2013.
Ferry program funds are available to eligible direct recipients of Section 5307 funds. There is no minimum or maximum grant award level; however, FTA intends to fund as many meritorious projects as possible. Only proposals from eligible recipients for eligible activities will be considered for funding. Due to funding limitations, proposers that are selected for funding may receive less than the amount originally requested. In those cases, applicants must be able to demonstrate that the proposed projects are still viable and can be completed with the amount awarded.
At the time the project selections are announced, FTA will extend pre-award authority for the selected projects. There is no blanket pre-award authority for these projects before announcement.
If selected, awardees will apply for a grant through FTA's Transportation Electronic Awards Management System (TEAM) and adhere to the customary FTA grant requirements of the Section 5307 Urbanized Area Formula Grant program, including those of FTA Circular 9030.1E, Circular 5010.1D, and the labor protections of 49 U.S.C. Section 5333(b). All discretionary grants, regardless of award amount, will be subject to the Congressional Notification and release process. Technical assistance regarding these requirements is available from each FTA regional office.
FTA requires that all capital procurements meet FTA's Buy America requirements that require all iron, steel, or manufactured products be produced in the U.S., to help create and protect manufacturing jobs in the U.S. The Ferry program will have a significant economic impact toward meeting the objectives of the Buy America law. The Buy America requirements can be found in 49 CFR Part 661. Any proposal that will require a waiver must identify the items for which a waiver will be sought in the application. Applicants should not proceed with the expectation that waivers will be provided.
FTA encourages proposers to notify the appropriate State Departments of Transportation and MPOs in areas likely to be served by the project funds made available under these initiatives and programs. Selected projects must be incorporated into the long-range plans and transportation improvement programs of States and metropolitan areas before they are eligible for FTA funding.
The applicant assures that it will comply with all applicable Federal statutes, regulations, executive orders, FTA circulars, and other Federal administrative requirements in carrying out any project supported by the FTA grant. The applicant acknowledges that it is under a continuing obligation to comply with the terms and conditions of the grant agreement issued for its project with FTA. The applicant understands that Federal laws, regulations, policies, and administrative practices might be modified from time to time and may affect the implementation of the project. The applicant agrees that the most recent Federal requirements will apply to the project, unless FTA issues a written determination otherwise. The applicant must submit the Certifications and Assurances before receiving a grant if it does not have current certifications on file.
Post-award reporting requirements include submission of Federal Financial Reports and Milestone Reports in TEAM on a quarterly basis for all projects.
This program is not subject to Executive Order 12372, “Intergovernmental Review of Federal Programs.” FTA will consider applications for funding only from eligible recipients for eligible projects listed in Section C.
Complete applications must be submitted through GRANTS.GOV by 11:59 p.m. EDT on October 21, 2013. Contact information for FTA's regional offices can be found on FTA's Web site at
Same day. If requested by phone (1–866–705–5711) DUNS is provided immediately. If your organization does not have one, you will need to go to the Dun & Bradstreet Web site at
Three to five business days or up to two weeks. If you already have a TIN, your SAM registration will take 3–5 business days to process. If you are applying for an EIN please allow up to 2 weeks. Ensure that your organization is registered with the
Same day. Complete your AOR (Authorized Organization Representative) profile on Grants.gov and create your username and password. You will need to use your organization's DUNS Number to complete this step.
*Same day. The E-Business Point of Contact (E-Biz POC) at your organization must login to Grants.gov to confirm you as an Authorized Organization Representative (AOR). Please note that there can be more than one AOR for your organization. In some cases the E-Biz POC is also the AOR for an organization.
At any time, you can track your AOR status by logging in with your username and password. Login as an Applicant (enter your username & password you obtained in Step 3) using the following link:
Pipeline and Hazardous Materials Safety Administration (PHMSA), DOT.
List of applications for special permits.
In accordance with the procedures governing the application for, and the processing of, special permits from the Department of Transportation's Hazardous Material Regulations (49 CFR Part 107, Subpart B), notice is hereby given that the Office of Hazardous Materials Safety has received the application described herein. Each mode of transportation for which a particular special permit is requested is indicated by a number in the “Nature of Application” portion of the table below as follows: 1—Motor vehicle, 2—Rail freight, 3—Cargo vessel, 4—Cargo aircraft only, 5—Passenger-carrying aircraft.
Comments must be received on or before September 20, 2013
Comments should refer to the application number and be submitted in triplicate. If confirmation of receipt of comments is desired, include a self-addressed stamped postcard showing the special permit number.
Copies of the applications are available for inspection in the Records Center, East Building, PHH–30, 1200 New Jersey Avenue Southeast, Washington DC or at
This notice of receipt of applications for special permit is published in accordance with Part 107 of the Federal hazardous materials transportation law (49 U.S.C. 5117(b); 49 CFR 1.53(b)).
Pipeline And Hazardous Materials Safety Administration (PHMSA), DOT.
Notice of actions on Special Permit Applications.
In accordance with the procedures governing the application for, and the processing of, special permits from the Department of Transportation's Hazardous Material Regulations (49 CFR part 107, Subpart B), notice is hereby given of the actions on special permits applications in (July to July 2013). The mode of transportation involved are identified by a number in the “Nature of Application” portion of the table below as follows: 1—Motor vehicle, 2—Rail freight, 3—Cargo vessel, 4—Cargo aircraft only, 5—Passenger-carrying aircraft. Application numbers prefixed by the letters EE represent applications for Emergency Special Permits. It should be noted that some of the sections cited were those in effect at the time certain special permits were issued.
Issued in Washington, DC, on August 8, 2013.
Pipeline and Hazardous Materials Safety Administration (PHMSA), DOT.
List of applications for modification of special permits
In accordance with the procedures governing the application for, and the processing of, special permits from the Department of Transportation's Hazardous Material Regulations (49 CFR Part 107, Subpart B), notice is hereby given that the Office of Hazardous Materials Safety has
Comments must be received on or before September 5, 2013.
Comments should refer to the application number and be submitted in triplicate. If confirmation of receipt of comments is desired, include a self-addressed stamped postcard showing the special permit number.
Copies of the applications are available for inspection in the Records Center, East Building, PHH–30, 1200 New Jersey Avenue Southeast, Washington DC or at
This notice of receipt of applications for modification of special permit is published in accordance with Part 107 of the Federal hazardous materials transportation law (49 U.S.C. 5117(b); 49 CFR 1.53(b)).
Pipeline and Hazardous Materials Safety Administration (PHMSA), DOT.
List of applications delayed more than 180 days.
In accordance with the requirements of 49 U.S.C. 5117(c), PHMSA is publishing the following list of special permit applications that have been in process for 180 days or more. The reason(s) for delay and the expected completion date for action on each application is provided in association with each identified application.
Ryan Paquet, Director, Office of Hazardous Materials Special Permits and Approvals, Pipeline and Hazardous Materials Safety Administration, U.S. Department of Transportation, East Building, PHH–30, 1200 New Jersey Avenue Southeast, Washington, DC 20590–0001, (202) 366–4535.
Internal Revenue Service (IRS), Treasury.
Notice and request for comments.
The Department of the Treasury, as part of its continuing effort to reduce paperwork and respondent burden, invites the general public and other Federal agencies to take this opportunity to comment on proposed and/or continuing information collections, as required by the Paperwork Reduction Act of 1995, Public Law 104–13 (44 U.S.C. 3506(c)(2)(A)). Currently, the IRS is soliciting comments concerning regulations governing practice before the Internal Revenue Service.
Written comments should be received on or before October 21, 2013 to be assured of consideration.
Direct all written comments to Yvette B. Lawrence, Internal Revenue Service, room 6129, 1111 Constitution Avenue NW., Washington, DC 20224.
Requests for additional information or copies of the form and instructions should be directed to Gerald J. Shields at Internal Revenue Service, room 6129, 1111 Constitution Avenue NW., Washington, DC 20224, or through the internet at
The following paragraph applies to all of the collections of information covered by this notice:
An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid OMB control number.
Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by 26 U.S.C. 6103.
United States Sentencing Commission.
Notice of final priorities.
In May 2013, the Commission published a notice of possible policy priorities for the amendment cycle ending May 1, 2014. See 78 FR 32533 (May 30, 2013). After reviewing public comment received pursuant to the notice of proposed priorities, the Commission has identified its policy priorities for the upcoming amendment cycle and hereby gives notice of these policy priorities.
Jeanne Doherty, Public Affairs Officer, 202–502–4502,
The United States Sentencing Commission is an independent commission in the judicial branch of the United States Government. The Commission promulgates sentencing guidelines and policy statements for federal sentencing courts pursuant to 28 U.S.C. 994(a). The Commission also periodically reviews and revises previously promulgated guidelines pursuant to 28 U.S.C. 994(o) and submits guideline amendments to the Congress not later than the first day
Pursuant to 28 U.S.C. 994(g), the Commission intends to consider the issue of reducing costs of incarceration and overcapacity of prisons, to the extent it is relevant to any identified priority.
As part of its statutory authority and responsibility to analyze sentencing issues, including operation of the federal sentencing guidelines, the Commission has identified its policy priorities for the amendment cycle ending May 1, 2014. The Commission recognizes, however, that other factors, such as the enactment of any legislation requiring Commission action, may affect the Commission's ability to complete work on any or all of its identified priorities by the statutory deadline of May 1, 2014. Accordingly, it may be necessary to continue work on any or all of these issues beyond the amendment cycle ending on May 1, 2014.
As so prefaced, the Commission has identified the following priorities:
(1) Continuation of its work with Congress and other interested parties on statutory mandatory minimum penalties to implement the recommendations set forth in the Commission's 2011 report to Congress, titled
(2) Review, and possible amendment, of guidelines applicable to drug offenses, including possible consideration of amending the Drug Quantity Table in§ 2D1.1 (Unlawful Manufacturing, Importing, Exporting, or Trafficking (Including Possession with Intent to Commit These Offenses); Attempt or Conspiracy) across drug types.
(3) Continuation of its work with the congressional, executive, and judicial branches of government, and other interested parties, with respect to the Commission's December 2012 report to Congress, titled
(4) Continuation of its work on economic crimes, including (A) a comprehensive, multi-year study of § 2B1.1 (Theft, Property Destruction, and Fraud) and related guidelines, including examination of the loss table and the definition of loss, and (B) consideration of any amendments to such guidelines that may be appropriate in light of the information obtained from such study.
(5) Continuation of its multi-year study of statutory and guideline definitions relating to the nature of a defendant's prior conviction (
(6) Continuation of its comprehensive, multi-year study of recidivism, including (A) Examination of circumstances that correlate with increased or reduced recidivism; (B) possible development of recommendations for using information obtained from such study to reduce costs of incarceration and overcapacity of prisons; and (C) consideration of any amendments to the
(7) Undertaking a multi-year review of federal sentencing practices pertaining to violations of conditions of probation and supervised release, including possible consideration of amending the policy statements in Chapter Seven of the
(8) Possible consideration of amending the policy statement pertaining to “compassionate release,” § 1B1.13 (Reduction in Term of Imprisonment as a Result of Motion by Director of Bureau of Prisons).
(9) Continuation of its work with Congress and other interested parties on child pornography offenses to implement the recommendations set forth in the Commission's December 2012 report to Congress, titled
(10) Implementation of the Violence Against Women Reauthorization Act of 2013, Pub. L. 113–4, and any other crime legislation enacted during the 112th or 113th Congress warranting a Commission response.
(11) Resolution of circuit conflicts, pursuant to the Commission's continuing authority and responsibility, under 28 U.S.C. 991(b)(1)(B) and
(12) Consideration of any miscellaneous guideline application issues coming to the Commission's attention from case law and other sources.
28 U.S.C. 994(a), (o); USSC Rules of Practice and Procedure 5.2.
United States Sentencing Commission.
Notice of final action regarding technical and conforming amendments to federal sentencing guidelines effective November 1, 2013.
On April 30, 2013, the Commission submitted to the Congress amendments to the sentencing guidelines and official commentary, which become effective on November 1, 2013, unless Congress acts to the contrary. Such amendments and the reasons for amendment subsequently were published in the
The Commission has specified an effective date of November 1, 2013, for the amendments set forth in this notice.
Jeanne Doherty, Public Affairs Officer, (202) 502–4502,
The United States Sentencing Commission, an independent commission in the judicial branch of the United States government, is authorized by 28 U.S.C. 994(a) to promulgate sentencing guidelines and policy statements for federal courts. Section 994 also directs the Commission to review and revise periodically promulgated guidelines and authorizes it to submit guideline amendments to Congress not later than the first day of May each year.
Unlike amendments made to sentencing guidelines, amendments to commentary and policy statements may be made at any time and are not subject to congressional review. To the extent practicable, the Commission endeavors to include amendments to commentary and policy statements in any submission of guideline amendments to Congress. Occasionally, however, the Commission determines that technical and conforming changes to commentary and policy statements are necessary. This notice sets forth technical and conforming amendments to commentary and policy statements that will become effective on November 1, 2013.
USSC Rules of Practice and Procedure 4.1.
The Commentary to § 1B1.8 captioned “Application Notes” is amended in Note 3 by striking “(Inadmissibility of Pleas” and inserting “(Pleas”.
The Commentary to § 2M3.1 captioned “Application Notes” is amended in Note 1 by striking “12958” and inserting “13526”.
The Commentary to § 8B2.1 captioned “Background” is amended by striking “805(a)(2)(5)” and inserting “805(a)(5)”.
The Commentary to § 8D1.2 captioned “Application Note” is amended in Note 1 by striking “3561(b)” and inserting “3561(c)”.
This proposed amendment makes certain technical changes to Commentary in the
(1) Application Note 3 to § 1B1.8 (Use of Certain Information) to reflect a change to the heading of Rule 410 of the Federal Rules of Evidence;
(2) Application Note 1 to § 2M3.1 (Gathering or Transmitting National Defense Information to Aid a Foreign Government) to ensure that the Executive Order to which it refers is the most recent Executive Order; and
(3) the Background Commentary to § 8B2.1 (Effective Compliance and Ethics Program) and Application Note 1 to § 8D1.2 (Term of Probation—Organizations) to correct typographical errors in citations to certain statutes.
The Commentary to § 1B1.11 captioned “Background” is amended in the first paragraph by striking “Although aware” and all that follows through “punishment.” and inserting “However, the Supreme Court has held that the
The Commission's policy statement at § 1B1.11 (Use of Guidelines Manual in Effect on Date of Sentencing) provides that the court should apply the Guidelines Manual in effect on the date the defendant is sentenced unless the court determines that doing so would violate the
This proposed amendment updates the Background Commentary to § 1B1.11 to reflect the Supreme Court's decision in
Securities and Exchange Commission.
Final rule.
The Securities and Exchange Commission (“Commission”) is adopting amendments to the net capital, customer protection, books and records, and notification rules for broker-dealers promulgated under the Securities Exchange Act of 1934 (“Exchange Act”). These amendments are designed to address several areas of concern regarding the financial responsibility requirements for broker-dealers. The amendments also update certain financial responsibility requirements and make certain technical amendments.
Michael A. Macchiaroli, Associate Director, at (202) 551–5525; Thomas K. McGowan, Deputy Associate Director, at (202) 551–5521; Randall Roy, Assistant Director, at (202) 551–5522; Raymond Lombardo, Branch Chief, at (202) 551–5755; Sheila Dombal Swartz, Special Counsel, (202) 551–5545; Carrie A. O'Brien, Special Counsel, (202) 551–5640; or Kimberly N. Chehardy, Attorney Advisor, (202) 551–5791; Division of Trading and Markets, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–7010.
The Commission is adopting amendments to the broker-dealer net capital rule (Rule 15c3–1),
The Commission adopted Rule 15c3–3 in 1972 in response to a congressional directive to strengthen the financial responsibility requirements for broker-dealers that hold securities and cash for customers.
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 cash or qualified securities in an account at a bank that is at least equal in value to the net cash owed to customers, including cash obtained from the use of customer securities.
In addition, the customer reserve formula permits the broker-dealer to offset customer credit items only with customer debit items.
A carrying broker-dealer may carry accounts that hold proprietary securities and cash of other broker-dealers (“PAB accounts”). As noted above, broker-dealers are not within the definition of
The treatment of PAB account holders as SIPA customers but not as customers for the purposes of Rule 15c3–3
To address the disparity in treatment between customers and PAB account holders, the Commission proposed amendments to Rules 15c3–3 and 15c3–3a that would have required a broker-dealer that carries PAB accounts to perform a PAB reserve computation with respect to those accounts, generally as of the close of business on the last business day of the week.
Seven commenters responded to the Commission's request for comment on the proposed amendments.
These amendments, in part, incorporate many of the provisions of a no-action letter regarding PAB accounts issued by Commission staff in 1998.
The Commission proposed, among other things, to add paragraph (a)(16) to Rule 15c3–3 that would have defined the term
Another commenter stated that the Commission's desire to close the gap between Rule 15c3–3 and SIPA must be balanced against the potentially significant practical issues the Commission's proposal would raise in the case of accounts carried for affiliated entities operating in non-U.S. jurisdictions.
The goal of the proposed amendments is to create a process that protects Rule 15c3–3 customers and PAB account holders of a failed carrying broker-dealer. The amendments are designed to provide such protection by mitigating the risk that there will be insufficient customer property to fully satisfy all customer claims in a SIPA liquidation. The entitlement of PAB account holders to a
At the same time, the Commission appreciates the need to consider both the practical issues raised by commenters and its objective to eliminate the inconsistency between Rule 15c3–3 and SIPA.
Further, as was proposed, the definition of
Because PAB account holders are not customers for purposes of Rule 15c3–3, a carrying broker-dealer is not required to maintain possession or control of their non-margin securities. Consequently, it has been a long-
Using non-margin securities of PAB account holders presents the risk that securities may increase in market value between PAB reserve computations and, therefore, the amount of the credit items in the formula may be less than the value of the securities for a short period of time. To accommodate industry practice, however, the Commission did not propose amending Rule 15c3–3 to apply the possession or control requirements to PAB accounts. The Commission proposed adding paragraph (b)(5) to Rule 15c3–3 that would have required the carrying broker-dealer to obtain written permission from a PAB account holder before it could use the PAB account holder's securities in the ordinary course of its securities business. In this way, the Commission proposed increasing the protections for PAB account holders without interfering with long-standing industry practice of carrying broker-dealers using the securities of their broker-dealer account holders. However, securities not being used by the broker-dealer must be maintained in accordance with the possession or control requirements of Rule 15c3–3.
One commenter stated that this provision should be eliminated from the proposed amendments, arguing that “[t]he proposal interferes unnecessarily in the contractual arrangements between broker-dealers, which are capable of understanding the terms of standard industry custodial relationships.”
The Commission acknowledges that this change, as compared to the proposed rule, will shift the burden to the PAB account holder to proactively object to the carrying broker-dealer using the account holder's securities. However, the new written notice requirement increases the protections for PAB account holders from the status quo without imposing substantial burdens on existing account relationships. The revised rule is intended to provide to the PAB account holders the opportunity to negotiate different terms if they do not want their securities used, while eliminating the need for, and the costs that would result from, carrying broker-dealers reworking existing contracts.
As adopted, the Commission is modifying the final rule to add the phrase “and has provided an opportunity for the account holder to object” following the phrase “ordinary course of its securities business.”
Finally, the Commission has modified proposed paragraph (b)(5) to clarify in the final rule that a broker-dealer is affirmatively required to maintain possession and control of non-margin securities unless the broker-dealer has provided written notice to the PAB account holder.
The Commission proposed amendments to paragraph (e) of Rule 15c3–3 to require a carrying broker with PAB accounts to establish and maintain a PAB reserve account for PAB accounts, perform a separate PAB reserve computation for PAB accounts, and maintain cash or qualified securities in the PAB reserve account in an amount equal to the PAB reserve requirement.
In addition to specific comments on the proposed rule language, one commenter had other interpretive questions and comments about the proposed PAB requirements.
In addition, the commenter requested the Commission to clarify that existing PAIB reserve accounts need not be re-titled to comply with the proposed amendments.
Finally, the commenter urged the Commission to clarify whether, for purposes of Rule 15c3–1, the term
Finally, the Commission proposed an amendment to Rule 15c3–1
While the Commission did not intend to impose any monitoring requirement on the PAB account holder, the Commission recognizes that the language, as proposed, could have implied such a requirement and agrees with the commenter that a broker-dealer should not be deemed to have violated Rule 15c3–1 with respect to requirements that are solely applicable to the carrying broker-dealer. To address this concern, the Commission has modified the language in paragraph (c)(2)(iv)(E) under Rule 15c3–1 to eliminate the proposed capital charge of Rule 15c3–1 that would have resulted from a failure of a carrying broker-dealer to comply with the PAB requirements in Rule 15c3–3.
Instead, the Commission has adopted amendments to Rule 15c3–1 providing that a broker-dealer need not deduct cash and securities held in a securities account at a carrying broker-dealer except where the account has been subordinated to the claims of creditors of the carrying broker-dealer.
As amended, paragraph (e) of Rule 15c3–3 requires a broker-dealer to deposit cash or qualified securities into the customer or PAB reserve account,
Specifically, as proposed, paragraph (e)(5) of 15c3–3 provided that a carrying broker-dealer would have been required to exclude the amount of cash deposited into reserve accounts at affiliated banks when determining whether it maintained the minimum amount required to be on deposit in the reserve accounts for its customers and PAB account holders. In addition, the proposed amendment would have required a carrying broker-dealer to exclude cash deposited in a reserve account at an unaffiliated bank to the extent the amount of the cash deposited exceeded: (1) 50% of the broker-dealer's excess net capital (based on the broker-dealer's most recently filed FOCUS Report);
The Commission is adopting the amendments with modifications designed to address issues identified by commenters. Twenty-three commenters addressed the proposed amendments.
One commenter also stated that the Commission's distinction between affiliated and unaffiliated banks was not sufficiently supported in the proposing release.
One commenter stated that it took no issue with the proposed restriction on
The Commission recognizes that all banks, whether or not affiliated with a broker-dealer, are subject to regulation by their respective banking regulators. The Commission's continuing concern, however, is that a carrying broker-dealer may not exercise due diligence with the same degree of impartiality and care when assessing the financial soundness of an affiliated bank as it would with an unaffiliated bank.
In some cases, a broker-dealer may have access to more information about an affiliated bank in comparison to an unaffiliated bank for purposes of conducting due diligence. However, having more information would not be of benefit if the individuals making the decision on where to maintain the reserve account are not objective in their decision making. The Commission is concerned that a broker-dealer's decision to hold cash in a reserve account at an affiliated bank may be driven in part by profit or reasons based on the affiliation, regardless of any due diligence it may conduct or the overall safety and soundness of the bank.
In addition, in response to the comments regarding affiliated banks, the Commission notes that substantial numbers of banks have failed or required government assistance in recent years.
This prohibition does not apply to securities on deposit at an affiliated bank, but only cash deposits because, as noted above, the latter are fungible with other deposits carried by the bank and may be freely used in the course of the bank's commercial activities.
In summary, while the Commission acknowledges concerns raised by commenters, the Commission continues to believe that it is appropriate to exclude cash deposited in affiliated banks from the calculation to determine whether a broker-dealer has met its reserve account requirements. Therefore, the final rule excludes the amount of any cash on deposit in an affiliated bank of the broker-dealer from being used to meet the reserve requirements.
As for the limits on the amounts of cash that could be deposited in one unaffiliated bank, some commenters argued that the proposed thresholds were too restrictive. One commenter urged the Commission to reconsider the proposed limits, noting that the proposed amendment will impose significant costs on broker-dealers and potentially adversely impact the broker-dealers' customers.
As stated above, substantial numbers of banks have failed or required government assistance in recent years.
The bank equity capital threshold is the more important metric since it relates directly to the financial strength of the bank, which is the entity holding the account. Thus, this metric more directly addresses the risk at issue: The potential impairment of the bank's ability to quickly return the customer reserve deposit to the broker-dealer.
Second, with respect to the bank equity capital threshold, in response to comments, the Commission has increased the threshold from 10% to 15% of the bank's equity capital. The increase of the threshold to 15% is designed to address concerns raised by commenters that the proposed percentage tests were unduly restrictive in certain respects and should be modified, particularly with respect to large broker-dealers with large deposit requirements. Consequently, the increase from 10% to 15% is designed to mitigate commenters' concerns that the 10% threshold would require broker-dealers to spread out cash deposits over a number of banks, while still providing adequate protection against the risk that arises when a bank's deposit base is overly reliant on a single depositor.
The elimination of the 50% of excess net capital threshold and increase in the bank capital threshold from 10% to 15% is intended to address concerns raised by commenters that they would have to substantially alter their current cash deposit practices in light of the goal of the rule to promote the broker-dealer's ability to have quick access to the deposit.
As proposed, the equity capital threshold would have been based on equity capital “as reported by the bank in its most recent Call Report or Thrift Financial Report.” Under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”),
Two commenters expressed concern about the use of a Call Report to determine a bank's “equity capital” under the rule.
The Commission recognizes that the U.S. branches of some foreign banks may meet the definition of
For these reasons, the Commission is adopting the final rule to exclude, when determining whether a broker-dealer maintains the minimum deposits required under paragraph (e) of Rule 15c3–3, cash deposited with an affiliated bank as well as cash deposited with an unaffiliated bank “to the extent that the amount of the deposit exceeds 15% of the bank's equity capital as reported by the bank in its most recent Call Report or any successor form the bank is required to file by its appropriate Federal banking agency (as defined by section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813)).”
Paragraph (d) of Rule 15c3–3 currently sets forth steps a broker-dealer must take to retrieve securities from non-control locations if there is a shortfall in the fully paid or excess margin securities it is required to hold for its customers. The actions prescribed in the rule do not include a requirement that the broker-dealer obtain possession or control of a fully paid or excess margin security that is reflected on the broker-dealer's stock record as a long position of a customer that allocates to a broker-dealer or non-customer short position. In the simplest case, this occurs when the carrying broker-dealer as principal sells short a security to its own customer. Currently, in such a case, the broker-dealer is not required to have possession or control of the security even though its customer has paid for the security in full. Rather, the broker-dealer must include the mark-to-market value of the security as a credit item in the reserve formula. The broker-dealer can use the cash paid by the customer to purchase the security to make any increased deposit requirement caused by the credit item.
To address these concerns, the Commission proposed an amendment to Rule 15c3–3 that would have required a broker-dealer to obtain physical possession or control of customer fully paid and excess margin securities that allocate to a broker-dealer short position.
Eleven commenters addressed this proposed amendment.
As discussed above in section II.A.2.ii. of this release, the Commission has determined that a credit item is sufficient to protect PAB account holders if the carrying broker-dealer provides them with notice that it may be using their non-margin securities, as well as the opportunity to object to such use. The use of the non-margin securities of PAB account holders is a long-standing industry practice. In contrast, customers under Rule 15c3–3, which include the carrying broker-dealer's retail customers, have an expectation that the fully paid and excess margin securities reflected on their account statements are, in fact, in the possession or control of the carrying broker-dealer. However, as described above, this expectation may be frustrated where the securities are allocated to a short position carried by the broker-dealer, as the securities are not in the possession or control of the broker-dealer.
This gap in the existing rule, in effect, permits the broker-dealer to partially monetize the customer's security. Also, under some circumstances (
Specifically, as adopted, paragraph (d)(4) of Rule 15c3–3 requires a broker-dealer to take prompt steps to obtain physical possession or control over securities of the same issue and class as those included “on the broker's or dealer's books or records that allocate to a short position of the broker or dealer or a short position for another person, excluding positions covered by paragraph (m) of this section, for more than 30 calendar days. . . .”
Three commenters requested that the Commission clarify that the aging process begins when the Rule 15c3–3 possession and control deficit arises and not when the short transaction is executed.
Rule 15c3–2 requires a broker-dealer holding free credit balances to provide its
The Commission is adopting the amendments substantially as proposed—deleting Rule 15c3–2 and adding paragraph (j)(1) to Rule 15c3–3. The Commission believes it is appropriate to eliminate Rule 15c3–2 as a separate rule because it is largely irrelevant in light of the requirements in Rule 15c3–3. Further, the provisions in Rule 15c3–2 that the Commission wishes to retain are being re-codified in Rule 15c3–3. These provisions include the requirement that broker-dealers inform customers of the amounts due to them and that such amounts are payable on demand.
Free credit balances are funds payable by a broker-dealer to its customers on demand.
The Commission proposed amendments to Rule 15c3–3 that would have established conditions required to be met in order for a broker-dealer to use or transfer free credit balances in a customer's securities account.
As proposed, the first sentence of paragraph (j)(2) of the rule would have established the prohibition with respect to the treatment of free credit balances by providing that “[i]t shall be unlawful for a broker or dealer to convert, invest, or otherwise transfer to another account or institution, free credit balances held in a customer's account except as provided in paragraphs (j)(2)(i), (ii) and (iii).”
In response to the comment, as a preliminary matter, cash balances in customer securities accounts must be included as credits in the customer reserve formula. Further, the net amount of the credits over debits must be deposited in a customer reserve account in the form of cash or qualified securities. However, cash credit items that are net of debit items can be used by the broker-dealer for the limited purpose of facilitating transactions of its customers.
The Commission is adopting paragraph (j)(2) of Rule 15c3–3 with certain technical modifications.
As proposed, paragraph (j)(2)(i) of Rule 15c3–3 would have permitted a broker-dealer to convert, invest or otherwise transfer to another account or institution free credit balances held in a customer's account only upon a specific order, authorization, or draft from the customer, and only in the manner, and under the terms and conditions, specified in the order, authorization, or draft.
The Commission proposed paragraph (j)(2)(i) in order to comprehensively cover the range of possibilities with respect to the disposition of free credit balances in a customer account other than pursuant to a sweep program. The Commission received two comments recommending that proposed paragraph (j)(2)(i) be clarified to permit a broker-dealer to obtain a one-time consent to ongoing transfers of any free credit balances to a customer to another account, entity or product (outside of a sweep program).
Finally, one commenter stated that both regulators and firms need the flexibility to remove funds from a reserve account to cover extraordinary requests for payment of customer free credit balances.
The second and third set of conditions in the proposed rules addressed using or transferring free credit balances in the context of a sweep program.
1. The customer has previously affirmatively consented to such treatment of the free credit balances after being notified of the different general types of money market mutual fund and bank account products in which the broker or dealer may transfer the free credit balances and the applicable terms and conditions that would apply if the broker or dealer changes the product or type of product in which free credit balances are transferred;
2. The broker or dealer provides the customer on an ongoing basis with all disclosures and notices regarding the investment and deposit of free credit balances as required by the self-regulatory organizations for which the broker or dealer is a member;
3. The broker or dealer provides notice to the customer as part of the customer's quarterly statement of account that the money market mutual funds or bank deposits to which the free credit balances have been transferred can be liquidated on the customer's demand and held as free credit balances; and
4. The broker or dealer provides the customer with at least 30 calendar days notice before the free credit balances would begin being transferred to a different product, different product type, or into the same product but under materially different terms and conditions. The notice must describe the new money market fund, bank deposit type, or terms and conditions, and how the customer can notify the broker or dealer if the customer chooses not to have the free credit balances transferred to the new product or product type, or under the new terms and conditions.
In adopting the final rule, the Commission has made some modifications to the language in the proposed rule in response to commenters and to clarify its application. For clarification and in response to comments, the Commission has defined the term
Commenters raised concerns about limitations on the types of products broker-dealers could use for sweep arrangements under the proposed amendments. Three commenters suggested that the Commission should not limit the types of products broker-dealers can use for sweep arrangements to money market funds and bank deposit products.
Sweep programs provide a mechanism for excess cash in a customer's securities account to be held in a manner that allows the customer to earn interest on the funds but retain the flexibility to quickly access that cash to purchase securities or withdraw it.
Consequently, paragraph (a)(17) of Rule 15c3–3, as adopted, states “[t]he term
Three commenters raised the issue of bulk transfers.
The Commission is modifying paragraph (j)(2)(ii) of Rule 15c3–3 from the proposal to delete the phrase “to either a money market mutual fund as described in § 270.2a–7 of this chapter or an interest bearing account at a bank without a specific order, authorization or draft for each such transfer, provided” and instead to use the term
As adopted, paragraphs (j)(2)(ii)(A) and (B) establish four conditions that must be met to lawfully transfer a customer's free credit balances to a product in a Sweep Program or to transfer a customer's interest directly from one product in a Sweep Program to another product in a Sweep Program. The first condition—set forth in paragraph (j)(2)(ii)(A)—applies only with respect to accounts opened on or after the effective date of the rule. This addresses the burden that would have been associated with having broker-dealers re-document existing accounts. The remaining three conditions—set forth in paragraph (j)(2)(ii)(B)(
Paragraph (j)(2)(ii)(A), as adopted, provides that for an account opened on or after the effective date of the rule, the customer must give prior written affirmative consent to having free credit balances in the customer's securities account included in the Sweep Program after being notified: (1) Of the general terms and conditions of the products available through the Sweep Program; and (2) that the broker or dealer may change the products available under the Sweep Program.
As stated above, the Commission has modified paragraph (j)(2)(ii)(A) in the final rule to read “the customer gives prior written affirmative consent to having free credit balances in the customer's securities account included in the Sweep Program after being notified. . . .”
The Commission received one comment stating that the text of proposed paragraph (j)(2)(ii)(A) that would have required the disclosure of “applicable terms and conditions that will apply if the broker or dealer changes the product or type of product” could be read to require highly specific disclosure about product terms and conditions that may only be established or modified in the future and, therefore, are unknown at the time the customer opens an account with the broker-dealer.
Paragraph (j)(2)(ii)(B), as adopted, prescribes the following three conditions to sweeping the customer's free credit balances in a new or existing account:
• The broker-dealer provides the customer with the disclosures and notices regarding the Sweep Program required by each SRO of which the broker-dealer is a member;
• The broker-dealer provides notice to the customer, as part of the customer's quarterly statement of account, that the balance in the bank deposit account or shares of the money market mutual fund in which the customer has a beneficial interest can be liquidated on the customer's order and the proceeds
• The broker-dealer provides the customer with written notice at least 30 calendar days before: (1) Making changes to the terms and conditions of the Sweep Program; (2) making changes to the terms and conditions of a product currently available through the Sweep Program; (3) changing, adding or deleting products available through the Sweep Program; or (4) changing the customer's investment through the Sweep Program from one product to another; and the notice describes the new terms and conditions of the Sweep Program or product or the new product, and the options available to the customer if the customer does not accept the new terms and conditions or product.
As proposed, paragraph (j)(2)(ii)(B) of Rule 15c3–3 would have required that the broker-dealer provide these disclosures and notices “on an ongoing basis.” Three commenters stated that there are no current SRO requirements that broker-dealers make disclosures concerning sweep arrangements on an “ongoing basis” and that the Commission should clarify the source and meaning of this requirement.
As adopted, paragraph (j)(2)(ii)(B)(
The Commission also modified language in paragraph (j)(2)(ii)(B)(
Proposed paragraphs (j)(2)(ii)(D) and (iii)(C)—now paragraph (j)(2)(ii)(B)(
In addition, paragraphs (j)(2)(ii)(B)(
As adopted, paragraph (j)(2)(ii)(B)(
Some broker-dealers also are registered as futures commission merchants under the Commodity Exchange Act (“CEA”). These firms carry both securities and commodities accounts for customers. The definition of
In response to this question, the Commission notes that the objective of the customer reserve requirement in Rule 15c3–3 is to require broker-dealers to hold sufficient funds or qualified securities to facilitate the prompt return of customer property to customers either before or during a liquidation proceeding if the firm fails.
The Commission received three comments in support of the proposed rule change.
As stated above, this amendment to paragraph (a)(8) of Rule 15c3–3 is designed to clarify that funds held in a commodities account meeting the definition of a
One commenter also suggested that due to the changes to the swap markets mandated by Title VII of the Dodd-Frank Act, swap accounts (in addition to commodities accounts) are now subject to customer protection rules under the CEA.
A broker-dealer is limited to depositing cash or qualified securities into the bank account it maintains to meet its customer (and now PAB account) reserve deposit requirements under Rule 15c3–3. Paragraph (a)(6) of Rule 15c3–3 defines
In response to a petition for rulemaking,
The Commission recently has proposed substantial amendments to its rules on money market funds.
Under SRO portfolio margin rules (“portfolio margin rules”),
Subsequent to the Commission's proposals, the Dodd-Frank Act amended the definitions of
While the Dodd-Frank Act addressed the protection under SIPA of futures and futures options held in a securities portfolio margin account, the Commission's proposed amendments to Rule 15c3–3 and 15c3–3a will still serve an important purpose. In particular, they complement the Dodd-Frank SIPA amendments, and will provide additional protections to customers by requiring broker-dealers to treat these futures positions in accordance with the segregation requirements in Rules 15c3–3 and 15c3–3a. Consequently, the Commission is adopting the amendments with modifications to address, in part, comments.
To accommodate securities and futures portfolio margining, the Commission's proposals included several amendments. First, the Commission proposed amending the definition of
In addition, the Commission proposed amendments to treat the unrealized value of a futures option in a portfolio margin account on the SIPA filing date
The Commission received six comments on the proposed amendments.
The Commission agrees, in part, with the commenter who stated that the Dodd-Frank Act SIPA amendments make the Commission's proposed amendments to Rules 15c3–3 and 15c3–3a unnecessary.
As stated above, however, the remaining rule amendments to Rules 15c3–3 and 15c3–3a complement the amendments to SIPA and provide additional protections to customers. Consequently, the Commission is adopting them with some technical modifications in response to suggestions offered by commenters.
One commenter suggested a change to paragraph (a)(8) of Rule 15c3–3 that would expand the definition of
The amendments to Rule 15c3–3 are designed to provide the same treatment to futures-related cash balances in a portfolio margin account as applies to securities-related cash balances. As discussed above, under Item 1 of Rule 15c3–3a, cash balances that do not meet the definition of
Consequently, to remove any ambiguity as to the effect of the rule changes in response to the comments noted above, the Commission is amending paragraph (a)(9) of Rule 15c3–3—which defines
One commenter suggested changes with respect to the marks to market language in the rule, stating that the phrase relating to daily marks to market be modified to read “variation margin or initial margin marks to market” and the phrase in the proposal that read “proceeds resulting from closing out futures contracts and options thereon” be modified to read “proceeds resulting from margin paid or released in connection with closing out, settling or exercising futures contracts and options thereon.”
Consequently, as adopted, the text in paragraphs (a)(8) and (a)(9) of Rule 15c3–3 expands the terms
On the debit side of the customer reserve formula, the Commission is adopting, substantially as proposed, an amendment to Rule 15c3–3a Item 14 that permits a broker-dealer to include as a debit item the amount of customer margin required and on deposit at a derivatives clearing organization related to futures positions carried in a portfolio
Finally, one commenter suggested changes to Commission rules beyond those in the proposing release. This commenter urged the Commission to consider amending Rules 8c–1, 15c2–1, and 15c3–3 to provide that their provisions could be waived by customers that are entitled to engage in derivative transactions in a portfolio margin account, provided the customer agrees in writing to waive SIPA protection.
In the proposing release, the Commission noted two concerns about stock lending that arose from the failure of the registered broker-dealer MJK Clearing, Inc. (“MJK”);
With respect to the Rule 15c3–1 proposal, the Commission is adopting the amendment, as proposed. This amendment to subparagraph (c)(2)(iv)(B) of Rule 15c3–1 clarifies that broker-dealers providing securities lending and borrowing settlement services are deemed, for purposes of the rule, to be acting as principal and are subject to applicable capital deductions.
The Commission received five comments on the proposed amendment.
One commenter asked for clarification on the timing of when the agent lender must disclose the principal parties to one another in order to disclaim principal liability under the rule.
The Commission also is adding new paragraph (c)(5) to Rule 17a–11 to help identify broker-dealers with highly leveraged non-government securities lending and borrowing and repurchase operations.
One commenter supported the proposed amendment and believes the notification could serve as “an early warning” that a firm is approaching insolvency and generally supports the Commission's efforts to protect customers from broker-dealers who recklessly rely on excessively leveraged transactions.
In the proposing release, the Commission estimated that a leverage threshold of 25 times tentative net capital would be triggered by 21 broker-dealers on a regular basis.
As proposed, the amendment to Rule 17a–11 also would have provided that a broker-dealer that submitted a monthly report of its stock loan and repo activity to its DEA need not file the notices. This provision was designed to accommodate large broker-dealers that are active in this business and regularly maintain stock loan and repo balances that exceed the threshold. The Commission expects that these broker-dealers have experience in managing the risks specific to these types of transactions and have established controls to address those risks. Consequently, a notice under paragraph (c)(5) from these broker-dealers might not be as useful in providing risk assessment information to regulators. Instead, the monthly reports will provide the Commission and other financial regulators with information with which to develop trend analysis, when deemed appropriate. They could use this analysis to identify leverage levels that are outside the normal trend range, and which may be indicative of a material change in the firm's business model that could indicate it was taking on higher levels of leverage, branching into new products, or experiencing operational or financial difficulties (
Three commenters addressed the proposed monthly notification requirement.
A commenter asked the Commission to clarify that the new reporting provision of paragraph (c)(5) of Rule 17a–11 is triggered only by principal activity meeting or exceeding stated thresholds.
It is important for broker-dealers to document the controls they establish for managing the material risk exposures that arise from their business activities. For example, a broker-dealer active in securities lending is exposed to a variety of risks, including market risk,
While most broker-dealers already have well-documented procedures and controls for managing risks as a matter of business practice, it is important to reinforce the practice and make it easier for regulators to understand a broker-dealer's procedures and controls so that they can review whether the broker-dealer is adhering to them. Consequently, the Commission proposed an amendment to Rule 17a-3 that would have required a broker-dealer to create a record documenting its “internal risk management controls.”
Commenters raised concerns that the proposed amendment would be “overly broad and ambiguous”
Commenters also requested that the Commission clarify that, when a broker-dealer is part of a corporate family, risk management controls could be applicable to multiple entities within the corporate family, including the broker-dealer.
Other commenters requested that the Commission clarify that the risk management controls do not have to include any minimum elements
The Commission is not mandating any specific controls, procedures, or policies that must be established by a broker-dealer to manage market, credit, or liquidity risk, nor is it requiring any minimum elements or specifying any procedures that would be required to be included in a firm's market, credit, and liquidity risk management policies. Rather, the Commission is requiring that a control, procedure, or policy be documented if it is in place. Based on staff experience monitoring large broker-dealers, the Commission anticipates that most brokers-dealers that will be subject to this rule already have documented controls, procedures, and policies as part of their overall risk management processes. The purpose of this amendment is not to change the controls, procedures, and policies that are in place, but to require that they be adequately documented.
For the foregoing reasons, paragraph (a)(23) to Rule 17a–3, as adopted, requires certain broker-dealers to make and keep current a record documenting the credit, market, and liquidity risk
The Commission also proposed adding paragraph (e)(9) to Rule 17a–4 to require a broker-dealer to retain the documented risk management controls or procedures until three years after the broker-dealer terminates the use of the system of controls or procedures documented therein. One commenter stated that given the minimal cost of electronic storage, the commenter believes that the retention period could be extended beyond three years.
The Commission is adding paragraph (e)(9) to Rule 17a–4, with a minor modification from the proposed amendment. Specifically, the final rule is modified to require retention of the records until three years after termination of the use of the risk management controls documented therein by replacing the phrase “systems of controls or procedures” with the phrase “risk management controls.”
Finally, one commenter noted that the proposed amendment does not impose any requirements beyond those applicable under Rule 15c3–4.
Under Rule 15c3–1, broker-dealers are required to maintain, at all times, a minimum amount of net capital.
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, taking other capital charges, and adding qualifying subordinated loans.
In the proposing release, the Commission expressed concern that some broker-dealers may be excluding from their calculations of net worth certain liabilities that relate directly to expenses or debts incurred by the broker-dealer.
To address this issue, the Commission proposed—and is now adopting substantially as proposed—an amendment to Rule 15c3–1 to add a new paragraph (c)(2)(i)(F) that will require a broker-dealer, in calculating net capital, to take into account any liabilities that are assumed by a third party if the broker-dealer cannot demonstrate that the third party has the resources—independent of the broker-dealer's income and assets—to pay the liabilities.
The Commission received five comments regarding this proposal.
As with the proposal, the amendment, as adopted, is designed to prohibit a practice that could misrepresent a broker-dealer's actual financial condition, deceive the firm's customers, and hamper the ability of regulators to monitor the firm's financial condition. Moreover, the amendment, as adopted, should not impose undue burdens or present serious implementation difficulties because the requirement is consistent with prior staff guidance regarding the treatment of broker-dealer expenses assumed by a third party.
In response to the comments discussed above, and as the Commission explained in the proposing release, a broker-dealer can demonstrate the adequacy of the third party's financial
Finally, one commenter noted it would be helpful if the Commission would clarify whether this amendment supersedes the Commission staff guidance in the
In the proposing release, the Commission noted its concern that broker-dealers may be receiving capital contributions from investors that are subsequently withdrawn after a short period of time (often less than a year).
Consistent with these Commission and staff positions that capital is not temporary,
The Commission is adopting the final rule amendment with certain modifications. As adopted, the rule requires that a broker-dealer treat as a liability any capital that is contributed under an agreement giving the investor the option to withdraw it. The rule, as adopted, also requires that a broker-dealer treat as a liability any capital contribution that is intended to be withdrawn within one year of its contribution. In addition, the final rule provides that capital withdrawn within one year of contribution is deemed to have been intended to be withdrawn within one year unless the broker-dealer receives permission in writing for the withdrawal from its DEA.
In the final rule, the Commission has modified the proposed language by moving the qualifier that the DEA can approve a withdrawal so that it modifies this presumption. Specifically, as proposed, the rule provided that a contribution of capital had to be subtracted from net worth if it “is
The Commission received five comments regarding the amendment to paragraph (c)(2)(i)(G)(
Another commenter opposed the rule, stating that it contravenes pertinent legal and accounting standards and is unnecessary in view of existing capital withdrawal limitations and notification requirements.
The fifth commenter agreed that there should be no circumstance in which a broker-dealer accepted a capital contribution for net capital purposes that could be withdrawn at the option of the investor.
In response to the commenters' concerns about firms' ability to obtain capital and that the amendment contravenes pertinent legal and accounting standards, the amended rule merely clarifies what constitutes a broker-dealer's permanent capital under Rule 15c3–1 and further emphasizes the requirement that capital contributions cannot be temporary.
The Commission also considered the commenter's suggestion that there be exceptions for
With respect to a commenter's view that the standard for withdrawal should be less than one year (
Moreover, with respect to commenters' concerns about the ability to obtain capital, the rule does not prohibit an investor from withdrawing capital at any time. It prohibits a broker-dealer from treating temporary cash infusions as capital for purposes of Rule 15c3–1. Finally, as stated above, the final rule provides a mechanism for a broker-dealer to apply to its DEA to make a withdrawal without triggering the deduction.
In summary, the Commission is adding paragraph (c)(2)(i)(G) to Rule 15c3–1 to require a broker-dealer to subtract from net worth any contribution of capital to the broker or dealer: “(
Under SRO rules, certain broker-dealers that do business with the public or that are required to become members of SIPC must comply with mandatory fidelity bonding requirements.
Rule 15c3–1, however, does not specifically reference the SRO deductible requirements as a charge to net worth. Therefore, a broker-dealer would not be required to account for the deduction required by an SRO rule in computing net capital under Rule 15c3–1 or in the net capital computation reflected on the broker-dealer's FOCUS report. To address this inconsistency, the Commission proposed to amend Rule 15c3–1 to add paragraph (c)(2)(xiv) to require a broker-dealer to deduct, with regard to fidelity bonding requirements, the amount required by the rules of the broker-dealer's DEA,
SRO rules prescribing fidelity bond deductibles, and capital charges for deductibles in excess of a certain amount, are designed to incentivize broker-dealers to carry fidelity bonds with a deductible low enough to help ensure customer protection. Moreover, in response to the comment that this amendment would increase minimum net capital requirements, the Commission notes that broker-dealers that are members of an SRO with such a fidelity bonding rule already must account for the deduction in complying with the net capital requirements of the SROs and nothing in the Commission's amendment to paragraph (c)(2)(xiv) of Rule 15c3–1 would alter this status quo. Rather, the proposed rule change would conform the capital calculation under paragraph (c)(2)(xiv) of Rule 15c3–1 to that required by the broker-dealer's SRO.
For these reasons, the Commission is adopting paragraph (c)(2)(xiv) to Rule 15c3–1 with technical revisions to the proposed rule text to make the text of
The Commission is adopting an amendment to paragraph (a) of Rule 15c3–1 to require a broker-dealer to cease conducting a securities business if certain insolvency events were to occur. Specifically, as adopted, amended paragraph (a) of Rule 15c3–1 provides that a broker-dealer must not be
As proposed, paragraph (c)(16) of Rule 15c3–1 would have defined the term
In the proposing release, the Commission solicited comment on whether there are other insolvency events that should be captured in the proposed definition.
In addition to the comment discussed above, the Commission received four other comment letters that addressed these amendments.
Another commenter requested that the Commission modify the definition of
One commenter, while supporting the amendment, objected to the incorporation of the definition of
In addition, this commenter also was concerned that under the proposed amendment a firm would be prevented from effecting hedging or liquidating transactions intended to reduce the risk the firm poses to the financial markets and its customers. The commenter noted that such limitations also would be at odds with section 5(a)(2) of SIPA, which contemplates that a broker-dealer that is in, or approaching, financial difficulty may undertake to liquidate or reduce its business either voluntarily or pursuant to the direction of an SRO.
In addition, the Commission is amending the final rule to incorporate within the term
The Commission also is adopting an amendment to the first sentence of paragraph (b)(1) of Rule 17a–11 to require that a broker-dealer meeting the definition of
Paragraph (e) of Rule 15c3–1, which places certain conditions on a broker-dealer when withdrawing capital,
The Commission received three comment letters addressing this proposal.
The second commenter recommended several modifications to the amendment, including: (1) Clarifying that in addition to ordering complete restrictions on withdrawals, advances, and loans, the Commission may also issue orders imposing partial or conditional restrictions; (2) explicitly permitting certain types of withdrawals, advances, or loans, such as those in paragraphs (e)(4)(ii) and (iii) of Rule 15c3–1 (
Finally, the third commenter noted that the proposed amendment would eliminate the 30% requirement limit and allow the Commission to restrict all withdrawals, advances, and loans under specific circumstances.
In response to these comments, the Commission notes that the 30% threshold pertains only to paragraph (e)(3)(i) of Rule 15c3–1, which relates to the Commission's authority to temporarily restrict withdrawals of net capital. The Commission cannot impose these restrictions without concluding under subparagraph (e)(3)(i) that “such withdrawal, advance or loan may be detrimental to the financial integrity of the broker or dealer, or may unduly jeopardize the broker or dealer's ability to repay its customer claims or other liabilities which may cause a significant impact on the markets or expose the customers or creditors of the broker or dealer to loss without taking into account the application of the Securities Investor Protection Act of 1970.”
The Commission, however, agrees with the importance of maintaining flexibility in the context of ordering restrictions on withdrawals, advances, and loans. Therefore, the Commission is modifying the amendment, as adopted, to add language to paragraph (e)(3)(i) to state (following the phrase “employee or affiliate”) that such orders will be issued, “under such terms and conditions as the Commission deems necessary or appropriate in the public interest or consistent with the protection of investors. . . .”
With respect to the suggestion that the Commission clarify in paragraph (e)(3)(ii) of Rule 15c3–1 that a broker-dealer may request and receive a hearing on orders temporarily restricting advances and loans (in addition to withdrawals), under the existing rule, a broker-dealer may request a hearing if the Commission has issued an order temporarily restricting advances and loans by a broker-dealer, in addition to withdrawals, and the Commission is therefore adopting the amendment to paragraph (e)(3)(ii), as proposed.
The Commission is adopting an amendment to Appendix A of Rule 15c3–1, which permits broker-dealers to employ theoretical option pricing models to calculate haircuts for listed options and related positions that hedge those options.
The temporary amendment decreased the range of pricing inputs to the approved option pricing models, which effectively reduced the haircuts applied by the carrying firm with respect to non-clearing option specialist and market maker accounts.
The Commission is adopting an amendment to paragraph (c)(2)(vi)(D)(
The Commission proposed an amendment to reduce the “haircut” that broker-dealers apply under Rule 15c3–1 for money market funds.
The Commission received a total of 14 responses from 12 different commenters regarding this proposed amendment. All of the commenters supported a reduction in the haircut for money market funds and urged that the haircut be reduced below the proposed 1%, with the majority proposing a haircut of 0% for “top-rated” money market funds (
As discussed above in section II.E.6.ii. of this release, the Commission recently proposed substantial amendments to its money market fund rules.
The Commission proposed amendments to Rule 15c3–1 that would have eliminated a reduction to aggregate debit items that certain broker-dealers must take when computing their reserve requirements under Rule 15c3–3.
The Commission received four comment letters regarding these amendments and all were supportive.
The Commission proposed a number of technical amendments to these rules, including changes to the definitions of
Two commenters
The Commission did not receive any comments on the proposed amendments to the definition of
The Commission also has amended other provisions of Rule 15c3–3 to make the rule gender neutral. Finally, the Commission has replaced the word “shall” throughout the rule, as amended, with clearer words, such as “will” or “must.” This change will not change either the nature or substance of the affected rule provisions.
In the proposing release, the Commission requested comment on certain specific matters, in addition to the proposed rule amendments.
The Commission received seven comment letters that addressed the solicitation of comments for these matters.
In addition, the Commission received three comments with respect to harmonizing the net capital deductions required under paragraph (c)(2)(iv)(B) of Rule 15c3–1 for securities lending and borrowing transactions with the deductions required under paragraph (c)(2)(iv)(F) for securities repo transactions.
The Commission also received seven comments in response to the solicitation of comment on how third-party liens against customer fully paid securities carried by a broker-dealer should be treated under the financial responsibility rules, including Rule 15c3–3, Rule 17a–3 and Rule 17a–4.
The Commission will consider the comments received in developing any proposals should the Commission decide to take further action in any of these areas.
Certain provisions of the amendments contain “collection of information” requirements within the meaning of the Paperwork Reduction Act of 1995 (“PRA”).
In response to comments received regarding the proposed amendments in the proposing release, the Commission has modified the language in the final rules being adopted, as discussed above. These comments and their impact on PRA estimates are discussed below. In addition, the initial burden estimates in the proposing release have been adjusted,
Finally, one commenter specifically stated that the estimates the Commission provided utilized only that number of broker-dealers in its estimates that the Commission “justifiably considers to be affected by the proposals.”
The rule amendments contain recordkeeping and disclosure requirements that are subject to the PRA. In summary, the amendments may require a broker-dealer, under certain circumstances, to: (1) Disclose the principals and obtain certain agreements from the principals in a securities lending transaction where it performs settlement services if it is to be
The Commission, its staff, and SROs will use the information collected under the amendments to Rule 15c3–1 and Rule 15c3–3 to determine whether the broker-dealer is in compliance with each rule and to help fulfill their oversight responsibilities. The collections of information would also help to ensure that broker-dealers are meeting their obligations under the rule amendments and have any required policies and procedures in place.
In particular, the record with respect to acting as agent in a securities loan transaction will assist examiners in verifying that the broker-dealer is properly accounting for securities loan deficits under Rule 15c3–1. The records with respect to obtaining DEA approval prior to withdrawing capital within one year of contribution under Rule 15c3–1 will assist examiners in determining if a broker-dealer is computing its net capital accurately with regard to the proper classification of its capital contributions, and will help to ensure the DEA only approves capital withdrawals which are appropriate in light of the firm's current financial condition at the time of the requested withdrawal. The amendments to Rule 15c3–1 also will facilitate the monitoring of the financial condition of broker-dealers by the Commission and its staff, as well as by SROs.
The records with respect to the PAB accounts will assist examiners in verifying that: (1) A carrying broker-dealer has properly excluded certain accounts from being treated as PAB accounts by entering into subordination agreements with particular account holders; (2) a carrying broker-dealer sent written notices to PAB accountholders to use their PAB securities; (3) the broker-dealer performed the PAB reserve computation; and (4) the bank holding the PAB reserve account agreed to do so free of lien by entering into a written contract with the broker-dealer.
The records with respect to customer's free credit balances will assist examiners in verifying that: (1) A carrying broker-dealer has obtained the written affirmative consent of a new customer before including a customer's free credit balances in a Sweep Program; (2) a carrying broker-dealer has provided the required disclosures and notices to all customers with regard to the broker-dealer's Sweep Program; and (3) the broker-dealer has maintained adequate procedures with regard to the use of a customer's free credit balances prior to using such customer's free credit balances in its operations. The amendments to Rule 15c3–3 will facilitate the process by which the Commission, its staff, and SROs monitor how broker-dealers are fulfilling the customer protection requirements of the rule. The written affirmative consent, disclosures and notices required to be provided to customers also will alert customers to the alternatives available to them with respect to their free credit balances.
The Commission, its staff, and SROs will use the information collected under the amendments to Rules 17a–3 and 17a–4 to determine whether the broker-dealer is adhering to its documented credit, market, and liquidity risk management controls, as well as to evaluate the effectiveness of these controls.
The Commission, its staff, and SROs will use the information collected under the amendments to Rule 17a–11 to identify a broker-dealer experiencing financial difficulty. This information will assist the Commission and other regulators in promptly taking appropriate steps to protect customers, creditors, and counterparties. In particular, a notice of insolvency will assist regulators in responding more quickly to protect customers of a failing institution. The notices and reports with respect to securities lending and repos will assist regulators in identifying broker-dealers that are active in these transactions or suddenly take on large positions and thereby assist in monitoring systemic risk.
The final estimates of respondents below have been updated to reflect more recent information.
The amendment to Rule 15c3–1 with respect to a broker-dealer obtaining permission in writing from its DEA prior to withdrawing capital within one year of contribution under Rule 15c3–1 will apply to any broker-dealer who wishes to withdraw such capital. Because most broker-dealers already comply with existing interpretations regarding the treatment of temporary capital contributions and similar SRO requirements, or are familiar with such interpretations and requirements, this part of the amendment to Rule 15c3–1 regarding temporary capital contributions likely will impact only a small number of the approximately 4,709 broker-dealers registered with the Commission, as of December 31, 2011 (based on FOCUS Report data).
The amendments to Rule 15c3–3 requiring a broker-dealer to perform a PAB reserve computation and to obtain certain agreements and notices related to its PAB accounts will affect only those firms that carry such accounts. Based on FOCUS Report data, as of December 31, 2011, the Commission estimates that approximately 61 broker-dealers will carry such accounts.
The Commission estimates that the amendment to Rule 15c3–3 permitting a broker-dealer to exclude certain accounts from being treated as PAB accounts under Rule 15c3–3 by entering into subordination agreements with certain account holders will apply to all 61 broker-dealers that will carry such accounts. The Commission estimates that these 61 broker-dealers each will enter into an average of 11 subordination agreements.
The amendments to Rules 17a–3 and 17a–4 requiring a broker-dealer to make and maintain records documenting the credit, market and liquidity risk management control for analyzing and managing risks will apply only to firms that have more than $1,000,000 in aggregate credit items, or $20,000,000 in capital. Thus, its impact will be limited to larger broker-dealers. Accordingly, the number of respondents will equal the number of broker-dealers meeting the thresholds set forth in the amendment. The Commission estimates that approximately 490 broker-dealers will meet at least one of these thresholds.
One amendment to Rule 17a–11 will require a broker-dealer to provide the Commission with notice if it becomes subject to certain insolvency events. The Commission estimates that approximately two broker-dealers will become subject to one of these events in a given year.
The amendments to paragraph (c)(2)(iv)(B) of Rule 15c3–1 will require a broker-dealer to make disclosures to,
As discussed above in section II.C. of this release, the Commission, in recognition of standard stock loan agreements, designed the amendment to accommodate the continued use of these industry model agreements by incorporating their use into the rule's requirements. For the purpose of establishing a broker-dealer's status as agent or lender, these agreements may be sufficiently detailed to satisfy the new requirements. Thus, the standard agreement used by the vast majority of broker-dealers may contain the representations and disclosures required by the amendment. Nevertheless, based on staff experience with securities lending agreements and disclosure and the application of Rule 15c3–1, the Commission continues to believe that a small percentage of broker-dealers may need to modify their standard agreements. In the proposing release, the Commission estimated that 5%
The amendment to paragraph (c)(2)(i)(G)(
The Commission estimates that 90 broker-dealers will seek to obtain permission from their DEA in writing to withdraw capital within one year of its contribution, and that it will take a broker-dealer approximately one hour to prepare and submit the request to its DEA to withdraw capital.
As discussed above in section II.A.2. of this release, in response to comments, the final rule amendment adopted by the Commission excludes from the definition of
In light of comments received
The amendments to Rules 15c3–3 and 15c3–3a require carrying broker-dealers to: (1) Perform a separate reserve computation for PAB accounts (in addition to the reserve computation currently required for Rule 15c3–3 customer accounts); (2) establish and fund a separate PAB reserve account; and (3) obtain and maintain physical possession or control of non-margin securities carried in PAB accounts unless the carrying broker-dealer has provided written notice to the PAB account holders that it will use those securities in the ordinary course of its securities business, and has provided opportunity for the PAB account holder to object to such use.
In the proposing release, the Commission proposed to require that the carrying broker-dealer obtain written permission from a PAB account holder before it could use the securities of the PAB account holder in the ordinary course of its securities business. The Commission estimated that, based on FOCUS Report data, there were approximately 2,533 existing PAB customers, and therefore, broker-dealers would have to amend approximately 2,533 existing PAB agreements.
In response to comments, as discussed above, the Commission determined not to adopt the requirement, as proposed. Instead, paragraph (b)(5) of Rule 15c3–3 requires the carrying broker-dealer to provide PAB account holders with written notice that the account holder's non-margin securities may be used in the ordinary course of its business.
The Commission estimates that a broker-dealer will incur postage costs sending out the required written notice to customers. These carrying broker-dealers likely will use the least cost method to comply with this requirement and may include this notification with other mailings sent to PAB account holders. The Commission, however, conservatively estimates that the postage cost of for each notification, using the current price of first class postage, will be approximately $.46 per document sent. Therefore, the staff estimates that the cost of sending the required written notification to PAB account holders will be approximately $713.
Based on FOCUS Report data, the Commission also estimates that approximately 61 broker-dealers carry PAB accounts, and based upon differences between the
In light of the changes to the final rule amendments which require a broker-dealer to send a written notice, rather than obtain a customer's consent regarding the use of a PAB account holder's securities, the 61 broker-dealers carrying PAB accounts likely will engage outside counsel
The requirements to perform a PAB reserve computation and obtain agreements and notices from banks holding PAB accounts will result in annual burdens based on the number of broker-dealers that hold PAB accounts and the number of times per year these broker-dealers open new PAB reserve accounts. Currently, to obtain the relief provided in the
The amendment requiring a PAB reserve computation will produce a one-time burden. Based on FOCUS Report data, as of December 31, 2011, the Commission estimates that approximately 61 broker-dealers will perform a PAB reserve computation.
The amendment requiring a PAB reserve computation also will produce an annual burden. Based on FOCUS Report data, the Commission estimates that of the 61 broker-dealers estimated to perform a PAB reserve computation, approximately 56 of the current PAB filers will perform the PAB reserve computation on a weekly basis, two broker-dealers will perform it on a monthly basis, and three broker-dealers will perform the PAB reserve computation on a daily basis.
The Commission proposed importing requirements in Rule 15c3–2 into Rule 15c3–3 and eliminating Rule 15c3–2 as a stand-alone rule in the Code of Federal Regulations, and adopting new paragraph (j)(1) to Rule 15c3–3, which includes a condition that a broker-dealer must establish adequate procedures that will impose a paperwork burden if a broker-dealer wishes to accept or use any free credit balance for the account of any customer of the broker-dealer. The Commission is adopting this amendment substantially as proposed, which provides, “[a] broker or dealer must not accept or use any free credit balance carried for the account of any customer of the broker or dealer unless such broker or dealer has established adequate procedures pursuant to which each customer for whom a free credit balance is carried will be given or sent, together with or as part of the customer's statement of account, whenever sent but not less frequently than once every three months, a written statement informing the customer of the amount due to the customer by the broker or dealer on the date of the statement, and that the funds are payable on demand of the customer.”
The requirement that broker-dealers establish adequate procedures with regard to free credit balances will result in one-time and annual hours burdens for broker-dealers subject to the requirements of new paragraph (j)(1) to Rule 15c3–3. Based on FOCUS Report data, the Commission estimates that 189 broker-dealers carry free credit balances. Most firms may already have such procedures in place with regard to the requirements of the rule, because these provisions are being imported from current Rule 15c3–2, which is being eliminated as a result of these amendments. Therefore, the Commission estimates that a broker-dealer will spend approximately 25 additional hours reviewing and updating its procedures to ensure it is in compliance with new paragraph (j)(1) to Rule 15c3–3 and approximately 10 additional hours per year reviewing and updating its procedures, for a total one-time and annual hour burden of 4,725 hours
New paragraph (j)(2) to Rule 15c3–3 will require a broker-dealer to obtain the written affirmative consent of a new customer before including a customer's free credit balances in a Sweep Program, as well as to provide certain disclosures and notices to all customers with regard to the broker-dealer's Sweep Program.
These requirements will result in one-time and annual burdens to broker-dealers subject to its provisions. However, these requirements will apply only to a firm that carries customer free credit balances and opts to have the ability to change how its customers' free credit balances are treated. The Commission did not receive comments regarding the hour burden estimates relating to the treatment of free credit balances in the proposing release.
In the proposing release, the Commission estimated that approximately 50 broker-dealers
The Commission also estimates that these firms will consult with outside counsel in making these systems changes, particularly with respect to the language in the disclosures and notices under new paragraph (j)(2) to Rule 15c3–3. The Commission estimates that an outside counsel will spend, on average, approximately 50 hours assisting a broker-dealer in updating its systems
As for the annual hour burden, the Commission estimates, consistent with its estimate in the proposing release, these requirements will impact 5%
The amendments to Rules 17a–3 and 17a–4 will require certain large broker-dealers to make and keep current a record documenting credit, market, and liquidity risk management controls established and maintained by the broker-dealer to assist it in analyzing and managing the risks associated with its business activities. The amendment only will apply to broker-dealers that have more than (1) $1,000,000 in aggregate credit items as computed under the customer reserve formula of Rule 15c3–3, or (2) $20,000,000 in capital, including debt subordinated in accordance with Appendix D to Rule 15c3–1.
As proposed, the amendment would have required a broker-dealer to create a record documenting its “internal risk management controls.”
In the proposing release, the Commission estimated that based on FOCUS Report data, that there would be approximately 517 broker-dealers that would meet the applicability threshold of this amendment ($1,000,000 in credits or $20,000,000 in capital), and therefore would be subject to the proposed rule.
In light of the change in the final rule text to require the documentation of controls established to manage market, credit, and liquidity risk, rather than all of its “internal risk management controls,” the Commission is reducing the final PRA estimate for Rule 17a–3 because the final rule narrows the scope of internal risk management controls the broker-dealer is required to document. Consequently, the change to the final rule should result in a reduction in the one-time hour burden estimate. The rule does not specify the type of controls a broker-dealer must establish to manage these risks. It simply requires the documentation of the procedures the broker-dealer has established. Broker-dealers that are part of holding companies may be subject to procedures that are used globally throughout the organization. As long as the broker-dealer maintains documented procedures of controls pertaining to the designated entity, the requirements of the rule would be met. The one-time hour burden to comply with the rule will vary depending on the size and complexity of a firm. In addition, some larger broker-dealers required to comply with Rule 15c3–4 (Internal Risk Management Control Systems for OTC Derivatives Dealers) already would be required to document their internal risk management control systems related to market, credit, and liquidity risk.
Taking this into account, as well as based on staff experience monitoring compliance of risk management controls of broker-dealers, the Commission estimates that a broker-dealer will spend, on average, approximately 100 hours of employee resources to comply with this amendment to ensure its market, credit, and liquidity risk controls are documented. For the reasons discussed above, including narrowing the scope of the final rule, the estimate of 100 hours reflects a 20% reduction from the estimate in the proposing release of 120 hours. Based on FOCUS Report data, as of December 31, 2011, the Commission estimates there are approximately 490 broker-dealers that would be subject to the final rule amendment (because the firm has $1,000,000 in credits or $20,000,000 in capital). Therefore, the Commission estimates the total one-time burden to broker-dealers will be approximately 49,000 hours.
In addition to the one-time hour burden discussed in the proposing release,
Additionally, the proposing release did not specifically allocate the estimated hour burdens with respect to the amendments to Rule 17a–3 and 17a–4 between these two rules.
Because the final rule amendment requires a broker-dealer to document its liquidity, credit, and market risk management controls, if it has established such controls, these broker-dealers may incur one-time startup costs to hire outside counsel to review the documented controls to ensure the broker-dealer is meeting the requirements of the rule. Based on staff experience with similar reviews, the Commission estimates that these broker-dealers would incur $2,000 in legal costs,
The amendment to Rule 17a–11 requiring notice when a broker-dealer becomes subject to certain insolvency events will result in irregular filings from a small number of broker-dealers. As noted above, SIPC's 2012 annual report indicates that the average annual number of broker-dealers which have become subject to a liquidation proceeding under SIPA over the last ten years is two. Accordingly, the Commission estimates that approximately two insolvency notices will be sent per year and that a broker-dealer will spend, on average, approximately ten minutes of employee resources to prepare and send the notice.
The amendment to Rule 17a–11 requires broker-dealers engaged in securities lending or repurchase activities to either: (1) File a notice with the Commission and their DEA whenever the total money payable against all securities loaned, subject to a reverse repurchase agreement or the contract value of all securities borrowed or subject to a repurchase agreement, exceeds 2,500% of tentative net capital; or, alternatively, (2) report monthly their securities lending and repurchase activities to their DEA in a form acceptable to their DEA. The Commission did not receive any comments on these specific estimates in the proposing release and continues to believe they are appropriate. As such, the Commission is adopting this amendment with a minor modification that does not impact the collection of information.
In addition, based on FOCUS Report data, as of December 31, 2011, the Commission estimates that approximately one stock loan/borrow notice will be sent per year.
Based on FOCUS Report data, as of December 31, 2011, and staff experience, the Commission estimates that, annually, six broker-dealers will submit the monthly stock loan/borrow report.
These recordkeeping and notice requirements are mandatory with the exception of: (1) The option for a broker-dealer to report monthly its securities lending activities to its DEA in lieu of filing the notice required under paragraph (c)(5) of Rule 17a–11; (2) the option for a broker-dealer to request written approval from its DEA in order to withdraw capital that has been contributed within one year under paragraph (c)(2)(i)(G)(
Some of the information the Commission expects to receive may be confidential information. The information collected under the amendments to Rules 15c3–1, 15c3–3, 17a–3, and 17a–4 would be stored by the broker-dealers and made available to the Commission, Commission staff, and SROs, as required in connection with examinations, investigations, and enforcement proceedings. The information collected under the amendments to Rule 17a–11 would be generated from the internal records of the broker-dealers. It would be provided to the Commission, its staff, and SROs but not on a regular basis (except for the optional monthly reports).
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.
Broker-dealers will send required written notices regarding use of a PAB account holder's securities to its customers, as required by Rule 15c3–3.
One amendment to Rule 15c3–1 will require broker-dealers to make disclosures to principals and obtain agreements from principals with respect to securities lending transactions where the broker-dealer acts as agent. In addition, the amendment to Rule 15c3–3 to define the term
The amendments to Rule 15c3–3 require broker-dealers to provide PAB account holders with written notice that the securities may be used in the ordinary course of its business, obtain the written affirmative consent of a new customer before including a customer's free credit balances in a Sweep Program, and provide certain disclosures and notices to all customers with regard to the broker-dealer's Sweep Program. These agreements relate to the terms and conditions of the maintenance of the customer's account and, accordingly, fall within the record retention requirements of paragraph (c) of Rule 17a–4.
The amendments to Rules 17a–3 and 17a–4 require broker-dealers to document credit, market, and liquidity risk management controls. The amendments to Rule 17a–4 include the establishment of a retention period for these records, which will be until three years after the termination of the use of the risk management controls documented therein under new paragraph (e)(9) of Rule 17a–4. The three-year retention period is designed to document former and current procedures and to provide sufficient opportunity to review the records during the broker-dealer's normal exam cycle.
The amendments to Rule 17a–11 will require broker-dealers to provide notice or report monthly to the Commission and other regulatory authorities under certain circumstances. These notices and reports will constitute communications relating to a broker-dealer's “business as such” and, therefore, will need to be retained for three years.
The Commission is sensitive to the costs and benefits of its rules. When engaging in rulemaking that requires the Commission to consider or determine whether an action is necessary or appropriate in the public interest, section 3(f) of the Exchange Act requires that the Commission consider, in addition to the protection of investors, whether the action will promote efficiency, competition, and capital formation.
In the proposing release,
In adopting the rule amendments, the Commission has been mindful of the associated costs and benefits. The discussion focuses on the Commission's reasons for adopting these amendments, the affected parties, the costs and benefits of the amendments compared to a baseline, and alternative courses of action. The discussion of the costs of the rule amendments includes a discussion of certain implementation burdens and related costs,
Many of the benefits and costs discussed below are difficult to quantify, in particular when discussing enhancements in investor protection. For example, it is unknown how much the amendments to the financial responsibility rules will result in enhanced compliance with those rules. Therefore, much of the discussion is qualitative in nature but, where possible, the Commission has attempted to quantify the costs. However, the inability to quantify these costs and benefits does not mean that the costs and benefits of these rule amendments are any less significant.
As discussed throughout this release, in part in response to comments, the Commission has modified the proposed rules to reduce compliance burdens where consistent with investor protection. In addition, where commenters identified additional costs, the Commission has revised its economic analysis of the final rules to take these costs into account. Finally, the Commission has considered all comment letters received related to the impact of the proposed amendments on efficiency, competition, and capital formation, and responds to these comments in the sections below discussing individual rule amendments.
The regulatory changes adopted today amend requirements that apply to broker-dealers registered with the Commission. The discussion below includes the approximate numbers of broker-dealers that will be affected by today's amendments and a description of the economic baseline against which the costs and benefits, as well as the impact on efficiency, competition, and capital formation, of today's amendments are measured.
The broker-dealers registered with the Commission vary significantly in terms of their size, business activities, and the complexities of their operations. For example, carrying broker-dealers hold customer securities and funds.
In addition, a broker-dealer that does not hold customer securities and/or cash is generally referred to as a “non-carrying broker-dealer.” Non-carrying broker-dealers include “introducing brokers.”
While these amendments will impact investors and markets more generally, the broker-dealer industry is the primary industry directly affected by the rule amendments. In some cases, the amendments impose requirements on certain types of broker-dealers that engage in specific activities. For example, only carrying broker-dealers that carry free credit balances would be subject to the requirements regarding the treatment of free credit balances under paragraph (j) of Rule 15c3–3. All broker-dealers would be subject to the requirements to deduct from net worth certain liabilities or expenses assumed by third parties under Rule 15c3–1.
To establish a baseline for competition among broker-dealers, the Commission looked at the status of the broker-dealer industry detailed below. In terms of size, the following table provides the distribution of broker-dealers by total capital levels and the aggregate total capital within each capital bracket.
According to FOCUS Report data, as of December 31, 2011, there were approximately 4,709 broker-dealers registered with the Commission. Nine broker-dealers hold over half of broker-dealers' total capital. Further, based on FOCUS Report data, as of December 31, 2011, the Commission also estimates that there are approximately 287 broker-dealers that are clearing or carrying firms that do not claim exemptions pursuant to paragraph (k) of Rule 15c3–3. Based on FOCUS Report data, as of December 31, 2011, approximately 189 of these broker-dealers carry free credit balances, while 61 broker-dealers carry PAB accounts.
For the purposes of this economic analysis, the baseline is the current customer protection, net capital, books and records, and notification requirements for broker-dealers promulgated under the Exchange Act and existing interpretations thereunder, and how they affect broker-dealers.
As discussed above in section II.A.1. of this release, Rule 15c3–3—the customer protection rule—in effect mandates a separation of customer assets from broker-dealer assets through two fundamental requirements: (1) That a carrying broker-dealer must maintain physical possession or control over customers' fully paid and excess margin securities; and (2) that a carrying broker-dealer must maintain a reserve of cash or qualified securities
As discussed above in section II.E. of this release, Rule 15c3–1—the net capital rule—requires broker-dealers to maintain a minimum level of net capital (meaning highly liquid capital)
As discussed above in section II.D. of this release, Rule 17a–3 and 17a–4—the books and records rules—require broker-dealers to make and keep current certain records (
The specific requirements as well as the benefits and costs of each amendment and how broker-dealers will be affected are discussed in more detail in the sections below.
As stated above, in the proposing release, the Commission requested comment on estimates and views regarding the costs and benefits for particular types of market participants, as well as any other costs and benefits that may result from the adoption of the proposed rules.
In response to the first commenter's request that the Commission should explicitly examine the alternatives used by regulators in other jurisdictions,
In response to the second commenter, the Commission is publishing updated costs and statistics in this release. The Commission, however, believes that it is unnecessary to reopen the comment period to obtain comment on the updated statistics for several reasons. First, in proposing the rule changes, the Commission included then current estimates in the proposing release. Second, as noted above, the Commission reopened the comment period in 2012.
Further, the costs incurred by a broker-dealer to comply with the rule amendments will generally depend, among other factors, on the size and complexity of its business activities. Because the size and complexity of broker-dealers varies significantly, their costs also could vary significantly. In some cases, the Commission provided in the proposing release, and is providing here, estimates of the average cost per broker-dealer, taking into consideration the variance in size and complexity of the business activities of broker-dealers. In other cases, the cost impact to broker-dealers will depend on whether the broker-dealer is conducting activities that are subject to the rule amendments. For example, the amendments to Rule 15c3–3 will apply, for the most part, only to broker-dealers that carry PAB accounts (
The second commenter also stated that broker-dealers are dealing with relatively static commission and fee schedules in comparison to what they might charge customers, and, as such, broker-dealers will be unable to pass on any cost increases resulting from these rule amendments directly to customers.
As stated above in section IV. of this release, the Commission agrees with the commenter that the broker-dealers directly affected by the rule amendments may be required to implement procedures or modify their written supervisory procedures to comply with the rule amendments. In cases where the rule amendments require a broker-dealer to directly implement or document certain policies and procedures, these hour burdens and costs already are incorporated into the PRA costs discussed above in section IV. of this release, and incorporated into the discussion below.
The Commission estimates that a broker-dealer likely will hire outside counsel to assess the impact of the final rules on the broker-dealer's operations because all broker-dealers may be affected by the final rules, including non-carrying broker-dealers that may be affected by certain amendments, such as the Rule 15c3–1 amendments regarding third party liabilities or temporary capital contributions. Whether a broker-dealer determines to incur such assessment costs will depend on the nature and size of the broker-dealer's business and the range of activities the broker-dealer conducts. Therefore, while the Commission cannot estimate an aggregate assessment cost for all broker-dealers, the Commission estimates that these assessment costs would range approximately from $2,000 to $30,000
This section discusses costs and benefits of the rule amendments for the affected parties against the economic baseline identified above, both in terms of each of the specific changes from the baseline and in terms of the overall impact. In considering costs, benefits, and overall impact, this discussion addresses comments received, modifications made to the proposed amendments, and reasonable alternatives, where applicable.
This section also discusses the Commission's considerations on the burden on competition, and the promotion of efficiency, competition, and capital formation.
Today's amendments to Rules 15c3–3 and 15c3–3a require carrying broker-dealers to: (1) Perform a separate reserve computation for PAB accounts (in addition to the customer reserve computation currently required under Rule 15c3–3);
As discussed above in section II.A.2. of this release, there is a disparity between the customer reserve requirements in Rule 15c3–3 and the treatment of customers in a liquidation proceeding under SIPA.
SIPA customers are entitled to a number of protections if their broker-dealer fails and is liquidated in a SIPA proceeding, including the right to share
The treatment of PAB account holders as customers for the purposes of SIPA but not as customers for the purposes of Rule 15c3–3 increases the risk that, in the event that a carrying broker-dealer is liquidated under SIPA, the claims of all SIPA customers will exceed the amount of customer property available and, thereby, expose the SIPC fund and potentially SIPA customers to losses. In addition, if the customer property is insufficient to satisfy fully all SIPA customer claims, and losses are incurred, the broker-dealer SIPA customers could be potentially placed in financial distress causing adverse effects to the securities markets, in addition to the adverse effects resulting from the failure of the carrying broker-dealer.
The amendments address the disparity between the customer reserve requirements in Rule 15c3–3 and the treatment of customers in a liquidation proceeding under SIPA by requiring broker-dealers to reserve for the amount that credits exceed debits with respect to broker-dealer accounts. The amendments create a process that protects customers and PAB account holders of a failed carrying broker-dealer, and are designed to provide such protection by mitigating the risk that there will be insufficient customer property to fully satisfy all customer claims in a SIPA liquidation. By requiring the protection of PAB account holders (who qualify as customers under SIPA), the amendments to Rule 15c3–3 also reduce the risk that advances from the SIPC fund would be necessary to protect customer claims.
The amendments to Rule 15c3–1 are intended to prevent broker-dealers from including in their net capital amount assets that may not be readily available to be returned to such broker-dealer account holders because the assets would not be subject to the PAB account provisions under Rules 15c3–3 and 15c3–3a. The amendments to Rule 15c3–1 also provide consistency with the exclusions from the definition of PAB account in paragraph (a)(16) of Rule 15c3–3.
Overall, the PAB-related amendments to Rules 15c3–3, 15c3–3a, and 15c3–1 should serve to reduce certain risks to investors and PAB account holders and, thereby, strengthen customer protection. The Commission requested comment on available metrics to quantify these benefits and any other benefits a commenter may identify. The Commission did not receive any comments in response to this request.
Under the no-action relief set forth in the
Incorporation of certain aspects of the
In adopting these amendments, the Commission considered alternatives suggested by commenters on specific provisions of the rule, and incorporated some of these alternative approaches into the final rule amendments.
Two commenters raised concerns about the proposed definition of the term
In response to commenters' concerns and suggested alternatives, the Commission is excluding from the
In addition, in the proposing release, the Commission proposed to require that a carrying broker-dealer obtain written permission from a PAB account holder before it could use the securities of the PAB account holder in the ordinary course of its securities business. One commenter stated that this provision should be eliminated from the proposed amendments, arguing that it interferes unnecessarily in the contractual arrangements between broker-dealers, which are capable of understanding the terms of standard industry custodial relationships and that the
An alternative considered in adopting the PAB-related amendments to Rule 15c3–1 would have required a broker-dealer, when calculating net capital, to deduct from net worth cash and securities held in a securities account at another broker-dealer, if the other broker-dealer does not treat the account, and the assets in the account, in compliance with the applicable PAB requirements of the rule.
The Commission is mindful of the compliance costs associated with the final PAB rule amendments. In particular, the Commission recognizes that, though many requirements of the PAB rule amendments being adopted by the Commission today are incorporated from the
The requirement to enter into a subordination agreement with certain account holders to exclude them from the definition of
As noted above, the Commission requested comment on the proposed cost estimates.
As amended, paragraph (e) of Rule 15c3–3 requires carrying broker-dealers to deposit cash or qualified securities into their customer or PAB reserve account, which must be maintained at a “bank.”
Under paragraph (f) of Rule 15c3–3, a broker-dealer is currently required to obtain a written contract from the bank wherein the bank agrees not to re-lend or hypothecate the qualified securities deposited into the reserve account.
Customer cash deposits may be at risk if a carrying broker-dealer does not exercise due diligence when assessing the financial soundness of an affiliated bank with the same degree of impartiality and care as it would with an unaffiliated bank. The situation where a broker-dealer's cash constitutes a substantial portion of a bank's deposits also poses a risk that some or all of the cash deposits may not be readily available for quick withdrawal by the broker-dealer. Depending on the relative size of the deposit, a lost deposit that is large relative to the broker-dealer's capital could cause the firm to fail.
The amendment to Rule 15c3–3 should serve to reduce certain risks to investors in the event of a bank's failure and, thereby, enhance customer protection. The Commission requested comment on available metrics to quantify these benefits and any other benefits a commenter may identify. Commenters were also requested to identify sources of empirical data that could be used for the proposed metrics. The Commission did not receive any comments in response to these requests.
The current baseline for the amendment to paragraph (e) of Rule 15c3–3 is the existing customer protection requirements under Rule 15c3–3 and interpretations of the rule. Under paragraph (e) of Rule 15c3–3, broker-dealers are currently required to deposit cash or qualified securities into the customer reserve account, which must be maintained at a “bank.” Under current interpretations, broker-dealers are limited in their reserve account cash deposits at parent or affiliated banks to 50% of the broker-dealer's excess net capital or 10% of the bank's equity capital.
As compared to the baseline, the Commission estimates that the incremental costs resulting from this amendment will be limited. Using
Relative to the current baseline, broker-dealers may incur two types of costs. The first type of cost relates to the costs of opening a new account at an unaffiliated bank for broker-dealers that currently hold cash in a reserve account at an affiliated bank. It is difficult to estimate the number of broker-dealers that hold cash reserve deposits at an affiliated bank because FOCUS Report data does not include the names of banks at which broker-dealers maintain their reserve accounts. Therefore, this data is not readily available to the Commission and commenters did not provide it. Based on an analysis of FOCUS Report data as of December 31, 2011, as well as available bank data,
The second type of cost relates to the costs of opening and maintaining multiple bank accounts if the cash deposit exceeds the 15% bank equity capital threshold as defined in the final rule, the likelihood of which the Commission expects to decrease because, with the relaxation of the bank equity capital threshold in the final rule, fewer broker-dealers will be required to open multiple accounts, relative to the current baseline. Broker-dealers, however, may replace these types of cost with the costs of converting cash into qualified securities to meet some or all of their reserve deposit requirements under Rule 15c3–3.
Moreover, in an attempt to reduce search costs, the potential exists that broker-dealers will select one or a few large unaffiliated banks or create networks on the basis of reciprocity between broker-dealers and banks. This could result in a potential concentration of reserve cash deposits at a few banks. If as a result of such concentration, the carrying broker-dealer's deposit constitutes a substantial portion of the bank's total deposits, the risk increases that the bank may not have the liquidity to quickly return the deposit to the broker-dealer. Finally, the affiliated banks that are currently holding and using broker-dealer reserve cash deposits in the course of their business may incur funding costs, resulting from the possible transfer of cash deposits in the reserve account by broker-dealers to unaffiliated banks. These incremental funding costs to the affiliated banks may potentially be offset by the benefit of receiving cash deposits from unaffiliated broker-dealers.
In adopting the final rule, the Commission considered several alternative approaches suggested by commenters. For example, commenters urged the Commission not to adopt the proposed prohibition on broker-dealers maintaining cash in reserve accounts at banks that are affiliates, stating that affiliated banks should be treated the same as unaffiliated banks because both groups are subject to the same financial regulation. One commenter noted that if a broker-dealer must move their reserve accounts to an unaffiliated bank this may require the broker-dealer to enter into new or additional banking relationships to comply with the amendment, which would increase the costs and administrative burdens of those reserve account funds.
Several commenters suggested that the Commission allow cash reserve deposits without percentage restrictions at unaffiliated banks that are well-capitalized or for which a broker-dealer has performed due diligence.
One commenter suggested that the Commission consider higher percentages for cash deposits at large money-center banks.
In the final rule, the language excluding customer and PAB reserve cash deposits at affiliated banks from counting towards a broker-dealer's reserve requirement is being adopted as proposed. As discussed further below, relative to the proposed rule, in the final rule, the Commission eliminated the proposed language that would have excluded the amount of the deposit at an unaffiliated bank that exceeded 50% of a broker-dealer's excess net capital and based on the Commission's expert judgment, increased the bank equity capital threshold from 10% to 15%.
In response to comments on the proposed rule (including comments suggesting a due diligence standard instead of an objective threshold), the Commission modified the final rule text in ways that are designed to substantially mitigate the costs identified by commenters. While the final rule amendment excludes the amount of any cash on deposit at an affiliated bank from being used to meet a broker-dealer's reserve requirement, the Commission eliminated the provision that would have excluded the amount of a deposit that exceeds 50% of a broker-dealer's excess net capital. This provision would have impacted small and mid-size broker-dealers when
The elimination of the broker-dealer excess net capital threshold, combined with the increase of the bank equity capital threshold from 10% to 15%, is intended to substantially mitigate the costs, burdens and inefficiencies that commenters believed would be imposed on small and mid-size broker-dealers if such firms had to open multiple bank accounts as a result of the proposed rule. The rule, as adopted, will allow small and mid-size broker-dealers to maintain reserve accounts at one bank if they so choose, provided that the bank equity capital threshold is not exceeded. In contrast to the proposed thresholds, the final rule amendments should reduce the costs associated with implementing the necessary changes to systems, operations, and contractual agreements related to a broker-dealer's reserve bank accounts.
Further, in response to comments, increasing the threshold from 10% to 15% of the bank's equity capital is intended to address concerns raised by large broker-dealers with large deposit requirements that the 10% threshold would have resulted in increased costs of having to spread out deposits over a number of banks. The decrease in the cost of opening and maintaining multiple accounts resulting from the increased threshold to 15% of the bank's equity capital may counterbalance the increase in the cost of transferring cash deposits to an unaffiliated bank. In summary, the rule, as adopted, with an increase to a 15% threshold will, in the Commission's expert judgment, substantially mitigate the cost concerns raised by commenters, while still providing adequate customer protection consistent with the goal of the rule to promote the broker-dealer's ability to have quick access to the deposit.
With respect to qualified securities, one commenter argued that if a broker-dealer elects to use qualified securities as opposed to cash to meet its reserve requirement, the broker-dealer will likely have a significant amount of additional operational and transactional costs.
In the proposing release, in quantifying costs, the Commission estimated that, of the 216 firms with reserve deposit requirements, only 11 broker-dealers would need to open new bank accounts or substitute cash for qualified securities in an existing reserve account,
One commenter stated that the estimate is inaccurate and arbitrary, and does not take into account situations where a broker-dealer will need to establish numerous banking relationships.
Commenters also stated that the proposed amendments would impose requirements whose costs are not adequately justified by their benefits and that the Commission substantially underestimated the costs.
In quantifying costs, the Commission is increasing its estimate of the number of broker-dealers that will likely incur the cost of opening a new account at an unaffiliated bank (or substituting cash for qualified securities in their reserve accounts) from the estimated 11 broker-dealers in the proposing release to 50 broker-dealers, as described above.
Finally, using FOCUS Report data and top decile bank equity capital data at year end 2011,
The amendment to paragraph (d)(4) of Rule 15c3–3 requires broker-dealers to take prompt steps to obtain possession or control over fully paid and excess margin securities on the broker-dealer's books or records that allocate to a short position of the broker-dealer or a short position for another person, excluding positions covered by paragraph (m) of Rule 15c3–3, for more than 30 calendar days.
The Commission requested comment on available metrics to quantify these benefits and any other benefits a commenter may identify. In particular, the Commission requested comment on whether there would be additional costs to broker-dealers as a consequence of these proposals and whether these proposals would impose costs on other market participants, including broker-dealer customers. The Commission also requested that commenters identify sources of empirical data that could be used for the metrics they proposed. The Commission received one comment in response to these requests.
In response to this comment, modifications were made to the final rule that should mitigate the commenter's concern because the changes were designed to reduce operational burdens and to more closely align the final rule with current regulations related to short sales. More specifically, as discussed in section II.A.4., as adopted, final paragraph (d)(4) of Rule 15c3–3 contains a uniform 30 calendar day period and clarifies that the 30 calendar day period with respect to a syndicate short position established in connection with an offering does not begin to run until the underwriter's participation in the distribution is complete as determined pursuant to Rule 100(b) of Regulation M. In addition, the proposed amendment was designed to require that the aging process commence at the time a deficit in securities allocating to a short position arises. These modifications clarify the rule amendment, while continuing to strengthen customer protections under Rule 15c3–3.
Three commenters argued that the credit item added to the reserve formula computation when a customer's fully paid or excess margin securities are allocated to a short position provides the customer with adequate protection.
The Commission estimates this requirement will result in a one-time cost to firms that carry customer securities to update systems for complying with the possession or control requirements in Rule 15c3–3. Based on FOCUS Report data, as of December 31, 2011, the Commission estimates that approximately 287 broker-dealers carry customer accounts.
In addition to systems costs, broker-dealers may incur other costs to comply with the rule amendment because they may be required to change their existing practices. For example, the amendment could result in some broker-dealers borrowing securities to cover proprietary short positions rather than using customer securities, resulting in increased borrowing costs. However, under the current baseline, when broker-dealers use customer securities to cover short positions they are required to add a credit item in the Rule 15c3–3 reserve formula equal to the value of the securities. This credit item can result in higher reserve deposit requirements, which must be made using the broker-dealer's own capital. Thus, in response to commenters concerns regarding the costs of this amendments,
Today's amendment to Rules 15c3–2 and 15c3–3 imports requirements in Rule 15c3–2
This amendment will benefit broker-dealers by streamlining and consolidating relevant provisions of Rule 15c3–2 into Rule 15c3–3, promoting efficiency in the rulemaking process while not modifying the legal requirements. These provisions include the requirements that broker-dealers inform customers of the amounts due to them and that such amounts are payable on demand, which have been moved to new paragraph (j)(1) of Rule 15c3–3.
The Commission considered reasonable alternatives with regard to the proposed deletion of Rule 15c3–2 and the importation of certain requirements into paragraph (j)(1) of Rule 15c3–3. Not adopting the rule amendment and thus leaving Rule 15c3–2 in the Code of Federal Regulations was a considered alternative. The Commission, however, believes consolidating the relevant provisions in Rule 15c3–3 is a more appropriate alternative because it promotes efficiency in the rulemaking process, and streamlines the Commission's customer protection rules.
The amendments—because they only re-codify provisions of Rule 15c3–2 into Rule 15c3–3
Today, the Commission is adopting the amendment to add new paragraph (j)(2) to Rule 15c3–3 that prohibits a broker-dealer from converting, investing, or transferring to another account or institution, free credit balances held in a customer's account except as provided in paragraphs (j)(2)(i) and (ii) of the rule. As adopted, the amendment defines a
With regard to the treatment of free credit balances outside the context of a Sweep Program, paragraph (j)(2)(i) of Rule 15c3–3 permits a broker-dealer to invest or transfer to another account or institution free credit balances held in a customer's account only upon a specific order, authorization, or draft from the customer, and only in the manner, and under the terms and conditions, specified in the order, authorization, or draft.
With regard to the treatment of free credit balances in the context of a Sweep Program, new paragraph (j)(2)(ii) of Rule 15c3–3 requires broker-dealers to meet conditions that vary depending on the date when a customer's account was opened. For accounts opened on or after the effective date of the rule, a broker-dealer must meet the conditions of (j)(2)(ii)(A) and (B) of the rule. For any account, the broker-dealer must meet the conditions in paragraphs (j)(2)(ii)(B) of the rule. Under paragraph (j)(2)(ii)(A), for accounts opened on or after the effective date of the rule, the amendment to Rule 15c3–3 requires a broker-dealer to obtain the written affirmative consent of a new customer to have free credit balances in the customer's securities account included in the Sweep Program. Under paragraph (j)(2)(ii)(B), a broker-dealer must comply with the remaining three conditions for any account: (1) Providing the customer with the disclosures and notices regarding the Sweep Program required by each SRO of which the broker-dealer is a member; (2) providing notice to the customer, as part of the customer's quarterly statement of account, that the balance in the bank deposit account or shares of the money market mutual funds in which the customer has a beneficial interest can be liquidated on the customer's order and the proceeds returned to the securities account or remitted to the customer; and (3) providing the customer written notice at least 30 calendar days before the broker-dealer makes certain changes to the Sweep Program and describes the options available to the customer if the customer does not accept the new terms and conditions or product.
Free credit balances constitute money that a broker-dealer owes its customers. Customers may maintain these balances at the broker-dealer in anticipation of future stock purchases. Under current practices, customer account agreements set forth how the broker-dealer will invest these balances. For example, the broker-dealer may sweep them into a money market fund or, alternatively, pay an amount of interest on the funds. On occasion, broker-dealers may change the product to which a customer's free credit balances are swept—most frequently from a money market fund to an interest bearing bank account. Because of differences in these two types of products, there may be investment consequences when changing from one to the other.
New paragraph (j)(2) to Rule 15c3–3 should serve to enhance customer protection by prohibiting a broker-dealer from transforming the credit risk faced by a customer through transfer of the broker-dealer's obligation to another entity without the required notice to, or approval from, the customer.
In the absence of new paragraph (j)(2) of Rule 15c3–3, current practices represent the existing baseline. As compared to the baseline, new paragraph (j)(2) to Rule 15c3–3 will enhance customer protection by requiring broker-dealers to obtain the written affirmative consent of a new customer before including a customer's free credit balances in a Sweep Program, as well as to provide certain disclosures and notices to all customers with regard to the broker-dealer's Sweep Program. The Commission requested comment on available metrics to quantify these benefits and any other benefits a commenter may identify. The Commission did not receive any comments in response to this request.
Relative to the baseline, broker-dealers carrying free credit balances will incur incremental one-time and periodic costs (
As stated above in section II.A.5.ii. of this release, the Commission is adopting new paragraph (j)(2) to Rule 15c3–3 with substantial modifications from the proposed rule in response to comments and to clarify certain portions of the rule.
Commenters generally agreed with the fundamental principle embodied in the proposal—that customer free credit balances should not be transferred from an obligation of the broker-dealer to an obligation of another entity without the customer's authorization.
The Commission considered alternatives, including whether to adopt the amendments and, in adopting the final rule, the Commission modified the language in the final rule in response to commenters and to clarify its application. In response to comments that the Commission should ban sweep programs or adopt a “harder stance,” the Commission notes that sweep programs provide a mechanism for excess cash in a customer's securities account to be held in a manner that allows the customer to earn interest on the funds but retain the flexibility to quickly access that cash to purchase securities or withdraw it.
In addition, in response to the comments that the Commission should not limit the types of products broker-dealers can use for sweep accounts to money market funds and bank deposit products,
In response to commenters' concern regarding cost burdens resulting from the application of the affirmative consent requirement to existing accounts, the final rule retains the proposed requirement to require a broker-dealer to obtain a customer's prior affirmative consent for accounts opened on or after the effective date of the rule before transferring the customer's free credit balance to a product in the firm's Sweep Program, and makes explicit that the consent must be in writing. This will provide new customers with the opportunity to evaluate the broker-dealer's Sweep Program before consenting to the transfer of the customer's free credit balances into such program. In the proposing release, the Commission requested comment as to the cost burdens that would result if the condition to obtain a new customer's prior agreement were to be applied to existing customers. One commenter stated that such costs would be substantial because broker-dealers would be required to amend their agreements with existing customers. The Commission considered this alternative and agrees with the commenter that requiring a broker-dealer to amend its existing agreements with customers would be substantial. Therefore, to address the burden that would have been associated with having broker-dealers re-paper existing account documentation, the prior affirmative consent requirement will continue to apply only to accounts opened on or after the effective date of the rule.
However, as discussed above in section II.A.5.ii. of this release, all customers will be provided written notice at least 30 days before a broker-dealer changes certain terms and conditions or products of its Sweep Program. This notice must also contain a description of the options available to the customer if the customer does not accept the new terms and conditions or product. This is intended to benefit new and existing customers by giving them sufficient opportunity to make an informed decision and evaluate the effects of changes in the terms and conditions or product of the sweep program and the options available.
Broker-dealers will incur one-time and periodic costs to implement the changes necessitated by the amendment. These changes include providing customers with the disclosures and notices (including the description of the options available if a customer does not accept the new terms or conditions or product) in order to have the flexibility to change the treatment of customers' free credit balances. This would require that broker-dealers update their systems (including processes for generating customer account statements) to incorporate the necessary changes.
The Commission further estimates that broker-dealers will incur costs to process an affirmative consent for new customers.
Some broker-dealers also are registered as futures commission merchants under the CEA. These firms carry both securities and commodities accounts for customers. The definition of
One commenter requested that the Commission clarify that the relevant definition of
In addition, one commenter stated that, due to the changes to the swap markets mandated by Title VII of the Dodd-Frank Act, swap accounts (in addition to commodities accounts) are now subject to customer protection rules under the CEA. This commenter suggested that the Commission make it clear that funds in swap accounts also do not constitute free credit balances, whether those funds are required to be segregated by rules under the CEA (
The Commission considered reasonable alternatives in adopting the final rule amendment. These alternatives included adopting the proposed rule, with modifications suggested by commenters described above, as well as leaving the current rule in place without the amendments. The Commission believes that the adoption of the final rule is the more appropriate approach at this time because the final rule amendment will benefit broker-dealers that are registered as futures commission merchants by eliminating any ambiguity with respect to such accounts and avoiding situations where they unnecessarily increase reserve amounts.
The Commission does not anticipate that the amendments will result in any costs to broker-dealers and, as funds in certain commodities accounts are not protected under SIPA, will not expose the SIPC fund to increased liabilities. Because this amendment is intended to be a clarification of existing interpretations, broker-dealers are not expected to incur additional costs against the baseline of current Rule 15c3–3 and its existing interpretations. This clarification is designed to provide broker-dealers with more certainty as to the Commission's stated legal requirements.
The amendments to the customer protection rule (Rule 15c3–3) regarding PAB accounts,
In particular, first, the final rule amendment on PAB accounts is intended to fill a gap in the definition of
Second, the final rule amendments regarding the banks where reserve deposits may be held are intended to protect customers' cash deposits by mitigating the risk that the funds in the customer reserve account will not be readily available to be withdrawn by the broker-dealer.
Third, the final rule amendments regarding the allocation of customers' fully paid and excess margin securities to a broker-dealer short position are designed to enhance the customer protection goals of Rule 15c3–3, which seek to ensure that broker-dealers do not use customer assets for proprietary activities.
Fourth, the final rule amendments regarding the importation of Rule 15c3–2 requirements into paragraph (j)(1) of Rule 15c3–3 and the elimination of Rule 15c3–2 streamline the regulatory requirements for broker-dealers. Also, the addition of new paragraph (j)(2) to Rule 15c3–3 is intended to protect a customer's free credit balances from being swept to products or programs without the appropriate approval, notice or disclosure.
Fifth, the final rule amendment establishing that the funds in certain commodities accounts need not be treated as free credit balances or other credit balances may enhance efficiency at the broker-dealers by freeing up cash that may have been required to be
By strengthening requirements designed to protect customer assets, these amendments will mitigate potential exposure to the SIPC fund that is used to make advances to customers whose securities or cash are unable to be returned by a failed broker-dealer. To the extent that the amendments to Rule 15c3–3 achieve this goal, investors might be more willing to transact business in securities with broker-dealers. The possible positive effects on investor participation in the securities markets may promote capital formation as investor assets are able to be allocated more efficiently across the opportunity set.
As discussed above, the Commission recognizes that the amendments to Rule 15c3–3 adopted today may impose certain costs on broker-dealers that might place a burden on competition among broker-dealers. However, the Commission is of the opinion that these costs are justified by the significant benefits described in this economic analysis, as well as in the discussion of the rule amendments above. Amendments to Rule 15c3–3 should not place a burden on competition for non-carrying broker-dealers, which are generally small broker-dealers, because the amendments primarily affect broker-dealers that perform PAB and customer reserve computations, carry customer accounts, and carry free credit balances. In addition, for those carrying broker-dealers that already follow the
As discussed in section II.B. of this release, the Commission is adopting amendments to Rule 15c3–3 to accommodate futures positions in a securities account that is margined on a portfolio basis. The amendments revise the definition of free credit balances and other credit balances in paragraphs (a)(8) and (a)(9) of Rule 15c3–3, respectively, by expanding these definitions to include funds in a portfolio margin account relating to certain futures and futures options positions. Consequently, as part of free credit balances and other credit balances, these funds will be included as a credit item on the credit side of the customer reserve formula. The Commission is also adopting, as proposed, an amendment to Rule 15c3–3a Item 14 that permits a broker-dealer to include as a debit item, on the debit side of the customer reserve formula, the amount of customer margin required and on deposit at a derivatives clearing organization related to futures positions carried in a portfolio margin account.
The amendments are designed to provide greater protection to customers with portfolio margin accounts, through the reserve requirements of Rule 15c3–3 and SIPA, by requiring a broker-dealer to include all cash balances (including portfolio margin cash balances) of its customers' securities accounts in the computation of the customer reserve. The customer reserve computation under Rule 15c3–3 is designed to ensure that the funds a broker-dealer owes to customers are available to be returned to customers in the event the broker-dealer fails.
Subsequent to the Commission's proposals, the Dodd-Frank Act amended the definitions of
While the Dodd-Frank Act addressed the protection under SIPA of futures and futures options held in a securities portfolio margin account, the Commission's amendments to Rule 15c3–3 and 15c3–3a will still serve an important purpose. In particular, they complement the Dodd-Frank SIPA amendments, and will provide additional protections to customers by requiring broker-dealers to treat these futures positions in accordance with the segregation requirements in Rules 15c3–3 and 15c3–3a. Consequently, the Commission is adopting the amendments with modifications to address, in part, comments. As noted above, the requirements of Rule 15c3–3 and Rule 15c3–3a are designed to enable the prompt return of customer securities and cash in the event the broker-dealer falls into financial difficulty or becomes insolvent. The goal is to place a broker-dealer in a position where it is able to wind down in an orderly self-liquidation without the need for financial assistance from SIPC.
The Commission received six comments on the proposed amendments.
The Commission agrees, in part, with the commenter who stated that the Dodd-Frank Act SIPA amendments make the Commission's proposed amendments to Rules 15c3–3 and 15c3–3a unnecessary.
While the legislation provides additional certainty with respect to how futures in a portfolio margin account would be treated in a SIPA liquidation, the Commission's amendments will require that positions are subject to the protections of Rule 15c3–3, thus enhancing customer protection. Therefore, while the Commission has considered the suggested alternatives in developing the final rule amendments (including not adopting the amendments), the Commission has determined that adopting the portfolio margining amendments was a more appropriate approach in furtherance of enhancing customer protection.
The Commission requested comment on available metrics to quantify these benefits and any other benefits a commenter may identify, including the identification of sources of empirical data that could be used for such metrics. The Commission did not receive any comments in response to these requests.
Current SRO portfolio margin rules permit futures to be held in a securities portfolio margin account.
The requirements imposed by the portfolio margin amendments will be elective. The requirements will apply only to broker-dealers choosing to offer their customers portfolio margin accounts. The Commission estimates that approximately 35 broker-dealers will elect to offer their customers portfolio margin accounts that will include futures and futures options.
The Commission requested comment on the proposed cost estimates. In particular, the Commission requested comment on additional costs to broker-dealers that would arise from the proposals, such as system costs in addition to those discussed above (
The final rule amendments to Rule 15c3–3 to accommodate futures positions in a securities account margined on a portfolio basis
While today's amendments promote efficiency within the securities markets, the increased costs associated with the rule amendments may impose a burden on competition among broker-dealers. However, the Commission is of the opinion that these costs are justified by the significant benefits described in this economic analysis. In sum, the costs of compliance resulting from the requirements in the portfolio margining amendments to Rule 15c3–3 should not impose a burden on competition not necessary or appropriate in furtherance of the purposes of the Exchange Act in light of the benefits discussed above.
The Commission is adopting amendments to Rules 15c3–1 and 17a–11 to strengthen the financial responsibility of broker-dealers engaging in a securities lending business. First, the amendment to subparagraph (c)(2)(iv)(B) of Rule 15c3–1 clarifies that broker-dealers providing securities lending and borrowing settlement services are deemed, for purposes of the rule, to be acting as principals and are subject to applicable capital deductions. Under the amendment, these deductions could be avoided if a broker-dealer takes certain steps to disclaim principal liability. Second, the amendment to paragraph (c)(5) of Rule 17a–11 requires a broker-dealer to: (1) File a notice with the Commission and its DEA whenever the total money payable against all securities loaned, subject to a reverse repurchase agreement or the contract value of all securities borrowed or subject to a repurchase agreement exceeds 2,500% of tentative net capital; or, alternatively, (2) report monthly its securities lending and repurchase activities to its DEA in a form acceptable to its DEA.
Both amendments are intended to strengthen the financial responsibility of broker-dealers engaged in a securities lending or repurchase business. The first amendment to subparagraph (c)(2)(iv)(B) of Rule 15c3–1 will help eliminate the legal uncertainty among counterparties as to the role played by broker-dealers in such transactions and clarify the nature of the services that securities lending intermediaries provide their counterparties.
Thus, a broker-dealer will be considered a principal unless the broker-dealer has disclosed the identity of each party to the other, and the parties have agreed in writing that the obligations of the broker-dealer do not include a guarantee of performance by the other party and that in the event of default, neither party shall have the right of setoff against the obligations, if any, of the broker-dealer. In addition, this amendment will help avoid ambiguity regarding the applicability to a particular broker-dealer of the stock loan charges in the net capital rule.
In response to comments that standard legal documents currently used in securities lending transactions provide sufficient legal certainty with respect to the status of the parties,
The second amendment to paragraph (c)(5) of Rule 17a–11 will help identify broker-dealers with highly leveraged non-government securities lending and borrowing and repo activity.
As adopted, new paragraph (c)(5) of Rule 17a–11 also permits a broker-dealer to report monthly its stock loan and repo activity to its DEA in a form acceptable to its DEA in lieu of the notices required by paragraph (c)(5). This approach will provide each DEA with the flexibility to prescribe how the monthly reports are to be made and will accommodate a DEA that opts to use the FOCUS report as the reporting mechanism.
The Commission requested comment on available metrics to quantify these benefits and any other benefits a commenter may identify. Commenters were requested to identify sources of empirical data that could be used for the metrics they propose. The Commission did not receive any comments in response to these requests.
The Commission expects that broker-dealers may incur costs related to the implementation of the rule
With regard to the amendment to subparagraph (c)(2)(iv)(B) of Rule 15c3–1, the Commission understands that most existing standard securities lending master agreements in use today already contain language requiring agent lenders to disclose principals and for principals to agree not to hold the agents liable for a counterparty default. Thus, the standard agreement used by the vast majority of broker-dealers should contain the representations and disclosures required by the proposed amendment. However, a small percentage of broker-dealers may need to modify their standard agreements. The Commission estimates that the total one-time cost to broker-dealers for this change will be approximately $45,480.
The Commission requested comment on the cost estimates. In particular, the Commission requested comment on additional costs to broker-dealers that would arise from the proposals, such as costs arising from making systems changes. The Commission also requested comment on whether these proposals would impose costs on other market participants, including broker-dealer customers. Commenters were also asked to identify the metrics and sources of any empirical data that support their costs estimates. The Commission did not receive any comments in response to these requests.
With regard to the amendment to Rule 17a–11, the Commission received several suggested alternatives from commenters which contributed to the modification of the final rule from the proposal. Three commenters addressed the proposed monthly notification requirement. They stated that the monthly report in lieu of the notification should be provided as part of the monthly FOCUS report many broker-dealers file with their DEA.
Based on FOCUS Report data, the Commission estimates that approximately one notice per year will be sent pursuant to this amendment.
In addition, the Commission estimates that six broker-dealers will choose the option of reporting monthly
As noted above, the Commission requested comment on the proposed cost estimates. In particular, the Commission requested comment on additional costs to broker-dealers that would arise from the proposals. The Commission also requested comment on whether these proposals would impose costs on other market participants, including market participants active in the securities lending and repurchase markets. Commenters were asked to identify the metrics and sources of any empirical data that supported their cost estimates. The Commission did not receive any comments in response to these requests.
As described above, the amendment to subparagraph (c)(2)(iv)(B) of Rule 15c3–1 and new paragraph (c)(5) of Rule 17a–11 are designed to address two areas of concern that emerged from the Commission's experience with the failure of MJK.
Overall, the amendments to Rule 15c3–1 and Rule 17a–11 will help enhance the monitoring of securities lending or repurchase activities by securities regulators, thereby reducing the effect on customers and counterparties of the potential impact of a financial collapse of the broker-dealer.
As discussed in section II.D. of this release, the Commission is adopting new paragraph (a)(23) to Rule 17a–3 to require certain broker-dealers to make and keep current a record documenting the credit, market, and liquidity risk management controls established and maintained by certain broker-dealers to assist them in analyzing and managing the risks associated with their business activities, including, for example, securities lending and repo transactions, OTC derivative transactions, proprietary trading, and margin lending.
These amendments require large broker-dealers to document the controls they have implemented to address the risks they face as a result of their business activities. As proposed, the amendment would have required a broker-dealer to create a record documenting its “internal risk management controls,” rather than its market, credit, and liquidity risk controls. Commenters generally raised concerns with the proposed amendment stating, for example, that the proposed documentation of internal management controls over risks arising from the broker-dealer's business activities was overly broad and ambiguous.
A well-documented system of internal controls designed to manage material risk exposures related to market, credit, and liquidity risk reflects the expectations of a firm's management as to how its business activities should be conducted in light of such exposures. Written risk management procedures enable management to better identify, analyze, and manage the risks inherent in the firm's business activities with a view to preventing material losses and to review whether the firm's activities are being conducted in a manner that is consistent with such procedures and controls. This will likely benefit market participants and reduce systemic financial risk.
In addition, by making the documented controls a required record under Rule 17a–3, a broker-dealer's regulator likely will have better access to them, as this benefit will only be realized to the extent that a broker-dealer has existing market, credit, and liquidity risk management controls in place because the rule does not specify the type of controls a broker-dealer must establish to manage these risks. It simply requires documentation of the procedures that the broker-dealer has established. The final rule amendment will require any such records of the market, credit, and liquidity risk management controls to be available to the broker-dealer's regulators so that they can review whether the broker-dealer is adhering to these controls.
The Commission requested comment on available metrics to quantify these benefits and any other benefits a commenter may identify. Commenters were requested to identify sources of empirical data that could be used for the metrics they proposed. The Commission did not receive any comments in response to these requests.
These amendments apply to a limited number of broker-dealers, namely, those firms with more than $1 million in customer credits or $20 million in capital and amend recordkeeping requirements in Rules 17a–3 and 17a–4. Therefore, against the existing baseline of these current rules, the Commission expects that the requirement will result in a one-time cost to some of these firms to the extent that they have established controls that have not been documented. However, since most firms are expected to be already compliant, the incremental costs are expected to be small. For example, broker-dealers that are approved to compute capital using internal models are already subject to Rule 15c3–4, which requires these firms to establish, document, and maintain a system of internal risk controls to assist them in managing the risks associated with its business activities, including market, credit, leverage, liquidity, legal, and operational risks.
As noted above, the Commission requested comment on the proposed cost estimates. In particular, the Commission requested comment on additional costs to broker-dealers that would arise from the proposals, such as costs arising from making changes to systems and costs associated with maintaining these records. The Commission also requested comment on whether the proposals would impose costs on other market participants, including broker-dealer customers. Commenters were also asked to identify the metrics and sources of any empirical data that support their cost estimates. The Commission did not receive any comments in response to these requests.
The amendments to Rules 17a–3 and 17a–4 require firms to document their market, credit, and liquidity risk management controls. The amendments will help strengthen broker-dealer internal controls. Documenting internal controls will encourage enhanced consideration of, and thus a firmer grasp upon, the risks attendant to a broker-dealer's business activities. This is designed to reduce the risks inherent to the business of operating as a broker-dealer. The final approach the Commission has taken with these rule amendments—encouraging effective internal controls while preserving flexibility—will enhance a broker-dealer's financial soundness and, consequently, may help to reduce the likelihood of broker-dealer failures with possible positive effects on investor participation, competition, and capital formation. The amendments may also increase efficiencies in broker-dealer examinations through the ready availability of records for examiners.
Finally, the Rule 17a–3 and 17a–4 amendments are not expected to place a burden on competition for small non-carrying broker-dealers because such firms would not be subject to these amendments.
The amendments to Rule 15c3–1 add a new paragraph (c)(2)(i)(F) requiring a broker-dealer to adjust its net worth when calculating net capital by including any liabilities that are assumed by a third party if the broker-dealer cannot demonstrate that the third party has the resources, independent of the broker-dealer's income and assets, to pay the liabilities. This amendment is intended to assist investors and regulators by requiring broker-dealers to provide a more accurate picture of their financial condition. This should help regulators react more quickly if a broker-dealer experiences financial difficulty and benefit customers of the troubled broker-dealer as well as its counterparties.
The purpose of the requirement in new paragraph (c)(2)(i)(F) of Rule 15c3–1 is to address the practices of a broker-dealer that raise concerns when a broker-dealer shifts liabilities to an entity with no revenue or assets independent of the broker-dealer to inappropriately increase its reported net capital, by excluding the liability from the calculation of net worth. The final rule is designed to prohibit a practice that could misrepresent a broker-dealer's actual financial condition, mislead the firm's customers, and hamper the ability of regulators to monitor the firm's financial condition.
The Commission requested comment on available metrics to quantify these benefits and any other benefits a commenter may identify. Commenters were requested to identify sources of empirical data that could be used for the metrics they proposed. The Commission did not receive any comments in response to these requests.
As discussed in section II.E.1. of this release, the baseline of this rule amendment is current Rule 15c3–1 and existing guidance and interpretations. The Commission staff has provided guidance with respect to the treatment and recording of certain broker-dealer expenses and liabilities that is consistent with the rule amendment.
While the amendments apply to all broker-dealers, they will impact only those few that shift liabilities to entities with no revenue or assets independent of the broker-dealer (
The Commission conservatively estimates that the amendment may impact all broker-dealers that do not report any liabilities. FOCUS Report data, as of December 31, 2011, indicates that approximately 289 broker-dealers report having no liabilities. While this number is likely at the upper boundary of the total number of broker-dealers affected by this amendment, the number of broker-dealers reporting no liabilities likely represents a reasonable sample of broker-dealers on which to base the cost estimates.
Requiring these broker-dealers to book liabilities will decrease the amount of equity capital held by the firms and in some cases may require them to obtain additional capital. The majority of broker-dealers reporting no liabilities are introducing broker-dealers that have a $5,000 minimum net capital requirement, while the reported average of total liabilities is approximately $491,355 per broker-dealer. Therefore, conservatively estimating that each of the 289 broker-dealers will have to raise $491,355 in additional capital as result of the requirement, the total aggregate
Further, relative to the proposing release, the Commission is revising the cost of capital from approximately 5%, which was determined based on historical interest rates published by the Federal Reserve, to 12% as the average cost of equity capital determined using the capital asset pricing model (“CAPM”).
The Commission requested comment on the proposed cost estimates. In particular, the Commission requested comment on additional costs to broker-dealers that would arise from the proposals. The Commission also requested comment on whether these proposals would impose costs on other market participants, including broker-dealer customers. Commenters were also asked to identify the metrics and sources of any empirical data that support their costs estimates. The Commission received five comments in response to this request for comment.
One commenter noted that the Commission has provided no evidence that the public has been endangered or has been left financially unprotected as a result of the practice of having another entity book some or all of a member's liabilities.
Another commenter stated that the true costs of the amendment should be calculated and verified before a proposed amendment is offered and that the true costs of these amendments were given little time, research, and consideration.
One commenter stated that if small firms were required to raise over $300,000 in capital each, there would be the largest dissolution of small broker-dealers in the history of the regulated securities industry.
The Commission considered all comments received
In response to comments,
As discussed in section II.E.2. of this release, the amendment adds paragraph (c)(2)(i)(G) to Rule 15c3–1, requiring a broker-dealer to treat as a liability any capital that is contributed under an agreement giving the investor the option to withdraw it. The rule, as adopted, also requires that a broker-dealer treat as a liability any capital contribution that is withdrawn within a year of its contribution unless the broker-dealer receives permission in writing from its DEA.
The Commission requested comment on available metrics to quantify these benefits and any other benefits a commenter may identify. Commenters were requested to identify sources of empirical data that could be used for the metrics they proposed. The Commission did not receive any comments in response to these requests.
As discussed in section II.E.2. of this release, the baseline of this rule amendment is current Rule 15c3–1 and existing guidance and interpretations. The Commission estimates that the amendments requiring broker-dealers to treat certain capital contributions as liabilities should not result in significant incremental benefits and costs, as compared to the baseline. Because of existing Commission and staff guidance regarding the permanency of capital,
While the amendments apply to all broker-dealers, they will impact only the few broker-dealers that provide investors with the option to withdraw capital at any time or within one year. Because of existing Commission and staff interpretations related to temporary capital contributions,
Based on staff experience with the treatment of capital contributions and the application of Rule 15c3–1, the Commission estimates that no more than $100 million in capital at broker-dealers is subject to such agreements.
The Commission requested comment on the proposed cost estimates. In particular, the Commission requested comment on additional costs to broker-dealers that would arise from the proposals. The Commission also requested comment on whether these proposals would impose costs on other market participants, including broker-dealer customers. Commenters were also asked to identify the metrics and sources of any empirical data that support their costs estimates.
The Commission received three comments.
One commenter stated that the Commission's estimate of a gross cost of capital of 7.5% (5% + 2.5%) is a totally unrealistic cost of capital for small broker-dealers and that these broker-dealers will categorically have costs significantly higher than 7.5%.
In response to comments,
The Commission considered all comments discussed above and the alternative of not adopting the rule, and decided to adopt the amendments substantially as proposed. In response to commenters' concerns about the impact on capital and the $100 million estimate,
In the final rule, the Commission has increased the estimated cost of capital from 2.5% to 12%, in response to comments regarding the unrealistic cost of capital, and because the estimated cost of capital is not incremental to the estimated cost of capital to the amendment to Rule 15c3–1 regarding third party liabilities.
Further, the final rule amendments relating to temporary capital contributions have been revised to clarify that a withdrawal of capital made within one year of its contribution to the broker-dealer is deemed to have been intended to be withdrawn within one year, unless the withdrawal has been approved in writing by the broker-dealer's DEA.
While owners of most broker-dealers have the option of withdrawing capital, most owners likely do not have agreements that provide the option of withdrawing capital at any time.
As discussed in section II.E.3. of this release, this amendment requires broker-dealers to deduct from net capital, with regard to fidelity bonding requirements prescribed by a broker-dealer's examining authority, the excess of any deductible amount over the amount permitted by SRO rules.
Under SRO rules, certain broker-dealers that do business with the public or are required to become SIPC members must comply with mandatory fidelity bonding requirements.
Rule 15c3–1, however, does not specifically reference the SRO deductible requirements as a charge to net worth, meaning that a broker-dealer would not be required for the purposes of Commission rules to show the impact of the deduction in the net capital computation required by an SRO on the FOCUS Report.
This amendment will also codify in a Commission rule capital charges that broker-dealers are currently required to take pursuant to the rules of various SROs. Consequently, any economic effects, including costs and benefits, should be compared to a baseline of current practices. The amendment should not impose additional costs on broker-dealers with respect to the purchasing or carrying of fidelity bond coverage. Nor will the amendment cause broker-dealers to incur additional costs in determining or reporting excess deductible amounts over the deductible permitted. Broker-dealers already make such determinations under SROs rules, and the manner in which such excesses are typically reported (
The Commission received one comment opposing the fidelity bond amendment, stating that FINRA Rule 4360 and the Commission's amendment would result in a
As discussed in section II.E.4., the amendment to paragraph (a) of Rule 15c3–1 states that no broker-dealer shall be “insolvent” as that term is defined under paragraph (c)(16) of the rule. The companion amendment to paragraph (b)(1) of Rule 17a–11 requires insolvent broker-dealers to provide notice to regulatory authorities.
Allowing an insolvent broker-dealer to continue conducting a securities business during the period of its insolvency, notwithstanding its net capital position, could jeopardize customers and other market participants because a broker-dealer that has made an admission of insolvency, or is otherwise deemed insolvent or entitled to protection from creditors, does not possess the financial resources necessary to operate a securities business. Continuing to operate in such circumstances poses a significant credit risk to counterparties and to the clearance and settlement system, and, in the event the firm ends up in a liquidation proceeding under SIPA, may impair the ability of the SIPA trustee to make the customers of the broker-dealer whole and satisfy the claims of other creditors out of the assets of the general estate.
Consequently, the amendment to Rule 15c3–1 benefits the securities markets, and indirectly, all other market participants, by removing risks associated with the continued operation of a financially unstable firm. For example, the amendment will limit the potential that an insolvent firm would take on new customers and place their assets at risk. Furthermore, the broker-dealer will not be able to enter into proprietary transactions with other broker-dealers and place them or clearing agencies at further risk of counterparty default. The broker-dealer's existing customers also will benefit from preservation of any remaining capital of the firm, which could be used to facilitate an orderly liquidation.
The amendment to Rule 17a-11 also benefits the securities markets in that it will provide regulators with the opportunity to more quickly take steps to protect customers and counterparties at the onset of the insolvency, including, if appropriate, notifying SIPC of the need to commence a SIPA liquidation.
The baseline for this proposed amendment is current Rules 15c3–1 and 17a–11, which currently do not contain requirements to cease conducting a securities business (or to notify the Commission) if certain insolvency events were to occur. The amendments generally will have no impact on broker-dealers when compared to the current baseline. Should a broker-dealer become subject to an insolvency proceeding, it will incur the cost of sending notice of that fact to the Commission and its DEA. The Commission estimated in the PRA that it will occur approximately two
One commenter stated that involuntary bankruptcy proceedings do not necessarily indicate that the broker-dealer is insolvent, as such proceedings can be frivolous, malicious, or otherwise lacking in merit, and noted standard industry forms generally provide a grace period for a party to such a proceeding to obtain a stay or dismissal before an event of default is deemed to have occurred. The Commission considered this alternative approach and notes that if a firm believes that it is the subject of an unwarranted involuntary bankruptcy proceeding and that its case will not be dismissed within the 30 day timeframe, as is the case with existing net capital requirements, pursuant to Rule 15c3–1(b)(3), the Commission may, upon written application, exempt the broker-dealer from the requirement.
In addition, one commenter objected to the amendments as unnecessary, citing the Rule 15c3–1 prohibition on broker-dealers effecting securities transactions if their net capital is below certain minimums.
As noted above, the Commission requested comment on this cost estimate. In particular, the Commission requested comment on whether there would be costs to broker-dealers as a consequence of the proposal. The Commission also requested comment on whether this proposal would impose costs on other market participants, including broker-dealer customers. Commenters were asked to identify the metrics and sources of any empirical data that supported their costs estimates. The Commission did not receive any comments in response to these requests.
As discussed in section II.E.5. of this release, paragraph (e) of Rule 15c3–1, which places certain conditions on a broker-dealer when withdrawing capital,
The Commission has determined that the requirement is difficult to enforce, as it generally would not be clear when the 30% threshold had been reached, due to the inherent unreliability of a troubled broker-dealer's books and records. The Commission considered retaining the 30% threshold, but determined that a more appropriate approach would be to eliminate the 30% threshold requirement from the rule, rather than retain a provision that is difficult to enforce. Consequently, the Commission proposed, and is adopting, a change to delete this provision and instead to allow the Commission to restrict all withdrawals, advances, and loans so long as the other conditions under the rule (all of which remain unchanged) were met.
The amendment to paragraph (e) of Rule 15c3–1 benefits the securities markets by protecting customers and counterparties of a financially stressed broker-dealer. For example, by prohibiting unsecured loans to a stockholder or withdrawal of equity capital while the order is outstanding, the amendment will help to preserve the assets and liquidity of the broker-dealer and enable the Commission and its staff, as well as other regulators, to examine the broker-dealer's financial condition, net capital position, and the risk exposure to the customers and creditors of the broker-dealer.
The current rule permitting the Commission to restrict withdrawals of capital from a financially distressed broker-dealer was adopted in 1991.
As noted above, the Commission requested comment on this cost estimate. The Commission also requested comment on whether the proposal would impose costs on other market participants. Commenters were asked to identify the metrics and sources of any empirical data that support their cost estimates. One commenter supported the amendment but believed that the rule is intended to protect the capitalization of large firms while ignoring small firms, and proposed that the Commission state all the conditions that need to exist for a firm to withdraw, repay or redeem any amount that does not endanger the firm or its customers.
In adopting the final rule, the Commission considered the alternatives and modifications suggested by commenters. In response to these comments, the Commission notes that the amendment would eliminate the 30% threshold from paragraph (e)(3)(i) of Rule 15c3–1, which relates to the Commission's authority to temporarily restrict withdrawals of net capital. It cannot impose these restrictions without concluding that “such withdrawal, advance or loan may be detrimental to the financial integrity of the broker or dealer, or may unduly jeopardize the broker or dealer's ability to repay its customer claims or other liabilities which may cause a significant impact on the markets or expose the customers or creditors of the broker or dealer to loss without taking into account the application of the Securities Investor Protection Act of 1970.”
In summary, the Commission does not believe that the deletion of the 30% threshold will affect the competitiveness or unduly restrict the ongoing business operations of small broker-dealers as compared to larger firms. All broker-dealers remain subject to the other notice and withdrawal limitations on equity capital set forth in paragraphs (e)(1) and (e)(2) of Rule 15c3–1, which are not the subject of this rule amendment.
As discussed in section II.E.6.i. of this release, the amendment to paragraph (b)(1)(vi) of Rule 15c3–1a will make permanent the reduced net capital requirements that apply to listed option positions in major market foreign currencies and high-capitalization and non-high-capitalization diversified indexes in non-clearing option specialist and market maker accounts. This change will benefit the broker-dealers that have been calculating charges under a temporary amendment the Commission originally adopted in 1997.
Because this amendment seeks to match capital requirements with actual risks, it should not have an adverse impact on the financial strength of broker-dealers. Moreover, because broker-dealers are already operating under the temporary relief, which is the current baseline, the amendment should not result in any costs for broker-dealers as compared to the current baseline.
The Commission requested comment on available metrics to quantify the benefits identified above and any other benefits the commenter may identify. In addition, the Commission requested comment on whether the proposal would result in any costs. Commenters were asked to identify the metrics and sources of any empirical data that support their cost estimates. The Commission did not receive any comments in response to these requests.
Rule 15c3–1 is designed to help ensure that a broker-dealer holds at all times liquid assets sufficient to pay its non-subordinated liabilities and retain a “cushion” of liquid assets used to pay customers without delay in the event that the broker-dealer fails. For example, a broker-dealer that inappropriately excludes certain liabilities when presenting its financial position
The Commission's experience with the broker-dealer financial responsibility rules, underscored by the 2008 financial crisis, highlights the effects that the failure of a broker-dealer, particularly a large carrying broker-dealer, could have on customers and other market participants. Losses resulting from the disorderly winding down of a broker-dealer may often undermine the participation of investors in the U.S. capital markets, with possible negative effects on capital formation and market efficiency. Thus, it is imperative that broker-dealers operate in compliance with Rule 15c3–1 and that the Commission takes the necessary steps to help ensure that broker-dealers are prohibited from engaging in practices that obscure noncompliance.
The amendments to Rule 15c3–1 are designed to reduce the risk of a disorderly failure of a broker-dealer and lessen the potential that market participants may seek to rapidly withdraw assets and financing from broker-dealers during a time of market stress. These Rule 15c3–1 amendments may affect efficiency and capital formation through their positive impact on competition among broker-dealers. Specifically, markets that are competitive can, all other things equal, be expected to promote an efficient allocation of capital.
The amendments to Rule 15c3–1—(1) Requiring a broker-dealer to account for certain liabilities or treat certain capital contributions as liabilities,
First, a broker-dealer that fails to include liabilities that depend on the broker-dealer's assets and revenues and accepts temporary capital contributions is obscuring its true financial condition. This also interferes with the process by which regulators monitor the financial condition of broker-dealers and, thereby, impedes their ability to take proactive steps to minimize the harm resulting from a broker-dealer failure to customers, counterparties, and clearing agencies.
Second, requiring broker-dealers to take net capital charges for excess fidelity bond deductibles imposed under SRO rules will promote efficiency by providing consistency among Rule 15c3–1 and SRO rules. Because fidelity bond requirements provide a safeguard with regard to broker-dealer financial responsibility, the amendment will enhance competition through the operation of more financially sound firms.
Third, the continued operation of an insolvent broker-dealer or the withdrawal of capital from a broker-dealer that may jeopardize such broker-dealer's financial integrity poses financial risk to its customers, counterparties, and the registered clearing agencies. These risks increase costs and decrease efficiency of the marketplace.
Fourth, the elimination of the limitation on Commission orders restricting capital withdrawals under paragraph (e)(3) of Rule 15c3–1 from a financially troubled broker-dealer will provide greater protection to customers and counterparties of the firm and registered clearing agencies. While such orders are expected to be infrequent, when issued they should lower costs to these entities associated with having an outstanding obligation from the troubled broker-dealer, thereby promoting efficiency and facilitating capital formation.
One commenter expressed concern that the proposed amendments to Rule 15c3–1 would be particularly burdensome on small broker-dealers, negatively impacting capital formation for small issuers and increasing the cost of capital for small broker-dealers.
While the Commission is cognizant that the Rule 15c3–1 amendments may impose burdens on broker-dealers, including non-carrying broker-dealers, the commenter is treating the amendments as entirely new additions to the net capital rule. Yet, as discussed
Finally, the Commission recognizes that, as discussed above, the amendments to Rule 15c3–3 adopted today impose certain costs on broker-dealers that could affect competition among broker-dealers. However, the Commission is of the opinion that these costs are justified by the significant benefits described in this economic analysis. In sum, the costs of compliance resulting from the requirements in the amendments to Rule 15c3–3 should not impose a burden on competition not necessary or appropriate in furtherance of the purposes of the Exchange Act in light of the benefits discussed above.
The Commission proposed amendments to Rules 15c3–1, 15c3–1a, 15c3–2, 15c3–3, 15c3–3a, 17a–3, 17a–4, and 17a–11 under the Exchange Act. An Initial Regulatory Flexibility Analysis (“IRFA”) was included in the proposing release.
The Commission requested comment with regard to matters discussed in the IRFA, including comments with respect to the number of small entities that may be affected by the proposed rule amendments.
The commenter stated that the Commission should pay “explicit attention to regulatory trends in the rest of the world” because doing so “benefits not only small entities (by reducing their regulatory burden) but all entities, as larger entities can experience more consistent regulatory procedures around the world.”
The final rule amends certain provisions of Rule 15c3–3.
The amendments to Rule 15c3–3 are intended to strengthen the protections afforded to customer assets held at a
The Commission received numerous comments with respect to the amendment under paragraph (e)(5) of Rule 15c3–3 that will require broker-dealers to exclude cash deposited at an affiliated bank and cash deposited with an unaffiliated bank to the extent that the amount exceeds 15% of the bank's equity capital from being used to meet a broker-dealer's reserve requirements.
With respect to the proposed limits on the amounts that could be deposited in unaffiliated banks, some commenters argued that the percentages were too restrictive while other commenters suggested alternative approaches to the proposed percentage limitations.
With respect to the use of qualified securities to meet reserve requirements, one commenter noted that broker-dealers will “likely have a significant amount of additional operational and transactional costs.”
In response to commenters concerns, the Commission has eliminated the provision that would have excluded the amount of a deposit that exceeds 50% of the broker-dealer's excess net capital. After review of the comment letters, the Commission believes that this provision likely would have disproportionately impacted small and mid-size broker-dealers when they deposited cash into large commercial banks since they would exceed the excess net capital threshold well before exceeding the bank equity capital threshold.
Second, with respect to the bank equity capital threshold, in response to comments, the Commission has increased the trigger level from 10% to 15% of the bank's equity capital. The increase of the threshold to 15% is designed to address concerns raised by commenters that the proposed percentage tests were unduly restrictive in certain respects and should be modified, particularly with respect to large broker-dealers with large deposit requirements. Consequently, the increase from 10% to 15% is designed to mitigate commenters concerns that the 10% threshold would require broker-dealers to spread out deposits over an excessive number of banks, while still providing adequate protection against undue concentrations of deposits, particularly where smaller banks are concerned.
The elimination of the 50% of excess net capital threshold and increase of the bank capital threshold from 10% to 15% is designed to appropriately address concerns raised by commenters that they would have to substantially alter their current cash deposit practices in light of the goal of the rule to promote the broker-dealer's ability to have quick access to the deposit.
With the elimination of the broker-dealer excess net capital threshold, and the increase in the bank equity capital threshold, it is likely that very few broker-dealers (including small broker-dealers) would be required to maintain reserve accounts at multiple banks, unless they chose to do so for operational, business or other reasons. Therefore for the reasons discussed above, as adopted, paragraph (e)(5) of Rule 15c3–3, should not significantly impact a substantial number of small entities.
Paragraph (c)(1) of Rule 0–10
Based on FOCUS Report data, as of December 31, 2011, the Commission estimates there are approximately 5 broker-dealers that performed a customer reserve computation pursuant to Rule 15c3–3 and were “small” for the purposes Rule 0–10.
The amendments (1) Require broker-dealers to perform a PAB reserve computation, (2) limit the amount that a broker-dealer may deposit in a reserve account at any individual bank in the form of cash, (3) require broker-dealers to obtain possession and control of customers' fully paid and excess margin securities allocated to a short position by borrowing equivalent securities or through other means within a specified period of time, and (4) require broker-dealers to obtain the written affirmative consent of a new customer before including a customer's free credit balances in a Sweep Program, as well as provide certain disclosures and notices to all customers with regard to the broker-dealer's Sweep Program.
The RFA directs the Commission to consider significant alternatives that would accomplish the stated objectives, while minimizing any significant adverse impact on small entities. In connection with adopting the final rules, the Commission considered, as alternatives, establishing different compliance or reporting requirements that take into account the resources available to smaller entities, exempting smaller entities from coverage of the disclosure requirements, and clarifying, consolidating, or simplifying disclosure for small entities.
As discussed above, the impact on individual small broker-dealers, as well as all small broker-dealers, should be minimal, and thus the Commission is not establishing different compliance or reporting requirements or timetables; clarifying, consolidating, or simplifying compliance and reporting requirements under the rule for small entities; or exempting small entities from coverage of the rule, or any part thereof. The amendments impose performance standards and do not dictate for entities of any size any particular design standards (
The amendments to Rule 15c3–3 and 15c3–3a are designed to accommodate futures positions in a securities account that is margined on a portfolio basis.
These additional protections should make portfolio margining more attractive to investors. Portfolio margining can significantly reduce customer margin requirements for offsetting positions involving securities and futures products, which in turn reduces the costs of trading such products.
The Commission did not receive any specific comments with respect to this portion of the IRFA.
As discussed above in section V.D.2. of this release, based on FOCUS Report data, as of December 31, 2011, the Commission estimates that approximately 35 broker-dealers will elect to offer their customers portfolio margin accounts that will include futures and futures options. None of these broker-dealers are “small” for purposes of Rule 0–10.
These amendments (1) revise the definition of
As stated above, the Commission does not believe that any of the broker-dealers that will elect to offer portfolio margining are “small” for purposes of Rule 0–10. Further, the requirements imposed by the portfolio margin amendments will be elective. Therefore, the Commission does not believe it is necessary or appropriate to establish different compliance or reporting requirements or timetables; clarify, consolidate, or simplify compliance and reporting requirements under the rule for small entities; or exempting small entities from coverage of the rule, or any part thereof. The amendments also contain performance standards and do not dictate for entities of any size any particular design standards (
These rules amend subparagraph (c)(2)(iv)(B) of Rule 15c3–3 to clarify that broker-dealers providing securities lending and borrowing settlement services are deemed, for purposes of the rule, to be acting as principals and are subject to applicable capital deductions, unless the broker-dealer takes certain steps to disclaim principal liability.
In 2001, MJK Clearing, a broker-dealer with a substantial number of customer accounts, failed when it could not meet its securities lending obligations. This failure has highlighted the risks associated with securities lending and repurchase and reverse repurchase agreements and the need to manage those risks. More specifically, two concerns arose from the failure of MJK, namely, (1) that broker-dealers with principal liability in a stock loan transaction may erroneously be considering themselves as acting in an agency capacity and, consequently, not taking appropriate capital charges; and (2) that broker-dealers that have historically not been very active in stock loan transactions may be rapidly expanding their balance sheets with such transactions, and thereby, increase leverage to a level that poses significant financial risk to the firm and its counterparties.
These amendments are intended to strengthen the documentation controls broker-dealers employ to manage their securities lending and borrowing and securities repurchase and reverse repurchase activities and to enhance regulatory monitoring. The intended result of the amendments is to avoid ambiguity regarding the applicability of the stock loan charges in the net capital rule to a particular broker-dealer. As the failure of MJK illustrated, disputes can arise over whether a broker-dealer is acting as a principal or agent in a stock loan transaction.
The amendments to paragraph (c)(5) to Rule 17a–11 will help identify broker-dealers with highly leveraged non-government securities lending and borrowing and repo operations and make it easier for regulators to respond more quickly and protect customers in the event a firm is approaching insolvency.
The Commission did not receive any specific comments with respect to this portion of the IRFA.
Based on FOCUS Report data, as of December 31, 2011, the Commission estimates that none of the broker-dealers that engage in securities lending and borrowing or securities repurchase and reverse repurchase activity are “small” for the purposes Rule 0–10. Therefore, the amendments should not affect “small” broker-dealers.
These amendments require broker-dealers to (1) disclose the principals and obtain certain agreements from the principals in a transaction where they provide settlement services in order to be considered an agent (as opposed to a principal) for the purposes of the net capital rule, and (2) provide notice to the Commission and other regulatory authorities if the broker-dealer's securities lending or repo activity reaches a certain threshold or, alternatively, report monthly the broker-dealer's securities lending and repo activity to the broker-dealer's DEA, in a form acceptable to the DEA.
As noted above, the Commission estimates that this amendment will have no impact on small entities. Thus, the Commission does not believe it is necessary or appropriate to establish different compliance or reporting requirements or timetables, nor is it clarifying, consolidating, or simplifying compliance and reporting requirements under the rule for small entities; or exempt small entities from coverage of the rule, or any part thereof. The amendments also use performance standards and do not dictate for entities of any size any particular design standards (
Requiring certain large broker-dealers to document and preserve their internal credit, market, and liquidity risk management controls under paragraph (a)(23) to Rule 17a–3 and (e)(9) to Rule 17a–4 will assist firms in evaluating and adhering to their established internal risk management controls and regulators in reviewing such controls.
These amendments are intended to strengthen the controls certain large broker-dealers employ to manage risk. These amendments are designed to lower systemic risk primarily in the securities markets by enhancing risk management through reinforcement of documentation practices and making it easier for regulators to access a broker-dealer's procedures and controls, to ensure a broker-dealer is adhering to such documented controls.
Additionally, by making the documented controls a required record under Rule 17a–3, a broker-dealer's regulator likely will have better access to them, as this benefit will only be realized to the extent a broker-dealer has existing market, credit and liquidity risk management controls in place because the rule does not specify the type of controls a broker-dealer must establish to manage these risks. It simply requires the documentation of the procedures the broker-dealer has established. The final rule amendment will require any such records of the market, credit, and liquidity risk management controls be available to the broker-dealer's regulators so they can review whether the broker-dealer is adhering to these controls.
The Commission did not receive any specific comments with respect to this portion of the IRFA.
These amendments apply to a limited number of broker-dealers, namely, those firms with more than $1 million in customer credits or $20 million in capital. Based on FOCUS Report data, as of December 31, 2011, the Commission estimates that none of the broker-dealers that will be subject to this amendment will be “small” for the purposes Rule 0–10.
These amendments will require broker-dealers to document any credit, market, and liquidity risk management controls established and maintained by the broker-dealer to assist it in analyzing and managing the risks associated with its business activities. The Commission is not mandating any specific controls, procedures, or policies that must be established by a broker-dealer to manage
As noted above, these amendments will have no impact on “small” broker-dealers. Thus, the Commission is not establishing different compliance or reporting requirements or timetables; clarifying, consolidating, or simplifying compliance and reporting requirements under the rule for small entities; nor exempting small entities from coverage of the rule, or any part thereof.
The amendments also use performance standards and do not dictate for entities of any size any particular design standards (
The amendments to Rule 15c3–1 are designed to address several areas of concern regarding the financial responsibility requirements for broker-dealers. Some broker-dealers have excluded from their regulatory financial reports certain liabilities that have been shifted to third parties that lack the resources—independent of the assets and revenue of the broker-dealer—to pay the liabilities, or have utilized infusions of temporary capital. These practices may misrepresent the true financial condition of the broker-dealer and, thereby, impede the ability of regulators to take proactive steps to reduce the harm to customers, counterparties and clearing agencies that may result from the broker-dealer's failure. To address these issues, the Commission is adopting an amendment to Rule 15c3–1 to add a new paragraph (c)(2)(i)(F) requiring a broker-dealer to adjust its net worth when calculating net capital by including any liability or expense for which a third party has assumed the responsibility, unless the broker-dealer can demonstrate that the third party has adequate resources, independent of the broker-dealer to pay the liability or expense.
Further, currently, broker-dealers are required to take net capital charges pursuant to SRO rules relating to fidelity bond deductibles, but Rule 15c3–1 does not explicitly incorporate such charges for purposes of computing net capital. To address this inconsistency, the Commission is adopting paragraph (c)(2)(xiv) to Rule 15c3–1.
In addition, a number of broker-dealers have sought to obtain protection under the bankruptcy laws while still engaging in a securities business. Permitting an insolvent broker-dealer to continue to transact a securities business endangers its customers and counterparties and places securities clearing agencies at risk. To address this concern, the Commission is adopting an amendment to paragraph (a) of Rule 15c3–1 to require a broker-dealer to cease its securities business activities if certain insolvency events were to occur, as defined in new paragraph (c)(16) to Rule 15c3–1.
Finally, an important goal of the Commission is to protect the financial integrity of the broker-dealer so that if the firm must liquidate it may do so in an orderly fashion. Allowing a capital withdrawal that may jeopardize the financial integrity of a broker-dealer exposes customers and creditors of the broker-dealer to unnecessary risk. Paragraph (e) of Rule 15c3–1, which places certain conditions on a broker-dealer when withdrawing capital,
Finally, the Commission is making permanent a temporary amendment to Appendix A of Rule 15c3–1, which permits broker-dealers to employ theoretical option pricing models to calculate haircuts for listed options and related positions that hedge those options.
The Commission received three comments in response to requests for comment related to the amendments to the net capital rule requiring broker-dealers to add back to its net worth certain liabilities assumed by third parties and treat certain temporary capital contributions as liabilities.
One commenter noted that there should be no circumstance in which a broker-dealer accepted a capital contribution for net capital purposes that could be withdrawn at the option of the investor.
Further, the commenter stated that, until the Commission convenes a small broker-dealer representative panel to assist it with establishing such costs, the Commission is “speculating” on such costs, and is therefore without adequate information to consider the effects of such costs and changes on small firms.
Additionally, this commenter believed that the rule is intended to protect the capitalization of large firms while ignoring small firms. The commenter also noted that it opposes regulation that arbitrarily reduces the value of small broker-dealers and their competitive position relative to larger broker-dealers.
Another commenter stated that this proposal will require the 702 mentioned debt-free introducing broker-dealers to needlessly take on debt of approximately $280,354.
The Commission considered all comments discussed above and the potential impact on small broker-dealers.
Moreover, as discussed in section II.E.1 and 2. of this release, the baseline of these rules is current Rule 15c3–1 and existing guidance and interpretations. The Commission staff has provided guidance with respect to the treatment and recording of certain broker-dealer expenses and liabilities that is consistent with the rule amendment.
At the same time, the purpose of the requirement in new paragraph (c)(2)(i)(F) of Rule 15c3–1 is to address the practices of a broker-dealer that raise concerns when a broker-dealer shifts liabilities to an entity with no revenue or assets independent of the broker-dealer to inappropriately increase its reported net capital, by excluding the liability from the calculation of net worth. Therefore, the final rule, as discussed above in section II.E.1. of this release, is designed to prohibit a practice that could misrepresent a broker-dealer's actual financial condition, deceive the firm's customers, and hamper the ability of regulators to monitor the firm's financial condition.
Moreover, in response to comments,
In response to the commenters' concerns about the negative impact of the rule amendments on the capital of small broker-dealers,
Based on FOCUS Report data, as of December 31, 2011, the Commission estimates that there are approximately 2,506 introducing and carrying broker-dealers that are “small” for the purposes Rule 0–10. The amendments relating to certain subtractions from net worth and the restrictions on the withdrawal of capital will apply to all “small” broker-dealers in that they will be subject to the requirements in the amendments. The amendment to Appendix A of Rule 15c3–1 likely should have no, or little, impact on “small” broker-dealers, because based on staff experience, most,
The amendments will require an “insolvent” broker-dealer to cease conducting a securities business and provide the securities regulators with notice of its insolvency. The amendments also will require broker-dealers to deduct from net worth certain liabilities and certain temporary capital contributions, as well as require broker-dealers to deduct from net capital, certain specified amounts as required by SRO fidelity bond rules. Finally, under the amendment to the rule on Commission orders restricting withdrawals of capital, a broker-dealer subject to an order will not be permitted to withdraw capital. Finally, the amendments will make permanent a temporary rule that reduced the haircut for non-clearing options specialist and market maker accounts under Appendix A to Rule 15c3–1.
As discussed in detail above, the Commission considered all comments received and adopted the amendment substantially as proposed.
One or more of these record types are generally readily available. The general availability of a satisfactory measure of financial resources should mitigate the implementation and burden concerns raised by the commenters.
As discussed above, given the minimal impact these amendments will have on small entities, the Commission is not establishing different compliance or reporting requirements or timetables; clarifying, consolidating, or simplifying compliance and reporting requirements under the rule for small entities; nor exempting small entities from coverage of the rule, or any part thereof.
The amendments use performance standards and do not dictate for entities of any size any particular design standards (
The Commission is adopting amendments to Rules 15c3–1, 15c3–3, 17a–3, 17a–4 and 17a–11 under the Exchange Act pursuant to the authority conferred by the Exchange Act, including Sections 15, 17, 23(a) and 36.
Brokers, Reporting and recordkeeping requirements, Securities.
In accordance with the foregoing, the Commission hereby amends Title 17, Chapter II of the Code of Federal Regulation 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–
The revisions and additions read as follows:
(a) Every broker or dealer must at all times have and maintain net capital no less than the greater of the highest minimum requirement applicable to its ratio requirement under paragraph (a)(1) of this section, or to any of its activities under paragraph (a)(2) of this section, and must otherwise not be “insolvent” as that term is defined in paragraph (c)(16) of this section. * * *
(c) * * *
(2) * * *
(i)
(F) Subtracting from net worth any liability or expense relating to the
(G) Subtracting from net worth any contribution of capital to the broker or dealer:
(
(
(iv) * * *
(B) All unsecured advances and loans; deficits in customers' and non-customers' unsecured and partly secured notes; deficits in omnibus credit accounts maintained in compliance with the requirements of 12 CFR 220.7(f) of Regulation T under the Act, or similar accounts carried on behalf of another broker or dealer, after application of calls for margin, marks to the market or other required deposits that are outstanding 5 business days or less; deficits in customers' and non-customers' unsecured and partly secured accounts after application of calls for margin, marks to market or other required deposits that are outstanding 5 business days or less, except deficits in cash accounts as defined in 12 CFR 220.8 of Regulation T under the Act for which not more than one extension respecting a specified securities transaction has been requested and granted, and deducting for securities carried in any of such accounts the percentages specified in paragraph (c)(2)(vi) of this section or Appendix A, § 240.15c3–1a; the market value of stock loaned in excess of the value of any collateral received therefor; receivables arising out of free shipments of securities (other than mutual fund redemptions) in excess of $5,000 per shipment and all free shipments (other than mutual fund redemptions) outstanding more than 7 business days, and mutual fund redemptions outstanding more than 16 business days; and any collateral deficiencies in secured demand notes as defined in Appendix D, § 240.15c3–1d; a broker or dealer that participates in a loan of securities by one party to another party will be deemed a principal for the purpose of the deductions required under this section, unless the broker or dealer has fully disclosed the identity of each party to the other and each party has expressly agreed in writing that the obligations of the broker or dealer do not include a guarantee of performance by the other party and that such party's remedies in the event of a default by the other party do not include a right of setoff against obligations, if any, of the broker or dealer.
(E)
(
(
(
(vi) * * *
(D)(
(xiv)
(16) For the purposes of this section, a broker or dealer is insolvent if the broker or dealer:
(i) Is the subject of any bankruptcy, equity receivership proceeding or any other proceeding to reorganize, conserve, or liquidate such broker or dealer or its property or is applying for the appointment or election of a receiver, trustee, or liquidator or similar official for such broker or dealer or its property;
(ii) Has made a general assignment for the benefit of creditors;
(iii) Is insolvent within the meaning of section 101 of title 11 of the United States Code, or is unable to meet its obligations as they mature, and has made an admission to such effect in writing or in any court or before any agency of the United States or any State; or
(iv) Is unable to make such computations as may be necessary to establish compliance with this section or with § 240.15c3–3.
(e) * * *
(3)(i)
The revisions and additions read as follows:
(a) * * *
(3) The term
(4) The term
(7) The term
(8) The term
(9) The term
(16) The term
(17) The term
(b) * * *
(5) A broker or dealer is required to obtain and thereafter maintain the physical possession or control of securities carried for a PAB account, unless the broker or dealer has provided written notice to the account holder that the securities may be used in the ordinary course of its securities business, and has provided an opportunity for the account holder to object.
(d) * * *
(4) Securities included on the broker's or dealer's books or records that allocate to a short position of the broker or dealer or a short position for another person, excluding positions covered by paragraph (m) of this section, for more than 30 calendar days, then the broker or 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. For the purposes of this paragraph (d)(4), the 30 day time period will not begin to run with respect to a syndicate short position established in connection with an offering of securities until the completion of the underwriter's participation in the distribution as determined pursuant to § 242.100(b) of Regulation M of this chapter (17 CFR 242.100 through 242.105); or
(e)
(2) With respect to each computation required pursuant to paragraph (e)(1) of this section, a broker or dealer must not accept or use any of the amounts under items comprising Total Credits under the formula referred to in paragraph (e)(1) of this section except for the specified purposes indicated under items comprising Total Debits under the formula, and, to the extent Total Credits exceed Total Debits, at least the net amount thereof must be maintained in the Customer Reserve Bank Account and PAB Reserve Bank Account pursuant to paragraph (e)(1) of this section.
(3)
(ii) If a broker or dealer, computing on a monthly basis, has, at the time of any required computation, aggregate indebtedness in excess of 800 percent of net capital, such broker or dealer must thereafter compute weekly as aforesaid until four successive weekly Customer Reserve Bank Account computations are made, none of which were made at a time when its aggregate indebtedness exceeded 800 percent of its net capital.
(iii) A broker or dealer that does not carry the accounts of a “customer” as defined by this section or conduct a proprietary trading business may make the computation to be performed with respect to PAB accounts under paragraph (e)(1) of this section monthly rather than weekly. If a broker or dealer performing the computation with respect to PAB accounts under paragraph (e)(1) of this section on a monthly basis is, at the time of any required computation, required to deposit additional cash or qualified securities in the PAB Reserve Bank Account, the broker or dealer must thereafter perform the computation required with respect to PAB accounts under paragraph (e)(1) of this section weekly until four successive weekly computations are made, none of which is made at a time when the broker or dealer was required to deposit additional cash or qualified securities in the PAB Reserve Bank Account.
(iv) Computations in addition to the computations required in this paragraph (e)(3), may be made as of the close of any business day, and the deposits so computed must be made no later than one hour after the opening of banking business on the second following business day.
(v) The broker or dealer must make and maintain a record of each such computation made pursuant to this paragraph (e)(3) or otherwise and preserve each such record in accordance with § 240.17a–4.
(4) If the computation performed under paragraph (e)(3) of this section with respect to PAB accounts results in a deposit requirement, the requirement may be satisfied to the extent of any excess debit in the computation performed under paragraph (e)(3) of this section with respect to customer accounts of the same date. However, a deposit requirement resulting from the computation performed under paragraph (e)(3) of this section with respect to customer accounts cannot be satisfied with excess debits from the computation performed under paragraph (e)(3) of this section with respect to PAB accounts.
(5) In determining whether a broker or dealer maintains the minimum deposits required under this section, the broker or dealer must exclude the total amount of any cash deposited with an affiliated bank. The broker or dealer also must exclude cash deposited with a non-affiliated bank to the extent that the amount of the deposit exceeds 15% of the bank's equity capital as reported by the bank in its most recent Call Report or any successor form the bank is required to file by its appropriate Federal banking agency (as defined by section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813)).
(f)
(g)
(j)
(2) A broker or dealer must not convert, invest, or transfer to another account or institution, credit balances held in a customer's account except as provided in paragraphs (j)(2)(i) and (ii) of this section.
(i) A broker or dealer is permitted to invest or transfer to another account or institution, free credit balances in a customer's account only upon a specific order, authorization, or draft from the customer, and only in the manner, and under the terms and conditions, specified in the order, authorization, or draft.
(ii) A broker or dealer is permitted to transfer free credit balances held in a customer's securities account to a product in its Sweep Program or to transfer a customer's interest in one product in a Sweep Program to another product in a Sweep Program,
(A) For an account opened on or after the effective date of this paragraph (j)(2)(ii), the customer gives prior written affirmative consent to having free credit balances in the customer's securities account included in the Sweep Program after being notified:
(
(
(B) For any account:
(
(
(
(
(
(
(
(
(l)
(2) Margin securities upon full payment by such customer to the broker or dealer of the customer's indebtedness to the broker or dealer; and, subject to the right of the broker or dealer under Regulation T (12 CFR 220) to retain collateral for its own protection beyond the requirements of Regulation T, excess margin securities not reasonably required to collateralize such customer's indebtedness to the broker or dealer.
(2) Debit balances in special omnibus accounts, maintained in compliance with the requirements of Section 7(f) of Regulation T (12 CFR 220.7(f)) or similar accounts carried on behalf of another broker or dealer, must be reduced by any deficits in such accounts (or if a credit, such credit must be increased) less any calls for margin, mark to the market, or other required deposits which are outstanding 5 business days or less.
(3) Debit balances in customers' cash and margin accounts included in the formula under Item 10 must be reduced by an amount equal to 1 percent of their aggregate value.
(4) Debit balances in cash and margin accounts of household members and other persons related to principals of a broker or dealer and debit balances in cash and margin accounts of affiliated persons of a broker or dealer must be excluded from the Reserve Formula, unless the broker or dealer can demonstrate that such debit balances are directly related to credit items in the formula.
(5) Debit balances in margin accounts (other than omnibus accounts) must be reduced by the amount by which any single 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 registered national securities exchange or the registered national securities association having responsibility for examining the broker or dealer (“designated examining authority”) 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 or margin accounts subject to this provision, that the concentration of debit balances is appropriate, then such designated examining authority may grant a partial or plenary exception from this provision. The debit balance may be included in the reserve formula computation for five business days from the day the request is made.
(6) Debit balances in joint accounts, custodian accounts, participation in hedge funds or limited partnerships or similar type accounts or arrangements that include both assets of a person or persons who would be excluded from the definition of customer (“noncustomer”) and assets of a person or persons who would be included in the definition of customer must be included in the Reserve Formula in the
(b) Item 14 will apply only if the broker or dealer has the margin related to security futures products, or futures (and options thereon) carried in a securities account pursuant to an approved SRO portfolio margining program on deposit with:
(1) A registered clearing agency or derivatives clearing organization that:
(i) Maintains the highest investment-grade rating from a nationally recognized statistical rating organization; or
(ii) 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 the 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; or
(iii) Maintains at least $3 billion in margin deposits; or
(iv) Does not meet the requirements of paragraphs (b)(1)(i) through (b)(1)(iii) of this Note G, if the Commission has determined, upon a written request for exemption by or for the benefit of the broker or dealer, that the broker or 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 or futures in a portfolio margin account 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 will state that all funds and/or securities deposited with the bank as margin (including customer security futures products and futures in a portfolio margin account), 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 will provide that such funds and/or securities will 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 will 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, will not prohibit a registered clearing agency or derivatives clearing organization from pledging 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 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 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
(iv) 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 customer security futures products and futures in a portfolio margin account of the broker or 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 will apply only if a broker or dealer determines, at least annually, that the registered clearing agency or derivatives clearing organization with which the broker or dealer has on deposit margin related to securities future products or futures in a portfolio margin account meets the conditions of this Note G.
(a) * * *
(23) A record documenting the credit, market, and liquidity risk management controls established and maintained by the broker or dealer to assist it in analyzing and managing the risks associated with its business activities,
(i) $1,000,000 in aggregate credit items as computed under § 240.15c3–3a; or
(ii) $20,000,000 in capital, which includes debt subordinated in accordance with § 240.15c3–1d.
The addition reads as follows:
(e) * * *
(9) All records required pursuant to § 240.17a–3(a)(23) until three years after the termination of the use of the risk management controls documented therein.
The revision and addition read as follows:
(b)(1) Every broker or dealer whose net capital declines below the minimum amount required pursuant to § 240.15c3–1, or is insolvent as that term is defined in § 240.15c3–1(c)(16), must give notice of such deficiency that same day in accordance with paragraph (g) of this section. * * *
(c) * * *
(5) If a computation made by a broker or dealer pursuant to § 240.15c3–1 shows that the total amount of money payable against all securities loaned or subject to a repurchase agreement or the total contract value of all securities borrowed or subject to a reverse repurchase agreement is in excess of 2500 percent of its tentative net capital;
By the Commission.
Securities and Exchange Commission.
Final rule.
The Securities and Exchange Commission (“Commission”), under the Securities Exchange Act of 1934 (“Exchange Act”), is amending certain broker-dealer annual reporting, audit, and notification requirements. The amendments include a requirement that broker-dealer audits be conducted in accordance with standards of the Public Company Accounting Oversight Board (“PCAOB”) in light of explicit oversight authority provided to the PCAOB by the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) to oversee these audits. The amendments further require a broker-dealer that clears transactions or carries customer accounts to agree to allow representatives of the Commission or the broker-dealer's designated examining authority (“DEA”) to review the documentation associated with certain reports of the broker-dealer's independent public accountant and to allow the accountant to discuss the findings relating to the reports of the accountant with those representatives when requested in connection with a regulatory examination of the broker-dealer. Finally, the amendments require a broker-dealer to file a new form with its DEA that elicits information about the broker-dealer's practices with respect to the custody of securities and funds of customers and non-customers.
This rule is effective June 1, 2014, except the amendment to § 240.17a–5(e)(5), which is effective October 21, 2013 and the amendments to § 240.17a–5(a) and (d)(6) and § 249.639, which are effective December 31, 2013.
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; Rose Russo Wells, Special Counsel, at (202) 551–5527; Sheila Dombal Swartz, Special Counsel, at (202) 551–5545; or Kimberly N. Chehardy, Attorney, at (202) 551–5791, Office of Financial Responsibility, Division of Trading and Markets; or Kevin Stout, Senior Associate Chief Accountant, at (202) 551–5930, Office of the Chief Accountant, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–7010.
The Commission is adopting amendments to Rule 17a–5 (17 CFR 240.17a–5) and technical and conforming amendments to Rule 17a–11 (17 CFR 240.17a–11) and is adopting Form Custody (17 CFR 249. 639) under the Exchange Act.
In 2009, the Commission began reviewing rules regarding the safekeeping of investor assets in connection with several cases the Commission brought alleging fraudulent conduct by investment advisers and broker-dealers, including, among other things, misappropriation or other misuse of customer securities and funds.
In June 2011, the Commission proposed rule amendments and a new form designed, among other things, to provide additional safeguards with respect to broker-dealer custody of customer securities and funds.
The proposed amendments were designed to enhance the ability of the Commission to oversee broker-dealer custody practices and, among other things, to: (1) Increase the focus of broker-dealers that maintain custody of customer funds and securities (“carrying broker-dealers”) and their independent public accountants on compliance, and internal control over compliance, with certain financial and custodial requirements; (2) strengthen and clarify broker-dealer audit and reporting requirements in order to facilitate consistent compliance with these requirements; (3) facilitate the ability of the PCAOB to implement the explicit oversight authority over broker-dealer audits provided to the PCAOB by the Dodd-Frank Act;
The Commission received 27 comment letters on the proposal.
Rule 15c3–1,
Rule 15c3–1 requires broker-dealers to maintain a minimum level of net capital (consisting of highly liquid assets) at all times.
Rule 15c3–3 imposes two key requirements on a carrying broker-dealer: first, the broker-dealer must maintain physical possession or control over customers' fully paid and excess margin securities;
Provisions of Rule 15c3–3 exempt a broker-dealer from the requirements of Rule 15c3–3 under certain circumstances.
Rule 17a–13 generally requires a broker-dealer that maintains custody of securities (proprietary, customer, or both), on a quarterly basis, to physically examine and count the securities it holds, account for the securities that are subject to its control or direction but are not in its physical possession (
The Account Statement Rules of DEAs require member broker-dealers to send, at least once every calendar quarter, a statement of account containing a description of any securities positions, money balances, or account activity to each customer whose account had a security position, money balance, or account activity during the period since the last such statement was sent to the customer.
The Commission is adopting amendments to the reporting, audit, and notification requirements in Rule 17a–5, and additional amendments to other provisions of the rule, including technical changes. The Commission also is adopting amendments to the notification requirements in Rule 17a–11, and certain other technical amendments to that rule.
Under the amendments to the reporting and audit requirements, broker-dealers must, among other things, file with the Commission annual reports consisting of a financial report and either a compliance report or an exemption report that are prepared by the broker-dealer, as well as certain reports that are prepared by an independent public accountant covering the financial report and the compliance report or the exemption report.
A broker-dealer that did not claim that it was exempt from Rule 15c3–3 throughout the most recent fiscal year must file the compliance report, and a broker-dealer that did claim it was exempt from Rule 15c3–3 throughout the most recent fiscal year (generally, a “non-carrying broker-dealer”) must file the exemption report.
In addition to preparing and filing the financial report and the compliance report or exemption report, a broker-dealer must engage a PCAOB-registered independent public accountant to prepare a report based on an examination of the broker-dealer's financial report in accordance with PCAOB standards.
The annual reports also must be filed with SIPC if the broker-dealer is a member of SIPC.
Finally, the PCAOB-registered independent public accountant must immediately notify the broker-dealer if the accountant determines during the course of preparing the accountant's reports that the broker-dealer is not in compliance with the financial responsibility rules or if the accountant determines that any material weakness exists in the broker-dealer's internal control over compliance with the financial responsibility rules.
Each of these amendments is discussed in more detail in the following sections of this release.
Prior to today's amendments, paragraph (d) of Rule 17a–5 generally required a broker-dealer to annually file the financial statements and supporting schedules discussed below in section II.B.2. of this release and a report prepared by the broker-dealer's independent public accountant covering the financial statements and supporting schedules.
The Commission proposed to amend paragraph (d)(1) of Rule 17a–5
The proposed amendments with respect to the compliance report and exemption report set forth different requirements for carrying broker-dealers as compared with broker-dealers that do not hold customer securities and funds.
The Commission received several comments on its proposed amendments to paragraph (d)(1) of Rule 17a–5.
After considering these comments, the Commission is adopting the proposed amendments with certain modifications.
The final rule is modified from the proposal in three key ways. First, the final rule provides that the broker-dealer must file the exemption report if it did “claim that it was exempt” from Rule 15c3–3
As noted above, several commenters argued that broker-dealers that engage in limited custodial activities and, therefore, are not exempt from Rule 15c3–3, should not be required to file a compliance report.
The level of effort required by carrying broker-dealers to prepare a compliance report will depend on the nature and extent of their activities. For example, the controls of a carrying broker-dealer that engages in limited custodial activities could be less complex than the controls of a carrying broker-dealer that engages in more extensive custodial activities.
The second key modification is that the final rule provides that the requirement to file the exemption report applies if the broker-dealer did claim that it was exempt from Rule 15c3–3 “throughout the most recent fiscal year.”
The third key modification is that the final rule specifies the individual who must execute the compliance reports and exemption reports.
Before today's amendments, paragraph (d)(2) of Rule 17a–5 required that the annual audited report of a broker-dealer contain certain financial statements in a format consistent with Form X–17A–5 Part II or Form X–17A–5 Part IIa, as applicable, including a statement of financial condition, an income statement, a statement of cash flows, a statement of changes in owners' equity, and a statement of changes in liabilities subordinated to claims of general creditors.
The Commission proposed combining the provisions in paragraphs (d)(2) through (d)(4) of Rule 17a–5 in revised paragraph (d)(2) without substantive modification to those provisions.
As proposed, the requirements for the contents of the compliance report were prescribed in paragraph (d)(3) of Rule 17a–5.
Specifically, as proposed, the carrying broker-dealer would be required to include in the compliance report a statement as to whether the firm has established and maintained a system of internal control to provide the broker-dealer with reasonable assurance that any instances of material non-compliance with the financial responsibility rules will be prevented or detected on a timely basis.
Under the proposal, the broker-dealer would not be able to assert compliance with the financial responsibility rules as of its most recent fiscal year end if it identified one or more instances of material non-compliance.
An instance of
The term
The Commission received a number of comments on the proposed compliance report. Generally, the comments focused on the intended scope of the compliance report and the assertions to be included. Specifically, many commenters raised concerns about what would constitute “material non-compliance.”
Commenters also addressed the time period covered by the assertion relating to effectiveness of internal control. In particular, some commenters stated that the proposed assertion that internal control was effective should be as of a point in time, as opposed to “during the fiscal year.”
Regarding the proposed assertion that the broker-dealer was in compliance with the financial responsibility rules, one commenter stated that broker-dealers may need to interpret certain requirements and in other cases broker-dealers may be relying on informal interpretations obtained through dialogue with the Commission or its DEA.
Some commenters stated that the Commission should provide additional guidance about the control objectives that would need to be met to achieve effective internal control over compliance with the financial responsibility rules.
Some commenters had questions and comments about the proposed assertion that information used to assert compliance with the financial responsibility rules was derived from the books and records of the broker-dealer. Three commenters asked whether “books and records” means records maintained under Rule 17a–3.
The Commission is adopting the proposed amendments to Rule 17a–5 requiring a carrying broker-dealer to prepare and file a compliance report, with modifications, some of which are in response to comments.
Specifically, paragraph (d)(3) of Rule 17a–5 requires that the compliance report contain statements as to whether: (1) The broker-dealer has established and maintained Internal Control Over Compliance (which, as discussed below, is a defined term in the final rule); (2) the Internal Control Over Compliance of the broker-dealer was effective during the most recent fiscal year; (3) the Internal Control Over Compliance of the broker-dealer was effective as of the end of the most recent fiscal year; (4) the broker-dealer was in compliance with Rule 15c3–1 and paragraph (e) of Rule 15c3–3 as of the end of the most recent fiscal year; and (5) the information the broker-dealer used to state whether it was in compliance with Rule 15c3–1 and paragraph (e) of Rule 15c3–3 was derived from the books and records of the broker-dealer. Further, if applicable, the compliance report must contain a description of: (1) Each identified material weakness in the Internal Control Over Compliance during the most recent fiscal year, including those that were identified as of the end of the fiscal year; and (2) any instance of non-compliance with Rule 15c3–1 or paragraph (e) of Rule 15c3–3 as of the end of the most recent fiscal year.
The final rule does not use the term assertion—the assertions contained in the proposal are now referred to as statements.
In the final rule, the first statement in the compliance report is whether the broker-dealer has established and maintained Internal Control Over Compliance.
The final rule also provides that a broker-dealer is not permitted to conclude that its Internal Control Over Compliance was effective if there were one or more material weaknesses in its Internal Control Over Compliance.
The final amendments reflect several other key changes from the proposal. For example, one commenter stated that the compliance report was overinclusive and burdensome, and therefore suggested that the final rule focus on “issues most vital to the financial condition of the broker-dealer and its compliance and internal control over compliance.”
The “material non-compliance” and “compliance in all material respects” concepts were designed to limit the types of instances of non-compliance that would prevent a carrying broker-dealer from stating that it was in compliance with the financial responsibility rules. In order to retain a limiting principle, the final rule focuses on provisions that trigger notification requirements when they are not complied with, namely, Rule 15c3–1 and the customer reserve requirement in paragraph (e) of Rule 15c3–3.
Consistent with these changes, the final rule requires a statement as to whether the carrying broker-dealer has established and maintained
The definition of
Further, and consistent with current auditing standards, the definition of “deficiency in internal control” in the final rule has been modified to include the phrase “the management or employees of the broker or dealer” in place of the phrase “the broker or dealer.”
The final rule—substantially as proposed—requires the carrying broker-dealer to state whether its Internal Control Over Compliance was effective during the most recent fiscal year.
However, in response to comments suggesting that the broker-dealer be permitted to report the remediation or whether a material weakness still exists at the end of the year,
Consistent with these changes, the final rule provides that the carrying broker-dealer cannot conclude that its Internal Control Over Compliance was effective during the most recent fiscal year if there were one or more material weaknesses in Internal Control Over Compliance of the broker-dealer during the fiscal year.
The final rule also retains the proposed requirement that the carrying broker-dealer provide a description of each identified material weakness in the broker-dealer's Internal Control Over Compliance, but, in conformity with other modifications to the proposal, the final rule requires that the material weaknesses include those identified during the most recent fiscal year as well as those that were identified as of the end of the fiscal year.
As noted above, one commenter recommended that the Commission require broker-dealers to document oral guidance obtained through dialogue with Commission or DEA staff.
Also as noted above, two commenters asked the Commission to provide additional guidance about the control objectives that should be met to achieve effective internal control over compliance with the financial responsibility rules.
As noted above, several commenters sought assurances that the independent public accountant's examination of the compliance report would not cover the effectiveness of internal control over financial reporting.
A broker-dealer's Internal Control Over Compliance is intended to focus, for example, on a broker-dealer's oversight of custody arrangements and protection of customer assets. In contrast, internal control over financial reporting is focused on the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. As stated in the proposing release, the Commission did not propose that effectiveness of internal control over financial reporting be included as one of the assertions made by the broker-dealer in the compliance report. The Commission intends that the compliance report should focus on oversight of net capital, custody arrangements, and protection of customer assets, and therefore, should be focused on compliance with the financial responsibility rules.
Further, the examination of the compliance report would pertain solely to certain statements in the compliance report and not to the broker-dealer's process for arriving at the statements. The report of the independent public accountant, based on the examination of the compliance report, requires the accountant to perform its own independent examination of the related internal controls. Consequently, it is not necessary for the independent public accountant to provide an opinion with regard to the process that the broker-dealer used to arrive at its conclusions.
As noted above, commenters sought clarification of the meaning of “books and records” as used in the compliance report statement. The reference in paragraph (d)(3)(i)(A)(
The Commission proposed that the exemption report must contain an assertion by the broker-dealer that it is exempt from Rule 15c3–3 because it meets conditions set forth in paragraph (k) of Rule 15c3–3 and “should identify
The Commission received several comments regarding the exemption report.
One commenter stated that the exemption report relates only to Rule 15c3–3 and asked how the Commission intended to assess, for a firm that claims an exemption from Rule 15c3–3, compliance with Rule 15c3–1 and the adequacy of the firm's internal control over compliance with that rule.
The Commission is adopting, with modifications discussed below, the requirements regarding the exemption report.
In response to comments seeking clarity as to whether the assertion in the exemption report should cover a fixed date or the fiscal year,
In addition, as proposed, the exemption report was required to contain an assertion that the broker-dealer “is exempt from the provisions” of Rule 15c3–3 “because it meets conditions set forth in” paragraph (k) of Rule 15c3–3 and “should identify the specific conditions.”
First, it provides that the statements in the exemption report must be made to the “best knowledge and belief of the broker or dealer.”
Second, the final rule provides that the broker-dealer first must identify in the exemption report the “provisions” in paragraph (k) of Rule 15c3–3 under which it “claimed” an exemption from Rule 15c3–3.
Further, as proposed, the broker-dealer would have been required to identify the exemption “conditions” in paragraph (k) of Rule 15c3–3.
The third modification designed to address commenters' questions and concerns about how to handle exceptions to meeting the exemption provisions in paragraph (k) of Rule 15c3–3 relates to the proposed assertion that the broker-dealer “is exempt from the provisions” of Rule 15c3–3 “because it meets conditions set forth in” paragraph (k). The final rule provides that the exemption report must contain a statement that the broker-dealer met the identified exemption provisions in paragraph (k) of Rule 15c3–3 throughout the most recent fiscal year without exception or that it met the identified exemption provisions in paragraph (k) of Rule 15c3–3 throughout the most recent fiscal year except as described in the exemption report.
If the broker-dealer states that it had exceptions (
Under the final rule, a non-carrying broker-dealer must identify in the exemption report and describe each exception during the most recent fiscal year in meeting the identified exemption provisions in paragraph (k) of Rule 15c3–3. The description must include the approximate date(s) on which the exception existed. Without such reporting, the Commission and the broker-dealer's DEA would have no information to assess the nature, extent, and significance of the exceptions.
As noted above, one commenter asked whether the exemption report should be replaced with a box to check on the FOCUS Report, as the amount of paperwork involved for small firms “seems rather excessive.”
As noted above, one commenter pointed out that the exemption report relates solely to Rule 15c3–3 and asked how the adequacy of a non-carrying broker-dealer's internal controls over compliance with Rule 15c3–1 would be assessed.
Prior to today's amendments, paragraph (d)(5) of Rule 17a–5 required that the annual audit report be filed not more than 60 days after the date of the financial statements.
The Commission is adopting, with modifications, the proposed amendment to paragraph (d)(5) of Rule 17a–5.
Prior to today's amendments, paragraph (d)(6) of Rule 17a–5 provided that the “annual audit report” must be filed at the regional office of the Commission for the region in which the broker-dealer has its principal place of business, the Commission's principal office in Washington, DC, and the principal office of the DEA of the broker-dealer.
The Commission proposed two amendments to this provision. First, the Commission proposed that an SRO that is not a broker-dealer's DEA could by rule waive the requirement that broker-dealers file annual reports with it because many SROs do not believe that it is necessary to receive copies of broker-dealer annual reports if they are not the broker-dealer's DEA.
Second, the Commission proposed amending this provision to require a broker-dealer to file its annual reports with SIPC.
The Commission explained in the proposing release that the proposed requirement for broker-dealers to file their annual reports with SIPC could allow SIPC to better monitor industry trends and enhance its knowledge of particular firms.
The Commission received seven comments on the proposal that broker-dealers be required to file their annual reports with SIPC.
After the proposal, a task force established by SIPC to undertake a comprehensive review of SIPA and SIPC's operations and policies and to propose reforms to modernize SIPA and SIPC recommended to the SIPC Board that SIPC members be required to file audit reports with SIPC concurrently with their filing with the SEC, a position consistent with the proposal. In a report presented to the SIPC Board of Directors in February 2012,
The Commission is adopting the amendment requiring broker-dealers to file their annual reports with SIPC substantially as proposed.
In addition, by receiving the annual reports, SIPC may be able to overcome a legal hurdle to pursuing claims against a broker-dealer's accountant where the accountant's failure to adhere to professional standards in auditing a broker-dealer caused a loss to the SIPC Fund. Although this amendment is intended to remove one potential legal hurdle to SIPC actions against accountants, the other elements of any relevant cause of action would be unaffected. The Commission does not intend by this amendment to take a position on the circumstances under which SIPC may have a viable cause of action against an independent public accountant.
Several commenters stated that the Commission did not address the potential costs and benefits of requiring broker-dealers to file copies of their annual reports with SIPC, including potential accounting litigation costs.
Prior to today's amendments, paragraph (e)(1)(i) of Rule 17a–5 provided, among other things, that the audit of the broker-dealer's financial statements needed to be performed by an accountant that is independent as defined in paragraph (f) of Rule 17a–5.
The Commission proposed amending paragraph (e)(1)(i) of Rule 17a–5 to remove the words “An audit shall be conducted by a public accountant who shall be in fact independent as defined in paragraph (f)(3) of this section herein, and he shall give an opinion covering the statements filed pursuant to paragraph (d).” This amendment would consolidate the requirements with respect to the qualifications of the accountant in paragraph (f) of Rule 17a–5, and paragraph (e)(1)(i) of Rule 17a–5 would address only exemptions from the requirement to engage an independent public accountant to audit the annual reports prepared by the broker-dealer.
Prior to today's amendments, paragraph (e)(2) of Rule 17a–5 provided that an oath or affirmation must be attached to the annual audit report that, to the best knowledge and belief of the person making the oath or affirmation, the financial statements and schedules are true and correct and, among other things, that the oath or affirmation must be made by the proprietor if a sole proprietorship, by a general partner, if a partnership, or by a duly authorized officer, if a corporation.
One commenter stated that currently paragraph (e)(2) of Rule 17a–5 does not specifically cover limited liability companies, and its reference to partnerships assumes that a general partner is a natural person.
In response to this comment, the Commission is adopting amendments to paragraph (e)(2) of Rule 17a–5 that modify the proposed amendments.
Prior to today's amendments, paragraph (e)(3) of Rule 17a–5 provided that the financial statements filed under paragraph (d) are public, except that if the Statement of Financial Condition is bound separately from the balance of the annual audited financial statements filed under paragraph (d)(1), the balance of the annual audited financial statements will be deemed confidential.
Consequently, the Commission proposed amending paragraph (e)(3) of Rule 17a–5 to provide that the annual reports filed pursuant to paragraph (d) are public, except that if the Statement of Financial Condition is bound separately from the annual report filed pursuant to “paragraph (d)(2) of Rule 17a–5,” and each page of the balance of the annual report is stamped “confidential,” the balance of the annual report shall be deemed confidential.
Prior to today's amendments, paragraph (e)(3) of Rule 17a–5 also provided that the broker-dealer's reports, including the confidential portions, will be available, for example, for official use by any official or employee of the U.S. and an official or employee of any national securities exchange and registered national securities association of which the broker-dealer is a member and “by any other person to whom the Commission authorizes disclosure of such information as being in the public interest.”
As discussed above in section II.B.6. of this release, SIPC maintains the SIPC Fund to be used in liquidations of broker-dealers under SIPA. The SIPC Fund is established and maintained through assessments on broker-dealers that are required to be members of
Prior to today's amendments, paragraph (e)(4) of Rule 17a–5 provided that a broker-dealer must file with its annual report a supplemental report on the status of the membership of the broker-dealer in SIPC, which was required to be “covered by an opinion of the independent public accountant” if the annual report of the broker-dealer was required to be audited.
Under this provision, the supplemental report did not need to be filed if the SIPC Fund assessments were the minimum assessment provided for under SIPA.
The Commission stated in the proposing release that, because Forms SIPC–3 and SIPC–7 are used solely by SIPC for purposes of levying its assessments, the supplemental report required pursuant to paragraph (e)(4) of Rule 17a–5 relating to these forms would be more appropriately filed exclusively with SIPC and that SIPC (rather than the Commission) should prescribe by rule the form of the supplemental report.
For these reasons, the Commission proposed to amend paragraph (e)(4) of Rule 17a–5 to require that broker-dealers file with SIPC a report on the SIPC annual general assessment reconciliation or exclusion from membership forms that contains such information and is in such format as determined by SIPC by rule and approved by the Commission.
Further, to facilitate this change, the Commission proposed to update the rule text to conform it to existing professional standards and industry practices.
The Commission received two comments relating to the proposed amendments to paragraph (e)(4) of Rule 17a–5, both of which supported the proposed change.
The Commission is adopting the amendments to paragraph (e)(4) of Rule 17a–5 as proposed.
As part of today's amendments to the broker-dealer annual reporting requirements in Rule 17a–5, the Commission is amending certain requirements relating to a broker-dealer's engagement of an independent public accountant. Specifically, the Commission is requiring that a broker-dealer engage an independent public accountant to prepare reports based on an examination of the broker-dealer's financial report and either an examination of certain statements in the broker-dealer's compliance report or a review of certain statements in the broker-dealer's exemption report. The examinations and reviews must be made in accordance with the standards of the PCAOB, consistent with the explicit authority granted to the PCAOB by the Dodd-Frank Act to establish (subject to Commission approval) auditing and attestation standards with respect to broker-dealer audits.
This section addresses statutory requirements for broker-dealer annual reports and the Commission's authority with regard to these reports, describes the engagement of accountant requirements in Rule 17a–5 prior to today's amendments, summarizes the Commission's proposed amendments and comments received, and discusses the final rule amendments.
Section 17(e)(1)(A) of the Exchange Act requires a broker-dealer to file annually with the Commission a “certified” balance sheet and income statement as well as “such other financial statements (which shall, as the Commission specifies, be certified) and information concerning its financial condition as the Commission, by rule, may prescribe as necessary or appropriate in the public interest or for the protection of investors.”
Prior to the enactment of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”),
The Dodd-Frank Act, enacted in July 2010, amended the Sarbanes-Oxley Act to provide the PCAOB with explicit authority to, among other things, establish (subject to Commission approval) auditing and related attestation, quality control, ethics, and independence standards for registered public accounting firms with respect to their preparation of audit reports to be included in broker-dealer filings with the Commission, and the authority to conduct and require an inspection program of registered public accounting firms that audit broker-dealers.
The Dodd-Frank Act also added section 104(a)(2)(D) to the Sarbanes-Oxley Act, which provides that a public accounting firm is not required to register with the PCAOB if the public accounting firm is exempt from an inspection program established by the PCAOB.
Before today's amendments, paragraph (g)(1) of Rule 17a–5 required that audits of broker-dealer reports filed with the Commission under Rule 17a–5 be made in accordance with generally accepted auditing standards (“GAAS”), which are established by the Auditing Standards Board of the American Institute of Certified Public Accountants (“AICPA”). In light of the authority granted to the PCAOB by the Dodd-Frank Act to establish standards governing audit reports to be included in broker-dealer filings with the Commission, the Commission issued transitional interpretive guidance to clarify that references in Commission rules, staff guidance, and in the federal securities laws to GAAS or to specific standards under GAAS, as they relate to non-issuer brokers or dealers, should continue to be understood to mean auditing standards generally accepted in the U.S., in addition to any applicable rules of the Commission.
Since the Commission proposed these amendments, the PCAOB has taken a number of actions to implement the explicit authority over broker-dealer audits provided to it by the Dodd-Frank Act. For example, on August 18, 2011, the Commission approved two PCAOB rule changes: a temporary PCAOB rule that established an interim program of inspection of audits of broker-dealers,
Rule 17a–5 requires that a broker-dealer prepare and file certain financial statements and supporting schedules in addition to the balance sheet and income statement required under section 17(e)(1)(A) of the Exchange Act.
In addition to filing a report of the independent public accountant covering the financial statements and supporting schedules, paragraph (j) of Rule 17a–5 required the broker-dealer to file with the annual audit a supplemental report prepared by the accountant (“material inadequacy report”) that either: (1) Indicated that the accountant did not find any material inadequacies; or (2) described any material inadequacies in internal control the accountant found during the course of the audit of the financial statements and supporting schedules and any corrective action taken or proposed by the broker-dealer.
For purposes of preparing the material inadequacy report, paragraph (g)(1) of Rule 17a–5 required that the audit include a “review” of the broker-dealer's accounting system, internal accounting control, and procedures for safeguarding securities.
The
Additional engagement of accountant requirements prior to today's amendments were set forth in paragraphs (g) and (i) of Rule 17a–5. Paragraph (g)(2) of Rule 17a–5 provided that, if the broker-dealer was exempt from Rule 15c3–3, the independent public accountant must ascertain that the conditions of the exemption were being complied with as of the examination date and that no facts came to the independent public accountant's attention to indicate that the exemption had not been complied with during the period since the last examination.
Paragraph (i) of Rule 17a–5, before today's amendments, was titled, “Accountant's reports—general provisions.”
Prior to today's amendments, paragraph (i)(3) of Rule 17a–5 provided that the accountant's report must state clearly the opinion of the accountant: (i) with respect to the financial statements and schedules covered by the report and the accounting principles and practices; and (ii) as to the consistency of the application of the accounting principles, or as to any changes in such principles that have a material effect on the financial statements.
The Commission proposed to substantially amend paragraph (g) and remove paragraph (j) of Rule 17a–5, in part, to update the engagement of the accountant requirements to address outdated or inconsistent terminology in the rule.
The Commission proposed making conforming amendments to paragraph (i) of Rule 17a–5, substituting the words “examinations” and “reviews” for the word “audits,” substituting the words “standards of the PCAOB” for “generally accepted auditing standards,” substituting “annual reports” for “financial statements,” and changing the title to “Reports prepared by the independent public accountant.” The Commission also proposed deleting paragraph (i)(5) of Rule 17a–5, which provided that the terms “audit,” “examination,” “accountant's report,” and “certified” have the meanings given in Rule 1–02 of Regulation S–X. As proposed, paragraph (i)(1) of Rule 17a–5 would have provided that the independent public accountant's reports must: be dated; be signed manually; indicate the city and state where issued; and identify without detailed enumeration the items covered by the reports. Paragraph (i)(2) of Rule 17a–5 would have provided that the accountant's report must state whether the examination or review was made in accordance with standards of the PCAOB and must designate any examination, and, if applicable, review procedures deemed necessary by the independent public accountant under the circumstances of the particular case that have been omitted, and the reason for their omission. Further, the rule would have provided that “[n]othing in this section shall be construed to imply authority for the omission of any procedure that independent public accountants would ordinarily employ in the course of an examination or review made for the purpose of expressing the opinions or statement required under [Rule 17a–5].” Paragraph (i)(3) of Rule 17a–5 would have provided that the independent public accountant's reports must state clearly the opinion of the independent public accountant: (i) with respect to the financial report and the accounting principles and practices reflected therein and the compliance report; and (ii) with respect to the financial report, as to the consistency of the application of the accounting principles, or as to any changes in such principles that have a material effect on the financial statements. Paragraph (i)(4) of Rule 17a–5 would have provided that any matters to which the independent public accountant takes exception must be clearly identified, the exception thereto specifically and clearly stated, and, to the extent practicable, the effect of each such exception on any related items contained in the annual reports.
As stated above, after the Commission proposed the amendments to Rule 17a–5, the PCAOB issued proposed standards that “would establish requirements for examining the assertions in a broker's or dealer's compliance report and reviewing a broker's or dealer's assertion in the exemption report.”
The Commission received several comments regarding the proposed revisions to the independent accountant engagement requirements in Rule 17a–5.
One commenter noted that the proposing release states that broker-dealers will be required to file a report by the accountant that “addresses” the assertions in the compliance report,
Another commenter stated that a review engagement should not be employed for the exemption report because inquiry and observation would not provide sufficient evidence regarding a broker-dealer's assertion that it is exempt from the requirements of Rule 15c3–3 and stated that, under the PCAOB's interim attestation standards, an auditor should not accept an engagement to perform a “review” level of service related to an entity's compliance with specified requirements or an assertion with regard to that compliance.
Several commenters urged the Commission to clarify the interaction between material weaknesses in internal control over financial reporting and material weaknesses in internal control over compliance with the financial responsibility rules.
As noted above in section II.B.4.ii. of this release, with respect to the independent public accountant's review of the exemption reports, one commenter stated that, for example, a bank or clerical error that results in a broker-dealer that operates under an exemption to Rule 15c3–3 finding itself in possession of customer assets overnight once during the fiscal year should not “warrant the ‘material modification' of a broker-dealer's Exemption Report.”
The Commission is adopting amendments to the engagement of the accountant requirements in Rule 17a–5 substantially as proposed, except for revisions, as discussed in detail below, to clarify the rule's requirements and to make technical changes. Paragraph (g) of Rule 17a–5 as adopted provides that the independent public accountant engaged by the broker-dealer to provide reports on the financial report and either the compliance report or exemption report must, as part of the engagement undertake to: (1) Prepare a report based on an examination of the broker-dealer's financial report in accordance with standards of the PCAOB; and (2) prepare a report based on an examination of certain enumerated statements of the broker-dealer in the compliance report
Various commenters suggested that GAAS instead of PCAOB standards should apply for engagements of accountants with respect to certain broker-dealer reports, such as reports of non-carrying broker-dealers.
As noted above, the PCAOB has proposed an auditing standard for supplemental information accompanying audited financial statements, including the supporting schedules broker-dealers must file as part of the financial report.
With respect to comments suggesting that PCAOB standards should apply only to auditors of broker-dealers “permanently subject to PCAOB inspection,”
At this time, there is no reason to expect that any type of broker-dealer audit will be exempt from the PCAOB's permanent inspection program, and any PCAOB determination to exempt broker-dealer audits from the PCAOB's permanent inspection program must be approved by the Commission. Therefore, notwithstanding any such exemption, paragraph (g) of Rule 17a–5 is amended to require that broker-dealer independent public accountants prepare reports covering the financial report and compliance report or exemption report in accordance with standards of the PCAOB.
On August 20, 2012, the PCAOB published its first report on the progress of the interim inspection program.
Several commenters suggested that the Commission delay the applicability of these requirements because, among other things, PCAOB standards regarding broker-dealer audits, including standards that apply to compliance reports and exemption reports, will not be final when these rule amendments are adopted.
As noted above, one commenter stated the Commission should provide more guidance on what an independent public accountant must address, and that the requirement for PCAOB standards should not be effective unless the
In response to the comment that the requirements with respect to the compliance reports and exemption reports should not be effective unless
As noted above, several commenters requested clarity about the interaction between material weaknesses in internal control over financial reporting and material weaknesses in internal control over compliance with the financial responsibility rules.
As noted above, one commenter stated that a review engagement should not be employed for the exemption report, because an accountant's inquiry and observation would not provide sufficient evidence regarding a broker-dealer's assertion that it is exempt from Rule 15c3–3, and under the PCAOB's attestation standards, an auditor should not accept an engagement to perform a “review” engagement related to an entity's compliance with specified requirements.
The PCAOB's attestation standards
In response to the comment that a review engagement should not be employed for the exemption report because inquiry and observation would not provide sufficient evidence,
The commenter's suggestion to use an “agreed-upon procedures” engagement for the exemption report was considered. The final rule, however, requires a review engagement as proposed. Under an “agreed-upon procedures” engagement, the independent public accountant is
In addition to the commenter advocating an “agreed-upon procedures” standard,
As noted above, two commenters raised concerns that minor exceptions to meeting the exemption provisions of paragraph (k) of Rule 15c3–3 could result in the independent public accountant becoming aware of material modifications that should be made to the statement in the exemption report.
The Commission did not receive comments regarding the proposed amendments to paragraph (i) of Rule 17a–5. However, the final rule has been revised from the proposal for clarity and consistency with the other amendments to Rule 17a–5. The title of the rule has been modified from the proposal to add a citation for clarity. As adopted, the title is, “Reports of the independent public accountant required under paragraph (d)(1)(i)(C) of [Rule 17a–5].” As adopted, paragraph (i)(1) of Rule 17a–5 provides, as proposed, that the independent public accountant's reports must: Be dated; be signed manually; indicate the city and state where issued; and identify without detailed enumeration the items covered by the reports.
Paragraph (i)(2) of Rule 17a–5, as adopted, is also consistent with the proposal except that the word “Identify” is substituted for the word “Designate” for clarity and the phrase “opinions or conclusions” is substituted for the phrase “opinions or statement” because as explained above, consistent with auditing standards, a review engagement will not result in an opinion, but in the accountant's conclusion in the form of “negative assurance”—for example, a conclusion that no information came to the accountant's attention that indicates that a statement is not fairly stated in all material respects.
Paragraph (i)(3) of Rule 17a–5, as adopted, is re-organized for clarity. Specific reference has been added to those statements in the compliance report that the accountant must examine, consistent with other amendments to Rule 17a–5 (
Paragraph (i)(4) of Rule 17a–5 has been modified from the proposal to add a reference to paragraph (d) to make it more clear that the annual reports referenced in the paragraph are the financial report, compliance report, and exemption report prescribed in paragraph (d). In addition—in the interest of using “plain English” in the Commission's rules—the word “must” has been substituted for the word “shall” and the word “thereto” has been eliminated. The rule as adopted therefore provides that “[a]ny matters to which the independent public accountant takes exception must be clearly identified, the exceptions must be specifically and clearly stated, and, to the extent practicable, the effect of each such exception on any related items contained in the annual reports required under paragraph (d) of [Rule 17a–5] must be given.”
Prior to today's amendments, paragraph (f)(1) of Rule 17a–5 was titled “Qualification of accountants” and provided that: “The Commission will not recognize any person as a certified public accountant who is not duly registered and in good standing as such under the laws of his place of residence or principal office.”
As discussed above, section 17(e)(1)(A) of the Exchange Act, as amended by the Dodd-Frank Act, requires registered broker-dealers to annually file financial statements with the Commission certified by “an independent public accounting firm, or by a registered public accounting firm if the firm is required to be registered under the Sarbanes-Oxley Act of 2002.” Accordingly, the Commission proposed amending paragraph (f)(1) to provide that: “The independent public accountant must be qualified and independent in accordance with § 210.2–01 of this chapter and, in addition, the independent public accountant must be registered with the Public Company Accounting Oversight Board if required by the Sarbanes-Oxley Act of 2002.”
Although the underlying independence requirements have not changed, broker-dealers and their independent public accountants are reminded that they must comply with the independence requirements of Rule 2–01 of Regulation S–X.
Under the Commission's rules, an accountant will not be recognized as independent with respect to an audit client if the accountant is not, or a reasonable investor with knowledge of all relevant facts and circumstances would conclude that the accountant is not, capable of exercising objective and impartial judgment on all issues encompassed within the accountant's engagement. In determining whether an accountant is independent, the Commission will consider all relevant circumstances, including all relationships between the accountant and the audit client, and not just those relating to reports filed with the Commission.
Further, Rule 2–01 of Regulation S–X sets forth a non-exclusive specification
• Bookkeeping or other services related to the accounting records or financial statements of the audit client;
• Financial information systems design and implementation; and
• Management functions or human resources.
With respect to bookkeeping or other services related to the accounting records or financial statements of the audit client, Rule 2–01(c)(4)(i) of Regulation S–X specifies that these services include: (1) Maintaining or preparing the audit client's accounting records; (2) preparing financial statements that are filed with the Commission or the information that forms the basis of financial statements filed with the Commission; or (3) preparing or originating source data underlying the audit client's financial statements.
Not all of the independence requirements in Rule 2–01 of Regulation S–X that are applicable to audits of issuers are applicable to engagements under Rule 17a–5. Specifically, auditors of broker-dealers are not subject to the partner rotation requirements or the compensation requirements of the Commission's independence rules because the statute mandating those requirements is limited to issuers.
As discussed in detail below, the Commission is amending the notification provisions in Rule 17a–5 and amending Rule 17a–11 to align that rule with the amendments to Rule 17a–5. Under Rule 17a–11, a broker-dealer must provide notice to the Commission and its DEA in certain circumstances.
Prior to today's amendments, paragraph (h)(2) of Rule 17a–5 provided that if, during the course of the audit or interim work, the independent public accountant determined that any “material inadequacies” existed, then the independent public accountant was required to inform the chief financial officer (“CFO”) of the broker-dealer, who, in turn, was required to give notice to the Commission and the broker-dealer's DEA within 24 hours in accordance with the provisions of Rule 17a–11.
The proposed amendments to Rule 17a–5 would have replaced references to material inadequacies, including the material inadequacy report, with a requirement applicable to carrying broker-dealers to identify an instance of “material non-compliance” with the financial responsibility rules and any material weakness in internal control over compliance with the financial responsibility rules in the compliance report and the requirement to engage an independent public accountant to examine the compliance report.
The Commission also proposed amending provisions regarding the notification process.
The Commission received numerous comments in response to this proposal.
In addition, one commenter asked whether the notification provisions apply to a review of the exemption report.
In part in response to comments received, and to achieve consistency with other revisions to the proposed rule amendments described above, the notification provisions in the final rule have been modified from the proposed amendments.
Second, the final rule amendments require that, if the independent public accountant determines that the broker-dealer “is not in compliance with” any of the financial responsibility rules during the course of preparing the accountant's reports, the independent public accountant must immediately notify the broker-dealer's CFO of the nature of the non-compliance.
If the independent public accountant provides notice to the broker-dealer of an instance of non-compliance with the financial responsibility rules, the broker-dealer must provide notice to the Commission and its DEA in accordance with the notification provisions of Rule 15c3–1, Rule 15c3–3, or Rule 17a–11, but only if the notice provided by the independent public accountant concerns an instance of non-compliance that requires the broker-dealer to provide notification under those rules. The proposal would have required the accountant to notify the Commission “upon determining that any material non-compliance exists.”
The broker-dealer must provide a copy of the notification to the accountant within one business day and, if the accountant does not receive the notice or the accountant does not agree with any statements in the notice, the accountant must provide a report to the Commission and the broker-dealer's
While the final rule incorporates the existing notification process, the Commission wants to emphasize the importance of broker-dealers providing notification to the Commission and other securities regulators of non-compliance with Rule 15c3–1 as required by Rule 17a–11 and non-compliance with paragraph (e) of Rule 15c3–3 as required by paragraph (i) of Rule 15c3–3.
Third, the proposal has been modified to add that, if the accountant determines in connection with the audit of a carrying broker-dealer's annual reports that any material weakness (as defined in paragraph (d)(3)(iii) of Rule 17a–5) exists, the independent public accountant must immediately notify the broker-dealer's CFO of the nature of the material weakness.
As discussed in more detail below in section II.F.2. of this release, the Commission is amending Rule 17a–11 to provide that a broker-dealer must provide notification to the Commission and its DEA if the broker-dealer discovers, or is notified by its independent public accountant, of the existence of a material weakness.
As stated above, one commenter asked whether the notification provisions apply to a review of an exemption report.
The rule as amended does not require the accountant to notify the Commission directly when the accountant determines that a non-compliance with the financial responsibility rules exists, which eliminates the concern of a commenter that a report of non-compliance by the accountant, as proposed, would also trigger a Rule 17a–11 notice, which would be duplicative and create confusion.
Before today's amendments, paragraph (e) of Rule 17a–11 provided that whenever a broker-dealer discovered, or was notified by an independent public accountant, pursuant to paragraph (h)(2) of Rule 17a–5 or paragraph (f)(2) of Rule 17a–12 of the existence of any material inadequacy as defined in paragraph (g) of Rule 17a–5 or paragraph (e)(2) of Rule 17a–12, the broker-dealer was required to give notice to the Commission within 24 hours of the discovery or notification and transmit a report to the Commission within 48 hours of the notice stating what the broker-dealer has done or was doing to correct the situation.
One commenter stated that the current notification process under paragraph (h)(2) of Rule 17a–5 and paragraph (e) of Rule 17a–11 satisfies the objective of notifying the Commission in a timely manner and that the commenter was concerned that the proposal could undermine the effectiveness of the notification process in part because it would require notice to the Commission only when the accountant determines that there is a deficiency, and not when it is independently discovered by the broker-dealer.
The Commission agrees with the commenter that notification should be provided to the Commission when a deficiency in internal control is discovered by the broker-dealer, in addition to when it is notified by its accountant of the existence of any material weakness. Therefore, the final rule retains references to Rule 17a–5 in paragraph (e) of Rule 17a–11. The Commission is conforming paragraph (e) of Rule 17a–11 to today's amendments to Rule 17a–5 to substitute the term
Paragraph (c) of Rule 17a–5 generally requires a broker-dealer that carries customer accounts to send its balance sheet with appropriate notes and certain other financial information to each of its customers twice a year.
Prior to today's amendments, paragraph (c)(2)(iii) of Rule 17a–5 provided that if, in conjunction with a broker-dealer's most recent audit report, the broker-dealer's independent public accountant commented on any material inadequacies in the broker-dealer's internal controls, its accounting system, or certain of its practices and procedures
As discussed above in sections II.D.3. and II.F. of this release, the Commission proposed deleting references to, and the definition of, the term material inadequacy in Rule 17a–5, and proposed amending paragraph (h) of Rule 17a–5 to require a broker-dealer's independent public accountant to notify the Commission and the broker-dealer's DEA if the accountant determined that any material non-compliance existed at the broker-dealer during the course of preparing its reports.
Three commenters responded to the proposed amendments to paragraph (c)(2) of Rule 17a–5.
The Commission is revising its proposal to amend paragraph (c)(2) of Rule 17a–5 to be consistent with the new notification provisions in paragraph (h) described above relating to the identification by a broker-dealer's accountant of a material weakness rather than an instance of material non-compliance.
In response to commenters' concerns about making the report of material non-compliance available to the public, the report that now will be made publicly available is a report that identifies the existence of a material weakness—not a report of material non-compliance. In addition, making the report of the independent public accountant covering the compliance report publicly available if it identifies the existence of a material weakness is consistent with the previous treatment of a report of a material inadequacy. Providing customers notice of an accountant's finding that goes directly to the financial and operational condition of their broker-dealer and making the report containing the finding publicly available will make available to customers information that facilitates their ability to make more informed decisions in selecting broker-dealers through which they prefer to conduct business. For these reasons, the final rule does not accord confidential treatment to a report of an independent public accountant covering the compliance report if it identifies a material weakness as some commenters suggested should be the case with respect to the proposed—but not adopted—report of material non-compliance. Consequently, an independent public accountant's report covering the compliance report will be made available for the customer's inspection at the principal office of the Commission in Washington, DC, and the regional office of the Commission for the region in which the broker-dealer has its principal place of business if the report identifies the existence of a material weakness.
Before today's amendments, paragraph (c)(5) of Rule 17a–5 provided a conditional exemption from the requirement that a broker-dealer send paper copies of financial information to customers if the broker-dealer mailed to customers a financial disclosure statement with summary information and an Internet link to its balance sheet and other information on the broker-dealer's Web site.
The Commission received several comments on the proposal.
In response to comments received, the Commission has decided not to adopt the proposed condition in paragraph (c)(5)(vi) of Rule 17a–5 for qualifying for the conditional exemption. Requiring paper delivery of financial information to customers when a broker-dealer's financial statements do not receive an unqualified opinion from its independent public accountant, or when the broker-dealer fails to comply with certain regulatory requirements, will not necessarily result in a more effective means of communication to customers and runs counter to the dominant trend toward electronic communications between financial entities and their customers. Further, as discussed above, if a broker-dealer or its independent public accountant provides notice to the Commission of a material weakness in the broker-dealer's Internal Control Over Compliance, paragraph (c)(2)(iv) of Rule 17a–5 as adopted requires the broker-dealer to include with the semi-annual financial disclosure statement it sends its customers a statement that the independent public accountant identified a material weakness and that a copy of the report of the independent public accountant is available for the customers' inspection.
Before today's amendments, paragraph (b)(6) of Rule 17a–5 provided that “a copy of [a broker-dealers] annual audit report shall be filed at the regional office of the Commission for the region in which the broker or dealer has its principal place of business and the principal office of the designated examining authority for said broker or dealer. Two copies of said report shall be filed at the Commission's principal office in Washington, DC. Copies thereof shall be provided to all self-regulatory organizations of which said broker or dealer is a member.” The Commission proposed to delete this paragraph because the same provisions are in paragraph (d)(6) of Rule 17a–5.
Before today's amendments, paragraph (e)(5) of Rule 17a–5 required broker-dealers to file Form BD–Y2K. Form BD–Y2K elicited information with respect to a broker-dealer's readiness for the year 2000 and any potential problems that could arise with the advent of the new millennium.
In the proposing release, the Commission proposed to delete paragraph (i)(5) of Rule 17a–5, which, before today's amendments, provided that “the terms
Before today's amendments, paragraph (f)(2) of Rule 17a–5 provided that a broker-dealer that was required to file an annual audit report must file a statement with the Commission and its DEA that it has designated an independent public accountant responsible for performing the annual audit of the broker-dealer, which was called “Notice pursuant to Rule 17a–5(f)(2)”.
In addition to the proposed amendments discussed below in section III. of this release, the Commission proposed certain technical amendments to paragraph (f)(2) of Rule 17a–5.
As discussed in the proposing release, notices pursuant to paragraph (f)(2) of Rule 17a–5 currently on file with the Commission do not contain the representations that are required by the amendments to paragraph (f)(2) that the Commission is adopting today. Accordingly, broker-dealers subject to paragraph (f)(2) of Rule 17a–5 (
In the proposing release, the Commission proposed additional technical amendments to Rule 17a–5, including changes that would consistently use the term “independent public accountant” throughout Rule 17a–5 when referring to a broker-dealer's accountant,
The Commission is making further technical amendments that are consistent with the Commission's “plain English” initiative and do not substantively affect the requirements of Rule 17a–5.
The Commission also is making technical amendments to paragraph (m)(1) of Rule 17a–5, which relates to extensions and exemptions for filing annual reports, and (n)(2) of Rule 17a–5, which relates to a broker-dealer's notification requirements when changing its fiscal year, to replace the words “annual audit reports” and “audit report,” respectively, with the words “annual reports.” The Commission also is deleting an unnecessary citation to paragraph (d)(1)(i) of Rule 17a–5 that was previously included in paragraph (n)(2) of Rule 17a–5.
The amendments to Rule 17a–5 that the Commission is adopting today will permit carrying broker-dealers that either also are registered as investment advisers or maintain client assets of an affiliated investment adviser and are subject to the internal control report requirement in Rule 206(4)–2 to satisfy that requirement with a report prepared by the broker-dealer's independent public accountant based on an examination of certain of the broker-dealer's statements in the compliance report.
Rule 206(4)–2 provides that a registered investment adviser is prohibited from maintaining custody of client funds or securities unless a “qualified custodian” maintains those funds and securities: (1) In a separate account for each client under that client's name; or (2) in accounts that contain only the investment adviser's clients' funds and securities, under the investment adviser's name as agent or trustee for the clients.
In addition, when an investment adviser or its related person maintains client funds and securities as qualified custodian in connection with advisory services provided to clients, the adviser annually must obtain, or receive from its related person, a written internal control report prepared by an independent public accountant registered with, and subject to regular inspection by, the PCAOB.
The Commission has issued guidance identifying the control objectives that should be included in the scope of the internal control examination required under Rule 206(4)–2.
Broker-dealers that also are registered as investment advisers may, acting in their capacity as broker-dealers, maintain client securities and funds as qualified custodians in connection with advisory services provided to clients.
Broker-dealers that maintain custody of customer funds and securities are subject to specific operational requirements in the financial responsibility rules with respect to handling and accounting for customer assets.
The Commission received several comments regarding the proposal that the independent public accountant's report based on an examination of the compliance report would satisfy the internal control report under Rule 206(4)–2. One commenter stated that it is “critically important” that there be a single independent public accountant engagement of the custody function at both the broker-dealer and investment adviser operations of any dually registered entity (or of affiliated broker-dealers and investment advisers) and that this engagement use a single, consistent standard for evaluating custody at both the broker-dealer and investment adviser operations.
In addition, two commenters asked for clarification regarding the interaction of the proposed compliance report requirements with the requirement in Rule 206(4)–2 that investment advisers undergo an annual surprise examination by an independent accountant to verify customer funds and securities held in custody.
As discussed above, under today's amendments, a carrying broker-dealer must prepare, and file with the Commission and its DEA, a compliance report on, among other things, its Internal Control Over Compliance, and must file with the compliance report a report prepared by its independent public accountant based on an examination of the compliance report.
As commenters noted, broker-dealers that are not carrying broker-dealers are not subject to the compliance report requirements and, therefore, those broker-dealers must comply with the internal control report requirement in Rule 206(4)–2 if they are subject to that requirement. The exemption report is not redundant of the internal control report requirement in Rule 206(4)–2 because, among other things, the scope of the required statements included in a broker-dealer's exemption report is different than the scope of the internal control report requirement in Rule 206(4)–2.
As noted above, commenters also asked whether the accountant would be able to place reliance on the proposed compliance report and related examination of the compliance report to determine the nature and extent of the procedures for the surprise examination. PCAOB attestation standards require an independent public accountant “to obtain an understanding of internal control over compliance sufficient to plan the engagement and to assess control risk for compliance with specified requirements.”
The Commission proposed amending paragraph (f)(2) of Rule 17a–5 to require that each clearing broker-dealer
The Commission proposed to limit this requirement to clearing broker-dealers, which generally have more complex business operations than non-carrying firms.
To facilitate Commission and DEA examination staff access to a clearing broker-dealer's independent public accountant and the accountant's audit documentation, the Commission proposed amending paragraph (f)(2) of
Eight commenters addressed the proposed changes to paragraph (f)(2) of Rule 17a–5.
In response to requests for clarity as to the types of audit documentation that Commission and DEA examiners would seek to access under the proposal, the Commission revised proposed paragraph (f)(2)(ii)(F) of Rule 17a–5 to clarify that “audit documentation” has the meaning established by PCAOB standards.
In response to questions regarding the process by which Commission and DEA examiners might seek to access audit documentation, the Commission agrees with a commenter that suggested that these requests be in writing because that will provide independent public accountants with a record of requests for information and specify the documentation the Commission or DEA examination staff would like to access.
Independent public accountants can seek to protect information obtained by examiners from being disclosed to Freedom of Information Act (“FOIA”) requestors by specifically requesting confidential treatment of audit documentation following the process described in Rule 83 of the Commission's Rules on Information and Requests.
Two commenters requested that the Commission clarify the intended use of information and documents obtained from an independent public accountant.
One commenter stated that Commission and DEA examiners should be limited to inspecting audit documentation relating to a broker-dealer in the offices of the broker-dealer's independent public accountant and that the broker-dealer should be permitted to be present during conversations between Commission or DEA staff and the accountant.
Another commenter stated that the Commission must be responsible for returning all audit work papers that it receives for purposes of an examination of the broker-dealer to either the broker-dealer or its accountant.
One commenter stated that, if adopted, this requirement will discourage or “chill” communications between a broker-dealer and its auditor because “the broker-dealer knows that regardless of the nature of an auditing issue and how it was discovered . . . it cannot freely seek advice from, or discuss the issue openly with[] the auditor[] without fear of the auditor misunderstanding the broker-dealer's response or simply drawing a conclusion that a broker-dealer's questions indicate the broker-dealer's lack of knowledge or admission of an issue.”
The same commenter also asserted that the requirement that broker-dealers allow regulators to access audit documentation may, in effect, require auditors to produce documentation protected by attorney-client privilege or accountant-client privilege.
Proposed Form Custody was comprised of nine line items (each, an “Item”) designed to elicit information about a broker-dealer's custodial activities.
The Commission received nine comment letters on proposed Form Custody.
The Commission is adopting the requirement that broker-dealers file Form Custody with their DEAs, subject to modifications that, in part, respond to issues raised by commenters. A description of the comments on the proposed process for filing Form Custody is set forth below in section IV.B. of this release, together with a discussion of the final rule amendments that the Commission is adopting today. A description of the comments on the proposed form is set forth below in section IV.C. of this release, together with a discussion of the final form the Commission is adopting today.
Under paragraph (a) of Rule 17a–5, a broker-dealer is required to file periodic
A broker-dealer's FOCUS Report provides the Commission and a broker-dealer's DEA with information relating to the broker-dealer's financial and operational condition but does not solicit detailed information on how a broker-dealer maintains custody of assets.
The Commission proposed that a broker-dealer file Form Custody with its DEA within 17 business days after the end of each calendar quarter and within 17 business days after the date selected for the broker-dealer's annual report where that date was other than the end of a calendar quarter.
The Commission is adopting paragraph (a)(5) of Rule 17a–5 substantially as proposed. As to when a broker-dealer must file its Form Custody with its DEA, the Commission is adopting its proposal that a broker-dealer file Form Custody with its DEA within 17 business days after the end of each calendar quarter.
The Commission did not receive any comments relating to when DEAs are required to transmit Form Custody information to the Commission and is adopting this requirement as proposed.
One commenter recommended that the Commission include a provision in Rule 17a–5 that would enable the Commission to exempt broker-dealers from the requirement to file Form Custody if the Commission determined that receiving the form for a particular firm, or type of firm, would serve no useful purpose.
The Commission intends for all broker-dealers to file Form Custody without exception. The Commission is concerned about circumstances where broker-dealers falsely represent to regulators and others that they do not handle funds or securities or issue trade confirmations or account statements. One of the purposes of Form Custody is to assist Commission and DEA examiners in identifying potential misrepresentations relating to broker-dealers' custody of assets. Through Form Custody, examiners will be in a position to better understand a broker-dealer's custody profile and identify custody-related violations and misconduct. For example, if a broker-dealer represents on Form Custody that it does not issue account statements, but an examiner receives an account statement issued by the broker-dealer (
In addition, although the Commission does not currently contemplate any circumstance in which it would exempt a broker-dealer from having to file Form Custody, if the Commission subsequently determines that it is appropriate to exempt a broker-dealer, or type of broker-dealer, from such requirements, the Commission can act under existing authority. In particular, under section 36 of the Exchange Act, the Commission, by rule, regulation, or order, may exempt any person, or any class or classes of persons, from any rule under the Exchange Act to the extent that such exemption is necessary or appropriate in the public interest and is consistent with the protection of investors.
Nonetheless, the Commission understands that a number of Items on Form Custody may not apply to certain types of broker-dealers (
In response to a question posed by the Commission in the proposing release, one commenter stated that the Commission should not require a broker-dealer to engage a PCAOB-registered independent public accountant to audit Form Custody.
The Commission did not propose to require that a broker-dealer engage an independent public accountant to review Form Custody, and agrees that such a requirement should not be imposed. Accordingly, under today's amendments, broker-dealers are not required to enter into an attestation engagement with an independent public accountant for purposes of reviewing Form Custody.
As is discussed above, proposed Form Custody was comprised of nine Items designed to elicit information about a broker-dealer's custodial activities. Set forth below is a description of each of the Items.
Item 1 consists of two subparts. Item 1.A, as proposed, would have elicited information concerning whether the broker-dealer introduced customer accounts to another broker-dealer on a fully disclosed basis by requiring the broker-dealer to check the appropriate “Yes” or “No” box.
As is discussed in the proposing release, many broker-dealers enter into agreements (“carrying agreements”) with another broker-dealer in which the two firms allocate certain responsibilities with respect to the handling of accounts.
Typically, under a carrying agreement, one broker-dealer (“introducing broker-dealer”) agrees to act as the customer's account representative (
Item 1.A, as adopted, elicits information concerning whether the broker-dealer introduces customer accounts to another broker-dealer on a fully disclosed basis, rather than asking whether the broker-dealer is an “introducing broker-dealer.” The Commission is presenting the question in this manner because some broker-dealers operate as carrying broker-dealers (
If the broker-dealer answers Item 1.A by checking the “Yes” box, the broker-dealer will be required under Item 1.B to identify each broker-dealer to which customer accounts are introduced on a fully disclosed basis. The carrying broker-dealer in such an arrangement maintains the cash and securities of the introduced customers and is therefore obligated to return cash and securities to the introduced customers. Commission and DEA examiners could use the identification information provided by a broker-dealer in response to Item 1.B to confirm the existence of an introducing/carrying relationship.
Item 2 of Form Custody consists of two subparts. Item 2.A, as proposed, would have elicited information concerning whether the broker-dealer introduced customer accounts to another broker-dealer on an omnibus basis by requiring the broker-dealer to check the appropriate “Yes” or “No” box.
An omnibus account is an account carried and cleared by another broker-dealer that contains accounts of undisclosed customers on a commingled basis and that are carried individually on the books of the broker-dealer introducing the accounts.
If the broker-dealer checks the “Yes” box in Item 2.A, it will be required to identify in Item 2.B each broker-dealer to which accounts are introduced on an omnibus basis. Commission and DEA examiners could use this information to confirm whether the cash and securities introduced to the carrying broker-dealer are in fact being held in an omnibus account at the carrying broker-dealer and that the books and records of the broker-dealer that introduced the customer accounts to the carrying broker-dealer reflect the correct amounts of customer cash and securities held in the omnibus account.
Item 3 of Form Custody, as proposed, would have elicited information concerning how a carrying broker-dealer held cash and securities.
The first question of Item 3 of proposed Form Custody—Item 3.A—would have elicited information concerning whether the broker-dealer carried securities accounts for customers by requiring the broker-dealer to check the appropriate “Yes” or “No” box.
The next question of Item 3—Item 3.B—would have elicited information concerning whether the broker-dealer carried securities accounts for persons that are not “customers” under the definition in Rule 15c3–3.
Item 3.C, as proposed, would have required the broker-dealer to identify in three charts the types of locations where it held securities and the frequency with which it performed reconciliations between the information on its stock record and information on the records of those locations.
One commenter suggested that it would be helpful to require the broker-dealer to disclose the identities of specific entities at which it custodies securities.
The Commission has considered this suggestion and determined that providing the identities of a broker-dealer's custodians instead of the types of locations would significantly increase the burden on broker-dealers in preparing the form, which is intended to be a starting point for Commission and DEA examiners in assessing a broker-dealer's compliance with its custody requirements. Large broker-dealers often maintain custody of customers' securities in many locations, which can total in the hundreds, particularly if the broker-dealer carries a large number of uncertificated investments for customers, such as alternative investments. Requiring broker-dealers to disclose this level of detail on Form Custody could significantly increase the costs of preparing the form for a number of broker-dealers. Although the Commission acknowledges that requiring the additional information the commenter suggested would enhance the ability of regulators to identify discrepancies, the Commission believes that the information on Form Custody provides sufficient information to allow examiners to determine whether it is appropriate to seek additional information from a particular broker-dealer. To the extent a Commission or DEA examiner believes that it is appropriate to obtain this information from a particular broker-dealer, the examiner could do so in a document request to that firm, a method that the Commission expects would be less costly than requiring this information from all broker-dealers on Form Custody. Accordingly, the Commission has determined not to require that broker-dealers identify on the form the specific identities of all of their custodians.
Another commenter to Item 3.C requested that the Commission clarify the distinction between “locations where the broker-dealer holds securities directly in the name of the broker-dealer” and “locations where the broker-dealer holds securities only through an intermediary.”
The first chart in Item 3.C—set forth in Item 3.C.i—identifies the most common locations where broker-dealers hold securities. Many of the locations identified on the first chart, and described below, are locations deemed to be satisfactory control locations under paragraph (c) of Rule 15c3–3.
The first location identified in the chart is the broker-dealer's vault. Broker-dealers primarily hold securities in fungible bulk at other institutions. In some cases, however, broker-dealers may physically hold securities certificates (
The second location identified in the chart is another U.S. registered broker-dealer. For example, a broker-dealer may hold customers' foreign securities at another U.S. broker-dealer, or may
The third and fourth locations identified in the chart are the Depository Trust Company and the Options Clearing Corporation. These are the two most common securities clearing and depository organizations for equities and options in the U.S. and, consequently, are identified by name rather than by type of location.
The fifth location identified in the chart is a U.S. bank. Broker-dealers may have arrangements with U.S. banks to receive and hold securities for the accounts of the broker-dealer's customers and non-customers, as well as for the broker-dealer's own account. Obtaining information about a broker-dealer's relationships with U.S. banks could enable examiners to test and confirm the accuracy of the broker-dealer's representations on Form Custody (
The sixth location identified in the chart is the transfer agent of an open-end investment management company registered under the Investment Company Act of 1940 (
The second chart in Item 3.C—set forth in Item 3.C.ii—is intended to capture all other types of U.S. locations where a broker-dealer may hold securities that are not specified in the chart included in Item 3.C.i. This category would include, for example, securities held in book-entry form by the issuer of the securities or the issuer's transfer agent. A broker-dealer that holds securities at such locations must list the types of locations in the spaces provided in the chart and indicate the frequency with which the broker-dealer performs asset reconciliations with those locations. The Commission did not receive any comments on Item 3.C.ii of proposed Form Custody and is adopting it as proposed.
The third chart in Item 3.C—set forth in Item 3.C.iii—pertains to foreign locations where the broker-dealer maintains securities. Under the proposal, the Commission did not list categories of foreign locations because terminology used to identify certain locations may differ by jurisdiction.
Items 3.D and 3.E of proposed Form Custody each contained three identical subparts (discussed in more detail below) designed to elicit information about the types and amounts of securities and cash the broker-dealer held, whether those securities were recorded on the broker-dealer's stock record and, if not, why they were not recorded, and where the broker-dealer held free credit balances.
The difference between proposed Item 3.D and proposed Item 3.E is that the former would have elicited information with respect to securities and free credit balances held for the accounts of customers, whereas the latter would have elicited information with respect to securities and free credit balances held for the accounts of persons who are not customers.
Items 3.D.i and 3.E.i of proposed Form Custody would have elicited information about the types and dollar amounts of the securities the broker-dealer carried for the accounts of customers and non-customers, respectively.
One commenter requested that the Commission clarify whether alternative investments, mutual funds, and exchange traded funds fall within the
The charts in Items 3.D.i and 3.E.i, as proposed, would have each had eight columns. The first column contained boxes for each category of security specified in the Item (and identified in the second column), as discussed above.
The Commission proposed identifying dollar ranges for the values of the securities, as opposed to actual values, to ease compliance burdens.
One commenter noted that the charts set forth in Items 3.D.i and 3.E.i of proposed Form Custody did not include boxes to check to reflect the approximate dollar values for the categories of securities the broker-dealer carried for the accounts of customers and non-customers.
Items 3.D.ii and 3.E.ii of proposed Form Custody would have elicited information concerning whether the broker-dealer had recorded all the securities it carried for the accounts of customers and non-customers, respectively, on its stock record by requiring the broker-dealer to check the appropriate “Yes” or “No” box.
The Commission anticipates that a broker-dealer ordinarily would answer “Yes” in response to Items 3.D.ii and 3.E.ii because the stock record—which a broker-dealer is required to create pursuant to Rule 17a–3
A short position in the stock record indicates either the location of the securities or the responsibility of other parties to deliver the securities to the broker-dealer. Every security owned or held by the broker-dealer must be accounted for by its location. Since securities are fungible, the short side of the stock record does not in fact designate where particular securities are located. Rather, it indicates the total amount of securities, on a security-by-security basis, held at each location, which could include, for example, securities depositories. Common short-side stock record locations also include banks (
The Commission's goals in asking this question were twofold. First, the question would elicit the disclosure of the unusual circumstance in which a broker-dealer carries securities for the account of a customer or non-customer but does not reflect them on its stock record.
Items 3.D.iii and 3.E.iii of proposed Form Custody would have elicited information as to how the broker-dealer treated free credit balances in securities accounts of customers and non-customers, respectively.
A broker-dealer will be required to check the box in the first column of the chart for every process that applies to the broker-dealer's treatment of free credit balances in customer and non-customer accounts, respectively. The first process identified on each chart is that the broker-dealer treats customer and non-customer free credit balances in accordance with the customer reserve computation required under paragraph (e) of Rule 15c3–3. Paragraph (e) of Rule 15c3–3 requires a broker-dealer to maintain a special reserve bank account for the exclusive benefit of its customers and maintain deposits in that account (to the extent a deposit is required) in amounts computed in accordance with Exhibit A to Rule 15c3–3.
The second process identified on the chart is that the broker-dealer handles free credit balances by placing funds in a “bank account under Rule 15c3–3(k)(2)(i).” Paragraph (k)(2)(i) of Rule 15c3–3 prescribes a process by which a broker-dealer can qualify for an exemption from the requirements of Rule 15c3–3. Specifically, the exemption applies to a broker-dealer that does not carry margin accounts, promptly transmits all customer funds and delivers all securities received in connection with its activities, does not otherwise hold funds or securities for, or owe money or securities to, customers and effectuates all financial transactions between the broker-dealer and its customers through one or more bank accounts that are each designated as a “Special Account for the Exclusive Benefit of Customers of (the name of broker or dealer).”
The third process identified in the chart—“swept to a U.S. bank”—is included because some broker-dealers engage in “bank sweep programs.” Rather than hold customer funds in securities accounts, some broker-dealers require or offer the option to transfer free credit balances in securities accounts to a specific money market fund or interest bearing bank account (“Sweep Programs”). The customer earns dividends on the money market fund or interest on the bank account until such time as the customer chooses to liquidate the position in order to use the cash, for example, to purchase securities.
The fourth option identified in the chart is that the broker-dealer sweeps free credit balances into a money market fund as part of a Sweep Program. In most cases when a broker-dealer sweeps free credit balances into a money market fund, the broker-dealer purchases shares in the money market fund, which are registered in the name of the broker-dealer. The money market fund understands that these shares are not proprietary positions of the broker-dealer, and any interest earned on the shares from the money market fund are payable to the customers.
Finally, the fifth option in the chart covers any other process that is not described in the other options.
Item 4 of proposed Form Custody would have required a broker-dealer to disclose whether it acted as a carrying broker-dealer for other broker-dealers.
Items 4.A.i and 4.B.i require a broker-dealer to indicate by checking the appropriate “Yes” or “No” box whether it carries customer accounts for another broker-dealer on a fully disclosed basis and on an omnibus basis, respectively. Items 4.A.ii and 4.B.ii require a broker-dealer, if applicable, to indicate the number of broker-dealers with which it has an arrangement to carry accounts on a fully disclosed basis and on an omnibus basis, respectively. Items 4.A.iii and 4.B.iii require a broker-dealer, if applicable, to identify any affiliated broker-dealers that introduce accounts to the broker-dealer on a fully disclosed basis and on an omnibus basis, respectively.
As the Commission has noted, related person custody arrangements can present higher risks to “advisory clients” than maintaining assets with an independent custodian.
Item 4 in Form Custody elicits information about broker-dealers' custodial responsibilities with respect to accounts held for the benefit of
Item 5 of Form Custody, as proposed, would have required broker-dealers to disclose whether they send transaction confirmations to customers and other accountholders by checking the appropriate “Yes” or “No” box.
Exchange Act Rule 10b–10 specifies the information a broker-dealer must disclose to customers on a trade confirmation at or before completion of a securities transaction.
The information contained on a trade confirmation should reconcile with customer statements and the broker-dealer's journal entries.
With respect to Item 5.A, one commenter requested clarification as to whether a broker-dealer should indicate that it sends trade confirmations directly to customers (by checking “yes”) where it employs a vendor to do so.
Item 6 of proposed Form Custody would have required broker-dealers to disclose whether they send account statements directly to customers and other accountholders by checking the appropriate “Yes” or “No” box.
Account statements generally are sent to customers and other accountholders on a monthly or quarterly basis and typically set forth the assets held in the investor's securities account as of a specific date and the transactions that occurred in the account during the relevant period. SROs impose requirements on broker-dealers with respect to the statements they must send to their customers.
Like trade confirmations, account statements are important safeguards that allow investors to monitor transactions that occur in their securities accounts. If the account statements are sent by a broker-dealer other than the broker-dealer completing Form Custody, this fact will need to be disclosed on the Form in Item 6.B. Item 6.C asks whether the broker-dealer sends account statements to anyone other than the beneficial owner of the account.
The Commission is requiring broker-dealers to answer the questions in Item 6 to enhance its understanding of a broker-dealer's relationship with customers, particularly in the context of the broker-dealer's custodial responsibilities. Broker-dealers do not currently disclose to the Commission whether they send account statements directly to customers. Collecting this information on Form Custody will provide examiners with additional background information that could be used to refine the focus of their inspections. Further, the Commission anticipates that examiners would make further inquiries to the extent the Form reveals answers that are inconsistent with industry practice.
A review of Item 6 also may facilitate an examiner's preparation for an inspection. For example, if a broker-dealer indicates on Form Custody that it holds customer accounts and sends account statements to customers, the examiner could prepare a more targeted document request to the broker-dealer. In this regard, an examiner could request customer account statements from the broker-dealer, as well as statements from the custodian(s) of the broker-dealer's customer securities and cash.
Item 7 of proposed Form Custody would have required broker-dealers to indicate whether they provided customers and other accountholders with electronic access to information about the securities and cash positions in their accounts by checking the appropriate “Yes” or “No” box.
The Commission believes that electronic access to account information is beneficial to customers, who can more easily monitor the performance of their accounts and perhaps more quickly identify any discrepancies or inaccuracies. The Commission is including this Item in Form Custody because it will help to inform examiners as to how readily customers can access and review account information.
Item 8 of Form Custody, as proposed, would have elicited information, if applicable, as to whether and how the broker-dealer operated as an investment adviser.
The first question of Item 8—Item 8.A—would have required the broker-dealer to indicate whether it was registered as an investment adviser with the Commission under the Advisers Act or with one or more states pursuant to the laws of a state.
The next question of Item 8 of proposed Form Custody—Item 8.B—would have required the broker-dealer to disclose the number of its investment adviser clients.
The third question of Item 8 of proposed Form Custody—Item 8.C—would have required the broker-dealer to complete a chart, consisting of six columns, in which the broker-dealer would have provided information about the custodians where the assets of the investment adviser clients were held.
The third and fourth columns of the chart would have elicited information about the scope of the broker-dealer/investment adviser's authority over the accounts held at the custodian by requiring the broker-dealer/investment adviser to check the appropriate “Yes” or “No” box.
In the fifth column, the broker-dealer/investment adviser would have been required to indicate whether the custodian sends account statements directly to the broker-dealer's investment adviser clients.
In the sixth column, the broker-dealer/investment adviser would have been required to indicate whether investment adviser client assets were recorded on the broker-dealer's stock record.
The Commission received one comment in response to Item 8 of Form Custody, as proposed.
Item 9 of Form Custody consists of two subparts. Item 9.A, as proposed, would have elicited information concerning whether the broker-dealer was an affiliate of an investment adviser.
For purposes of Item 9, an affiliate is any person who directly or indirectly controls the broker-dealer or any person who is directly or indirectly controlled by or under common control with the broker-dealer. Ownership of 25% or more of the common stock of the investment adviser is deemed
As discussed below, the Commission has established December 31, 2013 as the effective date for the requirement to file Form Custody and the requirement to file annual reports with SIPC. The Commission is delaying the effective date for the requirements relating to broker-dealer annual reports to June 1, 2014. These delayed effective dates are intended to provide time for broker-dealers, broker-dealer independent public accountants, and broker-dealer DEAs to prepare for the changes that will result from these new requirements. The amendments relating to broker-dealer annual reports and the other amendments to Rule 17a–5 (including the technical amendments) affect numerous paragraphs in that rule and two paragraphs in Rule 17a–11. Given the complexity and practical difficulty of having certain provisions become effective before others, the amendments to Rule 17a–5 and the amendments to Rule 17a–11 will become effective on June 1, 2014, regardless of whether they relate to the annual report requirements, except that there will be different effective dates for the amendments to paragraph (a) of Rule 17a–5 (which includes the filing requirement for Form Custody), Form Custody, the deletion of paragraph (e)(5) of Rule 17a–5 (which sets forth the requirement to file Form BD–Y2K), and the requirement to file annual reports with SIPC. The effective dates for the remaining paragraphs of Rule 17a–5 and Rule 17a–11 are discussed further below.
Before today's amendments, paragraph (e)(5) of Rule 17a–5 required a broker-dealer to file Form BD–Y2K, which elicits information with respect to a broker-dealer's readiness for the year 2000 and any potential problems that could arise with the advent of the new millennium. The Commission is deleting this paragraph from Rule 17a–5 as the requirement is no longer applicable. The amendment deleting paragraph (e)(5) of Rule 17a–5 will be effective 60 days after this release is published in the
The amendments to paragraph (a) of Rule 17a–5 and the rule establishing Form Custody (17 CFR 249.639) are effective on December 31, 2013. The amendments to paragraph (a) include the requirement for a broker-dealer to file Form Custody with its DEA.
Two commenters requested that the Commission provide broker-dealers with sufficient time to develop, test, and implement the systems that they will use to comply with the Form Custody filing requirements.
Additionally, the amendment to paragraph (d)(6) of Rule 17a–5 is effective on December 31, 2013. Broker-dealer annual reports must be filed with SIPC for fiscal years ending on or after December 31, 2013.
The amendments to paragraphs (b), (c), (d)(1), (d)(2), (d)(3), (d)(4), (d)(5), (e)(1), (e)(2), (e)(3), (e)(4), (f), (g), (h), (i), (k), (l), (m) and (n) and the deletion of paragraph (j) of Rule 17a–5 and the amendments to Rule 17a–11 are effective on June 1, 2014. Consequently, all of the amendments to Rule 17a–5 not discussed above in sections V.A. and V.B. of this release and the amendments to Rule 17a–11 are effective on that date. This includes the amendments relating to the annual report requirements, with the exception of the requirement to file annual reports with SIPC, which is effective on December 31, 2013. In 2014, therefore, the annual report requirements will apply to all broker-dealers subject to these requirements that have a fiscal year ending on or after June 1, 2014.
The Commission proposed that the amendments would apply for fiscal years ending on or after December 15, 2011, with a first-year transition period for carrying broker-dealers required to file compliance reports with fiscal years ending on or after December 15, 2011 but before September 15, 2012.
The amendments, among other things, establish important new safeguards with respect to broker-dealer custody of customer funds and securities. However, the Commission recognizes that broker-dealers and other affected parties may need additional time to prepare to comply with the new requirements.
Amendments to provisions regarding broker-dealer annual reports and the engagement of an independent public accountant in paragraphs (d)(1), (d)(2), (d)(3), (d)(4), (d)(5), (e)(1), (e)(2), (e)(3), (e)(4), (g), and (i) of Rule 17a–5 and the deletion of paragraph (j) of Rule 17a–5 generally will apply for broker-dealers with fiscal years ending on or after June 1, 2014. In particular, broker-dealers must file compliance reports or exemption reports, as applicable, and broker-dealers must file reports of independent public accountants covering compliance reports or exemption reports in accordance with Rule 17a–5 as amended, for fiscal years ending on or after June 1, 2014, with no transition period. Similarly, PCAOB standards, rather than GAAS, apply to examinations of financial reports for fiscal years ending on or after June 1, 2014. For broker-dealers with fiscal years that end before June 1, 2014,
Amendments to the customer statement provisions of paragraph (c) of Rule 17a–5 apply for fiscal years ending on or after June 1, 2014, and in the interim broker-dealers must comply with those provisions as they existed before today's amendments.
Paragraph (f)(2) of Rule 17a–5 requires a broker-dealer to file a statement regarding its independent public accountant on December 10 of each year. As a result of today's amendments, all broker-dealers that are required by Rule 17a–5 to engage an independent public accountant must file a new statement by December 10, 2013 that contains the information and representations required under paragraph (f)(2) of Rule 17a–5 as amended. For example, after today's amendments, the statement must include a representation that the accountant has undertaken the engagement of the accountant provisions of paragraph (g) of Rule 17a–5 as amended. The statement also must include, if applicable, representations regarding access to the broker-dealer's independent public accountant and the audit documentation of the independent public accountant.
The amendments to the notification provisions in paragraph (h) of Rule 17a–5 and amendments to Rule 17a–11 are effective on June 1, 2014. In the interim, these provisions as they existed before today's amendments continue to apply.
Finally, the amendments to paragraphs (b), (c), (d)(1), (d)(2), (d)(3), (d)(4), (d)(5), (e)(1), (e)(2), (e)(3), (e)(4), (f), (g), (h), (i), (k), (l), (m), and (n) of Rule 17a–5 and the amendments to Rule 17a–11 not discussed above, including technical amendments, are effective on June 1, 2014.
With respect to the annual report requirements, the June 1, 2014 effective date should provide sufficient time for the PCAOB to finalize, and for the Commission to consider, proposed standards applicable to broker-dealer examinations and reviews and for broker-dealers and their accountants to become familiar with, and be prepared to comply with, those standards. The Commission has chosen a specific effective date, instead of aligning that date with the date of adoption of the rule amendments or the date that the Commission approves PCAOB standards applicable to broker-dealer examinations and reviews, as suggested by commenters, to provide certainty regarding the date by which broker-dealers and their accountants must comply with the new requirements. Certain commenters referenced AICPA guidance with respect to broker-dealer audits. However, this guidance will no longer be applicable for fiscal years ending on or after June 1, 2014, when standards of the PCAOB begin to apply.
One commenter suggested that the effective date for non-carrying and smaller broker-dealers to comply with amendments to the annual reporting requirements should be one year after the adoption of the amendments.
As stated above, another commenter suggested that the Commission postpone the assertion requirements until the rule has been in effect for one year.
Certain provisions of the final rule amendments contain “collection of information” requirements within the meaning of the Paperwork Reduction Act of 1995 (“PRA”).
The titles and OMB control numbers for the collections of information are:
(1) Rule 17a–5, Reports to be made by certain brokers and dealers (OMB Control Number 3235–0123);
(2) Rule 17a–11, Notification provisions for brokers and dealers (OMB Control Number 3235–0085); and
(3) Form Custody (OMB Control Number 3235–0691).
An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information requirement unless it displays a currently valid OMB control number. As discussed above, the Commission received 27 comment letters on the proposed rulemaking. Some of these comments relate directly or indirectly to the PRA. These comments are addressed below. Finally, some initial burden estimates have been adjusted, as discussed below, to reflect updated information used to make the estimates.
As discussed in greater detail above in sections II., III., and IV. of this release, the Commission is adopting amendments to Rules 17a–5 and 17a–11 and is adopting new Form Custody for broker-dealers to file with their DEA.
Under the amendments to Rule 17a–5, broker-dealers must, among other things, file with the Commission annual reports consisting of a financial report and one of two new reports—either a compliance report or an exemption report that are prepared by the broker-dealer, and generally must also file reports prepared by an independent public accountant registered with the PCAOB covering those reports in accordance with PCAOB standards.
A broker-dealer that does not claim an exemption from Rule 15c3–3 through the most recent fiscal year—generally a carrying broker-dealer—must file the compliance report, and a broker-dealer that claimed an exemption from Rule 15c3–3 throughout the most recent
In addition to preparing and filing the financial report and the compliance report or exemption report, a broker-dealer must engage a PCAOB-registered independent public accountant to prepare a report based on an examination of the broker-dealer's financial report in accordance with PCAOB standards.
The amendments add a requirement that the annual reports also be filed with SIPC if the broker-dealer is a member of SIPC.
Under the amendments, the PCAOB-registered independent public accountant must immediately notify the broker-dealer if the accountant determines during the course of preparing the accountant's reports that the broker-dealer was not in compliance at any time during the fiscal year with the financial responsibility rules or if the accountant determines that any material weakness existed in the broker-dealer's Internal Control Over Compliance during the fiscal year.
The amendments also require a broker-dealer that clears transactions or carries customer accounts to agree to allow representatives of the Commission or the broker-dealer's DEA to review the documentation associated with the reports of the broker-dealer's independent public accountant and to allow the accountant to discuss its findings with the representatives, if requested in writing for purposes of an examination of the broker-dealer.
Finally, the amendments require broker-dealers to file a new Form Custody, which elicits information concerning the custody practices of the broker-dealer.
The burdens associated with the collection of information requirements in the amendments are discussed below.
The proposed amendments relating to the reports to be filed by the broker-dealer are designed to enhance the ability of the Commission to oversee broker-dealer custody practices and, among other things, to: (1) Increase the focus of carrying broker-dealers and their independent public accountants on compliance, and internal control over compliance, with the financial responsibility rules; (2) facilitate the ability of the PCAOB to implement the explicit oversight authority of broker-dealer audits provided to the PCAOB by the Dodd-Frank Act; and (3) with respect to broker-dealers that are dually-registered as investment advisers, satisfy the internal control report requirement that was added by the amendment to Rule 206(4)–2 noted above with the accountant's report based on an examination of the compliance report. Securities regulators will use these reports to monitor the financial condition of broker-dealers. In addition, the components of the reports that are made public may be used by investors to review the financial condition of broker-dealers with which they have accounts or obtain other securities related services. SIPC can use the annual reports to monitor the financial strength of broker-dealers and to assess the adequacy of the SIPC Fund.
The amendment requiring a broker-dealer that clears transactions or carries customer accounts to allow Commission and DEA examination staff to review the audit documentation associated with its annual audit reports required under Rule 17a–5 and to allow its independent public accountant to discuss findings relating to the audit reports with Commission and DEA examination staff is intended to facilitate examinations of clearing broker-dealers by Commission and DEA examination staff. Commission and DEA examiners will use the information obtained from audit documentation and discussions with the broker-dealer's independent public accountant to plan their examinations.
Finally, Commission and DEA examiners will use Form Custody to understand a broker-dealer's custody profile and identify custody-related violations and misconduct. For example, if a broker-dealer represents on Form Custody that it does not issue account statements, but an examiner discovers that an account statement has been issued by the broker-dealer (
The Commission estimated in the proposal that there were 5,063 registered broker-dealers that would be affected by the proposed amendments and that, of these, 305 were carrying broker-dealers, 528 were carrying or clearing broker-dealers, and 4,752 were broker-dealers that claimed exemptions from Rule 15c3–3.
As of December 31, 2011, 4,709 broker-dealers filed FOCUS Reports with the Commission. Of these, 4,417 broker-dealers claimed exemptions from Rule 15c3–3. Consequently, the Commission estimates that there are approximately 292 carrying broker-dealers (4,709 − 4,417 = 292). Based on FOCUS Report data, the Commission further estimates that there are approximately 513 carrying or clearing broker-dealers. According to SIPC, as of March 31, 2012, 217 broker-dealers claimed exemptions from SIPC membership. Therefore, the Commission estimates that 4,492 (4,709 − 217 = 4,492) broker-dealers are members of SIPC.
As discussed in detail below, the Commission estimates that the total PRA burden resulting from the amendments to Rules 17a–5 and 17a–11 and new Form Custody include an initial, one-time burden of approximately 13,522 hours
The Commission's amendments to Rule 17a–5 retain the current requirement that broker-dealers annually file financial statements and supporting schedules that must be audited by a PCAOB-registered accountant. As a result, the Commission's estimate of the hour burden for broker-dealers to prepare and file the financial report has not changed as a result of the amendments to Rule 17a–5.
Under the amendments, a carrying broker-dealer must prepare and file with the Commission a new compliance report each year. The compliance report must contain statements as to whether: (1) The broker-dealer has established and maintained Internal Control Over Compliance; (2) the Internal Control Over Compliance of the broker-dealer was effective during the most recent fiscal year; (3) the Internal Control Over Compliance of the broker-dealer was effective as of the end of the most recent fiscal year; (4) the broker-dealer was in compliance with Rule 15c3–1 and paragraph (e) of Rule 15c3–3 as of the end of the most recent fiscal year; and (5) the information the broker-dealer used to state whether it was in compliance with Rule 15c3–1 and paragraph (e) of Rule 15c3–3 was derived from the books and records of the broker-dealer. In addition, if applicable, the compliance report must contain a description of: (1) Each identified material weakness in the broker-dealer's Internal Control Over Compliance during the most recent fiscal year, including those that were identified as of the end of the fiscal year; and (2) any instance of non-compliance with Rule 15c3–1 or paragraph (e) of Rule 15c3–3 as of the end of the most recent fiscal year.
The Commission estimated that, on average, carrying broker-dealers would spend approximately 60 hours each year to prepare the compliance report, as proposed.
One commenter stated that the proposal did not “address the additional costs broker-dealers would incur in preparing Compliance Reports.”
In response to these comments, the Commission notes that the final rule modifies the proposal in ways that may modestly reduce the time burden. For example, the final rule requires a statement as to whether the broker-dealer was in compliance with Rule 15c3–1 and paragraph (e) of Rule 15c3–3 as of the end of the most recent fiscal year and, if applicable, a description of any instances of non-compliance with these rules as of the fiscal year end, rather than the proposed assertion that the broker-dealer is in compliance with the financial responsibility rules in all material respects and proposed description of any material non-compliance with the financial responsibility rules. This reflects two changes from the proposal: (1) Elimination of the concepts of “material non-compliance” and “compliance in all material respects” with Rule 15c3–1 and 15c3–3 for the purposes of reporting in the compliance report; and (2) a narrowing of these statements and description requirements from compliance with all of the financial responsibility rules to compliance with Rule 15c3–1 and paragraph (e) of Rule 15c3–3.
As modified, the final rule no longer requires the broker-dealer to evaluate whether an instance of non-compliance with the financial responsibility rules was material, a component of the proposal that generated significant comment. In addition, the broker-dealer only needs to report instances of non-compliance with Rule 15c3–1 and paragraph (e) of Rule 15c3–3. In this regard, broker-dealers currently are required to include supporting schedules to their financial statements containing a computation of net capital and the reserve requirement under paragraph (e) of Rule 15c3–3. Consequently, the work required under this pre-existing requirement should provide the broker-dealer with the information it needs to make the statement as to whether it is in compliance with Rule 15c3–1 and paragraph (e) of Rule 15c3–3 as of the fiscal year end.
Given these modifications, the statements in the compliance report concerning the broker-dealer's Internal Control Over Compliance likely will be responsible for the bulk of the hour burden associated with preparing the
The Commission believes that the modifications to the final rule discussed above may modestly reduce the hour burden of the final rule as compared to the hour burden that would have resulted from the proposed rule; namely, because a broker-dealer will not need to evaluate whether instances of non-compliance with the financial responsibility rules are material and will only need to report instances of non-compliance with Rule 15c3–1 and paragraph (e) of Rule 15c3–3. In light of the comments suggesting that the proposing release underestimated the burden, the Commission is not reducing the hour burden estimate for the rule to reflect the potential reduction in hour burden associated with the requirement. Thus, to the extent the proposing release underestimated the burden associated with making the statements in the compliance report about the broker-dealer's Internal Control Over Compliance, the amount of the burden reduction realized through the modifications discussed above is now attributed to the burden associated with the statements about Internal Control Over Compliance.
For these reasons, the Commission is retaining the rule's overall hour burden estimate without revision. The Commission, however, is updating the number of carrying broker-dealers to reflect more recently available data from the broker-dealer FOCUS Reports. The Commission now estimates that there are 292 carrying broker-dealers. Consequently, the Commission estimates that the total annual reporting burden to prepare and file the compliance report is approximately 17,520 hours per year for all carrying broker-dealers.
Under the amendments, a non-carrying broker-dealer must file the exemption report.
The Commission estimated that it would take a non-carrying broker-dealer approximately five hours to prepare and file the proposed exemption report.
The Commission now estimates that there are approximately 4,417 non-carrying broker-dealers that must file exemption reports. Therefore, the Commission estimates that the annual reporting burden for all non-carrying broker-dealers to prepare and file the exemption report is approximately 30,919 hours per year.
The filing requirements for the annual reports are being amended.
Amendments to paragraph (d)(6) of Rule 17a–5 require that a broker-dealer also file a copy of its annual reports with SIPC. The Commission estimated that it would take 30 minutes to prepare an additional copy of the annual reports and mail it to SIPC as required by the proposed amendments.
There would be postage costs associated with sending a copy of the annual reports to SIPC that are estimated to be, on average,
Finally, the Commission notes that paragraph (d)(1)(ii) of Rule 17a–5 of the final rule was amended to require that a copy of a DEA's written approval to change a broker-dealer's fiscal year end must be sent to the Commission's principal office in Washington DC, in addition to the regional office of the Commission for the region in which the broker-dealer has its principal place of business. Based on the number of copies of approvals received by the Commission and staff experience in the application of Rule 17a–5, the Commission estimates that approximately 75 broker-dealers will receive approval each year to change their fiscal year end. The Commission estimates that it would take 10 minutes to copy and send an additional copy of the approval to the Commission's principal office in Washington, DC for a total industry-wide annual hour burden of approximately 12.5 hours,
Prior to today's amendments, paragraph (e)(4) of Rule 17a–5 provided that a broker-dealer must file with its annual report a supplemental report on the status of the membership of the broker-dealer in SIPC, which was required to be “covered by an opinion of the independent public accountant” if the annual report of the broker-dealer was required to be audited. The Commission is adopting amendments to paragraph (e)(4) of Rule 17a–5 to provide that broker-dealers must file with SIPC—but no longer with the Commission after an interim period if SIPC adopts a rule under paragraph (e)(4)(i) that is approved by the Commission—a report of an independent public accountant designed to help administer the collection of assessments from broker-dealers for purposes of establishing and maintaining SIPC's broker-dealer liquidation fund.
Because broker-dealers are currently required to file these reports with both the Commission and SIPC, the final rule amendment does not result in any change to the Commission's current estimate of the hour burden for broker-dealers to comply with this requirement under the current PRA collection for Rule 17a–5. Although broker-dealers will file the supplemental report on SIPC membership only with SIPC if a SIPC rule change to implement this amendment is approved by the Commission, as noted in the current PRA collection, the variation in the size and complexity of broker-dealers subject to Rule 17a–5 makes it difficult to calculate the burden of the information collection of Rule 17a–5. Therefore, the Commission will determine whether it is appropriate to revise the PRA estimate for Rule 17a–5 after any SIPC rule filing is approved or after the end of the two-year sunset provision.
In the proposing release the Commission estimated, however, that SIPC would incur a one-time burden associated with filing a rule change with the Commission to implement this proposed amendment of approximately 100 hours.
The Commission is amending paragraph (f)(2) of Rule 17a–5 to revise the statement regarding identification of a broker-dealer's independent public accountant that broker-dealers must file each year with the Commission and their DEA (except that if the engagement is of a continuing nature, no further filing is required).
The Commission is revising this estimate for clearing and carrying broker-dealers, as these broker-dealers will likely need to renegotiate their agreements with their independent public accountants. The Commission estimates, based on staff experience, that it will take a carrying or clearing broker-dealer approximately ten hours on a one-time basis to renegotiate its agreement with its accountant, amend its statement regarding its accountant, and file the new statement with the Commission. The Commission estimates that the one-time burden for all carrying
Finally, the Commission believes there will be postage costs associated with sending the amended statement regarding the accountant, which must be sent to the Commission's principal office in Washington, DC, the regional office of the Commission for the region in which the broker-dealer's principal place of business is located, and to its DEA. The Commission estimates that each mailing will cost approximately $0.45, for a total cost of approximately $6,357 for all broker-dealers on a one-time basis.
The amendments to Rule 17a–5 retain the current requirement that broker-dealers annually file with the Commission a financial report and a report prepared by a PCAOB-registered accountant based on an audit of the financial report.
Broker-dealers incur annual external costs associated with the PRA burden in terms of hiring outside auditors and accountants to comply with the requirements of Rule 17a–5. Any external costs of accountants' reports included in the PRA collection of information for these final rule amendments are averages across all broker-dealers. The external PRA costs incurred by a broker-dealer to comply with the final rule amendments will generally depend on its size and the complexity of its business activities. Because the size and complexity of broker-dealers varies significantly, the Commission provides estimates of the average external cost per broker-dealer across all broker-dealers.
The Commission received various comments regarding the costs of the proposed requirements and engagement of the accountant provisions. More specifically, the Commission received comments addressing: (1) The costs of the change from GAAS to PCAOB standards for the financial report; (2) the costs of the examination of the new compliance report; and (3) the costs of the review of the new exemption report. The comments received with respect to these three areas and the Commission's responses are addressed in detail in each subsection below.
Two commenters stated that the Commission did not address the costs associated with the change from GAAS to PCAOB standards.
Based on information currently available, including the proposed PCAOB standards, the Commission does not expect that the move to PCAOB standards for audits of broker-dealer financial reports will result in significant one-time implementation costs or recurring annual costs. The proposed PCAOB standards for audits of financial reports (financial statements and supporting schedules) generally incorporate concepts and requirements contained within GAAS, thereby minimizing the potential costs to broker-dealer auditors of this change. As such, the Commission is not including any additional external PRA costs related to the change from GAAS to PCAOB auditing standards.
The Commission estimated that the incremental external cost to a carrying broker-dealer of obtaining the independent public accountant's report based on an examination of the proposed compliance report would be an average incremental cost of approximately $150,000 per carrying broker-dealer per year.
One commenter stated that the Commission underestimated the cost of examining the compliance report.
As explained above in section II.D. of this release, before today's amendments, Rule 17a–5 required a broker-dealer to
Consequently, under requirements before today's amendments relating to a material inadequacy report that are being replaced by the examination of the compliance report, the broker-dealer was required to engage the independent public accountant to review the internal controls, practices, and procedures of the broker-dealer with respect to key elements of the financial responsibility rules.
For these reasons, the Commission continues to believe that the average incremental cost of $150,000 per carrying broker-dealer to obtain the accountant's report covering the compliance report is reasonable. Moreover, as stated above, the Commission is adopting the proposed amendments to Rule 17a–5 with respect to the compliance report with modifications. For example, the final rule requires a statement as to whether the broker-dealer was in compliance with Rule 15c3–1 and paragraph (e) of Rule 15c3–3 as of the end of the most recent fiscal year and, if applicable, a description of any instances of non-compliance with these rules as of the fiscal year end, rather than the proposed assertion that the broker-dealer is in compliance with the financial responsibility rules in all material respects and the proposed description of any material non-compliance with the financial responsibility rules. This reflects two changes from the proposal: (1) Elimination of the concepts of “material non-compliance” and “compliance in all material respects” with Rule 15c3–1 and 15c3–3 for the purposes of reporting in the compliance report; and (2) a narrowing of these statements and description requirements from compliance with all of the financial responsibility rules to compliance with Rule 15c3–1 and paragraph (e) of Rule 15c3–3.
As modified, the final rule no longer requires the independent public accountant to evaluate whether an instance of non-compliance with the financial responsibility rules was material. While there may be an increase in the number of reported instances of non-compliance than under the proposal, the independent public accountant will not be required to determine whether an instance of non-compliance is material. Consequently, the reporting of instances of non-compliance (as compared to instances of material non-compliance) is not expected to increase costs of the engagement of the accountant from those estimated for the proposal and may decrease costs.
In addition, the final rule has been modified from the proposal so that the independent public accountant will not be required to examine a broker-dealer statement that encompassed compliance with all the financial responsibility rules. Instead, the independent public accountant must examine a statement about compliance with Rule 15c3–1 and paragraph (e) of Rule 15c3–3. In this regard, the Commission has not amended the requirement, which existed before today's amendments, that the independent public accountant examine the supporting schedules to the broker-dealer's financial statements, which contain a computation of net capital under Rule 15c3–1 and the reserve requirement under paragraph (e) of Rule 15c3–3.
Given these modifications, the statements in the compliance report concerning the broker-dealer's Internal Control Over Compliance will likely account for the bulk of the work of the independent public accountant and, as noted above, before today's amendments, the independent public accountant was required to include internal control within the scope of the audit.
The Commission believes that the modifications to the final rule discussed above should modestly reduce the external cost of the final rule as compared to the cost that would have resulted from the proposed rule. Further, elimination of the requirement that the accountant prepare a material inadequacy report will result in some cost savings.
For these reasons, the Commission has not changed its average estimate of the incremental cost of the accountants' reports covering the compliance report. The Commission therefore estimates that the average industry-wide annual external reporting incremental cost of this requirement is approximately $43,800,000 per year ($150,000 × 292 carrying broker-dealers = $43,800,000).
The Commission estimated that the external cost to a non-carrying broker-dealer of obtaining the independent public accountant's report based on a review of the proposed exemption report would be an average of approximately $3,000 per non-carrying broker-dealer per year, for a total estimated annual cost associated with this proposal of $14,256,000.
In the proposing release, the Commission stated its belief that an independent public accountant's review of the exemption assertion would add an incremental cost to that incurred as a result of the annual financial audit.
The Commission continues to believe that $3,000 is a reasonable estimate of the cost of obtaining the accountant's report covering the exemption report. The Commission now estimates that
The amendments to Rule 17a–5 require that carrying or clearing broker-dealers agree to allow Commission and DEA staff, if requested in writing for purposes of an examination of the broker-dealer, to review the work papers of the independent public accountant and to allow the accountant to discuss its findings with the examiners.
In the proposing release, the Commission estimated that a carrying or clearing broker-dealer's accountant would charge the broker-dealer for time its personnel spend speaking with the Commission or the broker-dealer's DEA and providing them with audit documentation.
The Commission proposed technical amendments to Rule 17a–5 and proposed amending paragraph (e) of Rule 17a–11 to eliminate a reference to Rule 17a–5.
The Commission does not expect any change in the number of notices filed per year as a result of the final amendments because the material inadequacy notification requirement is being replaced by a material weakness notification requirement. Therefore, the final amendments to Rule 17a–11 should not result in a change in the current PRA burden for Rule 17a–11. However, the Commission will take into account any changes in the number of notices associated with this collection of information in subsequent extensions of this collection of information and make any necessary adjustments, as appropriate.
As described more fully above, the amendments require that all broker-dealers registered with the Commission file Form Custody quarterly with their DEA. The Commission estimated that the hour burden associated with completing and filing proposed Form Custody would be approximately 12 hours per quarter, or 48 hours per year, on average, for each broker-dealer.
In section IV. of this release, in adopting the final amendments to Form Custody, the Commission received one comment in response to Item 8 of Form Custody, as proposed, noting that the information sought in Item 8 was largely the same as information collected from investment advisers on Form ADV.
The Commission now estimates that there are approximately 4,709 broker-dealers that must file Form Custody. The Commission therefore estimates that the total annual burden associated with completing and filing Form Custody for all 4,709 broker-dealers is approximately 226,032 hours per year (4,709 broker-dealer times 4 responses per year times 12 hours = 226,032 hours).
One commenter stated that the estimated costs to the industry of $69,179,670 is “staggering,” and that such costs would likely indirectly be passed on to customers.
For these reasons, the Commission believes the internal costs related to the PRA for this hour burden are reasonable and, therefore, the Commission is not adjusting the final cost estimate, except to reflect updated data with respect to
The collection of information obligations imposed by the rule amendments are mandatory for broker-dealers that are registered with the Commission.
The Commission expects to receive confidential information in connection with the proposed collections of information. Paragraph (e)(3) of Rule 17a–5, as amended, provides that broker-dealer annual reports filed with the Commission are not confidential, except that if the Statement of Financial Condition is bound separately from the balance of the annual reports, and each page of the balance of the annual reports is stamped “confidential,” then the balance of the annual reports shall be deemed confidential to the extent permitted by law.
The Commission is sensitive to the costs and benefits of its rules. When engaging in rulemaking that requires the Commission to consider or determine whether an action is necessary or appropriate in the public interest, section 3(f) of the Exchange Act requires that the Commission consider, in addition to the protection of investors, whether the action will promote efficiency, competition, and capital formation.
In the proposing release, the Commission solicited comment on the costs and benefits of the proposed amendments and new form, including whether estimates of the costs and benefits were accurate and comprehensive.
The Commission received 27 comment letters on the proposed amendments. A number of commenters addressed the Commission's estimates of the cost and benefits of the proposed amendments.
As discussed throughout this release, in part in response to comments, the Commission has modified the proposed rules to reduce compliance burdens where consistent with investor protection. In addition, as discussed below, where commenters identified costs the Commission did not consider, the Commission has revised its economic analysis of the final rules to take these costs into account.
In adopting the rule amendments and new form, the Commission has been mindful of the associated costs and benefits. The costs and benefits that the Commission has considered in adopting these amendments and new form are discussed below. The discussion focuses on the Commission's reasons for adopting these amendments and new form, the affected parties, and the costs and benefits of the amendments and new form compared to the baseline, described below, and to alternative courses of action.
Many of the benefits and costs discussed below are difficult to quantify, in particular when discussing increases in investor confidence and improvements in investor protection. For example, the extent to which the increased ability of the Commission and DEAs to oversee compliance with the financial responsibility rules will help limit future violations of the rules is unknown. Similarly, it is unknown how much increasing the focus of broker-dealers on the financial responsibility rules will result in enhanced compliance with those rules. Moreover, limited public data exists to study the costs of broker-dealer audits. Therefore, much of the discussion is qualitative in nature but, where possible, the Commission attempted to quantify the costs.
The rule amendments and new form being adopted today are designed to provide additional safeguards with respect to broker-dealer custody of customer securities and funds. The motivation for these amendments, which are discussed throughout this release, are summarized below.
First, as mentioned above in section I.A. of this release, over the last several years, the Commission has brought several cases alleging fraudulent conduct by investment advisers and broker-dealers, including among other things, alleged misappropriation or other misuse of customer securities and funds.
Second, as discussed above in section II.D. of this release, certain provisions of Rule 17a–5 before today's amendments were inconsistent with current audit practices, standards, and terminology, which have evolved since these provisions were adopted. This inconsistency has resulted in disparate audit practices and inconsistent compliance with the rule. As discussed above in section II.D.3.iii. of this release, the PCAOB has published a report containing observations from inspections of portions of 23 broker-dealer audits conducted by ten accounting firms.
Third, as discussed in section II.D. of this release, prior to today's amendments, Rule 17a–5 required that broker-dealer audits be conducted in accordance with GAAS, which are established by the Auditing Standards Board of the AICPA. The amendments—by requiring that the audits be conducted in accordance with PCAOB standards—recognize the PCAOB's explicit oversight authority over broker-dealer audits as provided by the Dodd-Frank Act, including the authority to establish (subject to Commission approval) and enforce auditing and related attestation, quality control, ethics, and independence standards.
Fourth, as discussed in section II.B.6. of this release, because broker-dealers have not been required to file with SIPC their annual audited financial statements, SIPC has received limited information regarding the financial condition of its broker-dealer members. SIPC can use this information, among other things, to assess whether the SIPC Fund is appropriately sized to the risks of a large broker-dealer failure. In addition, at least one court, the New York Court of Appeals, has held that in cases where SIPC is required to fund the liquidation of a broker-dealer, SIPC could not maintain a claim against the auditor of the broker-dealer based on an alleged failure to comply with auditing standards because SIPC did not receive the audited financial statements and therefore could not have relied upon them.
Fifth, as discussed in section III. of this release, the audit work performed by independent public accountants with respect to audits of carrying and clearing broker-dealers can provide useful information to Commission and DEA examiners in terms of planning the scope and focus of the examination of the broker-dealer. Providing Commission and DEA examiners with access to the independent public accountant that audited the broker-dealer and audit documentation related to the audit will allow the examiners to gain an understanding of the work the accountant did in auditing the broker-dealer and any areas of concern highlighted by the auditor. This will enable the examiners to conduct risk-based examinations of carrying and clearing broker-dealers and assist the examiners in determining areas of focus for their examinations. Furthermore, the amendments will make it clear to the independent public accountant that the broker-dealer has agreed that the accountant can provide this information and, consequently, eliminate uncertainty as to whether the broker-dealer consents to the disclosure of the information.
Sixth, as discussed in section IV. of this release, because broker-dealers were not required to provide comprehensive or consolidated information about their custody practices to the Commission or their DEA, the Commission and the broker-dealer's DEA had a fragmented and incomplete picture of whether a broker-dealer maintained custody of customer and non-customer assets, and if so, how such assets were maintained. This hindered the ability of the Commission and DEAs to efficiently plan, prioritize, and perform examinations.
The regulatory changes adopted today amend requirements that apply to broker-dealers registered with the Commission and independent public accountants that audit or attest to broker-dealer annual reports. The discussion below includes approximate numbers of broker-dealers and accountants that would be affected by today's amendments and a description of the economic baseline against which the costs and benefits, as well as the impact on efficiency, competition, and capital formation, of today's amendments and new form are measured.
The broker-dealers registered with the Commission vary significantly in terms of their size, business activities, and the complexity of their operations. For example, carrying broker-dealers hold customer securities and funds.
As stated in section I.B.1. above, a broker-dealer that claims an exemption from Rule 15c3–3 is generally referred to as “non-carrying broker-dealer.” Non-carrying broker-dealers include “introducing brokers.”
The broker-dealer industry is the primary industry affected by the rule amendments and the new form. In some cases, the amendments impose different requirements on different types of broker-dealers. For example, carrying broker-dealers must file the compliance report and an independent public accountant's report covering the compliance report, while non-carrying broker-dealers must file the exemption report and an independent public accountant's report covering the exemption report. Only carrying and clearing broker-dealers must agree to allow Commission and DEA examiners to review the audit documentation of their independent public accountants and to allow accountants to discuss their findings with the examiners. All broker-dealers must file Form Custody, but many of the line items on the form apply only to carrying broker-dealers.
To establish a baseline for competition among broker-dealers, the Commission looks at the status of the broker-dealer industry detailed below. In terms of size, the following tables illustrate the variance among broker-dealers with respect to total capital. The information in the table is based on FOCUS Report data for calendar year 2011.
According
Independent public accountants that audit broker-dealer reports also will be impacted by the rule amendments. Based on the audit reports filed by broker-dealers in 2011, approximately 900 accounting firms audited broker-dealer reports that were filed with the Commission. However, six large accounting firms dominate the market performing audits for approximately 20% of all broker-dealers registered with the Commission, and those broker-dealers audited by the six large accounting firms had total capital that was more than 90% of the total capital of all broker-dealers registered with the Commission.
Prior to today's amendments, the AICPA established the auditing and attestation standards to be followed by the independent public accountants of broker-dealers (
SIPC was established in 1971. In the period from 1971 to 2011, SIPC initiated 324 proceedings under SIPA to liquidate a failed broker-dealer.
Before today's amendments, Rule 17a–5 generally required broker-dealers to prepare and file a financial report with the Commission and the broker-dealer's DEA, as well as a report of a PCAOB-registered independent public accountant covering the financial report. Brokers-dealers also were required to file concurrently with the audited financial report a material inadequacy report prepared by the independent public accountant.
With regard to the material inadequacy report, broker-dealers generally made representations to their independent public accountants about their compliance with certain financial responsibility rules in a representation letter.
As noted above, prior to today's amendments, broker-dealers generally were required to file with the Commission: (1) A report of an independent public accountant based on an audit of the broker-dealer's financial statements and supporting schedules; and (2) a material inadequacy report prepared by the accountant, based on, among other things, a review of a broker-dealer's accounting system, internal accounting control, and procedures for safeguarding securities. The accountant was required to be registered with the PCAOB. However, Rule 17a–5 required that the audit be performed in accordance with GAAS, which are issued by the AICPA. Consequently, the standard setting body for broker-dealer audits has been the AICPA (rather than the PCAOB) notwithstanding the requirement that broker-dealers be audited by a PCAOB-registered independent public accountant.
With regard to the independent public accountant's preparation of the material inadequacy report, Rule 17a–5 required that the scope of the accountant's review be sufficient to provide “reasonable assurance” that any material inadequacies
If the broker-dealer was exempt from Rule 15c3–3, Rule 17a–5 required the independent public accountant to ascertain that the conditions of the exemption were being complied with as of the examination date and that no facts came to the independent public accountant's attention to indicate that the exemption had not been complied with during the period since the last examination.
Prior to today's amendments, broker-dealers that are members of SIPC were required to file only limited information with SIPC. This information is elicited on Form SIPC–6, the “General Assessment Payment Form” and Form SIPC–7, the “Annual General Assessment Reconciliation.” In addition, for any period during which the SIPC assessment was not a minimum assessment as provided for in section 4(d)(1)(c) of SIPA, paragraph (e)(4) of Rule 17a–5 generally required broker-dealers to submit to SIPC a supplemental report on the status of the membership of the broker-dealer in SIPC. The supplemental report, among other things, had to include a comparison of the amounts reflected in the annual financial report the broker-dealer filed with the Commission with amounts reported on Form SIPC–7. Form SIPC–6 is filed for the first half of the fiscal year and Form SIPC–7 is filed at the end of the fiscal year with a place to deduct the assessment due and paid as reflected on Form SIPC–6. These forms elicit information from a broker-dealer that is a SIPC member about the broker-dealer's sources of revenue attributable to its securities business.
Prior to today's amendments, broker-dealers did not file with SIPC the annual audited financial statements and accompanying schedules and reports they filed with the Commission and their DEA under Rule 17a–5. Therefore, for example, broker-dealers did not file their balance sheets, which contain information concerning their assets, liabilities, and net worth, or notes to their financial statements with SIPC. This information is necessary to understand the financial conditions of the broker-dealer and, therefore, in order for SIPC to determine whether the SIPC Fund is appropriately sized to the risks of the broker-dealer industry.
Prior to today's amendments, the reporting provisions of Rule 17a–5 included references to the term “material inadequacy.”
Rule 17a–5 required that if, during the course of the audit, the independent public accountant determined that any material inadequacies existed, the independent public accountant was required to inform the CFO of the broker-dealer, who was required to give notice to the Commission and the broker-dealer's DEA within 24 hours. The rule also provided that the broker-dealer must furnish the independent public accountant with the notice. If the independent public accountant failed to receive the notice within the 24-hour period, or if the accountant disagreed with the statements contained in the notice, the accountant was required to inform the Commission and the DEA within the next 24 hours and describe any material inadequacies found to exist or, if the broker-dealer filed a notice, detail the aspects of the broker-dealer's notice with which the accountant did not agree.
In addition, Rule 17a–11 required that when a broker-dealer discovers a material inadequacy, or is notified by its independent public accountant under Rule 17a–5 that a material inadequacy exists, the broker-dealer must notify the Commission and its DEA and must transmit a report stating what the broker-dealer has done or is doing to correct the situation.
Prior to today's amendments, Rule 17a–5 provided that, if the independent public accountant commented on any material inadequacies, the financial information a broker-dealer was required to send to customers annually must include a statement that a copy of the accountant's report and comments was available for customers' inspection. In addition, Rule 17a–5 provided a conditional exemption from the requirement that a broker-dealer send paper copies of financial information to customers, if the broker-dealer was not required during the prior year to give notice of a material inadequacy.
Prior to today's amendments, carrying and clearing broker-dealers were not required to provide Commission and DEA examination staff access to their independent public accountants and accountant work papers. Such access would enable Commission and DEA examiners to obtain information, for example, regarding areas on which the accountants focused in order to plan and conduct risk-based examinations of carrying and clearing broker-dealers.
Generally, prior to today's amendments, broker-dealers were not required to provide comprehensive or consolidated information about their custody practices to the Commission or their DEA. Some information relating to a broker-dealer's custody practices is included in a broker-dealer's exchange membership agreements and clearing agreements, and in the books and records of the broker-dealer. In addition, some information is included on Form ADV and, therefore, if the broker-dealer also is a registered investment adviser, the information is available to the Commission. Although Commission and DEA examiners could obtain the information provided on Form Custody through detailed examinations of the broker-dealer's books and records and by requesting information from other sources, the Commission and the broker-dealer's DEA did not have a profile of a broker-dealer's custodial activities that could serve as a starting point to perform more focused examinations.
This section discusses costs and benefits of the rule amendments and new forms for the affected parties against the economic baseline identified above, both in terms of each of the specific changes from the baseline, as well as in terms of the overall impact. In considering these costs, benefits, and impacts, this discussion addresses, among other things, comments received,
The costs incurred by a broker-dealer to comply with the rule amendments and new form generally will depend on its size and the complexity of its business activities. Because the size and complexity of broker-dealers vary significantly as indicated in the economic baseline, their costs could vary significantly. In some cases, the Commission is providing estimates of the average cost per broker-dealer across all broker-dealers, taking into consideration the variance in the size of broker-dealers and the complexity of their business activities.
Today's amendments require that audits of broker-dealer financial statements and schedules be conducted in accordance with the standards of the PCAOB, thereby replacing the AICPA as the standard setter. The amendments also require that broker-dealers file one of two new reports—either a compliance report or an exemption report—and a report of an independent public accountant based on an examination of the compliance report or a review of the exemption report. This section discusses the costs and benefits of the change from the AICPA to the PCAOB as the standard setter for broker-dealer audits and the corresponding change from GAAS to PCAOB standards with respect to the audit of the financial statements and schedules. The costs and benefits of requiring the use of PCAOB standards with respect to examinations and reviews of the new compliance report and exemption report are discussed separately below in section VII.C.1.iii. of this economic analysis regarding the engagement of the accountant.
The change from the AICPA to the PCAOB as standard setter for broker-dealer audits and the corresponding change from GAAS to PCAOB auditing standards for audits of broker-dealer financial reports and supporting schedules provides several benefits. By requiring that these audits be conducted in accordance with PCAOB standards, the amendments align Rule 17a–5 with statutory provisions. As discussed above, the Sarbanes-Oxley Act amended the Exchange Act to require that certain broker-dealer financial reports filed with the Commission be audited by an accounting firm registered with the PCAOB. The Dodd-Frank Act, enacted in July 2010, amended the Sarbanes-Oxley Act to provide the PCAOB with explicit authority to, among other things, establish (subject to Commission approval) auditing and related attestation, quality control, ethics, and independence standards for registered public accounting firms with respect to their preparation of audit reports to be included in broker-dealer filings with the Commission, and the authority to conduct an inspection program of registered public accounting firms that audit broker-dealers.
After today's amendments, the PCAOB will be the standard setter for two types of entities: issuers that are public companies and broker-dealers. Given this mandate, the PCAOB can focus on establishing standards tailored to these types of entities. For example, with respect to the audit of the financial report, the PCAOB has proposed a standard for auditing supplemental information accompanying audited financial statements filed with the Commission, including supporting schedules broker-dealers must file with the Commission and the broker-dealer's DEA, such as schedules regarding the computation of net capital and the customer reserve requirement and information related to the broker-dealer's possession or control of customer securities.
The change to the PCAOB as the audit standard setter for broker-dealers should facilitate the development of the PCAOB's permanent inspection program as contemplated by the Dodd-Frank Act, because audits of broker-dealers will be inspected by the PCAOB in accordance with its own standards, and not those of another standard setter, and because of feedback that can be obtained through the inspections process regarding gaps and areas that may need improvement. Further, the Commission has direct oversight authority over the PCAOB, including the ability to approve or disapprove the PCAOB's rules.
As an alternative approach, one commenter argued that GAAS should apply for audits of non-carrying broker-dealers.
The Commission has determined that all audits of broker-dealer financial statements and supporting schedules should be performed in accordance with PCAOB standards for several reasons. First, allowing the use of more than one auditing standard would introduce inconsistencies in audits of broker-dealer financial reports. Second, allowing the use of non-PCAOB auditing standards for certain broker-dealer audits would reduce the benefits discussed above of requiring that all audits of broker-dealer financial reports be conducted in accordance with PCAOB standards. Third, as discussed in more detail below, the switch from GAAS to PCAOB standards should not result in significant incremental costs.
Independent public accountants that audit issuers are already familiar with PCAOB audit standards, which should ease any transition to PCAOB standards for their audits of broker-dealers. Although the retention of two standards could reduce the incremental costs of switching from GAAS to PCAOB standards for some independent public accountants that do not audit issuers, it would not reduce the incremental costs for all such independent public accountants. For example, a requirement that the financial statements of one class of broker-dealer be audited in accordance with GAAS and the financial statements of another class of broker-dealer be audited in accordance with PCAOB standards would avoid the incremental costs only for independent public accountants that limit their audit engagements to the former class of broker-dealer. These independent public accountants would not need to stay current with PCAOB standards and adopt their procedures to those standards. However, independent public accountants that were engaged to audit broker-dealers in both classes would need to stay current with both sets of standards and adopt their procedures to both sets of standards, which could increase their incremental costs. Further, the PCAOB may determine, subject to Commission approval, to adopt specific auditing standards for certain types of broker-dealers (for example, carrying and non-carrying broker-dealers). This could decrease costs for certain broker-dealer audits.
The Commission received several comments on the costs of its proposal to replace GAAS with PCAOB standards with respect to audits of broker-dealer financial reports. Several commenters stated that the Commission did not address the costs associated with the change from GAAS to PCAOB standards.
Current PCAOB standards for audits of financial information generally incorporate concepts and requirements contained within GAAS, thereby minimizing the potential costs of this change to independent public accountants that audit broker-dealers. For example, in April 2003, the PCAOB adopted interim auditing standards consisting of GAAS then in existence, to the extent not superseded or amended by the PCAOB.
While some independent public accountants of broker-dealers may incur one-time implementation costs to update their broker-dealer audit programs to reflect PCAOB standards, the costs should not be significant. As stated above, most of the PCAOB's current standards for audits of financial reports incorporate concepts and requirements contained within GAAS. Thus, the independent public accountants of broker-dealers already should be familiar with many of the PCAOB's standards. In addition, as discussed in the economic baseline, the AICPA from time-to-time updates and revises its standards. On such an occurrence, an independent public accountant would need to take steps to become familiar with the updates and revisions and change its broker-dealer audit program accordingly. This need for continuing education presumably already is priced into the audit fees independent public accountants charge broker-dealers.
In contrast to the views expressed by some commenters, the Commission does not expect that a requirement that an audit of financial statements and supporting schedules be conducted in accordance with standards of the PCAOB instead of with GAAS will result in substantial changes for broker-dealer audit programs and therefore the Commission does not anticipate that this change will result in significant costs to broker-dealers in the form of increased audit fees.
Under the amendments, a broker-dealer will need to file one of two new reports: a compliance report or an exemption report.
Under the amendments, a carrying broker-dealer must prepare and file with the Commission a new compliance report each year, along with a report prepared by a PCAOB-registered independent public accountant based on an examination of certain statements made in the compliance report in accordance with PCAOB standards.
The compliance report requirements provide a number of benefits. For example, specifying and standardizing the statements required in the compliance report should promote consistent compliance with Rule 17a–5 and should ensure that the Commission receives information relating to aspects of a carrying broker-dealer's compliance with the financial responsibility rules that are of particular concern. Although, as discussed above in section II.D.3. of this release, current auditing standards require that independent public accountants obtain written representations from management as part of the audits of financial statements and attestation engagements, GAAS only provide examples of management representations and do not mandate that specific management representations be made. By clearly specifying and standardizing the statements, the compliance report should increase consistency with respect to the matters examined by the independent public accountants as part of the examination of the compliance report.
The specification and standardization of the statements also should facilitate Commission and DEA oversight of broker-dealer compliance with the financial responsibility rules to the benefit of broker-dealer customers, by helping the Commission and DEAs to more quickly identify broker-dealers with potential problems. Moreover, as adopted, the final rule requires a broker-dealer's compliance report to include information regarding whether the broker-dealer's internal control was effective as of the end of the fiscal year, in addition to information regarding whether there were material weaknesses in the Internal Control Over Compliance during the fiscal year. This will provide the Commission and the DEA with information on whether the broker-dealer has taken action by the end of the fiscal year to cure any material weaknesses in the Internal Control Over Compliance that existed during the fiscal year.
Requiring the compliance report to be filed with the Commission and the broker-dealer's DEA also should increase broker-dealers' focus on ensuring the accuracy of the statements being made and enhance compliance with the financial responsibility rules given the penalties for false filings. For example, filers are subject to penalties for willfully making false statements in any application, report, or document filed with the Commission.
One commenter stated that incremental benefits of having the assertion in the compliance report with respect to internal controls pertain to the whole year rather than the fiscal year end does not justify the costs.
Broker-dealers will incur costs associated with preparing the compliance report. The level of effort required by carrying broker-dealers to prepare a compliance report will depend on the nature of the activities of the broker-dealer. For example, the controls necessary for a carrying broker-dealer that engages in limited custodial activities generally should be less complex than the controls necessary for a carrying broker-dealer that engages in more extensive custodial activities. Therefore, a carrying broker-dealer with limited custodial activities should have to expend less effort to make its statements in the compliance report relating to the effectiveness of its Internal Control Over Compliance. To the extent that the amount of custodial activity is related to the size of a broker-dealer, the cost of preparing the compliance report should be lower for smaller carrying broker-dealers.
The Commission estimated in the proposing release that, on average, carrying broker-dealers would spend approximately 60 hours each year to prepare the proposed compliance report.
The Commission is retaining the 60-hour estimate for the reasons discussed below. The final rules contain two changes from the proposal that could result in lower costs than if the rules had been adopted as proposed: (1) Elimination of the concepts of “material non-compliance” and “compliance in all material respects” with Rule 15c3–1 and 15c3–3 for the purposes of reporting in the compliance report; and (2) a narrowing of these statements and description requirements from compliance with all of the financial responsibility rules to compliance with Rule 15c3–1 and paragraph (e) of Rule 15c3–3.
As previously discussed, many commenters raised concerns about how firms would determine whether an instance of non-compliance constitutes material non-compliance.
The “material non-compliance” and “compliance in all material respects” concepts were designed to limit the types of instances of non-compliance that would need to be identified in the report. To retain a limiting principle, the final rule focuses on provisions that trigger notification requirements when they are not complied with, namely, Rule 15c3–1 and the customer reserve requirement in paragraph (e) of Rule 15c3–3.
The final rule also retains the proposed requirement that the carrying broker-dealer provide a description of each identified material weakness in the internal control of the broker-dealer over compliance with the financial responsibility rules, but, in conformity with other modifications to the proposal, the final rule specifies that the material weaknesses include those identified during the most recent fiscal year as well as those that were identified as of the end of the fiscal year.
The changes discussed above, in some cases, may result in a modest reduction in burden relative to the proposal. However, while some commenters suggested that the proposing release underestimated the burden, the Commission is not changing its estimate of the time required for a broker-dealer to prepare the compliance report. The Commission notes that, while commenters questioned the estimate, they did not provide data that would enable the Commission to revise its estimate.
The Commission, however, is updating its estimates of the number of broker-dealers that would be required to file the compliance report, which affects the cost estimates. The Commission now estimates that there are approximately 292 carrying broker-dealers. Therefore, the Commission estimates that the time required for all 292 carrying broker-dealers to prepare the report is approximately 17,520 hours per year.
Broker-dealers that claim an exemption from Rule 15c3–3 are required to file an exemption report and a report of the independent public accountant based on a review of the exemption report. The exemption report must contain the following statements made to the best knowledge and belief of the broker-dealer: (1) A statement that identifies the provisions in paragraph (k) of Rule 15c3–3 under which the broker-dealer claimed an exemption from Rule 15c3–3; (2) a statement the broker-dealer met the identified exemption provisions in paragraph (k) of Rule 15c3–3 throughout the most recent fiscal year without exception or that it met the identified exemption provisions in paragraph (k) of Rule 15c3–3 throughout the most recent fiscal year except as described in the exemption report; and (3) if applicable, a statement that identifies each exception during the most recent fiscal year in meeting the identified provisions in paragraph (k) of Rule 15c3–3 and that briefly describes the
The preparation of exemption reports by broker-dealers that claim an exemption from Rule 15c3–3 throughout the most recent fiscal year, as well as reviews of certain statements in the exemption reports by independent public accountants, should strengthen and facilitate consistent compliance with the Commission's financial responsibility rules, for many of the same reasons identified above with respect to the compliance report. Among other things, these reports should enhance compliance with the exemption provisions in Rule 15c3–3, thereby providing better protection of customer assets. This increased focus is enhanced further by requiring the direct filing of the exemption report with the Commission and the broker-dealer's DEA because of the potential penalties for false statements. In addition, the Commission and the broker-dealer's DEA will benefit from the information provided in the exemption report in conducting their supervisory oversight of the broker-dealer.
The Commission considered an alternative suggested by one commenter to replace the exemption report with a box to check on the FOCUS Report.
The Commission estimated that it would take a non-carrying broker-dealer approximately five hours to prepare and file the proposed exemption report.
As discussed above, the amendments to Rule 17a–5 eliminate the requirement that the broker-dealer's independent public accountant prepare, and the broker-dealer file with the Commission and its DEA concurrently with its annual audited financial statements, a material inadequacy report, based on, among other things, a review of a broker-dealer's accounting system, internal accounting control, and procedures for safeguarding securities. The amendments replace this requirement with a requirement, among other things, that the broker-dealer file with its annual reports a report prepared by an accountant covering either the broker-dealer's compliance report or exemption report, as applicable. The accountant engaged by the broker-dealer must, as part of the engagement, undertake to prepare its reports based on an examination of certain statements in the compliance report or a review of certain statements in the exemption report, as applicable, in accordance with PCAOB standards.
With regard to the independent public accountant's preparation of the material inadequacy report, Rule 17a–5 required that the scope of the accountant's review be sufficient to provide “reasonable assurance” that any material inadequacies existing at the date of examination would be disclosed. If the broker-dealer was exempt from Rule 15c3–3, Rule 17a–5 provided that the accountant must ascertain that the conditions of the exemption were being complied with as of the examination date and that no facts came to the accountant's attention to indicate that the conditions of the exemption had not been complied with since the last examination. As discussed above, AICPA guidance provided that the material inadequacy report should address what the independent public accountant concluded in its “study” of the adequacy of the broker-dealer's practices and procedures in complying with the financial responsibility rules in
However, in the PCAOB's first report on the progress of its interim inspection program of broker-dealer audits, the PCAOB stated that as to 21 of the 23 audits inspected, the accountant “failed to perform sufficient audit procedures to obtain reasonable assurance that any material inadequacies found to exist since the date of the last examination . . . would have been disclosed in the accountant's supplement report.”
Generally, the engagement of accountant amendments should result in higher levels of compliance with the Commission's financial responsibility rules by increasing the focus of carrying broker-dealers and their independent public accountants on specific statements made in the compliance report relating to the broker-dealer's compliance, and internal control over compliance, with the financial responsibility rules and increasing the focus of non-carrying broker-dealers and their independent public accountants on whether the broker-dealer meets the exemption provisions in paragraph (k) of Rule 15c3–3. These amendments also clarify the scope and the standards that apply to broker-dealer audits and conform language in the rule with terminology in existing audit literature, which should reduce inconsistencies in broker-dealer compliance with Rule 17a–5. The replacement of the material inadequacy report with the report based on an examination of the compliance report or review of the exemption report facilitates the Commission's objective to provide clear and consistent terminology focused separately on compliance with the financial responsibility rules and internal control over compliance with the financial responsibility rules.
With regard to the examination of the compliance report, the amendments are intended to encourage greater focus by the independent public accountant on Internal Control Over Compliance, including, in particular, broker-dealer custody practices. By specifying the statements that must be made by a broker-dealer to the Commission, and hence, examined by the auditor, the compliance report should provide clarity and facilitate consistent compliance with Rule 17a–5 by independent public accountants. Additionally, the focus of independent public accountants on internal control over the custody practices of broker-dealers should better identify broker-dealers that have weak internal controls for safeguarding investor securities and cash. Similarly, with regard to the review of the exemption report, the amendments encourage greater focus by the accountant on whether the broker-dealer has appropriately claimed an exemption from Rule 15c3–3 by, among other things, reviewing whether the broker-dealer's statements in the exemption report as to meeting the exemption provisions without or with exceptions, and, if applicable, identifying exceptions to meeting those provisions, were fairly stated.
The PCAOB stated that its proposed attestation standards for examining compliance reports and reviewing exemption reports were “tailored” to the proposed amendments to Rule 17a–5.
Based on its estimates of the costs associated with the cost of an internal control report under Rule 206(4)–2, the Commission estimated that the external cost to a carrying broker-dealer of obtaining the independent public accountant's report based on an examination of the proposed compliance report would be an average incremental cost of approximately $150,000 per carrying broker-dealer per year.
The Commission received various comments regarding the engagement of accountant provisions as they relate to examining or reviewing the proposed compliance reports and exemption reports, respectively. One commenter stated that the Commission underestimated the cost of examining the compliance report and that the Commission may need to consider the
The Commission acknowledges that the total costs associated with these requirements will depend on the final PCAOB standards for attestation engagements to examine compliance reports or review exemption reports. However, as the PCAOB's proposed standards were tailored to the proposed amendments, nothing in those standards causes the Commission to change its estimates of the costs associated with these requirements, or to question that the benefits will justify the costs.
Before today's amendments, Rule 17a–5 required the independent public accountant to, among other things, review the accounting system, internal accounting control, and procedures for safeguarding securities of the broker-dealer, including appropriate tests, for the period since the prior examination date. The scope of the independent public accountant's review was required to be sufficient to provide reasonable assurance that any material inadequacies existing at the date of the auditor examination would be disclosed. Similarly, an examination of a compliance report performed under the PCAOB's attestation standard for examination engagements would require that the auditor obtain reasonable assurance to express an opinion on whether the broker-dealer's statements in the compliance report are fairly stated, in all material respects.
Moreover, before today's amendments, if a broker-dealer was exempt from Rule15c3–3, Rule 17a–5 required the independent public accountant to “ascertain that the conditions of the exemption were being complied with as of the examination date and that no facts came to [the independent public accountant's] attention to indicate that the exemption had not been complied with during the period since [the independent public accountant's] last examination.”
The compliance report as adopted includes an additional statement (relative to the proposal) as to whether the broker-dealer's Internal Control Over Compliance was effective as of the end of the most recent fiscal year. Therefore, costs of compliance with the final rules may be higher than costs of compliance with the proposed rules to the extent Internal Control Over Compliance has changed near or as of the fiscal year end. However, this increased cost is not expected to be significant, since the procedures needed to opine on these matters as of the fiscal year end should not be materially different from the procedures employed to opine as to the effectiveness of internal control over the course of the fiscal year.
As proposed, the broker-dealer would have been required to assert whether it was in compliance, in all material respects, with all of the financial responsibility rules as of its fiscal year end. As adopted, the broker-dealer must assert whether it is in compliance with Rule 15c3–1 and paragraph (e) of Rule 15c3–3 (
Although these modifications could modestly lower costs associated with the accountant's report covering the compliance report as compared to the proposal, the Commission is not changing its estimate of costs associated with accountants' reports covering compliance reports and exemption reports. Based on updated data, the Commission now estimates that there are approximately 292 carrying broker-dealers. The Commission therefore estimates that the industry-wide annual average incremental external reporting cost of accountants' reports based on examinations of compliance reports is approximately $44 million per year ($150,000 times 292 carrying broker-dealers = $43,800,000).
Finally, one commenter suggested that the Commission use an “agreed-upon procedures” engagement for the exemption report.
Another commenter stated that the benefit of receiving an audit report covering the exemption report would not justify the cost
The Commission believes the rule should continue to require a conclusion from the independent public accountant on the broker-dealer's claimed exemption from Rule 15c3–3 because of the importance of safeguarding customer securities and cash. While the Commission anticipates there will be costs related to the audit of the exemption report, the Commission does not believe it would be appropriate to use a lower standard (
The amendments to Rule 17a–5 require broker-dealers that are SIPC members to file their annual reports with SIPC. SIPC plays an important role in the securities markets by serving as a backstop to protect customers of a failed broker-dealer that cannot promptly return customer securities and funds. In this capacity, SIPC has a legitimate interest in receiving the annual reports of its broker-dealer members to assist it with its maintenance of the SIPC Fund and to monitor trends in the broker-dealer industry. For example, SIPC presently obtains revenue information from broker-dealers, through Form SIPC–7, to determine how best to structure broker-dealer assessments to maintain the SIPC Fund at an appropriate level. However, the information collected in the form is limited and may not assist SIPC in assessing whether the SIPC Fund is appropriately sized to the risks of a large broker-dealer failure. The annual reports contain much more detailed information about the assets, liabilities, income, net capital, and Rule 15c3–3 customer reserve requirements of broker-dealers, and also include, for carrying broker-dealers, a compliance report containing information about the broker-dealer's compliance with, and controls over compliance with, the broker-dealer financial responsibility rules. The annual reports also generally include the independent public accountant's reports covering the financial report and compliance report or exemption report, as applicable, prepared by the broker-dealer. This information also will assist SIPC in monitoring the financial strength of broker-dealers and, therefore, in assessing the adequacy of the SIPC Fund.
In addition, by receiving the annual reports, SIPC may be able to overcome a potential legal hurdle to pursuing claims against a broker-dealer's accountant where the accountant's failure to adhere to professional standards in auditing a broker-dealer causes a loss to the SIPC Fund. As discussed in section II.B.6. of this release, SIPC has sought to recover money damages from the broker-dealer's independent public accountant based on an alleged failure to comply with auditing standards, but at least one court has held under New York law that SIPC could not maintain a claim because it was not a recipient of the annual audit filing and could not have relied on it.
SIPC's improved ability to maintain the SIPC Fund will benefit investors. First, if the SIPC Fund is appropriately sized, customers of a failed broker-dealer in a SIPA liquidation should be able to recover their assets more quickly through advances from the fund than if the fund is not adequate. Also, to the extent the amendments overcome a potential legal hurdle to pursuing claims against a broker-dealer's accountant, the ability to recover damages from the broker-dealer's accountant in the context of a SIPA liquidation proceeding could increase the size of the estate of a failed broker-dealer. Increasing the size of the estate could benefit customers with claims that cannot be fully satisfied through distributions of customer property held by the failed broker-dealer and the SIPC advances.
The new requirement that broker-dealers that are members of SIPC file their annual reports with SIPC will increase these broker-dealers' compliance costs.
While they did not provide estimates of potential litigation costs, several commenters stated that the Commission did not address the potential costs and benefits of requiring broker-dealers to file copies of their annual reports with SIPC, including potential litigation costs for independent public accountants.
As discussed above in section II.F. of this release, the Commission is amending the notification provisions in Rule 17a–5 and is making conforming amendments to Rule 17a–11. Prior to today's amendments, paragraph (h)(2) of Rule 17a–5 provided that if, during the course of the audit or interim work, the independent public accountant determined that any “material inadequacies” existed, the independent public accountant was required to inform the CFO of the broker-dealer, who, in turn, was required to give notice to the Commission and the broker-dealer's DEA within 24 hours in accordance with the provisions of Rule 17a–11.
Under Rule 17a–11, a broker-dealer must provide notice to the Commission and its DEA in certain circumstances.
The Commission proposed amending the notification provisions in Rule 17a–5 to replace the term “material inadequacy” with the term “material non-compliance.” The term “material non-compliance” was defined in the context of the compliance report, which was required to be prepared and filed by carrying broker-dealers. This provision would therefore have applied to broker-dealers that filed compliance reports with the Commission. The Commission also proposed amending the notification process. Under the proposed new process, the accountant would be required to notify the Commission and the broker-dealer's DEA directly.
The Commission received numerous comments in response to this proposal.
The final rule requires that if the accountant determines that there are any instances of non-compliance (as opposed to an instance of material non-compliance, as proposed) with the financial responsibility rules during the course of preparing the accountant's reports, the accountant must immediately notify the CFO of the broker-dealer of the nature of the non-compliance. If the accountant provides notice of an instance of non-compliance, the broker-dealer must notify the Commission and its DEA, but only if required to do so by existing provisions of Rule 15c3–1, Rule 15c3–3, or Rule 17a–11 that require such notification.
Under the final rule, the independent public accountant also will be required to provide notice to the broker-dealer if the accountant determines that any material weaknesses exist. As in the proposal,
As stated above, before today's amendments, Rule 17a–5 required the accountant to notify the broker-dealer if the accountant determined that any material inadequacies existed. The concept of material inadequacy generally applied to all broker-dealers and, therefore, the notification requirement applied with respect to independent public accountant engagements for non-carrying as well as carrying broker-dealers under Rule 17a–5. This requirement, however, may not have produced the intended benefits.
As discussed in section II.D.3. above, PCAOB inspection staff found that in 21 of 23 broker-dealer audits inspected, the accountant “failed to perform sufficient audit procedures to obtain reasonable assurance that any material inadequacies found to exist since the date of the last examination . . . would have been disclosed in the accountant's supplemental report.”
As discussed above, today's amendments generally replace the term material inadequacy and separate it into two components—a compliance component (non-compliance with the financial responsibility rules) and, for carrying broker-dealers, an internal control component (material weakness in Internal Control Over Compliance). The change is consistent with one of the objectives of the amendments: to provide clear and consistent terminology focused separately on compliance with key financial responsibility rules and internal control over compliance with the financial responsibility rules. The amended notification provisions in Rule 17a–5 reflect this change in terminology.
The Commission proposed amending the notification process so that the accountant would be required to notify the Commission and the broker-dealer's DEA directly. However, the Commission is not adopting this alternative because it agrees with the comments, discussed above, that the notification process in place before today's amendments should be retained.
As stated above, Rule 17a–5 before today's amendments required the accountant to notify the broker-dealer, and the broker-dealer to notify the Commission, if the accountant determined during the course of the audit or interim work that a material inadequacy existed. This requirement generally applied to all broker-dealer audits. The notification provisions in themselves did not direct the accountant to perform specific procedures with respect to the audit—those requirements were contained in other provisions of Rule 17a–5. The notification provisions in Rule 17a–5 were intended to require notification if, during the course of the audit, the accountant became aware of any material inadequacies. As amended, the notification provisions in Rule 17a–5 likewise do not in themselves require the accountant to perform specific procedures with respect to the examination of the financial report or an examination of a compliance report or review of an exemption report. Instead, the notification provisions are triggered when the accountant becomes aware, during the course of preparing the reports of the accountant required under Rule 17a–5, that the broker-dealer is not in compliance with the financial responsibility rules or, during the course of preparing a report based on an examination of a compliance report, that a material weakness exists. These notification requirements are designed to put the broker-dealer in a position to correct controls, processes, and systems that have caused or potentially could cause the firm to not comply with the financial responsibility rules. As discussed throughout this release, the financial responsibility rules serve an important investor protection function by requiring broker-dealers to maintain prudent levels of net capital and take steps to safeguard customer securities and cash.
The requirement to notify the broker-dealer when the independent public accountant determines that the broker-dealer is not in compliance with the financial responsibility rules or that any material weaknesses exist is not expected to increase costs for broker-dealers when compared to the baseline requirement to provide the broker-
As discussed above in section II.F.2., prior to today's amendments, paragraph (e) of Rule 17a–11 required that whenever a broker-dealer discovered, or was notified by an independent public accountant, pursuant to paragraph (h)(2) of Rule 17a–5 or paragraph (f)(2) of Rule 17a–12, of the existence of any material inadequacy, the broker-dealer was required to give notice to the Commission and transmit a report to the Commission stating what the broker-dealer has done or is doing to correct the situation.
The Commission is adopting conforming amendments to paragraph (e) of Rule 17a–11 to substitute a notice of the existence of any material weakness as defined in paragraph (d)(3)(iii) of Rule 17a–5 for a notice of the existence of any material inadequacy and to replace a reference to paragraph (h)(2) of Rule 17a–5 with a reference to paragraph (h) of Rule 17a–5.
The notification requirements, among other things, alert the Commission and the DEA of the need to increase their monitoring of a broker-dealer and to obtain additional information when appropriate in order to address any concerns the Commission or the DEA may have as a result of the notification. A notification of a material weakness will alert the Commission and the broker-dealer's DEA to the existence of a condition that could impact the broker-dealer's ability to remain in compliance with the financial responsibility rules, which serve an important investor protection function by requiring broker-dealers to maintain prudent levels of net capital and take steps to safeguard customer securities and cash. Once alerted, the Commission and the DEA can respond to the situation through, for example, heightened monitoring of the broker-dealer to assess whether it has corrected the problem and whether it is properly safeguarding customer securities and cash.
The Commission believes these amendments will not result in increased compliance costs to broker-dealers.
The Commission proposed amending paragraph (e) of Rule 17a–11 to delete the references to Rule 17a–5. However, the Commission is not adopting this alternative because it agrees with a commenter that notification should be provided to the Commission when a deficiency in internal control is discovered by the broker-dealer.
Prior to today's amendments, paragraph (c)(2)(iii) of Rule 17a–5 provided that if, in conjunction with a broker-dealer's most recent audit report, the broker-dealer's independent public accountant commented on any material inadequacies in the broker-dealer's internal controls, its accounting system, or certain of its practices and procedures
The Commission is revising its proposal with respect to amending paragraph (c)(2) of Rule 17a–5 to be consistent with the new notification provisions in paragraph (h) described above relating to the identification by a broker-dealer's accountant of a material weakness rather than an instance of material non-compliance.
The Commission does not believe these amendments will result in incremental costs to broker-dealers over the baseline.
Rule 17a–5 also provides a conditional exemption from the requirement to send paper copies of financial information to customers if the broker-dealer mails a financial disclosure statement with summary information and an Internet link to the balance sheet and other information on the broker-dealer's Web site. Before today's amendments, one of the conditions of the exemption was that the broker-dealer was not required during the prior year to give notice of a material inadequacy. The Commission proposed revising this condition for using Web site disclosure to provide that the broker-dealer's financial statements must receive an unqualified opinion from the accountant and that neither the broker-dealer nor the accountant identified a material weakness or an instance of material non-compliance.
One commenter stated that a broker-dealer should be able to deliver the financial information available to customers via its Web site regardless of whether an instance of material non-compliance or material weakness was identified.
The Commission has decided not to adopt the proposed condition for qualifying for the conditional exemption. The decision not to adopt should result in lower costs than would have been incurred had the Commission adopted the proposal without modification. Using the Internet to disclose information should be less costly and more efficient for the broker-dealer than mailing paper copies to all customers. It also will benefit customers, since they will be able to access relevant broker-dealer information more efficiently through the Internet (alternatively, customers can request a paper copy by phone at no cost to the customer).
Advisers Act Rule 206(4)–2 provides that when a registered investment adviser or its related person maintains client funds and securities as a qualified custodian in connection with advisory services provided to clients, the adviser annually must obtain, or receive from its related person, a written internal control report prepared by an independent public accountant registered with, and subject to regular inspection by, the PCAOB. This report must be supported by the accountant's examination of the qualified custodian's custody controls. Under the amendments, a broker-dealer that also acts as a qualified custodian for itself as an investment adviser or for its related investment advisers may use the report of the independent public accountant based on an examination of its compliance report to meet the reporting obligations under Rule 206(4)–2. Therefore, such a broker-dealer will not be required to obtain an internal control report under Rule 206(4)–2 in addition to a report covering the compliance report from its independent public accountant. It also will result in efficiencies as a single audit will be able to address two audit requirements.
The amendments to Rule 17a–5 require that carrying or clearing broker-dealers agree to allow Commission and DEA staff, if requested in writing for purposes of an examination of the broker-dealer, to review the work papers of the independent public accountant and to allow the accountant to discuss the its findings with the examiners.
This requirement will enable the Commission and DEAs to more efficiently deploy examination resources.
The Commission is amending paragraph (f)(2) of Rule 17a–5 to revise the statement regarding identification of a broker-dealer's independent public accountant that broker-dealers must file each year with the Commission and their DEA (except that if the engagement is of a continuing nature, no further filing is required).
As discussed above in section III. of this release, one commenter stated that, the amendments would discourage or “chill” communications between a broker-dealer and its auditor because of the possibility that an auditor may misconstrue communications from representatives of the broker-dealer and wrongly conclude that the representatives lack knowledge or admit to an issue.
The Commission estimated that the one-time hour burden associated with amending its existing statement and filing the new statement with the Commission, in order to comply with the proposed amendments, would be an average of approximately two hours on a one-time basis for each broker-dealer, as the statement can be continuing in nature.
As discussed in the PRA, the Commission is revising this estimate for clearing and carrying broker-dealers, as these broker-dealers will likely be required to renegotiate their agreements with their independent public accountants. The Commission estimates that the total one-time cost associated with this burden is approximately $5.2 million.
In addition, in the proposing release, the Commission estimated that a carrying or clearing broker-dealer's accountant would charge the broker-dealer for time its personnel spend speaking with the Commission or the broker-dealer's DEA or providing them with audit documents and that, on average, the Commission or the broker-dealer's DEA may speak with each accountant for approximately five hours per year. Thus, the Commission estimated that the additional cost of accountant time associated with this amendment to all clearing and carrying broker-dealers would be approximately $660,000 annually.
The newly adopted Form Custody is to be filed quarterly at the same time that a broker-dealer is required to file its FOCUS Reports. The form elicits information concerning whether, and if so, how, a broker-dealer maintains custody of customer assets and, as discussed above, consolidates information about the broker-dealer's custodial responsibility and relationships with other custodians in one report so that the Commission and other securities regulators will be provided with a comprehensive profile of the broker-dealer's custody practices and arrangements. This should reduce the likelihood that fraudulent conduct, including misappropriation or other misuse of investor assets, can continue undetected. Further, the information provided in Form Custody should aid in the examination of broker-dealers, because the examination staff can use the information provided as another tool to prioritize and plan examinations.
The Form Custody amendments also should enhance investor confidence in the ability of the securities regulators to oversee broker-dealers and broker-dealer custody of investor assets. By establishing a discipline under which broker-dealers are required to report greater detail as to their custodial functions, investor perception as to the safety of their funds and securities held by broker-dealers should improve. Investors may be more willing to provide capital for investment. Further, the requirement by broker-dealers to provide detail as to their custodial practices may prompt them to identify and correct deficiencies. For example, if a broker-dealer preparing the information to be disclosed on the form discovers a discrepancy between its own records and the records of a custodian as to the nature or quantity of assets held by the custodian, the broker-dealer can act to resolve the discrepancy before filing the form.
The Commission estimated that the time required to complete and file Form Custody would be approximately 12 hours per quarter, or 48 hours per year, on average, for each broker-dealer.
One commenter stated that the estimated costs to the industry of $69,179,670 in the proposing release was “staggering,” and that such costs would likely indirectly be passed on to customers.
The Commission recognizes that the requirement to file Form Custody will increase compliance costs for broker-dealers and that these costs may be passed on to customers. The Commission, however, believes the investor protection benefits of the Form Custody requirements outweigh these costs. As noted above, Form Custody is designed to assist Commission and DEA examiners in identifying potential misrepresentations relating to broker-dealers' custody of assets. Further, the requirements to file the form will promote greater focus and attention to custody practices by requiring that broker-dealers make specific representations in this regard. The safeguarding of customer securities and cash held by broker-dealers is of paramount importance as demonstrated by recent cases where broker-dealers failed to protect customer securities and cash.
As discussed above, incremental costs will result from the annual reporting requirement amendments, the access to accountant amendments, and the Form Custody amendments. These incremental costs could result in higher barriers to entry for broker-dealers as compared with the baseline that existed prior to the amendments. This could be the case particularly for carrying broker-dealers given the incremental costs associated with the compliance report requirements, the applicability of the access to accountant amendments to carrying and clearing broker-dealers, and that most of the information elicited in Form Custody relates to carrying broker-dealer activities.
The annual reporting requirements have a mixed effect on competition across broker-dealers. The requirement to prepare and file a compliance report or exemption report may impose a burden on competition for smaller carrying broker-dealers to the extent that it imposes relatively high fixed costs, which would represent a greater amount of net income for smaller broker-dealers. On the other hand, as previously noted, a carrying broker-dealer with limited custodial activities should have to expend less effort to support its statements in the compliance report than a broker-dealer with more extensive custodial activities, and the attendant costs should similarly be lower. While the incremental costs of the annual reporting requirements may be lower for non-carrying broker-dealers (which generally are smaller broker-dealers), the costs could disproportionately impact smaller broker-dealers due to fixed cost components of the cost of compliance with these requirements.
The access to accountant amendments may place a burden on carrying and clearing broker dealers. To the extent that addressing contracts between auditors and broker-dealers is a fixed cost, the rule may impact smaller broker-dealers to a greater extent than it will larger broker-dealers. The amendments should not place a burden on competition for non-carrying broker-dealers.
The requirement to file Form Custody could have a burden on competition because it will increase compliance costs for broker-dealers. However, the requirement should not have a disproportionate effect on smaller broker-dealers. Smaller firms will incur fewer costs to complete Form Custody because less information is required to be disclosed. For example, broker-dealers that introduce customers on a fully disclosed basis and do not have custody of customer funds or assets would leave much of the form blank.
In sum, the costs of compliance resulting from the requirements in these amendments should not impose a burden on competition not necessary or appropriate in furtherance of the purposes of the Exchange Act and in light of the benefits discussed above.
Today's amendments are designed to reduce the likelihood that fraudulent conduct, or lack of appropriate custody procedures or other internal controls, will jeopardize customer securities and funds held by broker-dealers. To the extent that the amendments achieve that goal, investors should be more confident that the customer assets held by broker-dealers are safe. This in turn may promote capital formation as investor assets are able to be allocated more efficiently across the opportunity set.
One commenter asserted that the proposed amendments “place unnecessary regulatory burdens and costs on industry, in general, and smaller firms, in particular” and that “broker-dealers compete against investment advisers who are not burdened by the same regulatory requirements,” including the requirements in the proposed amendments.
With respect to the commenter's statement about broker-dealers competing with investment advisers, recent Commission amendments to investment adviser rules are “designed to provide additional safeguards . . . when a registered adviser has custody of client funds or securities” including a requirement to undergo an annual surprise examination by an independent public accountant to verify client assets and a requirement to have a report of the internal controls relating to the custody of client assets from an accountant registered with, and subject to inspection by, the PCAOB unless client assets are maintained by an independent custodian.
If the amendments increase investor confidence in broker-dealers, they will promote capital formation. Moreover, for the reasons discussed above, today's amendments should not unduly restrict competition and should promote capital formation.
The amendments also should increase efficiencies. With respect to the annual reporting amendments, updating the language of Rule 17a–5 to replace outdated or inconsistent audit terminology is designed to ensure that the requirements of the rule are better aligned with applicable current audit standards. Further, the amendments facilitate PCAOB oversight authority, including its ability to inspect audits of broker-dealers, by providing that examinations or reviews of broker-dealer annual reports be made in accordance with PCAOB standards. In addition, the amendments strengthen and promote consistent compliance with the financial responsibility rules for broker-dealers that maintain custody of customer securities and funds by increasing the focus of these broker-dealers and their independent public accountants on compliance, and internal control over compliance, with the financial responsibility rules. This, in turn, should help the Commission and the broker-dealer's DEA identify broker-dealers that have weak internal controls for safeguarding investor assets and improve the financial and operational condition of broker-dealers and thereby provide more protection for investor assets held by broker-dealers.
The access to accountant amendments should increase efficiencies by promoting more risk-based examinations by Commission and DEA staff. For example, the examiners in some cases may be able to leverage the work performed by the independent public accountants and, therefore, focus on areas the accountants did not review. Similarly, the Form Custody amendments should increase efficiencies by promoting more risk-based examinations by Commission and DEA staff as they will be able to use the profile of the broker-dealer's custody practices documented in Form Custody to focus their reviews. For this reason, examinations may also place fewer time demands on broker-dealer personnel.
In significant part, the effect of these rules on efficiency and capital formation are linked to the effect of these rules on competition. For example, markets that are competitive and trusted may be expected to promote the efficient allocation of capital. Similarly, rules that promote, or do not unduly restrict, trust in broker-dealers can 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 by which market participants could transact with broker-dealers.
The Regulatory Flexibility Act (“RFA”)
The Commission proposed amendments to Rules 17a-5 and 17a-11 and proposed new Form Custody. An Initial Regulatory Flexibility Analysis (“IRFA”) was included in the proposing release.
The final rules amend certain broker-dealer annual reporting, audit, and notification requirements. The amendments include a requirement that broker-dealer audits be conducted in accordance with standards of the PCAOB, that broker-dealers file either a compliance report or an exemption report covered by a report prepared by an independent public accountant, and that clearing broker-dealers allow representatives of the Commission or the broker-dealer's DEA to review the documentation associated with certain reports of the broker-dealer's independent public accountant and to allow the accountant to discuss its findings with the representatives when requested in connection with a regulatory examination of the broker-dealer. The amendments also require a broker-dealer to file a new form with its DEA that elicits information about the broker-dealer's practices with respect to the custody of securities and funds of customers and others.
The amendments and new form are designed, among other things, to provide additional safeguards with respect to broker-dealer custody of customer securities and funds, to enhance the ability of the Commission to oversee broker-dealer custody practices, to increase the focus of carrying broker-dealers and their independent public accountants on compliance, and internal control over compliance, with certain financial and custodial requirements, to facilitate the ability of the PCAOB to implement the explicit oversight authority over broker-dealer audits provided to the PCAOB by the Dodd-Frank Act, and to satisfy the internal control report requirement in Rule 206(4)–2 for certain broker-dealers affiliated with, or dually-registered as, investment advisers.
The Commission requested comment with regard to matters discussed in the IRFA, including comments with respect to the number of small entities that may be affected by the proposed rule amendments and whether the effect on small entities would be economically significant.
The Commission did not receive any comments specifically addressing the IRFA. However, several commenters discussed the impact of the proposal on small broker-dealers. One commenter stated that the proposed amendments “place unnecessary regulatory burdens and costs on the industry, in general, and smaller firms in particular.”
The Commission is sensitive to the burdens the rule amendments and new form will have on small broker-dealers. To remove unnecessary burdens, the final rule amendments contain certain modifications from the proposal designed to alleviate some of the concerns regarding small broker-dealers.
As is discussed above, the Commission has modified the proposed amendments with respect to the exemption report in a manner that will likely result in lower costs for small broker-dealers than would have been the case if the Commission had adopted the proposed amendments without the modifications. In particular, the final rule provides that a broker-dealer can file the exemption report if it “claimed that it was exempt” from Rule 15c3–3 throughout the most recent fiscal year. This modification from the proposal—which provided that a broker-dealer could file the exemption report if the broker-dealer “is exempt from Rule 15c3–3”—is designed to address concerns raised by commenters that a non-carrying broker-dealer might be required to file the compliance report because of an instance during the year in which it did not meet the relied on exemption provision in paragraph (k) of Rule 15c3–3.
In addition, only clearing broker-dealers will be subject to the requirements that the Commission is adopting today that provide Commission and DEA examination staff with the ability to review audit documentation associated with broker-dealers' annual audit reports and allow their independent public accountants to discuss findings relating to the audit reports with Commission and DEA examination staff.
To alleviate burdens associated with Form Custody, the Commission has modified the form's instructions to make clear that questions on the form that cannot be answered because the broker-dealer does not engage in a particular activity do not need to be answered.
In response to comments, the Commission also has delayed the effective dates associated with the proposed reporting and attestation amendments, which will provide all broker-dealers, including smaller broker-dealers, with a longer transition period to prepare for the new requirements.
As is discussed above, the Commission considered the comment that it should replace the exemption report with a box to check on the FOCUS Report as the amount of paperwork for small firms “seems rather excessive.”
Finally, with respect to the comment that the Commission should provide examples of best practices and deficiencies with the cooperation of the AICPA, the Commission notes that the question of whether further guidance is necessary is best answered after the requirements become effective and practical compliance questions arise. In addition, the Commission will publish a Small Entity Compliance Guide relating to these amendments.
Paragraph (c) of Rule 0–10 provides that, for purposes of the RFA, a small entity when used with reference to a broker-dealer (“small broker-dealer”) means a broker-dealer that: (1) Had total capital (net worth plus subordinated liabilities) of less than $500,000 on the date in the prior fiscal year as of which its audited financial statements were prepared pursuant to Rule 17a–5(d) or, if not required to file such statements, a broker-dealer that had total capital (net worth plus subordinated liabilities)
The Commission's amendments to Rule 17a–5 retain the current requirement that broker-dealers annually file financial statements and supporting schedules (“financial report”) that must be audited by a PCAOB-registered accountant. Under the amendments, the financial report must be audited in accordance with standards of the PCAOB, instead of in accordance with GAAS, as previously required.
In addition to the financial report, the amendments require broker-dealers to file one of two new reports: either a compliance report or an exemption report. If a broker-dealer did not claim that it was exempt from Rule 15c3–3 throughout the most recent fiscal year, the broker-dealer must prepare and file with the Commission a compliance report containing certain statements regarding the broker-dealer's internal control over compliance with the financial responsibility rules and compliance with certain of those rules. Alternatively, if the broker-dealer claimed that it was exempt from Rule 15c3–3 throughout the most recent fiscal year, the broker-dealer must prepare and file with the Commission an exemption report containing a statement that it claimed that it was exempt from Rule 15c3–3 during that period and identify the provisions under which it claimed that it was exempt from Rule 15c3–3.
The amendments to Rule 17a–5 also eliminate the “material inadequacy” concept and, among other things, replace the requirement that the broker-dealer's independent public accountant prepare, and the broker-dealer file with the Commission, a material inadequacy report with a requirement for the accountant to prepare a new report covering either the compliance report or the exemption report, as applicable. If the broker-dealer is a carrying broker-dealer, the accountant must prepare a report based on an examination, in accordance with PCAOB standards, of certain statements by the broker-dealer in the compliance report. If the broker-dealer claimed an exemption from Rule 15c3–3, the accountant must prepare a report based on a review, in accordance with PCAOB standards, of the exemption report. Broker-dealers must file these reports of the accountant with the Commission along with the financial report and either the compliance report or the exemption report.
Together, the financial report and the compliance report or the exemption report and the accountant's reports covering those reports comprise the annual reports that the broker-dealer must file each fiscal year with the Commission and the broker-dealer's DEA. The amendments require that the broker-dealer also file the annual reports with SIPC if the broker-dealer is a member of SIPC.
Amendments to Rule 17a–5 also require that if, during the course of an audit, a broker-dealer's independent public accountant determines that the broker-dealer is not in compliance with the financial responsibility rules, or that any material weaknesses exist, the accountant must immediately notify the broker-dealer. The broker-dealer must notify the Commission and its DEA of the material weakness and must notify the Commission and the DEA of the non-compliance if that non-compliance would otherwise trigger a notification requirement.
Amendments to Rule 17a–11 require that when a broker-dealer discovers, or is notified by its independent public accountant, of the existence of any material weakness under Rule 17a–5, the broker-dealer must notify the Commission and transmit a report to the Commission stating what the broker-dealer has done or is doing to correct the situation. The amendments substituted the term material weakness for the term material inadequacy with regard to Rule 17a–5.
Under the amendments, carrying broker-dealers or those that clear transactions must agree to allow Commission or DEA examination staff, if requested in writing for purposes of an examination of the broker-dealer, to review “the documentation associated with the reports of the accountant” and to discuss the accountant's findings with the accountant.
The amendments require broker-dealers to file a new “Form Custody” each quarter to elicit information concerning whether a broker-dealer maintains custody of customer and non-customer assets, and, if so, how such assets are maintained. Form Custody must be filed with the broker-dealer's DEA. The DEA must transmit the information obtained from Form Custody to the Commission at the same time that it transmits FOCUS Report data to the Commission under paragraph (a)(4) of Rule 17a–5.
The impact of the amendments on small broker-dealers will be substantially less than on larger firms. Most small broker-dealers are exempt from Rule 15c3–3 and therefore must file the exemption report. As discussed above, the exemption report must be reviewed by the independent public accountant, in lieu of the compliance report, which must be examined by the accountant. In addition, Form Custody would elicit less information from broker-dealers that do not maintain custody of customer assets, and therefore the form should be less burdensome for these broker-dealers.
Pursuant to section 3(a) of the RFA,
The Commission considered differing compliance and reporting requirements and timetables in adopting the amendments discussed in this release, which took into account the resources available to smaller entities. For
In addition, the Commission, in establishing effective dates for these amendments, considered the resources available to small broker-dealers. In this regard, the Commission is delaying the effective dates for the audit and reporting requirements, which will provide small broker-dealers with greater flexibility in allocating their resources while preparing to comply with applicable amendments.
The Commission also clarified, consolidated, and simplified compliance and reporting requirements for broker-dealers in connection with the amendments. As discussed above, the Commission clarified and simplified requirements applicable to Form Custody by specifying in the final form that broker-dealers are not required to answer questions that do not apply to their business activities. Further, in terms of consolidating regulatory requirements applicable to broker-dealers, a broker-dealer affiliated with, or dually-registered as, an investment adviser that is subject to the compliance report requirement can use the independent public accountant's examination of the compliance report to satisfy reporting obligations under Advisers Act Rule 206(4)–2.
The Commission generally used design standards rather than performance standards in connection with the final rule amendments because the Commission believes design standards will better accomplish its objectives of enhancing safeguards with respect to broker-dealer custody of securities and funds. The specific disclosure requirements in the final rule will promote comparable and consistent types of disclosures by broker-dealers, which will facilitate the ability of Commission and DEA staff to assess broker-dealer compliance with applicable requirements.
The Commission also considered, and is adopting, amendments that exempt certain types of broker-dealers from certain requirements. For example, broker-dealers that are not clearing broker-dealers, which include most small broker-dealers, do not need to comply with the access to accountant and audit documentation amendments. Most small broker-dealers also will not be subject to the new compliance and examination report requirements, as small broker-dealers are in most instances not carrying broker-dealers.
In addition, if the Commission subsequently determines that it is appropriate to exempt a broker-dealer, or type of broker-dealer, from such requirements, the Commission has existing authority under which it can act. In particular, under Exchange Act section 36, the Commission, by rule, regulation, or order, may exempt any person, or any class or classes of persons, from any rule under the Exchange Act to the extent that such exemption is necessary or appropriate in the public interest and is consistent with the protection of investors.
The Commission is amending Rule 17a–5 and Rule 17a–11 under the Exchange Act (17 CFR 240.17a–5 and 17 CFR 240.17a–11) and adopting new Form Custody (17 CFR 249.639) pursuant to the authority conferred by the Exchange Act, including sections 15, 17, 23(a) and 36.
Brokers, Confidential business information, Fraud, Reporting and recordkeeping requirements, Securities.
For the reasons set out in the preamble, the Commission is amending Title 17, Chapter II, of the Code of Federal Regulations 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
The revisions and additions read as follows:
(a) * * *
(5) Every broker or dealer subject to this paragraph (a) must file Form Custody (§ 249.639 of this chapter) with its designated examining authority within 17 business days after the end of each calendar quarter and within 17 business days after the end of the fiscal year of the broker or dealer where that date is not the end of a calendar quarter. The designated examining authority must maintain the information obtained through the filing of Form Custody and transmit the information to the Commission, at such time as it transmits the applicable part of Form X–17A–5 (§ 249.617 of this chapter) as required in paragraph (a)(4) of this section.
(b) * * *
(2) The broker or dealer must attach to the report required by paragraph (b)(1) of this section an oath or affirmation that to the best knowledge and belief of the person making the oath or affirmation the information contained in the report is true and correct. The oath or affirmation must be made before a person duly authorized to administer such oaths or affirmations. If the broker or dealer is a sole proprietorship, the oath or affirmation must be made by the proprietor; if a partnership, by a general partner; if a corporation, by a duly authorized officer; or if a limited liability company or limited liability partnership, by the chief executive officer, chief financial officer, manager, managing member, or those members vested with management authority for the limited liability company or limited liability partnership.
(c) * * *
(2) * * *
(iv) If, in connection with the most recent annual reports required under paragraph (d) of this section, the report of the independent public accountant required under paragraph (d)(1)(i)(C) of this section covering the report of the broker or dealer required under paragraph (d)(1)(i)(B)(
(d)
(A) A financial report as described in paragraph (d)(2) of this section; and
(B)(
(
(C) Except as provided in paragraph (e)(1)(i) of this section, a report prepared by an independent public accountant, under the engagement provisions in paragraph (g) of this section, covering each report required to be filed under paragraphs (d)(1)(i)(A) and (B) of this section.
(ii) The reports required to be filed under this paragraph (d) must be as of the same fiscal year end each year, unless a change is approved in writing by the designated examining authority for the broker or dealer under paragraph (n) of this section. A copy of the written approval must be sent to the Commission's principal office in Washington, DC, and the regional office of the Commission for the region in which the broker or dealer has its principal place of business.
(iii) A broker or dealer succeeding to and continuing the business of another broker or dealer need not file the reports under this paragraph (d) as of a date in the fiscal year in which the succession occurs if the predecessor broker or dealer has filed reports in compliance with this paragraph (d) as of a date in such fiscal year.
(iv) A broker or dealer that is a member of a national securities exchange, has transacted a business in securities solely with or for other members of a national securities exchange, and has not carried any margin account, credit balance, or security for any person who is defined as a
(2)
(i) A Statement of Financial Condition, a Statement of Income, a Statement of Cash Flows, a Statement of Changes in Stockholders' or Partners' or Sole Proprietor's Equity, and a Statement of Changes in Liabilities Subordinated to Claims of General Creditors. The statements must be prepared in accordance with U.S. generally accepted accounting principles and must be in a format that is consistent with the statements
(ii) Supporting schedules that include, from Part II or Part IIA of Form X–17A–5 (§ 249.617 of this chapter), a Computation of Net Capital Under § 240.15c3–1, a Computation for Determination of the Reserve Requirements under Exhibit A of § 240.15c3–3, and Information Relating to the Possession or Control Requirements Under § 240.15c3–3.
(iii) If either the Computation of Net Capital under § 240.15c3–1 or the Computation for Determination of the Reserve Requirements Under Exhibit A of § 240.15c3–3 in the financial report is materially different from the corresponding computation in the most recent Part II or Part IIA of Form X–17A–5 (§ 249.617 of this chapter) filed by the broker or dealer pursuant to paragraph (a) of this section, a reconciliation, including appropriate explanations, between the computation in the financial report and the computation in the most recent Part II or Part IIA of Form X–17A–5 filed by the broker or dealer. If no material differences exist, a statement so indicating must be included in the financial report.
(3)
(A) Statements as to whether:
(
(
(
(
(
(B) If applicable, a description of each material weakness in the Internal Control Over Compliance of the broker or dealer during the most recent fiscal year.
(C) If applicable, a description of any instance of non-compliance with §§ 240.15c3–1 or 240.15c3–3(e) as of the end of the most recent fiscal year.
(ii) The term
(iii) The broker or dealer is not permitted to conclude that its Internal Control Over Compliance was effective during the most recent fiscal year if there were one or more material weaknesses in its Internal Control Over Compliance during the most recent fiscal year. The broker or dealer is not permitted to conclude that its Internal Control Over Compliance was effective as of the end of the most recent fiscal year if there were one or more material weaknesses in its internal control as of the end of the most recent fiscal year. A
(4)
(i) A statement that identifies the provisions in § 240.15c3–3(k) under which the broker or dealer claimed an exemption from § 240.15c3–3;
(ii) A statement that the broker or dealer met the identified exemption provisions in § 240.15c3–3(k) throughout the most recent fiscal year without exception or that it met the identified exemption provisions in § 240.15c3–3(k) throughout the most recent fiscal year except as described under paragraph (d)(4)(iii) of this section; and
(iii) If applicable, a statement that identifies each exception during the most recent fiscal year in meeting the identified exemption provisions in § 240.15c3–3(k) and that briefly describes the nature of each exception and the approximate date(s) on which the exception existed.
(5) The annual reports must be filed not more than sixty (60) calendar days after the end of the fiscal year of the broker or dealer.
(6) The annual reports must be filed at the regional office of the Commission for the region in which the broker or dealer has its principal place of business, the Commission's principal office in Washington, DC, the principal office of the designated examining authority for the broker or dealer, and with the Securities Investor Protection Corporation (“SIPC”) if the broker or dealer is a member of SIPC. Copies of the reports must be provided to all self-regulatory organizations of which the broker or dealer is a member, unless the self-regulatory organization by rule waives this requirement.
(e) * * *
(1)(i) The broker or dealer is not required to engage an independent public accountant to provide the reports required under paragraph (d)(1)(i)(C) of this section if, since the date of the registration of the broker or dealer under section 15 of the Act (15 U.S.C. 78o) or of the previous annual reports filed under paragraph (d) of this section:
(A) The securities business of the broker or dealer has been limited to acting as broker (agent) for the issuer in soliciting subscriptions for securities of the issuer, the broker has promptly transmitted to the issuer all funds and promptly delivered to the subscriber all securities received in connection with the transaction, and the broker has not otherwise held funds or securities for or owed money or securities to customers; or
(B) The securities business of the broker or dealer has been limited to buying and selling evidences of indebtedness secured by mortgage, deed of trust, or other lien upon real estate or leasehold interests, and the broker or dealer has not carried any margin account, credit balance, or security for any securities customer.
(ii) A broker or dealer that files annual reports under paragraph (d) of this
(2) The broker or dealer must attach to the financial report an oath or affirmation that, to the best knowledge and belief of the person making the oath or affirmation,
(i) The financial report is true and correct; and
(ii) Neither the broker or dealer, nor any partner, officer, director, or equivalent person, as the case may be, has any proprietary interest in any account classified solely as that of a customer.
The oath or affirmation must be made before a person duly authorized to administer such oaths or affirmations. If the broker or dealer is a sole proprietorship, the oath or affirmation must be made by the proprietor; if a partnership, by a general partner; if a corporation, by a duly authorized officer; or if a limited liability company or limited liability partnership, by the chief executive officer, chief financial officer, manager, managing member, or those members vested with management authority for the limited liability company or limited liability partnership.
(3) The annual reports filed under paragraph (d) of this section are not confidential, except that, if the Statement of Financial Condition in a format that is consistent with Form X–17A–5 (§ 249.617 of this chapter), Part II, or Part IIA, is bound separately from the balance of the annual reports filed under paragraph (d) of this section, and each page of the balance of the annual reports is stamped “confidential,” then the balance of the annual reports shall be deemed confidential to the extent permitted by law. However, the annual reports, including the confidential portions, will be available for official use by any official or employee of the U.S. or any State, by national securities exchanges and registered national securities associations of which the broker or dealer filing such a report is a member, by the Public Company Accounting Oversight Board, and by any other person if the Commission authorizes disclosure of the annual reports to that person as being in the public interest. Nothing contained in this paragraph may be construed to be in derogation of the rules of any registered national securities association or national securities exchange that give to customers of a member broker or dealer the right, upon request to the member broker or dealer, to obtain information relative to its financial condition.
(4)(i) The broker or dealer must file with SIPC a report on the SIPC annual general assessment reconciliation or exclusion from membership forms that contains such information and is in such format as determined by SIPC by rule and approved by the Commission.
(ii) Until the earlier of two years after the date paragraph (e)(4)(i) of this section is effective or SIPC adopts a rule under paragraph (e)(4)(i) of this section and the rule is approved by the Commission, the broker or dealer must file with SIPC a supplemental report on the status of the membership of the broker or dealer in SIPC if, under paragraph (d)(1)(i)(C) of this section, the broker or dealer is required to file reports prepared by an independent public accountant. The supplemental report must include the independent public accountant's report on applying agreed-upon procedures based on the performance of the procedures enumerated in paragraph (e)(4)(ii)(C) of this section. The supplemental report must cover the SIPC annual general assessment reconciliation or exclusion from membership forms not previously reported on under this paragraph (e)(4) that were required to be filed on or prior to the date of the annual reports required by paragraph (d) of this section: Provided, that the broker or dealer is not required to file the supplemental report on the SIPC annual general assessment reconciliation or exclusion from membership form for any period during which the SIPC assessment is a specified dollar value as provided for in section 4(d)(1)(c) of the Securities Investor Protection Act of 1970, as amended. The supplemental report must be filed with the regional office of the Commission for the region in which the broker or dealer has its principal place of business, the Commission's principal office in Washington, DC, the principal office of the designated examining authority for the broker or dealer, and the principal office of SIPC. The supplemental report must include the following:
(A) A schedule of assessment payments showing any overpayments applied and overpayments carried forward including: payment dates, amounts, and name of SIPC collection agent to whom mailed; or
(B) If exclusion from membership was claimed, a statement that the broker or dealer qualified for exclusion from membership under the Securities Investor Protection Act of 1970, as amended; and
(C)
(
(
(
(
(
(
(f)(1)
(2)
(ii) The statement must be headed “Statement regarding independent public accountant under Rule 17a–5(f)(2)” and must contain the following information and representations:
(A) Name, address, telephone number, and registration number of the broker or dealer.
(B) Name, address, and telephone number of the independent public accountant.
(C) The date of the fiscal year of the annual reports of the broker or dealer covered by the engagement.
(D) Whether the engagement is for a single year or is of a continuing nature.
(E) A representation that the independent public accountant has undertaken the items enumerated in paragraphs (g)(1) and (2) of this section.
(F) Except as provided in paragraph (f)(2)(iii) of this section, a representation that the broker or dealer agrees to allow representatives of the Commission or its designated examining authority, if requested in writing for purposes of an examination of the broker or dealer, to review the audit documentation associated with the reports of the independent public accountant filed under paragraph (d)(1)(i)(C) of this section. For purposes of this paragraph, “audit documentation” has the meaning provided in standards of the Public Company Accounting Oversight Board. The Commission anticipates that, if requested, it will accord confidential treatment to all documents it may obtain from an independent public accountant under this paragraph to the extent permitted by law.
(G) Except as provided in paragraph (f)(2)(iii) of this section, a representation that the broker or dealer agrees to allow the independent public accountant to discuss with representatives of the Commission and its designated examining authority, if requested in writing for purposes of an examination of the broker or dealer, the findings associated with the reports of the independent public accountant filed under paragraph (d)(1)(i)(C) of this section.
(iii) If a broker or dealer neither clears transactions nor carries customer accounts, the broker or dealer is not required to include the representations in paragraphs (f)(2)(ii)(F) and (G) of this section.
(iv) Any broker or dealer that is not required to file reports prepared by an independent public accountant under paragraph (d)(1)(i)(C) of this section must file a statement required under paragraph (f)(2)(i) of this section indicating the date as of which the unaudited reports will be prepared.
(3)
(i) The broker or dealer has notified the independent public accountant that provided the reports the broker or dealer filed under paragraph (d)(1)(i)(C) of this section for the most recent fiscal year that the independent public accountant's services will not be used in future engagements; or
(ii) The broker or dealer has notified an independent public accountant that was engaged to provide the reports required under paragraph (d)(1)(i)(C) of this section that the engagement has been terminated; or
(iii) An independent public accountant has notified the broker or dealer that the independent public accountant would not continue under an engagement to provide the reports required under paragraph (d)(1)(i)(C) of this section; or
(iv) A new independent public accountant has been engaged to provide the reports required under paragraph (d)(1)(i)(C) of this section without any notice of termination having been given to or by the previously engaged independent public accountant.
(v) The notice must include:
(A) The date of notification of the termination of the engagement or of the engagement of the new independent public accountant, as applicable; and
(B) The details of any issues arising during the 24 months (or the period of the engagement, if less than 24 months) preceding the termination or new engagement relating to any matter of accounting principles or practices, financial statement disclosure, auditing scope or procedure, or compliance with applicable rules of the Commission, which issues, if not resolved to the satisfaction of the former independent public accountant, would have caused the independent public accountant to make reference to them in the report of the independent public accountant. The issues required to be reported include both those resolved to the former independent public accountant's satisfaction and those not resolved to the former accountant's satisfaction. Issues contemplated by this section are those that occur at the decision-making level—that is, between principal financial officers of the broker or dealer and personnel of the accounting firm responsible for rendering its report. The notice must also state whether the accountant's report filed under paragraph (d)(1)(i)(C) of this section for any of the past two fiscal years contained an adverse opinion or a disclaimer of opinion or was qualified as to uncertainties, audit scope, or accounting principles, and must describe the nature of each such adverse opinion, disclaimer of opinion, or qualification. The broker or dealer must also request the former independent public accountant to furnish the broker or dealer with a letter addressed to the Commission stating whether the independent public accountant agrees with the statements contained in the notice of the broker or dealer and, if not, stating the respects in which independent public accountant does not agree. The broker or dealer must file three copies of the notice and the accountant's letter, one copy of which must be manually signed by the sole proprietor, a general partner, or a duly authorized corporate, limited liability company, or limited liability partnership officer or member, as appropriate, and by the independent public accountant, respectively.
(g)
(1) To prepare an independent public accountant's report based on an examination of the financial report required to be filed by the broker or dealer under paragraph (d)(1)(i)(A) of this section in accordance with standards of the Public Company Accounting Oversight Board; and
(2)(i) To prepare an independent public accountant's report based on an examination of the statements required under paragraphs (d)(3)(i)(A)(
(ii) To prepare an independent public accountant's report based on a review of the statements required under paragraphs (d)(4)(i) through (iii) of this section in the exemption report required to be filed by the broker or dealer under
(h)
Note to paragraph (h): The attention of the broker or dealer and the independent public accountant is called to the fact that under § 240.17a–11(b)(1), among other things, a broker or dealer whose net capital declines below the minimum required pursuant to § 240.15c3–1 shall give notice of such deficiency that same day in accordance with § 240.17a–11(g) and the notice shall specify the broker or dealer's net capital requirement and its current amount of net capital. The attention of the broker or dealer and accountant also is called to the fact that under § 240.15c3–3(i), if a broker or dealer shall fail to make a reserve bank account or special account deposit, as required by § 240.15c3–3, the broker or dealer shall by telegram immediately notify the Commission and the regulatory authority for the broker or dealer, which examines such broker or dealer as to financial responsibility and shall promptly thereafter confirm such notification in writing.
(i)
(i) Be dated;
(ii) Be signed manually;
(iii) Indicate the city and state where issued; and
(iv) Identify without detailed enumeration the items covered by the reports.
(2)
(i) State whether the examinations or review, as applicable, were made in accordance with standards of the Public Company Accounting Oversight Board;
(ii) Identify any examination and, if applicable, review procedures deemed necessary by the independent public accountant under the circumstances of the particular case that have been omitted and the reason for their omission.
(iii) Nothing in this section may be construed to imply authority for the omission of any procedure that independent public accountants would ordinarily employ in the course of an examination or review made for the purpose of expressing the opinions or conclusions required under this section.
(3)
(i) The opinion of the independent public accountant with respect to the financial report required under paragraph (d)(1)(i)(A) of this section and the accounting principles and practices reflected in that report;
(ii) The opinion of the independent public accountant with respect to the financial report required under paragraph (d)(1)(i)(A) of this section, as to the consistency of the application of the accounting principles, or as to any changes in those principles, that have a material effect on the financial statements; and
(iii)(A) The opinion of the independent public accountant with respect to the statements required under paragraphs (d)(3)(i)(A)(
(B) The conclusion of the independent public accountant with respect to the statements required under paragraphs (d)(4)(i) through (iii) of this section in the exemption report required under paragraph (d)(1)(i)(B)(
(4)
The revision reads as follows:
(e) Whenever any broker or dealer discovers, or is notified by an independent public accountant under § 240.17a–12(i)(2), of the existence of any material inadequacy as defined in § 240.17a–12(h)(2), or whenever any broker or dealer discovers, or is notified by an independent public accountant under § 240.17a–5(h), of the existence of any material weakness as defined in § 240.17a–5(d)(3)(iii), the broker or dealer must:
(1) Give notice, in accordance with paragraph (g) of this section, of the material inadequacy or material weakness within 24 hours of the discovery or notification of the material inadequacy or the material weakness; and
(2) Transmit a report, in accordance with paragraph (g) of this section, within 48 hours of the notice stating what the broker or dealer has done or is doing to correct the situation.
15 U.S.C. 78a
This form shall be used for reports of information required by § 240.17a–5 of this chapter.
The text of Form Custody will not appear in the Code of Federal Regulations.
By the Commission.
Office of the Chief Information Officer, HUD.
Notice.
HUD has submitted the proposed information collection requirement described below to the Office of Management and Budget (OMB) for review, in accordance with the Paperwork Reduction Act. The purpose of this notice is to allow for an additional 30 days of public comment.
Interested persons are invited to submit comments regarding this proposal. Comments should refer to the proposal by name and/or OMB Control Number 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 7th Street SW., Washington, DC 20410; email Colette Pollard at
This notice informs the public that HUD has submitted to OMB a request for approval of the information collection described in Section A. The
This notice is soliciting comments from members of the public and affected parties concerning the collection of information described in Section A on the following:
(1) 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) The accuracy of the agency's estimate of the burden of the proposed collection of information;
(3) Ways to enhance the quality, utility, and clarity of the information to be collected; and
(4) Ways to minimize the burden of the collection of information on 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.
HUD encourages interested parties to submit comment in response to these questions.
Section 3507 of the Paperwork Reduction Act of 1995, 44 U.S.C. Chapter 35.
Office of the Chief Information Officer, HUD.
Notice.
HUD has submitted the proposed information collection requirement described below to the Office of Management and Budget (OMB) for review, in accordance with the Paperwork Reduction Act. The purpose of this notice is to allow for an additional 30 days of public comment.
Interested persons are invited to submit comments regarding this proposal. Comments should refer to the proposal by name and/or OMB Control Number 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 7th Street, SW., Washington, DC 20410; email Colette Pollard at
This notice informs the public that HUD has submitted to OMB a request for approval of the information collection described in Section A. The
This notice is soliciting comments from members of the public and affected parties concerning the collection of information described in Section A on the following:
(1) 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) The accuracy of the agency's estimate of the burden of the proposed collection of information;
(3) Ways to enhance the quality, utility, and clarity of the information to be collected; and
(4) Ways to minimize the burden of the collection of information on 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.
HUD encourages interested parties to submit comment in response to these questions.
Section 3507 of the Paperwork Reduction Act of 1995, 44 U.S.C. Chapter 35.
Office of the Chief Information Officer, HUD.
Notice.
HUD has submitted the proposed information collection requirement described below to the Office of Management and Budget (OMB) for review, in accordance with the Paperwork Reduction Act. The purpose of this notice is to allow for an additional 30 days of public comment.
Interested persons are invited to submit comments regarding this proposal. Comments should refer to the proposal by name and/or OMB Control Number 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 7th Street, SW., Washington, DC 20410; email Colette Pollard at
This notice informs the public that HUD has submitted to OMB a request for approval of the information collection described in Section A. The
This notice is soliciting comments from members of the public and affected parties concerning the collection of information described in Section A on the following:
(1) 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) The accuracy of the agency's estimate of the burden of the proposed collection of information;
(3) Ways to enhance the quality, utility, and clarity of the information to be collected; and
(4) Ways to minimize the burden of the collection of information on 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.
HUD encourages interested parties to submit comment in response to these questions.
Section 3507 of the Paperwork Reduction Act of 1995, 44 U.S.C. Chapter 35.
Office of the Chief Information Officer, HUD.
Notice.
HUD has submitted the proposed information collection requirement described below to the Office of Management and Budget (OMB) for review, in accordance with the Paperwork Reduction Act. The purpose of this notice is to allow for an additional 30 days of public comment.
Interested persons are invited to submit comments regarding this proposal. Comments should refer to
Colette Pollard, Reports Management Officer, QDAM, Department of Housing and Urban Development, 451 7th Street, SW., Washington, DC 20410; email Colette Pollard at
This notice informs the public that HUD has submitted to OMB a request for approval of the information collection described in Section A. The
This notice is soliciting comments from members of the public and affected parties concerning the collection of information described in Section A on the following:
(1) 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) The accuracy of the agency's estimate of the burden of the proposed collection of information;
(3) Ways to enhance the quality, utility, and clarity of the information to be collected; and
(4) Ways to minimize the burden of the collection of information on 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.
HUD encourages interested parties to submit comment in response to these questions.
Section 3507 of the Paperwork Reduction Act of 1995, 44 U.S.C. Chapter 35.
Office of the Chief Information Officer, HUD.
Notice.
HUD has submitted the proposed information collection requirement described below to the Office of Management and Budget (OMB) for review, in accordance with the Paperwork Reduction Act. The purpose of this notice is to allow for an additional 30 days of public comment.
Interested persons are invited to submit comments regarding this proposal. Comments should refer to the proposal by name and/or OMB Control Number 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 7th Street SW., Washington, DC 20410; email Colette Pollard at
This notice informs the public that HUD has submitted to OMB a request for approval of the information collection described in Section A. The
This notice is soliciting comments from members of the public and affected parties concerning the collection of information described in Section A on the following:
(1) 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) The accuracy of the agency's estimate of the burden of the proposed collection of information;
(3) Ways to enhance the quality, utility, and clarity of the information to be collected; and
(4) Ways to minimize the burden of the collection of information on 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.
HUD encourages interested parties to submit comment in response to these questions.
Section 3507 of the Paperwork Reduction Act of 1995, 44 U.S.C. Chapter 35.
Office of the Chief Information Officer, HUD.
Notice.
HUD has submitted the proposed information collection requirement described below to the Office of Management and Budget (OMB) for review, in accordance with the Paperwork Reduction Act. The purpose of this notice is to allow for an additional 30 days of public comment.
Interested persons are invited to submit comments regarding this proposal. Comments should refer to the proposal by name and/or OMB Control Number 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 7th Street SW., Washington, DC 20410; email Colette Pollard at
This notice informs the public that HUD has submitted to OMB a request for approval of the information collection described in Section A. The
This notice is soliciting comments from members of the public and affected parties concerning the collection of information described in Section A on the following:
(1) 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) The accuracy of the agency's estimate of the burden of the proposed collection of information;
(3) Ways to enhance the quality, utility, and clarity of the information to be collected; and
(4) Ways to minimize the burden of the collection of information on 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.
HUD encourages interested parties to submit comment in response to these questions.
Section 3507 of the Paperwork Reduction Act of 1995, 44 U.S.C. Chapter 35.
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Final rule.
This final rule implements Amendment 8 to the 2006 Consolidated Atlantic Highly Migratory Species (HMS) Fishery Management Plan (FMP). Amendment 8 to the 2006 Consolidated HMS FMP provides additional opportunities for U.S. fishermen to harvest swordfish using selective gears that are low in bycatch, given their rebuilt status and increased availability. This final rule creates new and modified commercial fishing vessel permits that allow permit holders to retain and sell a limited number of swordfish caught on rod and reel, handline, harpoon, green-stick, or bandit gear. Specific management measures under this final action include the establishment of a new open access commercial swordfish permit, modification of HMS Charter/Headboat permit regulations to allow for the commercial retention of swordfish on non-for-hire trips, regional swordfish retention limits for the new and modified permits, gear authorizations, and reporting requirements.
This rule is effective on September 20, 2013.
Copies of the Final Amendment 8 to the 2006 Consolidated HMS FMP, including the Final Environmental Assessment and other documents relevant to this rule are available from the Highly Migratory Species Management Division Web site at
Rick Pearson at 727–824–5399 or Jennifer Cudney at 301–427–8503.
Atlantic swordfish are managed under the dual authority of the Magnuson-Stevens Fishery Conservation and Management Act (Magnuson-Stevens Act) and the Atlantic Tunas Convention Act (ATCA). The authority to issue regulations under the Magnuson-Stevens Act and ATCA has been delegated from the Secretary of Commerce to the Assistant Administrator for Fisheries, NOAA (AA). On May 28, 1999, NMFS published in the
A brief summary of the background of this final action is provided below. The details of what was proposed and the alternatives considered are described in Draft Amendment 8 to the 2006 Consolidated HMS FMP and its proposed rule (78 FR 12273, February 22, 2013). Those documents are incorporated by reference, and their description of management and conservation measures considered in the Draft Amendment 8 to the 2006 Consolidated HMS FMP and its proposed rule are not repeated here. Additional information regarding Atlantic HMS management can be found in the Final Environmental Assessment (Final EA) for Amendment 8 to the 2006 Consolidated HMS FMP, the 2006 Consolidated HMS FMP and its amendments, the annual HMS Stock Assessment and Fishery Evaluation Reports, and online at
The comments received on Draft Amendment 8 and its proposed rule, and our responses to those comments, are summarized below in the section labeled “Response to Comments.”
This rule finalizes some of the management measures, and modifies others, that were contained in the proposed rule for Amendment 8. The purpose of this final rule is to provide additional opportunities for U.S. fishermen to harvest swordfish using selective gears that result in low bycatch, given their rebuilt status and increased availability.
This rule creates a new open access Swordfish General Commercial permit and modifies regulations for HMS Charter/Headboat vessel permit holders to allow commercial fishing for North Atlantic swordfish in the U.S. Exclusive Economic Zone (EEZ). The new Swordfish General Commercial permit allows fishermen to retain and sell a limited number of swordfish caught using only rod and reel, handline, harpoon, bandit gear, and green-stick gear. HMS Charter/Headboat vessel permit holders are also authorized to fish under open-access swordfish commercial permit regulations with rod and reel and handline only, when fishing commercially on a non-for-hire trip.
The Swordfish General Commercial permit cannot be held on a vessel in combination with any other swordfish permits, an HMS Charter/Headboat permit, an HMS Angling category permit, an HMS Commercial Caribbean Small Boat permit, or any Atlantic Tunas permit except for the Atlantic Tunas General or Harpoon category permits. The Swordfish General Commercial permit can be held on a vessel in combination with a commercial shark permit or an Atlantic Tunas General or Harpoon category permit. All swordfish landed under the new/modified permit(s) must be reported in HMS logbooks, if selected, and all sales of swordfish must only be to federally permitted swordfish dealers. Swordfish General Commercial permit holders may participate in registered HMS tournaments.
This final rule also establishes four separate swordfish management regions for the new and modified permits (Northwest Atlantic, Gulf of Mexico, U.S. Caribbean, and Florida Swordfish Management Area) with a zero to six swordfish retention limit range within each region for the new or modified permit(s). As described in the response to comments below, the Florida Swordfish Management Area and the initial default retention limit for that area have been modified from the proposed rule. Initial default retention limits are set at three swordfish per vessel per trip for Northwest Atlantic and Gulf of Mexico regions; two swordfish per vessel per trip for the U.S. Caribbean; and zero swordfish per vessel per trip limit for the modified Florida Swordfish Management Area. The retention limit within each region may be adjusted in-season based upon pre-established criteria (i.e., dealer reports, landing trends, quota availability, availability of swordfish on fishing grounds, variations in seasonal distribution, abundance, or migration patterns, and other relevant factors) through the framework procedures codified at § 635.34.
During the proposed rule stage, NMFS received approximately 210 written
Opponents of a new commercial swordfish permit said the need to expand harvesting capacity in the U.S. North Atlantic swordfish fishery has steadily diminished and the U.S. swordfish quota is almost fully utilized; a new permit could prompt an early closure of the directed swordfish fishery; swordfish are not sufficiently abundant to open a new fishery or increase catches; commercial swordfish limited access permits are not scarce and the costs of the permits are not a barrier to entering the commercial fishery; a new open access permit would undermine full-time commercial fishermen by allowing quasi-commercial fishermen to harvest swordfish; and an open-access commercial swordfish permit would lower limited access permit values and swordfish ex-vessel prices (due to an increased supply of low quality product). Many of the commenters opposed to the establishment of a new commercial swordfish permit recommended the No Action alternative.
Based upon the 2009 ICCAT SCRS swordfish stock assessment, the North Atlantic swordfish stock is fully rebuilt. The United States' annual baseline quota for North Atlantic swordfish is derived from ICCAT Recommendation 10–02, and is published each year through rulemaking in the
Swordfish limited access permits (LAPs), while available, can be difficult or expensive to obtain. Because no new swordfish permits have been issued since 1999, many HMS LAPs have increased in value. The cost of a swordfish handgear LAP ranges from $15,000 to $30,000, either of which amount constitutes a high percentage of an individual vessel owner's profits in a given year. They are also governed by restrictions limiting the size and horsepower of the vessel to which the permits can be transferred. Implementing a new open-access swordfish handgear permit with low retention limits will remove barriers to obtaining a limited access permit, and allow other commercial fishermen to participate in the swordfish fishery on a small-scale, seasonal, or supplemental basis.
Implementing a new open-access swordfish handgear permit is not anticipated to undermine the existing commercial swordfish fishery because landings under the new permit will be governed by low retention limits that could be adjusted in-season to reduce the likelihood of a directed fishery closure. The new permit is substantially different from existing swordfish limited access permits: There are very low retention limits (0–6 swordfish) associated with it, and only handgear usage is authorized. Because of these important differences, the values of existing swordfish limited access permits which have either no retention limits (directed and handgear) or a much higher retention limits (incidental), and which allow the use of pelagic longline gear (directed and incidental) and buoy gear (directed and handgear), are not expected to be greatly impacted.
The new open access Swordfish General Commercial permit could affect swordfish ex-vessel prices in either direction, up or down; however, comments received from fishing industry participants regarding this issue were mixed. Some commenters stated that the additional volume and poor quality of product would result in lower ex-vessel prices. Other commenters indicated that prices would stabilize due to less fluctuation in domestic landings, or potentially increase due to the introduction of reliably high quality product into the U.S. market. NMFS does not anticipate that the projected low level of landings derived from new and modified swordfish permits will be large enough to greatly impact prices, either higher or lower, because ex-vessel prices are impacted by a number of factors, most notably the large volume of fresh and frozen swordfish imported into the U.S. market.
With respect to vessel permitting and authorized gears, NMFS considered three alternatives and four sub-alternatives. These ranged from a no-action alternative, which maintains the current swordfish limited access permit structure, to creating a new or modified commercial swordfish permit(s) to allow for a limited number of swordfish caught on rod and reel, handline, harpoon gear, green-stick, or bandit gear to be retained and sold. With respect to swordfish retention limits, NMFS considered three main alternatives and five sub-alternatives. These ranged from establishing a fishery-wide zero-to-six fish retention limit range for the new or modified permits(s), and codifying a single limit within that range, to establishing separate regions with regional retention limits that could be adjusted in-season based upon pre-established criteria (i.e., dealer reports, landing trends, quota availability, availability of swordfish on the fishing grounds, variations in seasonal distribution, abundance, or migration patterns, and other relevant factors).
Based upon the analysis in the Draft EA, NMFS determined that the preferred alternatives were unlikely to have any significant adverse environmental impacts, primarily because the authorized handgears are low in bycatch and bycatch mortality of protected and non-target species, and because of the rebuilt status of the North Atlantic swordfish stock.
In the Draft EA, NMFS also considered several alternatives that were not further analyzed, such as implementing a swordfish tagging program to provide a higher level of reporting and to facilitate the enforcement of swordfish regulations. After consulting with the HMS Advisory Panel and other interested constituents, NMFS decided not to further analyze these alternatives due to concerns about the effectiveness of a tagging program to reliably identify swordfish bound for commerce. Furthermore, establishing an open-access commercial swordfish permit is expected to reduce the incentive for recreational anglers to illegally sell or transfer swordfish to commercial fishermen for later sale; the
Other alternatives, such as opening or modifying pelagic longline closed areas, do not meet the objectives of the action. Pelagic longline gear has higher bycatch levels of several species that are either overfished and/or subject to overfishing (e.g., bluefin tuna, marlins) or are listed under the Endangered Species Act (e.g., sea turtles). Therefore, those alternatives were not considered in this action. NMFS will continue to consider additional measures that could be taken to increase swordfish landings and that would benefit the pelagic longline fishery, while also minimizing bycatch and bycatch mortality.
In June 2004, NMFS released a BiOp for the Atlantic pelagic longline fishery. That BiOp concluded that the pelagic longline fishery was not likely to jeopardize the continued existence of loggerhead, green, hawksbill, Kemp's ridley or olive ridley sea turtles, but was likely to jeopardize the continued existence of leatherback sea turtles. The 2004 BiOp established a reasonable and prudent measure and alternative, which subjected the Atlantic HMS pelagic longline fishery to time/area closures, VMS, observers, hook and bait restrictions, compliance with safe handling and release protocols, and mandatory protected species safe handling and release workshops. Additionally, the pelagic longline fishery has been designated as a Category I fishery under the MMPA because it has frequent incidental mortality and serious injury of marine mammals.
Thus, many of the management measures required under the Endangered Species Act and Marine Mammal Protection Act for the Atlantic HMS pelagic longline fishery do not apply to the new Swordfish General Commercial permit, because the potential for protected species interactions with the gears authorized under this permit is low. The suggested requirements for protected species bycatch mitigation measures, protected species release and disentanglement training workshops and VMS requirements are not warranted for the gears authorized in this final rule. These requirements were not analyzed in the Draft EA because they are outside the scope of this rulemaking.
Having solicited and reviewed public comment on the Draft EA, and in view of the information presented in the Final EA that was prepared to address proposed changes to the U.S. North Atlantic swordfish fishery, particularly the small-scale handgear fishery, NMFS has determined that this action will have no significant impact on the quality of the human environment as described above and in the proposed EA. In addition, all impacts to potentially affected areas, including national, regional, and local, have been mitigated to reach the conclusion of no significant impact. Accordingly, NMFS determined that preparation of an EIS for this action was not necessary.
Positive economic benefits are expected if U.S. fishermen obtain this open-access swordfish permit. If a new entrant lands 10 swordfish per year with
As described in the response to Comment 24, NMFS recognizes that there may be minor socio-economic impacts to fishermen due to the establishment of the new Swordfish General Commercial permit. However, most negative socio-economic impacts on current swordfish limited access permit holders are expected to be mitigated by the establishment of low retention limits for the new Swordfish General Commercial permit, including a zero retention limit in the Florida Swordfish Management Area. A retention limit range of zero to six swordfish is anticipated to provide a seasonal, or supplemental, fishery for most participants. It is not likely to facilitate a full-time, year-round fishery.
NMFS estimates that the new permit will yield approximately 265 mt dw of additional U.S. swordfish landings. Under the new Swordfish General Commercial permit, NMFS estimates that total U.S. landings plus discards could approach 2,436 mt dw ((2,171 mt dw (2011 total U.S. landings reported to ICCAT) + 265 mt dw = 2,436 mt dw)) if current fishing practices remain constant. In terms of available and unutilized swordfish quota, there is a loss of potential income by fishermen that would like to fish commercially for swordfish, but who are not able to obtain limited access permits. Currently, these limited access swordfish handgear permits can cost upwards of $30,000. Because the North Atlantic swordfish stock is fully rebuilt and the United States has not attained its full ICCAT-recommended swordfish quota for over a decade, overall gross revenues are lower than they could be if the U.S quota was fully harvested. For example, the total U.S. adjusted swordfish quota for 2012 was 3,559.2 mt dw (7,846,612 lbs. dw). Assuming an average ex-vessel price of $4.51 per pound dw and 100 percent quota utilization, total possible gross revenue across the domestic fishery could be $35.4 million, versus actual gross revenues of $20.2 million (2011), or a difference of $15.2 million in unrealized gross revenue due to the United States not fully attaining its adjusted North Atlantic swordfish quota. Under ATCA (16 U.S. C. 971
In 2011, U.S. landings reported to ICCAT were 2,171 mt (dw). NMFS anticipates additional landings from the new permit of 265 mt (dw), which in 2011 would have produced 2,436 mt (dw) total landings plus discards. Therefore in 2011, under the new Swordfish General Commercial permit and modified HMS Charter/Headboat permit, U.S. landings (without discards) would have been 501.6 mt (dw) below the baseline quota of 2,937.6 mt (dw), and 1,970.4 mt (dw) below the adjusted quota of 4,406.4 mt (dw). In the future, potential additional landings under Amendment 8 could result in a directed swordfish semi-annual seasons closure. However, NMFS has the authority and ability to monitor landings and adjust retention limits in-season to slow or close the harvest of swordfish by Swordfish General Commercial and HMS Charter/Headboat permitted vessels, and thereby reduce the need to close the directed swordfish season early.
After consulting with the HMS Advisory Panel and other interested constituents, NMFS decided not to further analyze the alternative to implement a swordfish tagging program due to concerns about the effectiveness of a tagging program to reliably identify swordfish that are bound for commerce. Unless all commercial swordfish (both domestic and imported) are tagged, it would remain difficult to differentiate between legitimate commercial landings that needed to be tagged, commercial landings that did not need to be tagged, imported swordfish, and recreational landings illegally entering commerce. Furthermore, establishing an open-access commercial swordfish permit is expected to significantly reduce the incentive for recreational anglers to illegally sell or transfer swordfish to commercial fishermen for later sale, thereby reducing the need for a tagging program.
In this final rule and in response to public comment, NMFS has modified the definition of the “Florida Swordfish Management Area” at § 635.2 by removing that portion of the area north of 28°17′10″ N. lat. The new northern boundary line now intersects the U.S. mainland near Rockledge, FL, and the coastline between Cape Canaveral, FL, and Melbourne, FL, near Cocoa Beach, FL. The modified area is smaller in geographic size than the proposed area. The area off the southeastern coast of Florida, particularly the Florida Straits, contains oceanographic features that make the area biologically unique. It provides important juvenile swordfish habitat, and is essentially a narrow migratory corridor containing high concentrations of swordfish located in close proximity to high concentrations of people who may fish for them. The modified Florida Swordfish Management Area more closely encompasses the Florida Straits and the oceanographic features that make this area biologically unique. Public comment indicated a concern about increased catches of juvenile swordfish, the potential for larger numbers of fishermen in the area, and the potential for crowding of fishermen, which could lead to potential fishing gear and user conflicts. Modifying the area to more closely correspond to the actual oceanographic features that make the area unique will improve future conservation and management of swordfish, while minimizing impacts on fishermen operating both in the relatively narrow area of the Florida Straits and fishermen operating north of this area where swordfish are less concentrated. This modification is within the range of alternatives considered for the Florida Swordfish Management Area in Amendment 8. To account for the reduction in size of the Florida Swordfish Management Area, the Northwest Atlantic region has been increased in size by extending its southern boundary to 28°17′10″ N. lat.
Also in response to public comment, NMFS has modified the initial default retention limit of the Florida Swordfish Management Area. In § 635.24(b)(4)(iii), the initial default swordfish retention limit for the modified Florida Swordfish Management Area has been changed from one swordfish per vessel per trip
Paragraphs § 635.4(f)(1) and (f)(2) have been changed to indicate that the provision allowing HMS Charter/Headboat permitted vessels to commercially fish for swordfish under the new regulations will become effective on January 1, 2014. Similarly, in § 635.4(f)(5), a sentence has been removed that described how the new permit would have been issued during the 2013 fishing year. The new permit will be made available for the 2014 fishing year, so that sentence is no longer needed.
Paragraph § 635.4(m)(2) has been reworded to improve clarity, but no substantive change to this paragraph has been made.
A minor change has been made to § 635.24(b)(4)(i) to improve clarity and to reflect the changes made to the definition of the Florida Swordfish Management Area.
A correction has been made at § 635.34(a) to indicate the proper cross-reference to § 635.24 instead of § 635.23. There is no substantive change as a result of this correction.
Lastly, a change has been made at § 635.71(e)(18) to improve clarity by incorporating a cross-reference to § 635.21(e)(4)(v).
The NMFS Assistant Administrator (AA) has determined that this final rule is consistent with the 2006 Consolidated Atlantic HMS FMP and its amendments, other provisions of the Magnuson-Stevens Act, ATCA, and other applicable law.
NMFS prepared an environmental assessment for this final rule that discusses the impact on the environment that would result from this rule. In this final action, we provide additional commercial swordfish fishing opportunities using selective fishing gears that have minimal bycatch and few discards to allow the United States to more fully utilize its domestic swordfish quota allocation. A copy of the environmental assessment is available from NMFS (see
This final rule has been determined to be not significant for purposes of Executive Order 12866.
The Agency has consulted, to the extent practicable, with appropriate state and local officials to address the principles, criteria, and requirements of Executive Order 13132.
A final regulatory flexibility analysis (FRFA) was prepared for this rule. The FRFA incorporates the Initial Regulatory Flexibility Analysis (IRFA), a summary of the significant issues raised by the public comments in response to the IRFA, our responses to those comments, and a summary of the analyses completed to support the action. The full FRFA and analysis of economic and ecological impacts are available from NMFS (see
The purpose of this final rulemaking, consistent with the Magnuson-Stevens Act, and the 2006 Consolidated HMS FMP and its amendments, is to enact HMS management measures that provide additional opportunities to harvest swordfish using selective gears that have low rates of bycatch, given the rebuilt status of the swordfish stock and resulting increased availability of swordfish and availability of U.S. quota. The goal is for the United States to more fully utilize its domestic swordfish quota allocation, which is based upon the recommendation of ICCAT, and provide economic benefits to U.S. fishermen with minimal adverse environmental impacts.
Section 604(a)(2) of the RFA requires a summary of the significant issues raised by the public comments in response to the IRFA, a summary of the assessment of the Agency of such issues, and a statement of any changes made in the rule as a result of such comments. NMFS received many comments on the proposed rule and IRFA. A summary of these comments and the Agency's responses, including changes as a result of public comment, are included above. In particular, comments 1, 5, 6, and 7 address the rule's economic impacts. For the reasons discussed in the response to comments 5 and 6, NMFS has reduced the size of the Florida Swordfish Management Area in this final rule, increased the size of the Northwest Atlantic region, implemented a zero swordfish per vessel per trip initial default retention limit in the smaller modified Florida Swordfish Management Area, and implemented a three swordfish per vessel per trip initial default retention limit in the area north of Cocoa Beach, FL, to Jekyll Island, GA, that was originally proposed to be subject to a one swordfish per vessel per trip limit. Otherwise, there are no substantive changes from the proposed rule as a result of these economic comments.
Section 604(a)(3) of the RFA requires a description and estimate of the number of small entities to which the final rule would apply. The Small Business Administration (SBA) has established size criteria for all major industry sectors in the United States, including fish harvesters. Previously, a business involved in fish harvesting was classified as a small business if it is independently owned and operated, is not dominant in its field of operation (including its affiliates), and has combined annual receipts not in excess of $4.0 million (NAICS code 114111, finfish fishing) for all its affiliated operations worldwide. In addition, SBA has defined a small charter/party boat entity (NAICS code 713990, recreational industries) as one with average annual receipts of less than $7.0 million. On June 20, 2013, SBA issued a final rule revising the small business size standards for several industries effective July 22, 2013. 78 FR 37398 (June 20, 2013). The rule increased the size standard for Finfish Fishing from $4.0 to 19.0 million, Shellfish Fishing from $4.0 to 5.0 million, and Other Marine Fishing from $4.0 to 7.0 million. Id. at 37400 (Table 1).
NMFS has reviewed the analyses prepared for this action in light of the new size standards. Under the former, lower size standards, all entities subject to this action were considered small entities, thus they all would continue to be considered small under the new standards.
This final rule would apply to small-scale handgear vessel owners that fish in the Atlantic Ocean, including the Gulf of Mexico and the U.S. Caribbean, that do not currently hold a commercial swordfish limited access permit. NMFS estimates that the universe of fishermen who might purchase and fish under a new commercial swordfish permit would be approximately 4,084 individuals, with some potential shift of fishermen currently permitted in the recreational HMS Angling category. This estimate is based upon the number of persons currently issued an Atlantic tunas General category permit, which is the commercial permit most similar to the permit being implemented in this final action. This final action could also indirectly apply to current U.S. North Atlantic commercial swordfish fishery participants and the related industries of seafood dealers and processors, fishing gear manufacturers and distributors, marinas, bait houses, restaurants, and other equipment suppliers. The current U.S. North
Section 604(a)(4) of the RFA requires a description of the projected reporting, record-keeping, and other compliance requirements of the final rule, including an estimate of the classes of small entities which would be subject to the requirements of the report or record.
This action contains new reporting, recordkeeping, or other compliance requirements. The new Federal open-access Swordfish General Commercial permit allows NMFS to collect additional data regarding participants in the swordfish handgear fishery and landings through Federal dealer reports. The new permit requires an application similar to other current open-access HMS permits. The information collected on the application includes vessel information and owner identification and contact information. A modest fee to process the application and annual renewal fee of approximately $25 may be required. The final rule also adopts standard commercial HMS permit reporting requirements for this permit. Currently, in Atlantic HMS fisheries, all commercial fishing vessels and Charter/Headboat vessels are required to submit logbooks for all HMS trips if they are selected for reporting. Selected permit holders are required to submit logbooks to NMFS postmarked no later than seven days after unloading a trip. If no fishing activity occurred during a calendar month, a “no fishing” report must be submitted to NMFS, and be postmarked within seven days after the end of the month. Currently, the permits most similar to the ones being implemented in this final action (HMS Charter/Headboat, Atlantic tunas General category, and Atlantic tunas Harpoon category permit) are not selected for submitting logbooks, although they may be selected in the future.
Section 604(a)(5) of the RFA requires a description of the steps NMFS has taken to minimize the significant economic impact on small entities consistent with the stated objectives of applicable statutes, including a statement of the factual, policy, and legal reasons for selecting the alternative adopted in the final rule and the reason that each one of the other significant alternatives to the rule considered by the Agency which affect small entities was rejected. These impacts are discussed below and in the final environmental assessment for Amendment 8 to the 2006 Consolidated HMS FMP. Additionally, the RFA (5 U.S.C. 603(c)(1)–(4)) lists four general categories of “significant” alternatives that could assist an agency in the development of significant alternatives. These categories of alternatives are: (1) Establishment of differing compliance or reporting requirements or timetables that take into account the resources available to small entities; (2) clarification, consolidation, or simplification of compliance and reporting requirements under the rule for such small entities; (3) use of performance rather than design standards; and (4) exemptions from coverage of the rule for small entities.
In order to meet the objectives of this rule, consistent with the Magnuson-Stevens Act and ESA, NMFS cannot exempt small entities or change the reporting requirements only for small entities because all the entities affected are considered small entities. Thus, there are no alternatives discussed that fall under the first and fourth categories described above. We do not know of any performance or design standards that would satisfy the aforementioned objectives of this rulemaking while also complying with the Magnuson-Stevens Act. Thus, there are no alternatives considered under the third category. All of the permit alternatives being considered, except for the no-action alternative, could result in additional reporting requirements (category two above) due to the issuance of new permits if new permit holders are selected for reporting. These are standard reporting requirements required of all HMS commercial permit holders. Thus, there are no alternatives discussed that fall under the second category described above. The action will improve information collection by allowing NMFS to collect important fishery dependent data, if necessary, that could be used for quota monitoring and stock assessments. As described below, NMFS analyzed several different alternatives for this final rulemaking and provides rationale for selecting the alternatives adopted in the final rule and the reason that each one of the other significant alternatives to the rule considered by the Agency which affect small entities was rejected.
In this rulemaking, NMFS considered two different categories of issues to address swordfish management measures where each issue had its own range of alternatives and sub-alternatives that would meet the objectives of the Magnuson-Stevens Act and the 2006 Consolidated HMS FMP. The first category of alternatives (Alternatives 1.1–1.3 and sub-alternatives) addresses swordfish permitting alternatives. The second category of alternatives (Alternatives 2.1–2.3 and sub-alternatives) addresses swordfish retention limits. The expected economic impacts these alternatives and sub-alternatives may have on small entities are summarized below. The full FRFA and all its analyses can be found in the final environmental assessment for Amendment 8. In total, NMFS analyzed 16 different alternatives and sub-alternatives, and provided rationales for identifying the preferred alternatives. The seven permit alternatives range from maintaining the status quo for U.S. North Atlantic swordfish fisheries to creating a new commercial swordfish handgear permit and modifying the HMS Charter/Headboat permit to allow fishing for and sales of swordfish under specific limitations. NMFS analyzed nine alternatives that would allow NMFS to implement swordfish retention limits applicable to the new permit in a range from zero-to-six fish. Eight of these alternatives would allow NMFS to modify daily trip limits using in-season adjustment procedures. NMFS assessed the impacts of the retention limit alternatives on both a fishery-wide basis and utilizing an approach which could be tailored on a regional basis.
Alternative 1.1, the no action alternative, maintains the existing swordfish limited access permit program and would not establish a new swordfish permit. Under Alternative 1.1, NMFS does not anticipate any substantive change in economic impacts as the U.S. swordfish fishery is already operating under the current regulations. Entry into the commercial swordfish fishery would remain difficult due to high limited access permit costs and the current scarcity of available permits. In terms of available and unutilized swordfish quota, this alternative could contribute to a loss of potential income for fishermen who would like to fish commercially for swordfish, but are not able to obtain limited access permits. Under ATCA (16 U.S.C. 971
Alternative 1.2, a preferred alternative, would establish a new open-access commercial swordfish permit and modify existing open access HMS
NMFS received comments from some current swordfish limited access permit holders during public meetings to discuss the 2009 ANPR (74 FR 26174, June 1, 2009) expressing concern that establishing a new swordfish permit could reduce ex-vessel swordfish prices and the value of existing limited access swordfish permits. It is not possible to precisely predict the number of new applicants for open access commercial swordfish permits, but NMFS expects that some current recreational fishermen with HMS Angling permits will remain recreational, rather than shift to commercial fishing. There are numerous commercial fishing vessel safety requirements and management regulations to comply with when operating a commercial fishing business that may discourage some recreational fishermen from obtaining a commercial permit. Under the proposed regulations, similar to the regulations that apply to the Atlantic tunas General category permit, fishermen issued a new Swordfish General Commercial permit would not be able to obtain an HMS Angling category permit. Therefore, a recreational fisherman who obtains a Swordfish General Commercial permit would forfeit the ability to fish for Atlantic billfishes, unless they are fishing in a registered HMS tournament, because fishing for these species is permissible only when issued an HMS Angling or Charter/Headboat permit. Additionally, the ability to fish recreationally for Atlantic tunas and sharks would be forfeited unless they are fishing in a registered HMS tournament or hold appropriate commercial tuna and/or shark permits. Negative impacts on current swordfish limited access permit holders are expected to be mitigated by establishing lower retention limits for the new open access permit than the limits that currently exist for limited access permits. NMFS prefers Alternative 1.2 because it would increase access to the commercial swordfish fishery, would have positive socio-economic impacts for fishermen who are currently unable to obtain a swordfish limited access permit, and would have neutral to minor ecological impacts. Additionally, this alternative would provide increased opportunities to more fully utilize the ICCAT-recommended domestic North Atlantic swordfish quota allocation and thus could have long-term benefits to all swordfish fisherman by improving the United States' position with regard to maintaining its quota share at ICCAT.
Sub-alternative 1.2.1 would modify the existing open-access Atlantic tunas General category permit to allow vessels using handgears (rod and reel, handline, harpoon, bandit gear, and green-stick) to retain swordfish commercially, and rename the modified permit as, potentially, the Atlantic tunas and swordfish General category permit. It would result in many of the same socio-economic impacts as Alternative 1.2. In addition, sub-alternative l.2.1 would minimize the costs associated with obtaining the new swordfish permit for persons that have already been issued the Atlantic Tunas General category permit, because they would only need to obtain one permit rather than two. Sub-Alternative 1.2.1 is not preferred because it would not provide the ability to differentiate between the numbers of commercial fishermen issued an Atlantic Tunas General category permit and those issued an open-access commercial swordfish permit. This distinction helps to analyze the socio-economic impacts of potential management measures for both tunas and swordfish.
Sub-alternative 1.2.2 would modify the existing open-access Atlantic tunas Harpoon category permit to allow for the commercial retention of swordfish using harpoon gear. This alternative would result in many of the same impacts as Alternative 1.2. Additionally, it would minimize the costs associated with obtaining the new permit for persons that have already been issued the Atlantic Tunas Harpoon category permit, because they would only need to obtain one permit rather than two. Specifically, it would provide economic benefits to current Atlantic tunas Harpoon category permit holders that want to both harpoon swordfish and fish for tunas under Atlantic tunas Harpoon category regulations. Sub-Alternative 1.2.2 is not preferred because it would not provide the ability to differentiate between the numbers of commercial fishermen issued an Atlantic Tunas Harpoon category permit and those issued an open-access commercial swordfish permit.
Sub-alternative 1.2.3, a preferred alternative, would allow HMS Charter/Headboat permit holders to fish under open access commercial swordfish regulations, using only rod and reel and handlines, when not on a for-hire trip with paying passengers. It would result in many of the same impacts as Alternative 1.2 and provide economic benefits to CHB permit holders when fishing commercially (i.e., not on a for-hire trip). It would also streamline permit issuance because CHB vessels would not need to obtain another permit. Sub-Alternative 1.2.3 is preferred because it achieves the goal of providing additional opportunities to commercially harvest the U.S. swordfish quota using handgears that are low in bycatch. A similar regulatory provision exists which allows HMS Charter/Headboat permit holders to sell Atlantic tunas under certain conditions because of the quasi-commercial nature of the HMS Charter/Headboat permit.
Sub-alternative 1.2.4, a preferred alternative, would create a separate open access commercial swordfish permit to allow landings using handgear. This alternative would have similar impacts as Alternative 1.2, above. However, it would increase the costs associated with obtaining the permit for persons that have already been issued an Atlantic Tunas General or Harpoon category permit. This alternative would not streamline permit issuance for persons that want to commercially fish for both tunas and swordfish, because they would need to obtain two different permits to conduct these activities. NMFS prefers sub-alternative 1.2.4 because it would increase access to the commercial swordfish fishery, would have positive socio-economic impacts for fishermen who are currently unable to obtain a swordfish limited access permit, and would have only neutral to minor ecological impacts. Additionally, sub-alternative 1.2.4 would better enable NMFS to differentiate between tuna and swordfish handgear fishermen in order to better monitor and assess these fisheries.
Alternative 1.3 would allow for an unspecified number of new swordfish limited access permits to be issued. Depending upon the qualification criteria, this alternative could improve access to the fishery and provide economic benefits to some fishermen that qualify for the new limited access
Alternative 2.1 would establish a fishery-wide zero-to-six swordfish retention limit range for the new and modified permits, and codify a specific retention limit within that range. This alternative could provide some fishermen with the ability to commercially land swordfish, thereby resulting in positive economic benefits if the limit were set above zero. Additionally, economic benefits are anticipated for swordfish dealers and processors, fishing tackle manufacturers and suppliers, bait suppliers, restaurants, marinas, and fuel providers. NMFS anticipates a retention limit range of zero-to-six swordfish would provide a seasonal, or secondary, fishery for most participants. This alternative is not expected to facilitate a year-round fishery in most areas, with the possible exception of south Florida, where swordfish can be available year-round. There is a notable difference in the ex-vessel revenue produced by a one swordfish/trip limit versus a six swordfish/trip limit. A single swordfish is estimated to be worth $432.96 ex-vessel, on average, whereas six swordfish would produce $2,597.76 ex-vessel. For a vessel making 10 trips per year and retaining the maximum allowable number of swordfish on each trip, annual gross revenue derived from swordfish would range from $4,329.60 under a one-fish limit to $25,977.60 under a six-fish limit. Codifying a single coast-wide swordfish retention limit would provide certainty to both fishermen and law enforcement regarding the swordfish retention limit for the new open access permit. However, this alternative would not provide in-season adjustment authority to quickly modify the swordfish retention limit regionally by using pre-established criteria and thus would limit NMFS' management flexibility. Alternative 2.1 is not preferred because it does not provide the flexibility to manage the new swordfish open access permit on a regional basis or to adjust regional retention limits using in-season authority.
Alternative 2.2 would establish a coast-wide zero-to-six swordfish retention limit range for the new and modified permits and codify a specific retention limit within that range. In addition, it would provide in-season adjustment authority for NMFS to modify the swordfish retention limit within the range (zero to six) using in-season adjustment procedures similar to those codified at § 635.27(a)(8). This alternative would have the same social and economic impacts as Alternative 2.1, but would provide less certainty to fishermen and law enforcement regarding possible in-season changes to the swordfish retention limit. Positive economic benefits could occur if the retention limit was increased during the fishing season based upon information indicating that sufficient quota was available, or upon other pre-established criteria. Alternative 2.2 is not preferred because it does not provide the flexibility to manage the new swordfish open access permit on a regional basis.
Alternative 2.3, a preferred alternative, would establish swordfish management regions and a zero-to-six swordfish retention limit range within each region for the new and modified permits and codify specific regional limits within that range with authority to adjust the regional limits in-season based on pre-established criteria. This alternative would have similar social and economic impacts as Alternative 2.1. If a regional retention limit is set at zero, NMFS expects no change in socio-economic impacts. If a regional limit is set at any level above zero, this alternative could provide economic benefits to some commercial handgear fishermen if they were previously inactive and obtain the new and modified permits and begin fishing. NMFS prefers Alternative 2.3 at this time, because it would allow swordfish retention limits to be quickly modified using in-season adjustment authority and provide additional flexibility to manage swordfish regionally.
Sub-Alternative 2.3.1 would establish regions based upon existing major U.S. domestic fishing areas as reported to ICCAT (Northeast Distant area, Northeast Coastal area, Mid-Atlantic Bight area, South Atlantic Bight area, Florida East Coast area, Gulf of Mexico area, Caribbean area, and the Sargasso Sea area). Socio-economic impacts would be the same as Alternative 2.3 above. If this sub-alternative were implemented, NMFS considered an initial swordfish retention limit of one swordfish per vessel per trip for the Florida East Coast area, two swordfish per vessel per trip for the Caribbean area, and a limit of three swordfish per vessel per trip for the Northwest Atlantic and Gulf of Mexico regions. If a regional retention limit is set at zero, NMFS expects no change in socio-economic impacts. If a regional limit is set at any level above zero, this alternative could provide economic benefits to some commercial handgear fishermen if they were previously inactive and obtain the new and modified permits and begin fishing. For vessels making 10 trips per year and retaining the maximum allowable limit on each trip, annual gross revenue derived from swordfish would range from $4,329.60 under a one-fish limit, $8,659.20 under a two-fish limit, and $12,988.80 under a three-fish limit. Sub-Alternative 2.3.1 is not preferred because the small-scale handgear fishery is somewhat similar across the entire Northwest Atlantic area and Gulf of Mexico, so establishing several smaller areas is not needed at this time.
Sub-Alternative 2.3.2, a preferred alternative, would establish larger regions than sub-alternative 2.3.1, with the addition of a separate Florida Swordfish Management Area (the Northwest Atlantic, Gulf of Mexico, Caribbean, and a Florida Swordfish Management Area as defined below). Under this sub-alternative, swordfish management measures could still be tailored geographically to the biological factors affecting a particular region; however, the regions would be larger (with the possible exception of the separate Florida Swordfish Management Area). In the draft EA and proposed rule, NMFS considered an initial swordfish retention limit of one swordfish per vessel per trip for the Florida Swordfish Management Area, two swordfish per vessel per trip for the Caribbean area, and a limit of three swordfish per vessel per trip for the Northwest Atlantic and Gulf of Mexico regions. These retention limits fell within the range discussed under Alternative 2.3 above, and could be
To estimate the number of entities affected by a special Florida Swordfish Management Area, NMFS first determined the number of Atlantic tunas General category permits issued. In 2011, there were 4,084 Atlantic tunas General category permits issued. This number was used as a proxy to estimate the total number of new Swordfish General Commercial permits that could be issued fishery-wide. In 2011, 44 percent of all Directed and Incidental swordfish limited access permits were issued in Florida. Additionally, in 2011, 63 percent of all swordfish Handgear limited access permits were issued in Florida. Taking the average of these two numbers provided an estimate of 53.5 percent, which NMFS used to estimate the percent of new swordfish permits that could be issued in Florida. Using an estimated rate of 53.5 percent of 4,084 potential new permits provides an estimate of 2,185 potential new commercial swordfish handgear permits that could be issued in Florida. Assuming that two-thirds of these permits are issued to vessels on the east coast of Florida, as is the case currently, then potentially 1,455 new open-access swordfish permits could be issued on the east coast of Florida (0.666 * 2,185 = 1,455).
Sub-Alternative 2.3.2.1 would establish a Florida Swordfish Management Area that includes the East Florida Coast pelagic longline closed area through the northwestern boundary of Monroe County, FL, in the Gulf of Mexico (see § 635.2 for bounding coordinates). Under a regional retention limit set at zero for the Florida Swordfish Management Area, no change in socio-economic impacts is anticipated. Approximately 1,455 new permit holders could derive up to $4,329.60 annually under a one-fish limit, assuming they each took 10 trips per year and landed one fish on each trip. Sub-Alternative 2.3.2.1 was preferred in the draft EA and proposed rule because it corresponded to the well-known boundaries of the existing East Florida Coast pelagic longline closed area, and also provided an enforceable buffer by including areas where there is not as much swordfishing activity. It is no longer preferred because a new hybrid alternative has been developed that better corresponds to the unique biological and oceanographic features that make the area a migratory corridor containing a high concentration of swordfish and providing important juvenile swordfish habitat. The hybrid area also closely corresponds to locations containing large numbers of fishermen, while still providing an enforceable buffer area to the north and south of the prime swordfishing areas off St. Lucie, Martin, Palm Beach, Broward, Dade, and Monroe counties in Florida.
Sub-Alternative 2.3.2.2 would establish a Florida Swordfish Management Area that extends from the Georgia/Florida border to Key West, FL. This area is larger than, and includes, the East Florida Coast pelagic longline closed area. Therefore, the economic impacts described for sub-alternative 2.3.2.1 would also occur within this area. Under a regional retention limit set at zero for the Florida Swordfish Management Area, no change in socio-economic impacts is anticipated. Additionally, because this special management area would be larger than sub-alternative 2.3.2.1, slightly more than 1,455 vessels could potentially be affected by a one-fish retention limit. Sub-Alternative 2.3.2.2 is not preferred because a new hybrid alternative has been developed that better corresponds to the unique biological and oceanographic features that make the area a migratory corridor containing a high concentration of swordfish and providing important juvenile swordfish habitat.
Sub-Alternative 2.3.2.3 would establish a Florida Swordfish Management Area that includes the Florida counties of St. Lucie, Martin, Palm Beach, Broward, Dade, and Monroe. This area is smaller than the previous two sub-alternatives, but specifically includes oceanic areas with concentrations of swordfish that are readily accessible to many anglers. Under a regional retention limit set at zero for the Florida Swordfish Management Area, no change in socio-economic impacts is anticipated. Because this special management area would be smaller than the areas in sub-alternative 2.3.2.1, slightly fewer than 1,455 vessels would potentially be affected by the one-swordfish per vessel per trip retention limit. Sub-Alternative 2.3.2.3 is not preferred because this management area would provide a smaller, and less enforceable, buffer area around the prime swordfishing areas. A new hybrid alternative has been developed that better corresponds to the unique biological and oceanographic features that make the area a migratory corridor containing a high concentration of swordfish and providing important juvenile swordfish habitat.
Sub-Alternative 2.3.2.4, a preferred alternative, would establish a Florida Swordfish Management Area extending shoreward from near Rockledge, FL, and Cocoa Beach, FL, to the outer boundary of the EEZ through the northwestern boundary of Monroe County, FL, in the Gulf of Mexico. This area is geographically smaller than Sub-Alternatives 2.3.2.1 and 2.3.2.2, but larger than Sub-Alternative 2.3.2.3. This sub-alternative, in combination with a zero-fish retention limit, balances the need to prevent the rapid growth of a commercial fishery in a biologically unique area with the objective of providing additional opportunities to harvest swordfish. The preferred alternative in the draft EA (Sub-Alternative 2.3.2.1) would have implemented a one-fish retention limit in a larger area. This alternative would implement a zero-fish retention limit in a smaller area, and a three-fish retention limit in the area north of Cocoa Beach, FL, that was previously proposed to be subject to a one-fish retention limit. Thus, in the smaller, modified Florida Swordfish Management Area (Sub-Alternative 2.3.2.4) with an initial default retention limit of zero, no change in socio-economic impacts is anticipated. In the larger Northwest Atlantic region, annual gross revenue derived from swordfish would be approximately $12,988.80 under a three-fish limit for a vessel making ten trips per year and retaining the maximum allowable limit on each trip. Sub-Alternative 2.3.2.4 is preferred because it more closely corresponds to the unique biological and oceanographic features that make the area a migratory corridor containing a high concentration of swordfish and providing important juvenile swordfish habitat. This area also more closely corresponds to locations containing large numbers of
This final rule does not conflict, duplicate, or overlap with other relevant Federal rules (5 U.S.C. 603(b)(5)). Fishermen, dealers, and managers in these fisheries must comply with a number of international agreements, domestic laws, and other FMPs. These include, but are not limited to, the Magnuson-Stevens Act, the ACTA, the High Seas Fishing Compliance Act, the Marine Mammal Protection Act, the Endangered Species Act, the National Environmental Policy Act, the Paperwork Reduction Act, and the Coastal Zone Management Act. We do not believe that the new regulations duplicate, overlap, or conflict with any relevant regulations, Federal or otherwise.
This final rule contains a collection-of-information requirement subject to the Paperwork Reduction Act (PRA) and which has been approved by OMB under control number 0648–0327. Public reporting burden for a new Swordfish General Commercial permit is estimated to average 30 minutes per application. This burden estimate includes the time for reviewing instructions, gathering and maintaining the data needed, submitting the permit application, and completing and reviewing the collection information. On an annual basis, the new Swordfish General Commercial permit would increase the existing collection by 4,084 respondents/responses, 2,042 hours, and costs by $81,706. In total, 0648–0327 would include 41,261 responses/respondents, 11,843 hours, and cost $738,917 per year. Send comments on these burden estimated or any other aspects of this data collection, including suggestions for reducing the burden or any other aspects of the collection of information to NMFS (see
Notwithstanding any other provision of the law, no person is required to respond to, and no person shall be subject to penalty for failure to comply with, a collection of information subject to the requirements of the PRA, unless that collection of information displays a currently valid OMB control number.
Section 212 of the Small Business Regulatory Enforcement Fairness Act of 1996 states that, for each rule or group of related rules for which an agency is required to prepare a FRFA, the agency shall publish one or more guides to assist small entities in complying with the rule, and shall designate such publications as “small entity compliance guides.” The agency shall explain the actions a small entity is required to take to comply with a rule or group of rules. Copies of this final rule and the compliance guide are available upon request from NMFS (see
Administrative practice and procedure, Confidential business information, Fisheries, Fishing, Fishing vessels, Foreign relations, Intergovernmental relations, Penalties, Reporting and recordkeeping requirements, Statistics.
Fisheries, Fishing, Fishing vessels, Penalties, Reporting and recordkeeping requirements, Retention limits.
For the reasons set out in the preamble, 50 CFR parts 600 and 635 are amended as follows:
5 U.S.C. 561 and 16 U.S.C. 1801
(v) * * *
16 U.S.C. 971
The revisions and additions read as follows:
(b) * * *
(1) The owner of a charter boat or headboat used to fish for, take, retain, or possess any Atlantic HMS must obtain an HMS Charter/Headboat permit. A vessel issued an HMS Charter/Headboat permit for a fishing year shall not be issued an HMS Angling permit, a Swordfish General Commercial permit, or an Atlantic Tunas permit in any category for that same fishing year, regardless of a change in the vessel's ownership.
(c) * * *
(1) The owner of any vessel used to fish recreationally for Atlantic HMS or on which Atlantic HMS are retained or possessed recreationally, must obtain an HMS Angling permit, except as provided in § 635.4(c)(2). Atlantic HMS caught, retained, possessed, or landed by persons on board vessels with an HMS Angling permit may not be sold or transferred to any person for a commercial purpose. A vessel issued an HMS Angling permit for a fishing year shall not be issued an HMS Charter/Headboat permit, a Swordfish General Commercial permit, or an Atlantic Tunas permit in any category for that same fishing year, regardless of a change in the vessel's ownership.
(2) A vessel with a valid Atlantic Tunas General category permit issued under paragraph (d) of this section or with a valid Swordfish General Commercial permit issued under paragraph (f) of this section, may fish in a recreational HMS fishing tournament if the vessel has registered for, paid an entry fee to, and is fishing under the rules of a tournament that has registered with NMFS' HMS Management Division as required under § 635.5(d). When a vessel issued a valid Atlantic Tunas General category permit or a valid Swordfish General Commercial permit is fishing in such a tournament, such vessel must comply with HMS Angling category regulations, except as provided in paragraphs (c)(3) and (c)(4) of this section.
(4) A vessel issued a Swordfish General Commercial permit fishing in a tournament, as authorized under § 635.4(c)(2), shall comply with Swordfish General Commercial permit regulations when fishing for, retaining, possessing, or landing Atlantic swordfish.
(f)
(1) Except as specified in paragraphs (n) and (o) of this section, the owner of a vessel of the United States used to fish for or take swordfish commercially from the management unit, or on which swordfish from the management unit are retained or possessed with an intention to sell, or sold must obtain, an HMS Charter/Headboat permit issued under paragraph (b) of this section, or one of the following swordfish permits: A swordfish directed limited access permit, swordfish incidental limited access permit, swordfish handgear limited access permit, or a Swordfish General Commercial permit. These permits cannot be held in combination with each other on the same vessel, except that an HMS Charter/Headboat permit may be held in combination with a swordfish handgear limited access permit on the same vessel. It is a rebuttable presumption that the owner or operator of a vessel on which swordfish are possessed in excess of the recreational retention limits intends to sell the swordfish.
(2) The only valid commercial Federal vessel permits for swordfish are the HMS Charter/Headboat permit issued under paragraph (b) of this section (and only when on a non for-hire trip), the Swordfish General Commercial permit issued under paragraph (f) of this section, a swordfish limited access permit issued consistent with paragraphs (l) and (m) of this section, or permits issued under paragraphs (n) and (o) of this section.
(4) A directed or incidental limited access permit for swordfish is valid only when the vessel has on board a valid limited access permit for shark and a valid Atlantic Tunas Longline category permit issued for such vessel.
(5) A Swordfish General Commercial permit may not be held on a vessel in conjunction with an HMS Charter/Headboat permit issued under paragraph (b) of this section, an HMS Angling category permit issued under paragraph (c), a swordfish limited access permit issued consistent with paragraphs (l) and (m), an Incidental HMS Squid Trawl permit issued under paragraph (n), or an HMS Commercial Caribbean Small Boat permit issued under paragraph (o). A vessel issued a Swordfish General Commercial open access permit for a fishing year shall not be issued an HMS Angling permit or an HMS Charter/Headboat permit for that same fishing year, regardless of a change in the vessel's ownership.
(h) * * *
(1) Atlantic Tunas, HMS Angling, HMS Charter/Headboat, Swordfish General Commercial, Incidental HMS Squid Trawl, and HMS Commercial Caribbean Small Boat vessel permits.
(j) * * *
(3) A vessel owner issued an Atlantic tunas permit in the General, Harpoon, or Trap category or an Atlantic HMS permit in the Angling or Charter/Headboat category under paragraph (b), (c), or (d) of this section may change the category of the vessel permit once within 10 calendar days of the date of issuance of the permit. After 10 calendar days from the date of issuance of the permit, the vessel owner may not change the permit category until the following fishing season.
(m) * * *
(2)
(e) * * *
(2) * * *
(i) Only persons who have been issued a valid HMS Angling or valid Charter/Headboat permit, or who have been issued a valid Atlantic Tunas General category or Swordfish General Commercial permit and are participating in a tournament as provided in 635.4(c) of this part, may possess a blue marlin, white marlin, or roundscale spearfish in, or take a blue marlin, white marlin, or roundscale spearfish from, its management unit. Blue marlin, white marlin, or roundscale spearfish may only be harvested by rod and reel.
(ii) Only persons who have been issued a valid HMS Angling or valid Charter/Headboat permit, or who have been issued a valid Atlantic Tunas General category or Swordfish General Commercial permit and are participating in a tournament as provided in § 635.4(c) of this part, may possess or take a sailfish shoreward of the outer boundary of the Atlantic EEZ. Sailfish may only be harvested by rod and reel.
(4) * * *
(i) No person may possess north Atlantic swordfish taken from its management unit by any gear other than handgear, green-stick, or longline, except that such swordfish taken incidentally while fishing with a squid trawl may be retained by a vessel issued a valid Incidental HMS squid trawl permit, subject to restrictions specified in § 635.24(b)(2). No person may possess south Atlantic swordfish taken from its management unit by any gear other than longline.
(iv) Except for persons aboard a vessel that has been issued a directed, incidental, or handgear limited access swordfish permit, a Swordfish General Commercial permit, an Incidental HMS squid trawl permit, or an HMS Commercial Caribbean Small Boat permit under § 635.4, no person may fish for North Atlantic swordfish with, or possess a North Atlantic swordfish taken by, any gear other than handline or rod and reel.
(v) A person aboard a vessel issued or required to be issued a valid Swordfish General Commercial permit may only possess North Atlantic swordfish taken from its management unit by rod and reel, handline, bandit gear, green-stick, or harpoon gear.
(g)
(f)
(1) When on a for-hire trip as defined at § 635.2, vessels issued an HMS Charter/Headboat permit under § 635.4(b), that are charter boats as defined under § 600.10 of this chapter, may retain, possess, or land no more than one North Atlantic swordfish per paying passenger and up to six North Atlantic swordfish per vessel per trip. When such vessels are on a non for-hire trip, they must comply with the commercial retention limits for swordfish specified at § 635.24(b)(4).
(2) When on a for-hire trip as defined at § 635.2, vessels issued an HMS Charter/Headboat permit under § 635.4(b), that are headboats as defined under § 600.10 of this chapter, may retain, possess, or land no more than one North Atlantic swordfish per paying passenger and up to 15 North Atlantic swordfish per vessel per trip. When such vessels are on a non for-hire trip, they may land no more than the commercial retention limits for swordfish specified at § 635.24(b)(4).
(b) * * *
(4) Persons aboard a vessel that has been issued a Swordfish General Commercial permit or an HMS Charter/Headboat permit (and only when on a non for-hire trip) are subject to the regional swordfish retention limits specified at paragraph (b)(4)(iii), which may be adjusted during the fishing year based upon the inseason regional retention limit adjustment criteria identified in paragraph (b)(4)(iv) below.
(i)
(ii)
(iii)
(A) Zero swordfish per vessel per trip for the Florida Swordfish Management Area.
(B) Two swordfish per vessel per trip for the Caribbean region.
(C) Three swordfish per vessel per trip for the Northwest Atlantic region.
(D) Three swordfish per vessel per trip for the Gulf of Mexico region.
(iv)
(A) The usefulness of information obtained from biological sampling and monitoring of the North Atlantic swordfish stock;
(B) The estimated ability of vessels participating in the fishery to land the amount of swordfish quota available before the end of the fishing year;
(C) The estimated amounts by which quotas for other categories of the fishery might be exceeded;
(D) Effects of the adjustment on accomplishing the objectives of the fishery management plan and its amendments;
(E) Variations in seasonal distribution, abundance, or migration patterns of swordfish;
(F) Effects of catch rates in one region precluding vessels in another region from having a reasonable opportunity to harvest a portion of the overall swordfish quota; and
(G) Review of dealer reports, landing trends, and the availability of swordfish on the fishing grounds.
(c) * * *
(1) * * *
(i) * * *
(A) A swordfish from the North Atlantic stock caught prior to the directed fishery closure by a vessel for which a directed swordfish limited access permit, a swordfish handgear limited access permit, a HMS Commercial Caribbean Small Boat permit, a Swordfish General Commercial open access permit, or an HMS Charter/Headboat permit (and only when on a non for-hire trip) has been issued or is required to have been issued is counted against the directed fishery quota. The total baseline annual fishery quota, before any adjustments, is 2,937.6 mt dw for each fishing year. Consistent with applicable ICCAT recommendations, a portion of the total baseline annual fishery quota may be used for transfers to another ICCAT contracting party. The annual directed category quota is calculated by adjusting for over- or under harvests, dead discards, any applicable transfers, the incidental category quota, the reserve quota and other adjustments as needed, and is subdivided into two equal semi-annual periods: one for January 1 through June 30, and the other for July 1 through December 31.
(B) A swordfish from the North Atlantic swordfish stock landed by a vessel for which an incidental swordfish limited access permit, an incidental HMS Squid Trawl permit, an HMS Angling permit, or an HMS Charter/Headboat permit (and only when on a for-hire trip) has been issued, or a swordfish from the North Atlantic stock caught after the effective date of a closure of the directed fishery from a vessel for which a swordfish directed limited access permit, a swordfish handgear limited access permit, a HMS Commercial Caribbean Small Boat permit, a Swordfish General Commercial open access permit, or an HMS Charter/Headboat permit (when on a non for-hire trip) has been issued, is counted against the incidental category quota. The annual incidental category quota is 300 mt dw for each fishing year.
(c) * * *
(1) * * *
(i) * * *
(C) No swordfish may be possessed, landed, or sold by vessels issued a Swordfish General Commercial open access permit.
(D) No swordfish may be sold by vessels issued an HMS Charter/Headboat permit.
(a) NMFS may adjust the catch limits for BFT, as specified in § 635.23; the quotas for BFT, shark and swordfish, as specified in § 635.27; the regional retention limits for Swordfish General Commercial permit holders, as specified at § 635.24; the marlin landing limit, as specified in § 635.27(d); and the minimum sizes for Atlantic blue marlin, white marlin, and roundscale spearfish as specified in § 635.20.
(e) * * *
(8) Fish for North Atlantic swordfish from, possess North Atlantic swordfish on board, or land North Atlantic swordfish from a vessel using or having on board gear other than pelagic longline, green-stick gear, or handgear, except as specified at § 635.21(e)(4)(i).
(15) As the owner of a vessel permitted, or required to be permitted, in the Atlantic HMS Angling or the Atlantic HMS Charter/Headboat category (and only when on a for-hire trip), fail to report a North Atlantic swordfish, as specified in § 635.5(c)(2) or (c)(3).
(18) As the owner of a vessel permitted, or required to be permitted, in the Swordfish General Commercial permit category, possess North Atlantic swordfish taken from its management unit by any gear other than rod and reel, handline, bandit gear, green-stick, or harpoon gear, as specified in § 635.21(e)(4)(v).
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Proposed rule; request for comments.
NMFS proposes regulations to implement management measures in Amendment 7 to the 2006 Consolidated Atlantic Highly Migratory Species Fishery Management Plan (2006 Consolidated HMS FMP) to ensure sustainable management of bluefin tuna consistent with the 2006 HMS FMP addressing ongoing management challenges in the Atlantic bluefin tuna fisheries. Amendment 7 also proposes minor regulatory changes related to the management of Atlantic HMS. Amendment 7 was developed by NMFS under the authority of the Magnuson-Stevens Fishery Conservation and Management Act (Magnuson-Stevens Act) and the Atlantic Tunas Convention Act (ATCA). The proposed measures would reallocate the U.S. bluefin tuna quota among domestic fishing categories. The rule would also implement several actions applicable to the pelagic longline fishery, including: Individual Bluefin Quotas (IBQs); two new Gear Restricted Areas, access to current closed areas based on performance criteria; closure of the pelagic longline fishery when annual bluefin tuna quota is reached; elimination of target catch requirements associated with retention of incidental bluefin tuna in the pelagic longline fishery; mandatory retention of legal-sized bluefin tuna caught as bycatch; expanded monitoring requirements, including electronic monitoring via cameras and bluefin tuna catch reporting via Vessel Monitoring System (VMS); and transiting provisions for pelagic and bottom longline vessels. The proposed rule would also require VMS use and reporting by the Purse Seine category; change the start date of the Purse Seine category to June 1; expand Automated Catch Reporting System use to the General and Harpoon categories; provide additional flexibilities for inseason adjustment of the General category quota and Harpoon category retention limits; and allocate a portion of the Angling category Trophy South subquota to the Gulf of Mexico. Finally, it would adopt several measures not directly related to bluefin tuna management, including implementing a U.S. North Atlantic albacore tuna quota; modifying rules regarding permit category changes; and implementing minor changes in the Highly Migratory Species regulations for administrative or clarification purposes.
Written comments must be received on or before October 23, 2013.
You may submit comments on this proposed rule, identified by “NMFS–NOAA–2013–0101”, by any one of the following methods:
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Written comments regarding the burden-hour estimates or other aspects of the collection-of-information requirements contained in this proposed rule may be submitted to the Highly Migratory Species (HMS) Management Division of the Office of Sustainable Fisheries, and be emailed to
Copies of Amendment 7 to the 2006 Consolidated HMS FMP and other relevant documents are available from the HMS Management Division Web site at
Thomas Warren or Brad McHale at 978–281–9260.
The U.S. Atlantic tuna fisheries are managed under the 2006 Consolidated HMS FMP and regulations at 50 CFR part 635, pursuant to the authority of the Magnuson-Stevens Act, and ATCA. Under ATCA, the Secretary shall promulgate such regulations as may be necessary and appropriate to carry out International Commission for the Conservation of Atlantic Tunas (ICCAT) recommendations. The authority to issue regulations under the Magnuson-Stevens Act and ATCA has been delegated from the Secretary to the Assistant Administrator for Fisheries, NOAA (AA). On October 2, 2006, NMFS published in the
A brief summary of the background of this proposed action is provided below. A complete discussion of the proposed Atlantic HMS management measures and the alternatives can be found in Draft Amendment 7 to the 2006 Consolidated HMS FMP Environmental Impact Statement (Amendment 7 DEIS, July, 2013). Draft Amendment 7, as well as the 2006 Consolidated HMS FMP can be found online at
The bluefin tuna fishery is managed principally through a quota. Currently, NMFS implements and codifies the ICCAT-recommended U.S. quota through rulemaking, annually or bi-annually depending on the length of the relevant ICCAT recommendation. Also through rulemaking (the “quota specifications process”) NMFS annually
National Standard 1 requires that “conservation and management measures shall prevent overfishing while achieving, on a continuing basis, the optimum yield from each fishery for the United States fishing industry.” The Magnuson-Stevens Act defines “optimum yield” as the amount of fish that, among other things, provides for rebuilding to a level consistent with producing the maximum sustainable yield from the fishery. In ATCA, Congress also directed NMFS to manage the bluefin fishery to ensure that NMFS provides U.S. fishing vessels “with a reasonable opportunity to harvest such allocation, quota, or at such fishing mortality level. . . .” This rule builds upon an extensive regulatory framework for management of the domestic bluefin fishery pursuant to the 20-year rebuilding program adopted in the 1999 FMP and continued under the 2006 Consolidated HMS FMP. As described below, the proposed measures were designed to allow fishery participants to fully harvest, but not exceed, the U.S. bluefin quota by refining the existing management tools. NMFS is proposing a detailed, multi-level approach to resolving challenges in administering and carrying out the current quota system, which, if left unaddressed, could result in overharvests of the U.S. quota in the future. These measures would directly support the goals of reducing overfishing, rebuilding the western bluefin stock, and achieving optimum yield by ensuring that the fishery continues to be managed within the ICCAT-approved TAC, and consistent with National Standard 1's requirements.
Recent trends in the bluefin tuna fisheries and public comment and suggestions indicate that substantive changes to the 2006 Consolidated HMS FMP are warranted with regard to bluefin tuna management. Specific relevant events are described below.
On June 1, 2009, NMFS published an Advanced Notice of Proposed Rulemaking (ANPR; 74 FR 26174) requesting specific comments on regulatory changes that would potentially increase opportunities for U.S. bluefin tuna and swordfish fisheries to fully harvest the U.S. quotas recommended by ICCAT while balancing continuing efforts to end BFT overfishing by 2010 and rebuild the stock by 2019 as set out in the 2006 Consolidated HMS FMP. The ANPR was in response to various public suggestions about bluefin tuna management during the previous two years, precipitated by declines in the total volume of bluefin tuna landings, which were well below the available U.S. quota, and a reduction in the overall allowable western Atlantic bluefin TAC recommended by ICCAT. In the ANPR, NMFS also requested public comment regarding the potential implementation of catch shares, limited access privilege programs (LAPPs), and individual bycatch caps (IBCs) in highly migratory species fisheries. In response, NMFS received a wide range of suggestions for changes to the management of the U.S. bluefin tuna fisheries.
In developing the 2011 bluefin tuna quota rule and specifications (2011 Quota Rule) (76 FR 39019; July 5, 2011), three factors made accounting for anticipated discards more challenging than in previous years: (1) Changes in the ICCAT western Atlantic bluefin tuna management recommendations, including reductions in total allowable catch (TAC), the amount of underharvest that can be carried forward from one year to the next, and the previous elimination of a dead discard allowance separate from the landings quota); (2) increases in domestic pelagic longline dead discard estimates due to changes in estimation methodology and possibly due to an increase in bluefin tuna interactions; and (3) increases in domestic bluefin tuna landings, including directed and incidental landings. It became apparent that the adjusted quota for 2011 would be insufficient to account for anticipated 2011 dead discards while also providing full baseline allocations for the directed fishing categories per the percentages outlined in the 2006 Consolidated HMS FMP. In other words, the combined effect of the domestic quota allocation system and ICCAT requirements have resulted in an annual allocation/accounting challenge: Using the limited amount of available quota, how do we optimize fishing opportunity for all categories and account for anticipated dead discards in a way that meets our fishery management obligations?
After extensive public comment on the proposed 2011 Quota Rule, NMFS accounted for half of the estimated dead discards “up front,” by deducting half of the expected dead discards directly from the Longline category quota to provide some incentive for fishermen to reduce bluefin tuna interactions that could result in dead discards. Secondly, NMFS applied half of the underharvest that was allowed to be carried forward to the Longline category and maintained the other half in the Reserve category to provide maximum management flexibility in accounting for 2011 landings and dead discards. The underlying premise was that full and final accounting for dead discards would occur at the end of the fishing year and that full accounting would be possible within the available quota due to the likelihood of unharvested overall quota at the end of the fishing year. The range of comments received on the proposed 2011 Quota Rule (March 14, 2011; 76 FR 13583), and discussions at HMS Advisory Panel meetings demonstrated the need for a comprehensive review of bluefin tuna management. Many comments raised issues that were outside of the scope of that particular rulemaking and would require additional analyses because of the potential impacts on the fisheries and fishery participants. Some of the issues raised include: holding each quota category accountable for their own dead discards and revisiting the methodology used for estimating dead discards, the accounting for bluefin tuna landings relative to the 2006 Consolidated HMS FMP percentage allocations, changing domestic allocations among fishing categories, reducing bluefin tuna bycatch, modifying the permit structure for the fisheries, improving monitoring of catch in all bluefin tuna fisheries, providing strong incentives to the Longline category to reduce interactions with bluefin tuna, and reducing dead discards in the pelagic longline fishery.
In May 2011, in response to a petition to list bluefin tuna as threatened or endangered under the Endangered Species Act (ESA), NOAA determined that listing bluefin tuna as threatened or endangered under the ESA was not warranted; however, bluefin tuna was designated as a species of concern. This placed the species on a watch list for concerns about its status and threats to the species. NOAA has committed to revisit this decision in 2013, or when more information is expected to be available about the effects of the Deepwater Horizon oil spill. The western Atlantic bluefin tuna stock was last assessed in 2012 by ICCAT's Standing Committee on Research and
In the final 2011 Quota Rule, NMFS stated “however, in light of the issues involving U.S. quotas and domestic allocations, pelagic longline discards, the need to account for dead discards that result from fishing with other gears, and bycatch reduction objectives, as well as public comment, NMFS intends to undertake a comprehensive review of bluefin tuna management in the near future to determine whether existing management measures need to be adjusted to meet the multiple goals for the bluefin tuna fisheries” (76 FR 39019; July 5, 2011).
NMFS began to address some of the quota accounting issues described above at the September 2011 meeting of the HMS Advisory Panel, by presenting a summary of some of the recent issues as well as a white paper on bluefin tuna bycatch in the fisheries. The HMS Advisory Panel discussed issues related to the Longline category, as well as issues in the bluefin tuna fisheries as a whole, and offered an array of suggested measures for NMFS's consideration as potential solutions. In preparation for the formal process of evaluating potential changes to the 2006 Consolidated HMS FMP, a preliminary version of a Scoping Document (“Preliminary White Paper”) was presented by NMFS to the HMS Advisory Panel meeting at its March 2012 meeting for its consideration as a scoping document to begin the process of reviewing the current management of bluefin tuna (NMFS, March 2012). The HMS Advisory Panel expressed qualified support for further exploring and analyzing the range of measures in the Preliminary White Paper, and suggested several additional measures. Those additional measures were incorporated into a final Scoping Document (NMFS, April 2012). NMFS made the scoping document available to the public, concurrent with the publication of a Notice of Intent (NOI) in the
On September 20, 2012, NMFS presented a Predraft document to the HMS Advisory Panel (NMFS, September 2012). A Predraft, which is a precursor to a DEIS, allows NMFS to obtain additional information and input from the HMS Advisory Panel and the public on potential alternatives prior to development of the formal DEIS and proposed rule. The Magnuson-Stevens Act requires NMFS to “consult with and consider the comments and views of affected Councils, commissioners and advisory groups appointed under Acts implementing relevant international fishery agreements pertaining to HMS (ACTA) and the HMS Advisory Panel in preparing and implementing any FMP or amendment.” As such, NMFS requested comments from the HMS Advisory Panel, and made the document available to the public through the HMS Web site.
NMFS identified the following objectives with regard to this proposed action: (1) Prevent overfishing and rebuild bluefin tuna, achieve on a continuing basis optimum yield, and minimize bluefin bycatch to the extent practicable by ensuring that domestic bluefin tuna fisheries continue to operate within the overall TAC set by ICCAT consistent with the existing rebuilding plan; (2) optimize the ability for all permit categories to harvest their full bluefin quota allocations, account for mortality associated with discarded bluefin in all categories, maintain flexibility of the regulations to account for the highly variable nature of the bluefin fisheries, and maintain fairness among permit/quota categories; (3) reduce dead discards of bluefin tuna and minimize reductions in target catch in both directed and incidental bluefin fisheries, to the extent practicable; (4) improve the scope and quality of catch data through enhanced reporting and monitoring to ensure that landings and dead discards do not exceed the quota and to improve accounting for all sources of fishing mortality; and (5) adjust other aspects of the 2006 Consolidated HMS FMP as necessary and appropriate. These objectives support the goal of continued sustainability of the Atlantic bluefin tuna stock consistent with the measures designed to end overfishing and rebuild the stock.
Amendment 7 also includes proposals for management of north Atlantic albacore (or “northern albacore”) tuna. Since 1998, ICCAT has adopted recommendations regarding the northern albacore tuna fishery. A multi-year management measure for northern albacore tuna was first adopted in 2003, setting the TAC at 34,500 mt. ICCAT's Standing Committee on Research and Statistics (SCRS) assessed the northern albacore tuna stock in 2009 and concluded that the stock continues to be overfished with overfishing occurring, recommending a level of catch of no more than 28,000 mt to meet ICCAT management objectives by 2020. In response, in 2009 ICCAT established a North Atlantic albacore tuna rebuilding program via Recommendation 09–05, setting a 28,000-mt TAC and including several provisions to limit catches by individual ICCAT parties (for major and minor harvesters) and reduce the
In 2011, ICCAT Recommendation 11–04 again set a TAC of 28,000 mt for 2012 and for 2013 and contained specific recommendations regarding the North Atlantic albacore tuna rebuilding program, including an annual TAC for 2012 and 2013 allocated among the European Union, Chinese Taipei, the United States, and Venezuela. The U.S. quota for 2012 and 2013 is 527 mt. The recommendation limits Japanese northern albacore tuna catches to 4 percent in weight of its total Atlantic bigeye tuna longline catch, and limits the catches of other ICCAT parties to 200 mt. The recommendation also specifies that quota adjustments for a given year's underharvest or overharvest may be made for either 2 or 3 years from the subject year (i.e., adjustments based on 2013 catches would be made in either 2015 or 2016). Pursuant to ATCA and the Magnuson-Stevens Act, NMFS would implement the ICCAT-recommended U.S. quota and establish provisions to adjust the base quota for over or underharvests via annual quota specifications.
The proposed measures reflect the Draft Amendment 7 objectives, the goal of continued sustainability of the Atlantic bluefin tuna stock consistent with the measures designed to end overfishing and rebuild the stock, public input from the prescoping and scoping phases, the predraft document and related comments, and subsequent analysis in the DEIS.
Draft Amendment 7 proposes a variety of management measures designed to balance achievement of its diverse objectives. The Amendment 7 DEIS contains a complete description and analysis of the range of alternatives analyzed. A description of the significant alternatives to the proposed measures is provided later in this preamble in the summary of the Initial Regulatory Flexibility Analysis (IRFA). A description of the proposed management measures follows:
This measure would increase the amount of quota allocated to the Longline category to fully and more predictably account for Longline category incidental bluefin tuna catch, including both dead discards and landings. Paired with other proposed measures to reduce and control Longline category interactions with bluefin tuna, NMFS proposes a limited, 62.5 mt quota increase that reflects the historic dead discard allowance the United States had in addition to its landings quota under past ICCAT Recommendation 98–07. Under that recommendation (no longer in effect), ICCAT set aside 79 mt of bluefin tuna quota for dead discards in addition to landings. The United States' share of that set-aside was 85.72 percent or 68 mt. The proposed codified reallocation would address the fact that when the current category allocation percentages were first established in 1999, dead discards were not considered in the allocation percentages but were accounted for by the separate 68 mt dead discard allowance then in effect. These percentages were carried over to the 2006 Consolidated HMS FMP without adjustment for the fact that the 1999 percentage allocations were originally intended to cover landings only. NMFS therefore proposes to annually redistribute a specific amount of quota in weight.
To implement the change, NMFS would calculate the bluefin quota for each of the quota categories through the following process: First, 68 mt would be subtracted from the baseline annual U.S. BFT quota for reallocation to the Longline category quota. Second, the remaining quota would be divided among the categories according to the allocation percentages codified at 50 CFR 635.27, and for the Longline category, the 68 mt (derived from all categories) would then be added to its quota.
Therefore, if the baseline annual U.S. quota was 923.7 mt, 32.0 mt would be deducted from the General category (i.e., 47.1 percent of 68 mt), 2.7 mt from the Harpoon category (3.9 percent), 12.6 mt from the Purse Seine category (18.6 percent), 5.5 mt from the Longline category (8.1 percent), 13.4 mt from the Angling category (19.7 percent), and 1.7 mt from the Reserve category (2.5 percent). This 68 mt would be allocated to the Longline category, resulting in a net increase to the Longline category of 62.5 mt (68 mt minus the Longline category's contribution of 5.5 mt).
This methodology would not modify the category quota allocation percentages themselves, because the amount of quota redistributed would not be equivalent to 68 mt if the total U.S. quota changed. The Longline category's percentage of the baseline U.S. bluefin tuna quota would remain at 8.1 percent, but each year the Longline category quota would be increased by 62.5 mt (based on deductions from the other quota categories).
NMFS would annually adjust the purse seine quota, based on the total catch (landings and dead discards) by purse seine vessels in the previous year. Any quota not allocated to the Purse Seine category would be allocated to the Reserve category for possible redistribution to other quota categories, or to support other objectives of the 2006 Consolidated HMS FMP, as amended.
Three thresholds would be defined to create four possible allocation scenarios for the Purse Seine category. The Purse Seine category would be allocated either 100%, 75%, 50%, or 25% of its allocated quota, according the following allocation criteria: If the purse seine catch is between 0 and 20% of the Purse Seine quota in year one, the Purse Seine category would be allocated 25% of the quota in year two, and 75% of the Purse Seine quota would be reallocated to the Reserve Category for that year. If the purse seine catch is greater than 20% and up to 45% of the Purse Seine quota in year one, the Purse Seine category would be allocated 50% of the quota in year two, and 50% of the Purse Seine quota would be reallocated to the Reserve Category for that year. If the purse seine catch is greater than 45% and up to 74% of the Purse Seine quota in year one, the Purse Seine category would be allocated 75% of the quota in year two, and 25% of the Purse Seine quota would be transferred to the Reserve Category for that year. If the purse seine catch is greater than 75% of the Purse Seine quota in year one, the Purse Seine category would be allocated 100% of the baseline quota in year two, and no quota would be transferred to the Reserve Category for that year. These thresholds would apply following the same pattern in years beyond year two, with each year's quota reflecting the previous year's catch. In summary, if Purse Seine vessels catch a large portion of their allocated quota in one year, they receive a large portion of their quota in the next year. If Purse Seine vessels' catch is low in one year, a larger portion of the Purse Seine quota becomes available for other management purposes. The Purse Seine quota would not be `locked-in' at a low level because the criteria are structured to enable increases in quota. For example, if the Purse Seine catch in year one is between 0 and 20% of the year one baseline Purse Seine quota, the Purse Seine category would be allocated 25% of their baseline quota in year two. If in year two the Purse Seine catch in year
This measure would balance the need to provide the Purse Seine category a reasonable amount of fishing opportunity in a predictable manner, while making use of quota that may otherwise be unused. Overall quota accounting in recent years has been facilitated by underharvests in the Purse Seine category. This measure would enhance certainty in the purse seine fishery, yet also provide a flexible means for strategic use of quota to address multiple objectives, including accounting for dead discards and optimizing fishing opportunity in other fisheries.
As described under “Modifications to the Reserve Category,” quota that is reallocated to the Reserve Category may be utilized in a variety of ways to meet multiple objectives. For example, using 2011 quota amounts: If, in year one the Purse Seine category catches 46% of its baseline quota (39.5 mt of 85.9 mt), then, in year two, the Purse Seine category would be allocated 50% of its baseline quota (43.0 mt). If, in year two, the Purse Seine category catches 19% of its baseline quota (16.3 mt of 85.9 mt), then, in year three, the Purse Seine category would be allocated 25% of its baseline quota (21.5 mt). NMFS would annually estimate the Purse Seine category catch for that year and publish a notice in the
This proposed measure would give NMFS management flexibility to augment the amount of quota in the Reserve category and add to the determination criteria NMFS considers in redistributing quota to or from the Reserve category. The potential sources of quota for the Reserve category on top of its baseline allocation of 2.5 percent would be the following: (1) Available underharvest of the U.S. quota that is allowed to be carried forward and (2) unused Purse Seine category quota, under the proposed codified reallocation measure described below. For example, under the proposed Annual Quota Reallocation, NMFS would estimate the amount of Purse Seine quota that had been caught during that year and adjust the Purse Seine allocation in the subsequent year (as a result). The remaining amount of Purse Seine quota would then be reallocated to the Reserve category for that subsequent year. NMFS could utilize quota from the Reserve category inseason after considering defined criteria and objectives. NMFS proposes to add five criteria to the existing nine criteria considered when making inseason or annual quota adjustments (See § 635.27(a)(8)). The current criteria NMFS considers are: (1) The usefulness of information obtained from catches in the particular category for biological sampling and monitoring of the status of the stock; (2) the catches of the particular category to date and the likelihood of closure of that segment of the fishery if no adjustment is made; (3) the projected ability of the vessels fishing under the particular category quota to harvest the additional amount of BFT before the end of the fishing year; (4) the estimated amounts by which quotas for other gear categories of the fishery might be exceeded; (5) effects of the adjustment on BFT rebuilding and overfishing; (6) effects of the adjustment on accomplishing the objectives of the FMP; (7) variations in seasonal distribution, abundance, or migration patterns of BFT; (8) effects of catch rates in one area precluding vessels in another area from having a reasonable opportunity to harvest a portion of the category's quota; and (9) review of dealer reports, daily landing trends, and the availability of the BFT on the fishing grounds. The additional five criteria would be: (10) optimize fishing opportunity; (11) account for dead discards; (12) facilitate quota accounting; (13) support other fishing monitoring programs through quota allocations and/or generation of revenue; and (14) support research through quota allocations and/or generation of revenue.
For example, Reserve quota could be transferred to the General category if pelagic longline vessels choose to fish under General category rules (see Allow Pelagic Longline Vessels to fish under General Category Rules), or bluefin tuna quota from the Reserve category could be used to augment other quota categories (optimize fishing opportunity and facilitate quota accounting).
These proposed modifications to the Reserve category would increase management flexibility in administering the quota system in a way that takes into account fluctuations in the characteristics of the fishery. Increased flexibility in use of the Reserve category quota would also complement other proposed measures in Draft Amendment 7 that constitute substantial modifications to the current quota system (e.g., the proposed Individual Bluefin Quota system, and Annual Reallocation). A more flexible quota system would be responsive to the current conditions in the fisheries, which are different from those that existed when the quota system was created, and facilitate adaptation to future changes in the fisheries.
This proposed management measure would define an area off Cape Hatteras, NC and would limit access to this area for vessels fishing with pelagic longline gear during the 5-month period from December through April. NMFS would make an annual determination whether vessels would be granted access to the area, based on a formula consisting of the following metrics: ratio of bluefin tuna interactions to designated species catch, compliance with the Pelagic Observer Program requirements, and compliance with HMS logbook reporting requirements. Vessels not qualifying to fish in the area with pelagic longline gear would be those vessels that have not demonstrated their ability to avoid bluefin tuna and/or comply with reporting and monitoring (observer) requirements. Non-qualifying vessels would be allowed to use other gear types authorized for use by pelagic longline vessels, such as buoy gear, green-stick gear, or rod and reel, in the area during the months of the restriction, but they could not fish with pelagic longline gear. Vessel performance would be evaluated annually in order to provide future fishing opportunities and to accommodate changes in fishing or reporting practices.
The principal objective of conditional access would be to balance the objective of reducing dead discards with the objective of providing reasonable fishing opportunity. The second objective would be to provide strong incentives to modify fishing behavior to avoid bluefin
The initial evaluation of performance metrics would be based upon data from 2006 through 2011, and subsequent scores would be based upon the most recent three-consecutive-year period. The three-consecutive-year period may not align precisely with calendar years if data through the end of a calendar year are not available at the time NMFS is making the determination. For example, data through the end of a year may not be available at the time NMFS is compiling such data. Vessels owners would be notified annually of the status of the relevant vessel, and only aggregate information regarding the vessel status would be made public. NMFS would have the authority to revise the conditions for access (via proposed and final rulemaking) in order to ensure that the performance metrics continue to support the objectives of the gear restricted area.
Vessels would be able to appeal their performance scores to NMFS by submitting a written request to appeal, indicating the reason for the appeal and providing supporting documentation for the appeal (e.g., copies of landings records and/or permit ownership, Pelagic Observer Program information, logbook data, etc.). The appeal would be evaluated based upon the following criteria: (1) The accuracy of NMFS records regarding the relevant information; and (2) correct assignment of historical data to the vessel owner/permit holder. The current owner of a permitted vessel may also appeal on the basis of changes in vessel ownership or permit transfers. Appeals based on hardship factors will not be considered.
NMFS would have the authority to terminate access for all pelagic longline vessels or individual pelagic longline vessels to the area via inseason action in order to address issues including: (1) Failure to achieve or effectively balance the objective of reducing dead discards with the objective of providing fishing opportunity; (2) bycatch of bluefin tuna or other HMS species that may be inconsistent with the objectives or regulations or the 2006 Consolidated HMS FMP, or ICCAT recommendations; or (3) bycatch of marine mammals or protected species that is inconsistent with the Marine Mammal Protection Act (MMPA), Pelagic Longline Take Reduction Plan (PLTRP), or the 2004 Biological Opinion (BiOP).
The performance metric formula would enable the majority of vessels to continue to fish in the Cape Hatteras Gear Restricted Area, yet would substantially reduce bluefin tuna dead discards by precluding fishing in the Area by those with a history of high bluefin tuna interaction in relation to other designated species catch. Specifically, NMFS would define three performance metrics to reflect three relevant aspects of vessel performance: (1) The ratio of bluefin tuna interactions to designated species catch; (2) compliance with observer requirements; and (3) compliance with logbook requirements. In order to characterize vessel performance in a manner that is fair, consistent, and feasible to administer, the proposed performance metric formula is based on relatively simple, objective, and quantifiable information. For each of the three performance metrics, a vessel would be scored on a scale of 1 to 5, with 5 reflecting better performance. Vessels with a ratio of bluefin tuna interactions to designated species catch of 1 would not be allowed to fish in the proposed Cape Hatteras Gear Restricted Area using pelagic longline gear. If a vessel's Pelagic Observer Program Compliance score is 2 or less, that vessel would not be allowed to access the area and fish with pelagic longline gear, unless the vessel's logbook compliance score is 4 or 5.
The performance metric formula would reflect bluefin tuna interactions as measured by the ratio of the number of bluefin tuna interactions (landings, dead discards, and live discards, in number of fish) to the weight of designated species landings (in pounds). These designated species would consist of the more common marketable catch harvested by pelagic longline vessels: swordfish; yellowfin, bigeye, albacore, and skipjack tunas; dolphin; wahoo; and porbeagle, shortfin mako, and thresher sharks. The use of a ratio incorporating both designated species landings and bluefin tuna interactions provides a metric that is intended to eliminate bias resulting from the differences among vessels in size or fishing effort.
The Pelagic Observer Program metric would reflect compliance with requirements regarding communications, and timing of communications with the Pelagic Observer Program once selected for observer coverage; requirements regarding observer safety and accommodation (e.g., USCG safety decal, life raft capacity and bunk space); and requirements regarding observer deployment. The scoring system is designed to be neutral with respect to valid reasons that a vessel was selected by the observer program but did not take an observer (e.g., no observer was available, or the vessel did not fish using pelagic longline gear (for a variety of reasons)). The scoring system is also designed to weigh trips that were not observed due to noncompliance with the communication requirements more heavily than those that were not observed due to noncompliance with the safety and accommodation requirements. The system is also designed to consider evidence of fishing activity that may have occurred without required communication or observer coverage.
The logbook reporting metric would reflect compliance with the requirement that the vessel owner/operator must submit the logbook forms postmarked within 7 days of offloading the catch, and, if no fishing occurred during a month, must submit a no-fishing form postmarked no later than 7 days after the end of that month.
This proposed measure would define an irregularly-shaped area in the Gulf of Mexico and would prohibit the use of pelagic longline gear during the 2-month period from April through May. Other gear types authorized for use by pelagic longline vessels such as buoy gear (see “Increased Flexibility to use Buoy Gear”), green-stick gear, or rod and reel would be allowed, provided the vessel abides by any rules/regulations that apply to those gear types. Based on past patterns of interaction between pelagic longline gear and bluefin tuna, the proposed Small Gulf of Mexico Gear Restricted Area represents a temporal and spatial combination likely to reduce dead discards but also maintain fishing opportunities for pelagic longline vessels. Because bluefin tuna in the Gulf of Mexico are comprised of large fish that may be sexually mature or spawning, reducing dead discards in the Gulf of Mexico may also enhance spawning potential and thus may enhance stock growth.
This proposed measure would allow vessels with an Atlantic Tunas Longline category permit that are not granted access to fish in the Cape Hatteras Gear Restricted Area using pelagic longline gear to fish under the rules/regulations
This proposed measure would allow vessels with an Atlantic Tunas Longline permit, Swordfish Incidental or Directed Limited Access permit, and/or a Shark Limited Access permit fishing with bottom or pelagic longline gear to transit areas that are closed or restricted to such gear, if they remove and stow the gangions, hooks, and buoys from the mainline and drum. No baited hooks would be allowed. The specific areas to which this transiting provision would apply would include those proposed in this rule (Gulf of Mexico Gear Restricted Area and Cape Hatteras Gear restricted area); the current pelagic longline closed areas (DeSoto Canyon, Florida East Coast, Charleston Bump, Northeastern U.S.); the current bottom longline closed areas (the Mid-Atlantic Shark Area; and the Caribbean closed areas). Current regulations do not allow fishermen to stow their longline gear and transit these areas. Instead, fishermen must go around the areas to remain in compliance with the regulations. This proposed measure would reduce the costs associated with indirect routes of travel (more time at sea, increased fuel consumption, etc.), and address the comments expressed by some fishermen that requiring vessels to steam around restricted areas has caused safety-at-sea concerns. Small closed areas such as the Madison-Swanson and Steamboat Lumps are not included because they are small enough to steam around with little associated costs/concerns.
This proposed measure would allow limited and conditional access to the following closed areas during the times they are in effect: Charleston Bump closed area (February through April), a portion of the East Florida Coast closed area (year-round), the DeSoto Canyon closed area (year-round), and the Northeastern U.S. closed area (June). The portion of the East Florida Coast closed area open to fishing would be north of 28°17′10″ N. lat., east of the 100 fathoms curve, approximately near Melbourne, FL. The area south of 28°17′10″ N. lat, and west of the 100 fathoms curve would remain closed to fishing due to south Florida's unique importance as a swordfish and tuna migratory corridor, and as juvenile swordfish habitat that is easily accessible to a large population center with many fishermen.
There would be two conditions for access to these areas. The first condition would be based upon the performance metrics and scoring system described above in the “Cape Hatteras Gear Restricted Area with Access.” As explained previously, NMFS would define three performance metrics to reflect three relevant aspects of vessel performance: (1) The ratio of bluefin tuna interactions to designated species catch; (2) compliance with observer requirements; and (3) compliance with logbook requirements. NMFS would make an annual determination whether vessels would have access to the pelagic longline closed areas, based on a relatively low rate of interactions with bluefin tuna in the recent past, and past compliance with specific reporting and monitoring requirements. Vessels not allowed to fish in the closed areas would be those vessels that have not demonstrated their ability to avoid bluefin tuna and/or comply with reporting and monitoring requirements.
The second condition would be a requirement that any trip into a closed area be observed. To implement the condition of having an observer onboard, current vessel selection procedures would be used to select vessels using the current strata (i.e., the procedures that select vessels to obtain observer coverage each calendar quarter, and in each of various geographic (statistical) areas). If selected, a vessel would be informed of the statistical area for which the vessel was selected, and the vessel would be allowed to fish within the relevant closed area provided it is within that particular statistical area. For example, if the vessel were selected to take an observer for the Mid-Atlantic Bight statistical area, the vessel would be able to fish in the Northeastern U.S. closed area in June as long as an observer is onboard. If the vessel were selected to take an observer for the Gulf of Mexico, the vessel would be able to fish in the DeSoto Canyon closed area during the quarter selected for observer coverage as long as an observer is on board.
Eligible vessels would be required to declare into the area via their VMS unit prior to leaving the dock, and report their catch daily through VMS. Specifically, vessels would be required to report through VMS the length of bluefin tuna retained and discarded. Vessels must submit a VMS catch report for each set with bluefin interactions within 12 hours of completion of the haul-back.
NMFS would have the authority to terminate access to each area inseason in order to address issues, including:
(1) Failure to achieve or effectively balance the objective of reducing discards with the objective of providing fishing opportunity; (2) bycatch of bluefin tuna or other HMS species that may be inconsistent with the objectives or regulations or the 2006 Consolidated HMS FMP, or ICCAT recommendations; or (3) bycatch of marine mammals or protected species that is inconsistent with the MMPA, PLTRP, or the 2004 BiOP.
When considering whether or not to terminate access to a closed area, NMFS would evaluate the following criteria and other relevant factors relating to the three issues listed above: (1) The usefulness of information on catch obtained from observers, logbooks, VMS reporting, and dealer reports; (2) the type of species caught, numbers caught, rate of catch, animal length, weight, condition, and location; (3) variations in the seasonal distribution, abundance, or migration patterns of a bycatch species or target species; (4) condition or status of the stock or species of concern and impacts of continued access to the closed area on all species; (5) catch data on comparable species from outside the closed area (both target species and bycatch); (6) implications on quota management of relevant stocks; (7) relevant data regarding the effectiveness of other closed areas and their individual or cumulative impacts in
In addition to the ability to terminate access to a closed area inseason, NMFS would be able to make an annual determination whether or not to allow access to these areas, based on the above criteria. NMFS would consider relevant data and publish a notice in the
The objective of this proposed measure is to provide additional fishing opportunities for pelagic longline vessels, mitigate the potential negative economic impacts of other draft Amendment 7 alternatives that are proposed, and provide fishery dependent data from within the closure areas. Fishery dependent data from within the closed areas may be utilized in the future as part of the information used to evaluate the effectiveness and/or impacts of closed areas as well as for stock assessments or other management measures. The total number of trips into closed areas would be limited by the level of observer coverage.
This proposed measure would close the pelagic longline fishery (i.e., prohibit the use of pelagic longline gear) when the total Longline category quota is reached, projected to be reached or exceeded, or, when there is high uncertainty regarding the estimated or documented levels of bluefin tuna catch. These steps would be taken in order to prevent overharvest of the Longline category quota and prevent further discards of bluefin tuna. When NMFS projects that the quota will be reached, it will file a closure action with the Office of the Federal Register for publication. Vessels would be required to offload all bluefin tuna prior to the closure date/time. Criteria for NMFS consideration would include those listed under § 635.27(a)(8) as well as: total estimated bluefin tuna catch (landings and dead discards) in relation to the quota; estimated amount by which the bluefin tuna quota might be exceeded; usefulness of data relevant to monitoring the quota; uncertainty in the documented or estimated dead discards or landings of bluefin tuna; amount of bluefin tuna landings or dead discards within a short time; effects of continued fishing on bluefin tuna rebuilding and overfishing; provision of reasonable opportunity for pelagic longline vessels to pursue the target species; variations in seasonal distribution, abundance or migration patterns of bluefin tuna; and other relevant factors.
Alternatively, NMFS could utilize a historical estimate for pelagic longline dead discards as a proxy for anticipated dead discards, and subtract an estimate of dead discards “off the top” of the quota. This would result in a substantially lower quota, which would be a landings quota and result in the closure of the fishery when the landings quota is attained.
The proposed IBQ management system is summarized and then described in detail below.
NMFS is proposing IBQs pursuant to section 303A of the MSA, which authorizes development of limited access privilege (LAPP) programs. A LAPP is a permit issued for a period of not more than 10 years, to harvest a quantity of fish expressed by a unit(s) representing a portion of the total allowable catch that may be received or held for exclusive use by a person. Section 303A(c) identifies the requirements for such a program (note that the referendum requirements of section 303A(c)(6)(D) are inapplicable to this program for the Atlantic HMS fisheries). This alternative would implement IBQs for vessels permitted in the Atlantic tunas Longline category (provided they also hold necessary limited access swordfish and shark permits) that would result in prohibiting the use of pelagic longline gear if/when the vessel's annual pelagic longline IBQ has been caught. The specific objectives of the IBQ program are to: (1) Limit the amount of bluefin tuna landings and dead discards in the pelagic longline fishery; (2) provide strong incentives for the vessel owner and operator to avoid bluefin tuna interactions, and thus reduce bluefin tuna dead discards; (3) provide flexibility in the quota system to enable pelagic longline vessels to obtain bluefin tuna quota from other vessels with available IBQ in order to enable full accounting for bluefin tuna landings and dead discards, and minimize constraints on fishing for target species; (4) balance the objective of limiting bluefin tuna landings and dead discards with the objective of optimizing fishing opportunities and maintaining profitability; and (5) balance the above objectives with potential impacts on the directed permit categories that target bluefin tuna, and the broader objectives of the 2006 Consolidated HMS FMP and the Magnuson-Stevens Act.
In order to achieve these objectives, NMFS is proposing a suite of management measures intended to work together, which would comprise the IBQ management system. These measures include the definition of important terms: a quota share is the percentage of the Longline category quota that is associated with a permitted vessel, based upon the quota share formula and the relevant vessel history, and a quota allocation is the amount (mt) of bluefin tuna quota that is associated with a permitted vessel, based upon the relevant quota share(s), and the annual Longline category quota. Active vessels would be eligible to receive a 1.0%, 0.54%, or 0.34% share of the Longline baseline quota, which would be used by the individual vessels to account for all their bluefin tuna landings and dead discards. Quota shares would be designated as either Gulf of Mexico or Atlantic, and vessels would be prohibited from using Atlantic shares to account for bluefin tuna catch in the Gulf of Mexico, thereby limiting potential shifts in effort. Quota allocation could be leased annually among Longline or Purse Seine category vessels, and a minimum amount of bluefin tuna quota would be required for a vessel to depart on a trip in the Atlantic (0.125 mt) using pelagic longline gear. A higher minimum amount of quota would be required for vessels fishing in the Gulf of Mexico (0.25 mt). If a vessel catches bluefin tuna in excess of its quota allocation, it would be required to lease additional quota allocation in order to account for the excess catch, and would not be allowed to fish with pelagic longline gear until the balance was accounted for. A vessel's quota allocation would not carry-over from one year to the next, but if a vessel is unable to satisfy its quota `debt' in a particular fishing year, quota would be deducted from the vessel's allocation during the subsequent year. Although temporary leasing of bluefin tuna quota allocation
NMFS would implement an internet-based system to track leases of quota allocation; VMS would be used to report bluefin tuna catches to increase the timeliness of dead discard data; and electronic monitoring (cameras) would be required on pelagic longline vessels as one element of the monitoring program. The measurement and accounting of bluefin weight and length in the IBQ management program would be in standardized units designated by NMFS (e.g., the minimum increment of weight for example, such as hundredths of a metric ton). The vessel owner would provide length information on all bluefin discarded dead or retained, and NMFS would derive weight information on the bluefin that are discarded dead through the use of length to weight conversions; or vessel operators would be required to submit weight information based upon a standardized length to weight conversion formula supplied by NMFS. The IBQ program would be evaluated after 3 years, and NMFS would develop a cost recovery program.
Vessels that made at least one set using pelagic longline gear between 2006 and 2011 (based on pelagic longline logbook data) would be defined as “active” and eligible to receive bluefin tuna quota shares. This range of 6 years provides a reasonable representation of historical fishing activity, including recent years. Six years is long enough to prevent short-term circumstances from disproportionately impacting a vessel, but not so long so that it does not reflect current fishery participation. One hundred and sixty one vessels would qualify as active under this definition. Vessels with valid Longline permits that do not meet the initial eligibility criteria (i.e., vessels that are not defined as “active”) would be able to obtain bluefin tuna quota allocation through a lease of quota allocation. Permits that are not associated with a vessel, such as a permit characterized as “No Vessel ID,” would not be eligible for an initial quota share but would be eligible to receive quota allocation (through a lease) if and when the permit was reassociated with a vessel. Such a vessel would need to lease quota allocation before fishing with pelagic longline gear. New entrants to the fishery would need to either obtain an Atlantic Tunas Longline permit with associated quota share, or if the valid permit did not have quota share, obtain bluefin tuna quota through lease/sale in order to fish.
A vessel's share of bluefin tuna quota would be based upon two elements: the amount of bluefin tuna catch between 2006 and 2011, and the amount of designated species landings (i.e., swordfish; yellowfin, bigeye, albacore, and skipjack tunas; dolphin; wahoo; and porbeagle, shortfin mako, and thresher sharks). The use of two factors in the quota share allocation formula is intended to reward past bluefin tuna avoidance, ensure a fair initial allocation, and take into consideration the diversity in vessel fishing patterns and harvest characteristics. Past fishing that resulted in minimal bluefin tuna interactions would result in larger future allocations of bluefin tuna. Landings of designated species are an indicator of both the level of fishing effort and activity as well as vessel success at targeting those species. This method of allocation incorporates the rate of historical bluefin tuna interactions but also includes the amount of designated species landings, recognizing that greater levels of fishing activity are likely to be correlated with a greater number of bluefin tuna interactions. NMFS developed the proposed quota shares as follows: the designated species landings were from NMFS's dealer data (weigh-out slips) and logbook information. Historical bluefin tuna catch (from vessel logbook data) was expressed as the ratio of the number of bluefin tuna interactions to `designated species' landings (ratio). Because the bluefin tuna interactions to designated species landings ratio is very small, landings were multiplied by 10,000 in order to derive a ratio that is more practical (i.e., 0.95 instead of 0.000095). In order to combine the two metrics, scores were assigned to each metric (the bluefin tuna catch to designated species landings ratio and historical designated species landings) as described below. Active vessels were sorted into three categories, using total designated species landings from 2006 through 2011, based on percentiles of landings from lowest to highest (low, medium, and high, 0 to < 33 percent; 33 to < 66 percent and 66 to 100 percent, respectively). Similarly, the active vessels were sorted according to the ratio of bluefin interactions to HMS landings, from lowest to highest. For example, a vessel with a 2006–2011 weight of designated species landings of greater than or equal to 367,609 lb (the 66 to 100th percentile of landings) would be placed in the “High” category and assigned a score of 3. In contrast, a vessel with a total designated species landing of only 95,000 pounds for 2006 through 2011 would receive a designated species landings score of 1. A vessel with a bluefin to designated species landings ratio of less than 0.2884 (66 to 100th percentile of bluefin to designated species landings ratios), would place in the top category and receive a bluefin to designated species landings ratio score of 3. A low ratio indicates relatively few bluefin interactions and therefore receives a high score.
Finally, the two scores were combined to form the basis of the allocation. For each vessel, the score for designated species landings was added to the score for bluefin to designated species ratio. For example, if a vessel scored in the “High” category for both designated species landings and bluefin to designated species landings its combined score would be 6 (3 + 3). If a vessel scored High for bluefin ratio, but Low for designated landings, it would be scored a 4 (1 + 3) and it would be placed in the Medium rating score category. Vessels assigned to a particular category would be allocated the same percentage share.
Vessels would be allocated shares of 1.0%, 0.54%, or 0.34% of the Longline category quota. Based on a revised baseline Longline category bluefin tuna quota of 137 mt (baseline plus 62.5 mt), vessels would be allocated 1.37 mt, 0.74 mt, or 0.47 mt of bluefin tuna, respectively. All pelagic longline quota shares and allocations would be designated as either “Gulf of Mexico” or “Atlantic” based upon the geographic location of sets (associated with the
If a vessel had fishing history in both the Gulf of Mexico and Atlantic, it may receive quota shares of both the Gulf of Mexico and Atlantic, depending upon the amount of quota share and the proportion of fishing history in the two areas. A relatively small percentage of sets in one area would not be reflected in the quota share. If a vessel would be allocated less than a minimum share amount for a particular area (i.e., less than 0.125 mt for the Atlantic or less than 0.25 mt for the Gulf of Mexico), the allocation would instead be designated as the other of the two designations. Owners of vessels with an active Atlantic Tunas Longline category permit will be sent registered letters informing them of their proposed bluefin quota share, in conjunction with this proposed rule.
NMFS is proposing procedural regulations at 15 CFR part 906 that would designate the NMFS National Appeals Office (NAO) as adjudicator of appeals arising under MSA section 303A (see 77 FR 33980; June 8, 2012). This action proposes that appeals of initial IBQ share determinations would be handled pursuant to that process when finalized. NMFS is currently developing the final NAO appeals regulations. Specifically, the items subject to appeal would be: (1) Initial eligibility for quota shares based on ownership of an active vessel with a valid Atlantic Tunas Longline permit combined with the required shark and swordfish limited access permits; (2) the accuracy of NMFS records regarding that vessel's amount of designated species landings and/or bluefin tuna interactions; and (3) correct assignment of designated species landings and bluefin tuna interactions to the vessel owner/permit holder. NMFS permit records would be the sole basis for determining permit transfers. As discussed above, quota share formula is based upon historical data associated with a permitted vessel. Because vessels may have changed ownership or transferred permits during the 2006 through 2011 period, the current owner of a permitted vessel may also appeal on the basis of changes in vessel ownership or permit transfers. Appeals based on landings data would be based on NMFS logbook data, weighout slips, and other relevant information. Appeals based on bluefin tuna interactions may be based on logbook, observer, or other NMFS data. Appeals based on hardship factors would not be considered. In order to appeal, the vessel owner would be required to submit a petition of appeal, including information and documentation required by the final NAO regulations.
This measure would allow Longline and Purse Seine category vessels to lease quota allocation to or from other vessels in these categories, so that allocations will become better aligned with catch (i.e., vessels that catch bluefin tuna may be able to obtain quota from those that do not interact with bluefin tuna, or have not used their full allocation of bluefin tuna). Leasing of quota allocations would be allowed among all Longline category vessels with valid limited access permits, regardless of whether they have been allocated their own quota share. If a vessel catches bluefin tuna using quota allocation that it has leased from another vessel, the fishing history associated with the catch of bluefin tuna would be associated with the vessel that catches the bluefin tuna (the lessee, not the lessor vessel). In other words, the lessee (vessel catching the fish) gets the `credit' for the landings and dead discards, and not the lessor (the vessel that leased the quota allocation to the catching vessel). The future catch of bluefin tuna would not affect the quota shares, but would affect the calculation of the performance metric of each vessel. Sub-leasing of quota would be allowed (i.e., quota leased from vessel A to vessel B, then to vessel C). For a particular calendar year, an individual lease transaction would be valid from the time of the lease until December 31.
There would be no limit on the amount of quota allocation an individual vessel (Longline or Purse Seine) could lease annually, except for the sum of the Longline and Purse Seine categories' collective allocations. This would provide flexibility for vessels to purchase quota in a manner that could accommodate various levels of unintended catch of bluefin tuna, and enable the development of an unrestricted quota market. There would likely be a cost for vessels affected by a restriction on leasing, yet the benefits of such a restriction are unknown, given that the leasing program does not currently exist. The risk associated with no limitation on the quota market is minimal due to the temporary nature of IBQ leases, and the fact that leases are voluntary agreements between the lessor and lessee. It is possible that a limit on quota leasing may be deemed necessary in the future to address fishery management objectives. Such a restriction would be developed through future proposed and final rulemaking. Because the duration of a temporary lease would be limited to a single year, the impacts on an unrestricted market for bluefin tuna quota would be limited in duration. Quota shares in the subsequent year would not be affected, and quota allocations would only be affected in the second year if a vessel had caught bluefin in excess of its allocation and was unable to lease additional quota to account for the bluefin (in which case the `quota debt' must be satisfied in the subsequent year). Information on this unrestricted market could be used to develop future restrictions if necessary.
This proposed rule does not include a measure that would allow the sale of quota shares thus no provisions are needed at this time to address excessive shares. NMFS would consider the development of measures to allow the sale of quota shares, as well as measures to prevent excessive consolidation in the future, after NMFS and fishery participants have multiple years of experience with the IBQ program. This approach would reduce risks for vessel owners during the initial stages of the IBQ program, when the market for bluefin tuna quota shares would be new and uncertain. During the first years of the IBQ program, price volatility may be reduced, as could undesirable outcomes of selling or buying quota shares at the “wrong” time or price. NMFS intends to consider a program to allow the sale of quota share in the future because it would provide a means for vessel owners to plan their business and manage their quota according to a longer time scale than a single year, in a manner that would be informed by
Quota allocation leases would be executed by the eligible vessel owners, or their representatives, through the internet and a NMFS database. For example, the two vessel owners involved in a quota allocation lease could log in to a password protected web-based computer system (i.e., a NMFS database) and execute the lease. Owner-performed leases would provide the quickest execution of leases because any eligibility criteria would be verified automatically based on information loaded into that system, and would not involve the submission or review of a paper application, or any lag time associated with NMFS staff being directly involved in the lease approval process. NMFS would develop the administrative system to implement the leasing of bluefin quota allocation.
This proposed measure would, if the IBQ system is adopted, eliminate the current target catch requirements for pelagic longline vessels, which restricts the number of incidentally caught bluefin tuna a pelagic longline vessel may retain in relation to the amount of target species retained and sold. In the context of an IBQ system, the current target catch requirement would no longer be necessary. This proposed measure would reduce bluefin tuna dead discards and optimize fishing opportunity for target species.
Specifically, this measure would eliminate the regulation that one large medium or giant bluefin tuna (73″ or greater) per vessel per trip may be landed, provided that at least 2,000 lb of species other than bluefin tuna are legally caught, retained, and offloaded from the same trip and are recorded on the dealer weighout slip as sold; two large medium or giant bluefin tuna may be landed incidentally to at least 6,000 lb of species other than bluefin tuna; and three large medium or giant bluefin tuna may be landed incidentally to at least 30,000 lb of species other than bluefin tuna.
This proposed measure would, if the IBQ system is adopted, require pelagic longline vessels to retain all legal-sized commercial bluefin tuna that are dead at haul-back, and is intended to function in conjunction with the IBQ system and elimination of the target catch requirements. The IBQ ensures that vessels will not target bluefin due to the scarcity of IBQ and costs associated with leasing additional IBQ or the inability to use PLL once IBQ is attained. Requiring the retention of all legal-sized commercial (i.e., 73″ or greater) dead bluefin tuna is intended to reduce dead discards and make it illegal to discard a legal-sized commercial bluefin tuna, if dead at haul-back. Because these fish would be required to be retained, regulatory discards and the waste of fish would be decreased, and it would be more likely that such fish are accurately accounted for and have a positive use (e.g., marketed, used for scientific information, etc.).
NMFS proposes to formally evaluate the success and performance of the IBQ program in achieving its objectives, after three years of operation and provide the HMS Advisory Panel with a publicly-available written document with its findings. NMFS would utilize its standardized economic performance indicators, developed by its Office of Science and Technology, as part of its review. For example, the standardized economic performance indicators would include catch and landings, effort, revenues, quota accumulation, and cost recovery. Other indicators would include the number of and distribution of bluefin tuna interactions.
Section 303A(e) of the Magnuson-Stevens Act provides NMFS with the authority for cost recovery for the costs of management, data collection and analysis, and enforcement activities for a LAPP. Such fees may not exceed 3 percent of the ex-vessel value of fish harvested under the LAPP. As explained above, NMFS proposes not to implement cost recovery until after the IBQ program evaluation (after 3 years). NMFS anticipates that the incremental costs of administering the IBQ program are likely to be low. However, the cost of administering a cost recovery program may be high relative to the amount of money recovered, because some active vessels have very high fishing activity whereas others have relatively low activity. A cost recovery program based on a bycatch species may have inherent limitations or challenges, given the underlying objective of reducing the catch of the bycatch species. Immediate implementation of a cost recovery program, without obtaining further information about the operation of the fishery with IBQs, would be very difficult and would increase costs and uncertainty for fishing vessels during a time period when the fishery would be bearing other new costs and sources of uncertainty. For the above reasons, NMFS proposes not implementing cost recovery until after it conducts the program evaluation.
This alternative would require vessels with an Atlantic Tunas Purse Seine category permit to have an Enhanced Mobile Transmitting Unit (E–MTU) VMS unit installed by a qualified marine electrician in order to remain eligible for the Purse Seine category permit. This alternative would require vessels that intend to fish for Atlantic tunas with purse seine gear or pelagic longline gear to declare through E–MTU VMS their intent to fish with such gear, prior to departing on trip (“hail out”). This alternative would require vessels fishing with pelagic longline gear to report the number of hooks and sets within 12 hours of completion of all pelagic longline haul-backs; and for pelagic longline sets with bluefin tuna interactions to report the length of all bluefin tuna retained or discarded within 12 hours of completion of the pelagic longline haul-back (i.e., reporting of zero bluefin on a set is not required). This alternative would require vessels fishing for Atlantic tunas with Purse Seine gear to report, for each day on which Purse Seine gear is set, the number of sets within 12 hours of the last set; and for Purse Seine sets with bluefin tuna interactions to report the length of all bluefin discarded dead or retained within 12 hours of completion of the set (i.e., reporting of zero bluefin on a set is not required). This measure would support the inseason monitoring of the purse seine and pelagic longline fisheries. Current information on the catch of the purse seine fishery is limited to dealer data on sold fish, and does not include information on discarded bluefin tuna or other species caught and/or discarded, although periodic observer coverage supports the conclusion that catches and discards of bluefin tuna or other species is low. The IBQ program requires the ability to track quota shares and quota allocations, reconcile landings and dead discards against individual quota allocations, and then balance the amounts against the total allowable quota. Although the current pelagic longline reporting requirements and the observer program provide data on pelagic longline landings and discards, and enables inseason monitoring and management based
This measure would require all vessels issued an Atlantic Tunas Longline permit fishing with pelagic longline gear, to install and maintain video cameras and associated data recording and monitoring equipment in order to record all longline catch and relevant data regarding pelagic longline gear retrieval and deployment. The objective of this alternative is for NMFS to use the recorded data to verify the accuracy of counts and identification of bluefin tuna reported by the vessel owner/operator, as well as observers. Secondly, electronic monitoring would enable the collection of video image and fishing effort data that may be used in conjunction with other sources of information to estimate bluefin tuna dead discards. Lastly, electronic monitoring would augment the ability of an observer to fulfill their duties by providing a record of catch during the time periods the observer may be unable to observe the catch directly.
Specifically, this alternative would require the installation of equipment that may include one to four video cameras, a recording device, video monitor, hydraulic pressure transducer, winch rotation sensor, system control box, or other equipment needed to achieve the objectives. Vessel owner/operators would be required to install and maintain the required equipment, and allow inspection of the equipment by NMFS. There would be a requirement to install the camera(s) to provide a view of the area where the longline gear is retrieved and catch is removed from the hook (prior to placing in the hold or discarding boatside) and a requirement that such a system be connected to the mechanical hauling device so that recording is initiated by gear retrieval. The vessel owner/operator would be required to submit the data to NMFS or a third party, and to store and make the data available to NMFS for at least 120 days from the conclusion of the fishing trip on which the data was recorded. The vessel operator would be responsible for ensuring that all bluefin tuna are handled in a manner that enables the electronic monitoring system to record such fish, and must identify a crew person or employee responsible for ensuring that all handling, retention, and sorting of bluefin tuna occurs in accordance with the regulations.
The requirements associated with this alternative would be phased in over a year due to the complexity, costs, and logistical constraints associated with the implementation of an electronic monitoring program. NMFS would communicate instructional information in writing, via permit holder letters, to the vessel owners during all phases of the program to provide direction and assistance to vessel owners, and facilitate the provision of technical assistance.
NMFS solicits public comment on its approach to use of extrapolated observer data for management purposes. Specifically, in order to conduct inseason quota monitoring and to estimate total bluefin tuna dead discards and landings, NMFS may extrapolate observer-generated data (in-season) regarding bluefin tuna discards (rate, number, location, etc.) by pelagic longline vessels, based on reasonable statistical methods and available observer data. NMFS could then use this observer information in conjunction with or in place of vessel-generated estimates of bluefin tuna discards, or electronic monitoring data, in order to develop inseason estimates of total bluefin tuna landings and dead discards. This approach would address the potential for uncertain dead discard data from the pelagic longline fleet that may result from challenges in the implementation of new regulations, technical problems relating to the reporting and monitoring system, or time lags in the availability of data.
This proposed measure would require Atlantic Tunas General, Harpoon, and HMS Charter/Headboat categories to report the length of all bluefin tuna retained or dead discards through an automated catch reporting system (for example, via either a web-based, or an interactive voice response telephone system) within 24 hours of the landings or end of each trip. Specifically, vessels would be required to report the number of bluefin tuna retained, and the number of bluefin tuna discarded dead, according to instructions that would be provided by NMFS. NMFS currently operates a similar automated landings reporting system (ALRS) for recreational bluefin tuna catch in the HMS Angling and Charter/Headboat category (when fishing recreationally). Although information on commercial bluefin tuna landings as currently reported by dealers is sufficient for NMFS to monitor the landings (which count toward the relevant sub-quotas), NMFS does not obtain information on bluefin tuna that may be discarded as a result of the capture of fish that are released (either because the fish is less than the required minimum size or for another reason) from all categories. Such discard information would enhance NMFS's ability to more fully and accurately account for all sources of fishing mortality, consistent with ICCAT recommendations. Automated catch information from the diverse participants in the bluefin tuna and HMS fisheries would enhance management of all HMS fisheries. Automated catch reporting would enable NMFS to obtain information about the magnitude of discards. NMFS would be able to share such information, in aggregate, with the bluefin tuna fisheries participants with the objective of reducing regulatory discards. Information on discarding would enable NMFS to consider a wider range of information when making decisions regarding quota management and bluefin tuna management in general. Verification of data through observer coverage of these fisheries would augment the value of this data.
This proposed measure would allow NMFS to proactively transfer General category quota from one or more of the time-periods that follow the January time-period to the January or other preceding sub-quota time periods, either during annual specifications or through inseason action. In other words, under this alternative, NMFS could transfer subquota from one time period to another time period, earlier in the same calendar year. For example, subquota could be transferred from the June 1 through August 31 time period to the January time period, or from the October 1 through November 30 time period to the September time period.
The objective of this alternative is to optimize opportunities for fishery participants, while retaining the current historical structure of the General category quota system. NMFS would add a new objective called “quota adjustment” to the current list of criteria and relevant factors NMFS considers when making inseason or annual quota adjustments.
This proposed measure would authorize NMFS to increase or decrease
The default Harpoon category daily retention limit of large medium bluefin tuna would be two fish per vessel (the large medium bluefin tuna daily retention limit that applied prior to the 2011 regulatory change). The retention limit of giant bluefin tuna would remain unlimited. The objective of this proposed measure is to optimize fishing opportunity for the Harpoon category participants within the available quota. NMFS currently cannot adjust this retention limit via inseason action. In contrast, for the General category, NMFS can increase or decrease the daily retention limit for large medium or giant bluefin tuna within a specified range, via inseason action, following consideration of the regulatory determination criteria. This alternative would enhance NMFS's ability to more precisely manage the landing rate of large medium bluefin tuna by the Harpoon category, thereby optimizing opportunities while preventing landings from exceeding the subquota. It would be appropriate that the determination criteria for inseason adjustments would be the same as for the General category because they are both commercial categories, with similar regulatory and fishery conditions.
This proposed measure would allocate a portion of the trophy south subquota specifically for the Gulf of Mexico. The trophy subquota would be divided as follows: 33% to each of the northern area, the southern area outside the Gulf of Mexico, and the Gulf of Mexico. At the current average trophy fish weight, this would allow up to 8 trophy bluefin tuna to be landed annually in each of the three areas. To distinguish bluefin tuna caught in the Gulf of Mexico from those caught in the Atlantic, the Gulf of Mexico region includes all waters of the U.S. EEZ west and north of the boundary stipulated at § 600.105(c), which is essentially west of 83°00′ West longitude but also includes the waters off southwestern Florida and north of the Florida Keys.
The objective of this measure is to provide a reasonable fishing opportunity for recreational vessels in the Atlantic and Gulf of Mexico, reduce discards, and account for incidentally caught bluefin tuna. A separate subquota allocation for the Gulf of Mexico would increase the likelihood that there will be trophy quota available to account for incidental catch of bluefin tuna in that area (while still providing incentives not to target bluefin tuna).
This proposed measure would change the start date of the Purse Seine category fishery from July 15 to June 1, and provide NMFS the ability to delay the season start date from June 1 to no later than August 15, by publishing a notice in the
This proposed measure would allow a vessel owner to modify the category of an Atlantic Tunas or HMS permit issued for up to 45 days from date of issuance, provided the vessel has not landed bluefin tuna as verified via landings data. The current restriction (10 calendar days) was intended to preclude vessels from fishing in more than one category during a year and to discourage speculative use of fishing permits. However, based on feedback NMFS has received over a number of years from vessel owners affected by the 10 day restriction, NMFS has concluded that limiting the time period during which a vessel may change permit categories to 10 calendar days is overly restrictive, and does not allow the flexibility to resolve the problems of a permit issued by mistake. This proposed measure would achieve a better balance of allowing flexibility for vessel owners, while still preventing fishing in more than one permit category during a fishing year.
This proposed measure would implement the U.S. annual quota of northern albacore tuna recommended by ICCAT and would establish provisions for the accounting of overharvest and underharvest of the quota via annual specifications. Specifically, the codified U.S. northern albacore tuna quota would be adjusted as appropriate for prior year catch (up or down), including delayed adjustment (that would skip a year) or adjustments over several years. Consistent with the ICCAT recommendation, carry-forward of unused quota from one year to the next would be limited to 25 percent of the initial quota. NMFS would adjust and implement the following via regulatory framework adjustments: Actions to implement ICCAT recommendations, as appropriate; allocating and refining domestic allocation of the U.S. quota; establishing retention limits; implementing effort restrictions, etc. Although an FMP amendment is not needed, framework adjustments still go through extensive public and analytical review and must be consistent with the MSA and other applicable law.
Amendment 7 proposes minor regulatory changes (such as minor corrections and clarifications; the removal or modification of obsolete cross-references; and minor changes to definitions and prohibitions) that would improve the administration and enforcement of HMS regulations. Several of these items have been identified by constituents over the past few years or were raised during scoping hearings. The corrections, clarifications, changes in definitions, and modifications to remove obsolete cross-references are consistent with the intent
Comments on this proposed rule may be submitted via
The NMFS Assistant Administrator has determined that the proposed rule is consistent with the 2006 Consolidated HMS FMP, the Magnuson-Stevens Act, ATCA, and other applicable law, subject to further consideration after public comment.
NMFS prepared a draft environmental impact statement that analyzes the impact on the environment of a range of alternatives that would achieve the objectives of Amendment 7, which are described in the background section of the preamble for this action. As further explained in the Background, in this action, NMFS is proposing measures and minimize bycatch to the extent practicable; optimize fishing opportunity and account for dead discards; reduce bluefin tuna dead discards; enhance reporting; and adjust other aspects of the 2006 Consolidated HMS FMP as necessary and appropriate.
This proposed rule has been determined to be not significant for purposes of Executive Order 12866.
An initial regulatory flexibility analysis (IRFA) was prepared, as required by section 603 of the Regulatory Flexibility Act (RFA). The IRFA describes the economic impact this proposed rule, if adopted, would have on small entities. A description of the action, why it is being considered, and the legal basis for this action are contained at the beginning of this section in the preamble and in the
This proposed rule is expected to directly affect commercial and for-hire fishing vessels that possess an Atlantic Tunas permit or Atlantic HMS Charter/Headboat permit. In general, the HMS Charter/Headboat category permit holders can be regarded as small businesses, while HMS Angling category permit holders are typically obtained by individuals who are not considered small entities for purposes of the RFA. The Small Business Administration (SBA) has established size criteria for all major industry sectors in the United States, including fish harvesters. Previously, a business involved in fish harvesting was classified as a small business if it is independently owned and operated, is not dominant in its field of operation (including its affiliates), and has combined annual receipts not in excess of $4.0 million (NAICS code 114111, finfish fishing) for all its affiliated operations worldwide. In addition, SBA has defined a small charter/party boat entity (NAICS code 713990, recreational industries) as one with average annual receipts of less than $7.0 million. On June 20, 2013, SBA issued a final rule revising the small business size standards for several industries effective July 22, 2013 (78 Fed.Reg. 37398; June 20, 2013). The rule increased the size standard for Finfish Fishing from $4.0 to 19.0 million, Shellfish Fishing from $4.0 to 5.0 million, and Other Marine Fishing from $4.0 to 7.0 million. Id. at 37400 (Table 1).
NMFS has reviewed the analyses prepared for this action in light of the new size standards. Under the former, lower size standards, all entities subject to this action were considered small entities, thus they all would continue to be considered small under the new standards. NMFS does not believe that the new size standards affect analyses prepared for this action and solicits public comment on the analyses in light of the new size standards. The average annual revenue per active pelagic longline vessel is estimated to be $181,000 based on the 161 active vessels between 2006 and 2011 that produced an estimated $29.2 million in revenue annually. The maximum annual revenue for any pelagic longline vessel during that time period was less than $1.4 million, well below the former SBA size threshold of $4.0 million. Therefore, NMFS considers all Tuna Longline category permit holders to be small entities. NMFS is unaware of any other Atlantic Tunas category permit holders that potentially earn more than $4.0 million in revenue annually. Therefore, NMFS considers all Atlantic Tunas permit holders subject to this rulemaking to be considered small entities. NMFS is also unaware of any charter/headboat businesses that could exceed the SBA thresholds for small entities.
The proposed rule would apply to the 4,361 Atlantic Tunas permit holders based on an analysis of permit holders in October 2012 (NMFS 2012). Of these permit holders, 253 have Longline category permits, 13 have Harpoon category permits, 8 have Trap category permits, 3 have Purse Seine category permits, and 4,084 have General category permits.
The recreational and reporting measures would also impact HMS Angling category and HMS Charter/Headboat category permit holders. In 2012, 4,129 vessel owners obtained HMS Charter/Headboat category permits. It is unknown what portion of these permit holders actively participate in Atlantic HMS fishing or market fishing services for recreational anglers. NMFS has determined that the proposed rule would not likely directly affect any small government jurisdictions.
Several of the proposed measures would modify existing reporting and record-keeping requirements, and add compliance requirements. NMFS estimates that the number small entities that would be subject to these requirements would include the Longline category (253), Charter/Headboat category (4,129), General category (4,084), Harpoon category (13) and Purse Seine category (3), based on the number of permit holders in commercial bluefin tuna fishing categories in 2012.
The proposed Cape Hatteras Gear Restricted Area with Access, and Access
Pelagic longline vessels that are not granted conditional access to the Cape Hatteras Gear Restricted Area could choose to fish in the area with other authorized gear under General category rules, and would be required to declare their intent to fish in this way, hail in and out of port, and report their daily catch of bluefin tuna via E–MTU VMS. This reporting burden is expected to be approximately 5 minutes per report at a cost of $0.12 per report.
Potential appeal requests regarding the performance metrics or quota shares are expected to take approximately 2 hours to compile.
Under the proposed IBQ system, leasing of quota allocation would require vessel owners to execute transfers via an online electronic system supported by NMFS. Participants would be required to have access to computers and the Internet. If a participant does not have current access to computers and the Internet, there would be a one-time cost of approximately $1,500 for computer equipment and a $300 annual cost for Internet access. The record-keeping and reporting burden for vessel owners is expected to be approximately 15 minutes per lease. The electronic system would also require interaction with Federal bluefin tuna dealer permit holders that purchase IBQ bluefin tuna; however, electronic dealer reporting for bluefin tuna purchases was previously analyzed and approved by NMFS in the 2006 Consolidated HMS FMP rulemaking (71 FR 58058, October 2, 2006).
Electronic monitoring (i.e., video cameras, etc.) would require both fixed and variable costs over the service life of each camera installed onboard. The cost of an electronic system bought in 2010, over its five year projected lifespan, is about $3,565 a year. This includes 4% of the purchase price for maintenance costs and a 7% interest rate on the loan to buy a system (National Observer Program, 2013). The variable costs for vessel owners include data retrieval ($45/hour; 2 hr per trip; technician travel ($0.5/mile; 100 miles for each trip); fishing activity interpretation ($47/hour; 0.25 hr/trip); and catch data interpretation ($47/hour; 1.5 hr/trip). The estimated total variable costs would be approximately $225 per trip and the annual fixed costs would be $3,835 for the purchase and installation of the equipment, and six services per year; $45/hour; 1 hr six times per year). The proposed reporting requirements associated with the IBQ program would require pelagic longline vessels to use their E–MTU VMS to submit reports of bluefin tuna catch and harvest and fishing effort. Purse seine vessels would be required to purchase and install E–MTU VMS units, and submit daily reports of catch, and effort as well. This alternative would provide more timely data as required by the IBQ system than the current pelagic longline logbook program and dealer reporting requirements. As noted above, the additional reporting burden for the VMS reports is 5 minutes per report/day and $0.12 per report. The cost of installing E–MTU VMS is $3,300 per vessel and daily position reports cost approximately $1.44 per day.
The proposed mandatory retention of legal-sized bluefin tuna caught by pelagic longline gear, as well as NMFS's closure of the pelagic longline fishery when the quota is reached, would not have any additional reporting associated with them. The proposed elimination of the target catch requirement would represent a decrease in regulatory compliance requirements.
The proposed Formal IBQ Program Evaluation would require NMFS to prepare a report summarizing and evaluating the experiences of the program 3 years after IBQ program implementation.
Several of the proposed measures would enhance reporting of bluefin tuna. Three of these include the VMS requirements and electronic monitoring of the Longline category that were discussed above. The last is the proposed measure to require automated catch reporting for General, Harpoon, and Charter/Headboat permit categories. This would require individuals with those vessel permits to report their dead discards after each trip using an automated system such as a Web site or phone recording system. NMFS estimates that each report will take approximately 5 minutes. Based on previous years' landings, NMFS estimates that the total annual reporting burden will be approximately 607 hours and could affect approximately 8,226 permit holders.
The other proposed measures described above in this preamble would change quota allocations, timeframes for General category subquota allocations, permit category changes, and Purse seine start date, authorized gear types, and other management measures, but would not increase reporting or compliance requirements.
Fishermen, dealers, and managers in these fisheries must comply with a number of international agreements, domestic laws, and other FMPs. These include, but are not limited to, the Magnuson-Stevens Act, ATCA, the High Seas Fishing Compliance Act, the Marine Mammal Protection Act, the Endangered Species Act, the National Environmental Policy Act, the Paperwork Reduction Act, and the Coastal Zone Management Act. The proposed rule would not conflict with any relevant regulations, Federal or otherwise.
One of the requirements of an IRFA is to describe any alternatives to the proposed rule which accomplish the stated objectives and which minimize any significant economic impacts. These impacts are discussed below. Additionally, the Regulatory Flexibility Act (5 U.S.C. 603(c)(1)–(4)) lists four general categories of “significant” alternatives that would assist an agency in the development of significant alternatives. These categories of alternatives are: “Establishment of differing compliance or reporting requirements or timetables that take into account the resources available to small entities”; “Clarification, consolidation, or simplification of compliance and reporting requirements under the rule for such small entities”; “Use of performance rather than design standards”; and, “Exemptions from coverage of the rule for small entities.”
In order to meet the objectives of this proposed rule, consistent with the Magnuson-Stevens Act and the Endangered Species Act, NMFS cannot exempt small entities or change the reporting requirements only for small entities because all the entities affected are considered small entities. Thus, there are no alternatives discussed that fall under the first and fourth categories described above. Under the third
In this rulemaking, NMFS considered five different categories of issues to address bluefin tuna management measures where each issue had its own range of alternatives that would meet the objectives of the Magnuson-Stevens Act and the 2006 Consolidated HMS FMP. The first category, allocation alternatives, covers four main alternatives that address various quota reallocation strategies. The second category of alternatives, area based alternatives, explores various gear restricted areas, gear measures, and access to closed areas using pelagic longline gear. The third category of alternatives, bluefin tuna quota controls, covers four main alternatives, which include IBQs, regional and group quotas, and closure of the pelagic longline fishery. The fourth category of alternatives, enhanced reporting measures, covers six main alternatives, which include VMS requirements, electronic monitoring of the Longline category, automated catch reporting, deployment of observers, logbook requirements, and expanding the scope of the Large Pelagics Survey. The fifth category of alternatives, other measures, covers seven main alternatives that address other Tunas permit categories besides Longline and other tuna quotas. The expected economic impacts of the different alternatives considered and analyzed are discussed below.
The potential impacts that these alternatives may have on small entities have been analyzed and are discussed in the following sections. The economic impacts that would occur under these preferred alternatives were compared with the other alternatives to determine if economic impacts to small entities could be minimized while still accomplishing the stated objectives of this rule.
The allocation alternatives would modify the current base allocations for bluefin tuna quota categories (i.e., percentages of the U.S. quota), either by codifying them or adjusting them on an annual basis. The No Action alternative would make no changes to the current percentages that each quota category is allocated (General: 47.1 percent; Harpoon: 3.9 percent; Purse Seine: 18.6 percent; Longline: 8.1 percent; Trap: 0.1 percent; Angling: 19.7 percent; Reserve: 2.5 percent). Dead discards would continue to be accounted for separately from the quota allocations through the annual specification process.
In the short-term, minor to moderate direct adverse economic impacts are likely to be limited to the Longline category due to quota shortages. In 2012, NMFS projected that the Longline category was likely to fully harvest their allocated quota before the end of the fishing year, and closed the southern area on May 29, 2012 (77 FR 31546) and the northern area on June 30, 2012 (77 FR 38011, June 26, 2012). In 2013, the Longline category northern and southern areas were closed on June 25, 2013 (78 FR 36685; June 19, 2013) because the adjusted quota had been reached. In the long-term, there could be additional minor to moderate direct adverse economic impacts if other quota categories are closed early in the fishing year.
The codified reallocation alternatives would reallocate quota among categories and result in increased bluefin tuna quota for the Longline category, and would therefore alleviate some of the current challenges associated with the domestic quota system.
The proposed reallocation of 62.5 mt is based on the historical dead discard allowance and would result in 83.56% increase in the Longline category quota and a decrease of a bit over 7% for the following categories: General, Harpoon, Purse Seine, Angling, and Reserve. This measure would increase the potential revenue from bluefin tuna for the Longline category by approximately $11,263 per permit holder per year, if all of the quota were landed (and not used to account for dead discards). The General category would face a potential reduction in the maximum revenue from bluefin tuna of approximately $896 per permit holder per year. The Harpoon category would face a potential reduction in the maximum revenue from bluefin tuna of approximately $2,355 per permit holder per year. The Purse Seine category could face a potential reduction in the maximum revenue from bluefin tuna of approximately $105,275 per permit holder per year. Although on its fact, the magnitude of revenue loss appears to be high for the Purse Seine category, this alternative would likely have minor adverse economic impacts on Purse Seine fishermen because landings in this category been very low for a number of recent years.
Reallocating the quota allocations for all categories based on recent catch data would result in an 83.56% increase in the Longline category quota and an increase in Angling category of 47.1%. However, this reallocation alternative would result in a decrease in the quotas of the General, Harpoon, Purse Seine, Trap, and Reserve categories of 10.85%, 15.56%, 49.01%, 55.56%, and 48.05%, respectively. This alternative would increase the potential revenue from bluefin tuna for the Longline category by approximately $11,299 per permit holder per year. The General category could face a potential reduction in the maximum revenue from bluefin tuna of approximately $1,321 per permit holder per year. The Harpoon category could face a potential reduction in the maximum revenue from bluefin tuna of approximately $4,886 per permit holder per year. The Purse Seine category could face a potential reduction in the maximum revenue from bluefin tuna of approximately $697,965 per permit holder per year.
The alternative that would reallocate two-fifths of the Purse Seine category to the Longline category and would result in a 91.84% increase in the Longline category quota and a 39.99% decrease in the Purse Seine quota. The reallocation of two-fifths of the Purse Seine category to the Longline category would increase the potential revenue from bluefin tuna for the Longline category by approximately $12,380 per permit holder per year. The Purse Seine category could face a potential reduction in the maximum revenue from bluefin tuna of an equivalent $569,480 per permit holder per year. The other bluefin tuna quota categories would not be impacted by this alternative.
This rule would reallocate the Purse Seine category bluefin tuna quota that is projected to be unused (based on the previous year's landings and dead discards), from the Purse Seine category to other quota categories, including the Reserve category, on an annual basis. In recent years, little of the Purse Seine category quota has been landed. If that continues into the future, under this proposed measure, the Purse Seine quota could be reduced by up to a maximum of 75 percent. The 128.8 mt associated with that reduction would reduce the maximum revenue from bluefin tuna that the purse seine vessel could land by $700,000 annually. However, given the recent bluefin tuna landings history of the purse seine fleet, it is unlikely that future bluefin tuna landings would be constrained
The economic impacts of the alternative, which would allocate annual quota to the Purse Seine category commensurate with the number of permitted Purse Seine vessels would be similar to those under proposed annual reallocation alternative. It also would likely only result in minor direct adverse short-term economic impacts resulting from the loss of potential revenue if current bluefin tuna fishing levels remain the same.
Under the No Action alternative, there would be no changes to the allocation to the Reserve category or the determination criteria that are considered prior to making any adjustments to/from this category. This alternative would not impact small entities. The proposed measure would increase the amount of quota that may be put into the Reserve category and increase the potential uses of Reserve category quota. Specifically, it would potentially increase the Reserve category quota beyond the current baseline allocation of 2.5 percent and broaden the determination criteria considered in making adjustments to/from the Reserve category. This proposed measure would result in moderate beneficial economic impacts if unused quota from a previous year could be reallocated to the Reserve category to potentially offset any overharvests in another category, consistent with ICCAT recommendations on carry-forward of unharvested quota.
NMFS considered a range of gear restricted area alternatives from maintaining existing pelagic longline closures (the no action alternative) to a year-round gear restricted area of the entire Gulf of Mexico EEZ (west of 82º longitude) in order to reduce interactions with bluefin tuna. The No Action Alternative would result in the status quo regarding gear restricted areas. Although the current pelagic longline closed areas would remain effective, the data indicate that large numbers of interactions of pelagic longline gear with bluefin tuna occur in consistent areas during predictable time periods, which are outside of the current closed areas. The No Action alternative would not reduce dead discards. The magnitude of the discards in the pelagic longline fishery is more likely to stay the same or increase under the No Action alternative, without implementation of a new gear restricted area. This could result in moderate long-term adverse economic impacts when the Longline category exceeds its quota earlier in the fishing year because of dead discards and is required to close.
The Cape Hatteras Gear Restricted Area alternative would define a modified rectangular area in the Atlantic and would prohibit the use of pelagic longline gear during a 5-month period from December through April. The specific time and area of this gear restricted area alternative would have moderate short and long-term direct adverse economic impacts on 43 vessels that have historically fished in the Cape Hatteras Gear Restricted Area during the months of December through April. The average annual revenue per vessel made in the gear restricted area is approximately $27,400 during the restricted months assuming that fishing effort does not move to other areas. However, it is likely that some of the vessels that would be impacted by this gear restricted area would be able to redistribute their effort to other fishing areas. NMFS estimated that if a vessel historically made less than 40% of their sets in the gear restricted area, it would likely redistribute all of its effort. If a vessel made more than 40%, but less than 75% of its sets in the gear restricted area, it would likely redistribute 50% of its effort impacted by the gear restricted area to other areas. Finally, if a vessel made more than 75% of its sets solely within the gear restricted area, NMFS assumed it would not likely shift its effort to other areas. Based on these redistribution assumptions, the net impact of the Cape Hatteras Gear Restricted Area on fishing revenues after redistribution of effort is estimated to be $18,000 per year.
In contrast, the proposed measure (Cape Hatteras Gear Restricted Area with Access) would restrict fishing in the same area off Cape Hatteras, NC as just described, but would also define criteria for access by HMS permitted vessels fishing with pelagic longline gear during the 5-month period from December through April. Vessels that are determined by NMFS to have relatively low rate of interactions with bluefin tuna based on past performance, and that are compliant with reporting and monitoring requirements, would be allowed to fish in the area using pelagic longline gear. Vessels that have demonstrated an inability to avoid bluefin tuna would not be allowed to fish with pelagic longline gear in this area; or if a vessel can avoid bluefin tuna, but has poor compliance with logbook reporting and Pelagic Observer Program observer requirements, it would not be allowed to fish with pelagic longline gear in this area, from December through April. Individual vessel data would be evaluated annually for the purpose of determining access, in order to provide future opportunities and accommodate changes in fishing behavior, both positively and negatively, based on performance. Based on the proposed performance criteria, NMFS determined that, of 161 active vessels in the entire pelagic longline fleet, 43 vessels fished in the Cape Hatteras Gear Restricted Area or buffer region. Of these 43 active vessels, 18 vessels that fished in the Cape Hatteras Gear Restricted Area or buffer region did not meet the criteria for access based on their inability to avoid bluefin tuna, and/or compliance with POP observer and logbook reporting requirements. The average annual revenue made in the gear restricted area by these 18 vessels is approximately $23,000 per vessel during the restricted months. However, it is likely that some of the vessels that would be impacted by this gear restricted area would be able to redistribute their effort to other fishing areas. The net impact of this proposed measure on fishing revenues after redistribution of effort is estimated to be $16,000 per vessel per year for those 18 vessels.
The proposed measure to allow vessels with an Atlantic Tunas Longline permit to fish under the rules/regulations applicable to the General would result in short-term, direct, minor, beneficial economic impacts for Longline category fishermen that otherwise would not be able to fish for bluefin tuna in the Cape Hatteras Gear Restricted Area. It would result in short-term, direct, minor, adverse economic impacts for General category participants to the extent that any Longline category vessel landings of bluefin tuna under General category rules results in the available subquota being met earlier than it would otherwise. A loss or gain of one fish is approximately $3,500. If a Longline category vessel chooses to fish with General category gear in the Cape Hatteras Gear Restricted Area versus outside the area with pelagic longline gear, the ability to land and sell bigeye, albacore, yellowfin, and skipjack tunas
The Gulf of Mexico EEZ Pelagic Longline Gear Restricted Area alternative would prohibit the use of pelagic longline gears in the Gulf of Mexico (GOM) for 3 months each year. This alternative would have moderate short and long-term direct adverse economic impacts on 66 vessels that have historically fished in the Gulf of Mexico EEZ during the months of March through May. The average annual revenue from fishing sets made in the gear restricted area is approximately $22,000 per vessel during the closure months. Based on historical fishing patterns of vessels that fish in the Gulf of Mexico, it is unlikely that effort would be redistributed into areas outside of this region.
The proposed Small Gulf of Mexico Gear Restricted Area would define a rectangular area in the Gulf of Mexico and prohibit the use of pelagic longline gear during the 2-month period from April through May. NMFS designed the Small Gulf of Mexico Gear Restricted Area to maximize the reductions in bluefin tuna interactions while minimizing the area where pelagic longline gear use is restricted. This alternative is expected to have moderate short and long-term direct adverse economic impacts on 34 vessels that have historically fished in the Small Gulf of Mexico Gear Restricted Area during the months of April and May. The average annual revenue from fishing sets made in the gear restricted area is approximately $7,000 per vessel during the restricted months. However, it is likely that some of the vessels that would be impacted by this gear restricted area would be able to redistribute their effort to other fishing areas within the Gulf of Mexico. The net impact of the Small Gulf of Mexico Gear Restricted Area on fishing revenues after redistribution of effort is estimated to be $2,700 per vessel per year.
The alternative, which would prohibit the use of pelagic longlines anywhere in the Gulf of Mexico, year-round, would have moderate short and long-term direct adverse economic impacts on 69 vessels that have historically fished in the Gulf of Mexico EEZ. The average annual revenue from fishing in the gear restricted area is approximately $98,000 per vessel.
The No Action alternative that would maintain the current regulatory situation in which HMS permitted vessels that possess longline gear, inclusive of both pelagic longline and bottom longline, are not allowed to enter the existing longline closed areas, even for purposes of transiting the area, would also apply to the proposed Gear Restricted Area areas. As there are a number of time/area closures for vessels possessing pelagic and bottom longline gear and the current regulations do not provide longline vessels the ability to stow their gear and transit the areas, this alternative would result in direct minor adverse economic impacts by potentially requiring vessels to use more fuel and time in taking indirect routes to and from the fishing grounds. This restriction has also raised safety-at-sea concerns due to the increased and indirect transit times.
The proposed measure would allow HMS vessels that possess bottom or pelagic longline gear on board to transit the closed areas and the proposed Gear Restricted Areas, if they remove and stow the gangions, hooks, and buoys from the mainline and drum. The hooks could not be baited. Allowing pelagic and bottom longline vessels to transit closed and gear restricted areas after removing and stowing gear would result in direct short- and long-term beneficial economic impacts by potentially reducing fuel costs and time at sea for vessels that need to transit the closed or restricted areas. Allowing transit through these areas could also potentially improve safety at sea by allowing more direct transit routes and reducing transit time, particularly during inclement weather.
This rule would make no change to current authorized gear requirements (with respect to the use of buoy gear and associated restrictions on possession of bigeye, albacore, yellowfin, and skipjack tunas (BAYS) and bluefin tuna) applicable to those vessels with an Atlantic Tunas Longline category permit and either a Swordfish Directed or Swordfish Incidental permit. Currently, vessels with an Atlantic Tunas Longline category permit must also have both a Swordfish Directed or Incidental permit, and a Shark Directed or Incidental permit. There are no economic impacts associated with this “no action” alternative.
In contrast, a gear alternative analyzed, but not being proposed, would authorize vessels with a Swordfish Incidental permit to fish with buoy gear, except vessels fishing in the East Florida Coast Pelagic Longline Closed Area. Under this alternative, vessels would still be limited to 35 buoys. The rationale for this alternative is to provide increased flexibility and encouragement for pelagic longline vessels to utilize gears other than pelagic longline to maintain and enhance fishing opportunities. This would result in short- and long-term direct beneficial economic impacts by providing greater flexibility in the gear type that can be used and also by reducing the need to acquire a different permit to use buoy gear.
Another gear alternative analyzed, but not being proposed, would allow vessels with an Atlantic Tunas Longline category permit and the Swordfish Directed or Incidental permit to retain BAYS and bluefin tuna when fishing with buoy gear. The rationale for this alternative is the same as for the above: to provide increased flexibility and encouragement for pelagic longline vessels to utilize gears other than pelagic longline to maintain and enhance fishing opportunities in the context of new restrictions that may be implemented by Amendment 7. This would result in short- and long-term direct beneficial economic impacts by increasing the potential revenue opportunities by allowing additional species to be landed when using buoy gear, reducing costs associated with discarding, and reducing the costs associated with the potential need to acquire different permits while fishing with buoy gear. This alternative would have no effect on vessels with a Swordfish Incidental permit, unless the alternative that would allow vessels with a Swordfish Incidental permit to fish with buoy gear were adopted. Without the alternative for Swordfish Incidental permit holders, this alternative would provide additional flexibility for vessels with a Swordfish Directed permit and an Atlantic Tunas Longline permit.
The proposed alternative that would allow restricted and conditional access into certain closed areas would result in potential for increased revenue. The scope of the alternative and its effects would depend upon the level of observer coverage. Currently, eight percent of fishing effort is covered and funded wholly by NMFS. Due to the limits on the level of observers, observer coverage would serve as the principal constraint to the amount of access. There would be minor short- and long-term direct beneficial economic and social impacts associated with the added option for vessels to potentially fish in these areas, which could
The performance criteria associated with the proposed measure may lead to beneficial economic incentives for fishery participants to better comply with reporting and monitoring requirements and reduce bluefin tuna interaction rates. The maximum number of potential observed trips into the closed areas was estimated based on historical rates of observer coverage (per quarter) in various statistical areas, and the fact that observer coverage would be a condition of a trip into a closed area. NMFS estimated the maximum number of trips into the pelagic longline closed areas would be 20 trips into the East Florida Coast closed area at an average revenue of $17,575 per trip, 80 trips into the DeSoto Canyons at an average revenue of $17,692 per trip, two trips into the Northeast closure at an average revenue of $40,726 per trip, and five trips into the Charleston Bump at an average revenue of $17,575 per trip. It is import to note that these revenue estimates are an overestimate, with a large amount of uncertainty. The estimates are high because it is very unlikely that all observed trips in a particular statistical area would fish in a closed area. The estimates are uncertain because the average revenue per trip data is from locations outside the closed areas, and may not represent the potential revenue from inside the closed areas.
The No Action alternative would maintain the current regulations that do not allow vessels to enter a closed area with pelagic longline gear during the time of the closure, unless issued an Exempted Fishing Permit. It would not result in any further costs to small entities.
The proposed measure that would implement IBQs for vessels permitted in the Atlantic tunas Longline category (provided they also hold necessary limited access swordfish and shark permits) would result in prohibiting the use of pelagic longline gear when the vessel's annual pelagic longline IBQ has been caught.
NMFS considered two alternatives for vessel eligibility to receive bluefin tuna quota shares. The first alternative considered any permitted Atlantic Tunas Longline category vessel as eligible to receive an initial allocation of IBQ shares. Based on the most recent number of Atlantic Tuna longline limited access permit holders, NMFS estimates that 253 vessels would be eligible to receive IBQs under this alternative. While this alternative might be more inclusive of all members of the fishery, it would reduce the amount of IBQs allocated to each vessel. There would also likely be negative short-term and potentially long-term direct adverse economic impacts associated with reduced initial allocation of IBQs to the most active participants in the fishery. Their initial allocations would likely be insufficient to be able to maintain their current levels of fishing activity and they may not be able to find IBQs to lease or have sufficient capital to lease a sufficient amount of IBQs.
The proposed measure would consider only active permitted Atlantic Tunas longline vessels as eligible to receive an initial share of bluefin tuna quota. Based on HMS Logbook records from 2006–2011, there were 161 active pelagic longline vessels during that period, with active defined as having reported in the HMS Logbook successfully setting pelagic longline gear at least once between 2006 and 2011. Allocation of quota shares to a smaller number of vessels may reduce the likelihood that a permitted vessel without quota shares would fish and increase the likelihood that available quota would be sufficient for active vessels. The drawback to this alternative is that some inactive vessels may have been planning to be active in the future, invested in preparing to become active in the fishery, but either became active after the period of eligibility or had not yet completed preparations for entering the fishery.
In addition to determining vessels eligible to receive IBQs, NMFS considered four alternatives for how IBQs should be initially allocated to eligible vessel owners. One alternative analyzed the initial allocation of IBQs based on an equal share of the quota to eligible vessels. To estimate the potential landings each vessel could make given its initial IBQ under this alternative, NMFS analyzed the ratio of bluefin tuna landings and dead discards to designated species weight. These estimated potential landings were then compared to average annual historical landings to estimate the reduction in designated species landings. Under the 74.8 mt Longline category quota scenario, NMFS estimates that there could be a reduction of 4.3 million pounds of designated species landings per year if an IBQ allocation based on designated species landings is used and no trading of IBQs occurs. This would be a reduction of annual landings of approximately 51 percent and result in a reduction in annual revenues of approximately $110,000 per vessel. Under the 137 mt Longline category quota scenario, NMFS estimates that there could be a reduction of 2.4 million pounds of designated species landing per year if an IBQ allocation based on designated species landings is used and no trading of IBQs occurs. This would be a reduction of annual landings of approximately 24 percent and result in a reduction in annual revenues of approximately $51,000 per vessel. Under the 216.7 mt Longline category quota scenario, NMFS estimates that there could be a reduction of 1.2 million pounds of designated species landing per year if an IBQ allocation based on designated species landings is used and no trading of IBQs occurs. This would be a reduction of annual landings of approximately 14 percent and result in a reduction in annual revenues of approximately $30,000 per vessel.
Under a second alternative analyzed, NMFS based the initial allocation of IBQs on the historical landings of designated species from 2006 through 2011. The designated species include swordfish; yellowfin, bigeye, albacore, and skipjack tunas; dolphin; wahoo; and blue shark, porbeagle, shortfin mako, and thresher shark. These are the main marketable pelagic species landed by pelagic longline vessels in addition to bluefin tuna. Under the 74.8 mt Longline category quota scenario, NMFS estimates that there could be a reduction of 3.5 million pounds of designated species landing per year if an IBQ allocation based on designated species landings is used and no trading of IBQs occurs. This would be a reduction of annual landings of approximately 42 percent and result in a reduction in annual revenues of approximately $91,000 per vessel. Under the 137 mt Longline category quota scenario, NMFS estimates that there could be a reduction of 2.4 million pounds of designated species landing per year if an IBQ allocation based on designated species landings is used and no trading of IBQs occurs. This would be a reduction of annual landings of approximately 28 percent and result in a reduction in annual revenues of approximately $61,000 per vessel. Under the 216.7 mt Longline category quota scenario, NMFS estimates that there could be a reduction of 1.6 million pounds of designated species landing per year if an IBQ allocation based on designated species landings is used and no trading of IBQs occurs. This would be a reduction of annual landings of approximately 18 percent and result in a reduction in annual revenues of approximately $40,000 per vessel.
Under the proposed bluefin tuna quota share formula, NMFS would base the initial allocation of IBQs based on the historical landings of designated
Amendment 7 would also designate all pelagic longline quota shares and allocations as either “Gulf of Mexico” or “Atlantic” based upon the geographic location of sets associated with the vessel's fishing history used to determine the vessel's quota share. Gulf of Mexico quota allocation could be used in either the Gulf of Mexico or the Atlantic, but Atlantic quota allocation could only be used in the Atlantic and not in the Gulf of Mexico. For a vessel to fish in the Gulf of Mexico, the vessel would be required to have the minimum amount of bluefin tuna quota to depart on a trip to fish with pelagic longline gear, but the quota would have to be Gulf of Mexico quota. The minimum IBQ amount required to fish in the Gulf of Mexico would be 0.25 mt based on the larger average size of bluefin tuna in the Gulf of Mexico. The minimum IBQ amount required to fish in the Atlantic would be 0.125 mt based on the smaller average size of bluefin tuna encountered in the Atlantic. The economic impact of creating these two regional designations would primarily be associated with the larger minimum quota required to fish in the Gulf of Mexico and the restriction from transferring or using Atlantic quota in the Gulf of Mexico. This would reduce the number of potential trading partners for IBQs in the Gulf of Mexico region, thus potentially leading to less available IBQs that could be leased, making it more difficult to find potential trading partners and therefore increasing transaction costs for conducting a lease.
In defining the scope of IBQ transfer, NMFS considered two alternatives because only two Tuna permit categories are under limited access systems. One alternative would allow transfer of bluefin tuna quota shares or quota allocation among permitted Atlantic Tunas Longline category vessels only, and would not include transferring with other limited access quota categories such as the Atlantic Tunas Purse Seine category. This alternative would constrain the amount of bluefin tuna quota available to the Longline category vessels to the Longline category quota, and not make additional quota available. Quota transfers would be allowed among all Longline category vessels with a valid limited access permit, regardless of whether they have been allocated quota shares. While this alternative would have short-term direct minor beneficial economic impacts, those beneficial impacts would be lower than those under the proposed measure.
The proposed measure would allow transfer of bluefin tuna quota shares or quota allocation between those permitted in the limited access Atlantic Tunas Longline and Purse Seine categories. This measure would provide flexibility for pelagic longline vessels to obtain, lease, or sell quota as necessary, so that allocations may be aligned with catch (i.e., vessels that catch bluefin tuna may be able to obtain quota from those that do not interact with bluefin tuna, or have not used their full allocation of bluefin tuna). This measure would not constrain the amount of bluefin tuna quota available to pelagic longline vessels (i.e., through the Longline category quota), but would make additional quota available if purse seine vessels are willing to lease quota. This measure would also modify the Purse Seine category regulations which currently restrict the transfer of Purse Seine quota to vessels with Purse Seine category permits. Purse Seine quota would be transferable to vessels with an Atlantic tunas longline permit. Similarly, Purse Seine vessels would be able to lease quota allocation from pelagic longline vessels. Quota transfer would be allowed among all Longline category vessels with a valid limited access permit, regardless of whether they have been allocated quota share. This alternative would have short-term direct moderate beneficial economic impacts.
NMFS considered both annual leasing and sale of IBQs. This proposed rule would allow temporary leasing of bluefin tuna quota among eligible vessels on an annual basis. Temporary quota transfer would give vessels flexibility to lease quota, but as a separate and distinct type of transaction from the sale of quota share. Vessel owners would be able to obtain quota on an annual basis to facilitate their harvest of target species. Sub-leasing of quota would be allowed (i.e., quota leased from vessel A to vessel B, then to vessel C). The proposed quota leasing measures would have short-term direct moderate beneficial economic impacts to participants in the fishery. However, in the long-term, the annual transaction costs associated with matching lessors and lessees, the costs associated with drafting agreements, and the uncertainty vessel owners would face regarding quota availability would reduce some of the economic benefits associated with leasing.
The alternative to allow sale of quota share among eligible vessels would have long-term direct moderate beneficial economic impacts to participants in the fishery by allowing the ownership of IBQs to shift to where they provide the best economic benefit in the long-term. However, in the short-term, there could be issues associated with the IBQ market. For example the process of the buyers and sellers arriving at a price for IBQ shares may be difficult or highly variable due to uncertainties such as how to value IBQ shares, information availability, and associated risks. Through this sub-alternative, vessel owners would be able to purchase (or sell) quota share and increase (or decrease) their quota share percentage. Sale of quota share provides a means for vessel owners to plan their business and manage their quota based on a time scale longer than a single year. Vessel owners may be able to save money through a single quota share transaction instead of reoccurring annual quota allocation transactions. Transferable quota shares would be limited to the amount of quota an individual entity could transfer in order to prevent the accumulation of an excessive share of quota. Experiences in other catch share programs have shown that fishermen
Amendment 7 would delay consideration of sale of quota shares among eligible vessel owners until after NMFS and fishery participants have multiple years of experience with the IBQ program. Until NMFS develops and implements an IBQ sale program, vessel owners would only be able to conduct temporary (annual) leasing of quota allocation and therefore vessel owners would not be able to purchase (or sell) quota share in order to increase (or decrease) their quota share percentage. This approach would reduce risks for vessel owners during the initial stages of the IBQ program, when the market for bluefin tuna quota shares would be new and uncertain. During the first years of the IBQ program, price volatility may be reduced, as may undesirable outcomes of selling or buying quota shares at the “wrong” time or price. NMFS intends to consider a program to allow the sale of quota share in the future because it would provide a means for vessel owners to plan their business and manage their quota according to a longer time scale than a single year, in a manner that would be informed by several years of the temporary leasing market. NMFS may wait until a formal evaluation of the IBQ program is completed before developing this alternative. While this alternative may result in long-term moderate beneficial economic impacts, the uncertainty regarding the timeline may make business planning for vessel owners and IBQ holders more difficult and result in some minor adverse economic impacts.
Under the proposed measures, quota allocation and/or quota share transfers would be executed by the eligible vessel owners or their representatives. For example, the two vessel owners involved in a lease of quota or sale of quota share could log into a password-protected web-based computer system (i.e., a NMFS database), and execute the quota allocation or quota share transfer. Owner-executed transfers would provide the quickest execution of a transfer because any eligibility criteria would be verified automatically via the user log-in and password, and not involve the submission or review of a paper application for a transfer to/by NMFS. This would result in short- and long-term minor beneficial economic impacts resulting from reduced transactions costs.
Under an alternative analyzed but not proposed, quota and quota share transfers would be executed by NMFS. For example, a paper application for a sale of quota share could be submitted by the two vessel owners involved in the quota share transaction, and NMFS would review and approve the transaction based on eligibility criteria (and enter data into a computer database that would track the transfers of quota). This method would not include the use of a web-based system, but would rely upon mail or facsimile submission of applications by the vessel owners to NMFS. In comparison to the proposed measure this alternative may result in some minor adverse economic impacts if delays in NMFS's review of applications results in increased transactions costs and fewer trades.
The proposed measures would not limit the amount of quota allocation an individual vessel (Longline or Purse Seine) could lease annually. This alternative would provide flexibility for vessels to purchase quota in a manner that could accommodate various levels of unintended catch of bluefin tuna, and enable the development of an unrestricted market. Because the duration of a temporary lease would be limited to a single year, the impacts of an unrestricted market for bluefin tuna quota would be limited in duration. Information on this unrestricted market could be used to develop future restrictions, if necessary. This alternative would result in short- and long-term minor beneficial economic impacts by accommodating the various needs of vessel owners for IBQ trades.
Similarly, the proposed measures would set no limit on the total amount of quota that either the Longline or Purse Seine category (in its entirety) could lease annually. This alternative would provide flexibility for vessels to purchase quota in a manner that could accommodate various levels of unintended catch of bluefin tuna, and enable the development of an unrestricted market. Because the duration of a temporary lease would be limited to a single year, the impacts on an unrestricted market for bluefin tuna quota would be limited in duration. There would likely be a cost for vessels affected by a restriction on leasing, yet the benefits of such a restriction are unknown, given the leasing program does not currently exist. The risk associated with no limitation on the quota market is minimal due to the temporary nature of IBQ leases, and the fact that leases are voluntary agreements between the lessor and lessee. Information on this unrestricted market could be used to develop future restrictions (through proposed and final rulemaking) if necessary. This alternative would result in short- and long-term minor beneficial economic impacts by accommodating the various needs of vessel owners for IBQ trades.
As described above, because Amendment 7 would delay consideration of sale of quota shares among eligible vessel owners until the future, after NMFS and fishery participants have multiple years of experience with the IBQ program, and therefore the proposed measures do not include limits on the amount of quota allocation an individual vessel (Longline or Purse Seine), or the Longline or Purse Seine category (in its entirety), could purchase. The proposed measures related to the monitoring and enforcement of the IBQ program are based on the premise that the success of an IBQ program rests upon the ability to track ownership of quota shares and quota allocation holders; allocate the appropriate amount of annual harvest privileges (quota allocation); reconcile landings and dead discards against those privileges; and then balance the amounts against the total allowable quota. The current pelagic longline reporting requirements and the monitoring program that provide data on pelagic longline bluefin tuna landings and dead discards were not designed to support inseason accounting of dead discards. More timely information on catch would be necessary in order to monitor a pelagic longline IBQ, inclusive of dead discards.
The proposed VMS reporting and electronic monitoring requirements are intended to support the implementation of a pelagic longline IBQ. The economic impacts are detailed in the section below.
The approach that NMFS may extrapolate observer-generated data inseason, would potentially have short-term minor or neutral indirect beneficial economic impacts by addressing the potential for fishery disruptions if there are issues in the transition to an IBQ monitoring system.
The proposed measure to formally evaluate the IBQ program after 3 years of operation and provide the HMS Advisory Panel with a publicly-available written document with its findings, would result in neutral economic impacts because it is administrative in nature. Similarly, the alternative to formally evaluate the IBQ program after 5 years of operation would result in neutral economic and social impacts because it is administrative in nature.
The proposed measure for NMFS to develop and implement a cost recovery program of up to 3 percent of the ex-vessel value of fish harvested under the program, for costs associated with the costs of management, data collection and analysis, and enforcement activities, could result in direct long-term moderate adverse economic impacts to the industry. NMFS estimates that a 3 percent cost recovery fee on ex-vessel value of bluefin tuna landings would be an estimated $27,437 annually for the entire Longline category and $3,432 for the Purse Seine category. On a per vessel basis, NMFS estimates that the annual cost recovery fee would be on average $170 per Longline category vessel and $1,144 per Purse Seine category vessel. However, this per vessel estimate would vary greatly from vessel to vessel and from year to year based on the amount of bluefin tuna landings for each vessel. The use of historic bluefin revenues for estimating the amount of cost recovery may overestimate the amount of the cost recovery fee if future bluefin tuna interactions and landings are reduced in response to the IBQ program and other regulatory provisions considered under Amendment 7.
The proposed appeals process for administrative review of NMFS's decisions regarding initial allocation of quota shares for the IBQ program would result in neutral economic impacts because it would utilize the National Appeals Office procedures and ensure a standardized and centralized appeals process that would provide procedural certainty to the participants.
A control date in association with the proposed IBQ program would implement a control date in conjunction with the implementation (effective date) of the IBQ program. The control date would serve as a reference date that could be utilized with future management measures. The implementation of a control date by itself would have no effect, but would provide NMFS with a potential management tool that may be utilized if necessary as part of a future management measure. A control date would likely have neutral economic impacts and would only result in beneficial short-term economic impacts if it actually discouraged speculative fishing behavior that may have occurred without the control date.
The proposed elimination of the target catch requirements would likely have direct short- and long-term minor beneficial economic impacts. Under the IBQ program, elimination of the target catch requirement could reduce dead discards, and enable vessels to fish for target species in a more flexible manner.
Under the No Action Alternative, the current target catch requirements would remain in effect, and would have neutral economic impacts since it would not change what is currently in place.
Under the proposed measure to require retention of all legal-sized commercial bluefin tuna that are dead at haul-back, legal discards and the waste of fish would be decreased, and it would be more likely that such fish are accurately accounted for, and have a positive use (e.g., marketed, used for scientific information, etc.). However, given that current behavior may be to discard some fish in order to optimize landings value of bluefin tuna, there could be minor adverse economic impacts associated with this alternative since vessel operators would no longer have the option to discard legal-sized bluefin tuna.
Sub-alternative C 2l.2a would maintain the status quo regarding retention of bluefin tuna by pelagic longline vessels. There would be no requirement to retain commercial legal-sized bluefin tuna that are dead at haul back. Vessels would continue to be able to discard bluefin tuna even if they are of commercial legal-size (i.e., 73″ or greater) and dead. If the IBQ program is implemented, all dead discards would be accounted for under that program. This alternative would have neutral economic impacts since it does not change what is currently occurring.
The Regional Quota alternative would implement annual bluefin tuna quotas by region for vessels possessing the Atlantic Tunas Longline category permit (combined with the required shark and swordfish limited access permits) and would result in prohibiting the use of pelagic longline gear when a particular region's annual bluefin tuna quota has been caught. Annual bluefin tuna quotas would be associated with defined geographic regions. While regional quotas may be simpler than an IBQ system and have advantages over a single quota allocated for the entire Longline category, some regions may face chronic shortages of bluefin tuna quota if that region experiences increased fishing effort or bluefin tuna interaction rates. It is difficult to predict the total amount of fishing effort that would occur under regional quotas, and the amount of bluefin tuna quota that would be caught. There is likely to be less fishing effort under the Regional Quota control alternative (compared with the No Action alternative) because a few vessels could catch a large number of bluefin tuna, and because the closure of the entire area to the use of pelagic longline gear. The historical data indicate that the majority of bluefin tuna have been caught by relatively few vessels. The amount of target species catch such as swordfish and yellowfin tuna would depend primarily upon the amount of fishing effort and whether the regional quotas or IBQs become constraining. If the regional quotas reduce pelagic longline fishing effort, there may be some minor adverse economic and social impacts on regional fishing communities where effort is reduced.
The Group Quota alternative would implement a quota system for vessels possessing the Atlantic Tunas Longline category permit (combined with the required shark and swordfish limited access permits) that would define three bluefin tuna quota groups and assign vessels with a valid permit to one of the three groups. Each active vessel would be assigned to a quota group based upon the associated permit's historical bluefin tuna interactions to “designated species” landings ratio. Active vessels with relatively high numbers of bluefin tuna interactions would be assigned to one quota group, active vessels with a moderate level of bluefin tuna interactions would be assigned to a second group, and the active vessels with a low level of bluefin tuna interactions would be assigned to a third quota group. Using the current quota allocation (8.1%) and the 2012 Longline category quota (74.8 mt) to illustrate, the low avoider quota group would be allocated 24.1 mt and the medium and high avoider quota groups would be allocated 25.1 mt. Although the three quota groups have almost the identical number of vessels assigned to them (53, 54, 54, respectively), as well as similar quota, the average amount of bluefin tuna that they caught historically varies from group to group. The number of bluefin tuna interactions from 2006 through 2011 for the low, medium, and high avoiders was 8,050, 1,348, and 95, respectively. Converted to averages, the average number of bluefin tuna interactions would be 1,342, 225, and 16. Utilizing a rough conversion factor of a .125 mt per fish, 225 fish is equivalent to 28 mt. The high and medium avoider groups are likely to have adequate quota, whereas the low avoider group would have inadequate quota if the future interaction rate of the vessels is similar. The average number of interactions associated with the low avoider group equates to approximately 168 mt. It is likely that the group quota associated with vessels with the highest historical rate of bluefin tuna
Under the No Action Quota Control alternative, the current regulatory situation would continue, in which NMFS does not have the authority to prohibit the use of pelagic longline gear when the bluefin tuna quota is attained. When the quota is projected to be reached, pelagic longline vessels may no longer retain bluefin tuna, but may continue to fish for their target species, and must discard any bluefin tuna caught. The economic impacts of this alternative would lead to short- and long-term direct minor economic and social impacts due the loss of revenue from bluefin tuna. In the long-term, if dead discards are not curtailed, the pelagic longline fishery could face reduced allocations and earnings.
The proposed alternative “NMFS Closure of the Pelagic Longline Fishery” would close the pelagic longline fishery (i.e., prohibit the use of pelagic longline gear) when the total Longline category bluefin tuna quota is reached, projected to be reached, or exceeded, or when there is high uncertainty regarding the estimated or documented levels of bluefin tuna catch. The economic impacts of this alternative would depend upon when the closure occurred, ranging from January through December. The time the pelagic longline fishery would be closed would depend upon many factors, including the size of the Longline category quota, the type of quota control alternative and other alternatives implemented by Amendment 7, and non-regulatory factors. The range of quotas that would be available to the Longline category would depend upon the combination of alternatives implemented.
Based on the Longline category being closed in late spring and early summer over the past few years and the 2013 closure occurring in June, NMFS estimates that a June closure is a plausible example to examine. A June closure of the pelagic longline fishery would result in a potential loss of revenue of approximately $19.8 million, or $123,000 per vessel per year. This would result in a major short-term adverse direct economic impact to the pelagic longline fishery and this economic impact would continue into the long-term if landings and dead discard rates continue along the current trend.
The proposed enhanced reporting measures include a requirement that vessels with an Atlantic Tunas Purse Seine category permit have an E–MTU VMS unit installed by a qualified marine electrician in order to remain eligible for the Purse Seine permit. Purse seine vessel owners would be required to provide a hail-out declaration using their E–MTU VMS units, indicating target species and gear possessed onboard the vessel before leaving port on every trip. Purse seine vessel owners would also be required to provide a hail-in declaration, using their E–MTU VMS units, providing information on the timing and location of landing before returning to port. The units would be required to send position information to NMFS every hour.
All three vessels that are currently authorized to deploy purse seine gear for Atlantic tunas have already installed E–MTU VMS units in compliance with regulations for other Council-managed fisheries, including Northeast Multispecies and/or Atlantic scallop. If vessels have not already had a type-approved E–MTU VMS unit installed, or if permits were transferred to vessels that have not yet installed E–MTU VMS, they may be eligible for reimbursement (up to $3,100) to offset the costs of procuring a type-approved unit, subject to the availability of funds. This reimbursement would only cover the cost of the E–MTU VMS and could not be applied to offset installation costs by a qualified marine electrician ($400) or monthly communication costs ($44). Initial costs, per vessel, for compliance with E–MTU VMS requirements included in this alternative would be $3,500 if no reimbursement were received and $400 if a reimbursement were received.
On a monthly basis, vessels would be required to establish a communication service plan corresponding to the type-approved E–MTU VMS selected. Costs vary based on the E–MTU VMS unit and communication service provider selected; however, these costs are $44/month for hourly transmission reporting and a limited amount of hail in and hail out declarations. Charges vary by communication service provider for additional messaging or transmission of data in excess of what is required by the Agency. Furthermore, costs will also vary depending on how many trips a vessel makes on a monthly basis as the number of declarations (hail in/hail out) increase proportionately. If a vessel has already installed a type-approvedE–MTU VMS unit, this alternative would have neutral direct and indirect socioeconomic impacts in the short and long-term, as the only expense would be monthly communication service fees, which they are already paying for participation in a Council-managed fishery. If vessels do not have anE–MTU VMS unit installed, or an Atlantic tunas purse seine permit is transferred to another vessel lacking VMS, direct, adverse, short-term socioeconomic impacts are expected as a result of having to pay for the E–MTU VMS unit and a qualified marine electrician to install the unit. In the long-term, direct economic impacts would become minor, because monthly communication service provider costs ($44) would be the only expense. No economic impacts to shore-based businesses, including fish dealers, bait and gear suppliers, and other fishing related industries are expected to result from this requirement.
Pelagic longline vessels are already required to use an E–MTU VMS that has been installed by a qualified marine electrician to provide hourly position reports and hail in/out declarations to provide information on target species, gear possessed, and expected time/location of landing. Therefore, this proposed VMS requirement would result in neutral economic impacts in the short and long-term. Economic impacts to shore-based businesses, including fish dealers, bait and gear suppliers, and other fishing related industries are not expected.
Under the No Action alternative, there would be no requirement under HMS regulations for an Atlantic Tunas Purse Seine category vessel to obtain a VMS unit, and there would be no change to the reporting requirements applicable to purse seine vessels. There would also be no additional VMS requirements under HMS regulations for a vessel using pelagic longline gear.
The proposed enhanced reporting measures would also require vessels fishing for Atlantic tunas with pelagic longline gear to report the number of hooks and sets, and for sets with bluefin interactions, the length of all bluefin discarded dead or retained. Vessels fishing with purse seine gear would be required to report the number of sets, and for sets with bluefin interactions, the length of all bluefin discarded dead or retained. This alternative is intended to support the inseason monitoring of the purse seine and pelagic longline fisheries. Current information on the catch of the purse seine fishery is limited to dealer data on sold fish, and does not include information of discarded bluefin tuna or other species caught and/or discarded. Inseason information on catch, including dead discards, would enhance NMFS' ability
The proposed measure would result in neutral economic impacts in the short and long-term because of the fact that the vessel owners would already be paying, on average, $44 per month to cover the costs of a communication service provider. The number of additional transmissions necessary to report bluefin tuna retained and discarded dead are not expected to exceed the typical monthly allowance for data sent using the E–MTU VMS. Economic impacts to shore-based businesses, including fish dealers, bait and gear suppliers, and other fishing related industries are not expected.
HMS logbook data (2006–2011) indicate that, on average, pelagic longline vessels have 1.15 (9,493 interactions/8,250 trips = 1.15 interactions/trip) with a bluefin tuna per vessel per trip. This alternative would require all pelagic longline vessel operators to report catch (kept, discarded dead,) and estimate fish size (> or < than 73″ CFL) using their E–MTU VMS within 12 hours. Furthermore, additional information on fishing effort, including the number of hooks deployed on the set that had a bluefin tuna, would also be reported.
The proposed measure is expected to have neutral to minor adverse economic impacts on pelagic longline vessel operators and owners in the short and long-term. Economic impacts to shore-based businesses, including fish dealers, bait and gear suppliers, and other fishing related industries are not expected. Existing regulations require all pelagic longline vessel operators to provide hail out/in declarations and provide location reports on an hourly basis at all times while they are away from port. In order to comply with these regulations, vessel owners must subscribe to a communication service plan that includes an allowance for sending similar declarations (hail out/in) describing target species, fishing gear possessed, and estimated time/location of landing using their E–MTU VMS. This alternative would require, on average, 1.15 additional reports per trip that describe bluefin tuna interactions and fishing effort. Because of the minimal time (approximately 5 minutes) required to submit these reports and the fact that owners would already be enrolled in a communication service plan that would accommodate these additional transmissions, adverse economic impacts are not expected.
The proposed measure to require the use of electronic monitoring, including video cameras, by all vessels issued an Atlantic Tunas Longline permit that intend to fish for highly migratory species, would require both fixed and variable costs over the service life of each camera installed onboard. Specifically, vessels would be required to install and maintain video cameras and associated data recording and monitoring equipment in order to record all longline catch and relevant data regarding pelagic longline gear retrieval and deployment. Only a portion of the recorded information would be utilized to identify bluefin tuna catch. The requirements associated with this alternative would be phased in over a period of time due to the complexity, costs, and logistical constraints associated with the implementation of an electronic monitoring program. NMFS would communicate in writing with the vessel owners during all phases of the program to provide information to assistant vessel owners, and facilitate the provision of technical assistance.
This alternative would require both fixed and variable costs over the service life of each camera installed onboard. The cost of an electronic system bought in 2010, over its 5 year projected lifespan, is about $3,565 a year. This includes 4% of the purchase price for maintenance costs and a 7% interest rate on the loan to buy a system (National Observer Program, 2013). The variable costs for vessel owners include data retrieval ($45/hour; 2 hr per trip; technician travel ($0.5/mile; 100 miles for each trip); fishing activity interpretation ($47/hour; 0.25 hr/trip); and catch data interpretation ($47/hour; 1.5 hr/trip). The estimated total variable costs would be approximately $225 per trip and the annual fixed costs would be $ 3,835 for the purchase and installation of the equipment, and six services per year; ($45/hour; 1 hr six times per year). This alternative would result in direct and indirect adverse economic impacts to pelagic longline vessel owners in the short and long-term.
Under the No Action alternative, NMFS would maintain the status quo and would not implement a requirement for permitted pelagic longline vessels to install electronic devices such as cameras in order to support the monitoring or verification of bluefin tuna catch under an IBQ quota system. This alternative would not result in economic impacts because it would maintain existing requirements.
The proposed enhanced reporting measures would require Atlantic Tunas General, Harpoon and HMS Charter/Headboat permit holders to report their bluefin tuna catch (i.e., landings and discards) using an expanded version of the bluefin tuna recreational automated landings reporting system (ALRS). The automated system includes two reporting options, one that is web-based and an interactive voice response telephone system. The primary impacts of the preferred alternative are the amount of time the new reporting requirement would take, and the reporting costs, respectively. NMFS estimated the potential annual catch for each permit category based on previous years data and multiplied it by the 5 minutes it takes to complete a report (NMFS 2013) for each fish to estimate a total reporting burden of 607 hours affecting a total of potentially 8,226 permit holders as a result of this alternative. Since the data are collected online or via telephone, there are no monetary costs to fishermen or direct economic impacts to fishermen from this alternative.
Adjustments to both the online and IVR systems of the ALRS to implement catch reporting for General, Harpoon, and HMS Charter/Headboat category permit holders are estimated to cost NMFS between $15,000 and $35,000. Annual maintenance would likely cost approximately $8,700 per year, which is the current cost for maintaining the ALRS and the call-in system for reports of other recreational HMS landings (NMFS 2013).
The No Action alternative would not require Atlantic Tunas General, Harpoon and HMS Charter/Headboat permit holders to report their bluefin tuna catch (i.e., landings and discards) using an expanded version of the bluefin tuna recreational automated landings reporting system (ALRS), and would have no social or economic impacts.
Under the No Action alternative regarding observer coverage, there would be no changes to the current observer coverage in the Atlantic Tunas Longline, General, Purse Seine, Harpoon, or HMS Charter/Headboat categories. Therefore, there would be no additional cost to small businesses.
The alternative which would increase the level of NMFS-funded observers on a portion of trips by vessels fishing under the Atlantic Tunas Longline, General, Purse Seine, Harpoon, or HMS Charter/Headboat categories could result in some minor costs to vessel operators if there is an increased chance that they will be selected for observer coverage and will have to accommodate an observer.
One of the alternatives for enhanced reporting (not proposed) would require the reporting of catch by Atlantic Tunas General, Harpoon, and HMS Charter/Headboat category vessels targeting bluefin tuna through submission of an HMS logbook to NMFS. The direct
This rule proposes no action with respect to the current logbook requirements and would make no changes to the current logbook requirements applicable to any of the permit categories. It would have no economic impact on fishing vessel owners.
This rule would make no changes to the scope of the Large Pelagic Survey, and would therefore have no social or economic impacts associated with this alternative.
In contrast, the alternative that would expand the Large Pelagics Survey to include May, November, and December, and add surveys to the states south of VA, including the Gulf of Mexico, would result in minor, adverse, and long-term impacts. The direct economic impact of this alternative is the amount of time that fishermen would expend participating in the survey. There are no financial costs to fishermen since the survey is conducted in person and over the phone, and there would be no direct economic impacts to fishermen for this alternative. NMFS estimates that the dockside survey takes 5 minutes on average, the phone survey takes 8 minutes, and collection of supplemental biological information takes about 1 minute. Previously, NMFS estimated that annual implementation of the Large Pelagics Survey throughout Atlantic and Gulf coastal states using the current target sample-size of 7,870 for the dockside survey, 10,780 for the phone survey and 1,500 for the biological survey would result in a reporting burden of 656 hours, 924 hours, and 25 hours respectively, for a total reporting burden of 1,730 hours (NMFS 2011b). This estimate could be used as a high-end proxy for the reporting burden associated with this alternative. Another method for estimating the reporting burden associated with this alternative is to use a ratio comparing the sample frame (i.e., number of permits) used in the coastwide estimate with the sample frame for the alternative (i.e., number of permits in states south of VA). Using this method, the reporting burden estimate is 559 hours. Because of the sampling design, adding the months of May, November, and December is not expected to add any reporting burden or cost (Ron Salz, pers. comm.).
The alternative to establish 12 equal monthly sub-quotas, was considered in the 2011 Environmental Assessment for a Rule to Adjust the Atlantic Bluefin Tuna General and Harpoon Category Regulations. It would allow the General category to remain open year-round and would revise subquotas so that they are evenly distributed throughout the year (i.e., the base quota of 435.1 mt would be divided into monthly subquotas of 8.3 percent of the General category base quota, or 36.1 mt). NMFS would continue to carry forward unharvested General category quota from one time period to the next time period. This alternative would result in increased harvest in the earlier portions of the General category bluefin tuna season and decreased harvest in the later portions of the season. For early season (January–March) General category participants, an additional 85.2 mt would be available (i.e., 108.3–23.1 mt). At $9.13/lb, this represents potential increased revenue of approximately $1.7 million overall during this time period, nearly five times the current amount. NMFS does not have General category price/lb information for April or May since there is currently no General category fishing during those months, but using $9.13/lb as an estimate, potential revenues for each of those months would be $726,621. Potential revenues for the current June–August and September periods would decrease by approximately $2.2 million (50%) and $1.7 million (69%), given recent average price ($9.13 and $9.61, respectively). For October–November and for December, potential revenues would increase by approximately $317,000 (28%) and $287,000 (60%) at $9.21/lb and $9.65/lb, respectively. Relative to the No Action alternative, under Alternative E 1b, there would generally be substantially increased revenues for January through May and October through December and substantially decreased revenues for June through September, and total annual revenues would decrease by approximately $100,000 (1%).
Under the alternative that would take no action to modify the General category sub-period allocations, economic impacts would be neutral and largely would vary by geographic area, with continued higher potential revenues during the summer months in the northeast and lower amounts to winter fishery participants off the mid- and south Atlantic states. General category participants that fish in the January bluefin tuna fishery may continue to perceive a disadvantage as the available quota for that period is relatively small (5.3% of the General category quota) and that they do not benefit from the rollover of unused quota either inseason, from one time period to the next, nor do they benefit from prior-year underharvest because of the timing of the annual final quota specifications (published in the middle of the year).
The proposed measure would provide NMFS flexibility to transfer General category quota within the year and could result in a shift in the distribution of quota and thus fishing opportunities to the earlier portion of the year. For example, in 2011 and 2012, June through August General category landings totaled 140.3 mt and 192.2 mt, out of an available (base) quota of 217.6 mt. In 2010, June through August General category landings totaled 125.4 mt of an available (adjusted) quota of 269.4 mt. If quota that is anticipated to be unused in the first part of the summer season is made available to January period General category participants and bluefin tuna are landed against the January period subquota, it would potentially result in improved and more complete use of the General category quota. Also, because bluefin tuna's price per lb is often higher in the January period than during the summer, shifting quota to this earlier period would result in beneficial impacts to early season General category participants off the mid- and south Atlantic states. It is possible, however, that an increase of bluefin tuna on the market in the January period could reduce the average price for that time of year. Participants in the summer fishery may perceive such quota transfer to be a shift away from historical participants in the traditional General category bluefin tuna fishing areas off New England and thus adverse. However, because unused quota rolls forward
Under the No Action alternative to “Adjust Harpoon Category Retention Limits Inseason,” Harpoon category participants would continue to have the ability to retain and land up to four large medium fish per vessel per day, as well as unlimited giants. The economic impact of the No Action alternative is expected to be direct and neutral to slightly beneficial and short-term as participants would continue to be able to retain and land a 3rd and 4th large medium bluefin tuna, if available, and would not have to discard these fish if caught while targeting giant bluefin tuna. In 2012, the first year following implementation of the four-fish limit on large mediums, there were only two trips on which three large mediums were landed and two trips on which four large mediums were landed, or 6% total of successful trips. Harpoon quota revenues in 2012 were 24 percent lower than 2011 and 71 percent higher than in 2010.
In contrast, the proposed measure would implement the daily retention limit of large medium bluefin tuna over a range of two to four bluefin tuna, and the default large medium limit would be set at two fish. On a per-trip basis, there would be minor short-term direct adverse social and economic impacts that would depend on availability of large mediums to Harpoon category vessels on a per trip basis and the actual retention limit that NMFS sets inseason (or that is in place by default). Looking at successful 2012 trips, NMFS can estimate potential impacts of this change by determining the number of trips on which three or four large mediums were landed in 2012 and assuming that those fish may not be able to be landed under this alternative. Using 2012 successful trip data, if the limit was set at two large mediums, the revenue from up to six large mediums would be foregone for the season, and with a three fish limit, the revenue of up to two large mediums would be foregone. At an average 2012 weight of 296 lbs. and an average price of $9.13/lb for the Harpoon category, a loss of one to six fish would be approximately $2,702 to $16,215 for the Harpoon category as a whole for the year.
Potentially beneficial economic impacts are possible if a lower limit at the beginning of the season results in the Harpoon category quota lasting longer into the season, as the average price/lb is generally higher in July and August than it is in June. NMFS has not needed to close the Harpoon category in recent years (i.e., as a result of the quota being met) but, depending on the size of the amount of quota available and the number of Harpoon category participants, this may be a consideration.
Under the No Action alternative regarding the Angling category subquota distribution, Angling category participants fishing south of 39°18′ N. lat. (approximately, Great Egg Inlet, NJ) would continue to have their landings of trophy bluefin tuna count toward a shared 66.7% of the Angling category large medium and giant bluefin tuna subquota. The social impact of the No Action alternative is expected to vary by geographic area and to be dependent on availability of trophy-sized bluefin tuna on the fishing grounds. If the pattern of high activity off Virginia and North Carolina continues, fishermen in the mid-Atlantic may have greater opportunities to land a bluefin tuna and participants in the Gulf of Mexico may have no opportunity to land a bluefin tuna when the fish are in their area as the southern trophy fishery may already be closed for the year. Based on the last 2 years, NMFS would expect direct, beneficial, short-term social impacts for Angling and Charter/Headboat trophy fishery participants in the mid-Atlantic and direct, adverse, short-term impacts for participants south of that area, including the Gulf of Mexico. The issue of economic costs for Angling category participants is not relevant, as there is no sale of tunas by Angling category participants. For charter vessels, which sell fishing trips to recreational fishermen, economic impacts are expected to be neutral to beneficial for those in the mid-Atlantic and neutral to adverse for those south of that area, including the Gulf of Mexico, as the perceived opportunity to land a trophy bluefin tuna may be diminished. This should be tempered in the Gulf of Mexico, where there is no directed fishing for bluefin tuna allowed. Given that the current southern trophy bluefin tuna subquota of 2.8 mt represents approximately 17–30 individual fish, impacts are expected to be minor.
Under the proposed measure, a portion of the trophy south subquota would be allocated specifically for the Gulf of Mexico. Specifically, the trophy subquota would be divided as 33% each to the northern area, the southern area outside the Gulf of Mexico, and the Gulf of Mexico. At the current average trophy fish weight, this would allow annually up to 8 trophy bluefin tuna to be landed in each of the three areas. There would be minor, short-term, direct, beneficial social impacts to a small number of vessels in the Gulf of Mexico given the small amount of fish that would be allowed to be landed (as well as indirect beneficial economic impacts for charter vessels), but the perception of greater fairness among southern area participants may result in indirect, longer-term, beneficial, social impacts. There would be minor, short-term, direct and indirect adverse social impacts (and economic impacts for charter vessels) for those outside the Gulf of Mexico as the perceived opportunity to land a trophy bluefin tuna may be diminished.
Under the No Action alternative to “Change Start Date of Purse Seine Category to June 1,” there would be no change to the start date of the Purse Seine category fishery, which is currently set at July 15. Economic impacts would be expected to be direct and neutral to adverse depending on availability of schools of bluefin tuna for purse seine operators to decide to make a set on. That is, currently, if conditions would warrant making a set (e.g., based on information from spotter pilots) before July 15, purse seine operators would not be able to fish and would miss the economic opportunity to land and sell bluefin tuna while the other commercial bluefin tuna fisheries are open. Social impacts would be minor and neutral to adverse for purse seine fishery participants and would be minor and neutral to beneficial for fishermen in other categories due to reduced actual or perceived gear conflict from June 1 through July 14.
Under the proposed measure, the start date of the Purse Seine category fishery would be set at June 1 (unless modified by NMFS) to allow more flexibility for purse seine operators to choose when to fish, based on availability of schools of appropriate-sized bluefin tuna and market price. Economic impacts would be expected to be direct and neutral to moderate and beneficial depending on availability of schools of bluefin tuna for purse seine operators to decide to make a set on and market conditions. Social impacts would be minor and neutral to beneficial for purse seine fishery participants and would be minor and neutral to adverse for fishermen in other categories due to increased actual or perceived gear conflict from June 1 through July 14. In 2012, the average
Under the No Action alternative, regarding the rules pertaining to permit category changes, there would be no changes made to current regulations regarding the ability of an applicant to make a correction to their open-access HMS permit category. The current regulations prohibit a vessel issued an open-access Atlantic Tunas or an HMS permit from changing the category of the permit after 10 calendar days from the date of issuance. This No Action alternative is administrative in nature, and therefore the social and economic impacts associated with it would be neutral for most applicants. However, for those applicants who discover their permit category may not allow the vessel to fish in a manner as intended, they may experience moderate adverse social and economic impacts at an individual level. For example, if a commercial fishermen obtained an Angling category permit (recreational) versus a General category permit (commercial) and did not discover the error until after the 10 calendar day window, their vessel would not be allowed to fish commercially for Atlantic tunas for the remainder of that year. Likewise, if recreational fishermen obtained a General category permit (commercial) versus an Angling category permit (commercial) and did not discover the error until after the 10 calendar day window, their vessel would not be allowed to fish under the recreational rules and regulations for the remainder of the year. These two examples demonstrate the potential in lost fishing opportunities as a result of the No Action alternative.
Under the proposed measures, NMFS would allow category changes to an open-access HMS permit issued for a time period greater than 10 calendar days (e.g., 30, 45, or 60 days), provided the vessel has not fished as verified via landings data. This alternative would result in neutral social and economic impacts for most applicants, as there are approximately 20 requests annually that would fall outside the 10 calendar day window. However, for those applicants who discover their permit category may not allow the vessel to fish in a manner as intended (~20 per year), they would experience moderate beneficial social and economic impacts provided they discover the error in the liberalize window (e.g., 30, 45, or 60 days). Using the two examples illustrated above, and assuming no bluefin tuna were caught in either case, each applicant would be allowed to correct their open-access HMS permit category to match their intended fishing practices for the remainder of that year, thereby mitigating the potential of lost fishing opportunities, as well as potential income.
The No Action “Northern Albacore Tuna Quota” alternative would maintain the current northern albacore tuna quota. In the last 10 years, U.S. catches reached or exceeded the current U.S. initial quota (527 mt for 2013) in 2004 with 646 mt and in 2007 with 532 mt. However, catches have been less than the adjusted U.S. quotas (currently about 659 mt) for the last several years. Under the No Action alternative, there is no domestic mechanism to limit annual catches of northern albacore tuna beyond the current requirements for Atlantic tunas or HMS vessel permits, authorized gear, observers/logbooks, and time/area closures. Therefore, expected short-term, direct economic impacts and social impacts under the No Action alternative would be neutral. If future overharvests result in the United States being out of compliance with the ICCAT recommendation, the United States would need to put control measures in place and neutral to adverse longer-term direct economic and social impacts could occur if the resulting annual quota needs to be reduced by the amount of the overharvest.
If, under the proposed measure, NMFS implements a domestic quota for northern albacore tuna and recent catch levels continue, and the U.S. quota (including the adjusted quota) recommended by ICCAT is maintained at the current amount, economic and social impacts would not be expected. However, if either the U.S. quota is reduced as part of a new TAC recommendation or catches increase above the current adjusted U.S. quota, there could be adverse impacts resulting from reduced future fishing opportunities and ex-vessel revenues. At an average price of $1.29/lb for commercially-landed albacore tuna in 2011, a reduction of one mt would represent approximately $2,800 under a full quota use situation. Actual impacts would largely depend on the availability of northern albacore tuna and the ability of fishery participants to harvest the quota. In addition, any adverse social and economic impacts of exceeding the TAC, which was adopted as part of the overall ICCAT northern albacore tuna rebuilding program, would be reduced and, in the long term, may be beneficial for fishermen as the stock grows. There may be slight differences in the level of economic and social impacts experienced by the specific individuals of the northern albacore tuna fishery, as well as by participants within a particular fishery sector.
This proposed rule contains collection-of-information requirements subject to review and approval by the Office of Management and Budget (OMB) under the Paperwork Reduction Act (PRA). These requirements have been submitted to OMB for approval. Public reporting burden for these collections of information are estimated to average, as follows:
1. Purse Seine VMS hail out & in, OMB #0648–0372, (5 min/response);
2. Pelagic Longline VMS declaration in Cape Hatteras Gear Restricted Area, or Closed Areas, OMB #0648–0372, (5 min/response);
3. Pelagic Longline VMS declaration into General Category Rules in Cape Hatteras Gear Restricted Area, OMB #0648–0372, (5 min/response);
4. Pelagic Longline and Purse Seine catch reports, OMB #0648–0372, (5 min/response);
5. Electronic Monitoring of Pelagic Longline Vessels, Installation of Camera,
6. Electronic Monitoring of Pelagic Longline Vessels, Maintenance
7. Electronic Monitoring of Pelagic Longline Vessels, Data Retrieval
8. General, Harpoon, and Charter/Headboat reporting via automated systems, OMB #0648–0328, (5 min/response)
9. Pelagic Longline appeal of Performance Metrics, OMB #XXX–XXX, (2 hr/response)
10. Pelagic Longline appeal of Quota Shares, OMB #XXX–XXX, (2 hr/response)
11. Pelagic Longline IBQ Trade Execution and Tracking, Transfer of Allocation, OMB #XXX–XXX, (5 min/response)
12. Pelagic Longline IBQ Trade Execution and Tracking, Online Account Initial Application, OMB #XXX–XXX, (10 min/response)
13. Pelagic Longline IBQ Trade Execution and Tracking, Online Account Renewal Application, OMB #XXX–XXX, (10 min/response)
Public comment is sought on whether these proposed collections of information are necessary for the proper performance of the functions of NMFS, including whether the information shall have practical utility; the accuracy of the burden estimate; ways to enhance the quality, utility, and clarity of the information to be collected; and ways to minimize the burden of the of information, including through the use
Fisheries, Fishing, Fishing vessels, Foreign relations, Imports, Penalties, Reporting and recordkeeping requirements, Treaties.
For the reasons set out in the preamble, 50 CFR part 635 is proposed to be amended as follows:
16 U.S.C. 971
The revisions and additions read as follows:
The revisions read as follows:
(j) * * *
(3) A vessel owner issued an Atlantic tunas permit in the General, Harpoon, or Trap category or an Atlantic HMS permit in the Angling or Charter/Headboat category under paragraph (b), (c), or (d) of this section may change the category of the vessel permit once within 45 calendar days of the date of issuance of the permit, provided the vessel has not landed bluefin tuna during those 45 calendar days as verified by NMFS via landings data. After 45 calendar days from the date of issuance of the permit, the vessel owner may not change the permit category until the following fishing season.
(o) * * *
(4) The owner of a vessel issued an HMS Commercial Caribbean Small Boat permit may fish for, take, retain, or possess only BAYS tunas, Atlantic swordfish, and Atlantic sharks, subject to the trip limits specified at § 635.24 and may possess unauthorized gears onboard as stated at § 635.19(a).
The revisions and addition read as follows:
(a) * * *
(3)
(4)
(c) * * *
(1)
(a)
(b)
(1) Video camera(s) must be mounted and placed so as to provide clear, unobstructed views of the area(s) where the pelagic longline gear is retrieved and of catch being removed from hooks prior to being placed in the hold or discarded.
(2) Video camera(s) must be in sufficient numbers, with sufficient resolution for NMFS, the USCG, and their authorized officers and designees, or any individual authorized by NMFS to determine the number and species of fish harvested.
(3) Video recording must be initiated by gear retrieval.
(4) The video system must record all periods of time when the gear is being retrieved and catch is removed from the hooks prior to being placed in the hold or discarded.
(c)
(d)
(e)
(f)
(a)
(b)
(1)
(2)
(3)
(4)
(c)
(d)
(1) The accuracy of NMFS records regarding the relevant information;
(2) Correct assignment of historical data to the vessel owner/permit holder; and,
(3) The current owner of a permitted vessel may also appeal on the basis of a potential inequity based upon historical changes in vessel ownership or permit transfers (e.g., the current vessel owner is disadvantaged due the history generated by a previous owner of the vessel).
(a)
(1)
(2)
(i) Limit the amount of bluefin tuna landings and dead discards in the pelagic longline fishery;
(ii) Provide strong incentives for the vessel owner and operator of each individual vessel to avoid bluefin tuna interactions, and thus reduce bluefin tuna dead discards;
(iii) Provide flexibility for pelagic longline vessel owners and operators to obtain bluefin tuna quota from other vessels, if needed, and thus enable a full accounting of bluefin tuna landings and dead discards while also minimizing constraints on fishing for target species;
(iv) Balance the objective of limiting bluefin tuna landings and dead discards with the objective of optimizing fishing opportunities and maintaining profitability; and
(v) Balance the above objectives with potential impacts on the Atlantic Tunas permit categories that target bluefin tuna, and the broader objectives of the 2006 Consolidated HMS FMP and MSA.
(b)
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(c)
(1)
(2)
(ii)
(iii)
(3)
(ii)
(iii)
(iv)
(v)
(vi)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
(k)
(1)
(2)
(3)
(4)
(5)
(i) Initial eligibility for quota shares based on ownership of an active vessel with a valid Atlantic Tunas Longline permit combined with the required shark and swordfish limited access permits;
(ii) The accuracy of NMFS's records regarding that vessel's amount of designated species landings and/or bluefin interactions; and
(iii) The correct assignment of designated species landings and bluefin tuna interactions to the vessel owner/permit holder.
(a)
(b)
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(c)
(2) Only persons who have been issued a valid HMS Angling or valid Charter/Headboat permit, or who have been issued a valid Atlantic Tunas General category or Swordfish General Commercial permit and are participating in a tournament as provided in § 635.4(c) of this part, may possess or take a sailfish shoreward of the outer boundary of the Atlantic EEZ. Sailfish may only be harvested by rod and reel.
(d)
(e)
(2) An Atlantic swordfish may not be retained or possessed on board a vessel with a gillnet. A swordfish will be deemed to have been harvested by gillnet when it is onboard, or offloaded from, a vessel fishing with or having on board a gillnet.
(3) A person aboard a vessel issued or required to be issued a valid directed handgear LAP for Atlantic swordfish or an HMS Commercial Caribbean Small Boat permit may not fish for swordfish with any gear other than handgear. A swordfish will be deemed to have been harvested by longline when the fish is on board or offloaded from a vessel fishing with or having on board longline gear. Only vessels that have been issued a valid directed or handgear swordfish LAP or an HMS Commercial Caribbean Small Boat permit under this part may utilize or possess buoy gear.
(4) Except for persons aboard a vessel that has been issued a directed, incidental, or handgear limited access swordfish permit, a Swordfish General Commercial permit, an Incidental HMS squid trawl permit, or an HMS Commercial Caribbean Small Boat permit under § 635.4, no person may fish for North Atlantic swordfish with, or possess a North Atlantic swordfish taken by, any gear other than handline or rod and reel.
(5) A person aboard a vessel issued or required to be issued a valid Swordfish General Commercial permit may only possess North Atlantic swordfish taken from its management unit by rod and reel, handline, bandit gear, green-stick, or harpoon gear.
(a)
(2) If a billfish is caught by a hook and not retained, the fish must be released by cutting the line near the hook or by using a dehooking device, in either case without removing the fish from the water.
(3)
(ii) From November through April of each year, no vessel issued, or required to be issued, a permit under this part may fish or deploy any type of fishing gear in the Madison-Swanson closed area or the Steamboat Lumps closed area, as defined in § 635.2.
(iii) From May through October of each year, no vessel issued, or required to be issued, a permit under this part may fish or deploy any type of fishing gear in the Madison-Swanson or the Steamboat Lumps closed areas except for surface trolling. For the purposes of this section, surface trolling is defined as fishing with lines trailing behind a vessel which is in constant motion at speeds in excess of four knots with a visible wake. Such trolling may not involve the use of down riggers, wire lines, planers, or similar devices.
(iv) From January through April of each year, no vessel issued, or required to be issued, a permit under this part may fish or deploy any type of fishing gear in the Edges 40 Fathom Contour closed area, as defined in § 635.2.
(b)
(2) Transiting and gear stowage: If a vessel issued a permit under this part is in a closed or gear restricted area
(3) When a marine mammal or sea turtle is hooked or entangled by pelagic or bottom longline gear, the operator of the vessel must immediately release the animal, retrieve the pelagic or bottom longline gear, and move at least 1 nm (2 km) from the location of the incident before resuming fishing. Similarly, when a smalltooth sawfish is hooked or entangled by bottom longline gear, the operator of the vessel must immediately release the animal, retrieve the bottom longline gear, and move at least 1 nm (2 km) from the location of the incident before resuming fishing. Reports of marine mammal entanglements must be submitted to NMFS consistent with regulations in § 229.6 of this title.
(4) Vessels that have pelagic or bottom longline gear on board and that have been issued, or are required to have been issued, a permit under this part must have only corrodible hooks on board.
(c)
(i) Is in a closed area designated under paragraph (c)(2) of this section and has bottom longline gear onboard, the vessel may not, at any time, possess or land any pelagic species listed in table 2 of appendix A to this part in excess of 5 percent, by weight, of the total weight of pelagic and demersal species possessed or landed, that are listed in tables 2 and 3 of appendix A to this part.
(ii) Has pelagic longline gear on board, persons aboard that vessel may not possess, retain, transship, land, sell, or store silky sharks, oceanic whitetip sharks, or scalloped, smooth, or great hammerhead sharks.
(2) Except as noted in paragraph (c)(3) of this section, if pelagic longline gear is on board a vessel issued or required to be issued a permit under this part, persons aboard that vessel may not fish or deploy any type of fishing gear:
(i) In the Northeastern United States closed area from June 1 through June 30 each calendar year;
(ii) In the Charleston Bump closed area from February 1 through April 30 each calendar year;
(iii) In the East Florida Coast closed area at any time;
(iv) In the Desoto Canyon closed area at any time;
(v) In the Cape Hatteras gear restricted area from December 1 through April 30 each year;
(vi) In the Small Gulf of Mexico gear restricted area from April 1 through May 30 each year;
(vii) In the Northeast Distant gear restricted area at any time, unless persons onboard the vessel comply with the following:
(A) The vessel is limited to possessing onboard and/or using only 18/0 or larger circle hooks with an offset not to exceed 10 degrees. The outer diameter of the circle hook at its widest point must be no smaller than 2.16 inches (55 mm) when measured with the eye on the hook on the vertical axis (y-axis) and perpendicular to the horizontal axis (x-axis), and the distance between the circle hook point and the shank (i.e., the gap) must be no larger than 1.13 inches (28.8 mm). The allowable offset is measured from the barbed end of the hook and is relative to the parallel plane of the eyed-end, or shank, of the hook when laid on its side. The only allowable offset circle hooks are those that are offset by the hook manufacturer. If green-stick gear, as defined at § 635.2, is onboard, a vessel may possess up to 20 J-hooks. J-hooks may be used only with green-stick gear, and no more than 10 hooks may be used at one time with each green-stick gear. J-hooks used with green-stick gear may be no smaller than 1.5 inch (38.1 mm) when measured in a straight line over the longest distance from the eye to any other part of the hook; and,
(B) The vessel is limited, at all times, to possessing onboard and/or using only whole Atlantic mackerel and/or squid bait, except that artificial bait may be possessed and used only with green-stick gear, as defined at § 635.2, if green-stick gear is onboard; and,
(C) Vessels must possess, inside the wheelhouse, a document provided by NMFS entitled, “Careful Release Protocols for Sea Turtle Release with Minimal Injury,” and must post, inside the wheelhouse, sea turtle handling and release guidelines provided by NMFS; and,
(D) Required sea turtle bycatch mitigation gear, which NMFS has approved under paragraph (c)(5)(iv) of this section, on the initial list of “NMFS-Approved Models For Equipment Needed For The Careful Release of Sea Turtles Caught In Hook And Line Fisheries,” must be carried onboard, and must be used in accordance with the handling requirements specified in paragraphs (c)(2)(vii)(E) through(G) of this section; and,
(E) Sea turtle bycatch mitigation gear, specified in paragraph (c)(2)(vii)(D) of this section, must be used to disengage any hooked or entangled sea turtles that cannot be brought on board, and to facilitate access, safe handling, disentanglement, and hook removal or hook cutting from sea turtles that can be brought on board, where feasible. Sea turtles must be handled, and bycatch mitigation gear must be used, in accordance with the careful release protocols and handling/release guidelines specified in paragraph (c)(2)(vii)(C) of this section, and in accordance with the onboard handling and resuscitation requirements specified in § 223.206(d)(1).
(F) Boated turtles: When practicable, active and comatose sea turtles must be brought on board, with a minimum of injury, using a dipnet approved on the initial list specified in paragraph (c)(2)(vii)(D) of this section. All turtles less than 3 ft. (.91 m) carapace length should be boated, if sea conditions permit. A boated turtle should be placed on a standard automobile tire, or cushioned surface, in an upright orientation to immobilize it and facilitate gear removal. Then, it should be determined if the hook can be removed without causing further injury. All externally embedded hooks should be removed, unless hook removal would result in further injury to the turtle. No attempt to remove a hook should be made if the hook has been swallowed and the insertion point is not visible, or if it is determined that removal would result in further injury. If a hook cannot be removed, as much line as possible should be removed from the turtle using approved monofilament line cutters from the initial list specified in paragraph (c)(2)(vii)(D) of this section, and the hook should be cut as close as possible to the insertion point, using bolt cutters from that list, before releasing the turtle. If a hook can be removed, an effective technique may be to cut off either the barb, or the eye, of the hook using bolt cutters, and then to slide the hook out. When the hook is visible in the front of the mouth, an approved mouth-opener from the initial list specified in paragraph (c)(2)(vii)(D) of this section may facilitate opening the turtle's mouth, and an approved gag from that list may facilitate keeping the mouth open. Short-handled dehookers for ingested hooks, long-nose pliers, or needle-nose pliers from the initial list
(G) Non-boated turtles: If a sea turtle is too large, or hooked in a manner that precludes safe boating without causing further damage or injury to the turtle, sea turtle bycatch mitigation gear, specified in paragraph (c)(2)(vii)(D) of this section, must be used to disentangle sea turtles from fishing gear and disengage any hooks, or to clip the line and remove as much line as possible from a hook that cannot be removed, prior to releasing the turtle, in accordance with the protocols specified in paragraph (c)(2)(vii)(C) of this section. Non-boated turtles should be brought close to the boat and provided with time to calm down. Then, it must be determined whether or not the hook can be removed without causing further injury. A front flipper or flippers of the turtle must be secured, if possible, with an approved turtle control device from the list specified in paragraph (c)(2)(vii)(D) of this section. All externally embedded hooks must be removed, unless hook removal would result in further injury to the turtle. No attempt should be made to remove a hook if it has been swallowed, or if it is determined that removal would result in further injury. If the hook cannot be removed and/or if the animal is entangled, as much line as possible must be removed prior to release, using an approved line cutter from the list specified in paragraph (c)(2)(vii)(D) of this section. If the hook can be removed, it must be removed using a long-handled dehooker from the initial list specified in paragraph (c)(2)(vii)(D) of this section. Without causing further injury, as much gear as possible must be removed from the turtle prior to its release. Refer to the careful release protocols and handling/release guidelines required in paragraph (c)(2)(vii)(C) of this section, and the handling and resuscitation requirements specified in § 223.206(d)(1) of this title, for additional information.
(3)
(i)
(ii)
(iii)
(iv)
(v)
(A) The usefulness of information on catch obtained from observers, logbooks, VMS reporting, and dealer reports;
(B) The species caught; number of animals caught; rate of catch and animal length, weight, condition, and location;
(C) Variations in the seasonal distribution, abundance, or migration patterns of a bycatch or target species;
(D) Condition or status of the stock or species of concern and impacts of continued access to the closed area on all species;
(E) Catch data on comparable species from outside the closed area (both target species and bycatch);
(F) Implications on quota management of relevant stocks;
(G) Relevant data regarding the effectiveness of other closed areas and their individual or cumulative impacts in relation to the objectives of the closed areas, and the 2006 Consolidated HMS FMP; and
(H) The criteria listed under § 635.27(a)(8).
(vi)
(B) When the General category is open per § 635.28(a), and provided no pelagic longline gear is on board, vessels determined to be “not qualified” using the performance metrics described in § 635.14 may target bluefin tuna with gear authorized under the General category per § 635.19(b)(3) within the Cape Hatteras gear restricted area. Vessels fishing pursuant to this provision are subject to the bluefin tuna retention limits in effect for the General category under § 635.23(a). Bluefin tuna landed with authorized handgear would be counted against the General category quota. Such vessels would be required to “declare in” to the area via VMS and report species caught and effort daily via VMS per the requirements of § 635.69 of this part.
(4) In the Gulf of Mexico, pelagic longline gear may not be fished or deployed from a vessel issued or required to have a permit under this part with live bait affixed to the hooks; and, a person aboard a vessel issued or required to have a permit under this part that has pelagic longline gear on board may not possess live baitfish, maintain live baitfish in any tank or well on board the vessel, or set up or attach an aeration or water circulation device in or to any such tank or well. For the purposes of this section, the Gulf of Mexico includes all waters of the U.S. EEZ west and north of the boundary stipulated at 50 CFR 600.105(c).
(5) The operator of a vessel permitted or required to be permitted under this part and that has pelagic longline gear on board must undertake the following sea turtle bycatch mitigation measures:
(i)
(A)
(
(
(B)
(
(
(C)
(
(
(D)
(
(
(E)
(
(
(F)
(G)
(
(
(H)
(
(
(I)
(J)
(K)
(L)
(
(
(
(
(
(
(
(M)
(
(
(ii)
(B)
(
(
(
(
(
(C)
(
(
(
(iii)
(A)
(B)
(
(
(
(
(
(iv)
(d)
(i) The mid-Atlantic shark closed area from January 1 through July 31 each calendar year;
(ii) The areas designated at § 622.33(a)(1) through (3) of this chapter, year-round; and
(iii) The areas described in paragraphs (d)(1)(iii)(A) through (H) of this section, year-round.
(A)
(B)
(C)
(D)
(E)
(F)
(G)
(H)
(2) The operator of a vessel required to be permitted under this part and that has bottom longline gear on board must undertake the following bycatch mitigation measures to release sea turtles, prohibited sharks, or smalltooth sawfish, as appropriate.
(i)
(ii)
(3) If a vessel issued or required to be issued a permit under this part is in a closed area designated under paragraph (d)(1) of this section and has pelagic longline gear onboard, the vessel may not, at any time, possess or land any demersal species listed in Table 3 of Appendix A to this part in excess of 5 percent, by weight, of the total weight of pelagic and demersal species possessed or landed, that are listed in Tables 2 and 3 of Appendix A to this part.
(e)
(2)
(f)
(g)
(2) While fishing with a gillnet for or in possession of any of the large coastal, small coastal, and pelagic sharks listed in section A, B, and/or C of table 1 of appendix A of this part, the gillnet must remain attached to at least one vessel at one end, except during net checks.
(3) Vessel operators fishing with gillnet for, or in possession of, any of the large coastal, small coastal, and pelagic sharks listed in sections A, B, and/or C of table 1 of appendix A of this part are required to conduct net checks every 0.5 to 2 hours to look for and remove any sea turtles, marine mammals, or smalltooth sawfish. Smalltooth sawfish should not be removed from the water while being removed from the net.
(h)
(i)
(j)
(d)
(f)
(1)
(ii) A vessel with pelagic longline gear onboard must retain all dead bluefin tuna that are 73 inches or greater CFL.
(2)
The revisions and additions read as follows:
(a)
(1)
(A) January 1 through the effective date of a closure notice filed by NMFS announcing that the January subquota is reached, or projected to be reached under § 635.28(a)(1), or until March 31, whichever comes first—5.3 percent (21.4 mt ww);
(B) June 1 through August 31—50 percent (201.5 mt ww);
(C) September 1 through September 30—26.5 percent (106.8 mt ww);
(D) October 1 through November 30—13 percent (52.4 mt ww); and
(E) December 1 through December 31—5.2 percent (21 mt ww).
(ii) NMFS may adjust each period's apportionment based on overharvest or underharvest in the prior period, and may transfer subquota from one time period to another time period, earlier in the year, through inseason action or annual specifications. For example, subquota could be transferred from the June 1 through August 31 time period to the January time period; or from the October 1 through November 30 time period to the September time period.
(iii) When the General category fishery has been closed in any quota period specified under paragraph (a)(1)(i) of this section, NMFS will publish a closure action as specified in § 635.28. The subsequent time-period subquota will automatically open in accordance with the dates specified under paragraph (a)(1)(i) of this section.
(2)
(i) After adjustment for the school bluefin tuna quota held in reserve (under paragraph (a)(7)(ii) of this section), 52.8 percent (40.8 mt ww) of the school bluefin tuna Angling category quota may be caught, retained, possessed, or landed south of 39°18′ N. lat. The remaining school bluefin tuna Angling category quota (36.5 mt ww) may be caught, retained, possessed or landed north of 39°18′ N. lat.
(ii) An amount equal to 52.8 percent (36.9 mt ww) of the large school/small medium bluefin tuna Angling category quota may be caught, retained, possessed, or landed south of 39°18′ N. lat. The remaining large school/small medium bluefin tuna Angling category quota (32.9 mt ww) may be caught, retained, possessed or landed north of 39°18′ N. lat.
(iii) One third (1.3 mt ww) of the large medium and giant bluefin tuna angling category quota may be caught retained, possessed, or landed, in each of the three following geographic areas: (1) North of 39° 18′ N. lat.; (2) south of 39° 18′ N. lat., and outside of the Gulf of Mexico; and (3) in the Gulf of Mexico. For the purposes of this section, the Gulf of Mexico region includes all waters of the U.S. EEZ west and north of the boundary stipulated at 50 CFR § 600.105(c).
(3)
(4) * * *
(i) The total amount of large medium and giant bluefin tuna that may be caught, retained, possessed, or landed by vessels that possess Purse Seine category Atlantic Tunas permits is 159.1 mt ww, unless changed pursuant to the provisions of paragraph (4)(v). The directed purse seine fishery for bluefin tuna commences on June 1 of each year, unless NMFS takes action to delay the season start date. Based on cumulative and projected landings in other commercial fishing categories, and the potential for gear conflicts on the fishing grounds or market impacts due to oversupply, NMFS may delay the bluefin tuna purse seine season start date from June 1 to no later than August 15, by filing an adjustment action with the Office of the Federal Register for publication. The Purse Seine category fishery closes on December 31 of each year.
(iii) Annually, NMFS will make equal allocations of the available size classes of bluefin tuna among purse seine vessel owners so requesting, adjusted as necessary to account for underharvest or overharvest by each participating vessel or the vessel it replaces from the previous fishing year, consistent with paragraphs (a) introductory text, (a)(4)(v), and (a)(10)(i) of this section. Such allocations are freely transferable, in whole or in part, among vessels that have Purse Seine category Atlantic Tunas permits. Any purse seine vessel owner intending to land bluefin tuna under a bluefin tuna quota allocation transferred from another purse seine vessel owner must lease that allocation through the Individual Bluefin Quota Allocation Leasing Program procedures at § 635.15(c)(3). Trip or seasonal catch limits otherwise applicable under § 635.23(e) are not affected by transfers of bluefin tuna allocation. Purse seine vessel owners who, through landing and/or transfer, have no remaining bluefin tuna quota allocation may not use their permitted vessels in any fishery in which Atlantic bluefin tuna might be caught, regardless of whether bluefin tuna are retained, unless such vessel owners lease additional allocation through the Individual Bluefin Quota Allocation Leasing Program.
(v)
(5)
(6)
(7)
(8) * * *
(x) Optimize fishing opportunity.
(xi) Account for dead discards.
(xii) Facilitate quota accounting.
(xiii) Support other fishing monitoring programs through quota allocations and/or generation of revenue.
(xiv) Support research through quota allocations and/or generation of revenue.
(e)
(2)
(a)
(2) From the commencement date of the directed purse seine fishery, as provided under § 635.27(a)(4)(i), through December 31, the owner or operator of a vessel that has been allocated a portion of the Purse Seine category quota under § 635.27(a)(4), or leased bluefin tuna quota allocation under § 635.15(c), may fish for bluefin tuna. Such vessel may be used to fish for yellowfin, bigeye, albacore, or skipjack tuna at any time, however, landings of bluefin tuna taken incidental to fisheries targeting other Atlantic tunas or in any fishery in which bluefin tuna might be caught will be deducted from the individual vessel's quota for the following bluefin tuna fishing season. Upon reaching its individual vessel allocation of bluefin tuna, the vessel may not participate in a directed purse seine fishery for Atlantic tunas or in any fishery in which bluefin tuna might be caught for the remainder of the fishing year.
(4) When the bluefin tuna Longline category quota is reached, projected to be reached, or exceeded, or when there is high uncertainty regarding the estimated or documented levels of bluefin tuna catch, NMFS will file a closure action with the Office of the Federal Register for publication. On and after the effective date and time of such action, for the remainder of the fishing year or for a specified period as indicated in the closure action, vessels that have been issued or are required to have a limited access permit under § 635.4 of this part and that have pelagic longline gear onboard are prohibited from leaving port, regardless of the amount of bluefin tuna quota allocation remaining to each vessel or the amount of fishery quota remaining for other species. In addition to providing notice in the
(i) Total estimated bluefin tuna catch (landings and dead discards) in relation to the quota;
(ii) The estimated amount by which the bluefin tuna quota might be exceeded;
(iii) The usefulness of data relevant to monitoring the quota;
(iv) The uncertainty in the documented or estimated dead discards or landings of bluefin tuna;
(v) The amount of bluefin tuna landings or dead discards within a short time;
(vi) The effects of continued fishing on bluefin tuna rebuilding and overfishing;
(vii) The provision of reasonable opportunity for pelagic longline vessels to pursue the target species;
(viii) The variations in seasonal distribution, abundance or migration patterns of bluefin tuna; and
(viii) Other relevant factors.
(b)
(c) * * *
(3)
(d)
(a) * * *
(1) A person that owns or operates a vessel from which an Atlantic tuna is landed or offloaded may sell such Atlantic tuna only if that vessel has a valid HMS Charter/Headboat permit; a valid General, Harpoon, Longline, Purse Seine, or Trap category permit for Atlantic tunas; or a valid HMS Commercial Caribbean Small Boat permit issued under this part and the appropriate category has not been closed, as specified at § 635.28(a). However, no person may sell a bluefin tuna smaller than the large medium size class. Also, no large medium or giant bluefin tuna taken by a person aboard a vessel with an Atlantic HMS Charter/Headboat permit fishing in the Gulf of Mexico at any time, or fishing outside the Gulf of Mexico when the fishery under the General category has been closed, may be sold (see § 635.23(c)). A person may sell Atlantic bluefin tuna only to a dealer that has a valid permit for purchasing Atlantic bluefin tuna issued under this part. A person may not sell or purchase Atlantic tunas harvested with speargun fishing gear.
(2) Dealers may purchase Atlantic tunas only from a vessel that has a valid commercial permit for Atlantic tunas issued under this part in the appropriate category and the appropriate category has not been closed, as specified at § 635.28(a).
(i) Dealers may purchase Atlantic bluefin tuna only from a vessel that has a valid Federal commercial permit for Atlantic tunas issued under this part in the appropriate category. Vessel owners and operators of vessels that have been issued an Atlantic Tunas Longline category permit can sell bluefin tuna and dealers can purchase bluefin tuna from such vessels only if the Longline category is open, per § 635.28(a)(4) and if:
(A) The vessel has met the minimum quota allocation and accounting requirements at § 635.15 for vessels departing on a trip with pelagic longline gear onboard; or
(B) The vessel has removed pelagic longline gear from the vessel and fished in the Cape Hatteras gear restricted area under General Category rules, as specified at §§ 635.15 and 635.69.
(ii) Dealers may first receive BAYS tunas only if they have submitted reports to NMFS according to reporting requirements at § 635.5(b)(1)(ii) and only from a vessel that has a valid Federal commercial permit for Atlantic tunas issued under this part in the appropriate category. Vessel owners and operators of vessels that have been issued an Atlantic Tunas Longline category permit can sell BAYS tunas and dealers can purchase BAYS tunas from such vessels only if the Longline category is open per § 635.28(a)(4). Individuals issued a valid HMS Commercial Caribbean Small Boat permit, and operating in the U.S. Caribbean as defined at § 622.2, may sell their trip limits of BAYS tunas, codified at § 635.24(c), to dealers and non-
(c) * * *
(1) Persons that own or operate a vessel that possesses a shark from the management unit may sell such shark only if the vessel has a valid commercial shark permit issued under this part. Persons may possess and sell a shark only to a federally-permitted dealer and only when the fishery for that species group and/or region has not been closed, as specified in § 635.28(b). Persons that own or operate a vessel that has pelagic longline gear onboard can only possess and sell a shark if the bluefin tuna Longline category has not been closed, as specified in § 635.28(a)(4).
(4) Only dealers that have a valid a Federal Atlantic shark dealer permit and who have submitted reports to NMFS according to reporting requirements at § 635.5(b)(1)(ii) may first receive a shark from an owner or operator of a vessel that has, or is required to have, a valid federal Atlantic commercial shark permit issued under this part. Atlantic shark dealers may purchase, trade for, barter for, or receive a shark from an owner or operator of a vessel that does not have a federal Atlantic commercial shark permit if that vessel fishes exclusively in state waters. Atlantic shark dealers may first receive a sandbar shark only from an owner or operator of a vessel who has a valid shark research permit and who had a NMFS-approved observer on board the vessel for the trip in which the sandbar shark was collected. Atlantic shark dealers may first receive a shark from an owner or operator of a fishing vessel that has a permit issued under this part only when the fishery for that species group and/or region has not been closed, as specified in § 635.28(b). Atlantic shark dealers may first receive a shark from a vessel that has pelagic longline gear onboard only if the bluefin tuna Longline category has not been closed, as specified in § 635.28(a)(4).
(d) * * *
(1) Persons that own or operate a vessel on which a swordfish in or from the Atlantic Ocean is possessed may sell such swordfish only if the vessel has a valid commercial permit for swordfish issued under this part. Persons may offload such swordfish only to a dealer who has a valid permit for swordfish issued under this part; except that individuals issued a valid HMS Commercial Caribbean Small Boat permit, and operating in the U.S. Caribbean as defined at § 622.2, may sell swordfish, as specified at § 635.24(b)(3), to non-dealers. Persons that own or operate a vessel that has pelagic longline gear onboard, can only possess and sell a swordfish if the bluefin tuna Longline category has not been closed, as specified in § 635.28(a)(4).
(2) Atlantic swordfish dealers may first receive a swordfish harvested from the Atlantic Ocean only from an owner or operator of a fishing vessel that has a valid commercial permit for swordfish issued under this part and only if the dealer has submitted reports to NMFS according to reporting requirements of § 635.5(b)(1)(ii). Atlantic swordfish dealers may first receive a swordfish from a vessel that has pelagic longline gear onboard only if the bluefin tuna Longline category has not been closed, as specified in § 635.28(a)(4).
The revisions read as follows:
(a) NMFS may adjust the quota shares or allocations for bluefin tuna, as specified in § 635.15; catch limits for bluefin tuna, as specified in § 635.23; the quotas for bluefin tuna, shark, swordfish, and northern albacore tuna as specified in § 635.27; the regional retention limits for Swordfish General Commercial permit holders, as specified at § 635.24; the marlin landing limit, as specified in § 635.27(d); and the minimum sizes for Atlantic blue marlin, white marlin, and roundscale spearfish as specified in § 635.20.
(b) In accordance with the framework procedures in the Highly Migratory Species Fishery Management Plan, NMFS may establish or modify for species or species groups of Atlantic HMS the following management measures: maximum sustainable yield or optimum yield based on the latest stock assessment or updates in the SAFE report; domestic quotas; recreational and commercial retention limits, including target catch requirements; size limits; fishing years or fishing seasons; shark fishing regions or regional quotas; species in the management unit and the specification of the species groups to which they belong; species in the prohibited shark species group; classification system within shark species groups; permitting and reporting requirements; workshop requirements; Atlantic tunas Purse Seine category cap on bluefin tuna quota; the quota shares or allocations for bluefin tuna; administration of the IBQ program (e.g. requirements pertaining to leasing of quota allocations, regional or minimum quota share requirements, etc.); time/area restrictions; allocations among user groups; gear prohibitions, modifications, or use restriction; effort restrictions; observer coverage requirements; essential fish habitat; and actions to implement ICCAT recommendations, as appropriate.
(d) When considering a framework adjustment to add, change, or modify time/area closures, gear restricted areas, or access to a closed area, NMFS will consider, consistent with the FMP, the Magnuson-Stevens Act, and other applicable law, but is not limited to, the following criteria: any Endangered Species Act related issues, concerns, or requirements, including applicable BiOps; bycatch rates of protected species, prohibited HMS, or non-target species both within the specified or potential closure area(s) and throughout the fishery; bycatch rates and post-release mortality rates of bycatch species associated with different gear types; new or updated landings, bycatch, and fishing effort data; evidence or research indicating that changes to fishing gear and/or fishing practices can significantly reduce bycatch; social and economic impacts; and the practicability of implementing new or modified closures compared to other bycatch reduction options. If the species is an ICCAT managed species, NMFS will also consider the overall effect of the U.S.'s catch on that species before implementing time/area closures, gear restricted areas, or access to closed areas.
(a)
(1) Whenever the vessel is away from port with pelagic longline or purse seine gear on board;
(4) A vessel is considered to have pelagic or bottom longline gear on board, for the purposes of this section, when the gear components as specified at § 635.2 are on board. A vessel is considered to have gillnet gear on board, for the purposes of this section, when gillnet, as defined in § 600.10, is on board a vessel that has been issued a shark LAP. A vessel is considered to have purse seine gear on board, for the purposes of this section, when the gear as defined at § 600.10 is onboard a vessel that has been issued an Atlantic tunas Purse Seine Category permit.
(e) * * *
(4)
(ii)
(iii)
The revisions and additions read as follows:
(a) * * *
(14) Fail to install, activate, repair, or replace a NMFS-approved E–MTU vessel monitoring system prior to leaving port with pelagic longline gear, bottom longline gear, gillnet gear, or purse seine gear on board the vessel as specified in § 635.69.
(19) Utilize secondary gears as specified in § 635.19(a) to capture, or attempt to capture, any undersized or free swimming Atlantic HMS, or fail to release a captured Atlantic HMS in the manner specified in § 635.21(a).
(23) Fail to comply with the restrictions on use of pelagic longline, bottom longline, gillnet, buoy gear, speargun gear, or green-stick gear as specified in § 635.21.
(31) Deploy or fish with any fishing gear from a vessel with a pelagic longline on board in any closed or gear restricted areas during the time period specified at § 635.21(c) except under the conditions listed at § 635.21 (c)(3).
(33) Deploy or fish with any fishing gear from a vessel with pelagic or bottom longline gear on board without carrying the required sea turtle bycatch mitigation gear, as specified at § 635.21(c)(5)(i) for pelagic longline gear and § 635.21(d)(2) for bottom longline gear. This equipment must be utilized in accordance with § 635.21(c)(5)(ii) and (d)(2) for pelagic and bottom longline gear, respectively.
(34) Fail to disengage any hooked or entangled sea turtle with the least harm possible to the sea turtle as specified at § 635.21 (c)(5) or (d)(2).
(40) Deploy or fish with any fishing gear, from a vessel with bottom longline gear on board, without carrying a dipnet, line clipper, and dehooking device as specified at § 635.21(d)(2).
(57) Fail to appropriately stow longline gear when transiting a closed or gear restricted area, as specified in § 635.21(b)(2).
(58) Depart on a fishing trip or deploy or fish with any fishing gear from a vessel with a pelagic longline on board in a closed or gear restricted area per the exemptions at § 635.21(c)(3) without an observer on board, as specified at § 635.21(c)(3)(ii), or without following the VMS requirements, as specified at §§ 635.21(c)(3)(iii) and 635.69(e).
(59) Fish for, retain, possess, or land any HMS from a vessel with a pelagic
(60) Buy, trade, or barter for any HMS from a vessel with a pelagic longline on board when the Atlantic Tunas Longline category fishery is closed, as specified in § 635.31(a)(2), (c), and (d).
(b) * * *
(5) Fail to report a large medium or giant bluefin tuna that is not sold, as specified in § 635.5(a)(3), or fail to report a bluefin tuna that is sold, as specified in § 635.5(a)(4).
(7) Fish for, catch, retain, or possess a bluefin tuna with gear not authorized for the category permit issued to the vessel or to have such gear on board when in possession of a bluefin tuna, as specified in § 635.19(b).
(8) Fail to request an inspection of a purse seine vessel, as specified in § 635.21(e)(2).
(13) As a vessel with a General category Atlantic tuna permit, fail to immediately cease fishing and immediately return to port after catching the applicable limit of large medium or giant bluefin tuna on a commercial fishing day, as specified in § 635.23(a)(3).
(23) Fish for, catch, possess, or retain a bluefin tuna except as specified under § 635.23(f), or if taken incidental to recreational fishing for other species and retained in accordance with § 635.23(b) and (c).
(36) Possess J-hooks onboard a vessel that has pelagic longline gear onboard, and that has been issued, or is required to have, a limited access swordfish, shark, or tuna longline category permit for use in the Atlantic Ocean, including the Caribbean Sea and the Gulf of Mexico, except when green-stick gear is onboard, as specified at § 635.21(c)(2)(vii)(A) and (c)(5)(iii)(C)(
(38) Possess more than 20 J-hooks onboard a vessel that has been issued, or is required to have, a limited access swordfish, shark, or tuna longline category permit for use in the Atlantic Ocean, including the Caribbean Sea and the Gulf of Mexico, when possessing onboard both pelagic longline gear and green-stick gear as defined at § 635.2.
(41) Fish within the Cape Hatteras gear restricted area under General category rules with a pelagic longline on board, as specified in § 635.21(c)(3)(vi)(B), or fail to abide by all applicable General category rules including those specified under § 635.23(a).
(42) As the owner or operator of a vessel issued a limited access permit that has removed pelagic longline gear from the vessel, depart on a fishing trip or fish within Cape Hatteras gear restricted area under General Category rules without following the VMS requirements, as specified in § 635.69(e)(5).
(43) Fish for, retain, possess, or land albacore tuna when the fishery is closed, as specified in § 635.28(d).
(44) Buy, purchase, trade, or barter for albacore tuna when the fishery is closed, as specified in § 635.31(a)(2)(ii).
(45) Fail to report bluefin tuna retained, bluefin tuna discarded, and total fishing effort via a vessel monitoring system while away from port when pelagic longline gear is on board or when a vessel issued an Atlantic tunas Longline category permit is in the Cape Hatteras gear restricted area fishing under the General category rules without pelagic longline gear on board, as specified in § 635.69(e).
(46) Deploy or fish with any fishing gear from a vessel with a pelagic longline on board that does not have an approved and working electronic monitoring system as specified in § 635.9; tamper with, or fail to install, operate or maintain one or more components of the electronic monitoring system; obstruct the view of the camera(s); or fail to handle bluefin tuna in a manner that allows the camera to record the fish; as specified in § 635.9.
(47) Depart on a fishing trip or deploy or fish with any fishing gear from a vessel with a pelagic longline on board without a minimum amount of bluefin tuna quota allocation available for that vessel, as specified in § 635.15(b)(3).
(48) Depart on a fishing trip or deploy or fish with any fishing gear from a vessel with a pelagic longline on board without accounting for bluefin caught on a previous trip as specified in § 635.15(b)(4), or accounting for bluefin caught during a previous fishing year, as specified in as specified in § 635.15(b)(5), as applicable.
(49) Lease bluefin quota allocation to or from the owner of a vessel not issued a valid Atlantic Tunas Longline permit or a valid Atlantic Tunas Purse Seine permit as specified under § 635.15(c)(1).
(50) Fish in the Gulf of Mexico with pelagic longline gear on board if the vessel has only IBQ designated as Atlantic quota allocation, as specified under § 635.15(b)(2).
(51) Depart on a fishing trip or deploy or fish with any fishing gear from a vessel with a pelagic longline on board in the Gulf of Mexico, without a minimum amount of GOM designated bluefin tuna quota allocation available for that vessel, as specified in § 635.15(b)(3).
(52) If leasing bluefin quota allocation, fail to provide all required information on the application, as specified under § 635.15(c)(2).
(53) Lease bluefin quota allocation in an amount that exceeds the amount of bluefin allocation associated with the lessor, as specified under § 635.15(c)(2).
(54) Sell quota share, as specified under § 635.15(d).
(c) * * *
(1) As specified in § 635.19(c), retain a billfish harvested by gear other than rod and reel, or retain a billfish on board a vessel unless that vessel has been issued an Atlantic HMS Angling or Charter/Headboat permit or has been issued an Atlantic Tunas General category permit and is participating in a tournament in compliance with § 635.4(c).
(7) Deploy a J-hook or an offset circle hook in combination with natural bait or a natural bait/artificial lure combination when participating in a tournament for, or including, Atlantic billfish, as specified in § 635.21(f).
(d) * * *
(12) Fish for Atlantic sharks with unauthorized gear or possess Atlantic sharks on board a vessel with unauthorized gear on board as specified in § 635.19(d).
(13) Fish for Atlantic sharks with a gillnet or possess Atlantic sharks on board a vessel with a gillnet on board, except as specified in § 635.21(g).
(e) * * *
(8) Fish for North Atlantic swordfish from, possess North Atlantic swordfish on board, or land North Atlantic swordfish from a vessel using or having on board gear other than pelagic longline, green-stick gear, or handgear, except as specified at § 635.19(e).
(11) As the owner of a vessel permitted, or required to be permitted, in the swordfish directed, swordfish handgear limited access permit category, or issued a valid HMS Commercial Caribbean Small Boat permit and utilizing buoy gear, to possess or deploy more than 35 individual floatation devices, to deploy more than 35 individual buoy gears per vessel, or to deploy buoy gear without
(16) Possess any HMS, other than Atlantic swordfish, harvested with buoy gear as specified at § 635.19 unless issued a valid HMS Commercial Caribbean Small Boat permit and operating within the U.S. Caribbean as defined at § 622.2.
(18) As the owner of a vessel permitted, or required to be permitted, in the Swordfish General Commercial permit category, possess North Atlantic swordfish taken from its management unit by any gear other than rod and reel, handline, bandit gear, green-stick, or harpoon gear, as specified in § 635.19 (e).